-----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, TP8LQyNn6eEUGXcdvErZBE1O0c3LvhXuRBJemj5LGBz5bv5d/Mtr55BqnBPjwkJz SAeBaxcnvivy/lIfN1hPZQ== 0001157523-03-004138.txt : 20030812 0001157523-03-004138.hdr.sgml : 20030812 20030812094524 ACCESSION NUMBER: 0001157523-03-004138 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030812 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030812 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: 03836086 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 a4452548.txt G&K SERVICES, INC. 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): August 12, 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) Item 7. Financial Statements and Exhibits. (c) Exhibits. 99.1 Press Release dated August 12, 2003. 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." On August 12, 2003, G&K Services, Inc. issued a press release announcing its financial results for the fiscal quarter ended June 28, 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 the 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 by eliminating the impact of the U.S.-Canadian exchange rate and the effects of the Company's recent business acquisitions, the organic industrial rental growth rate better reflects the growth of our existing industrial business and is therefore useful in analyzing the financial condition of the Company and the results of its operations. 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, pursue debt reduction 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: August 12, 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 August 12, 2003 -4- EX-99 3 a4452548ex99.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 G&K Services Reports Fiscal 2003 Fourth Quarter and Total Year Results MINNEAPOLIS--(BUSINESS WIRE)--Aug. 12, 2003--G&K Services, Inc. (Nasdaq:GKSRA), today reported revenue for the fourth quarter ended June 28, 2003, of $179.6 million, up 5.0 percent over the $171.0 million reported in the fourth fiscal quarter last year. Earnings per diluted share totaled $0.37 for the quarter compared to $0.47 during the prior-year period. Revenue for fiscal 2003 totaled $705.6 million versus $677.6 million last year, a 4.1 percent increase. Earnings per diluted share for the year were $1.63 compared to $1.85 last year. "Fiscal 2003 marked a year of significant operational achievements for G&K," said Thomas Moberly, G&K's chief executive officer. "In a year of continued economic weakness and declining employment levels, we aggressively and prudently focused on improving our operational effectiveness. We closed a number of plants to improve plant utilization and reduced expenses to address the impact of lost uniform wearers within existing accounts. At the same time, we improved our new account and existing account sales productivity. We strengthened our management team at all levels. And finally, we generated record levels of cash flow through solid earnings, effective working capital management and prudent capital spending." Fourth quarter revenue from G&K's rental business increased to $173.5 million, up 4.8 percent over the prior-year period and up 1.4 percent over the third quarter. The company's organic industrial rental growth rate improved from negative 2.5 percent in the third quarter to negative 1.0 percent in the fourth quarter. 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. Direct sale revenue increased to $6.1 million, up 11.9 percent for the quarter. Gross margin from rental operations for the quarter was 36.3 percent versus 38.9 percent for the prior-year quarter. The decrease reflects higher costs for energy, acquisition integration and plant consolidation expenses, employee benefit costs and lost margin from lower employment levels within our customer base. Increased volume in our direct sale business helped drive gross margin from direct sales to 26.8 percent, up from 21.7 percent in the prior-year period. Selling, general and administration expenses were 21.7 percent of consolidated revenue compared to 21.6 percent in the same period last year. "Our fourth quarter results reflect the initiatives we have been pursuing during the past few quarters, particularly the improvement in our organic industrial rental growth rate," said Richard Marcantonio, G&K's president and chief operating officer. "We improved our organic growth rate during the quarter by 150 basis points over the third quarter. Our continued focus on penetrating existing accounts with products and services in addition to improving new account sales productivity drove the momentum in our organic revenue growth rate during the fourth quarter." The company reported solid cash flow for the year. Cash flows from operations totaled $96.9 million, up 21.6 percent over the prior year. Free cash flow, which is cash provided by operating activities less capital expenditures, was $65.5 million for the year compared to $50.5 last year, an increase of 29.7 percent and represented the most free cash flow generated in the history of the company. Capital expenditures for the year were $31.4 million compared to $29.2 million in the prior-year. "While we eagerly await an upturn in the economy where employment levels stabilize and begin to grow, we are encouraged about our position to achieve revenue and earnings growth in fiscal 2004," Moberly said. "The actions we took during fiscal 2003, especially around plant consolidation and expense reduction, will provide momentum in fiscal 2004 and beyond." Outlook The company continues to monitor the impact of economic conditions, particularly employment trends, on its financial performance. Given continued uncertainty in the direction of the economy, the company provided the following guidance for the first quarter of fiscal 2004. The company expects fiscal 2004 first quarter revenue to be in the range of $177.0 million to $180.0 million and earnings per share to be between $0.37 and $0.39. As previously reported, the company changed the classification of certain customer billings. The changes, which did not impact current or historical net income or stockholders' equity, were related to the income statement reclassification of customer billings for lost and damaged merchandise. 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. The result of this change increased rental revenue by $15.0 million in the fourth quarter and $12.9 million in the prior-year quarter. All previously reported amounts have been reclassified for comparability. 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 September 9, 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 News 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 160,000 customers. - Financial tables to follow - CONSOLIDATED STATEMENTS OF OPERATIONS G&K Services, Inc. and Subsidiaries For the Three For the Twelve Months Ended Months Ended --------------------------------------- June 28, June 29, June 28, June 29, (U.S. dollars, in thousands, except per share data) 2003 2002 2003 2002 - ---------------------------------------------------------------------- Revenues Rental operations (footnote 1)$173,544 $165,566 $681,693 $656,121 Direct sales 6,073 5,425 23,895 21,470 - ---------------------------------------------------------------------- Total revenues 179,617 170,991 705,588 677,591 - ---------------------------------------------------------------------- Operating Expenses Cost of rental operations 110,480 101,135 426,564 403,110 Cost of direct sales 4,445 4,250 17,939 15,672 Selling and administrative 38,919 36,990 154,471 146,295 Depreciation and amortization 9,711 9,113 37,695 35,653 - ---------------------------------------------------------------------- Total operating expenses 163,555 151,488 636,669 600,730 - ---------------------------------------------------------------------- Income from Operations 16,062 19,503 68,919 76,861 Interest expense 3,493 3,374 13,691 13,609 - ---------------------------------------------------------------------- Income before Income Taxes 12,569 16,129 55,228 63,252 Provision for income taxes 4,902 6,371 21,539 24,985 - ---------------------------------------------------------------------- Net Income $7,667 $9,758 $33,689 $38,267 - ---------------------------------------------------------------------- Basic weighted average number of shares outstanding 20,618 20,538 20,585 20,505 Basic Earnings Per Common Share $0.37 $0.48 $1.64 $1.87 - ---------------------------------------------------------------------- Diluted weighted average number of shares outstanding 20,645 20,808 20,691 20,660 Diluted Earnings Per Common Share $0.37 $0.47 $1.63 $1.85 - ---------------------------------------------------------------------- Dividends per share $0.0175 $0.0175 $0.0700 $0.0700 Footnote 1: Revenue Recognition During the third 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 $14,967 in the current quarter and $12,915 in the prior-year quarter. This change increased rental revenue by $55,586 in the current year-to-date period and $51,685 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 June 28, June 29, (U.S. dollars, in thousands) 2003 2002 - ---------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $11,504 $9,986 Accounts receivable, net 69,839 66,555 Inventories 95,853 91,733 Prepaid expenses 14,848 17,536 - ---------------------------------------------------------------------- Total current assets 192,044 185,810 - ---------------------------------------------------------------------- Property, Plant and Equipment, net 250,757 230,530 Other Assets 336,005 265,359 - ---------------------------------------------------------------------- $778,806 $681,699 - ---------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $20,228 $17,361 Accrued expenses 68,679 52,026 Deferred income taxes 13,459 11,157 Current maturities of long-term debt 14,430 9,443 - ---------------------------------------------------------------------- Total current liabilities 116,796 89,987 - ---------------------------------------------------------------------- Long-Term Debt, net of current maturities 236,731 214,977 Deferred Income Taxes 28,667 21,570 Other Noncurrent Liabilities 16,343 15,007 Stockholders' Equity 380,269 340,158 - ---------------------------------------------------------------------- $778,806 $681,699 - ---------------------------------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS G&K Services, Inc. and Subsidiaries For the Twelve Months Ended --------------------------- June 28, June 29, (U.S. dollars, in thousands) 2003 2002 - ---------------------------------------------------------------------- Operating Activities: Net income $33,689 $38,267 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 37,695 35,653 Deferred income taxes 4,636 (312) Amortization of deferred compensation - restricted stock 990 937 Changes in current operating items, exclusive of acquisitions 16,868 5,807 Other, net 3,035 (673) - ---------------------------------------------------------------------- Net cash provided by operating activities 96,913 79,679 - ---------------------------------------------------------------------- Investing Activities: Property, plant and equipment additions, net (31,403) (29,156) Acquisitions of business assets and other (90,139) (70,933) - ---------------------------------------------------------------------- Net cash used for investing activities (121,542) (100,089) - ---------------------------------------------------------------------- Financing Activities: Proceeds from debt financing 178,464 125,918 Repayments of debt financing (151,667) (110,322) Cash dividends paid (1,455) (1,445) Sale of common stock 655 1,040 - ---------------------------------------------------------------------- Net cash provided by financing activities 25,997 15,191 - ---------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 1,368 (5,219) Effect of Exchange Rates on Cash 150 (112) Cash and Cash Equivalents: Beginning of period 9,986 15,317 - ---------------------------------------------------------------------- End of period $11,504 $9,986 - ---------------------------------------------------------------------- CONTACT: G&K Services, Inc., Minneapolis Jeffrey L. Wright, 952-912-5500 or Glenn L. Stolt, 952-912-5500 -----END PRIVACY-ENHANCED MESSAGE-----