-----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, MoTQeOf/NWqNGdv4WTjYYomSkSkYWFPhjvCmQu9NKJ/iz0Dz8NMbyxa6/UB9PWI6 YzE7+q5GmZkkXuSE9HZXjw== 0000950130-99-004866.txt : 19990817 0000950130-99-004866.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950130-99-004866 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990702 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GUEST SUPPLY INC CENTRAL INDEX KEY: 0000722642 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 222320483 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11955 FILM NUMBER: 99692636 BUSINESS ADDRESS: STREET 1: 4301 U.S. HWY ONE CITY: MONMOUTH JUNCTION STATE: NJ ZIP: 08852 BUSINESS PHONE: 9082463011 MAIL ADDRESS: STREET 1: P.O. BOX 902 STREET 2: 720 U S HIGHWAY ONE CITY: MONMOUTH JUNCTION STATE: NJ ZIP: 08852 10-Q 1 FORM 10-Q 1 of 14 pages UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 2, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934 For the transition period from to_______________________ Commission file number 1-11955 ================================================================================ GUEST SUPPLY, INC. (Exact name of registrant as specified in its charter) State of New Jersey 22-2320483 - -------------------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) (Identification number)
4301 U.S. Highway One, Monmouth Junction, New Jersey 08852-0902 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 609-514-9696 - -------------------------------------------------------------------------------- (Registrants telephone number and area code) September 30 - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) ================================================================================ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] No The number of shares of common stock, without par value, outstanding as of July 2, 1999 was 6,551,240 shares. Page 2 Part 1 Guest Supply, Inc. and Subsidiaries Consolidated Condensed Balance Sheets - -------------------------------------------------------------------------------- Dollars in Thousands Except per Share Amounts
July 2, September 30, 1999 1998 ----------- -------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 2,926 $ 2,558 Accounts receivable, net 49,810 34,054 Inventories: Raw materials 9,235 8,666 Finished goods 41,100 29,323 Deferred income taxes 1,933 1,373 Prepaid expenses and other current assets 2,913 2,482 - ------------------------------------------------------------------------------------------ Total current assets 107,917 78,456 Property and equipment, net 33,634 33,305 Other assets 2,723 1,555 Excess of cost over net assets acquired 20,974 4,791 - ------------------------------------------------------------------------------------------ $165,248 $118,107 ========================================================================================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued expense $ 53,353 $ 35,126 Current maturities of long-term debt 1,111 - - ------------------------------------------------------------------------------------------ Total current liabilities 54,464 35,126 ========================================================================================== Long-term debt 49,889 26,126 Deferred income taxes 5,062 4,870 - ------------------------------------------------------------------------------------------ Total long-term liabilities 54,951 30,996 ========================================================================================== Commitments and contingencies Shareholders' equity: Preferred stock - without par value; authorized 1,000,000 shares, outstanding none Common stock - without par value; stated value $0.10; authorized 20,000,000 shares, issued 6,671,638 shares at July 2, 1999 and at September 30, 1998 594 594 Additional paid-in capital 39,161 38,595 Retained earnings 17,369 14,378 Treasury stock - 120,398 common shares at July 2, 1999 and 135,800 common shares at September 30, 1998, at cost (1,350) (1,422) Accumulated other comprehensive income: Cumulative foreign currency translation adjustments 59 (160) - ------------------------------------------------------------------------------------------ Total shareholders' equity 55,833 51,985 - ------------------------------------------------------------------------------------------ $165,248 $118,107 ==========================================================================================
The accompanying notes are an integral part of these consolidated condensed - --------------------------------------------------------------------------- financial statements. - --------------------- Page 3 Guest Supply, Inc. and Subsidiaries Consolidated Condensed Statements of Operations and Comprehensive Income - -------------------------------------------------------------------------------- In Thousands except per share amounts (Unaudited)
40 Weeks Nine Mos 13 Weeks Three Mos Ended Ended Ended Ended July 2, 1999 June 30, 1998 July 2,1999 June 30, 1998 - ---------------------------------------------------------------------------------------------------------- Sales $214,093 $166,545 $86,550 $60,986 Cost of sales 169,489 133,469 67,772 48,921 - ---------------------------------------------------------------------------------------------------------- Gross profit 44,604 33,076 18,778 12,065 Selling, general & administrative expenses 35,239 28,701 13,207 10,173 - ---------------------------------------------------------------------------------------------------------- Operating income 9,365 4,375 5,571 1,892 Interest and other income 24 65 11 30 Interest expense (1,872) (1,718) (821) (543) - ---------------------------------------------------------------------------------------------------------- Income before income taxes 7,517 2,722 4,761 1,379 Income tax expense 3,113 1,065 1,938 510 - ---------------------------------------------------------------------------------------------------------- Net income $ 4,404 $ 1,657 $ 2,823 $ 869 ========================================================================================================== Earnings per common share: Basic $ 0.69 $ 0.26 $ 0.43 $ 0.13 ========================================================================================================== Diluted $ 0.64 $ 0.23 $ 0.39 $ 0.12 ========================================================================================================== Comprehensive Income: Net income $ 4,404 $ 1,657 $2,823 $ 869 Other comprehensive income - foreign currency translation adjustment 219 162 49 38 - ---------------------------------------------------------------------------------------------------------- Comprehensive income $ 4,623 $1,819 $2,872 $ 907 ==========================================================================================================
The accompanying notes are an integral part of these consolidated condensed financial statements. Page 4 Guest Supply, Inc. and Subsidiaries Consolidated Condensed Statements of Cash Flows - -------------------------------------------------------------------------------- In Thousands (Unaudited)
Forty Weeks Ended Nine Months July 2, 1999 Ended June 30, 1998 ----------------- ------------- Cash flows from operating activities: Net income $ 4,404 $ 1,657 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 3,698 3,317 Provision for losses on accounts receivable 433 364 Deferred income tax expense 183 328 Changes in assets and liabilities, net of effects of business acquired: Increase in accounts receivable (5,548) (2,628) Increase in inventories (5,077) (6,409) Decrease (increase) in prepaid expenses and other 212 (824) current assets Increase in other assets (1,271) (43) Increase in accounts payable and accrued expenses 6,616 3,861 - ----------------------------------------------------------------------------------------------- Net cash provided by (used) in operating activities 3,650 (377) - ----------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (3,169) (3,076) Purchase of business, net of cash acquired (18,491) - Proceeds from sale of fixed assets 23 - Decrease in other assets 103 67 - ----------------------------------------------------------------------------------------------- Net cash used in investing activities (21,534) (3,009) - ----------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from revolving credit agreement 65,760 42,678 Repayment on revolving credit agreement (45,886) (56,614) Proceeds from issuance of long-term debt - 25,000 Repayment of long-term debt - (10,937) Proceeds from exercise of stock options and warrants 740 1,532 Purchase of treasury stock (2,581) - - ----------------------------------------------------------------------------------------------- Net cash provided by financing activities 18,033 1,659 Foreign currency translation adjustments 219 162 - ----------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 368 (1,565) Cash and cash equivalents at beginning of period 2,558 4,152 - ----------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 2,926 $ 2,587 ===============================================================================================
The accompanying notes are an integral part of these consolidated condensed financial statements. Page 5 Notes to the Consolidated Condensed Financial Statements - -------------------------------------------------------------------------------- Dollars in Thousands Except per Share Amounts Note 1: Basis of Presentation The unaudited consolidated condensed financial statements have been prepared from the books and records of Guest Supply, Inc. and subsidiaries (the Company) in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) considered necessary for a fair presentation have been included. It is suggested that the consolidated condensed financial statements be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended September 30, 1998 included in the Company's annual report on Form 10-K. Effective October 1, 1998, the Company adopted a fifty-two or fifty-three week fiscal year changing the year-end date from September 30 to the Friday closest to October 1. Interim results are not necessarily indicative of the results that may be expected for the full year. Note 2: Earnings Per Common Share Earnings per share is calculated as follows;
40 Weeks Nine Months 13 Weeks Three Months Ended July Ended June Ended July Ended June 2, 1999 30, 1998 2, 1999 30, 1998 - --------------------------------------------------------------------------------------------------- Basic EPS Net earnings $4,404 $1,657 $2,823 $ 869 - -------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 6,426 6,436 6,524 6,622 - --------------------------------------------------------------------------------------------------- Basic EPS $ 0.69 $ 0.26 $ 0.43 $ 0.13 - --------------------------------------------------------------------------------------------------- Diluted EPS Net earnings $4,404 $1,657 $2,823 $ 869 Effects of convertible promissory note 20 - 20 - - --------------------------------------------------------------------------------------------------- Adjusted net earnings $4,424 $1,657 $2,843 $ 869 - --------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 6,426 6,436 6,524 6,622 Effects of dilutive stock options and warrants 411 669 379 612 Effects of convertible promissory note 94 - 289 - - --------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 6,931 7,105 7,192 7,234 assuming dilution - --------------------------------------------------------------------------------------------------- Diluted EPS $ 0.64 $ 0.23 $ 0.39 $ 0.12 - ---------------------------------------------------------------------------------------------------
Page 6 Notes to the Consolidated Condensed Financial Statements - -------------------------------------------------------------------------------- Dollars in Thousands continued Note 3: Comprehensive Income - ----------------------------- Effective October 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130 requires disclosure of certain components of changes in equity (See "Consolidated Condensed Statements of Operations and Comprehensive Income"). Adoption of this statement did not have any effect on the results of operations or financial position of the Company. Note 4: Acquisition - ------------------- On April 23, 1999, the Company acquired all of the capital stock of Kapadia Enterprises, Inc., d/b/a Nasco Supply Company and McDonald Contract Sales, Inc. (collectively "Nasco"), a privately-held distributor of textile products to the lodging industry. The purchase price paid was (i) $18,000 in cash at the closing of the acquisition, which price is subject to a post-closing purchase price adjustment based upon Nasco's closing adjusted net worth, as defined, (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, no par value ("Common Stock") at a price of $13.275 per share, subject to adjustment as provided in the note, and (iii) 45,198 shares of the Company's Common Stock ($500 of Common Stock based on a per share price of $11 1/16), and (iv) transaction costs (the "Acquisition"). The acquisition has been accounted for using the purchase method of accounting and, accordingly, the assets acquired, liabilities assumed, and results of operations are included in the consolidated financial statements from April 23, 1999. The aggregate purchase price, which was financed primarily through its revolving credit facility, was allocated based on estimated fair values at the date of acquisition. The financial statements reflect a preliminary allocation of the purchase price. This has resulted in an excess of purchase price over assets acquired of $16,600 and will be amortized on a straight-line basis over 20 years. The following unaudited pro forma information presents a summary of consolidated results of operations of the Company and Nasco as if the acquisition had occurred at the beginning of the periods presented. These unaudited pro forma results have been prepared for comparative purposes only and include adjustments related to depreciation expense, amortization expense, interest expense and the related income tax effects of these adjustments. In addition, as Nasco had elected to be taxed as an S Corporation under the provisions of the Internal Revenue Codes, the unaudited pro forma results reflect the effective C corporation income tax rate of the Company. Page 7 Notes to the Consolidated Condensed Financial Statements - -------------------------------------------------------------------------------- Dollars in Thousands continued Pro forma 40 Pro forma Nine weeks ended months ended July 2, 1999 June 30, 1998 ------------ -------------- Sales: $ 247,888 $ 209,292 Net Income: $ 4,857 $ 1,920 Earnings per common share: Basic $ .77 $ .31 Diluted $ .69 $ .27 The pro forma information presented above does not purport to be indicative of the results of operations that actually would have resulted had the acquisition and related financing transactions occurred at the beginning of the periods presented and is not intended to be a projection of future results Note 5: Long Term Debt Concurrent with the closing of the acquisition of Nasco, the Company and its subsidiaries entered into a $35,000 amended and restated revolving credit facility with PNC Bank, N.A., First Union National Bank and Fleet Bank, N.A. (the "Financing Agreement") and an amendment to the Company and its subsidiaries' outstanding $25,000 aggregate principal amount senior notes (the "Senior Notes"). Borrowings under the Financing Agreement were used to fund the cash portion of the Purchase Price and will be used to finance ongoing working capital requirements of the Company and its subsidiaries. The Financing Agreement is a six-year revolving credit facility, with interest on outstanding borrowings determined, at the Company's option, based upon stated margins at or below the prime rate or in excess of Eurodollar rates. Borrowings under the Financing Agreement are secured by substantially all of the assets of the Company and its subsidiaries. The Senior Notes have fixed interest rates ranging from 6.95% to 7.31%, maturities ranging from 2003 to 2009, and are secured by substantially all of the assets of the Company and its subsidiaries. As a result of the Acquisition, the interest rates on the Senior Notes and the Financing Agreement increased by 0.25% and 0.40%, respectively. The Financing Agreement and the Senior Notes contain a number of restrictive covenants, including covenants which limit incurrence of liens and indebtedness, limit transactions with affiliates, acquisitions, sales of assets, investments and other restricted payments. The Financing Agreement and the Senior Notes further require that the Company comply with certain financial and other covenants as set forth therein. GUEST SUPPLY, INC. AND SUBSIDIARIES ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Dollars in Thousands continued Forty Weeks ended July 2, 1999 vs. Nine Months ended June 30, 1998 - ------------------------------------------------------------------- Sales for the forty weeks ended July 2, 1999 increased by $47,548 or 28.5% to $214,093 from $166,545 for the nine months ended June 30, 1998. Revenues generated from our hotel customers increased $43,396 or 29.0% to $193,027. Sales from Nasco, which was acquired on April 23, 1999, were included in the current year to date period. On a pro forma basis that includes Nasco in the prior year, sales in the forty weeks increased 21.0% from the same quarter a year ago. Excluding the Nasco acquisition, the increase in sales to hotels is the result of the addition of new customers, the sale of additional products to existing customers and the continued expansion of the Company's product line. New customers were added by the direct sales force in existing sales territories and by new salespeople in new territories. Both additional hotels and product categories were added through new or expanded agreements with Page 8 GUEST SUPPLY, INC. AND SUBSIDIARIES ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Dollars in Thousands continued management companies and hotel corporations. In addition, the effect of the change in the Company's year-end accounted for $2,334 of the sales increase. Sales to consumer products companies and retailers increased $4,151 or 24.5% to $21,066 for the forty weeks ended July 2, 1999 compared to $16,914 for the nine months ended June 30, 1998. The increase in sales is due to the addition of new customers and additional volume from existing customers. Gross profit for the forty weeks ended July 2, 1999 increased $11,528 to $44,604 or 20.8% of sales compared to $33,076 or 19.9% of sales for the nine months ended June 30, 1998. The increase in gross profit as a percentage of sales was primarily due to efficiency improvements and increased volume at the Company's manufacturing facility. This increase was partially offset by a decrease in gross profit percent in hotel supply as a result of an increase in textile sales which have a lower margin than other product categories sold to hotels, arising from the Nasco acquisition. Selling, general and administrative expenses were $35,239 or 16.5% of sales for the forty weeks ended July 2, 1999 compared to $28,701 or 17.2% of sales for the nine months ended June 30, 1998. The increase of $6,538 or 22.8% was due to an increase in customer rebates, payroll, commissions, and delivery expense associated with the Company's hotel sales growth and increased operating expenses and amortization of goodwill associated with the Nasco acquisition. Net interest expense was $1,848 for the forty weeks ended July 2, 1999 compared to $1,653 for the nine months ended June 30, 1998. The increase was the result of an increase in borrowings to finance the acquisition of Nasco. Income tax expense was $3,113 for the forty weeks ended July 2, 1999 compared with $1,065 for the nine months ended June 30, 1998. The increase is due to an increase in pretax income of $4,795. Thirteen weeks ended July 2, 1999 vs. Three Months ended June 30, 1998 - ---------------------------------------------------------------------- Sales for the thirteen weeks ended July 2, 1999 increased by $25,564 or 41.9% to $86,550 from $60,986 for the three months ended June 30, 1998. Revenues generated from our hotel customers increased $21,606 or 37.8% to $78,717. Sales from Nasco, which was acquired on April 23, 1999, were included in the current quarter. On a pro forma basis that includes Nasco in the prior year, sales in the third quarter increased 21.2% from the same quarter a year ago. Excluding the Nasco acquisition, the increase in sales to hotels is the result of the addition of new customers, the sales of additional products to existing customers, and the continued expansion of the Company's product line. New customers were added by the direct sales force in existing sales territories and by new salespeople in new territories. Both additional hotels and product categories were added through new or expanded agreements with management companies and hotel corporations. Sales to consumer product companies and retailers increased $3,958 or 102.1% to $7,833 for the thirteen weeks ended July 2, 1999 compared to $3,875 of sales for the three months ended June 30, 1998. The increase in sales is due to the addition of new customers and additional volume from existing customers. Page 9 GUEST SUPPLY, INC. AND SUBSIDIARIES ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Dollars in Thousands continued Gross profit for the thirteen weeks ended July 2, 1999 increased $6,713 to $18,778 or 21.7% of sales compared to $12,065 or 19.8% of sales for the three months ended June 30, 1998. The increase in gross profit as a percentage of sales was primarily due to efficiency improvements and increased volume at the Company's manufacturing facility. This increase was partially offset by a decrease in gross profit percent in hotel supply as a result of an increase in textile sales which have a lower margin than other product categories sold to hotels, arising from the Nasco acquisition. Selling, general and administrative expenses were $13,207 or 15.3% of sales for the thirteen weeks ended July 2, 1999 compared to $10,173 or 16.7% of sales for the three months ended June 30, 1998. The increase of $3,034 or 29.8% was principally due to an increase in customer rebates, payroll, commissions, and delivery expense associated with the Company's hotel sales growth and increased operating expenses and amortization of goodwil associated with the Nasco acquisition. Net interest expense was $810 for the thirteen weeks ended July 2, 1999 compared to $513 for the three months ended June 30, 1998. The increase was the result of an increase in borrowings to finance the acquisition of Nasco. Income tax expense was $1,938 for the thirteen weeks ended July 2, 1999 compared with $510 for the three months ended June 30, 1998. The Company's effective tax rate for the thirteen weeks ended June 30, 1998 reflected an adjustment in the Company's estimated fiscal year 1998 annual effective tax rate. Liquidity and Capital Resources at July 2, 1999 - ----------------------------------------------- At July 2, 1999, the Company had $53,453 of working capital compared to $43,330 at September 30, 1998. The increase of $10,123 is primarily the result of an increase in accounts receivable and inventory, which was partially offset by an increase in accounts payable and accrued expenses. In addition, the acquisition of Nasco contributed $5,662 in working capital. On April 23, 1999, the Company acquired all of the capital stock of Kapadia Enterprises, Inc., d/b/a Nasco Supply Company and McDonald Contract Sales, Inc. (collectively "Nasco"), a privately-held distributor of textile products to the lodging industry. The purchase price paid was (i)$18,000 in cash at the closing of the acquisition, which price is subject to a post-closing purchase price adjustment based upon Nasco's closing adjusted net worth, as defined, (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, no par value ("Common Stock") at a price of $13.275 per share, subject to adjustment as provided in the note, and (iii) 45,198 shares of the Company's Common Stock ($500 of Common Stock based on a per share price of $11 1/16), and (iv) transaction costs (the "Acquisition"). Concurrent with the closing of the acquisition of Nasco, the Company and its subsidiaries entered into a $35,000 amended and restated revolving credit facility with PNC Bank, N.A., First Union National Bank and Fleet Bank, N.A. (the "Financing Agreement") and an amendment Page 10 GUEST SUPPLY, INC.AND SUBSIDIARIES ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Dollars in Thousands continued to the Company and its subsidiaries' outstanding $25,000 aggregate principal amount senior notes (the "Senior Notes"). Borrowings under the Financing Agreement were used to fund the cash portion of the Purchase Price and will be used to finance ongoing working capital requirements of the Company and its subsidiaries. The Financing Agreement is a six-year revolving credit facility, with interest on outstanding borrowings determined, at the Company's option, based upon stated margins at or below the prime rate or in excess of Eurodollar rates. Borrowings under the Financing Agreement are secured by substantially all of the assets of the Company and its subsidiaries. At July 2, 1999, the Company had $14,000 available under the Financing Agreement. The Senior Notes have fixed interest rates ranging from 6.95% to 7.31%, maturities ranging from 2003 to 2009, and are secured by substantially all of the assets of the Company and its subsidiaries. As a result of the Acquisition, the interest rates on the Senior Notes and the Financing Agreement increased by 0.25% and 0.40%, respectively. The Financing Agreement and the Senior Notes contain a number of restrictive covenants, including covenants which limit incurrence of liens and indebtedness, limit transactions with affiliates, acquisitions, sales of assets, investments and other restricted payments. The Financing Agreement and the Senior Notes further require that the Company comply with certain financial and other covenants as set forth therein. The Company was in compliance with all covenants at July 2, 1999. In connection with the common stock repurchase program authorized by the Board of Directors, the Company purchased 250,300 shares of its outstanding shares at a cost of $2,581 during the forty weeks ended July 2, 1999. The Company believes that the amount available under the Financing Agreement together with the cash flow from operations will be sufficient to meet the Company's short-term working capital requirements and identifiable long-term capital needs. The Company also believes that, if necessary, additional financing will be available to it on commercially reasonable terms. Recently Issued Accounting Standards - ------------------------------------ In June 1997, the Financial Accounting Standards Board released Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 became effective for the Company beginning October 1, 1998 and requires disclosure of certain information about operating segments and geographic areas of operation. The Company has adopted SFAS 131 which does not require interim period reporting in the year of adoption. The Company is completing its evaluation of the disclosure requirements of SFAS 131 and will begin such disclosures in its Form 10-K filing for the year ended October 1, 1999. Implementation of SFAS 131 will not have any effect on the results of operations or financial position of the Company. Year 2000 Readiness - ------------------- The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. As a result, any of the Company's computer programs that have date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which in turn could result in system miscalculations or failures causing disruptions in the operations of the Company and its suppliers and customers. Page 11 GUEST SUPPLY, INC. AND SUBSIDIARIES ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Dollars In Thousands continued The Company has completed its evaluation of all its information technology ("IT") and non-IT systems. Software packages considered critical to the Company's operations have been upgraded to be year 2000 compliant and the Company is currently in the process of testing such upgrades. The Company anticipates completing all necessary testing by September 30, 1999. As part of the Company's Year 2000 project, the Company will continue to monitor its significant suppliers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate Year 2000 compliance issues. The Company has also begun to contact its large customers where potential exposure exists to ascertain their readiness. While the Company will continue to monitor its significant suppliers and customers, there can be no assurances that their systems will be timely converted or that failure to convert would not have a material adverse effect on the Company and its operations. Management estimates that based on the information known to date, the cost to complete its remediation of its systems will not exceed $250. The Company does not believe that its failure to resolve Year 2000 issues with respect to internal non-compliant systems will cause material disruption in its operations. While the Company believes its Year 2000 project will adequately address its internal issues, failure of the Company's suppliers and customers to timely remediate their Year 2000 issues may result in a material adverse effect on the Company and its operations. The Company has not, to date, developed a Year 2000 Contingency Plan. It is the Company's goal to develop a contingency plan for all mission critical systems by September 30, 1999. Cautionary Statement - -------------------- This quarterly report on Form 10-Q may contain forward-looking information about the Company. The Company is hereby setting forth statements identifying important factors that may cause the Company's actual results to differ materially from those set forth in any forward-looking statements made by the Company. Some of the most significant factors include an unanticipated downturn in the lodging industry resulting in lower demand for the Company's products, the unanticipated loss of or decline in sales to a major customer, failure to secure new business and unforeseen inefficiencies at the Company's manufacturing facility. In addition, difficulties in completing remediation of Year 2000 issues by the Company, its customers or suppliers may have a material adverse effect on the Company and its operations. Accordingly, there can be no assurances that any anticipated future results will be achieved. Item 3. Quantitative and Qualitative Disclosure About Market Risk - ----------------------------------------------------------------- In the normal course of operations, the Company is exposed to market risks arising from adverse changes in interest rates. Market risk is defined for these purposes as the potential change in the fair value resulting from an adverse movement in interest rates. As of July 2, 1999, the Company's only variable rate borrowings were under the Financing Agreement which bears interest at the Company's option, based upon stated margins at or below the prime rate or in excess of Eurodollar rates. A 100 basis point increase in interest rates, applied to the Company's borrowings at July 2, 1999 would result in an annual increase in interest expense and a corresponding reduction in cash-flow of approximately $210. Page 12 GUEST SUPPLY, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- Item 5: Other Information - ------------------------- None Page 13 GUEST SUPPLY, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- Item 6: Exhibits and Reports on Form 8-K - ----------------------------------------- a) Exhibits No. 27 Financial Data Schedule b) Reports on Form 8-K On May 10, 1999, the Company filed a current report on Form 8-K dated April 23, 1999, reporting under Item 2 of Form 8-K the registrant's entering into a Stock Purchase Agreement relating to the acquisition of Kapadia Enterprises, Inc., d/b/a Nasco Supply Company and Macdonald Contract Sales, Inc. On June 11, 1999, the Company filed a current report on Form 8-K/A (Amendment No. 1) dated April 23, 1999, amending Item 7, sections (a) and (b), of its Current Report on Form 8-K reporting on the acquisition of all of the capital stock of Kapadia Enterprises, Inc. d/b/a Nasco Supply Company and MacDonald Contract Sales, Inc. on April 23, 1999, to include financial statements and pro forma information. Page 14 SIGNATURES - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934. The Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GUEST SUPPLY, INC. Dated: August 16, 1999 By: /s/Clifford W. Stanley -------------------- ----------------------------------- Clifford W. Stanley President & Chief Executive Officer Dated: August 16, 1999 By: /s/Paul T. Xenis -------------------- ----------------------------------- Paul T. Xenis Vice President, Finance EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS OCT-01-1999 OCT-01-1998 JUL-02-1999 2,926 0 49,810 0 50,335 107,917 56,866 (23,232) 165,248 54,464 0 0 0 594 55,239 165,248 214,093 214,093 169,489 169,489 35,239 0 1,848 7,517 3,113 0 0 0 0 4,404 .69 .64
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