<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to _________________
Commission File Number 0-2604
GENERAL BINDING CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-0887470
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One GBC Plaza, Northbrook, Illinois 60062
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 272-3700
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at July 31, 1997
- ------------------------------------------ -----------------------------
<S> <C>
Common Stock $.125 par value 13,358,002 shares
Class B - Common Stock $.125 par value 2,398,275 shares
</TABLE>
<PAGE> 2
GENERAL BINDING CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information Page No.
--------
<S> <C>
Consolidated Condensed Balance Sheets - 1
June 30, 1997 and December 31, 1996
Consolidated Condensed Statements of Income - 2
Three and Six Months Ended
June 30, 1997 and 1996
Consolidated Condensed Statements of Cash Flows - 3
Six Months Ended June 30, 1997 and 1996
Notes to Consolidated Condensed 4
Financial Statements
Management's Discussion and Analysis of 7
Financial Condition and Results of
Operations
PART II. Other Information 10
Signature 11
</TABLE>
<PAGE> 3
- 1-
PART I. FINANCIAL INFORMATION
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(unaudited)
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,100 $ 6,721
Receivables, net 146,963 115,865
Inventories -
Raw materials 38,225 21,198
Work in process 12,462 7,410
Finished goods 91,691 68,126
--------- ---------
Total inventories 142,378 96,734
Deferred tax assets 12,673 11,453
Other 11,452 6,441
--------- ---------
Total current assets 322,566 237,214
--------- ---------
Property, plant and equipment 189,968 140,951
Less - accumulated depreciation and amortization (77,891) (71,940)
--------- ---------
Net property, plant and equipment 112,077 69,011
--------- ---------
Other long-term assets:
Cost in excess of fair value of assets
of acquired companies, net of amortization 197,237 43,510
Other 47,976 43,971
--------- ---------
Total other long-term assets 245,213 87,481
--------- ---------
Total assets $ 679,856 $ 393,706
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 50,279 $ 31,700
Current maturities of long-term obligations 625 483
Accounts payable 35,906 28,506
Accrued liabilities 64,390 51,440
--------- ---------
Total current liabilities 151,200 112,129
--------- ---------
Long-term debt 323,731 87,029
Other long-term liabilities 10,612 10,229
Deferred tax liabilities 12,045 12,187
Stockholders' equity:
Common stock 1,962 1,962
Class B common stock 300 300
Additional paid-in capital 9,037 8,564
Cumulative translation adjustments (3,434) (3,035)
Retained earnings 197,176 186,663
--------- ---------
205,041 194,454
Less - Treasury stock (22,773) (22,322)
--------- ---------
Total stockholders' equity 182,268 172,132
--------- ---------
Total liabilities and stockholders' equity $ 679,856 $ 393,706
========= =========
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
<PAGE> 4
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GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(000 OMITTED Except Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $187,436 $135,338 $367,937 $261,684
Costs and expenses:
Cost of sales, including research,
development and engineering 106,289 79,766 210,853 155,443
Selling, service and administrative 60,652 42,287 117,987 81,433
Interest expense 6,193 1,533 11,421 2,863
Other expense, net 2,284 682 4,372 697
-------- -------- -------- --------
Total costs and expenses 175,418 124,268 344,633 240,436
-------- -------- -------- --------
Income before taxes 12,018 11,070 23,304 21,248
Income taxes 4,807 4,539 9,321 8,712
-------- -------- -------- --------
Net income $ 7,211 $ 6,531 $ 13,983 $ 12,536
======== ======== ======== ========
Net income per common share $ .46 $ .42 $ .89 $ .80
======== ======== ======== ========
Dividends per common share $ .11 $ .105 $ .22 $ .21
======== ======== ======== ========
Average common shares outstanding 15,764 15,743 15,762 15,741
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
<PAGE> 5
-3-
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(000 OMITTED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,982 $ 12,536
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,740 6,986
(Decrease) increase in noncurrent deferred
tax liabilities (142) 258
Provision for doubtful accounts 1,247 954
Decrease (increase) in other long-term assets (3,353) (1,511)
Other 2,921 (551)
Changes in current assets and liabilities:
(Increase) in receivables (10,827) (19,773)
(Increase) in inventories (21,812) (4,917)
(Increase) decrease in deferred tax assets (1,386) (450)
(Increase) decrease in other current assets (4,273) (2,997)
Increase (decrease) in accounts payable and
accrued expenses 4,779 6,723
Increase in taxes on income 860 1,037
Increase (decrease) in deferred income on
service agreements 97 (26)
--------- ---------
Net cash provided by (used in)
operating activities 4,167 (1,731)
--------- ---------
Cash flows from investing activities:
Purchase of acquisitions, net of cash acquired (232,381) (18,933)
Capital expenditures (13,353) (14,834)
Proceeds from sale of plant and equipment - 927
--------- ---------
Net cash (used in) investing activities (245,734) (32,840)
--------- ---------
Cash flows from financing activities:
Increase (reduction) in notes payable 19,274 17,451
Increase (reduction) in current portion of
long-term obligations 164 -
Increase in long-term obligations 237,086 20,565
Dividends paid (3,468) (3,306)
Purchases of treasury stock (524) (1,338)
Proceeds from the exercise of stock options 546 1,090
--------- ---------
Net cash provided by (used in)
financing activities 253,078 34,462
--------- ---------
Effect of exchange rates on cash (798) (37)
--------- ---------
Net increase (decrease) in cash
and cash equivalents 2,379 (146)
Cash and cash equivalents at beginning of the year 6,721 6,864
--------- ---------
Cash and cash equivalents at June 30 $ 9,100 $ 6,718
========= =========
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $ 8,838 $ 2,097
Income taxes, net of refunds 7,764 6,538
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
<PAGE> 6
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GENERAL BINDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The consolidated condensed financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures included in these
consolidated condensed financial statements are adequate to make the information
presented not misleading. It is suggested that these consolidated condensed
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's 1996 Annual Report on Form 10-K. In
the opinion of the Company, all adjustments necessary to present fairly the
financial position of General Binding Corporation and Subsidiaries as of June
30, 1997 and December 31, 1996, and the results of their operations for the six
months ended June 30, 1997 and 1996 have been included. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
(2) Foreign Currency Exchange and Translation
Foreign currency translation adjustments have been excluded from the
Consolidated Condensed Statements of Income and are recorded in a cumulative
translation adjustment account as a separate component of stockholders' equity.
The accompanying Consolidated Condensed Statements of Income include net gains
and losses on foreign currency transactions, which are reported as other
income/expense and summarized as follows:
<TABLE>
<CAPTION>
Foreign Currency
Transaction
Gain/(Loss)(a)
----------------
<S> <C>
Three months ended June 30, 1997 $ (32,000)
=========
Three months ended June 30, 1996 $ 116,000
=========
Six months ended June 30, 1997 $(108,000)
=========
Six months ended June 30, 1996 $ 230,000
=========
</TABLE>
(a) Foreign currency transaction gains/losses are subject to income taxes at the
respective country's effective tax rate.
(3) Other Expense
Included in other expense is amortization of goodwill. Such amortization
for the second quarter and the first six months of 1997 were $1,669K and $3,264K
compared to $474K and $780K for 1996.
<PAGE> 7
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(4) Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following: (000 OMITTED)
JUNE 30, DECEMBER 31,
1997 1996
--------- ----------
<S> <C> <C>
Revolving Credit Agreement-portion classified as
long-term on the basis of the Company's
intention to refinance these borrowings
(weighted average interest rate 6.47% at
June 30, 1997 and 6.08% at December 31, 1996) $ 306,101 $ 70,700
Note Payable, due monthly from November, 1994
to October, 2004 (interest rate 8.85% at
June 30, 1997 and December 31, 1996) 2,222 2,637
Term Loan, maturity date June, 2000 (interest rate 7.05% at
June 30, 1997 and at December 31, 1996) 1,693 1,883
Industrial Revenue Bond, due annually from July, 1994
to July 2008 (floating interest rate 4.20% at June 30, 1997
and 4.00% at December 31, 1996) 2,050 2,050
Industrial Revenue Bond, due annually from June, 2002 to
June, 2007 (floating interest rate 4.20% at June 30, 1997
and 4.35% at December 31, 1996) 1,050 1,050
Industrial Revenue Bond, maturity date,
March, 2026 (floating interest rate 4.25% at
June 30, 1997 and 4.30% at December 31, 1996) 7,510 5,724
Industrial Revenue Bond, semi-annual payments
October, 1987 to October 1999 (interest rate 6.88%
at June 30, 1997) 500 ----
International
Australia Revolving Credit Agreement (floating
interest rate 6.80% at June 30, 1997 and
7.85% at December 31, 1996) 3,230 3,468
--------- ---------
324,356 87,512
Less current maturities (625) (483)
--------- ---------
Total Long-Term Debt $ 323,731 $ 87,029
========= =========
</TABLE>
<PAGE> 8
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(5) Net Income per Common Share
Net income per common share is based on the weighted average number of
common shares outstanding during the period. Assuming exercise of all
outstanding options pursuant to the Company's stock option plans for
key employees, net income per common share would not be materially
different from net income per common share as reported.
(6) Subsequent Events
On April 23, 1997, the Company announced it has completed the purchase
of Baker School Specialty Co., Inc. for an undisclosed amount of cash.
Located in Orange, Massachusetts, Baker manufactures and distributes
office and school supplies. The Company expects to leverage Baker's
distribution capabilities to further strengthen its position in the
office products market. Baker's sales in 1996 were approximately $17
million.
(7) Amendment to the Certificate of Incorporation
On May 13, 1997 the Company's shareholders approved an amendment to the
Company's Certificate of Incorporation changing our authorized share
capital. The Company now is authorized to issue up to 40,000,000 Common
Shares and 4,796,550 Class B Common Stock.
<PAGE> 9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales
The Company's sales for the second quarter and six month periods
increased 38% and 41%, respectively, when compared to the same periods in the
prior year. Excluding the acquisitions of Quartet and Baker, the Company's sales
increased 9% and 10%, respectively. Revenues increased in nearly all of the
Company's operations during both periods. Revenue increases were as follows:
<TABLE>
<CAPTION>
Three month Six month
period period
----------- ---------
<S> <C> <C>
Domestic binding and laminating products 4% 4%
America's (Canadian Direct, Mexican, and
Latin American Operations) 33% 31%
International (European and Far East
Subsidiaries and Export) 9% 5%
Film Products Division 9% 8%
Office Products Division (excluding
Quartet and Baker acquisitions) 21% 31%
</TABLE>
The rate of growth of sales for the Office Products Division is less in the
second quarter of 1997 due to the seasonal nature of personal shredder sales.
Gross Profits
Gross profit margins increased 1.8 and 1.9 percentage points,
respectively. Excluding the acquisitions of Quartet and Baker, gross profit
margins increased less than .5 percent for both periods. Increased gross profit
margins in the Company's core Domestic businesses, the America's and the Office
Product Division were offset by lower gross margins in the Film Product
Division. Gross profit margins in the Company's International operations were
negatively impacted by the strength of the U.S. Dollar compared to foreign
currencies. The Film Products Division encountered severe competitive pricing
pressures, resulting in significantly lower gross profit margins.
Selling, Service, and Administrative Expenses
Expenses increased 43.4% and 44.9% for the three and six month periods,
respectively. The primary reason for the increase was higher sales volumes and
the inclusion of Quartet and Baker. Expenses as a percentage of sales increased
1.2 percentage points for the three month period and were flat for the six month
period. The primary reasons for the increase were expenses associated with the
implementation of the Company's Domestic business information system and higher
operating expenses in the Film Products Division. The expense growth in the Film
Products Division has been caused by increasing unit sales at lower prices. As a
result, expense growth has exceeded revenue growth.
<PAGE> 10
- 8 -
Interest Expense
Interest expense for the second quarter and six months period of 1997
were $6.2 million and $11.4 million compared to $1.5 million and $2.9 million
for 1996. The primary reasons for the increase were higher average debt levels
as a result of the financing of the acquisitions, and higher levels of
receivables and inventories.
Other Expense
Other expense for the second quarter was $2,284,000 compared to
$682,000 in 1996. The primary factors affecting the change were: a) increased
amortization of goodwill as a result of the Quartet and Baker acquisitions and
b) currency losses in 1997 compared to gains in 1996. Other expense for the six
month period was $4,372,000 compared to $697,000 in 1996. The unfavorable impact
was due to the costs associated with the acquisitions and the currency losses
compared to the gains in 1996. Further, the Company's 1996 results were
positively impacted by a gain on the sale of a parcel of land in Japan.
Income Taxes
The Company's overall effective income tax rate for the three and six
month periods in 1997 was 40.0% compared to 41.0% in the prior year. The
decrease in the effective rate resulted from international tax strategies which
effectively lowered the Company's rate. The impact of the tax strategies was
negatively impacted by losses in certain European subsidiaries for which the
Company receives no tax benefits.
<PAGE> 11
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LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $4.2 million compared to $1.7
million in 1996. The use of cash in 1997 primarily resulted from overall higher
levels of receivables and inventories, including those generated by Quartet and
Baker since the dates of acquisition. In addition, cash was used for advances on
product purchased from overseas vendors.
Net cash flows used in investing activities amounted to $245.7 million
through the second quarter of 1997. Capital expenditures for the second quarter
and the first six months of 1997 were $7.1 million and $13.4 million,
respectively, compared to $7.9 million and $14.9 million, respectively, for the
same periods in 1996. Major expenditures in 1997 include the continued
development of the company's domestic business information system, the
development of a European business information system, construction of
facilities to support the integration of the GBC Office Product business into
Quartet, and construction of the Company's new Midwest supplies facility in
Wisconsin.
Cash dividends paid during the second quarter and the first six months
of 1997 were $.110 and $.220 per share while dividends for the comparable
periods in 1996 were $.105 and $.210 per share, respectively.
As of June 30, 1997, the Company had access to a $400 million revolving
credit facility as well as various other smaller, short-term international and
domestic lines of credit. The revolving credit facility was established on
January 13, 1997 with a group of domestic and international banks and contains,
among other things, certain restrictive covenants which require the Company to
maintain certain ratios regarding current assets and liabilities, leverage and
interest coverage. As of June 30, 1997, the Company had $312.9 million and $43.2
million outstanding under the revolving facility and the short-term lines of
credit, respectively.
The Company believes that funds generated from operations combined with
its credit facilities are sufficient to meet currently anticipated capital
and operating requirements.
<PAGE> 12
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PART II. OTHER INFORMATION
Item 5: Exhibits
(a) Exhibits: None
(b) Reports on Form 8-K: None
<PAGE> 13
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL BINDING CORPORATION
AND SUBSIDIARIES
By________________________
William R. Chambers, Jr.
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from General
Binding Corporation's Form 10-Q for the quarter ended June 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 9,100
<SECURITIES> 0
<RECEIVABLES> 146,963<F1>
<ALLOWANCES> 7,185
<INVENTORY> 142,378
<CURRENT-ASSETS> 322,566
<PP&E> 189,968
<DEPRECIATION> 77,891
<TOTAL-ASSETS> 679,856
<CURRENT-LIABILITIES> 151,200
<BONDS> 323,731
0
0
<COMMON> 2,262
<OTHER-SE> 180,006
<TOTAL-LIABILITY-AND-EQUITY> 679,856
<SALES> 367,937
<TOTAL-REVENUES> 367,937
<CGS> 210,853
<TOTAL-COSTS> 210,853
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,247
<INTEREST-EXPENSE> 11,421
<INCOME-PRETAX> 23,304
<INCOME-TAX> 9,321
<INCOME-CONTINUING> 13,983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,983
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
<FN>
<F1>Notes and accounts recivable-trade are stated net of allowances for doubtful
accounts and sales returns.
</FN>
</TABLE>
