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

FORM 10-K

Commission file number 33-97090

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

        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 ý    No o

        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.    ý

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

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o    No ý

        ACG Holdings, Inc. has 163,929 shares outstanding of its common stock, $.01 Par Value, as of May 31, 2003 (all of which are privately owned and not traded on a public market).

        DOCUMENTS INCORPORATED BY REFERENCE
None

INDEX

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," "intends," "expects," "may," "will," "estimates," "should," "could," "anticipates," "plans," or other comparable terms. Forward-looking statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially from those described in the forward-looking statements as a result of many factors outside the control of ACG Holdings, Inc. ("Holdings"), together with its wholly-owned subsidiary, American Color Graphics, Inc. ("Graphics"), including, but not limited to:

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



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



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changes in the advertising and print markets,



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actions by our competitors, particularly with respect to pricing,



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the financial condition of our customers,



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downgrades of our credit ratings,



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our financial condition and liquidity and our leverage and debt service obligations,



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the general condition of the United States economy,



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interest rate and foreign currency exchange rate fluctuations,



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the level of capital resources required for our operations,



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changes in the legal and regulatory environment,



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demand for our products and services, and



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

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

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

ITEM 1. BUSINESS

        We are one of the leading printers of advertising inserts and newspaper products in the United States developed from a business that commenced operations in 1926. We believe our success is a result of the strong and longstanding relationships that we have developed with our customers by providing high quality, on-time and consistent solutions and our national footprint, which provides distribution efficiencies and shorter turnaround times. Customers for our print services include approximately 245 national and regional retailers and 185 newspapers. For the fiscal year ended

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March 31, 2003 ("Fiscal Year 2003"), our top five print customers based on revenue were The Home Depot, Menards, Best Buy, Kohl's Department Stores and Wal-Mart.

        We are also one of the most technologically advanced providers of premedia services in the United States. Our premedia services segment, American Color, provides our customers with a complete solution for the preparation and management of materials for printing, including the capture, manipulation, transmission and distribution of images.

Industry Overview

        The printing industry in the United States consists of a broad range of segments, including commercial printing, newspapers, advertising inserts, direct mail, packaging, books, comics, magazines, catalogs, labels, forms and directories. In 2002, overall expenditures on printing in the United States exceeded $140 billion, according to the Graphic Arts Marketing Information Services, or GAMIS, a special industry group of the Printing Industries of America. A significant portion of the revenues in the U. S. printing industry result from expenditures on advertising. In 2001, the U.S. advertising industry experienced its first year-over-year decline since the mid-1940's. This decline came primarily as a result of the slowdown in the U.S. economy, the reduction in spending by Internet and other technology companies and the terrorist attacks of September 11, 2001. In 2002, overall U. S. advertising spending began to recover with an increase of 2.6% to $237 billion from the reduced levels of $231 billion in 2001. Although there can be no assurance that the growth experienced in 2002 will continue, we expect that our results will be favorably impacted by a further strengthening in advertising spending.

        Advertising Inserts.    Our principal focus is on the printing of retail advertising inserts. In Fiscal Year 2003 and in fiscal year ended March 31, 2002 ("Fiscal Year 2002"), retail advertising inserts accounted for 87% of our total print segment sales and in the fiscal year ended March 31, 2001 ("Fiscal Year 2001"), accounted for 86% of our total print segment sales. U. S. advertising spending has increased in the past 20 out of the past 21 years. Kubas Consultants, a market research and consultant firm, estimates that the volume of printed advertising inserts grew from approximately $104 billion in 1992 to approximately $142 billion in 2002, as shown in the graph below. This represents a compound annual growth of 3.1%. In 2002, we believe the spending on advertising inserts was $5.4 billion compared to $3.5 billion in 1992. We believe that very little net new production capacity has been added in the United States in the last three years.

        We believe that one of the key reasons for the significant use and growth of advertising inserts derives from the cost-effectiveness of this approach for merchants. According to Customer Concepts Inc., or CCI, an independent advertising industry research organization, advertising inserts influence buying decisions more than any other medium, including television and magazines. Overall, CCI estimates that in 2002, 86% of adults read advertising inserts, which represents an increase of five percentage points from 81% in 2000. Newspapers derive significant advertising revenue from the

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insertion and delivery of advertising inserts according to the Newspaper Association of America, or NAA.

        Over the past decade, customers in the advertising insert segment of the print industry, particularly large customers with a national presence, have increasingly demanded broader distribution capabilities, higher quality and greater flexibility from print service providers. This demand has resulted in two major trends in the advertising insert segment. The first of these trends is consolidation among printers. We estimate that seven companies accounted for approximately 79% of the revenues generated in this segment in 2002.

        The second major trend in the advertising insert segment has been a shift toward heatset offset, and away from coldset offset, printing technology. Heatset offset has become the dominant technology for printing advertising inserts due to its reliability, high print quality and flexibility. The plates on the heatset offset presses can be changed quickly and easily to enable the printing of many different versions of the same advertising insert, something that large national customers increasingly demand. In addition to these two trends, a third change in the market is the increasing interest of newspapers to outsource their commercial printing, inserting and product mailings. As a result of these trends, we believe that the key factors for success in the advertising insert segment of the printing industry are price, quality, reliability, national presence and proximity to customers' target markets, as well as strong customer service capabilities that foster lasting relationships.

        Premedia Services.    Premedia services consist of a number of necessary steps in the production and management of materials for printing, including the design creation and capture, manipulation, transmission and distribution of images, the majority of which leads to the production of a four-color image in a format appropriate for use by printers. We estimate that spending on premedia services in 2002 was approximately $7 billion.

        Unlike the advertising insert segment of the printing industry, the premedia services segment remains highly fragmented, with approximately 1,500 service providers and many in-house departments at larger retailers. We estimate that the top eight companies account for just 21% of the revenues generated in the premedia services segment. We believe that premedia services are increasingly becoming a part of the total mix of services that print customers demand, and most of our major competitors in the print segment offer premedia services. We believe that the key factors for success in the premedia services segment are the ability to provide comprehensive services, including both print services and managed premedia services, as well as technology leadership, which enhances customer loyalty and helps establish new print customer relationships.

Competitive Strengths

        We believe our continued success, strong customer relationships and leading market position are primarily the result of the following competitive strengths:

        Leading Provider of Print Solutions to Our Customers.    We believe our success in serving our customers results primarily from the strong relationships that we have developed with them by providing high quality print and premedia services solutions at competitive prices. We take a proactive approach in adapting our offerings to the specific needs of our customers. For instance, in our print segment, we recently acquired five printing presses and repositioned seven existing presses to ensure that we could continue to provide high quality service in the most cost effective regions for our key customers. We also provide our print customers with comprehensive post-press services, such as mailing and freight management. In our premedia services segment, we believe that we are one of a small number of companies that can provide a full range of premedia services, and we use those capabilities to support our print sales. We also manage 11 facilities for customers at their offices, which enable us to develop strong relationships with them. We believe that our commitment to technology leadership

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and our willingness to customize and improve our solutions for our customers significantly enhance our ability to develop and maintain lasting relationships.

        Strong, Diverse Customer Base.    The core of our customer base consists of growing, national companies with whom we have strong, long-standing relationships. We also have a broad customer base consisting of geographically diverse companies in a wide variety of industries. We provide printing services to 185 newspapers and approximately 245 national and regional retailers, including hardware and home improvement retailers such as The Home Depot, electronics and appliance retailers such as Best Buy, general merchandisers such as Wal-Mart, drug store chains such as Eckerd, grocery chains such as Jewel Foods, and clothing retailers such as Kohl's Department Stores. We have worked with our top ten customers for Fiscal Year 2003 for more than 12 years on average. None of these customers represent more than 10% of our sales. We believe that the quality of our credit review process and our aggressive management of our receivables has resulted in low customer write-offs as a percentage of sales. In addition, many of our print customers also use our premedia services. Overall, the customers of our premedia services segment are diverse and include large- and medium-sized companies in the retail, publishing, catalog and packaging industries.

        High Quality Assets and Investments in Technology.    We believe that our 48 web heatset offset, 11 flexographic printing and two coldset offset presses are generally among the most advanced in the industry. Through our proactive, comprehensive maintenance program, we are committed to extending the life and enhancing the reliability of these valuable assets. We also strive to incorporate new technology in our presses as it develops, and to acquire auxiliary equipment when needed, to improve our process controls and print quality, as well as to satisfy customer requirements. For example, our continued investment in pre-press, in-line and post-press technology has enabled us to strengthen existing, and develop new, partnerships with our customers. In the premedia services segment, customers are continuously seeking ways to shorten their production cycles and reduce their costs. We believe that our equipment and software are among the most advanced available and position us well to address these requirements. We continuously strive to upgrade our equipment and integrate or develop more advanced software. For example, we recently began offering our ColorSpace™ suite of services, which provides our customers with better control of color, increased process control, shorter time to market and lower production costs.

        National Footprint.    In our print division, we believe our eight printing plants in the United States and one plant in Canada form a broad and efficient production and distribution network. These plants are located within convenient distribution distance of most major cities in the United States. Over the last year, we restructured our print operations by acquiring five printing presses and repositioning seven other existing presses. The completion of this restructuring has enhanced our production and distribution network's flexibility, turnaround times and logistical capabilities, allowing us to better distribute print products nationally in a timely manner. These qualities have been and are instrumental to our continued success in serving our customers, whose demands are increasingly complex. For instance, a number of our national customers routinely use numerous versions of the same advertising insert, which are adapted by region of the country. By coupling the flexibility of our heatset offset presses with our national footprint and our logistical capabilities, we have become one of the few printers that can reliably meet the demands of our customers. In our premedia services division, we believe that our six facilities allow us to provide strong customer service nationwide. They also provide us with access to highly skilled technical personnel, provide redundancy and extra capacity during peak periods and allow for short turnaround times.

        Competitive Cost Structure.    We believe that we are one of the lowest cost producers of retail advertising inserts, and we intend to continue to reduce our operating costs. In our print business, we have reduced and are continuing to reduce the variable and fixed costs of production at our print facilities. Over the last 2 years, we have closed one print facility and reduced headcount in our print

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segment by 135 while increasing our overall capacity. We have also used our economies of scale to reduce the cost of raw materials and enter into long-term agreements with our suppliers. In our premedia services business, we have reduced and are continuing to reduce manufacturing costs and selling, general and administrative expenses primarily through the application of certain digital premedia production methodologies, facility consolidation and continued cost containment.

        Strong Management Team.    The ten members of our senior management team collectively have approximately 120 years of service with us. Stephen M. Dyott, our Chairman and Chief Executive Officer, Patrick W. Kellick, our Chief Financial Officer, Timothy M. Davis, our Senior Vice President, Administration and General Counsel, Larry R. Williams, our Executive Vice President, Purchasing, Joseph M. Milano, our Executive Vice President, Retail and Newspaper Operations, Stuart R. Reeve, our President, Retail and Newspaper Services, and Kathleen A. DeKam, our President of American Color, have worked together for us as a team for over ten years. Our management team maintains a sharp focus on our customers, growth, quality and continued cost reduction, resulting in a strong competitive position and a well-defined strategy for future growth and increased cash flow.

Our Strategy

        We are committed to enhancing the strong and longstanding relationships that we have with our existing customers and to building relationships with new customers by providing high quality, on-time and consistent solutions. As we work to meet our customers' needs we are also committed to further reducing our operating costs. We believe that our focus on customers and costs will enable us to grow our revenues, improve our margins and increase our cash flow. More specifically, our strategy consists of:

        Growing Print Volumes Profitably through the Strength of our Customer Relationships.    A significant number of our major customers are growing companies with rising budgets for retail advertising inserts. We are committed to growing with our existing customers and adding new ones on a profitable basis. We will continue to focus on providing excellent customer service, high quality print and premedia services solutions and reliable delivery of materials, all of which strengthen our customer relationships. We are also actively pursuing long-term printing arrangements similar to the ones we have recently entered into.

        Improving Customer and Service Mix.    We expect to continue to adjust the mix of our customers and services within our print segment. We consistently monitor our customer and service mix to optimize profitability and asset utilization. As part of this process, we target customers who have geographic and service needs that match our capabilities. This approach allows us to provide better service to our customers, while generating higher margins. Also as part of this process, we target accounts, such as grocery and drug store chains, that generate weekly, non-seasonal demand for retail advertising insert printing services and enable us to maximize the use of our equipment throughout the year. In our premedia services division, we continue to pursue large-scale managed service opportunities, where we can work on-site with our customers to prepare materials for press, foster strong long-term relationships and enhance sales of our print solutions. We will continue to focus on high value-added, new business opportunities, particularly large-scale projects that will enable us to utilize the full breadth of the services and technologies we offer.

        Continuing to Reduce Costs.    We have a disciplined approach to cost reductions that is implemented on a plant-by-plant basis, and we are aggressively working to further reduce costs in our manufacturing operations. Our cost reduction initiatives include savings resulting from our restructuring initiatives that we put into place over the past several years and cost reductions relating to manufacturing improvements, certain employee benefit programs and procurement programs. In our premedia services business, our use of advanced technology, facility consolidation, continued cost containment and our implementation of ColorSpace™ will enable us to reduce our capital costs and

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improve our digital premedia workflow, which we expect to enhance the productivity of our employees in this segment. In addition, we are constantly working to further reduce our selling, general and administrative expenses.

        Expanding our Printing Solutions through Disciplined Capital Expenditures.    We are committed to providing our customers with the solutions they need at competitive prices. We will continue to be proactive in adapting our offerings to the specific needs of our customers, but we will do so only through disciplined capital expenditures. For example, in Fiscal Year 2003 we acquired five presses in good condition at attractive prices and repositioned seven existing presses. Through these acquisitions and movements of presses, we have increased our print production capacity by approximately 9% since Fiscal Year 2001. This allows us to meet the growing needs of our existing customers, along with volume requirements of new customers, thereby significantly strengthening our relationships with our customers. As a direct result of these actions, we were able to sign a ten-year service agreement with The Houston Chronicle. In the future, we will expand our production capacity through the careful addition of presses when opportunities will support such an expansion. In our premedia services segment, we believe that investments in new technology have allowed us to better market our service offerings to existing and new customers, including customers in our print segment who increasingly use shared service offerings.

Financial Information About Industry Segments

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

Print Segment

        Our print business, which accounted for approximately 88%, 87% and 85% of our sales in Fiscal Years 2003, 2002 and 2001, respectively, produces advertising inserts, comics and other publications.

        Advertising Inserts.    Retail advertising inserts accounted for 87% of print sales in Fiscal Years 2003 and 2002 and 86% of print sales in Fiscal Year 2001. We believe that we are one of the largest printers of retail advertising inserts in the United States. We print retail advertising inserts for approximately 245 retailers throughout the United States. Advertising inserts are preprinted advertisements, generally in color, that display products sold by a particular retailer or manufacturer, usually for a specific sale period. 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. As a result, advertising inserts are both time sensitive and seasonal.

        Comics.    Comics accounted for 7% of print sales in Fiscal Years 2003 and 2002 and 8% of print sales in Fiscal Year 2001. We believe that we are one of the largest printers of comics in the United States. Comics consist of newspaper Sunday comics, comic insert advertising and comic books. We print Sunday comics for approximately 185 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.    Other publications, including local newspapers, TV guide listings and other publications, accounted for 6% of print sales in Fiscal Years 2003, 2002 and 2001.

        Print Production.    Our network of nine print plants in the United States and Canada is strategically well positioned to service our customers, 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

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flexography. We principally use heatset offset and flexographic web printing equipment in our print operations. Our printing equipment currently consists of 48 heatset offset presses, two coldset offset presses and 11 flexographic presses, 55 of which we own. 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 the non-image areas of a metal plate. This process allows the image area to attract solvent-based ink, which is then transferred from the plate to a rubber blanket and then to the paper surface, which we also refer to as the web. Once printed, the web goes through an oven that evaporates the solvents from the ink, thereby setting the ink on the paper. In the cold offset process, inks are set by the absorption of solvents into the paper. Due to the drying process, the heatset offset process can be utilized on a wide variety of papers. Generally, heatset offset presses have the ability to provide a more colorful and attractive product than cold offset presses.

        The flexographic process differs from offset printing in that it utilizes relief image plates and 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. Once printed, the water-based inks are rapidly dried. 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 product versioning.

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

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

Premedia Services Segment

        Our premedia services business is conducted by our American Color division ("American Color") which accounted for approximately 12%, 13% and 14% of our Fiscal Years 2003, 2002 and 2001 sales, respectively. We believe we are one of the largest full-service providers of premedia services in the United States (based upon revenues) and a technological leader in this industry. Our premedia services business commenced operations in 1975. We provide these services nationwide within our print plants, our six stand-alone service locations and through our managed services sites, which are premedia services facilities at a customer location.

        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 as well as other forms of media. 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 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 generated. Our revenue from these traditional services is being supplemented by additional revenue sources including digital asset management, managed services, computer-to-plate services, creative services, conventional and digital photography, consulting and training services, multimedia and internet services, and software and data-base management. We have been a leader in implementing these new technologies, which enables us to reduce unit costs and effectively service the increasingly complex demands of our customers more quickly than many of our competitors. We have also been one of the leaders in the integration of electronic page make-up, desktop computer-based design and layout, and digital cameras into premedia production. For example, we recently began offering our ColorSpace™ suite of services, which provides our customers with better control of color, increased process control, shorter time to market and lower production costs.

Customers and Distribution

        Customers.    We sell our print products and services to a large number of customers, primarily retailers and newspapers. All of our products are produced in accordance with customer specifications. We perform approximately 50% of our print work, including the printing of retail advertising inserts, Sunday comics and comic books, under contracts ranging in term from one year to ten years. Many of the contracts automatically extend for one year unless there has been notice to the contrary from either of the contracting parties within a certain number of days before the end of any term. For the balance of our print work, we obtain varying time commitments from our customers ranging from job-to-job to annual allocations. Print prices are generally fixed during such commitments; however, our standard terms of trade call for the pass-through of changes in the price of raw materials, primarily paper and ink.

        Our premedia services customers consist of retailers, newspaper and magazine publishers, catalog sales organizations, printers, consumer products companies, packaging manufacturers, advertising agencies and direct mail advertisers. Our customers typically have a need for high levels of technical expertise, short turnaround times and responsive customer service. In addition to our historical regional customer base, our premedia services business is increasingly focused on larger, national accounts that

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have a need for a broad range of fully integrated services and communication capabilities requiring leading edge technology.

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

        No single customer accounted for sales in excess of 10% of our consolidated sales in Fiscal Year 2003. Our top ten customers accounted for approximately 50% of our consolidated sales in Fiscal Year 2003.

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

Sales and Marketing

        Our print and premedia services divisions each have their own highly skilled sales forces who work together to maximize our sales leverage by offering our customers multiple solutions utilizing the products and services of both our print and premedia services divisions. Each sales force is trained in the specific requirements of the market it serves to further allow us to maximize our sales success and works closely with our customers to help them successfully market their products.

        Our print division employs approximately 30 sales professionals who are divided into four groups. Three of these groups specialize in the retail marketplace, while the fourth group specializes in newspapers and comic books.

        American Color employs approximately 25 sales professionals who focus in the three markets we serve: retail; commercial, publications and catalogue; and packaging.

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. We believe that our largest competitors are Vertis, Inc. and Quebecor World Inc., and, to a lesser degree, R.R. Donnelley & Sons Company. A trend of industry consolidation in recent years can be attributed to customer preferences for larger printers with a greater range of services, capital requirements and competitive pricing pressures. We believe that competition in the print business is based primarily on quality and service at a competitive price.

        American Color competes with numerous premedia services firms on both a national and regional basis. The industry is highly fragmented, primarily consisting of smaller local and regional companies, with only a few national full-service premedia services companies such as American Color, none of which has a significant nationwide market share.

Raw Materials

        The primary raw materials used in our print business are paper and ink. We purchase most of our ink and related products under long-term ink supply contracts. Premedia services processes include digital media, limited film usage and proofing substrate materials. In both of our business segments, there is an adequate supply of the necessary materials available from multiple vendors. We are not

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dependent on any single supplier and have had no significant problems in the past obtaining necessary raw materials.

Seasonality

        Some of our print and premedia services business is seasonal in nature, particularly those revenues that are derived from advertising inserts. Generally, our sales from advertising inserts are highest during the following advertising periods: Spring advertising season from March to May, Back-to-School advertising season from July to August; and the Thanksgiving/Christmas advertising season from October to December. Sales of newspaper Sunday comics are not subject to significant seasonal fluctuations. Our strategy includes 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, such as food and drug companies, and who utilize advertising inserts more frequently.

Backlog

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

Our Employees

        As of April 30, 2003, we had a total of approximately 2,465 employees. Approximately 224 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 15 locations in 11 states and Canada. We own seven print plants in the United States and one in Canada and lease one print plant in California. American Color has six stand-alone production locations, all of which are leased. American Color also operates premedia services facilities on the premises of several of our customers and in each of our print plants. In addition, we maintain one small executive office in Connecticut and our headquarters facility in Brentwood, Tennessee, both of which are leased. We believe that our plants and facilities are adequately equipped and maintained for present and planned operations.

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.

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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, 2003. We believe this amount is adequate to cover such liability.

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

        None.

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PART II

Market Information

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

Holders

        As of May 31, 2003, there were approximately 100 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 third quarter of Fiscal Year 2003, certain officers exercised options to purchase an aggregate of 20,012 shares of Holdings' common stock for $.01 /share. During the fourth quarter of Fiscal Year 2003, a former officer exercised options to purchase 518 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, 2003, 2002, 2001, 2000 and 1999. The balance sheet data as of March 31, 2003, 2002, 2001, 2000 and 1999 and the statements of operations data for the fiscal years ended March 31, 2003, 2002, 2001, 2000 and 1999 are derived from the audited consolidated financial statements for such periods and at such dates.

        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.

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ACG Holdings, Inc.

Selected Financial Data

13

NOTES TO SELECTED FINANCIAL DATA

(a)

In the fourth quarter of Fiscal Year 2003, we approved a restructuring plan for our print and American Color divisions, which was designed to improve operating efficiency and profitability. We recorded $1.2 million of costs under this plan in Fiscal Year 2003.

In January 2002, we approved a restructuring plan for our print and American Color divisions, which was designed to improve asset utilization, operating efficiency and profitability. We recorded $8.6 million of costs under this plan in Fiscal Year 2002.

In March 1999, we approved a restructuring plan for American Color, 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 the fiscal year ended March 31, 1999 ("Fiscal Year 1999").

In addition, we recorded $0.5 million, $4.3 million and $0.9 million of other special charges related to asset write-offs and write-downs in our print and American Color divisions in Fiscal Year 2003, Fiscal Year 2002 and Fiscal Year 1999, respectively. See note 14 to our consolidated financial statements appearing elsewhere in this Report for further discussion of this restructuring activity.

(b)

The valuation allowance increased by $3.5 million in Fiscal Year 2003 as a result of changes in the deferred tax items. This increase is primarily due to a $5.0 million increase related to the tax effect of the minimum pension liability, which is a component of other comprehensive income, partially offset by a decrease in other temporary differences generating deferred tax assets.

In the fourth quarter of Fiscal Year 2002, the valuation allowance for deferred tax assets was reduced by $5.5 million, resulting in a corresponding credit to deferred income tax expense. This adjustment reflected a change in circumstances which resulted in a judgment that a corresponding amount of our deferred tax assets will be realized in future years. The valuation allowance decreased by $0.1 million during Fiscal Year 2002 as a result of changes in the deferred tax items. This decrease primarily includes the $5.5 million decrease discussed above and a $4.2 million increase related to the tax effect of the minimum pension liability, which is a component of other comprehensive income.

(c)

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

(d)

The ratio of earnings to fixed charges is calculated by dividing earnings before fixed charges by fixed charges. Fixed charges consist of interest expense and one-third of operating lease rental expense, which is deemed to be representative of the interest factor. The deficiency in earnings to cover fixed charges is computed by subtracting earnings before fixed charges, income taxes and extraordinary items from fixed charges. The deficiency in earnings required to cover fixed charges for the fiscal years ended March 31, 2002 and 1999 was $4.4 million and $7.8 million, respectively.

(e)

We have included value-added revenue, or VAR, information because we use VAR as a sales measure. VAR is calculated as sales less paper costs, ink costs and subcontract costs. We generally

14

pass these expenses through to our customers. We have also included print impressions as we use this as a measure of production throughput.

The

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

(f)

We have included EBITDA because we believe that investors regard EBITDA as a key measure of a leveraged company's performance and ability to meet its future debt service requirements. EBITDA is defined as earnings before net interest expense, income tax expense (benefit), depreciation and amortization. EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States and should not be considered an alternative to net income (or any other measure of performance under accounting principles generally accepted in the United States) 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. Our calculation of EBITDA may be different from the calculations used by other companies and therefore comparability may be limited. Certain covenants in our debt agreements are based on EBITDA, subject to certain adjustments. The following table provides a reconciliation of EBITDA to net income (loss):

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We have not added the following items back to net income in computing EBITDA:

Overview

        The most important drivers of our results of operations are:

•

the relationships we have developed with key long-term customers and the capital we have devoted to those relationships;



•

the balance between capacity and demand in our industry sector; and



•

our experienced management team's clear focus on servicing the retail advertising insert and newspaper markets.

        We believe that our willingness to customize and improve customer solutions and our commitment to technology leadership significantly enhances our ability to develop and maintain lasting relationships. For instance, in our print business, we recently acquired five printing presses and repositioned seven existing presses as a result of sales successes and to ensure that we would continue to provide high quality service in the most cost effective regions for our key customers. We also provide our print customers with comprehensive premedia services and solutions at both our print facilities and through our premedia services division, American Color. In the premedia services business, we believe that we are one of a small number of companies that can provide a full range of premedia services, and we use those capabilities to support our print sales. We also manage 11 facilities for customers at their offices, which enables us to develop strong and long-term relationships with them.

        We have experienced significant competitive pricing pressures in our industry in the past two years due to a weak retail market. We believe there has been no significant net capacity added in the industry in the past several years. As a result, as demand increases, we expect the market to regain the balance between capacity and demand. We continue to be committed to providing solutions at competitive prices. We believe that we are one of the lowest cost producers of retail advertising inserts, and we intend to continue to reduce our operating costs. In our print business, we have reduced, and are continuing to reduce, the variable and fixed costs of production through disciplined and focused cost reduction initiatives at our print facilities. In our premedia services business, we have reduced and are continuing to reduce manufacturing costs and selling, general and administrative expenses primarily through the application of certain digital premedia production methodologies, technological leadership, facility consolidation and continued cost containment initiatives.

        We are one of the leading printers of retail advertising inserts in the United States. In Fiscal Years 2003 and 2002, retail advertising inserts accounted for 87% of our total print segment sales and in Fiscal Year 2001 accounted for 86% of our total print segment sales. The focus and attention of our

16

entire management team is dedicated to serving the retail advertising insert market. We have made and will continue to make, disciplined strategic capital investments to enable us to maintain our position as a leader in the retail advertising insert market.

        In addition to the drivers discussed above, the cost of raw materials used in our print business, which are primarily paper and ink, affects our results of operations. The cost of paper is a principal factor in our overall pricing to our customers. As a result, the level of paper costs and the proportion of paper supplied by our customers have a significant impact on our reported sales. Throughout Fiscal Year 2001, the cost of paper increased. In Fiscal Year 2002, demand for advertising declined, resulting in reduced paper requirements. The reduction in demand resulted in a decline in paper prices throughout Fiscal Year 2002. During Fiscal Year 2003, paper prices were on average at lower levels than comparable periods in the prior year. In accordance with industry practice, we generally pass through to customers increases or decreases in the price of our printed products.

        Variances in gross profit margin are impacted by product and customer mix and are also affected by changes in sales resulting from changes in paper prices and changes in the level of customer supplied paper. Our gross margin may not be comparable from period to period because of the impact of changes in paper prices and the levels of customer supplied paper included within sales.

        A portion of our print and premedia services business is seasonal in nature, particularly those revenues derived from retail advertising inserts. Generally, our sales from retail advertising inserts are highest during the following advertising periods: Spring advertising season from March to May, Back-to-School advertising season from July to August, and the Thanksgiving/Christmas advertising season from October to December. Sales of newspaper Sunday comics are not subject to significant seasonal fluctuations. Our strategy includes 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, such as food and drug companies, who utilize retail advertising inserts more frequently.

Recent Performance

        During Fiscal Year 2003, we experienced increased unit volume of approximately 7.4% as a result of sales successes with a number of customer accounts. These sales successes included entering into a ten-year service contract with The Houston Chronicle, as well as sales and volume increases with some of our key existing customers. During this period, however, we conducted business in an uncertain economic climate with continued competitive pricing pressures. In addition, we experienced incremental costs associated with the addition of capacity and the repositioning of existing presses, which we undertook to accommodate new sales opportunities. These incremental costs primarily consisted of increases in labor and benefits, raw material waste, freight expenditures, subcontract costs and warehouse storage expenses. We do not expect to incur these costs on a going forward basis. Our profitability for Fiscal Year 2003 was negatively impacted as a result of both competitive pricing pressures and costs related to the movement and addition of presses. However, as a result of the press movements and additions we believe that our asset utilization has been improved.

Our Restructuring Results and Cost Reduction Initiatives

        We have successfully implemented significant cost reductions annually over the past several years. In January of 2002, we approved a restructuring plan that was designed to improve asset utilization to achieve new levels of operating efficiencies and greater profitability for our print and premedia services segments. The key initiatives under this restructuring plan included:

•

closing our Hanover, Pennsylvania print facility and our West Palm Beach, Florida premedia services facility;



•

downsizing our Buffalo, New York premedia services facility; and

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•

eliminating certain administrative positions.

        These actions resulted in the elimination of 189 positions within our company.

        A large portion of work performed at the closed and downsized facilities, as well as the equipment removed from those facilities, was reallocated to our other print and premedia services facilities. These restructuring initiatives led to increased sales and allowed us to improve our overall asset utilization. Profitability was improved as a result of the reduction in overhead costs while we continued to service our print customers and many of premedia services customers from the closed and downsized facilities at our other print and premedia services facilities.

        In the fourth quarter of Fiscal Year 2003, we implemented a restructuring plan designed to further improve profitability. We closed our premedia services facility in Nashville, Tennessee, which allowed us to reallocate certain employees and equipment from that facility to our other facilities. This plan resulted in the elimination of 30 positions within our company, which has further decreased our manufacturing and overhead costs.

        In summary, our restructuring initiatives since January 2002 have resulted in the elimination of approximately 219 positions within our company, the closure of one print facility and two premedia services facilities and the downsizing of one other premedia services facility. As a result of these actions we recognized restructuring expenses of $8.6 million and $1.2 million in Fiscal Years 2002 and 2003, respectively. In Fiscal Years 2002 and 2003, we also recorded impairment charges of $4.3 million and $0.5 million, respectively, to reflect the abandonment of certain assets within our company. We expect to pay approximately $2.4 million of the accrued restructuring costs during the fiscal year ended March 31, 2004 ("Fiscal Year 2004") and the remainder, approximately $0.6 million, in the fiscal year ended March 31, 2005 ("Fiscal Year 2005"). See note 14 to our consolidated financial statements appearing elsewhere in this Report.

        Consistent with our ongoing business strategy, we will continue to focus on reducing our productions costs:

•

In January 2002, we approved a restructuring plan designed to improve asset utilization, operating efficiency and profitability.



•

In the fourth quarter of Fiscal Year 2003, we implemented various cost reduction initiatives that we expect will generate incremental cost savings. These initiatives include revisions in various procurement and employee benefit programs.



•

We are in the process of implementing additional cost reduction initiatives that we believe will generate additional savings in Fiscal Year 2004. These additional initiatives will include process improvements and targeted cost reduction programs at our print facilities, which will result in lower fixed and variable manufacturing expenses.

Certain of the cost reductions anticipated for Fiscal Year 2004 will not have recurring benefits in future periods. However, as part of our strategy, we intend to seek to implement additional cost reduction initiatives in the future. We estimate that certain of our costs and expenses will increase and partially offset savings from our cost reduction initiatives. Although we expect competitive pricing pressure to impact our revenue growth in Fiscal Year 2004, we believe that, as a result of our cost reduction initiatives, our profitability in Fiscal Year 2004 will improve over Fiscal Year 2003.

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Historical Results of Operations

        The following table summarizes our historical results of continuing operations for Fiscal Years 2003, 2002 and 2001. Certain prior period information has been reclassified to conform to current period presentation for both print and American Color.

(a)

Other operations primarily include revenues and expenses associated with our digital visual effects business, Digiscope. Digiscope was sold on June 5, 2003. Digiscope's sales for Fiscal Years 2003, 2002, and 2001 were the amounts in Other in the table above. Digiscope's gross profit (loss) for Fiscal Years 2003, 2002 and 2001 was ($0.4) million, ($0.8) million and $0.2 million, respectively. Operating loss for Digiscope in the Fiscal Years 2003, 2002 and 2001 was ($1.0) million, ($1.4) million and ($0.6) million, respectively.

(b)

In Fiscal Year 2003, both print and American Color operating income includes the impact of restructuring costs of $0.6 million each. Print and American Color operating income in Fiscal Year 2003 also includes $0.2 million and $0.3 million of other special charges related to non-cash write-offs and write-downs, respectively. Print and American Color operating income in Fiscal Year 2002 includes the impact of restructuring costs of $6.5 million and $2.1 million, respectively. Print and American Color operating income in Fiscal Year 2002 also includes $3.9 million and $0.4 million of other special charges related to non-cash asset write-offs and write-downs, respectively. See "Our Restructuring Results and Cost Reduction Initiatives" above.

(c)

Also includes corporate general and administrative expenses in Fiscal Years 2003, 2002 and 2001, and goodwill amortization expense in Fiscal Years 2002 and 2001.

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Fiscal Year 2003 vs. Fiscal Year 2002

        Total sales decreased 4.1% to $520.3 million in Fiscal Year 2003 from $542.4 million in Fiscal Year 2002. This decrease primarily reflected a decrease in print sales of $13.3 million, or 2.8%, and a decrease in American Color's sales of $8.8 million, or 12.9%. Total gross profit decreased to $71.2 million, or 13.7% of sales, in Fiscal Year 2003 from $78.1 million, or 14.4% of sales, in Fiscal Year 2002. Total operating income increased to $31.3 million, or 6.0% of sales, in Fiscal Year 2003 from $26.1 million, or 4.8% of sales, in Fiscal Year 2002. See the discussion of these changes by segment below.

Print

        Sales.    Print sales decreased $13.3 million to $457.5 million in Fiscal Year 2003 from $470.8 million in Fiscal Year 2002. The decrease in Fiscal Year 2003 was largely attributable to the impact of decreased paper prices, as well as an increase in customer supplied paper and the impact of competitive pricing and certain changes in product and customer mix. These decreases were offset in part by an increase of approximately 7.4% in print production volume as a result of sales successes with new customers and increasing our share of the business of our existing customers.

        Gross Profit.    Print gross profit decreased $7.1 million to $54.7 million in Fiscal Year 2003 from $61.8 million in Fiscal Year 2002. Print gross margin decreased to 12.0% in Fiscal Year 2003 from 13.1% in Fiscal Year 2002. The decrease in gross profit includes certain expenses incurred during Fiscal Year 2003 associated with the installation and start-up of 12 printing presses including seven presses relocated from our other print facilities, the impact of competitive pricing and certain changes in product and customer mix. These decreases were offset in part by the increased print production volume. The decrease in gross margin includes these items offset in part by the impact of decreased paper prices and increased levels of customer supplied paper reflected in sales. Our gross margin may not be comparable from period to period because of the impact of changes in paper prices and levels of customer supplied paper included within sales.

        Selling, General and Administrative Expenses.    Print selling, general and administrative expenses increased $2.8 million to $24.0 million, or 5.3% of print sales, in Fiscal Year 2003, from $21.2 million, or 4.5% of print sales, in Fiscal Year 2002. This increase was primarily attributable to the impact in Fiscal Year 2002 of the change in our estimates related to the allowance for doubtful accounts, as well as increases in selling and administrative costs.

        Restructuring Costs and Other Special Charges.    Restructuring costs and other special charges decreased $9.6 million to $0.8 million in Fiscal Year 2003 from $10.4 million in Fiscal Year 2002. See "Our Restructuring Results and Cost Reduction Initiatives" above.

        Operating Income.    As a result of the above factors, operating income from the print business decreased $0.3 million to $29.9 million in Fiscal Year 2003 from $30.2 million in Fiscal Year 2002.

American Color (Premedia Services)

        Sales.    American Color's sales decreased $8.8 million to $59.6 million in Fiscal Year 2003 from $68.4 million in Fiscal Year 2002. The decrease in Fiscal Year 2003 was largely the result of reduced premedia services production volume associated with weak market conditions, as well as the impact of certain premedia facility closures. See "Our Restructuring Results and Cost Reduction Initiatives" above.

        Gross Profit.    American Color's gross profit decreased $0.2 million to $17.0 million in Fiscal Year 2003 from $17.2 million in Fiscal Year 2002. American Color's gross margin increased to 28.5% in Fiscal Year 2003 from 25.1% in Fiscal Year 2002. The decrease in gross profit was primarily the result

20

of reduced premedia services production volume, offset in part by reduced manufacturing costs related to various cost containment programs and certain premedia services facility closures.

        Selling, General and Administrative Expenses.    American Color's selling, general and administrative expenses decreased $1.1 million to $9.8 million, or 16.4% of American Color's sales in Fiscal Year 2003, from $10.9 million, or 15.9% of American Color's sales in Fiscal Year 2002. This decrease was primarily attributable to decreased selling expenses.

        Restructuring Costs and Other Special Charges.    Restructuring costs and other special charges decreased $1.6 million to $0.9 million in Fiscal Year 2003 from $2.5 million in Fiscal Year 2002. See "Our Restructuring Results and Cost Reduction Initiatives" above.

        Operating Income.    As a result of the above factors, operating income at American Color increased $2.6 million to $6.3 million in Fiscal Year 2003 from $3.7 million in Fiscal Year 2002.

Other Operations

        Other operations consist primarily of revenues and expenses associated with Digiscope and corporate general, administrative and other expenses, including, for periods prior to Fiscal Year 2003, amortization expense. In Fiscal Year 2003, operating losses from other operations improved to a loss of $4.8 million from a loss of $7.9 million in Fiscal Year 2002. This improvement was due to a reduction in goodwill amortization expense of $3.0 million and decreased operating losses at Digiscope of $0.4 million. These operating loss reductions were offset in part by increases in certain corporate general and administrative expenses. See "Amortization of Goodwill" below.

        Non-cash amortization expenses, which primarily include goodwill amortization, within other operations, were not incurred in Fiscal Year 2003 and were $3.0 million in Fiscal Year 2002.

        On June 5, 2003, we sold Digiscope for a de minimis amount. In Fiscal Year 2003, Digiscope contributed $3.2 million in sales and operated at a net loss of approximately $1.0 million. We anticipate that the disposal of Digiscope will reduce our pre-tax profit by approximately $0.6 million to $0.8 million in the first quarter of Fiscal Year 2004.

Interest Expense

        In Fiscal Year 2003, interest expense decreased 4.3% to $28.7 million from $30.0 million in Fiscal Year 2002. This decrease reflected both lower levels of indebtedness and lower borrowing costs. See Note 5 to our consolidated financial statements appearing elsewhere in this Report.

Income Taxes

        For Fiscal Year 2003, our tax expense was greater than the federal tax expense calculated using the federal statutory rate. This difference was primarily due to foreign tax expense, partially offset by a decrease in the valuation allowance, excluding a $5.0 million increase in the valuation allowance related to the tax effect of the minimum pension liability, which is a component of other comprehensive income. The valuation allowance increased by $3.5 million during Fiscal Year 2003 as a result of changes in the deferred tax items. This increase was primarily due to the $5.0 million tax effect of the minimum pension liability, partially offset by a decrease in other temporary differences generating deferred tax assets.

        For Fiscal Year 2002, our tax benefit was greater than the federal tax benefit calculated using the federal statutory rate. This difference was primarily due to a decrease in the valuation allowance, excluding an increase in the valuation allowance related to the tax effect of the minimum pension liability of $4.2 million which is a component of other comprehensive income. This amount was partially offset by amortization of nondeductible goodwill and foreign tax expense. In the fourth quarter

21

of Fiscal Year 2002, the valuation allowance for deferred tax assets was reduced by $5.5 million, resulting in a corresponding credit to deferred income tax expense. This adjustment reflected a change in circumstances which resulted in a judgment that a corresponding amount of our deferred tax assets will be realized in future years. The valuation allowance decreased by $0.1 million during Fiscal Year 2002 as a result of changes in the deferred tax items. This decrease primarily included the $5.5 million decrease discussed above and the $4.2 million increase from the tax effect of the minimum pension liability.

Net Income (Loss)

        As a result of the factors discussed above, our net income (loss) decreased to a loss of $0.3 million in Fiscal Year 2003 from income of $0.7 million in Fiscal Year 2002. Fiscal Year 2003 net loss included $1.2 million of restructuring costs and $0.5 million of other special charges related to asset write-offs and write-downs associated with the Fiscal Year 2003 restructuring plan. Fiscal Year 2002 net income included $8.6 million of restructuring costs and $4.3 million of other special charges related to asset write-offs associated with the Fiscal Year 2002 restructuring plan.

Minimum Pension Liability

        In compliance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), we increased our minimum pension liability to approximately $23.4 million in Fiscal Year 2003 from approximately $10.8 million in Fiscal Year 2002. This increase included the impact of weak investment markets during calendar year 2002 and a reduction in our discount rate from 7.5% to 7.0%. This liability represented the amount by which the accumulated benefit obligation exceeded the fair value of the plan assets at March 31, 2003 and March 31, 2002. The recording of this liability had no impact on our consolidated statements of operations for Fiscal Years 2003 and 2002, but was recorded as a component of other comprehensive loss in our consolidated statements of stockholders' deficit at March 31, 2003 and March 31, 2002.

Fiscal Year 2002 vs. Fiscal Year 2001

        Total sales decreased 10.5% to $542.4 million in Fiscal Year 2002 from $606.0 million in Fiscal Year 2001. This decrease primarily reflected a decrease in print sales of $46.5 million, or 9.0%, and a decrease in American Color's sales of $14.3 million, or 17.3%. Total gross profit decreased to $78.1 million, or 14.4% of sales, in Fiscal Year 2002 from $98.9 million, or 16.3% of sales, in Fiscal Year 2001. Total operating income decreased to $26.1 million, or 4.8% of sales, in Fiscal Year 2002 from $53.6 million, or 8.9% of sales, in Fiscal Year 2001. See the discussion of these changes by segment below.

Print

        Sales.    Print sales decreased $46.5 million to $470.8 million in Fiscal Year 2002 from $517.3 million in Fiscal Year 2001. The decrease in Fiscal Year 2002 included a 6.6% decrease in print production volume, a decrease in postage revenues, an increase in customer supplied paper and the impact of declining paper prices. The reduced production volume was largely attributable to weakness in the retail industry and the corresponding reduction in demand for printing as a result of reduced advertising spending during Fiscal Year 2002. In response to then current economic conditions, we consolidated production. For additional information about our restructuring plan, see "Our Restructuring Results and Cost Reduction Initiatives" above.

        Gross Profit.    Print gross profit decreased $12.8 million to $61.8 million in Fiscal Year 2002 from $74.6 million in Fiscal Year 2001. Print gross margin decreased to 13.1% in Fiscal Year 2002 from 14.4% in Fiscal Year 2001. The decreases in gross profit and gross margin were largely related to the

22

decreased print production volume and certain changes in product and customer mix. Our gross margin may not be comparable from period to period because of the impact of changes in paper prices and levels of customer supplied paper included within sales.

        Selling, General and Administrative Expenses.    Print selling, general and administrative expenses decreased $3.6 million to $21.2 million, or 4.5% of print sales, in Fiscal Year 2002, from $24.8 million, or 4.8% of print sales, in Fiscal Year 2001. This decrease was largely attributable to the impact in Fiscal Year 2002 of the change in our estimates related to the allowance for doubtful accounts, as well as employee related expenses.

        Restructuring Costs and Other Special Charges.    Restructuring costs and other special charges were $10.4 million in Fiscal Year 2002. We incurred no restructuring costs or other special charges in Fiscal Year 2001. See "Our Restructuring Results and Cost Reduction Initiatives" above.

        Operating Income.    As a result of the above factors, operating income from the print business decreased $19.6 million to $30.2 million in Fiscal Year 2002 from $49.8 million in Fiscal Year 2001.

American Color (Premedia Services)

        Sales.    American Color's sales decreased $14.3 million to $68.4 million in Fiscal Year 2002 from $82.7 million in Fiscal Year 2001. The decrease in Fiscal Year 2002 was primarily the result of reduced premedia services production volume. The reduced volume included the impact of the economic slowdown and related weakness in demand for advertising during Fiscal Year 2002. See "Our Restructuring Results and Cost Reduction Initiatives" above.

        Gross Profit.    American Color's gross profit decreased $6.9 million to $17.2 million in Fiscal Year 2002 from $24.1 million in Fiscal Year 2001. American Color's gross margin decreased to 25.1% in Fiscal Year 2002 from 29.1% in Fiscal Year 2001. The decreases in gross profit and gross margin were primarily the result of reduced premedia services production volume, offset in part by reduced manufacturing costs due to the continuance of various cost containment programs at our production facilities.

        Selling, General and Administrative Expenses.    American Color's selling, general and administrative expenses decreased $1.6 million to $10.9 million, or 15.9% of American Color's sales in Fiscal Year 2002, from $12.5 million, or 15.1% of American Color's sales in Fiscal Year 2001. This decrease was largely attributable to the impact of decreases in employee related expenses, as well as the change in our estimates related to the allowance for doubtful accounts.

        Restructuring Costs and Other Special Charges.    Restructuring costs and other special charges were $2.5 million in Fiscal Year 2002. We incurred no restructuring costs or other special charges in Fiscal Year 2001. See "Our Restructuring Results and Cost Reduction Initiatives" above.

        Operating Income.    As a result of the above factors, operating income at American Color decreased $7.8 million to $3.7 million in Fiscal Year 2002 from $11.5 million in Fiscal Year 2001.

Other Operations

        Other operations consisted primarily of revenues and expenses associated with Digiscope and corporate general, administrative and other expenses, including amortization expense. In Fiscal Year 2002, operating losses from other operations increased to a loss of $7.9 million from a loss of $7.7 million in Fiscal Year 2001. This change included a $0.8 million increase in operating losses at Digiscope due primarily to lower digital visual effects production volume, offset in part by decreases in certain corporate general and administrative expenses.

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        Non-cash amortization expenses, which primarily include goodwill amortization, within other operations, were $3.0 million and $3.2 million in Fiscal Years 2002 and 2001, respectively.

Interest Expense

        In Fiscal Year 2002, interest expense decreased 9.3% to $30.0 million from $33.0 million in Fiscal Year 2001. This decrease reflected both lower levels of indebtedness and lower borrowing costs.

Income Taxes

        For Fiscal Year 2002, our tax benefit was greater than the federal tax benefit calculated using the federal statutory rate. For Fiscal Year 2001, our tax expense was less than the federal tax expense calculated using the federal statutory rate. These differences were primarily due to decreases in the valuation allowance, excluding increases in the valuation allowance related to the tax effect of the minimum pension liability of $4.2 million and $0 million for Fiscal Years 2002 and 2001, respectively, which were components of other comprehensive income. These amounts were partially offset by amortization of nondeductible goodwill and foreign tax expense. In the fourth quarter of Fiscal Year 2002, the valuation allowance for deferred tax assets was reduced by $5.5 million, resulting in a corresponding credit to deferred income tax expense. This adjustment reflected a change in circumstances which resulted in a judgment that a corresponding amount of our deferred tax assets will be realized in future years. The valuation allowance decreased by $0.1 million during Fiscal Year 2002 as a result of changes in the deferred tax items. This decrease primarily included the $5.5 million decrease discussed above and the $4.2 million increase from the tax effect of the minimum pension liability.

Net Income

        As a result of the factors discussed above, our net income decreased to $0.7 million in Fiscal Year 2002 from $24.4 million in Fiscal Year 2001. Fiscal Year 2002 net income included $8.6 million of restructuring costs and $4.3 million of other special charges related to asset write-offs associated with the Fiscal Year 2002 restructuring plan.

Minimum Pension Liability

        In compliance with SFAS 87, we recorded a minimum pension liability of approximately $10.8 million in Fiscal Year 2002. This liability represented the amount by which the accumulated benefit obligation exceeded the fair value of the plan assets at March 31, 2002. The recording of this liability had no impact on our consolidated statements of operations for Fiscal Year 2002, but was recorded as a component of other comprehensive loss in our consolidated statements of stockholders' deficit at March 31, 2002.

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Liquidity and Capital Resources

        Historically, our primary sources of liquidity have been cash provided by operating activities and borrowings under a $145 million credit facility with a syndicate of lenders (the "Bank Credit Agreement"). The Bank Credit Agreement provides for:

•

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



•

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



•

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

        At March 31, 2003, we had no borrowings outstanding under the Revolving Credit Facility and had letters of credit outstanding of approximately $32.6 million. We had additional borrowing availability of approximately $22 million.

        At March 31, 2003, $4.2 million of the A Term Loan Facility and $35 million of the B Term Loan Facility remained outstanding. Scheduled A Term Loan Facility and B Term Loan Facility payments due in Fiscal Year 2004 are approximately $4.2 million and $17.5 million, respectively. Scheduled repayments of existing capital lease obligations and other senior indebtedness during Fiscal Year 2004 are approximately $10.0 million.

        During Fiscal Year 2003, we repurchased in the open market, an aggregate principal amount of $1.7 million of our 12³/4% Senior Subordinated Notes Due 2005 (the "Notes") for approximately $1.7 million.

        Our cash flows are primarily related to operating, investing and financing activities undertaken in connection with our business. Fiscal Year 2003's cash flows also include the cash balance on hand at the end of Fiscal Year 2002.

        Net cash provided by operating activities of $45.6 million, for Fiscal Year 2003, increased by $7.4 million from $38.2 million in Fiscal Year 2002. This increase was the result of the timing of disbursements and the collection of receivables, offset in part by a net loss realized in Fiscal Year 2003 compared to the net income generated in Fiscal Year 2002.

        Net cash used by investing activities of $27.4 million in Fiscal Year 2003 as compared to $16.5 million in Fiscal Year 2002 reflects an increase in capital expenditures in Fiscal Year 2003 offset in part by proceeds collected on disposal of capital equipment.

        Cash used from financing activities of $22.7 million in Fiscal Year 2003 and the net cash used by financing activities in Fiscal Year 2002 of $17.2 million primarily reflected a reduction in both periods of debt under the Bank Credit Agreement and our capitalized leases as well as prepayments of the Notes.

        Our cash on hand of approximately $5.1 million at March 31, 2003 is presented net of outstanding checks within trade accounts payable at March 31, 2003. Accordingly, cash is presented at a balance of $0 million in the March 31, 2003 balance sheet.

        We maintain a disciplined and strategic focus in the area of capital spending. During the last three fiscal years, we have spent an average of $13 million annually on maintenance, cost reduction and customer support capital expenditures. In addition, we have spent over $40 million during this same three-year period to selectively increase our print capacity through press acquisitions and the repositioning of existing presses. These capacity additions were the result of numerous sales successes

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and we believe place us in a position to better serve our customers in the future and provide for an increased revenue base. We anticipate that the near-term spending on maintenance, cost reduction and customer support capital will approximate $15 million to $17 million annually and that further capacity additions over the near term are not anticipated. Over the longer term, we will expand our production capacity through the careful addition of presses when opportunities support such expansion.

        We plan to continue our program of upgrading our print and premedia services equipment and currently anticipate that Fiscal Year 2004 cash capital expenditures will be approximately $12 million and equipment acquired under capital leases will be approximately $3 million.

        Our primary sources of liquidity have been 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. We have sufficient liquidity to meet our requirements over the next 12 months.

        At March 31, 2003, we had total indebtedness, including capital lease obligations, of $231.8 million, as compared to $252.8 million at March 31, 2002, representing a reduction in total indebtedness during Fiscal Year 2003 of $21.0 million. Of the total debt outstanding at March 31, 2003, $39.2 million, excluding letters of credit, was outstanding under the Bank Credit Agreement at a weighted-average interest rate of 4.6%. Indebtedness under the Bank Credit Agreement bears interest at floating rates. At March 31, 2003, we had indebtedness other than obligations under the Bank Credit Agreement of $192.6 million (including $170.1 million of the Notes). We have no off-balance sheet financial instruments.

        We are currently in compliance with all financial covenants set forth in the Bank Credit Agreement. See note 5 to our consolidated financial statements appearing elsewhere in this Report. Our Bank Credit Agreement (i) requires satisfaction of certain financial covenants including Minimum Consolidated EBITDA, Consolidated Interest Coverage Ratio and Leverage Ratio requirements, (ii) requires prepayments in certain circumstances including excess cash flows, proceeds from asset dispositions in excess of prescribed levels and certain capital structure transactions and (iii) 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 that are similar to, but in certain respects are less restrictive than, certain covenants under the Bank Credit Agreement. Graphics' ability to pay dividends or lend funds to Holdings is restricted. See note 1 to our consolidated financial statements appearing elsewhere in this Report for a discussion of those restrictions.

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

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EBITDA and EBITDA Margin

        The following table is a summary of our EBITDA and EBITDA margin for Fiscal Years 2003, 2002 and 2001:

(a)

In Fiscal Year 2003, EBITDA for both the print and American Color segments includes the impact of restructuring costs of $0.6 million each. EBITDA for the print and American Color segments in Fiscal Year 2002 includes the impact of restructuring costs of $6.5 million and $2.1 million, respectively. For additional information about our restructuring plan, see "Our Restructuring Results and Cost Reduction Initiatives" above.

(b)

Other operations include corporate general and administrative expenses as well as revenues and expenses associated with our digital visual effects business, Digiscope. Digiscope was sold on June 5, 2003. The EBITDA/(EBITDA loss) of Digiscope included in the EBITDA table above for Fiscal Years 2003, 2002 and 2001 was ($0.6) million, ($0.6) million and $0.9 million, respectively.

        EBITDA is presented and discussed because we believe that investors regard EBITDA as a key measure of a leveraged company's performance and ability to meet its future debt service requirements. "EBITDA" is defined as earnings before net interest expense, income tax expense (benefit), depreciation and amortization. "EBITDA Margin" is defined as EBITDA as a percentage of net sales. EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States and should not be considered an alternative to net income (or any other measure of performance under accounting principles generally accepted in the United States) 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. The following table provides a reconciliation of EBITDA to net income (loss):

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Value Added Revenue and Print Impressions for the Print Segment

        We have included value-added revenue, or VAR, information because we use VAR as a sales measure. VAR is calculated as sales less paper costs, ink costs and subcontract costs. We generally pass these expenses through to our customers. We have also included print impressions because we use this as a measure of production throughput.

The

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

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Amortization of Goodwill

        Goodwill was amortized on a straight-line basis by business segment through Fiscal Year 2002. Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), is effective for fiscal years beginning after December 15, 2001. In compliance with this pronouncement, we adopted SFAS 142 on April 1, 2002. As a result, we did not amortize goodwill during Fiscal Year 2003. A reconciliation of previously reported net income (loss) to the pro forma amount adjusted for the exclusion of amortization of goodwill, net of the related income tax effect is as follows:

        In the quarter ended September 30, 2002, we performed the initial assessment of impairment as of April 1, 2002 and noted no impairment. We performed the first required annual impairment test of goodwill as of December 31, 2002 and noted no impairment.

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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. Throughout Fiscal Year 2001, the cost of paper increased. In Fiscal Year 2002, demand for advertising declined, resulting in reduced paper requirements. The reduction in paper requirements resulted in a decline in paper prices throughout Fiscal Year 2002. In Fiscal Year 2003, paper prices were on average at lower levels than comparable periods in the prior year. We expect that, as a result of our strong relationships with key suppliers, our material costs will remain competitive within the industry.

Seasonality

        Some of our print and premedia services business is seasonal in nature, particularly those revenues that are derived from advertising inserts. Generally, our sales from advertising inserts are highest during the following advertising periods: Spring advertising season from March to May, Back-to-School advertising season from July to August, and the Thanksgiving/Christmas advertising season from October to December. Sales of newspaper Sunday comics are not subject to significant seasonal fluctuations. Our strategy includes 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, such as food and drug companies, and who utilize advertising inserts more frequently.

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 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, 2003, which we believe to be adequate. See "Business—Legal Proceedings—Environmental Matters" appearing elsewhere in this Report. We do not anticipate receiving insurance proceeds related to this potential settlement. Our 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.

New Accounting Pronouncements

        In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses from Extinguishment of Debt" ("SFAS 4"), which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in Accounting Principles Board Opinion No. 30 will now be used to classify those gains and losses. SFAS 145 amends Statement of Financial Accounting Standards No. 13, "Accounting for Leases" ("SFAS 13") to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS 145 also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The provisions of SFAS 145 are effective for financial statements issued for fiscal years beginning after May 15, 2002, and interim periods within those fiscal years. We do not

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anticipate that the adoption of SFAS 145 will have a material effect on our results of operations or financial position.

        In November 2002, the Emerging Issues Task Force ("EITF") reached a Consensus on Issue No. 02-16, "Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor" ("EITF 02-16"). EITF 02-16 addresses the accounting and income statement classification for consideration given by a vendor to a retailer in connection with the sale of the vendor's products or for the promotion of sales of the vendor's products. The EITF concluded that such consideration received from vendors should be reflected as a decrease in prices paid for inventory and recognized in cost of sales as the related inventory is sold, unless specific criteria are met qualifying the consideration for treatment as reimbursement of specific, identifiable incremental costs. As clarified by the EITF in January 2003, this issue is effective for arrangements with vendors initiated on or after January 1, 2003. The provisions of this consensus have been applied prospectively and are consistent with our existing accounting policy. Accordingly, the adoption of EITF 02-16 did not and will not have a material impact on our financial position or results of operations.

Critical Accounting Policies

        Our consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Valuations based on estimates are reviewed for reasonableness and conservatism on a consistent basis throughout our company. Actual results may differ from these estimates under different assumptions or conditions. See note 1 to our consolidated financial statements appearing elsewhere in this Report.

        Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Allowance for Doubtful Accounts

        We continuously monitor collections and payments from our customers. Allowances for doubtful accounts are maintained based on historical payment patterns, aging of accounts receivable and actual write-off history. We estimate losses resulting from the inability of our customers to make required payments. If the financial condition of our customers was to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The allowance for doubtful accounts balances were approximately $2.5 million and $2.6 million at March 31, 2003 and March 31, 2002, respectively.

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Restructuring

        During Fiscal Years 2003 and 2002, we established restructuring reserves for our print and premedia services segments. These reserves, for severance and other exit costs, required the use of estimates. Though management believes these estimates accurately reflect the costs of these plans, actual results may be different.

Contingencies

        We have established reserves for environmental and legal contingencies at both the operating and corporate levels. A significant amount of judgment and use of estimates is required to quantify our ultimate exposure in these matters. The valuation of reserves for contingencies is reviewed on a quarterly basis to assure that we are properly reserved. Reserve balances are adjusted to account for changes in circumstances for ongoing issues and the establishment of additional reserves for emerging issues. While we believe that the current level of reserves is adequate, changes in the future could impact these determinations.

Deferred Taxes

        We estimate our actual current tax expense together with our temporary differences resulting from differing treatment of items, such as fixed assets, for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income or the reversal of existing taxable temporary differences and to the extent we believe that recovery is not likely, we must establish a valuation allowance. At March 31, 2003, we had a valuation allowance of $26.8 million established against our deferred tax assets. We considered changes in the allowance when calculating the tax provision in the statement of operations. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.

Contractual Obligations and Commercial Commitments

        The following table gives information about our existing material commitments under our indebtedness and contractual obligations, which excludes the effect of imputed interest:

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        In the quarter ended December 31, 1997, we entered into multi-year contracts to purchase a portion of our raw materials to be used in our normal operations. In connection with such purchase agreements, pricing for a portion of our raw materials is adjusted for certain movements in market prices, changes in raw material costs and other specific price increases. We are 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, 2003 is $44.6 million and is included within Other liabilities in our consolidated balance sheet. At March 31, 2003, we had no other significant contingent commitments. The following table gives information about our other commercial commitments:

The standby letters of credit generally serve as collateral and generally are renewable quarterly pursuant to the terms of certain long-term arrangements.

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 our company as a whole.

        Quantitative Information.    At March 31, 2003 and March 31, 2002, 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, 2003 and March 31, 2002. At our March 31, 2003 and March 31, 2002 borrowing levels, a hypothetical 10% adverse change in interest rates on the variable rate debt would have been immaterial. Approximately 81% and 78% of our long-term debt (excluding capitalized lease obligations) was fixed rate at March 31, 2003 and March 31, 2002, 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.

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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

The following consolidated financial statement schedules of ACG Holdings, Inc. are included in Part IV, Item 15:

I.

Condensed Financial Information:
Condensed Consolidated Financial Statements (parent company only)
for the years ended March 31, 2003, 2002 and 2001, and as of March 31, 2003 and 2002



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.

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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, 2003 and 2002, 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, 2003. Our audits also included the financial statement schedules listed in the Index at Item 15(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, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended March 31, 2003, 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.

As discussed in Note 1 to the consolidated financial statements, in the fiscal year ended March 31, 2003, the Company changed its method of accounting for goodwill.

Nashville, Tennessee
May 22, 2003, except for Note 17,
as to which the date is June 5, 2003

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ACG HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands)

See accompanying notes to consolidated financial statements.

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

See accompanying notes to consolidated financial statements.

37

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

See accompanying notes to consolidated financial statements.

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