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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
FOR THE FISCAL QUARTER ENDED MARCH 31, 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 May 15, 1998, all of which
were held by an affiliate.
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<PAGE>
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION: PAGE NO.
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<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet -- March 31, 1998 and September 30, 1997............... 2
Consolidated Statement of Operations -- Three months ended
March 31, 1998 and 1997......................................................... 3
Consolidated Statements of Operations -- Six months ended
March 31, 1998, the five and one-half months
ended March 31, 1997 and the fourteen days ended
October 14, 1996................................................................ 4
Consolidated Statement of Cash Flows -- Six months ended
March 31, 1998, the five and one-half months
ended March 31, 1997 and the 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............................................... 8
PART II -- OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K............................................ 11
SIGNATURES............................................................................ 12
</TABLE>
1
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOSS GRAPHIC SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 41.7 $ 49.6
Accounts receivable, net............................................................. 165.1 174.7
Inventories, net..................................................................... 262.1 163.8
Other current assets................................................................. 18.4 10.8
----------- ------
Total current assets................................................................. 487.3 398.9
Property and equipment, net............................................................ 169.1 167.8
Goodwill, net.......................................................................... 314.8 315.3
Other assets........................................................................... 29.0 24.8
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Total assets......................................................................... $ 1,000.2 $ 906.8
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----------- ------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................................................... $ 102.2 $ 111.6
Short-term debt...................................................................... 136.4 49.6
Current portion of long-term debt.................................................... 1.7 10.6
Advance payments from customers...................................................... 174.3 84.9
Other current liabilities............................................................ 161.5 171.4
----------- ------
Total current liabilities............................................................ 576.1 428.1
Long-term debt, less current portion................................................... 274.8 291.2
Other liabilities...................................................................... 60.1 62.0
----------- ------
Total liabilities.................................................................... 911.0 781.3
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...................................................................... (78.3) (41.9)
Cumulative translation adjustment...................................................... (3.3) (3.0)
----------- ------
Total shareholder's equity............................................................. 80.6 117.3
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Total liabilities and shareholder's equity............................................. $ 1,000.2 $ 906.8
----------- ------
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</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 MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net sales...................................................................................... $ 138.1 $ 146.0
Cost of sales.................................................................................. 115.6 109.5
Manufacturing restructuring charges............................................................ 3.7 0.0
Amortization of inventory step-up.............................................................. 0.0 11.9
--------- ---------
Gross profit................................................................................. 18.8 24.6
Operating expenses............................................................................. 15.9 18.7
Research and product development............................................................... 7.6 4.4
Goodwill amortization.......................................................................... 2.5 2.2
--------- ---------
Operating profit............................................................................. (7.2) (0.7)
Other income................................................................................... 0.0 1.8
Interest expense............................................................................... (9.9) (10.8)
--------- ---------
Loss before income taxes..................................................................... (17.1) (9.7)
Provision/(benefit) for income taxes........................................................... 8.7 0.0
--------- ---------
Net loss....................................................................................... $ (25.8) $ (9.7)
--------- ---------
--------- ---------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements
3
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GOSS GRAPHIC SYSTEMS, INC.
STATEMENT OF OPERATIONS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
CONSOLIDATED STATEMENT OF
STATEMENT OF OPERATIONS OPERATIONS
------------------------------------ (PREDECESSOR COMPANY)
FOR THE SIX ---------------------
MONTHS ENDED FOR THE FIVE AND FOR THE FOURTEEN
MARCH 31, ONE-HALF MONTHS ENDED DAYS ENDED
1998 MARCH 31, 1997 OCTOBER 14, 1996
------------- --------------------- ---------------------
<S> <C> <C> <C>
Net sales.............................. $ 244.1 $ 240.4 $ 4.6
Cost of sales.......................... 200.5 183.6 10.2
Manufacturing restructuring charges.... 8.1 0.0 0.0
Amortization of inventory step-up...... 0.0 21.8 0.0
------ ------ -----
Gross profit......................... 35.5 35.0 (5.6)
Operating expenses..................... 33.1 34.4 3.1
Research and product development....... 11.4 7.6 0.7
Goodwill amortization.................. 4.9 4.1 0.2
------ ------ -----
Operating profit..................... (13.9) (11.1) (9.6)
Other income........................... 0.2 1.8 0.7
Interest expense....................... (20.8) (18.8) (0.2)
------ ------ -----
Loss before income taxes............. (34.5) (28.1) (9.1)
Provision/(benefit) for income taxes... 1.9 1.1 (3.4)
------ ------ -----
Net loss............................... $ (36.4) $ (29.2) $ (5.7)
------ ------ -----
------ ------ -----
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements
4
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GOSS GRAPHIC SYSTEMS, INC.
STATEMENT OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
STATEMENT OF
CONSOLIDATED CASH FLOWS
STATEMENT OF CASH FLOWS (PREDECESSOR
---------------------------------- COMPANY)
FOR THE SIX FOR THE FIVE AND -------------------
MONTHS ENDED ONE-HALF MONTHS FOR THE FOURTEEN
MARCH 31, ENDED DAYS ENDED
1998 MARCH 31, 1997 OCTOBER 14, 1996
------------- ------------------- -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................. $ (36.4) $ (29.2) $ (5.7)
Depreciation......................... 10.1 12.1 0.6
Amortization of inventory step-up.... 0.0 21.8 0.0
Amortization of intangible assets.... 5.2 5.4 0.2
Changes in assets and liabilities:...
Accounts receivable................ 9.6 2.1 27.4
Inventory.......................... (98.2) 24.5 (7.7)
Accounts payable................... (9.5) (14.4) 3.1
Customer advances.................. 89.4 17.9 9.1
Other assets....................... (10.2) 28.0 (7.5)
Other liabilities.................. (11.5) (56.1) (2.5)
------ ------- ------
NET CASH FROM OPERATING
ACTIVITIES..................... (51.5) 12.1 17.0
------ ------- ------
INVESTING ACTIVITIES:
Capital expenditures................. (12.5) (2.2) 0.0
Other................................ (0.2) (3.7) (0.6)
Investment in affiliate.............. (5.3) 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..................... (18.0) (608.3) (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
facilities......................... 86.8 17.3 0.0
Term loan, original amount
borrowed........................... 0.0 75.0 0.0
Repayment of term loan............... (21.9) 0.0 0.0
Repayment of mortgages............... (3.3) 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..................... 61.6 616.5 (14.3)
------ ------- ------
Net (decrease)/increase in cash........ (7.9) 20.3 2.1
Cash at the beginning of the period.... 49.6 0.0 2.3
------ ------- ------
Cash at the end of the period.......... $ 41.7 $ 20.3 $ 4.4
------ ------- ------
------ ------- ------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements
5
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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 six months ended
March 31, 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 March 31, 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 six month period to a five 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>
MARCH 31, SEPTEMBER 30,
1998 1997
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<S> <C> <C>
Materials...................................... $ 95.1 $ 61.7
Work in process................................ 76.9 42.2
Finished goods................................. 62.8 33.0
Aftermarket parts.............................. 27.3 26.9
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Total inventories, net....................... $ 262.1 $ 163.8
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</TABLE>
3. DEBT
The debt obligations of Goss are as follows (in millions):
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1997
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<S> <C> <C>
Short-term debt................................ $ 136.4 $ 49.6
Term loan...................................... 0.0 21.9
Mortgage loans................................. 51.5 54.9
Senior subordinated notes...................... 225.0 225.0
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Total debt................................... $ 412.9 $ 351.4
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</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
four
6
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GOSS GRAPHIC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DEBT (CONTINUED)
preceding fiscal quarters. Goss was in compliance with these covenants for the
quarter ended December 31, 1997. For the quarter ended March 31, 1998, the
lenders under the credit facility agreed to waive noncompliance as Goss did not
satisfy these covenants. See Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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 Goss equipment, 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.
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 is currently developing a
monitoring proposal for submission to the Commonwealth.
In connection 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.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Data presented for the year-to-date period ended March 31 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
six month period to a five 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 backlog of customer commitments for presses at March 31, 1998 was
$818.9 million, the highest level since fiscal year 1991, and an increase of
58.0% from the level of $518.2 million at March 31, 1997. Net sales for the
second quarter of fiscal year 1998 decreased by 5.4% to $138.1 million as
compared to the second quarter of fiscal year 1997. Although the backlog
increased significantly by 35% from the beginning of 1998 due to increased
orders, sales for the second quarter decreased as shipments were deferred to
later in the fiscal year at the request of customers. Net sales for the first
six months of 1998 are $244.1 million, a slight increase of 1.5% from the first
six months of 1997. The changes in net sales, including equipment and parts, by
product line were:
- Sales of large newspaper presses decreased 36.1% for the second quarter to
$54.2 million and 22.8% for the first six months to $112.0 million. The
decrease is the result of shipments deferred to later in the year at the
request of customers in addition to normal fluctuations in the large
newspaper press business.
- Sales of small newspaper presses increased 54.8% for the second quarter to
$54.8 million and 53.9% for the first six months to $94.8 million. Higher
worldwide volumes accounted for most of this increase. Also contributing
to the overall increase is the inclusion of $8.5 million of year-to-date
sales by Goss's China joint venture which was reported as an equity
investment until the third quarter of 1997 when Goss achieved a majority
interest and now is consolidated for financial reporting purposes.
- Sales of insert presses more than doubled for the second quarter to $13.5
million and increased 30.9% for the first six months to $15.4 million. The
increase for the second quarter and the first six months is due to large
shipments to one customer in the second quarter of 1998.
- Sales of commercial presses decreased 21% for the second quarter to $15.6
million due to normal quarterly fluctuations in orders and shipments. For
the first six months sales were unchanged from the prior year at $21.9
million.
GROSS PROFIT
Gross profit, which reflects net sales less cost of sales, manufacturing
restructuring charges and amortization of inventory step-up, decreased 23.5% to
$18.8 million for the second quarter of fiscal 1998 and increased 1.3% to $35.5
million for the first six months. Goss's gross profit margin decreased from
16.9% to 13.6% for the second quarter and decreased from 14.6% to 14.5% for the
first six months.
Several significant non-recurring items affected these results. In 1997,
gross profit reflected $11.9 million for the quarter and $21.8 million for the
first six months in amortization of the step-up in value of inventory following
Goss's 1996 acquisition. The 1998 results also have been impacted by additional
costs resulting from the restructuring of the Company's U.S. manufacturing
operations in 1997 and 1998. These
8
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costs, which totaled $3.7 million in the second quarter and $8.1 million in the
first six months, consist of temporarily higher prices paid to new suppliers for
tooling and startup and costs of maintaining temporarily idle facilities,
including workforce realignments. Also, in the second quarter of 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 $1.2 million charge.
Excluding these non-recurring items, gross profit for the second quarter was
$23.7 million or 17.2% of sales as compared to $36.6 million or 25.1% of sales
in 1997. For the first six months, gross profit was $44.8 million or 18.4% of
sales as compared to $56.8 million or 23.6% of sales in 1997. The decrease in
gross profit and gross profit margin was associated with large newspaper and
insert sales. Further details on gross profit by product line are provided
below:
- For sales to large and small newspapers, gross profit for the second
quarter decreased by $10.9 million to $21.9 million and the gross profit
margin decreased to 20.1% from 27.2% in 1997. For the first six months,
gross profit decreased by $10.0 million to $41.6 million and gross profit
margin decreased to 20.1% from 25.0% in 1997. The decrease in gross profit
and gross profit margin is due to lower pricing and an unfavorable mix of
products sold.
- Gross profit on sales of commercial press equipment in the second quarter
was unchanged from 1997 and gross profit margin increased to 18.1% from
14.3%. For the first six months, gross profit increased by $0.8 million to
$4.5 million and the gross profit margin increased to 20.6% from 16.6% in
1997. The gross profit margin increase is due to a favorable mix of
products sold.
- Gross profit on sales of insert press equipment in the second quarter
decreased by $1.9 million to a gross loss of $0.9 million. For the first
six months gross profit decreased by $2.8 million to a gross loss of $1.3
million. The decrease in gross profit is due to an unfavorable mix of
products sold and to startup costs associated with completing the first
shipments of a newly developed press.
OPERATING EXPENSES
Operating expenses -- I.E., selling, general and administrative expenses --
decreased by 15% to $15.9 million for the second quarter and by 3.8% to $33.1
million for the first six months as a result of lower commissions.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development costs increased by $3.2 million to $7.6
million for the second quarter and by $3.8 million to $11.4 million for the
first six months. In the second quarter of 1998, research and product
development costs included $4.3 million of engineering costs associated with the
development of a new insert press.
INTEREST EXPENSE
Interest expense decreased by $0.9 million for the quarter and increased
$2.0 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.
INCOME TAXES
Due to losses in certain jurisdictions, the projected overall effective tax
rate was re-evaluated during the second quarter of 1998 resulting in a tax
provision of $8.7 million for the second quarter and $1.9 million for the first
six months.
9
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FINANCIAL CONDITION
In 1998 operating activities used $51.5 million of cash compared to 1997
when operating activities provided $12.1 million of cash. The negative cash flow
from operations in 1998 is due to the net loss of $36.4 million, the $98.2
million build up of inventory resulting from an increased backlog of customer
commitments scheduled to ship during the remainder of fiscal 1998, 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 worldwide. As of March 31,
1998, borrowing and letters of credit under this facility totaled $181.9
million.
Goss's revolving credit facility contains various financial covenants
including covenants requiring Goss to maintain a minimum EBITDA, a minimum fixed
charge coverage ratio, a minimum net worth, and a maximum leverage ratio. These
covenants are described more fully in Section 7.6 of the 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. In general these covenants become more stringent over time.
These covenants must be satisfied at the end of each fiscal quarter and
generally cover Goss's performance during the four preceding fiscal quarters.
Goss was in compliance with these covenants for the quarter ended December 31,
1997. For the quarter ended March 31, 1998, the lenders under the credit
facility agreed to waive noncompliance as Goss did not satisfy these covenants.
Goss attributes this noncompliance to the reasons described above under "Results
of Operations" which include manufacturing restructuring charges in the U.S., a
charge for the re-evaluation of the costs to complete certain large newspaper
contracts and insert new product development costs, as well as delays in
consummating certain anticipated sales.
Discussions are ongoing with the lenders with respect to amending the
covenants to reflect Goss's expected performance for the year, which has changed
from the original business plan, as it is likely that Goss will not satisfy
these same covenants as of June 30, 1998. Although Goss does not anticipate any
significant difficulty in amending the credit facility, no assurance can be
provided that these discussions will be successful.
10
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) Exhibit 4.3 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 February 12, 1998.
</TABLE>
11
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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.
By: /s/ WILLIAM G. FERKO
-----------------------------------------
William G. Ferko
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER AND
Date: May 20, 1998 PRINCIPAL ACCOUNTING OFFICER)
12
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EXHIBIT 4.3
LIMITED WAIVER
This LIMITED WAIVER (this "WAIVER") is dated as of May 13, 1998 and
entered into by and among GOSS GRAPHIC SYSTEMS, INC., a corporation organized
under the laws of Delaware whose registered office is at 700 Oakmont Lane,
Westmont, Illinois 60559, United States of America ("COMPANY"), GOSS GRAPHIC
SYSTEMS LIMITED, a company organized under the laws of England whose
registered office is at Greenbank Street, Preston, Lancanshire PR1 7LA,
United Kingdom ("GOSS UK"), GOSS SYSTEMES GRAPHIQUES NANTES S.A., a SOCIETE
ANONYME organized under the laws of France whose registered office is at 20,
rue de Koufra, 44300 Nantes, France ("GOSS FRANCE"), GOSS GRAPHIC SYSTEMS
JAPAN CORPORATION, a corporation organized under the laws of Japan whose
registered office is located at Mitsuya Toranomon Building, 22-14 Toranomon
1-Chome, Minato-Ku, Tokyo 105, Japan ("GOSS JAPAN"; together with Company,
Goss UK and Goss France, the "BORROWERS"), 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 Lenders
("ADMINISTRATIVE AGENT"), and CREDIT SUISSE FIRST BOSTON, as syndication agent
("SYNDICATION AGENT"), and is made with reference to that certain Amended
and Restated Multicurrency Credit Agreement dated as of January 19, 1998 (the
"CREDIT AGREEMENT") by and among Borrowers, Lenders, Indemnifying Lenders,
Administrative Agent and Syndication Agent. 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 compliance by
Company of certain financial covenants with respect to the second Fiscal
Quarter of 1998.
NOW THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as
follows:
SECTION 1. LIMITED WAIVER
Subject to the terms and conditions set forth herein and in
reliance on the representations and warranties of Company herein contained,
Lenders hereby waive compliance with the provisions of subsections 7.6B, 7.6C
and 7.6D of the Credit Agreement to the extent, and only to the extent,
necessary to permit (i) the Consolidated Leverage Ratio for the four-Fiscal
Quarter period ending on the last day of the second Fiscal Quarter of 1998 to
be higher than the ratio set forth in the table contained in subsection 7.6B,
(ii) the Consolidated Adjusted EBITDA for the four-Fiscal Quarter period
ending on the last day of
<PAGE>
the second Fiscal Quarter of 1998 to be lower than the figure set forth in
the table contained in subsection 7.6C and (iii) the Consolidated Net Worth
for the second Fiscal Quarter of 1998 to be lower than the figure set forth
in the table contained in subsection 7.6D; PROVIDED that in any event Company
shall not permit (1) the Consolidated Leverage Ratio for such four-Fiscal
Quarter period to be more than 6.88:1.00, (2) the Consolidated Adjusted
EBITDA for such four-Fiscal Quarter period to be less than $54,000,000 and
(3) the Consolidated Net Worth at any time during the second Fiscal Quarter of
1998 to be less than $83,300,000.
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 7.6B, 7.6C and 7.6D of the Credit Agreement in
the manner and 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 7.6B, 7.6C and 7.6D of the Credit Agreement in any other
instance or (ii) any other term, provision or condition of the Credit
Agreement or any other instrument or agreement referred to therein
(whether in connection with the noncompliance of Company of the
financial covenants described above or otherwise); 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 herein.
Except as expressly set forth herein, the terms, provisions and
conditions of the Credit Agreement and the other Loan Documents shall remain
in full force and effect and in all other respects are hereby ratified and
confirmed.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Waiver, Company
hereby represents and warrants 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;
(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 hereon, Company has performed all agreements to
be performed on its part 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 hereof by Borrowers and by Lenders constituting
Requisite Lenders and receipt by Company 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 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK),
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
BORROWERS:
GOSS GRAPHIC SYSTEMS, INC.
By: ______________________
Title: ___________________
GOSS GRAPHIC SYSTEMS LIMITED
By: ______________________
Title: ___________________
GOSS SYSTEMES GRAPHIQUES NANTES
S.A.
By: ______________________
Title: ___________________
GOSS GRAPHIC SYSTEMS JAPAN
CORPORATION
By: ______________________
Title: ___________________
<PAGE>
LENDERS:
BANKERS TRUST COMPANY,
as Administrative Agent and as a
Lender
By: ______________________
Title: ___________________
<PAGE>
CREDIT SUISSE FIRST BOSTON,
as Syndication Agent and as a
Lender
By: ______________________
Title: ___________________
By: ______________________
Title: ___________________
[Other Signature Pages Omitted]
<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 MARCH 31, 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> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 40
<SECURITIES> 2
<RECEIVABLES> 180
<ALLOWANCES> 15
<INVENTORY> 262
<CURRENT-ASSETS> 487
<PP&E> 203
<DEPRECIATION> 34
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 576
<BONDS> 277
0
0
<COMMON> 0
<OTHER-SE> 162
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 138
<TOTAL-REVENUES> 138
<CGS> 115
<TOTAL-COSTS> 142
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> (17)
<INCOME-TAX> 9
<INCOME-CONTINUING> (26)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
