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1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-2604
GENERAL BINDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-0887470
(State of Incorporation) (I.R.S. Employer Identification No.)
ONE GBC PLAZA, NORTHBROOK, ILLINOIS 60062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 272-3700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Name of each exchange
Title of each class on which registered
- --------------------------------- -------------------------
COMMON STOCK, $.125 PAR VALUE NASDAQ
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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/ /
As of February 27, 1998, the aggregate market value of the Common Stock (based
upon the average bid and asked prices of these shares on the Over-The-Counter
Market - NASDAQ) of the company held by nonaffiliates was approximately
$172,950,000. (Estimated solely for the purpose of completing this cover page.)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS FEBRUARY 27, 1998
Common Stock, $.125 par value 13,350,724
Class B Common Stock, $.125 par value 2,398,275
DOCUMENTS INCORPORATED BY REFERENCE WHERE INCORPORATED
Definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 5, 1998. Parts III and IV
2
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT AND DESCRIPTION OF BUSINESS AND SEGMENT INFORMATION
General Binding Corporation, incorporated in 1947, and its subsidiaries (herein
referred to as "GBC" or the "Company") are engaged predominantly in one line of
business, namely the design, manufacture and distribution of branded office
equipment, related supplies and thermal laminating films. The Company's major
products include (i) binding supplies and equipment, (ii) laminating equipment
and supplies, (iii) visual communication products (such as marker boards,
bulletin boards, easels and flip charts), (iv) paper shredders and (v) thermal
laminating films (used primarily to encapsulate or protect documents, book
covers and other school-related supplies). These products are either
manufactured in one of the Company's twenty-two plants located throughout the
world or sourced from third parties. GBC products are sold through a network of
direct sales and telemarketing personnel, office product superstores,
wholesalers, contract/commercial stationers and other retail dealers. The
Company provides maintenance and repairs on certain machines it sells through a
trained field service organization and through trained dealers.
The following table illustrates the ratio of revenue contribution of office
equipment, supplies and service for the last three fiscal years:
- -------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------
Office equipment 45% 29% 24%
Related supplies and service* 55% 71% 76%
- -------------------------------------------------------
* Includes ringmetal business
The Company has made significant acquisitions during the time period covered by
this filing. For additional information, see Notes 13 and 14 to the Consolidated
Financial Statements.
COMPETITION
The Company's products and services are sold in highly competitive markets. The
Company believes that the principal points of competition in its markets are
product and service quality, price, design and engineering capabilities, product
development, conformity to customer specifications, timeliness and completeness
of delivery and quality of post-sale support. Competitive conditions often
require the Company to match or better competitors' prices to retain business or
market share. Maintaining and improving the Company's competitive position will
require continued investment by the Company in manufacturing, quality standards,
marketing and customer service and support. There can be no assurance that the
Company will have sufficient resources to continue to make such investments or
that it will be successful in maintaining its competitive position. There are no
significant barriers to entry into the markets for many of the Company's
products and services. Certain of the Company's current and potential
competitors may have greater financial, marketing and research and development
resources than the Company.
DEPENDENCE ON MAJOR CUSTOMERS
No single customer would have accounted for more than 10% of the Company's net
sales in 1997. The Company does however, have certain major customers. The loss
of, or major reduction in business from, one or more of the Company's major
customers could have a material adverse effect on the Company's financial
position or results of operations.
BACKLOG AND SEASONAL VARIATIONS
Backlog of orders is not considered a material factor in the Company's business,
nor is the business seasonal in any material respect.
3
EXPOSURE TO FLUCTUATIONS IN CERTAIN MATERIALS
The primary materials used in the manufacturing of many of the Company's
products are polyester and polypropylene substrates, wood and aluminum. These
materials are available from a number of suppliers, and the Company is not
dependent upon any single supplier for any of these materials. In general, the
Company's gross profit is affected from time to time by fluctuations in the
prices of these materials because competitive markets for its products make it
difficult to pass through price increases to customers. Based on its experience,
the Company believes that adequate quantities of the aforementioned materials
will be available in adequate supplies in the foreseeable future, but there can
be no assurance that such materials will continue to be available in adequate
supply in the future or that shortages in supply will not result in price
increases that could have a material adverse effect on the Company's financial
position or results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of certain members of its
senior management team. Although the Company believes it could replace key
personnel in an orderly fashion should the need arise, the loss of, and
inability to attract replacements for, any of such key personnel could have a
material adverse effect on the Company's financial position or results of
operations.
DEPENDENCE ON CERTAIN MANUFACTURING SOURCES
The Company relies on GMP Co. Ltd. ("GMP"), in which the Company holds a 33%
equity interest, as its sole supplier of many of the laminating machines it
distributes. The Company has a long-term supply contract with GMP, however,
there can be no assurance that GMP will be able to perform any or all of its
contractual obligations to the Company. GMP's equipment manufacturing facility
is located in the Republic of Korea and its ability to fulfill the Company's
requirements for laminating machines could be affected by economic, political
and governmental conditions in that country and in other parts of Asia. Although
the Company believes alternative suppliers could be found, changing suppliers
for the laminating machines manufactured by GMP would require lead times of a
duration that could result in a disruption of supply. There can be no assurance
that the Company would be able to find an alternative supplier or suppliers on a
timely basis or on favorable terms. Any material disruption in the Company's
ability to deliver orders for laminating machines on a timely basis could have a
material adverse effect on the Company's reputation with customers and its
financial position or results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company has significant operations outside the United States. Approximately
29% of the Company's 1997 revenues were from international sales. The Company's
international operations may be significantly affected by economic, political
and governmental conditions in the countries where the Company has manufacturing
facilities or where its products are sold. In addition, changes in economic or
political conditions in any of the countries in which the Company operates could
result in unfavorable exchange rates, new or additional currency or exchange
controls, other restrictions being imposed on the operations of the Company or
expropriation. The Company's operations and financial position also may be
adversely affected by significant fluctuations in the value of the United States
dollar relative to international currencies, see "Management's Discussion and
Analysis of Financial Condition and Results Operations".
4
PATENTS AND TRADEMARKS
Many of the equipment and supply products manufactured and/or sold by the
Company and certain application methods related to such products are covered by
United States and foreign patents. Although the patents owned by the Company are
highly important to its business, the Company does not consider its business to
be dependent on any of those patents. The Company has registered the GBC,
Quartet, Ibico, Pro-Tech, Shredmaster, Sickinger, VeloBind and Bates trademarks
in the United States and numerous foreign countries and considers those
trademarks material to its business. The Company has also registered numerous
other important trademarks related to specific products in the United States and
many foreign countries, however, the Company does not consider its business
dependent on any of those trademarks.
ENVIRONMENTAL MATTERS
The Company and its operations, both in the U.S. and abroad, are subject to
national, state, provincial and/or local laws and regulations that impose
limitations and prohibitions on the discharge and emission of, and establish
standards for the use, disposal, and management of, certain materials and waste,
and impose liability for the costs of investigating and cleaning up, and certain
damages resulting from, present and past spills, disposals, or other releases of
hazardous substances or materials (collectively, "Environmental Laws").
Environmental Laws can be complex and may change often, capital and operating
expenses to comply can be significant, and violations may result in substantial
fines and penalties. In addition, Environmental Laws such as the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA, " also known as
"Superfund"), in the United States, impose liability on several grounds for the
investigation and cleanup of contaminated soil, ground water, and buildings, and
for damages to natural resources, at a wide range of properties. For example,
contamination at properties formerly owned or operated by the Company as well as
at properties the Company currently owns and operates, and properties to which
hazardous substances were sent by the Company, may result in liability for the
Company under Environmental Laws. As a manufacturer, the Company has an inherent
risk of liability under Environmental Laws both with respect to ongoing
operations and with respect to contamination that may have occurred in the past
on its properties or as a result of its operations. There can be no assurance
that the costs of complying with Environmental Laws, any claims concerning
noncompliance, or liability with respect to contamination will not in the future
have a material adverse effect on the Company's financial position or results of
operations.
RESEARCH AND DEVELOPMENT
Research and development expenditures amounted to approximately $8,031,000 in
1997, $7,249,000 in 1996 and $6,218,000 in 1995. All research is Company funded.
EMPLOYEES
As of December 31, 1997, GBC employed 4,772 people worldwide. Employee relations
are considered to be excellent.
GEOGRAPHICAL INFORMATION
Financial information by geographical area is included in Note 11 to the
Consolidated Financial Statements.
5
ITEM 2. PROPERTIES
In addition to the manufacturing locations listed below, the Company operates
sales and service offices throughout the world and six distribution centers in
the U.S. The Company also has a 60,000 square foot world headquarters building
in Northbrook, Illinois and a 30,000 square foot division headquarters building
in Skokie, Illinois. Management believes that the Company's manufacturing
facilities are suitable and adequate for its operations and are maintained in a
good state of repair.
Major manufacturing is conducted at the following plant locations:
- --------------------------------------------------------------------------------------------------
APPROXIMATE AREA IN THOUSAND
LOCATION SQ. FT. INCLUDING OFFICE SPACE OWNERSHIP
- --------------------------------------------------------------------------------------------------
Booneville, Mississippi ............................................ 420 GBC owned
Ashland, Mississippi ............................................... 180 GBC owned
Addison, Illinois .................................................. 91 GBC owned
Basingstoke, England ............................................... 81 Leased
Buffalo Grove, Illinois ............................................ 80 Leased
St. Louis, Missouri ................................................ 73 GBC owned
Arcos de Valdevez, Portugal* ....................................... 68 GBC owned
Pleasant Prairie, Wisconsin ........................................ 64 Leased
Lincolnshire, Illinois ............................................. 64 Leased
Pleasant Prairie, Wisconsin ........................................ 56 Leased
Acuna, Mexico* ..................................................... 53 GBC owned
Nuevo Laredo, Mexico ............................................... 49 Leased
Phoenix, Arizona ................................................... 40 GBC owned
Lottstetten, Germany* .............................................. 40 GBC owned
Kerkrade, Holland .................................................. 37 GBC owned
Hagerstown, Maryland ............................................... 33 GBC owned
Perth, Australia ................................................... 30 GBC owned
Amelia, Virginia ................................................... 26 GBC owned
Auburn Hills, Michigan ............................................. 26 Leased
Madison, Wisconsin ................................................. 25 Leased
Tornaco, Italy ..................................................... 22 GBC owned
Don Mills, Ontario, Canada ......................................... 17 Leased
- --------------------------------------------------------------------------------------------------
* These facilities were acquired as part of the Ibico acquisition on
February 27, 1998. See Note 14 to the Consolidated Financial Statements
for additional discussion of this acquisition.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, and
neither the Company nor any of its officers or directors are aware of any
material contemplated proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING THE FOURTH
QUARTER OF 1997
None.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Principal Market and Price Range
The following table shows the range of closing prices for the Company's common
stock as quoted on the NASDAQ National Market System for the calendar quarters
indicated below:
PRICES 1997 1996
HIGH LOW HIGH LOW
- ------------------------------------------------------------
First Quarter $33 1/4 $28 1/2 $23 1/4 $19 1/4
Second Quarter 31 26 23 1/4 19 1/2
Third Quarter 33 1/4 25 1/2 24 20
Fourth Quarter 31 1/2 26 1/2 30 3/4 23 1/2
- ------------------------------------------------------------
Approximate Number of Equity Security Holders
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF FEBRUARY 27, 1998
- ------------------------------------------------------------------
Common Stock, $.125 par value 644*
Class B Common Stock, $.125 par value 1
- ------------------------------------------------------------------
* Per latest report of Transfer Agent. Each security dealer holding shares
in a street name for one or more individuals is counted as only one record
holder.
Dividends
The following table lists dividends paid per share during the calendar quarters
indicated below:
DIVIDENDS PAID 1997 1996
- ---------------------------------------------------------
First Quarter $.110 $.105
Second Quarter .110 .105
Third Quarter .110 .110
Fourth Quarter .110 .110
- ---------------------------------------------------------
Total $.440 $.430
- ---------------------------------------------------------
Cash dividends have been paid each quarter commencing with the fourth quarter of
1975. The future payment of dividends and any increases therein are within the
discretion of the Company's Board of Directors and will depend, among other
factors, on working capital requirements, capital expenditures and earnings
growth of the Company. On March 20, 1998, the Company paid a quarterly dividend
of $.11 per share.
ITEM 6. SELECTED FINANCIAL DATA
(000 omitted, except per share and ratio data):
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Net Sales $ 770,001 $ 536,836 $ 458,391 $420,449 $ 376,138
Operating Income 74,332 47,715 40,094 30,534 28,370
Net Income 28,667 25,213 21,500 15,703 14,994
Earnings Per Common Share (1)
Basic 1.82 1.60 1.37 1.00 .95
Diluted 1.80 1.59 1.36 .99 .95
Cash Dividends per Share of Common Stock .440 .430 .420 .405 .400
Capital Expenditures 29,619 27,778 15,046 12,788 10,595
Current Assets 327,745 237,214 180,648 171,154 145,351
Current Liabilities 152,102 112,129 83,828 84,604 64,760
Working Capital 175,643 125,085 96,820 86,550 80,591
Current Ratio 2.2 2.1 2.2 2.0 2.2
Total Assets 692,914 393,706 298,872 284,278 251,109
Long-term Debt 324,070 87,029 43,890 42,020 38,564
Stockholders' Equity 191,043 172,132 154,141 141,089 133,531
- ------------------------------------------------------------------------------------------------------------------------
(1) All earnings per share data has been restated for the adoption of SFAS
128, "Earnings Per Share."
7
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
1997 COMPARED TO 1996
Sales
The Company reported sales of $770.0 million in 1997, a 43.4% increase over 1996
sales of $536.8 million. The acquisitions of Quartet and Baker, as discussed in
Note 13 to the Consolidated Financial Statements, accounted for approximately
$183.0 million of the increase. Excluding the effect of acquisitions, 1997 sales
increased by 9.4%, primarily due to sales growth of the Company's laminators and
related supplies, shredders and binding equipment.
Gross Margin, Costs and Expenses
Gross profit margin improved in 1997 to 42.8% compared to 41.2% in 1996, as a
result of a more favorable sales mix of higher-margin office products. The
improvement in gross margin was achieved despite lower gross margins from
certain film products due to competitive market pricing. Further, in 1997 the
Company's business in Europe experienced lower gross margins due to increased
costs on imported products as a result of the strength of the U.S. dollar.
Selling, service and administrative expenses increased 44.2% in 1997 primarily
as a result of the acquisition of Quartet. Selling, service and administrative
expenses as a percentage of sales increased to 32.1% in 1997, compared to 31.9%
in 1996, due primarily to higher rebate programs for certain customers.
Interest expense increased to $24.6 million in 1997 from $6.2 million in 1996
primarily as a result of increased outstandings under the Company's Revolving
Credit Facility. The increased debt was used primarily to fund acquisitions.
Amortization of goodwill and related intangibles increased by $6.2 million in
1997 as a result of increased amortization related to acquisitions. The
shut-down of a manufacturing plant in Costa Rica related to the Company's
non-core ringmetals business and unfavorable currency transactions accounted for
the majority of the $2.6 million increase in other expenses from 1996 to 1997.
Income Taxes
The Company's worldwide effective income tax rate decreased to 40.5% in 1997
from 40.8% in 1996. Numerous items impacted the effective tax rate as discussed
in Note 10 to the Consolidated Financial Statements.
Net Income
Net income increased by 13.9% (or $3.4 million) in 1997 to $1.82 per share basic
(or $28.7 million) from $1.60 per share basic (or $25.2 million). The increase
resulted primarily from sales and gross margin of Quartet and Baker and
synergies achieved as a result of the acquisitions, along with increased sales
in the Company's core businesses.
8
1996 COMPARED TO 1995
Sales
The Company reported sales of $536.8 million in 1996, a 17.1% increase over 1995
sales of $458.4 million. The increase resulted primarily from sales volume
increases of film, office products, and binding and laminating products, as well
as the acquisitions of Fordigraph and Pro-Tech.
Gross Margin, Costs and Expenses
Gross profit margin decreased to 41.1% in 1996 from 42.5% in 1995. The erosion
in gross margin was primarily due to worldwide competitive pricing pressures and
a continuing product mix shift resulting in growth in lower-margin office
products, film, and graphics products. Gross profit margins in 1996 were also
negatively impacted by margin erosion in the Company's non-core ringmetals
business along with higher outlays for research and development spending.
Selling, service and administrative expenses increased by 11.6% in 1996 compared
to 1995 primarily as a result of increased sales. As a percentage of sales,
selling, service and administrative expenses declined to 31.9% in 1996 from
33.5% in 1995. The decrease as a percentage of sales resulted primarily from
improved absorption of the Company's infrastructure.
Interest expense increased by 44.9% in 1996 primarily as a result of higher
average debt levels caused by increased working capital investments, the
acquisitions of Fordigraph and Pro-Tech, and the Company's investment in GMP.
Other income and expenses decreased slightly in 1996. The most significant
factors affecting the favorable change in 1996 were a gain on the sale of the
Company's manufacturing facility in Australia and foreign currency gains
compared to currency losses in 1995.
Income Taxes
The Company's effective tax rate increased to 40.8% from 40.0% in 1995. The 1996
rate increased primarily as a result of an increase in nondeductible goodwill
and a tax charge incurred pursuant to its tax allocation agreement with Lane
Industries, Inc., its majority shareholder.
Net Income
Net income for 1996 was $1.60 per share basic (or $25.2 million), a 17.3%
increase over 1995 net income of $1.37 per share basic (or $21.5 million). The
increase in net income was primarily due to higher sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources include cash
provided by operations and use of available borrowing facilities.
Cash provided by operating activities was $20.7 million in 1997, compared to
$2.3 million in 1996 and $27.0 million in 1995. The increase in operating cash
flow in 1997 was primarily due to significantly higher earnings before
depreciation and amortization ($55.9 million in 1997 compared to $40.2 million
in 1996). Further, while inventories and receivables increased in 1997, the
growth in those working capital items supported the Company's higher sales
volumes. The decrease in operating cash flow in 1996 compared to 1995 was
primarily due to increased investment in working capital.
Capital expenditures were $29.6 million in 1997 compared to $27.8 million in
1996 and $15.0 million in 1995. Major projects in 1997 and 1996 included the
implementation of business information systems in Europe and the U.S. ($6.8
million in 1997 and $9.4 million in 1996), equipping and fitting three
manufacturing facilities in the U.S. ($7.3 million in 1997), completion of
additional film manufacturing capacity in Europe and the U.S. ($5.8 million in
1996), facilities to support the integration of the Company's office products
business with Quartet and tooling for new products.
9
The Company invested $241.2 million, $28.9 million and $1.5 million in
acquisitions in 1997, 1996 and 1995, respectively. Acquisitions in 1997 and 1996
were primarily financed by borrowings under the Company's Revolving Credit
Facility.
Cash dividends paid in 1997 increased to $6.9 million from $6.8 million, or
$.440 per share from $.430 per share.
The Company had access to $67.0 million in uncommitted short-term credit lines
as of December 31, 1997 and had $40.2 million in borrowings outstanding under
these lines. The Company also had access to a $475.0 million multicurrency
revolving credit facility to fund working capital requirements, capital
expenditures, acquisitions, or general corporate uses. At December 31, 1997, the
Company had $307.1 million in borrowings outstanding under this facility. See
Note 6 to the Consolidated Financial Statements for additional information.
The Company believes that cash flow from operations, together with available
credit facilities, will be sufficient to fund the Company's ongoing operational
and capital requirements.
RISK MANAGEMENT
The Company is exposed to market risk primarily from changes in interest rates
and foreign exchange rates. To manage the risk from interest rate and foreign
currency fluctuations, the Company enters into various hedging transactions that
have been authorized pursuant to the Company's policies and procedures. The
Company does not use financial instruments for trading purposes and is not a
party to any leveraged derivatives.
A discussion of the Company's accounting policies for financial instruments is
included in Note 1 to the Consolidated Financial Statements, and further
disclosures related to financial instruments is included in Note 7 to the
Consolidated Financial Statements.
Interest Rates
The Company uses interest rate swaps, treasury rate-lock agreements, and
interest rate cap agreements to manage exposure to interest rate movements. The
Company's exposure to interest rate risk consists primarily of floating rate
credit facilities that are benchmarked to U.S. and European short-term interest
rates.
Foreign Exchange
The Company uses foreign currency forward exchange contracts to hedge exposure
to changes in foreign exchange rates primarily associated with inventory
purchases. The foreign currency forward exchange contracts purchased generally
have durations of 12 months or less. The Company's exposure to foreign exchange
risk primarily exists with the Dutch guilder, British pound, Italian lira,
Japanese yen and Mexican peso against the U.S. dollar.
NEW ACCOUNTING STANDARDS
The Company will adopt Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income" effective with first quarter 1998
reporting. This statement requires that certain items recorded directly in
stockholders' equity be classified as comprehensive income. Comprehensive income
and its components may be presented in a separate statement, or may be included
in the statement of stockholders' equity or the statement of income. The
currency translation adjustment is the Company's only item which will be
classified as comprehensive income. The Company is in the process of evaluating
the method of presentation that will be used upon adoption of the statement.
The Company will adopt SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" effective with year-end 1998 reporting. This
statement will require the Company to present information in the notes to the
financial statements regarding reportable operating segments using the same
basis as is used for internally evaluating segment performance and deciding how
to allocate resources to segments. The Company is currently evaluating the
requirements of this standard and upon adoption, may disclose more than one
reportable segment.
10
ACQUISITIONS
The Company has completed a number of acquisitions during the past three years.
The following is a summary of acquisitions completed (dollars in millions):
Company or Approximate
Business Acquired Annual Revenues
Date (Principal Location) of Acquired Company(a) Products
- ------------------------------------------------------------------------------------------------------------------------------------
8/27/97 Danka Datakey, (Australia) less than $1.0 Distributor and servicer of mailroom equipment
7/25/97 Printing Wire Supplies Ltd., $2.0 Manufacturer of wire binding supplies
(Ireland)
7/23/97 Jenrite, (New Zealand) $2.0 Distributor of laminating equipment and supplies
6/13/97 Visucom, (Australia) $2.0 Manufacturer of presentation boards
4/23/97 Baker School Specialty Company $17.0 Manufacturer of presentation boards
1/01/97 Quartet Manufacturing Company $149.0 Manufacturer of visual communication products
10/10/96 GMP Co. Ltd., (South Korea) N/A -- Joint Venture Developer and manufacturer of lamination
equipment and supplies
1/22/96 Fordigraph Pty. Ltd., (Australia) $21.0 Distributor of office and mailroom products
12/21/95 Pro-Tech Engineering Co., Inc. $11.0 Manufacturer and distributor of lamination
equipment and supplies for the digital printing market
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Approximate annual revenues at time of acquisition.
See Note 13 to the Consolidated Financial Statements for additional information
on the Company's acquisitions.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed without considering the impact of the
upcoming change in the century. If not corrected, many computer applications and
systems could fail or create erroneous results by or at the year 2000.
The Company has established a Year 2000 task force and developed an extensive
plan to ensure that its systems have the ability to process transactions in the
next century. The Company believes that it has identified the applications which
will need to be modified and both internal and external resources will be
utilized to reprogram and test software for Year 2000 compliance. It is
anticipated that the Company's Year 2000 modification project will be completed
on time at an estimated total cost of approximately $2.0 million. This cost will
be expensed as incurred except for the installation of new applications which
are already Year 2000 compliant, the cost of which will be capitalized.
Although the Company believes that it will be able to achieve Year 2000
compliance through these efforts, no assurance can be given that these efforts
will be successful. The Company believes that the expenses and capital
expenditures associated with achieving Year 2000 compliance will not have a
material effect on future financial results. The Company is also in the process
of responding to customer surveys and evaluating whether key suppliers and
customers are Year 2000 compliant. In the event that any of the Company's key
suppliers do not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be adversely affected.
11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Public Accountants
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF GENERAL BINDING CORPORATION:
We have audited the accompanying consolidated balance sheets of General Binding
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of General Binding
Corporation and Subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Schedule II is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
CHICAGO, ILLINOIS
JANUARY 30, 1998.
(EXCEPT WITH RESPECT TO THE IBICO ACQUISITION AS DISCUSSED IN NOTE 14, AS TO
WHICH THE DATE IS FEBRUARY 27, 1998)
12
CONSOLIDATED STATEMENTS OF INCOME
(000 omitted except per share data)
YEAR ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
Domestic Sales $ 543,361 $ 349,809 $ 293,188
International Sales 226,640 187,027 165,203
- --------------------------------------------------------------------------------------------------------------------
Total Sales 770,001 536,836 458,391
Cost of sales, including development and engineering 440,625 315,949 263,706
Selling, service and administrative 247,185 171,473 153,690
Amortization of goodwill and related intangibles 7,859 1,699 901
- --------------------------------------------------------------------------------------------------------------------
Operating Income 74,332 47,715 40,094
Interest 24,577 6,172 4,259
Other (income) expense, net 1,575 (1,011) 2
- --------------------------------------------------------------------------------------------------------------------
Income Before Taxes 48,180 42,554 35,833
Income Taxes 19,513 17,341 14,333
- --------------------------------------------------------------------------------------------------------------------
NET INCOME $ 28,667 $ 25,213 $ 21,500
====================================================================================================================
Net Income Per Common Share:
Basic: $ 1.82 $ 1.60 $ 1.37
Diluted: $ 1.80 $ 1.59 $ 1.36
Dividends Per Common Share $ .440 $ .430 $ .420
Weighted Average Number of Common Shares Outstanding 15,760 15,743 15,740
====================================================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
13
CONSOLIDATED BALANCE SHEETS
(000 omitted except share data)
December 31 1997 1996
- -------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,753 $ 6,721
Receivables, less allowances for doubtful
accounts and sales returns: 1997-$8,821, 1996-$6,424 160,787 115,865
Inventories, at lower of cost or market 143,569 96,734
Deferred tax assets 9,323 11,453
Other 10,313 6,441
- -------------------------------------------------------------------------------------------------
Total Current Assets 327,745 237,214
- -------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at cost:
Land and land improvements 6,744 4,837
Buildings and leasehold improvements 49,798 28,806
Machinery and equipment 133,899 107,308
- -------------------------------------------------------------------------------------------------
Total Property, Plant and Equipment, at cost 190,441 140,951
Less--Accumulated depreciation (77,020) (71,940)
- -------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 113,421 69,011
- -------------------------------------------------------------------------------------------------
Cost in excess of fair value of assets of acquired
companies, net of amortization 204,543 43,510
Other 47,205 43,971
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 692,914 $ 393,706
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 40,247 $ 31,700
Current maturities of long-term debt 722 483
Accounts payable 42,979 28,506
Accrued liabilities:
Salaries, wages and profit sharing contributions 14,213 14,425
Taxes, other than income taxes 3,761 3,036
Deferred income on maintenance agreements 9,810 9,620
Other 40,370 24,359
- -------------------------------------------------------------------------------------------------------
Total Current Liabilities 152,102 112,129
- -------------------------------------------------------------------------------------------------------
Long-term Debt, less current maturities 324,070 87,029
Other Long-term Liabilities 11,368 10,229
Deferred Tax Liabilities 14,331 12,187
- -------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock, $.125 par value, shares authorized 40,000,000;
shares issued 15,693,747 in 1997 and 1996 1,962 1,962
Class B common stock, $.125 par value; shares authorized
4,796,550; shares issued 2,398,275 in 1997 and 1996 300 300
Additional paid-in-capital 9,708 8,564
Cumulative translation adjustments (6,108) (3,035)
Retained earnings 208,394 186,663
Treasury stock--2,325,266 shares in 1997 and 2,342,143
shares in 1996 (23,213) (22,322)
- -------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 191,043 172,132
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 692,914 $ 393,706
=======================================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
14
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 omitted)
Year Ended December 31 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 28,667 $ 25,213 $ 21,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 27,208 15,018 12,814
Increase in non-current deferred taxes 2,285 5,029 240
Provision for doubtful accounts 2,248 2,334 1,584
(Increase) in other long-term assets (5,336) (3,890) (4,209)
Other 316 (2,379) 878
Changes in current assets and liabilities:
(Increase) in receivables (27,746) (36,500) (8,074)
(Increase) in inventories (23,615) (10,536) (4,154)
(Increase) decrease in other current assets (3,256) (2,314) 2,501
(Increase) decrease in deferred tax assets 2,381 (1,052) (1,681)
Increase in accounts payable and accrued liabilities 16,807 9,982 5,585
Increase in taxes on income 758 1,375 --
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,717 2,280 26,984
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (29,619) (27,778) (15,046)
Payments for acquisitions and investments
(net of cash acquired) (241,230) (28,881) (1,458)
Proceeds from sale of plant and equipment 4,702 3,676 2,380
Government training subsidy from new plant investment -- -- 746
- -----------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (266,147) (52,983) (13,378)
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase (reduction) in notes payable 4,341 14,192 (6,429)
Increase in long-term debt 246,528 43,733 2,147
(Repayment) of long-term debt (502) (150) (535)
(Reduction) increase in current portion of
long-term debt 80 (358) (196)
Dividends paid (6,935) (6,769) (6,611)
Purchases of treasury stock (1,011) (1,645) (1,141)
Proceeds from the exercise of stock options 942 1,463 624
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 243,443 50,466 (12,141)
- -----------------------------------------------------------------------------------------------------------------------
Effect of exchange rates on cash (981) 94 (170)
NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS (2,968) (143) 1,295
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 6,721 6,864 5,569
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 3,753 $ 6,721 $ 6,864
=======================================================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
15
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(000 omitted except number of shares and per share data)
Common Stock* Treasury Stock*
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------
Balance at December 31, 1994 18,092,022 $2,262 (2,344,235) $(19,861)
1995 translation adjustment -- -- -- --
Exercise of stock options -- -- 49,722 118
Purchase of treasury stock -- -- (63,397) (1,141)
Net income in 1995 -- -- -- --
Dividends paid ($.42 per share) -- -- -- --
- ------------------------------------------------------------------------------------------
Balance at December 31, 1995 18,092,022 $2,262 (2,357,910) $(20,884)
1996 translation adjustment -- -- -- --
Exercise of stock options -- -- 87,644 207
Purchase of treasury stock -- -- (71,877) (1,645)
Net income in 1996 -- -- -- --
Dividends paid ($.43 per share) -- -- -- --
- ------------------------------------------------------------------------------------------
Balance at December 31, 1996 18,092,022 $2,262 (2,342,143) $(22,322)
1997 translation adjustment -- -- -- --
Exercise of stock options -- -- 50,581 120
Purchase of treasury stock -- -- (33,704) (1,011)
Net income in 1997 -- -- -- --
Dividends paid ($.44 per share) -- -- -- --
- ------------------------------------------------------------------------------------------
Balance at December 31, 1997 18,092,022 $2,262 (2,325,266) $(23,213)
- ------------------------------------------------------------------------------------------
Additional Cumulative
Paid In Translation Retained
Capital Adjustments Earnings Total
- -------------------------------------------------------------------------------------
Balance at December 31, 1994 $6,562 $(1,204) $ 153,330 $ 141,089
1995 translation adjustment -- (1,519) -- (1,519)
Exercise of stock options 705 -- -- 823
Purchase of treasury stock -- -- -- (1,141)
Net income in 1995 -- -- 21,500 21,500
Dividends paid ($.42 per share) -- -- (6,611) (6,611)
- -------------------------------------------------------------------------------------
Balance at December 31, 1995 $7,267 $(2,723) $ 168,219 $ 154,141
1996 translation adjustment -- (312) -- (312)
Exercise of stock options 1,297 -- -- 1,504
Purchase of treasury stock -- -- -- (1,645)
Net income in 1996 -- -- 25,213 25,213
Dividends paid ($.43 per share) -- -- (6,769) (6,769)
- -------------------------------------------------------------------------------------
Balance at December 31, 1996 $8,564 $(3,035) $ 186,663 $ 172,132
1997 translation adjustment -- (3,073) -- (3,073)
Exercise of stock options 1,144 -- -- 1,264
Purchase of treasury stock -- -- -- (1,011)
Net income in 1997 -- -- 28,667 28,667
Dividends paid ($.44 per share) -- -- (6,936) (6,936)
- -------------------------------------------------------------------------------------
Balance at December 31, 1997 $9,708 $(6,108) $ 208,394 $ 191,043
- -------------------------------------------------------------------------------------
* Includes Class B Common Stock--Shares 2,398,275, Amount $300,000.
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(A) Consolidation
The consolidated financial statements include the accounts of the Company and
its domestic and international subsidiaries. All international subsidiaries have
November 30 fiscal year ends, with the exception of Canada and Mexico which have
December 31 fiscal year ends. Intercompany accounts and transactions have been
eliminated in consolidation. Investments in significant companies which are 20%
to 50% owned are treated as equity investments and the Company's share of
earnings is included in income.
(B) Cash and Cash Equivalents
Temporary cash investments with original maturities of three months or less are
classified as cash equivalents.
(C) Inventory Valuation
Inventories are valued at the lower of cost or market on a first-in, first-out
basis. Inventory costs include labor, material and overhead.
(D) Depreciation of Plant and Equipment
Depreciation of plant and equipment for financial reporting is computed
principally using the straight-line method over the following estimated lives:
- --------------------------------------------------------------------------------
Buildings 30-35 years
Machinery and equipment 3-20 years
Leasehold improvements Term of lease
- --------------------------------------------------------------------------------
(E) Goodwill and other Intangible Assets
For financial reporting purposes, goodwill and other intangibles are generally
amortized using the straight-line method over their estimated useful lives, not
exceeding 40 years. Accumulated amortization of goodwill amounted to $13,936,000
in 1997 and $6,693,000 in 1996.
(F) Income Taxes
Since 1986, the Company's policy has been to provide appropriate income taxes on
the earnings of its international subsidiaries that are expected to be
distributed to the Company. Current earnings of all international subsidiaries
other than Canada and Mexico are considered remitted to the United States for
the purpose of determining income tax expense for the year. In addition, in
1988, the Company implemented a balance sheet hedging strategy for its
international operations and, as a result, provided income taxes on
approximately $4,449,000 of pre-1986 earnings of its international subsidiaries.
Approximately $1,835,000 of these earnings were remitted in the years 1988
through 1997, and the balance is expected to be remitted in future years.
As of December 31, 1997, the cumulative amount of undistributed earnings of
international subsidiaries upon which income taxes have not been provided was
approximately $15.6 million. In the opinion of management, this amount remains
indefinitely reinvested by the international subsidiaries.
(G) Stock Option Compensation
Stock option compensation cost applicable to the non-qualified restricted plans
is valued at the date of the grant and recorded as compensation expense as the
options become exercisable.
17
(H) Deferred Service Income
Income from service maintenance agreements is deferred and recognized over the
term (generally 1 to 3 years) of the agreements primarily on a straight-line
basis.
(I) Use Of Estimates
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.
(J) Financial Instruments
Many of the Company's financial instruments (including cash and cash
equivalents, accounts and notes receivable, notes payable, and other accrued
liabilities) carry short-term maturities. As such instruments have short-term
maturities, their fair values approximate the carrying values. Substantially all
of the Company's long-term obligations, including current maturities of
long-term obligations, have floating interest rates. The fair value of these
instruments approximates the carrying value.
Amounts currently due to or due from interest rate swap counterparties are
recorded in interest expense in the period in which they accrue. Premiums paid
to purchase interest rate caps are capitalized and amortized over the life of
the agreements. Gains and losses on hedging firm foreign currency commitments
are deferred and included as a component of the related transaction.
(2) Foreign Currency Exchange and Translation
Foreign currency translation adjustments have been excluded from the
Consolidated Statements of Income and are recorded in a cumulative translation
adjustment account as a separate component of stockholders' equity.
The accompanying Consolidated Statements of Income include net gains and losses
on foreign currency transactions.
Such amounts are reported as other expense and are summarized as follows (000
omitted):
Foreign Currency
Transaction
Year Ended December 31 Gain/(Loss)(a)
- -------------------------------------------------------------
1997 $(425)
1996 668
1995 (612)
- -------------------------------------------------------------
(a) Foreign currency transaction gains/losses are subject to income taxes at the
respective country's effective tax rate.
(3) Inventories
Inventories are summarized as follows (000 omitted):
Finished Work in Raw
December 31 Total Goods Process Materials
- --------------------------------------------------------------------------------
1997 $143,569 $ 53,082 $ 12,693 $ 77,794
1996 96,734 68,126 7,410 21,198
- --------------------------------------------------------------------------------
(4) Retirement Plans
As of January 1, 1996, the Company converted its defined contribution
profit-sharing plan to a 401(k) plan. The participants of the 401(k) plan may
contribute from 1% to 15% of their eligible compensation on a pretax basis. The
Company makes annual contributions that match 100% of pre-tax contributions up
to 4.5% of eligible compensation. Substantially all eligible full-time domestic
employees can participate in the 401(k) plan. The Company's contribution to the
plan was $2,276,000 in 1997 and $2,057,000 in 1996.
Prior to January 1, 1996, all eligible full-time domestic employees could
participate in a defined contribution profit-sharing plan. The Company was
required to make annual contributions, as defined, to a trust fund for employees
participating in the plan. Contributions charged to expense were $2,147,000 in
1995.
18
The Company has one active domestic defined benefit pension plan which covers
employees that are not eligible to participate in the 401(k) plan. The plan
provides benefits based upon the participants' years of credited service.
Further, the Company has one frozen defined benefit pension plan that provides
benefits to certain participants of the former defined contribution profit
sharing plan and certain other employees.
The Company's international subsidiaries have adopted a variety of defined
benefit and defined contribution plans. These plans provide benefits that are
based upon the employee's years of credited service. The benefits payable under
these plans, for the most part, are provided by the establishment of trust funds
or the purchase of insurance annuity contracts.
Net periodic pension expense for the Company's defined benefit pension plans
for the years 1997, 1996, and 1995 was as follows (000 omitted):
1997 1996 1995
- ---------------------------------------------------------------------------------------------
Domestic pension plans $ 119 $ (584) $ 117
International subsidiary pension plans 590 887 1,194
- ---------------------------------------------------------------------------------------------
Total expense $ 709 $ 303 $1,311
- ---------------------------------------------------------------------------------------------
The following rates were used in determining the actuarial present value of
accumulated plan benefits for the Company's defined benefit pension plans:
1997 1996
Domestic International Domestic International
- -----------------------------------------------------------------------------------------------
Discount rate 8.0% 2.5% - 7.5% 8.0% 3.0% - 8.0%
Weighted-average investment return rate 9.5% 4.5% - 9.0% 9.5% 4.5% - 9.0%
Salary increase rate 5.0% 3.5% - 5.0% 5.0% 4.0% - 6.0%
- -----------------------------------------------------------------------------------------------
Net periodic pension expense/(income) for 1997, 1996, and 1995 includes the
following components (000 omitted):
1997 1996 1995
----------------------- ------------------------ ------------------------
Domestic International Domestic International Domestic International
- -----------------------------------------------------------------------------------------------------------------------------
Service cost-benefits
earned during the period $ 7 $ 857 $ 56 $ 969 $ 237 $ 1,102
Interest cost on projected benefit obligations 245 871 263 866 281 940
Actual return on assets (372) (2,376) (182) (1,417) (288) (1,173)
Net amortization and deferral 239 1,238 (77) 469 (113) 325
Curtailment gain (a) -- -- (644) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net periodic pension expense $ 119 $ 590 $ (584) $ 887 $ 117 $ 1,194
- -----------------------------------------------------------------------------------------------------------------------------
(a) Included in the net periodic pension expense in 1996 is a gain resulting
from the curtailment of the Guaranteed Retirement Income Plan.
19
The following table sets forth the plans' funded status at December 31, 1997 and
1996 respectively (000 omitted):
DECEMBER 31, 1997 DECEMBER 31, 1996
Assets Exceed Projected Benefit Assets Exceed Projected Benefit
Projected Benefit Obligations Projected Benefit Obligations
Obligations Exceed Assets Obligations Exceed Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Domestic International International Domestic International International
- ------------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits $ 3,228 $ 8,378 $ 2,920 $ 3,023 $ 7,663 $ 2,815
Non-vested benefits 34 386 163 35 348 146
Accumulated benefit obligations 3,262 8,764 3,083 3,058 8,011 2,961
Effect of projected future compensation levels -- 3,328 1,132 -- 3,214 905
- ------------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations 3,262 12,092 4,215 3,058 11,225 3,866
Plan assets at fair value 3,602 16,523 1,240 3,360 13,883 1,187
- ------------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected
benefit obligations 340 4,431 (2,975) 302 2,658 (2,679)
Unrecognized net (gain) loss due to past
experience different from assumptions 636 (1,839) 1,174 702 (506) 776
Unrecognized prior service cost 88 397 -- 99 429 --
Adjustment to recognize minimum liability (428) -- (343) (764) -- (236)
Unrecognized net (asset) obligation
at October 1, 1986 to be amortized over
average remaining service of participants -- (768) 1 -- (873) 2
- ------------------------------------------------------------------------------------------------------------------------------------
(Accrued) prepaid pension cost $ 636 $ 2,221 $ (2,143) $ 339 $ 1,708 $ (2,137)
- ------------------------------------------------------------------------------------------------------------------------------------
20
(5) Postretirement Benefits other than Pensions
The Company currently provides certain health care benefits for eligible
domestic retired employees. Employees may become eligible for those benefits if
they have fulfilled specific age and service requirements.
Net periodic postretirement benefit expense consisted of the following
components (000 omitted):
- ----------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------
Service cost $ 170 $ 141 $123
Interest cost 239 219 158
Net amortization of initial
transition obligation 95 95 95
Amortization of unrecognized
net loss 19 13 --
Net periodic postretirement
benefit costs $ 523 $ 468 $376
- ----------------------------------------------------------
The projected liabilities which are not funded are as follows (000 omitted):
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligations:
Retired participants and beneficiaries $ 2,210 $ 1,868
Active participants eligible for retirement 293 346
Other active participants 1,552 923
- --------------------------------------------------------------------------------
Total benefit obligation $ 4,055 $ 3,137
Experience (loss) (1,687) (843)
Unrecognized transition obligation (1,429) (1,524)
- --------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 939 $ 770
- --------------------------------------------------------------------------------
The following assumptions used in determining the expense and obligation are
listed below:
- -----------------------------------------------------------
1997 1996
- -----------------------------------------------------------
Discount rate 8% 8%
Health care cost increase 9% 9%
- -----------------------------------------------------------
The rate of increase in the per capita cost of covered health benefits was
assumed to be 9% in 1997, decreasing gradually to 6% by the year 2000, and
remaining at that level thereafter. The effect of a 1% increase in the medical
trend assumption would increase the accumulated postretirement benefit
obligation as of December 31, 1997 by approximately $222,000 and increase the
net periodic cost by approximately $52,000.
The Company monitors the cost of the plan, and has, from time to time, changed
the benefits provided under this plan. The Company reserves the right to make
additional changes or terminate these benefits in the future. Any changes in the
plan or revisions of the assumptions affecting expected future benefits may have
a significant effect on the amount of the obligation and annual expense.
21
(6) Debt and Credit Arrangements
Currently, the Company has various short-term, variable-rate credit arrangements
totaling $67.0 million. Outstanding borrowings under these arrangements totaled
$40.2 million at December 31, 1997. Interest rates on these arrangements are
primarily based on the lenders' costs of funds plus applicable margins. None of
the banks under these credit arrangements are committed to continue to extend
credit after the maturities of outstanding borrowings or to extend the
maturities of any borrowings.
Information regarding short-term debt for the three years ended December 31,
1997, 1996 and 1995 is as follows (000 omitted):
- -----------------------------------------------------------------------------------------------------------------------------
MAXIMUM
WEIGHTED AVERAGE MONTH-END BALANCE AVERAGE AMOUNT WEIGHTED AVERAGE
BALANCE AT INTEREST RATE AT OUTSTANDING OUTSTANDING INTEREST RATE
END OF YEAR END OF YEAR DURING THE YEAR DURING THE YEAR DURING THE YEAR
- -----------------------------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E)
- -----------------------------------------------------------------------------------------------------------------------------
1997
NOTES PAYABLE TO BANKS $ 40,247 6.0% $ 63,161 $42,893 7.2%
1996
Notes payable to banks 31,700 8.3% 41,757 31,272 7.1%
1995
Notes payable to banks 17,428 7.8% 19,012 17,045 8.5%
- -----------------------------------------------------------------------------------------------------------------------------
(A) Notes payable by the Company's foreign subsidiaries were $24,566,000 in
1997, $13,160,000 in 1996 and $9,588,000 in 1995.
(B) The weighted average interest rate is computed by dividing the annualized
interest expense for the short-term debt outstanding by the short-term
debt outstanding at December 31.
(C) The composition of the Company's short-term debt will vary by category at
any point in time during the year.
(D) Average amount outstanding during the year is computed by dividing the
total daily outstanding principal balances by 365 days in 1997 and 1995
and by 366 days in 1996.
(E) The weighted average interest rate during the year is computed by dividing
the actual short-term interest expense by the average short-term debt
outstanding.
The Company's current multicurrency revolving credit facility (the "Revolving
Credit Facility") with a group of international banks provides for up to $475
million of unsecured revolving credit borrowings through January 2002. The
Company has the option, subject to the extension of additional credit by new or
existing banks, of increasing the size of the facility by an additional $75
million. Outstanding borrowings under the Revolving Credit Facility totaled
$307.1 million at December 31, 1997. Interest and facility fees are payable at
varying rates as specified in the loan agreement, and as of December 31, 1997,
the applicable facility fee was 0.30% per annum. Amounts outstanding under the
Revolving Credit Facility are classified as long-term debt on the Company's
balance sheet.
The Revolving Credit Facility contains, among other things, certain restrictive
covenants which change from time to time as specified in the loan agreement.
Under the most restrictive of the covenants applicable as of December 31, 1997,
the Company must maintain a consolidated current ratio of not less than 1.25 to
1.00, an interest coverage ratio of not less than 2.5 to 1.0, a leverage ratio
for senior debt to earnings before income taxes, depreciation and amortization
of not more than 4.25 to 1.00, and a leverage ratio for total debt of not more
than 5.25 to 1.00. The Company was in compliance with these covenants as of
December 31, 1997.
22
Long-term debt consists of the following at December 31, 1997 and 1996 --
outstanding borrowings denominated in foreign currencies have been converted to
U.S. dollars (000 omitted):
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
REVOLVING CREDIT FACILITY
U.S. Dollar Borrowings
(floating interest rate-- 6.61% at December 31, 1997 and 6.08% at December 31, 1996) $ 302,400 $70,700
Dutch Guilder Borrowings
(floating interest rate-- 4.22% at December 31, 1997) 4,728 --
INTERNATIONAL CREDIT AGREEMENT
Australian Dollar Borrowings
(floating interest rate-- 6.68% at December 31, 1997 and 7.85% at December 31, 1996) 2,722 3,468
INDUSTRIAL REVENUE/DEVELOPMENT BONDS ("IRB" OR "IDB")
IDB, due March 2026
(floating interest rate-- 3.95% at December 31, 1997 and 4.30% at December 31, 1996) 7,511 5,724
IRB, due annually from July 1994 to July 2008
(floating interest rate-- 4.60% at December 31, 1997 and 4.0% at December 31, 1996) 1,900 2,050
IRB, due annually from June 2002 to June 2006
(floating interest rate-- 4.20% at December 31, 1997 and 4.35% at December 31, 1996) 1,050 1,050
IRB, due semi-annually from October 1997 to October 1999
(floating interest rate-- 6.88% at December 31, 1997) 400 --
IRB, Irish Punt Borrowing, due monthly from September 1997 to September 2000
(interest rate-- 6.75% at December 31, 1997) 233 --
NOTES PAYABLE
Note payable, Dutch Guilder Borrowing, due monthly November 1994 to October 2004
(interest rate-- 8.85% at December 31, 1997 and 1996) 2,000 2,637
Note payable, Dutch Guilder Borrowing, due June 2000
(interest rate-- 7.05% at December 31, 1997 and 1996) 1,634 1,883
Note payable, Irish Punt Borrowing, due monthly from February 1997 to February 2002
(interest rate-- 25.41% at December 31, 1997) 214 --
- --------------------------------------------------------------------------------------------------------------------------
324,792 87,512
Less--current maturities 722 483
- --------------------------------------------------------------------------------------------------------------------------
Total long-term debt $ 324,070 $87,029
==========================================================================================================================
The scheduled maturities of long-term debt for each of the five years subsequent
to December 31, 1997, are as follows (000 omitted):
- ----------------------------------------------------------
YEAR ENDING DECEMBER 31 AMOUNT
- ----------------------------------------------------------
1998 $ 722
1999 772
2000 2,176
2001 484
2002 656
- ----------------------------------------------------------
Interest paid by the Company was $23,626,000, $6,638,000, and $4,180,000 in
1997, 1996, and 1995, respectively.
23
(7) FINANCIAL INSTRUMENTS
INTEREST RATE SWAPS,TREASURY RATE-LOCK AND CAPS
The Company enters into interest rate swap, treasury rate-lock and interest rate
cap agreements to hedge its interest rate exposures. Under interest rate swap
agreements, the Company agrees with other parties to exchange, at specified
intervals, the differences between fixed-rate and floating-rate interest amounts
calculated by reference to an agreed-upon notional principal amount. The fair
value of the interest rate swap agreements is estimated using quotes from
brokers and represents the cash requirement if the existing agreements had been
settled at year end. Selected information related to the Company's interest rate
swap agreement is as follows (amounts in millions):
- -------------------------------------------------------
DECEMBER 31 1997 1996
- -------------------------------------------------------
Notional amount $165.0 $ 90.0
Fair value 166.3 89.7
- -------------------------------------------------------
Net unrecognized gain (loss) $ (1.3) $ 0.3
=======================================================
The Company entered into treasury rate-lock agreements to hedge interest rates
on a portion of its long-term debt. At December 31, 1997 the agreements, which
had a total notional principal amount of $100.0 million, had a fair value of
$101.5 million.
The Company has entered into interest rate cap agreements with commercial banks,
which require the Company to pay a one-time fee based upon a notional principal
amount. Interest rate cap agreements entitle the Company to receive the amounts,
if any, by which floating interest rates exceed the fixed rates stated in the
agreements. The agreements had a total notional principal of $25.0 million and
$15.0 million at December 31, 1997 and 1996. At December 31, 1997 and 1996, the
fair market value of the interest rate caps was not materially different than
the notional principal amounts.
The Company is exposed to potential losses in the event of nonperformance by the
counterparties to the interest rate swap, treasury rate-lock and cap agreements.
LETTERS OF CREDIT
The Company is contingently liable for performance under letters of credit in
the normal course of business. At December 31, 1997 and 1996, letters of credit
outstanding totaled $15.6 million and $16.0 million, respectively. Of these
letters of credit, (i) $10.5 million and $8.8 million are used to support
outstanding Industrial Revenue/Development Bonds of the Company as of 1997 and
1996, respectively, and (ii) an additional $2.0 million and $3.8 million in 1997
and 1996, respectively, were supported by high-quality, short-term investments
held by a trustee in accordance with the terms of certain of the Company's
Industrial Revenue/Development Bonds. In the Company's past experience,
virtually no claims have been made against these financial instruments, and no
material losses are expected to occur in the foreseeable future. Therefore, the
face value of these letters of credit is estimated to approximate their fair
value.
FOREIGN EXCHANGE CONTRACTS
The Company enters into foreign exchange contracts to hedge foreign currency
risks. These contracts hedge firmly committed transactions such as inventory
purchases, royalties and management fees. The hedged transactions are recorded
based upon the nature of the transaction (e.g., costs related to inventory
purchases are recorded to inventory and recognized in cost of sales). At
December 31, 1997, the Company had foreign exchange contracts with various
maturities through December 31, 1998, to purchase $1.6 million of foreign
currencies and $117.5 million of U.S. dollars. The fair market value of the
contracts at the 1997 year-end spot rates was approximately $1.6 million greater
than the contracted amount. At December 31, 1996, the Company had foreign
exchange contracts with various maturities through December 31, 1997 to purchase
$4.7 million of foreign currencies and $38.7 million of U.S. dollars. The fair
market value of the contracts at the 1996 year-end spot rates was approximately
$0.6 million less than the contracted amount.
24
(8) RENTS AND LEASES
Future minimum rental payments and guaranteed residual payments required for all
noncancelable lease terms in excess of one year as of December 31, 1997 are as
follows (000 omitted):
- --------------------------------------------------------------
DECEMBER 31 OPERATING LEASES
- --------------------------------------------------------------
1998 $11,071
1999 9,212
2000 7,674
2001 4,430
2002 12,013
Future years 22,660
- --------------------------------------------------------------
Total minimum lease payments $67,060
==============================================================
Total rental expense for the years ended December 31, 1997, 1996 and 1995 was
$9,356,000, $8,253,000 and $8,235,000, respectively.
(9) COMMON STOCK AND STOCK OPTIONS
The Company's Certificate of Incorporation provides for 40,000,000 authorized
shares of common stock, $.125 par value per share and 4,796,550 shares of Class
B common stock, $.125 par value per share. Each Class B share is entitled to 15
votes and is to be automatically converted into one share of common stock upon
transfer thereof. All of the Class B shares are owned by Lane Industries, Inc.,
the Company's majority stockholder.
As of December 31, 1997, the Company adopted SFAS 128, "Earnings Per Share",
which requires the presentation of basic and diluted earnings per share. The
following table illustrates the computation of basic and diluted earnings per
share (000 omitted):
- ----------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1997 1996 1995
- ----------------------------------------------------------------------
Numerator:
Net Income $28,667 $25,213 $21,500
Denominator:
Denominator for basic
earnings per share -- weighted
average shares 15,760 15,743 15,740
Effect of dilutive securities:
Employee stock options 130 66 57
- ----------------------------------------------------------------------
Denominator for diluted
earnings per share -- adjusted
weighted-average shares
and assumed conversions 15,890 15,809 15,797
======================================================================
Earnings per share-- basic $ 1.82 $ 1.60 $ 1.37
======================================================================
Earnings per share-- diluted $ 1.80 $ 1.59 $ 1.36
======================================================================
The Company has a non-qualified stock option plan for officers, including
officers who are directors and other key employees of the Company. Options may
be granted during a ten-year period at a purchase price of not less than 85% of
the fair market value on the date of the grant. Options granted may be exercised
in four equal parts over a period not to exceed eight years from the date of
grant, except that no part of an option may be exercised until at least one year
from the date of grant has elapsed. The Company accounts for this plan under APB
Opinion No. 25, "Accounting for Stock Issued to Employees", under which no
compensation cost has been recognized. Had compensation cost for this plan been
determined as defined as FASB Statement No. 123, "Accounting for Stock-Based
Compensation", the Company's net income and earnings per share would have been
reduced to the following pro forma amounts (000 omitted, except per share data):
- ---------------------------------------------------------
YEAR ENDED DECEMBER 31 1997 1996(a)
- ---------------------------------------------------------
Net Income: As Reported $ 28,667 $25,213
Pro Forma $ 28,200 $23,783
Earnings per share -- basic:
As Reported $ 1.82 $ 1.60
Pro Forma $ 1.79 $ 1.51
Earnings per share -- diluted:
As Reported $ 1.80 $ 1.59
Pro Forma $ 1.77 $ 1.50
- ---------------------------------------------------------
(a) 1996 Earnings Per Share data has been restated for the adoption of SFAS
No. 128, "Earnings Per Share."
25
A summary of the stock option activity is as follows (000 omitted):
- --------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1997 1996
WTD. AVG WTD. AVG
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
- --------------------------------------------------------------------
Shares under option
at beginning of year 435 $20 300 $ 17
Options granted 84 30 236 23
Options exercised (51) 18 (88) 16
Options expired/canceled (6) 20 (13) 17
- --------------------------------------------------------------------
Shares under option
at end of year 462 $22 435 $ 20
- --------------------------------------------------------------------
Options exercisable 48 $18 51 $ 17
- --------------------------------------------------------------------
Weighted average fair
value of options granted $13.72 $10.23
====================================================================
The 462,183 options outstanding at December 31, 1997 have exercise prices
between $14.50 and $30.50 per share, with a weighted average exercise price of
$22.09 per share and a weighted average remaining contractual life of 4.1 years.
The fair value of each option granted is estimated on the grant date using the
Black-Scholes option pricing model. The following assumptions were made in
estimating fair value:
- -----------------------------------------------------
1997 1996
ASSUMPTION WTD. AVG WTD. AVG
- -----------------------------------------------------
Dividend yield 1.51% 1.83%
Risk-free interest rate 6.50% 6.33%
Expected life 8 years 8 years
Expected volatility 37.17% 38.24%
=====================================================
(10) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Future tax benefits, such as net operating loss carryforwards, are
recognized to the extent that realization of such benefits is more likely than
not.
The provision for income taxes was as follows (000 omitted):
- --------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------
Currently payable:
Federal $ 11,000 $ 7,988 $ 10,449
State 2,759 1,672 1,576
Foreign 3,927 5,250 3,671
- --------------------------------------------------------
Total current 17,686 14,910 15,696
- --------------------------------------------------------
Deferred payable:
Federal 2,797 1,918 (1,672)
Foreign (970) 513 309
- --------------------------------------------------------
Total deferred 1,827 2,431 (1,363)
- --------------------------------------------------------
Total provision $ 19,513 $17,341 $ 14,333
========================================================
26
The Company's effective income tax rate varies from the statutory Federal income
tax rate as a result of the following factors:
1997 1996 1995
---- ---- ----
U.S. Statutory rate ...................... 35.0% 35.0% 35.0%
Tax allocation (benefit) charge* ......... (0.5) 0.5 --
State income taxes, net of
Federal income tax benefit ............ 3.7 2.6 2.9
Net effect of international
subsidiaries' foreign tax
rates after balance sheet
translation gains and losses .......... 5.2 (0.3) 0.3
Net effect of remission of
foreign earnings ...................... (2.0) 0.3 1.1
Non-tax deductible items,
principally goodwill .................. 0.6 0.6 0.7
Other, net ............................... (1.5) 2.1 --
---- ---- ----
Effective tax rate ....................... 40.5% 40.8% 40.0
==== ==== ====
* The (benefit) charge results from a tax allocation agreement between
the Company and Lane Industries, Inc. entered into in 1978. Under the
terms of the agreement, Lane Industries, Inc. has agreed to share with
the Company a portion of the Federal income tax savings or additional
costs, if any, resulting from filing consolidated income tax returns.
Lane Industries, Inc. is the Company's majority stockholder.
Income before taxes was as follows (000 omitted):
1997 1996 1995
---- ---- ----
United States ............... $46,897 $26,489 $24,542
Foreign ..................... 1,283 16,065 11,291
------- ------- -------
Total income
before taxes ............. $48,180 $42,554 $35,833
======= ======= =======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (000 omitted):
Year Ended December 31 1997 1996
- ---------------------- ---- ----
Deferred tax assets:
Inventory ................................. $ 2,353 $ 2,548
Foreign ................................... 2,806 1,457
Worker's compensation ..................... 813 820
Restructuring reserves .................... 1,053 2,770
Vacation pay .............................. 840 857
Other ..................................... 1,458 3,001
Foreign tax credits ....................... 4,872 4,187
Capital loss carryovers ................... 313 313
Net operating loss carryovers ............. 3,139 1,419
-------- --------
Gross deferred tax assets .................... $ 17,647 $ 17,372
-------- --------
Valuation allowance .......................... (8,324) (5,919)
-------- --------
Total deferred tax assets .................... $ 9,323 $ 11,453
-------- --------
Deferred tax liabilities:
Depreciation .............................. $ 3,310 $ 3,492
Amortization .............................. 6,114 4,306
Foreign ................................... 3,438 3,062
Withholding taxes ......................... 1,253 1,179
Other ..................................... 216 148
-------- --------
Total deferred tax liabilities ............... $ 14,331 $ 12,187
-------- --------
Net deferred tax liabilities ................. $ (5,008) $ (734)
======== ========
27
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The net deferred tax assets
reflects management's estimate of the amount which will be realized from future
profitability which can be predicted with reasonable accuracy.
The Company provides U.S. income taxes on the earnings expected to be
distributed by its foreign subsidiaries. Under the current remitter concept, the
Company has excess foreign tax credits available to reduce Federal income taxes
in future years. The Company has established a valuation allowance for the
foreign tax credits that the Company anticipates will expire unutilized five
years after cash dividends are actually paid.
At December 31, 1997, the Company has $3,139,000 of net operating loss
carryforwards available to reduce future taxable income of certain international
subsidiaries. These loss carryforwards expire in the years 1998 through 2003 or
have an unlimited carryover period. A valuation allowance has been provided for
a portion of the deferred tax assets related to those loss carryforwards which
may expire unutilized.
Income taxes paid were $13,526,000, $11,730,000 and $13,240,000 in 1997, 1996
and 1995, respectively.
(11) Business Segments and Foreign Operations
The Company is engaged predominantly in one line of business, namely the design,
manufacture and distribution of branded office equipment, related supplies and
thermal laminating films. The Company's major products include (i) binding
supplies and equipment, (ii) laminating equipment and supplies, (iii) visual
communication products (such as marker boards, bulletin boards, easels and flip
charts), (iv) paper shredders and (v) thermal laminating films (used primarily
to encapsulate or protect documents, book covers and other school-related
supplies). These products are either manufactured in one of the Company's
twenty-two plants located throughout the world or sourced from third parties.
GBC products are sold through a network of direct sales and telemarketing
personnel, office product superstores, wholesalers, contract/commercial
stationers, and other retail dealers. The Company provides maintenance repairs
on certain machines it sells through a trained field service organization and
through trained dealers.
The Company's products are sold primarily in North America, Europe, Japan and
Australia to users in the business, education, commercial/professional and
government markets. The Company has a large base of customers and is not
dependent on any single customer for a significant portion of its business.
Financial information for the three years ended December 31, 1997, 1996 and
1995, by geographical area is summarized on the following page. Sales between
geographic areas are made at market value less allowances for additional
manufacturing, marketing and administrative costs to be incurred by the
affiliated company. Export sales to foreign customers ($19,763,000 in 1997,
$14,781,000 in 1996 and $15,039,000 in 1995) have been classified in the
following tables as part of the United States sales.
28
(000 omitted):
United Other
Year Ended December 31, 1997 Total Eliminations States Europe International
- ---------------------------- ----- ------------ ------ ------ -------------
Sales:
Unaffiliated customers $ 770,001 $ -- $ 563,127 $103,231 $ 103,643
Between geographic areas -- (43,908) 41,287 844 1,777
--------- --------- --------- -------- ---------
$ 770,001 $ (43,908) $ 604,414 $104,075 $ 105,420
--------- --------- --------- -------- ---------
Operating income $ 74,332 $ 347 $ 60,378 $ 9,456 $ 4,151
Other income (expense)* (1,575) (10,333) 17,224 (5,379) (3,087)
Interest (expense) (24,577) -- (21,535) (1,821) (1,221)
--------- --------- --------- -------- ---------
Income before taxes $ 48,180 $ (9,986) $ 56,067 $ 2,256 $ (157)
--------- --------- --------- -------- ---------
Assets $ 692,914 $ (50,385) $ 610,866 $ 69,000 $ 63,433
Depreciation and amortization $ 27,208 $ -- $ 23,572 $ 2,059 $ 1,577
Capital expenditures $ 29,619 $ -- $ 23,585 $ 3,673 $ 2,361
United Other
Year Ended December 31, 1996 Total Eliminations States Europe International
- ---------------------------- ----- ------------ ------ ------ -------------
Sales:
Unaffiliated customers $ 536,836 $ -- $ 364,581 $ 92,622 $ 79,633
Between geographic areas -- (40,907) 35,897 1,287 3,723
--------- --------- --------- -------- ---------
$ 536,836 $ (40,907) $ 400,478 $ 93,909 $ 83,356
--------- --------- --------- -------- ---------
Operating income $ 47,715 $ (912) $ 30,692 $ 13,064 $ 4,871
Other income (expense)* 1,011 (2,653) 1,904 (1,867) 3,627
Interest (expense) (6,172) 837 (4,303) (781) (1,925)
--------- --------- --------- -------- ---------
Income before taxes $ 42,554 $ (2,728) $ 28,293 $ 10,416 $ 6,573
--------- --------- --------- -------- ---------
Assets $ 393,706 $ (37,907) $ 316,162 $ 57,899 $ 57,552
Depreciation and amortization $ 15,018 $ -- $ 12,012 $ 1,991 $ 1,015
Capital expenditures $ 27,778 $ -- $ 23,205 $ 3,952 $ 621
United Other
Year Ended December 31, 1995 Total Eliminations States Europe International
- ---------------------------- ----- ------------ ------ ------ -------------
Sales:
Unaffiliated customers $ 458,391 $ -- $ 308,220 $ 87,202 $ 62,969
Between geographic areas -- (42,485) 37,983 1,639 2,863
--------- --------- --------- -------- ---------
$ 458,391 $ (42,485) $ 346,203 $ 88,841 $ 65,832
--------- --------- --------- -------- ---------
Operating income $ 40,094 $ 603 $ 24,881 $ 9,902 $ 4,708
Other income (expense)* (2) (2,446) 4,555 (1,715) (396)
Interest (expense) (4,259) 203 (3,385) (808) (269)
--------- --------- --------- -------- ---------
Income before taxes $ 35,833 $ (1,640) $ 26,051 $ 7,379 $ 4,043
--------- --------- --------- -------- ---------
Assets $ 298,872 $ (21,532) $ 239,152 $ 44,801 $ 36,451
Depreciation and amortization $ 12,814 $ -- $ 10,300 $ 1,981 $ 533
Capital expenditures $ 15,046 $ -- $ 13,591 $ 1,077 $ 378
--------- --------- --------- -------- ---------
* Other income (expense) is comprised principally of foreign currency
transaction gains and losses, interest income, dividend and royalty
income, gains and losses on the disposal of capital assets,
amortization of patents and other transactions.
29
(12) Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1997 and 1996 was as follows (000
omitted except per share data):
1997 Three Months Ended March 31 June 30 September 30 December 31
- ---- ------------------ -------- ------- ------------ -----------
Sales $ 180,505 $ 187,436 $ 196,613 $ 205,447
Gross profit 75,936 81,147 84,155 88,138
Income before taxes 11,286 12,018 12,038 12,838
Net income 6,772 7,211 6,855 7,829
Net income per common share:
Basic $ .43 $ .46 $ .44 $ .50
Diluted $ .43 $ .45 $ .43 $ .50
1996 Three Months Ended March 31 June 30 September 30 December 31
- ---- ------------------ -------- ------- ------------ -----------
Sales $ 126,346 $ 135,338 $ 132,996 $ 142,156
Gross profit 50,669 55,572 55,105 59,541
Income before taxes 10,179 11,070 10,066 11,239
Net income 6,006 6,531 5,939 6,737
Net income per common share:
Basic $ .38 $ .41 $ .38 $ .43
Diluted $ .38 $ .41 $ .38 $ .42
(13) Acquisitions
Effective January 1, 1997, the Company completed the purchase of the assets and
business of Quartet Manufacturing Company. Located in Skokie, Illinois, Quartet
manufactures and distributes visual communications products including marker
boards, bulletin boards, and easels. The total consideration paid for Quartet
was approximately $216.0 million.
The following unaudited pro forma consolidated results of operations have been
prepared as if the acquisition of Quartet had occurred as of the beginning of
fiscal 1996 (000 omitted):
Year Ending December 31 1996
- ----------------------- ----
Net sales $685,862
Net income 27,686
Earnings per common share:
Basic 1.76
Diluted 1.75
Adjustments to the statements of earnings include additional depreciation and
interest charges, goodwill amortization, the reduction of certain other expenses
and income tax effects. The pro forma information is provided for illustrative
purposes only and is not necessarily reflective of the results of operations
that would have actually occurred had the transaction been in effect for the
period presented.
On April 23, 1997, the Company completed the purchase of all of the capital
stock of Baker School Specialty, a manufacturer of presentation boards. The
total purchase price for Baker, including assumption of debt, was $19.2 million.
During 1997, the Company made several smaller acquisitions acquiring the assets
of Visucom, Danka Datakey, Jenrite and Printing Wire Supplies. These companies
enhance and expand GBC's product offerings and services in Australia, New
Zealand and Europe. Total consideration paid for these acquisitions was
approximately $5.3 million.
30
On October 10, 1996, the Company entered into an agreement with GMP Co., Ltd. of
South Korea to jointly develop and market lamination equipment and supplies.
With the agreement, the Company became a 33% equity shareholder in GMP, a
leading worldwide supplier of laminating systems. The total consideration paid
for the investment in GMP was $9.9 million.
On January 19, 1996, the Company acquired the business and certain assets of the
T.A.C. Group, which operated under the name of Fordigraph. The business, located
in Australia, is a distributor of paper shredders, mail room equipment,
laminating machines, presentation products, binding systems and supplies. The
total consideration paid for Fordigraph was $12.1 million.
On December 21, 1995, the Company acquired Pro-Tech Engineering Co., Inc.,
headquartered in Madison, Wisconsin. Pro-Tech manufactures lamination equipment
and distributes supplies used in the digital printing market. The consideration
paid for Pro-Tech was $7.3 million. Additional consideration may also be paid
contingent upon the achievement of specified levels of earnings through December
31, 1998.
All acquisitions have been accounted for as purchase transactions, with the
results of operations included in the financial statements since the date of the
acquisition. The excess of the purchase price over the net assets acquired is
estimated to be approximately $169.0 million in 1997, $8.0 million in 1996 and
$6.0 million in 1995.
(14) Subsequent Events
ALLFAX ACQUISITION
On January 22, 1998, the Company acquired the Allfax group of companies, a
privately-held office products manufacturer and marketer headquartered in
Peterborough, England.
IBICO ACQUISITION
On February 27, 1998, the Company acquired Ibico AG, which is headquartered in
Zurich, Switzerland. Ibico manufactures and markets binding and laminating
machines and related supplies. Cash consideration paid and debt assumed
approximates $130.0 million and is subject to adjustment based upon Ibico's
final 1997 results and working capital. The unallocated purchase cost exceeds
the estimated net assets of Ibico by approximately $75 million. The purchase
price will be allocated to the assets and liabilities of Ibico based upon fair
market values. Valuations and studies to determine the fair market value of
assets are currently in process. Intangible assets related to the Ibico
acquisition will be amortized over their estimated lives on a straight-line
basis. The results of operations of Ibico will be included with the results of
the Company from March 1, 1998 and will be accounted for as a purchase.
To fund the Ibico acquisition, the Company borrowed a total of $60.0 million
from Lane Industries, Inc. ("LII"). The borrowing was pursuant to a Note
Purchase Agreement entered into with LII which provides, in pertinent part, that
(i) the Company may borrow up to $100.0 million from LII at any time prior to
April 30, 1998; (ii) that all borrowings are subordinated to any other
indebtedness of the Company; (iii) that all borrowings shall bear interest at a
rate per annum that floats with LIBOR for three month loans as published by The
Wall Street Journal plus a 2% margin through May 26, 1998 and margins ranging
from 4% to 8% thereafter; and, (iv) that all borrowings, unless prepaid, would
be due on April 14, 2002. There are certain covenants made by the Company in
connection with the loan which, in the aggregate, are less restrictive than
those covenants made to its existing senior lenders.
31
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item is contained in the Registrant's 1998
Definitive Proxy Statement, which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is contained in the Registrant's 1998
Definitive Proxy Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is contained in the Registrant's 1998
Definitive Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in the Registrant's 1998
Definitive Proxy Statement, which is incorporated herein by reference.
32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
The following consolidated statements, schedules and exhibits of General Binding
Corporation and its subsidiaries are filed as part of this report:
(1) FINANCIAL STATEMENTS
The financial statements and notes thereto are located in Part II, Item 8 of
this report.
(2) FINANCIAL STATEMENT SCHEDULE
The financial schedule required by Item 14 (d), Valuation and Qualifying
Accounts is located on page 46 of this report.
All other financial statements and schedules not listed have been omitted
because they are not applicable, not required, or because the required
information is included in the consolidated financial statements or notes
thereto.
(3) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
No. 3: Certificate of Incorporation, as amended May 11, 1988. Incorporated by
reference to Exhibit 3 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
No. 4: Consent agreement to provide the Commission upon written request a copy
of the Registrant's long-term debt agreements.
No. 21: Subsidiaries of the Registrant.
No. 22: Definitive proxy statement to be filed with the Securities and Exchange
Commission on or about April 6, 1998.
No. 23: Consent of Arthur Andersen.
No. 27: Financial Data Schedule.
(b) REPORTS ON FORM 8-K
General Binding Corporation filed the following report on Form 8-K after the
form 10-Q filing for the quarterly period ended September 30, 1997.
On October 24,1997, the Company filed Form 8-K to announce the impending
purchase of Ibico AG.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(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/ GOVI C. REDDY
-----------------------------
Govi C. Reddy
President and Chief
Executive Officer
By: /s/ WILLIAM R. CHAMBERS JR.
-----------------------------
William R. Chambers Jr.
Vice President and Chief
Financial Officer
Dated: March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ WILLIAM N. LANE III Chairman of the Board March 25, 1998
- ----------------------------- and Director
William N. Lane III
/s/ GOVI C. REDDY President, Chief Executive March 25, 1998
- ----------------------------- Officer and Director
Govi C. Reddy
/s/ ARTHUR C. NIELSEN, JR. Director March 25, 1998
- -----------------------------
Arthur C. Nielsen, Jr.
/s/ THOMAS V. KALEBIC Director March 25, 1998
- -----------------------------
Thomas V. Kalebic
/s/ WARREN R. ROTHWELL Director March 25, 1998
- -----------------------------
Warren R. Rothwell
34
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Allowances for Doubtful Accounts and Sales Returns
Changes in the allowances for doubtful accounts and sales returns were as
follows (000 omitted):
1997 1996 1995
---- ---- ----
Balance at beginning of year $ 6,424 $ 5,186 $4,840
Additions charged to expense 3,530 3,118 1,729
Deductions -- write offs. (1,843) (1,788) (1,203)
Other* 710 (92) (180)
Balance at end of year $ 8,821 $6,424 $5,186
* Amounts primarily relate to the effects of foreign currency exchange rate
changes as well as the acquisition of Quartet in 1997 and Pro-Tech in 1996.