QuickLinks -- Click here to rapidly navigate through this document
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 March 31, 2001 Commission file number 0-4063
G & K SERVICES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA (State or other jurisdiction of incorporation or organization) | 41-0449530 (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 Common Stock, par value $.50 per share | Outstanding May 10, 2001 19,167,901 | |
CLASS B Common Stock, par value $.50 per share | Outstanding May 10, 2001 1,474,996 |
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
G&K Services, Inc. and Subsidiaries
| March 31, 2001 | July 1, 2000 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | | ||||||||
(In thousands, except share data) | ||||||||||
ASSETS | ||||||||||
Current Assets | ||||||||||
Cash and cash equivalents | $ | 6,373 | $ | 6,420 | ||||||
Accounts receivable, less allowance for doubtful accounts of $3,503 and $3,138 | 65,558 | 63,970 | ||||||||
Inventories | 91,140 | 89,975 | ||||||||
Prepaid expenses | 15,588 | 15,496 | ||||||||
Prepaid income taxes | — | 441 | ||||||||
Total current assets | 178,659 | 176,302 | ||||||||
Property, Plant and Equipment | ||||||||||
Land | 26,138 | 25,845 | ||||||||
Buildings and improvements | 108,688 | 101,636 | ||||||||
Machinery and equipment | 217,542 | 206,033 | ||||||||
Automobiles and trucks | 38,727 | 39,208 | ||||||||
Less accumulated depreciation | (169,915 | ) | (156,288 | ) | ||||||
Total property, plant and equipment | 221,180 | 216,434 | ||||||||
Other Assets | ||||||||||
Goodwill, net | 145,747 | 144,229 | ||||||||
Restrictive covenants and customer lists, net | 39,492 | 40,911 | ||||||||
Other, principally retirement plan assets | 17,467 | 17,076 | ||||||||
Total other assets | 202,706 | 202,216 | ||||||||
$ | 602,545 | $ | 594,952 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
Current Liabilities | ||||||||||
Accounts payable | $ | 14,041 | $ | 15,892 | ||||||
Accrued expenses | ||||||||||
Salaries and employee benefits | 23,082 | 19,678 | ||||||||
Other | 19,466 | 18,300 | ||||||||
Deferred income taxes | 14,209 | 14,406 | ||||||||
Current maturities of long-term debt | 47,578 | 58,355 | ||||||||
Total current liabilities | 118,376 | 126,631 | ||||||||
Long-Term Debt | 164,918 | 167,345 | ||||||||
Deferred Income Taxes | 14,179 | 15,243 | ||||||||
Other Noncurrent Liabilities | 14,178 | 14,211 | ||||||||
Stockholders' Equity | ||||||||||
Common stock, $.50 par | ||||||||||
Class A, 50,000,000 shares authorized, 19,135,230 and 19,061,299 shares issued and outstanding | 9,568 | 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 | 29,994 | 26,679 | ||||||||
Retained earnings | 271,349 | 246,629 | ||||||||
Deferred compensation | (5,353 | ) | (2,464 | ) | ||||||
Accumulated other comprehensive income | (15,402 | ) | (9,591 | ) | ||||||
Total stockholders' equity | 290,894 | 271,522 | ||||||||
$ | 602,545 | $ | 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 Nine Months Ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31, 2001 | March 25, 2000 | March 31, 2001 | March 25, 2000 | |||||||||||
(In thousands, except per share data) | |||||||||||||||
Revenues | |||||||||||||||
Rental operations | $ | 147,006 | $ | 138,792 | $ | 433,632 | $ | 405,207 | |||||||
Direct sales | 4,354 | 4,641 | 14,325 | 15,541 | |||||||||||
Total revenues | 151,360 | 143,433 | 447,957 | 420,748 | |||||||||||
Operating Expenses | |||||||||||||||
Cost of rental operations | 85,615 | 78,729 | 252,725 | 229,481 | |||||||||||
Cost of direct sales | 3,446 | 4,034 | 11,022 | 12,853 | |||||||||||
Selling and administrative | 35,325 | 31,294 | 100,541 | 92,574 | |||||||||||
Depreciation | 7,062 | 7,624 | 21,265 | 21,688 | |||||||||||
Amortization of intangibles | 2,541 | 2,377 | 7,503 | 6,754 | |||||||||||
Total operating expenses | 133,989 | 124,058 | 393,056 | 363,350 | |||||||||||
Income from Operations | 17,371 | 19,375 | 54,901 | 57,398 | |||||||||||
Interest expense | 4,211 | 4,291 | 13,006 | 12,344 | |||||||||||
Other income, net | (151 | ) | (210 | ) | (1,152 | ) | (541 | ) | |||||||
Income before Income Taxes | 13,311 | 15,294 | 43,047 | 45,595 | |||||||||||
Provision for income taxes | 5,324 | 6,133 | 17,248 | 18,220 | |||||||||||
Net Income | $ | 7,987 | $ | 9,161 | $ | 25,799 | $ | 27,375 | |||||||
Basic weighted average number of shares outstanding | 20,479 | 20,452 | 20,479 | 20,456 | |||||||||||
Basic Earnings Per Common Share | $ | 0.39 | $ | 0.45 | $ | 1.26 | $ | 1.34 | |||||||
Diluted weighted average number of shares outstanding | 20,482 | 20,455 | 20,493 | 20,497 | |||||||||||
Diluted Earnings Per Common Share | $ | 0.39 | $ | 0.45 | $ | 1.26 | $ | 1.34 | |||||||
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 Nine Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| March 31, 2001 | March 25, 2000 | ||||||||
(In thousands) | ||||||||||
Operating Activities: | ||||||||||
Net income | $ | 25,799 | $ | 27,375 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities— | ||||||||||
Depreciation and amortization | 28,768 | 28,442 | ||||||||
Deferred income taxes | (1,034 | ) | (181 | ) | ||||||
Changes in current operating items, exclusive of acquisitions— | ||||||||||
Accounts receivable and prepaid expenses | (1,829 | ) | (2,715 | ) | ||||||
Inventories | (531 | ) | (1,255 | ) | ||||||
Accounts payable and other accrued expenses | 3,057 | 11,833 | ||||||||
Other, net | 922 | 1,933 | ||||||||
Net cash provided by operating activities | 55,152 | 65,432 | ||||||||
Investing Activities: | ||||||||||
Property, plant and equipment additions, net | (25,519 | ) | (30,860 | ) | ||||||
Acquisition of business assets | (12,613 | ) | (35,029 | ) | ||||||
Purchase of investments, net | (735 | ) | (2,358 | ) | ||||||
Net cash used for investing activities | (38,867 | ) | (68,247 | ) | ||||||
Financing Activities: | ||||||||||
Proceeds from debt financing | 69,900 | 55,440 | ||||||||
Repayments of debt financing | (84,770 | ) | (55,055 | ) | ||||||
Cash dividends paid | (1,078 | ) | (1,077 | ) | ||||||
Sale of common stock | 37 | 215 | ||||||||
Net cash used for financing activities | (15,911 | ) | (477 | ) | ||||||
Increase (Decrease) in Cash and Cash Equivalents | 374 | (3,292 | ) | |||||||
Effect of Exchange Rates on Cash | (421 | ) | — | |||||||
Cash and Cash Equivalents: | ||||||||||
Beginning of period | 6,420 | 6,297 | ||||||||
End of period | $ | 6,373 | $ | 3,005 | ||||||
Supplemental Cash Flow Information: | ||||||||||
Cash paid for— | ||||||||||
Interest | $ | 11,637 | $ | 11,543 | ||||||
Income taxes | $ | 13,899 | $ | 11,772 | ||||||
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 nine month periods ended March 31, 2001 and March 25, 2000
(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 and the results of its operations and its cash flows for the periods presented. 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 are 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 nine month periods ended March 31, 2001, and March 25, 2000, 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.
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.
5
| Three Months Ended | Nine Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
| Mar. 31, 2001 | Mar. 25, 2000 | Mar. 31, 2001 | Mar. 25, 2000 | ||||
Weighted average number of common shares outstanding | 20,479 | 20,452 | 20,479 | 20,456 | ||||
Shares used in computation of basic earnings per share | 20,479 | 20,452 | 20,479 | 20,456 | ||||
Weighted average effect of non-vested restricted stock grants | — | — | — | 3 | ||||
Weighted average common shares issuable upon the exercise of stock options | 3 | 3 | 14 | 38 | ||||
Shares used in computation of diluted earnings per share | 20,482 | 20,455 | 20,493 | 20,497 | ||||
2. Comprehensive Income
For the three and nine month periods ended March 31, 2001 and March 25, 2000, the components of comprehensive income were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar. 31, 2001 | Mar. 25, 2000 | Mar. 31, 2001 | Mar. 25, 2000 | |||||||||
Net income | $ | 7,987 | $ | 9,161 | $ | 25,799 | $ | 27,375 | |||||
Other comprehensive income | |||||||||||||
Foreign currency translation adjustments, net of tax | (2,817 | ) | 287 | (4,130 | ) | 195 | |||||||
Unrealized gain on investments held for sale, net of tax | — | 95 | — | 204 | |||||||||
Net unrealized derivative loss | (592 | ) | — | (1,681 | ) | — | |||||||
Comprehensive income | $ | 4,578 | $ | 9,543 | $ | 19,988 | $ | 27,774 | |||||
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 $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.
6
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 nine month periods ended March 31, 2001 and March 25, 2000 is as follows:
For the Three Months Ended Mar. 31, 2001 and Mar. 25, 2000 | United States | Canada | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Fiscal Year 2001: | ||||||||||
Revenues | $ | 131,838 | $ | 19,522 | $ | 151,360 | ||||
Income from operations | 12,053 | 5,318 | 17,371 | |||||||
Capital expenditures | 6,977 | 1,989 | 8,966 | |||||||
Depreciation and amortization expense | 8,460 | 1,143 | 9,603 | |||||||
Fiscal Year 2000: | ||||||||||
Revenues | $ | 124,977 | $ | 18,456 | $ | 143,433 | ||||
Income from operations | 14,249 | 5,126 | 19,375 | |||||||
Capital expenditures | 8,227 | 427 | 8,654 | |||||||
Depreciation and amortization expense | 8,896 | 1,105 | 10,001 |
For the Nine Months Ended Mar. 31, 2001 and Mar. 25, 2000 | United States | Canada | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Fiscal Year 2001: | ||||||||||
Revenues | $ | 390,375 | $ | 57,582 | $ | 447,957 | ||||
Income from operations | 39,044 | 15,857 | 54,901 | |||||||
Capital expenditures | 22,432 | 3,087 | 25,519 | |||||||
Depreciation and amortization expense | 25,329 | 3,439 | 28,768 | |||||||
Fiscal Year 2000: | ||||||||||
Revenues | $ | 367,581 | $ | 53,167 | $ | 420,748 | ||||
Income from operations | 42,208 | 15,190 | 57,398 | |||||||
Capital expenditures | 29,242 | 1,618 | 30,860 | |||||||
Depreciation and amortization expense | 25,193 | 3,249 | 28,442 |
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 nine month periods ended March 31, 2001 and March 25, 2000, and the percentage changes in these income and expense items between periods are presented in the following table:
| Three Months Ended | Nine Months Ended | Percentage Change | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar. 31, 2001 | Mar. 25, 2000 | Mar. 31, 2001 | Mar. 25, 2000 | Three Months FY 2001 vs. FY 2000 | Nine Months FY 2001 vs. FY 2000 | |||||||||
Revenues: | |||||||||||||||
Rental | 97.1 | % | 96.8 | % | 96.8 | % | 96.3 | % | 5.9 | % | 7.0 | % | |||
Direct | 2.9 | 3.2 | 3.2 | 3.7 | (6.2 | ) | (7.8 | ) | |||||||
Total Revenues | 100.0 | 100.0 | 100.0 | 100.0 | 5.5 | 6.5 | |||||||||
Expenses: | |||||||||||||||
Cost of Rental Sales | 58.2 | 56.7 | 58.3 | 56.6 | 8.7 | 10.1 | |||||||||
Cost of Direct Sales | 79.1 | 86.9 | 76.9 | 82.7 | (14.6 | ) | (14.2 | ) | |||||||
Total Cost of Sales | 58.8 | 57.7 | 58.9 | 57.6 | 7.6 | 8.8 | |||||||||
Selling and Administrative | 23.3 | 21.8 | 22.4 | 22.0 | 12.9 | 8.6 | |||||||||
Depreciation | 4.7 | 5.3 | 4.7 | 5.2 | (7.4 | ) | (2.0 | ) | |||||||
Amortization of Intangibles | 1.7 | 1.7 | 1.7 | 1.6 | 6.9 | 11.1 | |||||||||
Income from Operations | 11.5 | 13.5 | 12.3 | 13.6 | (10.3 | ) | (4.4 | ) | |||||||
Interest Expense | 2.8 | 2.9 | 2.9 | 2.9 | (1.9 | ) | 5.4 | ||||||||
Other Income, net | (0.1 | ) | (0.1 | ) | (0.2 | ) | (0.1 | ) | (28.1 | ) | 112.9 | ||||
Income Before Income Taxes | 8.8 | 10.7 | 9.6 | 10.8 | (13.0 | ) | (5.6 | ) | |||||||
Provision for Income Taxes | 3.5 | 4.3 | 3.8 | 4.3 | (13.2 | ) | (5.3 | ) | |||||||
Net Income | 5.3 | % | 6.4 | % | 5.8 | % | 6.5 | % | (12.8 | )% | (5.8 | )% | |||
Total revenues for the third quarter of fiscal 2001 increased 5.5% to $151.4 million from $143.4 million in the third quarter of fiscal 2000 and increased 6.5% to $448.0 million for the first nine months of fiscal 2001 from $420.7 million in the same period of fiscal 2000. Rental revenue growth for the third quarter accounted for $8.2 million, or a 5.9% increase and for the first nine months of fiscal 2001 it accounted for $28.4 million or a 7.0% increase. The increase in revenue reflects the Company's growth initiatives, including programs to address rising operating costs, partially offset by the negative impact of the sharper than expected downturn in the economy.
Total direct sales decreased 6.2% to $4.4 million for the third quarter of fiscal 2001 compared to $4.6 million in the same period of fiscal 2000 and decreased 7.8% to $14.3 million for the first nine months of fiscal 2001 from $15.5 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 79.1% for the third quarter of fiscal 2001 from 86.9% in the same period of fiscal 2000 and decreased to 76.9% for the first nine months of fiscal 2001 from 82.7% 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 8.7% to $85.6 million for the third quarter of fiscal 2001 from $78.7 million in the same period of fiscal 2000 and increased 10.1% to $252.7 million for the first nine months of fiscal 2001 from $229.5 million in the same period of fiscal 2000. As a percentage of rental revenues, these costs increased to 58.2% for the third quarter of fiscal 2001 from 56.7% in the same period of fiscal 2000 and increased to
8
58.3% for the first nine months of fiscal 2001 from 56.6% in the same period of fiscal 2000. The increase reflects higher natural gas prices, increased employee benefit costs and the margin impact on lost revenue as a result of the current economic conditions.
Selling and administrative expenses increased 12.9% to $35.3 million in the third quarter of fiscal 2001 from $31.3 million in the same period of fiscal 2000 and increased 8.6% to $100.5 million for the first nine months of fiscal 2001 from $92.6 million in the same period of fiscal 2000. As a percentage of revenues, selling and administrative expenses increased to 23.3% in the third quarter of fiscal 2001 from 21.8% in the same period of fiscal 2000 and increased to 22.4% in the nine-month period of fiscal 2001 from 22.0% in the same period of fiscal 2000. The increase in selling and administrative expense was driven by the information systems initiatives focused on enhancing revenue growth and improving human resource management. Also contributing to the increase were additional bad debt expenses associated with the slowing economy.
Depreciation expense decreased 7.4% to $7.1 million in the third quarter of fiscal 2001 from $7.6 million in the same period of fiscal 2000 and decreased 2.0% to $21.3 million for the first nine months of fiscal 2001 from $21.7 million in the same period of fiscal 2000. As a percentage of revenues, depreciation expense decreased to 4.7% in the third quarter of fiscal 2001 from 5.3% in the same period of fiscal 2000 and decreased to 4.7% in the nine-month period of fiscal 2001 from 5.2% 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 $9.0 million in the third quarter of fiscal 2001 compared to $8.7 million in the prior year's quarter and for the nine-month period they were $25.5 million compared to $30.9 million in the prior year. The decrease in capital expenditures is due to reduced spending on new plant construction in the current year.
Amortization expense increased 6.9% to $2.5 million in the third quarter of fiscal 2001 from $2.4 million in the third quarter of fiscal 2000 and increased 11.1% to $7.5 million in the first nine months of fiscal 2001 from $6.8 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 10.3% to $17.4 million in the third quarter of fiscal 2001 from $19.4 million in the same period of fiscal 2000 and decreased 4.4% to $54.9 million for the first nine months of fiscal 2001 from $57.4 million in the same period of fiscal 2000. Operating margins decreased to 11.5% for the third quarter of fiscal 2001 from 13.5% in the same period of fiscal 2000 and decreased to 12.3% for the nine-month period of fiscal 2001 from 13.6% in the same period of fiscal 2000.
Interest expense was $4.2 million for the third quarter of fiscal 2001, down from $4.3 million in the same period of fiscal 2000 and was $13.0 million for the first nine months of fiscal 2001, up from $12.3 million in the same period of fiscal 2000. The increase in interest expense for the nine-month period was due primarily to higher average interest rates during the past year. The Company's effective tax rate was 40.0% in the third quarter of fiscal 2001, down from 40.1% in the same period of fiscal 2000 and it increased to 40.1% in the nine-month period of fiscal 2001 from 40.0% in the same period of fiscal 2000.
Net income decreased 12.8% to $8.0 million in the third quarter of fiscal 2001 from $9.2 million in the same period of fiscal 2000 and decreased 5.8% to $25.8 million in the first nine months of fiscal 2001 from $27.4 million in the first nine months of fiscal 2000. Basic and diluted earnings per share for the third quarter of fiscal 2001 were $0.39 per share, compared to $0.45 per share for the prior year quarter. Basic and diluted earnings per share for the first nine months of fiscal 2001 decreased to $1.26 per share from $1.34 per share. Net income margins decreased to 5.3% for the third quarter of fiscal 2001 compared with 6.4% in the third quarter of fiscal 2000 and decreased to 5.8% for the nine-month period of fiscal 2001 compared with 6.5% in the nine-month period of fiscal 2000.
LIQUIDITY AND FINANCIAL RESOURCES
Cash flow from operating activities was $55.2 million in the nine-month period of fiscal 2001 and $65.4 million in the same period of fiscal 2000. The greater cash flow in fiscal 2000 was partially due to increases in
9
accounts payable and other accrued expenses in connection with acquired operations. Working capital at March 31, 2001 was $60.3 million, up 21.4% 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 $38.9 million in the nine-month period of fiscal 2001 and $68.2 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 $15.9 million in the nine-month period of fiscal 2001 and $0.5 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 $212.5 million at March 31, 2001 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 42.2% at the end of the third quarter of fiscal 2001 from 45.4% at July 1, 2000.
Stockholders' equity grew 7.1% to $290.9 million at March 31, 2001, compared with $271.5 million at the end of fiscal 2000. G&K's return on average equity decreased to 9.2% for the nine-month period of fiscal 2001 compared with 11.0% 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 March 31, 2001.
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
None
ITEM 6. Exhibits and Reports on Form 8-K
- a.
- Exhibits
None
- b.
- Reports on Form 8-K
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: May 15, 2001 | /s/ JEFFREY L. WRIGHT Jeffrey L. Wright Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer) | |
/s/ MICHAEL F. WOODARD Michael F. Woodard Controller (Principal Accounting Officer) |
12
PART I FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II OTHER INFORMATION
SIGNATURES