1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File
May 27, 2000 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 June 30, 2000 were 9,408,134 and 10,255,744 respectively.
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) May 27, August 28, May 29,
2000 1999* 1999
- --------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 1,850,000 $ 2,912,000 $ 3,286,000
Receivables 55,958,000 51,786,000 50,823,000
Inventories 24,551,000 27,194,000 27,967,000
Rental merchandise in service 58,359,000 55,631,000 57,256,000
Prepaid expenses 218,000 199,000 410,000
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 140,936,000 137,722,000 139,742,000
- --------------------------------------------------------------------------------------------------------------------------
Property and equipment:
Land, buildings and leasehold improvements 193,228,000 174,979,000 170,563,000
Machinery and equipment 202,644,000 190,722,000 187,244,000
Motor vehicles 53,606,000 49,396,000 48,003,000
- --------------------------------------------------------------------------------------------------------------------------
449,478,000 415,097,000 405,810,000
Less - accumulated depreciation 188,930,000 172,912,000 168,736,000
- --------------------------------------------------------------------------------------------------------------------------
260,548,000 242,185,000 237,074,000
- --------------------------------------------------------------------------------------------------------------------------
Other assets 91,104,000 85,720,000 79,590,000
- --------------------------------------------------------------------------------------------------------------------------
$ 492,588,000 $ 465,627,000 $ 456,406,000
==========================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 1,544,000 $ 1,911,000 $ 925,000
Notes payable 2,374,000 2,331,000 2,360,000
Accounts payable 16,692,000 17,659,000 16,522,000
Accrued liabilities 50,867,000 46,659,000 49,044,000
Accrued and deferred income taxes 12,411,000 7,754,000 4,143,000
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 83,888,000 76,314,000 72,994,000
- --------------------------------------------------------------------------------------------------------------------------
Long-term obligations, net of current maturities 121,093,000 111,194,000 99,489,000
Deferred income taxes 21,025,000 20,686,000 19,554,000
- --------------------------------------------------------------------------------------------------------------------------
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
10,499,634 shares 1,050,000 1,050,000 1,000,000
Class B Common stock, $.10 par value; 20,000,000
shares authorized; issued and outstanding
10,255,744 shares 1,026,000 1,026,000 1,026,000
Treasury stock, 1,091,500 shares, at cost (20,049,000) (16,583,000) (10,485,000)
Capital surplus 12,438,000 12,438,000 12,487,000
Retained earnings 274,372,000 261,450,000 262,025,000
Accumulated other comprehensive income (2,255,000) (1,948,000) (1,684,000)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 266,582,000 257,433,000 264,369,000
- --------------------------------------------------------------------------------------------------------------------------
$ 492,588,000 $ 465,627,000 $ 456,406,000
==========================================================================================================================
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Thirty-nine Thirty-nine Thirteen Thirteen
weeks ended weeks ended weeks ended weeks ended
May 27, May 29, May 27, May 29,
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------
Revenues $ 396,570,000 $ 362,062,000 $ 134,497,000 $ 125,661,000
- --------------------------------------------------------------------------------------------------------------
Costs and expenses:
Operating costs 248,265,000 215,992,000 83,742,000 75,184,000
Selling and administrative expenses 93,492,000 81,542,000 31,481,000 28,689,000
Depreciation and amortization 25,652,000 23,152,000 8,576,000 8,137,000
- --------------------------------------------------------------------------------------------------------------
367,409,000 320,686,000 123,799,000 112,010,000
- --------------------------------------------------------------------------------------------------------------
Income from operations 29,161,000 41,376,000 10,698,000 13,651,000
- --------------------------------------------------------------------------------------------------------------
Interest expense (income):
Interest expense 5,356,000 3,386,000 1,898,000 1,408,000
Interest income (234,000) (107,000) (69,000) (21,000)
- --------------------------------------------------------------------------------------------------------------
5,122,000 3,279,000 1,829,000 1,387,000
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 24,039,000 38,097,000 8,869,000 12,264,000
Provision for income taxes 9,135,000 14,096,000 3,370,000 4,538,000
- --------------------------------------------------------------------------------------------------------------
Net income $ 14,904,000 $ 24,001,000 $ 5,499,000 $ 7,726,000
==============================================================================================================
Weighted average number of shares outstanding -
basic & diluted 19,672,449 20,506,420 19,663,878 20,320,212
==============================================================================================================
Net income per share - basic & diluted $ 0.76 $ 1.17 $ 0.28 $ 0.38
==============================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Thirty-Nine Thirty-Nine
weeks ended weeks ended
May 27, May 29,
2000 1999
- ------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $ 14,904,000 $ 24,001,000
Adjustments:
Depreciation 20,715,000 18,901,000
Amortization of other assets 4,937,000 4,251,000
Changes in assets and liabilities,
net of acquisitions:
Receivables (4,203,000) (5,237,000)
Inventories 3,530,000 2,594,000
Rental merchandise in service (2,630,000) (9,588,000)
Prepaid expenses (19,000) 30,000
Accounts payable (1,036,000) 1,497,000
Accrued liabilities 4,215,000 3,578,000
Accrued and deferred income taxes 4,669,000 1,488,000
Deferred income taxes 346,000 1,176,000
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 45,428,000 42,691,000
- ------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (5,358,000) (45,143,000)
Capital expenditures (39,158,000) (33,343,000)
Increase in other assets (5,008,000) (4,022,000)
- ------------------------------------------------------------------------------------
Net cash used in investing activities (49,524,000) (82,508,000)
- ------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in debt 11,074,000 53,725,000
Reduction of debt (2,592,000) (3,538,000)
Repurchase of common stock (3,466,000) (10,485,000)
Cash dividends (1,982,000) (1,929,000)
- ------------------------------------------------------------------------------------
Net cash provided by financing activities 3,034,000 37,773,000
- ------------------------------------------------------------------------------------
Net decrease in cash (1,062,000) (2,044,000)
Cash at beginning of period 2,912,000 5,330,000
- ------------------------------------------------------------------------------------
Cash at end of period $ 1,850,000 $ 3,286,000
====================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 5,077,000 $ 2,624,000
Income taxes paid 4,139,000 11,285,000
====================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED MAY 27, 2000
1. These condensed consolidated financial statements have been prepared by the
Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations; however, the
Company believes that the information furnished reflects all adjustments
(consisting only of normal recurring 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 consolidated 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. Results for an interim period are not indicative of any future
interim periods or for an entire fiscal year.
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 contracts,
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.
3. The components of comprehensive income for the thirty-nine and thirteen
week periods ended May 27, 2000 and May 29, 1999 were as follows:
Thirty-nine Thirty-nine Thirteen Thirteen
weeks ended weeks ended weeks ended weeks ended
May 27, May 29, May 27, May 29,
2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Net income $ 14,904,000 $ 24,001,000 $ 5,499,000 $ 7,726,000
Other comprehensive income:
Foreign currency translation adjustments (307,000) 1,023,000 (844,000) 450,000
--------------------------------------------------------------------
Comprehensive income $ 14,597,000 $ 25,024,000 $ 4,655,000 $ 8,176,000
====================================================================
4. Net income per share is calculated using the weighted average number of
common and dilutive potential common shares outstanding during the year.
Anti-dilutive shares of 57,000 for the thirteen and thirty-nine weeks ended
May 27, 2000 have been excluded from the weighted average number of common
and dilutive potential common shares outstanding.
5. During the 39 weeks ended May 27, 2000, the Company made 2 acquisitions of
complementary businesses for total consideration of approximately $5
million. Pro forma results have not been presented for the acquired
businesses as the acquisitions were not deemed to be material.
6
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THIRTY-NINE WEEKS ENDED MAY 27, 2000
RESULTS OF OPERATIONS
THIRTY-NINE WEEKS OF FISCAL 2000 COMPARED WITH THIRTY-NINE WEEKS OF FISCAL 1999
- -------------------------------------------------------------------------------
Revenues. Revenues for the first thirty-nine weeks of fiscal 2000 increased
$34.5 million or 9.5% to $396.6 million as compared to $362.1 million for the
first thirty-nine weeks of fiscal 1999. This increase can be attributed to
growth from existing operations (4.6%), acquisitions (3.9%) and price increases
(1.0%). Growth from existing operations was primarily from the conventional
uniform rental business (4.1%), and from the nuclear garment services business
(0.5%). The increase in revenues from acquisitions resulted from seven
acquisitions made in fiscal 1999 and two acquisitions made fiscal 2000.
Operating Costs. Operating costs increased to $248.3 million for the first
thirty-nine weeks of fiscal 2000 as compared with $216.0 million for the same
period of fiscal 1999 as a result of costs associated with increased revenues.
As a percentage of revenues, operating costs increased to 62.6% from 59.7% for
these periods, primarily due to higher labor costs. The Company also continues
to assimilate last year's acquisitions, deal with ongoing increases in fuel and
other operating costs and is being impacted by start up costs associated with
the construction of a new garment manufacturing plant in Mexico. There also
continues to be a negative impact from a comparative year-to-year increase in
merchandise expense. Last year the Company realized a benefit compared to this
year due to a change made effective July, 1998 in the estimated lives and
related amortization periods for rental merchandise in service, from primarily
12 months to primarily 15 months, which is more consistent with their respective
useful lives (although the Company believes its principal publicly-held
competitors amortize their garments over an average of 15 to 18 months).
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $93.5 million, or 23.6% of revenues, for the first
thirty-nine weeks of fiscal 2000 as compared with $81.5 million, or 22.5% of
revenues, for the same period in fiscal 1999. This increase was due primarily to
increased costs for professional sales training, national, catalog and internet
sales to support the Company's current and future revenue growth. The Company
also incurred increased costs to upgrade its Information Systems.
Depreciation and Amortization. The Company's depreciation and amortization
expense increased to $25.7 million for the first thirty-nine weeks of fiscal
2000 as compared with $23.2 million for the same period of fiscal 1999 due
primarily to increased amortization costs due to acquisitions. As a percentage
of revenues, depreciation and amortization expense was 6.4% for both periods.
Net Interest Expense. Net interest expense was $5.1 million, or 1.3% of
revenues, for the first thirty-nine weeks of fiscal 2000 as compared to $3.3
million, or 0.9% of revenues, for the same period in fiscal 1999. The increase
is primarily attributable to higher debt levels in fiscal 2000.
Income Taxes. The Company's effective income tax rate was 38.0% for the first
thirty-nine weeks of fiscal 2000 and 37.0% for the same period in fiscal 1999.
The increase is due primarily to higher state income taxes.
7
THIRTEEN WEEKS ENDED MAY 27, 2000 COMPARED TO THIRTEEN WEEKS ENDED MAY 29, 1999
Revenues. Fiscal 2000 third quarter revenues increased $8.8 million or 7.0% to
$134.5 million as compared with $125.7 million for the fiscal 1999 third
quarter. This increase can be attributed to growth from existing operations
(4.1%), acquisitions (1.9%) and price increases (1.0%). Growth from existing
operations was from the conventional uniform rental business. The increase in
revenues from acquisitions resulted from three acquisitions made in fiscal 1999
and two acquisitions made in fiscal 2000.
Operating Costs. Operating costs increased to $83.7 million for the third
quarter of fiscal 2000 as compared with $75.2 million for the same period of
fiscal 1999 as a result of costs associated with increased revenues. As a
percentage of revenues, operating costs increased to 62.3% from 59.8% for these
periods primarily due to higher labor costs. The Company also continues to
assimilate last year's acquisitions, deal with ongoing increases in fuel and
other operating costs and is being impacted by start up costs associated with
the construction of a new garment manufacturing plant in Mexico. The impact of
the change in estimated service lives and related amortization periods for
rental merchandise in service, described in the year to date discussion above,
had less of an impact in the quarter to quarter comparison.
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $31.5 million, or 23.4% of revenues, for the third quarter
of fiscal 2000 as compared with $28.7 million, or 22.8% of revenues for the same
period in fiscal 1999. This increase was due primarily to increased costs for
professional sales training, national, catalog and internet sales to support the
Company's current and future revenue growth. The Company also incurred increased
costs to upgrade its Information Systems.
Depreciation and Amortization. The Company's depreciation and amortization
expense increased to $8.6 million for the third quarter of fiscal 2000 as
compared with $8.1 million for the same period of fiscal 1999 due primarily to
increased amortization costs due to acquisitions. As a percentage of revenues,
depreciation and amortization expense decreased slightly, to 6.4% from 6.5%,
respectively, for these periods.
Net Interest Expense. Net interest expense was $1.8 million, or 1.4% of
revenues, for the third quarter of fiscal 2000 as compared with $1.4 million, or
1.1% of revenues, for the same period in fiscal 1999. The increase is primarily
attributable to higher debt levels in the fiscal 2000 third quarter.
Income Taxes. The Company's effective income tax rate was 38.0% for the third
quarter of fiscal 2000 and 37.0% for the same period in fiscal 1999. The
increase is due primarily to higher state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Shareholders' equity at May 27, 2000 was $266.6 million, or 68.5% of total
capitalization.
During the thirty-nine weeks ended May 27, 2000 net cash provided by operating
activities ($45.4 million) and additional borrowings ($11.1 million) was
primarily used for capital expenditures ($39.2 million), acquisition of two
businesses ($5.4 million), repurchase of common stock ($3.5 million), debt
repayment ($2.6 million) and dividends ($2.0 million).
The Company had $1.9 million in cash and $4.3 million available on its $120
million unsecured line of credit with three banks as of May 27, 2000. This
agreement contains, among other things, a provision
8
regarding net worth, which the Company was out of compliance with as of May 27,
2000. The Company has discussed this with the banks and expects to receive a
waiver. The Company believes its generated cash from operations and its
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.
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.
NEW ACCOUNTING STANDARDS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB 101),
Revenue Recognition. The adoption of SAB 101 is not expected to have a material
impact on the Company's reported results.
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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 28, 1999. Between August 28, 1999 and May
27, 2000, there were no material changes in the Company's market risk.
9
PART II - OTHER INFORMATION
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
UNIFIRST CORPORATION
/s/ Ronald D. Croatti
---------------------
Ronald D. Croatti
President and Chief Executive Officer
Date: July 11, 2000
/s/ John B. Bartlett
--------------------
John B. Bartlett
Senior Vice President
and Chief Financial Officer
5
1,000
U.S. DOLLARS
9-MOS
AUG-26-2000
AUG-29-1999
MAY-27-2000
1
1,850
0
59,313
3,355
24,551
140,936
449,478
188,930
492,588
83,888
121,093
0
0
2,076
264,506
492,588
396,570
396,570
367,409
367,409
0
0
5,122
24,039
9,135
14,904
0
0
0
14,904
0.76
0.76
