Exhibit 99.1
G&K Services Reports Fiscal 2006 First Quarter Results;
Company Posts 14 Percent Revenue and Earnings Growth;
Organic Rental Revenue Growth Continues to Improve
MINNEAPOLIS--(BUSINESS WIRE)--Nov. 1, 2005--G&K Services, Inc.
(Nasdaq:GKSRA), today reported record revenue for the first quarter ended
October 1, 2005 of $207.9 million, up 14.0 percent over $182.4 million reported
in the first fiscal quarter last year. Revenue exceeded expectations due
primarily to continued improvement in organic growth.
Earnings per diluted share totaled $0.49 for the quarter, a 14.0 percent
increase compared to $0.43 during the prior-year quarter. Earnings for both
quarters 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
first quarter financial statements have been adjusted accordingly.
"Our first quarter results marked a solid start to fiscal 2006, a
continuation of the momentum we've created over the past two years," said
Richard Marcantonio, G&K's president and chief executive officer. "The results
are even more impressive considering the short-term revenue and earnings impact
of Hurricanes Katrina and Rita."
The company reported that both Hurricanes Katrina and Rita had a
significant impact on first quarter financial results. The impact was offset by
a number of operating and non-operating items.
The company continues to focus on assisting employees impacted by the
hurricanes and assessing the impact of lost customers and damage to property.
"While we are pleased with our results, we remain concerned with the human
impact of Hurricanes Katrina and Rita," Marcantonio said. "Our top priority has
been the well-being of our associates and customers. We continue to provide
financial assistance and relief efforts to those affected by the hurricanes."
Income Statement Review
First quarter revenue from G&K's rental business increased to $194.1
million, up 10.1 percent over the prior-year period. The company's organic
industrial rental growth rate was approximately 3 percent in the first quarter,
an improvement of 50 basis points compared to the organic growth rate in the
fourth quarter of fiscal 2005 and 500 basis points compared to the prior-year
period. The company's growth initiatives continue to drive improvements in
organic rental revenue growth. Direct sale revenue increased to $13.9 million,
up 126.0 percent over the prior-year quarter and up approximately 11 percent on
an organic basis. The growth of direct sale revenue for the quarter was driven
by the acquisition of the Lion Uniform Group and stronger organic growth in
G&K's direct sale unit. 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 35.8 percent
compared to 37.0 percent in the prior-year period. Gross margin for the quarter
declined due to higher energy costs, costs associated with new customer growth
and the impact of the hurricanes. Gross margin from direct sales was 26.5
percent compared to 20.3 percent in the prior-year period. This increase was due
primarily to improved efficiencies from higher volume.
Selling, general and administrative expenses were 21.0 percent of
consolidated revenue for the quarter, down from 21.6 percent in the year-earlier
period. In absolute dollars, selling, general and administrative expenses were
up 11.3 percent over the prior-year period due to the company's investment in
growth oriented initiatives, additional expenses related to acquired businesses
and costs associated with hurricane relief efforts.
The effective tax rate for the first quarter declined to 34.7 percent from
37.5 percent in the year-earlier period due to reductions of taxes previously
provided and a favorable mix of income earned in various taxing jurisdictions,
including foreign operations, with different tax rates.
Balance Sheet and Cash Flow Statement Review
As of October 1, 2005, the Company had cash of $18.3 million and a total
debt to total capitalization ratio of 32.5 percent. Total stockholders' equity
increased to $500.8 million.
Cash provided by operating activities was $7.3 million for the quarter
compared to $14.7 million in the first quarter of fiscal 2005. Cash provided
from operations was down compared to the prior-year period due to working
capital needed to support organic growth and incentive compensation payments in
connection with fiscal 2005 performance. Cash used for property, plant and
equipment during the quarter totaled $8.5 million.
Outlook
The company expects fiscal 2006 second quarter revenue to range from $213.0
million to $216.0 million and earnings per diluted share from $0.44 to $0.47.
The revenue guidance represents continued improvement in the company's rental
organic growth rate, additional revenue from a recent acquisition and increased
direct sale revenue from the company's annual outerwear promotion. The earnings
guidance reflects the company's ongoing efforts to improve operational
efficiency offset by investments in growth initiatives, higher energy costs and
the continuing impact from the hurricanes. Second quarter earnings guidance also
incorporates the anticipated impact associated with expensing stock options of
approximately $0.02 per diluted share. Earnings per diluted share in the second
quarter of fiscal 2005, when adjusted for SFAS 123(r), were $0.45.
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 December 1, 2005.
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
(Unaudited)
For the Three Months Ended
--------------------------
October 1, October 2,
(U.S. dollars, in thousands, except per 2005 2004
share data) (Restated)
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Revenues
Rental operations $194,068 $176,291
Direct sales 13,880 6,141
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Total revenues 207,948 182,432
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Operating Expenses
Cost of rental operations 124,506 111,009
Cost of direct sales 10,201 4,896
Selling and administrative 43,745 39,314
Depreciation and amortization 10,599 10,158
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Total operating expenses 189,051 165,377
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Income from Operations 18,897 17,055
Interest expense 3,015 2,548
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Income before Income Taxes 15,882 14,507
Provision for income taxes 5,511 5,440
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Net Income $10,371 $9,067
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Basic weighted average number of shares
outstanding 20,992 20,825
Basic Earnings per Common Share $0.49 $0.44
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Diluted weighted average number of
shares outstanding 21,148 21,066
Diluted Earnings per Common Share $0.49 $0.43
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Dividends per share $ 0.0175 $0.0175
CONSOLIDATED CONDENSED BALANCE SHEETS
G&K Services, Inc. and Subsidiaries
October 1, July 2,
2005 2005
(U.S. dollars, in thousands) (Unaudited) (Restated)
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ASSETS
Current Assets
Cash and cash equivalents $18,331 $15,345
Accounts receivable, net 87,268 83,459
Inventories 123,733 121,120
Prepaid expenses 16,922 16,587
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Total current assets 246,254 236,511
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Property, Plant and Equipment, net 246,087 243,307
Other Assets 425,908 423,351
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$918,249 $903,169
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $24,769 $25,695
Accrued expenses 69,952 81,523
Deferred income taxes 9,226 8,971
Current maturities of long-term debt 7,882 26,537
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Total current liabilities 111,829 142,726
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Long-Term Debt, net of current maturities 233,430 210,462
Deferred Income Taxes 31,144 30,887
Other Noncurrent Liabilities 41,032 37,651
Stockholders' Equity 500,814 481,443
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$918,249 $903,169
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
G&K Services, Inc. and Subsidiaries
(Unaudited)
For the Three Months Ended
--------------------------
October 1, October 2,
2005 2004
(U.S. dollars, in thousands) (Restated)
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Operating Activities:
Net income $10,371 $9,067
Adjustments to reconcile net income to
net cash provided by operating
activities -
Depreciation and amortization 10,599 10,158
Stock-based compensation 1,007 972
Deferred income taxes 394 285
Changes in current operating items,
exclusive of acquisitions (15,210) (6,307)
Other, net 148 489
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Net cash provided by operating activities 7,309 14,665
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Investing Activities:
Property, plant and equipment
additions, net (8,506) 586
Acquisition of business assets and
other (832) (19,864)
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Net cash used for investing activities (9,338) (19,278)
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Financing Activities:
Repayments of long-term debt (7,309) (12,877)
Proceeds from short-term borrowings,
net 11,600 1,100
Cash dividends paid (369) (365)
Sale of common stock 658 1,035
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Net cash provided by (used for) financing
activities 4,580 (11,107)
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Increase (Decrease) in Cash and Cash
Equivalents 2,551 (15,720)
Effect of Exchange Rates on Cash 435 578
Cash and Cash Equivalents:
Beginning of period 15,345 26,931
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End of period $18,331 $11,789
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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