1 of 13 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 June 30, 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
June 30, 1997 was 6,179,288 shares.
<PAGE>
Page 2
Part 1
GUEST SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in Thousands
June 30, September 30,
1997 1996*
------------ ------------
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents $ 2,338 $ 2,591
Accounts receivable 29,034 28,084
Raw materials 8,037 10,441
Finished goods 24,883 22,921
Deferred income taxes 2,028 1,557
Prepaid expenses and other current assets 2,119 1,822
- ---------------------------------------------------------------------------
Total current assets 68,439 67,416
Equipment and leasehold improvements 32,423 29,810
Other assets 148 134
Excess of cost over net assets acquired 5,251 5,528
- ---------------------------------------------------------------------------
$106,261 $102,888
===========================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 29,150 $ 28,320
Current maturities of long-term debt 3,763 3,873
- ---------------------------------------------------------------------------
Total current liabilities 32,913 32,193
===========================================================================
Long-term debt 24,938 24,972
Deferred income taxes 4,223 3,320
- ---------------------------------------------------------------------------
Total long-term liabilities 29,161 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
June 30, 1997 and 6,156,075 at
September 30, 1996 545 543
Additional paid-in capital 35,227 35,042
Retained earnings 8,447 6,929
Cumulative foreign currency translation
adjustments (32) (111)
- ---------------------------------------------------------------------------
Total shareholders' equity 44,187 42,403
- ---------------------------------------------------------------------------
$106,261 $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 BALANCE SHEETS
In Thousands
except per share amount
(Unaudited)
Nine Months Ended Three Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Sales $144,514 $126,858 $ 52,571 $ 47,863
Cost of sales 114,776 99,976 40,827 37,111
- -----------------------------------------------------------------------------
Gross profit 29,738 26,882 11,744 10,752
Selling, general & administrative
expenses 25,529 22,903 8,526 7,920
- -----------------------------------------------------------------------------
Operating income 4,209 3,979 3,218 2,832
Interest expense, net 1,531 1,298 504 425
- -----------------------------------------------------------------------------
Income before income taxes 2,678 2,681 2,714 2,407
Income tax expense 1,160 1,121 1,096 967
- -----------------------------------------------------------------------------
Net income $1,518 $1,560 $1,618 $1,440
=============================================================================
Earnings per common share $0.22 $0.22 $0.23 $0.20
=============================================================================
Weighted average shares outstanding 6,897 6,990 7,160 7,341
=============================================================================
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)
Nine Months Ended
June 30,
-----------------------
1997 1996
-------- --------
Net income $ 1,518 $ 1,560
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,951 2,392
Provision for losses on accounts receivable 729 (104)
Deferred income tax expense 432 916
Gain on sale of fixed assets (138)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,679) 1,625
(Increase) decrease in inventories 442 (5,163)
Increase in prepaid expenses and other
current assets (298) (429)
Increase in other assets (14) (30)
Increase (decrease) in accounts payable and
accrued expenses 830 (4,642)
- -----------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 4,773 (3,875)
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (5,316) (3,253)
Proceeds from sale of fixed assets 168
- -----------------------------------------------------------------------------
Net cash used in investing activities (5,148) (3,253)
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from revolving credit agreement 37,743 44,025
Repayment on revolving credit agreement (34,964) (44,385)
Repayment of long-term debt (2,923) (2,683)
Proceeds from issuance of long-term debt 10,500
Proceeds from issuance of common stock 187 53
- -----------------------------------------------------------------------------
Net cash provided by financing activities 43 7,510
Foreign currency translation adjustments 79 37
- -----------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (253) 419
Cash and cash equivalents at beginning of period 2,591 1,825
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,338 $ 2,244
=============================================================================
The accompanying notes are an integral part of these
consolidated condensed financial statements.
Page 5
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, 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 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 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
Nine months ended June 30, 1997 vs. Nine months ended June 30, 1996
- -------------------------------------------------------------------
Sales for the nine months ended June 30, 1997 increased by $17,656 or 13.9%
to $144,514 from $126,858 for the nine months ended June 30, 1996.
Revenues generated from our hotel customers increased $13,688 or 12.4% to
$123,636. This increase is primarily due to selling additional products to
existing customers and the addition of new customers.
Sales to consumer products companies and retailers were $20,878 for the
nine months ended June 30, 1997 compared to $16,910 for the nine months
ended June 30, 1996. The increase of $3,968 or 23.5% was due to increased
sales to an existing customer.
Gross profit for the nine months ended June 30, 1997 was $29,738 or 20.6%
of sales compared to $26,882 or 21.2% of sales for the nine months ended
June 30, 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 products companies, as well as improved
efficiencies at the Company's manufacturing facility. Excluding this
charge, gross profit increased by $5,043 or 18.8% to $31,925 or 22.1% of
sales compared to $26,882 or 21.2% for the prior period.
Selling, general and administrative expenses were $25,529 or 17.7% of sales
for the nine months ended June 30, 1997 compared to $22,903 or 18.1% of
sales for the nine months ended June 30, 1996. The increase of $2,626 or
11.5% 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. Excluding the non-recurring
charge, selling general and administrative expenses increased by $2,200 or
9.6% to $25,103 or 17.4% of sales compared to $22,903 or 18.1% for the
prior period.
Interest expense was $1,531 for the nine months ended June 30, 1997
compared to $1,298 for the nine months ended June 30, 1996. The increase
in interest of $233 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 $1,160 for the nine months ended June 30, 1997
compared with $1,121 for the prior period.
<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 June 30, 1997 vs. Three months ended June 30, 1996
- ---------------------------------------------------------------------
Sales for the three months ended June 30, 1997 increased by $4,708 or 9.8%
to $52,571 from $47,863 for the three months ended June 30, 1996. Revenues
generated from our hotel customers increased $6,095 or 14.8% to $47,340.
This increase is primarily due to selling additional products to existing
customers and the addition of new customers.
Sales to consumer products companies and retailers were $5,231 for the
three months ended June 30, 1997 compared to $6,618 for the three months
ended June 30, 1996. The decrease of $1,387 or 21% was due to a decrease
in sales to two existing customers.
Gross profit for the three months ended June 30, 1997 was $11,744 or 22.3%
of sales compared to $10,752 or 22.5% of sales for the three months ended
June 30, 1996. The decrease in gross profit as a percentage of sales was
due primarily to lower sales to consumer products companies.
Selling, general and administrative expenses were $8,526 or 16.2% of sales
for the three months ended June 30, 1997 compared to $7,920 or 16.5% of
sales for the three months ended June 30, 1996. The increase of $606 or
7.7% was due primarily to increased payroll, payroll related costs and
warehousing costs associated with the Company's sales growth.
Interest expense was $504 for the three months ended June 30, 1997 compared
to $425 for the three months ended June 30, 1996. The increase in interest
of $79 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 $1,096 for the three months ended June 30, 1997
compared with $967 for the prior period. This increase was primarily the
result of an increase in pre-tax income of $307 for the three months ended
June 30, 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 June 30, 1997
- ------------------------------------------------
At June 30, 1997, the Company had $35,526 of working capital compared to
$35,223 at September 30, 1996. The increase of $303 is primarily the
result of an increase in accounts receivable and deferred income taxes of
$950 and $471 respectively, offset by increases in accounts payable and
accrued expenses of $830.
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 1.5%, 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
intangibles 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
anticipated 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 June 30,
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: 8/14/97 By: /s/Clifford W. Stanley
------------------------- -----------------------------------
Clifford W. Stanley
President & Chief Executive Officer
Dated: 8/14/97 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,338,000
<SECURITIES> 0
<RECEIVABLES> 29,034,000
<ALLOWANCES> 0
<INVENTORY> 32,920,000
<CURRENT-ASSETS> 68,439,000
<PP&E> 53,441,000
<DEPRECIATION> (21,018,000)
<TOTAL-ASSETS> 106,261,000
<CURRENT-LIABILITIES> 32,913,000
<BONDS> 0
0
0
<COMMON> 545,000
<OTHER-SE> 43,642,000
<TOTAL-LIABILITY-AND-EQUITY> 106,261,000
<SALES> 144,514,000
<TOTAL-REVENUES> 144,514,000
<CGS> 114,776,000
<TOTAL-COSTS> 114,776,000
<OTHER-EXPENSES> 25,529,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,531,000
<INCOME-PRETAX> 2,678,000
<INCOME-TAX> 1,160,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,518,000
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
