-----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, SkQ0AbttD/GdokN0jXrRMlXNkVuMd83ksSvg50KGRwvj2M0HbtzDap/DmibWwSs8 m7mqw/PkImGmZUZbuS+ReA== 0000950130-00-006789.txt : 20001227 0000950130-00-006789.hdr.sgml : 20001227 ACCESSION NUMBER: 0000950130-00-006789 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000929 FILED AS OF DATE: 20001226 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-K SEC ACT: SEC FILE NUMBER: 001-11955 FILM NUMBER: 795835 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-K 1 0001.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 29, 2000 OR [_] 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) New Jersey 22-2320483 ----------------------------- -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4301 U.S. Highway One Monmouth Junction, New Jersey 08852-0902 ------------------------------------------ ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (609) 514-9696 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------------ Common Stock, without par value New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: NONE ---- (Title of class) Indicate by a 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 as 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 ------- ------ Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non- affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. Aggregate market value as of December 15, 2000............................ $103,934,959 Indicate the number of shares outstanding of each of the issuer's classes of capital stock, as of the latest practicable date. Common Stock, without par value, as of December 15, 2000............................ 6,182,005 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the documents, all or portions of which are incorporated by reference herein and the Part of the Form 10-K into which the document is incorporated: Part III incorporates information by reference from portions of the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. 2 PART I ITEM 1. BUSINESS. General - ------- The Company operates principally as a manufacturer, packager and distributor of personal care guest amenities, housekeeping supplies, room accessories and textiles to the lodging industry. The Company also manufactures and packages personal care products for major consumer products and retail companies. Personal care guest amenity items include shampoo, hair conditioner, soap, bath gel, hand and body lotion, mouthwash, shoe care and sewing kits, shower caps, soap dishes and decorative containers and trays. The Company has available more than 20 amenity items in a variety of brands in Company-designed packaging options. Housekeeping supplies for the lodging industry consist primarily of paper products, cleaning chemicals and cleaning implements. Room accessories include such items as wastebaskets, glassware, stationery, laundry bags, pens, shower curtains and signs. Textiles include sheets, towels and bedding. In total, the Company distributes more than 100 different product categories. The products manufactured and packaged for its consumer products and retail customers include health and beauty aid items such as shampoo, hair conditioner, hand and body lotions, liquid soaps and bath additives. The Company has pursued a strategy designed to enhance its leadership position in the lodging supply industry by becoming a full-service company with a nationwide network of Company-operated distribution centers which provide prompt delivery to hotel properties. Each center consists of a warehouse and sales office and is staffed by sales personnel who call on customers to obtain orders and provide customer service. The Company's amenity product lines consist of customized amenity programs designed by the Company for hotel chains ("customized corporate amenity programs") or for individual lodging establishments ("customized individual amenity programs") and uncustomized amenities and accessories. Customized corporate amenity programs consist of one or more items which are presented in Company-designed packaging. This packaging displays the corporate name or logo of the hotel chain or lodging establishment for which the program is designed. Customized corporate amenity programs are designed for hotel chains, such as Choice International, The Four Seasons, Holiday Inns, Howard Johnson, Hyatt Hotels, Marriott Corporation, Ramada and Wyndham Hotels and may consist of up to 20 amenity and accessory items. In some cases, purchasing decisions for these programs are made by the central buying organization for the chain, and in other cases, such decisions are made by individual members or franchisees of the chain. Customized individual amenity programs typically consist of six to 12 amenity and accessory items. Individual programs generally involve more elaborate designing and packaging, in an attempt to accent the guest room decor and the marketing image of the particular lodging establishment. The Company has designed individual amenity programs for such lodging establishments as The Waldorf-Astoria in New York, New York, Westin Rio Mar 3 in Puerto Rico, The Hotel Monaco in San Francisco, California, Trump Hotels in Atlantic City, New Jersey, and The Park Hyatt Hotels in Philadelphia, Pennsylvania, San Francisco, California and Los Angeles, California. The Company also has amenity programs for the cruise industry for such customers as Holland America Line and Royal Carribean International. The Company sells amenities in uncustomized color coordinated packaging under such brand names as Bath and Body Works(R), Jhirmack(R) and Neutrogena(R). Some of these brand name products are also sold as part of customized amenity programs. In addition, the Company markets its own guest amenity lines under the "Heritage Collection," "Botanicals," "Institute Swiss(R)" and "Onyx" labels. The Company's lodging industry customers consist of hotel chains (including supply divisions), individual members or franchisees of hotel chains, independent hotel properties, management companies and cruise ship lines. The Company distributes its products to approximately 20,000 customers worldwide. The Company has supply agreements with each of the 10 largest lodging chains in the United States. The Company's strategy is to increase its penetration of the lodging industry at all levels and to become a "one-stop shopping" supplier to lodging establishments. In order to increase operating efficiencies and responsiveness to customer needs, the Company has become a more vertically integrated supplier of customized and uncustomized amenity programs by enhancing its design capability, expanding its distribution network and increasing its manufacturing capabilities. In addition, the Company sells disposable housekeeping products, room accessories and textiles in order to provide a complete range of products to the lodging industry. As part of this strategy, the Company, through its manufacturing subsidiary Guest Packaging, Inc., manufactures and packages substantially all of its liquid products such as shampoos, hair conditioners, hand and body lotions and bath gels, as well as a portion of its bar soap requirements. The Company's manufacturing operations allow the Company to provide both the service and wide variety of products required by the lodging industry. In addition, the Company utilizes its manufacturing facility to compound, fill and package a variety of products used by consumer product companies and retailers. These are principally health and beauty aid items such as shampoo, hair conditioner, hand and body lotions, liquid soaps and bath additives. In fiscal 1997, the Company completed a program to expand its manufacturing facility and to increase its production capability and capacity. See "Manufacturing, Packaging and Shipping" below. The Company's Breckenridge-Remy Co. ("Breckenridge") subsidiary (doing business as Guest Distribution) also contributes to the Company's strategy of vertical integration through an improved and expanded product line and national distribution capability. In addition to personal care products and room accessories, Breckenridge markets a line of paper products, cleaning chemicals, glassware, housekeeping items and textiles. Breckenridge's business includes a direct sales force and a network of 13 distribution centers and 2 sales support facilities. This distribution network provides the Company with the ability to warehouse products in close proximity to the lodging properties served by the Company. In addition, each distribution center is staffed with a direct sales force who call on customers to obtain sales orders 4 and provide direct customer service. The Company currently has approximately 164 sales consultants. Management believes that the Company's complete product line and nationwide distribution capability provides superior service to all of its customer groups. On April 23, 1999, the Company acquired all of the capital stock of Kapadia Enterprises, Inc., d/b/a Nasco Supply Company and MacDonald Contract Sales, Inc. (collectively "Nasco"), a privately held distributor of textile products to the lodging industry. Nasco markets a complete line of towels, sheets, blankets, mattress pads, pillows, shower curtains and table linen from such major textile manufacturers as Pillowtex Corporation, Springs Dundee and Westpoint Stevens. Nasco operates utilizing a direct salesforce and previously had two distribution centers located in Chatsworth, California and Concord, North Carolina. The Chatsworth, California operation was subsequently consolidated with an existing California warehouse. In November 1999, all accounting and computer operations were merged into the Company's current systems. The acquisition of Nasco further enhanced the Company's strategic position as a one-stop-shopping source for the lodging industry by further expanding its product line. In August 2000, the Company entered the furniture, fixtures and equipment ("FF&E") marketplace with the creation of Guest Purchasing Services ("GPS") located in Memphis, Tennessee. GPS provides FF&E products and hospitality design services to the lodging industry on a nationwide basis which further compliments the Company's vertical integration strategy. The addition of the FF&E product line expands the Company's market potential from approximately $2.5 billion to over $7 billion. On October 31, 2000 the Company acquired T.J. MacDonald Institutional Textiles, Ltd., a leading supplier of textile products to the Canadian hospitality industry. The Mississauga, Ontario, Canada entity, formally a privately held company, was subsequently amalgamated with the Company's existing subsidiary Guest International (Canada) Ltd. to form a full service supplier for the Canadian lodging market. Together T.J. MacDonald and Guest International will become one of the largest suppliers to the Canadian lodging industry. The Company is prepared to launch its business-to-business, e-commerce initiative, "guestsupply.com". This online procurement site will provide a quick and efficient one-stop shopping capability over the internet. Guestsupply.com will equip users with an innovative e-procurement solution that allows customers to make real-time purchases over a secure internet connection and to automate a number of key business processes. Products - -------- The Company markets and sells a broad range of personal care, housekeeping and disposable products for use in lodging establishments. The Company's amenity product line consists of more than 20 different products, including shampoo, hair conditioner, soap, bath gel, hand and body lotion, mouthwash, shower caps, soap dishes, shoe shine and sewing kits and decorative containers and trays. Six amenity products account for a substantial majority of the Company's sales of customized and uncustomized packaging options. The Company's housekeeping, room accessory and textile product lines include paper products, cleaning chemicals, cleaning implements, sheets, towels and other bed linens, and other housekeeping items and accessories such as wastebaskets, glassware, stationery, laundry bags, pens, shower 5 curtains and signs. The Company believes that its range of products for the lodging industry is one of the most extensive available from a single source in the United States. Customized amenity programs consist of one or more items which are packaged and presented in Company designed bottles, boxes, tubes and wrappings. The packaging and wrappings display the corporate name or logo of the hotel chain or lodging establishment for which the program is designed. Customized corporate amenity programs are designed for hotel chains. Customized individual amenity programs typically consist of six to 12 amenity and accessory items. These programs generally involve more elaborate design and packaging, in an attempt to accent the guest room decor and the marketing image of the particular lodging establishment. The sales price per room stay for an amenity program varies with the number of items selected by the customer. Because customized corporate amenity programs and uncustomized amenity programs also vary widely in the number of items, the cost of such programs also vary widely. The Company sells national brand name products, as well as generic and the Company's own private label products and accessories. During the fiscal year ended September 29, 2000, less than 10% of the Company's sales were attributable to sales of national brand name products which include Bath and Body Works(R), Jhirmack(R) and Neutrogena(R). Guest Supply also markets guest amenity programs under proprietary brand names owned by the Company. These programs were designed by the Company as an alternative to customized amenity programs with inventory available for immediate delivery. The Company has entered into arrangements with certain manufacturers of national brand name products pursuant to which the Company has been granted the exclusive right to market certain products to the lodging industry in the United States. Certain of these manufacturers have reserved the right to approve the design of the packaging of their products and to monitor quality control with respect to the manufacturing and packaging processes. None of such exclusivity arrangements obligates the Company to purchase products from any one supplier or to market any brand exclusively. The Company believes that there are adequate alternative sources of supply available for all products it currently distributes. Moreover, the Company believes that its competitive success is dependent more on the quality of the Company's services, design capability and the selection and availability of products, than on the availability of any one particular brand name product or group of products. Design, Marketing and Sales - --------------------------- In the view of the Company, an important aspect of its marketing approach and competitive position is the capability of its professional design staff to assist customers in designing customized packaging and in the coordination and presentation of their amenity programs. In addition, the Company believes that its position in the industry is in part attributable to the Company's ability, on a single source basis, to design, manufacture, package and distribute complete customized amenity programs for its customers which meet the 6 customers' corporate image, product and budgetary requirements and which include brand name products with a reputation for high quality and wide-spread consumer acceptance. The design of amenity programs takes into account five essential elements: packaging components (size, shape and type of container), packaging graphics (colors and logos), brand identity (use of national or generic brands), product mix (which amenity items to present) and presentation method (tray, placemat, wicker basket or decorative tin). The Company's design personnel, who include graphic, industrial and mechanical artists and packaging engineers, are responsible for creating packages, selecting colors and applying graphic designs to accent guest room decor and for the production of finished engineering drawings and materials specifications. The Company's design personnel consult directly with the Company's customers on all aspects of the design of guest room amenities, at times leading to unique and proprietary packaging and presentations of amenity programs. The Company's design process can vary in length, depending on the customer's needs and complexity of the program. Once a design is accepted by the customer and a purchase order is received, the initial shipment is typically made within 10-14 weeks and the balance of the shipment is generally delivered over the next 12-24 months. The Company employs direct sales personnel who consult regularly with the Company's existing customers and solicit new customers. In addition, the Company employs in-house sales people responsible for telemarketing sales and customer service. Further, the senior management of the Company devotes a substantial amount of time to sales activities, as well as to the overall coordination of customers' amenity programs and the development of new concepts to enhance the effectiveness of the programs. The Company believes that prompt, professional and responsive customer service is an important element in attracting new customers and satisfying existing ones. In addition, the Company maintains regional distribution centers throughout the United States. This distribution network consists of 13 regional warehouses and a central warehouse and distribution facility in Sayreville, New Jersey. These distribution centers provide the Company with the ability to deliver manufactured and purchased products to the lodging properties served by the Company throughout the United States. In addition, each regional distribution center is staffed with route salespersons who call on customers to obtain sales orders and provide direct customer service. See "Item 2. Properties." The Company attends most major trade conventions and exhibits its product lines at such events. Two lodging supply segment customers accounted for 15.0% and 14.8% of the Company's total sales in 2000. One lodging supply segment customer accounted for 15.3% and 15.5% of the Company's total sales in 1999 and 1998, respectively. As of September 29, 2000 and October 1, 1999, one customer accounted for 7.9% and 5.2%, respectively, of the Company's total accounts receivable. The Company's consolidated sales included approximately $12,192,000, $8,407,000 and $5,814,000, respectively, by foreign subsidiaries for the fiscal years ended 7 September 29, 2000, October 1, 1999 and September 30, 1998. The Company currently has subsidiaries located in England, New Zealand and Canada. The Company had unfilled orders for its products which it does not deem material or reflective upon its future sales. Most of the unfilled orders for fiscal 2000 are expected to be shipped within the current fiscal year. Unfilled orders are not necessarily an important indicator of total future sales, since a substantial portion of the Company's revenues are attributable to sales of disposable housekeeping products and accessories, uncustomized amenity products and corporate amenity programs which are ordered for delivery on a current basis and for which no significant unfilled orders exist. In addition, certain orders are subject to further confirmation. Substantially all of the Company's sales are to customers to whom the Company extends credit. The Company's credit policy generally requires payment in full within 30 days and allows discounts in certain cases for early payment. Manufacturing, Packaging and Shipping - ------------------------------------- Most of the amenity products marketed and distributed by the Company are sold in packaging and wrappings designed to customer specifications by the Company and are customized with the name of the particular hotel, in the case of customized individual amenity programs, or the corporate logo of the lodging chain in the case of customized corporate amenity programs, and also display the brand name of the product, where appropriate. In some cases, the shapes of the containers are also designed specifically to the customer's requirements. Packaging components include bottles, boxes, bags, packets, tubes and various other containers that come in a wide range of sizes and shapes. The Company's manufacturing facility is located in Rahway, New Jersey. This facility has approximately 68,000 square feet of production space. The plant has 21 filling lines, including 10 highly automated lines which the Company believes incorporate the most efficient technology presently available. Each line is equipped to apply front, back, and full wrap labels, and video jets for batch and date coding of each container. A variety of reactors or compounding vessels with capacities ranging from 100 to 6,000 gallons are located at this facility as well as 249,000 gallons of liquid bulk storage vessels. The facility also includes an analytical and development laboratory. In fiscal 1997, the Company completed a program to expand its manufacturing facility and to increase its production capability and capacity. As part of this expansion project, 18,000 square feet of manufacturing space was added to the Company's facility in Rahway, New Jersey. Additional mixing and storage tanks were installed increasing compounding capacity by more than 350%. The Company installed four new high-speed filling lines which are highly automated and provide the Company with the capacity and capability to manufacture retail size health and beauty aid products in high volume. Currently, the Company compounds and fills substantially all of its liquid products. Compounding involves the batch mixing of components such as detergents, conditioners, dyes and fragrances in accordance with proprietary formulas. Filling entails the transfer of finished products from bulk to the unit of use containers in which they are distributed. 8 In addition, the Company utilizes its manufacturing facility to compound, fill and package a variety of products used by consumer product companies and retailers. These are principally health and beauty aid items such as shampoo, hair conditioner, hand and body lotions, liquid soaps and bath additives. In some instances the Company also formulates products for its customers. The Company believes that these services, among others, are attractive to these companies since most lack production expertise or the costs of providing these functions in-house could be prohibitive. The Company's other products such as soaps, shower caps, soap dishes, shoe shine and sewing kits, toothpaste, toothbrushes, razors, shaving creams, paper products, cleaning chemicals, cleaning implements, glassware and other accessories are produced by independent manufacturers. Soaps are manufactured in accordance with the Company's specifications, including colors and fragrances, from materials furnished by suppliers selected by the Company. Additionally, the Company manufactures a portion of its bar soap requirements, which it sells to the lodging industry, at its facility in Rahway, New Jersey. The bottles and other packaging components for the Company's products are manufactured by independent suppliers in accordance with the Company's or the Company's customers' specifications. In certain instances, these independent suppliers utilize equipment and molds owned by the Company. In certain instances, the Company also utilizes the services of companies which decorate the bottles and other packaging components prior to delivery to the Company or to its contract packagers. The Company usually orders the component materials for its products in bulk quantities directly from the manufacturers of such products for delivery to its manufacturing facilities or to the facilities of the Company's contract packagers. This procedure permits the Company to assure adequate supplies of product components and to benefit from quantity discounts and other economies of scale. Substantially all of the Company's finished products are shipped to the Company's warehouse facilities for later shipment to its customers. See "Item 2. Properties" below. In the view of the Company, an important aspect of its marketing approach and competitive position is its capacity for localized distribution. The ability to store and distribute both manufactured and purchased products in close proximity to the lodging properties served by the Company is a service which the Company believes will assist in providing improved service to its existing customer groups and in attracting new customers. Quality Control - --------------- The Company believes that maintaining the highest standards of quality in all aspects of its operations is an important aspect of its ability to generate customer confidence and to maintain its competitive position. To that end, the Company carries and markets only products that have a reputation for quality and that meet the Company's own quality standards. The Company sends its representatives from time to time to the facilities of its suppliers to inspect and approve the manufacturing and packaging of all products prior to acceptance by the Company for delivery to customers. In addition, certain suppliers of materials 9 to the Company also approve the Company's manufacturing procedures and inspect the packaged products to insure compliance with their own quality standards. The Company has adopted strict quality assurance systems and procedures which it regularly reviews and revises with a view of maintaining the consistency of the quality of its products. The Company adheres to all applicable filling and packaging regulations of the U.S. Food and Drug Administration, as well as others which are not technically applicable to the Company's operations. Proprietary Rights - ------------------ Although the Company follows a policy of protecting its proprietary rights to its products and designs to the full extent legally permissible, it does not believe that its business as a whole is materially dependent upon such protection. Such protection has significance primarily in the Company's marketing efforts. The Company has received protection under federal trademark and copyright laws for certain names used in its business, including Guest Supply(R), Guest Distribution(R), L'avenie(R), Guest Design(R), Institute Swiss(R), Whispermint, Alliance, Evergreen, Botanicals and the Heritage Collection. The Company, from time to time, applies for copyright and design patent protection for the designs of certain bottles and other packaging components designed by the Company. In addition, pursuant to arrangements with the producers of its packaging components, the Company has obtained title to the molds which it has developed for the production of certain bottles and other packaging components. Many of these arrangements restrict these companies from using the Company's molds for anyone other than the Company without the Company's consent. The aggregate net book value of all molds owned by the Company at September 29, 2000 was approximately $1,913,000. Competition - ----------- The business of supplying disposable products, amenities and accessories to the lodging industry and of manufacturing and packaging personal care products for consumer product and retail companies is highly competitive. Important competitive factors include price, product range, distribution capability and product quality and design. The Company competes with companies which offer customized amenity programs and broad lines of customized and uncustomized amenity and personal care products, as well as large distributors of housekeeping and related products. The Company believes that it can compete effectively with these companies in view of the variety and quality of products it offers, the scope and efficiency of customer services, its distribution capability and price. In addition, the Company believes that its ability to offer professional and sophisticated design assistance in formulating customized amenity programs and products for customers enhances its competitive position and distinguishes the Company from most of its competitors. 10 Personnel - --------- As of September 29, 2000, the Company had approximately 1,001 employees. None of the Company's employees is covered by a collective bargaining agreement, and the Company considers its relationship with its employees to be excellent. Executive Officers - ------------------ The current executive officers of the Company are as follows:
Age at Name Position with the Company September 29, 2000 - ---- ------------------------- ------------------ Clifford W. Stanley President, Chief Executive Officer and 54 Chairman of the Board of Directors R. Eugene Biber Vice President - Operations 52 Teri E. Unsworth Vice President - Market Development and 49 Director Paul T. Xenis Vice President - Finance and Secretary 40
Clifford W. Stanley has been President and Chief Executive Officer of the Company since January 1988, a director of the Company since January 1987 and Chairman of the Board of Directors since August 1997. From April 1986 to January 1988, he was Executive Vice President and Chief Financial Officer of the Company. Mr. Stanley joined the Company in August 1985 as Vice President - Finance. From 1984 until joining the Company, Mr. Stanley was Vice President and Chief Operating Officer for Transfer Print Foils, Inc. (hot stamping foils). During the period from 1982 to 1984, he was Vice President of Finance for the Permacel Division of Avery International. From 1979 through 1982, Mr. Stanley was a Vice President of Johnson & Johnson. R. Eugene Biber has been Vice President - Operations of the Company since 1997. Prior to joining the Company, Mr. Biber was Senior Vice President at Dep Corporation from 1988 to 1995. Prior to 1988, Mr. Biber worked for Richardson-Vicks and Procter & Gamble, where he was Director of Manufacturing and Distribution for a hair-care division. Teri E. Unsworth has been Vice President - Market Development since joining the Company in May 1985 and a director of the Company since November 1989. Prior thereto, Ms. Unsworth was employed by Vidal Sassoon, Inc. as Director of Sales from 1979 to 1981, as Product Director from 1981 to 1983 and as Group Product Director from 1983 to 1985. Paul T. Xenis has been Vice President - Finance since May 1994. From April 1984 to May 1994, he was Corporate Controller of the Company. Prior to joining the Company, Mr. Xenis was a senior accountant with KMG Main Hurdman (now part of KPMG LLP) from 1981 to 1984. Mr. Xenis also serves as Secretary of the Company. 11 ITEM 2. PROPERTIES. The Company's executive offices and principal operating facilities are located in Monmouth Junction, New Jersey, where the Company leases approximately 27,100 square feet of space in an office building. The lease expires on December 15, 2006 and provides for three five-year renewal options. In connection with its manufacturing and packaging operations, the Company currently leases a manufacturing facility in Rahway, New Jersey. The manufacturing facility consists of approximately 68,000 square feet of space. The lease for this facility expires in 2010. See "Item 1. Business - Manufacturing, Packaging and Shipping" above. This lease may be cancelled by the Company on 90 days' notice. During fiscal 1997, the Company moved into a newly constructed 226,000 square foot distribution and warehouse facility designed to its specifications in Sayreville, New Jersey. This new facility consolidated all of the Company's then existing New Jersey warehousing facilities. The lease for the facility expires in November 2006. As part of its regional distribution strategy, the Company currently also leases 12 regional warehouses. The warehouses range in size from 18,600 square feet to 103,700 square feet and are located in Ohio (three), Michigan, Indiana, Texas, Florida, Illinois, Maryland, California (two) and Georgia. The leases for these warehouses have expiration dates through 2004. In connection with the acquisition of Nasco, the Company also assumed an operating lease with the previous owners of Nasco for a distribution facility located in North Carolina (120,000 square feet). This lease, which may be terminated by the Company on two years notice, expires in 2012. In 2000, the Company leased two sales support facilities located in California (5,000 square feet) and Tennessee (3,700 square feet). The leases expire through 2005. ITEM 3. LEGAL PROCEEDINGS. From time to time, the Company is party to certain other claims, suits and complaints which arise in the ordinary course of business. Currently, there are no such claims, suits or complaints which, in the opinion of management, would have a material adverse effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. Not applicable. 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock trades on the New York Stock Exchange, Inc. ("NYSE") under the symbol GSY. The table below sets forth the high and low closing prices during each of the last two fiscal years on the NYSE. The approximate number of holders of the Company's common stock at September 29, 2000 was 420. No cash dividends have been declared on the common stock since the Company was organized. Market Price Range - ------------------
Year Ended September 29, 2000 ----------------------------- High Low ---- --- First Quarter $16.250 $13.125 Second Quarter 19.375 14.375 Third Quarter 19.250 16.375 Fourth Quarter 19.500 16.625
Year Ended October 1, 1999 -------------------------- High Low ---- --- First Quarter $12.875 $ 8.125 Second Quarter 11.813 8.625 Third Quarter 13.063 8.625 Fourth Quarter 15.875 13.500
On December 15, 2000, the closing sales price for the Company's common stock was $16.8125 per share. 13 ITEM 6. SELECTED FINANCIAL DATA. Fiscal Years Dollars in thousands except per share amounts - ---------------------------------------------
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Sales(1) $365,928 $303,301 $235,042 $199,551 $177,659 Gross Profit(1) 76,664 61,739 45,530 41,418 36,571 Selling, General and Administrative Expenses(1) 55,994 46,183 37,481 32,636 29,492 Operating Income 20,670 15,556 8,049 8,782 7,079 Net Income 10,448 7,708 3,633 3,816 3,151 Working Capital 59,399 52,240 43,330 39,626 35,223 Total Assets 174,771 161,257 118,107 112,669 102,888 Total Long-Term Liabilities 49,261 50,568 30,996 32,642 28,292 Total Liabilities 106,747 101,790 66,122 66,072 60,485 Total Equity 68,024 59,467 51,985 46,597 42,403 Common Share Data - ----------------- Diluted Earnings Per Share $ 1.44 $ 1.10 $ 0.51 $ 0.55 $ 0.45 Book Value Per Share $ 10.27 $ 9.04 $ 7.95 $ 7.53 $ 6.89
(1) In accordance with the Emerging Issues Task Force Issue No. 00-14, "Accounting for Certain Sales Incentives," the Company has reclassed incentive rebates from Selling, General and Administrative (S,G&A) expenses to Sales and Cost of Sales. The amounts reclassed from S,G&A for years ended 2000, 1999, 1998, 1997 and 1996 were $4,760, $3,328, $2,188, $1,407 and $1,427, respectively, of which $4,316, $2,743, $1,701, $1,366 and $1,383, respectively, was reclassed to sales. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Dollars in thousands except per share amounts General On April 23, 1999, the Company acquired all of the capital stock of Kapadia Enterprises, Inc., d/b/a Nasco Supply Company and MacDonald Contract Sales, Inc. (collectively "Nasco"), a privately held distributor of textile products to the lodging industry for $24,493. The purchase price consisted of (i) $17,755 in cash, (ii) the issuance by the Company of a 5.18% convertible subordinated promissory note in the aggregate principal amount of $5,000 which note is convertible into shares of the Company's common stock at a price of $13.275 per share, (iii) 45,198 shares of the Company's common stock valued at $500, (iv) other liabilities assumed of $500 and, (v) transaction costs of $738. The acquisition has been accounted for under the purchase method of accounting and, accordingly, the results of Nasco are included since the date of acquisition. 14 In accordance with the Emerging Issues Task Force Issue No. 00-14, "Accounting for Certain Sales Incentives," the Company has reclassed incentive rebates from Selling, General and Administrative (S,G&A) expenses to Sales and Cost of Sales. The amounts reclassed from S,G&A for years ended 2000, 1999 and 1998 were $4,760, $3,328 and $2,188, respectively. The majority of the incentive rebates reclassed reduced sales for years reported below. Fiscal 2000 Compared to Fiscal 1999 Sales for the year ended September 29, 2000 increased by 20.7% or $62,627 to $365,928 from $303,301 for the year ended October 1, 1999. Revenues from lodging supply segment customers increased $64,602 or 23.5% to $339,301. Excluding the impact of the Nasco acquisition, sales rose 14.6% 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 2000. 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 $26,627 in 2000 compared to $28,602 in 1999. The decrease of $1,975 or 6.9% was primarily due to non- recurring sales programs for two contract customers in the prior year. Gross profit for the year ended September 29, 2000 was $76,664 or 21.0% of sales compared to $61,739 or 20.4% for the year ended October 1, 1999. The increase in gross profit as a percentage of sales was primarily due to efficiency improvements in the manufacturing segment. This increase was offset by a slight decrease in gross profit percent in lodging supply as a result of an increase in textile sales, arising primarily from the Nasco acquisition, which have a lower margin than other product categories sold to hotels. Excluding the effects of the acquisition, margins in lodging supply increased over the prior year. Selling, general and administrative expenses were $55,994 or 15.3% of sales for the year ended September 29, 2000 compared to $46,183 or 15.2% for the prior year. The increase of $9,811 was due primarily to payroll, sales commissions, and delivery expenses associated with the Company's lodging sales growth and increased operating expenses and amortization of goodwill associated with the Nasco acquisition. Operating income increased $5,114 or 32.9% to $20,670 for the year ended September 29, 2000 from $15,556 last year. Operating income in the lodging supply segment 15 increased 27.3% to $20,965 in 2000 compared with $16,474 in 1999 due principally to higher sales volume and reduced incremental selling, general and administrative costs, offset by lower gross margins. The operating loss in manufacturing was reduced by $623 to a loss of $295 in 2000 from a loss of $918 in 1999 due principally to improved manufacturing efficiencies. The effective tax rate decreased to 38.7% in fiscal 2000 from 40.2% in fiscal 1999. The decrease in the effective tax rate is due principally to a decrease in state income taxes. Overall, net income for 2000 increased 35.5% to $10,448 or $1.44 per diluted share compared to $7,708 or $1.10 per diluted share in 1999. Fiscal 1999 Compared to Fiscal 1998 Sales for the year ended October 1, 1999 increased by 29.0% or $68,259 to $303,301 from $235,042 for the year ended September 30, 1998. Revenues from lodging customers increased $64,219 or 30.5% to $274,699. Excluding the impact of the Nasco acquisition, sales rose 17.8% over the prior year. The increase in sales to lodging supply 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 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 $28,602 in 1999 compared to $24,562 in 1998. The increase of $4,040 or 16.4% was primarily due to increased sales to new customers secured during the latter part of fiscal 1998. Gross profit for the year ended October 1, 1999 was $61,739 or 20.4% of sales compared to $45,530 or 19.4% for the year ended September 30, 1998. The increase in gross profit as a percentage of sales was primarily due to efficiency improvements and increased volume in the manufacturing segment. This increase was offset by a decrease in gross profit percent in lodging supply as a result of an increase in textile sales, arising primarily from the Nasco acquisition, which have a lower margin than other product categories sold to hotels. Excluding the effects of the acquisition, margins in lodging supply increased over the prior year. Selling, general and administrative expenses were $46,183 or 15.2% of sales for the year ended October 1, 1999 compared to $37,481 or 15.9% for the prior year. The increase of $8,702 was due primarily to increased payroll and payroll related costs, delivery expenses, and amortization of goodwill related to the Nasco acquisition. 16 Operating income increased $7,507 or 93.3% to $15,556 for the year ended October 1, 1999 from $8,049 in 1998. Operating income in the lodging supply segment increased 35.3% to $16,474 in 1999 compared to $12,174 in 1998 due principally to higher sales volume to new and existing customers, focused efforts to contain selling, general and administrative costs offset by lower gross margins. Operating results in the manufacturing segment improved by $3,207 to a loss of $918 in 1999 from a loss of $4,125 due principally to higher sales volume and improved manufacturing efficiencies. The effective tax rate increased to 40.2% in fiscal 1999 from 38.4% in fiscal 1998. The increase in effective tax rate is due principally to an increase in the valuation allowance for deferred tax assets and an increase in state income taxes. Overall, net income for 1999 increased by 112.2% to $7,708 or $1.10 per diluted share compared to $3,633 or $0.51 per diluted share in 1998. Liquidity and Capital Resources The Company had $59,399 of working capital at September 29, 2000 compared to $52,240 at October 1, 1999. The increase of $7,159 is the result of an increase in cash and accounts receivable offset by a decrease in inventories and an increase in accounts payable and accrued expenses. Net cash flows from operating activities increased to $13,100 for the fiscal year ended September 29, 2000, compared with $10,043 for the year ended October 1, 1999. The increase was primarily due to higher net earnings and higher levels of depreciation and amortization offset by changes in working capital items during the fiscal year ended September 29, 2000. Net cash flows used in investing activities totaled $6,086 compared with $23,589 in 1999. Included in 1999 was the funding for the Nasco acquisition of $17,962. Capital expenditures for the year were $5,132 versus $4,511 in 1999. In 2000, capital expenditures for the lodging supply and manufacturing segments amounted to $2,323 and $2,809, respectively. Capital expenditures in fiscal 2001 of approximately $4,200 are expected. Net cash flows used in financing activities totaled $4,489 compared with $12,870 provided by financing activities in 1999. In November 1999, the Board of Directors authorized the repurchase of an additional 5% of the Company's outstanding common stock. During the year ended September 29, 2000, the Company purchased a total of 284,100 shares of treasury stock at a cost of $3,826 under this program and a previously approved program. At September 29, 2000, the remaining shares authorized to be repurchased were approximately 275,000. At September 29, 2000, the Company had a $35,000 revolving credit agreement ("Revolver") and $23,889 in senior notes with its banks. Borrowings under the Revolver bear interest at the Eurodollar rate plus 125 basis points (7.62% to 7.77% at September 29, 2000) or the prime rate (9.25% at September 29, 2000), at the Company's option. The unused amount available to the Company under the Revolver was $19,675 at September 29, 2000. 17 The senior notes have fixed interest rates ranging from 6.95% to 7.31% and are due through 2009. Both the Revolver and the senior notes contain restrictive covenants including covenants which limit the Company's ability to incur additional indebtedness, sell certain assets, make acquisitions and other investments and require the Company to comply with various financial ratios specified in the loan agreements. At September 29, 2000, the Company was in default of a covenant which limited the amount of capital expenditures for the year ended September 29, 2000 to $5,000. The Company, which exceeded the covenant by $132, received a waiver for this default from the banks. The Company believes that the amount available under the Revolver 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, as amended, establishes accounting and reporting standards for hedging activities and derivative instruments, including certain derivative instruments embedded in other contracts. SFAS 133 is effective for the Company commencing in the first quarter of fiscal 2001. The Company has reviewed the accounting requirements of SFAS 133, and based on the type and dollar amount of the derivative instrument held by the Company as of September 29, 2000, the Company has concluded that SFAS 133 will not have a material effect on the Company's consolidated results of operations or financial position based on current market conditions. In September 2000, the FASB issued its final consensus on Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs" ("EITF 00-10"). Among other things, EITF 00-10 prohibits the netting of shipping and handling costs against shipping and handling revenues. EITF 00- 10 permits companies to adopt a policy of including shipping and handling costs in cost of sales or in other income statement line items. If shipping or handling costs are significant and are not included in cost of sales, a company is required to disclose both the amounts of such costs and the line items(s) on the income statement that include them. EITF 00-10 will become effective for the Company in the first quarter of fiscal 2001 and upon application, requires reclassification of prior period comparative financial statements. The Company's current policy is to net shipping costs against shipping revenues as a component of selling, general and administrative expenses and to reflect warehousing costs as a component of selling, general and administrative expenses. The Company expects to implement the requirements set forth in the consensus during the first quarter of fiscal 2001. Such implementation will have no effect on net income, but will result in higher reported net sales offset by higher costs of sales. Other 18 At September 29, 2000, the financial liabilities of the Company exposed to changes in interest rates consist mainly of $15,325 in variable rate borrowings outstanding under the Revolver. At September 29, 2000, the Company has an interest rate cap agreement with a notional amount of $11,000, which declines to $6,000 through June 2002, the expiration date of the cap. 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%. Assuming that a hypothetical increase of 1% in interest rates and debt levels were to remain constant, interest expense would increase $153 per year. Included in indebtedness is also $23,889 of fixed rate debt, which is not subject to interest rate risk. Forward Looking Information This Annual Report may contain forward-looking information about the Company. The following factors are some of the most significant factors that may cause the Company's actual results to differ materially from those described in any forward-looking statements made by the Company: a downturn in the lodging industry resulting in lower demand for the Company's products, the loss of or decline in sales to a major customer, failure to secure new business, inefficiencies at the Company's manufacturing facility, the inability to increase prices to customers to compensate for inflationary cost increases, problems implementing the Company's e-commerce initiative, or a decline in sales and gross margin as a result of competitive pressures, including from aggregators on the internet. 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. GUEST SUPPLY, INC. AND SUBSIDIARIES ---------- Consolidated Financial Statements September 29, 2000, October 1, 1999 and September 30, 1998 20 Index to Financial Statements - -----------------------------
Page Number ------ 1. Financial Statements: Independent Auditors' Report............................................................. 22 Consolidated Balance Sheets -- September 29, 2000 and October 1, 1999.................... 23 Consolidated Statements of Income and Comprehensive Income -- Fiscal Years Ended September 29, 2000, October 1, 1999 and September 30, 1998......................... 24 Consolidated Statements of Cash Flows -- Fiscal Years Ended September 29, 2000, October 1, 1999 and September 30, 1998............................... 25 Consolidated Statements of Shareholders' Equity -- Fiscal Years Ended September 29, 2000, October 1, 1999 and September 30, 1998................................ 26 Notes to Consolidated Financial Statements................................................ 27 2. Financial Statement Schedule: II - Valuation and Qualifying Accounts................................................... 38
All other schedules have been omitted because they are inapplicable or the information is provided in the consolidated financial statements, including the notes thereto. 21 Independent Auditors' Report The Board of Directors and Shareholders Guest Supply, Inc.: We have audited the consolidated financial statements of Guest Supply, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Guest Supply, Inc. and subsidiaries as of September 29, 2000 and October 1, 1999 and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended September 29, 2000, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Short Hills, New Jersey November 14, 2000 22
===================================================================================================================== CONSOLIDATED BALANCE SHEETS As of September 29, 2000 and October 1, 1999 Dollars in thousands 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 4,460 $ 2,200 Accounts receivable, net of allowance for doubtful accounts of $1,349 - 2000 and $1,076 - 1999 55,780 43,471 Inventories 51,409 53,937 Deferred income taxes 1,969 1,626 Prepaid expenses and other current assets 3,267 2,228 - --------------------------------------------------------------------------------------------------------------------- Total current assets 116,885 103,462 Property and equipment, net of accumulated depreciation and 34,136 33,593 amortization Other assets 3,191 2,387 Excess of cost over net assets acquired, net of accumulated amortization of $6,513 - 2000 and $5,257 - 1999 20,559 21,815 - --------------------------------------------------------------------------------------------------------------------- $174,771 $161,257 ===================================================================================================================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued expenses $ 56,000 $ 50,111 Current maturities of long-term debt 1,486 1,111 - --------------------------------------------------------------------------------------------------------------------- Total current liabilities 57,486 51,222 - --------------------------------------------------------------------------------------------------------------------- Long-term debt 37,728 39,789 Convertible note payable to related party 5,000 5,000 Deferred income taxes 6,533 5,779 - --------------------------------------------------------------------------------------------------------------------- Total long-term liabilites 49,261 50,568 - --------------------------------------------------------------------------------------------------------------------- Commitments and contingencies Shareholders' equity: Preferred stock - without par value; authorized 1,000,000 shares, outstanding none Common stock - without par value; at stated value; 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 27,849 20,559 Treasury stock - 48,514 shares - 2000 and 95,178 shares - 1999 , (736) (1,091) at cost Accumulated other comprehensive income (loss) (107) 158 - --------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 68,024 59,467 - --------------------------------------------------------------------------------------------------------------------- $174,771 $161,257 =====================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 23
================================================================================================================================== CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Years ended September 29, 2000, October 1, 1999 and September 30, 1998 Dollars in thousands except per share amounts 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Sales $365,928 $303,301 $235,042 Cost of sales 289,264 241,562 189,512 - ---------------------------------------------------------------------------------------------------------------------------------- Gross profit 76,664 61,739 45,530 Selling, general and administrative expenses 55,994 46,183 37,481 - ---------------------------------------------------------------------------------------------------------------------------------- Operating income 20,670 15,556 8,049 Interest and other income 47 63 76 Interest expense 3,672 2,737 2,225 - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 17,045 12,882 5,900 Income tax expense 6,597 5,174 2,267 - ---------------------------------------------------------------------------------------------------------------------------------- Net income $ 10,448 $ 7,708 $ 3,633 ================================================================================================================================== Earnings per common share: Basic $1.60 $1.19 $0.56 ================================================================================================================================== Diluted $1.44 $1.10 $0.51 ================================================================================================================================== Comprehensive Income: Net income $ 10,448 $ 7,708 $ 3,633 Other comprehensive income (loss) - foreign currency translation adjustment (265) 318 (130) - ---------------------------------------------------------------------------------------------------------------------------------- Comprehensive income $ 10,183 $ 8,026 $ 3,503 ==================================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 24
========================================================================================================================= CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended September 29, 2000, October 1, 1999 and September 30, 1998 Dollars in thousands 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 10,448 $ 7,708 $ 3,633 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,859 5,008 4,302 Provision for losses on accounts receivable 892 858 497 Loss on sale of fixed assets - - 17 Deferred income tax expense 411 656 539 Change in assets and liabilities, net of effects of business acquired: Increase in accounts receivable (13,201) (819) (4,122) Decrease (increase) in inventories 2,528 (7,468) (3,313) (Increase) decrease in prepaid expenses and other current assets (956) 787 962 Decrease (increase) in other assets 67 81 (28) Increase in accounts payable and accrued expenses 7,052 3,232 2,633 - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 13,100 10,043 5,120 ========================================================================================================================= Cash flows from investing activities: Capital expenditures (5,132) (4,511) (4,126) Acquisition, net of cash acquired - (17,962) - Increase in other assets (954) (1,139) (215) Proceeds from sale of fixed assets - 23 12 - ------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (6,086) (23,589) (4,329) ========================================================================================================================= Cash flows from financing activities: Proceeds from revolving credit agreements 77,420 65,837 56,705 Repayment on revolving credit agreements (77,995) (51,063) (73,196) Payment of debt issuance costs - (208) - Proceeds from issuance of long-term debt - - 25,000 Repayment of long-term debt (1,111) - (10,937) Purchase of treasury stock (3,826) (2,582) (1,422) Proceeds from the exercise of stock options and warrants 1,023 886 1,595 - ------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (4,489) 12,870 (2,255) ========================================================================================================================= Foreign currency translation adjustments (265) 318 (130) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 2,260 (358) (1,594) Cash and cash equivalents at beginning of year 2,200 2,558 4,152 - ------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 4,460 $ 2,200 $ 2,558 ========================================================================================================================= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 3,556 $ 2,681 $ 1,908 Income taxes, net of refunds 4,732 1,449 1,090 Supplemental schedule of non-cash financing and investing activities: Convertible note and common stock issued in connection with - 5,500 - acquisition
The accompanying notes are an integral part of these consolidated financial statements 25
==================================================================================================================== CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended September 29, 2000, October 1, 1999 and September 30, 1998 Common Stock Accumulated ------------------------ Additional Other Number of Amount Paid-In Retained Treasury Comprehensive Dollars in thousands Shares Capital Earnings Stock Income (loss) - -------------------------------------------------------------------------------------------------------------------- Balance, September 30, 1997 6,190,307 $546 $35,336 $10,745 - $ (30) Net income - - - 3,633 - - Purchase of treasury stock (135,800) - - - $(1,422) - Shares issued under employee stock option, warrant and purchase plans 481,331 48 1,547 - - - Tax benefit on exercise of stock options and warrants - - 1,712 - - - Foreign currency translation adjustment - - - - - (130) - -------------------------------------------------------------------------------------------------------------------- Balance, September 30, 1998 6,535,838 594 38,595 14,378 (1,422) (160) Net income - - - 7,708 - - Purchase of treasury stock (250,300) - - - (2,582) - Shares issued in connection with acquisition 45,198 - 82 - 418 - Shares issued under employee stock option, warrant and purchase plans 245,724 - (82) (1,527) 2,495 - Tax benefit on exercise of stock options and warrants - - 652 - - - Foreign currency translation adjustment - - - - - 318 - -------------------------------------------------------------------------------------------------------------------- Balance, October 1, 1999 6,576,460 594 39,247 20,559 (1,091) 158 Net income - - - 10,448 - - Purchase of treasury stock (284,100) - - - (3,826) - Shares issued under employee stock option, warrant and purchase plans 330,764 - - (3,158) 4,181 - Tax benefit on exercise of stock options and warrants - - 1,177 - - - Foreign currency translation adjustment - - - - - (265) - -------------------------------------------------------------------------------------------------------------------- Balance, September 29, 2000 6,623,124 $594 $40,424 $27,849 $(736) $(107) ====================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements 26 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dollars in thousands except share and per share amounts Business Description The Company operates principally as a manufacturer, packager and distributor of personal care guest amenities, housekeeping supplies, room accessories and textiles to the lodging industry. The Company also manufactures and packages products for major consumer products and retail companies. Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include the accounts of Guest Supply, Inc. and all of its subsidiaries ("the Company"), each of which is wholly owned. All significant intercompany transactions and balances are eliminated in consolidation. Fiscal Year - Effective October 1, 1998, the Company adopted a 52 or 53 week fiscal year, changing the year end date from September 30 to the Friday nearest September 30. The fiscal year ended September 29, 2000 had 52 weeks and the fiscal year ended October 1, 1999 had 53 weeks. Risks and Uncertainties - The Company's revenues are dependent on the continued operation of its manufacturing facility and its various distribution centers. The operation of these facilities involves many risks, including the breakdown, failure or substandard performance of equipment, natural disasters and the need to comply with directives of governmental agencies. The occurrence of material operational problems, including but not limited to the above events, may have a material adverse effect on the productivity and profitability of a particular facility or with respect to certain facilities, the Company, as a whole during the period of such operational difficulty. In addition, other factors may cause the Company's results to differ materially from historic levels. Some of the most significant factors include a 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, pricing pressures, and unforeseen inefficiencies at the Company's manufacturing facility. Foreign Currency Translation - Assets and liabilities of the Company's foreign subsidiaries are translated into US dollars at current exchange rates, while revenues and expenses are translated at average exchange rates during each reporting period. Adjustments resulting from translation of financial statements are reported as a separate component of shareholders' equity. Use of Estimates - In conformity with generally accepted accounting principles, the preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition - The Company recognizes revenue at the time the goods are shipped or title has passed. Sales Incentives - The Company records incentives paid to its customers as reductions to sales. Reclassifications - In accordance with the Emerging Issues Task Force Issue No. 00-14, "Accounting for Certain Sales Incentives," the Company has reclassed sales incentives from Selling, General and Administrative (S,G&A) expenses to sales. In addition, certain other S,G&A costs were reclassed to cost of sales. The amounts reclassed from S,G&A for fiscal years 2000, 1999, and 1998 were $4,760, $3,328 and $2,188, respectively, of which $4,316, $2,743 and $1,701, respectively, were reclassed to sales. Inventories - Inventories are stated at the lower of cost or market. Cost is determined using the weighted-average and first-in, first-out methods. Property and Equipment - Property and equipment are carried at cost. Depreciation and amortization are calculated for financial reporting purposes using the straight-line method based on the estimated useful lives of the assets as follows: buildings, 40 years; machinery and equipment, 3 to 15 years; furniture and fixtures, 3 to 8 years; computers, 3 to 10 years; and leasehold improvements, the shorter of the life of the lease or the life of the asset. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. Investments - 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. Excess of Cost Over Net Assets Acquired - Excess of cost over net assets acquired is being amortized using the straight-line method over a period of up to 25 years. The Company continually evaluates the amortization period of its intangible assets. Estimates of useful lives are revised when circumstances or events indicate that the original estimate is no longer appropriate. Earnings Per Share - Basic earnings per share is calculated based on the weighted average number of common shares outstanding. Diluted earnings per share includes the dilutive effect of stock options, warrants and convertible debt, and is adjusted, if applicable, for the effect on net earnings of such transactions. 27 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Dollars in thousands except share and per share amounts Financial Instruments - The carrying values of financial instruments (principally cash and cash equivalents, accounts receivable, certain other assets, accounts payable and long-term debt) included in the Company's consolidated balance sheets approximated their fair values at September 29, 2000 and October 1, 1999. Fair values were determined based on management's estimates using the latest available market data. The Company also uses a derivative financial instrument to manage interest rate fluctuations. The Company does not hold or issue derivative financial instruments for trading purposes. Concentration of Credit Risk - The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. As of September 29, 2000 and October 1, 1999, one customer accounted for 7.9% and 5.2%, respectively, of the Company's total accounts receivable. Income Taxes - Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements' carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Statements of Cash Flows - For purposes of reporting cash flows, cash and cash equivalents include cash on hand and certificates of deposit with a maturity at time of purchase of three months or less. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell. Stock-Based Compensation - The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price at the date of the grant over the amount an employee must pay to acquire the stock. Because the Company grants options at a price equal to the market price of the stock at the date of grant, no compensation expense is recorded. As required by Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the Company discloses pro forma net income and earnings per share as if the fair value method had been applied. Comprehensive Income - The Company reports comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income consists of net income and foreign currency translation adjustments and is presented in the consolidated statements of income and comprehensive income. The Statement requires only additional disclosures in the consolidated financial statements; it does not affect the Company's financial position or results of operations. Recently Issued Accounting Standards - In September 2000, the Financial Accounting Standards Board issued its final consensus on Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs" ("EITF 00-10"). Among other things, EITF 00-10 prohibits the netting of shipping and handling costs against shipping and handling revenues. EITF 00-10 permits companies to adopt a policy of including shipping and handling costs in cost of sales or in other income statement line items. If shipping or handling costs are significant and are not included in cost of sales, a company is required to disclose both the amounts of such costs and the line item(s) on the income statement that includes them. EITF 00-10 will become effective for the Company in the first quarter of fiscal 2001 and, upon application, requires reclassification of prior period comparative financial statements. The Company's current policy is to net shipping costs against shipping revenues as a component of selling, general and administrative expenses and to reflect warehousing costs as a component of selling, general and administrative expenses. The Company expects to implement the requirements set forth in the consensus during the first quarter of fiscal 2001. Such implementation will have no effect on net income, but will result in higher reported net sales offset by higher cost of sales. 28 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Dollars in thousands except share and per share amounts 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. The purchase price has been allocated based upon estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired of $17,762 has been recorded as goodwill, and is being amortized on a straight-line basis over 20 years. In connection with the acquisition, the Company also assumed an operating lease with the previous owners of Nasco for a distribution facility. The future minimum rental commitments under this lease, which may be terminated by the Company on two years notice, is approximately $400 per year, subject to annual increases for inflation, through 2012. The following unaudited pro forma information presents a summary of the consolidated results of operations of the Company as if the acquisition of Nasco had occurred at the beginning of the periods presented. These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments such as additional goodwill amortization expense, interest expense, and income tax expense. They do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred at the beginning of the periods presented or of future results of operations.
1999 1998 - --------------------------------------------------------------------------------------------------------------------------- Sales $338,697 $229,657 Net income $ 7,897 $ 4,755 Earnings per common share: Basic $ 1.22 $ 0.73 Diluted $ 1.10 $ 0.65 Inventories 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Raw materials $ 6,031 $ 7,126 Finished goods 45,378 46,811 - -------------------------------------------------------------------------------------------------------------------------- $ 51,409 $ 53,937 ========================================================================================================================== Costs included in inventories are comprised of raw materials, direct labor and overhead related to the manufacturing process. Property and Equipment 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ Land, building and leasehold improvements $ 7,027 $ 6,619 Machinery and equipment 48,838 45,712 Furniture and fixtures 1,853 1,563 Computers 3,877 3,014 Construction in progress 1,294 872 - ------------------------------------------------------------------------------------------------------------------------ 62,889 57,780 Less accumulated depreciation and amortization (28,753) (24,187) - ------------------------------------------------------------------------------------------------------------------------ $ 34,136 $ 33,593 ========================================================================================================================
Depreciation and amortization of property and equipment charged to income was $4,603, $4,270 and $3,934 for the fiscal years ended 2000, 1999 and 1998, respectively . 29 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Dollars in thousands except share and per share amounts Leases The Company leases its office, warehouse facilities and vehicles under long-term lease agreements. These leases are classified as operating leases and expire in various years through fiscal 2007. Future minimum lease payments under noncancelable operating leases as of September 29, 2000 are: 2001 $ 6,351 2002 5,502 2003 4,727 2004 3,547 2005 1,799 Thereafter 771 - -------------------------------------------------------- Total minimum lease payments $22,697 ========================================================
Rent expense under operating leases was $7,408, $5,940, and $4,737 for the fiscal years ended 2000, 1999, and 1998, respectively. Income Taxes Income tax expense is comprised of the following:
2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Federal - Current $5,623 $4,066 $1,334 - Deferred 199 439 893 - ------------------------------------------------------------------------------------------------------------------------- Total federal income taxes 5,822 4,505 2,227 - ------------------------------------------------------------------------------------------------------------------------- State - Current 427 413 369 - Deferred 212 217 (354) - ------------------------------------------------------------------------------------------------------------------------- Total state income tax 639 630 15 - ------------------------------------------------------------------------------------------------------------------------- Foreign 136 39 25 - ------------------------------------------------------------------------------------------------------------------------- Total income tax provision $6,597 $5,174 $2,267 =========================================================================================================================
The following is a reconciliation of federal income tax expense computed using the statutory rate of 35% in 2000 and 1999 and 34% in 1998 to the Company's effective income tax rate: 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Computed "expected" income tax expense $5,966 $4,509 $2,006 Increase (reduction) in tax expense resulting from: State income taxes, net of federal income tax benefit 221 117 (112) Change in valuation allowance 300 450 350 Nondeductible amortization of goodwill 129 129 125 Foreign (120) (41) 25 Effect of income tax rate differential - (100) - Adjustment to net deferred taxes for change in effective state income - - (165) tax rate Other, net 101 110 38 - ------------------------------------------------------------------------------------------------------------------------- $6,597 $5,174 $2,267 =========================================================================================================================
30 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Dollars in thousands except share and per share amounts The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at September 29, 2000 and October 1, 1999 are as follows:
2000 1999 - ------------------------------------------------------------------------------------------------------------------------ Deferred tax assets: Allowance for doubtful accounts $ 511 $ 413 Inventory obsolescence reserve and uniform capitalization 1,250 1,092 Net operating loss carryforwards - states 1,308 1,198 Other 208 121 - ------------------------------------------------------------------------------------------------------------------------ Gross deferred tax assets 3,277 2,824 Less: valuation allowance (1,100) (800) - ------------------------------------------------------------------------------------------------------------------------ Net deferred tax assets 2,177 2,024 Deferred tax liability - principally excess of tax over financial statement depreciation (6,741) (6,177) - ------------------------------------------------------------------------------------------------------------------------ Net deferred liability $(4,564) $(4,153) ========================================================================================================================
The valuation allowance, which relates to the Company's state net operating loss carryforwards, amounted to $1,100 and $800 as of September 29, 2000 and October 1, 1999, respectively. The net change in the total valuation allowance for the fiscal years ended September 29, 2000 and October 1, 1999 was an increase of $300 and $450, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the tax deferred assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income, projections for future taxable income and the availability of tax planning strategies to prevent the tax net operating loss carryforwards from expiring unused, management believes that it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at September 29, 2000. The amount of the net deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. At September 29, 2000, the Company has net operating loss carryforwards for state income tax purposes of approximately $21,800 which expire between the years 2003 and 2007. Indebtedness Indebtedness consists of the following at September 29, 2000 and October 1, 1999: 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ Revolving credit agreement $15,325 $15,900 Series A senior notes payable; 7.31%; due in semi-annual installments through November, 2009 15,000 15,000 Series B senior notes payable; 7.20%; due in semi-annual installments through November, 2007 5,000 5,000 Series C senior notes payable; 6.95%; due in semi-annual installments through November, 2003 3,889 5,000 Convertible subordinated promissory note; 5.18%; due March, 2004 5,000 5,000 - ------------------------------------------------------------------------------------------------------------------------------ 44,214 45,900 Less current maturities (1,486) (1,111) - ------------------------------------------------------------------------------------------------------------------------------ $42,728 $44,789 ==============================================================================================================================
31 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Dollars in thousands except share and per share amounts At September 29, 2000, the Company had a $35,000 revolving credit agreement ("Revolver") with its banks. Borrowings under the Revolver are limited to agreed upon levels of eligible accounts receivable and inventory and bear interest at the Eurodollar rate plus 125 basis points (7.62% to 7.77% at September 29, 2000) or the prime rate (9.25% at September 29, 2000), at the Company's option. The unused amount available to the Company under the Revolver was $19,675 at September 29, 2000. Both the Revolver and the senior notes are secured by substantially all of the assets of the Company and contain restrictive covenants including covenants which limit the Company's ability to incur additional indebtedness, sell certain assets, make acquisitions and other investments and require the Company to comply with various financial ratios specified in the loan agreements. At September 29, 2000, the Company was in default of a covenant which limited the amount of capital expenditures for the fiscal year to $5,000. The Company, which exceeded the covenant by $132, received a waiver for this default from the banks. At September 29, 2000, the Company has an interest rate cap agreement ("cap") with an initial notional amount of $11,000 which declines to $6,000 through June 2002, the expiration date of the cap. 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%. The convertible subordinated promissory note issued to the former owner of Nasco, who is currently employed by the Company, is convertible into shares of the Company's common stock at $13.275 per share. Indebtedness at September 29, 2000 matures as follows: 2001 $ 1,486 2002 3,376 2003 3,626 2004 8,070 2005 18,415 Thereafter 9,241 =======================================================
Litigation From time to time, the Company is a party to legal actions arising in the ordinary course of business. Management believes that such litigation and claims will be resolved without material effects on the Company's consolidated financial statements taken as a whole. Earnings Per Share Earnings per share is calculated as follows: 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Basic EPS Net income $ 10,448 $ 7,708 $ 3,633 - ------------------------------------------------------------------------------------------------------------------------- Weighed average common shares outstanding 6,546,000 6,463,000 6,489,000 - ------------------------------------------------------------------------------------------------------------------------- Basic EPS $ 1.60 $ 1.19 $ 0.56 ========================================================================================================================= Diluted EPS Net income $ 10,448 $ 7,708 $ 3,633 Effect of convertible promissory note 159 68 - - ------------------------------------------------------------------------------------------------------------------------- Adjusted net income $ 10,607 $ 7,776 $ 3,633 ========================================================================================================================= Weighted average common shares outstanding 6,546,000 6,463,000 6,489,000 Effect of dilutive stock options and warrants 453,000 438,000 636,000 Effect of convertible promissory note 377,000 163,000 - - ------------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding assuming dilution 7,376,000 7,064,000 7,125,000 - ------------------------------------------------------------------------------------------------------------------------- Diluted EPS $ 1.44 $ 1.10 $ 0.51 =========================================================================================================================
32 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Dollars in thousands except share and per share amounts Options to purchase 51,000, 84,000 and 86,000 shares of common stock at an average price of $17.43, $15.35 and $15.36 per share at September 29, 2000, October 1, 1999 and 1998, respectively were anti-dilutive and are not included in the calculations of diluted earnings per share because the option exercise price was greater than the average market price of common shares of each respective period. Stock Based Compensation Plans The Company has two stock option plans which provide for the granting of options to key employees. Options granted under these plans are to purchase shares of common stock at not less than fair market value at the date of grant. Options vest 20% per year over five years and generally expire ten years from the date of grant. The Company also maintains a long-term incentive plan which provides for the granting of a wide range of awards, including options, stock appreciation rights, restricted stock, performance awards and other stock-based awards to any employee or director. The terms of awards granted under this plan may vary at the discretion of the Stock Option Committee. All awards granted under this plan consisted of stock options. At September 29, 2000, 177,449 shares are available for future grants. Transactions relating to these plans are summarized as follows: 2000 1999 1998 ----------------------------- ----------------------------- ----------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ============================= ============================= ============================= Outstanding at beginning of year 787,300 $ 8.16 828,000 $ 7.16 1,042,300 $6.31 Granted 76,000 16.36 105,000 9.56 - - Exercised (114,000) 6.22 (144,500) 3.37 (214,300) 3.00 Forfeited (5,000) 14.73 (1,200) 16.25 - - --------------------------------------------------------------------------------------------- Outstanding at end of year 744,300 $ 9.25 787,300 $ 8.16 828,000 $7.16 ============================= ============================= ============================= Exercisable at end of year 557,967 $ 8.04 619,500 $ 7.42 731,400 $6.38 ============================= ============================= ============================= Weighted average fair value of options granted during the year $ 9.36 $ 5.47 =========== ===========
The fair value of each stock option granted during 2000 and 1999 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected life of 7.0 years; expected volatility of 45%; expected dividend yield of 0%; and risk-free interest rate of 6.5%. The following table summarizes information about stock options outstanding and exercisable at September 29, 2000:
Options Options Outstanding Exercisable =================================================================== Weighted Average Weighted Weighted Remaining Average Average Number Contractual Exercise Number Exercise Range of Exercise Prices Outstanding Life Price Exercisable Price =============================================================================================================== $ 2.67 - $ 3.75 57,750 .4 years $ 2.67 57,750 $ 2.67 4.67 - 5.75 184,750 2.4 years 4.69 184,750 4.69 9.50 - 11.50 346,000 5.5 years 9.82 251,667 9.88 14.19 - 17.63 154,000 7.4 years 15.92 63,800 15.37 - --------------------------------------------------------------------------------------------------------------- 742,500 5.0 years $ 9.25 557,967 $ 8.04 ===============================================================================================================
The Company also maintains an employee stock purchase plan in which eligible employees may purchase a limited number of shares over successive six-month offering periods at 85% of fair market value on either the first or last day of each six-month period, 33 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Dollars in thousands except share and per share amounts whichever is less. During fiscal 2000, 1999 and 1998, 12,228, 11,224, and 12,031,shares, respectively, were purchased under this plan. At September 29, 2000, 44,865 shares are reserved for future issuance under this plan. Under SFAS No. 123, proforma compensation cost is measured for the fair value of the employees' purchase rights, which was estimated using the Black-Scholes model with the following assumptions; expected life of 6 months; expected volatility of 35% in 2000, 45% in 1999, and 48% in 1998; expected dividend yield of 0%; and risk-free interest rate of 6.5%. The weighted average fair-value of those purchase rights granted in 2000, 1999, and 1998 was $2.89, $3.13, and $3.04, respectively. The Company has adopted the disclosure-only provisions of SFAS No. 123 and applies APB Opinion No. 25, and related interpretations in accounting for its plans and, accordingly, has not recognized compensation cost for stock option plans and stock purchase plans in its financial statements. Had the Company determined compensation cost based on the fair value at the grant date consistent with the provisions of SFAS No. 123, the Company's net income would have been changed to the pro forma amounts indicated below: 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Net income: As reported $10,448 $7,708 $3,633 Pro forma 10,156 7,521 3,483 Basic earnings per share: As reported $ 1.60 $ 1.19 $ 0.56 Pro forma 1.55 1.16 0.54 Diluted earnings per share: As reported $ 1.44 $ 1.10 $ 0.51 Pro forma 1.40 1.07 0.49
Common Stock Warrants The Board of Directors may grant common stock warrants to directors and officers of the Company at exercise prices not less than fair market value at the date of grant. All outstanding warrants expire through February 2001. Transactions relating to common stock warrants are summarized as follows: 2000 1999 1998 ------------------------------ ----------------------------- ----------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - ----------------------------------------------------------------- ----------------------------- ----------------------------- Outstanding at beginning of year 396,750 $2.98 486,750 $3.02 741,750 $3.11 Exercised (243,750) 3.17 (90,000) 3.17 (255,000) 3.29 ------------------------------ ----------------------------- ----------------------------- Outstanding at end of year 153,000 $2.68 396,750 $2.98 486,750 $3.02 ============================== ============================= ============================= Exercisable at year end 153,000 $2.68 396,750 $2.98 486,750 $3.02 ============================== ============================= =============================
Stock Repurchase Plan In November 1999, the Board of Directors authorized the repurchase of an additional 5% of the Company's outstanding common stock. During the year ended September 29, 2000, the Company purchased a total of 284,100 shares of treasury stock at a cost of $3,826 under this program and a previously approved program. At September 29, 2000, the remaining shares authorized to be repurchased were approximately 275,000. Employee Benefit Plan The Company has a 401(k) Salary Reduction Plan under which the Company usually matches a portion of the amount of contributions made by the employee. All domestic employees with one year of continuous service are eligible for the plan. Company matching contributions are 100% vested, as are any contributions made by the employee. The Company may also make, at its sole discretion, annual discretionary contributions, which vest over a six-year period. The Company has not made any discretionary contributions. Employer contributions relating to these plans were $271, $247 and $226, for the fiscal years ended 2000, 1999 and 1998, respectively. 34 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Dollars in thousands except share and per share amounts Business Segments The Company has two reportable segments (Lodging Supply and Manufacturing) in accordance with SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." 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 as those described in the summary of significant accounting policies. Intersegment sales are accounted for at prices that management estimates approximate arm's-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 for the fiscal years 2000, 1999 and 1998 are as follows:
Lodging Total Supply Manufacturing Segments - --------------------------------------------------------------------------------------------- 2000 Sales to external customers $339,301 $26,627 $365,928 Intersegment sales - 11,862 11,862 - --------------------------------------------------------------------------------------------- Total sales 339,301 38,489 377,790 Operating income (loss) 20,965 (295) 20,670 Identifiable assets 149,198 31,019 180,217 Capital expenditures 2,323 2,809 5,132 Depreciation and amortization 2,929 2,930 5,859 - --------------------------------------------------------------------------------------------- 1999 Sales to external customers $274,699 $28,602 $303,301 Intersegment sales - 12,036 12,036 - --------------------------------------------------------------------------------------------- Total sales 274,699 40,638 315,337 Operating income (loss) 16,474 (918) 15,556 Identifiable assets 135,693 29,437 165,130 Capital expenditures 2,096 2,415 4,511 Depreciation and amortization 2,163 2,845 5,008 - --------------------------------------------------------------------------------------------- 1998 Sales to external customers $210,480 $24,562 $235,042 Intersegment sales - 9,896 9,896 - --------------------------------------------------------------------------------------------- Total sales 210,480 34,458 244,938 Operating income (loss) 12,174 (4,125) 8,049 Identifiable assets 89,329 31,571 120,900 Capital expenditures 1,599 2,527 4,126 Depreciation and amortization 1,524 2,778 4,302 - ---------------------------------------------------------------------------------------------
35 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Dollars in thousands except share and per share amounts The following table provides a reconciliation of selected segment information to corresponding amounts contained in the Company's Consolidated Financial Statements: 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- Sales: Sales from reportable segments $377,790 $315,337 $244,938 Elimination of intersegment revenue (11,862) (12,036) (9,896) - ----------------------------------------------------------------------------------------------------------------------------- Total consolidated sales $365,928 $303,301 $235,042 ============================================================================================================================= Total assets: Identifiable assets from reportable segments $180,217 $165,130 $120,900 Elimination of intersegment receivables (7,415) (5,499) (4,166) Other unallocated amounts 1,969 1,626 1,373 - ----------------------------------------------------------------------------------------------------------------------------- Total consolidated assets $174,771 $161,257 $118,107 =============================================================================================================================
Two lodging supply segment customers accounted for 15.0% and 14.8% of the Company's total sales in 2000. One lodging supply segment customer accounted for 15.3% and 15.5% of the total sales in 1999 and 1998, respectively. Substantially all of the Company's operations are in the United States. Operations outside of the United States, which include subsidiaries in Canada, England and New Zealand, are not significant to the consolidated operations of the Company. Shareholders' Preferred Purchase Rights On July 14, 1988, as amended on August 6, 1997, the Board of Directors of the Company declared a dividend of one preferred share purchase right for each outstanding share of common stock of the Company and for each share of common stock issued from that date. The dividend was payable on July 26, 1988 to the shareholders of record on that date. Each right entitles the registered holder to purchase from the Company one one- hundredth of a preferred share at a price of $30.00, subject to adjustment. The rights agreement provides that, until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons have acquired beneficial ownership of 20% or more of the outstanding common stock, or (ii) 10 days following the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 20% or more of such outstanding common stock, the rights will be transferred with and only with the common stock. Each holder of a right will in such event have the right to receive shares of the Company's common stock having a market value of two times the exercise price of the right, which has been set at $30.00; and in the event that the Company is acquired in a merger or other business combination, or if more than 50% of its assets or earning power is sold, each holder of a right would have the right to receive common stock of the acquiring company with a market value of two times the exercise price of the right. Following the occurrence of any of these events, any rights that are beneficially owned by any acquiring person will immediately become null and void. The rights are not exercisable until the earlier of such date as described above and will expire on July 15, 2008, unless the final expiration date is extended or the rights are earlier redeemed by the Company at $.01 per right. 36 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued Dollars in thousands except share and per share amounts Unaudited Quarterly Financial Data The following table sets forth certain unaudited quarterly financial information:
First Second Third Fourth Year ended September 29, 2000 Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------- Sales (1) $79,190 $81,737 $100,370 $104,631 Gross profit (1) 16,425 16,679 20,895 22,665 Net income 1,822 1,480 3,206 3,940 Earnings per common share: Basic $ 0.28 $ 0.23 $ 0.49 $ 0.59 Diluted $ 0.26 $ 0.21 $ 0.44 $ 0.54 Year ended October 1, 1999 - ------------------------------------------------------------------------------------------------------------------------- Sales (1) $62,284 $64,145 $ 85,872 $ 91,000 Gross profit (1) 11,725 12,697 17,954 19,363 Net income 764 817 2,823 3,304 Earnings per common share: Basic $ 0.12 $ 0.13 $ 0.43 $ 0.50 Diluted $ 0.11 $ 0.12 $ 0.39 $ 0.45
(1) In accordance with the Emerging Issues Task Force Issue No. 00-14, "Accounting for Certain Sales Incentives," the Company has reclassed incentive rebates from Selling, General and Administrative (S,G&A) expenses to Sales. In addition, certain other S,G&A costs were reclassed to cost of sales. The amounts reclassed to sales for the first, second, third and fourth quarters of fiscal 2000 were $901, $950, $1,110 and $1,355, respectively. The amounts reclassed from S,G&A to Sales for the first, second, third and fourth quarters of fiscal 1999 were $635, $480, $677 and $951, respectively. 37 GUEST SUPPLY, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E - ------------------------------- ---------- -------------------------- ---------- -------------- Description Balance at Charged to Charged to Beginning Costs and Other Balance at End Period Expenses Accounts Deductions of Period - ------------------------------- ---------- ---------- -------------- ---------- -------------- Reserves and allowances deducted from asset accounts: Allowance for Doubtful Accounts - ------------------------------- Year ended September 29, 2000 $1,076,000 892,000 0 619,000 $ 1,349,000 ========== ========= ============== ========== ============== Year ended October 1, 1999 $ 543,000 858,000 259,000 584,000 $ 1,076,000 ========== ========= ============== ========== ============== Year ended September 30, 1998 $1,032,000 497,000 0 986,000 $ 543,000 ========== ========= ============== ========== ============== Allowance for Inventory Obsolescence - ------------------------------- Year ended September 29, 2000 $1,415,000 1,128,000 0 981,000 $ 1,562,000 ========== ========= ============== ========== ============== Year ended October 1, 1999 $1,550,000 1,491,000 100,000 1,726,000 $ 1,415,000 ========== ========= ============== ========== ============== Year ended September 30, 1998 $1,934,000 1,152,000 0 1,536,000 $ 1,550,000 ========== ========= ============== ========== ==============
38 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 39 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. For information concerning this item, see "Item 1. - Business - Executive Officers" and the table and text under the caption "Certain Information Concerning Nominees and Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" of the Proxy Statement to be filed with respect to the 2001 Annual Meeting of Shareholders (the "Proxy Statement"), which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. For information concerning this item, see the table and text under the captions "Executive Compensation," "Compensation of Directors," "Compensation Committee Interlocks and Insider Participation" and "Employment Agreements" of the Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. For information concerning this item, see the table and text under the caption "Information Concerning Certain Shareholders" of the Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS RELATED TRANSACTIONS. For information concerning this item, see the text under the caption "Compensation Committee Interlocks and Insider Participation" of the Proxy Statement, which information is incorporated herein by reference. 40 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements: Included in Part II of this report:
Page Number ------ 1. Independent Auditors' Report....................................................... 22 Consolidated Balance Sheets -- September 29, 2000 and October 1, 1999.............. 23 Consolidated Statements of Income and Comprehensive Income -- Fiscal Years Ended September 29, 2000, October 1, 1999 and September 30, 1998................... 24 Consolidated Statements of Cash Flows -- Fiscal Years Ended September 29, 2000, October 1, 1999 and September 30, 1998......................... 25 Consolidated Statements of Shareholders' Equity -- Fiscal Years Ended September 29, 2000, October 1, 1999 and September 30, 1998......................... 26 Notes to Consolidated Financial Statements......................................... 27 2. Financial Statement Schedule: II - Valuation and Qualifying Accounts............................................. 38 All other schedules have been omitted because they are inapplicable or the information is provided in the consolidated financial statements, including the notes thereto. 3. Exhibits: The exhibits required to be filed as part of this Annual Report on Form 10-K are listed in the attached Index to Exhibits. (b) Current Reports on Form 8-K: The Company filed a report on Form 8-K on December 19, 2000.
41 POWER OF ATTORNEY The registrant and each person whose signature appears below hereby appoint Clifford W. Stanley and Thomas M. Haythe as attorneys-in-fact with full power of substitution, severally, to execute in the name and on behalf of the registrant and each such person, individually and in each capacity stated below, one or more amendments to the annual report which amendments may make such changes in the report as the attorney-in-fact acting in the premises deems appropriate and to file any such amendment to the report with the Securities and Exchange Commission. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: December 22, 2000 GUEST SUPPLY, INC. By /s/ Clifford W. Stanley ----------------------------- Clifford W. Stanley President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: December 22, 2000 By /s/ Clifford W. Stanley ----------------------------- Clifford W. Stanley President, Principal Executive Officer and Director Dated: December 22, 2000 By /s/ Thomas M. Haythe -------------------------- Thomas M. Haythe Director 42 Dated: December 22, 2000 By /s/ Peter L. Richard -------------------------- Peter L. Richard Director Dated: December 22, 2000 By /s/ Teri E. Unsworth ------------------------ Teri E. Unsworth Vice President - Market Development and Director Dated: December 22, 2000 By /s/ Edward J. Walsh ------------------------ Edward J. Walsh Director Dated: December 22, 2000 By /s/ George S. Zabrycki ------------------------- George S. Zabrycki Director Dated: December 22, 2000 By /s/ Paul T. Xenis ------------------------- Paul T. Xenis Vice President - Finance and Principal Financial and Accounting Officer 43 Index to Exhibits ----------------- Page ---- 3(a) Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996). -- 3(b) Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996). -- 3(c) Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996). -- 3(d) Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996). -- 3(e) Certificate of Correction to the Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, (incorporated by reference to Exhibit 3(d) to the Company's Annual Report on Form 10-K for the year ended September 30, 1993). -- 3(f) Certificate of Merger of Miraflores Designs, Inc. into the Company (incorporated by reference to Exhibit 3(e) to the Company's Annual Report on Form 10-K for the year ended September 30, 1993). -- 3(g) Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3(g) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 4(a) Article THIRD of Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(a) to Registration Statement on Form S-1 No. 33-7246). -- 4(b) Form of Series W Warrant Certificate to purchase Common Stock of the Company (incorporated by reference to Exhibit 4(b) to the Company's Annual Report on Form 10-K for the year ended September 30, 1994). -- 44 4(c) Form of Series A Warrant Certificate to purchase Common Stock of the Company (incorporated by reference to Exhibit 4(c) to the Company's Annual Report on Form 10-K for the year ended September 30, 1994). -- 4(d) Form of Series B Warrant Certificate to purchase Common Stock of the Company (incorporated by reference to Exhibit 4(d) to the Company's Annual Report on Form 10-K for the year ended September 30, 1994). -- 4(e) Rights Agreement dated as of July 15, 1988 between the Company and First Fidelity Bank (incorporated by reference to Exhibit 4(e) to the Company's Annual Report on Form 10-K for the year ended September 30, 1993). -- 4(f) Amendment No. 1 dated as of August 15, 1998 by and among the Company, First Fidelity Bank and ChaseMellon Shareholder Services, L.L.C. to the Rights Agreement (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated September 8, 1998). -- 10(a) 1983 Stock Option Plan of the Company, as amended (incorporated by reference to Exhibit 10(a) to Company's Annual Report on Form 10-K for the year ended September 30, 1993). -- 10(b) 1993 Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.4 to Registration Statement on Form S-8 No. 33-63352). -- 10(c) 1993 Stock Option Plan of the Company (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-8 No. 33-63352). -- 10(d) Lease dated February 28, 1985 between the Company and The Benenson Capital Company (incorporated by reference to Exhibit 10(l) to Registration Statement on Form S-1 No. 2-98274). -- 10(e) Lease dated October 28, 1985 between the Company and Shore Point Distributors (incorporated by reference to Exhibit 10(y) to Registration Statement on Form S-1 No. 33-7246). -- 10(f) Guest Supply, Inc. 401(k) Plan & Trust (incorporated by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year ended September 30, 1996). -- 10(g) Guest Supply, Inc. 1996 Long Term Incentive Plan (incorporated by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended September 30, 1996). -- 45 10(h) Lease dated March 16, 1995 between the Company and The Morris Company (incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995). -- 10(i) Employment Agreement dated as of August 6, 1998 between the Company and Clifford W. Stanley (incorporated by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 10(j) Employment Agreement dated as of August 6, 1998 between the Company and Teri E. Unsworth (incorporated by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 10(k) Employment Agreement dated as of August 6, 1998 between the Company and Paul T. Xenis (incorporated by reference to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 10(l) Employment Agreement dated as of August 6, 1998 between the Company and R. Eugene Biber (incorporated by reference to Exhibit 10(l) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 10(m) General Counsel Agreement dated as of August 6, 1998 between the Company and Thomas M. Haythe (incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 10(n) Revolving Credit Agreement by and among the Company, Guest Packaging, Inc., Breckenridge-Remy Co., and Guest Distribution Services, Inc., all as the Borrower, PNC Bank, National Association, First Union National Bank, both as Lenders and PNC Bank, National Association, as agent, dated as of December 3, 1998 (incorporated by reference to Exhibit 10(n) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 10(o) Revolving Credit Note dated December 3, 1998 made by the Company, Guest Packaging, Inc., Breckenridge-Remy Co. and Guest Distribution Services, Inc., as joint and several obligors to First Union National Bank (incorporated by reference to Exhibit 10(o) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 46 10(p) Revolving Credit Note dated December 3, 1998 made by the Company, Guest Packaging, Inc., Breckenridge-Remy Co. and Guest Distribution Services, Inc., as joint and several obligors to PNC Bank, National Association (incorporated by reference to Exhibit 10(p) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 10(q) Form of Note Purchase Agreement dated as of December 3, 1998 by and among the Company, Breckenridge-Remy Co., Guest Distribution Services, Inc., Guest Packaging, Inc. and each of The Mutual Life Insurance Company of New York, AUSA Life Insurance Company, Inc., Great-West Life & Annuity Insurance Company and Nationwide Life and Annuity Insurance Company (incorporated by reference to Exhibit 10(q) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 10(r) 7.06% Series A Senior Note due November 15, 2009 made by the Company, Guest Packaging, Inc., Breckenridge-Remy Co. and Guest Distribution Services, Inc. for the benefit of the Mutual Life Insurance Company of New York (incorporated by reference to Exhibit 10(r) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 10(s) 7.06% Series A Senior Note due November 15, 2009 made by the Company, Guest Packaging, Inc., Breckenridge-Remy Co. and Guest Distribution Services, Inc. for the benefit of AUSA Life Insurance Company, Inc. (incorporated by reference to Exhibit 10(s) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 10(t) 6.95% Series B Senior Note due November 15, 2007 made by the Company, Guest Packaging, Inc., Breckenridge-Remy Co. and Guest Distribution Services, Inc. for the benefit of Great- West Life & Annuity Insurance Company (incorporated by reference to Exhibit 10(t) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 10(u) 6.70% Series C Senior Note due November 15, 2003 made by the Company, Guest Packaging, Inc., Breckenridge-Remy Co. and Guest Distribution Services, Inc. for the benefit of Nationwide Life and Annuity Insurance Company. (incorporated by reference to Exhibit 10(u) to the Company's Annual Report on Form 10-K for the year ended September 30, 1997). -- 47 10(v) Stockholders Agreement dated as of December 3, 1997 by and among the Company, Barry Igdaloff and the other parties thereto (incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997). -- 10(w) Stock Purchase Agreement dated as of April 23, 1999 by and among the Company, Breckenridge-Remy Co., Madhukar Kapadia and Naina Kapadia, as Trustees of the Kapadia Family Trust, Kapadia Enterprises, Inc., MacDonald Contract Sales, Inc., Madhukar Kapadia and Naina Kapadia (incorporated by reference to Exhibit 10 (w) to the Company's Current Report on Form 8-K filed on May 10, 1999). Pursuant to Regulation S-K Item 601(b)(2), the Company agrees to furnish a copy of the Schedules to such Agreement to the Commission upon request. -- 10(x) 5.18% Convertible Subordinated Promissory Note due April 23, 2004 in the principal amount of $5,000,000 by the Company in favor of Madhukar Kapadia and Naina Kapadia, as Trustees of the Kapadia Family Trust (incorporated by reference to Exhibit 10 (x) to the Company's Current Report on Form 8-K filed on May 10, 1999). -- 10(y) Employment Agreement dated as of April 23, 1999 by and between the Company and Madhukar Kapadia (incorporated by reference to Exhibit 10 (y) to the Company's Current Report on Form 8-K filed on May 10, 1999). -- 10(z) Amended and Restated Revolving Credit Agreement dated as of April 21, 1999 by and among the Company, Guest Packaging, Inc., Breckenridge-Remy Co., Guest Distribution Services, Inc., Kapadia Enterprises, Inc., PNC Bank, National Association, as Agent and as Lender, First Union National Bank, as Lender, and Fleet Bank, N.A., as Lender (incorporated by reference to Exhibit 10 (z) to the Company's Current Report on Form 8-K filed on May 10, 1999). -- 10(aa) Form of Security Agreement dated as of April 21, 1999 executed by the Company and each of its subsidiaries in favor of PNC Bank, National Association, as Agent (incorporated by reference to Exhibit 10 (aa) to the Company's Current Report on Form 8-K filed on May 10, 1999). -- 10(bb) Amendment No. 1 to Note Purchase Agreements dated as of April 21, 1999 by and among the Company, Guest Packaging, Inc., Breckenridge-Remy Co., Guest Distribution Services, Inc., Kapadia Enterprises, Inc., MONY Life Insurance Company, AUSA Life Insurance Company, Inc., Great-West Life and 48 Annuity Insurance Company and Nationwide Life and Annuity Insurance Company (incorporated by reference to Exhibit 10 (bb) to the Company's Current Report on Form 8-K filed on May 10, 1999). -- 21 Subsidiaries of the Registrant -- 23 Consent of KPMG LLP -- 24 Power of Attorney (see "Power of Attorney" in Form 10-K) -- 27 Financial Data Schedule -- Copies of the exhibits filed with this Annual Report on Form 10-K or incorporated by reference herein do not accompany copies hereof for distribution to shareholders of the Company. The Company will furnish a copy of any of such exhibits to any shareholder requesting the same. 49 EX-21 2 0002.txt SUBSIDIARIES OF GUEST SUPPLY Exhibit 21 Subsidiaries of Guest Supply, Inc. ---------------------------------- Guest Supply, Inc. has the following subsidiaries: 1. Guest International, Ltd., an English corporation. 2. Guest Packaging, Inc., a New Jersey corporation. 3. Breckenridge-Remy Co., a Delaware corporation. 4. Guest International (Canada) Ltd., a Canadian corporation. 5. Guest International New Zealand Limited, a New Zealand corporation. 6. Guest Distribution Services, Inc., a Delaware corporation. 7. MacDonald Contract Sales, a Canadian Corporation 8. TJ MacDonald Institutional Textiles, LTD., a Canadian Corporation (Acquired October 31, 2000) EX-23 3 0003.txt ACCOUNTANTS' CONSENT Exhibit 23 Accountants' Consent -------------------- The Board of Directors Guest Supply, Inc.: We consent to incorporation by reference in the Registration Statements (File Nos. 2-89233, 2-89234, 33-22872, 33-63352 and 333-26709) on Form S-8 of Guest Supply, Inc. of our report dated November 14, 2000, relating to the consolidated balance sheets of Guest Supply, Inc. and subsidiaries as of September 29, 2000 and October 1, 1999, and the related consolidated statements of income and comprehensive income, cash flows, and shareholders' equity for each of the fiscal years in the three-year period ended September 29, 2000, and related schedules, which report appears in the September 29, 2000 annual report on Form 10-K of Guest Supply, Inc. /s/ KPMG LLP Short Hills, New Jersey December 22, 2000 EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
5 12-MOS SEP-29-2000 SEP-29-2000 4,460 0 55,780 0 51,409 116,885 62,889 (28,753) 174,771 57,486 0 0 0 594 67,430 174,771 365,928 365,928 289,264 289,264 55,994 0 3,625 17,045 6,597 0 0 0 0 10,448 1.60 1.44
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