<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
FOR THE FISCAL QUARTER ENDED JUNE 30, 1998
OF
GOSS GRAPHIC SYSTEMS, INC.
a Delaware Corporation
IRS Employer Identification No. 25-1200273
SEC File Number 333-08421
700 OAKMONT LANE
WESTMONT, ILLINOIS 60559-5546
(630) 850-5600
Goss (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 and (2)
has been subject to such filing requirements for the past 90 days.
Goss had 100 shares of Common Stock outstanding at August 13, 1998, all of
which were held by an affiliate.
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GOSS GRAPHIC SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION: PAGE NO.
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<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheet - June 30, 1998 and
September 30, 1997 2
Consolidated Statement of Operations - Three months ended
June 30, 1998 and 1997 3
Consolidated Statements of Operations - Nine months ended
June 30, 1998, eight and one-half months ended
June 30, 1997 and fourteen days ended October 14, 1996 4
Consolidated Statement of Cash Flows - Nine months ended
June 30, 1998, eight and one-half months ended
June 30, 1997 and fourteen days ended October 14, 1996 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION:
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
1
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOSS GRAPHIC SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $32.6 $49.6
Accounts receivable, net 175.8 174.7
Inventories, net 286.5 163.8
Other current assets 21.6 10.8
------- ------
Total current assets 516.5 398.9
Property and equipment, net 174.6 167.8
Goodwill, net 312.8 315.3
Other assets 30.5 24.8
-------- ------
Total assets $1,034.4 $906.8
-------- ------
-------- ------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $134.0 $111.6
Short-term debt 165.2 49.6
Current portion of long-term debt 1.1 10.6
Advance payments from customers 153.8 84.9
Other current liabilities 165.7 171.4
-------- ------
Total current liabilities 619.8 428.1
Long-term debt, less current portion 273.3 291.2
Other liabilities 62.5 62.0
-------- ------
Total liabilities 955.6 781.3
Minority interest 8.6 8.2
Common stock, 100 shares authorized and
outstanding, $0.01 par value 0.0 0.0
Additional paid in capital 162.2 162.2
Retained earnings (88.4) (41.9)
Cumulative translation adjustment (3.6) (3.0)
-------- ------
Total shareholder's equity 70.2 117.3
-------- ------
Total liabilities and shareholder's equity $1,034.4 $906.8
-------- ------
-------- ------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements
2
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GOSS GRAPHIC SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED JUNE 30,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $208.1 $124.9
Cost of sales 177.8 96.6
Manufacturing restructuring charges 4.2 0.0
Amortization of inventory step-up 0.0 12.6
------ ------
Gross profit 26.1 15.7
Operating expenses 18.2 16.6
Research and product development 3.5 3.6
Goodwill amortization 1.9 1.8
------ ------
Operating profit 2.5 (6.3)
Other income 0.0 3.1
Interest expense (11.4) (9.5)
------ ------
Loss before income taxes (8.9) (12.7)
Provision/(benefit) for income taxes 1.1 0.0
------ ------
Net loss $(10.0) $(12.7)
------ ------
------ ------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements
3
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
STATEMENT OF OPERATIONS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
CONSOLIDATED STATEMENT OF OPERATIONS
STATEMENT OF OPERATIONS (PREDECESSOR COMPANY)
---------------------------------------- ------------------------
FOR THE NINE FOR THE EIGHT AND FOR THE FOURTEEN
MONTHS ENDED ONE-HALF MONTHS ENDED DAYS ENDED
JUNE 30, 1998 JUNE 30, 1997 OCTOBER 14, 1996
------------- ---------------------- -----------------
<S> <C> <C> <C>
Net sales $452.2 $365.4 $4.6
Cost of sales 378.2 280.4 10.2
Manufacturing restructuring charges 12.3 0.0 0.0
Amortization of inventory step-up 0.0 34.4 0.0
------ ------ -----
Gross profit 61.7 50.6 (5.6)
Operating expenses 51.7 51.1 3.1
Research and product development 14.8 11.3 0.7
Goodwill amortization 6.8 5.9 0.2
------ ------ -----
Operating profit (11.6) (17.7) (9.6)
Other income 0.4 3.5 0.7
Interest expense (32.2) (26.6) (0.2)
------ ------ -----
Loss before income taxes (43.4) (40.8) (9.1)
Provision/(benefit) for income taxes 3.1 1.1 (3.4)
------ ------ -----
Net loss $(46.5) $(41.9) $(5.7)
------ ------ -----
------ ------ -----
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements
4
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
STATEMENT OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
CONSOLIDATED STATEMENT OF CASH FLOWS
STATEMENT OF CASH FLOWS (PREDECESSOR COMPANY)
---------------------------------------- ------------------------
FOR THE NINE FOR THE EIGHT AND FOR THE FOURTEEN
MONTHS ENDED ONE-HALF MONTHS ENDED DAYS ENDED
JUNE 30, 1998 JUNE 30, 1997 OCTOBER 14, 1996
------------- ---------------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(46.5) $(41.9) $(5.7)
Depreciation 11.8 19.4 0.6
Amortization of inventory step-up 0.0 34.4 0.0
Amortization of goodwill 6.8 5.9 0.2
Changes in assets and liabilities:
Accounts receivable (1.1) 34.2 27.4
Inventory (122.6) (35.6) (7.7)
Accounts payable 22.4 (3.8) 3.1
Customer advances 68.9 44.0 9.1
Other assets (10.8) 24.2 (7.5)
Other liabilities (5.0) (59.3) (2.5)
------ ------- -------
Net cash from operating activities (76.1) 21.5 17.0
------ ------- -------
INVESTING ACTIVITIES:
Capital expenditures (21.5) (6.2) 0.0
Other (0.6) (1.2) (0.6)
Investment in affiliate (7.1) 0.0 0.0
Acquisition of Rockwell Graphic
Systems, net of cash acquired
of $7.2 0.0 (602.4) 0.0
------ ------- -------
Net cash from investing activities (29.2) (609.8) (0.6)
------ ------- -------
FINANCING ACTIVITIES:
Issuance of senior subordinated notes 0.0 225.0 0.0
Sale of customer notes receivable 0.0 137.1 0.0
Capital contributions 0.0 162.1 0.0
Net borrowings under revolving credit 115.6 58.2 0.0
facilities
Term loan, original amount borrowed 0.0 75.0 0.0
Repayment of term loan (21.9) 0.0 0.0
Repayment of mortgages (5.4) 0.0 0.0
Repayment of foreign long-term debt 0.0 0.0 (25.9)
Net cash transferred from Rockwell 0.0 0.0 11.6
------ ------- -------
Net cash from financing activities 88.3 657.4 (14.3)
------ ------- -------
Net (decrease)/increase in cash (17.0) 69.1 2.1
Cash at the beginning of the period 49.6 0.0 2.3
------ ------- -------
Cash at the end of the period $32.6 $69.1 $4.4
------ ------- -------
------ ------- -------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements
5
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of Goss Graphic Systems, Inc. ("Goss" or the "Company"), the
unaudited financial statements contain all adjustments, consisting solely of
adjustments of a recurring nature, necessary to present fairly the financial
position, results of operations, and cash flows for the periods presented.
These statements should be read in conjunction with Goss's Form 10-K for the
year ended September 30, 1997. The results of operations for the nine months
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1998.
Data presented for the year-to-date period ended June 30, 1997 does not
include the fourteen-day period from October 1, 1996 through October 14,
1996. This brief "stub period" preceded Goss's acquisition on October 15,
1996. As a result, year-to-date comparisons between fiscal 1998 and 1997
involve comparisons of a nine month period to an eight and one-half month
period.
The consolidated statement of cash flows for 1997 included herein has been
restated to reflect the final acquisition-date balance sheet.
Certain reclassifications have been made to the 1997 financial statements to
conform to the classifications used in 1998.
2. INVENTORIES
Net inventories are summarized as follows (in millions):
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
------ -------------
<S> <C> <C>
Materials $120.5 $61.7
Work in process 73.0 42.2
Finished goods 64.8 33.0
Parts 28.2 26.9
------ -------
Total inventories, net $286.5 $163.8
------ -------
------ -------
</TABLE>
6
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GOSS GRAPHIC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. DEBT
The debt obligations of Goss are as follows (in millions):
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
------ -------------
<S> <C> <C>
Short-term debt $165.2 $49.6
Term loan 0.0 21.9
Mortgage loans 49.4 54.9
Senior subordinated notes 225.0 225.0
------ ------
Total debt $439.6 $351.4
------ ------
------ ------
</TABLE>
On January 29, 1998 Goss amended and restated its $150.0 million revolving
credit facility to permit borrowings up to $200.0 million in multiple
currencies.
The covenants contained in the credit facility must be satisfied at the end
of each fiscal quarter and generally cover Goss's performance during the
preceding four fiscal quarters. Goss was in compliance with the covenants
for the quarter ended December 31, 1997 but was not in compliance for the
quarters ended March 31, 1998 and June 30, 1998. Goss sought and its lenders
granted waivers of covenant compliance through August 31, 1998, the date by
which Goss anticipates having completed amendments to the covenants to
reflect its revised projected operating results. See Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations for
additional detail.
4. CONTINGENCIES
LEGAL CONTINGENCIES
In the normal course of its business, Goss is subject to various claims and
lawsuits. Typically, these matters consist of product liability claims
brought by the individuals who operate the equipment that Goss sold, disputes
with customers over the performance and completion of installation of
equipment, and workers' compensation claims by Goss's own employees.
It is not presently possible to determine the outcome of these claims and
lawsuits against Goss. However, Goss maintains as an accrued liability a
reserve that is its present estimate of the total cost to resolve all of
these matters. Management does not believe that the ultimate disposition of
any of these matters will have a material adverse effect on Goss's financial
position or liquidity, although it is possible that the resolution of these
matters could be material to the results of operations in a given period.
7
<PAGE>
GOSS GRAPHIC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
ENVIRONMENTAL CONTINGENCIES
Goss has received either notices of potential liability or third-party claims
under the Federal Comprehensive Environmental Response, Compensation, and
Liability Act at six off-site disposal facilities or so-called "Superfund
Sites". Goss's share of the responsibility for these Superfund Sites
generally is minor, and although current law imposes joint and several
liability on any party deemed to be responsible at a Superfund Site,
management believes that the ultimate resolution of these matters will not be
material to Goss.
Goss's Reading, Pennsylvania facility has been operating a groundwater
remediation system under a 1981 Consent Order with the Commonwealth of
Pennsylvania as a result of its, and its predecessor's, historical waste
disposal practices. Goss has completed remediation at the site pursuant to a
remediation proposal approved by the Commonwealth and recently submitted its
monitoring proposal to the Commonwealth for approval.
In conjunction with the sale of Goss, Rockwell International Corporation
agreed to indemnify Goss for expenses attendant to environmental matters
existing on October 14, 1996 to the extent of one-half of those expenses in
excess of $1,000,000. Goss maintains as an accrued liability a reserve that
is its present estimate of the total cost to resolve all of these matters.
5. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued "Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities". The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value.
The statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. Statement 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the Company's
election, before January 1, 1998).
8
<PAGE>
Goss has not yet quantified the affects of adopting Statement 133 on its
financial statements and has not determined the timing of or method of
adopting Statement 133. However, the Statement could increase volatility in
earnings and other comprehensive income.
9
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Data presented for the year-to-date period ended June 30 1997 does not
include the fourteen-day "stub" period from October 1, 1996 through October
14, 1996 which preceded Goss's acquisition on October 15, 1996. As a result,
year-to-date comparisons between fiscal 1998 and 1997 involve comparisons of
a nine month period to an eight and one-half month period.
Readers are urged to consider carefully the financial statements and related
notes contained elsewhere in this report and in Goss's Form 10-K for its
fiscal year ended September 30, 1997 as they read the discussion below.
RESULTS OF OPERATIONS
Net Sales
Goss's net sales for the third quarter of 1998 increased by 66.6% to $208.1
million as compared to the third quarter of 1997. Net sales for the first
nine months of 1998 are $452.2 million, an increase of 23.8% from the first
eight and one-half months of 1997. The changes in net sales, including
equipment and parts, by product line were:
- - Sales of large newspaper presses increased 57.6% for the third quarter to
$99.5 million and 1.5% for the first nine months to $211.5 million. The
increase during the quarter was due to significant shipments to two European
customers. For the first nine months, the favorable third quarter results
offset lower sales during the first two quarters due to U.S. shipments
deferred to later in the fiscal year at the request of customers.
- - Sales of small newspaper presses increased 57.7% for the third quarter to
$69.3 million and 55.5% for the first nine months to $164.1 million. Higher
worldwide volumes, primarily of Universal presses, accounted for this
increase.
- - Sales of insert presses more than doubled for the third quarter from $12.4
million to $25.3 million and increased 68.3% for the first nine months to
$40.7 million. The increase for the third quarter and the first nine months
is due to significant shipments to a customer in the second and third
quarters of 1998.
- - Sales of commercial presses more than doubled for the third quarter from
$5.4 million to $14.0 million and increased 31.1% for the first nine months
to $35.9 million due to normal quarterly fluctuations in orders and
shipments.
10
<PAGE>
The United Steel Worker's Union at the Company's Reading, Pennsylvania
facility went out on strike June 20, 1998. The Reading facility manufactures
small newspaper, insert and commercial presses and during the first nine
months of 1998 has accounted for approximately 16% of Goss's total sales
volume. Management and the Union reached an agreement resolving the strike
August 9, 1998. During the strike, operations continued on a limited basis
and shipments were made from this facility. Certain shipments scheduled to
be made in the third quarter slipped as a result of the strike but are now
expected to ship in the fourth quarter. Although it is impossible to project
the effect of the strike, it could have an effect on the full year's
operating results.
Gross Profit
Gross profit, which reflects net sales less cost of sales, manufacturing
restructuring charges and amortization of inventory step-up, increased 66.8%
to $26.1 million for the third quarter of 1998 and increased 21.5% to $61.7
million for the first nine months. Goss's gross profit margin remained
unchanged at 12.6% for the third quarter and decreased slightly from 13.9% to
13.6% for the first nine months of 1998.
Several significant non-recurring items affected these results. In 1997,
gross profit reflected $12.6 million for the quarter and $34.4 million for
the first nine months in amortization of the step-up in value of inventory
following Goss's 1996 acquisition. The 1998 results have been affected by
additional costs resulting from the restructuring of the Company's U.S.
manufacturing operations. This restructuring, which began in 1997 and has
continued into 1998, was undertaken in response to increased market demand
for Goss's Universal presses. In the restructuring, the Company's Reading,
Pennsylvania plant was converted into an assembly-only facility with
Universal production capability and certain functions were outsourced to
suppliers or relocated to Goss's Cedar Rapids, Iowa facility, resulting in
additional non-recurring costs. These restructuring costs, which totaled
$4.2 million in the third quarter and $12.3 million in the first nine months,
consist of start-up costs paid to new suppliers, costs of maintaining
temporarily idle facilities while U.S. plants were being restructured, and
workforce realignments. Also, in 1998 the Company re-evaluated the estimated
cost to complete certain large newspaper contracts that were in backlog as of
the beginning of fiscal 1998, resulting in a net $1.6 million charge. The
Company also incurred $2.2 million for the quarter and $4.0 million for the
first nine months of unanticipated costs associated with completing the first
shipments of a newly developed insert press and folder.
Excluding these non-recurring items, gross profit for the third quarter was
$32.9 million or 15.8% of sales as compared to $28.3 million or 22.6% of
sales in 1997. For the first nine months, gross profit was $79.6 million or
17.6% of sales as compared to $85.1 million or 23.3% of sales in 1997. The
increase in gross profit during the quarter was due to higher sales volume
partially offset by the mix of products sold and the effects of price
competition. The decrease in gross profit and gross profit margin for the
first nine months was due generally to the same reasons. Further details on
gross profit by product line are provided below:
- - For sales to large and small newspapers, gross profit for the third quarter
increased by $2.4 million to $26.2 million and the gross profit margin
decreased to 15.5%
11
<PAGE>
from 22.2% in 1997. For the first nine months, gross profit decreased by
$7.6 million to $67.8 million and gross profit margin decreased to 18.1%
from 24.0% in 1997. The increase in gross profit in the third quarter is
due to higher sales volume partially offset by the mix of products sold.
The decrease in gross profit and gross profit margin for the first nine
months is due to lower pricing and the mix of products sold, partially
offset by higher sales volume.
- - Gross profit on sales of insert press equipment in the third quarter
increased by $3.0 million to $5.3 million and the gross profit margin
increased to 21.2% from 19.1% in 1997. For the first nine months
gross profit increased by $1.9 million to $5.9 million and the gross
profit margin decreased to 14.4% from 16.2% in 1997. These changes are
due to the mix of products sold.
- - Gross profit on sales of commercial press equipment in the third quarter
decreased by $0.8 million to $1.4 million and the gross profit margin
decreased to 9.9% from 39.7% in 1997. For the first nine months, gross
profit increased by $0.1 million to $5.9 million and the gross profit
margin decreased to 16.4% from 21.2% in 1997. The decrease in gross
profit and gross profit margin is due to the mix of products sold.
Operating Expenses
Operating expenses -- I.E., selling, general and administrative expenses
- --increased 9.6% to $18.2 million for the third quarter and 1.2% to $51.7
million for the first nine months. The third quarter increase is due to
higher agent commissions in 1998 and lower costs in 1997 resulting from the
adjustment of bad debt reserves.
Research and Product Development
Research and product development costs decreased by $0.1 million to $3.5
million for the third quarter and increased by $3.5 million to $14.8 million
for the first nine months. The year-to-date increase is due to engineering
costs of $4.3 million associated with the development of a new insert press
in the second quarter of 1998.
Other Income
Other income decreased by $3.1 million for the third quarter and for the
first nine months. In 1997 other income was favorably affected by the
settlement of certain customer disputes and foreign currency exchange gains.
12
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Interest Expense
Interest expense increased by $0.9 million for the quarter and increased $5.6
million year-to-date. The year-to-date increase is due to increased
borrowings under the Company's revolving credit facility during 1998
partially offset by lower interest rates.
FINANCIAL CONDITION
In the first three quarters of 1998, operating activities used $76.1 million
of cash compared to the first three quarters of 1997 when operating
activities provided $21.5 million of cash. The negative cash flow from
operations in 1998 is due to the net loss of $46.5 million, the build up of
inventory resulting from an increased backlog of customer commitments and a
$7.8 million post-closing purchase price adjustment paid to Rockwell
International Corporation on November 7, 1997, partially offset by increased
customer advances.
Other than cash flow from operations, Goss's primary source of liquidity is
its revolving credit facility which permits borrowings up to $200 million,
including up to $175 million in letters of credit. As of June 30, 1998,
borrowings and letters of credit under this facility totaled $190.5 million,
an increase of $8.6 million from the end of the prior fiscal quarter.
Goss's revolving credit facility contains financial covenants requiring Goss
to maintain a minimum EBITDA, a minimum fixed charge coverage ratio, a
maximum leverage ratio and a minimum net worth. These covenants are
described more fully in Section 7.6 of the January 29, 1998 credit facility
agreement, a copy of which was filed with the Securities and Exchange
Commission as Exhibit 4.2 to Goss's Form 8-K dated February 12, 1998 and is
incorporated herein by reference.
The financial covenants are based upon the Company's operating
results and cash flows and, with the exception of the minimum net worth
covenant, cover performance during the preceding four fiscal quarters. The
covenants become more stringent over time. Covenant noncompliance entitles
the lenders to declare a default under the credit facility and accelerate
repayment of outstanding amounts.
Goss was in compliance with the covenants for the quarter ended December 31,
1997. For the quarter ended March 31, 1998 Goss was not in compliance due to
the reasons described above under "Results of Operations" including
manufacturing restructuring charges in the U.S., a charge for the
re-evaluation of the costs to complete certain large newspaper contracts and
the development of a new insert product, as well as delays in consummating
certain anticipated sales. Goss sought and its lenders granted a waiver of
such noncompliance through June 30, 1998 and commenced discussions with its
lenders of proposed amendments to the credit facility and covenants to
reflect the Company's revised projections of operating results and cash
flows. Although Goss anticipated concluding the proposed amendments prior to
its June 30, 1998
13
<PAGE>
quarter end, the amendments were not finalized primarily due to the June 20,
1998 strike at the Company's Reading, Pennsylvania facility and the
uncertainty of the effect of the strike on operating results. Goss's
management and the Union reached an agreement resolving the strike on August
9, 1998. As a result of not obtaining the amendment, Goss was not in
compliance with the covenants for the quarter ended June 30, 1998 and
requested and was granted a further waiver until August 31, 1998.
Discussions are ongoing among Goss and its lenders with respect to the
proposed amendments. Goss expects to conclude the amendments prior to the
August 31, 1998 expiration date of the current waiver. In the event it does
not, Goss will request a further waiver of covenant compliance from its
lenders. There can be no assurance that further waiver will be provided,
although recent discussions with the lead lenders indicate that it would be
granted.
In addition to the revolving credit facility, Goss also is party to an
indenture under which it issued $225 million in subordinated notes and
mortgage loans on certain of its facilities. Copies of these agreements are
included as Exhibits 4.1, 4.4 and 4.5 to Goss's Form 10-K for its fiscal year
ended September 30, 1997 and are incorporated herein by reference. Should
the lenders under the revolving credit facility not agree to an amendment of
the covenants or provide a waiver and declare a default, that default could
result in a default under these agreements. Goss's management believes it will
be able to negotiate satisfactory arrangements with its lenders, however,
there could be additional costs associated with the proposed amendment.
14
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PART II. OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 4.7 Form of limited waiver to Amended and Restated
Multicurrency Agreement among Goss and the parties
named therein
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K, filed on August 11, 1998.
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GOSS GRAPHIC SYSTEMS, INC.
Date: August 13, 1998 By: /s/ WILLIAM G. FERKO
-----------------------------------
William G Ferko, Vice President
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
16
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EXHIBIT 4.7
LIMITED WAIVER
This LIMITED WAIVER (the "Waiver") is dated as of June 30, 1998 and
entered into by and among GOSS GRAPHIC SYSTEMS, INC., a corporation organized
under the laws of the State of Delaware ("Company") and whose registered
office is at 700 Oakmont Lane, Westmont, Illinois 60559, GOSS GRAPHIC SYSTEMS
LIMITED (Company Number 3212468), a company organized under the laws of
England ("Goss UK") and whose registered office is at Greenbank Street,
Preston, Lancashire PR1 7LA, GOSS SYSTEMES GRAPHIQUES NANTES, S.A., a SOCIETE
ANONYME organized under the laws of the Republic of France ("Goss France")
and whose registered office is at 20, rue de Koufra, 44300 Nantes, GOSS
GRAPHIC SYSTEMS JAPAN CORPORATION, a corporation organized under the laws of
Japan ("Goss Japan"; and together with Company, Goss UK and Goss France, the
"Borrowers") and whose registered office is at Mitsuya Toranomon Building,
22-14 Toranomon 1-Chome, Minato-Ku, Tokyo 105, THE FINANCIAL INSTITUTIONS
ACTING AS LENDERS AND LISTED ON THE SIGNATURE PAGES HEREOF, THE FINANCIAL
INSTITUTIONS ACTING AS INDEMNIFYING LENDERS AND LISTED ON THE SIGNATURE PAGES
HEREOF, BANKERS TRUST COMPANY, as administrative agent for the Lenders (in
such capacity, "Administrative Agent") and whose registered office is at One
Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006, and
CREDIT SUISSE FIRST BOSTON ("CSFB"), as syndication agent for Lenders (in
such capacity, "Syndication Agent") and whose offices are at 11 Madison
Avenue, New York, New York 10010, and, for purposes of Section 6 hereof, the
guarantors listed on the signature pages hereof, and is made with reference
to that certain Amended and Restated Multicurrency Credit Agreement dated as
of January 29, 1998, by and among Borrowers, Lenders, Indemnifying Lenders,
Administrative Agent, Syndication Agent and certain other parties (the
"Credit Agreement"). Capitalized terms used herein without definition shall
have the same meanings herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, Borrowers and Lenders desire to waive certain financial
covenants set forth in the Credit Agreement for the time period set forth
herein and to specify the interest rates applicable during such time period,
all as more specifically provided for herein;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as
follows:
Section 1. CONDITIONAL WAIVER
Subject to the terms and conditions set forth herein and in reliance on
the representations and warranties of Borrowers herein contained, Lenders
hereby waive for the period commencing on June 30, 1998 and ending on August
31, 1998 (the "Waiver Period") compliance with the provisions of subsections
7.6A, 7.6B, 7.6C and 7.6D of the Credit Agreement; PROVIDED that at no time
during the Waiver Period shall Company permit:
<PAGE>
(i) the ratio of Consolidated Adjusted EBITDA for the twelve-month
period ended June 30, 1998 to Consolidated Fixed Charges for the
twelve-month period ended June 30, 1998 to be less than 0.80:1.00;
(ii) the ratio of Consolidated Total Debt as of June 30, 1998 to
Consolidated Adjusted EBITDA for the twelve-month period ended June 30,
1998 to exceed 9.60:1.00;
(iii) Consolidated Adjusted EBITDA for the three-month period ended
June 30, 1998 to be less than $6,500,000; and
(iv) Consolidated Net Worth as of June 30, 1998 to be less than
$70,000,000;
PROVIDED FURTHER that notwithstanding anything to the contrary contained in the
Credit Agreement at all times during the Waiver Period for all purposes of the
Credit Agreement the Applicable Offshore Rate Margin shall be 2.50% per annum
and the Applicable Base Rate Margin shall be 1.50% per annum.
Section 2. LIMITATION OF WAIVER
Without limiting the generality of the provisions of subsection 10.6
of the Credit Agreement, the waiver set forth above shall be limited precisely
as written and relates solely to the noncompliance by Company with the
provisions of subsections 7.6A, 7.6B, 7.6C and 7.6D of the Credit Agreement
during the Waiver Period to the extent described above, and nothing in this
Waiver shall be deemed to:
(a) constitute a waiver of compliance by Company with respect to
(i) subsections 7.6A, 7.6B, 7.6C and 7.6D of the Credit Agreement in any
other instance or (ii) any other term, provisions or condition of the
Credit Agreement or any other instrument or agreement referred to
therein; or
(b) prejudice any right or remedy that Administrative Agent or any
Lender may now have (except to the extent such right or remedy was based
upon existing defaults that will not exist after giving effect to this
Waiver) or may have in the future under or in connection with the Credit
Agreement or any other instrument or agreement referred to therein.
Section 3. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Waiver, Borrowers hereby
represent and warrant that after giving effect to this Waiver:
(a) as of the date hereof, there exists no Event of Default or
Potential Event of Default under the Credit Agreement;
2
<PAGE>
(b) all representations and warranties contained in the Credit
Agreement and the other Loan Documents are true, correct and complete in
all material respects on and as of the date hereof except to the extent
such representations and warranties specifically relate to an earlier
date, in which case they were true, correct and complete in all material
respects on and as of such earlier date; and
c) as of the date hereof, Borrowers have performed all agreements
to be performed by Borrowers as set forth in the Credit Agreement.
Section 4. COUNTERPARTS; EFFECTIVENESS
This Waiver may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages
may be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Waiver shall become effective as of the date hereof upon the
execution of counterparts hereby by Borrowers and Holdings and Subsidiary
Guarantor and by Lenders constituting Requisite Lenders and receipt by
Borrowers and Administrative Agent of written or telephonic notification of
such execution and authorization of delivery thereof.
Section 5. GOVERNING LAW
THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION
SECTION 5-1491 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK),
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
Section 6. ACKNOWLEDGEMENT AND CONSENT BY HOLDINGS AND SUBSIDIARY GUARANTOR
Each of Holdings and Subsidiary Guarantor hereby acknowledges that it
has read this Waiver and consents to the terms thereof and further hereby
confirms and agrees that, notwithstanding the effectiveness of this Waiver,
the obligations of each of Holdings and Subsidiary Guarantor under the
Holdings Guaranty and the Subsidiary Guaranty, respectively, shall not be
impaired or affected and each of the Holdings Guaranty and the Subsidiary
Guaranty is, and shall continue to be, in full force and effect and is hereby
confirmed and ratified in all respects.
[Remainder of this page intentionally left blank.]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to
be duly executed and delivered by their respective officers thereunder duly
authorized as of the date first above written.
GOSS GRAPHIC SYSTEMS, INC., as a
Borrower
By:
Its:
GOSS GRAPHIC SYSTEMS LIMITED, as
a Borrower
By:
Its:
GOSS SYSTEMES GRAPHIQUES
NANTES, S.A., as a Borrower
By:
Its:
GOSS GRAPHIC SYSTEMS JAPAN
CORPORATION, as a Borrower
By:
Its:
GGS HOLDINGS, INC., as a Guarantor
By:
Its:
S-1
<PAGE>
GOSS REALTY, L.L.C., as a Subsidiary
Guarantor
By:
Its:
S-2
<PAGE>
BANKERS TRUST COMPANY, as
Administrative Agent and as a Lender
By:
Its:
S-3
<PAGE>
CREDIT SUISSE FIRST BOSTON, as
Syndication Agent, as a Lender and as an
Indemnifying Lender
By:
Its:
S-4
<PAGE>
THE BANK OF NOVA SCOTIA, as a
Lender
By:
Its:
S-5
<PAGE>
BANK OF AMERICA NATIONAL TRUST
& SAVINGS ASSOCIATION, as a Lender
By:
Its:
S-6
<PAGE>
THE BANK OF NEW YORK, as a Lender
By:
Its:
S-7
<PAGE>
NATIONSBANK, N.A., as a Lender
By:
Its:
S-8
<PAGE>
CREDIT AGRICOLE INDOSUEZ, as a
Lender
By:
Its:
S-9
<PAGE>
DEUTSCHE FINANCIAL SERVICES
CORPORATION, as a Lender and as an
Indemnifying Lender
By:
Its:
S-10
<PAGE>
THE FIRST NATIONAL BANK OF
CHICAGO, as a Lender
By:
Its:
S-11
<PAGE>
THE FUJI BANK, LIMITED, as a Lender
and as an Indemnifying Lender
By:
Its:
S-12
<PAGE>
HARRIS TRUST AND SAVINGS BANK,
as a Lender
By:
Its:
S-13
<PAGE>
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY, as a Lender
By:
Its:
S-14
<PAGE>
LASALLE NATIONAL BANK, as a Lender
By:
Its:
S-15
<PAGE>
NATIONAL BANK OF CANADA, A
CANADIAN CHARTERED BANK, as a
Lender
By:
Its:
S-16
<PAGE>
THE SANWA BANK, LIMITED,
CHICAGO BRANCH, as a Lender and as an
Indemnifying Lender
By:
Its:
S-17
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION, as a Lender and as an
Indemnifying Lender
By:
Its:
S-18
<PAGE>
NATIONAL WESTMINSTER BANK PLC,
NASSAU BRANCH, as a Lender
By:
Its:
S-19
<PAGE>
NATIONAL WESTMINSTER BANK PLC,
NEW YORK BRANCH, as a Lender
By:
Its:
S-20
<PAGE>
BARCLAYS BANK PLC, as a Lender
By:
Its:
S-21
<PAGE>
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, as a
Lender
By:
Its:
S-22
<PAGE>
CIBC INC., as a Lender and as an
Indemnifying Lender
By:
Its:
S-23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF GOSS GRAPHIC SYSTEMS, INC. FOR THE
QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 16
<SECURITIES> 16
<RECEIVABLES> 190
<ALLOWANCES> 14
<INVENTORY> 286
<CURRENT-ASSETS> 516
<PP&E> 226
<DEPRECIATION> 51
<TOTAL-ASSETS> 1,034
<CURRENT-LIABILITIES> 619
<BONDS> 275
0
0
<COMMON> 0
<OTHER-SE> 162
<TOTAL-LIABILITY-AND-EQUITY> 1,034
<SALES> 208
<TOTAL-REVENUES> 208
<CGS> 177
<TOTAL-COSTS> 203
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (9)
<INCOME-TAX> 1
<INCOME-CONTINUING> (10)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
