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)
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Revenues
Rental operations $176,291 $173,280
Direct sales 6,141 5,323
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Total revenues 182,432 178,603
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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
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Total operating expenses 164,682 162,369
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Income from Operations 17,750 16,234
Interest expense 2,548 3,155
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Income before Income Taxes 15,202 13,079
Provision for income taxes 5,702 4,970
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Net Income $9,500 $8,109
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Basic weighted average number of shares
outstanding 20,825 20,610
Basic Earnings per Common Share $0.46 $0.39
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Diluted weighted average number of shares
outstanding 21,066 20,728
Diluted Earnings per Common Share $0.45 $0.39
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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
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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
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Total current assets 193,104 207,367
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Property, Plant and Equipment, net 238,309 240,609
Other Assets 370,848 354,771
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$802,261 $802,747
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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
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Total current liabilities 122,246 128,394
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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
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$802,261 $802,747
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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
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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)
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Net cash provided by operating activities 14,481 27,609
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Investing Activities:
Property, plant and equipment additions,
net 586 (3,621)
Acquisition of business assets and other (19,864) (539)
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Net cash used for investing activities (19,278) (4,160)
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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
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Net cash used for financing activities (10,923) (21,100)
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(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
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End of period $11,789 $14,027
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CONTACT: G&K Services, Inc., Minneapolis
Jeffrey L. Wright, 952-912-5500
or
Glenn L. Stolt, 952-912-5500