1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File
February 28, 1998 Number 1-8504
UNIFIRST CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2103460
(State of Incorporation) (IRS Employer ID Number)
68 Jonspin Road
Wilmington, Massachusetts 01887
(Address of principal executive offices)
Registrant's telephone number: (978) 658-8888
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of outstanding shares of the registrant's Common Stock and Class B
Common Stock as of April 1, 1998 were 10,203,864 and 10,306,744 respectively.
2
PART 1 - FINANCIAL INFORMATION
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(unaudited)
February 28, 1998 August 30, 1997* March 1, 1997
- --------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 7,177,000 $ 4,054,000 $ 7,186,000
Receivables 41,718,000 39,431,000 38,419,000
Inventories 20,671,000 19,497,000 19,454,000
Rental merchandise in service 40,518,000 40,013,000 38,833,000
Prepaid expenses 147,000 149,000 130,000
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 110,231,000 103,144,000 104,022,000
- --------------------------------------------------------------------------------------------------------------------------------
Property and equipment:
Land, buildings and leasehold improvements 145,361,000 137,281,000 129,005,000
Machinery and equipment 155,583,000 142,242,000 130,402,000
Motor vehicles 38,523,000 37,276,000 33,814,000
- --------------------------------------------------------------------------------------------------------------------------------
339,467,000 316,799,000 293,221,000
Less - accumulated depreciation 137,595,000 128,532,000 120,947,000
- --------------------------------------------------------------------------------------------------------------------------------
201,872,000 188,267,000 172,274,000
- --------------------------------------------------------------------------------------------------------------------------------
Other assets 48,336,000 48,215,000 46,006,000
- --------------------------------------------------------------------------------------------------------------------------------
$360,439,000 $339,626,000 $322,302,000
================================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 1,050,000 $ 1,040,000 $ 1,032,000
Notes payable 2,543,000 3,213,000 3,144,000
Accounts payable 14,054,000 13,085,000 14,423,000
Accrued liabilities 49,160,000 45,637,000 41,065,000
Accrued and deferred income taxes 2,189,000 2,555,000 3,916,000
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 68,996,000 65,530,000 63,580,000
- --------------------------------------------------------------------------------------------------------------------------------
Long-term obligations, net of current maturities 43,005,000 39,797,000 38,517,000
Deferred income taxes 17,687,000 17,107,000 16,925,000
- --------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, $1.00 par value; 2,000,000
shares authorized; none issued -- -- --
Common stock, $.10 par value; 30,000,000
shares authorized; issued and outstanding
7,903,864 shares 790,000 790,000 789,000
Class B Common stock, $.10 par value; 20,000,000
shares authorized; issued and outstanding
12,606,744 shares 1,261,000 1,261,000 1,262,000
Capital surplus 7,078,000 7,078,000 7,078,000
Retained earnings 222,954,000 208,949,000 194,689,000
Cumulative translation adjustment (1,332,000) (886,000) (538,000)
- --------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 230,751,000 217,192,000 203,280,000
- --------------------------------------------------------------------------------------------------------------------------------
$360,439,000 $339,626,000 $322,302,000
================================================================================================================================
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial statements.
3
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME
(unaudited)
Twenty-six Twenty-six Thirteen Thirteen
weeks ended weeks ended weeks ended weeks ended
February 28, March 1, February 28, March 1,
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
Revenues $221,746,000 $206,040,000 $109,344,000 $102,064,000
- --------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Operating costs 135,262,000 126,338,000 68,937,000 64,218,000
Selling and administrative expenses 49,147,000 46,553,000 23,750,000 23,033,000
Depreciation and amortization 12,601,000 11,192,000 6,293,000 5,645,000
- --------------------------------------------------------------------------------------------------------------------------------
197,010,000 184,083,000 98,980,000 92,896,000
- --------------------------------------------------------------------------------------------------------------------------------
Income from operations 24,736,000 21,957,000 10,364,000 9,168,000
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense (income):
Interest expense 1,299,000 1,151,000 648,000 566,000
Interest income (133,000) (106,000) (63,000) (36,000)
- --------------------------------------------------------------------------------------------------------------------------------
1,166,000 1,045,000 585,000 530,000
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 23,570,000 20,912,000 9,779,000 8,638,000
Provision for income taxes 8,485,000 7,528,000 3,520,000 3,109,000
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 15,085,000 $ 13,384,000 $ 6,259,000 $ 5,529,000
================================================================================================================================
Weighted average number of shares outstanding 20,510,608 20,510,608 20,510,608 20,510,608
================================================================================================================================
Net income per share - basic & diluted $0.74 $0.65 $0.31 $0.27
================================================================================================================================
The accompanying notes are an integral part of these condensed financial statements.
4
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Twenty-six Twenty-six
weeks ended weeks ended
February 28, March 1,
1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $ 15,085,000 $ 13,384,000
Adjustments:
Depreciation 10,470,000 9,351,000
Amortization of other assets 2,131,000 1,841,000
Receivables (2,356,000) (1,680,000)
Inventories (1,209,000) (2,437,000)
Rental merchandise in service (566,000) (623,000)
Prepaid expenses 1,000 (3,000)
Accounts payable 942,000 2,700,000
Accrued liabilities 3,553,000 3,698,000
Accrued and deferred income taxes (343,000) 241,000
Deferred income taxes 594,000 527,000
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 28,302,000 26,999,000
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired -- (1,677,000)
Capital expenditures (24,335,000) (21,540,000)
Other assets, net (2,332,000) 487,000
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (26,667,000) (22,730,000)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in debt 4,121,000 1,789,000
Reduction of debt (1,553,000) (1,218,000)
Cash dividends paid or payable (1,080,000) (1,079,000)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,488,000 (508,000)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in cash 3,123,000 3,761,000
Cash at beginning of period 4,054,000 3,425,000
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 7,177,000 $ 7,186,000
======================================================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 1,321,000 $ 1,138,000
Income taxes paid $ 8,271,000 $ 6,766,000
======================================================================================================================
The accompanying notes are an integral part of these condensed financial statements.
5
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED FEBRUARY 28, 1998
1. These condensed financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations; however, the Company believes that the
information furnished reflects all adjustments which are, in the opinion of
management, necessary to a fair statement of results for the interim
period. It is suggested that these condensed financial statements should be
read in conjunction with the financial statements and the notes, thereto,
included in the Company's latest annual report.
2. From time to time, the Company is subject to legal proceedings and claims
arising from the conduct of their business operations, including personal
injury, customer contract, employment claims and environmental matters. In
the opinion of management, such proceedings and claims are not likely to
result in losses which would have a material adverse effect upon the
financial position or results of operations of the Company.
3. As previously announced Mr. Aldo Croatti, Chairman of the Company's Board
of Directors, sold 2,300,000 shares of Common Stock pursuant to an
underwritten offering with William Blair & Company, L.L.C. Since all of
the shares were sold by Mr. Croatti, the Company did not receive any of the
proceeds from such sale.
6
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE TWENTY-SIX WEEKS ENDED FEBRUARY 28, 1998
RESULTS OF OPERATIONS
TWENTY-SIX WEEKS OF FISCAL 1998 COMPARED TO TWENTY-SIX WEEKS OF FISCAL 1997
Revenues. Revenues for the first twenty-six weeks of fiscal 1998 increased $15.7
million or 7.6% over the first twenty-six weeks of fiscal 1997. This increase
can be attributed to growth from existing operations (5.6%), acquisitions (1.0%)
and price increases (1.0%). Growth from existing operations was primarily from
the conventional uniform rental business. The increase in revenues from
acquisitions resulted from three acquisitions made in fiscal 1997 (two in
Massachusetts in February and August 1997 and one in Vancouver, British Columbia
in April 1997).
Operating Costs. Operating costs increased to $135.3 million for the first half
of fiscal 1998 as compared with $126.3 million for the same period of fiscal
1997 as a result of costs associated with increased revenues, but declined to
61.0% from 61.3% as a percentage of revenues for these periods. The improvement
in operating costs as a percentage of revenues was due primarily to the
Company's continued focus on cost control.
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $49.1 million for the first twenty-six weeks of fiscal
1998 as compared with $46.6 million for the same period in fiscal 1997, but
declined to 22.2% from 22.6% of revenues, respectively. The increase in the
amount of selling and administrative expenses was primarily attributable to
increased sales personnel and other costs to support the Company's increased
revenues. The decrease in selling and administrative expense as a percentage of
revenues was primarily due to the Company's ongoing focus on controlling costs.
Depreciation and Amortization. The Company's depreciation and amortization
expense increased to $12.6 million, or 5.7% of revenues, for the first half of
fiscal 1998 as compared with $11.2 million, or 5.4% of revenues, for the same
period in fiscal 1997. This increase was due primarily to increased capital
expenditures for information systems hardware and software to upgrade certain of
its Company-wide systems.
Net Interest Expense. Net interest expense was $1.2 million for the first
twenty-six weeks of fiscal 1998 as compared to $1.0 million in the same period
of fiscal 1997. The increase is attributable primarily to higher debt levels in
fiscal 1998. Net interest expense was 0.5% of revenues for each period.
Income Taxes. The Company's effective income tax rate was 36.0% in both periods.
7
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
FOR THE TWENTY-SIX WEEKS ENDED FEBRUARY 28, 1998
RESULTS OF OPERATIONS (continued)
THIRTEEN WEEKS ENDED FEBRUARY 28, 1998 COMPARED TO THIRTEEN WEEKS ENDED MARCH 1,
1997
Revenues. Fiscal 1998 second quarter revenues increased $7.3 million or 7.1%
over the fiscal 1997 second quarter. This increase can be attributed to growth
from existing operations (5.1%), acquisitions (1.0%) and price increases (1.0%).
Growth from existing operations was primarily from the conventional uniform
rental business. The increase in revenues from acquisitions resulted from the
three acquisitions made in fiscal 1997 discussed above.
Operating Costs. Operating costs increased to $68.9 million for the second
quarter of fiscal 1998 as compared with $64.2 million for the same period of
fiscal 1997 as a result of costs associated with increased revenues. The
Company's operating costs as a percentage of revenues increased slightly to
63.0% from 62.9% for the second quarter of fiscal 1998 and 1997, respectively.
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased slightly, to $23.8 million from $23.0 million, for the second
quarter of fiscal 1998 and fiscal 1997, respectively. As a percent of revenues,
the fiscal 1998 second quarter was 21.7% as compared to 22.6% in the second
quarter of fiscal 1997. The decrease in selling and administrative expense as a
percentage of revenues was primarily attributable to the Company's ongoing focus
on controlling costs.
Depreciation and Amortization. The Company's depreciation and amortization
expense increased to $6.3 million, or 5.8% of revenues, for the second quarter
of fiscal 1998 as compared with $5.6 million, or 5.5% of revenues, for the same
period in fiscal 1997. This increase was due primarily to increased capital
expenditures for information systems hardware and software to upgrade certain of
its Company-wide systems.
Net Interest Expense. Net interest expense was $585,000 in the second quarter of
fiscal 1998 as compared to $530,000 in the same period of fiscal 1997. The
increase is attributable primarily to higher debt levels in the fiscal 1998
quarter. Net interest expense was 0.5% of revenues for each period.
Income Taxes. The Company's effective income tax rate was 36.0% in both periods.
8
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
FOR THE TWENTY-SIX WEEKS ENDED FEBRUARY 28, 1998
LIQUIDITY AND CAPITAL RESOURCES
Shareholders' equity at February 28, 1998 was $230.8 million, 84.0% of total
capitalization, indicating the overall strength of the Company's balance sheet.
During the twenty-six weeks ended February 28, 1998 net cash provided by
operating activities, $28.3 million, was primarily used to fund current capital
expenditures, $24.3 million, and pay cash stock dividends.
The Company had $7.2 million in cash and $22.6 million available on its $60
million unsecured line of credit with two banks as of February 28, 1998. The
Company believes its generated cash from operations and the Company's borrowing
capacity will adequately cover its foreseeable capital requirements.
EFFECTS OF INFLATION
Inflation has had the effect of increasing the reported amounts of the Company's
revenues and costs. The Company uses the last-in, first-out (LIFO) method to
value a significant portion of inventories. This method tends to reduce the
amount of income due to inflation included in the Company's results of
operations. The Company believes that, through increases in its prices and
productivity improvements, it has been able to recover increases in costs and
expenses attributable to inflation.
9
PART II - OTHER INFORMATION
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Registrant's Annual Meeting of Shareholders was held on January 13, 1998.
Cynthia Croatti and Reynold L. Hoover were reelected to the Board of Directors.
With respect to Ms. Croatti, 7,335,227 shares of Common Stock and 12,605,544
shares of Class B Common Stock were voted for her election and 166,581 shares of
Common Stock were voted against her election. With respect to Mr. Hoover,
7,331,307 shares of Common Stock were voted for his election and 170,501 shares
of Common Stock were voted against his election.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
UNIFIRST CORPORATION
/s/ RONALD D. CROATTI
-----------------------------
Ronald D. Croatti
Vice Chairman, President and
Chief Executive Officer
Date: April 14, 1998
/s/ JOHN B. BARTLETT
----------------------------
John B. Bartlett
Senior Vice President
and Chief Financial Officer
5
1,000
U.S. DOLLARS
6-MOS
AUG-29-1998
AUG-31-1997
FEB-28-1998
1
7,177
0
43,218
1,500
20,671
110,231
339,467
137,595
360,439
68,996
43,005
0
0
2,051
228,700
360,439
221,746
221,746
197,010
197,010
0
0
1,166
23,570
8,485
15,085
0
0
0
15,085
0.74
0.74
