-----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, WTa9dkFnRTqkVEJNeqUpKe84N56mXoTxBRwX/T5H6zZZBkiEIPztVI23cLPnjswL lIPb2hfZAoEmaMuIfIMarQ== /in/edgar/work/0000912057-00-049463/0000912057-00-049463.txt : 20001115 0000912057-00-049463.hdr.sgml : 20001115 ACCESSION NUMBER: 0000912057-00-049463 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 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: 0626 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04063 FILM NUMBER: 763092 BUSINESS ADDRESS: STREET 1: 5995 OPUS PARKWAY SUITE 500 STREET 2: STE 455 CITY: MINNETONKA STATE: MN ZIP: 55343 BUSINESS PHONE: 6129125500 MAIL ADDRESS: STREET 1: 5995 OPUS PARKWAY SUITE 500 STREET 2: STE 455 CITY: MINNETONKA STATE: MN ZIP: 55343 FORMER COMPANY: FORMER CONFORMED NAME: NORTHWEST LINEN CO DATE OF NAME CHANGE: 19681227 10-Q 1 a2029906z10-q.txt 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 September 30, 2000 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) (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 Outstanding November 9, 2000 Common Stock, par value $.50 per share 19,066,372 CLASS B Outstanding November 9, 2000 Common Stock, par value $.50 per share 1,474,996 PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS G&K SERVICES, INC. AND SUBSIDIARIES September 30, 2000 July 1, ASSETS (In thousands, except share data) (Unaudited) 2000 - -------------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 6,754 $ 6,420 Accounts receivable, less allowance for doubtful accounts of $3,106 and $3,138 63,982 63,970 Inventories 90,145 89,975 Prepaid expenses 13,801 15,496 Prepaid income taxes - 441 - -------------------------------------------------------------------------------------------------------------------------- Total current assets 174,682 176,302 - -------------------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Land 25,538 25,845 Buildings and improvements 102,306 101,636 Machinery and equipment 210,859 206,033 Automobiles and trucks 38,884 39,208 Less accumulated depreciation (160,346) (156,288) - -------------------------------------------------------------------------------------------------------------------------- Total property, plant and equipment 217,241 216,434 - -------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS Goodwill, net 143,019 144,229 Restrictive covenants and customer lists, net 39,966 40,911 Other, principally retirement plan assets 17,534 17,076 - -------------------------------------------------------------------------------------------------------------------------- Total other assets 200,519 202,216 - -------------------------------------------------------------------------------------------------------------------------- $592,442 $594,952 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 15,228 $ 15,892 Accrued expenses Salaries and employee benefits 20,527 19,678 Other 20,049 18,300 Deferred income taxes 14,348 14,406 Current maturities of long-term debt 43,769 58,355 - -------------------------------------------------------------------------------------------------------------------------- Total current liabilities 113,921 126,631 - -------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT 169,446 167,345 DEFERRED INCOME TAXES 15,074 15,243 OTHER NONCURRENT LIABILITIES 14,560 14,211 - -------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock, $.50 par Class A, 50,000,000 shares authorized, 19,061,299 and 19,061,299 shares issued and outstanding 9,531 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 26,806 26,679 Retained earnings 256,086 246,629 Deferred compensation (2,458) (2,464) Accumulated other comprehensive income (11,262) (9,591) - -------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 279,441 271,522 - -------------------------------------------------------------------------------------------------------------------------- $592,442 $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 ---------------------------------------------- September 30, September 25, (In thousands, except per share data) 2000 1999 - ------------------------------------------------------------------------------------------------------------------- REVENUES Rental operations $141,898 $130,536 Direct sales 4,043 4,424 - ------------------------------------------------------------------------------------------------------------------- Total revenues 145,941 134,960 - ------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES Cost of rental operations 81,163 73,181 Cost of direct sales 3,315 3,713 Selling and administrative 31,832 29,716 Depreciation 7,000 7,004 Amortization of intangibles 2,425 2,140 - ------------------------------------------------------------------------------------------------------------------- Total operating expenses 125,735 115,754 - ------------------------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 20,206 19,206 Interest expense 4,399 3,886 Other income, net (581) (573) - ------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 16,388 15,893 Provision for income taxes 6,571 6,310 - ------------------------------------------------------------------------------------------------------------------- NET INCOME $ 9,817 $ 9,583 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Basic weighted average number of shares outstanding 20,477 20,459 BASIC EARNINGS PER COMMON SHARE $ 0.48 $ 0.47 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Diluted weighted average number of shares outstanding 20,503 20,535 DILUTED EARNINGS PER COMMON SHARE $ 0.48 $ 0.47 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
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 Three Months Ended ------------------------------------------- September 30, September 25, (In thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $9,817 $9,583 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 9,425 9,144 Deferred income taxes (159) 121 Changes in current operating items, exclusive of acquisitions- Accounts receivable and prepaid expenses 1,469 (2,269) Inventories (396) 798 Accounts payable and other accrued expenses 2,491 7,922 Other, net 256 178 - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 22,903 25,477 - ---------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Property, plant and equipment additions, net (8,219) (13,031) Acquisition of business assets (741) (9,462) Purchase of investments, net (252) (282) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (9,212) (22,775) - ---------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from debt financing 42,300 10,018 Repayments of debt financing (55,219) (17,944) Cash dividends paid (359) (359) Sale of common stock - 207 - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (13,278) (8,078) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 413 (5,376) EFFECT OF EXCHANGE RATES ON CASH (79) (10) CASH AND CASH EQUIVALENTS: Beginning of period 6,420 6,297 - ---------------------------------------------------------------------------------------------------------------------------- End of period $6,754 $ 911 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for - Interest $3,800 $3,698 - ---------------------------------------------------------------------------------------------------------------------------- Income taxes $2,937 $2,020 - ----------------------------------------------------------------------------------------------------------------------------
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 month periods ended September 30, 2000 and September 25, 1999 (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 as of September 30, 2000, and the results of its operations and its cash flows for the three months ended September 30, 2000 and September 25, 1999. 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 be 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 month periods ended September 30, 2000, and September 25, 1999, 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 --------------------------------- September 30, September 25, 2000 1999 ---------------- ---------------- Weighted average number of common shares outstanding 20,477 20,459 ---------------------------------- Shares used in computation of basic earnings per share 20,477 20,459 Weighted average effect of non-vested restricted stock grants - 8 Weighted average common shares issuable upon the exercise of stock options 26 68 ---------------------------------- Shares used in computation of diluted earnings per share 20,503 20,535 ---------------------------------- ----------------------------------
2. COMPREHENSIVE INCOME For the three month periods ended September 30, 2000 and September 25, 1999, the components of comprehensive income were as follows:
Three Months Ended ---------------------------------- September 30, September 25, 2000 1999 ---------------------------------- Net income $9,817 $9,583 Other comprehensive income Foreign currency translation adjustments, net of tax (1,238) (450) Unrealized loss on investments held for sale, net of tax - (213) Net unrealized derivative loss (433) - ---------------------------------- Comprehensive income $8,146 $8,920 ---------------------------------- ----------------------------------
3. LONG-TERM DEBT During the first quarter, 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 and a second take-down of $15,000 was completed on September 15, 2000. A final take-down of $15,000 will be made on or about 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 expenses. 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 month periods ended September 30, 2000 and September 25, 1999 is as follows:
United States Canada Total ---------------------------------------------------------------------------------------- Fiscal Year 2001: Revenues $127,060 $18,881 $145,941 Income from operations 15,050 5,156 20,206 Capital expenditures 7,676 543 8,219 Depreciation and amortization expense 8,263 1,162 9,425 Fiscal Year 2000: Revenues $118,341 $16,619 $134,960 Income from operations 14,375 4,831 19,206 Capital expenditures 12,171 860 13,031 Depreciation and amortization expense 8,084 1,060 9,144 ----------------------------------------------------------------------------------------
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 month periods ended September 30, 2000 and September 25, 1999, and the percentage changes in these income and expense items between periods are presented in the following table:
PERCENTAGE THREE MONTHS ENDED CHANGE ------------------------------------------------- ------------------ FY Q1 2001 vs. FY September 30, 2000 September 25, 1999 Q1 2000 ------------------------------------------------- ------------------ Revenues: Rental 97.2% 96.7% 8.7% Direct 2.8 3.3 (8.6) ------------------------------------------------ Total revenues 100.0 100.0 8.1 Expenses: Cost of rental sales 57.2 56.1 10.9 Cost of direct sales 82.0 83.9 (10.7) ------------------------------------------------ Total cost of sales 57.9 57.0 9.9 Selling and administrative 21.8 22.0 7.1 Depreciation 4.8 5.2 (0.1) Amortization of intangibles 1.7 1.6 13.3 ------------------------------------------------ Income from operations 13.8 14.2 5.2 Interest expense 3.0 2.8 13.2 Other income, net (0.4) (0.4) 1.4 ------------------------------------------------ Income before income taxes 11.2 11.8 3.1 Provision for income taxes 4.5 4.7 4.1 ------------------------------------------------ Net income 6.7% 7.1% 2.4% ------------------------------------------------
Total revenues for the first quarter of fiscal 2001 increased 8.1% to $145.9 million from $130.5 million in the first quarter of fiscal 2000. Rental revenue growth for the first quarter accounted for $11.4 million, or an 8.7% increase. The improvement in rental revenue growth rates were influenced by several factors including the Company's focus on internal revenue growth through an expanded sales force, improved sales productivity, new product introductions, service marketing and acquisitions. Additionally, the Company has continued to aggressively build its presence in the national account market through both new sales and further penetration of existing national accounts. Total direct sales to outside customers decreased 8.6% to $4.0 million for the first quarter of fiscal 2001 compared to $4.4 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 82.0% from 83.9% in the same period of fiscal 2000. Cost of rental operations increased 10.9% to $81.2 million for the first quarter of fiscal 2001 from $73.2 million in the same period of fiscal 2000. As a percentage of rental revenues, these costs increased to 57.2% for the first quarter of fiscal 2001 from 56.1% in the same period of fiscal 2000. The increase reflects higher fuel costs and increased workers' compensation and health insurance expenses. Selling and administrative expenses increased 7.1% to $31.8 million in the first quarter of fiscal 2001 from $29.7 million in the same period of fiscal 2000. As a percentage of revenues, selling and administrative expenses 8 decreased to 21.8% in the first quarter of fiscal 2001 from 22.0% in the same period of fiscal 2000. The decrease as a percent of revenue is largely due to cost reductions in the direct sale operation. Depreciation expense decreased 0.1% to $7.0 million in the first quarter of fiscal 2001 from $7.0 million in the same period of fiscal 2000. As a percentage of revenues, depreciation expense decreased to 4.8% in the first quarter of fiscal 2001 from 5.2% in the same period of fiscal 2000. Fixed asset additions supporting revenue growth were largely offset by the equipment purchased in fiscal 1998 from the National Linen Service transaction that is now fully depreciated. Capital expenditures, excluding acquisition of businesses, were $8.2 million in the first quarter of fiscal 2001 compared to $13.0 million in the prior year's quarter. Amortization expense increased 13.3% to $2.4 million in the first quarter of fiscal 2001 from $2.1 million in the first quarter of fiscal 2000. The increase in amortization expense is due to the goodwill associated with acquisitions made during fiscal 2000. Income from operations increased 5.2% to $20.2 million in the first quarter of fiscal 2001 from $19.2 million in the same period of fiscal 2000. Operating margins decreased to 13.8% in fiscal 2001 from 14.2% in fiscal 2000. Interest expense was $4.4 million for the first quarter of fiscal 2001, up from $3.9 million in the same period of fiscal 2000. The increase in interest expense is due primarily to an increase of approximately 140 basis points in the Company's overall effective interest rate since last year. The Company's effective tax rate increased to 40.1% in the first quarter of fiscal 2001 from 39.7% in the same period of fiscal 2000. Net income rose 2.4% to $9.8 million in the first quarter of fiscal 2001 from $9.6 million in the same period of fiscal 2000. Basic and diluted earnings per share for the first quarter of fiscal 2001 were $.48 per share, compared to $.47 per share for the prior year quarter. Net income margins decreased to 6.7% for the first quarter of fiscal 2001 compared with 7.1% in the first quarter of fiscal 2000. LIQUIDITY AND FINANCIAL RESOURCES Cash flow from operating activities was $22.9 million in the first quarter of fiscal 2001 and $25.5 million in the same period of fiscal 2000. The greater cash flow in fiscal 2000 was partially due to increases in accounts payable and other accrued expenses in connection with the acquisition of 3-D Services, Inc. Working capital at September 30, 2000 was $60.8 million, up 22.3% from $49.7 million at July 1, 2000. The increase in working capital is largely due to the issuance of $35 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 $9.2 million in the first quarter of fiscal 2001 and $22.8 million in the first quarter of fiscal 2000. The decrease is primarily due to the acquisition of business assets in the first quarter of fiscal 2000. Cash used for financing activities was $13.3 million in the first quarter of fiscal 2001 and $8.1 million in the same period of fiscal 2000. The long-term debt, including current maturities, decreased to $213.2 million at September 30, 2000 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 43.3% at the end of the first quarter of fiscal 2001 from 45.4% at July 1, 2000. Stockholders' equity grew 2.9% to $279.4 million at September 30, 2000, compared with $271.5 million at the end of fiscal 2000. G&K's return on average equity decreased to 3.6% for the first quarter of fiscal 2001 compared with 4.0% for the first quarter 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. 9 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 September 30, 2000. 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 PART II OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders None ITEM 6. Exhibits and Reports on Form 8-K a. Exhibits 27 Financial Data Schedule (for SEC use only) b. Reports on Form 8-K None 11 SIGNATURES 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: November 14, 2000 /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 EX-27 2 a2029906zex-27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 3-MOS JUN-30-2001 JUL-02-2000 SEP-30-2000 6,754 0 67,088 3,106 90,145 174,682 377,587 160,346 592,442 113,921 0 0 0 10,269 269,172 592,442 145,941 145,941 84,478 125,735 (581) 843 4,399 16,388 6,571 9,817 0 0 0 9,817 .48 .48
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