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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-2604
GENERAL BINDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-0887470
(State of Incorporation) (I.R.S. Employer Identification No.)
ONE GBC PLAZA 60062
NORTHBROOK, ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code (847) 272-3700
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
---------------------- --------------------
Common Stock, $.125 par value NASDAQ
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
-----
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
--- ---
As of February 28, 1997, the aggregate market value of the Common Stock
(based upon the average bid and asked prices of these shares on the
Over-The-Counter Market - NASDAQ) of the company held by nonaffiliates was
approximately $170,707,000. (Estimated solely for the purpose of completing
this cover page.)
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS FEBRUARY 28, 1997
-------------------------------------------------
Common Stock, $.125 par value 13,368,669
Class B Common Stock, $.125 par value 2,398,275
DOCUMENTS INCORPORATED BY REFERENCE WHERE INCORPORATED
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Annual Report to Stockholders for the fiscal year
ended December 31, 1996 Parts II and IV
Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held May 6, 1997. Parts III and IV
<PAGE> 2
GENERAL BINDING CORPORATION AND SUBSIDIARIES
FORM 10-K-FISCAL YEAR ENDED DECEMBER 31, 1996
CONTENTS AND CROSS REFERENCE SHEET
FURNISHED PURSUANT TO GENERAL INSTRUCTION G(4) OF FORM 10-K
<TABLE>
<CAPTION>
ANNUAL REPORT
FORM 10-K FORM 10-K FORM 10-K TO STOCKHOLDERS
PART NO. ITEM NO. DESCRIPTION PAGE NO. PAGE NO.*
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<S> <C> <C> <C> <C>
I 1 Business 1
2 Properties 3
3 Legal Proceedings 3
4 Submission of Matters to a Vote of Security Holders 3
II 5 Market for Registrant's Common Equity and Related
Stockholder Matters 4 17
6 Selected Financial Data 4 10
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 4 11-13
8 Financial Statements and Supplementary Data 4 14-32
9 Disagreements on Accounting and Financial Disclosure 4
III 10 Directors and Executive Officers of the Registrant 5 **
11 Executive Compensation 5 **
12 Security Ownership of Certain Beneficial Owners and
Management 5 **
13 Certain Relationships and Related Transactions 5 **
IV 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 6
SIGNATURES 7
</TABLE>
* References are to pages in the Registrant's Annual Report to Stockholders
for the fiscal year ended December 31, 1996 which are incorporated herein by
reference. See Part IV, Exhibit 13.
**Incorporated by reference from the Registrant's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on May 6, 1997 to be filed
within 120 days after the end of the Registrant's fiscal year.
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT AND DESCRIPTION OF BUSINESS AND SEGMENT INFORMATION
General Binding Corporation, incorporated in 1947, and its subsidiaries
(herein referred to as "GBC" or "Company") are engaged predominantly in one line
of business, namely the design, manufacture and distribution of a broad line of
business machines and related supplies. This broad line includes system
applications in the areas of binding, laminating, shredding, and security
identification. These products are manufactured in seventeen plants in the
United States and abroad. GBC products are sold through a network of direct
sales and telemarketing personnel, dealers, distributors and wholesale
stationers. The Company provides maintenance and repairs on the machines it
sells through a trained field service organization and through trained dealers.
The following table illustrates the ratio of revenue contribution of
business machines, supplies and service for the last three fiscal years:
1996 1995 1994
----- ---- ----
Business machines......................... 29% 24% 25%
Related supplies and service *............ 71% 76% 75%
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* Includes ring metal business
The Company has made significant acquisitions during the time period covered by
this Filing. For additional information, see Notes 13 and 15 to the
Consolidated Financial Statements of the Company's 1996 Annual Report to
Stockholders.
Customers
The Company's machines and supplies are sold worldwide to users in the
business, education, graphic arts, health, recreation and government markets.
With this broad base of customers, GBC is not dependent upon any single customer
for a significant portion of its business.
Competition
Although there is active competition with respect to each GBC product, GBC
is not aware of any major company competing in all its products. The Company
believes that it has a leadership position for its binding and laminating
products and a strong market share for most of its other products. To maintain
its competitive position, GBC relies primarily on product quality, marketing
strength and customer service.
Backlog and Seasonal Variations
Backlog of orders is not considered a material factor in GBC's business,
nor is the business seasonal in any material respect.
1
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Materials
Materials and parts used in the manufacture of GBC's products are available
from a number of sources. In general, the Company has not experienced any
shortages in materials or parts. During 1994 a worldwide shortage of polyester
developed and continued through early 1996. Polyester is used in the
manufacture of the Company's film products. Due to the volume of the Company's
purchases of polyester and its strong relationships with suppliers; the Company
was able to purchase adequate volumes of polyester to meet demand during the
shortage.
Patents and Trademarks
Many of the equipment and supply products manufactured and/or sold by the
Company and certain application methods related to such products are covered by
United States and foreign patents. The Company's U.S. patent on the basic
hot-knife plastic VeloBind strip binding element expires in the year 2000 and
the proprietary nature of that product is important to the Company's ability to
effectively compete in its markets. Although the other patents owned by the
Company are also highly important to its business, the Company does not consider
its business dependent on any of those patents.
The Company has registered the GBC, VeloBind and Bates trademarks in the
United States and numerous foreign countries and considers those trademarks
material to its business. The Company has also registered numerous other
important trademarks related to specific products in the United States and many
foreign countries, however the Company does not consider its business dependent
on any of those trademarks.
Environment
Although the Company has no known operations which have a significant
impact upon the environment, GBC continuously takes active steps to ensure that
all of its operations comply with local, state and federal regulations relating
to environmental protection and occupational safety hazards. These steps have
not had a material effect upon operating results or the Company's competitive
position.
Research and Development
Research and development expenditures amounted to approximately $7,249,000
in 1996, $6,218,000 in 1995 and $5,069,000 in 1994. All research is Company
funded.
Employees
As of December 31, 1996, GBC employed 3,543 people worldwide. Employee
relations are considered to be excellent.
Geographical Information
Financial information by geographical area is incorporated herein by
reference from page 28-29 of the Registrant's Annual Report to Stockholders for
the fiscal year ended December 31, 1996, Note 11.
2
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ITEM 2. PROPERTIES
In addition to the manufacturing locations listed below, the Company
operates sales and service offices throughout the world, five regional
warehouses in the United States, and a 60,000 sq. ft. world headquarters
building in Northbrook, Illinois. Management believes that the Company's
manufacturing facilities are suitable and adequate for its operations and are
maintained in a good state of repair.
Major manufacturing is conducted at the following plant locations:
APPROXIMATE AREA
IN THOUSAND
SQ. FT. INCLUDING
LOCATION OFFICE SPACE OWNERSHIP
- -----------------------------------------------------------
Northbrook, Illinois 190 GBC owned
Addison, Illinois 91 GBC owned
Sparks, Nevada 82 Leased
Basingstoke, England 80 Leased
St. Louis, Missouri 73 GBC owned
Lincolnshire, Illinois 64 Leased
Nuevo Laredo, Mexico 49 Leased
Phoenix, Arizona 40 GBC owned
Amelia, Virginia 39 GBC owned
Kerkrade, Holland 37 GBC Owned
Auburn Hills, Michigan 35 Leased
Hagerstown, Maryland 33 GBC owned
Madison, Wisconsin 26 Leased
San Jose, Costa Rica 23 Leased
Tornaco, Italy 22 GBC owned
Noda, Japan 18 GBC owned
Don Mills, Ontario, Canada 13 Leased
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, and
neither the Company nor any of its officers or directors are aware of any
material contemplated proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING THE
FOURTH QUARTER OF 1996
None.
3
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated herein by reference from page 17 of the Registrant's Annual
Report to Stockholders for the year ended December 31, 1996, section entitled
"Market for Registrant's Common Stock and Related Stockholder Matters" and Note
12 from page 30 of the notes to consolidated financial statements entitled
"Quarterly Financial Data".
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference from page 10 of the Registrant's Annual
Report to Stockholders for the fiscal year ended December 31, 1996, section
entitled "Ten Year Summary - Financial Highlights".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated herein by reference from pages 11 through 13 of the
Registrant's Annual Report to Stockholders for the fiscal year ended December
31, 1996, section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference from pages 14 through 32 of the
Registrant's Annual Report to Stockholders for the fiscal year ended December
31, 1996.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
4
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item is contained in the Registrant's
1997 Definitive Proxy Statement, which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is contained in the Registrant's
1997 Definitive Proxy Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is contained in the Registrant's
1997 Definitive Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in the Registrant's
1997 Definitive Proxy Statement, which is incorporated herein by reference.
5
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of Documents Filed as part of this Report
The following consolidated statements, schedules and exhibits of General
Binding Corporation and its subsidiaries are filed as part of this report:
(1) Financial Statements
<TABLE>
<CAPTION>
LOCATION
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<S> <C>
Report of Independent Public Accountants.......... Annual Report Page 32
Consolidated balance sheets - December 31, 1996
and 1995.......................................... Annual Report Page 15
Consolidated statements of income for the years
ended December 31, 1996, 1995, and 1994........... Annual Report Page 14
Consolidated statements of stockholders' equity
for the years ended December 31, 1996, 1995,
and 1994.......................................... Annual Report Page 17
Consolidated statement of cash flows for the
years ended December 31, 1996, 1995, 1994......... Annual Report Page 16
Notes to consolidated financial statements........ Annual Report Pages 18-32
</TABLE>
* These consolidated financial statements, related Notes, and Report of
Independent Public Accountants, appearing in the Registrant's Annual Report to
Stockholders for the fiscal year ended December 31, 1996, pages 14-32, which are
filed as Exhibit 13 to the Form 10-K, are incorporated by reference.
(2) Financial statement schedule
PAGE NUMBER
-----------
Report of Independent Public Accountants on Schedule..... 9
II. Valuation and Qualifying Accounts................... 10
All other financial statements and schedules not listed have been
omitted because they are not applicable, not required, or because the required
information is included in the consolidated financial statements or notes
thereto.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
No. 3: Certificate of Incorporation, as amended May 11, 1988.
Incorporated by reference to Exhibit 3 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993.
No. 4: Consent agreement to provide the Commission upon written
request a copy of the Registrant's long-term debt
agreements.
No. 13: Annual Report to Stockholders for the fiscal year
ended December 31, 1996 (Pages 10 through 32)
No. 21: Subsidiaries of the Registrant
No. 22: Definitive proxy statement to be filed with the
Securities and Exchange Commission on or about April 3,
1997.
No. 27: Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last quarter
of the fiscal year ended December 31, 1996.
6
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GENERAL BINDING CORPORATION
By: /s/ GOVI C. REDDY
--------------------------------------
Govi C Reddy
President and Chief
Executive Officer
By: /s/ EDWARD J. MCNULTY
---------------------------------------
Edward J. McNulty
Vice President and Chief
Financial Officer
Dated: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ WILLIAM N. LANE III Chairman of the Board March 26, 1997
------------------------------- and Director
William N. Lane III
/s/ GOVI C. REDDY President, Chief Executive March 26, 1997
------------------------------- Officer and Director
Govi C. Reddy
/s/ ARTHUR C. NIELSEN, JR.
------------------------------- Director March 26, 1997
Arthur C. Nielsen, Jr.
/s/ THOMAS V. KALEBIC Director March 26, 1997
-------------------------------
Thomas V. Kalebic
/s/ WARREN R. ROTHWELL Director March 26, 1997
--------------------------------
Warren R. Rothwell
7
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports in this Form 10-K, into the Company's previously
filed Registration Statement File No. 2-70047. It should be noted that we
have not audited any financial statements of the Company subsequent to December
31, 1996 or performed any audit procedures subsequent to the date of our
report.
Arthur Andersen LLP
Chicago, Illinois,
March 26, 1997.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with generally accepted auditing
standards, the financial statements included in General Binding Corporation's
annual report to stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 31, 1997. Our audits were made
for the purpose of forming an opinion on those statements taken as a whole.
Schedule II is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois,
January 31, 1997.
9
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GENERAL BINDING CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
ALLOWANCES FOR DOUBTFUL ACCOUNTS AND SALES RETURNS
Changes in the allowances for doubtful accounts and sales returns were as
follows:
1996 1995 1994
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Balance at beginning of year $ 5,186 $ 4,840 $ 4,821
Additions charged to expense 3,118 1,729 1,804
Deductions - write offs. (1,788) (1,203) (1,643)
Other * (92) (180) (142)
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Balance at end of year $ 6,424 $ 5,186 $ 4,840
======= ======= =======
* Amounts primarily relate to the effects of foreign currency exchange
rate changes as well as the acquisition of Sickinger in 1994 and ProTech
in 1996.
10
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GENERAL BINDING CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No. and
Applicable Section
of Item 601 of
Regulation S-K
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3 Certificate of Incorporation, as amended May 11, 1988,
filed as Exhibit 3 to the Company's 1993 Annual Report
on Form 10-K, and incorporated herein by reference.
4 Consent agreement to provide the Commission upon written
request a copy of the Registrant's long-term debt
agreements included herein.
13 Annual Report to Stockholders for the fiscal year ended
December 31, 1996 (Pages 10 through 32) included herein.
21 Subsidiaries of the Registrant included herein.
22 Definitive proxy statement to be filed with the
Securities and Exchange Commission on or about
April 3, 1997, and incorporated herein by reference.
27 Financial Data Schedule included herein.
<PAGE> 1
Exhibit 4
March 26, 1997
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
Re: General Binding Corporation
Commission File No. 0-2604
Form 10-K for the fiscal year ended December 31, 1996
Item No. 14(a)(3)
To whom it may concern:
This letter is to advise you that General Binding Corporation hereby consents
to provide you, upon written request, copies of its long-term loan agreements
which contain certain restrictive covenants and define the rights of security
holders. Copies of any such loan agreement will be supplied to you within 10
days upon receipt of request.
Sincerely,
GENERAL BINDING CORPORATION
Edward J. McNulty
Edward J. McNulty
Vice President and
Chief Financial Officer
EJM:rf
<PAGE> 1
TEN YEAR SUMMARY . . . FINANCIAL HIGHLIGHTS GBC and Subsidiaries
(000 omitted except per share and ratio data)
<TABLE>
<CAPTION>
OPERATIONS
FOR THE YEAR 1996 1995 1994 1993 1992(1) 1991(1) 1990(1) 1989 1988 1987
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SALES FROM
CONTINUING OPERATIONS
DOMESTIC $346,524 $293,188 $274,319 $246,790 $235,927 $188,930 $188,198 $178,266 $156,061 $139,249
INTERNATIONAL 190,312 165,203 146,130 129,348 132,716 122,269 115,472 105,425 94,565 72,756
TOTAL 536,836 458,391 420,449 376,138 368,643 311,199 303,670 283,691 250,626 212,005
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INCOME FROM
CONTINUING OPERATIONS 25,213 21,500 15,703 14,994 16,380 12,599 13,655 20,105 14,856 9,599
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DISCONTINUED
OPERATIONS -- -- -- -- -- -- -- -- -- 1,274
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CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING
FOR INCOME TAXES -- -- -- -- -- -- (1,134) -- -- --
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NET INCOME 25,213 21,500 15,703 14,994 16,380 12,599 12,521 20,105 14,856 10,873
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INCOME PER
COMMON SHARE--
CONTINUING OPERATIONS (2) 1.60 1.37 1.00 .95 1.04 .80 .86 1.26 .92 .60
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CASH DIVIDENDS PER SHARE
OF COMMON STOCK (2) .430 .420 .405 .400 .370 .330 .290 .274 .186 .130
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DEPRECIATION
AND AMORTIZATION 15,018 12,814 12,081 10,747 10,775 8,239 7,439 6,131 5,878 5,480
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CAPITAL EXPENDITURES 27,778 15,046 12,788 10,595 9,795 13,076 7,678 6,289 7,174 5,519
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CURRENT ASSETS 237,214 180,648 171,154 145,351 141,234 139,550 134,575 120,366 117,980 102,769
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CURRENT LIABILITIES 112,129 83,828 84,604 64,760 67,045 71,708 63,149 54,021 56,474 49,330
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WORKING CAPITAL 125,085 96,820 86,550 80,591 74,189 67,842 71,426 66,345 61,506 53,439
CURRENT RATIO 2.1 2.2 2.0 2.2 2.1 1.9 2.1 2.2 2.1 2.1
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TOTAL ASSETS 393,706 298,872 284,278 251,109 241,807 240,688 190,891 173,437 161,227 144,369
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LONG-TERM OBLIGATIONS 87,029 43,890 42,020 38,564 32,966 35,574 2,794 5,142 5,182 5,127
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STOCKHOLDERS' EQUITY 172,132 154,141 141,089 133,531 126,130 117,913 112,486 104,534 92,163 83,613
PER SHARE OF
COMMON STOCK (2) 10.93 9.80 8.96 8.47 7.99 7.46 7.09 6.56 5.77 5.19
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</TABLE>
(1) The Company adopted SFAS No. 109, "Accounting for Income Taxes," in 1993 by
restating financial statements beginning in 1990.
(2) All per share data for 1987 and 1988 is restated for the 1989 three-for-two
stock split.
10
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FINANCIAL REVIEW
GBC and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SALES
The Company's 1996 sales exceeded the $500 million mark for the first
time, reaching a new record of $537 million. Sales increased $78 million or 17%
over 1995 compared to an increase of $38 million or 9% over 1994. The most
significant factors contributing to the growth of sales in both 1996 and 1995
were increases in the Company's: a) film products division; b) office
products/dealer business; c) direct branch/telemarketing operations; and d) the
acquisitions of Fordigraph and Pro-Tech.
Significant improvements in the following product lines helped to
achieve the 1996 and 1995 record sales levels: a) shredder products; b)
laminating film; c) laminating equipment; d) graphics products; and e) punch
and bind products.
GROSS MARGINS, COSTS AND EXPENSES
Gross profit margins decreased 1 percentage point in both 1996 and
1995. The erosion in margins in both years affected nearly all of the Company's
operations and was primarily attributed to worldwide competitive pricing
pressures and a continuing mix change towards the Company's growth in lower
margin dealer, film, and graphics products. Gross profit margins in 1996 were
also negatively impacted by margin erosion in the Company's ringmetals
business; other factors contributing to both the 1996 and 1995 erosion were
excess plant capacities, higher provisions for excess and obsolete inventory,
and higher outlays for research and development.
Selling, service, and administrative expenses increased 12% in 1996 and
4% in 1995. These expenses as a percentage of total sales have declined over
the past two years and were 32% and 34%, respectively. The 1996 increase
primarily resulted from increased sales in the Company's worldwide operations,
the additions of Fordigraph and Pro-Tech, and an increase in spending to
support the move to the Company's new business unit structure. The increase in
expenses in 1995 primarily resulted from: a) increased sales volume; b) the
addition of the Sickinger Company for all of 1995; c) increased expenditures
for the European Distribution Center; and d) studies to evaluate the
restructuring of the Company's European distribution and information systems
functions. The 1995 increases were partially offset by lower expenses in the
Company's Mexican operations as a result of the devaluation of the peso, and
efficiencies achieved in the domestic direct branch/telemarketing operations.
A pre-tax restructuring charge of $4.0 million was recorded in 1994.
See Note 14 to the Consolidated Financial Statements for additional
information.
Interest expense increased by 45% in 1996 compared to a 13% increase in
1995. The reason for the 1996 increase was higher average debt levels caused by
significantly higher inventories and receivables along with investments in
Fordigraph, Pro-Tech, and GMP. The primary reason for the 1995 increase was
higher average interest rates, as the Company's average debt level decreased
slightly in 1995.
Other income and expense netted to $688,000, $903,000, and $1,842,000
of expense in 1996, 1995, and 1994, respectively. The most significant factors
affecting the favorable change in 1996 was due to the gain on the sale of the
Company's manufacturing facility in Australia and foreign currency gains
compared to losses in 1995. The most significant factors affecting the
favorable change in 1995 were a gain on the sale of the Company's manufacturing
facility in Germany and a gain on the sale of stock received when an insurance
company in which GBC held policies converted from a mutual company to a stock
company.
11
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FINANCIAL REVIEW
GBC and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INCOME TAXES
The Company's effective tax rate increased to 40.8% from 40.0% in 1995.
The 1996 rate increased primarily as a result of an increase in nondeductible
goodwill and a tax charge incurred pursuant to the tax allocation agreement
between the Company and Lane Industries, Inc.. Numerous other items enter into
the development of the Company's effective tax rate. Additional information is
included in Note 10 to the Consolidated Financial Statements.
NET INCOME
The Company's net income per share increased 17% to $1.60 compared to
1995 net income per share of $1.37. Despite a decline in gross margins, net
income increased on the continuing improvement in sales (up 17%). The Company
experienced improved profitability in all major channels of distribution with
the exception of the ringmetals business. The Company's 1995 net income per
share increased 37% to $1.37 compared to 1994 net income per share of $1.00.
Excluding the impact of the $2.5 million dollar or $.16 per share after-tax
restructuring charge in 1994, the Company's net income per share increased 18%
or $.21 per share. The increase was primarily attributed to increased sales (up
9%) and a lower growth in selling, general and administrative expense (up 4%).
The Company experienced improved profitability in all major channels of
distribution with the exception of the ringmetals and the Mexican operations.
OTHER EVENTS
During December 1994 the Mexican peso was devalued. The value of the
Mexican peso compared to the U.S. dollar continued to weaken throughout 1995.
The effect of the devaluation on the Company's results of operations for 1995
was significant (approximately $.06 per share), however, the impact on 1996 was
not material. Without the impact of the devaluation in 1995, the Company's
Mexican operations sales and operating income would have been flat compared to
1994. The assets and liabilities of the Company's Mexican operations were
translated into U.S. dollars in 1996 and 1995 resulting in unfavorable
adjustments of $92,278 and $1,793,000, respectively. In accordance with SFAS
No. 52, "Foreign Currency Translation," this adjustment is reflected in the
Company's equity section of the balance sheet.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities decreased to $2.3 million in 1996
compared with $26.9 million in 1995 and $5.2 million in 1994. The decrease in
cash flow in 1996 was primarily due to larger increases in inventory and
accounts receivable. The increase in cash flow in 1995 was primarily due to
increased operating earnings and smaller increases in inventory and accounts
receivable.
Capital expenditures were $27.8 million in 1996 compared to $15.0
million in 1995, and $12.8 million in 1994. Major projects in 1996 and 1995
include the implementation of a new business information system, the continued
investment in the film products division, and additional spending on new
product tooling. Capital expenditures on the new information system were $10.9
million and $7.2 million in 1996 and 1995, respectively. Capital expenditures
of the film products division for 1996 were $6.9 million, and include the
completion of an additional domestic production facility; and 1995 expenditures
were $1.9 million. Major projects in 1994 included the completion of a European
production facility for the film products division and the construction of a
ringmetals manufacturing operation in Costa Rica.
12
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FINANCIAL REVIEW
GBC and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Cash dividends paid in 1996 increased to $.430 per share compared to
$.420 per share in 1995 and $.405 per share in 1994.
The Company had access to $63.8 million in short term credit lines as
of December 31, 1996 and $31.7 million in outstanding borrowings against these
lines. The Company also had access to a $140 million credit agreement to fund
both working capital and acquisition requirements. At the end of 1996, the
Company had $70.7 million in borrowings against this agreement classified as
long-term borrowings on the Company's balance sheet. Additional information is
included in Note 6 to the Consolidated Financial Statements.
On January 13, 1997, GBC entered into a new $400 million credit
facility. The Company believes that funds generated from operations combined
with the new facility are more than sufficient to meet currently anticipated
operating and capital needs. Additional information regarding the new credit
facility is included in Note 15 to the Consolidated Financial Statements.
ACQUISITIONS
On January 16, 1997, GBC completed the acquisition of the Quartet
Manufacturing Co. which is headquartered in Skokie, Illinois. Quartet
manufactures and distributes visual communication products including
markerboards, bulletin boards and easels. Quartet had sales of approximately
$149 million in fiscal 1996.
On October 10, 1996, the Company made an investment in GMP Co., Ltd. of
South Korea to jointly develop and market desktop lamination equipment and
supplies. With the agreement, the Company became an equity shareholder in GMP
(33% share). GMP is a leading worldwide supplier of laminating systems
primarily for retail markets.
On January 19, 1996, GBC completed the acquisition of the T.A.C. Group,
a leading distributor of office products in Australia. The T.A.C. Group, which
operates under the name Fordigraph, is a market leader in the sale of paper
shredders, mail room equipment, presentation products, and binding systems.
On December 21, 1995, the Company finalized the acquisition of Pro-Tech
Engineering Inc., a leading manufacturer and distributor of equipment and
supplies to the digital graphics market.
On August 26, 1994, the company completed the purchase of the Sickinger
Company. Sickinger manufactures paper punching machines as well as wire and
plastic coil binding supplies.
13
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
GBC and Subsidiaries
(000 omitted except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES:
Domestic $346,524 $293,188 $274,319
International 190,312 165,203 146,130
TOTAL SALES 536,836 458,391 420,449
- ------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales, including development and engineering 315,949 263,706 237,492
Selling, service and administrative 171,473 153,690 147,639
Restructuring - - 4,000
Interest 6,172 4,259 3,776
Other expense, net 688 903 1,842
TOTAL COSTS AND EXPENSES 494,282 422,558 394,749
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES 42,554 35,833 25,700
- ------------------------------------------------------------------------------------------------------------------------
INCOME TAXES 17,341 14,333 9,997
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 25,213 $ 21,500 $ 15,703
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 1.60 $ 1.37 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $ .430 $ .420 $ .405
- ------------------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 15,743 15,740 15,763
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
14
<PAGE> 6
CONSOLIDATED BALANCE SHEETS GBC and Subsidiaries
(000 omitted except per share data)
<TABLE>
<CAPTION>
DECEMBER 31 1996 1995
------------------------------------------------------------------------
ASSETS
------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,721 $ 6,864
Receivables, less allowances for doubtful
accounts and sales returns: 1996-$6,424,
1995-$5,186 115,865 79,942
Inventories, at lower of cost or market 96,734 79,605
Deferred tax assets 11,453 10,412
Other 6,441 3,825
------------------------------------------------------------------------
Total current assets 237,214 180,648
------------------------------------------------------------------------
PLANT AND EQUIPMENT, AT COST:
Land and land improvements 4,837 5,025
Buildings and leasehold improvements 28,806 26,316
Machinery and equipment 107,308 95,330
------------------------------------------------------------------------
140,951 126,671
Less--Accumulated depreciation and amortization (71,940) (65,210)
------------------------------------------------------------------------
Net plant and equipment 69,011 61,461
------------------------------------------------------------------------
OTHER ASSETS:
Cost in excess of fair value of assets of acquired
companies, net of amortization 43,510 31,363
Other 43,971 25,400
------------------------------------------------------------------------
Total other assets 87,481 56,763
------------------------------------------------------------------------
TOTAL ASSETS $393,706 $298,872
------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------
CURRENT LIABILITIES:
Notes payable $ 31,700 $ 17,428
Current maturities of long-term obligations 483 505
Accounts payable 28,506 23,600
Accrued liabilities--
Salaries, wages and profit sharing contributions 14,425 11,293
Taxes, other than income taxes 3,036 2,761
Deferred income on maintenance agreements 9,620 8,556
Other 24,359 19,685
------------------------------------------------------------------------
Total current liabilities 112,129 83,828
------------------------------------------------------------------------
LONG-TERM DEBT, less current maturities: 87,029 43,890
OTHER LONG-TERM LIABILITIES 10,229 9,855
DEFERRED TAX LIABILITIES 12,187 7,158
Stockholders' Equity:
Common stock, $.125 par value, shares authorized
20,000,000; shares issued 15,693,747 in
1996 and 1995 1,962 1,962
Class B common stock, $.125 par value; shares
authorized 2,398,275; shares issued 2,398,275
in 1996 and 1995 300 300
Additional paid-in-capital 8,564 7,267
Cumulative translation adjustments (3,035) (2,723)
Retained earnings 186,663 168,219
------------------------------------------------------------------------
194,454 175,025
Less--Treasury stock--2,342,143 shares in 1996 and
2,357,910 shares in 1995 (22,322) (20,884)
------------------------------------------------------------------------
Total stockholders' equity 172,132 154,141
------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $393,706 $298,872
------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
15
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
GBC and Subsidiaries
(000 omitted)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $25,213 $21,500 $15,703
------- ------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,018 12,814 12,081
Increase in non-current deferred taxes 5,029 240 1,280
Provision for doubtful accounts 2,334 1,584 1,774
(Increase) in other long-term assets (3,890) (4,209) (5,154)
Other (2,379) 878 1,483
Changes in current assets and liabilities:
(Increase) in receivables (36,500) (8,074) (12,071)
(Increase) in inventories (10,536) (4,154) (8,870)
(Increase) decrease in other current assets (2,314) 2,501 (2,313)
(Increase) in deferred tax assets (1,052) (1,681) (1,123)
Increase in accounts payable and accrued liabilities 9,982 5,585 2,732
Increase (decrease) in taxes on income 1,375 - (301)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,280 26,984 5,221
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (27,778) (15,046) (12,788)
Payments on acquisitions and investments (net of cash acquired) (28,881) (1,458) (3,453)
Proceeds from sale of plant and equipment 3,676 2,380 3,279
Government training subsidy from new plant investment - 746 -
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (52,983) (13,378) (12,962)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (reduction) in notes payable 14,192 (6,429) 13,651
Increase in long-term obligations 43,733 2,147 2,802
(Reduction) of long-term obligations (150) (535) (901)
(Reduction) increase in current portion of long-term obligations (358) (196) 236
Dividends paid (6,769) (6,611) (6,384)
Purchases of treasury stock (1,645) (1,141) (975)
Proceeds from the exercise of stock options 1,463 624 438
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 50,466 (12,141) 8,867
------- -------- -------
Effect of exchange rates on cash 94 (170) (19)
- --------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash & cash equivalents (143) 1,295 1,107
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of the year 6,864 5,569 4,462
Cash and cash equivalents at end of the year $ 6,721 $ 6,864 $ 5,569
------- -------- -------
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 6,638 $ 4,180 $ 3,667
Income taxes, net of refunds 11,730 13,240 11,986
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
16
<PAGE> 8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
GBC and Subsidiaries
(000 omitted except number of shares and per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL CUMULATIVE
COMMON STOCK* TREASURY STOCK PAID-IN TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENTS EARNINGS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 18,092,022 $2,262 (2,330,612) $(18,976) $6,133 $ 101 $144,011 $133,531
1994 translation adjustment -- -- -- -- -- (1,305) -- (1,305)
Exercise of stock options -- -- 38,098 90 429 -- -- 519
Purchase of treasury stock -- -- (51,721) (975) -- -- -- (975)
Net income in 1994 -- -- -- -- -- -- 15,703 15,703
Dividends paid ($.405 per
share) -- -- -- -- -- -- (6,384) (6,384)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 18,092,022 $2,262 (2,344,235) $(19,861) $6,562 $(1,204) $153,330 $141,089
1995 translation adjustment -- -- -- -- -- (1,519) -- (1,519)
Exercise of stock options -- -- 49,722 118 705 -- -- 823
Purchase of treasury stock -- -- (63,397) (1,141) -- -- -- (1,141)
Net income in 1995 -- -- -- -- -- -- 21,500 21,500
Dividends paid ($.42 per
share) -- -- -- -- -- -- (6,611) (6,611)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 18,092,022 $2,262 (2,357,910) $(20,884) $7,267 $(2,723) $168,219 $154,141
1996 translation adjustment -- -- -- -- -- (312) -- (312)
Exercise of stock options -- -- 87,644 207 1,297 -- -- 1,504
Purchase of treasury stock -- -- (71,877) (1,645) -- -- -- (1,645)
Net income in 1996 -- -- -- -- -- -- 25,213 25,213
Dividends paid ($.43 per
share) -- -- -- -- -- -- (6,769) (6,769)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 18,092,022 $2,262 (2,342,143) $(22,322) $8,564 $(3,035) $186,663 $172,132
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes Class B Common Stock--Shares 2,398,275, Amount $300,000.
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRINCIPAL MARKET AND PRICE RANGE
The following table shows the range of closing prices for the common
stock in the NASDAQ National Market System for the calendar quarters indicated
below:
<TABLE>
<CAPTION>
PRICES 1996 1995
- --------------------------------------------------------------------------------
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter $ 23 1/4 $ 19 1/4 $ 20 $ 14 1/4
Second Quarter 23 1/4 19 1/2 19 1/4 16
Third Quarter 24 20 22 1/4 16
Fourth Quarter 30 3/4 23 1/2 23 19 1/4
- --------------------------------------------------------------------------------
</TABLE>
DIVIDENDS
The following table shows the dividends paid per share during the
calendar quarters indicated below:
<TABLE>
<CAPTION>
DIVIDENDS PAID 1996 1995
- -----------------------------------------
<S> <C> <C>
First Quarter $.105 $ .105
Second Quarter .105 .105
Third Quarter .110 .105
Fourth Quarter .110 .105
- -----------------------------------------
Total .430 $ .420
- -----------------------------------------
</TABLE>
Cash dividends have been paid each quarter commencing with the fourth
quarter of 1975. The future payment of dividends and any increases therein are
within the discretion of the Company's Board of Directors and will depend, among
other factors, on working capital requirements, capital expenditures and
earnings growth of the Company. On March 24, 1997, the Company paid a quarterly
dividend of $.11 per share.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF FEBRUARY 28, 1997
- -------------------------------------------------------------
<S> <C>
Common Stock, $.125 par value 663*
Class B Common Stock, $.125 par value 1
</TABLE>
*Per latest report of Transfer Agent. Each security dealer holding shares in a
street name for one or more individuals is counted as only one record holder.
17
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Consolidation
The consolidated financial statements include the accounts of the Company
and its domestic and international subsidiaries. All of these international
subsidiaries have November 30 fiscal year-ends except for Canada and Mexico.
Intercompany accounts and transactions have been eliminated in consolidation.
Investments in significant companies which are 20% to 50% owned are
treated as equity investments and the Company's share of earnings is included
in income.
(B) Cash and Cash Equivalents
The Company considers temporary cash investments with an original maturity
of three months or less to be cash equivalents.
(C) Inventory Valuation
Inventories are valued at the lower of cost or market on a first-in,
first-out basis. Inventory costs include labor, material and factory overhead.
(D) Depreciation of Plant and Equipment
Depreciation of plant and equipment is computed using principally the
straight-line method over the following estimated lives:
- -------------------------------------------------------------------------------
Buildings 30-35 years
Machinery and equipment 3-20 years
Leasehold improvements Term of lease
- -------------------------------------------------------------------------------
The cost and accumulated depreciation of items sold or retired are removed
from the asset accounts and the resulting gain or loss is recognized in income.
(E) Goodwill and Other Intangible Assets
For financial statement purposes, goodwill and other intangibles are
generally amortized using the straight-line method over their estimated useful
lives, not exceeding 40 years. Accumulated amortization of goodwill amounted to
$6,693,000 in 1996 and $5,684,000 in 1995.
(F) Compensated Absences
The Company follows the policy of accruing vacation pay for all employees.
(G) Income Taxes
Since 1986, the Company's policy has been to provide appropriate income
taxes on the earnings of its international subsidaries that are expected to be
distributed to the Company. In 1996, 1995 and 1994, current earnings of all
international subsidiaries other than GBC Canada and Mexico were considered
remitted to the United States for the purpose of determining income tax expense
for the year. In addition, in 1988, the Company implemented a balance sheet
hedging strategy for its international operations and as a result provided
income taxes on approximately $4,449,000 of pre-1986 earnings of its
international subsidiaries. Approximately $1,835,000 of these earnings were
remitted in the years 1988 through 1996, and the balance is expected to be
remitted in future years.
As of December 31, 1996, the cumulative amount of undistributed earnings of
international subsidiaries upon which income taxes have not been provided was
approximately $17.1 million. In the opinion of management, this amount remains
indefinitely reinvested by the international subsidiaries.
(H) Net Income per Common Share
Net income per common share is based on the weighted average number of
common shares outstanding for each year. Assuming exercise of all outstanding
stock options, net income per common share would not be materially different
from net income per common share as reported.
(I) Stock Option Compensation
Stock option compensation cost applicable to the non-qualified restricted
plans is valued at the date of the grant and recorded as compensation expense
as the options become exercisable.
18
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
(J) Deferred Service Income
Income under maintenance agreements is deferred and recognized over the
term (primarily 1 to 2 years) of the agreements on a straight-line basis.
(K) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required the use of certain estimates by
management in determining the entity's assets, liabilities, revenue, and
expenses. Actual results could differ from those estimates.
(2) FOREIGN CURRENCY EXCHANGE AND TRANSLATION
Foreign currency translation adjustments have been excluded from the
Consolidated Statements of Income and are recorded in a cumulative translation
adjustment account as a separate component of stockholders' equity.
The accompanying Consolidated Statements of Income include net gains and
losses on foreign currency transactions. Such amounts are reported as other
income/expense and are summarized as follows (000 omitted):
<TABLE>
<CAPTION>
FOREIGN CURRENCY
TRANSACTION
YEAR ENDED DECEMBER 31 GAIN/(LOSS)(a)
- ----------------------------------------------------------------------------
<S> <C>
1996 $ 668
1995 $(612)
1994 $(329)
- ----------------------------------------------------------------------------
</TABLE>
(a) Foreign currency transaction gains/losses are subject to income taxes at
the respective country's effective tax rate.
(3) INVENTORIES
Inventories are summarized as follows (000 omitted):
<TABLE>
<CAPTION>
FINISHED WORK IN RAW
DECEMBER 31 TOTAL GOODS PROCESS MATERIALS
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $96,734 $68,126 $7,410 $21,198
1995 $79,605 $53,990 $5,473 $20,142
- -------------------------------------------------------------
</TABLE>
(4) PROFIT-SHARING AND PENSION PLANS
As of January 1, 1996, the Company converted its defined contribution
profit-sharing plan to a 401(K) plan. The participants of the 401(K) plan may
contribute from 1% to 15% of their salary on a pretax basis. The 401(K) plan
requires the Company to make annual contributions by matching 100% of pre-tax
contributions up to 4.5% of eligible compensation. Substantially all eligible
full-time domestic employees (excluding U.S. RingBinder union and Pro-Tech
employees) are eligible to participate in the 401(K) plan. The Company's
contribution to the plan was $2,057,000 in 1996.
Prior to January 1, 1996, all eligible full-time domestic employees could
participate in a defined contribution profit-sharing plan. The Company was
required to make annual contributions, as defined, to a trust fund for employees
participating in the plan. Contributions charged to expense were $2,147,000 in
1995 and $2,092,000 in 1994.
The Company also has one separate active domestic defined benefit pension
plan (U.S. RingBinder Company Pension Plan for Union Member Employees) and two
frozen domestic defined benefit pension plans (The Guaranteed Retirement Income
Plan and the U.S. RingBinder Corporation Defined Benefit Pension Plan). The
active defined benefit plan covers substantially all U.S. RingBinder union
member employees. The plan provides benefits that are based on the employee's
years of credited service. The Company's funding policy towards all domestic
plans is to fund the plans annually in accordance with ERISA and Federal tax
regulations. All domestic plans utilize the entry age normal funding actuarial
method to calculate the annual normal cost. The plans' assets consist of cash
and cash equivalents, debt, equity, and government securities.
VeloBind was acquired by the Company on November 1, 1991. On this date, all
of VeloBind's full-time employees became eligible for the same profit-sharing
and pension
19
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
plans as the Company's domestic employees. Prior to acquisition, VeloBind
maintained a 401(K) Savings Incentive Plan. Upon acquisition, this plan was
frozen with all Company and employee contributions suspended. The account
balances from the Savings Incentive Plan were transferred to the new 401(K)
plan effective on January 1, 1996.
The Company's international subsidiaries have adopted a variety of defined
benefit and defined contribution plans. These plans provide benefits that are
based upon the employee's years of credited service. The benefits payable under
these plans, for the most part, are provided by the establishment of trust
funds or the purchase of insurance annuity contracts.
Net periodic pension expense for the pension plans for the years 1996, 1995,
and 1994 was as follows (000 omitted):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic pension plans $(584) $ 117 $ 199
International subsidiary pension plans 887 1,194 1,247
- -----------------------------------------------------------------------------------------------------
Total expense $ 303 $1,311 $1,446
- -----------------------------------------------------------------------------------------------------
</TABLE>
The following rates were used in determining the actuarial present value of
accumulated plan benefits for the Company's pension plans:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1996 1995
Domestic International Domestic International
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate 8.0% 3.0%-8.0% 8.0% 4.0%-15.0%
Weighted average investment return rate 9.5% 4.5%-9.0% 9.5% 4.5%-16.0%
Salary increase rate 5.0% 4.0%-6.0% 4.5%-5.0% 4.0%-12.0%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Net periodic pension expense/(income) for 1996, 1995, and 1994 includes the
following components (000 omitted):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits
earned during the period $ 56 $ 969 $ 237 $ 1,102 $ 167 $1,087
Interest cost on projected benefit obligations 263 866 281 940 297 866
Actual return on assets (182) (1,417) (288) (1,173) (21) (509)
Net amortization and deferral (77) 469 (113) 325 (244) (197)
Curtailment gain (644) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic pension expense $(584) $ 887 $ 117 $ 1,194 $ 199 $1,247
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Included in the net periodic pension expense in 1996 is a gain resulting from
the curtailment of the Guaranteed Retirement Income Plan.
20
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
The following table sets forth the plans' funded status at December 31, 1996
and 1995 (000 omitted):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
PROJECTED BENEFIT ASSETS EXCEED
OBLIGATIONS PROJECTED BENEFIT
EXCEED ASSETS OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------------------
International Domestic International
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 3,815 $ 2,023 $ 7,663
Non-vested benefits 146 35 348
- ------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations 2,961 3,058 8,011
Effect of projected future compensation levels 905 -- 3,214
- ------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations 3,866 3,058 11,225
Plan assets at fair value 1,187 3,360 13,883
- ------------------------------------------------------------------------------------------------------------------------
Plan assets (less than) in excess of projected
benefit obligations (2,679) 302 2,658
Unrecognized net loss (gain) due to past
experience different from assumptions 776 702 (506)
Unrecognized prior service cost -- 99 429
Adjustment to recognize minimum liability (236) (764) --
Unrecognized net (asset) obligation
at October 1, 1986 to be amortized over
average remaining service of participants 2 -- (873)
- ------------------------------------------------------------------------------------------------------------------------
(Accrued) prepaid pension cost $ (2,137) $ 339 $ 1,708
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
PROJECTED BENEFIT ASSETS EXCEED
OBLIGATIONS PROJECTED BENEFIT
EXCEED ASSETS OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Domestic International International
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 3,457 $ 7,739 $1,495
Non-vested benefits 64 233 266
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations 3,521 7,972 1,761
Effect of projected future compensation levels 866 3,778 672
- ----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations 4,387 11,750 2,433
Plan assets at fair value 3,169 9,159 3,333
- -----------------------------------------------------------------------------------------------------------------------------------
Plan assets (less than) in excess of projected
benefit obligations (1,218) (2,591) 900
Unrecognized net loss (gain) due to past
experience different from assumptions 1,612 2,157 (260)
Unrecognized prior service cost 141 421 --
Adjustment to recognize minimum liability (357) (368) --
Unrecognized net (asset) obligation
at October 1, 1986 to be amortized over
average remaining service of participants (251) (959) 66
- ----------------------------------------------------------------------------------------------------------------------------------
(Accrued) prepaid pension cost $ (73) $(1,340) $ 706
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
(5) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company currently provides certain health care benefits for eligible
domestic retired employees. Employees may become eligible for those benefits if
they have fulfilled specific age and service requirements.
In 1993, the Company adopted the Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits other
than Pensions." This statement requires companies to accrue the cost of
postretirement benefits during the service lives of employees. The Company
elected to amortize over a twenty-year period the accumulated liability,
measured as of December 31, 1992, of $1,905,000. Prior to adopting this
standard, the Company recognized these costs as the benefits were paid.
Net periodic postretirement benefit expense consisted of the following
components (000 omitted):
1996 1995 1994
- ---------------------------------------------------
Service cost $141 $123 $194
Interest cost 219 158 163
Net amortization of initial
transition obligation 95 95 95
Amortization of unrecognized
net loss 13 -- --
- ---------------------------------------------------
Net periodic postretirement
benefit costs $468 $376 $452
- ---------------------------------------------------
The projected liabilities which are not funded are as follows (000 omitted):
1996 1995
- --------------------------------------------------------------
Accumulated postretirement benefit obligations:
Retired participants and beneficiaries $ 1,868 $2,074
Active participants eligible for retirement 346 371
Other active participants 923 1,175
- --------------------------------------------------------------
Total benefit obligation $ 3,137 $3,620
Experience (loss) gain (843) (665)
Unrecognized transition obligation (1,524) (2,376)
- --------------------------------------------------------------
Accrued postretirement benefit cost $ 770 $ 579
- --------------------------------------------------------------
The following assumptions used in determining the expense and obligation are
listed below:
1996 1995
- --------------------------------------------------------------
Discount rate 8% 8%
Health care cost increase 9% 9%
- --------------------------------------------------------------
The rate of increase in the per capita cost of covered health benefits was
assumed to be 9% in 1995, decreasing gradually to 6% by the year 2000 and
remaining at that level thereafter.
The effect of a 1% increase in the medical trend assumption would increase
the accumulated postretirement benefit obligation as of December 31, 1996 by
$158,000 and increase the net periodic cost by $33,000.
The Company monitors the cost of the plan, and has, from time to time,
changed the benefits provided under this plan. The Company reserves the right
to make additional changes or terminate these benefits in the future. Any
changes in the plan or revisions of the assumptions affecting expected future
benefits may have a significant effect on the amount of the obligation and
annual expense.
22
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
(6) Debt and Credit Arrangements
Information regarding short-term debt for the three years ended December 31,
1996, 1995, and 1994, is as follows (000 omitted):
- --------------------------------------------------------------------------------
WEIGHTED MAXIMUM WEIGHTED
AVERAGE MONTH-END AVERAGE AVERAGE
INTEREST BALANCE AMOUNT INTEREST
BALANCE RATE OUTSTANDING OUTSTANDING RATE
AT END AT END DURING DURING DURING
OF YEAR OF YEAR THE YEAR THE YEAR THE YEAR
- --------------------------------------------------------------------------------
(A) (B) (C) (D) (E)
1996
Notes payable to banks $31,700 8.3% $41,757 $31,272 7.1%
1995
Notes payable to banks 17,428 7.8% 19,012 17,045 8.5%
1994
Notes payable to banks 23,814 6.4% 34,143 22,875 6.4%
- --------------------------------------------------------------------------------
(A) Notes payable by the Company's foreign subsidiaries were $13,160,000 in
1996, $9,588,000 in 1995, and $9,443,000 in 1994.
(B) The rate for 1994 includes Mexico borrowings at a rate which is influenced
by the rate of inflation in that country. The weighted average interest
rate for notes payable to banks, excluding such borrowings, for the year
ended December 31, 1994 would have been 6.3%. The weighted average
interest rate is computed by dividing the annualized interest expense for
the short-term debt outstanding by the short-term debt outstanding at
December 31.
(C) The composition of the Company's short-term debt will vary by category at
any point in time during the year.
(D) Average amount outstanding during the year is computed by dividing the
total daily outstanding principal balances by 366 days in 1996 and by 365
days in 1995 and 1994.
(E) The weighted average interest rate during the year for notes payable to
banks excluding Mexican borrowings, for the year ended December 31, 1994
would have been 6.1%. The weighted average interest rate during the year
is computed by dividing the actual short-term interest expense by the
average short-term debt outstanding.
Long-term debt consists of the following at December 31, 1996 and 1995 (000
omitted):
- -------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------
Revolving credit agreement--portion classified as long-term
on the basis of the Company's intention to refinance these
borrowings (floating interest rate--6.08% at December 31,
1996 and 6.25% at December 31, 1995) $70,700 $36,000
Note payable, due monthly November 1994 to October 2004
(interest rate--8.85% at December 31, 1996 and 1995) 2,637 3,137
Note payable, due June 2000 (interest rate--7.05% at
December 31, 1996 and 1995) 1,883 2,008
Industrial Revenue Bond, due annually from July 1994
to July 2008 (floating interest rate--4.0% at December
31, 1996 and 5.0% at December 31, 1995) 2,050 2,200
Industrial Revenue Bond, due annually from June 2002
to June 2007 (floating interest rate--4.35% at
December 31, 1996 and 5.20% at December 31, 1995) 1,050 1,050
Industrial Development Bond, due March 2026
(floating interest rate--4.30% at December 31, 1996) 5,724 --
International Revolving Credit Agreement (floating
interest rate--7.85% at December 31, 1996) 3,468 --
- -------------------------------------------------------------------------------
87,512 44,395
Less--current maturities 483 505
- -------------------------------------------------------------------------------
Total long-term debt $87,029 $43,890
- -------------------------------------------------------------------------------
23
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
The Company has short-term lines of credit aggregating $63.8 million from
various banks worldwide, of which $43.8 million are with foreign banks or
foreign branches of banks. Interest rates on these lines of credit are
primarily at the prime rate or the lender's cost of funds plus margin. These
arrangements are reviewed annually for renewal.
The Company had access to a $140 million revolving credit agreement to fund
both working capital and acquisition requirements. Under the terms of the
agreement, which was entered into with a group of lenders, the Company can
borrow up to $140 million under a bid option facility at any time until July
2000. Interest is payable at varying rates provided for in the loan agreement.
The Company agreed to pay an annual facility fee of 1/10 of one percent on the
total commitment amount of $140 million.
The revolving credit agreement contains, among other things, certain
restrictive covenants. Under the most restrictive of the covenants, the Company
and its subsidiaries must maintain a funded debt ratio at not more than 0.55 to
1.0, an interest coverage ratio of not less than 4.0 to 1.0, and a fixed charge
coverage ratio of not less than 1.5 to 1.0. The Company is in compliance with
these covenants at December 31, 1996.
As of December 31, 1996, the Company had $70.7 million in borrowings
against this agreement classified as long-term borrowings on the Company's
balance sheet.
In January 1997, the Company entered into a new revolving credit
agreeement. Additional information regarding the new credit facility is
included in Note 15 to the Consolidated Financial Statements.
The scheduled maturities of long-term debt for each of the five years
subsequent to December 31, 1996, are as follows (000 omitted):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- ---------------------------------------------------------------
<S> <C>
1997 $483
1998 483
1999 483
2000 483
2001 483
- ---------------------------------------------------------------
</TABLE>
(7) FINANCIAL INSTRUMENTS
Many of the Company's financial instruments (including cash and cash
equivalents, accounts and notes receivable, notes payable, and other accrued
liabilities) carry short-term maturities. As such instruments have short-term
maturities, their fair values approximate the carrying values. Substantially
all of the Company's long-term obligations, including current maturities of
long-term obligations have floating interest rates. The fair value of these
instruments also approximates the carrying values.
Interest Rate Swaps and Caps
The Company enters into interest rate swap and interest rate cap agreements
to hedge interest rate exposure on floating rate debt. At December 31, 1996,
the Company had outstanding twelve interest rate swaps with commercial banks
("counterparties"), having a total notional principal amount of $90 million (no
exchange of principal was involved) with various maturity dates through
February 2002.
Under these agreements, the Company is obligated at a weighted average
interest rate of 6.08% with payments due quarterly until maturity. The floating
rate from counterparties is based on the three month U.S. dollar LIBOR rate
(5.5625% at December 31, 1996).
The Company accounts for its swaps by accruing the differential to be paid
or received as interest rates change over the life of the agreements.
At December 31, 1996, the fair value of the interest rate swaps was
$277,000 and represented the amounts the counterparties would pay the Company
if the agreements were terminated. At December 31, 1995, the fair value of the
interest rate swaps was ($589,000) and represented the amounts the Company
would have had to pay to terminate the agreements.
During 1996, the Company entered into an interest rate cap agreement with a
commercial bank having a notional principal amount of $5 million. The beginning
effective date for this agreement was October 24, 1996 with a maturity date of
September 28, 2001. During 1994, the Company entered into two interest rate cap
agreements with commercial banks
24
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
having a total notional principal amount of $10 million. The beginning effective
date for these agreements was September 30, 1994 with maturity dates September
1997 and September 1998. The Company was required to pay a one-time fee in
exchange for the counterparties' obligation to pay the Company the difference
between the three month U.S. dollar LIBOR interest rate and 7.5% in the event
that the LIBOR interest rate exceeds 7.5%. Fees for interest rate caps are
capitalized and amortized over the life of the cap agreement. At December 31,
1996 and 1995, the carrying value in the Company's balance sheet for interest
rate caps was $170,000 and $145,000, respectively. Fair values of the interest
rate caps at December 31, 1996 and 1995 were $80,000 and $12,000, respectively,
and represented the amounts the counterparties would pay the Company if the
agreements were terminated.
The Company is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap and cap agreements, however, the
Company believes that the risk of loss is remote.
Foreign Exchange Contracts
The Company also enters into foreign exchange contracts to hedge foreign
currency exchange risk. These contracts primarily hedge inventory purchases,
royalties and management fees. The hedged transactions are recorded based upon
the nature of the transaction (e.g., costs related to inventory purchases are
recorded to inventory and recognized in cost of sales). At December 31, 1996,
the Company had foreign exchange contracts with various dates of maturity
through December 31, 1997 to purchase $4.7 million in foreign currency and
$38.7 million in U.S. dollars. The fair market value of the contracts at the
1996 year end spot rate was approximately $574,000 less than the contracted
amount. At December 31, 1995, the Company had foreign exchange contracts with
various dates of maturity through December 31, 1996, to purchase $518,000 in
foreign currency and $14.2 million in U.S. dollars. The fair market value of the
contracts at the 1995 year end spot rate was approximately $350,000 greater
than the contracted amount.
(8) RENTS AND LEASES
Following is a schedule summarizing, by year, the future minimum rental
payments and guaranteed residual payments required for all noncancelable lease
terms in excess of one year as of December 31, 1996 (000 omitted):
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31 LEASES
- --------------------------------------------------------
<S> <C>
1997 $ 9,112
1998 8,193
1999 7,368
2000 4,086
2001 3,393
FUTURE YEARS 17,284
- --------------------------------------------------------
TOTAL MINIMUM LEASE PAYMENTS $49,436
- --------------------------------------------------------
</TABLE>
Total rental expense for the years ended December 31, 1996, 1995 and 1994
was $8,253,000, $8,235,000 and $7,693,000, respectively.
(9) COMMON STOCK AND STOCK OPTIONS
The Company's Certificate of Incorporation provides for 20,000,000
authorized shares of common stock, $.125 par value per share and 2,398,275
shares of Class B common stock, $.125 par value per share. Each Class B share
is entitled to 15 votes and is to be automatically converted into one share of
common stock upon transfer thereof. All of the Class B shares are owned by Lane
Industries, Inc., the Company's majority stockholder.
The Company has two non-qualified stock option plans adopted in 1980 and
1989 for officers, including officers who are directors, and other key
employees of the Company. The 1980 plan terminated in 1990, however the options
granted under this plan may be exercised at various times until January, 1998.
Under both plans, options may be granted during a ten year period at a purchase
price of not less than 85% of the fair market value on the date of the grant.
Options granted may be exercised in four equal parts over a period not to
exceed eight years from the date of grant, except that no part of an option may
be exercised until at least one year from the date of grant has elapsed. In
addition, the 1989 plan also provides that any option granted under the 1989
plan may include a grant of stock appreciation rights simultaneously
25
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
with the grant of the option or any time within six months thereafter prior to
the exercise, termination or expiration of such option. The Company did not
grant any stock appreciation rights during 1996 or 1995. The Company reserved
1,050,000 shares of its common stock for subsequent issuance pursuant to the
1989 plan. The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for these
plans been determined consistent with FASB Statement No. 123, the Company's
net income and earnings per share would have been reduced to the following pro
forma amounts (000 omitted except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Net Income: As Reported $ 25,213 $ 21,500
Pro Forma $ 23,783 $ 21,201
- --------------------------------------------------------------
Primary and Fully Diluted EPS:
As Reported $1.60 $1.37
Pro Forma $1.51 $1.35
- --------------------------------------------------------------
</TABLE>
A summary of the stock option activity under the 1980 and 1989 plans is as
follows (000 omitted except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1996 1995
- -----------------------------------------------------------------------
WTD. AVG. WTD. AVG.
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Shares under option
at beginning of year 300 $17 282 $16
Options granted 236 $23 78 $15
Options exercised (88) $16 (50) $12
Options expired/canceled (13) $17 (10) $18
- -----------------------------------------------------------------------
Shares under option
at end of year 435 $20 300 $17
- -----------------------------------------------------------------------
Options exercisable 51 $17 57 $17
- -----------------------------------------------------------------------
Weighted average fair value
of options granted $10.23 $6.37
- -----------------------------------------------------------------------
</TABLE>
The 435,264 options outstanding at December 31, 1996 have exercise prices
between $14 and $23, with a weighted average exercise price of $20 and a
weighted average remaining contractual life of 4.75 years. Of the options
outstanding, 50,602 of these options are exercisable and the weighted average
exercise price is $17.
The fair value of each option granted is estimated on the grant date using
the Black-Scholes option pricing model. The following assumptions were made in
estimating fair value:
<TABLE>
<CAPTION>
1996 1995
ASSUMPTION WTD. AVG. WTD. AVG.
- -----------------------------------------------------------------------------
<S> <C> <C>
Dividend yield 1.83% 2.77%
Risk-free interest rate 6.33% 7.23%
Expected life 8 years 8 years
Expected volatility 38.24% 39.10%
- -----------------------------------------------------------------------------
</TABLE>
(10) INCOME TAXES
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". SFAS 109
requires the recognition of deferred tax assets and liabilities for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. In addition, the accounting standard requires the recognition of future
tax benefits, such as net operating loss carryforwards, to the extent that
realization of such benefits is more likely than not.
26
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
The provision for income taxes was as follows (000 omitted):
1996 1995 1994
- ------------------------------------------------------------
Currently payable:
Federal $ 7,988 10,449 $ 5,975
State 1,672 1,576 1,092
Foreign 5,250 3,671 2,294
- ------------------------------------------------------------
Total current $ 14,910 $ 15,696 $ 9,361
- ------------------------------------------------------------
Deferred payable:
Federal $ 1,918 $ (1,672) $ 195
Foreign 513 309 441
- ------------------------------------------------------------
Total deferred 2,431 (1,363) 636
- ------------------------------------------------------------
Total provision $ 17,341 $ 14,333 $ 9,997
- ------------------------------------------------------------
The Company's effective income tax rate varies from the statutory Federal income
tax rate as a result of the following factors:
1996 1995 1994
- -------------------------------------------------------------
U.S. Statutory rate 35.0% 35.0% 35.0%
Tax allocation (benefit) charge* 0.5% 0.0% (2.8)%
State income taxes,
net of Federal income tax benefit 2.6% 2.9% 2.8%
Net effect of international
subsidiaries' foreign tax
rates after balance sheet
translation gains and losses (0.3)% 0.3% 2.0%
Net effect of remission of
foreign earnings 0.3% 1.1% 0.5%
Non-tax deductible items,
principally goodwill 0.6% 0.7% 1.0%
Other, net 2.1% 0.0% 0.4%
- -------------------------------------------------------------
Effective tax rate 40.8% 40.0% 38.9%
- -------------------------------------------------------------
* The (benefit) charge results from a tax allocation agreement between the
Company and Lane Industries, Inc. entered into in 1978. Under the terms of the
agreement, Lane Industries, Inc. has agreed to share with the Company a
portion of the Federal income tax savings or additional costs, if any,
resulting from filing consolidated income tax returns. Lane Industries, Inc.
is the Company's majority stockholder.
Income before taxes was as follows (000 omitted):
1996 1995 1994
- ---------------------------------------------------------------
United States $26,489 $24,542 $19,507
Foreign 16,065 11,291 6,193
- ---------------------------------------------------------------
Total income before taxes $42,554 $35,833 $25,700
- ---------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (000 omitted):
YEAR ENDED DECEMBER 31 1996 1995
- ----------------------------------------------------------------
Deferred tax assets:
Inventory $ 2,548 $ 2,553
Foreign 1,457 1,111
Worker's compensation 820 841
Restructuring reserves 2,770 2,639
Vacation pay 857 799
Other 3,001 2,470
Foreign tax credits 4,187 3,592
Capital loss carryovers 313 313
Net operating loss carryovers 1,419 2,123
- ----------------------------------------------------------------
Gross deferred tax assets $17,372 $16,441
- ----------------------------------------------------------------
Valuation allowance (5,919) (6,029)
- ----------------------------------------------------------------
Total deferred tax assets $11,453 $10,412
- ----------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 3,492 $ 3,168
Amortization 4,306 534
Foreign 3,062 2,204
Withholding taxes 1,179 847
Other 148 405
- ----------------------------------------------------------------
Total deferred tax liabilities $12,187 $ 7,158
- ----------------------------------------------------------------
Net deferred tax assets $ (734) $ 3,254
- ----------------------------------------------------------------
27
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The net deferred tax
assets reflects management's estimate of the amount which will be realized from
future profitability which can be predicted with reasonable accuracy.
The Company provides U.S. income taxes on the earnings expected to be
distributed by its foreign subsidiaries. Under the current remitter concept,
the Company has excess foreign tax credits available to reduce Federal income
taxes in future years. The Company has established a valuation allowance for
the foreign tax credits that the Company anticipates will expire unutilized
five years after cash dividends are actually paid.
At December 31, 1996, the Company has $1,419,000 of net operating loss
carryforwards available to reduce future taxable income of certain
international subsidiaries. These loss carryforwards expire in the years 1997
through 2002 or have an unlimited carryover period. A valuation allowance has
been provided for a portion of the deferred tax assets related to those loss
carryforwards which may expire unutilized.
(11) BUSINESS SEGMENTS AND FOREIGN OPERATIONS
General Binding Corporation, incorporated in 1947, and its subsidiaries
(herein referred to as "GBC" or "Company") are engaged predominantly in one
line of business, namely the design, manufacture and distribution of a broad
line of business machines and related supplies. This broad line includes system
applications in the areas of binding, laminating, shredding, and security
identification. These products are manufactured in seventeen plants in the
United States and abroad. GBC products are sold through a network of direct
sales and telemarketing personnel, dealers, distributors and wholesale
stationers. The Company provides maintenance and repairs on the machines it
sells through a trained field service organization and through trained dealers.
The Company's machines and supplies are sold primarily in North America,
Europe, Japan and Australia to users in the business, education, graphic arts,
health, recreation and government markets. With this broad base of customers,
GBC is not dependent upon any single customer for a significant portion of its
business.
Financial information for the three years ended December 31, 1996, 1995 and
1994, by geographical area is summarized on the following page. Sales between
geographic areas are made at market value less allowances for additional
manufacturing, marketing and administrative costs to be incurred by the
affiliated company. For purposes of complying with Statement of Financial
Accounting Standards No. 14, export sales to foreign customers ($14,781,000 in
1996, $15,039,000 in 1995, and $12,773,000 in 1994) have been classified in the
following tables as part of the United States sales.
28
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
(000 omitted):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 TOTAL ELIMINATIONS UNITED EUROPE OTHER
STATES INTERNATIONAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES:
Unaffiliated customers $536,836 -- $364,581 $ 92,622 $79,633
Between geographic areas -- (40,907) 35,897 1,287 3,723
-------- ---------- -------- -------- -------
536,836 (40,907) 400,478 93,909 83,356
-------- ---------- -------- -------- -------
Operating income 49,414 (912) 32,081 13,064 5,181
Other income (expense)* (688) (2,653) 515 (1,867) 3,317
Interest (expense) (6,172) 837 (4,303) (781) (1,925)
-------- ---------- -------- -------- -------
Income before taxes $ 42,554 $ (2,728) $ 28,293 $ 10,416 $ 6,573
-------- ---------- -------- -------- -------
Assets $393,706 $ (37,907) $316,162 $ 57,899 $57,552
-------- ---------- -------- -------- -------
Depreciation and amortization $ 15,018 $ -- $ 12,012 $ 1,991 $ 1,015
-------- ---------- -------- -------- -------
Capital expenditures $ 27,778 $ -- $ 23,205 $ 3,952 $ 621
-------- ---------- -------- -------- -------
<CAPTION>
- ---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995 TOTAL ELIMINATIONS UNITED EUROPE OTHER
STATES INTERNATIONAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES:
Unaffiliated customers $458,391 $ -- $308,220 $ 87,202 $62,969
Between geographic areas -- (42,485) 37,983 1,639 2,863
-------- ---------- -------- -------- -------
458,391 (42,485) 346,203 88,841 65,832
-------- ---------- -------- -------- -------
Operating income 40,995 603 25,782 9,902 4,708
Other income (expense)* (903) (2,446) 3,654 (1,715) (396)
Interest (expense) (4,259) 203 (3,385) (808) (269)
-------- ---------- -------- -------- -------
Income before taxes $ 35,833 $ (1,640) $ 26,051 $ 7,379 $ 4,043
-------- ---------- -------- -------- -------
Assets $298,872 $ (21,532) $239,152 $ 44,801 $36,451
-------- ---------- -------- -------- -------
Depreciation and amortization $ 12,814 $ -- $ 10,300 $ 1,981 $ 533
-------- ---------- -------- -------- -------
Capital expenditures $ 15,046 $ -- $ 13,591 $ 1,077 $ 378
-------- ---------- -------- -------- -------
<CAPTION>
- ---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994 TOTAL ELIMINATIONS UNITED EUROPE OTHER
STATES INTERNATIONAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES:
Unaffiliated customers $420,449 $ -- $287,091 $ 71,397 $61,961
Between geographic areas -- (39,385) 36,560 692 2,133
-------- ---------- -------- -------- -------
420,449 (39,385) 323,651 72,089 64,094
-------- ---------- -------- -------- -------
Operating income** 31,318 633 20,851 5,310 4,524
Other income (expense)* (1,842) (2,239) 2,837 (1,821) (619)
Interest (expense) (3,776) 89 (2,995) (683) (187)
-------- ---------- -------- -------- -------
Income before taxes $ 25,700 $ (1,517) $ 20,693 $ 2,806 $ 3,718
-------- ---------- -------- -------- -------
Assets $284,278 $ (27,463) $230,576 $ 45,792 $ 35,373
-------- ---------- -------- -------- -------
Depreciation and amortization $ 12,081 $ -- $ 9,994 $ 1,440 $ 647
-------- ---------- -------- -------- -------
Capital expenditures $ 12,788 $ -- $ 6,459 $ 5,457 $ 872
-------- ---------- -------- -------- -------
- ---------------------------------------------------------------------------------------------
* Other income (expense) is comprised principally of foreign currency
transaction gains and losses, interest income, dividend and royalty income,
gains and losses on the disposal of capital assets, amortization of goodwill,
patents and other transactions.
**Operating income for the United States, Europe and Other International
includes restructuring charges of $3.4 million, $.2 million and $.4 million,
respectively, for the year ended December 31, 1994.
</TABLE>
The following table illustrates the ratio of revenue contribution of business
machines, supplies and service for the last three fiscal years:
1996 1995 1994
- ---------------------------------------------------------
Business machines 29% 24% 25%
- ---------------------------------------------------------
Related supplies and service* 71% 76% 75%
- ---------------------------------------------------------
*Includes the ringmetal business.
29
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiares
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 was as follows
(000 omitted except per share data):
<TABLE>
<CAPTION>
1996 THREE MONTHS ENDED MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $126,346 $135,338 $132,996 $142,156
Gross Profit 50,669 55,572 55,105 59,541
Income before taxes 10,179 11,070 10,066 11,239
Net income 6,006 6,531 5,939 6,737
Net income per common share $ .38 $ .42 $ .37 $ .43
- --------------------------------------------------------------------------------------------------------
1995 THREE MONTHS ENDED MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------------------------------
Sales $109,252 $117,610 $112,993 $118,536
Gross Profit 47,628 51,264 48,284 47,509
Income before taxes 8,725 9,942 8,221 8,945
Net income 5,235 5,965 4,933 5,367
Net income per common share $ .33 $ .38 $ .31 $ .35
- --------------------------------------------------------------------------------------------------------
</TABLE>
(13) ACQUISITIONS
On October 10, 1996, the Company made an investment in GMP Co., Ltd. of
South Korea to jointly develop and market desktop lamination equipment and
supplies. With the agreement, the Company became an equity shareholder in GMP
(33% share). GMP is a leading worldwide supplier of laminating systems
primarily for retail markets. The total consideration paid for the investment
in GMP was $9.9 million.
On January 19, 1996, the Company acquired the business and certain assets
of the T.A.C. Group. The T.A.C. Group, which operates under the name of
Fordigraph, is located in Australia and is a distributor of paper shredders,
mail room equipment, laminating machines, presentation products, binding
systems and supplies. The total consideration paid for Fordigraph was $12.1
million.
On December 21, 1995, the Company acquired Pro-Tech Engineering Co., Inc.,
headquartered in Madison, Wisconsin. Pro-Tech manufactures equipment and
distributes supplies used in the digital printing market. The consideration
paid for Pro-Tech was $7.3 million. Compensation will also be paid contingent
upon the achievement of specified levels of earnings through December 31, 1998.
On August 26, 1994, the Company completed the purchase of Sickinger
Company, headquartered in Auburn Hills, Michigan. Sickinger manufactures paper
punching machines as well as wire and plastic coil binding supplies. The total
consideration paid for the Sickinger Company was $4.9 million.
The acquisitions of Fordigraph, Pro-Tech and Sickinger have been accounted
for as purchase transactions with the results of operations included in the
financial statements since the date of acquisition. The excess of the purchase
price over fair value of the net assets acquired is estimated to be $7.8
million, $6.3 million and $1.4 million, respectively.
30
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
(14) RESTRUCTURING CHARGE
A pre-tax restructuring charge of $4.0 million was recorded in 1994. The
charge reflected costs associated with discontinuing manufacturing in certain
locations along with an overall downsizing of the Company's infrastructure. The
restructuring charge consisted primarily of the following: a) write-down of
properties to their estimated net realizable values; b) costs associated with
freezing a defined benefit pension plan; and c) termination benefits paid and
payable to certain former employees. The liability established for the
termination benefits, which is not material to the Company's financial
statements, reflected the costs associated with providing benefits to former
employees that were terminated and notified of their benefit arrangement prior
to December 31, 1994. Substantially all benefits were paid to the group of
former employees by December 31, 1996. The activities that were not continued
were not significant to the Company's revenue or operating results.
(15) SUBSEQUENT EVENTS
Effective January 1, 1997, the Company acquired the business and assets and
liabilities of the Quartet Manufacturing Co. which is headquartered in Skokie,
Illinois. Quartet manufactures and distributes visual communications products
including markerboards, bulletin boards and easels. Cash considerations paid
approximates $199.6 million and exceeds the fair market value of the net assets
of Quartet by approximately $136.7 million. This amount will be amortized on
the straight-line method over its estimated life. The results of the operations
of Quartet will be included with the results of the Company from January 1,
1997, and will be accounted for as a purchase.
On January 13, 1997, the Company entered into a new five-year $400 million
revolving credit agreement to replace its existing $140 million revolving
agreement. Interest is payable at varying rates provided for in the loan
agreement. Facility fees of up to 3/10 of one percent per annum are assessed
on the total commitment amount of $400 million. The revolving credit agreement
contains, among other things, certain restrictive covenants. Under the most
restrictive of these covenants, the Company and its subsidiaries must maintain
a consolidated current ratio of not less than 1.25 to 1.00, a leveraged ratio of
not more than 4.00 to 1.00, and an interest coverage ratio of not less than
2.50 to 1.00.
31
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GBC and Subsidiaries
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of General Binding Corporation:
We have audited the accompanying consolidated balance sheets of General
Binding Corporation (a Delaware corporation) and Subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 General
Binding Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Chicago, Illinois
January 31, 1997
32
<PAGE> 1
SUBSIDIARIES OF THE REGISTRANT (7)
EXHIBIT NO. 21
<TABLE>
<CAPTION>
Corporate Name Incorporated In Ownership
-------------- --------------- ---------
<S> <C> <C>
GBC Business Equipment Inc. ......................... Florida 100%
GBC International, Inc. ............................. Nevada 100% (1)
U.S. RingBinder Corp. ............................... Massachusetts 100%
GBC Australia Pty. Ltd. ............................. Australia 100% (2)
GBC/Fordigraph Pty. Ltd. ............................ Australia 100% (3)
GBC Canada, Inc. .................................... Canada 100% (2)
GBC United Kingdom Limited ......................... England 100% (2)
GBC France S.A. .................................... France 100% (4)
GBC Deutschland GmbH ............................... Germany 100%
GBC Nederland B.V. ................................. Holland 100% (2)
General Binding Corporation Italia S.p.A. .......... Italy 100% (2)
GBC Japan K.K. ..................................... Japan 100% (2)
Grupo GBC S.A. de C.V. (Mexico) .................... Mexico 100%
GBC Schweiz A.G. ................................... Switzerland 100% (2)
VeloBind, Incorporated ............................. Delaware 100%
GBC Metals Corp. ................................... Nevada 100%
Sun Kwong Metal Manufacturer Co., LTD. ............. China 40% (5)
Champion Stationery Manufacturing Company, Limited . China 36% (5)
PBB&R S.A. de C.V. ................................. Mexico 100%
Pro-Tech Engineering Co., Inc. ..................... Wisconsin 100%
Sickinger Company .................................. Michigan 100%
USRB S.A. .......................................... Costa Rica 100% (6)
GMP Co., Ltd. ...................................... Korea 33%
</TABLE>
(1) Subsidiary of GBC Business Equipment Inc.
(2) Subsidiary of GBC International, Inc.
(3) Subsidiary of GBC Australia Pty. Ltd.
(4) Subsidiary of GBC Schweiz A.G.
(5) Subsidiary of GBC Metals Corp.
(6) Subsidiary of U.S. RingBinder Corp.
(7) Certain insignificant subsidiaries have been excluded from Exhibit No. 21
under Rule 1-02(w) of Regulation S-X. These excluded subsidiaries
considered in the aggregate as a single subsidiary would not constitute a
significant subsidiary.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from General
Binding Corporation's Form 10-K for the fiscal year ended December 31, 1996 and
is qualified in its entirety by reference to such financial statements. Notes
and accounts receivable-trade are stated net of allowances for doubtful
accounts and sales returns.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,721
<SECURITIES> 0
<RECEIVABLES> 115,865
<ALLOWANCES> 6,424
<INVENTORY> 96,734
<CURRENT-ASSETS> 237,214
<PP&E> 140,951
<DEPRECIATION> 71,940
<TOTAL-ASSETS> 393,706
<CURRENT-LIABILITIES> 112,129
<BONDS> 87,029
0
0
<COMMON> 2,262
<OTHER-SE> 169,870
<TOTAL-LIABILITY-AND-EQUITY> 393,706
<SALES> 536,836
<TOTAL-REVENUES> 536,836
<CGS> 315,949
<TOTAL-COSTS> 315,949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,334
<INTEREST-EXPENSE> 6,172
<INCOME-PRETAX> 42,554
<INCOME-TAX> 17,341
<INCOME-CONTINUING> 25,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,213
<EPS-PRIMARY> $1.60
<EPS-DILUTED> $1.60
</TABLE>
