G&K Services, Inc. (NASDAQ: GKSR) today reported
operating results for the fourth quarter of its fiscal year 2012,
which ended on June 30, 2012. Fourth quarter revenue grew by 4.8
percent to $224.3 million, up from $214.0 million in the prior-year
period.
The company reported fourth quarter net earnings of $0.59 per
diluted share, a 20 percent increase from adjusted earnings of
$0.49 per diluted share in the prior-year period. Adjusted earnings
in the prior year excluded a charge of $0.08 per share related to
plant consolidation and restructuring activities (see
reconciliation table).
“The fourth quarter was a strong finish to a strong year for
G&K,” said Douglas A. Milroy, Chief Executive Officer. “Over
the past three years we have made lasting improvements in our
business, which are clearly reflected in our financial results.
Fourth quarter revenue, operating margin, earnings per share, and
return on invested capital all reached new high points since the
initiation of our game plan. Moving into fiscal 2013, we will build
on these successes to drive continued performance gains.”
Income Statement
ReviewFourth quarter revenue from rental operations grew
solidly to $204.1 million, up from $194.0 million in the prior-year
quarter. The rental organic growth rate was 5.8 percent. The
organic growth rate is calculated using revenue adjusted for
foreign currency exchange rate differences, acquisitions and
divestitures. Rental organic growth was primarily driven by
continued strong new account sales, increased revenue from existing
rental customers, and improved pricing. Fourth quarter direct sales
grew by 1.0 percent to $20.2 million, up from $20.0 million in the
prior-year.
Fourth quarter operating margin expanded to 8.7 percent, a 100
basis point improvement from an adjusted operating margin of 7.7
percent in the prior-year. The prior-year adjusted operating margin
excluded the impact of the previously mentioned charge related to
plant consolidation and restructuring activities. The operating
margin increase was driven by revenue growth leveraging fixed
costs, lower selling and administrative expenses, and lower rental
production and delivery costs as a percentage of revenue. These
improvements were partially offset by an expected increase in
rental merchandise expense and lower direct sale gross margins.
Net earnings also benefited from lower interest expense.
Interest expense in the current quarter was $1.3 million, down from
$2.2 million in the prior-year period, primarily due to a lower
effective interest rate, partially offset by increased debt
levels.
Balance Sheet and Cash
FlowThe company ended the fiscal year with total debt,
net of cash, of $198.6 million and a debt to total capital ratio of
35.1 percent. Total debt, net of cash, increased by $85.7 million
compared to the prior year, due to increased borrowings used to
fund the $6.00 per share special dividend payment made during the
quarter. Total stockholders’ equity at the end of the fourth
quarter was $403.1 million.
The company delivered another year of strong cash flow. Cash
provided by operating activities during the fiscal year improved to
$73.0 million, an increase of $6.0 million compared to $67.0
million in the prior year. Capital expenditures for the year were
$34.0 million, up from $20.7 million in the prior year period, due
to increased investments to enhance productivity and support
profitable revenue growth.
OutlookThe company expects
to drive continued performance gains in fiscal year 2013, despite
slow employment growth and persistent weakness in the economy. The
company expects fiscal 2013 revenue to be in the range of $890
million to $910 million, with earnings per diluted share between
$2.20 and $2.40.
Conference Call
InformationThe 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 September 16, 2012.
Safe Harbor for Forward-Looking
StatementsStatements 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 July 2, 2011.
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.
Comparison of GAAP to Non-GAAP
Financial MeasuresThe company reports its consolidated
financial results in accordance with generally accepted accounting
principles (GAAP). To supplement these consolidated financial
results, management believes that certain non-GAAP operating
results provide a more meaningful measure on which to compare the
company’s results of operations between periods. The company
believes these non-GAAP results provide useful information to both
management and investors by excluding certain amounts that impact
comparability of the results. A reconciliation of operating income,
net income and earnings per diluted share on a GAAP basis to
adjusted earnings per diluted share on a non-GAAP basis is
presented in the table below:
Three Months Ended Three
Months Ended June 30, 2012 July 2, 2011 (U.S.
Dollars, in thousands, except per share data) Revenue
OperatingIncome
NetIncome
EarningsPer Share
Revenue
OperatingIncome
NetIncome
EarningsPer Share
As Reported $ 224,341 $ 19,424 $
11,188 $ 0.59 $ 214,037 $ 14,723
$ 7,551 $ 0.41 Add: Plant consolidation and
restructuring activities (3) - -
- - -
1,663 1,486
0.08
As Adjusted $
224,341 $ 19,424 $ 11,188
$ 0.59 $ 214,037 $ 16,386
$ 9,037 $ 0.49
Twelve Months Ended Twelve Months Ended
June 30, 2012 July 2, 2011 (U.S. Dollars, in
thousands, except per share data) Revenue
OperatingIncome
NetIncome
EarningsPer Share
Revenue
OperatingIncome
NetIncome
EarningsPer Share
As Reported $ 869,937 $ 42,271 $ 24,147 $ 1.29 $ 828,861 $
65,375 $ 33,160 $ 1.79 Add: Impact of pension withdrawal and
associated expenses (1) - 24,004 14,626 0.78 - - - - Add: Impact of
equitable adjustment to equity based compensation (2) - 1,881 1,241
0.07 - - - - Add: Plant consolidation and restructuring activities
(3) - - - - - 1,663 1,486 0.08 Less: Impact of discrete tax event
(4) - - (1,390 ) (0.07 ) - - - - Less: Impact of change in
accounting (5) - -
- - (5,929 )
(5,929 ) (3,698 )
(0.20 )
As Adjusted $ 869,937 $ 68,156
$ 38,624 $ 2.06 $ 822,932
$ 61,109 $ 30,948
$ 1.67 * The EPS calculation for the
adjustments does not foot due to rounding.
(1)
In the third quarter of fiscal 2012 we
recorded a charge associated with the estimated withdrawal from the
Central States Southeast and Southwest Areas Pension Fund.
(2)
In the third quarter of fiscal 2012, as a
result of our $6.00 per share special dividend, the Board of
Directors approved an equitable adjustment to all outstanding stock
options to preserve the intrinsic value of the options, which
resulted in a pre-tax non-cash charge to earnings.
(3)
In the fourth quarter of fiscal 2011, we
implemented certain plant consolidation and restructuring
activities that included the closure or divestiture of three
facilities.
(4)
In the third quarter of fiscal 2012, we
recorded a tax benefit related to the final disposition of a
subsidiary.
(5)
During the fourth quarter of fiscal 2010,
we changed our business practices regarding the replacement of
certain lost or damaged in-service towel and linen inventory. As a
result of this change, we had a dual, non-recurring revenue stream
which occurred in fiscal 2011. There were no comparable amounts
recognized in fiscal 2012.
These non-GAAP measures are not in accordance with, or an
alternative for measures prepared in accordance with, GAAP and may
be different from non-GAAP measures used by other companies.
Investors should consider non-GAAP measures in addition to, and not
as a substitute for, or superior to, financial performance measures
prepared in accordance with GAAP.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS G&K
Services, Inc. and Subsidiaries (Subject to Reclassification)
For the Three Months Ended For the Twelve Months
Ended (U.S. Dollars, in thousands, except per share data)
June 30,2012
July 2,2011
June 30,2012
July 2,2011
REVENUES Rental operations $ 204,128 $ 194,017
$ 795,199 $ 760,304 Direct sales 20,213
20,020 74,738 68,557
Total revenues 224,341
214,037 869,937 828,861
OPERATING EXPENSES Cost of rental operations 140,382 133,315
549,622 516,631 Cost of direct sales 14,975 14,187 57,936 50,779
Pension withdrawal and associated expenses - - 24,004 - Selling and
administrative 49,560
51,812 196,104 196,076 Total operating
expenses 204,917 199,314
827,666 763,486
INCOME
FROM OPERATIONS 19,424 14,723 42,271 65,375 Interest expense
1,298 2,229 6,082
10,240
INCOME BEFORE INCOME TAXES
18,126 12,494 36,189 55,135 Provision for income taxes
6,938 4,943 12,042
21,975
NET INCOME $ 11,188
$ 7,551 $ 24,147 $ 33,160 Basic
weighted average number of shares outstanding 18,552 18,393 18,494
18,355
BASIC EARNINGS PER COMMON SHARE $ 0.60
$ 0.41 $ 1.31 $ 1.81 Diluted weighted
average number of shares outstanding 18,931 18,606 18,731 18,497
DILUTED EARNINGS PER COMMON SHARE $ 0.59
$ 0.41 $ 1.29 $ 1.79 Dividends
per share $ 6.195 $ 0.095 $ 6.585 $ 0.380
CONSOLIDATED CONDENSED BALANCE SHEETS G&K
Services, Inc. and Subsidiaries (Subject to Reclassification)
(U.S. Dollars, in thousands)
June 30,2012
July 2,2011
ASSETS Current Assets Cash and cash equivalents $
19,604 $ 22,974 Accounts receivable, net 93,064 90,522 Inventories,
net 178,226 163,050 Other current assets
12,239 21,614 Total current assets
303,133 298,160
Property, Plant, Equipment, net 187,840 185,521
Goodwill 325,336 328,219
Other Assets
57,422 54,020 Total assets
$ 873,731 $
865,920 LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities Accounts payable $ 41,358 $ 38,067
Accrued expenses 69,902 72,395 Deferred income taxes 8,439 7,626
Current maturities of long-term debt 206
40,710 Total current liabilities
119,905 158,798
Long-Term
Debt, net of Current Maturities 218,018 95,188
Deferred
Income Taxes 5,473 9,189
Accrued Income Taxes 11,339
13,199
Pension Withdrawal Liability 23,562 -
Other
Noncurrent Liabilities 92,375 74,640
Stockholders'
Equity 403,059
514,906 Total Liabilities and stockholders' equity
$ 873,731 $ 865,920
CONSOLIDATED CONDENSED STATEMENTS OF CASH
FLOWS G&K Services, Inc. and Subsidiaries (Subject to
Reclassification)
For the Twelve
Months Ended June 30, July 2, (U.S. Dollars, in
thousands)
2012 2011
Operating Activities: Net income $ 24,147 $ 33,160
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 33,983 37,600 Deferred income taxes
2,775 982 Other adjustments 6,037 4,175 Changes in current
operating items (7,743 ) (7,422 ) Other assets and liabilities
(9,929 ) (1,491 ) Pension withdrawal liability
23,703 - Net cash provided by
operating activities 72,973
67,004
Investing Activities: Property,
plant and equipment additions, net (34,026 ) (20,670 ) Acquisition
of business assets, net of cash (1,087 )
- Net cash used for investing
activities (35,113 )
(20,670 )
Financing Activities: Payments of long-term debt
(729 ) (1,025 ) Proceeds from (payments on) revolving credit
facilities, net 81,944 (24,500 ) Cash dividends paid (123,921 )
(7,105 ) Net Issuance of common stock, under stock option plans
2,858 695 Purchase of common stock (817 )
(352 ) Net cash used for financing activities
(40,665 ) (32,287 )
(Decrease)/Increase in Cash and Cash Equivalents (2,805 )
14,047
Effect of Exchange Rates on Cash (565 ) 153
Cash and Cash Equivalents: Beginning of period
22,974 8,774 End of
period $ 19,604 $ 22,974
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