G&K Services Inc. (GKSR, Financial) filed Quarterly Report for the period ended 2010-03-27.
G&k Services Inc. has a market cap of $516.2 million; its shares were traded at around $27.8 with a P/E ratio of 22.5 and P/S ratio of 0.6. The dividend yield of G&k Services Inc. stocks is 1.1%.GKSR is in the portfolios of Steven Romick of FPA Crescent Fund, Bill Frels of MAIRS & POWER INC, Tweedy Browne of Tweedy Browne CO LLC, First Pacific Advisors of First Pacific Advisors, LLC, Jim Simons of Renaissance Technologies LLC.
Cost of Rental. Cost of rental operations decreased 11.6% to $130.0 million in the third quarter of fiscal 2010 from $147.0 million in the same period of fiscal 2009. As a percentage of rental revenue, our gross margin from rental operations remained flat at 29.9% in the third quarter of fiscal 2010 from 29.9% in the same period of fiscal 2009. A decrease in rental gross margin resulting from fixed cost absorbed over a lower revenue base and increased vehicle related and gasoline costs were offset by a focused effort on merchandise utilization, lower health costs and natural gas expenses. In addition, we were able to mitigate the impact of the difficult economic environment through a focus on costs and operational efficiencies throughout the company.
Rental revenue decreased $87.6 million, or 13.3% in the first nine months of fiscal 2010 compared to the same period of the prior fiscal year. Our rental organic growth rate was approximately negative 12.75% compared to approximately negative 3.0% in the same period of the prior fiscal year. The current year rental organic growth rate was negatively impacted by significantly reduced customer employment levels and lower new account sales due to adverse economic conditions. In addition, rental revenue was positively impacted by approximately $8.1 million or 1.1% compared to the prior year due to the favorable impact of foreign currency translation rates with Canada. This positive impact was offset by the divestiture of several operations that resulted in a decrease in rental revenue of approximately $13.6 million or 1.9%.
On July 1, 2009, we completed a new $300.0 million, three-year unsecured revolving credit facility with a syndicate of banks, which expires on July 1, 2012. This facility replaced our $325.0 million unsecured revolving credit facility, which was scheduled to mature in August 2010. Borrowings in U.S. dollars under the new credit facility will, at our election, bear interest at (a) the adjusted London Interbank Offered Rate (LIBOR) for specified interest periods plus a margin, which can range from 2.25% to 3.25%, determined with reference to our consolidated leverage ratio or (b) a floating rate equal to the greatest of (i) JPMorgans prime rate, (ii) the federal funds rate plus 0.50% and (iii) the adjusted LIBOR for a one month interest period plus 1.00%, plus, in each case, a margin determined with reference to our consolidated leverage ratio. Swingline loans will, at our election, bear interest at (i) the rate described in clause (b) above or (ii) a rate to be agreed upon by us and JPMorgan. Borrowings in Canadian dollars under the credit facility will bear interest at the greater of (a) the Canadian Prime Rate and (b) the Adjusted LIBOR for a one month interest period on such day (or if such day is not a business day, the immediately preceding business day) plus 1.00%. Effective July 1, 2009, the interest rate spread on this new facility is 1.875% higher than the previous facility. We also pay a fee on the unused daily balance of the revolving credit facility based on a leverage ratio calculated on a quarterly basis.
Advances outstanding as of March 27, 2010 bear interest at a weighted average all-in rate of 3.00% (LIBOR plus 2.75%) for the Eurocurrency rate loans and an all-in rate of 3.25% (Lender Prime Rate) for overnight Swingline Base Rate loans. We also pay a fee on the unused daily balance of the revolving credit facility based on a leverage ratio calculated on a quarterly basis.
The calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions, including the expected long-term rate of return on plan assets and the assumed discount rate. Changes in these assumptions can result in different expense and liability amounts, and future actual experience may differ from these assumptions. Pension expense increases as the expected rate of return on pension plan assets decreases. At June 27, 2009, we estimated that the pension plan assets will generate a long-term rate of return of 8.0%. This rate was developed by evaluating input from our outside actuary as well as long-term inflation assumptions. The expected long-term rate of return on plan assets at June 27, 2009 is based on an allocation of equity and fixed income securities. Decreasing the expected long-term rate of return by 0.5% (from 8.0% to 7.5%) would increase our estimated 2010 pension expense by approximately $0.2 million. Pension liability and future pension expense increase as the discount rate is reduced. We discounted future pension obligations using a rate of 6.9% at June 27, 2009. The discount rate is determined in consultation with our actuary based upon reference to a yield curve based on high quality bonds. Decreasing the discount rate by 0.5% (from 6.9% to 6.4%) would increase our accumulated benefit obligation at June 27, 2009 by approximately $4.3 million.
Read the The complete Report
G&k Services Inc. has a market cap of $516.2 million; its shares were traded at around $27.8 with a P/E ratio of 22.5 and P/S ratio of 0.6. The dividend yield of G&k Services Inc. stocks is 1.1%.GKSR is in the portfolios of Steven Romick of FPA Crescent Fund, Bill Frels of MAIRS & POWER INC, Tweedy Browne of Tweedy Browne CO LLC, First Pacific Advisors of First Pacific Advisors, LLC, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:
Rental revenue decreased $24.3 million, or 11.6% in the third quarter of fiscal 2010 compared to the same period of the prior fiscal year. Our rental organic growth rate was negative 10.5% compared to negative 7.25% in the same period of the prior fiscal year. Our rental organic growth rate reflects continued pressure from lower customer employment levels, increased customer financial difficulties and lower pricing. Our rental organic growth rate is calculated using rental revenue, adjusted to exclude the impact of foreign currency exchange rate changes, divestitures and acquisitions compared to prior-period results. We believe that the rental organic growth rate reflects changes in our existing rental business and is therefore useful in analyzing our financial condition and results of operations. In addition, rental revenue was positively impacted by approximately $5.7 million or 2.7% compared to the prior year due to the favorable impact of foreign currency translation rates with Canada. This positive impact was offset by the divestiture of several operations that resulted in a decrease in rental revenue of approximately $8.6 million or 4.1%.Cost of Rental. Cost of rental operations decreased 11.6% to $130.0 million in the third quarter of fiscal 2010 from $147.0 million in the same period of fiscal 2009. As a percentage of rental revenue, our gross margin from rental operations remained flat at 29.9% in the third quarter of fiscal 2010 from 29.9% in the same period of fiscal 2009. A decrease in rental gross margin resulting from fixed cost absorbed over a lower revenue base and increased vehicle related and gasoline costs were offset by a focused effort on merchandise utilization, lower health costs and natural gas expenses. In addition, we were able to mitigate the impact of the difficult economic environment through a focus on costs and operational efficiencies throughout the company.
Rental revenue decreased $87.6 million, or 13.3% in the first nine months of fiscal 2010 compared to the same period of the prior fiscal year. Our rental organic growth rate was approximately negative 12.75% compared to approximately negative 3.0% in the same period of the prior fiscal year. The current year rental organic growth rate was negatively impacted by significantly reduced customer employment levels and lower new account sales due to adverse economic conditions. In addition, rental revenue was positively impacted by approximately $8.1 million or 1.1% compared to the prior year due to the favorable impact of foreign currency translation rates with Canada. This positive impact was offset by the divestiture of several operations that resulted in a decrease in rental revenue of approximately $13.6 million or 1.9%.
On July 1, 2009, we completed a new $300.0 million, three-year unsecured revolving credit facility with a syndicate of banks, which expires on July 1, 2012. This facility replaced our $325.0 million unsecured revolving credit facility, which was scheduled to mature in August 2010. Borrowings in U.S. dollars under the new credit facility will, at our election, bear interest at (a) the adjusted London Interbank Offered Rate (LIBOR) for specified interest periods plus a margin, which can range from 2.25% to 3.25%, determined with reference to our consolidated leverage ratio or (b) a floating rate equal to the greatest of (i) JPMorgans prime rate, (ii) the federal funds rate plus 0.50% and (iii) the adjusted LIBOR for a one month interest period plus 1.00%, plus, in each case, a margin determined with reference to our consolidated leverage ratio. Swingline loans will, at our election, bear interest at (i) the rate described in clause (b) above or (ii) a rate to be agreed upon by us and JPMorgan. Borrowings in Canadian dollars under the credit facility will bear interest at the greater of (a) the Canadian Prime Rate and (b) the Adjusted LIBOR for a one month interest period on such day (or if such day is not a business day, the immediately preceding business day) plus 1.00%. Effective July 1, 2009, the interest rate spread on this new facility is 1.875% higher than the previous facility. We also pay a fee on the unused daily balance of the revolving credit facility based on a leverage ratio calculated on a quarterly basis.
Advances outstanding as of March 27, 2010 bear interest at a weighted average all-in rate of 3.00% (LIBOR plus 2.75%) for the Eurocurrency rate loans and an all-in rate of 3.25% (Lender Prime Rate) for overnight Swingline Base Rate loans. We also pay a fee on the unused daily balance of the revolving credit facility based on a leverage ratio calculated on a quarterly basis.
The calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions, including the expected long-term rate of return on plan assets and the assumed discount rate. Changes in these assumptions can result in different expense and liability amounts, and future actual experience may differ from these assumptions. Pension expense increases as the expected rate of return on pension plan assets decreases. At June 27, 2009, we estimated that the pension plan assets will generate a long-term rate of return of 8.0%. This rate was developed by evaluating input from our outside actuary as well as long-term inflation assumptions. The expected long-term rate of return on plan assets at June 27, 2009 is based on an allocation of equity and fixed income securities. Decreasing the expected long-term rate of return by 0.5% (from 8.0% to 7.5%) would increase our estimated 2010 pension expense by approximately $0.2 million. Pension liability and future pension expense increase as the discount rate is reduced. We discounted future pension obligations using a rate of 6.9% at June 27, 2009. The discount rate is determined in consultation with our actuary based upon reference to a yield curve based on high quality bonds. Decreasing the discount rate by 0.5% (from 6.9% to 6.4%) would increase our accumulated benefit obligation at June 27, 2009 by approximately $4.3 million.
Read the The complete Report
