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 March 30, 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 April 26, 1996
Common Stock, par value $.50 per share 18,908,884
CLASS B Outstanding April 26, 1996
Common Stock, par value $.50 per share 1,521,121
<TABLE>
<CAPTION>
G&K SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
MARCH 30 July 1
1996 1995
--------- ---------
(UNAUDITED) (Audited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,010 $ 3,045
Accounts receivable, net 34,832 32,674
Inventories-
New goods 18,678 17,561
Goods in service 32,065 30,986
Prepaid expenses 4,668 3,053
--------- ---------
Total current assets 91,253 87,319
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
Land 18,097 16,159
Buildings and improvements 60,646 50,852
Machinery and equipment 117,677 106,365
Automobiles and trucks 23,567 20,713
Less accumulated depreciation (91,448) (79,638)
--------- ---------
128,539 114,451
--------- ---------
OTHER ASSETS
Goodwill 35,036 35,577
Restrictive covenants, customer lists,
and other assets arising from acquisitions 7,215 8,366
Other assets 7,499 7,620
--------- ---------
Total other assets 49,750 51,563
--------- ---------
$ 269,542 $ 253,333
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,173 $ 12,086
Accrued expenses -
Salaries and employee benefits 8,425 6,999
Other 7,760 5,773
Reserve for income taxes 10,422 10,146
Current maturities of debt 7,445 7,445
--------- ---------
Total current liabilities 41,225 42,449
--------- ---------
LONG TERM DEBT, NET OF CURRENT MATURITIES 77,139 76,519
DEFERRED INCOME TAXES 10,258 10,582
OTHER NONCURRENT LIABILITIES 6,120 5,254
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $.50 par
Class A, 50,000,000 shares authorized, 18,908,884 and
18,543,360 shares issued and outstanding 9,454 9,272
Class B, 10,000,000 shares authorized, 1,521,121 and
1,865,089 shares issued and outstanding 761 933
Additional paid-in capital 19,693 19,228
Retained earnings 110,577 95,174
Cumulative translation adjustment (5,685) (6,078)
--------- ---------
Total stockholders' equity 134,800 118,529
--------- ---------
$ 269,542 $ 253,333
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
G&K SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
--------------------- ----------------------
MARCH 30 APRIL 1 MARCH 30 APRIL 1
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Rental operations $ 75,117 $ 64,117 $ 216,828 $ 184,934
Direct sales 2,361 2,602 6,692 7,872
--------- --------- --------- ---------
Total revenues 77,478 66,719 223,520 192,806
--------- --------- --------- ---------
EXPENSES
Cost of rental operations 41,339 37,644 121,464 106,284
Cost of direct sales 1,835 1,812 5,139 6,246
Selling and administrative 17,507 13,825 48,740 41,346
Depreciation 4,679 3,790 13,116 10,653
Amortization of intangibles 627 638 1,902 1,969
--------- --------- --------- ---------
Total expenses 65,987 57,709 190,361 166,498
--------- --------- --------- ---------
INCOME FROM OPERATIONS 11,491 9,010 33,159 26,308
Interest expense 1,909 2,035 6,246 4,768
Other (income) expense, net 310 (464) (17) (1,001)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 9,272 7,439 26,930 22,541
Provision for income taxes 3,560 3,020 10,456 9,116
--------- --------- --------- ---------
NET INCOME $ 5,712 $ 4,419 $ 16,474 $ 13,425
========= ========= ========= =========
Weighted average number of
shares outstanding 20,406 20,368 20,406 20,368
NET INCOME PER SHARE $ 0.28 $ 0.22 $ 0.81 $ 0.66
========= ========= ========= =========
Dividends per share $ 0.0175 $ 0.0175 $ 0.0525 $ 0.0525
</TABLE>
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)
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
-------------------- --------------------
MARCH 30, ARPIL 1, MARCH 30, ARPIL 1,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,712 $ 4,419 $ 16,474 $ 13,425
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 5,306 4,428 15,018 12,622
Noncurrent deferred income taxes (110) (107) (331) (326)
Change in current operating items-
Inventories 404 (3,389) (2,100) (10,772)
Accounts receivable and prepaid expenses 127 (425) (3,693) (3,595)
Accounts payable and other current liabilities 722 (768) (1,295) 2,185
Other, net 552 (114) 1,530 (235)
-------- -------- -------- --------
Net cash provided by operating activities 12,713 4,044 25,603 13,304
-------- -------- -------- --------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Property, plant and equipment additions, net (7,639) (9,746) (27,008) (24,376)
Acquisitions of operating assets 0 0 0 (9,480)
-------- -------- -------- --------
Net cash used for investment activities (7,639) (9,746) (27,008) (33,856)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common Stock 11 48 11 48
Proceeds from debt financing 0 0 0 15,000
Net Change in Revolving Line of Credit (9,835) 4,994 431 2,296
Acquisition payments refundable from escrow 0 (278) 0 (630)
Cash dividends paid (358) (357) (1,072) (1,070)
-------- -------- -------- --------
Net cash provided by (used for) financing activities (10,182) 4,407 (630) 15,644
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH (5,108) (1,295) (2,035) (4,908)
======== ======== ======== ========
Cash:
Beginning of the period 6,118 1,518 3,045 5,131
======== ======== ======== ========
End of the period $ 1,010 $ 223 $ 1,010 $ 223
======== ======== ======== ========
</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 $75,117,000 and $64,117,000
for the third quarter of fiscal 1996 and 1995, and $216,828,000 and $184,934,000
for the first nine months. Revenues for G&K's U.S. rental operations grew at
17.2% rate for the third quarter and 17.2% for the first nine months of fiscal
1996 when compared with the same periods last year. The 17.2% 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 17.2% revenue growth rate is higher than the 16.8% increase reported
in the third quarter last year and the 17.2% revenue growth rate is higher than
the 16.8% gain reported in the first nine months of last year. Revenues for
Canadian rental operations increased at a 12.6% rate for the third quarter and
13.2% rate for the first nine months of fiscal 1996 compared to the same periods
last year. Revenues in Canadian dollars increased 9.7% for the third quarter and
11.4% for the first nine 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 $2,361,000 and $2,602,000 for the
third quarter fiscal 1996 and 1995. Revenues totaled $6,692,000 and $7,872,000
for the first nine months of fiscal 1996 and 1995. Decrease in direct sales is
due to reduced BCP external revenues as sales to outside customers have been
replaced by production of garments to meet internal requirements.
EXPENSES
Cost of rental operations were $41,339,000 and $37,644,000 representing
55% and 58.7% of revenues from rentals and operations for the third quarter of
fiscal 1996 and 1995. Costs of $121,464,000 and $106,284,000 representing 56%
and 57.5% of revenues from rentals and operations for the first nine months of
fiscal 1996 and 1995. As a percentage of revenues, improvements in cost of
merchandise for rental operations were partially offset by higher delivery
costs.
Cost of direct sales were $1,835,000 and $1,812,000 representing 77.7%
and 69.6% of revenues for the third quarter of fiscal 1996 and 1995. Costs of
$5,139,000 and $6,246,000 representing 76.8% and 79.3% of revenues for the first
nine 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 $48,740,000 and $41,346,000 in
the first nine months of fiscal 1996 and 1995, representing a 17.9% increase
over fiscal 1995. As a percentage of revenues, these expenses were 21.8% and
21.4% in the first nine months of fiscal 1996 and 1995.
Depreciation expense equaled $4,679,000 and $3,790,000, and $13,116,000
and $10,653,000 for the three and nine month periods in fiscal 1996 and 1995,
respectively. The increase in depreciation of 23.5% and 23.1% are the result of
increased capital spending in fiscal 1995 and fiscal 1996.
Interest expense of $6,246,000 increased 31% in the first nine 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 $17,000 and $1,001,000 in the first nine months of
fiscal 1996 and 1995. This decrease resulted from the recognition of losses in
invested funds in the first quarter, as well as disposal of plant equipment.
U.S. exchange losses increased from purchases of BCP garments at Canadian
locations.
Effective income tax rates were 38.8% and 40.4% in the first nine
months of fiscal 1996 and 1995. The decrease resulted from lower effective rates
in the U.S. and improved profitability in Canada.
NET INCOME
Net income for the first nine months of fiscal 1996 totaled $16,474,000
representing a 22.7% increase compared with the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $25,603,000 in the first nine
months of fiscal 1996 compared with $13,304,000 in the same period last year.
The increase is the result of fiscal 1995's increase in inventory relating to
the BCP 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 nine month periods ended March 30, 1996 and April 1, 1995
(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 March 30, 1996, April 1, 1995, and July 1, 1995, and the results
of operations and the changes in financial position for the three and
nine months ended March 30, 1996 and April 1, 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 nine month period ended March 30,
1996, and April 1, 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.
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 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: May 14, 1996 /s/Stephen F. LaBelle
Stephen F. LaBelle
Secretary and Treasurer
(Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> MAR-30-1996
<CASH> 1,010
<SECURITIES> 0
<RECEIVABLES> 36,289
<ALLOWANCES> (1,456)
<INVENTORY> 50,743
<CURRENT-ASSETS> 91,253
<PP&E> 219,988
<DEPRECIATION> 91,449
<TOTAL-ASSETS> 269,542
<CURRENT-LIABILITIES> 41,225
<BONDS> 0
0
0
<COMMON> 10,215
<OTHER-SE> 124,585
<TOTAL-LIABILITY-AND-EQUITY> 269,542
<SALES> 223,520
<TOTAL-REVENUES> 223,520
<CGS> 5,139
<TOTAL-COSTS> 190,361
<OTHER-EXPENSES> (16)
<LOSS-PROVISION> 1,629
<INTEREST-EXPENSE> 6,246
<INCOME-PRETAX> 26,930
<INCOME-TAX> 10,456
<INCOME-CONTINUING> 16,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,474
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
