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G&K Services, Inc. (NASDAQ: GKSR) announced today that its Board of Directors declared a special cash dividend of $6.00 per share, payable on April 27, 2012 to shareholders of record at the close of business on April 13, 2012. The stock will begin to trade ex-dividend on April 11, 2012.
Additionally, G&K’s Board of Directors announced a 50 percent increase in the company’s regular quarterly cash dividend to $0.195 per share. This is G&K’s seventh consecutive year with a dividend increase.
Finally, the company will also opportunistically pursue open market share repurchases as another option to improve shareholder returns. The company has approximately $58 million remaining under its existing share repurchase authorization.
“Our Game Plan is working,” said Douglas A. Milroy, Chief Executive Officer. “Since its introduction in fiscal 2010, we’ve restored organic growth, significantly expanded operating margins, produced strong cash flow, and retired over $100 million in debt. Our improved performance gives us the confidence to increase shareholder returns through today’s actions.”
“Importantly, as our first priority, we maintain the financial flexibility to invest in our business and continue to pursue acquisition opportunities,” said Jeffrey L. Wright, Executive Vice President and Chief Financial Officer. “The total special dividend payment will be approximately $113 million and will be funded through the company’s revolving credit facility. After payment of the special dividend, the company maintains significant liquidity, with over $100 million of debt capacity available under its credit facilities.”
The company expects the price of its common stock will decrease by an amount equal to the special dividend on the ex-dividend date, as is typical when public companies pay significant special cash dividends. Accordingly, the Board of Directors approved equitable adjustments to all outstanding stock options to preserve the intrinsic value of the options. Due to the equitable adjustments, the company expects to record a pre-tax non-cash charge to earnings of approximately $2.0 million ($1.2 million after tax). This charge will be recorded in the third quarter of fiscal year 2012. G&K estimates that this charge will reduce the company’s earnings per diluted share for the third quarter and full-year by $0.07.