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G&K Services Reports Fiscal 2012 Fourth Quarter Results

Stocks in this article: GKSR

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 Measures The 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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