1 of 12 pages
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 March 31, 1997 Commission File #1-11955
===============================================================================
===============================================================================
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)
4301 U.S. Highway One 08852
Monmouth Junction, New Jersey (Zip code)
(Address of principal executive offices)
Registrants telephone number and area code 609-514-9696
===============================================================================
===============================================================================
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
March 31, 1997 was 6,179,288 shares.
<PAGE>
Page 2
Part 1
GUEST SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in Thousands
March 31, September 30,
1997 1996*
------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 2,313 $ 2,591
Accounts receivable 26,397 28,084
Inventories:
Raw materials 8,341 10,441
Finished goods 23,248 22,921
Deferred income taxes 1,937 1,557
Prepaid expenses and other current assets 1,837 1,822
- -------------------------------------------------------------------------------
Total current assets 64,073 67,416
Equipment and leasehold improvements 32,299 29,810
Other assets 131 134
Excess of cost over net assets acquired 5,344 5,528
- -------------------------------------------------------------------------------
$101,847 $102,888
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 27,064 $28,320
Current maturities of long-term debt 3,800 3,873
- -------------------------------------------------------------------------------
Total current liabilities 30,864 32,193
===============================================================================
Long-term debt 24,953 24,972
Deferred income taxes 3,484 3,320
- -------------------------------------------------------------------------------
Total long-term liabilities 28,437 28,292
===============================================================================
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
6,179,288 shares at March 31, 1997 and
6,156,075 at September 30, 1996 545 543
Additional paid-in capital 35,227 35,042
Retained earnings 6,829 6,929
Cumulative foreign currency translation adjustments (55) (111)
- -------------------------------------------------------------------------------
Total shareholders' equity 42,546 42,403
- -------------------------------------------------------------------------------
$101,847 $102,888
* 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
Dollars in Thousands, except per share amounts
(Unaudited)
Six Months Ended Three Months Ended
March 31, March 31,
------------------- ---------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
Sales $ 91,942 $ 78,995 $ 44,287 $ 37,281
Cost of sales 73,948 62,866 37,364 30,647
- -------------------------------------------------------------------------------
Gross profit 17,994 16,129 6,923 6,634
Selling, general &
administrative expenses 17,003 14,982 8,505 7,457
- -------------------------------------------------------------------------------
Operating income (loss) 991 1,147 (1,582) (823)
Interest expense, net 1,027 873 501 454
- -------------------------------------------------------------------------------
Income (loss) before income taxes (36) 274 (2,083) (1,277)
Income tax expense (benefit) 64 154 (764) (453)
- -------------------------------------------------------------------------------
Net income (loss) ($ 100) $ 120 ($ 1,319) ($ 824)
===============================================================================
Earnings (loss) per common share ($ 0.01) $ 0.02 ($ 0.21) ($ 0.13)
===============================================================================
Weighted average shares outstanding 6,766,000 6,816,000 6,179,000 6,149,000
===============================================================================
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE>
Page 4
GUEST SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Thousands
(Unaudited)
Six Months Ended
March 31,
---------------------
1997 1996
-------- --------
Net income (loss) ($100) $120
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,952 1,590
Provision for losses on accounts receivable 203 (107)
Deferred income tax expense (216) 475
Gain on sale of fixed assets (125)
Changes in assets and liabilities:
Decrease in accounts receivable 1,484 5,878
(Increase) decrease in inventories 1,773 (5,068)
Increase in prepaid expenses
and other current assets (15) (509)
(Increase) decrease in other assets 3 (35)
Decrease in accounts payable and
accrued expenses (1,256) (5,277)
- -------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 3,703 (2,933)
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (4,286) (2,270)
Proceeds from sale of fixed assets 154
- -------------------------------------------------------------------------------
Net cash used in investing activities (4,132) (2,270)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from revolving credit agreement 24,635 30,545
Repayment on revolving credit agreement (22,779) (33,620)
Repayment of long-term debt (1,948) (1,711)
Proceeds from issuance of long-term debt 10,500
Proceeds from issuance of common stock 187 49
- -------------------------------------------------------------------------------
Net cash provided by financing activities 95 5,763
Foreign currency translation adjustments 56 36
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (278) 596
Cash and cash equivalents at beginning of period 2,591 1,825
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $2,313 $2,421
===============================================================================
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 manage
ment, 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, 1996 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 (Loss) Per Common Share
Earnings (loss) 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 modified 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.
<PAGE>
Page 6
GUEST SUPPLY, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Dollars in Thousands
Six months ended March 31, 1997 vs. Six months ended March 31, 1996
- -------------------------------------------------------------------
Sales for the six months ended March 31, 1997 increased by $12,947 or 16.4%
to $91,942 from $78,995 for the six months ended March 31, 1996. Revenues
generated from our hotel customers increased $7,592 or 11.1% to $76,295.
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 were $15,647 for the six
months ended March 31, 1997 compared to $10,292 for the six months ended
March 31, 1996. The increase of $5,355 or 52% was due to increased sales
to an existing customer.
Gross profit for the six months ended March 31, 1997 was $17,994 or 19.6%
of sales compared to $16,129 or 20.4% of sales for the six months ended
March 31, 1996. The decrease in gross profit as a percentage of sales was
due primarily to a charge to cost of sales in the second quarter of $2,187 to
write-off damaged, obsolete and sub-standard inventory offset by
increased sales to consumer product companies, as well as improved
efficiencies at the Company's manufacturing facility. Excluding this charge,
gross profit increased by $4,052 or 25.1% to $20,181 or 21.9% of sales compared
to $16,129 or 20.4% for the prior period.
Selling, general and administrative expenses were $17,003 or 18.5% of sales
for the six months ended March 31, 1997 compared to $14,982 or 19.0% of
sales for the six months ended March 31, 1996. The increase of $2,021 or
13.5% was due primarily to increased payroll and payroll related costs,
warehousing and delivery costs associated with the Company's sales growth,
and non-recurring expenses of $426 in connection with the consolidation of
seven warehouses which included moving expenses, redundant rents, taxes,
occupancy expenses, equipment and labor costs.
Interest expense was $1,027 for the six months ended March 31, 1997
compared to $873 for the six months ended March 31, 1996. The increase in
interest of $154 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 were capitalized to the cost of
the project.
Income tax expense was $64 for the six months ended March 31, 1997 compared
with $154 for the prior period. This decrease was primarily the result of
a decrease in pre-tax income of $310 as compared to prior year for the six
months ended March 31, 1997.
<PAGE>
Page 7
GUEST SUPPLY, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Dollars in Thousands
Three months ended March 31, 1997 vs. Three months ended March 31, 1996
- -----------------------------------------------------------------------
Sales for the three months ended March 31, 1997 increased by $7,006 or
18.8% to $44,287 from $37,281 for the three months ended March 31, 1996.
Revenues generated from our hotel customers increased $4,977 or 14.4% to
$39,484. 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 were $4,803 for the three
months ended March 31, 1997 compared to $2,774 for the three months ended
March 31, 1996. The increase of $2,029 or 73.1% was due to increased sales
to an existing customer.
Gross profit for the three months ended March 31, 1997 was $6,923 or 15.6%
of sales compared to $6,634 or 17.8% of sales for the three months ended
March 31, 1996. The decrease in gross profit as a percentage of sales was
due primarily to a charge to cost of sales of $2,187 to write off
damaged, obsolete and sub-standard inventory offset by increased sales to
consumer product companies as well as improved efficiencies at the
Company's manufacturing facility. Excluding this charge, gross profit
increased by $2,476 or 37.3% to $9,110 or 20.6% of sales compared to $6,634 or
17.8% for the prior period.
Selling, general and administrative expenses were $8,505 or 19.2% of sales
for the three months ended March 31, 1997 compared to $7,457 or 20.0% of
sales for the three months ended March 31, 1996. The increase of $1,048 or
14.1% was due primarily to increased payroll and payroll related costs,
warehousing costs associated with the Company's sales growth, and non-
recurring expenses of $426 in connection with the consolidation of seven
warehouses which includes moving expenses, redundant rents, taxes,
occupancy expenses, equipment and labor costs. Excluding this non-recurring
charge, selling, general and administrative expenses increased by $622 or 8.3%
to $8,079 or 18.2% of sales compared to $7,457 or 20.0% for the prior period.
Interest expense was $501 for the three months ended March 31, 1997
compared to $454 for the three months ended March 31, 1996. The increase
in interest of $47 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 were capitalized to the
cost of the project.
Income tax benefit was $764 for the three months ended March 31, 1997
compared with $453 for the prior period. This increase was primarily the
result of an increase in pre-tax loss of $806 for the three months ended March
31, 1997 as compared to the prior year.
<PAGE>
Page 8
GUEST SUPPLY, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
continued
Liquidity and Capital Resources at March 31, 1997
- -------------------------------------------------
At March 31, 1997, the Company had $33,209 of working capital compared to
$35,223 at September 30, 1996. The decrease of $2,014 is primarily the
result of a decrease in accounts receivable and inventory of $1,687 and
$1,773 respectively, offset by reductions in current liabilities of $1,329.
On October 31, 1995, the Company entered into a credit facility with two
banks for a seven-year $10,500 term loan and a $22,000 revolving credit
facility. The term loan is payable in equal monthly installments of $125
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% to 1.5%, the bank's prime rate
or a fixed rate, as selected by the Company and matures in October, 1998.
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 which remained outstanding. The loans, which
are payable in equal monthly installments, mature in February, 1999.
In February, 1997, the Company amended its revolving credit facility with
the banks to allow for additional availability of $3,500 through July 31,
1997 and to modify a 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.
Recently Issued Accounting Standards
- ------------------------------------
The Financial Accounting Standards Board issued Statement No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). Under this new
standard, a new
fair value based method of accounting for stock-based compensation
arrangements with employees is established. Entities may continue to use
the Opinion 25 method or adopt the SFAS No. 123 fair value based method.
If the Company continues to use the Opinion 25 method, SFAS No. 123
requires footnote disclosure of proforma net income and earnings per share
information as if the fair value based method had been adopted. The
Company has not yet determined which method it will use. This Statement is
effective for financial statements for fiscal years beginning after
December 15, 1995, or for the fiscal year for which the Statement is
initially adopted for recognizing compensation expense, whichever comes
first.
<PAGE>
Page 9
GUEST SUPPLY, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
continued
Recently Issued Accounting Standards, continued
- -----------------------------------------------
The Financial Accounting Standards Board issued Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed (SFAS No. 121). This new standard requires the
assessment of the recoverability of long-lived assets and certain intangi
bles and related goodwill and recognition of any impairment losses. The
Company does not believe the adoption of SFAS No. 121 will have a material
effect on the Company's consolidated financial statements. This Statement
is effective for fiscal years beginning after December 15, 1995.
Cautionary Statement
- --------------------
This quarterly report on Form 10-Q may contain forward-looking information
about the Company. The Company is hereby setting forth statements
identifying important factors that may cause the Company's actual results
to differ materially from those set forth in any forward-looking statements
made by the Company. Some of the most significant factors include an
unanticipated slowdown in the lodging industry or in contract manufacturing
(or both) resulting in lower demand for the Company's products, unforeseen
inefficiencies at the Company's manufacturing or distribution facilities,
an increase in price pressures or the loss of, or a decline in sales to, a
major customer. Accordingly, there can be no assurances that any antici
pated future results will be achieved.
<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 three month period
ended March 31, 1997.
<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: 5/14/97 By: s/Clifford W. Stanley
------------------------ ----------------------------------
Clifford W. Stanley
President & Chief Executive Officer
Dated: 5/14/97 By: s/Paul T. Xenis
------------------------ ----------------------------------
Paul T. Xenis
Vice President, Finance
<PAGE>
Page 12
INDEX TO EXHIBITS
Exhibit No. Description Page
- ----------- ------------------------------------- ----------
27 Financial Data Schedule 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,313,000
<SECURITIES> 0
<RECEIVABLES> 26,397,000
<ALLOWANCES> 0
<INVENTORY> 31,589,000
<CURRENT-ASSETS> 64,073,000
<PP&E> 52,411,000
<DEPRECIATION> (20,112,000)
<TOTAL-ASSETS> 101,847,000
<CURRENT-LIABILITIES> 30,864,000
<BONDS> 0
0
0
<COMMON> 545,000
<OTHER-SE> 42,001,000
<TOTAL-LIABILITY-AND-EQUITY> 101,847,000
<SALES> 91,942,000
<TOTAL-REVENUES> 91,942,000
<CGS> 73,948,000
<TOTAL-COSTS> 73,948,000
<OTHER-EXPENSES> 17,003,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,027,000
<INCOME-PRETAX> (36,000)
<INCOME-TAX> 64,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100,000)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
