<PAGE>
1 of 13 pages
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 June 30, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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)
--------------------------------------------------------------------------------
(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 June
30, 2000 was 6,611,563 shares.
<PAGE>
Page 2
Guest Supply Inc.
Part 1
Guest Supply, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
--------------------------------------------------------------------------------
Dollars in Thousands
except stated value
<TABLE>
<CAPTION>
June 30, 2000 October 1, 1999
--------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,900 $ 2,200
Accounts receivable, net 56,840 43,471
Inventories:
Raw materials 6,122 7,126
Finished goods 47,127 46,811
Deferred income taxes 1,814 1,626
Prepaid expenses and other current assets 3,470 2,228
-----------------------------------------------------------------------------------------------------------------------------------
Total current assets 119,273 103,462
Property and equipment, net 33,834 33,593
Other assets 3,602 2,387
Excess of cost over net assets acquired, net 20,873 21,815
-----------------------------------------------------------------------------------------------------------------------------------
$177,582 $161,257
===================================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 57,375 $ 50,111
Current maturities of long-term debt 1,486 1,111
-----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 58,861 51,222
===================================================================================================================================
Long-term debt 43,403 39,789
Convertible note payable to related party 5,000 5,000
Deferred income taxes 6,205 5,779
-----------------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 54,608 50,568
===================================================================================================================================
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 - 2000 and 1999 594 594
Additional paid-in capital 40,424 39,247
Retained earnings 23,926 20,559
Treasury stock - 60,075 shares at June 30, 2000
and 95,178 shares at October 1, 1999, at cost (839) (1,091)
Accumulated other comprehensive income 8 158
-----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 64,113 59,467
-----------------------------------------------------------------------------------------------------------------------------------
$177,582 $161,257
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
Page 3
Guest Supply Inc.
Guest Supply, Inc. and Subsidiaries
Consolidated Condensed Statements of Income
and Comprehensive Income
--------------------------------------------------------------------------------
Dollars in Thousands
except per share amounts
(Unaudited)
<TABLE>
<CAPTION>
39 Weeks 40 Weeks 13 Weeks 13 Weeks
Ended Ended Ended Ended
June 30, 2000 July 2, 1999 June 30, 2000 July 2, 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $264,258 $214,093 $101,480 $ 86,550
Cost of sales 206,884 169,489 79,350 67,772
------------------------------------------------------------------------------------------------------------------------------------
Gross profit 57,374 44,604 22,130 18,778
Selling, general and administrative
expenses 43,923 35,239 15,968 13,207
------------------------------------------------------------------------------------------------------------------------------------
Operating income 13,451 9,365 6,162 5,571
Interest and other income 26 24 10 11
Interest expense 2,791 1,872 950 821
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 10,686 7,517 5,222 4,761
Income tax expense 4,178 3,113 2,016 1,938
------------------------------------------------------------------------------------------------------------------------------------
Net income $ 6,508 $ 4,404 $ 3,206 $ 2,823
====================================================================================================================================
Earnings per common share:
Basic $ 1.00 $ 0.69 $ 0.49 $ 0.43
====================================================================================================================================
Diluted $ 0.90 $ 0.64 $ 0.44 $ 0.39
====================================================================================================================================
Comprehensive income:
Net income $ 6,508 $ 4,404 $ 3,206 $ 2,823
Other comprehensive income (loss) -
foreign currency translation
adjustment (150) 219 (76) 49
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 6,358 $ 4,623 $ 3,130 $ 2,872
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
Page 4
Guest Supply Inc.
Guest Supply, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
--------------------------------------------------------------------------------
Dollars in Thousands
(Unaudited)
<TABLE>
<CAPTION>
39 Weeks 40 Weeks
Ended Ended
June 30, 2000 July 2, 1999
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,508 $ 4,404
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,392 3,698
Provision for losses on accounts
receivable 561 433
Deferred income taxes 238 183
Changes in assets and liabilities:
Increase in accounts receivable (13,930) (5,548)
Decrease (increase) in inventories 688 (5,077)
(Increase) decrease in prepaid expenses
and other current assets (951) 212
Decrease (increase) in other assets 20 (1,271)
Increase in accounts payable and accrued
expenses 8,441 6,616
--------------------------------------------------------------------------------
Net cash provided by operating activities 5,967 3,650
--------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (3,691) (3,169)
Purchase of business, net of cash acquired (18,491)
Proceeds from sale of fixed assets 23
(Increase) decrease in other assets (1,526) 103
--------------------------------------------------------------------------------
Net cash used in investing activities (5,217) (21,534)
--------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from revolving credit agreement 64,883 65,760
Repayment on revolving credit agreement (59,783) (45,886)
Repayment of long-term debt (1,111) -
Proceeds from the exercise of stock
options and warrants 916 740
Purchase of treasury stock (3,805) (2,581)
--------------------------------------------------------------------------------
Net cash provided by financing activities 1,100 18,033
Foreign currency translation adjustments (150) 219
--------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,700 368
Cash and cash equivalents at beginning of
period 2,200 2,558
--------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,900 $ 2,926
================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
Page 5
Guest Supply Inc.
Notes to the Consolidated Condensed Financial Statements
--------------------------------------------------------------------------------
Dollars in Thousands
except per share amounts
Note 1: Basis of Presentation (unaudited)
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 October 1, 1999
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.
Certain 1999 amounts have been reclassified to conform to the 2000 presentation.
Note 2: Earnings Per Common Share
Earnings per share is calculated as follows:
<TABLE>
<CAPTION>
39 Weeks 40 Weeks 13 Weeks 13 Weeks
Ended Ended Ended Ended
June 30, 2000 July 2,1999 June 30, 2000 July 2,1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic EPS:
Net income $ 6,508 $ 4,404 $ 3,206 $ 2,823
============================================================================================
Weighted average common shares
outstanding 6,519,000 6,426,000 6,595,000 6,524,000
============================================================================================
Basic EPS $ 1.00 $ 0.69 $ 0.49 $ 0.43
============================================================================================
Diluted EPS:
Net income $ 6,508 $ 4,404 $ 3,206 $ 2,823
Effects of convertible promissory
note 119 20 40 20
--------------------------------------------------------------------------------------------
Adjusted net income $ 6,627 $ 4,424 $ 3,246 $ 2,843
============================================================================================
Weighted average common shares
outstanding 6,519,000 6,426,000 6,595,000 6,524,000
Effects of dilutive stock options
and warrants 466,000 411,000 430,000 379,000
Effects of convertible promissory
note 377,000 94,000 377,000 289,000
--------------------------------------------------------------------------------------------
Weighted average common shares
outstanding assuming dilution 7,362,000 6,931,000 7,402,000 7,192,000
============================================================================================
Diluted EPS $ 0.90 $ 0.64 $ 0.44 $ 0.39
============================================================================================
</TABLE>
<PAGE>
Page 6
Guest Supply Inc.
Notes to the Consolidated Condensed Financial Statements
--------------------------------------------------------------------------------
Dollars in Thousands
(unaudited)
continued
Note 3: Business Segments
The Company has two reportable segments (Lodging Supply and Manufacturing).
The Lodging Supply segment includes sales to hotel customers of cleaning
chemicals, room accessories, paper products, personal care amenities, linens,
appliances, fixtures, and miscellaneous housekeeping supplies. The
Manufacturing segment includes sales to retailers, consumer products companies
and intercompany sales of personal care amenities. The reportable segments are
strategic businesses that offer different products and services and accordingly
are managed separately. The accounting policies of the segments are the same of
those described in the summary of significant accounting policies in the annual
report. Intersegment sales are accounted for at prices that approximate arms
length transactions, and have generally been at or below cost. Sales by
geographic area are determined based on the location of the Company's
operations. The Company evaluates performance based on operating income (loss)
of the respective business segment.
Summarized segment information is as follows:
<TABLE>
<CAPTION>
Lodging Supply Manufacturing Total Segments
<S> <C> <C> <C>
================================================================================
39 Weeks Ended June 30, 2000
Sales to external customers $246,319 $17,939 $264,258
Intersegment sales - 8,710 8,710
--------------------------------------------------------------------------------
Total sales 246,319 26,649 272,968
Operating income (loss) 14,025 (574) 13,451
40 Weeks Ended July 2, 1999
Sales to external customers $193,027 $21,066 $214,093
Intersegment sales - 9,071 9,071
--------------------------------------------------------------------------------
Total sales 193,027 30,137 223,164
Operating income (loss) 10,079 (714) 9,365
13 Weeks Ended June 30, 2000
Sales to external customers $ 95,277 $ 6,203 $101,480
Intersegment sales - 3,067 3,067
--------------------------------------------------------------------------------
Total sales 95,277 9,270 104,547
Operating income 6,109 53 6,162
13 Weeks Ended July 2, 1999
Sales to external customers $ 78,717 $ 7,833 $ 86,550
Intersegment sales - 3,468 3,468
--------------------------------------------------------------------------------
Total sales 78,717 11,301 90,018
Operating income 4,803 768 5,571
</TABLE>
<PAGE>
Page 7
Guest Supply Inc.
Notes to the Consolidated Condensed Financial Statements
--------------------------------------------------------------------------------
Dollars in Thousands
(unaudited)
continued
Note 4: Acquisition
On April 23, 1999, the Company acquired all of the outstanding shares of
Kapadia Enterprises, Inc., d/b/a Nasco Supply Company and MacDonald Contract
Sales, Inc. (Collectively "Nasco"), a distributor of textile products to the
lodging industry for approximately $24,493 including transaction costs of $738.
Total consideration paid included cash of $17,755, a convertible promissory note
of $5,000, issuance of 45,198 shares of common stock valued at $500 and other
liabilities assumed of $500. The acquisition was funded principally through
borrowings under the Company's revolving credit agreement. The acquisition has
been accounted for as a purchase and the results of Nasco's operations have been
included in the consolidated financial statements since the date of acquisition.
Note 5: Indebtedness
At June 30, 2000 and October 1, 1999, the Company's indebtedness consisted of
the following:
June 30, 2000 October 1, 1999
-------------------------------------------------------------------------------
Revolving credit agreement $21,000 $15,900
Senior notes payable 23,889 25,000
Convertible note payable to related party 5,000 5,000
-------------------------------------------------------------------------------
49,889 45,900
Less: Current Maturities (1,486) (1,111)
-------------------------------------------------------------------------------
$48,403 $44,789
===============================================================================
Note 6: Other
On January 14, 2000, concurrent with the execution of a service agreement to
provide e-procurement services, the Company purchased 93,633 shares of common
stock in GoCo-op, Inc., and was issued a warrant to purchase $500 of common
stock, subject to certain conditions, at a price to be determined by the per
share offering price of GoCo-op's common stock which may be sold, in an initial
public offering, for $1,250 in cash. Under the terms of the agreement, GoCo-op
will provide the Company with an Internet based procurement system, which will
be trademarked and operated as guestsupply.com. The Company accounts for its
investment in GoCo-op., Inc. stock under the cost method.
Note 7: Recently Issued Accounting Standards
In May 2000, the Emerging Issues Task Force released Issue No. 00-14,
"Accounting for Certain Sales Incentives" ("EITF 00-14"). This issue addresses
the recognition, measurement and income statement classification for sales
incentives offered voluntarily by a vendor without charge to customers that can
be used in, or that are exercisable by a customer as a result of a single
exchange transaction. The Company currently records sales incentives as part of
selling, general and administrative expenses. In accordance with the provisions
of EITF 00-14, such sales incentives will be recorded as a reduction of
revenues. EITF 00-14 is effective for the Company beginning in the fourth
quarter of fiscal 2000. The Company is currently determining the impact of EITF
00-14 on its consolidated results of operations. Upon application of this EITF
consensus, comparative financial statements for prior periods will be
reclassified to comply with the classification guidelines of this Issue.
<PAGE>
Page 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Dollars in Thousands
Thirty-nine weeks ended June 30, 2000 vs. Forty Weeks ended July 2, 1999
------------------------------------------------------------------------
Sales for the thirty-nine weeks ended June 30, 2000 increased by 23.4% or
$50,165 to $264,258 from $214,093 for the forty weeks ended July 2, 1999.
Revenues from lodging supply segment customers increased $53,292 or 27.6% to
$246,319. Excluding the impact of the Nasco acquisition, and the extra week
during last year, sales rose 14.9% over the prior year. The increase in sales in
lodging supply is due primarily to 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 territories and by new salespeople and territories that were
established during fiscal 1999. Lodging customers were also added through new
or expanded agreements with hotel management companies and hotel corporations.
Sales of additional products to existing lodging customers were achieved by
the direct sales force at individual properties and by national account managers
at hotel corporations. This increased penetration at existing accounts can be
attributed to sales management, sales training, territory realignment and the
use of the Company's catalog.
Sales to manufacturing segment customers were $17,939 for the thirty-nine
weeks ended June 30, 2000 compared to $21,066 for forty weeks ended July 2,
1999. The decrease of $3,127 or 14.8% was primarily due to a non-recurring
sales program for two contract customers in the prior year and lower sales to an
existing customer.
Gross profit for the thirty-nine weeks ended June 30, 2000 was $57,374 or
21.7% of sales compared to $44,604 or 20.8% for the forty weeks ended July 2,
1999. The increase in gross profit as a percentage of sales was primarily due
to efficiency improvements in the manufacturing segment and a favorable sales
mix in the lodging supply segment. This increase was partially offset by an
increase in sales of textiles, arising primarily from the Nasco acquisition,
which have a lower margin than other product categories sold to hotels.
Selling, general and administrative expenses were $43,923 or 16.6% of sales
for the thirty-nine weeks ended June 30, 2000 compared to $35,239 or 16.5% for
the forty weeks ended July 2, 1999. The increase of $8,684 or 0.1% as a
percentage of sales from the prior year period was due primarily to increased
customer rebates, payroll, sales commissions, and delivery expenses associated
with the Company's lodging supply sales growth and increased operating expenses
and amortization of goodwill associated with the Nasco acquisition. The Company
has also incurred costs associated with its eCommerce initiative, and the
expansion of its inside sales group. In addition, Guest Purchasing Services was
created during the second quarter, which will market furniture, fixtures,
equipment and design services to the lodging industry.
Operating income increased $4,086 or 43.6% to $13,451 for the thirty-nine
weeks ended June 30, 2000. Operating income in the lodging supply segment
increased 39.2% to $14,025 in 2000 compared with $10,079 in 1999 due principally
to higher sales volume and improved gross profit. The operating loss in the
manufacturing segment was reduced by $140 to a loss of $574 in 2000 from a loss
of $714 in 1999 due principally to improved manufacturing efficiencies.
Net interest expense was $2,765 for the thirty-nine weeks ended June 30, 2000
compared to $1,848 for the forty weeks ended July 2, 1999. The increase was the
result of an increase in borrowings to finance the acquisition of Nasco.
The effective tax rate decreased to 39.1% in fiscal 2000 from 41.4% in fiscal
1999. In fiscal 1999 the Company had a higher tax rate due to an increase in its
valuation reserve related to deferred tax assets and an increase in state income
taxes.
Overall, net income for fiscal 2000 increased 47.8% to $6,508 or $0.90 per
diluted share compared to $4,404 or $0.64 per diluted share in 1999.
<PAGE>
Page 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Dollars in Thousands
continued
Thirteen weeks ended June 30, 2000 vs. Thirteen weeks ended July 2, 1999
------------------------------------------------------------------------
Sales for the thirteen weeks ended June 30, 2000 increased by 17.3% or $14,930
to $101,480 from $86,550 for the thirteen weeks ended July 2, 1999. Revenues
from lodging supply segment customers increased $16,560 or 21.0% to $95,277.
Excluding the impact of the Nasco acquisition, sales rose 18.7% over the prior
year. The lodging supply revenue growth in the third fiscal quarter has
rebounded from the lower rate of growth of 9.6% experienced in the second
quarter which was believed to be Y2K related. The increase in sales in lodging
supply is due primarily to 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
territories and by new salespeople and territories that were established during
fiscal 1999.
Sales of additional products to existing lodging customers were achieved by
the direct sales force at individual properties and by national account managers
at hotel corporations. This increased penetration at existing accounts can be
attributed to sales management, sales training, territory realignment and the
use of the Company's catalog.
Sales to manufacturing segment customers were $6,203 in fiscal 2000 compared
to $7,833 in fiscal 1999. The decrease of $1,630 or 20.8% was primarily due to
non-recurring national sales programs for two customers in the prior year.
Historically, the first and fourth fiscal quarters are the strongest for
manufacturing, which we anticipate will be the case again this year.
Gross profit for the thirteen weeks ended June 30, 2000 was $22,130 or 21.8%
of sales compared to $18,778 or 21.7% for the thirteen weeks ended July 2, 1999.
The gross profit percent in lodging supply increased from 22.6% in fiscal year
1999 to 22.9% in fiscal year 2000 as a result of a favorable sales mix offset by
the effects of the Nasco acquisition, which have a lower margin than other
product categories sold to hotels. The increase in lodging supply gross profit
percent was tempered by a lower gross profit percent in the manufacturing
segment caused by the effect of fixed costs on lower sales volume.
Selling, general and administrative expenses were $15,968 or 15.7% of sales
for the thirteen weeks ended June 30, 2000 compared to $13,207 or 15.3% for the
comparable prior year period. The increase of $2,761 or 0.4% as a percentage of
sales from the prior year period was due primarily to increased customer
rebates, payroll, sales commissions, and delivery expenses associated with the
Company's lodging supply sales growth and increased operating expenses and
amortization of goodwill associated with the Nasco acquisition. The Company has
also incurred costs associated with its eCommerce initiative, and the expansion
of its inside sales group. In addition, Guest Purchasing Services was created
during the quarter, which will market furniture, fixtures, equipment and design
services to the lodging industry.
Operating income increased $591 or 10.6% to $6,162 for the thirteen weeks
ended June 30, 2000 from $5,571 last year. Operating income in the lodging
supply segment increased 27.2% to $6,109 in fiscal 2000 compared with $4,803 in
fiscal 1999 due principally to higher sales volume and an improved gross margin.
The manufacturing segment generated operating income of $53 for the thirteen
weeks ended June 30, 2000, a decrease of $715 from the $768 operating income
generated during the thirteen weeks ended July 2, 1999 due to the effect of
fixed manufacturing expenses on lower sales volume.
Net interest expense was $940 for the thirteen weeks ended June 30, 2000
compared to $810 for the thirteen weeks ended July 2, 1999. The increase was
due to an increase in borrowings to finance the acquisition of Nasco.
The effective tax rate decreased to 38.6% in fiscal 2000 from 40.7% in fiscal
1999. In fiscal 1999, the Company had a higher tax rate due to an increase in
its valuation reserve related to deferred tax assets and an increase in state
taxes.
Overall, net income for fiscal 2000 increased 13.6% to $3,206 or $0.44 per
diluted share compared to $2,823 or $0.39 per diluted share in fiscal 1999.
<PAGE>
Page 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Dollars in Thousands
continued
Liquidity and Capital Resources
-------------------------------
The Company had $60,412 of working capital at June 30, 2000 compared to
$52,240 at October 1, 1999. The increase of $8,172 is primarily due to an
increase in accounts receivable which was partially offset by an increase in
accounts payable and accrued expenses.
Net cash flows from operating activities increased to $5,967 for the thirty-
nine weeks ended June 30, 2000, compared with $3,650 for the forty weeks ended
July 2, 1999. The increase was primarily due to the increases in earnings and
accounts payable and accrued expenses combined with a decrease in inventory
offset by an increase in accounts receivable.
Net cash flows used in investing activities, for the thirty-nine weeks ended
June 30, 2000 totaled $5,217, compared with $21,534 for the forty weeks ended
July 2, 1999. The major portion of the decrease in investing activities was due
to the acquisition of Nasco on April 23, 1999 (see Note 4). Capital
expenditures for the thirty-nine weeks ended June 30, 2000 were $3,691 versus
$3,169 in 1999. For the thirty-nine weeks ended June 30, 2000, capital
expenditures for the lodging supply and manufacturing segments amounted to
$1,496 and $2,195, respectively. Capital expenditures in fiscal 2000 of
approximately $5,000 are expected. Other investing activities during the
thirty-nine weeks ended June 30, 2000 included $1,250 incurred in connection
with the Company's investment in GoCo-op, Inc.
Net cash flows provided by financing activities totaled $1,100 compared with
$18,033 in 1999. The financing activity decline was again primarily due to the
Nasco purchase in 1999. Borrowings during the thirty-nine weeks ended June 30,
2000 increased due to capital expenditures and other long-term investments of
$5,217 and the purchase of $3,805 of treasury stock under the Company's stock
repurchase program.
The Company believes that the amount available under the revolving credit
agreement 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 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for hedging
activities and derivative instruments, including certain derivative instruments
embedded in other contracts. SFAS 133, as amended, is effective for the Company
commencing in the first quarter of fiscal 2001. The Company is reviewing the
potential impact, if any, of SFAS 133 on its consolidated results of operations
and financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ,
("SAB 101"). SAB 101 summarizes certain views of the staff in applying generally
accepted accounting principals to revenue recognition in financial statements
and the presentation of certain items in the income statement. SAB 101, as
amended, is effective for the Company commencing in the first quarter of fiscal
2001. The Company is reviewing the potential impact, if any, of SAB 101 on its
consolidated results of operations and financial position.
In May 2000, the Emerging Issues Task Force released Issue No. 00-14,
"Accounting for Certain Sales Incentives" (EITF 00-14"). This issue addresses
the recognition, measurement and income statement classification for sales
incentives offered voluntarily by a vendor without charge to customers that can
be used in, or that are exercisable by a customer as a result of a single
exchange transaction. The Company currently records sales incentives as part of
selling, general
<PAGE>
Page 11
Guest Supply Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Dollars in Thousands
continued
and administrative expenses. In accordance with the provisions of EITF 00-14,
such sales incentives will be recorded as a reduction of revenues. EITF 00-14
is effective for the Company beginning in the fourth quarter of fiscal 2000.
The Company is currently determining the impact of EITF 00-14 on its
consolidated results of operations. Upon application of this EITF consensus,
comparative financial statements for prior periods will be reclassified to
comply with the classification guidelines of this Issue.
Other
-----
At June 30, 2000, the financial liabilities of the Company exposed to changes
in interest rates consist mainly of $21,000 in variable rate borrowings
outstanding under the revolver. The Company has entered into an interest rate
collar agreement with a notional amount of $11,000. Under the terms of the
agreement, the Company would be reimbursed the interest difference in the event
that the three-month LIBOR rate exceeds 9.7% or would pay the interest
difference if the three-month LIBOR rate falls below 4.75%.
Assuming that a hypothetical increase of 1% in interest rates and debt levels
were to remain constant, interest expense would increase $210 per year.
Included in long-term debt is also $23,889 of fixed rate debt, which is not
subject to interest rate risk.
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 or decline in sales to a major customer, failure to
secure new business, unforeseen inefficiencies at the Company's manufacturing
facility and difficulties in implementing its e-commerce initiative.
Accordingly, there can be no assurances that any anticipated future results
would be achieved.
<PAGE>
Page 12
Guest Supply Inc.
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
None
<PAGE>
Page 13
Guest Supply Inc.
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: August 11, 2000 By: /s/ Clifford W. Stanley
---------------------- -----------------------------
Clifford W. Stanley
President & Chief Executive Officer
Dated: August 11, 2000 By: /s/ Paul T. Xenis
---------------------- -----------------------------
Paul T. Xenis
Vice President, Finance
