<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO __________________
Commission File Number: 000-24373
GLOBAL IMAGING SYSTEMS, INC.
--------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-3247752
----------------------------------------- ----------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NO.)
3820 Northdale Boulevard, Suite 200A 33624
Tampa, Florida
----------------------------------------- ----------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPONE NUMBER, INCLUDING AREA CODE: 813-960-5508
________________________________________________________________________________
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
The registrant had 18,096,787 Shares of Common Stock, $.01 par value,
outstanding as of November 10, 2000.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2000 (Unaudited)
and March 31, 2000 3
Consolidated Statements of Operations for the three months ended
September 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Operations for the six months ended
September 30, 2000 and 1999 (Unaudited) 5
Consolidated Statements of Cash Flows for the six months ended
September 30, 2000 and 1999 (Unaudited) 6
Consolidated Statement of Stockholders' Equity for the six months
ended September 30, 2000 (Unaudited) 7
Notes to Consolidated Financial Statements (Unaudited) 8
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II - OTHER INFORMATION
ITEM 4 - Submission of Matters to a Vote of Security Holders 16
ITEM 6 - Exhibits and Reports on Form 8-K 17
SIGNATURE 18
EXHIBIT INDEX 19
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------------- -------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,949 $ 3,629
Accounts receivable, net of allowance for doubtful accounts ($2,191
and $2,064 at September 30, 2000 and March 31, 2000, respectively) 86,857 69,163
Inventories 57,112 57,560
Deferred income taxes 3,655 3,276
Prepaid expenses and other current assets 3,806 2,665
Income taxes receivable 244 2,118
------------------- -------------------
Total current assets 153,623 138,411
Rental equipment, net 11,461 9,073
Property and equipment, net 9,491 8,520
Other assets 2,500 1,808
Intangible assets, net:
Goodwill 282,037 268,517
Noncompete agreements 1,738 1,908
Financing fees 4,987 5,328
------------------- -------------------
Total assets $ 465,837 $ 433,565
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,643 $ 26,540
Accrued liabilities 6,987 7,614
Accrued compensation and benefits 10,493 9,642
Accrued interest 1,649 1,734
Current maturities of long-term debt 4,945 4,280
Deferred revenue 24,231 21,284
------------------- -------------------
Total current liabilities 77,948 71,094
Deferred income taxes 2,173 1,416
Long-term debt, less current maturities 270,273 243,442
------------------- -------------------
Total liabilities 350,394 315,952
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 shares issued; 18,112,887
and 19,223,491 shares outstanding at September 30, 2000 and March 31,
2000, respectively 192 192
Common stock held in treasury, at cost (9,940) (35)
Additional paid-in capital 91,475 91,475
Retained earnings 33,716 25,981
------------------- -------------------
Total stockholders' equity 115,443 117,613
------------------- -------------------
Total liabilities and stockholders' equity $ 465,837 $ 433,565
=================== ===================
</TABLE>
See accompanying notes.
3
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
------------------- -------------------
<S> <C> <C>
Revenues:
Equipment and supplies sales $ 116,379 $ 91,281
Service and rentals 34,752 29,742
------------------- -------------------
Total revenues 151,131 121,023
Costs and operating expenses:
Cost of equipment and supplies sales 80,106 63,509
Service and rental costs 17,890 14,446
Selling, general and administrative expenses 35,796 26,982
Intangible asset amortization 2,443 1,980
------------------- -------------------
Total costs and operating expenses 136,235 106,917
------------------- -------------------
Income from operations 14,896 14,106
Interest expense 7,144 5,517
------------------- -------------------
Income before income taxes 7,752 8,589
Income taxes 3,574 3,800
------------------- -------------------
Net income $ 4,178 $ 4,789
=================== ===================
Net income per common share:
Basic $ 0.23 $ 0.25
=================== ===================
Diluted $ 0.23 $ 0.25
=================== ===================
Weighted average number of shares outstanding:
Basic 18,196 19,022
Diluted 18,196 19,329
</TABLE>
See accompanying notes.
4
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
2000 1999
------------------- -------------------
<S> <C> <C>
Revenues:
Equipment and supplies sales $ 219,173 $ 166,813
Service and rentals 68,875 54,734
------------------- -------------------
Total revenues 288,048 221,547
Costs and operating expenses:
Cost of equipment and supplies sales 149,580 115,081
Service and rental costs 34,962 26,720
Selling, general and administrative expenses 70,511 50,385
Intangible asset amortization 4,882 3,724
------------------- -------------------
Total costs and operating expenses 259,935 195,910
------------------- -------------------
Income from operations 28,113 25,637
Interest expense 13,804 9,760
------------------- -------------------
Income before income taxes and extraordinary item 14,309 15,877
Income taxes 6,574 7,000
------------------- -------------------
Income before extraordinary item 7,735 8,877
Extraordinary charge for early retirement of debt, net of tax
benefit of $436 - (654)
------------------- -------------------
Net income $ 7,735 $ 8,223
=================== ===================
Basic earnings per share:
Income before extraordinary item $ 0.42 $ 0.47
Extraordinary charge for early retirement of debt, net of tax benefit
of $436 - (0.03)
------------------- -------------------
Net income per share $ 0.42 $ 0.44
=================== ===================
Diluted earnings per share:
Income before extraordinary item $ 0.42 $ 0.46
Extraordinary charge for early retirement of debt, net of tax benefit
of $436 - (0.03)
------------------- -------------------
Net income per share $ 0.42 $ 0.43
=================== ===================
Weighted average number of shares outstanding:
Basic 18,596 18,884
Diluted 18,603 19,121
</TABLE>
See accompanying notes.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
2000 1999
------------------- -------------------
<S> <C> <C>
Operating activities:
Net income $ 7,735 $ 8,223
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 5,179 3,790
Amortization 5,354 4,114
Extraordinary charge for early retirement of debt - 654
Deferred income taxes 430 (545)
Changes in operating assets and liabilities, net of amounts acquired in purchase
business combinations:
Accounts receivable (15,838) (9,976)
Inventories 1,977 (2,846)
Prepaid expenses and other current assets (1,141) (558)
Other assets (566) 399
Accounts payable 2,592 (951)
Accrued liabilities, compensation and benefits (1,192) (959)
Deferred revenue 1,712 (581)
Income taxes 1,785 (569)
------------------- -------------------
Net cash provided by operating activities 8,027 195
Investing activities:
Purchase of property, equipment and rental equipment (7,101) (3,429)
Payment for purchase of businesses, net of cash acquired (20,066) (47,585)
------------------- -------------------
Net cash used in investing activities (27,167) (51,014)
Financing activities:
Borrowings under line of credit 29,460 119,000
Payments under line of credit (1,938) (68,813)
Reduction of other debt (26) (83)
Financing fees (131) (2,854)
Common stock repurchases (9,905) -
------------------- -------------------
Net cash provided by financing activities 17,460 47,250
------------------- -------------------
Net increase (decrease) in cash and cash equivalents (1,680) (3,569)
Cash and cash equivalents, beginning of period 3,629 5,175
------------------- -------------------
Cash and cash equivalents, end of period $ 1,949 $ 1,606
=================== ===================
</TABLE>
See accompanying notes.
6
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------
Held in Additional
Treasury, Paid-in Retained
Shares Par Value at cost Capital Earnings Total
---------- --------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at March 31, 2000 19,223,491 $ 192 $ (35) $ 91,475 $ 25,981 $ 117,613
Common stock repurchases 1,110,604 (9,905) (9,905)
Net income 7,735 7,735
---------- --------- ---------- ------------ ----------- -----------
Balances at September 30, 2000 18,112,887 $ 192 $ (9,940) $ 91,475 $ 33,716 $ 115,443
========== ========= ========== ============ =========== ===========
</TABLE>
See accompanying notes.
7
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of September 30, 2000,
consolidated statements of operations for the three and six months ended
September 30, 2000 and 1999, the consolidated statements of cash flows for the
six months ended September 30, 2000 and 1999, and the consolidated statement of
stockholders' equity for the six months ended September 30, 2000 are unaudited.
In the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of operations for the
interim periods presented have been reflected herein. The results of operations
for the interim periods are not necessarily indicative of the results which may
be expected for the entire fiscal year. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in Global Imaging Systems, Inc.'s (together with its
subsidiaries, "Global" or the "Company") Annual Report for the year ended March
31, 2000. Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 2. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of shares outstanding for the period. Diluted EPS
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):
<TABLE>
<CAPTION>
For Three Months Ended For Six Months Ended
-------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary item $ 4,178 $ 4,789 $ 7,735 $ 8,877
Extraordinary charge for early
retirement of debt, net of tax benefit - - - (654)
-------------- -------------- ------------- -------------
Numerator for basic and diluted earnings
per share $ 4,178 $ 4,789 $ 7,735 $ 8,223
============== ============== ============= =============
Denominator:
Denominator for basic earnings per share 18,196 19,022 18,596 18,884
Effect of dilutive securities:
Employee stock options - 307 7 237
-------------- -------------- ------------- -------------
Denominator for diluted earnings per
share-adjusted weighted average shares 18,196 19,329 18,603 19,121
============== ============== ============= =============
</TABLE>
NOTE 3. ACQUISITIONS
During the six months ended September 30, 2000 the Company acquired five
businesses that provide office-imaging solutions. Aggregate consideration for
these acquisitions was approximately $19,647 in cash and acquisition related
expenses of $224. Liabilities totaling approximately $2,896 were assumed by the
Company in connection with these acquisitions. Goodwill of approximately $16,417
was recorded related to these acquisitions. These acquisitions were accounted
for by the purchase method of accounting and accordingly are included in the
results of operations from their dates of acquisition.
8
<PAGE>
Under the terms of one of its acquisition agreements entered into during
the six months ended September 30, 2000, the Company is committed to make
contingent payments (the Earn-out) of up to $1,800 in cash to the former owners
of the acquired company on or before March 31, 2003. These contingent payments
are based on the future profitability, specifically earnings before interest and
taxes, of the acquired company.
The unaudited pro forma results presented below include the effects of the
Company's acquisitions as if they had been consummated as of April 1, 1999. 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.
Unaudited Pro forma
Six Months ended September 30,
------------------------------
2000 1999
------------- -----------
Revenues................................ $ 293,214 $ 264,165
Income before extraordinary item........ 7,828 6,512
Less extraordinary item................. - (654)
------------- -----------
Net income.............................. $ 7,828 $ 5,858
============= ===========
Basic earnings per share:
Income before extraordinary item.... $ 0.42 $ 0.34
Net income per share................ $ 0.42 $ 0.30
Diluted earnings per share:
Income before extraordinary item.... $ 0.42 $ 0.33
Net income per share................ $ 0.42 $ 0.30
NOTE 4. 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 September 30, 2000, options to purchase 1,390,635 shares of
the Company's common stock were outstanding under the stock option plan. During
the six months ended September 30, 2000, options to purchase an aggregate of
126,000 shares were granted with exercise prices ranging from $7.38 to $12.00
per share. In addition to options outstanding under the plan, 10,000 shares of
Global's common stock are issuable upon the exercise of an option granted
outside the plan. This option is exercisable at a price of $12.00 per share.
NOTE 5. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company has issued $100,000 of 10 3/4% Senior Subordinated 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. The Company is a holding company all of
whose operations are conducted by the Guarantors and the Company has no
operations or assets separate from its investment in its subsidiaries.
9
<PAGE>
ITEM 2. 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 Report on Form 10-Q and Global's annual report for the year ended March 31,
2000. The discussion in this section contains forward-looking statements,
including statements relating to the pace of Global's future acquisitions and
overall growth, the benefits that will be realized by businesses Global has
acquired or may acquire, Global's future product and service offerings, Global's
pace of borrowings and rate of internally generated cash flows and Global's time
frame for seeking additional financing. These forward-looking statements are
based largely on management's current expectations and projections about future
events and financial trends affecting the financial condition of our business.
These forward-looking statements are subject to risks, uncertainties and
assumptions which could cause Global's actual results to differ materially from
the results suggested by these forward-looking statements. Some factors that may
cause Global's results to differ materially from these statements are:
. downturns in general economic and business conditions, either
nationally or in our markets, which could reduce revenue, restrict
revenue growth or increase costs.
. changes in our competitive climate, which could require us to lower
prices and therefore would reduce our revenues with no corresponding
reduction in cost.
. fewer than expected acquisition opportunities or difficulty obtaining
additional financing on satisfactory terms, which could slow our
growth through acquisition.
. recognition of unanticipated costs and delays associated with ongoing
integration efforts.
. inability to obtain financing on satisfactory terms due to our
substantial indebtedness or fluctuations in our common stock price.
. increases in borrowing rates and costs which could limit our
acquisitions, cause us to reduce our pace of acquisitions or growth,
or accelerate the time in which we need to obtain new financing.
. technological developments that may reduce demand for the products
and services we sell or result in our facing increased competition to
sell those products and services
Information regarding these factors and others that may cause Global's actual
results to differ materially from those contained in the forward-looking
statements are described more fully in the "Risk Factors" section of the
Company's Report on Form 10-K for the year ended March 31, 2000. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
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 and
electronic presentation equipment. From its founding through September 30, 2000,
Global has acquired thirteen core companies in the United States, three
stand-alone companies, and 30 additional satellite companies that have been
integrated into the core companies. The first acquisition was completed in
August 1994. Management believes the acquired businesses and other businesses
that Global plans to
10
<PAGE>
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 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 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 or electronic presentation 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 or electronic presentation systems
markets, as these markets generally 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 with no
residual value.
11
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial information
as a percentage of total revenues.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Equipment and supplies sales.................... 77.0% 75.4% 76.1% 75.3%
Service and rentals............................. 23.0 24.6 23.9 24.7
-------------- --------------- -------------- --------------
Total revenues.................................... 100.0 100.0 100.0 100.0
Cost and operating expenses:
Cost of equipment and supplies sales............ 53.0 52.5 51.9 51.9
Service and rental costs........................ 11.8 11.9 12.1 12.1
Selling, general, and administrative
expenses...................................... 23.7 22.3 24.5 22.7
Intangible asset amortization................... 1.6 1.6 1.7 1.7
-------------- --------------- -------------- --------------
Total costs and operating expenses................ 90.1 88.3 90.2 88.4
-------------- --------------- -------------- --------------
Income from operations............................ 9.9 11.7 9.8 11.6
Interest expense.................................. 4.8 4.6 4.8 4.4
-------------- --------------- -------------- --------------
Income before income taxes and
extraordinary item.............................. 5.1 7.1 5.0 7.2
Income taxes...................................... 2.3 3.1 2.3 3.2
-------------- --------------- -------------- --------------
Income before extraordinary item.................. 2.8 4.0 2.7 4.0
Extraordinary charge for early retirement
of debt, net of tax benefit..................... - - - (0.3)
-------------- --------------- -------------- --------------
Net income........................................ 2.8% 4.0% 2.7% 3.7%
============== =============== ============== ==============
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Revenues
Total revenues for the three months ended September 30, 2000 increased to
$151,131, 24.9% higher than total revenues of $121,023 for the same period in
1999. The majority of revenue growth was due to the acquisition of businesses
during 1999 and 2000, with the remainder coming from internal growth.
Sales of equipment and supplies for the three months ended September 30,
2000 increased to $116,379, 27.5% higher than sales of equipment and supplies of
$91,281 for the same period in 1999.
Service and rental revenues for the three months ending September 30, 2000
increased to $34,752, 16.8% higher than service and rental revenues of $29,742
for the same period in 1999.
Gross Profit
Gross profit for the three months ending September 30, 2000 increased to
$53,135, 23.4% higher than gross profit of $43,068 for the same period in 1999.
When viewed as a percent of total revenue, gross profit was 35.2% for the three
months ending September 30, 2000 versus 35.6% for the same period in 1999. The
change in total gross profit margins was primarily due to the change in the
revenue mix. Office equipment dealers typically receive a higher percentage of
total revenues from service and rentals, while network integration, electronic
presentation systems and DIM systems dealers derive a higher percentage of total
revenues from sales of equipment and supplies. The
12
<PAGE>
automated office equipment component of sales of the businesses acquired in 1999
and 2000 had higher equipment and supplies gross margins than Global's existing
businesses. This was offset by the decline in network services equipment gross
profit margins from 1999 to 2000. In addition, a larger percentage of revenues
were from the lower gross profit category of equipment and supplies. Combined
service and rental gross profit margins were 48.5% for the three months ended
September 30, 2000 and 51.4% for the same period the previous year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ending
September 30, 2000 increased to $35,796, 32.7% higher than selling, general and
administrative expenses of $26,982 for the same period in 1999. The increase in
expenses was mostly due to the acquisition of businesses in 1999 and 2000. The
increase in expenses as a percentage of revenues was the result of the number of
automated office equipment companies acquired during the fiscal year ended March
31, 2000 and the first six months of the fiscal year ending March 31, 2001.
Automated office equipment businesses typically have higher selling, general and
administrative expense to revenue ratios than do network integration or
electronic presentation dealers.
Intangible Asset Amortization
Intangible asset amortization was $2,443 for the three months ended
September 30, 2000. During the same period in 1999, asset amortization was
$1,980. Asset amortization includes the amortization of goodwill and non-compete
agreements from acquisitions.
Income From Operations
Income from operations for the three months ended September 30, 2000 was
$14,896, 5.6% higher than $14,106 from the same period in 1999.
Interest Expense
Interest expense for the three months ended September 30, 2000 was $7,144,
29.5% higher than $5,517 from the same period in 1999. The increase was due to
higher borrowing rates and a higher borrowing base.
Income Taxes
The provision for income taxes for the three months ended September 30,
2000 was $3,574, 5.9% lower than $3,800 from the same period in 1999. The
decrease in income taxes was primarily due to lower pre-tax income resulting
from higher interest expense in 2000. The effective income tax rate increased
from 44.2% for the three months ending September 30, 1999 to 46.1% for the three
months ended September 30, 2000. The effective income tax rate for 1999 and 2000
was higher than the federal statutory rate of 35.0% plus state and local taxes,
primarily due to non-deductible goodwill amortization relating to businesses
acquired.
SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1999
Revenues
Total revenues for the six months ended September 30, 2000 increased to
$288,048, 30.0% higher than total revenues of $221,547 for the same period in
1999. The majority of revenue growth was due
13
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to the acquisition of businesses during 1999 and 2000, with the remainder coming
from internal growth.
The revenue growth rate for the six months ended September 30, 2000
decreased from the growth rate for the six months ended September 30, 1999
primarily due to a decrease in the acquisition rate in 2000 compared to 1999,
and increased competition from direct sources, including internet-based sources
for electronic presentation systems and network integration services.
Sales of equipment and supplies for the six months ended September 30,
2000 increased to $219,173, 31.4% higher than sales of equipment and supplies of
$166,813 for the same period in 1999.
Service and rental revenues for the six months ending September 30, 2000
increased to $68,875, 25.8% higher than service and rental revenues of $54,734
for the same period in 1999.
Gross Profit
Gross profit for the six months ending September 30, 2000 increased to
$103,506, 29.8% higher than gross profit of $79,746 for the same period in 1999.
When viewed as a percent of total revenue, gross profit was 35.9% for the six
months ending September 30, 2000 versus 36.0% for the same period in 1999.
Office equipment dealers typically receive a higher percentage of total revenues
from service and rentals, while network integration and electronic presentation
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 1999 and 2000 had higher equipment and supplies gross
margins than Global's existing businesses. This was offset by the decline in
network services equipment gross profit margins from 1999 to 2000. Combined
service and rental gross profit margins were 49.2% for the six months ended
September 30, 2000 and 51.2% for the same period in 1999.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ending
September 30, 2000 increased to $70,511, 39.9% higher than selling, general and
administrative expenses of $50,385 for the same period in 1999, while revenues
increased 30.0% for the six months ending September 30, 2000 compared to 1999.
The increase in expenses was mostly due to the acquisition of businesses in 1999
and 2000. The increase in expenses as a percentage of revenues was the result of
the number of automated office equipment companies acquired during the fiscal
year ended March 31, 2000 and the first six months of the fiscal year ending
March 31, 2001. Automated office equipment businesses typically have higher
selling, general and administrative expense to revenue ratios than do network
integration or electronic presentation dealers.
Intangible Asset Amortization
Intangible asset amortization was $4,882 for the six months ended
September 30, 2000. During the same period in 1999, asset amortization was
$3,724. Asset amortization includes the amortization of goodwill and non-compete
agreements from acquisitions.
Income From Operations
Income from operations for the six months ended September 30, 2000 was
$28,113, 9.7% higher than $25,637 from the same period in 1999.
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Interest Expense
Interest expense for the six months ended September 30, 2000 was $13,804,
41.4% higher than $9,760 from the same period in 1999. The increase was due to
higher borrowing rates and a higher borrowing base.
Income Taxes
The provision for income taxes for the six months ended June 30, 2000 was
$6,574, 6.1% less than $7,000 from the same period in 1999. The decrease in
income taxes was primarily due to decreased pre-tax income resulting from
increased interest expense in 2000 compared to 1999. The effective income tax
rate increased from 44.1% for the six months ending June 30, 1999 to 45.9% for
the six months ended June 30, 2000. The effective income tax rate for 1999 and
2000 was higher than the federal statutory rate of 35.0% plus state and local
taxes, primarily due to non-deductible goodwill amortization relating to
businesses acquired.
Extraordinary Charges
In June 1999, the Company retired $62,000 of long-term debt payable under
the First Union Credit Agreement due in 2003. The write off of the deferred
financing costs of $1,090 related to the retired debt resulted in an
extraordinary charge of $654 ($.03 per share), net of the related income tax
benefit of $436.
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.
Under the terms of seven of its acquisition agreements, Global may be
required to make additional payments of up to $25,700 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 six months ended September 30, 2000 the net cash provided by
operations was $8,027 and for the six months ended September 30, 1999 the net
cash provided by operations was $195. For the six months ended September 30,
2000 and for the six months ended September 30, 1999 Global's net cash used in
investing activities was $27,167 and $51,014, respectively, primarily for the
purchase of businesses. For the six months ended September 30, 2000 and the six
months ended September 30, 1999, Global's net cash provided by financing
activities was $17,460 and $47,250, respectively. Net cash provided by financing
activities consists of net borrowings and in 2000 was reduced by $9,905 as part
of the stock repurchase program, under which the Company is authorized to
repurchase up to $10,000 of its common stock, which Global adopted on March 31,
2000 and commenced on May 11, 2000. As of September 30, 2000, Global had
repurchased 1,110,604 shares of its common stock at an average price of $8.92
per share.
As of September 30, 2000, the Company had $70,540 borrowing availability
under our senior credit facility. Due to increases in interest rates the Company
anticipates reduced borrowings for acquisition activity compared to the levels
of borrowings for acquisitions in the prior fiscal year. The
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reduced acquisition rate and the continued internally generated cash flows will
extend the time frame for the Company to seek additional financing in either the
capital or equity markets.
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.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 2000 Annual Meeting of Stockholders held August 14, 2000,
the Company's stockholders approved the following items:
1. Bruce D. Gorchow was re-elected to serve as a Director of the Company
with a term to expire in 2003. The vote upon such proposal was as
follows:
For 15,139,764
Against 115,648
2. William C. Kessinger was re-elected to serve as a Director of the
Company with a term to expire in 2003. The vote upon such proposal was
as follows:
For 15,139,864
Against 115,548
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Number Exhibit
------ -------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated Bylaws (1)
11.1 Statement of Computation of Per Share Earnings (2)
27.1 Financial Data Schedule
______________________
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, No. 333-48103, which was declared effective by the Securities and
Exchange Commission on June 17, 1998.
(2) See Note 2 to the Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the three
months ended September 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Global Imaging Systems, Inc.
----------------------------------
(Registrant)
November 13, 2000 /s/ Raymond Schilling
---------------------------- ----------------------------------
Date Raymond Schilling
Chief Financial Officer, Secretary, and
Treasurer, (Duly Authorized Officer and
Principal Financial and Accounting Officer)
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EXHIBIT INDEX
-------------
(Pursuant to item 601 of Regulation S-K)
Number Exhibit
------ -------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated Bylaws (1)
11.1 Statement of Computation of Per Share Earnings (2)
27.1 Financial Data Schedule
_____________________
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, No. 333-48103, which was declared effective by the Securities and
Exchange Commission on June 17, 1998.
(2) See Note 2 to the Notes to Consolidated Financial Statements.
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