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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, 1999
( ) 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
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(State of Incorporation) (I.R.S. Employer Identification No.)
ONE GBC PLAZA, NORTHBROOK, ILLINOIS 60062
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(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
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COMMON STOCK, $.125 PAR VALUE NASDAQ
CLASS B COMMON STOCK, $.125 PAR VALUE --
SENIOR SUBORDINATED NOTES, DUE 2008 --
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 29, 2000, 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
$39,514,082. (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 29, 2000
Common Stock, $.125 par value 13,338,898
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 9, 2000. Parts III and IV
2
TABLE OF CONTENTS GBC and Subsidiaries
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CONTENTS AND CROSS REFERENCE SHEET
FURNISHED PURSUANT TO GENERAL INSTRUCTION G(4) OF FORM 10-K PAGE
PART I
Item 1. Business........................................................................................33
Item 2. Properties......................................................................................36
Item 3. Legal Proceedings...............................................................................36
Item 4. Submission of Matters to a Vote of Security Holders.............................................36
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...........................37
Item 6. Selected Financial Data.........................................................................37
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...........38
Item 8. Financial Statements and Supplementary Data.....................................................46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............75
PART III
Item 10. Directors and Executive Officers of the Registrant..............................................75
Item 11. Executive Compensation..........................................................................75
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................75
Item 13. Certain Relationships and Related Transactions..................................................75
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................75
Signatures....................................................................................................76
Supplemental Information......................................................................................77
32
3
PART I GBC and Subsidiaries
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(000 omitted except per share amounts, ratio data, number of shares outstanding
and number of employees)
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 in the design, manufacture
and distribution of branded office equipment, related supplies and thermal
laminating films. GBC is organized into four primary business groups, with each
group comprised of similar products and services. The Office Products Group's
major products include desktop binding and laminating equipment and supplies,
document shredders, visual communications products and desktop accessories. The
Films Group's primary products include thermal films, mid-range and commercial
high-speed laminators and large-format digital print laminators. The Document
Finishing Group's major products include binding and punching equipment and
related supplies, custom binders and folders, and maintenance and repair
services. The European group distributes the Office Products and Document
Finishing Group's products to customers in Europe. Additionally, the Europe
Group exports products to certain European countries and other parts of the
world. The Company's products are either manufactured in one of GBC's 17 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 following table summarizes the percentage of revenue derived from the sales
of office equipment and supplies and service for the last three fiscal years:
1999 1998 1997
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Office equipment (1) 45% 48% 45%
Related supplies and service (1)(2) 55% 52% 55%
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(1) Financial information by business group and geographical area is included
in Note 13 to the Consolidated Financial Statements.
(2) Includes ringmetal business for 1997 and the first half of 1998.
Acquisitions
GBC has made significant acquisitions during the time period covered by this
filing. For additional information, see Note 15 to the Consolidated Financial
Statements and the Acquisitions and Other Business Combinations in Management's
Discussion and Analysis.
Competition
GBC'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 GBC to match or better competitors' prices to retain business or market
share. Maintaining and improving GBC'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 GBC
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 GBC's products and
services. Certain of GBC's current and potential competitors may have greater
financial, marketing and research and development resources than GBC.
Dependence on Major Customers
No single customer would have accounted for more than 10% of GBC's net sales in
1999. However, GBC does have certain major customers. The loss of, or major
reduction in business from, one or more of GBC's major customers could have a
material adverse effect on GBC's financial position or results of operations.
Order Backlog and Seasonal Variations
GBC's order backlog is not considered a material factor in the Company's
business, nor is the business seasonal in any material respect.
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4
PART I GBC and Subsidiaries
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Fluctuations in Raw Material Prices
The primary materials used in the manufacturing of many of GBC's products are
polyester and polypropylene substrates, wood and aluminum. These materials are
available from a number of suppliers, and GBC is not dependent upon any single
supplier for any of these materials. In general, GBC'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, GBC believes that adequate
quantities of the aforementioned materials will be available in adequate
supplies in the foreseeable future. However, 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 GBC's financial position or results of operations.
Dependence on Key Personnel
GBC is dependent on the continued services of certain members of its senior
management team. Although GBC 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 GBC's financial position or results of operations.
Dependence on Certain Manufacturing Sources
GBC relies on GMP Co. Ltd. ("GMP"), in which the Company holds an equity
interest of approximately 20%, as its sole supplier of many of the laminating
machines it distributes. GBC 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 GBC's
requirements for laminating machines could be affected by economic, political
and governmental conditions in that country and in other parts of Asia. Although
GBC 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 GBC
would be able to find an alternative supplier or suppliers on a timely basis or
on favorable terms. Any material disruption in GBC's ability to deliver orders
for laminating machines on a timely basis could have a material adverse effect
on GBC's reputation with customers and its financial position or results of
operations.
Risks Associated with International Operations
GBC has significant operations outside the United States. Approximately 33% of
GBC's 1999 revenues were from international sales. GBC's international
operations may be significantly affected by economic, political and governmental
conditions in the countries where GBC has manufacturing facilities or where its
products are sold. In addition, changes in economic or political conditions in
any of the countries in which GBC operates could result in unfavorable exchange
rates, new or additional currency or exchange controls, other restrictions being
imposed on the operations of GBC or expropriation of the Company's assets. GBC's
operations and financial position may also 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 of Operations."
Patents and Trademarks
Many of the equipment and supply products manufactured and/or sold by GBC and
certain application methods related to such products are covered by United
States and foreign patents. Although the patents owned by GBC are highly
important to its business, GBC 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. GBC
has also registered numerous other important trademarks related to specific
products in the United States and many foreign countries, however, GBC does not
consider its business dependent on any of those trademarks.
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5
PART I GBC and Subsidiaries
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Environmental Matters
GBC 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, buildings, and for
damages to natural resources at a wide range of properties. For example,
contamination at properties formerly owned or operated by GBC as well as at
properties the Company currently owns and operates, and properties to which
hazardous substances were sent by GBC, may result in liability for the Company
under Environmental Laws. As a manufacturer, GBC 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 $7,399,000 in
1999, $7,834,000 in 1998 and $8,031,000 in 1997. All research is funded by GBC.
Employees
As of December 31, 1999, GBC employed approximately 5,163 people worldwide.
Employee relations are considered to be excellent.
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6
PART I GBC and Subsidiaries
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ITEM 2. PROPERTIES
In addition to the manufacturing and distribution locations listed below, GBC
operates sales and service offices throughout the world. GBC also has a 65,000
square foot world headquarters building in Northbrook, Illinois and a 33,000
square foot business group 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 and distribution is conducted at the following locations:
APPROXIMATE AREA IN THOUSAND SQ. FT.
LOCATION MANUFACTURING DISTRIBUTION OWNERSHIP
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Booneville, Mississippi (3) Manufacturing/Distribution 770 211 GBC owned
Ashland, Mississippi (3) Manufacturing 180 -- GBC owned
Hanover Park, Illinois (1),(2) Distribution -- 105 Leased
Addison, Illinois (2) Manufacturing 95 35 GBC owned
Pleasant Prairie, Wisconsin (1),(3) Manufacturing 100 -- Leased
Basingstoke, England (4) Distribution -- 60 Leased
Buffalo Grove, Illinois (1),(3) Manufacturing 83 -- Leased
Arcos de Valdevez, Portugal (4) Manufacturing 68 -- GBC owned
Lincolnshire, Illinois (1) Manufacturing 71 -- Leased
Pleasant Prairie, Wisconsin (1),(3) Manufacturing 56 -- Leased
Nuevo Laredo, Mexico (1),(3) Manufacturing 85 -- Leased
Lottstetten, Germany (4) Manufacturing/Distribution 29 -- Leased
Kerkrade, Netherlands (2) Manufacturing/Distribution 39 42 GBC owned
Hagerstown, Maryland (2) Manufacturing 33 -- GBC owned
Amelia, Virginia (1) Manufacturing 26 -- GBC owned
Madison, Wisconsin (2) Manufacturing 36 -- Leased
Tornaco, Italy (4) Manufacturing/Distribution 59 -- Leased
Vaughn, Canada (3) Distribution -- 58 Leased
Don Mills, Ontario, Canada (1) Manufacturing/Distribution 15 17 Leased
Born, Netherlands (4) Distribution -- 63 Leased
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(1) Document Finishing Group, (2) Films Group, (3) Office Products Group, (4)
Europe
ITEM 3. LEGAL PROCEEDINGS
GBC is not a party to any material pending legal proceedings, and neither GBC
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 1999
None.
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7
PART II GBC and Subsidiaries
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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 GBC's common stock as
quoted on the NASDAQ National Market System for the calendar quarters indicated
below:
SHARE PRICES
1999 1998
HIGH LOW CLOSE HIGH LOW CLOSE
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>
First quarter $40 $21 3/4 $25 15/16 $33 3/16 $29 9/16 $32 9/16
Second quarter 30 13/32 17 7/8 23 1/2 37 1/8 31 36 13/16
Third quarter 24 14 1/2 20 1/4 39 15/16 32 13/16 32 3/16
Fourth quarter 19 1/8 6 11/16 11 3/4 41 3/4 26 5/8 37 1/4
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Approximate Number of Equity Security Holders
NUMBER SHAREHOLDERS OF RECORD
TITLE OF CLASS AS OF FEBRUARY 29, 2000
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Common Stock, $.125 par value 755*
Class B Common Stock, $.125 par value 1
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* Per latest report of the Transfer Agent. Each security dealer holding shares
in a street name for one or more individuals is counted as only one
shareholder of record.
Dividends
The following table lists dividends paid per share during the calendar quarters
indicated below:
DIVIDENDS PAID
1999 1998
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First Quarter $ .12 $ .11
Second Quarter .12 .11
Third Quarter .06 .11
Fourth Quarter -- .12
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Total $ .30 $ .45
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As discussed in Note 8 to the Consolidated Financial Statements, GBC amended and
restated its Revolving Credit Facility in the fourth quarter of 1999. Under
terms of the Revolving Credit Facility, the Company is currently restricted from
paying dividends.
ITEM 6. SELECTED FINANCIAL DATA
(000 omitted except per share and ratio data):
1999 1998 1997 1996 1995
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Net sales $ 901,887 $ 922,414 $ 770,001 $ 536,836 $ 458,391
Net (loss) income (56,676) 23,792 28,667 25,213 21,500
Net (loss) income per Common Share (1) (2)
Basic $ (3.60) $ 1.51 $ 1.82 $ 1.60 $ 1.37
Diluted (3.60) 1.50 1.80 1.59 1.36
Cash dividends declared per Common Share (2) .30 .45 .44 .43 .42
Capital expenditures 22,823 29,926 29,619 27,778 15,046
Current assets 359,033 398,643 327,745 237,214 180,648
Current liabilities 168,727 157,218 152,102 112,129 83,828
Working capital 190,306 241,425 175,643 125,085 96,820
Current ratio 2.1 2.5 2.2 2.1 2.2
Total assets $ 822,492 $ 885,838 $ 692,914 $ 393,706 $ 298,872
Long-term debt 454,459 490,591 324,070 87,029 43,890
Stockholders' equity 149,611 203,187 191,043 172,132 154,141
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(1) Earnings per share data for 1995-1996 has been restated for the adoption of
SFAS 128, "Earnings Per Share."
(2) Amounts represent per share amounts for both Common Stock and Class B
Common Stock.
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8
MANAGEMENT'S DISCUSSION AND ANALYSIS GBC and Subsidiaries
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1999 COMPARED TO 1998
Sales
GBC reported 1999 sales of $901.9 million, a decrease of $20.5 million or 2.2%
compared to 1998. Excluding the impact of the US RingBinder sale and the Ibico
acquisition in 1998, sales decreased $29.2 million or 3.2%. Net sales by
business segment are summarized below:
YEAR ENDED DECEMBER 31,
1999 1998
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Document Finishing Group $ 203,127 $208,396
Films Group 159,145 154,616
Office Products Group 349,949 354,209
Europe Group 140,253 148,772
All Other 49,413 56,421
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Total Sales $ 901,887 $922,414
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Sales for the Document Finishing Group decreased by $5.3 million or 2.5% in 1999
compared to 1998. The decrease was primarily due to reduced sales in the U.S.
direct sales operations. Sales were weak during 1999 as a result of
higher-than-expected employee turnover subsequent to the restructuring programs
initiated during the second quarter. Sales for the Films Group during 1999
increased $4.5 million or 2.9% compared to 1998. The increase in Films sales was
due to higher unit volumes of laminating films. The Office Products Group's
sales during 1999 decreased $4.3 million or 1.2% (or approximately $25.7 or 7.3%
excluding the impact of the two additional months of Ibico sales in 1999) when
compared to 1998. The most significant factors driving the decrease in Office
Products Group's sales was lower shredder sales during 1999 compared to 1998. In
addition, the Office Products Group changed many of its retail merchandising
displays and products ("Plan-O-Grams") during 1999. The Plan-O-Gram changes
resulted in an unusually high level of customer credits issued, as well as
increases in credit return reserves for merchandise expected to be returned.
Sales in the Europe Group decreased $8.5 million or 5.7% (or approximately $21.3
or 14.3% excluding the impact of the two additional months of Ibico sales in
1999) compared to 1998. The most significant factor impacting Europe were losses
associated with the visual communications business in the UK (see sections on
inventory rationalization and write-down charges and the write-down of
long-lived assets below).
Gross Margins, Costs and Expenses
The gross profit margin in 1999, excluding the inventory rationalization and
write-down charges, decreased to 40.8% compared to 43.4% in 1998. The gross
profit margin percentage for the Document Finishing Group was flat in 1999
compared to 1998. The significant level of Plan-O-Gram changes discussed above
had a significant negative impact on the gross profit of the Office Products
Group during 1999. Gross profit margins in the Films Group declined primarily
due to price competition on commercial laminating films. Gross profit margins in
Europe were significantly impacted by higher manufacturing costs associated with
the visual communications business in the U.K.
Selling, service and administrative expenses increased 6.2% in 1999 compared to
1998. As a percentage of sales, the selling, service and administrative expenses
increased to 36.2% in 1999, compared to 33.3% in 1998. Within the Office
Products Group, selling expenses were negatively impacted by significantly
higher customer rebate and allowance programs, along with higher distribution
expenses associated with servicing certain customers selling Ibico products.
Selling, service and administrative expenses for the Document Finishing Group
declined slightly on a year-to-date basis in 1999 compared to 1998. However, for
both the Document Finishing Group and Europe, selling service and administrative
expenses declined significantly during the fourth quarter as a result of the
cost saving and restructuring actions taken by the Company earlier in 1999.
Operating Income
Operating income for GBC's business segments is summarized below. This
presentation of operating income excludes the inventory rationalization and
write-down charges, the restructuring provision, the write-down of long-lived
assets, interest expense, and other income and expenses.
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MANAGEMENT'S DISCUSSION AND ANALYSIS GBC and Subsidiaries
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OPERATING INCOME
YEAR ENDED DECEMBER 31,
1999 1998
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Document Finishing Group $ 29,004 $ 28,130
Films Group 31,630 33,626
Office Products Group 20,052 54,089
Europe Group (7,543) 5,843
All Other (1) (43,066) (39,187)
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Operating Income $ 30,077 $ 82,501
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(1) All other includes shared expenses not allocated to the specific segments,
unallocated goodwill amortization, corporate expenses, and the results for
certain entities not assigned to one of the other four segments.
Operating income for 1999 decreased by $51.8 million to $30.7 million, compared
to $82.5 million for 1998. This decrease is primarily due to issues associated
with the Office Products and Europe Groups. The Office Products Group's gross
profit margins were negatively impacted by a high level of customer credits and
returns primarily associated with the Plan-O-Gram changes. In addition, customer
rebate and allowance program costs increased significantly in 1999 compared to
1998. In Europe, GBC incurred substantial operating losses in 1999 related to
the manufacturing of visual communications products in the U.K. along with
higher losses in the France operations. Management initiated restructuring and
other programs during 1999 to address these, as well as other, operating issues
encountered during 1999.
Amortization of goodwill and related intangibles increased by $0.5 million in
1999 as a result of a full year of amortization related to the Ibico
acquisition. Other income was $0.6 million in 1999 compared to expense of $0.4
million 1998. The most significant factor affecting this increase was higher
interest income on money market investments during the fourth quarter of 1999.
Interest Expense
Interest expense increased $7.1 million ($45.7 million in 1999 compared to $38.6
million in 1998) primarily as a result of increased average borrowings under the
Revolving Credit Facility, and the impact of having the $150 million in 9 3/8%
Senior Subordinated Notes outstanding for a full year in 1999 (the Notes were
issued in May 1998 primarily to fund the acquisition of Ibico). In addition,
interest expense was unfavorably impacted by higher average interest rate
spreads during 1999, interest related expenses incurred with the amendments of
GBC's revolving credit facility, and interest expense related to increased
fourth quarter borrowings which was somewhat offset by interest income on money
market investments.
Restructuring and Other Expenses
During 1999 GBC recorded pre-tax charges for restructuring and other expenses
totaling $19.6 million. GBC's restructuring activities have been focused on
consolidating European distribution and administrative functions, streamlining
the sales functions of the Document Finishing Group, and closing or
rationalizing certain of the Company's other distribution and manufacturing
operations. The restructuring charges primarily consist of severance, early
retirement benefits, lease cancellation expenses and fixed asset write-offs
related to facility costs. See Note 4 to the Consolidated Financial Statements
for additional information.
Inventory Rationalization and Write-down Charges
During 1999, GBC recorded pre-tax charges of $22.1 million related to inventory
rationalization and write-downs (see Note 6 to the Consolidated Financial
Statements). Approximately $16.0 million of these charges relate to GBC's
worldwide product line and SKU rationalization program, which is focused on
eliminating overlapping product lines and those which yield sub-par
profitability. The remaining expense of $6.1 million is to write down the
inventory of the visual communications business in the U.K. to its net
realizable value. During the third quarter of 1999 GBC decided to exit the
manufacturing of visual communications products in the U.K., but will continue
to offer certain branded products by sourcing these products from third party
vendors.
Write-Down of Intangible and Long-Lived Assets
During the third quarter of 1999, GBC decided to exit the manufacturing and
marketing of certain visual communication products in the U.K. In addition to
restructuring-related charges, the exit of this business triggered the write-off
of goodwill associated with the Allfax acquisition along with the write-down of
certain capital assets to their net realizable value.
39
10
MANAGEMENT'S DISCUSSION AND ANALYSIS GBC and Subsidiaries
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Income Taxes
GBC's worldwide effective tax rate for 1999 was a benefit of 13.1%, compared to
an expense rate of 40.5% in 1998. The 1999 tax benefit is recorded at an
effective rate of 13.1% which varies significantly from statutory rates. The
variance results from the taxing jurisdictions in which the operating losses and
special charges are generated. Further, the effective tax rate is unfavorably
impacted as certain operating losses and charges are not benefitted as their
realizability may be unlikely at this time. Finally, as a result of certain
capital losses triggered in 1999, GBC will receive a benefit (refund) as a
result of a tax allocation agreement with Lane Industries. GBC has accounted for
this benefit as a capital contribution from Lane Industries, rather than an
increase to the 1999 tax benefit. See Note 12 to the Consolidated Financial
Statements for additional information.
Net Loss
GBC incurred a net loss of $56.7 million for 1999 ($3.60 per share), which was a
decrease of $80.5 million from net income of $23.8 million ($1.51 per share)
reported during 1998. The 1999 results were negatively impacted by: a) lower
operating earnings in the Office Products and Europe Groups; b) non-recurring
charges and expenses for restructuring, inventory rationalization and
write-down, and write-down of intangible and long-lived assets; c) higher
interest expense; and d) a lower effective income tax benefit.
1998 COMPARED TO 1997
Sales
GBC reported sales of $922.4 million in 1998, a 19.8% increase over 1997 sales
of $770.0 million. The acquisitions of Ibico and Allfax contributed $106.2
million of the increase. Excluding the effect of acquisitions, 1998 sales
increased by 6.0%. Net sales by business segment are summarized below:
YEAR ENDED DECEMBER 31,
1998 1997
- --------------------------------------------------------
Document Finishing Group $208,396 $195,945
Films Group 154,616 152,917
Office Products Group 354,209 266,774
Europe Group 148,772 77,644
All Other 56,421 76,721
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Net Sales $922,414 $770,001
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Sales for the Document Finishing Group increased by $12.5 million or 6.4% in
1998 compared to 1997. The increase was primarily due to higher service revenues
and stronger sales in the Information Packing division. Sales for the Films
Group during 1998 were relatively flat, increasing $1.7 million or 1.1% compared
to 1997 sales. The Office Products Group's sales during 1998 increased $87.4
million or 32.8% (or approximately $43.1 or 16.2% excluding the increase due to
the Ibico acquisition) when compared to 1997. The Office Products Group's sales
increases were primarily a result of significantly higher sales of paper
shredders and increased sales of laminators and related supplies. Sales in the
Europe Group increased $71.2 million or 91.8% (or approximately $15.3 or 19.7%
excluding the impact of the Ibico and Allfax acquisitions) compared to 1998.
Gross Margins, Costs and Expenses
The gross profit margin improved in 1998 to 43.4%, compared to 42.8% in 1997.
The Films Group's gross margins were favorably impacted by manufacturing
efficiencies in the production of laminating films, and lower costs associated
with purchasing certain raw materials and finished product from vendors in the
Far East. In addition, the Films Group obtained certain price reductions as a
result of the weakening of the Korean won during 1998. Gross margins in the
Document Finishing, Office Products, and Europe Groups were relatively flat in
1998 compared to 1997.
Selling, service and administrative expenses increased 24.3% in 1998, primarily
as a result of the acquisition of Ibico. Selling, service and administrative
expenses as a percentage of sales increased to 33.3% in 1998, compared to 32.1%
in 1997. Selling, service and administrative expenses were relatively flat for
the Document Finishing and Films Groups in 1998 compared to 1997. Expenses for
the Office Products Group increased due to higher rebate and customer allowance
programs for certain customers. Selling service and administrative expenses in
Europe in 1998 increased due to higher selling and distribution expenses, as
well as costs associated with the integration of Ibico in Europe, when compared
to 1997.
40
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MANAGEMENT'S DISCUSSION AND ANALYSIS GBC and Subsidiaries
- --------------------------------------------------------------------------------
Amortization of goodwill and related intangibles increased by $2.8 million in
1998 as a result of increased amortization related to acquisitions.
Operating Income
Operating income for GBC's business segments is summarized below. This
presentation of operating income excludes interest expense and other income and
expense.
YEAR ENDED DECEMBER 31,
1998 1997
- --------------------------------------------------------
Document Finishing Group $28,130 $23,077
Films Group 33,454 31,906
Office Products Group 54,089 45,193
Europe Group 5,843 3,969
All Other (39,015) (29,813)
- --------------------------------------------------------
Total Sales $82,501 $74,332
- --------------------------------------------------------
Operating income for 1998 increased by $8.2 million to $82.5 million, compared
to $74.3 million for 1997. Operating income for the Document Finishing Group
increased $5.1 million in 1998 as a result of higher sales and gross profit
compared to 1997, while selling, service and administrative expenses remained
flat. Operating income for the Films Group increased $1.5 million in 1998
primarily due to increases in gross profit. The Office Products Group operating
income increased as a result of the Ibico acquisition. Operating income in
Europe increased $1.9 million in 1998 due to the Ibico acquisition, which was
partially offset by the higher selling, distribution, and acquisition
integration costs incurred in 1998. The most significant factor affecting All
Other during 1998 was higher goodwill amortization related to acquisitions.
Interest Expense
Interest expense increased $14.1 million ($38.6 million in 1998 compared to
$24.5 million in 1997) primarily as a result of increased borrowings under GBC's
Revolving Credit Facility and the $150 million in 9 3/8% Senior Subordinated
Notes. The increased debt was used to fund the Ibico and Allfax acquisitions and
working capital requirements. In addition, the 9 3/8% Senior Subordinated Notes
increased GBC's effective interest rate in 1998 compared to 1997.
Other Expense
Other expenses decreased by $1.1 million in 1998 compared to 1997. The most
significant factor affecting this decrease was favorable currency gains in 1998
compared to losses in 1997.
Income Taxes
GBC's worldwide effective income tax rate was 40.5% in both 1998 and 1997. Many
individual items are responsible for the make up of the overall effective tax
rate. See Note 12 to the Consolidated Financial Statements for more details.
Net Income
Net Income decreased by 17.0% (or $4.9 million in 1998) to $1.51 per basic share
(or $23.8 million) from $1.82 per basic share (or $28.7 million) in 1997.
Increases in operating income during 1998 were offset by the $3.5 million loss
from the sale of US RingBinder in the third quarter and additional costs
(interest and goodwill amortization) as a result of the acquisitions.
Liquidity and Capital Resources
Management assesses the Corporation's liquidity in terms of its overall debt
capacity and ability to generate cash from operations to fund its operating and
investing activities. Significant factors affecting liquidity are cash flows
generated from operating activities, capital expenditures, customer financing
requirements, adequate bank lines of credit and financial flexibility to attract
long-term capital with satisfactory terms. GBC's primary sources of liquidity
and capital resources were internally-generated cash flows, borrowings under
GBC's revolving credit facilities, short-term borrowings from banks and the
$150.0 million of the 9 3/8% Senior Subordinated Notes.
Despite sharply lower earnings, net cash provided by operating activities was
$80.4 million in 1999, compared to $24.1 million in 1998 and $20.7 million in
1997. The increase in net cash provided by operating activities during 1999 was
principally generated by significant reductions in inventory and accounts
receivable, as well as increases in accounts payable and accrued liabilities.
41
12
MANAGEMENT'S DISCUSSION AND ANALYSIS GBC and Subsidiaries
- --------------------------------------------------------------------------------
Despite the operating difficulties experienced during 1999, GBC was able to
reduce its total debt position by $49.0 million during the year. Management
believes that GBC's restructuring and SKU rationalization programs may yield
additional benefits in future periods and may favorably impact cash flows from
operating activities.
Capital expenditures during 1999 were $22.8 million, compared to $29.9 million
during 1998 and $29.6 million during 1997.
Major projects in 1999 and 1998 included the implementation of business
information systems in Europe and the U.S. ($5.0 million in 1999 and $6.5
million in 1998), equipping and setting up three manufacturing facilities in the
U.S. ($0.4 million in 1999 and $4.9 million in 1998), facilities to support the
integration of GBC's office products business subsequent to the acquisition of
Ibico, and for tooling of new products.
GBC made no acquisitions during 1999. Acquisition investments totaled $147.9
million and $241.2 million in 1998 and 1997, respectively. Acquisitions in 1998
were primarily financed by GBC's Revolving Credit Facility and a $60.0 million
borrowing from Lane Industries. A portion of the Revolving Credit Facility and
all of the $60 million borrowing were repaid with the proceeds of the Senior
Subordinated Notes in 1998. During the third quarter of 1998, GBC received
approximately $15.5 million from the sale of its US RingBinder business. In
1997, acquisitions were primarily financed by borrowings under GBC's Revolving
Credit Facility.
Cash dividends paid in 1999, 1998 and 1997 were $4.7 million, $7.1 million and
$6.9 million or $0.30, $0.45 and $0.44 per share, respectively. Currently GBC is
restricted from paying dividends under the terms of its Revolving Credit
Facility.
GBC has access to various U.S. and international credit facilities, including a
multicurrency revolving credit facility established on January 13, 1997 (the
"Revolving Credit Facility") with a group of international banks providing for
revolving credit borrowings through January 2002. Effective November 12, 1999,
GBC amended and restated the Revolving Credit Facility to provide additional
financial flexibility through the facility's expiration date of January 2002.
Management believes that the amended facility will provide GBC with the
liquidity necessary to meet currently-anticipated operating and capital
requirements. The amendment and restatement included among other things, (i) a
decrease in the size of the facility to $410 million, (ii) the pledging of
substantially all of the assets of General Binding Corporation and its domestic
subsidiaries and a portion of the equity in most of its foreign subsidiaries as
collateral, (iii) increases in interest rate spreads payable under the facility,
which vary depending upon the financial performance of the Company, (iv) a new
covenant setting minimum EBITDA levels, (v) more flexible covenants regarding
net worth level and future-starting leverage and interest coverage hurdles, and
(vi) certain new restrictions on dividends, additional indebtedness, investments
and capital expenditures. Management believes that GBC's current credit
facilities are adequate to fund the Company's operating activities. See Note 8
to the Consolidated Financial Statements for additional information.
Market Risk Disclosures
GBC is exposed to market risk from changes in foreign currency exchange rates
and interest rates which may affect the results of its operations and financial
condition. GBC seeks to manage these risks through its regular operating and
financing activities, and when deemed appropriate, through the use of derivative
financial instruments. GBC does not use any derivative instruments for trading
or other speculative purposes and is not a party to any leveraged financial
instruments. The methods used by GBC to assess and mitigate the market risks
discussed herein should not be considered projections of future events and
exposures.
Foreign Exchange Risk Management
As a result of GBC's global activities, GBC has assets, liabilities, loans and
cash flows denominated in currencies other than the US dollar. From time to
time, GBC utilizes a foreign exchange risk management program to manage its
foreign exchange exposures to help minimize the adverse impact of currency
movements. Certain loans and cash flows in the U.S. and in foreign countries are
currently hedged through foreign currency forward contracts.
42
13
MANAGEMENT'S DISCUSSION AND ANALYSIS GBC and Subsidiaries
- --------------------------------------------------------------------------------
The majority of GBC's exposures to currency movements are in Europe, the
Asia/Pacific, Canada and Mexico, and the significant hedging transactions
related to these areas outstanding as of December 31, 1999 are presented below.
All of the outstanding contracts have maturity dates in 2000. Increases and
decreases in the fair market values of the forward agreements are completely
offset by changes in the values of the net underlying foreign currency
transaction exposures. Selected information related to GBC's foreign exchange
contracts as of December 31, 1999 is as follows (000 omitted):
AVERAGE FAIR UNRECOGNIZED
EXCHANGE NOTIONAL MARKET GAIN
FORWARD CONTRACTS AS OF DECEMBER 31, 1999 RATE AMOUNT VALUE (LOSS)
- -------------------------------------------------------------------------------------------------------------
Sale of Australian dollars 1.55 $ 2.4 $ 2.4 $ --
Sale of British pounds .62 4.5 4.5 --
Sale of Canadian dollars 1.47 13.8 14.0 (.2)
Sale of Dutch guilders 2.04 2.6 2.4 .2
Sale of French francs 6.45 1.9 1.9 --
Sale of German marks 1.93 .1 .1 --
Sale of Irish punts .78 .1 .1 --
Sale of Japanese yen 105.75 6.7 6.9 (.2)
Sale of Mexican pesos 10.22 3.5 3.8 (.3)
Sale of New Zealand dollars 1.96 .7 .7 --
Sale of Swiss francs 1.31 .5 .4 .1
Sale of other currencies 14.3 15.0 (.7)
- -------------------------------------------------------------------------------------------------------------
Total $51.1 $52.2 $(1.1)
- -------------------------------------------------------------------------------------------------------------
Interest Rate Risk Management
As a result of GBC's funding program for its global activities, GBC has various
debt obligations that pay interest on the basis of fixed and floating rates.
From time to time, GBC utilizes an interest rate management program to reduce
its exposures to floating interest rates and achieve a desired risk profile. To
accomplish this objective, GBC currently hedges these exposures by using
interest rate swap and cap agreements.
The table below provides information about GBC's derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps, interest rate caps and debt
obligations. For debt obligations, the table presents significant principal cash
flows and related weighted average interest rates by expected maturity dates.
For interest rate swaps, the table presents notional amounts and weighted
average interest rates by contractual maturity dates. Notional amounts are used
to calculate the contractual payments to be exchanged under the contract.
Weighted average variable rates are based on implied forward rates in the yield
curve at the reporting date. The information is presented in US dollar
equivalents, which is GBC's reporting currency. Significant interest rate
sensitive instruments as of December 31, 1999, were (000 omitted):
EXPECTED MATURITY DATE
FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
Long-term debt:
Fixed Rate ($US) $ -- $ -- $ -- $ -- $ 1.0 $150.0 $151.0 $ 64.8
Average interest rate -- -- -- 8.9% 9.375% 9.375% --
Variable Rate ($US) $ 2.1 $ 0.8 $291.4 $ 0.1 $ 0.1 $ 11.1 $305.6 $305.6
Average interest rate 7.3% 6.6% 8.4% 12.0% 12.0% 6.5% 8.3% --
Short-term debt:
Variable Rate ($US) $13.4 $ -- $ -- $ -- $ -- $ -- $ 13.4 $ 13.4
Average interest rate 4.2% -- -- -- -- -- 4.2% --
- -------------------------------------------------------------------------------------------------------------------
43
14
MANAGEMENT'S DISCUSSION AND ANALYSIS GBC and Subsidiaries
- --------------------------------------------------------------------------------
EXPECTED MATURITY DATE
FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
- -------------------------------------------------------------------------------------------------------------------
INTEREST RATE DERIVATIVES
Interest Rate Swaps:
Fixed to Variable ($US) $37.0 $40.0 $ 65.0 $20.0 $15.0 $ 10.0 $187.0 $185.6
Average pay rate 6.0% 6.4% 6.3% 5.7% 5.9% 6.0% 6.1% --
Average receive rate 6.2 6.2 6.1 6.1 6.2 6.2 6.1 --
Interest Rate Caps:
Fixed to Variable ($US) $ -- $ 5.0 $ -- $ -- $ -- $ -- $ 5.0 $ 5.0
Cap rate -- 7.5% -- -- -- -- 7.5% --
- -------------------------------------------------------------------------------------------------------------------
Refer to Notes 1, 2, 8 and 9 of the Consolidated Financial Statements for
additional discussion of GBC's foreign exchange and financial instruments.
YEAR 2000 COMPLIANCE
GBC completed all significant Year 2000 projects prior to December 31, 1999
which had been identified by the Company. GBC did not experience any significant
disruptions to its business directly related to Year 2000 issues or as a result
of Year 2000 issues which may have impacted its vendors, suppliers and
customers. Management believes that there are no significant risks to GBC
resulting from Year 2000 issues which would affect the company's operations in
the future.
EURO
On January 1, 1999, a majority of the member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and adopted the Euro monetary as their new common legal currency. The Euro
trades on currency exchanges and the participating countries' own currencies
("legacy currencies") remain legal tender in the participating countries for a
transition period between January 1, 1999 and January 1, 2002. During the
transition period, parties can elect to pay for goods and services and transact
business using either the Euro or a legacy currency. Between January 1, 2002 and
July 1, 2002, the participating countries will introduce Euro notes and coins
and withdraw all legacy currencies so that these legacy currencies will no
longer be available after July 1, 2002.
The Euro conversion may affect cross-border competition by creating cross-border
price transparency. GBC has assessed its pricing/marketing strategy in order to
ensure that it remains competitive in a broader European market. GBC has also
assessed its information technology systems to allow for transactions to take
place in both the legacy currencies and the Euro, and to accommodate the
eventual elimination of the legacy currencies. GBC's currency risk and risk
management programs for operations in participating countries may be reduced as
the legacy currencies are converted to the Euro. GBC will continue to evaluate
issues involving the introduction of the Euro. Based on current information and
GBC's current assessment, management does not expect that the Euro conversion
will have a material effect on GBC's results of operations, financial condition
or cash flows.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
instruments and Hedging Activities." SFAS No. 133 Establishes accounting and
reporting standards for derivative financial instruments and hedging activities
and requires GBC to recognize all derivatives as either assets or liabilities on
the balance sheet and measure them at fair value. Gains and losses resulting
from changes in fair value would be accounted for depending on the use of the
derivative and whether it is designated as a hedge and qualifies for hedge
accounting. GBC will be required to implement SFAS No. 133 for its fiscal year
2001. GBC does not believe that the adoption of SFAS No. 133 will have a
significant impact on its results of operations.
44
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MANAGEMENT'S DISCUSSION AND ANALYSIS GBC and Subsidiaries
- --------------------------------------------------------------------------------
ACQUISITIONS AND OTHER BUSINESS COMBINATIONS
GBC has completed a number of acquisitions and other business combinations
during the past three years. The following is a summary of transactions
completed (dollars in millions):
COMPANY OR APPROXIMATE
BUSINESS ACQUIRED ANNUAL REVENUES OF
DATE (PRINCIPAL LOCATION) ACQUIRED COMPANY (a) PRODUCTS
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, 1999 Neschen (US) Joint Venture Manufacturer of pressure sensitive films
November 30, 1998 Pelikan Quartet (Australia) Joint Venture Manufacturer of presentation boards
February 27, 1998 Ibico AG (Switzerland) $ 113.0 Manufacturer and distributor of binding and
lamination equipment and supplies
January 22, 1998 Allfax group of companies (U.K.) $ 6.0 Manufacturer and distributor of visual
communications products
August 27, 1997 Danka Datakey (Australia) $ 1.0 Distributor and servicer of mailroom equipment
July 25, 1997 Printing Wire Supplies Ltd. (Ireland) $ 2.0 Manufacturer of wire binding supplies
July 23, 1997 Jenrite (New Zealand) $ 2.0 Distributor of laminating equipment and supplies
June 13, 1997 Visucom (Australia) $ 2.0 Manufacturer of presentation boards
April 23, 1997 Baker School Specialty Company (US) $ 17.0 Manufacturer of presentation boards
January 1, 1997 Quartet Manufacturing Company (US) $ 149.0 Manufacturer of visual communication products
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Approximate annual revenues at time of acquisition.
See Note 15 to the Consolidated Financial Statements for additional information
on GBC's acquisitions.
45
16
PART II GBC and Subsidiaries
- --------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE
Report of Independent Public Accountants .................................47
Consolidated Statements of Income ........................................48
Consolidated Balance Sheets ..............................................49
Consolidated Statements of Cash Flows ....................................50
Consolidated Statements of Stockholders' Equity ..........................51
Notes to Consolidated Financial Statements ...............................52
46
17
PART II GBC and Subsidiaries
- --------------------------------------------------------------------------------
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 ("GBC," a Delaware corporation) and Subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of income and
comprehensive income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of GBC'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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
Schedule II is the responsibility of GBC'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
FEBRUARY 7, 2000
47
18
CONSOLIDATED STATEMENTS OF INCOME GBC and Subsidiaries
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
(000 omitted except per share data)
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
SALES:
Domestic sales $ 596,451 $ 618,524 $ 543,361
International sales 305,436 303,890 226,640
- -----------------------------------------------------------------------------------------------------------------
Total sales 901,887 922,414 770,001
- -----------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales:
Product cost of sales, including development and engineering 534,198 521,936 440,625
Inventory rationalization and write-down charges 22,112 -- --
Selling, service and administrative 326,429 307,339 247,185
Amortization of goodwill and related intangibles 11,183 10,638 7,859
Interest expense 45,660 38,580 24,577
Restructuring and other expenses 19,576 -- --
Write-down of intangible and long-lived assets 8,534 -- --
Loss on sale of US RingBinder -- 3,500 --
Other (income) expense, net (587) 434 1,575
- -----------------------------------------------------------------------------------------------------------------
(Loss) income before taxes (65,218) 39,987 48,180
Income taxes (8,542) 16,195 19,513
- -----------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (56,676) $ 23,792 $ 28,667
- -----------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of taxes:
Foreign currency translation adjustments (2,753) (2,423) (3,073)
- -----------------------------------------------------------------------------------------------------------------
COMPREHENSIVE (LOSS) INCOME $ (59,429) $ 21,369 $ 25,594
- -----------------------------------------------------------------------------------------------------------------
Net (loss) income per common share: (1)
Basic $ (3.60) $ 1.51 $ 1.82
Diluted (3.60) 1.50 1.80
Dividends declared per common share (1) .30 .45 .44
Weighted average number of common shares outstanding (2) 15,733 15,724 15,760
- -----------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
(1) Amounts represent per share amounts for both Common Stock and Class B
Common Stock.
(2) Weighted average shares represents shares for the basic calculation and
includes both Common Stock and Class B Common Stock.
48
19
CONSOLIDATED BALANCE SHEETS GBC and Subsidiaries
- --------------------------------------------------------------------------------
DECEMBER 31,
(000 omitted except per share data)
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 11,068 $ 6,095
Receivables, less allowances for doubtful
accounts and sales returns: 1999-$15,164, 1998-$9,871 163,216 187,939
Inventories, net 126,347 164,517
Deferred tax assets 30,816 12,429
Other 27,586 27,663
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 359,033 398,643
- ----------------------------------------------------------------------------------------------------------------------
Capital assets at cost:
Land and land improvements 4,811 5,616
Buildings and leasehold improvements 54,027 53,704
Machinery and equipment 140,739 136,622
Computer hardware and software 54,749 35,560
- ----------------------------------------------------------------------------------------------------------------------
Total capital assets at cost 254,326 231,502
Less--accumulated depreciation (112,735) (85,738)
- ----------------------------------------------------------------------------------------------------------------------
Net capital assets 141,591 145,764
- ----------------------------------------------------------------------------------------------------------------------
Goodwill, net of amortization 283,059 304,649
Other 38,809 36,782
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 822,492 $ 885,838
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,487 $ 51,669
Accrued liabilities:
Salaries, wages and profit sharing contributions 13,730 12,157
Deferred income on maintenance agreements 10,815 10,583
Accrued distribution allowances 22,808 16,049
Restructuring reserve 9,884 --
Other 31,465 38,326
Notes payable 13,407 27,462
Current maturities of long-term debt 2,131 972
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 168,727 157,218
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities 454,459 490,591
Other long-term liabilities 20,296 13,760
Deferred tax liabilities 29,399 21,082
Stockholders' equity:
Common stock, $.125 par value; 40,000,000 shares authorized;
15,693,747 shares issued and outstanding at December 31, 1999 and 1998 1,962 1,962
Class B common stock, $.125 par value; 4,796,550 shares authorized;
2,398,275 shares issued and outstanding at December 31, 1999 and 1998 300 300
Additional paid-in-capital 22,010 10,976
Retained earnings 163,719 225,112
Treasury stock--2,357,643 and 2,372,452 shares
at December 31, 1999 and 1998, respectively (27,096) (26,632)
Accumulated other comprehensive income (11,284) (8,531)
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 149,611 203,187
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 822,492 $ 885,838
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
49
20
CONSOLIDATED STATEMENTS OF CASH FLOWS GBC and Subsidiaries
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
(000 OMITTED)
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net (loss) income $ (56,676) $ 23,792 $ 28,667
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 23,286 20,275 16,177
Amortization 16,998 13,638 11,031
Restructuring and other expenses 19,576 -- --
Inventory rationalization and write-down charges 22,112 -- --
Write-down of intangible and long-lived assets 8,534 -- --
Provision for doubtful accounts and sales returns 14,395 4,636 3,530
Provision for inventory reserves 11,888 6,200 4,252
Increase in non-current deferred taxes 8,155 7,237 2,285
(Increase) in other long-term assets (2,450) (3,101) (5,336)
Loss on sale of US RingBinder, pretax -- 3,500 --
Other 5,645 (1,256) 316
Changes in current assets and liabilities:
Decrease (increase) in receivables 9,479 (18,247) (29,028)
Decrease (increase) in inventories 1,005 (15,173) (27,867)
(Increase) in other current assets (877) (6,182) (3,256)
(Increase) decrease in deferred tax assets (8,121) (3,432) 2,381
(Decrease) increase in accounts payable and accrued liabilities 8,748 (7,517) 16,807
(Decrease) increase in income taxes payable (1,331) (243) 758
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 80,366 24,127 20,717
- ------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (22,823) (29,926) (29,619)
Payments for acquisitions and investments (net of cash acquired) -- (147,961) (241,230)
Proceeds from sale of US RingBinder -- 15,529 --
Proceeds from sale of plant and equipment 2,922 6,873 4,702
- ------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (19,901) (155,485) (266,147)
- ------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings-maturities greater than 90 days 289,000 210,000 290,100
Repayments of long-term debt-maturities greater than 90 days (180,000) (60,000) --
Net change in borrowings-maturities of 90 days or less (156,323) 2,572 (39,733)
Increase in current portion of long-term debt 1,227 206 80
Payments for debt issuance costs (3,498) (8,638) --
Dividends paid (4,717) (7,075) (6,935)
Purchases of treasury stock (536) (3,566) (1,011)
Proceeds from the exercise of stock options 636 1,415 942
- ------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (54,211) 134,914 243,443
Effect of exchange rates on cash (1,281) (1,214) (981)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,973 2,342 (2,968)
Cash and cash equivalents at beginning of the year 6,095 3,753 6,721
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year $ 11,068 $ 6,095 $ 3,753
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $ 3,330 $ 11,627 $ 13,526
Interest paid 40,348 35,865 23,626
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
50
21
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY GBC and Subsidiaries
- --------------------------------------------------------------------------------
(000 omitted except number of shares and per share data)
ACCUMULATED
CLASS B ADDITIONAL OTHER
COMMON COMMON PAID IN RETAINED TREASURY COMPREHENSIVE
STOCK STOCK CAPITAL EARNINGS STOCK INCOME TOTAL
- -------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $ 1,962 $ 300 $ 8,564 $ 186,663 $ (22,322) $ (3,035) $ 172,132
1997 net income -- -- -- 28,667 -- -- 28,667
Dividends paid ($.44 per share) -- -- -- (6,936) -- -- (6,936)
Exercise of stock options -- -- 1,144 -- 120 -- 1,264
Purchase of treasury stock at cost -- -- -- -- (1,011) -- (1,011)
1997 translation adjustment -- -- -- -- -- (3,073) (3,073)
- -------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 1,962 300 9,708 208,394 (23,213) (6,108) 191,043
1998 net income -- -- -- 23,792 -- -- 23,792
Dividends paid ($.45 per share) -- -- -- (7,074) -- -- (7,074)
Exercise of stock options -- -- 1,268 -- 147 -- 1,415
Purchase of treasury stock at cost -- -- -- -- (3,566) -- (3,566)
1998 translation adjustment -- -- -- -- -- (2,423) (2,423)
- -------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 1,962 300 10,976 225,112 (26,632) (8,531) 203,187
1999 net loss -- -- -- (56,676) -- -- (56,676)
Capital contribution (1) -- -- 10,470 -- -- -- 10,470
Dividends paid ($.30 per share) -- -- -- (4,717) -- -- (4,717)
Exercise of stock options -- -- 564 -- 72 -- 636
Purchase of treasury stock at cost -- -- -- -- (536) -- (536)
1999 translation adjustment -- -- -- -- -- (2,753) (2,753)
- -------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $ 1,962 $ 300 $ 22,010 $ 163,719 $ (27,096) $ (11,284) $ 149,611
- -------------------------------------------------------------------------------------------------------------------
(1) Amount represents a capital contribution from GBC's majority shareholder
under a tax sharing agreement, see Note 12 to the Consolidated Financial
Statements for additional information.
SHARES OF CAPITAL STOCK
- --------------------------------------------------------------------------------
CLASS B
COMMON COMMON TREASURY NET
STOCK STOCK STOCK(1) SHARES
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SHARES AT DECEMBER 31, 1996 15,693,747 2,398,275 (2,342,143) 15,749,879
Exercise of stock options -- -- 50,581 50,581
Purchase of treasury stock -- -- (33,704) (33,704)
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SHARES AT DECEMBER 31, 1997 15,693,747 2,398,275 (2,325,266) 15,766,756
Exercise of stock options -- -- 61,863 61,863
Purchase of treasury stock -- -- (109,049) (109,049)
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SHARES AT DECEMBER 31, 1998 15,693,747 2,398,275 (2,372,452) 15,719,570
Exercise of stock options -- -- 30,187 30,187
Purchase of treasury stock -- -- (15,378) (15,378)
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SHARES AT DECEMBER 31, 1999 15,693,747 2,398,275 (2,357,643) 15,734,379
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(1) Shares held in treasury are shares of Common Stock.
51
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GBC and Subsidiaries
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(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CONSOLIDATION
The consolidated financial statements include the accounts of GBC and its
domestic and international subsidiaries. All consolidated subsidiaries have
December 31 fiscal year ends. Certain subsidiaries were converted from November
30 year ends to December 31, however, this did not have a material impact on
GBC's 1999 operating results. 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 GBC's share of earnings is
included in income.
Certain amounts for prior years have been reclassified to conform to the 1999
presentation.
(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. Inventory balances
are net of valuation allowances.
(D) DEPRECIATION OF CAPITAL ASSETS
Depreciation of capital assets for financial reporting is computed principally
using the straight-line method over the following estimated lives:
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Buildings 15-35 years
Machinery and equipment 2-20 years
Computer hardware and software 3-7 years
Leasehold improvements Term of lease
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(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,
generally 10 to 40 years. Accumulated amortization of goodwill and other
intangible assets amounted to $33,261,749 at December 31, 1999 and $23,931,000
at December 31, 1998.
(F) INCOME TAXES
GBC's policy is to provide income taxes on the earnings of its international
subsidiaries that are expected to be distributed to GBC. Prior to 1998, GBC
provided for the current earnings of all international subsidiaries other than
Canada and Mexico because it was expected that such earnings would be remitted
to GBC. Beginning in 1998, income taxes are provided on the earnings of
international subsidiaries when it is determined that they will be distributed
to GBC. As of December 31, 1999, the cumulative amount of undistributed earnings
of international subsidiaries upon which income taxes have not been recorded was
approximately $25.0 million. In the opinion of management, this amount remains
indefinitely invested in the international subsidiaries.
GBC is included in the consolidated US Federal Income tax return of its majority
shareholder Lane Industries, Inc. The amount of income tax liability for which
GBC will be responsible is determined by a Tax Allocation Agreement between the
Company and Lane Industries. Beginning in 1999, any difference between GBC's
liability on a "separate return" basis and that computed under the Tax
Allocation Agreement is reflected in GBC's stockholders' equity. Prior to 1999,
differences which were immaterial, were reflected in the Company's effective tax
rate calculation.
52
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GBC and Subsidiaries
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(G) DEFERRED SERVICE INCOME
Income from service maintenance agreements is deferred and recognized over the
term of the agreements (generally one to three years), primarily on a
straight-line basis.
(H) 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.
(I) FINANCIAL INSTRUMENTS
Many of GBC'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. Approximately 70% of GBC'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 which is
being hedged.
(J) NEW ACCOUNTING STANDARDS
GBC adopted Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" effective for the year ended December 31, 1998.
This statement requires that certain items recorded directly in stockholders'
equity be classified as comprehensive income. GBC has presented the components
of comprehensive income in the consolidated statements of income. The currency
translation adjustment was GBC's only item which was classified as comprehensive
income.
GBC adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" effective for the year ended December 31, 1998. This
statement requires GBC 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. See Note 13 for further disclosures.
(2) FOREIGN CURRENCY EXCHANGE AND TRANSLATION
Foreign currency translation adjustments are included in other comprehensive
income in the statements of consolidated income, and 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 income
(expense) and are summarized as follows (000 omitted):
FOREIGN CURRENCY
YEAR ENDED DECEMBER 31, TRANSACTION GAIN/(LOSS)(a)
- -------------------------------------------------------
1999 $ 15
1998 178
1997 (425)
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(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):
DECEMBER 31,
1999 1998
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Raw material $ 36,123 $ 51,653
Work in progress 6,192 6,533
Finished goods 116,069 115,703
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Gross inventory 158,384 173,889
Less reserves (32,037) (9,372)
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Net inventory $ 126,347 $ 164,517
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(4) RESTRUCTURING AND OTHER EXPENSES
During 1999, GBC recorded restructuring and other charges totaling $19.6
million. The restructuring charge primarily consists of severance costs, early
retirement benefits, lease cancellation expenses and fixed asset write-offs
related to facility closures in conjunction with the rationalization of various
functions and reductions in
53
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GBC and Subsidiaries
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discretionary spending. Other expenses consist of consulting fees associated
with projects to rationalize GBC's SKU product offering and to reorganize its
supply chain management process. GBC's restructuring and other efforts will be
focused in the following areas:
- - Consolidating all European distribution, logistics and accounting
operations;
- - Streamlining the sales functions of the Document Finishing Group's North
American direct sales operations;
- - Closing or consolidating several worldwide distribution centers and
rationalizing certain of the Company's supplies manufacturing operations;
and
- - Rationalize SKU product offerings and reorganize supply chain management.
Approximately 700 positions, or about 12% of GBC's worldwide workforce, will be
affected. The components of the restructuring and other expenses are as follows
(000 omitted):
YEAR ENDED
DECEMBER 31, 1999
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Severance and early retirement benefits $ 10.3
Lease cancellation expenses 1.1
Asset write-off and write-downs 2.0
All other 6.2
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Total restructuring and other expenses $ 19.6
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Management believes that GBC is progressing, as originally planned on its
previously announced restructuring activities, and that the restructuring
provisions recorded will be adequate to cover estimated restructuring costs.
Certain aspects of GBC's restructuring did not qualify for liability recognition
as of December 31, 1999. GBC expects to recognize further restructuring charges
in 2000, which are expected to be minimal, as these projects progress.
Changes in the restructuring reserve for year ended December 31, 1999 were as
follows (000 omitted):
YEAR ENDED
DECEMBER 31, 1999
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Balance at December 31, 1998 $ --
Provisions 19.6
Involuntary termination costs (6.6)
Other cash restructuring charges (1.4)
Non-cash restructuring charges (1.7)
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BALANCE AT DECEMBER 31, 1999 $ 9.9
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(5) WRITE-DOWN OF INTANGIBLE AND LONG-LIVED ASSETS
GBC has decided to narrow the focus of its visual communications business in
the U.K. and, as a result, will cease the manufacturing of writing boards and
related supplies in the U.K. GBC had entered this business in the U.K. with the
1998 acquisition of Allfax. The charge consists of writing-off the unamortized
goodwill of approximately $7.7 million related to the Allfax acquisition along
with a $0.8 million write-down of fixed assets to their estimated net realizable
values.
GBC plans on phasing out of manufacturing of writing boards and supplies in the
U.K. by the first quarter of 2000. Subsequent to the cessation of manufacturing
operations, GBC will continue to distribute a range of branded writing boards in
Europe that will be sourced from a third party manufacturer.
(6) INVENTORY RATIONALIZATION AND WRITE-DOWN CHARGES
During the 1999 GBC embarked on a project to analyze and rationalize its SKU
product offerings. This project identified overlapping product lines and
products with sub-par profitability which will be eliminated from GBC's product
offering. As a result of this project, a significant percentage of SKUs will be
eliminated. The eliminated SKUs, however, represent an insignificant level of
GBC's revenue and gross profit margin. An evaluation of the SKUs to be
eliminated has resulted in a charge to cost of goods sold of approximately $16.0
million in 1999. This charge represents the write-down of finished goods and raw
material inventory to its net realizable value.
In connection with the exit strategy described in Note 5 above, the inventory
related to the U.K. writing board product line was evaluated. As a result, a
charge to cost of sales of $6.1 million was recorded to write-down the finished
goods and raw materials inventories to their net realizable values.
54
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GBC and Subsidiaries
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(7) RETIREMENT PLANS
GBC sponsors a 401(k) plan for its full-time employees. The participants of the
401(k) plan may contribute from 1% to 15% of their eligible compensation on a
pretax basis. GBC makes annual contributions that match 100% of pretax
contributions up to 4.5% of eligible compensation. Substantially all eligible
full-time domestic employees can participate in the 401(k) plan. GBC's
contributions to the plan were $2,995,000 in 1999, $2,888,000 in 1998, and
$2,344,000 in 1997.
GBC 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. GBC'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.
GBC 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. GBC monitors the cost of the
plan, and has, from time to time, changed the benefits provided under this plan.
GBC 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.
The following tables provide a reconciliation of the changes in GBC's benefit
plan obligations and the fair value of assets (000 omitted):
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
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DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC DOMESTIC
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Reconciliation of benefit obligation:
Benefit obligation at beginning of year $ 1,160 $ 16,443 $ 3,262 $ 16,307 $ 5,300 $4,055
Interest cost 51 893 83 936 352 324
Service cost -- 885 -- 870 429 314
Contributions -- 173 -- -- -- --
Plan amendments -- -- -- -- (442) --
Special Benefits -- -- -- -- 166 --
Actuarial loss (gain) 35 3,327 97 (863) 502 755
Acquisitions (divestitures) -- (714) (1,878) -- -- --
Benefit payments (556) (1,586) (404) (818) (428) (148)
Exchange rate fluctuations -- (265) -- 11 -- --
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Benefit obligation at end of year $ 690 $ 19,156 $ 1,160 $ 16,443 $ 5,879 $5,300
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Reconciliation of fair value of plan assets:
Fair value of plan assets at
beginning of year $ 1,624 $ 18,058 $ 3,602 $ 17,763 $ -- $ --
Actual return on plan assets 267 2,657 8 (203) -- --
Contributions -- 2,003 -- 1,452 428 148
Divestitures -- (631) (1,582) -- -- --
Benefit payments (556) (1,586) (404) (818) (428) (148)
Exchange rate fluctuations -- (387) -- (136) -- --
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Fair value of plan assets at end of year $ 1,335 $ 20,114 $ 1,624 $ 18,058 $ -- $ --
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Reconciliation of funded status:
Funded status at end of year $ 645 $ 958 $ 464 $ 1,615 $ (5,879) $(5,300)
Unrecognized transition (asset) obligation -- (434) -- (630) 817 1,333
Unrecognized prior service costs -- 315 -- 355 -- --
Unrecognized loss (gain) 391 1,583 532 (162) 2,215 1,830
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Net amount recognized $ 1,036 $ 2,422 $ 996 $ 1,178 $ (2,847) $(2,137)
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55
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GBC and Subsidiaries
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The following table provides the amounts recognized in the consolidated balance
sheets as of December 31, 1999 and 1998 (000 omitted):
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
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Domestic International Domestic International Domestic Domestic
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Prepaid benefit cost $ 1,036 $ 4,045 $ 996 $ 2,983 $ -- $ --
Accrued benefit liability -- (1,623) -- (2,354) (2,847) (2,137)
Intangible asset -- -- -- -- -- --
Accumulated other
comprehensive income -- -- -- 549 -- --
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Net amount recognized $ 1,036 $ 2,422 $ 996 $ 1,178 $(2,847) $(2,137)
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The following table provides the components of net periodic pension cost for the
plans for 1999, 1998, and 1997 (000 omitted):
PENSION BENEFITS
1999 1998 1997
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Domestic International Domestic International Domestic International
- -----------------------------------------------------------------------------------------------------------------
Service cost $ -- $ 963 $ -- $ 870 $ 7 $ 857
Interest cost 51 918 83 936 245 871
Expected return on plan assets (120) (1,353) (150) (1,321) (334) (1,112)
Amortization of unrecognized:
Net transition asset -- (114) -- (117) -- (115)
Prior-service cost -- 33 -- 33 10 33
Net loss 28 57 19 29 191 38
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Net periodic pension cost $ (41) $ 504 $ (48) $ 430 $ 119 $ 572
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The following table provides the components of net periodic postretirement
benefit cost for the plans for 1999, 1998, and 1997 (000 omitted):
OTHER BENEFITS
1999 1998 1997
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Domestic Domestic Domestic
- ----------------------------------------------------------------------------------------
Service cost $ 429 $ 315 $ 170
Interest cost 352 324 239
Amortization of unrecognized:
Net transition obligation 74 95 95
Net loss 117 44 19
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Net periodic postretirement benefit cost 972 778 523
Special benefits charge 166 -- --
Acquisition of Quartet Manufacturing Company -- -- 375
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Total recognized postretirement benefit cost $1,138 $ 778 $ 898
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56
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GBC and Subsidiaries
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The assumptions used in the measurement of the Company's benefit obligation are
shown in the following table:
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Domestic International Domestic International Domestic Domestic
- --------------------------------------------------------------------------------------------------------------------------------
Weighted-average assumptions as of December 31:
Discount rate 7.75% 2.0-7.0% 7.0% 2.5-8.0% 7.75% 7.0%
Expected return on plan assets 9.50% 2.5-9.0% 9.5% 4.5-9.0% N/A N/A
Rate of compensation increase N/A 3.0-4.5% N/A 3.5-5.0% N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
For measurement purposes, a 7% annual rate of increase in the per capita cost of
covered health care benefits was assumed for 1999. The rate was assumed to
decrease to a rate of 6% during 2000 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A 1% change in assumed health care cost
trend rates would have the following effects (000 omitted):
1% INCREASE 1% DECREASE
- ----------------------------------------------------------------------------------------------
Effect on total of service and interest cost components of
net periodic postretirement health care benefit cost $ 77 $ (68)
Effect on the health care component of the accumulated
postretirement benefit obligation $ 327 $ (298)
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57
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GBC and Subsidiaries
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(8) DEBT AND CREDIT ARRANGEMENTS
GBC has access to various U.S. and international credit facilities, including a
multicurrency revolving credit facility (the "Revolving Credit Facility") with a
group of international banks which provides for up to the equivalent of $410
million of revolving credit borrowings through January 2002. The Revolving
Credit Facility was amended and restated on November 12, 1999 to provide GBC
with additional financial flexibility. Outstanding borrowings under the
Revolving Credit Facility totaled $291.2 million at December 31, 1999. Interest
and facility fees are payable at varying rates as specified in the loan
agreement. As of December 31, 1999, the applicable facility fee was 0.5% per
annum. Amounts outstanding under the Revolving Credit Facility are classified as
long-term debt on GBC's balance sheet.
Under the most restrictive covenants applicable as of December 31, 1999, GBC
must meet certain EBITDA targets each quarter though the first fiscal quarter of
2001. The amendment and restatement also provides for more flexible covenants
regarding net worth levels, future-starting leverage and interest coverage
hurdles, the pledging of substantially all of the assets of General Binding
Corporation and its domestic subsidiaries as collateral, and increases in
interest rate spreads payable under the facility. In addition, there are certain
new restrictions on dividend payments, additional indebtedness, investments and
capital expenditures. GBC was in compliance with these covenants as of December
31, 1999. For more specific details see the amended and restated Revolving
Credit Facility agreement which is included within GBC's 1999 Third Quarter
Report on Form 10-Q.
In May 1998, GBC issued $150 million of 9 3/8% Senior Subordinated notes due
November 2008. The net proceeds received from the issuance of the notes totaled
$146.1 million, which were primarily used to finance the purchase of Ibico AG.
The Senior Subordinated notes are guaranteed by certain subsidiaries of GBC. See
Note 16 to the Consolidated Financial Statements for additional information.
The book value of GBC's debt approximated the fair market value as of December
31, 1999 and 1998.
58
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GBC and Subsidiaries
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Long-term debt consists of the following at December 31, 1999 and 1998 --
outstanding borrowings denominated in foreign currencies have been converted to
U.S. dollars (000 omitted):