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 Commission File No. 0-27682
ended August 31, 1997
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 September 30, 1997, 4,444,509 shares of the Registrant's common
stock, no par value, were outstanding.
Page 1
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
August 31, 1997 and February 28, 1997
Consolidated Statement of Income - 4
Three and six months ended August 31, 1997 and 1996
Consolidated Statement of Cash Flows - 5
Six months ended August 31, 1997 and 1996
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 16
Page 2
PART I - FINANCIAL INFORMATION
GLOBE BUSINESS
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
August 31, February 28,
1997 1997
----------- ------------
(Unaudited)
ASSETS:
Cash $ 776 $ 717
Trade accounts receivable, less allowance for
doubtful accounts of $711 and $460, respectively 7,933 5,345
Other receivables 35 342
Prepaid expenses 1,512 1,504
Rental furniture, net 51,680 48,462
Property and equipment, net 7,130 4,907
Goodwill and other intangibles, net 14,699 10,243
Other, net 305 258
-------- --------
Total assets $ 84,070 $ 71,778
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 5,012 $ 4,012
Customer deposits 1,624 1,343
Accrued compensation 1,676 1,762
Accrued taxes 848 557
Deferred income taxes 3,788 2,901
Accrued interest payable 764 371
Other accrued expenses 692 480
Debt 37,150 30,516
-------- --------
Total liabilities 51,554 41,942
======== ========
Common stock and other shareholders' equity:
Common stock, no par, 15,000,000 and
10,000,000 shares authorized, 4,443,759
and 4,440,509 shares issued and outstanding 19,915 19,883
Retained earnings 16,685 14,037
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 32,516 29,836
Total liabilities and shareholders' equity $ 84,070 $ 71,778
======== ========
The accompanying notes are an integral part of these financial statements.
Page 3
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
For the For the
three months ended, six months ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Revenues:
Rental sales $ 12,282 $ 10,363 $ 23,600 $ 19,793
Corporate housing sales 9,390 3,669 16,464 3,669
Retail sales 3,414 3,678 7,214 7,361
-------- -------- -------- --------
25,086 17,710 47,278 30,823
-------- -------- -------- --------
Costs and expenses:
Cost of rental sales 2,799 2,724 5,865 5,191
Cost of corporate housing sales 6,728 2,502 11,619 2,502
Cost of retail sales 2,138 2,306 4,553 4,509
Warehouse and delivery 2,847 2,145 5,343 3,930
Occupancy 1,730 1,460 3,397 2,849
Selling and advertising 2,166 2,102 4,477 3,970
General and administration 3,460 2,287 6,253 4,133
-------- -------- -------- --------
21,868 15,526 41,507 27,084
-------- -------- -------- --------
Operating income 3,218 2,184 5,771 3,739
Other expenses (income):
Interest expense 752 383 1,353 607
Other, net 29 (33) 75 (58)
-------- -------- -------- --------
781 350 1,428 549
-------- -------- -------- --------
Income before income taxes 2,437 1,834 4,343 3,190
Provision for income taxes 951 711 1,695 1,243
-------- -------- -------- --------
Net income $ 1,486 $ 1,123 $ 2,648 $ 1,947
======== ======== ======== ========
Net income per common share $ 0.33 $ 0.26 $ 0.60 $ 0.45
======== ======== ======== ========
Weighted average number
common shares outstanding 4,443 4,309 4,442 4,282
The accompanying notes are an integral part of these financial statements.
Page 4
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
For the six months ended,
August 31, August 31,
1997 1996
---------- ----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,648 $ 1,947
Adjustments to reconcile net income
to net cash provided by
operating activities:
Rental furniture depreciation 3,523 2,917
Other depreciation and amortization 1,023 485
Provision for losses on accounts receivable 255 50
Provision for deferred income taxes 887 507
(Gain)/loss on sale of property and equipment (4) 4
Book value of furniture sales and rental buyouts 5,932 5,811
Changes in assets and liabilities:
Accounts receivable (2,734) (1,205)
Other assets, net (6) (115)
Prepaid expenses 127 (188)
Accounts payable 959 15
Customer deposits 144 (35)
Accrued compensation (181) (854)
Accrued taxes 279 504
Accruted interest payable 393 94
Other accrued expenses 178 (133)
-------- --------
Net cash provided by operating activities 13,523 9,804
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental furniture (12,132) (15,150)
Purchases of property and equipment (2,503) (714)
Proceeds from disposition of property and equipment 7 --
Debenture retirement -- (59)
Purchase of businesses, net of cash acquired (5,432) (5,912)
-------- --------
Net cash used in investing activities (20,060) (21,835)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on the revolving credit agreement 56,316 49,023
Repayments on the revolving credit agreement (50,885) (35,853)
Net proceeds (repayments) of other debt 1,370 (595)
Principal payments under capital lease obligations (211) (162)
Exercise of common stock options 6 15
-------- --------
Net cash provided by financing activities 6,596 12,428
-------- --------
Net (decrease)/increase in cash 59 397
Cash at beginning of period 717 133
-------- --------
Cash at end of period $ 776 $ 530
-------- --------
The accompanying notes are an integral part of these financial statements.
Page 5
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 August 31,
1997, and the results of its operations for the three and six months ended
August 31, 1997 and 1996 and its cash flows for the six months ended August 31,
1997 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 28, 1997.
NOTE 2 -- ACQUISITIONS
On April 28, 1997, Globe acquired substantially all the assets of
privately owned The Hotel Alternative, Inc. ("THA") for approximately $3,400 in
cash, the assumption of certain liabilities and contingent consideration
consisting of up to $1,000 payable in the fourth quarter of fiscal year 1998 and
up to 50,000 shares of Globe common stock, currently held in escrow, issuable in
the first quarter of fiscal year 1999. THA, with operations in Seattle,
Washington and Portland, Oregon, provides short-term housing to transferring or
temporarily assigned corporate personnel, new hires, trainees and consultants.
THA maintained an inventory of approximately 500 leased housing units and had
annual revenues of approximately $6.0 million for the year ended December 31,
1996.
On June 5, 1997, Globe and the prior owner of Guest Suites, Inc. agreed
to final settlement of contingent consideration related to Globe's December 16,
1996 asset acquisition. The settlement, recorded as an adjustment to the
original purchase price during the second quarter of fiscal 1998, consisted of
$350 and 2,500 shares of Globe common stock.
On July 11, 1997, Globe acquired substantially all the assets of
privately owned Executive Relocation Services, Inc. ("ERS") for approximately
$1,600 in cash, the assumption of certain liabilities and contingent
consideration consisting of up to $500 payable in two installments of up to $250
in the first quarter of fiscal 1999 and fiscal 2000. ERS operates in Nashville,
Tennessee and provides short-term housing to transferring or temporarily
assigned corporate personnel, new hires, trainees and consultants. ERS
maintained an inventory of approximately 200 leased housing units and had annual
revenues of approximately $2.6 million for the year ended December 31, 1996.
In accordance with APB No. 16, these acquisitions were accounted for
using the purchase method.
Page 6
The purchase price allocation for THA and ERS is as follows:
(Unaudited)
-----------
Cash, receivables and prepaids $ 64
Rental furniture 541
Property and equipment 318
Other assets 41
Goodwill and other intangibles 4,824
------
5,788
Liabilities assumed (341)
------
$5,447
======
The following table sets forth certain Globe consolidated income
statement data on a pro forma basis, as if THA and ERS were acquired at the
beginning of the periods indicated.
Six months ended August 31
1997 1996
------- -------
Revenues $50,155 $37,413
Net income 2,717 2,170
Net income per common share $0.61 $0.51
Weighted average number of common
shares outstanding 4,442 4,282
SUBSEQUENT EVENT
On September 1, 1997, Globe acquired substantially all the assets of
privately owned Research Triangle Guest Houses ("RTGH"), a division of Turner
Creek Enterprises, Inc., for approximately $225 in cash. RTGH operates in
Raleigh/Durham, North Carolina and provides short-term housing to transferring
or temporarily assigned corporate personnel, new hires, trainees and
consultants. RTGH maintained an inventory of approximately 170 leased housing
units and had annual revenues of approximately $2.7 million for the year ended
June 30, 1997.
NOTE 3 -- EARNINGS PER SHARE
Earnings per share for the periods ended August 31, 1997 and 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 their
exercise would not cause a dilutive effect in excess of 3%.
Page 7
The Financial Accounting Standards Board issued SFAS No. 128, "Earnings
Per Share", in February 1997. This Statement must be adopted in the fourth
quarter of fiscal year 1998. Early adoption is not permitted. Had earnings per
share been calculated under the provisions of SFAS No. 128 for the second
quarter and first six months of fiscal years 1998 and 1997, reported earnings
per share and related shares outstanding would have been as follows:
For the For the
three months ended, six months ended,
----------------------- -----------------------
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Earnings per common share:
Basic $0.33 $0.26 $0.60 $0.45
Diluted $0.33 $0.26 $0.59 $0.45
Weighted average number of
common shares outstanding:
Basic 4,443 4,309 4,442 4,282
Diluted 4,515 4,325 4,497 4,304
NOTE 4 -- RENTAL FURNITURE
August 31, 1997 February 28, 1997
--------------- -----------------
(Unaduited)
Furniture on rental $42,872 $39,509
Furniture on hand 18,193 16,808
------- -------
61,065 56,317
Accumulated depreciation (9,385) (7,855)
------- -------
$51,680 $48,462
------- -------
Page 8
NOTE 5 -- DEBT
Outstanding debt consists of:
August 31, February 28,
1997 1997
---------- ---------
(Unaudited)
The 1996 Credit Agreement:
The Fifth Third Bank, PNC Bank,
KeyBank and Fountain Square Commercial
Funding Corp. revolving note, average
interest of 8.11% nd 7.59%, respectively $33,984 $28,554
6.0% note payable to seller of acquired
business, payable in monthly installments,
due December 31, 2000 1,000 1,150
7.5% note payable to seller of acquired
business, payable in monthly installments,
due November 2, 1998 227 271
8.5% construction loan payable to The
Fifth Third Bank, interest payable in
monthly installments, due September 1, 1997 1,520 -
Capital lease obligations 419 541
--------- ---------
$37,150 $30,516
--------- ---------
The funds required for the THA and ERS acquisitions (see Note 2) were
derived from borrowings under the Company's 1996 Credit Agreement. At August 31,
1997, the 1996 Credit Agreement provided a total unused credit facility of
approximately $11.0 million.
SUBSEQUENT EVENTS
On September 1, 1997, the construction loan terms were extended to
December 1, 1997.
On September 29, 1997 the Company completed a private placement of $30.0
million of 7.54% Senior Notes due September 1, 2007, with interest payable
semi-annually on March 1 and September 1. After one year, the Company may redeem
the Senior Notes at a premium.
Also on September 29, 1997, the Company established a new $30.0 million
credit agreement with The Fifth Third Bank and PNC Bank. This agreement replaces
The 1996 Credit Agreement. Interest rates for this revolving line of credit are
based on a leverage formula which initially will be the lesser of the prime rate
minus 25 basis points or LIBOR plus 150 basis points. The term of this agreement
will expire on September 30, 2000.
Both the Senior Notes and the new credit agreement are unsecured.
Page 9
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 the rent-to-rent furniture business as well as in corporate
housing. The rent-to-rent furniture business rents quality office and
residential furniture to a variety of corporate and individual customers. The
corporate housing business provides short-term housing through an inventory of
leased housing units to temporarily assigned corporate personnel, new hires,
trainees and consultants. Additionally, 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 account executives.
The Company's fiscal year ends on February 28/29.
The discussions contained under Results of Operations and Liquidity and
Capital Resources include forward-looking information which is subject to risks
and qualifications including, but not limited to, those set forth in Exhibit 99
to the Company's Form 10-K for the year ended February 28, 1997.
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, corporate housing and retail sales
revenues.
For the For the
three months ended, six months ended
----------------------- ------------------------
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenues:
Rental sales 49.0% 58.5% 49.9% 64.2%
Corporate housing sales 37.4% 20.7% 34.8% 11.9%
Retail sales 13.6% 20.8% 15.3% 23.9%
------ ------ ------ ------
Total revenues 100.0% 100.0% 100.0% 100.0%
Gross profit:
Rental sales 77.2% 73.7% 75.1% 73.8%
Corporate housing sales 28.3% 31.8% 29.4% 31.8%
Retail sales 37.4% 37.3% 36.9% 38.7%
------ ------ ------ ------
Total gross profit 53.5% 57.5% 53.4% 60.4%
Operating expenses 40.7% 45.1% 41.2% 48.3%
------ ------ ------ ------
Operating income 12.8% 12.3% 12.2% 12.1%
Interest/other 3.1% 2.0% 3.0% 1.8%
------ ------ ------ ------
Income before taxes 9.7% 10.4% 9.2% 10.3%
------ ------ ------ ------
Page 10
Impact of Corporate Housing Acquisitions
----------------------------------------
Globe entered the corporate housing business in fiscal 1997 by making three
asset acquisitions, one in June 1996 and two in December 1996. Globe acquired
two additional corporate housing businesses in the first half of fiscal 1998
with the asset acquisitions of The Hotel Alternative, Inc. in April 1997 and
Executive Relocation Services, Inc. in July 1997. A third corporate housing
acquisition was made in September 1997, subsequent to completion of the second
quarter.
The corporate housing businesses all have lower gross profit margins, 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 first half of
fiscal 1998 than in the prior year. Gross profit margin on rental sales for the
first half of 1998 was 75.1%, versus 29.4% for the combined corporate housing
businesses. Comparable gross profit margins for the first half of 1997 were
73.8% and 31.8%, respectively. Because the Company started to integrate its
furniture rental and corporate housing operations in the first quarter of fiscal
1998, operating expenses and, therefore, operating margins for furniture rental
and corporate housing cannot be specifically identified, however, the combined
operating margin for the businesses has improved to 12.2% for the first half of
1998 from 12.1% for the same period of 1997.
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 fiscal 1998 and 1997 corporate housing acquisitions approximated $15.3
million and is being amortized as a cost of rental revenues on a straight-line
basis primarily over twenty years. Goodwill and intangibles amortization reduced
gross profit by $0.4 million in the first half of fiscal 1998.
Globe plans to continue consolidating corporate housing through additional
acquisitions, thereby capitalizing on the desire of many corporations to have a
corporate housing company that can handle their needs nationally. With the
fiscal 1998 and 1997 acquisitions, Globe has become a market leader in six
markets, with annualized corporate housing revenues in excess of $35 million.
Globe is vying with a small number of corporate housing companies for the number
two position in the industry.
As Globe increases its presence in the corporate housing business it is
possible that competing corporate housing companies may transfer their furniture
rental business to other vendors.
Due to the significant impact of the corporate housing acquisitions on the
Company's operations and financial results, the Company's historical results of
operations and period-to-period comparisons will not be indicative of future
results.
Comparison of Second Quarter Fiscal 1998 to Second Quarter Fiscal 1997
----------------------------------------------------------------------
Total revenues of $25.1 million increased $7.4 million, or 41.6%, in the
second quarter of fiscal 1998, from $17.7 million in the second quarter of
fiscal 1997, primarily due to acquisitions which occurred subsequent to the
second quarter of fiscal 1997. Excluding the corporate housing operations, total
revenues increased $1.7 million, or 11.8%, in the second quarter of fiscal 1998
compared to the second quarter of fiscal 1997.
Rental revenues of $12.3 million in the second quarter of fiscal 1998
increased 18.5% from $10.4 million in the second quarter of fiscal 1997. This
growth was driven by significant volume increases in the California markets as
well as several midwestern markets, and is partially attributable to a furniture
rental acquisition which occurred subsequent to the second quarter of fiscal
1997.
Page 11
Corporate housing revenues of $9.4 million in the second quarter of fiscal
1998 increased 155.9% from $3.7 million in the second quarter of fiscal 1997.
This increase was primarily driven by acquisitions which occurred subsequent to
the second quarter of fiscal 1997.
Sales revenues of $3.4 million decreased $0.3 million, or 7.2%, in the
second quarter of fiscal 1998 from $3.7 million in the second quarter of fiscal
1997, driven by a down quarter in new office furniture sales and a flat quarter
in clearance sales. Sales revenues should increase in the third quarter due to
several large new office furniture sales expected to be delivered and due to new
advertising programs currently being rolled out which are designed to improve
the trend in clearance sales.
Gross profit of $13.4 million in the second quarter of fiscal 1998
increased $3.2 million, or 31.9%, from $10.2 million in the second quarter of
fiscal 1997 and declined as a percentage of revenues to 53.5% from 57.5% over
the same period due to the higher mix of corporate housing revenues and the
lower margins associated with these revenues.
Operating expenses of $10.2 million in the second quarter of fiscal 1998
increased 27.6% from $8.0 million in the second quarter of fiscal 1997, but, as
a percentage of total revenues declined to 40.7% from 45.1% over the same period
as a result of corporate housing's lower operating expenses as a percent of
sales.
As a result of the changes in revenues, gross profit and operating expenses
discussed above, operating income increased 47.3% to $3.2 million, or 12.8% of
revenues in the second quarter of fiscal 1998, from $2.2 million, or 12.3% of
revenues in the second quarter of fiscal 1997.
Interest/other expense increased $0.4 million to $0.8 million in the second
quarter of fiscal 1998 from $0.4 million in the second quarter of fiscal 1997
and as a percentage of total revenues increased to 3.1% from 2.0% over the same
period. The increased expense for fiscal 1998 was due primarily to higher debt
balances than in the comparable period of fiscal 1997. The debt increase was
driven by funding required for acquisitions.
Income before income taxes of $2.4 million in the second quarter of fiscal
1998 increased $0.6 million, or 32.9%, compared to the second quarter of fiscal
1997 and as a percentage of revenues decreased to 9.7% from 10.4% over the same
period primarily due to interest costs on higher loan balances in fiscal 1998.
The Company's effective tax rate, which includes federal, state and local
taxes, increased slightly to 39.0% in the second quarter of fiscal 1998 as
compared to 38.8% in the second quarter of fiscal 1997.
Comparison of Six Months Ended August 31, 1997
to Six Months Ended August 31, 1996
Total revenues of $47.3 million increased $16.5 million, or 53.4%, in the
first six months of fiscal 1998, from $30.8 million in the first six months of
fiscal 1997, primarily due to acquisitions. Excluding the corporate housing
operations, total revenues increased $3.7 million, or 13.5%, in the first six
months of fiscal 1998 compared to the first six months of fiscal 1997.
Rental revenues of $23.6 million in the first six months of fiscal 1998
increased 19.2% from $19.8 million in the first six months of fiscal 1997,
driven by strong volume growth in the California markets and several midwestern
markets. The growth is partially attributable to furniture rental acquisitions
made during the second and third quarters of fiscal 1997.
Page 12
Corporate housing revenues of $16.5 million in the first six months of
fiscal 1998 increased from $3.7 million in the first six months of fiscal 1997
due to acquisitions.
Sales revenues of $7.2 million decreased $0.2 million, or 2.0%, in the
first six months of fiscal 1998 from $7.4 million in the first six months of
fiscal 1997. This decrease is largely attributable to a drop in clearance sales,
however, new advertising programs are currently being rolled out which are
designed to reverse the trend.
Gross profit of $25.2 million in the first six months of fiscal 1998
increased $6.6 million, or 35.6%, from $18.6 million in the first six months of
fiscal 1997 and declined as a percentage of revenues to 53.4% from 60.4% over
the same period due to the higher mix of corporate housing revenues and the
lower margins associated with these revenues.
Operating expenses of $19.5 million in the first six months of fiscal
1998 increased 30.8% from $14.9 million in the first six months of fiscal 1997,
but, as a percentage of total revenues declined to 41.2% from 48.3% over the
same period due to the impact of corporate housing's lower operating expenses as
a percentage of sales.
As a result of the changes in revenues, gross profit and operating
expenses discussed above, operating income increased 54.3% to $5.8 million, or
12.2% of revenues in the first six months of fiscal 1998, from $3.7 million, or
12.1% of revenues in the first six months of fiscal 1997.
Interest/other expense increased $0.9 million to $1.4 million in the
first six months of fiscal 1998 from $0.5 million in the first six months of
fiscal 1997 and as a percentage of total revenues increased to 3.0% from 1.8%
over the same period. The increased expense for fiscal 1998 was due primarily to
higher debt balances than in the comparable period of fiscal 1997. The increase
in debt was driven by funding required for acquisitions.
Income before taxes of $4.3 million in the first six months of fiscal
1998 increased $1.2 million, or 36.1%, compared to the first six months of
fiscal 1997 and as a percentage of revenues decreased to 9.2% from 10.3% over
the same period primarily due to interest costs on higher loan balances in
fiscal 1998.
The Company's effective tax rate, which includes federal, state and
local taxes, remained flat at 39.0%.
LIQUIDITY AND CAPITAL RESOURCES
On September 29, 1997, the Company established a $30.0 million unsecured
line of credit which replaced an existing $45.0 million line of credit. Interest
rates for this revolving line of credit are based on a leverage formula, which
is currently the lesser of the prime rate minus 25 basis points or LIBOR plus
150 basis points. At September 30, 1997, the line of credit provided up to $30.0
million of financing for the Company which will be available for acquisitions
and general corporate purposes. The unused line of credit as of September 30,
1997 was $22.8 million.
The term of the 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.
Page 13
On September 29, 1997, the Company completed a private placement of
$30.0 million of unsecured 7.54% Senior Notes due September 1, 2007, with
interest payable semi-annually on March 1 and September 1. These Senior Notes
may be redeemed at a premium after one year.
From March 1997 through September 1997 Globe used approximately $5.7
million from its lines of credit and assumed certain liabilities in completing
three asset acquisitions and reaching a final settlement on contingent
consideration for a fiscal 1997 acquisition. (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 $12.1 million in the first six months of fiscal
1998 and $15.1 million in the first six months of fiscal 1997. As the Company's
growth strategies are implemented, furniture purchases are expected to increase.
Capital expenditures were $2.5 million and $0.7 million in the first six
months of fiscal 1998 and 1997, respectively. The significant increase in fiscal
1998 is largely attributable to continued development of a new computer system
and construction of a new building in Indianapolis, Indiana. Costs to further
develop the computer system will be incurred in the next 12-18 months. These
expenses are anticipated to be approximately $0.7 million.
On March 13, 1997, Globe obtained a $1.5 million construction loan in
order to fund construction of the building in Indianapolis. The loan, which is
secured by real estate and the building, is due December 1, 1997. The Company
intends to replace this loan with permanent financing on December 1, 1997. At
September 30, 1997 one thousand was outstanding against the loan.
In the first six months of fiscal 1998 and 1997, net cash provided by
operations was $13.5 million and $9.8 million, respectively, generating $1.1 and
$6.1 million, respectively, less cash than was necessary to fund investing
activities (excluding acquisitions), thus requiring use of the Company's credit
facilities. Furniture purchases, which are typically seasonally weighted to the
first half of the year, are the primary reason for use of the credit facilities.
These purchases are expected to slow during the third and fourth quarters. Any
temporary cash deficiencies resulting from the seasonal nature of 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.
Page 14
PART II
ITEM 1
LEGAL PROCEEDINGS
None
ITEM 2
CHANGES IN SECURITIES
On June 5, 1997 the Company issued 2,500 shares of common stock to
Sonnen Schein, Inc., c/o Pamela J. Bayne as part of the final settlement for the
December 16, 1996 asset acquisition of Guest Suites, Inc.
These issuances were exempt from registration under the Securities Act
of 1933 pursuant to the exemptions from registration provided by Section 4(2) of
the Act.
ITEM 3
DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on July 22, 1997.
Each of the following matters was voted upon and approved by the Company's
shareholders as indicated below:
1. Elected the following directors:
a. David D. Hoguet, 4,364,056 votes for, 10,357 abstentions
b. Blair D. Neller, 4,364,056 votes for, 10,357 abstentions
c. Alvin Z. Meisel, 4,364,056 votes for, 10,357 abstentions
d. William R. Griffin, 4,364,056 votes for, 10,357 abstentions
e. Thomas C. Parise, 4,364,056 votes for, 10,357 abstentions.
2. Amended the Articles of Incorporation to increase the number of authorized
shares of Common Stock from ten million to fifteen million shares,
4,317,211 votes for, 44,677 votes against, 12,525 abstentions.
3. Adopted the Globe 1997 Stock Option and Incentive Plan, 3,876,762 votes
for, 478,320 votes against, 19,331 abstentions.
4. Adopted the Globe 1997 Directors Stock Option Plan, 4,281,272 votes for,
76,320 votes against, 16,821 abstentions.
5. Ratified the appointment of Price Waterhouse LLP as independent public
accountants for fiscal 1998, 4,360,731 votes for, 4,665 votes against,
9,017 abstentions.
Page 15
ITEM 5
OTHER INFORMATION
None
ITEM 6
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits:
3(i) Amendment to Articles of Incorporation, filed herewith
10.8 1997 Stock Option and Incentive Plan*
10.9 1997 Directors Stock Option Plan*
10.10 Credit Agreement among the Registrant, The Fifth Third Bank and
PNC Bank dated as of September 29, 1997, filed herewith
10.11 7.54% Senior Notes due September 1, 2007 among the Registrant,
Security Life of Denver Insurance Company, Life Insurance Company
of Georgia, Peerless Insurance Company, Indiana Insurance Company
and Southland Life Insurance Company dated as of September 1,
1997, filed herewith
27 Financial Data Schedule
* Incorporated by reference to the definitive proxy statement
for the 1997 annual shareholders meeting.
(b) Reports on Form 8-K filed during the second quarter of 1998: None
Page 16
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
---------------------------------
Senior Vice President-Finance
and Treasurer
(Principal Financial Officer)
Signed: October 6, 1997
Page 17