-----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, MAzcWV8lDIXyAHtCg4mcPi+KH/zocxvCFZLjCbt9Xzm+IePp2xZ0WTP5GmMncmvP 8hA+hg0whaqpspgttEv2bg== 0001157523-04-007874.txt : 20040817 0001157523-04-007874.hdr.sgml : 20040817 20040817083032 ACCESSION NUMBER: 0001157523-04-007874 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040817 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040817 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: 04980581 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 a4702660.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 17, 2004 G&K Services, Inc. (Exact name of registrant as specified in its charter) Minnesota 0-4063 41-0449530 (State or other jurisdiction (Commission File (IRS Employer of incorporation) Number) 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 17, 2004. 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 17, 2004, G&K Services, Inc. issued a press release announcing its financial results for the fiscal quarter ended July 3, 2004. 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, revenue from newly acquired locations and the extra week recorded in the current quarter compared to prior-period results. Management believes that by eliminating the impact of the U.S.-Canadian exchange rate, the effects of the Company's recent business acquisitions and the impact of the extra week recorded in the current quarter, 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 17, 2004 By: /s/ Jeffrey L. Wright ------------------------------ Name: Jeffrey L. Wright Title: Senior Vice President and Chief Financial Officer 3 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 99.1 Press Release dated August 17, 2004 EX-99.1 2 a4702660ex991.txt G&K SERVICES, INC. EXHIBIT 99.1 Exhibit 99.1 G&K Services Reports Fiscal 2004 Fourth Quarter and Total Year Results; Thirty-Fifth Consecutive Year of Revenue Growth; Fourth Quarter Earnings Exceed Expectations MINNEAPOLIS--(BUSINESS WIRE)--Aug. 17, 2004--G&K Services, Inc. (Nasdaq:GKSRA), today reported revenue for the fourth quarter ended July 3, 2004 of $193.3 million, up 7.6 percent over the $179.6 million reported in the fiscal fourth quarter last year. Fourth quarter results included an extra week of operation. Excluding this week, revenues were consistent with the prior-year period. Earnings per diluted share totaled $0.45 for the quarter, an increase of 21.6 percent over $0.37 during the prior-year period. Fourth quarter earnings were stronger than the company's previous guidance due to ongoing operational initiatives and greater expense leverage from the extra week. Earnings for the quarter reflect a number of previously announced unusual items including a transfer of production within the company's manufacturing facilities, the extra week of operation and a tentative settlement of a wage and hour dispute under California regulations. The net earnings effect of these items was slightly positive for the quarter. Revenue for fiscal 2004 totaled $733.4 million versus $705.6 million last year, a 3.9 percent increase. Excluding the extra week, full-year revenues were up 2.0 percent. Full-year earnings per diluted share were $1.69 compared to $1.63 last year. "Fiscal 2004 represented a year of positive change for G&K," said Richard Marcantonio, G&K's president and chief executive officer. "We executed a well-planned CEO transition and established a new executive management team. This team, in conjunction with the entire organization, made great strides to enhance the company's leadership position in the market." Income Statement Review Fourth quarter revenue from G&K's rental business increased to $187.3 million, up 7.9 percent over the prior-year period. The company's organic industrial rental growth rate was approximately negative 2.5 percent in the fourth quarter, consistent with expectations. The organic industrial rental growth rate is calculated using industrial rental revenue adjusted for foreign currency exchange rate differences, revenue from newly acquired locations and an extra week recorded in the current quarter compared to prior-period results. Direct sale revenue was $6.0 million during the quarter, consistent with the prior-year quarter. Gross margin from rental operations for the quarter was 37.6 percent compared to 36.3 percent in the prior-year quarter. Gross margin for the quarter reflected a strong improvement in merchandise costs and significant fixed cost leverage from the extra week of operation, partially offset by higher energy and employee benefit costs, lost margin from lower employment levels within our customer base and expenses associated with a transfer of production within the company's manufacturing facilities. Gross margin from direct sales was 20.8 percent compared to 26.8 percent in the prior-year period. The reduction resulted primarily from changes in product mix and increased merchandise costs. Selling, general and administrative expenses were 22.4 percent of consolidated revenue, up from 21.7 percent in the same period last year. The increase was attributed primarily to the pre-tax charge of approximately $1.25 million for the tentative settlement of a wage and hour dispute under California regulations. Fourth quarter selling, general and administrative expenses as compared to the third quarter were up due to the wage and hour dispute pre-tax charge, increased sales expenses related to sales force expansion initiatives and other personnel related costs. "Our positive fourth quarter results represent the continuation of strategies we've pursued to deliver sustainable margin expansion and position the company for accelerated organic revenue growth," Marcantonio said. "As we discussed last quarter, we have begun to put more emphasis on restoring revenue growth in our business. We continue to execute on a plan to grow our new account sales force while maintaining focus on penetrating existing account relationships and increasing customer retention levels. As of the end of the fourth quarter, we have driven a double-digit percentage increase in our new account sales force since the beginning of the calendar year. Additionally, the add versus lost uniform wearers within our customer base, which has been negative for more than three years, was neutral during the quarter. While this is a positive sign, we will continue to monitor overall employment growth." Balance Sheet and Cash Flow Review The company's balance sheet is strong. Efforts to maximize working capital efficiency and prudent capital spending have generated solid cash flow and will continue to support greater returns on invested capital. The company's debt to total capitalization dropped to 32.9 percent compared to 39.8 percent last year. The company also reported strong cash flow for the year. Cash flow from operations totaled $96.3 million. Free cash flow, which is cash provided by operating activities less capital expenditures, was $78.9 million for the year compared to $65.5 million during the prior-year, an increase of 20.5 percent. Capital expenditures for the year were $17.3 million compared to $31.4 million in the prior-year period as the company continues to prudently manage its strategic investments. The company has utilized the excess free cash flow to fund acquisition activities and reduce debt. Consequently, interest expense for the year was down 12.6 percent compared to the prior-year primarily due to a $42.8 million reduction of total debt. Outlook "During fiscal 2004, we accomplished our primary goals of establishing momentum in our operating income margin and strengthening the management foundation of the company," Marcantonio said. "Looking ahead to fiscal 2005, we'll put much of our energy toward reestablishing growth across our business. We'll support this effort with an expanded new account sales team, more robust marketing programs and continued focus on cross-selling initiatives. Accelerating top-line growth will generate significant leverage across the business and further position the company to deliver greater operating income margins." The company anticipates fiscal 2005 first quarter revenue to be in the range of $179.0 million to $182.0 million and earnings per diluted share to be between $0.42 and $0.44. The revenue guidance represents a modest improvement in the company's organic growth rate and the earnings guidance reflects the company's ongoing efforts to improve operational efficiency offset by investments in additional sales staff and enhanced marketing programs. Conference Call Information The company will conduct a conference call today beginning at 10:00 a.m. Central Time. The call will be web cast and can be accessed through the web site www.gkservices.com (on the Investor Relations page, click on the webcast icon and follow the instructions). A replay of the call will be available through September 14, 2004. Safe Harbor for Forward-Looking Statements 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 and employment; 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 28, 2003. 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. CONSOLIDATED STATEMENTS OF OPERATIONS G&K Services, Inc. and Subsidiaries For the Three For the Twelve Months Ended Months Ended ------------------- ------------------- July 3, June 28, July 3, June 28, 2004 2003 2004 2003 (U.S. Dollars, in thousands, (14 (13 (53 (52 except per share data) weeks) weeks) weeks) weeks) - ---------------------------------------------------------------------- Revenues Rental operations $187,277 $173,544 $708,708 $681,693 Direct sales 6,003 6,073 24,739 23,895 - ---------------------------------------------------------------------- Total revenues 193,280 179,617 733,447 705,588 - ---------------------------------------------------------------------- Operating Expenses Cost of rental operations 116,842 110,480 448,131 426,564 Cost of direct sales 4,754 4,445 18,899 17,939 Selling and administrative 43,357 38,919 158,034 154,471 Depreciation and amortization 10,018 9,711 39,346 37,695 - ---------------------------------------------------------------------- Total operating expenses 174,971 163,555 664,410 636,669 - ---------------------------------------------------------------------- Income from Operations 18,309 16,062 69,037 68,919 Interest expense 3,052 3,493 11,966 13,691 - ---------------------------------------------------------------------- Income before Income Taxes 15,257 12,569 57,071 55,228 Provision for income taxes 5,798 4,902 21,687 21,539 - ---------------------------------------------------------------------- Net Income $9,459 $7,667 $35,384 $33,689 - ---------------------------------------------------------------------- Basic weighted average number of shares outstanding 20,793 20,618 20,710 20,585 Basic Earnings Per Common Share $0.45 $0.37 $1.71 $1.64 - ---------------------------------------------------------------------- Diluted weighted average number of shares outstanding 21,042 20,645 20,900 20,691 Diluted Earnings Per Common Share $0.45 $0.37 $1.69 $1.63 - ---------------------------------------------------------------------- Dividends per share $0.0175 $0.0175 $0.0700 $0.0700 CONSOLIDATED CONDENSED BALANCE SHEETS G&K Services, Inc. and Subsidiaries July 3, June 28, (U.S. dollars, in thousands) 2004 2003 - ---------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $26,931 $11,504 Accounts receivable, net 71,058 69,839 Inventories 94,476 95,853 Prepaid expenses 14,902 14,848 - ---------------------------------------------------------------------- Total current assets 207,367 192,044 - ---------------------------------------------------------------------- Property, Plant and Equipment, net 240,609 250,757 Other Assets 354,771 336,005 - ---------------------------------------------------------------------- $802,747 $778,806 - ---------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $20,511 $20,228 Accrued expenses 76,470 62,327 Deferred income taxes 7,395 9,941 Current maturities of long-term debt 24,018 14,430 - ---------------------------------------------------------------------- Total current liabilities 128,394 106,926 - ---------------------------------------------------------------------- Long-Term Debt, net of current maturities 184,305 236,731 Deferred Income Taxes 38,256 32,185 Other Noncurrent Liabilities 26,369 22,695 Stockholders' Equity 425,423 380,269 - ---------------------------------------------------------------------- $802,747 $778,806 - ---------------------------------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS G&K Services, Inc. and Subsidiaries For the Twelve Months Ended ------------------- July 3, June 28, 2004 2003 (U.S. dollars, in thousands) (53 (52 weeks) weeks) - ---------------------------------------------------------------------- Operating Activities: Net income $35,384 $33,689 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 39,346 37,695 Deferred income taxes 1,300 4,636 Tax benefit of employee stock options 492 60 Amortization of deferred compensation - restricted stock 937 990 Changes in current operating items, exclusive of acquisitions 14,243 16,635 Other assets and liabilities 4,565 3,208 - ---------------------------------------------------------------------- Net cash provided by operating activities 96,267 96,913 - ---------------------------------------------------------------------- Investing Activities: Property, plant and equipment additions, net (17,349) (31,403) Acquisition of business assets and other (26,527) (90,139) - ---------------------------------------------------------------------- Net cash used for investing activities (43,876) (121,542) - ---------------------------------------------------------------------- Financing Activities: Proceeds from debt financing 195,569 178,464 Repayments of debt financing (236,598) (151,667) Cash dividends paid (1,459) (1,455) Sale of common stock 5,218 655 - ---------------------------------------------------------------------- Net cash provided by (used for) financing activities (37,270) 25,997 - ---------------------------------------------------------------------- Increase in Cash and Cash Equivalents 15,121 1,368 Effect of Exchange Rates on Cash 306 150 Cash and Cash Equivalents: Beginning of period 11,504 9,986 - ---------------------------------------------------------------------- End of period $26,931 $11,504 - ---------------------------------------------------------------------- CONTACT: G&K Services, Inc., Minneapolis Jeffrey L. Wright, 952-912-5500 or Glenn L. Stolt, 952-912-5500 -----END PRIVACY-ENHANCED MESSAGE-----