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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Filed Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission File Number 033-80618
GS TECHNOLOGIES OPERATING CO., INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1656035
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
GS TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3204785
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1901 Roxborough Road
Suite 200
Charlotte, North Carolina 28211
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (704) 366-6901
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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As of March 1, 1997, 100 shares of GS Technologies Operating Co., Inc.
Common Stock, par value $.01 per share, were outstanding, all of which are owned
by GS Technologies Corporation. Also as of March 1, 1997, 100 shares of GS
Technologies Corporation Common Stock, par value $.01 per share, were
outstanding, all of which are owned by GS Industries, Inc.
This document consists of 58 sequentially numbered pages. The exhibit
index can be found on page 53 of the sequential numbering system.
Forward-Looking Statements
The forward-looking statements included in the "Business",
"Properties", "Legal Proceedings" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections, which reflect
management's best judgment based on factors currently known, involve risks and
uncertainties. Words such as "expects", "anticipates", "believes" and "intends",
variations of such words and similar expressions are intended to identify such
forward-looking statements. Actual results could differ from those anticipated
in these forward-looking statements as a result of a number of factors
including, but not limited to, the factors discussed in such sections.
Forward-looking information provided by the Company in such sections pursuant to
the safe harbor established under the Private Securities Litigation Reform Act
of 1995 should be evaluated in the context of these factors.
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GS Technologies Corporation (the "Company" or "GST") was incorporated
in 1993 to effect the November 12, 1993 acquisition of the business and net
assets of Armco Worldwide Grinding Systems ("AWGS"), a division of Armco, Inc.
("Armco"). In August 1994, GS Technologies Operating Co., Inc. ("GSTOC"), a
wholly-owned subsidiary of GST, issued $125 million of 12% Senior Notes due 2004
(the "12% Notes). These securities are fully and unconditionally guaranteed by
GST.
On August 17, 1995, the Company was party to a merger transaction
whereby it was merged with a subsidiary of a new parent company, GS Industries,
Inc. ("GSI"), resulting in all of the issued and outstanding common stock of the
Company being converted into shares of common stock of GSI and the Company
becoming a wholly-owned subsidiary of GSI.
On October 5, 1995, GSI and the Company through its wholly-owned
subsidiary, GSTOC, acquired all the common stock of Georgetown Industries, Inc.
("GII") which resulted in GII and its subsidiaries becoming wholly-owned
subsidiaries of GSTOC. In connection with this acquisition, GSTOC issued an
additional $125 million of 12-1/4% Senior Notes due 2005 (the "12-1/4% Notes")
which are also guaranteed by GST.
FORM 10-K TABLE OF CONTENTS
(Dollars in thousands unless otherwise noted)
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Page
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PART I
Item 1: Business...............................................................................4
Item 2: Properties............................................................................17
Item 3: Legal Proceedings.....................................................................20
Item 4: Submission of Matters to a Vote of Security Holders...................................20
PART II
Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters.............20
Item 6: Selected Financial Data...............................................................21
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................................23
Item 8: Financial Statements and Supplementary Data...........................................32
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................................32
PART III
Item 10: Directors and Executive Officers of the Registrant...................................32
Item 11: Executive Compensation...............................................................35
Item 12: Security Ownership of Certain Beneficial Owners and Management.......................43
Item 13: Certain Relationships and Related Transactions.......................................45
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....................53
Index to Consolidated Financial Statements and Financial Statement Schedules............................58
Signatures
</TABLE>
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PART I
ITEM 1: BUSINESS
General
The Company is a leading producer of high carbon and special grade wire
rod, grinding media, non-manganese mill liners, steel billets and certain high
quality wire and wire products. The Company believes its leading position in
these products is the result of its high product quality, its position as one of
the low cost producers in each of the product segments in which it competes, its
long-term relationships with customers and, in the case of wire rod, the close
proximity of its mini-mills to the wire drawing facilities of many of its
customers.
The Company's high carbon and special grade wire rod is sold primarily
to domestic wire rod drawers that process wire rod into products for diverse end
use applications such as tire cord and tire bead for the automotive industry,
upholstery and bed springs for furniture and wire rope and pre-stressed concrete
strand ("PC strand") for the construction industry. In 1996, the Company shipped
approximately 1.3 million tons of wire rod of which 1.1 million tons were sold
to third party purchasers.
Grinding media are high carbon steel balls and rods used inside a
rotating mill to grind semi-crushed rock as a step in processing various kinds
of ore. Mill liners are protective steel liners that shield the rotating mill
from the pulverizing activity of the grinding media. Grinding media and mill
liners are consumed as ore is processed and must be continually replenished. In
1996, the Company shipped approximately 453,000 tons of grinding media and
non-manganese mill liners.
In 1996, the Company also shipped approximately 324,000 tons of wire
and wire products and 230,000 tons of steel billets and bars, of which 167,000
were to third party purchasers.
The Company conducts its operations through several domestic and
international facilities. Its Kansas City mini-mill, which has an annual steel
production capacity of approximately 1.0 million tons, has been the focus of a
significant cost reduction and modernization program to enhance its competitive
position. The $63 million rod mill modernization was completed in 1995 and has
improved wire rod product quality. It is expected to increase annual rod mill
production once the mill is operating at design capacity. The next phase of this
program was a $35 million capital improvement project to refurbish the grinding
media manufacturing operation, which was completed in the third quarter of 1996.
The Company's Georgetown, SC facility pioneered the use of direct
reduced iron ("DRI") for steelmaking in the United States and currently operates
the only DRI facility in the United States. DRI is an exceptionally pure
metallized iron product utilized in steelmaking as a supplement and substitute
for high quality steel scrap. Through this facility, the Company conducts steel
and DRI operations at a state-of-the-art mini-mill. The DRI facility has
production capacity of approximately 613,000 tons per year, all of which is used
in the steelmaking operations of the Georgetown facility. At this site, the
Company has steel production capacity of approximately 1.0 million tons per year
and wire rod finishing capacity of approximately 750,000 tons per year. The
Company utilizes some of the excess steel billets at its Kansas City facility,
and sells the remainder to other wire rod manufacturers.
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During 1996, the Company entered into a joint venture agreement with
Birmingham Steel Corporation ("Birmingham Steel") to build and operate a new DRI
facility in Louisiana. The financing for the new joint venture, American Iron
Reduction, LLC, was closed in September 1996 on a non-recourse basis to GSTOC
and the Company. Construction work at the site has commenced and is expected to
be completed in early 1998.
The Company's wire products businesses are conducted through facilities
located in Florida, Washington, California and British Columbia. The Company is
a leading United States producer of PC strand and "guy" strand. PC strand is
sold to the construction industry for reinforcement of buildings and bridges,
among other uses. Guy strand is used for carrying electrical, telephone and
coaxial television cable lines and for supporting utility poles. The Company
also makes "bright" and galvanized wire, nails, fabricated wire products and
wire netting. The Company's wire and wire products businesses have total
capacity in excess of 390,000 tons.
The principal executive offices of the Company are located at 1901
Roxborough Road, Suite 200, Charlotte, North Carolina 28211, and its telephone
number is (704) 366-6901.
Background and Acquisitions
GST was formed in 1993 to effect the acquisition of the business and
net assets of AWGS. AWGS consisted primarily of operations and accounts of
certain operating units and wholly-owned subsidiaries of Armco and investments
in certain joint ventures. The acquisition of AWGS was effected November 12,
1993.
In 1994, the Company entered into the following transactions: (a) the
May 31, 1994 acquisition of the remaining 50% interest in ME International, Inc.
("MEI") which it did not previously own, for $8.3 million in cash plus the
issuance of a $2.4 million note to the seller (such note was repaid in full in
March 1996); (b) the July 28, 1994 sale by Inversiones en Molienda S.A., a
wholly-owned subsidiary of GST that manufactures grinding media in Chile, of
Instapanel Chile S.A. ("Instapanel"), a non-strategic subsidiary for $24.8
million in cash plus the assumption of $2.6 million of debt; and (c) the August
1994 recapitalization of GST (the "Recapitalization"), which included (i) the
sale by GSTOC of the 12% Notes; (ii) the distribution of $65 million to the
stockholders and the warrant holder of GST; (iii) the replacement of an existing
bank agreement with revolving credit facilities secured by GSTOC's assets; and
(iv) a $2.6 million contribution by GST to MEI for a reduction of MEI
indebtedness.
On August 17, 1995, the Company was party to a merger transaction
whereby it was merged with a subsidiary of a new parent company, GSI, resulting
in all of the issued and outstanding common stock of the Company being converted
into shares of common stock of GSI and the Company becoming a wholly-owned
subsidiary of GSI. On October 5, 1995, GSI and the Company, through its
wholly-owned subsidiary, GSTOC, acquired GII and GII and its subsidiaries are
now wholly-owned subsidiaries of GSTOC. The combination of GST and GII created
one of the largest mini-mill steel producers in the United States. The Company
had 1996 consolidated net sales of $940.3 million (excluding non-consolidated
joint ventures).
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Following the GII acquisition, the structure of the Company is as follows:
GS Industries, Inc.
("GSI")
GS Technologies
Corporation
("GST")
<TABLE>
<S> <C> <C> <C>
Inversiones en ME International, GS Technologies Joint Ventures
Molienda S.A. Inc. ("MEI") Operating Co., Inc.
("IMSA") (Chile) ("GSTOC") and - International grinding media
Acerco S.A. (Peru) - Mill Liners subsidiaries - Rebar
and other Foreign - Flat rolled steel
Subsidiaries - Domestic wire rod - Bars
- Domestic grinding media
- - International - Wire and wire products
grinding media - DRI
- Billets
- Other
</TABLE>
Management believes that the GII acquisition significantly improved the
competitive position and business prospects of the Company and strategically
positions the Company for enhanced growth and profitability in the following
areas:
Business Strategies
High Carbon and Special Grade Wire Rod Focus. The Company's two
mini-mills have each focused their businesses on providing high quality, high
carbon and special grades of wire rod which have higher selling prices and gross
margins than other wire rod. The Company estimates that total domestic wire rod
consumption was approximately 7.6 million tons in 1996. The Company shipped 1.1
million tons of wire rod to third party purchasers and 0.2 million tons to its
wire and wire products business in 1996.
Geographic Coverage. The Company's two domestic mini-mills are in
different geographic regions (Kansas City, Missouri and Georgetown, South
Carolina), enabling it to better serve its customers by, in certain cases,
reducing freight costs, improving shipping efficiencies and providing its
customers with the flexibility of two manufacturing locations.
Operating Efficiencies, Cost Reductions and Strategic Projects. The GII
acquisition has enabled the Company to reduce costs through operating and
purchasing efficiencies. Following the acquisition the Company combined the
management teams of GST and GII and relocated its headquarters in Charlotte,
North Carolina.
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The Rod Mill Modernization, the Grinding Media Project, the Expanded
DRI Production and the Steel Mill Acquisition discussed more fully in the
"Capital Investment Program" section were undertaken to 1) reduce annual
operating costs, 2) increase production, and 3) provide access to additional raw
material sources for the Company. Management believes these strategic projects
will increase its competitive position and yield significant benefits in future
years.
Long-Term Relationships with Customers. Management believes that the
use of long-term contracts and relationship building is important to the growth
of the Company's business. As a result, the Company will continue its commitment
to long-term relationships with its customers. The Company's Kansas City
facility has a supply contract through December 31, 2000 with Leggett & Platt,
which accounted for approximately 10% of the Company's aggregate 1996 net sales.
In addition, the Company has multi-year contracts with customers that comprised
approximately 40% of the Company's 1996 domestic grinding media shipments.
Products and Markets
Wire Rod. The Company manufactures wire rod at its Kansas City,
Missouri and Georgetown, South Carolina mini-mills. The Company sells the
majority of its wire rod output to domestic wire drawers that process wire rod
into products such as tire bead and tire cord for the automotive industry,
upholstery and bed springs for the furniture industry and wire rope and PC
strand for the construction industry.
End use applications of the Company wire rod production were as
follows:
1996 Wire Rod Shipments
(by market)
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Percent of Total Sales
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Furniture............................................... 31%
Construction............................................ 22%
Industrial.............................................. 22%
Automotive.............................................. 18%
Other................................................... 7%
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Total............................................. 100%
===
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As previously indicated, the Company focuses on providing high quality,
high carbon and special grades of wire rod. These products generally command a
higher selling price than lower quality commodity grade wire rod products. High
carbon wire rod has carbon content greater than 0.45%. Wire drawn from high
carbon steel is generally stronger and is more suitable for demanding
applications. Due to these properties, it is used extensively by tire
manufacturers to make tire cord and tire bead and by the furniture industry to
make upholstery and bed springs. Other applications on which the Company is
focused are wire rope and PC strand for the construction and utility industries,
pipe wrap for high pressure water distribution systems, special wire rod used in
electric arc and gas welding processes, and cold headed fasteners and wool wire
applications.
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The Company's wire rod shipments include shipments to a select group of
customers, reflecting the Company's strategy of maximizing production efficiency
through long-term strategic relationships. In November 1993, the Kansas City
facility entered into a supply agreement with Leggett & Platt which requires
Leggett & Platt to purchase a specified percentage of its annual wire rod
requirements at certain of Leggett & Platt's facilities covered by the
agreement. In 1996, Leggett & Platt purchased approximately 310,000 tons, or 24%
of the total wire rod tonnage shipped by the Company. Approximately 23% of the
Company's total revenues for 1996 were derived from sales to the Company's five
largest wire rod customers (including Leggett & Platt).
Grinding Media and Mill Liners. The Company manufactures and sells
grinding media and non-manganese mill liners to the world mining industry
(principally copper, iron ore and gold mines) for use in the concentrator stage
of mining operations. In a typical open-pit mine configuration, the concentrator
receives semi-crushed rock from the ore deposit, grinds the rock into a fine
powder, separates the desired mineral from the waste rock for further processing
at the smelter and discharges the waste rock. Grinding media are high carbon
steel balls and rods used inside a rotating mill to grind semi-crushed rock from
the mine. Mill liners are the protective steel liners that shield the rotating
mill from the pulverizing activity of the grinding media. Grinding media and
mill liners are consumed as ore is processed and must be continually
replenished.
Grinding media and mill liners are generally sold under contract. The
Company's grinding media contracts are generally one to three years in duration
and at fixed prices. In certain of the Company's contracts, raw material changes
are passed through as price adjustments to the customer.
The Company's principal customers for mineral processing products are
domestic and international mining companies. The following chart details
shipments of grinding media, exclusive of mill liners, by mineral processed
through both its consolidated subsidiaries and its joint ventures:
1996 Grinding Media Shipments
(by mineral)
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Tons Percent of Total
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Copper ............................. 344,000 55%
Gold ............................... 120,000 19%
Iron Ore ........................... 67,000 11%
Other .............................. 91,000 15%
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Total ................. 622,000 100%
======= ===
</TABLE>
The Company's mill liner shipments reflect a customer consumption
pattern similar to that of the grinding media shipments except that there is a
greater concentration of shipments to the copper industry.
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The market for the Company's grinding media products is geographically
diversified. The following table details shipments to different geographic
regions through both its consolidated subsidiaries and its joint ventures:
1996 Grinding Media Shipments
(by region)
<TABLE>
<CAPTION>
Tons Percent of Total
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<S> <C> <C>
United States............................... 259,000 42%
South America............................... 121,000 20%
Canada and Mexico........................... 113,000 18%
Philippines, Australia...................... 100,000 16%
Europe...................................... 29,000 4%
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Total ........................ 622,000 100%
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</TABLE>
The Company has developed a network of international operations to
satisfy the worldwide demand for grinding media. In the United States, grinding
media is supplied from the Company's Kansas City mini-mill. In Chile, Peru and
Europe, grinding media is fabricated from purchased bars and sold by the
Company's foreign subsidiaries. In Canada, Mexico, the Philippines and
Australia, the Company has investments in joint ventures that primarily
fabricate grinding media from purchased bars and sell it to mines in those and
neighboring countries. Financial information related to the Company's domestic
and foreign subsidiaries is provided in Note 16 to the Company's Consolidated
Financial Statements.
The Company believes the outlook for growth in the grinding media and
the mill liner markets is attractive. The major factors impacting demand are (i)
the head grades, or mineral content of the ore deposit (the lower the head
grade, the more tons of ore deposit that must be ground to extract the same
amount of mineral), (ii) the hardness of the material being ground (the harder
the ore deposit, the more grinding that is required to reduce it to powder), and
(iii) macro-economic consumption of the mineral which leads to increased mining
activity. As richer ore deposits are depleted, mining companies must utilize
lower quality deposits (in terms of head grades and ore deposit hardness) for
their mining requirements or open new mines, resulting in increasing demand for
grinding media and mill liners. South America, where the Company currently has
grinding media operations, is particularly attractive due to significant mining
expansion in Chile and Peru.
Wire and Wire Products. The Company is one of the leading domestic
producers of high quality wire and wire products, which it manufactures at
facilities located in Florida, California, Washington and British Columbia.
These operations shipped 324,000 tons of wire and wire products in 1996. The
Florida operation manufactures PC strand and is a leading domestic supplier. PC
strand is sold to the construction industry for use in highways, bridges,
commercial buildings, parking structures and residential buildings. The Company
also manufactures galvanized guy strand at its Florida facility. Guy strand is
sold to the electrical, telephone and cable television industries for use as
support systems for transmission lines.
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The Florida operation also makes and sells epoxy-coated strand, a
seven-wire PC strand with a thick and durable corrosion-resistant coating. These
products are sold as Flo-Bond(R), Flo-Fil(R) and Flo-Gard(R), all under the
Flo-Tech(R) label. They are used in prestressed concrete, bridge stay cables,
highway guard rails and parking decks and in other applications requiring
strength and longevity. The Company holds a patent on the Flo-Tech(R) process
and has licensed three multinational construction firms to manufacture and sell
these products.
The Company has three wire plants in California and one each in British
Columbia and Washington. The plants produce high and low carbon wire and wire
products, including galvanized wire, wire mesh, and bulk, packaged and collated
nails. These operations serve the construction, logging and agricultural
industries in Western Canada, the Pacific Northwest, California and Arizona.
Competition
Wire Rod. Management believes that the Company competes for wire rod
business on the basis of product quality and consistency, timely delivery,
technical assistance and price. The largest competing domestic producers of wire
rod in the U.S. are Co-Steel Raritan in Perth Amboy, New Jersey, North Star
Steel Company in Beaumont, Texas, and American Steel and Wire Corporation (a
subsidiary of Birmingham Steel Corporation) in Cuyahoga Heights, Ohio. Several
domestic producers are implementing or are planning investments to begin or
expand their production of wire rod, some of whom are specifically targeting the
high quality segment of the market.
Imports of wire rod constituted approximately 28% of the total market
in 1996. Foreign producers are both mini-mill and integrated manufacturers and
compete on the bases of price and quality. Current U.S. import duties on wire
rod are de minimis and although foreign producers do face a substantial freight
disadvantage, many offset this disadvantage by negotiating special quantity
discounts with international transport companies. Management believes that the
Company's proximity to U.S. customers affords it competitive advantages over
foreign producers in terms of more timely and reliable supply, lower shipping
costs and marketing. Nevertheless, the degree of import competition can be
affected over time by currency exchange rate fluctuations as well as by economic
conditions in the home markets of foreign producers and by the U.S. government
by the imposition of anti-dumping duties.
Grinding Media. Domestically, the Company competes principally with
three grinding ball producers. Two of the competitors, Nucor Corp., and Border
Steel Co., have production operations in the West and Southwest and produce
grinding balls from facilities where scrap is the raw material. A third
competitor, North Star Steel Company, located in Minnesota, produces grinding
balls from bars and serves the iron ore mines in the upper Midwest. The Company
competes principally with one U.S. grinding rod producer and one Canadian
grinding rod producer for domestic sales of grinding rods. While factors such as
reliability of supply and service are important to customers, competition is
based primarily on a combination of price and product performance, generally
referred to as cost effectiveness.
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Internationally, the Company competes with many producers of forged and
cast grinding balls, nearly all of them indigenous to their respective local
markets. The main competitors in both Chile and Peru produce cast balls from
scrap. Within the European market, the main competitor is a Spanish producer
which makes forged balls from purchased bars, similar to the Company's
operations in Italy. Other competition within Europe is highly diverse and
oftentimes regional.
The Company's joint venture operations in Canada, Mexico, the
Philippines and Australia face competition principally from producers located
within their home countries, although there have been extensive imports into the
Canadian market from the United States. One U.S. producer aggressively exports
into the Mexican market. There is no local competitor in the case of the
Company's Philippine joint venture.
Wire and Wire Products. The Company is a leading producer of both PC
strand and guy strand in the United States. The Company's main competitors for
PC strand sales include Insteel Industries, Inc. of Gallatin, Tennessee; Sumiden
Wire Products Corporation of Stockton, California; and American Spring Wire
Corp. of Bedford Heights, Ohio and Houston, Texas.
The Company's main competitors for guy strand sales include Indiana
Steel and Wire Corp. of Muncie, Indiana; Bekaert Corporation of Van Buren,
Arkansas; Cal-Wire Stranding of Vernon, California; and National Strand
Products, Inc. of Houston, Texas. The Company's wire products operations compete
with numerous producers worldwide. Customers for wire products demand
competitive prices, good selection and quality service. Management believes that
the Company is competitive based on all of these criteria.
Raw Materials
The Company's major raw materials are DRI and steel scrap for use in
its steelmaking facilities, bars for the production of grinding media, and wire
rod for the production of wire products. The Company produced 498,000 tons of
DRI in 1996 at the Georgetown, South Carolina facility and consumed 475,000
tons. Management believes that the Company's production and consumption of DRI
give it a competitive advantage because DRI prices are less volatile and
currently have lower prices than comparable quality steel scrap and DRI has
consistent metallurgical characteristics and ease of handling in the melting
process relative to scrap.
Scrap is purchased on the open market. The cost of scrap is subject to
market forces, including demand by other steel producers, and can vary
significantly. Over long periods of time, product prices and scrap prices have
tended to move in similar directions. The Company believes that there is
sufficient supply of steel scrap and scrap substitutes on the open market and
through its own vertical integration to fulfill the needs of its facilities.
Steel bars are manufactured by many companies around the world, and
most of the Company's forging operations are situated near a competitive,
quality supplier. From time to time, the Company will purchase steel bars from
suppliers outside of its region for pricing or quantity reasons. The Company has
been able to continue manufacturing and supplying customers during supplier
strikes and other outages due to its network of cross-border suppliers.
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Wire rod is the key raw material for the Company's downstream wire and
wire products operations. In 1996, the Company's Florida plants purchased
approximately 84% of their wire rod requirements from the Company's Georgetown,
South Carolina facility. They purchased the remainder of their requirements from
other sources, both domestic and foreign. The Company's West Coast operations
purchase wire rod from independent steel mills, some of which are located in
Latin America, Europe and the Far East. The cost of wire rod tends to fluctuate
with conditions in the worldwide steel industry. Purchases are negotiated for
requirements two to four months in advance. Management believes that the
Company's purchasing power enables it to obtain generally good terms, subject,
however, to the risks inherent in spot market transactions.
The Company's operations are dependent upon the consumption of large
amounts of electricity and natural gas. Historically, the Company has been
adequately supplied with electricity and natural gas and does not anticipate any
significant curtailments in its operations resulting from shortages or
curtailments.
Capital Investment Program
The Company's total capital expenditures for 1996 were $43.3 million.
In 1994, the Company embarked on a three year capital expenditure
program designed to make the Kansas City mini-mill a state-of-the-art, low-cost
facility. The two principal projects were (i) a $63 million capital investment
program to modernize its rod mill (the "Rod Mill Modernization"), re-engineering
the process flow at the Company's Kansas City mini-mill, and (ii) a $30 million
relocation and refurbishment of the grinding media manufacturing operation in
Kansas City (the "Grinding Media Project"). The Rod Mill Modernization was
completed in 1995, requiring a five-week shutdown period. The shutdown continues
to be followed by a gradual return to design capacity. The Grinding Media
Project commenced upon completion of the Rod Mill Modernization and was
completed in September 1996. The new facility is currently going through its
ramp-up period operating in parallel with the old facility which will be closed
when the new facility reaches the desired production level.
Rod Mill Modernization. The Rod Mill Modernization was designed to
accomplish two major objectives: (i) significantly re-engineer the process flow
of the Kansas City mini-mill to allow for the continuous in-line conversion of
steel blooms into finished wire rod, and (ii) enable the Company to offer a
6,000 pound coil to its customers. The previous facility lay-out required 7 3/4"
blooms from the caster to pass through a 19" roughing mill where they were
reduced into 4" square billets. The 4" square billets were then cooled,
transported, reheated and drawn into wire rod at the rod mill. This
non-continuous process resulted in approximately a $20 per ton manufacturing
cost disadvantage as compared to the Company's competitors who directly reduce
the bloom into wire rod without going through a roughing mill. The Rod Mill
Modernization was undertaken to eliminate this extra processing step and its
cost.
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Grinding Media Project. The Grinding Media Project consisted of
relocating the Kansas City grinding media operation to a newly equipped facility
and "attaching" it to the 19" roughing mill. The 19" roughing mill, freed from
rolling billets for wire rod as a result of the Rod Mill Modernization, became a
dedicated rolling mill for grinding media bars. Because blooms rolled in the 19"
roughing mill have the capability to be fed directly into the media forging
operation without requiring handling or reheating, the Company can significantly
reduce its energy consumption and labor costs while improving production. The
project was designed to increase capacity and ensure that the Company continues
as a low cost manufacturer of grinding media in the United States. In addition
to the cost reductions, the Company will have the flexibility of applying the
excess capacity of the 19" mill to expand into new markets.
Expanded DRI Production. The Company created a joint venture with
Birmingham Steel called American Iron Reduction, LLC ("AIR"). AIR will own and
operate the plant which will use the same process technology employed in the
Company's Georgetown, South Carolina DRI facility. The new plant, to be located
in Louisiana, is scheduled to start-up in early 1998. The rated capacity of the
plant's initial unit is anticipated to be 1,323,000 net tons per year.
Birmingham and the Company have each committed to purchase 661,500 tons per year
of DRI on a "take-if-tendered" basis at a price which covers cash production
costs and AIR's debt service. A portion of the Company's share of the DRI output
will be used to replace third party iron purchases at the Company's Georgetown
and Kansas City facilities and will allow the two steel facilities to continue
to pursue their growth and quality improvement plans.
The AIR project is being financed through non-recourse debt from a
syndicate of commercial banks. The Company made an initial non-cash equity
contribution of $5.0 million during 1996 and is committed to make additional
cash equity investments of up to $22.5 million, primarily during 1997.
Steel Mill Acquisition. The Company's Peruvian subsidiary, Acerco, and
two joint venture partners acquired on March 21, 1996, through Sidercorp S.A.
("Sidercorp"), approximately ninety-six percent of the outstanding common stock
of Empresa Siderurgica del Peru S.A., ("Siderperu"), an integrated steel mill
located in Chimbote, Peru. Each of the joint venture partners made an initial
investment of $11.1 million and owns one-third of the outstanding capital stock
of Sidercorp. Under the terms of the joint venture agreement, Acerco will manage
the operations of Siderperu. Participation in this joint venture will enable the
Company's South American grinding media operations to acquire their raw material
requirements (steel bars) at more competitive prices and capitalize on the
anticipated economic growth in that region of the world.
Patents and Licenses
The Company owns numerous process and product patents, proprietary
expertise, and licenses which it believes are necessary for the operation of its
worldwide businesses. In its grinding media processing business, the Company
owns process and product patents on grinding rods, mill liners and process
equipment. The Company has proprietary processing and product know-how on
equipment used in manufacturing grinding balls. The Company also has a license
from the Dow Chemical Company to use certain proprietary technology to
manufacture and market mineral reagents for the mineral processing industry.
13
<PAGE> 14
The Company owns a process and product patent and related trademark
(Melt-To-Tensile(TM)) for the manufacturing and marketing of wire rod used in
direct drawn wire applications. The Company has developed proprietary know-how
which, along with the patents and licenses, are used to support its business.
The Company has a nontransferable license from Midrex Corporation on
certain process patents for the direct reduction of iron oxide and the
production of DRI. The licensed rights continue through the operating life of
the Company's Georgetown, South Carolina mini-mill. Each party to the license
agreement has a license to certain improvements developed by the other party.
The Company has a license from AWI Holdings Proprietary Limited, an
Australian company, to use certain proprietary technology known as "AWI Gas
Wiping." This technology is used on a galvanizing line to impart superior
coatings of zinc to steel wire. The license extends through 1997 and is
renewable at the Company's election. In addition, the Company owns a process
patent (and related trademarks) for Flo-Tech(TM) and a K-Lath(TM) trademark. The
Company believes that it has the patents and licenses necessary for the
operation of its businesses as now conducted.
Human Resources
The Company's worldwide operations are managed by a management team
based in its Charlotte, North Carolina headquarters. The Company and its
wholly-owned subsidiaries have approximately 3,300 employees, of whom
approximately 2,400 are hourly production employees. Approximately 63% of the
Company's employees are covered by collective bargaining agreements. The
Company's agreement with the United Steel Workers of America ("USWA") at the
Duluth, Minnesota facility of ME International was renewed in August 1996 with a
new three-year contract. The Company's agreement with the USWA covering the 27
production workers at the Advanced Wire Technology division in Rancho Cucamonga,
California was renewed in December 1996 with a new four-year contract.
The Company's production employees at its Kansas City mini-mill and the
Tempe, Arizona mill liner manufacturing facility are also represented by the
USWA under contracts which expire in March and November of 1997, respectively.
The USWA agreement that covers the employees at the Georgetown mini-mill expires
on December 6, 1997. The Company's collective bargaining agreements with
employees at its other domestic and international operations will expire at
various intervals over a four-year period. The Company considers its
relationships with its employees and their unions to be generally good.
Management is currently in contract negotiations at its Kansas City operations.
The Company's joint ventures in Mexico and the Philippines have most of
their production employees under contract through local or national unions with
various expiration dates.
14
<PAGE> 15
The Company's operations are governed by laws and regulations relating
to workplace safety and worker health, principally the Occupational Safety and
Health Act in the U.S. and regulations thereunder. Among other things, these
laws and regulations establish noise and dust standards. Management believes the
Company is in material compliance with such requirements and does not believe
that future compliance requirements will have a material adverse effect on its
consolidated financial condition or results of operations.
Research and Development
The Company focuses its research and development on improving the
quality and reducing the cost of its production processes, as well as on
specialized customer applications and enhanced technological support. Research
and development costs are recorded in cost of products sold when incurred.
Cyclicality
Demand for the Company's products is cyclical in nature and sensitive
to general economic conditions. The Company's sales of wire rod and wire
products are affected by economic trends in the furniture, automotive and
construction industries, and the Company's sales of grinding media and mill
liners are affected by levels of mining activity.
Environmental Matters
The Company's U.S. facilities are subject to a broad range of federal,
state and local environmental requirements, including those governing discharges
to air and water, the handling and disposal of solid and hazardous wastes, and
the remediation of contamination associated with releases of hazardous
substances at Company facilities and associated offsite disposal locations.
Liabilities with respect to hazardous substance releases arise principally under
the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") and similar state laws, which impose strict, retroactive, joint and
several liability upon statutorily defined classes of "potentially responsible
parties" ("PRPs"). The Company's foreign facilities and joint ventures are
subject to varying degrees of environmental regulation in the jurisdictions in
which those facilities are located.
Based on environmental reviews conducted by outside environmental
consultants in connection with the GII acquisition and the AWGS acquisition, and
the continuing review of environmental requirements by the Company, the Company
believes that it is currently in substantial compliance with environmental
requirements. Nevertheless, as is the case with steel producers in general, if a
release of hazardous substances occurs on or from the Company's properties or
any associated offsite disposal locations, or if contamination from prior
activities is discovered at such properties or locations, the Company may be
held liable and may be required to pay the cost of remedying the condition or
satisfying third party damage claims, or both. The Company devotes considerable
resources to ensuring that its operations are conducted in a manner that reduces
such risks.
15
<PAGE> 16
The Company has several environmental issues currently under discussion
with various federal and local agencies. Some of these involve compliance and/or
remediation at certain properties. The Company is subject to consent orders,
administrative orders, permit renewals and negotiations and ongoing inspection
activities relating to certain of its properties and at off-site locations.
The Company records certain operating expenses for environmental
compliance, testing and other environmental related costs as expenses when
incurred. When it has been possible to determine reasonable estimates of
liabilities related to environmental issues, based upon information from
engineering and environmental specialists, the Company has made provisions and
accruals. There can be no assurance, however, that the cost of required remedial
activity or environmental compliance will not exceed the established reserves.
The Company believes, based upon information currently available to management,
that it will not require expenditures to maintain compliance with environmental
requirements which would have a material adverse effect on its consolidated
financial condition, results of operations or competitive position.
For additional information regarding environmental matters, including
indemnifications, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Environmental Matters."
16
<PAGE> 17
ITEM 2: PROPERTIES
The following table provides information regarding the Company's
principal facilities:
<TABLE>
<CAPTION>
Square Own or
Location Feet Function Products Lease
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charlotte, NC (1) 10,000 Corporate Office N/A Lease
Kansas City, MO (1) 2,126,800 Mini-mill Wire rod Own and
& grinding Lease(2)
media
Georgetown, SC (1) 496,700 Mini-mill Wire rod, DRI Own
steel billets
Vancouver, BC (1) 374,700 Mfg. Wire products Own
Jacksonville, FL (1) 289,000 Mfg. Wire products Own
Sanderson, FL (1) 145,000 Mfg. Wire products Own
Rancho Cucamonga, CA (1) 65,000 Mfg. Wire products Lease
Fontana, CA (1) 90,000 Mfg. Wire products Lease
Union City, CA (1) 30,400 Mfg. Wire products Own
Ferndale, WA (1) 21,100 Mfg. Wire products Lease
Tacoma, WA (1) 651 Office N/A Lease
Duluth, MN 522,900 Mfg. Mill Liners Own
Minneapolis, MN 18,700 Office N/A Own
Tempe, AZ (1) 241,950 Mfg. Mill Liners Own
Concepcion, Chile 50,000 Mfg. Grinding Own
media
Santiago, Chile 7,300 Office N/A Own
Arequipa, Peru 25,000 Mfg. Grinding Own
media
Lima, Peru 40,000 Mfg. Tubing Own
Cividale, Italy (3) 90,000 Mfg. Grinding Own
media
Mezzomerico, Italy 68,000 Mfg. Grinding Own
media
Kamloops,
Canada (JV) 34,800 Mfg. Grinding Own
media
Guadalajara,
Mexico (JV) 40,800 Mfg. Grinding Lease
media
Perth and Townsville,
Australia (JV) 54,100 Mfg. Grinding Own
media
Manila,
Philippines (JV) 40,000 Mfg. Grinding Lease
media
Chimbote, Peru (JV) 5,776,000 Mfg. Rebar, Flat Own
Rolled Steel
Convent, LA (JV)(4) 1,525,000 Mfg. DRI Own
Piombino, Italy (JV)(5) 44,000 Mfg. Grinding Lease
Media
</TABLE>
- ----------------------------
(1) Subject to liens under existing debt.
(2) 813,000 square feet of such facility are leased at a nominal annual
rental charge under multiple triple net leases with Armco with varying
expiration dates.
(3) In December 1996, the manufacturing assets were transferred to the
Piombino, Italy location.
(4) This facility is currently under construction and is expected to begin
production in early 1998.
(5) The manufacturing assets from the Cividale, Italy location are
currently being installed and production is expected to begin in March
1997.
17
<PAGE> 18
The following table indicates the percentage of capacity at which the
Company operated in 1996 based on its primary products and markets.
<TABLE>
<CAPTION>
Finished 1996 Percent
Capacity Shipments Utilized
Product Line (net tons) (net tons) in 1996
- ------------ ----------------- ------------------ -----------------
<S> <C> <C> <C>
Wire rod 1,600,000 1,300,000 81%
Grinding media and mill liners 533,000 453,000 85%
Wire and wire products 390,000 324,000 83%
</TABLE>
The Company believes its facilities are properly maintained and
adequately equipped for the purposes for which they are used. Management
believes that, with its planned level of capital expenditures, the Company will
be able to accommodate its capacity needs for the immediate future in its
existing facilities.
Mini-Mill and Grinding Media Facilities
Georgetown, South Carolina. This mini-mill manufactures wire rod and
steel billets. Georgetown's steel mill and the Kansas City steel mill are
classified as "mini-mills," as contrasted with "integrated" steel mills.
Integrated mills produce steel from coke and iron ore in blast furnaces and
basic oxygen furnaces. Mini-mills use electric arc furnaces to melt steel scrap
and DRI and then cast the resulting molten steel into blooms or billets in a
continuous casting process. Blooms and billets are typically reheated and rolled
into "semi-finished" products.
Georgetown's steelmaking operations consist of the production of DRI;
the melting of DRI and steel scrap by two electric arc furnaces ("EAFs"); the
refining of the liquid steel by two ladle refining furnaces; the casting of
steel billets by one of two continuous casters; and the rolling of finished
product in a two-strand, high-speed continuous wire rod mill. Computers are used
extensively to monitor and control the manufacturing process and product
quality. The Company's present capacity is approximately 613,000 tons per year
of DRI, approximately 1.0 million tons per year of billets, and approximately
750,000 tons per year of wire rod.
Kansas City, Missouri. This mini-mill manufactures wire rod for the
U.S. market and grinding media for U.S. and certain foreign markets. Scrap
metal, enhanced with certain alloys, is melted in one of the Company's two EAFs
which have 1.2 million tons of annual melting capacity. Liquid steel from the
EAFs is then refined in a ladle arc furnace and poured into a six-strand, bloom
continuous caster. The caster, which has capacity of 1.0 million tons, casts 7"
and 7 3/4" blooms.
For wire rod, the Rod Mill Modernization now allows for the continuous
in-line conversion of blooms into finished wire rod through a two-strand,
high-speed continuous wire rod mill. The rod mill also provides the Company with
the ability to offer 6,000 pound coils to its customers.
18
<PAGE> 19
For grinding media, the blooms are reheated and rolled through a 19"
roughing mill where they are rolled into bars for further processing. Bars for
grinding media fabrication are either roll-formed or upset-forged prior to being
heat treated. The capacity of the grinding media facility is approximately
300,000 tons. The Company believes that its roll-forming technology gives it a
throughput of almost four times that of the Company's competitors, making it a
low-cost producer of grinding media in the United States. In addition, the
combination of its melting and heat treating capabilities gives its grinding
media superior wear rates.
Grinding media is also produced at the Company's international
locations in Chile, Peru and Italy and through its joint ventures in Canada,
Mexico, Australia and the Philippines.
Wire Facilities
The Company's Vancouver, British Columbia wire mill is located on a
52-acre site adjacent to the Fraser River, a major shipping route. A variety of
production processes are employed to produce the more than 2,700 products
manufactured at this facility. The principal processes are acid or mechanical
descaling of the rod, followed by drawing. Most drawn wire is further processed
into nails, galvanized wire and galvanized wire products, fence and wire or
reinforcing mesh.
A nearby leased facility in Ferndale, Washington is used for value
added finishing of certain types of specialty nails, such as collated nails and
pallet nails for automatic nailing machines. Unfinished nails are shipped to
this location from the British Columbia plant.
The Company's Rancho Cucamonga, California plant produces "bright" wire
for diverse applications from wire rod purchased principally from U.S.
manufacturers. The Company's K-Lath production facilities in Fontana and Union
City, California produce a wide range of stucco reinforcing products from
galvanized wire purchased from the British Columbia facility and other
suppliers.
The Company's Jacksonville, Florida plant produces small-diameter PC
strand and galvanized products. This facility uses chemicals to clean and coat
wire rod before the rod is drawn. The wire is processed through "stranders,"
which twist it into cable or strand. Strand is stress-relieved and stabilized on
two induction-heated lines. Wire can also be hot-dip galvanized in one of two
galvanizing lines. Galvanized wire with various coating weight can be sold to
end users; alternatively, it can be processed into strand.
The Company's Sanderson, Florida facility produces larger diameter PC
strand as well as Flo-Tech products. This plant also uses chemical cleaning and
coating. The cleaned rod is drawn to the size of finished wire and is stranded,
stress-relieved and stabilized. A portion may then be finished with a patented
coating (Flo-Tech). The finished product is sent to the Company's warehouse or
directly to customers.
19
<PAGE> 20
ITEM 3: LEGAL PROCEEDINGS
The Company is a party to various legal proceedings that are considered
to be ordinary, routine litigation incidental to the Company's business and not
material to its consolidated financial position, results of operations or cash
flows. See "Business -- Environmental Matters" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Environmental
Matters" for additional information.
On August 30, 1996, Samsung America, Inc. ("Samsung") filed an action
in the Supreme Court of the State of New York seeking monetary damages against
GSI, the Company, its Peruvian subsidiary, Acerco, and Acerco's partners in the
Siderperu joint venture (collectively, the "Defendants"). Samsung seeks to
recover purported damages of $48.5 million and punitive damages of $10 million
and alleges that the Defendants failed to honor a written contract which
entitled Samsung to obtain an equity interest in Siderperu and to provide
certain distribution and trading services on an exclusive basis. The Company
believes that it has substantial and meritorious defenses and will defend itself
accordingly.
In February 1997, the Company, along with other U.S. producers of wire
rod, filed anti-dumping petitions against Canada, Germany, Trinidad & Tobago and
Venezuela with the U.S. Department of Commerce and the U.S. International Trade
Commission. The petitions seek imposition of duties and penalties for subsidized
and dumped wire rod which the petitioners assert have caused domestic wire rod
prices and profits to decline significantly.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 18, 1996, GSTOC solicited the holders of its 12% Notes, for
approval of an amendment (the "Amendment") to the Indenture governing the 12%
Notes. The Amendment added a provision which expressly permits GSTOC to invest
an amount not exceeding $30 million in connection with the development and
construction of a scrap substitute facility. The Amendment was sought in
connection with GSTOC's entering into a joint venture with Birmingham Steel to
build, own and operate the AIR facility near New Orleans, Louisiana. All of the
holders of the 12% Notes consented to the Amendment.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
All the outstanding common stock of GSTOC is owned by GST and all the
outstanding common stock of GST is owned by GSI. As a result, there is no
established public trading market for the common stock of GST and all per share
data is omitted. Since the outstanding common stock of GST was privately placed
in late 1993, there has been no trading activity in such stock.
As of March 1, 1997, 100 shares of common stock of GST were
outstanding, all of which were owned by GSI, and there were 41 record holders of
the Common Stock of GSI taking into account the March 6, 1996 conversion of
Class P Common Stock into Common Stock of GSI.
20
<PAGE> 21
ITEM 6: SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data and
other operating data of the Company and its predecessor, AWGS for the five year
period ending December 31, 1996. The selected financial data for the three year
period ending December 31, 1996 have been derived from, and are qualified by
reference to, the audited financial statements of the company included elsewhere
herein. The selected financial data of AWGS for the period from January 1, 1993
to November 11, 1993 and the year ended December 31, 1992 and for the Company
for the period from November 12, 1993 to December 31, 1993, are derived from the
audited financial statements of AWGS and the Company, respectively, which are
not included herein. The selected financial data for AWGS are not comparable in
certain respects to the selected financial data of the Company due to the
effects of the AWGS acquisition and certain sales or closings of businesses
described in the notes hereto. The selected financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited financial
statements, including the notes thereto.
<TABLE>
<CAPTION>
AWGS Company
----------------------------- ------------------------------------------------------------
Period Period
from from
01/01/93 to 11/12/93 to
1992 11/11/93 12/31/93 1994 1995 1996
------------- -------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales(1) $409,260 $355,819 $ 51,975 $455,258 $563,505 $940,261
Operating Costs and Expenses:
Cost of Products Sold 353,570 303,455 43,648 389,287 478,602 809,602
Selling, General and
Administrative Expenses 37,132 33,307 3,510 30,613 36,728 54,624
Depreciation and Amortization 10,650 9,158 208 3,612 11,574 31,848
Unusual Charges (2) 18,200
Non-recurring Costs of
Combining Operations(3) 4,866
-------- -------- -------- -------- -------- --------
Operating Profit (Loss) (4) (10,292) 9,899 4,609 31,746 31,735 44,187
Net Interest Expense and
Capital Charge (5) (7,976) (1,582) (711) (8,928) (23,720) (44,893)
Equity in Income of Joint
Ventures 2,643 2,466 390 3,434 4,075 5,500
Fees from Joint Ventures 1,861 1,493 161 1,410 1,357 2,399
Other, Net 140 (707) (150) 200 (600) (401)
-------- -------- -------- -------- -------- --------
Income (Loss) Before Income Tax (13,624) 11,569 4,299 27,862 12,847 6,792
Income Tax Provision (6) (1,492) (2,663) (1,753) (12,372) (6,718) (3,913)
-------- -------- -------- -------- -------- --------
Income (loss) Before
Extraordinary Loss and
Cumulative Effect of
Accounting Changes $(15,116) $ 8,906 $ 2,546 $ 15,490 $ 6,129 $ 2,879
======== ======== ======== ======== ======== ========
Net Income (Loss) $(15,406) $(98,931)(7) $ 2,546 $ 13,470(8) $ 6,129 $ 6,435(9)
======== ======== ======== ======== ======== ========
Balance Sheet Data at
Period End:
Total Assets $199,669 $232,717 $189,683 $259,611 $739,894 $735,688
Total Debt 18,440 13,201 69,837 158,185 378,103 385,133
Mandatory Redeemable Class A
Common Stock 2,700
Armco Investment/Stockholder's
Equity (Deficit) 69,858 10,874 13,956 (29,887) 106,609 112,761
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Other Operating Data:
EBITDA (10) $ 25,346 $ 23,065 $ 3,740 $ 41,682 $ 48,075 $ 84,391
Net Cash Provided by (Used in):
Operating Activities(11) 34,022 (25,748) (18,371) 21,784 9,079 40,912
Investing Activities(11) (10,567) (6,304) (44,196) (12,316) (187,703) (50,873)
Financing Activities(11) (14,251) 38,012 70,602 1,857 170,161 7,030
Capital Expenditures (12) 10,341 6,394 5,347 34,481 47,873 43,314
</TABLE>
- ---------
(1) Net Sales for 1992 and the period from January 1, 1993 through November
11, 1993 include $29,104 and $22,403 of aggregate sales, respectively,
from operations which were discontinued in 1992 and prior years or held
for sale (Instapanel Sale). Net sales for 1994 include $34,037 as a
result of the MEI Acquisition in May 1994. See "Business - Background
and Acquisitions."
(2) Includes for 1992 $12,000 for reductions of work force for the
Company's Kansas City mini-mill, $5,700 for the closure of two Belgian
foundries, and $500 for the closure of a foundry in Michigan.
(3) Represents non-recurring charge for the costs of combining the
operations of GST and GII. See Note 1 to the Consolidated Financial
Statements.
(4) Operating Profit (Loss) for 1992 and the period from January 1, 1993
through November 11, 1993 include $828 and $3,919 of aggregate net
operating profit (loss), respectively, from operations which were
discontinued in 1992 and prior years or held for sale (Instapanel
Sale). See "Business - Background and Acquisitions."
(5) Includes $5,128 of AWGS's capital charges allocated from AWGS's parent
during 1992. In 1993, AWGS's parent discontinued its allocation of
capital charges to its operating divisions.
(6) Income tax provision for AWGS represents foreign taxes only. AWGS had
no domestic income tax provision due primarily to net operating loss
carryforwards.
(7) Reflects a charge of $107,615 for the cumulative effect of the adoption
of SFAS No. 106 related to post-retirement benefits other than
pensions.
(8) Net of $2,020 non-cash after-tax write-off of debt issuance costs.
(9) Reflects effect of a change in accounting for spare parts and supplies
inventories of $3,556, net of related taxes. See Note 3 to the
Consolidated Financial Statements.
(10) EBITDA is as described in the Company's indentures. EBITDA is presented
herein to provide additional information about the Company's ability to
meet future debt service, capital expenditures and working capital
requirements. EBITDA should not be considered as an alternative to net
income, as an indicator of operating performance, or as an alternative
to cash flows as a measure of liquidity, as such measures would be
determined pursuant to generally accepted accounting principles. In
addition, EBITDA should not be considered as an indicator that cash
flow is sufficient for all of the Company's needs.
(11) This cash flow information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operation."
(12) Excludes purchases of businesses and joint venture investments.
22
<PAGE> 23
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides an assessment of the Company's
financial condition, results of operations and liquidity and capital resources
and should be read in conjunction with the accompanying financial statements and
notes thereto included elsewhere herein. The results of operations for the three
years presented are not comparable due to the GII acquisition on October 5,
1995.
General
The Company is engaged in the manufacturing of high carbon and special
grade wire rod, steel billets, wire and wire products, grinding media and
non-manganese mill liners. Wire rod products are sold to producers that serve
certain wire rod markets, such as tire cord and tire bead, upholstery and bed
springs, wire rope and pre-stressed concrete strand. Domestically, the Company
sells wire rod to customers primarily in the midwestern and eastern states and
grinding media and mill liners to copper and gold mining customers in the
southwest and iron ore mining customers in the Great Lakes area, while foreign
sales are primarily to mining customers in Latin American, Europe, Canada and
Asia. The Company's wire and wire products are sold to distributors and various
industries in the United States and Canada.
The Company was incorporated in 1993 to affect the acquisition of
certain operations and accounts of certain operating units and wholly-owned
subsidiaries of AWGS and investments in certain joint ventures.
23
<PAGE> 24
Results of Operations (dollars in millions)
The following table sets forth, for the years indicated, the Company's
selected income statement data:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net Sales $455.3 $563.5 $940.3
Cost of Products Sold 389.3 478.6 809.6
Selling, General and Administrative Expenses 30.6 36.7 54.6
Depreciation and Amortization 3.6 11.6 31.9
Non-recurring Costs of Combining Operations(1) 4.9
------ ------ ------
Operating Profit 31.8 31.7 44.2
Net Interest Expense and Capital Charge (8.9) (23.7) (44.9)
Other Income(2) 5.0 4.8 7.5
------ ------ ------
Income Before Income Tax 27.9 12.8 6.8
Income Tax Provision (12.4) (6.7) (4.0)
------ ------ ------
Income Before Extraordinary Loss, and Cumulative
Effect of Accounting Change 15.5 6.1 2.8
Extraordinary Loss and Cumulative Effect of
Accounting Change (2.0) 3.6
------ ------ ------
Net Income $ 13.5 $ 6.1 $ 6.4
====== ====== ======
PERCENTAGE OF NET SALES:
Net Sales 100.0% 100.0% 100.0%
Cost of Products Sold 85.5 84.9 86.1
Selling, General and Administrative Expenses 6.7 6.5 5.8
Depreciation and Amortization 0.8 2.1 3.4
Non-recurring Costs of Combining Operations(1) 0.9
------ ------ ------
Operating Profit 7.0 5.6 4.7
Net Interest Expense and Capital Charge (2.0) (4.2) (4.8)
Other Income(2) 1.1 0.9 0.8
------ ------ ------
Income Before Income Tax 6.1 2.3 0.7
Income Tax Provision (2.7) (1.2) (0.4)
------ ------ ------
Income Before Extraordinary Loss, and Cumulative
Effect of Accounting Change 3.4 1.1 0.3
Extraordinary Loss and Cumulative Effect of
Accounting Change -- 0.4
------ ------ ------
Net Income 3.4% 1.1% 0.7%
====== ====== ======
</TABLE>
- --------------
(1) Represents non-recurring charges for the costs of combining the
operations of GST and GII. See Note 9 to the Consolidated Financial
Statements.
(2) Other Income includes Equity in Income of Joint Ventures, Fees from
Joint Ventures, Minority Interest, and Other, Net.
24
<PAGE> 25
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales for the year ended December 31, 1996 were $940.3
million as compared to $563.5 million for the year ended December 31, 1995, an
increase of $376.8 million or 66.9%.
In 1995, operations included the acquired GII group subsequent to the
October 5, 1995 acquisition date. Sales in the first three quarters of 1996 for
the GII group were $345.9 million. The remaining increase in 1996 sales over
1995 sales resulted from volume increases as partially offset by a decrease in
average wire rod selling prices.
Wire rod sales were $380.5 million in 1996 compared to $217.4 million
in 1995. The increase results from the incorporation of wire rod sales from the
Georgetown, SC facility for the full 1996 year. Wire rod sales from the
Georgetown, SC facility for the first three quarters of 1996 amounted to
approximately 410,000 tons. Additionally, wire rod volume increased at the
Kansas City facility year-to-year by approximately 122,000 tons as 1995 volume
was adversely affected following the rod mill modernization. These increases
were partially offset by a decrease in average wire rod selling prices of $23
per net ton year-to-year.
Grinding media sales were $197.4 million in 1996 compared to $177.9
million in 1995, an increase of 11%. This increase results from the combination
of a volume increase of approximately 29,000 tons and an increase of $4 per ton
in average selling prices.
Additional sales for 1996 resulting from the GII acquisition include
$169.8 million of wire and wire products and $30.5 million of billets.
Cost of Products Sold. Total cost of products sold as a percent of
sales increased to 86.1% in 1996 from 84.9% in 1995. The primary reason for the
increase in this percentage was the decrease in wire rod average selling prices
noted above. Across all product lines, average raw material costs and conversion
costs reflect decreases of $2 per ton and $4 per ton, respectively. The increase
in total dollars from $478.6 million in 1995 to $809.6 million in 1996 reflects
the additional three quarters activity for the GII group in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were up in total dollars from $36.7 million in 1995 to
$54.6 million in 1996 resulting from the full year inclusion of GII operations.
However, as a percentage of net sales, selling general and administrative
expenses were down from 6.5% in 1995 to 5.8% in 1996. This decrease reflects the
efficiencies resulting from the combination of the companies which have been
realized to date.
Depreciation and Amortization. Depreciation and amortization expense
increased to $31.8 million in 1996 compared to $11.6 million in 1995. The GII
acquisition accounts for $16.5 million of this increase, with the remainder
resulting from capital additions and improvements.
Net Interest Expense. Net interest expense increased to $44.9 million
for 1996 from $23.7 million for 1995 resulting from debt incurred to effect the
GII acquisition and borrowings related to the investment in Sidercorp. Of this
total, $1.8 million represents amortization of loan acquisition costs.
25
<PAGE> 26
Other Income. Other income, primarily equity income and fees from joint
ventures, increased $2.7 million to $7.5 million for 1996 due, in part, to the
additional 1996 investments in joint ventures.
Income Taxes. Income taxes for 1996 were $4.0 million on pre-tax
earnings of $6.8 million, an effective tax rate of 57.6%. Income taxes for 1995
were $6.7 million on pre-tax earnings of $12.8 million, an effective rate of
52.3%. The effective tax rate for the company is high due to limitations on the
Company's ability to currently utilize foreign tax credits and due to the
non-deductibility of amortization and depreciation expense associated with the
GII acquisition. The increase in the effective rate in 1996 results from a
change in the mix of U.S. and foreign earnings.
Net Income. Net income for 1995 was $6.1 million and for 1996 was $6.4
million after the cumulative effect of a change in accounting of $3.6 million,
net of tax. (See Note 3 to the Consolidated Financial Statements for further
discussion).
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales for the year ended December 31, 1995 were $563.5
million compared to $455.3 million for the year ended December 31, 1994, an
increase of $108.2 million (23.8%). The inclusion of GII for the period after
the acquisition accounted for net sales of $112.5 million.
The Company's domestic wire rod sales were $218.5 million in 1995, a
decrease of $2.8 million (1.3%) from the 1994 level of $221.3 million. Net sales
from the Georgetown, South Carolina facility were $62.3 million after the
acquisition. The decrease in wire rod shipments was primarily due to the
scheduled five-week shutdown in June, 1995 and subsequent ramp-up of production
related to the Rod Mill Modernization in Kansas City, resulting in a decrease of
$53.9 million (24.3%). The decrease in shipments was partially offset by an $18
per ton increase in sales price.
Domestic grinding media sales increased to $109.9 million for 1995 from
$99.4 million for 1994, an increase of $10.5 million (10.6%). Shipments in 1995
increased by 8.8% compared to 1994, providing $8.9 million of additional
revenue. Sales prices increased by $7 per ton providing an additional $1.6
million of revenue.
Sales of grinding media from international operations were $77.9
million in 1995 compared to sales of $69.8 million in 1994, an increase of $8.1
million (11.6%). Volumes declined 3.3% and prices increased 0.2%.
Wire products from GII after the acquisition date contributed $46.6
million to net sales. Billets sold from the Georgetown, South Carolina facility
added $14.8 million in net sales.
Other sales in 1995 increased to $95.8 million from $64.2 million in
1994, an increase of $31.6 million. MEI sales were consolidated as of May 31,
1994 in connection with the MEI acquisition. Inclusion for a full year in 1995
accounted for $37.5 million in increased sales.
26
<PAGE> 27
Cost of Products Sold. The Company's cost of products sold increased to
$478.6 million for 1995 from $389.3 million for 1994, an increase of $89.3
million (22.9%). Cost of products sold as a percentage of sales decreased to
84.9% for 1995 from 85.5% for 1994. The value added margin (net sales price less
raw material cost) increased by $14 per ton for wire rod, $9 per ton for
domestic grinding media and decreased $9 per ton for international grinding
media.
The increase in cost of products sold in terms of dollars can be
attributed to: (a) the inclusion of GII operations since October 5, 1995 ($97.8
million); (b) the consolidation of MEI's operations for all of 1995 ($26.2
million); and (c) an 18% increase in Kansas City conversion costs due to
inefficiencies associated with the rod mill shutdown ($14.3 million). These
costs were partially offset by decreased volume due to the rod mill shutdown
($46.4 million).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1995 were $36.7 million compared to $30.6 million
for 1994, an increase of $6.1 million (19.9%). $5.0 million of the increase is
associated with the GII acquisition and $1.1 million with the consolidation of
MEI's operations as of May 31,1994.
Depreciation and Amortization. Depreciation and amortization expense
for 1995 was $11.6 million compared to $3.6 million for 1994, an increase of
$8.0 million. The inclusion of GII after the acquisition resulted in an increase
of $4.7 million of such amount. GSTOC's Kansas City mini-mill depreciation
expense increased $1.8 million as a result of capital spending. The
consolidation of MEI's operations accounted for an additional $0.8 million
increase.
Non-recurring Costs of Combining Operations. The Company recorded a
pre-tax charge of $4.9 million in the fourth quarter of 1995 for the costs of
combining the operations of GST and GII. This charge included costs of
relocating corporate headquarters to Charlotte, North Carolina, severance costs,
relocation costs and the estimated costs associated with closing a subsidiary.
Operating Profit. Operating profit for 1995 was $31.7 million compared
to $31.8 million for 1994. Operating profit as a percentage of sales decreased
to 5.6% for 1995 from 7.0% for 1994 for the reasons discussed above.
Net Interest Expense. Net interest expense for 1995 was $23.7 million
compared to $8.9 million for 1994, an increase of $14.8 million. Of this
increase, $14.5 million results from an increase in debt from the GII
acquisition. The consolidation of MEI's operations resulted in additional
interest expense of $0.3 million compared to 1994. Included in interest expense
is $0.9 million of amortization of deferred loan costs.
Other Income. Other income for 1995 decreased to $5.0 million in 1995
from $5.2 million in 1994. Equity income from joint venture operations increased
$0.6 million to $4.1 million in 1995. This was offset by costs related to MEI's
consolidation.
Income Taxes. Income taxes for 1995 were $6.7 million compared to $12.4
million for 1994. The 1995 effective income tax rate was 52.3% compared to 44.6%
for 1994, an increase of 7.7%. The effective income tax rate increased primarily
due to limitations on the Company's ability to currently utilize foreign tax
credits and the nondeductibility of amortization and depreciation expense
associated with GII acquisition.
27
<PAGE> 28
Net Income. Net income for 1995 was $6.1 million compared to $13.5
million for 1994, a decrease of $7.4 million as a result of the reasons
discussed above.
Liquidity and Capital Resources
At December 31, 1996, the Company had total cash and cash equivalents
of $7.9 million, a decrease of $3.5 million from December 31, 1995. Operating
activities provided $40.9 million of cash during 1996 composed primarily of net
income of $6.4 million, non-cash depreciation and amortization of $31.8 million,
changes in assets and liabilities for the year of $3.3 million, primarily due to
a decrease in inventories of $7.4 million, as partially offset by an increase in
accounts receivable of $4.5 million. Net cash used in investing activities of
$50.9 million consisted primarily of capital improvements of $43.3 million and
investments in joint ventures of $11.5 million. The Company had net cash
provided by financing activities of $7.0 million from additional borrowings.
While management believes that funds available from the Company's cash
flow from operations and credit facilities will be sufficient, in the aggregate,
to fund planned working capital and capital expenditure requirements for 1997,
management continues to evaluate alternative sources of funds. There are
fluctuations in the Company's working capital needs over the course of a year,
generally influenced by various factors such as seasonality, inventory levels
and the timing of raw material purchases. Due to the cyclical nature of the
Company's business, management believes that it is important for the Company to
maintain borrowing facilities in excess of working capital requirements.
Capital expenditures in the Company's business tend to vary from year
to year as the impact of major programs is concentrated in certain periods
followed by periods of maintenance spending. Management believes that this
pattern is typical of the industry. The high quality sector of the steel and
wire products industry is characterized by high levels of capital spending. The
focus of capital spending is growth in production, improvement in product
quality and reduction in product cost.
The acquisition premium recorded as a result of the GII acquisition
will be amortized over a period of forty years. Management believes that the use
of the forty-year amortization period is appropriate given the expected
longevity of the industry, GII's leading market position, GII's utilization of
modern manufacturing technology, and the diversity and lack of expected
obsolescence of GII's products.
The Company's capital expenditures were $43.3 million in 1996. These
expenditures are primarily related to the Kansas City grinding media operation
relocation and modernization project. The Company intends to make an equity
investment of up to $22.5 million primarily during 1997 in AIR , a joint venture
to build and operate a scrap substitute facility. See "Business -- Capital
Investment Program."
28
<PAGE> 29
The Company manages its liquidity needs on a consolidated basis with
borrowings available under the Revolving Credit Facility (as defined below), a
revolving credit facility at MEI and various credit facilities available at its
international subsidiaries and joint ventures. See "Certain Relationships and
Related Transactions -- Description of Indebtedness." Management believes the
additional borrowing availability under the Credit Facilities (as defined below)
and the cash flows from operations will be sufficient to meet anticipated
capital expenditures and to make principal and interest payments on the
Company's indebtedness when due. The Company believes cash flows from operations
will continue to improve due to the ongoing benefits of its business strategy,
including its cost reduction program and capital investment projects.
Borrowings under the Revolving Credit Facility bear interest at a
floating rate. Increases in prevailing rates could adversely affect the
Company's cash flow. See "Certain Relationships and Related Transactions --
Description of Indebtedness." To the extent that the interest rate on the
Revolving Credit Facility increases or the principal amount outstanding
increases, there will be corresponding increases in the Company's interest
obligations. Under the Revolving Credit Facility, the Company's availability is
$145 million (subject to a borrowing base limitation). As of December 31, 1996,
the availability under the Revolving Credit Facility was $138.6 million, of
which $61 million was drawn. At December 31, 1996, $24.7 million of letters of
credit were outstanding.
Environmental Matters
The Company has made, and will continue to make, capital expenditures
as necessary to comply with environmental requirements. Because environmental
requirements are subject to change and are becoming increasingly stringent, the
Company's capital expenditures for environmental compliance may increase in the
future. The Company has established reserves for certain future costs and
liabilities associated with environmental matters. As of December 31, 1996, the
Company had recorded a reserve of approximately $3.7 million for environmental
matters. The Company believes these reserves are adequate in light of certain
indemnifications described below. See Note 14 to the Consolidated Financial
Statements of the Company for additional information. There can be no assurance,
however, that future environmental costs and liabilities will not exceed the
established reserves. The Company believes, based upon information currently
available to management, that it will not require expenditures to maintain
compliance with environmental requirements which would have a material adverse
effect on its consolidated financial condition or results of operations.
As is the case with steel producers in general, if a release of
hazardous substances occurs on or from the Company's properties or any
associated offsite disposal locations, the Company may be held jointly and
severally liable under CERCLA, the Resource Conservation and Recovery Act
("RCRA"), or similar state or provincial requirements. The amount of any such
liability could be material. Although the Company endeavors to carefully manage
its wastes, because liability under CERCLA is strict and retroactive, it is
possible that in the future the Company or its subsidiaries may be identified as
a PRP with respect to various waste disposal sites. There can be no assurance
that future costs or damages associated with identified or unidentified sites
will not have a material adverse effect on the financial condition or results of
operations of the Company.
29
<PAGE> 30
The Company has from time to time been, and presently is, the subject
of administrative proceedings, litigation or investigations relating to
environmental matters. The Company's Kansas City mini-mill is subject to a
Consent Order regarding air emissions. The Georgetown mini-mill and DRI plant
are involved in an air emissions permit modification process and ongoing
discussions regarding inspections by the state environmental agency. The Kansas
City mini-mill is involved in a water discharge permit renewal process with the
state environmental agency. The Jacksonville facility is subject to a Consent
Order regarding soil and groundwater cleanup. The Tempe, Arizona facility is
involved in air emissions permit discussions. Several of the Company's
properties are listed in CERCLIS or equivalent state/provincial lists. The
Company through its operating units has been named a Potentially Responsible
Party ("PRP") at several off-site locations where wastes were sent. Through cost
sharing agreements, permits and consent orders the Company is addressing
requirements at these locations. Although the Company does not believe that
current proceedings, litigation or investigations will have a material adverse
effect on its consolidated financial condition or results of operations, there
can be no assurance that future costs or damages relating to such proceedings,
litigation or investigations will not exceed established reserves.
Subject to certain limitations, the Company is indemnified for certain
environmental matters, including those referred to herein. Armco has indemnified
GST for matters including contamination at the inactive Ishpeming, Michigan
facility, and certain matters at the Kansas City facility and the Duluth
facility. Capitol Castings, Inc. has indemnified MEI for groundwater
contamination at the Tempe, Arizona facility, and Ivaco Inc. has indemnified GII
for groundwater contamination and some soil contamination at the Jacksonville
facilities. Although the Company believes such indemnifications are adequate to
cover these matters, if a matter is not fully covered by these indemnities, or
if the indemnitor fails to provide indemnification, the Company may be
responsible for such matters.
Tax Matters
The Company's Peruvian subsidiaries had received notice from the
Peruvian tax authorities of proposed tax assessments aggregating approximately
$16.9 million (as of December 31, 1995) for the years 1984 through 1990 relating
to sales taxes, employer taxes and income taxes. During 1995, Armco and the
Company successfully resolved approximately $4.7 million of the proposed tax
assessments for a total payment of $140,000 (reimbursed by Armco). During 1996,
the Peruvian government issued a one-time amnesty program in order to allow
Peruvian companies to settle disputed tax claims. Under the tax amnesty program,
the Company settled all outstanding Peruvian tax assessments for a total payment
of $250,000. The Company has obtained a specific indemnity from Armco for the
full amount of the 1995 and 1996 tax assessments paid, without regard to any
deductible and has been or will be reimbursed accordingly.
The Company's federal income tax returns have included deductions for
certain net operating losses ("NOLs"), which deductions reduced its tax
liabilities in 1995 and prior years. Although management believes that there is
substantial authority for the Company's tax return positions, the Company has
established reserves for various contingent liabilities, including potential
exposure arising from these tax uncertainties. It is impossible to predict with
certainty the outcome of any potential IRS examinations, and thus no assurance
can be given that tax adjustments will not exceed the Company's reserves.
30
<PAGE> 31
Other Matters
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which is effective for
fiscal years beginning after December 15, 1995. This statement encourages, but
does not require, companies to adopt a method of accounting for stock
compensation awards based on the estimated fair value at the date the awards are
granted. The Company has elected to continue to follow existing standards and
has disclosed in the Notes to the consolidated financial statements the proforma
effect on net income had expense been recognized for options based on the new
statement. (See Note 12 to the Consolidated Financial Statements for further
discussion).
31
<PAGE> 32
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements which appears on page
F-1 herein.
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
Directors of GST and GSTOC are elected at their respective annual
meetings of stockholders to serve during the ensuing year or until a successor
is duly elected and qualified. Executive officers of GST and GSTOC are elected
annually by the Board of Directors of GST and GSTOC, respectively, to serve
during the ensuing year or until a successor is duly elected and qualified.
GST's and GSTOC's Boards of Directors currently consist of four members each. In
connection with the GII acquisition, GSI, GECC, Leggett & Platt, the Bain Funds
(as defined under Note (1) under "Security Ownership of Certain Beneficial
Owners and Management"), Mr. O'Malley, the Government of Kuwait and certain
other stockholders of GSI (the "Stockholder Parties") entered into the Second
Amended and Restated Stockholders Agreement (the "Stockholders Agreement") dated
October 5, 1995. Under the Stockholders Agreement, the Stockholder Parties
agreed to vote all of their shares of Common Stock and to take all other
necessary actions (i) to allow the Government of Kuwait to select two
representatives to the Board of Directors of GSI, so long as certain securities
issued in connection with the GII acquisition are outstanding, and (ii) to allow
the holders of a majority of the shares held by the Bain Funds to select the
remaining representatives to the Board, so long as the Bain Funds and certain
other persons own at least 60% of the Common Stock which it purchased pursuant
to the Stock Purchase Agreement dated October 5, 1995. The following table sets
forth certain information with respect to the directors and executive officers
of GST and GSTOC.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Roger R. Regelbrugge 66 Chairman and Chief Executive Officer and Director
Luis E. Leon 44 Senior Vice President - Finance and Administration,
Chief Financial Officer, Treasurer and
Assistant Secretary
David M. Yarborough 46 Senior Vice President - Mining Products
Walter Robertson, III 51 Senior Vice President - Commercial
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David O. Shelley 47 Vice President and Controller
Benjamin C. Huselton 52 Vice President - Administration
George A. Goller 52 Vice President - Technology and Product
Development
Richard C. Holzworth 67 Vice President - Steel Sales and Marketing
Mario Concha 56 Vice President
Paul B. Edgerley 41 Director
Robert C. Gay 45 Director
John J. O'Malley 49 Director
</TABLE>
Roger R. Regelbrugge has been a Director and the Chairman and Chief Executive
Officer of GST and GSTOC since the GII acquisition. He also served as Chairman
and Chief Executive Officer of GII, having joined GII in 1974, prior to the GII
acquisition. He has served as President and Chief Executive Officer of GII since
1977 and as a director of GII since 1975. Mr. Regelbrugge is a director and
member of the Policy and Planning Committee of the AISI, a director of the Steel
Manufacturers Association, a member of the Advisory Board of the Fuqua School of
Management at Duke University and a member of the Board of Trustees of Belmont
Abbey College.
Luis E. Leon has been Senior Vice President - Finance and Administration, Chief
Financial Officer and Treasurer of GST and GSTOC since February 1997. Mr. Leon
jointed the Company in November 1994 as Vice President, Chief Financial Officer
and Treasurer. In October 1995, he was appointed Senior Vice President. From May
1991 to October 1994, Mr. Leon was Vice President, Chief Financial Officer and
Treasurer for Wyman-Gordon Company. From 1986 through May 1991, Mr. Leon served
as Corporate Treasurer for Milton Roy Company. Prior to joining Milton Roy
Company, Mr. Leon held various treasury and financial management positions with
Kerr-McGee Corporation, American Express Company, Money Order Division and
numerous banking positions with United Bank of Denver (now known as Norwest
Bank).
David M. Yarborough has been Senior Vice President-Mining Products since
February 1997. From October 1995 to February 1997, he served as Vice President -
Corporate Development of GST and GSTOC. From August 1993 until October 1995, Mr.
Yarborough provided project development services to GII and GSC pursuant to an
agreement between GII and GeoCapital Corporation of which he was President.
Prior to founding GeoCapital in 1992, Mr. Yarborough held various management
positions in steel and industrial equipment concerns.
33
<PAGE> 34
Walter Robertson, III has been Senior Vice President - Commercial since February
1997. Prior to that he served as Vice President - Commercial of GST and GSTOC
since joining the Company in March 1996. Prior to such appointment, Mr.
Robertson was President of American Steel and Wire, a subsidiary of Birmingham
Steel Corporation.
David O. Shelley has been Vice President of GST and GSTOC since November 1995
and Controller of GST and GSTOC since the GII acquisition. Mr. Shelley served as
Controller of GII from 1985 until the GII acquisition. Mr. Shelley joined GII in
1974 and held various financial positions prior to being named Controller. From
1970 to 1974, he served in various financial positions at Georgetown Steel
Corporation (GSC).
Benjamin C. Huselton has been Vice President - Administration of GST and GSTOC
since March 1997. Prior to that he had served as Vice President - Communications
and Vice President of GST and GSTOC since the GII acquisition. From November
1993 to the GII acquisition, he was Vice President of Human Resources and
Business Systems and Assistant Secretary of GST and GSTOC. From 1991 to November
1993, Mr. Huselton was Vice President of Human Resources and Administration for
AWGS. From 1970 to 1991, Mr. Huselton served as a manager of industrial
relations and human resources in several Armco divisions, including the
Baltimore Works of Armco's Specialty Steel Division.
George A. Goller has been Vice President - Technology and Product Development of
GST and GSTOC since November 1995 and a Vice President of GST and GSTOC since
November 1993. From December 1990 to November 1993, Mr. Goller was Director of
Business Development for AWGS. From 1964 to 1992, Mr. Goller served in various
capacities with AWGS, including Metallurgy Coordinator at the Kansas City
mini-mill, Commercial Manager and Senior Product Engineer at the Ishpeming,
Michigan facility, director of the High Chrome Cast technical development group
and a research engineer.
Richard C. Holzworth has been Vice President - Steel Sales and Marketing of GST
and GSTOC since November 1995. Mr. Holzworth has been Vice President - Sales and
Marketing of GSC since 1983. From 1977 to 1983 he was Director of Marketing for
GSC . Prior to 1977, Mr. Holzworth held various sales and marketing positions
with U.S. Steel.
Mario Concha has been Vice President of GST and GSTOC since November 1993. Since
May 1992, Mr. Concha has been President of the international grinding media
operations of GST and GSTOC. From 1985 to 1992, Mr. Concha was Vice
President-International of Occidental Chemical Corporation with responsibility
for all overseas operations as well as all exports from the United States. Prior
to his employment with Occidental Chemical, Mr. Concha was a manager at the
Union Carbide Corporation.
Paul B. Edgerley has been a Director of GST since July 1993 and served as Vice
President and Director from November 1993 until February 1997. Mr. Edgerley has
been a managing director of Bain since May 1993 and has been a general partner
of Bain Venture Capital since 1990. Mr. Edgerley was a principal of Bain Capital
Partners from 1988 through 1990. Mr. Edgerley is also a director of AMF Group,
Inc. and Steel Dynamics, Inc.
34
<PAGE> 35
Robert C. Gay has been a Director of GST since July 1993, Director of GSTOC
since the GII acquisition and served as Vice President of GST and GSTOC from
November 1993 until February 1997. Mr. Gay has been a managing director of Bain
since May 1993 and has been a general partner of Bain Venture Capital since
1989. Mr. Gay was a principal of Bain Capital Partners from 1988 through 1989.
Mr. Gay is a Vice Chairman of the Board of Directors of IHF Capital, Inc.,
parent of ICON Health & Fitness Inc., and a director of Alliance Entertainment
Corp., GT Bicycles, Inc. and Physio-Control International Corporation.
John J. O'Malley has been a Director of GST and GSTOC since November 1993. Mr.
O'Malley has been an Executive Vice President of Bain since 1993. From 1991 to
1993, Mr. O'Malley was President and Chief Executive Officer of Robertson Ceco,
an international construction products and engineering company. From 1986 to
1991, he was Executive Vice President of HMK Group Inc., a diversified
manufacturing and services company. Mr. O'Malley is also a director of
Physio-Control International Corporation and Wesley Jessen Vision Care, Inc.
ITEM 11: EXECUTIVE COMPENSATION
Compensation of Executive Officers
Set forth below is information for the fiscal years ended December 31,
1994, 1995 and 1996 with respect to compensation for services to the Company of
the following individuals: (1) the Chief Executive Officer of GST and GSTOC
during 1996, and (2) the four most highly compensated executive officers of GST
and GSTOC (other than the Chief Executive Officer) during 1996.
35
<PAGE> 36
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------- Long-Term
Other Annual Compensation All Other
Compensation ------------- Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(1) Options(#)(2) ($)(3)
- --------------------------- ---- --------- -------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Roger R. Regelbrugge 1996 $612,500 $340,261 $ 8,958 -- $ 34,397
Chairman and Chief 1995 143,548(4) 113,372(4) 2,144 325,000 58,313
Executive Officer 1994 -- -- -- -- --
Luis E. Leon 1996 $220,000 $ 81,477 $49,420 -- $ 57,019
Senior Vice President - 1995 195,000 46,400 7,885 -- 8,098
Finance and Administration, 1994(5) 31,667 83,125 -- 180,000 69,099
Chief Financial Officer
Walter Robertson, III 1996(7) $149,808 $ 90,000 $38,108 90,000 $ 87,326
Senior Vice President - 1995 -- -- -- -- --
Commercial 1994 -- -- -- -- --
David M. Yarborough 1996 $190,000 $ 52,775 $ 5,267 -- $ 2,680
Senior Vice President - 1995(6) 45,552 18,995 -- 100,000 16,066
Mining Products 1994 -- -- -- -- --
Mario Concha 1996 $180,000 $233,496 $13,580 -- $113,498
Vice President 1995 175,000 86,625 6,531 -- 21,670
1994 171,083 120,870 -- 91,551 6,768
</TABLE>
- --------
(1) Other annual compensation reflects certain incidental perquisites and
benefits.
(2) For additional information concerning the grant of options in 1996, see
"--Stock Options" below.
(3) Other compensation paid to Mr. Regelbrugge consists of $50,000 in 1995
paid in connection with his initial employment with the Company and
certain life insurance premiums paid by the Company on Mr.
Regelbrugge's behalf in the amount of $30,825 for 1996 and a pro-rated
amount of $8,313 for 1995. See "--Mr. Regelbrugge's Employment
Arrangements." The amounts shown for 1996 for Messrs. Leon, Robertson
and Concha include reimbursement of certain relocation expenses of
$49,519, $35,316 and $105,728, respectively. Mr. Robertson's amount
also includes $50,000 in connection with his initial employment. In
addition, the amount for Mr. Leon for 1994 includes the reimbursement
of certain relocation expenses of $69,099. Messrs. Leon and Concha
participate in a 401(k) plan with a Company match. The amounts related
to this plan included in 1996 are $4,500 and $4,500 and in 1995, $4,425
and $4,500, respectively. Mr. Leon also participates in a profit
sharing plan and contributions on his behalf were $3,000 in 1996 and
1995.
(4) Represents prorated amount for the portion of 1995 that follows the GII
acquisition, during which period Mr. Regelbrugge was Chairman and Chief
Executive Officer of GST and GSTOC.
(5) Mr. Leon joined the Company in November 1994.
(6) Mr. Yarborough joined the Company in October 1995.
(7) Mr. Robertson joined the Company in March 1996.
36
<PAGE> 37
Stock Options of GSI
The following table sets forth information regarding stock options in the
Common Stock granted to Mr. Robertson during the Company's fiscal year ended
December 31, 1996. No options were granted in 1996 to Messrs. Regelbrugge, Leon,
Yarborough or Concha.
Option Grants in 1996
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Individual Grants Annual Rates
--------------------------------------------------------------------- of Stock Price
Number of Percent of Total Appreciation for
Securities Options Granted Exercise or Option Term (2)
Underlying To Employees in Base Price Expiration --------------------
Name Options(#)(1) Fiscal Year(%) ($ per share) Date 5%($) 10%($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Walter Robertson, III 90,000 100% $9.00 03/29/06 $568,810 $905,735
</TABLE>
- ----------
(1) Such options were granted on March 29, 1996 pursuant to a stock option
agreement between GSI and Mr. Robertson. The options vest and become
exercisable at 20% annually beginning on February 28, 1997.
(2) Represents the value of the options granted at the end of the option
term if the market price of shares of Common Stock on the date of grant
were to appreciate annually by 5% and 10%, respectively, based on the
assumed fair market value of $3.88 per share as of the grant date.
The following table sets forth information concerning outstanding
options in the Common Stock held by Mr. Regelbrugge and the other named
executives during the Company's fiscal year ended December 31, 1996. No
executive officer exercised options during 1996.
Aggregated Option Exercises in 1996 and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1996(#) December 31, 1996($)(1)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Roger R. Regelbrugge 180,555 144,445
Luis E. Leon 60,000 120,000
Walt Robertson 90,000
David Yarborough 20,000 80,000
Mario Concha 187,298 146,019 $500,347 $413,528
</TABLE>
- ----------
(1) Year end value is based on an assumed fair market value of $3.88 per
share, less the applicable aggregate option exercise price(s) of
in-the-money options, multiplied by the number of unexercised
in-the-money options which are exercisable and unexercisable,
respectively.
37
<PAGE> 38
Mr. Regelbrugge's Employment Arrangements
Mr. Regelbrugge and GSI are parties to an employment agreement (the
"Regelbrugge Agreement"), dated October 5, 1995, pursuant to which Mr.
Regelbrugge will serve as the Chairman and Chief Executive Officer of GSI, GST
and GSTOC until December 31, 1997. Under the Regelbrugge Agreement currently in
effect, Mr. Regelbrugge is entitled to receive (i) an annual base salary at the
annual rate of $650,000, and ( ii) an annual incentive bonus for each of the
years ended December 31, 1996 and December 31, 1997 based on the Company
achieving certain performance targets. The Regelbrugge Agreement also entitles
Mr. Regelbrugge to certain privileges and benefits, including participation in
the Company's management employee benefit plans in effect from time to time and
in a supplemental executive retirement plan established and maintained by GSI
(the "GSI SERP"). The GSI SERP will provide Mr. Regelbrugge with retirement
benefits as described under Pension and Retirement Plans.
Mr. Regelbrugge is also a party to an agreement dated January 19, 1994
which provides certain protections in the event of severance upon a change of
control (a "Change of Control") of GII (the "Regelbrugge Change of Control
Agreement"). The Regelbrugge Change of Control Agreement is in lieu of any other
severance agreement and provides for cash compensation and continuation of
fringe benefits for a period of two years in the event that in anticipation of,
or within two years following a Change of Control his employment is terminated
either by (x) the Company for any reason other than "cause" (as defined in such
agreement), death or disability, or (y) by Mr. Regelbrugge for good reason. If
Mr. Regelbrugge should become entitled to receive benefits thereunder, he will
receive (i) a lump sum payment equal to two times his annual base salary, (ii)
continued participation for a period of two years in certain bonus arrangements,
and (iii) two years additional service and vesting credit in the GSI SERP. The
GII acquisition constituted a Change of Control for purposes of the Regelbrugge
Change of Control Agreement.
Mr. Regelbrugge also has entered into a Stock Option Agreement dated
October 5, 1995 (the "Stock Option Agreement") with GSI pursuant to which he
received options to purchase Common Stock. The options are non-qualified and
become exercisable at the rate of 3.7037% on the last day of each month
beginning October 31, 1995, if Mr. Regelbrugge is employed by the Company on
such date, subject to the options becoming exercisable at an earlier date upon
the occurrence of certain change of control transactions. The Stock Option
Agreement further provides that (i) the shares of Common Stock issuable pursuant
to the options or issued pursuant thereto (the "Option Stock") are subject to
purchase by GSI and the Bain Funds, at their option, in the event Mr.
Regelbrugge is no longer employed by the Company prior to December 31, 1997,
(ii) if Mr. Regelbrugge's employment with the Company is terminated prior to
December 31, 1997, the purchase price to GSI and the Bain Funds for his Option
Stock is either the original value or the fair market value thereof, depending
on whether the termination was for "cause" or voluntary termination other than
for "good reason", and (iii) the purchase option held by GSI and the Bain Funds
terminates upon the first to occur of (A) a sale of GSI, or (B) GSI becoming a
reporting company under the Securities Exchange Act of 1934 as a result of the
registration of its common equity securities thereunder and the Bain Funds and
their affiliates collectively ceasing to own at least 50% of the aggregate
number of shares of Common Stock held by the Bain Funds as of the date of the
Stock Option Agreement. The Stock Option Agreement also provides for certain
transfer restrictions with respect to the Option Stock.
38
<PAGE> 39
Other Management Agreements
Messrs. Leon and Concha have entered into separate management
agreements with the Company (the "Management Agreements") pursuant to which Mr.
Leon and Mr. Concha acquired shares of GSI Common Stock and options to purchase
Common Stock. The terms of each of these Management Agreements provide that (i)
the Common Stock held by the executive is subject to purchase by GSI and the
Bain Funds, at their option, in the event the executive is no longer employed by
the Company as of a stated date, (ii) if the executive's employment with the
Company is terminated, the purchase price to GSI and the Bain Funds for the
executive's shares of Common Stock is either the original value or the fair
market value thereof, depending on whether the termination was for "cause" or
voluntary termination other than for "good reasons," and (iii) the purchase
option held by GSI and the Bain Funds terminates upon the first to occur of (A)
a sales of GSI, or (B) GSI becoming a reporting company under the Securities
Exchange Act of 1934 as a result of the registration of its common equity
securities thereunder and the Bain Funds and their affiliates collectively
ceasing to own at least 50% of the aggregate number of shares of Common Stock
held by the Bain Funds as of August 17, 1995. In addition, each of the
Management Agreements also provide for certain transfer restrictions with
respect to the Common Stock and options to purchase Common Stock granted to the
executive thereunder. The terms of each of the Management Agreements provide for
certain restrictions on the executive's ability to compete with the Company
following his termination of employment with the Company. Mr. Leon's Management
Agreement contains certain terms that are different from Mr. Concha's Management
Agreement in that (i) there are no participation rights in connection with a
sale of shares by the Bain Funds, (ii) Mr. Leon is entitled to receive a payment
equal to two years' base salary upon his termination of employment under certain
circumstances prior to the later of November 1, 1996 and GSI's completing a sale
of its equity securities pursuant to a registration statement filed under the
Securities Act of 1933, and (iii) there are certain variations in Mr. Leon's
option terms. For additional information, see "-- Stock Options", "Security
Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions -- Certain Transactions."
Messrs. Robertson and Yarborough have entered into separate stock
option agreements with the Company on terms that are generally similar to Mr.
Regelbrugge's Stock Option Agreement described above. Mr. Yarborough's stock
option agreement was entered into as of October 5, 1995, and Mr. Robertson's
stock option agreement was entered into as of February 28, 1996. Each of these
stock option agreements provide that (i) the options granted pursuant thereto
vest at a rate of 20% each year for the five years following the date of the
respective stock option agreement, and (ii) the purchase option held by GSI and
Bain does not terminate if the executive remains employed with the Company as of
a certain date, but instead terminates only upon the first to occur of (A) a
sale of GSI, or (B) GSI becoming a reporting company under the Securities
Exchange Act of 1934 as a result of the registration of its common equity
securities thereunder and the Bain Funds and their affiliates collectively
ceasing to own at least 50% of the aggregate number of shares of Common Stock
held by the Bain Funds as of the date of the stock option agreement.
39
<PAGE> 40
In accordance with the employment agreement with Mr. Robertson, in the
event Mr. Robertson is terminated during the four years following his employment
date (February 28, 1996) for any reason other than for cause, Mr. Robertson's
salary and benefits will be continued for two years. Such termination
compensation will be reduced from two years to one year after the completion of
four years of service, with the reduction occurring month by month during the
fifth year of employment.
In accordance with the employment agreement with Mr. Yarborough, in the
event Mr. Yarborough's employment is terminated for any reason other than for
cause, Mr. Yarborough's salary and benefits will be continued for one year.
Pension and Retirement Plans
Messrs. Regelbrugge, Robertson and Yarborough are participants in the
GSI Employees Pension Plan (the "GSI Pension Plan") and Mr. Regelbrugge is also
a participant in the GSI SERP. The annual benefit under the GSI Pension Plan at
normal retirement age generally is equal to the sum of (1) one percent of the
average of the five consecutive calendar years of Compensation (as defined
below) that produce the highest average (the "Average Compensation") for each
year of benefit service and (2) six-tenths of one percent of the Average
Compensation in excess of the covered compensation (which is the average Social
Security wage base) for each year of benefit service up to 35 years. For
purposes of the GSI Pension Plan, "Compensation" consists of all remuneration
paid to the employee for services rendered as reported or reportable on Form W-2
as "wages, tips or other compensation" plus elective or salary reduction
contributions to a cash or deferred arrangement, cafeteria plan or tax-sheltered
annuity, but excluding reimbursements or other expense allowances, fringe
benefits (cash and non-cash), moving allowances and expenses, amounts designated
by GSI as retirement-oriented non-qualified deferred compensation and welfare
benefits. Compensation under the GSI Pension Plan may not, however, exceed the
annual compensation limit imposed by the Internal Revenue Code (the "Code"),
which was $150,000 for 1996. The annual benefit limits payable under the GSI
Pension Plan for 1996 was $120,000. Benefits under the GSI Pension Plan
currently are not offset by Social Security payments or any other amounts, A
portion of the benefit due under the GSI Pension Plan will be provided through
an annuity contract for certain participants for whom such contracts were
purchased as of December 30, 1985.
Mr. Regelbrugge's annual benefit under the GSI SERP at normal
retirement age (age 65) is determined as follows: (1) 2.5 percent of the Average
Compensation for each year of benefit service up to 20, less (2) 2.5 percent of
the annual primary Social Security benefit for each year of benefit service up
to 20, less (3) the annual benefit payable under the GSI Pension Plan. The
benefit payable under the GSI SERP will be further reduced by the annual benefit
value of the lump sum payment received by Mr. Regelbrugge from the GSI SERP on
October 5, 1995. As of December 31, 1996, Mr. Regelbrugge has 22 years of
credited service under the GSI Pension Plan and 23 years of service under the
GSI SERP.
40
<PAGE> 41
Mr. Regelbrugge's retirement benefit under the GSI Pension Plan and the
GSI SERP will be the greater of (i) the amount determined by the continued
accrual of benefits under the above plans, or (ii) the actuarial adjusted
benefit that Mr. Regelbrugge would have received at age 65 adjusted for late
retirement. Mr. Regelbrugge's combined annual benefit payable under these plans
at December 31, 1996 would be $163,031. In addition, Mr. Regelbrugge has the
option to receive the GSI SERP benefit in a lump sum amount upon his retirement.
Mr. Robertson and Mr. Yarborough participate in the GSI Pension Plan
and at December 31, 1996, each of them had one year of credit service.
The following table shows the projected annual benefits payable for a
single life annuity as of December 31, 1996 upon retirement at age 65 based on
different levels of compensation and years of credited service under the GSI
Pension Plan.
<TABLE>
<CAPTION>
GSI Pension Plan Table*
Years of Service
--------------------------------------------------------------------------
Compensation 15 20 25 30 35
- ------------ ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$125,000 $27,570 $36,760 $45,950 $55,140 $64,330
150,000 33,570 44,760 55,950 67,140 78,330
175,000 33,570 44,760 55,950 67,140 78,330
200,000 33,570 44,760 55,950 67,140 78,330
300,000 33,570 44,760 55,950 67,140 78,330
500,000 33,570 44,760 55,950 67,140 78,330
750,000 33,570 44,760 55,950 67,140 78,330
900,000 33,570 44,760 55,950 67,140 78,330
</TABLE>
- ------------
*Figures in table do not reflect amounts payable under the GSI SERP.
If employment were continued until normal retirement age of 65 at their
1996 rates of pay, Messrs. Robertson and Yarborough would respectively receive
yearly pensions of $31,410 and $41,160 under the GSI Pension Plan.
Messrs. Leon and Concha participate in the GST non-qualified Supplement
Retirement Plan (the "GST SERP") which provides a retirement benefit equal to
25% of the participant's average annual compensation (last five years average
base compensation, including bonuses) less any amounts payable under any other
retirement plan maintained by GST. The GST SERP is an unfunded obligation of
GST. Participants under the GST SERP receive full benefits after attaining age
62 and the completion of five years of service. Participants who have completed
five years of service but have not attained age 62 may elect early retirement
starting at age 55. The amount of such early retirement benefit shall be 25% of
the participant's average annual compensation multiplied by the ratio of the
participant's years of service (and any fractions thereof) at his or her early
retirement date over the lessor of the participants years of service at age 62
or 15 years of service. If benefit payments commence prior to age 62, the amount
payable shall be the actuarial equivalent of the benefit that would be payable
at age 62. The amounts shown below for Messrs. Leon and Concha include amounts
which could be paid under the GST SERP.
41
<PAGE> 42
The following table shows the projected annual benefits payable for a
single life annuity as of December 31, 1996 upon retirement at the normal
retirement age of 62 based on different levels of average annual compensation
and benefit service for the GST SERP. As of December 31, 1996 Messrs. Leon and
Concha had 2 years and 4 years of credited service, respectively under the GST
SERP.
<TABLE>
<CAPTION>
GST Combined Pension and Retirement Plan Table
Years of Service
-------------------------------------------------------------------------
Compensation 5 10 15 20 25
------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$125,000 $31,250 $31,250 $31,250 $31,250 $31,250
150,000 37,500 37,500 37,500 37,500 37,500
175,000 43,750 43,750 43,750 43,750 43,750
200,000 50,000 50,000 50,000 50,000 50,000
225,000 56,250 56,250 56,250 56,250 56,250
250,000 62,500 62,500 62,500 62,500 62,500
275,000 68,750 68,750 68,750 68,750 68,750
300,000 75,000 75,000 75,000 75,000 75,000
400,000 100,000 100,000 100,000 100,000 100,000
450,000 112,500 112,500 112,500 112,500 112,500
500,000 125,000 125,000 125,000 125,000 125,000
</TABLE>
If employment were continued until normal retirement age of 62 at their
1996 rates of compensation, Messrs. Leon and Concha would receive yearly
pensions of $66,600 and $66,656, respectively, under the GST SERP.
Messrs. Leon and Concha also participate in the GS Technologies
Retirement and Savings Plan. This plan has two components, a defined
contribution profit sharing component under Section 401(a) of the Code and a
cash or deferred arrangement that qualifies under Section 401(k) of the Code.
Mr. Concha only participates in the 401(k) component of this plan. Annual
contributions are made at the rate of 2% of a participants' compensation.
Compensation for the profit sharing component of this plan is limited to a
maximum compensation level in 1996 of $150,000. The Section 401(k) portion of
the plan allows for a tax-deferred contribution by the executive up to the
maximum allowed by the Code($9,500 in 1996). The executives may also make
after-tax voluntary contributions. The Company will make a matching contribution
in an amount equal to fifty percent of the tax-deferred and after-tax
contributions of the executives up to a maximum of 3% of the executives base
compensation, excluding bonuses and limited to $150,000 in 1996. The Company's
contribution in 1996 for Messrs. Leon and Concha under these plans were $7,500
and $ 4,500, respectively.
42
<PAGE> 43
Compensation Committee Interlocks and Insider Participation
During 1996, compensation decisions for executive officers and
directors of GST and GSTOC were made by GSI's Compensation Committee which
consisted of Messrs. Regelbrugge, O'Malley, Al-Gabandi and Haas. Mr.
Regelbrugge, Chairman and Chief Executive Officer, did not participate in
decisions regarding his compensation. There were no fees paid to the directors
of GST or GSTOC during 1996.
No executive officer employed by the Company serves or served on the
compensation committee of another entity during 1996 and, except as described
below, no executive officer of the Company serves or served as a director of
another entity who has or had an executive officer serving on the Board of
Directors of the Company.
Messrs. Edgerley and Gay are managing directors of Bain which is the
management company for certain of the Bain Funds. Messrs. Edgerley and Gay are
also limited partners of Bain Capital Partners IV, L.P., the general partner of
certain of the Bain Funds. Mr. O'Malley is an executive vice president of Bain.
Bain received certain fees from the Company in 1993, 1994, 1995 and 1996 and, it
is expected, will continue to receive such fees from GSI in 1997. See "Certain
Relationships and Related Transactions".
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of GSTOC is owned by GST and all of
the outstanding common stock of GST is owned by GSI. The table below sets forth
certain information regarding ownership of GSI's Common Stock (and thereby
proportionate beneficial ownership of GST and GSTOC) as of March 1, 1997 by (i)
each person or entity who beneficially owns five percent or more of the Common
Stock, (ii) each director of GST and GSTOC, (iii) each executive officer of GST
and GSTOC included in the Summary Compensation Table above, and (iv) all current
directors and executive officers of GST and GSTOC as a group. Except as
otherwise indicated below, each of the persons named in the table has sole
voting and investment power with respect to the securities beneficially owned by
it or him as set forth opposite its or his name. There is no established public
trading market for the Common Stock.
<TABLE>
<CAPTION>
Number of Percentage
Shares of of Shares of
Name and Address Common Stock Common Stock
---------------- ------------ ------------
<S> <C> <C>
Principal Stockholders:
Bain Funds (1) 11,741,917.93 57.00%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C> <C>
General Electric Capital Corporation 3,986,692.90 19.35%
190 South LaSalle Street
Suite 2740
Chicago, Illinois 60603
Leggett & Platt, Incorporated 1,993,346.45 9.68%
No. 1 Leggett Road
Carthage, Missouri 64836
Robert A. Cushman 1,122,736.00(2)(3) 5.2%
64 Yorkshire Drive
Wexford Plantation
Hilton Head Island, SC 29928
Directors and Executive Officers:
Roger R. Regelbrugge 240,740.50(2) 1.16%
Luis E. Leon 65,555.56(2) *
Mario Concha 357,085.05(2) 1.72%
David M. Yarborough 20,000.00(2) *
Walter Robertson III 18,000.00(2) *
Paul B. Edgerley (1) 11,741,917.93 57.00%
Robert C. Gay (1) 11,741,917.93 57.00%
John J. O'Malley 66,666.67 *
All current directors and executive
officers as a group (13 persons)(1) 13,251,037.15(2) 61.55%
</TABLE>
- -------------------
* Less than 1%.
(1) Includes 5,132,861.12 shares of Common Stock held by Bain Capital Fund
IV, L.P. ("Bain IV"), 5,874,068.04 shares of Common Stock held by Bain
Capital Fund IV-B, L.P. ("Bain IV-B"), 468,835.44 shares of Common
Stock held by BCIP Associates ("BCIP"), and 266,153.33 shares of Common
Stock held by BCIP Trust Associates, L.P. ("BCIP Trust" and,
collectively with Bain IV, Bain IV-B and BCIP, the "Bain Funds").
Messrs. Gay and Edgerley are directors and executive officers of GSI
and Mr. O'Malley is a director of GSI. Messrs. Gay and Edgerley are
managing directors of Bain Capital Investors, Inc., which is the
general partner of Bain Capital Partners IV, L.P., which is the general
partner of Bain Capital Fund IV, L.P. and Bain Capital Fund IV-B, L.P.
Messrs. Gay and Edgerley are limited partners of Bain Capital Partners
IV, L.P. Accordingly, Messrs. Gay and Edgerley may be deemed to
beneficially own shares owned by the Bain Funds, although Messrs. Gay
and Edgerley disclaim beneficial ownership of any such shares. Mr.
O'Malley is an Executive Vice President of Bain.
(2) Includes the following shares of Common Stock that may be acquired by
the person(s) indicated upon the exercise of outstanding stock options
that are either currently exercisable or will become exercisable on or
before May 31, 1997:
<TABLE>
<S> <C>
Robert A. Cushman 972,736.00
Roger R. Regelbrugge 240,740.50
Luis E. Leon 60,000.00
Mario Concha 187,297.49
David M. Yarborough 20,000.00
</TABLE>
44
<PAGE> 45
<TABLE>
<S> <C>
Walter Robertson III 18,000.00
All current directors and executive officers as a group 928,632.98
</TABLE>
(3) Includes 150,000 shares held by the Cushman Trust.
Prior to consummation of the GII acquisition, the authorized capital
stock of GSI was increased to include 3,000,000 shares of Class P Common Stock
and 1,000 shares of Preferred Stock. In connection with the GII acquisition, the
Bain Funds, GECC, Leggett & Platt, certain members of management and certain
other existing stockholders of GSI purchased shares of Class P Common Stock for
$30 million in cash. In addition, GSI issued to the GII Stockholder (as defined
below) approximately 4% of its outstanding Common Stock and Class P Common Stock
as well as a combination of pay-in-kind subordinated notes and preferred stock
(the "Seller Securities"). As of March 6, 1996, the Class P Common Stock was
converted by GSI into shares of Common Stock at a rate of 1.2222 shares of
Common Stock for each share of Class P Common Stock. In April 1996, the
preferred stock was converted into exchange notes of GSI.
See "Certain Relationship and Related Transactions - Description of
Indebtedness - Note Guarantees" for a description of the pledge of all
outstanding shares of common stock of GSTOC to secure the 12% Note Guarantee (as
defined).
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
GSI, GST and GSTOC have entered into a Management Services Agreement
pursuant to which GSI provides certain consolidated administrative services to
GST and GSTOC, is reimbursed for its actual out-of-pocket expenses and is
entitled to receive an annual fee. In addition, GSI, GST and GSTOC have entered
into a Tax Sharing Agreement providing for the allocation of tax obligations
among GSI's consolidated group.
The Bain Funds, GECC, Leggett & Platt, Mr. John J. O'Malley, and
certain other stockholders of GSI entered into a Stock Purchase Agreement with
GST dated as of November 12, 1993 (the "Stock Purchase Agreement") pursuant to
which such persons purchased from GST the shares of Class P Common Stock held by
them for $8.10 per share, the shares of Class A Common Stock held by them for
$8.10 per share and the shares of Common Stock held by them for $.10 per share.
Pursuant to the Recapitalization, the Class A Common Stock and Class P Common
Stock of GST were reclassified as Common Stock of GST. Pursuant to the GST
Merger, the common stock of GST held by the parties described above was
converted into GSI Common Stock. The Bain Funds, GECC, Leggett & Platt and Mr.
O'Malley received $36,105, $12,041, $6,136 and $245, respectively, as a result
of the distribution made by the Company pursuant to the Recapitalization.
Messrs. Paul B. Edgerley and Robert C. Gay are managing directors of Bain, which
is the general partner of certain Bain Funds, and are limited partners of Bain
Capital Fund IV, L.P., the general partner of certain of the Bain Funds. Mr.
O'Malley is an executive vice president of Bain.
45
<PAGE> 46
In connection with the GII acquisition, GSI, GECC, Leggett & Platt, the
Bain Funds, Mr. O'Malley, GII's then sole stockholder (the "GII Stockholder")
and certain other stockholders of GSI entered into the Stockholders Agreement.
The parties to the Stockholders Agreement have agreed to vote their GSI Common
Stock and to take all other necessary actions (i) to allow the GII Stockholder
to select two representatives to the Board of GSI, so long as the Seller
Securities are outstanding, and (ii) to allow the holders of a majority of the
shares held by the Bain Funds to select the remaining representatives to the
Board, so long as the Bain Funds and certain other persons own at least 60% of
the GSI Common Stock which it purchased pursuant to the Stock Purchase
Agreement. Pursuant to the Stockholders Agreement, GECC and Leggett & Platt may
not sell, transfer or otherwise dispose of any GSI Common Stock without the
prior written consent of the Bain Funds, except pursuant to certain
participation rights, transfers among affiliates, a public sale or a sale of
GSI. The holders of GSI Common Stock also have the right to participate in
transfers of GSI Common Stock by the Bain Funds and certain other persons or
GECC (other than to affiliates of each). The Bain Funds have a first offer right
with respect to the transfer of GSI Common Stock by GECC. Such restrictions on
transfer, participation rights and first offer rights terminate upon the earlier
of the date on which such shares are transferred in a public sale, the
consummation of a sale of GSI or the consummation of a public offering. The
Stockholders Agreement grants to the parties thereto preemptive rights to
purchase securities issued or sold by GSI. Such preemptive rights terminate upon
the effectiveness of a registration statement filed by GSI with the Commission
with respect to an offering of GSI Common Stock to the public. The Bain Funds,
GECC, Leggett & Platt and certain other stockholders of GSI have also agreed
that, so long as the Seller Securities are outstanding, they will not transfer
any of the shares of GSI Common Stock, except for certain permitted transfers.
In connection with the GII acquisition, GSI, Leggett & Platt, GECC, the
Bain Funds, the GII Stockholder, Messrs. O'Malley, Cushman, Leon, Concha,
certain members of GSI management, and certain other stockholders of GSI entered
into a Registration Agreement (the "Registration Agreement"). Under the
Registration Agreement, the holders of a majority of GSI Common Stock held by
the Bain Funds may at any time request registration under the 1933 Act of all or
part of such GSI Common Stock. Subject to certain conditions, the Bain Funds may
request three long-form registrations at GSI's expense, and any number of
short-form registrations at GSI's expense. If the GSI Common Stock is publicly
traded on any national securities exchange or quoted on the NASDAQ System,
subject to certain conditions, the holders of a majority of the GSI Common Stock
issued to GECC may request one long-form registration at GSI's expense. Whenever
GSI proposes to register any of its securities under the 1933 Act (other than
pursuant to a registration requested pursuant to the Registration Agreement),
the holders of GSI Common Stock issued to the parties to the Registration
Agreement may require GSI, subject to certain limitations, to include all or any
portion of their GSI Common Stock in such registration at GSI's expense.
Also in connection with the GII acquisition, as of October 5, 1995, GSI
entered into a series of stock purchase agreements with Bain, GECC, Leggett &
Platt and Messrs. Cushman, Leon and Concha, among others, providing for the
purchase by them of Class P Common Stock of GSI for $30 million in cash. Such
Class P Common Stock was converted by the Company to GSI Common Stock as of
March 6, 1996. See "Security Ownership of Certain Beneficial Owners and
Management."
46
<PAGE> 47
The Company's Kansas City operations and Leggett & Platt entered into a
Rod Supply Agreement dated November 12, 1993 and amended on August 2, 1994
pursuant to which Leggett & Platt agreed to purchase from the Kansas City
mini-mill 90% of the first 200,000 tons of wire rod and 60% of the wire rod
consumed by three Leggett & Platt wire mills located in the central United
States each year. Leggett & Platt is not required to purchase more than 250,000
tons of wire rod per year, and the Kansas City mini-mill is not required to
supply more than 300,000 tons per year, pursuant to the Rod Supply Agreement.
The agreement terminates on December 31, 2000. Leggett & Platt has the option to
extend the agreement for a period of five years. Leggett & Platt purchased
$96,052 of wire rod in 1996 representing 10% of the Company's total net sales.
Bain, the management company for certain of the Bain Funds, received
from the Company an annual fee in 1996 for professional services rendered in the
aggregate amount of $900. Bain is expected to continue to receive annual fees
and expenses from the Company for professional services performed on an annual
basis. Professional services rendered by Bain as described above include
management consulting, advisory services and support, negotiation and analysis
of financing alternatives, acquisitions and dispositions and other services
agreed upon by the Company and Bain. The fees received for the professional
services rendered are at least as favorable to the Company as those which could
be negotiated with an unaffiliated third party.
GECC is the agent and one of the lenders under the Revolving Credit
Facility and the Term Loan Facility. As of December 31, 1996, the weighted
average interest rate under the Revolving Credit Facility was 7.1%. See "--
Description of Indebtedness."
Pursuant to a Letter Agreement dated as of December 18, 1995 (the
"Letter Agreement"), Mr. Cushman resigned as an officer and employee of the
Company effective as of December 31, 1995. For purposes of Mr. Cushman's
management agreement, Mr. Cushman's termination was deemed a voluntary
termination for good reason. The Letter Agreement provides that in lieu of any
severance payments to which Mr. Cushman would otherwise be entitled, Mr. Cushman
will serve as an advisor to the Company from December 31, 1995 until December
31, 1998 (the "Consulting Period") for which he is entitled to receive $393,
$393 and $160 for the first, second and third years of the Consulting Period,
respectively.
Description of Indebtedness
Credit Facilities
The Credit Facilities consist of: (i) the Revolving Credit Facility of
up to $145 million established by GSTOC and its operating subsidiaries and
secured by accounts receivable, inventory and other current assets and (ii) a
$50 million Term Loan Facility established by GSTOC and its subsidiaries and
secured by the property, plant and equipment and other noncurrent assets of
GSTOC and its subsidiaries (the "Credit Facilities").
47
<PAGE> 48
The Revolving Credit Facility will mature on September 30, 2001.
Outstanding amounts under the Revolving Credit Facility may not exceed the
lesser of (i) $145 million or (ii) the sum of 85% of eligible accounts
receivable and 65% of eligible inventories. As of December 31, 1996, the
borrowing base was approximately $ 138.6 million. Outstanding borrowings under
the Revolving Credit Facility bear interest at varying margins over the Base
Rate (as defined in the agreements) or at varying margins over the London
Interbank Offered Rate ("LIBOR"). Outstanding borrowings under the Term Loan
Facility will bear interest at either (i) fixed margins over the Base Rate or
(ii) fixed margins over LIBOR. The Credit Facilities contain customary
non-financial covenants including, among others, maintenance of properties,
maintenance of adequate insurance, restrictions or the sale and disposition of
assets, restrictions on liens and compliance with pension and environmental laws
and regulations. The Credit Facilities also contain certain customary financial
covenants and events of default. The lenders' commitment to make any loans under
the Credit Facilities is subject to certain customary conditions.
MEI Facilities
In addition to the Credit Facilities, MEI is party to a credit
agreement that provides an unsecured revolving credit facility (the "MEI
Revolver") and an unsecured term loan facility (the "MEI Term Loan" and
collectively with the MEI Revolver, the "MEI Facilities"). The MEI Revolver has
a maximum availability of $9 million and will mature on June 30, 1999. The MEI
Revolver bears interest at varying margins over LIBOR, the domestic CD rate or
at the Reference Rate, (as defined in the agreements). The MEI Term Loan is $8
million and will mature on December 31, 2000. The MEI Term Loan bears interest
at varying margins over LIBOR, the domestic CD rate or at the Reference Rate.
The MEI Facilities contain a negative pledge on all MEI assets. The MEI
Facilities also include certain customary financial covenants, including a
current ratio requirement, a fixed charge coverage ratio, a debt to tangible net
worth ratio and a tangible net worth requirement. The lender's commitment to
make any loans under the MEI Facilities is subject to customary conditions.
The Notes
GSTOC has issued $125 million of 12-1/4% Senior Notes due 2005 under an
Indenture dated as of October 5, 1995 (the "12-1/4% Note Indenture") between
GSTOC, GST and Fleet National Bank, (formerly Shawmut Bank Connecticut, National
Association), as trustee (the "Trustee"). GSTOC has also issued $125 million of
12% Senior Notes due 2004 under an Indenture dated as of August 30, 1994 (as
amended to date, the "12% Note Indenture") between GSTOC, GST and the Trustee.
The 12-1/4% Notes and the 12% Notes are herein referred to collectively as the
"Notes".
The terms of the Notes include those stated in the respective
Indentures and those made part of the Indentures by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), as in effect on
the date of the respective Indentures. The Notes are subject to all such terms,
and holders of the Notes are referred to the Indentures and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of the
Indentures does not purport to be complete and is qualified in its entirety by
reference to the respective Indentures, including the definitions therein of
certain terms used below. Capitalized terms used herein and not otherwise
defined shall have the meanings as defined in each of the Indentures.
48
<PAGE> 49
Terms of the 12 1/4% Notes. The 12-1/4% Notes are general, unsecured
obligations of GSTOC, limited to $125 million aggregate principal amount.
Payment of the 12-1/4% Notes are fully and unconditionally guaranteed by a
guarantee of GST (the "12-1/4% Note Guarantee"). The 12-1/4% Notes bear interest
at a rate equal to 12-1/4% per annum from October 5, 1995 or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable semi-annually on April 1 and October 1 of each year, commencing April 1,
1996, to the Person in whose name the 12-1/4% Note (or any predecessor 12-1/4%
Note) is registered at the close of business on the preceding March 15 or
September 15, as the case may be. The 12-1/4% Notes will bear interest on
overdue principal and premium, if any, and, to the extent permitted by law,
overdue interest at a rate equal to 14-1/4% per annum. Interest on the 12-1/4%
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
The 12-1/4% Notes will mature on October 1, 2005 and were issued in
denominations of one thousand dollars and integral multiples thereof. The
12-1/4% Notes will rank pari passu with all existing and future unsecured and
unsubordinated indebtedness of GSTOC, including the 12% Notes.
Optional Redemption. Except as set forth in the next paragraph, the
12-1/4% Notes are not redeemable prior to October 1, 2000. On or after such
date, the 12-1/4% Notes will be subject to redemption, at the option of GSTOC,
in whole or in part, at any time prior to maturity, upon not less than 30 nor
more than 60 days' notice mailed to each Holder of 12-1/4% Notes to be redeemed,
in amounts of one thousand dollars or an integral multiple thereof, at the
following Redemption Prices (expressed as percentages of the principal amount)
plus accrued interest to but excluding the Redemption Date (subject to the right
of Holders of record on the relevant regular Record Date to receive interest due
on an Interest Payment Date that is on or prior to the Redemption Date), if
redeemed during the twelve-month period beginning October 1 of the years
indicated:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2000................................................... 106.125%
2001................................................... 104.083
2002................................................... 102.042
2003 and thereafter ................................... 100.000
</TABLE>
At any time prior to October 1, 1998, GSTOC may redeem up to $40
million aggregate principal amount of the 12-1/4% Notes with the net proceeds of
one or more Public Offerings of common stock of GSI, GST or GSTOC upon not less
than 30 nor more than 60 days' notice mailed within 30 days of the consummation
of such Public Offering to each Holder of 12-1/4% Notes to be redeemed, in
amounts of one thousand dollars or an integral multiple thereof, at a Redemption
Price of 110% of the principal amount thereof plus accrued interest thereon to
but excluding the Redemption Date (subject to the right of Holders of record on
the relevant regular Record Date to receive amounts due on an Interest Payment
Date that is on or prior to the Redemption Date).
49
<PAGE> 50
Terms of the 12% Notes. The 12% Notes are general, unsecured (as to
GSTOC) obligations of GSTOC, limited to $125 million aggregate principal amount.
Payment of the 12% Notes are fully and unconditionally guaranteed by a guarantee
of GST (the "12% Note Guarantee" and collectively with the 12-1/4% Note
Guarantee, the "Note Guarantees"). The 12% Notes bear interest at a rate equal
to 12% per annum from August 30, 1994 or from the most recent Interest Payment
Date to which interest has been paid or provided for, payable semi-annually on
March 1 and September 1 of each year, commencing March 1, 1995, to the Person in
whose name the 12% Note (or any predecessor 12% Note) is registered at the close
of business on the preceding February 15 or August 15, as the case may be. The
12% Notes will bear interest on overdue principal and premium, if any, and, to
the extent permitted by law, overdue interest at a rate equal to 14% per annum.
Interest on the 12% Notes will be computed on the basis of a 360-day year of
twelve 30-day months. The 12% Notes will mature on September 1, 2004 and were
issued in denominations of one thousand dollars and integral multiples thereof.
The 12% Notes will rank pari passu with all existing and future unsecured and
unsubordinated indebtedness of GSTOC, including the 12-1/4% Notes.
Optional Redemption. Except as set forth in the next paragraph, the 12%
Notes are not redeemable prior to September 1, 1999. On or after such date, the
12% Notes will be subject to redemption, at the option of GSTOC, in whole or in
part, at any time prior to maturity, upon not less than 30 nor more than 60
days' notice mailed to each holder of 12% Notes to be redeemed, in amounts of
one thousand dollars or an integral multiple thereof, at the following
Redemption Prices (expressed as percentages of principal amount) plus accrued
interest to but excluding the Redemption Date (subject to the right of Holders
of record on the relevant regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the twelve-month period beginning September 1 of the years indicated:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1999......................................................106%
2000......................................................104
2001......................................................102
2002 and thereafter ......................................100
</TABLE>
At any time prior to September 1, 1997, GSTOC may redeem up to $40
million aggregate principal amount of the 12% Notes with the net proceeds of one
or more Public Offerings of common stock of GSTOC or GST upon not less than 30
nor more than 60 days' notice mailed within 30 days of the consummation of such
Public Offering to each Holder of 12% Notes to be redeemed, in amounts of one
thousand dollars or an integral multiple thereof, at a Redemption Price of 111%
of the principal amount thereof plus accrued interest thereon to but excluding
the Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date to receive amounts due on an Interest Payment Date that is
on or prior to the Redemption Date).
50
<PAGE> 51
Certain Covenants. The 12-1/4% Note Indenture and the 12% Note
Indenture contain certain covenants that restrict: the incurrence of additional
indebtedness; investments; the issuance of preferred stock; the repurchase of
stock and the making of certain other Restricted Payments (as defined in such
indentures); certain transactions with affiliates and related persons;
dispositions of assets; the incurrence of liens; the issuance or disposition of
certain capital stock; the incurrence of restrictions concerning distributions
by and transfers to Restricted Subsidiaries; certain sale and leaseback
transactions; and certain mergers, consolidations and sales of assets.
Additionally, such indentures provide that in the event of a Change of Control
and subject to certain conditions, each holder of the Notes will have the right
to require GSTOC to repurchase such holder's Notes at a purchase price equal to
101% of the principal amount thereof plus accrued interest to the redemption
date.
Events of Default. Each of the 12-1/4% Note Indenture and 12% Note
Indenture provides that an Event of Default is: default in payment when due of
principal (or premium, if any); default for 30 days in payment of interest on
any of the 12-1/4% Notes or 12% Notes, as the case may be; default in the
payment of principal and interest on Notes required to be purchased pursuant to
an Offer to Purchase when due and payable; failure to comply with certain
covenants of the applicable indenture; failure by GSTOC or GST for 60 days after
notice to perform any of its other agreements in the applicable indenture or the
Notes; default under the terms of certain instruments evidencing or securing
certain debt by GST or any Restricted Subsidiary having an outstanding principal
amount of $10 million individually or in the aggregate which default results in
the acceleration of the payment of such indebtedness or constitutes the failure
to pay such indebtedness when due; the rendering of a final judgment against GST
or any Restricted Subsidiary in an amount in excess of $10 million which remains
undischarged or unstayed for a period of 60 days; certain events of bankruptcy,
insolvency or reorganization; and the cessation of effectiveness of the Note
Guarantees or a finding that such guarantees are unenforceable or invalid.
Note Guarantees
The 12-1/4% Note Guarantee and the 12% Note Guarantee by GST constitute
the unconditional guarantee to each Holder of a 12-1/4% Note and 12% Note,
respectively, of the payment of the principal of (and premium, if any) and
interest on such Note when and as due and payable, whether at the stated
maturity, by acceleration, call for redemption, purchase or otherwise. In case
of the failure of GSTOC to make any such payment, GST will cause such payment to
be made. There can be no assurance that GST will be able to make such payment.
The 12-1/4% Note Guarantee ranks pari passu with all existing and
future unsecured and unsubordinated indebtedness of GST, including the 12% Note
Guarantee. GST is entitled to incur additional secured and unsecured
indebtedness in the future provided certain financial and other conditions are
met.
51
<PAGE> 52
The 12-1/4% Note Guarantee will be effectively subordinated to (a) all
existing and future secured indebtedness of GSTOC and GST as to the assets
securing such indebtedness and (b) all existing and future indebtedness of GST's
subsidiaries other than GSTOC and of GSTOC's subsidiaries (including GII) as to
the assets and cash flow of those subsidiaries. Unlike the 12-1/4% Note
Guarantee, the 12% Note Guarantee is secured by a pledge of all of the capital
stock of GSTOC and MEI and 65% of the capital stock of IMSA. As of December 31,
1996, the Company had approximately $135 million of such indebtedness and would
have been entitled to incur additional secured and unsecured indebtedness in the
future provided certain financial and other conditions are met.
52
<PAGE> 53
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The exhibits and other documents filed as a part of this Annual Report
on Form 10-K, including those exhibits which are incorporated by reference
herein, are:
(a)(1) Financial Statements
The following financial statements are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants .........................................................................F-2
Consolidated Balance Sheets of the Company as of December 31, 1995 and 1996 ...............................F-3
Consolidated Income Statements for the Years Ended
December 31, 1994, 1995 and 1996...........................................................................F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31 1994, 1995 and 1996............................................................................F-5
Consolidated Statement of Changes in Stockholder's Equity (Deficit) of the Company for
the Years Ended December 31, 1994, 1995 and 1996...........................................................F-6
Notes to Consolidated Financial Statements.................................................................F-7
(a)(2) Financial Statement Schedules
The following consolidated financial statement schedules of the Company are
included in this Annual Report on Form 10-K:
Page
----
Report of Independent Accountants..........................................................................S-1
Schedule I Condensed Financial Information of the Parent Company...........................................S-2
Schedule II Valuation and Qualifying Accounts and Reserves.................................................S-6
</TABLE>
53
<PAGE> 54
(a)(3) Exhibits
Exhibits required in connection with this Annual Report on Form 10-K
are listed below. Certain of such exhibits, which have heretofore been filed
with the Commission and which are designated by reference to their exhibit
numbers in prior filings, are incorporated herein as exhibits by such reference
and made a part hereof.
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Certificate of Incorporation of GST, as
amended (1)
3.2 By-laws of GST (1)
3.3 Amendment to By-laws of GST dated April 1, 1996
3.4 Certificate of Incorporation of GSTOC (1)
3.5 By-laws of GSTOC (4)
3.6 Amendment to By-laws of GSTOC dated April 1, 1996
4.1 Indenture between GSTOC, GST and Shawmut Bank Connecticut,
National Association, as Trustee, relating to the 12% Notes
(including the form of 12% Note) (4)
4.2 Form of Pledge Agreement between GSTOC, GST and Shawmut Bank
Connecticut, National Association, as Collateral Trustee,
relating to the 12% Notes (1)
4.3 First Supplemental Indenture dated October 5, 1995 among
GSTOC, GST and Shawmut Bank Connecticut, National Association,
as Trustee, relating to the 12% Notes (3)
4.4 Second Supplemental Indenture dated August 15, 1996 among
GSTOC, GST and Fleet National Bank (formerly Shawmut Bank
Connecticut, National Association), as Trustee, relating to
the 12% Notes
4.5 Indenture between GSTOC, GST and Shawmut Bank Connecticut,
National Association, as Trustee, relating to the 12 1/4%
Notes (including the form of 12 1/4% Note) (3)
4.6 Loan Agreement dated October 5, 1995 among GSTOC, GECC and the
Lenders named therein (3)
4.7 Amendment No. 1, dated July 8, 1996, to Loan Agreement dated
October 5, 1995 among GSTOC, GECC and the Lenders named
therein
54
<PAGE> 55
4.8 Amendment No. 2, dated December 20, 1996, to Loan Agreement
dated October 5, 1995 among GSTOC, GECC and the Lenders named
therein
4.9 Loan Agreement dated as of October 5, 1995 among Tree Island
Industries, Ltd., the Lenders named therein and GECC (3)
10.1 Stock Purchase Agreement dated as of September 30, 1993 and
amended and restated as of November 11, 1993 by and among
Armco, GSTOC, GST and Inversiones En Molienda, S.A. (1)
10.2 Agreement dated as of November 12, 1993 by and between GST and
Armco (1)
10.3 Agreement and Plan of Merger dated as of November 11, 1993 by
and between GSTOC and GS Merger Corp. (1)
10.4 Stock Purchase Agreement dated as of November 12, 1993 by and
among GST and the Persons set forth on the Schedule attached
thereto (1)
10.5 Second Amended and Restated Stockholders Agreement dated as of
October 5, 1995 by and among GSI, GECC, Leggett & Platt and
each of the Persons listed on Schedule I attached thereto (4)
10.6 Second Amended and Restated Registration Agreement dated as of
October 5, 1995 by and among GSI, Leggett & Platt, GECC and
the Persons listed on Schedule A and Schedule B attached
thereto (4)
10.7 GS Technologies Non-Qualified Deferred Compensation Plan dated
November 11, 1993 (1)
10.8 Merger Agreement dated as of August 21, 1995 among GII, GSI,
GST, GSTOC and GI Merger Corp. (2)
10.9 GS Technologies Pension Plan (1)
10.10 GS Technologies Retirement and Savings Plan (1)
10.11 Rod Supply Agreement dated November 12, 1993, as amended on
August 2, 1994, between GST and Leggett & Platt (confidential
treatment has been requested for certain portions of this
agreement) (1)
10.12 Purchase Agreement relating to Instapanel Sale dated July 28,
1994 between MolyCop Chile S.A., GST, Grupo Imsa S.A. de C.V.
and Industria Procesadora de Acerco S.A. (1)
10.13 Form of Stock Option Agreement (1)
10.14 Form of GS Technologies Excess Retirement Plan (1)
55
<PAGE> 56
10.15 Form of GS Technologies Supplemental Retirement Plan (1)
10.16 Partnership Agreement relating to MolyCop Canada (1)
10.17 Purchase Agreement dated as of May 31, 1994 by and among MEI,
GST, Stelco Erie Corporation and Stelco (1)
10.18 Form of Amended and Restated Management Agreement dated as of
August 17, 1995 among GSI, GST and Messrs. Leon and Concha (4)
10.19 Stock Purchase Agreement dated as of August 21, 1995 among
GSI, GST, GSTOC and the Government of Kuwait (2)
10.20 First Amendment dated as of October 5, 1995 to Stock Purchase
Agreement dated as of August 21, 1995 among GSI, GST, GSTOC
and the Government of Kuwait (3)
10.21 Stock Redemption Agreement dated as of October 5, 1995 between
GII, the Government of Kuwait, Waccamaw Corporation and
Western Lumber Company, Inc. (4)
10.22 Transfer Restriction Agreement dated as of October 5, 1995 by
and among GSI and stockholders thereof (4)
10.23 Investor Stock Purchase Agreement dated as of October 5, 1995
among GSI, GSTOC, Bain Funds, GECC, Leggett & Platt, Randolph
Street Partners and James Haas (4)
10.24 Executive Stock Purchase Agreement dated as of October 5, 1995
among GSI, GST and the Persons named on the schedule attached
thereto (4)
10.25 Executive Stock Purchase Agreement dated as of October 5, 1995
among GSI, GST and Messrs. Wieland, Leon, Burnsworth and
Shelley (4)
10.26 Amended and Restated Employment Agreement dated October 5,
1995 between GSI and Roger R. Regelbrugge (4)
10.27 Stock Option Agreement dated October 5, 1995 between GSI and
Roger R. Regelbrugge (4)
10.28 Agreement dated January 19, 1994 between GII and Roger R.
Regelbrugge (4)
10.29 Amended and Restated Pension Plan and Trust of GII dated as of
May 1, 1993, as amended through October 5, 1995 (4)
10.30 Management Services Agreement dated as of October 5, 1995
among GSI, GST, GSTOC and certain subsidiaries named therein
(3)
56
<PAGE> 57
10.31 Amended and Restated Management Services Agreement dated as of
August 14, 1996 among GSI, GST and GSTOC and certain
subsidiaries named therein
10.32 Tax Sharing Agreement dated as of October 5, 1995 among GSI,
GST, GSTOC and certain subsidiaries named therein (3)
21.1 List of Subsidiaries of GST and GSTOC
27.1 Financial Data Schedule
- --------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 33-80618).
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 33-95278).
(3) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1995 (File No.
33-80618).
(4) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 (File No. 33-80618).
57
<PAGE> 58
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.............................................................F-2
Consolidated Balance Sheets of the Company as of December 31, 1995
and 1996.................................................................................F-3
Consolidated Income Statements for the Years Ended December 31, 1994,
1995 and 1996............................................................................F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996......................................................................F-5
Consolidated Statement of Changes in Stockholder's Equity (Deficit) of the
Company for the Years Ended December 31, 1994, 1995 and 1996.............................F-6
Notes to Consolidated Financial Statements....................................................F-7
</TABLE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.............................................................S-1
Schedule I Condensed Financial Information of the Parent Company..............................S-2
Schedule II Valuation and Qualifying Accounts and Reserves....................................S-6
</TABLE>
58
<PAGE> 59
GS TECHNOLOGIES CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1996
F-1
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and
Stockholder of GS Technologies Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholder's equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of GS Technologies Corporation and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for the
years ended December 31, 1996, 1995 and 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 3 to the financial statements, GS Technologies Corporation
changed its method of accounting for spare parts and supplies inventories during
1996.
Price Waterhouse LLP
Charlotte, North Carolina
February 20, 1997
F-2
<PAGE> 61
GS TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,451 $ 7,957
Receivables less allowance of $2,769 and $2,217 114,828 119,880
Receivable from related party (Note 13) 7,283 6,991
--------- ---------
Total receivables 122,111 126,871
--------- ---------
Inventories (Note 3) 159,154 157,731
Prepaid expenses and other current assets 9,969 6,978
Recoverable income taxes 8,684 6,739
Deferred tax benefit 2,092
--------- ---------
Total current assets 311,369 308,368
Investments in joint ventures (Note 5) 13,366 31,097
Properties, net (Note 6) 296,126 309,564
Acquisition premium (Note 2) 93,848 64,536
Other assets 23,355 22,123
Deferred tax benefit (Note 11) 1,830
--------- ---------
Total assets $ 739,894 $ 735,688
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable (Note 9) $ 5,176 $ 15,717
Current portion of long-term debt (Note 9) 2,933 862
Payables and accrued liabilities (Notes 7 and 8) 163,393 162,572
Other current liabilities 4,114 6,696
--------- ---------
Total current liabilities 175,616 185,847
Long-term debt (Note 9) 369,994 368,554
Post retirement benefit obligations other than pensions (Note 10) 24,268 25,793
Deferred income taxes payable (Note 11) 32,260 18,176
Other long-term liabilities 31,147 24,557
Commitments and contingencies (Note 14)
--------- ---------
Total liabilities 633,285 622,927
--------- ---------
Stockholder's equity (Notes 1 and 12):
Common Stock, $.01 par value, 1,000 shares authorized, and 100 shares
issued and outstanding at December 31, 1995 and 1996 1 1
Additional paid in capital 132,166 132,166
Retained earnings (accumulated deficit) (24,164) (17,729)
Cumulative translation adjustment (1,394) (1,677)
--------- ---------
Total stockholder's equity 106,609 112,761
--------- ---------
Total liabilities and stockholder's equity $ 739,894 $ 735,688
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 62
GS TECHNOLOGIES CORPORATION
CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------
December 31, December 31, December 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 368,520 $ 489,259 $ 844,209
Net sales - related party (Note 13) 86,738 74,246 96,052
--------- --------- ---------
455,258 563,505 940,261
--------- --------- ---------
Operating costs and expenses:
Cost of products sold 389,287 478,602 809,602
Selling, general and administrative expenses 30,613 36,728 54,624
Depreciation and amortization 3,612 11,574 31,848
Non-recurring costs of combining
operations (Note 8) 4,866
--------- --------- ---------
423,512 531,770 896,074
--------- --------- ---------
Operating profit 31,746 31,735 44,187
--------- --------- ---------
Other income (expenses):
Interest income 1,581 286 868
Interest expense (10,509) (24,006) (45,761)
Equity in income of joint ventures (Note 5) 3,434 4,075 5,500
Fees from joint ventures (Note 5) 1,410 1,357 2,399
Minority interest (110) (147) (315)
Other, net 310 (453) (86)
--------- --------- ---------
(3,884) (18,888) (37,395)
--------- --------- ---------
Income before income tax 27,862 12,847 6,792
Income tax provision (Notes 2 and 11) 12,372 6,718 3,913
--------- --------- ---------
Income before extraordinary loss and
cumulative effect of accounting change 15,490 6,129 2,879
Extraordinary loss, less applicable taxes
of $1,292 (Note 1) (2,020)
--------- --------- ---------
Income before cumulative effect of accounting
change 13,470 6,129 2,879
Cumulative effect of change in accounting for
spare parts and supplies inventories, net
of taxes of $2,444 (Note 3) 3,556
--------- --------- ---------
Net income $ 13,470 $ 6,129 $ 6,435
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 63
GS TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------
December 31, December 31, December 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 13,470 $ 6,129 $ 6,435
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change (3,556)
Extraordinary loss 2,020
Depreciation and amortization 3,612 11,574 31,848
Loss on disposal of fixed assets 3,106 187
Deferred income taxes (376) 12,872 2,124
Equity in income of joint ventures (3,434) (4,075) (5,500)
Dividends from joint ventures 708 1,956 4,519
Post retirement benefit obligations accrued in
excess of cash paid 1,947 1,813 1,524
Changes in operating assets and liabilities:
Receivables (5,149) (2,498) (4,480)
Inventories 5,732 (5,724) 7,423
Payables and accrued liabilities 3,334 (1,640) (821)
Other current liabilities (696) (2,022) 2,582
Income taxes (2,177) (7,240) (1,569)
Other 2,793 (5,172) 196
--------- --------- ---------
Net cash provided by operating activities 21,784 9,079 40,912
--------- --------- ---------
INVESTING ACTIVITIES:
Purchase of GII, net of cash acquired (145,508)
Purchase of MEI, net of cash acquired (8,300)
Purchase of properties (34,481) (47,873) (43,314)
Investment in joint ventures (11,484)
Cash received from Armco, net 3,640 1,308
Proceeds from disposals of properties 5,000 3,925
Proceeds from net assets held for sale 24,817
Restricted funds for capital expenditures 2,008
--------- --------- ---------
Net cash used in investing activities (12,316) (187,073) (50,873)
--------- --------- ---------
FINANCING ACTIVITIES:
Borrowings under long-term debt arrangements 141,367 268,280 223,684
Repayments of long-term debt (68,107) (97,983) (227,195)
Proceeds from (payments on) notes payable, net (5,008) (13,994) 10,541
Issuance of stock 22
Distributions to stockholders (55,790) (5,543)
Distributions to warrantholder (3,777)
Debt issuance costs (6,850) (10,599)
Contribution from GSI 30,000
--------- --------- ---------
Net cash provided by financing activities 1,857 170,161 7,030
--------- --------- ---------
Effect of exchange rate changes on cash 25 (33) (563)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 11,350 (7,866) (3,494)
CASH AND CASH EQUIVALENTS:
Beginning of period 7,967 19,317 11,451
--------- --------- ---------
End of period $ 19,317 $ 11,451 $ 7,957
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash equity contributions from GSI $ 102,000
Non-cash portion of GII purchase price $ 102,000
Cash paid during the period for interest $ 6,907 $ 19,188 $ 45,230
Cash paid during the period for taxes $ 12,625 $ 9,591 $ 1,082
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 64
GS TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(Dollars in thousands)
<TABLE>
<CAPTION>
Retained Deferred
Class P Additional Earnings Cumulative Compensation Total
Common Stock Common Stock Paid in (Accumulated Translation Shares Held Stockholder's
Shares Amount Shares Amount Capital Deficit) Adjustment in Trust Equity (Deficit)
--------- ------- ---------- ------ ---------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 1,333,334 $10,800 15,000,000 $ 150 $ 1,350 $ 2,515 $ (159) $(700) $ 13,956
--------- ------- ---------- ----- -------- -------- ------- ----- --------
Issuance of Class P
common stock 2,500 20 20
Issuance of common
stock 22,500 2 2
Shares held in trust (60) (60)
Issuance of Class P
common stock shares
upon dissolution of
trust 200 760 960
Dividends & conversion -
Class A common stock 333,333 3 (151) (148)
Dividends & conversion -
Class P common stock (1,335,834) (11,020) 1,335,834 14 (896) (11,902)
Dividends - common
stock (1,352) (45,231) (46,583)
Net income (Note 3) 13,470 13,470
Cumulative translation
adjustment 398 398
--------- ------- ---------- ----- -------- -------- ------- ----- --------
Balance at
December 31, 1994 16,691,667 167 (30,293) 239 (29,887)
--------- ------- ---------- ----- -------- -------- ------- ----- --------
Reduction of
outstanding
shares (Note 1) (16,691,567) (166) 166
Contribution by GSI
(Note 1) 132,000 132,000
Net income 6,129 6,129
Cumulative translation
adjustment (1,633) (1,633)
--------- ------- ---------- ----- -------- -------- ------- ----- --------
Balance at
December 31, 1995 100 1 132,166 (24,164) (1,394) 106,609
--------- ------- ---------- ----- -------- -------- ------- ----- --------
Net Income 6,435 6,435
Cumulative translation
adjustment (283) (283)
--------- ------- ---------- ----- -------- -------- ------- ----- --------
Balance at
December 31, 1996 100 $ 1 $132,166 $(17,729) $(1,677) $112,761
========= ======= ========== ===== ======== ======== ======= ===== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 65
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. ORGANIZATION AND BUSINESS
BUSINESS
GS Technologies Corporation (the "Company" or "GST") and its subsidiaries are
engaged in the manufacturing of high carbon and special grade wire rod, steel
billets, wire and wire products, grinding media and non-manganese mill liners.
Wire rod products are sold to producers that serve certain wire rod markets,
such as upholstery and bed springs, wire rope, precast concrete strand and tire
cord and tire bead. Domestically, the Company sells wire rod to customers
primarily in the midwestern and eastern states and grinding media and mill
liners to copper and gold mining customers in the southwest and iron ore mining
customers in the Great Lakes area, while foreign sales are primarily to mining
customers in Latin America, Europe, Canada and Asia. The Company's wire and wire
products are sold to distributors and various industries in the United States
and Canada.
The Company was incorporated in 1993 to affect the acquisition of certain
operations and accounts of certain operating units and wholly-owned subsidiaries
of Armco, Inc. ("Armco") and investments in certain joint ventures.
RECAPITALIZATION AND SIGNIFICANT DEVELOPMENTS
In August 1994, GS Technologies Operating Company, Inc. ("GSTOC"), a
wholly-owned subsidiary of the Company, issued $125,000 of Senior Notes (the
"12% Notes") which was part of a recapitalization of the Company (the
"Recapitalization"). As part of the Recapitalization, the proceeds of the
offering were used to repay outstanding debt of $54,862, to pay a distribution
of $65,000 (the "Distribution") of which $61,223 was to the Company's
stockholders and $3,777 was in lieu of dividends to Armco pursuant to the terms
of a warrant agreement (which expired in November 1995), and to partially fund
debt issuance costs of $6,850. The repayment of debt resulted in a non-cash
write-off of debt issuance costs of $2,020, net of taxes, which has been
reflected as an extraordinary loss in the accompanying income statement. The
Company paid $45,000 of the Distribution in August 1994 and in October 1994 the
Board of Directors declared a dividend of $20,000 of which $14,457 was paid in
November 1994 and $5,543 was paid in January 1995. The $125,000 of debt
securities issued in the Recapitalization are Senior Notes due September 1, 2004
and are fully and unconditionally guaranteed by the Company. Interest is payable
semi-annually at an annual rate of 12%.
On May 31, 1994, the Company acquired the remaining fifty percent partnership
interest of ME International ("MEI") for $10,700. MEI is now a wholly-owned
subsidiary of GST. The acquisition was financed with $7,800 of borrowings from
existing credit lines, $500 of cash and $2,400 of seller financing. The seller
financing note, along with accrued interest, was repaid in full in March 1996.
THE GEORGETOWN ACQUISITION
On August 17, 1995, the Company was party to a merger transaction whereby it was
merged with a subsidiary of a new parent company, GS Industries, Inc. ("GSI")
resulting in all of the issued and outstanding common stock of the Company being
converted into shares of common stock of GSI and the Company becoming a wholly
owned subsidiary of GSI. On October 5, 1995, GSI and the Company, through its
wholly owned subsidiary, GSTOC, acquired Georgetown Industries, Inc. ("GII") and
GII and its subsidiaries are now wholly owned subsidiaries of GSTOC. The
results of GII's operations have been consolidated with those of the Company
since the date of acquisition.
F-7
<PAGE> 66
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
GSI's common stockholders and certain members of management purchased stock of
GSI for $30,000 in cash. GSI purchased a portion of the GII common stock with
approximately 4% of its common stock and a combination of payment-in-kind
("PIK") subordinated notes and preferred stock of GSI which together with the
common stock had a fair market value of approximately $102,000. The PIK
subordinated notes and preferred shares are unsecured obligations of GSI and are
not guaranteed by any of GSI's subsidiaries. On April 6, 1996, the preferred
stock was exchanged at the Company's option, into subordinated notes equal to
the liquidation value of the stock. The $30,000 in cash and the common stock of
GII acquired by GSI were contributed to the Company and were in turn contributed
to GSTOC. GSTOC used the $30,000 in cash, proceeds from a $125,000 public senior
note offering (see below) and proceeds from borrowings under its credit
facilities, to pay the consideration in connection with the merger of a
newly-formed subsidiary of GSTOC with and into GII, thereby acquiring the
remaining GII common stock. The total consideration was $307,000 of which
$205,000 was cash and $102,000 was the fair value of the securities described
above.
The $125,000 Senior Notes (the "12 1/4% Notes") were issued by GSTOC on October
5, 1995 and are due on October 1, 2005. Interest is payable semi-annually at an
annual rate of 12 1/4%. GSTOC replaced its existing credit facility with a new
facility providing up to $145,000 in aggregate availability secured by the
Company's current assets and entered into a new $50,000 term loan facility
secured by property, plant and equipment. Proceeds from these facilities were
used to complete the acquisition and to refinance GSTOC indebtedness.
The acquisition was recorded in accordance with the purchase method of
accounting. Accordingly, the purchase price plus direct costs were allocated to
the assets acquired and liabilities assumed based on preliminary estimates of
fair values at the date of acquisition, October 5, 1995. During 1996, as a
result of the recognition of previously unrecorded deferred tax assets, the
resolution of certain contingent liabilities and an increase in the recorded
value of fixed assets based on a formal appraisal, the allocation of the
purchase price was finalized. As a result of finalizing the allocation of the
purchase price, the value of identifiable assets acquired increased by
approximately $26.9 million, with a resulting decrease to the acquisition
premium.
The following represents the pro forma results of the Company and its
subsidiaries as if the Georgetown acquisition and related transactions described
above had occurred on January 1, 1995 after giving effect to certain pro forma
adjustments, which include depreciation, amortization and interest expense:
<TABLE>
<CAPTION>
Pro forma
-----------------
Year Ended
December 31, 1995
-----------------
(unaudited)
<S> <C>
Net sales $941,509
Income before extraordinary loss 13,179
Net income 13,179
</TABLE>
The pro forma results of operations presented above are not necessarily
indicative of the results that actually would have been obtained if the
Georgetown acquisition and related transactions had occurred on January 1, 1995
and is not intended to be a projection of future results or trends.
F-8
<PAGE> 67
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant policies applied in the preparation of
the accompanying financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all majority owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
The equity method of accounting is used for all investments for which the
Company's ownership is at least 20% but not more than 50%.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Sales and related cost of products sold are recognized upon shipment of products
to customers.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include demand
deposits and cash equivalents which are highly liquid instruments with
maturities of three months or less at the time of purchase.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows", cash flows from the Company's operations in foreign
countries are calculated based on their reporting currencies. As a result,
amounts related to assets and liabilities reported in the statement of cash
flows will not necessarily agree to changes in the corresponding balances on the
balance sheet. The effect of exchange rate changes on cash balances held in
foreign currencies is reported below cash flows from financing activities.
INVENTORIES
Inventories are valued at the lower of FIFO (first-in, first-out) and/or average
cost or market for all operating subsidiaries except the Italian operations for
which inventories are valued on the LIFO (last-in, first-out) method.
PROPERTIES
Properties are recorded at cost. Properties acquired through business
combinations are recorded at their respective fair values as prescribed by the
purchase method of accounting. Maintenance and repairs are expensed in the year
incurred. Expenditures which result in betterments or extensions of the useful
lives of assets are capitalized and depreciated over the remaining lives (as
adjusted) of such assets. Depreciation expense is computed using the
straight-line method over the estimated useful lives of the assets, as follows:
Leasehold improvements 10
Buildings and improvements 4-30
Machinery and equipment 4-20
Assets under capital leases are amortized over the life of the lease. Leasehold
improvements are capitalized and amortized over the lesser of their estimated
useful lives or the life of the related lease.
F-9
<PAGE> 68
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
ACQUISITION PREMIUM, OTHER ASSETS AND IDENTIFIABLE INTANGIBLE ASSETS
The acquisition premium represents the excess cost over fair value of net assets
acquired, and is being amortized on a straight-line basis over forty years.
Other assets include debt issuance costs of $16,324 and $14,486 at December 31,
1995 and 1996, respectively, which are amortized over the lives of the
corresponding debt agreements. Amortization of these costs aggregated $600, $943
and $1,838 for the years ended December 31, 1994, 1995 and 1996, respectively,
and is included in interest expense.
Identifiable intangible assets resulting from certain acquisitions are being
amortized on a straight-line basis over periods ranging from five to seventeen
years. Identifiable intangible assets, net of related amortization, of $2,662
and $2,820 at December 31, 1995 and 1996, respectively, are classified as other
assets in the accompanying balance sheets.
The Company continually monitors conditions that may affect the carrying value
of its tangible and intangible assets. When conditions indicate potential
impairment of an intangible asset, the Company will undertake necessary market
studies and re-evaluate projected future cash flows associated with the
intangible asset. To the extent projected future cash flows, not discounted for
the time value of money, are less than the carrying value of the intangible
asset, the impaired asset is written down to its net realizable value.
INCOME TAXES
Since the merger with GSI, the Company is included in the GSI consolidated U.S.
federal income tax return and is party to a tax sharing agreement with GSI. The
tax sharing agreement provides among other things that the accounting for U.S.
federal income taxes for financial reporting purposes is calculated as though
the Company were filing a separate U.S. federal income tax return. Payments by
the Company to GSI are made at such times as would be made to the federal
government had the Company been filing a separate U.S. federal tax return. State
and foreign taxes are recorded and paid directly to those agencies.
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which is an asset
and liability method of accounting for income taxes. Under this method, deferred
tax assets and liabilities are recognized for the expected future tax
consequences, utilizing current tax rates, of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Deferred tax
assets are recognized, net of any valuation allowance, for the estimated future
tax effects of deductible temporary differences and tax operating loss and
credit carryforwards. Deferred tax expense reflects changes in the deferred tax
asset and liability balances. Additionally, the Company provides deferred tax
liabilities for the tax effect of repatriating unremitted earnings of foreign
subsidiaries and joint ventures.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures by the Company, to the extent not indemnified, are
expensed or capitalized depending upon their future economic benefit.
Expenditures which improve a property as compared with the condition of the
property when originally constructed or acquired and which prevent future
environmental contamination are capitalized. Expenditures which return a
property to its condition at the time of acquisition are expensed. Liabilities
are recorded when it is probable that obligations have been incurred and the
amounts can be reasonably estimated.
F-10
<PAGE> 69
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiaries are translated at
the period-end exchange rate. Revenues and expenses are translated at an average
rate of exchange in effect during the period. Translation adjustments are
reported as a separate component of stockholder's equity.
EARNINGS PER SHARE
Earnings per share is not presented as the Company's common stock is not
publicly traded.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations of
credit risk consist primarily of trade accounts receivable. To minimize this
risk, ongoing credit evaluations of customers' financial condition are performed
although collateral is generally not required. In addition, the Company
maintains allowances for potential credit losses.
RECLASSIFICATIONS
Certain amounts previously reported have been reclassified to conform to the
current year presentation.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
------------ ------------
<S> <C> <C>
Inventories at FIFO and average cost:
Finished and semi-finished $ 73,065 $ 77,853
Raw materials 80,361 75,521
--------- ---------
Total 153,426 153,374
--------- ---------
Inventories at LIFO:
Finished and semi-finished 6,413 4,658
Adjustment to state inventories at LIFO value (685) (301)
--------- ---------
Total 5,728 4,357
--------- ---------
$ 159,154 $ 157,731
========= =========
</TABLE>
The carrying value of inventories approximates replacement cost.
Effective January 1, 1996, the Company changed its method of accounting for
spare parts and supplies from expensing them at time of purchase to inventorying
them and charging them to expense in the period in which they are used. This
method is consistent with prevailing industry practice and in management's
opinion, results in a better matching of costs with related revenues. The effect
of the change was to increase net income for the year ended December 31, 1996 by
$3,556, net of applicable taxes. Proforma results for the year ended December
31, 1995 would not have been materially different from historical results had
this new method been employed.
F-11
<PAGE> 70
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
4. SUMMARIZED FINANCIAL INFORMATION OF GSTOC
The 12% Notes and the 12 1/4% Notes were issued by GSTOC and are unconditionally
guaranteed by the Company. Pursuant to Securities and Exchange Commission
disclosure requirements, summarized financial information for GSTOC is provided
below. The summarized balance sheet information for 1995 includes GII as of
December 31, 1995 and the summarized income statement information for 1995
includes GII operations from the October 5, 1995 acquisition date. Summarized
financial information follows:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
------------ ------------
<S> <C> <C>
Current assets $ 255,850 $ 236,521
Noncurrent assets 375,444 370,038
--------- ---------
Total assets $ 631,294 $ 606,559
========= =========
Current liabilities $ 132,901 $ 127,859
Noncurrent liabilities 452,012 403,324
--------- ---------
Total liabilities 584,913 531,183
--------- ---------
Common stock, additional paid-in capital and retained earnings 46,381 75,376
--------- ---------
Total liabilities and equity $ 631,294 $ 606,559
========= =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------
December 31, December 31, December 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales $ 335,823 $ 396,425 $ 762,703
Cost of products sold 297,360 350,643 674,783
Selling, general & administrative expenses 14,889 17,540 32,319
Depreciation and amortization 1,592 8,028 28,224
Costs of combining operations 4,866
--------- --------- ---------
Operating profit (loss) 21,982 15,348 27,377
Interest expense (7,331) (21,843) (42,510)
Fees from joint ventures 1,410 1,357 3,132
Interest income and other, net 118 697 (102)
--------- --------- ---------
Income (loss) before income tax 16,179 (4,441) (12,103)
Income tax (expense) benefit (6,660) 331 6,158
--------- --------- ---------
Income (loss) before extraordinary item
and cumulative effect of change in
accounting 9,519 (4,110) (5,945)
Extraordinary loss, net of taxes (2,020)
--------- --------- ---------
Income (loss) before cumulative effect of
change in accounting 7,499 (4,110) (5,945)
Cumulative effect of change in accounting
for spare parts and supplies inventories 3,556
--------- --------- ---------
Net income (loss) $ 7,499 $ (4,110) $ (2,389)
========= ========= =========
</TABLE>
F-12
<PAGE> 71
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
5. INVESTMENTS IN JOINT VENTURES
Investments in associated companies (joint ventures, partnerships, and companies
in which there is a 20% or more interest, but not control) accounted for using
the equity method are as follows:
<TABLE>
<CAPTION>
Investment Amount
-------------------------------
Percent December 31, December 31,
Ownership 1995 1996
--------- ------------ ------------
<S> <C> <C> <C>
Donhad Pty. Ltd
(Australia) 40.0% $5,704 $6,383
Moly-Cop Canada
(Canada) 50.0% 4,966 4,577
GST Philippines
(Philippines) 37.5% 1,052 106
SIMEC-Moly-Cop
(Mexico) 50.0% 1,644 2,481
Sidercorp, S.A.
(Peru) 33.3% 12,213
American Iron Reduction LLC
("AIR") (U.S.) 50.0% 5,001
Lucchini Siderurgica, SpA
(Italy) 49.0% 336
------- -------
$13,366 $31,097
======= =======
</TABLE>
Aggregate summarized balance sheets and results of operations of associated
companies accounted for using the equity method are as follows:
<TABLE>
<CAPTION>
December 31, 1994
and the year then ended
------------------------------------
Foreign MEI* Total
-------- ------- --------
<S> <C> <C> <C>
Net sales $110,920 $21,153 $132,073
Operating profit 10,638 1,312 11,950
Net income 5,433 1,043 6,476
</TABLE>
- ---------
* Reflects operating results of MEI for the five months ended May 31, 1994.
<TABLE>
<CAPTION>
December 31,
1995
and the year
then ended
------------
Foreign
------------
<S> <C>
Current assets $51,569
Properties 13,070
Total assets 64,872
Current liabilities 26,637
Total liabilities 27,210
Net sales $123,688
Operating profit 10,054
Net income 8,471
</TABLE>
F-13
<PAGE> 72
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1996
and the year then ended
-------------------------------------
Foreign AIR Total
-------- ------ --------
<S> <C> <C> <C>
Current Assets $138,514 $ 1,842 $140,356
Properties 88,016 48,079 136,095
Total Assets 249,860 62,652 312,512
Current Liabilities 67,611 67,611
Total Liabilities 175,524 57,652 233,176
Net Sales 237,265 237,265
Operating Profit 32,069 32,069
Net Income 14,284 14,284
</TABLE>
The Company's Peruvian subsidiary, Acerco, and two joint venture partners
acquired on March 21, 1996, through Sidercorp S.A. ("Sidercorp"), approximately
ninety-six percent of the outstanding common stock of Empresa Siderurgica del
Peru S.A., ("Siderperu"). Each of the joint venture partners made an initial
investment of $11,147 and owns one-third of the outstanding capital stock of
Sidercorp. Under the terms of the acquisition, Acerco will manage the operations
of Siderperu. Also, in connection with the acquisition, Siderperu entered in a
Technical Assistance Agreement with each of Acerco and GST and entered into a
Steel Bar Supply Agreement with Acerco and the Company's Chilean subsidiary,
MolyCop Chile S.A.
On June 12, 1996, the Company entered into an agreement to form a new Italian
joint venture to be called GSI Lucchini SpA. The joint venture, to be 49% owned
by the Company, will manufacture and sell grinding media. Manufacturing assets
and spare parts inventory from the Company's Cividale forged ball plant are to
be used in production in the joint venture's new facility. Operations at the
Cividale facility ceased at the end of October, 1996.
On August 30, 1996, the Company, through GSTOC, entered into a joint venture
with Birmingham Steel called American Iron Reduction LLC, to build and operate a
Direct Reduced Iron (DRI) facility. DRI is a substitute for scrap. The Company
made an initial non-cash equity contribution of $5,000 and is committed to make
additional equity investments of up to $22,500, primarily during 1997.
Construction is expected to be completed by the end of 1997. The financing was
obtained on a non-recourse basis to GSTOC and the Company.
The Company's recorded investment in equity companies is approximately $1,396
less than its share of the underlying equity of the associated companies at
December 31, 1996. The difference results from the 1993 acquisition and is being
amortized over approximately 10 years, which is the estimated weighted average
lives of the related assets.
All of the joint ventures are invoiced technical service fees pursuant to
technology and management support agreements. These amounts are included in the
accompanying income statements as a separate component of other income.
F-14
<PAGE> 73
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
6. PROPERTIES
Properties consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
------------ ------------
<S> <C> <C>
Land and leaseholds $ 18,026 $ 22,317
Buildings and improvements 35,499 59,313
Machinery and equipment 241,999 267,629
Construction in progress 16,424 4,659
------- --------
311,948 353,918
Less accumulated depreciation (15,822) (44,354)
-------- --------
$296,126 $309,564
======== ========
</TABLE>
To participate in certain local government sponsored programs, the Kansas City
operations structured an arrangement with the city government of Kansas City,
Missouri whereby GSTOC purchased certain industrial revenue bonds and leases the
project equipment through November 1, 1999. At any time during the term of the
lease, the Kansas City operations, pursuant to a purchase option, can fully
extinguish the lease obligation with the bonds and reacquire legal title to the
project equipment.
The Company capitalized $2,132 and $912 in interest during 1995 and 1996,
respectively.
7. PAYABLES AND ACCRUED LIABILITIES
Payables and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
------------ ------------
<S> <C> <C>
Trade payables $108,505 $104,060
Salaries and wages 12,035 15,934
Accrued interest payable 10,136 9,741
Other 32,717 32,837
-------- --------
$163,393 $162,572
======== ========
</TABLE>
8. NON-RECURRING COSTS OF COMBINING OPERATIONS
The Company recorded a pre-tax charge of $4,866 in the fourth quarter of 1995
for the costs of combining the operations of GST and GII. This charge included
costs for the relocation of the corporate headquarters to Charlotte, North
Carolina, severance costs, relocation costs for transferring employees and the
estimated costs associated with closing a subsidiary. The balance of the reserve
of $1,523 is included in payables and accrued liabilities on the accompanying
1996 balance sheet.
F-15
<PAGE> 74
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
9. SHORT-TERM AND LONG-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996 1996
International Outstanding Outstanding Availability Average Rate
------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Chile $1,580 $17,550 8.6%
Peru $10,946 15,000 9.9%
Europe 3,596 4,771 9,799 11.6%
------ ------- -------
Total $5,176 $15,717 $42,349
====== ======= =======
</TABLE>
International borrowing arrangements are outstanding under several
uncollateralized credit lines in Chile and Peru, and collateralized and
uncollateralized short-term credit lines in Europe. The borrowings are utilized
for general corporate purposes and working capital requirements. In accordance
with the senior note indenture limitations, these credit lines are limited to
85% of accounts receivable and 65% of inventory. These lines may be unsecured or
secured by accounts receivable, inventory and other current assets.
F-16
<PAGE> 75
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
------------ ------------
<S> <C> <C>
12% Senior notes due September 1, 2004, unsecured and guaranteed
by the Company, interest payable semi-annually $125,000 $125,000
12 1/4% Senior notes due October 1, 2005, unsecured and guaranteed
by the Company, interest payable semi-annually 125,000 125,000
$50,000 Long-term note due in quarterly installments to September 30,
2002, secured by certain property, plant and equipment of GSTOC,
GSC and FWC. Interest payable monthly/quarterly at the Company's
option based upon fixed margin over LIBOR or the prime rate
(8.4% at December 31, 1996) 49,875 49,375
$145,000 Revolving credit facility due September 30, 2001, secured by
accounts receivable, inventory and other current assets of
GSTOC and subsidiaries, interest payable monthly/quarterly at the
Company's option based upon varying margin over LIBOR or the
prime rate (7.1% at December 31, 1996) 58,433 61,109
$8,000 Unsecured MEI term note due in quarterly installments commencing
March 31, 1999 to December 31, 2000, interest payable quarterly
based upon varying margins over LIBOR or the prime rate
(7.0% at December 31, 1996) 8,000 8,000
$9,000 Unsecured MEI revolving credit agreement due June 30, 1999,
interest payable quarterly based upon varying margins over LIBOR
or the prime rate (8.3% at December 31, 1996) 2,304 81
Long-term note due in annual installments to July 31, 1999, secured by
certain property, plant and equipment of MEI, interest has been
imputed at 5% 897 690
Subordinated promissory note due in annual installments
commencing May 31, 1996, interest payable annually at 8% 2,400
Unsecured Chilean long-term note due in semi-annual installments to
November 1996, interest payable semi-annually based upon
the LIBOR rate plus adjustments defined in the note agreement 721
Other 297 161
-------- --------
372,927 369,416
Less current portion (2,933) (862)
-------- --------
$369,994 $368,554
======== ========
</TABLE>
F-17
<PAGE> 76
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
The fair value of the 12% Notes and the 12 1/4% Notes is $129,844 and $131,563,
respectively, based on the market trading price at December 31, 1996. The
carrying value of all other long-term debt approximates fair value.
The Revolving Credit Facility provides for up to $145,000 inclusive of letters
of credit, limited to specified percentages of eligible accounts receivable and
inventories of GSTOC and subsidiaries. At December 31, 1996, $24,694 of letters
of credit were outstanding, and unused availability under the facility at
December 31, 1996 was $52,738. The facility requires payment of a commitment fee
on the unused portion of the line of credit.
The unsecured MEI revolving credit agreement permits borrowings on the revolving
line of credit up to $9,000. Unused availability under the facility was $8,919
at December 31, 1996. An annual commitment fee is due on the unused balance of
the revolving line of credit.
Several of the debt agreements require the Company to comply with certain
covenants. The Company is in compliance with these covenants at December 31,
1996.
The aggregate maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 862
1998 730
1999 4,791
2000 4,500
2001 61,609
Thereafter 296,924
--------
$369,416
========
</TABLE>
10. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
The Company has several qualified non-contributory employee pension plans
covering most employees. Plans covering most salaried employees provide benefits
based on employees' years of service and compensation. Defined benefit plans
covering most hourly employees provide benefits based on employees' years of
service. The weighted average discount rate used in developing the actuarial
present values of benefit obligations was 7.25% at December 31, 1995 and 7.75%
at December 31, 1996. The expected long-term rate of return on plan assets was
9.0% and 9.5% for 1995 and 1996, respectively. As part of the acquisition
agreement, Armco retained the pension liability for all retirees as of November
11, 1993 as well as the accrued pension liability as of the November, 1993
acquisition for all Armco employees employed by GSTOC. The Company established
new and different pension plans for the employees and did not retain any
liability for service prior to the November, 1993 acquisition.
Assets of the qualified defined benefit plans are administered by a trustee and
consist primarily of units of certain collective trust funds, and diversified
mutual funds.
F-18
<PAGE> 77
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
POST RETIREMENT BENEFITS OTHER THAN PENSIONS
The Kansas City operations provide certain health care, life and other post
retirement benefits other than pensions ("OPEB") to current and future hourly
union retirees and certain salaried retirees hired prior to January 1, 1990.
Armco retained the liability for post retirement benefits for all Armco retirees
as of the November, 1993 acquisition. Benefit expense begins to accrue on the
date of hire. The life insurance plan is non-contributory and covers retirees
only. The Company's policy is to fund benefits payable under these plans as the
obligations become due.
The following table sets forth the OPEB plans' obligations:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
----------- ------------
<S> <C> <C>
Accumulated post retirement benefit obligation:
Fully eligible active plan participants $ (5,074) $ (3,452)
Retirees (2,099) (3,198)
Other active plan participants (16,436) (13,138)
Unrecognized net gain (659) (6,005)
-------- --------
Accumulated post retirement benefit obligation ("APBO") $(24,268) $(25,793)
======== ========
</TABLE>
The APBO is recorded as a long-term obligation in the accompanying balance
sheets. The discount rate assumed in determining the APBO for both salaried and
hourly plans was 7.25% at December 31, 1995 and 7.75% at December 31, 1996.
Net periodic post retirement benefit cost included the following components:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------
December 31, December 31, December 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Service cost $ 784 $ 581 $ 469
Interest cost 1,448 1,453 1,445
Actuarial gain (54) (389)
------ ------ ------
Net periodic post retirement
benefit cost $2,232 $1,980 $1,525
====== ====== ======
</TABLE>
Increases in the Company's health care costs for salaried employees are limited
to the increase in the Consumer Price Index ("CPI"). Accordingly, health care
costs in excess of the CPI limit will be borne by the salaried participants.
The assumed annual increase in the CPI was 3% at December 31, 1996.
The Company's health care costs for hourly union employees are subject to future
changes in health care costs. Future health care costs are assumed to increase
8% to 11% in 1996 and descend to 5% by 2000 to 2002. A one percent increase in
the assumed health care trend rate in each year would increase the APBO at
December 31, 1995 and 1996 approximately $3,795 and $3,163, respectively and the
net periodic post retirement benefit expense by $331 and $331, respectively.
F-19
<PAGE> 78
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
11. INCOME TAXES
Income before income taxes of the Company was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
December 31, December 31, December 31,
1994 1995 1996
------------ ----------- ------------
<S> <C> <C> <C>
Income from continuing operations:
Domestic $18,329 $ 7,045 $(7,557)
Foreign 9,643 5,949 14,349
------- ------- -------
27,972 12,994 6,792
Cumulative effect of change in
accounting:
Domestic 6,000
------- ------- -------
$27,972 $12,994 $12,792
======= ======= =======
</TABLE>
TAX EXPENSE
Total income tax expense (benefit) was allocated as follows:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
December 31, December 31, December 31,
1994 1995 1996
------------ ----------- ------------
<S> <C> <C> <C>
Income from continuing operations $12,372 $6,718 $3,913
Extraordinary item (1,292)
Cumulative effect of change in
accounting 2,444
------- ------ ------
$11,080 $6,718 $6,357
======= ====== ======
</TABLE>
The provision (benefit) for income taxes consists of the following components:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
December 31, December 31, December 31,
1994 1995 1996
------------ ----------- ------------
<S> <C> <C> <C>
Current
Federal $ 6,974 $1,264
State and Local 1,185 388 $ 537
Foreign 4,589 1,653 3,097
------- ------ -------
Total current 12,748 3,305 3,634
------- ------ -------
Deferred
Federal 870 1,245 597
State and Local (132) 809 (1,197)
Foreign (1,114) 1,359 879
------- ------ -------
Total deferred (376) 3,413 279
------- ------ -------
Total income tax expense $12,372 $6,718 $ 3,913
======= ====== =======
</TABLE>
F-20
<PAGE> 79
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
TAX RATES
Differences between income taxes computed using the U.S. federal income tax
statutory rate of 35% and income tax expense recorded by the Company are
attributable to the following:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
December 31, December 31, December 31,
1994 1995 1996
------------ ----------- ------------
<S> <C> <C> <C>
Income tax expense using
the US statutory rate $ 9,752 $ 4,496 $ 2,377
Lower rates on earnings of foreign
subsidiaries and joint ventures (947) (1,534) (624)
Unremitted earnings of foreign
subsidiaries and joint ventures 1,617 2,300 4,711
State income taxes, net 505 597 (429)
Termination of deferred
compensation trust 262
Change in valuation allowance (2,065)
Other 1,183 859 (57)
------- ------- -------
Total $12,372 $ 6,718 $ 3,913
======= ======= =======
</TABLE>
DEFERRED TAXES
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and available tax net
operating loss ("NOL"), credit carryovers and certain adjustments related to the
purchase price reallocation (see Note 1).
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
------------ ------------
<S> <C> <C>
Inventory $ 2,030 $ 3,092
Bases in foreign subsidiaries 12,479
Intangibles 1,224 1,290
Properties 40,842 45,719
-------- --------
Gross deferred tax liabilities 56,575 50,101
-------- --------
Long-term employee health obligations (8,996) (9,543)
NOL, AMT credit and ITC credit carryovers (7,297) (13,840)
Book liabilities not currently deductible for tax (5,054) (4,130)
Deferred compensation and other employee benefits (5,564) (2,721)
Basis in foreign subsidiaries (2,343)
Vacation accrual (1,699) (1,709)
Other, net (131)
-------- --------
Gross deferred tax assets (28,610) (34,417)
-------- --------
Deferred tax asset valuation allowance 2,465 400
-------- --------
Net deferred tax liability $ 30,430 $ 16,084
======== ========
</TABLE>
F-21
<PAGE> 80
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Management has determined based upon the Company's expectations for the future
that taxable income of the Company will, more likely than not, be sufficient to
recognize the gross deferred tax assets, as adjusted for the valuation
allowance.
At December 31, 1996, the Company has NOL carryforwards for U.S. federal income
tax purposes of approximately $16,000 which are available to offset future
federal taxable income and will begin to expire in 2010. In addition, the
Company has alternative minimum tax credit carryforwards of approximately $5,800
which are available to reduce future U.S. federal regular income taxes over an
indefinite period.
The Company's foreign subsidiary in Italy has a foreign tax loss carryforward of
approximately $4,400 and $800 at December 31, 1995 and 1996, respectively. The
carryforward is available to reduce future taxable income of the subsidiary
through 1998. A valuation allowance of $2,465 and $400 at December 31, 1995 and
1996, respectively, has been provided on the tax loss carryforward as well as on
a portion of the subsidiary's remaining gross deferred tax asset. Pursuant to
the Purchase and Sale Agreement, any tax benefit realized from the tax loss
carryforward will be shared equally with Armco. To the extent a net tax benefit
is recognized in excess of the subsidiary's remaining net deferred tax asset,
the benefit will be allocated first as a purchase price adjustment which will
reduce other noncurrent intangible assets. Any remaining tax benefit recognized
will reduce income tax expense.
12. CLASS A COMMON STOCK AND STOCKHOLDERS' EQUITY
STOCK OPTIONS - GSI
The GSI Board of Directors has granted stock options of GSI to certain officers
and employees which provide the option to purchase common stock of GSI. Through
October 5, 1995, these options were for the purchase of GST shares. Concurrent
with the merger, the options were converted into options to purchase GSI shares.
These options consist of two general types. Time Options vest at the rate of 20%
per year, but vesting is accelerated upon the occurrence of an Acceleration
Event, as defined. Target Options vest after a specified period of time unless
there is an Acceleration Event or an Exercise Event, as defined. Upon the
occurrence of an Acceleration Event or Exercise Event, all or some portion of
the stock options granted become immediately exercisable depending on
achievements of predetermined investor return multiples. Those not currently
exercisable remain outstanding through the original vesting date.
Both types of options are non-qualified, have anti-dilution provisions, and have
been granted at exercise prices not less than 100% of the fair market value of
the stock at the date of option grant.
Stock option activity was as follows:
<TABLE>
<CAPTION>
Time Target Average Option
Options Options Price per share
--------- --------- ---------------
<S> <C> <C> <C>
Outstanding at December 31, 1993 644,123 1,932,368 $ .10
Options granted 1,203,384 93,087 $5.63
--------- ---------
Outstanding at December 31, 1994 1,847,507 2,025,455 $1.95
Options granted 995,000 $9.00
Options cancelled (44,377) (52,942) $1.51
--------- ---------
Outstanding at December 31, 1995 2,798,130 1,972,513 $3.43
Options granted 90,000 $9.00
Options cancelled (170,368) (7,776) $5.10
Options exercised (5,857) $ .10
--------- ---------
Outstanding at December 31, 1996 2,711,905 1,964,737 $3.48
========= =========
Exercisable at December 31, 1994 32,954
Exercisable at December 31, 1995 956,555 537,026
Exercisable at December 31, 1996 1,542,079 1,276,143
</TABLE>
F-22
<PAGE> 81
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
At December 31, 1996 there were 642,408 options outstanding which have been
approved by the Board of Directors, but not yet granted. Exercise prices have
not been determined for these options.
In October 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS 123), "Accounting for Stock-Based
Compensation." This new standard defines a fair value based method of accounting
for an employee stock option or similar equity instrument. This statement gives
entities a choice to recognize related compensation expense by adopting the new
fair value method or to continue to measure compensation using the intrinsic
value approach under Accounting Principles Board (APB) Opinion No. 25, the
former standard. If the former standard for measurement is elected, SFAS 123
requires supplemental disclosure to show the effect of using the new measurement
criteria. The Company has elected to continue using the measurement prescribed
by APB Opinion No. 25.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Assuming any
compensation expense for the GSI options would reduce net income of GSI, the
Company's pro forma information follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Pro forma net income after adjustment
for stock option expense $6,074 $6,040
</TABLE>
MANAGEMENT COMMON STOCK
The terms of some management agreements include call provisions whereby the GSI
shares held by certain members of management may be purchased, by either GSI or
other shareholders, at either unrecovered original cost or fair market value,
depending on the event of termination as defined. At December 31, 1996,
1,079,114 shares of common stock of GSI were held, directly or beneficially, by
members of management.
13. RELATED PARTY TRANSACTIONS
TRANSITION SERVICES AND OTHER ANCILLARY AGREEMENTS
Effective January 1, 1996, the officers, directors and management employees of
GST were transferred from GST to GSI. The cost and expenses of this management
group are charged to GST under a management services agreement and included in
selling, general and administrative expenses. This amounted to $13.4 million in
1996 and is comparable to the cost incurred directly by GST in 1995.
Certain agreements were entered into as part of the Purchase and Sale Agreement
between the Company and Armco. The Company leases certain facilities from Armco
at its Kansas City operations for which it pays a nominal rental and the
associated property taxes, maintenance and utilities. The Company and Armco also
agreed to share in any net tax benefit that might be realized in conjunction
with the usage of the Ardel (Belgium) and GST Europa SpA (Italy) net operating
loss carryforwards existing at the acquisition date. Armco, as a part of the
Purchase and Sale Agreement, reimbursed the Company for certain capital
expenditures after the acquisition totaling $6,500.
TRANSACTIONS AMONG STOCKHOLDERS/SIGNIFICANT CUSTOMER
Certain stockholders of GSI are party to other transactions with the Company.
General Electric Capital Corporation acted as an agent in placement of certain
of the Company's existing domestic debt. Bain Capital provides certain
management support services for which it receives a fee not to exceed $1,000
annually, exclusive of out-of-pocket expenses.
F-23
<PAGE> 82
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
One stockholder of GSI is a major customer of the Company's Kansas City wire rod
operation. Sales to this customer for the years ended December 31, 1994, 1995
and 1996 comprised 19%, 13% and 10% of the Company's total sales, respectively.
Trade accounts receivable as of December 31, 1995 and December 31, 1996 include
$7,283 and $6,991, respectively, due from such stockholder. The Company and the
stockholder have entered into a contract for the Company to supply a substantial
portion of stockholder's wire rod needs through December 31, 2000.
14. COMMITMENTS AND CONTINGENCIES
LITIGATION
On August 30, 1996, Samsung America, Inc. ("Samsung") filed an action in the
Supreme Court of the state of New York seeking monetary damages against GSI, the
Company, its Peruvian subsidiary, Acerco, and Acerco's partners in the Siderperu
joint venture, collectively, ("the Defendants"). Samsung seeks to recover
purported damages of $48.5 million and punitive damages of $10.0 million and
alleges that the Defendants failed to honor a written contract which entitled
Samsung to obtain an equity interest in Siderperu and to provide certain
distribution and trading services on an exclusive basis. The Company believes
that it has substantial and meritorious defenses and will defend itself
accordingly.
INDEMNIFICATIONS FROM ARMCO
As part of the Purchase and Sale Agreement with Armco, the Company has been
indemnified by Armco for known environmental matters and known quantified income
tax issues related to periods prior to November 12, 1993. The Company has also
been indemnified against all unknown other pre-closing environmental matters or
conditions for a period of six years from closing. Armco's indemnity covers 100%
of the first $10,000 subject to an aggregate deductible of $250 and a
fifty-fifty sharing for aggregate claims between $10,000 and $15,000 with a
maximum cap of $12,500. Management of the Company is not aware of any current
information which would indicate that Armco will not be able to satisfy its
obligation to the Company under these indemnifications.
ENVIRONMENTAL MATTERS
The Company's U.S. facilities are subject to a broad range of federal, state and
local environmental requirements, including those governing discharges to the
air and water, the handling and disposal of solid and hazardous wastes and the
remediation of contamination associated with releases of hazardous substances at
Company facilities and associated offsite disposal locations. Liabilities with
respect to hazardous substance releases arise principally under the federal
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
and similar state laws, which impose strict, retroactive, joint and several
liability upon statutorily defined classes of "potentially responsible parties."
The Company's foreign facilities and joint ventures are subject to varying
degrees of environmental regulation in the jurisdictions in which those
facilities are located.
Based on the continuing review of environmental requirements, the Company
believes that it is currently in compliance with environmental requirements.
Nevertheless, as is the case with steel producers in general, if a release of
hazardous substances occurs on or from the Company's properties or any
associated offsite disposal locations, or if contamination from prior activities
is discovered at such properties or locations, the Company may be held liable
and may be required to pay the cost of remedying the condition or satisfying
third party damage claims. The amount of any such liability could be material.
The Company devotes considerable resources to ensuring that its operations are
conducted in a manner that reduces such risks.
The Company has several environmental issues currently under discussion with
various federal and local agencies, some of these involve compliance and/or
remediation at certain properties. During 1995 and 1996, the Company spent $266
and $1,003, respectively, on environmental matters.
F-24
<PAGE> 83
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
The Company records certain operating expenses for environmental compliance,
testing and other environmental related costs as expenses when incurred. When it
has been possible to determine reasonable estimates of liabilities related to
environmental issues, based upon information from engineering and environmental
specialists, the Company has made provisions and accruals. At December 31, 1996,
$3,697 was accrued for environmental related issues. The Company believes, based
upon information currently available to management, that it will not require
expenditures to maintain compliance with environmental requirements which would
have a material adverse effect on its financial condition, results of operations
or competitive position.
PERU TAX CONTINGENCIES
The Company's Peruvian subsidiaries had received various notices of proposed tax
assessments from the Peruvian tax authorities for the years 1985 through 1991,
the balances of which aggregated $16,900 as of December 31, 1994. Due to the
large number of unsettled tax cases throughout the Peruvian tax system, the
Government of Peru issued a one-time amnesty program in October 1996. The
Company has elected to participate in the amnesty program and will settle all
remaining proposed Peruvian tax assessments, including interest and penalties,
for a payment of approximately $250. The amounts paid for resolution of the tax
assessments were or will be reimbursed in full by Armco under the
indemnification provisions of the agreement between Armco and the Company.
LABOR RELATIONS
A significant portion of the Company's employees are covered by collective
bargaining agreements negotiated with various unions. These agreements expire at
various times between March 1997 and March 1999. In the course of contract
negotiations, the Company has on occasion been affected by work stoppages which
have been short in duration and have not had a material effect on the Company's
results of operations or financial position. Management believes that its
relationships with the unions are generally good. The collective bargaining
agreement at the Kansas City mini mill is due to expire on March 31, 1997.
OTHER CONTINGENCIES
There are various claims pending involving the Company arising out of the normal
course of business. In management's opinion, the ultimate liability resulting
therefrom will not materially affect the financial position or results of
operations of the Company.
COMMITMENTS
The Kansas City operations have entered a ten year agreement with a third party
which will staff and manage its computer operations for $865 per year.
Rent expense under operating leases was $1,019, $701 and $5,426 for the years
ended December 31, 1994, 1995 and 1996, respectively. The Company has future
minimum noncancelable operating lease commitments of the following at December
31, 1996:
1997 $3,567
1998 2,330
1999 1,673
2000 1,301
2001 1,742
Thereafter 5,773
F-25
<PAGE> 84
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
16. GEOGRAPHIC INFORMATION
Financial information, by geographic region for the Company is presented below.
United States includes GSTOC and MEI as a joint venture prior to May 31, 1994
and consolidated subsequent to the MEI acquisition (Note 1). South America is
principally comprised of the Company's operations in Chile and Peru. Europe and
Other includes the Company's operations in Europe (principally Italy), Canada
and other joint venture interests around the world (Note 5).
<TABLE>
<CAPTION>
Year ended December 31, 1994
------------------------------------------------------
United South Europe
States America and Other Total
-------- ------- --------- --------
<S> <C> <C> <C> <C>
Net sales $352,866 $67,482 $34,910 $455,258
Equity in income of joint ventures 759 2,675 3,434
Operating profit 23,835 7,085 826 31,746
Net income 8,592 4,851 27 13,470
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 and
the year ended December 31, 1995
------------------------------------------------------
United South Europe
States America and Other Total
-------- ------- --------- --------
<S> <C> <C> <C> <C>
Net sales $438,047 $76,496 $ 48,962 $563,505
Equity in income of joint ventures 2,875 1,200 4,075
Operating profit 25,365 5,657 713 31,735
Net income 704 4,304 1,121 6,129
Identifiable assets 580,054 45,075 114,765 739,894
Total liabilities 566,022 26,200 41,063 633,285
Net assets 14,032 18,875 73,702 106,609
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 and
the year ended December 31, 1996
------------------------------------------------------
United South Europe
States America and Other Total
-------- ------- --------- --------
<S> <C> <C> <C> <C>
Net sales $740,243 $86,055 $113,963 $940,261
Equity in income of joint ventures 3,421 1,068 1,011 5,500
Operating profit 30,441 8,177 5,569 44,187
Net income (loss) (3,566) 6,054 3,947 6,435
Identifiable assets 582,428 57,536 95,724 735,688
Total liabilities 550,185 37,067 35,675 622,927
Net assets 32,243 20,469 60,049 112,761
</TABLE>
F-26
<PAGE> 85
GS TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
17. SELECTED QUARTERLY FINANCIAL DATA - UNAUDITED (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1996
---------------------------------- ----------------------------------
1ST 2ND 3RD 4TH(1) 1ST 2ND 3RD 4TH
------ ------ ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $129.3 $110.3 $102.01 $221.8 $221.3 $246.3 $239.2 $233.4
Operating profit, as reported 10.6 8.1 3.3 8.3 5.4 11.2 11.6 16.0
Adjustment for effect of change
in accounting principle that is
applied retroactively (Note 3) 1.0 1.6 1.3 (2.5)
------ ------ ------- ------ ------ ------ ------ ------
Operating profit 11.6 9.7 4.6 5.8 5.4 11.2 11.6 16.0
Income as reported 4.5 3.4 (0.4) (2.2) (2.2) 0.8 1.1 3.1
Adjustment for effect of a change
in accounting principle that is
applied retroactively (Note 3) 0.6 1.0 0.8 (1.6)
Cumulative effect of change in
accounting for spare parts and
supplies (Note 3) 3.6
------ ------ ------- ------ ------ ------ ------ ------
Income 5.1 4.4 0.4 (3.8) 1.4 0.8 1.1 3.1
</TABLE>
- -----------
Effective October 5, 1995, the Company purchased GII, and GII's results of
operations were consolidated thereafter. GII's results subsequent to October 5,
1995 which are included above are: Net Sales-$123.8, Operating Profit-$4.5 and
Net Loss-$(1.9).
F-27
<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTS ON
FINANCIAL STATEMENTS SCHEDULES
To the Board of Directors
of GS Technologies Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 20, 1997 appearing on page F-2 of this Annual Report on Form 10-K
also included an audit of the Financial Statement Schedules listed in Item
14(a)(2) of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth herein when
read in conjunction with the related consolidated financial statements.
Price Waterhouse LLP
Charlotte, North Carolina
February 20, 1997
S-1
<PAGE> 87
Schedule I
GS TECHNOLOGIES CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2 $ 637
Other receivables 1,048 135
Receivable from affiliates 24,027
Recoverable income taxes 6,606
--------- ---------
Total current assets 25,077 7,378
Investment in consolidated subsidiaries 96,484 123,525
Investment in joint ventures 8,369 8,970
--------- ---------
Total assets $ 129,930 $ 139,873
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt $ 1,400
Payables and accrued liabilities 9,314 4,025
--------- ---------
Total current liabilities 10,714 4,025
Long-term debt 1,000
Deferred income taxes payable 11,607 21,692
Other long-term liabilities 1,395
--------- ---------
Total liabilities 23,321 27,112
--------- ---------
Stockholder's equity
Common Stock, $.01 par value, 1,000 shares authorized, and
100 shares issued and outstanding at December 31, 1995 and
1996 1 1
Additional paid-in capital 132,166 132,166
Retained earnings (accumulated deficit) (24,164) (17,729)
Cumulative translation adjustment (1,394) (1,677)
--------- ---------
Total stockholder's equity 106,609 112,761
--------- ---------
Total liabilities and stockholder's equity $ 129,930 $ 139,873
========= =========
</TABLE>
See notes to Condensed Financial Information
S-2
<PAGE> 88
Schedule I
GS TECHNOLOGIES CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Equity in income of consolidated subsidiaries $ 14,392 $ 6,484 $ 10,385
Equity in income of joint ventures 2,217 2,875 3,421
Other, net 95 (120) (1,853)
-------- ------- --------
Income before income tax 16,704 9,239 11,953
Income tax provision (3,234) (3,110) (5,518)
-------- ------- --------
Net income $ 13,470 $ 6,129 $ 6,435
======== ======= ========
</TABLE>
See notes to Condensed Financial Information
S-3
<PAGE> 89
Schedule I
GS TECHNOLOGIES CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 13,470 $ 6,129 $ 6,435
Adjustment to reconcile net income to net
cash provided by (used in) operating activities:
Equity in income of consolidated subsidiarie (14,392) (6,484) (10,385)
Equity in income of joint ventures (2,217) (2,875) (3,421)
Dividends from joint ventures 11,728 1,228 3,141
Deferred income taxes (1,042) 1,386 10,085
Changes in operating assets and liabilities:
Receivables 913
Payables and accrued liabilities (27) (1,048) (5,289)
Income taxes 921 632 (6,606)
Other 1,506
-------- ------- --------
Net cash provided by (used in) operating
activities 8,441 (1,032) (3,621)
-------- ------- --------
INVESTING ACTIVITIES:
Investment in consolidated subsidiaries (10,900) (30,000) (11,849)
Dividends received from consolidated subsidiarie 16,778
Cash received from Armco, net 170 1,922
Change in receivable/payable to affiliates 67,731 (1,767) 1,727
-------- ------- --------
Net cash provided by (used in) investing
activities 57,001 (29,845) 6,656
-------- ------- --------
FINANCING ACTIVITIES:
Repayments of long-term debt (2,400)
Issuance of stock 22
Distributions to stockholders (55,790) (5,543)
Distributions to warrantholder (3,777)
Contribution from GSI 30,000
-------- ------- --------
Net cash provided by (used in) financing
activities (59,545) 24,457 (2,400)
-------- ------- --------
Net increase (decrease) in cash and cash
equivalents 5,897 (6,420) 635
CASH AND CASH EQUIVALENTS:
Beginning of period 525 6,422 2
-------- ------- --------
End of period $ 6,422 $ 2 $ 637
======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash equity contributions from GSI $102,000
Non-cash investment in subsidiaries $102,000 $ 22,300
</TABLE>
See notes to Condensed Financial Information
S-4
<PAGE> 90
Schedule I
GS TECHNOLOGIES CORPORATION
NOTES TO SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION
OF THE PARENT COMPANY
(DOLLARS IN THOUSANDS)
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed financial information has been presented
pursuant to Rule 5-04(c) of Regulation S-X. The notes to the audited
consolidated financial statements contained elsewhere in this Form 10-K
reflect all disclosures required by generally accepted accounting
principles. Such information has not been separately disclosed in this
schedule.
NOTE 2 - RESTRICTED ASSETS
GST owns 100% of the common stock of GS Technologies Operating Co., Inc.
("GSTOC"). Inversiones en Molienda (Chile) ("Inversiones"), Acerco S.A.
(Peru), GST Europa SpA (Italy), ME International ("MEI"), and other various
joint ventures and subsidiaries.
At December 31, 1996 and 1995, GSTOC and MEI, had long-term debt
instruments that contained various covenants which, among other things,
restrict the payment of dividends to GST. There were no restrictions for
dividend payments from the other subsidiaries to GST.
S-5
<PAGE> 91
Schedule II
GS TECHNOLOGIES CORPORATION
VALUATION AND QUALIFYING ACCOUNTS RESERVES
<TABLE>
<CAPTION>
Additions
-----------------------
Balance at Charged to Balance at
Beginning Charged to Other End of
Description of Period Expense Accounts Deductions Period
- ----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for doubtful
accounts $ 794 $318 $1,012 $2,124
Year ended December 31, 1995
Allowance for doubtful
accounts $2,124 $223 $1,522 $(1,100) $2,769
Year ended December 31, 1996
Allowance for doubtful
accounts $2,769 $562 $(1,114) $2,217
</TABLE>
S-6
<PAGE> 92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 14th day of March,
1997.
GS TECHNOLOGIES CORPORATION AND
GS TECHNOLOGIES OPERATING CO., INC.
By: /s/ Luis E. Leon
-------------------------------------------
Luis E. Leon, Senior Vice President-Finance
and Administration, Chief Financial Officer
and Treasurer
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.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Roger R. Regelbrugge Chairman and Chief Executive March 14, 1997
- --------------------------- Officer (Principal Executive
Roger R. Regelbrugge Officer)
/s/ Luis E. Leon Senior Vice President - Finance March 14, 1997
- --------------------------- and Administration, Chief
Luis E. Leon Financial Officer and Treasurer
(Principal Financial Officer)
/s/ David O. Shelley Vice President and Controller March 14, 1997
- --------------------------- (Principal Accounting Officer)
David O. Shelley
/s/ Paul B. Edgerley Director March 14, 1997
- ---------------------------
Paul B. Edgerley
/s/ John J. O'Malley Director March 14, 1997
- ---------------------------
John J. O'Malley
</TABLE>
<PAGE> 93
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
SECTION 12 OF THE ACT.
No annual report or proxy soliciting materials has been provided to security
holders as of the date of filing of this annual report on Form 10-K. The Company
may subsequently provide an annual report to security holders and will provide
the Commission with copies of any such report. The Company does not plan to send
a proxy statement, form of proxy or other proxy soliciting material to its
security holders during 1997.
<PAGE> 1
EXHIBIT 3.3
GS TECHNOLOGIES CORPORATION
CONSENT IN LIEU OF SPECIAL MEETING
OF THE BOARD OF DIRECTORS
The undersigned, being all of the directors of GS Technologies
Corporation, a Delaware corporation (the "Corporation"), do hereby adopt,
consent to and approve in writing the following resolutions in lieu of holding a
special meeting, pursuant to the Bylaws of the Corporation and to Section 141(f)
of the General Corporation Law of the State of Delaware:
AMENDMENT OF BYLAWS
WHEREAS, the Board deems it advisable to delete Article IV
(Officers) of the Bylaws of the Corporation in its entirety and to
insert in lieu thereof the language contained in Exhibit A attached
hereto (the "Bylaws Amendment");
NOW, THEREFORE, BE IT RESOLVED, that the Bylaws Amendment be,
and it hereby is, approved and adopted effective immediately.
Effective as of the 1st day of April 1996.
/s/ Roger R. Regelbrugge
------------------------------------------
/s/ Paul B. Edgerley
------------------------------------------
/s/ Robert C. Gay
------------------------------------------
/s/ John J. O'Malley
------------------------------------------
<PAGE> 2
EXHIBIT A
ARTICLE IV
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected by
the Board of Directors and shall consist of a Chairman of the Board, a
President, one or more Vice Presidents, a Chief Financial Officer and a
Secretary, and such other officers and assistant officers as may be deemed
necessary or desirable by the Board of Directors. Any number of offices may be
held by the same person. In its discretion, the Board of Directors may choose
not to fill any office for any period as it may deem advisable. The Board of
Directors may designate the Chairman of the Board or the President as the Chief
Executive Officer.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any meeting
of the Board of Directors. Each officer shall hold office until a successor is
duly elected and qualified or until his or her earlier death, resignation or
removal as hereinafter provided.
Section 3. Renewal. Any officer or agent elected by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term by the directors then
in office.
Section 5. Compensation. Compensation of all officers shall be fixed
by the Board of Directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside at all meetings of the Board of Directors and
shareholders; shall, in general and subject to the direction of the Board of
Directors, supervise and control the business and management of the corporation;
and shall have such other duties and authority as may be conferred by the Board
of Directors.
Section 7. Chief Executive Officer. The Chief Executive Officer shall
be the chief executive officer of the corporation, and shall have the powers and
perform the duties incident to that position. Subject to the Board of Directors,
he shall be in general and active charge of the entire business, affairs and
property of the corporation, shall be its chief policymaking officer and have
control over its officers, agents and employees; and shall see that all orders
and
<PAGE> 3
resolutions of the Board of Directors are carried into effect. He shall have the
authority to execute certificates for shares of the corporation, bonds, deeds,
mortgages and other contracts and instruments, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation. He shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or provided in these by-laws.
Section 8. President. The President, subject to the powers of the Board
of Directors, the Chairman of the Board and, if applicable, the Chief Executive
Officer, shall have such powers and perform such duties as shall, from time to
time, be prescribed by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer and these bylaws.
Section 9. Vice-Presidents. The Board of Directors may elect one or
more Vice-Presidents who shall have such powers and perform such duties as
shall, from time to time, be assigned to them by the Board of Directors, the
Chief Executive Officer and these by-laws.
Section 10. The Secretary. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these by-laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
"hereunto directed by the Chairman of the Board, the Chief Executive Officer,
the directors or the stockholders upon whose requisition the meeting is called.
He shall record all the proceedings of the meetings of the corporation and of
the Board of Directors in books to be kept for that purpose. He shall keep in
safe custody the seal of the corporation, and when authorized, shall affix the
same to any instrument requiring it, and when so affixed, it shall be attested
by his signature or by the signature of any Assistant Secretary. He shall
perform such other duties and have such other powers as shall, from time to
time, be assigned to him by the Board of Directors, the Chief Executive Officer
and these by-laws.
Section 11. Chief Financial Officer. The Chief Financial Officer of the
corporation shall, under the direction of the Chief Executive Officer, be
responsible for all financial and accounting matters. The Chief Financial
Officer shall have such other powers and perform such other duties as shall,
from time to time, be prescribed by the Board of Directors, the Chief Executive
Officer or these by-laws.
Section 12. The Treasurer. The Treasurer shall have the custody of the
corporate funds and securities; shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation; shall deposit
all monies and other valuable effects in the name and to the credit of the
corporation; shall cause the funds of the corporation to be disbursed when such
disbursements have been duly authorized, taking proper vouchers for such
disbursements; and shall render to the Chief Executive Officer and the Board of
Directors at its regular meeting or when the Board of Directors so requires, an
account of the corporation; and shall have such powers and perform such duties
as the Board of Directors, the Chief Executive Officer or these by-laws may,
from time to time, prescribe.
<PAGE> 1
EXHIBIT 3.6
GS TECHNOLOGIES OPERATING CO., INC.
CONSENT IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS
The undersigned, being all of the directors of GS Technologies
Operating Co., Inc., a Delaware corporation (the "Corporation"), do hereby
adopt, consent to and approve in writing the following resolutions in lieu of
holding a special meeting, pursuant to the Bylaws of the Corporation and to
Section 141(f) of the General Corporation Law of the State of Delaware:
AMENDMENT OF BYLAWS
WHEREAS, the Board deems it advisable to delete Article V
(Officers) of the Bylaws of the Corporation in its entirety and to
insert in lieu thereof the language contained in Exhibit A attached
hereto (the "Bylaws Amendment");
NOW, THEREFORE, BE IT RESOLVED, the Bylaws Amendment be, and
it hereby is, approved and adopted effective immediately.
Effective as of the 1st day of April, 1996.
/s/ Roger R. Regelbrugge
---------------------------------------
/s/ Paul B. Edgerley
---------------------------------------
/s/ Robert C. Gay
---------------------------------------
/s/ John J. O'Malley
---------------------------------------
<PAGE> 2
EXHIBIT A
ARTICLE V
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected by
the Board of Directors and shall consist of a Chairman of the Board, a
President, one or more Vice Presidents, a Chief Financial Officer and a
Secretary, and such other officers and assistant officers as may be deemed
necessary or desirable by the Board of Directors. Any number of offices may be
held by the same person. In its discretion, the Board of Directors may choose
not to fill any office for any period as it may deem advisable. The Board of
Directors may designate the Chairman of the Board or the President as the Chief
Executive Officer.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any meeting
of the Board of Directors. Each officer shall hold office until a successor is
duly elected and qualified or until his or her earlier death, resignation or
removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the corporation would be saved thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term by the directors then
in office.
Section 5. Compensation. Compensation of all officers shall be fixed by
the Board of Directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside at all meetings of the Board of Directors and
shareholders; shall, in general and subject to the direction of the Board of
Directors, supervise and control the business and management of the corporation;
and shall have such other duties and authority as may be conferred by the Board
of Directors.
Section 7. Chief Executive Officer. The Chief Executive Officer shall
be the chief executive officer of the corporation, and shall have the powers and
perform the duties incident to that position. Subject to the Board of Directors,
he shall be in general and active charge of the entire business, affairs and
property of the corporation, shall be its chief policymaking officer and have
control over its officers, agents and employees and shall see that all orders
and
<PAGE> 3
resolutions of the Board of Directors are carried into effect. He shall have the
authority to execute certificates for shares of the corporation, bonds, deeds,
mortgages and other contracts and instruments, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation. He shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or provided in these by-laws.
Section 8. President. The President, subject to the powers of the Board
of Directors, the Chairman of the Board and, if applicable, the Chief Executive
Officer, shall have such powers and perform such duties as shall, from time to
time, be prescribed by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer and these bylaws.
Section 9. Vice-Presidents. The Board of Directors may elect one or
more Vice-Presidents who shall have such powers and perform such duties as
shall, from time to time, be assigned to them by the Board of Directors, the
Chief Executive Officer and these by-laws.
Section 10. The Secretary. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these by-laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
"hereunto directed by the Chairman of the Board, the Chief Executive Officer,
the directors or the stockholders upon whose requisition the meeting is called.
He shall record all the proceedings of the meetings of the corporation and of
the Board of Directors in books to be kept for that purpose. He shall keep in
safe custody the seal of the corporation, and when authorized, shall affix the
same to any instrument requiring it, and when so affixed, it shall be attested
by his signature or by the signature of any Assistant Secretary. He shall
perform such other duties and have such other powers as shall, from time to
time, be assigned to him by the Board of Directors, the Chief Executive Officer
and these by-laws.
Section 11. Chief Financial Officer. The Chief Financial Officer of the
corporation shall, under the direction of the Chief Executive Officer, be
responsible for all financial and accounting matters. The Chief Financial
Officer shall have such other powers and perform such other duties as shall,
from time to time, be prescribed by the Board of Directors, the Chief Executive
Officer or these by-laws.
Section 12. The Treasurer. The Treasurer shall have the custody of the
corporate funds and securities; shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation; shall deposit
all monies and other valuable effects in the name and to the credit of the
corporation; shall cause the funds of the corporation to be disbursed when such
disbursements have been duly authorized, taking proper vouchers for such
disbursements; and shall render to the Chief Executive Officer and the Board of
Directors at its regular meeting or when the Board of Directors so requires, an
account of the corporation; and shall have such powers and perform such duties
as the Board of Directors, the Chief Executive Officer or these by-laws may,
from time to time, prescribe.
<PAGE> 1
EXHIBIT 4.4
------------------------------------------------------------------------------
GS TECHNOLOGIES OPERATING CO., INC.,
Issuer
and
GS TECHNOLOGIES CORPORATION,
Guarantor
TO
FLEET NATIONAL BANK
(FORMERLY SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION),
Trustee
-------------------------
Second Supplemental Indenture
Dated as of August 15, 1996
to Indenture
Dated as of August 30, 1994,
as amended by
First Supplemental Indenture
Dated as of October 5, 1995
-----------------------
$125,000,000
12% Senior Notes due 2004
------------------------------------------------------------------------------
<PAGE> 2
SECOND SUPPLEMENTAL INDENTURE, dated as of August 15, 1996, between GS
TECHNOLOGIES OPERATING CO., INC., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company"), having
its principal office at 1901 Roxborough Road, Charlotte, North Carolina 28211,
GS TECHNOLOGIES CORPORATION, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Guarantor") having its
principal executive offices at 1901 Roxborough Road, Charlotte, North Carolina
28211 and FLEET NATIONAL BANK (formerly Shawmut Bank Connecticut, National
Association), a national banking association duly organized and existing under
the laws of the United States of America, as Trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY
The Company, the Guarantor and the Trustee are parties to an Indenture,
dated as of August 30, 1994 (the "Original Indenture"), pursuant to which the
Company issued $125,000,000 in aggregate principal amount of its 12% Senior
Notes due 2004. The Original Indenture was amended by the First Supplemental
Indenture dated as of October 5, 1995 (the "First Supplemental Indenture", and
the Original Indenture, as amended by the First Supplemental Indenture, the
"Indenture") between the Company, the Guarantor and the Trustee.
Section 902 of the Indenture provides, among other things, that with
the consent of the Holders of not less than a majority in principal amount of
the Outstanding Securities, the Company, when authorized by a Board Resolution,
and the Trustee may amend the Indenture in certain respects.
The Company desires to amend the Indenture.
Pursuant to a Consent Solicitation Statement, dated July 18, 1996, as
amended by a Notice from the Company dated July 30, 1996 (as amended, the
"Statement"), the Company solicited consents ("Consents") to certain proposed
amendments to the Indenture described in the Statement.
The Company has obtained the requisite Consents to amend the Indenture
as provided herein and has delivered such Consents to the Trustee, all as
required by Section 902 of the Indenture.
The Company has duly authorized the execution and delivery of this
Second Supplemental Indenture.
The execution and delivery of this instrument has been duly authorized
and all conditions and requirements necessary to make this instrument a valid
and binding agreement have been duly performed and complied with.
<PAGE> 3
RECITALS OF THE GUARANTOR
The Guarantor has duly authorized the execution and delivery of this
Second Supplemental Indenture.
The execution and delivery of this instrument has been duly authorized
and all conditions and requirements necessary to make this instrument a valid
and binding agreement have been duly performed and complied with.
NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE
WITNESSETH:
For and in consideration of the premises and other good and valuable
consideration, receipt and sufficiency of which are hereby acknowledged, it is
mutually covenanted and agreed, for the equal proportionate benefit of all
Holders of the Securities, as follows:
ARTICLE 1. AMENDMENTS TO INDENTURE
Section 1.1. Section 101 of the Indenture is hereby amended by deleting
the definition of "Permitted Investments" in its entirety and inserting the
following in lieu thereof:
"Permitted Investments" means (a) certificates of deposit with
final maturities of one year or less issued by a U.S. commercial bank
or a U.S. branch of a foreign bank, having capital and surplus in
excess of $100 million and having a peer group rating of C or better
(or the equivalent thereof) by Thompson BankWatch Inc. or outstanding
long-term debt rated A- or better (or the equivalent thereof) by
Standard & Poor's and A3 or better (or the equivalent thereof) by
Moody's Investors Service, Inc.; (b) commercial paper rated A-1 (or the
equivalent thereof) by Standard & Poor's or P-1 (or the equivalent
thereof) by Moody's Investor Service, Inc.; (c) direct obligations of
the United States government or a U.S. government agency; (d)
repurchase agreements in respect of direct U.S. government obligations;
(e) Investments in any Person as a result of which such Person becomes
a Wholly Owned Restricted Subsidiary; (f) Investments made after the
date of this Indenture pursuant to contractual obligations existing on
the date of this Indenture; (g) Investments in a Securitization
Subsidiary or by a Securitization Subsidiary in a Person established by
such Securitization Subsidiary in each case to effect a Securitization
Transaction; provided, such Investment is customary in such
Securitization Transaction; and (h) Investments having an unreturned
amount not exceeding $30 million in the aggregate in connection with
the development and construction of a scrap substitute facility.
2
<PAGE> 4
ARTICLE 2. MISCELLANEOUS
Section 2.1. The Trustee accepts the trusts created by the Indenture,
as supplemented by this Second Supplemental Indenture, and agrees to perform the
same upon the terms and conditions of the Indenture, as supplemented by this
Second Supplemental Indenture.
Section 2.2. The recitals contained herein shall be taken as statements
of the Company and the Guarantor, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Second Supplemental Indenture.
Section 2.3. All capitalized terms used and not defined herein shall
have the respective meanings assigned to them in the Indenture.
Section 2.4. Each of the Company, the Guarantor and the Trustee hereby
confirms and reaffirms the Indenture in every particular except as amended by
this Second Supplemental Indenture.
Section 2.5. All covenants and agreements in this Second Supplemental
Indenture by the Company, the Guarantor or the Trustee shall bind each of their
respective successors and assigns, whether so expressed or not.
Section 2.6. In case any provisions in this Second Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 2.7. Nothing in this Second Supplemental Indenture express or
implied, shall give to any Person, other than the parties hereto and their
successors under the Indenture and the Holders of the Securities, any benefit or
any legal or equitable right, remedy or claim under the Indenture.
Section 2.8. If any provision hereof limits, qualifies or conflicts
with a provision of the Trust Indenture Act of 1939, as it may be amended from
time to time, that is required under such Act to be a part of and govern this
Second Supplemental Indenture, the latter provision shall control. If any
provision hereof modifies or excludes any provision of such Act that may be so
modified or excluded, the latter provision shall be deemed to apply to this
Second Supplemental Indenture as so modified or excluded, as the case may be.
SECTION 2.9. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 2.10. All provisions of this Second Supplemental Indenture
shall be deemed to be incorporated in, and made a part of, the Indenture; and
the Indenture, as supplemented by this Second Supplemental Indenture, shall be
read, taken and construed as one and the same instrument.
3
<PAGE> 5
----------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
GS TECHNOLOGIES OPERATING CO., INC.
By:
-----------------------------------
Luis E. Leon, Senior Vice President
Attest:
- -------------------------------
GS TECHNOLOGIES CORPORATION
By:
-----------------------------------
Luis E. Leon, Senior Vice President
Attest:
- ----------------------------------
FLEET NATIONAL BANK (formerly Shawmut
Bank Connecticut, National
Association), as Trustee
By:
-----------------------------------
Name:
----------------------
Title:
-----------------------
Attest:
- ----------------------------------
4
<PAGE> 6
STATE OF NORTH CAROLINA )
ss:
COUNTY OF MECKLENBURG )
On the 15th day of August, 1996, before me personally came Luis E.
Leon, to me known, who, being by me duly sworn, did depose and say that he is
Senior Vice President of GS Technologies Operating Co., Inc., one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
-----------------------------------
My commission expires:
------------
STATE OF NORTH CAROLINA )
ss:
COUNTY OF MECKLENBURG )
On the 15th day of August, 1996, before me personally came Luis E.
Leon, to me known, who, being by me duly sworn, did depose and say that he is
Senior Vice President of GS Technologies Corporation, one of the corporations
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
-----------------------------------
My commission expires:
-----------
5
<PAGE> 7
STATE OF __________________ )
ss:
COUNTY OF ________________ )
On the ____ day of August, 1996, before me personally came
_________________, to me known, who, being by me duly sworn, did depose and say
that he is ___________________ of Fleet National Bank (formerly Shawmut Bank
Connecticut, National Association), one of the corporations described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
______________________________________
My commission expires: _______________
6
<PAGE> 1
EXHIBIT 4.7
GS TECHNOLOGIES OPERATING CO., INC.
1901 ROXBOROUGH ROAD
CHARLOTTE, NORTH CAROLINA 28211
The Lenders participating in the July 8, 1996
Loan Agreement referred to below
c/o General Electric Capital Corporation, as Agent
105 West Madison Street
Suite 1600
Chicago, Illinois 60602
RE: AMENDMENT NO. 1 TO LOAN AGREEMENT
Ladies and Gentlemen:
Reference is made to the Loan Agreement dated as of October 5, 1995
(the "Loan Agreement") among GS Technologies Operating Co., Inc., a Delaware
corporation, and its direct and indirect Subsidiaries, the Lenders named
therein, Mellon Bank, N.A., a national banking association, as Documentation
Agent, and General Electric Capital Corporation, a New York corporation, as
Agent. Capitalized terms used herein and not otherwise defined herein shall have
the meanings given to them in the Loan Agreement.
This letter shall confirm our amendment to the Loan Agreement (such
amendment being hereinafter called "Amendment No. 1") as follows:
1. Section 2.3(a) of the Loan Agreement is hereby amended as follows:
(a) The first sentence of said Section 2.3(a) is hereby
amended to delete the figure "$25,000,000" where it appears therein and
to substitute in its place the figure "$40,000,000".
(b) The last sentence of said Section 2.3(a) is hereby amended
to delete the period at the end thereof and to insert in lieu thereof
the following:
; provided, however, the L/C Issuer shall not decline to issue
that certain standby Letter of Credit for the account of GSTOC
in the face amount of $22,500,000 for the benefit of American
Iron Reduction, L.L.C. ("AIR") or its assignees, which shall
support GSTOC's equity contribution obligation to AIR (the
"AIR Letter of Credit"). Such Letter of Credit shall be in the
form shown in Exhibit A attached hereto. Notwithstanding the
above, the issuance of any and all letters of credit shall
continue to be subject to the terms and conditions of the Loan
Agreement, including the provisions of Section 3.12.
2. Section 2.3(c) of the Loan Agreement is hereby amended to delete the
comma at the end of clause (i) thereof and to insert in lieu thereof the
following:
; provided, however, that with respect to the AIR Letter of Credit,
such fee shall be at the annual rate of 1 3/4% of the maximum amount
available to be drawn from time to time under the AIR Letter of Credit
for the period from and including the date of issuance of the AIR
Letter of Credit
<PAGE> 2
July 8, 1996
Page 2
to and including the stated expiry date of the AIR Letter of Credit,
calculated on the basis of a 360-day year and paid quarterly in
arrears,
3. The Loan Agreement is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects except that on and
after the date of this Amendment No. 1 (i) all references in the Loan Agreement
to "this Agreement", "hereto", "hereof", "hereunder" or words of like import
referring to the Loan Agreement shall mean the Loan Agreement as amended by this
Amendment No. 1, and (ii) all references in the other Loan Documents to the
"Loan Agreement", "thereto", "thereof", "thereunder" or words of like import
referring to the Loan Agreement shall mean the Loan Agreement as amended by this
Amendment No. 1. The execution, delivery and effectiveness of this Amendment No.
1 shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender under the Loan Agreement or any other Loan
Document, nor constitute a waiver of any provision of the Loan Agreement or any
other Loan Document.
4. This Amendment No. 1 may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which shall be
deemed to be an original, but all of which taken together shall constitute one
and the same agreement.
Please confirm our amendment to the Loan Agreement as provided above by
signing a copy of this letter and returning it to the undersigned.
Sincerely,
GS TECHNOLOGIES OPERATING CO., INC.,
By: ________________________________
Name: Luis E. Leon
Title: Senior Vice President
CI (U.S.) CORP. (FORMERLY CONTROL INTERNATIONAL, INC.)
MINERAL REAGENTS INTERNATIONAL, INC.
GEORGETOWN INDUSTRIES, INC.,
GEORGETOWN INVESTMENT CORPORATION
GEORGETOWN STEEL CORPORATION
FLORIDA WIRE AND CABLE, INC.
GEORGETOWN FINANCE CORPORATION
GEORGETOWN WIRE COMPANY, INC.
K-LATH CORPORATION, INC.
By: _____________________________
Name: Luis E. Leon
Title: Vice President
<PAGE> 3
July 8, 1996
Page 3
Agreed to and accepted as of the date first above written.
GENERAL ELECTRIC CAPITAL MELLON BANK, N.A.
CORPORATION, as Agent and Lender as Documentation Agent and Lender
By: _______________________________ By: _________________________________
Name: ____________________ Name: ______________________
Title: ___________________ Title: _____________________
NATIONSBANK, N.A., as Lender PILGRIM PRIME RATE TRUST,
as Lender
By: _______________________________ By: _________________________________
Name: ____________________ Name: ______________________
Title: ___________________ Title: _____________________
NBD BANK, as Lender PNC BANK, NATIONAL ASSOCIATION,
as Lender
By: _______________________________ By: _________________________________
Name: ____________________ Name: ______________________
Title: ___________________ Title: _____________________
LASALLE NATIONAL BANK, HARRIS TRUST AND SAVINGS BANK,
as Lender as Lender
By: _______________________________ By: _________________________________
Name: ____________________ Name: ______________________
Title: ___________________ Title: _____________________
SCOA PLANT FINANCING COMPANY,
as Lender
By: Sumitomo Corporation of America,
General Partner
By: ___________________________
Name: ____________________
Title: ___________________
<PAGE> 1
EXHIBIT 4.8
AMENDMENT NO. 2 TO LOAN AGREEMENT
AMENDMENT NO. 2, dated as of December 20, 1996, among GS TECHNOLOGIES
OPERATING CO., INC., a Delaware corporation ("GSTOC"), and its direct and
indirect Subsidiaries, CI (U.S.) CORP. (formerly Control International, Inc.), a
Utah corporation ("CII"), MINERAL REAGENTS INTERNATIONAL INC., a Delaware
corporation ("MRII"), GEORGETOWN INDUSTRIES, INC., a Delaware corporation
("GII"), GEORGETOWN INVESTMENT CORPORATION, a Delaware corporation ("GIC"),
GEORGETOWN STEEL CORPORATION, a Delaware corporation ("GSC"), FLORIDA WIRE AND
CABLE, INC., a Delaware corporation ("FWCC"), GEORGETOWN FINANCE CORPORATION, a
Delaware corporation ("GFC"), GEORGETOWN WIRE COMPANY, INC., a Delaware
corporation ("GWC"), and K-LATH CORPORATION, INC., a California corporation
("K-Lath")) (GSTOC, CII, MRII, GII, GIC, GSC, FWCC, GFC, GWC and K-Lath,
individually a "Borrower", and collectively "Borrowers"), the Lenders (as
defined herein), MELLON BANK, N.A., a national banking association ("Mellon") as
documentation agent for the Lenders (Mellon, in such capacity, being
"Documentation Agent"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("GE Capital"), as agent for the Lenders (GE Capital, in such
capacity, being "Agent").
Borrowers, Agent, Documentation Agent and Lenders are parties to a Loan
Agreement, dated as of October 5, 1995, as amended by Amendment No. 1 to Loan
Agreement dated July 8, 1996 (the "Loan Agreement"). Borrowers, Agent,
Documentation Agent and the Lenders desire to amend the Loan Agreement in
certain respects, and, accordingly, Borrowers, Agent, Documentation Agent and
Lenders agree as follows:
1. DEFINITIONS. Except as otherwise provided herein, the terms defined
in the Loan Agreement are used herein as defined therein.
2. AMENDMENT. Effective as of the date hereof, Sections 2.3(a) and (c)
of the Loan Agreement are restated as follows:
(a) Upon and subject to the terms and conditions hereof, the
L/C Issuer agrees to issue Letters of Credit, and each Revolving Credit
Lender agrees for itself only to incur Letter of Credit Undertakings,
from time to time from the Closing Date to but excluding the Revolving
Credit Loan Commitment Termination Date; provided, that the maximum
aggregate stated or face amount of Letters of Credit issued and
outstanding at any time plus the aggregate principal amount of
unreimbursed drawings on Letters of Credit at such time shall not
exceed $40,000,000. No Letter of Credit shall have a stated expiry date
earlier than 30 days after the date of its issuance, and no Letter of
Credit shall have a stated expiry date or, if by its terms it is
periodically renewable, be subject to being terminated by the L/C
Issuer (unless renewal is permitted by the L/C Issuer in its sole
discretion, in which case the L/C Issuer will not permit renewal to a
date beyond that determined in accordance with the following portion of
this sentence) later than the earlier of the following: (A) (i) the one
year anniversary of its issuance in the case of
<PAGE> 2
Letters of Credit with an "evergreen" provision for the account of
GSTOC in the aggregate amount of $22,500,000 or less for the benefit of
American Iron Reduction, L.L.C. ("AIR") or its assignees, which support
GSTOC's equity contribution obligation to AIR (collectively the "AIR
Letters of Credit"), or August 30, 1998 in the case of AIR Letters of
Credit without an "evergreen" provision, (ii) the one year anniversary
of its issuance (or, if renewable and renewal has been permitted, the
one year anniversary of its last renewal) in case of any standby Letter
of Credit, or (iii) the date 90 days after its issuance in the case of
any commercial Letter of Credit, and (B) in any case, August 31, 2001.
Each Letter of Credit shall be in a minimum amount of $50,000. Subject
to the terms and conditions set forth in this Agreement, upon GSTOC's
request that any Letter of Credit be issued, provided that at the time
of the requested issuance the amount of such Letter of Credit does not
exceed Revolving Credit Availability of the Borrower for whose account
such Letter of Credit is requested, the L/C Issuer shall issue the
requested Letter of Credit and, upon the issuance thereof, each
Revolving Credit Lender shall incur Letter of Credit Undertakings with
respect thereto ratably in accordance with its Revolving Credit
Percentage. Notwithstanding anything herein to the contrary, the L/C
Issuer may decline to issue any Letter of Credit if the beneficiary or
the conditions of drawing are reasonably unacceptable to the L/C Issuer
or if the purpose of issuance is illegal or is in contravention of any
law, rule, regulation or public policy or any judgment, decree, writ,
injunction, order or award of any arbitrator, court or governmental
authority; provided, the L/C Issuer shall not decline to issue the AIR
Letters of Credit. Such AIR Letters of Credit shall be in the form as
shown in Exhibit N attached hereto (formerly, in Amendment No. 1 to
this Agreement dated July 8, 1996, designated as Exhibit "A"), if with
an expiry date of August 30, 1997, or in the form as shown in Exhibit N
hereto but without the "evergreen" provision, if with an expiry date of
August 30, 1998. Notwithstanding the foregoing, the issuance of any and
all Letters of Credit shall continue to be subject to the terms and
conditions of this Agreement, including the provisions of Section 3.12
hereof.
(c) Borrowers agree (i) to pay to Agent, for the ratable
benefit of the Revolving Credit Lenders, a fee computed at the per
annum rate equal to the then Applicable Revolving Credit Loan Margin
percentage with respect to LIBOR Borrowings, of the maximum amount
available to be drawn from time to time under each standby Letter of
Credit for the period from and including the date of issuance of such
standby Letter of Credit to and including the stated expiry date of
such standby Letter of Credit, which fees shall be calculated on the
basis of a 360-day year and paid quarterly in arrears; provided,
however, that with respect to the AIR Letters of Credit, such fee shall
be at the annual rate of 1 3/4% of the maximum amount available to be
drawn from time to time under the AIR Letters of Credit for the period
from and including the date of issuance of the AIR Letters of Credit to
and including the stated expiry date of the AIR Letters of Credit,
calculated on the basis of a 360-day year and paid quarterly in
arrears, (ii) to pay to Agent, for the ratable benefit of the Revolving
Credit Lenders, a fee of 1/2% of the face amount of each commercial
Letter of Credit, which fee shall be paid at each time any commercial
Letter of Credit is drawn upon or expires, (iii) to pay an additional
fee to the L/C Issuer for its own account computed at the rate of 1/4%
per annum of the maximum amount available to be drawn from time
2
<PAGE> 3
to time under each standby Letter of Credit for the period from and
including the date of issuance of such standby Letter of Credit to and
including the stated expiry date of such standby Letter of Credit,
which fee shall be calculated on the basis of a 360-day year and paid
quarterly in arrears, and (iv) to pay the L/C Issuer for its own
account a fee of 1/16% of the face amount of each commercial Letter of
Credit, which fee shall be paid at each time any commercial Letter of
Credit is drawn upon or expires. All such fees are nonrefundable and
Borrowers shall not be entitled to any rebate of any portion thereof if
such Letter of Credit does not remain outstanding through such period
or for any other reason. Borrowers further agree to pay to the L/C
Issuer, on demand and for its own account, such other administrative
fees, charges and expenses of the L/C Issuer in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of
such Letter of Credit or otherwise payable pursuant to the application
and related documentation under which such Letter of Credit is issued.
3. CONFIRMATION OF REPRESENTATIONS AND WARRANTIES. Borrowers hereby
confirm that the representations and warranties of Borrowers contained in the
Loan Documents were correct in all material respects as to Borrowers and their
Subsidiaries taken as a whole on and as of October 5, 1995, and that such
representations and warranties are correct as to Borrowers and their
Subsidiaries taken as a whole on the date hereof, except (i) to the extent that
any such representation or warranty expressly relates to an earlier date, and
(ii) for changes resulting from transactions contemplated or permitted by the
Loan Documents and changes occurring in the ordinary course of business that in
the aggregate are not materially adverse.
4. NO DEFAULT. Borrowers represent and warrant that no Default or Event
of Default exists as of the date hereof.
5. MISCELLANEOUS. The Loan Agreement is, and shall be, in full force
and effect and is hereby ratified and confirmed in all respects except that on
and after the date of this Amendment No. 2 (i) all references in the Loan
Agreement to "this Agreement", "hereto", "hereof", "hereunder" or words of like
import referring to the Loan Agreement shall mean the Loan Agreement as amended
by this Amendment No. 2, and (ii) all references in the other Loan Documents to
the "Loan Agreement", "thereto", "thereof", "thereunder" or words of like import
referring to the Loan Agreement shall mean the Loan Agreement as amended by this
Amendment No. 2. The execution, delivery and effectiveness of this Amendment No.
2 shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Agent or any Lender under the Loan Agreement or
any other Loan Document, nor constitute a waiver of any provision of the Loan
Agreement or any other Loan Document. This Amendment No. 2 and the obligations
arising hereunder shall be governed by, and construed and enforced in accordance
with, the laws of the State of Illinois applicable to contracts made and
performed in such state, without regard to the principles thereof regarding
conflict of laws, and any applicable laws of the United States of America.
6. COUNTERPARTS. This Amendment No. 2 may be executed in any number of
separate counterparts, each of which shall, collectively and separately,
constitute one agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, this Amendment No. 2 has been duly executed as of
the date first written above.
GS TECHNOLOGIES OPERATING CI (U.S.) CORP. (FORMERLY
CO., INC., as Borrower CONTROL INTERNATIONAL, INC.),
as Borrower
By: By:
------------------------------ ---------------------------
Name: Luis E. Leon Name: Luis E. Leon
Title: Senior Vice-President Title: Vice-President
MINERAL REAGENTS GEORGETOWN INDUSTRIES, INC.,
INTERNATIONAL INC., as Borrower as Borrower
By: By:
------------------------------ ---------------------------
Name: Luis E. Leon Name: Luis E. Leon
Title: Vice-President Title: Vice-President
GEORGETOWN INVESTMENT GEORGETOWN STEEL CORPORATION,
CORPORATION, as Borrower as Borrower
By: By:
------------------------------ ---------------------------
Name: Luis E. Leon Name: Luis E. Leon
Title: Vice-President Title: Vice-President
FLORIDA WIRE AND CABLE, INC., GEORGETOWN FINANCE
as Borrower CORPORATION, as Borrower
By: By:
------------------------------ ---------------------------
Name: Luis E. Leon Name: Luis E. Leon
Title: Vice-President Title: Vice-President
GEORGETOWN WIRE COMPANY, K-LATH CORPORATION, INC.,
INC., as Borrower as Borrower
By: By:
------------------------------ ---------------------------
Name: Luis E. Leon Name: Luis E. Leon
Title: Vice-President Title: Vice-President
S-1
<PAGE> 5
GENERAL ELECTRIC CAPITAL MELLON BANK, N.A.,
CORPORATION, as Agent and Lender as Documentation Agent and Lender
By: By:
------------------------------ ---------------------------
Name: Name:
------------------------ ---------------------
Title: Title:
------------------------ ---------------------
NATIONSBANK, N.A., as Lender PILGRIM PRIME RATE TRUST,
as Lender
By: By:
------------------------------ ---------------------------
Name: Name:
------------------------ ---------------------
Title: Title:
------------------------ ---------------------
NBD BANK, as Lender PNC BANK, NATIONAL ASSOCIATION,
as Lender
By: By:
------------------------------ ---------------------------
Name: Name:
------------------------ ---------------------
Title: Title:
------------------------ ---------------------
LASALLE NATIONAL BANK, HARRIS TRUST AND SAVINGS BANK,
as Lender as Lender
By: By:
------------------------------ ---------------------------
Name: Name:
------------------------ ---------------------
Title: Title:
------------------------ ---------------------
SCOA PLANT FINANCING COMPANY,
as Lender
By:
------------------------------
Name:
------------------------
Title:
------------------------
S-2
<PAGE> 1
EXHIBIT 10.31
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT dated as of
August 14, 1996 among GS Industries, Inc. ("Parent"), a Delaware corporation, GS
Technologies Corporation, a Delaware corporation ("GST"), ME International,
Inc., a Michigan corporation ("MEI"), M.E.-West Castings, Inc., an Arizona
corporation ("M.E.-West" and, together with MEI, the "MEI Entities"), GS
Technologies Operating Co., Inc. ("GSTOC"), a Delaware corporation, Mineral
Reagents International Inc., a Delaware corporation ("MRI"), CI (U.S.) Corp.
(formerly Control International, Inc.), a Utah corporation ("CII"), Georgetown
Industries, Inc., a Delaware corporation ("GII"), Georgetown Investment
Corporation, a Delaware corporation ("GIC"), Georgetown Finance Corporation, a
Delaware corporation ("GFC"), Georgetown Steel Corporation, a Delaware
corporation ("GSC"), Georgetown Wire Company, Inc., a Delaware corporation
("GWC"), Florida Wire and Cable, Inc., a Delaware corporation ("FWC"), Tree
Island Industries, Ltd., a British Columbia corporation ("TII"), and K-Lath
Corporation, Inc., a California corporation ("K-Lath" and, together with GSTOC,
MRI, CII, GII, GIC, GFC, GSC, GWC, FWC and TII, the "GSTOC Entities"). Parent
and, from time to time, GST are collectively referred to herein as the "Service
Providers." The GSTOC Entities, the MEI Entities and, from time to time, GST are
collectively referred to herein as the "Recipients."
The Recipients and the Service Providers entered into that certain
Management Services Agreement dated as of October 5, 1995 providing for the
provision of certain management services by the Service Providers to the
Recipients and the Recipients and the Service Providers desire to amend and
restate the Management Services Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
SECTION 1. TERM. The Recipients agree to engage the Service Providers,
and the Service Providers agree to provide management services to the
Recipients, on the terms and conditions set forth herein for a period commencing
as of October 5, 1995 and ending ten (10) years from such date (or at such
earlier time as is mutually agreed upon by the parties). The period during which
the Service Providers are engaged hereunder is hereinafter referred to as the
"Management Period."
SECTION 2. SERVICES.
(a) The executive management consulting services and staff support
services (the "Services") to be provided in connection with the engagement
hereunder may, from time to time, include the following as shall be mutually
agreed by the parties hereto:
<PAGE> 2
(i) general executive services, including periodic advice and
consultation with respect to the affairs of the Recipients;
(ii) financial, accounting, legal, tax and cash management
services;
(iii) management information and other system services,
including technical support in connection therewith;
(iv) services related to tax, regulatory and other filings, as
well as periodic or other reports to governmental or other agencies
having jurisdiction over the respective businesses of the Recipients,
including, without limitation, the application on behalf of and for the
account of the Recipients, of all applicable licenses, permits, and
consents;
(v) sales and marketing services;
(vi) environmental services, including services to assist the
Recipients in meeting the reporting requirements of regulatory
agencies;
(vii) employee and personnel services, including making
available certain of its employees to act as senior executive officers
of the Recipients, and advisory services relating to employee training,
testing and evaluation programs, employee benefit programs and other
personnel matters;
(viii) services and costs related to benefit and compensation
plans of the Service Providers, including group life and health
insurance plans, pension and salary continuation plans and thrift
plans;
(ix) technical research and development services;
(x) engineering services;
(xi) services with respect to safety matters;
(xii) general services with respect to relations with
investors and members of the investment community as well as city,
state and federal governments; and
(xiii) such other services as mutually agreed to by the
parties.
(b) The Service Providers shall determine, from time to time, what
services shall be provided by each such Service Provider.
(c) Parent agrees to indemnify, defend and save harmless each Recipient
and its respective directors, officers, agents and employees from and against
any and all liability,
2
<PAGE> 3
expense, loss, claim or damage of any kind or nature on account of Parent's bad
faith or willful misconduct in the course of its performance or non-performance
of its duties hereunder. A Recipient shall, with reasonable promptness and
specificity, notify Parent of any claim for indemnification hereunder and shall
afford Parent the right to conduct the defense, compromise or settlement of any
action relating to such claim for indemnification, at Parent's own risk and
expense.
GST agrees to indemnify, defend and save harmless each Recipient and
its respective directors, officers, agents and employees from and against any
and all liability, expense, loss, claim or damage of any kind or nature on
account of GST's bad faith or willful misconduct in the course of its
performance or non-performance of its duties hereunder. A Recipient shall, with
reasonable promptness and specificity, notify GST of any claim for
indemnification hereunder and shall afford GST the right to conduct the defense,
compromise or settlement of any action relating to such claim for
indemnification, at GST's own risk and expense.
Each Recipient severally agrees to indemnify, defend and save harmless
the Service Providers and their respective directors, officers, agents and
employees from and against any and all liability, expense, loss, claim or damage
of any kind or nature (including reasonable legal fees and expenses) resulting
from any suits, claims or demands on account of any matter that may arise as a
result of the performance or non-performance of the Service Providers hereunder;
provided, however, that the Service Providers shall not have been found, by
court of competent jurisdiction, to have acted in bad faith or with willful
misconduct in connection with such liability, claim or damage. Upon the receipt
of notice of the commencement of any action against a Service Provider and if a
claim in respect thereof is to be made hereunder, such Service Provider shall,
with reasonable promptness and specificity, notify the appropriate Recipient(s)
in writing of the commencement of such action and shall afford the appropriate
Recipient(s) the right to conduct the defense, compromise or settlement of such
action, at the appropriate Recipient(s) own risk and expense. In addition, the
Service Provider shall, with reasonable promptness and specificity, notify the
appropriate Recipient(s) of any claim for indemnification hereunder.
SECTION 3. MANAGEMENT FEE.
(a) The Recipients shall provide direct payment or shall promptly
reimburse the Service Providers for such reasonable out-of-pocket expenses,
including, without limitation, overhead expenses of the headquarters office,
actually paid to unaffiliated third parties as may be incurred by the Service
Providers in connection with the rendering of any services hereunder.
(b) In the event that any Service Provider incurs any other expenses in
connection with the rendering of any services hereunder, such Service Provider
shall be entitled to be paid or reimbursed for such amounts from the Recipients;
provided, however, that such payments or reimbursements to Parent pursuant to
this subsection (b) shall not exceed $1
3
<PAGE> 4
million per year excluding (i) reasonable compensation, indemnification and
other benefits paid or provided by Parent to full-time officers or employees of
GST and its subsidiaries and (ii) the allocable portion of compensation,
indemnification and other benefits paid to directors, officers and employees of
Parent for services rendered on behalf of GST and its subsidiaries.
SECTION 4. ASSIGNMENT. This Agreement or any rights hereunder may not
be assigned or otherwise transferred by any party and shall not inure to the
benefit of any trustee in bankruptcy, receiver or other successor of any party,
whether by operation of law or otherwise, without the prior written consent of
the parties hereto and the Trustee (the "Trustee") under the Indenture, dated as
of October 5, 1995, by and between GSTOC, GST and Shawmut Bank Connecticut,
National Association (the "Indenture"), and any assignment or transfer without
such consents shall be null and void.
SECTION 5. NO THIRD-PARTY BENEFICIARIES/LIABILITY. This Agreement is
for the sole benefit of the parties hereto and nothing herein expressed or
implied shall give or be construed to give to any person, other than the parties
hereto, any legal or equitable rights hereunder. Absent bad faith or willful
misconduct by the Service Providers, the Service Providers shall not be liable
to any Recipient on account of the Services or any act or omission to act
relating thereto.
SECTION 6. MODIFICATION. This Agreement (a) sets forth the entire
understanding and agreement of the parties with respect to the subject matter
hereof; and (b) supersedes all prior and contemporaneous understandings,
conditions and agreements, oral or written, express or implied, respecting the
engagement of the Service Providers in connection with the subject matter
hereof. This Agreement may not be modified or amended without the prior written
consent of the parties hereto and, in the case of Section 3 hereof or any other
provisions dealing with the payment of fees or reimbursement of expenses, the
Trustee. The Trustee shall not be required to enter into any such amendment or
modification unless the Trustee is satisfied that such amendment or modification
does not adversely affect the holders of the Notes (as such term is defined in
the Indenture).
SECTION 7. NOTICES. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent prepaid telex, cable or telecopy, or sent, postage prepaid, by
registered, certified or express mail, or reputable overnight courier service
and shall be deemed given when so delivered by hand, telexed, cabled or
telecopied, or if mailed, three days after mailing (one business day in the case
of express mail or overnight courier service), to the Recipients at the
addresses indicated in such Recipient's corporate records and to the Service
Providers as follows:
4
<PAGE> 5
(i) if to Parent,
GS Industries, Inc.
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, MA 02116
Attention: Paul B. Edgerley
Robert C. Gay
GS Industries, Inc.
1901 Roxborough Road, Suite 200
Charlotte, NC 28211
Attention: Roger R. Regelbrugge
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Karl E. Lutz, P.C.
James L. Learner, Esq.
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, NC 28244
Attention: Fred C. Thompson, Jr., Esq.
(ii) if to GST,
GS Technologies Corporation
1901 Roxborough Road, Suite 200
Charlotte, NC 28211
Attention: Roger R. Regelbrugge
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Karl E. Lutz, P.C.
James L. Learner, Esq.
5
<PAGE> 6
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, NC 28244
Attention: Fred C. Thompson, Jr., Esq.
(iii) if to the Trustee,
Shawmut Bank Connecticut, National Association
777 Main Street
Hartford, CT 06115
Attention: Robert Reynolds
SECTION 8. INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to each of the other parties.
SECTION 10. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, all other provisions of this Agreement
shall nevertheless remain in full force and effect, but if the economic or legal
substance of the transactions contemplated hereby is affected in a manner
materially adverse to any party as a result of the determination that a
provision is invalid, illegal or unenforceable, the parties hereto agree to
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transaction contemplated hereby are fulfilled to the closest extent
possible.
SECTION 11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
SECTION 12. WAIVERS. Any waiver by any party of a breach of any
provision of this Agreement, or the failure of a party to insist upon strict
adherence to that term or any other term of this Agreement, shall not operate as
or be construed to be a waiver of any other breach of such provision or of any
breach of any other provision of this Agreement. Any waiver must be in writing.
IN WITNESS WHEREOF, the parties have caused this Amended and Restated
Agreement to be duly executed as of the date first above written.
6
<PAGE> 7
GS INDUSTRIES, INC.
By:______________________________________
Title:___________________________________
GS TECHNOLOGIES CORPORATION
By:______________________________________
Title:___________________________________
GS TECHNOLOGIES OPERATING CO., INC.
By:______________________________________
Title:___________________________________
ME INTERNATIONAL, INC.
By:______________________________________
Title:___________________________________
ME-WEST CASTINGS, INC.
By:______________________________________
Title:___________________________________
MINERAL REAGENTS INTERNATIONAL
INC.
By:______________________________________
Title:___________________________________
7
<PAGE> 8
CI (U.S.) CORP.
By:______________________________________
Title:___________________________________
GEORGETOWN INDUSTRIES, INC.
By:______________________________________
Title:___________________________________
GEORGETOWN INVESTMENT
CORPORATION
By:______________________________________
Title:___________________________________
GEORGETOWN FINANCE CORPORATION
By:______________________________________
Title:___________________________________
GEORGETOWN STEEL CORPORATION
By:______________________________________
Title:___________________________________
GEORGETOWN WIRE COMPANY, INC.
By:______________________________________
Title:___________________________________
FLORIDA WIRE AND CABLE, INC.
By:______________________________________
Title:___________________________________
8
<PAGE> 9
TREE ISLAND INDUSTRIES, LTD.
By:______________________________________
Title:___________________________________
K-LATH CORPORATION, INC.
By:______________________________________
Title:___________________________________
General Electric Capital Corporation, as Agent under the Loan Agreement
dated October 5, 1995 (the "Loan Agreement") among GSTOC, CII, MRI, GII, GIC,
GFC, GSC, FWC, GWC, K-Lath and the Lenders named therein, does hereby give its
consent to this Amended and Restated Management Services Agreement, as required
by Section 7.16(b) of the Loan Agreement.
GENERAL ELECTRIC CAPITAL
CORPORATION
By:______________________________________
Title:___________________________________
9
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES* OF THE COMPANY
<TABLE>
<CAPTION>
Name of Corporation Jurisdiction of Incorporation
- ------------------- -----------------------------
<S> <C>
UNITED STATES SUBSIDIARIES
CI (U.S.) Corp. Utah
Florida Wire and Cable, Inc. Delaware
Georgetown Steel Corporation Delaware
Georgetown Wire Company, Inc. Delaware
GS Technologies Operating Co., Inc. Delaware
K-Lath Corporation, Inc. (inactive) California
ME - West Castings, Inc. Arizona
ME International, Inc. Michigan
UNITED STATES JOINT VENTURE
American Iron Reduction LLC (50%) Louisiana
FOREIGN SUBSIDIARIES
Acerco S.A. Peru
Aceros del Sur S.A. (68% directly owned by the company, and
8% directly owned by the Company's wholly-
owned subsidiary, Acerco S.A.) Peru
GS Technologies Europa GmbH Germany
GST Europa AB Sweden
GST Europa S.p.A. Italy
GST Europe Ltd. United Kingdom
GST Europe S.A. Belgium
Inversiones en Molienda S.A. Chile
MolyCop Chile S.A. Chile
MolyCop Steel, Inc. Canada
Tree Island Industries Ltd. Canada
FOREIGN JOINT VENTURES
CISA (51%) France
Donhad Pty. Ltd. (40%) Western Australia
Empresa Siderurgica del Peru S.A. (96.46% owned by Sidercorp S.A.) Peru
GST Philippines, Inc. (37.5%) Philippines
Sidercorp S.A. (33.3%) Peru
SIMEC MolyCop S.A. de C.V. (49%) Mexico
MolyCop Canada (50%) Canada
GSI Lucchini S.p.A. (49%) Italy
</TABLE>
- -----------------------------------------
- Subsidiaries are wholly-owned unless otherwise noted.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,957
<SECURITIES> 0
<RECEIVABLES> 126,871<F1>
<ALLOWANCES> 0
<INVENTORY> 157,731
<CURRENT-ASSETS> 308,368
<PP&E> 309,564<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 735,688
<CURRENT-LIABILITIES> 185,847
<BONDS> 368,554
0
0
<COMMON> 1
<OTHER-SE> 112,760
<TOTAL-LIABILITY-AND-EQUITY> 735,688
<SALES> 940,261
<TOTAL-REVENUES> 940,261
<CGS> 809,602
<TOTAL-COSTS> 86,472
<OTHER-EXPENSES> (8,366)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,761
<INCOME-PRETAX> 6,792
<INCOME-TAX> 3,913
<INCOME-CONTINUING> 2,879
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 3,556<F1>
<NET-INCOME> 6,435
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Amounts presented are net
</FN>
</TABLE>
