G&K Services Reports Fiscal 2013 First Quarter Results

  G&K Services Reports Fiscal 2013 First Quarter Results

  Company Achieves Record Quarterly Earnings Per Diluted Share of $0.62; 38
                                Percent Growth

                  Revenue Grows 6.1 Percent to $222 Million

          Operating Margin Increases 140 Basis Points to 8.8 Percent

                    Increases Full-Year Earnings Guidance

Business Wire

MINNEAPOLIS -- October 30, 2012

G&K Services, Inc. (NASDAQ: GKSR) today reported operating results for the
first quarter of its fiscal year 2013, which ended on September 29, 2012.
First quarter revenue grew by 6.1 percent to $222.4 million, up from $209.7
million in last year’s first quarter, driven by solid growth in both rental
operations and direct sales. First quarter net earnings per diluted share grew
to $0.62, a 38 percent increase from earnings of $0.45 per diluted share in
the prior-year period. This was the highest quarterly earnings per diluted
share in the company’s history.

“The first quarter was a terrific start to our fiscal year, continuing our
momentum,” said Douglas A. Milroy, Chief Executive Officer. “We were
particularly pleased with our strong operating margin improvement, which
reflects crisp execution of our game plan, especially a company-wide
commitment to service excellence and a focus on improving operations.”

Income Statement Review
First quarter revenue from rental operations grew solidly to $203.5 million,
up from $194.0 million in the prior-year quarter. The rental organic growth
rate was 5.6 percent. The organic growth rate is calculated using revenue
adjusted for foreign currency exchange rate differences, acquisitions and
divestitures. First quarter direct sales grew by 20.7 percent to $19.0
million, up from $15.7 million in the prior-year. Direct sales growth was
primarily due to increased sales from new accounts.

Operating margin expanded to 8.8 percent, a 140 basis point improvement from
the 7.4 percent margin in last year’s first quarter. The operating margin
increase was primarily due to revenue growth leveraging fixed costs,
productivity improvements in rental production and delivery, and lower energy
and healthcare costs. These improvements were partially offset by an expected
increase in rental merchandise expense.

Net earnings also benefited from lower interest expense and a lower effective
tax rate. Interest expense in the first quarter was $1.0 million, down from
$1.7 million in the prior-year period, primarily due to a lower effective
interest rate, partially offset by higher total debt. The effective tax rate
was 35.7 percent, compared to 40.0 percent in last year’s first quarter. The
lower tax rate was due to the resolution of a tax contingency in the current
period and the prior-year write-off of deferred tax assets related to equity
compensation.

Balance Sheet and Cash Flow
The company ended the first quarter with total debt, net of cash, of $185.5
million and a debt to total capital ratio of 33.0 percent. The company reduced
its total debt by $12.5 million during the quarter. Total stockholders’ equity
at the end of the quarter was $417.6 million.

The company generated strong cash flow during the quarter. Cash provided by
operating activities in the first quarter improved to $19.8 million, an
increase of $27.2 million compared to negative $7.4 million in last year’s
first quarter. The stronger cash flow was primarily due to improvements in
working capital, higher net income, and a lower contribution to the company’s
pension plan than in the prior year. Capital expenditures were $10.2 million,
up from $7.2 million in the prior year period, due to increased investments to
enhance productivity and support profitable revenue growth.

Outlook
The company expects to drive continued performance gains in fiscal 2013,
despite persistent weakness in the economy, slow employment growth and
considerable political uncertainty. The company continues to expect fiscal
2013 revenue in a range of $890 million to $910 million. Based on first
quarter performance, the company is raising its full-year earnings guidance to
a range of $2.25 to $2.45 per diluted share, up from the previously announced
range of $2.20 to $2.40.

Conference Call Information
The company will host a conference call today at 10:00 a.m. Central Time to
discuss its financial results and outlook. The call will be webcast and is
available in the Investor Relations section of the company’s web site at
www.gkservices.com. A replay of the call will be available on the company’s
web site through November 30, 2012.

Safe Harbor for Forward-Looking Statements
Statements made in this press release concerning the company’s 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 the company’s 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 the company undertakes 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 the company’s Annual Report on Form 10-K for the fiscal
year ended June 30, 2012.

About G&K Services, Inc.
G&K Services, Inc. is a service-focused market leader of branded uniform and
facility services programs in the United States, and is the largest such
provider in Canada. Headquartered in Minneapolis, Minnesota, G&K Services has
nearly 7,800 employees serving approximately 165,000 customers from 160
facilities in North America. G&K Services is a publicly held company traded
over the NASDAQ Global Select Market under the symbol GKSR and is a component
of the Standard & Poor’s SmallCap 600 Index. For more information on G&K
Services, visit the company’s web site at www.gkservices.com.

                                                          
                                                               
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
G&K Services, Inc. and Subsidiaries
(Subject to Reclassification)
                                                               
                                        For the Three Months Ended
(U.S. Dollars, in thousands, except   September 29, 2012   October 1, 2011
per share data)
                                                         
REVENUES
Rental operations                       $      203,459         $    194,001
Direct sales                                18,969            15,722
Total revenues                              222,428           209,723
                                                               
OPERATING EXPENSES
Cost of rental operations                      138,672              133,587
Cost of direct sales                           14,333               11,915
Selling and administrative                  49,875            48,746
Total operating expenses                    202,880           194,248
                                                         
INCOME FROM OPERATIONS                         19,548               15,475
Interest expense                            1,036             1,653
INCOME BEFORE INCOME TAXES                     18,512               13,822
Provision for income taxes                  6,618             5,529
NET INCOME                            $      11,894        $    8,293
                                                               
BASIC EARNINGS PER COMMON SHARE       $      0.63          $    0.45
DILUTED EARNINGS PER COMMON SHARE     $      0.62          $    0.45
                                                               
Weighted average number of shares              18,681               18,430
outstanding, basic
Weighted average number of shares              18,949               18,610
outstanding, diluted
                                                               
Dividends declared per share            $      0.195           $    0.130
                                                                    

                                                            
CONDENSED CONSOLIDATED BALANCE SHEETS
G&K Services, Inc. and Subsidiaries
(Subject to Reclassification)

(U.S. Dollars, in thousands)            September 29, 2012   June 30, 2012
ASSETS
Current Assets
Cash and cash equivalents                 $      20,230          $   19,604
Accounts receivable, net                         93,372              93,064
Inventories, net                                 175,085             178,226
Other current assets                          13,125           12,239
Total current assets                          301,812          303,133
                                                                 
Property, Plant, Equipment, net                  192,007             187,840
Goodwill                                         327,467             325,336
Other Assets                                  59,096           57,422
Total assets                            $      880,382       $   873,731
                                                                 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable                          $      47,840          $   41,358
Accrued expenses                                 66,440              69,902
Deferred income taxes                            8,508               8,439
Current maturities of long-term debt          28,691           206
Total current liabilities                     151,479          119,905
                                                                 
Long-Term Debt, net of Current                   177,000             218,018
Maturities
Deferred Income Taxes                            8,758               5,473
Accrued Income Taxes                             11,090              11,339
Pension Withdrawal Liability                     23,556              23,562
Other Noncurrent Liabilities                     90,867              92,375
Stockholders' Equity                          417,632          403,059
Total Liabilities and stockholders'     $      880,382       $   873,731
equity
                                                                     


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
G&K Services, Inc. and Subsidiaries
(Subject to Reclassification)
                                                              
                                                 For the Three Months Ended
                                                 September 29,     October 1,
(U.S. Dollars, in thousands)                   2012            2011
Operating Activities:
Net income                                       $  11,894         $ 8,293
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities -
Depreciation and amortization                       8,056            8,776
Other adjustments                                   1,387            1,001
Changes in current operating items and           (1,557   )    (25,441 )
other, net
Net cash provided by (used for) operating        19,780       (7,371  )
activities
Investing Activities:
Property, plant and equipment additions, net        (10,200  )       (7,195  )
Acquisition of business assets, net of cash      (101     )    -       
Net cash used for investing activities           (10,301  )    (7,195  )
Financing Activities:
Payments of long-term debt                          (133     )       (236    )
(Payments on) Proceeds from revolving credit        (12,400  )       2,000
facilities, net
Cash dividends paid                                 -                (2,446  )
Net Issuance of common stock, under stock           3,999            536
option plans
Purchase of common stock                         (730     )    (604    )
Net cash used for financing activities           (9,264   )    (750    )
Increase (Decrease) in Cash and Cash                215              (15,316 )
Equivalents
Effect of Exchange Rates on Cash                    411              (95     )
                                                                   
Cash and Cash Equivalents:
Beginning of period                              19,604       22,974  
End of period                                  $  20,230      $ 7,563   

Contact:

G&K Services, Inc.
Jeff Huebschen, 952-912-5773
Director, Investor Relations
jeff.huebschen@gkservices.com
 
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