<PAGE>

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                         SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C.  20549

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


                                     FORM 10-K

                    FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998

                                         OF

                             GOSS GRAPHIC SYSTEMS, INC.

                               a Delaware Corporation
                     IRS Employer Identification No. 25-1200273
                             SEC File Number 333-08421

                                  700 OAKMONT LANE
                           WESTMONT, ILLINOIS 60559-5546
                                   (630) 850-5600

     Goss does not have any securities registered pursuant to Section 12(b) and
     12(g) of the Act.

     Goss (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.

     Goss is unaware of any delinquent filers pursuant to Item 405 of
     Regulation S-K.

     Goss had 100 shares of Common Stock outstanding at January 12, 1999,
     all of which were held by an affiliate.



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

<PAGE>


                              GOSS GRAPHIC SYSTEMS, INC.

                                        PART I

ITEM 1.  BUSINESS

Goss Graphic Systems, Inc., "Goss" or the "Company," is the leading producer of
newspaper and insert printing press systems and a major producer of commercial
printing press systems.  Established in Chicago in 1885, Goss was acquired by
GGS Holdings, Inc. on October 15, 1996 through the acquisition of Rockwell
Graphic Systems, Inc. from Rockwell International Corporation.

Goss's 1997 fiscal year ended September 30, 1997.  The fiscal year data referred
to in this Item does not include the fourteen day "stub period" from October 1,
1996 through October 14, 1996 which preceded the acquisition.

PRODUCTS AND SERVICES

WEB OFFSET PRESS SYSTEMS

All of the printing press systems manufactured by Goss use web offset
technology.  In "offset" printing, the text and images of a publication are
photographically or electronically transferred onto flexible printing plates.
The plates are wrapped around "plate cylinders" in a press unit.  As a plate
cylinder rotates, it is first coated with a water-based solution and then with
an oil-based ink.  Since the ink is oil based, it adheres only to the areas on
the plate that are not covered with water (I.E., the text or image.)  The ink on
the plate then is transferred in a mirror-image to a second cylinder, a "blanket
cylinder," which rotates to come into contact with the paper where the ink is
transferred again, reversing from a mirror-image back to a normal image.

In the "web" printing process, the paper is fed continuously through the press
from a large paper roll in a long ribbon that forms a complex web of paper.
This contrasts with sheet-fed printing in which individual sheets of paper are
fed through the press and printed one-by-one.  Web printing is substantially
faster than sheet-fed printing, and for larger print runs,  more economical.

Printing press systems vary substantially in design and size.  Typically, a
large newspaper press system consists of multiple press units fed by separate
paper rolls with the resulting webs being merged together, folded and cut.  For
multiple-color printing, the individual press units frequently are arranged into
horizontal units or stacked in vertical "towers" several floors high with one
unit for each of the basic colors.  Press units vary in width and the number of
plates contained on the plate cylinders, which facilitate printing in different
formats.  Commercial presses differ in that the webs run horizontally through
the units and frequently there is additional auxiliary equipment, such as dryers
and chilling units, designed specifically to meet commercial printing needs such
as printing on high-gloss paper.


                                          1
<PAGE>

Large newspaper press systems typically range in price from $6 million to $100
million, while commercial press systems typically range between $4 million and
$12 million and small newspaper and insert press systems typically range between
$1 million and $8 million.

In addition to the press units manufactured by Goss, press systems include
ancillary equipment such as electronic controls; reel stands which feed, splice
and control paper tension; register and cut-off control devices; dampening
systems; noise and dust control devices; and ink control devices.  Each
ancillary device is available from a number of suppliers, and Goss is not
dependent upon any one supplier.  In connection with its initiative to
standardize the ancillary equipment on each of its major press systems (E.G.,
Newsliner, Universal), Goss has entered into long-term partnerships with certain
suppliers.

INDUSTRY SEGMENT

Goss's products fall into three broad categories:

          -    newspaper press systems for publishers of national, regional and
               local news;

          -    commercial press systems for printers of brochures and
               promotional materials, catalogues, magazines, books, financial
               publications and directories; and

          -    insert press systems for printers of advertising inserts,
               including Sunday newspaper inserts and direct
               mail/point-of-purchase inserts.

Goss also provides parts and service support for the equipment that it sells.

NEWSPAPER PRESS SYSTEMS

Goss's core business, in which it has been engaged for 114 years, is the
production of newspaper press systems.  Goss produces "large newspaper" press
systems, which use 50" and wider paper for large national and metropolitan
newspapers, and "small newspaper" press systems, which use 36" wide paper for
smaller regional and local newspapers.  All are sold under the "Goss" trade
name.  Goss custom designs and engineers each newspaper press system to meet the
specific printing requirements and physical space limitations of its customers.

Sales of new equipment to large newspaper customers, together with additions and
modifications to existing equipment, accounted for approximately 44% of Goss's
fiscal 1998 sales.  Sales to and additions and modifications for small newspaper
customers accounted for approximately 31% of Goss's fiscal 1998 sales.  Goss's
principal products in this area are its Newsliner (for large newspapers) and
Universal (for small newspapers) models.


                                          2
<PAGE>

COMMERCIAL PRESS SYSTEMS

Sales from Goss's commercial press business represented approximately 6% of its
fiscal 1998 sales.  Goss's principal products in this area are its M16, G18 and
G25 and special applications of its Universal product line.  Until the
acquisition, Goss sold commercial press systems under the "Baker-Perkins" and
"Hantscho" trade names.  Goss now is selling them under the "Goss" trade name.

INSERT PRESS SYSTEMS

Sales from Goss's insert press business represented approximately 7% of Goss's
fiscal 1998 sales.  Goss's principal products in this area are its Magnum and
C700 models.  These insert press systems also are marketed exclusively under the
"Goss" trade name and are sold principally to customers in North America.

AFTERMARKET PARTS AND CUSTOMER SERVICE

Goss provides aftermarket parts and customer service in connection with the
equipment that it has sold.  Sales of aftermarket parts and equipment were
approximately 12% of Goss's fiscal 1998 sales.  Although some non-consumable
parts are manufactured to customer order, as of September 30, 1998 Goss had
parts in inventory of approximately $30.8 million.  Service and technical
support include site preparation and inspection, equipment installation,
preventative and corrective maintenance, paper width changes and color
capability upgrades.  Service and technical support is provided by Goss's staff
of approximately 275 field service engineers and additional field services
engineers who work for Goss's international agents.  (Elsewhere in this Report
the financial results of Goss's aftermarket parts and customer service
operations are reported as part of the product lines to which they are
attendant.)

PRODUCT DEMAND, MARKETING AND COMPETITION

Goss's success is dependent upon the demand for its products in the heavily
competitive market in which it operates.

DEMAND CHARACTERISTICS

Given the significant cost of presses, both industry and Goss's sales can vary
substantially depending upon the timing of large press purchases.  This
phenomenon is exacerbated by the long useful life of newspaper presses --
typically twenty-five years -- and the deferability of press replacement.
During periods of economic growth, higher advertising expenditures lead to an
increase in color and page count demand and the profitability of publishers,
thus encouraging demand for printing presses generally to increase.  Conversely,
during periods of economic recession, demand for press capacity generally
decreases.  Over the longer term, Goss believes that continued demand for
newspaper presses will be driven by a number of factors, including:


                                          3
<PAGE>

          -    ECONOMIC GROWTH OF DEVELOPING COUNTRIES.  Strong economic growth
               typically results in higher personal incomes and increased
               advertising expenditures.  These factors, together with higher
               literacy rates, newspaper circulation, color content and page
               counts, drive demand for additional press capacity.

          -    FINANCIAL MARKETS.  Press demand can be impacted significantly by
               interest rates and currency fluctuations.  In periods of high
               interest rates or low currency values for a potential purchaser's
               country, purchases can be deferred.

          -    INNOVATION.  Press demand historically has increased in response
               to press innovations before returning to more normalized levels
               of demand.  A newspaper's ability to enhance quality, add color
               and increase productivity while reducing paper waste and staffing
               are important considerations as it evaluates whether and when to
               add press equipment or replace an old press.  Accordingly, the
               aggregate demand for printing presses as well as the demand for a
               particular manufacturer's products is driven in part by the
               development of new products which achieve market acceptance and
               provide tangible return on investment.

          -    REPLACEMENT.  Although press life can be extended through
               refurbishing, enhancements and proper maintenance, older presses
               result in declining productivity and quality, in each case
               relative to that offered by new presses, ultimately requiring
               that, over time, they be replaced.

INSTALLED BASE

Goss estimates that over one-half of all daily newspapers worldwide print on
Goss presses.  Goss is one of only six major global suppliers of web offset
newspaper press systems and is the only supplier to have manufacturing,
engineering and sales operations in North America, Europe and Asia.

Goss's installed base of presses provides it with both service and parts
opportunities as well as an advantageous relationship with printers in
connection with the sale of new equipment.

SALES FORCE

Goss maintains a direct sales force of approximately 65 individuals and an
extensive network of 50 local agents covering 94 countries.  A sale to a
prospective customer can take several years from the initial planning phase to
the final sale.  As a consequence, Goss's sale process requires consistent
long-term customer contact and service.


                                          4
<PAGE>


INTERNATIONAL OPERATIONS

During fiscal year 1998, approximately 48% of Goss's revenue was generated from
sales by international operations.  International sales and operating profit for
prior years and identifiable assets attributable to foreign geographic
territories are summarized in note 18 to Goss's 1998 financial statements
contained in Part II.

BACKLOG

As of September 30, 1998, the total contract price of the backlog of customer
commitments for presses and related installations was $637.1 million, a 5%
increase in the backlog from September 30, 1997. Approximately 83% of this
backlog is scheduled for delivery through December 31, 1999.

COMPETITION

The global newspaper printing press, insert printing press and commercial
printing press industries are heavily competitive in most product categories and
geographic regions.  While competition is in part based on product features,
technological capabilities, quality, reliability and ability to meet the
specialized needs of customers, many purchasers utilize a multi-round,
price-focused bidding process that can result in a significantly competitive
impact on pricing and gross profit margins.

Goss's primary competitors for sales of large newspaper press systems are MAN
Roland AG and Koenig & Bauer-Albert ("KBA") AG of Germany.  Other suppliers are
Wifag AG of Switzerland, Mitsubishi Heavy Industries Ltd. and Tokyo Kikai
Seisakusho, Ltd. of Japan. Competing major suppliers of small newspaper press
systems are MAN Roland and KBA. The major supplier of commercial presses in the
U.S. is Heidelberg Web, a subsidiary of Heidelberger Druckmaschinen AG of
Germany.  Other competitors include MAN Roland and Mitsubishi.  Goss's only
significant competitor for insert printing press systems is Heidelberg Web.

Over the past several years, certain foreign suppliers of large newspaper
printing presses have sought to increase their U.S. sales by offering aggressive
pricing and terms.  As a result of pricing actions by Goss's foreign
competitors, on June 30, 1995, Goss filed an anti-dumping duty petition with the
U.S. Commerce Department and the International Trade Commission alleging that
competitors from Japan and Germany were selling large newspaper printing presses
and components in the U.S. at less than fair value and were materially injuring
a U.S. industry.  As a result of Goss's petition, the Commerce Department and
the ITC initiated anti-dumping investigations.


                                          5
<PAGE>


On July 16, 1996, the U.S. Commerce Department issued final determinations that
imports from Japan and Germany had been sold at less than fair value.  On
August 21, 1996, the ITC also determined that imports from Japan and Germany
caused material injury or the threat of material injury to the U.S. industry.
Based on these determinations, the U.S. Customs Service was directed to require
cash deposits of anti-dumping duties with respect to such imports at rates that
range from 30% to 62% AD VALOREM.  On appeal, the anti-dumping orders were
upheld by the Court of International Trade.  The actual duties assessed  could
be increased or reduced through annual administrative reviews, which are
currently underway  The extent to which anti-dumping duties will benefit Goss's
competitive position in the U.S. market, if at all, cannot be projected with
assurance.

SIGNIFICANT SUPPLIERS AND CUSTOMERS

Raw materials and ancillary equipment utilized in Goss's press systems are
available from a number of suppliers, and Goss is not dependent upon any one
supplier.

The newspaper, commercial and insert printing businesses are substantially
fragmented, and Goss is not dependent upon any one printer, or a related group
of printers, for a material portion of its revenue.

RESEARCH AND DEVELOPMENT AND INTELLECTUAL PROPERTY

Goss has an active research and development program and spent approximately
$17.8 million, $14.1 million and $22.2 million on research and development in
fiscal 1998, 1997 and 1996, respectively.  Goss views its continuation of
significant research and development activities as critical to its long-term
competitiveness.

In 1997, Goss introduced its Advanced Digital Offset Printing Technologies
concept press, "ADOPT-Registered Trademark-," which incorporates five
break-through technologies: (1) a digitally imaged lithographic cylinder surface
that is erasable and reusable, (2) single fluid lithography which requires no
dampener, (3) variable cut-off, (4) shaftless and gearless drive, and (5)
completely gapless cylinders.  The result of a long-term research and
development effort, Goss believes that  certain of these technologies will be
ready for market at the turn of the century.

Although patents and trademarks are critical to Goss's competitive role in its
industry, no single or related group of patents or trademarks is material to
Goss. Goss-Registered Trademark-, Newsliner-Registered Trademark-,
Colorliner-Registered Trademark-, Metroliner-Registered Trademark-,
Universal-Registered Trademark-, Community-Registered Trademark-, G18-Registered
Trademark-, G25-Registered Trademark-, Magnum-Registered Trademark-,
Suburban-Registered Trademark- and Urbanite-Registered Trademark- are registered
trademarks belonging to Goss.  Trademark applications are pending for "ADOPT",
"Colorflow", "SSC Magnum" and "Uniliner".


                                          6
<PAGE>

EMPLOYEES

As of September 30, 1998 Goss's employees consisted of:


<TABLE>
<CAPTION>

                                                             NUMBER OF
    SALARIED                                                 EMPLOYEES

<S>                                                          <C>
    Executive Management                                             21

    Operations                                                      463

    Sales, Marketing and Customer Service                           461

    Engineering:

          Design and Product Engineering                            307

          Research and Product Development                           68

          Support                                                    34

    Finance and Information Systems                                 154

    Human Resources and Other                                        95
                                                                  -----

          Total Salaried                                          1,603

    HOURLY (1)                                                    1,710
                                                                  -----

    TOTAL                                                         3,313 (2)
                                                                  -----
                                                                  -----
</TABLE>


Substantially all of Goss's hourly employees are represented by various
national, local or trade unions and are covered by collective bargaining
agreements.

(1)  Does not include temporary employees hired from time to time to meet Goss's
     installation services requirements.
(2)  Includes 812 employees in Goss's China joint venture.

OTHER INFORMATION

Goss was incorporated in Delaware in 1969 and is the successor to Goss Printing
Company, which was formed in 1885, Miehle Printing Press and Manufacturing
Company, which was formed in 1890, and the Dexter Company, which was formed in
1880.  Goss, Miehle and Dexter combined in 1957 and were acquired by Rockwell in
1969.

Goss's executive offices are located at 700 Oakmont Lane, Westmont, Illinois
60559-5546.  Its telephone number is (630) 850-5600.


Goss files reports and other information with the Securities & Exchange
Commission pursuant to


                                          7
<PAGE>

the Securities Exchange Act of 1934.  These materials are available on the SEC's
web site at http:\\www.sec.gov.  Copies of the materials will be provided upon
the request of any security holder addressed to the Secretary of Goss.

ITEM 2.   PROPERTIES

As of September 30, 1998, Goss's principal properties consisted of:


<TABLE>
<CAPTION>


                                                                             SQUARE       PERCENT
FACILITY LOCATION       STATUS                    FUNCTION                    FEET       UTILIZED*
<S>                     <C>      <C>                                        <C>            <C>
Reading, Pennsylvania   Owned    Assembly, engineering                       458,628        95%

Cedar Rapids, Iowa      Owned    Machining, assembly, engineering            346,200       100%

Preston, England        Owned    Administration, machining, assembly,        270,000       100%
                                 engineering, warehousing            

Westmont, Illinois      Owned    Headquarters, sales, engineering            280,674        85%

Nantes, France          Owned    Administration, assembly, engineering,      263,300       100%
                                 warehousing

Cicero, Illinois        Leased   Staging, assembly, warehousing               79,556       100%

Sayama, Japan           Owned    Assembly, engineering, warehousing           75,280       100%

Westmont, Illinois      Leased   Parts warehouse                              33,350       100%

Offenbach, Germany      Leased   Parts warehouse                              10,000       100%

Tokyo, Japan            Leased   Administration, sales                        10,000       100%

Shanghai, China         Owned    Machining, assembly, engineering,           500,000       100%
                                 warehousing
</TABLE>



*    Percent utilized assumed facility is operating one shift only.

Goss's Westmont facility secures a $29.4 million mortgage held by LaSalle
National Bank. This mortgage matures in 2007, bears interest at 8.66% per annum
and is being amortized on a 20-year schedule.  The Sayama, Japan facility
secures $19.8 million in mortgages held by Industrial Bank of Japan and Sanwa
Bank, which mortgages mature in 2007, bear interest at 3.25% per annum and are
being amortized over 10 years.


                                          8
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

In the normal course of its business, Goss is subject to various claims and
lawsuits.  Typically, these matters consist of product liability claims brought
by the individuals who operate the equipment sold by Goss, disputes with
customers over the performance and completion of equipment installation, and
workers' compensation claims by Goss's employees.

PRODUCT LIABILITY

In the event of injury, the individuals who operate printing press equipment
almost universally are limited by workers' compensation laws in the amount that
they can recover from their employers.  As a consequence, in cases involving a
significant injury, the injured operators frequently bring "product liability"
claims against the manufacturer of the equipment alleging that the equipment was
improperly designed or manufactured, even though the equipment may be decades
old. Goss maintains insurance with a $250,000 per occurrence deductible for
product liability claims made after October 15, 1996.  In connection with the
acquisition, Goss assumed product liability claims made prior to October 15,
1996 for which Rockwell had a self-insured retention of $2 million and a $1
million per occurrence deductible.

EQUIPMENT PERFORMANCE AND INSTALLATION

Printing equipment is complex and expensive, and when disputes arise regarding
the performance and completion of installation of equipment, it is not uncommon
for those disputes to involve significant amounts.  In some instances, those
disputes result in litigation.  No litigation of this type is currently pending
that management believes is likely to be material.

ENVIRONMENTAL CONTINGENCIES

Goss has received either notices of potential liability or third-party claims
under the Federal Comprehensive Environmental Response, Compensation, and
Liability Act at six off-site disposal facilities or so-called "Superfund
Sites."  Goss's share of the responsibility for these Superfund Sites generally
is minor, and although current law imposes joint and several liability on any
party deemed to be responsible at a Superfund Site, management believes that the
ultimate resolution of these matters will not be material to Goss.

Goss's Reading, Pennsylvania facility has been operating a groundwater
remediation system under a 1981 Consent Order with the Commonwealth of
Pennsylvania as a result of its and its predecessor's historical waste disposal
practices.  Goss has completed remediation at the site pursuant to a remediation
proposal approved by the Commonwealth and has submitted a monitoring proposal to
the Commonwealth for approval.

Rockwell has agreed to indemnify Goss for expenses attendant to environmental
matters existing on October 14, 1996 to the extent of one-half of those expenses
in excess of $1 million.



                                          9
<PAGE>

GENERAL

Goss maintains reserves for accrued liabilities that are its present estimates
of the total costs to resolve the contingencies described above.  However, it is
impossible to determine the outcome of contingencies of these types in advance,
and there can be no assurances that a court will not enter a substantial award
against Goss for one or more of the contingencies of these types.

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

Goss did not submit any matters to its shareholder for a vote during its fourth
fiscal quarter.

                                       PART II

ITEM 5.  MARKET FOR GOSS'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

All of Goss's common stock is held by GGS Holdings, Inc., which was formed by
Stonington Partners, Inc. for the purpose of acquiring Goss from Rockwell
International Corporation. Accordingly, there is no trading market for Goss's
common stock.

Since the acquisition, Goss has not paid any cash dividends nor does it expect
to pay any in the foreseeable future.  In addition, Goss's credit arrangements
impose substantial restrictions on dividends.

ITEM 6.  SELECTED FINANCIAL DATA

The following selected historical financial data has been derived from Goss's
accounting records for fiscal 1998 and 1997 and from the accounting records of
Rockwell Graphic Systems, Inc., as owned and managed by Rockwell International
Corporation, for the three prior fiscal years.  As a result of the acquisition,
including the effects of purchase accounting and the Company's new debt and
equity structure, the data presented for 1998 and 1997 may not be comparable to
data for years prior to the acquisition.  Readers are urged to consider this
data in conjunction with the audited financial statements and related footnotes
contained in Item 8 and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in Item 7.

Data  presented  for the   fiscal  year ended  September 30, 1997 does not
include  the  fourteen-day "stub" period from October 1, 1996 through  October
14, 1996 which  preceded  Goss's acquisition on October 15, 1996.  As a result,
comparisons between fiscal 1998  and 1997 involve comparisons of a twelve month
period to an eleven and one-half month period.


                                          10
<PAGE>

<TABLE>
<CAPTION>


                                                                         COMBINED
                                                                           DATA
                                                                      FOR THE PERIOD     COMBINED DATA FOR THE
                                           CONSOLIDATED DATA FOR THE       ENDED        YEARS ENDED SEPTEMBER 30,
                                           YEARS ENDED SEPTEMBER 30,    OCTOBER 14       (PREDECESSOR COMPANY)
                                           -------------------------    ----------      -------------------------
                                                1998       1997            1996       1996       1995       1994
                                                ----       ----            ----       ----       ----       ----
<S>                                        <C>           <C>          <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:

Business line net sales
         Newspaper                           $    647.7  $   529.3    $     3.1  $   586.8  $   547.2  $   485.8
         Commercial                                62.6       62.8          0.3       58.2      103.4      101.7
         Insert                                    53.8       40.7          1.2       53.2       58.7       60.7
                                             ----------  ---------    ---------  ---------  ---------  ---------
                   Total net sales                764.1      632.8          4.6      698.2      709.3      648.2

Business line operating income (loss) (a)

         Newspaper                                (21.2)      46.4         (2.7)      25.2       71.2       44.5
         Commercial                               (14.9)      (1.4)        (6.2)     (38.6)     (13.7)     (17.0)
         Insert                                   (19.4)       3.2         (0.5)       3.8        5.0        5.5
                                             ----------  ---------    ---------  ---------  ---------  ---------
                   Total business line            (55.5)      48.2         (9.4)      (9.6)      62.5       33.0
                   operating income (loss)

Rockwell common expense allocation (b)              0.0        0.0         (0.1)      (8.5)      (8.3)      (6.8)

Patent litigation (c)                               0.0        0.0          0.0       (1.0)      (3.0)       0.0

Restructuring charges (d)                           0.0        0.0          0.0       (3.9)       0.0        0.0

Customer notes operating and bad debt
expense (e)                                         0.0        0.0         (0.1)      (4.0)      (5.1)     (19.6)

Amortization of inventory step-up (f)               0.0      (46.7)         0.0        0.0        0.0        0.0
                                             ----------  ---------    ---------  ---------  ---------  ---------

Operating profit (loss)                           (55.5)       1.5         (9.6)     (27.0)      46.1        6.6

Other income (expense), net                        (5.2)       1.0          0.0       (3.5)       1.9       (2.1)

Income (loss) before interest, income
taxes, cumulative effect of an accounting
change and extraordinary item                     (60.7)       2.5         (9.6)     (30.5)      48.0        4.5

Interest income (expense), net                    (46.4)     (38.7)        (0.2)      (6.0)       0.0       (3.4)

Customer notes interest income, net                 0.0        0.0          0.7       17.1       12.4       13.6
                                             ----------  ---------    ---------  ---------  ---------  ---------

Income (loss) before income taxes,
cumulative effect of an accounting change
and extraordinary item                           (107.1)     (36.2)        (9.1)     (19.4)      60.4       14.7



Income tax (provision) credit                      (7.6)      (0.5)         3.4        3.7      (24.2)      (5.3)

Extraordinary loss on early
extinguishment of debt                              0.0       (5.2)         0.0        0.0        0.0        0.0
                                             ----------  ---------    ---------  ---------  ---------  ---------


Net income (loss)                            $   (114.7) $   (41.9)   $    (5.7) $   (15.7) $    36.2  $     9.4
                                             ----------  ---------    ---------  ---------  ---------  ---------
                                             ----------  ---------    ---------  ---------  ---------  ---------

OTHER DATA:

Backlog (at period end)                      $    637.1  $   606.1    $   388.7  $   480.7  $   537.7

Depreciation and amortization                      26.7       78.5          0.8       27.2       29.7       29.3

Other non cash items                                2.6        0.3          0.0        0.0        0.0        0.0

EBITDA (g)                                        (24.6)      80.3         (5.0)      57.4       83.9       55.5

Net cash provided by (used for) operating
activities                                        (60.9)      17.6         17.0       71.5      157.5       71.3

Net cash used for investing activities            (36.7)    (616.4)        (0.6)     (14.7)      (9.4)     (25.7)


                                        11
<PAGE>

Net cash provided by (used) for financing
activities                                         78.1      648.4        (14.3)     (61.2)    (155.5)     (37.2)

Capital expenditures                               27.0       11.0          0.0        5.9       11.5       11.6

Balance sheet data (at period end):

Total assets                                    1,016.1      906.8                   816.0      947.0      950.9

Total debt                                        429.4      351.4                    39.2        2.6        4.1

Net equity                                         (0.2)     117.3                     n/a        n/a        n/a

Rockwell's net investment in Rockwell
Graphic Systems                                     n/a        n/a               $   457.1  $   543.1  $   628.7
</TABLE>




(a)  Business line operating income for 1996 includes a $33.4 million charge for
     a change in accounting estimate with respect to certain product and
     contract performance accruals relating to years prior to fiscal 1996.

(b)  Rockwell common expense allocation represents expenses charged by Rockwell
     on a percentage of sales basis for administrative and management services
     such as corporate oversight, cash management, treasury, legal, patent, tax,
     insurance, general management and administration, corporate accounting and
     communication services.

(c)  Patent litigation represents expenses related to an alleged patent
     infringement, the liability for which was retained by Rockwell.  See note
     18 to the 1996 audited combined financial statements.

(d)  The restructuring charge recorded in 1996 represents reserves associated
     primarily with severance payments for terminated employees and the closure
     of certain redundant facilities.

(e)  Customer notes operating expenses and bad debt expenses represent expenses
     associated with Goss's portfolio of customer notes which was sold in
     conjunction with the acquisition.

(f)  Amortization of inventory step-up resulting from the utilization of the
     purchase method of accounting as part of the acquisition.  The inventory
     step-up was fully amortized at September 30, 1997.

(g)  EBITDA represents business line operating income less Rockwell common
     expense allocation and amortization of inventory step-up plus depreciation
     and amortization and other non-cash items.  EBITDA is presented because it
     is a widely accepted financial indicator of a company's ability to incur
     and service debt.  EBITDA should not be considered as an alternative to
     operating income as determined in accordance with GAAP, as an indicator of
     Goss's operating performance or as an alternative to net cash provided by
     (used for) operating activities as determined in accordance with GAAP.  In
     1996, EBITDA excludes $48.3 million of charges relating to certain product
     and performance accruals which the company considers to be of a
     non-recurring nature, of which $33.4 million relates to changes in
     estimates for product and contract performance issues for sales recorded,
     or, in the case of contract performance issues, for orders taken, prior to
     October 1, 1995.  In 1998, EBITDA includes $1.6 million of other income
     which consists primarily of interest income and minority interest expense.



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

Goss's fiscal year ended September 30, 1998.  Data presented for the fiscal year
ended September 30, 1997 does not include the fourteen-day  "stub" period from
October 1, 1996 through October 14, 1996 which preceded Goss's acquisition on
October 15, 1996.  As a result, comparisons between fiscal 1998 and 1997 involve
comparisons of a twelve month period to an eleven and one-half month period.  In
addition, fiscal 1996 information relates to the business of Rockwell Graphic


                                          12
<PAGE>

Systems, Inc. as owned and managed by Rockwell International Corporation.  As a
result of the acquisition, including the effects of purchase accounting and the
Company's new debt and equity structure, year-over-year comparisons of fiscal
data may not provide a fully accurate view of Goss's current business or future
prospects.

Readers are urged to consider carefully the financial statements and related
notes contained elsewhere in this report as they read the discussion below.

RESULTS OF OPERATIONS -- FISCAL 1998 AND FISCAL 1997

NET SALES

Goss's net sales for fiscal 1998 increased by 20.7% to $764.1 million due
primarily to a higher order backlog at the end of fiscal 1997 which resulted in
higher deliveries in fiscal 1998. The changes in net sales, including equipment
and parts, by product line were:

     -    Sales of large newspaper presses increased 5.4% for fiscal 1998 to
          $389.2.  Sales in the web offset printing press business regularly
          fluctuate due to the timing of large orders, as was the case in fiscal
          1998 in which there was a major sale to a European customer.  Also
          contributing to the increase during fiscal 1998 were significant sales
          to two Pacific Rim customers.  These increases were offset by a $20.3
          million reduction in sales in the U.S. primarily due to shipments
          deferred to fiscal 1999 at the request of customers and as a result of
          additional engineering requirements relating to newly developed
          presses that otherwise would have shipped.

     -    Sales of small newspaper presses increased 61.4% for fiscal 1998 to
          $258.5 million. Higher worldwide volumes, primarily of Universal
          presses in the U.S. and Europe, which more than doubled in fiscal
          1998, accounted for this increase.

     -    Sales of insert presses increased 32.3% for fiscal 1998 to $53.8
          million.  The increase was due to significant shipments to a customer
          in the second and third quarters of 1998.

     -    Sales of commercial presses generally were unchanged at $62.6 million.

GROSS PROFIT

Gross profit, which reflects net sales less cost of sales and amortization of
inventory step-up, decreased 33.9% to $60.7 in fiscal 1998.  Goss's gross profit
margin decreased from 14.5% in fiscal 1997 to 8.0% in fiscal 1998.

Several significant items affected these results.  In 1997, gross profit
reflected amortization of a $46.7 million step-up in the value of inventory
following Goss's 1996 acquisition.  The 1998


                                          13
<PAGE>

results were affected by additional costs resulting from the realignment of
Goss's U.S. manufacturing operations during a time of increased production
volumes. This realignment, which began in 1997 and continued into 1998, was
undertaken in response to increased market demand for Goss's Universal presses
and the desire to reduce manufacturing costs.  In the realignment, Goss's
Reading, Pennsylvania plant was converted into an assembly-only facility with
Universal production capability and certain functions were outsourced to
suppliers or relocated to Goss's Cedar Rapids, Iowa facility.  These costs,
which totaled $13.8 million, generally consisted of start-up costs paid to new
suppliers, costs of maintaining temporarily idle facilities while production was
being moved, and workforce realignments.

Through the end of fiscal 1998, Goss has pursued a business strategy with the
objective of substantially increasing the level of orders and backlog.  Pursuant
to this strategy, Goss entered into several large contracts in the Americas to
supply newly-developed newspaper press models at highly competitive price
levels.  The heavy production levels associated with these contracts, and the
additional effort required to accommodate the new models and features, placed
heavy demands on the U.S. production and engineering facilities, which were
already affected by manufacturing realignment activities.  As a result, several
of these contracts, are in a loss position. These loss contracts, some of
which were shipped in 1998 and some of which remain in backlog at September 30,
1998, resulted in a net charge of $24.5 million in 1998. Also pursuant to this
strategy, Goss purchased significant amounts of materials in the U.S. based upon
anticipated orders.  These orders did not occur as anticipated, resulting in a
significant growth in inventory. Consequently, in the fourth quarter of 1998,
Goss evaluated the net realizable value of its inventories and recorded a charge
of $17.1 million to reflect current net realizable values. During fiscal 1998,
Goss also incurred $4.0 million of unanticipated costs associated with
completing its first shipments of a newly-developed insert press and folder.

Excluding these significant items which totaled $59.4 million in 1998 and $46.7
million in 1997, gross profit for fiscal 1998 was $120.1 million or 15.7% of
sales as compared to $138.7 million or 21.9% of sales in 1997.  The decrease in
gross profit and gross profit margin in fiscal 1998 was due generally to the
effects of price competition and the mix of products sold. Further details on
gross profit by product line, excluding the significant items mentioned above,
are provided below:

     -    For sales to large and small newspapers, gross profit for fiscal 1998
          decreased by $4.6 million to $114.5 million and the gross profit
          margin decreased to 17.7% from 22.5% in 1997.  The decrease in gross
          profit and gross profit margin for fiscal 1998 was due to lower
          pricing and the mix of products sold. Several large newspaper
          contracts that shipped in 1998 did not contribute any gross profit .

     -    Gross profit on sales of insert press equipment for fiscal 1998
          decreased by $7.6 million to $0.8 million and the gross profit margin
          decreased to 1.4% from 20.6% in 1997.  These changes are due to lower
          pricing and the shipment in 1998 of a major contract for a newly
          developed press and folder which was in a  loss position.


                                          14
<PAGE>

     -    Gross profit on sales of commercial press equipment for fiscal 1998
          decreased by $6.4 million to $4.8 million and the gross profit margin
          decreased to 7.7% from 17.8% in 1997.  The decrease in gross profit
          and gross profit margin is due to a charge of $5.5 million in fiscal
          1998 relating to a product performance issue and the mix of products
          sold.

OPERATING EXPENSES

Operating expenses -- I.E., selling, general and administrative expenses --
increased by $18.9 million to $89.2 million in 1998 due to increased marketing
efforts, depreciation expenses resulting from the implementation of new
information systems and increased charges for bad debts in 1998. In addition,
1997 did not include the fourteen-day October 1996 stub period in which
operating expenses totaled $3.1 million.

RESEARCH AND PRODUCT DEVELOPMENT

Research and product development costs increased by $3.7 million to $17.8
million for 1998 primarily due to engineering costs of $4.3 million associated
with the development of a new insert press in fiscal 1998.

OTHER INCOME

Other income decreased by $1.1 million in 1998 to $1.6 million.  In 1997, other
income was favorably affected by the settlement of certain customer disputes.

LOSS ON  INVESTMENT IN AFFILIATE

In 1998, Goss made a 20% equity investment in DALiM Gmbh, a pre-press software
specialist.  On November 18, 1998 DALiM filed for bankruptcy and the net
investment of $6.8 million as of September 30, 1998 was written-off.

INTEREST EXPENSE

Interest expense increased by $7.7 million in 1998 due to increased borrowings
under the Company's revolving credit facility during 1998 and accrued interest
relating to a customer settlement issue partially offset by lower interest
rates.

NET LOSS

Goss's net loss increased from $41.9 million to $114.7 million in 1998.  This
increase is attributable to the reasons described above.


                                          15
<PAGE>

RESULTS OF OPERATIONS -- FISCAL 1997 AND FISCAL 1996

NET SALES

Goss's net sales for fiscal 1997 decreased by 9.4% to $632.8 million due
primarily to a lower order backlog at the end of fiscal 1996 which resulted in
lower deliveries in fiscal 1997.  The changes in net sales, including equipment
and parts, by product line were:

          -    Sales of large newspaper presses decreased by 13.5% to $369.2
               million. Sales in the web offset printing press business
               regularly fluctuate due to the timing of large orders, as was the
               case in fiscal 1996 which included a major sale to a Pacific Rim
               customer.  Also contributing to the decrease during fiscal 1997
               was a $13.0 million reduction in sales in Japan resulting from
               the adverse effect of currency translations due to the weakening
               of the Yen versus the U.S. dollar.

          -    Sales of small newspaper presses generally were unchanged at
               $160.1 million.  This result includes a lower level of sales in
               the U.S. and Europe offset by the inclusion in sales of
               approximately $16.2 million by Goss's China joint venture.  This
               venture previously was reported as an equity investment but now
               is consolidated for financial reporting purposes.

          -    Sales of commercial presses increased by 7.9% to $62.8 million.
               Goss attributes this increase to quality improvements in its
               commercial line of equipment and a resulting improvement in
               market acceptance for that line.

          -    Sales of insert presses decreased by 23.6% to $40.7 million.
               Goss attributes this decline to a continued consolidation among
               insert printers resulting in lower demand for this product
               generally.

GROSS PROFIT

Gross profit for fiscal 1997 decreased by 12.0% to $92.0 million.   Goss's gross
profit margin declined from 15.0% in fiscal 1996 to 14.5% in fiscal 1997.
However, two significant items affected these results.  Fiscal 1996 results
include a $25.1 million charge for a change in estimate with respect to certain
product and contract performance accruals related to sales recorded, or, in the
case of contract performance issues, related to orders taken, prior to fiscal
1996.  Also, fiscal 1997 results include $46.7 million in amortization of the
step-up in the value of Goss's inventory which was revalued in connection with
the acquisition.  Excluding these non-recurring items, fiscal 1996 gross profit
is $129.8 million or 18.6% of sales and fiscal 1997 gross profit is $138.7
million or 21.9% of sales.  Adjusting for these items, the improvement in gross
profit and gross profit margin was primarily due to the positive effect of
manufacturing cost reduction initiatives.


                                          16
<PAGE>

Further details on gross profit by product line (excluding amortization of the
inventory step-up in 1997) are provided below.

          -    For sales to newspapers, gross profit decreased by 7.7% to $119.7
               million.  The gross profit margin for these sales improved to
               22.6% in fiscal 1997 from 18.2% in fiscal 1996.

          -    Gross profit on sales of commercial press equipment increased
               from a gross loss of $12.4 million to a gross profit of $10.8
               million.  The gross profit margin improved from (21.3%) in fiscal
               1996 to 17.2% in fiscal 1997.

          -    Gross profit on sales of insert press equipment decreased by
               21.2% to $8.2 million.  However, the gross profit margin on these
               sales improved from 19.5% in fiscal 1996 to 20.1% in fiscal 1997.


OPERATING EXPENSES

Operating expenses decreased by 29.9% to $92.2 million in fiscal 1997.  This
decrease is attributable to non-recurring charges in fiscal 1996 associated with
a $1.0 million patent litigation settlement, $3.9 million in restructuring
charges and an $8.3 million charge for changes in estimates with respect to
product and contract performance issues relating to sales recorded prior to
fiscal year 1996.  Also, fiscal 1996 included $4.1 million of expense associated
with the customer note portfolio sold at the time of the acquisition and an $8.5
million expense allocation from Rockwell.  However, even excluding these fiscal
1996 charges, operating expenses decreased by 12.9% or approximately $13.7
million.  This decrease is attributable to several factors, including workforce
reductions and benefit plan restructuring.

INTEREST EXPENSE AND OTHER ITEMS

Net interest expense increased from $6.0 million to $38.7 million in 1997.  This
increase is primarily attributable to the acquisition and the incurrence of the
attendant debt.  In addition, fiscal 1996 results include interest income from a
customer note portfolio which was sold at the time of the acquisition.  Included
as an extraordinary item in fiscal 1997 is the write-off of $5.2 million in loan
origination costs attributable to the prepayment of a portion of the term loan.

NET INCOME/LOSS

Goss's net loss increased from $15.7 million to $41.9 million for 1997.  This
increase in net loss is attributable to purchase accounting adjustments and
higher interest expense partially offset by improved gross profit margins and
lower operating expenses.


                                          17
<PAGE>

OUTLOOK

The outlook for calendar year 1999 in Goss's European and Asia Pacific
operations, which represent approximately half of Goss's total sales volume, is
favorable.  However, Goss faces significant challenges in its Americas' business
unit.  Although orders in fiscal 1998 were strong and the Americas' unit backlog
at September 30, 1998 amounted to $365.4 million, estimated gross margins on
orders in backlog indicate that profitability in the Americas unit will lag that
of other regions.

In general, Goss sees no near term reduction in worldwide demand for new presses
or for color upgrades and expansion for existing presses.  Recent advertising
expenditure projections indicate positive advertising environments in most
countries, which suggests continued demand for additional color capacity by
newspaper publishers.

At September 30, 1998, the backlog of customer commitments for presses and
related installations was $637.1 million a 5.1% increase over the backlog at
September 30, 1997 of $606.1 million.  Backlog increased by 13.0% in the
Americas and 72.6% in the Asia Pacific region while decreasing 35.2% in Europe.

While management believes that it has established a reliable plan to improve
profitability in the Americas operations, the plan requires the execution of a
substantial number of initiatives some of which may not be successful.  A
significant shortfall in performance relative to this plan could result in
reduced liquidity and the inability to comply with loan covenants.

YEAR 2000

Goss uses software and related technologies throughout its business and in
certain of its products that will be affected by the Year 2000 issue which
involves the inability of date sensitive computer applications to process dates
beyond the year 1999.  A comprehensive inventory and assessment of business
systems and processes that may be affected by Year 2000 issues have been
completed in each country in which Goss operates.

Goss has also completed an investigation of Year 2000 issues related to the
functionality of its press systems which included a comprehensive review of Goss
press models sold over a period of more than thirty years and has found no
date-related issues that would render presses inoperable on the arrival of the
year 2000.  Certain date functionality issues were identified with some older
press systems and software upgrades have been developed to solve these issues.
Where necessary, customers have been notified of these issues and many presses
have already been upgraded.

Goss's U.S. manufacturing facilities are in the process of implementing new Year
2000 compliant manufacturing and financial applications which include general
ledger, accounts receivable, accounts payable, inventory, purchasing,
engineering and order entry. These implementations are expected to be completed
by May 1, 1999 in Cedar  Rapids and by June 1,


                                          18
<PAGE>

1999 in Reading.  Goss's headquarters and parts facility in Westmont, Illinois
have already implemented new manufacturing and financial systems which are Year
2000 compliant.

The majority of systems in Europe are already Year 2000 compliant with the
exception of Nantes, France where most systems will either have codes changed on
existing software or will be upgraded to Year 2000 compliant versions.  These
modifications are expected to be completed by June 1999 except for the
purchasing system will be replaced by a fully integrated module of the general
ledger package and should be operational by September 1999. In Japan system
modification began in October 1998 and is currently in the final planning stage.
Individual modules will be implemented beginning in January 1999 and will be
completed by June 1999.  Financial systems may not be completed until November
1999.

Certain non-IT systems, such as telephone and voice mail systems, time and labor
collection systems and other desktop computer systems, have been assessed and
all necessary upgrades will be scheduled for completion by the fourth quarter of
1999.

The expected cost to convert all business systems to be Year 2000 compliant is
approximately $17.3 million, the majority of which are capital expenditures.
About 64% of these costs have been incurred as of September 30, 1998.  These
costs do not include certain costs incurred in the U.K. over the last two years
to upgrade systems as part of an overall systems upgrade strategy as these costs
were not tracked separately.

As part of Goss's Year 2000 assessment, the Company's vendors and suppliers are
being contacted about Year 2000 issues affecting their business and products.
In addition to requesting information about their plans, Goss may require
significant vendors to document Year 2000 compliance through a separate
self-audit questionnaire.

Although Goss's management believes that it will be successful in avoiding 
any disruption in its business, given the complexity and number of potential 
risks, there can be no guarantee that the Company's efforts will be 
successful.  If Goss's efforts to achieve Year 2000 compliance are 
unsuccessful, the result could have a material adverse effect on Goss's 
results of operations and financial condition.  The potential adverse effects 
include the inability to order materials, manufacture and distribute products 
and process daily business transactions. In the event certain systems are not 
operational in time to avoid a Year 2000 issue, Goss has planned to manually 
accumulate and process data necessary to continue operations.  At such time 
as these systems become Year 2000 compliant, the manually accumulated data 
will be loaded and processed into the new systems.

EUROPEAN MONETARY UNION

Goss has not completed its assessment of the effect of the initiation of the
European Monetary Union that will result in the issuance of a single currency
("the euro") for use in participating countries.  This conversion will result in
required modifications to certain computer systems hardware and software for
Goss's European operations.  Goss does not believe the conversion will


                                          19
<PAGE>

have a material effect on  its results of operations.  In 1999, Goss will
further analyze the effect of the euro conversion, including the related
conversion costs and long-term competitive implications.

FINANCIAL CONDITION

In 1998, operating activities used $60.9 million of cash compared to 1997 when
operating activities provided $17.6 million of cash.  The negative cash flow
from operations in 1998 was primarily due to the net loss of $114.7 million,
increased accounts receivable due to increased sales, the buildup of inventory
resulting from an increased backlog of firm and forecasted customer commitments
and from significant purchases made based on anticipated sales, offset by
increased trade payables and customer advances.

Capital expenditures increased by $16.0 million to $27.0 million in 1998 due to
the implementation of new information systems and the conversion of Goss's
Reading, Pennsylvania plant to an assembly-only facility.  In 1998, Goss made an
equity investment of $7.5 million in DALiM Gmbh, a pre-press software
specialist.

Other than cash flow from operations, Goss's primary source of liquidity is its
revolving credit facility which permits borrowings up to $200 million, including
up to $175 million in letters of credit.  As of  September 30, 1998, borrowings
and letters of credit under this facility, excluding $2.5 million of revolving
credit relating to Goss's joint venture in China, totaled $171.7 million, an
increase of $55.4 million from the end of the prior fiscal year.

Goss's revolving credit facility contains certain financial covenants,
including, but not limited to, a minimum fixed charge coverage test, a minimum
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) test, a
minimum net worth test, a maximum leverage test and a minimum asset coverage
test.  These covenants are described more fully in Section 7.6 of the January
29, 1998 credit facility agreement, a copy of which was filed with the
Securities and Exchange Commission as Exhibit 4.2 to Goss's Form 8-K dated
February 12, 1998, as amended by a First Amendment to Credit Agreement dated as
of August 31, 1998 and a Second Amendment to Credit Agreement dated as of
January 12, 1999, filed herewith as Exhibit 4.2, and is incorporated herein by
reference.

The financial covenants are based on the Company's operating results and cash 
flows and, with the exception of the minimum net worth and minimum asset 
coverage covenants, cover performance during the preceding four fiscal 
quarters.  The covenants become more stringent over time. Covenant 
noncompliance entitles the lenders to declare a default under the credit 
facility and accelerate repayment of outstanding amounts and, as a result of 
the Second Amendment, automatically block payment of interest on Goss's 
subordinated notes without any further action.

As a consequence of its earnings levels and cash flows, Goss was not in
compliance with these financial covenants as of the quarter ended March 31,
1998.  Goss's lenders waived this non-compliance (as well as non-compliance as
of the end of the quarter ended June 30, 1998), and on August 31, 1998, Goss
entered into the First Amendment which contained revised covenants for


                                          20
<PAGE>

the quarters ended September 30, 1998, and thereafter.  These covenants were 
predicated upon Goss's business plan at that time, and subsequently it became 
apparent that Goss would not be able to fulfill those covenants.  As a 
result, Goss and its lenders amended those covenants in the Second Amendment 
and, as so amended, Goss's management believes that it will be able to comply 
with the covenant structure contained in its revolving credit facility.  As 
part of the Second Amendment, the revolving credit facility also was amended 
to include various limitations on Goss's operation and borrowing, including a 
limitation on the amount that can be borrowed by Goss based upon its accounts 
receivable, inventory, equipment, real property and intellectual property.  
In general, this limitation is similar to the limitation contained in the 
revolving credit facility prior to January 29, 1998.  Also as part of the 
Second Amendment, Stonington Financing Inc., will be required to make a 
capital contribution to Goss, which will take the form of the purchase by 
Stonington and the contribution to Goss of the accounts receivable previously 
sold to BT Commercial Corporation (see below).  Stonington has agreed to make 
this contribution.  Taken together, the First Amendment and the Second 
Amendment provide Goss with financial covenants that should be easier to 
achieve, but in exchange therefor provide Goss less flexibility in other 
areas.

On November 30, 1998, Goss sold approximately $35.6 million in accounts
receivable to BT Commercial Corporation.  This sale was permitted by Goss's
revolving credit facility and was intended to provide Goss with additional
liquidity beyond what was then available under the revolving credit facility.
Generally, the receivables that were sold were expected to mature between
February and May, 1999. The sale was without recourse to Goss although the
collectibility of the receivables was guaranteed by an affiliate of Stonington,
a related party.

In addition to the revolving credit facility, Goss also is party to an indenture
under which it issued $225 million in subordinated notes and mortgage loans on
certain of its facilities.  Copies of these agreements are included as Exhibits
4.1, 4.4 and 4.5 to Goss's Form 10-K for its fiscal year ended September 30,
1997 and are incorporated herein by reference.  The indenture contains covenants
similar to those in the revolving credit facility and includes cross-default
provisions under which an event of default under the revolving credit facility
would also be considered an event of default under the indenture.

Goss, because of the acquisition, is a highly leveraged business.  As a
consequence, it is dependent upon its bank credit facility to provide essential
liquidity, and borrowings under that facility are dependent upon Goss's
fulfillment of the financial covenants that it contains. Although violations of
the financial covenants contained in the bank credit facility can be waived --
and certain covenants have been waived or not enforced as a result of Goss's
financial performance as its credit needs expanded --  should Goss at some
future time not be able to satisfy those financial covenants it would
significantly, and negatively, affect Goss's business by, among other things,
restricting growth in sales or necessitating Goss's obtaining a replacement
credit facility.  Goss's ability to obtain a replacement facility would be
dependent on the financial markets and its financial condition at that time.


                                          21
<PAGE>

Goss's operating loss for fiscal year 1998 has caused it to access a 
substantial portion of its available liquidity.  As a result, Goss has taken 
certain actions subsequent to September 30, 1998 intended to increase its 
profitability and the availability of liquidity, including senior management 
changes, a revised business plan, workforce reductions, a sale of $35.6 
million in accounts receivable, a renegotiation of its Revolving Credit 
Facility, and a commitment by an affiliate of Stonington to make a capital 
contribution of at least $35 millions.  The capital contribution is expected 
to be in the form of the receivable previously guaranteed by Stonington. 
While Goss's management believes that these actions will result in improved 
profitability and the ability to obtain necessary liquidity, there can be no 
assurances that they will be successful.

FORWARD LOOKING STATEMENTS

Certain of the statements contained in this Report, including those under
"Outlook," "Year 2000" and "Financial Condition," are forward-looking.  While
Goss believes that these statements are accurate, Goss's business is dependent
upon general economic conditions, various conditions specific to its industry,
and future trends and these factors could cause actual results to differ
materially from the forward-looking statements that have been made.  In
particular:

          -    Newspaper press sales historically have been negatively
               influenced by increases in the cost of newsprint.

          -    Purchases of printing equipment historically have been dependent
               upon general economic conditions and, in particular in connection
               with sales to newspapers, advertising expenditures and page
               count.  As discussed under Item 1 above, press purchases
               frequently can be deferred, and declines in general economic
               conditions can negatively impact Goss's sales.

          -    Goss's primary competitors are located in Germany and Japan.
               Currency markets and long-term interest rates recently have
               provided its competitors with pricing advantages.  To the extent
               currency rates fluctuate in the future, these pricing advantages
               may increase, and Goss's sales would decrease.

          -    Selection of equipment frequently is dependent upon the
               technological features.  To the extent that Goss's competition
               develops new technology that is attractive to purchasers and Goss
               does not promptly develop comparable technology, Goss will be at
               a disadvantage and sales are likely to decline.

          -    Frequently industry capacity exceeds market demand resulting in
               severe price competition.  This price competition can hurt both
               sales and gross profit margins.


                                          22
<PAGE>

          -    Goss is a leveraged business.  As a consequence, its
               profitability is sensitive to increases in interest rates, and
               the negative impact of any decrease in operating results is
               likely to be more significant than it would be if Goss was less
               leveraged.  In addition, since Goss is dependent on its bank
               credit facility for liquidity, any inability to fulfill its
               commitments under the facility or a replacement facility --
               whether as a result of the failure to satisfy financial covenants
               or otherwise -- would have a significant negative impact to Goss.

          -    Goss's realignment of its manufacturing facilities was only
               recently completed.  Production is not yet as efficient as
               intended, and Goss has had various difficulties in obtaining
               components at prices that would enable it to price its products
               as competitively as desired.  This, in turn, for as long as it
               continues, will negatively impact revenue and gross profit.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Goss is exposed to market risk from changes in interest rates and foreign
currency exchange rates which may adversely affect its results of operations and
financial condition.  Goss seeks to minimize these risks through its regular
operating and financing activities and, when deemed appropriate, through the use
of derivative financial instruments.  Goss does not use financial instruments
for trading or other speculative purposes and is not a party to any leveraged
financial instruments.

Goss uses foreign currency forward contracts to hedge the exposure to adverse
changes in foreign currency exchange rates.  Goss's principal currency exposures
relate to the British pound, the French franc and the Japanese yen against the
U.S. dollar.  Goss's exposure to changes in foreign currency exchange rates
arise from intercompany loans utilized to finance foreign subsidiaries,
receivables, payables and firm commitments arising from international
transactions.  Goss attempts to hedge significant exposures with internal
natural offsets to the fullest extent possible and, once these opportunities
have been exhausted, through derivative financial instruments with third parties
using forward contracts.  Gains and losses on these transactions are offset by
the gain or loss on the underlying transaction.  The gains and loses on such
contracts are summarized in note 4 to Goss's 1998 financial statements contained
in Part II.

A 10% appreciation of the U.S. dollar at September 30, 1998 market rates would
increase the unrealized value of Goss's forward contracts by $6.5 million.
Conversely, a 10% depreciation of the U.S. dollar at September 30, 1998 market
rates would decrease the unrealized value of Goss's forward contracts by $6.5
million.  In either scenario, the gain or loss on the forward contracts is
offset by the gain or loss on the underlying transaction and, therefore, has no
affect on future earnings or cash flows.


                                          23
<PAGE>

Goss periodically uses derivative financial instruments to hedge its exposure to
changes in foreign currency exchange rates for the translated U.S. dollar value
of net income of certain foreign subsidiaries.  Forward contracts used to hedge
net income are marked to market and any resulting gains or losses are recognized
immediately in net income.  No such instruments are outstanding as of September
30, 1998.

Goss also has an interest rate cap agreement to manage its exposure to interest
rate changes related to its Revolving Credit Facility.  The effect of a 1%
change in interest rates on Goss's interest rate sensitive financial instruments
is approximately $1.2 million per annum.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

Data presented for the period ended September 30, 1997 does not include the
fourteen-day  "stub" period from October 1, 1996 through October 14, 1996 which
preceded Goss's acquisition on October 15, 1996.  As a result, comparisons
between fiscal 1998 and 1997 involve comparisons of a twelve month period to an
eleven and one-half month period.  In addition, fiscal 1996 information relates
to the business of Rockwell Graphic Systems, Inc. as owned and managed by
Rockwell International Corporation.  As a result of the acquisition, including
the effects of purchase accounting and the Company's new debt and equity
structure, year-over-year comparisons of fiscal data may not provide a fully
accurate view of Goss's current business or future prospects.


                                          24
<PAGE>

                          INDEPENDENT AUDITORS' REPORT



To Goss Graphic Systems, Inc.:

         We have audited the accompanying consolidated balance sheets of Goss
Graphic Systems, Inc. (a Delaware Corporation which acquired Rockwell Graphic
Systems on October 14, 1996 - See Note 1), as of September 30, 1998 and 1997,
and the related consolidated statements of operations and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

         We conducted our audit 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 audit provides a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Goss Graphic Systems, Inc. as of September 30, 1998 and 1997, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.



                                          ARTHUR ANDERSEN LLP

Chicago, Illinois
January 12, 1999





                                       25
<PAGE>

                           GOSS GRAPHIC SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                  (In Millions)

<TABLE>
<CAPTION>
ASSETS                                                               At September 30,
                                                               ----------------------------
Current assets:                                                     1998             1997
                                                                 -------           ------
<S>                                                            <C>                 <C>
        Cash and cash equivalents                                  $30.1            $49.6
        Accounts receivable, net                                   212.1            174.7
        Inventories, net                                           234.7            163.8
        Other current assets                                        22.5             10.8
                                                                 -------           ------
        Total current assets                                       499.4            398.9
Property and equipment, net                                        176.2            167.8
Goodwill, net                                                      312.4            315.3
Other assets                                                        28.1             24.8
                                                                 -------           ------
Total assets                                                    $1,016.1           $906.8
                                                                --------           ------
                                                                --------           ------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
        Accounts payable                                          $185.0           $111.6
        Revolving credit facilities                                151.0             49.6
        Current portion of long-term debt                            4.7             10.6
        Advance payments from customers                            126.9             84.9
        Other current liabilities                                  206.2            171.4
                                                                 -------           ------
        Total current liabilities                                  673.8            428.1
Long-term debt, less current portion                               273.7            291.2
Other liabilities                                                   60.0             62.0
                                                                 -------           ------
Total liabilities                                                1,007.5            781.3
Minority interest                                                    8.8              8.2
Common stock, 100 shares authorized and
   outstanding, $0.01 par value                                      0.0              0.0
Additional paid in capital                                         162.2            162.2
Retained earnings                                                (156.6)           (41.9)
Minimum pension obligation                                         (5.3)              0.0
Cumulative translation adjustment                                  (0.5)            (3.0)
                                                                --------           ------
Total shareholders' equity                                         (0.2)            117.3
                                                                --------           ------
Total liabilities and shareholders' equity                      $1,016.1           $906.8
                                                                --------           ------
                                                                --------           ------
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

                                       26
<PAGE>

                           GOSS GRAPHIC SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (In Millions)

<TABLE>
<CAPTION>
                                                                 For The Years Ended
                                                                    September 30,
                                                              -------------------------
                                                                  1998         1997
                                                                -------       -------
<S>                                                            <C>            <C>
Net sales                                                         $764.1       $632.8
Cost of sales                                                      703.4        494.1
Amortization of inventory step-up                                    0.0         46.7
                                                                 -------      -------
     Gross profit                                                   60.7         92.0

Operating expenses                                                  89.2         70.3
Research and product development                                    17.8         14.1
Goodwill amortization                                                9.2          7.8
                                                                 -------      -------
     Operating loss                                               (55.5)        (0.2)

Other income                                                         1.6          2.7
Write-off of investment in affiliate                               (6.8)          0.0
Interest expense                                                  (46.4)       (38.7)
                                                                 -------      -------
     Loss before income taxes and extraordinary item             (107.1)       (36.2)
Provision for income taxes                                           7.6          0.5
                                                                 -------      -------
     Loss before extraordinary item                              (114.7)       (36.7)
Extraordinary loss on early extinguishment of debt                   0.0        (5.2)
                                                                 -------      -------
Net loss                                                        $(114.7)      $(41.9)
                                                                --------      -------
                                                                --------      -------
</TABLE>





The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.


                                       27
<PAGE>

                           GOSS GRAPHIC SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In Millions)

<TABLE>
<CAPTION>
                                                                                                 For The Years Ended
                                                                                                    September 30,
OPERATING ACTIVITIES:                                                                          -----------------------
                                                                                                 1998           1997
                                                                                               --------       --------
<S>                                                                                            <C>            <C>
        Net loss                                                                                   $(114.7)    $(41.9)
        Depreciation                                                                                   17.5       23.9
        Amortization of inventory step-up                                                               0.0       46.7
        Amortization of goodwill                                                                        9.2        7.8
        Extraordinary loss on early extinguishment of debt                                              0.0        5.2
        Write-off of investment in affiliate                                                            6.8        0.0
        Changes in assets and liabilities:
              Accounts receivable                                                                    (37.4)     (37.9)
              Inventory                                                                              (70.9)      (4.4)
              Accounts payable                                                                         73.4       35.3
              Customer advances                                                                        42.0     (16.4)
              Other current liabilities                                                                34.8        5.7
              Other assets                                                                           (20.2)       18.9
              Other liabilities                                                                       (1.4)     (25.3)
                                                                                                   --------    -------
                 Net cash (used for) provided by operating activities                                (60.9)       17.6
                                                                                                   --------    -------
INVESTING ACTIVITIES:

        Capital expenditures                                                                         (27.0)     (11.0)
        Other                                                                                         (2.2)      (3.0)
        Investment in affiliate                                                                       (7.5)        0.0
        Acquisition of Rockwell Graphic Systems, net of cash acquired of $7.2                           0.0    (602.4)
                                                                                                   --------    -------
              Net cash used for investing activities                                                 (36.7)    (616.4)
                                                                                                   --------    -------
FINANCING ACTIVITIES:

        Issuance of senior subordinated notes                                                           0.0      225.0
        Sale of customer notes receivable                                                               0.0      137.1
        Capital contributions                                                                           0.0      162.2
        Net borrowings under revolving credit facilities                                              101.4       47.3
        Term loan, original amount borrowed                                                             0.0       75.0
        Repayment of term loan                                                                       (21.9)     (53.1)
        Issuance of mortgage notes                                                                      0.0       54.9
        Other borrowings                                                                                4.3        0.0
        Repayment of mortgage notes                                                                   (5.7)        0.0
                                                                                                   --------    -------
              Net cash provided by financing activities                                                78.1      648.4
                                                                                                   --------    -------
Net (decrease) increase in cash                                                                      (19.5)       49.6
Cash at the beginning of the period                                                                    49.6        0.0
                                                                                                   --------    -------
Cash at the end of the period                                                                         $30.1      $49.6
                                                                                                   --------    -------
                                                                                                   --------    -------
</TABLE>



  The accompanying Notes to Consolidated Financial Statements are an integral
                            part of these statements

                                       28
<PAGE>

                           GOSS GRAPHIC SYSTEMS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

1.   BASIS OF PRESENTATION

     Goss Graphic Systems, Inc. (the "Company" or "Goss") is a Delaware
corporation incorporated April 9, 1996, by Stonington Partners, Inc.
("Stonington") on behalf of Stonington Capital Appreciation 1994 Fund, L.P. (the
"Fund") to acquire (the "Acquisition") the operations of the Graphic Systems
business unit ("Rockwell Graphic Systems") of Rockwell International Corporation
("Rockwell"). The Company is a manufacturer and supplier of web offset printing
press systems for newspaper, commercial, and insert printing. The original
$1,000 investment in exchange for common stock and additional paid in capital is
the Company's only transaction for the period ended September 30, 1996, and as
such, no income or cash flow statements are presented for the period.

     The Company's world headquarters is located in Westmont, Illinois, and the
Company has U.S. manufacturing operations in Cedar Rapids, Iowa, and Reading,
Pennsylvania, and international operations in the United Kingdom, France,
Germany, and Japan. The Company also has a controlling interest in a joint
venture in Shanghai, China.

     On October 14, 1996, the Company acquired Rockwell Graphic Systems from
Rockwell. The Acquisition was effected through the purchase by the Company of
all the outstanding stock of Rockwell Graphic Systems, Inc., a Delaware
corporation ("Goss Delaware"), Rockwell Systemes Graphiques Nantes, a societe
anonyme organized under the laws of the Republic of France ("Goss France"), and
through the purchase by the Company and certain wholly-owned foreign
subsidiaries of the assets and the assumption of liabilities which constitute
the remainder of the Company. Immediately after the Acquisition, the Company
merged with and into Goss Delaware. The purchase price for the Acquisition was
$601.8 million, which consisted of $525.9 million in cash, subject to certain
adjustments, 47,500 shares of preferred stock, $1,000 liquidation preference per
share, issued by GGS Holdings, Inc. ("Holdings"), which directly owns all of the
capital stock of the Company, and approximately $28.4 million of transaction and
acquisition costs. The purchase price was subject to a post closing adjustment
based upon the computation of certain working capital amounts. This adjustment
totaled $7.8 million and is in addition to the $525.9 million mentioned above
and was paid on November 7, 1997. The Acquisition has been accounted for under
the purchase method of accounting; accordingly, the results of operations for
fiscal year 1997 included in the accompanying consolidated financial statements
cover the period from October 15, 1996, to September 30, 1997.

     Simultaneous with the closing of the Acquisition, Holdings raised $116.5
million of equity financing, comprised of $111.5 million in cash from the sale
of common stock of Holdings to the Fund, $1.0 million in cash from the sale of
Holdings common stock to an affiliate of a limited partner of the Fund, and $4.0
million in cash from the sale of Holdings common stock to certain members of the
Company's management (the "Management


                                       29
<PAGE>

                           GOSS GRAPHIC SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Placement"). Holdings financed $2.0 million of the Management Placement. The
balance of the funds needed to consummate the Acquisition and pay related fees
and expenses came from: $225.0 million in proceeds from the Company's issuance
of 12% Senior Subordinated Notes due 2006 (see Note 10); $137.1 million in
proceeds from the sale of a portfolio of notes receivable issued in connection
with customer financing provided by Rockwell Graphic Systems to purchasers of
its products; and $75.3 million in borrowings under a new credit agreement
between Goss Delaware, Bankers Trust Company and certain other lenders (see Note
10).

2.   SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

     The Company's consolidated financial statements include the accounts of its
domestic and foreign subsidiaries and its majority-owned joint venture. All
intercompany transactions are eliminated.

REVENUE RECOGNITION

     The Company recognizes revenue on press system units when title passes to
the customer in accordance with the contract terms, which may precede actual
delivery to the customer. When a current contract estimate indicates a loss,
provision is made for the total estimated loss. The sales value of presses
awaiting delivery amounted to $113.4 million and $177.0 million at September 30,
1998 and 1997, respectively. Revenues on installation contracts are recognized
using the completed-contract method except for certain installation contracts,
generally in amounts over $1.0 million, for which the percentage-of-completion,
cost-to-cost method is utilized.

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents are comprised of cash and short-term investments
having maturities of three months or less at the time of purchase.

INVENTORIES

     Inventories are stated at the lower of cost or market. Inventory cost is
determined on a first-in, first-out (FIFO) method and include material, labor,
and manufacturing overhead.


                                       30
<PAGE>

     Reserves are provided for excess inventory on a location-by-location basis
based on an analysis of historical usage and management's estimate of future
inventory requirements. Such reserves are based on the carrying cost of the
related inventory.

     Inventories are classified as a current asset and include certain amounts
not expected to be realized within one year.

PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful life of the asset (generally three to thirteen years for machinery and
equipment and up to fifty years for buildings). Leasehold improvements are
amortized over the shorter of the useful life of the asset or the remaining
lease term. Presses which are maintained as test development units on a
long-term basis are included in property and equipment and depreciated over
their estimated useful lives (generally five to twelve years). Significant
renewals and betterments are capitalized, and replaced units are written off.
Maintenance and repairs, as well as renewals of minor amounts, are charged to
expense.

PRODUCT WARRANTY

     Product warranty costs include all costs associated with repairs through
the end of the expressed warranty period. These costs are accrued considering
historical warranty cost experience and a periodic assessment of expected
warranty costs associated with each sale.

     Unreimbursed costs to repair equipment after the warranty period are
incurred solely at the discretion of management and are expensed as incurred.

WORKERS' COMPENSATION AND PRODUCT AND GENERAL LIABILITY COSTS

     The financial statements include estimated costs, including costs not
reimbursable under insurance contracts, of settling workers' compensation and
product and general liability claims. These estimates are determined from
historical claims incurred experience, using actuarial computations of the
estimated ultimate settlement cost of such claims, including claims incurred but
not yet reported.

RESEARCH AND DEVELOPMENT

     Research and development costs are expensed as incurred. For the periods
ended September 30, 1998 and 1997, these costs totaled $17.8 million and $14.1
million, respectively.



                                       31
<PAGE>

GOODWILL

     Goodwill represents the excess of the cost of purchased businesses over the
fair value of their net assets at October 14, 1996. Goodwill is being amortized
over 40 years using the straight line method. Accumulated amortization of
goodwill totaled $16.8 million and $7.8 million at September 30, 1998 and 1997,
respectively.

LONG-LIVED ASSETS

     The Company continuously evaluates whether events and circumstances have
occurred which indicate that the remaining estimated useful lives of its
intangibles and other long-lived assets may warrant revision or that the
remaining balance of such assets may not be recoverable. The Company uses an
estimate of the related undiscounted cash flows or, in the case of goodwill,
undiscounted operating earnings, over the remaining life of the asset in
measuring whether or not the asset is recoverable.

INCOME TAXES

     Income taxes are accounted for using the liability method, whereby deferred
income taxes reflect the net effect of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.

     Based on the weight of both negative and positive evidence, if it is more
likely than not that some portion or all of a deferred tax asset will not be
realized, a valuation reserve is established.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.

FOREIGN CURRENCY TRANSLATION

     The functional currency for the European and Pacific Rim subsidiaries is
the applicable local currency. The translation from the applicable foreign
currencies into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using an average exchange rate prevailing during the period.
The gains and losses resulting from such translations are included in
stockholders' equity.


                                       32
<PAGE>

FISCAL YEAR CHANGE

     In June 1998, the Board of Directors approved a change in the Company's
fiscal year-end from September 30 to December 31, effective for the calendar
year beginning January 1, 1999. A three-month fiscal transition period from
October 1, 1998, to December 31, 1998, will precede the start of the new
calendar cycle.

NEW ACCOUNTING STANDARDS

     In June 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and No. 131, "Disclosures about Segments of an Enterprise
and Related Information" which will be effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 established standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 131 requires disclosure of
certain information about operating segments, products and services, geographic
areas and major customers.

     In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post-retirement Benefits" which is also effective for
fiscal year beginning after December 15, 1997. SFAS No. 132 requires additional
information on charges in the benefit obligations and fair values of plan
assets.

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for 2000. SFAS No.133
will require that all derivatives be recorded on the balance sheet at fair
value. For derivatives that are hedges, changes in the fair value of derivatives
will be offset by the changes in the fair value of the hedged assets,
liabilities or firm commitments.

     Management believes that the effect of these statements will not have a
material effect on Goss's financial reporting.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1997 financial statements to
conform to the classifications used in 1998.

3.  THE ACQUISITION

     The Acquisition has been accounted for under the purchase method of
accounting. Accordingly, the purchase price has been allocated to the tangible
and intangible assets and liabilities of the Company based on their respective
fair values as of the date of the Acquisition.


                                       33
<PAGE>

     The final allocation of the total purchase price to the assets and
liabilities acquired is as follows (in millions):

<TABLE>
         <S>                                                          <C>
         PURCHASE PRICE
         Purchase price of common stock and assets                     $573.4
         Post-closing additional purchase price                           7.8
         Commissions, fees and expenses                                  28.4
                                                                      -------
                  Total Purchase Price                                 $609.6
                                                                      -------
                                                                      -------
         FINAL ALLOCATION OF PURCHASE PRICE
         Total current assets, net of deferred taxes                   $360.3
         Property and equipment                                         192.6
            Customer notes                                              137.1
            Other long-term assets                                       28.7
            Goodwill                                                    322.9
            Liabilities assumed                                        (432.0)
                                                                      --------
                   Total Purchase Price                                $609.6
                                                                      -------
                                                                      -------
</TABLE>


     The following unaudited pro forma financial information reflects the
Acquisition as if it had occurred at the beginning of each of the periods
presented. The pro forma information is presented for information purposes only
and is not necessarily indicative of what would have occurred had the
Acquisition been consummated as of those dates (in millions):

<TABLE>
<CAPTION>
                                                     Pro Forma (unaudited)
                                           -----------------------------------------
                                        Year ended                           Year ended
                                    September 30, 1997                   September 30, 1996
                                    ------------------                   ------------------
                  <S>               <C>                                  <C>
                  Net sales               $632.8                               $698.2
                  Net loss                 (46.4)                               (95.9)
</TABLE>


4.   FINANCIAL INSTRUMENTS

Goss enters into various financial instruments in the normal course of business.
Goss does not hold or issue financial instruments for trading or speculative
purposes. Periodically, Goss analyzes its derivative positions to assess the
current and projected status of these agreements.


                                       34
<PAGE>

FOREIGN EXCHANGE CONTRACTS

Goss enters into forward exchange contracts to manage foreign exchange exposure
related to transactions, assets and liabilities that are subject to risk from
foreign currency rate fluctuations. These include product cost revenues and
expenses; associated receivables and payables; intercompany obligations and
receivables; and other related cash flows.

The table below summarizes, by currency, the contractual amounts of Goss's
foreign exchange contracts at September 30, 1998. Foreign currency amounts are
translated at exchange rates as of September 30, 1998. The "buy" amounts
represent the U.S. dollar equivalent of commitments to purchase foreign
currency, and the "sell" amounts represent the U.S. dollar equivalent of
commitments to sell foreign currencies.

<TABLE>
<CAPTION>
               Currency                            Buy                  Sell
               --------                            ---                  ----
               <S>                              <C>                     <C>
               British pound                    $  2.9                  $5.4
               French franc                       40.1                   0.0
               Japanese yen                       12.8                   3.5
                                                  ----                   ---
                  Total                          $55.8                  $8.9
                                                 -----                  ----
                                                 -----                  ----
</TABLE>

INTEREST RATE CAP

Goss also had an interest rate cap agreement at 9% per annum, which expired
October 15, 1998, to manage its exposure to interest rate changes related to its
Revolving Credit Facility.

CREDIT AND RISK

Goss enters into financial instruments with banks with which Goss has continuing
business relationships and regularly monitors the credit ratings of its counter
parties. Goss sells its products to a world wide customer base and extends
credit to its customers based upon ongoing credit evaluations and security is
obtained if required. Concentrations of credit risk with respect to trade
receivables are limited due to Goss's large customer base; however, periodic
concentrations can occur due to the cyclical nature of Goss's business.

FAIR VALUE

     Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," and No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," require
disclosure of the fair value of financial instruments. The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for such financial instruments as defined by the Statements.


                                       35
<PAGE>

     Cash and short-term investments: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value.

     Senior subordinated notes: The estimated fair value of the senior
subordinated notes is based on the market price at which it was listed at
year-end. This was 91% of par on September 30, 1998 and 112% of par on September
30, 1997.

     Term loan: The estimated fair value of the term loan at September 30, 1997,
which was based on LIBOR, is equal to its carrying value.

     Mortgage loans: The estimated fair value of the mortgage loans on the
Sayama, Japan, and Westmont, Illinois, properties is based on prevailing
interest rates and credit spreads.

     Foreign currency contracts: The Company enters into foreign currency
forward exchange contracts to protect against adverse currency rate
fluctuations. The carrying amount reported in the balance sheet for derivatives
approximates fair market value.

     Letters of credit: The fair value of letters of credit is estimated to
approximate their contractual amounts.

     The carrying value and estimated fair value of the Company's financial
instruments are as follows (in millions):

<TABLE>
<CAPTION>
                                                               At September 30,
                                                 --------------------------------------------
                                                  1998                                  1997
                                    ---------------------------------    ----------------------------------
                                        Carrying           Fair               Carrying           Fair
                                         Amount            Value               Amount            Value
                                         ------            -----               ------            -----
<S>                                 <C>                    <C>           <C>                     <C>
Cash and cash equivalents                  $30.1             $30.1               $49.6             $49.6
Senior  subordinated notes                 225.0             204.8               225.0             252.0
Term loan                                    0.0               0.0                21.9              21.9
Mortgage - Westmont, IL                     29.4              30.7                30.0              30.0
Mortgage - Sayama, Japan                    19.8              20.8                24.9              24.9
Foreign currency contracts                   0.2               0.2                 0.3               0.3
Other debt obligations                       4.2               4.2                 0.0               0.0
Off balance sheet financial
instruments:
   Letters of credit                        23.2              23.2                66.7              66.7
</TABLE>



                                       36
<PAGE>

5.  REORGANIZATION COSTS

     In connection with the Acquisition, the Company recorded reserves of 
$26.5 million related to the costs to reorganize the Company's U.S. and 
international operations. The costs are primarily for severance payments for 
approximately 400 terminated employees and for realignment of manufacturing 
operations. Expenditures for reorganization activities were approximately 
$20.8 during the year ended September 30, 1997, with the balance 
substantially expended in the year ended September 30, 1998.

6.   ACCOUNTS RECEIVABLE

     Accounts receivable are summarized as follows (in millions):

<TABLE>
<CAPTION>
                                                       At September 30,
                                               -------------------------------
                                                 1998                   1997
                                                 -----                  ----

<S>                                            <C>                     <C>
   Trade accounts receivable                    $207.3                 $154.5
   Unbilled receivables                           15.0                   26.5
   Notes receivable                               11.4                    9.6
   Less allowance for doubtful accounts          (21.6)                 (15.9)
                                                 ------                 ------
   Accounts receivable, net                     $212.1                 $174.7
                                                ------                 ------
                                                ------                 ------
</TABLE>


     The activity of the allowance for doubtful accounts is summarized as
follows (in millions):

<TABLE>
<CAPTION>
                                                                 At September 30,
                                                         --------------------------------
                                                             1998                1997
                                                           ------                -----
                  <S>                                    <C>                   <C>
                  Beginning of year                        $(15.9)               $0.0
                  Acquisition                                 0.0               (14.9)
                     Consolidation of Joint Venture           0.0                (1.5)
                  Additions, net    of recoveries            (9.0)                0.0
                  Charges                                     3.3                 0.5
                                                              ---                 ---
                  End of year                              $(21.6)             $(15.9)
                                                           -------             -------
                                                           -------             -------
</TABLE>


                                       37
<PAGE>

     As of September 30, 1998 accounts receivable included $32.5 million of
retainage held by customers pending final acceptance of equipment. This balance
was $40.7 million at September 30, 1997.

     Unbilled receivables consist principally of revenues recognized on press
system units where title has passed to the customer in accordance with the terms
of the contract, which is prior to the occurrence of the contractual billing
terms. Unbilled receivables are invoiced in accordance with the terms of
contract provisions and do not include any amounts subject to uncertainty as to
their realization. Substantially all amounts are expected to be billed and
collected within one year.

7.   INVENTORIES

     Net inventories are summarized as follows (in millions):

<TABLE>
<CAPTION>
                                                                    At September 30,
                                                               ------------------------
                                                                1998             1997
                                                                ----             ----
<S>                                                            <C>               <C>  
Materials                                                       104.8            $61.7
   Work in process                                               58.6             42.2
   Finished goods                                                42.5             33.0
   Parts                                                         28.8             26.9
                                                                 ----             ----
      Total inventories, net                                    234.7           $163.8
                                                                -----           ------
                                                                -----           ------
</TABLE>

     The inventory acquired from Rockwell Graphic Systems as part of the
Acquisition was revalued to its fair market value as of the date of the
Acquisition. The excess of the fair market value of that inventory over its
carrying value to Rockwell Graphic Systems as of the date of Acquisition was
$46.7 million. The $46.7 million step-up was charged to expense by the Company
in fiscal year 1997, as the revenue was recorded on the underlying inventory.


                                       38
<PAGE>

8.   PROPERTY AND EQUIPMENT

     Property and equipment are summarized below (in millions):

<TABLE>
<CAPTION>
                                                               At September 30,
                                                           -------------------------
                                                           1998                1997
                                                           ----                ----
<S>                                                        <C>                 <C>  
Land and land  improvements                                $29.9               $30.7
Buildings and building improvements                         72.4                64.6
Machinery, equipment and tooling                           108.0                87.6
Construction in progress                                    12.2                 8.8
                                                            ----                 ---
  Total                                                    222.5               191.7
Less accumulated depreciation                              (46.3)              (23.9)
                                                          ------              ------
  Property and equipment, net                             $176.2              $167.8
                                                          ------              ------
                                                          ------              ------
</TABLE>

9.   OTHER CURRENT LIABILITIES

     Other current liabilities are summarized below (in millions):

<TABLE>
<CAPTION>
                                                                           At September 30,
                                                                      --------------------------
                                                                        1998                1997
                                                                        ----                ----

  <S>                                                                 <C>                   <C>
  Accrued post shipment costs                                         $42.9                  $38.8
  Accrued contract costs                                               74.1                   61.3
  Loss contract reserves                                               25.8                    6.8
  Salaries, wages and employee benefits                                11.3                   14.0
  Interest                                                             15.8                   13.5
  Purchase price adjustment                                             0.0                    7.8
  Agents commissions                                                    8.3                    6.5
  Taxes                                                                 4.2                    1.3
  Other                                                                23.8                   21.4
                                                                       ----                   ----
        Total other current liabilities                              $206.2                 $171.4
                                                                     ------                 ------
                                                                     ------                 ------
</TABLE>


                                       39
<PAGE>

10.  DEBT

     The debt obligations of the Company consist of the following (in millions):

<TABLE>
<CAPTION>
                                                                                            At September 30,
                                                                                            -----------------
                                                                                            1998         1997
                                                                                            ----         ----
   <S>                                                                                     <C>         <C>
   Revolving credit facility (interest of 8.7% and 10.0% at year end)                      $151.0       $49.6
   Term loan, due 2001, interest rate of LIBOR plus 2.5%                                      0.0        21.9
   8.66% mortgage loan on Westmont, IL office building due 2007                              29.4        30.0
   3.25% Yen-based mortgage loan on Sayama, Japan, plant due 2007                            19.8        24.9
   Senior subordinated 12% notes due 2006                                                   225.0       225.0
   Other debt obligations with interest at 7.9% to 8.7%                                       4.2         0.0
                                                                                              ---         ---
         Total debt                                                                         429.4       351.4
   Less current portion                                                                     155.7        60.2
                                                                                            -----        ----
   Long-term debt                                                                          $273.7      $291.2
                                                                                           ------      ------
                                                                                           ------      ------
</TABLE>


     Maturities of long-term debt for the next five years are as follows: 
1999, $4.7 million; 2000, $4.6 million; 2001, $4.1 million; 2002, $3.5 
million; 2003, $3.5 million and $258.0 million thereafter.

     In connection with the Acquisition, the Company entered into borrowing
agreements with Bankers Trust Company and certain other lenders providing for
(i) five-year term loan facilities aggregating $75.0 million (the "Term Loan
Facility"), and (ii) five-year revolving credit facilities aggregating $150.0
million inclusive of letters of credit to be issued thereunder (the "Revolving
Credit Facility" and together with the Term Loan Facility, the "Bank
Facilities"). The funds from the Bank Facilities were lent directly to the
Company, its wholly owned English company ("Goss U.K."), and its wholly owned
Japanese corporation ("Goss Japan").

     The Term Loan Facility originally consisted of a principal amount of $75.0
million made available in equal amounts to the Company, Goss U.K., and Goss
Japan. The Term Loan Facility bears interest at the Company's option, at the
Bankers Trust's base rate plus 1.0% - 1.5% (depending on the Company's leverage
ratio at such time) or at a reserve adjusted Euro-Dollar rate plus 2.0% - 2.5%
(depending on the Company's leverage ratio). The interest rate at September 30,
1997, on the Term Loan Facility was 8.2%. During the fourth quarter of fiscal
1997, the term loans in the U.S. and Japan were reduced by $53.1 million with
the proceeds from mortgage loans made with respect to the Company's facilities
in Westmont, Illinois, and Sayama, Japan. The unamortized debt cost of $5.2
million related to this early retirement of debt was written off as an


                                       40
<PAGE>

extraordinary charge in fiscal 1997. The remaining balance of the term loan was
paid off in fiscal 1998.

     The Revolving Credit Facility will mature on September 30, 2001, and
originally consisted of a revolving credit facility in an amount of up to $150.0
million. On January 29, 1998, Goss amended and restated its Revolving Credit
Facility to add Goss France as a Borrower, to permit borrowings up to $200.0
million in multiple currencies, under which Revolving Loans may be made and
under which Letters of Credit may be issued up to an aggregate sublimit of
$175.0 million, and to provide for the working capital requirements and general
corporate purposes, including making repurchases of the Company's outstanding
Senior Subordinated Notes. The Revolving Credit Facility bears interest at the
Company's option, at Bankers Trust's base rate plus 1.0% - 1.75 % (depending on
the Company's leverage ratio at such time) or the reserve adjusted Euro-Dollar
rate plus 2.0% - 2.75% (depending on the Company's leverage ratio at such time).
The Company's average interest rate was 8.8% and 10.0% for the periods ended
September 30, 1998 and 1997, respectively, on borrowing under the Revolving
Credit Facility. The maximum amount borrowed under the Revolving Credit
Facility, excluding letters of credit, was $166.8 million and $75.5 million and
the average amount borrowed was $122.3 million and $27.5 million during the
periods ended September 30, 1998 and 1997, respectively. As of September 30,
1998, borrowings and letters of credit under this facility, excluding $2.5
million of revolving credit relating to Goss's joint venture in China, totaled
$171.7 million, an increase of $55.4 million from the end of the prior fiscal
year.

     The Bank Facilities are guaranteed by Holdings and by each of the Company's
domestic subsidiaries and, in addition, the Company guarantees the Bank
Facilities provided to Goss U.K., Goss France, and Goss Japan.

     Among other restrictions, the Bank Facilities contain certain financial
covenants, including, but not limited to, a minimum fixed charge coverage test,
a minimum Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) test, a minimum net worth test, a maximum leverage test, and a minimum
asset coverage test. In addition, the Bank Facilities contain other customary
affirmative and negative covenants relating to (among other things) limitations
on dividends, other indebtedness, liens, investments, guarantees, restricted
junior payments, mergers and acquisitions, sales of assets, capital
expenditures, leases, transactions with affiliates, and conduct of business,
with customary exceptions and baskets. The Bank Facilities contain customary
events of default, including failure to make payments when due, defaults under
other agreements or instruments of indebtedness, noncompliance with covenants,
breaches of representations and warranties, bankruptcy, judgments in excess of
specified amounts, invalidity of guarantees, impairment of security interests in
collateral, and certain changes of control.

     The covenants contained in the Revolving Credit Facility must be satisfied
at the end of each quarter and generally cover the Company's performance during
the preceding four fiscal quarters. The covenants become more stringent over
time. Covenant noncompliance entitles the


                                       41
<PAGE>

lenders to declare a default under the Revolving Credit Facility and accelerate
repayment of outstanding amounts.

     As a consequence of its earnings levels and cash flows, the Company was 
not in compliance with these financial covenants as of the quarter ended 
March 31, 1998. The Company's lenders waived this non-compliance (as well as 
non-compliance as of the end of the quarter ended June 30, 1998), and on 
August 31, 1998, the Company entered into the First Amendment which contained 
revised covenants for the quarters ended September 30, 1998, and thereafter. 
These covenants were predicated upon the Company's business plan at that 
time, and subsequently it became apparent that the Company would not be able 
to fulfill those covenants. As a result, the Company and its lenders amended 
those covenants in the Second Amendment and, as so amended, the Company's 
management believes that it will be able to comply with the covenant 
structure contained in its Revolving Credit Facility. As part of the Second 
Amendment, the Revolving Credit Facility also was amended to include various 
limitations on the Company's operation and borrowing, including a limitation 
on the amount that can be borrowed by the Company based upon its accounts 
receivable, inventory, equipment, real property and intellectual property. In 
general, this limitation is similar to the limitation contained in the 
Revolving Credit Facility prior to January 29, 1998. Also as part of the 
Second Amendment, Stonington Partners, Inc., or one of its affiliates, will 
be required to make a capital contribution to the Company, which will take 
the form of the purchase by Stonington and the contribution to the Company of 
the accounts receivable previously sold to BT Commercial Corporation (see 
below). Stonington has agreed to make this contribution. Management believes 
that taken together, the First Amendment and the Second Amendment provide the 
Company with financial covenants that should be easier to achieve, but in 
exchange therefor provide the Company less flexibility in other areas.

     The Company has notes (the "Notes") issued under an Indenture, dated
October 15, 1996 (the "Indenture"), between the Company and The Bank of New
York, as Trustee. The Notes are unsecured senior subordinated obligations of the
Company, limited to $225.0 million aggregate principal amount, and will mature
on October 15, 2006. The Notes bear interest at 12% per annum, payable
semiannually. Subject to certain conditions and dates, the Notes are, in part,
redeemable in whole or in part at the option of the Company. The payment of
principal and interest on the Notes is subordinated to the Senior Debt under the
Bank Facilities (as defined in the Indenture). The indenture contains covenants
similar to those in the revolving credit facility and includes cross-default
provisions under which an event of default under the revolving credit facility
would also be considered an event of default under the Indenture.



                                       42
<PAGE>

11.  INCOME TAXES

     The components of the provision (credit) for income taxes are as follows
(in millions):

<TABLE>
<CAPTION>
                                                           September 30,
                                                      -----------------------
                                                         1998        1997
                                                         ----        ----
           <S>                                        <C>            <C>
           Current:
             United States                               $0.0        $0.0
             Non-United States                            3.3         2.2
             State and local                              0.0         0.0
                                                          ---         ---
           Total current                                  3.3         2.2
                                                          ---         ---

           Deferred:
             United States                                0.0         0.0
             Non-United States                            4.3        (1.7)
             State and local                              0.0         0.0
                                                          ---         ---
           Total deferred                                 4.3        (1.7)
                                                          ---        -----

           Provision for income taxes                    $7.6        $0.5
                                                         ----        ----
                                                         ----        ----
</TABLE>

     A reconciliation of the statutory U.S. Federal income tax rate to the
effective income tax rate is as follows:

<TABLE>
<CAPTION>
                                                                                 September 30,
                                                                           -------------------------
                                                                             1998             1997
                                                                             ----             ----

<S>                                                                        <C>                <C>
Federal statutory rate                                                       35.0%            35.0%
Effect of:
     Non deductible expenses                                                 (2.5)%           (1.0)%
     Goodwill amortization                                                   (2.4)%           (2.7)%
     Net loss for which no benefit has been provided                         (38.4)%          (32.2)%
     Other                                                                    1.2%            (0.6)%
                                                                              ----            ------
Effective Tax Rate                                                           (7.1)%           (1.5)%
                                                                             ------           ------
                                                                             ------           ------
</TABLE>


                                       43
<PAGE>

     The domestic and foreign components of the loss before income taxes and
extraordinary items is as follows:

<TABLE>
<CAPTION>
                                                                                    September 30,
                                                                               ----------------------
                                                                                 1998          1997
                                                                                 ----          ----
                   <S>                                                         <C>           <C>
                   Domestic                                                    $(119.8)      $(34.5)
                   Foreign                                                         12.7        (1.7)
                                                                                   ----      -------
                        Total                                                  $(107.1)      $(36.2)
                                                                               --------      -------
                                                                               --------      -------
</TABLE>

     The company expects to have net operating loss carryforwards of 
approximately $159.8 million in the U.S., $19.1 million in the United Kingdom 
and $0.5 in Japan as of September 30, 1998. $64.2 million of the U.S. loss 
will expire after December 2011 and $95.6 million will expire after December 
2012. The United Kingdom loss can be carried forward indefinitely. Based upon 
the difficulty in predicting the amount of future taxable income by 
jurisdiction in the U.S. and the United Kingdom, management has decided to 
establish a valuation allowance to offset fully any deferred tax asset 
otherwise attributable to the existence of these losses.

     Current and noncurrent deferred income tax assets arise principally from
the following (in millions):

<TABLE>
<CAPTION>
                                                                            September 30,
                                                                     ---------------------------
                                                                       1998               1997
                                                                       ----               ----
                    <S>                                               <C>                 <C>
                    Current:
                         Inventory reserves                           $12.7               $4.2
                         Product warranty reserves                      7.6                1.1
                         Contract reserves                              7.8                3.6
                         Accrued compensation                           2.1                3.1
                         Reorganization reserves                        0.4                5.1
                         Other                                          3.4                2.7
                                                                        ---                ---
                                                                        ---                ---
                             Total current asset                       34.0               19.8
                                                                       ----               ----
                                                                       ----               ----

                    Noncurrent:
                         Insurance reserves                             0.0                3.1
                         Property and equipment                        (5.4)              (2.1)
                         Goodwill                                      (6.1)              (2.5)
                         Tax loss carryforwards                        70.4               28.1
                         Other                                          4.9                1.9
                                                                        ---                ---
                             Total noncurrent asset                    63.8               28.5
                                                                       ----               ----
                                                                       ----               ----

                    Valuation allowance (U.S. and U.K.)               (95.6)             (42.6)
                                                                     ------             ------
                                                                     ------             ------
                         Net deferred tax asset                        $2.2               $5.7
                                                                       ----               ----
                                                                       ----               ----
</TABLE>


                                       44
<PAGE>

12.  PENSION PLANS

     The Company has pension plans covering certain of its employees in the
United States, the United Kingdom, Germany, and Japan. Amounts included in the
accompanying balance sheet for these plans are as follows (in millions):

<TABLE>
<CAPTION>
                                                   At September 30, 1998                  At September 30, 1997
                                             ---------------------------------      -------------------------------
                                               Accumulated           Assets          Accumulated          Assets
                                                 Benefits          Exceeding          Benefits          Exceeding
                                                Exceeding         Accumulated         Exceeding        Accumulated
                                                  Assets            Benefits           Assets            Benefits
                                                  ------            --------           ------            --------
<S>                                            <C>                <C>                <C>               <C>
Accumulated benefit obligation,
   principally vested                            $36.0               $33.7              $7.0              $52.3
Effect of salary increases                         2.9                 9.1               2.4                7.9
                                                   ---                 ---               ---                ---
Projected benefit obligation                      38.9                42.8               9.4               60.2
Fair value of plan assets                         28.7                39.8               4.0               68.0
                                                  ----                ----               ---               ----
Plan assets greater than (less than)
   projected benefit obligation                  (10.2)               (3.0)             (5.4)               7.8
Unrecognized prior service cost                    0.1                 0.5               0.0                0.0
Unrecognized (gains)/losses                        6.9                 8.2              (0.4)              (2.5)
Additional minimum liability                      (5.3)                0.0               0.0                0.0
                                                  -----                ---               ---                ---
Prepaid (accrued) pension costs                  $(8.5)               $5.7             $(5.8)              $5.3
                                                 ------               ----             ------              ----
                                                 ------               ----             ------              ----
</TABLE>

     Net periodic pension cost for the Company's plans included in the
accompanying statements of operations consist of the following (in millions):

<TABLE>
<CAPTION>
                                                                                    1998            1997
                                                                                    ----            ----
           <S>                                                                     <C>              <C>
           Service cost-benefits earned during the year                             $1.8            $1.7
           Interest accrued on accumulated benefit obligation                        4.9             5.1
           Actual return on plan assets                                              5.1            (5.5)
           Net amortization and deferral                                           (11.6)           (0.5)
                                                                                   ------           -----
           Net periodic pension cost                                                $0.2            $0.8
                                                                                    ----            ----
                                                                                    ----            ----
</TABLE>

     The above pension amounts were determined using a June 30 measurement date
and the following assumptions:

<TABLE>
<CAPTION>
                                                 1998                 1997
                                           ----------------     ----------------
                <S>                        <C>                  <C>
                Discount rate                2.5% - 6.5%          4.0% - 8.0%
                Annual salary increase       3.0% - 3.5%          3.0% - 4.5%
                Asset return                 3.0% - 8.5%          3.5% - 9.0%
</TABLE>

     The Company sponsors defined contribution plans covering its U.S. salaried
employees and certain of its hourly employees. Employer contributions to these
plans which were charged to expense totaled $3.4 million in 1998 and $2.1
million in 1997.


                                       45
<PAGE>

13.  RETIREMENT MEDICAL PLANS AND POST EMPLOYMENT BENEFITS

     The Company provides retiree medical and life insurance benefits for
certain of its hourly U.S. employees. Under Statement of Financial Accounting
Standard No. 106, retiree benefits are viewed as a type of deferred compensation
and are treated as if they are earned over the working life of the employees,
and the cost should be fully charged to operations by the earliest date the
employee is eligible to retire.

     The Company funds the benefits of these plans on a cash basis as benefits
are incurred. There are no assets that have been segregated and restricted to
provide for post-retirement benefits.

     The components of retirement medical expense are as follows (in millions):

<TABLE>
<CAPTION>
                                                          1998            1997
                                                          ----            ----
                  <S>                                     <C>             <C>
                  Service cost                            $0.7             $0.6
                  Interest cost                            1.1              1.0
                                                           ---              ---
                     Retirement medical expense           $1.8             $1.6
                                                          ----             ----
                                                          ----             ----
</TABLE>

     The retirement medical obligation was comprised of the following (in
millions):

<TABLE>
<CAPTION>
                                                        At September 30,
                                                     ---------------------
                                                       1998         1997
                                                       ----         ----
                  <S>                                 <C>           <C>
                  Retirees                              $0.3         $0.3
                  Active employees:
                       Eligible to retire                3.8          3.0
                       Not eligible                     15.4         11.2
                                                        ----         ----
                  Retirement medical obligations        19.5         14.5
                  Unrecognized actuarial loss           (3.2)        (0.0)
                                                       -----        -----
                  Accrued retirement medical
                   liability                           $16.3        $14.5
                                                       -----        -----
                                                       -----        -----
</TABLE>

     The above retirement medical amounts were computed using a June 30
measurement date and the following assumptions:

<TABLE>
<CAPTION>
                                                         1998           1997
                                                         ----           ----
<S>                                                      <C>            <C>
Discount rate                                            6.75%          7.75%
Health care cost trend rate                              8.00%          8.00%
</TABLE>

     The health care cost trend rate assumption has a significant effect on the
obligation amounts reported. If the assumed health care cost trend rate was
increased by one percentage point, this would increase the retirement medical
obligation at September 30, 1998 by $4.4 million and the retirement medical
expense for 1998 by $0.4 million.


                                       46
<PAGE>

14.  SHAREHOLDERS' EQUITY

     A summary of changes in shareholders' equity is as follows (in millions):

<TABLE>
<CAPTION>
                                                             For the period        For the period
                                                               10/01/97 to           10/15/96 to
                                                                 9/30/98               9/30/97
                                                                 -------               -------
                  <S>                                        <C>                   <C>
                  Beginning Balance                               $117.3                  $0.0
                  Net loss                                        (114.7)                (41.9)
                  Minimum pension liability adjustment              (5.3)                  0.0
                  Currency translation                               2.5                  (3.0)
                  Capital contributed                                0.0                 162.2
                                                                     ---                 -----
                  Ending Balance                                   $(0.2)               $117.3
                                                                   ------               ------
                                                                   ------               ------
</TABLE>

15.  LEASES

     The Company leases certain operating assets with various renewal options.
Consolidated rental expense was $2.7 million and $3.2 million for the periods
ended September 30, 1998 and 1997, respectively.

     At September 30, 1998, the future minimum lease payments under operating
and capital leases were as follows (in millions):

<TABLE>
<CAPTION>
                                                              OPERATING                CAPITAL
                                                               LEASES                   LEASES
                                                               ------                   ------
          <S>                                                 <C>                      <C>
          Oct-Dec, 1998                                          $0.4                    $0.2
          1999                                                    1.5                     0.6
          2000                                                    1.3                     0.6
          2001                                                    0.7                     0.6
          2002                                                    0.2                     0.2
          Thereafter                                              0.1                     0.0
                                                                 ----                    ----
               Total                                             $4.2                     2.2
                                                                 ----
                                                                 ----
          Less: amounts representing
             interest and executory costs                                                 0.3
                                                                                         ----
          Net present values                                                             $1.9
                                                                                         ----
                                                                                         ----
</TABLE>

16.  RELATED PARTY TRANSACTIONS

     The Company purchases drive systems, press controls, and related products
from Allen-Bradley, a subsidiary of Rockwell, the holder of the preferred stock
issued by Holdings as part of the Acquisition. Such purchases totaled $18.6
million in 1998 and $18.0 million in 1997. The Company also purchases certain
services from Rockwell, including data processing, telecommunications, and
research pursuant to a services agreement with Rockwell which extended


                                       47
<PAGE>

through 1998. Such purchases totaled $3.7 million in 1998 and $4.5 million in
1997. The Company paid a one-time transaction and financing advisory fee in 1997
of $6.0 million to Stonington related to the Acquisition which has been
capitalized as part of the transaction cost.

17.  CONTINGENCIES AND COMMITMENTS

LEGAL CONTINGENCIES

     In the normal course of its business, the Company is subject to various
claims and lawsuits. Typically, these matters consist of product liability
claims brought by the individuals who operate the equipment that the Company
sold, disputes with customers over the performance and completion of
installation of equipment, and workers' compensation claims by the Company's own
employees.

     It is not presently possible to determine the outcome of the claims and
lawsuits against the Company. However, the Company maintains as an accrued
liability a reserve that is its present estimate of the total cost to resolve
all of these matters. Management does not believe that the ultimate disposition
of any of these matters will have a material adverse effect on the Company's
financial position or liquidity, although it is possible that the resolution of
these matters could be material to the results of operations in a given period.

ENVIRONMENTAL CONTINGENCIES

     The Company has received either notices of potential liability or
third-party claims under the Federal Comprehensive Environmental Response,
Compensation, and Liability Act at six off-site disposal facilities or so-called
"Superfund Sites". The Company's share of the responsibility for these Superfund
Sites generally is minor, and, although current law imposes joint and several
liability on any party deemed to be responsible at a Superfund Site, management
believes that the ultimate resolution of these matters will not be material to
the Company.

     The Company's Reading, Pennsylvania, facility has been operating a
groundwater remediation system under a 1981 Consent Order with the Commonwealth
of Pennsylvania as a result of its and its predecessor's historical waste
disposal practices. The Company has completed remediation at the site pursuant
to a remediation proposal approved by the Commonwealth and has submitted a
monitoring proposal to the Commonwealth for approval.

     Rockwell has agreed to indemnify the Company for expenses attendant to
existing environmental matters to the extent of one-half of those expenses in
excess of $1.0 million. The Company maintains as an accrued liability a reserve
that is its present estimate of the total cost to resolve all of these 
matters.


                                       48
<PAGE>

COMMITMENTS

     The Company in certain instances provides letters of credit to guarantee
the performance of presses under certain long-term contracts. Such letters of
credit outstanding were $9.9 million as of September 30, 1998, and $15.4 million
as of September 30, 1997. The Company intends to perform fully the underlying
contracts and does not expect to incur any material liability beyond customary
amounts for warranty and similar claims.

18.  GEOGRAPHIC AND EXPORT SALES INFORMATION

     The following tables present information about the Company by geographic
area (in millions):

<TABLE>
<CAPTION>
Fiscal Year 1998:                                                                   Asia
----------------                                   U.S.            Europe          Pacific    Eliminations        Total
                                                   ----            ------          -------    ------------        -----
<S>                                               <C>               <C>             <C>         <C>               <C>
Net sales to customers                            $395.8            $267.8          $100.5      $---              $764.1
Transfers between geographic locations              16.4              55.5             0.1       (72.0)            ---
Operating profit (loss)                            (82.5)             22.0             5.0       ---               (55.5)
Net identifiable assets                            596.8             285.3           134.0       ---             1,016.1

<CAPTION>

Fiscal Year 1997:                                                                   Asia
----------------                                   U.S.            Europe          Pacific    Eliminations        Total
                                                   ----            ------          -------    ------------        -----
<S>                                               <C>              <C>             <C>         <C>               <C>
Net sales to customers                            $352.8            $192.0         $88.0      $ ---              $632.8
Transfers between geographic locations              10.9              29.7         ---          (40.6)            ---
Operating profit (loss)                            (11.2)              7.2           3.8        ---                (0.2)
Net identifiable assets                            508.1             271.2         127.5        ---               906.8
</TABLE>

     Transfers between geographic areas are recorded at amounts generally in
excess of cost. The resultant income is assigned to the geographic area of
manufacture. In computing operating profit, interest income and expense, other
income and expense, and income taxes have not been added or deducted.

     Export sales from the U.S. were $114.4 million or 15% of the Company's net
sales for the period ended September 30, 1998. They were $142.6 million or 23%
of the Company's net sales for the period ended September 30, 1997. These sales
were principally to customers in South America.



                                       49
<PAGE>


19.  SUPPLEMENTAL CASH FLOW INFORMATION

     Cash paid for interest and income taxes for the periods ended September 30,
1998 and 1997, are as follows (in millions):
<TABLE>
<CAPTION>
                                             1998            1997
                                            -------        -------
                    <S>                      <C>            <C>
                    Interest paid            $40.5          $23.2

                    Income taxes paid         $2.7           $4.6
</TABLE>
20. STOCK OPTIONS PLAN

Holdings, the Company's parent company, has established the Management Stock
Incentive Plan (the "Plan") for various members of the Company's management.  As
permitted by Statement of Financial Accounting Standard No. 123, the Company
accounts for this Plan under APB Opinion No. 25, under which no compensation
cost has been recognized.  Had compensation cost under this Plan been
determined, the Company's net loss would have been increased to the following
pro forma amounts (in millions):
<TABLE>
<CAPTION>
                                                September 30,
                                                -------------
                                               1998      1997
                                               ----      ----
                      <S>                     <C>       <C>
                      As Reported             $114.7    $41.9
                      Pro Forma               $115.6    $42.9
</TABLE>

Holdings may grant options for up to 71,500 shares under the Plan.  The 
number of options allowed under the Plan is expected to be increased by the 
Board of Directors subsequent to September 30, 1998.  Certain options granted 
during 1998 were issued in anticipation of this increase in available grants. 
 Under the Plan stock options expire 10 years from the date of grant.  The 
incentive options vest ratably over a five year period.  The vesting of 
performance options are dependent on the Company's future results of 
operations through the fiscal year end 2001 but in any event will vest by 
October 15, 2006.

                                          50
<PAGE>


Information with respect to options granted under the Company's stock option
plan is as follow:
<TABLE>
<CAPTION>
                                    September 30, 1998      September 30, 1997
                                    ------------------      ------------------
                                  Shares      Wtd. Avg.    Shares     Wtd. Avg.
                                  (000)       Ex Price     (000)      Ex Price
                                  -----       --------     -----      --------
 <S>                              <C>         <C>          <C>        <C>
 Outstanding  at  beginning of    
    year                           68.4          n/a         0.0         n/a
 Granted                            9.3        $100.00      69.2       $100.00
 Exercised                          0.0          n/a         0.0         n/a
 Forfeited                         (5.0)       $100.00      (0.8)      $100.00
 Expired/canceled                   0.0          n/a         0.0         n/a
                                  -----                    -----
 Outstanding at end of year        72.7        $100.00      68.4       $100.00
                                  -----                    -----
                                  -----                    -----
 Exercisable at end of year          0                        0

 Weighted  average  fair value    $42.92                   $48.09
 of options granted
</TABLE>

All of the 72,700 options outstanding at September 30, 1998 have exercise and
weighted average exercise prices of $100.00 and a weighted average remaining
contractual life of 8.21 years.  None of these options are exercisable.

The minimum value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest of 5.61%; expected life of 10 years; and no
expected dividend yield or volatility.

21. INVESTMENT IN AFFILIATE

     In November 1997, the Company made a $5.0 million, or 15%, equity
investment in DALiM Gmbh, a pre-press software specialist.  The Company made
additional investments of $2.5 million in fiscal year 1998, increasing its
equity participation to more than 20%.  In 1998, the Company also recorded
equity losses of $0.7 million, including related goodwill amortization.

     On November 18, 1998, DALiM filed for bankruptcy due to insolvency.  As a
result, the Company determined that its net investment was impaired and the
balance of $6.8 million was written off in fiscal 1998.


                                          51

<PAGE>


22.  SUBSEQUENT EVENTS

     The Company's operating loss for fiscal year 1998 has caused it to 
utilize a substantial portion of its available liquidity.  As a result, the 
Company has taken certain actions subsequent to September 30, 1998 intended 
to increase its profitability and the availability of liquidity, including 
senior management changes, a revised business plan, workforce reductions, a 
sale of $35.6 million in accounts receivable, a renegotiation of its 
Revolving Credit Facility (see Note 10 for a summary of the Amendment), and a 
commitment by an affiliate of Stonington to make a capital contribution of at 
least $35 million.  The capital contribution is expected to be made in the 
form of the receivables previously guaranteed by Stonington.  While the 
Company's management believes that these actions will result in improved 
profitability and the ability to obtain necessary liquidity, there can be no 
assurances that they will be successful.

     On November 19, 1998, the Company announced  a five percent reduction of
its worldwide workforce. This reduction, which affected both salaried and hourly
jobs, refocused efforts on improving process flow associated with new product
manufacturing and customer service.  The major emphasis involved realignment of
the North American operation, which serves the Company's largest installed
customer base.  The severance cost relating to this workforce reduction is
approximately $6.7 million and will be charged to expense during the quarter
ending December 31, 1998.








                                          52

<PAGE>


                             INDEPENDENT AUDITORS' REPORT



To Rockwell Graphic Systems:

          We have audited the accompanying combined balance sheet of Rockwell
Graphic Systems, a business unit of Rockwell International Corporation (Rockwell
Graphic Systems - see Note 1), as of September 30, 1996, and related combined
statements of operations and cash flows for the year then ended and the combined
statements of operations and cash flows for the fourteen day period ended
October 14, 1996.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

          We conducted our audit in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform our 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 audit provides a reasonable basis for our
opinion.

          In our opinion, the combined financial statements referred to above,
present fairly, in all material respects, the financial position of Rockwell
Graphic Systems as of September 30, 1996, and the results of its operations and
cash flows for the year then ended and the fourteen day period ended October 14,
1996, in conformity with generally accepted accounting principles.

          As discussed in Note 1, the accompanying financial statements referred
to above have been prepared from the separate records maintained by Rockwell
Graphic Systems and are not necessarily indicative of the conditions that would
have existed or the results of operations if Rockwell Graphic Systems had been
operated as an unaffiliated company.  Portions of certain expenses represent
allocations of corporate expenses applicable to Rockwell International
Corporation as a whole.



                                   ARTHUR ANDERSEN LLP


Chicago, Illinois
November 25, 1997


                                          53
<PAGE>


                           ROCKWELL GRAPHIC SYSTEMS
                             COMBINED BALANCE SHEET
                             AT SEPTEMBER 30, 1996
                                  (In Millions)
<TABLE>
<CAPTION>

ASSETS           
Current assets:
<S>                                                              <C>
   Cash and cash equivalents                                       $2.3

   Accounts receivable, net                                       112.6
   Customer notes receivable, current portion                      67.4
   Inventories                                                    148.8
   Deferred income taxes                                           36.7
   Other current assets                                             4.8
                                                                  -----
        Total current assets                                      372.6
Property and equipment, net                                       140.4
Customer notes receivable, net                                    154.9
Goodwill, net                                                     135.2
Other assets                                                       12.9
                                                                  -----
Total assets                                                     $816.0
                                                                  -----
                                                                  -----

LIABILITIES AND ROCKWELL'S NET INVESTMENT
Current liabilities:
   Accounts payable                                                53.7
   Notes payable                                                   39.2
   Advance payments from customers                                 88.1
   Accrued compensation                                            12.8
   Due to related parties                                          11.1
   Income tax payable                                               7.7
   Other current liabilities                                      132.3
                                                                  -----
     Total current liabilities                                    344.9
Other liabilities                                                  11.3
Deferred income taxes                                               2.7
                                                                  -----
Total liabilities                                                 358.9
Rockwell's net investment                                         457.1
                                                                  -----

Total liabilities and Rockwell's net investment                  $816.0
                                                                  -----
                                                                  -----
</TABLE>


The accompanying Notes to Combined Financial Statements are an integral part of
these statements.


                                          54
<PAGE>


<TABLE>
<CAPTION>

                            ROCKWELL GRAPHIC SYSTEMS
                        COMBINED STATEMENT OF OPERATIONS
                                 (In Millions)
                                                  For The     For The Fourteen
                                                Year Ended        Days Ended
                                           September 30, 1996   October 14, 1996 
                                          ------------------   ----------------
<S>                                       <C>                 <C>
Net sales                                       $698.2          $4.6      
Cost of sales                                    593.6          10.2      
                                                 -----          ----
   Gross profit                                  104.6          (5.6)      
Operating expenses:                                                             
   Engineering                                    30.8           0.9      
   Sales and marketing                            35.9           1.1      
   General and administrative                     51.5           1.9      
   Rockwell common expense  allocation             8.5           0.1      
   Patent litigation                               1.0           0.0      
   Restructuring charge                            3.9           0.0      
                                                   ---           ---
   Total operating expenses                      131.6           4.0      
                                                 -----           ---
Operating (loss) profit                          (27.0)         (9.6)      
Interest income                                   17.1           0.7      
Interest expense:                                                               
   Related parties                                (3.8)         (0.2)      
   Other                                          (2.2)          0.0      
Other income (expense), net                       (3.5)          0.0      
                                                  -----          ---
Income (loss) before income taxes                (19.4)         (9.1)      
Provision (credit) for income taxes               (3.7)         (3.4)      
                                                  -----         -----
Net (loss) income                               $(15.7)        $(5.7)      
                                                -------        ------
                                                -------        ------
</TABLE>


The accompanying Notes to Combined financial Statements are an integral part of
these statements.


                                          55
<PAGE>

<TABLE>
<CAPTION>

                            ROCKWELL GRAPHIC SYSTEMS
                 COMBINED STATEMENT OF CASH FLOWS (in Millions)

                                                    For The     For The Fourteen
                                                    Year Ended      Days Ended
                                                  September 30,    October 14, 
                                                       1996             1996
                                                  -------------    ------------
<S>                                               <C>           <C>
OPERATING ACTIVITIES:                             
     Net (loss) income                                $(15.7)             $(5.7)
     Depreciation                                       22.4                0.6
     Amortization of intangible assets                   4.8                0.2
     Intercompany purchases from Allen Bradley          27.5                0.0
     Allocation of common expenses from Rockwell         8.5                0.1
     Provision for doubtful accounts receivable          1.3                0.0
     Provision for doubtful customer notes      
       receivable                                        2.4                0.0
     Deferred income taxes                              (5.5)              (1.2)
     Changes in assets and liabilities:                      
         Account receivable, net                        11.4               11.1
         Inventories                                    72.2               (7.7)
         Customer notes receivable                       9.4               16.3
         Accounts payable                              (25.3)               3.1
         Advance payments from customers               (66.3)               9.1
         Due to related parties                          0.3               (3.3)
         Accrued compensation                           (3.3)              (0.4)
         Other assets and liabilities                   27.4               (5.2)
                                                        ----               -----
            Net cash from operating activities          71.5               17.0
                                                        ----               ----

INVESTING ACTIVITIES:                                        
     Property and equipment additions                   (5.9)               0.0
     Other                                              (8.8)              (0.6)
                                                        -----              -----
         Net cash from investing activities            (14.7)              (0.6)
                                                       ------              -----

FINANCING ACTIVITIES:                                        
     Repayment of foreign long-term debt                (2.6)             (25.9)
     Borrowings                                         39.2                0.0
     Net cash transferred from (to) Rockwell           (97.8)              11.6
                                                       ------              ----
         Net cash from financing activities            (61.2)             (14.3)
                                                       ------              -----
Net (decrease) increase in cash                         (4.4)               2.1
Cash at the beginning of the period                      6.7                2.3
Cash at the end of the period                           $2.3               $4.4
                                                        ----               ----
                                                        ----               ----
</TABLE>


The accompanying Notes to Combined Financial Statements are an integral part of
these statements.


                                          56
<PAGE>

                              ROCKWELL GRAPHIC SYSTEMS
                       NOTES TO COMBINED FINANCIAL STATEMENTS
                       FOR THE YEAR ENDED SEPTEMBER 30, 1996
                  AND FOR THE FOURTEEN DAYS ENDED OCTOBER 14, 1996
                                          

1.   BASIS OF PRESENTATION

The accompanying combined financial statements (the "Statements") present the
financial position, results of operations and cash flows of Rockwell Graphic
Systems ("RGS"), a business unit of Rockwell International Corporation. The
Statements have been prepared in accordance with generally accepted accounting
principles utilizing the accounting practices and procedures of RGS and have
been derived from the accounting records of Rockwell International Corporation
and its subsidiaries ("Rockwell"). The Statements are not necessarily indicative
of the financial position, results of operations or cash flow had RGS operated
as a stand-alone company. 

RGS is a leading manufacturer and supplier of web offset printing press systems
for newspaper, commercial and insert printing. RGS includes the world
headquarters located in Westmont, Illinois, as well as U.S. manufacturing
operations in Cedar Rapids, Iowa and Reading, Pennsylvania.   Substantially all
U.S. operations are included within  Rockwell Graphic Systems, Inc., a
wholly-owned subsidiary of Rockwell, except for the Reading facility which is
directly owned by Rockwell.  RGS also includes international operations of
indirect wholly-owned subsidiaries of Rockwell in the United Kingdom, France and
Germany and operations in Japan performed by a wholly-owned subsidiary of
Rockwell Graphic Systems, Inc.  RGS  also has an investment in a joint venture
in China. 

Rockwell's cash resources in the U.S., the United Kingdom and Germany are
managed under a centralized system wherein receipts are deposited to Rockwell
corporate accounts and disbursements are centrally funded.  Accordingly, the
Statements do not include cash, marketable securities or borrowings, or related
interest income, expense, receivables or payables arising from these cash
management activities in the U.S., the United Kingdom and Germany.

The majority of customer notes receivable relating to RGS are held and
administered by Rockwell International Credit Corporation.  Rockwell
subsidiaries in the United Kingdom, France, Australia and Canada also hold notes
receivable from RGS customers.  These notes and related interest income are
included in the Statements.

RGS benefits from certain direct services which are provided by Rockwell,
including centralized billing for benefit claim payments for active U.S.
employees, data processing, telecommunications, research and certain insurance. 
These direct expenses are included in the Statements.  In addition, Rockwell
also provides certain common services, such as cash management and other
treasury services, legal, patent, tax, insurance administration, corporate
accounting, audit, communications, benefit administration services and general
management.


                                          57
<PAGE>


These common expenses are allocated by Rockwell using the proportion of
divisional sales to total corporate sales and such allocations are included in
the Statements.  Management believes the manner in which common expenses have
been allocated for the services provided is reasonable.  It is not practical for
management to estimate the level of expense that might have been incurred for
the services provided had RGS operated as a separate stand-alone entity,
however, it is possible that services utilized and the costs of such services
may differ from those that would result from transactions among unrelated
parties.

RGS' investment in and operating results of Hall Processing Systems and the
assets at the Peterborough, England site have been excluded from the Statements
because they do not represent ongoing operations of the business.  Hall
Processing Systems is a joint venture which is 50% owned by RGS, and is being
liquidated by Rockwell.  The Peterborough, England site is a former RGS facility
which is being held for sale by Rockwell and at which there are no ongoing
operations.

Intercompany accounts have been excluded from the assets and liabilities of RGS
and included in Rockwell's net investment except for the payables by RGS to
Allen-Bradley Company, Inc. ("Allen-Bradley"), a subsidiary of Rockwell,
resulting from inventory purchases by RGS during the 30 days preceding the date
of the Statements.  There are no significant operating activities with other
Rockwell subsidiaries.

2.   SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

RGS recognizes revenue on a percentage-of-completion basis, utilizing the
units-of-delivery method. Units are considered delivered when title passes to
the customer in accordance with the contract terms, which may precede actual
delivery to the customer.  When a current contract estimate indicates a loss,
provision is made for the total estimated loss.  At September 30, 1996, RGS had
recorded cumulative revenues of $128.9 million on presses awaiting delivery to
customers for which title had transferred.  Revenues recognized for the year
ended September 30, 1996 for presses awaiting delivery amounted to $90.7 million
There were no revenues recognized for the fourteen days ended October 14, 1996
for presses awaiting delivery. Revenues on installation contracts is recognized
using the completed-contract method except for certain installation contracts,
generally in amounts over $1.0 million, for which the percentage-of-completion,
cost-to-cost method is utilized. 


                                          58
<PAGE>


CASH AND CASH EQUIVALENTS

Cash and cash equivalents are comprised of cash and short-term investments
having maturities of three months or less at the time of purchase. The carrying
amount of cash and cash equivalents approximates fair market value. 

INVENTORIES

Inventories are stated at the lower of cost or market. Inventory cost is
generally determined on a last-in, first-out (LIFO) method for U.S. locations
and on a first-in, first-out ("FIFO") method for non-U.S. locations. 

Reserves are provided for excess inventory on a location-by-location basis based
on an analysis of historical usage and management's estimate of future inventory
requirements. Such reserves are based on the carrying cost (LIFO or FIFO) of the
related inventory. 

Inventories are classified as a current asset and include certain amounts not
expected to be realized within one year. 

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful life of the asset (generally three to thirteen years for machinery and
equipment and up to fifty years for buildings). Leasehold improvements are
amortized over the shorter of the useful life of the asset or the remaining
lease term. Where applicable, interest has been capitalized and included in
property and equipment. Presses which are maintained as test development units
on a long-term basis are included in property and equipment and depreciated over
their estimated useful life (generally five to twelve years). Significant
renewals and betterments are capitalized and replaced units are written off.
Maintenance and repairs, as well as renewals of minor amounts, are charged to
expense. 

SOFTWARE DEVELOPMENT

RGS expenses all costs associated with the programming and development of new
operating systems for its presses. Costs associated with specific sales
contracts generally are capitalized in inventory and charged to cost of sales as
revenues are recognized. 


                                          59
<PAGE>


                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)


PRODUCT WARRANTY

Product warranty costs include all costs associated with repairs through the end
of the expressed warranty period. These costs are accrued considering historical
warranty cost experience and a periodic assessment of expected warranty costs
associated with each sale. 

Unreimbursed costs to repair equipment after the warranty period are incurred
solely at the discretion of management and are expensed as incurred. 

WORKERS, COMPENSATION AND PRODUCT AND GENERAL LIABILITY COSTS

The Statements include RGS' estimated costs, including costs not reimbursable
under insurance contracts, of settling workers' compensation and product and
general liability claims. These estimates are determined from RGS' historical
claims incurred experience, using actuarial computations of the estimated
ultimate settlement cost of such claims, including claims incurred but not yet
reported. 

GOODWILL

Goodwill represents the excess of the cost of purchased businesses over the fair
value of their net assets at dates of acquisition. Goodwill is being amortized
generally over 40 years, except for goodwill of $28.6 million arising from
Rockwell's acquisition of Miehle Goss Dexter which occurred prior to 1971 and is
not being amortized. Accumulated amortization of goodwill totaled $26.0 million
at September 30, 1996.

Management has reviewed the realizability of goodwill based on an overall
evaluation of remaining useful lives and projected cash flows and profitability
of RGS and has determined that there is no impairment at October 14, 1996.

INCOME TAXES

Income taxes are accounted for using the liability method, whereby deferred
income taxes reflect the net effect of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Based on the weight of both negative
and positive evidence, if it is more likely than not that some portion or all of
a deferred tax asset will not be realized, a valuation reserve is established. 


                                          60
<PAGE>


                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)



INCURRED BUT UNPAID MEDICAL CLAIMS

RGS provides benefits to active U.S. employees for medical care, dental care and
prescription drugs. The liability for benefit claims which have been incurred
but not paid is estimated to be $0.5 million at  September 30, 1996.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates. 

Subsequent to November 3, 1995, the date as of which it issued its 1995
financial statements, RGS and its successor (see note 20) changed its estimates
with respect to certain product and contract performance accruals, some of which
related to sales recorded prior to October 1, 1995.  The most significant change
in estimates related to product performance accruals provided for the commercial
and newspaper business lines.  During 1996, RGS recorded additional accruals of
$33.4 million for changes in estimates related to product and contract
performance issues for sales recorded, or in the case of contract performance
issues, for orders taken, prior to October 1, 1995.

FOREIGN CURRENCY TRANSLATION

The functional currency for the European and Japanese subsidiaries is the
applicable local currency.  The translation from the applicable foreign
currencies into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using an average exchange rate prevailing during the period. 
The gains and losses resulting from such translations are included in Rockwell's
net investment.  The balance of cumulative translation adjustment at
September 30, 1996 was $15.5 million and is included in Rockwell's net
investment.


                                          61

<PAGE>


                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)


3.   FINANCIAL INSTRUMENTS

The Statements include customer notes receivable, long-term debt and foreign
currency forward exchange contracts. 

RGS provides financing for sales to certain customers in the form of promissory
notes. The notes are collateralized by the equipment, accrue interest at varying
rates (6.25% to 13.25%) based on the contractual terms of each agreement and
generally have terms of up to ten (10) years. The accrual of interest is
discontinued when a note becomes 90 days past due or when RGS is notified by the
customer of a significant equipment problem. 

RGS' customers are not concentrated by geographic area, but are concentrated in
the publishing and printing businesses. RGS reviews a customer's credit history
before extending credit and establishes an allowance for uncollectible amounts
based on management's evaluation of the collectability of outstanding balances
considering such factors as the payment status of the notes and management's
estimate of the fair market value of the collateral. To reduce credit risk, RGS
performs a review of the customer's credit history and retains a security
interest on the equipment financed. 

The estimated fair value of customer notes receivable was $213.8 million at
September 30, 1996 based on prevailing interest rates for performing notes and
on the collateral value of the related presses for past due notes. 

RGS enters into foreign currency forward exchange contracts to protect against
adverse currency rate fluctuations. The notional amounts of these contracts
totaled $82.8 million at September 30, 1996, and the contracts mature at various
dates through June 1997. RGS has deferred $2.5 million of losses on these
contracts at September 30, 1996.
 
4.   ACCOUNTS RECEIVABLE

Accounts receivable at September 30, 1996 are summarized as follows (in
millions):


                    Trade accounts receivable                  $124.3
                    Unbilled receivables                          3.2
                    Less allowance for doubtful accounts        (14.9)
                                                               ------
                    Accounts receivable, net                   $112.6
                                                               ------
                                                               ------


                                          62
<PAGE>


                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)


The activity of the allowance for doubtful accounts is summarized as follows (in
millions):


<TABLE>
<CAPTION>
                                         For The          For the Fourteen
                                        Year Ended          Days Ended
                                     September 30, 1996   October 14, 1996
                                     ------------------   ----------------
 <S>                                 <C>                  <C>
 Beginning of period                        $5.0                 $14.9
 Provision                                  11.2                   0.0
 Charges                                    (1.3)                  0.0
                                            ----                   ---
 End of year                               $14.9                 $14.9
                                           -----                 -----
                                           -----                 -----
</TABLE>

As of September 30, 1996 accounts receivable include $35.2 million of retainage
held by customers pending final acceptance of equipment. 

Unbilled receivables consists principally of revenues recognized on contracts
under the units-of-delivery method of accounting. Unbilled receivables are
billed in accordance with the terms of contract provisions and do not include
any amounts subject to uncertainty as to their realization. Substantially all
amounts are expected to be billed and collected within one year. 

5.     CUSTOMER NOTES RECEIVABLE

Customer notes receivable at September 30, 1996 are summarized as follows (in
millions):

<TABLE>
<CAPTION>
    <S>                                                    <C>
       Customer notes receivable                                $244.7
       Less allowance for doubtful notes                         (22.4)
                                                               ---------
       Notes receivable, net                                     222.3
       Less current portion                                      (67.4)
                                                               ---------
       Long-term notes receivable, net                          $154.9 
                                                               ---------
                                                               ---------

</TABLE>

On October 1, 1995, RGS adopted statement of Financial Accounting Standards No.
114, "Accounting By Creditors for Impairment of a Loan," as amended by Statement
of Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," which requires the
evaluation of the collectibility of principal and contractual interest of
certain impaired customer notes in assessing the need for an allowance for
customer notes.  Customer notes are considered impaired when, based on current
information


                                          63

<PAGE>

                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)


and events, it is probable that RGS will be unable to collect all amounts due
according to the contractual terms of the note agreement.  Impairment is
measured based on the present value of expected future cash flows discounted at
the note's effective interest rate and/or the fair value of collateral.  As of
September 30, 1996, $49.8 million of customer notes are considered to be
impaired, for which $9.6 million has been reserved for within the allowance for
doubtful notes.  The adoption of Statements of Financial Accounting Standards
Nos. 114 and 118 did not have a material effect on the results of operations for
the year ended September 30, 1996.


6.   INVENTORIES

Net inventories at September 30, 1996 are summarized as follows (in millions):

<TABLE>
          <S>                                                           <C>
          Materials                                                      $53.4
          Work in process                                                 46.4
          Finished goods                                                  24.8
          Long-term contracts                                             16.6
          Parts                                                           30.1
          Less allowance to reduce certain inventories to LIFO           (22.5)
                                                                        ------
               Inventories, net                                         $148.8
                                                                        ------
                                                                        ------
</TABLE>

Inventory valuation reserves were $43.2 million at September 30, 1996.

Long-term contracts consist of inventoried costs of assembled parts relating to
unit of delivery contracts. Such inventoried costs include direct costs of
manufacturing and allocable overhead costs which are not expected to be realized
within one year. Inventoried costs under long-term contracts do not include any
amounts subject to uncertainty as to their determination or realization.


                                          64
<PAGE>


                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)



7.   PROPERTY AND EQUIPMENT

Property and equipment at September 30, 1996 are summarized below (in millions):

<TABLE>
                      <S>                                      <C>
                      Land and land improvements               $ 33.2
                      Buildings and building improvements        77.9
                      Machinery, equipment and tooling          255.7
                      Construction in progress                    2.7
                                                               ------
                          Total                                 369.5
                      Less accumulated epreciation             (229.1)
                                                               ------
                          Property and equipment, net          $140.4
                                                               ------
                                                               ------
</TABLE>


8.   OTHER ASSETS - INVESTMENT IN JOINT VENTURE

Shanghai Rockwell Graphic Systems Co. Ltd. ("SRGSL"), a joint venture with
Shanghai Printing & Packaging Machinery Corporation, is accounted for using the
equity method. SRGSL was formed in Shanghai, People's Republic of China, on
December 8, 1993 and the joint venture agreement has an operating term of 40
years. SRGSL is engaged in the manufacture and sale of printing presses. 

RGS has a commitment to contribute a total of $9.0 million, which includes
equipment and technical support, and $1.0 million of cash, to SRGSL for a 60%
interest in the joint venture after all such contributions have been made. As of
September 30, 1996, RGS has contributed $6.6 million to the joint venture, which
includes $1.6 million of cash and $4.2 million of machinery and equipment
currently being refurbished or awaiting shipment to China.

9.   OTHER CURRENT LIABILITIES

Other current liabilities  at September 30, 1996 are summarized below (in
millions):

<TABLE>
           <S>                                                          <C>
           Product warranty costs                                        $ 58.0
           Accrued contract costs                                          31.1
           Accrued product liability and workers' compensation costs       15.3
           Other                                                           27.9
                                                                         ------
               Other current liabilities                                 $132.3
                                                                         ------
                                                                         ------
</TABLE>

                                          65
<PAGE>

                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)


10.  INCOME TAXES

The operations of RGS in the U.S., U.K., and France are included in the
consolidated income tax returns of Rockwell in each of these countries.
Accordingly, the combined balance sheets do not include current income taxes
receivable, payable or tax contingencies related to these operations. The income
tax provisions included in the combined statements of operations have been
determined as if RGS were a separate taxpayer. 

The components of the provision (credit) for income taxes  are as follows (in
millions): 

<TABLE>
<CAPTION>
                                            For The           For The Fourteen
                                          Year Ended             Days Ended
                                      September 30, 1996      October 14, 1996
                                      ------------------      ----------------
         <S>                          <C>                     <C>
         Current:
           United States                       $(8.0)          $(1.5)
           Non-United States                    10.9            (0.5)
           State and local                      (1.1)           (0.2)
                                               -----           -----
         Total current                           1.8            (2.2)
                                               -----           -----

         Deferred:
           United States                        (4.2)           (1.0)
           Non-United States                    (0.7)            0.0
           State and local                      (0.6)           (0.2)
                                               -----           -----
         Total deferred                         (5.5)           (1.2)
                                               -----           -----
         Provision for income taxes            $(3.7)          $(3.4)
                                               -----           -----
                                               -----           -----
</TABLE>


                                          66
<PAGE>

                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)


A reconciliation of the statutory U.S. Federal income tax rate to the effective
income tax rate is as follows:

<TABLE>
<CAPTION>
                                          For The               For The Fourteen
                                        Year Ended                 Days Ended
                                    September 30, 1996          October 14, 1996
                                    ------------------          ----------------
<S>                                 <C>                         <C>
   Federal statutory rate                       35.0%                     35.0%
   Effect of:
       State and local taxes                     8.8                       4.0
       Goodwill amortization                    (9.2)                     (0.5)
       Foreign sales corporation benefit         6.0                       0.0
       Foreign tax expense                     (19.0)                     (1.9)
       Other                                    (2.5)                      0.8
                                              --------                   -------
     Effective Tax Rate                         19.1%                     37.4%
                                              --------                   -------
                                              --------                   -------
</TABLE>

The domestic and foreign components of income (loss) before income taxes are as
follows (in millions):

<TABLE>
<CAPTION>
                                    For The               For The Fourteen
                                   Year Ended                Days Ended
                                September 30, 1996        October 14, 1996
                                ------------------        ----------------
      <S>                       <C>                       <C>
      Domestic                      $(34.3)                    $(7.2)
      Foreign                         14.9                      (1.9)
                                      ----                      ----
      Total                         $(19.4)                    $(9.1)
                                    ------                     -----
                                    ------                     -----
</TABLE>


                                          67
<PAGE>

                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)

Current and noncurrent deferred income tax assets at September 30, 1996 arise
principally from the following (in millions):

<TABLE>
          <S>                                         <C>
          Current:
                Inventory reserves                    $11.7
                Product warranty reserves              10.4
                Self-insurance reserves                 7.2
                Other                                   7.4
                                                      -----
          Total current asset                         $36.7
                                                      -----
                                                      -----


          Noncurrent:
                Notes receivable                      $10.1
                Property and equipment                (17.6)
                Retirement benefits                     4.8
                                                      -----
          Total noncurrent liability                  $(2.7)
                                                      -----
                                                      -----
</TABLE>


RGS has not provided for U.S. income and foreign withholding taxes on
undistributed earnings of its Japanese subsidiary because management intends to
permanently reinvest these earnings.  Undistributed earnings of this subsidiary
were $21.8 million and $22.1 million at October 14, 1996 and September 30, 1996,
respectively, and the associated taxes would be $2.2 million and $2.2 million,
respectively.  Taxes on undistributed earnings of RGS' operations in the U.K.
and France have not been provided as distributions to their respective parent
companies are non-taxable transactions.

11.  PENSION PLANS

Rockwell has pension plans which cover certain RGS employees and provide for
monthly pension payments to eligible U.S. employees upon retirement.  Pension
benefits for U.S. salaried employees are based on years of credited service and
compensation.  Pension benefits for certain U.S. hourly employees are based on
years of service and specified benefit amounts.  U.S. pension assets are
primarily equity securities, U.S. Government obligations and fixed income
investments whose values are subject to fluctuations of the securities market.


                                          68
<PAGE>

                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)

At September 30, 1996 the assets for the entire Rockwell International pension
plan for U.S. employees of $9,961 million exceeded the accumulated benefit
obligation of the plan of $7,941 million.  The accumulated benefit obligations
related to RGS participants in this plan at September 30, 1996 are as follows
(in millions):

<TABLE>
     <S>                                                          <C>
     Accumulated benefit obligation, principally vested:
     Active employees                                             $ 63.9
     Retired and other                                              96.8
                                                                  ------
     Total                                                        $160.7
                                                                  ------
                                                                  ------
</TABLE>

Certain RGS employees in the United Kingdom participate in a pension plan
sponsored by Rockwell.  At September 30, 1996, assets of $11.1 million exceeded
the accumulated benefit obligations of this plan of $9.7 million. The
accumulated benefit obligation related to RGS participants in this plan was $7.4
million  at September 30, 1996. 

The combined statements of operations include $0.1 million and $2.3 million for
the fourteen days ended October 14, 1996 and the year ended September 30, 1996,
respectively, related to RGS' portion of the service cost of active participants
of these pension plans in the U.S. and U.K.  Amounts related to accrued pension
obligations for participants and related assets of these plans are not included
in RGS' combined balance sheets.


                                          69
<PAGE>

                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)

In addition, RGS has stand-alone pension plans covering certain of its employees
in the United Kingdom, Germany and Japan.  Amounts included in the accompanying
combined balance sheet at September 30, 1996 for these stand-alone plans are as
follows (in millions):

<TABLE>
<CAPTION>
                                                 Accumulated        Assets
                                                  Benefits        Exceeding
                                                 Exceeding       Accumulated
                                                   Assets          Benefits
                                                   ------          --------
<S>                                              <C>             <C>
Accumulated benefit obligations,
    principally vested                                  $4.2           $43.6
Effect of salary increases                               1.6             9.0
                                                         ---             ---
Projected benefit obligation                             5.8            52.6
Fair value of plan assets                                1.8            54.7
                                                         ---            ----
Plan assets greater than (less than)
   projected benefit obligation                         (4.0)            2.1
Unamortized amounts:
       Transition                                        ---            (3.4)
       Net actuarial losses                             (0.1)            1.3
       Prior service cost                                0.3             4.1
Prepaid (accrued) pension costs                        $(3.8)           $4.1
                                                       -----            ----
                                                       -----            ----
</TABLE>


Net pension cost for stand-alone RGS plans for non-U.S. employees included in
the accompanying combined statement of operations consist of the following  (in
millions):

<TABLE>
<CAPTION>
                                                     For The            For The Fourteen
                                                   Year Ended             Days Ended
                                                September 30, 1996      October 14, 1996
                                                ------------------      ----------------
<S>                                             <C>                     <C>
Service cost-benefits earned during the year          $2.1                   $0.1
Interest accrued on accumulated benefit                4.4                    0.2
obligation
Expected return on plan assets                        (4.5)                  (0.2)
Prior service cost amortization                        0.4                    0.0
Amortization of net actuarial gains                    0.1                    0.0
Transition asset amortization                         (0.6)                   0.0
                                                      ----                   ----
Net pension cost                                      $1.9                   $0.1
                                                      ----                   ----
                                                      ----                   ----
</TABLE>

                                          70
<PAGE>

                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)

The above pension amounts were determined using a June 30, 1996 measurement date
and the following assumptions:

<TABLE>
<CAPTION>
                                                                1996
                                                                ----
<S>                                                           <C>
Discount rate                                                 4.0%-8.0%
Annual salary increase                                           4.5%
Asset return                                                  4.0%-9.0%
</TABLE>

Rockwell sponsors defined contribution plans covering all U.S. RGS salaried
employees and certain hourly employees.  Employer contributions to these plans,
which were charged to costs and expenses, totaled $0.2 million for the fourteen
days ended October 14, 1996 and $3.7 million for the year ended September 30,
1996 .

12.  RETIREMENT MEDICAL PLANS AND POST EMPLOYMENT BENEFITS

Rockwell has retirement medical plans which cover RGS U.S. employees and provide
for the payment of medical costs of eligible employees and dependents upon
retirement.  Since RGS employees participate in these Rockwell retirement
medical plans, accrued post-retirement benefit obligations for participants in
these plans are not included in RGS' combined balance sheet.  The retirement
medical obligation related to RGS participants in these plans at September 30,
1996 is as follows (in millions):

<TABLE>
<S>                                       <C>
Retirees                                  $34.8
Active employees:
     Eligible to retire                     9.2
     Not eligible                          11.9
                                           ----
Retirement medical obligations            $55.9
                                          -----
                                          -----
</TABLE>

The combined statement of operations include $0.7 million in charges related to
RGS' portion of service cost of active participants of these plans for 1996.

The above retirement medical amounts were computed using a June 30, 1996
measurement date and the following assumptions:

<TABLE>
<CAPTION>
                                                    1996
                                                    ----
             <S>                                    <C>
             Discount rate                          7.75%
             Health care cost trend rate            8.00%
</TABLE>

The health care cost trend rate is assumed to decline to 5.5% after 2015.


                                          71
<PAGE>

                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)

13.  LEASES

RGS leases certain operating assets with various renewal options.  Combined
rental costs were $0.1 million and $3.2 million for the fourteen days ended
October 14, 1996 and for the year ended September 30, 1996, respectively.

Minimum future rental commitments under non-cancelable operating lease
arrangements at September 30, 1996 were (in millions):

<TABLE>
                        <S>                         <C>
                        1997                        $0.3
                        1998                         1.3
                        1999                         1.2
                        2000                         1.1
                        2001                         0.7
                        Thereafter                   0.1
                                                    ----
                        Total                       $4.7
                                                    ----
                                                    ----
</TABLE>


14.  REVOLVING CREDIT FACILITIES

RGS Japan has revolving credit agreements with various banks which permit
borrowings aggregating approximately $26.0 million at September 30, 1996. 
Borrowings under the credit facilities bear interest at the Japan prime rate
which was 1.625% at September 30, 1996.  The credit facilities generally do not
contain expiration dates.  Borrowings under three of the credit facilities
totaling approximately $23.3 million are guaranteed by Rockwell. As of
September 30, 1996, borrowings under all credit facilities totaled $13.3
million.

During the period ended September 30, 1996, Rockwell Systemes Graphiques Nantes
S.A. (RGS' business in France) entered into credit facilities with two banks
which permit borrowings up to $30.5 million bearing interest with rates ranging
from the Paris Interbank Rate plus .25% to 4.00%.  Borrowings under the credit
facilities are guaranteed by Rockwell.  As of September 30, 1996, borrowings
under the credit facilities totaled $25.9 million.
     
15. RESEARCH AND DEVELOPMENT

Research and development costs were $0.9 million and $22.2 million for the
fourteen days ended October 14, 1996 and for the year ended September 30, 1996,
respectively, and are expensed as incurred.


                                          72
<PAGE>

                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)

16.  RELATED PARTY TRANSACTIONS

RGS purchases drive systems, press controls and related products from
Allen-Bradley, a subsidiary of Rockwell.  Such purchases totaled $27.5 million
in 1996.  There were no material purchases for the fourteen days ended
October 14, 1996.

A summary of changes in Rockwell's net investment in RGS for the year ended
September 30, 1996 is as follows (in millions):

<TABLE>
<S>                                                 <C>
Balance at the beginning of year                    $543.1

Net loss                                             (15.7)

Currency translation and other                        (8.5)

Allocation of common expenses from Rockwell            8.5

Non-cash intercompany purchases                       27.5

Net transfers to Rockwell                            (97.8)
                                                    ------

Balance at end of year                              $457.1
                                                    ------
                                                    ------
</TABLE>


17.  GEOGRAPHIC AND EXPORT SALES INFORMATION

The following table presents information about RGS by geographic area (in
millions):

<TABLE>
<CAPTION>
                                                Period                                     Asia
                                                 Ended          U.S.         Europe      Pacific     Eliminations     Total
                                                 -----          ----         ------      -------     ------------     -----
<S>                                           <C>               <C>          <C>         <C>         <C>              <C>
Net sales to customers                        10/14/96            $3.7          $0.8        $0.1             $---      $4.6
                                              09/30/96           406.7         206.7        84.8              ---     698.2
-----------------------------------------------------------------------------------------------------------------------------
Transfers between geographic locations        10/14/96             ---           0.1         ---             (0.1)      ---
                                              09/30/96            13.6          27.3         ---            (40.9)      ---
-----------------------------------------------------------------------------------------------------------------------------
Operating profit (loss)                       10/14/96            (8.0)         (1.3)       (0.3)             ---      (9.6)
                                              09/30/96           (24.1)         (4.5)        1.6              ---     (27.0)
-----------------------------------------------------------------------------------------------------------------------------
Net identifiable assets                       09/30/96           451.4         272.5        92.1              ---     816.0
</TABLE>

                                          73
<PAGE>

                      ROCKWELL GRAPHIC SYSTEMS
           NOTES TO COMBINED FINANCIAL STATEMENTS-(CONTINUED)

Transfers between geographic areas are recorded at amounts generally in excess
of cost.  The resultant income is assigned to the geographic area of
manufacture.  In computing operating profit, interest income and expense, other
income and expense and income taxes have not been added or deducted.

Export sales from the U.S. were $0.6 million, or 13% and $182.6 million, or 26%
of the Company's net sales for the fourteen days ended October 14, 1996 and the
year ended September 30, 1996, respectively.  These sales were principally to
customers in South America.


18.  CONTINGENCIES AND COMMITMENTS

LEGAL CONTINGENCIES

In November 1995, the U.S. District Court for the Southern District of New York
issued a judgment relating to a patent infringement matter that RGS is liable
for damages and interest which management estimates to total approximately $17.0
million. At November 3, 1995, the date as of which it issued its 1995 financial
statements, it was management's estimate that the minimum probable liability was
$3.0 million and this amount was recorded in the combined statement of
operations.  Subsequent to November 3, 1995, management revised its estimate of
the minimum probable liability and recorded an additional $1.0 million of
expense during the year ended September 30, 1996.  Pursuant to the Acquisition
(see note 20), Rockwell has agreed to indemnify RGS for any damages that may be
determined to be payable in such action and to treat such as a retained
liability.  The matter was settled in December 1996 by a payment by Rockwell to
the plaintiff.

In the normal course of business, various lawsuits and claims are initiated
against RGS related to sales contracts. One of these matters is a lawsuit
brought by Daily News, LP alleging fraud, negligent misrepresentations, breach
of contract, and bad faith in connection with the Daily News' 1994 purchase of
Goss Newsliner printing presses.  Daily News seeks compensatory and punitive
damages in an unspecified amount.  The Company believes the suit is spurious and
meritless and is vigorously defending this matter.  Other such claims included a
lawsuit filed by a commercial press customer in February, 1996 seeking
unspecified damages, and an arbitration proceeding initiated by another
commercial press customer in June, 1996 seeking refunds and damages totaling
$3.8 million. The Company and the customers have entered into settlement
agreements with respect to these matters.  The Company maintains as accrued
liabilities reserves that are its present estimate of the total cost to fulfill
its obligations under these settlement agreements.


                                          74
<PAGE>


As part of an asset purchase agreement with an acquirer of certain assets of the
RGS business in 1988, the acquirer agreed to defend and indemnify RGS for
certain product liability claims.  The acquirer has initiated informal
meditation proceedings against RGS and Rockwell alleging that certain
information was recently received from RGS that materially increased the
acquirer's risk for defending and indemnifying against the product liability
claims.  The acquirer is seeking to prospectively discharge its obligations for
such defense and indemnity.  As part of these proceedings, the acquirer also
refused to indemnify RGS in three pending product liability claims which
collectively are estimated to represent an exposure to RGS of approximately $1.0
million.  While the ultimate resolution of these proceedings cannot presently be
determined, management intends to vigorously defend against these matters and
believes that their ultimate resolution will not have a material adverse effect
on RGS' financial position, results of operations or liquidity.

RGS has pending against it or may be subject to various lawsuits, claims and
proceedings related primarily to employment, commercial (including press
performance issues) and safety and health matters. Although it is not presently
possible to determine the outcome of these matters, management believes their
ultimate disposition will not have a material adverse effect on RGS' financial
position or liquidity, although it is possible that the resolution of such
lawsuits, claims and proceedings could be material to the results of operations
in a given period.

ENVIRONMENTAL CONTINGENCIES

RGS has received either notices of potential liability or third-party claims
under the federal Comprehensive Environmental Response, Compensation and
Liability Act at six off-site disposal facilities (Superfund Sites). RGS has
entered into settlement agreements with the Environmental Protection Agency
(EPA) at two of these sites and a settlement proposal is pending at a third
site, none of which is material to the financial statements either individually
or collectively. With respect to the fourth site, at which RGS has been named a
potentially responsible party (PRP), its share of the clean up costs are
estimated to approximate $200,000 of the potential estimated cost for final site
remediation of $10.0 million. At the fifth and sixth sites, RGS has been
implicated as a PRP. However, RGS believes its involvement, if any, is not
significant. Although current law imposes joint and several liability on any
party determined to be responsible at a Superfund Site, management believes,
based upon all available information, that the ultimate resolution of these
matters will not have a material adverse effect on RGS' financial position,
results of operations or liquidity.

RGS' Reading, Pennsylvania facility has been operating a groundwater remediation
system under a 1981 Consent Order with the Commonwealth of Pennsylvania as a
result of its, and its predecessor company's, historical waste disposal
practices. Recent data indicate that certain hazardous constituents in the
groundwater have decreased over time, while the data on other constituents is
inconclusive. Goss plans to submit a proposal to the Pennsylvania Department of
Environmental Resources to terminate remediation at the site pursuant to recent
statutory


                                          75
<PAGE>

authority to determine cleanup limits consistent with the results of a
site-specific risk assessment. Management has been advised that, given the site
location and aquifer use, the proposal is technically appropriate and may result
in the termination of groundwater remediation at this site. Management believes
that any liability with respect to either continuing groundwater remediation or
conducting a site-specific risk assessment in order to complete such remediation
will not have a material adverse effect on RGS' financial position, results of
operation or liquidity.

COMMITMENTS

Rockwell provides letters of credit to guarantee the performance of RGS under
certain long-term contracts. Such letters of credit outstanding were $0.9
million as of September 30, 1996. The fair value of these letters of credit is
estimated to approximate their contractual amounts.

19.  SUPPLEMENTAL CASH FLOW INFORMATION (IN MILLIONS)

<TABLE>
<CAPTION>

                                 1996
                                 ----
<S>                            <C>
Income tax payments (Japan)    $  1.0

Interest payments (non-U.S.)      1.1

Non-cash investment in
joint venture                     5.0
</TABLE>

20.   ACQUISITION OF ROCKWELL GRAPHIC SYSTEMS

On October 14, 1996, Goss Graphic Systems, Inc., (the "Company") a Delaware
corporation organized by Stonington Partners, Inc., on behalf of Stonington
Capital Appreciation 1994 Fund L.P. (the "Fund")  acquired RGS from Rockwell
(the "Acquisition").  The Acquisition was effected through the purchase by the
Company of all the outstanding stock of Rockwell Graphic Systems, Inc., a
Delaware corporation ("Goss Delaware") and Rockwell Systemes Graphiques Nantes,
a societe anonyme organized under the laws of the Republic of France ("Goss
France"), and through the purchase by the Company and certain wholly owned
foreign subsidiaries of the assets and the assumption of liabilities which
constitute the remainder of RGS.  Immediately after the Acquisition, the Company
merged with and into Goss Delaware.  The purchase price for the Acquisition was
$601.8 million which consisted of $525.9 million in cash, subject to certain
adjustments, and 47,500 shares of preferred stock, $1,000 liquidation preference
per share, issued by GGS Holdings, Inc., ("Holdings") which directly owns all of
the capital stock of the Company, and approximately $28.4 million of transaction
and acquisition costs.  The purchase price was subject to a post closing
adjustment based upon the computation of certain working capital amounts.  This
adjustment totaled $7.8 million and is in addition to the $525.9 million
mentioned above.  The Acquisition has been accounted for under the purchase
method of accounting.


                                          76
<PAGE>

Simultaneous with the closing of the Acquisition, Holdings raised $116.5 million
of equity financing, comprised of $111.5 million in cash from the sale of common
stock of Holdings to the Fund, $1.0 million in cash from the sale of Holdings
common stock to an affiliate of a limited partner of the Fund, and $4.0 million
in cash from the sale of common stock to certain members of the Company's
management (the "Management Placement").  Holdings financed $2.0 million of the
Management Placement.  The balance of the funds needed to consummate the
Acquisition and to pay related fees and expenses came from:  $225 million in
proceeds from the Company's issuance of 12% Senior Subordinated Notes due 2006;
$137.1 million in proceeds from the sale of a portfolio of notes receivable
issued in connection with customer financing provided by RGS to purchasers of
its products; and $75.3 million in borrowings under a new credit agreement
between Goss Delaware, Bankers Trust Company and certain other lenders.


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

No disclosure is required pursuant to this Item.


                                          77
<PAGE>

                                      PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information concerning the directors of Goss:

<TABLE>
<CAPTION>

     NAME                     AGE    PERIOD SERVED/TERM*
     ----                     ---    -------------------
     <S>                      <C>    <C>
     J. Joe Adorjan           60     October 15, 1996 to Present

     Alfred C. Daugherty      75     October 15, 1996 to Present

     Robert F. End            43     October 15, 1996 to Present

     Joseph P. Gaynor, III    55     October 29, 1998 to Present

     James J. Kerley          75     October 15, 1996 to Present

     Robert M. Kuhn           56     October 15, 1996 to Present

     Alexis P. Michas         40     October 15, 1996 to Present

     Robert J. Mylod, Jr.     31     October 15, 1996 to Present

     James P. Sheehan         56     October 15, 1996 to Present
</TABLE>


* Each director is elected for a one-year term.

J. JOE ADORJAN has served as Chairman of the Board, Chief Executive Officer and
President of Borg Warner Security Corporation, a supplier of guard, alarm,
armored transport, courier and other protective services, since January 1996,
October 1995 and April 1995, respectively.  Prior thereto he was President of
Emerson Electric Co., a manufacturer of electronic, electrical and other
products, from 1992 to 1995.  Mr. Adorjan is also a Director of The Earthgrains
Company, ESCO Electronics Corporation, Illinova Corporation and Loomis, Fargo &
Co.

ALFRED C. DAUGHERTY was Chairman of Duracell International Inc., a manufacturer
of premium batteries, until his retirement January 1, 1995.  Mr. Daugherty was
Executive Vice President of Dart Industries Inc., a maker of consumer products
and chemical specialties, as well as a Director until his retirement on October
1, 1993.  Mr. Daugherty is also a Director of Blue Bird Corporation and A. Duda
& Sons, Inc.


                                          78
<PAGE>

ROBERT F. END has been a Partner and Director of Stonington since 1993.  He has
also been a Consultant of Merrill Lynch Capital Partners, Inc., a private
investment firm associated with Merrill Lynch & Co., since 1994; a Director of
MLCP since 1993; a Partner of MLCP from 1993 to 1994; and Vice President of MLCP
from 1989 to 1993.  Mr. End was also a Managing Director of the Investment
Banking Division of Merrill Lynch & Co. from 1993 to July 1994 and a Director of
the Investment Banking Division of Merrill Lynch & Co. from 1990 to 1993.  Mr.
End is also a Director of Packard BioScience Company and United Artists Theatre
Circuit, Inc.

JOSEPH P. GAYNOR, III has served as Executive Vice President Administration,
Chief Financial Officer and Treasurer since November 1998 and as Executive Vice
President, Chief Financial Officer and Treasurer since August 1998.  Prior
thereto he served as Managing Director of Shattuck Hammond, an investment
banking unit of PricewaterhouseCoopers Securities, L.L.C. from 1997 to August
1998. Mr. Gaynor also served as the Executive Vice President and Chief Financial
Officer of Primary Health Systems, Inc. From 1995 to 1996 and as Chief Financial
Officer of the Chicago Sun Times Company from 1990 to 1994.

JAMES J. KERLEY served as non-executive Chairman of Rohr, Inc., a manufacturer
of jet engine and other components for aircraft, from 1993 to 1994.  Prior
thereto he served as Vice Chairman and Chief Financial Officer of Emerson
Electric Co., a manufacturer of electrical products and systems for consumer,
commercial, industrial and defense markets.  Mr. Kerley is also a Director of
Borg-Warner Automotive, Inc. and DT Industries, Inc.

ROBERT M. KUHN has served as President and Chief Executive Officer since
November 1998. Prior thereto Mr. Kuhn served as Chairman of the Board and Chief
Executive Officer of Goss since October 1996 and as President since October
1995.  Prior thereto he served as Senior Vice President, Business Development of
United Technologies Corporation and President of Hamilton Standard, the
aerospace subsidiary of United Technologies since 1991.

ALEXIS P. MICHAS has been the Managing Partner and a Director of Stonington
since 1993 and the Managing Partner and a Director of Stonington II since 1994.
He has also been a Director of Merrill Lynch Capital Partners, Inc. since 1989,
a Partner of MLCP from 1993 to 1994 and Senior Vice President of MLCP from 1989
to 1993.  Mr. Michas was also a Managing Director of the Investment Banking
Division of Merrill Lynch & Co. from 1991 to July 1994.  Mr. Michas is also a
Director of Blue Bird Corporation, Borg-Warner Automotive, Inc., Borg-Warner
Security Corporation, Dictaphone Corporation and Packard BioScience Company.

ROBERT J. MYLOD, JR. has been a Principal of Stonington since January 1996 and
an Associate of Stonington from 1993 to 1995.  He has been a Consultant to
Merrill Lynch Capital Partners, Inc. since 1994, an Associate of MLCP from 1993
to 1994 and an Analyst of MLCP from 1989 to 1992.  Mr. Mylod was an Associate of
the Investment Banking Division of Merrill Lynch, Pierce, Fenner & Smith
Incorporate from 1993 to 1994.


JAMES P. SHEEHAN has served as Chairman of the Board since November 1998.  Mr.


                                          79
<PAGE>

Sheehan has been self-employed as a private investor since January 1994.   Prior
thereto he served as President and Chief Operating Officer of A.H. Belo Corp., a
media company that publishes newspapers and televises programs through owned
stations.

The following table sets forth information concerning the executive officers of
Goss in addition to Messrs.  Kuhn and Gaynor, who are listed above:





<TABLE>
<CAPTION>

     NAME                       AGE     POSITION/TERM*
     ----                       ---     -------------
     <S>                        <C>     <C>

     Alex G. Brnilovich, Jr.    47      Executive Vice President,
                                        North America

     Frank D. Jurenka           61      Vice President, US Operations

     Jack E. Merryman           51      Senior Vice President, General
                                        Counsel and Secretary

     Alan P. Sheng              54      Senior Vice President, Global
                                        Technology and Development

     Richard J. Sutis           55      Executive Vice President, Asia
                                        Pacific

     Randall Thomas             49      Executive Vice President and
                                        General Manager, Europe
</TABLE>


* Officers are elected annually by the Board of Directors and can be removed at
any time.


ALEX G. BRNILOVICH, JR. has served as Executive Vice President, Americas since
November 1998 and as Senior Vice President, North America from October to
November 1998. Prior thereto, Mr. Brnilovich served as President of Asea Brown
Boveri (ABB) Power Generation, Inc. From 1996 to 1998; President of ABB Turbine
Services from 1993 to 1996; and President of ABB Utilities Steam Turbine from
1991 to 1993.

FRANK D. JURENKA has serviced as Vice President Operations since 1993.

JACK E. MERRYMAN has served as Senior Vice President, General Counsel and
Secretary since 1998 and as Vice President, General Counsel and Secretary since
1996.  Prior thereto Mr. Merryman served as General Counsel and Secretary for
Reliance Electric Company, a subsidiary of Rockwell which makes industrial
motors and drive systems, since 1995; as Assistant General


                                          80
<PAGE>

Counsel & Assistant Secretary from 1993 to 1995; and as Senior Counsel from 1987
to 1993.

ALAN P. SHENG has served as Senior Vice President, Global Technology and
Development since 1998 and as Vice President, Global Technology and Development
since 1992.

RICHARD J. SUTIS has served as Executive Vice President, Asia Pacific since 1998
and as Vice President, Asia Pacific since 1996.  From 1994 to 1996 Mr. Sutis
served as Vice President, Business Development and Strategy for Stevens
International, Inc., a manufacturer and marketer of complete web fed printing
and packaging systems.  Prior thereto Mr. Sutis served as Goss's  Director,
Program Management from 1991 to August 1994.

RANDALL THOMAS has served as Executive Vice President & General Manager, Europe
since 1998 and as Vice President & General Manager, Europe since 1992.


                                          81
<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION

The following table set forth the cash compensation paid by Goss during fiscal
1998 and 1997 and by Rockwell Graphic Systems, Inc. and or Rockwell
International Corporation during fiscal 1996 to (i) Goss's Chief Executive
Officer, and (ii) each of Goss's four most highly compensated executive officers
other than the CEO who were serving at September 30, 1998:




                             SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>



                                                                                       OTHER ANNUAL
 NAME AND PRINCIPAL POSITION                 YEAR          SALARY         BONUS(1)     COMPENSATION        ALL OTHER COMPENSATION
 ---------------------------                 ----          ------         -----        ------------        ----------------------
                                                            ($)            ($)              ($)                      ($)
 <S>                                         <C>          <C>            <C>           <C>                 <C>

 Frank D. Jurenka                            1998         183,000          -0-            5,026(8)                25,790(2)
                                             1997         177,420         77,821            (3)                      (3)
                                             1996         174,033         83,500            (3)                      (3)

 Robert M. Kuhn                              1998         577,500          -0-              (3)                  $143,965(4)
 President & Chief Executive Officer         1997         554,600        545,738            (3)                   200,004(5)
                                             1996         400,000          -0-              (3)                   135,587(6)
                                                             -              -

                                                                                          5,843(8)
 Jack E. Merryman                            1998         180,000          -0-              (3)                      (3)
 Senior Vice President, General Counsel      1997         163,300        110,565            (3)                      (3)
 & Secretary                                 1996         131,668         35,000(7)         (3)                      (3)

 Richard J. Sutis                            1998         175,000          -0-            5,651(8)                   (3)
 Executive Vice President, Asia Pacific      1997         152,496        100,053            (3)                      (3)
                                              -              -              -               (3)                      (3)

 Randall Thomas                              1998         222,772          -0-              (3)                      (3)
 Executive Vice President  General           1997         200,093        133,275            (3)                      (3)
 Manager, Europe                             1996         180,400         92,400            (3)                      (3)
</TABLE>



(1)  Bonus amounts do not include retention and sale of business bonuses in the
     aggregate amount of $1,803,000 paid by Rockwell International Corporation
     to eleven officers subsequent to their cessation of employment by Rockwell.
(2)  Includes $12,657 for company car, $11,033 for club dues and $2,100 for
     financial planning.


                                          82
<PAGE>

(3)  No disclosure required.
(4)  Includes $15,134 for company car, $2,698 for club dues, $1,497 for
     financial planning, $50,332 for long-term disability insurance and $74,304
     for personal transportation costs.
(5)  Includes $15,078 for company car, $2,252 for club dues, $2,139 for
     financial planning, $53,619 for long-term disability insurance, $44,700 for
     personal transportation costs and a $82,216 lump-sum relocation payment.
(6)  Includes $13,014 for company car, $8,589 for club membership fee and dues,
     $53,619 for long-term disability insurance, and $60,365 in personal
     transportation costs.
(7)  In addition to this amount, Mr. Merryman received a signing bonus of
     $63,670 when he joined Goss in June 1996.
(8)  Amounts are for retiree savings plans.

Goss has not granted any stock options, stock appreciation rights or shares of
restricted stock. Key members of management, including the executive officers
named above, have been granted incentive and performance stock options, and
independent directors have been awarded shares of restricted stock of, GGS
Holdings Inc., Goss's sole common shareholder, pursuant to a Management Stock
Incentive Plan as summarized by the following table:


                                          83
<PAGE>

                    GGS HOLDINGS INC. STOCK INCENTIVE PLAN TABLE

<TABLE>
<CAPTION>



                                                 INCENTIVE     PERFORMANCE        SHARES OF
 NAME AND PRINCIPAL POSITION                      OPTIONS*       OPTIONS*      RESTRICTED STOCK
 ---------------------------                      -------        -------       ----------------
 <S>                                             <C>           <C>             <C>
 Joseph P. Gaynor, III                             4,000          4,000              -0-
 Executive Vice President Administration,
 Chief Financial Officer & Treasurer

 Frank D. Jurenka                                   750            750               -0-
 Vice President, US Operations

 Robert M. Kuhn                                   13,000         13,000              -0-
 President & Chief Executive Officer

 Jack E. Merryman                                  3,000          3,000              -0-
 Senior Vice President, General Counsel
 & Secretary

 Richard J. Sutis
 Executive Vice President, Asia Pacific            1,500          1,500              -0-

 Randall Thomas                                    3,250          3,250              -0-
 Executive Vice President & General Manager,
 Europe

 J. Joe Adorjan                                     -0-            -0-              1,875
 Director

 Alfred C. Daugherty                                -0-            -0-              1,875
 Director

 James J. Kerley                                    -0-            -0-              1,875
 Director

 James P. Sheenan                                   -0-            -0-              1,875
 Director

 All others  as a group                           10,850         10,850              -0-
</TABLE>



* Dollar value of all incentive and performance options is $42.92 to $48.09.  
See footnote 20 to 1998 financial statements.

                                          84
<PAGE>

The options vest and become exercisable ratably over a five year term provided
(i) the participant continues to be employed by GGS Holdings or a subsidiary in
the case of incentive options and (ii) certain predetermined financial
performance goals are met in the case of performance options.  To date no
options have been exercised.  Restrictions on 20% of the restricted stock lapsed
at the closing of the acquisition; the remaining restrictions will lapse ratably
over four years.

PENSION PLANS

Goss does not maintain a pension or defined benefit plan for its domestic
non-union employees.  Prior to the acquisition, Mr. Merryman participated in the
Rockwell Retirement Income Plan for Salaried Employees. Rockwell is solely
responsible for, and has retained full power and authority with respect to the
amendment and termination of, the plan.  The estimated annual benefit at age 62
under the Rockwell retirement plan for Mr. Merryman is $23,627.

Goss assumed and adopted the Rockwell PMCX Pension Scheme for its U.K. employees
in connection with the acquisition.  Mr. Thomas participates in the renamed Goss
Graphic Systems, Inc. United Kingdom Executive Pension Plan, which is contracted
out of the earnings related portion of the state earnings related pension scheme
(SERPS).  Participants in the Plan pay reduced national insurance contributions
with the Company making up the difference.

The benefit formula under the Plan is calculated as follows: 1/30th multiplied
by the participant's final pensionable salary (the average of the previous 12
months basic annual salary) multiplied by pensionable service (years and months
of continuous service from the date of entry into the Plan) minus an amount
equivalent to the SERPS benefit accrued in respect to any pensionable service
during which the participant was not contracted out of the SERPS.  The overall
maximum pension to which a participant is entitled under the Plan is 2/3rds of
final pensionable salary minus the SERPS benefit to which the participant is
entitled.  Participants who retire on or after age 55 but before the normal
retirement age of 60 receive a "reserved pension" which is generally reduced 3%
for each year of early retirement.

At September 30, 1998, Mr. Thomas' estimated annual benefit at age 60 under the
Plan was $147,123.

COMPENSATION OF DIRECTORS

Goss's independent directors receive $1,500 per board meeting and $750 per
committee meeting attended with the exception of the committee chairman who
receives $1,000 per committee meeting attended.  Mr. Sheehan is not compensated
by Goss for his services as Chairman of the Board.  All board members are
reimbursed their travel and other expenses in connection with meeting
attendance.


                                          85
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

All of Goss's common stock is owned by GGS Holdings Inc.  The common stock of
GGS Holdings Inc. is held by Stonington and certain of its affiliates, Merrill
Lynch KECALP, the directors and certain members of management of Goss.  (SEE
Item 11 above.)

Goss does not have any outstanding preferred stock.  However, GGS Holdings has
preferred stock outstanding that is held by Rockwell International Corporation.
The terms of the preferred stock entitle Rockwell to elect two directors of GGS
Holdings in certain events.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Goss purchases drive systems, press controls and related products from
Allen-Bradley, a subsidiary of Rockwell.  These purchases totaled $18.6 million
in fiscal 1998.  Also, in connection with the acquisition Rockwell agreed to
provide Goss certain support services for which Goss paid Rockwell $3.7 million
in fiscal 1998.

                                      PART IV

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

(a)  Documents filed as part of this Annual Report on Form 10-K.

     1.   Financial Statements

               -    Consolidated Balance Sheets as of September 30, 1998 and
                    September 30, 1997, and Consolidated Statements of
                    Operations, and Cash Flows for the year ended September 30,
                    1998 and the period ended September 30, 1997 for Goss.

               -    Combined Statements of Operations and Cash Flows for the
                    fourteen days ended October 14, 1996 and for the year ended
                    September 30, 1996 for Rockwell Graphic Systems, Inc.

     2.   Financial Schedules

                    None


                                          86
<PAGE>




3. Exhibits

<TABLE>

          <S>  <C>                                                                 <C>
          2.1  Stock and Asset Purchase Agreement dated as of April 26, 1996,
               between Rockwell International Corporation and Goss and Amendment
               to Stock and Asset Purchase Agreement dated as of July 18, 1996,
               between Rockwell International Corporation and Goss                   *

          3.1  Certificate of Incorporation of Goss                                  *

          3.2  By-Laws of Goss                                                       *

          4.1  Form of Indenture between Goss and The Bank of New York, Trustee
               relating to the 12% Senior Subordinated Notes due 2006                *

          4.2  Credit Agreement among Goss and the parties named therein, as
               amended in 1998                                                    **/***

          4.3  Form of Certificate of Designation of the 61/2% Redeemable
               Pay-in-Kind Preferred Stock of GGS Holdings, Inc.                     *

          4.4  Mortgage Note and Mortgage between Goss Realty, L.L.C. and
               LaSalle National Bank relating to Westmont, Illinois facility.        **

          4.5  Loan Agreements and related mortgage documents (summary English
               translations) between Goss Graphic Systems Japan and Sanwa Bank
               and Goss Graphic Systems Japan and Industrial Bank of Japan
               relating to Sayama, Japan facility                                    **

          10.1 Form of Subscription Agreement for the Management Placement****       *

          10.2 Form of Subscription Agreement for Stonington Investment              *

          10.3 Form of Subscription Agreement for Equity Private Placement           *

          10.4 Form of Stockholders Agreement                                        *


                                       87
<PAGE>

          10.5 Employment Agreement dated as of September 26, 1996, between Goss
               and Robert M. Kuhn****                                                *

          10.6 Form of Management Stock Incentive Plan****                           *

          10.7 Form of Incentive Option Agreement****                                *

          10.8 Form of Performance Option Agreement****                              *

          10.9 Form of Restricted Stock Agreement****                                *

          10.10 Principal terms of employment for Joseph P. Gaynor, III****         ***

          21.1 List of subsidiaries of Goss                                       *****

          27.1 Financial Data Schedule     
</TABLE>


*      Incorporated by reference to the exhibits to the Registration Statement
       of Goss as filed with the Securities and Exchange Commission, File No.
       333-08421.

**     Incorporated by reference to the exhibits to the Form 8-K of Goss as
       filed with the Securities and Exchange Commission on February 12, 1999.

***    Filed herewith.

****   Management contract or compensatory plan or arrangement.

*****  Incorporated by reference to the exhibits to the Form 10-K Goss filed
       with the Securities and Exchange Commission with respect to its fiscal
       year ended September 30, 1997.

(b)    Reports on Form 8-K.

       Goss did not file any reports on Form 8-K during the fourth quarter of
       fiscal 1998.

(c)    Exhibits.

       See the exhibit list included as part of paragraph (a) (3) above.

(d)    Financial Statement Schedules.

       None.


                                          88
<PAGE>


                                     SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereto duly authorized on January 11, 1999.
                              GOSS GRAPHIC SYSTEMS, INC.

                              By:  /s/ Robert M. Kuhn
                                   -----------------------
                                   Robert M. Kuhn, President and Chief Executive
                                   Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed on January 11, 1999, by the following persons on behalf of the
Registrant and in the capacities indicated.

          NAME                               TITLE
          ----                               -----

/s/ Robert M. Kuhn
------------------------------
Robert M. Kuhn                     President and Chief Executive Officer
                                   (Principal Executive Officer)
/s/ Joseph P. Gaynor, III
------------------------------
Joseph P. Gaynor, III              Executive Vice President and Chief Financial
                                   Officer (Principal Financial Officer and
                                   Principal Accounting Officer)

/s/ J. Joe Adorjan
------------------------------
J. Joe Adorjan                     Director

/s/ Alfred C. Daugherty
------------------------------
Alfred C. Daugherty                Director

/s/ Robert F. End
------------------------------
Robert F. End                      Director

/s/ James J. Kerley
------------------------------
James J. Kerley                    Director

/s/ Alexis P. Michas
------------------------------
Alexis P. Michas                   Director

/s/ Robert J. Mylod, Jr.
------------------------------
Robert J. Mylod, Jr.               Director

/s/ James P. Sheehan
------------------------------
James P. Sheehan                   Director


                                          89