<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
Commission File Number 0-2604
GENERAL BINDING CORPORATION
(Exact name of registrant as specified in its charter)
36-0887470
(I.R.S. Employer Identification No.)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
ONE GBC PLAZA,
NORTHBROOK, ILLINOIS 60062
(Address of Principal Executive Offices, Including Zip Code)
(847) 272-3700
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
OUTSTANDING AT
CLASS OCTOBER 31, 1998
Common Stock $.125 par value 13,319,691
Class B - Common Stock $.125 par value 2,398,275
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<PAGE> 2
GENERAL BINDING CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Income for the Three
and Nine Months ended September 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
(1)
<PAGE> 3
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
--------------- --------------
Current Assets (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,869 $ 3,753
Receivables, net 186,520 160,787
Inventories --
Raw materials 54,540 38,107
Work in process 6,875 8,470
Finished goods 103,688 96,992
--------------- --------------
Total inventories 165,103 143,569
Deferred tax assets 7,921 9,323
Other 16,030 10,313
--------------- --------------
Total current assets 378,443 327,745
Property, plant and equipment 205,930 190,441
Less - accumulated depreciation (79,941) (77,020)
--------------- --------------
Net property, plant and equipment 125,989 113,421
Other long-term assets:
Cost in excess of fair value of assets of acquired companies,
net of amortization 294,062 204,543
Other 63,897 47,205
--------------- --------------
Total assets $ 862,391 $ 692,914
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 32,117 $ 40,247
Current maturities of long-term debt 2,081 722
Accounts payable 45,143 42,979
Accrued liabilities 80,201 68,154
--------------- --------------
Total current liabilities 159,542 152,102
--------------- --------------
Long-term debt 477,129 324,070
Other long-term liabilities 13,298 11,368
Deferred tax liabilities 13,901 14,331
Stockholders' Equity
Common stock 1,962 1,962
Class B common stock 300 300
Additional paid-in capital 10,506 9,708
Cumulative translation adjustment (8,898) (6,108)
Retained earnings 221,289 208,394
Treasury stock (26,638) (23,213)
--------------- --------------
Total stockholders' equity 198,521 191,043
--------------- --------------
Total liabilities and stockholders' equity $ 862,391 $ 692,914
=============== ==============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
-2-
<PAGE> 4
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(000's omitted, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 233,058 $ 196,613 $ 677,710 $ 564,554
Cost of sales, including development and engineering 131,009 112,458 384,489 323,316
Selling, service and administrative 75,916 62,413 221,995 180,398
Amortization of goodwill and related intangibles 2,737 1,963 8,029 5,496
---------- ---------- ---------- ----------
Operating income 23,396 19,779 63,197 55,344
Interest expense 10,721 6,548 28,149 17,969
Loss on sale of U.S. RingBinder - - 3,500 -
Other expense, net 174 1,193 632 2,033
---------- ---------- ---------- ----------
Income before taxes 12,501 12,038 30,916 35,342
Income taxes 5,232 5,183 12,834 14,504
---------- ---------- ---------- ----------
Net income $ 7,269 $ 6,855 $ 18,082 $ 20,838
========== ========== ========== ==========
Net income per common share
Basic $ 0.46 $ 0.44 $ 1.15 $ 1.32
Diluted $ 0.46 $ 0.43 $ 1.14 $ 1.31
Weighted average number of common shares outstanding
Basic 15,706 15,758 15,726 15,761
Diluted 15,910 15,876 15,887 15,895
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
-3-
<PAGE> 5
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 18,082 $ 20,838
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 24,489 20,886
Increase in non-current deferred taxes 192 54
Provision for doubtful accounts 2,303 1,921
(Increase) in other long term assets (5,365) (4,778)
Loss on sale of USRB, pretax 3,500 -
Other (126) 1,223
Changes in current assets and liabilities:
(Increase) in receivables (14,391) (14,040)
(Increase) in inventories (6,538) (31,425)
(Increase) in other current assets (2,611) (2,555)
(Increase) decrease in deferred tax assets 989 (1,080)
Increase (decrease) in accounts payable and accrued expenses (7,636) 4,524
Increase in taxes on income (1,839) 2,705
Increase in deferred income on service agreements 274 469
---------- ----------
Net cash provided by (used in) operating activities 11,323 (1,258)
---------- ----------
Cash flows from investing activities:
Capital expenditures (18,890) (20,157)
Proceeds from sale of plant and equipment 554 -
Proceeds from sale of USRB 15,529
Payments for acquisitions, net of cash acquired (138,409) (234,506)
---------- ----------
Net cash (used in ) investing activities (141,216) (254,663)
---------- ----------
Cash flows from financing activities:
Increase (decrease) in notes payable (8,151) 26,645
Payments of debt issuance costs (8,449) -
Payments of long term debt (60,014) -
Long term borrowings 213,161 235,916
Increase (decrease) in current portion of
long-term obligations 1,311 119
Dividends paid (5,191) (5,202)
Purchases of treasury stock (3,537) (931)
Proceeds from the exercise of stock options 913 693
---------- ----------
Net cash provided by financing activities 130,043 257,240
---------- ----------
Effect of exchange rates on cash (1,034) (512)
---------- ----------
Net increase in cash & cash equivalents (884) 807
Cash and cash equivalents at the beginning of year 3,753 6,721
---------- ----------
Cash and cash equivalents at the end of the period $ 2,869 $ 7,528
========== ==========
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $ 20,929 $ 15,326
Income taxes, net of refunds 10,170 10,512
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
-4-
<PAGE> 6
GENERAL BINDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of General
Binding Corporation and its subsidiaries ("GBC" or the "Company"). These
financial statements have been prepared by the Company, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes that the
disclosures included in these condensed consolidated financial statements are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's 1997
Annual Report on Form 10-K. In the opinion of the Company, all adjustments
necessary to present fairly the financial position of GBC as of September 30,
1998 and December 31, 1997, and the results of their operations for the three
and nine month periods ended September 30, 1998 and 1997 have been included.
Operating results for any interim period are not necessarily indicative of
results that may be expected for the full year.
(2) LONG-TERM DEBT
On May 27, 1998, the Company completed the placement of $150.0 million of 9 3/8%
Senior Subordinated Notes due 2008 (the "Notes") through a Rule 144A offering.
These notes were exchanged in September 1998 for similar notes which are
publicly registered. These exchange notes (the "9 3/8% Notes") are unsecured and
are subordinated to all existing and future senior indebtedness of the Company.
The 9 3/8% Notes are fully and unconditionally guaranteed on a senior
subordinated basis by the Company's material direct and indirect domestic
restricted subsidiaries. On or after June 1, 2003, the Company may, at its
option, redeem all or some of the 9 3/8% Notes at declining redemption prices
which begin at approximately 104.7% of par in 2003. In addition, at any time
prior to June 1, 2001, the Company may redeem up to 35% of the aggregate
principal amount of the 9 3/8% Notes originally issued with the net cash
proceeds of one or more public equity offerings, at a redemption price of
109.375% of par, provided that at least 65% of the 9 3/8% Notes originally
issued remain outstanding. Upon certain changes in control of the Company, the
Note holders could require the Company to repurchase all or some of the 9 3/8%
Notes at a premium to par.
The net proceeds from the Notes were used to repay approximately $60.0 million
of indebtedness to Lane Industries, Inc., an affiliate, which was used to
partially finance the Company's acquisition of Ibico AG. The remainder of the
proceeds from the Notes was used to repay approximately $85 million of
indebtedness outstanding under the Company's revolving credit facility.
Long-term debt consists of the following at September 30, 1998 and December 31,
1997 - outstanding borrowings denominated in foreign currencies have been
converted to U.S. Dollars (000 omitted):
(5)
<PAGE> 7
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
REVOLVING CREDIT FACILITY
U.S. dollar borrowings - (weighted average floating
interest rate of 6.72% at September 30, 1998 and
6.61% at December 31, 1997) $277,500 $302,400
British pound borrowings - (floating interest rate of
8.5375% at September 30, 1998) 17,486 --
Dutch guilder borrowings - (floating interest rate of 4.45% at
September 30, 1998 and 4.22% at December 31, 1997) 5,738 4,728
Swiss franc borrowings - (floating interest rate of
2.6% at September 30, 1998) 7,660 --
INTERNATIONAL CREDIT AGREEMENT
Australian dollar borrowings - due July 2000
(floating interest rate of 6.50% at September 30, 1998
and 6.68% at December 31, 1997) 2,273 2,722
INDUSTRIAL REVENUE/DEVELOPMENT BONDS
Industrial Revenue Bond - due annually from July 1994 to July 2008
(floating interest rate of 4.10% at September 30, 1998 and 4.60%
at December 31, 1997) 1,600 1,750
Industrial Revenue Bond - due annually from June 2002 to June 2006
(floating interest rate of 4.00% at September 30, 1998
and 4.20% at December 31, 1997) 1,050 1,050
Industrial Development Bond - due March, 2026 (floating interest
rate of 3.80% at September 30, 1998 and 3.95% at December 31,
1997) 7,510 7,510
Industrial Revenue Bond - due semi-annually October 1997 to October 1999
(floating interest rate of 6.68% at September 30, 1998 and 6.88% at
December 31, 1997) 100 200
Industrial Revenue Bond - Irish punt borrowing, due September 2000
(fixed interest rate of 6.75% at September 30, 1998 and
December 31, 1997) 239 365
</TABLE>
(6)
<PAGE> 8
<TABLE>
<S> <C> <C>
NOTES PAYABLES
Note Payable, Dutch guilder borrowing - due monthly from November
1994 to October 2004 (fixed interest rate of 8.85% at
September 30, 1998 and December 31, 1997) 1,495 1,711
Note Payable, Dutch guilder borrowing - due June 2000 (fixed interest
rate of 7.05% at September 30, 1998 and at December 31, 1997) 1,636 1,634
Notes Payables - various (weighted average floating
interest rate of 11.0% at September 30, 1998) 2,842 --
SENIOR SUBORDINATED DEBT
9 3/8% Senior Subordinated Notes due 2008 150,000 --
-------- --------
Total Long-Term Debt $477,129 $324,070
======== ========
</TABLE>
(3) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", was adopted during the first quarter 1998. This statement
established guidelines for the reporting and display of comprehensive income and
its components in financial statements. The currency translation adjustment is
the Company's only item to be included in the computation of comprehensive
income. Comprehensive income was $5,551,000 and $4,470,000 for the third quarter
of 1998 and 1997, respectively, and $15,292,000 and $18,054,000 for the
nine months ended September 30, 1998 and 1997, respectively.
(4) NEW ACCOUNTING STANDARDS
The Company will adopt SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", effective with year-end reporting. This
statement will require the Company to present information in the notes to the
financial statements regarding reportable operating segments using the same
basis as is used for internally evaluating segment performance and deciding how
to allocate resources to segments. The Company is currently evaluating the
requirements of this standard and, upon adoption, may disclose information for
certain of its three primary business units: Document Finishing, Films and
Office Products.
(5) EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share", was adopted by the Company in the fourth
quarter of 1997. The new standard requires dual presentation of net income per
common share and net income per common share, assuming dilution, on the face of
the income statement. All prior year per share data has been restated in
accordance with the new standard. In accordance with SFAS No. 128, net income
per common share was computed as follows (000 omitted, except per share
amounts):
(7)
<PAGE> 9
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
(A) Net income available to common shareholders $ 7,269 $ 6,855 $18,082 $20,838
======= ======= ======= =======
(B) Weighted average number of common shares outstanding 15,706 15,758 15,726 15,761
Additional common shares issuable under employee
stock options using the treasury stock method 204 118 161 134
------- ------- ------- -------
(C) Weighted average number of common shares
outstanding assuming the exercise of stock options 15,910 15,876 15,887 15,895
======= ======= ======= =======
Net income per common share (A) / (B) $ 0.46 $ 0.44 $ 1.15 $ 1.32
======= ======= ======= =======
Net income per common share, assuming dilution (A) / (C) $ 0.46 $ 0.43 $ 1.14 $ 1.31
======= ======= ======= =======
</TABLE>
(6) SALE OF U.S. RINGBINDER BUSINESS
Effective June 30, 1998, the Company sold substantially all the assets of its
U.S. RingBinder business. This transaction represents the Company's exit from
the business of manufacturing and distributing metal ring elements which are
used in loose-leaf binders and similar products. Total proceeds from the sale
were approximately $16.5 million. A one-time pretax charge of $3.5 million was
recorded related to the sale.
(7) SUBSIDIARY GUARANTOR INFORMATION
The following tables present condensed consolidating financial data for: Parent
(General Binding Corporation, including domestic operations); Guarantors
(domestic restricted subsidiaries); and Non-Guarantors (international
subsidiaries). Each of the Guarantors is a direct or indirect wholly owned
subsidiary of the Parent. The Guarantors have jointly and severally and fully
and unconditionally guaranteed the 9 3/8% Notes. The Company has determined that
separate financial statements and other disclosures concerning the Guarantors
are not material to investors. The following condensed consolidating financial
information presents the results of operations, financial position and cash
flows of the Parent, Guarantors and Non-Guarantors (in each case, carrying
investments under the equity method) and the eliminations necessary to arrive at
the information for the Company on a consolidated basis.
(8)
<PAGE> 10
GENERAL BINDING CORPORATION
CONSOLIDATING BALANCE SHEET
September 30, 1998
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------------------------------------
Non-
Parent Guarantors Guarantors Eliminations Consolidated
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 508 $ 506 $ 1,855 $ - $ 2,869
Receivables, net 123,676 943 61,901 - 186,520
Inventories 69,935 18,921 76,247 - 165,103
Deferred tax assets 6,049 1,193 875 (196) 7,921
Other 7,807 892 7,331 - 16,030
Due from affiliates 108,570 45,412 24,805 (178,787) -
------------ ----------- ----------- ------------ -----------
Total Current Assets 316,545 67,867 173,014 (178,983) 378,443
------------ ----------- ----------- ------------ -----------
Property, plant and equipment, net 86,864 13,240 25,885 125,989
Cost in excess of fair value of assets of
acquired companies, net of amortization 162,318 32,497 99,247 - 294,062
Other Assets 58,853 1,780 8,558 (5,294) 63,897
Investment in subsidiaries 189,515 151,827 - (341,342) -
------------ ----------- ----------- ------------ -----------
Total Assets $ 814,095 $ 267,211 $ 306,704 $ (525,619) $ 862,391
============ =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Notes Payable $ 15,000 $ 5 $ 17,112 $ - $ 32,117
Current maturities of long-term obligations 349 293 1,439 - 2,081
Accounts payable 23,392 3,592 18,159 - 45,143
Accrued liabilities:
Salaries, wages and profit sharing contributions 20,185 479 3,221 - 23,885
Taxes, other than income 1,672 34 1,579 - 3,285
Deferred income on maintenance agreements 6,908 - 2,963 - 9,871
Other 16,399 10,639 17,282 (1,160) 43,160
Due to affiliates 54,686 41,159 83,959 (179,804) -
------------ ----------- ----------- ------------ -----------
Total Current Liabilities 138,591 56,201 145,714 (180,964) 159,542
------------ ----------- ----------- ------------ -----------
Long-term debt -- affiliated 5,294 - - (5,294) -
Long-term debt, less current maturities 456,562 1,807 18,721 39 477,129
Other long-term liabilities 7,713 333 5,252 - 13,298
Deferred tax liabilities 7,414 3,087 3,400 - 13,901
STOCKHOLDERS' EQUITY
Common stock 1,962 4,016 2,530 (6,546) 1,962
Class B common stock 300 - - - 300
Additional paid-in capital 10,506 90,084 114,205 (204,289) 10,506
Cumulative translation adjustment (8,898) (5,816) (8,837) 14,653 (8,898)
Retained earnings 221,289 117,499 25,719 (143,218) 221,289
Treasury stock (26,638) - - - (26,638)
------------ ----------- ----------- ------------ -----------
Total Stockholders' Equity 198,521 205,783 133,617 (339,400) 198,521
------------ ----------- ----------- ------------ -----------
Total Liabilities and Stockholders' Equity $ 814,095 $ 267,211 $ 306,704 $ (525,619) $ 862,391
============ =========== =========== ============ ===========
</TABLE>
(a) Effective June 30, 1998, the Company sold its US RingBinder business
(USRB). As of June 30, 1998, USRB had stockholder's equity of $12.1
million.
(9)
<PAGE> 11
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
(Unaudited)
(000 omitted)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
------------------------------------------------------------
Non-
Parent Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unaffiliated sales $426,047 $ 45,526 $ 206,137 $ - $ 677,710
Affiliated sales 45,600 26,692 13,070 (85,362) -
-------- --------- --------- ----------- -----------
Net Sales 471,647 72,218 219,207 (85,362) 677,710
Cost of sales, including development and engineering 273,590 57,796 139,500 (86,397) 384,489
Selling, service and administrative 141,485 13,069 67,441 - 221,995
Amortization of goodwill and related intangibles 5,108 968 1,953 - 8,029
-------- --------- --------- ----------- -----------
Operating income 51,464 385 10,313 1,035 63,197
Interest 27,781 943 3,581 (4,156) 28,149
Loss on sale of U.S. Ringbinder - 3,500 - - 3,500
Other (income) expense, net (612) (319) (2,593) 4,156 632
-------- --------- --------- ----------- -----------
Income before taxes and undistributed of wholly-owned
subsidiaries 24,295 (3,739) 9,325 1,035 30,916
Income taxes 5,854 2,630 3,931 419 12,834
-------- --------- --------- ----------- -----------
Income (loss) before undistributed earnings
of wholly-owned subsidiaries 18,441 (6,369) 5,394 616 18,082
Undistributed earnings (loss) of wholly-
owned subsidiaries (359) 8,047 - (7,688) -
-------- --------- --------- ----------- -----------
Net income $ 18,082 $ 1,678 $ 5,394 $ (7,072) 18,082
======== ========== ========== ============ ===========
</TABLE>
(a) Effective June 30, 1998, the Company sold its US RingBinder business
(USRB). For the six months ended June 30, 1998, USRB had net income of
$699,000.
(10)
<PAGE> 12
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
(Unaudited)
(000 omitted)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
--------------------------------------------------------------
Non-
Parent Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Unaffiliated sales $ 150,759 $ 12,685 $ 69,614 $ -- $ 233,058
Affiliated sales 14,473 10,717 4,784 (29,974) --
--------- --------- ---------- ----------- ------------
Net Sales 165,232 23,402 74,398 (29,974) 233,058
Cost of sales, including development and engineering 95,406 18,541 47,297 (30,235) 131,009
Selling, service and administrative 48,532 2,811 24,573 -- 75,916
Amortization of goodwill and related intangibles 1,563 293 881 -- 2,737
--------- --------- ---------- ----------- ------------
Operating income 19,731 1,757 1,647 261 23,402
Interest 6,819 17 1,494 2,391 10,721
Loss on sale of U.S. Ringbinder -- -- -- -- --
Other (income) expense, net 513 5,004 (2,952) (2,391) 174
--------- --------- ---------- ----------- ------------
Income before taxes and undistributed
earnings of wholly-owned subsidiaries 12,399 (3,264) 3,105 261 12,501
Income taxes 2,503 793 1,830 106 5,232
--------- --------- ---------- ----------- ------------
Income (loss) before undistributed earnings
of wholly-owned subsidiaries 9,896 (4,057) 1,275 155 7,269
Undistributed earnings (loss) of wholly-
owned subsidiaries (2,627) 3,785 -- (1,158) --
--------- --------- ---------- ----------- ------------
Net income $ 7,269 (272) $ 1,275 $ (1,003) $ 7,269
========= ========= ========== =========== ============
</TABLE>
(a) Effective June 30, 1998, the Company sold its US RingBinder business (USRB).
For the three months ended June 30, 1998, USRB had net income of $398,000.
(11)
<PAGE> 13
GENERAL BINDING CORPORATION
CONSOLIDATING STATEMENT OF CASH FLOWS
September 30, 1998
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
--------------------------------------------------------------------
Non-
Parent Guarantors Guarantors Eliminations Consolidated
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating activities (123,723) 126,647 8,201 198 $ 11,323
--------- ---------- ---------- ----------- ----------
Investing Activities:
Capital expenditures (11,016) (3,374) (4,500) - (18,890)
Proceeds from sale of plant and equipment 285 155 114 - 554
Proceeds from sale of USRB - 15,529 - - 15,529
Capital contributions to subsidiaries - - - - -
Payment for acquisitions, net of cash acquired - (138,409) - - (138,409)
--------- ---------- ---------- ----------- ----------
Net cash (used in) provided by investing
activities (10,731) (126,099) (4,386) - (141,216)
--------- ---------- ---------- ----------- ----------
Financing Activities:
Increase (reduction) in notes payable 32 (16) (8,167) - (8,151)
Payments of debt issuance costs (8,449) - - - (8,449)
Payments of long term debt (59,904) - (732) 622 (60,014)
Increase (decrease) in long-term debt 210,000 - 3,981 (820) 213,161
(Reduction) increase in current portion of - - - - -
long-term debt - - 1,311 - 1,311
Dividends paid (5,191) - - - (5,191)
Purchases of treasury stock (3,537) - - - (3,537)
Proceeds from the exercise of stock options 913 - - - 913
--------- ---------- ---------- ----------- ----------
Net cash provided by (used in) financing
activities 133,864 (16) (3,607) (198) 130,043
--------- ---------- ---------- ----------- ----------
Effect of exchange rates on cash - - (1,034) - (1,034)
--------- ---------- ---------- ----------- ----------
Net (decrease) in cash & cash equivalents (590) 532 (826) - (884)
Cash and cash equivalents at the beginning of year 1,098 (26) 2,681 - 3,753
--------- ---------- ---------- ----------- ----------
Cash and cash equivalents at the end of the period $508 $506 $1,855 - $ $2,869
========= =========== ========== =========== ==========
</TABLE>
(12)
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT OF OPERATION
The following narrative discusses the results of operations, liquidity and
capital resources for the Company on a consolidated basis. This section should
be read in conjunction with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained therein.
FORWARD LOOKING STATEMENTS
Certain statements under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Report
constitute "forward looking statements" within the meaning of Section 21E(I) (1)
of the Exchange Act. Such forward-looking statements involve known and unknown
risks and uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different than
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following: competition within the office products and lamination film products
markets, the effects of economic conditions, the issues associated with the
acquisition and integration of recently acquired operations, including Ibico AG
("Ibico"), operating risks, the ability of the Company's distributors to
successfully market and sell the Company's products, the ability of the Company
to obtain capital to finance planned growth, the availability and price of raw
materials, dependence on certain suppliers of manufactured products, the effect
of consolidation in the office products industry and other factors indicated in
the Company's registration statements and reports filed with the SEC. These
important factors may also cause the forward-looking statements made by the
Company in this Report, including but not limited to those contained under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations," to be materially different from the actual results achieved by
the Company. In light of these and other uncertainties, the inclusion of any
forward-looking statements herein should not be regarded as a representation by
the Company that the Company's plans and objectives will be achieved.
RESULTS OF OPERATIONS-
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997
Sales
Net sales for the third quarter of 1998 totaled $233.1 million, an increase of
18.5% over the third quarter of 1997. The acquisition of Ibico contributed
approximately $25.0 million in sales in the quarter. Excluding Ibico, sales
increased approximately 6.0% in the third quarter of 1998 compared to 1997.
Sales in the Company's Document Finishing and Films groups increased
approximately 9% and 2%, respectively, in the quarter while the Office Products
Group, which includes Ibico's operations, achieved an 18% gain. Sales of
personal shredders, writing boards and accessories and easels were primarily
responsible for the sales increase in the Office Products Group. The Company's
acquisition of Allfax in the first quarter of 1998 contributed to the increase
in sales of writing boards in the third quarter of 1998.
Gross Margin, Costs and Expenses
The Company's gross profit margin increased in the third quarter of 1998 to
43.8%, compared to 42.8% in 1997. Both the Office Products and Films Groups
achieved higher gross profit margins in the third quarter of 1998, while margins
declined in the Document Finishing Group. The Films Group benefited from
improved domestic manufacturing efficiencies and favorable pricing on products
sourced from the Far East which were partially offset by unfavorable
manufacturing variances in Europe. Gross profit margins declined in the Document
Finishing Group primarily as a result of unfavorable manufacturing variances
along with an unfavorable sales mix in the U.S. (i.e., sales of certain
higher-margin equipment declined, whereas sales of certain lower-margin supplies
increased). Gross profit margins increased in the Office Products Group due to a
favorable sales mix of higher-margin products.
(13)
<PAGE> 15
Selling, service and administrative expenses increased 21.6% in the third
quarter of 1998 compared to 1997. The increase was primarily the result of (1)
increased sales and related selling expenses, (2) expenditures related to the
Company's European Office Products Group (3) increased management information
systems costs including expenditures to ensure that the Company's systems are
Year 2000 compliant and (4) higher rebate programs for certain Office Products
Group customers. As a percentage of sales, selling, service and administrative
expenses were 32.6% in the third quarter of 1998, compared to 31.7% in 1997.
Amortization of goodwill and related intangibles increased to $2.7 million in
the third quarter of 1998, compared to $2.0 million in the third quarter of
1997, due to acquisitions.
Interest expense for the third quarter of 1998 increased to $10.7 million,
compared to $6.5 million in 1997. The primary reasons for the increase were
higher average debt levels as a result of the financing of the Ibico and Allfax
acquisitions, higher pricing on the Revolving Credit Facility and the relatively
higher interest expense associated with the Senior Subordinated Notes.
Other expense decreased in the third quarter of 1998 due to favorable exchange
gains in 1998 compared to losses in 1997 and the inclusion of costs to close a
manufacturing facility in 1997.
Income Taxes
The Company's overall effective income tax rate decreased to 41.8% in the third
quarter compared to 42.9% in 1997. The mix of income and losses in certain of
the Company's international operations was the primary reasons for the decrease.
Net Income
As a result of the factors described above, the net income for the third quarter
of 1998 was $7.3 million, or $0.46 per share basic, compared to $0.44 per share
basic in the third quarter of 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Sales
Net sales for the first nine months of 1998 totaled $677.7 million, an increase
of 20.0% over the first nine months of 1997. The Company's nine-month results
include the results of Ibico from the date of its acquisition, February 27,
1998. Excluding the acquisition of Ibico, GBC's sales were approximately $610.0
million, an increase of approximately 8.0% over the first nine months of 1997.
The 1998 sales increase was primarily due to increased sales of personal
shredders and writing boards through the Company's Office Products Group. Sales
of writing boards during the first nine months of 1998 benefited from the
Company's acquisitions of Baker, Visucom and Allfax.
Gross Margin, Costs and Expenses
Gross profit margin improved in the first nine months of 1998 to 43.3% compared
to 42.7% in the corresponding period in 1997. The improvement in gross margin
was due principally to improved margins achieved in the Company's Films Group,
which were partially offset by lower margins in the Document Finishing Group.
The Films Group's gross margins have benefited from favorable manufacturing
efficiencies domestically but were partially offset by unfavorable manufacturing
variances in Europe. The Document Finishing Group's margins have declined
principally due to unfavorable product mix towards lower-margin products. Gross
margins in the Company's Office Products Group remained relatively constant
period to period.
Selling, service, and administrative expenses increased 23.1% in the first nine
months of 1998, compared to the first nine months of 1997, primarily as a result
of (1) increased sales and related selling expenses, (2) expenditures related to
the Company's European Office Products Group (3) increased management
information systems costs including expenditures to ensure that the Company's
systems are Year 2000 compliant and (4) higher rebate programs for certain
Office Products Group customers. As a percentage of sales, selling, service and
administrative expenses increased to 32.8% in 1998 from 32.0% in the first nine
months of 1997.
(14)
<PAGE> 16
Amortization of goodwill and intangibles increased to $8.0 million in the first
three quarters of 1998, compared to $5.5 million in the same period of 1997, due
to acquisitions.
Interest expense for the first nine months of 1998 increased to $28.1 million,
compared to $18.0 million in 1997. The primary reasons for the increase were
higher average debt levels as a result of the financing of the Ibico, Baker and
Allfax acquisitions and the higher interest expense associated with the Notes.
Other expense decreased in 1998 compared to 1997 because (1) the Company
experienced currency gains in 1998 compared to losses in 1997 and (2) expenses
in 1997 included of costs associated with closing a non-core manufacturing
facility.
Effective June 30, 1998, the Company completed the sale of the business and
substantially all of the assets of U.S. RingBinder. For the first six months of
1998, U.S. RingBinder contributed sales of $12.7 million and operating income of
$896,000. An after-tax loss of approximately $2.1 million (or $0.13 per diluted
share) was recognized in connection with the sale.
Income Taxes
The Company's overall effective income tax rate increased to 41.5% in the first
nine months of 1998 compared to 41.0% in 1997. Net losses in certain of the
Company's international operations were the primary reason for the increase.
Net Income
As a result of the factors described above, net income for the first nine months
of 1998 was $18.1 million, or $1.15 per share basic, versus $20.8 million, or
$1.32 per share basic in the first nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements for operations, acquisitions and capital
expenditures during the first nine months of 1998 were financed by
internally-generated cash flow and borrowings under the Company's revolving
credit facilities, short-term borrowings from banks and the placement of $150.0
million of the 9 3/8% Notes.
Net cash provided by operating activities was $11.3 million for the first nine
months of 1998, compared to cash used of $1.3 million in the first nine months
of 1997. The favorable swing in 1998 was due primarily to a reduction in the
growth of inventories.
Capital expenditures during the first nine months of 1998 were $18.9 million,
compared to $20.2 million during the first nine months of 1997. Major projects
in 1998 include investments associated with the Company's new plastics facility
in Wisconsin and the new document finishing equipment plant in Illinois.
Cash dividends paid during the first nine months of both 1998 and 1997 were
$0.33 per share, respectively.
The Company invested $138.4 million in acquisitions during the first nine months
of 1998 to acquire Ibico and Allfax. During the third quarter of 1998, the
Company received approximately $15.5 million from the sale of its U.S.
RingBinder business. Acquisitions were financed by borrowings under the
Company's revolving credit facility, the placement of the Notes and a $60.0
million borrowing from Lane Industries, Inc. which was repaid with the proceeds
of the Notes.
As discussed in note 2 of the Notes to Condensed Financial Statements the
Company issued $150.0 million of Senior Subordinated Notes during the first nine
months of 1998.
As of September 30, 1998, the Company had access to various U.S. and
international credit facilities including a multicurrency revolving credit
facility (the "Revolving Credit Facility') with a group of international banks
providing for up to $475.0 million of unsecured revolving credit borrowings
through January 2002. The revolving credit facility, established on January 13,
1997 contains, among other things, certain restrictive covenants which require
the Company to maintain certain ratios regarding current assets and liabilities,
leverage and interest coverage.
(15)
<PAGE> 17
As of September 30, 1998, the Company had the equivalent of $308.4 million
outstanding under the Revolving Credit Facility.
The Company believes that funds generated from operations combined with existing
credit facilities are sufficient to meet currently anticipated capital and
operating requirements.
YEAR 2000 COMPLIANCE
In 1997 the Company began identifying issues and formulating plans to address
Year 2000 matters that might impact its operations. The Year 2000 problem
consists of shortcomings in certain electronic data processing systems that make
them unable to process year-date data accurately beyond the year 1999.
Essentially, certain systems were designed to abbreviate dates by eliminating
the first two digits of the year under the assumption that these digits would
always be 19. As a result, such applications could fail or create erroneous
results if they recognize "00" as the year 1900 rather than 2000.
The Company's State of Readiness
In early 1998 the Company established a Year 2000 Task Force which is directed
by the Company's Vice President of Business Technology. The Task Force has
identified and reviewed the Company's hardware and software systems, embedded
technological systems, the Company's product offerings, and material third party
relationships. The Company's state of readiness is as follows:
- Substantially all of its hardware systems are Year 2000 compliant.
- Certain software systems are being remedied or replaced to become Year
2000 compliant. The significant projects currently in process are:
<TABLE>
<CAPTION>
OPERATING CURRENT TARGET
FUNCTION PROJECT STATUS COMPLETION
--------- ------- ------- ----------
<S> <C> <C> <C>
North American Remediate Order Processing, System Test DECEMBER 1998
Document Finishing and Distribution and Financial
Films Systems.
JUNE 1999
Replace Manufacturing Systems Functional Design
at two sites.
North American Office Remediate Order Processing, 91% of modules tested. MARCH 1999
Products Distribution and Financial
Systems.
Europe Document Replace Order Processing, Implemented at 4 of 16 NOVEMBER 1999
Finishing and Office Manufacturing, Distribution and locations.
Products. Financial Systems.
</TABLE>
(16)
<PAGE> 18
- Surveys have been sent to more than 350 material third party suppliers.
Approximately 63% of the surveys have been returned and are currently
being assessed by management of the Company's Business Units to
determine if the failure of any material supplier to have its products
or services compliant could materially adversely affect the results of
the Company's business or operations.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The total cost of the Company's Year 2000 projects is estimated to be $2.0
million. Such costs include expenditures associated with software purchased and
outside consultants hired to remediate non-compliant systems. The Company's
estimated Year 2000 costs do not include efforts to replace certain systems as
those projects were not accelerated to ensure Year 2000 compliance, nor does the
Company's estimate include the costs of company employees that may devote a
portion of their efforts towards Year 2000 remediation projects. Approximately
50% of the costs directly related to remediation efforts will be expensed in
1998. These costs have not had, nor are expected to have, a material effect on
the Company's financial position, results of operation or cash flows in any of
the years in which spending has or will occur. This expectation assumes that
the Company will not be obligated to incur significant Year 2000 related costs
on behalf of its customers or suppliers.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES AND CONTINGENCY PLANS
The Company believes that any Year 2000 issues that could significantly impact
its operations have been identified and that replacement or remediation efforts
will be implemented on time. The Company has prioritized its European
implementation project focusing on early readiness for its most significant
European operations. The Company believes that non-compliance of any European
operation on January 1, 2000 will not cause any material disruption to its
business or operations as a whole and that, in such event, contingency plans
will have been implemented to bridge any period of non-compliance. The Company
has not determined the most likely worst case scenarios related to Year 2000
issues, but continues to monitor the projects in process and will develop
contingency plans, if necessary, to ensure that it will be able to operate
critical areas of the business.
(17)
<PAGE> 19
PART II. OTHER INFORMATION
Item 6: Exhibits
(a) Exhibits: None
(b) Reports on Form 8-K:
The Company filed a Form 8-K on July 9, 1998 to report the following
information:
On July 6, 1998 GBC issued a press release announcing the sale of its U.S.
RingBinder business.
The Company filed a Form 8-K on August 11, 1998 to report the following
information:
On July 31, 1998 GBC issued a press release announcing its second quarter 1998
results.
(18)
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL BINDING CORPORATION
AND SUBSIDIARIES
By /s/ William R. Chambers, Jr.
------------------------------
William R. Chambers, Jr.
Vice President and
Chief Financial Officer
(19)
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<PERIOD-START> JAN-01-1998
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