<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 September 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 October 31, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock $.125 par value 13,357,257 shares
Class B - Common Stock $.125 par value 2,398,275 shares
</TABLE>
<PAGE> 2
GENERAL BINDING CORPORATION
INDEX
PART I. Financial Information Page No.
--------------
Consolidated Condensed Balance Sheets - 1
September 30, 1997 and December 31, 1996
Consolidated Condensed Statements of Income - 2
Three and Nine Months Ended
September 30, 1997 and 1996
Consolidated Condensed Statements of Cash Flows - 3
Nine Months Ended September 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
<PAGE> 3
- 1-
PART I. FINANCIAL INFORMATION
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
ASSETS (unaudited)
- ------------------------ -------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,528 $ 6,721
Receivables, net 148,443 115,865
Inventories -
Raw materials 38,236 21,198
Work in process 14,111 7,410
Finished goods 99,105 68,126
-------- --------
Total inventories 151,452 96,734
Deferred tax assets 12,411 11,453
Other 9,603 6,441
-------- --------
Total current assets 329,437 237,214
-------- --------
Property, plant and equipment 194,186 140,951
Less - accumulated depreciation and amortization (79,638) (71,940)
-------- --------
Net property, plant and equipment 114,548 69,011
-------- --------
Other long-term assets:
Cost in excess of fair value of assets
of acquired companies, net of amortization 197,338 43,510
Other 47,334 43,971
-------- --------
Total other long-term assets 244,672 87,481
-------- --------
Total assets $688,657 $393,706
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable $57,161 $31,700
Current maturities of long-term obligations 690 483
Accounts payable 38,604 28,506
Accrued liabilities 62,921 51,440
-------- --------
Total current liabilities 159,376 112,129
-------- --------
Long-term debt 321,631 87,029
Other long-term liabilities 10,777 10,229
Deferred tax liabilities 12,129 12,187
Stockholders' equity:
Common stock 1,962 1,962
Class B common stock 300 300
Additional paid-in capital 9,168 8,564
Cumulative translation adjustments (5,819) (3,035)
Retained earnings 202,298 186,663
-------- --------
207,909 194,454
Less - Treasury stock (23,165) (22,322)
-------- --------
Total stockholders' equity 184,744 172,132
-------- --------
Total liabilities and stockholders' equity $688,657 $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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $196,613 $132,996 $564,555 $394,680
Costs and expenses:
Cost of sales, including research,
development and engineering 112,458 77,891 323,315 233,334
Selling, service and administrative 62,407 42,790 180,398 124,218
Interest expense 6,543 1,526 17,969 4,389
Other expense, net 3,167 723 7,543 1,425
-------- -------- -------- --------
Total costs and expenses 184,575 122,930 529,225 363,366
-------- -------- -------- --------
Income before taxes 12,038 10,066 35,330 31,314
Income taxes 5,168 4,127 14,489 12,839
-------- -------- -------- --------
Net income $6,870 $5,939 $20,841 $18,475
======== ======== ======== ========
Net income per common share $ .44 $ .37 $ 1.32 $ 1.17
======== ======== ======== ========
Dividends per common share $ .11 $ .11 $ .33 $ .32
======== ======== ======== ========
Average common shares outstanding 15,758 15,743 15,760 15,742
======== ======== ======== ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $20,841 $18,475
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 20,886 10,735
Increase in noncurrent deferred tax liabilities 54 262
Provision for doubtful accounts 1,921 1,700
Increase in other long-term assets (4,781) (1,216)
Other 1,223 (744)
Changes in current assets and liabilities:
Increase in receivables (14,040) (22,098)
Increase in inventories (31,425) (12,778)
Increase in deferred tax assets (1,080) (448)
Increase in other current assets (2,555) (2,381)
Increase in accounts payable and
accrued expenses 4,524 5,975
Increase in taxes on income 2,705 4,185
Increase in deferred income on
service agreements 469 -
-------- ---------
Net cash (used in) provided by
operating activities (1,258) 1,667
-------- ---------
Cash flows from investing activities:
Payments on acquisitions, net of cash acquired (234,506) (18,933)
Capital expenditures (20,157) (22,539)
Proceeds from sale of plant and equipment - 1,399
-------- ---------
Net cash (used in) investing activities (254,663) (40,073)
-------- ---------
Cash flows from financing activities:
Increase in notes payable 26,645 13,216
Increase in current portion of
long-term obligations 119 -
Increase in long-term obligations 235,916 31,803
Dividends paid (5,202) (5,024)
Purchases of treasury stock (931) (1,498)
Proceeds from the exercise of stock options 693 1,221
-------- ---------
Net cash provided by financing activities 257,240 39,718
-------- ---------
Effect of exchange rates on cash (512) 69
-------- ---------
Net increase in cash and
cash equivalents 807 1381
Cash and cash equivalents at beginning of the year 6,721 6,864
------- -------
Cash and cash equivalents at September 30 $7,528 $8,245
======= =======
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $15,326 $3,895
Income taxes, net of refunds 10,512 7,962
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
<PAGE> 6
-4-
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 September 30, 1997 and December 31, 1996, and the results of
their operations for the three and nine month periods ended September 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 September 30, 1997 $(138,000)
==========
Three months ended September 30, 1996 $4,000
==========
Nine months ended September 30, 1997 $(246,000)
==========
Nine months ended September 30, 1996 $234,000
==========
</TABLE>
(a) Foreign currency transaction gains/losses are subject to income taxes at
the respective country's effective tax rate.
<PAGE> 7
- 5 -
(3) Other Expense
Included in other expense is amortization of goodwill. Such
amortization for the third quarter and the first nine months of 1997 were
$2,174K and $5,438K compared to $438K and $1,218K for 1996.
<TABLE>
<CAPTION>
(4) Long-Term Debt
Long-term debt consists of the following: (000 OMITTED)
SEPTEMBER 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 September 30, 1997 and 6.49% at
December 31, 1996) $299,200 $70,700
Note Payable, due monthly from November, 1994
to October, 2004 (interest rate 8.85% at
September 30, 1997 and December 31, 1996) 2,025 2,637
Term Loan, maturity date June, 2000
(interest rate 7.05% at September 30, 1997 and
at December 31, 1996) 1,597 1,883
Term Loan, maturity date October, 1997
(interest rate 4.04% at September 30) 4,914 ----
Industrial Credit Company Loan, maturity date
November, 1999 (interest rate 6.75% at
September 30, 1997 and December 31, 1996) 298 ----
AIL Leasing Loan, maturity date February, 2002
(interest rate 8.47% at September 30, 1997 and
December 31, 1996) 179 ----
Industrial Revenue Bond, due annually from July, 1994
to July 2008 (floating interest rate 4.20% at
September 30, 1997 and 4.00% at December 31, 1996) 1,900 2,050
Industrial Revenue Bond, due annually from
June, 2002 to June, 2007 (floating
interest rate 4.05% at September 30, 1997
and 4.35% at December 31, 1996) 1,050 1,050
</TABLE>
<PAGE> 8
- 6 -
<TABLE>
<S> <C> <C>
Industrial Revenue Bond, maturity date,
March, 2026 (floating interest rate 4.15% at
September 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 September 30, 1997) 500 ----
International Australia Revolving Credit Agreement (floating
interest rate 6.76% at September 30, 1997 and
7.85% at December 31, 1996) 3,148 3,468
-------- -------
322,321 87,512
Less current maturities (690) (483)
-------- -------
Total Long-Term Debt $321,631 $87,029
======== =======
</TABLE>
(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 October 20, 1997, the Company announced it has entered into a
definitive agreement to acquire Ibico AG. Headquartered in Zurich,
Switzerland, Ibico is a privately-held manufacturer and marketer of
document binding and laminating products. This acquisition will expand the
geographic reach of the Company's office products distribution channel.
Worldwide Ibico revenues in 1997 are expected to be approximately $110
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 third quarter and nine month periods increased 48%
and 43%, respectively, when compared to the same periods in the prior year.
Excluding the acquisitions of Quartet and Baker, the Company's sales increased
7% and 9%, respectively. Revenues increased in nearly all of the Company's
operations during both periods. Revenue increases were as follows:
<TABLE>
<CAPTION>
Three month Nine month
period period
------------ ------------
<S> <C> <C>
Domestic binding and laminating products 9% 8%
America's (Canadian Direct, Mexican, and
Latin American Operations) 36% 33%
International (European and Far East
Subsidiaries and Export) 6% 5%
Film Products Division 2% 6%
Office Products Division (excluding
Quartet and Baker acquisitions) 10% 24%
</TABLE>
The rate of growth of sales for the Office Products Division is less in the
third quarter of 1997 due to the seasonal nature of personal shredder sales.
Gross Profits
Gross profit margins increased 0.9 and 1.5 percentage points in the third
quarter and the nine month period, respectively, over the same prior year
periods. Excluding the acquisitions of Quartet and Baker, gross profit margins
increased by less than 0.2 percent for both periods. Higher 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 45.8% and 45.2% for the three and nine 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 decreased
slightly for the three and nine month periods.
<PAGE> 10
-8-
Interest Expense
Interest expense for the third quarter and nine month period of 1997 were
$6.5 million and $18.0 million compared to $1.5 million and $4.4 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 third quarter was $3,167 compared to $723 in 1996.
The primary factors affecting the change were: a) increased amortization of
goodwill as a result of the Quartet and Baker acquisitions; b) currency losses
in 1997 compared to gains in 1996; and c) expenses incurred relating to
the shut down of a plant in Costa Rica. Other expense for the nine month period
was $7,543 compared to $1,425 in 1996. The same factors impacted the nine month
and three month periods. 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 rates for the three and nine
month periods in 1997 were 42.9% and 41.0% respectively, compared to 41.9% and
41.0% in the prior year. The increase in the effective income tax rate for the
third quarter is due to operating losses in certain subsidiaries for which the
Company receives no income tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $1.3 million compared to $1.7
million cash provided from operating activities in 1996. The use of cash in
1997 primarily resulted from overall higher levels of inventory and
receivables, including inventory and receivables generated by Quartet and Baker
since the dates of acquisition.
Net cash flows used in investing activities amounted to $254.7 million
through the third quarter of 1997. Capital expenditures for the third quarter
and the first nine months of 1997 were $6.8 million and $20.2 million,
respectively, compared to $7.7 million and $22.6 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 third quarter and the first nine months of
1997 were $.11 and $.33 per share, while dividends for the comparable periods
in 1996 were $.11 and $.32 per share, respectively.
<PAGE> 11
-9-
As of September 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 September 30, 1997, the
Company had $306.1 million and $50.3 million outstanding under the revolving
facility and the short-term lines of credit, respectively.
The Company currently intends to finance its anticipated acquisition of
Ibico AG, which is expected to occur in early 1998, through a combination of
funds from its existing credit facilities and the public or private placement
of long-term subordinated debt. Consequently, the Company is currently in the
process of amending its $400 million revolving credit facility to, among other
things, increase the amount of the facility and to allow for subordinated debt
to be issued. The Company believes that funds generated from operations
combined with its credit facilities are sufficient to meet all other
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
- 11 -
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 /S/ William R. Chambers Jr.
------------------------------------------------
William R. Chambers Jr.
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(A) Notes and accounts receivable-trade are stated net of allowances for
doubtful accounts and sales returns.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,528
<SECURITIES> 0
<RECEIVABLES> 148,443
<ALLOWANCES> 6,263
<INVENTORY> 151,452
<CURRENT-ASSETS> 329,437
<PP&E> 194,186
<DEPRECIATION> 79,638
<TOTAL-ASSETS> 688,657
<CURRENT-LIABILITIES> 159,376
<BONDS> 321,631
0
0
<COMMON> 2,262
<OTHER-SE> 182,482
<TOTAL-LIABILITY-AND-EQUITY> 688,657
<SALES> 564,555
<TOTAL-REVENUES> 564,555
<CGS> 323,315
<TOTAL-COSTS> 323,315
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,921
<INTEREST-EXPENSE> 17,969
<INCOME-PRETAX> 35,550
<INCOME-TAX> 14,489
<INCOME-CONTINUING> 20,841
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,841
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
</TABLE>
