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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) APRIL 23, 1999
--------------
GUEST SUPPLY, INC.
------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 1-11955 22-2320483
- --------------------------------- ---------------- -------------------
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation or organization) Number) Identification No.)
4301 U.S. Highway One
Monmouth Junction, NJ 08852-0902
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 514-9696
--------------
Not Applicable
--------------------------------------------------------------------------
(Former name or former address, if changed since last report)
The undersigned registrant hereby amends Item 7, sections (a) and (b), of its
Current Report on Form 8-K reporting the acquisition of all of the capital stock
of Kapadia Enterprises, Inc. d/b/a Nasco Supply Company and MacDonald Contract
Sales, Inc. (collectively "Nasco") on April 23, 1999, to include financial
statements and pro forma financial data information as set forth herein.
Item 7 Financial Statements, Pro Forma Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
The following combined financial statements of Kapadia Enterprises, Inc., aka
Nasco Supply Company and MacDonald Contract Sales, Inc. (collectively "Nasco")
are filed with amendment to Guest Supply, Inc. (the "Company") Form 8-K which
was previously filed on May 10, 1999.
Independent Auditor's Report
Combined Balance Sheet - December 31, 1998
Combined Statement of Income - Year Ended December 31, 1998
Combined Statement of Stockholder's Equity - December 31, 1998
Combined Statement of Cash Flows - Year Ended December 31, 1998
Notes to the Combined Financial Statements
Unaudited Condensed Combined Statement of Income - Three Months Ended
December 31, 1998 and 1997
Unaudited Condensed Combined Statement of Cash Flows - Three Months Ended
December 31, 1998 and 1997.
Notes to Unaudited Condensed Combined Financial Statements
CARPENTER KUHEN & SPRAYBERRY
Certified Public Accoutants
Ralph C. Kuhen, C.P.A. Members: Daniel Sprayberrry,C.P.A.
Steve Barnes, C.P.A. American Instiute of Certified Public Accoutants Martin J. Marietta, C.P.A.
Mark Luttrell, C.P.A. SEC Practice Section Dana Boutain, C.P.A
Greg Braun, C.P.A. California Society of Certified Public Accountants Dwayne Schiellack, C.P.A.
Ann Braun, C.P.A. William Duerksen, C.P.A.
Jennifer Haney, C.P.A. Jeffrey Freeman, C.P.A.
Laima Swanson, C.P.A. Audrey Tamekazu, C.P.A.
Michael Luxton, C.P.A. Matthew Davis, C.P.A.
Sandra V. Steward, C.P.A.
INDEPENDENT AUDITOR'S REPORT
To the Shareholder
Kapadia Enterprises, Inc.
dba Nasco Supply Company
And MacDonald Contract Sales, Inc.
Sylmar, California
We have audited the accompanying combined balance sheet of Kapadia Enterprises,
Inc., dba Nasco Supply Company (an S corporation) and MacDonald Contract Sales,
Inc., as of December 31, 1998, and the related combined statements of income,
stockholder's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kapadia Enterprises, Inc., dba
Nasco Supply Company, and MacDonald Contract Sales, Inc., as of December 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Oxnard, California
March 5, 1999
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
COMBINED BALANCE SHEET - DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash $ 352,340
Accounts receivable (net of allowance for doubtful
accounts of $149,928) 5,928,272
Inventory 12,635,623
Prepaid expenses 30,269
Other current assets 116,233
----------
Total current assets 19,062,737
PROPERTY AND EQUIPMENT, AT COST:
Building $ 1,372,517
Land 601,129
Computer equipment 177,239
Leasehold improvements 139,794
Furniture and fixtures 130,367
Office equipment 91,407
Vehicles 16,000
------------
2,528,453
Less - Accumulated depreciation (770,451) 1,758,002
------------
CAPITAL LEASES, NET 135,744
LOAN FEES (net of accumulated
amortization of $62,101) 11,240
-----------
$ 20,967,723
============
The accompanying notes are an integral part of the financial statements.
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,934,579
Accrued expenses 1,350,238
Sales tax payable 72,175
Franchise tax payable 35,160
Other current liabilities 9,056
Current portion of capital leases 15,478
Current portion of long-term debt 44,038
Line of credit 500,000
Note payable to stockholder 53,130
--------------
Total current liabilities 8,013,854
LONG-TERM LIABILITIES:
Long-term debt $ 967,823
Obligations under capital leases 34,813 1,002,636
------------
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDER'S EQUITY:
Common stock - no par value
Authorized - 24,000 shares
Issued and outstanding - 15,048 shares 150,485
Common stock - no par value
Authorized - an unlimited number of common shares
Issued and outstanding- 200 shares 69
Preferred stock - no par value
Authorized - an unlimited number of non-voting,
redeemable, non-participating preference shares
Issued and outstanding- 0 shares --
Additional paid-in capital 125,000
Retained earnings 11,675,679
------------
Total stockholder's equity 11,951,233
------------
$ 20,967,723
============
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
NET SALES $ 63,628,192
COST OF SALES 55,665,356
------------
Gross margin 7,962,836
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,906,182
------------
Income from operations 2,056,653
OTHER INCOME (EXPENSE):
Gain on sale of marketable securities $ 525,581
Dividend income 7,034
Interest income 1,290
Franchise tax (35,160)
Interest expense (250,397) 248,348
--------- ------------
Net income $ 2,305,001
===========
NET INCOME PER SHARE:
Basic and diluted $ 151.17
===========
The accompanying notes are an integral part of the financial statements.
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY - DECEMBER 31, 1998
Accumulated
Common Stock Additional Other Total
-------------------- Paid In Retained Comprehensive Stockholder's
Shares Amount Capital Earnings Income Equity
---------------------------------------------------------------------------------------
Balance, December 31, 1997 15,248 $ 150,554 $ 125,000 $ 1,349,405 $ 136,760 $ 1,761,719
Prior period adjustment -- -- -- 10,046,831 -- 10,046,831
---------------------------------------------------------------------------------------
Balance, December 31, 1997, as restated 15,248 150,554 125,000 11,396,236 136,760 11,808,550
Shareholder distributions -- -- -- (2,025,558) -- (2,025,558)
Net income -- -- -- 2,305,001 -- 2,305,001
Decrease in unrealized gain on
marketable securities -- -- -- -- (136,760) (136,760)
---------------------------------------------------------------------------------------
Balance, December 31, 1998 15,248 $ 150,554 $ 125,000 $ 11,675,679 $ -- $11,951,233
=======================================================================================
The accompanying notes are an intergral part of the financial statements.
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,305,001
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 151,701
Gain on sale of marketable securities (525,581)
Net change in operating assets and liabilities 2,028,518
--------------
Net cash provided by operating activities 3,959,639
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (291,308)
Proceeds on sale of marketable securities 1,310,760
Principal payments on margin debt (263,119)
Purchase of fixed assets (256,487)
--------------
Net cash provided by investing activities 499,846
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (418,362)
Net decrease in line of credit (1,150,000)
Principal payments on capital lease obligations (19,258)
Distributions to stockholder (2,025,558)
--------------
Net cash used in financing activities (3,613,178)
--------------
NET INCREASE IN CASH 846,307
CASH , BEGINNING OF YEAR (493,967)
--------------
CASH, END OF YEAR $ 352,340
--------------
The accompanying notes are an integral part of the financial statements.
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
Notes to Combined Financial Statements
December 31, 1998
(1) Summary of Significant Accounting Policies
This combined summary of accounting policies of Kapadia Enterprises, Inc.,
dba Nasco Supply Company and MacDonald Contract Sales, Inc. (the
"Company"), is presented to assist in understanding the Company's financial
statements. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation
of the financial statements.
a) Nature of Business and Concentration of Credit Risk
The Company is in the business of distributing linens, towels and related
items to hotels, motels, hospitals and other institutions in the United
States and Canada. The Company grants credit to customers, most of whom
are in the hospitality industry. Kapadia Enterprises, Inc., dba Nasco
Supply Company operates from locations in Los Angeles, California and
Concorde, North Carolina. MacDonald Contract Sales, Inc. has its
operations in Mississauga, Ontario.
The Company maintains its cash balances in Bank Leumi and Republic
National Bank of New York. Periodically throughout the year the Company
has maintained balances in excess of federally insured limits.
b) Basis of Accounting
The Company reports on the accrual method of accounting for both
financial statement and tax purposes.
c) Major Vendors
Purchases from six vendors comprised 82% of the Company's inventory
purchases for the year ended December 31, 1998. Amounts due to these
vendors, included in accounts payable, amounted to $4,788,059 at December
31, 1998.
d) Principles of Combination
The combined financial statements include the accounts of Kapadia
Enterprises, Inc., dba Nasco Supply Company and MacDonald Contract Sales,
Inc. Both entities are owned by the same shareholder. Significant
inter-company transactions and amounts have been eliminated in
combination.
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
Notes to Combined Financial Statements
December 31, 1998
(Continued)
(1) Summary of Significant Accounting Policies (Continued)
e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
f) Inventory
Inventory is stated at the lower of cost or market and is determined
on a first-in, first-out basis. Inventory is recorded net of reserve
of $1,089,167 at December 31, 1998.
g) Property, Equipment, and Depreciation
The Company's property and equipment is recorded at cost. Depreciation
is provided using the double declining balance and straight line
methods over the following estimated useful lives:
Estimated
Asset Classification Useful Life
Building 31.5 Years
Computer equipment 5 Years
Leasehold improvements 31.5 Years
Furniture and fixtures 5 Years
Office equipment 5 Years
Vehicles 5 Years
(2) Marketable Securities
The cost of securities is determined by specific identification. The realized
gain on the sale of marketable securities during the year of December 31, 1998
is as follows:
Market value at date of sale $ 1,310,760
Cost of securities (785,179)
--------------
Realized gain on sale $ 525,581
==============
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
Notes to Combined Financial Statements
December 31, 1998
(Continued)
(3) Capital Leases
The Company leases machinery and office equipment under capital leases. The
economic substance of these lease agreements is that the Company is financing
the acquistion of these assets through the leases and, accordingly, they are
recorded in the Company's assets and liabilities. The following is an analysis
of the leased property under capital lease:
Machinery and equipment $ 519,414
Less accumulated amortization (383,670)
-----------------
$ 135,744
=================
Future minimum lease payments $ 50,291
Less - Amount representing interest (8,360)
-----------------
Present value of net minimum lease payments $ 41,931
=================
The following is a schedule by years of future minimum lease payments
required under the leases:
Year ending December 31, 1999 $ 15,478
2000 9,529
2001 9,529
2002 9,528
2003 6,227
-----------
$50,291
===========
(4) Line of Credit
The Company has a $3 million line of credit with Bank Leumi, of which
$500,000 was utilized at December 31, 1998. The line of credit is
guaranteed by the Company's sole stockholder and secured with accounts
receivable. The Company is subject to certain loan covenants, including
tangible net worth of not less than $2,000,000. The interest rate is equal
to .50% over the bank's base interest rate.
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
Notes to Combined Financial Statements
December 31, 1998
(Continued)
(5) LONG-TERM DEBT
Note payable to Wells Fargo Bank, guaranteed by the Company's sole
stockholder, secured by land and building, payable in monthly
installments of $10,691, due July 1, 2003. The interest rate is to be
adjusted at the fifth and tenth anniversary dates of the note to a
fixed rate equal to 2% above the bank's money market fund rate in
effect on such date. $1,011,861
Less current portion (44,038)
----------
$ 967,823
==========
Principal payments on long-term debt are as follows:
Year ending December 31, 1999 $ 44,038
2000 47,941
2001 52,188
2002 56,813
2003 and thereafter 810,881
--------------
$ 1,011,861
==============
(6) Commitments and Contingencies
a) Operating Leases
The Company leases operating facilities in Chatsworth, California and
Concorde, North Carolina under long-term non-cancelable operating leases
from the stockholder and a related party affiliate. Monthly payments
under these lease agreements are $47,940 and $32,500 for the Chatsworth
and Concorde facilities, respectively. Rent expense for these facilities
amounted to $475,886 for the year ended December 31, 1998. Minimum future
rental payments under the leases are as follows:
Year ending April 30, 1999 $ 965,280
2000 965,280
2001 965,280
2002 965,280
2003 and thereafter 12,976,080
-----------
$16,837,200
===========
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
Notes to Combined Financial Statements
December 31, 1998
(Continued)
(6) Commitments and Contingencies (Continued)
b) Facilities Arrangement
Facilities in Canada that are maintained by T.J. MacDonald Institutional
Textiles, Ltd. are used by the Company in exchange for management fees
equal to 50% of the profits of MacDonald Contract Sales, Inc.
(7) Retirement Plan
Effective January 1993 the Company established a qualified profit sharing
plan (the "Plan") with a 401(k) deferred compensation provision. All
employees with one year and 1,000 hours of service are eligible to
participate in the Plan. Participants may contribute up to 16% of
compensation per year. The Company may match 25% of participant
contributions up to 6% of compensation per employee. Participants are
vested in Company matching contributions based on the following schedule:
Vested
Years of Service Percent
1 0%
2 20%
3 40%
4 60%
5 80%
6 100%
The Company's contributions to the Plan for the year ended December 31,
1998 were $95,136.
(8) Income Taxes
The Company, with the consent of its shareholder, has elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under
the provisions, the Company does not pay federal corporate income taxes on
its taxable income. Instead, the shareholder is liable for individual
income taxes on the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in these financial
statements for the year ended December 31, 1998. All states in which the
Company does business have enacted provisions to conform to federal tax
law, and recognize S-Corporation status. Certain states, however, have
chosen to tax S-Corporations on a proportionate amount of the income earned
in that state. The provision for franchise taxes represents the taxes
these states have imposed.
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
Notes to Combined Financial Statements
December 31, 1998
(Continued)
(9) Statement of Cash Flows - Supplemental Disclosures
The net changes in operating assets and liabilities shown on the statements
of cash flows consist of the following:
(Increase) Decrease:
Accounts receivable $ (123,739)
Inventory 2,711,277
Other current assets (73,892)
Increase (Decrease):
Accounts payable (986,045)
Accrued expenses 549,823
Other current liabilities (48,906)
-------------------
$2,028,518
===================
Operating activities reflect:
Interest paid $ 250,397
===================
Income taxes paid $ 17,076
===================
Schedule of non-cash investing and financing transactions -
Fixed asset purchases $ 355,076
Notes used to purchase fixed assets (98,589)
-------------------
Cash used to purchase fixed assets $ 256,487
===================
(10) Prior Period Adjustment
In accordance with generally accepted accounting principles, as applied in
these financial statements, adjustments have been made for an
understatement of prior years' inventory and an overstatement of prior
years' cost of sales. Adjustments have also been made for credit balances
in accounts receivable which are recognizable as income and reserves for
inventory obsolescence which are charged against income, neither of which
were recognized in prior periods. Had the errors not been made, net income
for 1997 would have been increased by $3,325,589 ($218.10 per share).
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
Notes to Combined Financial Statements
December 31, 1998
(continued)
(11) SUBSEQUENT EVENTS
Sale of Company
The Company's stockholder has received a letter of intent from Guest
Supply, Inc. dated February 12, 1999. According to the letter of intent,
Guest Supply would agree to purchase all of the outstanding shares of stock
in the Company in exchange for cash and a long-term, convertible note
payable to the stockholder. At closing, the acquisition would be accounted
for using the purchase method. The results of operations of the Company
will be included with the results of Guest Supply, Inc. once the purchase
has been finalized.
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
UNAUDITED CONDENSED COMBINED STATEMENTS OF INCOME
Three Months Ended
December 31,
--------------------------------
1998 1997
------------ -------------
NET SALES $ 13,262,606 $ 12,547,431
COST OF SALES 11,653,949 10,880,104
------------ -------------
Gross margin 1,608,657 1,667,327
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,665,938 820,976
------------ -------------
Income from operations (57,281) 846,351
------------ -------------
OTHER INCOME (EXPENSE):
Gain on sale of marketable securities 525,581 --
Miscellaneous income 2,187 1,942
Franchise tax -- (12,524)
Interest expense (37,411) (71,819)
------------ -------------
490,357 (82,401)
------------ -------------
Net income $ 433,076 $ 776,474
============ =============
NET INCOME PER SHARE:
Basic and diluted $ 28.40 $ 50.10
============ =============
KAPADIA ENTERPRISES, INC.
dba Nasco Supply Company
AND MACDONALD CONTRACT SALES, INC.
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
------------------------------
1998 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $ 27,683 $ (3,334,370)
---------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection on note receivable - stockholder -- 2,425,203
Proceeds from sale of marketable securities 1,263,865 --
Other cash used by investing activities (80,007) (28,990)
---------- -------------
Net cash provided by investing activities 1,183,858 2,396,213
---------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 500,000 1,650,000
Distributions to stockholder (783,168) --
Payment on margin debt (452,858) --
Other cash used in financing activities (9,889) (13,200)
---------- -------------
Net cash provided by (used in) financing activities (745,915) 1,636,800
---------- -------------
NET INCREASE IN CASH 465,626 698,643
BANK OVERDRAFT, BEGINNING OF PERIOD (113,286) (1,192,466)
---------- -------------
CASH (BANK OVERDRAFT), END OF PERIOD $ 352,340 $ (493,823)
========== =============
Kapadia Enterprises, Inc
dba Nasco Supply Company
and MacDonald Contract Sales, Inc.
Notes to Unaudited Condensed Combined Financial Statements
Note 1: Basis of Presentation
The unaudited condensed combined financial statements have been prepared from
the books and records of Kapadia Enterprises, Inc. (dba Nasco Supply Company)
and MacDonald Contract Sales, Inc. (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 unaudited condensed combined financial statements be
read in conjunction with the audited combined financial statements and notes
thereto for the year ended December 31, 1998. Interim results are not
necessarily indicative of the results that may be expected for the full year.
Note 2: Other Financial Information
During the three months ended December 31, 1998, the Company accrued additional
compensation for certain officers and a consultant of the Company in the amount
of $625,000 and incurred professional fees in the amount of $189,000 related to
the sale of the Company. No such costs were incurred in the three months ended
December 31, 1997.
Note 3: Income Taxes
The Company, with the consent of its shareholder, has elected to be taxed under
the provisions of Subchapter S of the Internal Revenue Code. Under the
provisions, the Company does not pay federal corporate income taxes on its
taxable income. Instead, the shareholder is liable for individual income taxes
on the Company's taxable income. Therefore, no provision or liability for
federal income taxes has been included in these financial statements for the
three months ended December 31, 1998.
(b) Pro Forma Consolidated Financial Information
The following unaudited pro forma financial information required pursuant to
Article 11 of Regulation S-X is filed with this amendment to the Company's Form
8-K which was previously filed on May 10, 1999.
Basis of Presentation
Unaudited Pro Forma Condensed Consolidated Balance
Sheet - January 1, 1999
Unaudited Pro Forma Condensed Consolidated Statement
of Operations - Year Ended September 30, 1998
Unaudited Pro Forma Condensed Consolidated Statement
of Operations - Fourteen Weeks Ended January 1, 1999
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information
Basis of Presentation
- ---------------------
The following unaudited pro forma condensed consolidated financial information
of the Company give effect to (i) the acquisition of all of the capital stock of
Nasco which occurred on April 23, 1999 (the "Acquisition") and (ii) the related
financing, as if such transactions had occurred on October 1, 1997, for the
fiscal year ended September 30, 1998 and for the fourteen weeks ended January 1,
1999. The unaudited pro forma condensed consolidated balance sheet gives effect
to the Acquisition as if it occurred as of January 1, 1999.
The unaudited pro forma condensed consolidated financial information set forth
below reflects pro forma adjustments that are based upon available information
and certain assumptions that the Company believes are reasonable. The unaudited
pro forma condensed consolidated financial information does not purport to
represent the Company's results of operations or financial position that would
have resulted had the transactions to which pro forma effect is given been
consummated as of the dates or for the periods indicated. The Acquisition has
been accounted for using the purchase method of accounting. The total purchase
price of Nasco was allocated to the tangible and intangible assets acquired and
liabilities assumed based on their respective fair values. The excess of the
purchase price over the fair value of its net assets will be recorded as
goodwill. The allocation of the Nasco purchase price reflected in the unaudited
pro forma condensed consolidated financial information is preliminary and is
subject to change based upon Nasco's closing adjusted net worth, as defined in
the Stock Purchase Agreement (the "Agreement"). The unaudited pro forma
condensed consolidated financial information and accompanying notes should be
read in conjunction with the historical consolidated financial statements of the
Company (previously filed with the Securities and Exchange Commission) and the
combined financial statements and notes of Nasco contained herein.
Guest Supply, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of January 1, 1999
(Dollars in thousands)
The following unaudited pro forma condensed consolidated balance sheet has been
prepared as if the Acquisition (see Note 1) had occurred on January 1, 1999.
This balance sheet combines the consolidated balance sheet of the Company as of
January 1, 1999 with the combined balance sheet of Nasco as of December 31,
1998, giving effect to adjustments for the Acquisition and related financing.
Guest Supply Nasco Pro Forma Pro Forma
Historical Historical Adjustments Totals
------------ ---------- ----------- ---------
Assets
Current Assets:
Cash and cash equivalents $ 1,938 352 $ 2,290
Accounts receivable, net 28,798 5,928 34,726
Inventories 41,798 12,636 54,434
Deferred income taxes 1,493 - 527 3 2,020
Other current assets 1,961 147 2,108
------------ ---------- ---------
Total current assets 75,988 19,063 95,578
Property and equipment, net 33,159 1,758 (1,500) 2 33,417
Other assets 2,557 147 2,704
Excess of cost over net assets acquired 4,699 - 16,468 3 21,167
------------ ---------- ---------
$ 116,403 20,968 $152,866
============ ========== =========
Liabilities and Shareholders' Equity
Curent Liabilities:
Accounts payable and accrued expenses $ 31,877 7,402 39,279
Short term debt and current maturities
of long-term debt 556 559 (44) 2 1,071
Due to stockholders - 53 4,208 4 4,261
------------ ---------- ---------
Total current liabilities 32,433 8,014 44,611
------------ ---------- ---------
Long-term debt 28,644 1,003 23,750 5,6 52,429
(968) 2
Deferred income taxes 5,029 - 5,029
------------ ---------- ---------
Total long-term liabilities 33,673 1,003 57,458
------------ ---------- ---------
Shareholders' Equity:
Common stock 594 150 (150) 7 594
Additional paid-in capital 38,608 125 (125) 7 38,690
82 7
Retained Earnings 15,107 11,676 (488) 2 15,107
(4,208) 4
(6,980) 8
Treasury Stock (3,955) - 418 7 (3,537)
Accumulated other comprehensive income (57) - (57)
------------ ---------- ---------
Total shareholders' equity 50,297 11,951 50,797
------------ ---------- ---------
$ 116,403 20,968 $152,866
============ ========== =========
See accompanying notes to unaudited pro forma condensed consolidated financial
information.
Guest Supply, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended September 30, 1998
(In thousands, except per share data)
The following unaudited pro forma condensed consolidated statement of operations
has been prepared as if the Acquisition (see note 1) had occurred on October 1,
1997. The unaudited pro forma condensed consolidated statement of operations
combines the consolidated statement of operations of the Company for the fiscal
year ended September 30, 1998 with the combined statement of income of Nasco for
the year ended December 31, 1998 giving effect to adjustments for the
Acquisition and related financing.
Guest Supply Nasco Pro Forma Pro Forma
Historical Historical Adjustments Totals
------------- ---------- ----------- ---------
Sales $ 236,743 63,628 $ 300,371
Cost of sales 189,025 55,665 (1,766) 9 242,924
------------- ---------- ---------
Gross profit 47,718 7,963 57,447
Selling, general and administrative expenses 39,669 5,906 1,766 9 45,950
(1,391) 10
------------- ---------- ---------
Operating income 8,049 2,057 11,497
Interest and other income 76 533 609
Interest expense (2,225) (250) (1,398) 11 (3,873)
------------- ---------- ---------
Income before income taxes 5,900 2,340 8,233
Income tax expense 2,267 35 1,262 12 3,564
------------- ---------- ---------
Net Income $ 3,633 $ 2,305 $ 4,669
============= ========== =========
Earnings per common share:
Basic $ 0.56 $ 0.71
============= =========
Diluted $ 0.51 $ 0.62
============= =========
Weighted Average Common Shares Outstanding:
Basic 6,489 45 13 6,534
============= =========
Diluted 7,125 422 13 7,547
============= =========
See accompanying notes to unaudited pro forma condensed consolidated financial
information.
Guest Supply, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Fourteen Weeks Ended January 1, 1999
(In thousands, except per share data)
The following unaudited pro forma condensed consolidated statement of operations
has been prepared as if the Acquisition (see note 1) had occurred on October 1,
1997. The unaudited pro forma condensed consolidated statement of operations
combines the consolidated statement of operations of the Company for the
fourteen weeks ended January 1, 1999 with the combined statement of income of
Nasco for the quarter ended December 31, 1998 giving effect to adjustments for
for the Acquisition and related financing. Nasco's statement of income
information for the quarter ended December 31, 1998 is included in both the
statement below and in the unaudited proforma condensed consolidated statement
of operations for the year ended September 30, 1998 presented above.
Guest Supply Nasco Pro Forma Pro Forma
Historical Historical Adjustments Totals
------------ ---------- ----------- ---------
Sales $ 62,918 13,263 $ 76,181
Cost of sales 50,413 11,654 (495) 9 61,572
------------ ---------- ---------
Gross profit 12,505 1,609 14,609
Selling, general and administrative expenses 10,696 1,666 495 9 12,485
(372) 10
------------ ---------- ---------
Operating income 1,809 (57) 2,124
Interest and other income 6 528 534
Interest expense (502) (38) (350) 11 (890)
------------ ---------- ---------
Income before income taxes 1,313 433 1,768
Income tax expense 549 - 264 12 813
------------ ---------- ---------
Net Income $ 764 433 $ 955
============ ========== =========
Earnings per common share:
Basic $ 0.12 $ 0.15
============ =========
Diluted $ 0.11 $ 0.13
============ =========
Shares Outstanding:
Basic 6,381 45 13 6,426
============ =========
Diluted 6,824 422 13 7,246
============ =========
See accompanying notes to unaudited pro forma condensed consolidated financial
information.
Guest Supply, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
(dollars in thousands, except per share information)
1. Acquisition
On April 23, 1999, Guest Supply, Inc. (the "Company") completed the acquisition
of Kapadia Enterprises, Inc. d/b/a Nasco Supply Company and McDonald Contract
Sales, Inc. (collectively "Nasco"), acquiring all of the capital stock of the
privately-held distributor of textile products to the lodging industry from
Madhukar and Naina Kapadia. Nasco will continue to operate under the direction
of current management. The negotiated purchase price (the "Purchase Price")
paid in the Nasco acquisition was (i) $18,000 in cash at the closing of the
acquisition, which is subject to a post-closing purchase price adjustment, (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, (iii)
45,198 shares of the Company's Treasury Stock ($500 of Common Stock based on a
per share price of $11 1/16) and (iv) transaction costs (the "Acquisition"). The
purchase price adjustment is based upon Nasco's closing adjusted net worth, as
defined in the Agreement, subject to certain limitations described in the
Agreement.
Balance Sheet
- -------------
2. To reflect the elimination of property and building and related mortgage
payable not acquired/assumed in connection with the Acquisition.
3. To reflect the excess of acquisition costs over the estimated fair value of
net assets acquired after the elimination of property and building and
related mortgage payable not acquired/assumed by the Company and the accrual
of a pre-acquisition dividend to the Nasco shareholder. The purchase price
and preliminary purchase price allocation are summarized as follows:
Purchase price paid as:
Cash paid at closing $18,000
Convertible subordinated promissory note 5,000
Issuance of common stock 500
Transaction costs 750
-------
Total purchase consideration 24,250
Adjustments:
-----------
Historical net assets acquired after
elimination of property and building and
related mortgage payable not acquired/
assumed in connection with the acquisition
and after accrual for payment of a
pre-acquisition dividend payable to the
Nasco shareholder (see notes 2 and 4). (7,255)
-------
16,995
Deferred income tax asset (527)
-------
Excess of cost over net assets acquired (goodwill) $16,468
=======
4. To record pre-acquisition dividend payable to Nasco shareholder.
5. 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, National Association, 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 $18,000 cash portion of the Purchase Price, the $750 of
transaction costs 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 (6.25% at September
30, 1998). 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 .25% and .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.
6. To reflect the issuance of a $5,000 five-year, 5.18% convertible
subordinated promissory note (the "Note") in connection with the
acquisition. The Note is convertible into shares of the Company's common
stock, no par value, at a price of $13.275 per share.
7. To reflect the elimination of Nasco's historical common stock and additional
paid-in capital and the issuance of 45,198 shares of the Company's treasury
stock at $11.0625 per share.
8. To reflect the elimination of Nasco's historical retained earnings after
adjustments for the elimination of property and building and related
mortgage payable not acquired/assumed in connection with the acquisition and
after accrual for payment of a pre-acquisition dividend payable to the Nasco
shareholder.
Statements of Operations
- ------------------------
9. Adjustment to reflect certain reclassifications to conform to the Company's
presentation.
Fourteen
Year Ended Weeks Ended
Sept. 30, 1998 January 1, 1999
-------------- ---------------
10. Adjustment to eliminate compensation
paid to certain senior officers and a
consultant of Nasco based on new
employment agreements with such
individual. ($2,500) ($625)
To eliminate the depreciation expense
on the building not acquired in
connection with the acquisition (43) (11)
To reflect the additional occupancy
costs associated with the new operating
lease arrangement 329 58
To record the amortization of the
excess cost over the fair value of
net assets acquired over its
estimated life of 20 years 823 206
------- ------
($1,391) ($372)
======= ======
11. Adjustment to reflect the interest cost associated with the additional
borrowings required to finance the acquisition, other incremental interest
costs incurred in connection with the acquisition, and the elimination of
interest related to the Nasco Mortgage not assumed.
Fourteen
Year Ended Weeks Ended
Sept. 30, 1998 January 1, 1999
-------------- ---------------
Revolving Credit Facility $1,125 (a) $ 281
Convertible Subordinated Promissory Note 259 65
Incremental interest on Senior Notes 63 16
Incremental interest on Financing
Agreement 32 8
Elimination of Nasco's historical
interest expense on mortgage not assumed (81) (20)
------- -------
$1,398 $ 350
======= =======
(a) - A change of 1/8 of 1% in the assumed rate would result in a
corresponding change of $22.5 in annual interest expense.
12. As Nasco had elected to be taxed as an S corporation under the provisions
of the Internal Revenue Code, pro forma income tax expense has been
adjusted to reflect the effective C corporation income tax rate of the
Company for all periods presented, as well as, the income tax effects of
the Acquisition. The difference between the expense calculated at the
statutory rate (34%) and the amount reflected in the unaudited pro forma
condensed consolidated statement of operations is primarily attributable to
non-deductible goodwill and the provision for state income taxes.
The Acquisition has been treated as a stock acquisition for federal income
tax purposes in the accompanying unaudited pro forma condensed consolidated
financial information. However, the Company and Nasco may make an election
under Internal Revenue Code Section 338(h)(10) to treat the Acquisition as
an asset purchase for Federal income tax purposes if the Company concludes
that it is cost effective. Any tax benefits associated therewith would be
offset by a built-in gains tax payable by the Company to the Internal
Revenue Service. The tax benefits, if any, of making such an election have
not yet been determined.
13. For purposes of calculating unaudited pro forma basic earnings per common
share, the weighted average number of outstanding common shares reflects
the issuance of the Company's treasury stock in connection with the
Acquisition (see note 7). For purposes of calculating unaudited pro forma
diluted earnings per common share, in addition to the shares issued in
connection with the acquisition, the weighted average number of outstanding
common shares includes the conversion of the convertible subordinated
promissory note into the Company's common stock. For purposes of this
calculation, all shares and potential shares are assumed to be outstanding
throughout each period presented.
(c) Exhibit Index
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.
Pursuant to Reg, 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.
10(y)* Employment Agreement dated as of April 23, 1999 by and between the
Company and Madhukar Kapadia.
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.
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.
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 Annuity Insurance Company and Nationwide Life and Annuity Insurance
Company.
23 Consent of Carpenter Kuhen & Sprayberry, CPA's
99* Guest Supply, Inc. Press Release dated April 26, 1999.
* Previously Filed
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 hereunto duly authorized.
GUEST SUPPLY, INC.
------------------
(Registrant)
Date: June __, 1999 By:/s/ Paul T. Xenis
-----------------
Paul T. Xenis
Vice President - Finance