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
May 30, 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 July 6, 1998 were 10,206,864 and 10,303,744 respectively.
2
PART 1 - FINANCIAL INFORMATION
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
May 30, August 30, May 31,
1998 1997* 1997
- ------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 6,122,000 $ 4,054,000 $ 5,936,000
Receivables 46,282,000 39,431,000 39,855,000
Inventories 22,379,000 19,497,000 20,192,000
Rental merchandise in service 41,045,000 40,013,000 39,362,000
Prepaid expenses 143,000 149,000 140,000
- ------------------------------------------------------------------------------------------------
Total current assets 115,971,000 103,144,000 105,485,000
- ------------------------------------------------------------------------------------------------
Property and equipment:
Land, buildings and leasehold improvements 148,272,000 137,281,000 133,489,000
Machinery and equipment 161,914,000 142,242,000 136,060,000
Motor vehicles 42,191,000 37,276,000 36,690,000
- ------------------------------------------------------------------------------------------------
352,377,000 316,799,000 306,239,000
Less - accumulated depreciation 142,985,000 128,532,000 124,252,000
- ------------------------------------------------------------------------------------------------
209,392,000 188,267,000 181,987,000
- ------------------------------------------------------------------------------------------------
Other assets 50,058,000 48,215,000 48,767,000
- ------------------------------------------------------------------------------------------------
$375,421,000 $339,626,000 $336,239,000
================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 1,067,000 $ 1,040,000 $ 1,037,000
Notes payable 2,457,000 3,213,000 3,340,000
Accounts payable 13,864,000 13,085,000 13,075,000
Accrued liabilities 45,910,000 45,637,000 46,167,000
Accrued and deferred income taxes 2,131,000 2,555,000 2,679,000
- ------------------------------------------------------------------------------------------------
Total current liabilities 65,429,000 65,530,000 66,298,000
- ------------------------------------------------------------------------------------------------
Long-term obligations, net of current maturities 53,355,000 39,797,000 42,745,000
Deferred income taxes 18,017,000 17,107,000 17,213,000
- ------------------------------------------------------------------------------------------------
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
10,206,864 shares 1,021,000 790,000 789,000
Class B Common stock, $.10 par value; 20,000,000
shares authorized; issued and outstanding
10,303,744 shares 1,030,000 1,261,000 1,262,000
Capital surplus 7,078,000 7,078,000 7,078,000
Retained earnings 231,117,000 208,949,000 201,531,000
Cumulative translation adjustment (1,626,000) (886,000) (677,000)
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 238,620,000 217,192,000 209,983,000
- ------------------------------------------------------------------------------------------------
$375,421,000 $339,626,000 $336,239,000
================================================================================================
* 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 CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Thirty-nine Thirty-nine Thirteen Thirteen
weeks ended weeks ended weeks ended weeks ended
May 30, May 31, May 30, May 31,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
Revenues $335,812,000 $313,164,000 $114,066,000 $107,124,000
- ------------------------------------------------------------------------------------------------------------
Costs and expenses:
Operating costs 204,581,000 192,243,000 69,319,000 65,905,000
Selling and administrative expenses 73,194,000 69,676,000 24,047,000 23,123,000
Depreciation and amortization 19,189,000 17,161,000 6,588,000 5,969,000
- ------------------------------------------------------------------------------------------------------------
296,964,000 279,080,000 99,954,000 94,997,000
- ------------------------------------------------------------------------------------------------------------
Income from operations 38,848,000 34,084,000 14,112,000 12,127,000
- ------------------------------------------------------------------------------------------------------------
Interest expense (income):
Interest expense 1,895,000 1,792,000 596,000 641,000
Interest income (214,000) (155,000) (81,000) (49,000)
- ------------------------------------------------------------------------------------------------------------
1,681,000 1,637,000 515,000 592,000
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 37,167,000 32,447,000 13,597,000 11,535,000
Provision for income taxes 13,380,000 11,681,000 4,895,000 4,153,000
- ------------------------------------------------------------------------------------------------------------
Net income $ 23,787,000 $ 20,766,000 $ 8,702,000 $ 7,382,000
============================================================================================================
Weighted average number of shares outstanding 20,510,608 20,510,608 20,510,608 20,510,608
============================================================================================================
Net income per share - basic & diluted $1.16 $1.01 $0.42 $0.36
============================================================================================================
The accompanying notes are an integral part of these condensed financial
statements.
4
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Thirty-nine Thirty-nine
weeks ended weeks ended
May 30, May 31,
1998 1997
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $ 23,787,000 $ 20,766,000
Adjustments:
Depreciation 15,923,000 14,303,000
Amortization of other assets 3,266,000 2,858,000
Receivables (6,812,000) (2,865,000)
Inventories (2,858,000) (3,172,000)
Rental merchandise in service (831,000) (804,000)
Prepaid expenses 5,000 (13,000)
Accounts payable 730,000 1,303,000
Accrued liabilities 318,000 8,806,000
Accrued and deferred income taxes (382,000) (986,000)
Deferred income taxes 936,000 818,000
- --------------------------------------------------------------------------------
Net cash provided by operating activities 34,082,000 41,014,000
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (5,041,000) (4,971,000)
Capital expenditures (35,049,000) (35,954,000)
Other assets, net (3,172,000) (959,000)
- --------------------------------------------------------------------------------
Net cash used in investing activities (43,262,000) (41,884,000)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in debt 14,563,000 6,329,000
Reduction of debt (1,696,000) (1,329,000)
Cash dividends paid or payable (1,619,000) (1,619,000)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 11,248,000 3,381,000
- --------------------------------------------------------------------------------
Net increase in cash 2,068,000 2,511,000
Cash at beginning of period 4,054,000 3,425,000
- --------------------------------------------------------------------------------
Cash at end of period $ 6,122,000 $ 5,936,000
================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 1,918,000 $ 1,773,000
Income taxes paid $ 12,894,000 $ 11,868,000
================================================================================
The accompanying notes are an integral part of these condensed financial
statements.
5
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED MAY 30, 1998
1. These condensed consolidated 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 be read in conjunction with the consolidated 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 its business operations, including legal
proceedings and claims relating to personal injury, customer contract,
employment 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.
6
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THIRTY-NINE WEEKS ENDED MAY 30, 1998
RESULTS OF OPERATIONS
- ---------------------
THIRTY-NINE WEEKS OF FISCAL 1998 COMPARED TO THIRTY-NINE WEEKS OF FISCAL 1997
REVENUES. Revenues for the first thirty-nine weeks of fiscal 1998 increased
$22.6 million or 7.2% over the first thirty-nine weeks of fiscal 1997. This
increase can be attributed to growth from existing operations (5.3%),
acquisitions (0.9%) 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) and one acquisition made in California in March, 1998.
OPERATING COSTS. Operating costs increased to $204.6 million for the first
thirty-nine weeks of fiscal 1998 as compared with $192.2 million for the same
period of fiscal 1997 as a result of costs associated with increased revenues,
but declined to 60.9% from 61.4% 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 controlling costs.
SELLING AND ADMINISTRATIVE EXPENSES. The Company's selling and administrative
expenses increased to $73.2 million for the first thirty-nine weeks of fiscal
1998 as compared with $69.7 million for the same period in fiscal 1997, but
declined to 21.8% from 22.2% 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 $19.2 million, or 5.7% of revenues, for the first
thirty-nine weeks of fiscal 1998 as compared with $17.2 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 Company-wide systems.
NET INTEREST EXPENSE. Net interest expense was $1.7 million for the first
thirty-nine weeks of fiscal 1998 as compared to $1.6 million in the same period
of fiscal 1997. The increase was attributable primarily to higher debt levels,
offset by lower interest rates, during 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 THIRTY-NINE WEEKS ENDED MAY 30, 1998
RESULTS OF OPERATIONS (continued)
- ---------------------------------
THIRTEEN WEEKS ENDED MAY 30, 1998 COMPARED TO THIRTEEN WEEKS ENDED MAY 31, 1997
REVENUES. Fiscal 1998 third quarter revenues increased $6.9 million or 6.5% over
the fiscal 1997 third quarter. This increase can be attributed to growth from
existing operations (4.6%), acquisitions (0.9%) 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 two
acquisitions made in fiscal 1997 (one in Vancouver, British Columbia in April
1997 and one in Massachusetts in August 1997) and one acquisition made in
California in March, 1998.
OPERATING COSTS. Operating costs increased to $69.3 million for the third
quarter of fiscal 1998 as compared with $65.9 million for the same period of
fiscal 1997 as a result of costs associated with increased revenues, but
declined to 60.8% from 61.5% 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 controlling costs.
SELLING AND ADMINISTRATIVE EXPENSES. The Company's selling and administrative
expenses increased to $24.0 million for the third quarter of fiscal 1998 as
compared with $23.1 million for the third quarter of fiscal 1997. As a
percentage of revenues, fiscal 1998 third quarter selling and administrative
expenses were 21.1% as compared to 21.6% in the third 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 $6.6 million, or 5.8% of revenues, for the third quarter of
fiscal 1998 as compared with $6.0 million, or 5.5% of revenues, for the same
period in fiscal 1997. This increase was due primarily to increased capital
expenditures for new facility openings and renovations and information systems
hardware and software to upgrade certain Company-wide systems.
NET INTEREST EXPENSE. Net interest expense was $515,000, or 0.5% of revenues,
for the third quarter of fiscal 1998 as compared with $592,000, or 0.6% of
revenues, for the same period in fiscal 1997. The decrease was attributable
primarily to lower interest rates, offset by higher debt, in the fiscal 1998
quarter.
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 THIRTY-NINE WEEKS ENDED MAY 30, 1998
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Shareholders' equity at May 30, 1998 was $238.6 million, or 81.4% of total
capitalization.
During the thirty-nine weeks ended May 30, 1998 net cash provided by operating
activities of $34.1 million and additional borrowings of $14.6 million were
primarily used for capital expenditures ($35.0 million), acquisition of a
business ($5.0 million), debt repayment ($1.7 million) and dividends ($1.7
million).
The Company had $6.1 million in cash and $12.4 million available on its $60
million unsecured line of credit with two banks as of May 30, 1998. The Company
believes its generated cash from operations and the Company's borrowing capacity
will adequately cover its foreseeable capital requirements.
SEASONALITY
- -----------
Historically, the Company's revenues and operating results have varied from
quarter to quarter and are expected to continue to fluctuate in the future.
These fluctuations have been due to a number of factors, including: general
economic conditions in the Company's markets; the timing of acquisitions and of
commencing start-up operations and related costs; the effectiveness of
integrating acquired businesses and start-up operations; the timing of nuclear
plant outages; capital expenditures; seasonal rental and purchasing patterns of
the Company's customers; and price changes in response to competitive factors.
In addition, the Company's operating results historically have been lower
during the second and fourth fiscal quarters than during the other quarters of
the fiscal year. The operating results for any historical quarter are not
necessarily indicative of the results to be expected for an entire fiscal year
or any other interim periods.
INFORMATION SYSTEMS; YEAR 2000
- ------------------------------
The Company has made a substantial investment in its information systems and
intends to spend significant amounts on its information systems in the future.
In particular, the Company is currently evaluating Year 2000 issues concerning
the ability of systems to properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause complete system failures.
The Company believes that its account management software system, which it
recently developed, and the software systems being installed at its Owensboro,
Kentucky facility are Year 2000 compliant. However, the Company is evaluating
its other systems and expects that it may need to upgrade or replace certain of
them, including its general ledger, accounts payable and payroll interface
software systems, to handle the rollover into the Year 2000. The Company has
not yet quantified the anticipated costs of addressing Year 2000 issues. There
can be no assurance that the Year 2000 problem will not have a material adverse
effect on the results of operations of the Company.
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 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: July 14, 1998
/s/ JOHN B. BARTLETT
----------------------------
John B. Bartlett
Senior Vice President
and Chief Financial Officer
5
1,000
U.S. DOLLARS
9-MOS
AUG-29-1998
AUG-31-1997
MAY-30-1998
1
6,122
0
48,082
1,800
22,379
115,971
352,377
142,985
375,421
65,429
53,355
0
0
2,051
236,569
375,421
335,812
335,812
296,964
296,964
0
0
1,681
37,167
13,380
23,787
0
0
0
23,787
1.16
1.16
