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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 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, Monmouth Junction, New Jersey 08852-0902
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
609-514-9696
- ---------------------------------------------------------------------------
(Registrants telephone number and area code)
September 30
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
===========================================================================
Indicate by check mark whether the registrant (1) has filed all reports
required 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. X Yes No
--- ---
The number of shares of common stock, without par value, outstanding as of
January 1, 1999 was 6,294,538 shares.<PAGE>
Page 2
Part 1
Guest Supply, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
- ---------------------------------------------------------------------------
Dollars in Thousands
January 1, September 30,
1999 1998
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,938 $ 2,558
Accounts receivable, net 28,798 34,054
Inventories:
Raw materials 9,442 8,666
Finished goods 32,356 29,323
Deferred income taxes 1,493 1,373
Prepaid expenses and other current assets 1,961 2,482
- ---------------------------------------------------------------------------
Total current assets 75,988 78,456
Property and equipment, net 33,159 33,305
Other assets 2,557 1,555
Excess of cost over net assets acquired 4,699 4,791
- ---------------------------------------------------------------------------
$116,403 $118,107
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 31,877 $ 35,126
Current maturities of long-term debt 556 -
- ---------------------------------------------------------------------------
Total current liabilities 32,433 35,126
===========================================================================
Long-term debt 28,644 26,126
Deferred income taxes 5,029 4,870
- ---------------------------------------------------------------------------
Total long-term liabilities 33,673 30,996
===========================================================================
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 6,671,638
shares at January 1, 1999 and at
September 30, 1998 594 594
Additional paid-in capital 38,608 38,595
Retained earnings 15,107 14,378
Treasury stock - 377,100 common shares
at January 1, 1999 and 135,800 common
shares at September 30, 1998, at cost (3,955) (1,422)
Accumulated other comprehensive income:
Cumulative foreign currency
translation adjustments (57) (160)
- ---------------------------------------------------------------------------
Total shareholders' equity 50,297 51,985
- ---------------------------------------------------------------------------
$116,403 $118,107
===========================================================================
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 3
Guest Supply, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
and Comprehensive Income
- ---------------------------------------------------------------------------
In Thousands
except per share amounts
(Unaudited)
Fourteen Weeks Ended Three Months Ended
January 1, 1999 December 31, 1997
-------------------- ------------------
Sales $ 62,918 $ 52,765
Cost of sales 50,413 42,325
- ---------------------------------------------------------------------------
Gross profit 12,505 10,440
Selling, general &
administrative expenses 10,696 9,150
- ---------------------------------------------------------------------------
Operating income 1,809 1,290
Interest and other income 6 7
Interest expense 502 518
- ---------------------------------------------------------------------------
Income before income taxes 1,313 779
Income tax expense 549 361
- ---------------------------------------------------------------------------
Net income 764 418
===========================================================================
Earnings per common share:
Basic $ 0.12 $ 0.07
===========================================================================
Diluted $ 0.11 $ 0.06
===========================================================================
Weighted average number of common shares:
Basic 6,381 6,220
===========================================================================
Diluted 6,824 6,981
===========================================================================
Comprehensive Income:
Net income $ 764 $ 418
Other comprehensive income - foreign
currency translation adjustment 103 (4)
- ---------------------------------------------------------------------------
Comprehensive income $ 867 $ 414
===========================================================================
The accompanying notes are an integral part of these consolidated condensed
financial statements.<PAGE>
Page 4
Guest Supply, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
- ---------------------------------------------------------------------------
In Thousands
(Unaudited)
Fourteen Weeks Ended Three Months Ended
January 1, 1999 December 31, 1997
-------------------- ------------------
Cash flows from
operating activities:
Net income $ 764 $ 418
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and amortization 1,194 1,106
Provision for losses on
accounts receivable 136 109
Deferred income tax expense 39 166
Changes in assets and liabilities:
Decrease in accounts receivable 5,120 501
Increase in inventories (3,809) (2,439)
Decrease (increase) in prepaid
expenses and other current assets 534 (846)
(Increase) decrease in
other assets (1,139) 27
Decrease in accounts payable
and accrued expenses (3,249) (3,444)
- ---------------------------------------------------------------------------
Net cash used in operating
activities (410) (4,402)
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (956) (1,051)
Decrease in other assets 137 17
- ---------------------------------------------------------------------------
Net cash used in investing
activities (819) (1,034)
- ---------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from revolving
credit agreement 19,469 18,676
Repayment on revolving
credit agreement (16,395) (28,176)
Proceeds from issuance of
senior note payable - 25,000
Repayment of long-term debt - (10,937)
Proceeds from issuance of
common stock 13 120
Purchase of treasury stock (2,581)
- ---------------------------------------------------------------------------
Net cash provided by
financing activities 506 4,683
Foreign currency translation
adjustments 103 (4)
- ---------------------------------------------------------------------------
Net decrease in cash and
cash equivalents (620) (757)
Cash and cash equivalents at
beginning of period 2,558 4,152
- ---------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 1,938 $ 3,395
===========================================================================
The accompanying notes are an integral part of these consolidated condensed
financial statements.<PAGE>
Page 5
Notes to the Consolidated Condensed Financial Statements
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Dollars in thousands
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, 1998 included
in the Company's annual report on Form 10-K. Effective October 1, 1998,
the Company adopted a fifty-two or fifty-three week fiscal year changing
the year-end date from September 30 to the Friday closest to October 1.
Interim results are not necessarily indicative of the results that may be
expected for the full year.
Note 2: Earnings Per Common Share
Basic earnings per common share excludes dilution and was computed by
dividing net income by the weighted-average number of common shares
outstanding for the period. Diluted earnings per common share was computed
by dividing net income by the weighted-average number of common shares
outstanding for the period adjusted (i.e., increased) for all additional
common shares that would have been outstanding if potentially dilutive
common shares had been issued.
Note 3: Long-Term Debt
On December 3, 1997, the Company completed a Private Placement in the
amount of $25,000 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
$15,000 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.
Note 4: Subsequent Event
On February 2, 1999 the Company entered into a letter of intent to purchase
the common stock of Kapadia Enterprises, Inc. (d.b.a., Nasco Supply
Company) for a combination of cash, common stock and a convertible note.
The acquisition, which is expected to close during the Company's third
fiscal quarter, is subject to signing a definitive purchase agreement and
completing other customary closing conditions. The Company is negotiating
with its lenders to amend its existing revolving credit facility to fund
the cash portion and provide working capital for the combined entities.
There can be no assurances that the Company will consummate the acquisition
of Kapadia Enterprises, Inc.<PAGE>
Page 6
GUEST SUPPLY, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Dollars in Thousands
Fourteen weeks ended January 1, 1999 vs Three months ended December 31,1997
- ---------------------------------------------------------------------------
Sales for the fourteen weeks ended January 1, 1999 increased by $10,153 or
19.2% to $62,918 from $52,765 for the three months ended December 31, 1997.
Revenues generated from our hotel customers increased $10,128 or 22.6% to
$54,958. The increase in sales to hotels is the result of the addition of
new customers, the sale of additional products to existing customers, the
continued expansion of the Company's product line and the effect of the
change in the Company's fiscal year-end. 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. The effect of the change in the Company's year end accounted
for $2,334 of the sales increase.
Sales to consumer products companies and retailers increased to $7,960 for
the fourteen weeks ended January 1, 1999 compared to $7,935 for the three
months ended December 31, 1997.
Gross profit for the fourteen weeks ended January 1, 1999 increased $2,065
to $12,505 or 19.9% of sales compared to $10,440 or 19.8% of sales for the
three months ended December 31, 1997.
Selling, general and administrative expenses were $10,696 or 17.0% of sales
for the fourteen weeks ended January 1, 1999 compared to $9,150 or 17.3% of
sales for the three months ended December 31, 1997. The increase of $1,546
or 16.9% was due primarily to an increase in customer rebates, payroll and
payroll related costs and delivery expense associated with the Company's
hotel sales growth.
Net interest expense was $496 for the fourteen weeks ended January 1, 1999
compared to $511 for the three months ended December 31, 1997.
The effective tax rate decreased to 41.8% for the fourteen weeks ended
January 1, 1999 from 46.3% for the three months ended December 31, 1997.
The lower effective rate was the result of a focused tax strategy designed
to reduce, where applicable, the Company's tax burden.<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
Liquidity and Capital Resources at January 1, 1999
- --------------------------------------------------
At January 1, 1999 the Company had $43,555 of working capital compared to
$43,330 at September 30, 1998.
On December 3, 1997, the Company completed a Private Placement in the
amount of $25,000 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
$15,000 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.
In connection with the common stock repurchase program authorized by the
Board of Directors, the Company repurchased 250,300 shares of its
outstanding shares at a cost of $2,581 during the fourteen weeks ended
January 1, 1999.
On February 2, 1999 the Company entered into a letter of intent to purchase
the common stock of Kapadia Enterprises, Inc. (d.b.a., Nasco Supply
Company) for a combination of cash, common stock and a convertible note.
The acquisition, which is expected to close during the Company's third
fiscal quarter, is subject to signing a definitive purchase agreement and
completing other customary closing conditions. The Company is negotiating
with its lenders to amend its existing revolving credit facility to fund
the cash portion and provide working capital for the combined entities.
There can be no assurances that the Company will consummate the acquisition
of Kapadia Enterprises, Inc.
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" ("SFAS 130") and Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information"
(SFAS 131"). Both statements become effective for the Company beginning
October 1, 1998. These statements require disclosure of certain components
of changes in equity and certain information about operating segments and
geographic areas of operation. The Company adopted SFAS 130 in the current
period (See "Consolidated Condensed Statements of Operations and
Comprehensive Income"). The Company has also adopted SFAS 131 which does
not require interim period reporting in the year of adoption. The Company
is completing its evaluation of the disclosure requirements of SFAS 131 and
will begin such disclosures in its Form 10-K filing for the year ended
October 1, 1999. Implementation of these statements will not have any
effect on the results of operations or financial position of the Company.<PAGE>
Page 8
GUEST SUPPLY, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------
continued
Year 2000 Readiness
- -------------------
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result,
any of the Company's computer programs that have date sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000,
which in turn could result in system miscalculations or failures causing
disruptions in the operations of the Company and its suppliers and
customers.
The Company has completed its evaluation of all its information technology
("IT") and non-IT systems. Many of the software packages that the Company
currently uses have been upgraded to be Year 2000 compliant. Other
software considered critical to the Company's operations has been reviewed
to determine the necessary changes needed to be upgraded. All changes are
expected to be completed by June 30, 1999.
As part of the Company's Year 2000 project, the Company will continue to
monitor its significant suppliers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate Year
2000 compliance issues. The Company has also begun to contact its large
customers where potential exposure exists to ascertain their readiness.
While the Company will continue to monitor its significant suppliers and
customers, there can be no assurances that their systems will be timely
converted or that failure to convert would not have a material adverse
effect on the Company and its operations.
Management estimates that based on the information known to date, the cost
to complete its remediation of its systems will not exceed $250 thousand.
The Company does not believe that its failure to resolve Year 2000 issues
with respect to internal non-compliant systems will cause material
disruption in its operations. While the Company believes its Year 2000
project will adequately address its internal issues, failure of the
Company's suppliers and customers to timely remediate their Year 2000
issues may result in a material adverse effect on the Company and its
operations.
The Company has not, to date, developed a Year 2000 Contingency Plan. It
is the Company's goal to develop a contingency plan for all mission
critical systems by September 30, 1999.
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 downturn 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, failure to secure new business and unforeseen
inefficiencies at the Company's manufacturing facility. In addition,
difficulties in completing remediation of Year 2000 issues by the Company,
its customers or suppliers may have a material adverse effect on the
Company and its operations. Accordingly, there can be no assurances that
any anticipated future results will be achieved. <PAGE>
Page 9
GUEST SUPPLY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- ---------------------------------------------------------------------------
Item 4: Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The following matters were submitted to a vote of security holders during
the Company's Annual Meeting of Stockholders held January 21, 1999:
Description of Matter
Votes Authority
Cast For Withheld
--------- ---------
1a. Election of Class A Directors
Peter L. Richard 5,377,065 84,937
Edward J. Walsh 5,384,462 77,540
1b. Election of Class B Director
Barry Igdaloff 5,417,719 44,283
For Against Abstained
--------- --------- ---------
2. Ratification of appointment of
KPMG LLP as independent auditors
for fiscal 1999. 5,435,602 14,140 12,260
Item 5: Other Information
- -------------------------
On February 2, 1999 the Company entered into a letter of intent to purchase
the common stock of Kapadia Enterprises, Inc. (d.b.a., Nasco Supply
Company) for a combination of cash, common stock and a convertible note.
The acquisition, which is expected to close during the Company's third
fiscal quarter, is subject to signing a definitive purchase agreement and
completing other customary closing conditions. The Company is negotiating
with its lenders to amend its existing revolving credit facility to fund
the cash portion and provide working capital for the combined entities.
There can be no assurances that the Company will consummate the acquisition
of Kapadia Enterprises, Inc.<PAGE>
Page 10
GUEST SUPPLY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- ---------------------------------------------------------------------------
Item 6: Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits
No. 27 Financial Data Schedule
b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated November 20,
1998, reporting a change of the Company's fiscal year from September
30 to a fifty-two or fifty-three week period which ends on the Friday
closest to October 1 of each year and is effective for fiscal year
1999.<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: 2/12/99 By: /s/Clifford W. Stanley
------------- ---------------------------------------
Clifford W. Stanley
President & Chief Executive Officer
Dated: 2/12/99 By: /s/Paul T. Xenis
------------- ----------------------------------------
Paul T. Xenis
Vice President, Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-01-1999
<PERIOD-END> JAN-01-1999
<CASH> 1,938
<SECURITIES> 0
<RECEIVABLES> 28,798
<ALLOWANCES> 0
<INVENTORY> 41,798
<CURRENT-ASSETS> 75,988
<PP&E> 60,036
<DEPRECIATION> (26,877)
<TOTAL-ASSETS> 116,403
<CURRENT-LIABILITIES> 32,433
<BONDS> 0
0
0
<COMMON> 594
<OTHER-SE> 49,703
<TOTAL-LIABILITY-AND-EQUITY> 116,403
<SALES> 62,918
<TOTAL-REVENUES> 62,918
<CGS> 50,413
<TOTAL-COSTS> 50,413
<OTHER-EXPENSES> 10,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 496
<INCOME-PRETAX> 1,313
<INCOME-TAX> 549
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 764
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
