-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IIkklbqYmCIcIZuXrsIZP4RSOXmmEApbPclpExTQ4UmO3mXhyJv0P8gA6zdDk3RY r5gdu3Sl+VDY6jIxPnFkeQ== 0000897101-96-000053.txt : 19960603 0000897101-96-000053.hdr.sgml : 19960603 ACCESSION NUMBER: 0000897101-96-000053 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: G&K SERVICES INC CENTRAL INDEX KEY: 0000039648 STANDARD INDUSTRIAL CLASSIFICATION: 7200 IRS NUMBER: 410449530 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-04063 FILM NUMBER: 96517685 BUSINESS ADDRESS: STREET 1: 505 WATERFORD PARK STREET 2: STE 455 CITY: MINNEAPOLIS STATE: MN ZIP: 55441 BUSINESS PHONE: 6125467440 MAIL ADDRESS: STREET 1: 505 WATERFORD PARK STREET 2: STE 455 CITY: MINNEAPOLIS STATE: MN ZIP: 55441 FORMER COMPANY: FORMER CONFORMED NAME: NORTHWEST LINEN CO DATE OF NAME CHANGE: 19681227 10-Q 1 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 December 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 January 26, 1996 Common Stock, par value $.50 per share 18,543,118 CLASS B Outstanding January 26, 1996 Common Stock, par value $.50 per share 1,865,089 G&K SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) DECEMBER 30 July 1 1995 1995 --------- --------- (UNAUDITED) (Audited) ASSETS CURRENT ASSETS Cash $ 6,118 $ 3,045 Accounts receivable, net 35,093 32,674 Inventories- New goods 19,010 17,561 Goods in service 32,099 30,986 Prepaid expenses 4,500 3,053 --------- --------- Total current assets 96,820 87,319 --------- --------- PROPERTY, PLANT AND EQUIPMENT Land 18,167 16,159 Buildings and improvements 59,553 50,852 Machinery and equipment 112,189 106,365 Automobiles and trucks 23,023 20,713 Less accumulated depreciation (87,454) (79,638) --------- --------- 125,478 114,451 --------- --------- OTHER ASSETS Goodwill 35,217 35,577 Restrictive covenants, customer lists, and other assets arising from acquisitions 7,578 8,366 Other assets 7,699 7,620 --------- --------- Total other assets 50,494 51,563 --------- --------- $ 272,792 $ 253,333 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 7,673 $ 12,086 Accrued expenses - Salaries and employee benefits 7,438 6,999 Other 7,030 5,773 Reserve for income taxes 10,687 10,146 Current maturities of debt 7,445 7,445 --------- --------- Total current liabilities 40,273 42,449 --------- --------- LONG TERM DEBT, NET OF CURRENT MATURITIES 86,891 76,519 DEFERRED INCOME TAXES 10,366 10,582 OTHER NONCURRENT LIABILITIES 5,887 5,254 --------- --------- STOCKHOLDERS' EQUITY Common stock, $.50 par Class A, 50,000,000 shares authorized, 18,543,118 shares issued and outstanding 9,272 9,272 Class B, 10,000,000 shares authorized, 1,865,089 shares issued and outstanding 933 933 Additional paid-in capital 19,693 19,228 Retained earnings 105,222 95,174 Cumulative translation adjustment (5,745) (6,078) --------- --------- Total stockholders' equity 129,375 118,529 --------- --------- $ 272,792 $ 253,333 ========= ========= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
G&K SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands) (Unaudited) For the Three Months Ended For the Six Months Ended -------------------------- ------------------------ DECEMBER 30 DECEMBER 31 DECEMBER 30 DECEMBER 31 1995 1994 1995 1994 --------- --------- --------- --------- REVENUES Rental operations $ 72,806 $ 61,973 $ 141,711 $ 120,817 Direct sales 2,282 3,581 4,331 5,270 --------- --------- --------- --------- Total revenues 75,088 65,554 146,042 126,087 --------- --------- --------- --------- EXPENSES Cost of rental operations 41,212 35,200 80,125 68,640 Cost of direct sales 1,898 3,281 3,304 4,434 Selling and administrative 15,820 13,858 31,233 27,521 Depreciation 4,393 3,613 8,437 6,863 Amortization of intangibles 655 657 1,275 1,331 --------- --------- --------- --------- Total expenses 63,978 56,609 124,374 108,789 --------- --------- --------- --------- INCOME FROM OPERATIONS 11,110 8,945 21,668 17,298 Interest expense 2,156 1,445 4,337 2,733 Other (income) expense, net (173) (243) (327) (537) --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 9,127 7,743 17,658 15,102 Provision for income taxes 3,552 3,095 6,896 6,096 --------- --------- --------- --------- NET INCOME $ 5,575 $ 4,648 $ 10,762 $ 9,006 ========= ========= ========= ========= Weighted average number of shares outstanding 20,406 20,364 20,406 20,364 NET INCOME PER SHARE $ 0.27 $ 0.23 $ 0.53 $ 0.44 ========= ========= ========= ========= Dividends per share $ 0.0175 $ 0.0167 $ 0.0175 $ 0.0167
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
G&K SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) For the Three Months Ended For the Six Months Ended -------------------------- ------------------------ DEC 30, '95 DEC 31, '94 DEC 30, '95 DEC 31, '94 ----------- ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 5,575 $ 4,648 $ 10,762 $ 9,006 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 5,048 4,269 9,712 8,194 Noncurrent deferred income taxes (111) (109) (221) (219) Change in current operating items- Inventories (1,838) (5,630) (2,504) (7,383) Accounts receivable and prepaid expenses (1,623) (3,239) (3,820) (3,170) Accounts payable and other current liabilities (322) 1,504 (2,017) 2,953 Other, net 898 (292) 978 (121) -------- -------- -------- -------- Net cash provided by operating activities 7,627 1,151 12,890 9,260 -------- -------- -------- -------- CASH FLOWS FROM INVESTMENT ACTIVITIES: Property, plant and equipment additions, net (10,492) (6,792) (19,369) (14,630) Acquisitions of operating assets 0 (380) 0 (9,480) -------- -------- -------- -------- Net cash used for investment activities (10,492) (7,172) (19,369) (24,110) -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt financing 14,454 9,652 17,605 15,000 Repayment of debt (7,339) (3,428) (7,339) (2,698) Acquisition payments refundable from escrow 0 (352) 0 (352) Cash dividends paid (714) (713) (714) (713) -------- -------- -------- -------- Net cash provided by (used for) financing activities 6,401 5,159 9,552 11,237 -------- -------- -------- -------- INCREASE (DECREASE) IN CASH 3,536 (862) 3,073 (3,613) ======== ======== ======== ======== Cash: Beginning of the period 2,582 2,380 3,045 5,131 ======== ======== ======== ======== End of the period $ 6,118 $ 1,518 $ 6,118 $ 1,518 ======== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS ITEM 2. Management's Discussion and Analysis of Operations REVENUES FROM RENTALS AND SERVICES Revenues from rentals and services totaled $72,806,000 and $61,973,000 for the second quarter of fiscal 1996 and 1995, and $141,711,000 and $120,817,000 for the first six months. Revenues for G&K's U.S. rental operations grew at 18.5% rate for the second quarter and 18.1% for the first six months of fiscal 1996 when compared with the same periods last year. The 18.1% 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. The 18.5% revenue growth rate is higher than the 15.3% gain reported in the second quarter last year and the 18.1% revenue growth rate is higher than the 14.8% gain reported in the first six months of last year. Revenues for Canadian rental operations increased at a 12.5% rate for the second quarter and 13.5% rate for the first six months of fiscal 1996 compared to the same periods last year. Revenues in Canadian dollars increased 11.4% for the second quarter and 12.3% for the first six months as compared to the same periods last year. There were no significant changes in product mix or selling prices during the first six months of fiscal 1996. Revenues from direct sales totaled $2,282,000 and $3,581,000 for the second quarter fiscal 1996 and 1995. Revenues totaled $4,331,000 and $5,270,000 for the first six months of fiscal 1996 and 1995. Decrease in direct sales is due to BCP external revenues are down 80.1% for the second quarter and 68.2% year to date as sales to outside customers have been replaced by production of garments to meet internal requirements. EXPENSES Cost of rental operations were $80,125,000 and $68,640,000 representing 56.5% and 56.8% of revenues from rentals and operations for the first six months of fiscal 1996 and 1995. As a percentage of revenues, improvements in cost of merchandise for rental operations were offset by higher delivery costs. Cost of direct sales were $1,898,000 and $3,281,000 representing 83.2% and 91.6% of revenues for the second quarter of fiscal 1996 and 1995. Costs of $3,304,000 and $4,434,000 representing 76.3% and 84.1% of revenues for the first six months of fiscal 1996 and 1995. The decrease in cost of direct sales as a percent of revenues is due to the realization of cost savings resulting from the internal manufacturing of garments versus purchasing from outside sources. Selling and administrative expenses were $31,233,000 and $27,521,000 in the first six months of fiscal 1996 and 1995, representing a 13.5% increase over fiscal 1995. As a percentage of revenues, these expenses were 21.4% and 21.8% in the first six months of fiscal 1996 and 1995. Depreciation expense equaled $15,820,000 and $13,858,000, and $31,233,000 and $27,521,000 for the three and six month periods in fiscal 1996 and 1995, respectively. The increase in depreciation of 14.2% and 13.5% are the result of the additions of seven new locations in the first (and second) quarter(s) of fiscal 1996 Interest expense of $4,337,000 increased 58.7% in the first six 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 $327,000 and $537,000 in the first six months of fiscal 1996 and 1995. This decrease resulted from the recognition of losses in invested funds in the first quarter. Effective income tax rates were 39.0% and 40.4% in the first six months of fiscal 1996 and 1995. The decrease resulted from lower effective rates in the U.S. and offset by improved profitability in Canada. NET INCOME Net income for the first six months of fiscal 1996 totaled $10,762,000 representing a 19.5% increase compared with the same period in 1995. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities were $12,533,000 in the first six months of fiscal 1996 compared with $9,260,000 in the same period last year. The increase is the result of fiscal 1995's increase in inventory relating to the B.C.P. acquisition, while no such increase in inventory occurred in 1996. 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 Three and six month periods ended December 30, 1995 and December 31, 1994 (Unaudited) 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 December 30, 1995, December 31, 1994, and July 1, 1995, and the results of operations for the three and six months ended December 30, 1995 and December 31, 1994, and the changes in financial position for the three and six month 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 six month period ended December 30, 1995, and December 31, 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 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 of financial position because the Company plans are fixed stock option and restricted stock plans which have no intrinsic value at the grant date under APB No. 25. PART II OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders a. The Company held its Annual Meeting of Stockholders on November 1, 1995. b. The following seven persons were elected directors: Bruce G. Allbright, Paul Baszucki, Richard Fink, Wayne Fortun, Donald W. Goldfus, William Hope and Bernard Sweet. c. Each director nominee received the following votes: Allbright, 31,700,701 shares in favor, 0 shares voting against and 33,721 shares abstaining, Baszucki, 31,700,260 shares in favor, 0 shares voting against and 34,162 shares abstaining, Fink, 31,701,046 shares in favor, 0 shares voting against and 33,376 shares abstaining, Fortun, 31,695,975 shares in favor, 0 shares voting against and 38,447 shares abstaining, Goldfus, 31,700,586 shares in favor, 0 shares against and 33,836 shares abstaining, Hope, 31,701,046 shares in favor, 0 shares voting against and 33,376 shares abstaining and Sweet, 31,700,551 shares in favor, 0 shares voting against and 33,871 shares abstaining. ITEM 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit 10 - Third Amendment to Credit Agreement Exhibit 27 - Financial Data Schedule (for 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: February 13, 1996 /s/Stephen F. LaBelle Stephen F. LaBelle Secretary and Treasurer (Chief Financial Officer) EX-10 2 THIRD AMENDMENT TO CREDIT AGREEMENT This Third Amendment is made as of the 4th day of January, 1996, by and among G&K SERVICES, INC. ("G&K"), WORK WEAR CORPORATION OF CANADA LTD. ("Work Wear"; G&K and Work Wear, as the context requires, may be hereinafter referred to collectively as the "Companies" and individually as a "Company"), NBD BANK (formerly known as NBD Bank, N.A.) ("NBD USA"), NBD BANK, CANADA ("NBD Canada"), CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION ("Norwest") and HARRIS TRUST AND SAVINGS BANK ("Harris"; NBD USA, NBD Canada, CIBC and Norwest and Harris, as the context requires, may be hereinafter referred to collectively as the "Banks" and individually as a "Bank"). RECITALS The Companies and the Banks have entered into a Credit Agreement dated as of June 21, 1994, as amended by a First Amendment dated November 28, 1994, and a Second Amendment dated May 18, 1995 (as amended, the "Credit Agreement") under which NBD USA, Norwest and Harris have agreed to make certain revolving credit loans to and issue letters of credit for the account of G&K (the "Tranche A Facility") and NBD Canada and CIBC have agreed to make certain revolving credit loans to and issue banker's acceptances for the account of Work Wear (the "Tranche B Facility"). G&K and Work Wear have requested that certain covenants in the Credit Agreement be amended and the Banks have agreed to such request, all pursuant to the terms and subject to the conditions set forth in this Third Amendment. ACCORDINGLY, in consideration of the premises, the Companies and the Banks hereby agree as follows: 1. Definitions. Except as otherwise expressly set forth herein, all capitalized terms in this Third Amendment which are defined in the Credit Agreement shall have the same meanings assigned to them in the Credit Agreement. 2. Representations and Warranties. To induce the Banks to enter into this Third Amendment, the Companies hereby represent and warrant as follows: (a) The Loan Documents constitute the legal, valid and binding agreements of each Company (to the extent a Company is a party thereto), are subject to no defenses, counterclaims, rights of offset or recoupment and are enforceable in accordance with their respective terms. (b) The Guaranties of G&K to NBD Canada and CIBC constitute the legal, valid and binding obligations of G&K, are subject to no defenses, counterclaims, rights of offset or recoupment and are enforceable in accordance with their respective terms. (c) The representations and warranties contained in Section 9 of the Credit Agreement are true and correct as of the date hereof as though made on and as of this date, except to the extent that such representations and warranties relate solely to an earlier date. (d) No event has occurred and is continuing or would result from the execution and delivery of this Third Amendment and the ancillary documents contemplated hereby which constitutes or would constitute a default or an event of default under the Credit Agreement, the Met Life Loan Agreement or any other agreement, indenture, evidence of indebtedness or other obligation of either of the Companies. 3. Reduction in Interest on Eurodollar Loans. Section 4.4.2 of the Credit Agreement is hereby amended by deleting the reference to "one and one-half percent (1 1/2%)" as it appears in clause (ii) thereof and inserting in place thereof the clause "one and one-quarter percent (1 1/4%)". 4. Reduction in Acceptance Fee. Section 3.7(c) of the Credit Agreement is hereby amended by deleting the reference to "one and one-half percent (1.50%)" as it appears therein and inserting in place thereof the clause "one and one-quarter percent (1.25%)". 5. Increase in Expenditures for Fixed Assets. Section 11.9 of the Credit Agreement is hereby amended by deleting the reference to "U.S. $33,000,000" as it appears therein across from the fiscal year 1996 and inserting in place thereof the term "U.S. $38,000,000". 6. Miscellaneous. (a) The Companies hereby release and forever discharge the Banks and each of their respective former and present directors, officers, employees, agents and representatives of and from every and all claims, demands, causes of action (at law or in equity) and liabilities of any kind or nature, whether known or unknown, liquidated or unliquidated, absolute or contingent, which the Companies ever had, presently have or claim to have against a Bank or any of its respective directors, officers, employees, agents or representatives of or relating to events, occurrences, actions, inactions or other matters of or relating to the Credit Agreement, any Loan Document or the Guaranties or any actions or inactions hereunder or thereunder which occurred prior to the date of this Third Amendment. (b) The Companies hereby reaffirm their agreement under Section 16.6 of the Credit Agreement to pay or reimburse Norwest, among other costs and expenses, for all expenses incurred by Norwest in connection with the amendment, performance or enforcement of the Loan Documents, including without limitation, all reasonable fees and disbursements of legal counsel to Norwest in connection with the preparation of this Third Amendment. (c) Except as expressly amended hereby, all provisions of the Loan Documents and the Guaranties shall remain in full force and effect. After the effective date hereof, each reference in any Loan Document, the Guaranties or any other document executed in connection with the Credit Agreement to "this Agreement", "hereunder" or "hereof" or words of like import referring to the Credit Agreement or the Guaranties, respectively, shall be deemed and refer to the Credit Agreement or the Guaranties, as the case may be, as amended hereby. (d) This Third Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one in the same one and the same instrument. (e) The execution of this Third Amendment and acceptance of any documents related hereto shall not be deemed a waiver of any Default or Event of Default under any Loan Document, whether or not existing on the date of this Third Amendment. (f) This Third Amendment shall be governed by, and construed in accordance with, the internal laws of the State of Minnesota. IN WITNESS WHEREOF, the undersigned have executed this Third Amendment as of the day and year first above mentioned. G&K SERVICES, INC. By (Illegible Signature) Its Secretary/Treasurer WORK WEAR CORPORATION OF CANADA LTD. By (Illegible Signature) Its Secretary/Treasurer NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By (Illegible Signature) Its Vice President NBD BANK By (Illegible Signature) Its Second Vice President HARRIS TRUST AND SAVINGS BANK By (Illegible Signature) Its Vice President NBD BANK, CANADA By (Illegible Signature) Its Assistant Vice President CANADIAN IMPERIAL BANK OF COMMERCE By (Illegible Signature) Its Credit Designer EX-27 3
5 1,000 6-MOS JUN-29-1996 DEC-30-1995 6,118 0 33,734 (1,359) 51,109 98,820 212,932 87,454 272,792 39,917 0 0 0 10,205 119,527 272,792 141,711 141,711 3,304 124,374 (327) 1,049 4,337 17,658 6,896 10,762 0 0 0 10,762 .53 .53
-----END PRIVACY-ENHANCED MESSAGE-----