Exhibit 99.1
G&K Services Reports Fiscal 2006 Fourth Quarter and Full Year Results;
Achieves 37th Consecutive Year of Revenue Growth;
Records Double Digit Earnings Growth for Fiscal 2006
MINNEAPOLIS--(BUSINESS WIRE)--Aug. 15, 2006--G&K Services, Inc.
(Nasdaq:GKSR), today reported record revenue for its fiscal year ended
July 1, 2006 of $880.8 million, an 11.7 percent increase from previous
year revenue of $788.8 million. Earnings per diluted share of $1.97
increased 10.7 percent over fiscal 2005.
Revenues for fiscal 2006 increased on accelerated rental and
direct sale organic growth. Record net income for fiscal 2006 reflects
higher operating income from strong revenue growth, productivity
improvements and a lower effective tax rate, offset by record energy
costs, higher interest expense and the impact of hurricanes. In
addition, the company continued to accelerate strategic investments in
sales, marketing and technology initiatives.
"We are pleased to announce record revenue and net income in
fiscal 2006," said Richard Marcantonio, chairman and chief executive
officer. "Importantly, we delivered strong revenue and earnings growth
while continuing to make substantial investments in our business. Our
increasing investments in sales, marketing and technology initiatives
are transforming the company and helping us realize our vision of
becoming the market leader in enhancing image and safety in the
workplace."
For the fourth quarter ended July 1, 2006, revenue was $227.4
million, a 9.6 percent increase over prior-year fourth quarter revenue
of $207.4 million. Fourth quarter earnings per diluted share of $0.51
increased 15.9 percent over last year's fourth quarter.
Income Statement Review
Fourth quarter revenue from G&K's rental business increased to
$206.3 million, up 6.7 percent over the prior-year period. The
company's organic industrial rental growth rate continued to improve
and was approximately 4.5 percent in the quarter, which exceeded
expectations. This organic rental growth rate is 200 basis points
higher than the prior-year period and increased 100 basis points from
the third quarter. Direct sale revenue increased to $21.2 million or
9.3 percent of total revenue, up 49.4 percent over the prior-year
quarter, driven entirely by organic growth. 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.
"During the fourth quarter, our organic rental growth continued to
accelerate," Marcantonio said. "We continue to drive strong new
account growth and increased productivity from our investments in the
sales force and marketing initiatives. We believe that the combination
of increased organic growth and accelerated investments in sales
headcount and technology will support future margin expansion and
greater returns on capital."
Gross margin from rental operations for the quarter was 34.6
percent compared to 36.1 percent in the prior-year period. The change
in gross margin resulted from costs associated with new customer
growth, higher energy costs, plant capacity initiatives, and
information technology spending, offset by margin improvement due to
pricing initiatives, higher sales to existing customers and
productivity improvements. Gross margin from direct sales was 26.7
percent compared to 25.9 percent in the prior-year period. The
increase in gross margin was due primarily to improved efficiencies
from higher volume.
Selling, general and administrative expenses were 20.0 percent of
consolidated revenue for the quarter, down from 21.2 percent in the
year-earlier period. Selling, general and administrative expenses were
down over the prior-year period due to recording a gain related to a
legal resolution which represented 1.2 percent of consolidated
revenue. Selling, general and administrative expenses also included
costs associated with plant closures, costs incurred for the continued
rollout of the company's handheld initiative, expenses incurred to
change our retirement plans, and expenses associated with increased
sales headcount, offset by the positive leverage due to stronger
organic growth.
The effective tax rate for the fourth quarter declined to 35.3
percent from 38.1 percent in the year-earlier period. The company's
lower effective tax rate resulted from a reduction in taxes previously
provided for and a favorable mix of income earned in various taxing
jurisdictions, including foreign operations, with different tax rates.
Fourth quarter and fiscal 2006 earnings also 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 financial statements have been adjusted accordingly.
Balance Sheet and Cash Flow Statement Review
The company's balance sheet remains strong. As of July 1, 2006,
the company had total borrowings of $213.6 million and a total debt to
total capitalization ratio of 28.1 percent. Total stockholders' equity
increased to $547.4 million.
Cash provided by operating activities was $69.5 million for fiscal
2006 compared to $63.5 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 revenue growth.
Cash used for property, plant and equipment during the twelve month
period totaled $32.0 million compared to $19.4 million in the
prior-year period. This increase resulted from building a new
processing plant and investments in information technology
initiatives.
Outlook
The company expects fiscal 2007 first quarter revenue to range
from $222.0 million to $225.0 million and earnings per diluted share
from $0.40 to $0.45. The revenue guidance reflects both a continued
improvement in the rental organic growth rate driven by higher new
account growth and strong direct sale revenue. The earnings guidance
reflects an increase in expenses related to the company's ongoing
strategic investment in sales and marketing initiatives, the full
scale rollout of the handheld system, costs associated with record
2006 new account growth and costs resulting from other information
technology initiatives. The guidance also reflects efforts to improve
operational efficiency offset by higher energy costs. The company
expects earnings to improve meaningfully in the second half of fiscal
2007 as these strategic initiatives are completed and the benefits are
realized.
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 Web
site at www.gkservices.com. Click on the webcast icon and follow the
instructions. A replay of the call will be available through September
15, 2006.
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
For the Three For the Twelve
Months Ended Months Ended
-----------------------------------------
July 1, July 2, July 1, July 2,
(U.S. Dollars, in thousands,
except per share data) 2006 2005 2006 2005
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(Restated) (Restated)
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Revenues
Rental operations $206,255 $193,243 $801,240 $740,708
Direct sales 21,151 14,155 79,603 48,067
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Total revenues 227,406 207,398 880,843 788,775
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Operating Expenses
Cost of rental operations 134,978 123,553 518,543 470,116
Cost of direct sales 15,507 10,482 57,522 35,830
Selling and administrative 45,433 44,043 186,652 168,620
Depreciation and
amortization 11,137 10,817 43,263 41,543
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Total operating
expenses 207,055 188,895 805,980 716,109
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Income from Operations 20,351 18,503 74,863 72,666
Interest expense 3,514 3,258 13,226 11,338
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Income before Income Taxes 16,837 15,245 61,637 61,328
Provision for income taxes 5,949 5,811 19,786 23,149
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Net Income $10,888 $9,434 $41,851 $38,179
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Basic weighted average
number
of shares outstanding 21,164 21,037 21,093 20,942
Basic Earnings Per Common
Share $0.51 $0.45 $1.98 $1.82
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Diluted weighted average
number
of shares outstanding 21,333 21,513 21,253 21,400
Diluted Earnings Per Common
Share $0.51 $0.44 $1.97 $1.78
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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
(Subject to Reclassification)
July 1, July 2,
2006 2005
(U.S. dollars, in thousands) (Restated)
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ASSETS
Current Assets
Cash and cash equivalents $19,690 $15,345
Accounts receivable, net 94,964 83,459
Inventories 141,031 121,120
Prepaid expenses 15,552 16,587
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Total current assets 271,237 236,511
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Property, Plant and Equipment, net 249,001 243,307
Other Assets 430,854 423,351
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$951,092 $903,169
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $27,404 $25,695
Accrued expenses 72,999 71,483
Deferred income taxes 10,419 8,971
Current maturities of long-term debt 18,199 26,537
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Total current liabilities 129,021 132,686
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Long-Term Debt, net of current maturities 195,355 210,462
Deferred Income Taxes 34,343 32,580
Other Noncurrent Liabilities 44,985 47,691
Stockholders' Equity 547,388 479,750
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$951,092 $903,169
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
G&K Services, Inc. and Subsidiaries
(Subject to Reclassification)
For the Twelve
Months Ended
-------------------
July 1, July 2,
(U.S. dollars, in thousands) 2005
2006 (Restated)
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Operating Activities:
Net income $41,851 $38,179
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 43,263 41,543
Stock-based compensation 3,935 3,658
Deferred income taxes (102) 854
Changes in current operating items, exclusive of
acquisitions (21,526) (22,876)
Other, net 2,100 2,176
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Net cash provided by operating activities 69,521 63,534
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Investing Activities:
Property, plant and equipment additions, net (31,968) (19,408)
Acquisition of business assets and other (13,422) (76,466)
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Net cash used for investing activities (45,390) (95,874)
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Financing Activities:
Repayments of long-term debt (7,835) (25,729)
(Repayments of) proceeds from short-term
borrowings, net (14,228) 40,400
Cash dividends paid (1,493) (1,467)
Sale of common stock 2,958 5,952
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Net cash (used for) provided by financing
activities (20,598) 19,156
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Increase (Decrease) in Cash and Cash Equivalents 3,533 (13,184)
Effect of Exchange Rates on Cash 812 1,598
Cash and Cash Equivalents:
Beginning of period 15,345 26,931
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End of period $19,690 $15,345
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Supplemental Cash Flow Information:
Non-Cash Transactions -
Debt issued in connection with business
acquisitions $(1,419) $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