-----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, OiOtaW6EGEpPv/Nq197IUiasTUi499X/hb1Z8DtVdcKP3RUSamBGxIXZRnB+1pNB cBrwjj5x3/dSu3093oWMUA== 0001157523-06-004413.txt : 20060502 0001157523-06-004413.hdr.sgml : 20060502 20060502074523 ACCESSION NUMBER: 0001157523-06-004413 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060502 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060502 DATE AS OF CHANGE: 20060502 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: 06797174 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 a5136947.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): May 2, 2006 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 (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 (see General Instruction A.2. below): ___ Written communications pursuant to Rule 425 under the 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 13e-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 solely under Item 2.02 of Form 8-K, "Results of Operations and Financial Condition." The information in this Item 2.02 and Exhibit 99.1 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended. On May 2, 2006, G&K Services, Inc. issued a press release announcing its financial results for the fiscal quarter ended April 1, 2006. A copy of the press release is furnished as Exhibit 99.1 to this report. The press release cites the Company's organic industrial rental growth rate, which is a non-GAAP financial measure. The organic growth rate is calculated using industrial rental revenue, 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 certain acquisitions made by the Company, the organic growth rate better reflects the growth of its existing industrial rental business and therefore is useful in analyzing the financial condition of the Company and the results of its operations. Item 9.01 Financial Statements and Exhibits. (c) Exhibits. 99.1 Press Release dated May 2, 2006 (furnished, not filed) -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: May 2, 2006 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 May 2, 2006 (furnished, not filed) -4- EX-99.1 2 a5136947ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 G&K Services Reports Fiscal 2006 Third Quarter Results; Record Quarterly Revenues Driven by Strong Direct Sales Performance; Company Continues to Aggressively Pursue Strategic Vision MINNEAPOLIS--(BUSINESS WIRE)--May 2, 2006--G&K Services, Inc. (Nasdaq:GKSR), today reported record revenue for the third quarter ended April 1, 2006 of $226.1 million, up 11.0 percent over $203.8 million reported in the third fiscal quarter last year. Revenue exceeded expectations due to strong direct sale volume. Earnings per diluted share totaled $0.49 for the quarter, a 4.3 percent increase compared to $0.47 during the prior-year quarter. The increase in earnings was due to higher sales and a lower effective tax rate, partially offset by the impact of higher energy costs, continued investments in strategic initiatives, costs associated with accelerated new account growth and reserves established for the pending resolution of two specific legal matters. For the nine months ended April 1, 2006, revenue was $653.4 million compared to $581.4 million during the prior-year period, an increase of 12.4 percent. Earnings per diluted share were $1.46, up 8.1 percent compared to $1.35 during the same period last year. "Our results and momentum reflect the continued execution of our new strategic vision introduced in early fiscal 2005," said Richard Marcantonio, chairman and chief executive officer. "The early execution of our strategy continues to produce improved financial performance, despite the effect of the hurricanes and higher energy costs. Given our success to date in absorbing these cost pressures, we're confident our on-going strategic investments will deliver long-term revenue growth and accelerated earnings growth." Income Statement Review Third quarter revenue from G&K's rental business increased to $201.6 million, up 7.2 percent over the prior-year period. As expected, the company's organic industrial rental growth rate was approximately 3.5 percent. This organic rental growth rate is 200 basis points higher than the prior-year period. Direct sale revenue increased to $24.6 million, up 56.1 percent over the prior-year quarter, driven almost entirely by organic growth. The growth of direct sale revenue for the quarter was driven by continued penetration of the direct sale market. 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. "During the third quarter, we continued to drive improved sales within our rental business," Marcantonio said. "We're especially pleased with our continued success in further penetrating the opportunity with existing customers as well as the momentum we have built in winning new business. In addition, we also delivered extremely strong organic growth in direct sales. Clearly, these results are a further indication of the success we've achieved by investing in sales and marketing initiatives." Gross margin from rental operations for the quarter was 34.8 percent compared to 36.6 percent in the prior-year period. The change in gross margin resulted from higher energy costs and costs associated with new customer growth offset by higher pricing and productivity improvements. Gross margin from direct sales was 28.2 percent compared to 23.7 percent in the prior-year period. The increase in gross margin was due primarily to improved efficiencies from higher volume. Selling, general and administrative expenses were 22.0 percent of consolidated revenue for the quarter, up from 21.3 percent in the year-earlier period. Selling, general and administrative expenses were up over the prior-year period due to recording certain legal reserves, continued investment in growth oriented initiatives, costs incurred to enhance information technology systems and sales expenses associated with new account growth. The legal reserves accounted for 0.9 percent of consolidated revenue in the third quarter. The effective tax rate for the third quarter declined to 21.5 percent from 38.1 percent in the year-earlier period. The company's lower effective tax rate resulted from a reduction in taxes previously provided for as a result of the expiration of certain statute of limitations as well as adjustments resulting from the filing of the company's fiscal 2005 tax return. Third quarter earnings also reflect the requirement to expense stock options under SFAS 123(r) "Accounting for Stock-Based Compensation." Under this standard, G&K has elected to use the modified retrospective method for transition. As a result, prior-year financial statements have been adjusted accordingly. Balance Sheet and Cash Flow Statement Review The company's balance sheet remains strong. As of April 1, 2006, the company had total borrowings of $230.0 million and a total debt to total capitalization ratio of 30.5 percent. Total stockholders' equity increased to $524.1 million. Cash provided by operating activities was $50.0 million for the nine month period ending April 1, 2006 compared to $44.4 million in the same period last year. Cash provided from operating activities increased compared to the prior-year period due to stronger earnings, higher depreciation and amortization levels and lower net working capital investment needed to support revenue growth. Cash used for property, plant and equipment during the nine month period totaled $26.4 million compared to $10.2 million in the prior-year period. This increase resulted from the completion of a new processing plant, investments in information technology initiatives and the impact of the sale of certain plant assets in the prior-year nine month period. Outlook The company expects fiscal 2006 fourth quarter revenue to range from $221.0 million to $224.0 million and earnings per diluted share from $0.47 to $0.50. The revenue guidance reflects the impact of higher new account growth in the rental business and strong direct sale revenues. The earnings guidance reflects the company's ongoing efforts to improve operational efficiency offset by investments in growth and technology initiatives, costs associated new account growth and higher energy costs. Fourth quarter earnings guidance also incorporates the anticipated impact associated with expensing stock options of approximately $0.02 per diluted share. Earnings per diluted share in the fourth quarter of fiscal 2005, when adjusted for SFAS 123(r), were $0.43. For full-year fiscal 2006, the fourth quarter guidance implies revenue and earnings growth of approximately 11 and 9.5 percent, respectively, over fiscal 2005. Conference Call Information The company will conduct a conference call today beginning at 10:00 a.m. Central Time. The call will be webcast. To access the webcast, go to the Investor Relations section of the company's website at www.gkservices.com. Click on the webcast icon and follow the instructions. A replay of the call will be available through June 2, 2006. Safe Harbor for Forward-Looking Statements 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 Private Securities Litigation Reform Act of 1995. 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. 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. 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 2, 2005. 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 140 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 For the Nine Months Ended Ended ----------------------------------------- (U.S. Dollars, in thousands, April 1, April 2, April 1, April 2, except per share data) 2006 2005 2006 2005 - ---------------------------------------------------------------------- (Restated) (Restated) - ---------------------------------------------------------------------- Revenues Rental operations $201,562 $188,064 $594,985 $547,465 Direct sales 24,579 15,746 58,452 33,912 - ---------------------------------------------------------------------- Total revenues 226,141 203,810 653,437 581,377 - ---------------------------------------------------------------------- Operating Expenses Cost of rental operations 131,387 119,139 383,565 346,563 Cost of direct sales 17,659 12,011 42,015 25,348 Selling and administrative 49,619 43,283 141,219 124,577 Depreciation and amortization 10,883 10,407 32,126 30,726 - ---------------------------------------------------------------------- Total operating expenses 209,548 184,840 598,925 527,214 - ---------------------------------------------------------------------- Income from Operations 16,593 18,970 54,512 54,163 Interest expense 3,395 2,891 9,712 8,080 - ---------------------------------------------------------------------- Income before Income Taxes 13,198 16,079 44,800 46,083 Provision for income taxes 2,840 6,129 13,837 17,338 - ---------------------------------------------------------------------- Net Income $10,358 $9,950 $30,963 $28,745 ====================================================================== Basic weighted average number of shares outstanding 21,132 20,994 21,069 20,910 Basic Earnings Per Common Share $0.49 $0.47 $1.47 $1.37 ====================================================================== Diluted weighted average number of shares outstanding 21,311 21,322 21,228 21,362 Diluted Earnings Per Common Share $0.49 $0.47 $1.46 $1.35 ====================================================================== Dividends per share $ 0.0175 $ 0.0175 $ 0.0525 $ 0.0525 CONSOLIDATED CONDENSED BALANCE SHEETS G&K Services, Inc. and Subsidiaries April 1, July 2, 2006 2005 (U.S. dollars, in thousands) (Unaudited) (Restated) - ---------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $21,960 $15,345 Accounts receivable, net 95,426 83,459 Inventories 137,290 121,120 Prepaid expenses 14,630 16,587 - ---------------------------------------------------------------------- Total current assets 269,306 236,511 - ---------------------------------------------------------------------- Property, Plant and Equipment, net 249,896 243,307 Other Assets 428,978 423,351 - ---------------------------------------------------------------------- $948,180 $903,169 ====================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $32,874 $25,695 Accrued expenses 66,877 71,483 Deferred income taxes 9,201 8,971 Current maturities of long-term debt 17,925 26,537 - ---------------------------------------------------------------------- Total current liabilities 126,877 132,686 - ---------------------------------------------------------------------- Long-Term Debt, net of current maturities 212,066 210,462 Deferred Income Taxes 30,756 30,887 Other Noncurrent Liabilities 54,427 47,691 Stockholders' Equity 524,054 481,443 - ---------------------------------------------------------------------- $948,180 $903,169 ====================================================================== CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS G&K Services, Inc. and Subsidiaries (Unaudited) For the Nine Months Ended -------------------------- April 1 , April 2, (U.S. dollars, in thousands) 2006 2005 (Restated) - ---------------------------------------------------------------------- Operating Activities: Net income $30,963 $28,745 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 32,126 30,726 Stock-based compensation 3,060 2,891 Deferred income taxes 354 1,095 Changes in current operating items, exclusive of acquisitions (17,320) (20,253) Other, net 829 1,159 - ---------------------------------------------------------------------- Net cash provided by operating activities 50,012 44,363 - ---------------------------------------------------------------------- Investing Activities: Property, plant and equipment additions, net (26,414) (10,194) Acquisition of business assets and other (13,020) (74,895) - ---------------------------------------------------------------------- Net cash used for investing activities (39,434) (85,089) - ---------------------------------------------------------------------- Financing Activities: Repayments of long-term debt (7,661) (21,317) Proceeds from short-term borrowings, net 2,050 41,200 Cash dividends paid (1,112) (1,100) Sale of common stock 2,395 4,268 - ---------------------------------------------------------------------- Net cash (used for) provided by financing activities (4,328) 23,051 - ---------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 6,250 (17,675) Effect of Exchange Rates on Cash 365 1,608 Cash and Cash Equivalents: Beginning of period 15,345 26,931 - ---------------------------------------------------------------------- End of period $21,960 $10,864 ====================================================================== Supplemental Cash Flow Information: Non-Cash Transactions - Debt issued in connection with business acquisitions $(1,419) $11,890 ====================================================================== CONTACT: G&K Services, Inc., Minneapolis Jeffrey L. Wright, 952-912-5500 or Glenn L. Stolt, 952-912-5500 or Shayn R. Carlson, 952-912-5500 -----END PRIVACY-ENHANCED MESSAGE-----