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
November 28, 1998 Number 1-8504
UNIFIRST CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2103460
(State of Incorporation) (IRS Employer ID Number)
68 Jonspin Road
Wilmington, Massachusetts 01887
(Address of principal executive offices)
Registrant's telephone number: (978) 658-8888
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 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 [ ]
The number of outstanding shares of the registrant's Common Stock and Class B
Common Stock as of January 6, 1999 were 10,456,634 and 10,288,744 respectively.
2
PART 1 - FINANCIAL INFORMATION
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(unaudited)
November 28, August 29, November 29,
1998 1998* 1997
- -----------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 7,385,000 $ 5,330,000 $ 4,189,000
Receivables 45,634,000 42,127,000 45,146,000
Inventories 23,804,000 24,152,000 19,464,000
Rental merchandise in service 47,361,000 42,971,000 40,673,000
Prepaid expenses 202,000 188,000 146,000
- -----------------------------------------------------------------------------------------------------------------
Total current assets 124,386,000 114,768,000 109,618,000
- -----------------------------------------------------------------------------------------------------------------
Property and equipment:
Land, buildings and leasehold improvements 154,667,000 150,853,000 141,715,000
Machinery and equipment 168,316,000 165,762,000 148,947,000
Motor vehicles 41,887,000 41,608,000 38,149,000
- -----------------------------------------------------------------------------------------------------------------
364,870,000 358,223,000 328,811,000
Less - accumulated depreciation 152,118,000 147,261,000 133,287,000
- -----------------------------------------------------------------------------------------------------------------
212,752,000 210,962,000 195,524,000
- -----------------------------------------------------------------------------------------------------------------
Other assets 56,220,000 50,400,000 48,639,000
- -----------------------------------------------------------------------------------------------------------------
$ 393,358,000 $ 376,130,000 $ 353,781,000
=================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 1,140,000 $ 1,194,000 $ 1,045,000
Notes payable 2,509,000 2,511,000 2,820,000
Accounts payable 17,918,000 14,109,000 11,995,000
Accrued liabilities 47,964,000 45,101,000 47,231,000
Accrued and deferred income taxes 4,961,000 2,540,000 6,441,000
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 74,492,000 65,455,000 69,532,000
- -----------------------------------------------------------------------------------------------------------------
Long-term obligations, net of current maturities 44,602,000 45,955,000 41,659,000
Deferred income taxes 18,743,000 18,346,000 17,440,000
- -----------------------------------------------------------------------------------------------------------------
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 1,022,000 1,022,000 790,000
Class B Common stock, $.10 par value; 20,000,000
shares authorized; issued and outstanding
10,293,744 shares 1,029,000 1,029,000 1,261,000
Capital surplus 7,078,000 7,078,000 7,078,000
Retained earnings 248,807,000 239,952,000 217,235,000
Cumulative translation adjustment (2,415,000) (2,707,000) (1,214,000)
- -----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 255,521,000 246,374,000 225,150,000
- -----------------------------------------------------------------------------------------------------------------
$ 393,358,000 $ 376,130,000 $ 353,781,000
=================================================================================================================
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements.
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FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME
(unaudited)
Thirteen Thirteen
weeks ended weeks ended
November 28, November 29,
1998 1997
- --------------------------------------------------------------------------------------
Revenues $ 116,335,000 $ 112,402,000
- --------------------------------------------------------------------------------------
Costs and expenses:
Operating costs 66,488,000 66,325,000
Selling and administrative expenses 26,989,000 25,397,000
Depreciation and amortization 7,258,000 6,308,000
- --------------------------------------------------------------------------------------
100,735,000 98,030,000
- --------------------------------------------------------------------------------------
Income from operations 15,600,000 14,372,000
- --------------------------------------------------------------------------------------
Interest expense (income):
Interest expense 712,000 651,000
Interest income (58,000) (70,000)
- --------------------------------------------------------------------------------------
654,000 581,000
- --------------------------------------------------------------------------------------
Income before income taxes 14,946,000 13,791,000
Provision for income taxes 5,530,000 4,965,000
- --------------------------------------------------------------------------------------
Net income $ 9,416,000 $ 8,826,000
======================================================================================
Weighted average number of shares outstanding 20,510,608 20,510,608
======================================================================================
Net income per share - basic & diluted $ 0.46 $ 0.43
======================================================================================
The accompanying notes are an integral part of these condensed financial
statements.
4
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Thirteen Thirteen
weeks ended weeks ended
November 28, November 29,
1998 1997
- ------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $ 9,416,000 $ 8,826,000
Adjustments:
Depreciation 6,055,000 5,246,000
Amortization of other assets 1,203,000 1,062,000
Receivables (3,366,000) (5,785,000)
Inventories 331,000 26,000
Rental merchandise in service (3,884,000) (720,000)
Prepaid expenses (14,000) 2,000
Accounts payable 3,923,000 (1,096,000)
Accrued liabilities 2,857,000 1,624,000
Accrued and deferred income taxes 2,402,000 3,909,000
Deferred income taxes 387,000 348,000
- ------------------------------------------------------------------------------------------
Net cash provided by operating activities 19,310,000 13,442,000
- ------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (3,654,000) -
Capital expenditures (7,400,000) (12,765,000)
Other assets, net (4,231,000) (1,497,000)
- ------------------------------------------------------------------------------------------
Net cash used in investing activities (15,285,000) (14,262,000)
- ------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in debt 40,000 2,124,000
Reduction of debt (1,449,000) (629,000)
Cash dividends paid or payable (561,000) (540,000)
- ------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (1,970,000) 955,000
- ------------------------------------------------------------------------------------------
Net increase in cash 2,055,000 135,000
Cash at beginning of period 5,330,000 4,054,000
- ------------------------------------------------------------------------------------------
Cash at end of period $ 7,385,000 $ 4,189,000
==========================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 694,000 $ 643,000
Income taxes paid 2,712,000 746,000
==========================================================================================
The accompanying notes are an integral part of these condensed financial
statements.
5
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
1. These condensed financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations; however, the Company believes that the
information furnished reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of results for the interim
period. It is suggested that these condensed financial statements should be
read in conjunction with the financial statements and the notes, thereto,
included in the Company's latest annual report on Form 10-K.
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 THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
RESULTS OF OPERATIONS
THIRTEEN WEEKS OF FISCAL 1999 COMPARED WITH THIRTEEN WEEKS OF FISCAL 1998
Revenues. Fiscal 1999 first quarter revenues increased $3.9 million or 3.5% to
$116.3 million as compared with $112.4 million for the fiscal 1998 first
quarter. This increase can be attributed to growth from existing operations
(1.6%), acquisitions (0.9%) and price increases (1.0%). Growth from existing
operations was from the conventional uniform rental business (2.3%), offset by
lower revenue from the nuclear garment services business (-0.7%). The increase
in revenues from acquisitions resulted from two acquisitions made in fiscal 1998
(one in California in March 1998, and one in Alabama in June 1998) and two
acquisitions made in fiscal 1999 (one in Wisconsin and one in Mississippi, both
in October 1998).
Operating Costs. Operating costs increased slightly, to $66.5 million for the
first quarter of fiscal 1999 as compared with $66.3 million for the same period
of fiscal 1998, but declined to 57.2% from 59.0% as a percentage of revenues for
these periods. 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 was the primary reason for the
improvement in operating costs as a percentage of revenues.
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $27.0 million, or 23.2% of revenues, for the first quarter
of fiscal 1999 as compared with $25.4 million, or 22.6% of revenues, for the
same period in fiscal 1998. This increase was due primarily to increased costs
for employee health insurance.
Depreciation and Amortization. The Company's depreciation and amortization
expense increased to $7.3 million, or 6.2% of revenues, for the first quarter of
fiscal 1999 as compared with $6.3 million, or 5.6% of revenues, for the same
period in fiscal 1998. 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 $654,000, or 0.6% of revenues,
for the first quarter of fiscal 1999 as compared with $581,000, or 0.5% of
revenues, for the same period in fiscal 1998. The increase is primarily
attributable to higher debt levels in the fiscal 1999 quarter.
Income Taxes. The Company's effective income tax rate was 37.0% for the first
quarter of fiscal 1999 and 36.0% for the same period in fiscal 1998. The
increase is due primarily to reduced benefits from a corporate-owned life
insurance program.
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FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
LIQUIDITY AND CAPITAL RESOURCES
Shareholders' equity at November 28, 1998 was $255.5 million, or 84.8% of total
capitalization.
During the thirteen weeks ended November 28, 1998 net cash provided by operating
activities of $19.3 million was primarily used for capital expenditures ($7.4
million), acquisition of two businesses ($3.7 million), debt repayment ($1.4
million) and dividends ($0.6 million).
The Company had $7.4 million in cash and $20.9 million available on its $60
million unsecured line of credit with two banks as of November 28, 1998. This
line of credit was increased to $120 million, with three banks, effective
November 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.
The Company has been evaluating Year 2000 (Y2K) issues concerning the ability of
its 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.
8
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
INFORMATION SYSTEMS; YEAR 2000 (CONTINUED)
State of Readiness: The Company uses 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.
Costs: The Company expects that the total cost of its Y2K program will range
from $1.0 to $1.5 million. As of November 28, 1998 the Company had spent
approximately $0.6 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 believes it is addressing 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.
9
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding quantitative and qualitative disclosures about market
risk, see the Company's discussion under Item 7A of its Annual Report on Form
10-K for the fiscal year ended August 29, 1998. Between August 29, 1998 and
November 28, 1998, there were no material changes in the Company's market risk.
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
Forward looking statements contained in this quarterly 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 quarterly 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.
10
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: January 12, 1999
/s/ JOHN B. BARTLETT
--------------------------
John B. Bartlett
Senior Vice President
and Chief Financial Officer
5
1,000
U.S. DOLLARS
3-MOS
AUG-28-1999
AUG-30-1998
NOV-28-1998
1
7,385
0
47,284
1,650
23,804
124,386
364,870
152,118
393,358
74,492
44,602
0
0
2,051
253,470
393,358
116,335
116,335
100,735
100,735
0
0
654
14,946
5,530
9,416
0
0
0
9,416
0.46
0.46
