Exhibit 99.1
G&K Services Reports Fiscal 2007 Fourth
Quarter and Full Year Results
Earnings per share exceed expectations;
Operating margins expand
MINNEAPOLIS--(BUSINESS WIRE)--Aug. 14, 2007--G&K Services, Inc.
(Nasdaq:GKSR), today reported record revenue for the fiscal fourth
quarter ended June 30, 2007 of $240.4 million, a 5.7 percent increase
from previous year revenue of $227.4 million. Organic rental growth
combined with revenue from acquisitions contributed to the increase in
revenue over the prior-year.
Fourth quarter earnings per diluted share exceeded expectations
and totaled $0.57, an 11.8 percent increase over last year's fourth
quarter. The increase in earnings compared to the prior-year was
driven by solid revenue growth, efficiencies in production and
delivery costs, reduced administrative expenses and a lower than
anticipated effective tax rate, partially offset by increased selling
expenses. The prior-year period also included a gain from a legal
resolution that represented approximately $0.08 per diluted share.
Excluding this gain, fourth quarter earnings per diluted share
increased by 32.6 percent.
"We're extremely pleased to report strong fourth quarter
performance," said Richard Marcantonio, chairman and chief executive
officer. "As expected, we delivered operating margin expansion in the
fourth quarter. Clearly, the successful execution of our strategic
investments continues to drive improvement in operating margin."
Fiscal 2007 revenue reached a record $929.5 million, an increase
of $48.7 million over the prior year, marking the company's 38th
consecutive year of revenue growth. Organic growth from rental
operations and direct sales, combined with revenue from acquisitions
and the impact of currency translation, contributed to year-over-year
revenue growth.
Earnings per diluted share increased to $2.02 in fiscal 2007 from
$1.97 in fiscal 2006. Record net income for fiscal 2007 reflects
higher operating income driven by strong revenue growth and
productivity improvements, offset by increased selling expenses,
energy costs and a higher effective tax rate. In addition, this record
level of net income was achieved despite the impact of the company's
strategic investments to drive long-term revenue and earnings growth.
"During the year, we continued to advance our strategic plan by
enhancing our market segmentation programs, increasing our investment
in sales initiatives and implementing handheld technology across our
routes," Marcantonio added. "In addition, we signed an exclusive
strategic agreement with Dockers(R) San Francisco to further
strengthen our direct sale capabilities, completed two acquisitions to
expand our market presence and announced a share repurchase program to
drive greater shareholder value."
Income Statement Review
Fourth quarter revenue from G&K's rental business increased to
$219.1 million, up 6.2 percent over the prior-year period. The
company's organic rental growth rate was approximately 3.5 percent in
the quarter. The organic rental growth rate is calculated using rental
revenue, adjusted for foreign currency exchange rate differences and
revenue from newly acquired locations compared to prior-period
results. Direct sale revenue increased to $21.3 million, up slightly
over the prior-year period.
Gross margin from rental operations for the quarter increased to
37.0 percent, up from 34.6 percent in the prior-year period. The
increase in gross margin resulted from efficiencies gained from higher
revenue growth, including lower production, delivery and merchandise
costs. Gross margin from direct sales increased to 29.5 percent, an
improvement from 26.7 percent in the prior-year period. The increase
in gross margin was due primarily to improved efficiencies from higher
volume at the company's Lion Uniform Group.
Selling and administrative expenses were 22.3 percent of
consolidated revenue for the quarter, up from 20.0 percent in the
year-earlier period. Selling and administrative expenses increased
compared to the prior-year period due to higher selling expenses,
partially offset by lower administrative expenses as a result of the
implementation of handheld devices across the company's route
structure. In addition, the prior-year period included a gain from the
resolution of a legal matter which represented approximately 1.2
percent of consolidated revenue.
Operating margin for the fourth quarter increased to 9.2 percent
of consolidated revenue, up from 8.9 percent in the prior-year period.
The improvement in operating margin was a result of the incremental
income from revenue growth and lower administrative expense, offset by
higher selling expenses. Excluding the prior-year period legal
benefit, fourth quarter operating margins increased by 150 basis
points, compared to the reported increase of 30 basis points.
The effective tax rate for the fourth quarter was 34.6 percent
compared to 35.3 percent in the year-earlier period. Both the current
and prior-year period reflect changes in tax reserves for certain open
tax items.
Balance Sheet and Cash Flow Statement Review
The company's balance sheet remains strong. As of June 30, 2007,
the company had total borrowings of $214.8 million and a total debt to
total capitalization ratio of 26.6 percent. Total stockholders' equity
increased to $592.0 million.
Cash provided by operating activities increased to $80.4 million
in fiscal 2007, up from $69.5 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 the
business. Cash used for property, plant and equipment during the
twelve month period totaled $31.5 million compared to $32.0 million in
the prior-year period. Free cash flow, defined as cash flow from
operations less capital expenditures, increased to $48.9 million, up
from $37.6 million in the prior fiscal year.
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 fourth quarter, the company bought back
232,000 shares of common stock outstanding.
Outlook
The company expects fiscal 2008 first quarter revenue to range
from $240.0 million to $243.0 million and earnings per diluted share
from $0.52 to $0.56. The revenue guidance reflects revenue from
recently announced acquisitions, rental organic growth consistent with
the most recent quarter and year-over-year direct sale revenue growth.
The earnings guidance reflects continued improvement in the overall
business, expenses related to the company's ongoing strategic
investment in marketing, sales, and systems initiatives, higher energy
costs and a more normalized tax rate.
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 September
14, 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 July 1, 2006.
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 STATEMENTS OF OPERATIONS
G&K Services, Inc. and Subsidiaries
For the For the
Three Months Ended Twelve Months Ended
------------------------------------------
June 30, July 1, June 30, July 1,
(U.S. Dollars, in 2007 2006 2007 2006
thousands, except per
share data)
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Revenues
Rental operations $ 219,128 $ 206,255 $ 847,401 $ 801,240
Direct sales 21,280 21,151 82,141 79,603
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Total revenues 240,408 227,406 929,542 880,843
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Operating Expenses
Cost of rental operations 137,956 134,978 541,392 518,543
Cost of direct sales 15,000 15,507 59,579 57,522
Selling and
administrative 53,583 45,433 203,614 186,652
Depreciation and
amortization 11,819 11,137 45,595 43,263
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Total operating
expenses 218,358 207,055 850,180 805,980
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Income from Operations 22,050 20,351 79,362 74,863
Interest expense 3,375 3,514 13,901 13,226
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Income before Income Taxes 18,675 16,837 65,461 61,637
Provision for income
taxes 6,470 5,949 22,271 19,786
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Net Income $ 12,205 $ 10,888 $ 43,190 $ 41,851
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Basic weighted average
number of shares
outstanding 21,298 21,164 21,245 21,093
Basic Earnings Per Common
Share $ 0.57 $ 0.51 $ 2.03 $ 1.98
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Diluted weighted average
number of shares
outstanding 21,502 21,333 21,424 21,253
Diluted Earnings Per Common
Share $ 0.57 $ 0.51 $ 2.02 $ 1.97
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Dividends per share $ 0.0400 $ 0.0175 $ 0.1600 $ 0.0700
CONSOLIDATED CONDENSED BALANCE SHEETS
G&K Services, Inc. and Subsidiaries
(Subject to Reclassification)
June 30, July 1,
2007 2006
(U.S. dollars, in thousands)
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ASSETS
Current Assets
Cash and cash equivalents $ 22,759 $ 19,690
Accounts receivable, net 98,276 94,964
Inventories 140,780 141,031
Prepaid expenses 14,167 15,552
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Total current assets 275,982 271,237
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Property, Plant and Equipment, net 255,996 249,001
Other Assets 459,091 430,854
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$ 991,069 $ 951,092
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $21,911 $27,404
Accrued expenses 68,182 72,999
Deferred income taxes 6,568 10,419
Current maturities of long-term debt 65,838 18,199
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Total current liabilities 162,499 129,021
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Long-Term Debt, net of current maturities 149,005 195,355
Deferred Income Taxes 34,298 34,343
Other Noncurrent Liabilities 53,279 44,985
Stockholders' Equity 591,988 547,388
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$ 991,069 $ 951,092
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
G&K Services, Inc. and Subsidiaries
(Subject to Reclassification)
For the Twelve Months Ended
---------------------------
June 30, July 1
(U.S. dollars, in thousands) 2007 2006
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Operating Activities:
Net income $ 43,190 $ 41,851
Adjustments to reconcile net income to
net cash provided by operating
activities -
Depreciation and amortization 45,595 43,263
Stock-based compensation 4,208 3,935
Deferred income taxes (1,037) (102)
Changes in current operating items,
exclusive of acquisitions (14,982) (21,526)
Other, net 3,415 2,100
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Net cash provided by operating activities 80,389 69,521
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Investing Activities:
Property, plant and equipment
additions, net (31,515) (31,968)
Acquisition of business assets and
other (46,966) (11,455)
Purchase of investments (2,688) (1,967)
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Net cash used for investing activities (81,169) (45,390)
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Financing Activities:
Repayments of long-term debt (7,710) (7,835)
(Repayments of) proceeds from short-
term borrowings, net 19,467 (14,228)
Cash dividends paid (3,436) (1,493)
Sale of common stock 3,279 2,958
Repurchase of common stock (7,883) -
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Net cash provided by (used for) financing
activities 3,717 (20,598)
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Increase in Cash and Cash Equivalents 2,936 3,533
Effect of Exchange Rates on Cash 132 812
Cash and Cash Equivalents:
Beginning of period 19,690 15,345
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End of period $ 22,759 $ 19,690
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Supplemental Cash Flow Information:
Non-Cash Transactions -
Debt issued to seller in connection
with business acquisitions $ - $ (1,419)
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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