SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended Commission File No. 0-27682
November 30, 1999
Globe Business Resources, Inc.
Incorporated under the IRS Employer Identification
laws of Ohio No. 31-1256641
11260 Chester Road
Suite 400
Cincinnati, OH 45246
Phone: (513) 771-8287
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 January 7, 2000, 4,803,198 shares of the Registrant's common stock,
no par value, were outstanding.
GLOBE BUSINESS RESOURCES, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
Page No.
--------
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet -
November 30, 1999 and February 28, 1999 3
Consolidated Statement of Income -
Three and nine months ended November 30, 1999 and 1998 4
Consolidated Statement of Cash Flows -
Nine months ended November 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 18
PART I - FINANCIAL INFORMATION
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
November 30, February 28,
1999 1999
--------------- ------------
(Unaudited)
ASSETS:
Cash $ 2,390 $ 1,123
Trade accounts receivable, less
allowance for doubtful accounts
of $1,126 and $977, respectively 14,209 11,982
Other receivables 1,099 1,418
Prepaid expenses 4,495 4,229
Rental furniture, net 54,695 55,426
Property and equipment, net 8,720 8,469
Goodwill and other intangibles,
less accumulated amortization of
$5,128 and $3,262, respectively 47,081 47,580
Note receivable from officer 100 100
Other notes receivable 1,054 490
Other, net 928 980
--------- ---------
Total assets $ 134,771 $ 131,797
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 5,149 $ 6,250
Customer deposits 3,638 2,072
Accrued compensation 2,182 2,628
Accrued taxes 398 304
Deferred income taxes 5,877 5,738
Accrued interest payable 1,021 1,541
Other accrued expenses 1,078 1,250
Debt 69,441 68,900
--------- ---------
Total liabilities 88,784 88,683
--------- ---------
Common stock and other shareholders' equity:
Common stock, no par, 15,000,000 shares
authorized, 4,803,198, and 4,794,489
shares outstanding 24,058 24,018
Retained earnings 26,013 23,180
Fair market value in excess of historical
cost of acquired net assets attributable
to related party transactions (4,084) (4,084)
--------- ---------
Total common stock and other
shareholders' equity 45,987 43,114
--------- ---------
Total liabilities and shareholders' equity $ 134,771 $ 131,797
========= =========
The accompanying notes are an integral part
of these financial statements.
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
For the three months For the nine months
ended, ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
------------ ----------- ------------ ------------
(Unaudited) (Unaudited)
Revenues:
Corporate housing sales $ 25,577 $ 23,033 $ 80,765 $ 64,381
Rental sales 9,577 10,741 29,868 33,219
Retail sales 4,154 4,434 11,966 13,166
--------- --------- --------- ---------
39,308 38,208 122,599 110,766
--------- --------- --------- ---------
Cost of revenues:
Cost of corporate housing sales 17,954 16,652 56,014 45,318
Cost of rental sales 1,058 841 2,940 2,587
Cost of retail sales 2,935 2,681 7,668 8,144
Furniture depreciation and disposals 2,741 2,070 7,452 6,462
--------- --------- --------- ---------
24,688 22,244 74,074 62,511
--------- --------- --------- ---------
Gross profit 14,620 15,964 48,525 48,255
Operating expenses:
Warehouse and delivery 2,759 2,544 8,365 7,989
Occupancy 1,685 1,835 5,645 5,567
Selling and advertising 2,450 2,740 7,731 8,327
General and administration 5,330 4,947 16,521 14,868
Amortization of intangible assets 623 510 1,866 1,448
--------- --------- --------- ---------
12,847 12,576 40,128 38,199
--------- --------- --------- ---------
Operating income 1,773 3,388 8,397 10,056
Other expenses:
Interest expense 1,215 1,145 3,634 3,254
Other, net (75) (118) (16) (52)
--------- --------- --------- ---------
1,140 1,027 3,618 3,202
Income before income taxes 633 2,361 4,779 6,854
Provision for income taxes 261 921 1,950 2,674
--------- --------- --------- ---------
Net income $ 372 $ 1,440 $ 2,829 $ 4,180
========= ========= ========= =========
Earnings per common share:
Basic $ 0.08 $ 0.32 $ 0.59 $ 0.92
========= =========== ========= =========
Diluted $ 0.08 $ 0.31 $ 0.58 $ 0.90
========= =========== ========= =========
Weighted average number of
common shares outstanding:
Basic 4,798 4,532 4,797 4,546
Diluted 4,838 4,648 4,836 4,670
The accompanying notes are an integral part of these
financial statements.
GLOBE BUSINESS RESOURCES, INC
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
For the nine months ended,
---------------------------
November 30, November 30,
1999 1998
------------ ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,829 $ 4,180
Adjustments to reconcile net income to
net cash provided by operating activities:
Rental furniture depreciation 5,974 5,839
Other depreciation and amortization 3,921 2,992
Provision for losses on accounts receivable 606 511
Provision for deferred income taxes 139 669
Loss (gain) on sale of property and equipment 21 (8)
Book value of furniture sales and rental buyouts 10,371 10,394
Changes in assets and liabilities:
Accounts receivable (2,516) (4,565)
Notes receivable (564) --
Other assets, net 56 195
Prepaid expenses (264) (1,618)
Accounts payable (1,101) 2,404
Customer deposits 1,556 (161)
Accrued compensation (461) 1,065
Accrued taxes 94 37
Accrued interest payable (520) (16)
Other accrued expenses (220) (310)
--------- ---------
Net cash provided by operating activities 19,921 21,608
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental furniture (15,614) (17,493)
Purchases of property and equipment (2,143) (1,992)
Purchases of businesses, net of cash acquired (1,018) (13,551)
Other investing activities -- 8
--------- ---------
Net cash used in investing activities (18,775) (33,028)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on the revolving credit agreement 141,224 126,708
Repayments on the revolving credit agreement (140,234) (114,015)
Repayments of other debt (559) (393)
Principal payments under capital lease obligations (364) (264)
Exercise of common stock options 117 5
Purchase of treasury stock (63) (653)
--------- ---------
Net cash provided by financing activities 121 11,388
--------- ---------
Net increase (decrease) in cash 1,267 (32)
Cash at beginning of period 1,123 526
--------- ---------
Cash at end of period $ 2,390 $ 494
========= =========
The accompanying notes are an integral part of these financial statements.
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data;
shares in whole numbers except where noted)
NOTE 1 -- PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of Globe Business Resources, Inc., the
accompanying unaudited consolidated financial statements include all adjustments
considered necessary to present fairly its financial position as of November 30,
1999, and the results of its operations for the three and nine months ended
November 30, 1999 and 1998 and its cash flows for the nine months ended November
30, 1999 and 1998. All adjustments are of a normal recurring nature. Interim
results are not necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented in accordance
with the requirements of Form 10-Q, and do not contain certain information
included in the Company's audited consolidated financial statements and notes in
its Form 10-K for the fiscal year ended February 28, 1999.
Certain prior year amounts have been reclassified to conform with current
year presentation.
NOTE 2 -- ACQUISITIONS
During the first nine months of fiscal 2000, the Company completed the
asset acquisition of Castleton of Tulsa, a privately owned corporate housing
business, and paid certain other consideration on fiscal 1998 and 1999
acquisitions. These transactions were completed by payment of approximately $0.5
million in cash, issuance of $0.3 million of notes payable and the assumption of
certain liabilities.
In accordance with APB No. 16, these acquisitions were accounted for using
the purchase method.
The purchase price allocation for the acquired businesses is as follows:
(Unaudited)
-----------
Cash, receivables and prepaids $ 8
Property and equipment 10
Other assets 4
Goodwill and other intangibles 1,367
-------
1,389
Liabilities assumed (363)
-------
$ 1,026
=======
Certain pro forma Globe consolidated income statement data are not
presented due to the immaterial impact of Castleton of Tulsa on the previously
reported operating results. Current year actual results reflect the acquisition
for the entire reporting period.
NOTE 3 -- RENTAL FURNITURE
Rental furniture consists of the following:
November 30, February 28,
1999 1999
------------- ------------
(Unaudited)
Furniture on rental $ 26,709 $ 43,648
Furniture on hand 40,955 24,120
-------- --------
67,664 67,768
Accumulated depreciation (12,969) (12,342)
-------- --------
$ 54,695 $ 55,426
======== ========
NOTE 4 -- EARNINGS PER SHARE
For all periods presented, basic earnings per share was calculated by
dividing net income applicable to common stock by the weighted average number of
shares outstanding during the period.
For all periods presented, diluted earnings per share was calculated by
dividing net income applicable to common stock by the weighted average number of
shares and dilutive potential common shares outstanding during the period.
Potential common shares include outstanding stock options for all periods
presented and contingently issuable shares in fiscal 1999.
The following table presents the calculation of basic and diluted earnings
per share for the periods indicated. (Shares in thousands)
For the three For the nine
months ended months ended
-------------- ----------------
November 30, November 30,
-------------- ----------------
1999 1998 1999 1998
------ ------ ------ -------
(Unaudited) (Unaudited)
Net income used to calculate
basic and diluted
earnings per share $ 372 $1,440 $2,829 $4,180
====== ====== ====== ======
Weighted average common shares
used to calculate
basic earnings per share 4,798 4,532 4,797 4,546
====== ====== ====== ======
Basic earnings per common share $ 0.08 $ 0.32 $ 0.59 $ 0.92
====== ====== ====== ======
Shares used in the calculation
of diluted earnings per share:
Weighted average common shares 4,798 4,532 4,797 4,546
Dilutive effect of assumed
exercise of options
for the purchase of common shares 40 44 39 52
Dilutive effect of assumed issuance of
contingently issuable shares -- 72 -- 72
------ ------ ------ ------
Weighted average common shares used to
calculate diluted earnings per share 4,838 4,648 4,836 4,670
====== ====== ====== ======
Diluted earnings per common share $ 0.08 $ 0.31 $ 0.58 $ 0.90
====== ====== ====== ======
NOTE 5 -- DEBT
Outstanding debt consists of:
November 30, February 28,
1999 1999
------------ ------------
(Unaudited)
The Fifth Third Bank, PNC Bank and
Norwest Bank unsecured revolving note,
average interest of 6.89% and 6.62% $35,407 $34,416
7.54% Senior Notes, unsecured, interest
payable semi-annually on March 1 and
September 1, due September 1, 2007 30,000 30,000
6.25% mortgage note payable to The Fifth
Third Bank, interest payable in monthly
installments, due December 1, 2002 1,400 1,445
6.0% note payable to seller of acquired
business, payable in monthly installments,
due December 31, 2000 325 550
6.0% note payable to seller of acquired
business, payable in quarterly
installments, due December 31, 2002 1,129 1,463
5.0% note payable to seller of acquired
business, payable in quarterly
installments, due December 31, 2002 450 500
5.0% note payable to seller of acquired
business, payable in monthly
installments, due February 29, 2000 229 --
Capital lease obligations 501 526
------- --------
$69,441 $68,900
======= =======
The funds required for the acquisition related payments were derived from
borrowings under the Company's unsecured revolving Credit Agreement and through
the issuance of a note payable.
The Company's unsecured revolving line of credit provides credit facilities
of up to $45 million. At November 30, 1999, the revolving Credit Agreement
provided a total unused credit facility of approximately $9.6 million.
NOTE 6 -- SUBSEQUENT EVENT
The Company announced on January 14, 2000 that it has entered into a
definitive agreement with Equity Residential Properties Trust for the sale of
Globe for $13.00 per share, payable in cash upon closing, and up to an
additional $.50 per share post closing, upon final determination of costs, if
any, relating to any potential breaches on certain representations and
covenants. The agreement must be approved by Globe shareholders and is subject
to customary closing conditions.
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements beginning on page 3.
GENERAL
Globe is a major participant in the temporary relocation industry,
operating in both the corporate housing and furniture rental businesses. The
corporate housing business provides short-term housing through an inventory of
leased housing units to transferring or temporarily assigned corporate
personnel, new hires, trainees, consultants and individual customers. The
furniture rental business rents quality office and residential furniture to a
variety of corporate and individual customers. Additionally, the Company sells
residential and office furniture that no longer meets its showroom condition
standards for rental through its clearance centers and sells new furniture
through its showrooms and account executives.
The Company's fiscal year ends on February 28/29.
The discussions contained in this Item 2 include forward-looking
information which is subject to risks and qualifications including, but not
limited to, those set forth in Exhibit 99.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain income
statement data as a percentage of total revenues and certain gross profit data
as a percentage of respective corporate housing, rental and retail sales
revenues.
For the three For the nine
months ended months ended
-------------- ------------------
November 30, November 30,
--------------- ------- --------
1999 1998 1999 1998
------ ------ ------- --------
Revenues:
Corporate housing sales 65.1% 60.3% 65.9% 58.1%
Rental sales 24.4% 28.1% 24.4% 30.0%
Retail sales 10.6% 11.6% 9.8% 11.9%
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
Gross profit:
Corporate housing sales 29.8% 27.7% 30.6% 29.6%
Rental sales 89.0% 92.2% 90.2% 92.2%
Retail sales 29.3% 39.5% 35.9% 38.1%
----- ----- ----- -----
Gross profit before depreciation
and disposals 44.2% 47.2% 45.7% 49.4%
Furniture depreciation and disposals (7.0%) (5.4%) (6.1%) (5.8%)
----- ----- ----- -----
Combined gross profit 37.2% 41.8% 39.6% 43.6%
Operating expenses 31.1% 31.6% 31.2% 33.2%
Amortization of intangible assets 1.6% 1.3% 1.5% 1.3%
----- ----- ----- -----
Operating income 4.5% 8.9% 6.8% 9.1%
Interest/other 2.9% 2.7% 3.0% 2.9%
----- ----- ----- -----
Income before taxes 1.6% 6.2% 3.9% 6.2%
===== ===== ===== =====
Fiscal 2000 third quarter and first nine months results were impacted by
certain nonrecurring items related primarily to the consolidation of real estate
and clearance center inventories in Globe Furniture Rentals western markets and
the accelerated implementation of a comprehensive corporate housing business
information system. The following table presents selected income statement data
after adjustment to exclude these nonrecurring items.
Summary Financial Data, excluding nonrecurring items
For the three For the nine
months ended months ended
------------------- --------------------
November 30, November 30,
------------------- --------------------
1999 1998 1999 1998
------- -------- -------- --------
Revenues $ 39,308 $ 38,208 $122,599 $110,766
Gross profit 14,860 15,964 48,765 48,255
Operating expenses 11,762 12,066 37,110 36,751
Operating income 2,475 3,388 9,789 10,056
Income before taxes 1,335 2,361 6,171 6,854
Net income 778 1,440 3,653 4,180
Diluted earning per common share $ 0.16 $ 0.31 $ 0.76 $ 0.90
Impact of Corporate Housing Acquisitions
Globe implemented an aggressive corporate housing acquisition strategy in
fiscal 1997. Since that time, the Company has completed fifteen corporate
housing acquisitions, including the March 1999 acquisition of Castleton of
Tulsa. All acquisitions to date have been accounted for using the purchase
method of accounting.
Corporate housing companies' assets consist primarily of accounts
receivable, customer deposits and some minor furniture and fixed asset balances.
Consequently, the purchase price for these businesses is allocated largely to
goodwill and other intangibles. Cost of goodwill and other intangibles related
to the corporate housing acquisitions approximates $50.9 million and is being
amortized on a straight-line basis over periods ranging from three to 35 years,
with a weighted average life of approximately 24 years. Goodwill and intangibles
amortization, which is a separate component of operating expenses, reduced
operating profit by $1.9 million, or 1.5% of revenues, in the first nine months
of fiscal 2000 and $1.4 million, or 1.3% of revenues, in the first nine months
of fiscal 1999.
Generally, the corporate housing business has a slightly lower operating
margin than the furniture rental business, consisting of a lower gross profit
margin offset somewhat by lower operating expenses as a percentage of revenues.
As a result, the Company's gross profit margin and operating expenses as a
percentage of revenues have been declining since the Company entered the
corporate housing business. Gross profit margin decreased to 39.6% in the first
nine months of fiscal 2000 from 43.6% in the first nine months of fiscal 1999.
Gross profit margin on rental sales in the first nine months of fiscal 2000 was
90.2%, versus 30.6% for corporate housing. Comparable gross profit margins for
the first nine months of fiscal 1999 were 92.2% and 29.6%, respectively. Because
the Company is integrating its furniture rental and corporate housing
operations, these gross profit percentages exclude furniture depreciation and
disposals which can no longer be related to specific revenue categories. An
additional result of this integration is that operating expenses and, therefore,
operating margins for furniture rental and corporate housing cannot be
specifically identified. Operating expenses, excluding amortization and the
impact of nonrecurring expenses, decreased to 30.3% of revenues in the first
nine months of fiscal 2000 from 33.2% of revenues in the first nine months of
fiscal 1999, while the operating margin, excluding amortization and the impact
of nonrecurring items, decreased to 9.5% of revenues in the first nine months of
fiscal 2000 from 10.4% of revenues in the first nine months of fiscal 1999. The
reduction in operating margin is primarily the result of the increasing mix of
corporate housing revenues over the comparable periods and a soft sales
environment. Including amortization expenses and excluding nonrecurring items,
the operating margin declined to 8.0% in the first nine months of fiscal 2000
from 9.1% in the first nine months of fiscal 1999.
Globe plans to continue its consolidation of corporate housing through
additional acquisitions, thereby capitalizing on the desire of many corporations
to have a corporate housing company that can meet their needs nationally. With
the acquisitions to date, Globe has expanded its presence into 29 markets and is
the market leader in ten of these markets, with annualized corporate housing
revenues exceeding $100 million. Globe is in the number three position in the
industry based on revenues.
A major risk of Globe's increasing presence in the corporate housing
business is the potential loss of furniture rental revenues from competing
corporate housing companies that are also customers. To date, the majority of
this business with unaffiliated customers has been retained, largely due to the
Company's superior level of service. Additionally, the significance of this risk
has lessened since Globe entered the corporate housing business. In the first
nine months of fiscal 2000, unaffiliated corporate housing customers accounted
for $5.3 million, or 4.3%, of Globe's revenues versus $6.4 million, or 5.8%, of
Globe's revenues in the first nine months of fiscal 1999. During these same
periods, furniture rental revenues from affiliated corporate housing providers,
which are not included in reported revenues, were $5.4 million and $4.0 million,
respectively.
The Company is implementing a comprehensive corporate housing business
information system which provides the tools for supporting Company-wide
standardization, as well as enhancing apartment unit inventory management and
allowing operational efficiencies. Additionally, the system facilitates the
national sales effort and provides a common platform as the Company begins
implementation of its business-to-business e-commerce efforts during the second
half of fiscal 2000. Implementation of the corporate housing business
information system has been successfully completed in several markets and Globe
has retained the services of an outside consulting firm to expedite the
Company-wide rollout. Nonrecurring expenses consisting of consulting fees of
approximately $0.6 million are expected to be incurred and recorded in
administrative expenses during fiscal year 2000. Approximately $0.3 million of
these costs were incurred in the first nine months of the fiscal year.
Due to the significant impact of the corporate housing acquisitions on the
Company's operations and financial results, certain aspects of the Company's
historical results of operations and period-to-period comparisons will not be
indicative of future results.
Comparison of Third Quarter Fiscal 2000 to Third Quarter Fiscal 1999
Total revenues of $39.3 million increased $1.1 million, or 2.9%, in the
third quarter of fiscal 2000, from $38.2 million in the third quarter of fiscal
1999, primarily due to acquisitions.
Corporate housing sales of $25.6 million in the third quarter of fiscal
2000 increased 11.0% from $23.0 million in the third quarter of fiscal 1999.
This increase was primarily caused by acquisitions.
Rental sales of $9.6 million in the third quarter of fiscal 2000 decreased
10.8% from $10.7 million in the third quarter of fiscal 1999 partially as a
result of the elimination of intercompany revenues (furniture rented to
Company-owned corporate housing operations). Excluding the impact of these
eliminations, rental revenues decreased $1.1 million, or 8.9%, when compared
with the prior year quarter, reflecting a general softness in the residential
market and a loss of business from some competing corporate housing customers.
Management believes this softness represents a cyclical slowdown attributable to
the fact that corporate housing has taken over a substantial portion of the
furnished apartment distribution channel. As corporate housing has taken over
more of the furnished apartment distribution channel, furniture rental volume
growth from corporate housing customers has slowed. To date, the other customers
in the furnished apartment distribution channel (property management companies
and showroom customers) have not offset this slowdown.
Retail sales of $4.2 million decreased $0.2 million, or 6.3%, in the third
quarter of fiscal 2000 from $4.4 million in the third quarter of fiscal 1999,
with an increase of 30.4% in new office furniture sales more than offset by a
16.8% decline in used furniture sales. The used furniture decrease is primarily
attributable to the Company's decision to consolidate clearance centers in its
western markets and the closure of a store in Michigan.
Gross profit of $14.6 million in the third quarter of fiscal 2000 decreased
$1.4 million, or 8.4%, from $16.0 million in the third quarter of fiscal 1999
and declined as a percentage of revenues to 37.2% from 41.8% over the same
period partially due to the higher mix of corporate housing revenues and the
lower margins associated with these revenues. Gross profit percentage on
corporate housing sales improved to 29.8% from 27.7% over the period. Gross
profit percentage on rental sales decreased to 89.0% from 92.2% over the period
primarily due to an increase in housewares and other rental expenses. Gross
profit percentage on retail sales decreased to 29.3% from 39.5% over the period
resulting from lower margins on clearance center revenues and the impact of a
nonrecurring liquidation sale associated with the inventory consolidation in the
western markets. Excluding this sale, retail gross profit was 35.1%. In
addition, the Company recorded a physical inventory adjustment of approximately
$0.3 million during the third quarter of fiscal 2000.
Operating expenses of $12.2 million (excluding amortization) in the third
quarter of fiscal 2000 increased 1.3% from $12.1 million in the third quarter of
fiscal 1999 as a result of acquisitions and approximately $0.5 million of
nonrecurring expenses associated with the consolidation of real estate and
clearance center inventories in the western markets and the accelerated
implementation of the corporate housing system. As a percentage of total
revenues, operating expenses declined to 31.1% from 31.6% over the same period.
Excluding the nonrecurring expenses, operating expenses decreased to 29.9% of
revenues from 31.6% of revenues during the period. Additional nonrecurring
expenses, estimated at approximately $0.4 million, are expected to be incurred
during the fourth quarter of fiscal year 2000 primarily due to the accelerated
rollout of the Company's corporate housing system.
As a result of the Company's continuing acquisition program, amortization
of intangible assets increased $0.1 million, or 22.2%, to $0.6 million in the
third quarter of fiscal 2000, from $0.5 million in the third quarter of fiscal
1999. As a percentage of revenues, amortization expense increased to 1.6% from
1.3% over the same period.
As a result of the changes in revenues, gross profit, operating expenses
and amortization discussed above, operating income decreased 47.7% to $1.8
million, or 4.5% of revenues in the third quarter of fiscal 2000, from $3.4
million, or 8.9% of revenues in the third quarter of fiscal 1999. Excluding
nonrecurring items, operating income decreased to $2.5 million, or 6.3% of
revenues during the quarter from $3.4 million, or 8.9% of revenues in the prior
year quarter.
Interest/other expense increased to $1.1 million in the third quarter of
fiscal 2000 from $1.0 million in the third quarter of fiscal 1999 and as a
percentage of total revenues increased to 2.9% from 2.7% over the same period.
Interest expense increased from the prior year period due to higher debt
balances in the current year period. The debt increase was the result of funding
required for acquisitions made in the fourth quarter of fiscal 1999.
Income before income taxes of $0.6 million in the third quarter of fiscal
2000 decreased $1.7 million, or 73.2%, compared to the third quarter of fiscal
1999 and as a percentage of revenues decreased to 1.6% from 6.2% over the same
period. Excluding nonrecurring items, income before taxes decreased to $1.3
million, or 3.4% of revenues from $2.3 million, or 6.2% of revenues during the
comparable quarters of fiscal 2000 and fiscal 1999.
The Company's effective tax rate, which includes federal, state and local
taxes, increased to 41.2% in the third quarter of fiscal 2000 from 39.0% in the
third quarter of fiscal 1999. This increase in tax rate is largely attributable
to Globe's expansion into states with higher tax rates than those included in
the prior year quarter.
Comparison of Nine Months Ended November 30, 1999
to Nine Months Ended November 30, 1998
Total revenues of $122.6 million increased $11.8 million, or 10.7%, in the
first nine months of fiscal 2000, from $110.8 million in the first nine months
of fiscal 1999, primarily due to acquisitions.
Corporate housing sales of $80.8 million in the first nine months of fiscal
2000 increased 25.4% from $64.4 million in the first nine months of fiscal 1999.
This increase was primarily caused by acquisitions.
Rental sales of $29.9 million in the first nine months of fiscal 2000
decreased 10.1% from $33.2 million in the first nine months of fiscal 1999
primarily due to the elimination of intercompany revenues. Excluding the impact
of these eliminations, rental revenues decreased 5.2%, reflecting a general
softness in the residential market and a loss of business from some competing
corporate housing customers.
Retail sales of $12.0 million decreased $1.2 million, or 9.1% in the first
nine months of fiscal 2000 from $13.2 million in the first nine months of fiscal
1999, resulting from a decrease of $1.2 million, or 21.0%, in clearance center
revenues over the period. The decrease is primarily the result of closure of a
store in Michigan and a decrease in revenues in the Company's western markets
resulting from the decision to consolidate clearance centers.
Gross profit of $48.5 million in the first nine months of fiscal 2000
increased $0.2 million, or 0.6%, from $48.3 million in the first nine months of
fiscal 1999 and declined as a percentage of revenues to 39.6% from 43.6% over
the same period partially due to the higher mix of corporate housing revenues
and the lower margins associated with these revenues. Gross profit percentage on
corporate housing sales improved to 30.6% from 29.6% in the comparable prior
year period, while gross profit percentage on rental and retail sales decreased
to 90.2% and 35.9% from 92.2% and 38.1%, respectively. The decrease in rental
gross profit percentage was largely attributable to higher housewares expenses,
while the decrease in retail gross profit was primarily attributable to the
impact of a nonrecurring liquidation sale associated with the inventory
consolidation in the western markets. In addition, the Company recorded a
physical inventory adjustment of approximately $0.3 million during the third
quarter of fiscal 2000.
Operating expenses of $38.3 million (excluding amortization) in the first
nine months of fiscal 2000 increased 4.1% from $36.8 million in the first nine
months of fiscal 1999 as a result of acquisitions and approximately $1.2 million
of nonrecurring expenses associated with the consolidation of real estate and
clearance center inventories in the western markets and the accelerated
implementation of the corporate housing system. As a percentage of total
revenues, these expenses declined to 31.2% from 33.2% over the same period.
Excluding the nonrecurring charges, operating expenses decreased to 30.3% of
revenues during the first nine months of fiscal 2000 from 33.2% of revenues in
the first nine months of fiscal 1999. Additional nonrecurring expenses,
estimated at approximately $0.4 million, are expected to be incurred during the
fourth quarter of fiscal year 2000 primarily due to the accelerated rollout of
the corporate housing system.
As a result of Globe's continuing acquisition program, amortization of
intangible assets increased $0.5 million, or 28.9%, to $1.9 million in the first
nine months of fiscal 2000, from $1.4 million in the first nine months of fiscal
1999. As a percentage of revenues, amortization expenses increased to 1.5% from
1.3% over the same period.
As a result of the changes in revenues, gross profit, operating expenses
and amortization discussed above, operating income decreased 16.5% to $8.4
million, or 6.8% of revenues in the first nine months of fiscal 2000, from $10.1
million, or 9.1% of revenues in the first nine months of fiscal 1999. Excluding
nonrecurring items, operating income decreased to $9.8 million, or 8.0% of
revenues from $10.1 million, or 9.1% over the period.
Interest/other expense increased $0.4 million to $3.6 million in the first
nine months of fiscal 2000 from $3.2 million in the first nine months of fiscal
1999 and increased slightly to 3.0% of total revenues from 2.9% in the
comparable prior year period. The increased expense for fiscal 2000 was due
primarily to higher debt balances than in the comparable period of fiscal 1999.
The debt increase was the result of funding required for fiscal 1999
acquisitions.
Income before income taxes of $4.8 million in the first nine months of
fiscal 2000 decreased $2.1 million, or 30.3%, compared to the first nine months
of fiscal 1999 and as a percentage of revenues decreased to 3.9% from 6.2% over
the same period. Excluding nonrecurring items, income before taxes decreased to
$6.2 million, or 5.5% of revenues from $6.9 million, or 6.2% of revenues during
the period.
The Company's effective tax rate, which includes federal, state and local
taxes, increased to 40.8% in the first nine months of fiscal 2000 from 39.0% in
the first nine months of fiscal 1999. This increase in tax rate is largely
attributable to Globe's expansion into states with higher tax rates than those
included in the prior nine month period.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a $45.0 million unsecured line of credit which may be
used for acquisitions and general corporate purposes. At January 7, 2000, the
unused line of credit was $9.6 million. The term of this line of credit will
expire on September 30, 2000, requiring full payment of the then outstanding
balance. The Company expects to have other financing arrangements in place prior
to this date.
Principal payments of $4.3 million are due annually beginning September 1,
2001 on the $30.0 million unsecured Senior Notes due September 1, 2007. These
notes may be redeemed at a premium.
The Company maintains a $1.4 million mortgage note which requires full
payment of the then outstanding balance at the end of the initial term (December
1, 2002). Globe expects to renew the note for an additional five-year period at
that date.
From March 1, 1999 through January 7, 2000 Globe used approximately $0.5
million from its line of credit, issued approximately $0.3 million of notes
payable and assumed approximately $0.1 million of certain liabilities in
completing one acquisition and paying certain other consideration on fiscal 1998
and 1999 acquisitions. (See Note 2 to the consolidated financial statements for
further discussion of these acquisitions.)
Other than acquisitions, the Company's principal use of cash is for
furniture purchases. The Company purchases furniture to replace furniture which
has been sold and to maintain adequate levels of rental furniture to meet
existing and new customer needs. Furniture purchases were $15.6 million in the
first nine months of fiscal 2000 and $17.5 million in the first nine months of
fiscal 1999. The lower level of purchases in the first nine months of fiscal
2000 versus the prior year period reflects the lower level of rental sales
revenues. As the Company's growth strategies are implemented, furniture
purchases may increase.
Capital expenditures were $2.1 million and $2.0 million in the first nine
months of fiscal 2000 and 1999, respectively. These expenditures were financed
through cash provided by operations and utilization of the credit facilities.
Expenditures for the first nine months of both fiscal 2000 and fiscal 1999 were
largely attributable to continued development of computer systems. Costs to
further develop the computer systems and support user equipment needs, which are
anticipated to be approximately $1.5 million, will be incurred in the next 3-15
months and are expected to be financed through cash generated by operations.
Remaining capital expenditures are expected to be approximately $1.0 million and
are also expected to be funded by cash generated by operations. Any temporary
cash deficiencies resulting from timing of these expenditures will be funded via
the line of credit.
In the first nine months of fiscal 2000 and 1999, net cash provided by
operations was $19.9 million and $21.6 million, respectively, generating $2.2
million more cash than was necessary to fund investing activities (excluding
acquisitions) in the first nine months of fiscal 2000 and $2.1 million more cash
than was necessary to fund investing activities (excluding acquisitions) in the
first nine months of fiscal 1999.
Aside from acquisitions, furniture purchases, which have historically been
seasonally weighted to the first half of the fiscal year, are the primary reason
for use of the credit facilities. Any temporary cash deficiencies resulting from
these purchases will be funded via the line of credit. The Company expects cash
flow from operations plus the credit facilities to be sufficient to fund the
Company's needs for the foreseeable future.
YEAR 2000
The Company successfully completed its Year 2000 Remediation Plan and has
not experienced material adverse consequences on its operations resulting from
non-compliance of either its information technology or non-information
technology systems.
To date, Globe has not experienced material adverse consequences related to
the operations of customers or vendors and it does not have a relationship with
any third-party vendor which is material to its operations, nor is it aware of
exposures related to these customer vendors. However, there can be no assurance
that future system failures of other companies on which the Company relies would
not have an adverse impact on Globe's operations. Costs associated with any such
failure cannot be reasonable estimated.
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE RISK
The Company is exposed to interest rate volatility with regard to future
issuances of fixed rate debt and existing issuances of variable rate debt.
Primary exposures include movements in the prime rate, U.S. Treasury Note rates
and LIBOR.
The table below provides information on Globe's significant debt issuances
by expected maturity date. (See Note 5 to the Consolidated Financial Statements
for further information.)
Twelve Months Ended November 30,
---------------------------------------------------------------------------------
(Dollars in thousands) 2000 2001 2002 2003 2004 Thereafter Total
---- ---- ---- ---- ---- ---------- ------
Debt Characteristics:
Unsecured revolving note $35,407 $35,407
Average interest rate 6.89% 6.89%
Unsecured senior note $ 4,285 $4,286 $4,286 $4,286 $12,857 $30,000
Fixed interest rate 7.54% 7.54% 7.54% 7.54% 7.54% 7.54%
Mortgage note $ 71 $ 76 $ 81 $ 86 $ 92 $ 994 $ 1,400
Fixed interest rate 6.25% 6.25% 6.25% 6.25% 6.25% 6.25% 6.25%
Other debt issues $924 $ 506 $510 $193 $ 2,133
Average fixed interest rate 5.61% 5.78% 5.77% 5.53% 5.68%
PART II
ITEM 1
Legal Proceedings
None
ITEM 2
Changes in Securities
None
ITEM 3
Defaults Upon Senior Securities
None
ITEM 4
Submission of Matters to a Vote of Security Holders
None
ITEM 5
Other Information
The Company announced on January 14, 2000 that it has entered into a
definitive agreement with Equity Residential Properties Trust for the sale of
Globe for $13.00 per share, payable in cash upon closing, and up to an
additional $.50 per share post closing, upon final determination of costs, if
any, relating to any potential breaches on certain representations and
covenants. The agreement must be approved by Globe shareholders and is subject
to customary closing conditions. A copy of the press release is filed herewith
as Exhibit 10.
ITEM 6
Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Exhibits:
10 Press Release dated January 14, 2000
10.1 Severance Agreement for Sharon G. Kebe
10.2 Severance Agreement for Christopher S. Gruenke
10.3 Severance Agreement for Lyle J. Tomlinson
10.4 Severance Agreement for Louis W. Holliday, Jr.
10.5 Severance Agreement for Cory M. Nye
10.6 Severance Agreement for John H. Roby
10.7 Severance Agreement for George S. Quay IV
27 Financial Data Schedule
99 Safe Harbor Statement
(b) Reports on Form 8-K filed during the third quarter of 2000: None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Globe Business Resources, Inc.
By: /s/Sharon G. Kebe
---------------------------------
Sharon G. Kebe
Senior Vice President-Finance and
Treasurer
(Principal Financial Officer)
Signed: January 14, 2000