EX-99.1 2 a5529723ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 G&K Services Reports Fiscal 2008 First Quarter Results Revenue and earnings per share exceed expectations; Operating margins continue to expand MINNEAPOLIS--(BUSINESS WIRE)--Oct. 30, 2007--G&K Services, Inc. (Nasdaq:GKSR), today reported record revenue for the first quarter ended September 29, 2007 of $243.8 million, a 9.3 percent increase from previous year revenue of $223.1 million. Organic rental growth, revenue from acquisitions and strong direct sale growth drove the increase over the prior-year. First quarter earnings per diluted share exceeded expectations and rose to $0.58, a 34.9 percent increase from $0.43 per diluted share during the prior-year period. The increase in earnings compared to the prior-year was driven by significantly higher operating income margin as a result of the company's ongoing strategic initiative. "We're extremely pleased to deliver strong first quarter performance," said Richard Marcantonio, chairman and chief executive officer. "As expected, record revenue was driven by strong growth from both our rental and direct sale businesses in addition to revenue from acquisitions. It is also worth noting that we achieved record new account sales during the quarter, driven by improved sales productivity and the signing of a number of new national account customers, all of which will contribute to future revenue growth. Of equal importance, we drove significant operating margin improvement while continuing to execute on a number of key strategic initiatives to drive long-term revenue and earnings growth." Income Statement Review First quarter revenue from G&K's rental business increased to $226.1 million, up 9.1 percent over the prior-year period. As expected, the company's organic rental growth rate was approximately 3.5 percent in the quarter. Direct sale revenue, driven almost solely by organic growth, increased to $17.7 million, up 11.9 percent over the prior-year period. The organic growth rates are calculated using rental and direct sale revenue, adjusted for foreign currency exchange rate differences and newly acquired revenue compared to prior-period results. Gross margin from rental operations for the quarter increased to 36.8 percent, up from 36.5 percent in the prior-year period. The increase in gross margin resulted from lower merchandise costs, benefits from plant productivity initiatives and improved overall leverage from higher revenue growth. Gross margin from direct sales increased to 28.1 percent, an improvement from 23.9 percent in the prior-year period. The increase in gross margin was driven primarily by improved efficiencies from higher volume. Selling and administrative expenses were 21.4 percent of consolidated revenue for the quarter, down from 22.4 percent in the year-earlier period. Selling and administrative expenses decreased compared to the prior-year period due to leverage from revenue growth and efficiencies attained from the complete rollout of handheld devices across the company's route structure. Operating margin for the first quarter increased significantly to 9.8 percent of consolidated revenue, up from 8.2 percent in the prior-year period. The improvement in operating margin was a result of leverage realized from revenue growth, lower merchandise costs and higher productivity achieved from operational initiatives, partially offset by slightly higher selling expenses and on-going acquisition integration costs. The effective tax rate for the first quarter was 37.8 percent compared to 38.5 percent in the year-earlier period. Balance Sheet and Cash Flow Statement Review The company's balance sheet remains strong. As of September 29, 2007, the company had total borrowings of $246.1 million and a total debt to total capitalization ratio of 29.0 percent. Total stockholders' equity increased to $603.2 million. Cash provided by operating activities for the first quarter increased to $14.3 million, up from $6.9 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 a lower net working capital investment. Cash used for property, plant and equipment during the quarter totaled $2.4 million compared to $9.8 million in the prior-year period. Free cash flow, defined as cash flow from operations less capital expenditures, increased to $12.0 million, up from negative $2.9 million in the prior-year period. 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 first quarter, the company purchased 257,300 shares of common stock. Since inception of the share repurchase program through the end of the first quarter, the company has bought back 489,300 shares, or approximately 2.3 percent of the total shares outstanding at the beginning of the program, at a cost of approximately $19.1 million. Outlook The company expects fiscal 2008 second quarter revenue to range from $252.0 million to $255.0 million and earnings per diluted share from $0.53 to $0.57. The revenue guidance represents a sequential improvement in organic rental growth, driven in part by the record level of new account sales achieved in the company's first fiscal quarter. The revenue guidance also includes a full quarter impact of revenue from the acquisition of Leef Services and an expected year-over-year increase in direct sale revenue. The earnings guidance reflects continued efficiencies gained from revenue growth and productivity improvements from on-going operational initiatives. In addition, the earnings guidance includes higher anticipated merchandise costs from record new account sales, expenses related to further additions to the sales organization, costs related to a systems implementation at Lion Uniform Group and costs associated with acquisition integration activities. 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 November 29, 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 June 30, 2007. 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 CONDENSED STATEMENTS OF OPERATIONS G&K Services, Inc. and Subsidiaries (Subject to Reclassification) For the Three Months Ended --------------------------- September 29, September 30, (U.S. Dollars, in thousands, except per share data) 2007 2006 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Revenues Rental operations $ 226,068 $ 207,301 Direct sales 17,718 15,827 ---------------------------------------------------------------------- Total revenues 243,786 223,128 ---------------------------------------------------------------------- Operating Expenses Cost of rental operations(a) 142,986 131,652 Cost of direct sales(a) 12,734 12,039 Selling and administrative 52,201 49,879 Depreciation and amortization 12,029 11,218 ---------------------------------------------------------------------- Total operating expenses 219,950 204,788 ---------------------------------------------------------------------- Income from Operations 23,836 18,340 Interest expense 3,958 3,393 ---------------------------------------------------------------------- Income before Income Taxes 19,878 14,947 Provision for income taxes 7,514 5,755 ---------------------------------------------------------------------- Net Income $ 12,364 $ 9,192 ---------------------------------------------------------------------- Basic weighted average number of shares outstanding 21,108 21,186 Basic Earnings Per Common Share $ 0.59 $ 0.43 ---------------------------------------------------------------------- Diluted weighted average number of shares outstanding 21,320 21,365 Diluted Earnings Per Common Share $ 0.58 $ 0.43 ---------------------------------------------------------------------- Dividends per share $ 0.05 $ 0.04 (a) Excludes depreciation and amortization CONSOLIDATED CONDENSED BALANCE SHEETS G&K Services, Inc. and Subsidiaries (Subject to Reclassification) September 29, June 30, 2007 2007 (U.S. dollars, in thousands) ---------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 14,465 $ 22,759 Accounts receivable, net 105,362 98,276 Inventories 142,764 140,780 Prepaid expenses 17,002 14,912 ---------------------------------------------------------------------- Total current assets 279,593 276,727 ---------------------------------------------------------------------- Property, Plant and Equipment, net 257,137 255,996 Other Assets 495,826 459,091 ---------------------------------------------------------------------- $ 1,032,556 $ 991,814 ---------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 22,337 $ 21,911 Accrued expenses 67,017 68,927 Deferred income taxes 6,786 6,568 Current maturities of long-term debt 7,842 65,838 ---------------------------------------------------------------------- Total current liabilities 103,982 163,244 ---------------------------------------------------------------------- Long-Term Debt, net of Current Maturities 238,298 149,005 Deferred Income Taxes 28,237 34,298 Accrued Income Taxes - Long Term 11,004 - Other Noncurrent Liabilities 47,849 53,279 Stockholders' Equity 603,186 591,988 ---------------------------------------------------------------------- $ 1,032,556 $ 991,814 ---------------------------------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS G&K Services, Inc. and Subsidiaries (Subject to Reclassification) For the Three Months Ended --------------------------- September 29, September 30, (U.S. dollars, in thousands) 2007 2006 ---------------------------------------------------------------------- Operating Activities: Net income $ 12,364 $ 9,192 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 12,029 11,218 Other adjustments (1,441) 1,043 Changes in current operating items, exclusive of acquisitions (11,344) (15,170) Other assets and liabilities 2,730 624 ---------------------------------------------------------------------- Net cash provided by operating activities 14,338 6,907 ---------------------------------------------------------------------- Investing Activities: Property, plant and equipment additions, net (2,365) (9,769) Acquisitions of business assets, net (40,294) (30) Purchase of investments, net (1,348) (964) ---------------------------------------------------------------------- Net cash used for investing activities (44,007) (10,763) ---------------------------------------------------------------------- Financing Activities: Repayments of long-term debt (7,314) (7,293) Proceeds from short-term borrowings, net 38,601 14,901 Cash dividends paid (1,074) - Sale of common stock 1,705 74 Repurchase of common stock shares (11,244) - ---------------------------------------------------------------------- Net cash provided by financing activities 20,674 7,682 ---------------------------------------------------------------------- (Decrease) Increase in Cash and Cash Equivalents (8,995) 3,826 Effect of Exchange Rates on Cash 701 10 Cash and Cash Equivalents: Beginning of period 22,759 19,690 ---------------------------------------------------------------------- End of period $ 14,465 $ 23,526 ---------------------------------------------------------------------- Supplemental Cash Flow Information: Non-Cash Transactions - Notes payable issued to sellers in business acquisitions $ - $ - ---------------------------------------------------------------------- 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