-----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, PeBRx8seQmhXCgv/18NyHl3wePekrNcewl4xP1x992zUIdCxjNk+oQSwBlqX+NNO 3BoCSklwoTz6bmIGA9uShw== 0001157523-06-008464.txt : 20060815 0001157523-06-008464.hdr.sgml : 20060815 20060815074534 ACCESSION NUMBER: 0001157523-06-008464 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060815 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060815 DATE AS OF CHANGE: 20060815 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: 061033063 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 a5209403.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): August 15, 2006 G&K Services, Inc. (Exact name of registrant as specified in its charter) Minnesota (State or other jurisdiction of incorporation) 0-4063 (Commission File Number) 41-0449530 (IRS Employer 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: [_] 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 August 15, 2006, G&K Services, Inc. issued a press release announcing its financial results for the fiscal quarter ended July 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 August 15, 2006 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 15, 2006 By: /s/ Jeffrey L. Wright ---------------------------------- Name: Jeffrey L. Wright Title: Senior Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 99.1 Press Release dated August 15, 2006 EX-99.1 2 a5209403ex991.txt EXHIBIT 99.1 Exhibit 99.1 G&K Services Reports Fiscal 2006 Fourth Quarter and Full Year Results; Achieves 37th Consecutive Year of Revenue Growth; Records Double Digit Earnings Growth for Fiscal 2006 MINNEAPOLIS--(BUSINESS WIRE)--Aug. 15, 2006--G&K Services, Inc. (Nasdaq:GKSR), today reported record revenue for its fiscal year ended July 1, 2006 of $880.8 million, an 11.7 percent increase from previous year revenue of $788.8 million. Earnings per diluted share of $1.97 increased 10.7 percent over fiscal 2005. Revenues for fiscal 2006 increased on accelerated rental and direct sale organic growth. Record net income for fiscal 2006 reflects higher operating income from strong revenue growth, productivity improvements and a lower effective tax rate, offset by record energy costs, higher interest expense and the impact of hurricanes. In addition, the company continued to accelerate strategic investments in sales, marketing and technology initiatives. "We are pleased to announce record revenue and net income in fiscal 2006," said Richard Marcantonio, chairman and chief executive officer. "Importantly, we delivered strong revenue and earnings growth while continuing to make substantial investments in our business. Our increasing investments in sales, marketing and technology initiatives are transforming the company and helping us realize our vision of becoming the market leader in enhancing image and safety in the workplace." For the fourth quarter ended July 1, 2006, revenue was $227.4 million, a 9.6 percent increase over prior-year fourth quarter revenue of $207.4 million. Fourth quarter earnings per diluted share of $0.51 increased 15.9 percent over last year's fourth quarter. Income Statement Review Fourth quarter revenue from G&K's rental business increased to $206.3 million, up 6.7 percent over the prior-year period. The company's organic industrial rental growth rate continued to improve and was approximately 4.5 percent in the quarter, which exceeded expectations. This organic rental growth rate is 200 basis points higher than the prior-year period and increased 100 basis points from the third quarter. Direct sale revenue increased to $21.2 million or 9.3 percent of total revenue, up 49.4 percent over the prior-year quarter, driven entirely by organic growth. 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 fourth quarter, our organic rental growth continued to accelerate," Marcantonio said. "We continue to drive strong new account growth and increased productivity from our investments in the sales force and marketing initiatives. We believe that the combination of increased organic growth and accelerated investments in sales headcount and technology will support future margin expansion and greater returns on capital." Gross margin from rental operations for the quarter was 34.6 percent compared to 36.1 percent in the prior-year period. The change in gross margin resulted from costs associated with new customer growth, higher energy costs, plant capacity initiatives, and information technology spending, offset by margin improvement due to pricing initiatives, higher sales to existing customers and productivity improvements. Gross margin from direct sales was 26.7 percent compared to 25.9 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 20.0 percent of consolidated revenue for the quarter, down from 21.2 percent in the year-earlier period. Selling, general and administrative expenses were down over the prior-year period due to recording a gain related to a legal resolution which represented 1.2 percent of consolidated revenue. Selling, general and administrative expenses also included costs associated with plant closures, costs incurred for the continued rollout of the company's handheld initiative, expenses incurred to change our retirement plans, and expenses associated with increased sales headcount, offset by the positive leverage due to stronger organic growth. The effective tax rate for the fourth quarter declined to 35.3 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 and a favorable mix of income earned in various taxing jurisdictions, including foreign operations, with different tax rates. Fourth quarter and fiscal 2006 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 July 1, 2006, the company had total borrowings of $213.6 million and a total debt to total capitalization ratio of 28.1 percent. Total stockholders' equity increased to $547.4 million. Cash provided by operating activities was $69.5 million for fiscal 2006 compared to $63.5 million in the prior 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 twelve month period totaled $32.0 million compared to $19.4 million in the prior-year period. This increase resulted from building a new processing plant and investments in information technology initiatives. Outlook The company expects fiscal 2007 first quarter revenue to range from $222.0 million to $225.0 million and earnings per diluted share from $0.40 to $0.45. The revenue guidance reflects both a continued improvement in the rental organic growth rate driven by higher new account growth and strong direct sale revenue. The earnings guidance reflects an increase in expenses related to the company's ongoing strategic investment in sales and marketing initiatives, the full scale rollout of the handheld system, costs associated with record 2006 new account growth and costs resulting from other information technology initiatives. The guidance also reflects efforts to improve operational efficiency offset by higher energy costs. The company expects earnings to improve meaningfully in the second half of fiscal 2007 as these strategic initiatives are completed and the benefits are realized. 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 Web site at www.gkservices.com. Click on the webcast icon and follow the instructions. A replay of the call will be available through September 15, 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 For the Three For the Twelve Months Ended Months Ended ----------------------------------------- July 1, July 2, July 1, July 2, (U.S. Dollars, in thousands, except per share data) 2006 2005 2006 2005 - ---------------------------------------------------------------------- (Restated) (Restated) - ---------------------------------------------------------------------- Revenues Rental operations $206,255 $193,243 $801,240 $740,708 Direct sales 21,151 14,155 79,603 48,067 - ---------------------------------------------------------------------- Total revenues 227,406 207,398 880,843 788,775 - ---------------------------------------------------------------------- Operating Expenses Cost of rental operations 134,978 123,553 518,543 470,116 Cost of direct sales 15,507 10,482 57,522 35,830 Selling and administrative 45,433 44,043 186,652 168,620 Depreciation and amortization 11,137 10,817 43,263 41,543 - ---------------------------------------------------------------------- Total operating expenses 207,055 188,895 805,980 716,109 - ---------------------------------------------------------------------- Income from Operations 20,351 18,503 74,863 72,666 Interest expense 3,514 3,258 13,226 11,338 ------------------------------------------------------------------- Income before Income Taxes 16,837 15,245 61,637 61,328 Provision for income taxes 5,949 5,811 19,786 23,149 - ---------------------------------------------------------------------- Net Income $10,888 $9,434 $41,851 $38,179 - ---------------------------------------------------------------------- Basic weighted average number of shares outstanding 21,164 21,037 21,093 20,942 Basic Earnings Per Common Share $0.51 $0.45 $1.98 $1.82 - ---------------------------------------------------------------------- Diluted weighted average number of shares outstanding 21,333 21,513 21,253 21,400 Diluted Earnings Per Common Share $0.51 $0.44 $1.97 $1.78 - ---------------------------------------------------------------------- Dividends per share $0.0175 $0.0175 $0.0700 $0.0700 CONSOLIDATED CONDENSED BALANCE SHEETS G&K Services, Inc. and Subsidiaries (Subject to Reclassification) July 1, July 2, 2006 2005 (U.S. dollars, in thousands) (Restated) - ---------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $19,690 $15,345 Accounts receivable, net 94,964 83,459 Inventories 141,031 121,120 Prepaid expenses 15,552 16,587 - ---------------------------------------------------------------------- Total current assets 271,237 236,511 - ---------------------------------------------------------------------- Property, Plant and Equipment, net 249,001 243,307 Other Assets 430,854 423,351 - ---------------------------------------------------------------------- $951,092 $903,169 - ---------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $27,404 $25,695 Accrued expenses 72,999 71,483 Deferred income taxes 10,419 8,971 Current maturities of long-term debt 18,199 26,537 - ---------------------------------------------------------------------- Total current liabilities 129,021 132,686 - ---------------------------------------------------------------------- Long-Term Debt, net of current maturities 195,355 210,462 Deferred Income Taxes 34,343 32,580 Other Noncurrent Liabilities 44,985 47,691 Stockholders' Equity 547,388 479,750 - ---------------------------------------------------------------------- $951,092 $903,169 - ---------------------------------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS G&K Services, Inc. and Subsidiaries (Subject to Reclassification) For the Twelve Months Ended ------------------- July 1, July 2, (U.S. dollars, in thousands) 2005 2006 (Restated) - ---------------------------------------------------------------------- Operating Activities: Net income $41,851 $38,179 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 43,263 41,543 Stock-based compensation 3,935 3,658 Deferred income taxes (102) 854 Changes in current operating items, exclusive of acquisitions (21,526) (22,876) Other, net 2,100 2,176 - ---------------------------------------------------------------------- Net cash provided by operating activities 69,521 63,534 - ---------------------------------------------------------------------- Investing Activities: Property, plant and equipment additions, net (31,968) (19,408) Acquisition of business assets and other (13,422) (76,466) - ---------------------------------------------------------------------- Net cash used for investing activities (45,390) (95,874) - ---------------------------------------------------------------------- Financing Activities: Repayments of long-term debt (7,835) (25,729) (Repayments of) proceeds from short-term borrowings, net (14,228) 40,400 Cash dividends paid (1,493) (1,467) Sale of common stock 2,958 5,952 - ---------------------------------------------------------------------- Net cash (used for) provided by financing activities (20,598) 19,156 - ---------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 3,533 (13,184) Effect of Exchange Rates on Cash 812 1,598 Cash and Cash Equivalents: Beginning of period 15,345 26,931 - ---------------------------------------------------------------------- End of period $19,690 $15,345 - ---------------------------------------------------------------------- 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-----