SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended May 31, 1999 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, OH 45246
Phone: (513) 771-8287
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of July 2, 1999, 4,798,331 shares of the Registrant's common stock, no
par value, were outstanding.
<PAGE>
GLOBE BUSINESS RESOURCES, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
Page No.
--------
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet -
May 31, 1999 and February 28, 1999 3
Consolidated Statement of Income -
Three months ended May 31, 1999 and 1998 4
Consolidated Statement of Cash Flows -
Three months ended May 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 16
<PAGE>
PART I - FINANCIAL INFORMATION
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
May 31, February 28,
1999 1999
----------- ------------
(Unaudited)
ASSETS:
Cash $ 1,274 $ 1,123
Trade accounts receivable, less allowance for doubtful
accounts of $827 and $977, respectively 12,727 11,982
Other receivables 1,209 1,418
Prepaid expenses 4,150 4,229
Rental furniture, net 56,472 55,426
Property and equipment, net 8,974 8,469
Goodwill and other intangibles, less accumulated
amortization of $3,883 and $3,262, respectively 47,796 47,580
Note receivable from officer 100 100
Other notes receivable 1,090 490
Other, net 963 980
--------- ---------
Total assets $ 134,755 $ 131,797
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 6,964 $ 6,250
Customer deposits 2,199 2,072
Accrued compensation 2,131 2,628
Accrued taxes 772 304
Deferred income taxes 5,813 5,738
Accrued interest payable 1,249 1,541
Other accrued expenses 1,244 1,250
Debt 70,050 68,900
--------- ---------
Total liabilities 90,422 88,683
--------- ---------
Common stock and other shareholders' equity:
Common stock, no par, 15,000,000 shares
authorized, 4,798,331, and 4,794,489
shares outstanding 24,049 24,018
Retained earnings 24,368 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 44,333 43,114
--------- ---------
Total liabilities and shareholders' equity $ 134,755 $ 131,797
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
For the three months ended,
---------------------------
May 31, May 31,
1999 1998
------------- -----------
(Unaudited)
Revenues:
Corporate housing sales $26,653 $16,858
Rental sales 10,124 11,355
Retail sales 3,599 4,669
------- -------
40,376 32,882
------- -------
Cost of revenues:
Cost of corporate housing sales 18,436 11,982
Cost of rental sales 989 972
Cost of retail sales 2,027 2,950
Furniture depreciation and disposals 2,368 2,059
------- -------
23,820 17,963
------- -------
Gross profit 16,556 14,919
Operating expenses:
Warehouse and delivery 2,799 2,576
Occupancy 1,923 1,854
Selling and advertising 2,635 2,634
General and administration 5,358 4,670
Amortization of intangible assets 621 427
------- -------
13,336 12,161
------- -------
Operating income 3,220 2,758
Other expense:
Interest expense 1,212 964
Other, net 29 31
------- -------
1,241 995
Income before income taxes 1,979 1,763
Provision for income taxes 791 688
------- -------
Net income $ 1,188 $ 1,075
======= =======
Earnings per common share:
Basic $ 0.25 $ 0.24
======= =======
Diluted $ 0.25 $ 0.23
======= =======
Weighted average number of common shares outstanding:
Basic 4,796 4,550
Diluted 4,833 4,679
The accompanying notes are an integral part of these financial statements.
<PAGE>
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
For the three months ended,
---------------------------
May 31, May 31,
1999 1998
---------- -----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,188 $ 1,075
Adjustments to reconcile net income to
net cash provided by operating activities:
Rental furniture depreciation 2,055 1,902
Other depreciation and amortization 1,210 934
Provision for losses on accounts receivable 128 154
Provision for deferred income taxes 75 (60)
Loss (gain) on sale of property
and equipment 2 (5)
Book value of furniture sales and
rental buyouts 2,730 3,748
Changes in assets and liabilities:
Accounts receivable (666) (2,064)
Notes receivable (600) 5
Other assets, net 21 (244)
Prepaid expenses 81 (838)
Accounts payable 714 1,493
Customer deposits 117 117
Accrued compensation (502) (17)
Accrued taxes 468 613
Accrued interest payable (292) (243)
Other accrued expenses (54) 326
---------- ----------
Net cash provided by operating activities 6,675 6,896
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental furniture (5,831) (5,234)
Purchases of property and equipment (1,086) (805)
Purchases of businesses, net of cash acquired (488) (4,852)
Other investing activities - 6
---------- ----------
Net cash used in investing activities (7,405) (10,885)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on the revolving credit agreement 57,078 37,276
Repayments on the revolving credit agreement (55,929) (33,259)
Repayments of other debt (157) (75)
Principal payments under capital lease obligations (142) (121)
Exercise of common stock options 31 5
---------- ----------
Net cash provided by financing activities 881 3,826
---------- ----------
Net increase (decrease) in cash 151 (163)
Cash at beginning of period 1,123 526
---------- ----------
Cash at end of period $ 1,274 $ 363
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data;
shares in whole numbers except where noted)
NOTE 1 -- PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of Globe Business Resources, Inc., the
accompanying unaudited consolidated financial statements include all adjustments
considered necessary to present fairly its financial position as of May 31,
1999, and the results of its operations for the three months ended May 31, 1999
and 1998 and its cash flows for the three months ended May 31, 1999 and 1998.
All adjustments are of a normal recurring nature. Interim results are not
necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented in accordance
with the requirements of Form 10-Q, and do not contain certain information
included in the Company's audited consolidated financial statements and notes in
its Form 10-K for the fiscal year ended February 28, 1999.
Certain prior year amounts have been reclassified to conform with current
year presentation.
NOTE 2 -- ACQUISITIONS
During the first quarter of fiscal 2000, the Company completed the asset
acquisition of Castleton of Tulsa, a privately owned corporate housing business,
and paid certain other consideration on fiscal 1998 and 1999 acquisitions. These
transactions were completed by payment of approximately $0.5 million in cash,
issuance of $0.3 million of notes payable and the assumption of certain
liabilities. In accordance with APB No. 16, these acquisitions were accounted
for using the purchase method.
The purchase price allocation for the acquired businesses is as follows:
(Unaudited)
-----------
Cash, receivables and prepaids $ 9
Property and equipment 10
Other assets 4
Goodwill and other intangibles 837
-------
860
Liabilities assumed (363)
-------
$ 497
=======
<PAGE>
The following table sets forth certain Globe consolidated income statement
data on an unaudited pro forma basis, as if Castleton of Tulsa was acquired at
the beginning of the periods indicated.(Shares in thousands)
Three months ended May 31,
--------------------------
1999 1998
------- -------
Revenues $40,376 $33,180
Net income 1,188 1,092
Basic earnings per common share $ 0.25 $ 0.24
Diluted earnings per common share $ 0.25 $ 0.23
Weighted average number of common
shares outstanding:
Basic 4,796 4,550
Diluted 4,833 4,679
NOTE 3 -- RENTAL FURNITURE
Rental furniture consists of the following:
May 31, February 28,
1999 1999
----------- ------------
(Unaudited)
Furniture on rental $ 42,931 $ 43,648
Furniture on hand 26,316 24,120
--------- ---------
69,247 67,768
Accumulated depreciation (12,775) (12,342)
--------- ---------
$ 56,472 $ 55,426
========= =========
NOTE 4 -- EARNINGS PER SHARE
For all periods presented, basic earnings per share was calculated by
dividing net income applicable to common stock by the weighted average number of
shares outstanding during the period.
For all periods presented, diluted earnings per share was calculated by
dividing net income applicable to common stock by the weighted average number of
shares and dilutive potential common shares outstanding during the period.
Potential common shares include outstanding stock options for all periods
presented and contingently issuable shares in fiscal 1999.
<PAGE>
The following table presents the calculation of basic and diluted earnings
per share for the periods indicated. (Shares in thousands)
Three months ended May 31,
--------------------------
1999 1998
--------- -----------
(Unaudited)
Net income used to calculate basic and diluted
earnings per share $ 1,188 $ 1,075
======== ========
Weighted average common shares used to calculate
basic earnings per share 4,796 4,550
======== ========
Basic earnings per common share $ 0.25 $ 0.24
======== ========
Shares used in the calculation of diluted
earnings per share:
Weighted average common shares 4,796 4,550
Dilutive effect of assumed exercise of options
for the purchase of common shares 37 57
Dilutive effect of assumed issuance of
contingently issuable shares - 72
-------- --------
Weighted average common shares used to calculate
diluted earnings per share 4,833 4,679
======== ========
Diluted earnings per common share $ 0.25 $ 0.23
======== ========
<PAGE>
NOTE 5 -- DEBT
Outstanding debt consists of:
May 31, February 28,
1999 1999
----------- ------------
(Unaudited)
The Fifth Third Bank, PNC Bank and
Norwest Bank unsecured revolving note,
average interest of 6.63% $ 35,565 $ 34,416
7.54% Senior Notes, unsecured, interest
payable semi-annually on March 1 and
September 1, due September 1, 2007 30,000 30,000
6.25% mortgage note payable to The Fifth
Third Bank, interest payable in monthly
installments, due December 1, 2002 1,434 1,445
6.0% note payable to seller of acquired
business, payable in monthly installments,
due December 31, 2000 475 550
6.0% note payable to seller of acquired
business, payable in quarterly
installments, due December 31, 2002 1,381 1,463
5.0% note payable to seller of acquired
business, payable in quarterly
installments, due December 31, 2002 475 500
5.0% note payable to seller of acquired
business, payable in monthly
installments, due February 29, 2000 277 -
Capital lease obligations 443 526
-------- --------
$ 70,050 $ 68,900
======== ========
The funds required for the acquisitions were derived from borrowings under
the Company's unsecured revolving Credit Agreement and through the issuance of a
note payable.
The Company's unsecured revolving line of credit provides credit facilities
of up to $45 million. At May 31, 1999, the revolving Credit Agreement provided a
total unused credit facility of approximately $9.4 million.
<PAGE>
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements beginning on page 3.
GENERAL
Globe is a major participant in the temporary relocation industry,
operating in both the corporate housing and furniture rental businesses. The
corporate housing business provides short-term housing through an inventory of
leased housing units to transferring or temporarily assigned corporate
personnel, new hires, trainees, consultants and individual customers. The
furniture rental business rents quality office and residential furniture to a
variety of corporate and individual customers. Additionally, the Company sells
residential and office furniture that no longer meets its showroom condition
standards for rental through its clearance centers and sells new furniture
through its showrooms and account executives.
The Company's fiscal year ends on February 28/29.
The discussions contained under Results of Operations and Liquidity and
Capital Resources include forward-looking information which is subject to risks
and qualifications including, but not limited to, those set forth in Exhibit 99.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain income
statement data as a percentage of total revenues and certain gross profit data
as a percentage of respective corporate housing, rental and retail sales
revenues.
For the three months ended,
---------------------------
May 31, May 31,
1999 1998
-------- --------
Revenues:
Corporate housing sales 66.0% 51.3%
Rental sales 25.1% 34.5%
Retail sales 8.9% 14.2%
-------- --------
Total revenues 100.0% 100.0%
Gross profit:
Corporate housing sales 30.8% 28.9%
Rental sales 90.2% 91.4%
Retail sales 43.7% 36.8%
-------- -------
Gross profit before depreciation
and disposals 46.9% 51.6%
Furniture depreciation and disposals (5.9%) (6.3%)
-------- -------
Combined gross profit 41.0% 45.4%
Operating expenses 31.5% 35.7%
Amortization of intangible assets 1.5% 1.3%
-------- -------
Operating income 8.0% 8.4%
Interest/other 3.1% 3.0%
-------- -------
Income before taxes 4.9% 5.4%
======== =======
<PAGE>
Impact of Corporate Housing Acquisitions
Globe implemented an aggressive corporate housing acquisition strategy in
fiscal 1997. Since that time, the Company has completed fifteen corporate
housing acquisitions, including the March 1999 acquisition of Castleton of
Tulsa. All acquisitions to date have been accounted for using the purchase
method of accounting.
Corporate housing companies' assets consist primarily of accounts
receivable, customer deposits and some minor furniture and fixed asset balances.
Consequently, the purchase price for these businesses is allocated largely to
goodwill and other intangibles. Cost of goodwill and other intangibles related
to the corporate housing acquisitions approximates $50.4 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 $0.6 million, or 1.5% of revenues, in the first quarter of
fiscal 2000 and $0.4 million, or 1.3% of revenues, in the first quarter of
fiscal 1999.
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 result, the Company's gross profit
margin and operating expenses as a percentage of revenues have been declining
since the Company entered the corporate housing business. Gross profit margin
decreased to 41.0% in the first quarter of fiscal 2000 from 45.4% in the first
quarter of fiscal 1999, resulting from corporate housing's increasing percentage
of total revenues (66.0% in the first quarter of fiscal 2000 versus 51.3% in the
comparable period of fiscal 1999). Gross profit margin on rental sales in the
first quarter of fiscal 2000 was 90.2%, versus 30.8% for corporate housing.
Comparable gross profit margins for the first quarter of fiscal 1999 were 91.4%
and 28.9%, 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, decreased to 31.5% of revenues in the first quarter of fiscal 2000
from 35.7% in the first quarter of fiscal 1999, while the operating margin,
excluding amortization, decreased to 9.5% of revenues in the first quarter of
fiscal 2000 from 9.7% of revenues in the first quarter of fiscal 1999. The
reduction in operating margin is primarily the result of the increasing mix of
corporate housing revenues over the comparable periods. Including amortization
expenses, the operating margin declined to 8.0% in the first quarter of fiscal
2000 from 8.4% in the first quarter of fiscal 1999.
Globe plans to continue its consolidation of corporate housing through
additional acquisitions, thereby capitalizing on the desire of many corporations
to have a corporate housing company that can meet their needs nationally. With
the acquisitions to date, Globe has expanded its presence into 29 markets and is
the market leader in ten of these markets, with annualized corporate housing
revenues of approximately $110 million. Globe is vying with two other corporate
housing companies for the number two position in the industry based on revenues.
A major risk of Globe's increasing presence in the corporate housing
business is the potential loss of furniture rental revenues from competing
corporate housing companies that are also customers. To date, the majority of
this business with unaffiliated customers has been retained, largely due to the
Company's superior level of service. Additionally, the significance of this risk
has lessened since Globe entered the corporate housing business. In the first
quarter of fiscal 2000, unaffiliated corporate housing customers accounted for
$1.8 million, or 4.5%, of Globe's revenues versus $2.4 million, or 7.4%, of
Globe's revenues in the first quarter of fiscal 1999. During these same periods,
furniture rental revenues from affiliated corporate housing providers, which are
not included in reported revenues, were $1.7 million and $0.8 million,
respectively.
<PAGE>
The Company is implementing a comprehensive corporate housing business
information system. Implementation has been successfully completed in Nashville,
the initial market, and Globe is currently evaluating various methods to
accelerate Company-wide rollout. Should the previously planned schedule be
accelerated, the Company may see increased administrative expenses over the
remaining quarters of fiscal year 2000.
Due to the significant impact of the corporate housing acquisitions on the
Company's operations and financial results, certain aspects of the Company's
historical results of operations and period-to-period comparisons will not be
indicative of future results.
Comparison of First Quarter Fiscal 2000 to First Quarter Fiscal 1999
Total revenues of $40.4 million increased $7.5 million, or 22.8%, in the
first quarter of fiscal 2000, from $32.9 million in the first quarter of fiscal
1999, primarily due to acquisitions. Other factors affecting revenues are
discussed in the following paragraphs.
Corporate housing sales of $26.7 million in the first quarter of fiscal
2000 increased 58.1% from $16.9 million in the first quarter of fiscal 1999.
This increase was primarily caused by acquisitions.
Rental sales of $10.1 million in the first quarter of fiscal 2000 decreased
10.8% from $11.4 million in the first quarter of fiscal 1999 largely as a result
of the elimination of intercompany revenues (furniture rented to Company-owned
corporate housing operations). Excluding the impact of these eliminations,
rental revenues decreased $0.3 million, or 2.7%, when compared with the prior
year quarter, reflecting a general softness in the residential market.
Management believes this softness represents a cyclical slowdown attributable to
the fact that corporate housing has taken over a substantial portion of the
furnished apartment distribution channel. As corporate housing has taken over
more of the furnished apartment distribution channel, furniture rental volume
growth from corporate housing customers has slowed. To date, the other customers
in the furnished apartment distribution channel (property management companies
and showroom trade) have not offset this slowdown.
Retail sales of $3.6 million decreased $1.1 million, or 22.9%, in the first
quarter of fiscal 2000 from $4.7 million in the first quarter of fiscal 1999,
driven by a decrease of $0.7 million, or 30.0%, in clearance center revenues
over the period. The decrease is primarily a result of the closure of a store in
Michigan, timing of certain tent sales and softness in certain markets.
Gross profit of $16.6 million in the first quarter of fiscal 2000 increased
$1.7 million, or 11.0%, from $14.9 million in the first quarter of fiscal 1999
and declined as a percentage of revenues to 41.0% from 45.4% over the same
period due to the higher mix of corporate housing revenues and the lower margins
associated with these revenues. Gross profit percentage on corporate housing
sales improved to 30.8% from 28.9% over the period, reflecting the Company's
focus on occupancy and the gradual replacement of furniture rented from other
vendors with Globe furniture. Gross profit percentage on rental sales decreased
to 90.2% from 91.4% over the period due to an increase in housewares expenses.
Gross profit percentage on retail sales increased to 43.7% from 36.8% over the
period resulting from a higher percentage of new furniture sales versus the
prior year period.
Operating expenses of $12.7 million (excluding amortization) in the first
quarter of fiscal 2000 increased 8.4% from $11.7 million in the first quarter of
fiscal 1999 as a result of acquisitions. As a percentage of total revenues,
these expenses declined to 31.5% from 35.7% over the same period due to
corporate housing's lower operating expenses as a percent of revenues.
<PAGE>
As a result of the Company's continuing acquisition program, amortization
of intangible assets increased $0.2 million, or 45.4%, to $0.6 million in the
first quarter of fiscal 2000, from $0.4 million in the first quarter of fiscal
1999. As a percentage of revenues, amortization expense increased to 1.5% from
1.3% over the same period.
As a result of the changes in revenues, gross profit, operating expenses
and amortization discussed above, operating income increased 16.8% to $3.2
million, or 8.0% of revenues in the first quarter of fiscal 2000, from $2.8
million, or 8.4% of revenues in the first quarter of fiscal 1999.
Interest/other expense increased $0.2 million to $1.2 million in the first
quarter of fiscal 2000 from $1.0 million in the first quarter of fiscal 1999 and
as a percentage of total revenues increased slightly to 3.1% from 3.0% over the
same 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 acquisitions.
Income before income taxes of $2.0 million in the first quarter of fiscal
2000 increased $0.2 million, or 12.3%, compared to the first quarter of fiscal
1999 and as a percentage of revenues decreased to 4.9% from 5.4% over the same
period.
The Company's effective tax rate, which includes federal, state and local
taxes, increased to 40.0% in the first quarter of fiscal 2000 from 39.0% in the
first quarter of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a $45.0 million unsecured line of credit which may be
used for acquisitions and general corporate purposes. At July 2, 1999, the
unused line of credit was $8.5 million. The term of this line of credit will
expire on September 30, 2000, requiring full payment of the then outstanding
balance. The Company expects to have other financing arrangements in place prior
to this date.
Principal payments of $4.3 million are due annually beginning September 1,
2001 on the $30.0 million unsecured Senior Notes due September 1, 2007. These
notes may be redeemed at a premium.
The Company maintains a $1.5 million mortgage note which requires full
payment of the then outstanding balance at the end of the initial term (December
1, 2002). Globe expects to renew the note for an additional five-year period at
that date.
From March 1, 1999 through July 2, 1999 Globe used approximately $0.5
million from its line of credit, issued approximately $0.3 million of notes
payable and assumed approximately $0.1 million of certain liabilities in
completing one acquisition and paying certain other consideration on fiscal 1998
and 1999 acquisitions. (See Note 2 to the consolidated financial statements for
further discussion of these acquisitions.)
Other than acquisitions, the Company's principal use of cash is for
furniture purchases. The Company purchases furniture to replace furniture which
has been sold and to maintain adequate levels of rental furniture to meet
existing and new customer needs. Furniture purchases were $5.8 million in the
first three months of fiscal 2000 and $5.2 million in the first three months of
fiscal 1999. The higher level of purchases in the first quarter of fiscal 2000
versus the prior year period reflects the Company's efforts to ensure that
existing and new customer needs can be met and to continue to replace furniture
rented from other furniture rental vendors with Company-owned furniture in the
Company's corporate housing operations. As the Company's growth strategies are
implemented, furniture purchases are expected to increase.
<PAGE>
Capital expenditures were $1.1 million and $0.8 million in the first three
months of fiscal 2000 and 1999, respectively. These expenditures were financed
through cash provided by operations and utilization of the credit facilities.
Expenditures for the first three months of both fiscal 2000 and fiscal 1999 were
largely attributable to continued development of computer systems. Costs to
further develop the computer systems, which are anticipated to be approximately
$2.0 million, will be incurred in the next 9-12 months and are expected to be
financed through cash generated by operations. Remaining capital expenditures
are expected to be approximately $1.0 million and are also expected to be funded
by cash generated by operations. Any temporary cash deficiencies resulting from
timing of these expenditures will be funded via the line of credit.
In the first three months of fiscal 2000 and 1999, net cash provided by
operations was $6.7 million and $6.9 million, respectively, generating $0.2
million less cash than was necessary to fund investing activities (excluding
acquisitions) in the first three months of fiscal 2000 and $0.9 million more
cash than was necessary to fund investing activities (excluding acquisitions) in
the first three months of fiscal 1999.
Aside from acquisitions, furniture purchases, which have historically been
seasonally weighted to the first half of the fiscal year, are the primary reason
for use of the credit facilities. Any temporary cash deficiencies resulting from
these purchases will be funded via the line of credit. The Company expects cash
flow from operations plus the credit facilities to be sufficient to fund the
Company's needs for the foreseeable future, except for significant acquisitions
and any repurchases that may be made under the Company's stock repurchase
program.
YEAR 2000
The Company has developed a Year 2000 Remediation Plan and is currently
evaluating the potential impact of the Year 2000 issue on both its information
technology systems and its non-information technology systems. The initial
phases of the plan consist of planning and assessment and involve developing
complete inventories of all hardware and software containing potential date
sensitivity, completing vendor and customer surveys and performing a series of
controlled tests to determine compliance. The inventory phase has been
completed. The planning/assessment and vendor/customer survey phases are
approximately 80% complete. The vendor and customer surveys have been sent and
Globe continues to receive responses on a regular basis. No issues have been
identified to date. A Year 2000 consultant has been retained to review Globe's
progress to date and assist in the final stages of testing and remediation. The
controlled tests are currently being conducted and will be completed in July
1999. Preliminary results indicate that the Company's existing internal
financial and operational software is Year 2000 compliant except for two
corporate housing operations, and few, if any, desktop computers will need to be
replaced. The current furniture rental inventory system and the corporate
housing system now being implemented have been designed to be Year 2000
compliant. The corporate housing system will be implemented at the non-compliant
operations during Globe's third quarter.
Globe expects to have the initial phases of the remediation plan completed
by July 30, 1999. Costs incurred to date and those anticipated to complete the
initial phases are immaterial to the Company's results of operations.
Based upon the results of the initial phases, Globe will finalize a
remediation and contingency plan. This plan will address such concerns as the
time required to replace equipment or software and contingency plans for
unforeseen Year 2000 failures, including the identification of alternate vendors
<PAGE>
or financial institutions, as well as the financial resources necessary to
reasonably ensure compliance by the Year 2000. It is expected that this plan
will be completed by September 1999. Costs associated with this phase are not
expected to exceed $0.1 million.
While Globe is not aware of exposures 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, there can be no assurance that the
systems of other companies on which the Company relies will be converted in a
timely manner or that the failure to convert would not have an adverse impact on
Globe's operations. Costs associated with any such failure cannot be reasonably
estimated.
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE RISK
The Company is exposed to interest rate volatility with regard to future
issuances of fixed rate debt and existing issuances of variable rate debt.
Primary exposures include movements in the prime rate, U.S. Treasury Note rates
and LIBOR.
The table below provides information on Globe's significant debt issuances
by expected maturity date. (See Note 5 to the Consolidated Financial Statements
for further information.)
<TABLE>
<CAPTION>
Twelve Months Ended May 31,
-----------------------------------------------------------------------------------
(Dollars in thousands) 2000 2001 2002 2003 2004 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Debt Characteristics:
Unsecured revolving note $35,565 $35,565
Average interest rate 6.63% 6.63%
Unsecured senior note $ 4,285 $4,286 $4,286 $4,286 $12,857 $30,000
Fixed interest rate 7.54% 7.54% 7.54% 7.54% 7.54% 7.54%
Mortgage note $ 69 $ 74 $ 78 $ 84 $ 89 $ 1,040 $ 1,434
Fixed interest rate 6.25% 6.25% 6.25% 6.25% 6.25% 6.25% 6.25%
Other debt issues $1,019 $ 643 $ 495 $ 451 $ 2,608
Average fixed interest rate 5.63% 5.83% 5.77% 5.67% 5.71%
</TABLE>
<PAGE>
PART II
ITEM 1
Legal Proceedings
-----------------
None
ITEM 2
Changes in Securities
---------------------
None
ITEM 3
Defaults Upon Senior Securities
-------------------------------
None
ITEM 4
Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
ITEM 5
Other Information
-----------------
None
ITEM 6
Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) Exhibits:
27 Financial Data Schedule
99 Safe Harbor Statement
(b) Reports on Form 8-K filed during the first quarter of 2000: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Globe Business Resources, Inc.
By: /s/ Sharon G. Kebe
--------------------------------------
Sharon G. Kebe
Senior Vice President-Finance
and Treasurer
(Principal Financial Officer)
Signed: July 8, 1999
GLOBE BUSINESS RESOURCES, INC.
EXHIBIT 99 - SAFE HARBOR
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
from civil litigation in many instances for forward-looking statements. In order
to take advantage of the Act, such statements must be accompanied by meaningful
cautionary statements that identify important factors that could cause actual
results to differ materially from those that might be projected. This exhibit to
the Registrant's Form 10-Q is being filed in order to allow the Registrant to
take advantage of the new provisions of this Act by providing the following
cautionary statements:
Risk Factors Affecting Globe
Globe's business operations and strategy are subject to a number of
uncertainties and risks which could adversely affect its performance in the
future. Among these are the following factors:
Globe's principal growth strategy depends on the acquisition of other
companies in the corporate housing and furniture rental businesses. Although
previous acquisitions have been successful to date, there can be no assurance
that any additional acquisitions will be consummated or that, if acquisitions
are consummated, they will be successful. Acquisitions require a significant
commitment of corporate resources, management attention and capital which, in
certain cases, could exceed that available to Globe. Additionally, Globe could
experience unexpected costs and operational difficulties in integrating acquired
businesses.
There can be no assurances that Globe will be able to maintain large
customer contracts, enter into new contracts, or increase market share by
expanding into new markets in the future.
Globe depends on the continued availability of an adequate supply of
corporate housing units in its markets. There can be no assurances that Globe
will be able to obtain the necessary units and lease terms to match customer
demand.
Many of Globe's competitors have greater financial and other resources than
Globe. These resources could give them an advantage in price and service areas.
Several of Globe's furniture rental customers compete with Globe in its
corporate housing business. As Globe expands in the corporate housing area, it
may continue to lose furniture rental business from those competitors.
Globe is dependent on its computer systems in its daily operations. In
addition, Globe is developing and implementing a comprehensive corporate housing
business information system. Significant cost or time overruns on this system
development and implementation or unidentified deficiencies in other Globe
systems could have a material adverse affect on Globe's operations.
While Globe is not aware of Year 2000 noncompliance exposures related to
either its own operations or the operations of customers or vendors and it does
not have a relationship with any third-party vendor which is material to its
operations, there can be no assurance that either its own systems or the systems
of other companies on which the Company relies will be converted in a timely
manner or that the failure to convert would not have an diverse impact on
Globe's operations. Costs associated with any such failure cannot be reasonably
estimated.
The Company believes that the industry it serves is significantly
influenced by economic conditions generally and by levels of job creation,
<PAGE>
relocations of employees and general business activity. A prolonged economic
downturn could have a material adverse affect on Globe's operations.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-END> MAY-31-1999
<CASH> 1,274
<SECURITIES> 0
<RECEIVABLES> 13,554
<ALLOWANCES> 827
<INVENTORY> 56,472
<CURRENT-ASSETS> 0
<PP&E> 16,807
<DEPRECIATION> 7,833
<TOTAL-ASSETS> 134,755
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 24,049
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 134,755
<SALES> 3,599
<TOTAL-REVENUES> 40,376
<CGS> 2,027
<TOTAL-COSTS> 37,156
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,212
<INCOME-PRETAX> 1,979
<INCOME-TAX> 791
<INCOME-CONTINUING> 1,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-BASIC> .25
<EPS-DILUTED> .25
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