|
Previous: GENERAL BINDING CORP, 10-Q, EX-10, 2000-11-14 |
Next: GENERAL CREDIT CORP, NT 10-Q, 2000-11-14 |
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, 2000
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, 2000 |
Common Stock, $.125 par value |
13,338,898 |
Class B Common Stock, $.125 par value |
2,398,275 |
GENERAL BINDING CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2000
Table of Contents
PART I. |
Financial Information |
Page |
|
Item 1. |
Financial statements (unaudited) |
||
Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 |
|
||
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2000 and 1999 |
|
||
Condensed Consolidated Statements of Cash Flows for nine |
4 |
||
Notes to Condensed Consolidated Financial Statements |
5 |
||
Item 2. |
Management's Discussion and Analysis of Financial Condition |
16 |
|
PART II. |
Other Information |
||
Item 6. |
Exhibits and Reports on Form 8-K |
26 |
|
Signatures |
27 |
1
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
September 30, |
December 31, |
|||||
2000 |
1999 |
|||||
|
|
|
||||
Current assets: |
||||||
Cash and cash equivalents |
$ 8,375 |
$ 11,068 |
||||
Receivables, less allowances for doubtful accounts |
||||||
and sales returns: 2000 - $14,811, 1999 - $15,164 |
155,928 |
163,216 |
||||
Inventories: |
||||||
Raw materials |
35,735 |
36,123 |
||||
Work in process |
4,784 |
6,192 |
||||
Finished goods |
85,919 |
84,032 |
||||
Total inventories |
126,438 |
126,347 |
||||
Deferred tax assets |
21,771 |
30,816 |
||||
Other |
21,446 |
27,586 |
||||
Total current assets |
333,958 |
359,033 |
||||
Total capital assets at cost |
257,060 |
254,326 |
||||
Less - accumulated depreciation |
(123,653) |
(112,735) |
||||
Net capital assets |
133,407 |
141,591 |
||||
Goodwill, net of amortization |
274,533 |
283,059 |
||||
Other |
35,846 |
38,809 |
||||
Total assets |
$ 777,744 |
$ 822,492 |
||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||
Current liabilities: |
||||||
Accounts payable |
$ 57,998 |
$ 64,487 |
||||
Accrued liabilities |
100,755 |
88,702 |
||||
Notes payable |
10,034 |
13,407 |
||||
Current maturities of long-term debt |
510 |
2,131 |
||||
Total current liabilities |
169,297 |
168,727 |
||||
Long-term debt, less current maturities |
415,416 |
454,459 |
||||
Other long-term liabilities |
19,335 |
20,296 |
||||
Deferred tax liabilities |
29,148 |
29,399 |
||||
Stockholders' equity: |
||||||
Common stock |
1,962 |
1,962 |
||||
Class B common stock |
300 |
300 |
||||
Additional paid-in capital |
22,010 |
22,010 |
||||
Retained earnings |
164,600 |
163,719 |
||||
Treasury stock |
(27,096) |
(27,096) |
||||
Accumulated other comprehensive income |
(17,228) |
(11,284) |
||||
Total stockholders' equity |
144,548 |
149,611 |
||||
Total liabilities and stockholders' equity |
$ 777,744 |
$ 822,492 |
||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. |
2
Three months ended |
Nine months ended |
|||||||
September 30, |
September 30, |
|||||||
(Unaudited) |
(Unaudited) |
|||||||
2000 |
1999 |
2000 |
1999 |
|||||
Net sales |
$ 225,688 |
$ 218,196 |
$ 685,224 |
$ 666,310 |
||||
Costs and expenses: |
||||||||
Product cost of sales, including development and |
||||||||
engineering |
124,559 |
139,043 |
383,055 |
396,652 |
||||
Inventory rationalization and write-down charges |
- |
14,176 |
- |
14,176 |
||||
Selling, service and administrative |
84,218 |
77,617 |
253,645 |
236,098 |
||||
Amortization of goodwill and related intangibles |
2,728 |
2,766 |
8,198 |
8,216 |
||||
Interest expense |
11,353 |
12,281 |
34,443 |
33,065 |
||||
Write-down of intangible and long-lived assets |
- |
8,505 |
- |
8,505 |
||||
Restructuring and other expenses |
- |
3,442 |
1,498 |
14,997 |
||||
Other expense (income), net |
516 |
607 |
1,448 |
(59) |
||||
Income (loss) before taxes |
2,314 |
(40,241) |
2,937 |
(45,340) |
||||
Income tax expense (benefit) |
1,745 |
(11,537) |
2,056 |
(13,602) |
||||
Net income (loss) |
$ 569 |
$ (28,704) |
$ 881 |
$ (31,738) |
||||
Other comprehensive (loss) income, net of taxes: |
||||||||
Foreign currency translation adjustments |
(2,760) |
1,208 |
(5,944) |
(1,711) |
||||
Comprehensive (loss) |
$ (2,191) |
$ (27,496) |
$ (5,063) |
$ (33,449) |
||||
Net income (loss) per common share: (1) |
||||||||
Basic |
$ 0.04 |
$ (1.82) |
$ 0.06 |
$ (2.02) |
||||
Diluted |
0.04 |
(1.82) |
0.06 |
(2.02) |
||||
Weighted average number of common shares outstanding: (2) |
||||||||
Basic |
15,734 |
15,734 |
15,734 |
15,732 |
||||
Diluted |
15,819 |
15,734 |
15,804 |
15,732 |
||||
(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. |
||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. |
3
GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
Nine Months Ended |
||||||
September 30, |
||||||
2000 |
1999 |
|||||
(unaudited) |
(unaudited) |
|||||
Operating activities: |
||||||
Net income (loss) |
$ 881 |
|
$ (31,738) |
|||
Adjustments to reconcile net income (loss) to net cash provided |
||||||
Depreciation |
16,803 |
16,149 |
||||
Amortization |
12,112 |
12,145 |
||||
Restructuring and other expenses |
1,498 |
14,997 |
||||
Provision for doubtful accounts and sales returns |
3,744 |
3,036 |
||||
Provision for inventory reserves |
4,856 |
4,397 |
||||
Inventory rationalization and write-down charges |
- |
14,176 |
||||
Write-down of intangible and long-lived assets |
- |
8,505 |
||||
(Increase) in non-current deferred taxes |
(27) |
(521) |
||||
(Increase) in other long-term assets |
(2,065) |
(2,468) |
||||
Other |
(425) |
(238) |
||||
Changes in current assets and liabilities: |
||||||
(Increase) decrease in receivables |
(2,146) |
6,448 |
||||
(Increase) decrease in inventories |
(9,974) |
12,373 |
||||
Decrease (increase) in other current assets |
5,046 |
(7,249) |
||||
Decrease in deferred tax assets |
8,857 |
958 |
||||
Increase (decrease) in accounts payable and accrued liabilities |
9,187 |
(5,173) |
||||
(Decrease) in income taxes payable |
(845) |
(1,102) |
||||
Net cash provided by operating activities |
47,502 |
44,695 |
||||
Investing activities: |
||||||
Capital expenditures |
(12,713) |
(13,651) |
||||
Proceeds from sale of plant and equipment |
445 |
2,100 |
||||
Net cash (used in) investing activities |
(12,268) |
(11,551) |
||||
Financing activities: |
||||||
Proceeds from long-term borrowings-maturities greater than 90 days |
- |
242,000 |
||||
Repayments of long-term borrowings-maturities greater than 90 days |
(46,100) |
(180,000) |
||||
Net change in borrowings-maturities of 90 days or less |
5,491 |
(19,424) |
||||
(Reduction) in current portion of long-term debt |
(1,477) |
(258) |
||||
Payments of debt issuance costs |
(118) |
(653) |
||||
Dividends paid |
- |
(4,717) |
||||
Purchases of treasury stock |
- |
(536) |
||||
Proceeds from the exercise of stock options |
- |
636 |
||||
Net cash (used in) provided by financing activities |
(42,204) |
37,048 |
||||
Effect of exchange rates on cash |
4,277 |
661 |
||||
Net (decrease) increase in cash and cash equivalents |
(2,693) |
70,853 |
||||
Cash and cash equivalents at the beginning of the year |
11,068 |
6,095 |
||||
Cash and cash equivalents at the end of the period |
$ 8,375 |
|
$ 76,948 |
|||
Supplemental disclosure: |
||||||
|
Interest paid |
$ 26,767 |
|
$ 25,977 |
||
|
Income taxes (refunded) paid |
(13,557) |
3,751 |
|||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. |
4
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 1999 Annual Report on Form 10-K. In the opinion of management, all adjustments necessary to present fairly the financial position of GBC as of September 30, 2000 and December 31, 1999 and the results of their operations for the three and nine months ended September 30, 2000 and 1999 have been included. Operating results for any interim period are not necessarily indicative of results that may be expected for the full year.
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of certain estimates by management in determining the entity's assets, liabilities, revenues and expenses. Actual results could differ from those estimates.
Certain amounts for prior periods have been reclassified to conform to the 2000 presentation.
(2) Long-term Debt
Long-term debt consists of the following at September 30, 2000 and December 31, 1999 - outstanding borrowings denominated in foreign currencies have been converted to U.S. dollars (000's omitted):
September 30, |
December 31, |
|
2000 |
1999 |
|
Revolving Credit Facility |
||
U.S. Dollar borrowings - (weighted average floating interest rate of |
|
|
British Pound borrowings - (floating interest rate of 8.60% |
|
|
Swiss Franc borrowings - (floating interest rate of 5.85% at September |
|
|
Dutch Guilder borrowings - (floating interest rate of 7.30% at |
|
|
Euro borrowings - (floating interest rate of 7.29% at September 30, 2000) |
11,640 |
-- |
5 | ||
Industrial Revenue Bonds |
||
Industrial Revenue Bond - due March 2026 (floating interest rate of |
|
|
Industrial Revenue Bond - due annually from July 1994 to July 2008 |
|
|
Industrial Revenue Bond - due annually from June 2002 to June 2007 |
|
|
Notes Payable |
||
Senior Subordinated Notes, U.S. Dollar borrowing - due 2008 (fixed |
|
|
Note payable, Dutch Guilder borrowing - due monthly from November |
|
|
Note payable, Dutch Guilder borrowing - due June 2000 (fixed interest |
|
|
Other borrowings |
1,596 |
2,470 |
Total debt |
415,926 |
456,590 |
Less - current maturities |
(510) |
(2,131) |
Total long-term debt |
$ 415,416 |
$ 454,459 |
See Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources for a further discussion of GBC's credit facilities.
(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
September 30,Nine months ended
September 30,
2000
1999
2000
1999
(A) Net income (loss) available to
common Shareholders
$ 569
=======
$ (28,704)
========
$ 881
=======
$ (31,738)
=======(B) Weighted average number of
common shares outstanding (1)
15,734
15,734
15,734
15,732Additional common shares
issuable under employee stock
options using the treasury
stock method
85
--
70
--
(C) Weighted average number of
common shares outstanding
assuming the exercise of stock
options (1)
15,819
=======
15,734
=======
15,804
=======
15,732
========Net income (loss) per common share
(2) - basic (A) / (B)
$ 0.04
=======
$ (1.82)
=======
$ 0.06
=======
$ (2.02)
========Net income (loss) per common share
(2) - diluted (A) / (C)
$ 0.04
=======
$ (1.82)
=======
$ 0.06
=======
$ (2.02)
========(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.
6
(4) Restructuring and Other Expenses
During the first nine months of 2000, GBC recorded restructuring and other expenses of approximately $1.5 million. The restructuring charge primarily consists of severance costs, early retirement benefits, and other expenses. Other expenses consist of consulting fees associated with projects to rationalize GBC's product line offerings and to reorganize its supply chain management process.
The components of the restructuring and other expenses are as follows (000's omitted):
Three months ended |
Nine months ended |
|
September 30, 2000 |
September 30, 2000 |
|
Severance and early retirement benefits |
$ -- |
$ 421 |
All other restructuring expenses |
-- |
427 |
Consulting expenses |
-- |
650 |
$ -- |
$1,498 |
GBC has completed substantially all of its restructuring activities which were initiated during 1999. As of September 30, 2000, approximately 625 employees have been terminated, compared to an original plan of 620. Management believes that the restructuring provisions recorded will be adequate to cover estimated restructuring costs that will be paid in future periods. The balance in the restructuring reserve at September 30, 2000 primarily represents severance, early retirement, and other benefit expenses to be paid in the future periods.
Changes in the restructuring reserve for the nine months ended September 30, 2000 and 1999 were as follows (000's omitted):
Nine months ended |
Nine months ended |
|
September 30, 2000 |
September 30, 1999 |
|
Balance - beginning of period |
$ 9,884 |
$ -- |
Provisions |
848 |
14,997 |
Involuntary termination costs |
(1,704) |
(2,890) |
Other cash restructuring charges |
(2,662) |
(983) |
Non-cash restructuring charges |
(1,951) |
(397) |
Other (1) |
(340) |
(29) |
Balance - end of period |
$ 4,075 |
$ 10,698 |
(1) Amounts primarily relate to the effects of foreign exchange rate changes. |
(5) Business Segments
In accordance with SFAS No. 131, GBC has identified four 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
7
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 and maintenance/repair services. 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. The European Group sells products similar to those sold by the Office Products and Document Finishing Groups. Expenses incurred by the four reportable segments described above relate to costs incurred to 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 four reportable segments. For internal management purposes, and the presentation below, operating income is determined as income before taxes excluding interest expense, other income and expense, and restructuring and other expenses.
Unaffiliated Customer Sales |
Affiliated Customer Sales |
Operating Income (Loss) |
|||||||||
Three months ended |
Three months ended |
Three months ended |
|||||||||
(000's omitted) |
September 30, |
September 30, |
September 30, |
||||||||
2000 |
1999 |
2000 |
1999 |
2000 |
1999 |
||||||
Document Finishing Group |
$ 51,180 |
$ 50,367 |
$ 7,449 |
$ 5,962 |
$ 7,043 |
$ 6,962 |
|||||
Films Group |
41,138 |
40,761 |
4,727 |
4,343 |
9,833 |
8,499 |
|||||
Office Products Group |
97,479 |
84,451 |
6,682 |
7,531 |
11,182 |
(2,476) |
|||||
Europe Group |
23,197 |
29,504 |
1,694 |
4,897 |
(1,258) |
(3,372) |
|||||
All Others |
12,694 |
13,113 |
(1) |
75 |
(12,617) |
(10,843) |
|||||
Eliminations |
- |
- |
(20,551) |
(22,808) |
- |
- |
|||||
Total |
$ 225,688 |
$ 218,196 |
$ - |
$ - |
$ 14,183 |
$ (1,230) |
|||||
Unaffiliated Customer Sales |
Affiliated Customer Sales |
Operating Income (Loss) |
|||||||||
Nine months ended |
Nine months ended |
Nine months ended |
|||||||||
(000's omitted) |
September 30, |
September 30, |
September 30, |
||||||||
2000 |
1999 |
2000 |
1999 |
2000 |
1999 |
||||||
Document Finishing Group |
$ 153,387 |
$ 152,264 |
$ 27,132 |
$ 27,297 |
$ 21,686 |
$ 21,367 |
|||||
Films Group |
122,924 |
117,649 |
13,414 |
13,965 |
27,223 |
24,432 |
|||||
Office Products Group |
286,227 |
255,880 |
15,040 |
23,029 |
28,574 |
15,889 |
|||||
Europe Group |
82,899 |
101,984 |
7,404 |
27,294 |
(2,442) |
(5,288) |
|||||
All Others |
39,787 |
38,533 |
27 |
95 |
(34,715) |
(31,056) |
|||||
Eliminations |
- |
- |
(63,017) |
(91,680) |
- |
- |
|||||
Total |
$ 685,224 |
$ 666,310 |
$ - |
$ - |
$ 40,326 |
$ 25,344 |
|||||
Unaffiliated Customer Sales |
|||||||||||
Three months ended |
Nine months ended |
||||||||||
September 30, |
September 30, |
||||||||||
2000 |
1999 |
2000 |
1999 |
||||||||
United States |
$ 165,731 |
$ 152,906 |
$ 487,894 |
$ 452,927 |
|||||||
Europe |
29,541 |
35,435 |
102,840 |
124,550 |
|||||||
Other International |
30,416 |
29,855 |
94,490 |
88,833 |
|||||||
Total |
$ 225,688 |
$ 218,196 |
$ 685,224 |
$ 666,310 |
8
(6) New Accounting Standards
In September 2000, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs." This consensus will require companies to record shipping and handling fees billed to its customers as revenue. Currently GBC records shipping and handling revenues as a selling expense, which is netted against shipping and handling costs. The impact of this change in accounting will result in an insignificant increase in GBC's revenues, and will have no impact on operating earnings. GBC will be required to implement EITF 00-10 during the fourth quarter of 2000. Implementation of the consensus will require a restatement of prior periods or a disclosure as to why restatement was not made and the impact on the current reporting period.
In July 2000, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue No. 00-14 "Accounting for Certain Sales Incentives." This consensus specifies when companies are required to record the cost of certain sales incentives and how the costs should be classified in the income statement. Currently GBC records the costs of certain sales incentives as selling expenses in its income statement. The impact of this change in accounting will result in a reduction in GBC's revenues and selling expenses and an increase to cost of sales. The amount of the reclassifications has not been quantified. The implementation of EITF 00-14 will have no impact on GBC's operating earnings, however, operating margins will increase. GBC will be required to implement EITF 00-10 during the fourth quarter of 2000. Implementation of the consensus will require a restatement of prior periods or a disclosure as to why restatement was not made and the impact on the current reporting period.
(7) Subsidiary Guarantor Information
During 1998, GBC issued $150 million of 9.375% Senior Subordinated Notes due 2008 to finance the acquisition of Ibico AG. Each of GBC's domestic restricted subsidiaries has jointly and severally, fully and unconditionally guaranteed the Senior Subordinated Notes. 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:
9
Condensed Consolidating Balance Sheets (000's omitted):
September 30, 2000 |
|||||||||||||||||
|
|
Non- |
|
|
|||||||||||||
Assets |
|||||||||||||||||
Current assets: |
|||||||||||||||||
Cash and cash equivalents |
$ 5,433 |
$ (1,471) |
$ 4,413 |
$ - |
$ 8,375 |
||||||||||||
Receivables, net |
98,397 |
888 |
56,643 |
- |
155,928 |
||||||||||||
Inventories, net |
69,490 |
371 |
56,577 |
- |
126,438 |
||||||||||||
Deferred tax assets |
19,710 |
403 |
1,658 |
- |
21,771 |
||||||||||||
Other |
6,537 |
1,254 |
13,655 |
- |
21,446 |
||||||||||||
Due from affiliates |
45,846 |
20,290 |
1,807 |
(67,943) |
- |
||||||||||||
Total current assets |
245,413 |
21,735 |
134,753 |
(67,943) |
333,958 |
||||||||||||
Net capital assets |
100,272 |
8,161 |
24,974 |
- |
133,407 |
||||||||||||
Goodwill, net of amortization |
178,162 |
25,468 |
70,903 |
- |
274,533 |
||||||||||||
Other |
27,829 |
1,144 |
6,873 |
- |
35,846 |
||||||||||||
Investment in subsidiaries |
180,288 |
127,996 |
- |
(308,284) |
- |
||||||||||||
Total assets |
$ 731,964 |
$ 184,504 |
$ 237,503 |
$ (376,227) |
$ 777,744 |
||||||||||||
|
|||||||||||||||||
Liabilities and Stockholders' Equity |
|
||||||||||||||||
Current liabilities: |
|
||||||||||||||||
Accounts payable |
$ 44,270 |
$ 1,026 |
$ 12,702 |
$ - |
$ 57,998 |
||||||||||||
Accrued liabilities |
73,600 |
3,039 |
26,256 |
(2,140) |
100,755 |
||||||||||||
Notes payable |
- |
- |
10,034 |
- |
10,034 |
||||||||||||
Current maturities of long-term debt |
228 |
- |
282 |
- |
510 |
||||||||||||
Due to affiliates |
23,824 |
- |
28,297 |
(52,121) |
- |
||||||||||||
Total current liabilities |
141,922 |
4,065 |
77,571 |
(54,261) |
169,297 |
||||||||||||
Long-term debt - affiliated |
15,726 |
(15,726) |
- |
||||||||||||||
Long-term debt, less current maturities |
411,381 |
- |
4,035 |
- |
415,416 |
||||||||||||
Other long-term liabilities |
14,108 |
332 |
4,895 |
- |
19,335 |
||||||||||||
Deferred tax liabilities |
20,005 |
5,299 |
3,844 |
- |
29,148 |
||||||||||||
Stockholders' equity: |
|
|
|
|
|||||||||||||
Common stock |
1,962 |
5 |
3,518 |
(3,523) |
1,962 |
||||||||||||
Class B common stock |
300 |
- |
- |
- |
300 |
||||||||||||
Additional paid-in capital |
22,010 |
95,717 |
155,382 |
(251,099) |
22,010 |
||||||||||||
Retained earnings |
164,600 |
89,734 |
(11,935) |
(77,799) |
164,600 |
||||||||||||
Treasury stock |
(27,096) |
- |
- |
- |
(27,096) |
||||||||||||
Accumulated other comprehensive income |
|
|
|
|
|
||||||||||||
Total stockholders' equity |
144,548 |
174,808 |
131,432 |
(306,240) |
144,548 |
||||||||||||
Total liabilities and stockholders' equity |
$ 731,964 |
$ 184,504 |
$ 237,503 |
$ (376,227) |
$ 777,744 |
10
December 31, 1999 |
|||||||||||
|
|
Non- |
|
|
|||||||
Assets |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ 4,469 |
$ (596) |
$ 7,195 |
$ - |
$ 11,068 |
||||||
Receivables, net |
97,699 |
888 |
64,629 |
- |
163,216 |
||||||
Inventories, net |
68,469 |
308 |
57,570 |
- |
126,347 |
||||||
Deferred tax assets |
28,835 |
403 |
1,578 |
- |
30,816 |
||||||
Other |
15,480 |
1,759 |
10,347 |
- |
27,586 |
||||||
Due from affiliates |
49,762 |
13,934 |
(5,926) |
(57,770) |
- |
||||||
Total current assets |
264,714 |
16,696 |
135,393 |
(57,770) |
359,033 |
||||||
Net capital assets |
103,514 |
8,450 |
29,627 |
- |
141,591 |
||||||
Goodwill, net of amortization |
182,702 |
25,573 |
74,784 |
- |
283,059 |
||||||
Other |
31,130 |
954 |
7,052 |
(327) |
38,809 |
||||||
Investment in subsidiaries |
180,867 |
151,755 |
- |
(332,622) |
- |
||||||
Total assets |
$ 762,927 |
$ 203,428 |
$ 246,856 |
$ (390,719) |
$ 822,492 |
||||||
|
|||||||||||
Liabilities and Stockholders' Equity |
|
||||||||||
Current liabilities: |
|
||||||||||
Accounts payable |
$ 42,864 |
$ 1,090 |
$ 20,533 |
$ - |
$ 64,487 |
||||||
Accrued liabilities |
61,632 |
2,791 |
26,420 |
(2,141) |
88,702 |
||||||
Notes payable |
(1) |
- |
13,408 |
- |
13,407 |
||||||
Current maturities of long-term debt |
245 |
- |
1,886 |
- |
2,131 |
||||||
Due to affiliates |
24,593 |
- |
11,204 |
(35,797) |
- |
||||||
Total current liabilities |
129,333 |
3,881 |
73,451 |
(37,938) |
168,727 |
||||||
Long-term debt - affiliated |
- |
- |
22,300 |
(22,300) |
- |
||||||
Long-term debt, less current maturities |
449,070 |
- |
5,389 |
- |
454,459 |
||||||
Other long-term liabilities |
14,908 |
332 |
5,056 |
- |
20,296 |
||||||
Deferred tax liabilities |
20,005 |
5,299 |
4,095 |
- |
29,399 |
||||||
Stockholders' equity: |
|||||||||||
Common stock |
1,962 |
5 |
3,426 |
(3,431) |
1,962 |
||||||
Class B common stock |
300 |
- |
- |
- |
300 |
||||||
Additional paid-in capital |
22,010 |
95,717 |
154,695 |
(250,412) |
22,010 |
||||||
Retained earnings |
163,719 |
95,609 |
(12,339) |
(83,270) |
163,719 |
||||||
Treasury stock |
(27,096) |
- |
- |
- |
(27,096) |
||||||
Accumulated other comprehensive income |
(11,284) |
2,585 |
(9,217) |
6,632 |
(11,284) |
||||||
Total stockholders' equity |
149,611 |
193,916 |
136,565 |
(330,481) |
149,611 |
||||||
Total liabilities and stockholders' equity |
$ 762,927 |
$ 203,428 |
$ 246,856 |
$ (390,719) |
$ 822,492 |
11
Condensed Consolidating Statements of Income (000's omitted):
Three months ended September 30, 2000 |
|||||||||||
|
|
Non- |
|
|
|||||||
Unaffiliated sales |
$ 165,731 |
$ - |
$ 59,957 |
$ - |
$ 225,688 |
||||||
Affiliated sales |
12,543 |
- |
2,924 |
(15,467) |
- |
||||||
Net sales |
178,274 |
- |
62,881 |
(15,467) |
225,688 |
||||||
Costs and expenses: |
|||||||||||
Product cost of sales, including development and |
|||||||||||
engineering |
104,431 |
67 |
34,328 |
(14,267) |
124,559 |
||||||
Selling, service and administrative |
62,434 |
11 |
21,773 |
- |
84,218 |
||||||
Amortization of goodwill and related intangibles |
2,031 |
189 |
508 |
- |
2,728 |
||||||
Interest expense |
10,974 |
235 |
896 |
(752) |
11,353 |
||||||
Other (income) expense |
(3,305) |
(538) |
5,288 |
(929) |
516 |
||||||
|
Income before taxes and undistributed |
|
|
|
|
|
|||||
earnings of wholly owned subsidiaries |
1,709 |
36 |
88 |
481 |
2,314 |
||||||
Income tax expense |
1,334 |
162 |
249 |
- |
1,745 |
||||||
Income (loss) before undistributed earnings of |
|||||||||||
wholly owned subsidiaries |
375 |
(126) |
(161) |
481 |
569 |
||||||
Undistributed earnings (losses) of wholly-owned |
|||||||||||
subsidiaries |
194 |
(2,352) |
- |
2,158 |
- |
||||||
Net income (loss) |
$ 569 |
$ (2,478) |
$ (161) |
$ 2,639 |
$ 569 |
||||||
Three months ended September 30, 1999 |
|||||||||||
|
|
Non- |
|
|
|||||||
Unaffiliated sales |
$ 152,906 |
$ - |
$ 65,290 |
$ - |
$ 218,196 |
||||||
Affiliated sales |
10,843 |
- |
5,550 |
(16,393) |
- |
||||||
Net sales |
163,749 |
- |
70,840 |
(16,393) |
218,196 |
||||||
Costs and expenses: |
|||||||||||
Product cost of sales, including development and |
|||||||||||
engineering |
105,303 |
214 |
49,789 |
(16,263) |
139,043 |
||||||
Inventory rationalization and write-down charges |
7,784 |
- |
6,392 |
- |
14,176 |
||||||
Selling, service and administrative |
55,064 |
27 |
22,526 |
- |
77,617 |
||||||
Amortization of goodwill and related intangibles |
1,949 |
189 |
628 |
- |
2,766 |
||||||
Write-down of intangible and long-lived assets |
2,000 |
- |
6,505 |
- |
8,505 |
||||||
Restructuring and other expenses |
2,142 |
- |
1,300 |
- |
3,442 |
||||||
Interest expense |
10,011 |
445 |
2,734 |
(909) |
12,281 |
||||||
Other (income) expense |
(392) |
(987) |
1,208 |
778 |
607 |
||||||
|
(Loss) income before taxes and undistributed |
|
|||||||||
earnings of wholly owned subsidiaries |
(20,112) |
|
112 |
|
(20,242) |
|
1 |
(40,241) |
|||
Income tax (benefit) expense |
(5,803) |
103 |
(5,837) |
- |
(11,537) |
||||||
(Loss) income before undistributed earnings of |
|||||||||||
wholly owned subsidiaries |
(14,309) |
9 |
(14,405) |
1 |
(28,704) |
||||||
Undistributed (losses) earnings of wholly-owned |
|||||||||||
subsidiaries |
(14,395) |
(19,860) |
- |
34,255 |
- |
||||||
Net (loss) income |
$ (28,704) |
$ (19,851) |
$ (14,405) |
$ 34,256 |
$ (28,704) |
12
Nine months ended September 30, 2000 |
|||||||||||
|
|
Non- |
|
|
|||||||
Unaffiliated sales |
$ 487,894 |
$ - |
$ 197,330 |
$ - |
$ 685,224 |
||||||
Affiliated sales |
38,847 |
- |
10,733 |
(49,580) |
- |
||||||
Net sales |
526,741 |
- |
208,063 |
(49,580) |
685,224 |
||||||
Costs and expenses: |
|||||||||||
Product cost of sales, including development and |
|||||||||||
engineering |
305,551 |
49 |
125,632 |
(48,177) |
383,055 |
||||||
Selling, service and administrative |
184,027 |
34 |
69,584 |
- |
253,645 |
||||||
Amortization of goodwill and related intangibles |
6,092 |
566 |
1,540 |
- |
8,198 |
||||||
Interest expense |
33,185 |
664 |
2,792 |
(2,198) |
34,443 |
||||||
Restructuring and other expenses |
717 |
- |
781 |
- |
1,498 |
||||||
Other (income) expense |
(3,508) |
(2,036) |
6,709 |
283 |
1,448 |
||||||
|
Income before taxes and undistributed |
|
|
|
|
|
|||||
earnings of wholly owned subsidiaries |
677 |
723 |
1,025 |
512 |
2,937 |
||||||
Income tax expense |
832 |
506 |
718 |
- |
2,056 |
||||||
(Loss) income before undistributed earnings of |
|||||||||||
wholly owned subsidiaries |
(155) |
217 |
307 |
512 |
881 |
||||||
Undistributed earnings (losses) of wholly-owned |
|||||||||||
subsidiaries |
1,036 |
(2,042) |
- |
1,006 |
- |
||||||
Net income (loss) |
$ 881 |
$ (1,825) |
$ 307 |
$ 1,518 |
$ 881 |
||||||
|
|||||||||||
Nine months ended September 30, 1999 |
|||||||||||
|
|
Non- |
|
|
|||||||
Unaffiliated sales |
$ 452,927 |
$ - |
$ 213,383 |
$ - |
$ 666,310 |
||||||
Affiliated sales |
39,184 |
- |
30,162 |
(69,346) |
- |
||||||
Net sales |
492,111 |
- |
243,545 |
(69,346) |
666,310 |
||||||
Costs and expenses: |
|||||||||||
Product cost of sales, including development and |
|||||||||||
engineering |
300,725 |
593 |
164,550 |
(69,216) |
396,652 |
||||||
Inventory rationalization and write-down charges |
7,784 |
- |
6,392 |
- |
14,176 |
||||||
Selling, service and administrative |
160,672 |
72 |
75,354 |
- |
236,098 |
||||||
Amortization of goodwill and related intangibles |
5,801 |
564 |
1,851 |
- |
8,216 |
||||||
Write-down of intangible and long-lived assets |
2,000 |
- |
6,505 |
- |
8,505 |
||||||
Restructuring and other expenses |
11,002 |
- |
3,995 |
- |
14,997 |
||||||
Interest expense |
29,438 |
1,143 |
4,821 |
(2,337) |
33,065 |
||||||
Other (income) expense |
(2,422) |
(1,816) |
2,561 |
1,618 |
(59) |
||||||
|
(Loss) income before taxes and undistributed |
|
|
|
|
|
|||||
earnings of wholly owned subsidiaries |
(22,889) |
(556) |
(22,484) |
589 |
(45,340) |
||||||
Income tax (benefit) |
(6,690) |
(167) |
(6,745) |
- |
(13,602) |
||||||
(Loss) income before undistributed earnings of |
|||||||||||
wholly owned subsidiaries |
(16,199) |
(389) |
(15,739) |
589 |
(31,738) |
||||||
Undistributed (losses) earnings of wholly-owned |
|||||||||||
subsidiaries |
(15,539) |
(20,436) |
- |
35,975 |
- |
||||||
Net (loss) income |
$ (31,738) |
$ (20,825) |
$ (15,739) |
$ 36,564 |
$ (31,738) |
13
Condensed Consolidating Statements of Cash Flows (000's omitted):
Nine months ended September 30, 2000 |
|||||||||||
|
|
Non- |
|
|
|||||||
Net cash provided by (used in) operating activities |
$ 47,137 |
$ (469) |
$ 834 |
$ - |
$ 47,502 |
||||||
Investing activities: |
|
|
|
|
|
||||||
Capital expenditures |
(9,971) |
(406) |
(2,336) |
- |
(12,713) |
||||||
Proceeds from sale of plant and equipment |
156 |
- |
289 |
- |
445 |
||||||
Net cash (used in) investing activities |
(9,815) |
(406) |
(2,047) |
- |
(12,268) |
||||||
Financing activities: |
|
|
|
|
|
||||||
Increase (reduction) in intercompany borrowings |
1,584 |
- |
(1,584) |
- |
- |
||||||
Repayments of long-term debt- |
|||||||||||
maturities greater than 90 days |
(46,100) |
- |
- |
- |
(46,100) |
||||||
Net change in borrowings-maturities |
|||||||||||
of 90 days or less |
8,293 |
- |
(2,802) |
- |
5,491 |
||||||
(Reduction) in current portion of long-term debt |
(17) |
- |
(1,460) |
- |
(1,477) |
||||||
Payments for debt issuance costs |
(118) |
- |
- |
- |
(118) |
||||||
Net cash (used in) financing activities |
(36,358) |
- |
(5,846) |
- |
(42,204) |
||||||
Effect of exchange rates on cash |
- |
- |
4,277 |
- |
4,277 |
||||||
Net increase (decrease) in cash and cash equivalents |
964 |
(875) |
(2,782) |
- |
(2,693) |
||||||
Cash and cash equivalents at the beginning of |
|||||||||||
the year |
4,469 |
(596) |
7,195 |
- |
11,068 |
||||||
Cash and cash equivalents at the end of the period |
$ 5,433 |
$ (1,471) |
$ 4,413 |
$ - |
$ 8,375 |
14
Nine months ended September 30, 1999 |
|||||||||||
|
|
Non- |
|
|
|||||||
Net cash provided by (used in) operating activities |
$ 50,414 |
$ 1,344 |
$ (7,063) |
$ - |
$ 44,695 |
||||||
Investing activities: |
|
|
|
|
|
||||||
Capital expenditures |
(8,302) |
(239) |
(5,110) |
- |
(13,651) |
||||||
Proceeds from sale of plant and equipment |
1,712 |
- |
388 |
- |
2,100 |
||||||
Intercompany sale of subsidiaries |
- |
(786) |
786 |
- |
- |
||||||
Capital contributions to subsidiaries |
(14,883) |
(9,277) |
- |
24,160 |
- |
||||||
Net cash (used in) investing activities |
(21,473) |
(10,302) |
(3,936) |
24,160 |
(11,551) |
||||||
Financing activities: |
|
|
|
|
|
||||||
(Reduction) increase in intercompany borrowings |
(16,257) |
- |
16,257 |
- |
- |
||||||
Proceeds from long-term borrowings- |
|||||||||||
maturities greater than 90 days |
242,000 |
- |
- |
- |
242,000 |
||||||
Repayments of long-term debt- |
|||||||||||
maturities greater than 90 days |
(180,000) |
- |
- |
- |
(180,000) |
||||||
Net change in borrowings-maturities |
|||||||||||
of 90 days or less |
(6,265) |
216 |
(13,375) |
- |
(19,424) |
||||||
(Reduction) increase in current portion of |
|||||||||||
long-term debt |
(291) |
- |
33 |
- |
(258) |
||||||
Payments for debt issuance costs |
(653) |
- |
- |
- |
(653) |
||||||
Dividends paid |
(4,717) |
- |
- |
- |
(4,717) |
||||||
Purchase of treasury stock |
(536) |
- |
- |
- |
(536) |
||||||
Proceeds from the exercise of stock options |
636 |
- |
- |
- |
636 |
||||||
Capital contributions from parent companies |
- |
9,277 |
14,883 |
(24,160) |
- |
||||||
Net cash provided by (used in) |
|||||||||||
financing activities |
33,917 |
9,493 |
17,798 |
(24,160) |
37,048 |
||||||
Effect of exchange rates on cash |
- |
- |
661 |
- |
661 |
||||||
Net increase in cash and cash equivalents |
62,858 |
535 |
7,460 |
- |
70,853 |
||||||
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 |
$ 66,907 |
$ (115) |
$ 10,156 |
$ - |
$ 76,948 |
15
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, 1999. 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 restructuring of certain of GBC's operations, the ability of GBC's distributors to successfully market and sell the Company's products, the ability of GBC to obtain capital to finance anticipated operating and capital requirements, 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 September 30, 2000 compared to Quarter Ended September 30, 1999
Sales
Net sales for third quarter of 2000 increased 3.4% to $225.7 million, compared to the third quarter of 1999. Net sales by business segment are summarized below (000's omitted):
16
Net Sales |
||
2000 |
1999 |
|
Document Finishing Group |
$ 51,180 |
$ 50,367 |
Films Group |
41,138 |
40,761 |
Office Products Group |
97,479 |
84,451 |
Europe Group |
23,197 |
29,504 |
Other |
12,694 |
13,113 |
Net sales |
$ 225,688 |
$ 218,196 |
Sales for the Document Finishing Group increased by $0.8 million or 1.6% in the third quarter of 2000, compared to the third quarter of 1999. The increase occurred primarily due to higher service revenues and stronger sales in Mexico. This increase was partially offset by lower sales in the US Binding business as a result of low productivity in the direct sales force related to less-experienced sales personnel hired during the year. The Films Group's sales increased by $0.4 million or 0.9% in the third quarter of 2000 when compared to the third quarter of 1999. Without the impact of weaker European exchange rates, sales in the Films Group would have increased approximately 4.1% during the third quarter of 2000. The sales increases were primarily due to higher volumes of laminating films in the Digital Print Finishing business and higher equipment sales, which were offset by lower volumes of laminating films in the Commercial Films business and weaker exchange rates in Europe. The Office Products Group's sales increased by $13.8 million or 15.4% in the third quarter of 2000 when compared to the third quarter of 1999 primarily due to a lower level of customer returns and higher sales of visual communications products, which were partially offset by lower sales of shredders. Excluding the impact of the high level of customer returns and credits in the third quarter of 1999, sales increased 3.8% compared to 1999. Net sales in Europe decreased by $6.3 million or 21.4% in the third quarter of 2000 when compared to the third quarter of 1999. Sales were significantly impacted by weaker exchange rates in the European currencies and the decision to exit from certain unprofitable visual communications product lines in the United Kingdom. Excluding the impact of weaker exchange rates and exiting from certain product lines in the United Kingdom, sales in Europe remained flat compared to the prior year.
Gross Margins, Costs and Expenses
The gross profit margin in the third quarter of 2000 was 44.8%, an 8.5 percentage point increase compared to the 36.3% gross profit margin for the third quarter of 1999. The increased gross margin was primarily due to higher margins in the Office Products Group resulting from a lower level of customer returns during 2000, as well as an improved product mix, sales of higher margin products and favorable manufacturing variances. Gross margins in the Document Finishing Group and Films Group also showed improvements due to manufacturing efficiencies, select price increases, and efficiencies resulting from the closure of a manufacturing facility in Auburn Hills, MI. In addition,
17
gross margins in Europe were favorably impacted as a result of exiting of unprofitable product lines in the United Kingdom. The Europe Group sources approximately 50% of their products in US dollars, which combined with weaker European currencies in 2000, negatively impacted margin improvement in Europe .
Selling, service and administrative expenses increased 8.5% in the third quarter of 2000 compared to 1999. As a percentage of sales, selling, service and administrative expenses increased by 1.7 percentage points to 37.3% in 2000 as compared to 35.6% in 1999. Within the Office Products Group, customer rebate and allowance spending increased due to a higher level of net sales along with slightly higher programs as a percentage of sales, while higher administrative expenses were a result of consulting fees related to a supply chain management program. Selling, service and administrative expenses for the Document Finishing Group increased moderately due to the planned build-up of the direct sales force. The Films Group experienced a decrease of approximately 12.6% in selling, service, and administrative expenses due to cost saving measures. Selling, service and administrative expenses in Europe also declined approximately 21.8% in the third quarter of 2000 when compared to the third quarter of 1999 as a result of the cost saving and restructuring programs, and the weakening in the European currencies. Corporate administrative expenses also increased during the quarter due to fees related to a strategic consulting project.
Operating Income
Operating income for GBC's business segments is summarized below (000's omitted). This presentation of operating income excludes restructuring and other expenses, interest expense, and other income and expense.
Operating Income (Loss)
Quarter ended September 30,2000
1999
Document Finishing Group
$ 7,043
$ 6,962
Films Group
9,833
8,499
Office Products Group
11,182
(2,476)
Europe Group
(1,258)
(3,372)
Other
(12,617)
(10,843)
Operating income (loss)
$ 14,183
$ (1,230)
Operating income for the third quarter of 2000 increased 12.5% or $15.4 million compared to the third quarter of 1999. Operating income in the Document Finishing Group was favorably impacted by slightly higher sales and favorable improvements in gross margins. Operating income for the Films Group was favorably impacted by lower selling, service and administrative costs, and slightly higher sales and gross margins. Operating income in the Office Products Group increased $13.7 million as a result of the higher sales level and improved gross profit margins due to lower levels of customer returns, which were partially offset by higher program costs and administrative expenses.
18
Europe's operating loss was reduced by $2.1 million to $1.3 million during the third quarter of 2000. This loss is primarily attributable to the weakness in the European currencies. Compared to 1999, the most significant reason for the reduced European loss was the exiting of the visual communications business in the United Kingdom. The operating loss for the Other category was unfavorably impacted in the third quarter of 2000 by higher expenses related to information systems, compensation programs, and consulting fees discussed above.
Interest expense decreased by $0.9 million to $11.4 million in the third quarter of 2000 compared to $12.3 million in the third quarter of 1999. Average outstanding borrowings during the third quarter of 2000 were approximately $81.0 million lower than in the third quarter of 1999 as a result of repayments made throughout 1999 and 2000. Lower interest expense resulting from the lower outstanding balances was partially offset by higher average interest rates during the third quarter of 2000, as well as higher interest rate spreads resulting from the amendment of GBC's revolving credit facility in the fourth quarter of 1999.
Inventory Rationalization and Write-down Charges
During the third quarter of 1999, GBC recorded $14.2 million of inventory rationalization and write-down provisions. Approximately $7.8 million of these charges related to GBC's worldwide product line and SKU rationalization program, which focused on eliminating overlapping product lines and those with sub-par profitability. The remaining expense of $6.4 milion was to write down the inventory of the visual communications business in the United Kingdom to its net realizable value.
Write-down of Intangible and Long-Lived Assets
During the third quarter of 1999, GBC recorded a provision of $8.5 million to write down intangible and long-lived assets, representing the write-off of goodwill associated with the Allfax acquisition along with the write-down of certain capital assets to their net realizable value.
Restructuring and Other Expenses
During the third quarter of 1999, GBC recorded an after-tax restructuring charge of $6.9 million ($11.6 million pre-tax), or approximately $0.44 per diluted share. See Note 4 to the Condensed Consolidated Financial Statements.
Income Taxes
GBC's worldwide effective tax rate was 75.4% for the third quarter of 2000, compared to a benefit of 28.7% in the third quarter of 1999. The effective tax rate in 2000 is due to the mix of earnings and losses among GBC's foreign subsidiaries and is significantly impacted by the low level of pre-tax earnings. The 1999 tax benefit was a result of the restructuring charges and anticipated loss for the 1999 fiscal year.
19
Net Income (Loss)
GBC had net income of $0.6 million for the third quarter of 2000 ($0.04 per diluted share) compared to a net loss of $28.7 million ($1.82 per diluted share) reported in the third quarter of 1999. The loss experienced during the third quarter of 1999 was approximately $0.27 per diluted share before special provisions and restructuring charges.
Nine Months Ended September 30, 2000 compared to Nine Months September 30, 1999
Sales
Net sales for the first nine months of 2000 increased 2.8% to $685.2 million, compared to the first nine months of 1999 as a result of offsetting fluctuations between the different business units. Net sales by business segment are summarized below (000's omitted):
Net Sales |
||
2000 |
1999 |
|
Document Finishing Group |
$ 153,387 |
$ 152,264 |
Films Group |
122,924 |
117,649 |
Office Products Group |
286,227 |
255,880 |
Europe Group |
82,899 |
101,984 |
Other |
39,787 |
38,533 |
Net sales |
$ 685,224 |
$ 666,310 |
The Films Group's sales increased by $5.3 million or 4.5% in the first nine months of 2000 when compared to the first nine months of 1999. However, excluding the impact in 1999 of changing the fiscal year-end for the European films business and the impact of the weaker European currencies, Films' sales increased 10.5% due to significant increases in volumes in the Group's Digital Print Finishing business and Commercial Films' sales resulting from higher volumes. The Office Products Group's sales increased by $30.3 million or 11.9% in the first nine months of 2000 when compared to the first nine months of 1999. Excluding the impact of the higher level of customer returns in 1999, sales increased 5.3%. The level of customer returns experienced during 1999 were above historical levels primarily as a result of the plan-o-gram changes which were occurring during this period. In addition, Office Products sales were favorably impacted during the first nine months of 2000 by significantly higher sales of writing boards and other visual communications products. Net sales in Europe decreased by $19.1 million or 18.7% in the first nine months of 2000 when compared to the first nine months of 1999. European sales were unfavorably impacted by a significant weakening of European currencies during 2000, in comparison to 1999. In addition, a significant decrease was20
anticipated as a result of the decision to exit the manufacturing of unprofitable visual communications products in the United Kingdom in the third quarter of 1999. Excluding the impact of the exchange rates and the discontinuance of visual communications product sales in the U.K., European sales for 2000 remained flat compared to 1999.
Gross Margins, Costs and Expenses
The gross profit margin in the first nine months of 2000 was 44.1%, a 3.6 percentage point increase compared to the 40.5% gross profit margin for the first nine months of 1999. The increased gross margin was primarily a result of lower customer returns in the Office Products Group. Cost savings from the restructuring initiatives undertaken during 1999 also had a favorable impact on gross margins.
Selling, service and administrative expenses increased 7.4% in the first nine months of 2000 compared to 1999. As a percentage of sales, selling, service and administrative expenses increased by 1.6 percentage points to 37.0% in 2000 as compared to 35.4% in 1999. Within the Office Products Group, customer rebate and allowance spending increased due to a higher level of net sales along with slightly higher programs as a percentage of sales. Selling, service and administrative expenses for the Document Finishing Group increased slightly in 2000 compared to 1999, while expenses decreased significantly in the Films Group due to cost saving programs. Selling, service and administrative expenses in Europe also declined significantly in the first nine months of 2000 when compared to the first nine months of 1999 as a result of the restructuring and cost saving programs implemented during 2000 and 1999, as well as the impact from weaker European currencies.
Operating Income
Operating income for GBC's business segments is summarized below (000's omitted). This presentation of operating income excludes restructuring and other expenses, interest expense, and other income and expense.
Operating Income |
||
2000 |
1999 |
|
Document Finishing Group |
$ 21,686 |
$ 21,367 |
Films Group |
27,223 |
24,432 |
Office Products Group |
28,574 |
15,889 |
Europe Group |
(2,442) |
(5,288) |
Other |
(34,715) |
(31,056) |
Operating income |
$ 40,326 |
$ 25,344 |
Operating income for the first nine months of 2000 increased 59.1% or $15.0 million compared to the first nine months of 1999. Operating income in the Films Group was favorably impacted by the higher sales levels and decreases in operating expenses in
21
2000, compared to 1999. The Office Products Group's increase in operating income was due to the lower level of customer returns, higher sales levels and improved margins due to a favorable product mix of higher margin products. These improvements were partially offset by the higher program costs discussed above. Europe's operating loss was reduced by $2.8 million to $2.4 million during the first nine months of 2000. Lower sales and gross profit were more than offset by lower operating expenses as a result of management's cost saving and restructuring programs, and the impact from weaker European currencies.
Interest expense increased by $1.4 million to $34.4 million in the first nine months of 2000, compared to $33.1 million in the first half of 1999. Average outstanding borrowings during the first nine months of 2000 were approximately $67.5 million lower than in the first nine months of 1999 as a result of repayments made throughout 1999 and 2000, and a $17.0 million income tax refund received during the second quarter of 2000. An increase in interest expense resulting from higher average interest rates during the first nine months of 2000, as well as higher interest rate spreads resulting from the amendment of GBC's revolving credit facility in the fourth quarter of 1999, was partially offset by lower interest expense resulting from the lower outstanding borrowings.
Other expense was $1.5 million in the first nine months of 2000, compared to income of $0.1 million in 1999. The most significant factor affecting this decrease was currency gains experienced in the first nine months of 1999, compared to losses experienced in 2000.
Inventory Rationalization and Write-down Charges
During the third quarter of 1999, GBC recorded $14.2 million of inventory rationalization and write-down provisions. Approximately $7.8 million of these charges related to GBC's worldwide product line and SKU rationalization program, which focused on eliminating overlapping product lines and those with sub-par profitability. The remaining expense of $6.4 milion was to write down the inventory of the visual communications business in the United Kingdom to its net realizable value.
Write-down of Intangible and Long-Lived Assets
During the third quarter of 1999, GBC recorded a provision of $8.5 million to write down intangible and long-lived assets, representing the write-off of goodwill associated with the Allfax acquisition along with the write-down of certain capital assets to their net realizable value.
Restructuring and Other Expenses
During the first nine months of 2000, GBC recorded an after-tax restructuring charge of $0.45 million ($1.5 million pre-tax), or $0.03 per share for restructuring and related expenses. Included in this charge was approximately $0.85 million for the restructuring of certain distribution operations in Europe (primarily employee severance costs), and
22
$0.65 million related to the supply chain management program. Restructuring charges for the first nine months of 1999 were $15.0 million. See Note 4 to the Condensed Consolidated Financial Statements.
Income Taxes
GBC's worldwide effective tax rate was 70.0% for the first nine months of 2000, compared to a benefit of 30.0% in 1999. The effective tax rate in 2000 is due to the mix of earnings and losses among GBC's foreign subsidiaries and is significantly impacted by the low level of pre-tax earnings. The 1999 tax benefit was a result of the restructuring charges and an anticipated loss for the 1999 fiscal year.
Net Income (Loss)
GBC reported net income of $0.9 million for the first nine months of 2000 ($0.06 per diluted share) compared to a net loss of $31.7 million ($2.02 per diluted share) reported in the first nine months of 1999. Net income for the first nine months of 1999 was approximately $.02 per diluted share before special provisions and restructuring charges.
Liquidity and Capital Resources
Management assesses the Company's liquidity in terms of its overall debt capacity and ability to generate cash from operations to fund its operating and investing activities. Significant factors affecting the management of liquidity are cash flows generated from operating activities, capital expenditures, customer financing requirements, adequate bank lines of credit and financial flexibility to attract long-term capital with satisfactory terms. GBC's primary sources of liquidity and capital resources were internally-generated cash flows, borrowings under GBC's revolving credit facilities and short-term borrowings from banks.
GBC has access to various U.S. and international credit facilities, including a multicurrency revolving credit facility established on January 13, 1997 (the "Revolving Credit Facility") with a group of international banks which provide for up to $410 million of revolving credit borrowings through January 2002. The Revolving Credit Facility was amended and restated on November 12, 1999 to provide GBC with additional financial flexibility. Management believes that the amended facility will provide GBC with the liquidity necessary to meet currently-anticipated operating and capital requirements. Outstanding borrowings under the Revolving Credit Facility totaled $253.4 million at September 30, 2000.
Under the most restrictive of the covenants of the Revolving Credit Facility applicable at September 30, 2000, GBC must meet a specified EBITDA target set for each quarter through the first fiscal quarter of 2001, as well as leverage and interest coverage ratios commencing in the second fiscal quarter of 2001. The amendment and restatement also provides for more flexible covenants regarding net worth levels, the pledging of substantially all of the assets of General Binding Corporation and its
23
domestic subsidiaries as collateral, and increases in interest rate spreads payable under the facility, which vary depending upon the financial performance of the Company. In addition, there are certain restrictions on dividend payments, additional indebtedness, investments and capital expenditures. GBC was in compliance with these covenants as of September 30, 2000.
Cash provided by operating activities was $47.5 million for the nine months ended September 30, 2000, compared to $44.7 million for the nine months ended September 30, 1999. Approximately $17.0 million of cash was received from a federal income tax refund during the second quarter of 2000. The primary uses of cash during the first nine months of 2000 were to fund higher inventory and accounts receivable levels.
Net cash used in investing activities was $12.3 million for the first nine months of 2000, as compared to $11.6 million in the first nine months of 1999, primarily due to capital expenditures of $12.7 and $13.7 million, respectively.
Net cash used in financing activities was $42.2 million for the first nine months of 2000, compared to net cash provided by financing activities of $37.0 million during the first nine months of 1999. During 2000, cash generated from operating activities was used to repay borrowings under GBC's revolving credit facility of approximately $37.8 million as compared to net proceeds received in 1999 of $53.5 million. During the first nine months of 1999, GBC paid $4.7 million of dividends (or $0.30 per share). Currently, GBC is restricted from paying dividends under the terms of its Revolving Credit Facility.
New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and in June 2000 issued SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These statements establish accounting and reporting standards for certain derivative financial instruments and hedging activities (including certain derivative instruments imbedded in other contracts) and require GBC to recognize all derivatives as either assets or liabilities on the balance sheet and measure them at fair market value. Gains and losses resulting from changes in fair value would be accounted for depending on the use of the derivative and whether it is designated as a hedge and qualifies for hedge accounting. GBC will be required to implement both SFAS No.'s 133 and 138 for its fiscal year 2001. GBC does not believe that the adoption of SFAS No.'s 133 and 138 will have a significant impact on its results of operations.
In September 2000, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs." This consensus will require companies to record shipping and handling fees billed to its customers as revenue. Currently GBC records shipping and handling
24
revenues as a selling expense, which is netted against shipping and handling costs. The impact of this change in accounting will result in an insignificant increase in GBC's revenues and will have no impact on operating earnings. GBC will be required to implement EITF 00-10 during the fourth quarter of 2000.
In July 2000, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue No. 00-14 "Accounting for Certain Sales Incentives." This consensus specifies when companies are required to record the cost of certain sales incentives and how the costs should be classified in the income statement. Currently GBC records the costs of certain sales incentives as selling expenses in its income statement. The impact of this change in accounting will result in a reduction in GBC's revenues and selling expenses and an increase to cost of sales. The amount of the reclassifications has not been quantified. The implementation of EITF 00-14 will have no impact on GBC's operating earnings, however, operating margins will increase. GBC will be required to implement EITF 00-10 during the fourth quarter of 2000.
25
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form-8K
(a) Exhibit 10 (ii) (a):
Executive Severance/Change in Control Agreement dated as of
August 26, 2000.
Exhibit 27: Financial Data Schedule for the nine months ended September 30, 2000.
(b) Reports on Form 8-K: None.
26
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/ Terry G. Westbrook
Terry G. Westbrook
Senior Vice President and Chief
Financial Officer
November 14, 2000
27
|