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 November 30, 1996 Commission File No. 0-27682
Globe Business Resources, Inc.
Incorporated under the IRS Employer
laws of Ohio Identification No. 31-1256641
1925 Greenwood Avenue
Cincinnati, OH 45246
Phone: (513) 771-8221
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 December 31, 1996, 4,440,509 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 - 3
February 29, 1996 and November 30, 1996
Consolidated Statement of Income - 4
Three Months and Nine Months Ended November
30, 1995 and 1996
Consolidated Statement of Cash Flows - 5
Nine months ended November 30, 1995 and 1996
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 6. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 15
PART I - FINANCIAL INFORMATION
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
February 29, November 30,
1996 1996
(Unaudited)
ASSETS:
Cash $ 133 $ 392
Accounts receivable, less allowance for doubtful
accounts of $327 and $590, respectively 3,530 5,338
Prepaid expenses 509 1,271
Rental furniture, net 37,407 49,343
Property and equipment, net 2,675 3,814
Goodwill and other intangibles, less accumulated
amortization of $103 - 3,711
Other, net 207 256
------- -------
Total assets $44,461 $64,125
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $3,473 $2,863
Customer deposits 1,189 1,449
Accrued compensation 1,569 1,183
Accrued taxes 447 919
Deferred income taxes 1,793 2,545
Accrued interest payable 120 188
Other accrued expenses 633 679
Debt 10,573 25,958
------- -------
Total liabilities $19,797 $35,784
------- -------
Common stock and other shareholders' equity:
Common stock, no par, 10,000,000 shares
authorized, 4,254,369 and 4,370,509
shares issued and outstanding $18,549 $19,303
Retained earnings 10,199 13,122
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 24,664 28,341
------- -------
Total liabilities and shareholders' equity $44,461 $64,125
======= =======
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 ended, For the nine months ended,
November 30, November 30, November 30, November 30,
1995 1996 1995 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
Revenues:
Rental sales $ 9,291 $ 13,816 $ 27,661 $ 37,278
Retail sales 3,773 3,788 10,625 11,149
------- ------- ------- -------
13,064 17,604 38,286 48,427
------- ------- ------- -------
Costs and expenses:
Cost of rental sales 2,039 5,101 6,211 12,794
Cost of retail sales 1,982 2,351 5,616 6,860
Warehouse and delivery 1,677 2,102 5,124 6,032
Occupancy 1,369 1,506 4,210 4,355
Selling and advertising 1,940 2,273 5,567 6,243
General and administration 1,722 2,189 4,925 6,322
------- ------- ------- -------
10,729 15,522 31,653 42,606
------- ------- ------- -------
Operating income 2,335 2,082 6,633 5,821
Other (income) expense:
Interest expense 605 470 1,820 1,077
Other 65 (40) 96 (98)
------- ------- ------- -------
670 430 1,916 979
Income before income taxes 1,665 1,652 4,717 4,842
Provision for income taxes 667 606 1,890 1,849
------- ------- ------- -------
Net income 998 1,046 2,827 2,993
Preferred stock dividends 132 - 394 -
------- ------- ------- -------
Net income applicable to common stock $ 866 $ 1,046 $ 2,433 $ 2,993
======= ======= ======= =======
Earnings per common share:
Net income $ .34 $ .24 $ .96 $ .70
======= ======= ======= =======
Weighted average number of common shares
outstanding 2,546 4,353 2,546 4,305
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,
1995 1996
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,827 $ 2,993
Adjustments to reconcile net income to
net cash provided by operating activities:
Rental furniture depreciation 3,567 4,456
Other depreciation and amortization 629 778
Provision for losses on accounts receivable 39 167
Provision for deferred income taxes 1,087 752
(Gain)/Loss on sales of property and equipment (15) 7
Book value of furniture sales and rental buyouts 6,612 8,911
Changes in assets and liabilities:
Accounts receivable (648) (1,236)
Other assets, net (113) 1
Prepaid expenses 56 (111)
Accounts payable 458 (723)
Customer deposits 47 (217)
Accrued compensation (357) (536)
Accrued taxes (334) 404
Accrued interest payable (75) 68
Other accrued expenses (29) (239)
-------- --------
Net cash provided by operating activities 13,751 15,475
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental furniture (15,131) (18,260)
Purchases of property and equipment (298) (1,034)
Proceeds from sale of property and equipment 29 -
GranTree Corporation debenture retirement - (59)
Acquired businesses, net of cash acquired - (10,249)
-------- --------
Net cash used in investing activities (15,400) (29,602)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on the revolving credit agreements 42,453 70,915
Repayments on the revolving credit agreements (41,095) (55,705)
Repayments of other debt - (594)
Principal payments under capital lease obligations (275) (245)
Exercise of common stock options - 15
-------- --------
Net cash provided by financing activities 1,083 14,386
-------- --------
Net (decrease)increase in cash (566) 259
Cash at beginning of period 732 133
-------- --------
Cash at end of period $ 166 $ 392
======== ========
The accompanying notes are an integral part of these financial statements.
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of Globe Business Resources, Inc. ("Globe"
or the "Company"), the accompanying unaudited consolidated financial statements
include all adjustments considered necessary to present fairly its financial
position as of November 30, 1996, and the results of its operations for the
three and nine months ended November 30, 1995 and 1996 and its cash flows for
the nine months ended November 30, 1995 and 1996. 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 29, 1996.
NOTE 2 -- ACQUISITIONS
On June 13, 1996, Globe acquired the assets of privately-owned Interim
Quarters, Inc. for $5.7 million in cash, 85,700 shares of Globe common stock and
Globe's assumption of certain liabilities. Liabilities assumed included bonuses
payable to current Interim Quarters employees amounting to 13,300 shares of
Globe common stock. Interim Quarters, based in Dallas, Texas, provides
short-term housing to transferring or temporarily assigned corporate personnel,
new hires, trainees and consultants. Interim Quarters has an inventory of over
800 leased housing units in the Dallas/Ft. Worth metropolitan area and had
annual revenues of approximately $11 million for the year ended December 31,
1995.
On June 19, 1996, Globe acquired the assets of privately-owned Instant
Office Furniture, Inc. for approximately $0.7 million in cash. Instant Office
Furniture, based in Costa Mesa, California, rents and sells office furniture to
a variety of customers in southern California. Annual revenues are approximately
$1 million.
On October 3, 1996, Globe acquired all furniture rental contracts and
various other assets of privately-owned Apartment Furniture Rental, Inc. ("AFR")
for approximately $4.2 million in cash and a $300,000 promissory note. Globe
also plans to purchase affiliated real estate for $300,000 in cash during the
fourth quarter. AFR, based in Detroit, Michigan, rents and sells residential
furniture and has annual revenues of approximately $5 million.
The purchase price allocation for Interim Quarters, Instant Office Furniture
and AFR is as follows:
(Unaudited)
(000's)
Cash, receivables and prepaids $1,884
Rental furniture 7,043
Property and equipment 787
Other assets 30
Goodwill and other intangibles 3,814
------
13,558
Liabilities assumed (1,771)
------
$11,787
-------
-------
The following table sets forth certain income statement data on a proforma
basis, as if Interim Quarters, Instant Office Furniture, and AFR were acquired
at the beginning of the periods indicated.
Nine Months Ended
November 30,
(000's)
1995 1996
---- ----
Total Revenue $50,734 $55,332
Net Income 3,502 3,661
Earnings per common share: Net Income $1.18 $.85
Weighted average number of common shares
outstanding 2,645 4,305
SUBSEQUENT EVENT
On December 16, 1996, Globe acquired the assets and assumed certain
liabilities of two privately-owned corporate housing companies.
Thomas J. Koch & Associates, Inc.("TJK"), based in Charlotte, North
Carolina, was acquired for $3.6 million in cash, a $1.2 million promissory note
and 70,000 shares of Globe common stock. TJK maintains an inventory of
approximately 400 leased housing units which are used to provide short-term
housing to transferring or temporarily assigned corporate personnel, new hires,
trainees and consultants. Annual revenues are approximately $7 million.
Guest Suites, Inc., based in Raleigh, North Carolina, was acquired for
approximately $1.5 million in cash plus contingent consideration not to exceed
$0.9 million. Guest Suites maintains an inventory of approximately 150 leased
housing units which are used to provide short-term housing to transferring or
temporarily assigned corporate personnel, new hires, trainees and consultants.
Annual revenues are approximately $3 million.
NOTE 3 -- EARNINGS PER SHARE
Earnings per share for the quarter and nine months ended November 30, 1996
were determined by dividing net income applicable to common stock by the
weighted average number of shares of common stock outstanding during the period.
Outstanding stock options are not included as common stock equivalents as the
exercise would not cause a dilutive effect in excess of 3%. Earnings per share
for the comparable periods ended November 30, 1995 were determined by dividing
net income applicable to common stock by the weighted average number of shares
of common stock and common stock equivalents outstanding during the period.
Outstanding stock options and a warrant are common stock equivalents. Net income
applicable to common stock is net income reduced by preferred stock dividends.
NOTE 4 -- RENTAL FURNITURE
February 29, November 30,
1996 1996
(000's) (Unaudited)
(000's)
Furniture on rental $30,814 $37,586
Furniture on hand 12,811 19,153
------- -------
43,625 56,739
Accumulated depreciation (6,218) (7,396)
------- -------
$37,407 $49,343
======= =======
NOTE 5 -- DEBT
February 29, November 30,
1996 1996
(000's) (Unaudited)
(000's)
The 1996 Credit Agreement:
The Fifth Third Bank, PNC Bank, and Society
National Bank revolving note, average
interest of 7.42% at November 30, 1996 $ 9,830 $25,041
Capital lease obligations 743 917
------- -------
$10,573 $25,958
======= =======
The funds required for the Interim Quarters, Instant Office Furniture and
AFR acquisitions (see Note 2) were derived from borrowings under the Company's
1996 Credit Agreement. At November 30, 1996, the 1996 Credit Agreement provided
a total unused credit facility of approximately $5 million.
SUBSEQUENT EVENT
Effective December 16, 1996, the Company obtained a new $45.0 million line
of credit with The Fifth Third Bank, PNC Bank and KeyBank (formerly Society
National Bank) which replaced the 1996 Credit Agreement. Interest rates for this
line of credit are based on a leverage formula, which is currently the lesser of
the prime rate plus 50 basis points or LIBOR plus 225 basis points.
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 operates in the rent-to-rent segment of the furniture rental industry
and rents quality office and residential furniture to a variety of corporate and
individual customers.
In addition, the Company operates in the corporate housing industry and
provides short-term housing through an inventory of leased housing units to
temporarily assigned corporate personnel, new hires, trainees and consultants.
The Company sells residential and office furniture that no longer meets its
"showroom condition" standards for rental through its clearance centers and
offers new furniture for sale through its showrooms and its account executives.
The Company's fiscal year ends on February 28/29.
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 rental sales and retail sales revenues.
Three Months Ended Nine Months Ended
November 30, November 30,
1995 1996 1995 1996
---- ---- ---- ----
Revenues:
Rental sales 71.1% 78.5% 72.2% 77.0%
Retail sales 28.9 21.5 27.8 23.0
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
Gross profit:
Rental sales 78.1% 63.1% 77.5% 65.7%
Retail sales 47.5 37.9 47.1 38.5
----- ----- ----- -----
Total gross profit 69.2 57.7 69.1 59.4
Operating expenses 51.3 45.8 51.8 47.4
----- ----- ----- -----
Operating income 17.9 11.8 17.3 12.0
Interest/other 5.1 2.4 5.0 2.0
----- ----- ----- -----
Income before taxes 12.7% 9.4% 12.3% 10.0%
===== ===== ===== =====
Impact of GranTree acquisition
In January 1993, Globe acquired GranTree Corporation ("GranTree") for $9.3
million. Until November 1995, the Company's reported cost of revenues was
favorably impacted as furniture was sold to retail customers or bought out by
lease customers because of two factors: (i) the adoption of fresh-start
reporting in March 1992, at which time GranTree reduced the net book value of
its rental furniture by approximately $7.1 million, and (ii) the $3.3 million
amount by which the book value of GranTree exceeded the purchase price paid by
the Company (collectively, the "GranTree Gross Profit Accounting Effects").
The following table sets forth for the periods indicated the dollar amount
of the GranTree Gross Profit Accounting Effects and certain income statement
data as a percentage of total revenues adjusted to exclude the GranTree Gross
Profit Accounting Effects.
Three Months Ended Nine Months Ended
November 30, November 30,
1995 1996 1995 1996
(dollars in thousands) (dollars in thousands)
GranTree Gross Profit
Accounting Effects $449 $ - $1,527 $ -
Adjusted to exclude the
GranTree Gross Profit
Accounting Effects: As a Percentage of Total Revenues
Total gross profit 65.8% 57.7% 65.1% 59.4%
Operating expenses 51.3 45.8 51.8 47.4
---- ---- ---- ----
Operating income 14.4 11.8 13.3 12.0
Interest/other 5.1 2.4 5.0 2.0
---- ---- ---- ----
Income before income taxes 9.3% 9.4% 8.3% 10.0%
==== ==== ==== ====
Due to the significant impact of the GranTree acquisition and the related
GranTree Gross Profit Accounting Effects on the Company's operations and
financial results, the Company's historical results of operations for fiscal
1996 and period-to-period comparisons will not be indicative of future results.
Impact of Corporate Housing acquisitions
In June 1996, Globe entered the corporate housing industry with the
acquisition of Interim Quarters.
Interim Quarters has a lower gross profit margin, as well as lower operating
expenses as a percentage of sales, than Globe's furniture rental business. As a
result, the Company's gross profit margin and operating expenses as a percentage
of sales are both lower in the third quarter and first nine months of fiscal
1997 than the corresponding periods of the prior year. Interim Quarters'
operating margin, since the acquisition, is 9.2% compared to an operating margin
of 12.5% for Globe's furniture rental business in the first nine months of
fiscal 1997.
Globe is planning to become a consolidator in the corporate housing
industry, thereby capitalizing on the desire of many corporations to have a
corporate housing company that can handle their needs nationally. With the June
Interim Quarters acquisition and the December acquisitions of TJK and Guest
Suites, Globe has become the market leader in three markets, with annualized
corporate housing revenues in excess of $20 million. Globe is vying with a small
number of corporate housing companies for the number two position in the
industry.
Oakwood Corporate Housing, the only national corporate housing company, does
approximately $2 million annually in furniture rental with the Company. The
Company believes that Oakwood perceives the Company as a competitor due to its
entrance into the corporate housing business and therefore has started to move
its furniture rental business to other vendors.
Additionally, two corporate housing customers in Portland, Oregon, Chamness
and K&M, moved their business to CORT following CORT's recent opening in this
market. These two customers are multi-market operators who use CORT in all other
markets. These customers' combined annual furniture rental with the Company
approximates $0.8 million.
It is possible that other corporate housing companies may transfer their
furniture rental business to other vendors as Globe increases its presence in
the industry.
Comparison of Third Quarter Fiscal 1997 to Third Quarter Fiscal 1996
Total revenues of $17.6 million increased $4.5 million, or 34.8%, in the
third quarter of fiscal 1997, from $13.1 million in the third quarter of fiscal
1996, primarily due to the acquisitions of Interim Quarters and AFR. Excluding
these acquisitions, total revenues increased $0.3 million, or 2.1%, in the third
quarter of fiscal 1997 compared to the third quarter of fiscal 1996.
Rental revenues of $13.8 million in the third quarter of fiscal 1997
increased 48.7% from $9.3 million in the third quarter of fiscal 1996. Excluding
the Interim Quarters and AFR acquisitions, rental revenue increased $0.4
million, or 4.6%, over the same period. This growth in rental revenues was due
to a 7.3% increase in the average monthly lease amount partially offset by the
reduction in rental revenues from certain corporate housing customers.
Sales revenues of $3.8 million for the quarter were flat when compared with
the prior year third quarter due to the closure of one store and the impact of
several large sales in fiscal 1996 which were not repeated in fiscal 1997.
Gross profit of $10.2 million in the third quarter of fiscal 1997 increased
$1.2 million, or 12.3%, from $9.0 million in the third quarter of fiscal 1996
and declined as a percentage of revenues to 57.7% from 69.2% over the same
period due primarily to the lower margins associated with the Interim Quarters
corporate housing revenues. Excluding Interim Quarters and the GranTree Gross
Profit Accounting Effects, gross profit margin declined to 64.7% in the third
quarter of fiscal 1997 from 65.8% in the third quarter of fiscal 1996 due
primarily to lower margins on retail sales.
Operating expenses of $8.1 million in the third quarter of fiscal 1997
increased 20.3% from $6.7 million in the third quarter of fiscal 1996. Excluding
Interim Quarters and AFR, operating expenses increased $0.4 million, or 5.5%,
due primarily to higher warehousing costs and higher general and administrative
costs related to Globe becoming a public company in February 1996. As a
percentage of total revenues, operating expenses declined to 45.8% from 51.3%
over the same period as a result of the acquisition of Interim Quarters, which
has lower operating expenses as a percentage of sales than the Company's
furniture rental business.
As a result of the changes in revenues, gross profit and operating expenses
discussed above, operating income decreased 10.8% to $2.1 million, or 11.8% of
revenues in the third quarter of fiscal 1997, from $2.3 million, or 17.9% of
revenues in the third quarter of fiscal 1996. However, excluding the GranTree
Gross Profit Accounting Effects, operating income increased 10.4% to $2.1
million in fiscal 1997, or 11.8% of revenues, from $1.9 million, or 14.4% of
revenues, in fiscal 1996.
Interest/other expense decreased $0.3 million, or 35.8%, to $0.4 million in
the third quarter of fiscal 1997 from $0.7 million in the third quarter of
fiscal 1996 and as a percentage of total revenues decreased to 2.4% from 5.1%
over the same period. The decreased expense for fiscal 1997 was due primarily to
lower interest rates on the outstanding debt.
Income before income taxes of $1.7 million in the third quarter of fiscal
1997 was flat compared to the third quarter of fiscal 1996. Excluding the
GranTree Gross Profit Accounting Effects, income before income taxes increased
$0.4 million, or 35.9%, to $1.7 million in the third quarter of fiscal 1997 from
$1.2 million in the third quarter of fiscal 1996.
The Company's effective tax rate, which includes federal, state and local
taxes, decreased to 36.7% from 40.1% in the third quarter of fiscal 1997 as
compared to the third quarter of fiscal 1996. This rate change for the quarter
is partially attributable to the impact of a nine month adjustment to the fiscal
1997 tax rate based on changes in individually insignificant book to tax
differences.
Comparison of Nine Months Ended November 30, 1996 to Nine Months Ended
November 30, 1995
Total revenues of $48.4 million increased $10.1 million, or 26.5%, in the
first nine months of fiscal 1997 from $38.3 million in the first nine months of
fiscal 1996 due in part to the acquisitions of Interim Quarters and AFR.
Excluding the acquisitions of Interim Quarters and AFR, total revenues increased
$2.2 million, or 5.7% in the first nine months of fiscal 1997 compared to the
first nine months of fiscal 1996.
Rental revenues of $37.3 million in the first nine months of fiscal 1997
increased $9.6 million, or 34.8%, from $27.7 million in the first nine months of
fiscal 1996. Excluding the Interim Quarters and AFR acquisitions, rental revenue
increased $1.8 million, or 6.7% over the same period. This growth in rental
revenues was driven by a 4.5% increase in the average monthly lease amount and a
3.3% increase in the average number of leases outstanding during the first nine
months, partially offset by the reduction in rental revenues from certain
corporate housing customers which principally affected the third quarter.
Sales revenues of $11.1 million increased $0.5 million, or 4.9%, in the
first nine months of fiscal 1997 from $10.6 million in the first nine months of
fiscal 1996.
Gross profit of $28.8 million in the first nine months of fiscal 1997
increased $2.3 million, or 8.7%, from $26.5 million in the first nine months of
fiscal 1996 and declined as a percentage of revenues to 59.4% from 69.1% over
the same period due primarily to the lower margins associated with the Interim
Quarters corporate housing revenues. Excluding Interim Quarters and the GranTree
Gross Profit Accounting Effects, gross profit margin declined to 64.4% in the
first nine months of fiscal 1997 from 65.1% in the first nine months of fiscal
1996 due primarily to lower margins on retail sales.
Operating expenses of $23.0 million in the first nine months of fiscal 1997
increased 15.8% from $19.8 million in the first nine months of fiscal 1996.
Excluding Interim Quarters and AFR, operating expenses increased $1.4 million,
or 7.0%, due primarily to higher warehousing costs required to support the
increased revenues and higher general and administrative costs related to Globe
becoming a public company in February 1996. As a percentage of total revenues,
operating expenses declined to 47.4% from 51.8% over the same period as a result
of lower operating expenses as a percentage of sales at Interim Quarters.
As a result of the changes in revenues, gross profit and operating expenses
discussed above, operating income decreased 12.2% to $5.8 million, or 12.0% of
revenues, in the first nine months of fiscal 1997 from $6.6 million, or 17.3% of
revenues, in the first nine months of fiscal 1996. However, excluding the
GranTree Gross Profit Accounting Effects, operating income increased 14.0% to
$5.8 million, or 12.0% of revenues, in fiscal 1997 from $5.1 million, or 13.3%
of revenues, in fiscal 1996.
Interest/other expense decreased $0.9 million, or 48.9%, to $1.0 million in
the first nine months of fiscal 1997 from $1.9 million in the first nine months
of fiscal 1996 and as a percentage of total revenues decreased to 2.0% from 5.0%
over the same period. The decreased expense for fiscal 1997 was due primarily to
lower interest costs associated with lower average debt balances as a result of
the February 1996 initial public offering and lower interest rates on
outstanding debt.
Income before income taxes of $4.8 million in the first nine months of
fiscal 1997 increased 2.6% compared to the first nine months of fiscal 1996.
Excluding the GranTree Gross Profit Accounting Effects, income before income
taxes increased $1.6 million, or 51.8%, to $4.8 million in the first nine months
of fiscal 1997 from $3.2 million in the first nine months of fiscal 1996.
The Company's effective tax rate, which includes federal, state and local
taxes, decreased to 38.2% from 40.1% in the first nine months of fiscal 1997 as
compared to the first nine months of fiscal 1996 partially due to the impact of
changes in individually insignificant book to tax differences.
LIQUIDITY AND CAPITAL RESOURCES
In February 1996, the Company raised net proceeds of approximately $17.4
million in an initial public offering of its common stock. The Company used
those proceeds to pay a portion of the Company's outstanding bank debt and
redeem all outstanding shares of the Company's redeemable preferred stock plus
accrued dividends.
At the completion of the initial public offering, a new $30.0 million line
of credit replaced the credit agreement in place at that time. Interest rates
for this line of credit were based upon a leverage formula. At November 30,
1996, the interest rate was the lesser of the prime rate plus 50 basis points or
LIBOR plus 200 basis points and the line of credit provided up to $30.0 million,
or the maximum available under borrowing base calculations ($28.8 million), of
financing for the Company.
Effective December 16, 1996, the Company obtained a new $45.0 million line
of credit which replaced the above-mentioned $30.0 million line of credit.
Interest rates for this line of credit are based on a leverage formula, which is
currently the lesser of the prime rate plus 50 basis points or LIBOR plus 225
basis points. At December 30, 1996, the line of credit provided up to $45
million, or the maximum available under borrowing base calculations ($33.8
million), of financing for the Company which will be available for acquisitions
and general corporate purposes. The unused line of credit as of December 30,
1996 was $15.4 million.
From June through December, 1996 Globe used approximately $15.7 million from
its line of credit, issued 169,000 shares of stock, issued $1.5 million of
promissory notes and assumed certain liabilities in completing five asset
acquisitions. (See note 2 to the consolidated financial statements for further
discussion of these 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 $18.3 million in the first nine months of fiscal 1997
and $15.1 million in the first nine months of fiscal 1996. These purchases
funded increased balances in both furniture on rental and furniture on hand in
the first nine months of fiscal 1997. The Company's furniture purchases
typically are seasonally weighted to the first half of the year. Furniture
purchases were down significantly during the third quarter from the level
experienced in the first two quarters. This decreased purchase rate is expected
to continue during the fourth quarter of fiscal 1997.
Capital expenditures were $1.0 million and $0.3 million in the first nine
months of fiscal 1997 and 1996, respectively. The significant increase in fiscal
1997 is largely attributable to development of a new computer system and the
opening of a new store in Columbus, Ohio. Acquisitions of property and equipment
financed through capital leases, and not reflected in the preceding capital
expenditure data, were $0.1 million and $0.3 over the same periods.
In the first nine months of fiscal 1997 and 1996, net cash provided by
operations was $15.5 million and $13.8 million, respectively, generating $14.1
and $1.6 million, respectively, less cash than was necessary to fund investing
activities, thus requiring use of the Company's credit facilities. The Company
expects cash flow from operations to be sufficient to fund all of the Company's
needs, other than acquisitions, during the balance of fiscal 1997. The new
credit line will be used in funding future acquisitions.
PART II
ITEM 1
Legal Proceedings
None
ITEM 4
Submission of Matters to a Vote of Security Holders
None
ITEM 6
Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Exhibits: 27 Financial data schedule
(b) Reports on Form 8-K filed during the third quarter of 1996:
Amendment No.1 to Form 8-KA filed September 12, 1996, including amendments to
note C in the notes to the proforma financial statements. The Form 8-KA was
originally filed August 27, 1996.
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 3, 1997