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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 30, 2000 Commission file number 0-4063
G&K SERVICES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA | 41-0449530 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5995 OPUS PARKWAY, SUITE 500
MINNETONKA, MINNESOTA 55343
(Address of principal executive offices and zip code)
(952) 912-5500
(Registrant's telephone number, including area code)
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.
YES /x/ | NO / / |
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.
CLASS A | Outstanding February 8, 2001 | |
Common Stock, par value $.50 per share | 19,063,983 |
CLASS B | Outstanding February 8, 2001 | |
Common Stock, par value $.50 per share | 1,474,996 |
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
G&K Services, Inc. and Subsidiaries
(In thousands, except share data) | December 30, 2000 | July 1, 2000 | |||||||
---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | | |||||||
ASSETS | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | $ | 4,100 | $ | 6,420 | |||||
Accounts receivable, less allowance for doubtful accounts of $3,459 and $3,138 | 70,191 | 63,970 | |||||||
Inventories | 92,398 | 89,975 | |||||||
Prepaid expenses | 14,063 | 15,496 | |||||||
Prepaid income taxes | — | 441 | |||||||
Total current assets | 180,752 | 176,302 | |||||||
Property, Plant and Equipment | |||||||||
Land | 25,984 | 25,845 | |||||||
Buildings and improvements | 108,543 | 101,636 | |||||||
Machinery and equipment | 212,655 | 206,033 | |||||||
Automobiles and trucks | 38,910 | 39,208 | |||||||
Less accumulated depreciation | (165,692 | ) | (156,288 | ) | |||||
Total property, plant and equipment | 220,400 | 216,434 | |||||||
Other Assets | |||||||||
Goodwill, net | 147,589 | 144,229 | |||||||
Restrictive covenants and customer lists, net | 41,210 | 40,911 | |||||||
Other, principally retirement plan assets | 16,836 | 17,076 | |||||||
Total other assets | 205,635 | 202,216 | |||||||
$ | 606,787 | $ | 594,952 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current Liabilities | |||||||||
Accounts payable | $ | 15,762 | $ | 15,892 | |||||
Accrued expenses | |||||||||
Salaries and employee benefits | 22,058 | 19,678 | |||||||
Other | 21,216 | 18,300 | |||||||
Deferred income taxes | 14,361 | 14,406 | |||||||
Current maturities of long-term debt | 45,812 | 58,355 | |||||||
Total current liabilities | 119,209 | 126,631 | |||||||
Long-Term Debt | 172,248 | 167,345 | |||||||
Deferred Income Taxes | 14,770 | 15,243 | |||||||
Other Noncurrent Liabilities | 14,101 | 14,211 | |||||||
Stockholders' Equity | |||||||||
Common stock, $.50 par | |||||||||
Class A, 50,000,000 shares authorized, 19,063,550 and 19,061,299 shares issued and outstanding | 9,532 | 9,531 | |||||||
Class B, 10,000,000 shares authorized, 1,474,996 and 1,474,996 shares issued and outstanding | 738 | 738 | |||||||
Additional paid-in capital | 26,702 | 26,679 | |||||||
Retained earnings | 263,723 | 246,629 | |||||||
Deferred compensation | (2,243 | ) | (2,464 | ) | |||||
Accumulated other comprehensive income | (11,993 | ) | (9,591 | ) | |||||
Total stockholders' equity | 286,459 | 271,522 | |||||||
$ | 606,787 | $ | 594,952 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF INCOME
G&K Services, Inc. and Subsidiaries
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands, except per share data) | Dec. 30, 2000 | Dec. 25, 1999 | Dec. 30, 2000 | Dec. 25, 1999 | |||||||||||
Revenues | |||||||||||||||
Rental operations | $ | 144,728 | $ | 135,879 | $ | 286,626 | $ | 266,415 | |||||||
Direct sales | 5,928 | 6,476 | 9,971 | 10,900 | |||||||||||
Total revenues | 150,656 | 142,355 | 296,597 | 277,315 | |||||||||||
Operating Expenses | |||||||||||||||
Cost of rental operations | 85,947 | 77,571 | 167,110 | 150,752 | |||||||||||
Cost of direct sales | 4,261 | 5,106 | 7,576 | 8,819 | |||||||||||
Selling and administrative | 33,384 | 31,564 | 65,216 | 61,280 | |||||||||||
Depreciation | 7,203 | 7,060 | 14,203 | 14,064 | |||||||||||
Amortization of intangibles | 2,537 | 2,237 | 4,962 | 4,377 | |||||||||||
Total operating expenses | 133,332 | 123,538 | 259,067 | 239,292 | |||||||||||
Income from Operations | 17,324 | 18,817 | 37,530 | 38,023 | |||||||||||
Interest expense | 4,396 | 4,167 | 8,795 | 8,053 | |||||||||||
Other (income) expense, net | (420 | ) | 242 | (1,001 | ) | (331 | ) | ||||||||
Income before Income Taxes | 13,348 | 14,408 | 29,736 | 30,301 | |||||||||||
Provision for income taxes | 5,353 | 5,777 | 11,924 | 12,087 | |||||||||||
Net Income | $ | 7,995 | $ | 8,631 | $ | 17,812 | $ | 18,214 | |||||||
Basic weighted average number of shares outstanding | 20,480 | 20,357 | 20,479 | 20,458 | |||||||||||
Basic Earnings Per Common Share | $ | 0.39 | $ | 0.42 | $ | 0.87 | $ | 0.89 | |||||||
Diluted weighted average number of shares outstanding | 20,495 | 20,400 | 20,499 | 20,517 | |||||||||||
Diluted Earnings Per Common Share | $ | 0.39 | $ | 0.42 | $ | 0.87 | $ | 0.89 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
G & K Services, Inc. and Subsidiaries
(Unaudited)
| For the Six Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In thousands) | December 30, 2000 | December 25, 1999 | ||||||||
Operating Activities: | ||||||||||
Net income | $ | 17,812 | $ | 18,214 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities— | ||||||||||
Depreciation and amortization | 19,165 | 18,441 | ||||||||
Deferred income taxes | (462 | ) | (139 | ) | ||||||
Changes in current operating items, exclusive of acquisitions— | ||||||||||
Accounts receivable and prepaid expenses | (4,298 | ) | (6,529 | ) | ||||||
Inventories | (1,211 | ) | (3,481 | ) | ||||||
Accounts payable and other accrued expenses | 5,220 | 16,987 | ||||||||
Other, net | 466 | 1,475 | ||||||||
Net cash provided by operating activities | 36,692 | 44,968 | ||||||||
Investing Activities: | ||||||||||
Property, plant and equipment additions, net | (16,553 | ) | (22,206 | ) | ||||||
Acquisition of business assets | (12,459 | ) | (34,783 | ) | ||||||
Purchase of investments, net | (519 | ) | (2,086 | ) | ||||||
Net cash used for investing activities | (29,531 | ) | (59,075 | ) | ||||||
Financing Activities: | ||||||||||
Proceeds from debt financing | 64,100 | 42,527 | ||||||||
Repayments of debt financing | (72,819 | ) | (31,256 | ) | ||||||
Cash dividends paid | (718 | ) | (717 | ) | ||||||
Sale of common stock | 1 | 207 | ||||||||
Net cash provided by (used for) financing activities | (9,436 | ) | 10,761 | |||||||
Decrease in Cash and Cash Equivalents | (2,275 | ) | (3,346 | ) | ||||||
Effect of Exchange Rates on Cash | (45 | ) | 5 | |||||||
Cash and Cash Equivalents: | ||||||||||
Beginning of period | 6,420 | 6,297 | ||||||||
End of period | $ | 4,100 | $ | 2,956 | ||||||
Supplemental Cash Flow Information: | ||||||||||
Cash paid for— | ||||||||||
Interest | $ | 6,863 | $ | 7,450 | ||||||
Income taxes | $ | 8,963 | $ | 6,935 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
G&K SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
Three and six month periods ended December 30, 2000 and December 25, 1999
(Unaudited)
The consolidated financial statements included herein, except for the July 1, 2000 balance sheet which was extracted from the audited consolidated financial statements for the fiscal year ended July 1, 2000, have been prepared by G&K Services, Inc. (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of December 30, 2000, and the results of its operations and its cash flows for the three and six month periods ended December 30, 2000 and December 25, 1999. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures herein are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report.
The results of operations for the three and six month periods ended December 30, 2000, and December 25, 1999, are not necessarily indicative of the results to be expected for the full year.
1. Summary of Significant Accounting Policies
Accounting policies followed by the Company are set forth in Note 1 to the Company's Annual Consolidated Financial Statements.
Nature of Business
G&K Services, Inc. is a full-service uniform rental provider, including the rental of cleanroom garments. The Company also provides rental of nonuniform items such as floormats, dustmops and cloths, wiping towels and selected linen items. In addition, the Company manufactures uniforms for customers as well as uniforms for direct sale.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Significant intercompany balances and transactions have been eliminated in consolidation.
Derivative Financial Instruments
Derivative financial instruments are used by the Company in the management of its interest rate exposure. Amounts to be paid or received under interest rate swap agreements are accrued as interest rates change and are recognized over the life of the swap agreements as an adjustment to interest expense. The related amounts payable to, or receivable from, the counterparties are included in other accrued expenses.
5
Per Share Data
Basic earnings per common share was computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share was computed similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and other dilutive securities (including nonvested restricted stock) using the treasury stock method.
| Three Months Ended | Six Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
| Dec. 30, 2000 | Dec. 25, 1999 | Dec. 30, 2000 | Dec. 25, 1999 | ||||
Weighted average number of common shares outstanding | 20,480 | 20,357 | 20,479 | 20,458 | ||||
Shares used in computation of basic earnings per share | 20,480 | 20,357 | 20,479 | 20,458 | ||||
Weighted average effect of non-vested restricted stock grants | — | 1 | — | 4 | ||||
Weighted average common shares issuable upon the exercise of stock options | 15 | 42 | 20 | 55 | ||||
Shares used in computation of diluted earnings per share | 20,495 | 20,400 | 20,499 | 20,517 | ||||
2. Comprehensive Income
For the three and six month periods ended December 30, 2000 and December 25, 1999, the components of comprehensive income were as follows:
| Three Months Ended | Six Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 30, 2000 | Dec. 25, 1999 | Dec. 30, 2000 | Dec. 25, 1999 | ||||||||||
Net income | $ | 7,995 | $ | 8,631 | $ | 17,812 | $ | 18,214 | ||||||
Other comprehensive income | ||||||||||||||
Foreign currency translation adjustments, net of tax | (75 | ) | 358 | (1,313 | ) | (92 | ) | |||||||
Unrealized gain on investments held for sale, net of tax | — | 322 | — | 109 | ||||||||||
Net unrealized derivative loss | (656 | ) | — | (1,089 | ) | — | ||||||||
Comprehensive income | $ | 7,264 | $ | 9,311 | $ | 15,410 | $ | 18,231 | ||||||
3. Long-Term Debt
During the first quarter of fiscal 2001, the Company completed a $50,000, 8.40% private placement debt transaction with certain institutional investors. The 10-year notes have a seven-year average life. According to the note purchase agreement, an initial take-down of $20,000 was completed on July 20, 2000, a second take-down of $15,000 was completed on September 15, 2000 and a final take-down of
6
$15,000 was completed on December 15, 2000. Each take-down bears the same coupon of 8.40%. The Company has used the net proceeds from the sale of the notes to repay existing indebtedness under its term loan and revolving credit facility and for general corporate purposes.
4. Segment Information
The Company has two operating segments under the guidelines of SFAS No. 131: United States and Canada. Each operating segment derives revenues from the uniform rental business which includes garment rental and nonuniform items such as floormats, dust mops and cloths, wiping towels and selected linen items. No one customer's transactions account for 10% or more of the Company's revenues.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1). Financial information by geographic location for the three and six month periods ended December 30, 2000 and December 25, 1999 is as follows:
For the Three Months Ended Dec. 30, 2000 and Dec. 25, 1999 | United States | Canada | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Fiscal Year 2001: | ||||||||||
Revenues | $ | 131,477 | $ | 19,179 | $ | 150,656 | ||||
Income from operations | 11,941 | 5,383 | 17,324 | |||||||
Capital expenditures | 7,779 | 555 | 8,334 | |||||||
Depreciation and amortization expense | 8,606 | 1,134 | 9,740 | |||||||
Fiscal Year 2000: | ||||||||||
Revenues | $ | 124,263 | $ | 18,092 | $ | 142,355 | ||||
Income from operations | 13,584 | 5,233 | 18,817 | |||||||
Capital expenditures | 8,844 | 331 | 9,175 | |||||||
Depreciation and amortization expense | 8,213 | 1,084 | 9,297 |
For the Six Months Ended Dec. 30, 2000 and Dec. 25, 1999 | United States | Canada | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Fiscal Year 2001: | ||||||||||
Revenues | $ | 258,537 | $ | 38,060 | $ | 296,597 | ||||
Income from operations | 26,991 | 10,539 | 37,530 | |||||||
Capital expenditures | 15,455 | 1,098 | 16,553 | |||||||
Depreciation and amortization expense | 16,869 | 2,296 | 19,165 | |||||||
Fiscal Year 2000: | ||||||||||
Revenues | $ | 242,604 | $ | 34,711 | $ | 277,315 | ||||
Income from operations | 27,959 | 10,064 | 38,023 | |||||||
Capital expenditures | 21,015 | 1,191 | 22,206 | |||||||
Depreciation and amortization expense | 16,297 | 2,144 | 18,441 |
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
The percentage relationships to net sales of certain income and expense items for the three and six month periods ended December 30, 2000 and December 25, 1999, and the percentage changes in these income and expense items between periods are presented in the following table:
| Three Months Ended | Six Months Ended | Percentage Change | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 30, 2000 | Dec. 25, 1999 | Dec. 30, 2000 | Dec. 25, 1999 | Three Months FY 2001 vs. FY 2000 | Six Months FY 2001 vs. FY 2000 | |||||||||
Revenues: | |||||||||||||||
Rental | 96.1 | % | 95.5 | % | 96.6 | % | 96.1 | % | 6.5 | % | 7.6 | % | |||
Direct | 3.9 | 4.5 | 3.4 | 3.9 | (8.5 | ) | (8.5 | ) | |||||||
Total Revenues | 100.0 | 100.0 | 100.0 | 100.0 | 5.8 | 7.0 | |||||||||
Expenses: | |||||||||||||||
Cost of Rental Sales | 59.4 | 57.1 | 58.3 | 56.6 | 10.8 | 10.9 | |||||||||
Cost of Direct Sales | 71.9 | 78.8 | 76.0 | 80.9 | (16.5 | ) | (14.1 | ) | |||||||
Total Cost of Sales | 59.9 | 58.1 | 58.9 | 57.5 | 9.1 | 9.5 | |||||||||
Selling and Administrative | 22.2 | 22.2 | 22.0 | 22.1 | 5.8 | 6.4 | |||||||||
Depreciation | 4.8 | 4.9 | 4.8 | 5.1 | 2.0 | 1.0 | |||||||||
Amortization of Intangibles | 1.6 | 1.6 | 1.6 | 1.6 | 13.4 | 13.4 | |||||||||
Income from Operations | 11.5 | 13.2 | 12.7 | 13.7 | (7.9 | ) | (1.3 | ) | |||||||
Interest Expense | 2.9 | 2.9 | 3.0 | 2.9 | 5.5 | 9.2 | |||||||||
Other (Income) Expense, net | (0.3 | ) | 0.2 | (0.3 | ) | (0.1 | ) | 273.6 | 202.4 | ||||||
Income Before Income Taxes | 8.9 | 10.1 | 10.0 | 10.9 | (7.4 | ) | (1.9 | ) | |||||||
Provision for Income Taxes | 3.6 | 4.0 | 4.0 | 4.3 | (7.3 | ) | (1.3 | ) | |||||||
Net Income | 5.3 | % | 6.1 | % | 6.0 | % | 6.6 | % | (7.4 | )% | (2.2 | )% | |||
Total revenues for the second quarter of fiscal 2001 increased 5.8% to $150.7 million from $142.4 million in the second quarter of fiscal 2000 and increased 7.0% to $296.6 million for the first six months of fiscal 2001 from $277.3 million in the same period of fiscal 2000. Rental revenue growth for the second quarter accounted for $8.8 million, or a 6.5% increase and for the first six months of fiscal 2001 it accounted for $20.2 million, or a 7.6% increase. In addition to the growth in local and regional accounts, the Company has continued to aggressively build its presence in the national account market through both new sales and further penetration of existing national accounts.
Total direct sales decreased 8.5% to $5.9 million for the second quarter of fiscal 2001 compared to $6.5 million in the same period of fiscal 2000 and decreased 8.5% to $10.0 million for the first six months of fiscal 2001 from $10.9 million in the same period of fiscal 2000. Direct sale revenue is down as the Company continues to focus on improving efficiency and productivity of its direct sale operation. Cost of direct sales, as a percentage of direct sales, decreased to 71.9% for the second quarter of fiscal 2001 from 78.8% in the same period of fiscal 2000 and decreased to 76.0% for the first six months of fiscal 2001 from 80.9% in the same period of fiscal 2000. The improvement in gross margin was driven by the progress made in the fulfillment operation.
Cost of rental operations increased 10.8% to $85.9 million for the second quarter of fiscal 2001 from $77.6 million in the same period of fiscal 2000 and increased 10.9% to $167.1 million for the first
8
six months of fiscal 2001 from $150.8 million in the same period of fiscal 2000. As a percentage of rental revenues, these costs increased to 59.4% for the second quarter of fiscal 2001 from 57.1% in the same period of fiscal 2000 and increased to 58.3% for the first six months of fiscal 2001 from 56.6% in the same period of fiscal 2000. The increase reflects higher gasoline prices, higher natural gas prices, increased employee benefit costs and lower operating performance from one region in the United States.
Selling and administrative expenses increased 5.8% to $33.4 million in the second quarter of fiscal 2001 from $31.6 million in the same period of fiscal 2000 and increased 6.4% to $65.2 million for the first six months of fiscal 2001 from $61.3 million in the same period of fiscal 2000. As a percentage of revenues, selling and administrative expenses remained constant at 22.2% in the second quarter of fiscal 2001, unchanged from the same period of fiscal 2000 and decreased to 22.0% in the six month period of fiscal 2001 from 22.1% in the same period of fiscal 2000.
Depreciation expense increased 2.0% to $7.2 million in the second quarter of fiscal 2001 from $7.1 million in the same period of fiscal 2000 and increased 1.0% to $14.2 million for the first six months of fiscal 2001 from $14.1 million in the same period of fiscal 2000. As a percentage of revenues, depreciation expense decreased to 4.8% in the second quarter of fiscal 2001 from 4.9% in the same period of fiscal 2000 and decreased to 4.8% in the six month period of fiscal 2001 from 5.1% in the same period of fiscal 2000. Additional depreciation on fixed asset additions supporting revenue growth were largely offset by the equipment purchased in fiscal 1998 from the National Linen Service acquisition that is now fully depreciated and equipment leasing programs used for fleet and computer equipment. Capital expenditures, excluding acquisition of businesses, were $8.3 million in the second quarter of fiscal 2001 compared to $9.2 million in the prior year's quarter and for the six month period they were $16.6 million compared to $22.2 million in the prior year. The decrease in capital expenditures is due to lower new plant construction in the current year.
Amortization expense increased 13.4% to $2.5 million in the second quarter of fiscal 2001 from $2.2 million in the second quarter of fiscal 2000 and increased 13.4% to $5.0 million in the first six months of fiscal 2001 from $4.4 million in the same period of fiscal 2000. The increase in amortization expense is due to the goodwill associated with acquisitions made during fiscal years 2000 and 2001.
Income from operations decreased 7.9% to $17.3 million in the second quarter of fiscal 2001 from $18.8 million in the same period of fiscal 2000 and decreased 1.3% to $37.5 million for the first six months of fiscal 2001 from $38.0 million in the same period of fiscal 2000. Operating margins decreased to 11.5% for the second quarter of fiscal 2001 from 13.2% in the same period of fiscal 2000 and decreased to 12.7% for the six month period of fiscal 2001 from 13.7% in the same period of fiscal 2000.
Interest expense was $4.4 million for the second quarter of fiscal 2001, up from $4.2 million in the same period of fiscal 2000 and was $8.8 million for the first six months of fiscal 2001, up from $8.1 million in the same period of fiscal 2000. The increase in interest expense is due primarily to rising interest rates during the past year. The Company's effective tax rate was 40.1% in the second quarter of fiscal 2001, unchanged from the same period of fiscal 2000 and it increased to 40.1% in the six month period of fiscal 2001 from 39.9% in the same period of fiscal 2000.
Net income decreased 7.4% to $8.0 million in the second quarter of fiscal 2001 from $8.6 million in the same period of fiscal 2000 and decreased 2.2% to $17.8 million in the first six months of fiscal 2001 from $18.2 million in the first six months of fiscal 2000. Basic and diluted earnings per share for the second quarter of fiscal 2001 were $0.39 per share, compared to $0.42 per share for the prior year quarter. Basic and diluted earnings per share for the first six months of fiscal 2001 decreased to $0.87 per share from $0.89 per share. Net income margins decreased to 5.3% for the second quarter of fiscal 2001 compared with 6.1% in the second quarter of fiscal 2000 and decreased to 6.0% for the six month period of fiscal 2001 compared with 6.6% in the six month period of fiscal 2000.
9
LIQUIDITY AND FINANCIAL RESOURCES
Cash flow from operating activities was $36.7 million in the six month period of fiscal 2001 and $45.0 million in the same period of fiscal 2000. The greater cash flow in fiscal 2000 was partially due to increases in accounts payable and other accrued expenses in connection with acquired operations. Working capital at December 30, 2000 was $61.5 million, up 23.9% from $49.7 million at July 1, 2000. The increase in working capital is largely due to the issuance of $50 million of senior long-term debt replacing amounts outstanding under other credit facilities that were classified as current maturities of long-term debt at year end.
Cash used in investing activities was $29.5 million in the six month period of fiscal 2001 and $59.1 million in the same period of fiscal 2000. The decrease is related to the activity of acquiring business assets in these periods.
Cash used for financing activities was $9.4 million in the six month period of fiscal 2001 and cash provided by financing activities was $10.8 million in the same period of fiscal 2000. The change is partially related to the activity of acquiring business assets. The long-term debt, including current maturities, decreased to $218.1 million at December 30, 2000 from $225.7 million at July 1, 2000. The Company paid dividends of $0.4 million during the quarter. The Company's ratio of debt to total capitalization decreased to 43.2% at the end of the second quarter of fiscal 2001 from 45.4% at July 1, 2000.
Stockholders' equity grew 5.5% to $286.5 million at December 30, 2000, compared with $271.5 million at the end of fiscal 2000. G&K's return on average equity decreased to 6.4% for the six month period of fiscal 2001 compared with 7.4% for the same period of fiscal 2000.
Management believes that cash flows generated from operations and its credit facilities should provide adequate funding for its current businesses and planned expansion of operations or any future acquisitions.
MARKET RISK SENSITIVITY
The Company uses financial instruments, including fixed and variable rate debt, as well as interest rate swaps, to finance operations and to hedge interest rate exposures. The swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company does not enter into contracts for speculative purposes, nor is it a party to any leveraged instrument. There has been no material change in the Company's market risks associated with debt and interest rate swap obligations during the quarter ended December 30, 2000.
Statements in this document regarding ongoing trends and expectations constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, which may cause the Company's actual results in the future to differ materially from expected results. These risks and uncertainties include, but are not limited to, unforeseen operating risks; the availability of capital to finance planned growth; competition within the uniform leasing industry; and the effects of economic conditions.
10
ITEM 4. Submission of Matters to a Vote of Security Holders
- a.
- The Company held its Annual Meeting of Stockholders on October 26, 2000.
- b.
- The following eight persons were elected directors: Paul Baszucki, Richard Fink, Wayne M. Fortun, Donald W. Goldfus, William Hope, Thomas Moberly, Bernard Sweet and D.R. Verdoorn.
- c.
- 1. Each director nominee received the following votes:
| Shares | |||
---|---|---|---|---|
| In Favor | Withhold Authority | ||
Baszucki | 30,761,834 | 329,836 | ||
Fink | 30,762,933 | 328,737 | ||
Fortun | 30,761,830 | 329,840 | ||
Goldfus | 30,762,815 | 328,855 | ||
Hope | 30,693,782 | 397,888 | ||
Moberly | 30,763,485 | 328,185 | ||
Sweet | 30,759,328 | 332,342 | ||
Verdoorn | 30,752,611 | 339,059 |
- 2.
- Stockholders ratified the appointment of Arthur Andersen LLP, Certified Public Accountants, as independent auditors of the Company for 2001: 31,025,405 shares in favor, 48,014 shares voting against and 18,251 shares abstaining.
ITEM 6. Exhibits and Reports on Form 8-K
- a.
- Exhibits
- b.
- Reports on Form 8-K
None
None
11
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
G&K SERVICES, INC. (Registrant) | ||||
Date: February 13, 2001 | By: | /s/ JEFFREY L. WRIGHT Jeffrey L. Wright Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer) | ||
By: | /s/ MICHAEL F. WOODARD Michael F. Woodard Controller (Principal Accounting Officer) |
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PART I FINANCIAL INFORMATION
G&K SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II OTHER INFORMATION
SIGNATURES