<PAGE> 1
===============================================================================
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 JUNE 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.
<TABLE>
<S> <C> <C>
OUTSTANDING AT
CLASS JULY 31, 1998
Common Stock $.125 par value 13,307,191
Class B - Common Stock $.125 par value 2,398,275
</TABLE>
===============================================================================
<PAGE> 2
GENERAL BINDING CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION Page No.
---------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997 2
Condensed Consolidated Statements of Income for the Three
and Six Months ended June 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows for the
Six Months ended June 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 16
</TABLE>
(1)
<PAGE> 3
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000'S OMITTED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------------- ----------------
<S> <C> <C>
ASSETS
Current Assets (unaudited)
Cash and cash equivalents $ 9,983 $ 3,753
Receivables, net 173,264 160,787
Inventories --
Raw materials 51,176 38,107
Work in process 7,564 8,470
Finished goods 112,230 96,992
-------------- ---------------
Total inventories 170,970 143,569
Deferred tax assets 7,908 9,323
Other 35,439 10,313
-------------- ---------------
Total current assets 397,564 327,745
Property, plant and equipment 200,934 190,441
Less - accumulated depreciation (76,724) (77,020)
-------------- ---------------
Net property, plant and equipment 124,210 113,421
Other long-term assets:
Cost in excess of fair value of
assets of acquired companies,
net of amortization 296,433 204,543
Other 61,303 47,205
-------------- ---------------
Total assets $ 879,510 $ 692,914
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 37,719 $ 40,247
Current maturities of long-term obligations 1,050 722
Accounts payable 46,690 42,979
Accrued liabilities 73,866 68,154
-------------- ---------------
Total current liabilities 159,325 152,102
-------------- ---------------
Long-term debt 498,245 324,070
Other long-term liabilities 13,267 11,368
Deferred tax liabilities 13,856 14,331
Stockholders' Equity
Common stock 1,962 1,962
Class B common stock 300 300
Additional paid-in capital 10,341 9,708
Cumulative translation adjustment (7,180) (6,108)
Retained earnings 215,745 208,394
Treasury stock (26,351) (23,213)
-------------- ---------------
Total stockholders' equity 194,817 191,043
-------------- ---------------
Total liabilities and stockholders' equity $ 879,510 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 230,708 $ 187,436 $ 444,652 $ 367,941
Cost of sales, including development and engineering 131,183 106,289 253,187 210,858
Selling, service and administrative 76,921 60,652 146,585 117,985
Amortization of goodwill and related intangibles 2,822 1,904 5,292 3,533
---------- ----------- ----------- -----------
Operating income 19,782 18,591 39,588 35,565
Interest expense 9,956 6,193 17,428 11,421
Loss on sale of U.S. RingBinder 3,500 - 3,500 -
Other expense, net (264) 380 245 840
---------- ----------- ----------- -----------
Income before taxes 6,590 12,018 18,415 23,304
Income taxes 2,872 4,807 7,602 9,321
---------- ----------- ----------- -----------
Net income $ 3,718 $ 7,211 $ 10,813 $ 13,983
========== =========== =========== ===========
Net income per common share
Basic $ 0.24 $ 0.46 $ 0.69 $ 0.89
Diluted $ 0.23 $ 0.45 $ 0.68 $ 0.88
Weighted average number of common shares outstanding
Basic 15,711 15,764 15,736 15,763
Diluted 15,874 15,881 15,876 15,904
</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>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997
-------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 10,813 $ 13,982
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,989 13,740
(Decrease) in non-current deferred taxes (256) (142)
Provision for doubtful accounts 1,601 1,247
(Increase) in other long-term assets (504) (3,353)
Other 1,927 2,921
Changes in current assets and liabilities:
(Increase) in receivables (59) (10,827)
(Increase) in inventories (11,537) (21,812)
(Increase) in other current assets (3,342) (4,273)
(Increase) in deferred tax assets 1,112 (1,386)
Increase (decrease) in accounts payable and accrued expenses (5,544) 4,779
Increase (decrease) in taxes on income (3,751) 860
Increase (decrease) in deferred income on service agreements (121) 97
--------------- ---------------
Net cash provided by (used in) operating activities 6,328 (4,167)
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (12,688) (13,353)
Proceeds from sale of plant and equipment 1,103 -
Payments for acquisitions, net of cash acquired (143,662) (232,381)
--------------- ---------------
Net cash (used in) investing activities (155,247) (245,734)
--------------- ---------------
Cash flows from financing activities:
Increase (decrease) in notes payable (2,549) 19,274
Payments of debt issuance costs (7,685)
Payments of long term-debt (60,139) -
Long-term borrowings 231,964 237,086
Increase (decrease) in current portion of
long-term obligations 283 164
Dividends paid (3,463) (3,468)
Purchases of treasury stock (3,231) (524)
Proceeds from the exercise of stock options 728 546
--------------- ---------------
Net cash provided by financing activities 155,908 253,078
--------------- ---------------
Effect of exchange rates on cash (759) (798)
--------------- ---------------
Net increase in cash & cash equivalents 6,230 2,379
Cash and cash equivalents at the beginning of year 3,753 6,721
--------------- ---------------
Cash and cash equivalents at the end of the period $ 9,983 $ 9,100
=============== ===============
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $ 15,388 $ 8,838
Income taxes, net of refunds $ 7,499 $ 7,764
</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 and Subsidiaries as of
June 30, 1998 and December 31, 1997, and the results of their operations for the
six months ended June 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 9.375%
Senior Subordinated Notes due 2008 (the "Notes") through a Rule 144A offering.
The Notes are unsecured and are subordinated to all existing and future senior
indebtedness of the Company. The 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 Notes at declining redemption rates 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 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 Notes originally issued, remain outstanding. Upon certain
changes in control of the Company, the Note holders could require that the
Company repurchase all or some of the 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 recent acquisition of Ibico AG, and to repay
approximately $85.0 million of indebtedness outstanding under the Company's
revolving credit facility.
Long-term debt consists of the following at June 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>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
REVOLVING CREDIT FACILITY
U.S. dollar borrowings - (weighted average floating
interest rate 6.85% at June 30, 1998 and
6.61% at December 31, 1997) $ 309,200 $ 302,400
British pounds borrowings - (floating interest rate of
8.42% at June 30, 1998) 13,606 -
Dutch guilder borrowings - (floating interest rate
4.37% at June 30, 1998 and 4.22% at
December 31, 1997) 5,660 4,728
INTERNATIONAL CREDIT AGREEMENT
Australian dollar borrowings - due July 2000
(floating interest rate 6.40% at June 30, 1998
and 6.68% at December 31, 1997) 2,493 2,722
INDUSTRIAL REVENUE/DEVELOPMENT BONDS
Industrial Revenue Bond - due annually from July 1994
to July 2008 (floating interest rate 3.95% at
June 30, 1998 and 4.60% at December 31, 1997) 1,750 1,750
Industrial Revenue Bond - due annually from
June 2002 to June 2006 (floating
interest rate 3.65% at June 30, 1998
and 4.20% at December 31, 1997) 1,050 1,050
Industrial Development Bond - maturity date,
March 2026 (floating interest rate 3.65% at
June 30, 1998 and 3.95% at December 31, 1997) 7,510 7,510
Industrial Revenue Bond - due semiannually
October 1997 to October 1999 (floating interest rate
6.88% at June 30, 1998 and December 31, 1997) 100 200
Industrial Revenue Bond - Irish punt borrowing, due
September 2000 (floating interest rate 6.75%
at June 30, 1998 and December 31, 1997) 280 365
NOTES PAYABLES
Note Payable, Dutch guilder borrowing -
due monthly from November 1994 to
October 2004 (fixed interest rate 8.85% at
June 30, 1998 and December 31, 1997) 1,546 1,711
Note Payable, Dutch guilder borrowing - due
June 2000 (fixed interest rate of 7.05% at
June 30, 1998 and at December 31, 1997) 1,614 1,634
</TABLE>
(6)
<PAGE> 8
<TABLE>
<S> <C> <C>
Notes Payables - various (weighted average floating
interest rate of 11.0% at June 30, 1998) 3,436 -
SENIOR SUBORDINATED DEBT
9.375% Senior Subordinated Notes due 2008 150,000 -
-------- --------
Total Long-Term Debt $498,245 $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 $3,583,000 and $8,922,000 for the second
quarter of 1998 and 1997, respectively, and $9,741,000 and $13,584,000 for the
six-months ended June 30, 1988 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, will likely disclose
information for 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):
<TABLE>
<CAPTION>
THREE MONTHS ENDING SIX MONTHS ENDING
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- --------- -------- --------
<S> <C> <C> <C> <C>
(A) Net income available to common shareholders $ 3,717 $ 7,211 $10,813 $13,983
======== ======== ======== ========
(B) Weighted average number of common shares outstanding 15,711 15,764 15,736 15,763
Additional common shares issuable under employee
stock options using the treasury stock method 163 117 140 141
-------- -------- -------- --------
(C) Weighted average number of common shares
outstanding assuming the exercise of stock options 15,874 15,881 15,876 15,904
======== ======== ======== ========
Net income per common share (A) / (B) $0.24 $0.46 $0.69 $0.89
======== ======== ======== ========
Net income per common share, assuming dilution (A) / (C) $0.23 $0.45 $0.68 $0.88
======== ======== ======== ========
</TABLE>
(7)
<PAGE> 9
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. Proceeds from the sale are
estimated to be approximately $16.7 million and most of which will be primarily
used to reduce outstanding debt. A one-time pretax charge of $3.5 million was
recorded related to the sale.
7) SUBSEQUENT EVENT
The Company has commenced an offer to exchange the Notes as described in note 2
of the Notes to Condensed Financial Statements (the "Old Notes") for notes
registered under the Securities Act of 1933 (the "Exchange Notes"). The form
and terms of the Exchange Notes are essentially the same as the Old Notes. The
exchange offer is scheduled to expire on September 3, 1998, unless extended.
(8)
<PAGE> 10
(8) CONDENSED CONSOLIDATING FINANCIAL INFORMATION
GENERAL BINDING CORPORATION
CONSOLIDATING BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
June 30, 1998
------------------------------------------------------------------
Non-
Parent Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ - $ 1,496 $ 8,487 $ - $ 9,983
Receivables, net 106,732 1,691 64,841 - 173,264
Inventories 82,540 23,273 65,157 - 170,970
Deferred tax assets 6,049 860 999 - 7,908
Other 23,917 1,564 9,958 - 35,439
Due from affiliates 79,478 16,255 1,969 (97,702) -
---------- --------- --------- ----------- ---------
Total Current Assets 298,716 45,139 151,411 (97,702) 397,564
---------- --------- --------- ----------- ---------
Property, plant and equipment, net 86,755 13,442 24,013 - 124,210
cost in excess of fair value of assets of acquired companies,
net of amortization 163,803 52,075 80,555 - 296,433
Other Assets 56,615 2,031 9,215 (6,558) 61,303
Investment in subsidiaries 212,828 174,642 - (387,470) -
---------- --------- --------- ----------- ---------
Total Assets $ 818,717 $ 287,329 $ 265,194 $ (491,730) $ 879,510
========== ========= ========= =========== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Notes Payable $ 15,000 $ 6 $ 22,713 $ - $ 37,719
Current maturities of long-term obligations 350 328 372 - 1,050
Accounts payable 23,774 3,984 18,932 - 46,690
Accrued liabilities:
Salaries, wages and profit sharing contributions 20,496 75 3,889 - 24,460
Taxes, other than income 2,108 (7) 1,586 - 3,687
Deferred income on maintenance agreements 6,014 359 3,165 - 9,538
Other 8,815 9,385 17,981 - 36,181
Due to affiliates 50,271 39,366 50,085 (139,722) -
---------- --------- --------- ----------- ---------
Total Current Liabilities 126,828 53,496 118,723 (139,722) 159,325
---------- --------- --------- ----------- ---------
Long-term debt - affiliated - - 6,558 (6,558) -
Long-term debt, less current maturities 482,165 2,362 13,718 - 498,245
Other long-term liabilities 7,494 332 5,441 - 13,267
Deferred tax liabilities 7,414 3,058 3,388 - 13,858
STOCKHOLDERS' EQUITY
Common stock 1,962 4,026 2,533 (6,559) 1,962
Class B common stock 300 - - - 300
Additional paid-in capital 10,341 113,904 96,777 (210,681) 10,341
Cumulative translation adjustment (7,181) (4,464) (7,118) 11,583 (7,180)
Retained earnings 215,745 124,138 24,205 (148,343) 215,745
Treasury stock (26,351) - - - (26,351)
---------- --------- --------- ----------- ---------
Total Stockholders' Equity 194,816 237,604 116,397 (354,000) 194,817
---------- --------- --------- ----------- ---------
Total Liabilities and Stockholders' Equity $ 818,717 $ 296,850 $ 264,223 $ (500,280) $ 879,510
========== ========= ========= =========== =========
</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.
<PAGE> 11
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
(UNAUDITED)
(000 OMITTED)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
-------------------------------------------------------------------------
Non-
Parent Guarantors Guarantors Eliminations Consolidated
--------- ------------ ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Unaffiliated sales 134,708 13,573 (51,584) $ 230,708
Affiliated sales 15,389 6,059 144,678 (32,115) --
-------- ----------- --------- ----------- ------------
Net Sales 150,097 19,632 93,094 (32,115) 230,708
Cost of sales, including development and engineering 87,320 27,978 48297 (32,412) 131,183
Selling, service and administrative 46,434 8,655 21830 76,919
Amortization of goodwill and related intangibles 1,667 354 801 2,822
-------- ----------- --------- ----------- ------------
Operating income 14,676 (17,355) 22,166 297 19,784
Interest 11,743 570 1,055 (3,434) 9,934
Loss on sale of U.S. Ringbinder 3,500 3,500
Other (income) expense, net (4,234) 638 (77) 3,434 (239)
-------- ----------- --------- ----------- ------------
Income before taxes and undistributed earnings of
wholly-owned subsidiaries 3,667 (18,563) 21,188 297 6,589
Income taxes 282 1,651 819 120 2,872
-------- ----------- --------- ----------- ------------
Income (loss) before undistributed earnings
of wholly-owned subsidiaries 3,385 (20,214) 20,369 177 3,717
Undistributed earnings (loss) of wholly-
owned subsidiaries 332 3,577 (3,909) --
-------- ----------- --------- ----------- ------------
Net income 3,717 (16,637) 20,369 (3,732) $ 3,717
======== =========== ========= =========== ============
</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.
(10)
<PAGE> 12
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
(UNAUDITED)
(000 OMITTED)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
-----------------------------------------------------------------
Non-
Parent Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unaffiliated sales 275,288 20,891 148,473 --
Affiliated sales 31,128 9,798 14,462 (55,388) $ 444,652
--------- ---------- ---------- ------------ ------------
Net Sales 306,416 30,689 162,935 (55,388) 444,652
Cost of sales, including development and engineering 178,184 39,255 91,910 (56,162) 253,187
Selling, service and administrative 93,166 10,259 43,160 146,585
Amortization of goodwill and related intangibles 3,545 675 1,072 5,292
--------- ---------- ---------- ------------ ------------
Operating income 31,521 (19,500) 26,793 774 39,588
Interest 20,963 924 2,088 (6,547) 17,428
Loss on sale of U.S. Ringbinder 3,500 3,500
Other (income) expense, net (4,838) (1,823) 358 6,548 245
--------- ---------- ---------- ------------ ------------
Income before taxes and undistributed earnings of
wholly-owned subsidiaries 11,896 (18,601) 24,347 773 18,415
Income taxes 3,351 1,838 2,101 312 7,602
--------- ---------- ---------- ------------ ------------
Income (loss) before undistributed earnings 8,545 (20,439) 22,246 461
of wholly-owned subsidiaries 10,813
Undistributed earnings (loss) of wholly-
owned subsidiaries 2,268 4,262 (6,530) --
--------- ---------- ---------- ------------ ------------
Net income 10,813 (16,177) 22,246 (6,069) $ 10,813
========= ========== ========== ============ ============
</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.
(11)
<PAGE> 13
GENERAL BINDING CORPORATION
CONSOLIDATING STATEMENT OF CASH FLOWS
JUNE 30, 1998
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
------------------------------------------------------------------
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating activities (129,275) 130,231 5,372 $ 6,328
--------- -------- -------- -------- ---------
Investing Activities:
Capital expenditures (8,367) (2,179) (2,142) (12,688)
Proceeds from sale of plant and equipment 1,026 77 1,103
Capital contributions to subsidiaries (17,111) 17,111
Payment for acquisitions, net of cash acquired - (143,662) (143,662)
--------- -------- -------- -------- ---------
Net cash (used in) provided by investing activities (24,452) (128,730) (2,065) - (155,247)
--------- -------- -------- -------- ---------
Financing Activities:
Increase (reduction) in notes payable (680) (5) (1,864) (2,549)
Payments of debt issuance costs (7,685) (7,685)
Increase (decrease) in long-term debt 164,046 7,779 171,825
(Reduction) increase in current portion of
long-term debt 259 24 283
Dividends paid (3,463) (3,463)
Purchases of treasury stock (3,231) (3,231)
Proceeds from the exercise of stock options 728 728
--------- -------- -------- -------- ---------
Net cash provided by (used in) financing activities 149,974 (5) 5,939 - 155,908
--------- -------- -------- -------- ---------
Effect of exchange rates on cash (759) (759)
--------- -------- -------- -------- ---------
Net (decrease) in cash & cash equivalents (3,753) 1,496 8,487 6,230
Cash and cash equivalents at the beginning of year 3,753 3,753
--------- -------- -------- -------- ---------
Cash and cash equivalents at the end of the period - $ 1,496 $ 8,487 - $ 9,983
========= ======== ======== ======== =========
</TABLE>
a) During the six months ended June 30, 1998, the Parent repaid an intercompany
balance due to GBC International, Inc. in the amount of $114,935. This amount
was then used to purchase Ibico AG.
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 JUNE 30, 1998 COMPARED TO QUARTER ENDED
JUNE 30, 1997
Sales
Net sales for the second quarter of 1998 totaled $230.7 million, an increase of
23.1% over the second quarter of 1997. The acquisition of Ibico contributed
$30.0 million in sales in the quarter. Excluding Ibico, sales increased 7.1% in
the second quarter of 1998 compared to 1997. Sales in the Company's Document
Finishing and Films Groups increased approximately 6% in the quarter while the
Office Products Group, which includes Ibico's operations, achieved a 15% gain.
Sales of personal shredders, pouch laminators and writing boards were primarily
responsible for the sales increase in the Office Products Group. The Company's
acquisitions of Baker, Visucom and Allfax contributed to the increase in sales
of writing boards in the second quarter of 1998.
Gross Margin, Costs and Expenses
The Company's gross profit margin declined slightly in the second quarter of
1998 to 43.1%, compared to 43.3% in 1997. While the Films Group achieved higher
gross profit margins in the second quarter of 1998, margins declined in both the
Document Finishing and Office Products Groups. The Films Group benefited from
improved manufacturing efficiencies and favorable pricing on products sourced
from the Far East. Gross profit margins declined in the Document Finishing
Group primarily as a result of 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) and a delay in benefiting from efficiencies
associated with the startup of three new manufacturing facilities. Sales mix
was also largely responsible for the gross profit margin decline in the Office
Products Group. Increased sales of personal shredders and pouch laminators
(both lower-margin products) contributed to the decline.
(13)
<PAGE> 15
Selling, service and administrative expenses increased 26.8% in the second
quarter of 1998 compared to 1997. The increase was primarily the result of the
acquisition of Ibico and overall increased sales resulting in related selling
expenses. As a percentage of sales, selling, service and administrative
expenses were 33.3% in the second quarter of 1998 compared to 32.4% in 1997,
primarily due to higher rebate programs for certain Office Products Group
customers, along with increased information systems expenditures.
Amortization of goodwill and related intangibles increased to $2.8 million in
the second quarter of 1998, compared to $1.9 million in the second quarter of
1997, due to acquisitions.
Interest expense for the second quarter of 1998 increased to $9.9 million,
compared to $6.2 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 relatively higher interest expense associated with
the Senior Subordinated Notes.
Effective June 30, 1998, the Company completed the sale of the business and
substantially all of the assets of its U.S. RingBinder Corp. subsidiary. For
the second quarter of 1998, U.S. RingBinder contributed sales of $6.6 million
and operating income of $535,000. 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 43.6% in the second
quarter compared to 40.0% in 1997. Net losses in certain of the Company's
International operations were the primary reasons for the increase.
Net Income
As a result of the factors described above, net income for the second quarter of
1998 before the impact of the U.S. RingBinder sale was $5.8 million, or $0.37
per share basic compared to $14.0 million, or $0.46 per share basic in the
second quarter of 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Sales
Net sales for the first half of 1998 totaled $444.7 million, an increase of
20.8% over the first half of 1997. The Company's first half results include
the results of Ibico from the date of acquisition, February 27, 1998.
Excluding the acquisition of Ibico, GBC's sales were $403.3 million, an
increase of 9.6% over the first half of 1997. The first half 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 in
the first half 1998 benefited from the Company's acquisitions of Baker, Visucom
and Allfax.
Gross Margin, Costs and Expenses
Gross profit margin improved in the first half of 1998 to 43.1% compared to
42.7% in the first half of 1997. The improvement in gross margin was due
principally to better margins achieved in the Company's Films Group.
Selling, service, and administrative expenses increased 24.2% in the first half
of 1998, compared to the first half of 1997, primarily as a result of increased
sales and related selling expenses. As a percentage of sales, selling, service
and administrative expenses increased to 33.0% in 1998 from 32.1% in the first
half of 1997, principally due to higher rebate programs for certain Office
Products Group customers.
Amortization of goodwill and intangibles increased to $5.3 million in the first
half of 1998, compared to $3.5 million in the first half of 1997, due to
acquisitions.
Interest expense for the first half of 1998 increased to $17.4 million, compared
to $11.4 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 Senior
Subordinated Notes.
(14)
<PAGE> 16
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 41.3% in the first
half of 1998 compared to 40.0% in 1997. Net losses in certain of the Company's
International operations were the primary reasons for the increase.
Net Income
As a result of the factors described above, net income for the first half of
1998 before the impact of the sale of U.S. RingBinder was $12.9 million or $0.82
per share basic, versus $14.0 million, or $0.89 per share basic in the first
half of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements for operations, acquisitions and capital
expenditures during the first half 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
Senior Subordinated Notes.
Net cash provided by operating activities was $4.6 million for the first six
months of 1998, compared to cash used of $4.2 million in the first half of 1997.
The favorable swing in 1998 was due primarily to a reduction in receivables and
inventories net of acquired subsidiaries.
Capital expenditures during the first six months of 1998 were $12.6 million,
compared to $13.4 million during the first six months of 1997. Major projects
in 1998 include investments associated with the Company's new custom supplies
facility in Wisconsin and the new document finishing equipment plant in
Illinois.
Cash dividends paid during the first six months of both 1998 and 1997 were $0.22
per share, respectively.
The Company invested $141.2 million in acquisitions during the first six months
of 1998 to acquire Ibico and Allfax. Acquisitions were financed by borrowings
under the Company's revolving credit facility and a $60.0 million borrowing from
Lane Industries, Inc.
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 six
months of 1998.
As of June 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. As of June 30, 1998, the Company had the equivalent of
$328.7 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.
(15)
<PAGE> 17
PART II. OTHER INFORMATION
Item 6: Exhibits
(a) Exhibits: None
(b) Reports on Form 8-K:
The Company filed a Form 8-K on June 3, 1998 to report the following
information:
On May 27, 1998, GBC announced that it had closed the placement of $150 million
of Senior Subordinated Notes through a Rule 144A offering.
The Company filed a Form 8-K on June 25, 1998 to report the following
information:
On June 22, 1998, GBC issued a press release dealing with its net income outlook
for the quarter ending June 30, 1998.
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 13, 1998 to report the following
information:
On July 31, 1998, GBC issued a press release announcing its second quarter 1998
results.
(16)
<PAGE> 18
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
(17)
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