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Index to Exhibits is on Page 10
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 December 31, 1996 Commission File #0-12567
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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
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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
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The number of shares of common stock, without par value, outstanding as of
December 31, 1996 was 6,165,375 shares.
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Part 1
GUEST SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in Thousands
December 31, September 30,
1996 1996*
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(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents $ 1,882 $ 2,591
Accounts receivable 28,135 28,084
Inventories 34,261 33,362
Deferred income taxes 1,510 1,557
Prepaid expenses and other current assets 2,028 1,822
- ---------------------------------------------------------------------------
Total current assets 67,816 67,416
Equipment and leasehold improvements 31,448 29,810
Other assets 133 134
Excess of cost over net assets acquired 5,436 5,528
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$104,833 $102,888
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 27,214 $ 28,320
Current maturities of long-term debt 3,838 3,873
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Total current liabilities 31,052 32,193
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Long-term debt 26,455 24,972
Deferred income taxes 3,624 3,320
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Total long-term liabilities 30,079 28,292
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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
6,165,375 shares at December 31, 1996 and
6,156,075 at September 30, 1996 544 543
Additional paid-in capital 35,088 35,042
Retained earnings 8,148 6,929
Cumulative foreign currency translation
adjustments (78) (111)
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Total shareholders' equity 43,702 42,403
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$104,833 $102,888
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* From audited financial statements.
The accompanying notes are an integral part of these
consolidated condensed financial statements.
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GUEST SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in Thousands, except per share amounts
(Unaudited)
Three Months Ended
December 31,
-------------------------
1996 1995
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Sales $ 47,656 $ 41,714
Cost of sales 36,585 32,219
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Gross profit 11,071 9,495
Selling, general & administrative expenses 8,498 7,525
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Operating income 2,573 1,970
Interest expense, net 526 420
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Income before income taxes 2,047 1,550
Income tax expense 828 607
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Net income $ 1,219 $ 943
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Earnings per common share $ 0.17 $ 0.13
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Weighted average shares outstanding 7,353,000 7,480,000
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The accompanying notes are an integral part of
these consolidated condensed financial statements.
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GUEST SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Thousands
(Unaudited)
Three Months Ended
December 31,
-------------------------
1996 1995
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Cash flows from operating activities:
Net income $ 1,219 $ 943
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 984 794
Provision for losses on accounts receivable 62 75
Deferred income tax expense 351 (68)
Gain on sale of fixed assets (72)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (113) 2,505
Increase in inventories (899) (2,965)
Increase in prepaid expenses and other
current assets (206) (449)
Decrease in other assets 1 2
Decrease in accounts payable and
accrued expenses (1,106) (8,589)
Foreign currency translation adjustments 33 (1)
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Net cash provided by (used in)
operating activities 254 (7,753)
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Cash flows from investing activities:
Capital expenditures (2,540) (1,158)
Proceeds from sale of fixed assets 82
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Net cash used in investing activities (2,458) (1,158)
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Cash flows from financing activities:
Net (payments) borrowings on revolving
credit agreement 2,421 (2,455)
Repayment of long-term debt (973) (734)
Proceeds from issuance of long-term debt 10,500
Proceeds from issuance of common stock 47
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Net cash provided by financing activities 1,495 7,311
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Net decrease in cash and
cash equivalents (709) (1,600)
Cash and cash equivalents at beginning of period 2,591 1,825
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Cash and cash equivalents at end of period $ 1,882 $ 225
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The accompanying notes are an integral part of
these consolidated condensed financial statements.
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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, 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 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.
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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 December 31, 1996 vs. Three months ended December 31,1995
- ---------------------------------------------------------------------------
Sales for the three months ended December 31, 1996 increased by $5,942
or 14.2% to $47,656 from $41,714 for the three months ended December 31, 1995.
Revenues generated from our hotel customers increased $2,616 or 7.7% to
$36,812. 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 $10,844 for the
three months ended December 31, 1996 compared to $7,518 for the three
months ended December 31, 1995. The increase of $3,326 or 44.2% was
due to increased sales to an existing customer.
Gross profit for the three months ended December 31, 1996 was $11,071
or 23.2% of sales compared to $9,495 or 22.8% of sales for the three
months ended December 31, 1995. The increase in gross profit as a
percentage of sales was due primarily to increased sales to consumer
product companies as well as improved efficiencies at the Company's
manufacturing facility.
Selling, general and administrative expenses were $8,498 or 17.8% of
sales for the three months ended December 31, 1996 compared to $7,525
or 18.0% of sales for the three months ended December 31, 1995. The
increase of $973 or 12.9% was due primarily to increased payroll and
payroll related costs, warehousing and delivery costs associated with the
Company's sales growth, as well as moving expenses incurred from relocation
of the corporate office and warehouse facilities in the first quarter.
Interest expense was $526 for the three months ended December 31, 1996
compared to $420 for the three months ended December 31, 1995. The
increase in interest of $106 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 $828 for the three months ended December 31,
1996 compared with $607 for the prior period. This increase was
primarily the result of an increase in pre-tax income of $497 as
compared to prior year for the three months ended December 31, 1996. The
income tax rate for the three months ended December 31, 1996 and December
31, 1995 was 40.4% and 39.2% respectively. This increase is the result of
a reduction in the utilization of net operating loss carryforwards
available for the three months ended December 31, 1996.
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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 December 31, 1996
- ----------------------------------------------------
At December 31, 1996, the Company had $36,764 of working capital compared
to $35,223 at September 30, 1996. The increase of $1,541 is primarily the
result of an increase in purchases of inventory and reductions in 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 term loan and a two-year $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%
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 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.
Cautionary Statement
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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 down-turn in the lodging industry resulting in lower demand
for the Company's products, the unanticipated loss of, or decline in sales
to, a major customer and unforeseen inefficiencies at the Company's
manufacturing facility or arising out of the transition to the Company's
new warehouse facility. Accordingly, there can be no assurances that any
anticipated future results will be achieved.
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GUEST SUPPLY, INC. AND OTHER SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
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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 December 31, 1996.
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Page 9
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: 2/14/97 By: s/Clifford W. Stanley
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Clifford W. Stanley
President & Chief Executive Officer
Dated: 2/14/97 By: s/Paul T. Xenis
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Paul T. Xenis
Vice President, Finance
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Page 10
INDEX TO EXHIBITS
Exhibit No. Description Page
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27 Financial Data Schedule 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,882,000
<SECURITIES> 0
<RECEIVABLES> 28,135,000
<ALLOWANCES> 0
<INVENTORY> 34,261,000
<CURRENT-ASSETS> 67,816,000
<PP&E> 31,448,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 104,833,000
<CURRENT-LIABILITIES> 31,052,000
<BONDS> 0
0
0
<COMMON> 544,000
<OTHER-SE> 43,158,000
<TOTAL-LIABILITY-AND-EQUITY> 104,833,000
<SALES> 47,656,000
<TOTAL-REVENUES> 47,656,000
<CGS> 0
<TOTAL-COSTS> 36,585,000
<OTHER-EXPENSES> 8,498,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 526,000
<INCOME-PRETAX> 2,047,000
<INCOME-TAX> 828,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,219,000
<EPS-PRIMARY> .17
<EPS-DILUTED> 0
</TABLE>
