SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended April 1, 1995, 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 (I.R.S. Employer
incorporation or organization) Identification No.)
505 WATERFORD PARK, STE. 455
MINNEAPOLIS, MINNESOTA 55441
(Address of principal executive offices and zip code)
(612) 546-7440
(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 April 28, 1995
Common Stock, par value $.50 per share 18,543,360
CLASS B Outstanding April 28, 1995
Common Stock, par value $.50 per share 1,865,089
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
G&K SERVICES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
April 1, 1995
(Unaudited)
April 1, July 2, April 2,
1995 1994 1994
ASSETS
CURRENT ASSETS
Cash $ 223 $ 5,131 $ 2,684
Accounts receivable, net 30,229 26,326 25,181
Inventories-
New goods 16,223 6,904 7,080
Goods in service 27,515 22,774 21,657
Prepaid expenses 3,413 2,395 3,105
Total current assets 77,603 63,530 59,707
PROPERTY, PLANT AND EQUIPMENT
Land 16,134 14,495 12,333
Buildings and improvements 48,990 40,984 40,806
Machinery and equipment 107,505 93,440 90,881
Automobiles and trucks 18,835 15,812 14,874
Less accumulated depreciation (85,485) (75,147) (73,452)
105,979 89,584 85,442
OTHER ASSETS
Goodwill 36,086 35,188 35,436
Restrictive covenants, customer lists
and other assets arising from acquisitions 8,788 9,408 10,037
Other assets 8,372 7,354 6,786
Total other assets 53,246 51,950 52,259
$ 236,828 $ 205,064 $ 197,408
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,314 $ 8,879 $ 7,566
Accrued expenses -
Salaries and employee benefits 6,703 6,257 5,199
Other 5,457 4,744 4,378
Reserve for income taxes 10,495 8,747 7,795
Current maturities of debt 7,356 5,552 10,828
Total current liabilities 38,325 34,179 35,766
LONG TERM DEBT, NET OF CURRENT MATURITIES 69,941 54,676 49,511
DEFERRED INCOME TAXES 10,685 11,014 11,426
OTHER NONCURRENT LIABILITIES 5,102 4,338 3,730
STOCKHOLDERS' EQUITY
Common stock, $.50 par
Class A, 50,000,000 shares authorized, 18,543,360,
18,498,504 and 18,498,504 shares issued and outstanding 9,272 9,249 9,227
Class B, 10,000,000 shares authorized, 1,865,089
shares issued and outstanding 933 933 933
Additional paid-in capital 18,879 18,853 18,630
Retained earnings 90,592 78,237 74,610
Cumulative translation adjustment (6,901) (6,415) (6,425)
Total stockholders' equity 112,775 100,857 96,975
$ 236,828 $ 205,064 $ 197,408
The accompanying notes are an integral part of these statements.
G&K SERVICES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
APRIL 1, 1995
(Unaudited)
For the Three Months Ended For the Nine Months Ended
Apr. 1, Apr. 2, Apr. 1, Apr. 2,
1995 1994 1995 1994
REVENUES $ 66,719 $ 57,132 $ 192,806 $ 166,011
EXPENSES
Operating 36,895 31,572 105,328 91,055
Cost of merchandise sold 2,561 1,770 7,202 4,922
Selling and administrative 13,825 12,247 41,346 36,337
Depreciation 3,790 3,156 10,653 9,376
Amortization of intangibles 638 744 1,969 2,255
57,709 49,489 166,498 143,945
INCOME FROM OPERATIONS 9,010 7,643 26,308 22,066
Interest expense 2,035 1,475 4,768 4,349
Interest income (26) (112) (120) (314)
Other (income) expense, net (438) 45 (881) (270)
INCOME BEFORE INCOME TAXES 7,439 6,235 22,541 18,301
Provision for income taxes 3,020 2,574 9,116 7,565
NET INCOME 4,419 3,661 13,425 10,736
Weighted average number of
shares outstanding 20,368 20,345 20,368 20,330
NET INCOME PER SHARE $ 0.22 $ 0.18 $ 0.66 $ 0.53
Dividends per share 0.0175 0.0175 0.0525 0.0517
The accompanying notes are an integral part of these statements.
G&K SERVICES, INC. and SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
April 1, 1995
(Unaudited)
For The Three Months For The Nine Months
Ended Ended
April 1, April 2, April 1, April 2,
1995 1994 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,419 $ 3,661 $ 13,425 $ 10,736
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 4,428 3,901 12,622 11,631
Noncurrent deferred income taxes (107) (601) (326) (1,127)
Changes in current operating items -
Inventories (3,389) 123 (10,772) (2,050)
Accounts receivable and prepaid expenses (425) (456) (3,595) (1,681)
Accounts payable and other current liabilities (768) (544) 2,185 (667)
Other, net (114) 807 (235) 918
Net cash provided by operating activities 4,044 6,891 13,304 17,760
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions, net (9,746) (4,570) (24,376) (10,119)
Acquisition of operating assets 0 0 (9,480) 0
Net cash used for investment activities (9,746) (4,570) (33,856) (10,119)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 0 0 15,000 0
Borrowings (Repayments) on line-of-credit
and existing debt 4,994 (2,866) 2,296 (8,487)
Acquisition payments refundable from escrow (278) 0 (630) 0
Sale of Common Stock 48 0 48 0
Cash dividends paid (357) (362) (1,070) (1,055)
Net cash provided from (used for) financing activities 4,407 (3,228) 15,644 (9,542)
INCREASE (DECREASE) IN CASH (1,295) (907) (4,908) (1,901)
Cash:
Beginning of the period 1,518 3,591 5,131 4,585
End of the period $ 223 $ 2,684 $ 223 $ 2,684
The accompanying notes are an integral part of these statements.
ITEM 2. Management's Discussion and Analysis of Operations
RESULTS OF OPERATIONS
Revenues from rentals and services totaled $192,806,000 and
$166,011,000 in the first nine months of fiscal 1995 and 1994, respectively.
Revenues for G&K's U.S. operations grew at a 18.5% rate for the first nine
months of fiscal 1995 when compared with the same period last year. Removing the
effect of the B.C.P. acquisition in September, revenues increased 16.6%.
Reaching previously untapped markets, record sales to new accounts, and customer
retention rates at record levels helped us achieve this result. This 16.6%
revenue growth rate is higher than the 13.5% gain reported in the first nine
months last year. Revenues for Work Wear Canada operations increased at a 6.6%
rate for the first nine months of fiscal 1995. Revenues in Canadian dollars
increased 11.3% as compared to the same period last year. There were no
significant changes in product mix or selling prices during the first nine
months of fiscal 1995.
EXPENSES
Operating expenses were $105,327,000 and $91,055,000 representing 54.6%
and 54.8% of revenues from rentals and services for the first nine months of
fiscal 1995 and 1994, respectively.
Selling and administrative expenses were $41,055,000 and $36,337,000 in
the first nine months of fiscal 1995 and 1994, an increase of 14.0%. As a
percentage of revenues, these expenses were 21.4% and 21.9% in the first nine
months of fiscal 1995 and 1994.
Interest expense of $4,768,000 increased 9.6% in the first nine months
of fiscal 1995 because of higher average borrowing levels and higher interest
rates.
NET INCOME
Net income for the first nine months of fiscal 1995 totaled $13,425,000
representing a 25.0% increase compared with the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $13,312,000 in the first nine
months of fiscal 1995 compared with $17,881,000 in the same period last year.
The decrease is the result of higher inventory levels from business growth and
restocking by B.C.P. to handle G&K's rental business requirements. In November,
the Company borrowed $15,000,000 in fixed rate debt and the U.S. revolver was
increased to $50,000,000.
Management believes that funds generated from operations and existing
lines of credit should provide adequate funding for current business operations
and should enable G&K to service its debt related to the Work Wear Corporation
of Canada acquisition in a timely manner.
G&K SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein, except for the
July 2, 1994, balance sheet which was extracted from the audited
financial statements of July 2, 1994, have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's
latest annual report.
2. 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
as of April 1, 1995, July 2, 1994, and April 2, 1994, and the results
of operations for the nine months ended April 1, 1995, and April 2,
1994, and the changes in financial position for the periods then ended.
The accounting policies followed by the Company are set forth in Note 1
to the Company's Annual Consolidated Financial Statements. In addition,
the Company's policy regarding foreign currency translation is to
translate balance sheet accounts at the current period-end exchange
rate and income statement items at the average exchange rate for the
period for its foreign operations. Resulting translation adjustments
are made directly to a separate component of stockholders' equity.
The results of operations for the nine month period ended April 1,
1995, and April 2, 1994, are not necessarily indicative of the results
to be expected for the full year.
3. Net income per share is based on the weighted average number of shares
of common stock outstanding.
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 - Second Amendment dated as of June 21, 1994, to Loan
Agreement between Registrant and Metropolitan Life
Insurance Company, dated as of September 28, 1990.
10.2 - Third Amendment dated as of November 23, 1994, to
Loan Agreement between Registrant and Metropolitan
Life Insurance Company, dated as of September 28,
1990.
10.3 - Credit Agreement dated as of June 21, 1994, by and
among G&K Services, Inc., Work Wear Corporation of
Canada, LTD, various banks, and Norwest Bank
Minnesota, N.A., as agent.
10.4 - First Amendment to Credit Agreement dated as of
November 28, 1994, by and among G&K Services, Inc.,
Work Wear Corporation of Canada, LTD, various banks,
and Norwest Bank Minnesota, N.A., as agent.
27 - Financial Data Schedule (for SEC use only)
b. Reports on Form 8-K. No reports on Form 8-K were filed during
the quarter-ended April 1, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
G&K SERVICES, INC.
(Registrant)
Date: May 12, 1995 /s/Stephen F. LaBelle
Stephen F. LaBelle
Secretary and Treasurer
(Chief Financial Officer)