<PAGE>
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 28, 1996 Commission file number 0-4063
G&K SERVICES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0449530
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(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 November 8, 1996
Common Stock, par value $.50 per share 18,922,846
CLASS B Outstanding November 8, 1996
Common Stock, par value $.50 per share 1,521,121
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G&K SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPT 28 June 29
1996 1996
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(UNAUDITED) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,638 $ 6,882
Accounts receivable, net 39,698 36,696
Inventories-
New goods 17,494 16,942
Goods in service 36,157 35,135
Prepaid expenses 4,389 3,995
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Total current assets 99,376 99,650
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PROPERTY, PLANT AND EQUIPMENT
Land 19,692 19,326
Buildings and improvements 65,420 61,756
Machinery and equipment 125,090 118,955
Automobiles and trucks 25,701 25,028
Less accumulated depreciation (97,161) (92,167)
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138,742 132,898
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OTHER ASSETS
Goodwill 34,370 34,642
Restrictive covenants, customer lists, and other
assets arising from acquisitions 7,147 6,860
Other assets 7,926 7,939
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Total other assets 49,443 49,441
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$ 287,561 $ 281,989
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,467 $ 13,068
Accrued expenses -
Salaries and employee benefits 10,903 10,265
Other 9,053 7,151
Reserve for income taxes 12,982 10,280
Current maturities of debt 9,049 9,049
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Total current liabilities 52,454 49,813
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LONG TERM DEBT, NET OF CURRENT MATURITIES 70,770 75,143
DEFERRED INCOME TAXES 9,985 10,093
OTHER NONCURRENT LIABILITIES 6,581 6,293
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STOCKHOLDERS' EQUITY
Common stock, $.50 par
Class A, 50,000,000 shares authorized, 18,919,725
and 18,915,725 shares issued and outstanding 9,460 9,458
Class B, 10,000,000 shares authorized, 1,521,121
shares issued and outstanding 761 761
Additional paid-in capital 19,870 19,758
Retained earnings 123,416 116,465
Cumulative translation adjustment (5,736) (5,795)
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Total stockholders' equity 147,771 140,647
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$ 287,561 $ 281,989
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 2
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G&K SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
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SEPT 28 SEPT 30
1996 1995
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<S> <C> <C>
REVENUES
Rental operations $ 80,013 $ 68,905
Direct sales 3,297 2,049
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Total revenues 83,310 70,954
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EXPENSES
Cost of rental operations 43,482 38,913
Cost of direct sales 2,581 1,406
Selling and administrative 19,407 15,413
Depreciation 4,596 4,044
Amortization of intangibles 563 620
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Total expenses 70,629 60,396
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INCOME FROM OPERATIONS 12,681 10,558
Interest expense 1,723 2,181
Other (income) expense, net (446) (154)
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INCOME BEFORE INCOME TAXES 11,404 8,531
Provision for income taxes 4,453 3,344
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NET INCOME $ 6,951 $ 5,187
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Weighted average number of shares outstanding 20,439 20,405
NET INCOME PER SHARE $ 0.34 $ 0.25
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Dividends per share $ 0.0175 $ 0.0175
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 3
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G&K SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
SEPT 28, '96 SEPT 30, '95
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $6,951 $5,187
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization 5,158 4,663
Noncurrent deferred income taxes (108) (110)
Change in current operating items-
Inventories (1,574) (666)
Accounts receivable and prepaid expenses (3,396) (2,197)
Accounts payable and other current liabilities 2,641 (1,695)
Other, net 484 81
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Net cash provided by operating activities 10,156 5,263
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CASH FLOWS FROM INVESTMENT ACTIVITIES:
Property, plant and equipment additions, net (9,079) (8,877)
Acquisitions of operating assets (1,948) 0
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Net cash used for investment activities (11,027) (8,877)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2 0
Proceeds from issuance of long-term debt 7,190 9,525
Repayments of long-term debt (11,565) (6,374)
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Net cash provided by (used for) financing activities (4,373) 3,151
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DECREASE IN CASH (5,244) (463)
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Cash:
Beginning of the period 6,882 3,045
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End of the period $ 1,638 $ 2,582
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 4
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G&K SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three month period ended September 28, 1996 and September 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 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.
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 28, 1996, and June 29, 1996, and the results of operations
and the changes in financial position for the three months ended
September 28, 1996 and September 30, 1995.
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 month period ended
September 28, 1996, and September 30, 1995, 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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
REVENUES FROM RENTALS AND SERVICES
Revenues from rentals and services totaled $80,013,000 and $68,905,000 for
the first three months fiscal 1997 and 1996. Revenues for G&K's U.S. rental
operations grew at a 17.1% rate for the first three months of fiscal 1997
when compared with the same period last year. The 17.1% increase was
realized with no material benefit of acquisitions. Increased new account
sales, expansion of existing accounts, selective price increases, new market
entries, and good customer retention rates helped us achieve this result.
The 17.1% revenue growth rate is lower than the 17.6% increase reported in
the first three months last year. Revenues for Canadian rental operations
increased at a 11.1% rate for the first three months of fiscal 1997 compared
to the same periods last year. Revenues in Canadian dollars increased 12.3%
for the first three months when compared to the same period last year.
There were no significant changes in rental product mix or selling prices
during the first three months of fiscal 1997.
Revenues from direct sales totaled $3,297,000 and $2,049,000 for the first
three months of fiscal 1997 and 1996. Increase in direct sales is due to
higher U.S. Manufacturing division external revenues.
EXPENSES
Cost of rental operations were $43,482,000 and $38,913,000 representing
54.3% and 56.5% of revenues from rentals and operations for the first three
months of fiscal 1997 and 1996. These improvements are a result of decreased
production and merchandise costs within the rental operations.
Cost of direct sales were $2,581,000 and $1,406,000 representing 78.3% and
68.6% of direct sales revenues for the first three months of fiscal 1997 and
1996. 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 $19,407,000 and $15,413,000 in the
first three months of fiscal 1997 and 1996. As a percentage of revenues,
these expenses were 23.3% and 21.7% in 1997 and 1996 respectively. The
primary increase in Sales, Marketing and training costs are due to the
continued development and maintenance of projects that maximize our continued
internal sales growth rates.
Depreciation expense equaled $4,596,000 and $4,044,000, for the three
months in fiscal 1997 and 1996, respectively. The increase in depreciation of
13.6% is the result of increased capital spending.
Interest expense of $1,723,000 decreased 21% in the first three months of
fiscal 1997 when compared to the same period last year. The decrease is from
lower average borrowing levels and lower average interest rates.
6
<PAGE>
Effective income tax rates were 39% and 39.2% in the first three months of
fiscal 1997 and 1996. The decrease resulted from a lower effective rate in
Canada offset by a slightly higher U.S. effective rate.
NET INCOME
Net income for the first three months of fiscal 1997 totaled $6,951,000
representing a 34% increase compared with the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $10,154,000 in the first three
months of fiscal 1997 compared with $5,263,000 in the same period last year.
The increase is primarily the result of higher net income before depreciation
and amortization expense along with favorable changes in certain current
operating items.
Net cash used for financing activities of $4,371,000 in the first three
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 three months of fiscal 1996 of $3,151,000
included payments on Senior notes payable of $6,197,000.
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
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PART II
OTHER INFORMATION
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
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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 11, 1996 s/ Stephen F. LaBelle
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Stephen F. LaBelle
Secretary and Treasurer
(Chief Financial Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-END> SEP-28-1996
<CASH> 1,638
<SECURITIES> 0
<RECEIVABLES> 41,218
<ALLOWANCES> (1,521)
<INVENTORY> 53,651
<CURRENT-ASSETS> 99,375
<PP&E> 235,903
<DEPRECIATION> (97,161)
<TOTAL-ASSETS> 287,561
<CURRENT-LIABILITIES> 52,454
<BONDS> 0
10,220
0
<COMMON> 0
<OTHER-SE> 137,550
<TOTAL-LIABILITY-AND-EQUITY> 287,561
<SALES> 3,297
<TOTAL-REVENUES> 83,310
<CGS> 2,581
<TOTAL-COSTS> 70,629
<OTHER-EXPENSES> (446)
<LOSS-PROVISION> 526
<INTEREST-EXPENSE> 1,723
<INCOME-PRETAX> 11,404
<INCOME-TAX> 4,453
<INCOME-CONTINUING> 6,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,951
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
