-----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, RhJNeMge5hGfWJiz56ybCGz6mJkrAIptUWvzMN3wQzsRRt0G2x1r/uTc+KV+uF72 tFnoDyIh+xqa1AU+mcxDwQ== 0001157523-04-010192.txt : 20041101 0001157523-04-010192.hdr.sgml : 20041101 20041101171639 ACCESSION NUMBER: 0001157523-04-010192 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20041101 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041101 DATE AS OF CHANGE: 20041101 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: 041110842 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 a4755571.txt G & K SERVICES, INC. 8-K UNITED STATES 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): November 1, 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 Number) (IRS Employer of incorporation) Identification No.) 5995 Opus Parkway, 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) Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13d-4(C) under the Exchange Act (17 CFR 240.13e-4(c)) Item 2.02 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 2.02 of Form 8-K, "Results of Operations and Financial Condition." On November 1, 2004, G&K Services, Inc. issued a press release announcing its financial results for the fiscal quarter ended October 2, 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, organic direct sale growth rate and free cash flow. The organic growth rates are calculated using industrial rental and direct sale revenues, respectively, adjusted for foreign currency exchange rate differences and revenues from newly acquired locations. 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 growth rates better reflect the growth of our existing industrial rental and direct sale business and are 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. Item 9.01 Financial Statements and Exhibits. (c) Exhibits. 99.1 Press Release dated November 1, 2004. -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: November 1, 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 November 1, 2004 -4- EX-99.1 2 a4755571ex99.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 G&K Services Reports Fiscal 2005 First Quarter Results; Revenue and Earnings Exceed Expectations; Early Progress toward Growth Initiatives MINNEAPOLIS--(BUSINESS WIRE)--Nov. 1, 2004--G&K Services, Inc. (Nasdaq:GKSRA), today reported revenue for the first quarter ended October 2, 2004 of $182.4 million, up 2.1 percent over $178.6 million reported in the first fiscal quarter last year. Earnings per diluted share totaled $0.45 for the quarter, a 15.4 percent increase compared to $0.39 during the prior-year quarter. "During the first quarter, we continued to build momentum across the business," said Richard Marcantonio, G&K's chief executive officer. "In addition to capturing the ongoing benefits of our operational initiatives, we continued to focus on improving overall revenue growth. We made steady progress on enhancing our sales leadership, maintaining higher sales staffing levels and training new sales professionals." As previously disclosed, the company completed two acquisitions during the first quarter and one early in the second quarter. These acquisitions extended the company's service presence to Vancouver and Detroit and increased its market share in Montreal. "Our recent acquisition activity has added two additional top-100 markets and has further solidified our leading position in Canada," Marcantonio said. "As part of our overall growth strategy, we will continue to seek acquisition opportunities that either extend our geographic reach in North America or increase our market share and asset utilization in existing markets. Income Statement Review First quarter revenue from G&K's rental business increased to $176.3 million, up 1.7 percent over the prior-year period. The company's organic industrial rental growth rate was approximately negative 2.0 percent in the first quarter, an improvement compared to the growth rate in the fourth quarter of fiscal 2004. Direct sale revenue increased to $6.1 million, up 15.4 percent over the prior-year quarter and up 13.2 percent on an organic basis. The organic growth rates are calculated using industrial rental and direct sale revenue, respectively, adjusted for foreign currency exchange rate differences and revenue from newly acquired locations compared to prior-period results. Gross margin from rental operations for the quarter was 37.0 percent compared to 36.6 percent in the prior-year quarter. The increase reflects the benefit of numerous operational initiatives that resulted in lower merchandise and processing costs, more than offsetting escalating energy prices. Gross margin from direct sales was 20.3 percent compared to 19.2 percent in the prior-year period, an increase driven primarily by additional volume and modest improvements in product pricing. Selling, general and administrative expenses were 21.2 percent of consolidated revenue, down from 21.6 percent during the same period last year. The reduction was driven by lower administrative costs and a small gain on the sale of property, partially offset by higher selling costs associated with an expanded new account sales force. "From an operational perspective, past and current initiatives continue to generate cost efficiencies and productivity improvements throughout the organization," Marcantonio said. "We have placed enormous emphasis on the fundamentals of our business. This strategy has established the earnings momentum needed to pursue greater revenue growth through expanded sales efforts, innovative marketing campaigns and aggressive acquisition activities." Balance Sheet and Cash Flow Review The company continued to report solid cash flow for the quarter. Free cash flow, which is cash provided by operating activities less capital expenditures was $15.1 million for the quarter compared to $24.0 million during the prior-year period. As expected, free cash flow in the quarter was impacted by the timing of certain tax payments. Cash used for property, plant and equipment during the quarter was more than offset by $5.6 million of proceeds from the sale of selected plant assets in connection with improving asset utilization. Outlook "The market opportunity to expand the use of image and safety programs to a broader array of industries, combined with our ongoing efforts to accelerate revenue and earnings growth, speaks to a bright future for G&K," Marcantonio said. "In particular, we remain confident that we are taking the correct steps to achieve our revenue growth objectives. While we expect to see continued improvement in the coming quarters, it will take time to realize the full benefit from new sales leadership, an expanded sales force and enhanced marketing programs." The company expects fiscal 2005 second quarter revenue to range from $187.0 million to $191.0 million and earnings per diluted share from $0.44 and $0.46. This guidance reflects incremental benefits from the company's growth initiatives, gradual improvements in the employment markets, continued high energy costs and the Canadian currency translation rate remaining at current levels. Conference Call Information The company will conduct a conference call on Tuesday, November 2, 2004 beginning at 10:00 a.m. Central Time. The call will be webcast and can be accessed through the website 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 November 30, 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 July 3, 2004. About G&K Services, Inc. Headquartered in Minneapolis, Minnesota, G&K Services, Inc. is a market leader in branded 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 (Unaudited) For the Three Months Ended -------------------------- October 2, September 27, (U.S. dollars, in thousands, except per 2004 2003 share data) - ---------------------------------------------------------------------- Revenues Rental operations $176,291 $173,280 Direct sales 6,141 5,323 - ---------------------------------------------------------------------- Total revenues 182,432 178,603 - ---------------------------------------------------------------------- Operating Expenses Cost of rental operations 111,009 109,845 Cost of direct sales 4,896 4,301 Selling and administrative 38,619 38,533 Depreciation and amortization 10,158 9,690 - ---------------------------------------------------------------------- Total operating expenses 164,682 162,369 - ---------------------------------------------------------------------- Income from Operations 17,750 16,234 Interest expense 2,548 3,155 - ---------------------------------------------------------------------- Income before Income Taxes 15,202 13,079 Provision for income taxes 5,702 4,970 - ---------------------------------------------------------------------- Net Income $9,500 $8,109 - ---------------------------------------------------------------------- Basic weighted average number of shares outstanding 20,825 20,610 Basic Earnings per Common Share $0.46 $0.39 - ---------------------------------------------------------------------- Diluted weighted average number of shares outstanding 21,066 20,728 Diluted Earnings per Common Share $0.45 $0.39 - ---------------------------------------------------------------------- Dividends per share $ 0.0175 $0.0175 CONSOLIDATED CONDENSED BALANCE SHEETS G&K Services, Inc. and Subsidiaries October 2, 2004 July 3, (U.S. dollars, in thousands) (Unaudited) 2004 - ---------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $11,789 $26,931 Accounts receivable, net 74,550 71,058 Inventories 96,766 94,476 Prepaid expenses 9,999 14,902 - ---------------------------------------------------------------------- Total current assets 193,104 207,367 - ---------------------------------------------------------------------- Property, Plant and Equipment, net 238,309 240,609 Other Assets 370,848 354,771 - ---------------------------------------------------------------------- $802,261 $802,747 - ---------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $19,833 $20,511 Accrued expenses 70,214 76,470 Deferred income taxes 7,537 7,395 Current maturities of long-term debt 24,662 24,018 - ---------------------------------------------------------------------- Total current liabilities 122,246 128,394 - ---------------------------------------------------------------------- Long-Term Debt, net of current maturities 173,468 184,305 Deferred Income Taxes 38,581 38,256 Other Noncurrent Liabilities 26,952 26,369 Stockholders' Equity 441,014 425,423 - ---------------------------------------------------------------------- $802,261 $802,747 - ---------------------------------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS G&K Services, Inc. and Subsidiaries (Unaudited) For the Three Months Ended -------------------------- October 2, September 27, (U.S. dollars, in thousands) 2004 2003 - ---------------------------------------------------------------------- Operating Activities: Net income $9,500 $8,109 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 10,158 9,690 Deferred income taxes 101 465 Amortization of deferred compensation - restricted stock 277 232 Changes in current operating items, exclusive of acquisitions (6,045) 9,385 Other, net 490 (272) - ---------------------------------------------------------------------- Net cash provided by operating activities 14,481 27,609 - ---------------------------------------------------------------------- Investing Activities: Property, plant and equipment additions, net 586 (3,621) Acquisition of business assets and other (19,864) (539) - ---------------------------------------------------------------------- Net cash used for investing activities (19,278) (4,160) - ---------------------------------------------------------------------- Financing Activities: Proceeds from issuance of long-term debt - 1,345 Repayments of long-term debt (12,877) (3,205) Proceeds from (repayments of) short-term borrowings, net 1,100 (19,300) Cash dividends paid (365) (363) Sale of common stock 1,219 423 - ---------------------------------------------------------------------- Net cash used for financing activities (10,923) (21,100) - ---------------------------------------------------------------------- (Decrease) Increase in Cash and Cash Equivalents (15,720) 2,349 Effect of Exchange Rates on Cash 578 174 Cash and Cash Equivalents: Beginning of period 26,931 11,504 - ---------------------------------------------------------------------- End of period $11,789 $14,027 - ---------------------------------------------------------------------- CONTACT: G&K Services, Inc., Minneapolis Jeffrey L. Wright, 952-912-5500 or Glenn L. Stolt, 952-912-5500 -----END PRIVACY-ENHANCED MESSAGE-----