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 31, 1994, 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 February 3, 1995
Common Stock, par value $.50 per share 18,498,504
CLASS B Outstanding February 3, 1995
Common Stock, par value $.50 per share 1,865,089
G&K SERVICES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Dec. 31, July 2, Jan. 1,
1994 1994 1994
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,518 $ 5,131 $ 3,591
Accounts receivable, net 29,484 26,326 25,162
Inventories-
New goods 13,545 6,904 7,569
Goods in service 26,775 22,774 21,652
Prepaid expenses 3,085 2,395 3,012
Total current assets 74,407 63,530 60,986
PROPERTY, PLANT AND EQUIPMENT
Land 17,366 14,495 12,452
Buildings and improvements 42,149 40,984 40,681
Machinery and equipment 104,132 93,440 87,468
Automobiles and trucks 18,126 15,812 14,843
Less accumulated depreciation (81,764) (75,147) (70,694)
100,009 89,584 84,750
OTHER ASSETS
Goodwill 36,346 35,188 37,052
Restrictive covenants, customer lists
and other assets arising from acquisitions 9,519 9,408 10,705
Other assets 7,720 7,354 6,759
Total other assets 53,585 51,950 54,516
$ 228,001 $ 205,064 $ 200,252
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,738 $ 8,879 $ 8,222
Accrued expenses -
Salaries and employee benefits 6,446 6,257 4,722
Other 5,690 4,744 5,589
Reserve for income taxes 8,641 8,747 7,097
Current maturities of debt 5,552 5,552 10,751
Total current liabilities 37,067 34,179 36,381
LONG TERM DEBT, NET OF CURRENT MATURITIES 66,723 54,676 53,373
DEFERRED INCOME TAXES 10,791 11,014 11,542
OTHER NONCURRENT LIABILITIES 4,788 4,338 3,497
STOCKHOLDERS' EQUITY
Common stock, $0.50 par
Class A, 50,000,000 shares authorized, 18,498,504,
18,498,504 and 18,457,189 shares issued and outstanding 9,249 9,249 9,229
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 86,530 78,237 71,309
Cumulative translation adjustment (6,959) (6,415) (4,642)
Total stockholders' equity 108,632 100,857 95,459
$ 228,001 $ 205,064 $ 200,252
</TABLE>
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)
DECEMBER 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
Dec. 31, Jan. 1, Dec. 31, Jan. 1,
1994 1994 1994 1994
<S> <C> <C> <C> <C>
REVENUES $ 65,554 $ 55,525 $126,087 $108,879
EXPENSES
Operating 35,369 30,379 68,433 59,483
Cost of merchandise sold 3,112 1,741 4,641 3,152
Selling and administrative 13,858 12,133 27,521 24,090
Depreciation 3,613 3,122 6,863 6,220
Amortization of intangibles 657 751 1,331 1,511
56,609 48,126 108,789 94,456
INCOME FROM OPERATIONS 8,945 7,399 17,298 14,423
Interest expense 1,445 1,342 2,733 2,874
Interest income (69) (50) (94) (202)
Other (income) expense, net (174) (181) (443) (315)
INCOME BEFORE INCOME TAXES 7,743 6,288 15,102 12,066
Provision for income taxes 3,095 2,598 6,096 4,991
NET INCOME 4,648 3,690 9,006 7,075
Weighted average number of
shares outstanding 20,364 20,322 20,364 20,322
NET INCOME PER SHARE $ 0.23 $ 0.18 $ 0.44 $ 0.35
Dividends per share 0.0175 0.0175 0.0350 0.0342
</TABLE>
The accompanying notes are an integral part of these statements.
G&K SERVICES, INC. and SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months For The Six Months
Ended Ended
Dec. 31, Jan. 1, Dec. 31, Jan. 1,
1994 1994 1994 1994
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,648 $ 3,690 $ 9,006 $ 7,075
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 4,270 3,873 8,194 7,730
Noncurrent deferred income taxes (109) (117) (219) (526)
Changes in current operating items -
Inventories (5,630) (2,385) (7,383) (2,173)
Accounts receivable and prepaid expences (3,239) (1,258) (3,170) (1,225)
Accounts payable and other current liabilities 1,504 (279) 2,953 (123)
Other, net (293) (47) (121) 111
Net cash provided by operating activi 1,151 3,477 9,260 10,869
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions, net (6,792) (2,658) (14,630) (5,549)
Acquisition of operating assets (380) 0 (9,480) 0
Net cash used for investment activities (7,172) (2,658) (24,110) (5,549)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 15,000 0 15,000 0
Repayment of debt (8,776) (2,200) (2,698) (5,621)
Acquisition payments refundable from escrow (352) 0 (352) 0
Cash dividends paid (713) (354) (713) (693)
Net cash provided from (used for) financing activities 5,159 (2,554) 11,237 (6,314)
Increase (decrease) in cash (862) (1,735) (3,613) (994)
Cash:
Beginning of the period 2,380 5,326 5,131 4,585
End of the period $ 1,518 $ 3,591 $ 1,518 $ 3,591
</TABLE>
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 $126,087,000 and $108,879,000 in
the first six months of fiscal 1995 and 1994, respectively. Revenues for G&K's
U.S. operations grew at a 15.8% rate for the first six 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 14.1%. Intensified marketing and
record sales to new accounts, higher customer retention rates, and a stronger
economy helped us achieve this result. This 15.8% revenue growth rate is higher
than the 13.0% gain reported in the first six months last year. Revenues for
Work Wear Canada operations increased at a 6.8% rate for the first six 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 six months of fiscal 1995.
EXPENSES
Operating expenses were $68,433,000 and $59,483,000 representing 54.3% and
54.6% of revenues from rentals and services for the first six months of fiscal
1995 and 1994, respectively.
Selling and administrative expenses were $27,521,000 and $24,090,000 in the
first six months of fiscal 1995 and 1994, an increase of 14.2%. As a percentage
of revenues, these expenses were 21.8% and 22.1% in the first six months of
fiscal 1995 and 1994.
Interest expense of $2,733,000 decreased 4.9% in the first six months of
fiscal 1995 because of lower average borrowing levels and the refinancing of
approximately $28,000,000 in debt in June 1994 at lower rates.
NET INCOME
Net income for the first six months of fiscal 1995 totaled $9,006,000
representing a 27.3% increase compared with the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $8,464,000 in the first six
months of fiscal 1995 compared with $10,913,000 in the same period last year.
The decrease is the result of higher inventory costs relating to the B.C.P.
acquisition. 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 December 31, 1994, January 1, 1994, and July 2, 1994, and the
results of operations for the six months ended December 31, 1994 and
January 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 six month period ended December 31,
1994, and January 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.
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
26, 1994.
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. Stockholders also approved an amendment to G&K's Restated
Articles of Incorporation that increased the number of shares
of Class A Common Stock authorized for issuance thereunder
from 20,000,000 shares to 50,000,000 shares. The proposal was
approved by a vote of 25,858,659 shares in favor, 3,026,251
shares voting against and 22,888 shares abstaining.
Additionally, each director nominee received the following
votes: Allbright, 28,864,370 shares in favor, 0 shares voting
against and 43,428 shares abstaining, Baszucki, 28,861,063
shares in favor, 0 shares voting against and 46,735 shares
abstaining, Fink, 28,863,339 shares in favor, 0 shares voting
against and 44,459 shares abstaining, Fortun, 28,861,523
shares in favor, 0 shares voting against and 46,275 shares
abstaining, Goldfus, 28,864,370 shares in favor, 0 shares
voting against and 43,428 shares abstaining, Hope, 28,863,715
shares in favor, 0 shares voting against and 44,083 shares
abstaining and Sweet, 28,863,610 shares in favor, 0 shares
voting against and 44,188 shares abstaining.
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.
No reports on Form 8-K were filed during the quarter-ended
December 31, 1994.
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 10, 1995 /s/Stephen F. LaBelle
Stephen F. LaBelle
Secretary and Treasurer
(Chief Financial Officer)
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<PERIOD-END> DEC-31-1994
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<ALLOWANCES> (698)
<INVENTORY> 40,320
<CURRENT-ASSETS> 74,407
<PP&E> 181,773
<DEPRECIATION> (81,764)
<TOTAL-ASSETS> 228,001
<CURRENT-LIABILITIES> 37,067
<BONDS> 0
<COMMON> 10,182
0
0
<OTHER-SE> 98,450
<TOTAL-LIABILITY-AND-EQUITY> 228,001
<SALES> 126,087
<TOTAL-REVENUES> 126,087
<CGS> 4,641
<TOTAL-COSTS> 103,804
<OTHER-EXPENSES> (537)
<LOSS-PROVISION> 344
<INTEREST-EXPENSE> 2,733
<INCOME-PRETAX> 15,102
<INCOME-TAX> 6096
<INCOME-CONTINUING> 9006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-PRIMARY> .44
<EPS-DILUTED> .44
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