EXHIBIT-13.1
EXCERPTS FROM ANNUAL REPORT TO STOCKHOLDERS
selected
financial
data
--------------------------------------------------------------------------------
The selected financial data as of and for the indicated periods ended March 31,
1996 through March 31, 2000 are derived from our audited consolidated financial
statements. Since the information presented below is only a summary and does not
provide all of the information in our financial statements, including the
related notes, you should read "management's discussion and analysis" and our
financial statements.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
----------- ------------ ----------- ----------- -----------
2000 1999 1998 1997 1996
------------------------------------------------------ ----------- ------------ ----------- ----------- -----------
(In thousands, except share and per share data)
------------------------------------------------------ ----------- ------------ ----------- ----------- -----------
Statement of Operations Data:
Revenues:
<S> <C> <C> <C> <C> <C>
Equipment and supplies sales $355,852 $219,459 $121,316 $ 41,200 $ 20,561
Service and rentals 117,824 69,542 43,059 22,893 16,405
------------------------------------------------------ ----------- ------------ ----------- ----------- -----------
Total revenues 473,676 289,001 164,375 64,093 36,966
Costs and operating expenses:
Cost of equipment and supplies sales 241,837 154,083 85,972 27,087 13,456
Service and rental costs 59,439 34,434 21,594 11,467 8,303
Selling, general, and administrative expenses 113,612 63,939 38,619 18,280 11,687
Intangible asset amortization 8,183 4,627 3,076 1,939 1,396
------------------------------------------------------ ----------- ------------ ----------- ----------- -----------
Total costs and operating expenses 423,071 257,083 149,261 58,773 34,842
------------------------------------------------------ ----------- ------------ ----------- ----------- -----------
Income from operations 50,605 31,918 15,114 5,320 2,124
Interest expense 22,171 8,427 6,713 3,190 2,041
------------------------------------------------------ ----------- ------------ ----------- ----------- -----------
Income before income taxes and extra-
ordinary charge 28,434 23,491 8,401 2,130 83
Income taxes 12,729 10,390 3,948 1,007 275
------------------------------------------------------ ----------- ------------ ----------- ----------- -----------
Income (loss) before extraordinary charge 15,705 13,101 4,453 1,123 (192)
Extraordinary charge for early retirement of debt (654) (1,817) - - -
------------------------------------------------------ ----------- ------------ ----------- ----------- -----------
Net income (loss) 15,051 11,284 4,453 1,123 (192)
Yield adjustment on Class A common stock(1) - (901) (2,442) (1,402) (1,023)
------------------------------------------------------ ----------- ------------ ----------- ----------- -----------
Net income (loss) available to holders of
common stock $ 15,051 $ 10,383 $ 2,011 $ (279) $ (1,215)
====================================================== =========== ============ =========== =========== ===========
Basic earnings (loss) per share $ .79 $ .63 $ .21 (.03) $ (.15)
====================================================== =========== ============ =========== =========== ===========
Diluted earnings (loss) per share $ .78 $ .62 $ .21 $ (.03) $ (.15)
====================================================== =========== ============ =========== =========== ===========
Basic weighted average shares outstanding(2) 19,031 16,478 9,805 8,729 8,018
====================================================== =========== ============ =========== =========== ===========
Diluted weighted average shares outstanding(2) 19,176 16,811 9,805 8,729 8,018
====================================================== =========== ============ =========== =========== ===========
Cash dividends per common share - - - - -
====================================================== =========== ============ =========== =========== ===========
Balance Sheet Data (at period end):
Working capital $ 67,317 $ 44,969 $ 24,255 $ 9,655 $ 5,038
Total assets 433,565 310,419 164,342 68,990 43,675
Total debt 247,722 168,277 97,485 36,873 21,831
Total stockholders' equity 117,613 94,899 38,248 19,796 15,232
</TABLE>
(1)Reflects adjustments for amounts payable to holders of Global's Class A
common stock upon a sale of Global or its initial public offering. These amounts
equal an 8.0% annual yield on the original cost per share of $90.00 and, for
1998, the accretion of the difference between the redemption value of the Class
A common stock and the value allocated to the stock, accreted from January 1998
to June 1998.
(2)Assumes, for periods prior to the initial public offering, the conversion of
outstanding shares of Class C common stock into common stock.
1
<PAGE>
management's discussion
and analysis of financial
condition and results of operations
--------------------------------------------------------------------------------
(Dollars in thousands except per share amounts)
The following discussion and analysis should be read in conjunction with the
accompanying financial statements and related notes included elsewhere in this
annual report. Much of the discussion in this section involves forward-looking
information. Global's actual results may differ significantly from the results
suggested by these forward-looking statements. Some factors that may cause
Global's results to differ from these statements are described in the "Risk
Factors" section.
Overview
Global was founded in June 1994 with the goal of becoming a leading consolidator
in the highly fragmented office imaging solutions industry. Global is a rapidly
growing provider of a number of office imaging solutions. This includes the sale
and service of automated office equipment such as copiers, facsimile machines,
printers and duplicators, network integration services, electronic presentation
equipment and document imaging management systems ("DIM systems"). From its
founding through March 31, 2000, Global has acquired 13 core companies in the
United States, two stand-alone companies, and 26 additional satellite companies
that have been integrated into the core companies. The first acquisition was
completed in August 1994. Management believes that the businesses that have been
acquired by Global and other businesses that Global plans to acquire will
benefit from various Global programs and operating strategies. These benefits
include increased operating efficiencies, the support of experienced and
professional senior management, expansion of the types of office imaging
products and services offered, increased access to capital, and increased
emphasis on financial management.
Global's revenues come from two sources: (1) sales of equipment and supplies and
(2) sales of complementary services and equipment rentals. The growth of
equipment revenues and the complementary supplies, parts and service revenues
depends on several factors, including the demand for equipment, Global's
reputation for providing timely and reliable service, and general economic
conditions. Revenues generated from the sale of equipment and complementary
supplies, parts and services are affected by price, general economic conditions,
service reputation, and competitors' actions in the marketplace. Revenues from
the sale of complementary supplies, parts and services are also affected by
equipment sales and rental volumes.
Gross profit as a percentage of revenues varies from period to period depending
on a number of variables. Those variables include the mix of revenues from
equipment, supplies, service and rentals; the mix of revenues among the markets
served by Global; and the mix of revenues of the businesses acquired. As Global
acquires businesses, the percentage of its revenues that come from sales of
equipment and supplies, as opposed to service and rentals, fluctuates depending
on whether the businesses acquired are automated office equipment dealers or are
network integrators or electronic presentation systems or DIM systems dealers.
Automated office equipment dealers typically derive a higher percentage of their
revenues from service and rentals, and a lower percentage from sales of
equipment and supplies, than do network integrators, electronic presentation or
DIM systems dealers. Generally, sales of equipment and supplies have lower gross
profit margins than sales of service and rentals. In addition, equipment sales
in the automated office equipment market generally have higher gross profit
margins than equipment sales in the network integration, electronic presentation
systems or DIM systems markets, as these markets are growing faster than the
automated office equipment market. Therefore, over time a larger percentage of
Global's revenues and gross profits may be derived from sales that have lower
gross profit margins than Global's current gross profit margins.
Cost of goods sold consists primarily of the cost of new equipment, cost of
supplies and parts, labor costs to provide services, rental equipment
depreciation and other direct operating costs. Global depreciates its rental
equipment primarily over a three-year period on a straight-line basis.
2
<PAGE>
Management's discussion and analysis
--------------------------------------------------------------------------------
Results of Operations
The following table sets forth, for the periods indicated, information derived
from the consolidated statements of operations of Global expressed as a
percentage of total revenues.
<TABLE>
<CAPTION>
Fiscal Year Ended
March 31,
--------------- --------------- ---------------
2000 1999 1998
--------------- --------------- ---------------
Revenues:
<S> <C> <C> <C>
Equipment and supplies sales 75.1% 75.9% 73.8%
Service and rentals 24.9 24.1 26.2
--------------- --------------- ---------------
Total revenues 100.0 100.0 100.0
Cost of goods sold 63.6 65.2 65.4
--------------- --------------- ---------------
Gross profit 36.4 34.8 34.6
Selling, general, and administrative
expenses 24.0 22.2 23.5
Intangible asset amortization 1.7 1.6 1.9
--------------- --------------- ---------------
Income from operations 10.7 11.0 9.2
Interest expense 4.7 2.9 4.1
--------------- --------------- ---------------
Income before income taxes and extraordinary charge 6.0 8.1 5.1
Income taxes 2.7 3.6 2.4
--------------- --------------- ---------------
Income before extraordinary charge 3.3 4.5 2.7
Extraordinary charge for early retirement of debt (.1) (.6) -
--------------- --------------- ---------------
Net income 3.2% 3.9% 2.7%
=============== =============== ===============
</TABLE>
Fiscal Year Ended March 31, 2000 Compared to Fiscal Year Ended March 31, 1999
Revenues
Total revenues for the fiscal year ended March 31, 2000, were $473,676, an
increase of 63.9% over the same period in 1999. The majority of the revenue
growth was due to the acquisition of businesses during 2000 and 1999, with the
remainder coming from internal growth.
Sales of equipment and supplies increased to $355,852 in fiscal year 2000, an
increase of 62.1% over 1999. This represented 75.1% of total revenues compared
to 75.9% for the prior year. Throughout 2000, Global acquired businesses that
added proportionately more service and rentals than Global had in its existing
businesses. In 1999, Global acquired businesses that added proportionately more
equipment sales than Global had in its existing businesses.
Service and rental revenues for the fiscal year ended March 31, 2000 increased
to $117,824, an increase of 69.4% from the same period the prior year. This
represented 24.9% of total revenues for the fiscal year ended 2000 compared to
24.1% for the same period in 1999.
Gross Profit
Gross profit of $172,400 for the fiscal year ended March 31, 2000 reflected a
71.6% increase over the same period in 1999. Expressed as a percent of total
revenue, gross profit was 36.4% for fiscal year 2000 compared to 34.8% for
fiscal year 1999. Office equipment dealers typically derive a higher percentage
of total revenues from service and rentals, while network integration and
electronic presentation systems and DIM systems dealers derive a higher
percentage of total revenues from sales of equipment and supplies. The automated
office equipment component of sales of the businesses acquired in 2000 and 1999
had higher equipment and supplies gross margins than Global's
3
<PAGE>
existing businesses. Combined service and rental gross profit margins were 49.6%
for the fiscal year ended March 31, 2000 and 50.5% for the fiscal year ended
March 31, 1999.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 77.7% to $113,612 for the
fiscal year ended March 31, 2000. This amount was 24.0% of total revenues
compared to 22.2% of total revenues for the same period in 1999. These expenses
increased principally due to the acquisitions Global made in 2000 and 1999.
Office equipment dealers typically incur higher SG&A expenses as a percentage of
revenue, while network integration and electronic presentation systems and DIM
systems dealers incur a lower level of SG&A as a percentage of revenue. The
increase in expense as a percentage of revenues was the result of acquiring a
higher mix of office equipment dealers businesses than in the previous year's
mix and an increase in legal and health insurance expenses.
Intangible Asset Amortization
Intangible asset amortization was $8,183 for the fiscal year ended March 31,
2000 compared to $4,627 for the prior fiscal year. Intangible asset amortization
includes the amortization of goodwill and noncompete agreements from
acquisitions.
Income From Operations
Income from operations was $50,605, or 10.7% of total revenues for the fiscal
year ended March 31, 2000, which was a 58.5% increase over the same period in
1999.
Interest Expense
Interest expense was $22,171 for the fiscal year ended March 31, 2000, an
increase of 163.1% from the same period in 1999. The increase was primarily due
to the increase in Global's borrowings and higher borrowing rates. The proceeds
from the additional borrowings were used to fund the cost of the businesses
acquired in 2000 and 1999. Interest expense includes the amortization of
financing fees incurred in connection with Global's current credit facilities
with First Union and the senior subordinated notes and the prior credit
facilities with First Union and Jackson National Life Insurance Company.
Income Taxes
The provision for income taxes was $12,729 for the fiscal year ended March 31,
2000 compared to $10,390 for the same period in 1999. The increase in income
taxes was primarily due to increased pre-tax income because of businesses Global
acquired during 2000 and 1999. The effective income tax rate increased from
44.2% for the fiscal year ended March 31, 1999 to 44.8% for the same period in
2000. The effective income tax rates for 2000 and 1999 were higher than the
federal statutory rate of 35.0%, plus state and local taxes, primarily due to
non-deductible goodwill amortization relating to the businesses acquired.
Fiscal Year Ended March 31, 1999 Compared to Fiscal Year Ended March 31, 1998
Revenues
Total revenues for the fiscal year ended March 31, 1999, were $289,001, an
increase of 75.8% over the same period in 1998. The majority of the revenue
growth was due to the acquisition of businesses during 1999 and 1998, with the
remainder coming from internal growth.
Sales of equipment and supplies increased to $219,459 in fiscal year 1999, an
increase of 80.9% over 1998. This represented 75.9% of total revenues compared
to 73.8% for the prior year. Throughout 1999 and 1998, Global acquired
businesses that added proportionately more equipment sales than Global had in
its existing businesses.
4
<PAGE>
Service and rental revenues for the fiscal year ended March 31, 1999 increased
to $69,542, an increase of 61.5% from the same period the prior year. This
represented 24.1% of total revenues for the fiscal year ended 1999 compared to
26.2% for the same period in 1998.
Gross Profit
Gross profit of $100,484 for the fiscal year ended March 31, 1999 reflected a
76.9% increase over the same period in 1998. Expressed as a percent of total
revenue, gross profit was 34.8% for fiscal year 1999 compared to 34.6% for
fiscal year 1998. Office equipment dealers typically derive a higher percentage
of total revenues from service and rentals, while network integration and
electronic presentation systems and DIM systems dealers derive a higher
percentage of total revenues from sales of equipment and supplies. The equipment
component of sales of the businesses acquired in 1999 and 1998 accounted for a
larger portion of total revenues than Global's existing businesses. Sales of
equipment and supplies generally generate lower gross profit margins than
service and rental revenues. Combined service and rental gross profit margins
were 50.5% for the fiscal year ended March 31, 1999 and 49.9% for the fiscal
year ended March 31, 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 65.6% to $63,939 for the
fiscal year ended March 31, 1999. This amount was 22.2% of total revenues
compared to 23.5% of total revenues for the same period in 1998. These expenses
increased principally due to the acquisitions Global made in 1999 and 1998. The
decline in expenses as a percentage of revenues was the result of the
acquisition of profitable businesses, the change in the composition of Global's
businesses, and revenues increasing by 75.8% without a proportionate increase in
selling, general, and administrative expenses.
Intangible Asset Amortization
Intangible asset amortization was $4,627 for the fiscal year ended March 31,
1999 compared to $3,076 for the prior fiscal year. Intangible asset amortization
includes the amortization of goodwill and noncompete agreements from
acquisitions.
Income From Operations
Income from operations was $31,918, or 11.0% of total revenues for the fiscal
year ended March 31, 1999, which was a 111.2% increase over the same period in
1998.
Interest Expense
Interest expense was $8,427 for the fiscal year ended March 31, 1999, an
increase of 25.5% from the same period in 1998. The increase was primarily due
to the increase in Global's borrowings. The proceeds from the additional
borrowings were used to fund the cost of the businesses acquired in 1999 and
1998. Interest expense includes the amortization of financing fees incurred in
connection with Global's current credit facility with First Union and the prior
credit facility with Jackson National Life Insurance Company.
Income Taxes
The provision for income taxes was $10,390 for the fiscal year ended March 31,
1999 compared to $3,948 for the same period in 1998. The increase in income
taxes was primarily due to increased pre-tax income because of businesses Global
acquired during 1999 and 1998. The effective income tax rate decreased from
47.0% for the fiscal year ended March 31, 1998 to 44.2% for the same period in
1999. The effective income tax rate for 1999 and 1998 was higher than the
federal statutory rates of 35.0% and 34.0%, respectively, plus state and local
taxes, primarily due to non-deductible goodwill amortization relating to the
businesses acquired.
5
<PAGE>
Quarterly Results of Operations
The following table presents selected consolidated financial information for
each of Global's last six fiscal quarters. The information has been derived from
unaudited consolidated financial statements that in the opinion of management
reflect all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of such quarterly information.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------- ----------- ---------- ----------- ---------- ---------- ----------
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
2000 1999 1999 1999 1999 1998
---------------------------------------------------- ----------- ---------- ----------- ---------- ---------- ----------
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Equipment and supplies sales $ 99,347 $ 89,692 $ 91,281 $ 75,532 $ 65,743 $ 58,268
Service and rentals 32,475 30,615 29,742 24,992 22,001 17,625
---------------------------------------------------- ----------- ---------- ----------- ---------- ---------- ----------
Total revenues 131,822 120,307 121,023 100,524 87,744 75,893
Costs and operating expenses:
Cost of equipment and supplies sales 66,324 60,432 63,509 51,572 44,658 40,616
Service and rental costs 16,777 15,942 14,446 12,274 10,939 8,940
Selling, general, and administrative expenses 33,614 29,613 26,982 23,403 19,882 16,608
Intangible asset amortization 2,334 2,125 1,980 1,744 1,588 1,195
---------------------------------------------------- ----------- ---------- ----------- ---------- ---------- ----------
Total costs and operating expenses 119,049 108,112 106,917 88,993 77,067 67,359
---------------------------------------------------- ----------- ---------- ----------- ---------- ---------- ----------
Income from operations 12,773 12,195 14,106 11,531 10,677 8,534
Interest expense 6,440 5,971 5,517 4,243 2,984 1,757
---------------------------------------------------- ----------- ---------- ----------- ---------- ---------- ----------
Income before income taxes and extra-
ordinary item 6,333 6,224 8,589 7,288 7,693 6,777
Income taxes 2,929 2,800 3,800 3,200 3,346 2,948
---------------------------------------------------- ----------- ---------- ----------- ---------- ---------- ----------
Income before extraordinary charge 3,404 3,424 4,789 4,088 4,347 3,829
Extraordinary charge for early retirement of debt - - - (654) - -
---------------------------------------------------- ----------- ---------- ----------- ---------- ---------- ----------
Net income $ 3,404 $ 3,424 $ 4,789 $ 3,434 $ 4,347 $ 3,829
==================================================== =========== ========== =========== ========== ========== ==========
Basic earnings per share $ 0.18 $ 0.18 $ 0.25 $ 0.18 $ 0.23 $ 0.21
==================================================== =========== ========== =========== ========== ========== ==========
Diluted earnings per share $ 0.18 $ 0.18 $ 0.25 $ 0.18 $ 0.23 $ 0.21
==================================================== =========== ========== =========== ========== ========== ==========
Basic weighted average number of shares 19,223 19,133 19,022 18,745 18,682 18,054
==================================================== =========== ========== =========== ========== ========== ==========
Diluted weighted average number shares 19,223 19,240 19,329 18,911 18,851 18,176
==================================================== =========== ========== =========== ========== ========== ==========
</TABLE>
6
<PAGE>
The following table sets forth selected consolidated financial information as a
percentage of total revenues for each of Global's last six fiscal quarters.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------- ----------- ---------- ---------- ----------- ---------- -----------
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
2000 1999 1999 1999 1999 1998
---------------------------------------------------- ----------- ---------- ---------- ----------- ---------- -----------
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Equipment and supplies sales 75.4% 74.6% 75.4% 75.1% 74.9% 76.8%
Service and rentals 24.6 25.4 24.6 24.9 25.1 23.2
---------------------------------------------------- ----------- ---------- ---------- ----------- ---------- -----------
Total revenues 100.0 100.0 100.0 100.0 100.0 100.0
==================================================== =========== ========== ========== =========== ========== ===========
Costs and operating expenses:
Cost of equipment and supplies sales 50.3 50.2 52.5 51.3 50.9 53.5
Service and rental costs 12.7 13.3 11.9 12.2 12.4 11.8
Selling, general, and administrative expenses 25.5 24.6 22.3 23.3 22.7 21.9
Intangible asset amortization 1.8 1.8 1.6 1.7 1.8 1.6
---------------------------------------------------- ----------- ---------- ---------- ----------- ---------- -----------
Total costs and operating expenses 90.3 89.9 88.3 88.5 87.8 88.8
---------------------------------------------------- ----------- ---------- ---------- ----------- ---------- -----------
Income from operations 9.7 10.1 11.7 11.5 12.2 11.2
Interest expense 4.9 4.9 4.6 4.2 3.4 2.3
---------------------------------------------------- ----------- ---------- ---------- ----------- ---------- -----------
Income before income taxes and extra-
ordinary item 4.8 5.2 7.1 7.3 8.8 8.9
Income taxes 2.2 2.4 3.1 3.2 3.8 3.9
---------------------------------------------------- ----------- ---------- ---------- ----------- ---------- -----------
Income before extraordinary charge 2.6 2.8 4.0 4.1 5.0 5.0
Extraordinary charge for early retirement of debt - - - (.7) - -
---------------------------------------------------- ----------- ---------- ---------- ----------- ---------- -----------
Net income 2.6% 2.8% 4.0% 3.4% 5.0% 5.0%
==================================================== =========== ========== ========== =========== ========== ===========
</TABLE>
Liquidity and Capital Resources
Historically, Global has financed its operations primarily through internal cash
flow, sales of stock and bank financing, including the financing facilities
described below. These sources of funds have been used to fund Global's growth
both internally and through acquisitions. Global is pursuing an acquisition
strategy and expects to acquire more businesses. As Global continues to acquire
more businesses, it is likely that Global will incur additional debt and seek
additional equity capital.
On March 31, 2000, the board of directors authorized the Company to repurchase
up to $10,000 of the Company's common stock. The Company expects to fund the
stock repurchase and the aquisition program with cash flow from operations and
the senior credit facility. As of March 31, 2000, Global had $100,000 in debt
availabilty under the senior credit facility.
In March 1999, the Company issued $100,000 in senior Subordinated Notes due
March 8, 2007. The net proceeds of approximately $96,000 were used to reduce
First Union's revolving credit facility. The notes bear interest at 10.75%,
payable semi-annually. The notes may be redeemed at the option of the Company
beginning on February 15, 2003 at the following redemption prices, expressed as
percentages of the principal amount:
Year Percentage
2003 105.375%
2004 102.688%
2005 and thereafter 100.000%
At any time on or prior to February 15, 2002, the Company may, at its option,
use the net cash proceeds from a public equity offering to redeem in the
aggregate up to 35% of the aggregate principal amount of the notes at a
redemption price equal to 110.75% of the principal amount, provided that at
least 65% of the aggregate principal amount of the notes originally issued
remain outstanding, and the redemption occurs within 60 days after the
consummation of the public equity offering. The Notes are guaranteed by the
current subsidiaries of the Company, other than certain future financing
subsidiaries, on an unsecured senior subordinated basis. The covenants of the
notes require strict compliance with certain affirmative, negative and financial
covenants. Under the terms of the Senior Subordinated Notes, the Company is
prohibited from paying cash dividends.
In June 1999, the Company repaid the balance of $62,000 due under a loan from
First Union with proceeds from a replacement credit agreement. The new credit
agreement is with a syndicate of banks and financial institutions with
7
<PAGE>
First Union serving as Administrative Agent (the "Credit Agreement"). The
Company's new Credit Agreement consists of a $150,000 five-year senior secured
revolving line of credit, a $25,000 five-year senior term loan, and a $75,000
seven-year senior term loan. The new revolving credit line of the senior credit
facility and the $25,000 senior term loan bear interest at rates ranging from
2.00% to 3.00% over LIBOR or from .75% to 1.75% over a base rate related to
prime rate, and will vary according to Global's ratio of its total funded debt
to earnings before interest, taxes, depreciation and amortization. The $75,000
senior term loan bears interest at a rate of 3.25% over LIBOR or 2.00% over a
base rate related to prime rate. The senior credit facilities provide for an
unused commitment fee payable to the lenders and certain other fees payable by
Global and its Material Subsidiaries (the "borrowers"). Amounts borrowed under
the revolving credit line of the new senior credit facility may be repaid and
borrowed over the life of the senior credit facility, with a final maturity date
of June 23, 2004. The terms of the senior credit facility require strict
compliance with numerous affirmative, negative, and financial covenants. Amounts
borrowed under the revolving line of credit may be used to fund working capital
and general corporate purposes, including acquisitions, subject to the lenders
approval in the case of acquisitions with a cash purchase price of over $25,000
or an aggregate purchase price (cash, stock or other consideration) of over
$50,000.
On July 27, 1999, the Company filed an amended registration statement with the
Securities and Exchange Commission to exchange the notes for exchange notes with
identical terms, except the exchange notes will not contain transfer
restrictions.
In September 1999, the Company entered into an interest rate swap agreement for
a notional amount of $28,000, under which the Company pays a fixed rate of
interest and receives a LIBOR-based floating rate. In September 1999, an
interest rate cap agreement for a notional amount of $22,000 was entered into
which caps the interest rate in September 1999 at 9%. In March 2000, the Company
entered into an interest rate swap agreement for a notional amount of $12,000
under which the company pays a fixed rate of interest with a cap and receives a
LIBOR-based floating rate. The swaps and the cap all mature in 2002. The swaps
and cap are intended to reduce the Company's exposure to the risks of variable
interest rates related to the credit agreement.
Under the terms of six of its acquisition agreements, Global may be required to
make additional payments of up to $24,150 in cash and issue common stock valued
at up to $6,600 over the next five years to certain former owners of the
businesses it has acquired based on the profitability of those businesses during
such time period.
For the fiscal years ended March 31, 2000 and 1999 the net cash provided by
operations was $8,187 and $12,999, respectively. For the fiscal years ended
March 31, 2000 and 1999, Global's net cash used in investing activities was
$81,538 and $108,972, respectively, primarily for the purchase of businesses.
For the fiscal years ended March 31, 2000 and 1999, Global's net cash provided
by financing activities was $71,805 and $96,652, respectively. Net cash provided
by financing activities consists of equity capital provided by the initial
public offering and from businesses acquired by Global, and net borrowings.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued a Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended,
which is required to be adopted in years beginning after June 15, 2000. This
statement established requirements for accounting and reporting of derivative
instruments and hedging activities. Management has not completed an analysis to
determine the future impact of this statement on the Company's results of
operations.
8
<PAGE>
<TABLE>
<CAPTION>
consolidated
balance GLOBAL IMAGING SYSTEMS, INC.
sheets MARCH 31, 2000 AND 1999
-------------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts)
March 31,
-------------------------------------------------------------------------------------- --------------- --------------
Assets 2000 1999
-------------------------------------------------------------------------------------- --------------- --------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,629 $ 5,175
Accounts receivable, net of allowance for doubtful accounts
($2,064 and $1,353 at March 31, 2000 and 1999, respectively) 69,163 45,747
Inventories 57,560 36,793
Deferred income taxes 3,276 2,591
Prepaid expenses and other current assets 2,665 1,940
Income taxes receivable 2,118 -
-------------------------------------------------------------------------------------- --------------- --------------
Total current assets 138,411 92,246
Rental equipment, net 9,073 4,377
Property and equipment, net 8,520 6,409
Other assets 1,808 782
Intangible assets, net:
Goodwill 268,517 201,307
Noncompete agreements 1,908 1,207
Financing fees 5,328 4,091
-------------------------------------------------------------------------------------- --------------- --------------
Total assets $ 433,565 $ 310,419
====================================================================================== =============== ==============
Liabilities and Stockholders' Equity
-------------------------------------------------------------------------------------- --------------- --------------
Current liabilities:
Accounts payable $ 26,540 $ 16,718
Accrued liabilities 7,614 6,709
Accrued compensation and benefits 9,642 5,221
Accrued interest 1,734 874
Current maturities of long-term debt 4,280 176
Deferred revenue 21,284 16,196
Income taxes payable - 1,383
-------------------------------------------------------------------------------------- --------------- --------------
Total current liabilities 71,094 47,277
Deferred income taxes 1,416 142
Long-term debt, less current maturities 243,442 168,101
-------------------------------------------------------------------------------------- --------------- --------------
Total liabilities 315,952 215,520
Stockholders' equity:
Preferred stock, $.01 par value: 10,000,000 shares authorized:
no shares issued - -
Common stock, $.01 par value: 50,000,000 shares authorized:
19,225,086 and 18,727,436 shares issued and 19,223,491 and
18,725,841 shares outstanding at March 31, 2000 and 1999,
respectively 192 187
Common stock held in treasury, at cost (35) (35)
Additional paid-in capital 91,475 83,817
Retained earnings 25,981 10,930
-------------------------------------------------------------------------------------- --------------- --------------
Total stockholders' equity 117,613 94,899
-------------------------------------------------------------------------------------- --------------- --------------
Total liabilities and stockholders' equity $ 433,565 $ 310,419
====================================================================================== =============== ==============
See accompanying notes
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
consolidated
statements GLOBAL IMAGING SYSTEMS, INC.
of operations FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
-------------------------------------------------------------------------------------------------------------------
Year Ended March 31,
--------------------------------------------------------------------------- -------------- ------------- -------------
(In thousands, except per share amounts) 2000 1999 1998
--------------------------------------------------------------------------- -------------- ------------- -------------
Revenues:
<S> <C> <C> <C>
Equipment and supplies sales $ 355,852 $ 219,459 $ 121,316
Service and rentals 117,824 69,542 43,059
--------------------------------------------------------------------------- -------------- ------------- -------------
Total revenues 473,676 289,001 164,375
Costs and operating expenses:
Cost of equipment and supplies sales 241,837 154,083 85,972
Service and rental costs 59,439 34,434 21,594
Selling, general, and administrative expenses 113,612 63,939 38,619
Intangible asset amortization 8,183 4,627 3,076
--------------------------------------------------------------------------- -------------- ------------- -------------
Total costs and operating expenses 423,071 257,083 149,261
--------------------------------------------------------------------------- -------------- ------------- -------------
Income from operations 50,605 31,918 15,114
Interest expense 22,171 8,427 6,713
--------------------------------------------------------------------------- -------------- ------------- -------------
Income before income taxes and extraordinary item 28,434 23,491 8,401
Income taxes 12,729 10,390 3,948
--------------------------------------------------------------------------- -------------- ------------- -------------
Income before extraordinary item 15,705 13,101 4,453
Extraordinary charge for early retirement of debt, net of tax
benefit of $436 and $1,241 for 2000 and 1999, respectively (654) (1,817) -
--------------------------------------------------------------------------- -------------- ------------- -------------
Net income 15,051 11,284 4,453
--------------------------------------------------------------------------- -------------- ------------- -------------
Yield adjustment on Class A common stock and
accretions - (901) (2,442)
--------------------------------------------------------------------------- -------------- ------------- -------------
Net income available to common stockholders $ 15,051 $ 10,383 $ 2,011
=========================================================================== ============== ============= =============
Basic earnings per share:
Income before extraordinary item, including
yield adjustment and accretions $ .83 $ .74 $ .21
Extraordinary charge for early retirement of debt, net of tax
benefit of $436 and $1,241 for 2000 and 1999, respectively (.04) (.11) -
--------------------------------------------------------------------------- -------------- ------------- -------------
Basic earnings per share $ .79 $ .63 $ .21
=========================================================================== ============== ============= =============
Diluted earnings per share:
Income before extraordinary item, including
yield adjustment and accretions $ .82 $ .73 $ .21
Extraordinary charge for early retirement of debt, net of tax
benefit of $436 and $1,241 for 2000 and 1999, respectively (.04) (.11) -
--------------------------------------------------------------------------- -------------- ------------- -------------
Diluted earnings per share $ .78 $ .62 $ .21
=========================================================================== ============== ============= =============
Weighted average number of shares outstanding:
Basic 19,031 16,478 9,805
Diluted 19,176 16,811 9,805
=========================================================================== ============== ============= =============
</TABLE>
See accompanying notes
10
<PAGE>
<TABLE>
<CAPTION>
consolidated
statements of GLOBAL IMAGING SYSTEMS, INC.
cash flows FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
-------------------------------------------------------------------------------------------------------------------
Year Ended March 31,
--------------------------------------------------------------------- --------------- ---------------- --------------
(In thousands) 2000 1999 1998
--------------------------------------------------------------------- --------------- ---------------- --------------
Operating
activities:
<S> <C> <C> <C>
Net income $ 15,051 $ 11,284 $ 4,453
Adjustments to reconcile net income to net
cash provided by operating
activities:
Depreciation 8,304 4,593 3,593
Amortization 9,043 4,954 3,630
Extraordinary charge for early retirement of debt 654 1,817 -
Deferred income taxes 1,531 519 278
Changes in operating assets and liabilities, net of
amounts acquired in purchase business
combinations:
Accounts receivable (11,125) (6,829) (2,841)
Inventories (13,522) (5,511) (1,034)
Prepaid expenses and other current assets (448) (1,337) 48
Other assets 152 (41) (202)
Accounts payable 1,439 2,014 (1,565)
Accrued liabilities, compensation and benefits 1,338 1,100 (545)
Deferred revenue (1,460) (483) (72)
Income taxes payable (2,770) 919 (440)
--------------------------------------------------------------------- --------------- ---------------- --------------
Net cash provided by operating activities 8,187 12,999 5,303
Investing activities:
Purchase of property, equipment and rental equipment (8,394) (5,208) (3,424)
Payment for purchase of businesses, net of cash acquired (73,144) (103,764) (67,975)
--------------------------------------------------------------------- --------------- ---------------- --------------
Net cash used in investing activities (81,538) (108,972) (71,399)
Financing activities:
Proceeds from issuance of long-term debt 126,000 264,175 73,692
Payments on long-term debt (51,016) (193,565) (13,132)
Financing fees (3,187) (4,584) (884)
Cost of initial public offering - (960) (1,647)
Common stock redemption and retirement - (35,374) -
Common stock issued for cash 8 66,960 11,602
--------------------------------------------------------------------- --------------- ---------------- --------------
Net cash provided by financing activities 71,805 96,652 69,631
--------------------------------------------------------------------- --------------- ---------------- --------------
Net increase (decrease) in cash and cash equivalents (1,546) 679 3,535
Cash and cash equivalents, beginning of year 5,175 4,496 961
--------------------------------------------------------------------- --------------- ---------------- --------------
Cash and cash equivalents, end of year $ 3,629 $ 5,175 $ 4,496
===================================================================== =============== ================ ==============
</TABLE>
See accompanying notes
11
<PAGE>
<TABLE>
<CAPTION>
consolidated
statements GLOBAL IMAGING SYSTEMS, INC.
of stockholders' equity FOR THE YEARS ENDED MARCH 31, 2000, 1999, AND 1998
--------------------------------------------------------- ---------------------------------------------------------------------
(In thousands, except share
amounts) Common Stock*
------------- Additional
Shares Par Treasury Paid-in Stockholder Retained
Value Stock Capital Receivables Earnings Total
------------------------------------ ------------ ----------- ------------- -------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1997 9,407,787 $94 $19,500 $ (100) $ 301 $ 19,795
Common stock issued 1,357,468 13 14,118 (131) 14,000
Net income 4,453 4,453
------------------------------------ ------------ ----------- ------------- -------------- -------------- ----------- ----------
Balances at March 31, 1998 10,765,255 107 33,618 (231) 4,754 38,248
Common stock issued in
initial public offering 6,000,000 60 66,900 66,960
Common stock issued in con-
junction with acquisitions 1,143,797 11 16,377 16,388
Common stock retired (339,945) (3) (30,459) 231 (133) (30,364)
Stock repurchased - Treasury (1,595) $(35) (35)
Dividend - Class A
common stock (4,975) (4,975)
Common stock reclassified 1,158,329 12 (12) -
Cost of initial public offering (2,607) (2,607)
Net income 11,284 11,284
------------------------------------ ------------ ----------- ------------- -------------- -------------- ----------- ----------
Balances at March 31, 1999 18,725,841 187 (35) 83,817 - 10,930 94,899
Common stock issued in con-
junction with acquisitions 496,950 5 7,650 7,655
Stock options exercised 700 8 8
Net income 15,051 15,051
------------------------------------ ------------ ----------- ------------- -------------- -------------- ----------- ----------
Balances at March 31, 2000 19,223,491 $ 192 $(35) $91,475 $ - $ 25,981 $117,613
==================================== ============ =========== ============= ============== ============== =========== ==========
<CAPTION>
*COMMON STOCK Class A Class B Class C Total
ROLL FORWARD Common Stock Common Stock Common Stock Common Stock Common Stock
------------ ------------ ------------ ------------ ------------
Shares Par Shares Par Shares Par Shares Par Shares Par
Value Value Value Value Value
------------------------------- --------- ---------- ---------- ------- ---------- ------- --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1997 211,146 $ 2 8,562,708 $ 86 633,933 $ 6 9,407,787 $94
Common stock issued 128,799 1 958,350 9 270,319 3 1,357,468 13
------------------------------- --------- ---------- ---------- ------- ---------- ------- --------- -------- ---------- -------
Balances at March 31, 1998 339,945 3 9,521,058 95 904,252 9 10,765,255 107
Common stock issued in
initial public offering 6,000,000 $60 6,000,000 60
Common stock issued in con-
junction with acquisitions 1,143,797 11 1,143,797 11
Common stock retired (339,945) (3) (339,945) (3)
Stock repurchased - Treasury (1,595) (1,595) -
Common stock reclassified (9,521,058) (95) (904,252) (9) 11,583,639 116 1,158,329 12
------------------------------- --------- ---------- ---------- ------- ---------- ------- --------- -------- ---------- -------
Balances at March 31, 1999 - - - - - - 18,725,841 187 18,725,841 187
Common stock issued in con-
junction with acquisitions 496,950 5 496,950 5
Stock options exercised 700 - 700 -
------------------------------- --------- ---------- ---------- ------- ---------- ------- --------- -------- ---------- -------
Balances at March 31, 2000 - $ - - $ - - $ - 19,223,491 $192 19,223,491 $192
=============================== ========= ========== ========== ======= ========== ======= ========= ======== ========== =======
</TABLE>
See accompanying notes
12
<PAGE>
Notes To
Consolidated
Financial Statements
(In thousands, except share and per share amounts)
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
Global Imaging Systems, Inc. was formed on June 3, 1994. The Company's principal
operating subsidiaries are located in the United States and are in the business
of supplying photocopiers, facsimile equipment, automated office equipment,
network integration services, electronic presentation and document imaging
equipment, and related service, parts, and supplies. The consolidated financial
statements include the financial statements of Global Imaging Systems, Inc. and
its subsidiaries (the Company). All significant intercompany balances and
transactions have been eliminated in consolidation. Certain prior year amounts
have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized as follows:
Supplies sales to customers are recognized at the time of shipment. Equipment
sales are recognized at the time of customer acceptance, or in the case of
equipment sales financed by third-party leasing companies, at the time of
acceptance by the leasing company and the customer.
Maintenance contract service revenues are recognized ratably over the term of
the underlying maintenance contract. Other service revenues are recognized as
earned. Deferred revenue consists of unearned maintenance contract revenue that
is recognized over the life of the related contract, generally 12 months.
Rental equipment revenue is recognized ratably over the lives of the underlying
cancelable operating leases, principally one to three years.
Financial Instruments
The Company's financial instruments include cash and cash equivalents, accounts
receivable, accounts payable, long-term debt, and interest rate swap and cap
agreements. The carrying amount of cash and cash equivalents, accounts
receivable and accounts payable approximate their fair market value due to the
short-term maturities of these instruments. The fair values of interest rate
swap and cap agreements and long-term debt were estimated based on quoted market
prices at year-end.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
March 31,
--------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------ -------------------------- ----------------------------
Carrying Fair Carrying Fair
(In thousands ) Amount Value Amount Value
------------------------------------------------------------ ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Nonderivatives:
Long-term debt $ 247,722 $ 236,722 $ 168,277 $ 168,277
Derivatives:
Interest rate swap and cap agreements related to debt - 468 - -
</TABLE>
13
<PAGE>
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less when acquired to be cash equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base and their dispersion across
different industries and geographical areas. As of March 31, 2000, the Company
had no significant concentrations of credit risk.
Inventories
Inventories consist of photocopiers, facsimile equipment, automated office
equipment, electronic presentation equipment, document imaging equipment,
computers and related software, and related parts and supplies and are valued at
the lower of cost (specific identification and/or average cost for equipment and
average cost for related parts and supplies) or market value. Inventories are
stated net of reserves of $2,799 and $2,211 at March 31, 2000 and 1999,
respectively. Reserves are established for excess and slow-moving inventories.
Long-Lived Assets
The recoverability of long-lived assets (including related intangibles) is
evaluated at the operating unit level by an analysis of operating results and
consideration of other significant events or changes in the business
environment. If an operating unit has current operating losses and there is a
likelihood that such operating losses will continue or other indications of
impairment are present, the Company will determine if impairment exists based on
the undiscounted expected future cash flows from operations before interest.
Impairment losses would be measured based on the amount by which the carrying
amount exceeds the fair value.
Rental Equipment
Rental equipment is stated at cost less accumulated depreciation. Depreciation
is provided using the straight-line method over the assets' estimated economic
lives, principally three years.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are principally provided using the
straight-line method over the assets' estimated economic lives, which range from
three to 10 years.
Intangibles
Goodwill (excess of purchase price over fair value of net assets acquired)
recognized in business combinations accounted for as purchases is amortized over
periods of between 15 and 40 years on the straight-line basis. Accumulated
amortization was approximately $14,200 and $7,100 at March 31, 2000 and 1999,
respectively.
Prior to concluding acquisitions, we estimated the future profitability and cash
flows for each entity in order to determine the expected benefit period for the
intangible assets. This analysis included a review of past performance, industry
trends and anticipated integration with our other business units. We also
reviewed acquisitions concluded in prior years to identify any impairment of
intangible assets associated with these earlier acquisitions.
Noncompete agreements are amortized over the lives of the agreements, which
range from two to four years, using the straight-line basis. Accumulated
amortization was approximately $5,300 and $4,300 at March 31, 2000 and 1999,
respectively.
14
<PAGE>
Financing fees are amortized over the terms of the underlying debt agreements
using the straight-line method, which approximates the effective interest rate
method. Accumulated amortization at March 31, 2000 and 1999 was approximately
$830 and $206, respectively. In June 1999, the Company refinanced its existing
line of credit. Unamortized financing fees of $1,090 that related to the
existing lines of credit were charged to operations as an extraordinary item. In
July 1998, the Company refinanced its existing lines of credit. Unamortized
financing fees of $3,058 that related to the existing lines of credit were
charged to operations as an extraordinary item.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 compliant. In December 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company expensed approximately $100 in connection with remediation of its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. While we will continue to monitor our systems and
those of our material business partners closely to ensure that no unexpected
Year 2000 issues develop, we have no reason to expect any such issues.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, which
is required to be adopted in years beginning after June 15, 2000. This statement
established requirements for accounting and reporting of derivative instruments
and hedging activities. Management has not completed an analysis to determine
the future impact of this statement on the Company's results of operations.
2. ACQUISITIONS
During the year ended March 31, 2000, the Company acquired nine businesses that
provide office imaging solutions and related services for an aggregate purchase
price of approximately $89,800, primarily for cash, including direct acquisition
costs of approximately $700. Liabilities assumed in connection with these
acquisitions totaled approximately $26,500. The Company also issued stock at its
fair market value of approximately $7,700 in connection with these acquisitions.
A significant acquisition during the year ended March 31, 2000, was Lewan &
Associates acquired in June 1999 consisting of total assets of approximately
$63,000 including goodwill of approximately $41,400.
Total assets related to the remaining eight acquisitions were approximately
$47,900, including goodwill of approximately $32,600.
During the year ended March 31, 1999, the Company acquired eight businesses that
provide office imaging solutions and related services for an aggregate purchase
price of approximately $124,800, primarily for cash, including direct
acquisition costs of approximately $1,000. Liabilities assumed in connection
with these acquisitions totaled approximately $14,800. The Company also issued
stock at its fair market value of approximately $16,400 in connection with these
acquisitions.
Significant acquisitions during the year ended March 31, 1999, include Carr
Business Systems (CAR), Capitol Office Solutions, Inc. (COS), Distinctive
Business Products, Inc. (DBP) and Dahill Industries, Inc. (DAH).
The following summarizes these acquisitions:
15
<PAGE>
<TABLE>
<CAPTION>
Acquisition Total Assets Goodwill
Acquired Company Date Acquired Acquired
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
CAR September 1998 $ 19,100 $ 15,300
COS December 1998 60,000 54,100
DBP December 1998 21,200 17,200
DAH February 1999 28,400 17,100
------------------------------- ---------------------------- ---------------------------- ----------------------------
$128,700 $103,700
=============================== ============================ ============================ ============================
</TABLE>
Total assets related to the remaining four acquisitions were approximately
$10,900, including goodwill of approximately $6,100.
During the year ended March 31, 1998, the Company acquired 12 businesses that
provide office imaging solutions and related services for an aggregate purchase
price of approximately $72,300 primarily for cash, including direct acquisition
costs of approximately $600. Liabilities assumed in connection with these
acquisitions totaled $21,400. The Company also sold stock in connection with
these acquisitions. The Class B Common Stock was valued from $3.30 to $8.20 per
share and the Class A Common Stock from $65.00 to $80.00 per share. Stock valued
at approximately $6,100 was sold in connection with these acquisitions. The
excess of the fair value of the stock over the sales price was approximately
$2,400 and has been considered additional purchase price.
Significant acquisitions during the year ended March 31, 1998, include
Electronic Systems, Inc. (ESI), Eastern Copy Products, Inc. (ECP), Electronic
Systems of Richmond, Inc. (ESR), and Connecticut Business Systems, Inc. (CBS).
The following summarizes these acquisitions:
<TABLE>
<CAPTION>
Acquisition Total Assets Goodwill
Acquired Company Date Acquired Acquired
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
ESI July 1997 $ 34,700 $ 24,800
ECP August 1997 9,100 5,300
ESR December 1997 15,700 8,600
CBS December 1997 12,800 9,300
------------------------------- ---------------------------- ---------------------------- ----------------------------
$ 72,300 $ 48,000
=============================== ============================ ============================ ============================
</TABLE>
Total assets related to the remaining eight acquisitions were $19,700, including
goodwill of approximately $11,300.
All acquisitions have been accounted for as purchases and accordingly are
included in the results of operations from their dates of acquisitions. In
connection with the allocation of purchase price, there were no significant
adjustments to fair value.
Under the terms of six of its purchase agreements, the Company is committed to
make contingent payments ("the Earn-outs") of up to $24,500 in cash and issue
common stock valued up to $6,600 to the former owners of the acquired companies
on or before May 31, 2004. As of March 31, 2000, $350 of the Earn-out total has
been paid out in cash. The contingent payments are based on the future
profitability, specifically earnings before interest and taxes, of the acquired
companies. The former owners shall be entitled to receive, on or before May 31,
2004, the balance of the Earn-outs if applicable, minus any portion of the
Earn-outs previously paid. The Earn-outs, if paid, will be recorded as goodwill
related to the acquired companies. The Company has accrued $250 for the fiscal
year ended March 31, 2000 related to the Earn-outs.
The unaudited pro forma results presented below include the effects of the
acquisitions as if they had been consummated at the beginning of the year prior
to acquisition. The unaudited pro forma financial information below is not
necessarily indicative of either future results of operations or results that
might have been achieved had the acquisitions been consummated at the beginning
of the year prior to acquisition.
16
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma
Year Ended March 31,
------------------------------------------------------------- ------------------ ------------------- ------------------
2000 1999 1998
------------------------------------------------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
Revenues $ 511,803 $ 472,071 $ 313,963
Income before extraordinary item 12,988 9,442 4,628
Less extraordinary item (654) (1,817) -
------------------------------------------------------------- ------------------ ------------------- ------------------
Net income 12,334 7,625 4,628
Net income available to common
stockholders $ 12,334 $ 6,724 $ 2,186
============================================================= ================== =================== ==================
Basic earnings per share:
Income before extraordinary item, including yield
adjustment and accretions $ .68 $ .48 $ .12
Net income per share $ .64 $ .38 $ .12
Diluted earnings per share:
Income before extraordinary item, including yield
adjustment and accretions $ .67 $ .47 $ .11
Net income per share $ .64 $ .37 $ .11
</TABLE>
3. RENTAL EQUIPMENT
The Company's rental equipment consists of the following:
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------------------- ------------------ ------------------
2000 1999
-------------------------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Rental equipment on operating leases $ 24,186 $ 14,204
Less accumulated depreciation (15,113) (9,827)
-------------------------------------------------------------------------------- ------------------ ------------------
Rental equipment, net $ 9,073 $ 4,377
================================================================================ ================== ==================
</TABLE>
4. PROPERTY AND EQUIPMENT
The Company's property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------------------- ------------------ ------------------
2000 1999
-------------------------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Office furniture, equipment and leasehold improvements $ 15,114 $ 9,984
Less accumulated depreciation and amortization (6,594) (3,575)
-------------------------------------------------------------------------------- ------------------ ------------------
Property and equipment, net $ 8,520 $ 6,409
================================================================================ ================== ==================
</TABLE>
5. LONG-TERM DEBT
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------------------- ------------------ ------------------
2000 1999
-------------------------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Term and revolving loans $ 147,563 $ 68,000
Senior Subordinated Notes, 10 3/4% due 2007 100,000 100,000
Various notes payable 159 277
-------------------------------------------------------------------------------- ------------------ ------------------
247,722 168,277
Less current maturities (4,280) (176)
-------------------------------------------------------------------------------- ------------------ ------------------
Total long-term debt $ 243,442 $ 168,101
================================================================================ ================== ==================
</TABLE>
In June 1999, the Company retired the balance of $62,000 of long-term debt
outstanding under the previous First Union loan with proceeds from a replacement
credit agreement. The new credit agreement is with a syndicate of banks and
financial institutions with First Union as Administrative Agent (the "Credit
Agreement"). Recognition of deferred financing costs of $1,090 related to the
debt repayment resulted in an extraordinary charge of $654 ($.03 per share), net
of related income tax benefit of $436. The Company's new Credit Agreement
consists of a $25,000
17
<PAGE>
five-year senior term loan, a $75,000 seven-year senior term loan and a $150,000
five-year revolving line of credit. As of March 31, 2000, the Company had
amounts outstanding on its Credit Agreement of $50,000 on the revolving credit
line, $23,125 on the $25,000 senior term loan, and $74,438 on the $75,000 senior
term loan. The new revolving credit line of the senior credit facility and the
$25,000 senior term loan bear interest at rates ranging from 2.00% to 3.00% over
LIBOR or from .75% to 1.75% over a base rate related to prime rate, and will
vary according to Global's ratio of its total funded debt to earnings before
interest, taxes, depreciation and amortization. The $75,000 senior term loan
bears interest at a rate of 3.25% over LIBOR or 2.00% over a base rate related
to prime rate. Amounts borrowed under the revolving credit line of the new
senior credit facility may be repaid and borrowed over the life of the senior
credit facility, with a final maturity date of June 23, 2004. Under the Credit
Agreement, the Company has pledged substantially all of its assets, including
the capital stock of the Company's subsidiaries, to the lenders. Amounts
borrowed under the Credit Agreement may be used to fund working capital and
general corporate purposes, including acquisitions.
In June 1998, the Company repaid $31,500 of long-term debt outstanding to
Jackson National Life Insurance Company ("JNL"), principally with proceeds from
the initial public offering. Recognition of a prepayment penalty of $250 and
deferred financing costs of $901 related to the JNL debt repayment resulted in
an extraordinary charge of $684 ($.06 per share), net of the related income tax
benefit of $467. In July 1998, the Company repaid the remaining $65,800 balance
of the JNL loan with proceeds from a replacement credit agreement with First
Union National Bank. The Company recognized the remaining prorata deferred
financing costs of $1,907 from the JNL loan, resulting in an extraordinary
charge of $1,133 ($.06 per share), net of the related income tax benefit of
$774.
In March 1999, the Company issued $100,000 Senior Subordinated Notes ("the
Notes") due March 8, 2007. The net proceeds of approximately $96,000 were used
to reduce First Union's revolving credit facility. The Notes bear interest at
10.75%, payable semi-annually. The Notes may be redeemed at the option of the
Company beginning on February 15, 2003 at the following redemption prices,
expressed as percentages of the principal amount:
Year Percentage
2003 105.375%
2004 102.688%
2005 and thereafter 100.000%
At any time on or prior to February 15, 2002, the Company may, at its option,
use the net cash proceeds from certain public equity offerings to redeem in the
aggregate up to 35% of the aggregate principal amount of the Notes at a
redemption price equal to 110.75% of the principal amount, provided that at
least 65% of the aggregate principal amount of the Notes originally issued
remain outstanding, and the redemption occurs within 60 days after the
consummation of the public equity offering. The Notes are guaranteed by all
current subsidiaries of the Company, and must be guaranteed by all future
subsidiaries of the Company, other than certain future financing subsidiaries,
on an unsecured senior subordinated basis. Upon the occurrence of future change
of control of the Company, the holders of the Notes have the right to require
that the Company purchase all or a portion of the Notes at a price equal to 101%
of the principal amount. The covenants of the Notes require strict compliance
with certain affirmative, negative, and financial covenants.
On July 27, 1999, the Company filed an amended registration statement with the
Securities and Exchange Commission to exchange the Notes for exchange notes with
identical terms, except the exchange notes do not contain transfer restrictions.
In March 2000, the Company entered into an interest rate swap agreement for a
notional amount of $12,000 under which the Company pays a fixed rate of interest
with a cap and receives a LIBOR-based floating rate. The interest differential
is accrued for and recorded in interest expense. The swaps and the cap both
mature in 2002. In September 1999, the Company entered into an interest rate
swap agreement for a notional amount of $28,000 under which the Company pays a
fixed rate of interest and receives a LIBOR-based floating rate. The interest
differential is accrued for and recorded in interest expense. In September 1999,
an interest rate cap agreement for a notional amount of $22,000 was entered into
which caps the interest rate at a 9% base rate. The cap's premium is amortized
on a straight-line basis as interest expense over the life of the cap. In
January 1998, the Company purchased an interest rate cap on approximately
$26,500 of the variable-term loan. The interest rate cap is for a three-year
term and provides for the Company to be reimbursed by the bank if the annual
average of the LIBOR rate exceeds 8%. The cost of the
18
<PAGE>
interest rate cap is amortized over the three-year term of the agreement and is
included in interest expense. The swaps and caps are intended to reduce the
Company's exposure to the risks of variable interest rates related to the credit
agreement.
Aggregate annual maturities of long-term debt at March 31, 2000 are as follows:
2001 $ 4,280
2002 5,470
2003 6,722
2004 57,937
2005 2,625
Thereafter 170,688
-----------------
Total $ 247,722
=================
Interest paid was approximately $20,400, $7,000 and $6,000 for the years ended
March 31, 2000, 1999 and 1998, respectively.
6. STOCKHOLDERS' EQUITY
During the year ended March 31, 2000, the Company issued stock in connection
with business combinations totaling 496,950 shares. The Company issued 700
shares in connection with stock options exercised.
During the year ended March 31, 1999, the Company issued stock in connection
with business combinations totaling 1,143,797 shares. The Company received 1,595
shares in settlement of an escrow claim in January 1999. Under the terms of the
Senior Subordinated Notes, the Company is restricted from paying any cash
dividends.
Effective May 28, 1998, the Board of Directors approved a change in the
Company's capital stock structure, authorizing 10,000,000 shares of $.01 par
value preferred stock, 50,000,000 shares of $.01 par value Class B common stock
and 905,000 shares of $.01 par value Class C common stock. The Board also
authorized a 132-for-1 stock split for holders of its Class B and Class C common
stock; provided for the automatic conversion into one share of Class B common
stock of each share of its Class C common stock upon the consummation of the
initial public offering; the retirement of each share of Class A common stock
for $90 plus 8% per annum from the time of its purchase through May 31, 1998 and
approximately 3.41 shares of Class B common stock upon the consummation of the
initial public offering; and reclassified its Class B common stock (Common
Stock).
In June 1998, the Company sold 6,000,000 shares of the Company's Common Stock,
par value $.01, in an initial public offering. The aggregate offering price of
the 6,000,000 shares was $72,000. After deducting expenses, the Company received
$64,400 in proceeds from the initial public offering. Of the approximately
$64,400 in net proceeds to the Company, approximately $28,800 was used to repay
amounts due Jackson National Life Insurance Company. The remaining approximately
$35,600 in proceeds was used to pay the cash portion of the redemption price of
the Company's Class A common stock, redeemed upon the closing of the initial
public offering.
7. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted earnings per share reflects the potential dilution from the
exercise of stock options or the conversion of securities into stock.
The following table reconciles the numerators and denominators of the basic and
diluted EPS computations (shares in thousands):
19
<PAGE>
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------------------------------- -------------- --------------- -------------
2000 1999 1998
------------------------------------------------------------------------- -------------- --------------- -------------
Numerator:
<S> <C> <C> <C>
Income before extraordinary item $ 15,705 $ 13,101 $ 4,453
Extraordinary charge for early retirement of debt, net of tax
benefit of $436 and $1,241 for 2000 and 1999, respectively (654) (1,817) -
------------------------------------------------------------------------- -------------- --------------- -------------
Net income 15,051 11,284 4,453
Yield adjustment on Class A common stock and accretions - (901) (2,442)
------------------------------------------------------------------------- -------------- --------------- -------------
Numerator for basic/diluted earnings per share -
net income available to common stockholders $ 15,051 $ 10,383 $ 2,011
========================================================================= ============== =============== =============
Denominator:
Denominator for basic earnings per share: 19,031 16,478 9,805
Effect of dilutive securities:
Contingent stock-redemption of A shares in June 1998 - 88 -
Employee stock options 145 245 -
------------------------------------------------------------------------- -------------- --------------- -------------
Dilutive potential common shares 145 333 -
------------------------------------------------------------------------- -------------- --------------- -------------
Denominator for diluted earnings per share 19,176 16,811 9,805
========================================================================= ============== =============== =============
</TABLE>
8. INCOME TAXES
Deferred income tax assets and liabilities are determined based upon differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------- --------------- ---------------- ----------------
2000 1999 1998
-------------------------------------------------------------------- --------------- ---------------- ----------------
Current:
<S> <C> <C> <C>
Federal $ 9,173 $ 8,420 $ 2,807
State 2,025 1,451 863
-------------------------------------------------------------------- --------------- ---------------- ----------------
11,198 9,871 3,670
Deferred:
Federal 1,340 454 213
State 191 65 65
-------------------------------------------------------------------- --------------- ---------------- ----------------
1,531 519 278
-------------------------------------------------------------------- --------------- ---------------- ----------------
$12,729 $10,390 $ 3,948
==================================================================== =============== ================ ================
</TABLE>
A reconciliation of the differences between the effective income tax rate and
the statutory federal tax rate are as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------- --------------- ---------------- ----------------
2000 1999 1998
-------------------------------------------------------------------- --------------- ---------------- ----------------
<S> <C> <C> <C>
Tax at U.S. statutory rate $ 9,952 $ 8,222 $ 2,856
State taxes, net of federal benefit 1,492 1,322 616
Goodwill amortization 1,335 529 289
Other permanent differences (50) 317 187
-------------------------------------------------------------------- --------------- ---------------- ----------------
$12,729 $10,390 $ 3,948
==================================================================== =============== ================ ================
</TABLE>
Significant components of the Company's deferred tax assets and liabilities are
as follows:
20
<PAGE>
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------------------- ------------------ ------------------
2000 1999
-------------------------------------------------------------------------------- ------------------ ------------------
Deferred tax assets:
<S> <C> <C>
Noncompete agreements $ 1,524 $ 1,271
Inventory related 2,010 1,529
Various accrued expenses 397 524
Deferred revenue 331 213
Depreciation 310 260
Accounts receivable related 538 325
Other items 158 126
-------------------------------------------------------------------------------- ------------------ ------------------
Gross deferred tax asset 5,268 4,248
Deferred tax liabilities:
Goodwill 3,408 1,799
-------------------------------------------------------------------------------- ------------------ ------------------
Net deferred tax asset $ 1,860 $ 2,449
================================================================================ ================== ==================
Classified as follows:
Current asset $ 3,276 $ 2,591
Noncurrent liability (1,416) (142)
-------------------------------------------------------------------------------- ------------------ ------------------
$ 1,860 $ 2,449
================================================================================ ================== ==================
</TABLE>
SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a valuation allowance is not necessary as of March 31, 2000 and
1999.
Cash paid for income taxes was approximately $14,200, $6,900 and $3,500 for the
years ended March 31, 2000, 1999 and 1998, respectively.
9. EMPLOYEE BENEFIT PLANS
The majority of the employees of the Company are eligible to participate in
defined contribution plans (the "Plans") established under Section 401(k) of the
U.S. Internal Revenue Code. Employees are generally eligible to contribute
voluntarily to the Plans after one year of service. The Company may contribute a
discretionary amount of the employee contribution up to specified limits.
Employees are always vested in their contributed balance and generally become
fully vested in the Company's contributions after seven years of service. The
expense related to the Company's contributions to the Plans for the years ended
March 31, 2000, 1999 and 1998 was approximately $1,600, $1,100 and $500,
respectively.
10. STOCK OPTION PLAN
In 1998, the Board of Directors adopted a stock option plan and approved a
number of stock option grants to be effective upon the closing of the initial
public offering. Under the terms of the stock option plan, 1,820,000 shares of
the Company's common stock may be sold pursuant to stock options or granted or
sold as restricted stock to directors, officers, employees, and consultants to
the Company. As of March 31, 2000 the Board had granted options to purchase a
total of 1,421,150 shares of common stock of the Company under the stock option
plan and an option to purchase 10,000 shares of common stock of the Company
outside of the stock option plan. These shares have exercise prices ranging from
$12 to $18.13. All of these options are subject to vesting requirements based on
length of service.
The following table summarizes the stock option activity for each of the two
years ended March 31:
21
<PAGE>
<TABLE>
<CAPTION>
Number of Per Share
Shares Option Price
----------------------------------------------------------------- ------------------- ------------------------
<S> <C> <C>
Outstanding at March 31, 1998 - -
Granted 559,750 $12.00 - 12.88
Exercised - -
Canceled (33,650) $12.00
----------------------------------------------------------------- ------------------- ------------------------
Outstanding at March 31, 1999 526,100 $12.00 - 12.88
Granted 871,400 $13.13 - 18.13
Exercised (700) $12.00
Canceled (62,600) $12.00 - 18.13
----------------------------------------------------------------- ------------------- ------------------------
Outstanding at March 31, 2000 1,334,200 $12.00 - 18.13
================================================================= =================== ========================
Exercisable at March 31, 2000 101,189 $12.00 - 12.88
================================================================= =================== ========================
</TABLE>
Pro forma information regarding net income and earnings per share is required by
SFAS 123, "Accounting for Stock-Based Compensation", which also requires that
the information be determined as if the Company had accounted for its employee
stock options under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following assumptions:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Risk-free interest rate 6.0% 5.0%
Volatility factor of the expected market price of the Company's common stock 65.0% 75.0%
Dividend yield - -
Weighted average expected life of options (in years) 5.0 5.0
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation", but
applies Accounting Principals Board Opinion No. 25 and related interpretations
in accounting for its plans. Therefore, no compensation expense has been
recognized for stock options granted at fair market value under its plans. If
the Company had elected to recognize compensation expense for stock options
based on the fair value at grant date, consistent with the method prescribed by
SFAS No. 123, net income and earnings per share would have been reduced to the
pro forma amounts as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Pro forma net income available to common stockholders $13,722 $9,925
Pro forma earnings per share:
Basic 0.72 0.60
Diluted 0.72 0.59
</TABLE>
The following table summarizes the weighted average exercise prices of option
activity for the years ended March 31:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Balance at beginning of period $12.05 $ -
Granted 15.54 12.05
Exercised 12.00 -
Canceled 14.49 12.00
Balance at end of period 14.22 12.05
</TABLE>
22
<PAGE>
As of March 31, 2000, the weighted average exercise price of exercisable options
was $12.05. Outstanding options as of March 31, 2000 had a weighted average
remaining contractual life of 8.8 years. The per share weighted average fair
value of options granted during the year ended March 31, 2000 and 1999 was $9.35
and $8.19, respectively.
11. LEASES
The Company is obligated under various noncancelable operating leases for its
office facilities, office equipment and vehicles. Certain of the leases for its
office facilities are with various employee stockholders. Future noncancelable
lease commitments as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Related-Party Other
Leases Leases Total
-------------------------------------------------------------------- --------------- ---------------- ----------------
<S> <C> <C> <C>
2001 $ 1,829 $ 5,006 $ 6,835
2002 1,596 4,153 5,749
2003 1,168 3,605 4,773
2004 951 2,990 3,941
2005 655 2,330 2,985
Thereafter 1,023 4,314 5,337
-------------------------------------------------------------------- --------------- ---------------- ----------------
Total $ 7,222 $ 22,398 $ 29,620
==================================================================== =============== ================ ================
</TABLE>
Rental expense related to the above leases was as follows:
<TABLE>
<CAPTION>
Related-Party Other
Leases Leases Total
-------------------------------------------------------------------- --------------- ---------------- ----------------
<S> <C> <C> <C>
Year ended March 31, 2000 $ 1,452 $ 4,714 $ 6,166
Year ended March 31, 1999 1,042 2,487 3,529
Year ended March 31, 1998 862 1,236 2,098
</TABLE>
12. RELATED-PARTY TRANSACTIONS
During 1994, the Company entered into a seven-year consulting agreement with its
majority stockholder, Golder, Thoma, Cressey, Rauner, Inc. (the "Majority
Stockholder"). Under the terms of this agreement, the Company was obligated to
pay the Majority Stockholder an annual management fee of $200. The Company was
also obligated to pay a 1% placement fee to the Majority Stockholder for all
debt and equity raised by the Company during the term of the agreement. The
agreement terminated upon the closing of the initial public offering ("IPO") of
the Company's common stock in June 1998.
Golder, Thoma, Cressey, Rauner, Inc. management fees were waived in 1999 due to
the completion of the IPO in June 1998. In connection with the aforementioned
agreements, the Company incurred management fees and placement fees. The
following shows the fees paid in each period:
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------- --------------- ---------------- ----------------
<S> <C> <C> <C>
Management fees $ - $ - $ 200
Placement fees - - 800
</TABLE>
The Company entered into a consulting agreement with Capitol Office Solutions
("Capitol") in July 1997, whereby the Company provided certain human resources,
administration, financial, accounting, and consulting services to Capitol for an
annual fee of $150. Additionally, the Company received a one-time fee of $270
from Capitol related to assisting Capitol in obtaining financing. The consulting
agreement ended in November 1998 with the purchase of Capitol in December 1998.
The majority stockholders of the Company also owned the majority of the
outstanding stock of Capitol.
23
<PAGE>
In the ordinary course of business, the Company purchased inventory from an
entity, which is owned by a president of a subsidiary of the Company. For the
year ended March 31, 2000, the Company purchased inventory totaling $572 from
this entity.
13. SEGMENTS
In fiscal 1999, the Company adopted the provisions of Statement of Financial
Accounting Standards 131, "Disclosures About Segments of an Enterprise and
Related Information" (SFAS No. 131). This statement establishes new standards
for reporting information about operating segments and related disclosures.
As an integrated office imaging solutions provider, the Company is organized
into 13 geographical operating segments (core dealers). These individual
segments have been aggregated into one reportable segment given the similarities
of economic characteristics between the operations represented by the core
dealers and the common nature of the products and services, classes of customers
and distribution channels.
The revenues of these aggregated segments are derived from the two principal
categories of revenues as reported in the Company's consolidated statements of
operations. Substantially all of the Company's revenue is attributable to
customers in the United States. Additionally, all of the Company's assets are
located in the United States.
14. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company has issued $100,000 of 10-3/4% Senior Subordinated Notes (the
Notes), that are fully and unconditionally guaranteed on a joint and several
basis by all the Company's existing subsidiaries (the Guarantors), each of which
is wholly owned, directly or indirectly, by the Company. All of the operations
of the Company are conducted by the Guarantors and the Company has no operations
or assets separate from its investment in its subsidiaries. The aggregate
assets, liabilities, earnings and equity of the Guarantors are substantially
equivalent to the aggregate assets, liabilities, earnings and equity of the
Company, on a consolidated basis. Therefore, separate financial statements of
the Guarantors have not been presented. Separate financial statements and other
disclosures concerning the Guarantors and the Parent are not present because
management believes that such information would not be material to investors.
15. SUBSEQUENT EVENTS (Unaudited)
The Company announced a stock repurchase program in March 2000 whereby $10,000
of the Compnay's common stock may be acquired in the open market. The Company
obtained the approval of the lenders under its senior credit facility. This
stock repurchase program began in May 2000 for the purpose of enhancing
shareholder value.
24
<PAGE>
report of independent auditors
--------------------------------------------------------------------------------
Board of Directors
Global Imaging Systems, Inc.
We have audited the accompanying consolidated balance sheets of Global Imaging
Systems, Inc. as of March 31, 2000 and 1999, and the related consolidated
statements of operations, cash flows, and stockholders' equity for each of the
three years in the period ended March 31, 2000. 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 in accordance with auditing standards generally accepted
in the United States. Those standards 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Global
Imaging Systems, Inc. at March 31, 2000 and 1999, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States.
Tampa, Florida /s/ Ernst & Young LLP
May 12, 2000
25
<PAGE>
<TABLE>
<CAPTION>
quarterly
financial
data GLOBAL IMAGING SYSTEMS, INC.
-------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
-------------------------- ------------ ------------ ---------------- ----------- ----------- ------------ ------------
Income Diluted
Before Earnings Dividends
Gross Extraordinary Per Stock Price (1) Paid Per
Revenues Margin Item Share High Low Share (2)
-------------------------- ------------ ------------ ---------------- ----------- ----------- ------------ ------------
2000
<S> <C> <C> <C> <C> <C> <C> <C>
First quarter $100,524 $ 36,678 $ 4,088 $.18 $ 18.625 $ 10.938 $ -
Second quarter 121,023 43,068 4,789 .25 21.125 14.250 -
Third quarter 120,307 43,933 3,424 .18 18.125 10.375 -
Fourth quarter 131,822 48,721 3,404 .18 11.813 7.063 -
-------------------------- ------------ ------------ ---------------- ----------- ----------- ------------ ------------
Year $473,676 $172,400 $15,705 $.78 $ 21.125 $ 7.063 $ -
========================== ============ ============ ================ =========== =========== ============ ============
1999
First quarter $ 58,318 $ 20,425 $ 2,088 $.04 $ 15.250 $ 11.250 $ -
Second quarter 67,046 21,575 2,837 .10 17.438 9.688 -
Third quarter 75,893 26,337 3,829 .21 26.250 6.875 -
Fourth quarter 87,744 32,147 4,347 .23 24.875 10.750 -
-------------------------- ------------ ------------ ---------------- ----------- ----------- ------------ ------------
Year $289,001 $100,484 $13,101 $.62 $ 26.250 $ 6.875 $ -
========================== ============ ============ ================ =========== =========== ============ ============
</TABLE>
(1) Global Imaging Systems, Inc. common stock is traded on the Nasdaq National
Market under the symbol "GISX". Stock quotations were obtained from the
National Association of Securities Dealers. On June 16, 2000, Global had
170 stockholders of record plus approximately 6,300 beneficial owners
holding Global common stock in broker name.
(2) Global is prohibited from paying cash dividends under the terms of the
agreement governing its senior credit facility and the indenture governing
its 10-3/4% Senior Subordinated Notes due 2007.
