1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 29, 1998
Commission File Number 1-8504
UNIFIRST CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2103460
(State of Incorporation) (IRS Employer Identification Number)
68 Jonspin Road
Wilmington, Massachusetts 01887
(Address of principal executive offices)
Registrant's telephone number, including area code: (978) 658-8888
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Class which shares are traded
Common Stock,
$.10 par value per share New York Stock Exchange
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 preceding 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of outstanding shares of UniFirst Corporation Common Stock and
Class B Common Stock at November 9, 1998 were 10,216,864 and 10,293,744,
respectively, and the aggregate market value of these shares held by
non-affiliates of the Company on said date was $276,486,148 (based upon the
closing price of the Company's Common Stock on the New York Stock Exchange on
said date and assuming the market value of a share of Class B Common Stock
(which is generally non-transferable, but is convertible at any time into one
share of Common Stock) is identical to the market value of the Common Stock).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1998 Annual Report to Shareholders and the
Company's Proxy Statement for its 1999 Annual Meeting of Shareholders (which
will be filed with the Securities and Exchange Commission within 120 days after
the close of the 1998 fiscal year) are incorporated by reference into Parts II,
III and IV hereof.
2
Page 2
ITEM 1. BUSINESS
GENERAL
UniFirst Corporation (the "Company") is one of the largest providers of
workplace uniforms and protective clothing in the United States. The Company
rents, manufactures and sells a wide range of uniforms and protective clothing,
including shirts, pants, jackets, coveralls, jumpsuits, lab coats, smocks and
aprons, and also rents industrial wiping products, floormats and other
non-garment items, to a variety of manufacturers, retailers and service
companies. The Company serves businesses of all sizes in numerous industry
categories. Typical customers include automobile service centers and dealers,
delivery services, food and general merchandise retailers, food processors and
service operations, light manufacturers, maintenance facilities, restaurants,
service companies, soft and durable goods wholesalers, transportation companies,
and others who require employee clothing for image, identification, protection
or utility purposes. At certain specialized facilities, the Company also
decontaminates and cleans work clothes that may have been exposed to radioactive
materials and services special cleanroom protective wear. Typical customers for
these specialized services include government agencies, research and development
laboratories, high technology companies and utilities operating nuclear
reactors. In fiscal 1998, the Company generated $448.1 million in revenue, of
which approximately 68% was from the rental of uniforms and protective clothing,
22% was from the rental of non-garment items, 7% was from garment
decontamination services, and 3% was from the direct sale of garments.
PRODUCTS AND SERVICES
The Company provides its customers with personalized workplace uniforms and
protective work clothing in a broad range of styles, colors, sizes and fabrics.
The Company's uniform products include shirts, pants, jackets, coveralls,
jumpsuits, smocks, aprons and specialized protective wear, such as garments for
use in radioactive and clean room environments and fire retardant garments. The
Company also offers non-garment items and services, such as industrial wiping
products, floormats, mop dust-control service and other textile products. At
certain specialized facilities, the Company also decontaminates and cleans
clothes which may have been exposed to radioactive materials and services
special cleanroom protective wear.
The Company offers its customers a range of garment service options,
including full-service rental programs in which garments are cleaned and
serviced by the Company and lease programs in which garments are cleaned and
maintained by individual employees, as well as the opportunity to purchase
garments and related items directly. As part of its rental business, the Company
picks up a customer's soiled uniforms or other items on a periodic basis
(usually weekly) and delivers at the same time cleaned and processed replacement
items. The Company's centralized services, specialized equipment and economies
of scale generally allow it to be more cost effective in providing garment
services than customers could be by themselves, particularly those customers
with high employee turnover rates. The Company's uniform program is intended not
only to help its customers foster greater company identity, but to enhance their
corporate image and improve employee safety, productivity and morale. The
Company typically serves its customers pursuant to written service contracts
that range in duration from three to five years.
3
Page 3
CUSTOMERS
The Company serves businesses of all sizes in numerous industry categories.
Typical customers include automobile service centers and dealers, delivery
services, food and general merchandise retailers, food processors and service
operations, light manufacturers, maintenance facilities, restaurants, service
companies, soft and durable goods wholesalers, transportation companies, and
others who require employee clothing for image, identification, protection or
utility purposes. The Company currently services over 100,000 customer locations
in 45 states, Canada and Europe from approximately 133 service locations and
distribution centers. For fiscal 1996, 1997 and 1998, the Company's garment
rental operations produced approximately 67%, 68% and 68%, respectively, of its
revenues, while non-garment rentals accounted for 23%, 22% and 22%, the
specialized garment services business accounted for approximately 7% and direct
sales of garments accounted for 3%, of the Company's revenues during each such
period. During the past five years, no single customer accounted for more than
1% of total revenues in any year.
MARKETING AND CUSTOMER SERVICE
The Company employs more than 320 trained sales representatives whose sole
function is to market the Company's services to potential customers and develop
new accounts. The Company also utilizes its route salespeople to maximize sales
to existing customers, such as by offering garment rental customers the
opportunity to purchase non-garment items. Potential customers are contacted by
mail, by telephone and in-person. Sales representatives develop their
appointments through the use of an extensive, proprietary database of
pre-screened and qualified business prospects. This database is built through
responses to the Company's promotional initiatives, through contacts via its
World Wide Web site and trade shows and through the selective use of purchased
lists. The Company also endeavors to elevate its brand identity through certain
advertising and promotional initiatives, including the sponsorship of a NASCAR
auto racing team.
The Company believes that customer service is the most important element in
developing and maintaining its market position and that its emphasis on customer
service is reflected throughout its business. The Company serves its customers
through approximately 975 route salespersons, who generally interact on a weekly
basis with their accounts, and more than 550 service support people, who are
charged with expeditiously handling customer requirements regarding the
outfitting of new customer employees, garment repair and replacement, billing
inquiries and other matters. The Company's policy is to respond to all customer
inquiries and problems within 24 hours.
The Company's customer service function is supported by its fully-networked
management information systems, which provide Company personnel with access to
information on the status of customers' orders, inventory availability and
shipping information, as well as information regarding customers' individual
4
Page 4
employees, including names, sizes, uniform styles and colors. The Company has
recently established a national account sales group that targets larger
customers with nationwide operations for which the Company can serve as the
primary supplier of garment services. The Company currently employs ten persons
in its national account sales organization and it intends to expand this group
as it becomes more established.
COMPETITION
The uniform rental and sales industry is highly competitive. The Company
believes that the top five companies in the uniform rental segment of the
industry currently generate over half of the industry's volume. The remainder of
the market, however, is divided among more than 600 smaller businesses, many of
which serve one or a limited number of markets or geographic service areas and
generate annual revenues of less than $1.0 million, and a small group of which
have revenues of up to approximately $200 million. Although the Company is one
of the larger companies engaged in the uniform rental and sales business, there
are other firms in the industry which are larger and have greater financial
resources than the Company. The Company's leading competitors include ARAMARK
Corporation, Cintas Corporation, G&K Services, Inc. and Unitog Company. In
addition to its traditional rental competitors, the Company may increasingly
compete in the future with businesses that focus on selling uniforms and other
related items. The principal methods of competition in the industry are quality
of service and price. The Company also competes with industry competitors for
acquisitions, which has the effect of increasing the price for acquisitions and
reducing the number of available acquisition candidates. The Company believes
that its ability to compete effectively is enhanced by the superior customer
service and support that it provides its customers.
MANUFACTURING AND SOURCING
The Company manufactured approximately 55% of all garments which it placed
in service during fiscal 1998. These included work pants manufactured at its
plant in Luquillo, Puerto Rico, shirts manufactured at its plant in Cave City,
Arkansas, and jackets and certain specialty garments manufactured at its plant
in Wilburton, Oklahoma. The balance of the garments used in its programs are
purchased from a variety of industry suppliers. While the Company currently
acquires the raw materials with which it produces its garments from a limited
number of suppliers, the Company believes that such materials are readily
available from other sources. To date, the Company has experienced no
significant difficulty in obtaining any of its raw materials or supplies.
EMPLOYEES
At August 29, 1998, the Company employed approximately 7,300 persons, about
5% of whom are represented by unions pursuant to six separate collective
bargaining agreements. The Company considers its employee relations to be good.
5
Page 5
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
NAME AGE POSITION
---- --- --------
Aldo Croatti 80 Chairman of the Board
Ronald D. Croatti 55 Vice Chairman of the Board,
President and Chief Executive
Officer
Robert L. Croatti 62 Executive Vice President
John B. Bartlett 57 Senior Vice President and
Chief Financial Officer
Cynthia Croatti 43 Treasurer
Bruce P. Boynton 50 Vice President,
Canadian Operations
Dennis G. Assad 53 Vice President,
Sales and Marketing
The principal occupation and positions for the past five years of the
executive officers named above are as follows:
Aldo Croatti has been Chairman of the Board since the Company's
incorporation in 1950 and of certain of its predecessors since 1940.
Ronald D. Croatti joined the Company in 1965. Mr. Croatti became Vice
Chairman of the Board in 1986 and has served as Chief Executive Officer since
1991 and President since August 31, 1995. Mr. Croatti has overall responsibility
for the management of the Company.
Robert L. Croatti joined the Company in 1959. Mr. Croatti has served as
Executive Vice President since 1986 and has primary responsibility for
overseeing the rental operations of the Company.
John B. Bartlett joined the Company in 1977. Mr. Bartlett has served as
Senior Vice President and Chief Financial Officer since 1986 and has primary
responsibility for overseeing the financial functions of the Company, as well as
its human resources and information systems departments.
Cynthia Croatti joined the Company in 1980. Ms. Croatti has served as
Treasurer since 1982 and has primary responsibility for overseeing the
purchasing and direct sales functions of the Company.
Bruce P. Boynton joined the Company in 1976. Mr. Boynton has served as Vice
President, Canadian Operations since 1986 and is the chief operating officer for
the Company's Canadian operations.
Dennis G. Assad joined the Company in 1975. Mr. Assad has served as Vice
President, Sales and Marketing since 1995 and has primary responsibility for
overseeing the sales and marketing functions of the Company. Prior to that time,
Mr. Assad served as a Regional General Manager of the Company.
Ronald D. Croatti, Robert L. Croatti and Cynthia Croatti are a son, nephew
and daughter, respectively, of Aldo Croatti.
6
Page 6
ENVIRONMENTAL MATTERS
The Company and its operations are subject to various federal, state and
local laws and regulations governing, among other things, the generation,
handling, storage, transportation, treatment and disposal of hazardous wastes
and other substances. In particular, industrial laundries use and must dispose
of detergent waste water and other residues. The Company is attentive to the
environmental concerns surrounding the disposal of these materials and has
through the years taken measures to avoid their improper disposal. In the past,
the Company has settled, or contributed to the settlement of, actions or claims
brought against the Company relating to the disposal of hazardous materials and
there can be no assurance that the Company will not have to expend material
amounts to remediate the consequences of any such disposal in the future.
Further, under environmental laws, an owner or lessee of real estate may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances located on or in or emanating from such property, as well as related
costs of investigation and property damage. Such laws often impose liability
without regard to whether the owner or lessee knew of or was responsible for the
presence of such hazardous or toxic substances. There can be no assurances that
acquired or leased locations have been operated in compliance with environmental
laws and regulations or that future uses or conditions will not result in the
imposition of liability upon the Company under such laws or expose the Company
to third-party actions such as tort suits.
In addition, the federal Environmental Protection Agency has recently
proposed a federal environmental regulatory framework applicable to industrial
laundry operations that would replace local regulations. Scheduled to take
effect in 1999, these regulations, if implemented as proposed, would require the
Company to expend substantial amounts on compliance, thereby increasing the
Company's operating costs and capital expenditures. To the extent such costs and
expenses could not be offset through price increases, the Company's results of
operations could be adversely affected.
The Company's nuclear garment decontamination facilities are licensed by
the Nuclear Regulatory Commission, or in certain cases by the applicable state
agency, and are subject to regulation by federal, state and local authorities.
In recent years, there has been increased scrutiny and, in certain cases,
regulation of nuclear facilities or related services that have resulted in the
suspension of operations at certain nuclear facilities served by the Company or
disruptions of the Company's ability to service such facilities. There can be no
assurance that such increased scrutiny will not lead to the shut-down of such
facilities or otherwise cause material disruptions in the Company's garment
decontamination business.
7
Page 7
ITEM 2. PROPERTIES
At August 29, 1998, the Company owned or occupied 136 facilities containing
an aggregate of approximately 3.6 million square feet located in the United
States, Canada, Puerto Rico and the Netherlands. These facilities include the
Company's 320,000 square foot Owensboro, Kentucky distribution center (which
the Company believes is one of the largest and most advanced garment
distribution facilities in the industry) and its garment manufacturing plants in
Luquillo, Puerto Rico, Cave City, Arkansas, and Wilburton, Oklahoma, as well as
11 decontamination facilities located in Massachusetts, New Mexico, California,
Washington, Hawaii, Pennsylvania, South Carolina, Virginia, Georgia, Illinois
and The Netherlands. The Company owns 79 of these facilities containing
approximately 2.8 million square feet. The Company believes that by owning its
manufacturing facilities, it can produce custom garment programs for its larger
customers, offer a diverse range of designs within its standard line of garments
and better control the quality, price and speed at which it produces such
garments. The Company also believes that its industrial laundry facilities are
among the most modern in the industry.
The Company owns substantially all of the machinery and equipment used in
its operations. In the opinion of the Company, all of its facilities and its
production, cleaning and decontamination equipment have been well maintained,
are in good condition and are adequate for the Company's present needs. The
Company also owns and leases a fleet of approximately 1,775 delivery vans,
trucks and other vehicles. The Company believes that these vehicles are in good
repair and are adequate for the Company's present needs.
8
Page 8
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is subject to legal proceedings and claims
arising from the conduct of its business operations, including personal injury,
customer contract disputes, employment claims and environmental matters as
described in Item 1 above. The Company maintains insurance coverage providing
indemnification against many of such claims. In the opinion of management, the
ultimate disposition of these matters on an aggregate basis will not have a
material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
9
Page 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference to the information provided under the caption
"Common Stock Prices and Dividends Per Share" in the Company's 1998 Annual
Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to the information provided under the caption
"Eleven Year Financial Summary" in the Company's 1998 Annual Report to
Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Incorporated by reference to the information provided under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1998 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
Management has determined that all of the Company's foreign subsidiaries
operate primarily in local currencies that represent the functional currencies
of the subsidiaries. All assets and liabilities of foreign subsidiaries are
translated into U.S. dollars using the exchange rate prevailing at the balance
sheet date, while income and expense accounts are translated at average
exchange rates during the year. As such, the Company's operating results are
affected by fluctuations in the value of the U.S. dollar as compared to
currencies in foreign countries, as a result of the Company's transactions in
these foreign markets. The Company does not operate a hedging program to
mitigate the effect of a significant rapid change in the value of the Dutch
Guilder or the Canadian Dollar as compared to the U.S. dollar. If such a change
did occur, the Company would have to take into account a currency exchange gain
or loss in the amount of the change in the U.S. dollar denominated balance of
the amounts outstanding at the time of such change. While the Company does not
believe such a gain or loss is likely, and would not likely be material, there
can be no assurance that such a loss would not have an adverse material effect
on the Company's results of operations or financial condition.
Interest Rate Risk
The Company is exposed to market risk from changes in interest rates which
may adversely affect its financial position, results of operations and cash
flows. In seeking to minimize the risks from interest rate fluctuations, the
Company manages exposures through its regular operating and financing
activities. The Company does not use financial instruments for trading or other
speculative purposes and is not party to any leveraged financial instruments.
The Company is exposed to interest rate risk primarily through its
borrowings under its $60 million unsecured line of credit with two banks. Under
the line of credit, the Company may borrow funds at variable interest rates
based on the LIBOR rate or the bank's money market rate, as selected by the
Company. The Company has also entered into an interest rate swap agreement with
a bank, maturing on December 12, 1998, which locks in the interest rate on $15
million at a fixed rated of 5.53% to help manage the Company's exposure to
interest rate movements and reduce borrowing costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the accompanying notes, which are incorporated
herein by reference to the Company's 1998 Annual Report to Shareholders, are
indexed herein under Items 14(a)(1) and (2) of Part IV.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated by reference to the information provided under the caption
"Election of Directors" in the Company's Proxy Statement for its 1999 Annual
Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the information provided under the caption
"Summary Compensation Table" in the Company's Proxy Statement for its 1999
Annual Meeting of Shareholders.
10
Page 10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the information provided under the captions
"Election of Directors" and "Security Ownership of Management and Principal
Shareholders" in the Company's Proxy Statement for its 1999 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the information provided under the caption
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement for its 1999 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) The financial statements listed below are filed as part of this
report:
1. and 2. FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES.
The financial statements and financial statement schedules listed below are
incorporated herein by reference to the Company's 1998 Annual Report to
Shareholders.
Consolidated balance sheets as of August 29, 1998 and August 30, 1997
Consolidated statements of income for each of the three years in the period
ended August 29, 1998
Consolidated statements of shareholders' equity for each of the three years in
the period ended August 29, 1998
Consolidated statements of cash flows for each of the three years in the period
ended August 29, 1998
Notes to consolidated financial statements
Report of independent public accountants
11
Page 11
The following additional schedules are filed herewith:
Report of independent public accountants on supplemental schedule to the
consolidated financial statements.
Schedule II -
Valuation and qualifying accounts for each of the three years in the period
ended August 29, 1998.
Separate financial statements of the Company have been omitted because the
Company is primarily an operating company and all subsidiaries included in the
consolidated financial statements are wholly owned.
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements or the notes thereto.
3. EXHIBITS. The exhibits listed in the accompanying Exhibit Index are
filed as part of this report.
(b) During the three months ended August 29, 1998 the Company did not file
any reports on Form 8-K with the Securities and Exchange Commission.
12
Page 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UniFirst Corporation
By: Aldo Croatti
-------------------------------
Aldo Croatti
Chairman
Date: November 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
Aldo Croatti Chairman and Director November 25, 1998
- -----------------------
Aldo Croatti
Ronald D. Croatti Principal Executive November 25, 1998
- ----------------------- Officer and Director
Ronald D. Croatti
John B. Bartlett Principal Financial November 25, 1998
- ----------------------- Officer and Principal
John B. Bartlett Accounting Officer
Cynthia Croatti Director November 25, 1998
- -----------------------
Cynthia Croatti
Donald J. Evans Director November 25, 1998
- -----------------------
Donald J. Evans
Reynold L. Hoover Director November 25, 1998
- -----------------------
Reynold L. Hoover
Albert Cohen Director November 25, 1998
- -----------------------
Albert Cohen
13
Page 13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL
SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders of UniFirst Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in this Form 10-K, and have
issued our report thereon dated November 3, 1998. Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The supplemental schedule to the consolidated financial
statements listed as Item 14(a)(2) in the Form 10-K is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This supplemental schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein, in relation to
the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 3, 1998
14
Page 14
UNIFIRST CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS FOR EACH
OF THE THREE YEARS IN THE PERIOD ENDED AUGUST 29, 1998
Balance, Charged to Charges for Balance,
Beginning Costs and Which Reserves End of
Description of Period Expenses Were Created Period
- ---------------------------------------------------------------------------------------------------
For the year ended August 29, 1998
- ----------------------------------
Allowance for
doubtful accounts $ 1,299,000 $2,759,000 $(2,529,000) $ 1,529,000
============================================================
For the year ended August 30, 1997
- ----------------------------------
Allowance for
doubtful accounts $ 843,000 $2,428,000 $(1,972,000) $ 1,299,000
============================================================
For the year ended August 31, 1996
- ----------------------------------
Allowance for
doubtful accounts $ 734,000 $1,850,000 $(1,741,000) $ 843,000
============================================================
15
Page 15
EXHIBIT INDEX
DESCRIPTION
3-A Restated Articles of Organization -- incorporated by reference to Exhibit
3-A to the Company's Registration Statement on Form S-1 (No. 2-83051) --
and the Articles of Amendment dated January 12, 1988, a copy of which was
filed on an exhibit to the Company's Annual Report on Form 10-K for fiscal
year ended August 27, 1988 -- and the Articles of Amendment dated January
21, 1993, a copy of which was filed on an exhibit to the Company's
Quarterly Report on Form 10-Q for fiscal quarter ended February 27, 1993.
3-B By-laws -- incorporated by reference to Exhibit 3-B to the Company's Annual
Report on Form 10-K for fiscal year ended August 31, 1991.
10-A UniFirst Corporation Profit Sharing Plan -- incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on Form S-8 (number
33-60781) -- and the Amendment dated June 27, 1995, a copy of which was
filed on an exhibit to the Company's Annual Report on Form 10-K for fiscal
year ended August 31, 1996.
10-D UniFirst Corporation 1996 Stock Incentive Plan, a copy of which was filed
on an exhibit to the Company's Annual Report on Form 10-K for fiscal year
ended August 31, 1996.
13 The Company's 1998 Annual Report to Shareholders (filed herewith to the
extent expressly incorporated by reference herein).
21 List of Subsidiaries
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
1
EXHIBIT 13
Consolidated Balance Sheets
UniFirst Corporation and Subsidiaries
August 29, August 30,
1998 1997
- -------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 5,330,000 $ 4,054,000
Receivables, less reserves of $1,529,000 in 1998
and $1,299,000 in 1997 42,127,000 39,431,000
Inventories 24,152,000 19,497,000
Rental merchandise in service 42,971,000 40,013,000
Prepaid expenses 188,000 149,000
- -------------------------------------------------------------------------------------------------------------
Total current assets 114,768,000 103,144,000
- -------------------------------------------------------------------------------------------------------------
Property and equipment:
Land, buildings and leasehold improvements 150,853,000 137,281,000
Machinery and equipment 165,762,000 142,242,000
Motor vehicles 41,608,000 37,276,000
- -------------------------------------------------------------------------------------------------------------
358,223,000 316,799,000
Less - accumulated depreciation 147,261,000 128,532,000
- -------------------------------------------------------------------------------------------------------------
210,962,000 188,267,000
- -------------------------------------------------------------------------------------------------------------
Other assets 50,400,000 48,215,000
- -------------------------------------------------------------------------------------------------------------
$ 376,130,000 $ 339,626,000
=============================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 1,194,000 $ 1,040,000
Notes payable 2,511,000 3,213,000
Accounts payable 14,109,000 13,085,000
Accrued liabilities 45,101,000 45,637,000
Accrued and deferred income taxes 2,540,000 2,555,000
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 65,455,000 65,530,000
- -------------------------------------------------------------------------------------------------------------
Long-term obligations, net of current maturities 45,955,000 39,797,000
Deferred income taxes 18,346,000 17,107,000
- -------------------------------------------------------------------------------------------------------------
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 10,216,864
shares in 1998 and 7,898,864 shares in 1997 1,022,000 790,000
Class B common stock, $.10 par value; 20,000,000
shares authorized; issued and outstanding 10,293,744
shares in 1998 and 12,611,744 shares in 1997 1,029,000 1,261,000
Capital surplus 7,078,000 7,078,000
Retained earnings 239,952,000 208,949,000
Cumulative translation adjustment (2,707,000) (886,000)
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 246,374,000 217,192,000
- -------------------------------------------------------------------------------------------------------------
$ 376,130,000 $ 339,626,000
=============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
1
2
Consolidated Statements of Income
UniFirst Corporation and Subsidiaries
Year Ended August 29, August 30, August 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
Revenues $ 448,052,000 $ 419,093,000 $ 391,794,000
- ------------------------------------------------------------------------------------------------------------------------------
Cost and expenses:
Operating costs 269,660,000 256,896,000 240,672,000
Selling and administrative expenses 97,588,000 91,810,000 89,393,000
Depreciation and amortization 26,629,000 23,386,000 20,814,000
- ------------------------------------------------------------------------------------------------------------------------------
393,877,000 372,092,000 350,879,000
- ------------------------------------------------------------------------------------------------------------------------------
Income from operations 54,175,000 47,001,000 40,915,000
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense (income):
Interest expense 2,613,000 2,351,000 2,659,000
Interest income (297,000) (233,000) (261,000)
- ------------------------------------------------------------------------------------------------------------------------------
2,316,000 2,118,000 2,398,000
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 51,859,000 44,883,000 38,517,000
Provision for income taxes 18,669,000 16,160,000 13,855,000
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 33,190,000 $ 28,723,000 $ 24,662,000
==============================================================================================================================
Weighted average number of shares outstanding 20,510,608 20,510,608 20,510,608
==============================================================================================================================
Net income per share - basic & diluted $ 1.62 $ 1.40 $ 1.20
==============================================================================================================================
Dividends per share:
Common stock $ 0.12 $ 0.12 $ 0.11
Class B common stock 0.10 0.10 0.09
==============================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
2
3
Consolidated Statements of Shareholders' Equity
UniFirst Corporation and Subsidiaries
Class B Class B Cumulative
Common Common Common Common Capital Retained Translation
Shares Shares Stock Stock Surplus Earnings Adjustment
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, August 26, 1995 7,886,644 12,623,964 $ 789,000 $ 1,262,000 $ 7,078,000 $ 159,701,000 $ (234,000)
Net income -- -- -- -- -- 24,662,000 --
Dividends -- -- -- -- -- (1,979,000) --
Shares converted 20 (20) -- -- -- -- --
Translation adjustment -- -- -- -- -- -- (170,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1996 7,886,664 12,623,944 789,000 1,262,000 7,078,000 182,384,000 (404,000)
Net income -- -- -- -- -- 28,723,000 --
Dividends -- -- -- -- -- (2,158,000) --
Shares converted 12,200 (12,200) 1,000 (1,000) -- -- --
Translation adjustment -- -- -- -- -- -- (482,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, August 30, 1997 7,898,864 12,611,744 790,000 1,261,000 7,078,000 208,949,000 (886,000)
Net income -- -- -- -- -- 33,190,000 --
Dividends -- -- -- -- -- (2,187,000) --
Shares converted 2,318,000 (2,318,000) 232,000 (232,000) -- -- --
Translation adjustment -- -- -- -- -- -- (1,821,000)
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Balance, August 29, 1998 10,216,864 10,293,744 $ 1,022,000 $ 1,029,000 $ 7,078,000 $ 239,952,000 $ (2,707,000)
====================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
3
4
Consolidated Statements of Cash Flows
UniFirst Corporation and Subsidiaries
Year ended August 29, August 30, August 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 33,190,000 $ 28,723,000 $ 24,662,000
Adjustments:
Depreciation 22,074,000 19,512,000 17,339,000
Amortization of other assets 4,555,000 3,874,000 3,475,000
Receivables (2,691,000) (2,455,000) (2,272,000)
Inventories (4,684,000) (2,485,000) (370,000)
Rental merchandise in service (2,627,000) (690,000) (3,523,000)
Prepaid expenses (41,000) (22,000) (9,000)
Accounts payable 1,022,000 1,401,000 (1,331,000)
Accrued liabilities (416,000) 8,284,000 1,906,000
Accrued and deferred income taxes 83,000 (1,102,000) (191,000)
Deferred income taxes 1,302,000 715,000 1,812,000
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 51,767,000 55,755,000 41,498,000
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (7,470,000) (7,309,000) (18,245,000)
Capital expenditures (43,052,000) (47,432,000) (27,182,000)
Other assets, net (3,479,000) (112,000) (1,432,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (54,001,000) (54,853,000) (46,859,000)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in debt 7,405,000 3,533,000 12,762,000
Reduction of debt (1,708,000) (1,648,000) (7,886,000)
Cash dividends paid or payable (2,187,000) (2,158,000) (1,979,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 3,510,000 (273,000) 2,897,000
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,276,000 629,000 (2,464,000)
Cash and cash equivalents at beginning of year 4,054,000 3,425,000 5,889,000
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 5,330,000 $ 4,054,000 $ 3,425,000
============================================================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 2,613,000 $ 2,327,000 $ 2,691,000
Income taxes paid 17,445,000 16,577,000 12,439,000
============================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
4
5
Notes to Consolidated Financial Statements
UniFirst Corporation and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description
UniFirst Corporation is a leader in the uniform and textile services business.
The Company designs, manufactures, personalizes, rents, cleans, delivers and
sells a variety of high quality occupational garments, career apparel and
imagewear programs to businesses of all kinds. The Company also decontaminates
and cleans, in separate facilities, garments which may have been exposed to
radioactive materials.
Principles of Consolidation and Other
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. Intercompany balances and
transactions are eliminated in consolidation. The Company recognizes revenues
when the actual services are provided to customers.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Fiscal Year
The Company's fiscal year ends on the last Saturday in August. For financial
reporting purposes, fiscal 1998 and fiscal 1997 had 52 weeks, while fiscal 1996
had 53 weeks.
Inventories
Inventories are stated at the lower of cost or market value. The Company uses
the last-in, first-out (LIFO) method to value a significant portion of its
inventories. Had the Company used the first-in, first-out (FIFO) accounting
method, inventories would have been approximately $1,173,000 and $1,240,000
higher at August 29, 1998 and August 30, 1997, respectively.
Rental Merchandise in Service
Rental merchandise in service, stated at cost less amortization, is being
amortized on a straight-line basis over the estimated service lives (primarily
15 months) of the merchandise. In July 1998 the Company changed the estimated
service lives and related amortization periods for rental merchandise in
service, from primarily 12 months to primarily 15 months. This resulted in
approximately $2.0 million, or 0.4% of revenues, less in garment amortization
expense than if the amortization period had not been changed.
Property and Equipment
The Company provides for depreciation on the straight-line method based on the
following estimated useful lives:
Buildings 30-40 years
Leasehold improvements Term of lease
Machinery and equipment 3-10 years
Motor vehicles 3-5 years
5
6
Notes to Consolidated Financial Statements
UniFirst Corporation and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other Assets
Customer contracts are amortized over periods of up to seventeen years.
Restrictive covenants are amortized over the terms of the respective
non-competition agreements, which range from five to fifteen years. Goodwill is
amortized over periods of up to forty years.
Income Taxes
Deferred income taxes are provided for temporary differences between amounts
recognized for income tax and financial reporting purposes at currently enacted
tax rates.
Net Income Per Share
Net income per share is calculated using the weighted average number of common
and dilutive potential common shares outstanding during the year. There were no
dilutive potential common shares outstanding in 1996, 1997 or 1998.
Cash Flow Disclosures
Cash and cash equivalents include cash in banks and bank short-term investments
with maturities of less than ninety days.
2. ACQUISITIONS
Information relating to the acquisition of industrial laundry businesses which
were accounted for as purchases is as follows:
Year ended August 29, August 30, August 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
Fair market value of assets acquired $ 7,505,000 $ 7,413,000 $ 18,360,000
Liabilities assumed or created 35,000 104,000 115,000
----------------------------------------------------
Acquisition of businesses, net of cash acquired $ 7,470,000 $ 7,309,000 $ 18,245,000
====================================================
The results of operations of these acquisitions have been included on the
Company's consolidated financial statements since their respective acquisition
dates. None of these acquisitions were significant in relation to the Company's
consolidated financial statements and therefore pro forma financial information
has not been presented.
6
7
Notes to Consolidated Financial Statements
UniFirst Corporation and Subsidiaries
3. INCOME TAXES
The provision for income taxes consists of the following:
Year ended August 29, August 30, August 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------
Current:
Federal and Foreign $ 18,328,000 $ 14,259,000 $ 8,615,000
State 3,033,000 2,039,000 2,584,000
- ------------------------------------------------------------------------------------------------------
21,361,000 16,298,000 11,199,000
- ------------------------------------------------------------------------------------------------------
Deferred:
Federal and Foreign (1,875,000) (762,000) 2,295,000
State (817,000) 624,000 361,000
- ------------------------------------------------------------------------------------------------------
(2,692,000) (138,000) 2,656,000
- ------------------------------------------------------------------------------------------------------
$ 18,669,000 $ 16,160,000 $ 13,855,000
======================================================================================================
The following table reconciles the provision for income taxes using the
statutory federal income tax rate to the actual provision for income taxes:
Year ended August 29, August 30, August 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------
Income taxes at the statutory federal
income tax rate $ 18,151,000 $ 15,709,000 $ 13,481,000
Puerto Rico exempt income (1,062,000) (988,000) (877,000)
Corporate-Owned Life Insurance (850,000) (775,000) (770,000)
State income taxes 1,434,000 1,450,000 1,222,000
Foreign income taxes 265,000 567,000 262,000
Other 731,000 197,000 537,000
- ------------------------------------------------------------------------------------------------------
$ 18,669,000 $ 16,160,000 $ 13,855,000
======================================================================================================
The Company's Puerto Rico subsidiary's income is 90% exempt from Puerto Rico
income taxes through 2001. The Company provides for anticipated tollgate taxes
on the repatriation of the subsidiary's accumulated earnings.
The tax effect of items giving rise to the Company's net deferred tax
liabilities are as follows:
August 29, August 30, August 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------
Rental merchandise in service $ 15,470,000 $ 14,429,000 $ 13,814,000
Tax in excess of book depreciation 15,713,000 15,533,000 14,836,000
Accruals and other (13,274,000) (9,324,000) (7,819,000)
- ------------------------------------------------------------------------------------------------------
$ 17,909,000 $ 20,638,000 $ 20,831,000
======================================================================================================
7
8
Notes to Consolidated Financial Statements
UniFirst Corporation and Subsidiaries
4. LONG-TERM OBLIGATIONS
Long-term obligations outstanding on the accompanying consolidated balance
sheets are as follows:
August 29, August 30,
1998 1997
- ---------------------------------------------------------------------------------------------------------
Unsecured revolving credit agreement with two banks,
interest rates of 6.06% and 6.19%, respectively $ 40,275,000 $33,279,000
Notes payable, interest from 5.2% - 8.5%, payable
in various installments through 2005 4,798,000 4,782,000
Amounts due for restrictive covenants and other,
payable in various installments through 2005 2,076,000 2,776,000
- ---------------------------------------------------------------------------------------------------------
47,149,000 40,837,000
- ---------------------------------------------------------------------------------------------------------
Less - current maturities 1,194,000 1,040,000
- ---------------------------------------------------------------------------------------------------------
$ 45,955,000 $39,797,000
=========================================================================================================
Aggregate current maturities of long-term obligations for each of the next five
years are $1,194,000, $41,116,000, $938,000, $891,000, $673,000 and $2,337,000
thereafter.
The Company's unsecured revolving credit agreement runs through December 31,
1999. As of August 29, 1998, the maximum line of credit was $60,000,000.
In 1996 the Company entered into an interest rate swap agreement with a bank,
notional amount $15,000,000, maturing December 12, 1998. The Company pays a
fixed rate of 5.53% and receives a variable rate tied to the LIBOR rate. As of
August 29, 1998 the variable rate was 5.63%.
Certain of the long-term obligations contain among other things, provisions
regarding net worth and debt coverage. Under the most restrictive of these
provisions, the Company was required to maintain minimum consolidated tangible
net worth of $149,952,000 as of August 29, 1998. Certain notes payable are
guaranteed or secured by assets of the Company.
As of August 29, 1998 and August 30, 1997, the fair market values of the
Company's outstanding debt and swap agreement approximate their carrying value.
8
9
Notes to Consolidated Financial Statements
UniFirst Corporation and Subsidiaries
5. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan with a 401(k) feature for all eligible
employees not under collective bargaining agreements. The amount of the
Company's contribution is determined at the discretion of the Company.
Contributions charged to expense under the plan were $5,649,000 in 1998,
$4,882,000 in 1997 and $4,184,000 in 1996.
Some employees under collective bargaining agreements are covered by
union-sponsored multi-employer pension plans. Company contributions, generally
based upon hours worked, are in accordance with negotiated labor contracts.
Payments to the plans amounted to $389,000 in 1998, $279,000 in 1997 and
$221,000 in 1996. Information is not readily available for the Company to
determine its share of unfunded vested benefits, if any, under these plans.
6. OTHER ASSETS
Other assets on the accompanying consolidated balance sheets are as follows:
August 29, August 30,
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Customer contracts, restrictive covenants and other assets
arising from acquisitions, less accumulated amortization
of $23,272,000 and $19,433,000, respectively $24,107,000 $24,804,000
Goodwill, less accumulated amortization
of $4,162,000 and $3,455,000, respectively 24,208,000 21,389,000
Other 2,085,000 2,022,000
- ----------------------------------------------------------------------------------------------------------------------------------
$50,400,000 $48,215,000
==================================================================================================================================
7. ACCRUED LIABILITIES
Accrued liabilities on the accompanying consolidated balance sheets are as
follows:
August 29, August 30,
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Insurance $17,921,000 $17,735,000
Payroll related 15,748,000 13,818,000
Other 11,432,000 14,084,000
- ----------------------------------------------------------------------------------------------------------------------------------
$45,101,000 $45,637,000
==================================================================================================================================
9
10
Notes to Consolidated Financial Statements
UniFirst Corporation and Subsidiaries
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain buildings from independent parties. Total rent
expense on all leases was $2,685,000 in 1998, $2,401,000 in 1997 and $2,108,000
in 1996.
Annual minimum lease commitments for all years subsequent to August 29, 1998 are
$2,346,000 in 1999, $1,534,000 in 2000, $1,136,000 in 2001, $610,000 in 2002,
$319,000 in 2003 and $15,000 thereafter.
Contingencies
The Company and its subsidiaries are 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.
As security for certain agreements, the Company had standby irrevocable bank
commercial letters of credit and mortgages of $15,118,000 and $18,182,000
outstanding as of August 29, 1998 and August 30, 1997, respectively.
9. SHAREHOLDERS' EQUITY
The significant attributes of each type of stock are as follows:
Common stock -- Each share is entitled to one vote and is freely transferable.
Each share of common stock is entitled to a cash dividend equal to 125% of any
cash dividend paid on each share of Class B common stock.
Class B common stock -- Each share is entitled to ten votes and can be converted
to common stock on a share-for-share basis. Until converted to common stock,
however, Class B shares are not freely transferable.
The Company adopted an incentive stock option plan in November, 1996 and
reserved 150,000 shares of common stock for issue under the plan. As of August
29, 1998 no options had been granted under the plan.
10
11
Report of Independent Public Accountants
To the Board of Directors and Shareholders of UniFirst Corporation:
We have audited the accompanying consolidated balance sheets of UniFirst
Corporation (a Massachusetts corporation) and subsidiaries as of August 29, 1998
and August 30, 1997 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended August 29, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UniFirst Corporation and
subsidiaries as of August 29, 1998 and August 30, 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
August 29, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 3, 1998
11
12
Management's Discussion and Analysis of Financial Condition and Results of
Operations
UniFirst Corporation and Subsidiaries
Fiscal Year Ended August 29, 1998 Compared with Fiscal Year Ended August 30,
1997
Revenues. In 1998 revenues increased 6.9% to $448.1 million as compared with
$419.1 million for 1997. This increase can be attributed to growth from existing
operations (5.0%), 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 two acquisitions made in fiscal
1998 (one in California in March 1998, and one in Alabama in June 1998).
Operating Costs. Operating costs increased to $269.7 million for 1998 as
compared with $256.9 million for 1997 as a result of costs associated with
increased revenues, but declined to 60.2% 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 controlling
costs. In July 1998 the Company changed the estimated service lives and related
amortization periods for rental merchandise in service, from primarily 12 months
to primarily 15 months. This resulted in approximately $2.0 million, or 0.4% of
revenues, less in garment amortization expense than if the amortization period
had not been changed.
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $97.6 million for 1998 as compared with $91.8 million for
1997, primarily due to increased sales personnel and other costs to support the
Company's increased revenues. The Company's selling and administrative expenses
as a percentage of revenues decreased slightly to 21.8% in 1998 from 21.9% in
1997.
Depreciation and Amortization. The Company's depreciation and amortization
expense increased to $26.6 million, or 5.9% of revenues, for 1998 as compared
with $23.4 million, or 5.6% of revenues, for 1997. This increase was due
primarily to increased capital expenditures for the Company's new distribution
center in Owensboro, KY and information systems hardware and software to upgrade
certain Company-wide systems.
Net Interest Expense. Net interest expense was $2.3 million for 1998 as compared
to $2.1 million in 1997. The increase was attributable primarily to higher debt
levels, offset by lower interest rates, during 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 1998
and 1997.
12
13
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
UniFirst Corporation and Subsidiaries
Fiscal Year Ended August 30, 1997 Compared with Fiscal Year Ended August 31,
1996
Revenues. In 1997 revenues increased 7.0% to $419.1 million as compared with
$391.8 million for 1996. This increase can be attributed to growth from existing
operations (5.5%), acquisitions (2.4%) and price increases (1.0%), offset by one
week less of revenue in 1997 (1.9%). Growth from existing operations was
primarily from the conventional rental business. The increase in revenues
attributable to acquisitions primarily resulted from three 1996 acquisitions
made in California, Michigan and Oklahoma.
Operating Costs. Operating costs increased to $256.9 million for 1997 as
compared with $240.7 million for 1996 as a result of costs associated with
increased revenues. The Company's operating costs as a percentage of revenues
decreased slightly to 61.3% in 1997 from 61.5% in 1996.
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $91.8 million for 1997 as compared with $89.4 million in
1996, but declined to 21.9% of revenues in 1997 from 22.8% of revenues in 1996.
The increase in selling and administrative expense was primarily attributable to
commissions and other costs associated with increased staffing levels to support
the expansion of the Company's business throughout the period. The decrease in
selling and administrative expense as a percentage of revenues was primarily due
to reduced professional services and consulting fees.
Depreciation and Amortization. The Company's depreciation and amortization
expense increased to $23.4 million, or 5.6% of revenues, for 1997 as compared
with $20.8 million, or 5.3% of revenues, for 1996. This increase in depreciation
and amortization expense as a percentage of revenues was due primarily to
increased capital expenditures to expand and update Company facilities in 1997.
Net Interest Expense. Net interest expense declined to $2.1 million, or 0.5% of
revenues, in 1997 as compared to $2.4 million, or 0.6% of revenues, in 1996. The
decrease was attributable to lower interest rates.
Income Taxes. The Company's effective income tax rate was 36.0% in both 1997 and
1996.
Liquidity and Capital Resources
Shareholders' equity at August 29, 1998 was $246.4 million, or 83.9% of total
capitalization.
Net cash provided by operating activities was $51.8 million in fiscal 1998 and
totaled $149.0 million for the three years ended August 29, 1998. These cash
flows were used primarily to fund $117.7 million in capital expenditures to
expand and update Company facilities, including construction of new facilities
in Owensboro, Kentucky; Atlanta, Georgia; Pompano Beach, Florida; and Corpus
Christi, Texas. Additionally, $33.0 million was used for acquisitions during
this three year period.
13
14
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
UniFirst Corporation and Subsidiaries
Liquidity and Capital Resources (continued)
The Company had $5.3 million in cash and $19.7 million available on its $60
million unsecured line of credit with two banks as of August 29, 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.
The Company has been evaluating Year 2000 (Y2K) 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.
State of Readiness: The Company has used a five-step process to manage its Y2K
program: 1. Inventory (identify items to be assessed for Y2K readiness); 2.
Assessment (prioritize the inventoried items, assess and document their Y2K
readiness and plan corrective actions); 3. Renovation/Upgrade (apply corrective
actions); 4. Testing (verify corrective actions); 5. Implementation (implement
new system). The Company believes that its recently developed account management
system, which is used primarily for customer billing, accounts receivable and
sales taxes, and the materials management and catalog sales systems which were
installed at its Owensboro, KY facility are Y2K compliant. Additionally, as part
of an ongoing IS initiative, the Company is in the process of installing a new
third party payroll and human resources system which has been represented to be
Y2K compliant -- implementation is planned for February, 1999. The Company has
grouped the rest of its information systems and technology into 3 categories for
its Y2K program: 1. Information Technology (computer hardware and software,
including financial systems and electronic data interchange (EDI) interfaces);
2. Physical Plant (production equipment and facilities); 3. Extended Enterprise
(suppliers and customers). The Company has, at a minimum, reached the
renovation/upgrade step on all projects. Some projects are currently being
tested and a number of projects have been implemented.
14
15
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
UniFirst Corporation and Subsidiaries
Information Systems; Year 2000 (continued)
Costs: The Company expects that the total cost of its Y2K program will range
from $1.0 to $1.5 million. As of August 29, 1998 the Company had spent
approximately $0.5 million. These costs do not include the account management,
Owensboro, KY and new payroll and human resources systems discussed above.
Risks of Y2K issues and Contingency Plans: Since the beginning of its Y2K
program, the Company has focused its resources on the systems which are critical
to its business operations. While the Company has addressed the Y2K risks within
its control, there are other risks, such as utilities and other suppliers, which
are beyond the immediate control of the Company. Based on current information,
the Company believes that the Y2K problem will not have a material adverse
effect on the results of operations of the Company. There can, however, be no
assurances that Y2K remediation by others, including suppliers, will be properly
completed, and failure to do so could have a material adverse effect on the
results of operations of the Company. Contingency plans are in the process of
being developed for all Y2K projects which are critical to the Company's
business operations.
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.
Safe Harbor for Forward Looking Statements
Forward looking statements contained in this annual report are subject to the
safe harbor created by the Private Securities Litigation Reform Act of 1995 and
are highly dependent upon a variety of important factors that could cause actual
results to differ materially from those reflected in such forward looking
statements. Such factors include those indicated in the section entitled "Risk
Factors" in the Company's Prospectus, dated March 18, 1998, as well as the risks
and uncertainties relating to the centralization of certain of the Company's
operations at its Owensboro, KY distribution facility, the Company's handling of
the Year 2000 issue, and the Company's ability to control manufacturing and
operating costs. When used in this annual report, the words "intend,"
"anticipate," "believe," "estimate," and "expect" and similar expressions as
they relate to the Company are included to identify such forward looking
statements.
15
16
Quarterly Financial Data (Unaudited)
UniFirst Corporation and Subsidiaries
The following is a summary of the results of operations for each of the quarters
within the years ended August 29, 1998 and August 30, 1997.
(In thousands, except per share amounts)
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------------------
Revenues $112,402 $109,344 $114,066 $112,240
Income before income taxes 13,791 9,779 13,597 14,692
Net income 8,826 6,259 8,702 9,403
Weighted average shares outstanding 20,511 20,511 20,511 20,511
Net income per share $ 0.43 $ 0.31 $ 0.42 $ 0.46
================================================================================================================================
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------------------
Revenues $103,976 $102,064 $107,124 $105,929
Income before income taxes 12,274 8,638 11,535 12,436
Net income 7,855 5,529 7,382 7,957
Weighted average shares outstanding 20,511 20,511 20,511 20,511
Net income per share $ 0.38 $ 0.27 $ 0.36 $ 0.39
================================================================================================================================
Common Stock Prices and Dividends Per Share
For the Years Ended August 29, 1998 and August 30, 1997:
Price Per Share Dividends Per Share
Class B
1998 High Low Common Stock Common Stock
- ---------------------------------------------------------------------------------------------------------------------------------
First Quarter $25 13/16 $22 1/4 $0.024 $0.030
Second Quarter 28 1/16 24 9/16 0.024 0.030
Third Quarter 29 25 1/2 0.024 0.030
Fourth Quarter 29 1/2 22 0.024 0.030
=================================================================================================================================
Price Per Share Dividends Per Share
Class B
1997 High Low Common Stock Common Stock
- ---------------------------------------------------------------------------------------------------------------------------------
First Quarter $21 3/4 $18 1/4 $0.024 $0.030
Second Quarter 23 20 1/8 0.024 0.030
Third Quarter 21 1/8 18 3/4 0.024 0.030
Fourth Quarter 25 1/2 18 7/8 0.024 0.030
=================================================================================================================================
The Company's common shares are traded on the New York Stock Exchange (NYSE
Symbol: UNF).
The approximate number of shareholders of record of the Company's common stock
and Class B common stock as of November 3, 1998 were 156 and 19 respectively.
16
17
Eleven Year Financial Summary
UniFirst Corporation and Subsidiaries
Fiscal Year Ended August
(in thousands, except ratios
and per share amounts) 1998 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Summary of Operations
Revenues $ 448,052 $ 419,093 $ 391,794 $ 355,041 $ 318,039 $ 287,728 $ 268,190 $ 250,432
Income from
operations, before
depreciation and
amortization 80,804 70,387 61,729 53,725 50,369 47,199 42,010 38,562
Depreciation and
amortization 26,629 23,386 20,814 19,194 17,912 16,454 15,999 14,229
Income from
operations 54,175 47,001 40,915 34,531 32,457 30,745 26,011 24,333
Interest expense
(income), net 2,316 2,118 2,398 2,787 2,513 2,669 4,098 4,320
Provision for
income taxes 18,669 16,160 13,855 11,110 11,073 10,387 7,570 6,803
Net income 33,190 28,723 24,662 20,634 18,871 17,689 14,343 * 13,210
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Position at Year End
Total assets $ 376,130 $ 339,626 $ 302,378 $ 272,691 $ 250,160 $ 219,064 $ 212,097 $ 204,398
Long-term obligations 47,149 40,837 39,365 36,376 41,602 32,231 47,641 52,032
Shareholders' equity 246,374 217,192 191,109 168,596 149,472 132,723 117,329 105,888
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Ratios
Net income
as a % of revenues 7.4% 6.9% 6.3% 5.8% 5.9% 6.1% 5.3% 5.3%
Return on average
shareholders' equity 14.3% 14.1% 13.7% 13.0% 13.4% 14.1% 12.9% 13.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average number
of shares outstanding 20,511 20,511 20,511 20,511 20,506 20,453 20,451 20,426
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Revenues $ 21.84 $ 20.43 $ 19.10 $ 17.31 $ 15.51 $ 14.07 $ 13.11 $ 12.26
Income from
operations, before
depreciation and
amortization 3.94 3.43 3.01 2.62 2.46 2.31 2.05 1.89
Net Income
Basic 1.62 1.40 1.20 1.01 0.92 0.86 0.70 0.65
Diluted 1.62 1.40 1.20 1.01 0.92 0.86 0.67 0.63
Shareholders' equity 12.01 10.59 9.32 8.22 7.29 6.49 5.74 5.18
Dividends
Common stock .12 .12 .11 .10 .10 .10 .06 .06
Class B common stock .10 .10 .09 .08 .08 .04 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Per share amounts for all years have been restated to reflect a two-for-one
stock split declared by the Board of Directors on November 18, 1993.
* Amount reflects income before extraordinary item and accounting change. Net
income was $12,923.
17
18
Fiscal Year Ended August
(in thousands, except ratios
and per share amounts) 1990 1989 1988
- ----------------------------------------------------------------------
Summary of Operations
Revenues $ 226,682 $ 212,731 $ 196,296
Income from
operations, before
depreciation and
amortization 38,749 35,768 32,207
Depreciation and
amortization 12,422 12,309 12,298
Income from
operations 26,327 23,459 19,909
Interest expense
(income), net 3,513 4,880 5,965
Provision for
income taxes 8,516 6,968 5,289
Net income 14,298 11,611 8,655
- ----------------------------------------------------------------------
Financial Position at Year End
Total assets $ 189,411 $ 172,389 $ 171,010
Long-term obligations 53,134 53,735 66,476
Shareholders' equity 93,739 80,249 69,127
- ----------------------------------------------------------------------
Financial Ratios
Net income
as a % of revenues 6.3% 5.5% 4.4%
Return on average
shareholders' equity 16.4% 15.6% 13.3%
- ----------------------------------------------------------------------
Weighted average number
of shares outstanding 20,431 20,353 20,168
- ----------------------------------------------------------------------
Per Share Data
Revenues $ 11.09 $ 10.45 $ 9.73
Income from
operations, before
depreciation and
amortization 1.90 1.76 1.60
Net Income
Basic 0.70 0.57 0.43
Diluted 0.67 0.56 0.43
Shareholders' equity 4.59 3.94 3.43
Dividends
Common stock .06 .05 .05
Class B common stock -- -- --
- ---------------------------------------------------------------------
Per share amounts for all years have been restated to reflect a two-for-one
stock split declared by the Board of Directors on November 18, 1993.
18
1
Exhibit 21
List of subsidiaries of the Company:
Interstate Nuclear Services Corp.
Interstate Uniform Manufacturing of Puerto Rico, Inc.
Superior Products & Equipment Co., Inc.
UniFirst Canada Ltd.
UniFirst Holdings, L.P.
UTWO Corporation
UR Corporation
Tennessee Uniform and Towel Service, Inc.
Euro Nuclear Services B.V.
1
Page 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated November 3, 1998 incorporated by reference or included in this
Form 10-K, into the Company's previously filed Registration Statement File No.
33-60781.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 25, 1998
5
1,000
U.S. DOLLARS
YEAR
AUG-29-1998
AUG-31-1997
AUG-29-1998
1
5,330
0
43,656
1,529
24,152
114,768
358,223
147,261
376,130
65,455
45,955
0
0
2,051
244,323
376,130
448,052
448,052
393,877
393,877
0
0
2,316
51,859
18,669
33,190
0
0
0
33,190
1.62
0
