-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wp4qn7orimIfvfcSPWCEWSrDhSxm9c3dpTU4QbQDbSG9CjNwvSomu5l3nAajbbLm 4WX4mqm9wAMJrkYSL7zKPA== 0000722642-98-000003.txt : 19980515 0000722642-98-000003.hdr.sgml : 19980515 ACCESSION NUMBER: 0000722642-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GUEST SUPPLY INC CENTRAL INDEX KEY: 0000722642 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 222320483 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11955 FILM NUMBER: 98619581 BUSINESS ADDRESS: STREET 1: 4301 U.S. HWY ONE CITY: MONMOUTH JUNCTION STATE: NJ ZIP: 08852 BUSINESS PHONE: 9082463011 MAIL ADDRESS: STREET 1: P.O. BOX 902 STREET 2: 720 U S HIGHWAY ONE CITY: MONMOUTH JUNCTION STATE: NJ ZIP: 08852 10-Q 1 FORM 10Q 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 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. Page 3 Guest Supply, Inc. and Subsidiaries Consolidated Statements of Operations =========================================================================== 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. Page 4 Guest Supply, Inc. and Subsidiaries Consolidated Statements of Cash Flows =========================================================================== 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 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 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. 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 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. 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 10 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: 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 11 INDEX TO EXHIBITS =========================================================================== Exhibit No. Description Page - ----------- ------------------------------------ ---- 27 Financial Data Schedule 12 EX-27 2
5 6-MOS SEP-30-1998 MAR-31-1998 3,929 0 31,223 0 38,276 78,343 57,230 (23,891) 117,889 31,484 0 0 0 589 49,430 117,889 105,559 105,559 84,548 84,548 18,528 0 1,140 1,343 555 0 0 0 0 788 .12 .11
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