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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

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|(Mark One)                                               |                                                                                         
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                        | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended March 31, 2003                
|or                                                      
|o                                                        | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                        to

Commission file number 33-97090

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

|Delaware(State or other jurisdiction of incorporation or organization)              |  | 62-1395968(I.R.S. employer identification number)
|----------------------------------------------------------------------------------- |  | -------------------------------------------------
|                                                                                    |  |                                                  
|100 Winners Circle, Brentwood, Tennessee(address of principal executive offices)    |  | 37027(Zip Code)                                  
|                                                                                    |  |                                                  
|Registrants telephone number including area code                                    |  | (615) 377-0377                                   
|AMERICAN COLOR GRAPHICS, INC.(Exact name of registrant as specified in its charter)
|                                                                                    |  |                                                  
|New York(State or other jurisdiction of incorporation or organization)              |  | 16-1003976(I.R.S. employer identification number)
|                                                                                    |  |                                                  
|100 Winners Circle, Brentwood, Tennessee(address of principal executive offices)    |  | 37027(Zip Code)                                  
|                                                                                    |  |                                                  
|Registrants telephone number including area code                                    |  | (615) 377-0377                                   

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    ý

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

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

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

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DOCUMENTS INCORPORATED BY REFERENCE
None

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INDEX

|         |  |                                                                                                |  | Page
Referenced
Form 10-K
|-------- |  | ---------------------------------------------------------------------------------------------- |  | -------------------------
|PART I  
|Item 1.  |  | Business                                                                                       |  | 1                        
|Item 2.  |  | Properties                                                                                     |  | 10                       
|Item 3.  |  | Legal Proceedings                                                                              |  | 10                       
|Item 4.  |  | Submission of Matters to A Vote of Security Holders                                            |  | 11                       
|PART II 
|Item 5.  |  | Market for Registrant's Common Equity and Related Stockholder Matters                          |  | 12                       
|Item 6.  |  | Selected Financial Data                                                                        |  | 12                       
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations          |  | 16                       
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 33                       
|Item 8.  |  | Financial Statements and Supplementary Data                                                    |  | 34                       
|Item 9.  |  | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure           |  | 64                       
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                             |  | 64                       
|Item 11. |  | Executive Compensation                                                                         |  | 66                       
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 71                       
|Item 13. |  | Certain Relationships and Related Transactions                                                 |  | 72                       
|PART IV 
|Item 14. |  | Controls and Procedures                                                                        |  | 73                       
|Item 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 73                       
|         |  | Signatures                                                                                     |  | 83                       
|         |  | Certifications                                                                                 |  | 84                       

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PART I

Special Note Regarding Forward Looking Statements

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



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

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

ITEM 1. BUSINESS

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

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

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

Industry Overview

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

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

GRAPHIC

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

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

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

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

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

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

Competitive Strengths

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

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

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

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

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

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

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

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

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

Our Strategy

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

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

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

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

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

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

Financial Information About Industry Segments

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

Print Segment

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

Advertising Inserts.Retail advertising inserts accounted for 87% of print sales in Fiscal Years 2003 and 2002 and 86% of
print sales in Fiscal Year 2001. We believe that we are one of the largest printers of retail advertising inserts in the United States. We print retail advertising inserts for approximately 245
retailers throughout the United States. Advertising inserts are preprinted advertisements, generally in color, that display products sold by a particular retailer or manufacturer, usually for a
specific sale period. Advertising inserts are used extensively by many different retailers, including discount, department, supermarket, home center, drug and automotive stores. Inserts are an
important and cost effective means of advertising for these merchants. Advertising inserts are primarily distributed through insertion in newspapers, but are also distributed by direct mail or
in-store by retailers. As a result, advertising inserts are both time sensitive and seasonal.

Comics.Comics accounted for 7% of print sales in Fiscal Years 2003 and 2002 and 8% of print sales in Fiscal Year 2001. We
believe that we are one of the largest printers of comics in the United States. Comics consist of newspaper Sunday comics, comic insert advertising and comic books. We print Sunday comics for
approximately 185 newspapers in the United States and Canada and print a significant share of the annual comic book requirements of Marvel Entertainment Group, Inc.

Other Publications.Other publications, including local newspapers, TV guide listings and other publications, accounted for
6% of print sales in Fiscal Years 2003, 2002 and 2001.

Print Production.Our network of nine print plants in the United States and Canada is strategically well positioned to
service our customers, providing us with distribution efficiencies and shorter turnaround times, two factors that we believe will allow our continuing success in servicing large national and regional
accounts. There are primarily three printing processes used to produce advertising inserts and newspaper supplements: offset lithography (heatset and cold), rotogravure and

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flexography.
We principally use heatset offset and flexographic web printing equipment in our print operations. Our printing equipment currently consists of 48 heatset offset presses, two coldset
offset presses and 11 flexographic presses, 55 of which we own. Most of our advertising inserts, publications and comic books are printed using the offset process, while substantially all of our
newspaper Sunday comics and comic advertising inserts are printed using the flexographic process.

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

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

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

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

Premedia Services Segment

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

We
assist customers in the capture, manipulation, transmission and distribution of images. The majority of this work leads to the production of a four-color image in a format
appropriate for use by printers as well as other forms of media. We make page changes, including type changes, and combine digital page layout information with electronically captured and
color-corrected four-color images. From these digital files, proofs, final corrections, and finally, four-color films or digital files are produced for each page. The final
four-color films or digital files enable printers to prepare plates for each color resulting in the appearance of full color on the printed page generated. Our revenue from these
traditional services is being supplemented by additional revenue sources including digital asset management, managed services, computer-to-plate services, creative services,
conventional and digital photography, consulting and training services, multimedia and internet services, and software and data-base management. We have been a leader in implementing these
new technologies, which enables us to reduce unit costs and effectively service the increasingly complex demands of our customers more quickly than many of our competitors. We have also been one of
the leaders in the integration of electronic page make-up, desktop computer-based design and layout, and digital cameras into premedia production. For example, we recently began offering
our ColorSpace suite of services, which provides our customers with better control of color, increased process control, shorter time to market and lower production costs.

Customers and Distribution

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

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

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

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

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

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

Sales and Marketing

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

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

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

Competition

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

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

Raw Materials

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

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

Seasonality

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

Backlog

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

Our Employees

As of April 30, 2003, we had a total of approximately 2,465 employees. Approximately 224 employees are represented by a collective bargaining agreement
that will expire on December 31, 2004. We consider our relations with our employees to be excellent.

Governmental and Environmental Regulations

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

ITEM 2. PROPERTIES

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

ITEM 3. LEGAL PROCEEDINGS

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

10

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Environmental Matters

Graphics, together with over 300 other persons, has been designated by the U.S. Environmental Protection Agency as a potentially responsible party (a "PRP") under
the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA," also known as "Superfund") at one Superfund site. Although liability under CERCLA may be imposed on a joint and
several basis and our ultimate liability is not precisely determinable, the PRPs have agreed that Graphics' share of removal costs is approximately 0.46% and therefore Graphics believes that its share
of the anticipated
remediation costs at such site will not be material to its business or financial condition. Based upon an analysis of Graphics' volumetric share of waste contributed to the site and the agreement
among the PRPs, we maintain a reserve of approximately $0.1 million in connection with this liability on our consolidated balance sheet at March 31, 2003. We believe this amount is
adequate to cover such liability.

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

None.

11

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PART II

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



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



As of May 31, 2003, there were approximately 100 record holders of Holdings' common stock. Holdings is the sole shareholder of Graphics' common stock.



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



During the third quarter of Fiscal Year 2003, certain officers exercised options to purchase an aggregate of 20,012 shares of Holdings' common stock for $.01
/share. During the fourth quarter of Fiscal Year 2003, a former officer exercised options to purchase 518 shares of Holdings' common stock for $.01/share. The securities that were sold were exempt
from registration on the basis that all such officers are "accredited investors" as defined by the rules of the Securities Act of 1933, as amended.

ITEM 6. SELECTED FINANCIAL DATA

Set forth below is selected financial data for and as of the fiscal years ended March 31, 2003, 2002, 2001, 2000 and 1999. The balance sheet data as of
March 31, 2003, 2002, 2001, 2000 and 1999 and the statements of operations data for the fiscal years ended March 31, 2003, 2002, 2001, 2000 and 1999 are derived from the audited
consolidated financial statements for such periods and at such dates.

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

12

---



ACG Holdings, Inc.    Selected Financial Data

|                                                                      |                                         | Fiscal Year Ended March 31, |         
|--------------------------------------------------------------------- | --------------------------------------- | --------------------------- | --------
|
|
|Statements of Operations Data:                                        |                                         |                             |         
|Sales                                                                 |                                         | $                           | 520,305 
|Cost of Sales                                                         |                                         |                             | 449,063 
|                                                                      |                                         |                             |         
|                                                                      | Gross Profit                            |                             |         
|Selling, general and administrative expenses                          |                                         |                             | 38,223  
|Restructuring costs and other special charges(a)                      |                                         |                             | 1,722   
|                                                                      |                                         |                             |         
|                                                                      | Operating income                        |                             |         
|Interest expense, net                                                 |                                         |                             | 28,584  
|Other expense                                                         |                                         |                             | 1,469   
|Income tax expense (benefit)(b)                                       |                                         |                             | 1,559   
|                                                                      |                                         |                             |         
|                                                                      | Income (loss) before extraordinary item |                             |         
|Extraordinary loss on early extinguishment of debt(c)                 |                                         |                             |        
|                                                                      |                                         |                             |         
|Net income (loss)                                                     |                                         | $                           | (315    
|                                                                      |                                         |                             |         
|Balance Sheet Data (at end of period):                                |                                         |                             |         
|Working capital (deficit)                                             |                                         | $                           | (29,820 
|Total assets                                                          |                                         | $                           | 278,441 
|Long-term debt and capitalized leases, including current installments |                                         | $                           | 231,757 
|Stockholders' deficit                                                 |                                         | $                           | (107,699
|Other Data:                                                           |                                         |                             |         
|Net cash provided by operating activities                             |                                         | $                           | 45,647  
|Net cash used by investing activities                                 |                                         | $                           | (27,446 
|Net cash used by financing activities                                 |                                         | $                           | (22,680 
|Capital expenditures (including lease obligations entered into)       |                                         | $                           | 28,652  
|Ratio of earnings to fixed charges(d)                                 |                                         |                             | 1.04x   
|Print segment VAR(e)                                                  |                                         | $                           | 217,505 
|Print impressions(e) (in millions)                                    |                                         |                             | 12,888  
|EBITDA(f)                                                             |                                         | $                           | 54,279  

13

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NOTES TO SELECTED FINANCIAL DATA





14

---



Fiscal Year Ended March 31,2003

2002

2001

2000

1999Print segment VAR (in thousands)

$
217,505

$
215,509

$
234,229

$
228,988

$
206,635Print impressions (in millions)


12,888


12,004


12,853


12,705


12,038


Fiscal Year Ended March 31,2003

2002

2001

2000

1999(In thousands)Print segment sales

$
457,535

$
470,802

$
517,281

$
470,458

$
431,936Paper, ink and subcontract costs


240,030


255,293


283,052


241,470


225,301Print segment VAR

$
217,505

$
215,509

$
234,229

$
228,988

$
206,635


Fiscal Year Ended March 31,2003

2002

2001

2000

1999(Dollars in thousands)EBITDA

$
54,279

56,654

87,111

79,243

61,914Depreciation and amortization


(24,451
)
(31,199
)
(34,686
)
(33,786
)
(33,676
)Interest expense, net


(28,584
)
(29,806
)
(32,929
)
(33,798
)
(36,077
)Income tax (expense) benefit


(1,559
)
5,073

4,927

(2,189
)
(523
)Extraordinary loss on early extinguishment of debt










(4,106
)Net income (loss)

$
(315
)
722

24,423

9,470

(12,468
)


15

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Fiscal Year Ended March 31,2003

2002

2001

2000

1999(Dollars in thousands)Restructuring Costs

$
1,191

8,638





4,556Other Special Charges


531

4,282





908Non-Recurring Plant Consolidation Costs








505

657Non-Recurring Employee Benefit and Termination Costs










501Total

$
1,722

12,920



505

6,622


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

Overview

The most important drivers of our results of operations are:



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

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

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

16

---

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

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

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

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

Recent Performance

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

Our Restructuring Results and Cost Reduction Initiatives

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



17

---



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

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

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

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

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



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

18

---



Historical Results of Operations

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

Fiscal Year Ended March 31,2003

2002

2001(Dollars in thousands)SalesPrint

$
457,535

470,802

517,281American Color


59,604

68,406

82,740Other (a)


3,166

3,213

6,018Total

$
520,305

542,421

606,039Gross ProfitPrint

$
54,688

61,749

74,609American Color


16,956

17,162

24,064Other (a)


(402
)
(830
)
250Total

$
71,242

78,081

98,923Gross MarginPrint


12.0
%
13.1
%
14.4
%American Color


28.5
%
25.1
%
29.1
%Total


13.7
%
14.4
%
16.3
%Operating Income (Loss)Print (b)

$
29,862

30,224

49,782American Color (b)


6,267

3,729

11,545Other (a) (c)


(4,832
)
(7,861
)
(7,708
)Total

$
31,297

26,092

53,619


---

19

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Fiscal Year 2003 vs. Fiscal Year 2002

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

Print

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

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

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

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

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

American Color(Premedia Services)

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

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

20

---

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

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

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

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

Other Operations

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

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

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

Interest Expense

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

Income Taxes

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

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

21

---

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

Net Income (Loss)

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

Minimum Pension Liability

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

Fiscal Year 2002 vs. Fiscal Year 2001

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

Print

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

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

22

---

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

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

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

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

American Color(Premedia Services)

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

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

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

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

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

Other Operations

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

23

---

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

Interest Expense

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

Income Taxes

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

Net Income

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

Minimum Pension Liability

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

24

---

Liquidity and Capital Resources

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



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

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

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

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

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

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

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

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

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

25

---

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

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

Our
primary sources of liquidity have been cash provided by operating activities and borrowings under the Revolving Credit Facility. We anticipate that our primary needs for liquidity
will be to conduct our business, meet our debt service requirements and make capital expenditures. We have sufficient liquidity to meet our requirements over the next 12 months.

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

We
are currently in compliance with all financial covenants set forth in the Bank Credit Agreement. See note 5 to our consolidated financial statements appearing elsewhere in this
Report. Our Bank Credit Agreement (i) requires satisfaction of certain financial covenants including Minimum Consolidated EBITDA, Consolidated Interest Coverage Ratio and Leverage Ratio
requirements, (ii) requires prepayments in certain circumstances including excess cash flows, proceeds from asset dispositions in excess of prescribed levels and certain capital structure
transactions and (iii) contains various restrictions and limitations on the following items: (a) the level of capital spending, (b) the incurrence of additional indebtedness,
(c) mergers, acquisitions, investments and similar transactions and (d) dividends and other distributions. In addition, the agreement includes various other customary affirmative and
negative covenants. The Senior Subordinated Notes Indenture's negative covenants that are similar to, but in certain respects are less restrictive than, certain covenants under the Bank Credit
Agreement. Graphics' ability to pay dividends or lend funds to Holdings is restricted. See note 1 to our consolidated financial statements appearing elsewhere in this Report for a discussion of
those restrictions.

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

26

---

EBITDA and EBITDA Margin

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

Fiscal Year Ended March 31,2003

2002

2001(Dollars in thousands)EBITDAPrint (a)

$
49,277

52,398

74,195American Color (a)


10,298

8,554

16,355Other (b)


(5,296
)
(4,298
)
(3,439
)Total

$
54,279

56,654

87,111EBITDA MarginPrint


10.8
%
11.1
%
14.3
%American Color


17.3
%
12.5
%
19.8
%Total


10.4
%
10.4
%
14.4
%


---

EBITDA
is presented and discussed because we believe that investors regard EBITDA as a key measure of a leveraged company's performance and ability to meet its future debt service
requirements. "EBITDA" is defined as earnings before net interest expense, income tax expense (benefit), depreciation and amortization. "EBITDA Margin" is defined as EBITDA as a percentage of net
sales. EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States and should not be considered an alternative to net income (or any other
measure of performance under accounting principles generally accepted in the United States) as a measure of performance or to cash flows from operating, investing or financing activities as an
indicator of cash flows or as a measure of liquidity. Certain covenants in the Indenture and the Bank Credit Agreement are based on EBITDA, subject to certain adjustments. The following table provides
a reconciliation of EBITDA to net income (loss):

(In thousands)

Print

American Color

Other

TotalFiscal Year 2003EBITDA

$
49,277

10,298

(5,296
)
54,279Depreciation and amortization


(19,760
)
(4,336
)
(355
)
(24,451
)Interest expense, net






(28,584
)
(28,584
)Income tax expense






(1,559
)
(1,559
)Net income (loss)

$
29,517

5,962

(35,794
)
(315
)


27

---

Fiscal Year 2002EBITDA

$
52,398

8,554

(4,298
)
56,654Depreciation and amortization


(22,147
)
(5,225
)
(3,827
)
(31,199
)Interest expense, net






(29,806
)
(29,806
)Income tax benefit






5,073

5,073Net income (loss)

$
30,251

3,329

(32,858
)
722Fiscal Year 2001EBITDA

$
74,195

16,355

(3,439
)
87,111Depreciation and amortization


(24,380
)
(5,666
)
(4,640
)
(34,686
)Interest expense, net






(32,929
)
(32,929
)Income tax benefit






4,927

4,927Net income (loss)

$
49,815

10,689

(36,081
)
24,423


Value Added Revenue and Print Impressions for the Print Segment

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

| |                                  | Fiscal Year Ended March 31,
| | -------------------------------- | ---------------------------
|
| | Print segment VAR (in thousands) |                            
| | Print impressions (in millions)  |                            

| |                     | Fiscal Year Ended March 31,     
| | ------------------- | --------------------------------
|
|
| | Print segment sales |                                 
| |                     | Paper, ink and subcontract costs
| |                     |                                 
| | Print segment VAR   |                                 
| |                     |                                 

28

---

Amortization of Goodwill

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

Fiscal Year Ended March 31,2003

2002

2001(Dollars in thousands)Reported net income (loss)

$
(315
)
722

24,423Add:  Goodwill amortization, net of tax




3,012

3,056Pro forma net income (loss)

$
(315
)
3,734

27,479


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

29

---

Impact of Inflation

In accordance with industry practice, we generally pass through increases in our costs, primarily paper and ink, to customers in the costs of our printed
products, while decreases in paper costs generally result in lower prices to customers. Throughout Fiscal Year 2001, the cost of paper increased. In Fiscal Year 2002, demand for advertising declined,
resulting in reduced paper requirements. The reduction in paper requirements resulted in a decline in paper prices throughout Fiscal Year 2002. In Fiscal Year 2003, paper prices were on average at
lower levels than comparable periods in the prior year. We expect that, as a result of our strong relationships with key suppliers, our material costs will remain competitive within the industry.

Seasonality

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

Environmental

Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused
by past operations and which do not contribute to current or future period revenue generation are expensed. Environmental liabilities are recorded when assessments or remedial efforts are probable and
the related costs can be reasonably estimated. We believe that environmental liabilities, currently and in the prior periods discussed herein, are not material. We maintain a reserve of approximately
$0.1 million in connection with a Superfund site in our consolidated statement of financial position at March 31, 2003, which we believe to be adequate. See "BusinessLegal
ProceedingsEnvironmental Matters" appearing elsewhere in this Report. We do not anticipate receiving insurance proceeds related to this potential settlement. Our management does not
expect that any identified matters, individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations.

New Accounting Pronouncements

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

30

---

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

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

Critical Accounting Policies

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

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

Allowance for Doubtful Accounts

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

31

---

Restructuring

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

Contingencies

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

Deferred Taxes

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

Contractual Obligations and Commercial Commitments

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

Payments Due By PeriodContractual Obligations

Total

1 year

1-3 years

3-5 years

5 years(Dollars in thousands)Long-term debt

$
209,240

21,713

187,527



Capitalized lease obligations


22,517

9,986

4,730

5,706

2,095Operating lease obligations


12,465

3,369

4,924

2,917

1,255Total contractual cash obligations

$
244,222

35,068

197,181

8,623

3,350


32

---

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

Commitment Due By PeriodOther Commercial
Commitments

Total

1 year

1-3 years

3-5 years

5 years(Dollars in thousands)Standby letters of credit

$
32,640

28,764





3,876


---

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

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

33

---



FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

|                                                    |                                                  | Page No.
|--------------------------------------------------- | ------------------------------------------------ | --------
|Report of Independent Auditors                      |                                                  | 35      
|Consolidated Balance SheetsMarch 31, 2003 and 2002 |                                                  | 36      
|For the Years Ended March 31, 2003, 2002 and 2001:  |                                                  |         
|                                                    | Consolidated Statements of Operations            |         
|                                                    | Consolidated Statements of Stockholders' Deficit |         
|                                                    | Consolidated Statements of Cash Flows            |         
|Notes to Consolidated Financial Statements          |                                                  | 42      

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



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

34

---



Report of Independent Auditors

Board
of Directors
ACG Holdings, Inc.

We
have audited the accompanying consolidated balance sheets of ACG Holdings, Inc. as of March 31, 2003 and 2002, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for each of the three fiscal years in the period ended March 31, 2003. Our audits also included the financial statement schedules listed in the Index at Item 15(a).
These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our
audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ACG Holdings, Inc. at March 31,
2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended March 31, 2003, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

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

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

35

---



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

|                                                                                                             |                                           | March 31,                                                                                                          |        
|------------------------------------------------------------------------------------------------------------ | ----------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | -------
|
|Assets                                                                                                       |                                           |                                                                                                                    |        
|Current assets:                                                                                              |                                           |                                                                                                                    |        
|                                                                                                             | Cash                                      |                                                                                                                    | $      
|                                                                                                             | Receivables:                              |                                                                                                                    |        
|                                                                                                             |                                           | Trade accounts, less allowance for doubtful accounts of $2,544 and $2,557 at March 31, 2003 and 2002, respectively |        
|                                                                                                             |                                           | Income tax receivable                                                                                              |        
|                                                                                                             |                                           | Other                                                                                                              |        
|                                                                                                             |                                           |                                                                                                                    |        
|                                                                                                             |                                           |                                                                                                                    |        
|                                                                                                             | Inventories                               |                                                                                                                    |        
|                                                                                                             | Deferred income taxes                     |                                                                                                                    |        
|                                                                                                             | Prepaid expenses and other current assets |                                                                                                                    |        
|                                                                                                             |                                           |                                                                                                                    |        
|                                                                                                             |                                           |                                                                                                                    |        
|Property, plant and equipment:                                                                               |                                           |                                                                                                                    |        
|                                                                                                             | Land and improvements                     |                                                                                                                    |        
|                                                                                                             | Buildings and improvements                |                                                                                                                    |        
|                                                                                                             | Machinery and equipment                   |                                                                                                                    |        
|                                                                                                             | Furniture and fixtures                    |                                                                                                                    |        
|                                                                                                             | Leased assets under capital leases        |                                                                                                                    |        
|                                                                                                             | Equipment installations in process        |                                                                                                                    |        
|                                                                                                             |                                           |                                                                                                                    |        
|                                                                                                             |                                           |                                                                                                                    | 317,713
|                                                                                                             | Less accumulated depreciation             |                                                                                                                    |        
|                                                                                                             |                                           |                                                                                                                    |        
|                                                                                                             |                                           |                                                                                                                    |        
|Excess of cost over net assets acquired, less accumulated
amortization of $53,274 at March 31, 2003 and 2002 |                                           |                                                                                                                    | 66,548 
|Other assets                                                                                                 |                                           |                                                                                                                    | 11,125 
|                                                                                                             |                                           |                                                                                                                    |        
|                                                                                                             |                                           |                                                                                                                    |        
|                                                                                                             |                                           |                                                                                                                    |        

See accompanying notes to consolidated financial statements.

36

---

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

|                                                                      |                                                                                                                                                                                                                                                                                             | March 31,                                   |         
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | --------
|
|Liabilities and Stockholders' Deficit                                 |                                                                                                                                                                                                                                                                                             |                                             |         
|Current liabilities:                                                  |                                                                                                                                                                                                                                                                                             |                                             |         
|                                                                      | Current installments of long-term debt and capitalized leases                                                                                                                                                                                                                               |                                             | $       
|                                                                      | Trade accounts payable                                                                                                                                                                                                                                                                      |                                             |         
|                                                                      | Accrued expenses                                                                                                                                                                                                                                                                            |                                             |         
|                                                                      |                                                                                                                                                                                                                                                                                             |                                             |         
|                                                                      |                                                                                                                                                                                                                                                                                             | Total current liabilities                   |         
|Long-term debt and capitalized leases, excluding current installments |                                                                                                                                                                                                                                                                                             |                                             | 200,059 
|Deferred income taxes                                                 |                                                                                                                                                                                                                                                                                             |                                             | 2,023   
|Other liabilities                                                     |                                                                                                                                                                                                                                                                                             |                                             | 80,765  
|                                                                      |                                                                                                                                                                                                                                                                                             |                                             |         
|                                                                      |                                                                                                                                                                                                                                                                                             | Total liabilities                           |         
|Stockholders' deficit:                                                |                                                                                                                                                                                                                                                                                             |                                             |         
|                                                                      | Common stock, voting, $.01 par value, 5,852,223 shares authorized, 163,929 and 143,399 shares issued and outstanding at March 31, 2003 and March 31, 2002, respectively                                                                                                                     |                                             |         
|                                                                      | Preferred stock, $.01 par value, 15,823 shares authorized, 3,617 shares Series AA convertible preferred stock issued and outstanding, $39,442,500 liquidation preference, and 1,606 shares Series BB convertible preferred stock issued and
outstanding, $17,500,000 liquidation preference |                                             |         
|Additional paid-in capital                                            |                                                                                                                                                                                                                                                                                             |                                             | 58,816  
|Accumulated deficit                                                   |                                                                                                                                                                                                                                                                                             |                                             | (140,655
|Other accumulated comprehensive loss, net of tax                      |                                                                                                                                                                                                                                                                                             |                                             | (25,862 
|                                                                      |                                                                                                                                                                                                                                                                                             |                                             |         
|                                                                      |                                                                                                                                                                                                                                                                                             | Total stockholders' deficit                 |         
|                                                                      |                                                                                                                                                                                                                                                                                             |                                             |         
|Commitments and contingencies                                         |                                                                                                                                                                                                                                                                                             |                                             |         
|                                                                      |                                                                                                                                                                                                                                                                                             | Total liabilities and stockholders' deficit |         
|                                                                      |                                                                                                                                                                                                                                                                                             |                                             |         

See
accompanying notes to consolidated financial statements.

37

---



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

|                                              |                                   | Year ended March 31, |        
|--------------------------------------------- | --------------------------------- | -------------------- | -------
|
|Sales                                         |                                   | $                    | 520,305
|Cost of sales                                 |                                   |                      | 449,063
|                                              |                                   |                      |        
|                                              | Gross profit                      |                      |        
|Selling, general and administrative expenses  |                                   |                      | 38,223 
|Amortization of goodwill                      |                                   |                      |       
|Restructuring costs and other special charges |                                   |                      | 1,722  
|                                              |                                   |                      |        
|                                              | Operating income                  |                      |        
|                                              |                                   |                      |        
|Other expense (income):                       |                                   |                      |        
|                                              | Interest expense                  |                      |        
|                                              | Interest income                   |                      |        
|                                              | Other, net                        |                      |        
|                                              |                                   |                      |        
|                                              |                                   | Total other expense  |        
|                                              |                                   |                      |        
|                                              | Income (loss) before income taxes |                      |        
|Income tax expense (benefit)                  |                                   |                      | 1,559  
|                                              |                                   |                      |        
|                                              |                                   | Net income (loss)    |        
|                                              |                                   |                      |        

See
accompanying notes to consolidated financial statements.

38

---

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

|                             |                                             | Voting common stock                         |   | Series AA and BB convertible preferred stock |   | Additional paid-in capital |        | Accumulated deficit |          | Other accumulated comprehensive income (loss) |         | Total |        
|---------------------------- | ------------------------------------------- | ------------------------------------------- | - | -------------------------------------------- | - | -------------------------- | ------ | ------------------- | -------- | --------------------------------------------- | ------- | ----- | -------
|Balances, March 31, 2000     |                                             | $                                           | 1 |                                              |  |                            | 58,303 |                     | (165,485 | )                                             | (2,208  | )     | $      
|                             |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Net income                   |                                             |                                             |  |                                              |  |                            |       |                     | 24,423   |                                               |        |       |        
|                             | Other comprehensive income, net of tax:     |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|                             |                                             | Change in cumulative translation adjustment |   |                                              |  |                            |       |                     |         |                                               |        |       | (968   
|                             |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Comprehensive income         |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Executive stock compensation |                                             |                                             |  |                                              |  |                            | 67     |                     |         |                                               |        |       |        
|                             |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Balances, March 31, 2001     |                                             | $                                           | 1 |                                              |  |                            | 58,370 |                     | (141,062 | )                                             | (3,176  | )     | $      
|                             |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Net income                   |                                             |                                             |  |                                              |  |                            |       |                     | 722      |                                               |        |       |        
|                             | Other comprehensive loss, net of tax:       |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|                             | Change in cumulative translation adjustment |                                             |   |                                             |   |                           |        |                    |          |                                              |         | (254  | )      
|                             |                                             | Minimum pension liability                   |   |                                              |  |                            |       |                     |         |                                               |        |       | (10,751
|                             |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Comprehensive loss           |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Executive stock compensation |                                             |                                             |  |                                              |  |                            | 130    |                     |         |                                               |        |       |        
|                             |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Balances, March 31, 2002     |                                             | $                                           | 1 |                                              |  |                            | 58,500 |                     | (140,340 | )                                             | (14,181 | )     | $      
|                             |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Net loss                     |                                             |                                             |  |                                              |  |                            |       |                     | (315     | )                                             |        |       |        
|                             | Other comprehensive loss, net of tax:       |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|                             |                                             | Change in cumulative translation adjustment |   |                                              |  |                            |       |                     |         |                                               |        |       | 958    
|                             |                                             | Minimum pension liability                   |   |                                              |  |                            |       |                     |         |                                               |        |       | (12,639
|                             |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Comprehensive loss           |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Exercise of options          |                                             |                                             | 1 |                                              |  |                            |       |                     |         |                                               |        |       |        
|Executive stock compensation |                                             |                                             |  |                                              |  |                            | 316    |                     |         |                                               |        |       |        
|                             |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        
|Balances, March 31, 2003     |                                             | $                                           | 2 |                                              |  |                            | 58,816 |                     | (140,655 | )                                             | (25,862 | )     | $      
|                             |                                             |                                             |   |                                              |   |                            |        |                     |          |                                               |         |       |        

See
accompanying notes to consolidated financial statements.

39

---



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

|                                          |                                                                                          | Year ended March 31,                                      |       
|----------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------
|
|Cash flows from operating activities:     |                                                                                          |                                                           |       
|                                          | Net income (loss)                                                                        |                                                           | $     
|                                          | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                           |       
|                                          |                                                                                          | Other special charges  non-cash                          |       
|                                          |                                                                                          | Depreciation                                              |       
|                                          |                                                                                          | Amortization of goodwill                                  |       
|                                          |                                                                                          | Amortization of other assets                              |       
|                                          |                                                                                          | Amortization of deferred financing costs                  |       
|                                          |                                                                                          | Loss (gain) on disposals of property, plant and equipment |       
|                                          |                                                                                          | Impairment of asset                                       |       
|                                          |                                                                                          | Deferred income tax expense (benefit)                     |       
|                                          | Changes in assets and liabilities:                                                       |                                                           |       
|                                          |                                                                                          | Decrease in receivables                                   |       
|                                          |                                                                                          | Decrease (increase) in current income taxes receivable    |       
|                                          |                                                                                          | Decrease (increase) in inventories                        |       
|                                          |                                                                                          | Increase (decrease) in trade accounts payable             |       
|                                          |                                                                                          | Increase (decrease) in accrued expenses                   |       
|                                          |                                                                                          | Increase (decrease) in current income taxes payable       |       
|                                          |                                                                                          | Increase (decrease) in other liabilities                  |       
|                                          |                                                                                          | Other                                                     |       
|                                          |                                                                                          |                                                           |       
|                                          |                                                                                          |                                                           |       
|                                          |                                                                                          |                                                           |       
|Net cash provided by operating activities |                                                                                          |                                                           | 45,647
|                                          |                                                                                          |                                                           |       

40

---

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

|                                                  |                                                      | Year ended March 31,                   |       
|------------------------------------------------- | ---------------------------------------------------- | -------------------------------------- | ------
|
|Cash flows from investing activities:             |                                                      |                                        |       
|                                                  | Purchases of property, plant and equipment           |                                        |       
|                                                  | Proceeds from sales of property, plant and equipment |                                        |       
|                                                  | Other                                                |                                        |       
|                                                  |                                                      |                                        |       
|                                                  |                                                      |                                        |       
|                                                  |                                                      |                                        |       
|Cash flows from financing activities:             |                                                      |                                        |       
|                                                  | Debt:                                                |                                        |       
|                                                  |                                                      | Payments                               |       
|                                                  |                                                      | Increase in deferred financing costs   |       
|                                                  |                                                      | Repayment of capital lease obligations |       
|                                                  |                                                      | Exchange rate adjustment               |       
|                                                  |                                                      |                                        |       
|                                                  |                                                      |                                        |       
|                                                  |                                                      |                                        |       
|Effect of exchange rates on cash                  |                                                      |                                        | (68   
|                                                  |                                                      |                                        |       
|Change in cash                                    |                                                      |                                        | (4,547
|Cash:                                             |                                                      |                                        |       
|                                                  | Beginning of period                                  |                                        |       
|                                                  |                                                      |                                        |       
|                                                  | End of period                                        |                                        | $     
|                                                  |                                                      |                                        |       
|Supplemental disclosure of cash flow information: |                                                      |                                        |       
|Cash paid for:                                    |                                                      |                                        |       
|                                                  | Interest                                             |                                        | $     
|                                                  | Income taxes, net of refunds                         |                                        | $     
|Non-cash investing activities:                    |                                                      |                                        |       
|                                                  | Lease obligations                                    |                                        | $     

See
accompanying notes to consolidated financial statements.

41

---



ACG HOLDINGS, INC.Notes to Consolidated Financial Statements

(1)   Summary of Significant Accounting Policies







42

---











43

---













Fiscal Year Ended March 31,2003

2002

2001Reported net income (loss)

$
(315
)
722

24,423Add: Goodwill amortization, net of tax




3,012

3,056Pro forma net income (loss)

$
(315
)
3,734

27,479


44

---



45

---



(2)   Inventories

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

March 31,2003

2002Paper

$
7,973

7,158Ink


164

169Supplies and other


2,078

1,810Total

$
10,215

9,137


(3)   Other Assets



March 31,2003

2002Deferred financing costs, less accumulated amortization of $8,898 in 2003 and $7,271 in 2002

$
3,335

4,111Spare parts inventory, net of valuation allowance of $100 in 2003 and 2002


6,058

5,600Other


1,732

2,732Total

$
11,125

12,443


(4)   Accrued Expenses

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

March 31,2003

2002Compensation and related taxes

$
10,077

10,125Employee benefits


12,748

11,463Interest


4,048

4,258Restructuring


2,961

5,343Other


2,606

2,856Total

$
32,440

34,045


46

---

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

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

March 31,2003

2002Bank Credit Agreement:Series A Term Loan

$
4,230

9,495Series B Term Loan


34,945

39,63039,175

49,125123/4% Senior Subordinated Notes Due 2005


170,055

171,755Capitalized leases


22,517

30,208Other loans with varying maturities and interest rates


10

1,704Total long-term debt


231,757

252,792Less current installments


31,698

19,946Long-term debt and capitalized leases, excluding current installments

$
$200,059

232,846




47

---



ACG HOLDINGS, INC.Notes to Consolidated Financial Statements



Fiscal year

Long-Term
Debt

Capitalized
Leases2004

$
21,713

$
11,3282005


17,472


3,1642006


170,055


3,1762007





2,9032008





3,602Thereafter





2,173Total

$
209,240


26,346Imputed interest


(3,829
)Present value of minimum lease payments

$
22,517




(6)   Income Taxes



48

---



March 31,2003

2002Deferred tax liabilities:Book over tax basis in fixed assets

$
19,512

21,351Foreign taxes


3,687

3,306Accumulated amortization


1,885

1,313Other, net


3,973

3,990Total deferred tax liabilities


29,057

29,960Deferred tax assets:Bad debts


997

1,016Accrued expenses and other liabilities


20,158

23,670Net operating loss carryforwards


27,592

26,212AMT credit carryforwards


1,203

1,477Minimum pension liability


9,175

4,217Cumulative translation adjustment


970

1,345Total deferred tax assets


60,095

57,937Valuation allowance for deferred tax assets


26,815

23,346Net deferred tax assets


33,280

34,591Net deferred tax (assets) liabilities

$
(4,223
)
(4,631
)




49

---



Year ended March 31,2003

2002

2001CurrentFederal

$
(274
)
(445
)
457State


163

249

343Foreign


1,262

483

1,575Total current


1,151

287

2,375DeferredFederal


30

(4,505
)
(6,344
)State


(3
)
(909
)
(1,515
)Foreign


381

54

557Total deferred


408

(5,360
)
(7,302
)Provision (benefit) for Income Taxes

$
1,559

(5,073
)
(4,927
)




Year ended March 31,2003

2002

2001Statutory tax rate

35.0
%
35.0
%
35.0
%State income taxes, less federal tax impact

8.4

9.9

(3.9
)Foreign taxes, less federal tax impact

95.8

(8.3
)
8.0Amortization



(14.1
)
3.2Other nondeductible expenses

15.0

(4.4
)
1.2Change in valuation allowance

(69.6
)
96.9

(63.9
)Change in cumulative translation

29.3

2.3

(2.8
)Other, net

11.4

(0.7
)
(2.1
)Effective income tax rate

125.3
%
116.6
%
(25.3
%)




50

---



(7)   Other Liabilities



March 31,2003

2002Deferred revenue agreements

$
44,582

34,204Long-term pension and postretirement liabilities


9,756

12,070Minimum pension liability


23,390

10,751Other


3,037

3,832Total

$
80,765

60,857


(8)   Employee Benefit Plans



51

---



ACG HOLDINGS, INC.Notes to Consolidated Financial Statements



Defined Benefit
Pension Plans

Defined Benefit
Postretirement Plan2003

2002

2003

2002Change in Benefit ObligationBenefit obligation at beginning of year

$
58,154

55,327

2,842

2,739Service cost


410

431

21

7Interest cost


4,237

4,256

216

185Plan participants' contributions






274

247Actuarial loss


3,073

1,025

455

258Expected benefit payments


(3,921
)
(2,885
)
(649
)
(594
)Benefit obligation at end of year

$
61,953

58,154

3,159

2,842Change in Plan AssetsFair value of plan assets at beginning of year

$
40,225

48,671



Actual return on plan assets


(6,426
)
(6,159
)


Employer contributions


2,603

598

375

347Plan participants' contributions






274

247Benefits paid


(3,921
)
(2,885
)
(649
)
(594
)Fair value of plan assets at end of year

$
32,481

40,225



Funded Status

$
(29,472
)
(17,929
)
(3,159
)
(2,842
)Unrecognized net actuarial (gain) or loss


23,390

10,686

(27
)
(306
)Unrecognized prior service gain






(1,633
)
(2,077
)Additional minimum pension liability


(23,390
)
(10,751
)


Accrued benefit liability

$
(29,472
)
(17,994
)
(4,819
)
(5,225
)


52

---

Defined Benefit Pension Plans

Defined Benefit Postretirement Plan2003

2002

2003

2002Weighted  Average AssumptionsDiscount rate  benefit obligation

7.00
%
7.50
%
7.00
%
7.50
%Expected return on plan assets

10.00
%
10.00
%
N/A

N/ARate of compensation increase

N/A

N/A

N/A

N/A




Defined Benefit Pension Plans

Defined Benefit Postretirement Plan2003

2002

2001

2003

2002

2001Components of Net Periodic Benefit CostService cost

$
410

431

438

21

7

14Interest cost


4,237

4,256

4,102

216

185

196Expected return on plan assets


(3,930
)
(4,693
)
(5,468
)




Amortization of prior service cost




(102
)
(112
)
(222
)
(222
)
(222
)Amortization of unrecognized loss


697









Curtailment gain




(94
)
(3
)




Settlement loss


28









Recognized net actuarial gain






(885
)
(46
)
(169
)
(123
)Net periodic benefit (income) loss

$
1,442

(202
)
(1,928
)
(31
)
(199
)
(135
)


53

---



1% Point
Increase

1% Point
DecreaseEffect on total of service and interest cost components of expense

$
5

$
(5
)Effect on postretirement benefit obligation

$
76

$
(69
)


(9)   Capital Stock



(10) Stock Option Plans



54

---



Options

Weighted-
Average
Exercise
Price ($)

Exercisable
Options (a)Outstanding at March 31, 2000

29,840

13.35

9,536Granted



Exercised



Forfeited



Outstanding at March 31, 2001

29,840

13.35

19,087Granted

450

..01Exercised



Forfeited



Outstanding at March 31, 2002

30,290

13.15

27,569Granted

2,974

..01Exercised

(20,531
)
7.98Forfeited

(2,411
)
37.34Outstanding at March 31, 2003

10,322

14.01

6,617




Black-Scholes Option Pricing Model Wtd. Avg. AssumptionsFiscal Year
Ended
March 31,

#
Options
Granted

Wtd. Avg.
Grant Date
Fair Value ($)

Exercise
Price per
Option ($)

Risk Free
Interest
Rate (%)

Annual
Dividend
Yield (%)

Expected
Volatility

Expected
Life
(Years)2003

632

343.73

.01

3.56





52,342

.01

.01

1.63





52,9742002

450

969.36

..01

3.76





52001

495

538.62

..01

6.44





51,770

.01

.01

5.62





5200

.01

.01

5.25





5200

.01

240.00

5.25





52,665




55

---



Preferred Stock Option Plan



OptionsOutstanding at March 31, 2000 & 2001

555Granted

Exercised

Forfeited

Outstanding at March 31, 2002

555Granted

27Exercised

Forfeited

Outstanding at March 31, 2003

582




(11) Commitments and Contingencies



56

---



Fiscal Year2004

$
3,3692005


2,6962006


2,2282007


2,0112008


906Thereafter


1,255Total

$
12,465




57

---



ACG HOLDINGS, INC.Notes to Consolidated Financial Statements



(12) Significant Customers



(13) Interim Financial Information (Unaudited)

Quarterly financial information follows (in thousands):

Net Sales

Gross
Profit

Net Income
(Loss)Fiscal Year 2003Quarter Ended:June 30

$
128,181

20,727

4,459September 30


131,022

17,757

1,122December 31


142,565

19,434

2,221March 31


118,537

13,324

(8,117
)Total

$
520,305

71,242

(315
)Fiscal Year 2002Quarter Ended:June 30

$
140,115

21,208

5,040September 30


133,740

18,364

945December 31


147,290

21,932

3,632March 31


121,276

16,577

(8,895
)Total

$
542,421

78,081

722


(14) Restructuring Costs and Other Special Charges



58

---



Restructuring
Charges

Activity

03/31/03
Restructuring
Reserve BalanceSeverance and other employee costs

$
1,077

(98
)
979Other costs


114

(11
)
103$
1,191

(109
)
1,082




59

---



03/31/02
Restructuring
Reserve Balance

Activity

03/31/03
Restructuring
Reserve BalanceSeverance and other employee costs

$
3,519

(3,021
)
498Lease termination costs


1,289

22

1,311Other costs


423

(353
)
70$
5,231

(3,352
)
1,879




(15) Parent Guarantee of Subsidiary Debt



60

---



(16) Industry Segment Information



61

---



|(In thousands)                     |                                  | Print |         | Premedia
Services |        | Corporate
and Other |         | Total   |        
|---------------------------------- | -------------------------------- | ----- | ------- | ----------------- | ------ | ------------------- | ------- | ------- | -------
|Fiscal Year 2003                   |                                  |       |         |                   |        |                     |         |         |        
|Segment revenues                   |                                  | $     | 457,535 |                   | 59,604 |                     | 3,166   |         | 520,305
|EBITDA as calculated by management |                                  | $     | 50,433  |                   | 11,514 |                     | (4,477  | )       | 57,470 
|                                   | Depreciation and amortization    |       |         | (19,760           | )      | (4,336              | )       | (355    | )      
|                                   | Other special charges  SFAS 144 |       |         | (197              | )      | (334                | )       |        |        
|                                   | Restructuring costs              |       |         | (614              | )      | (577                | )       |        |        
|                                   |                                  |       |         |                   |        |                     |         |         |        
|Operating income (loss)            |                                  |       | 29,862  |                   | 6,267  |                     | (4,832  | )       | 31,297 
|                                   | Interest expense                 |       |         |                  |        |                    |         | (28,674 | )      
|                                   | Interest income                  |       |         |                  |        |                    |         | 90      |        
|                                   | Other, net                       |       |         | (345              | )      | (305                | )       | (819    | )      
|                                   | Income tax expense               |       |         |                  |        |                    |         | (1,559  | )      
|                                   |                                  |       |         |                   |        |                     |         |         |        
|Net income (loss)                  |                                  | $     | 29,517  |                   | 5,962  |                     | (35,794 | )       | (315   
|Total assets                       |                                  | $     | 250,041 |                   | 17,403 |                     | 10,997  |         | 278,441
|Total goodwill                     |                                  | $     | 64,656  |                   | 1,892  |                     |        |         | 66,548 
|Total capital expenditures         |                                  | $     | 26,534  |                   | 2,118  |                     |        |         | 28,652 
|(In thousands)                     |                                  |       |         |                   |        |                     |         |         |        
|Fiscal Year 2002                   |                                  |       |         |                   |        |                     |         |         |        
|Segment revenues                   |                                  | $     | 470,802 |                   | 68,406 |                     | 3,213   |         | 542,421
|EBITDA as calculated by management |                                  | $     | 62,737  |                   | 11,508 |                     | (4,034  | )       | 70,211 
|                                   | Depreciation and amortization    |       |         | (22,147           | )      | (5,225              | )       | (3,827  | )      
|                                   | Other special charges  SFAS 121 |       |         | (3,875            | )      | (407                | )       |        |        
|                                   | Restructuring costs              |       |         | (6,491            | )      | (2,147              | )       |        |        
|                                   |                                  |       |         |                   |        |                     |         |         |        
|Operating income (loss)            |                                  |       | 30,224  |                   | 3,729  |                     | (7,861  | )       | 26,092 
|                                   | Interest expense                 |       |         |                  |        |                    |         | (29,973 | )      
|                                   | Interest income                  |       |         |                  |        |                    |         | 167     |        
|                                   | Other, net                       |       |         | 27                |        | (400                | )       | (264    | )      
|                                   | Income tax benefit               |       |         |                  |        |                    |         | 5,073   |        
|                                   |                                  |       |         |                   |        |                     |         |         |        
|Net income (loss)                  |                                  | $     | 30,251  |                   | 3,329  |                     | (32,858 | )       | 722    
|Total assets                       |                                  | $     | 240,818 |                   | 20,906 |                     | 18,789  |         | 280,513
|Total goodwill                     |                                  | $     | 64,656  |                   | 1,892  |                     |        |         | 66,548 
|Total capital expenditures         |                                  | $     | 21,851  |                   | 2,460  |                     | 239     |         | 24,550 

62

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|(In thousands)                     |                                  | Print |         | Premedia
Services |        | Corporate
and Other |         | Total   |        
|---------------------------------- | -------------------------------- | ----- | ------- | ----------------- | ------ | ------------------- | ------- | ------- | -------
|Fiscal Year 2001                   |                                  |       |         |                   |        |                     |         |         |        
|Segment revenues                   |                                  | $     | 517,281 |                   | 82,740 |                     | 6,018   |         | 606,039
|EBITDA as calculated by management |                                  | $     | 74,162  |                   | 17,211 |                     | (3,068  | )       | 88,305 
|                                   | Depreciation and amortization    |       |         | (24,380           | )      | (5,666              | )       | (4,640  | )      
|                                   | Other special charges  SFAS 121 |       |         |                  |        |                    |         |        |        
|                                   | Restructuring costs              |       |         |                  |        |                    |         |        |        
|                                   |                                  |       |         |                   |        |                     |         |         |        
|Operating income (loss)            |                                  |       | 49,782  |                   | 11,545 |                     | (7,708  | )       | 53,619 
|                                   | Interest expense                 |       |         |                  |        |                    |         | (33,042 | )      
|                                   | Interest income                  |       |         |                  |        |                    |         | 113     |        
|                                   | Other, net                       |       |         | 33                |        | (856                | )       | (371    | )      
|                                   | Income tax benefit               |       |         |                  |        |                    |         | 4,927   |        
|                                   |                                  |       |         |                   |        |                     |         |         |        
|Net income (loss)                  |                                  | $     | 49,815  |                   | 10,689 |                     | (36,081 | )       | 24,423 
|Total assets                       |                                  | $     | 256,786 |                   | 28,457 |                     | 16,959  |         | 302,202
|Total goodwill                     |                                  | $     | 66,736  |                   | 2,824  |                     |        |         | 69,560 
|Total capital expenditures         |                                  | $     | 19,492  |                   | 5,539  |                     | 240     |         | 25,271 

(17) Subsequent Event



63

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

None.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table provides certain information about each of the current directors and executive officers of Holdings and Graphics (ages as of March 31,
2003). All directors hold office until their successors are duly elected and qualified.

Name

Age

Position with Graphics and/or HoldingsStephen M. Dyott

51

Chairman, President, Chief Executive Officer and DirectorTimothy M. Davis

48

Senior Vice President/Administration, Secretary and General CounselPatrick W. Kellick

45

Senior Vice President/Chief Financial Officer and Assistant SecretaryJoseph M. Milano

50

Executive Vice President, Retail and Newspaper Operations of GraphicsStuart R. Reeve

39

President, Retail and Newspaper Services of GraphicsLarry R. Williams

62

Executive Vice President, Purchasing of GraphicsKathleen A. DeKam

42

President of American ColorAngela C. Marshall

40

Corporate Controller/Chief Accounting OfficerEric T. Fry

36

DirectorMichael C. Hoffman

40

DirectorJonathan W. Gutstein

37

Director


Stephen M. Dyotthas been the Chairman and Chief Executive Officer of Graphics and Holdings since September 1996, President of
Holdings since February 1995, President of Graphics since 1991and Director of Graphics and Holdings since September 1994. Mr. Dyott was Chief Operating Officer of Holdings from
February 1995 to September 1996 and Chief Operating Officer of Graphics from 1991 to September 1996. Prior to joining Graphics, Mr. Dyott was the Vice President and General
ManagerFlexible Packaging of American National Can Company ("ANCC") from 1988 to 1991 and the Vice President and General ManagerTube Packaging of ANCC from 1985 to 1987.

Timothy M. Davishas been the Senior Vice President/Administration, Secretary and General Counsel of Holdings and Graphics since 1989.
Prior to joining Holdings and Graphics, Mr. Davis was the Assistant General Counsel of MacMillan, Inc., counsel to affiliates of Maxwell Communication Corporation North America from
January 1989 to June 1989 and an attorney in private practice from 1981 to 1989.

Patrick W. Kellickhas been the Senior Vice President and Chief Financial Officer of Holdings and Graphics since 2002 and Assistant
Secretary of Holdings and Graphics since 1995. Prior to 2002, Mr. Kellick was the Senior Vice President/Corporate Controller of Holdings and Graphics from 1997 to 2002, Vice President/Corporate
Controller of Holdings and Graphics from 1989 to 1997 and Corporate Controller of Graphics from 1987 to 1989. Prior to joining Holdings and Graphics, he served in various financial positions with
Williams Precious Metals (a division of Brush Wellman, Inc.) from 1984 to 1987, including Chief Financial Officer from 1986 to 1987 and was an Auditor with KPMG from 1979 to 1984.

64

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Joseph M. Milanohas been the Executive Vice President, Retail and Newspaper Operations of Graphics since 2002. Prior to 2002,
Mr. Milano was the Executive Vice President and Chief Financial Officer of Holdings and Graphics from 1997 to 2002, Senior Vice President and Chief Financial Officer of Holdings and Graphics
from 1994 to 1997 and Vice PresidentFinance of Holdings and Graphics from 1992 to 1994. Prior to joining Holdings and Graphics, he was the Vice President and Chief Financial Officer of
Farrel Corporation from 1989 to 1992 and the Vice President and Chief Financial Officer of Electronic Mail Corporation of America from 1984 to 1988.

Stuart R. Reevehas been the President, Retail and Newspaper Services of Graphics since 2002. Prior to 2002, Mr. Reeve served as
the Executive Vice President, Operations of Graphics from 1999 to 2002, Executive Vice President Sales and Marketing of Graphics from 1997 to 1999, Senior Vice President Commercial Sales of Graphics
from 1995 to 1997, Vice President SalesMidwest of Graphics from 1994 to 1995, Vice President SalesWest of Graphics from 1991 to 1994 and as a Sales Executive of Graphics from
1989 to 1991.

Larry R. Williamshas been the Executive Vice President, Purchasing of Graphics since 1997. Prior to 1997, Mr. Williams served as
Senior Vice PresidentPurchasing, Marketing and Newspaper Sales of Graphics from 1996 to 1997 and Senior Vice President of Purchasing / Transportation of Graphics from 1993 to 1996. Prior
to joining Holdings and Graphics, he was an Independent Management Consultant from 1992 to 1993 and Senior Vice President, Operations Support for Ryder Systems from 1990 to 1992.

Kathleen A. DeKamhas been the President of American Color since 1998. Prior to 1998, Ms. DeKam was the Vice President of Human
Resources of American Color from 1996 to 1998, Director of Human Resources of American Color from 1995 to 1996 and Manager of Human Resources for various print plants of Graphics from 1986 to 1995.
Prior to joining Graphics, she was the Manager of Human Resources for The Diamond Center from 1985 to 1986 and was a Personnelman U. S. Navy from 1980 to 1985.

Angela C. Marshallhas been the Corporate Controller of Holdings and Graphics since 2002. Prior to 2002, Ms. Marshall was the
Assistant Corporate Controller of Holdings from 1999 to 2002, Director of Corporate Accounting and Financial Reporting of Graphics from 1998 to 1999 and Financial Reporting Manager of Graphics from
1994 to 1998. Prior to joining Graphics, she was the Manager of Financial Controls of Berol Corporation from 1993 to 1994, Corporate Controller of QSC Finishing, Inc. from 1990 to 1993,
Controller of Maryland Farms Development Company from 1988 to 1990 and an Auditor with KPMG from 1984 to 1988.

Eric T. Fryhas been a Director of Graphics and Holdings since 1996. Mr. Fry is a Managing Director of Morgan Stanley Capital
Partners. He joined Morgan Stanley & Co. Incorporated in 1989. He is also a Director of EnerSys Inc., Direct Response Corporation, Homesite Group, LifeTrust America, Vanguard Health
Systems and The Underwriter Holdings Company Limited.

Michael C. Hoffmanhas been a Director of Graphics and Holdings since 2003. Mr. Hoffman is a Managing Director of Morgan
Stanley Capital Partners. He joined Morgan Stanley & Co. Incorporated in 1986 and worked in the firm's Strategic Planning Group prior to joining Morgan Stanley Capital Partners in 1990.
He is also a Director of Aventine Renewable Energy.

Jonathan W. Gutsteinhas been a Director of Graphics and Holdings since 2003. Mr. Gutstein is an Executive Director of Morgan
Stanley Capital Partners. He joined Morgan Stanley & Co. Incorporated in 1987 and is currently an Executive Director of Morgan Stanley Capital Partners.

65

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ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table presents information concerning compensation for services to Holdings and Graphics during Fiscal Years 2003, 2002 and 2001 of the Chief
Executive Officer and the four other most highly compensated executive officers who we refer to as the Named Executive Officers of Holdings and/or Graphics.

Summary Compensation Table

|                          |  |                  |  |   |         |  |   |           |  | Long-Term Compensation |  |  
|------------------------- |  | ---------------- |  | - | ------- |  | - | --------- |  | ---------------------- |  | -
|
|
|Stephen M. Dyott          |  | Fiscal Year 2003 |  | $ | 575,000 |  | $ | 425,000   |  |                       |  | 
|Chairman, President,      |  | Fiscal Year 2002 |  | $ | 575,000 |  | $ | 700,000   |  |                       |  | 
|Chief Executive           |  | Fiscal Year 2001 |  | $ | 575,000 |  | $ | 1,425,000 |  |                       |  | 
|Officer & Director        |  |                  |  |   |         |  |   |           |  |                        |  |  
|Larry R. Williams         |  | Fiscal Year 2003 |  | $ | 350,000 |  | $ | 200,000   |  |                       |  | 
|Executive Vice President, |  | Fiscal Year 2002 |  | $ | 350,000 |  | $ | 175,000   |  |                       |  | 
|Purchasing of Graphics    |  | Fiscal Year 2001 |  | $ | 300,000 |  | $ | 225,000   |  |                       |  | 
|Timothy M. Davis          |  | Fiscal Year 2003 |  | $ | 295,000 |  | $ | 125,000   |  |                       |  | 
|Senior Vice President/    |  | Fiscal Year 2002 |  | $ | 295,000 |  | $ | 200,000   |  |                       |  | 
|Administration, Secretary |  | Fiscal Year 2001 |  | $ | 295,000 |  | $ | 325,000   |  |                       |  | 
|& General Counsel         |  |                  |  |   |         |  |   |           |  |                        |  |  
|Joseph M. Milano          |  | Fiscal Year 2003 |  | $ | 330,000 |  | $ | 75,000    |  |                       |  | 
|Executive Vice President, |  | Fiscal Year 2002 |  | $ | 330,000 |  | $ | 300,000   |  |                       |  | 
|Retail and Newspaper      |  | Fiscal Year 2001 |  | $ | 330,000 |  | $ | 425,000   |  |                       |  | 
|Operations of Graphics    |  |                  |  |   |         |  |   |           |  |                        |  |  
|Stuart Reeve              |  | Fiscal Year 2003 |  | $ | 350,000 |  | $ | 50,000    |  |                       |  | 
|President, Retail and     |  | Fiscal Year 2002 |  | $ | 300,000 |  | $ | 200,000   |  |                       |  | 
|Newspaper Services        |  | Fiscal Year 2001 |  | $ | 300,000 |  | $ | 260,000   |  |                       |  | 
|of Graphics               |  |                  |  |   |         |  |   |           |  |                        |  |  

66

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Option/SAR Grants in Last Fiscal Year

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

|Individual Grants             |                 | Alternative
To (f) and (g)
Grant Date Value |    
|----------------------------- | --------------- | ------------------------------------------- | ---
|
|Common Stock Option Plans (a) |                 |                                             |    
|                              | Stuart R. Reeve |                                             | 360
|Preferred Stock Option Plan   |                 |                                             |    
|                              | None            |                                             |    

---

Aggregated Option/SAR Exercises in Last Fiscal Year  and Fiscal Year-End Option/SAR Values

The following table presents information concerning the fiscal year-end value of unexercised stock options held by the Named Executive Officers.

|                                |                   | Shares Acquired
on Exercise (#) |          | Value
Realized($) |       | Number of Securities
Underlying Unexercised
Options/SAR's at 3/31/03
Exercisable/Unexercisable
(#) |            | Value of Unexercised
In-the-Money Options/
SAR's at 3/31/03
Exercisable/Unexercisable
($) |              
|------------------------------- | ----------------- | ------------------------------- | -------- | ----------------- | ----- | -------------------------------------------------------------------------------------------------- | ---------- | ----------------------------------------------------------------------------------------- | -------------
|Common Stock Option Plans (a)   |                   |                                 |          |                   |       |                                                                                                    |            |                                                                                           |              
|                                | Stephen M. Dyott  |                                 | 7,317.75 |                   | 73.18 |                                                                                                    | 0 / 0      |                                                                                           |              
|                                | Larry R. Williams |                                 | 931.00   |                   | 9.31  |                                                                                                    | 0 / 0      |                                                                                           |              
|                                | Timothy M. Davis  |                                 | 1,976.00 |                   | 19.76 |                                                                                                    | 0 / 0      |                                                                                           |              
|                                | Joseph M. Milano  |                                 | 3,993.25 |                   | 39.93 |                                                                                                    | 0 / 0      |                                                                                           |              
|                                | Stuart R. Reeve   |                                 | 1,279.75 |                   | 12.80 |                                                                                                    | 0 / 470.25 |                                                                                           |              
|Preferred Stock Option Plan (b) |                   |                                 |          |                   |       |                                                                                                    |            |                                                                                           |              
|                                | Stephen M. Dyott  |                                 |         |                   |      |                                                                                                    | 292 / 0    |                                                                                           | 1,555,811 / 0
|                                | Timothy M. Davis  |                                 |         |                   |      |                                                                                                    | 88 / 0     |                                                                                           | 468,875 / 0  
|                                | Joseph M. Milano  |                                 |         |                   |      |                                                                                                    | 175 / 0    |                                                                                           | 932,421 / 0  

---

67

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Pension Plan

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

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

At
March 31, 2003, all of the Named Executive Officers had vested in the Pension Plan. At March 31, 2003, the Named Executive Officers had the following amounts of credited
service (original hire date through January 1, 1995) and annual benefit payable upon retirement at age 65 under the Pension Plan: Stephen M. Dyott (3 years, 3 months; $8,220),
Larry R. Williams (1 year, 5 months; $3,192), Timothy M. Davis (5 years, 5 months; $11,700), Joseph M. Milano (2 years, 7 months; $5,820) and Stuart R. Reeve
(5 years, 4 months; $9,185).

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

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

Supplemental Executive Retirement Plan

In October 1994, we approved a new Supplemental Executive Retirement Plan, which is a defined benefit plan, for the Named Executive Officers, three other
current executives and one former executive. The plan provides for a basic annual benefit payable upon completion of five years vesting
service (April 1, 1994 through March 31, 1999 for Messrs. Dyott, Williams, Davis and Milano and July 1, 1997 through June 30, 2002 for Messr. Reeve) and retirement
on or after attaining age 65, or the present value of such benefit at an earlier date under certain circumstances. The Named Executive Officers have the following basic annual benefit payable under
this plan at age 65:

Stephen M. Dyott

$
100,000Larry R. Williams

$
50,000Timothy M. Davis

$
75,000Joseph M. Milano

$
100,000Stuart R. Reeve

$
50,000


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

Compensation of Directors

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

68

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Employment Agreements

On October 19, 1998, Graphics entered into an employment agreement with Stephen M. Dyott, which we refer to as the Dyott Employment Agreement, which
replaced the agreement entered into by Graphics and Mr. Dyott on April 3, 1993. The Dyott Employment Agreement has an initial term of three years. The term under the Dyott Employment
Agreement is automatically extended for one-year periods absent at least one year's written notice of an intent by either party not to renew. The Dyott Employment Agreement provides for the payment of
an annual salary, annual bonus and all other employee benefits and perquisites made available to Graphics' senior executives generally.

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

Graphics
is also party to an employment agreement dated as of September 1, 1995, with Larry R. Williams, which provides for an annual salary, annual bonus and all other employee
benefits and perquisites made available to Graphics' senior executives generally. The term of Mr. William's agreement provided for an initial period of two years with one year automatic
extensions. Such agreement also provides that in the event the employee's employment is terminated by Graphics without "cause", as defined above, or by the employee for "good reason", as defined
above, the employee will be entitled to base salary continuation for two years following termination. The employment agreement contains confidentiality obligations that survive indefinitely and
non-solicitation and non-competition obligations that end on the second anniversary of the date employment has ceased.

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

On
August 1, 1999, Graphics also entered into a severance agreement with Stuart R. Reeve which provides that in the event the employee's employment is terminated by Graphics
without "cause", as defined above (but also including as "cause" competition with Graphics), or by the employee for "good reason", as defined above, the employee will be entitled to a pro rata portion
of the bonus for the year employment was terminated payable at the time bonuses are generally paid and salary and benefit continuation for two years following termination. Such base salary payments
will be reduced, after the

69

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first
twelve months from the date of termination, to the extent the employee receives compensation from another employer. The severance agreement contains confidentiality obligations that survive
indefinitely and non-solicitation and non-competition obligations that end on the second anniversary of the date employment has ceased.

Compensation Committee Interlocks and Insider Participation

We do not maintain a formal compensation committee. Stephen M. Dyott sets compensation in conjunction with the Board of Directors.

Repriced Options

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

Ten Year Option / SAR Repricings

|Name                                                                                     |  | Repricing
Date                      |  | Number of
Securities
Underlying
Options/SARs
Repriced or
Amended (#) |  | Market Price of
Stock at Time
of Repricing or
Amendment
($) |  | Exercise
Price at
Time of
Repricing
($) |  | New
Exercise
Price
($) |  | Length of Original
Option Term
Remaining at
Date of
Repricing or
Amendment
|---------------------------------------------------------------------------------------- |  | ----------------------------------- |  | -------------------------------------------------------------------- |  | ----------------------------------------------------------- |  | --------------------------------------- |  | ---------------------- |  | --------------------------------------------------------------------------
|Stephen M. DyottChairman, President,
Chief Executive
Officer and Director                |  | 01/16/98
01/16/98
01/16/98
01/16/98 |  | 1,761
380
859
2,300                                                  |  | 


                                                     |  | 50
50
50
50                             |  | .01
..01
..01
..01     |  | 8 yrs. 6 mo.
7 yrs. 6 mo.
6 yrs. 5 mo.
5 yrs. 0 mo.                       
|Larry R. WilliamsExecutive Vice President,
Purchasing of Graphics                        |  | 01/16/98
01/16/98                   |  | 125
526                                                              |  | 
                                                         |  | 50
50                                   |  | ..01
..01              |  | 8 yrs. 6 mo.
6 yrs. 5 mo.                                                 
|Timothy M. DavisSenior Vice President,
Administration, Secretary
and General Counsel     |  | 01/16/98
01/16/98
01/16/98          |  | 290
535
255                                                          |  | 

                                                       |  | 50
50
50                                |  | ..01
..01
..01         |  | 8 yrs. 6 mo.
6 yrs. 5 mo.
5 yrs. 0 mo.                                    
|Joseph M. MilanoExecutive Vice President,
Retail and Newspaper Operations
of Graphics    |  | 01/16/98
01/16/98
01/16/98
01/16/98 |  | 760
614
688
102                                                      |  | 


                                                     |  | 50
50
50
50                             |  | ..01
..01
..01
..01    |  | 8 yrs. 6 mo.
7 yrs. 6 mo.
6 yrs. 5 mo.
5 yrs. 0 mo.                       
|Stuart R. ReevePresident, Retail
and Newspaper Services
of Graphics                      |  | 01/16/98
01/16/98
01/16/98          |  | 91
140
420                                                           |  | 

                                                       |  | 50
50
50                                |  | ..01
..01
..01         |  | 8 yrs. 6 mo.
7 yrs. 6 mo.
6 yrs. 5 mo.                                    
|Patrick W. KellickSenior Vice President/
Chief Financial Officer and
Assistant Secretary |  | 01/16/98
01/16/98                   |  | 257
105                                                              |  | 
                                                         |  | 50
50                                   |  | ..01
..01              |  | 8 yrs. 6 mo.
6 yrs. 5 mo.                                                 

70

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|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- |  | ----------------------------------------------------------------------------------------------

The following table sets forth information, as of March 31, 2003, concerning the persons having beneficial ownership of more than five
percent of the capital stock of Holdings and the beneficial ownership thereof by each director and Named Executive Officer of Holdings and by all directors and executive officers of Holdings as a
group. Each holder below has sole voting power and sole investment power over the shares designated below.

|Name                                                                                       |                                                                                                                              | Shares of Holdings
Common Stock |          | Percent of Class |      | Shares of Holdings
Preferred Stock |       | Percent of Class
|------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | -------- | ---------------- | ---- | ---------------------------------- | ----- | ----------------
|The Morgan Stanley Leveraged Equity Fund II, L.P.
1585 Broadway
New York, NY 10036         |                                                                                                                              | 59,450.0                        |          | 36.3             |      | 2,727.3                            |       | 52.2            
|MSCP III Entities (a)
1585 Broadway
New York, NY 10036                                     |                                                                                                                              | 23,333.0                        |          | 14.2             |      | 1,070.4                            |       | 20.5            
|First Plaza Group Trust
c/o Mellon Bank, N.A.
1 Mellon Bank Center
Pittsburgh, PA 15258    |                                                                                                                              | 17,000.0                        |          | 10.4             |      | 779.8                              |       | 14.9            
|Bost & Co.
c/o Boston Safe Deposit & Trust Co.
120 Broadway, 13th Floor
New York, NY 10271 |                                                                                                                              | 6,537.3                         |          | 4.0              |      | 299.9                              |       | 5.7             
|Directors and Named Executive Officers:                                                    |                                                                                                                              |                                 |          |                  |      |                                    |       |                 
|                                                                                           | Stephen M. Dyott (b)                                                                                                         |                                 | 14,970.0 |                  | 9.1  |                                    | 314.9 |                 
|                                                                                           | Larry R. Williams                                                                                                            |                                 | 1,809.0  |                  | 1.1  |                                    |      |                 
|                                                                                           | Timothy M. Davis (c)                                                                                                         |                                 | 3,618.0  |                  | 2.2  |                                    | 88.0  |                 
|                                                                                           | Joseph M. Milano (d)                                                                                                         |                                 | 7,235.0  |                  | 4.4  |                                    | 175.0 |                 
|                                                                                           | Stuart R. Reeve (e)                                                                                                          |                                 | 2,229.7  |                  | 1.4  |                                    |      |                 
|                                                                                           | Eric T. Fry                                                                                                                  |                                 |         |                  |     |                                    |      |                 
|                                                                                           | Michael C. Hoffman                                                                                                           |                                 |         |                  |     |                                    |      |                 
|                                                                                           | Jonathan W. Gutstein                                                                                                         |                                 |         |                  |     |                                    |      |                 
|                                                                                           | All directors and executive officers as a group (11 persons, including Messrs. Dyott, Williams, Davis, Milano and Reeve) (f) |                                 | 33,077.5 |                  | 20.2 |                                    | 605.0 |                 

---

71

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Stockholders' Agreement.Holdings, The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"), other entities affiliated
with Morgan Stanley & Co. Incorporated ("MS&Co. Inc.") MSLEF II and MS&Co. Inc. collectively ("MSCP Funds") and other stockholders of Holdings entered into an amended and restated
stockholders' agreement, dated as of August 14, 1995. The stockholders' agreement includes provisions requiring the delivery of certain shares of Holdings' common stock from the "Purchasers",
as defined in the stockholders' agreement, which includes MSLEF II, certain institutional investors and members of management, to Holdings, depending upon the return realized by the Purchasers on
their investment, and thereafter from Holdings to the "Existing Holders", as defined in the stockholders' agreement. Depending upon the returns realized by the Purchasers on their investment, their
interest in the Holdings' common stock could be reduced and the interest of the Existing Holders could be increased. The stockholders' agreement gives the Existing Holders, the right to designate a
director of Holdings and gives certain minority stockholders not affiliated with us the right to designate a director of Holdings. The stockholders' agreement contains rights of first refusal with
regard to the issuance by Holdings of equity securities and sales by the stockholders of equity securities of Holdings owned by them, specified tag along and drag along provisions and registration
rights. The stockholders' agreement also restricts our ability to enter into affiliate transactions unless the transaction is fair and reasonable, with terms no less favorable to us than if the
transaction was completed on an arm's length basis.

Tax Sharing Agreement

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

Other

MSCP Funds is affiliated with entities that beneficially own 51% of the outstanding shares of Common Stock, and 73% of the outstanding shares of Preferred Stock,
of Holdings. As of March 31, 2003, Morgan Stanley Senior Funding, Inc., a subsidiary of Morgan Stanley, had a $9.0 million participation in our Bank Credit Agreement. Morgan
Stanley Senior Funding, Inc. received interest payments for the fiscal year ended March 31, 2003 based on its participation during the course of the year.

72

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PART IV

ITEM 14. CONTROLS AND PROCEDURES

As of March 31, 2003, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a  14(c) and 15-d  14(c)
promulgated under the Securities Exchange Act of 1934, as amended). Based on that evaluation, our management including the Chief Executive Officer and Chief Financial Officer, concluded that the
disclosure controls and procedures were effective as of March 31, 2003. There have been no significant changes in our internal controls or in other factors that could significantly affect
internal controls subsequent to March 31, 2003.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



|1 and 2. |  | Financial Statements:    The following Consolidated Financial Statements of Holdings are included in Part II, Item 8:        
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------
|         |  | Consolidated balance sheetsMarch 31, 2003 and 2002                                                                          
|         |  | For the Years Ended March 31, 2003, 2002 and 2001:                                                                           
|         |  | Consolidated statements of operations
Consolidated statements of stockholders' deficit
Consolidated statements of cash flows 
|         |  | Notes to Consolidated Financial Statements                                                                                   
|         |  | Financial Statement Schedules:    The following financial statement schedules of Holdings are filed as a part of this Report.

|    |  | Schedules                                                                                                                                                                               |  | Page No.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|I.  |  | Condensed Financial Information of Registrant:
Condensed Financial Statements (parent company only) for the years ended March 31, 2003, 2002 and 2001 and as of March 31, 2003 and 2002 |  | 76      
|II. |  | Valuation and qualifying accounts                                                                                                                                                       |  | 82      

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



|Exhibit No. |  | Description                                                           
|----------- |  | ----------------------------------------------------------------------
|3.1         |  | Certificate of Incorporation of Graphics, as amended to date*         
|3.2         |  | Bylaws of Graphics, as amended to date*                               
|3.3         |  | Restated Certificate of Incorporation of Holdings, as amended to date*
|3.4         |  | Bylaws of Holdings, as amended to date*                               
|            |  |                                                                       

73

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|4.1     |  | Indenture (including the form of Note), dated as of August 15, 1995, among Graphics, Holdings and NationsBank of Georgia, National Association, as Trustee**                                                                                                                                                                 
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1    |  | Credit Agreement, dated as of August 15, 1995 and Amended and Restated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding, Inc. as
Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto             
|10.1(a) |  | June 8, 1998, First Amendment to Amended and Restated Credit Agreement dated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding, Inc.
as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto       
|10.1(b) |  | February 3, 1999, Second Amendment to Amended and Restated Credit Agreement dated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding,
 Inc. as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto**** 
|10.1(c) |  | November 9, 1999, Third Amendment to Amended and Restated Credit Agreement dated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding,
 Inc. as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto   
|10.1(d) |  | January 26, 2001, Fourth Amendment of Amended and Restated Credit Agreement dated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding,
 Inc. as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto
|10.1(e) |  | March 21, 2002, Fifth Amendment to Amended and Restated Credit Agreement dated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding, Inc.
as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto   
|10.1(f) |  | October 17, 2002, Sixth Amendment to Amended and Restated Credit Agreement dated May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding, Inc. as
Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto******       
|10.1(g) |  | February 7, 2003, Seventh Amendment to Amended and Restated Credit Agreement dated May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding, Inc.
as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto******     
|10.2    |  | Employment Agreement, dated as of October 19, 1998, between Graphics and Stephen M. Dyott***                                                                                                                                                                                                                                 
|10.3    |  | Severance Letter, dated August 1, 1999, between Graphics and Stuart Reeve***                                                                                                                                                                                                                                                 
|10.4    |  | Severance Letter, dated July 15, 1998, between Graphics and Joseph M. Milano                                                                                                                                                                                                                                                
|10.5    |  | Severance Letter, dated July 15, 1998, between Graphics and Timothy M. Davis                                                                                                                                                                                                                                                
|10.6    |  | Severance Letter, dated September 1, 1995, between Graphics and Larry Williams                                                                                                                                                                                                                                              
|10.6(a) |  | Amendment to Severance Letter, dated June 3, 1999, between Graphics and Larry Williams*****                                                                                                                                                                                                                                  
|10.7    |  | Amended and Restated Stockholders' Agreement, dated as of August 14, 1995, among Holdings, the Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley Capital Partners III, L.P. and the additional parties named
therein**                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                              

74

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|10.7(a) |  | Amendment No. 1, dated January 16, 1998, to Amended and Restated Stockholders' Agreement dated as of August 14, 1995, among Holdings, the Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley
Capital Partners III, L.P., and the additional parties named herein
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8    |  | Stock Option Plan of Holdings                                                                                                                                                                                                                                                
|10.9    |  | Term Loan Agreement, dated as of June 30, 1997, among Holdings, Graphics, BT Commercial Corporation, as Agent, Bankers Trust Company, as Issuing Bank, and the parties signatory
thereto                                                                                   
|10.10   |  | Holdings Common Stock Option Plan                                                                                                                                                                                                                                          
|10.11   |  | Holdings Preferred Stock Option Plan                                                                                                                                                                                                                                       
|12.1    |  | Statement Re: Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                
|21.1    |  | List of Subsidiaries                                                                                                                                                                                                                                                           
|99.1    |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                        

|       |  |                                                                                                                                          
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------
|*      |  | Incorporated by reference from Amendment No. 2 to Form S-1 filed on October 4, 1993Registration number 33-65702.                        
|      |  | Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 1999Commission file number 33-97090.  
|**     |  | Incorporated by reference from Form S4 filed on September 19, 1995Registration number 33-97090.                                         
|     |  | Incorporated by reference from Amendment No. 2 to Form S-4 filed on November 22, 1995Registration number 33-97090.                      
|***    |  | Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 2000Commission file number 33-97090.  
|    |  | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended December 31, 1999Commission file number 33-97090.
|****   |  | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended December 31, 1998Commission file number 33-97090.
|   |  | Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 1998Commission file number 33-97090.  
|*****  |  | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 1999Commission file number 33-97090.    
|  |  | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2000Commission file number 33-97090.
|****** |  | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2002Commission file number 33-97090.
| |  | Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 2002Commission file number 33-97090.  



75

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

March 31,2003

2002AssetsCurrent assets:Receivable from subsidiary

$
606

26Income taxes receivable


348

611Total assets

$
954

637Liabilities and Stockholders' DeficitLiabilities of subsidiary in excess of assets

$
108,653

96,657Total liabilities


108,653

96,657Stockholders' deficit:Common stock, voting, $.01 par value, 5,852,223 shares authorized, 163,929 and 143,399 shares issued and outstanding at March 31, 2003 and March 31, 2002, respectively


2

1Preferred stock, $.01 par value, 15,823 shares authorized, 3,617 shares Series AA convertible preferred stock issued and outstanding, $39,442,500 liquidation preference, and 1,606 shares Series BB convertible
preferred stock issued and outstanding, $17,500,000 liquidation preference




Additional paid-in capital


58,816

58,500Accumulated deficit


(140,655
)
(140,340
)Other accumulated comprehensive loss, net of tax


(25,862
)
(14,181
)Total stockholders' deficit


(107,699
)
(96,020
)Commitments and contingenciesTotal liabilities and stockholders' deficit

$
954

637


See
accompanying notes to condensed financial statements.

76

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

Year ended March 31,2003

2002

2001Equity in income (loss) of subsidiary

$
(315
)
722

24,423Net income (loss)

$
(315
)
722

24,423


See
accompanying notes to condensed financial statements.

77

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

Year ended March 31,2003

2002

2001Cash flows from operating activities

$




Cash flows from investing activities






Cash flows from financing activities






Net change in cash

$







See
accompanying notes to condensed financial statements.

78

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

Description of ACG Holdings, Inc.

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

Holdings
has no operations or significant assets other than its investment in Graphics. Holdings is dependent upon distributions from Graphics to fund its obligations. Under the terms of
its debt agreements at March 31, 2003, Graphics' ability to pay dividends or lend to Holdings is either restricted or prohibited, except that Graphics may pay specified amounts to Holdings to
fund the payment of Holdings' obligations pursuant to a tax sharing agreement (see note 4).

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

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

1. Basis of Presentation

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

2. Guarantees

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

Holdings
has guaranteed Graphics' indebtedness under the Bank Credit Agreement, which guarantee is secured by a pledge of all of Graphics' stock. Borrowings under the Bank Credit
Agreement are secured by substantially all assets of Graphics. Holdings is restricted under its guarantee

79

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of
the Bank Credit Agreement from, among other things, entering into mergers, acquisitions, incurring additional debt, or paying cash dividends.

On
August 15, 1995, Graphics issued $185 million of Senior Subordinated Notes (the "Notes") bearing interest at 123/4% and maturing August 1, 2005.
The Notes are guaranteed on a senior subordinated basis by Holdings and are subordinate to all existing and future senior indebtedness, as defined, of Graphics.

3. Dividends from Subsidiaries and Investees

No cash dividends were paid to Holdings from any consolidated subsidiaries, unconsolidated subsidiaries or investees accounted for by the equity method during the
periods reflected in these condensed financial statements.

4. Tax Sharing Agreement

Holdings and Graphics are parties to a tax sharing agreement effective July 27, 1989. Under the terms of the agreement, Graphics (whose income is
consolidated with that of Holdings for federal income tax purposes) is liable to Holdings for amounts representing federal income taxes calculated on a "stand-alone basis". Each year Graphics pays to
Holdings the lesser of (i) Graphics' federal tax liability computed on a stand-alone basis and (ii) its allocable share of the federal tax liability of the consolidated group.
Accordingly, Holdings is not currently reimbursed for the separate tax liability of Graphics to the extent Holdings' losses reduce consolidated tax liability. Reimbursement for the use of such
Holdings' losses will occur when the losses may be used to offset Holdings' income computed on a stand-alone basis. Graphics has also agreed to reimburse Holdings in the event of any adjustment
(including interest or penalties) to consolidated income tax returns based upon Graphics' obligations with respect thereto. Also, under the terms of the tax sharing agreement, Holdings has agreed to
reimburse Graphics for refundable federal income taxes equal to an amount which would be refundable to Graphics had Graphics filed separate federal income tax returns for all years under the
agreement. Graphics and Holdings have also agreed to treat foreign, state and local income and franchise taxes for which there is consolidated or combined reporting in a manner consistent with the
treatment of federal income taxes as described above.

5. Refinancing Transaction

ACG has a $145 million credit facility with a syndicate of lenders (the "Bank Credit Agreement"), providing for a $70 million revolving credit
facility which is not subject to a borrowing base limitation (the "Revolving Credit Facility") maturing on March 31, 2004, a $25 million amortizing term loan facility maturing on
March 31, 2004 (the "A Term Loan Facility") and a $50 million amortizing term loan facility maturing on March 31, 2005 (the "B Term Loan Facility").

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

80

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

81

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

|                                 |                                    | Balance at
Beginning of
Period |   | Expense/
(Income) |  | Write-offs |   | Other
Adjustments |     | Balance at
End of
Period
|-------------------------------- | ---------------------------------- | ------------------------------ | - | ----------------- |  | ---------- | - | ----------------- | --- | ------------------------
|
|Fiscal Year ended March 31, 2003 |                                    |                                |   |                   |  |            |   |                   |     |                         
|                                 | Allowance for doubtful accounts    |                                | $ | 2,557             |  | 873        |   | (886              | )   |                        
|                                 | Reserve for inventory obsolescence |                                | $ | 390               |  | (1         | ) | (4                | )   |                        
|                                 | Income tax valuation allowance     |                                | $ | 23,346            |  |           |   |                  | (a) | 3,469                   
|Fiscal Year ended March 31, 2002 |                                    |                                |   |                   |  |            |   |                   |     |                         
|                                 | Allowance for doubtful accounts    |                                | $ | 3,905             |  | (647       | ) | (701              | )   |                        
|                                 | Reserve for inventory obsolescence |                                | $ | 485               |  | (62        | ) | (33               | )   |                        
|                                 | Income tax valuation allowance     |                                | $ | 23,469            |  |           |   |                  | (b) | (123                    
|Fiscal Year ended March 31, 2001 |                                    |                                |   |                   |  |            |   |                   |     |                         
|                                 | Allowance for doubtful accounts    |                                | $ | 2,945             |  | 1,452      |   | (492              | )   |                        
|                                 | Reserve for inventory obsolescence |                                | $ | 489               |  | 189        |   | (193              | )   |                        
|                                 | Income tax valuation allowance     |                                | $ | 36,081            |  |           |   |                  | (c) | (12,612                 

82

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SIGNATURES

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

| | ACG Holdings, Inc.
American Color Graphics, Inc.                                                                                                                                                                                           |  |              
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------
| |                                                                                                                                                                                                                                            |  | Date         
| | /s/Stephen M. DyottStephen M. Dyott
Chairman, President and Chief Executive Officer
ACG Holdings, Inc.
Chairman and Chief Executive Officer
American Color Graphics, Inc.
Director of ACG Holdings, Inc. and American Color Graphics, Inc. |  | June 11, 2003

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

|Signature                                     |  | Title                                                                 |  | Date         
|--------------------------------------------- |  | --------------------------------------------------------------------- |  | -------------
|                                              |  |                                                                       |  |              
|/s/Patrick W. Kellick(Patrick W. Kellick)     |  | Senior Vice President
Chief Financial Officer
and Assistant Secretary |  | June 11, 2003
|/s/Angela C. Marshall(Angela C. Marshall)     |  | Corporate Controller
(Chief Accounting Officer)                       |  | June 11, 2003
|/s/Michael C. Hoffman(Michael C. Hoffman)     |  | Director                                                              |  | June 11, 2003
|/s/Eric T. Fry(Eric T. Fry)                   |  | Director                                                              |  | June 11, 2003
|/s/Jonathan W. Gutstein(Jonathan W. Gutstein) |  | Director                                                              |  | June 11, 2003

83

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CERTIFICATIONS

I, Stephen M. Dyott, Chief Executive Officer, certify that:



|Date: June 11, 2003 |  | /s/Stephen M. DyottStephen M. Dyott
Chief Executive Officer
|------------------- |  | -----------------------------------------------------------

84

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CERTIFICATIONS

I, Patrick W. Kellick, Chief Financial Officer, certify that:



|Date: June 11, 2003 |  | /s/Patrick W. KellickPatrick W. Kellick
Chief Financial Officer
|------------------- |  | ---------------------------------------------------------------

85

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ACG HOLDINGS, INC.
Annual Report on Form 10-K
Fiscal Year Ended March 31, 2002
Index to Exhibits

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                   
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                                                                                                               
|3.1         |  | Certificate of Incorporation of Graphics, as amended to date*                                                                                                                                                                                                                                                                 
|3.2         |  | By-laws of Graphics, as amended to date*                                                                                                                                                                                                                                                                                      
|3.3         |  | Restated Certificate of Incorporation of Holdings, as amended to date*                                                                                                                                                                                                                                                        
|3.4         |  | By-laws of Holdings, as amended to date*                                                                                                                                                                                                                                                                                      
|4.1         |  | Indenture (including the form of Note), dated as of August 15, 1995, among Graphics, Holdings and NationsBank of Georgia, National Association, as Trustee**                                                                                                                                                                  
|10.1        |  | Credit Agreement, dated as of August 15, 1995 and Amended and Restated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding, Inc. as
Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto              
|10.1(a)     |  | June 8, 1998, First Amendment to Amended and Restated Credit Agreement dated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding, Inc.
as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto        
|10.1(b)     |  | February 3, 1999, Second Amendment to Amended and Restated Credit Agreement dated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding,
 Inc. as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto****  
|10.1(c)     |  | November 9, 1999, Third Amendment to Amended and Restated Credit Agreement dated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding,
 Inc. as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto    
|10.1(d)     |  | January 26, 2001, Fourth Amendment of Amended and Restated Credit Agreement dated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding,
 Inc. as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto 
|10.1(e)     |  | March 21, 2002, Fifth Amendment to Amended and Restated Credit Agreement dated as of May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding, Inc.
as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto    
|10.1(f)     |  | October 17, 2002, Sixth Amendment to Amended and Restated Credit Agreement dated May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding, Inc. as
Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto******        
|10.1(g)     |  | February 7, 2003, Seventh Amendment to Amended and Restated Credit Agreement dated May 8, 1998, among Holdings, Graphics, GE Capital Corporation as Documentation Agent, Morgan Stanley Senior Funding, Inc.
as Syndication Agent, Bankers Trust Company as Administrative Agent and the parties signatory thereto******      
|10.2        |  | Employment Agreement, dated as of October 19, 1998, between Graphics and Stephen M. Dyott***                                                                                                                                                                                                                                  
|10.3        |  | Severance Letter, dated August 1, 1999, between Graphics and Stuart Reeve***                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                               

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|10.4    |  | Severance Letter, dated July 15, 1998, between Graphics and Joseph M. Milano                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5    |  | Severance Letter, dated July 15, 1998, between Graphics and Timothy M. Davis                                                                                                                                                                                                  
|10.6    |  | Severance Letter, dated September 1, 1995, between Graphics and Larry Williams                                                                                                                                                                                                
|10.6(a) |  | Amendment to Severence Letter, dated June 3, 1999, between Graphics and Larry Williams*****                                                                                                                                                                                    
|10.7    |  | Amended and Restated Stockholders' Agreement, dated as of August 14, 1995, among Holdings, the Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley Capital Partners III, L.P. and the additional parties named
therein**                                             
|10.7(a) |  | Amendment No. 1, dated January 16, 1998, to Amended and Restated Stockholders' Agreement dated as of August 14, 1995, among Holdings, the Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley
Capital Partners III, L.P., and the additional parties named herein
|10.8    |  | Stock Option Plan of Holdings                                                                                                                                                                                                                                                
|10.9    |  | Term Loan Agreement, dated as of June 30, 1997, among Holdings, Graphics, BT Commercial Corporation as Agent, Bankers Trust Company as Issuing Bank, and the parties signatory
thereto                                                                                     
|10.10   |  | Holdings Common Stock Option Plan                                                                                                                                                                                                                                          
|10.11   |  | Holdings Preferred Stock Option Plan                                                                                                                                                                                                                                       
|12.1    |  | Statement Re: Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                
|21.1    |  | List of Subsidiaries                                                                                                                                                                                                                                                           
|99.1    |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                        

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|*      |  | Incorporated by reference from Amendment No. 2 to Form S-1 filed on October 4, 1993Registration number 33-65702.                        
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------
|      |  | Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 1999Commission file number 33-97090.  
|**     |  | Incorporated by reference from Form S-4 filed on September 19, 1995Registration number 33-97090.                                        
|     |  | Incorporated by reference from Amendment No. 2 to Form S-4 filed on November 22, 1995Registration number 33-97090.                      
|***    |  | Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 2000Commission file number 33-97090.  
|    |  | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended December 31, 1999Commission file number 33-97090.
|****   |  | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended December 31, 1998Commission file number 33-97090.
|   |  | Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 1998Commission file number 33-97090.  
|*****  |  | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 1999Commission file number 33-97090.    
|  |  | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2000Commission file number 33-97090.
|****** |  | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2002Commission file number 33-97090.
| |  | Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 2002Commission file number 33-97090.  

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