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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-27682
GLOBE BUSINESS RESOURCES, INC.
Incorporated under the IRS Employer
laws of Ohio Identification No. 31-1256641
11260 Chester Road
Suite 400
Cincinnati, Ohio 45246
Phone: (513) 771-8287
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
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Common Stock, no par value
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and need not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of May 12, 2000, 4,811,491 shares of the Registrant's common stock,
no par value, were outstanding. The aggregate market value of Common Stock held
by non-affiliates of the Registrant at May 12, 2000, was approximately $36.4
million computed at the closing price of $12.688 per share on that date.
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DOCUMENTS INCORPORATED BY REFERENCE:
None
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GLOBE BUSINESS RESOURCES, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
Page
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Part I
Item 1 - Business 1
Item 2 - Properties 8
Item 3 - Legal Proceedings 8
Item 4 - Submission of Matters to a Vote of Security Holders 8
Part II
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters 9
Item 6 - Selected Financial Data 10
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 7(a) - Quantitative and Qualitative Disclosures about Market Risk 21
Item 8 - Financial Statements and Supplementary Data 22
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 22
Part III
Item 10 - Directors and Executive Officers of the Registrant 22
Item 11 - Executive Compensation 25
Item 12 - Security Ownership of Certain Beneficial Owners and Management 27
Item 13 - Certain Relationships and Related Transactions 29
Part IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K S-1
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PART I
ITEM 1
BUSINESS
PENDING MERGER TRANSACTION
The Company announced on January 14, 2000 that it had 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 was subject to approval by Globe shareholders and was
subject to customary closing conditions.
On May 10, 2000 the Company announced that it had entered into an
Amended and Restated Agreement and Plan of Merger with Equity Residential
Properties Trust. The agreement continues to provide for the sale of Globe for
$13.00 per share, payable in cash upon closing, but eliminates the potential
post closing payment of up to $.50 per share. The agreement must be approved by
Globe shareholders and is subject to customary closing conditions. A copy of the
May 10 press release is filed herewith as Exhibit 10.1.
INDUSTRY BACKGROUND
Globe Business Resources, Inc. is a major participant in the temporary
relocation industry, serving primarily corporate customers in both the corporate
housing and furniture rental businesses.
The furniture rental business serves both corporate and individual
customers who generally have immediate, temporary needs for office or
residential furniture but who typically do not seek ownership. Office furniture
customers range from large corporations who desire flexibility to meet their
temporary and transitional needs, to small businesses and professionals who need
office furniture but seek to conserve capital. Residential furniture customers
include institutional customers (consisting of apartment property management
companies and corporate housing specialists that provide short-term leased
housing to relocated, transferred and temporary personnel) and individual
customers.
The "rent-to-rent" segment of the furniture rental business, in which
Globe participates, is differentiated from the "rent-to-own" segment of the
furniture rental business, in which Globe does not participate, primarily by the
terms of the rental arrangements and the type of customers served. Rent-to-rent
customers generally desire high-quality furniture to meet temporary needs, have
good credit and pay by the month. Typically, these customers do not seek to
acquire the property rented. By contrast, rent-to-own arrangements are generally
made by customers without established credit whose objective is to acquire
ownership of the property by renting it through the full term of the lease.
Those arrangements typically involve weekly payments made over 18 to 24 months.
The corporate housing business provides short-term housing (furnished
apartments) to transferring or temporarily assigned corporate personnel, new
hires, trainees, consultants and individual customers. Corporate housing
operators typically maintain an inventory of leased housing units, although some
operators own a portion of their units. Most corporate housing operators lease
their furniture, housewares and electronics, but a small percentage of operators
maintain their own furniture inventory and a greater percentage maintain their
own housewares and electronics inventories.
Corporate housing has become an important distribution channel for
furnished apartments over the last several years, growing at a faster rate than
the other major distribution channels, such as property management companies
renting furnished apartments, and individuals renting unfurnished apartments and
using a furniture rental company to furnish the apartment. The rapid growth of
corporate housing has created margin pressures for furniture rental companies.
Additionally, corporate housing companies serve as middlemen, blocking the
access of furniture rental companies to the corporate end-user,
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thereby hampering the ability of furniture rental companies to cross-sell office
furniture to these end-users and to secure new business leads.
The United States' market for paid room nights of four or more weeks is
estimated to generate annual revenues of approximately $2.5 billion. Corporate
housing generates approximately one-third of these revenues and conventional
lodging generates the remainder. The furniture rental business is estimated to
generate in excess of $800 million in annual revenues. Historically, a
significant portion of these businesses has been comprised of small local and
regional providers. Both businesses have experienced significant consolidation
over the last several years and are expected to undergo continued consolidation
in the future, as consolidators capitalize on the desire of many corporations to
have both corporate housing and furniture rental providers that can meet their
needs nationally. The top four companies in the corporate housing business
account for a market share approaching 70%, while the top four companies in the
furniture rental business account for a market share of approximately 75%. Globe
is the largest, and the only publicly-held, company that is currently pursuing a
strategy of integrating these two consolidating businesses. There are several
private companies that have integrated corporate housing and furniture rental.
COMPANY BACKGROUND AND STRATEGY
Globe is an Ohio corporation formed in 1988 to acquire two existing
furniture rental businesses. At that time, the Company operated in Michigan and
Ohio. Subsequently, Globe implemented an aggressive strategy of expanding market
share through both internal growth, primarily by commencing operations in
several midwestern cities, and through four furniture rental acquisitions in
both the midwest and west. The Company completed an initial public offering of
its common stock in February of 1996, at which time it had operations in four
midwestern and six western states. Since completion of the initial public
offering, Globe has accelerated its expansion through an aggressive corporate
housing acquisition program coupled with selected acquisitions of furniture
rental companies, as discussed under "Current Business Developments" below, and
is a leading consolidator in the temporary relocation industry. Globe currently
has operations in 34 markets in 23 states, as discussed under "Operations"
below.
The Company operates in the corporate housing business, doing business
as Globe Corporate Stay International, and in the furniture rental business,
doing business as Globe Furniture Rentals. Both businesses are highly
competitive. Globe is in the number three position in corporate housing and is
also the third largest company in furniture rental. The Company has an
established reputation for quality furniture and a high level of customer
service.
Management believes that the demand for corporate housing, as well as
office and residential rental furniture, is driven by the changing trends in
American business towards flexibility and outsourcing, continued growth in
management and professional employment levels and the resulting impact of a more
mobile and transitory white collar workforce. Corporate housing customers
include transferring or temporarily assigned corporate personnel and other
individuals whose lives are in transition. Office furniture rental customers
include Fortune 500 companies with temporary, seasonal or outsourcing
requirements as well as small businesses and professional practices that desire
to conserve capital. Residential furniture customers include both institutional
and individual customers.
Globe distinguishes itself from most of its furniture rental
competitors by maintaining the majority of its showrooms as combined
rental/clearance showrooms in 14,000-15,000 square foot superstore formats. The
Company believes that selling expenses generally are reduced by combining retail
clearance centers with rental showrooms. Inside sales personnel are trained to
perform both rental and retail sales functions within the same facility.
The Company intends to become the leading national player in meeting
the country's temporary relocation needs and, to that end, is integrating its
corporate housing and furniture rental businesses. To further this integration,
the Company operates under a regional management structure which was put in
place in mid-fiscal 1998. Each region is headed by a Regional Vice President who
is responsible for operations in both businesses and reports to an Executive
Vice President in charge of operations. Business integration
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has progressed from the beginning of fiscal 1998 when none of Globe's 21 markets
contained both corporate housing and furniture rental to the end of April 2000
when 17 of 34 markets contained both.
Globe's furniture rental operating formula emphasizes its combined
rental/retail facilities, high quality furniture, new furniture sales,
decentralized sales and marketing and an ongoing commitment to superior customer
service. Management believes this formula has been an important contributor to
its success.
The companies acquired by Globe in the corporate housing businesses
have similar characteristics to Globe's furniture rental operations, as they
have strong reputations for superior customer service. As is the case in many
Globe Furniture Rentals markets, Globe Corporate Stay International enjoys a
leading market share in several of its markets.
The Company implemented a comprehensive corporate housing business
information system during fiscal 2000. The system includes fully integrated
business management and financial reporting capabilities and is designed to
allow the Company to better service customer needs.
The Company's growth strategies include: (1) continuing to acquire
corporate housing companies, particularly in major metropolitan markets where
the Company has no presence; (2) continuing to expand the furniture rental
business, both through selected acquisitions and through grass roots operations
in markets where the Company has recently acquired a corporate housing business;
and (3) increasing market share in the office furniture business.
CURRENT BUSINESS DEVELOPMENTS
Globe implemented an aggressive acquisition strategy in fiscal 1997. In
the last four fiscal years, the Company completed sixteen asset acquisitions and
two stock acquisitions. Fifteen of these acquisitions were in corporate housing,
thereby supporting the corporate housing consolidation strategy.
During fiscal 2000, the Company used approximately $0.3 million from
its line of credit, accrued $0.8 million in contingent consideration earned on a
fiscal 1999 acquisition, issued $0.3 million in notes payable and assumed
certain liabilities in completing the asset acquisition of Castleton of Tulsa
and paying certain contingent consideration on fiscal 1998 and 1999
acquisitions. See Note 2 to the Consolidated Financial Statements for further
discussion of this acquisition-related activity.
From March 1, 2000 through May 12, 2000, the Company used approximately
$0.6 million from its line of credit in paying contingent consideration related
to certain fiscal 1999 acquisitions.
With the corporate housing acquisitions to date, Globe has expanded its
corporate housing presence into 30 markets, with annualized corporate housing
revenues in excess of $100 million. Globe is in the number three position in the
industry based on revenues.
The impact of the corporate housing acquisitions on the Company's
operating results is discussed in more detail in Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
OPERATIONS
The Company operates in the corporate housing market by providing fully
furnished short-term housing through an inventory of leased housing units to
temporarily assigned corporate personnel, new hires, trainees, consultants and
individual customers in Arizona, California, Colorado, Connecticut, Florida,
Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota, Missouri, North
Carolina, New Jersey, New York, Ohio, Oklahoma, Oregon, Tennessee, Texas,
Washington and Wisconsin.
Globe leases most of its housing units on a short-term basis under
leasing arrangements typically ranging from one month to one year. These leases
are designed to match customer demand and, consequently, have staggered
expiration dates within each
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market. Management believes that these arrangements allow the Company to react
to changes in demand for certain types of accommodations or to address the
seasonal nature of the business. The Company's goal is to maintain occupancy
rates which exceed 90%.
The Company rents office and residential furniture to a variety of
corporate and individual customers with temporary and transitional needs through
showrooms in Arizona, California, Colorado, Indiana, Kentucky, Michigan, Nevada,
North Carolina, Ohio, Oregon, Tennessee and Washington. 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 its account executives.
The following table sets forth the major metropolitan areas where Globe
maintains leased corporate housing units and/or furniture rental showrooms.
SHOWROOMS ONLY CORPORATE HOUSING ONLY SHOWROOMS AND CORPORATE HOUSING
- -------------- ---------------------- --------------------------------------------------
Las Vegas Chicago Ann Arbor Los Angeles
Reno Cleveland Charlotte Louisville/Lexington
Sacramento Dallas/Ft. Worth Cincinnati Nashville
San Jose Fairfield County, CT Columbus Orange County, CA
Kansas City Dayton Phoenix
Lansing Denver Portland
Milwaukee Detroit San Diego
Minneapolis Indianapolis Seattle
New York City Toledo
Orlando
Raleigh
St. Louis
Tulsa
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The following table shows historical operating data as of each
year-end.
Years Ended February 28/29,
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2000 1999 1998 1997 1996
------- ------- ------- ------- -------
OPERATING DATA:
Markets served
Furniture rental only 4 5 8 17 17
Corporate housing only 13 13 6 4 --
Furniture rental/Corporate housing 17 16 11 -- --
------- ------- ------- ------- -------
Total markets served 34 34 25 21 17
Number of furniture leases
Unaffiliated customers 12,902 14,934 17,016 17,591 16,332
Corporate housing affiliates (a) 2,657 2,797 900 -- --
------- ------- ------- ------- -------
Total number of furniture leases 15,559 17,731 17,916 17,591 16,332
Number of available leased housing units (b) 4,167 4,790 3,396 1,331 --
Annual occupancy rate (c) 90.4% 91.4% 89.0% 85.0% --
Number of units with Company-owned furniture 3,065 3,609 2,060 778 --
Percentage of units with Company-owned furniture 74.0% 75.0% 64.0% 58.5% --
Monthly furniture rent roll
Unaffiliated customers $ 2,941 $ 3,265 $ 3,477 $ 3,642 $ 2,962
Corporate housing affiliates (a) 553 563 155 -- --
------- ------- ------- ------- -------
Total monthly furniture rent roll $ 3,494 $ 3,828 $ 3,632 $ 3,642 $ 2,962
Average furniture lease
Unaffiliated customers $ 227 $ 218 $ 204 $ 207 $ 181
Corporate housing affiliates (a) 208 201 172 -- --
Average furniture lease 224 215 203 207 181
Monthly leased housing units rent roll $ 6,998 $ 7,949 $ 5,297 $ 1,779 $ --
Average corporate housing lease $ 1,905 $ 1,837 $ 1,684 $ 1,528 $ --
(a) Excludes furniture owned by acquired companies and the corresponding monthly
rent roll in markets where Globe has not established furniture rental
operations.
(b) Due to the seasonal nature of the business, these numbers reflect units at a
low point. Fiscal 2000 peak units were 5,194.
(c) Represents average occupancy for the fiscal year rather than at fiscal
year-end.
The Company's sale of residential and office furniture that no longer
meets its showroom condition standards for rental through its clearance centers
allows the Company to recover a substantial portion of original cost and
maintain the freshness of rental furniture. The Company distinguishes itself
from its furniture rental competition by selling new furniture through its
showrooms and its account executives. This provides additional marketing
opportunities, especially with office furniture customers, and generates
additional operating revenues with little added operating expense.
Globe Business Resources markets its products and services under four
brands: (1) Globe Corporate Stay International, which includes corporate housing
sales; (2) Globe Furniture Rentals, which includes both residential rental sales
and residential new furniture sales; (3) Globe Instant Office, which includes
both office rental sales and office new furniture sales; and (4) Globe Clearance
Center, which includes all clearance sales.
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The following table sets forth revenues by category for fiscal 2000.
Year Ended February 29, 2000
------------------------------
Dollars in Percent of
Thousands Total
---------- ----------
Rental sales:
Corporate housing $101,865 64.6%
Residential furniture 25,744 16.3%
Office furniture 13,221 8.4%
-------- ------
Total rental sales 140,830 89.3%
Retail sales:
Clearance
Residential furniture 3,744 2.4%
Office furniture 2,251 1.4%
-------- ------
Total clearance sales 5,995 3.8%
New
Residential furniture 1,900 1.2%
Office furniture 8,955 5.7%
-------- ------
Total new sales 10,855 6.9%
-------- ------
Total retail sales 16,850 10.7%
-------- ------
Total revenues $157,680 100.0%
======== ======
Revenues by brand:
Globe Corporate Stay International $101,865 64.6%
Globe Furniture Rentals 27,644 17.5%
Globe Instant Office 22,176 14.1%
Globe Clearance Center 5,995 3.8%
-------- ------
Total revenues $157,680 100.0%
======== ======
COMPETITION
The corporate housing business is highly competitive, with many local
and regional participants. Management believes that Oakwood Corporate Housing,
BridgeStreet Accommodations, Inc. (which recently announced it would be acquired
by MeriStar Hotels & Resorts, Inc.) and ExecuStay Corporation (recently acquired
by Marriott International) are the Company's significant competitors. In
addition to these companies, Globe also competes with a number of regional and
local corporate housing businesses. The impact of the recent acquisitions is not
certain, but management believes it will create increased visibility for the
industry and may increase its competitiveness. Globe believes that the principal
competitive factors in the corporate housing business are location of the
corporate housing units, service, ability to handle customers' needs in multiple
markets, terms of the rental agreement and price.
The rent-to-rent segment of the furniture rental business is highly
competitive. Management believes that Cort Business Services (recently acquired
by Wesco Financial Corporation, a subsidiary of Berkshire Hathaway Inc.), Aaron
Rents and Brook Furniture Rental are the Company's significant competitors. In
addition to these companies, Globe also competes with a number of regional and
local furniture rental companies. Globe believes that the principal competitive
factors in the furniture rental business are
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service, speed of delivery, product selection and availability, price, furniture
condition, terms of the rental agreement and reputation.
The office and residential furniture retail businesses are also highly
competitive. The Company competes with numerous new and used furniture dealers
in these businesses, many of whom are larger than the Company and have greater
financial resources. Management believes that the principal competitive factors
in new furniture sales are price, value, service and speed of delivery and in
used furniture sales the principal factors are price and value.
EMPLOYEES
At May 12, 2000, Globe had 671 full-time, 46 part-time and 3 temporary
employees, of whom 209 full-time and 8 part-time were in executive and
administrative positions, 177 full-time, 12 part-time and 1 temporary were in
marketing and sales positions and 285 full-time, 26 part-time and 2 temporary
were in warehouse, housekeeping and distribution positions. The Company's
employees are not represented by a collective bargaining agreement, and employee
relations, in the opinion of management, are good.
GENERAL
The Company does not have any customers accounting for 10% or more of
revenues, the loss of which would have a material adverse effect on the
business.
The Company markets its products and services through its showrooms and
its account executives, supplemented by a variety of sales and marketing
collateral and print and broadcast media.
The Company delivers its furniture using a fleet of 119 delivery
trucks, of which 113 are owned and 6 are leased.
The Company acquires furniture from a large number of manufacturers and
is not dependent on any particular manufacturer as a sole source of supply. In
fiscal 2000, there were no material business interruptions due to delays in
acquiring furniture.
Furniture purchases are seasonally weighted to the first half of the
fiscal year in order to ensure adequate levels of inventory to meet customer
needs during the spring and summer months, which are typically the busiest.
The Company regularly evaluates and pursues potential acquisition
candidates. As a general rule, acquisitions are announced only after a
definitive agreement has been reached. The Company has no agreements or
understandings for any acquisition.
Risks and uncertainties that affect the Company are discussed in
greater detail in a separate Exhibit 99 to the Company's Form 10-K for fiscal
2000.
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 customers or 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 reasonably estimated.
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ITEM 2
PROPERTIES
With the exception of a warehouse purchased as part of an October 1996
acquisition and a showroom/clearance center/warehouse opened in July 1997 in
Indianapolis, Globe leases space for all of its store and warehouse operations
under operating leases expiring at various times through 2008. Many of these
leases contain renewal options for additional periods ranging up to ten years at
rental rates generally adjusted for changes in the level of the consumer price
index or other factors.
Globe currently maintains duplicate facilities in certain markets as a
result of acquisitions and is actively pursuing modification or termination of
any leases which are not required. All of Globe's facilities are well maintained
and suitable for their current and reasonably foreseeable uses. Globe regularly
reviews the appearance of its showrooms and clearance centers and improves or
refurbishes them on an on-going basis.
The Company leases all of its corporate housing units and maintains an
inventory of these units under various short-term (one year or less) leasing
arrangements. This inventory fluctuates throughout the year, subject to
seasonality of customer demands. These facilities are well maintained and
suitable for their current and reasonably foreseeable uses.
ITEM 3
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings arising in the
normal course of its business. The Company believes that the outcome of these
matters will not result in a material adverse impact upon its business or
financial condition.
On January 20, 2000, a class action suit was filed by a shareholder
seeking to enjoin the merger with Equity Residential Properties Trust and
recover damages from Globe and its directors. The suit is captioned Nicholas
Simac v. Globe et al. and it is identified as Court of Common Pleas, Hamilton
County, Ohio Number A0000403. The suit alleges that the directors violated their
fiduciary duty to maximize the value a shareholder will receive in the
transaction by agreeing to a sale below market prices achieved in the last
twelve months, taking actions to deter other offers, not announcing third
quarter results prior to announcing execution of the Merger Agreement, not
conducting an active auction for sale of the Company, structuring a preferential
deal for the officers and directors and not disclosing non-public information.
The defendants believe that, in several respects, the suit misstates Ohio law
and the facts of the transaction and is contesting the suit. The pendency of the
suit will not affect the progress and closing of the merger transaction unless
an injunction is issued by the court stopping the transaction. Globe and the
other defendants have filed motions to dismiss the action. On April 4, 2000 the
plaintiff filed an amended complaint. The amended complaint makes many of the
same allegations as the original complaint, and also alleges that the process
employed by the directors of Globe in deciding to proceed with the Equity
transaction was unfair and flawed and was designed to enrich the defendants at
the expense of the public shareholders. The amended complaint also alleges that
neither the Special Committee of the Board of Directors nor Friedman, Billings,
Ramsey and Co., Inc., Globe's financial advisors, was independent of Globe
management and that the preliminary proxy materials do not adequately disclose
all material facts to Globe shareholders. The amended complaint seeks to enjoin
the Merger transaction.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is publicly traded on The Nasdaq Stock
Market under the trading symbol "GLBE". The range of high and low sales prices
by quarter for fiscal years 2000 and 1999, as reported by Nasdaq, appear in the
following table.
Fiscal 2000 Fiscal 1999
----------------------------- -----------------------------
Quarter High Low High Low
- ------- ------- ------- ------- -------
First 14 1/4 9 3/4 15 1/8 9 3/4
Second 14 1/4 11 18 14
Third 15 11 1/2 16 10 3/8
Fourth 13 1/2 10 15 10 7/8
As of May 12, 2000 there were 56 shareholders of record. The Company
believes there are approximately 1,055 beneficial owners of its common stock.
Globe has never paid any cash dividends on its common stock and the
Board of Directors intends to retain all the Company's earnings for use in the
expansion of the Company's business for the foreseeable future. The Company's
credit agreement dated September 29, 1997 and amended May 14, 1998 contains
covenants that limit the amount of dividends or distributions it can pay on its
common stock and the amount of stock the Company can repurchase. See Note 5 to
the Consolidated Financial Statements for further discussion of these
restrictions.
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ITEM 6
SELECTED FINANCIAL DATA
(DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE DATA)
The selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto, Item 8, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", Item 7.
Years Ended February 28/29,
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2000 1999 (1) 1998 (2) 1997 (3) 1996
-------- -------- -------- -------- -------
INCOME STATEMENT DATA:
Revenues
Corporate housing sales $101,865 $ 87,248 $ 42,840 $11,811 $ --
Rental sales 38,965 43,384 45,337 40,940 36,580
Retail sales 16,850 16,818 15,723 14,769 13,717
-------- -------- -------- ------- -------
Total revenues 157,680 147,450 103,900 67,520 50,297
-------- -------- -------- ------- -------
Gross profit
Corporate housing sales 30,186 25,067 11,832 3,517 --
Rental sales 35,091 39,956 41,673 37,635 34,211
Retail sales 6,263 6,852 5,811 5,551 5,899
-------- -------- -------- ------- -------
Gross profit before depreciation
and disposals 71,540 71,875 59,316 46,703 40,110
Furniture depreciation and disposals (9,721) (8,680) (8,259) (7,390) (6,244)
-------- -------- -------- ------- -------
Combined gross profit 61,819 63,195 51,057 39,313 33,866
Operating expenses 50,284 48,181 40,150 31,334 26,040
Amortization of intangible assets 2,491 2,034 1,003 225 --
-------- -------- -------- ------- -------
Operating income 9,044 12,980 9,904 7,754 7,826
Interest/other expenses 4,833 4,389 3,241 1,368 2,461
-------- -------- -------- ------- -------
Income before income taxes 4,211 8,591 6,663 6,386 5,365
Provision for income taxes 1,735 3,437 2,598 2,478 2,136
-------- -------- -------- ------- -------
Net income 2,476 5,154 4,065 3,908 3,229
Preferred stock dividends -- -- -- -- 505
-------- -------- -------- ------- -------
Net income applicable to common stock $ 2,476 $ 5,154 $ 4,065 $ 3,908 $ 2,724
======== ======== ======== ======= =======
Earnings per common share:
Basic $ 0.52 $ 1.13 $ 0.91 $ 0.90 $ 1.05
======== ======== ======== ======= =======
Diluted $ 0.51 $ 1.10 $ 0.89 $ 0.89 $ 1.03
======== ======== ======== ======= =======
Weighted average number of common shares outstanding:
Basic 4,799 4,578 4,475 4,336 2,600
Diluted 4,836 4,689 4,577 4,372 2,650
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February 28/29,
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2000 1999 1998 1997 1996 (5)
-------- -------- ------- ------- --------
Balance Sheet Data:
Total assets $135,303 $131,797 $99,437 $71,778 $44,461
Total debt 66,438 68,900 49,713 30,516 10,573
Redeemable preferred stock -- -- -- -- --
Preferred stock -- -- -- -- --
Common stock and other shareholders' equity 45,634 43,114 35,421 29,836 24,664
Cash dividends declared per common share (4) -- -- -- -- --
Other Data:
Number of employees at year-end 719 834 690 551 430
(1) Results include the impact of five acquisitions during the year, which
accounted for approximately $18.9 million in revenues and $3.2 million in
operating income. See further discussion of the impact of these
acquisitions in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
(2) Results include the impact of seven acquisitions during the year, which
accounted for approximately $18.6 million in revenues and $0.9 million in
operating income. See further discussion of the impact of these
acquisitions in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
(3) Results include the impact of five acquisitions during the year, which
accounted for approximately $14.8 million in revenues and $1.9 million in
operating income. See further discussion of the impact of these
acquisitions in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
(4) The Company has not declared cash dividends on its common stock.
(5) The Company completed an initial public offering in February 1996 and
realized net proceeds of $17.4 million, which were used to redeem preferred
stock and accrued dividends and repay a portion of the Company's
indebtedness.
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ITEM 7
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.
COMPONENTS OF OPERATING INCOME
Revenues. Globe's revenues are derived from corporate housing rental
income, furniture leases and the sale of new and used furniture. Rental revenues
are recognized in the month in which they are earned. Furniture sales revenues
and rental buyout revenues are recognized when the furniture is delivered to the
customer or taken off lease by the customer.
Globe derives additional revenues from various fees which are included
in the applicable corporate housing, rental and retail sales revenue categories.
Intercompany revenues, consisting of furniture and housewares rentals
to corporate housing affiliates, are eliminated in consolidation.
Cost of Revenues. Cost of corporate housing sales consists primarily of
housing unit rental and various furniture, housewares, utility and cleaning
charges. Cost of rental sales consists primarily of housewares expenses and
lease buyout related charges. Cost of retail sales is primarily the depreciated
book value of the furniture sold.
Furniture depreciation and disposals are reflected as a separate
component of cost of revenues. As a result of the ongoing integration of the
Company's business, these expenses cannot be related to specific revenue
categories. Furniture is depreciated on a straight-line basis at a rate of 1%
per month, which is designed to approximate an estimated useful life of four
years with provision for a 50% residual value.
Intercompany costs, consisting of furniture and housewares rentals to
corporate housing affiliates, are eliminated in consolidation.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include warehousing, occupancy, selling, advertising,
administrative and other operating expenses and non-rental depreciation.
Amortization. Goodwill and other intangibles are amortized on a
straight-line basis over periods ranging from three to 35 years.
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.
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RESULTS OF OPERATIONS
Globe's increase in total revenues to $157.7 million in fiscal 2000
from $50.3 million in fiscal 1996, and in operating income to $9.0 million from
$7.8 million over the same period is mainly attributable to acquisitions,
particularly acquisitions in the corporate housing business.
The Company's business mix has changed since fiscal 1996, with
furniture rental revenues decreasing to 24.7% of total revenues in fiscal 2000
from 72.7% of total revenues in fiscal 1996, while corporate housing revenues,
which were non-existent in fiscal 1996, represented 64.6% of total revenues in
fiscal 2000. Additionally, retail sales have decreased to 10.7% of total
revenues in fiscal 2000 from 27.3% of total revenues in fiscal 1996. This shift
in business mix reflects the Company's decision in fiscal 1997 to become a
consolidator in the corporate housing business. The percentage of revenues
represented by corporate housing is expected to increase in the future.
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.
Years Ended February 28/29,
--------------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Revenues:
Corporate housing sales 64.6% 59.2% 41.2% 17.5% 0.0%
Rental sales 24.7% 29.4% 43.7% 60.6% 72.7%
Retail sales 10.7% 11.4% 15.1% 21.9% 27.3%
------ ------ ------ ------ ------
Total revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit:
Corporate housing sales 29.6% 28.7% 27.6% 29.8% N.A.
Rental sales 90.1% 92.1% 91.9% 91.9% 93.5%
Retail sales 37.2% 40.7% 37.0% 37.6% 43.0%
------ ------ ------ ------ ------
Gross profit before depreciation
and disposals 45.4% 48.7% 57.1% 69.2% 79.7%
Furniture depreciation and disposals (6.2%) (5.9%) (7.9%) (10.9%) (12.4%)
------ ------ ------ ------ ------
Combined gross profit 39.2% 42.9% 49.1% 58.2% 67.3%
Operating expenses 31.9% 32.7% 38.6% 46.4% 51.8%
Amortization of intangible assets 1.6% 1.4% 1.0% 0.3% 0.0%
------ ------ ------ ------ ------
Operating income 5.7% 8.8% 9.5% 11.5% 15.6%
Interest/other 3.1% 3.0% 3.1% 2.0% 4.9%
------ ------ ------ ------ ------
Income before taxes 2.7% 5.8% 6.4% 9.5% 10.7%
====== ====== ====== ====== ======
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Fiscal 2000 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 in whole numbers, as well as on a
percentage of revenues basis, excluding these nonrecurring items.
Summary Financial Data, excluding nonrecurring items
Year Ended February 29, 2000
---------------------------------
Percent of
Amount Revenues
-------- ----------
Revenues $157,680 100.0%
Gross profit 62,059 39.4%
Operating expenses (excluding amortization) 48,884 31.0%
Operating income 10,684 6.8%
Income before taxes 5,851 3.7%
Net income 3,440 2.2%
Diluted earnings per common share $0.71 n/a
IMPACT OF GRANTREE AND CORPORATE HOUSING ACQUISITIONS
In January 1993, Globe acquired all of the outstanding common stock of
GranTree, a west coast-based furniture rental company, for $9.3 million. At the
time of the acquisition, GranTree was experiencing significant operational
problems and declining revenues. Management's initial strategy with respect to
GranTree was to reduce operating expenses and to reverse the declining revenue
trend, which was largely accomplished by the end of fiscal 1995.
From the date of the GranTree acquisition through 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 due to 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 the $3.3
million amount by which the book value for 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 certain income
statement data as a percentage of total revenues adjusted to exclude the effect
of the GranTree Gross Profit Accounting Effects on fiscal 1996 results and the
aforementioned nonrecurring items on fiscal 2000 results.
Years Ended February 28/29,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
----- ----- ----- ----- -----
Combined gross profit 39.4% 42.9% 49.1% 58.2% 64.3%
Operating income 6.8% 8.8% 9.5% 11.5% 12.5%
Income before taxes 3.7% 5.8% 6.4% 9.5% 7.6%
===== ===== ===== ===== =====
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.
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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 corporate housing acquisitions approximates $51.5 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 $2.5 million, or 1.6% of sales, in fiscal 2000; by $2.0
million, or 1.4% of sales, in fiscal 1999; and by $1.0 million, or 1.0% of
sales, in fiscal 1998.
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 excluding nonrecurring items
decreased to 39.4% in fiscal 2000 from 42.9% in fiscal 1999 and 49.1% in fiscal
1998, resulting from corporate housing's increasing percentage of total revenues
(64.6% in fiscal 2000 versus 59.2% and 41.2% in fiscal 1999 and 1998,
respectively). Gross profit margin on rental sales in fiscal 2000 was 90.1%
versus 29.6% for corporate housing. Comparable gross profit margins for fiscal
1999 were 92.1% and 28.7%, 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 31.0% of revenues in fiscal 2000 from 32.7% in fiscal 1999 and
38.6% in fiscal 1998, while the operating margin, excluding amortization and the
impact of nonrecurring items, decreased to 8.4% of revenues in fiscal 2000 from
10.2% in fiscal 1999 and 10.5% in fiscal 1998. The reduction in operating margin
from fiscal 1999 to fiscal 2000 is primarily the result of the increasing mix of
corporate housing revenues and a soft sales environment in fiscal 2000.
Including amortization expense and excluding nonrecurring items, operating
margins declined to 6.8% in fiscal 2000 from 8.8% in fiscal 1999 and 9.5% in
fiscal 1998.
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 30 markets and is
the market leader in several 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, which is largely
attributable to the Company's superior level of service. Additionally, the
significance of this risk has lessened over the four years that Globe has been
in corporate housing. In fiscal 2000, unaffiliated corporate housing customers
accounted for $6.6 million, or 4.2%, of Globe's revenues versus $8.1 million, or
5.5%, of Globe's revenues in fiscal 1999. During these time periods, furniture
rental revenues from affiliated corporate housing providers, which are not
included in reported revenues, were $7.1 million and $5.7 million, respectively.
During fiscal 2000, the Company implemented a comprehensive corporate
housing business information system which provides the tools for supporting
Company-wide standardization, as well as for 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 to implement its business-to-business e-commerce efforts. Globe
retained the services of an outside consulting firm to expedite the Company-wide
rollout. Nonrecurring expenses consisting primarily of consulting fees of
approximately $0.5 million were incurred and recorded in administrative expenses
during fiscal year 2000.
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Due to the significant impact of the GranTree acquisition and the
related GranTree Gross Profit Accounting Effects and 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 FISCAL YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
Total revenues of $157.7 million increased $10.2 million, or 6.9%, in
fiscal 2000 from $147.5 million in fiscal 1999 primarily due to acquisitions.
Excluding the corporate housing operations acquired late in fiscal 1999 and in
the first quarter of fiscal 2000 and the impact of the elimination of
intercompany revenues (furniture rented to Company-owned corporate housing
operations), total revenues decreased $8.4 million, or 5.6%, in fiscal 2000
versus fiscal 1999.
Corporate housing sales of $101.9 million in fiscal 2000 increased
16.8% from $87.2 million in fiscal 1999. This increase was caused by
acquisitions. Excluding the acquisitions made in the fourth quarter of fiscal
1999 and first quarter of fiscal 2000, corporate housing revenues declined 6.4%
in fiscal 2000 compared to fiscal 1999. The decline was largely attributable to
a general market softness, as well as completion of several large long-term
customer projects.
Rental sales of $39.0 million in fiscal 2000 decreased $4.4 million, or
10.2%, from $43.4 million in fiscal 1999 partially due to the elimination of
intercompany revenues. Excluding the impact of these eliminations, rental
revenues decreased 6.1%, reflecting a general softness in the residential market
and a loss of business from some competing corporate housing customers.
Retail sales of $16.9 million increased $0.1 million in fiscal 2000
from $16.8 million in fiscal 1999, resulting from a decrease of $1.9 million, or
24.1%, in clearance center revenues offset by an increase of $2.0 million, or
21.7%, in new furniture sales. The decrease in clearance center revenues 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. The increase in new furniture sales is primarily
the result of strong office furniture sales growth.
Gross profit of $61.8 million in fiscal 2000 decreased $1.4 million, or
2.2%, from $63.2 million in fiscal 1999 and declined as a percentage of revenues
to 39.2% from 42.9% over the same period due primarily to the higher mix of
corporate housing revenues and the lower margins associated with these revenues.
The gross profit percentage on corporate housing revenues improved versus the
comparable prior year period to 29.6% from 28.7%. The gross profit percentage on
rental sales decreased to 90.1% from 92.1%, largely due to higher housewares
expenses. The gross profit percentage on retail sales decreased to 37.2% from
40.7% 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 38.6%. Additionally, the Company recorded a physical inventory adjustment of
approximately $0.3 million during the third quarter of fiscal 2000.
Operating expenses of $50.3 million (excluding amortization) in fiscal
2000 increased 4.4% from $48.2 million in fiscal 1999 as a result of
acquisitions and approximately $1.4 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 31.9% from
32.7% over the same period. Excluding the nonrecurring charges, operating
expenses decreased to 31.0% of revenues during fiscal 2000 from 32.7% of
revenues in fiscal 1999, as the Company implemented a cost-cutting program in
response to lower revenue growth.
As a result of Globe's continuing acquisition program, amortization of
intangible assets increased $0.5 million, or 22.5%, to $2.5 million in fiscal
2000, from $2.0 million in fiscal 1999. As a percentage of revenues,
amortization expenses increased to 1.6% from 1.4% over the same period.
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As a result of the changes in revenues, gross profit, operating
expenses and amortization discussed above, operating income decreased 30.3% to
$9.0 million, or 5.7% of revenues, in fiscal 2000 from $13.0 million, or 8.8% of
revenues, in fiscal 1999. Excluding nonrecurring items, operating income
decreased 17.7% to $10.7 million, or 6.8% of revenues, from $13.0 million, or
8.8% of revenues, over the same period.
Interest/other expense increased $0.4 million to $4.8 million in fiscal
2000 from $4.4 million in fiscal 1999 and increased slightly to 3.1% of total
revenues from 3.0% 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 $4.2 million in fiscal 2000 decreased
$4.4 million, or 51.0%, compared to fiscal 1999 and as a percentage of revenues
decreased to 2.7% from 5.8% over the same period. Excluding nonrecurring items,
income before taxes decreased to $5.9 million, or 3.7% of revenues from $8.6
million, or 5.8% of revenues during the period.
The Company's effective tax rate, which includes federal, state and
local taxes, increased to 41.2% in fiscal 2000 from 40.0% in 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 period.
COMPARISON OF FISCAL YEARS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
Total revenues of $147.5 million increased $43.6 million, or 41.9%, in
fiscal 1999 from $103.9 million in fiscal 1998 primarily due to acquisitions.
Excluding the corporate housing operations and the impact of the elimination of
intercompany revenues (furniture rented to Company-owned corporate housing
operations), total revenues increased $4.3 million, or 6.9%, in fiscal 1999
compared to fiscal 1998.
Corporate housing sales of $87.2 million in fiscal 1999 increased
103.7% from $42.8 million in fiscal 1998. This increase was primarily caused by
acquisitions.
Rental sales of $43.4 million in fiscal 1999 decreased $1.9 million, or
4.3%, from $45.3 million in fiscal 1998 largely as a result of intercompany
eliminations. Excluding the impact of these eliminations, rental revenues
increased 6.9%.
Retail sales of $16.8 million increased $1.1 million, or 7.0%, in
fiscal 1999 from $15.7 million in fiscal 1998, driven by an increase of 14.9% in
clearance center revenues.
Gross profit of $63.2 million in fiscal 1999 increased $12.1 million,
or 23.8%, from $51.1 million in fiscal 1998 and declined as a percentage of
revenues to 42.9% from 49.1% over the same period due primarily to the higher
mix of corporate housing revenues and the lower margins associated with these
revenues. Gross profit percentages on corporate housing, rental and retail sales
revenues all improved versus the comparable prior year period.
Operating expenses of $48.2 million (excluding amortization) in fiscal
1999 increased $8.0 million, or 20.0%, from $40.2 million (excluding
amortization) in fiscal 1998, primarily as a result of acquisitions, as well as
additions to the Company's management team and related infrastructure spending
to support the Company's rapid growth. As a percentage of total revenues, these
expenses declined to 32.7% from 38.6% over the same period as a result of
corporate housing's lower operating expenses as a percentage of revenues.
Amortization of intangible assets increased $1.0 million, or 102.8%, to
$2.0 million in fiscal 1999, from $1.0 million in fiscal 1998, as a result of
acquisitions. As a percentage of revenues, amortization expenses increased to
1.4% from 1.0% over the same period.
As a result of the changes in revenues, gross profit, operating
expenses and amortization of intangible assets discussed above, operating income
increased 31.1% to
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$13.0 million, or 8.8% of revenues in fiscal 1999, from $9.9 million, or 9.5% of
revenues in fiscal 1998.
Interest/other expense (income) increased $1.2 million, or 35.4%, to
$4.4 million in fiscal 1999 from $3.2 million in fiscal 1998 and as a percentage
of total revenues decreased slightly to 3.0% from 3.1% over the same period. The
$1.4 million increase in interest expense for fiscal 1999 was due primarily to
higher debt balances resulting from funding required for acquisitions. Other
income in fiscal 1999 included a $0.2 million insurance settlement.
Income before income taxes of $8.6 million in fiscal 1999 increased
$1.9 million, or 28.9%, compared to fiscal 1998 and as a percentage of revenues
decreased to 5.8% from 6.4% over the same period.
The Company's effective tax rate, which includes federal, state and
local taxes, increased to 40.0% in fiscal 1999 from 39.0% in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
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. Principal payments of
$4.3 million are due annually beginning September 1, 2001. These Senior Notes
may be redeemed at a premium.
Also, on September 29, 1997, the Company established a $30.0 million
unsecured line of credit which replaced an existing $45.0 million secured line
of credit. This $30.0 million line was increased on May 14, 1998, to $45.0
million. Interest is currently the lesser of the prime rate minus 25 basis
points or LIBOR plus 150 basis points. At May 12, 2000, the unused line was
$12.3 million, which is available for acquisitions and general corporate
purposes.
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.
On February 29, 2000, the Company obtained a $4.0 million subordinated
term loan from PNC Bank, due the earlier of December 31, 2000 or the date of the
closing of the transactions contemplated by the Agreement and Plan of Merger
dated January 13, 2000 (see Note 11 to the Consolidated Financial Statements for
further discussion). The payment of the subordinated term loan is personally
guaranteed by the Chairman of the Company. Interest is payable in quarterly
installments commencing on June 1, 2000. Through June 30, 2000, the Company can
elect to have the interest rate based on the prime rate or the Euro-Rate plus
200 basis points. After June 30, 2000 the interest rate elections are the prime
rate or the Euro-Rate plus 275 basis points. At February 29, 2000 the interest
rate was 7.875%.
From March 1, 1999 through May 12, 2000 Globe used approximately $0.9
million from its line of credit, accrued $0.8 million in contingent
consideration, issued approximately $0.3 million of notes payable and assumed
approximately $0.1 million of liabilities in completing one acquisition and
settling certain contingent consideration for selected fiscal 2000, 1999 and
1998 acquisitions. Additional contingent consideration of up to $2.0 million is
payable in cash on fiscal 1999 acquisitions, subject to achieving certain future
earnings levels. (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 $20.6 million in
fiscal 2000 and $21.2 million in fiscal 1999. The lower level of purchases in
fiscal 2000 reflects a slow down in furniture rental revenues as well as the
Company's efforts to better manage inventory levels. As the Company's growth
strategies are implemented, furniture purchases are expected to increase.
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Capital expenditures were $2.4 million, $2.6 million and $3.7 million
in fiscal 2000, 1999, and 1998, respectively. These expenditures are largely
attributable to ongoing development of computer systems. Fiscal 1998
expenditures also included construction of a showroom/warehouse facility in
Indianapolis, Indiana. Acquisitions of property and equipment financed through
capital leases and not reflected in the preceding capital expenditure data were
$0.2 million, $0.1 million and $0.5 million over the same periods.
On March 13, 1997, Globe obtained a $1.5 million mortgage note to
finance the showroom/warehouse facility in Indianapolis. The Company can elect
to fix the interest rate for a one-, three-, or five-year period based on the
corresponding Treasury Note rate plus 175 basis points, currently 6.25%. The
initial term of the note requires full payment of the then outstanding balance
on December 1, 2002; however, the Company expects to renew the note for an
additional five-year period at that date.
Costs to further develop the computer systems and support user
equipment needs, which will be incurred in the next 12 months, are anticipated
to be approximately $1.0 million. Non computer-related capital expenditures are
also expected to approximate $1.0 million. All costs are 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.
The Company paid no material Federal income tax until fiscal 1994 when
it began paying alternative minimum tax. At February 29, 2000, Globe had
alternative minimum tax credit carryforwards of $1.0 million that can be carried
forward indefinitely.
In fiscal 2000 and 1999, net cash provided by operations was $28.5
million and $27.8 million, respectively, generating $5.5 million and $4.0
million, respectively, more cash than was necessary to fund investing activities
(excluding acquisitions). The improvement in cash flow in fiscal 2000 results
primarily from higher levels of depreciation and amortization and lower levels
of furniture purchases and capital expenditures.
In August 1999 and October 1998, Globe repurchased 5,000 and 50,000
shares of stock, respectively, for $0.07 million and $0.7 million, respectively,
pursuant to an authorized $3.0 million stock repurchase program. These shares
are held in treasury.
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, except for
significant acquisitions and any additional repurchases that may be made under
the Company's stock repurchase program.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Historically, the Company has been able to offset increases in
furniture prices with increases in rental rates. Management believes that
increases in new furniture prices have averaged less than the overall inflation
rate over the last three years and expects this trend to continue.
Management believes the Company will be able to offset future increases
in leased corporate housing unit rents and utilities with increases in rental
rates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended. The pronouncement, which must
be adopted in fiscal year 2002, applies to all entities and all types of
derivatives. The Company is currently evaluating the impact of this
pronouncement on its future financial reporting.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements". The SAB summarizes the staff's
views in applying generally accepted accounting principles to revenue
recognition in the financial
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statements. The Company is currently evaluating the impact of this SAB on its
financial reporting and expects it to have no affect.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25", which provides guidance on several implementation issues
related to APB Opinion No. 25 on accounting for stock issued to employees. The
Interpretation is generally effective beginning July 1, 2000 and applies
prospectively. The Company is currently evaluating the impact of this
pronouncement on its future financial reporting.
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 customers or 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 reasonably estimated.
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ITEM 7(a)
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, LIBOR and Euro-Rate.
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.)
Years Ended February 28/29,
------------------------------------------------------------------------------------
(Dollars in thousands) 2001 2002 2003 2004 2005 Thereafter Total
------- ------ ------ ------ ------ ---------- -------
Debt Characteristics:
Unsecured revolving note $28,828 $28,828
Average interest rate 7.51% 7.51%
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%
Subordinated term loan $ 4,000 $ 4,000
Average interest rate 7.88% 7.88%
Mortgage note $ 73 $ 77 $ 82 $ 87 $ 93 $ 970 $ 1,382
Fixed interest rate 6.25% 6.25% 6.25% 6.25% 6.25% 6.25% 6.25%
Other debt issues $ 711 $ 488 $ 578 $ 1,777
Average fixed interest rate 5.85% 5.77% 5.69% 5.77%
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ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Financial Statements: PAGE
----
Report of Independent Accountants F-1
Consolidated Balance Sheet:
February 29, 2000 and February 28, 1999 F-2
Consolidated Statement of Income:
Years ended February 29, 2000, February 28, 1999 and F-3
February 28, 1998
Consolidated Statement of Cash Flows:
Years ended February 29, 2000, February 28, 1999 and F-4
February 28, 1998
Consolidated Statement of Changes in Shareholders' Equity:
Years ended February 29, 2000, February 28, 1999 and F-5
February 28, 1998
Notes to Consolidated Financial Statements F-6
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for each F-21
of the three years ended February 29, 2000
All other schedules are omitted because they are not applicable or the
required information is shown in the Company's financial statements or
the notes thereto.
"Selected Quarterly Financial Data" has been included in Note 12 to Globe's
Financial Statements.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information regarding the directors and executive
officers of Globe Business Resources, Inc. is presented as of May 12, 2000.
NAME AND AGE OFFICE AND EXPERIENCE
- ------------ ---------------------
David D. Hoguet, 48 Mr. Hoguet has been Chairman of the Board
and Chief Executive Officer of the Company
since April 1990. From 1986 to 1990, he
served as President of the Company and its
predecessor businesses. He has been a
director since 1988. Prior to joining Globe,
Mr. Hoguet was Vice President of Finance,
Treasurer and a director of Chemed
Corporation. Mr. Hoguet is currently a
director of the International Furniture
Rental Association, serving a three year
term from May 1997 through May 2000. He
served as the Association's
22
25
Chairman from May 1993 to March 1994 and as
its President from March 1991 to May 1993.
Mr. Hoguet is a founder of the Company.
Blair D. Neller, 47 Mr. Neller joined the Company as Executive
Vice President in April 1989 and has been
President and Chief Operating Officer since
April 1990 and a director since 1989. Prior
to joining Globe, Mr. Neller was a Vice
President in the Consumer Markets Division
of Merrill Lynch & Co. Mr. Neller was a
director of the International Furniture
Rental Association from May 1995 through May
1997. Mr. Neller is a founder of the
Company.
Jeffery D. Pederson, 40 Mr. Pederson has served as Executive Vice
President since January 1996. From January
1996 until October 1997 he was responsible
for the Company's western operations. In
October 1997 Mr. Pederson's responsibilities
were expanded to include all the Company's
operations. From April 1994 until January
1996, he served as Senior Vice President.
Prior to joining Globe, Mr. Pederson was
employed as the Vice President and Chief
Operating Officer of Budget Rents Furniture,
Inc.
Sharon G. Kebe, 39 Ms. Kebe has served as the Company's Senior
Vice President - Finance and Treasurer since
January 1996. She joined the Company as
Controller in January 1993 and also served
as Vice President - Finance between January
1995 and January 1996. Prior to that time,
Ms. Kebe was employed by Ernst & Young in
various positions including audit manager
and recruitment coordinator. Ms. Kebe is a
certified public accountant.
Lyle J. Tomlinson, 38 Mr. Tomlinson has served as Regional Senior
Vice President of the Company since October
1997. From February 1993 to September 1997
he served as Senior Vice President of the
Company and was a Vice President from April
1990 through January 1993. Prior to April
1990, Mr. Tomlinson was a District Manager
of the Company.
Louis W. Holliday, Jr., 40 Mr. Holliday has served as Regional Senior
Vice President since April 2000. From
October 1997 to April 2000 he served as
Regional Vice President. From March 1997 to
September 1997 he was a Regional Manager and
from April 1996 to February 1997 he served
as District General Manager. From August
1992 through March 1996, Mr. Holliday worked
as a realtor in the real estate services
division of Polley Polley and Madsen,
previously acquired by Coldwell Banker.
Cory M. Nye, 39 Mr. Nye has served as Vice President,
Director of Globe Instant Office National
Sales since April 2000. From October 1997 to
April 2000 he served as a Regional Vice
President. From January 1997 to October 1997
he was a Regional Manager and from June 1994
to January 1997, he served as a District
General Manager. From May 1992 through May
1994, Mr. Nye was employed by B.K.M.
California, a Steelcase dealership in Los
Angeles, holding a variety of positions
including Rental Division Manager, New
Business Development Manager and Contract
Sales Manager.
John H. Roby, 37 Mr. Roby has served as Regional Vice
President since October 1997. From February
1997 to September 1997, he served as a
Regional Manager and from November 1991 to
January 1997 he was a District General
Manager. Mr. Roby was an elected Officer and
Vice President of the Columbus Apartment
23
26
Association in 1997 and served on its Board
of Trustees in 1996 and 1997. Prior to
joining Globe, he was a District Manager for
Glicks Furniture Rental, which Globe
acquired in November 1991.
Timothy J. Duggan, 40 Mr. Duggan joined the Company as Vice
President in January 1999. From July 1987
until January 1999, Mr. Duggan was President
and Chief Executive Officer of Castleton, a
corporate housing company he founded and
which Globe acquired in January 1999. Prior
to July 1987, he was employed by The
Residence Inn by Marriott as regional sales
and marketing director. Mr. Duggan was a
charter member of the National Interim
Housing Network and the founder of the
Association of Interim Housing Providers,
the corporate housing industry trade
association.
Christopher S. Gruenke, 38 Mr. Gruenke joined the Company as Vice
President and Chief Information Officer in
October 1997. For two years prior to joining
Globe, he was the President and founding
partner of Westminster's Billiard Club. From
1983 through 1995 he was employed by Marion
Merrell Dow in their Information Systems
division. He served as the Director of
Information Systems for Marion Merrell Dow
(Canada) located in Montreal, Quebec from
1992 through 1995.
William R. Griffin, 56 Mr. Griffin is the former President of
Roto-Rooter, Inc., a provider of sewer and
drain cleaning services, a position he held
from May 1985 until September 1996. From May
1991 until September 1996, Mr. Griffin was
also an Executive Vice President of Chemed
Corporation. He is currently a private
investor. Mr. Griffin has been a director of
the Company since 1996.
Alvin Z. Meisel, 71 Mr. Meisel has been President of The Globe
Furniture Company (d/b/a Globe Furniture
Galleries), a furniture retailer located in
Cincinnati, since 1959. He is a founder of
the Company. Mr. Meisel has been a director
of the Company since 1989.
Thomas C. Parise, 45 Mr. Parise has been President and CEO of
Cirilium, a company that focuses on voice
over internet protocol networks since
September 1999. He is the former President
of Inter-Tel, Incorporated, a designer and
manufacturer of voice and data communication
systems and network services, a position he
held from January 1991 until April 1998. Mr.
Parise served in various other capacities
with Inter-Tel from March 1981 through
January 1990. Mr. Parise has been a director
of the Company since 1996.
None of the officers or directors is related except that Mr. Hoguet is Mr.
Meisel's son- in-law.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Globe's
executive officers, directors and persons who own more than 10% of a registered
class of Globe's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and to furnish Globe with
copies of these reports. Based on a review of the copies of such reports
received by it, and upon written representation from certain reporting persons
that no reports were required, Globe believes that all of its executive
officers, directors and 10% shareholders complied with the Section 16 reporting
requirements during fiscal 2000.
24
27
ITEM 11
EXECUTIVE COMPENSATION
The following table presents certain data regarding the compensation of
the Company's five most highly compensated executive officers for fiscal 2000.
Long-Term
Annual Compensation Compensation Awards
------------------------------------------------------------- ---------------------------
Number of
Securities Restricted
Name and Other Annual Underlying Stock
Principal Position Year Salary Bonus Compensation (1) Options Award (2)
- ---------------------- ---- -------- ------- ---------------- ------ ---------
David D. Hoguet 2000 $277,000 -- $ 2,409 10,000 --
Chairman of the Board 1999 265,800 80,000 2,596 10,000 --
of Directors, Chief 1998 249,969 -- 2,497 6,000 --
Executive Officer
Blair D. Neller 2000 $277,000 -- $ 2,901 10,000 --
President, Chief 1999 265,800 80,000 2,596 10,000 --
Operating Officer 1998 249,969 -- 2,497 6,000 --
Jeffery D. Pederson 2000 $176,615 $25,000 (4) $ 2,235 25,000 --
Executive Vice 1999 166,385 57,188 22,190 10,000 --
President 1998 138,615 65,000 1,862 6,000 $100,035
Sharon G. Kebe 2000 $103,446 $45,000 (4) $ 799 7,500 --
Sr. Vice President - 1999 96,039 28,394 862 5,000 --
Finance & Treasurer 1998 83,690 17,350 900 4,000 --
Christopher S. Gruenke 2000 $118,585 $20,000 (4) $ 958 7,500 --
Vice President & Chief 1999 111,036 34,813 275 5,000 --
Information Officer(3) 1998 42,308 20,000 -- 3,500 --
(1) Represents matching contributions made by the Company under its 401(k)
savings plan and term life insurance premiums. In the case of Mr.
Pederson, the 1999 amount also includes relocation expenses.
(2) On October 16, 1997 Mr. Pederson received a grant of 4,446 restricted
shares of Globe common stock, pursuant to the 1997 Stock Option and
Incentive Plan. Vesting is over 3 years. At present 1,482 shares have not
yet vested.
(3) Mr. Gruenke was employed by the Company in October 1997.
(4) Bonus payment is contingent upon completion of the contemplated merger
with Equity Residential Properties Trust.
25
28
OPTION GRANTS IN LAST FISCAL YEAR
Number of Percent of Potential Realizable
Securities Total Options Value at Assumed
Underlying Granted to Exercise Annual Rates of Stock
Options Employees in Price Expiration Price Appreciation
Name Granted (1) Fiscal Year (per share) Date for Option Term (2)
- ------------------- ----------- ----------- ----------- ---- --------------------------
5% 10%
-- ---
David D. Hoguet 10,000 5.4% $13.75 7/21/2009 $ 86,473 $219,140
Blair D. Neller 10,000 5.4% $13.75 7/21/2009 $ 86,473 $219,140
Jeffery D. Pederson 15,000 8.0% $13.50 4/22/2009 $127,351 $322,733
10,000 5.4% $13.75 7/21/2009 $ 86,473 $219,140
Sharon G. Kebe 7,500 4.0% $11.50 6/11/2009 $ 54,242 $137,460
Christopher S. Gruenke 7,500 4.0% $11.50 6/11/2009 $ 54,242 $137,460
(1) Options are exercisable at the rate of 25% per year commencing one year
after grant.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The
potential realizable values shown are net of the option exercise price,
but do not include deductions for taxes. The actual realizable values,
if any, on the stock option exercises will depend on the future
performance of the Common Stock, the optionee's continued employment
through applicable vesting periods and the date on which the options
are exercised.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Number of Securities
Shares Underlying Value of Unexercised
Acquired Value Unexercised Options In-the-Money Options
Name on Exercise Realized at Fiscal Year End at Fiscal Year End (1)
- ------------------------------ ----------- --------- --------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
David D. Hoguet -- -- 10,000 22,000 $ 3,375 $ 1,125
Blair D. Neller -- -- 10,000 22,000 $ 3,375 $ 1,125
Jeffery D. Pederson -- -- 12,250 37,750 $28,688 $ 9,563
Sharon G. Kebe -- -- 7,750 14,750 $19,125 $12,000
Christopher S. Gruenke -- -- 3,000 13,000 -- $ 5,625
(1) Based on February 29, 2000 closing price of $12.25.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive $12,500 per year
for serving as a director and a member of committees, plus $750 for each
director's meeting attended and $500 for each director's meeting held by
telephone. Committee members receive $750 per committee meeting attended, unless
the committee meeting occurs on the same day as a director's meeting, in which
case the committee member will receive only the director's
26
29
meeting fee. Non-employee directors also receive an immediately exercisable
option for the purchase of 1,000 shares of Globe common stock, annually, upon
election to the Board of Directors, pursuant to the 1997 Directors Stock Option
Plan. Directors who are employees of the Company are not separately compensated
for serving as Directors.
The Board of Directors appointed a two person special committee to
evaluate Globe's contemplated merger with Equity Residential Properties Trust.
The Chairman of this committee received a one-time fee of $5,500 and the other
member received a one-time fee of $4,500. Both members receive $750 for each
meeting attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee establishes, oversees and directs the
executive compensation policies of the Company and administers the Company's
stock option plans. The Committee consists of the Company's three independent
outside directors, none of whom is or was an officer or employee of the Company.
Meisel Investments, Inc., a corporation owned by Mr. Meisel, leased
property to the Company in fiscal 2000. The Company believes that the terms of
the leases are similar to those prevailing for comparable properties which could
be obtained from unrelated parties. Globe leased five properties from Meisel
Investments, Inc. throughout fiscal 2000. One of the leases expires on August
31, 2008, two expire on April 30, 2004, one expires on April 30, 2001 and one
property is leased on a month-to-month basis. The Company made lease payments in
fiscal 2000 of approximately $690,000 to Meisel Investments, Inc.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following are the only shareholders known by the Company to own
beneficially 5% or more of its outstanding Common Stock as of May 12, 2000:
Amount and Nature
of Beneficial Percent
Name of Beneficial Owner Ownership (1) of Class
- ------------------------------ ------------------ --------
David D. Hoguet
11260 Chester Road, Suite 400
Cincinnati, Ohio 45246 784,087 (2)(3) 16.3%
Blair D. Neller
340 E. Palm Lane, Suite 230
Phoenix, Arizona 85004 717,261 (3)(5) 14.9%
Alvin Z. Meisel
1650 Central Parkway
Cincinnati, Ohio 45210 384,428 (4) 8.0%
(1) Includes outstanding exercisable options for the purchase of shares of
Common Stock of 11,500 each for Messrs. Hoguet and Neller and 3,000 for
Mr. Meisel.
(2) Includes 46,751 shares held as custodian for Mr. Hoguet's two minor
children.
(3) Includes 122 shares for Mr. Hoguet and 118 shares for Mr. Neller that
are held in the Company's 401(k) savings plan.
(4) Includes 100,000 shares held by the Meisel Family Foundation, an entity
controlled by Mr. Meisel.
(5) Includes 318,492 shares beneficially owned by the Neller Trust, of
which Mr. Neller is the trustee.
27
30
SECURITIES OWNERSHIP
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of May 12,
2000 by each director, each executive officer named in the Summary Compensation
Table and by all directors and executive officers as a group.
Common Stock
Beneficially Owned
---------------------------
Name Amount Percentage
- ------------------------------------- ------------ ----------
David D. Hoguet (1)(2)(3) 784,087 16.3%
Blair D. Neller (2)(3)(7) 717,261 14.9%
Alvin Z. Meisel (2)(4) 384,428 8.0%
William R. Griffin (2) 4,500 *
Thomas C. Parise (2) 5,000 *
Jeffery D. Pederson (2)(3)(5) 19,556 *
Sharon G. Kebe (2)(3) 11,719 *
Christopher S. Gruenke (2)(3) 4,948 *
All Executive Officers and
Directors as a Group (13 Persons) (6) 2,038,248 41.5%
* Less than one percent
(1) Includes 46,751 shares held as custodian for Mr. Hoguet's two minor
children.
(2) Includes outstanding exercisable stock options for the purchase of
shares of common stock of 11,500 each for Messrs. Hoguet and Neller,
3,000 each for Messrs. Meisel, Griffin and Parise, 17,500 for Mr.
Pederson, 10,625 for Ms. Kebe and 4,875 for Mr. Gruenke.
(3) Includes 122 shares for Mr. Hoguet, 118 shares for Mr. Neller, 112
shares for Mr. Pederson, 94 shares for Ms. Kebe and 73 shares for Mr.
Gruenke that are held in the Company's 401(k) savings plan.
(4) Includes 100,000 shares held by the Meisel Family Foundation, an entity
controlled by Mr. Meisel.
(5) Does not include 1,482 restricted shares. These shares vest on the
earlier of October 16, 2000 or completion of the contemplated merger
with Equity Residential Properties Trust. Mr. Pederson has no rights in
such shares until vested.
(6) Includes outstanding exercisable stock options for the purchase of
shares of common stock and shares held in the Company's 401(k) savings
plan.
(7) Includes 318,492 shares beneficially owned by the Neller Trust, of
which Mr. Neller is the trustee.
28
31
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT
On January 20, 1998, the Company loaned $100,000 to Jeffery D.
Pederson, Executive Vice President, pursuant to a promissory note. Interest
accrues at the rate of 7.5% per annum and is payable annually on the anniversary
date of the note. The principal amount is payable on the third anniversary date
of the note. The loan was issued in connection with Mr. Pederson's relocation to
Cincinnati, Ohio.
On February 29, 2000, the Company obtained a $4.0 million subordinated
term loan with PNC Bank, due the earlier of December 31, 2000 or the date of the
closing of the transactions contemplated by the Agreement and Plan of Merger
dated January 13, 2000. The payment of the subordinated term loan is personally
guaranteed by the Chairman of the Company and is collateralized by certain
personal assets. Interest is payable in quarterly installments commencing on
June 1, 2000. Through June 30, 2000, the Company can elect to have the interest
rate based on the prime rate or the Euro-Rate plus 200 basis points. After June
30, 2000 the interest rate elections are the prime rate or the Euro-Rate plus
275 basis points. At February 29, 2000 the interest rate was 7.875%.
29
32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Globe Business Resources, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
statements of income, shareholders' equity and cash flows present fairly, in all
material respects, the financial position of Globe Business Resources, Inc. and
its subsidiaries at February 29, 2000 and February 28, 1999 and the results of
their operations and their cash flows for each of the three years in the period
ended February 29, 2000, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Cincinnati, Ohio
May 2, 2000, except for Note 11, as to which the date is May 10, 2000
F-1
33
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
February 28/29,
--------------------------------
2000 1999
-------- --------
ASSETS:
Cash $ 2,142 $ 1,123
Trade accounts receivable, less allowance for doubtful
accounts of $1,039 and $977, respectively 16,543 11,982
Other receivables 1,145 1,418
Prepaid expenses 3,989 4,229
Rental furniture, net 54,027 55,426
Property and equipment, net 8,197 8,469
Goodwill and other intangibles, less accumulated
amortization of $5,753 and $3,262, respectively 47,038 47,580
Note receivable from officer 100 100
Other notes receivable 961 490
Other, net 1,161 980
-------- --------
Total assets $135,303 $131,797
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 8,945 $ 6,250
Customer deposits 3,592 2,072
Accrued compensation 1,831 2,628
Accrued taxes 36 304
Deferred income taxes 6,079 5,738
Accrued interest payable 1,294 1,541
Other accrued expenses 1,454 1,250
Debt 66,438 68,900
-------- --------
Total liabilities 89,669 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, respectively 24,058 24,018
Retained earnings 25,660 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 45,634 43,114
-------- --------
Total liabilities and shareholders' equity $135,303 $131,797
======== ========
The accompanying notes are an integral part of these financial statements.
F-2
34
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
Years Ended February 28/29,
--------------------------------------------------
2000 1999 1998
-------- -------- --------
Revenues:
Corporate housing sales $101,865 $ 87,248 $ 42,840
Rental sales 38,965 43,384 45,337
Retail sales 16,850 16,818 15,723
-------- -------- --------
157,680 147,450 103,900
-------- -------- --------
Cost of revenues:
Cost of corporate housing sales 71,679 62,181 31,008
Cost of rental sales 3,874 3,428 3,664
Cost of retail sales 10,587 9,966 9,912
Furniture depreciation and disposals 9,721 8,680 8,259
-------- -------- --------
95,861 84,255 52,843
-------- -------- --------
Gross profit 61,819 63,195 51,057
Operating expenses:
Warehouse and delivery 10,811 10,366 9,509
Occupancy 7,580 7,456 7,012
Selling and advertising 10,095 10,818 9,198
General and administration 21,798 19,541 14,431
Amortization of intangible assets 2,491 2,034 1,003
-------- -------- --------
52,775 50,215 41,153
-------- -------- --------
Operating income 9,044 12,980 9,904
Other expense (income):
Interest expense 4,897 4,410 3,055
Other, net (64) (21) 186
-------- -------- --------
4,833 4,389 3,241
Income before income taxes 4,211 8,591 6,663
Provision for income taxes 1,735 3,437 2,598
-------- -------- --------
Net income $ 2,476 $ 5,154 $ 4,065
======== ======== ========
Earnings per common share:
Basic $ 0.52 $ 1.13 $ 0.91
======== ======== ========
Diluted $ 0.51 $ 1.10 $ 0.89
======== ======== ========
Weighted average number of common shares outstanding:
Basic 4,799 4,578 4,475
Diluted 4,836 4,689 4,577
The accompanying notes are an integral part of these financial statements.
F-3
35
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Years Ended February 28/29,
-------------------------------------------------
2000 1999 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,476 $ 5,154 $ 4,065
Adjustments to reconcile net income to
net cash provided by operating activities:
Rental furniture depreciation 7,867 7,781 7,177
Other depreciation and amortization 5,268 4,130 2,625
Provision for losses on accounts receivable 784 463 541
Provision for deferred income taxes 341 1,555 1,282
Loss/(gain) on sale of property and equipment 27 (3) 10
Book value of furniture sales and rental buyouts 14,112 12,812 12,368
Changes in assets and liabilities:
Accounts receivable (5,074) (4,952) (3,467)
Notes receivable (471) -- (100)
Other assets, net (177) (402) (272)
Prepaid expenses 224 (1,442) (107)
Accounts payable 2,695 2,677 (877)
Customer deposits 1,510 (366) 400
Accrued compensation (804) 413 (598)
Accrued taxes (268) (41) (285)
Accrued interest payable (247) 420 736
Other accrued expenses 187 (405) (27)
--------- --------- ---------
Net cash provided by operating activities 28,450 27,794 23,471
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental furniture (20,580) (21,242) (23,620)
Purchases of property and equipment (2,361) (2,622) (3,742)
Purchases of businesses, net of cash acquired (1,600) (19,940) (15,055)
Other investing activities 1 31 6
--------- --------- ---------
Net cash used in investing activities (24,540) (43,773) (42,411)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on the revolving credit agreements 172,158 172,820 131,213
Repayments on the revolving credit agreements (177,746) (154,880) (143,290)
Borrowings on the senior note -- -- 30,000
Borrowings on the subordinated term loan 4,000 -- --
(Repayments)/borrowings of other debt (634) (546) 1,309
Principal payments under capital lease obligations (713) (170) (508)
Exercise of common stock options 107 5 25
Purchase of treasury stock (63) (653) --
--------- --------- ---------
Net cash (used in)/provided by financing activities (2,891) 16,576 18,749
--------- --------- ---------
Net increase/(decrease) in cash 1,019 597 (191)
Cash at beginning of period 1,123 526 717
--------- --------- ---------
Cash at end of period $ 2,142 $ 1,123 $ 526
========= ========= =========
Supplemental cash flow information:
Cash paid for interest $ 5,289 $ 4,075 $ 2,348
========= ========= =========
Cash paid for income taxes $ 1,788 $ 1,922 $ 1,485
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-4
36
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
Common Stock Excess
------------------------- Fair
Outstanding Retained Market
Shares Amount Earnings Value Total
--------- ------- -------- -------- -------
Balance at February 28, 1997 4,440,509 $19,883 $14,037 $(4,084) $29,836
Stock issued in connection with
acquisitions 94,595 1,479 1,479
Restricted stock issued 4,446 100 100
Exercise of options, net of tax
effects 8,849 30 (89) (59)
Net income 4,065 4,065
--------- ------- ------- ------- -------
Balance at February 28, 1998 4,548,399 $21,492 $18,013 $(4,084) $35,421
Stock issued in connection with
acquisitions 287,784 3,171 3,171
Purchase of treasury stock (50,000) (653) (653)
Exercise of options, net of tax
effects 8,306 8 13 21
Net income 5,154 5,154
--------- ------- ------- ------- -------
Balance at February 28, 1999 4,794,489 $24,018 $23,180 $(4,084) $43,114
Purchase of treasury stock (5,000) (63) (63)
Exercise of options, net of tax
effects 13,709 103 4 107
Net income 2,476 2,476
--------- ------- ------- ------- -------
Balance at February 29, 2000 4,803,198 $24,058 $25,660 $(4,084) $45,634
========= ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-5
37
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--SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS AND COMMENCEMENT OF OPERATIONS
Globe Business Resources, Inc., formerly known as Globe Furniture
Rentals, Inc., commenced operations on March 1, 1989 with the acquisition of
certain assets and assumption of certain liabilities of the former Globe
Furniture Rentals, Inc. and Globe Furniture Rental of Tri-County, Inc.
(collectively, the Selling Corporations). The transaction was accounted for as a
purchase. Certain shareholders of the Company (either directly or through
related party relationships) also had a 50% ownership in the Selling
Corporations. Consequently, only 50% of the amount by which the fair market
value of the net assets acquired exceeded their historical basis was considered
in establishing the carrying value of the net assets. The remaining 50% of such
excess was accounted for as a $4,084 reduction of shareholders' equity.
The Company provides fully furnished short-term housing through an
inventory of leased housing units to transferring or temporarily assigned
corporate personnel, new hires, trainees, consultants and individual customers
throughout the United States. Additionally, the Company rents and sells
furniture to a diversified base of commercial and residential customers
throughout the United States.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All intercompany transactions
are eliminated.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, other assets, accounts
payable, accrued expenses and debt approximate fair value, calculated based on
discounted cash flows.
REPORTABLE SEGMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information", which
requires an entity to present certain information about each identified segment
that exceeds certain quantitative thresholds for revenue, earnings and assets.
Because the Company is integrating its furniture rental and corporate
housing operations it is possible only to identify revenues and gross profit
before furniture depreciation and disposals. This information is reported
separately in the Consolidated Statement of Income.
Furniture depreciation and disposals cannot be related to specific
revenue categories. Operating expenses and operating margins for furniture
rental and corporate housing cannot be specifically identified. Assets and
liabilities are not specifically allocated between furniture rental and
corporate housing operations.
RENTAL FURNITURE
Rental furniture is stated at cost and depreciated on a straight-line
basis at a rate of 1% per month, which is designed to approximate an estimated
useful life of four years with provision for a 50% residual value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including interest on funds
borrowed to finance the acquisition or construction of major capital additions.
Capitalized interest was $21, $16 and $27 in fiscal 2000, 1999 and 1998,
respectively. Depreciation expense is provided on a straight-line basis over
estimated useful lives of three to ten years.
F-6
38
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Leasehold improvements are amortized on a straight-line basis over the terms of
the respective leases. Expenditures that enhance or extend the useful lives of
the assets involved, including the development of internal use software, are
capitalized. Maintenance and repair expenditures are expensed as incurred. When
property and equipment is retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is included in income. The Company periodically reviews property and
equipment and impairments will be recognized if a permanent decline in value has
occurred. Such impairment would be calculated based on discounted cash flows.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles are amortized on a straight-line basis
over periods ranging from three to 35 years, with a weighted average life of
approximately 24 years. The Company periodically reviews goodwill and other
intangibles and impairments will be recognized if a permanent decline in value
has occurred. Such impairment would be calculated based on discounted cash
flows. Accumulated amortization of goodwill and other intangibles was $5,753 at
February 29, 2000 and $3,262 at February 28, 1999.
REVENUE RECOGNITION
Leased housing unit rentals vary in terms from a few days to several
months. Leases of furniture generally have an initial term of three to six
months in duration and can be extended by the customer on a month-to-month
basis. Leased housing unit rentals and furniture rentals are accounted for as
operating leases, and revenue is recorded in the month earned. For sales of
furniture, as well as rental buyouts, revenue and related cost of sales are
recorded when the furniture is delivered or taken off lease.
ADVERTISING
The costs of advertising are generally expensed as incurred.
INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes",
deferred taxes are provided for all differences between the financial statement
basis and the tax basis of assets and liabilities using the enacted tax rate. A
valuation allowance is provided for deferred tax assets which are more likely
than not unrealizable.
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 and 1998.
F-7
39
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents the calculation of basic and diluted
earnings per share for the periods indicated.
Years Ended February 28/29,
------------------------------------------
(Shares in thousands) 2000 1999 1998
------ ------ ------
Net income used to calculate basic and diluted
earnings per share $2,476 $5,154 $4,065
====== ====== ======
Weighted average common shares used to calculate
basic earnings per share 4,799 4,578 4,475
====== ====== ======
Basic earnings per common share $ 0.52 $ 1.13 $ 0.91
====== ====== ======
Shares used in the calculation of diluted earnings per share:
Weighted average common shares 4,799 4,578 4,475
Dilutive effect of assumed exercise of options
for the purchase of common shares 37 52 82
Dilutive effect of assumed issuance of
contingently issuable shares -- 59 20
------ ------ ------
Weighted average common shares used to calculate
diluted earnings per share 4,836 4,689 4,577
====== ====== ======
Diluted earnings per common share $ 0.51 $ 1.10 $ 0.89
====== ====== ======
A weighted average total of 324 shares, 143 shares and 51 shares were
considered anti-dilutive in earnings per share calculations for the years ended
February 29, 2000, February 28, 1999 and February 28, 1998, respectively.
USE OF ESTIMATES
The financial statements, which are prepared in conformity with
generally accepted accounting principles, require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from these estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
STOCK OPTION PLAN
The Company follows Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees", in accounting for its employee stock
options and has not recognized compensation expense for those options granted in
the years ended February 28/29, 2000, 1999, and 1998. As permitted by SFAS No.
123, "Accounting for Stock-Based Compensation", the Company has elected to adopt
the disclosure only provisions. (See Note 7 for further information.)
F-8
40
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities, as amended". The pronouncement, which must
be adopted in fiscal year 2002, applies to all entities and all types of
derivatives. The Company is currently evaluating the impact of this
pronouncement on its future financial reporting.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements". The SAB summarizes the staff's
views in applying generally accepted accounting principles to revenue
recognition in the financial statements. The Company is currently evaluating the
impact of this SAB on its financial reporting and expects it to have no affect.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25", which provides guidance on several implementation issues
related to APB Opinion No. 25 on accounting for stock issued to employees. The
Interpretation is generally effective beginning July 1, 2000 and applies
prospectively. The Company is currently evaluating the impact of this
pronouncement on its future financial reporting.
NOTE 2--ACQUISITIONS:
During 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 $0.3 million in cash,
accrual of $0.8 million in contingent consideration earned on a fiscal 1999
acquisition, issuance of $0.3 million of notes payable and the assumption of
certain liabilities. Additional contingent consideration of up to $2.5 million
is payable in cash on fiscal 1999 acquisitions, subject to achieving certain
future earnings levels.
In accordance with APB No. 16, all acquisitions were accounted for
using the purchase method.
The purchase price allocation for the businesses is as follows:
Cash, receivables and prepaids $ 8
Rental furniture --
Property and equipment 10
Other assets 4
Goodwill and other intangibles 1,949
-------
1,971
Liabilities assumed (363)
-------
$ 1,608
=======
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.
F-9
41
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 3--RENTAL FURNITURE:
Rental furniture consists of the following:
February 28/29,
-----------------------------
2000 1999
-------- --------
Furniture on rental $ 41,675 $ 43,648
Furniture on hand 25,478 24,120
-------- --------
67,153 67,768
Accumulated depreciation (13,126) (12,342)
-------- --------
$ 54,027 $ 55,426
======== ========
NOTE 4--PROPERTY AND EQUIPMENT AND LEASES:
Property and equipment consists of the following:
February 28/29,
-----------------------------
2000 1999
-------- --------
Land $ 370 $ 370
Buildings 1,949 1,949
Leasehold improvements 2,337 2,888
Delivery equipment 3,216 2,811
Office and store equipment 8,482 6,183
Assets under capital lease (primarily delivery
and computer equipment) 793 1,000
Construction in progress -- 519
-------- --------
17,147 15,720
Accumulated depreciation and amortization (8,950) (7,251)
-------- --------
$ 8,197 $ 8,469
======== ========
The Company leases certain real property and equipment under operating
leases from unrelated third parties and from certain of the Company's directors.
Lease terms range from one to 15 years. Rental expense was $4,374, $4,354 and
$4,149 in 2000, 1999 and 1998, respectively.
Acquisition of assets financed through capital leases totaled $180,
$103, and $543 in 2000, 1999 and 1998, respectively.
F-10
42
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Minimum future rentals under noncancelable capital and operating leases
at February 29, 2000 are as follows:
Operating Leases
-----------------------------
Capital Related Unrelated
Leases Parties Parties Total
----------------------------------------------------------------------
2001 $ 253 $ 585 $ 3,903 $ 4,741
2002 209 460 2,854 3,523
2003 17 439 2,011 2,467
2004 -- 439 1,260 1,699
2005 -- 253 300 553
Thereafter -- 770 231 1,001
-------- -------- -------- --------
Total minimum lease payments 479 2,946 10,559 13,984
Amounts receivable from sublease -- -- (61) (61)
-------- -------- -------- --------
Minimum future lease obligations 479 $ 2,946 $ 10,498 $ 13,923
======== ======== ========
Amount representing interest (28)
--------
Present value of capital lease obligations $ 451
========
F-11
43
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 5--DEBT:
Outstanding debt consists of the following:
February 28/29,
--------------------------
2000 1999
------- -------
The Fifth Third Bank, PNC Bank and
Norwest Bank unsecured revolving note,
average interest of 7.51% and 6.62% $28,828 $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
7.875% subordinated term loan payable to
PNC Bank, interest payable in quarterly
installments, due the earlier of December
31, 2000 or the closing date of the
transactions contemplated by the Agreement
and Plan of Merger dated January 13, 2000 4,000 --
6.25% mortgage note payable to The Fifth
Third Bank, interest payable in monthly
installments, due December 1, 2002 1,382 1,445
6.0% note payable to seller of acquired
business, payable in monthly installments,
due December 31, 2000 250 550
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 398 500
Capital lease obligations 451 526
------- -------
$66,438 $68,900
======= =======
On September 29, 1997, the Company obtained a $30 million unsecured
line of credit with The Fifth Third Bank and PNC Bank. This line of credit was
increased, by amendment, on May 14, 1998 to a $45 million unsecured line of
credit with The Fifth Third Bank, PNC Bank and Norwest Bank. 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 February 29, 2000, the line of credit provided a total unused
credit facility of approximately $16.2 million. Unused facility fees are payable
at 0.20% per year. The term of the line of credit will expire on September 30,
2000.
The line of credit, as amended, contains covenants that limit the
amount of dividends or distributions the Company can pay on its common stock and
the amount of its own stock the Company can repurchase. The Company may pay
dividends or distributions on
F-12
44
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
its common stock or repurchase shares of its common stock as long as the
aggregate amount is not in excess of $2 million in any fiscal year. Any portion
of such $2 million which is not utilized in a fiscal year ending February 28/29
will be available for utilization during the next fiscal year in addition to the
$2 million already available for that year.
On March 13, 1997, the Company obtained a $1.5 million construction
loan with The Fifth Third Bank to fund construction of a showroom/clearance
center/warehouse facility. Effective December 1, 1997 the construction loan was
amended to a mortgage note due December 1, 2002, with principal and interest
payable monthly. The Company can elect to fix the interest rate for a one-,
three-, or five-year period based on the corresponding Treasury Note rate plus
175 basis points. Principal and interest are amortized over a 15-year period. At
February 29, 2000 the interest rate was 6.25%.
On September 29, 1997, the Company completed a private placement of $30
million of unsecured 7.54% Senior Notes due September 1, 2007, with interest
payable semi-annually on March 1 and September 1. Principal payments of $4.3
million are due annually beginning September 1, 2001. These Senior Notes may be
redeemed at a premium.
On February 29, 2000, the Company obtained a $4.0 million subordinated
term loan with PNC Bank, due the earlier of December 31, 2000 or the date of the
closing of the transactions contemplated by the Agreement and Plan of Merger
dated January 13, 2000 (see Note 11). The payment of the subordinated term loan
is personally guaranteed by the Chairman of the Company and is collateralized by
certain personal assets. Interest is payable in quarterly installments
commencing on June 1, 2000. Through June 30, 2000, the Company can elect to have
the interest rate based on the prime rate or the Euro-Rate plus 200 basis
points. After June 30, 2000 the interest rate elections are the prime rate or
the Euro-Rate plus 275 basis points. At February 29, 2000 the interest rate was
7.875%.
The aggregate payments of debt outstanding at February 29, 2000 for the
next five fiscal years and thereafter are summarized as follows:
2001 $ 33,844
2002 5,052
2003 4,963
2004 4,373
2005 4,379
Thereafter 13,827
--------
$ 66,438
========
NOTE 6-SHAREHOLDERS' EQUITY:
One hundred thousand authorized but unissued shares of preferred stock
may be issued from time to time in series having such designated preferences and
rights, qualifications and limitations as the Board of Directors may determine
without any approval of shareholders.
On March 12, 1998, the Company's Board of Directors approved a program
for the repurchase of up to $3 million of the Company's outstanding common
stock. Shares may be purchased as market conditions warrant in the open market
or in privately negotiated transactions. During fiscal 2000 and 1999, 5,000 and
50,000 shares were repurchased for $63 and $653, respectively. These shares are
currently held in treasury, and are accounted for as if retired.
F-13
45
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7--STOCK OPTIONS:
Nonqualified options to purchase shares of the Company's common stock
were granted to certain key employees of the Company in April 1989, 1990 and
1992 under separate stock option agreements with these employees. Such options
were granted at a price equal to the market value at the date of grant. The
options expire ten years after the date of grant.
Effective January 11, 1996, April 8, 1997 and April 21, 1998, the
Company established stock option plans (the 1996 Plan, 1997 Plan and 1998 Plan,
respectively) which provided for the grant of options to purchase up to 200,249,
150,000 and 150,000 shares of common stock, respectively, at the date
established. The 1998 Plan was amended, effective July 20, 1999, by shareholder
vote, to provide for the grant of an additional 150,000 options. All Plans are
administered by the Compensation Committee of the Company's Board of Directors.
The Committee typically grants options at market value at the date of grant. The
maximum number of shares with respect to which options may be granted to any
employee during each fiscal year of the Company is 19,071 under the 1996 Plan
and 20,000 under both the 1997 and 1998 Plans. Options under all plans become
exercisable at the rate of 25% per year commencing one year after grant or as
determined by the Committee and expire ten years after date of grant.
The Plans provide for the grant of both incentive stock options and
nonqualified stock options, as well as restricted stock. To date, 4,446 shares
of restricted stock have been issued to an officer of the Company.
Effective April 8, 1997 the Company established a Directors stock
option plan (the Directors Plan) which provides for the grant of options to
purchase up to 50,000 shares of common stock to non-employee directors of the
Company. The Directors Plan is administered by a committee of the Company's
Board of Directors. Each eligible director receives options to purchase 1,000
shares of common stock upon election to the Board of Directors. Options are
priced at the last closing sales price reported immediately prior to the date of
grant and are immediately exercisable. The options expire ten years after date
of grant.
F-14
46
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following information represents certain data as required by SFAS
No. 123, "Accounting for Stock-Based Compensation".
Weighted
Number of Average
Shares Price
------- ------
Options outstanding at February 28, 1997 151,793 $ 7.07
------- ------
Granted 192,500 $19.72
Canceled (42,687) $10.52
Exercised (13,188) $ 3.36
Options outstanding at February 28, 1998 288,418 $15.18
------- ------
Granted 173,750 $13.33
Canceled (54,000) $19.03
Exercised (16,875) $ 3.67
Options outstanding at February 28, 1999 391,293 $14.32
------- ------
Granted 189,500 $13.11
Canceled (87,685) $14.83
Exercised (14,377) $13.24
Options outstanding at February 29, 2000 478,731 $13.94
------- ------
The fair value of each option granted during fiscal 2000, 1999 and 1998
is estimated using the Black-Scholes option-pricing model assuming: (1) average
risk-free interest rate of 5.74%, 4.51% and 6.07%, respectively, (2) expected
life of 5 years, (3) expected volatility of 40% and (4) no dividend yield.
The weighted average fair value of options granted in fiscal 2000, 1999
and 1998 was $5.74, $5.59 and $8.74, respectively.
F-15
47
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following tables summarize stock options outstanding and
exercisable at February 29, 2000:
Options Outstanding
- ------------------------------------------------------------------------------------------------------------------------
Weighted Average
Range of Exercise Options Remaining Weighted Average
Prices Outstanding Contractual Life Exercise Price
- ------------------------- ------------------------------ ------------------------- --------------------------
$ 1.03 6,793 0.15 yrs. $ 1.03
$ 8.00 - $ 9.75 55,313 6.34 yrs. $ 8.06
$11.50 - $14.75 335,375 8.91 yrs. $13.14
$22.25 - $23.00 81,250 7.63 yrs. $22.31
$ 1.03 - $23.00 478,731 8.27 yrs. $13.94
Options Exercisable
- ----------------------------------------------------------------------------------------------------
Range of Exercise Options Weighted Average
Prices Exercisable Exercise Price
- ---------------------------- -------------------------------- ------------------------------
$ 1.03 6,793 $ 1.03
$ 8.00 - $ 9.75 39,877 $ 8.04
$11.50 - $14.75 56,438 $13.24
$22.25 - $23.00 41,500 $22.31
$ 1.03 - $23.00 144,608 $13.84
Upon closing of the transactions contemplated by the Agreement and Plan
of Merger dated January 13, 2000 (see Note 11), each outstanding option to
purchase Globe common stock, whether or not exercisable, will be canceled and
the option holders will receive the merger consideration of $13.00 per share
less the exercise price per share for their options. All options will be fully
vested for this purpose.
F-16
48
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Had compensation expense been recorded for 2000, 1999 and 1998 grants
for stock-based compensation plans in accordance with the provisions of SFAS No.
123, the Company would have reported net income and earnings per share as
follows:
2000 1999 1998
------ ------ ------
Net income applicable to common stock:
As reported $2,476 $5,154 $4,065
Pro forma $2,078 $4,830 $3,894
Earnings per common share:
As reported
Basic $ 0.52 $ 1.13 $ 0.91
Diluted $ 0.51 $ 1.10 $ 0.89
Pro forma
Basic $ 0.43 $ 1.06 $ 0.87
Diluted $ 0.43 $ 1.03 $ 0.85
NOTE 8--INCOME TAXES:
The components of income tax expense for the years ended February 29,
2000, February 28, 1999 and February 28, 1998 are as follows:
February 28/29,
------------------------------------------
2000 1999 1998
------ ------ ------
Current $1,100 $1,425 $ 931
Deferred 341 1,555 1,282
State and local taxes 294 457 385
------ ------ ------
$1,735 $3,437 $2,598
====== ====== ======
F-17
49
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Deferred tax assets and liabilities consist of the following:
February 28/29,
---------------------------
2000 1999
------- -------
Deferred assets:
Alternative minimum tax (AMT) credit carryforwards $ 981 $ 586
Deferred state taxes 390 221
Accruals 590 1,049
Excess GranTree tax basis 213 195
Capitalized reorganization costs 354 299
Other 216 144
------- -------
2,744 2,494
Deferred liabilities:
Depreciation and other (8,491) (7,900)
------- -------
Net deferred liability (5,747) (5,406)
Valuation allowance (332) (332)
------- -------
Liability reflected in balance sheet $(6,079) $(5,738)
======= =======
A reconciliation of the effective tax rate to the statutory federal tax
rate is summarized as follows:
February 28/29,
------------------------------------------
2000 1999 1998
------ ------ ------
Federal income taxes at 34% statutory rate $1,430 $2,921 $2,265
State and local taxes, net of federal benefit 217 434 304
Permanent differences 54 36 19
Other 34 46 10
------ ------ ------
Provision for income taxes $1,735 $3,437 $2,598
====== ====== ======
The AMT credit carryforwards of $981 at February 29, 2000 can be
carried forward indefinitely. As a result of the initial public offering and the
subsequent ownership change of the Company by more than 50%, the annual
utilization of the AMT credit carryforward is limited. The Company began using
the alternative minimum tax carryforward in fiscal 1997.
The tax basis of GranTree's net assets at the date of its acquisition
by Globe exceeded the financial reporting basis by $971. However, income tax
regulations limit the portion of such excess basis that can be deducted for
income tax purposes for a period of five years following the date of
acquisition. The restrictions lapsed in January 1998 and the Company began using
this deduction in fiscal 1998. At February 29, 2000, approximately $530 of the
excess basis was available as a tax deduction.
The valuation allowance primarily relates to capitalized reorganization
costs, which can only be realized upon certain dispositions or liquidations of
GranTree.
F-18
50
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 9--401(k) PLANS:
The Company maintains a defined benefit contribution plan for its
employees. An employee must complete one year of service and attain the age of
21 to be eligible to participate in the plan. To satisfy the required period of
service, an employee must complete at least 1,000 hours of service during a
consecutive twelve-month period. Eligible employees may elect to have between 1%
and 15% of their before-tax pay contributed to the plan. Until January 1, 2000
the Company made a matching contribution of 25 cents on each dollar contributed
by a participant up to 4% of a participant's total pay. Effective January 1,
2000 this match was increased to 35 cents. Participants become vested in the
Company contributions to the extent of 10% after one year, 25% after two years,
45% after three years, 70% after four years, and 100% after five years.
Employees of the former Oxford Furnished Apartments, Inc. were covered
by a separate defined benefit contribution plan until July 1, 1998. Terms were
identical to Globe's plan except that participants became vested in the Company
contributions to the extent of 0% after one year, 20% after two years, 40% after
three years, 60% after four years, 80% after five years and 100% after six
years. The Company match was a discretionary amount determined annually.
Effective July 1, 1998, these employees were transferred to Globe's plan.
Expense related to these plans was $86, $81 and $70 in 2000, 1999, and
1998, respectively.
NOTE 10--RELATED PARTY TRANSACTIONS:
The Company leases certain real property and equipment under operating
leases from certain of the Company's directors. Lease terms range from one to
ten years. On March 31, 1998 one operating lease with certain of the Company's
officers and directors was canceled at no penalty to the Company. Related party
rental expenses were $690, $621 and $754 in 2000, 1999, and 1998, respectively.
On January 20, 1998 the Company issued a relocation loan of $100 to an
officer. Interest accrues at the rate of 7.5% per annum and is payable annually
on the anniversary date of the promissory note evidencing the debt. The
principal amount is payable in a lump sum on the third anniversary date of the
note.
On May 1, 1998 the Company purchased for resale the home of an officer
for $328 in connection with the officer's relocation. The home was sold on
September 4, 1998.
NOTE 11-SUBSEQUENT EVENT/PENDING MERGER TRANSACTION:
The Company announced on January 14, 2000 that it had 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 was subject to approval by Globe shareholders and was
subject to customary closing conditions.
On May 10, 2000 the Company announced that it had entered into an
Amended and Restated Agreement and Plan of Merger with Equity Residential
Properties Trust. The agreement continues to provide for the sale of Globe for
$13.00 per share, payable in cash upon closing, but eliminates the potential
post closing payment of up to $.50 per share. The agreement must be approved by
Globe shareholders and is subject to customary closing conditions.
F-19
51
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 12--QUARTERLY INFORMATION (UNAUDITED):
Quarterly Operating Results - The following are quarterly results of
consolidated operations for fiscal 2000 and fiscal 1999 (in thousands except per
share data).
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------
FISCAL YEAR ENDED FEBRUARY 29, 2000
Revenues $40,376 $42,915 $39,308 $35,081 $157,680
Gross profit 16,556 17,349 14,620 13,294 61,819
Operating income 3,220 3,404 1,773 647 9,044
Net income 1,188 1,269 372 (353) 2,476
Earnings per common share:
Basic $ 0.25 $ 0.26 $ 0.08 -$ 0.07 $ 0.52
Diluted $ 0.25 $ 0.26 $ 0.08 -$ 0.07 $ 0.51
FISCAL YEAR ENDED FEBRUARY 28, 1999
Revenues $32,882 $39,676 $38,208 $36,684 $147,450
Gross profit 14,919 17,372 15,964 14,940 63,195
Operating income 2,758 3,910 3,388 2,924 12,980
Net income 1,075 1,665 1,440 974 5,154
Earnings per common share:
Basic $ 0.24 $ 0.37 $ 0.32 $ 0.21 $ 1.13
Diluted $ 0.23 $ 0.36 $ 0.31 $ 0.21 $ 1.10
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52
GLOBE BUSINESS RESOURCES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Charged
(Credited) Charged
Balance at to Cost (Credited) Balance at
Beginning and to Other End of
Description of Period Expenses Accounts Deductions Period
- --------------------------------- --------- -------- -------- ---------- ------
Allowance for doubtful accounts:
Year ended February 29, 2000 $977 $784 $-- $722 $1,039
Year ended February 28, 1999 609 463 -- 95 977
Year ended February 28, 1998 460 541 -- 392 609
Charged
Balance at (Credited) Balance at
Beginning to Other End of
Description of Period Accounts Deductions Period
- --------------------------------- --------- -------- ---------- ------
FAS 109 valuation allowance:
Year ended February 29, 2000 $332 $-- $-- $332
Year ended February 28, 1999 332 -- -- 332
Year ended February 28, 1998 332 -- -- 332
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53
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) Documents filed as part of this Report:
1. Financial Statements are included in Part II, Item 8.
2. Financial Statement Schedules are included in Part II, Item 8.
3. Exhibits - see Exhibit Index.
(b) Reports on Form 8-K filed during the fourth quarter of fiscal 2000:
Form 8-K filed January 19, 2000 under Item 5 for the definitive
agreement with a subsidiary of Equity Residential Properties
Trust for the sale of Globe.
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54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Globe Business Resources, Inc.
By: /s/ David D. Hoguet
-----------------------------
David D. Hoguet
Chief Executive Officer
Signed: May 19, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
- --------- -------- ----
/s/ David D. Hoguet
- ----------------------------
David D. Hoguet Director May 19, 2000
/s/ Blair D. Neller
- ----------------------------
Blair D. Neller Director May 19, 2000
/s/ Alvin Z. Meisel
- ----------------------------
Alvin Z. Meisel Director May 19, 2000
/s/ William R. Griffin
- ----------------------------
William R. Griffin Director May 19, 2000
/s/ Thomas C. Parise
- ----------------------------
Thomas C. Parise Director May 19, 2000
/s/ Sharon G. Kebe Senior Vice President-
- ---------------------------- Finance and Treasurer
Sharon G. Kebe (Principal Financial Officer) May 19, 2000
55
GLOBE BUSINESS RESOURCES, INC.
INDEX TO EXHIBITS
Number Exhibit Description
- ------ -------------------
3.1 Amended and Restated Articles of Incorporation of the Registrant (a)
3.1 (i) Amendment to Articles of Incorporations (b)
3.2 Code of Regulations of the Registrant (a)
4.1 Form of Stock Certificate (a)
10.0 Press Release dated January 14, 2000 (g)
10.1 Press Release dated May 10, 2000 (i)
10.2 Amended and Restated Credit Agreement among the Registrant, GranTree
Corporation, The Fifth Third Bank, PNC Bank and Society National Bank
dated as of February 28, 1996 (a)
10.3 Amended and Restated Credit Agreement among the Registrant, GranTree
Corporation, Interim Quarters, LTD, Corporate Stay International, Inc.,
The Fifth Third Bank, PNC Bank, KeyBank National Bank and Fountain
Square Commercial Funding Corp. dated as of December 16, 1996 (d)
10.4 Tax Allocation Agreement for Registrant and its subsidiaries dated as
of December 31, 1992 (a)
10.5 GranTree Corporation Convertible Debenture due 1996 (a)
10.6 Credit Agreement among the Registrant, The Fifth Third Bank and PNC
Bank dated as of September 29, 1997 (b)
10.6.1 Amendment to Credit Agreement among the Registrant, The Fifth Third
Bank, PNC Bank and Northwest Bank dated May 14, 1998 (e)
10.7 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 (b)
10.8 Agreement and Plan of Merger by and among ERP Operating Limited
Partnership, Globe Holding Co., Inc. and Globe Business Resources, Inc.
dated as of January 13, 2000 (h)
10.8.1 Amended and Restated Agreement and Plan of Merger by and among Globe
Business Resources, Inc., Globe Holding Co., Inc., and ERP Operating
Limited Partnership dated as of January 13, 2000 as Amended and
Restated as of May 10, 2000 (i)
MANAGEMENT COMPENSATORY CONTRACTS
10.9 1996 Stock Option Plan (a)
10.10 Amended Severance Agreement for David D. Hoguet (a)
10.11 Amended Severance Agreement for Blair D. Neller (a)
10.12 1997 Stock Option and Incentive Plan (c)
10.13 1997 Directors Stock Option plan (c)
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56
10.14 Severance Agreement for Jeffery D. Pederson (b)
10.15 1998 Stock Option and Incentive Plan (f)
10.16 Severance Agreement for Sharon G. Kebe (g)
10.17 Severance Agreement for Sharon G. Kebe (g)
10.18 Severance Agreement for Lyle J. Tomlinson (g)
10.19 Severance Agreement for Louis W. Holliday, Jr. (g)
10.20 Severance Agreement for Cory M. Nye (g)
10.21 Severance Agreement for John H. Roby (g)
*******************************************************************
21 Subsidiaries of the registrant
23 Consent of PricewaterhouseCoopers LLP
27 Financial data schedule
99 Safe Harbor Statement
(a) Incorporated by reference to Registration No. 33-99894
(b) Incorporated by reference to Form 10-Q for the quarterly period ended
November 30, 1997
(c) Incorporated by reference to the definitive Proxy Statement for the 1997
Annual Meeting of Shareholders
(d) Incorporated by reference to Form 10-K for the year ended February 28,
1997
(e) Incorporated by reference to Form 10-Q for the quarterly period ended May
31, 1998
(f) Incorporated by reference to the definitive Proxy Statement for the 1998
Annual Meeting of Shareholders
(g) Incorporated by reference to Form 10-Q for the quarterly period ended
November 30, 1999
(h) Incorporated by reference to Form 8-K filed on January 13, 2000
(i) Incorporated by reference to Form 8-K filed on May 10, 2000
Certain instruments evidencing debt of the registrant, none of which
exceed 10% of total assets, are not being filed herewith. A copy will be
provided to the SEC at its request.
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