10-K 1 a2043803z10-k.txt FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OF GOSS HOLDINGS, INC. a Delaware Corporation IRS Employer Identification No. 36-4326281 SEC File Number 333-08421 700 OAKMONT LANE WESTMONT, ILLINOIS 60559-5546 (630) 850-5600 The registrant does not have any securities registered pursuant to Section 12(b) or 12(g) of the Act. 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. The registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. The registrant had 6,919,925 shares of Class A Common Stock and 3,080,075 shares of Class B Common Stock outstanding at March 29, 2001. There is no trading market for either of the registrant's classes of Common Stock. ================================================================================ GOSS HOLDINGS, INC. PART I ITEM 1. BUSINESS Goss Holdings, Inc. ("Holdings") is a corporation whose principal asset consists of an investment in 100 percent of the common stock of Goss Graphic Systems, Inc. ("Systems"). Systems is the leading producer of newspaper and insert printing press systems and also produces commercial printing press systems. Established in Chicago in 1885, the operations of Systems were acquired (the "Acquisition") by GGS Holdings, Inc. on October 15, 1996 through the acquisition of Rockwell Graphic Systems, Inc. from Rockwell International Corporation ("Rockwell"). GGS Holdings, Inc. (a predecessor company of Holdings) was incorporated on April 4, 1996 by Stonington Capital Appreciation 1994 Fund L.P. (the "Fund") for the purpose of participating in the Acquisition. On July 30, 1999, Systems, GGS Holdings, Inc., and Goss Realty LLC, a wholly-owned subsidiary of Systems (collectively, the "Petitioners") filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court for the District of Delaware. The European and Asian subsidiaries of the Petitioners were not included in the Chapter 11 filing. Under the plan of reorganization approved by the Bankruptcy Court in October and November of 1999, Holdings (a new holding company into which GGS Holdings, Inc. was merged) was organized and thereafter issued $112.5 million of 12.25 percent Senior Subordinated Notes Due 2005 as well as shares of its Class A and Class B Common Stock. See note 2 to Goss's financial statements contained in Part II for additional information on Goss's 1999 bankruptcy filing and the plan of reorganization, including information about Holdings' capital structure. On July 25, 2000, the U.S. Bankruptcy Court for the District of Delaware issued a final decree closing the Chapter 11 cases of GGS Holdings, Inc., Systems and Goss Realty L.L.C. Unless stated otherwise, hereinafter the name "Goss" or the "Company" refers to the collective operations of Holdings and its consolidated subsidiaries, including their predecessor companies. In June 1998, the Board of Directors approved a change in the Company's fiscal year-end from September 30 to December 31, effective for the calendar year beginning January 1, 1999. A three-month fiscal transition period from October 1, 1998, to December 31, 1998 preceded the start of the new calendar cycle. PRODUCTS AND SERVICES WEB OFFSET PRESS SYSTEMS All of the printing press systems manufactured by Goss use web offset technology. In "offset" 1 printing, the text and images of a publication are photographically or electronically transferred onto flexible printing plates. The plates are wrapped around "plate cylinders" in a press unit. As a plate cylinder rotates, it is first coated with a water-based solution and then with an oil-based ink. Since the ink is oil-based, it adheres only to the areas on the plate that are not covered with water (I.E., the text or image.) The ink on the plate then is transferred in a mirror-image to a second cylinder, called a "blanket cylinder," which rotates to come into contact with the paper where the ink is transferred again, reversing from a mirror-image back to a normal image. In the "web" printing process, the paper is fed continuously through the press from a large paper roll in a long ribbon that forms a complex web of paper. This contrasts with sheet-fed printing in which individual sheets of paper are fed through the press and printed one-by-one. Web printing is substantially faster than sheet-fed printing, and, for larger print runs, more economical. Printing press systems vary substantially in design and size. Typically, a large newspaper press system consists of multiple press units fed by separate paper rolls with the resulting webs being merged together, folded and cut. For multiple-color printing, the individual press units frequently are arranged into horizontal units or stacked in vertical "towers" several floors high with one unit for each of the basic colors. Press units vary in width and the number of plates contained on the plate cylinders, which facilitate printing in different formats. Commercial presses differ in that the webs run horizontally through the units and frequently there is additional auxiliary equipment, such as dryers and chilling units, designed specifically to meet commercial printing needs such as printing on high-gloss paper. Large newspaper press systems typically range in price from $6 million to $100 million, while commercial press systems typically range between $4 million and $12 million and small newspaper and insert press systems typically range between $1 million and $8 million. In addition to the press units manufactured by Goss, press systems include ancillary equipment such as electronic controls; reel stands which feed, splice and control paper tension; register and cut-off control devices; dampening systems; noise and dust control devices; and ink control devices. Each ancillary device is available from a number of suppliers, and Goss is not dependent upon any one supplier. PRODUCT LINES Goss's products fall into three broad categories: o newspaper press systems for publishers of national, regional and local news; o commercial press systems for printers of brochures and promotional materials, catalogues, magazines, books, financial publications and directories; and 2 o insert press systems for printers of advertising inserts, including Sunday newspaper inserts and direct mail/point-of-purchase inserts. Goss custom designs and engineers each press system to meet the specific printing requirements and physical space limitations of its customers. Goss also provides parts and service support for the equipment that it sells. NEWSPAPER PRESS SYSTEMS Goss's core business, in which it has been engaged for 116 years, is the production of newspaper press systems. Goss produces "large newspaper" press systems, which use 50-inch and wider paper for large national and metropolitan newspapers, and "small newspaper" press systems, which use 36-inch wide paper for smaller regional and local newspapers. All are sold under the "Goss" trade name. Sales of new equipment to large newspaper customers, together with additions and modifications to existing equipment, accounted for approximately 47% of Goss's fiscal 2000 sales. Sales to and additions and modifications for small newspaper customers accounted for approximately 25% of Goss's fiscal 2000 sales. Goss's principal products in this area are its Newsliner(R) and Colorliner(R) press systems (for large newspapers) and Universal(R) and Community(R) press systems (for small newspapers) models. INSERT PRESS SYSTEMS Sales from Goss's insert press business represented approximately 10% of its fiscal 2000 sales. Goss's principal products in this area are its Magnum(R) press systems and C700TM models. These insert press systems also are marketed exclusively under the "Goss" trade name and are sold principally to customers in North America. COMMERCIAL PRESS SYSTEMS Sales from Goss's commercial press business represented approximately 1% of its fiscal 2000 sales. Goss's principal products in this area are its M16TM, G18(R) and G25(R) press systems and special applications of its Universal(R) product line. Until October 15, 1996, Goss sold commercial press systems under the "Baker-Perkins" and "Hantscho" trade names. Goss now is selling them under the "Goss" trade name. AFTERMARKET PARTS AND CUSTOMER SERVICE Goss provides aftermarket parts and customer service in connection with the equipment that it has sold. Sales of aftermarket parts and equipment were approximately 17% of Goss's fiscal 2000 sales. Although some non-consumable parts are manufactured to customer order, as of 3 December 31, 2000 Goss had parts in inventory of approximately $23.9 million. Service and technical support include site preparation and inspection, equipment installation, preventative and corrective maintenance, paper width changes and color capability upgrades. Service and technical support is provided by Goss's staff of approximately 275 field service engineers and additional field service engineers who work for Goss's international agents. PRODUCT DEMAND, MARKETING AND COMPETITION Goss's success is dependent upon the demand for its products in the heavily competitive market in which it operates. DEMAND CHARACTERISTICS Given the significant cost of presses, both industry and Goss's sales can vary substantially depending upon the timing of large press purchases. This phenomenon relates to the long useful life of newspaper presses -- typically twenty-five years -- and the deferability of press replacement. During periods of economic growth, higher advertising expenditures lead to an increase in color and page count demand and the profitability of publishers, thus encouraging demand for printing presses generally to increase. Conversely, during periods of economic recession, demand for press capacity generally decreases. Over the longer term, Goss believes that continued demand for newspaper presses will be driven by a number of factors, including: o ECONOMIC GROWTH OF DEVELOPING COUNTRIES. Strong economic growth typically results in higher personal incomes and increased advertising expenditures. These factors, together with higher literacy rates, newspaper circulation, color content and page counts, drive demand for additional press capacity. o FINANCIAL MARKETS. Press demand can be affected significantly by interest rates and currency fluctuations. In periods of high interest rates or low currency values for a potential purchaser's country, purchases can be deferred. o INNOVATION. Press demand historically has increased in response to press innovations before returning to more normalized levels of demand. A newspaper's ability to enhance quality, add color and increase productivity while reducing paper waste and staffing are important considerations as it evaluates whether and when to add press equipment or replace an old press. Accordingly, the aggregate demand for printing presses as well as the demand for a particular manufacturer's products is driven in part by the development of new products which achieve market acceptance and provide tangible return on investment. o REPLACEMENT. Although press life can be extended through refurbishing, enhancements and proper maintenance, older presses result in declining productivity and quality, relative to that offered by new presses, ultimately 4 requiring that, over time, they be replaced. INSTALLED BASE Goss estimates that over one-half of all daily newspapers worldwide print on Goss presses. Goss is one of only six major global suppliers of web offset newspaper press systems and is the only supplier to have manufacturing, engineering and sales operations in North America, Europe and Asia. Goss's installed base of presses provides it with both service and parts opportunities as well as an advantageous relationship with printers in connection with the sale of new equipment. SALES FORCE Goss maintains a direct sales force of approximately 65 individuals and an extensive network of 46 local agents covering approximately 95 countries. A sale to a prospective customer can take several years from the initial planning phase to the final sale. As a consequence, Goss's sale process requires consistent long-term customer contact and service. INTERNATIONAL OPERATIONS During fiscal year 2000, approximately 54% of Goss's revenue was generated from sales by international operations. International sales and operating profit for prior years and identifiable assets attributable to foreign geographic territories are summarized in note 17 to Goss's 2000 financial statements contained in Part II. BACKLOG As of December 31, 2000, the total contract price of the backlog of customer commitments for presses, related installations, and parts and service, was $452.7 million, an 11% increase in the backlog from December 31, 1999. Approximately 94% of this backlog is scheduled for delivery through December 31, 2001. COMPETITION The global newspaper printing press, insert printing press and commercial printing press industries are heavily competitive in most product categories and geographic regions. While competition is in part based on product features, technological capabilities, quality, reliability and ability to meet the specialized needs of customers, many purchasers utilize a multi-round, price-focused bidding process that can result in a significantly competitive impact on pricing and gross profit margins. Goss's primary competitors for sales of large newspaper press systems are MAN Roland AG and Koenig & Bauer-Albert AG ("KBA") of Germany. Other suppliers are Wifag AG of 5 Switzerland, Mitsubishi Heavy Industries Ltd. and Tokyo Kikai Seisakusho, Ltd. ("TKS") of Japan. Competing major suppliers of small newspaper press systems are MAN Roland and KBA. The major supplier of commercial presses in the U.S. is Heidelberg Web, a subsidiary of Heidelberger Druckmaschinen AG of Germany. Other competitors include MAN Roland and Mitsubishi. Goss's only significant competitor for insert printing press systems is Heidelberg Web. Over the past several years, certain foreign suppliers of large newspaper printing presses have sought to increase their U.S. sales by offering aggressive pricing and terms. As a result of pricing actions by Goss's foreign competitors, on June 30, 1995, Goss filed an anti-dumping duty petition with the U.S. Commerce Department and the International Trade Commission (the "ITC") alleging that competitors from Japan and Germany were selling large newspaper printing presses and components in the U.S. at less than fair value and were materially injuring a U.S. industry. As a result of Goss's petition, the Commerce Department and the ITC initiated anti-dumping investigations, the status of which is described in Item 3 of this Part, Legal Proceedings. On March 7, 2000, Goss filed a federal lawsuit under the Antidumping Act of 1916 against MAN Roland Druckmaschinen AG, Koenig & Bauer AG, Mitsubishi Heavy Industries, Ltd., Tokyo Kikai Seisakusho, Ltd. and their United States subsidiaries. The lawsuit claims unspecified damages as a result of the importation of large newspaper presses into the United States by the defendants and the sale of these presses at prices substantially below those prevailing in foreign markets. On March 12, 2001, the U.S. District Court for the Northern District of Iowa issued an order denying the defendants motions to dismiss the case. While Goss believes it is entitled to receive significant damages in this action, there can be no assurance that it will be successful. SIGNIFICANT SUPPLIERS AND CUSTOMERS Raw materials and ancillary equipment utilized in Goss's press systems are available from a number of suppliers, and Goss is not dependent upon any one supplier. The newspaper, commercial and insert printing businesses are substantially fragmented, and Goss is not dependent upon any one printer, or a related group of printers, for a material portion of its revenue. RESEARCH AND DEVELOPMENT AND INTELLECTUAL PROPERTY Goss has an active research and development program and spent approximately $13.8 million, $12.5 million, $2.3 million, and $17.8 million on research and development in fiscal 2000, fiscal 1999, the transition quarter ended December 31, 1998, and fiscal 1998, respectively. Goss views its continuation of significant research and development activities as critical to its long-term competitiveness. Although patents and trademarks are critical to Goss's competitive role in its industry, no single 6 or related group of patents or trademarks is material to Goss. Goss(R), Newsliner(R), Colorliner(R), Metroliner(R), Universal(R), Community(R), G18(R), G25(R), Magnum(R), SSC Magnum(R), Singlefluid(R), Suburban(R), Colorflow(R), and Urbanite(R) are registered trademarks belonging to Goss. A trademark applications is pending for "Uniliner". EMPLOYEES As of December 31, 2000 Goss's employees consisted of:

Substantially all of Goss's hourly employees are represented by various national, local or trade unions and are covered by collective bargaining agreements. 1 Does not include temporary employees hired from time to time to meet Goss's installation services requirements. 2 Represents employees in Goss's majority-owned China joint venture. OTHER INFORMATION Holdings was incorporated in Delaware on November 3, 1999 and merged with GGS Holdings, Inc. on November 19, 1999. Systems was incorporated in Delaware in 1969 and is the successor to Goss Printing Company, which was formed in 1885, Miehle Printing Press and Manufacturing Company, which was formed in 1890, and the Dexter Company, which was formed in 1880. Goss Printing Company, Miehle and Dexter combined in 1957 and were acquired by Rockwell in 1969. Goss's executive offices are located at 700 Oakmont Lane, Westmont, Illinois 60559-5546. Its telephone number is (630) 850-5600. Goss files reports and other information with the Securities & Exchange Commission pursuant to 7 the Securities Exchange Act of 1934. These materials are available on the SEC's web site at http:\\www.sec.gov. Copies of the materials will be provided upon the request of any security holder addressed to the Secretary of Goss. ITEM 2. PROPERTIES As of December 31, 2000, Goss's principal properties consisted of:

1 Percent utilized as of February 2001 assuming facility is operating one shift only. 2 On February 20, 2001, the Davenport facility in which Goss leases warehouse space was damaged by a fire. Goss leases a small portion of the facility for storage of new press components pending shipment to customers, used equipment under refurbishment, and installation equipment. The extent of the loss is not yet known. However Goss carries insurance for any property damage or business interruption loss that may occur. The Sayama, Japan facility secures a $17.7 million mortgage held by Industrial Bank of Japan and Sanwa Bank, which mortgage matures in 2007, bears interest at 3.25% per annum and is being amortized over 10 years. On December 29, 2000, title to Goss's Westmont, Illinois headquarters facility was transferred to the mortgagee, LaSalle Bank N.A. ("LaSalle"), pursuant to an agreement executed as part of Goss's 1999 Chapter 11 plan of reorganization and Goss was relieved from liability under its outstanding mortgage loan. Goss is currently leasing the Westmont facility pursuant to the agreement. Goss believes that its owned and leased facilities are suitable and adequate for its business needs. 8 For additional information relating to Goss's lease commitments, see note 14 to Goss's financial statements contained in Part II. ITEM 3. LEGAL PROCEEDINGS In the normal course of its business, Goss is subject to various claims and lawsuits. Typically, these matters consist of product liability claims brought by the individuals who operate the equipment sold by Goss, disputes with customers over the performance and completion of equipment installation, and workers' compensation claims by Goss's employees. PRODUCT LIABILITY In the event of injury, the individuals who operate printing press equipment almost universally are limited by workers' compensation laws in the amount that they can recover from their employers. As a consequence, in cases involving a significant injury, the injured operators frequently bring "product liability" claims against the manufacturer of the equipment alleging that the equipment was improperly designed or manufactured, even though the equipment has been operating safely and effectively for many years. Goss maintains insurance with a $250,000 per occurrence self-insured retention for product liability claims made after October 15, 1996. In connection with the Acquisition, Goss assumed product liability claims made prior to October 15, 1996 for which Rockwell had a self-insured retention of $2 million and a $1 million per occurrence deductible. EQUIPMENT PERFORMANCE AND INSTALLATION Printing equipment is complex and expensive, and when disputes arise regarding the performance and completion of installation of equipment, it is not uncommon for those disputes to involve significant amounts. In some instances, those disputes result in litigation. No litigation of this type is currently pending that management believes is likely to be material. ENVIRONMENTAL CONTINGENCIES Goss has received either notices of potential liability or third-party claims under the Federal Comprehensive Environmental Response, Compensation, and Liability Act regarding four off-site disposal facilities or so-called "Superfund Sites." Goss's share of the responsibility for these Superfund Sites generally is minor. Although current law imposes joint and several liability on any party deemed to be responsible at a Superfund Site, management believes that the ultimate resolution of these matters will not be material to Goss. Goss's former facility in Reading, Pennsylvania has been operating a groundwater remediation system under a 1981 Consent Order with the Commonwealth of Pennsylvania as a result of its predecessor's historical waste disposal practices. In connection with the sale of the Reading, Pennsylvania facility in the quarter ended September 30, 2000, Goss entered into a Consent Order and Agreement with the Pennsylvania Department of Environmental Protection ("PADEP") and the 9 buyer of the Reading facility that obligates Goss to complete investigation of, and to the extent necessary, remediation of historical contamination at the site. Once completed, PADEP will execute a release from liability and covenant not to sue Goss and the buyer of the Reading facility for all contaminants identified in the various investigation and remediation reports. Goss believes the remediation at the site is complete and that final investigation and monitoring will be completed by December 2001. Rockwell has agreed to indemnify Goss for expenses attendant to environmental matters existing on October 14, 1996 to the extent of one-half of those expenses in excess of $1 million. GENERAL Goss maintains reserves for accrued liabilities that are its present estimates of the total costs to resolve the contingencies described above. However, it is impossible to determine the outcome of contingencies of these types in advance, and there can be no assurances that a court will not enter a substantial award against Goss for one or more of the contingencies of these types. Management does not believe that the ultimate disposition of any of these matters will have a material adverse effect on Goss's financial position or liquidity, although it is possible that the resolution of these matters could be material to the results of operations in a given period. COMPETITION On July 23, 1996, the U.S. Commerce Department issued final determinations that imports of certain large newspaper printing presses from Japan and Germany had been sold at less than fair value. In August of 1996, the International Trade Commission ("ITC") also determined that such imports from Japan and Germany caused material injury or the threat of material injury to the U.S. industry. Based on these determinations, the U.S. Customs Service was directed to require cash deposits of anti-dumping duties with respect to such imports at rates that range from 30% to 63% AD VALOREM. On appeal, the anti-dumping orders were upheld by the Court of International Trade ("CIT"). The actual duties assessed could be increased or reduced through annual administrative reviews, which are currently underway for certain producers in Japan and Germany. The extent to which anti-dumping duties will benefit Goss's competitive position in the U.S. market, if at all, cannot be projected with assurance. In June of 2000, the U.S. Court of Appeals for the Federal Circuit upheld the determination by the CIT that the ITC properly found that the U.S. printing press industry was threatened with injury by unfairly traded imports from Germany and Japan. The ruling was in response to an appeal filed by the affected German and Japanese producers to the earlier CIT ruling. On May 3, 2000, the German producers of large newspaper printing presses filed an appeal at the U.S. Court of Appeals for the Federal Circuit, challenging the Department of Commerce final determination that established the anti-dumping duties imposed on German imports. On October 12, 2000, the Japanese producer TKS filed a similar appeal regarding the margins imposed on Japanese imports. These margins were earlier upheld by the CIT. A decision on this appeal may occur within the next 12 months. 10 On March 7, 2000, Goss filed a federal lawsuit under the Antidumping Act of 1916 against MAN Roland Druckmaschinen AG, Koenig & Bauer AG, Mitsubishi Heavy Industries, Ltd., Tokyo Kikai Seisakusho, Ltd. and their United States subsidiaries. The lawsuit claims unspecified damages as a result of the importation of large newspaper presses into the United States by the defendants and the sale of these presses at prices substantially below those prevailing in foreign markets. On March 12, 2001, the U.S. District Court for the Northern District of Iowa issued an order denying the defendants motions to dismiss the case. While Goss believes it is entitled to receive significant damages in this action, there can be no assurance that it will be successful. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 10, 2000, consents were requested from the holders of Holdings' common stock for votes on approval of Holdings' Restated Certificate of Incorporation. The Restated Certificate of Incorporation was restated to comply with the Plan of Reorganization approved by the Bankruptcy Court for the District of Delaware on October 19, 1999 and November 2, 1999 and had previously been approved by the Board of Directors of Holdings. The amendment was approved with, for Class A Common Shares, 6,513,750 votes cast in favor and 350,139 votes abstaining and, for Class B Common Shares, 2,007,908 votes cast in favor and 1,128,203 votes abstaining 11 PART II ITEM 5. MARKET FOR GOSS'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Holdings' common stock is held by the Fund, Rockwell, and the holders of Holdings' 12.25% Senior Subordinated Notes Due 2005 (the "Notes") and is not registered on the securities exchanges. Accordingly, there is no market for Holdings' Class A or Class B common stock. The indenture under which the Notes were issued contains restrictions on the ability of Holdings to pay dividends. These restrictions are based upon debt and earnings levels and also prohibit the payment of dividends if Holdings is in default under the indenture. Additionally, the Second Amended and Restated Credit Agreement prohibits the transfer of funds from Systems to Holdings for the purposes of paying dividends. ITEM 6. SELECTED FINANCIAL DATA The following selected historical financial data has been derived from Goss's accounting records for fiscal 1997 forward and from the accounting records of Rockwell Graphic Systems, Inc., as owned and managed by Rockwell International Corporation, for the fiscal year ended 1996. As a result of the Acquisition, including the effects of purchase accounting and the Company's new debt and equity structure, the data presented for 1997 forward may not be comparable to data for years prior to the Acquisition. Readers are urged to consider this data in conjunction with the audited financial statements and related footnotes contained in Item 8 and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7. Data presented for the fiscal year ended September 30, 1997 does not include the fourteen-day "stub" period from October 1, 1996 through October 14, 1996 which preceded Goss's acquisition on October 15, 1996. As a result, comparisons between fiscal 1998 and 1997 involve comparisons of a twelve month period to an eleven and one-half month period. In June 1998, the Board of Directors approved a change in the Company's fiscal year-end from September 30 to December 31, effective for the calendar year beginning January 1, 1999. A three-month fiscal transition period from October 1, 1998, to December 31, 1998 preceded the start of the new calendar cycle. 12

13 (a) The operating loss for the period ended September 30, 1996 includes a $33.4 million charge for a change in accounting estimate with respect to certain product and contract performance accruals relating to years prior to fiscal 1996 and a restructuring charge of $3.9 million associated primarily with severance payments for terminated employees and the closure of certain redundant facilities. The operating profit for the year ended September 30, 1997 includes a charge of $46.7 million relating to the amortization of an inventory step-up resulting from the utilization of the purchase method of accounting as part of the acquisition of Rockwell Graphic Systems. The inventory step-up was fully amortized at September 30, 1997. The operating loss for the year ended September 30, 1998 included charges of $13.8 million related to a realignment of manufacturing operations, $24.5 million of reserves related to loss contracts, $17.1 million to write inventories down to net realizable values and $4.0 million related to development costs for a new insert press and folder. The operating loss for the three months ended December 31, 1998 included a restructuring charge of $7.1 million related to a 5% reduction in workforce and a $29.9 million charge as a result of decisions made to resolve certain customer disputes and to accelerate the disposition of used equipment inventory. The operating loss for the year ended December 31, 1999 was negatively affected by $84.1 million of restructuring charges (see Note 5 to the consolidated financial statements) and $63.8 million of charges relating to inventory write-downs, contract performance issues and cost overruns related to delayed shipments as a result of the Company's Chapter 11 reorganization. (b) EBITDA represents net income plus interest expense, taxes, depreciation and amortization, and other non-cash items. EBITDA is presented because it is a widely accepted financial indicator of a company's ability to incur and service debt. EBITDA should not be considered as an alternative to operating income as determined in accordance with GAAP, as an indicator of Goss's operating performance or as an alternative to net cash provided by (used for) operating activities as determined in accordance with GAAP. In 1996, EBITDA excludes $48.3 million of charges relating to certain product and performance accruals which the company considers to be of a non-recurring nature, of which $33.4 million relates to changes in estimates for product and contract performance issues for sales recorded, or, in the case of contract performance issues, for orders taken, prior to October 1, 1995. For the year ended December 31, 1999, EBITDA excludes $47.8 million of asset impairment charges and the $107.6 million gain on the forgiveness of debt. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Readers are urged to carefully consider the audited financial statements and related notes contained elsewhere in this report as they read the discussion below. RESULTS OF OPERATIONS - FISCAL 2000 AND FISCAL 1999 ORDERS Goss's new orders received in fiscal 2000 were $705.4 million, an increase of $303.4 million over the $402.0 million in new orders received in fiscal 1999. The order increase was attributable to increases in all three geographic sales region segments of the Company and in all product lines other than the commercial line. Goss's backlog of unshipped orders increased to $452.7 million at December 31, 2000 from $409.3 million at December 31, 1999. NET SALES Goss's net sales for fiscal 2000 were $623.4 million, an increase of 2.6% or $15.6 million compared to fiscal 1999. Sales in the Americas increased by $12.0 million to $286.5 million as higher orders resulted in increases in shipments to insert customers and in parts and service sales, which more than offset reduced shipments to large newspaper, small newspaper and commercial 14 customers resulting from lower order backlogs in these product lines entering 2000. Sales in the 1999 period for the Americas were also negatively affected by shipment delays resulting from Goss's inability to access sufficient capital resources to purchase materials and services in the period leading up to its Chapter 11 filing, as well as post-filing delays attributable to the time required to negotiate terms with suppliers. Sales in Europe decreased by $36.6 million to $145.4 million due to a lower backlog of large newspaper orders at the beginning of 2000 and the timing of small newspaper shipments. Sales in Asia increased by $40.2 million to $191.5 million due to increased orders to large newspaper customers. GROSS PROFIT Gross profit for 2000 increased by $109.8 million to $107.3 million and the gross profit margin increased from (0.4)% to 17.2%. Results for 1999 included significant charges totaling $63.8 million substantially all of which were recorded in the Americas. These significant charges consisted of $23.8 million for inventory write-downs related to reduced order volume and $40.0 million for costs to address certain product and contract performance issues arising from management's ongoing assessment of the Americas business unit and from cost over-runs on contracts as a result of delayed shipments attributable to the 1999 Chapter 11 filing. Excluding these significant charges for 1999, gross profit for 2000 increased by $46.0 million and the gross profit margin increased from 10.1% to 17.2%. The change in gross profit and gross profit margin, excluding the significant charges referred to above, is explained in more detail below. Gross profit in the Americas increased by $7.7 million to $35.2 million and the gross profit margin increased from 10.0% to 12.3%. Gross profit in Europe increased by $3.5 million to $31.1 million and the gross profit margin increased from 15.2% to 21.4%. Gross profit in Asia increased by $28.5 million to $53.1 million and the gross profit margin increased from 16.3% to 27.7%. The gross loss from global cost centers decreased by $6.3 million to $12.1 million. The increase in gross profit and gross profit margin for 2000 is due to product cost reductions, an increase in the proportion of sales from higher margin parts and service sales, and the elimination of unrecovered fixed costs due to the closure of the Reading, Pennsylvania facility. OPERATING EXPENSES Operating expenses, which consist primarily of engineering, selling, general and administrative expenses, decreased 13.4% to $85.2 million in fiscal 2000. The 1999 period included provisions for bad debt expense of $4.3 million and a $4.4 million provision for the write-off of trade credits. Excluding these items for 1999, operating expenses in 2000 decreased by 5.0%. This decrease is the result of the 1999 workforce reduction and reduced spending for engineering and administrative expenses. RESTRUCTURING CHARGES Restructuring charges of $84.1 million were recorded for fiscal 1999. These charges consisted of $21.6 million of expenses associated with the Chapter 11 filing, $47.8 million in asset 15 impairment charges relating to the Company's Reading, Pennsylvania manufacturing facility, the Westmont, Illinois headquarters facility, and certain additional production equipment, and $14.7 million for employee severance and other benefits attributable to the closure of the Reading facility and a workforce reduction at the Company's Westmont, Illinois and Preston, England facilities. LEGAL SETTLEMENT The Company recorded income of $20.0 million in fiscal 2000 and $5.0 million in fiscal 1999 as a result of payments received pursuant to a legal settlement. INCOME TAXES The provision for income taxes increased by $8.0 million to $11.8 million in fiscal 2000. The increase in 2000 is due to an increase in the amount of taxable income generated in countries where Goss is in a tax-paying position. EXTRAORDINARY ITEM The 1999 results include an extraordinary gain of $107.6 million that was recorded as a result of the forgiveness and restructuring of debt pursuant to Goss's 1999 Chapter 11 plan of reorganization. Due to the significant net operating loss carry forward in the United States, no tax provision was recorded on this extraordinary gain. 16 RESULTS OF OPERATIONS - CALENDAR 1999 AND CALENDAR 1998 In June 1998, the Board of Directors approved a change in the Company's fiscal year-end from September 30 to December 31, effective for the calendar year beginning January 1, 1999. A three-month fiscal transition period from October 1, 1998, to December 31, 1998, preceded the start of the new calendar cycle. The following Consolidated Statements of Operations and Consolidated Statements of Cash Flows present 1999 results along with unaudited 1998 results restated on a calendar year basis for purposes of the discussion that follows: GOSS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS)

17 GOSS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)

18 NET SALES Goss's net sales for the year ended December 31, 1999 decreased by 20.6% or $157.6 million to $607.8 million compared to the year ended December 31, 1998. Sales decreases in the Americas and Europe of $136.3 and $72.7 million to $274.5 and 182.0 million, respectively, were partially offset by a sales increase in Asia of $51.4 million to $151.3 million. In the Americas, decreased sales to large newspaper, small newspaper, insert, and commercial customers were the result of a lower order backlog as of December 31, 1998 in addition to lower current year orders. The sales decrease in Europe is also attributable to a lower order backlog at December 31, 1998 in addition to lower current year orders from both large and small newspaper customers. In addition, the 1998 period included a large newspaper equipment sale of $35.1 million to one European customer. The sales increase in Asia is attributable to a higher order backlog at December 31, 1998 and higher current year orders resulting in increased sales to both large and small newspaper customers. The reduced 1999 order volume in the Americas and Europe is partly attributable to customer concerns about Goss's financial condition while it was in Chapter 11 proceedings. Sales in the Americas were also negatively affected by shipment delays resulting from Goss's inability to access sufficient capital resources to purchase required materials and services in the period leading up to its Chapter 11 filing, as well as post-filing delays attributable to the time required to negotiate terms with suppliers. GROSS PROFIT Gross profit for the year ended December 31, 1999 decreased $23.2 million to a loss of $2.5 million compared to the year ended December 31, 1998. Results for the year ended December 31, 1999 included significant charges totaling $63.8 million substantially all of which were recorded in the Americas. These significant charges consist of $23.8 million for inventory write-downs related to reduced order volume and $40.0 million for costs to address certain product and contract performance issues arising from management's ongoing assessment of the Americas business unit and from cost over-runs on contracts as a result of delayed shipments attributable to the Chapter 11 filing. Results for the year ended December 31, 1998 included significant charges of $86.3 million, consisting of $9.3 million for manufacturing restructuring, $26.8 million for inventory re-valuations and $50.2 million for loss contract provisions and post-shipment charges on newspaper contracts, substantially all of which were recorded in the Americas. Excluding these significant charges, gross profit in 1999 decreased by $45.7 million and the gross profit margin decreased from 14.0% to 10.1%. The change in gross profit and gross profit margin, excluding the significant charges described above, is explained below. 19 o In the Americas, gross profit decreased by $14.9 million to $27.5 million and the gross profit margin decreased from 10.3% to 10.0%. The decrease in gross profit and gross profit margin is due to the reduced sales volume. o In Europe, gross profit decreased by $12.9 million to $27.6 million and the gross profit margin decreased from 15.9% to 15.2%. These decreases in gross profit and gross profit margin were due to lower sales volume and lower margins on sales to large and small newspaper customers. o In Asia, gross profit increased by $3.8 million to $24.6 million and the gross profit margin decreased from 20.8% to 16.3%. The increase in gross profit is due to increased sales volumes to large and small newspaper customers and the decrease in gross profit margin is due to reduced margins on sales to small newspaper customers. o The gross loss from global cost centers increased by $21.7 million to $18.4 million due to unrecovered fixed costs resulting from unused capacity and lower depreciation expense in 1998. OPERATING EXPENSES Operating expenses, which consist primarily of engineering, selling, general and administrative expenses, decreased by $18.2 million to $93.4 million in 1999 compared to 1998. The 1998 period included provisions for bad debt expense of $9.1 million and $4.3 million of engineering costs associated with the development of a new insert press. The 1999 period included provisions for bad debt expense of $4.3 million, a $4.4 million provision for the write-off of trade credits, and a credit of $5.0 million relating to a legal settlement. Excluding these items, operating expenses decreased by $8.6 million, or 8.8% from the 1998 period. The decrease is attributable to lower spending on development engineering, agent commissions, selling expenses and administrative expenses as a result of lower sales volumes and the 1998 workforce reduction, partly offset by increased depreciation expense attributable to new information systems. RESTRUCTURING CHARGES Restructuring charges of $84.1 million and $7.1 million were recorded for the years ended December 31, 1999 and 1998, respectively. The 1999 charges consisted of $21.6 million of expenses associated with the Chapter 11 filing, $47.8 million in asset impairment charges relating to the Company's Reading, Pennsylvania manufacturing facility, the Westmont, Illinois headquarters facility, and certain additional production equipment, and $14.7 million for employee severance and other benefits attributable to the closure of the Reading facility and a workforce reduction at the Company's Westmont, Illinois and Preston, England facilities. The 1998 charge was related to the five percent reduction in the Company's workforce which was initiated in the quarter ended December 31, 1998. 20 On November 19, 1999, Goss announced that it would transfer the assembly operations of its U.S.-based single width press lines from its Reading, Pennsylvania facility to its Cedar Rapids, Iowa facility, beginning in January 2000. The transfer resulted in the closure of the Reading facility in 2000. As a result of this decision, approximately 160 employees were terminated from employment. Charges of $40.4 million for asset impairment, including $35.3 million of goodwill, and $2.0 million for other costs (primarily severance costs) were recorded in 1999 for this action. All of the severance costs were paid in 2000. On December 21, 1999, Goss announced a workforce reduction at its Preston, England facility. Approximately 180 employees were terminated from employment at this facility. A charge of $12.6 million was recorded in 1999 for severance and pension benefits related to this action. Approximately 80 percent of these costs were paid in 2000 and the balance will be paid in 2001 and 2002. In December of 1999, the Company decided to sell its Westmont, Illinois headquarters facility and relocate to a more appropriately sized facility. As a result of this decision, an asset impairment charge of $6.4 million was recorded in 1999. INTEREST EXPENSE Interest expense decreased by $4.0 million for the year ended December 31, 1999 compared to 1998. The decrease for the year is attributable to the discontinuation of interest expense on the Company's $225 million Senior Subordinated Notes Due 2006 since July 30, 1999 as a result of the Chapter 11 filing. This reduction in expense is slightly offset by additional interest due to increased borrowings at higher rates under the Company's DIP and revolving credit facilities, as well as interest on the Company's new $112.5 million Senior Subordinated Notes Due 2005 since November 19, 1999. INCOME TAXES For the year ended December 31, 1999 the provision for income taxes decreased to $3.8 million from $13.9 million in 1998. The 1998 expense arose from the re-evaluation of the effective income tax rate to be used for the year due to a change in the geographic mix of income. EXTRAORDINARY ITEM As part of the Chapter 11 plan of reorganization, the Noteholders exchanged the Old Notes for the New Notes of Holdings and common stock in Holdings representing an ownership interest of approximately 31 percent. As a result of this transaction an extraordinary gain of $107.6 million was recorded in 1999 for forgiveness and restructuring of debt. Due to the significant net operating loss carry forward in the United States, no tax provision was recorded on this extraordinary gain. 21 FINANCIAL CONDITION CASH FLOW Operating activities for the fiscal year 2000 used $32.3 million of cash compared to the fiscal year 1999 when operating activities used $81.0 million of cash. The decrease in cash used from operations in 2000 is due to the increase in net income for the period, partly offset by higher payments to trade creditors, including the $60.1 million in payments made to pre-petition trade creditors. Commencing on January 26, 2000, May 5, 2000, and August 16, 2000, Goss made payments of approximately $19.8 million, $20.1 million, and $20.2 million, respectively, to its pre-petition trade creditors, representing the three payments required by the Plan of Reorganization as approved by the Bankruptcy Court for the District of Delaware. Cash from investing activities increased to $0.2 million of cash provided in 2000 from $12.4 million of cash used in 1999 due to lower spending on capital projects and proceeds from asset sales. The Company sold its Reading, Pennsylvania facility during the quarter ended September 30, 2000 and received sales proceeds of $4.2 million. Financing activities provided a net $47.9 million in cash in 2000 compared to a net $66.1 million in cash provided in the 1999 period. The 1999 period included collections of $26.4 million of the $35.6 million in accounts receivable that were contributed to Goss's capital by the Fund in January 1999 and a $50.0 million capital contribution made by the Fund pursuant to the Plan of Reorganization. SOURCES OF LIQUIDITY Other than cash flow from operations, Goss's primary source of liquidity is the Goss Graphic Systems, Inc. Second Amended and Restated Credit Agreement, which was originally entered into on November 19, 1999 and was subsequently amended by amendments dated December 3, 1999 (the "First Amendment"), August 30, 2000 (the "Second Amendment"), and March 6, 2001 (the "Third Amendment"). The Credit Agreement as so amended (hereinafter the "Bank Facility") permits borrowings of up to $265 million, consisting of a term loan in the amount of $150 million and a $115 million revolving credit facility. The revolving credit facility permits the making of revolving loans and the issuance of letters of credit in the aggregate amount of $115 million, with the issuance of letters of credit limited to a total of $75 million. The Bank Facility matures on September 30, 2003 and provides for scheduled repayments of the term loan starting in December of 2002, scheduled reductions in the revolving credit commitments starting in September of 2001, and the repayment of the $4.2 million in sale proceeds from the Reading facility by September 30, 2001. For borrowings other than those under the $15.0 million portion of the revolving credit facility resulting from the Second Amendment, the Bank Facility bears interest at the Company's option, at Banker's Trust base rate plus 2.75% through March 31, 2002, 3.00% through September 30, 2002, and 3.75% through September 30, 2003, or the applicable offshore rate (the mean of quotations for applicable currency loans, or reserve-adjusted LIBOR) plus 3.75% through March 31, 2002, 4.00% through September 30, 2002, and 4.75% through September 30, 2003. Borrowings under the $15.0 million portion of the revolving credit facility resulting from 22 the Second Amendment will bear interest at a rate equal to, at the Company's option, the Banker's Trust base rate plus 4.00% or the applicable offshore rate plus 5.00%. As of December 31, 2000, the term loan was fully utilized and borrowings and letters of credit under the Bank Facility, excluding $1.7 million of revolving credit relating to Goss's joint venture in China, totaled $110.1 million. Substantially all of the Company's assets have been pledged as collateral under the Bank Facility, with the exception of the Sayama, Japan facility, which is subject to a mortgage lien. Obligations under the Bank Facility are guaranteed by Holdings and by Systems' domestic subsidiaries. In addition, Systems guarantees all obligations of Goss U.K., Goss France, and Goss Japan under the Bank Facility. Among other restrictions, the Bank Facility contains certain financial covenants, including, but not limited to, a minimum fixed charge coverage test and a minimum Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) test. Borrowings under the revolving credit portion are also limited by a borrowing base test, which limits the amount of borrowings to a certain percentage of the Company's U.S.-based accounts receivable, inventories, equipment and real property. In addition, the Bank Facility contains other customary affirmative and negative covenants relating to (among other things) limitations of dividends, other indebtedness, liens, investments, guarantees, restricted junior payments, mergers and acquisitions, sales of assets, capital expenditures, leases, transactions with affiliates, and conduct of business, with customary exceptions and baskets. The Bank Facility contains customary events of default, including failure to make payments when due, defaults under other agreements or instruments of indebtedness, noncompliance with covenants, breaches of representations and warranties, bankruptcy, judgments in excess of specified amounts, invalidity of guarantees, impairment of security interests in collateral, and certain changes of control. These covenants are described more fully in Section 7.6 of the Bank Facility, a copy of which was filed with the Securities and Exchange Commission as Exhibit 4.2 to Goss's Form 10-K for the year ended December 31, 1999 and is incorporated herein by reference, in the Second Amendment, which was filed as Exhibit 4.2 to Goss's Form 10-Q for the quarter ended September 30, 2000, and in the Third Amendment, which is filed herewith. The financial covenants contained in the Bank Facility must be satisfied at the end of each quarter and are cumulative from the period starting on January 1, 2000 and at December 31, 2000 become rolling twelve month covenants. The financial covenants become more stringent over time. Covenant noncompliance entitles the Lenders to declare a default under the Bank Facility and accelerate payment of outstanding amounts. Goss was in compliance with all financial covenants throughout 2000 and at December 31, 2000. In addition to the Bank Facility, Goss is also party to an indenture dated November 19, 1999 (the "Indenture") between Goss and HSBC Bank USA, as Trustee, under which it issued $112.5 million in subordinated notes (the "Notes"). A copy of the Indenture is included as Exhibit 4.1 to Goss's Form 10-K for the year ended December 31, 1999 and is incorporated herein by reference. The Notes mature in 2005 and have an interest rate of 12.25% per annum. Interest on 23 the Notes for the two-year period ending November 19, 2001 is being paid by issuing additional Notes and interest thereafter will be paid semiannually on May 19th and November 19th in cash. The Notes had an original principal amount of $112.5 million which has increased to $126.7 million at December 31, 2000 due to interest payments made in kind. The Bank Facility prohibits the transfer of funds from Systems to Holdings for the payment of interest on the Notes if Systems is in default under the Bank Facility. Subject to certain conditions and dates, the Notes are, in part, redeemable in whole or in part at the option of Holdings. The payment of principal and interest on the Notes is subordinated to the Senior Debt under the Bank Facility (as defined in the Indenture). The Indenture contains covenants which restrict, among other things, the Company's ability to incur additional debt and pay dividends, and includes cross-default provisions under which an event of default under the Bank Facility would also be considered an event of default under the Indenture. Goss was in compliance with the covenants contained in the Indenture throughout 2000 and at December 31, 2000. On July 25, 2000, the U.S. Bankruptcy Court for the District of Delaware issued a final decree closing the Chapter 11 cases of GGS Holdings, Inc., Systems, and Goss Realty L.L.C. OUTLOOK Goss believes that it has made significant progress in implementing its operational and financial restructuring, resulting in reduced production costs and reduced working capital requirements. Additionally, orders received from customers increased substantially in fiscal 2000 and Goss sees no change in the newspaper industry factors which have been driving investment in color upgrade expansions. However, newsprint prices have recently been increasing and newspaper advertising revenues have also begun growing at slower rates or contracting in North America, both factors which could potentially affect short-term demand for press equipment. Additionally, payment of the $60.1 million in pre-petition trade payables pursuant to the Chapter 11 plan and increased letter of credit utilization have caused Goss to access a substantial portion of its available liquidity. Goss's ability to operate within its available liquidity is heavily dependent upon the level of future orders. While order prospects are strong, there can be no assurance that they will occur at the level necessary to allow Goss to operate within its available liquidity and comply with applicable loan covenants. Goss is a highly leveraged business. As a consequence, it is dependent upon bank credit facilities to provide essential liquidity. Should Goss fail to comply with the terms of its bank credit facility at any time, it would significantly, and negatively, affect Goss's business by, among other things, restricting growth in sales or necessitating Goss's obtaining a replacement credit facility. Goss's ability to obtain a replacement facility would be dependent on the financial markets and its financial condition at that time. 24 FORWARD LOOKING STATEMENTS Certain of the statements contained in this Report, including those under "Outlook," and "Financial Condition," are or may be deemed to be forward-looking. While Goss believes that these statements are accurate, Goss's business is dependent upon general economic conditions, various conditions specific to its industry, and future trends and these factors could cause actual results to differ materially from the forward-looking statements that have been made. In particular: o Newspaper press sales historically have been negatively influenced by increases in the cost of newsprint. o Purchases of printing equipment historically have been dependent upon general economic conditions and, in particular in connection with sales to newspapers, advertising expenditures and page count. As discussed under Item 1 above, press purchases frequently can be deferred, and declines in general economic conditions can negatively impact Goss's sales. o Goss's primary competitors are located in Germany and Japan. Currency markets and long-term interest rates recently have provided its competitors with pricing advantages. To the extent currency rates fluctuate in the future, these pricing advantages may increase, and Goss's sales would decrease. o Selection of equipment frequently is dependent upon the technological features. To the extent that Goss's competition develops new technology that is attractive to purchasers and Goss does not promptly develop comparable technology, Goss will be at a disadvantage and sales are likely to decline. o Frequently industry capacity exceeds market demand resulting in severe price competition. This price competition can hurt both sales and gross profit margins. o Goss is a leveraged business. As a consequence, its profitability is sensitive to increases in interest rates, and the negative impact of any decrease in operating results is likely to be more significant than it would be if Goss was less leveraged. In addition, since Goss is dependent on its bank credit facility for liquidity, any inability to fulfill its commitments under the facility or a replacement facility -- whether as a result of the failure to satisfy financial covenants or otherwise -- would have a significant negative impact to Goss. 25 o The Company's ability to continue operating as a going concern is largely dependent upon the inflow of new orders for equipment and the Company's ability to implement operational restructuring elements and improve efficiencies. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Goss is exposed to market risk from changes in interest rates and foreign currency exchange rates which may adversely affect its results of operations and financial condition. Goss seeks to minimize these risks through its regular operating and financing activities and, when deemed appropriate, through the limited use of derivative financial instruments. Goss does not use financial instruments for trading or other speculative purposes and is not a party to any leveraged financial instruments. Goss periodically uses foreign currency forward contracts to hedge the exposure to adverse changes in foreign currency exchange rates. Goss's principal currency exposures relate to the British pound, the French franc and the Japanese yen against the U.S. dollar. Goss's exposure to changes in foreign currency exchange rates arise from intercompany loans between subsidiaries, receivables, payables and firm commitments arising from international transactions. Goss attempts to hedge significant exposures with internal natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through derivative financial instruments with third parties using forward contracts. Gains and losses on these transactions are offset by the gain or loss on the underlying transaction. The gains and loses on such contracts in 2000 are not material. At December 31, 2000 Goss had no open forward contracts. Goss periodically uses derivative financial instruments to hedge its exposure to changes in foreign currency exchange rates for the translated U.S. dollar value of net income of certain foreign subsidiaries. Forward contracts used to hedge net income are marked to market and any resulting gains or losses are recognized immediately in net income. No such instruments are outstanding as of December 31, 2000. The effect of a 1% change in the interest rates on Goss's interest rate sensitive financial instruments is approximately $2.3 million per annum. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA In June 1998, the Board of Directors approved a change in the Company's fiscal year-end from September 30 to December 31, effective for the calendar year beginning January 1, 1999. A three-month fiscal transition period from October 1, 1998, to December 31, 1998, preceded the start of the new calendar cycle. 26 INDEPENDENT AUDITORS' REPORT To Goss Holdings, Inc: We have audited the accompanying consolidated balance sheets of Goss Holdings, Inc. (a Delaware Corporation), as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years ended December 31, 2000, December 31, 1999, and September 30, 1998, and the three month period ended December 31, 1998. 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 in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Goss Holdings, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the years ended December 31, 2000, December 31, 1999, and September 30, 1998, and the three month period ended December 31, 1998 in conformity with accounting principles generally accepted in the United States of America. ARTHUR ANDERSEN LLP Chicago, Illinois March 6, 2001 27 GOSS HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (IN MILLIONS)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 28 GOSS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 29 GOSS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 30 GOSS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN MILLIONS)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 31 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999, THE TRANSITION PERIOD ENDED DECEMBER 31, 1998 AND THE YEAR ENDED SEPTEMBER 30, 1998 1. BASIS OF PRESENTATION Goss Holdings, Inc. ("Holdings") is a Delaware corporation incorporated November 3, 1999. The principal asset of Holdings is an investment in 100 percent of the common stock of Goss Graphic Systems, Inc. ("Systems"). Systems is a Delaware corporation incorporated April 9, 1996, by Stonington Partners, Inc. ("Stonington") on behalf of Stonington Capital Appreciation 1994 Fund L.P. (the "Fund") to acquire (the "Acquisition") the operations of the Graphic Systems business unit ("Rockwell Graphic Systems") of Rockwell International Corporation ("Rockwell"). Systems is a manufacturer and supplier of web offset printing press systems for newspaper, commercial, and insert printing. Hereinafter, the name "Goss" or "The Company" refers to the collective operations of Holdings and its consolidated subsidiaries, including their predecessor companies. The Company's world headquarters is located in Westmont, Illinois, and the Company has U.S. manufacturing operations in Cedar Rapids, Iowa, and international operations in the United Kingdom, France, Germany, and Japan. The Company also has a controlling interest in a joint venture in Shanghai, China. 2. CHAPTER 11 FILING AND LIQUIDITY On July 30, 1999, Systems, GGS Holdings, Inc., and Goss Realty LLC, a wholly-owned subsidiary of Systems (collectively, the "Petitioners") filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court for the District of Delaware. The European and Asian subsidiaries of the Petitioners were not included in the Chapter 11 filing. The Petitioners, certain of its lenders under the pre-petition bank credit facility (the "Lenders") and holders (the "Noteholders") of at least two-thirds of Systems' $225 million 12% Senior Subordinated Notes Due 2006 (the "Old Notes") entered into a Forbearance, Lock-up and Voting Agreement dated as of July 28, 1999. Pursuant to that agreement, the Lenders and the Noteholders who were party to the agreement agreed to forbear from exercising their rights and remedies under the credit facility and the indenture relating to the Old Notes until the filing of the Chapter 11 case, and agreed to vote their claims in favor of a plan of reorganization. At hearings held on October 19, 1999 and November 2, 1999, the Petitioners received formal court confirmation of the plan of reorganization, as amended, (the "Plan"). According to the Plan, the Petitioners were required to pay all claims owed to unsecured trade creditors in three 32 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) equal installments of approximately $20.0 million each at dates that are three, six, and nine months after November 19, 1999, the effective date of the Plan (the "Effective Date"). All of the required payments to unsecured trade creditors were made in 2000. Pursuant to the Plan, on the Effective Date, the Noteholders exchanged the Old Notes for a new issue of $112.5 million 12.25% Senior Subordinated Notes Due 2005 (the "New Notes") of Holdings (the new holding company into which GGS Holdings, Inc. was merged on the Effective Date) and shares of Class B common stock in Holdings representing an ownership interest of approximately 31 percent. Interest on the New Notes for the two-year period ending November 19, 2001 is being paid by issuing additional New Notes and interest thereafter will be paid in cash with the first cash interest payment due May 19, 2002. Also pursuant to the Plan, on the Effective Date, the Fund made a $50 million cash investment in Holdings and received shares of Class A common shares representing an ownership interest of approximately 65 percent in exchange therefor, and Rockwell received a distribution of Class A common stock shares representing an ownership interest of 3.5 percent in satisfaction of its preferred stock equity claim against GGS Holdings, Inc. All common and preferred equity interests, including all options to acquire such interests, in GGS Holdings, Inc. at the date of the Chapter 11 filing were cancelled pursuant to the Plan. Additionally, on the Effective Date, and also pursuant to the Plan, Systems and the Lenders entered into the Second Amended and Restated Credit Agreement. The new credit agreement, which amends and restates the $200 million pre-petition revolving credit facility, permits borrowings of up to $250 million, including a term loan in the amount of $150 million, revolving borrowings of up to $100 million, and up to $75 million in letters of credit. The new credit agreement also contains certain financial and non-financial covenants and limitations on the operations and borrowings of Systems and its subsidiaries and provides for scheduled repayments beginning in December of 2002. On July 25, 2000, the U.S. Bankruptcy Court for the District of Delaware issued a final decree closing the Chapter 11 cases of GGS Holdings, Inc. Systems and Goss Realty L.L.C. Management has taken additional actions in the fiscal years 2000 and 1999 to increase profitability, including additional workforce reductions, the closure and sale of the Reading, Pennsylvania manufacturing facility, and the disposal of its Westmont, Illinois headquarters facility. Additional profitability and cash flow improvement initiatives were instituted at the beginning of 2000, including changes in the manufacturing and product development processes. While the Company's management believes that these actions, in conjunction with the additional sources of liquidity arising from the Plan, will result in increased profitability and the ability to operate within the available sources of liquidity, there can be no assurances that they will be successful. 33 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The Company's consolidated financial statements include the accounts of its domestic and foreign subsidiaries and its majority-owned joint venture. All inter-company transactions are eliminated. REVENUE RECOGNITION The Company recognizes revenue on press system contracts under the percentage of completion method of accounting using the units of delivery method in accordance with the American Institute of Certified Public Accountants ("AICPA") Statement of Position No. 81-1 ("SOP 81-1"). Under this method, press units are considered delivered when title passes to the customer in accordance with the contract terms, which may precede actual delivery to the customer. The sales value of presses awaiting delivery amounted to $29.5 million at December 31, 2000, $28.3 million at December 31, 1999, $89.0 at December 31, 1998, and $113.4 million at September 30, 1998. When a current contract estimate indicates a loss, provision is made for the total estimated loss. Revenues on installation contracts are recognized using the completed-contract method except for certain installation contracts, generally in amounts over $1.0 million, for which the percentage-of-completion, cost-to-cost method is utilized. Revenues on aftermarket parts sales are recognized upon shipment. CASH AND CASH EQUIVALENTS Cash and cash equivalents are comprised of cash and short-term investments having maturities of three months or less at the time of purchase. INVENTORIES Inventories are stated at the lower of cost or market. Inventory cost is determined on a first-in, first-out (FIFO) method and includes material, labor, and manufacturing overhead. Reserves are provided for excess and obsolete inventory on a location-by-location basis based on an analysis of historical usage and management's estimate of future inventory requirements. Such reserves are based on the carrying cost of the related inventory. Inventories are classified as a current asset and include certain amounts not expected to be realized within one year. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the asset (generally three 34 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) to thirteen years for machinery and equipment and up to fifty years for buildings). Leasehold improvements are amortized over the shorter of the useful life of the asset or the remaining lease term. Presses which are maintained as test development units on a long-term basis are included in property and equipment and depreciated over their estimated useful lives (generally five to twelve years). Significant renewals and betterments are capitalized, and replaced units are written off. Maintenance and repairs, as well as renewals of minor amounts, are charged to expense. PRODUCT WARRANTY Product warranty costs include all costs associated with repairs through the end of the expressed warranty period. These costs are accrued considering historical warranty cost experience and a periodic assessment of expected warranty costs associated with each sale. Unreimbursed costs to repair equipment after the warranty period are incurred solely at the discretion of management and are expensed as incurred. WORKERS' COMPENSATION AND PRODUCT AND GENERAL LIABILITY COSTS The financial statements include estimated costs, including costs not reimbursable under insurance contracts, of settling workers' compensation and product and general liability claims. These estimates are determined from historical claims incurred experience, using actuarial computations of the estimated ultimate settlement cost of such claims, including claims incurred but not yet reported. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. For the twelve month periods ended December 31, 2000 and 1999, respectively, these costs totaled $13.8 million and $12.5 million. For the three month period ended December 31, 1998 and the twelve month period ended September 30, 1998, these costs totaled $2.3 million and $17.8 million, respectively. GOODWILL Goodwill represents the excess of the cost of purchased businesses over the fair value of their net assets at October 14, 1996. Goodwill is being amortized over 40 years using the straight-line method. Accumulated amortization of goodwill totaled $30.5 million and $23.9 million at December 31, 2000 and 1999, respectively. LONG-LIVED ASSETS The Company continuously evaluates whether events and circumstances have occurred which indicate that the remaining estimated useful lives of its intangibles and other long-lived assets may 35 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) warrant revision or that the remaining balance of such assets may not be recoverable. The Company uses an estimate of the related undiscounted cash flows or, in the case of goodwill, undiscounted operating earnings, over the remaining life of the asset in measuring whether or not the asset is recoverable. COMPREHENSIVE INCOME In 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income, minimum pension liability adjustments, and currency translation adjustments and is presented in the Consolidated Statements of Shareholders' Equity. The adoption of SFAS No. 130 had no effect on total shareholders' equity. INCOME TAXES Income taxes are accounted for using the liability method in accordance with SFAS No. 109, whereby deferred income taxes reflect the net effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Based on the weight of both negative and positive evidence, if it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation reserve is established. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSLATION The functional currency for the European and Asian subsidiaries is the applicable local currency. The translation from the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate prevailing during the period. The gains and losses resulting from such translations are included in stockholders' equity. 36 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FISCAL YEAR CHANGE In June 1998, the Board of Directors approved a change in the Company's fiscal year-end from September 30 to December 31, effective for the calendar year beginning January 1, 1999. A three-month fiscal transition period from October 1, 1998, to December 31, 1998, preceded the start of the 1999 calendar cycle. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 30, 2000. SFAS No. 133 requires that all derivatives be recorded on the balance sheet at their fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Goss has adopted SFAS No. 133 on January 1, 2001 and believes that its adoption will not have a significant effect on its results of operations or its financial position. In 2000, the Emerging Issues Task Force ("EITF") of the FASB issued EITF 00-10, "Accounting for Shipping and Handling Revenues and Costs." This rule became effective in the fourth quarter of 2000 and requires all shipping and handling revenues to be included in net sales and all related costs to be included in cost of sales. Goss adopted EITF 00-10 in 2000. The adoption of EITF 00-10 did not have a significant effect on the Company's results of operations. RECLASSIFICATIONS Certain reclassifications have been made to the 1999 financial statements to conform to the classifications used in 2000. 4. FINANCIAL INSTRUMENTS Goss enters into various financial instruments in the normal course of business. Goss does not hold or issue financial instruments for trading or speculative purposes. Periodically, Goss analyzes its derivative positions to assess the current and projected status of these agreements. FOREIGN EXCHANGE CONTRACTS Goss periodically enters into forward exchange contracts to manage foreign exchange exposure related to transactions, assets and liabilities that are subject to risk from foreign currency rate fluctuations. These include product cost, revenues and expenses, associated receivables and payables, inter-company obligations and receivables, and other related cash flows. 37 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 2000, Goss did not have any contractual obligations under foreign exchange contracts. CREDIT AND RISK Goss enters into financial instruments with banks with which Goss has continuing business relationships and regularly monitors the credit ratings of its counter parties. Goss sells its products to a world wide customer base and extends credit to its customers based upon ongoing credit evaluations and security is obtained if required. Concentrations of credit risk with respect to trade receivables are limited due to Goss's large customer base; however, periodic concentrations can occur due to the cyclical nature of Goss's business. FAIR VALUE SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," and SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," require disclosure of the fair value of financial instruments. The following methods and assumptions were used by the Company in estimating its fair value disclosures for such financial instruments as defined by the Statements. Cash and short-term investments: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Revolving credit facility: The carrying amount reported in the balance sheet for the revolving credit facility approximates its fair value. Senior subordinated notes: The fair value at December 31, 2000 is based on the trading prices of notes of companies with similar credit ratings to that of the Company. The estimated fair value at December 31, 1999 is the carrying amount at that date as these notes were valued at their fair value as of the Effective Date of the Plan of Reorganization pursuant to which they were issued. Term loan: The estimated fair value of the term loan at December 31, 2000, which was based on LIBOR, is equal to its carrying value. Mortgage loans: The estimated fair value of the mortgage loan on the Sayama, Japan property is based on prevailing interest rates and credit spreads. Foreign currency contracts: The Company enters into foreign currency forward exchange contracts to protect against adverse currency rate fluctuations. There were no foreign currency contracts outstanding at December 31, 2000 or December 31, 1999. Letters of credit: The fair value of letters of credit is estimated to approximate their contractual amounts. 38 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The carrying value and estimated fair value of the Company's financial instruments are as follows (in millions):

5. RESTRUCTURING CHARGES Restructuring charges are comprised of items of income, expense and loss that were realized or incurred by the Company in fiscal 1999 as a result of its 1999 reorganization under Chapter 11 of the Bankruptcy Code, as well as plant restructuring and workforce reduction costs. Such items consisted of the following (in millions): Workforce reduction costs $14.7 Asset impairment charges 47.8 Chapter 11 costs 21.6 ----- Total restructuring charges $84.1 =====

In the fiscal quarter ended December 31, 1999, the Company recorded a charge of $14.7 million related to a reduction of approximately 315 employees of its U.S. and European workforce. Approximately $12.1 million of these costs were paid in 2000. The balance of $2.6 million consists primarily of pension contributions which are being paid in installments through April of 2002. The non-cash impairment charges in 1999 consisted of $40.4 million relating to the Company's Reading, Pennsylvania facility, including the write-off of $35.3 million of goodwill, $6.4 million related to the Company's Westmont, Illinois headquarters facility, and $1.0 million relating to certain manufacturing equipment. 39 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. ACCOUNTS RECEIVABLE Accounts receivable are summarized as follows (in millions):

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

As of December 31, 2000, accounts receivable and contract costs included $28.1 million of retainage held by customers pending final acceptance of equipment. This balance was $33.1 million at December 31, 1999. Unbilled receivables consist principally of revenues recognized on press system contracts where title to press units has passed to the customer in accordance with the terms of the contract, which is prior to the occurrence of the contractual billing terms. Unbilled receivables are invoiced in accordance with the terms of contract provisions and do not include any amounts subject to uncertainty as to their realization. Substantially all amounts are expected to be billed and collected within one year. 40 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INVENTORIES AND CONTRACT COSTS Net inventories are summarized as follows (in millions):

Contract costs and billings on uncompleted contracts are as follows:

8. PROPERTY AND EQUIPMENT Property and equipment are summarized below (in millions):

41 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Goss has classified on its balance sheet at December 31, 1999 $24.6 million of assets held for sale, consisting of the Reading, Pennsylvania facility, the Westmont, Illinois facility and certain manufacturing equipment. These assets have a net book value at December 31, 1999 of $24.6 million, after taking into account impairment charges of $12.5 million which were recorded in 1999 in order to record the assets at estimates of net realizable value. Net realizable values for the assets held for sale was based on estimates of market value, less estimated costs of disposition. Substantially all of these assets were disposed of during 2000. The impairment charges are recorded in the "Restructuring charge" line on the Consolidated Statement of Operations. 9. OTHER CURRENT LIABILITIES Other current liabilities are summarized below (in millions):

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

42 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Maturities of long-term debt for the next five years are as follows: 2001, $5.8 million; 2002, $10.1 million; 2003, $147.4 million; 2004, $2.6 million and $126.6 million thereafter. Other than cash flow from operations, Goss's primary source of liquidity is the Goss Graphic Systems, Inc. Second Amended and Restated Credit Agreement, which was originally entered into on November 19, 1999 and was subsequently amended by amendments dated December 3, 1999 (the "First Amendment"), August 30, 2000 (the "Second Amendment"), and March 6, 2001 (the "Third Amendment"). The Credit Agreement, as so amended (hereinafter the "Bank Facility") permits borrowings of up to $265 million, consisting of a term loan in the amount of $150 million and a $115 million revolving credit facility. The revolving credit facility permits the making of revolving loans and the issuance of letters of credit in the aggregate amount of $115 million, with the issuance of letters of credit limited to a total of $75 million. The Bank Facility matures on September 30, 2003 and provides for scheduled repayments of the term loan starting in December of 2002, scheduled reductions in the revolving credit commitments starting in September of 2001, and the repayment of the $4.2 million in sale proceeds from the Reading facility by September 30, 2001. For borrowings other than those under the $15.0 million portion of the revolving credit facility resulting from the Second Amendment, the Bank Facility bears interest, at the Company's option, at Banker's Trust base rate plus 2.75% through March 31, 2002, 3.00% through September 30, 2002, and 3.75% through September 30, 2003, or the applicable offshore rate (the mean of quotations for applicable currency loans, or reserve-adjusted LIBOR) plus 3.75% through March 31, 2002, 4.00% through September 30, 2002, and 4.75% through September 30, 2003. Borrowings under the $15.0 million portion of the revolving credit facility resulting from the Second Amendment will bear interest at a rate equal to, at the Company's option, the Banker's Trust base rate plus 4.00% or the applicable offshore rate plus 5.00%. The Company's average interest rate was 8.76%, 9.14%, and 10.28% for the periods ended December 31, 1998, December 31, 1999, and December 31, 2000, respectively, on borrowings under the Bank Facility. The maximum amount borrowed under the Bank Facility, excluding letters of credit, was $176.7 million, $235.3 million, and $232.8 million, and the average amount borrowed respectively was $174.6 million, $190.5 million, and $205.3 million, respectively, for the periods ended December 31, 1998, December 31, 1999, and December 31, 2000. As of December 31, 2000, the term loan was fully utilized and borrowings and letters of credit under the Bank Facility, excluding $1.7 million of revolving credit relating to Goss's joint venture in China, totaled $110.1 million. Substantially all of the Company's assets have been pledged as collateral under the Bank Facility, with the exception of the Sayama, Japan facility, which is subject to a mortgage lien. Obligations under the Bank Facility are guaranteed by Holdings and by Systems' domestic subsidiaries. In addition, Systems guarantees all obligations of Goss U.K., Goss France, and Goss Japan under the Bank Facility. 43 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Among other restrictions, the Bank Facility contains certain financial covenants, including, but not limited to, a minimum fixed charge coverage test and a minimum Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) test. Borrowings under the revolving credit portion are also limited by a borrowing base test, which limits the amount of borrowing to a certain percentage of the Company's U.S.-based accounts receivable, inventories, equipment and real property. In addition, the Bank Facility contains other customary affirmative and negative covenants relating to (among other things) limitations of dividends, other indebtedness, liens, investments, guarantees, restricted junior payments, mergers and acquisitions, sales of assets, capital expenditures, leases, transactions with affiliates, and conduct of business, with customary exceptions and baskets. The Bank Facility contains customary events of default, including failure to make payments when due, defaults under other agreements or instruments of indebtedness, noncompliance with covenants, breaches of representations and warranties, bankruptcy, judgments in excess of specified amounts, invalidity of guarantees, impairment of security interests in collateral, and certain changes of control. The financial covenants contained in the Bank Facility must be satisfied at the end of each quarter and are cumulative from the period starting on January 1, 2000 and at December 31, 2000 become rolling twelve month covenants. The financial covenants become more stringent over time. Covenant noncompliance entitles the Lenders to declare a default under the Bank Facility and accelerate payment of outstanding amounts. Goss was in compliance with all financial covenants throughout 2000 and at December 31, 2000. In addition to the Bank Facility, Goss is also party to an indenture dated November 19, 1999 (the "Indenture") between Goss and HSBC Bank USA, as Trustee under which it issued $112.5 million in subordinated notes (the "Notes"). The Notes mature in 2005 and have an interest rate of 12.25% per annum. Interest on the Notes for the two-year period ending November 19, 2001 is being paid by issuing additional Notes and interest thereafter will be paid semiannually on May 19th and November 19th in cash. The Notes had an original principal amount of $112.5 million which has increased to $126.7 million at December 31, 2000 due to interest payments made in kind. The Bank Facility prohibits the transfer of funds from Systems to Holdings for the payment of interest on the Notes if Systems is in default under the Bank Facility. Subject to certain conditions and dates, the Notes are, in part, redeemable in whole or in part at the option of Holdings. The payment of principal and interest on the Notes is subordinated to the Senior Debt under the Bank Facility (as defined in the Indenture). The Indenture contains covenants which restrict, among other things, the Company's ability to incur additional debt and pay dividends, and includes cross-default provisions under which an event of default under the Bank Facility would also be considered an event of default under the Indenture. Goss was in compliance with the covenants contained in the Indenture throughout 2000 and at December 31, 2000. 44 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. INCOME TAXES The components of the provision (benefit) for income taxes are as follows (in millions):

45 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of the statutory U.S. Federal income tax rate to the effective income tax rate is as follows:

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

The company expects to have net operating loss carryforwards of approximately $283.5 million in the U.S. and $58.2 million in the United Kingdom as of December 31, 2000. $55.7 million of the U.S. loss will expire after December 2011, $70.9 million will expire after December 2012, $54.6 million will expire after December 2013, $26.0 million will expire after December 2014, and $76.3 million will expire after December 2015. The United Kingdom loss can be carried forward indefinitely. Based upon the difficulty in predicting the amount of future taxable income by jurisdiction in the U.S. and the United Kingdom, management has decided to establish a valuation allowance to offset fully any deferred tax asset otherwise attributable to the existence of these losses. 46 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income tax assets/(liabilities) arise principally from the following (in millions):

12. PENSION PLANS The Company has pension plans covering certain of its employees in the United States, the United Kingdom, Germany, and Japan. The following represents the obligations and plan assets at fair value for the Company's pension plans (in millions):

47 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The funded status of the pension plans reconcile with amounts on the consolidated balance sheets as follows (in millions):

Amounts recognized in the consolidated balance sheets consist of (in millions):

48 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net periodic pension cost for the Company's plans included in the accompanying statements of operations consist of the following (in millions):

In addition, a curtailment gain of $0.4 million was recognized in the period ending December 31, 1999 due to the closure of the Reading facility. The above pension amounts were determined using an October 31 measurement date for the years and three month period ended December 31, 2000, 1999 and 1998, and a June 30 measurement date for the year ended September 30, 1998. The following assumptions were also used:

The Company sponsors defined contribution plans covering its U.S. salaried employees and certain of its hourly employees. Employer contributions to these plans which were charged to expense totaled $2.3 million and $1.9 million for the years ended December 31, 2000 and 1999, respectively and $0.6 million and $3.4 million for the three months and year ended December 31, 1998 and September 30, 1998, respectively. 13. POST-RETIREMENT MEDICAL PLANS The Company provides retiree medical and life insurance benefits for certain of its hourly U.S. employees. Under SFAS No. 106, retiree benefits are viewed as a type of deferred compensation and are treated as if they are earned over the working life of the employees, and the cost should be fully charged to operations by the earliest date the employee is eligible to retire. The Company funds the benefits of these plans on a cash basis as benefits are incurred. There are no assets that have been segregated and restricted to provide for post-retirement benefits. 49 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following represents the obligations and plan assets at fair value for the Company's post-retirement medical plans (in millions):

The funded status of the post-retirement medical plans reconcile with amounts on the consolidated balance sheets as follows (in millions):

Amounts recognized in the consolidated balance sheets consist of (in millions):

50 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of post-retirement medical expense are as follows (in millions):

In addition, a curtailment gain of $0.4 million was recognized in the period ending December 31, 1999 due to the closure of the Reading facility. The post-retirement medical obligation was comprised of the following (in millions):

The above post-retirement medical amounts were determined using an October 1 measurement date for the year ended December 31, 2000, a December 31 measurement date for the year and three month periods ended December 31, 1999 and 1998, and a June 30 measurement date for the year ended September 30, 1998. The following assumptions were also used:

The health care cost trend rate assumption has a significant effect on the obligation amounts reported. If the assumed health care cost trend rate was increased by one percentage point, this would increase the retirement medical obligation at December 31, 2000 by $2.0 million and the retirement medical expense for 2001 by $0.2 million. A decrease of the health care cost trend rate would decrease the retirement medical obligation at December 31, 2000 by $1.7 million and the retirement medical expense for 2001 by $0.2 million. 51 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. LEASES The Company leases certain operating assets with various renewal options. Consolidated rental expense was $2.0 million, $2.3 million, $0.9 million, and $2.7 million for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998, respectively. At December 31, 2000, the future minimum lease payments under operating and capital leases were as follows (in millions):

15. RELATED PARTY TRANSACTIONS The Company purchases drive systems, press controls, and related products from Allen-Bradley, a subsidiary of Rockwell, the holder of the preferred stock issued by Holdings as part of the Acquisition. As a result of the Chapter 11 reorganization, effective November 19, 1999 this preferred stock was cancelled and shares of Class A common stock of Holdings, representing a 3.5% equity interest, were issued to Rockwell. Purchases from Allen-Bradley totaled $11.3 million in 2000, $11.4 in 1999, $4.6 million for the three months ended December 31, 1998, and $18.6 million in fiscal 1998. The Company also purchased certain services from Rockwell, including data processing, telecommunications, and research pursuant to a services agreement with Rockwell which extended through 1998. Such purchases totaled $3.7 million in fiscal 1998. On November 30, 1998, Goss sold approximately $35.6 million in accounts receivable to BT Commercial Corporation. The collectibility of the receivables was guaranteed by an affiliate of Stonington, a related party. 16. CONTINGENCIES AND COMMITMENTS LEGAL CONTINGENCIES In the normal course of its business, the Company is subject to various claims and lawsuits. Typically, these matters consist of product liability claims brought by the individuals who operate 52 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the equipment that the Company sold, disputes with customers over the performance and completion of installation of equipment, and workers' compensation claims by the Company's own employees. In the event of injury, the individuals who operate printing press equipment almost universally are limited by workers' compensation laws in the amount that they can recover from their employers. As a consequence, in cases involving a significant injury, the injured operators frequently bring "product liability" claims against the manufacturer of the equipment alleging that the equipment was improperly designed or manufactured, even though the equipment has been operating safely and effectively for many years. Goss maintains insurance with a $250,000 per occurrence self-insured retention for product liability claims made after October 15, 1996. In connection with the Acquisition, Goss assumed product liability claims made prior to October 15, 1996 for which Rockwell had a self-insured retention of $2 million and a $1 million per occurrence deductible. Printing equipment is complex and expensive, and when disputes arise regarding the performance and completion of installation of equipment, it is not uncommon for those disputes to involve significant amounts. In some instances, those disputes result in litigation. No litigation of this type is currently pending that management believes is likely to be material. On March 7, 2000, Goss filed a federal lawsuit under the Antidumping Act of 1916 against MAN Roland Druckmaschinen AG, Koenig & Bauer AG, Mitsubishi Heavy Industries, Ltd., Tokyo Kikai Seisakusho, Ltd. and their United States subsidiaries. The lawsuit claims unspecified damages as a result of the importation of large newspaper presses into the United States by the defendants and the sale of these presses at prices substantially below those prevailing in foreign markets. On March 12, 2001, the U.S. District Court for the Northern District of Iowa issued an order denying the defendants motions to dismiss the case. While Goss believes it is entitled to receive significant damages in this action, there can be no assurance that it will be successful. In June of 2000, the U.S. Court of Appeals for the Federal Circuit upheld the determination by the Court of International Trade ("CIT") that the International Trade Commission ("ITC") properly found that the U.S. printing press industry was threatened with injury by unfairly-traded imports from Germany and Japan. The ruling was in response to an appeal filed by the affected German and Japanese producers to the earlier CIT ruling. On May 3, 2000, the German producers of large newspaper printing presses filed an appeal at the U.S. Court of Appeals for the Federal Circuit, challenging the Department of Commerce final determination that established the anti-dumping duties imposed on German imports. On October 12, 2000, the Japanese producer TKS filed a similar appeal regarding the margins imposed on Japanese imports. These margins were earlier upheld by the CIT. A decision on this appeal may occur within the next 12 months. 53 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The disputed claims in these legal proceedings are in some cases in excess of recorded reserves. It is not presently possible to determine the outcome of the claims and lawsuits against the Company. However, the Company maintains as an accrued liability a reserve that is its present estimate of the total cost to resolve all of these matters. Management does not believe that the ultimate disposition of any of these matters will have a material adverse effect on the Company's financial position or liquidity, although it is possible that the resolution of these matters could be material to the results of operations in a given period. ENVIRONMENTAL CONTINGENCIES The Company has received either notices of potential liability or third-party claims under the Federal Comprehensive Environmental Response, Compensation, and Liability Act at four off-site disposal facilities or so-called "Superfund Sites". The Company's share of the responsibility for these Superfund Sites generally is minor. Although current law imposes joint and several liability on any party deemed to be responsible at a Superfund Site, management believes that the ultimate resolution of these matters will not be material to the Company. The Company's former facility in Reading, Pennsylvania has been operating a groundwater remediation system under a 1981 Consent Order with the Commonwealth of Pennsylvania as a result of its predecessor's historical waste disposal practices. In connection with the sale of the Reading, Pennsylvania facility in the quarter ended September 30, 2000, the Company entered into a Consent Order and Agreement with the Pennsylvania Department of Environmental Protection ("PADEP") and the buyer of the Reading facility that obligates the Company to complete investigation of, and to the extent necessary, remediation of historical contamination at the site. Once completed, PADEP will execute a release from liability and covenant not to sue the Company and the buyer of the Reading facility for all contaminants identified in the various investigation and remediation reports. The Company believes the remediation at the site is complete and that final investigation and monitoring will be completed by December 2001. Rockwell has agreed to indemnify the Company for expenses attendant to existing environmental matters to the extent of one-half of those expenses in excess of $1.0 million. The Company maintains as an accrued liability a reserve that is its present estimate of the total cost to resolve all of these environmental matters. COMMITMENTS The Company in certain instances provides letters of credit to guarantee its performance under certain contracts. Such letters of credit outstanding were $33.4 million as of December 31, 2000, and $15.4 million as of December 31, 1999. The Company intends to perform fully the underlying contracts and does not expect to incur any material liability beyond customary amounts for warranty and similar claims. 54 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 17. SEGMENT REPORTING Information on Goss's reportable operating segments is detailed below. Beginning January 1, 2000, Goss restructured its operations to include three geographic profit center organizations and separate global manufacturing and engineering cost center organizations. The column labeled "Other" includes the manufacturing and engineering organizations, corporate expenses and eliminations of intersegment activity. 1999 and prior years' segment information has been restated to conform to the new organizational structure.

55 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The table below details customer sales for the Company's major foreign operations (in millions):

The table below details long-lived assets for the Company's major foreign operations (in millions):

18. SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes are as follows (in millions):

Other non-cash financing activities included (in millions):

56 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The cancellation of Old Notes and stock, the issuance of New Notes and stock, and the interest on New Notes which was paid in kind are a result of the Company's 1999 reorganization under Chapter 11 of the U.S. Bankruptcy Code. 19. STOCK-BASED COMPENSATION PLANS On February 1, 2000, the Board of Directors of the Company adopted a new management stock incentive plan (the "Incentive Plan") for key employees. The Incentive Plan permits the Company to grant up to 350,000 stock units and options to purchase up to 1,000,000 shares of restricted stock of Holdings. Stock units granted under the Incentive Plan vest according to the terms of the individual agreements. Vested stock units are converted into an equivalent number of shares of Holdings' restricted common stock. Options granted pursuant to the Incentive Plan may consist of incentive options, performance options and discretionary options. Incentive options and discretionary options vest according to the terms of the individual agreements. Performance options vest in specified increments of 25 percent of the award at the end of each fiscal year, commencing with calendar year 2000 and continuing through calendar year 2003, but only if the Company attains certain operating performance objectives. A change in control of the Company results in the immediate vesting of all stock units and options which have not yet vested according to the schedules described above. All option awards expire by no later than ten years from the date of grant and are exercisable upon vesting. On May 18, 2000, the Company made grants of 316,100 stock units, 273,400 incentive options, 273,400 performance options, and 202,600 discretionary options to certain key employees. The stock units each have a fair value of $7.41 at the grant date. 167,600 of the stock units vest 50% on each of April 30, 2000 and April 30, 2001, 137,300 stock units vest according to a fixed schedule of 33 percent on November 19, 2000, 33 percent on November 19, 2001, and 34 percent on November 19, 2002, and 11,200 stock units vest upon the occurrence of specific events as described in the agreements. The incentive options vest according to a fixed schedule of 25 percent on each November 19 during fiscal 2000 through fiscal 2003, and the discretionary options vest 50% on April 30, 2000 and 50% on April 30, 2001. All of the options granted have an exercise price of $7.41 per share, which is the estimated fair value of the stock at the date of grant. In fiscal 1999, all of the options outstanding under the Company's previous stock incentive plan were cancelled pursuant to the Chapter 11 reorganization. 57 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As permitted by SFAS No. 123, the Company accounts for this Plan and the previous stock incentive plan under APB Opinion No. 25, under which no compensation cost has been recognized for stock options. Had compensation cost under this Plan been determined for stock options, the Company's net loss would have been increased to the following pro forma amounts (in millions):

Information with respect to options granted under the Company's stock incentive plan is as follows:

The weighted average remaining contractual life of the options outstanding at December 31, 2000 is 9.4 years. The minimum value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest of 6.56%; expected life of 10 years; and no expected dividend yield or volatility. 58 GOSS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 20. SUBSEQUENT EVENTS On February 20, 2001, a facility in Davenport, Iowa in which the Company leases warehouse space was damaged by a fire. The Company leases a small portion of the facility for storage of new press components pending shipment to customers, used equipment under refurbishment, and installation equipment. The extent of the loss is not yet known. However, the Company carries insurance for any property damage or business interruption loss that may occur. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No disclosure is required pursuant to this Item. 59 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information concerning the directors of Goss Holdings, Inc.:

* Each director is elected for a one-year term. J. JOE ADORJAN is a Partner of Stonington and has been Chairman of Adven Capital Partners, LLC since 1999. He was Chairman, Chief Executive Officer and President of Borg Warner Security Corporation, Chicago, Illinois from 1995 to 1999 and President of Emerson Electric Company from 1992 to 1995. Prior to that, he was Chairman and Chief Executive Officer of ESCO Electronics Corporation. Mr. Adorjan is a Director of The Earthgrains Company and HK Systems. 60 THOMAS R. COCHILL has been the President of Ingenium, LLC, a management consulting firm, since 1998. Prior thereto he served as Chief Executive Officer and President of Webcraft Technologies, a commercial printer, from 1992 to 1998 and as President, Commercial Products Group, of The Lehigh Press, Inc. from 1981 to 1992. Mr. Cochill is also a Director of Axiohm Transaction Solutions, Inc., Harvard Industries, American Rice, Inc. and Golden Books Family Entertainment, Inc. ALFRED C. DAUGHERTY was Chairman of Duracell International Inc., a manufacturer of premium batteries, until his retirement January 1, 1995. Mr. Daugherty was Executive Vice President of Dart Industries Inc., a maker of consumer products and chemical specialties, as well as a Director until his retirement on October 1, 1993. Mr. Daugherty is also a Director of Blue Bird Corporation and A. Duda & Sons, Inc. ROBERT F. END has been a Partner and Director of Stonington Partners Inc. since 1993. He was a Consultant of Merrill Lynch Capital Partners, Inc. ("MLCP"), a private investment firm associated with Merrill Lynch & Co. from 1994 through December 31, 2000; a Director of MLCP since 1993; a Partner of MLCP from 1993 to 1994; and Vice President of MLCP from 1989 to 1993. Mr. End was also a Managing Director of the Investment Banking Division of Merrill Lynch & Co. from 1993 to July 1994 and a Director of the Investment Banking Division of Merrill Lynch & Co. from 1990 to 1993. Mr. End is also a Director of Packard BioScience Company and OMP, Inc.. JOSEPH P. GAYNOR, III has served as Executive Vice President Administration, Chief Financial Officer and Treasurer of Goss Graphic Systems, Inc. since January 1999, of GGS Holdings, Inc. from January 1999 to November 1999, and of Goss Holdings, Inc. since November 1999. Mr. Gaynor also served as Executive Vice President, Chief Financial Officer and Treasurer of Goss Graphic Systems, Inc. from August 1998 to December 1998. Prior thereto he served as a Managing Director of Shattuck Hammond Partners, an investment banking unit of PricewaterhouseCoopers Securities, L.L.C. from 1997 to August 1998. Mr. Gaynor also served as the Executive Vice President and Chief Financial Officer of Primary Health Systems, Inc. From 1995 to 1996 and as Chief Financial Officer of the Sun Times Company from 1990 to 1994. JAMES J. KERLEY has served as the non-executive Chairman of DT Industries, Inc., a manufacturer of automated test systems and pharmaceutical and plastic packaging equipment, since May 1997. Mr. Kerley served as Chairman of Rohr, Inc., a manufacturer of jet engine and other components for aircraft, from 1993 to 1994. Prior thereto he served as Vice Chairman and Chief Financial Officer of Emerson Electric Co., a manufacturer of electrical products and systems for consumer, commercial, industrial and defense markets. Mr. Kerley is also a Director of DT Industries, Inc. LESTER A. KRAFT is a former executive with Rockwell Graphic Systems who retired in 1992 and is currently a private investor. Mr. Kraft most recently served as Executive Vice President of Marketing with Rockwell Graphic Systems and also held the positions of Vice President and 61 General Manager of the Goss Newspaper Products business unit of Rockwell Graphic Systems. SAM S. MCKEEL was a Director of Guy Gannett Communications, a newspaper and television company, from 1992 through December 1999. Prior thereto he was a Director of American Publishing Co., a newspaper publishing company. He has also served as President, Chief Executive Officer, and Publisher of the Sun-Times Company and as Chairman and Publisher of the Philadelphia Inquirer and the Philadelphia Daily News. ALEXIS P. MICHAS has been the Managing Partner and a Director of Stonington Partners Inc. since 1993 and the Managing Partner and a Director of Stonington Partners Inc. II since 1994. He has also been a Consultant to Merrill Lynch Capital Partners, Inc. ("MLCP") from 1994 until December 31, 2000, a Director of MLCP since 1989, a Partner of MLCP from 1993 to 1994 and Senior Vice President of MLCP from 1989 to 1993. Mr. Michas was also a Managing Director of the Investment Banking Division of Merrill Lynch & Co. from 1991 to July 1994. Mr. Michas is also a Director of Borg-Warner Automotive, Inc., Burns International Services, Dictaphone Corporation and Packard BioScience Company. JAMES P. SHEEHAN has served as Chairman of the Board, President, and Chief Executive Officer of Goss Graphic Systems, Inc. since November 1998, of GGS Holdings, Inc. from November 1998 to November 1999, and of Goss Holdings, Inc. since November 1999. Mr. Sheehan was self-employed as a private investor from January 1994 to November 1998. Prior thereto he served as President and Chief Operating Officer of A.H. Belo Corp., a media company that publishes newspapers and televises programs through owned stations. In March 1999, Mr. Sheehan became a limited partner of Stonington Partners, L.P. The following table sets forth information concerning the executive officers of Goss in addition to Messrs. Sheehan and Gaynor, who are listed above due to their status as both directors and executive officers:

* Officers are elected by the Board of Directors and can be removed at any time. 62 ALEX G. BRNILOVICH, JR. has served as Executive Vice President, Americas of Goss Graphic Systems, Inc. since November 1998, of GGS Holdings, Inc. from November 1998 to November 1999, and of Goss Holdings, Inc. since November 1999. Mr. Brnilovich also served as Senior Vice President, North America of Goss Graphic Systems, Inc. and GGS Holdings, Inc. from October to November 1998. Prior thereto, Mr. Brnilovich served as President of Asea Brown Boveri (ABB) Power Generation, Inc. From 1996 to 1998; President of ABB Turbine Services from 1993 to 1996; and President of ABB Utility Steam Turbine from 1991 to 1993. J. MATTHEW CRIBARI has served as Senior Vice President of Manufacturing Operations of Goss Graphic Systems, Inc. since 1999 and as Vice President and General Manager of Goss Graphic Systems, Inc. since 1998. Prior thereto Mr. Cribari served as Senior Vice President and General Manager of Tenneco Automotive from 1997 to 1998. Mr. Cribari also served as Vice President of Operations for Walker Manufacturing, an automotive aftermarket company, since 1995. SHANE LANCASTER has served as Senior Vice President and General Manager of Goss Graphic Systems, Ltd. since March 2000, as Director of Operations of Goss Graphic Systems, Ltd. since 1996 and as Director of Operations of the Preston, England facility of Rockwell Graphic Systems from 1992 to 1996. ERIC NORMAND has served as Senior Vice President and General Manager of Goss Systemes Graphiques Nantes, S.A., since March 2000, as General Manager of Goss Systemes Graphiques Nantes, S.A. since October 1996 and as General Manager of Rockwell Systemes Graphiques Nantes, S.A. since January 1996. RICHARD J. SUTIS has served as Executive Vice President, Asia Pacific and Chief Technology Officer of Goss Graphic Systems, Inc. since June 1999, of GGS Holdings, Inc. from June 1999 to November 1999, and of Goss Holdings, Inc. since November 1999. Mr. Sutis also served as Executive Vice President, Asia Pacific of Goss Graphic Systems, Inc. and of GGS Holdings, Inc. from 1998 to June 1999 and as Vice President, Asia Pacific of Goss Graphic Systems, Inc. and GGS Holdings, Inc. from 1996 to 1998. From 1994 to 1996 Mr. Sutis served as Vice President, Business Development and Strategy for Stevens International, Inc., a manufacturer and marketer of complete web fed printing and packaging systems. Prior thereto Mr. Sutis served as Goss's Director, Program Management from 1991 to August 1994. ITEM 11. EXECUTIVE COMPENSATION The following table set forth the compensation paid by Goss during fiscal 2000, 1999, and 1998 to (i) Goss's Chief Executive Officer, and (ii) each of Goss's four most highly compensated executive officers other than the CEO who were serving at December 31, 2000 (collectively, the "named executive officers"): 63 SUMMARY COMPENSATION TABLE

(1) Includes $35,563 for reimbursement of personal lodging expenses and $14,453 for reimbursement of personal travel expenses. (2) No disclosure required. (3) Home sale incentive payment (4) Retiree savings plan contributions. (5) The amounts reported above for restricted stock awards in fiscal 2000 also represent the total value of all restricted stock awards at December 31, 2000 based upon a value of $7.41 per restricted stock unit on the May 18, 2000 grant date. The number of restricted stock units granted during fiscal 2000 and outstanding at December 31, 2000 are as follows: Mr. Sheehan 167,600, Mr. Brnilovich 42,000, Mr. Cribari 4,200, Mr. Gaynor 42,000, and Mr. Sutis 42,000. 50 percent of Mr. Sheehan's restricted stock units vested on April 30, 2000 and 50 percent will vest on April 30, 2001. The restricted stock units of the other named executive officers all vest on the same schedule with 33 percent vesting on November 19, 2000, 33 percent vesting on November 19, 2001 and 34 percent vesting on November 19, 2002. No dividends are paid on the restricted stock units. On February 1, 2000, the Board of Directors of Holdings adopted a new management stock incentive plan (the "Incentive Plan") for key employees. The Incentive Plan permits Goss to grant up to 350,000 stock units and options to purchase up to 1,000,000 shares of restricted stock of Holdings. Stock units granted under the Incentive Plan vest according to the terms of the individual agreements. Vested stock units are converted into an equivalent number of shares of Holdings' restricted common stock. Options granted pursuant to the Incentive Plan may consist of incentive options, performance options and discretionary options. Incentive options and discretionary options vest according to the terms of the individual agreements. Performance options vest in specified increments of 25 percent of the award at the end of each fiscal year, commencing with calendar year 2000 and continuing through calendar year 2003, but only if Goss attains specified levels of earnings before interest, taxes, depreciation and amortization ("EBITDA") A change in control of Goss results in the immediate vesting of all stock units and 64 options which have not yet vested according to the schedules described above. All option awards expire by no later than ten years from the date of grant and are exercisable upon vesting. All stock options and shares of restricted stock previously granted to certain members of management and independent directors by GGS Holdings, Inc. were cancelled in fiscal 1999 pursuant to the Chapter 11 plan of reorganization. The following table summarizes the stock option grants made to the named executive officers during the fiscal year 2000: OPTION GRANTS IN FISCAL YEAR 2000

50 percent of Mr. Sheehan's options vested on April 30, 2000 and 50 percent vest on April 30, 2001. For all of the other named executive officers, 50 percent of their options are incentive options and 50 percent of their options are performance options, as defined in the Incentive Plan, and vest according to the schedule described earlier. The grant date present value of each option grant listed in the table was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 6.56%; expected life of 10 years; and no expected dividend yield or volatility. No options were exercised during fiscal year 2000 by any of the named executive officers. Goss does not maintain a pension or defined benefit plan that provides benefits to any of the executive officers listed in the Summary Compensation Table. Goss has entered into employment contracts with the named executive officers. In addition to establishing minimum annual base salaries and entitlement to certain other benefits, the contracts provide for certain compensation to be provided to the named executive officers upon their termination of employment before the end of the contract term by Goss for other than "cause" or by the executive officer for "good reason". The compensation items to be provided in the event of such terminations are: (1) an amount equal to two years' base salary, (2) the amount of accrued but unpaid bonus for the year prior to termination, (3) eligibility for a pro-rata bonus for the year of termination, and (4) inclusion in Goss's benefit plans for a two year period. 65 COMPENSATION OF DIRECTORS Goss's non-employee directors receive an annual retainer in the amount of $25,000, $1,500 per board meeting and $750 per committee meeting attended with the exception of the committee chairman who receives $1,000 per committee meeting attended. All board members are reimbursed their travel and other expenses in connection with meeting attendance. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows the beneficial ownership of Holdings' shares of Class A Common Stock and Class B Common Stock for each director, named executive officer, all directors and executive officers as a group, and the holders of more than 5 percent of the outstanding shares of each class as of December 31, 2000:

(1) The shares indicated as owned beneficially by Messrs. Michas and End are owned by Stonington and are included because of their ownership of stock as directors of Stonington. Messrs. Michas and End disclaim beneficial ownership of such shares. 66 (2) All of the shares listed for these individuals are for shares with respect to which the individual has the right to acquire beneficial ownership through the exercise of stock options issued pursuant to Goss's management stock incentive plan. (3) The common shares of Holdings which were received by the Noteholders pursuant to the Plan are held by Cede and Company, a nominee. Goss does not know whether any of individual Noteholder owns more than 5 percent of the Class B shares. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Goss purchases drive systems, press controls and related products from Allen-Bradley, a subsidiary of Rockwell, which is a holder of approximately 5 percent of Goss's outstanding shares of Class A Common Stock. These purchases totaled $11.3 million in fiscal 2000 and $11.4 million in fiscal 1999. On November 30, 1998, Goss sold approximately $35.6 million in accounts receivable to BT Commercial Corporation. The collectibility of the receivables was guaranteed by an affiliate of Stonington Partners, Inc., a related party. 67 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this Annual Report on Form 10-K. 1. Financial Statements Consolidated Balance Sheets as of December 31, 2000 and December 31, 1999, and Consolidated Statements of Operations, Cash Flows and Shareholders' Equity for the years ended December 31, 2000 and December 31, 1999, the three months ended December 31, 1998, and the year ended September 30, 1998. 2. Financial Schedules None 3. Exhibits 2.1 Stock and Asset Purchase Agreement dated as of April 26, 1996, between (1) Rockwell International Corporation and Goss and Amendment to Stock and Asset Purchase Agreement dated as of July 18, 1996, between Rockwell International Corporation and Goss 2.2 Second Amended Plan of Reorganization of Goss Graphic Systems, Inc., GGS (5) Holdings, Inc. and Goss Realty, LLC Under Chapter 11 of the Bankruptcy Code, dated as of September 7, 1999 2.3 Amendment to Second Amended Plan of Reorganization of Goss Graphic (5) Systems, Inc., GGS Holdings, Inc. and Goss Realty, LLC Under Chapter 11 of the Bankrupcy Code, dated as of October 21, 1999 2.4 Second Amendment to Second Amended Plan of Reorganization of Goss (5) Graphic Systems, Inc., GGS Holdings, Inc. and Goss Realty, LLC Under Chapter 11 of the Bankruptcy Code, dated as of November 2, 1999 3.1 Restated certificate of Incorporation of Goss Holdings, Inc. (6) 3.2 By-Laws of Goss Holdings, Inc. (6) 4.1 Form of Indenture between Goss Holdings, Inc. and HSBC Bank USA, Trustee (6) relating to the 12.25% Senior Subordinated Notes due 2005

68 4.2 Second Amended and Restated Credit Agreement among Goss Graphic Systems, (6) Inc. and the parties named therein, as amended in 1999 4.3 First Amendment and Limited Consent dated December 3, 1999 to Second (8) Amended and Restated Credit Agreement among Goss Graphic Systems, Inc. and the parties named therein. 4.4 Second Amendment and Limited Consent dated August 30, 2000 to Second (8) Amended and Restated Credit Agreement among Goss Graphic Systems, Inc. and the parties named therein. 4.5 Third Amendment and Limited Consent dated March 6, 2001 to Second (3) Amended and Restated Credit Agreement among Goss Graphic Systems, Inc. and the parties named therein. 4.6 Loan Agreements and related mortgage documents (summary English (2) translations) between Goss Graphic Systems Japan and Sanwa Bank and Goss Graphic Systems Japan and Industrial Bank of Japan relating to Sayama, Japan facility 10.1 Employment Agreement dated as of May 1, 1999 between Goss Graphic (6) Systems, Inc. and James P. Sheehan* 10.2 Form of Employment Agreement between Goss Graphic Systems, Inc. and (6) certain Executive Officers of Goss* 10.3 Principal terms of employment for certain Executive Officers* (3) 10.4 Management Stock Incentive Plan* (7) 10.5 Form of Restricted Stock Agreement* (7) 10.6 Form of Non-Vested Unit Agreement* (7) 10.7 Form of Incentive Option Agreement* (7) 10.8 Form of Performance Option Agreement* (7) 10.9 Form of Discretionary Option Agreement* (7)

69 ~~21.1 List of subsidiaries of Goss (4)~~

* Management contract or compensatory plan or arrangement. (1) Incorporated by reference to the exhibits to the Registration Statement of Goss as filed with the Securities and Exchange Commission, File No. 333-08421. (2) Incorporated by reference to the exhibits to the Form 8-K of Goss as filed with the Securities and Exchange Commission on February 12, 1998 (3) Filed herewith. (4) Incorporated by reference to the exhibits to the Form 10-K Goss filed with the Securities and Exchange Commission with respect to its fiscal year ended September 30, 1997. (5) Incorporated by reference to the exhibits to the Form 10-Q of Goss as filed with the Securities and Exchange Commission for the fiscal quarter ended September 30, 1999. (6) Incorporated by reference to the exhibits to the Form 10-K Goss filed with the Securities and Exchange Commission with respect to its fiscal year ended December 31, 1999. (7) Incorporated by reference to the exhibits to the Form 10-Q of Goss as filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2000. (8) Incorporated by reference to the exhibits to the Form 10-Q of Goss as filed with the Securities and Exchange Commission for the fiscal quarter ended September 30, 2000.

(b) Reports on Form 8-K. Goss did not file any reports on Form 8-K during the fourth quarter of fiscal 2000. 70 (c) Exhibits. See the exhibit list included as part of paragraph (a) (3) above. (D) Financial Statement Schedules. None. 71 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereto duly authorized on March 29, 2001. GOSS HOLDINGS, INC. By: /s/ James P. Sheehan James P. Sheehan, Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed on March 29, 2001, by the following persons on behalf of the Registrant and in the capacities indicated.

GOSS HOLDINGS INC 10-K