-----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, KCroZQ+rhkkk0CS1/51BFz3RRZRv25/c2Xy9JlsLi+gJ0Ueb9eEu4hIEKOO7x9/B onlzyt26cq1MxY1u5VODqw== 0001157523-07-008346.txt : 20070814 0001157523-07-008346.hdr.sgml : 20070814 20070814074518 ACCESSION NUMBER: 0001157523-07-008346 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20070814 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070814 DATE AS OF CHANGE: 20070814 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: 071051273 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 a5470703.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 14, 2007 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, 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 On August 14, 2007, G&K Services, Inc. issued a press release announcing its financial results for the fiscal quarter and fiscal year ended June 30, 2007. A copy of the press release is furnished as Exhibit 99.1 to this report. The press release contains certain non-GAAP financial measures, including the organic industrial rental growth rate and organic direct sale growth rate. 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. 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. Item 9.01 Financial Statements and Exhibits. (c) Exhibits. 99.1 Press Release dated August 14, 2007 (furnished) -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 14, 2007 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 14, 2007 -4- EX-99.1 2 a5470703ex991.txt EXHIBIT 99.1 Exhibit 99.1 G&K Services Reports Fiscal 2007 Fourth Quarter and Full Year Results Earnings per share exceed expectations; Operating margins expand MINNEAPOLIS--(BUSINESS WIRE)--Aug. 14, 2007--G&K Services, Inc. (Nasdaq:GKSR), today reported record revenue for the fiscal fourth quarter ended June 30, 2007 of $240.4 million, a 5.7 percent increase from previous year revenue of $227.4 million. Organic rental growth combined with revenue from acquisitions contributed to the increase in revenue over the prior-year. Fourth quarter earnings per diluted share exceeded expectations and totaled $0.57, an 11.8 percent increase over last year's fourth quarter. The increase in earnings compared to the prior-year was driven by solid revenue growth, efficiencies in production and delivery costs, reduced administrative expenses and a lower than anticipated effective tax rate, partially offset by increased selling expenses. The prior-year period also included a gain from a legal resolution that represented approximately $0.08 per diluted share. Excluding this gain, fourth quarter earnings per diluted share increased by 32.6 percent. "We're extremely pleased to report strong fourth quarter performance," said Richard Marcantonio, chairman and chief executive officer. "As expected, we delivered operating margin expansion in the fourth quarter. Clearly, the successful execution of our strategic investments continues to drive improvement in operating margin." Fiscal 2007 revenue reached a record $929.5 million, an increase of $48.7 million over the prior year, marking the company's 38th consecutive year of revenue growth. Organic growth from rental operations and direct sales, combined with revenue from acquisitions and the impact of currency translation, contributed to year-over-year revenue growth. Earnings per diluted share increased to $2.02 in fiscal 2007 from $1.97 in fiscal 2006. Record net income for fiscal 2007 reflects higher operating income driven by strong revenue growth and productivity improvements, offset by increased selling expenses, energy costs and a higher effective tax rate. In addition, this record level of net income was achieved despite the impact of the company's strategic investments to drive long-term revenue and earnings growth. "During the year, we continued to advance our strategic plan by enhancing our market segmentation programs, increasing our investment in sales initiatives and implementing handheld technology across our routes," Marcantonio added. "In addition, we signed an exclusive strategic agreement with Dockers(R) San Francisco to further strengthen our direct sale capabilities, completed two acquisitions to expand our market presence and announced a share repurchase program to drive greater shareholder value." Income Statement Review Fourth quarter revenue from G&K's rental business increased to $219.1 million, up 6.2 percent over the prior-year period. The company's organic rental growth rate was approximately 3.5 percent in the quarter. The organic rental growth rate is calculated using 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 $21.3 million, up slightly over the prior-year period. Gross margin from rental operations for the quarter increased to 37.0 percent, up from 34.6 percent in the prior-year period. The increase in gross margin resulted from efficiencies gained from higher revenue growth, including lower production, delivery and merchandise costs. Gross margin from direct sales increased to 29.5 percent, an improvement from 26.7 percent in the prior-year period. The increase in gross margin was due primarily to improved efficiencies from higher volume at the company's Lion Uniform Group. Selling and administrative expenses were 22.3 percent of consolidated revenue for the quarter, up from 20.0 percent in the year-earlier period. Selling and administrative expenses increased compared to the prior-year period due to higher selling expenses, partially offset by lower administrative expenses as a result of the implementation of handheld devices across the company's route structure. In addition, the prior-year period included a gain from the resolution of a legal matter which represented approximately 1.2 percent of consolidated revenue. Operating margin for the fourth quarter increased to 9.2 percent of consolidated revenue, up from 8.9 percent in the prior-year period. The improvement in operating margin was a result of the incremental income from revenue growth and lower administrative expense, offset by higher selling expenses. Excluding the prior-year period legal benefit, fourth quarter operating margins increased by 150 basis points, compared to the reported increase of 30 basis points. The effective tax rate for the fourth quarter was 34.6 percent compared to 35.3 percent in the year-earlier period. Both the current and prior-year period reflect changes in tax reserves for certain open tax items. Balance Sheet and Cash Flow Statement Review The company's balance sheet remains strong. As of June 30, 2007, the company had total borrowings of $214.8 million and a total debt to total capitalization ratio of 26.6 percent. Total stockholders' equity increased to $592.0 million. Cash provided by operating activities increased to $80.4 million in fiscal 2007, up from $69.5 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 the business. Cash used for property, plant and equipment during the twelve month period totaled $31.5 million compared to $32.0 million in the prior-year period. Free cash flow, defined as cash flow from operations less capital expenditures, increased to $48.9 million, up from $37.6 million in the prior fiscal year. As previously disclosed, the company initiated a share repurchase program to purchase up to $100.0 million of the company's outstanding common stock. During the fourth quarter, the company bought back 232,000 shares of common stock outstanding. Outlook The company expects fiscal 2008 first quarter revenue to range from $240.0 million to $243.0 million and earnings per diluted share from $0.52 to $0.56. The revenue guidance reflects revenue from recently announced acquisitions, rental organic growth consistent with the most recent quarter and year-over-year direct sale revenue growth. The earnings guidance reflects continued improvement in the overall business, expenses related to the company's ongoing strategic investment in marketing, sales, and systems initiatives, higher energy costs and a more normalized tax rate. 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 September 14, 2007. 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 1, 2006. 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 160 processing facilities and branch offices, serving more than 160,000 customers. CONSOLIDATED STATEMENTS OF OPERATIONS G&K Services, Inc. and Subsidiaries For the For the Three Months Ended Twelve Months Ended ------------------------------------------ June 30, July 1, June 30, July 1, (U.S. Dollars, in 2007 2006 2007 2006 thousands, except per share data) - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- Revenues Rental operations $ 219,128 $ 206,255 $ 847,401 $ 801,240 Direct sales 21,280 21,151 82,141 79,603 - ---------------------------------------------------------------------- Total revenues 240,408 227,406 929,542 880,843 - ---------------------------------------------------------------------- Operating Expenses Cost of rental operations 137,956 134,978 541,392 518,543 Cost of direct sales 15,000 15,507 59,579 57,522 Selling and administrative 53,583 45,433 203,614 186,652 Depreciation and amortization 11,819 11,137 45,595 43,263 - ---------------------------------------------------------------------- Total operating expenses 218,358 207,055 850,180 805,980 - ---------------------------------------------------------------------- Income from Operations 22,050 20,351 79,362 74,863 Interest expense 3,375 3,514 13,901 13,226 -------------------------------------------------------------------- Income before Income Taxes 18,675 16,837 65,461 61,637 Provision for income taxes 6,470 5,949 22,271 19,786 - ---------------------------------------------------------------------- Net Income $ 12,205 $ 10,888 $ 43,190 $ 41,851 - ---------------------------------------------------------------------- Basic weighted average number of shares outstanding 21,298 21,164 21,245 21,093 Basic Earnings Per Common Share $ 0.57 $ 0.51 $ 2.03 $ 1.98 - ---------------------------------------------------------------------- Diluted weighted average number of shares outstanding 21,502 21,333 21,424 21,253 Diluted Earnings Per Common Share $ 0.57 $ 0.51 $ 2.02 $ 1.97 - ---------------------------------------------------------------------- Dividends per share $ 0.0400 $ 0.0175 $ 0.1600 $ 0.0700 CONSOLIDATED CONDENSED BALANCE SHEETS G&K Services, Inc. and Subsidiaries (Subject to Reclassification) June 30, July 1, 2007 2006 (U.S. dollars, in thousands) - ---------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 22,759 $ 19,690 Accounts receivable, net 98,276 94,964 Inventories 140,780 141,031 Prepaid expenses 14,167 15,552 - ---------------------------------------------------------------------- Total current assets 275,982 271,237 - ---------------------------------------------------------------------- Property, Plant and Equipment, net 255,996 249,001 Other Assets 459,091 430,854 - ---------------------------------------------------------------------- $ 991,069 $ 951,092 - ---------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $21,911 $27,404 Accrued expenses 68,182 72,999 Deferred income taxes 6,568 10,419 Current maturities of long-term debt 65,838 18,199 - ---------------------------------------------------------------------- Total current liabilities 162,499 129,021 - ---------------------------------------------------------------------- Long-Term Debt, net of current maturities 149,005 195,355 Deferred Income Taxes 34,298 34,343 Other Noncurrent Liabilities 53,279 44,985 Stockholders' Equity 591,988 547,388 - ---------------------------------------------------------------------- $ 991,069 $ 951,092 - ---------------------------------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS G&K Services, Inc. and Subsidiaries (Subject to Reclassification) For the Twelve Months Ended --------------------------- June 30, July 1 (U.S. dollars, in thousands) 2007 2006 - ---------------------------------------------------------------------- Operating Activities: Net income $ 43,190 $ 41,851 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 45,595 43,263 Stock-based compensation 4,208 3,935 Deferred income taxes (1,037) (102) Changes in current operating items, exclusive of acquisitions (14,982) (21,526) Other, net 3,415 2,100 - ---------------------------------------------------------------------- Net cash provided by operating activities 80,389 69,521 - ---------------------------------------------------------------------- Investing Activities: Property, plant and equipment additions, net (31,515) (31,968) Acquisition of business assets and other (46,966) (11,455) Purchase of investments (2,688) (1,967) - ---------------------------------------------------------------------- Net cash used for investing activities (81,169) (45,390) - ---------------------------------------------------------------------- Financing Activities: Repayments of long-term debt (7,710) (7,835) (Repayments of) proceeds from short- term borrowings, net 19,467 (14,228) Cash dividends paid (3,436) (1,493) Sale of common stock 3,279 2,958 Repurchase of common stock (7,883) - - ---------------------------------------------------------------------- Net cash provided by (used for) financing activities 3,717 (20,598) - ---------------------------------------------------------------------- Increase in Cash and Cash Equivalents 2,936 3,533 Effect of Exchange Rates on Cash 132 812 Cash and Cash Equivalents: Beginning of period 19,690 15,345 - ---------------------------------------------------------------------- End of period $ 22,759 $ 19,690 - ---------------------------------------------------------------------- Supplemental Cash Flow Information: Non-Cash Transactions - Debt issued to seller in connection with business acquisitions $ - $ (1,419) - ---------------------------------------------------------------------- CONTACT: G&K Services, Inc. Jeffrey L. Wright, 952-912-5500 Senior Vice President and Chief Financial Officer or Glenn L. Stolt, 952-912-5500 Vice President and Treasurer or Shayn R. Carlson, 952-912-5500 Director of Investor Relations -----END PRIVACY-ENHANCED MESSAGE-----