-----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, BLqKUuCU9w1gro/9fBWKRH5O6HzxCj5nBPbMcrSANTPiZOrnMVZkfFLKuX5gPeAk wqOComs1GzrekCky3U+vDQ== 0000912057-97-004160.txt : 19970221 0000912057-97-004160.hdr.sgml : 19970221 ACCESSION NUMBER: 0000912057-97-004160 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970211 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: G&K SERVICES INC CENTRAL INDEX KEY: 0000039648 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [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: 97524567 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 10-Q 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 28, 1996 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.) 5995 OPUS PARKWAY, SUITE 500 MINNETONKA, MINNESOTA 55343 (Address of principal executive offices and zip code) (612) 912-5500 (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 31, 1997 Common Stock, par value $.50 per share 18,969,737 CLASS B Outstanding January 31, 1997 Common Stock, par value $.50 per share 1,474,996 G&K SERVICES, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) Dec 28 June 29 1996 1996 ------------ ------------ (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash $ 2,230 $ 6,882 Accounts receivable, net 42,466 36,696 Inventories- New goods 16,771 16,942 Goods in service 40,016 35,135 Prepaid expenses 4,776 3,995 ------------ ------------ Total current assets 106,259 99,650 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT Land 19,769 19,326 Buildings and improvements 65,727 61,756 Machinery and equipment 131,880 118,955 Automobiles and trucks 26,882 25,028 Less accumulated depreciation (101,555) (92,167) ------------ ------------ 142,703 132,898 ------------ ------------ OTHER ASSETS Goodwill 33,990 34,642 Restrictive covenants, customer lists, and other assets arising from acquisitions 6,896 6,860 Other, principally executive retirement plan assets 7,541 7,939 ------------ ------------ Total other assets 48,427 49,441 ------------ ------------ $ 297,389 $ 281,989 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 12,137 $ 13,068 Accrued expenses - Salaries and employee benefits 10,935 10,265 Other 9,950 7,151 Reserve for income taxes 10,394 10,280 Current maturities of debt 25,055 9,049 ------------ ------------ Total current liabilities 68,471 49,813 ------------ ------------ LONG TERM DEBT, NET OF CURRENT MATURITIES 58,085 75,143 DEFERRED INCOME TAXES 9,869 10,093 OTHER NONCURRENT LIABILITIES 6,881 6,293 ------------ ------------ STOCKHOLDERS' EQUITY Common stock, $.50 par Class A, 50,000,000 shares authorized, 18,922,846 and 18,915,725 shares issued and outstanding 9,462 9,458 Class B, 10,000,000 shares authorized, 1,521,121 shares issued and outstanding 761 761 Additional paid-in capital 19,906 19,758 Retained earnings 129,887 116,465 Cumulative translation adjustment (5,933) (5,795) ------------ ------------ Total stockholders' equity 154,083 140,647 ------------ ------------ $ 297,389 $ 281,989 ------------ ------------ ------------ ------------ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS Page 2 G&K SERVICES, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands except per share data) (Unaudited)
For the Three Months Ended For the Six Months Ended -------------------------- ------------------------ Dec 28 Dec 30 Dec 28 Dec 30 1996 1995 1996 1995 ------------ ------------ ------------ ---------- REVENUES Rental operations $83,583 $72,806 $163,596 $141,711 Direct sales 3,855 2,282 7,152 4,331 ------------ ------------ ------------ ---------- Total revenues 87,438 75,088 170,748 146,042 ------------ ------------ ------------ ---------- EXPENSES Cost of rental operations 45,748 41,212 89,230 80,125 Cost of direct sales 3,001 1,898 5,582 3,304 Selling and administrative 20,018 15,820 39,425 31,233 Depreciation 4,845 4,393 9,441 8,437 Amortization of intangibles 497 655 1,060 1,275 ------------ ------------ ------------ ---------- Total expenses 74,109 63,978 144,738 124,374 ------------ ------------ ------------ ---------- INCOME FROM OPERATIONS 13,329 11,110 26,010 21,668 Interest expense 1,545 2,156 3,268 4,337 Other (income) expense, net (57) (173) (503) (327) ------------ ------------ ------------ ---------- INCOME BEFORE INCOME TAXES 11,841 9,127 23,245 17,658 Provision for income taxes 4,655 3,552 9,108 6,896 ------------ ------------ ------------ ---------- NET INCOME $7,186 $5,575 $14,137 $10,762 ------------ ------------ ------------ ---------- ------------ ------------ ------------ ---------- Weighted average number of shares outstanding 20,443 20,408 20,441 20,406 NET INCOME PER SHARE $0.35 $0.27 $0.69 $0.53 ------------ ------------ ------------ ---------- ------------ ------------ ------------ ---------- DIVIDENDS PER SHARE $0.0175 $0.0175 $0.0350 $0.0350
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS Page 3 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 28, '96 Dec 30, '95 Dec 28, '96 Dec 30, '95 ------------ ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $7,186 $5,048 $14,137 $10,762 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 5,342 5,048 10,501 9,712 Noncurrent deferred income taxes (116) (111) (225) (221) Change in current operating items- Inventories (3,164) (1,838) (4,738) (2,504) Accounts receivable and prepaid expenses (3,185) (1,623) (6,580) (3,820) Accounts payable and other current liabilities 35 (322) 2,676 (2,017) Other, net 740 898 1,223 978 ------------ ----------- ----------- ----------- Net cash provided by operating activities 6,838 7,627 16,994 12,890 ------------ ----------- ----------- ----------- ------------ ----------- ----------- ----------- CASH FLOWS FROM INVESTMENT ACTIVITIES: Property, plant and equipment additions, net (8,885) (10,492) (17,964) (19,369) Acquisitions of operating assets 0 0 (1,948) 0 ------------ ----------- ----------- ----------- Net cash used for investment activities (8,885) (10,492) (19,912) (19,369) ------------ ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 2 0 4 0 Proceeds from issuance of long-term debt 5,580 8,080 12,770 17,605 Repayments of long-term debt (2,228) (965) (13,793) (7,339) Cash dividends paid (715) (714) (715) (714) ------------ ----------- ----------- ----------- Net cash provided by (used for) financing activities 2,639 6,401 (1,734) 9,552 ------------ ----------- ----------- ----------- Increase (decrease) in cash 592 3,536 (4,652) 3,073 ------------ ----------- ----------- ----------- ------------ ----------- ----------- ----------- Cash: Beginning of the period 1,638 2,582 6,882 3,045 ------------ ----------- ----------- ----------- End of the period $2,230 $6,118 $2,230 $6,118 ------------ ----------- ----------- ----------- ------------ ----------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS Page 4 G&K SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three and six month periods ended December 28, 1996 and December 30, 1995 (Unaudited) 1. The consolidated financial statements included herein, except for the June 29, 1996, balance sheet which was extracted from the audited financial statements of June 29, 1996, 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 28, 1996, and June 29, 1996, and the results of operations for the three and six months ended December 28, 1996 and December 30, 1995, 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. The results of operations for the three and six month periods ended December 28, 1996, 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. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS REVENUES Rental revenues from rentals and services totaled $83,583,000 and $72,806,000 for the second quarter of fiscal 1997 and 1996 respectively, and $163,596,000 and $141,711,000 for the first six months of fiscal 1997 and 1996 respectively. Revenues for G&K's U.S. rental operations grew at 14.8% rate for the second quarter and 15.9% for the first six months of fiscal 1997 when compared with the same periods last year. Increased new account sales, expansion of existing accounts, selective price increases, new market entries, and good customer retention rates helped achieve this result. Revenues for Canadian rental operations increased at a 15.0% rate for the second quarter and 13.1% rate for the first six months of fiscal 1997 compared to the same periods last year. Revenues in Canadian dollars increased 14.6% for the second quarter and 13.5% for the first six months when compared to the same periods last year. There were no significant changes in product mix or selling prices during the first six months fiscal 1997. Revenues from direct sales totaled $3,855,000 and $2,282,000 for the second quarter fiscal 1997 and 1996 respectively. Revenues from direct sales totaled $7,152,000 and $4,331,000 for the first six months of fiscal 1997 and 1996 respectively. Increase in direct sales is due to higher U.S. manufacturing division external revenues which utilize our manufacturing capacities above internal needs. EXPENSES Cost of rental operations totaled $45,748,000 and $41,212,000 representing 54.7% and 56.6% of revenues from rental operations for the second quarter fiscal 1997 and 1996 respectively, and $89,230,000 and $80,125,000 representing 54.5% and 56.5% of revenues for rental operations for the first six months of fiscal 1997 and 1996 respectively. These improvements are a result of decreased production and merchandise costs that come from efficiencies gained in the rental operations and manufacturing of rental garments. Costs of direct sales were $5,582,000 and $3,304,000 representing 78.0% and 76.3% of direct sales for the first six months of fiscal 1997 and 1996 respectively. The increase in cost of direct sales as a percent of revenues is due to reduced gross margins on outside sales. Selling and administrative expenses were $20,018,000 and $15,820,000 representing 22.9% and 21.1% of revenues for the second quarter of fiscal 1997 and 1996 respectively, and $39,425,000 and $31,233,000 representing 23.1% and 21.4% of revenues for six months ended fiscal 1997 and 1996 respectively. The increase is primarily from sales, marketing and training costs from continued development and maintenance of projects that maximize our continued internal sales growth rates, as well as the addition of new locations. Depreciation expense equaled $4,845,000 and $4,393,000, for the second quarter of fiscal 1997 and 1996 respectively. Depreciation totaled $9,441,000 and $8,437,000 for six months ended fiscal 1997 and 1996 respectively. The increase in depreciation of 10.3% and 11.9% respectively, is the result of investment of capital into new and existing locations. 6 Interest expense of $3,268,000 decreased 24.6% in the first six months of fiscal 1997 when compared with the same period last year. The decrease is a result of lower average borrowing levels and interest rates. Effective income tax rates were 39.2% and 39.1% in the first six months of fiscal 1997 and 1996. NET INCOME Net income for the second quarter of fiscal 1997 totaled $7,186,000 representing a 28.9% increase compared with the same period in 1996. Net income for six months of fiscal 1997 totaled $14,137,000 representing a 31.4% increase compared with the same period in 1996. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities were $16,994,000 in the first six months of fiscal 1997 compared with $12,890,000 in the same period last year. The increase is primarily the result of higher net income before depreciation and amortization, partially off-set by growth in inventory and accounts receivable. Net cash used for financing activities of $1,734,000 in the first six months of fiscal 1997 included the repayment of senior notes payable of $9,000,000 offset by additional borrowing on the long term line of credit. Net cash provided in the first six months of fiscal 1996 of $9,552,000 included a payment on senior notes payable of $6,197,000 and additional borrowing on the long term line of credit. Management believes that funds generated from operations and existing lines of credit should provide adequate funding for current business operations and debt service requirements. PRIVATE SECURITIES LITIGATION REFORM ACT The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Form 10-Q and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contains statements that are forward-looking, such as statements relating to plans for future expansion and other business development activities, as well as other capital spending, financial sources and the effects of regulation and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect future results and, accordingly, such results may differ from those expressed in any forward-looking statement made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to development and business activities, dependence on existing management, domestic or global economic conditions, changes in federal or state laws or the administration of such laws, as well as all other risks and uncertainties described in the Company's filings. 7 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 October 31, 1996. 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. 1. Each director nominee received the following votes: Allbright, 28,135,386 shares in favor, 0 shares voting against and 20,542 shares abstaining, Baszucki, 28,130,415 shares in favor, 0 shares voting against and 25,513 shares abstaining, Fink, 28,132,851 shares in favor, 0 shares voting against and 23,077 shares abstaining, Fortun, 28,128,427 shares in favor, 0 shares voting against and 27,501 shares abstaining, Goldfus, 28,131,903 shares in favor, 0 shares against and 24,025 shares abstaining, Hope, 28,134,909 shares in favor, 0 shares voting against and 21,019 shares abstaining and Sweet, 28,131,958 shares in favor, 0 shares voting against and 23,970 shares abstaining. 2. Stockholders approvel of 1996 Directors Stock Option Plan: 26,544,027 shares in favor, 1,436,327 shares voting against and 110,574 shares abstaining, 65,000 non-vote. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. EXHIBITS Exhibit 27 - Financial Data Schedule (for SEC use only) b. Reports on Form 8-K. Not Applicable. 8 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 11, 1997 s/Richard Fink -------------------- ------------------------ Richard Fink Chairman of the Board 9 EX-27 2 EXHIBIT 27
5 1,000 6-MOS JUN-28-1997 DEC-28-1996 2,230 0 44,296 (1,831) 56,787 106,259 244,258 (101,555) 297,389 68,471 0 0 0 10,223 143,860 297,389 7,152 170,748 5,582 144,738 (503) 1,243 3,268 23,245 9,108 14,137 0 0 0 14,137 .69 .69
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