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 firstname.lastname@example.org
G&K Services Reports Fiscal 2013 First Quarter Results
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