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Index to Exhibits is on Page 12
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1996 Commission File #0-12567
=======================================================================
=======================================================================
GUEST SUPPLY, INC.
(Exact name of registrant as specified in its charter)
State of New Jersey 22-2320483
(State or other jurisdiction of (Identification number)
incorporation or organization)
720 U.S. Highway One 08902
North Brunswick, New Jersey (Zip Code)
(Address of principal executive offices)
Registrants telephone number and area code 908-246-3011
=======================================================================
=======================================================================
Indicate by check mark whether the registrant (1) has filed all reports 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 number of shares of common stock, without par value, outstanding as of
June 30, 1996 was 6,150,724 shares.<PAGE>
Page 2
Part 1
GUEST SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1996 1995*
------------- -------------
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents $2,244,000 $1,825,000
Accounts receivable 27,142,000 28,663,000
Inventories 33,432,000 28,269,000
Deferred income taxes 1,583,000 1,434,000
Prepaid expenses and other
current assets 1,345,000 916,000
- --------------------------------------------------------------------------
Total current assets 65,746,000 61,107,000
Equipment and leasehold improvements 29,644,000 28,507,000
Other assets 127,000 97,000
Excess of cost over net assets acquired 5,620,000 5,896,000
- --------------------------------------------------------------------------
$101,137,000 $95,607,000
==========================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $26,584,000 $31,226,000
Current maturities of long-term debt 3,896,000 2,406,000
- --------------------------------------------------------------------------
Total current liabilities 30,480,000 33,632,000
==========================================================================
Long-term debt 26,957,000 20,990,000
Deferred income taxes 2,941,000 1,876,000
- --------------------------------------------------------------------------
Total long-term liabilities 29,898,000 22,866,000
==========================================================================
Commitments and contingencies
Shareholders' equity:
Preferred stock - without par value;
authorized 1,000,000 shares,
outstanding none Common stock -
without par value; authorized
20,000,000 shares, issued and
outstanding 6,150,724 shares at
June 30, 1996 and 6,146,335 at
September 30, 1995 542,000 542,000
Additional paid-in capital 34,975,000 34,922,000
Retained earnings 5,338,000 3,778,000
Cumulative foreign currency
translation adjustments (96,000) (133,000)
- ---------------------------------------------------------------------------
Total shareholders' equity 40,759,000 39,109,000
- ---------------------------------------------------------------------------
$101,137,000 $95,607,000
===========================================================================
* From audited financial statements.
The accompanying notes are an integral part
of these consolidated condensed financial statements.
<PAGE>
Page 3
GUEST SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
June 30, June 30,
-------------------------- -------------------------
1996 1995 1996 1995
------------ ------------ ----------- ------------
Sales $126,858,000 $111,018,000 $47,863,000 $44,062,000
Cost of sales 99,976,000 84,902,000 37,111,000 33,749,000
- ---------------------------------------------------------------------------
Gross profit 26,882,000 26,116,000 10,752,000 10,313,000
Selling, general &
administrative expense 22,903,000 21,028,000 7,920,000 7,896,000
- ---------------------------------------------------------------------------
Operating income 3,979,000 5,088,000 2,832,000 2,417,000
Interest expense, net 1,298,000 765,000 425,000 327,000
- ---------------------------------------------------------------------------
Income before income
taxes 2,681,000 4,323,000 2,407,000 2,090,000
Income tax expense 1,121,000 1,456,000 967,000 731,000
- ---------------------------------------------------------------------------
Net income $1,560,000 $2,867,000 $1,440,000 $1,359,000
===========================================================================
Earnings per common share $0.22 $0.40 $0.20 $0.19
===========================================================================
Weighted average
shares outstanding 6,990,000 7,205,000 7,341,000 7,305,000
===========================================================================
<PAGE>
Page 4
GUEST SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
-------------------------
1996 1995
---------- ----------
Cash flows from operating activities:
Net income $1,560,000 $2,867,000
- --------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,220,000 2,097,000
Provision for losses on
accounts receivable (104,000) 356,000
Deferred income taxes 916,000 195,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 1,625,000 (5,755,000)
Increase in inventory (5,163,000) (3,944,000)
Increase in prepaid expenses
and other current assets (429,000) (549,000)
(Increase) decrease in other assets (30,000) 5,000
Increase (decrease) in accounts
payable and accrued expenses (4,642,000) 8,947,000
Foreign currency translation adjustments 37,000 (52,000)
- ---------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (4,010,000) 4,167,000
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (3,081,000) (7,904,000)
- ---------------------------------------------------------------------------
Net cash used in investing activities (3,081,000) (7,904,000)
- ---------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (payments) on revolving
credit agreement (360,000) 4,674,000
Proceeds from issuance of long-term debt 10,500,000
Repayment of long-term debt (2,683,000) (1,699,000)
Proceeds from issuance of common stock 53,000 520,000
- ---------------------------------------------------------------------------
Net cash provided by
financing activities 7,510,000 3,495,000
- ---------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 419,000 (242,000)
Cash and cash equivalents at beginning
of period 1,825,000 1,782,000
- ---------------------------------------------------------------------------
Cash and cash equivalents at end of period $2,244,000 $1,540,000
===========================================================================
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
Page 5
GUEST SUPPLY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation
The unaudited consolidated condensed financial statements have been
prepared from the books and records of Guest Supply, Inc. and subsidiaries
(the Company) in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal and recurring
adjustments) considered necessary for a fair presentation have been
included. It is suggested that the consolidated condensed financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended September 30, 1995 included
in the Company's annual report on Form 10-K. Interim results are not
necessarily indicative of the results that may be expected for the full
year.
Note 2: Earnings Per Common Share
Earnings per common share is based on the weighted average number of common
and common equivalent shares outstanding during each period. When stock
options and warrants are dilutive, they are included as share equivalents
using the treasury stock method. Where the effect of the assumed exercise
on net income would be anti-dilutive, primary and fully diluted earnings
per common share are stated the same.
On September 18, 1995, the Board of Directors of the Company declared a
three-for-two stock split to be paid in the form of a 50% stock dividend.
The additional 2,048,739 shares of common stock were issued on October 24,
1995 to the shareholders of record on October 3, 1995. Distribution
offractional shares was paid in cash based on the closing price on the
record date. The par value ofthe new shares issued totaled $205,000 which
was transferred from additional paid-in-capital tocommon stock.
Note 3: Revolving Credit Facility
On October 31, 1995, the Company entered into a credit facility with two
banks for a seven-year $10,500,000 term loan and a two-year $22,000,000
revolving credit facility. The term loan is payable in equal monthly
installments of $125,000 which will commence in December, 1995 and
bearsinterest at a rate equal to 7.0% per annum. The revolving credit
loans under the credit facility bear interest at a rate equal to LIBOR plus
1.0% the bank's prime rate or a fixed rate, as selected by the Company.
The proceeds under this credit facility were used to repay the outstanding
balance under the existing revolving credit facility and for future working
capital needs. At the time of this agreement, the Company had existing
term loans totaling $7,500,000 which remained outstanding. These loans,
which are payable in equal monthly installments, mature in February, 1999.
On April 30, 1996, the banks amended its existing credit facility to allow
for additional availability of $3,500,000 through July 31, 1996 and to
modify its financial covenants.
All of the Company's loans with the banks are secured by substantially all
of its assets and are subject to certain financial covenants.
<PAGE>
Page 6
GUEST SUPPLY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 4: Long Term Incentive Plan
On March 6, 1996, the shareholders of Guest Supply ratified the 1996 Long
Term Incentive Plan. Under the incentive plan, up to 400,000 shares of
Common Stock will be available for issuance of awards to officers and
employees of the Company. Directors of the Company who are not employees
of the Company are eligible for stock options under this plan. Awards are
exercisable at 100% of the fair market value at the date of grant and vest
within a period fixed by the Stock Option Committee of the Board of
Directors.
Note 5: Common Stock
On March 6, 1996, the shareholders of Guest Supply approved an increase in
the number of authorized shares of Common Stock from 10,000,000 to
20,000,000.
<PAGE>
Page 7
GUEST SUPPLY, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine months ended June 30, 1996 vs. Nine months ended June 30, 1995
- -------------------------------------------------------------------
Sales for the nine months ended June 30, 1996 increased by $15,840,000 or
14.3% from $111,018,000 to $126,858,000 for the nine months ended June 30,
1995. Revenues generated from our hotel customers increased $13,810,000 or
14.4% to $109,948,000. This increase is primarily due to selling
additional products to existing customers and the addition of new
customers. During this period, increased room demand also contributed to
the Company's growth.
Sales to consumer product companies and retailers were $16,910,000 for the
nine months ended June 30, 1996 compared to $14,880,000 for the nine months
ended June 30, 1995. The increase of $2,030,000 or 13.6% was due to
increased sales to existing customers.
Gross profit for the nine months ended June 30, 1996 was $26,882,000 or
21.2% of sales compared to $26,116,000 or 23.5% of sales for the nine
months ended June 30, 1995. The decrease in gross profit as a percentage
of sales was due primarily to a sudden and temporary decline in our
secondquarter sales to consumer product companies. The timing and
temporary nature of this unanticipated decrease in sales volume limited the
Company's ability to lower its operating costs or to seek replacement
business. The continued sales growth of textiles, which have a lower gross
margin thanmost of the company's other products, also reduced the overall
gross margin rate.
Interest expense was $1,298,000 for the nine months ended June 30, 1996
compared to $765,000 for the nine months ended June 30, 1995. The increase
in interest of $533,000 can be attributed to an increase in borrowings to
fund our capital expansion program. Interest costs incurred on borrowings
during the construction and installation period are capitalized to the cost
of the project.
Selling, general and administrative expenses were $22,903,000 or 18.1% of
sales for the nine months ended June 30, 1996 compared to $21,028,000 or
18.9% of sales for the nine months ended June 30, 1995. The increase of
$1,875,000 or 8.9% was due primarily to increased payroll and payroll
related costs, warehousing and delivery costs associated with the Company's
sales growth. The decrease in selling, general and administrative costs as
a percentage of sales was the result of increased sales volume combined
with the effects of the Company's cost containment program.
Income tax expense was $1,121,000 for the nine months ended June 30, 1996
compared with $1,456,000 for the prior period. This decrease was primarily
the result of a decrease in pretax income of $1,642,000 as compared to
prior year for the nine months ended June 30, 1996. The income tax rate
for the nine months ended June 30, 1996 and June 30, 1995 was 41.8% and
33.7% respectively. This increase is the result of a reduction in the
utilization of net operating loss carryforwards available for the nine
months ended June 30, 1996.
<PAGE>
Page 8
Three months ended June 30, 1996 vs. Three months ended June 30, 1995
- ---------------------------------------------------------------------
Sales for the three months ended June 30, 1996 increased by $3,801,000 or
8.6% from $44,062,000 to $47,863,000 for the three months ended June 30,
1995. Revenues generated from our hotel customers increased $2,600,000 or
6.7% to $41,245,000. This increase is primarily due to selling additional
products to existing customers and the addition of new customers.
Sales to consumer product companies and retailers increased $1,201,000 or
22.2% to $6,618,000 for the three months ended June 30, 1996 compared to
$5,417,000 for the three months ended June 30, 1995.
Gross profit for the three months ended June 30, 1996 was $10,752,000 or
22.5% of sales compared to $10,313,000 or 23.4% of sales for the three
months ended June 30, 1995. The decrease in gross profit as a percentage
of sales was due primarily to inefficiencies experienced at the Company's
manufacturing facility. The addition of textiles to the Company's product
line also contributed to the decrease as a result of a lower gross profit
associated with these products when compared with the Company's other
products.
Selling, general and administrative expenses increased slightly by .3% to
$7,920,000 or 16.5% of sales for the three months ended June 30, 1996
compared to $7,896,000 or 17.9% of sales for the three months ended June
30, 1995.
Interest expense was $425,000 for the three months ended June 30, 1996
compared to $327,000 for the three months ended June 30, 1995. The
increase in interest of $98,000 can be primarily attributed to an increase
in borrowings to fund our capital expansion program. Interest costs
incurred on borrowings during the construction and installation period are
capitalized to the cost of the project.
During the three months ended June 30, 1996, the Company recorded an income
tax expense of $967,000 as compared to income tax expense of $731,000 in
the prior year quarter. This difference is due to an increase in pretax
income incurred in the three months ended June 30, 1996 of $317,000. The
income tax rate for the quarters ended June 30, 1996 and June 30, 1995 was
40.2% and 35.0% respectively. This increase is the result of a reduction
in the utilization of net operating loss carryforwards available for the
three months ended June 30, 1996.
<PAGE>
Page 9
GUEST SUPPLY, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources at June 30, 1996
- ------------------------------------------------
At June 30, 1996, the Company had $35,266,000 of working capital compared
to $27,475,000 at September 30, 1995. The increase of $7,791,000 is
primarily the result of an increase in long term borrowings for inventory
and to reduce trade payables to agreed upon payment terms.
On October 31, 1995, the Company entered into a credit facility with two
banks for a seven-year $10,500,000 term loan and a two-year $22,000,000
revolving credit facility. The term loan is payable in equal monthly
installments of $125,000 which commenced in December, 1995 and bears
interest at a rate equal to 7.0% per annum. The revolving credit loans
under the credit facility bear interest at a rate equal to LIBOR plus 1.0%
the bank's prime rate or a fixed rate, as selected by the Company. The
proceeds under this credit facility were used to repay the outstanding
balance under the existing revolving credit facility and for future working
capital needs. At the time of this agreement, the Company had existing
term loans totaling $7,500,000 which remained outstanding. The loans,
which are payable in equal monthly installments, mature in February, 1999.
On April 30, 1996, the banks amended its existing credit facility to allow
for additional availability of $3,500,000 through July 31, 1996 and to
modify its financial covenant.
All of the Company's loans with the banks are secured by substantially all
of its assets and are subject to certain financial covenants.
The Company believes that the amount available under its revolving credit
facility together with the cash flow from operations will be sufficient to
meet the Company's short-term working capital requirements and identifiable
long-term capital needs. The Company also believes that, if necessary,
additional financing will be available to it on commercially reasonable
terms.
During 1995, the cost of pulp, cotton, tallow and plastic resins increased.
This resulted in the Company experiencing cost increases in cartons,
bottles, textiles, paper and soap base. While most of these cost increases
were passed through to the Company's customers, these cost increases had a
slight impact on the financial results of the Company.
<PAGE>
Page 10
GUEST SUPPLY, INC. AND OTHER SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
a) The exhibits filed as part of this report are listed on the index to
the exhibits.
b) No reports on Form 8-K have been filed during the nine month period
ended June 30, 1996.
<PAGE>
Page 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934. The
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUEST SUPPLY, INC.
Dated: 8/14/96 By: s/Clifford W. Stanley
------------------ --------------------------
Clifford W. Stanley
President & Chief Executive Officer
Dated: 8/14/96 By: s/Paul T. Xenis
------------------ -----------------------------------
Paul T. Xenis
Vice President, Finance
<PAGE>
Page 12
INDEX TO EXHIBITS
Exhibit Number Description Page
- ------------- ----------------------------------- ------------
27 Financial Data Schedule 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 2244000
<SECURITIES> 0
<RECEIVABLES> 27142000
<ALLOWANCES> 0
<INVENTORY> 33432000
<CURRENT-ASSETS> 65746000
<PP&E> 29644000
<DEPRECIATION> 0
<TOTAL-ASSETS> 101137000
<CURRENT-LIABILITIES> 30480000
<BONDS> 0
0
0
<COMMON> 542000
<OTHER-SE> 40759000
<TOTAL-LIABILITY-AND-EQUITY> 101137000
<SALES> 126858000
<TOTAL-REVENUES> 126858000
<CGS> 0
<TOTAL-COSTS> 99976000
<OTHER-EXPENSES> 22903000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1298000
<INCOME-PRETAX> 2681000
<INCOME-TAX> 1121000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1560000
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
