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                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549
                            ------------------------
 
                                   FORM 10-K
       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
(MARK ONE)
 
  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                                       OR
 
  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
         SECURITIES EXCHANGE ACT OF 1934
 
        FOR THE TRANSITION PERIOD FROM ______________ TO ______________
 
                         COMMISSION FILE NUMBER 0-29474
                           BIG FLOWER HOLDINGS, INC.
                                ---------------
 
                         COMMISSION FILE NUMBER 1-14084
                        BIG FLOWER PRESS HOLDINGS, INC.
          (EXACT NAMES OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
 
                  DELAWARE                             13-3971556
                  DELAWARE                             13-3768322
          (State of incorporation)           (I.R.S. Employer Identification
                                                          Nos.)
 
                               3 EAST 54TH STREET
                            NEW YORK, NEW YORK 10022
                                 (212) 521-1600
   (Address and telephone number of Registrants' Principal Executive Offices)
                            ------------------------
 
          Securities registered pursuant to Section 12(b) of the Act:
 
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<CAPTION>
                    TITLE OF EACH CLASS                               NAME OF EACH EXCHANGE ON WHICH REGISTERED
-----------------------------------------------------------  -----------------------------------------------------------
<S>                                                          <C>
             Common Stock, $0.01 par value, of                                 New York Stock Exchange
                 Big Flower Holdings, Inc.
 Series A Junior Preferred Stock, $0.01 par value, of Big                      New York Stock Exchange
                   Flower Holdings, Inc.
</TABLE>
 
                            ------------------------
 
        Securities registered pursuant to Section 12(g) of the Act: None
                            ------------------------
 
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
 
    The aggregate market value of voting stock held by non-affiliates on
February 26, 1999 was $399,338,013. For purposes of the foregoing calculation
only, all directors and executive officers of the registrant have been deemed
affiliates.
 
    As of February 26, 1999, there were approximately 19,700,000 shares of Big
Flower Holdings, Inc.'s common stock, par value $0.01 per share, outstanding.
There is no market for the common stock of Big Flower Press Holdings, Inc., all
outstanding shares of which are owned by Big Flower Holdings, Inc.
 
                   Documents Incorporated By Reference: None
 
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    "COLORSTREAM," "CRAIGBOND," "CRAIGSEAL," "CS COLORSTREAM & DESIGN,"
"ELECTROWEB," "REPLICOLOR," "SCENT-SATIONAL," "W (STYLIZED)," "WEBCRAFT,"
"WEBCRAFT SWIRL LOGO," "WYSDOM," "MAXCESS," "VIXNET VIRTUAL IMAGING XTRANET,"
"BIAS," "BMP," "BROADCAST MANAGEMENT PLUS," AND "TV WORKS" ARE REGISTERED
TRADEMARKS OF BIG FLOWER HOLDINGS, INC. OR ONE OF ITS SUBSIDIARIES. IN ADDITION,
TRADEMARK OR SERVICEMARK REGISTRATIONS HAVE BEEN FILED FOR "NEWSPAPER MARKET
REACH," "NEWSPAPER INSERTS THAT DELIVER," "REACH AMERICA," "S/TRAN," "TARGET
ZONE," "TARGET REACH," "TARGETTED INSERTS THAT DELIVER," "TC ADVERTISING,"
"TOTAL PAPER SUPPLY," "DINER'S DELIGHT," "UV ULTRACOOL," "DSG INTERNATIONAL,"
"FUSION INTERNATIONAL," "LASER TECH COLOR," "LIQUID GRAPHIX," "LIQUID LENS,"
"LIQUID PICTURES," "LIQUID STUDIOS," "LTC," "UFO (ULTRALARGE FILM OUTPUT),"
"VISIONBANK," "COLUMBINE JDS" AND "PARADIGM."
<PAGE>
                                     PART I
 
                             SAFE HARBOR STATEMENT
 
    THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN
ITEMS 1, 3, 7 AND 7A HEREOF, AS WELL AS WITHIN THIS REPORT GENERALLY. IN
ADDITION, WHEN USED IN THIS REPORT, THE WORDS "BELIEVES," "ANTICIPATES,"
"EXPECTS," "ESTIMATES," "PLANS," "INTENDS," AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM PROJECTED RESULTS. FACTORS THAT MAY CAUSE THESE
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
 
    - FLUCTUATIONS IN THE COST OF RAW MATERIALS USED BY BIG FLOWER,
 
    - CHANGES IN THE ADVERTISING, MARKETING AND INFORMATION SERVICES MARKETS,
 
    - THE FINANCIAL CONDITION OF BIG FLOWER'S CUSTOMERS,
 
    - THE GENERAL CONDITION OF THE UNITED STATES AND OTHER ECONOMIES,
 
    - THE AVAILABILITY OF QUALIFIED PERSONNEL AND OTHER INFORMATION TECHNOLOGY
      RESOURCES,
 
    - CHANGES IN INTEREST AND FOREIGN CURRENCY EXCHANGE RATES, AND
 
    - MATTERS SET FORTH IN THIS REPORT GENERALLY.
 
    FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, BIG FLOWER'S
EXPECTATION AS TO WHEN IT WILL COMPLETE THE REMEDIATION AND TESTING PHASES OF
ITS YEAR 2000 PROGRAM AS WELL AS ITS YEAR 2000 CONTINGENCY PLANS, ITS ESTIMATED
COST OF ACHIEVING YEAR 2000 READINESS, AND BIG FLOWER'S BELIEF THAT ITS INTERNAL
SYSTEMS AND EQUIPMENT WILL BE YEAR 2000 COMPLIANT IN A TIMELY MANNER.
 
    FACTORS WHICH MAY AFFECT BIG FLOWER'S YEAR 2000 READINESS INCLUDE, BUT ARE
NOT LIMITED TO,
 
    - THE ABILITY TO IDENTIFY AND REMEDIATE ALL DATE SENSITIVE LINES OF COMPUTER
      CODE,
 
    - THE ABILITY TO REPLACE EMBEDDED COMPUTER CHIPS IN SYSTEMS OR EQUIPMENT
      AFFECTED BY YEAR 2000 ISSUES, AND
 
    - THE ACTIONS OF GOVERNMENT AGENCIES OR OTHER THIRD PARTIES WITH RESPECT TO
      YEAR 2000 ISSUES.
 
    CONSEQUENTLY, SUCH FORWARD-LOOKING STATEMENTS SHOULD BE REGARDED SOLELY AS
BIG FLOWER'S CURRENT PLANS, ESTIMATES AND BELIEFS. BIG FLOWER DOES NOT UNDERTAKE
AND SPECIFICALLY DECLINES ANY OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO ANY 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
 
                                  INTRODUCTION
 
    Big Flower is a leading advertising and marketing services company with four
business segments: Insert Advertising & Newspaper Services, Direct Marketing
Services, Digital Services, and Specialty Products & Commercial Printing.
 
    - Insert Advertising & Newspaper Services are provided through Treasure
      Chest Advertising Company, Inc. ("TC Advertising"), a leading producer of
      insert advertising
 
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      programs, TV listing magazines, Sunday comics, Sunday magazines and
      special supplements for many of the most widely circulated U.S.
      newspapers.
 
    - Direct Marketing Services are provided through Webcraft, Inc.
      ("Webcraft"), a leader in design, development and production of highly
      personalized, data-driven direct mail; database solutions and response
      management services; and one-to-one digital printing and marketing.
 
    - Digital Services are provided through Big Flower Digital Services, Inc.
      ("Digital Services"), which offers an array of digital services
      principally through its three subsidiaries: Laser Tech Color, Inc. ("Laser
      Tech"), Columbine JDS Systems, Inc. ("Columbine") and Reach America, Inc.
      ("Reach America").
 
     - Laser Tech is a leading provider of outsourced, digital premedia and
       content management services to retailers, advertising agencies, and
       consumer product companies.
 
     - Columbine is a leading provider of software products and related services
       to the advertising agency, cable, satellite and terrestrial broadcast
       industries in both the United States and internationally.
 
     - Reach America is a leading provider of targeted advertising software
       applications that develops proprietary, target audience databases, tracks
       consumer products category sales potential and maps retail trade zones.
 
    - Big Flower's fourth business segment consists of its Speciality Products &
      Commercial Printing Services. These products and services are also offered
      by Webcraft. This segment includes commercial printing services, the
      production of specialty chemicals, adhesives and coatings, and the
      production of fragrance samplers. The Company has stated its intention to
      de-emphasize this line of business and to focus on the core direct
      marketing services area.
 
    On October 17, 1997, as part of a reorganization of Big Flower's legal
structure, Big Flower Holdings, Inc. became the parent of Big Flower Press
Holdings, Inc. ("Big Flower Press"). Unless otherwise indicated or the context
clearly implies otherwise, all references in the Report to "Big Flower" or the
"Company" refer to Big Flower Holdings, Inc. and its subsidiaries, including Big
Flower Press, and all references to the common stock, certificate of
incorporation and by-laws, board of directors, agreements and other incidents of
Big Flower shall be references to such matters with respect to Big Flower Press
prior to such reorganization and to Big Flower Holdings, Inc. thereafter. Big
Flower was incorporated in Delaware in 1997. Big Flower Press was incorporated
in Delaware in 1993. Big Flower's and Big Flower Press' principal executive
offices are located at 3 East 54th Street, New York, New York 10022 and their
telephone number is (212) 521-1600.
 
                                INDUSTRY SECTORS
 
    INDUSTRY DATA USED THROUGHOUT THIS REPORT WAS OBTAINED FROM INDUSTRY
PUBLICATIONS AND INTERNAL COMPANY ESTIMATES. WHILE THE COMPANY BELIEVES SUCH
INFORMATION TO BE RELIABLE, ITS ACCURACY HAS NOT BEEN INDEPENDENTLY VERIFIED AND
CANNOT BE GUARANTEED.
 
    Big Flower and its subsidiaries operate in the advertising and marketing
services industry, focusing their products and services on four sectors of this
industry.
 
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    INSERT ADVERTISING. Big Flower believes that the insert advertising industry
sector generates revenues of approximately $10 billion per year, with
approximately 45% of this amount attributable to the production of insert
advertising and the balance to distribution of the product. Big Flower believes
this industry sector will continue to grow as non-traditional insert users and
national advertisers have begun to include inserts in their media plans and
traditional users such as retailers are spending more of their advertising
dollars in this medium.
 
    Big Flower further believes insert advertising usage will expand as
advertisers are offered the opportunity to distribute more versions of their
inserts and to target the distribution of their messages more effectively.
According to the 1998 Newspaper Association of America, retail advertisers have
increased their reliance on inserts as advertisers demand more targeting of
their message.
 
    DIRECT MAIL. Big Flower believes that in this industry sector, personalized
direct mail expenditures accounted for approximately $39.3 billion in 1998, with
approximately 33% going to the production of direct mail and the remainder to
other services, including agency services, data analysis and manipulation and
creative development.
 
    DIGITAL SERVICES. The base premedia sector is estimated to generate revenues
of approximately $5.3 billion annually. This does not, however, reflect the
newer digital services that cross into non-traditional areas, including digital
illustration, high speed digital data communications for the movement of image
and graphic data, digital asset management, and New Media products. The
traditional business model for the pre-press industry is continuing to evolve
from one of traditional pre-press film and proofs for point of sale, packaging,
insert, and collateral advertising materials to newer digital services. These
services are designed to take advantage of emerging technology, which include
providing media asset management, high speed digital data communications for the
movement of image and graphic data, as well as state of the art video
teleconferencing and remote file annotation. Big Flower believes that, in the
future, advertisers will need greater flexibility in the production of digital
advertising media and the need for collaboration worldwide should drive the
delivery of new and innovative solutions. The delivery of these solutions is
most evident in the arena of facilities management and customer outsourcing,
which continues to be a key growth area.
 
    Big Flower believes that domestic spending in the broadcast services sector
(including production, distribution and airtime purchasing) is approximately $50
billion per year. Big Flower believes that the digital broadcast services sector
will continue to grow, both domestically and internationally, with the emergence
of digital, multichannel broadcasting environments and the increase in the
number of channels which carry advertising content.
 
                               BUSINESS STRATEGY
 
    Big Flower's strategic objective is to enhance its position as an integrated
provider of a diverse range of advertising and marketing services across a broad
spectrum of media. Through internal growth and acquisitions, Big Flower aims to
broaden its technology and services in a manner that allows its subsidiaries to
interact dynamically to create both new services for existing customers and to
acquire new customers for its traditional products.
 
    Marketers aim to reach target customers with the most effective message and
the greatest possible impact. Technological advancements increasingly allow
marketers to understand
 
                                       3
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customer preferences and to differentiate and individualize advertising
messages. Big Flower's strategy is to assist its customers by providing a broad
array of advertising and marketing services which capitalize on these
advancements. Key elements of this strategy include the following:
 
    PROVIDE INTEGRATED ADVERTISING SOLUTIONS. Big Flower believes that by
combining the products and services of TC Advertising, Webcraft and Digital
Services it can work with customers to develop cost-effective and comprehensive
solutions to their particular advertising and marketing needs. Big Flower has
the expertise to work with customers from inception of an advertising concept
through layout design and production, to targeting and distribution of the
printed product, thereby helping customers achieve their advertising goals in a
cost-effective manner. For example, Big Flower combined the products and
services of the insert advertising business and the digital premedia group to
provide a full-service solution for a significant national office supply
retailer. In addition to producing their insert advertising, Laser Tech operates
a photography studio inside the retailer's headquarters. Staffed by full time
photographers from our premedia group, the studio provides all the imaging work
for the 1.6 billion insert advertising program which TC Advertising produces for
this customer in six production facilities in our nationwide network. Laser Tech
also does all of the photo work for the customer's extensive catalog
advertising. Big Flower believes that by integrating its digital premedia
services, insert advertising capabilities, newspaper publications, geographic
and demographic insert targeting programs, highly customized direct mail and
specialty products, and broadcast industry software products, it offers its
customers certain comprehensive solutions not offered by Big Flower's
competitors.
 
    NEW MEDIA. We are also positioning ourselves for the newest segment of the
advertising world, the Internet. Big Flower's involvement with the Internet is
growing. We see the application of many of our existing skills, including
targeted marketing, list management, telemarketing and digital image production
and archiving as important complements to the explosive growth in Internet
activity. In order to monitor the progress of this technology and to enhance
shareholder value, we have made, primarily through XL Ventures, Inc., our
Internet and new media venture capital subsidiary, minority investments in
Internet-related companies. We are focused on developing our existing services
for the Internet and adding others which demonstrate potential for dynamic
growth and high profitability.
 
    DEVELOP TARGETED ADVERTISING PROGRAMS. Big Flower's customers are
increasingly targeting their advertising messages based on more detailed
knowledge of consumers and what they buy. Big Flower has responded to this trend
throughout the Company and its operating units as follows:
 
    - TC ADVERTISING'S Target Reach system enables Big Flower to attract new
      categories of customers by providing them with software services that
      utilize the targeted distribution capabilities of major newspapers.
      Advertisers can customize their insert advertising programs to match the
      demographic characteristics and fulfillment requirements of over 35,000
      newspaper delivery zones across the nation. In addition, the underlying
      software and analysis capabilities of Target Reach have been used by
      newspapers, advertising agencies and national advertisers.
 
    - WEBCRAFT'S highly individualized, multiple component direct mail campaigns
      utilize information refined from customers' databases as well as
      Webcraft's own expertise in direct mail personalization techniques.
      Webcraft's 1998 acquisition of ColorStream
 
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      significantly enhanced Webcraft's ability to develop and execute heavily
      "data-driven," 100% variable, one-to-one targeted marketing campaigns.
      Webcraft's analytical capabilities--database management, telemarketing and
      response management--allow it to offer a broad array of services to
      current and prospective clients, both "upstream" and "downstream" of its
      direct mail production services.
 
    - DIGITAL SERVICES' ongoing introduction of new products and services
      fulfills the growing advertising needs of its clients. Laser Tech is
      working closely with clients to produce high impact two- and
      three-dimensional illustrations, design implementation, and multimedia
      effects. The creation of these services provides reduction in cycle time
      as well as an integrated approach to design for print applications. Laser
      Tech's image management software and network distribution systems allow
      customers to gain efficiency in production and to multiply the use of
      images, thereby allowing for greater breadth of advertising message
      delivery. Columbine's array of software analysis tools for broadcasters,
      rep firms and ad agencies allows them to buy or sell advertising in
      electronic media in an efficient manner. For example, its TV Works
      software product for TV stations allows sales representatives and managers
      to make sophisticated presentations to clients, offering highly specific
      demographic targeting. On the agency side, Columbine's MediaLine software
      provides a powerful analysis of efficiency in media planning and buying.
 
    MAXIMIZE CROSS-SELLING OPPORTUNITIES. Currently, TC Advertising serves a
large customer base of regional and national retailers and newspapers, while
Webcraft's and Laser Tech's customer base consists mainly of consumer product
companies, advertising agencies and national retailers. Columbine's customer
base is mainly TV and radio broadcasters, cable operators and satellite
broadcasters. Big Flower has established employee incentive compensation
programs to promote cross-selling of the entire Big Flower product and services
lines. In addition, certain premedia, ad design, digital photography and content
management functions previously performed by customers of TC Advertising and
Webcraft are now performed by Laser Tech at its facilities or under facilities
management agreements, and some of Laser Tech's customers purchase advertising
services from TC Advertising and Webcraft. Digital Services' operating units,
Columbine and Laser Tech, are also continuing to develop joint service
strategies for advertising agencies, and TC Advertising's Target Reach software
is being promoted to advertising agencies by Columbine's sales force.
 
    DRIVE FOR 100% DIGITAL WORKFLOW. Big Flower continues to expand its
nationwide digital infrastructure by investing in Computer-to-Plate technology
and TC-net, a broad band extranet that links all of the TC Advertising
operations to Laser Tech and their customers. TC-net is a state of the art
network that is based on Laser Tech's ViXNET and the latest Internet
technologies integrated into a fully secure environment. TC Advertising's
production facilities digitally receive, process, plate, and print highly
versioned insert advertising programs that enable TC Advertising's customers to
further reduce their ad production cycle times while achieving superior quality
results through a highly efficient, totally digital workflow. Laser Tech, in
cooperation with TC Advertising and its retail customers, has developed
VisionBank, a series of database driven information management and planning
tools that revolutionize the retail merchandising, planning and ad production
process. VisionBank empowers retailers and advertisers by establishing a
product-centric relational database at the core of their enterprise. The digital
assets and related business data associated with the
 
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planning, design, production, and post-event analysis of the advertising process
are totally coordinated through the VisionBank service. TC Advertising and Laser
Tech jointly market VisionBank services effectively bundled, with facilities
management, premedia, and printing services, in a way that provides advertisers
with a significant competitive advantage. TC Advertising has led the retail
advertising industry in the adoption of PDF(TM) (Adobe Systems Inc.'s Portable
Document Format), a highly-efficient digital file format that is rapidly
changing the way advertisers produce ad pages for premedia applications. This
year, over half of TC's premedia content will be produced in the PDF file
format.
 
    PURSUE STRATEGIC ACQUISITIONS. Big Flower continues to review opportunities
to extend its businesses in the advertising and marketing services industry and
to build its TC Advertising, Webcraft and Digital Services business units. In
addition, Big Flower adds value to strategic acquisitions by identifying
operating synergies and cross-selling opportunities, effecting cost savings and
improving efficiency. Since its initial acquisitions of TC Advertising, Laser
Tech, Webcraft and Columbine, Big Flower has expanded its products and services,
as well as its international presence, through a number of strategic
acquisitions that increased the span and scope of each of these industry sectors
and diversified Big Flower further into the digital services sector, as
summarized in the table below:
 
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BUSINESS UNIT           BUSINESS ACQUIRED               DATE                   STRATEGIC SIGNIFICANCE
-----------------  ----------------------------  ------------------  -------------------------------------------
<S>                <C>                           <C>                 <C>
TC ADVERTISING     KTB Associates, Inc., and     April 1994          - Expanded capacity and broadened its
                   Retail Graphics Holding                             customer base in the insert advertising
                   Company                                             industry sector
                                                                     - Expanded capacity and customer base in
                                                                       newspaper, TV listing guides and
                                                                       magazines
                   PrintCo., Inc.                October 1996        - Added significant retail accounts and new
                                                                       production capacity
                   Riverside County Publishing   October 1997        - Expanded capacity in the western United
                   Company                                             States
WEBCRAFT           Scanforms, Inc.               October 1996        - Expanded customer base among leading
                                                                       financial services and publishing
                                                                       companies
                                                                     - Added additional high-quality laser
                                                                       personalization and short-run
                                                                       capabilities
                   Olwen Direct Mail, Limited    September 1997      - Established international platform for
                                                                       Big Flower
                                                                     - Provided multinational direct mail
                                                                       expertise
                                                                     - Enhanced database management capabilities
                   IMPCO Enterprises, Inc.       November 1997       - Expanded direct marketing capabilities to
                                                                       include database services and response
                                                                       management
                                                                     - Positioned Webcraft as a fully integrated
                                                                       direct marketing service provider
 
                                                                                  (TABLE CONTINUED ON NEXT PAGE)
</TABLE>
 
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                                            (TABLE CONTINUED FROM PREVIOUS PAGE)
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BUSINESS UNIT           BUSINESS ACQUIRED               DATE                   STRATEGIC SIGNIFICANCE
-----------------  ----------------------------  ------------------  -------------------------------------------
<S>                <C>                           <C>                 <C>
WEBCRAFT           ColorStream Technologies,     May 1998            - Added one-to-one digital printing and
                   Inc.                                                marketing capabilities and technology
                                                                     - Provided 100% data-driven response
                                                                       support for Internet-based marketing
                                                                       campaigns
                   Colorgraphic Direct Response  January 1999        - Added digital print driven work flow
                   Limited                                             automation
                                                                     - Expanded Big Flower's international
                                                                       platform and critical mass
                                                                     - Replicates Webcraft's business model,
                                                                       internationally, with addition of
                                                                       strategy development and database and
                                                                       response management services
DIGITAL SERVICES   Pacific Color Connection,     October 1996        - Enhanced expertise in digital premedia
                   Inc.                                                services
(LASER TECH)                                                         - Expanded presence in California
                                                                     - Added Internet production services
                                                                     - Expanded product lines to include large
                                                                       format advertising products
                   Designer Color Systems, Ltd.  December 1996       - Added capability to produce interactive
                                                                       multimedia systems for electronic
                                                                       catalogs and ordering systems
                   Digital Dimensions, Inc.      December 1996       - Enhanced digital imaging services
                                                                       platform
                                                                     - Added capability to provide Web site
                                                                       design and execution
                   Gamma One, Inc.               October 1997        - Provided strategic Northeast presence
                                                                     - Enhanced digital image management and
                                                                       facilities management capabilities
                   Troypeak Limited and Pismo    March 1998          - Added digital premedia services capacity
                   Limited                                             in Europe
                                                                     - Expanded Big Flower's network for image
                                                                       movement and management to Europe
                   Enteron Group, Inc.           May 1998            - Added significant presence in New York
                                                                       and Chicago metropolitan markets
                                                                     - Expanded customer base among major
                                                                       advertising agencies
                   Imaging Consortium, Inc.      July 1998           - Enhanced retouching services
                                                                     - Expanded presence with major New York
                                                                       metropolitan advertising agencies
 
                                                                                  (TABLE CONTINUED ON NEXT PAGE)
</TABLE>
 
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                                            (TABLE CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
BUSINESS UNIT           BUSINESS ACQUIRED               DATE                   STRATEGIC SIGNIFICANCE
-----------------  ----------------------------  ------------------  -------------------------------------------
<S>                <C>                           <C>                 <C>
                   The Admagic Group Limited     November 1998       - Enhanced premedia presence in the United
                                                                       Kingdom
                                                                     - Added UK-based management depth
DIGITAL SERVICES   Columbine JDS Systems, Inc.   October 1997        - Diversified Big Flower into broadcast
                                                                       media services
(COLUMBINE)                                                          - Provided strategic coordination between
                                                                       digital moving images and digital still
                                                                       images
                                                                     - Offered software and technology expertise
                                                                       that can be leveraged throughout Big
                                                                       Flower
                   Broadcast Systems Software    November 1997       - Expanded Columbine's presence in the
                   Limited                                             United Kingdom
                                                                     - Provided PC-based software for television
                                                                       programming
                   CJDS Adtraq Inc.              June 1998           - Enhanced software solutions to
                   and CJDS Adserve, Inc.                              advertising agency and media buying
                                                                       services markets
                                                                     - Established Columbine's presence in
                                                                       Canada
                   DSI Datatrak Systems, Inc.    November 1998       - Expanded advertising agency customer base
                                                                     - Added research and development expertise
DIGITAL SERVICES   Reach America, Inc.           April 1998          - Provided targeted advertising software
(REACH AMERICA)                                                        applications
</TABLE>
 
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<PAGE>
                    INSERT ADVERTISING & NEWSPAPER SERVICES
 
    The Company provides insert advertising services to leading retailers and
provides newspaper services, such as Sunday magazines, TV listing guides and
special supplements, to some of the most widely circulated U.S. newspapers. In
1998, the Company produced approximately 30 billion insert advertising programs,
1.6 billion Sunday comics, 181 million locally edited Sunday magazines and 902
million TV listing guides. The Company estimates that this represents
approximately 25%, 52%, 24% and 27%, respectively, of the total insert
advertising programs, Sunday comics, Sunday magazines and TV listing guides
produced in the U.S. in 1998. The Company believes it is the largest producer of
insert advertising programs in the United States. TC Advertising, the Company's
operating unit in this industry sector, is headquartered in Baltimore, Maryland
and operates a national network of 20 production facilities.
 
PRODUCTS AND SERVICES
 
    BACKGROUND.  The Company believes the insert advertising programs industry
sector in the U.S. has grown at a faster rate in recent years than overall
newspaper retail run-of-press (ROP) growth and exceeded $10 billion in 1998.
Industry research indicates that more than 75% of consumers read insert
advertising appearing in their Sunday newspaper. In addition, between 46% and
56% of adult readers use insert advertising for making their purchasing
decisions in key retail categories.
 
    INSERT ADVERTISING PROGRAMS.  Insert advertising programs are stand-alone
advertisements, generally in color, which display a broad range of products sold
by a single retailer or manufacturer. The primary users of insert advertising
programs are general merchandisers, specialty retailers, grocery stores, home
improvement centers and drug stores. Insert advertising is distributed in
newspapers, mailed to consumers or placed in stores. Insert advertising can be
produced in color on better quality paper than the reproductions that typically
appear in newspapers. Insert advertising programs also allow users to vary
layout, artwork, design, trim size, paper types, color and formats. TC
Advertising's mix of printing capabilities, which include both heatset and cold
web offset presses, enables them to provide a variety of formats and designs to
meet the diverse needs of its retailing customer base.
 
    OTHER NEWSPAPER AND PUBLICATIONS PRODUCTS.  The Company produces TV listing
magazines, Sunday comics, Sunday magazines and special supplements for over 300
newspapers, including approximately two-thirds of the 50 most widely circulated
newspapers in the United States.
 
    TC Advertising is the largest single producer of newspaper TV listing guides
in the United States. As of December 31, 1998, TC Advertising produced newspaper
TV listing guides for 48 newspapers including The Baltimore Sun, The Boston
Globe, The Los Angeles Times, The Newark Star-Ledger, Newsday, The New York
Times, The Philadelphia Inquirer and The San Francisco Chronicle.
 
    TC Advertising is the largest producer of Sunday comics nationwide. In 1998,
TC Advertising produced Sunday comics for approximately 280 newspapers,
including The Atlanta Journal, The Baltimore Sun, The Denver Post, The Los
Angeles Times, The Miami Herald, The Newark Star-Ledger and The Philadelphia
Inquirer.
 
                                       9
<PAGE>
    OTHER SERVICES.  In connection with its insert advertising programs and
other newspaper publications, the Company offers a number of related services,
including creative and composition, digital photography, image management, film
output, digital file transfer and facilities management.
 
INSERT ADVERTISING SECTOR BUSINESS STRATEGY
 
    The Company's business strategy for this industry sector is to maximize the
effectiveness of the insert advertising medium for its customers. Successful
application of this strategy will enable TC Advertising's customers to deliver
their advertising and marketing messages on a cost efficient basis, and will
drive profitability for the Company in this industry sector. The cornerstone of
this strategy is the continued development of an organization that focuses on
assisting customers in maximizing the effectiveness of their advertising
dollars. Key elements of this strategy include:
 
    NATIONWIDE VERSIONING CAPABILITY.  As the only insert advertising producer
offering a national network of both heatset and cold web offset production
facilities, TC Advertising is able to meet the diverse needs of its customers
and achieve significant cost and distribution advantages. TC Advertising
simultaneously produces major national insert advertising programs and other
products in multiple locations, which shortens turnaround time and reduces
shipping costs to the customers' locations. Furthermore, this nationwide network
allows TC Advertising's customers to use a single insert advertising producer to
target specific distribution areas or distribute different versions of an insert
program in different targeted parts of the United States. As the Company
continues to develop its national digital work-flow platform, TC Advertising
expects to improve efficiencies for insert versioning, improve the timeliness of
insert advertising programs by reducing the production and distribution cycle
time and enhance the cost-effectiveness of the insert advertising medium versus
other advertising media.
 
    TARGETED DISTRIBUTION PROGRAM.  TC Advertising has developed a database
information system known as Target Reach, which enables advertisers to use
insert programs to target messages specifically to potential customers who meet
the advertisers' desired geographic, demographic and purchase pattern profiles,
resulting in more cost-effective advertising.
 
    MEASURED MEDIA APPROACH.  TC Advertising is marketing insert advertising
programs as a specific category of measured media, like radio or television. TC
Advertising believes that if insert programs are considered a specific measured
media category, TC Advertising may be in a better position to compete for
advertising budgets. To establish insert advertising programs as a specific
measured media category, TC Advertising has developed proprietary research that
positions the power of the insert advertising medium against other types of
measured media.
 
    COMPETITIVE COST POSITION.  TC Advertising maintains stringent cost controls
and has implemented programs to enhance efficiency and improve profitability in
recent years. These programs have resulted in increased press speeds, reduced
paper waste and improved capacity utilization. As one of the largest consumers
of newsprint and ink in the United States, TC Advertising believes it is able to
achieve significant purchasing economies under most market conditions.
 
                                       10
<PAGE>
    PRODUCTION LOAD-LEVELING.  TC Advertising has implemented targeted programs
which focus on the newspaper, grocery and other industry groups whose production
needs are weekly or monthly in frequency. Printing services for these industry
groups create a more balanced, load-leveling production environment, allowing TC
Advertising to improve planning and utilization of its production capacity. In
addition, TC Advertising is constantly refining its pressline configurations to
optimize equipment utilization, thereby improving operating efficiencies,
service and flexibility and enabling TC Advertising to meet the changing needs
of its customers.
 
SALES AND CUSTOMERS
 
    The Company's sales force in this industry sector is organized into
geographic business groups. Its three regional geographic groups in this
industry sector cover the northern, southern and western United States. These
sales professionals draw upon their industry expertise, their knowledge of
retailing and the Company's production capabilities to help customers achieve
their advertising objectives on a cost-effective basis. The Company's top ten
customers in this industry sector, which accounted for approximately 35% of the
Company's sales in this industry sector in 1998, were American Drug Stores;
OfficeMax; Rite-Aid; The Home Depot; Kmart; Lowe's Companies, Inc.; Safeway,
Inc.; Walgreen's; Wal-Mart and Western Colorprint. No single customer
represented more than 4.6% of this segment's sales in 1998. As of December 31,
1998, the average length of the Company's relationship with such top ten
customers was approximately 14 years. Consistent with industry practice, TC
Advertising generally does not have long-term contracts with its retail
customers requiring them to use its products or services. The Company does not
believe that the loss of any single customer of TC Advertising would have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
 
    The following table presents the sales by type of customer as a percentage
of total TC Advertising sales:
 
<TABLE>
<CAPTION>
                                                                                 PERCENTAGE OF
                                                                                TC ADVERTISING
CUSTOMER TYPE                                                                    SALES IN 1998
------------------------------------------------------------------------------  ---------------
<S>                                                                             <C>
Specialty retail and furniture................................................          19.3%
Grocery stores................................................................          19.1
General merchandisers.........................................................          16.3
Home improvement centers......................................................          14.2
Drug stores...................................................................          11.3
Non-retail products...........................................................           4.2
                                                                                       -----
  Total insert advertising....................................................          84.4
Newspaper TV listing guides...................................................           6.8
Sunday comics.................................................................           4.4
Other newspaper products and other publications...............................           4.4
                                                                                       -----
  Total.......................................................................         100.0%
                                                                                       -----
                                                                                       -----
</TABLE>
 
COMPETITION
 
    This industry sector is highly fragmented, and TC Advertising competes with
numerous regional and local companies for the production of insert advertising
programs. TC
 
                                       11
<PAGE>
Advertising also competes for national accounts with several large producers,
some of which have greater resources than the Company. TC Advertising believes
that it and three other companies account for approximately 58% of the insert
advertising programs printed in the United States, with more than 120 regional
and local producers accounting for the balance. In addition, TC Advertising's
products compete with television, radio and other forms of print and electronic
media. In the production of Sunday newspaper comics, TC Advertising competes
with American Color Graphics as well as those newspapers which print their own
comics and others which could do so. TC Advertising's newspaper TV listing
guides, Sunday magazine and newspaper supplement operations also face strong
competition both from other printers and newspapers. TC Advertising's major
competitors in these areas are R.R. Donnelley & Sons Company, Quebecor, Inc.,
American Color Graphics and World Color Press. Although commercial printing in
the United States remains highly fragmented, recent technological developments
and over-capacity in the printing industry have increased industry consolidation
and competitive pressures. The principal methods of competition in these
businesses are pricing, quality, timeliness of delivery, customer service and
value-added services. Pricing is dependent in large part upon the prices of
paper and ink, which are the major components of TC Advertising's products.
Pricing is also influenced by shipping costs, operating efficiencies and the
ability to control costs. TC Advertising believes that the introduction of new
technologies and continued excess capacity in this industry sector, combined
with the cost pressures facing its customers resulting from among other things,
the cost of paper and postal rates, have resulted in downward pricing pressures
and increased competition in its core businesses. See "--Additional Company
Information--Raw Materials."
 
                           DIRECT MARKETING SERVICES
 
    The Company designs, develops and produces highly-personalized, data-driven
direct mail; database solutions and response management services; and one-to-one
digital printing and marketing. In addition, Webcraft is well positioned in the
high value-added strategic database and response management businesses, allowing
it to provide fully integrated direct marketing solutions. The Company's main
operating unit in this industry sector, Webcraft, is headquartered in
Lawrenceville, New Jersey and has production facilities in Bristol and Chalfont,
Pennsylvania; Rochester, New York; Newark and North Brunswick, New Jersey;
Salisbury, Maryland; Chicago, Illinois; and Croyden and Leicestershire, England.
 
PRODUCTS AND SERVICES
 
BACKGROUND
 
    The Company believes that in the individualized direct mail industry sector
in which Webcraft operates, customized direct mail expenditures accounted for
approximately $39.3 billion in 1998, with approximately 33% going to the
production of direct mail and the remainder to other services, including agency
services, data analysis and manipulation, and creative development. Media
expenditures for direct mail advertising grew at an average annual rate of 7.6%
for the period from 1993 to 1998, and are projected to continue to grow at an
annual rate of 6.0% through 2003, according to the 1998 DMA/WEFA Group Study--
"Economic Impact: U.S. Direct Marketing Today." The Company believes more
advertisers will increasingly rely on and use more sophisticated individualized,
data-driven direct mail techniques as prospect and customer databases grow in
both volume of information stored and sophistication.
 
                                       12
<PAGE>
SPECIALTY PRODUCTION
 
    PERSONALIZED DIRECT MAIL.  The majority of the Company's revenues in this
industry sector are derived from the production of heavily personalized
advertising mailings which are produced by ink-jet, laser and electropress
systems, integrated with an advanced data processing capability. Personalized
direct mail enables consumer goods companies and other marketers to communicate
with their customers on an individual-by-individual basis rather than relying on
the broad, non-targeted mailings which typically generate lower response rates.
The Company can develop, customize, process and manipulate databases to enable
its customers to target direct mail recipients based on hundreds of available
attributes, including the recipient's age, gender, address, spending habits,
such as type of car owned, or whether the recipient is a pet owner. Personalized
direct mail is frequently used in conjunction with larger print, radio or
television promotional campaigns.
 
    STRATEGIC DATABASE SERVICES.  The acquisition of IMPCO Enterprises, Inc.
("IMPCO") in November 1997 added leading edge database technology and analytical
tools "upstream" from Webcraft's core direct mail production business. As direct
marketing becomes increasingly data and information driven, sophisticated
database capabilities become critical to successful direct marketers, with a
growing reliance on outsourcing. The third party direct marketing information
services sector was estimated in early 1998 to be $5.6 billion and growing
rapidly. IMPCO's database marketing capabilities include strategic and tactical
consulting, database development and management, modeling analysis, customized
list development and response analysis. They have spent the past 18 months
building a proprietary Consumer Data Warehouse, with extensive demographic,
lifestyle and purchase behavior data on essentially all marketable U.S.
households.
 
    RESPONSE MANAGEMENT SERVICES.  The IMPCO acquisition also added important
value-added response management services "downstream" from Webcraft's core
direct mail print production, providing the ability to close the direct response
"promotional loop" on behalf of the customer. These types of programs could
range from a lead management and fulfillment program in support of a high-tech
sales force, to managing and fulfilling an on-going prescription drug sampling
program for a leading pharmaceutical manufacturer. Some of the key capabilities
and technology IMPCO brings to this business include tactical consulting and
program development, account management, teleservices (inbound, outbound and
automated (IVR)), data entry, fulfillment, and database management.
 
    DIGITAL ON-DEMAND PRINTING AND MARKETING SERVICES.  With the strategic
acquisition of ColorStream Technologies in May of 1998, Webcraft added
technology, capabilities and expertise that now position it strongly in the
one-to-one, digital on-demand communications arena--one of the fastest growing
direct mail segments. ColorStream develops and executes data-driven, 100%
variable (content and images) direct marketing communication programs, either up
front with customer acquisition or back-end in the response fulfillment. These
highly individualized targeted marketing campaigns can significantly enhance
customer response levels and even improve client marketing efficiencies through
on-demand workflow automation. The growth in customer data availability, the
increasing sophistication of database marketing tools, as well as the growing
use of the Internet for integrated marketing campaigns, are expected to increase
the demand for ColorStream's services.
 
                                       13
<PAGE>
DIRECT MARKETING SECTOR BUSINESS STRATEGY
 
    The Company's business strategy in this industry sector is to increase
revenues and maximize profitability in its core business of direct mail products
and customized advertising products. The cornerstone of this strategy is to
improve the effectiveness of its customers' advertising products by developing
customized formats and offering complex personalization capabilities designed to
increase response rates. With the addition of strategic database and response
management services, a key component of the overall business strategy is now to
become a leading provider of integrated direct marketing services across
selected key arenas, assisting our customers in developing comprehensive and
cost effective direct response solutions. In fact, in its first year as a
Webcraft company, the acquired IMPCO business experienced 40% growth in sales,
with almost 20% of its total revenue originating as "cross-sales" from the
existing Webcraft client channel. As the trend towards third party outsourcing
of key direct marketing and "customer care" activities accelerates within the
Fortune 1000 companies, the demand for well-positioned integrated solutions
providers should intensify, enhancing profitability and client loyalty. The key
elements of this strategy include:
 
    TECHNOLOGICAL EXPERTISE.  Webcraft believes that the continued development
of its production processes enables it to consistently provide high quality,
cost-effective products and services. Webcraft's technological focus is on its
in-line finishing process that combines the personalizing, folding, cutting and
collecting of several multi-color pieces into a formed envelope in one step,
shortening the time needed to produce complex finished products. Additionally,
its unique combination of format design, multi-stage personalization and outer
wrap (envelope) configurations often provides customers with superior response
rates to their direct marketing programs. These same processes also enable
Webcraft to provide its products more rapidly than many of its competitors.
Webcraft believes that these capabilities are becoming increasingly important as
lead time becomes more compressed and customers demand faster turn around times
to respond to time-sensitive market opportunities. In addition, Webcraft's
ink-jet technology is complemented by the traditional laser imaged direct mail
of its Scanforms, Inc. subsidiary. Furthermore, the conversion of new customers
from the more traditional method of laser imaging of Scanforms to Webcraft's
in-line method is made easier because Webcraft will initially be able to provide
services to these new customers in the laser process they are familiar with
before they are converted to Webcraft's in-line method as appropriate. With the
addition of ColorStream, both the ink-jet and laser personalization technologies
are now even further enhanced with ColorStream's full color, digital on-demand
printing technology. This technology extension further refines Webcraft's
ability to develop and execute heavily data-driven customer communications down
to a one-to-one individualized level.
 
    NEW PRODUCTS.  Webcraft will continue to work with its customers to develop
new products to meet their advertising needs. Webcraft's in-line process,
coupled with advanced design and personalization capabilities, gives it an
advantage over its competitors in improving the effectiveness of its customers'
direct mail products.
 
    NEW CAPABILITIES AND SERVICES.  The acquisition of IMPCO positioned Webcraft
in the high value-added strategic database and response management businesses,
allowing it to provide fully integrated direct marketing solutions. Most of
Webcraft's direct mail clients today are utilizing these services in some
fashion, in their direct marketing activities and related "customer care"
programs, creating many cross-selling opportunities that should
 
                                       14
<PAGE>
further strengthen customer relationships. As a well positioned, direct
marketing integrated solutions provider, Webcraft should be in an advantageous
position to more aggressively attract new business and to capitalize on new
market opportunities.
 
    ENTER NEW MARKETS.  Webcraft will continue to develop new customers and will
work with TC Advertising and Digital Services to target the retail industry.
Webcraft and its U.K. subsidiaries, Olwen Direct Mail Limited ("Olwen") and
Colorgraphic Direct Response Limited ("Colorgraphic"), will also target domestic
and foreign clients with multinational direct mail needs.
 
    INTERNATIONAL EXPANSION.  With the acquisition of Olwen and, in January
1999, Colorgraphic, Webcraft has now established a stronghold into the European
direct marketing industry sector. Olwen enjoys an excellent reputation for
targeted, high impact direct mail production. Olwen's wide range of capabilities
spans from five color sheet-fed printing to sophisticated data processing and
personalization, to complex finishing processes, resulting in high-performing
client direct mail programs. They also provide Webcraft with international
address formatting technology with mailing experience throughout the world. In
addition to extensive inline printing and finishing and laser imaging/lettershop
capabilities, Colorgraphic adds strategic consulting/project management,
database marketing, and response fulfillment/ management services. Together, the
two companies create a formidable "integrated player" in the European direct
marketing industry sector, with several significant client cross-sell
initiatives already in discussion, with Webcraft expecting these to continue to
grow as domestic clients increasingly expand their marketing activities
internationally. With the addition of Colorgraphic, and in combination with
Olwen, Webcraft has now replicated its successful "integrated" direct marketing
business model for the U.K. and European marketplaces.
 
    LEVERAGE DATABASE EXPERTISE.  Webcraft intends to use its expertise and
leading-edge proprietary Consumer Data Warehouse in managing database
information to work with its customers to design more cost-effective and highly
targeted campaigns.
 
    COST CONTROL AND PRODUCTIVITY IMPROVEMENTS.  Webcraft has developed a cost
control program which focuses on minimizing waste, reducing labor-intensive
processes and making its selling effort more efficient. In addition, management
has implemented several programs to improve profitability, including
reorganizing its management information systems and business acquisition
systems, which allow Webcraft to utilize press time more effectively. Webcraft
has implemented a new order confirmation system that strengthens its
relationships with its customers, by providing accurate and detailed job
specifications and electronic templates for ease of customer formatting.
Webcraft has also instituted a new make-ready program, resulting in significant
reduction of make-ready time. This has resulted in lowering set-up costs and
increasing total production capacity of the installed base of equipment.
 
SALES AND CUSTOMERS
 
    The Company employs approximately 60 sales representatives in this business
segment. They are based in over 20 sales offices and/or production facilities
located in 12 states, the District of Columbia and the United Kingdom. While the
majority of sales are made directly to end users, the Company also sells its
direct mail products and services through advertising agencies, brokers and
other agents. The Company's principal customer groups include
 
                                       15
<PAGE>
consumer goods manufacturers, financial institutions, non-profit organizations
and government agencies. The Company's ten largest customers in this industry
sector accounted for approximately 40% of its sales in this segment in 1998. On
average, these customers had over a twelve year relationship with the Company. A
consumer products customer and a publishing customer each accounted for
approximately 11% of sales in this segment in 1998. While the loss of either of
these customers may have a material adverse effect on this segment if we are
unable to replace such customer or to shift production to fulfill excess orders
from other existing customers, the Company does not believe that the loss of any
single customer in this segment would have a material adverse effect on the
Company's consolidated financial condition or results of operations.
 
    Prices typically vary from project to project because each direct mail
campaign is unique with its own variables, including run quantity, dimensions of
the printed piece, personalization, special materials such as scratch off, die
cuts and a number of other criteria.
 
COMPETITION
 
    In this industry sector, the Company competes with a number of different
firms in each of its principal lines of direct mail business. The primary
competitive factors in its specialty products are quality, flexibility, service,
timeliness of delivery and price. However, in certain non-specialty products,
such as the commercial printing and government printing products and services,
price is often the dominant factor. In the personalized direct mail product
category, the Company's major competitors are R.R. Donnelley Specialty Products;
Moore Response Marketing Services, a division of Moore Business Forms, Inc.; and
World Color Press, Inc. In the database and response management business
categories, it competes with companies like Harte-Hanks, Inc., Acxiom
Corporation and Experian.
 
                                DIGITAL SERVICES
 
    Digital Services is the parent company of Laser Tech, Columbine and Reach
America and is the third industry sector in which the Company operates. The
Company believes that there are strategic benefits to coordinating (a) Laser
Tech's expertise in digital management of still images, use of server technology
and capacity of broadband data communication networks with (b) Columbine's
expertise in the digital management of moving images used in advertising and
programming services and with (c) Reach America's expertise in targeted
advertising software applications.
 
PREMEDIA PRODUCTS AND SERVICES
 
    Laser Tech believes it provides an unprecedented range of digital premedia
services for the commercial advertising, retail catalog and packaging
industries. Services and technology include two-and three-dimensional
illustrations, digital photography, design fulfillment, desktop publishing,
turn-key catalog and insert advertising production, electronic retouching,
ultra-large format film, large display ad production, photopolymer platemaking,
client/server software and hardware, digital asset management for high speed
image retrieval, digital telecommunications for the movement of image and
graphic data, and video teleconferencing. Laser Tech is headquartered in Irving,
Texas and offers its customers services in 23 full service outsourcing centers,
eight specialty service facilities and eight facilities which Laser Tech manages
at its client locations.
 
                                       16
<PAGE>
    BACKGROUND.  The Company believes that the premedia products and services
industry generates revenues in excess of $5.3 billion annually. Laser Tech
believes that the digital premedia business will continue to grow with the
emergence of new distribution technologies such as CD-ROM and the World Wide Web
that use digitized images. Furthermore, the acceleration of digital technologies
used in premedia services has necessitated greater data processing expertise and
comparatively greater capital expenditure, leading many businesses to outsource
their premedia requirements.
 
    ELECTRONIC PREMEDIA ("EPM") OPERATIONS.  EPM involves the electronic capture
of black and white or full color pictures and image retouching combined with
text and graphics into a page layout suitable for distribution in a print or new
media format such as CD-ROM or the World Wide Web. The Company's comprehensive
line of EPM services include the following:
 
        DIGITAL PHOTOGRAPHY.  The Company operates ten fully equipped digital
    photography studios capable of capturing images greater than 100 megabytes
    for an output print size of up to 20" X 30".
 
        ELECTRONIC RETOUCHING.  The Company offers its customers high-end
    facilities for electronic creation or retouching of visual images. The
    resulting digital image can be output as color transparency or offset film
    or distributed for Internet or CD-ROM publication.
 
        DIGITAL IMAGE SCANNING.  The Company scans and color corrects
    transparencies, photo prints or illustrations, then outputs the digital
    image file to a variety of media for print or electronic distribution.
 
        PAGE ASSEMBLY.  The Company places digital image files into customer
    page layouts to form finished printable advertising materials. These same
    digital files can be reformatted for output to digital media such as the
    Internet or multimedia. The Company utilizes Macintosh and Windows NT
    desktop publishing technologies as well as UNIX-based client/server
    technologies from Silicon Graphics, Inc., Sun Microsystems, Inc., Digital
    Equipment Corporation, Inc. and others.
 
        ELECTRONIC OUTPUT.  The Company outputs completed digital image files to
    a variety of output media, including regular and oversize lithographic
    films, color transparency, digital printing plate, digital new media such as
    the Internet or CD-ROM as well as direct digital color display graphics.
 
        PROOFING.  For each digital image file produced, the Company offers a
    variety of color proofing methods from direct digital methods in which the
    digital file is output to a color proof prior to final media output, to
    conventional analog proofs in which lithographic films are exposed onto
    color proofing materials. The Company operates low cost remote digital
    proofing facilities at many customer locations to provide the customer
    virtually instantaneous access to final digital files.
 
        PACKAGING.  The Company offers full service specialized services to
    packaging customers in image capture, art production, page assembly,
    proofing and photopolymer platemaking tailored for both lithographic and
    flexographic packaging products. Packaging products require different skill
    sets and capabilities than advertising materials
 
                                       17
<PAGE>
    due to the varied manufacturing technologies peculiar to consumer packaging
    reproduction.
 
        FACILITIES MANAGEMENT.  Laser Tech's Facilities Management division
    specializes in providing on-site digital premedia services to agencies,
    corporate advertisers or printers. Facilities Management sites typically
    involve long-term contracts and minimum annual revenue commitments.
 
        DIGITAL ASSET MANAGEMENT.  Laser Tech has developed a range of digital
    asset management applications designed to provide a turn-key technology
    solution to advertisers who desire to manage their digital assets for re-use
    or re-sale to third parties. Laser Tech's Digital Solutions Group is
    developing additional applications to meet the ever expanding needs of
    corporations and advertisers to store, retrieve and distribute
    electronically their digital assets. VisionBank, Laser Tech's comprehensive
    series of media asset management solutions, is a Web accessible content
    database, enabling customers to warehouse, search and retrieve media assets.
    VisionBank facilitates communications between the advertiser's merchandising
    and advertising departments and streamlines versioning, event management and
    page building capabilities.
 
    The Company's objective in this business is to become the leading provider
of outsourced, digital premedia and content management services to retailers,
advertising agencies, and consumer product companies. Key elements of this
strategy include:
 
    DEVELOP DIGITAL IMAGE MANAGEMENT NETWORKS.  Laser Tech continues to develop
systems to provide its customers with greater access to and control over their
advertising content. Accordingly, it has formed the Digital Solutions Group to
develop an interactive content management service suite which links advertisers
and graphic designers with a database of images, text and graphics. The database
enables them to avoid re-creation costs and streamline production flows by
creating, storing, retrieving, and editing their advertisements through on-line
connections from their offices. Laser Tech continues to work with TC Advertising
to integrate its digital premedia communications network with TC Advertising's
production facilities.
 
    ENTER NEW MEDIA MARKETS.  Laser Tech is leveraging its electronic premedia
services into the emerging technology arenas of electronic distribution of
information via the World Wide Web, CD-ROM and other electronic delivery
methods. Laser Tech's traditional customer base is actively seeking to exploit
these emerging media distribution channels. Laser Tech believes that these new
distribution methods, combined with an increasing need for digital archiving and
retrieval of digital images, present significant growth opportunities.
 
    EXPAND OUTSOURCING FACILITIES.  Laser Tech maintains multiple facilities in
major metropolitan areas across the country as well as "outsourced services"
sites on customers' premises and at various TC Advertising production sites.
Electronic imaging hubs are being developed to service Laser Tech's regional and
national customer base. These hubs will provide first-line and overflow imaging
manufacturing support for regional and national sales efforts.
 
    LEVERAGE EXISTING MARKETS.  In conjunction with TC Advertising, Laser Tech
is focusing on providing services to the substantial retail customer base of TC
Advertising, including electronic premedia services, image storage and retrieval
services, and customized application
 
                                       18
<PAGE>
software for increased production efficiency for both print and new media
distribution channels. Furthermore, the acquisition of Designer Color Systems,
Ltd. enhanced Laser Tech's ability to service its retail customer base with its
significant retail insert advertising and catalog production expertise. The
acquisition of Gamma One further extended Laser Tech's ability to leverage cross
selling opportunities between TC Advertising and Webcraft with the addition of
Gamma One's broad-based client list. The acquisitions of Troypeak Limited and
Pismo Limited expanded the Company's service capabilities to Europe, allowing
customer development in the U.S. and Europe and providing seamless image
transport across the Atlantic. The acquisition of The Enteron Group added
strategic locations in Chicago and New York as well as long-term relationships
with major advertising agencies. The acquisition of Imaging Consortium enhanced
Laser Tech's ability to deliver high-end image retouching services to leading
advertisers in New York. The acquisition of Admagic added comprehensive creative
services to the Company's U.K. premedia business.
 
BROADCAST-RELATED SOFTWARE PRODUCTS AND SERVICES
 
    Columbine provides a full line of software products and related services to
the advertising agency, cable, satellite and terrestrial broadcast industries
both in the United States and internationally. Services and technology include a
proprietary suite of software products that manage the buying and selling
processes for advertising and the placement of broadcast advertisements,
programming material and sales information data for television stations, radio
stations, broadcast and cable networks, cable operators and direct broadcast
satellite providers. The Company currently provides software products and/or
services to clients in all 50 states and in approximately 30 countries around
the world. Columbine is headquartered in Denver, Colorado and has development
and support facilities in the United States, the U.K., Canada and Australia.
 
    BACKGROUND.  The Company believes that domestic spending on broadcast
services, including production, distribution and airtime purchasing, is
approximately $50 billion per year. Columbine believes that the digital
broadcast services sector will continue to grow with the emergence of digital,
multi-channel broadcasting environments. This should result in a substantial
expansion of the number of channels on which advertising content will be carried
and consequently expand the utilization of Columbine's advertising insertion
software.
 
    PROPRIETARY SOFTWARE APPLICATIONS.  The Company's software assists
broadcasters, advertising agencies and media representation firms in the buying
and selling of advertising time. All or part of these systems schedule and time
commercials, produce sales analysis and proposals, offer master control
automation and provide program management and accounting and finance functions.
The Company's software products are licensed to customers through long-term
contracts with terms generally ranging from three to five years.
 
    In 1997, Columbine launched the core portions of its Paradigm Integrated
Broadcast System, a next-generation software system which integrates and
automates all information management activities and day-to-day operating support
for digital, multi-channel broadcasting environments. The Company believes that
Paradigm, which is comprised of numerous modules, is uniquely positioned to
service complex international environments and is the only traffic software
solution to successfully address the multiple channel, time-zone, censorship,
language and currency needs of international broadcasters. In addition to the
international opportunities, Paradigm is positioned to address the complexity of
regional direct broadcast
 
                                       19
<PAGE>
satellite systems and other new international delivery systems that require more
sophisticated business solutions.
 
    CONSULTING SERVICES.  In addition to its proprietary software products, the
Company's expert staff provides related products and services to the electronic
media industry including management consulting, temporary personnel, custom
software development, on-site training, custom business forms and 24-hour
technical support. The Company also serves as a reseller of hardware and
software technologies for its major technology partners that include IBM,
Tektronix, Hewlett Packard and Microsoft.
 
    The Company's objective in this business is to leverage its products and
services, customer relationships and its reputation in the market place as the
leading global provider of broadcast services to the electronic media in order
to expand its international presence and develop solutions for a complex
industry. Key elements to this strategy include:
 
    LEVERAGE STRONG CUSTOMER RELATIONSHIPS.  The Company's success in developing
long-term customer relationships has resulted in over 50% of the Company's
traffic software customers using the Company's products for 10 years or more.
Through the development of next generation technology and through superior
customer service, the Company will seek to leverage customer relationships in
order to capture new business opportunities resulting from consolidation,
digitization and other industry trends.
 
    EXPAND THE DELIVERY OF THE PARADIGM SYSTEM INTERNATIONALLY AND
DOMESTICALLY.  Paradigm is a total end-to-end solution consisting of many
integrated subsystems. A single relational database serves all modules in the
system, eliminating duplication of data entry and coordinating all activities
and functions. Paradigm integrates all of the key elements in the advertising
buy/sell process and enhances interdepartmental communication. The Company
launched the core portions of Paradigm in 1997 after an investment of 200 man
years and significant development dollars and intends to control its delivery to
ensure that its customers receive the highest level of service. The Company
continues to develop and roll out additional modules for the Paradigm system,
thereby offering additional features for this product.
 
    DEVELOP NEW PRODUCTS AND SERVICES.  The rapidly changing requirements of the
electronic media environment result in the demand for complex regional direct
broadcast satellite systems. Internationally, the privatization of existing
state-owned broadcast facilities and the issuance of new licenses for commercial
broadcasters around the world are creating demand for traffic systems on a
global basis. Domestically, the current transition from analog to digital
technology is expected to result in a significant increase in the number of
channels of program delivery through cable and satellite. Increased channels
will further refine viewing audiences and allow more focused audience targeting
for advertisers. The logistics of scheduling delivery of advertisements to
target audiences will require traffic scheduling systems, creating a significant
increase in the number of potential purchasers of Columbine's products and
providing increased cross-selling opportunities for Digital Services.
 
SALES AND CUSTOMERS
 
    The Company's premedia sales force, with 197 sales representatives in 32
offices, serves three categories of customers: advertising agencies, consumer
packaging and commercial products manufacturers, and retail advertisers. The
Company provides comprehensive premedia services for print advertising, point of
sale, catalogs, inserts, packaging and large
 
                                       20
<PAGE>
format display graphics. The largest of these customers include Micron Computer;
Tracy Locke Partnership (a member of Omnicom Group, Inc.); Leo Burnett; J.
Walter Thompson; OfficeMax; Kraft Foods; and Wal-Mart. The Company does not
believe that the loss of any single customer of Laser Tech would have a material
adverse effect on the Company's consolidated financial condition or results of
operations.
 
    The Company sells and markets its broadcast-related products in the United
States and internationally through a direct field sales organization with 43
sales and marketing people. The Company's principal customer groups in the
broadcast services sector include approximately 1,000 television stations,
approximately 530 radio stations, approximately 120 cable multiple station
operators (MSOs), approximately 175 cable networks and direct broadcast
satellite (DBS) operators and approximately 130 advertising agencies, media
buyers and national rep firms. The largest of these customers include TV Azteca,
S.A. de C.V., M-Net Broadcast Service, Telerep, Inc., Harrington Righter &
Parsons, Inc., Turner Broadcasting System, Fox Television, New York Times
Broadcast Group, LIN Television Group, Baton Broadcasting, Inc., Meredith
Broadcasting, and National Digital Television Center. The Company does not
believe the loss of any single customer of Columbine would have a material
adverse effect on the Company's consolidated financial condition or results of
operation.
 
COMPETITION
 
    The premedia business is highly fragmented and has been undergoing a period
of consolidation. The Company's major competitors in this sector are Applied
Graphics Technologies, Inc., Wace Group and Schawk, Inc. The major competitive
factors in the premedia business are diversification of services, quality of
finished products, distribution capabilities, ongoing customer service and
availability of time on equipment which is appropriate in size and function for
a given project. The consolidation of customers within certain of the Company's
premedia businesses has provided both greater competitive pricing pressures and
opportunities for increased volume solicitation.
 
    In the broadcast television business, Columbine's primary competitors are
Enterprise Software, Inc., a number of other smaller software companies
providing traffic and related systems, particularly to radio stations, and TV
networks who provide their own traffic systems and others which could do so. The
advertising agency segment is highly fragmented, both domestically and
internationally, with a number of relatively small suppliers, including Donovan
Data Systems.
 
                    SPECIALTY PRODUCTS & COMMERCIAL PRINTING
 
    The Company's fourth business segment consists of its specialty products and
commercial printing services, which the Company has determined to de-emphasize.
The Company produces specialty chemicals, adhesives and coatings and provides
commercial printing services, including the production of enhanced envelopes,
which are essentially simple printed products involving the formation of an
envelope, such as catalog order forms, film mailers and airline ticket jackets.
In 1998, approximately 84% of these specialty products were sold to industry
customers and the remainder were used internally. The Company also produces
fragrance samplers, which are product samples, typically of perfume, which are
distributed to potential purchasers of the fragrance through magazine inserts or
as billing statement stuffers
 
                                       21
<PAGE>
for major department stores. The Company is a leading producer of highly
specialized fragrance samplers because of its ability to produce an accurate
rendition of the perfume being marketed and its technological expertise in the
microencapsulation of the fragrance. The Company holds patented technology that
allows for multiple uses of a single magazine scent strip. The Company's
customers in fragrance samplers include Calvin Klein, Inc.; Elizabeth Arden, Co.
and Givenchy. In addition, the Company utilizes its extensive creative design
capabilities in combination with in-line finishing to produce targeted products
which are bound into magazines, inserted into packages or distributed by other
means.
 
    In the fragrance sampler line of business, the Company believes that its
major competitors are Orlandi, Inc., Retail Communications, Arcade, Inc. and
Quebecor Inc. In the non-specialty, commercial printing category, the products
produced do not have the same complexity as specialty printing or direct mail
products. Because of this lack of complexity, there are a number of printers
capable of competing with the Company in this area. In the non-specialty
printing category, the Company competes with Cyril-Scott Company, Double
Envelope Corp. (Convertagraphics) and R.R. Donnelly Specialty Products.
Increases in printing press capacity in this segment have led to over-capacity
in recent years, with resulting pricing pressures. The Company's management has
responded to these pressures by lowering its cost structure for producing
non-specialty products, de-emphasizing this line of business and growing the
specialty products lines to replace non-specialty products.
 
                                       22
<PAGE>
                         ADDITIONAL COMPANY INFORMATION
 
RAW MATERIALS
 
    In 1998, Big Flower spent approximately $670 million on raw materials. The
primary raw materials required in the Company's printing operations are paper,
ink, plates and adhesives. In its premedia operations, the primary raw materials
are film, chemicals, computer supplies and proofing materials. The Company
believes that there are adequate sources of supply for its primary raw materials
and that its relationships with its suppliers yield improved quality, pricing
and overall service to its customers. Although there can be no assurance that
the Company's sources of supply for its primary raw materials will be adequate
in all circumstances, in the event that such sources are not adequate, the
Company believes that alternative sources can be developed in a timely manner.
 
    The Company's results of operations depend to a large extent on the cost of
paper and the ability of the Company to pass along to its customers any
increases in these costs and remain competitive when there are decreases. In
recent years, the Company has substantially reduced the number of its suppliers
of paper and has formed stronger commercial relationships with those suppliers,
resulting in its ability to reduce costs by increasing efficiency, negotiating
favorable price discounts and achieving more assured sourcing of high quality
paper that meets the Company's specifications.
 
    In connection with its acquisition by Big Flower, TC Advertising entered
into a long-term ink supply agreement with a single supplier, effective July 31,
1993 and amended in 1997, pursuant to which it is obligated to purchase from
such supplier a substantial portion of its annual requirements for ink. The
terms of this agreement represent the results of an arms-length negotiation and
are confidential.
 
    A Webcraft subsidiary has an agreement expiring October, 2001 with a
supplier to purchase all of its requirements for mailing services (inserting,
sorting, tying, bagging and applying postage to direct mail). Prices are
negotiated annually. As part of this agreement, this subsidiary's mailing
services receive priority over other customers of this supplier.
 
    The Company internally produces most of the adhesives needed for its
printing operations, through its adhesives and coatings subsidiary, Webcraft
Chemicals, Inc., but believes that there are other ready sources for these
products. This subsidiary also supplies a variety of specialty chemicals for
unusual format applications.
 
TRADE NAMES, TRADEMARKS AND PATENTS
 
    The Company owns certain trade names, trademarks and patents used in its
business. The Company does not believe the loss of any such trade name,
trademark or patent would have a material adverse effect on the Company's
consolidated financial condition or results of operations.
 
ENVIRONMENTAL MATTERS
 
    The operations of the Company's subsidiaries are subject to federal, state
and local environmental laws and regulations concerning health and safety issues
and the discharge, emission, storage, handling and disposal of hazardous or
toxic substances. Such laws and regulations provide for significant penalties
for violations. The Company cannot predict what
 
                                       23
<PAGE>
other environmental legislation or regulations will be enacted in the future or
how existing or future laws or regulations will be administered or interpreted.
 
    The Company's acquisition of Webcraft resulted in certain obligations under
the New Jersey Industrial Site Recovery Act, formerly known as the Environmental
Cleanup Responsibility Act (together, "ISRA"), which is triggered by the
transfer of industrial property. At two sites, Webcraft and the New Jersey
Department of Environmental Protection ("NJDEP") agreed that Webcraft would
continue to maintain financial guarantees that were previously established
pursuant to ISRA, continue site investigations that were already underway, and
institute remediation measures as appropriate. The Company has obtained an
indemnification from the selling shareholders of Webcraft for certain costs
resulting from pre-existing conditions pertaining to Webcraft, including but not
limited to environmental matters. With respect to Webcraft's ISRA obligations,
the Company believes, based on the indemnification agreement, potential
contribution from a third party for contamination at one site, and existing
investigatory and remediation cost estimates, that its liability for such
matters will not have a material adverse effect on the Company's consolidated
financial position or results of operations. However, there can be no assurance
that such matters will not ultimately have such an effect.
 
    Pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA" or "Superfund") and analogous state
laws, TC Advertising and Webcraft have been identified as potentially
responsible parties ("PRPs") for the cleanup of contamination resulting from
alleged disposals of hazardous waste. Courts have interpreted CERCLA to impose
strict, joint and several liability upon all persons liable for response costs
at a site if the harm is indivisible. This generally means that each responsible
party could be held liable for the entire costs of investigation and cleanup. As
a practical matter, however, where there are multiple PRPs, response costs
typically are allocated, according to a volumetric or other standard, among the
parties.
 
    TC Advertising has been identified as a PRP at three sites to which it
allegedly sent waste in the past. Based on a review of the data available to the
Company regarding each site, including the number and viability of other PRPs,
the minor volumes of waste which TC Advertising is alleged to have contributed,
the range of likely cleanup costs, and a comparison of TC Advertising's alleged
liability to settlements previously reached by TC Advertising in similar cases,
the Company believes that such matters will not have a material adverse effect
on the Company's consolidated financial position or results of operations.
Nonetheless, because neither the final cleanup costs at each of the sites have
been ascertained nor TC Advertising's final proportionate share determined,
there can be no assurance that such matters, or any similar liabilities that
arise in the future, will not ultimately have such an effect.
 
    Webcraft has been identified as a PRP at one site to which it allegedly sent
waste in the past. Based on a review of the data available to the Company
regarding the site, including the number and viability of other PRPs, the minor
volumes of waste which Webcraft is alleged to have contributed, the range of
likely cleanup costs, and a comparison of Webcraft's alleged liability to
settlements previously reached by Webcraft in similar cases, the Company
believes that this matter will not have a material adverse effect on the
Company's consolidated financial position or results of operations. Nonetheless,
because the final cleanup cost at the
 
                                       24
<PAGE>
site has not been ascertained, there can be no assurance that such matter, or
any similar liability that arises in the future, will not ultimately have such
an effect.
 
    In 1990, the United States Environmental Protection Agency ("EPA")
identified Webcraft, among others, as a PRP for regional groundwater
contamination near Webcraft's Chalfont, Pennsylvania facility. Webcraft
responded by disclaiming any responsibility. EPA is also conducting an
environmental assessment of the affected area. Based on information currently
available to the Company, including the possibility of indemnification from the
prior site owner and indemnification from the selling shareholders of Webcraft,
the Company believes that its liability, if any, will not have a material
adverse effect on the Company's consolidated financial position or results of
operations. However, because of the present stage of this matter, there can be
no assurance that it will not ultimately have such an effect.
 
EMPLOYEES
 
    As of December 31, 1998, the Company had approximately 10,000 employees, of
which approximately 4,000 were salaried and 6,000 were hourly. Most of
Webcraft's hourly employees at its North Brunswick and Newark, New Jersey
facilities (approximately 280 employees) are represented by the United Paper
Workers International Union, AFL-CIO. Webcraft entered into a new three-year
contract with this union on February 1, 1998. Under this agreement, represented
employees received an hourly base rate increase of 2% for 1998 and a 2% lump sum
bonus in 1998, and will receive a 3% hourly base rate increase in 1999 and 2000.
In addition, approximately 160 employees of Laser Tech's Enteron Group are
represented by the Communication Workers of America Typographical Union, Chicago
Local No. 16, the Graphic Communications International Chicago Local No. 458-3M,
or the International Printers and Lithographers Association. The Company
believes it has satisfactory employee and labor relations.
 
ITEM 2. PROPERTIES
 
    The Company maintains a large number of diverse properties. Management
believes that these properties, taken as a whole, are generally well maintained
and are adequate for current and foreseeable business needs. The majority of
these properties are leased. Substantially all of the Company's material
physical properties are being fully utilized. The Company's properties are
covered by all-risk and liability insurance which the Company believes is
customary for the industry.
 
EXECUTIVE OFFICES
 
    Big Flower, TC Advertising, Webcraft, and Digital Services (Laser Tech and
Columbine) each lease their executive offices in New York City, New York;
Baltimore, Maryland; Lawrenceville, New Jersey; Irving, Texas and Denver,
Colorado, respectively. The lease terms for Big Flower's, Webcraft's, Laser
Tech's and Columbine's facilities expire in years 2006, 2005, 1999 and 2008,
respectively. TC Advertising occupies its executive offices pursuant to two
leases that expire in years 2000 and 2005, respectively.
 
                                       25
<PAGE>
PRODUCTION FACILITIES
 
    As of December 31, 1998 (excluding Colographic, which was acquired after
December 31, 1998), the Company owned 13 and leased 64 production facilities,
with lease terms expiring at various times from 1999 to 2018.
 
    TC Advertising owned 8 and leased 12 production facilities, with an
aggregate area of approximately 2,100,000 square feet. Webcraft's production
facilities consisted of 5 owned and 16 leased locations, with an estimated
aggregate area of approximately 1,250,000 square feet. Laser Tech leased its 36
production facilities, with an aggregate area of approximately 575,000 square
feet. Columbine's software development and service facilities consisted of 10
leased locations, with an aggregate area of approximately 160,000 square feet.
 
SALES OFFICES AND OTHER FACILITIES
 
    As of December 31, 1998, the Company had 67 sales offices and 32 other
facilities. All of the sales offices and all but one of the other facilities are
leased, with lease terms expiring at various times from 1999 to 2018.
 
ITEM 3. LEGAL PROCEEDINGS
 
    Certain claims, suits and complaints (including those involving
environmental matters) which arise in the ordinary course of the Company's
business have been filed or are pending against the Company. The Company
believes that all such matters would not have a material adverse effect on the
Company's consolidated financial condition or results of operations, if
adversely determined against the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
 
    None.
 
                                       26
<PAGE>
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
MARKET INFORMATION FOR COMMON STOCK
 
    The common stock of Big Flower Holdings, Inc. ("Common Stock") is traded on
the New York Stock Exchange, Inc. under the symbol "BGF". Each share of Common
Stock is traded together with a right entitling the holder to purchase one
one-hundredth of a share of Series A Junior Preferred Stock.
 
    The common stock of Big Flower Press first traded on the New York Stock
Exchange on November 22, 1995. Prior to November 22, 1995, there was no
established trading market for such common stock. In connection with its
corporate reorganization on October 17, 1997, the common stock of Big Flower
Press ceased to so trade, and the common stock of Big Flower Holdings, Inc.
began to trade. Set forth below are the high and low closing prices for the
Common Stock for the period indicated, as reported on the New York Stock
Exchange Composite Tape.
 
FISCAL YEAR ENDED:
 
<TABLE>
<CAPTION>
                                                                                 HIGH        LOW
                                                                                -------    -------
<S>                                                                             <C>        <C>
DECEMBER 1998
First Quarter ended March 31................................................... $30 3/8    $25 1/8
Second Quarter ended June 30...................................................  34 9/16    27 7/8
Third Quarter ended September 30...............................................  32 1/8     19 3/8
Fourth Quarter ended December 31...............................................  24 9/16    15 3/8
DECEMBER 1997
First Quarter ended March 31................................................... $20 7/8    $17 7/8
Second Quarter ended June 30...................................................  21 7/8     18 1/8
Third Quarter ended September 30...............................................  25 11/16   20 3/8
Fourth Quarter ended December 31...............................................  24 3/4     21
</TABLE>
 
    As of February 26, 1999, there were approximately 250 holders of record of
the Common Stock.
 
DIVIDENDS
 
    Big Flower has not paid cash dividends on its Common Stock and intends to
continue this policy for the foreseeable future and retain funds for repayment
of indebtedness and investment in its business.
 
    Because Big Flower is a holding company, holders of its debt and equity
securities, including holders of the Common Stock, are dependent primarily upon
the cash flow from Big Flower's subsidiaries for payment of principal, interest
and dividends. Potential dividends and other advances and transfers from Big
Flower's subsidiaries represent its most significant sources of cash flow.
Applicable state laws and the provisions of the debt instruments and other
capital instruments by which Big Flower's principal subsidiaries are bound limit
the ability of such companies to declare dividends or otherwise provide funds to
Big Flower. Specifically, on June 22, 1998, Big Flower and certain of its
subsidiaries entered into an amended and restated revolving credit facility (as
amended to date, the "Credit Agreement"). The Credit Agreement limits the
ability of the Company to pay dividends. In addition, the indenture governing
the 8 7/8% Notes due July 1, 2007 and the 8 5/8% Notes due December 1, 2008 of
Big Flower Press imposes certain restrictions on Big Flower Press' ability to
make distributions to Big Flower. Also, the indenture governing the 6%
Convertible Quarterly
 
                                       27
<PAGE>
Income Preferred Securities of Big Flower Trust I restricts the payment of
dividends by Big Flower on its Common Stock in certain circumstances.
 
    For additional information regarding these facilities and securities, see
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources" and the Notes to the Consolidated
Financial Statements.
 
ITEM 6. SELECTED FINANCIAL DATA
 
    The following table sets forth the selected financial data derived from the
audited financial statements of Big Flower. The financial data for Big Flower
Press Holdings, Inc. and Subsidiaries as of and for the years ended December 31,
1997 and 1998 is substantially equivalent to that of Big Flower for the same
period. For additional information, see the consolidated financial statements of
Big Flower and the notes thereto. The selected historical financial data should
also be read in conjunction with Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
 
                            SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                          323 DAYS      YEAR     SIX MONTHS        YEAR           YEAR           YEAR
                                            ENDED      ENDED       ENDED          ENDED          ENDED          ENDED
                                          JUNE 30,    JUNE 30,  DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                            1994        1995        1995           1996           1997           1998
                                          ---------   --------  ------------   ------------   ------------   ------------
<S>                                       <C>         <C>       <C>            <C>            <C>            <C>
                                                              IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
OPERATING DATA:
Net sales...............................  $587,630    $920,149    $546,840      $1,201,860     $1,376,706     $1,739,715
Operating income........................    25,488      50,712      39,739          69,343(1)      38,502(2)     137,252(3)
Interest expense........................    19,735      37,452      19,076          36,165         40,300         55,988
Amortization of deferred financing
  costs.................................     1,936       3,437       1,594           1,802          1,696          1,902
(Loss) income before income taxes.......      (549)      5,268      12,694           4,998        (11,626)        69,978
(Loss) income before extraordinary
  items.................................    (3,277)     (1,612)      6,491          (3,285)       (33,571)        37,676
Extraordinary losses from early
  extinguishment of debt, net...........                           (19,248)         (2,078)       (13,463)
Net (loss) income.......................    (3,277)     (1,612)    (12,757)         (5,363)       (47,034)        37,676
Per share:
  (Loss) income before extraordinary
    items-- basic.......................  $  (0.29)   $  (0.13)   $   0.36      $    (0.18)    $    (1.79)    $     1.92
  Net (loss) income--basic..............     (0.29)      (0.13)      (1.07)          (0.30)         (2.51)          1.92
  (Loss) income before extraordinary
    items-- diluted.....................     (0.29)      (0.13)       0.35           (0.18)         (1.79)          1.69
  Net (loss) income--diluted............     (0.29)      (0.13)      (1.03)          (0.30)         (2.51)          1.69
Average shares outstanding:
  Basic.................................    11,218      12,382      13,451          18,046         18,704         19,660
  Diluted...............................    11,218      12,382      13,919          18,046         18,704         24,678
 
OTHER DATA:
EBITDA(4)...............................  $ 54,238    $ 93,699    $ 58,372      $  122,588     $  164,016     $  223,883
Capital Expenditures....................     6,133       8,496      16,812          55,391         74,045         95,433
Cash flows provided by operating
  activities(5).........................    31,514      47,597      27,881         135,936        120,637        118,216
Cash flows used in investing
  activities(5).........................   270,223       7,013      19,050         170,849        316,601        227,097
Cash flows provided by (used in)
  financing activities(5)...............   241,975     (39,789)     (4,326)         29,941        197,071        112,478
 
BALANCE SHEET DATA (AT PERIOD END):
Working Capital(6)......................  $ 25,198    $ 34,173    $ 29,797      $  (30,821)    $  (17,557)    $   (5,781)
Net property, plant and equipment.......   152,306     137,081     145,323         296,426        384,850        457,988
Total assets............................   521,461     502,939     573,393         749,742      1,059,047      1,328,182
Long-term debt, net of current
  portion...............................   331,940     301,935     274,161         430,766        590,045        731,080
Redeemable convertible preferred
  securities of a subsidiary trust......                                                          115,000        115,000
Redeemable preferred stock of a
  subsidiary............................    16,913      19,357
Common stockholders' equity.............    19,449      16,593      84,476          96,350         71,538        127,210
</TABLE>
 
--------------------------
(1)  Includes $2.7 million of non-recurring costs related to acquisitions.
 
(2)  Includes non-recurring charges of $63.9 million related to acquisitions
    (including a $58.2 million in-process acquired technology write off) and
    $0.6 million related to the Company's secondary stock offering.
 
                                         (FOOTNOTES CONTINUED ON FOLLOWING PAGE)
 
                                       28
<PAGE>
                                        (FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
 
(3)  Includes $4.6 million of termination costs for executive positions
    eliminated and $0.2 million in-process acquired technology write off.
 
(4)  "EBITDA" represents the sum of operating income, depreciation, amortization
    of intangibles, in-process acquired technology write offs and merger costs.
    EBITDA does not include costs associated with the A/R Securitization
    facility (see footnote (6)) and is presented here to provide additional
    information about the Company's ability to meet its future debt service,
    capital expenditure and working capital requirements. It should not be
    considered a better indicator of operating performance than operating income
    as determined in accordance with generally accepted accounting principles
    ("GAAP"), or a better indicator of liquidity than cash flow from operating
    activities as determined in accordance with GAAP. The Company's definition
    of EBITDA might not be the same as that of other companies.
 
(5)  Cash flows from operating, investing and financing activities are
    significantly affected by acquisitions. See the consolidated statements of
    cash flows and the related notes and Item 7. "Management's Discussion and
    Analysis of Financial Condition and Results of Operations."
 
(6)  In 1996, the Company entered into an accounts receivable securitization
    agreement (See Note 4 to the consolidated financial statements).
    Accordingly, 1996, 1997 and 1998 results and balances reflect the effects of
    this securitization agreement.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS
 
FORWARD-LOOKING STATEMENTS
 
    Readers are cautioned that forward-looking statements contained herein,
including the discussion of Year 2000, should be read in conjunction with the
Company's disclosures under the heading: "SAFE HARBOR STATEMENT" on page 1.
 
GENERAL
 
    Operating results reflect the impact of acquisitions in all years presented,
as well as non-operational charges and expenses incurred primarily in connection
with acquisition and refinancing transactions. The changing mix of businesses as
acquired companies are integrated into the Company may also affect the
comparability of results from one period to another.
 
RESULTS OF OPERATIONS
 
    The Company is a leading advertising and marketing services company with
four business segments: Insert Advertising & Newspaper Services, Direct
Marketing Services, Digital Services and Specialty Products & Commercial
Printing.
 
                                       29
<PAGE>
    The following table presents major components from the Consolidated
Statements of Operations and Cash Flows:
 
<TABLE>
<CAPTION>
(PERCENTAGES OF NET SALES)                                                    1998        1997        1996
                                                                           ----------  ----------  ----------
<S>                                                                        <C>         <C>         <C>
Net sales................................................................       100.0%      100.0%      100.0%
                                                                           ----------  ----------  ----------
Costs of production......................................................        74.5        77.9        80.9
Selling, general and administrative......................................        12.6        10.2         8.9
Depreciation.............................................................         3.7         3.6         2.9
Amortization of intangibles..............................................         1.3         1.3         1.4
In-process acquired technology write off.................................                     4.2
Merger costs.............................................................                                 0.1
                                                                           ----------  ----------  ----------
                                                                                 92.1        97.2        94.2
                                                                           ----------  ----------  ----------
Operating income.........................................................         7.9%        2.8%        5.8%
                                                                           ----------  ----------  ----------
                                                                           ----------  ----------  ----------
OTHER DATA:
EBITDA (in thousands)....................................................  $  223,883  $  164,016  $  122,588
                                                                           ----------  ----------  ----------
                                                                           ----------  ----------  ----------
EBITDA as a percentage of net sales......................................        12.9%       11.9%       10.2%
                                                                           ----------  ----------  ----------
                                                                           ----------  ----------  ----------
(in thousands)
Cash flows provided by operating activities..............................  $  118,216  $  120,637  $  135,936(1)
Cash flows used in investing activities..................................     227,097     316,601     170,849
Cash flows provided by financing activities..............................     112,478     197,071      29,941
</TABLE>
 
------------------------
 
(1)  Includes $91.6 million from the initial sale of accounts receivable.
 
    "EBITDA" represents the sum of operating income, depreciation, amortization
of intangibles, in-process acquired technology write offs and merger costs.
EBITDA is presented here to provide additional information regarding the
Company's ability to meet its future debt service, capital expenditures and
working capital requirements. EBITDA is not a measure of financial performance
in accordance with GAAP and should not be considered an alternative to net
income as a measure of operating performance or to cash flows from operating
activities as a measure of liquidity.
 
CONSOLIDATED RESULTS
 
<TABLE>
<CAPTION>
                                                                                                  % CHANGE
                                                                                      --------------------------------
                                                1998          1997          1996       1998 VS. 1997    1997 VS. 1996
                                            ------------  ------------  ------------  ---------------  ---------------
<S>                                         <C>           <C>           <C>           <C>              <C>
                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales.................................  $  1,739,715  $  1,376,706  $  1,201,860          26.4%            14.5%
Operating income..........................       137,252        38,502        69,343         256.5%           (44.5)%
Net income (loss).........................        37,676       (47,034)       (5,363)      --               --
Diluted earnings (loss)
  per share...............................          1.69         (2.51)        (0.30)      --               --
</TABLE>
 
NET SALES
 
    Revenue increases in 1997 and 1998 were significantly impacted by
acquisitions. Slightly offsetting the acquisition impact was the reduction in
Specialty Products & Commercial Printing sales caused by (i) the December 1996
divestiture of Webcraft Games, Inc. and (ii) the April 1998 divestiture of an
investment in a printing venture and the discontinuation of a related production
agreement that generated approximately $20 million of sales annually at
break-even profitability. Adjusting to include all businesses owned on December
31, 1998
 
                                       30
<PAGE>
for the entire comparable periods (and excluding the sales related to the
divestitures described above) net sales increased slightly in 1997 and rose
approximately 5% in 1998.
 
    In addition to the acquisition impact, revenue amounts can vary based on
changing paper prices and the proportion of paper provided by customers
themselves since a substantial portion of sales in the Insert Advertising &
Newspaper Services business includes the pass-through cost of paper (see also
the discussion of paper costs in OPERATING EXPENSES). Average prices throughout
the paper industry declined in 1997 by nearly 10% from 1996 levels, and
associated declines in the Company's prices caused the sales increase in 1997 to
be relatively modest. Subsequent industry price increases averaging nearly 5% in
1998 contributed to the relatively larger increase in that year. Adjusting the
comparable-business results for the effect of paper variations as well as the
cost of ink (i.e., to exclude the cost of ink and paper entirely), "value added"
revenue increased approximately 10% in both 1997 and 1998.
 
    These comparable-business increases reflect positive growth trends in all of
the Company's principal business segments, particularly Direct Marketing
Services and Digital Services, as well as increased cross-selling activity
whereby two or more operating units have teamed to provide services to each
other's customers as well as new customers. For further discussion of net sales,
see RESULTS BY SEGMENT.
 
OPERATING EXPENSES
 
    Total operating expenses increased in all years due to the growth of the
Company's businesses and the impact of acquisitions. In addition, selling,
general and administrative expenses fluctuated in all years as a result of the
following non-operational costs:
 
    - 1996 includes $2.7 million of non-recurring costs related to acquisitions,
 
    - 1997 includes $5.7 million of non-recurring costs related to acquisitions
      and $0.6 million of non-recurring costs related to the Company's secondary
      stock offering, and
 
    - 1998 includes $4.6 million of termination costs related to the elimination
      of executive positions.
 
    Operating expenses in 1997 also include a one-time, non-cash charge of $58.2
million recorded in connection with the Columbine acquisition, reflecting the
cost of in-process acquired technology for software in development (see
IN-PROCESS ACQUIRED TECHNOLOGY). Operating expenses in 1998 include a similar
charge of $0.2 million related to the Datatrak acquisition.
 
    Excluding the non-recurring costs detailed above and merger costs in 1996
related to the Scanforms acquisition, the ratio of total operating expenses to
net sales was 91.8% in 1998, 92.5% in 1997 and 93.9% in 1996. Selling, general
and administrative expenses, excluding the non-recurring costs, were 12.4% of
net sales in 1998, 9.7% in 1997 and 8.7% in 1996.
 
    As a percentage of net sales, adjusted operating expenses in total declined
due to increased sales and productivity that more than offset the increased
infrastructure costs
 
                                       31
<PAGE>
inherent in expanding the individual businesses. Variances in expense category
ratios also reflect:
 
    - the Company's changing business mix as it acquires more companies to
      expand the Digital Services and Direct Marketing Services segments, where
      paper is a smaller component of costs and a higher proportion of the cost
      structure is related to selling rather than to production,
 
    - more rapid organic growth of businesses in the Digital Services and Direct
      Marketing Services segments in proportion to the Company's total, and
 
    - increased demand for higher margin products in the Insert Advertising &
      Newspaper Services segment.
 
    As a result of these factors, costs of production declined as a percentage
of net sales by 3.0% in 1997 and an additional 3.4% in 1998. Paper costs
accounted for 42% of net sales in 1996, 36% in 1997 and 32% in 1998, reflecting
the Company's changing business mix as well as the higher proportion of paper
supplied by customers in the Insert Advertising & Newspaper Services segment.
Further reflecting the changing business mix, selling, general and
administrative expenses, excluding the non-recurring costs, increased as a
percentage of net sales by 1.0% in 1997 and an additional 2.7% in 1998.
 
    Combined operating expenses (excluding depreciation and amortization) have
decreased as a percentage of net sales, leading to an increase in the margin of
EBITDA to net sales over the three-year period ended December 31, 1998. This
increase reflects the increased productivity of the Company's operations and the
more profitable lines of business in the expanding Digital Services and Direct
Marketing Services segments. For further discussion, see RESULTS BY SEGMENT.
 
OPERATING INCOME
 
    Operating income increased to represent 7.9% of net sales in 1998 versus
2.8% in 1997 and 5.8% in 1996. Excluding the non-recurring costs discussed in
the previous section, the ratio of operating income to net sales was 8.2% in
1998, 7.5% in 1997 and 6.1% in 1996. Adjusted to exclude the non-recurring costs
in all years and to include comparable businesses for the entire comparable
periods, operating income increased approximately 15% in 1998 and approximately
25% in 1997. The operating income margin on the same basis was approximately 8%
in 1998, 7% in 1997 and 6% in 1996.
 
    The increasing margin of adjusted operating income to net sales reflects the
increased EBITDA margins noted in the previous section which have risen at a
higher rate relative to the increased depreciation and amortization costs
incurred in expanding the Company's businesses.
 
NET INCOME AND EARNINGS PER SHARE
 
    Net income and diluted earnings per share in each year reflect non-recurring
charges and extraordinary losses.
 
                                       32
<PAGE>
    The net loss for 1996 of 30 cents per basic share included the following
non-operational charges:
 
    - a pre-tax loss of $14.3 million recorded in connection with the sale of
      the Webcraft Games business (72 cents per basic share)
 
    - $5.2 million of pre-tax financing costs (recorded in "other expenses")
      related to the Webcraft acquisition (14 cents per basic share)
 
    - extraordinary losses of $2.1 million (net of tax benefit), related to
      early extinguishment of debt (12 cents per basic share)
 
    - $2.7 million of non-recurring, pre-tax costs related to acquisitions (8
      cents per basic share) and
 
    - $1.5 million of pre-tax merger costs related to the Scanforms acquisition
      (4 cents per basic share).
 
    Further, excluding these charges, net income would have been positive and
the effect of stock options would have been dilutive to earnings per share,
leading to diluted earnings per share that was 3 cents lower than basic earnings
per share.
 
    The net loss for 1997 of $2.51 per basic share included the following
non-operational charges:
 
    - the $58.2 million write off of in-process acquired technology costs ($3.11
      per basic share)
 
    - extraordinary losses of $13.5 million (net of tax benefits) related to
      early extinguishment of debt (72 cents per basic share)
 
    - $5.7 million of pre-tax costs related to acquisitions (16 cents per basic
      share), and
 
    - $0.6 million of pre-tax costs related to a secondary stock offering (2
      cents per basic share).
 
    Further, excluding these charges, net income would have been positive and
the effect of stock options and convertible preferred securities would have been
dilutive to earnings per share, leading to diluted earnings per share that was 9
cents lower than basic earnings per share.
 
    The net income for 1998 of $1.69 per diluted share included the following
non-operational charges:
 
    - $4.6 million of pre-tax severance costs related to executive positions
      eliminated (10 cents per diluted share) and
 
    - the $0.2 million write off of in-process acquired technology costs (1 cent
      per diluted share).
 
                                       33
<PAGE>
RESULTS BY SEGMENT
 
INSERT ADVERTISING & NEWSPAPER SERVICES
 
<TABLE>
<CAPTION>
                                                                                                  % CHANGE
                                                                                      --------------------------------
                                                    1998         1997        1996      1998 VS. 1997    1997 VS. 1996
                                                ------------  ----------  ----------  ---------------  ---------------
<S>                                             <C>           <C>         <C>         <C>              <C>
                                                           (IN THOUSANDS)
Net sales.....................................  $  1,101,875  $  961,577  $  900,465          14.6%             6.8%
Operating income..............................        90,568      72,025      60,124          25.7%            19.8%
</TABLE>
 
    The increases in net sales and operating income were significantly impacted
by the acquisitions of PrintCo in 1996 and RCPC in 1997. Adjusted to include
these businesses for the full 1996 and 1997 periods, net sales decreased
approximately 5% in 1997 and increased approximately 5% in 1998. Fluctuations in
the cost of paper and in the amount of paper supplied by customers caused a
large part of these variances. Adjusting for the cost of paper and the effect of
customer supplied paper, "value added" revenue including all businesses in all
periods increased approximately 10% in 1997 and approximately 5% in 1998.
Operating income in 1997 included $2.2 million of non-recurring costs related to
the RCPC acquisition. Adjusting to exclude these costs, and to include all
businesses owned for all periods, operating income increased approximately 15%
in both 1997 and 1998 over the respective prior year periods.
 
    The comparable "value added" revenue increases reflect the steady growth of
TC Advertising's insert customer categories of grocery, specialty, furniture,
general merchandise, drug and home improvement stores, as well as newspaper
television listings guides. In addition, this segment benefited from higher
demand for targeted inserts and "versioning" services to customize inserts for
delivery in different regions of a customer's business and increased sales of
higher margin products such as heatset printing. The 1998 increase is also due,
in part, to its offering of Reach America's targeted advertising software
products in combination with printing services.
 
    In relation to the value added revenue increases, the higher rates of
operating income growth stemmed from efficient press time utilization, whereby
press capabilities are best matched to the requirements of a given print job,
and volume of production (measured in hours of press operation), both of which
improved in 1998 and 1997. Much of the added volume was in categories with
year-round advertising activity, serving to reduce the seasonality of the
business. Additionally, this segment's rapid move to a complete digital
workflow, including upgrades such as computer-to-plate technology, improved the
prepress and plating processes in many of the production facilities. Finally,
operating synergies with RCPC yielded more efficient production for the combined
business and expense control throughout the organization added to the
profitability of this segment.
 
DIRECT MARKETING SERVICES
 
<TABLE>
<CAPTION>
                                                                                                  % CHANGE
                                                                                      --------------------------------
                                                     1998        1997        1996      1998 VS. 1997    1997 VS. 1996
                                                  ----------  ----------  ----------  ---------------  ---------------
<S>                                               <C>         <C>         <C>         <C>              <C>
                                                            (IN THOUSANDS)
Net sales.......................................  $  282,431  $  202,197  $  134,795          39.7%            50.0%
Operating income................................      34,159      21,035      11,881          62.4%            77.0%
</TABLE>
 
    The 1996 results reflect a full year of operations of Scanforms, but only
includes the operations of Webcraft after its acquisition in March 1996. Net
sales and operating income
 
                                       34
<PAGE>
increases in 1998 and 1997 also reflect, in part, the impact of acquisitions in
those years. Adjusting to include all companies for the full three-year period,
net sales increased approximately 15% in 1997 and approximately 20% in 1998.
Operating income, excluding merger costs in 1996 and the non-recurring costs
related to the acquisition of Olwen in 1997, increased 81% in 1997 and 41% in
1998. Adjusting further to include all companies for the full three-year
periods, the increases were approximately 45% for 1997 and approximately 35% for
1998.
 
    The comparable net sales increases for both periods reflect increased demand
for individualized direct mail and the 1998 results were also favorably impacted
by the acceleration of customer orders in anticipation of the January 1999
postage rate increase. Newer products such as magnetic stripe technology for
prepaid telephone cards also have added to the volume of this business, as have
the expansion of database analysis and response management services. Sales
increased to customers in many industries, notably the major Company-defined
categories of consumer goods (where 1998 growth approximated 75% over 1997),
financial services (approximately 10% over 1997), media (approximately 10% over
1997) and non-profit (approximately 40% over 1997). Collectively, these
categories grew more than 30% in 1998 over 1997 and represent more than 50% of
segment sales.
 
    The operating income results reflect the impact of the growth in higher-
margin imaged direct mail product lines, higher productivity from increased
plant utilization and the effective management of expenses. The profit increases
were tempered by 1998 investments in data analysis, data mining, digital
printing and response management portions of the business to allow for expansion
of service offerings.
 
DIGITAL SERVICES
 
<TABLE>
<CAPTION>
                                                                                                  % CHANGE
                                                                                      --------------------------------
                                                      1998        1997       1996      1998 VS. 1997    1997 VS. 1996
                                                   ----------  ----------  ---------  ---------------  ---------------
<S>                                                <C>         <C>         <C>        <C>              <C>
                                                            (IN THOUSANDS)
Net sales........................................  $  272,995  $  108,608  $  44,443         151.4%           144.4%
Operating income.................................      27,396     (44,699)      (178)           --               --
</TABLE>
 
    Changes in sales and operating income for this segment were significantly
impacted by acquisitions and related charges. The premedia portion of this
segment was augmented with the acquisitions of (i) Pacific Color Connection,
Designer Color Systems and Digital Dimensions in 1996, (ii) Gamma One in 1997
and (iii) Troypeak, Pismo, Enteron, ICON and Admagic in 1998. Software
development product lines were added to the segment with the acquisitions of
Columbine and Broadcast Systems Software in 1997 and expanded with the
acquisitions of Reach America, Adtraq, Adserve and Datatrak in 1998. Adjusting
to include all of these businesses in all periods, net sales increased
approximately 15% in 1997 and approximately 10% in 1998. Excluding $2.7 million
of non-operational costs in 1996 related to acquisitions and in-process acquired
technology write offs in 1997 and 1998, operating income increased 425% in 1997
and 105% in 1998. Adjusting further to include all businesses owned for all
periods, operating income increased approximately 60% in 1997 and approximately
15% in 1998 over the respective prior year periods.
 
    The increases in comparable-business net sales were due to the expansion of
service offerings to provide integrated solutions to customers. Laser Tech
expanded its national network in 1997 to meet the needs of existing customers
with larger volume requirements and
 
                                       35
<PAGE>
to capitalize on higher demand for outsourced digital premedia services. All
premedia product lines experienced increased demand, including packaging,
commercial and retail premedia services, which generated growth of approximately
30%, 5% and 10%, respectively over 1997. Together, these categories represent
approximately 70% of this segment's sales. The introduction of the core portions
of Columbine's next-generation Paradigm product line at the end of 1997 also
served to increase sales in 1998. As the Company sells a variety of software
related products and services, a single installation can include sales of
hardware, software and consulting and related services. Total revenues related
to newer broadcast related software systems, which increased by more than 30% in
1998, mitigated a slowing to 5% of revenue growth related to Columbine's legacy
products as the Company focused on the next-generation product lines. These
newer systems have grown to represent nearly 10% of Digital Services net sales.
In addition, continued development of digital asset management services and
high-speed intranet communication systems have increased service offerings to
this segment's customers.
 
    Operating income growth, on a comparable-business basis, exceeded sales
growth in both years as higher margin products have been introduced, operating
efficiencies have been implemented and technology investments have yielded
productivity gains.
 
SPECIALTY PRODUCTS & COMMERCIAL PRINTING
 
<TABLE>
<CAPTION>
                                                                                                  % CHANGE
                                                                                      --------------------------------
                                                     1998        1997        1996      1998 VS. 1997    1997 VS. 1996
                                                   ---------  ----------  ----------  ---------------  ---------------
<S>                                                <C>        <C>         <C>         <C>              <C>
                                                            (IN THOUSANDS)
Net sales........................................  $  91,122  $  109,852  $  125,846         (17.1)%          (12.7)%
Operating income.................................      5,451       4,856       8,635          12.3%           (43.8)%
</TABLE>
 
    The 1996 results reflect a partial year of operations as the Company
acquired Webcraft in March 1996. Further, the Company sold the Webcraft Games
business in December 1996 and divested itself of a minority interest in a
commercial printing venture in April 1998, both being part of management's
strategy to re-deploy the assets associated with commercial printing. A
production arrangement related to the minority interest investment had yielded
approximately $20 million of break-even revenue annually. Excluding these sales
from all periods, excluding Webcraft Games from 1996 and adjusting to include
operations still owned for all of 1996, revenues decreased approximately 10% in
1997 and revenues in 1998 were approximately the same as 1997. Operating income,
on the same basis of comparison, decreased approximately 25% in 1997 and
decreased slightly in 1998.
 
    The operating results reflect decreases in catalog printing and fragrance
sampler production in both years and the redeployment of assets historically
used in this segment to the more profitable product lines in the Direct
Marketing Services segment.
 
                                       36
<PAGE>
INTEREST EXPENSE
 
<TABLE>
<CAPTION>
                                                                                                   % CHANGE
                                                                                       --------------------------------
                                                        1998       1997       1996      1998 VS. 1997    1997 VS. 1996
                                                      ---------  ---------  ---------  ---------------  ---------------
<S>                                                   <C>        <C>        <C>        <C>              <C>
                                                              (IN THOUSANDS)
Interest expense....................................  $  55,988  $  40,300  $  36,165          38.9%            11.4%
Average interest rate...............................       8.30%      8.39%      9.01%
Average borrowing rate including the effect of
  convertible preferred securities..................       7.97%      8.22%
</TABLE>
 
    Interest expense in 1998 increased over the 1997 and 1996 periods due to
higher debt levels related primarily to acquisitions although the average rate
of interest declined each year from the prior year level. The decreased interest
rate reflects the lower cost of the Company's variable rate debt and the effects
of a series of refinancing transactions completed in 1997 and 1998. These
transactions included redemption of higher-yield debt in mid-1997, balancing
fixed-rate and variable-rate debt, replacement of revolving credit facilities
and the issuance of redeemable convertible preferred securities with a 6%
dividend rate.
 
IN-PROCESS ACQUIRED TECHNOLOGY
 
    The Company recorded a $58.2 million write off of acquired technology costs
in 1997 related to the acquisition of Columbine. At the time of its acquisition,
Columbine was developing numerous modules of its Paradigm broadcast management
software product line.
 
    The purchase price for Columbine exceeded the fair value of net tangible
assets acquired, and the Company allocated the excess to identified intangible
assets and existing technology based on values calculated by a third-party
appraiser. In performing this allocation, values were assigned to existing
technology and the research and development modules in process at the
acquisition date. With regard to the in-process research and development
modules, the appraisal considered, among other factors, the stage of development
of each module, the importance of each module to the overall development plan,
the projected incremental cash flows from the modules when completed and the
associated risks. Associated risks included the inherent difficulties and
uncertainties in completing each module to achieve technological feasibility and
risks related to the impact of potential changes in future target markets.
 
    The total projected cost to develop the in-process technology into
commercially viable products was in excess of $10 million, of which the Company
has incurred approximately $5.8 million, related primarily to salaries, through
December 31, 1998. The Company expects to incur the balance of these costs over
the next two years. Development efforts have focused on, and continue to focus
on, addressing multi-station, multi-currency, multi-language, and multi-time
zone capabilities; database architecture issues; domestic functionality;
architectural stability and electronic commerce capabilities. The Company
expects to benefit from the purchased in-process technology beginning in periods
ranging from the 1999-2003 fiscal years. If these modules are not successfully
developed, the Company may not realize the value assigned to the in-process
research and development. In addition, the value of the other acquired
intangible assets may also become impaired.
 
OTHER EXPENSES, NET
 
    Other expenses, net, consist primarily of costs associated with the
Company's accounts receivable securitization facility (see Note 4 to the
Consolidated Financial Statements). These
 
                                       37
<PAGE>
costs amounted to $6.4 million in 1998, $6.2 million in 1997 and $5.3 million in
1996 and vary based on the level of receivables sold during each year.
 
    The 1998 results also include $5.9 million of income earned on
tax-advantaged investments accounted for as leveraged leases in accordance with
Statement of Financial Accounting Standards No. 13, "Accounting for Leases" (see
Note 7 to the Consolidated Financial Statements). The amount of investment
income excludes interest costs incurred on borrowings used to finance the
investment, which are recorded as interest expense.
 
    In 1996, other expenses also include $5.2 million of charges for financing
transactions related to the acquisition of Webcraft.
 
INCOME TAXES
 
    The Company's effective tax rates exceeded the federal statutory rate due
primarily to state and local taxes, non-deductible expenses and amortization of
certain goodwill. Non-deductible expenses included the write offs of in-process
acquired technology costs and a portion of the loss on the sale of Webcraft
Games in 1996.
 
NEW ACCOUNTING PRONOUNCEMENTS
 
    In 1998, the Company adopted AICPA Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use". In
accordance with this standard, the Company capitalized approximately $5.6
million of costs in property, plant & equipment related to systems projects
throughout the Company.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    GENERAL
 
    Big Flower has grown through acquisitions, and expects to continue to seek
to acquire entities in similar or complementary businesses. Such acquisitions
are likely to require the incurrence and/or assumption of indebtedness and/or
obligations, the issuance of equity securities or some combination thereof. In
addition, Big Flower may from time to time determine to sell or otherwise
dispose of certain of its existing businesses. Big Flower cannot predict if any
such transactions will be consummated, nor the terms or forms of consideration
which might be required in any such transactions.
 
    SOURCES OF FUNDS
 
    Historically, the Company has funded its operations, acquisitions and
investments with internally generated funds, revolving credit facility
borrowings, sales of accounts receivable, and issuances of stock and debt.
 
    In order to fund acquisitions, and in response to favorable market
conditions, the Company completed several refinancing transactions in 1997 and
1998, including:
 
    - replacement of its credit facility with a more flexible one that also
      allows borrowings in British pounds,
 
    - the issuance of $350 million of 8 7/8% notes,
 
    - the issuance of $250 million of 8 5/8% notes,
 
                                       38
<PAGE>
    - the redemption of its 10 3/4% notes and
 
    - the issuance of $115 million of convertible preferred securities.
 
    Management believes that the facilities in place, as well as the Company's
cash flows, will be sufficient to meet operational needs for the next twelve
months. At December 31, 1998, the Company had approximately $410 million
available to borrow under its revolving credit facility, although restrictions
in the credit facility and the indentures governing its outstanding subordinated
notes may limit the amounts borrowed. Approximately $81 million of this amount
was utilized in January 1999 in connection with the acquisition of Colorgraphic
Direct Response Limited.
 
WORKING CAPITAL
 
    The Company's current liabilities exceeded current assets by $5.8 million at
December 31, 1998 and by $17.6 million at December 31, 1997, an increase in
working capital of $11.8 million. The working capital amounts exclude accounts
receivable sold under a securitization facility (see Note 4 to the Consolidated
Financial Statements), the proceeds of which serve to reduce long-term
borrowings under the Company's revolving credit facility. Excluding the effect
of the securitization (i.e., to add back receivables and reflect the offsetting
increase in long-term debt as if the securitization facility was terminated)
working capital at December 31, 1998 and 1997 would have been $111.8 million and
$83.6 million, respectively. The ratio of current assets to current liabilities
as of December 31, 1998 was 0.98 to 1 (1.41 to 1 excluding the securitization
effect) compared to 0.93 to 1 in 1997 (1.36 to 1 excluding the securitization
effect). The increase is due mostly to higher accounts receivable balances,
primarily as a result of acquisitions and the lower proportional utilization of
the securitization facility.
 
SUMMARY OF CASH FLOWS
 
    Net cash provided by operating activities declined by $2.4 million in 1998
compared to 1997. Although net earnings before depreciation and amortization in
1998 increased in comparison to 1997, the lower operating cash flows resulted
from the lower proportionate utilization of the accounts receivable
securitization facility and the timing of payments for current liabilities.
Excluding the initial sale of accounts receivable at the inception of the
accounts receivable securitization program, net cash provided by operating
activities increased by $76.2 million in 1997 when compared to 1996. The
increase in 1997 reflects the increase in cash earnings and the significantly
higher level of cash utilized in 1996 to settle liabilities assumed in
connection with acquisitions.
 
    Despite higher capital expenditures, cash flows used in investing activities
decreased in 1998 from the 1997 level due to the relative cost of companies
acquired in each year. Offsetting the decrease was an increase in software
development costs due to the acquisition of Columbine and the growth of the
Digital Services segment, investments in leveraged lease transactions and
minority interest investments in internet businesses. The increase in 1997 over
the 1996 level reflects the higher level of acquisition activity and higher
capital expenditures inherent in expanding the Company's operations. The Company
currently expects to spend approximately $95 million in 1999 for capital
additions.
 
                                       39
<PAGE>
    The amounts of cash provided by financing activities in each year reflect
the relative levels of acquisition activity, capital expenditures and
investments in those years. Additionally, financing cash flows in all years
reflect the repayment of debt assumed in acquisition transactions, which is
generally replaced by borrowings under the Company's revolving credit facility
under more favorable terms.
 
SEASONALITY AND OTHER FACTORS
 
    While TC Advertising's advertising insert business is seasonal in nature,
the addition of other businesses has reduced the overall seasonality of the
Company's revenues. On a pro forma basis, assuming all businesses owned at
December 31, 1998 had been owned for the full year, net sales for the Company
for 1998 would have been 23% in the first quarter, 24% in the second, 25% in the
third and 28% in the fourth. Profitability, however, continues to follow a more
seasonal pattern due to the higher margins and efficiency during the Christmas
production season and lower margins in the first quarter that do not fully
leverage fixed depreciation, amortization, interest and preferred dividend costs
that are incurred evenly throughout the year. Based on its historical experience
and projected operations, the Company expects its operating results in the near
future to be strongest in the fourth quarter and softest in the first.
 
    The cost of paper is a principal factor in TC Advertising's pricing to
certain customers. As TC Advertising is the Company's largest operating unit,
the cost of paper significantly affects the Company's net sales. TC Advertising
is generally able to pass increases in the cost of paper to its customers, while
decreases in paper costs generally result in lower prices to customers.
Volatility in paper costs results in a corresponding volatility in the Company's
net sales, but generally has not affected volume or profits to any significant
extent.
 
YEAR 2000
 
    GENERAL
 
    The Company has undertaken a comprehensive program to address the issue of
computer programs and embedded microchips which are unable to distinguish
between the year 1900 and the year 2000 within its organization and with respect
to its material suppliers and customers (the "Year 2000 Project"). The Company
has established Year 2000 teams at TC Advertising, Webcraft, Laser Tech and
Columbine, as well as at the Company's headquarters office.
 
    PROJECT
 
    The general approach employed by each of the Company's Year 2000 teams is:
 
    (1) inventorying assets that may be affected by Year 2000 issues;
 
    (2) assigning priorities to identified items;
 
    (3) assessing the Year 2000 compliance of items determined to be material;
 
    (4) repairing or replacing material items that are determined not to be Year
       2000 compliant;
 
    (5) testing material items;
 
                                       40
<PAGE>
    (6) identifying material vendors and customers (collectively, "Trading
       Partners") and contacting each Trading Partner to determine whether the
       products and/or services purchased from or sold to such Trading Partner
       will be materially affected by the millenium year change;
 
    (7) designing and implementing contingency plans where appropriate; and
 
    (8) reviewing progress monthly with the Company's senior executives and
       quarterly with the Company's Board of Directors.
 
    TC Advertising has completed its inventory and testing of all material
assets. Computer hardware, software and networking equipment have been
successfully tested. Production equipment was tested, where possible, and
certification received from equipment manufacturers. Although some production
equipment will be upgraded in 1999 to ensure dates appear correctly on monitors
and reports, no embedded chip or production equipment problems were found which
would result in a production failure. Remediation of the human resources system
was completed in March 1999 and testing is expected to be completed by mid-1999.
TC Advertising identified customers with whom it exchanges electronic
transmissions and has tested successfully the material means of transmission
utilized in such exchanges. Contingency plans are being developed to minimize
the potential impact of shortages of critical supplies and the loss of any
production facility.
 
    Webcraft has completed its inventory of all material assets. Webcraft
completed remediation and testing of its main unit business systems prior to
December 31, 1998. Other material computer remediation, upgrade and replacement
projects underway at Webcraft's subsidiaries are expected to be completed by the
middle of 1999. Webcraft has completed a review and testing, where possible, of
its production equipment. Only one type of equipment failure was uncovered that
would impact production, and this equipment is expected to be upgraded or
replaced in the second quarter of 1999. Webcraft has limited electronic
interaction with its customers but intends to test these interactions by the
middle of 1999.
 
    Laser Tech has completed its inventory of all material assets and testing is
expected to be completed during the second quarter of 1999. Since many hardware
and software assets are similar across Laser Tech's numerous sites, centralized
testing is being performed for common assets and each subsidiary is testing
material assets unique to its operations. Many of the electronic premedia assets
are off-the-shelf, Macintosh-based hardware and software which, based upon
manufacturer information, Laser Tech believes are generally less susceptible to
Year 2000 issues. Tests have identified the need to upgrade certain common
technologies and these upgrades are expected to be completed by September 1999.
As planned, Laser Tech is replacing several financial systems with others which
the vendors have represented to be Year 2000 compliant. Implementation of these
systems is underway and completion at all designated sites is expected to be
completed by September 1999.
 
    Columbine has completed its inventory of all material assets. Year 2000
compliant versions of Columbine's major products are currently in use by a
number of customers. Columbine is expected to complete upgrades for a few
remaining products and additional third-party products embedded in its software
by September 1999. It has successfully tested most of its internal systems and
is expected to upgrade or replace non-compliant systems by September 1999.
Columbine continues to communicate often with its customers to encourage them to
install needed upgrades and to test Columbine products thoroughly in the
customer
 
                                       41
<PAGE>
environment. Columbine recognizes that customers who have not installed the
provided software upgrades or who have not thoroughly tested their own
environments may request unusual levels of support at year-end. Contingency
plans are being developed to meet these anticipated higher-than-normal customer
service demands.
 
    Each group is testing facilities and miscellaneous equipment. Any
remediation is expected to be completed by September 1999. Contingency plans are
being developed to address concerns at each site. The Company anticipates
developing a contingency plan for each material asset which has not been
successfully tested by April 1999. Each group has identified material Trading
Partners and has initiated communications with material suppliers about their
plans and progress in addressing the Year 2000 issue. Detailed evaluations of
the most critical Trading Partners have been initiated and are scheduled for
completion by mid-1999, with follow-up reviews planned during the remainder of
1999. Based on these evaluations, each group will tailor its contingency plans
as appropriate. In general, the Company began its examination of various
contingency plans in the fourth quarter of 1998 and expects to complete the same
by mid-1999. Communications with customers have begun and will continue into
1999 to ensure continued service levels.
 
    As time passes, it is foreseeable that additional Year 2000 issues will
arise due to business acquisitions or other reasons, in which case the Company
will address such issues as they arise. The Company will evaluate future
acquisition candidates for Year 2000 compliance prior to acquisition, where
feasible, and will conduct appropriate assessment, remediation, testing and
contingency planning following completion of any such acquisition. During the
fourth quarter of 1998 and January 1999, the Company made three acquisitions. In
each case, a review of the acquisition candidate's Year 2000 plans and project
status was completed and evaluated. Following acquisition, these new units are
participating in the ongoing company-wide Year 2000 team activities.
 
    The headquarters office Year 2000 team has been coordinating and overseeing
the Year 2000 responses of the operating units. Since mid-1998, a detailed
monthly report has been submitted to and discussed with senior executives of the
Company, including the Chief Executive Officer and Chief Financial Officer.
Since the second quarter of 1998, a quarterly progress report has been submitted
to and discussed with the Company's Board of Directors. The Company plans to
continue such periodic reporting.
 
    COSTS
 
    The estimated total cost of the Year 2000 Project, including that related to
the acquisitions made during the fourth quarter of 1998 and January 1999, is
approximately $5.0 million, of which approximately $2.8 million reflects
allocation of internal costs and approximately $2.2 million reflects amounts for
external consultants, equipment, hardware and software. The total amount spent
on the Year 2000 Project through December 31, 1998 was approximately $3.0
million, of which approximately $2.3 million reflected allocation of internal
costs and approximately $0.7 million related to external costs, principally
consultants. Because the Company had planned to replace certain financial
systems before formal consideration of the Year 2000 issue, the costs of
implementing such systems are not included in these cost estimates, but are
included in the Company's capital expenditure estimates.
 
                                       42
<PAGE>
    RISKS
 
    The failure to address a material Year 2000 issue could result in an
interruption in, or a failure of, certain normal business activities or
operations. Due to the diversity and decentralized nature of the Company's
operations, there are few systems the failure of which would have a material
adverse effect on the Company as a whole. Nonetheless, the Company relies upon
utility companies, telecommunication services providers, the United States
Postal Service, the financial services industry and other suppliers outside of
its control and there can be no assurance that such suppliers or other third
parties will not suffer a Year 2000 business disruption. The failure of the
systems or equipment of one or more third parties (which the Company believes is
the most reasonably likely worst case scenario) could result in the reduction or
suspension of one or more of the Company's operations and could have a material
adverse effect on the Company's consolidated financial position or results of
operations. Due to the general uncertainty inherent in the Year 2000 issue,
resulting in part from the uncertainty of the Year 2000 readiness of its Trading
Partners and its Trading Partners' customers, the Company is unable to determine
at this time whether the consequences of Year 2000 failures will have a material
impact on the Company's consolidated financial position or results of
operations. The Year 2000 Project is expected to significantly reduce the
Company's level of uncertainty about the Year 2000 issue and, in particular,
about the Year 2000 compliance and readiness of its material Trading Partners.
The Company believes that, with the implementation of new business systems and
completion of the Year 2000 Project as scheduled, the possibility of significant
interruptions of normal operations should be greatly reduced.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
QUALITATIVE INFORMATION
 
    The Company's primary exposures to market risks relate to interest rate
fluctuations on variable rate debt and, to a lesser extent, to the decline in
market values of available-for-sale investments. Its exposure to foreign
currency exchange rate fluctuations is immaterial as foreign operations are a
small proportion of the total Company and foreign currency borrowings act as a
natural hedge against fluctuations in net asset values. The fair values of all
financial instruments, other than investments, debt and redeemable convertible
preferred securities, approximate their carrying values (see Note 2 to the
Consolidated Financial Statements).
 
    The Company's objective in its risk management program is to seek a
reduction in the potential negative earnings effects from changes in interest
rates. The Company's strategy to meet this objective is to maintain a balance
between fixed-rate and variable-rate debt, varying the proportion based on the
Company's perception of interest rate trends and the marketplace for various
debt instruments. In general, the Company does not use derivative financial
instruments in its risk management program and does not use any for trading
purposes. These practices may change in the future as conditions change.
 
QUANTITATIVE INFORMATION
 
    At December 31, 1998, 85% of the Company's long-term debt was fixed-rate.
Including off-balance sheet debt related to the accounts receivable
securitization facility, the fees on which are variable, fixed-rate debt
represented 73% of total debt. When also including
 
                                       43
<PAGE>
redeemable convertible preferred securities, which carry a fixed dividend, fixed
rate obligations represented 77% of the total.
 
    If interest rates increased 10%, the expected effect on net income related
to variable-rate debt would be immaterial.
 
    For the purposes of sensitivity analysis, the same percentage change was
assumed for both the revolving credit facility and the accounts receivable
securitization facility. All other factors were held constant. The sensitivity
analysis is limited in that it is based on balances outstanding at December 31,
1998 and does not provide for changes in borrowings that may occur in the
future.
 
    A 10% decline in the market value of all available-for-sale investments
owned at December 31, 1998 would have an insignificant impact on the Company's
assets and no impact on net income as the unrealized gain is deferred until the
investments are sold.
 
FORWARD-LOOKING STATEMENTS
 
    Readers are cautioned that forward-looking statements contained herein
concerning market risks should be read in conjunction with the Company's
disclosures under the heading: "SAFE HARBOR STATEMENT" on page 1.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    Reference is made to the Index to Consolidated Financial Statements and
Schedules on page F-1 for Big Flower's consolidated financial statements and
notes thereto and supplementary schedules. All other schedules have been omitted
as not required or not applicable or because the information required to be
presented is included in the consolidated financial statements and related
notes.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE
 
    None
 
                                       44
<PAGE>
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    The directors and executive officers of Big Flower Holdings, Inc., all of
whom are U.S. citizens, and their ages as of March 29, 1999 are as follows:
 
<TABLE>
<CAPTION>
NAME                                            AGE                                 POSITIONS
------------------------------------------      ---      ---------------------------------------------------------------
<S>                                         <C>          <C>
R. Theodore Ammon.........................          49   Class III Director; Chairman of the Board
Peter G. Diamandis........................          67   Class II Director
Robert M. Kimmitt.........................          51   Class I Director
Joan D. Manley............................          66   Class II Director
Newton N. Minow...........................          73   Class I Director
Edward T. Reilly..........................          52   Class III Director; President and Chief Executive Officer
Mark A. Angelson..........................          48   Executive Vice President--Office of the Chairman, General
                                                         Counsel and Secretary of the Board of Directors
Richard L. Ritchie........................          52   Executive Vice President and Chief Financial Officer
</TABLE>
 
    The board of directors of Big Flower Press consists of Messrs. Ammon, Reilly
and Angelson. The executive officers of Big Flower Press are the same as the
executive officers of Big Flower Holdings, Inc.
 
    Certain information regarding each person listed above, including such
person's principal occupation during the past five years and current
directorships, is set forth below. Unless indicated otherwise, all directors and
executive officers have had the indicated principal occupations for the past
five years.
 
    R. THEODORE AMMON has been the Chairman of the Board of the Company since
its inception and was Chief Executive Officer of Big Flower Press from that date
until April 1997. Mr. Ammon is also the Chairman of XL Ventures, Inc., the
Company's Internet and new media venture capital subsidiary ("XL Ventures"). Mr.
Ammon is also a director of Big Flower Press and Digital Services. Mr. Ammon was
a General Partner of Kohlberg Kravis Roberts & Co. (a New York and San
Francisco-based investment firm) from 1990 to 1992, and an executive of such
firm prior to 1990. Mr. Ammon is also the Chairman of the Board of 24/7 Media,
Inc. and a member of the Board of Directors of Host Marriott Corporation, and
serves on the boards of directors of numerous privately held corporations. Mr.
Ammon is involved in a number of not-for-profit organizations and serves as a
member of the Board of Directors of The Municipal Art Society of New York, The
New York YMCA, and Jazz @ Lincoln Center. He is also a member of the Board of
Trustees of Bucknell University.
 
    PETER G. DIAMANDIS has been a Director of the Company since September 1994.
Mr. Diamandis is also a director of XL Ventures. Mr. Diamandis was Vice Chairman
of Donnelley Marketing, Inc., a marketing company, from 1991 through 1996. Since
1996, he has been the Vice Chairman of DM LLC, the successor entity to Donnelley
Marketing, Inc. He has also been the Chairman of TVSM, Inc., a magazine
publishing company, since 1991. From 1988 to 1991, Mr. Diamandis served as
President and Chief Executive Officer of Hachette Publications, which purchased
Diamandis Communications Inc. in 1988. From 1987 to 1988, Mr. Diamandis served
as Chairman, President and Chief Executive Officer of Diamandis Communications
Inc., a publisher of special interest magazines. In 1982, Mr. Diamandis joined
CBS Magazines ("CBS") as Vice President, Group Publisher, Women's Day, and
 
                                       45
<PAGE>
served as President of CBS from September 1983 to 1987. Mr. Diamandis is a
former Chairman of Magazine Publishers of America. Mr. Diamandis serves on the
Board of Trustees of Bucknell University.
 
    ROBERT M. KIMMITT has been a Director of the Company since November 1996.
Since May 1997, he has been a partner in the law firm of Wilmer, Cutler &
Pickering. From 1993 to April 1997, Mr. Kimmitt was a managing director of
Lehman Brothers and head of its Washington corporate finance office. Prior to
joining Lehman Brothers, Mr. Kimmitt served from 1991 to 1993 as American
Ambassador to Germany, and from 1989 to 1991 as Under Secretary of State for
Political Affairs. He was a partner in the Washington office of Sidley & Austin
from 1987 to 1989. Mr. Kimmitt served as a member of the National Security
Council staff at the White House from 1978 to 1985 and General Counsel of the
Department of the Treasury from 1985 to 1987. Mr. Kimmitt serves on the boards
of Allianz Life Insurance Company of North America and United Defense
Industries, Inc., as well as on the supervisory boards of Mannesmann AG of
Duesseldorf, Germany, Siemens AG of Munich, Germany, and on the U.S. Group
Council of BMW AG of Munich, Germany. He is also on the Board of the German
Marshall Fund and several other non-profit organizations whose focus is
international affairs.
 
    JOAN D. MANLEY has been a Director of the Company since September 1994. Ms.
Manley retired from Time Incorporated in 1984, where she had held numerous
positions since 1960. At the time of her retirement, Ms. Manley was Group Vice
President and a director of Time Incorporated. Ms. Manley serves on the Board of
Directors of Sara Lee Corporation and Founders Fund and is a Trustee of the
Rocky Mountain Resource Center.
 
    NEWTON N. MINOW has been a Director of the Company since September 1996.
Since 1991, Mr. Minow has been counsel to the law firm of Sidley & Austin, where
he served as Partner from 1965 to 1991. He also served as Chairman of the
Federal Communications Commission from 1961 to 1963. He is a director of Aon
Corporation and Manpower, Inc. Mr. Minow is former Chairman of the Carnegie
Corporation of New York, an Advisory Trustee and former Chairman of the Board of
Trustees of The RAND Corporation and former Chairman of the Board of Governors
of the Public Broadcasting Service. Mr. Minow is also a Life Trustee of the
University of Notre Dame and a Life Trustee of Northwestern University.
 
    EDWARD T. REILLY has been Chief Executive Officer of the Company since April
1997, President of the Company since March 1996 and a Director of the Company
since June 1996. He was also the Chief Operating Officer of Big Flower Press
from March 1996 until April 1997. He is a director of Big Flower Press, TC
Advertising, Digital Services and Webcraft. Prior to joining Big Flower, Mr.
Reilly held a variety of executive positions with McGraw-Hill, Inc., a
publishing and communications company, in their Broadcast and Publication groups
from 1968 to 1996, and served as President of McGraw-Hill Broadcasting from 1987
to 1996. He is Vice Chairman and a member of the executive committee of the Ad
Council and serves on the Board of Trustees of Lynchburg College in Virginia.
Recently, Mr. Reilly was elected to the Board of Directors of The National
Council of La Raza. In addition, Mr. Reilly has been active in television
industry affairs, having served as the Chairman of the Television Bureau of
Advertising and as a member of the Board of Directors of the National
Association of Broadcasters. He is the former Chairman of the Association for
Maximum Service Television (MSTV), a trade association of over 300 television
stations
 
                                       46
<PAGE>
which has been in the forefront of the effort to facilitate the industry's
transition to high definition television.
 
    MARK A. ANGELSON has been Executive Vice President and General Counsel and
Secretary of the Board of Directors of the Company since March 1996 and
Executive Vice President-- Office of the Chairman since March, 1999. Mr.
Angelson also serves as Deputy Chairman of XL Ventures. He is a director of Big
Flower Press, TC Advertising, Digital Services and Webcraft. Prior to joining
Big Flower, Mr. Angelson practiced law with Sidley & Austin from 1982 to 1996.
Mr. Angelson was Co-Chair of Sidley's international operations, founder of the
firm's English law practice and manager of the firm's offices in Singapore, New
York and London. Mr. Angelson is admitted to practice law in the State of New
York, and as a solicitor in England and Wales. He is also a Trustee of American
School in London Foundation, Inc., a Fellow of Royal Society of Arts, a member
of the Advisory Board of Jobs for the Future, Inc., a member of the Pilgrims of
Great Britain and an officer and director of 78(th) and Park Corporation.
 
    RICHARD L. RITCHIE has been Executive Vice President and Chief Financial
Officer of the Company since January 1997. Prior to joining Big Flower, Mr.
Ritchie served as Senior Vice President and Chief Financial Officer of
Harte-Hanks Communications, Inc. from 1986 to 1996.
 
    The directors of the Company are divided into three classes, designated as
Class I, Class II and Class III. Each class consists, as nearly as possible, of
one third of the total number of directors constituting the entire Board of
Directors. After their initial term, the directors of each class serve for a
term of three years and until their successors are elected and qualified and
subject to prior death, resignation, retirement, disqualification or removal.
Currently, the Class I directors are Messrs. Kimmitt and Minow; the Class II
directors are Mr. Diamandis and Ms. Manley; and the Class III directors are
Messrs. Ammon and Reilly. The current terms of the Class I, Class II and Class
III directors expire at the annual meetings of the Company's stockholders in
1999, 2000 and 2001, respectively. At each annual meeting of stockholders,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional directors of any class elected to fill a vacancy resulting from
an increase in such class shall hold office for a term that shall coincide with
the remaining term of that class, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. The term of office of
each executive officer is until the organizational meeting of the Board of
Directors of the Company following the next annual meeting of the Company's
stockholders and until such director's successor is elected and qualified or
until such director's prior death, resignation, retirement, disqualification or
removal.
 
COMPENSATION OF DIRECTORS
 
    Directors of Big Flower who are also executive officers of Big Flower or its
subsidiaries do not receive any additional compensation for service as a member
of the Board of Directors of Big Flower or any of its committees. For
information relating to compensation of the Company's management directors, see
"Employment Arrangements with Executive Officers" below.
 
                                       47
<PAGE>
    All other directors of Big Flower (each, a "non-employee director") are paid
an annual fee of $25,000 for serving on the Board. In addition, effective as of
June 24, 1997, (a) the Chairman of each of the Corporation's Standing Committees
(consisting of the Audit, Compensation and Nominating Committees) who is a
non-employee director is paid an annual retainer of $2,500 and (b) each member
of such Standing Committees (including any Chairman who is a non-employee
director) is paid a fee of $1,000 for each Standing Committee meeting attended
by such member. In addition, each non-employee director is given the option of
electing to receive all or a portion of their annual retainer and meeting fees
in the form of (a) shares of Common Stock, (b) options to purchase shares of
Common Stock, or (c) cash. Furthermore, each member of the Board of Directors of
Big Flower who is not an employee of Big Flower, any of its subsidiaries or any
of its affiliates (a "non-management director") receives (i) an option to
purchase 13,400 shares of Common Stock (the "Initial Election Option") on the
date that such director is first elected to the Board of Directors and (ii) an
option to purchase 1,000 shares of Common Stock (the "Reelection Option") on
each anniversary of the date that such director is elected to the Board of
Directors. Each Initial Election Option has a term of ten years, and each
Reelection Option has a term of five years. Each such option vests immediately
upon the date of grant. Each such option has an exercise price equal to the
closing price (the "Closing Price") of a share of Common Stock on the New York
Stock Exchange on the date of grant, which exercise price may be paid in cash,
by check or in previously-acquired unrestricted shares of Common Stock, valued
at the Closing Price on the date of such exercise.
 
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
 
    Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Big Flower's directors, executive officers, and
persons who own more than ten percent of Big Flower's Common Stock, to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange.
Directors, executive officers and greater than ten percent stockholders are
required by the SEC regulations to furnish Big Flower with copies of all Forms
3, 4 and 5 they file.
 
    Based solely on Big Flower's review of the copies of such forms it has
received, or written representations from certain reporting persons that no Form
5's were required for these persons, Big Flower believes that all its directors,
executive officers and greater than ten percent beneficial owners complied with
all filing requirements applicable to them with respect to 1998.
 
ITEM 11. EXECUTIVE COMPENSATION
 
    The following table sets forth the compensation paid in respect of the years
ended December 31, 1998, 1997 and 1996 to R. Theodore Ammon, Chairman of Big
Flower, Edward T. Reilly, President and Chief Executive Officer of Big Flower,
and to each of the other most highly paid executive officers of the Company
(collectively, the "Named Executive Officers").
 
                                       48
<PAGE>
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                                                 LONG-TERM
                                                                                               COMPENSATION
                                                                                                  AWARDS
                                                           ANNUAL COMPENSATION                 -------------
                                             ------------------------------------------------   SECURITIES
                                                                                OTHER ANNUAL    UNDERLYING       ALL OTHER
                                                                                COMPENSATION     OPTIONS/      COMPENSATION
NAME AND PRINCIPAL POSITION                    PERIOD     SALARY($)  BONUS($)        ($)        SARS(#)(1)        ($)(2)
-------------------------------------------  -----------  ---------  ---------  -------------  -------------  ---------------
<S>                                          <C>          <C>        <C>        <C>            <C>            <C>
 
R. Theodore Ammon..........................        1998     750,000    675,000             (3)          --           2,400
Chairman                                           1997     750,000    799,875             (3)          --           2,400
                                                   1996     750,000    339,844             (3)          --           2,178
 
Edward T. Reilly...........................        1998     550,000    495,000             (3)          --           2,400
President and Chief Executive Officer              1997     533,333    586,575             (3)     200,000           2,400
                                                   1996     375,000    287,000(4)            (3)     200,000         1,593
 
Mark A. Angelson...........................        1998     505,000    463,500             (3)      25,000           2,400
Executive Vice President--Office of the            1997     468,750    506,588             (3)      58,300           2,400
Chairman, General Counsel and Secretary of         1996     315,000    225,000      343,982(5)     150,000              --
the Board
 
Richard L. Ritchie(6)......................        1998     425,000    382,500             (3)      45,000           2,400
Executive Vice President and Chief                 1997     395,641    451,600(7)            (3)     100,000         2,400
Financial Officer                                  1996          --         --           --             --              --
</TABLE>
 
------------------------
 
(1) All stock option grants were made pursuant to the Big Flower Holdings, Inc.
    Restated 1993 Stock Award and Incentive Plan (the "Plan") and are described
    below under "Options Granted in Fiscal 1998" and "Employment Arrangements
    with Executive Officers."
 
(2) Represents amounts contributed to 401(k) plan by the Company on behalf of
    the Named Executive Officer.
 
(3) Perquisites and other personal benefits did not exceed the lesser of $50,000
    or 10% of the total annual salary and bonus reported under the headings of
    "Salary" and "Bonus."
 
(4) Includes a one-time signing bonus of $37,000 to reimburse Mr. Reilly for
    certain costs incurred in connection with his leaving his previous position.
 
(5) Includes relocation costs of $335,862 (including tax gross up).
 
(6) The Named Executive Officer began his employment with Big Flower in 1997;
    therefore the Named Executive Officer did not receive any compensation from
    Big Flower prior to that time.
 
(7) Includes a lump sum payment of $25,000 for incidental moving expenses.
 
    The following table sets forth certain information with respect to options
to purchase shares of Common Stock granted to the Named Executive Officers
during 1998. The Company did not grant any stock appreciation rights to any of
the Named Executive Officers and no stock options were exercised by any Named
Executive Officer during 1998.
 
                                       49
<PAGE>
                         OPTIONS GRANTED IN FISCAL 1998
 
<TABLE>
<CAPTION>
                                                            INDIVIDUAL GRANTS
                                           ---------------------------------------------------
                                            NUMBER OF    % OF TOTAL                              GRANT DATE VALUE
                                           SECURITIES     OPTIONS                               ------------------
                                           UNDERLYING    GRANTED TO   EXERCISE OR                   GRANT DATE
                                             OPTIONS    EMPLOYEES IN  BASE PRICE   EXPIRATION        PRESENT
NAME                                       GRANTED(#)   FISCAL 1998    ($/SHARE)      DATE         VALUE($)(1)
-----------------------------------------  -----------  ------------  -----------  -----------  ------------------
<S>                                        <C>          <C>           <C>          <C>          <C>
 
Mark A. Angelson(2)......................      25,000         7.76%    $  28.4375     3/11/08          449,600
 
Richard L. Ritchie(3)....................      45,000        13.98%    $  26.75       2/17/08          799,700
</TABLE>
 
------------------------
 
(1) These values were calculated using a Black-Scholes option pricing model. The
    actual value, if any, that an executive may realize will depend on the
    excess, if any, of the stock price over the exercise price on the date the
    options are exercised, and no assurance exists that the value realized by an
    executive will be at or near the value estimated by the Black-Scholes model.
    The following assumptions were used in the calculations:
 
    (a) assumed option term of 10 years;
 
    (b) stock price volatility factor of 0.4427;
 
    (c) 5.77% annual discount rate;
 
    (d) no dividend payment; and
 
    (e) 3% discount to Black-Scholes ratio for each year an option remains
       unvested.
 
(2) These options were granted on March 11, 1998 and vested in full on the first
    anniversary of the date of grant. The exercise price was equal to the
    Closing Price on the date of the grant. The options are exercisable at any
    time between the date of vesting and the tenth anniversary of the date of
    grant.
 
(3) These options were granted on February 17, 1998 and vest in full on the
    second anniversary of the date of grant. The exercise price was equal to the
    Closing Price on the date of the grant. The options will be exercisable at
    any time between the date of vesting and the tenth anniversary of the date
    of grant.
 
OPTION VALUES AT END OF FISCAL 1998
 
    The following table sets forth certain information concerning the number and
the value at the end of 1998 of unexercised in-the-money options to purchase
Common Stock granted to the Named Executive Officers as of the end of 1998. No
stock appreciation rights have been granted to any of the Named Executive
Officers.
 
                                       50
<PAGE>
                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                                                         NUMBER OF
                                                                                         SECURITIES           VALUE OF
                                                                                         UNDERLYING          UNEXERCISED
                                                                                        UNEXERCISED         IN-THE-MONEY
                                                                                         OPTIONS AT          OPTIONS AT
                                                                                     FISCAL 1998 END(#)  FISCAL 1998 END($)
                                                    SHARES                           ------------------  -------------------
                                                  ACQUIRED ON           VALUE           EXERCISABLE/        EXCERCISABLE/
NAME                                              EXERCISE(#)       REALIZED ($)       UNEXERCISABLE      UNEXERCISABLE(1)
---------------------------------------------  -----------------  -----------------  ------------------  -------------------
<S>                                            <C>                <C>                <C>                 <C>
 
R. Theodore Ammon............................              0                  0          300,000/0           1,818,750/0
 
Edward T. Reilly.............................              0                  0       253,334/146,666     1,517,334/807,166
 
Mark A. Angelson.............................              0                  0       133,300/100,000      937,369/707,813
 
Richard L. Ritchie...........................              0                  0        25,000/120,000      101,563/304,688
</TABLE>
 
------------------------
 
(1) Based on the Closing Price of $22.0625 of Big Flower's Common Stock on
    December 31, 1998, the last trading day of 1998, less the exercise price
    payable for such shares.
 
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
 
    The following table sets forth annual amounts payable to the Named Executive
Officers' upon their retirement under TC Advertising's supplemental executive
retirement plan (the "SERP").
 
                               PENSION PLAN TABLE
 
<TABLE>
<CAPTION>
                                                       YEARS OF SERVICE
                               ----------------------------------------------------------------
REMUNERATION                       5         10         15         20         25         30
-----------------------------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                            <C>        <C>        <C>        <C>        <C>        <C>
 
$150,000.....................  $   7,500  $  15,000  $  22,000  $  30,000  $  37,500  $  45,000
 
175,000......................      8,750     17,500     26,250     35,000     43,750     52,500
 
200,000......................     10,000     20,000     30,000     40,000     50,000     60,000
 
225,000......................     11,250     22,500     33,750     45,000     56,250     67,500
 
250,000......................     12,500     25,000     37,500     50,000     62,500     75,000
 
275,000......................     13,750     27,500     41,250     55,000     68,750     82,500
 
300,000......................     15,000     30,000     45,000     60,000     75,000     90,000
 
500,000......................     25,000     50,000     75,000    100,000    125,000    150,000
 
600,000......................     30,000     60,000     90,000    120,000    150,000    180,000
 
700,000......................     35,000     70,000    105,000    140,000    175,000    210,000
 
800,000......................     40,000     80,000    120,000    160,000    700,000    240,000
 
900,000......................     45,000     90,000    135,000    180,000    225,000    270,000
</TABLE>
 
    The compensation covered by the SERP includes the executive's entire annual
base salary. Messrs. Ammon, Reilly, Angelson and Ritchie, currently have 5, 3, 3
and 2 years of service, respectively. See "Employment Arrangements with
Executive Officers" below. Benefits under the SERP are computed by multiplying
the participant's average salary for the
 
                                       51
<PAGE>
last five years prior to retirement by a percentage equal to one percent for
each year of service up to a maximum of 30 years. Benefits under the SERP are
not subject to a deduction for Social Security or other offset amounts.
 
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
 
    AMMON EMPLOYMENT AGREEMENT. The Company has entered into an employment
agreement with Mr. Ammon, effective November 20, 1995 (as amended to date, the
"Ammon Agreement"), pursuant to which Mr. Ammon currently serves as Chairman of
the Board. The initial term of the Ammon Agreement is three years, subject to
automatic one-year extensions, the first of which commenced on the second
anniversary of the Ammon Agreement, unless either the Company or Mr. Ammon
provides specified notice to the contrary. Mr. Ammon is required to devote to
the Company the time necessary for the effective conduct of his duties under the
Ammon Agreement and is permitted to engage in outside business interests that do
not conflict with such duties or otherwise compete with the Company. Under the
Ammon Agreement, Mr. Ammon currently receives a base salary of $750,000 per
year; an annual bonus targeted at not less than 75% of base salary (assuming
bonus targets under the Company's Executive Incentive Plan (the "EIP") are met);
an annual payment of $108,000 with respect to life insurance premiums; and
certain fringe benefits, including participation in the SERP. Mr. Ammon was
granted an option to purchase 300,000 shares of Common Stock (a) with a ten-year
term, (b) at an exercise price equal to $16.00 per share and (c) vesting ratably
over a three-year period.
 
    If Mr. Ammon's employment with the Company is terminated other than for
"cause" (as defined in the Ammon Agreement), Mr. Ammon will be entitled to
receive a supplemental retirement benefit, subject to certain vesting and
benefit accrual requirements and subject to being offset by amounts payable
under the SERP, of up to 50% of his final average compensation (including salary
and EIP bonus), which benefit would commence at age 60. Mr. Ammon will have the
right to terminate the Ammon Agreement in the event of the material breach
thereof by the Company or for other "good reason" (as defined in the Ammon
Agreement). In such event, or if the Company terminates Mr. Ammon's employment
without cause, (i) Mr. Ammon will be entitled generally to receive the salary
and bonus otherwise payable to him over the greater of (x) the remaining term of
the Ammon Agreement and (y) a period of six months; (ii) all outstanding equity
incentive awards (including stock options) would immediately vest; (iii) Mr.
Ammon would receive additional service credit for purposes of the supplemental
retirement benefit; and (iv) the life insurance and certain fringe benefits
would continue during the severance period. Upon the termination of his
employment following a "change in control" of the Company (as defined in the
Ammon Agreement), Mr. Ammon would (i) be entitled to receive a lump sum amount
equal to three times his base salary and bonus, (ii) become vested in all
outstanding equity incentive awards, (iii) have the right to receive a cash
payment equal to the spread on all outstanding stock options, (iv) receive a
lump sum payment with respect to foregone fringe benefits, (v) receive
additional service credit for purposes of the supplemental retirement benefit
and (vi) be entitled to a payment sufficient to offset the effects of any excise
tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"). During the term of the Ammon Agreement (and, in the event Mr.
Ammon terminates his employment other than for good reason or the Company
terminates Mr. Ammon's employment for cause,
 
                                       52
<PAGE>
for a period of one year beyond the expiration of the employment term), Mr.
Ammon will be subject to certain non-competition and non-solicitation
requirements.
 
    REILLY EMPLOYMENT AGREEMENT. The Company has entered into an employment
agreement with Mr. Reilly, effective March 29, 1996 (the "Reilly Agreement"),
pursuant to which Mr. Reilly currently serves as President and Chief Executive
Officer of the Company. The initial term of the Reilly Agreement is three years,
subject to automatic one-year extensions commencing on the second anniversary of
the Reilly Agreement, unless either the Company or Mr. Reilly provides specified
notice to the contrary. Mr. Reilly is required to devote to the Company all of
his working time, attention and efforts. Under the Reilly Agreement, Mr. Reilly
currently receives a base salary of $550,000 per year; an annual bonus targeted
at not less than 75% of base salary (assuming bonus targets under the EIP are
met); and certain fringe benefits, including participation in the SERP. In
connection with his entering into the Reilly Agreement, Mr. Reilly was granted
an option to purchase 200,000 shares of Common Stock (a) with a ten-year term,
(b) at an exercise price of $12.75 per share (the Closing Price on the date of
grant), and (c) vesting in installments of 20% each on December 31, 1996, 1997,
1998, and 1999 and the remaining 20% on the fourth anniversary of the Reilly
Agreement. On April 29, 1997, Mr. Reilly was granted an option to purchase
100,000 shares of Common Stock (a) with a ten-year term and (b) at an exercise
price of $18.375 (the Closing Price on the date of grant). These options vested
in full on the first anniversary of the date of grant. In addition, on April 29,
1997, Mr. Reilly was granted an option to purchase 100,000 shares of Common
Stock (a) with a ten-year term and (b) at an exercise price of $21.13 (which was
equal to 115% of the Closing Price on the date of grant). One-third of these
options vested on April 29, 1998, with the remainder vesting on the second and
third anniversaries of the date of grant. All of the foregoing options will
immediately vest upon the occurrence of a "change of control" of the Company (as
defined in the Reilly Agreement).
 
    Mr. Reilly will have the right to terminate the Reilly Agreement in the
event of the material breach thereof by the Company or for other "good reason"
(as defined in the Reilly Agreement). In such event, or if the Company
terminates Mr. Reilly's employment without "cause" (as defined in the Reilly
Agreement), (i) Mr. Reilly will be entitled to receive a lump sum amount equal
to the sum of (A) two times the sum of (x) his then base salary plus (y) the
highest annual performance bonus Mr. Reilly received in the three years
preceding such termination of employment, plus (B) the present value of all
fringe benefits payable under the remaining term of the Reilly Agreement, (ii)
all outstanding equity incentive awards (including stock options) will
immediately vest and remain exercisable for a period of one year following the
date of such termination (or, if earlier, until the end of the option term), and
(iii) Mr. Reilly would be entitled to receive a payment sufficient to offset the
effects of any excise tax imposed under Section 4999 of the Code. During the
term of the Reilly Agreement (and, in the event Mr. Reilly terminates his
employment other than for good reason or the Company terminates Mr. Reilly's
employment for cause, for a period of one year beyond the expiration of the
employment term), Mr. Reilly will be subject to certain non-competition and
non-solicitation requirements.
 
    ANGELSON EMPLOYMENT AGREEMENT. The Company has entered into an employment
agreement with Mr. Angelson, effective March 21, 1996 (as amended to date, the
"Angelson Agreement"), pursuant to which Mr. Angelson currently serves as
Executive Vice President-- Office of the Chairman, General Counsel and Secretary
of the Board of Directors of the
 
                                       53
<PAGE>
Company and as Deputy Chairman of XL Ventures. The initial term of the Angelson
Agreement is three years, subject to automatic one-year extensions, the first of
which commenced on the second anniversary of the Angelson Agreement, unless
either the Company or Mr. Angelson provides specified notice to the contrary.
Mr. Angelson is required to devote to the Company and its affiliates all of his
working time, attention and efforts. Under the Angelson Agreement, Mr. Angelson
currently receives a base salary of $515,000 per year; an annual bonus targeted
at not less than 75% of base salary (assuming bonus targets under the EIP are
met); annual premium payments during the term of employment with respect to a $2
million split-dollar life insurance policy owned by Mr. Angelson; and certain
fringe benefits, including participation in the SERP. In connection with his
entering into the Angelson Agreement, Mr. Angelson was granted an option to
purchase 150,000 shares of Common Stock (a) with a ten-year term, (b) at an
exercise price of $12.625 per share (the Closing Price on the date of grant),
and (c) vesting in installments of 10% on December 31, 1996, 15% on the first
anniversary of the Angelson Agreement and 25% on each of the next three
anniversaries of the Angelson Agreement. On March 25, 1997, Mr. Angelson was
granted an option to purchase 58,300 shares of Common Stock (a) with a ten-year
term and (b) at an exercise price of $18.125 (the Closing Price on the date of
grant). These options vested in full on the first anniversary of the date of
grant. For information regarding options granted to Mr. Angelson in 1998, see
"Options Granted in Fiscal 1998" above. All of the foregoing options will
immediately vest upon the occurrence of a "change of control" of the Company (as
defined in the Angelson Agreement).
 
    Mr. Angelson will have the right to terminate the Angelson Agreement in the
event of the material breach thereof by the Company or for other "good reason"
(as defined in the Angelson Agreement). In such event, or if the Company
terminates Mr. Angelson's employment without "cause" (as defined in the Angelson
Agreement), (i) Mr. Angelson will be entitled to receive a lump sum amount equal
to the sum of (A) two times the sum of (x) his then base salary plus (y) the
highest annual performance bonus Mr. Angelson received in the three years
preceding such termination of employment, plus (B) the present value of all
insurance premium payments and other fringe benefits payable under the remaining
term of the Angelson Agreement, (ii) all outstanding equity incentive awards
(including stock options) will immediately vest and remain exercisable for a
period of one year following the date of such termination (or, if earlier, until
the end of the option term), and (iii) Mr. Angelson would be entitled to receive
a payment sufficient to offset the effects of any excise tax imposed under
Section 4999 of the Code. During the term of the Angelson Agreement (and, in the
event Mr. Angelson terminates his employment other than for good reason or the
Company terminates Mr. Angelson's employment for cause, for a period of one year
beyond the expiration of the employment term), Mr. Angelson will be subject to
certain non-competition and non-solicitation requirements.
 
    RITCHIE EMPLOYMENT ARRANGEMENTS. The Company entered into a letter agreement
with Mr. Ritchie on December 13, 1996 (the "Ritchie Agreement"), pursuant to
which Mr. Ritchie serves as Executive Vice President and Chief Financial Officer
of the Company. Mr. Ritchie is required to devote to the Company all of his
working time, attention and efforts. In the event that Mr. Ritchie's employment
should be terminated by the Company other than for "cause" (as defined in the
Executive Severance Agreement discussed below) prior to a "change in control" of
the Company (as defined in the Executive Severance Agreement discussed below),
Mr. Ritchie will be entitled to a payment equal to one year's base salary. Under
the Ritchie
 
                                       54
<PAGE>
Agreement, Mr. Ritchie currently receives a base salary of $450,000 per year; an
annual bonus targeted at not less than 75% of base salary (assuming bonus
targets under the EIP are met); and certain fringe benefits, including
participation in the SERP. In connection with his entering into the Ritchie
Agreement, Mr. Ritchie was granted an option to purchase 100,000 shares of
Common Stock (a) with a ten-year term, (b) at an exercise price of $18.00 per
share (the Closing Price on the date of grant), and (c) vesting in installments
of 25% on January 6 of each of 1998, 1999, 2000 and 2001, provided that all such
options will immediately vest upon the occurrence of a "change in control" of
the Company. For information regarding options granted to Mr. Ritchie in 1998,
see "Options Granted in Fiscal 1998" above.
 
    In addition, the Company has entered into a severance agreement with Mr.
Ritchie, effective January 6, 1997 (the "Executive Severance Agreement"), which
provides that if Mr. Ritchie's employment is terminated by the Company without
"cause" or by Mr. Ritchie for "good reason" (as defined in the Executive
Severance Agreement) following a "change in control" of the Company, Mr. Ritchie
will receive a lump sum amount equal to two times the sum of (x) the greater of
his annual base salary in effect immediately prior to the termination of
employment and his annual base salary in effect immediately prior to the "change
in control" and (y) the greater of the target bonus for Mr. Ritchie under the
EIP in the year immediately preceding that in which the termination occurs and
the average such bonus for the three years immediately preceding the "change in
control." In addition, (i) all outstanding stock incentive awards (including
stock options) will immediately vest and remain exercisable until at least 90
days following the "change in control," and (ii) Mr. Ritchie would be entitled
to two years of continued medical and other insurance benefits. The total amount
of benefits payable to Mr. Ritchie would be limited to the extent necessary to
preserve the Company's deduction pursuant to Section 280G of the Code.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The following table sets forth the beneficial ownership as of February 26,
1999 by each person known by the Company to be the beneficial owner of more than
5% of the outstanding shares of Common Stock (constituting the only class of
voting stock of the Company), each director of the Company, each Named Executive
Officer, and all directors and executive officers as a group.
 
<TABLE>
<CAPTION>
                                                                                 SHARES BENEFICIALLY OWNED
                                                                      -----------------------------------------------
                                                                         AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER                                      OF OWNERSHIP (A)       PERCENTAGE OF CLASS
--------------------------------------------------------------------  ------------------------  ---------------------
<S>                                                                   <C>                       <C>
 
R. Theodore Ammon (b)...............................................           2,517,144                   12.6%
  c/o Big Flower Holdings, Inc.
  3 East 54th Street
  New York, New York 10022
 
EnTrust Capital Inc.................................................           4,049,354                   20.5%
  650 Madison Avenue
  New York, New York 10022
</TABLE>
 
                                             (TABLE CONTINUED ON FOLLOWING PAGE)
 
                                       55
<PAGE>
                                          (TABLE CONTINUED FROM PRECEEDING PAGE)
 
<TABLE>
<CAPTION>
                                                                                 SHARES BENEFICIALLY OWNED
                                                                      -----------------------------------------------
                                                                         AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER                                      OF OWNERSHIP (A)       PERCENTAGE OF CLASS
--------------------------------------------------------------------  ------------------------  ---------------------
<S>                                                                   <C>                       <C>
The Prudential Insurance Company of America.........................           1,287,700                    6.5%
  751 Broad Street
  Newark, New Jersey 07102-3777
 
Peter G. Diamandis (c)..............................................              24,816                      *
  700 Canal Street
  Stamford, Connecticut 06902
 
Robert M. Kimmitt (d)...............................................              23,651                      *
  Wilmer, Cutler & Pickering
  2445 M Street, N.W.
  Washington, D.C. 20037-1420
 
Joan D. Manley (e)..................................................              17,004                      *
  P.O. Box 1353
  Dillon, Colorado 80435
 
Newton N. Minow (f).................................................              33,651                      *
  c/o Sidley & Austin
  One First National Plaza
  Suite 4800
  Chicago, Illinois 60603
 
Edward T. Reilly (g)................................................             294,467                    1.5%
  c/o Big Flower Holdings, Inc.
  3 East 54th Street
  New York, New York 10022
 
Mark A. Angelson (h)................................................             201,000                    1.0%
  c/o Big Flower Holdings, Inc.
  3 East 54th Street
  New York, New York 10022
 
Richard L. Ritchie (i)..............................................              50,000                      *
  c/o Big Flower Holdings, Inc.
  3 East 54th Street
  New York, New York 10022
 
  All directors and current executive officers as a group
  (8 persons) (j)...................................................           3,163,298                   15.3%
</TABLE>
 
------------------------
 
*   Less than one percent
 
(a) This column includes shares which directors and executive officers have the
    right to acquire within 60 days. Except as otherwise indicated, each person
    and entity has sole voting and dispositive power with respect to the shares
    set forth in the table.
 
(b) Includes (x) 6,000 shares held by Mr. Ammon as general partner of a
    partnership in which certain family members are the limited partners and
    have 99% of the economic interests, (y) options to
 
                                         (FOOTNOTES CONTINUED ON FOLLOWING PAGE)
 
                                       56
<PAGE>
                                      (FOOTNOTES CONTINUED FROM PRECEEDING PAGE)
 
    purchase 300,000 shares of Common Stock which are presently exercisable and
    (z) 200 shares owned by Mr. Ammon's minor children, as to which Mr. Ammon
    disclaims beneficial ownership.
 
(c) Represents options to purchase 24,816 shares of Common Stock which are
    presently exercisable.
 
(d) Represents options to purchase 23,651 shares of Common Stock which are
    presently exercisable.
 
(e) Includes option to purchase 14,400 shares of Common Stock which are
    presently exercisable.
 
(f) Includes options to purchase 23,651 shares of Common Stock which are
    presently exercisable.
 
(g) Includes options to purchase 253,334 shares of Common Stock which are
    presently exercisable and options to purchase 33,333 shares of Common Stock
    which will become exercisable within 60 days.
 
(h) Includes options to purchase 133,300 shares of Common Stock which are
    presently exercisable and options to purchase 62,500 shares of Common Stock
    which will become exercisable within 60 days.
 
(i) Represents options to purchase 50,000 shares of Common Stock which are
    presently exercisable.
 
(j) Includes options to purchase 918,985 shares of Common Stock which are
    presently exercisable or which will become exercisable within 60 days.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    None.
 
                                       57
<PAGE>
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
    (a)(1) Financial Statements. Reference is made to the financial statements
listed in Section 1 of the Index to Consolidated Financial Statements and
Schedules on page F-1.
 
    (a)(2) Financial Statement Schedules. Reference is made to the financial
statements listed in Section 2 of the Index to Consolidated Financial Statements
and Schedules on page F-1. All other schedules have been omitted as not
required, not applicable or because the information required to be presented is
included in the financial statements and related notes.
 
    (a)(3) Exhibits. The following exhibits are filed as a part of this report
or incorporated by reference and will be furnished to any security holder upon
request for such exhibit and payment of any reasonable expenses incurred by the
Company. Send any such request to the Company at 3 East 54th Street, New York,
New York 10022; Attention: Secretary.
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                    DESCRIPTION
---------  ---------------------------------------------------------------------------------------------------------
<C>        <S>
 
      2.1  Agreement and Plan of Merger, dated as of May 10, 1993, by and among Robert E. Milhous, The Robert E.
           Milhous Trust, Paul B. Milhous, The Paul Ballard Milhous Trust, Treasure Chest Advertising Company, Inc.,
           Big Flower Press, Inc. and TCA Merger Corp.(1)
 
      2.2  Amendment to Agreement and Plan of Merger, dated as of July 30, 1993, by and among Robert E. Milhous, The
           Robert E. Milhous Trust, Paul B. Milhous, The Paul Ballard Milhous Trust, Treasure Chest Advertising
           Company, Inc., Big Flower Press, Inc. and TCA Merger Corp.(2)
 
      2.3  Stock Purchase Agreement, dated as of January 14, 1994, by and among Lee A. Thompson, John G. Brown and
           BFP Holdings Corp.(3)
 
      2.4  Stock Purchase Agreement, dated as of January 14, 1994, by and among Gary W. Pestello, Thomas G. Hansen
           and BFP Holdings Corp.(3)
 
      2.5  Asset Purchase Agreement, dated as of January 14, 1994, by and BFP Holdings Corp. and D. Enterprises,
           Inc.(3)
 
      2.6  Assignment and Assumption Agreement, dated April 5, 1994, by and between BFP Holdings Corp. and Treasure
           Chest Advertising Company, Inc.(5)
 
      2.7  Purchase and Sale Agreement, dated as of March 16, 1994, by and among BFP Holdings Corp., KTB Associates,
           Inc., Tomsons Properties, TKB Properties, Thomas Clemente, Brian Clemente and Joseph Clemente.(4)
 
      2.8  Stock Purchase Agreement, dated as of November 27, 1995, between Big Flower Press, Inc. and Brian
           Mason.(8)
 
      2.9  Agreement and Plan of Merger, dated February 1, 1996, among Big Flower Press Holdings, Inc., WTI
           Acquisition Corp., and Webcraft Technologies, Inc.(8)
 
     2.10  Agreement and Plan of Merger, dated as of July 31, 1996, by and among Big Flower Press Holdings, Inc.,
           Scanforms, Inc. and Scanforms Acquisition Corp. (11)
 
     2.11  Purchase Agreement, dated as of October 1, 1996, by and between Treasure Chest Advertising Company, Inc.,
           the stockholders of PrintCo., Inc. named therein, Park Properties and the partners in Park Properties
           named therein. (12)
 
     2.12  Stock Purchase Agreement, dated as of October 1, 1996, among Laser Tech Color, Inc. and the stockholders
           of Pacific Color Connection, Inc. named therein. (12)
</TABLE>
 
                                       58
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                    DESCRIPTION
---------  ---------------------------------------------------------------------------------------------------------
<C>        <S>
     2.13  Agreement and Plan of Reorganization, dated as of October 17, 1997, among Big Flower Press Holdings,
           Inc., Big Flower Holdings, Inc. and Big Flower Merger Co. (13)
 
     2.14  Agreement, dated September 18, 1997, between Big Flower Limited and Peter Rivett, Andrew Ruddle and 3i
           Group PLC. (14)
 
     2.15  Asset Purchase Agreement, dated as of September 19, 1997, between Gruner + Jahr Printing & Publishing Co.
           and Treasure Chest Advertising Company, Inc. (15)
 
     2.16  Stock Purchase Agreement, dated as of September 19, 1997, among Big Flower Press Holdings, Inc.,
           Columbine JDS Systems, Inc., Columbine BIAS, Ltd., each of the shareholders who is a signatory thereto
           and each of the optionees who is a signatory thereto. (16)
 
     2.17  First Amendment to Stock Purchase Agreement, dated as of October 29, 1997, by and among Big Flower Press
           Holdings, Inc., Big Flower Holdings, Inc., Columbine JDS Systems, Inc. and its stockholders and option
           holders. (16)
 
     2.18  Agreement, dated March 13, 1998, among Big Flower Digital Services Limited, the holders of capital stock
           of Troypeak Limited and Pismo Limited, Troypeak Limited and Pismo Limited. (23)
 
     2.19  Agreement, dated December 16, 1998, among Big Flower Limited, Colorgraphic Direct Response Limited and
           the holders of capital stock of Colorgraphic Direct Response Limited. (24)
 
      3.1  Restated Certificate of Incorporation of Big Flower Holdings, Inc., effective October 20, 1997. (17)
 
      3.2  Amended and Restated By-Laws of Big Flower Holdings, Inc., effective October 20, 1997. (17)
 
      3.3  Certificate of Designation, Preferences and Rights of Series A Junior Preferred Stock of Big Flower
           Holdings, Inc. (17)
 
      4.1  Rights Agreement, dated as of November 28, 1995, between Big Flower Holdings, Inc. and The Bank of New
           York, as Rights Agent. (17)
 
      4.2  Indenture, dated as of June 20, 1997, between Big Flower Press Holdings, Inc. and State Street Bank and
           Trust Company (as successor in interest to Fleet National Bank), as Trustee, relating to the 8 7/8%
           Senior Subordinated Notes due 2007. (18)
 
      4.3  Registration Rights Agreement, dated as of June 20, 1997, between Big Flower Press Holdings, Inc. and BT
           Securities Corporation, Credit Suisse First Boston and Goldman, Sachs & Co. (18)
 
      4.4  Amended and Restated Trust Agreement, dated as of October 14, 1997, among (i) Big Flower Holdings, Inc.,
           (ii) The Bank of New York as property trustee, (iii) The Bank of New York (Delaware), as Delaware trustee
           and (iv) Mark A. Angelson and Richard L. Ritchie, as Administrative Trustees, relating to the Preferred
           Securities of Big Flower Trust I. (13)
 
      4.5  Guarantee Agreement, dated as of October 20, 1997, between Big Flower Holdings, Inc., and The Bank of New
           York, as Guarantee Trustee, relating to the Preferred Securities of Big Flower Trust I. (13)
 
      4.6  Indenture dated as of October 20, 1997, between Big Flower Holdings, Inc. and The Bank of New York, as
           Trustee, relating to the 6% Convertible Subordinated Debentures due October 15, 2027, of Big Flower
           Holdings, Inc., issued to Big Flower Trust I. (13)
 
      4.7  Registration Rights Agreement, dated as of October 20, 1997, among Big Flower Trust I, Big Flower
           Holdings, Inc. and Goldman, Sachs & Co., on behalf of the purchasers listed therein. (13)
</TABLE>
 
                                       59
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                    DESCRIPTION
---------  ---------------------------------------------------------------------------------------------------------
<C>        <S>
      4.8  Indenture, dated as of December 9, 1998, between Big Flower Press Holdings, Inc. and State Street Bank
           and Trust Company, as Trustee, relating to the 8 5/8% Senior Subordinated Notes due 2008. *
 
      4.9  Registration Rights Agreement, dated as of December 9, 1998, among Big Flower Press Holdings, Inc., BT
           Alex. Brown Incorporated, Chase Securities Inc. and Goldman, Sachs & Co. *
 
     10.1  Amended and Restated Credit Agreement, dated as of June 22, 1998, among Big Flower Holdings, Inc., Big
           Flower Press Holdings, Inc., certain subsidiaries of Big Flower named therein, the Banks from time to
           time party thereto, Bank of America NT & SA and The Industrial Bank of Japan, Limited, as Co Agents,
           Credit Suisse First Boston, as Documentation Agent, and Bankers Trust Company, as Administrative Agent
           (the "Credit Agreement"). (21)
 
     10.2  First Amendment and Consent to the Credit Agreement, dated as of November 10, 1998.*
 
     10.3  Second Amendment and Consent to the Credit Agreement, dated as of November 24, 1998.*
 
     10.4  Certificate Purchase Agreement (Series 1996-1), dated as of March 19, 1996, by BFP Receivables
           Corporation, Big Flower Press Holdings, Inc., the Purchasers described therein, Credit Suisse, as
           Co-Agent, and Bankers Trust Company, as Agent. (9)
 
     10.5  Receivables Purchase Agreement, dated as of March 19, 1996, as amended as of April 25, 1996, June 10,
           1996 and September 24, 1996 (the "Receivables Purchase Agreement"), among Big Flower Press Holdings,
           Inc., as initial Servicer, certain subsidiaries of Big Flower Press Holdings, Inc., as Sellers, and BFP
           Receivables Corporation, as Buyer. (19)
 
     10.6  Amendment to the Receivables Purchase Agreement, dated January 31, 1997. (19)
 
     10.7  Big Flower Receivables Master Trust Pooling and Servicing Agreement, dated as of March 19, 1996, as
           amended as of April 25, 1996, June 10, 1996 and September 24, 1996, among BFP Receivables Corporation, as
           Transferor, Big Flower Press Holdings, Inc., as Servicer, and Manufacturers and Traders Trust Company, as
           Trustee (the "Pooling and Servicing Agreement"). (19)
 
     10.8  Series 1996-2 Supplement to the Pooling and Servicing Agreement, dated as of October 4, 1996, among BFP
           Receivables Corporation, as Transferor, Big Flower Press Holdings, Inc., as Servicer, and Manufacturers
           and Traders Trust Company, as Trustee. (19)
 
     10.9  Series 1996-3 Supplement to the Pooling and Servicing Agreement, dated as of October 4, 1996, among BFP
           Receivables Corporation, as Transferor, Big Flower Press Holdings, Inc., as Servicer, and Manufacturers
           and Traders Trust Company, as Trustee. (19)
 
    10.10  Purchase Agreement (Series 1996-2), dated September 25, 1996, among Big Flower Press Holdings, Inc., BFP
           Receivables Corporation, BT Securities Corporation, Bankers Trust International PLC, and CS First Boston
           Corporation. (19)
 
    10.11  Certificate Purchase Agreement (Series 1996-3), dated as of October 4, 1996, among BFP Receivables
           Corporation, Big Flower Press Holdings, Inc., the purchasers described therein, and Caisse Nationale de
           Credit Agricole, as Agent. (19)
 
    10.12  Non-Competition Agreement, dated November 27, 1995, between Big Flower Press Holdings, Inc. and Brian
           Mason. (8)
 
    10.13  Non-Competition Agreement, dated as of April 27, 1994, by and among Lee A. Thompson, BFP Holdings Corp.,
           Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
</TABLE>
 
                                       60
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                    DESCRIPTION
---------  ---------------------------------------------------------------------------------------------------------
<C>        <S>
    10.14  Non-Competition Agreement, dated as of April 27, 1994, by and among John G. Brown, BFP Holdings Corp.,
           Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
 
    10.15  Non-Competition Agreement, dated as of April 27, 1994, by and among Thomas G. Hansen, BFP Holdings Corp.,
           Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
 
    10.16  Non-Competition Agreement, dated as of April 27, 1994, by and among Gary W. Pestello, BFP Holdings Corp.,
           Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
 
    10.17  Non-Competition Agreement, dated April 27, 1994, by and between Brian T. Clemente and Treasure Chest
           Advertising Company, Inc. (19)
 
    10.18  Non-Competition Agreement, dated August 5, 1993, by and among Big Flower Press, Inc., Robert E. Milhous
           and Paul B. Milhous, together with assignment to Treasure Chest Advertising Company, Inc. (10)
 
    10.19  Employment Agreement (the "Angelson Agreement"), effective March 21, 1996, by and between Mark A.
           Angelson, Big Flower Press Holdings, Inc. and Treasure Chest Advertising Company, Inc. (9)
 
    10.20  Employment Agreement, effective March 29, 1996, by and among Edward T. Reilly, Big Flower Press Holdings,
           Inc. and Treasure Chest Advertising Company, Inc. (9)
 
    10.21  Employment Agreement, dated January 1, 1998, by and between Laser Tech Color, Inc. and Damien Gough.*
 
    10.22  Employment Agreement, dated November 20, 1995, by and between Big Flower Press Holdings, Inc., Treasure
           Chest Advertising Company, Inc. and R. Theodore Ammon. (8)
 
    10.23  Executive Change in Control Severance Agreement, dated January 6, 1997, by and between Big Flower Press
           Holdings, Inc. and Richard L. Ritchie. (19)
 
    10.24  Letter Agreement, dated December 12, 1996, by and between Big Flower Press Holdings, Inc. and Richard L.
           Ritchie. (19)
 
    10.25  Employment Agreement, dated April 27, 1994, between Treasure Chest Advertising Company, Inc. and Thomas
           R. Clemente. (5)
 
    10.26  Employment Agreement, dated April 27, 1994, between Treasure Chest Advertising Company, Inc. and Joseph
           T. Clemente. (5)
 
    10.27  Employment Agreement, dated April 27, 1994, between Treasure Chest Advertising Company, Inc. and Kevin
           Clemente. (5)
 
    10.28  Big Flower Holdings, Inc. Restated 1993 Stock Award and Incentive Plan. (20)
 
    10.29  Form of Treasure Chest Advertising Company, Inc.'s Supplemental Executive Retirement Plan, effective
           January 1, 1994. (5)
 
    10.30  Registration Rights Agreement, dated as of August 12, 1993, by and among BFP Holdings Corp., each of the
           purchasers listed on Schedule 1 thereto, Theodore Ammon, Berenson Minella & Company, and each other
           purchaser who executed the agreement ("Registration Rights Agreement"). (5)
 
    10.31  Amendment to Registration Rights Agreement, dated as of April 27, 1994, by and among BFP Holdings Corp.,
           each of the purchasers listed on Schedule 1 thereto, Theodore Ammon, Berenson Minella & Company, and each
           other purchaser who executed the agreement. (5)
</TABLE>
 
                                       61
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                    DESCRIPTION
---------  ---------------------------------------------------------------------------------------------------------
<C>        <S>
    10.32  Boca Raton Letter Agreement, dated May 10, 1993, by and among Robert E. Milhous, Paul B. Milhous, Big
           Flower Press, Inc. and Treasure Chest Advertising Company, Inc.(1)
 
    10.33  Ink Supply Requirements Agreement, dated as of July 31, 1993, between Treasure Chest Advertising Company,
           Inc. and Marpax, Inc. (the "Ink Supply Agreement"). (6)
 
    10.34  Amendment to Ink Supply Agreement, dated as of July 1, 1997. (22) +
 
    10.35  Master Lease Agreement, dated December 21, 1993, between KTB Associates, Inc. and Chase Equipment
           Leasing, Inc. (5)
 
    10.36  Master Lease Agreement No. Atel/Trea3, dated as of August 31, 1993, between ATEL Financial Corporation
           and Treasure Chest Advertising Company, Inc. (5)
 
    10.37  Master Lease, dated as of July 7, 1993, between General Electric Capital Corporation and Treasure Chest
           Advertising Company, Inc. (5)
 
    10.38  Master Lease, dated as of December 28, 1992, between ITT Capital Finance division of ITT Commercial
           Finance Corp. and Treasure Chest Advertising Company, Inc. (7)
 
    10.39  Master Equipment Lease Agreement, dated as of July 28, 1992, between AT&T Commercial Finance Corporation
           and Treasure Chest Advertising Company, Inc.(5)
 
    10.40  Master Lease Agreement, dated June 22, 1990, between KTB Associates, Inc. and Chase Lincoln Lease/Way,
           Inc.(5)
 
    10.41  Master Lease Agreement, dated May 16, 1991, between KTB Associates, Inc. and Chase Lincoln Lease/Way,
           Inc. 10.43 (5)
 
    10.42  Master Lease, dated as of June 21, 1991 (and as amended through 08/31/93), between The CIT
           Group/Equipment Financing, Inc. and Treasure Chest Advertising Company, Inc.(5)
 
    10.43  Third Amendment and Consent to the Credit Agreement, dated as of February 23, 1999.*
 
    10.44  Amendment to the Angelson Agreement, effective March 29, 1999, by and between Mark A. Angelson, Big
           Flower Press Holdings, Inc. and Treasure Chest Advertising Company, Inc.*
 
     21.1  Subsidiaries of Big Flower Holdings, Inc.*
 
     23.1  Consent of Deloitte & Touche LLP (included in their opinions appearing on pages F-2 and F-28 hereof).
 
   27.1-4  Financial Data Schedules submitted to the Securities and Exchange Commission in electronic format.*
 
     99.1  Form 11-K for the Treasure Chest Advertising Company, Inc. 401 (k) Savings Plus Plan (to be filed on or
           before June 29, 1999).
 
     99.2  Form 11-K for the Webcraft Employee Savings Trust (to be filed on or before June 29, 1999).
 
     99.3  Form 11-K for the Webcraft, Inc. Employees Accumulated Savings Trust (to be filed on or before June 29,
           1999).
</TABLE>
 
------------------------
*   Filed herewith
 
+   Confidential treatment has been granted for portions of this exhibit.
 
(1) Incorporated by reference to TCA Holdings Corp. Form S-1, filed on May 26,
    1993 (File # 33-63392).
 
(2) Incorporated by reference to Big Flower Press, Inc. Amendment No. 3 to the
    Form S-1, filed on August 4, 1993 (File # 33-63392).
 
                                       62
<PAGE>
(3) Incorporated by reference to Big Flower Press, Inc. Form 8-K, dated as of
    January 24, 1994 (File # 33-63392).
 
(4) Incorporated by reference to Big Flower Press, Inc. Form 8-K, dated as of
    April 27, 1994 (File # 33-63392).
 
(5) Incorporated by reference to BFP Holdings Corp. Form S-1, filed on May 26,
    1994 (File # 33-79406).
 
(6) Incorporated by reference to Big Flower Press, Inc. Amendment No. 2 to the
    Form S-1, filed on July 19, 1993 (File #33-63392).
 
(7) Incorporated by reference to Big Flower Press Holdings, Inc. Form S-1, filed
    on September 19, 1995 (File # 33-97082).
 
(8) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-Q for
    the quarterly period ended December 31, 1995 (File # 1-14084).
 
(9) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-Q filed
    on May 15, 1996 (Accession # 0000912057-96-009947).
 
(10) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-K for
    the transition period from July 1, 1995 to December 31, 1995 (File #
    1-14084).
 
(11) Incorporated by reference to Annex I to the Proxy Statement/Prospectus
    dated September 6, 1996, forming part of the Registration Statement on Form
    S-4 (Registration No. 333-11225) of Big Flower Press Holdings, Inc.
 
(12) Incorporated by reference to Big Flower Press Holdings, Inc. Form 8-K,
    dated October 1, 1996 (File # 1-14084).
 
(13) Incorporated by reference to Big Flower Holdings, Inc. Form 10-Q for the
    quarterly period ended September 30, 1997 (File # 0-29474).
 
(14) Incorporated by reference to Big Flower Press Holdings, Inc. Current Report
    on Form 8-K, dated September 18, 1997 (File # 1-14084).
 
(15) Incorporated by reference to Big Flower Press Holdings, Inc. Current Report
    on Form 8-K, dated October 15, 1997 (File # 1-14084).
 
(16) Incorporated by reference to Big Flower Holdings, Inc. Current Report on
    Form 8- K, dated October 31, 1997 (File # 0-29474).
 
(17) Incorporated by reference to Big Flower Holdings, Inc. Registration
    Statement on Form S-8 and Post-Effective Amendment No. 1 to Registration
    Statement No. 333- 2152, filed on November 4, 1997 (File # 1-14084).
 
(18) Incorporated by reference to Big Flower Press Holdings, Inc. Registration
    Statement on Form S-4 (Registration No. 333-32141).
 
(19) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-K for
    the fiscal year ended December 31, 1996 (File # 1-14084).
 
(20) Incorporated by reference to Big Flower Press Holdings, Inc. Notice of
    Annual Meeting of Stockholders and Proxy Statement, dated May 13, 1997 (File
    # 1- 14084).
 
                                       63
<PAGE>
(21) Incorporated by reference to Big Flower Holdings, Inc. Quarterly Report on
    Form 10-Q for the quarter ended June 30, 1998 (File # 0-29474).
 
(22) Incorporated by reference to Big Flower Holdings, Inc. Form 10-K for the
    fiscal year ended December 31, 1997 (File # 0-29474).
 
(23) Incorporated by reference to Big Flower Holdings, Inc. Current Report on
    Form 8-K, dated March 13, 1998 (File # 0-29474).
 
(24) Incorporated by reference to Big Flower Holdings, Inc. Current Report on
    Form 8-K, dated January 4, 1999 (File # 0-29474).
 
    (B) REPORTS ON FORM 8-K.
 
    During the period from October 1, 1998 to December 31, 1998, Big Flower
Press filed the following reports on Form 8-K:
 
        (i) Current Report on Form 8-K, dated December 2, 1998, concerning Big
    Flower Press's intention to issue senior subordinated notes due 2008; and
 
        (ii) Current Report on Form 8-K, dated December 4, 1998, concerning Big
    Flower Press's issuance of $250 million aggregate principal amount of senior
    subordinated notes due 2008.
 
    (c) The exhibits required by Item 601 of Regulation S-K to be filed as part
of this report or incorporated herein by reference are listed in Item 14(a)(3)
above.
 
    (d) See Item 14(a)(2) of this report.
 
                                       64
<PAGE>
                           BIG FLOWER HOLDINGS, INC.
                        BIG FLOWER PRESS HOLDINGS, INC.
 
                             INDEX TO CONSOLIDATED
                       FINANCIAL STATEMENTS AND SCHEDULES
 
1.  FINANCIAL STATEMENTS:
 
<TABLE>
<CAPTION>
<S>        <C>        <C>
F-2                   Independent Auditors' Report and Consent re: Big Flower Holdings, Inc.
 
F-3                   Consolidated Balance Sheets of Big Flower Holdings, Inc. and Subsidiaries at
                      December 31, 1998 and 1997.
 
F-4                   Consolidated Statements of Operations of Big Flower Holdings, Inc. and
                      Subsidiaries for the Years Ended December 31, 1998, 1997 and 1996.
 
F-5                   Consolidated Statements of Stockholders' Equity of Big Flower Holdings, Inc. and
                      Subsidiaries for the Years Ended December 31, 1998, 1997 and 1996.
 
F-6                   Consolidated Statements of Cash Flows of Big Flower Holdings, Inc. and
                      Subsidiaries for the Years Ended December 31, 1998, 1997 and 1996.
 
F-7                   Notes to Consolidated Financial Statements of Big Flower Holdings, Inc. and
                      Subsidiaries.
 
F-29                  Independent Auditors' Report and Consent re: Big Flower Press Holdings, Inc.
 
F-30                  Consolidated Balance Sheets of Big Flower Press Holdings, Inc. and Subsidiaries
                      at December 31, 1998 and 1997.
 
F-31                  Consolidated Statements of Operations, Accumulated Deficit and Comprehensive
                      Income of Big Flower Press Holdings, Inc. and Subsidiaries for the Years Ended
                      December 31, 1998 and 1997.
 
F-32                  Consolidated Statements of Cash Flows of Big Flower Press Holdings, Inc. and
                      Subsidiaries for the Years Ended December 31, 1998 and 1997.
 
F-33                  Notes to Consolidated Financial Statements of Big Flower Press Holdings, Inc. and
                      Subsidiaries.
</TABLE>
 
2.  FINANCIAL STATEMENT SCHEDULES:
 
<TABLE>
<S>        <C>        <C>
F-34       I.         Condensed Financial information of Big Flower Holdings, Inc. for the Year Ended
                      December 31, 1998 and the Period Ended December 31, 1997.
 
F-38       I.         Condensed Financial information of Big Flower Press Holdings, Inc. for the Years
                      Ended December 31, 1998, 1997 and 1996.
 
F-42       II.        Valuation and Qualifying Accounts of Big Flower Holdings, Inc. and Subsidiaries
                      for the Years Ended December 31, 1998, 1997 and 1996.
</TABLE>
 
                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors and Stockholders of
  Big Flower Holdings, Inc.:
 
    We have audited the accompanying consolidated balance sheets of Big Flower
Holdings, Inc. and subsidiaries ("the Company") as of December 31, 1998 and 1997
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the consolidated financial statement schedules listed
in the Index on page F-1. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedules based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, such
consolidated financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
 
DELOITTE & TOUCHE LLP
New York, New York
February 8, 1999
 
                         INDEPENDENT AUDITORS' CONSENT
            TO INCORPORATION BY REFERENCE IN REGISTRATION STATEMENTS
                            ON FORM S-3 AND FORM S-8
 
    We consent to the incorporation by reference in Big Flower Holdings, Inc.'s
Registration Statement No. 333-39443 on Form S-8 and Registration No. 333-44445
on Form S-3 of our report dated February 8, 1999 appearing on page F-2 of the
Annual Report on Form 10-K for the year ended December 31, 1998.
 
DELOITTE & TOUCHE LLP
New York, New York
March 31, 1999
 
                                      F-2
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                     IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
 
<TABLE>
<CAPTION>
                                                                                            AS OF DECEMBER 31,
                                                                                        --------------------------
                                                                                            1998          1997
                                                                                        ------------  ------------
<S>                                                                                     <C>           <C>
                                                      ASSETS
Current Assets:
  Cash and cash equivalents...........................................................  $      8,504  $      5,307
  Accounts receivable, net............................................................       186,863       140,138
  Inventories.........................................................................        47,954        46,510
  Prepaid expenses and other current assets...........................................        15,648         4,599
  Deferred income taxes and income tax receivable.....................................        10,880        19,827
                                                                                        ------------  ------------
    Total current assets..............................................................       269,849       216,381
Property, plant and equipment, net....................................................       457,988       384,850
Goodwill, net of accumulated amortization of $40,394 and $25,413......................       483,373       415,601
Long-term investments.................................................................        74,391
Other assets, net.....................................................................        42,581        42,215
                                                                                        ------------  ------------
    Total Assets......................................................................  $  1,328,182  $  1,059,047
                                                                                        ------------  ------------
                                                                                        ------------  ------------
 
                                              LIABILITIES AND EQUITY
Current Liabilities:
  Accounts payable....................................................................  $    151,054  $    133,648
  Compensation and benefits payable...................................................        48,983        45,663
  Accrued interest....................................................................        16,991        13,775
  Accrued income taxes................................................................         9,578         9,234
  Other current liabilities...........................................................        49,024        31,618
                                                                                        ------------  ------------
    Total current liabilities.........................................................       275,630       233,938
Long-term debt, net of current portion................................................       731,080       590,045
Deferred income taxes.................................................................        52,507        27,811
Other long-term liabilities...........................................................        26,755        20,715
                                                                                        ------------  ------------
    Total liabilities.................................................................     1,085,972       872,509
                                                                                        ------------  ------------
Company-obligated mandatorily redeemable convertible preferred securities of a
  subsidiary trust whose sole assets are the convertible subordinated debentures of
  Big Flower Holdings, Inc............................................................       115,000       115,000
                                                                                        ------------  ------------
Stockholders' equity:
  Preferred stock--authorized 10,000 shares; $0.01 par value; none issued
  Common stock--authorized 50,000 shares; $0.01 par value; issued and outstanding
    19,731 and 19,512.................................................................           197           195
  Additional paid-in capital..........................................................       146,135       140,798
  Accumulated deficit.................................................................       (30,872)      (68,548)
  Accumulated other comprehensive income..............................................        12,522
  Other...............................................................................          (772)         (907)
                                                                                        ------------  ------------
    Total stockholders' equity........................................................       127,210        71,538
                                                                                        ------------  ------------
    Total Liabilities and Equity......................................................  $  1,328,182  $  1,059,047
                                                                                        ------------  ------------
                                                                                        ------------  ------------
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                      F-3
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                     IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
 
<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                          ----------------------------------------
                                                                              1998          1997          1996
                                                                          ------------  ------------  ------------
<S>                                                                       <C>           <C>           <C>
Net sales...............................................................  $  1,739,715  $  1,376,706  $  1,201,860
                                                                          ------------  ------------  ------------
Operating expenses:
  Costs of production...................................................     1,296,336     1,072,296       971,789
  Selling, general and administrative...................................       219,496       140,394       107,483
  Depreciation..........................................................        64,244        49,651        34,756
  Amortization of intangibles...........................................        22,142        17,671        17,003
  In-process acquired technology write off..............................           245        58,192
  Merger costs..........................................................                                     1,486
                                                                          ------------  ------------  ------------
                                                                             1,602,463     1,338,204     1,132,517
                                                                          ------------  ------------  ------------
Operating income........................................................       137,252        38,502        69,343
                                                                          ------------  ------------  ------------
Other expenses (income):
  Interest expense......................................................        55,988        40,300        36,165
  Amortization of deferred financing costs..............................         1,902         1,696         1,802
  Interest income.......................................................          (498)         (349)         (712)
  Preferred dividends of a subsidiary trust.............................         6,900         1,340
  Loss on sale of Webcraft Games, Inc...................................                                    14,277
  Other, net............................................................         2,982         7,141        12,813
                                                                          ------------  ------------  ------------
                                                                                67,274        50,128        64,345
                                                                          ------------  ------------  ------------
 
Income (loss) before income taxes and extraordinary items...............        69,978       (11,626)        4,998
Income tax expense......................................................        32,302        21,945         8,283
                                                                          ------------  ------------  ------------
Income (loss) before extraordinary items................................        37,676       (33,571)       (3,285)
Extraordinary items, net of income tax benefits of $8,800 and $1,400....                     (13,463)       (2,078)
                                                                          ------------  ------------  ------------
Net income (loss).......................................................  $     37,676  $    (47,034) $     (5,363)
                                                                          ------------  ------------  ------------
                                                                          ------------  ------------  ------------
Income (loss) per share--basic:
  Income (loss) before extraordinary items..............................  $       1.92  $      (1.79) $      (0.18)
  Extraordinary items, net..............................................                       (0.72)        (0.12)
                                                                          ------------  ------------  ------------
  Net income (loss).....................................................  $       1.92  $      (2.51) $      (0.30)
                                                                          ------------  ------------  ------------
                                                                          ------------  ------------  ------------
  Weighted average shares outstanding--basic............................        19,660        18,704        18,046
                                                                          ------------  ------------  ------------
                                                                          ------------  ------------  ------------
Income (loss) per share--diluted:
  Income (loss) before extraordinary items..............................  $       1.69  $      (1.79) $      (0.18)
  Extraordinary items, net..............................................                       (0.72)        (0.12)
                                                                          ------------  ------------  ------------
  Net income (loss).....................................................  $       1.69  $      (2.51) $      (0.30)
                                                                          ------------  ------------  ------------
                                                                          ------------  ------------  ------------
  Weighted average shares outstanding--diluted..........................        24,678        18,704        18,046
                                                                          ------------  ------------  ------------
                                                                          ------------  ------------  ------------
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                      F-4
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                                                           ACCUMULATED
                                                                                              OTHER
                                                                   ADDITIONAL   ACCUMU-      COMPRE-
                                                        COMMON      PAID-IN      LATED       HENSIVE
                                            SHARES       STOCK      CAPITAL     DEFICIT       INCOME       OTHER      TOTAL
                                           ---------  -----------  ----------  ----------  ------------  ---------  ----------
<S>                                        <C>        <C>          <C>         <C>         <C>           <C>        <C>
BALANCE AT JANUARY 1, 1996...............     17,234   $     172   $  102,300  $  (16,151)               $  (1,845) $   84,476
Net loss.................................                                          (5,363)                              (5,363)
Issuance of common stock for
  companies acquired.....................        895           9       15,212                                           15,221
Reclassification of common stock subject
  to redemption..........................        489           5        1,504                                 (495)      1,014
Stock option exercised...................          1                        3                                                3
Amortization of unearned compensation....                                                                      803         803
Repayment of notes.......................                                                                      196         196
                                           ---------         ---   ----------  ----------                ---------  ----------
BALANCE AT DECEMBER 31, 1996.............     18,619         186      119,019     (21,514)                  (1,341)     96,350
 
Net loss.................................                                         (47,034)                             (47,034)
Issuance of common stock and options for
  companies acquired.....................      1,040          10       27,246                                           27,256
Repurchase of common stock...............       (284)         (1)      (5,980)                                          (5,981)
Shares issued related to compensation
  plans..................................        137                      513                                              513
Amortization of unearned compensation....                                                                      120         120
Repayment of notes.......................                                                                      314         314
                                           ---------         ---   ----------  ----------                ---------  ----------
BALANCE AT DECEMBER 31, 1997.............     19,512         195      140,798     (68,548)                    (907)     71,538
                                                                                                                    ----------
Net income...............................                                          37,676                               37,676
Unrealized gain on investments...........                                                   $   12,706                  12,706
Currency translation adjustment..........                                                         (184)                   (184)
                                                                                                                    ----------
  Comprehensive income...................                                                                               50,198
                                                                                                                    ----------
 
Issuance of common stock and
  options for companies acquired.........        336           3       11,080                                           11,083
Repurchase of common stock...............       (287)         (3)      (7,511)                                          (7,514)
Shares issued related to compensation
  plans..................................        170           2        1,768                                            1,770
Amortization of unearned compensation....                                                                      121         121
Repayment of notes.......................                                                                       14          14
                                           ---------         ---   ----------  ----------  ------------  ---------  ----------
BALANCE AT DECEMBER 31, 1998.............     19,731   $     197   $  146,135  $  (30,872)  $   12,522   $    (772) $  127,210
                                           ---------         ---   ----------  ----------  ------------  ---------  ----------
                                           ---------         ---   ----------  ----------  ------------  ---------  ----------
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                      F-5
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                                 -------------------------------------
                                                                                    1998         1997         1996
                                                                                 -----------  -----------  -----------
<S>                                                                              <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)............................................................  $    37,676  $   (47,034) $    (5,363)
  Adjustments to reconcile net income (loss) to net cash provided by operating
    activities:
      Depreciation and amortization............................................       86,386       67,322       51,759
      In-process acquired technology write off.................................          245       58,192
      Extraordinary items, net.................................................                    13,463        2,078
      Loss on sale of Webcraft Games, Inc......................................                                 14,277
      Deferred income taxes....................................................       22,529        4,866        2,548
      Other non-cash income and expense, net...................................        4,696        9,384        9,743
      Changes in operating assets and liabilities (excluding effect of
        acquisitions and disposition):
          (Increase) decrease in accounts receivable...........................      (29,507)      (3,343)       4,580
          Proceeds from initial sale of accounts receivable....................                                 91,567
          Decrease (increase) in inventories...................................        2,085       (5,905)      26,371
          Increase in prepaid expenses and other assets........................       (3,008)      (1,570)      (2,834)
          (Decrease) increase in accounts payable and other liabilities........       (2,886)      25,262      (58,790)
                                                                                 -----------  -----------  -----------
Net cash provided by operating activities......................................      118,216      120,637      135,936
                                                                                 -----------  -----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisitions of businesses, net of cash acquired.............................      (70,545)    (242,233)    (122,144)
  Capital expenditures.........................................................      (95,433)     (74,045)     (55,391)
  Investments in equity securities and leveraged lease transactions............      (53,423)
  Software development costs capitalized.......................................      (10,232)        (667)
  Proceeds from sale of property, plant and equipment and divested assets......        2,536          344        6,686
                                                                                 -----------  -----------  -----------
Net cash used in investing activities..........................................     (227,097)    (316,601)    (170,849)
                                                                                 -----------  -----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of long-term debt...................................................      267,500      350,125       75,000
  Net (repayments) borrowings under lines of credit............................     (127,670)       8,177       82,865
  Repayments of long-term debt.................................................      (28,100)    (239,257)    (153,514)
  Issuance of redeemable convertible preferred securities......................                   115,000
  Increase (decrease) in outstanding checks drawn on controlled disbursement
    accounts...................................................................       15,896      (14,650)      26,713
  Deferred financing costs.....................................................       (9,286)     (17,048)      (1,313)
  Issuance of common stock.....................................................        1,652          705          190
  Repurchase of common stock...................................................       (7,514)      (5,981)
                                                                                 -----------  -----------  -----------
Net cash provided by financing activities......................................      112,478      197,071       29,941
                                                                                 -----------  -----------  -----------
Effect of exchange rate changes on cash........................................         (400)
                                                                                 -----------
Net increase (decrease) in cash and cash equivalents...........................        3,197        1,107       (4,972)
Cash and cash equivalents at beginning of year.................................        5,307        4,200        9,172
                                                                                 -----------  -----------  -----------
Cash and cash equivalents at end of year.......................................  $     8,504  $     5,307  $     4,200
                                                                                 -----------  -----------  -----------
                                                                                 -----------  -----------  -----------
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                      F-6
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  BASIS OF PRESENTATION
 
    PRINCIPLES OF CONSOLIDATION
 
    The consolidated financial statements include those of Big Flower Holdings,
Inc. ("Holdings") and its subsidiaries (together, the "Company"). All material
intercompany balances and transactions have been eliminated.
 
    BUSINESS
 
    The Company is a leading advertising and marketing services company that
provides integrated advertising solutions.
 
    USE OF ESTIMATES
 
    The Company's management must make estimates and assumptions in preparing
financial statements in conformity with generally accepted accounting
principles. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
 
    RECLASSIFICATIONS
 
    Certain amounts for prior periods have been reclassified to conform to the
current period presentation, including the reclassification of in-process
acquired technology write off as a component of operating income.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    REVENUE RECOGNITION
 
    Revenue from printing and direct marketing operations is recognized on a
units-of-work-performed method, with revenue and related accounts receivable
recognized for orders in process and orders completed but not yet delivered.
 
    Revenue from premedia operations is recognized upon completion of orders,
including those not yet delivered.
 
    Initial software license revenue is recognized as Company obligations are
fulfilled as specified in customer contracts. System fee revenue, for the use
and service components of software sales, is recognized over the terms of the
related contracts. Consulting and service revenue is recognized as services are
rendered. Computer hardware sales are recognized upon shipment, while hardware
maintenance fees are recognized over the terms of the related contracts.
 
                                      F-7
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    CASH AND CASH EQUIVALENTS
 
    Cash equivalents include all investments with initial maturities of 90 days
or less. As the Company's cash management program utilizes zero-balance
accounts, book overdrafts in these accounts are reclassified as current
liabilities.
 
    INVENTORIES
 
    Inventories are recorded at the lower of cost or market determined primarily
on the first-in, first-out method.
 
    INVESTMENTS
 
    Investments in equity securities are classified as available-for-sale and
are recorded at market value, with net unrealized gains recorded in other
comprehensive income.
 
    LONG-LIVED ASSETS
 
    Property, plant and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the assets'
estimated useful lives or, when applicable, the terms of the leases, if shorter.
 
    Software development costs are expensed until technological feasibility is
determined, after which costs are capitalized until the product is ready for
general release and sale. These costs are amortized over five to seven-year
lives beginning at the respective release dates.
 
    Goodwill arising from acquisitions is amortized over periods of 15 or 40
years. The gross amount of goodwill with a useful life of 15 years was $55.6
million at December 31, 1998 and $41.1 million at December 31, 1997.
 
    Other intangible assets, primarily non-compete agreements, are amortized
over the terms of the related agreements. Deferred financing costs are amortized
over the terms of the related financing instruments.
 
    When changes in business circumstances warrant, the Company reviews the
recoverability of long-lived assets to determine if there has been any permanent
impairment. This assessment is based on estimated undiscounted future cash flows
compared with the assets' carrying value. When impairment is indicated, a
write-down to fair value (normally measured by discounting estimated cash flows)
is taken.
 
    INCOME TAXES
 
    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and operating loss and
tax credit carryforwards.
 
                                      F-8
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    EARNINGS PER SHARE
 
    Basic earnings per share equals net earnings divided by the weighted-average
shares outstanding during the period. Diluted earnings per share equals net
earnings divided by the weighted-average shares outstanding plus dilutive common
stock equivalents and shares assumed issued if convertible securities were
converted.
 
    FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    The Company determines the fair value of its financial instruments as
follows:
 
        CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS
    PAYABLE--Carrying amounts approximate fair value because of the short
    maturities of these instruments.
 
        INVESTMENTS--Fair value is based on quoted market prices or other
    available market information.
 
        REVOLVING CREDIT FACILITY--Carrying amount approximates fair value
    because its interest rates are based on variable reference rates.
 
        LONG-TERM DEBT (EXCLUDING REVOLVING CREDIT FACILITY)--The aggregate fair
    value, based upon available market information, was approximately $605.9
    million at December 31, 1998 and $353.5 million at December 31, 1997.
 
        REDEEMABLE CONVERTIBLE PREFERRED SECURITIES--The fair value, based upon
    available market information, was approximately $108.4 million at December
    31, 1998 and $118.2 million at December 31, 1997.
 
    CONCENTRATION OF CREDIT RISK
 
    The Company provides services to a wide range of clients who operate in many
industry sectors in varied geographic areas. The Company grants credit to all
qualified clients and does not believe that it is exposed to undue concentration
of credit risk to any significant degree.
 
    EMPLOYEE STOCK OPTIONS
 
    The Company periodically grants employees options to purchase shares of
common stock, with exercise prices equal to the closing price on the grant date.
The Company follows the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" and continues to apply the accounting provisions
of APB Opinion No. 25, "Accounting for Stock Issued to Employees". As such, the
Company does not recognize compensation expense for options granted to
employees.
 
    FOREIGN CURRENCY TRANSLATION
 
    The Company translates the financial statements of foreign subsidiaries by
recording assets and liabilities at exchange rates in effect at the balance
sheet date and income
 
                                      F-9
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
statement accounts at average rates for the applicable periods. Transaction
gains and losses, recorded in Other expenses, were immaterial in 1998 and 1997.
 
3. ACQUISITIONS
 
    POOLING TRANSACTION
 
    In 1996, the Company acquired Scanforms, Inc. ("Scanforms") in exchange for
1.5 million shares of common stock. This acquisition was accounted for as a
pooling of interests and, accordingly, the consolidated financial statements
include the results of Scanforms for all periods presented.
 
    PURCHASE TRANSACTIONS
 
    During 1996, 1997 and 1998, the Company completed the following
acquisitions, all accounted for as purchases:
 
        -  In March 1996, the Company acquired Webcraft, Inc. ("Webcraft").
           During the fourth quarter of 1996, the Company acquired all of the
           outstanding capital stock of PrintCo., Inc. ("PrintCo"), Pacific
           Color Connection, Inc., Designer Color Systems, Ltd. ("DCS") and
           Digital Dimensions, Inc. ("DDI"). The aggregate purchase price was
           $168.5 million, including 500,000 shares of common stock.
 
        -  Between September and November 1997, the Company acquired Olwen
           Direct Mail, Ltd. ("Olwen"), the assets of businesses operating as
           Riverside County Publishing Company ("RCPC"), the stock of Columbine
           JDS Systems, Inc. ("Columbine"), and the assets of Gamma One, Inc.,
           IMPCO Enterprises, Inc. and Broadcast Systems Software Limited. The
           aggregate purchase price, including debt repaid and 1.0 million
           shares of common stock and options to purchase 396,000 shares of
           common stock (with a collective fair value of $27.3 million), was
           $300.2 million.
 
        -  In 1998, the Company acquired
             -  Troypeak Limited and Pismo Limited in March,
             -  Reach America, Inc. in April,
             -  Enteron Group, Inc. and ColorStream Technologies L.L.C. in May,
             -  Adtraq Data Systems and CJDS Adserve, Inc. in June,
             -  Imaging Consortium, Inc. in July, and
             -  DSI Datatrak Systems, Inc. ("Datatrak") and Admagic Group,
                Limited in November.
 
            Aggregate consideration for these acquisitions was approximately
            $117.8 million, including debt repaid and the issuance of
            approximately 336,000 shares of common stock and options to purchase
            23,000 shares of common stock (with a collective fair value of $11.1
            million).
 
                                      F-10
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3. ACQUISITIONS (CONTINUED)
    The results of operations for all of the businesses acquired in purchase
transactions are included in the consolidated financial statements from their
respective dates of acquisition.
 
    GOODWILL
 
    The excess of the purchase prices of acquired companies over the fair values
of net assets acquired, identified intangibles, acquired computer software and
in-process technology was recorded as goodwill. The assets and liabilities were
recorded at their estimated fair values as of the dates of acquisition.
Identified intangible assets and acquired computer software were recorded based
on third-party appraised values. As of the dates of acquisition, the
technological feasibility of the in-process technology had not been established,
and the technology had no alternative future use, so it was written off
immediately in accordance with generally accepted accounting principles.
Aggregate goodwill recorded in connection with acquisitions was $79.4 million in
1998, $167.2 million in 1997 and $96.3 million in 1996 (of which $65.2 million
related to Webcraft). Amounts and allocations of costs recorded may require
adjustment based upon information coming to the attention of the Company that is
not currently available.
 
    IN-PROCESS TECHNOLOGY
 
    In connection with the Columbine acquisition, the Company wrote off
in-process technology costs of $58.2 million in 1997. The amount allocated to
in-process technology was estimated by:
 
        -  estimating the stage of development for each in-process module,
 
        -  estimating the cash flows generated by projected revenues for those
           modules, and
 
        -  discounting those cash flows back to their present values using a
           discount rate of 23%, which represented a premium to the discount
           rate applied to existing technology.
 
The estimated revenues for in-process modules assumed average compound annual
revenue growth rates of 26% through 2009 and are based on management's estimates
of market size, market share growth, expected trends in technology and timing of
new product introductions. In connection with the Datatrak acquisition, the
Company also recorded a write off of $0.2 million related to in-process
technology in 1998.
 
    EXTRAORDINARY ITEMS
 
    Subsequent to the acquisitions of Webcraft, PrintCo and Olwen, the Company
repurchased substantially all of their respective outstanding debt which
generated aggregate extraordinary losses of $0.3 million in 1997 and $2.1
million in 1996, net of income tax benefits.
 
                                      F-11
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3. ACQUISITIONS (CONTINUED)
    SUBSEQUENT EVENT
 
    On January 4, 1999, the Company acquired Colorgraphic Direct Response
Limited ("Colorgraphic") for approximately $81 million in cash, including debt
repaid, in a purchase transaction. As the acquisition was completed subsequent
to the Company's year-end, the financial statements do not include the effect of
the acquisition or Colorgraphic's results of operations.
 
    PRO FORMA INFORMATION
 
    The following unaudited pro forma information reflects the Company's results
adjusted to include the acquired businesses as though all the purchase
acquisitions and the related financing transactions had occurred at the
beginning of 1997. Although acquired subsequent to year-end, the pro forma
results include Colorgraphic to provide a comprehensive view of the Company's
ongoing operations, although it is not necessarily indicative of future results.
 
<TABLE>
<CAPTION>
                                                                                     1998               1997
                                                                                  ----------         -----------
<S>                                                                               <C>                <C>
                                                                                    (IN THOUSANDS, EXCEPT PER
                                                                                          SHARE AMOUNTS)
Net sales.......................................................................  $1,842,000(1)      $ 1,729,000(1)
Income (loss) before extraordinary
  items.........................................................................      37,900(1)(2)       (34,600)(1)(3)
Net income (loss)...............................................................      37,900(1)(2)       (48,000)(1)(2)
 
Per share:
  Income (loss) before extraordinary
    items
      Basic.....................................................................  $     1.92(1)(2)   $     (1.74)(1)
      Diluted...................................................................        1.69(1)(2)         (1.74)(1)(3)
  Net income (loss)
      Basic.....................................................................  $     1.92(1)(2)   $     (2.41)(1)(3)
      Diluted...................................................................        1.69(1)(2)         (2.41)(1)(3)
</TABLE>
 
------------------------
 
(1)  Excludes sales under a production arrangement with an unconsolidated
    printing venture in which the Company had a minority interest and the
    profits related to those sales. The Company sold its minority interest in
    April 1998 and terminated the production arrangement.
 
(2)  Includes the $0.2 million in-process acquired technology write off related
    to the Datatrak acquisition and $4.6 million of termination costs related to
    executive positions eliminated.
 
(3)  Includes the $58.2 milllion in-process acquired technology write off
    related to the Columbine acquisition, $6.3 million of non-operational
    charges related to other 1997 acquisitions and the Company's secondary stock
    offering, and extraordinary losses related to early extinguishment of debt.
 
                                      F-12
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
4.  ACCOUNTS RECEIVABLE
 
    Accounts receivable consisted of the following:
 
<TABLE>
<CAPTION>
                                                                           1998        1997
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
                                                                            (IN THOUSANDS)
Trade--billed.........................................................  $  168,904  $  124,508
Trade--unbilled.......................................................      15,409      22,630
Other receivables.....................................................      12,322       5,342
                                                                        ----------  ----------
                                                                           196,635     152,480
Allowance for doubtful accounts.......................................      (9,772)    (12,342)
                                                                        ----------  ----------
                                                                        $  186,863  $  140,138
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
    In 1996, the Company entered into a six-year agreement (the "A/R
Securitization") to sell interests in certain of its accounts receivable. A
maximum of $150 million can be sold and the amount outstanding at any time
depends upon the level of eligible receivables. The Company retains
substantially the same risk of credit loss as if the receivables had not been
sold and, accordingly, any allowance for doubtful accounts related to the
receivables sold is retained. At December 31, 1998 and 1997, interests of $117.6
million and $101.1 million, respectively, had been sold under the A/R
Securitization and, as such, are reflected as reductions of accounts receivable
and excluded from the balances above. Fees of this program vary based on a
Eurodollar rate plus an average margin of 3/8% per year on the amount of
interest sold. Other expenses include these fees, which totaled $6.4 million in
1998, $6.2 million in 1997 and $5.3 million in 1996.
 
5.  INVENTORIES
 
    Inventories consisted of the following:
 
<TABLE>
<CAPTION>
                                                                            1998       1997
                                                                          ---------  ---------
<S>                                                                       <C>        <C>
                                                                             (IN THOUSANDS)
Paper...................................................................  $  32,556  $  34,324
Work in process.........................................................      6,189      2,989
Ink and chemicals.......................................................      4,354      5,447
Other...................................................................      4,855      3,750
                                                                          ---------  ---------
                                                                          $  47,954  $  46,510
                                                                          ---------  ---------
                                                                          ---------  ---------
</TABLE>
 
                                      F-13
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
6.  PROPERTY, PLANT AND EQUIPMENT
 
    The components and useful lives of property, plant and equipment were:
 
<TABLE>
<CAPTION>
                                                          ESTIMATED
                                                         USEFUL LIFE
                                                           (YEARS)       1998         1997
                                                         -----------  -----------  -----------
<S>                                                      <C>          <C>          <C>
                                                                           (IN THOUSANDS)
Land...................................................               $     8,877  $     8,877
Machinery and equipment................................  5 to 15          448,228      375,468
Buildings and leasehold improvements...................  3 to 40           82,629       73,807
Furniture and fixtures.................................  5 to 10           48,668       21,164
Acquired and internally developed computer software....  5 to 7            31,911       18,396
Vehicles...............................................  3 to 4             2,844        1,980
Construction in progress and deposits on equipment
  purchases............................................                    31,118       20,519
                                                                      -----------  -----------
                                                                          654,275      520,211
Accumulated depreciation and amortization..............                  (196,287)    (135,361)
                                                                      -----------  -----------
                                                                      $   457,988  $   384,850
                                                                      -----------  -----------
                                                                      -----------  -----------
</TABLE>
 
7.  INVESTMENTS
 
    Investments consisted of the following at December 31, 1998:
 
<TABLE>
<CAPTION>
                                                                                      (IN
                                                                                  THOUSANDS)
<S>                                                                              <C>
Investment in leverage leases..................................................    $  51,755
Investments in equity securities...............................................       28,765
                                                                                 -------------
                                                                                      80,520
Less: portion included in other current assets.................................       (6,129)
                                                                                 -------------
Long-term investments..........................................................    $  74,391
                                                                                 -------------
                                                                                 -------------
</TABLE>
 
    INVESTMENT IN LEVERAGED LEASES
 
    The Company is the head lessee and sub-lessor in two lease-leaseback
transactions entered into in 1998. Under these transactions, buildings with
estimated useful lives of 65 years were leased for terms of 57 years (the
"Headleases") and subleased to the lessor for terms of 52 years (the
"Subleases"). Under the guidelines of SFAS No. 13, "Accounting for Leases", the
Headleases qualify as capital leases and the Subleases qualify as leveraged
leases. The Company's investments represented approximately 24% of the
buildings' combined leasehold values, while the balance was furnished by
third-party financing in the form of long-term debt that provides no recourse
against the Company, but is secured by first liens on the properties. At the end
of the sublease terms, the properties are returned to the Company, although the
sublessee has the option to purchase the leasehold interests for amounts based
on their then-estimated fair market values. The Company has the benefit of tax
deductions
 
                                      F-14
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
7.  INVESTMENTS (CONTINUED)
for advance rental payments under the Headleases and interest on the long-term
debt. During the early years of the transactions, the available tax deductions
exceed the sublease rental income; in later years the taxable rental income will
exceed the deductible amounts. Deferred taxes are provided to reflect these
temporary differences.
 
    The Company's net investment in leveraged leases was composed of the
following components at December 31, 1998:
 
<TABLE>
<CAPTION>
                                                                                      (IN
                                                                                  THOUSANDS)
<S>                                                                              <C>
Rentals receivable.............................................................   $   115,523
Less: unearned income..........................................................       (63,768)
                                                                                 -------------
Investment in leveraged leases, included in long-term investments..............        51,755
Less: deferred taxes...........................................................       (16,592)
                                                                                 -------------
Net investment in leveraged leases.............................................   $    35,163
                                                                                 -------------
                                                                                 -------------
</TABLE>
 
    In 1998, Other expenses include $5.9 million of income earned on the
leveraged lease investments.
 
    INVESTMENTS IN EQUITY SECURITIES
 
    In 1998, the Company invested in several internet businesses at a cost of
$7.6 million. The investment in one of these businesses, 24/7 Media, Inc.
("TFSM"), the stock of which is publicly traded, is recorded at the market price
of the shares. The investments in the other, non-public businesses (including
MiningCo.com, Inc., which was not publicly traded as of December 31, 1998) are
recorded at their cost basis. The unrealized gain of $21.2 million on these
equity investments is included in other comprehensive income, net of tax (see
Note 14).
 
    The unrealized gain does not include warrants which the Company holds to
purchase shares of TFSM, as such warrants are not publicly traded and do not
have a readily determinable market value. The Company had an unrealized pre-tax
gain on these warrants of $16.2 million as of December 31, 1998, based on the
closing price of that company's common stock as compared to the exercise price
of the warrants.
 
                                      F-15
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
8.  LONG-TERM DEBT
 
    Long-term debt consisted of the following:
 
<TABLE>
<CAPTION>
                                                                           1998        1997
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
                                                                            (IN THOUSANDS)
Revolving credit facilities...........................................  $  108,758  $  236,352
8 7/8% Notes due 2007.................................................     350,110     350,122
8 5/8% Notes due 2008.................................................     250,000
Other notes...........................................................      26,908       5,850
                                                                        ----------  ----------
                                                                           735,776     592,324
Current portion, included in other current liabilities................      (4,696)     (2,279)
                                                                        ----------  ----------
                                                                        $  731,080  $  590,045
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
    In 1997, revolving credit facilities included a $475 million U.S. facility
and a separate one in the U.K. providing for borrowings of up to L50 million
(approximately $82 million at December 31, 1997). During 1998, the Company
combined these revolving credit facilities into a single facility (the "Credit
Facility") allowing up to $530 million of borrowings, including borrowings in
British pounds of up to the equivalent of $162 million. The Credit Facility
matures in 2002 with no repayment of principal until maturity. Interest is
payable at the Company's option either (a) at a base rate plus a margin of 0.00%
to 0.75% or (b) at a Eurodollar-based rate plus a margin ranging from 0.50% to
1.75%. At December 31, 1998, the weighted-average interest rate on the Credit
Facility was 7.60%. The weighted-average interest rate on credit facilities
outstanding at December 31, 1997 was 7.53%.
 
    The 8 7/8% Notes due 2007 (the "8 7/8% Notes") and the 8 5/8% Notes due 2008
(the "8 5/8% Notes") are senior subordinated debt with interest payable
semi-annually.
 
    The Credit Facility, the 8 7/8% Notes and the 8 5/8% Notes contain certain
customary covenants including, among other things, restrictions on dividends,
investments and indebtedness and maintenance of specified levels of interest
coverage and cash flows.
 
                                      F-16
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
8.  LONG-TERM DEBT (CONTINUED)
    At December 31, 1998, the aggregate maturities of long-term debt (excluding
the Credit Facility) were:
 
<TABLE>
<CAPTION>
                                                                                      (IN
                                                                                  THOUSANDS)
<S>                                                                              <C>
1999...........................................................................   $     4,696
2000...........................................................................         2,271
2001...........................................................................         1,354
2002...........................................................................           758
2003...........................................................................           329
Thereafter.....................................................................       617,610
                                                                                 -------------
                                                                                  $   627,018
                                                                                 -------------
                                                                                 -------------
</TABLE>
 
9.  LEASES
 
    Facilities and certain equipment are leased under agreements that expire at
various dates through 2009. Rental expense under operating leases for the years
ended December 31, 1998, 1997 and 1996, was $43.7 million, $33.5 million, and
$32.7 million, respectively.
 
    At December 31, 1998, minimum annual rentals under non-cancelable operating
leases (net of subleases) were:
 
<TABLE>
<CAPTION>
                                                                                      (IN
                                                                                  THOUSANDS)
<S>                                                                              <C>
1999...........................................................................   $    34,345
2000...........................................................................        26,209
2001...........................................................................        18,421
2002...........................................................................        14,430
2003...........................................................................        10,959
Thereafter.....................................................................        32,919
                                                                                 -------------
                                                                                  $   137,283
                                                                                 -------------
                                                                                 -------------
</TABLE>
 
    Commitments under the lease agreements also extend in most instances to
property taxes, insurance and maintenance and certain leases contain escalation
clauses and extension options.
 
                                      F-17
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
10.  INCOME TAXES
 
    Income tax expense consisted of the following components:
 
<TABLE>
<CAPTION>
                                                                 1998       1997       1996
                                                               ---------  ---------  ---------
<S>                                                            <C>        <C>        <C>
                                                                       (IN THOUSANDS)
Current:
  Federal....................................................  $   5,569  $  11,284  $    (741)
  State and foreign..........................................      1,879      5,224       (317)
                                                               ---------  ---------  ---------
                                                                   7,448     16,508     (1,058)
                                                               ---------  ---------  ---------
Deferred:
  Federal....................................................     20,714      4,733      8,938
  State and foreign..........................................      4,140        704        403
                                                               ---------  ---------  ---------
                                                                  24,854      5,437      9,341
                                                               ---------  ---------  ---------
Total income tax expense.....................................  $  32,302  $  21,945  $   8,283
                                                               ---------  ---------  ---------
                                                               ---------  ---------  ---------
</TABLE>
 
    The Company's foreign pre-tax income was not a significant component of
total pretax income. No U.S. income taxes have been provided for unremitted
earnings of foreign subsidiaries as the Company intends to reinvest these
earnings permanently or to repatriate the earnings only when it is tax effective
to do so. Accordingly, the Company believes that U.S. foreign tax credits would
substantially offset any U.S. income tax on repatriated earnings.
 
    The following is a reconciliation of the U.S. statutory federal income tax
rate to the Company's effective tax rates:
 
<TABLE>
<CAPTION>
                                                                       1998       1997       1996
                                                                     ---------  ---------  ---------
<S>                                                                  <C>        <C>        <C>
                                                                               PERCENT OF
                                                                          PRE-TAX INCOME (LOSS)
Statutory income tax rate..........................................       35.0%      35.0%      35.0%
State income taxes, net of federal income tax benefits.............        5.6      (24.8)      20.2
Amortization and write off of goodwill.............................        3.9      (19.7)      97.7
In-process acquired technology write off...........................        0.1     (175.2)
Non-deductible acquisition expenses................................                              9.7
Other non-deductible expenses......................................        1.6       (4.1)       3.0
                                                                           ---  ---------  ---------
Effective tax rate.................................................       46.2%    (188.8)%     165.6%
                                                                           ---  ---------  ---------
                                                                           ---  ---------  ---------
</TABLE>
 
    At December 31, 1998, alternative minimum tax credit carryforwards were $2.5
million, state investment tax credit carryforwards were $1.5 million (which
expire in 2008), and federal net operating loss carryforwards were $23.9 million
(which expire at various dates through 2010).
 
                                      F-18
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
10.  INCOME TAXES (CONTINUED)
    The tax effects of significant items comprising deferred income taxes were:
 
<TABLE>
<CAPTION>
                                                                           1998        1997
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
                                                                            (IN THOUSANDS)
Employee benefits.....................................................  $   14,180  $   15,586
Net operating loss and tax credit carryforwards.......................      13,436      12,498
Accrued expenses and reserves.........................................      16,121      14,817
Other deductible differences..........................................       5,716       2,295
                                                                        ----------  ----------
                                                                            49,453      45,196
                                                                        ----------  ----------
Property, plant & equipment...........................................     (60,454)    (48,714)
Leveraged lease investments...........................................     (16,592)
Unrealized gain on investments........................................      (8,471)
Other taxable differences.............................................        (686)
                                                                        ----------  ----------
                                                                           (86,203)    (48,714)
                                                                        ----------  ----------
Valuation allowance...................................................      (6,261)     (6,261)
                                                                        ----------  ----------
Net deferred income tax liability.....................................  $  (43,011) $   (9,779)
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
    The valuation allowance was established primarily as a result of IRS
limitations on the utilization of net operating loss carryforwards.
 
11.  RETIREMENT PLANS
 
    DEFINED BENEFIT PLANS
 
    The Company maintains defined benefit plans, including pension and
Supplemental Executive Retirement plans. During 1998, the Company froze the
benefits in one of the pension plans and enhanced certain 401(k) plan benefits.
 
    Information regarding the defined benefit plans is as follows:
 
<TABLE>
<CAPTION>
                                                                   1998       1997       1996
                                                                 ---------  ---------  ---------
<S>                                                              <C>        <C>        <C>
                                                                         (IN THOUSANDS)
COMPONENTS OF NET PERIODIC COST:
Service costs..................................................  $   1,693  $   1,546  $     843
Interest cost..................................................      1,938      1,819      1,260
Expected return on assets......................................     (1,542)    (1,356)      (829)
Net amortization and deferral..................................         94         (7)        (7)
Curtailment gain...............................................     (1,161)
                                                                 ---------  ---------  ---------
                                                                 $   1,022  $   2,002  $   1,267
                                                                 ---------  ---------  ---------
                                                                 ---------  ---------  ---------
</TABLE>
 
                                      F-19
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
11.  RETIREMENT PLANS (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                      1998           1997
                                                                  -------------  ------------
<S>                                                               <C>            <C>
                                                                        (IN THOUSANDS)
CHANGES IN BENEFIT OBLIGATION:
Obligation at beginning of year.................................  $      29,073  $     23,583
Service costs...................................................          1,693         1,546
Interest cost...................................................          1,938         1,819
Actuarial (gain) loss...........................................         (1,062)        3,796
Benefits paid...................................................         (3,843)       (1,671)
Curtailments and settlements....................................         (1,161)
                                                                  -------------  ------------
Obligation at end of year.......................................         26,638        29,073
                                                                  -------------  ------------
                                                                  -------------  ------------
 
CHANGES IN PLAN ASSETS:
Fair value of plan assets at beginning of year..................         17,134        12,783
Actual return on assets.........................................          1,039         3,205
Employer contributions..........................................          2,772         2,817
Benefits paid...................................................         (3,843)       (1,671)
                                                                  -------------  ------------
Fair value of plan assets at end of year........................         17,102        17,134
                                                                  -------------  ------------
                                                                  -------------  ------------
 
Projected benefit obligation in excess of plan assets...........          9,536        11,939
Unrecognized prior service cost.................................           (595)         (644)
Unrecognized loss...............................................           (367)         (972)
                                                                  -------------  ------------
Accrued benefit cost............................................  $       8,574  $     10,323
                                                                  -------------  ------------
                                                                  -------------  ------------
 
ASSUMPTIONS:
Weighted average discount rate..................................      6.75-7.00%         7.00%
Expected return on plan assets..................................           9.00%         9.00%
Annual compensation increase....................................      3.00-3.75%    3.00-3.75%
</TABLE>
 
    DEFERRED COMPENSATION
 
    The Company also maintains a deferred compensation plan in which certain
members of management may defer up to 100% of their total compensation through
the date of their retirement. Long-term liabilities include $3.2 million and
$2.6 million for deferred compensation as of December 31, 1998 and 1997,
respectively.
 
    DEFINED CONTRIBUTION PLANS
 
    The Company maintains 401(k) and other investment plans for eligible
employees. The Company recorded $6.3 million in expense for the year ended
December 31, 1998, $5.0 million in 1997 and $3.1 million in 1996.
 
                                      F-20
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
12.  EARNINGS PER SHARE
 
    For the years ended December 31, 1997 and 1996, the diluted loss per share
equals the basic loss per share as the impact of common stock equivalents (in
both periods) and the potential conversion of convertible securities (in 1997)
would have been anti-dilutive. The following table illustrates the calculation
of basic and diluted earnings per share for the year ended December 31, 1998:
 
<TABLE>
<CAPTION>
                                                               INCOME     SHARES     PER SHARE
                                                              ---------  ---------  -----------
<S>                                                           <C>        <C>        <C>
                                                                       (IN THOUSANDS,
                                                                  EXCEPT PER SHARE AMOUNTS)
Basic earnings per share....................................  $  37,676     19,660   $    1.92
Effect of dilutive stock options............................                 1,029       (0.10)
Assumed conversion of convertible securities................      4,140      3,989       (0.13)
                                                              ---------  ---------  -----------
Diluted earnings per share..................................  $  41,816     24,678   $    1.69
                                                              ---------  ---------  -----------
                                                              ---------  ---------  -----------
</TABLE>
 
13.  REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
 
    On October 20, 1997, Big Flower Trust I (the "Trust") issued $115 million of
30-year, 6% convertible Quarterly Income Preferred Securities ("QUIPS"). The
Trust is a wholly owned subsidiary of Holdings whose sole assets are $118.6
million aggregate principal amount of 6% Convertible Subordinated Debentures due
2027 (the "Debentures"), which were issued by Holdings. The QUIPS are non-voting
securities, carry a liquidation value of $50 per security and are convertible
into the Company's common stock at an initial rate of 1.7344 shares per security
(equivalent to an initial conversion price of $28.83 per share). They are
convertible at any time at the holders' option and are redeemable, at the
Company's option, after three years. No securities were converted in 1998 or
1997.
 
    Holders of the QUIPS are entitled to preferential cumulative cash
distributions from the Trust at an annual rate of 6% of the liquidation value,
accruing from the original issue date and payable quarterly in arrears beginning
January 15, 1998. The distribution rate and dates correspond to the interest
rate and payment dates for the Debentures. Holdings may defer interest payments
on the Debentures for up to 20 consecutive quarters, but not beyond the maturity
date of the Debentures. If interest payments on the Debentures are deferred, so
are payments on the QUIPS. Under this circumstance, Holdings will not be able to
declare or pay any cash distributions with respect to its capital stock or other
debt ranking on par with or junior to the Debentures. No payments were deferred
in 1998.
 
    Holdings has executed a guarantee with regard to payment of the QUIPS to the
extent that the Trust has sufficient funds to make the required payments. This
guarantee is not a guarantee of collection by QUIPS holders.
 
    Separate financial statements of the Trust are not presented because the
Trust has no independent operations and because of the Company's guarantee
described above.
 
                                      F-21
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
14.  STOCKHOLDERS' EQUITY
 
    COMMON STOCK
 
    The Company repurchased and cancelled 287,000 shares of common stock in 1998
and 284,000 shares in 1997. The Company issued 336,000 new common shares in
connection with acquisitions in 1998 and 1.0 million in 1997 (see Note 3).
 
    PREFERRED STOCK
 
    The Company has authorized 10 million shares of preferred stock, none of
which have been issued. Of the shares authorized, 250,000 have been designated
as Series A Junior Preferred Stock.
 
    RIGHTS
 
    The Company has distributed a preferred stock purchase right (a "Right") for
each outstanding share of common stock. Each Right entitles the holder to
purchase from the Company a unit consisting of 1/100 share of Series A Junior
Preferred Stock at an exercise price of $55 per unit if certain entities acquire
a required percentage of the Company's outstanding stock.
 
    ACCUMULATED OTHER COMPREHENSIVE INCOME
 
    The components of accumulated other comprehensive income at December 31,
1998 were:
 
<TABLE>
<CAPTION>
                                                                  GROSS       TAX        NET
                                                                ---------  ---------  ---------
<S>                                                             <C>        <C>        <C>
                                                                        (IN THOUSANDS)
Unrealized gain on investments................................  $  21,176  $   8,470  $  12,706
Cumulative translation adjustments............................       (184)                 (184)
                                                                ---------  ---------  ---------
                                                                $  20,992  $   8,470  $  12,522
                                                                ---------  ---------  ---------
                                                                ---------  ---------  ---------
</TABLE>
 
    These balances arose in 1998 and there were no corresponding balances in
prior years.
 
15.  STOCK AWARD AND INCENTIVE PLAN
 
    The Company's Restated 1993 Stock Award and Incentive Plan (the "Plan")
authorized grants of common stock and options to purchase shares of common
stock. Options under the Plan generally expire in ten years, and become
exercisable at varying times.
 
                                      F-22
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
15.  STOCK AWARD AND INCENTIVE PLAN (CONTINUED)
    Following is information about shares available for grant:
 
<TABLE>
<CAPTION>
                                                                          (THOUSANDS OF SHARES)
<S>                                                                       <C>
Authorized for issuance.................................................            5,484
Options outstanding at December 31, 1998................................           (3,040)
Options granted and exercised...........................................             (285)
Shares sold to management prior to public offering......................             (922)
Shares granted to directors in lieu of fees.............................               (4)
                                                                                   ------
Available for grant at December 31, 1998................................            1,233
                                                                                   ------
                                                                                   ------
</TABLE>
 
    Following is information regarding options outstanding at December 31, 1998:
 
<TABLE>
<CAPTION>
                                WEIGHTED       WEIGHTED                    WEIGHTED
   RANGE OF       OPTIONS        AVERAGE        AVERAGE       OPTIONS       AVERAGE
   EXERCISE     OUTSTANDING     REMAINING      EXERCISE     EXERCISABLE    EXERCISE
    PRICES      (THOUSANDS)   TERM (YEARS)       PRICE      (THOUSANDS)      PRICE
--------------  -----------  ---------------  -----------  -------------  -----------
<S>             <C>          <C>              <C>          <C>            <C>
$   0.68- 3.82         419            5.4      $    2.63           386     $    2.53
$  11.00-16.00       1,077            5.8          13.03           917         13.10
$  18.00-23.94       1,272            8.3          19.26           930         18.63
$  26.75-31.25         272            9.0          28.10            27         28.43
                -----------                                     ------
                     3,040                                       2,260
                -----------                                     ------
                -----------                                     ------
</TABLE>
 
    Transactions under the Plan were as follows:
 
<TABLE>
<CAPTION>
                                                                                      WEIGHTED
                                                                         NUMBER OF     AVERAGE
                                                                          SHARES      EXERCISE
                                                                        (THOUSANDS)     PRICE
                                                                        -----------  -----------
<S>                                                                     <C>          <C>
Outstanding at January 1, 1996........................................         862    $    7.30
 
Granted...............................................................         507        10.59
Exercised.............................................................          (1)        2.33
Expired or cancelled..................................................          (5)       12.63
                                                                        -----------
Outstanding at December 31, 1996......................................       1,363         8.51
 
Granted...............................................................       1,780        17.34
Exercised.............................................................        (132)        2.47
Expired or cancelled..................................................         (71)        8.92
                                                                        -----------
Outstanding at December 31, 1997......................................       2,940        14.12
 
Granted...............................................................         357        25.46
Exercised.............................................................        (152)        8.36
Expired or cancelled..................................................        (105)       19.73
                                                                        -----------
Outstanding at December 31, 1998......................................       3,040    $   15.55
                                                                        -----------  -----------
                                                                        -----------  -----------
Exercisable at December 31, 1998......................................       2,260    $   13.75
                                                                        -----------  -----------
                                                                        -----------  -----------
</TABLE>
 
                                      F-23
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
15.  STOCK AWARD AND INCENTIVE PLAN (CONTINUED)
    Pro forma results of the Company's operations reflecting compensation cost
for the fair value of option awards in 1998, 1997 and 1996 were:
 
<TABLE>
<CAPTION>
                                                                1998        1997       1996
                                                              ---------  ----------  ---------
<S>                                                           <C>        <C>         <C>
                                                                       (IN THOUSANDS,
                                                                 EXCEPT PER SHARE AMOUNTS)
Net income (loss):
  As reported...............................................  $  37,676  $  (47,034) $  (5,363)
  Pro forma.................................................     32,062     (53,289)    (6,521)
 
Earnings (loss) per share:
  As reported
    Basic...................................................  $    1.92  $    (2.51) $   (0.30)
    Diluted.................................................       1.63       (2.51)     (0.30)
  Pro forma
    Basic...................................................       1.69       (2.85)     (0.36)
    Diluted.................................................       1.47       (2.85)     (0.36)
</TABLE>
 
    The weighted-average fair value per option at the date of grant for options
granted (excluding options issued for acquisitions) was $17.45 in 1998, $12.14
in 1997 and $8.35 in 1996. The fair value per option issued in connection with
acquisitions was $21.41 in 1998 and $15.84 in 1997.
 
    The fair value of options granted during 1998, 1997 and 1996 is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions:
 
<TABLE>
<CAPTION>
                                                              1998        1997        1996
                                                           ----------  ----------  ----------
<S>                                                        <C>         <C>         <C>
Expected volatility......................................       44.27%      41.23%      52.36%
Risk-free interest rate..................................        5.61%       6.56%       6.50%
Dividend yield...........................................        0.00%       0.00%       0.00%
Expected option life (years).............................          10          10          10
</TABLE>
 
                                      F-24
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
16.  SUPPLEMENTAL CASH FLOW INFORMATION
 
<TABLE>
<CAPTION>
                                                              1998        1997        1996
                                                           ----------  ----------  ----------
<S>                                                        <C>         <C>         <C>
                                                                     (IN THOUSANDS)
Interest paid............................................  $   53,654  $   34,744  $   34,835
                                                           ----------  ----------  ----------
                                                           ----------  ----------  ----------
Income taxes paid........................................  $    8,451  $    6,766  $   10,494
                                                           ----------  ----------  ----------
                                                           ----------  ----------  ----------
Non-cash investing and financing activities:
  Acquisitions:
    Cash paid for acquisitions...........................  $   76,551  $  245,134  $  158,605
    Fair value of common stock
      and options issued.................................      11,082      27,257       9,045
    Notes issued.........................................                               2,000
    Assets acquired......................................     142,600     347,558     367,993
                                                           ----------  ----------  ----------
    Liabilities assumed..................................  $   54,967  $   75,167  $  198,343
                                                           ----------  ----------  ----------
                                                           ----------  ----------  ----------
  Other:
    Assets acquired through
      lease arrangements.................................  $    4,973
                                                           ----------
                                                           ----------
    Conversion of note payable
      into common stock..................................                          $    4,500
                                                                                   ----------
                                                                                   ----------
</TABLE>
 
17.  QUARTERLY FINANCIAL INFORMATION--UNAUDITED
 
    Summarized quarterly financial information is as follows:
 
<TABLE>
<CAPTION>
                                                     FIRST     SECOND         THIRD         FOURTH
                                                    QUARTER   QUARTER        QUARTER        QUARTER
                                                    --------  --------      ---------      ---------
<S>                                                 <C>       <C>           <C>            <C>
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1998
Net sales.........................................  $383,902  $412,870       $440,107       $502,836
Income before income taxes........................     2,010    15,380         24,083         28,505(1)
Net income........................................     1,085     8,306         13,005         15,280(1)
Net income per share--basic.......................  $   0.06  $   0.42       $   0.66       $   0.77(1)
Net income per share--diluted.....................      0.05      0.38           0.57           0.67(1)
 
                                                                       (FOOTNOTES ON FOLLOWING PAGE)
</TABLE>
 
                                      F-25
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
17.  QUARTERLY FINANCIAL INFORMATION--UNAUDITED (CONTINUED)
 
<TABLE>
<CAPTION>
                                                     FIRST     SECOND         THIRD         FOURTH
                                                    QUARTER   QUARTER        QUARTER        QUARTER
                                                    --------  --------      ---------      ---------
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                 <C>       <C>           <C>            <C>
YEAR ENDED DECEMBER 31, 1997
Net sales.........................................  $297,501  $316,838       $341,579       $420,788
Income (loss) before income taxes.................     3,296     8,384(2)      11,915(3)     (35,221)(4)
Income (loss) before extraordinary
  items...........................................     1,681     4,393(2)       6,060(3)     (45,705)(4)
Extraordinary items, net..........................              (2,959)       (10,504)
Net income (loss).................................     1,681     1,434)(2)     (4,444)(3)    (45,705)(4)
Per share--basic
  Income (loss) before extraordinary items........  $   0.09  $   0.24(2)    $   0.33(3)    $  (2.38)(4)
  Extraordinary items, net........................               (0.16)         (0.57)
  Net income (loss)...............................      0.09      0.08(2)       (0.24)(3)      (2.38)(4)
Per share--diluted
  Income (loss) before extraordinary items........      0.09      0.23(2)        0.31(3)       (2.38)(4)
  Extraordinary items, net........................               (0.16)         (0.54)
  Net income (loss)...............................      0.09      0.07(2)       (0.23)(3)      (2.38)(4)
</TABLE>
 
------------------------
 
(1)  Includes $0.2 million in-process acquired technology write off related to
    the Datatrak acquisition (see Note 3) and $4.6 million of termination costs
    for executive positions eliminated.
 
(2)  Includes $0.6 million of non-recurring costs related to the Company's
    secondary stock offering.
 
(3)  Includes $3.2 million of non-recurring costs related to the Olwen
    acquisition (see Note 3).
 
(4)  Includes $58.2 million in-process acquired technology write off related to
    the Columbine acquisition and $2.5 million of non-recurring costs related to
    other acquisitions (see Note 3).
 
18.  SEGMENT INFORMATION
 
    The Company operates in four business segments. Each segment offers
different products or services requiring different production and marketing
strategies. The four segments are:
 
        -  Insert Advertising & Newspaper Services, including advertising
           inserts and circulation-building newspaper products such as Sunday
           comics, TV listing guides, Sunday magazine sections and special
           supplements.
 
        -  Direct Marketing Services, including highly customized direct mail
           products and direct marketing services such as database management
           and response fulfillment services.
 
        -  Digital Services, including outsourced digital premedia, image
           content management and broadcast management services.
 
        -  Specialty Products & Commercial Printing, including fragrance
           samplers, coatings and chemical production, and commercial printing.
 
                                      F-26
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
18.  SEGMENT INFORMATION (CONTINUED)
    Following is unaudited information regarding the Company's segments:
 
<TABLE>
<CAPTION>
                                                              1998                 1997                 1996
                                                         --------------       --------------       --------------
<S>                 <C>                                  <C>                  <C>                  <C>
                                                                              (IN THOUSANDS)
Net sales........... Insert Advertising & Newspaper
                    Services                             $    1,101,875       $      961,577       $      900,465
                    Direct Marketing Services                   282,431              202,197              134,795
                    Digital Services                            272,995              108,608               44,443
                    Specialty Products & Commercial
                      Printing                                   91,122              109,852              125,846
                    Elimination of intersegment sales            (8,708)              (5,528)              (3,689)
                                                         --------------       --------------       --------------
                      Consolidated                       $    1,739,715       $    1,376,706       $    1,201,860
                                                         --------------       --------------       --------------
                                                         --------------       --------------       --------------
 
Operating Income.... Insert Advertising & Newspaper
                    Services                             $       90,568       $       72,025(3)    $       60,124
                    Direct Marketing Services                    34,159               21,035(4)            11,881
                    Digital Services                             27,396(1)           (44,699)(5)             (178)(7)
                    Specialty Products & Commercial
                      Printing                                    5,451                4,856                8,635
                    General Corporate                           (20,322)(2)          (14,715)(6)          (11,119)
                                                         --------------       --------------       --------------
                      Consolidated                       $      137,252       $       38,502       $       69,343
                                                         --------------       --------------       --------------
                                                         --------------       --------------       --------------
 
Depreciation........ Insert Advertising & Newspaper
                    Services                             $       31,526       $       27,225       $       19,904
                    Direct Marketing Services                    13,134               11,120                8,208
                    Digital Services                             16,048                6,796                2,721
                    Specialty Products & Commercial
                      Printing                                    2,910                3,800                3,897
                    General Corporate                               626                  710                   26
                                                         --------------       --------------       --------------
                      Consolidated                       $       64,244       $       49,651       $       34,756
                                                         --------------       --------------       --------------
                                                         --------------       --------------       --------------
 
Amortization of
  Intangibles....... Insert Advertising & Newspaper
                    Services                             $       13,209       $       14,128       $       14,979
                    Direct Marketing Services                     1,996                1,116                  675
                    Digital Services                              5,741                1,771                  728
                    Specialty Products & Commercial
                      Printing                                      696                  656                  621
                    General Corporate                               500
                                                         --------------       --------------       --------------
                      Consolidated                       $       22,142       $       17,671       $       17,003
                                                         --------------       --------------       --------------
                                                         --------------       --------------       --------------
 
Additions to
  Long-Lived
  Assets............ Insert Advertising & Newspaper
                      Services                           $       46,676       $       45,030       $       30,887
  (excluding
  acquisitions)     Direct Marketing Services                    18,621               16,253               11,831
                    Digital Services                             34,227               10,671                5,195
                    Specialty Products & Commercial
                      Printing                                    2,498                2,078                4,826
                    General Corporate                             3,643                  680                2,652
                                                         --------------       --------------       --------------
                      Consolidated                       $      105,665       $       74,712       $       55,391
                                                         --------------       --------------       --------------
                                                         --------------       --------------       --------------
 
Identifiable
  Assets............ Insert Advertising & Newspaper
                    Services                             $      529,996       $      538,745       $      412,387
                    Direct Marketing Services                   197,213              196,849              132,299
                    Digital Services                            376,124              185,783               75,376
                    Specialty Products & Commercial
                      Printing                                   53,784               59,613               69,616
                    General Corporate(8)                        171,065               78,057               60,064
                                                         --------------       --------------       --------------
                      Consolidated                       $    1,328,182       $    1,059,047       $      749,742
                                                         --------------       --------------       --------------
                                                         --------------       --------------       --------------
</TABLE>
 
------------------------------
 
(1) Includes $0.2 million in-process acquired technology write off related to
    the Datatrak acquisition (see Note 3).
 
(2) Includes $4.6 million of termination costs for executive positions
    eliminated.
 
(3) Includes $2.2 million of non-recurring costs related to the RCPC acquisition
    (see Note 3).
 
                                         (FOOTNOTES CONTINUED ON FOLLOWING PAGE)
 
                                      F-27
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
18.  SEGMENT INFORMATION (CONTINUED)
                                        (FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
 
(4) Includes $3.2 million of non-recurring costs related to the Olwen
    acquisition (see Note 3).
 
(5) Includes $58.2 million in-process acquired technology write off related to
    the Columbine acquisition (see Note 3).
 
(6) Includes $0.6 million of non-recurring costs related to the Company's
    secondary stock offering and $0.3 million of costs related to acquisitions.
 
(7) Includes $2.7 million of non-recurring costs related to the acquisitions of
    DCS and DDI (see Note 3).
 
(8) Includes assets of corporate controlled entities including leveraged lease
    investments.
 
    The Company had sales of $62.9 million in 1998 and $11.6 million in 1997
generated by its subsidiaries outside the United States, primarily in the United
Kingdom. Identifiable assets of those operations totaled $115.9 million at
December 31, 1998 and $49.7 million at December 31, 1997. The Company had no
operations outside the United States prior to September 1997.
 
19.  COMMITMENTS AND CONTINGENCIES
 
    Certain claims, suits and allegations that arise in the ordinary course of
business and certain environmental claims have been filed or are pending against
the Company. Management believes that all such matters in the aggregate would
not have a material effect on the Company's consolidated financial statements.
 
20.  RECENT ACCOUNTING PRONOUNCEMENTS
 
    In 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which is
effective with the Company's 2000 fiscal year. Adoption of this statement is
expected to have an insignificant effect on the Company's financial statements.
 
                                      F-28
<PAGE>
                          INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors and Stockholder of
  Big Flower Press Holdings, Inc.:
 
    We have audited the accompanying consolidated balance sheets of Big Flower
Press Holdings, Inc. and subsidiaries ("the Company") as of December 31, 1998
and 1997 and the related consolidated statements of operations, accumulated
deficit and comprehensive income and cash flows for each of the years in the
period ended December 31, 1998. Our audits also included the consolidated
financial statement schedules listed in the Index on page F-1. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1998 and 1997 and the results of its operations and its cash flows for each of
the years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, such consolidated
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
 
DELOITTE & TOUCHE LLP
New York, New York
February 8, 1999
 
                         INDEPENDENT AUDITORS' CONSENT
            TO INCORPORATION BY REFERENCE IN REGISTRATION STATEMENTS
                              ON FORMS S-8 AND S-4
 
    We consent to the incorporation by reference in Big Flower Press Holdings,
Inc.'s Registration Statement Nos. 333-2152 and 333-14637 on Form S-8 and
Registration Statement Nos. 333-32141, 333-42745 and 333-71859 on Form S-4 of
our report dated February 8, 1999 appearing on page F-29 of the Annual Report on
Form 10-K for the year ended December 31, 1998.
 
DELOITTE & TOUCHE LLP
New York, New York
March 31, 1999
 
                                      F-29
<PAGE>
                BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                                                            AS OF DECEMBER 31,
                                                                                        --------------------------
                                                                                            1998          1997
                                                                                        ------------  ------------
<S>                                                                                     <C>           <C>
                                                      ASSETS
Current Assets:
  Cash and cash equivalents...........................................................  $      8,499  $      5,307
  Accounts receivable, net............................................................       186,857       140,138
  Inventories.........................................................................        47,954        46,510
  Prepaid expenses and other current assets...........................................        14,788         4,599
  Deferred income taxes and income tax receivable.....................................        10,910        19,827
                                                                                        ------------  ------------
    Total current assets..............................................................       269,008       216,381
Property, plant and equipment, net....................................................       454,004       384,850
Goodwill, net of accumulated amortization of $40,379 and $25,413......................       483,373       415,601
Long-term investments.................................................................        70,141
Other assets, net.....................................................................        36,634        37,436
                                                                                        ------------  ------------
    Total Assets......................................................................  $  1,313,160  $  1,054,268
                                                                                        ------------  ------------
                                                                                        ------------  ------------
 
                                       LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
  Accounts payable....................................................................  $    150,503  $    133,702
  Compensation and benefits payable...................................................        44,638        45,663
  Accrued interest....................................................................        16,991        13,775
  Accrued income taxes................................................................        15,936         9,625
  Other current liabilities...........................................................        47,188        30,224
                                                                                        ------------  ------------
    Total current liabilities.........................................................       275,256       232,989
Due to parent.........................................................................         2,446         3,466
Long-term debt, net of current portion................................................       731,080       590,045
Deferred income taxes.................................................................        53,134        27,811
Other long-term liabilities...........................................................        26,355        20,715
                                                                                        ------------  ------------
    Total liabilities.................................................................     1,088,271       875,026
                                                                                        ------------  ------------
Stockholder's equity:
  Accumulated deficit.................................................................       (36,511)      (67,643)
  Accumulated other comprehensive income..............................................        12,522
  Other...............................................................................       248,878       246,885
                                                                                        ------------  ------------
    Total stockholder's equity........................................................       224,889       179,242
                                                                                        ------------  ------------
    Total Liabilities and Stockholder's Equity........................................  $  1,313,160  $  1,054,268
                                                                                        ------------  ------------
                                                                                        ------------  ------------
</TABLE>
 
  See Notes to Consolidated Financial Statements of Big Flower Press Holdings,
                             Inc. and subsidiaries.
 
                                      F-30
<PAGE>
                BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS,
                  ACCUMULATED DEFICIT AND COMPREHENSIVE INCOME
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31
                                                                                        --------------------------
                                                                                            1998          1997
                                                                                        ------------  ------------
<S>                                                                                     <C>           <C>
Net sales.............................................................................  $  1,739,715  $  1,376,706
                                                                                        ------------  ------------
Operating expenses:
  Costs of production.................................................................     1,296,336     1,072,296
  Selling, general and administrative.................................................       219,876       140,394
  Depreciation........................................................................        63,914        49,651
  Amortization of intangibles.........................................................        21,522        17,671
  In-process acquired technology write off............................................           245        58,192
                                                                                        ------------  ------------
                                                                                           1,601,893     1,338,204
                                                                                        ------------  ------------
Operating income......................................................................       137,822        38,502
                                                                                        ------------  ------------
Other expenses (income):
Interest expense......................................................................        56,458        40,380
  Amortization of deferred financing costs............................................         1,728         1,660
  Interest income.....................................................................          (944)         (349)
  Other, net..........................................................................         2,982         7,141
                                                                                        ------------  ------------
                                                                                              60,224        48,832
                                                                                        ------------  ------------
Income (loss) before income taxes and extraordinary items.............................        77,598       (10,330)
Income tax expense....................................................................        35,366        22,336
                                                                                        ------------  ------------
Income (loss) before extraordinary items..............................................        42,232       (32,666)
Extraordinary items, net of tax benefit of $8,800.....................................                     (13,463)
                                                                                        ------------  ------------
Net income (loss).....................................................................        42,232       (46,129)
Dividends to parent...................................................................       (11,100)
Accumulated deficit at beginning of year..............................................       (67,643)      (21,514)
                                                                                        ------------  ------------
Accumulated deficit at end of year....................................................  $    (36,511) $    (67,643)
                                                                                        ------------  ------------
                                                                                        ------------  ------------
 
Net income (loss).....................................................................  $     42,232  $    (46,129)
Unrealized gain on investments........................................................        12,706
Currency translation adjustment.......................................................          (184)
                                                                                        ------------  ------------
Comprehensive income (loss)...........................................................  $     54,754  $    (46,129)
                                                                                        ------------  ------------
                                                                                        ------------  ------------
</TABLE>
 
  See Notes to Consolidated Financial Statements of Big Flower Press Holdings,
                             Inc. and subsidiaries.
 
                                      F-31
<PAGE>
                BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER
                                                                                31,
                                                                        --------------------
                                                                          1998       1997
                                                                        ---------  ---------
<S>                                                                     <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)...................................................  $  42,232  $ (46,129)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Depreciation and amortization...................................     85,436     67,322
      In-process acquired technology write off........................        245     58,192
      Extraordinary items, net........................................                13,463
      Deferred income taxes...........................................     23,125      4,866
      Other non-cash income and expense, net..........................      5,021      9,348
      Changes in operating assets and liabilities (excluding effect of
        acquisitions):
          Increase in accounts receivable.............................    (29,475)    (3,343)
          Decrease (increase) in inventories..........................      2,085     (5,905)
          Increase in prepaid expenses and other assets...............     (1,702)    (1,570)
          (Decrease) increase in accounts payable and other
            liabilities...............................................    (10,134)    21,844
                                                                        ---------  ---------
Net cash provided by operating activities.............................    116,833    118,088
                                                                        ---------  ---------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisitions of businesses, net of cash acquired....................    (70,545)  (242,233)
  Capital expenditures................................................    (93,938)   (74,045)
  Investments in equity securities and leveraged lease transactions...    (53,173)
  Software development costs capitalized..............................    (10,232)      (667)
  Proceeds from sale of property, plant and equipment and divested
    assets............................................................      2,536        344
                                                                        ---------  ---------
Net cash used in investing activities.................................   (225,352)  (316,601)
                                                                        ---------  ---------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of long-term debt..........................................    267,500    350,125
  Net (repayments) borrowings under lines of credit...................   (127,670)     8,177
  Repayments of long-term debt........................................    (28,100)  (239,257)
  Dividends to parent.................................................     (6,855)
  Capital contribution by parent......................................               111,148
  Increase (decrease) in outstanding checks drawn on controlled
    disbursement accounts.............................................     15,897    (14,650)
  Deferred financing costs............................................     (8,661)   (12,233)
  Issuance of common stock............................................                   574
  Repurchase of common stock..........................................                (4,264)
                                                                        ---------  ---------
Net cash provided by financing activities.............................    112,111    199,620
                                                                        ---------  ---------
Effect of exchange rate changes on cash...............................       (400)
                                                                        ---------
Net increase in cash and cash equivalents.............................      3,192      1,107
Cash and cash equivalents at beginning of year........................      5,307      4,200
                                                                        ---------  ---------
Cash and cash equivalents at end of year..............................  $   8,499  $   5,307
                                                                        ---------  ---------
                                                                        ---------  ---------
</TABLE>
 
  See Notes to Consolidated Financial Statements of Big Flower Press Holdings,
                             Inc. and Subsidiaries.
 
                                      F-32
<PAGE>
                BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  BASIS OF PRESENTATION
 
    Prior to the formation of Big Flower Holdings, Inc. ("Holdings") and the
related reorganization on October 17, 1997, the consolidated financial
statements of the Company represented the accounts of Big Flower Press Holdings,
Inc. and its subsidiaries ("Press"). Information in the Notes to the Company's
consolidated financial statements for periods prior to the reorganization
represents that of Press and its subsidiaries. Separate footnotes are not
provided for the Press financial statements as the information in Notes 1-11 and
14-20 to the Company's consolidated financial statements is substantially
equivalent to that required for the consolidated financial statements of Press
and its subsidiaries. Earnings per share data are not provided as Press is a
wholly-owned subsidiary of Holdings.
 
2.  CAPITAL CONTRIBUTIONS
 
    In October 1997, in connection with acquisitions and the issuance of
redeemable convertible preferred securities, Holdings contributed $111.1 million
of cash to Press. The proceeds of this contribution were used to repay
borrowings under Press' revolving credit facility.
 
    Also in October 1997, Holdings contributed its investment in Columbine to
Press at the fair value of the common stock and stock options issued for the
Columbine acquisition ($21.3 million).
 
    In April 1998, Holdings contributed its investment in Reach America to Press
at the fair value of the stock issued for the Reach America acquisition ($1.7
million).
 
3.  DIVIDENDS TO PARENT
 
    During 1998, Press paid $6.9 million of cash dividends to Holdings in
connection with interest payments on Holdings' debentures (see Note 13 to the
Company's consolidated financial statements). Additionally, certain assets of
Press with aggregate book value of $4.2 million were transferred to Holdings in
the form of dividends.
 
                                      F-33
<PAGE>
                           BIG FLOWER HOLDINGS, INC.
 
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
                            CONDENSED BALANCE SHEETS
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                                                              AS OF DECEMBER 31,
                                                                                            ----------------------
                                                                                               1998        1997
                                                                                            ----------  ----------
<S>                                                                                         <C>         <C>
                                                      ASSETS
Current Assets:
  Cash and cash equivalents...............................................................  $        5
  Prepaid expenses and other current assets...............................................         866
                                                                                            ----------
    Total current assets..................................................................         871
Property, plant and equipment, net........................................................       3,984
Investments in and advances to subsidiaries...............................................     240,574  $  185,359
Other assets..............................................................................       5,947       4,779
                                                                                            ----------  ----------
    Total Assets..........................................................................  $  251,376  $  190,138
                                                                                            ----------  ----------
                                                                                            ----------  ----------
 
                                       LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities:
  Compensation and benefits payable.......................................................  $    4,345
  Other current liabilities...............................................................         951
                                                                                            ----------
    Total current liabilites..............................................................       5,296
Long-term debt............................................................................     118,600  $  118,600
Other long-term liabilities...............................................................         270
                                                                                            ----------  ----------
Total liabilities.........................................................................     124,166     118,600
Stockholders' equity......................................................................     127,210      71,538
                                                                                            ----------  ----------
    Total Liabilities and Stockholders' Equity............................................  $  251,376  $  190,138
                                                                                            ----------  ----------
                                                                                            ----------  ----------
</TABLE>
 
                 See Notes to condensed financial information.
 
                                      F-34
<PAGE>
                           BIG FLOWER HOLDINGS, INC.
 
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
                       CONDENSED STATEMENTS OF OPERATIONS
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                                                        YEAR ENDED   PERIOD ENDED
                                                                                       DECEMBER 31,  DECEMBER 31,
                                                                                           1998          1997
                                                                                       ------------  ------------
<S>                                                                                    <C>           <C>
Interest and allocation income from affiliates.......................................   $   17,149    $      122
                                                                                       ------------  ------------
Corporate administrative expenses....................................................       17,031
Interest expense--affiliates.........................................................        7,738         1,418
                                                                                       ------------  ------------
  Total expenses.....................................................................       24,769         1,418
                                                                                       ------------  ------------
Loss before income taxes, extraordinary items and equity in net income (loss) of
  subsidiaries.......................................................................       (7,620)       (1,296)
Income tax benefit...................................................................       (3,064)         (391)
                                                                                       ------------  ------------
Loss before extraordinary items and equity in net income (loss) of subsidiaries......       (4,556)         (905)
Equity in net income (loss) of subsidiaries..........................................       42,232       (32,666)
                                                                                       ------------  ------------
Income (loss) before extraordinary items.............................................       37,676       (33,571)
Extraordinary items, net.............................................................                    (13,463)
                                                                                       ------------  ------------
Net income (loss)....................................................................   $   37,676    $  (47,034)
                                                                                       ------------  ------------
                                                                                       ------------  ------------
</TABLE>
 
                 See Notes to condensed financial information.
 
                                      F-35
<PAGE>
                           BIG FLOWER HOLDINGS, INC.
 
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
                       CONDENSED STATEMENTS OF CASH FLOWS
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                                                        YEAR ENDED   PERIOD ENDED
                                                                                       DECEMBER 31,  DECEMBER 31,
                                                                                           1998          1997
                                                                                       ------------  ------------
<S>                                                                                    <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities................................................   $     (442)   $     (949)
                                                                                       ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Dividends from subsidiaries........................................................        6,855
  Capital expenditures...............................................................       (1,495)
  Investments in subsidiaries........................................................                   (114,748)
                                                                                       ------------  ------------
Net cash provided by (used in) investing activities..................................        5,360      (114,748)
                                                                                       ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt...........................................                    118,600
  Proceeds from issuance of common stock.............................................        1,645           121
  Repurchase of common stock.........................................................       (7,514)       (1,716)
  Change in intercompany balances, net...............................................        1,581         3,507
  Deferred financing costs...........................................................         (625)       (4,815)
                                                                                       ------------  ------------
Net cash (used in) provided by financing activities..................................       (4,913)      115,697
                                                                                       ------------  ------------
Net increase in cash and cash equivalents............................................            5            --
Cash and cash equivalents at beginning of period.....................................           --            --
                                                                                       ------------  ------------
Cash and cash equivalents at end of period...........................................   $        5    $       --
                                                                                       ------------  ------------
                                                                                       ------------  ------------
</TABLE>
 
                 See Notes to condensed financial information.
 
                                      F-36
<PAGE>
                           BIG FLOWER HOLDINGS, INC.
 
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
                    NOTES TO CONDENSED FINANCIAL INFORMATION
 
1.  BASIS OF PRESENTATION
 
    Pursuant to the rules and regulations of the Securities and Exchange
Commission, the condensed financial statements of the Registrant do not include
all of the information and notes normally included with financial statements
prepared in accordance with generally accepted accounting principles. It is
therefore suggested that these condensed financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Registrant's Annual Report as listed on page F-1. Certain
financial statement amounts have been reclassified to conform to the current
presentation.
 
2.  LONG-TERM DEBT
 
    Long-term debt consists of debentures issued in connection with a
subsidiary's offering of redeemable convertible preferred securities (see Note
13 to the consolidated financial statements).
 
3.  INVESTMENTS IN SUBSIDIARIES
 
    The Company accounts for the investments in its subsidiaries using the
equity method.
 
                                      F-37
<PAGE>
                        BIG FLOWER PRESS HOLDINGS, INC.
 
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
                            CONDENSED BALANCE SHEETS
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                                                              AS OF DECEMBER 31,
                                                                                            ----------------------
                                                                                               1998        1997
                                                                                            ----------  ----------
<S>                                                                                         <C>         <C>
                                                      ASSETS
 
Current assets:
  Cash and cash equivalents...............................................................  $       10  $      132
  Prepaid expenses and other current assets...............................................         458         468
                                                                                            ----------  ----------
    Total current assets..................................................................         468         600
Investments in and advances to subsidiaries...............................................     829,167     729,843
Property, plant and equipment, net........................................................                   1,209
Other assets..............................................................................      15,335      11,906
                                                                                            ----------  ----------
    Total Assets..........................................................................  $  844,970  $  743,558
                                                                                            ----------  ----------
                                                                                            ----------  ----------
 
                                       LIABILITIES AND STOCKHOLDER'S EQUITY
 
Current liabilities:
  Accrued interest........................................................................  $   16,917  $   13,976
  Other current liabilities...............................................................       1,854       1,351
                                                                                            ----------  ----------
    Total current liabilities.............................................................      18,771      15,327
Long-term debt, net of current portion....................................................     601,310     548,989
                                                                                            ----------  ----------
    Total liabilities.....................................................................     620,081     564,316
Stockholder's equity......................................................................     224,889     179,242
                                                                                            ----------  ----------
    Total Liabilities and Stockholder's Equity............................................  $  844,970  $  743,558
                                                                                            ----------  ----------
                                                                                            ----------  ----------
</TABLE>
 
                 See Notes to condensed financial information.
 
                                      F-38
<PAGE>
                        BIG FLOWER PRESS HOLDINGS, INC.
 
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
           CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                                 ---------------------------------
                                                                                   1998        1997        1996
                                                                                 ---------  ----------  ----------
<S>                                                                              <C>        <C>         <C>
Interest and allocation income from affiliates.................................  $  58,076  $   43,583  $    9,709
                                                                                 ---------  ----------  ----------
Corporate administrative expenses..............................................      3,290      14,797       8,107
Interest expense--affiliates...................................................      9,577
Interest expense--third party..................................................     41,626      29,699      15,838
                                                                                 ---------  ----------  ----------
Total expenses.................................................................     54,493      44,496      23,945
                                                                                 ---------  ----------  ----------
Income (loss) before income taxes, extraordinary items and equity in net income
  (loss) of subsidiaries.......................................................      3,583        (913)    (14,236)
Income tax provision (benefit).................................................      1,406        (272)     (7,081)
                                                                                 ---------  ----------  ----------
Income (loss) before extraordinary items and equity in net income (loss) of
  subsidiaries.................................................................      2,177        (641)     (7,155)
Equity in net income (loss) of subsidiaries....................................     40,055     (32,025)      3,870
                                                                                 ---------  ----------  ----------
Income (loss) before extraordinary items.......................................     42,232     (32,666)     (3,285)
Extraordinary items, net.......................................................                (13,463)     (2,078)
                                                                                 ---------  ----------  ----------
Net income (loss)..............................................................  $  42,232  $  (46,129) $   (5,363)
                                                                                 ---------  ----------  ----------
                                                                                 ---------  ----------  ----------
</TABLE>
 
                 See Notes to condensed financial information.
 
                                      F-39
<PAGE>
                        BIG FLOWER PRESS HOLDINGS, INC.
 
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
                       CONDENSED STATEMENTS OF CASH FLOWS
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                              ------------------------------------
                                                                                 1998         1997         1996
                                                                              -----------  -----------  ----------
<S>                                                                           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities.......................................  $   (41,534) $   (35,326) $  (15,956)
                                                                              -----------  -----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Investments in subsidiaries...............................................       (4,000)
  Capital expenditures......................................................                      (274)
  Distributions from subsidiaries...........................................                                 1,325
                                                                              -----------  -----------  ----------
Net cash (used in) provided by investing activities.........................       (4,000)        (274)      1,325
                                                                              -----------  -----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt..................................      250,000      350,125
  Repayment of long-term debt...............................................                  (125,166)
  Dividends paid to parent..................................................       (6,855)
  Capital contribution by parent............................................                   111,148
  Net (repayments) borrowings under lines of credit.........................     (199,167)     186,796
  Proceeds from issuance of common stock....................................                       270
  Repurchase of common stock................................................                    (4,264)
  Change in intercompany balances, net......................................        9,262     (470,956)     13,439
  Deferred financing costs..................................................       (7,828)     (12,231)
                                                                              -----------  -----------  ----------
Net cash provided by financing activities...................................       45,412       35,722      13,439
                                                                              -----------  -----------  ----------
Net (decrease) increase in cash and cash equivalents........................         (122)         122      (1,192)
Cash and cash equivalents at beginning of year..............................          132           10       1,202
                                                                              -----------  -----------  ----------
Cash and cash equivalents at end of year....................................  $        10  $       132  $       10
                                                                              -----------  -----------  ----------
                                                                              -----------  -----------  ----------
</TABLE>
 
                 See Notes to condensed financial information.
 
                                      F-40
<PAGE>
                        BIG FLOWER PRESS HOLDINGS, INC.
 
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
                    NOTES TO CONDENSED FINANCIAL INFORMATION
 
1.  BASIS OF PRESENTATION
 
    Pursuant to the rules and regulations of the Securities and Exchange
Commission, the condensed financial statements of the Registrant do not include
all of the information and notes normally included with financial statements
prepared in accordance with generally accepted accounting principles. It is
therefore suggested that these condensed financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Registrant's Annual Report as listed on page F-1. Certain
financial statement amounts have been reclassified to conform to the current
presentation.
 
2.  LONG-TERM DEBT
 
    Long-term debt consists principally of 8 7/8% Notes due 2007 and 8 5/8%
Notes due 2008 (see Note 8 to the consolidated financial statements).
 
3.  INVESTMENTS IN SUBSIDIARIES
 
    The Company accounts for the investments in its subsidiaries using the
equity method.
 
                                      F-41
<PAGE>
                   BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
 
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
 
                                  IN THOUSANDS
 
<TABLE>
<CAPTION>
                                                         BALANCE AT   CHARGED TO   WRITE OFFS                 BALANCE
                                                          BEGINNING    COSTS AND     NET OF                   AT END
                                                           OF YEAR     EXPENSES    RECOVERIES    OTHER (A)    OF YEAR
                                                         -----------  -----------  -----------  -----------  ---------
<S>                                                      <C>          <C>          <C>          <C>          <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1996...........................   $   7,768    $     658    $  (1,619)   $   1,773   $   8,580
Year ended December 31, 1997...........................       8,580        1,371       (1,208)       3,599      12,342
Year ended December 31, 1998...........................      12,342        3,729       (4,919)      (1,380)      9,772
 
DEFERRED TAX VALUATION ALLOWANCE
Year ended December 31, 1996...........................   $   1,124    $   5,137                             $   6,261
Year ended December 31, 1997...........................       6,261                                              6,261
Year ended December 31, 1998...........................       6,261                                              6,261
</TABLE>
 
------------------------
 
(a) Amounts primarily related to acquired companies as of the respective dates
    of acquisition, as well as subsequent adjustment of reserves established
    upon acquisition.
 
                                      F-42
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
<TABLE>
<S>                             <C>  <C>
                                BIG FLOWER HOLDINGS, INC.
                                (REGISTRANT)
 
                                By:            /s/ R. THEODORE AMMON
                                     -----------------------------------------
                                                 R. Theodore Ammon
                                                      CHAIRMAN
</TABLE>
 
Dated: March 31, 1999
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------
<C>                             <S>                         <C>
    /s/ R. THEODORE AMMON       Chairman and Director
------------------------------    (Principal Executive        March 31, 1999
      R. Theodore Ammon           Officer)
 
                                President, Chief Executive
     /s/ EDWARD T. REILLY         Officer and Director
------------------------------    (Principal Operating        March 31, 1999
       Edward T. Reilly           Officer)
 
                                Executive Vice President
    /s/ RICHARD L. RITCHIE        and Chief Financial
------------------------------    Officer (Principal          March 31, 1999
      Richard L. Ritchie          Financial and Accounting
                                  Officer)
 
    /s/ PETER G. DIAMANDIS
------------------------------  Director                      March 31, 1999
      Peter G. Diamandis
 
    /s/ ROBERT M. KIMMITT
------------------------------  Director                      March 31, 1999
      Robert M. Kimmitt
 
      /s/ JOAN D. MANLEY
------------------------------  Director                      March 31, 1999
        Joan D. Manley
 
     /s/ NEWTON N. MINOW
------------------------------  Director                      March 31, 1999
       Newton N. Minow
</TABLE>
 
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
<TABLE>
<S>                             <C>  <C>
                                BIG FLOWER PRESS HOLDINGS, INC.
                                (REGISTRANT)
 
                                By:            /s/ R. THEODORE AMMON
                                     -----------------------------------------
                                                 R. Theodore Ammon
                                                      CHAIRMAN
</TABLE>
 
Dated: March 31, 1999
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------
 
<C>                             <S>                         <C>
    /s/ R. THEODORE AMMON       Chairman and Director
------------------------------    (Principal Executive        March 31, 1999
      R. Theodore Ammon           Officer)
 
                                President, Chief Executive
     /s/ EDWARD T. REILLY         Officer and Director
------------------------------    (Principal Operating        March 31, 1999
       Edward T. Reilly           Officer)
 
                                Executive Vice President
    /s/ RICHARD L. RITCHIE        and Chief Financial
------------------------------    Officer (Principal          March 31, 1999
      Richard L. Ritchie          Financial and Accounting
                                  Officer)
 
     /s/ MARK A. ANGELSON
------------------------------  Director                      March 31, 1999
       Mark A. Angelson
</TABLE>