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 September 30, 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 zip 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 September 30, 1995
Common Stock, par value $.50 per share 18,539,118
CLASS B Outstanding September 30, 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)
SEPTEMBER 30, 1995
(Unaudited)
SEPTEMBER 30, July 1, October 1,
1995 1995 1994
ASSETS
CURRENT ASSETS
Cash $ 2,583 $ 3,045 $ 2,380
Accounts receivable, net 34,455 32,674 26,662
Inventories-
New goods 18,237 17,561 11,042
Goods in service 31,197 30,986 24,027
Prepaid expenses 3,654 3,053 2,982
Total current assets 90,126 87,319 67,093
PROPERTY, PLANT AND EQUIPMENT
Land 16,596 16,159 17,036
Buildings and improvements 52,638 50,852 41,572
Machinery and equipment 112,384 106,365 100,366
Automobiles and trucks 21,904 20,713 17,039
Less accumulated depreciation (83,774) (79,638) (78,478)
119,748 114,451 97,535
OTHER ASSETS
Goodwill 35,974 35,577 37,465
Restrictive covenants, customer lists
and other assets arising from acquisitions 8,021 8,366 9,652
Other assets 7,645 7,620 7,581
Total other assets 51,640 51,563 54,698
$ 261,514 $ 253,333 $ 219,326
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,429 $ 12,086 $ 8,330
Accrued expenses -
Salaries and employee benefits 6,963 6,999 6,299
Other 5,759 5,773 5,095
Reserve for income taxes 13,319 10,146 10,728
Current maturities of debt 7,445 7,445 5,553
Total current liabilities 40,915 42,449 36,005
LONG TERM DEBT, NET OF CURRENT MATURITIES 80,110 76,519 61,335
DEFERRED INCOME TAXES 10,486 10,582 10,922
OTHER NONCURRENT LIABILITIES 5,534 5,254 4,567
STOCKHOLDERS' EQUITY
Common stock, $0.50 par
Class A, 20,000,000 shares authorized, 18,539,118,
18,543,360 and 18,498,504 shares issued and outstanding 9,272 9,272 9,249
Class B, 10,000,000 shares authorized, 1,865,089,
1,865,089 and 1,865,089 shares issued and outstanding 933 933 933
Additional paid-in capital 19,227 19,228 18,879
Retained earnings 100,361 95,174 82,595
Cumulative translation adjustment (5,324) (6,078) (5,159)
Total stockholders' equity 124,469 118,529 106,497
$ 261,514 $ 253,333 $ 219,326
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)
SEPTEMBER 30, 1995
(Unaudited)
For the Three Months Ended
SEPTEMBER 30, October 1,
1995 1994
REVENUES
Rental operations $68,905 $58,844
Direct sales 2,049 1,689
Total revenues 70,954 60,533
EXPENSES
Cost of rental operations 38,913 33,440
Cost of direct sales 1,406 1,153
Selling and administrative 15,413 13,663
Depreciation 4,044 3,250
Amortization of intangibles 620 674
Total operating expenses 60,396 52,180
INCOME FROM OPERATIONS 10,558 8,353
Interest expense 2,181 1,288
Other (income) expense, net (154) (294)
INCOME BEFORE INCOME TAXES 8,531 7,359
Provision for income taxes 3,344 3,001
NET INCOME $5,187 $4,358
Weighted average number of
shares outstanding 20,405 20,364
NET INCOME PER SHARE $0.25 $0.21
Dividends per share $0.0175 $0.0175
The accompanying notes are an integral part of these statements.
G&K SERVICES, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
SEPTEMBER 30, 1995
(Unaudited)
For The Three Months Ended
SEPTEMBER 30, October 1,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,187 $ 4,358
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 4,663 3,924
Noncurrent deferred income taxes (110) (110)
Changes in current operating items -
Inventories (666) (1,753)
Accounts receivable and prepaid expenses (2,197) 69
Accounts payable and other current liabilities (1,695) 1,449
Other, net 81 172
Net cash provided by operating activities 5,263 8,109
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions, net (8,877) (7,838)
Acquisition of operating assets 0 (9,100)
Net cash used for investing activities (8,877) (16,938)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 3,151 5,348
Repayment of debt 0 730
Cash dividends paid 0 0
Net cash provided from (used for) financing activities 3,151 6,078
INCREASE (DECREASE) IN CASH (463) (2,751)
Cash:
Beginning of the period 3,045 5,131
End of the period $ 2,582 $ 2,380
The accompanying notes are an integral part of these statements.
ITEM 2. Management's Discussion and Analysis of Operations
REVENUES
Revenues from rentals and services totaled $68,905,000 and $58,844,000
in the first three months of fiscal 1996 and 1995. Direct sales include revenue
from our manufacturing and direct sales divisions. Revenues for G&K's U.S.
rental operations grew at a 17.6% rate for the first three months of fiscal 1996
when compared with the same period last year. This 17.6% increase was realized
without the benefit of acquisitions. Intensified marketing, strong sales to new
accounts, and good customer retention rates helped us achieve this result. This
17.6% rental revenue growth rate is higher than the 14.2% gain for the first
three months last year. Revenues for Canadian rental operations increased at a
14.5% rate for the first three months of fiscal 1996 compared to the same period
last year. Revenues in Canadian dollars increased 13.2% as compared to the same
period last year. There were no significant changes in product mix or selling
prices during the first three months of fiscal 1996.
EXPENSES
Rental operating expenses were $38,913,000 and $33,440,000 representing
56.5% and 56.8% of revenues from rental operations for the first three months of
fiscal 1996 and 1995. As a percentage of revenues, improvements in cost of
merchandise for rental operations was offset by higher delivery costs.
Selling and administrative expenses were $15,413,000 and $13,663,000 in
the first three months of fiscal 1996 and 1995, representing a 12.8% increase
over 1995 fiscal. As a percentage of revenues, these expenses were 21.7% and
22.6% in the first three months of fiscal 1996 and 1995 respectively. The
improvement resulted from reduced administrative costs as a percentage of rental
revenues.
Interest expense of $2,181,000 increased 69.4% in the first three
months of fiscal 1996 because of higher average borrowing levels. Additional
borrowing occurred after the first quarter of 1995 and was used to fund the
acquisition of a manufacturing division, capital expenditures and increases in
working capital requirements.
Other income was $154,000 and $294,000 in the first three months of
fiscal 1996 and 1995. This decrease resulted from the recognition of losses in
invested funds.
Effective income tax rates were 39.2% and 40.8% in the first three
months of fiscal 1996 and 1995. The decrease resulted from lower effective rates
in the U.S. and improved profitability in Canada.
NET INCOME
Net income for the first three months of fiscal 1996 totaled $5,187,000
representing a 19.0% increase compared with the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $5,263,000 in the first three
months of fiscal 1996 compared with $8,109,000 in the same period last year. The
decrease is the result of increases in accounts receivable and prepaid expenses
and decreases to accounts payable and other current liabilities during the
quarter. The Company made purchases of $8,877,000 in property, plant and
equipment. These purchases were funded through cash operations and an increase
in the line of credit.
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 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
1, 1995, balance sheet which was extracted from the audited financial
statements of July 1, 1995, 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 September 30, 1995 and October 1, 1994, the results of operations for
the three months ended September 30, 1995 and October 1,1994, 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 three month period ended September 30,
1995, and October 1, 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.
4. Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement No. 123"), issued in October 1995 and
effective for fiscal years beginning after December 15, 1995, encourages,
but does not require, a fair value based method of accounting for employee
stock options or similar equity investments. It also allows an entity to
elect to continue to measure compensation cost under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No.
25"), but requires pro forma disclosures of net income and earnings per
share as if the fair value based method of accounting had been applied. The
Company expects to adopt Statement No. 123 in fiscal year 1997. While the
Company is still evaluating Statement No. 123, it currently expects to
elect to continue to measure compensation cost under APB No. 25 and comply
with the pro forma disclosure requirements. If the Company makes this
election, this statement will have no impact on the Company's results of
operations or financial position.
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule (SEC use only)
b. Reports on Form 8-K.
Not Applicable
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: November 10, 1995 /s/Stephen F. LaBelle
Stephen F. LaBelle
Secretary and Treasurer
(Chief Financial Officer)