<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 MARCH 31, 1999
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 APRIL 30, 1999
Common Stock, $.125 par value 13,338,248
Class B Common Stock, $.125 par value 2,398,275
===============================================================================
<PAGE> 2
GENERAL BINDING CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial statements (unaudited)
Condensed consolidated balance sheets as of
March 31, 1999 and December 31, 1998 2
Condensed consolidated statements of income for the three
months ended March 31, 1999 and 1998 3
Condensed consolidated statements of cash flows for the
three months ended March 31, 1999 and 1998 4
Notes to condensed consolidated financial statements 5
Item 2. Management's discussion and analysis of financial condition
and results of operations 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
1
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GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
March 31, December 31,
1999 1998
(unaudited)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,287 6,095
Receivables, less allowances for
doubtful accounts and sales
returns: 1999 - $9,395, 1998 - $9,871 180,471 187,939
Inventories:
Raw materials 50,311 53,848
Work in process 6,549 6,533
Finished goods 115,044 104,136
--------- ---------
Total inventories 171,904 164,517
Deferred tax assets 11,658 12,429
Other 30,760 27,663
--------- ---------
Total current assets 402,080 398,643
Property, plant and equipment 216,368 217,179
Less - accumulated depreciation (92,202) (90,743)
--------- ---------
Net property, plant and equipment 124,166 126,436
Goodwill, net of amortization 306,188 304,649
Other 50,879 56,110
--------- ---------
Total assets $ 883,313 $ 885,838
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 56,954 $ 51,669
Accrued liabilities 70,352 77,115
Notes payable 46,302 27,462
Current maturities of long-term debt 793 972
--------- ---------
Total current liabilities 174,401 157,218
Long-term debt, less current maturities 472,282 490,591
Other long-term liabilities 15,515 13,760
Deferred tax liabilities 20,382 21,082
Stockholders' equity:
Common stock 1,962 1,962
Class B common stock 300 300
Additional paid-in capital 11,458 10,976
Retained earnings 224,543 225,112
Treasury stock (27,002) (26,632)
Accumulated other comprehensive income (10,528) (8,531)
--------- ---------
Total stockholders' equity 200,733 203,187
--------- ---------
Total liabilities and stockholders' equity $ 883,313 $ 885,838
========= =========
The accompanying notes to condensed consolidated financial statements are
an integral part of these statements.
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GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(000's omitted, except per share data)
Three months ended
March 31,
--------------------------
1999 1998
--------- ---------
Net sales $ 221,082 $ 213,944
Cost of sales, including development
and engineering 127,069 122,004
Selling, service and administrative 78,940 69,664
Amortization of goodwill and related intangibles 2,664 2,470
--------- ---------
Operating income 12,409 19,806
Interest expense 10,388 7,472
Other (income) expense, net (192) 509
--------- ---------
Income before taxes 2,213 11,825
Income taxes 897 4,730
--------- ---------
Net income $ 1,316 $ 7,095
========= =========
Other comprehensive income, net of taxes:
Foreign currency translation adjustments (1,997) (938)
--------- ---------
Comprehensive (loss) income $ (681) $ 6,157
========= =========
Net income per common share: (1)
Basic $ 0.08 $ 0.45
Diluted 0.08 0.45
Weighted average number of common shares
outstanding: (2)
Basic 15,729 15,761
Diluted 15,862 15,878
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
(1) Amounts represent per share amounts for both Common Stock and Class B
Common Stock.
(2) Weighted average shares includes both Common Stock and Class B Common
Stock.
3
<PAGE> 5
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
Three Months Ended
March 31,
--------------------------
1999 1998
--------- ---------
OPERATING ACTIVITIES:
Net income $ 1,316 $ 7,095
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 4,454 4,387
Amortization 4,790 3,634
Provision for doubtful accounts 482 392
Increase in non-current deferred taxes - (170)
(Increase) in other long-term assets (3,386) (3,466)
Other 243 357
Changes in current assets and liabilities:
Decrease (increase) in receivables 5,553 (4,033)
(Increase) decrease in inventories (8,047) 4,001
(Increase) in other current assets (2,172) (5,039)
Decrease in deferred tax assets 811 1,558
(Decrease) in accounts payable and accrued
liabilities (372) (5,434)
Increase in income taxes payable 476 1,365
--------- ---------
Net cash provided by operating
activities 4,148 4,647
INVESTING ACTIVITIES:
Capital expenditures (5,183) (6,385)
Payments for acquisitions and investments
(net of cash acquired) - (137,983)
Proceeds from sale of plant and equipment 199 42
--------- ---------
Net cash (used in) investing activities (4,984) (144,326)
FINANCING ACTIVITIES:
Increase in notes payable 18,840 30,274
Increase in long-term debt 182,537 122,888
Repayment of long-term debt (196,718) (104)
(Reduction) in current portion of
long-term debt (229) (1)
Payments of debt issuance costs (42) -
Dividends paid (1,887) (1,736)
Purchases of treasury stock (429) (2,601)
Proceeds from the exercise of stock options 541 509
--------- ---------
Net cash provided by financing activities 2,613 149,229
Effect of exchange rates on cash (585) 44
--------- ---------
Net increase in cash and cash equivalents 1,192 9,594
Cash and cash equivalents at the beginning
of the year 6,095 3,753
--------- ---------
Cash and cash equivalents at the end of
the period $ 7,287 $ 13,347
========= =========
Supplemental disclosure:
Interest paid $ 5,687 $ 6,891
Income taxes paid 1,250 4,239
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 GBC,
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. GBC 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 GBC's 1998
Annual Report on Form 10-K. In the opinion of GBC, all adjustments
necessary to present fairly the financial position of GBC as of March
31, 1999 and December 31, 1998 and the results of their operations for
the three months ended March 31, 1999 and 1998 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
Long-term debt consists of the following at March 31, 1999 and December
31, 1998 - outstanding borrowings denominated in foreign currencies
have been converted to U.S. dollars (000's omitted):
March 31, December 31,
1999 1998
---- ----
REVOLVING CREDIT FACILITY
U.S. Dollar borrowings - (weighted
average floating interest rate
of 5.92% at March 31, 1999 and
6.20% at December 31, 1998) $274,000 $288,300
British Pound borrowings - (floating
interest rate of 6.37% at March 31,
1999 and 7.80% at December 31, 1998) 15,796 19,416
Swiss Franc borrowings - (floating
interest rate of 2.13% at March 31,
1999 and 2.33% at December 31, 1998) 9,315 7,785
Dutch Guilder borrowings - (floating
interest rate of 3.90% at March 31,
1999 and 4.30% at December 31, 1998) 5,153 5,394
INTERNATIONAL CREDIT AGREEMENT
Australian Dollar borrowings - due July
2000 (floating interest rate of 6.70%
at March 31, 1999 and 6.50% at
December 31, 1998) 2,537 2,449
INDUSTRIAL REVENUE BONDS
Industrial Revenue Bond - due March 2026
(floating interest rate of 3.05% at
March 31, 1999 and 4.20% at December
31, 1998) 7,511 7,511
Industrial Revenue Bond - due annually
from July 1994 to July 2008 (floating
interest rate of 3.12% at March 31,
1999 and 3.60% at December 31, 1998) 1,750 1,750
Industrial Revenue Bond - due annually
from June 2002 to June 2007 (floating
interest rate of 2.91% at March 31,
1999 and 3.45% at December 31, 1998) 1,050 1,050
NOTES PAYABLE
Senior Subordinated Notes, U.S. borrowing
- due 2008 (fixed interest rate of
9.375%) 150,000 150,000
5
<PAGE> 7
Note payable, Dutch Guilder borrowing -
due monthly from November 1994 to
October 2004 (fixed interest rate
of 8.85%) 1,630 1,782
Note payable, Dutch guilder borrowing -
due June 2000 (fixed interest rate of
7.05%) 1,626 1,701
OTHER BORROWINGS 2,707 4,425
-------- --------
Total debt 473,075 491,563
Less - current maturities 793 972
-------- --------
Total long-term debt $472,282 $490,591
======== ========
(3) EARNINGS PER SHARE
In accordance with SFAS No. 128, net income per common share was
computed as follows (000's omitted, except per share amounts):
Three months ended March 31,
----------------------------
1999 1998
-------- --------
(A) Net income available to common
shareholders $ 1,316 $ 7,095
======== ========
(B) Weighted average number of common
shares outstanding (1) 15,729 15,761
Additional common shares issuable
under employee stock options using
the treasury stock method 133 117
-------- --------
(C) Weighted average number of common
shares outstanding assuming the
exercise of stock options (1) 15,862 15,878
======== ========
Net income per common share (2) (A) / (B) $ 0.08 $ 0.45
======== ========
Net income per common share, assuming
dilution (2) (A) / (C) $ 0.08 $ 0.45
======== ========
(1) Weighted average shares includes both Common Stock and Class B
Common Stock.
(2) Amounts represent per share amounts for both Common Stock and
Class B Common Stock.
(4) BUSINESS SEGMENTS
In accordance with SFAS No. 131, GBC has identified three reportable
operating segments based on the amount of revenues and operating income
of these segments. GBC's operating segments are based on the
organization of GBC into business groups comprised of similar products
and services. The Document Finishing Group's revenues are primarily
derived from sales of binding and punching equipment and related
supplies, custom binders and folders, and maintenance and repair
services. The Films Group's revenues are primarily derived through
sales of thermal films, mid-range and commercial high-speed laminators
and large-format digital print laminators. The Document Finishing Group
and the Films Group's products and services are sold through direct
channels to the general office markets, commercial reprographic
centers, educational and training markets, commercial printers, and to
government agencies. The Office Products Group's revenues are primarily
derived from the sale of binding and laminating equipment and supplies,
document shredders, visual communications products and desktop
accessories through indirect channels including office product
superstores, contract/commercial stationers, wholesalers, mail order
companies and retail dealers. Expenses incurred by the three reportable
segments described above relate to costs incurred to
6
<PAGE> 8
manufacture or purchase products and selling, general and
administrative costs. The All Others category presented below
primarily represents expenses of a corporate nature and revenues and
expenses for certain entities not assigned to one of the other three
reportable segments.
<TABLE>
<CAPTION>
Three months ended March 31, 1999 (000's omitted):
--------------------------------------------------
Document Film Office
Finishing Products Products All
Group Group Group Others Eliminations Total
----- ----- ----- ------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Sales:
Unaffiliated customers $57,557 $36,921 $115,908 $10,696 $ -- $221,082
Affiliated entities 18,476 5,433 18,294 67 (42,270) --
Operating income 7,310 7,217 9,080 (11,198) -- 12,409
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31, 1998 (000's omitted):
--------------------------------------------------
Document Film Office
Finishing Products Products All
Group Group Group Others Eliminations Total
----- ----- ----- ------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Sales:
Unaffiliated customers $59,375 $35,899 $103,711 $14,959 $ -- $213,944
Affiliated entities 12,130 7,040 1,010 874 (21,054) --
Operating income 8,766 7,760 12,692 (9,412) -- 19,806
</TABLE>
Financial information for the three months ended March 31, 1999 and
1998 by geographical area is summarized below.
<TABLE>
<CAPTION>
Three months ended March 31, 1999 (000's omitted):
-------------------------------------------------
United
States Europe International Total
-------- ------- ------------- --------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $149,843 $43,614 $27,625 $221,082
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31, 1998 (000's omitted):
-------------------------------------------------
United
States Europe International Total
-------- ------- ------------- --------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $152,743 $35,993 $25,208 $213,944
</TABLE>
(5) SUBSIDIARY GUARANTOR INFORMATION
During 1998, GBC issued $150 million of 9.375% Senior Subordinated
Notes due 2008 in order to finance the acquisition of Ibico AG. Each of
GBC's domestic restricted subsidiaries have jointly and severally and
fully and unconditionally guaranteed the Senior Subordinated Notes. See
Note 2 to the Consolidated Financial Statements for additional
information. Rather than filing separate financial statements for each
guarantor subsidiary with the Securities and Exchange commission, GBC
has elected to present the following condensed consolidating 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
GBC on a consolidated basis:
7
<PAGE> 9
CONSOLIDATING BALANCE SHEETS (000'S OMITTED):
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
--------- ---------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,596 $ (441) $ 5,132 $ - $ 7,287
Receivables, net 109,590 1,263 69,618 - 180,471
Inventories, at lower of cost or market 88,470 414 83,020 - 171,904
Deferred tax assets 9,989 353 1,404 (88) 11,658
Other 20,497 - 10,263 - 30,760
Due from affiliates 79,016 1,128 243 (80,387) -
--------- --------- --------- ---------- -----------
Total current assets 310,158 2,717 169,680 (80,475) 402,080
Net property, plant and equipment 87,065 8,695 28,406 - 124,166
Goodwill, net of amortization 197,438 24,458 84,292 - 306,188
Other 43,248 11,094 7,761 (11,224) 50,879
Investment in subsidiaries 169,292 139,543 - (308,835) -
--------- --------- --------- ---------- -----------
Total assets $ 807,201 $ 186,507 $ 290,139 $ (400,534) $ 883,313
========= ========= ========= ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 34,951 $ 910 $ 21,093 $ - $ 56,954
Accrued liabilities 47,846 381 22,125 - 70,352
Notes payable 17,300 - 29,002 - 46,302
Current maturities of long-term debt 417 - 376 - 793
Due to affiliates 23,816 304 57,200 (81,320) -
--------- --------- --------- ---------- -----------
Total current liabilities 123,290 1,925 130,506 (81,320) 174,401
Long-term debt, less current maturities 459,894 - 23,318 (10,930) 472,282
Other long-term liabilities 8,933 332 6,250 15,515
Deferred tax liabilities 13,311 3,079 3,992 20,382
Stockholders' equity: -
Common stock 1,962 5 4,296 (4,301) 1,962
Class B common stock 300 - - 300
Additional paid-in capital 11,458 53,423 107,864 (161,287) 11,458
Retained earnings 224,543 126,615 24,583 (151,198) 224,543
Treasury stock (27,002) - - - (27,002)
Accumulated other comprehensive income (10,528) 1,458 (9,960) 8,502 (10,528)
--------- --------- --------- ---------- -----------
Total stockholders' equity 200,733 180,726 126,073 (306,799) 200,733
--------- --------- --------- ---------- -----------
Total liabilities and stockholders' equity $ 807,201 $ 186,507 $ 290,139 $ (400,534) 883,313
========= ========= ========= ========== ===========
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
-------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,049 $ (650) 2,696 $ -- 6,095
Receivables, net 118,477 1,609 67,853 -- 187,939
Inventories, at lower of cost or market 79,657 7,033 77,760 67 164,517
Deferred tax assets 9,386 957 2,160 (74) 12,429
Other 18,667 559 8,437 -- 27,663
Due from affiliates 84,457 53,169 2,465 (140,091) --
--------- --------- --------- -------- -------
Total current assets 314,693 62,677 161,371 (140,098) 398,643
Net property, plant and equipment 85,589 11,307 29,540 -- 126,436
Goodwill, net of amortization 191,511 31,264 82,073 (199) 304,649
Other 45,732 1,622 10,460 (1,704) 56,110
Investment in subsidiaries 168,617 152,006 -- (320,623) --
--------- --------- --------- -------- ---------
Total assets $ 806,142 $ 258,876 $ 283,444 $(462,624) $ 885,838
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,775 $ 3,187 $ 17,707 $ -- $ 51,669
Accrued liabilities 53,757 (253) 23,611 -- 77,115
Notes payable -- -- 27,462 -- 27,462
Current maturities of long-term debt 413 15 544 -- 972
Due to affiliates 21,910 58,956 60,057 (140,923) --
--------- --------- --------- -------- -------
Total current liabilities 106,855 61,905 129,381 (140,923) 157,218
Long-term debt - affiliated 1,704 -- -- (1,704) --
Long-term debt, less current maturities 473,559 1,050 15,982 -- 490,591
Other long-term liabilities 7,901 226 5,633 -- 13,760
Deferred tax liabilities 12,936 3,454 4,692 -- 21,082
Stockholders' equity:
Common stock 1,962 5 5,171 (5,176) 1,962
Class B common stock 300 -- -- -- 300
Additional paid-in capital 10,976 53,421 102,788 (156,209) 10,976
Retained earnings 225,112 143,616 27,847 (171,463) 225,112
Treasury stock (26,632) -- -- -- (26,632)
Accumulated other comprehensive income (8,531) (4,801) (8,050) 12,851 (8,531)
--------- --------- --------- -------- -------
Total stockholders' equity 203,187 192,241 127,756 (319,997) 203,187
--------- --------- --------- -------- -------
Total liabilities and stockholders' equity $ 806,142 $ 258,876 $ 283,444 (462,624) 885,838
========= ========= ========= ======== =======
</TABLE>
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CONSOLIDATING INCOME STATEMENTS (000's OMITTED):
<TABLE>
<CAPTION>
Three months ended March 31, 1999
----------------------------------------------------------------------------
Parent Guarantors(a) Non-Guarantors Eliminations Consolidated
---------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unaffiliated sales $ 149,843 -- 71,239 $ -- $ 221,082
Affiliated sales 16,574 -- 20,314 (36,888) --
--------- --------- --------- --------- ---------
Net sales 166,417 -- 91,553 (36,888) 221,082
Cost of sales, including development
and engineering 99,683 185 64,123 (36,922) 127,069
Selling, service and administrative 53,800 27 25,113 -- 78,940
Amortization of goodwill and related intangibles 1,785 331 548 -- 2,664
--------- --------- --------- --------- ---------
Operating income 11,149 (543) 1,769 34 12,409
Interest 9,708 327 1,015 (662) 10,388
Other (income) expense (852) (56) 54 662 (192)
--------- --------- --------- --------- ---------
Income before taxes and undistributed
earnings of wholly owned subsidiaries 2,293 (814) 700 34 2,213
Income taxes 929 (330) 284 14 897
--------- --------- --------- --------- ---------
Income before undistributed earnings of
wholly owned subsidiaries 1,364 (484) 416 20 1,316
Undistributed earnings of (loss) of wholly-
owned subsidiaries (48) 594 -- (546) --
--------- --------- --------- --------- ---------
Net income $ 1,316 $ 110 416 $ (526) $ 1,316
========= ========= ========= ========= =========
</TABLE>
(a) Effective January 1, 1999 the Protech and Sickenger subsidiaries were merged
into the Parent company.
10
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<TABLE>
<CAPTION>
Three months ended March 31, 1998
---------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
---------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unaffiliated sales $ 140,580 $ 7,318 $ 66,046 $ -- $ 213,944
Affiliated sales 15,739 3,739 3,795 (23,273) --
--------- --------- --------- ------ ---------
Net sales 156,319 11,057 69,841 (23,273) 213,944
Cost of sales, including development
and engineering 90,865 11,277 43,612 (23,750) 122,004
Selling, service and administrative 46,732 1,602 21,330 -- 64,664
Amortization of goodwill and related intangibles 1,878 321 271 -- 2,470
--------- --------- --------- ------ ---------
Operating income 16,844 (2,143) 4,628 477 19,806
Interest 9,220 332 1,033 (3,113) 7,472
Other (income) expense (604) (2,435) 435 3,113 509
--------- --------- --------- ------ ---------
Income before taxes and undistributed
earnings of wholly-owned subsidiaries 8,228 (40) 3,160 477 11,825
Income taxes 3,069 186 1,282 193 4,730
--------- --------- --------- ------ ---------
Income before undistributed earnings of
wholly-owned subsidiaries 5,159 (226) 1,878 284 7,095
Undistributed earnings (loss) of wholly
owned subsidiaries 1,936 685 -- (2,621) --
--------- --------- --------- ------ ---------
Net income $ 7,095 $ 459 $ 1,878 (2,337) $ 7,095
========= ========= ========= ====== =========
</TABLE>
11
<PAGE> 13
CONSOLIDATING STATEMENTS OF CASH FLOWS (000's OMITTED):
<TABLE>
<CAPTION>
Three months ended March 31, 1999
------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
---------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES $ 3,972 $ 2,409 $ (2,233) $ -- $ 4,148
INVESTING ACTIVITIES:
Capital expenditures (2,184) (310) (2,689) -- (5,183)
Payments for acquisitions and investments,
net of cash acquired -- -- -- -- --
Proceeds from sale of plant and equipment 194 -- 5 -- 199
Capital contributions to subsidiaries -- -- -- -- --
--------- --------- --------- -------- ---------
Net cash used in investing activities (1,990) (310) (2,684) -- (4,984)
FINANCING ACTIVITIES:
Increase (reduction) in notes payable/
intercompany balances 13,416 (1,890) 7,314 -- 18,840
(Repayment) of long-term debt (196,426) -- (292) -- (196,718)
Increase in long-term debt 181,274 -- 1,263 -- 182,537
Increase in current portion of long-term debt (105) -- (124) -- (229)
Dividends paid (1,887) -- -- -- (1,887)
Purchase of treasury stock (429) -- -- -- (429)
Proceeds from the exercise of stock options 541 -- -- -- 541
Payments for debt issuance costs (42) -- -- -- (42)
Capital contributions from parent company -- -- -- -- --
--------- --------- --------- -------- ---------
Net cash provided by financing activities (3,658) (1,890) 8,161 -- 2,613
Effect of exchange rates on cash 223 -- (808) -- (585)
--------- --------- --------- -------- ---------
NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS (1,453) 209 2,436 -- 1,192
Cash and cash equivalents at the beginning of
the year 4,049 (650) 2,696 -- 6,095
--------- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE
PERIOD $ 2,596 $ (441) $ 5,132 $ -- $ 7,287
========= ========= ========= ======== =========
</TABLE>
12
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<TABLE>
<CAPTION>
Three months ended March 31, 1998
----------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
---------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES $ 11,556 $ 9,821 $ (16,880) $ 150 $ 4,647
INVESTING ACTIVITIES:
Capital expenditures (3,972) (1,437) (976) -- (6,385)
Payments for acquisitions and investments,
net of cash acquired -- (137,983) -- -- (137,983)
Proceeds from sale of plant and equipment -- 7 35 -- 42
Capital contributions to subsidiaries (15,045) 15,045 -- -- --
--------- --------- --------- -------- ---------
Net cash used in investing activities (19,017) (124,368) (941) -- (144,326)
FINANCING ACTIVITIES:
Increase in notes payable/intercompany
balances (a) (108,769) 114,935 24,108 -- 30,274
Repayments of long-term debt -- -- (104) -- (104)
Increase in long-term debt 121,716 11 1,311 (150) 122,888
Increase in current portion of long-term debt -- -- (1) -- (1)
Dividends paid (1,736) -- -- -- (1,736)
Purchase of treasury stock (2,601) -- -- -- (2,601)
Proceeds from the exercise of stock options 509 -- -- -- 509
--------- --------- --------- -------- ---------
Net cash provided by financing activities 9,119 114,946 25,314 (150) 149,229
Effect of exchange rates on cash -- -- 44 -- 44
--------- --------- --------- -------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,658 399 7,537 -- 9,594
Cash and cash equivalents at the beginning of
the year 1,098 (26) 2,681 -- 3,753
--------- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE
PERIOD $ 2,756 $ 373 $ 10,218 $ -- $ 13,347
========= ========= ========= ======== =========
</TABLE>
(a) During the three months ended March 31, 1998, the Parent repaid an
intercompany balance due to one of the Guarantor companies in the amount of
$114,935. This amount was used to purchase Ibico AG.
13
<PAGE> 15
(6) SUBSEQUENT EVENT
On April 30, 1999, GBC announced a restructuring program that is
expected to result in a pre-tax charge to second quarter 1999 earnings
of approximately $15.0 - $18.0 million. The restructuring effort will
be focused in three primary areas:
- Consolidating European distribution, logistics and accounting
operations;
- Streamlining the sales functions of the Document Finishing Group's
North American direct sales operations; and
- Closing or consolidating several worldwide distribution centers
and manufacturing facilities.
It is estimated that approximately 435 positions, or about 8% of
GBC's workforce, will be affected.
14
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following narrative discusses the results of operations,
liquidity and capital resources for GBC on a consolidated
basis. This section should be read in conjunction with GBC's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998. 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, uncertainties and other factors which may
cause actual results and performance of GBC to be materially
different than anticipated future results and performance
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 GBC's distributors to
successfully market and sell the Company's products, the
ability of GBC 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 GBC's registration statements and reports
filed with the SEC. These important factors may also cause the
forward-looking statements made by GBC 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 GBC that the Company's plans and objectives will be
achieved.
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1999 COMPARED
TO QUARTER ENDED MARCH 31, 1998
Sales
Net sales for the first quarter of 1999 totaled $221.1
million, an increase of 3.4% as compared to the first quarter
of 1998. The acquisition of Ibico contributed approximately
$19.0 million in sales for the quarter. Sales by U.S.
RingBinder, which was sold on June 30, 1998, were $6.1 million
during the first quarter of 1998. Excluding the impact of
Ibico and U.S. RingBinder, sales decreased approximately 2.7%
in the first quarter of 1999 compared to 1998. Sales for both
the Document Finishing and Films groups were relatively flat
after considering the impact of transferring certain European
business from the Document Finishing to the Films Group during
the first quarter of 1999. Sales in the Office Products Group
increased $12.2 million during the first quarter of 1999
compared to 1998. Excluding the impact of Ibico, sales for the
Office Products Group decreased approximately $7.0 million.
The primary reason for the decrease was a sharp decline in
sales of personal shredders.
15
<PAGE> 17
Gross Margin, Costs and Expenses
The Company's overall gross profit margin declined to 42.5% in the
first quarter of 1999 compared to 43.0% in 1998. Both the Films and
Office Products Groups experienced lower gross profit margins in the
first quarter of 1999 compared to 1998, while margins in the Document
Finishing Group were flat. Gross profit margins declined in the Films
Group primarily due to price competition. The Office Products Group
gross profit margin was unfavorably impacted as a result of lower
margins on Ibico products along with an unfavorable mix of certain
lower-margin products.
Selling, service and administrative expenses increased $9.2 million in
the first quarter of 1999 compared to 1998. As a percentage of sales,
operating expenses were 35.7% in the first quarter of 1999 compared to
32.6% in 1998. The increase in selling, service and administrative
expenses was primarily due to higher costs in the Office Products
Group. The increased costs resulted from higher rebate programs,
higher distribution expenses associated with servicing certain Ibico
customers and costs associated with integrating the Group's operations
in the United Kingdom.
Amortization of goodwill and related intangibles increased to $2.7
million in the first quarter of 1999 compared to $2.5 million in the
first quarter of 1998, primarily as a result of the Ibico acquisition.
Interest expense for the first quarter of 1999 increased to $10.4
million compared to $7.5 million in 1998. The primary reasons for the
increase were higher average debt levels as a result of the financing
of the Ibico acquisition and higher interest expense associated with
the Senior Subordinated Notes.
Other income was $0.2 million in the first quarter of 1999 compared to
an expense of $0.5 million in 1998. The primary reason for the change
was foreign currency transaction gains in 1999 compared to losses in
1998.
Income Taxes
GBC's overall effective income tax rate was 40.5% for the first
quarter of 1999 compared to 40.0% in 1998. The mix of income and
losses in certain of GBC's international operations was the primary
reason for the increase.
Net Income
As a result of the factors described above, net income for the first
quarter of 1999 was $1.3 million, or $0.08 per share basic, compared
to $0.45 per share basic in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
GBC's cash requirements for operations and capital expenditures during
the first quarter of 1999 were financed by internally-generated cash
flow and borrowings under GBC's revolving credit facilities and other
short-term facilities from banks.
16
<PAGE> 18
Despite sharply lower earnings, net cash provided by operating
activities was $4.1 million for the first quarter of 1999 compared to
$4.6 million in the first quarter of 1998.
Capital expenditures during the first quarter of 1999 were $5.2
million compared to $6.3 million during the first quarter of 1998.
Cash dividends paid during the first quarter of both 1999 and 1998
were $0.12 and $0.11 per share, respectively.
As of March 31, 1999, GBC 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 GBC to maintain certain ratios
regarding current assets and liabilities, leverage and interest
coverage.
As of March 31, 1999, GBC had the equivalent of $304.3 million
outstanding under the Revolving Credit Facility.
GBC believes that funds generated from operations, combined with
existing credit facilities, are sufficient to meet
currently-anticipated capital and operating requirements.
17
<PAGE> 19
YEAR 2000 COMPLIANCE
In 1997 GBC 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.
GBC's State of Readiness
In early 1998, GBC established a Year 2000 Task Force which is directed by GBC's
Vice President of Business Technology. The Task Force has identified and
reviewed GBC's hardware and software systems, embedded technological systems,
GBC's product offerings, and material third party relationships. GBC's state of
readiness is as follows:
- - Substantially all of its hardware systems are Year 2000 compliant.
- - Certain software systems are being modified or replaced to become Year 2000
compliant.
- - Surveys have been sent to more than 375 material third party suppliers.
Approximately 83% of the surveys have been returned and are currently being
assessed by management of GBC's Business Units to determine if the failure
of any material supplier to have its products or services compliant could
have a materially adverse affect on the results of GBC's business or
operations.
- - The significant projects currently in process are summarized below:
<TABLE>
<CAPTION>
Operating Function Project Current Status Target Completion
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North American Document Remediate order processing, Completed Completed
Finishing and films distribution and financial
systems
Replace manufacturing Implemented at one of September 1999
systems at five sites five sites
North American Office Remediate order processing, Completed Completed
Products distribution and financial
systems
European Document Replace order processing, Implemented at 11 of 23 December 1999
Finishing and Office manufacturing, distribution sites
Products and financial systems
- ------------------------------------------------------------------------------------------------------
</TABLE>
Costs to Address the Company's Year 2000 Issues
The total cost of GBC's Year 2000 projects is estimated to be approximately $3.0
million (a majority of the expenditures are in North America). Such costs
include new software purchased and outside consultants hired to remediate
non-compliant systems. GBC'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
18
<PAGE> 20
GBC's estimate include the costs of company employees that may devote a portion
of their efforts towards Year 2000 remediation projects. These costs have not
had, nor are expected to have, a material effect on GBC's financial position,
results of operations or cash flows in any of the years in which spending has or
will occur. This expectation assumes that GBC 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
GBC 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. GBC has prioritized its European implementation project
focusing on early readiness for its most significant European operations. GBC
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. GBC 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.
19
<PAGE> 21
PART II. OTHER INFORMATION
Item 6: Exhibits
(a) Exhibits: Exhibit No. 27 Financial Data Schedule
(b) Reports on Form 8-K: None
20
<PAGE> 22
SIGNATURE
- ---------
Pursuant to the requirements of Section 13 or 19(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/ William R. Chambers, Jr.
-----------------------------------
William R. Chambers, Jr.
Vice President and Chief
Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GENERAL
BINDING CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> $7,287
<SECURITIES> 0
<RECEIVABLES> 180,471
<ALLOWANCES> 9,395
<INVENTORY> 171,904
<CURRENT-ASSETS> 402,080
<PP&E> 216,368
<DEPRECIATION> 92,202
<TOTAL-ASSETS> 883,313
<CURRENT-LIABILITIES> 174,401
<BONDS> 473,075
0
0
<COMMON> 2,262
<OTHER-SE> 198,471
<TOTAL-LIABILITY-AND-EQUITY> 883,313
<SALES> 221,082
<TOTAL-REVENUES> 221,082
<CGS> 127,069
<TOTAL-COSTS> 127,069
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 482
<INTEREST-EXPENSE> 10,388
<INCOME-PRETAX> 2,213
<INCOME-TAX> 897
<INCOME-CONTINUING> 1,316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,316
<EPS-PRIMARY> $.08
<EPS-DILUTED> $.08
</TABLE>
