GENERAL BINDING CORP
10-Q, 2000-08-14
OFFICE MACHINES, NEC
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TABLE OF CONTENTS

Financial Information
Financial statements (unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 5.Board of Directors Changes
Item 6. Exhibits and Reports on Form-8K
SIGNATURE
Restated By-Laws dated as of June 28, 2000
Chairman of the Board Service Agreement
Financial Data Schedule

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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.

     
Class Outstanding at
July 31, 2000
Common Stock, $.125 par value 13,338,898
Class B Common Stock, $.125 par value 2,398,275

 

Table of Contents

GENERAL BINDING CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2000
Table of Contents

PART I. Financial Information Page
         
Item 1. Financial statements (unaudited)
         
Condensed Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 2
         
Condensed Consolidated Statements of Income for the three
and six months ended June 30, 2000 and 1999 3
         
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999 4
         
Notes to Condensed Consolidated Financial Statements 5
         
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
         
PART II Other Information
         
Item 5. Other Information 25
         
Item 6. Exhibits and Reports on Form 8-K 25
         
Signatures 26

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GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000’s omitted)

                         
June 30, December 31,
2000 1999
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,767 $ 11,068
Receivables, less allowances for doubtful accounts
and sales returns: 2000 - $15,252, 1999 - $15,164 155,809 163,216
Inventories:
Raw materials 38,449 36,123
Work in process 4,217 6,192
Finished goods 83,997 84,032
Total inventories 126,663 126,347
Deferred tax assets 21,004 30,816
Other 23,042 27,586
Total current assets 333,285 359,033
Total capital assets at cost 257,100 254,326
Less — accumulated depreciation (120,285 ) (112,735 )
Net capital assets 136,815 141,591
Goodwill, net of amortization 277,845 283,059
Other 36,244 38,809
Total assets $ 784,189 $ 822,492
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 56,427 $ 64,487
Accrued liabilities 85,502 88,702
Notes payable 11,150 13,407
Current maturities of long-term debt 558 2,131
Total current liabilities 153,637 168,727
Long-term debt, less current maturities 434,781 454,459
Other long-term liabilities 19,836 20,296
Deferred tax liabilities 29,197 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 164,030 163,719
Treasury stock (27,096 ) (27,096 )
Accumulated other comprehensive income (14,468 ) (11,284 )
Total stockholders’ equity 146,738 149,611
Total liabilities and stockholders’ equity $ 784,189 $ 822,492

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 Six months ended
June 30, June 30,
2000 1999 2000 1999
Net sales $ 221,529 $ 227,032 $ 459,536 $ 448,114
Costs and expenses:
Product cost of sales, including development and engineering 120,734 130,540 258,496 257,609
Selling, service and administrative 85,247 79,540 169,427 158,480
Amortization of goodwill and related intangibles 2,734 2,786 5,470 5,450
Interest expense 11,457 10,396 23,090 20,784
Restructuring and other expenses — 11,555 1,498 11,555
Other expense (income), net 586 (474 ) 932 (666 )
Income (loss) before taxes 771 (7,311 ) 623 (5,098 )
Income tax expense (benefit) 385 (2,961 ) 311 (2,064 )
Net income (loss) $ 386 $ (4,350 ) $ 312 $ (3,034 )
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments (538 ) (884 ) (3,184 ) (2,881 )
Comprehensive (loss) $ (152 ) $ (5,234 ) $ (2,872 ) $ (5,915 )
Net income (loss) per common share: (1)
Basic $ 0.02 $ (0.27 ) $ 0.02 $ (0.19 )
Diluted 0.02 (0.27 ) 0.02 (0.19 )
Weighted average number of common shares outstanding: (2)
Basic 15,734 15,734 15,734 15,731
Diluted 15,857 15,734 15,796 15,731

(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.

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GENERAL BINDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000’s omitted)

                     
Six Months Ended
June 30,
2000 1999
(unaudited) (unaudited)
Operating activities:
Net income (loss) $ 312 $ (3,034 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation 11,354 10,796
Amortization 8,055 7,842
Restructuring and other expenses 1,498 11,555
Provision for doubtful accounts and sales returns 2,638 1,595
Provision for inventory reserves 3,083 2,895
(Decrease) in non-current deferred taxes (26 ) (479 )
(Increase) in other long-term assets (855 ) (2,733 )
Other (232 ) (540 )
Changes in current assets and liabilities:
Decrease in receivables 1,788 5,909
(Increase) in inventories (5,833 ) (5,982 )
Decrease in other current assets 3,970 1,611
Decrease (increase) in deferred tax assets 9,712 (1,516 )
(Decrease) in accounts payable and accrued liabilities (8,656 ) (6,437 )
(Decrease) in income taxes payable (1,797 ) (1,853 )
Net cash provided by operating activities 25,011 19,629
Investing activities:
Capital expenditures (9,006 ) (9,254 )
Proceeds from sale of plant and equipment 450 1,675
Net cash (used in) investing activities (8,556 ) (7,579 )
Financing activities:
Repayments of long-term debt-maturities greater than 90 days (18,000 ) —
Net change in borrowings-maturities of 90 days or less (2,983 ) (5,924 )
(Reduction) in current portion of long-term debt (1,484 ) (169 )
Payments of debt issuance costs (116 ) (659 )
Dividends paid — (3,774 )
Purchases of treasury stock — (536 )
Proceeds from the exercise of stock options — 636
Net cash (used in) financing activities (22,583 ) (10,426 )
Effect of exchange rates on cash 1,827 1,861
Net (decrease) increase in cash and cash equivalents (4,301 ) 3,485
Cash and cash equivalents at the beginning of the year 11,068 6,095
Cash and cash equivalents at the end of the period $ 6,767 $ 9,580
Supplemental disclosure:
Interest paid $ 22,743 $ 18,780
Income taxes (refunded) paid (16,978 ) 3,781

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

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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 June 30, 2000 and December 31, 1999 and the results of their operations for the three and six months ended June 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 June 30, 2000 and December 31, 1999 — outstanding borrowings denominated in foreign currencies have been converted to U.S. dollars (000’s omitted):

                   
June 30, December 31,
2000 1999
Revolving Credit Facility
U.S. Dollar borrowings — (weighted average floating interest rate of 9.18% at                
     June 30, 2000 and 8.58% at December 31, 1999)   $ 245,800     $ 266,700  
British Pound borrowings — (floating interest rate of 8.62% at June 30, 2000 and    
     8.48% at December 31, 1999) 4,248 5,654
Swiss Franc borrowings — (floating interest rate of 5.85% at June 30, 2000 and    
     4.76% at December 31, 1999) 9,740 9,987
Dutch Guilder borrowings — (floating interest rate of 6.98% at June 30, 2000 and    
     6.1% at December 31, 1999) 3,466 2,741
Australian Dollar borrowings — (floating interest rate of 8.66% at June 30, 2000    
     and 7.78% at December 31, 1999) 5,193 4,658
New Zealand Dollar borrowings — (floating interest rate of 9.31% at June 30, 2000    
     and 8.42% at December 31, 1999) 1,314 1,464
Euro borrowings — (floating interest rate of 6.92% at June 30, 2000) 2,196 —
Industrial Revenue Bonds
Industrial Revenue Bond — due March 2026 (floating interest rate of 4.8% at    
     June 30, 2000 and 5.5% at December 31, 1999) 7,522 7,511
Industrial Revenue Bond — due annually from July 1994 to July 2008
     (floating interest rate of 5.15% at June 30, 2000 and 6.5% at December 31, 1999) 1,600 1,600

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Industrial Revenue Bond — due annually from June 2002 to June 2007
     (floating interest rate of 4.95% at June 30, 2000 and 5.6% at December 31, 1999) 1,050 1,050
Notes Payable
Senior Subordinated Notes, U.S. Dollar borrowing — due 2008 (fixed interest rate of 9.375%) 150,000 150,000
Note payable, Dutch Guilder borrowing — due monthly from November 1994 to October 2004    
     (fixed interest rate of 8.85%) 1,079 1,007
Note payable, Dutch Guilder borrowing — due June 2000 (fixed interest rate of 7.05%) — 1,748
Other borrowings 2,131 2,470
   Total debt 435,339 456,590
Less — current maturities (558 ) (2,131 )
   Total long-term debt $ 434,781 $ 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 Six months ended
June 30, June 30,
2000 1999 2000 1999
(A) Net income (loss) available to common                    
       Shareholders $ 386 $ (4,350 ) $ 312 $ (3,034 )
(B) Weighted average number of common shares        
       outstanding (1) 15,734 15,734 15,734 15,731
     Additional common shares issuable under        
      employee stock options using the treasury        
      stock method 123 — 62 —
(C) Weighted average number of common shares        
       outstanding assuming the exercise of stock        
       options (1) 15,857 15,734 15,796 15,731
Net income (loss) per common share (2) — basic                    
       (A) / (B) $ 0.02 $ (0.27 ) $ 0.02 $ (0.19 )
Net income (loss) per common share (2) — diluted                    
       (A) / (C) $ 0.02 $ (0.27 ) $ 0.02 $ (0.19 )

(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.

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(4) Restructuring and Other Expenses

      During the first six months of 2000, GBC recorded restructuring and other expenses of $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 Six months ended
June 30, 2000 June 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 June 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 June 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 six months ended June 30, 2000 and 1999 were as follows (000’s omitted):

                 
Six months ended Six months ended
June 30, 2000 June 30, 1999
Balance — beginning of period $ 9,884 $ —
Provisions 848 11,555
Involuntary termination costs (1,576 ) (1,042 )
Other cash restructuring charges (1,823 ) (309 )
Non-cash restructuring charges (1,783 ) (1 )
Other (1) (206 ) (117 )
Balance — end of period $ 5,344 $ 10,086

(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 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

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      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) June 30, June 30, June 30,
2000 1999 2000 1999 2000 1999
Document Finishing Group $ 49,364 $ 52,012 $ 10,299 $ 8,670 $ 7,147 $ 7,610
Films Group 41,293 40,725 3,963 4,190 9,195 8,761
Office Products Group 90,307 83,710 4,060 7,889 8,704 8,072
Europe Group 26,828 36,619 2,624 5,625 (1,074 ) (1,459 )
All Others 13,737 13,966 23 (47 ) (11,158 ) (8,818 )
Eliminations — — (20,969 ) (26,327 ) — —
Total $ 221,529 $ 227,032 $ — $ — $ 12,814 $ 14,166
                                                 
Unaffiliated Customer Sales Affiliated Customer Sales Operating Income (Loss)
Six months ended Six months ended Six months ended
(000's omitted) June 30, June 30, June 30,
2000 1999 2000 1999 2000 1999
Document Finishing Group $ 102,207 $ 101,897 $ 19,683 $ 21,335 $ 14,643 $ 14,405
Films Group 81,786 76,888 8,687 9,622 17,390 15,933
Office Products Group 188,748 171,429 8,358 15,498 17,392 18,365
Europe Group 59,702 72,480 5,710 22,397 (1,184 ) (1,916 )
All Others 27,093 25,420 28 20 (22,098 ) (20,212 )
Eliminations — — (42,466 ) (68,872 ) — —
Total $ 459,536 $ 448,114 $ — $ — $ 26,143 $ 26,575

      Sales information for the three and six months ended June 30, 2000 and 1999 by geographical area is summarized below (000’s omitted).

                                 
Unaffiliated Customer Sales
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
United States $ 156,174 $ 150,178 $ 322,163 $ 300,021
Europe 33,495 45,501 73,299 89,115
Other International 31,860 31,353 64,074 58,978
Total $ 221,529 $ 227,032 $ 459,536 $ 448,114

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(6) New Accounting Standards

      In July 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:

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Condensed Consolidating Balance Sheets (000’s omitted):

                                               
June 30, 2000
Parent Guarantors Non-Guarantors Eliminations Consolidated
Assets
Current assets:
Cash and cash equivalents $ 4,661 $ (1,067 ) $ 3,173 $ — $ 6,767
Receivables, net 95,104 888 59,817 — 155,809
Inventories, net 68,078 385 58,200 — 126,663
Deferred tax assets 19,048 403 1,553 — 21,004
Other 8,403 1,416 13,223 — 23,042
Due from affiliates 46,611 18,547 2,649 (67,807 ) —
Total current assets 241,905 20,572 138,615 (67,807 ) 333,285
Net capital assets 101,634 8,361 26,820 — 136,815
Goodwill, net of amortization 179,256 25,825 72,764 — 277,845
Other 28,462 1,108 6,674 — 36,244
Investment in subsidiaries 182,699 136,154 — (318,853 ) —
Total assets $ 733,956 $ 192,020 $ 244,873 $ (386,660 ) $ 784,189
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 37,531 $ 741 $ 18,155 $ — $ 56,427
Accrued liabilities 61,061 2,880 23,701 (2,140 ) 85,502
Notes payable (1 ) — 11,151 — 11,150
Current maturities of long-term debt 234 — 324 — 558
Due to affiliates 23,991 — 28,962 (52,953 ) —
Total current liabilities 122,816 3,621 82,293 (55,093 ) 153,637
Long-term debt — affiliated — — 14,855 (14,855 ) —
Long-term debt, less current maturities 429,933 — 4,848 — 434,781
Other long-term liabilities 14,464 332 5,040 — 19,836
Deferred tax liabilities 20,005 5,299 3,893 — 29,197
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 95,717 155,028 (250,745 ) 22,010
Retained earnings 164,030 92,584 (11,775 ) (80,809 ) 164,030
Treasury stock (27,096 ) — (27,096 )
Accumulated other comprehensive income (14,468 ) (5,538 ) (12,827 ) 18,365 (14,468 )
Total stockholders’ equity 146,738 182,768 133,944 (316,712 ) 146,738
Total liabilities and stockholders’ equity $ 733,956 $ 192,020 $ 244,873 $ (386,660 ) $ 784,189

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December 31, 1999
Parent Guarantors Non-Guarantors Eliminations Consolidated
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

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Condensed Consolidating Statements of Income (000’s omitted):

                                             
Three months ended June 30, 2000
Parent Guarantors Non-Guarantors Eliminations Consolidated
Unaffiliated sales $ 156,174 $ — $ 65,355 $ — $ 221,529
Affiliated sales 12,626 — 3,582 (16,208 ) —
Net sales 168,800 — 68,937 (16,208 ) 221,529
Costs and expenses:
Product cost of sales, including development and engineering 93,480 84 43,229 (16,059 ) 120,734
Selling, service and administrative 61,465 12 23,770 — 85,247
Amortization of goodwill and related intangibles 2,031 189 514 — 2,734
Interest expense 11,034 220 1,206 (1,003 ) 11,457
Other expense (income) 83 (787 ) 371 919 586
Income (loss) before taxes and
     undistributed earnings of
     wholly owned subsidiaries 707 282 (153 ) (65 ) 771
Income taxes (benefits) 319 142 (76 ) — 385
Income (loss) before
     undistributed earnings of
     wholly owned subsidiaries 388 140 (77 ) (65 ) 386
Undistributed (losses) earnings of
wholly-owned subsidiaries (2 ) (191 ) — 193 —
Net income (loss) $ 386 $ (51 ) $ (77 ) $ 128 $ 386
                                             
Three months ended June 30, 1999
Parent Guarantors Non-Guarantors Eliminations Consolidated
Unaffiliated sales $ 150,178 $ — $ 76,854 $ — $ 227,032
Affiliated sales 11,767 — 11,639 (23,406 ) —
Net sales 161,945 — 88,493 (23,406 ) 227,032
Costs and expenses:
Product cost of sales, including development and engineering 95,739 194 57,979 (23,372 ) 130,540
Selling, service and administrative 51,807 18 27,715 — 79,540
Amortization of goodwill and related intangibles 2,067 44 675 — 2,786
Restructuring and other expenses 8,860 — 2,695 — 11,555
Interest expense 9,719 371 1,072 (766 ) 10,396
Other (income) expense (1,178 ) (773 ) 1,299 178 (474 )
(Loss) income before taxes
     and undistributed earnings
     of wholly owned
     subsidiaries (5,069 ) 146 (2,942 ) 554 (7,311 )
Income (benefits) taxes (1,815 ) 60 (1,192 ) (14 ) (2,961 )
(Loss) income before
     undistributed earnings of
     wholly owned subsidiaries (3,254 ) 86 (1,750 ) 568 (4,350 )
Undistributed (losses) earnings
of wholly-owned subsidiaries (3,905 ) (1,170 ) — 5,075 —
Net (loss) income $ (7,159 ) $ (1,084 ) $ (1,750 ) $ 5,643 $ (4,350 )

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Six months ended June 30, 2000
Parent Guarantors Non-Guarantors Eliminations Consolidated
Unaffiliated sales $ 322,163 $ — $ 137,373 $ — $ 459,536
Affiliated sales 26,304 — 7,809 (34,113 ) —
Net sales 348,467 — 145,182 (34,113 ) 459,536
Costs and expenses:
Product cost of sales, including development and engineering 201,120 (18 ) 91,304 (33,910 ) 258,496
Selling, service and administrative 121,593 23 47,811 — 169,427
Amortization of goodwill and related intangibles 4,061 377 1,032 — 5,470
Interest expense 22,211 429 1,896 (1,446 ) 23,090
Restructuring and other expenses 717 — 781 — 1,498
Other (income) expense (203 ) (1,498 ) 1,421 1,212 932
(Loss) income before taxes
and undistributed earnings of wholly owned subsidiaries (1,032 ) 687 937 31 623
Income (benefits) taxes (502 ) 344 469 — 311
(Loss) income before undistributed earnings of wholly owned subsidiaries (530 ) 343 468 31 312
Undistributed earnings
(losses) of wholly-owned subsidiaries 842 310 — (1,152 ) —
Net income (loss) $ 312 $ 653 $ 468 $ (1,121 ) $ 312
                                             
Six months ended June 30, 1999
Parent Guarantors Non-Guarantors Eliminations Consolidated
Unaffiliated sales $ 300,021 $ — $ 148,093 $ — $ 448,114
Affiliated sales 28,341 — 31,953 (60,294 ) —
Net sales 328,362 — 180,046 (60,294 ) 448,114
Costs and expenses:
Product cost of sales, including development and engineering 195,422 379 122,102 (60,294 ) 257,609
Selling, service and administrative 105,607 45 52,828 — 158,480
Amortization of goodwill and related intangibles 3,852 375 1,223 — 5,450
Restructuring and other expenses 8,860 — 2,695 — 11,555
Interest expense 19,427 698 2,087 (1,428 ) 20,784
Other (income) expense (2,030 ) (829 ) 1,353 840 (666 )
(Loss) income before taxes and undistributed earnings of wholly owned subsidiaries (2,776 ) (668 ) (2,242 ) 588 (5,098 )
Income (benefits) taxes (886 ) (270 ) (908 ) — (2,064 )
(Loss) income before undistributed earnings of wholly owned subsidiaries (1,890 ) (398 ) (1,334 ) 588 (3,034 )
Undistributed (losses) earnings
of wholly-owned subsidiaries (3,953 ) (576 ) — 4,529 —
Net (loss) income $ (5,843 ) $ (974 ) $ (1,334 ) $ 5,117 $ (3,034 )

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Condensed Consolidating Statements of Cash Flows (000’s omitted):

                                             
Six months ended June 30, 2000
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net cash provided by (used in) operating activities   $ 28,948     $ (75 )   $ (3,862 )   $ —     $ 25,011  
Investing activities:
Capital expenditures (6,835 ) (396 ) (1,775 ) — (9,006 )
Proceeds from sale of plant and
equipment 145 — 305 — 450
Net cash (used in) investing activities (6,690 ) (396 ) (1,470 ) — (8,556 )
Financing activities:
(Reduction) increase in intercompany
borrowings (2,910 ) — 2,910 — —
Repayments of long-term debt—
maturities greater than 90 days (18,000 ) — — — (18,000 )
Net change in borrowings—
maturities of 90 days or less (1,028 ) — (1,955 ) — (2,983 )
(Reduction) in current portion of
long-term debt (12 ) — (1,472 ) — (1,484 )
Payments for debt issuance costs (116 ) — — — (116 )
Net cash (used in) financing activities (22,066 ) — (517 ) — (22,583 )
Effect of exchange rates on cash — — 1,827 — 1,827
Net increase (decrease) in cash & cash equivalents 192 (471 ) (4,022 ) — (4,301 )
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 $ 4,661 $ (1,067 ) $ 3,173 $ — $ 6,767

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Six months ended June 30, 1999
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net cash provided by (used in) operating activities   $ 23,668     $ 5,767     $ (10,067 )   $ 261     $ 19,629  
Investing activities:
     Capital expenditures (5,445 ) (192 ) (3,617 ) — (9,254 )
     Proceeds from sale of plant and equipment 1,675 — — — 1,675
  Net cash (used in) investing activities (3,770 ) (192 ) (3,617 ) — (7,579 )
Financing activities:
 (Reduction) increase in intercompany            
     borrowings (13,150 ) — 13,150 — —
 Net change in borrowings—maturities of                
     90 days or less (5,152 ) — (772 ) — (5,924 )
 (Reduction) in current portion of long-term              
     debt (169 ) — — — (169 )
 Payments for debt issuance costs (659 ) — — — (659 )
 Dividends paid (3,774 ) — — — (3,774 )
 Purchase of treasury stock (536 ) — — — (536 )
 Proceeds from the exercise of stock options 636 — — — 636
  Net cash (used in) provided by              
     financing activities (22,804 ) — 12,378 — (10,426 )
Effect of exchange rates on cash — — 1,861 — 1,861
Net (decrease) increase in cash & cash            
     equivalents (2,906 ) 5,575 555 261 3,485
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 $ 1,143 $ 4,925 $ 3,251 $ 261 $ 9,580

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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 June 30, 2000 compared to Quarter Ended June 30, 1999
 
      Sales
 
      Net sales for second quarter of 2000 decreased 2.4% to $221.5 million, compared to the second quarter of 1999. The decrease was primarily due to the exiting of the visual communications business in the U.K. and the weakening of the European currencies. Net sales by business segment are summarized below (000’s omitted):

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Net Sales
Quarter ended June 30,
2000 1999
Document Finishing Group $ 49,364 $ 52,012
Films Group 41,293 40,725
Office Products Group 90,307 83,710
Europe Group 26,828 36,619
Other 13,737 13,966
Net sales $ 221,529 $ 227,032

      Sales for the Document Finishing Group decreased by $2.6 million or 5.1% in the second quarter of 2000, compared to the second quarter of 1999. The decrease occurred primarily in the US Binding business as a result of lower than planned headcount in the direct sales force. This decrease was partially offset by higher service revenues and stronger sales in Mexico. The Films Group’s sales increased by $0.6 million or 1.4% in the second quarter of 2000 when compared to the second quarter of 1999. However, excluding the impact of weaker European exchange rates and higher sales recorded in the second quarter of 1999 due to a change in the fiscal year end of the films business in Europe, sales increased approximately 9.0% during the second quarter of 2000. The sales increases were primarily due to higher volumes of laminating films in both the Commercial Films and Digital Print Finishing businesses. The Office Products Group’s sales increased by $6.6 million or 7.9% in the second quarter of 2000 when compared to the second quarter of 1999 primarily due to a lower level of customer returns, and higher sales of visual communications products and shredders. Net sales in Europe decreased by $9.8 million or 26.7% in the second quarter of 2000 when compared to the second quarter of 1999. A significant amount of this decrease was anticipated as a result of the decision to exit the manufacturing of unprofitable visual communications products in the United Kingdom; comparisons for the remainder of the year will be impacted by the exit from this business in the first quarter of 2000. Sales were also significantly impacted by weaker exchange rates in the European currencies.
 
      Gross Margins, Costs and Expenses
 
      The gross profit margin in the second quarter of 2000 was 45.5%, a 3.0 percentage point increase compared to the 42.5% gross profit margin for the second quarter of 1999. The increased gross margin was due to improved manufacturing efficiencies, a favorable product mix, efficiencies resulting from the closure of manufacturing facilities in Peterborough, U.K. and Auburn Hills, MI, and a lower level of customer returns in the Office Products Group.
 
      Selling, service and administrative expenses increased 7.2% in the second quarter of 2000 compared to 1999. As a percentage of sales, selling, service and administrative expenses increased by 3.5 percentage points to 38.5% in 2000 as compared to 35.0% in 1999. Within the Office Products Group, selling expenses were negatively impacted by significantly higher customer rebate and allowance programs during the second quarter of 2000 compared to 1999. Expenses related to fiscal year 2000 program costs are comparable to the full year 1999 costs (as a percentage of sales), but are higher in the second quarter of 2000 compared to 1999 due to many of the 1999 customer programs not being finalized until mid-1999.

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      Selling, service and administrative expenses for the Document Finishing Group were relatively flat, while the Films Group experienced a decrease of approximately 8.7% due to cost saving measures. Selling, service and administrative expenses in Europe also declined approximately 28.7% in the second quarter of 2000 when compared to the second quarter of 1999 as a result of the cost saving and restructuring programs, and the decline in the 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
Quarter ended June 30,
2000 1999
Document Finishing Group $ 7,147 $ 7,610
Films Group 9,195 8,761
Office Products Group 8,704 8,072
Europe Group (1,074 ) (1,459 )
Other (11,158 ) (8,818 )
Operating income $ 12,814 $ 14,166

      Operating income for the second quarter of 2000 decreased 9.5% or $1.4 million compared to the second quarter of 1999. Operating income in the Document Finishing Group was unfavorably impacted by the lower sales level. Operating income for the Films Group was favorably impacted by lower selling, service and administrative costs. Operating income in the Office Products Group increased $0.6 million as a result of the higher sales level and higher gross profit resulting from lower levels of customer returns, which were partially offset by higher program costs during the second quarter of 2000. Europe’s operating loss was reduced by $0.4 million to $1.1 during the second quarter of 2000. This loss is primarily attributable to the weakness in the European currencies, as approximately half of the Europe Group’s products are currently sourced in U.S. dollars. The significant decrease in operating expenses were offset by the lower sales levels discussed above. Operating income for the Other category was unfavorably impacted in the second quarter of 2000 by higher unallocated manufacturing variances, and expenses related to information systems and compensation programs.
 
      Interest expense increased by $1.1 million to $11.5 million in the second quarter of 2000 compared to $10.4 million in the second quarter of 1999. Average outstanding borrowings during the second quarter of 2000 were approximately $60.7 million lower than in the second quarter 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, which is described in the Liquidity and Capital Resources section following. Lower interest expense resulting from the lower outstanding balances was offset by higher average interest rates during the second 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.

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      Other expense was $0.6 million in the second quarter of 2000, compared to income of $0.5 million in 1999. The most significant factor affecting this decrease was currency gains experienced in the second quarter of 1999, compared to losses experienced in 2000.
 
      Restructuring and Other Expenses
 
      During the second 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 50.0% for the second quarter of 2000, compared to a benefit of 40.5% in the second quarter of 1999. The high effective tax rate in 2000 is due to the low level of earnings, which is significantly impacted by the mix of earnings and losses among GBC’s foreign subsidiaries and the low level of pre-tax earnings in the U.S., which has a lower statutory rate than many foreign countries in which GBC operates. The 1999 tax benefit was a result of the restructuring charges and anticipated loss for the 1999 fiscal year.
 
      Net Income (Loss)
 
      GBC had net income of $0.4 million for the second quarter of 2000 ($0.02 per diluted share) compared to a net loss of $(4.4) million ($(0.27) per diluted share) reported in the second quarter of 1999. The loss experienced during the second quarter of 1999 was primarily a result of restructuring and related expenses.
 
      Six Months Ended June 30, 2000 compared to Six Months June 30, 1999
 
      Sales
 
      Net sales for first half of 2000 increased 2.5% to $459.5 million, compared to the first half 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
Six months ended June 30,
2000 1999
Document Finishing Group $ 102,207 $ 101,897
Films Group 81,786 76,888
Office Products Group 188,748 171,429
Europe Group 59,702 72,480
Other 27,093 25,420
Net sales $ 459,536 $ 448,114

      The Films Group’s sales increased by $4.9 million or 6.4% in the first half of 2000 when compared to the first half of 1999. However, excluding the impact in 1999 of changing the fiscal year end for the European

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      films business and the impact of the weaker European currencies, Films’ sales increased 14.0% due to significant increases in the Group’s Digital Print Finishing business and moderate increases in Commercial Films’ sales resulting from higher volumes. The Office Products Group’s sales increased by $17.3 million or 10.1% in the first half of 2000 when compared to the first half of 1999. Excluding the impact of the lower level of customer returns, sales increased 5.7%. 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 six months of 2000 by significantly higher sales of writing boards and strong shredder sales. Net sales in Europe decreased by $12.8 million or 17.6% in the first half of 2000 when compared to the first half of 1999. The majority of this decrease was 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. In addition, European sales were unfavorably impacted by a decrease in exchange rates during 2000, in comparison to 1999. Excluding the impact of the exchange rates and the discontinuance of visual communications product sales in the U.K., European sales for 2000 were flat compared to 1999.
 
      Gross Margins, Costs and Expenses
 
      The gross profit margin in the first half of 2000 was 43.7%, a 1.2 percentage point increase compared to the 42.5% gross profit margin for the first half of 1999. The increased gross margin was a result of cost savings from the restructuring initiatives undertaken during 1999, and lower customer returns in the Office Products Group.
 
      Selling, service and administrative expenses increased 6.9% in the first half of 2000 compared to 1999. As a percentage of sales, selling, service and administrative expenses increased by 1.5 percentage points to 36.9% in 2000 as compared to 35.4% in 1999. Within the Office Products Group, selling expenses were negatively impacted by significantly higher customer rebate and allowance programs during the first half of 2000 compared to 1999. Expenses related to fiscal year 2000 program costs are comparable to the full year 1999 costs (as a percentage of sales), but are higher in the first half of 2000 compared to 1999 due to many of the 1999 customer programs not being finalized until mid-1999. Selling, service and administrative expenses for the Document Finishing Group were relatively flat 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 half of 2000 when compared to the first half of 1999 as a result of the restructuring and cost saving programs implemented during 1999.
 
      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.
 
     

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Operating Income
Six months ended June 30,
2000 1999
Document Finishing Group $ 14,643 $ 14,405
Films Group 17,390 15,933
Office Products Group 17,392 18,365
Europe Group (1,184 ) (1,916 )
Other (22,098 ) (20,212 )
Operating income $ 26,143 $ 26,575

      Operating income for the first half of 2000 decreased 1.6% or $0.4 million compared to the first half of 1999. Operating income in the Films Group was favorably impacted by the higher sales levels and decreases in operating expenses in 2000, compared to 1999. The Office Products Group’s decrease in operating income was due to the higher program costs discussed above. Europe’s operating loss was reduced by $0.7 million to $1.2 million during the first six 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 $2.3 million to $23.1 million in the first half of 2000, compared to $20.8 million in the first half of 1999. Average outstanding borrowings during the first half of 2000 were approximately $59.5 million lower than in the first half 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. Lower interest expense resulting from the lower outstanding balances was offset by higher average interest rates during the first half 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.
 
      Other expense was $0.9 million in the first half of 2000, compared to income of $0.7 million in 1999. The most significant factor affecting this decrease was currency gains experienced in the first half of 1999, compared to losses experienced in 2000.
 
      Restructuring and Other Expenses
 
      During the first half of 2000, GBC recorded an after-tax restructuring charge of $0.8 ($1.5 million pre-tax), or $0.05 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 $0.65 million related to the supply chain management program. Restructuring charges for the first six months of 1999 were $11.6 million. See Note 4 to the Condensed Consolidated Financial Statements.
 
      Income Taxes
 
      GBC’s worldwide effective tax rate was 50.0% for the first half of 2000, compared to a benefit of 40.5% in 1999. The high effective tax rate in 2000 is due to the low level of pre-tax earnings, and is significantly

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      impacted by the mix of earnings and losses among GBC’s foreign subsidiaries and the low level of pre-tax earnings in the U.S., which has a lower statutory rate than many foreign countries in which GBC operates. 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 $0.3 million for the first half of 2000 ($0.02 per diluted share) compared to a net loss of $(3.0) million ($(0.19) per diluted share) reported in the first half of 1999. The 2000 results were primarily a result of the restructuring programs implemented during 1999, and the higher sales and gross profit achieved by certain business units. The loss experienced during the first half of 1999 was primarily a result of the restructuring and related expenses.
 
      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’s cash and cash equivalents decreased by $4.3 million as of June 30, 2000 as compared to December 31, 1999 primarily due to cash used to repay borrowings under GBC’s revolving credit facility. Management believes that GBC’s SKU rationalization and supply chain management program may yield significant benefits in future periods, and may favorably impact cash flows from operating activities.
 
      Cash provided by operating activities was $25.0 million for the six months ended June 30, 2000, compared to $19.6 million for the six months ended June 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 six months of 2000 were to fund reductions in accounts payable and accrued liabilities, which primarily related to the payment of restructuring costs, and to fund higher inventory levels. Operating cash flows for the first six months of 1999 were favorably impacted by significant reductions in accounts receivable from a historically high level at December 1998.
 
      Net cash used in investing activities was $8.6 million for the first six months of 2000, as compared to $7.6 million in the first six months of 1999, primarily due to capital expenditures of $9.0 and $9.3 million, respectively.
 
      Net cash used in financing activities was $22.6 million for the first six months of 2000, compared to $10.4 million during the first six months of 1999. During 2000, cash generated from operating activities was used to repay borrowings under GBC’s revolving credit facility. During the first six months of 1999,

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      GBC paid $3.8 million of dividends (or $0.24 per share). Currently, GBC is restricted from paying dividends under the terms of its Revolving Credit Facility.
 
      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 $272.0 million at June 30, 2000.
 
      Under the most restrictive of the covenants of the Revolving Credit Facility applicable at June 30, 2000, GBC must meet a specified EBITDA target set for each quarter through the first fiscal quarter of 2001. The amendment and restatement also provides for more flexible covenants regarding net worth levels, future-starting leverage and interest coverage hurdles, the pledging of substantially all of the assets of General Binding Corporation and its 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 June 30, 2000.
 
      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 July 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.

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      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.

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PART II. OTHER INFORMATION

Item 5. Board of Directors Changes

      During the second quarter of 2000, and subsequent to June 30, 2000, but prior to the filing of this report, there were several changes to GBC’s board of directors. Three members of the board of directors, including the chairman of the board, resigned their positions. These directors have been replaced by three new directors, two of which are significant shareholders of Lane Industries, Inc., GBC’s majority shareholder.

Item 6. Exhibits and Reports on Form-8K

      (a)   Exhibit 3 (ii):
 
          Restated By-Laws dated as of June 28, 2000.
 
          Exhibit 10 (iii) (a) Material Contracts:
 
          Chairman of the Board Service Agreement dated as of June 28, 2000 and Chairman of the Board Stock Option Agreement dated as of June 12, 2000.
 
          Exhibit 27:
 
          Financial Data Schedule for the six months ended June 30, 2000.
 
      (b)   Reports on Form 8-K: None.

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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
   
    August 14, 2000

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