1 of 11 pages
Index to Exhibits is on Page 11
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, 1998 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 08852-0902
--------------------- ----------
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, 1998 was 6,615,478 shares.
<PAGE>
Page 2
Part 1
Guest Supply, Inc. and Subsidiaries
Consolidated Balance Sheets
===========================================================================
Dollars in Thousands
March 31, September 30,
1998 1997*
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,929 $ 4,152
Accounts receivable 31,223 30,429
Inventories:
Raw materials 8,015 7,706
Finished goods 30,261 26,970
Deferred income taxes 2,276 2,067
Prepaid expenses and other current assets 2,639 1,732
- ---------------------------------------------------------------------------
Total current assets 78,343 73,056
Property and equipment 33,339 33,141
Other assets 1,232 1,312
Excess of cost over net assets acquired 4,975 5,160
- ---------------------------------------------------------------------------
$ 117,889 $ 112,669
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 31,484 $ 32,493
Current maturities of long-term debt 937
- ---------------------------------------------------------------------------
Total current liabilities 31,484 33,430
===========================================================================
Long-term debt 31,001 27,617
Deferred income taxes 5,385 5,025
- ---------------------------------------------------------------------------
Total long-term liabilities 36,386 32,642
===========================================================================
Commitments and contingencies
Shareholders' equity:
Preferred stock - without par value;
authorized 1,000,000 shares,
outstanding none
Common stock - without par value; stated
value $0.10; authorized 20,000,000
shares, issued and outstanding 6,615,478
shares at March 31, 1998 and 6,190,307 at
September 30, 1997 589 546
Additional paid-in capital 37,803 35,336
Retained earnings 11,533 10,745
Cumulative foreign currency
translation adjustments 94 (30)
- ---------------------------------------------------------------------------
Total shareholders' equity 50,019 46,597
- ---------------------------------------------------------------------------
$ 117,889 $ 112,669
===========================================================================
* From audited financial statements
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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Page 3
Guest Supply, Inc. and Subsidiaries
Consolidated Statements of Operations
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In Thousands
except per share amounts
(Unaudited)
Six Months Ended Three Months Ended
March 31, March 31,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
Sales $105,559 $ 91,942 $ 52,794 $ 44,287
Cost of sales 84,548 73,948 42,223 37,364
- -----------------------------------------------------------------------------
Gross profit 21,011 17,994 10,571 6,923
Selling, general &
administrative expenses 18,528 17,003 9,378 8,505
- -----------------------------------------------------------------------------
Operating income (loss) 2,483 991 1,193 (1,582)
Interest and other income 35 27 28 7
Interest expense 1,175 1,054 657 508
- -----------------------------------------------------------------------------
Income (loss) before income taxes 1,343 (36) 564 (2,083)
Income tax expense (benefit) 555 64 194 (764)
- -----------------------------------------------------------------------------
Net income (loss) $ 788 $ (100) $ 370 $ (1,319)
=============================================================================
Earnings (loss) per share:
Basic $ 0.12 $ (0.02) $ 0.06 $ (0.21)
=============================================================================
Diluted $ 0.11 $ (0.01) $ 0.05 $ (0.21)
=============================================================================
Weighted average number of
common shares:
Basic 6,334 6,171 6,448 6,179
=============================================================================
Diluted 7,324 6,817 7,314 6,179
=============================================================================
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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Page 4
Guest Supply, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
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In Thousands
except per share amounts
(Unaudited)
Six Months Ended
March 31,
-------------------------
1998 1997
----------- ----------
Cash flows from operating activities:
Net income (loss) $ 788 $ (100)
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 2,212 1,952
Provision for losses on
accounts receivable 218 203
Gain on sale of fixed assets (125)
Deferred income tax expense 151 (216)
Changes in assets and liabilities:
(Increase) decrease in
accounts receivable (1,012) 1,484
(Increase) decrease in inventories (3,600) 1,773
Increase in prepaid expenses and
other current assets (907) (15)
Decrease in other assets 38 3
Decrease in accounts payable
and accrued expenses (1,009) (1,256)
- ---------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (3,121) 3,703
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (2,225) (4,286)
Decrease in other assets 42
Proceeds from sale of fixed assets 154
- ---------------------------------------------------------------------------
Net cash used in investing activities (2,183) (4,132)
- ---------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from revolving credit agreement 30,383 24,635
Repayment on revolving credit agreement (41,999) (22,779)
Proceeds from issuance of senior
note payable 25,000
Repayment of long-term debt (10,937) (1,948)
Proceeds from issuance of common stock 2,510 187
- ---------------------------------------------------------------------------
Net cash provided by financing activities 4,957 95
Foreign currency translation adjustments 124 56
- ---------------------------------------------------------------------------
Net decrease in cash and cash equivalents (223) (278)
Cash and cash equivalents at beginning of period 4,152 2,591
- ---------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,929 $ 2,313
===========================================================================
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
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, 1997 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
At December 31, 1997, the Company adopted Statement of Financial Standards
(SFAS) No. 128 "Earnings per Share". Under the new requirements, primary
earnings per share is replaced by a new measure called basic earnings per
share which excludes common stock equivalents. All prior periods have been
restated to reflect this change.
NOTE 3: LONG-TERM DEBT
On December 3, 1997, the Company completed a Private Placement in the
amount of $25.0 million of unsecured senior notes with fixed interest rates
ranging from 6.70% to 7.06%. These notes have maturities ranging from fiscal
year 2000 to 2010. Concurrently with the issuance of the notes, the Company
entered into a credit agreement with two banks for a five-year $15.0 million
unsecured revolving credit facility. Availability under the new facility
is based upon agreed levels of eligible accounts receivable and bears
interest at a rate equal to LIBOR plus .85% or the bank's prime rate, as
selected by the Company. These loans are subject to certain financial
covenants. The proceeds from the notes and credit facility were used to
repay the outstanding balance under the existing credit facility and term
notes.
<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, 1998 VS. SIX MONTHS ENDED MARCH 31, 1997
Sales for the six months ended March 31, 1998 increased by $13,617 or 14.8%
to $105,559 from $91,942 for the six months ended March 31, 1997. Revenues
generated from our hotel customers increased $16,224 or 21.3% to $92,519.
The increase in sales to hotels is the result of the addition of new
customers, the sale of additional products to existing customers and the
continued expansion of the Company's product line. New customers were
added by the direct sales force in existing sales territories and by new
salespeople in new territories. Both additional hotels and product
categories were added through new or expanded agreements with management
companies and hotel corporations.
Sales to consumer products companies and retailers were $13,040 for the six
months ended March 31, 1998 compared to $15,647 for the six months ended
March 31, 1997. The decrease of $2,607 or 16.7% was a result of a 9.1%
decline in sales to an existing customer and the expiration of a contract
with another customer during the third quarter of fiscal 1997. The Company
believes the reduction in business with an existing customer is temporary.
A major amount of time was devoted to the development and scale-up of new
formulas for this customer that resulted in significantly reduced
production rates. In addition, one of their product lines historically
produced by the Company was allocated to another manufacturer, but is being
replaced with higher volume of another product line we currently produce.
Gross profit for the six months ended March 31, 1998 was $21,011 or 19.9%
of sales compared to $17,994 or 19.6% of sales for the six months ended
March 31, 1997. Excluding a charge to cost of sales in the second quarter
1997 of $2,187 to write-off damaged, obsolete and sub-standard inventory,
gross profit increased by $830 or 4.1% to $21,011 or 19.9% of sales
compared to $20,181 or 21.9% for the prior period. The decrease in gross
profit as a percentage of sales was due to lower sales to consumer products
companies and the start-up in the production of new formulas with a major
contract manufacturing customer which reduced production rates.
Selling, general and administrative expenses were $18,528 or 17.6% of sales
for the six months ended March 31, 1998 compared to $17,003 or 18.5% of
sales for the six months ended March 31, 1997. Excluding a non-recurring
expense included in the second quarter 1997 of $426 in connection with the
consolidation of seven warehouses, selling, general and administrative
expenses were $18,528 or 17.6% of sales as compared to $16,577 or 18.0% of
sales. The increase of $1,951 or 11.8% was due primarily to an increase in
payroll and payroll related costs and delivery expense associated with the
Company's hotel sales growth. The decline as a percent of sales was due to
increased sales volume and cost containment programs.
Net interest expense was $1,140 for the six months ended March 31, 1998
compared to $1,027 for the six months ended March 31, 1997.
Income tax expense was $555 for the six months ended March 31, 1998
compared with $64 for the prior period. This increase was primarily the
result of an increase in pre-tax income of $1,379 for the six months ended
March 31, 1998 as compared to the prior year.
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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, 1998 VS. THREE MONTHS ENDED MARCH 31, 1997
Sales for the three months ended March 31, 1998 increased by $8,507 or
19.2% to $52,794 from $44,287 for the three months ended March 31, 1997.
Revenues generated from our hotel customers increased $8,206 or 20.8% to
$47,690. The increase in sales to hotels is the result of the addition of
new customers, the sale of additional products to existing customers and
the continued expansion of the Company's product line. New customers were
added by the direct sales force in existing sales territories and by new
salespeople and new territories. Both additional hotels and product
categories were added through new or expanded agreements with management
companies and hotel corporations.
Sales to consumer products companies and retailers were $5,104 for the
three months ended March 31, 1998 compared to $4,803 for the three months
ended March 31, 1997. The increase of $301 or 6.3% was a result of an
increase in sales to contract customers offset by the expiration of a
contract with another customer during the third quarter of fiscal 1997.
Gross profit for the three months ended March 31, 1998 was $10,571 or 20.0%
of sales compared to $6,923 or 15.6% of sales for the three months ended
March 31, 1997. Excluding a charge to cost of sales in the second quarter
1997 of $2,187 to write-off damaged, obsolete and sub-standard inventory,
gross profit increased 16.0% to $10,571 or 20.0% of sales compared to
$9,110 or 20.6% for the prior period. The decrease in gross profit as a
percentage of sales was due to a change in pricing, product mix and
reformulation with a major contract manufacturing customer.
Selling, general and administrative expenses were $9,378 or 17.8% of sales
for the three months ended March 31, 1998 compared to $8,505 or 19.2% of
sales for the three months ended March 31, 1997. Excluding a non-recurring
expense included in the second quarter of 1997 of $426 in connection with
the consolidation of seven warehouses, selling, general and administrative
expenses were $9,378 or 17.8% of sales as compared to $8,079 or 18.2% of
sales. The increase of $1,299 or 16.1% was due primarily to an increase in
payroll and payroll related costs and delivery expense associated with the
Company's hotel sales growth. The decline as a percent of sales was due to
increased sales volume and cost containment programs.
Net interest expense was $629 for the three months ended March 31, 1998
compared to $501 for the three months ended March 31, 1997.
Income tax expense was $194 for the three months ended March 31, 1998
compared with income tax benefit of $764 for the prior period. This
increase was primarily the result of an increase in pre-tax income of
$2,647 for the three months ended March 31, 1998 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, 1998
At March 31, 1998, the Company had $46,859 of working capital compared to
$39,626 at September 30, 1997. The increase of $7,233 is primarily the
result of an increase in accounts receivable and inventory, as well as a
decrease in current liabilities of $1,946.
On December 3, 1997, the Company completed a Private Placement in the
amount of $25.0 million of unsecured senior notes with fixed interest rates
ranging from 6.70% to 7.06%. These notes have maturities ranging from fiscal
years 2000 to 2010. Concurrently with the issuance of the notes, the Company
entered into a credit agreement with two banks for a five-year $15.0 million
unsecured revolving credit facility. Availability under the new facility
is based upon agreed levels of eligible accounts receivable and bears
interest at a rate equal to LIBOR plus .85% or the bank's prime rate, as
selected by the Company. These loans are subject to certain financial
covenants. The proceeds from the notes and credit facility were used to
repay the outstanding balance under the existing credit facility and term
notes.
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
In June 1997, the Financial Accounting Standards Board released Statement
No. 130, "Reporting Comprehensive Income" and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information."
Both statements become effective for fiscal years beginning after December
15, 1997 with early adoption permitted. These statements require
disclosure of certain components of changes in equity and certain
information about operating segments and geographic areas of operation.
Management believes that these statements will not have any effect on the
results of operations or financial position of the Company.
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.
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Page 9
GUEST SUPPLY, INC. AND 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, 1998.
<PAGE>
Page 10
SIGNATURES
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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: 5/14/98 By: /s/Clifford W. Stanley
------------------ ----------------------------------------
Clifford W. Stanley
President & Chief Executive Officer
Dated: 5/14/98 By: /s/Paul T. Xenis
------------------ ----------------------------------------
Paul T. Xenis
Vice President, Finance
<PAGE>
Page 11
INDEX TO EXHIBITS
===========================================================================
Exhibit No. Description Page
- ----------- ------------------------------------ ----
27 Financial Data Schedule 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,929
<SECURITIES> 0
<RECEIVABLES> 31,223
<ALLOWANCES> 0
<INVENTORY> 38,276
<CURRENT-ASSETS> 78,343
<PP&E> 57,230
<DEPRECIATION> (23,891)
<TOTAL-ASSETS> 117,889
<CURRENT-LIABILITIES> 31,484
<BONDS> 0
0
0
<COMMON> 589
<OTHER-SE> 49,430
<TOTAL-LIABILITY-AND-EQUITY> 117,889
<SALES> 105,559
<TOTAL-REVENUES> 105,559
<CGS> 84,548
<TOTAL-COSTS> 84,548
<OTHER-EXPENSES> 18,528
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,140
<INCOME-PRETAX> 1,343
<INCOME-TAX> 555
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 788
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
