-----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, AP1fdEXXGujoMwlyb1lAnYSt8TrlsmTp3SNXyTTCN/gw7Fpw8pmUkbirWAMQrOYN FZfNSXLlb5eNupy/u/ohZA== 0001157523-03-001432.txt : 20030429 0001157523-03-001432.hdr.sgml : 20030429 20030429080744 ACCESSION NUMBER: 0001157523-03-001432 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030429 ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20030429 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: 0626 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-04063 FILM NUMBER: 03667768 BUSINESS ADDRESS: STREET 1: 5995 OPUS PARKWAY STREET 2: SUITE 500 CITY: MINNETONKA STATE: MN ZIP: 55343 BUSINESS PHONE: 6129125500 MAIL ADDRESS: STREET 1: 5995 OPUS PARKWAY STREET 2: SUITE 500 CITY: MINNETONKA STATE: MN ZIP: 55343 FORMER COMPANY: FORMER CONFORMED NAME: NORTHWEST LINEN CO DATE OF NAME CHANGE: 19681227 8-K 1 a4385281.txt G & K SERVICES 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): April 29, 2003 G&K Services, Inc. (Exact name of registrant as specified in its charter) Minnesota 0-4063 41-0449530 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 5995 Opus Parkway, Suite 500, Minnetonka, Minnesota 55343 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (952) 912-5500 NOT APPLICABLE (Former name or former address, if changed since last report) 1 Item 7. Financial Statements and Exhibits. (c) Exhibits. 99.1 Press Release dated April 29, 2003. Item 9. Information Provided Under Item 12 "Disclosure of Results of Operations and Financial Condition" The information in this Item is furnished to, but not filed with, the Securities and Exchange Commission (the "Commission") solely under Item 12 of Form 8-K, "Results of Operations and Financial Condition," pursuant to interim procedures promulgated by the Commission in Release No. 33-8216 issued March 27, 2003. On April 29, 2003, G&K Services, Inc. issued a press release announcing its financial results for the fiscal quarter ended March 29, 2003. A copy of the press release is furnished as Exhibit 99.1 to this report and is incorporated herein by reference. The press release contains certain non-GAAP financial measures, including organic industrial rental growth rate and free cash flow. The organic industrial rental growth rate is calculated using industrial rental revenue adjusted for foreign currency exchange rate differences and revenue from newly acquired locations compared to prior-period results. Management believes that the organic industrial rental growth rate is important to investors because it is a more meaningful indicator of the growth of our existing industrial business. It eliminates the impact of the U.S.-Canadian exchange rate and the affects of several recent acquisitions of business assets. Free cash flow is cash provided by operating activities less capital expenditures. Management believes that this is an important financial measure because it indicates the company's ability to expand, acquire additional business, reduce debt and pay dividends. 2 SIGNATURE 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: April 29, 2003 By: /s/ Jeffrey L. Wright -------------------------------------- Name: Jeffrey L. Wright Title: Chief Financial Officer and Secretary 3 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 99.1 Press Release dated April 29, 2003 EX-99 3 a4385281_ex991.txt G&K EXHIBIT 99.1 Exhibit 99.1 G&K Services Reports Fiscal 2003 Third Quarter Results MINNEAPOLIS--(BUSINESS WIRE)--April 29, 2003--G&K Services, Inc. (Nasdaq:GKSRA), today reported revenue for the third quarter ended March 29, 2003, of $176.5 million, up 5.3 percent over the $167.6 million reported in the third fiscal quarter last year. Earnings per diluted share, which were consistent with recent company estimates, totaled $0.31 for the quarter compared to $0.47 during the prior-year period. Third quarter earnings included $0.06 of expenses associated with severance costs and expenses related to closing a manufacturing facility. During the quarter, the company changed its income statement classification of customer billings for lost and damaged merchandise to a more preferable method of reporting. These billings, which previously were recorded as a reduction of cost of rental operations, are now recorded as rental revenue. This accounting classification is more consistent with recent accounting pronouncements regarding revenue recognition and is also consistent with the treatment used by other large companies in the uniform rental industry. This change increased rental revenue by $13.5 million in the current quarter and $12.5 million in the prior-year quarter. This reclassification did not impact current or historical net income or stockholders' equity. All previously reported amounts have been reclassified for comparability. "As expected, third quarter results were impacted by further softening in the employment markets and spiking energy costs," said Thomas Moberly, G&K's chief executive officer. "Employment levels fell by more than 450,000 jobs in February and March. That's on top of more than 2.1 million jobs lost during the past two years. Nevertheless, we continue to manage the business aggressively as demonstrated by strong operating cash flow production during the quarter." Third quarter revenue from G&K's rental business increased to $171.1 million, up 5.0 percent over the prior-year period. The company's organic industrial rental growth rate was approximately negative 2.5 percent in the third quarter and consistent with the reclassified second quarter organic growth rate. The organic industrial revenue growth rate is calculated using industrial rental revenue adjusted for foreign currency exchange rate differences and revenue from newly acquired locations compared to prior-period results. Direct sale revenue increased to $5.5 million, up 15.8 percent for the quarter. The increase was driven by initiatives to penetrate direct sale opportunities with existing customers. Gross margin from rental operations for the quarter was 36.6 percent of rental revenue versus 38.8 percent for the prior-year quarter. The variance reflects higher costs for energy, the expenses related to closing a manufacturing facility, acquisition integration and plant consolidation expenses, and lost margin from lower employment levels within our customer base. Gross margin from direct sales declined to 16.3 percent from 29.0 percent in the prior-year period. The reduction was driven primarily by product mix and lower pricing. Selling, general and administration expenses were 22.7 percent of consolidated revenue compared to 21.7 percent in the same period last year. Severance costs and expense related to uncollectible accounts receivable contributed to the increase in selling, general and administrative expenses. "While poor economic conditions continue to put pressure on our financial results, we improved a number of operational metrics during the quarter," said Richard Marcantonio, G&K's president and chief operating officer. "After a successful direct sale promotion during the second quarter, we initiated a route sales promotion in the third quarter to bolster revenue within our existing customers. The result accounted for a substantial increase in route sales compared to the second quarter. We will continue to design marketing promotions to capture such opportunities." The company reported solid cash flow for the quarter. Cash from operations totaled $25.9 million, up 10.0 percent over the prior-year period. Free cash flow, which is cash provided by operating activities less capital expenditures, was $19.3 million for the quarter compared to $15.6 the same period last year, up 23.5 percent over the prior year. Capital expenditures for the current quarter were $6.6 million compared to $7.9 million in the prior-year period. "We remain confident about our position and ability to successfully exploit the long-term opportunity in the industry," Moberly said. "While we await economic recovery and stability in overall employment trends, we will continue to aggressively pursue growth and operational productivity to mitigate the lingering impact of poor business conditions." Outlook The company expects fiscal 2003 fourth quarter revenue to be in the range of $175.0 million to $177.0 million and earnings per share to be between $0.35 and $0.38. The company will conduct a conference call today beginning at 10:00 a.m. Central Time. The call will be webcast and can be accessed through the Web site www.gkservices.com (on the Investor Relations page, click on the Web cast icon and follow the instructions). A replay of the call will be available through May 13, 2003. The financial and statistical information contained in the call, which consist of the financial tables below, may also be accessed on the Web site www.gkservices.com (on the Investor Relations page, click on the New Release button). The Private Securities Litigation Reform Act of 1995 (the "Act") provides companies with a "safe harbor" when making forward-looking statements as a way of encouraging them to furnish their shareholders with information regarding expected trends in their operating results, anticipated business developments and other prospective information. Statements made in this press release concerning our intentions, expectations or predictions about future results or events are "forward-looking statements" within the meaning of the Act. These statements reflect our current expectations or beliefs, and are subject to risks and uncertainties that could cause actual results or events to vary from stated expectations, which could be material and adverse. Given that circumstances may change, and new risks to the business may emerge from time to time, having the potential to negatively impact our business in ways we could not anticipate at the time of making a forward-looking statement, you are cautioned not to place undue reliance on these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Some of the factors that could cause actual results or events to vary from stated expectations include, but are not limited to, the following: unforeseen operating risks; the effects of overall economic conditions; fluctuations in costs of insurance and energy; acquisition integration costs; the performance of acquired businesses; preservation of positive labor relationships; competition, including pricing, within the corporate identity apparel and facility services industry; and the availability of capital to finance planned growth. Additional information concerning potential factors that could affect future financial results is included in our Annual Report on Form 10-K for the fiscal year ended June 29, 2002. About G&K Services, Inc. Headquartered in Minneapolis, Minnesota, G&K Services, Inc. is a market leader in corporate identity apparel programs and facility services in the United States, and is the largest such provider in Canada. G&K operates over 130 processing facilities and branch offices, serving more than 140,000 customers. CONSOLIDATED STATEMENTS OF OPERATIONS G&K Services, Inc. and Subsidiaries (Unaudited) For the Three For the Nine Months Ended Months Ended --------------------------------------- (U.S. dollars, in thousands, March 29, March 30, March 29, March 30, except per share data) 2003 2002 2003 2002 - ---------------------------------------------------------------------- Revenues Rental operations (footnote 1) $171,065 $162,904 $508,149 $490,555 Direct sales 5,455 4,709 17,822 16,045 - ---------------------------------------------------------------------- Total revenues 176,520 167,613 525,971 506,600 - ---------------------------------------------------------------------- Operating Expenses Cost of rental operations 108,524 99,645 316,084 301,975 Cost of direct sales 4,566 3,343 13,494 11,422 Selling and administrative 40,070 36,447 115,552 109,305 Depreciation and amortization 9,511 8,939 27,984 26,540 - ---------------------------------------------------------------------- Total operating expenses 162,671 148,374 473,114 449,242 - ---------------------------------------------------------------------- Income from Operations 13,849 19,239 52,857 57,358 Interest expense 3,406 3,113 10,198 10,235 - ---------------------------------------------------------------------- Income before Income Taxes 10,443 16,126 42,659 47,123 Provision for income taxes 4,073 6,370 16,637 18,614 - ---------------------------------------------------------------------- Net Income $6,370 $9,756 $26,022 $28,509 - ---------------------------------------------------------------------- Basic weighted average number of shares outstanding 20,608 20,518 20,574 20,494 Basic Earnings Per Common Share $0.31 $0.48 $1.26 $1.39 - ---------------------------------------------------------------------- Diluted weighted average number of shares outstanding 20,676 20,760 20,707 20,610 Diluted Earnings Per Common Share $0.31 $0.47 $1.26 $1.38 - ---------------------------------------------------------------------- Dividends per share $ 0.0175 $ 0.0175 $ 0.0525 $ 0.0525 Footnote 1: Revenue Recognition During the quarter, the company changed its income statement classification of customer billings for lost and damaged merchandise to a more preferable method of reporting. These billings, which previously were recorded as a reduction of cost of rental operations, are now recorded as rental revenue. This accounting classification is more consistent with recent accounting pronouncements regarding revenue recognition and is also consistent with the treatment used by other large companies in the uniform rental industry. This change increased rental revenue by $13,471 in the current quarter and $12,542 in the prior-year quarter. This change increased rental revenue by $40,619 in the current year-to-date period and $38,770 in the prior-year year-to-date period. This reclassification did not impact current or historical net income or stockholders' equity. CONSOLIDATED CONDENSED BALANCE SHEETS G&K Services, Inc. and Subsidiaries March 29, 2003 June 29, (U.S. dollars, in thousands) (Unaudited) 2002 - ---------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $14,050 $9,986 Accounts receivable, net 67,084 66,555 Inventories 94,370 91,733 Prepaid expenses 11,040 17,536 - ---------------------------------------------------------------------- Total current assets 186,544 185,810 - ---------------------------------------------------------------------- Property, Plant and Equipment, net 246,584 230,530 Other Assets 320,493 265,359 - ---------------------------------------------------------------------- $753,621 $681,699 - ---------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $19,507 $17,361 Accrued expenses 59,599 52,026 Deferred income taxes 11,316 11,157 Current maturities of long-term debt 10,789 9,443 - ---------------------------------------------------------------------- Total current liabilities 101,211 89,987 - ---------------------------------------------------------------------- Long-Term Debt, net of current maturities 245,062 214,977 Deferred Income Taxes 23,434 21,570 Other Noncurrent Liabilities 14,634 15,007 Stockholders' Equity 369,280 340,158 - ---------------------------------------------------------------------- $753,621 $681,699 - ---------------------------------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS G&K Services, Inc. and Subsidiaries (Unaudited) For the Nine Months Ended -------------------- March 29, March 30, (U.S. dollars, in thousands) 2003 2002 - ---------------------------------------------------------------------- Operating Activities: Net income $26,022 $28,509 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 27,984 26,540 Deferred income taxes (320) (3,910) Amortization of deferred compensation - restricted stock 768 695 Changes in current operating items, exclusive of acquisitions 17,945 12,679 Other, net 867 1,362 - ---------------------------------------------------------------------- Net cash provided by operating activities 73,266 65,875 - ---------------------------------------------------------------------- Investing Activities: Property, plant and equipment additions, net (24,703) (21,598) Acquisitions of business assets and other (75,795) (69,724) - ---------------------------------------------------------------------- Net cash used for investing activities (100,498) (91,322) - ---------------------------------------------------------------------- Financing Activities: Proceeds from debt financing 166,814 86,014 Repayments of debt financing (135,225) (62,788) Cash dividends paid (1,088) (1,084) Sale of common stock 500 334 - ---------------------------------------------------------------------- Net cash provided by financing activities 31,001 22,476 - ---------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 3,769 (2,971) Effect of Exchange Rates on Cash 295 (295) Cash and Cash Equivalents: Beginning of period 9,986 15,317 - ---------------------------------------------------------------------- End of period $14,050 $12,051 - ---------------------------------------------------------------------- CONTACT: G&K Services, Inc., Minneapolis Jeffrey L. Wright, 952/912-5500 or Glenn L. Stolt, 952/912-5500 -----END PRIVACY-ENHANCED MESSAGE-----