Exhibit 99.1
G&K Services Reports Fiscal 2005 Fourth Quarter and Full Year Results; Achieves
36th Consecutive Year of Revenue Growth; Double Digit Earnings Growth for Fiscal
Year 2005
MINNEAPOLIS--(BUSINESS WIRE)--Aug. 16, 2005--G&K Services, Inc.
(Nasdaq:GKSRA), today reported revenue for the fiscal fourth quarter
ended July 2, 2005 of $207.4 million, up 7.3 percent over the $193.3
million reported in the prior-year period, which included an extra
week of operations. Excluding the extra week, fourth quarter revenue
increased 15.1 percent. Revenue exceeded expectations on continued
improvement in the company's rental organic growth rate and strong
direct sales volume.
Earnings per diluted share totaled $0.46 for the quarter, compared
to $0.45 during the prior-year period. While the prior-year included
the benefit of an extra week of operations, it was largely offset by
costs associated with the transfer of production within the company's
manufacturing facilities and the settlement of a legal dispute.
Current year fourth quarter earnings were in-line with the company's
previous guidance and reflect the impact of investments in the
company's growth initiatives, costs associated with acquisition
integration and high energy costs.
Revenue for fiscal 2005 reached a record $788.8 million versus
$733.4 million last year, up 7.5 percent. Excluding the extra week in
fiscal 2004, full-year revenues were up 9.5 percent. Fiscal 2005
earnings per diluted share totaled $1.88 compared to $1.69 last year,
an increase of 11.2 percent. Fiscal 2004 earnings were positively
impacted by the extra week of operations in the fourth quarter largely
offset by the costs and legal settlement described above.
"In fiscal 2005, we continued to focus on the fundamentals of our
business in addition to driving our new vision to enhance our
customers' image and safety through innovation," said Richard
Marcantonio, G&K's president and chief executive officer. "We've begun
to successfully execute our long-term vision through a number of
strategies to enhance the value proposition we provide our customers.
We will continue to capitalize on market growth opportunities by
delivering innovative solutions that meet the needs of our customers."
Income Statement Review
Fourth quarter revenue from G&K's rental business increased to
$193.2 million, up 10.7 percent over the prior-year period, when
excluding the extra week of operations. The company's organic
industrial rental growth rate was approximately 2.5 percent in the
fourth quarter compared to the year-ago period. Direct sale revenue
more than doubled to $14.2 million during the quarter from $5.6
million a year-earlier, when excluding the extra week of operations.
The increase in direct sale revenue was driven primarily by the
acquisition of the Lion Uniform Group. On an organic basis, direct
sales increased 26.1 percent during the quarter. The organic growth
rates are calculated using industrial rental and direct sale revenue,
respectively, adjusted for foreign currency exchange rate differences,
revenue from newly acquired locations and the extra week recorded in
the prior-period results.
"During fiscal 2005, we continued to focus on delivering earnings
momentum in addition to putting increasing emphasis on driving revenue
growth," Marcantonio said. "The result of our efforts improved our
organic rental growth rate 500 basis points, more than doubled our
direct sale business and expanded our market presence through
acquisitions. The combination of these accomplishments has increased
our current annual revenue run-rate to well over $800 million, and
more importantly, has better positioned the company for future
growth."
Gross margin from rental operations for the quarter was 36.1
percent compared to 37.6 percent in the prior-year quarter. Gross
margin for the quarter declined due to higher energy and acquisition
integration costs. The fourth quarter of the previous year also
benefited from the fixed cost leverage from an extra week of revenue.
Gross margin from direct sales was 25.9 percent compared to 20.8
percent in the prior-year period. This increase resulted primarily
from the increased level of sales attributed to the Lion Uniform Group
and strong organic growth.
Selling, general and administrative expenses were 21.0 percent of
consolidated revenue, down from 22.4 percent in the same period last
year. The decrease was attributed to a pre-tax charge in the
prior-year period of approximately $1.25 million for a legal
settlement and leverage from additional revenue, partially offset by
investments in sales and marketing initiatives.
Strong Balance Sheet and Cash Flow
The company's balance sheet remains strong. Total debt to total
capitalization was 33.3 percent compared to 32.9 percent last year.
Total stockholders' equity was $475.4 million.
The company also reported strong cash flow for the year. Cash flow
from operations totaled $63.0 million driven by stronger earnings
offset by working capital investments to support revenue growth and
the transition of manufacturing to the company's Dominican Republic
facility. Free cash flow, defined as cash provided by operating
activities less capital expenditures, was $43.6 million. Capital
expenditures for the year were $19.4 million.
Outlook
The company anticipates fiscal 2006 first quarter revenue to be in
the range of $204.0 million to $207.0 million and earnings per diluted
share to be between $0.45 and $0.48. The revenue guidance represents a
modest improvement in the company's rental organic growth rate and
reduced benefit from the Canadian dollar exchange rate. The earnings
guidance reflects the company's ongoing efforts to improve operational
efficiency offset by investments geared to drive increased revenue
growth and continued record energy costs. First quarter earnings
guidance also incorporates the anticipated impact associated with
expensing stock options of $0.02 per diluted share.
"During fiscal 2005, we achieved record revenues and earnings even
while continuing the investments we're making to stimulate top-line
growth and despite significantly higher energy costs," Marcantonio
said. "In fiscal 2006, we will continue to balance the need to
generate increased earnings with on-going investments in our sales
team, marketing programs and operational initiatives. We will also
continue to pursue strategic acquisitions that enhance our market
position and further leverage our existing infrastructure. In the end,
we expect to improve our financial performance, enhance our customer
relationships and continue to differentiate our services through
innovation."
Conference Call Information
The company will conduct a conference call today beginning at
10:00 a.m. Central Time. The call will be web cast and can be accessed
through the web site 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 September 16, 2005.
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 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 2, July 3, July 2, July 3,
2005 2004 2005 2004
(U.S. dollars, in (13 weeks) (14 weeks) (52 weeks) (53 weeks)
thousands, except per
share data)
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Revenues
Rental operations $193,243 $187,277 $740,708 $708,708
Direct sales 14,155 6,003 48,067 24,739
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Total revenues 207,398 193,280 788,775 733,447
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Operating Expenses
Cost of rental
operations 123,553 116,842 470,116 448,131
Cost of direct sales 10,482 4,754 35,830 18,899
Selling and
administrative 43,451 43,357 165,814 158,034
Depreciation and
amortization 10,817 10,018 41,543 39,346
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Total operating
expenses 188,303 174,971 713,303 664,410
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Income from Operations 19,095 18,309 75,472 69,037
Interest expense 3,258 3,052 11,338 11,966
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Income before Income Taxes 15,837 15,257 64,134 57,071
Provision for income
taxes 6,033 5,798 24,207 21,687
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Net Income $9,804 $9,459 $39,927 $35,384
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Basic weighted average
number of shares
outstanding 21,037 20,793 20,942 20,710
Basic Earnings Per Common
Share $0.47 $0.45 $1.91 $1.71
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Diluted weighted average
number of shares
outstanding 21,240 21,042 21,199 20,900
Diluted Earnings Per Common
Share $0.46 $0.45 $1.88 $1.69
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Dividends per share $0.0175 $0.0175 $0.0700 $0.0700
CONSOLIDATED CONDENSED BALANCE SHEETS
G&K Services, Inc. and Subsidiaries
July 2, July 3,
(U.S. dollars, in thousands) 2005 2004
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ASSETS
Current Assets
Cash and cash equivalents $15,345 $26,931
Accounts receivable, net 83,459 71,058
Inventories 121,120 94,476
Prepaid expenses 16,587 14,902
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Total current assets 236,511 207,367
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Property, Plant and Equipment, net 243,307 240,609
Other Assets 423,351 354,771
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$903,169 $802,747
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $25,695 $20,511
Accrued expenses 81,523 76,470
Deferred income taxes 8,971 7,395
Current maturities of long-term debt 26,537 24,018
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Total current liabilities 142,726 128,394
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Long-Term Debt, net of current maturities 210,462 184,305
Deferred Income Taxes 36,900 38,256
Other Noncurrent Liabilities 37,651 26,369
Stockholders' Equity 475,430 425,423
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$903,169 $802,747
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
G&K Services, Inc. and Subsidiaries
For the Twelve Months
Ended
---------------------
July 2, July 3,
2005 2004
(U.S. dollars, in thousands) (52 weeks) (53 weeks)
- ----------------------------------------------------------------------
Operating Activities:
Net income $39,927 $35,384
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 41,543 39,346
Deferred income taxes 76 1,300
Tax benefit of employee stock options 767 492
Amortization of deferred compensation -
restricted stock 852 937
Changes in current operating items, exclusive
of acquisitions (21,817) 14,243
Other assets and liabilities 1,637 4,565
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Net cash provided by operating activities 62,985 96,267
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Investing Activities:
Property, plant and equipment additions, net (19,408) (17,349)
Acquisition of business assets and other (75,917) (26,527)
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Net cash used for investing activities (95,325) (43,876)
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Financing Activities:
Proceeds from issuance of long-term debt - 1,345
Repayments of long-term debt (25,729) (12,874)
Proceeds from (repayments of) short-term
borrowings, net 40,400 (29,500)
Cash dividends paid (1,468) (1,459)
Sale of common stock 5,953 5,218
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Net cash provided by (used for) financing
activities 19,156 (37,270)
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(Decrease) / Increase in Cash and Cash
Equivalents (13,184) 15,121
Effect of Exchange Rates on Cash 1,598 306
Cash and Cash Equivalents:
Beginning of period 26,931 11,504
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End of period $15,345 $26,931
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Supplemental Cash Flow Information:
Non-Cash Transactions -
Debt issued in connection with business
acquisitions $11,890 $ -
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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