SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d)OF
THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 28, 2004
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)(Zip Code)
Registrants telephone number: (978) 658-8888
Securities registered pursuant to Section 12(b) of the Act:
Title of Class |
Name of each exchange on 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 Noo
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 registrants 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes x Noo
The number of outstanding shares of UniFirst Corporation Common Stock and Class B Common Stock at November 5, 2004 were 9,279,879 and 9,928,144, respectively. The aggregate market value of shares held by non-affiliates of the Company as of the end of the last business day of UniFirsts most recently completed second fiscal quarter was $238,151,988 (based upon the closing price of the Companys 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).
UniFirst Corporation
Annual Report on Form
10-K
For the fiscal year
ended August 28, 2004
Table of Contents |
---|
PART I |
Documents Incorporated by Reference |
Item 1. Business |
Item 2. Properties |
Item 3. Legal Proceedings |
Item 4. Submission of Matters to a Vote of Security Holders |
PART II |
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities |
Item 6. Selected Financial Data |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations |
Item 7A. Quantitative and Qualitative Disclosures about Market Risk |
Item 8. Financial Statements and Supplementary Data |
Consolidated statements of income for each of the three years in the period ended August 28, 2004 |
Consolidated balance sheets as of August 28, 2004 and August 30, 2003 |
Consolidated statements of shareholders' equity for each of the three years in the period ended August 28, 2004 |
Consolidated statements of cash flows for each of the three years in the period ended August 28, 2004 |
Notes to consolidated financial statements |
Report of Ernst & Young LLP, Independent Auditors |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. Controls and Procedures |
Item 9B. Other Information |
PART III |
Item 10. Directors and Executive Officers of the Registrant |
Item 11. Executive Compensation |
Item 12. Security Ownership of Certain Beneficial Owners and Management |
Item 13. Certain Relationships and Related Transactions |
Item 14. Principal Accountant Fees and Services |
PART IV |
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K |
Form of UniFirst Corporation stock option award to non-employee directors |
Form of UniFirst Corporation stock option award to executive officers |
List of Subsidiaries |
Consent of Independent Registered Public Accounting Firm |
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
PART I
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders (which will be filed with the Securities and Exchange Commission within 120 days after the close of the 2004 fiscal year) are incorporated by reference into Part III hereof.
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Companys actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference are discussed in the Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K.
ITEM 1. BUSINESS
GENERAL
UniFirst Corporation (the Company or UniFirst) is one of the largest providers of workplace uniforms and protective clothing in the United States. The Company designs, manufactures, rents, cleans, delivers, 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, facility service products, other non-garment items, and provides first aid cabinet services and other safety supplies, 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 2004, the Company generated $719.4 million in revenue, of which approximately 58% was from the rental of uniforms and protective clothing, 27% was from the rental of non-garment items, 8% was from garment decontamination services, 4% was from first aid cabinet services and other safety supplies, and 3% was from the direct sale of garments.
We maintain our website at www.unifirst.com, and make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, including exhibits, and amendments to those reports filed or furnished to the Securities Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act, as amended, as soon as reasonably practicable after such documents are electronically filed, or furnished, to the SEC.
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 Companys uniform products include shirts, pants, jackets, coveralls, jumpsuits, smocks, aprons and specialized protective wear, such as flame resistant and high visibility garments. 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 also offers non-garment items and services, such as industrial wiping products, floor mats, dry and wet mops, and other textile products.
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, lease programs in which garments are cleaned and maintained by individual employees, and purchase programs to buy garments and related items directly. As part of its rental business, the Company picks up a customers soiled uniforms and/or other items on a periodic basis (usually weekly) and delivers back cleaned and processed replacement items. The Companys centralized services, specialized equipment, and economies of scale generally allow it to be more cost effective in providing garment and related services than customers would be by themselves, particularly those customers with high employee turnover rates. The Companys 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.
CUSTOMERS
The Company serves businesses of all sizes in numerous industry categories. Typical customers include automobile service centers and dealers, delivery services, 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 175,000 customer locations in 46 of the United States, Canada and Europe from approximately 175 manufacturing, distribution and customer service facilities.
MARKETING AND CUSTOMER SERVICE
The Company employs trained sales representatives whose sole function is to market the Companys 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 Companys 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.
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 1,300 route salespersons, who generally interact on a weekly basis with their accounts, and more than 800 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 Companys policy is to respond to all customer inquiries and problems within 24 hours.
The Companys 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 employees, including names, sizes, uniform styles and colors. The Company has 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 twenty persons in its national account sales organization.
COMPETITION
The uniform rental and sales industry is highly competitive. The principal methods of competition in the industry are quality of service and price. The Company believes that the top four competitors in the uniform rental segment of the industry currently generate over half of the industrys 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 Companys leading competitors include Aramark Corporation, Cintas Corporation and G&K Services, Inc. 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 63% of all garments which it placed in service during fiscal 2004. These were primarily work pants manufactured at its plant in Ebano, San Luis Potosi, Mexico and shirts manufactured at its plant in Valles, San Luis Potosi, Mexico. 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 28, 2004, the Company employed approximately 9,000 persons. Approximately 2% of United States employees are represented by unions pursuant to two separate collective bargaining agreements. The Company considers its employee relations to be good.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
NAME |
AGE |
POSITION |
---|---|---|
Ronald D. Croatti | 61 | Chairman of the Board, President, and Chief Executive Officer |
Cynthia Croatti | 49 | Executive Vice President and Treasurer |
John B. Bartlett | 63 | Senior Vice President and Chief Financial Officer |
Dennis G. Assad | 59 | Senior Vice President, Sales and Marketing |
Bruce P. Boynton | 56 | Senior Vice President, Operations |
David A. DiFillippo | 47 | Senior Vice President, Operations |
The principal occupation and positions for the past five years of the executive officers named above are as follows:
Ronald D. Croatti joined the Company in 1965. Mr. Croatti became Chairman of the Board in fiscal 2002. He has served as Chief Executive Officer since 1991. Mr. Croatti has overall responsibility for the management of the Company.
Cynthia Croatti joined the Company in 1980. Ms. Croatti has served as Executive Vice President since January 2001, and as Treasurer since 1982 and has primary responsibility for overseeing the human resources and purchasing functions 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 information systems department.
Dennis G. Assad joined the Company in 1975. Mr. Assad has served as Senior Vice President, Sales and Marketing since 1995 and has primary responsibility for overseeing the sales and marketing functions of the Company.
Bruce P. Boynton joined the Company in 1976. Mr. Boynton has served as Senior Vice President, Operations since January 2001, is the chief operating officer for the Companys Canadian operations and has primary responsibility for overseeing the operations of certain regions in the United States. Prior to January 2001, Mr. Boynton had served as Vice President, Operations since 1986.
David A. DiFillippo joined the Company in 1979. Mr. DiFillippo has served as Senior Vice President, Operations since January 2002, and has primary responsibility for overseeing the operations of certain regions in the United States. Prior to January 2002, Mr. DiFillippo had served as Vice President, Central Rental Group since January 2000. Prior to January 2000, Mr. DiFillippo had served as a Regional General Manager.
Ronald D. Croatti and Cynthia Croatti are siblings.
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 of money 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. The Company continues to address environmental conditions under terms of consent orders negotiated with the applicable environmental authorities or otherwise with respect to sites located in or related to Woburn, Massachusetts, Uvalde, Texas, Williamstown, Vermont, and Springfield, Massachusetts. In addition, the Company is assessing the extent of environmental contamination and potential exposure at sites it recently acquired in connection with its acquisition of Textilease Corporation in September 2003, and it is defending against claims concerning alleged environmental conditions with respect to a site once owned by a former subsidiary in Somerville, Massachusetts.
The Companys 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 Companys 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 Companys garment decontamination business.
AVAILABLE INFORMATION
We make available free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. These reports are available on our website at http://www.unifirst.com. In addition, you may request a copy of these filings, excluding exhibits, by contacting our Investor Relations group at (978) 658-8888 or at UniFirst Corporation, 68 Jonspin Road, Wilmington, MA 01887. Information included on our website is not deemed to be incorporated into this Annual Report on Form 10-K.
ITEM 2. PROPERTIES
At August 28, 2004, the Company owned or occupied 175 facilities containing an aggregate of approximately 4.9 million square feet located in the United States, Canada, Mexico, Germany and the Netherlands. These facilities include the Companys 320,000 square foot Owensboro, Kentucky distribution center and its many customer service locations. The Company owns 95 of these facilities, containing about 4.1 million square feet. The Company believes 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, its facilities and its production, cleaning and decontamination equipment have been well maintained and are adequate for the Companys present needs. The Company also owns a fleet of approximately 2,300 delivery vans, trucks and other vehicles. The Company believes that these vehicles are adequate for the Companys present needs.
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, employment claims and environmental matters as described above. The Company maintains insurance coverage providing indemnification against the majority of such claims and management does not expect that any material loss to the Company will be sustained as a result thereof.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
COMMON STOCK INFORMATION
Our common stock trades on the New York Stock Exchange under the symbol UNF. The following table sets forth, for the periods indicated, the high and low sales prices of our common stock on the New York Stock Exchange, and the dividends per share of common stock and class B common stock. These sales prices represent prices between dealers and do not include retail mark-ups, markdowns, or commissions and may not necessarily represent actual transactions.
Price Per Share | Dividends Per Share | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
For the
Year Ended August 28, 2004 |
High |
Low |
Class B Common Stock |
Common Stock | ||||||||||
First Quarter | $ | 28.27 | $ | 19.93 | $ | 0.030 | $ | 0.0375 | ||||||
Second Quarter | 28.00 | 21.25 | 0.030 | 0.0375 | ||||||||||
Third Quarter | 29.99 | 24.26 | 0.030 | 0.0375 | ||||||||||
Fourth Quarter | 29.93 | 26.00 | 0.030 | 0.0375 |
Price Per Share | Dividends Per Share | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
For the Year Ended August 30, 2003 |
High |
Low |
Class B Common Stock |
Common Stock | ||||||||||
First Quarter | $ | 24.69 | $ | 18.68 | $ | 0.030 | $ | 0.0375 | ||||||
Second Quarter | 21.40 | 18.55 | 0.030 | 0.0375 | ||||||||||
Third Quarter | 18.83 | 14.00 | 0.030 | 0.0375 | ||||||||||
Fourth Quarter | 26.92 | 17.99 | 0.030 | 0.0375 |
The approximate number of shareholders of record of the Companys common stock and Class B common stock as of November 5, 2004 were 116 and 21, respectively.
We have generally declared and paid cash dividends of the Companys common stock and Class B common stock quarterly. The amounts of future dividends on our common stock or class B common stock will be at the discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, anticipated cash needs, and plans for expansion. Each share of common stock is entitled to 125% of any cash dividend paid on each share of class B common stock.
Equity Compensation Plan Information
The following table sets forth information concerning the Companys equity compensation plans as of August 28, 2004.
Equity Compensation Plan Information |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Plan category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted Average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plan (excluding securities referenced in column (a)) | ||||||||
(a) | (b) | (c) | |||||||||
Equity compensation plans approved | |||||||||||
by security holders | 216,825 | $ | 18.70 | 215,150 | |||||||
Equity compensation plans not | |||||||||||
approved by security holders | -- | N/A | -- | ||||||||
Total | 216,825 | $ | 18.70 | 215,150 | |||||||
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with the Companys Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8.
The selected consolidated balance sheet data set forth below as of August 28, 2004 and August 30, 2003 and the selected consolidated income statement data for the three years in the period ended August 28, 2004 are derived from the audited consolidated financial statements of UniFirst Corporation included in this annual report on Form 10-K. All other selected consolidated financial data set forth below, except for per share data, is derived from audited financial statements of UniFirst Corporation not included in this Annual Report on Form 10-K. With respect to per share data listed below, the Emerging Issues Task Force (EITF) reached a consensus on Issue 03-6, Participating Securities and the Two-Class Method under FAS 128 (EITF 03-6) in March 2004. EITF 03-6 provides guidance in determining when the two-class method, as defined in SFAS No. 128 Earnings per Share must be utilized in calculating earnings per share. The Company was required to adopt EITF 03-6 in the quarter ended August 28, 2004 and to apply the provisions of EITF 03-6 retroactively to all periods presented. The Common Stock of the Company has a 25% dividend preference to the Class B Common Stock. The Class B Common Stock, which has ten votes per share as opposed to one vote per share for the Common Stock, is not freely transferable but may be converted at any time on a one-for-one basis into Common Stock at the option of the holder of the Class B Common Stock. EITF 03-6 requires the income per share for each class of common stock to be calculated assuming 100% of the Companys earnings are distributed as dividends to each class of common stock based on their respective dividend rights. Therefore, per share data for fiscal years 2003 and prior have been restated to conform to this new pronouncement.
Five Year Financial
Summary
UniFirst Corporation
and Subsidiaries
Fiscal Year Ended August (In thousands, except per share data) |
2004 |
2003 |
2002 |
2001 |
2000 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Selected Balance Sheet Data | |||||||||||||||||
Total assets | $ | 700,822 | $ | 514,587 | $ | 494,835 | $ | 491,813 | $ | 500,150 | |||||||
Long-term obligations | 178,841 | 69,812 | 85,096 | 94,795 | 126,638 | ||||||||||||
Shareholders' equity | 367,749 | 335,380 | 309,740 | 285,545 | 271,172 | ||||||||||||
Selected Income Statement Data | |||||||||||||||||
Revenues | $ | 719,356 | $ | 596,936 | $ | 578,898 | $ | 556,371 | $ | 528,726 | |||||||
Depreciation and amortization | 44,889 | 39,659 | 38,031 | 37,568 | 34,710 | ||||||||||||
Income from operations | 64,004 | 48,838 | 51,979 | 47,565 | 39,244 | ||||||||||||
Other expense, net | 9,406 | 1,266 | 8,660 | 10,108 | 7,200 | ||||||||||||
Provision for income taxes | 21,020 | 18,310 | 16,460 | 14,233 | 12,176 | ||||||||||||
Net income | 33,578 | 27,020 | 26,859 | 23,224 | 19,868 | ||||||||||||
Net income per Common share - basic | $ | 1.95 | $ | 1.58 | $ | 1.56 | $ | 1.34 | $ | 1.13 | |||||||
Net income per Class B Common share -basic | $ | 1.56 | $ | 1.27 | $ | 1.25 | $ | 1.07 | $ | 0.90 | |||||||
Net income per Common share - diluted | $ | 1.74 | $ | 1.40 | $ | 1.39 | $ | 1.20 | $ | 1.01 | |||||||
Net income per Class B Common share - diluted | $ | 1.56 | $ | 1.26 | $ | 1.25 | $ | 1.07 | $ | 0.90 | |||||||
Dividends per share | |||||||||||||||||
Common stock | $ | 0.15 | $ | 0.15 | $ | 0.15 | $ | 0.15 | $ | 0.15 | |||||||
Class B common stock | $ | 0.12 | $ | 0.12 | $ | 0.12 | $ | 0.12 | $ | 0.12 | |||||||
Fiscal 2003 net income includes a charge of $2,242 (net of $1,404 tax) for a cumulative effect of accounting change.
Fiscal 2003 includes a reduction of basic net income per Common share of $0.13 for a cumulative effect of accounting change.
Fiscal 2003 includes a reduction of basic net income per Class B Common share of $0.10 for a cumulative effect of accounting change.
Fiscal 2003 includes a reduction of diluted net income per Common share of $0.12 for a cumulative effect of accounting change.
Fiscal 2003 includes a reduction of diluted net income per Class B Common share of $0.10 for a cumulative effect of accounting change.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
UniFirst is one of the largest providers of workplace uniforms and protective clothing in the United States. The Company designs, manufactures, personalizes, rents, cleans, delivers, 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.
Approximately 85% of the Companys revenues in 2004 were derived from the rental of garment and non-garment items. A key driver of this business is the number of workers employed by the customers of the Company. Our revenues are directly impacted by declines or increases in those employment levels. Our garment decontamination business, which accounted for 8% of our 2004 revenues, increases during outages and refuelings by nuclear power plants, since garment usage is increased at these times.
Critical Accounting Policies and Estimates
The Company believes the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. There have been no changes in judgments or estimates that had a material effect on our consolidated financial statements for the periods presented.
Revenue Recognition and Allowance for Doubtful Accounts
The Company recognizes revenue from rental operations in the period in which the services are provided. Direct sale revenue is recognized in the period in which the product is shipped. Judgments and estimates are used in determining the collectability of accounts receivable. The Company analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Management judgments and estimates are used in connection with establishing the allowance in any accounting period. Changes in estimates are reflected in the period they become known. If the financial condition of the Companys customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Material differences may result in the amount and timing of bad debt expense recognition for any given period if management makes different judgments or utilizes different estimates.
Inventories and Rental Merchandise in Service
Inventories are stated at the lower of cost or market value, net of any reserve for excess and obsolete inventory. Judgments and estimates are used in determining the likelihood that new goods on hand can be sold to customers or used in rental operations. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company uses the last-in, first-out (LIFO) method to value a significant portion of its inventories. Substantially all inventories represent finished goods.
Rental merchandise in service is being amortized on a straight-line basis over the estimated service lives of the merchandise, which range from 6 to 36 months. In establishing estimated lives for merchandise in service, management considers historical experience and the intended use of the merchandise. Material differences may result in the amount and timing of operating profit for any period if management makes different judgments or utilizes different estimates.
Goodwill, Intangibles and Other Long-Lived Assets
The Company adopted SFAS No. 142 effective August 26, 2001. Under SFAS No. 142, goodwill is no longer amortized. SFAS 142 also requires that companies test goodwill for impairment on an annual basis and when events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit to which goodwill is assigned below its carrying amount. Our evaluation considers changes in the operating environment, competitive information, market trends, operating performance and cash flow modeling. Management completes its annual impairment test in the fourth quarter of each fiscal year and there have been no impairments of goodwill or definite-lived intangible assets in fiscal 2004, 2003 or 2002. Future events could cause management to conclude that impairment indicators exist and that goodwill and other intangibles associated with acquired businesses are impaired. Any resulting impairment loss could have a material impact on our financial condition and results of operations.
Property, plant and equipment and definite-lived intangible assets are depreciated or amortized over their useful lives. Useful lives are based on management estimates of the period that the assets will generate revenue. Long-lived assets are evaluated for impairment whenever events and circumstances indicate an asset may be impaired.
Insurance
The Company self-insures for certain obligations related to health, workers compensation, vehicles and general liability programs. The Company also purchases stop-loss insurance policies to protect it from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for losses that have occurred, but have not been reported. The Companys estimates consider historical claim experience and other factors. The Companys liabilities are based on estimates, and, while the Company believes that the accrual for loss is adequate, the ultimate liability may be in excess of or less than the amounts recorded. Changes in claim experience, the Companys ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.
Environmental and Other Contingencies
The Company is subject to legal proceedings and claims arising from the conduct of their business operations, including environmental matters, personal injury, customer contract matters, and/or employment claims. Accounting principles generally accepted in the United States require that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded. The Company regularly consults with attorneys and outside consultants to ensure that all of the relevant facts and circumstances are considered, before a contingent liability is recorded. The Company records accruals for environmental and other contingencies based on enacted laws, regulatory orders or decrees, the Companys estimates of costs, insurance proceeds, participation by other parties and the timing of payments, and the input of outside consultants and attorneys. The estimated liability for environmental contingencies has been discounted using a credit-adjusted risk-free rate of interest of 4.0% over periods ranging from ten to thirty years. The estimated current costs, net of legal settlements with insurance carriers, have been adjusted for the estimated impact of inflation at 3% per year. Changes in enacted laws, regulatory orders or decrees, managements estimates of costs, insurance proceeds, participation by other parties and the timing of payments, and the input of outside consultants and attorneys could have a material impact on the amounts recorded for environmental and other contingent liabilities.
Income Taxes
The Companys policy of accounting for income taxes is in accordance with SFAS No. 109 Accounting for 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. The Company computes income tax expense by jurisdiction based on its operations in each jurisdiction.
The Company is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, the Company records estimated reserves for probable exposures, in accordance with SFAS No. 5 Accounting for Contingencies. Based on the Companys evaluation of current tax positions, the Company believes it has appropriately accrued for probable exposures.
Asset Retirement Obligations
Effective September 1, 2002, the Company adopted the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 generally applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. Under the new accounting method, the Company now recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company will depreciate, on a straight-line basis, the amount added to property and equipment and recognize accretion expense in connection with the discounted liability over the various remaining lives which range from approximately one to thirty years.
The estimated liability has been based on historical experience in decommissioning nuclear laundry facilities, estimated useful lives of the underlying assets, external vendor estimates as to the cost to decommission these assets in the future and federal and state regulatory requirements. The estimated current costs have been adjusted for the estimated impact of inflation at 3% per year. The liability has been discounted using credit-adjusted risk-free rates that range from approximately 3.00% 7.25% over one to thirty years. Revisions to the liability could occur due to changes in the Companys estimated useful lives of the underlying assets, estimated dates of decommissioning, changes in decommissioning costs, changes in federal or state regulatory guidance on the decommissioning of such facilities, or other changes in estimates. Changes due to revised estimates will be recognized by increasing or decreasing the carrying amount of the liability and the carrying amount of the related long-lived asset if the assets are still in service or charged to expense in the period if the assets are no longer in service.
Results of Operations
The amounts of revenues and certain expense items for the three fiscal years ended August 28, 2004, August 30, 2003 and August 31, 2002, and the percentage changes in revenues and certain expense items between years are presented in the following table (in thousands):
FY 2004 |
FY 2003 |
FY 2002 |
% Change FY2004 vs. FY2003 |
% Change FY2003 vs. FY2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 719,356 | $ | 596,936 | $ | 578,898 | 20.5 | % | 3.1 | % | |||||||
Costs and expenses: | |||||||||||||||||
Operating costs | 462,612 | 381,098 | 359,960 | 21.4 | % | 5.9 | % | ||||||||||
Selling and administrative expenses | 147,851 | 127,341 | 128,928 | 16.1 | % | -1.2 | % | ||||||||||
Depreciation and amortization | 44,889 | 39,659 | 38,031 | 13.2 | % | 4.3 | % | ||||||||||
655,352 | 548,098 | 526,919 | 19.6 | % | 4.0 | % | |||||||||||
Income from operations | 64,004 | 48,838 | 51,979 | 31.1 | % | -6.0 | % | ||||||||||
Other expense | 9,406 | 1,266 | 8,660 | 643.0 | % | -85.4 | % | ||||||||||
Income before income taxes | 54,598 | 47,572 | 43,319 | 14.8 | % | 9.8 | % | ||||||||||
Provision for income taxes | 21,020 | 18,310 | 16,460 | 14.8 | % | 11.2 | % | ||||||||||
Income before cumulative effect of accounting change | 33,578 | 29,262 | 26,859 | 14.7 | % | 8.9 | % | ||||||||||
Cumulative effect of accounting change | -- | 2,242 | -- | -100.0 | % | N/A | |||||||||||
Net income | $ | 33,578 | $ | 27,020 | $ | 26,859 | 24.3 | % | 0.6 | % | |||||||
Fiscal Year Ended August 28, 2004 Compared with Fiscal Year Ended August 30, 2003
Revenues. In 2004, revenues increased 20.5% to $719.4 million as compared with $596.9 million for 2003. The 20.5% increase can be attributed to acquisitions (14.7%), primarily Textilease Corporation (Textilease), as well as growth from existing operations and price increases (5.8%). The increase in revenue due to price increases was modest due to a particularly competitive pricing environment.
Operating costs. Operating costs increased to $462.6 million for 2004 as compared with $381.1 million for 2003. As a percentage of revenues, operating costs increased to 64.3% from 63.9% for these periods, primarily due to significantly higher energy costs associated with operating industrial laundries as well as our fleet of delivery vehicles. Also, the Textilease laundries, acquired in the first quarter of 2004, generally have higher production costs than the existing UniFirst facilities. The increase in operating costs is also attributable to the Companys closure of a redundant facility during the fiscal year ended August 28, 2004. In connection with its plans to integrate the operations of Textilease, the Company closed its Richmond plant (UniFirst Richmond) and transferred the operations or the processing of garments to the Richmond plant acquired from Textilease. All costs incurred with the closure of the UniFirst Richmond plant, except the costs associated with the write-down to estimated fair value of certain machinery and equipment which is included in depreciation and amortization, have been recorded as operating costs during the fiscal year ended August 28, 2004. In addition, the Company recorded in the third and fourth quarters of fiscal 2004 a total of $742 of decommissioning costs related to the decommissioning of one of its nuclear laundry facilities. The increase in operating costs as a percentage of revenues was offset somewhat by lower merchandise costs from improved garment utilization and cost savings realized from the Companys manufacturing operations in Mexico.
Selling and administrative expenses. The Companys selling and administrative expenses increased to $147.9 million, or 20.6% of revenues, for 2004 as compared with $127.3 million, or 21.3% of revenues, for 2003. The decline in selling and administrative expenses as a percentage of revenue is primarily due to a decrease in new sales generated during the fiscal year ended August 28, 2004 as compared to the fiscal year ended August 30, 2003. The Company has also begun to realize synergies from eliminating redundancies within the sales group from the acquisition of Textilease. The decrease in selling and administrative expenses as a percentage of revenue is partially offset by the continuing rise of health care costs.
Depreciation and amortization. The Companys depreciation and amortization expense increased to $44.9 million, or 6.2% of revenues, for 2004, as compared with $39.7 million, or 6.6% of revenues, for 2003. The increase in depreciation and amortization expense was primarily related to the depreciation and amortization on the tangible and intangible assets acquired from Textilease. The Company also recorded approximately $0.6 million in depreciation expense during the quarter ended May 29, 2004 related to the write-down, to estimated fair value, of certain machinery and equipment at UniFirst Richmond.
Other expense (income). Other expense (income) (interest expense, interest rate swap expense (income) and interest income) was $9.4 million, or 1.3% of revenues, for 2004, as compared with $1.3 million, or 0.2% of revenues, for 2003. The increase in Other expense (income) was a result of the increased interest expense, which includes amortization of deferred financing costs of approximately $2.0 million associated with debt financing obtained in connection with the acquisition of Textilease. This is somewhat offset by an increase in the fair value of the $40 million SWAP, which generated $2.0 million of income for the fiscal year ended August 28, 2004, compared to $1.3 million of income for the fiscal year ended August 30, 2003.
Provision for income taxes. The Companys effective income tax rate was 38.5% for each of the fiscal years ended August 28, 2004 and August 30, 2003.
Fiscal Year Ended August 30, 2003 Compared with Fiscal Year Ended August 31, 2002
Revenues. In 2003, revenues increased 3.1% to $596.9 million as compared with $578.9 million for 2002, which had fifty-three weeks. On a comparative 52-week basis, revenues increased by 5.1%. The 3.1% increase can be attributed to growth from existing operations, acquisitions, and price increases in the core uniform rental business (1.9%) and increased revenue from the UniTech garment services business (1.2%).
Operating costs. Operating costs increased to $381.1 million for 2003 as compared with $360.0 million for 2002. As a percentage of revenues, operating costs increased to 63.9% from 62.2% for these periods, primarily due to increased non-garment merchandise costs, primarily mats and facility service products, as well as higher energy costs, offset by a reduction in merchandise costs resulting from improved garment utilization and the Companys continuing transition of its manufacturing operations to Mexico.
Selling and administrative expenses. The Companys selling and administrative expenses decreased to $127.3 million, or 21.3% of revenues, for 2003 as compared with $128.9 million, or 22.3% of revenues, for 2002. On a comparative 52-week basis, selling and administrative expenses increased approximately $1.0 million from 2002 to 2003, primarily due to increased sales and marketing costs driven by sales force expansion, partially offset by reduced legal costs.
Depreciation and amortization. The Companys depreciation and amortization expense increased to $39.7 million, or 6.6% of revenues, for 2003, as compared with $38.0 million, or 6.6% of revenues, for 2002. The increase was due to an increase in depreciation related to additional capital expenditures, offset by a decrease in amortization due to certain intangible assets becoming fully amortized during fiscal 2003.
Other expense (income). Net other expense (interest expense, interest rate swap expense (income) and interest income) was $1.3 million, or 0.2% of revenues, for 2003 as compared with $8.7 million, or 1.5% of revenues, for 2002. During the second quarter of fiscal 2002 the Company recorded a $2.3 million interest charge which was an estimate of the interest due from settling a revenue agent review with the IRS. Excluding this charge, net other expense would have been $6.4 million, or 1.1% of revenues, for 2002. The decrease in net other expense was also a result of lower interest rates and continued debt reduction, as well as changes in the fair value of the $40,000 SWAP, which was $1.3 million of income for 2003 as compared with $1.3 million of expense for 2002.
Provision for income taxes. The Companys effective income tax rate was 38.5% for 2003 as compared to 38.0% for 2002. The primary reason for the increase is higher state income taxes.
Liquidity and Capital Resources
Shareholders equity at August 28, 2004 was $367.7 million, or 67.3% of the Companys total capitalization.
General. For the fiscal year ended August 28, 2004, the Company had a net decrease in cash and cash equivalents of $1.6 million. The Company completed the fiscal year ended August 28, 2004 with cash and cash equivalents of $4.4 million and working capital of $56.9 million. The Company believes that current cash and cash equivalent balances, cash generated from operations and amounts available under the Companys Amended Credit Agreement (as defined below) will be sufficient to meet the Companys anticipated working capital and capital expenditure requirements for at least the next 12 months.
Sources and uses of cash. During the fiscal year ended August 28, 2004, the Company generated cash primarily from two sources: operating activities and proceeds from long-term obligations. The Companys operating activities provided net cash of $106.1 million, resulting primarily from net income of $33.6 million, amounts charged for depreciation and amortization of $46.9 million, increases in accounts payable and accruals of $16.4 million, a net decrease in rental merchandise in service of $9.8 million, offset by an increase in accounts receivable of $2.0 million. Also, the Company borrowed, net of repayments, approximately $106.5 million in 2004. The Company used its cash to, among other things, fund the acquisitions of businesses with an aggregate net purchase price of approximately $180.0 million, fund $30.9 million in capital expenditures to expand and update the Companys facilities, pay deferred financing costs of $4.5 million, and pay approximately $2.6 million in cash dividends to Common and Class B Common shareholders.
Additional cash resources. In connection with the purchase of Textilease, the Company entered into a $285 million unsecured revolving credit agreement (the Credit Agreement), with a syndicate of banks. The Credit Agreement replaced the Companys previous $125 million unsecured revolving credit agreement and, prior to its amendment, was due on the third anniversary of the Closing Date (September 2, 2006).
On June 14, 2004, the Company issued $165 million of fixed and floating rate notes pursuant to a Note Purchase Agreement (Note Agreement). Under the Note Agreement, the Company issued $75 million of notes with a seven year term bearing interest at 5.27% (Fixed Rate Notes). The Company also issued $90 million of floating rate notes due in ten years (Floating Rate Notes). Of the Floating Rate Notes, $75 million bear interest at LIBOR plus 70 basis points and may be repaid at face value two years from the date they were issued. The remaining $15 million of Floating Rate Notes bear interest at LIBOR plus 75 basis points and can be repaid at face value after one year. The Company also amended its Credit Agreement (Amended Credit Agreement) to, among other things, reduce the amount available for borrowing thereunder to $125 million and to reduce interest rates payable on such borrowings. As amended, loans under the Amended Credit Agreement bear interest at floating rates which vary based on the Companys funded debt ratio. The proceeds from the Fixed Rate Notes and the Floating Rate Notes were used to repay borrowings under the Credit Agreement. At August 28, 2004, the interest rate applicable to the Companys borrowings under the Amended Credit Agreement was LIBOR plus 100 basis points, which approximated 2.84%.
The Amended Credit Agreement runs through September 2, 2007. As of August 28, 2004, the maximum line of credit was $125 million of which approximately $94.5 million was available for borrowing thereunder. As of such date, the Company had outstanding borrowings of $10.6 million and letters of credit of $19.9 million. Under the Amended Credit Agreement, the Company may borrow funds at variable interest rates based on the Eurodollar rate or the banks prime rate, as selected by the Company.Availability of credit requires compliance with financial and other covenants, including minimum tangible net worth, maximum funded debt ratio, and minimum debt coverage, as defined in the Amended Credit Agreement. Compliance with these financial covenants is tested on a fiscal quarterly basis. Under the most restrictive of these provisions, the Company was required to maintain minimum consolidated tangible net worth of $124,789 as of August 28, 2004. As of August 28, 2004, the Company was in compliance with all covenants under the Note Agreement and the Amended Credit Agreement.
Other
On September 2, 2003 (Closing Date), the Company completed its acquisition of 100% of Textilease Corporation (Textilease). The purchase price of approximately $175,628 in cash was financed as part of a new $285,000 unsecured revolving credit agreement (Credit Agreement), with a syndicate of banks.
At the time of acquisition, management initiated a plan to integrate certain Textilease facilities into existing operations. Included in the purchase price allocation is an accrual for exit costs and employee termination benefits in accordance with EITF 95-3 of approximately $6,504, which included approximately $3,103 in severance-related costs for corporate and field employees and $3,401 in facility closing and lease cancellation costs. As of August 28, 2004, the Company paid and charged approximately $1,815 against this accrual for severance-related costs and $707 for facility closing and lease cancellation costs. As of August 28, 2004, the Company reversed approximately $1,965 of the initial accrual based upon its final analysis of the fair value of the liabilities assumed in connection with the acquisition, with a decrease in goodwill. The Company expects to incur substantially all of the remaining costs within twenty-four months of the Closing Date. The changes in accrual for the fiscal year ended August 28, 2004 are as follows:
Severance Related Costs |
Facility Closing and Lease Cancellation Costs |
Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance at August 30, 2003 | $ | -- | $ | -- | $ | -- | |||||
Initial set-up of liability | 3,103 | 3,401 | 6,504 | ||||||||
Charges | (1,815 | ) | (707 | ) | (2,522 | ) | |||||
Revisions | -- | (1,965 | ) | (1,965 | ) | ||||||
Balance at August 28, 2004 | $ | 1,288 | $ | 729 | $ | 2,017 | |||||
As part of the Companys business, the Company regularly evaluates opportunities to acquire other garment service companies. In recent years, the Company has typically paid for acquisitions with cash and may continue to do so in the future. To pay for an acquisition, the Company may use cash on hand, cash generated from operations or borrowings under the Companys Amended Credit Agreement, or the Company may pursue other forms of debt financing. The Companys ability to secure short-term and long-term debt financing in the future will depend on several factors, including the Companys future profitability, the levels of debt and equity and the overall credit and equity market environments.
Contractual Obligations and Other Commercial Commitments
The following information is presented as of August 28, 2004.
Payments Due by Fiscal Period | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations |
Total |
Less than 1 year |
1 - 3 years |
3 - 5 years |
More than 5 years | ||||||||||||
Private placement | $ | 165,000 | $ | -- | $ | -- | $ | -- | $ | 165,000 | |||||||
Bank debt | 11,597 | 389 | 288 | 288 | 10,632 | ||||||||||||
Other debt | 2,244 | 597 | 1,013 | 252 | 382 | ||||||||||||
Operating Leases | 11,181 | 4,513 | 4,797 | 1,785 | 86 | ||||||||||||
Total Contractual Cash Obligations | $ | 190,022 | $ | 5,499 | $ | 6,098 | $ | 2,325 | $ | 176,100 | |||||||
At August 28, 2004, the Company had $125 million of available capacity under our Amended Credit Agreement. As of such date, approximately $94.5 million was available for borrowing thereunder. Also, as of such date, the Company had outstanding borrowings of $10.6 million included in bank debt in the above schedule and letters of credit of $19.9 million.
Seasonality
Historically, the Companys 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 Companys 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 Companys customers; and price changes in response to competitive factors. In addition, the Companys 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
In general, management believes that our results of operations are not dependent on moderate changes in the inflation rate. Historically, we have been able to manage the impacts of more significant changes in inflation rates through our customer relationships, customer agreements that generally provide for price increases consistent with the rate of inflation, and continued focus on improvements of operational productivity.
Significant increases in energy costs, specifically natural gas and gasoline, can materially affect our results of operations and financial condition. Currently, energy costs represent approximately 3% of our total revenue.
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 uncertainties regarding the Companys ability to consummate and successfully integrate acquired businesses, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the Companys ability to compete successfully without any significant degradation in its margin rates, seasonal fluctuations in business levels, uncertainties regarding the price levels of natural gas, electricity, fuel, and labor, the impact of negative economic conditions on the Companys customers and such customers workforce, the continuing increase in domestic healthcare costs, demand and prices for the Companys products and services, additional professional and internal costs necessary for compliance with recent and proposed future changes in Securities and Exchange Commission (including the Sarbanes-Oxley Act of 2002), New York Stock Exchange, and accounting rules, strikes and unemployment levels, the Companys efforts to evaluate and potentially reduce internal costs, economic and other developments associated with the war on terrorism and its impact on the economy and general economic conditions. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
Management has determined that all of the Companys 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 Companys 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 Companys 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 Canadian Dollar, Euro, British Pound, or Mexican Peso 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 Companys 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 is exposed to interest rate risk primarily through its borrowings under its $125 million Amended Credit Agreement with a syndicate of banks and its $90 million of Floating Rate Notes with a group of insurance companies. Under both agreements, the Company borrows funds at variable interest rates based on the Eurodollar rate or LIBOR rates. As of August 28, 2004, the Companys outstanding debt approximates its carrying value.
The Company entered into a $40 million interest rate swap agreement to manage its exposure to movements in interest rates on its variable rate debt. This swap agreement, which expired in October 2004, effectively changed the variable rate to a fixed rate. Changes in the fair value of the swap agreement have been charged to the Companys consolidated statement of income in the period of change in fair value.
The Company is evaluating alternatives to manage its exposure to movements in interest rates on its variable rate debt borrowing agreements and the Floating Rate Notes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements
of Income
UniFirst Corporation and Subsidiaries
Year Ended (In thousands, except per share data) |
August 28, 2004 |
August 30, 2003 |
August 31, 2002 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 719,356 | $ | 596,936 | $ | 578,898 | |||||
Cost and expenses: | |||||||||||
Operating costs | 462,612 | 381,098 | 359,960 | ||||||||
Selling and administrative expenses | 147,851 | 127,341 | 128,928 | ||||||||
Depreciation and amortization | 44,889 | 39,659 | 38,031 | ||||||||
655,352 | 548,098 | 526,919 | |||||||||
Income from operations | 64,004 | 48,838 | 51,979 | ||||||||
Other expense (income): | |||||||||||
Interest expense | 12,522 | 4,010 | 8,843 | ||||||||
Interest income | (1,135 | ) | (1,452 | ) | (1,439 | ) | |||||
Interest rate swap expense (income) | (1,981 | ) | (1,292 | ) | 1,256 | ||||||
9,406 | 1,266 | 8,660 | |||||||||
Income before income taxes | 54,598 | 47,572 | 43,319 | ||||||||
Provision for income taxes | 21,020 | 18,310 | 16,460 | ||||||||
Income before cumulative effect of accounting change | 33,578 | 29,262 | 26,859 | ||||||||
Cumulative effect of accounting change (net of income tax | |||||||||||
benefit of $1,404 in fiscal 2003) | -- | 2,242 | -- | ||||||||
Net income | $ | 33,578 | $ | 27,020 | $ | 26,859 | |||||
Income per Common share - basic | |||||||||||
Before cumulative effect of an accounting change, net | $ | 1.95 | $ | 1.71 | $ | 1.56 | |||||
Cumulative effect of an accounting change, net | -- | (0.13 | ) | -- | |||||||
Net income per Common share - basic | $ | 1.95 | $ | 1.58 | $ | 1.56 | |||||
Income per Class B Common share - basic | |||||||||||
Before cumulative effect of an accounting change, net | $ | 1.56 | $ | 1.37 | $ | 1.25 | |||||
Cumulative effect of an accounting change, net | -- | (0.10 | ) | -- | |||||||
Net income per Class B Common share - basic | $ | 1.56 | $ | 1.27 | $ | 1.25 | |||||
Income per Common share - diluted | |||||||||||
Before cumulative effect of an accounting change, net | $ | 1.74 | $ | 1.52 | $ | 1.39 | |||||
Cumulative effect of an accounting change, net | -- | (0.12 | ) | -- | |||||||
Net income per Common share - diluted | $ | 1.74 | $ | 1.40 | $ | 1.39 | |||||
Income per Class B Common share - diluted | |||||||||||
Before cumulative effect of an accounting change, net | $ | 1.56 | $ | 1.36 | $ | 1.25 | |||||
Cumulative effect of an accounting change, net | -- | (0.10 | ) | -- | |||||||
Net income per Class B Common share - diluted | $ | 1.56 | $ | 1.26 | $ | 1.25 | |||||
Weighted average number of shares outstanding - basic | |||||||||||
Common stock | 9,103 | 8,992 | 9,000 | ||||||||
Class B common stock | 10,091 | 10,190 | 10,222 | ||||||||
19,194 | 19,182 | 19,222 | |||||||||
Weighted average number of shares outstanding - diluted | |||||||||||
Common stock | 9,167 | 9,032 | 9,056 | ||||||||
Class B common stock | 10,091 | 10,190 | 10,222 | ||||||||
19,258 | 19,222 | 19,278 | |||||||||
Dividends per share | |||||||||||
Common stock | $ | 0.15 | $ | 0.15 | $ | 0.15 | |||||
Class B common stock | $ | 0.12 | $ | 0.12 | $ | 0.12 | |||||
The
accompanying notes are an integral part of these
consolidated financial
statements.
Consolidated Balance
Sheets
UniFirst Corporation and Subsidiaries
Year Ended | ||||||||
---|---|---|---|---|---|---|---|---|
(In thousands, except per share data) |
August 28, 2004 |
August 30, 2003 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,436 | $ | 6,053 | ||||
Receivables, less reserves of $2,616 for 2004 and $2,611 for 2003 | 69,471 | 57,941 | ||||||
Inventories | 31,060 | 25,355 | ||||||
Rental merchandise in service | 60,544 | 60,490 | ||||||
Prepaid taxes and deferred tax assets | 2,753 | 5,591 | ||||||
Prepaid expenses | 1,857 | 407 | ||||||
Total current assets | 170,121 | 155,837 | ||||||
Property and equipment: | ||||||||
Land, buildings and leasehold improvements | 240,018 | 221,487 | ||||||
Machinery and equipment | 258,736 | 238,820 | ||||||
Motor vehicles | 70,048 | 66,081 | ||||||
568,802 | 526,388 | |||||||
Less - accumulated depreciation | 280,012 | 251,806 | ||||||
288,790 | 274,582 | |||||||
Goodwill | 180,685 | 62,608 | ||||||
Customer contracts, net | 51,572 | 16,713 | ||||||
Intangible assets, net | 6,301 | 3,811 | ||||||
Other assets | 3,353 | 1,036 | ||||||
$ | 700,822 | $ | 514,587 | |||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities: | ||||||||
Current maturities of long-term obligations | $ | 986 | $ | 2,493 | ||||
Notes payable | -- | 104 | ||||||
Accounts payable | 33,754 | 30,678 | ||||||
Accrued liabilities | 72,824 | 53,670 | ||||||
Accrued income taxes | 5,611 | -- | ||||||
Total current liabilities | 113,175 | 86,945 | ||||||
Long-term obligations, net of current maturities | 177,855 | 67,319 | ||||||
Deferred income taxes | 42,043 | 24,943 | ||||||
Commitments and Contingencies (Note 9) | ||||||||
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 | ||||||||
9,276,479 shares in 2004 and 10,599,359 shares in 2003 | 928 | 1,060 | ||||||
Class B common stock, $.10 par value; 20,000,000 shares authorized; | ||||||||
Issued and outstanding 9,929,144 shares in 2004 and 10,175,144 shares in 2003 | 993 | 1,018 | ||||||
Treasury stock, 1,595,055 shares in 2003 | -- | (26,005 | ) | |||||
Capital surplus | 13,138 | 12,693 | ||||||
Retained earnings | 353,196 | 348,043 | ||||||
Accumulated other comprehensive loss | (506 | ) | (1,429 | ) | ||||
Total shareholders' equity | 367,749 | 335,380 | ||||||
$ | 700,822 | $ | 514,587 | |||||
The
accompanying notes are an integral part of these
consolidated financial
statements.
Consolidated Statements
of Shareholders Equity
UniFirst Corporation and Subsidiaries
(In thousands) |
Common Shares |
Class B Common Shares |
Treasury Shares |
Common Stock |
Class B Common Stock |
Treasury Stock |
Capital Surplus |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Comprehensive Income (Loss) | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, August 25, 2001 | 10,517 | 10,239 | (1,535 | ) | $ | 1,052 | $ | 1,024 | $ | (24,755 | ) | $ | 12,438 | $ | 299,313 | $ | (3,527 | ) | ||||||||||||||
Net income | -- | -- | -- | -- | -- | -- | -- | 26,859 | -- | $ | 26,859 | |||||||||||||||||||||
Dividends | -- | -- | -- | -- | -- | -- | -- | (2,577 | ) | -- | -- | |||||||||||||||||||||
Shares converted | 34 | (34 | ) | -- | 3 | (3 | ) | -- | -- | -- | -- | -- | ||||||||||||||||||||
Shares repurchased | -- | -- | -- | -- | -- | (1 | ) | -- | -- | -- | -- | |||||||||||||||||||||
Stock options exercised | 4 | -- | -- | -- | -- | -- | 65 | -- | -- | -- | ||||||||||||||||||||||
Foreign Currency | ||||||||||||||||||||||||||||||||
translation adjustments | -- | -- | -- | -- | -- | -- | -- | -- | (471 | ) | (471 | ) | ||||||||||||||||||||
Change in fair value | ||||||||||||||||||||||||||||||||
of derivative instruments, | ||||||||||||||||||||||||||||||||
net of tax | -- | -- | -- | -- | -- | -- | -- | -- | 320 | 320 | ||||||||||||||||||||||
Comprehensive income | $ | 26,708 | ||||||||||||||||||||||||||||||
Balance, August 31, 2002 | 10,555 | 10,205 | (1,535 | ) | $ | 1,055 | $ | 1,021 | $ | (24,756 | ) | $ | 12,503 | $ | 323,595 | $ | (3,678 | ) | ||||||||||||||
Net income | -- | -- | -- | -- | -- | -- | -- | 27,020 | -- | $ | 27,020 | |||||||||||||||||||||
Dividends | -- | -- | -- | -- | -- | -- | -- | (2,572 | ) | -- | -- | |||||||||||||||||||||
Shares converted | 30 | (30 | ) | -- | 3 | (3 | ) | -- | -- | -- | -- | -- | ||||||||||||||||||||
Shares repurchased | -- | -- | (60 | ) | -- | -- | (1,249 | ) | -- | -- | -- | -- | ||||||||||||||||||||
Stock options exercised | 14 | -- | -- | 2 | -- | -- | 190 | -- | -- | -- | ||||||||||||||||||||||
Foreign Currency | ||||||||||||||||||||||||||||||||
translation adjustments | -- | -- | -- | -- | -- | -- | -- | -- | 1,904 | 1,904 | ||||||||||||||||||||||
Change in fair value | ||||||||||||||||||||||||||||||||
of derivative instruments, | ||||||||||||||||||||||||||||||||
net of tax | -- | -- | -- | -- | -- | -- | -- | -- | 345 | 345 | ||||||||||||||||||||||
Comprehensive income | $ | 29,269 | ||||||||||||||||||||||||||||||
Balance, August 30, 2003 | 10,599 | 10,175 | (1,595 | ) | $ | 1,060 | $ | 1,018 | $ | (26,005 | ) | $ | 12,693 | $ | 348,043 | $ | (1,429 | ) | ||||||||||||||
Net income | -- | -- | -- | -- | -- | -- | -- | 33,578 | -- | $ | 33,578 | |||||||||||||||||||||
Dividends | -- | -- | -- | -- | -- | -- | -- | (2,579 | ) | -- | -- | |||||||||||||||||||||
Shares converted | 246 | (246 | ) | -- | 25 | (25 | ) | -- | -- | -- | -- | -- | ||||||||||||||||||||
Shares repurchased | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||
Stock options exercised | 26 | -- | -- | 2 | -- | -- | 370 | -- | -- | -- | ||||||||||||||||||||||
Elimination of treasury shares | (1,595 | ) | -- | 1,595 | (159 | ) | -- | 26,005 | -- | (25,846 | ) | -- | -- | |||||||||||||||||||
Other | -- | -- | -- | -- | -- | -- | -- | -- | (78 | ) | (78 | ) | ||||||||||||||||||||
Tax benefit from exercise of | ||||||||||||||||||||||||||||||||
nonqualified stock option | -- | -- | -- | -- | -- | -- | 75 | -- | -- | -- | ||||||||||||||||||||||
Foreign Currency | ||||||||||||||||||||||||||||||||
translation adjustments | -- | -- | -- | -- | -- | -- | -- | -- | 1,001 | 1,001 | ||||||||||||||||||||||
Comprehensive income | $ | 34,501 | ||||||||||||||||||||||||||||||
Balance, August 28, 2004 | 9,276 | 9,929 | -- | $ | 928 | $ | 993 | $ | -- | $ | 13,138 | $ | 353,196 | $ | (506 | ) | ||||||||||||||||
The
accompanying notes are an integral part of these
consolidated financial
statements.
Consolidated Statements
of Cash Flows
UniFirst Corporation and Subsidiaries
Year Ended (In thousands) |
August 28, 2004 |
August 30, 2003 |
August 31, 2002 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: | |||||||||||
Net income | $ | 33,578 | $ | 27,020 | $ | 26,859 | |||||
Adjustments: | |||||||||||
Cumulative effect of accounting change, net | -- | 2,242 | -- | ||||||||
Depreciation | 38,539 | 35,262 | 32,755 | ||||||||
Amortization of intangible assets | 6,350 | 4,397 | 5,276 | ||||||||
Amortization of deferred financing costs | 2,052 | -- | -- | ||||||||
Accretion on asset retirement obligations | 431 | 292 | -- | ||||||||
Interest rate swap (income) expense | (1,981 | ) | (1,292 | ) | 1,256 | ||||||
Changes in assets and liabilities, net of acquisitions: | |||||||||||
Receivables | (1,984 | ) | (3,229 | ) | 1,158 | ||||||
Inventories | 3,518 | (548 | ) | (2,394 | ) | ||||||
Rental merchandise in service | 9,750 | (4,225 | ) | 1,618 | |||||||
Prepaid expenses | (615 | ) | (92 | ) | (40 | ) | |||||
Accounts payable | (1,654 | ) | 13,667 | (2,670 | ) | ||||||
Accrued liabilities | 5,349 | (4,982 | ) | (3,156 | ) | ||||||
Accrued income taxes | 12,725 | (7,704 | ) | (11,351 | ) | ||||||
Deferred income taxes | -- | -- | 3,388 | ||||||||
Net cash provided by operating activities | 106,058 | 60,808 | 52,699 | ||||||||
Cash flows from investing activities: | |||||||||||
Acquisition of businesses, net of cash acquired | (179,972 | ) | (2,785 | ) | (12,342 | ) | |||||
Proceeds from sale of linen business | 4,614 | -- | -- | ||||||||
Capital expenditures | (30,873 | ) | (37,919 | ) | (33,304 | ) | |||||
Other | (1,217 | ) | 1,912 | 3,940 | |||||||
Net cash used in investing activities | (207,448 | ) | (38,792 | ) | (41,706 | ) | |||||
Cash flows from financing activities: | |||||||||||
Proceeds from long term obligations | 351,716 | -- | 152 | ||||||||
Payments on long term obligations | (245,196 | ) | (16,667 | ) | (9,998 | ) | |||||
Payment of deferred financing costs | (4,540 | ) | -- | -- | |||||||
Repurchase of common stock | -- | (1,249 | ) | (1 | ) | ||||||
Proceeds from exercise of common stock options | 372 | 192 | 65 | ||||||||
Payment of cash dividends | (2,579 | ) | (2,572 | ) | (2,577 | ) | |||||
Net cash provided by (used in) financing activities | 99,773 | (20,296 | ) | (12,359 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | (1,617 | ) | 1,720 | (1,366 | ) | ||||||
Cash and cash equivalents at beginning of year | 6,053 | 4,333 | 5,699 | ||||||||
Cash and cash equivalents at end of year | $ | 4,436 | $ | 6,053 | $ | 4,333 | |||||
Supplemental disclosure of cash flow information: | |||||||||||
Interest paid | $ | 13,841 | $ | 4,554 | $ | 8,776 | |||||
Income taxes paid, net of refunds received | $ | 8,571 | $ | 24,179 | $ | 24,418 | |||||
The
accompanying notes are an integral part of these
consolidated financial
statements.
Notes to Consolidated
Financial Statements
UniFirst Corporation and Subsidiaries
(Amounts in thousands, except per share and common stock options data)
1. Summary Of Critical and Significant Accounting Policies
Business Description
UniFirst Corporation (the Company) is one of the largest providers of workplace uniforms and protective clothing in the United States. The Company designs, manufactures, personalizes, rents, cleans, delivers, 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, facility service products, other non-garment items, and provides first aid cabinet services and other safety supplies, 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.
Principles of Consolidation
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. 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.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. There have been no changes in judgments or the method of determining estimates that had a material effect on our condensed consolidated financial statements for the periods presented.
Fiscal Year
The Companys fiscal year ends on the last Saturday in August. For financial reporting purposes, fiscal 2004 and fiscal 2003 had 52 weeks, while fiscal 2002 had 53 weeks.
Revenue Recognition and Allowance for Doubtful Accounts
The Company recognizes revenue from rental operations in the period in which the services are provided. Direct sale revenue is recognized in the period in which the product is shipped. Judgments and estimates are used in determining the collectability of accounts receivable. The Company analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Management judgments and estimates are used in connection with establishing the allowance in any accounting period. Changes in estimates are reflected in the period they become known. If the financial condition of the Companys customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Material differences may result in the amount and timing of bad debt expense recognition for any given period if management makes different judgments or utilizes different estimates.
Inventories and Rental Merchandise in Service
Inventories are stated at the lower of cost or market value, net of any reserve for excess and obsolete inventory. Judgments and estimates are used in determining the likelihood that new goods on hand can be sold to customers or used in rental operations. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required. 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 $1.5 million higher at August 28, 2004 and August 30, 2003. Substantially all inventories represent finished goods.
Rental merchandise in service is being amortized on a straight-line basis over the estimated service lives of the merchandise, which range from 6 to 36 months. In establishing estimated lives for merchandise in service, management considers historical experience and the intended use of the merchandise. Material differences may result in the amount and timing of operating profit for any period if management makes different judgments or utilizes different estimates.
Property and Equipment
Property and equipment are recorded at cost. 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 |
Expenditures for maintenance and repairs are expensed as incurred. Expenditures for renewals and betterments are capitalized.
Goodwill and Other Intangible Assets
The Company adopted SFAS No. 142 effective August 26, 2001. Under SFAS No. 142, goodwill is no longer amortized. SFAS 142 also requires that companies test goodwill for impairment on an annual basis and when events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit to which goodwill is assigned below its carrying amount. Our evaluation considers changes in the operating environment, competitive information, market trends, operating performance and cash flow modeling. Management completes its annual impairment test in the fourth quarter of each fiscal year and there have been no impairments of goodwill or definite-lived intangible assets in fiscal 2004, 2003 or 2002. Future events could cause management to conclude that impairment indicators exist and that goodwill and other intangibles associated with acquired businesses are impaired. Any resulting impairment loss could have a material impact on our financial condition and results of operations.
Property, plant and equipment and definite-lived intangible assets are depreciated or amortized over their useful lives. Useful lives are based on management estimates of the period that the assets will generate revenue. Long-lived assets are evaluated for impairment whenever events and circumstances indicate an asset may be impaired.
Customer contracts are amortized over their estimated useful lives which have a weighted average useful life of approximately 14.8 years. Restrictive covenants are amortized over the terms of the respective non-competition agreements, which have a weighted average useful life of approximately 7.2 years. Other intangible assets, net, includes primarily deferred financing costs, which have a weighted average useful life of approximately 5.8 years. In accordance with the provisions of Statement of Financial Accounting Standards SFAS No. 142, the Company does not amortize goodwill.
Income Taxes
The Companys policy of accounting for income taxes is in accordance with SFAS No. 109 Accounting for 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. The Company computes income tax expense by jurisdiction based on its operations in each jurisdiction.
The Company is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, the Company records estimated reserves for probable exposures. Based on the Companys evaluation of current tax positions, the Company believes they have appropriately accrued for probable exposures.
Net Income Per Share
In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on Issue 03-6, Participating Securities and the Two-Class Method under FAS 128 (EITF 03-6). EITF 03-6 provides guidance in determining when the two-class method, as defined in SFAS No. 128 Earnings per Share must be utilized in calculating earnings per share. The Company was required to adopt EITF 03-6 in the quarter ended August 28, 2004 and to apply the provisions of EITF 03-6 retroactively to all periods presented. The Common Stock of the Company has a 25% dividend preference to the Class B Common Stock. The Class B Common Stock, which has ten votes per share as opposed to one vote per share for the Common Stock, is not freely transferable but may be converted at any time on a one-for-one basis into Common Stock at the option of the holder of the Class B Common Stock. EITF 03-6 requires the income per share for each class of common stock to be calculated assuming 100% of the Companys earnings are distributed as dividends to each class of common stock based on their respective dividend rights. The Company does not anticipate distributing 100% of its earnings as dividends. The effective result of EITF 03-6 is that the earnings per share for the Common Stock will be 25% greater than the earnings per share of the Class B Common Stock.
Basic earnings per share for the Companys Common Stock and Class B Common Stock is calculated by dividing net income allocated to Common Stock and Class B Common Stock by the weighted average number of shares of Common Stock and Class B Common Stock outstanding, respectively. Diluted earnings per share for the Companys Common Stock and Class B Common Stock is calculated similarly, except that the calculation includes the dilutive effect of the assumed exercise of stock options issuable under the Companys stock-based employee compensation plans and the assumption of the conversion of all the Companys Class B Common Stock to Common Stock.
Net income available to the Companys stockholders is allocated among our two classes of common stock, Common Stock and Class B Common Stock. The allocation among each class was based upon the two-class method. The following table shows how net income will be allocated using this method:
Year Ended |
August 28, 2004 |
August 30, 2003 |
August 31, 2002 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Net income available to shareholders | $ | 33,578 | $ | 27,020 | $ | 26,859 | |||||
Allocation of net income | |||||||||||
Basic: | |||||||||||
Common Stock | $ | 17,796 | $ | 14,171 | $ | 14,073 | |||||
Class B Common Stock | 15,782 | 12,849 | 12,786 | ||||||||
$ | 33,578 | $ | 27,020 | $ | 26,859 | ||||||
Diluted: | |||||||||||
Common Stock | $ | 17,854 | $ | 14,202 | $ | 14,114 | |||||
Class B Common Stock | 15,724 | 12,818 | 12,745 | ||||||||
$ | 33,578 | $ | 27,020 | $ | 26,859 | ||||||
The following table illustrates the weighted average number of Common and Class B Common shares outstanding during the year and are utilized in the calculation of earnings per share:
Year Ended |
August 28, 2004 |
August 30, 2003 |
August 31, 2002 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Weighted average number of Common shares - basic | 9,103 | 8,992 | 9,000 | ||||||||
Add: effect of dilutive potential Common shares - employee common | |||||||||||
stock options | 64 | 40 | 56 | ||||||||
Add: effect assuming conversion of Class B Common shares into | |||||||||||
Common Stock | 10,091 | 10,190 | 10,222 | ||||||||
Weighted average number of Common shares - diluted | 19,258 | 19,222 | 19,278 | ||||||||
Weighted average number of Class B Common shares - basic and | |||||||||||
diluted | 10,091 | 10,190 | 10,222 | ||||||||
Stock Based Compensation
The Company has stock-based employee compensation plans which are described in Note 10 to the consolidated financial statements. The Company uses the intrinsic value method to account for the plans under Accounting Principles Board No. 25, Accounting for Stock Issued to Employees, under which no compensation cost has been recognized related to stock option grants. The Company has adopted the disclosure provisions of SFAS No. 148 Accounting for Stock-Based Compensation Transition and Disclosure. Had compensation cost for this plan been determined consistent with SFAS No. 123, the Companys net income and earnings per share would have been reduced to the following pro forma amounts for the following periods:
Year Ended |
August 28, 2004 |
August 30, 2003 |
August 31, 2002 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Income before cumulative effect of accounting change | $ | 33,578 | $ | 29,262 | $ | 26,859 | |||||
Less: pro forma compensation expense, net of tax | (246 | ) | (171 | ) | (126 | ) | |||||
Pro forma income before cumulative effect of accounting change | 33,332 | 29,091 | 26,733 | ||||||||
Cumulative effect of accounting change, net of tax | -- | (2,242 | ) | -- | |||||||
Pro forma net income | $ | 33,332 | $ | 26,849 | $ | 26,733 | |||||
Basic net income per weighted average Common share, as reported: | |||||||||||
Income before cumulative effect of accounting change | $ | 1.95 | $ | 1.71 | $ | 1.56 | |||||
Cumulative effect of accounting change, net of tax | -- | (0.13 | ) | -- | |||||||
Net income per Common share | $ | 1.95 | $ | 1.58 | $ | 1.56 | |||||
Basic net income per weighted average Class B Common share, as reported: | |||||||||||
Income before cumulative effect of accounting change | $ | 1.56 | $ | 1.37 | $ | 1.25 | |||||
Cumulative effect of accounting change, net of tax | -- | (0.10 | ) | -- | |||||||
Net income per Class B Common share | $ | 1.56 | $ | 1.27 | $ | 1.25 | |||||
Basic net income per weighted average Common share, pro forma: | |||||||||||
Pro forma income before cumulative effect of accounting change | $ | 1.94 | $ | 1.70 | $ | 1.56 | |||||
Cumulative effect of accounting change, net of tax | -- | (0.13 | ) | -- | |||||||
Pro forma net income per Common share | $ | 1.94 | $ | 1.57 | $ | 1.56 | |||||
Basic net income per weighted average Class B Common share, pro forma: | |||||||||||
Pro forma income before cumulative effect of accounting change | $ | 1.55 | $ | 1.36 | $ | 1.25 | |||||
Cumulative effect of accounting change, net of tax | -- | (0.10 | ) | -- | |||||||
Pro forma net income per Class B Common share | $ | 1.55 | $ | 1.26 | $ | 1.25 | |||||
Diluted net income per weighted average Common share, as reported: | |||||||||||
Income before cumulative effect of accounting change | $ | 1.74 | $ | 1.52 | $ | 1.39 | |||||
Cumulative effect of accounting change, net of tax | -- | (0.12 | ) | -- | |||||||
Net income per Common share | $ | 1.74 | $ | 1.40 | $ | 1.39 | |||||
Diluted net income per weighted average Class B Common share, as reported: | |||||||||||
Income before cumulative effect of accounting change | $ | 1.56 | $ | 1.36 | $ | 1.25 | |||||
Cumulative effect of accounting change, net of tax | -- | (0.10 | ) | -- | |||||||
Net income per Class B Common share | $ | 1.56 | $ | 1.26 | $ | 1.25 | |||||
Diluted net income per weighted average Common share, pro forma: | |||||||||||
Pro forma income before cumulative effect of accounting change | $ | 1.73 | $ | 1.51 | $ | 1.39 | |||||
Cumulative effect of accounting change, net of tax | -- | (0.12 | ) | -- | |||||||
Pro forma net income per Common share | $ | 1.73 | $ | 1.39 | $ | 1.39 | |||||
Diluted net income per weighted average Class B Common share, pro forma: | |||||||||||
Pro forma income before cumulative effect of accounting change | $ | 1.55 | $ | 1.35 | $ | 1.24 | |||||
Cumulative effect of accounting change, net of tax | -- | (0.10 | ) | -- | |||||||
Pro forma net income per Class B Common share | $ | 1.55 | $ | 1.25 | $ | 1.24 | |||||
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model as prescribed by SFAS No. 123, based upon the date of grant, with the following assumptions used for grants each year:
2004 |
2003 |
2002 | |||||
---|---|---|---|---|---|---|---|
Risk-free interest rate | 4.32 | % | 4.00 | % | 4.03 | % | |
Expected dividend yield | 1.00 | % | 1.00 | % | 1.00 | % | |
Expected life in years | 10 | 10 | 8 | ||||
Expected volatility | 30 | % | 30 | % | 30 | % |
The weighted average fair values of options granted during fiscal years 2004, 2003 and 2002 were $11.90, $8.63 and $6.67, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and bank short-term investments with maturities of less than ninety days.
Financial Instruments
The Companys financial instruments, which may expose the Company to concentrations of credit risk, include cash and cash equivalents, receivables, accounts payable, notes payable and long-term obligations. Each of these financial instruments is recorded at cost, which approximates its fair value.
Goodwill, Intangibles and Other Long-Lived Assets
The Company adopted SFAS No. 142 effective August 26, 2001. Under SFAS No. 142, goodwill is no longer amortized. SFAS 142 also requires that companies test goodwill for impairment on an annual basis and when events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit to which goodwill is assigned below its carrying amount. Our evaluation considers changes in the operating environment, competitive information, market trends, operating performance and cash flow modeling. Management completes its annual impairment test in the fourth quarter of each fiscal year and there have been no impairments of goodwill or definite-lived intangible assets in fiscal 2004, 2003 or 2002. Future events could cause management to conclude that impairment indicators exist and that goodwill and other intangibles associated with acquired businesses are impaired. Any resulting impairment loss could have a material impact on our financial condition and results of operations.
Property, plant and equipment and definite-lived intangible assets are depreciated or amortized over their useful lives. Useful lives are based on management estimates of the period that the assets will generate revenue. Long-lived assets are evaluated for impairment whenever events and circumstances indicate an asset may be impaired.
Insurance
The Company self-insures for certain obligations related to health, workers compensation, vehicles and general liability programs. The Company also purchases stop-loss insurance policies to protect it from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for losses that have occurred, but have not been reported. The Companys estimates consider historical claims experience and other factors. The Companys liabilities are based on estimates, and, while the Company believes that the accrual for loss is adequate, the ultimate liability may be in excess of or less than the amounts recorded. Changes in claim experience, the Companys ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.
Environmental and Other Contingencies
The Company is subject to legal proceedings and claims arising from the conduct of their business operations, including environmental matters, personal injury, customer contract matters, and/or employment claims. Accounting principles generally accepted in the United States require that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded. The Company regularly consults with attorneys and outside consultants to ensure that all of the relevant facts and circumstances are considered, before a contingent liability is recorded. The Company records accruals for environmental and other contingencies based on enacted laws, regulatory orders or decrees, the Companys estimates of costs, insurance proceeds, participation by other parties and the timing of payments, and the input of outside consultants and attorneys. The estimated liability for environmental contingencies has been discounted using a credit-adjusted risk-free rate of interest of 4.0% over periods ranging from ten to thirty years. The estimated current costs, net of legal settlements with insurance carriers, have been adjusted for the estimated impact of inflation at 3% per year. Changes in enacted laws, regulatory orders or decrees, managements estimates of costs, insurance proceeds, participation by other parties and the timing of payments, and the input of outside consultants and attorneys could have a material impact on the amounts recorded for environmental and other contingent liabilities.
Reclassifications
Certain prior year amounts have been reclassified to conform with current year presentation. These reclassifications did not impact current or historical net income or shareholders equity.
2. Acquisitions
Aggregate information relating to the acquisition of businesses which were accounted for as purchases is as follows:
Year ended |
August 28, 2004 |
August 30, 2003 |
August 31, 2002 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Fair value of tangible assets acquired | $ | 56,079 | $ | 598 | $ | 4,371 | |||||
Fair value of intangible assets and goodwill acquired | 159,204 | 2,479 | 9,008 | ||||||||
Fair value of liabilities assumed or created | (35,311 | ) | (292 | ) | (1,037 | ) | |||||
Acquisition of businesses, net of cash acquired | $ | 179,972 | $ | 2,785 | $ | 12,342 | |||||
The results of operations of these acquisitions have been included on the Companys consolidated financial statements since their respective acquisition dates.
On September 2, 2003 (Closing Date), the Company completed its acquisition of 100% of Textilease Corporation (Textilease). The purchase price of approximately $175,628 in cash was financed as part of a new $285,000 unsecured revolving credit agreement (Credit Agreement), with a syndicate of banks. The Credit Agreement, completed on the Closing Date, replaced the Companys previous $125,000 unsecured revolving credit agreement and was due on the third anniversary of the Closing Date (September 2, 2006). Please see Note 4 Long Term Obligations. Availability of credit required compliance with financial and other covenants, including maximum leverage, minimum fixed charge coverage, and minimum tangible net worth, as defined in the Credit Agreement. Textilease, headquartered in Beltsville, Maryland, had fiscal year 2002 revenues of approximately $95,000. It serviced over 25,000 uniform and textile products customers from 12 locations in six southeastern states, and also serviced a wide range of large and small first-aid service customers from additional specialized facilities. Textileases operating results have been included in the Companys consolidated operating results since September 2, 2003.
The following is the final allocation of the fair values of the assets acquired and liabilities assumed at the date of acquisition. The Company engaged a third party to appraise the fair value of the acquired tangible and intangible assets. The third party has completed its appraisal and the purchase price allocation below reflects the appraised values of acquired tangible and intangible assets. The Company has also completed its analysis of the fair values of the liabilities assumed in connection with the acquisition, including certain liabilities that qualify for recognition under Emerging Issues Task Force 95-3 Recognition of Liabilities in Connection with a Purchase Business Combination (EITF 95-3).
Assets: | |||||
Current assets | $ | 33,400 | |||
Property and equipment | 21,557 | ||||
Goodwill | 115,413 | ||||
Intangible assets subject to amortization (estimated fifteen year weighted-average useful life): | 40,060 | ||||
Other assets | 109 | ||||
Total assets acquired | $ | 210,539 | |||
Liabilities: | |||||
Current liabilities | $ | 16,938 | |||
Deferred compensation | 5,249 | ||||
Deferred income taxes | 10,719 | ||||
Long-term debt | 2,005 | ||||
Total liabilities assumed | $ | 34,911 | |||
Net assets acquired | $ | 175,628 | |||
At the time of acquisition, goodwill of approximately $117,504 was recorded. For the fiscal year ended August 28, 2004, the refinement of the Companys original estimates, which principally related to the Companys valuation of acquired intangible assets and property and equipment, as well as the sale of a portion of the linen businesses acquired, resulted in a decrease in goodwill of approximately $2,091. Subsequent to the Closing Date, the Company sold a portion of the linen businesses acquired from Textilease for approximately $4,614 in cash. The Company allocated the proceeds of these sales as a reduction in merchandise in service, an increase to deferred tax liabilities, and a net reduction in goodwill of $2,285. This sale of the linen businesses acquired did not result in any gain or loss recorded on the Companys consolidated statement of income.
The $115,413 of goodwill as of August 28, 2004 will be assigned to our only reportable segment, that being the design, manufacture, rental, cleaning and delivery of occupational garments, industrial wiper towels, floor mats and other non-garment items. None of the goodwill is expected to be deductible for income tax purposes. At the time of acquisition, management initiated a plan to integrate certain Textilease facilities into existing operations. Included in the purchase price allocation is an accrual for exit costs and employee termination benefits in accordance with EITF 95-3 of approximately $6,504, which included approximately $3,103 in severance-related costs for corporate and field employees and $3,401 in facility closing and lease cancellation costs. As of August 28, 2004, the Company paid and charged approximately $1,815 against this accrual for severance-related costs and $707 for facility closing and lease cancellation costs. As of August 28, 2004, the Company reversed approximately $1,963 of the initial accrual based upon its final analysis of the fair value of the liabilities assumed in connection with the acquisition, with a decrease in goodwill. The Company expects to incur substantially all of the remaining costs within twenty-four months of the Closing Date. The changes in accrual for the fiscal year ended August 28, 2004 are as follows:
Severance Related Costs |
Facility Closing and Lease Cancellation Costs |
Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance at August 30, 2003 | $ | -- | $ | -- | $ | -- | |||||
Initial set-up of liability | 3,103 | 3,401 | 6,504 | ||||||||
Charges | (1,815 | ) | (707 | ) | (2,522 | ) | |||||
Revisions | -- | (1,965 | ) | (1,965 | ) | ||||||
Balance at August 28, 2004 | $ | 1,288 | $ | 729 | $ | 2,017 | |||||
Supplemental Pro Forma Information
The unaudited pro forma combined condensed statements of income for the fiscal year ended August 30, 2003 gives effect to the acquisition of Textilease and related financing as if the Textilease acquisition and the related financing had occurred on August 31, 2002. The unaudited pro forma combined condensed statements of income for the fiscal year ended August 30, 2003, include the consolidated statements of income of UniFirst for the fiscal year ended August 30, 2003, and the unaudited statements of operations of Textilease for the twelve months ended June 30, 2003, and pro forma adjustments to reflect the Textilease acquisition and the related financing. Textilease previously had a fiscal year ending on December 31.
The pro forma adjustments include additional interest expense of approximately $5,898 for the fiscal year ended August 30, 2003, related to the debt used to finance the acquisition, additional depreciation and amortization of approximately $2,102 for the fiscal year ended August 30, 2003, related to the estimated increase to the fair value of property and equipment and intangible assets and the related income tax effects of approximately $3,200 for the fiscal year ended August 30, 2003.
The unaudited pro forma combined condensed statements of income are not necessarily indicative of the financial results that would have occurred if the Textilease acquisition and the related financing had been consummated on August 31, 2002, nor are they necessarily indicative of the financial results which may be attained in the future.
The unaudited pro forma combined condensed statements of income are based upon available information and upon certain assumptions that UniFirsts management believes are reasonable. The Textilease acquisition was accounted for using the purchase method of accounting.
Year Ended August 28, 2004 (Actual) |
Year Ended August 30, 2003 (Pro Forma) | |||||||
---|---|---|---|---|---|---|---|---|
Revenues | $ | 719,356 | $ | 691,937 | ||||
Income before cumulative effect of accounting | ||||||||
change | $ | 33,578 | $ | 26,796 | ||||
Cumulative effect of accounting change, net of tax | -- | 2,242 | ||||||
Net income | $ | 33,578 | $ | 24,554 | ||||
Basic net income per weighted average Common share, | ||||||||
as reported: | ||||||||
Income before cumulative effect of accounting change | $ | 1.95 | $ | 1.56 | ||||
Cumulative effect of accounting change, net of tax | -- | (0.13 | ) | |||||
Net income per Common share | $ | 1.95 | $ | 1.43 | ||||
Basic net income per weighted average Class B Common | ||||||||
share, as reported: | ||||||||
Income before cumulative effect of accounting change | $ | 1.56 | $ | 1.25 | ||||
Cumulative effect of accounting change, net of tax | -- | (0.10 | ) | |||||
Net income per Class B Common share | $ | 1.56 | $ | 1.15 | ||||
Diluted net income per weighted average Common share, | ||||||||
as reported: | ||||||||
Income before cumulative effect of accounting change | $ | 1.74 | $ | 1.39 | ||||
Cumulative effect of accounting change, net of tax | -- | (0.12 | ) | |||||
Net income per Common share | $ | 1.74 | $ | 1.27 | ||||
Diluted net income per weighted average Class B | ||||||||
Common share, as reported: | ||||||||
Income before cumulative effect of accounting change | $ | 1.56 | $ | 1.25 | ||||
Cumulative effect of accounting change, net of tax | -- | (0.10 | ) | |||||
Net income per Class B Common share | $ | 1.56 | $ | 1.15 | ||||
During the fiscal year ended August 28, 2004, the Company also completed seven other acquisitions. The aggregate purchase price for these acquisitions was approximately $4,344, net of debt assumed of $400.
The results of operations of all acquisitions excluding Textilease (Other Acquisitions) have been included on the Companys consolidated financial statements since their respective acquisition dates. None of the Other Acquisitions were significant, individually or in the aggregate, in relation to the Companys consolidated financial statements and, therefore, pro forma financial information has not been presented. The Other Acquisitions were engaged in the rental of garments, floor mats, and other non-garment related items.
3. Income Taxes
The provision for income taxes consists of the following:
Year ended |
August 28, 2004 |
August 30, 2003 |
August 31, 2002 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Current: | |||||||||||
Federal and Foreign | $ | 17,101 | $ | 16,218 | $ | 13,383 | |||||
State | 1,957 | 2,026 | 1,624 | ||||||||
$ | 19,058 | $ | 18,244 | $ | 15,007 | ||||||
Deferred: | |||||||||||
Federal and Foreign | $ | 1,787 | $ | 60 | $ | 1,354 | |||||
State | 175 | 6 | 99 | ||||||||
1,962 | 66 | 1,453 | |||||||||
$ | 21,020 | $ | 18,310 | $ | 16,460 | ||||||
The following table reconciles the provision for income taxes using the statutory federal income tax rate to the actual provision for income taxes:
August 28, 2004 |
August 30, 2003 |
August 31, 2002 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Income taxes at the statutory federal | |||||||||||
income tax rate | $ | 19,109 | $ | 16,650 | $ | 15,160 | |||||
State income taxes | 1,408 | 1,315 | 1,120 | ||||||||
Foreign income taxes | 221 | 193 | 148 | ||||||||
Other | 282 | 152 | 32 | ||||||||
$ | 21,020 | $ | 18,310 | $ | 16,460 | ||||||
The tax effect of items giving rise to the Companys deferred tax (assets) liabilities is as follows:
Year ended |
August 28, 2004 |
August 30, 2003 |
August 31, 2002 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Rental merchandise in service | $ | 15,738 | $ | 8,612 | $ | 12,765 | |||||
Tax in excess of book depreciation | 29,612 | 25,730 | 23,630 | ||||||||
Purchased intangible assets | 13,866 | -- | -- | ||||||||
Accruals and other | (19,926 | ) | (14,885 | ) | (11,547 | ) | |||||
Net deferred tax liabilities | $ | 39,290 | $ | 19,457 | $ | 24,848 | |||||
4. Long-Term Obligations
Long-term obligations outstanding on the accompanying consolidated balance sheets are as follows:
August 28, 2004 |
August 30, 2003 | |||||||
---|---|---|---|---|---|---|---|---|
Unsecured revolving credit agreement with a syndicate of banks, | ||||||||
interest rates of 2.84% and 2.26% at August 28, 2004 and | ||||||||
August 30, 2003, respectively | $ | 10,560 | $ | 65,710 | ||||
Series A, fixed rate notes due June 2011 bearing interest at 5.27% | 75,000 | -- | ||||||
Series B, floating rate notes due June 2014 bearing interest at | ||||||||
LIBOR plus 70 basis points (2.1275%) | 75,000 | -- | ||||||
Series C, floating rate notes due June 2014 bearing interest at | ||||||||
LIBOR plus 75 basis points (2.1775%) | 15,000 | -- | ||||||
Notes payable, interest rates from 4.00% - 11.53%, payable | ||||||||
in various installments through 2009 | 3,229 | 4,001 | ||||||
Amounts due for restrictive covenants and other, | ||||||||
payable in various installments through 2005 | 52 | 101 | ||||||
178,841 | 69,812 | |||||||
Less - current maturities | 986 | 2,493 | ||||||
$ | 177,855 | $ | 67,319 | |||||
Aggregate current maturities of long-term obligations for years subsequent to August 28, 2004 are $986 in 2005, $685 in 2006, $616 in 2007, $345 in 2008, $195 in 2009, and $176,014 thereafter.
In connection with the purchase of Textilease, the Company entered into a $285 million unsecured revolving credit agreement (Credit Agreement), with a syndicate of banks. The Credit Agreement replaced the Companys previous $125 million unsecured revolving credit agreement and, prior to its amendment, was due on the third anniversary of the Closing Date (September 2, 2006).
On June 14, 2004, the Company issued $165 million of fixed and floating rate notes pursuant to a Note Purchase Agreement (Note Agreement). Under the Note Agreement, the Company issued $75 million of notes with a seven year term (June 2011) bearing interest at 5.27% (Fixed Rate Notes). The Company also issued $90 million of floating rate notes due in ten years (June 2014) (Floating Rate Notes). Of the Floating Rate Notes, $75 million bear interest at LIBOR plus 70 basis points and may be repaid at face value two years from the date they are issued. The remaining $15 million of Floating Rate Notes bear interest at LIBOR plus 75 basis points and can be repaid at face value after one year. The Company also amended its Credit Agreement (Amended Credit Agreement) to, among other things, reduce the amount available for borrowing thereunder to $125 million and to reduce interest rates payable on such borrowings. As amended, loans under the Amended Credit Agreement bear interest at floating rates which vary based on the Companys funded debt ratio. The proceeds from the Fixed Rate Notes and the Floating Rate Notes were used to repay borrowings under the Credit Agreement. At August 28, 2004, the interest rate applicable to the Companys borrowings under the Amended Credit Agreement was LIBOR plus 100 basis points, which approximated 2.84%.
The Amended Credit Agreement runs through September 2, 2007. As of August 28, 2004, the maximum line of credit was $125 million of which approximately $94.5 million was available for borrowing thereunder. As of such date, the Company had outstanding borrowings of $10.6 million and letters of credit of $19.9 million. Under the Amended Credit Agreement, the Company may borrow funds at variable interest rates based on the Eurodollar rate or the banks prime rate, as selected by the Company.Availability of credit requires compliance with financial and other covenants, including minimum tangible net worth, maximum funded debt ratio, and minimum debt coverage, as defined in the Amended Credit Agreement. Compliance with these financial covenants is generally tested on a fiscal quarterly basis. Under the most restrictive of these provisions, the Company was required to maintain minimum consolidated tangible net worth of $124,789 as of August 28, 2004. As of August 28, 2004, the Company was in compliance with all covenants under the Note Agreement and the Amended Credit Agreement.
5. Derivative Instruments and Hedging Activities
The Company had entered into interest rate swap agreement, which expired in October 2004, to manage its exposure to movements in interest rates on its variable rate debt. The Company accounts for these agreements in accordance with SFAS No. 133, as amended, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). This swap agreement was a cash flow hedge and effectively changed the variable rate to a fixed rate. Such instruments are matched with the underlying borrowings. SFAS No. 133 eliminates special hedge accounting if a swap agreement does not meet certain criteria, thus requiring the Company to reflect all changes in the fair value of the swap agreement in earnings in the period of change.
In October 1999, the Company entered into an interest rate swap agreement, notional amount $40,000 (the $40,000 SWAP), maturing October 13, 2004. The Company pays a fixed rate of 6.38% and receives a variable rate tied to the three month LIBOR rate. As of August 28, 2004, the applicable variable rate was 1.59%. On October 15, 2002, the bank had the option to terminate the $40,000 SWAP without further obligation to make payments to the Company. The bank did not exercise this option. Because of the existence of this termination option, the $40,000 SWAP did not meet the required criteria to qualify as a cash flow hedge and use special hedge accounting, under SFAS No. 133. Accordingly, the Company has recorded, in the interest rate swap income line item of its consolidated statements of income, income of $1,981, $1,292 and expense of $1,256 for the fiscal years ended August 28, 2004, August 30, 2003 and August 31, 2002, respectively, for the changes in the fair value of $40,000 SWAP. As of August 28, 2004 and August 30, 2003, respectively, $223 and $2,203 of interest rate swap related liabilities are included in accrued liabilities in the accompanying condensed consolidated balance sheets.
In June 2001, the Company entered into a second interest rate swap agreement with a notional amount of $20,000 (the $20,000 SWAP), maturing June 5, 2003. The Company paid a fixed rate of 4.69% and received a variable rate tied to the three month LIBOR rate. At maturity, the applicable variable rate was 1.34%. The $20,000 SWAP met the required criteria as defined in SFAS No. 133 to use special hedge accounting. Accordingly, the Company has recorded, through the other comprehensive loss section of shareholders equity, income of $345, net of tax of $230 for the fiscal year ended August 30, 2003 for the change in the fair value in the $20,000 SWAP. The $20,000 SWAP matured on June 5, 2003.
6. 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 Company matches a portion of the employees contribution and can make an additional contribution at its discretion. Contributions charged to expense under the plan were $7,249 in 2004, $5,887 in 2003 and $6,176 in 2002.
The Company has several retirement plans covering certain employees of the Company. Amounts charged to expense related to these plans amounted to $600 in 2004, $400 in 2003, and $400 in 2002. The Company has recorded accrued liabilities related to these plans of approximately $7 million at August 28, 2004 and $3 million at August 30, 2003.
7. Goodwill and Other Intangible Assets
The Company adopted SFAS No. 142 effective August 26, 2001. Under SFAS No. 142, goodwill is no longer amortized, but reviewed annually, or more frequently if certain indicators arise, for impairment. There were no impairment losses related to goodwill and indefinite-lived intangible assets due to the application of SFAS No. 142. In addition, the remaining useful lives of amortizable intangible assets were reviewed and deemed appropriate.
The changes in the carrying amount of goodwill are as follows:
Balance as of August 31, 2002 | $ | 61,539 | |||
Goodwill acquired during the period | 910 | ||||
Effect of foreign currency translation | 159 | ||||
Balance as of August 30, 2003 | $ | 62,608 | |||
Goodwill acquired during the period | 118,068 | ||||
Effect of foreign currency translation | 9 | ||||
Balance as of August 28, 2004 | $ | 180,685 | |||
Intangible assets, net on the Companys accompanying consolidated balance sheets are as follows:
Year Ended |
August 28, 2004 |
August 30, 2003 | ||||||
---|---|---|---|---|---|---|---|---|
Customer contracts, net of accumulated amortization of | ||||||||
$38,084 and $33,120, respectively | $ | 51,572 | $ | 16,713 | ||||
Restrictive covenants, net of accumulated amortization of | ||||||||
$14,478 and $13,449, respectively | 2,183 | 3,038 | ||||||
Other intangible assets, net of accumulated amortization of | ||||||||
$1,392 and $940, respectively | 4,118 | 773 | ||||||
$ | 57,873 | $ | 20,524 | |||||
Estimated amortization expense for the five fiscal years subsequent to August 28, 2004, based on intangible assets, net as of August 28, 2004 is as follows:
2005 | $ | 6,296 | |||
2006 | 5,881 | ||||
2007 | 5,704 | ||||
2008 | 4,940 | ||||
2009 | 4,772 |
8. Accrued Liabilities
Accrued liabilities on the accompanying consolidated balance sheets are as follows:
Year Ended |
August 28, 2004 |
August 30, 2003 | ||||||
---|---|---|---|---|---|---|---|---|
Payroll related | $ | 25,477 | $ | 15,250 | ||||
Insurance related | 20,285 | 18,149 | ||||||
Environmental related | 8,669 | 5,377 | ||||||
Asset retirement obligations | 7,446 | 7,060 | ||||||
Acquisition related | 2,017 | -- | ||||||
Interest rate swap related | 223 | 2,203 | ||||||
Other | 8,707 | 5,631 | ||||||
$ | 72,824 | $ | 53,670 | |||||
9. Commitments and Contingencies
Lease Commitments
The Company leases certain buildings from independent parties. Total rent expense on all leases was $6,649 in 2004, $3,280 in 2003, and $3,436 in 2002. Annual minimum lease commitments for all years subsequent to August 28, 2004 are $4,513 in 2005, $3,002 in 2006, $1,795 in 2007, $1,243 in 2008, $542 in 2009, and $86 thereafter.
Contingencies
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. The Company continues to address environmental conditions under terms of consent orders negotiated with the applicable environmental authorities or otherwise with respect to sites located in or related to Woburn, Massachusetts, Uvalde, Texas, Williamstown, Vermont, and Springfield, Massachusetts. In addition, the Company is assessing the extent of environmental contamination and potential exposure at sites it recently acquired in connection with its acquisition of Textilease, and it is defending against claims concerning alleged environmental conditions with respect to a site once owned by a former subsidiary in Somerville, Massachusetts.
The Companys nuclear garment decontamination facilities are licensed by the Nuclear Regulatory Commission (NRC), 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 Companys 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 Companys garment decontamination business.
From time to time, the Company is subject to legal proceedings and claims arising from the conduct of its business operations, including litigation related to charges for certain ancillary services on invoices, personal injury claims, customer contract matters, employment claims and environmental matters as described above.
While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, the Company believes that the aggregate amount of such liabilities, if any, in excess of amounts accrued or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operation of the Company. It is possible, however, that future financial position or results of operations for any particular future period could be materially affected by changes in the Companys assumptions or strategies related to these contingencies or changes out of the Companys control.
As security for certain agreements with the NRC and various state agencies related to the nuclear operations (see Note 14) and certain insurance programs, the Company had standby irrevocable bank commercial letters of credit of $19,919 and $20,061 outstanding as of August 28, 2004 and August 30, 2003 , respectively.
10. Common Stock Options
The Company adopted an incentive stock option plan (the Plan) in November, 1996 and reserved 150,000 shares of common stock for issue under the Plan. In January of 2002, the Company increased to 450,000 the number of shares of common stock reserved for issuance under the Plan. Options granted under the Plan, through August 28, 2004, are at a price equal to the fair market value of the Companys common stock on the date of grant. Options granted prior to fiscal 2003 are subject to a proportional four-year vesting schedule and expire eight years from the grant date. Options granted beginning in fiscal 2003 and thereafter are subject to a five-year cliff-vesting schedule under which options become vested or exercisable after five years from date of grant and expire ten years after the grant date. Certain options were granted during fiscal 2004 to outside directors of the Company. These shares are fully vested and expire ten years after the grant date.
The following table summarizes the common stock option activity for the fiscal years ended August 28, 2004, August 30, 2003, and August 31, 2002:
NUMBER OF SHARES |
WEIGHTED AVERAGE EXERCISE PRICE | |||||||
---|---|---|---|---|---|---|---|---|
Outstanding, August 25, 2001 | 107,800 | $ | 12.52 | |||||
Granted | 55,700 | 17.55 | ||||||
Exercised | (4,875 | ) | 13.44 | |||||
Forfeited | (11,375 | ) | 13.71 | |||||
Outstanding, August 31, 2002 | 147,250 | $ | 14.30 | |||||
Granted | 56,200 | 20.10 | ||||||
Exercised | (14,250 | ) | 13.45 | |||||
Forfeited | (1,500 | ) | 14.65 | |||||
Outstanding, August 30, 2003 | 187,700 | $ | 16.10 | |||||
Granted | 61,800 | 24.45 | ||||||
Exercised | (26,175 | ) | 14.25 | |||||
Forfeited | (6,500 | ) | 16.24 | |||||
Outstanding, August 28, 2004 | 216,825 | $ | 18.70 | |||||
Exercisable, August 31, 2002 | 46,288 | $ | 13.78 | |||||
Exercisable, August 30, 2003 | 91,967 | $ | 14.05 | |||||
Exercisable, August 28, 2004 | 73,569 | $ | 14.41 | |||||
The following table summarizes information relating to currently outstanding and exercisable stock options as of August 28, 2004:
OUTSTANDING OPTIONS |
EXERCISABLE OPTIONS | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
NUMBER OUTSTANDING |
REMAINING CONTRACTUAL LIFE (IN YEARS) |
EXERCISE PRICES |
NUMBER EXERCISABLE |
EXERCISE PRICES | ||||||||||
24,825 | 3.0 | $ | 15.13 | 24,825 | $ | 15.13 | ||||||||
33,975 | 4.2 | 10.06 | 25,481 | 10.06 | ||||||||||
42,525 | 5.2 | 17.55 | 21,263 | 17.55 | ||||||||||
45,500 | 8.2 | 20.13 | -- | 20.13 | ||||||||||
8,200 | 8.4 | 19.93 | -- | 19.93 | ||||||||||
59,800 | 9.2 | 24.35 | -- | 24.35 | ||||||||||
2,000 | 9.4 | 27.44 | 2,000 | 27.44 | ||||||||||
216,825 | 73,569 | |||||||||||||
11. 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.
Effective July 1, 2004, companies incorporated in Massachusetts became subject to the Massachusetts Business Corporation Act, Chapter 156D. Chapter 156D provides that shares that are reacquired by a company become authorized but unissued shares. As a result, Chapter 156D eliminates the concept of treasury shares. Accordingly, at August 28, 2004, we have redesignated 1.595 million shares of the Companys existing treasury shares, at an aggregate cost of $26,005, as authorized but unissued and allocated this amount to the common stocks par value and retained earnings.
12. Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income/(loss) are as follows:
Foreign Currency Translation |
Change in Fair Value of Derivative Instruments, net of tax |
Other |
Total Accumulated Other Comprehensive Loss | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, August 25, 2001 | $ | (2,862 | ) | $ | (665 | ) | $ | -- | $ | (3,527 | ) | |||
Change during the period | (471 | ) | 320 | -- | (151 | ) | ||||||||
Balance, August 31, 2002 | (3,333 | ) | (345 | ) | -- | (3,678 | ) | |||||||
Change during the period | 1,904 | 345 | -- | 2,249 | ||||||||||
Balance, August 30, 2003 | (1,429 | ) | -- | -- | (1,429 | ) | ||||||||
Change during the period | 1,001 | -- | (78 | ) | 923 | |||||||||
Balance, August 28, 2004 | $ | (428 | ) | $ | -- | $ | (78 | ) | $ | (506 | ) | |||
13. Segment Reporting
The Company operates as a single reportable segment, that being the design, rental, cleaning and delivery of occupational garments, industrial wiper towels, floor mats and other non-garment items, which represents more than 90% of consolidated net sales. The Companys reporting segment relating to first aid cabinet services and other safety supplies does not meet the thresholds of a reportable segment as outlined in SFAS 131. The Company also has activities in Canada, Mexico and Europe, which do not meet the reporting thresholds outlined in SFAS 131.
14. Asset Retirement Obligations
Effective September 1, 2002, the Company adopted the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 generally applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. Under the new accounting method, the Company now recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.
As of September 1, 2002, the Company recognized as a liability the present value of the estimated future costs to decommission its nuclear laundry facilities in accordance with the provisions of SFAS No. 143. The adoption of SFAS No. 143 resulted in a cumulative charge of $2,242, net of tax benefit of $1,400, related to the change in accounting principle, the recognition of a discounted asset retirement obligation of $5,300, and an increase of $2,400 to the gross carrying value of the related long-lived assets ($900, net of accumulated depreciation of $1,500). The Company will depreciate, on a straight-line basis, the amount added to property and equipment and recognize accretion expense in connection with the discounted liability over the various remaining lives which range from approximately one to thirty years.
The estimated liability has been based on historical experience in decommissioning nuclear laundry facilities, estimated useful lives of the underlying assets, external vendor estimates as to the cost to decommission these assets in the future and federal and state regulatory requirements. The estimated current costs have been adjusted for the estimated impact of inflation at 3% per year. The liability has been discounted using credit-adjusted risk-free rates that range from approximately 3.00% to 7.25% over one to thirty years. Revisions to the liability could occur due to changes in the Companys estimated useful lives of the underlying assets, estimated dates of decommissioning, changes in decommissioning costs, changes in federal or state regulatory guidance on the decommissioning of such facilities, or other changes in estimates. Changes due to revised estimates will be recognized by increasing or decreasing the carrying amount of the liability and the carrying amount of the related long-lived asset if the assets are still in service or charged to expense in the period if the assets are no longer in service.
The Company revised its estimate of this liability in the quarter ended August 30, 2003 due to changes in the estimate of future decommissioning costs related to one of the Companys nuclear facilities. The change in estimate resulted in an increase of $1,255 to the carrying amount of the liability and the carrying amount of the related long-lived asset. Since this revision is a change in estimate, the Company will depreciate the increase in the long-lived asset over the estimated remaining useful life of the related nuclear facility which is 28 years. In the quarter ended August 30, 2003, the Company also recognized as a liability the present value of the estimated future costs to decommission a new nuclear laundry facility. The Company recognized a discounted asset retirement obligation of $503, and an increase of $497 to the gross carrying value of the related long-lived asset ($494, net of accumulated depreciation of $3). In the current fiscal year, the Company began decommissioning one of the nuclear laundry facilities for which it had recognized an asset retirement obligation. Costs incurred in connection with the decommissioning for the year ended August 30, 2003 were approximately $300.
In fiscal year 2003, the Company began decommissioning one of the nuclear laundry facilities for which it had recognized an asset retirement obligation. Costs incurred in connection with the decommissioning for the fiscal year ended August 28, 2004 were approximately $787. The Company revised its estimate of future liability in the fiscal year ended August 28, 2004 due to changes in the estimate of future decommissioning costs related to this nuclear laundry facility. The change in estimate resulted in an increase of $742 to the carrying amount of the liability. Since the decommissioning of this nuclear laundry facility is significantly complete and the underlying long-lived asset is no longer in service, the Company recorded an expense in its current statement of income as opposed to increasing the carrying amount of the related long-lived asset and subsequently depreciating that asset. As of August 28, 2004, the Company believes this current decommissioning project will be completed by the end of fiscal 2005.
The pro forma effects of the application of SFAS No. 143 as if the Statement had been adopted on August 27, 2000 (instead of September 1, 2002) are not material and, therefore, have not been presented.
A reconciliation of the Companys liability is as follows:
August 28, 2004 |
August 30, 2003 | |||||||
---|---|---|---|---|---|---|---|---|
Beginning balance | $ | 7,060 | $ | 5,310 | ||||
Accretion expense | 431 | 292 | ||||||
Change in estimate of liability | 742 | 1,255 | ||||||
Additional liabilities recognized | -- | 503 | ||||||
Asset retirement costs incurred | (787 | ) | (300 | ) | ||||
Ending balance | $ | 7,446 | $ | 7,060 | ||||
As of August 28, 2004, the $7.4 million asset retirement obligation is included in accrued liabilities in the accompanying condensed consolidated balance sheet.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
UniFirst Corporation
We have audited the accompanying consolidated balance sheets of UniFirst Corporation (the Company) and subsidiaries as of August 28, 2004 and August 30, 2003 and the related consolidated statements of income, shareholders equity, and cash flows for each of the three years in the period ended August 28, 2004. Our audits also included the financial statement schedule listed in the index at item 15 (a). These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 consolidated financial position of UniFirst Corporation and Subsidiaries at August 28, 2004 and August 30, 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended August 28, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Emerging Issues Task Force Issue 03-6, "Participating Securities and the Two-Class Method Under FAS 128" ("EITF 03-6") during the fourth quarter of 2004. The provisions of EITF 03-6 have been retroactively applied to all periods presented.
As discussed in Note 14 to the consolidated financial statements, effective September 1, 2002, the Company adopted Statement of Financial Accounting Standards (Statement) No. 143 Asset Retirement Obligations.
/s/ Ernst & Young LLP
Boston,
Massachusetts
October 26, 2004
Quarterly Financial Data (Unaudited)
The following is a summary of the results of operations for each of the quarters within the years ended August 28, 2004 and August 30, 2003. This summary should be read in conjunction with the Companys Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8.
The Companys fiscal year ends on the last Saturday in August. For financial reporting purposes, fiscal 2004 and fiscal 2003 had 52 weeks. Each of the quarters presented below includes 13 weeks.
(Unaudited) (In thousands, except per share data) 2004 |
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 180,898 | $ | 177,407 | $ | 182,985 | $ | 178,066 | ||||||
Income before income taxes | 15,485 | 10,718 | 16,167 | 12,228 | ||||||||||
Provision for income taxes | 5,962 | 4,126 | 6,224 | 4,708 | ||||||||||
Net income | $ | 9,523 | $ | 6,592 | $ | 9,943 | $ | 7,520 | ||||||
Net income per Common share - basic | $ | 0.56 | $ | 0.38 | $ | 0.58 | $ | 0.43 | ||||||
Net income per Class B Common share - basic | $ | 0.44 | $ | 0.31 | $ | 0.46 | $ | 0.35 | ||||||
Net income per Common share - diluted | $ | 0.49 | $ | 0.34 | $ | 0.52 | $ | 0.39 | ||||||
Net income per Class B Common share - diluted | $ | 0.44 | $ | 0.31 | $ | 0.46 | $ | 0.35 | ||||||
Weighted average number of shares outstanding - basic | ||||||||||||||
Common stock | 9,009 | 9,022 | 9,127 | 9,253 | ||||||||||
Class B common stock | 10,175 | 10,168 | 10,073 | 9,950 | ||||||||||
19,184 | 19,190 | 19,200 | 19,203 | |||||||||||
Weighted average number of shares outstanding - diluted | ||||||||||||||
Common stock | 9,074 | 9,085 | 9,198 | 9,327 | ||||||||||
Class B common stock | 10,175 | 10,168 | 10,073 | 9,950 | ||||||||||
19,249 | 19,253 | 19,271 | 19,277 | |||||||||||
(Unaudited) (In thousands, except per share data) |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter | ||||||||||
Revenues | $ | 149,179 | $ | 146,425 | $ | 153,690 | $ | 147,642 | ||||||
Income before income taxes | 14,089 | 6,137 | 15,624 | 11,722 | ||||||||||
Provision for income taxes | 5,424 | 2,363 | 6,015 | 4,508 | ||||||||||
Income before cumulative effect of accounting change | 8,665 | 3,774 | 9,609 | 7,214 | ||||||||||
Cumulative effect of accounting change, net | 2,242 | -- | -- | -- | ||||||||||
Net income | $ | 6,423 | $ | 3,774 | $ | 9,609 | $ | 7,214 | ||||||
Income per Common share - basic | ||||||||||||||
Before cumulative effect of an accounting change, net | $ | 0.50 | $ | 0.22 | $ | 0.56 | $ | 0.43 | ||||||
Cumulative effect of an accounting change, net | (0.13 | ) | -- | -- | -- | |||||||||
Net income per Common share - basic | $ | 0.37 | $ | 0.22 | $ | 0.56 | $ | 0.43 | ||||||
Income per Class B Common share - basic | ||||||||||||||
Before cumulative effect of an accounting change, net | $ | 0.40 | $ | 0.18 | $ | 0.45 | $ | 0.34 | ||||||
Cumulative effect of an accounting change, net | (0.10 | ) | -- | -- | -- | |||||||||
Net income per Class B Common share - basic | $ | 0.30 | $ | 0.18 | $ | 0.45 | $ | 0.34 | ||||||
Income per Common share - diluted | ||||||||||||||
Before cumulative effect of an accounting change, net | $ | 0.45 | $ | 0.20 | $ | 0.50 | $ | 0.37 | ||||||
Cumulative effect of an accounting change, net | (0.12 | ) | -- | -- | -- | |||||||||
Net income per Common share - diluted | $ | 0.33 | $ | 0.20 | $ | 0.50 | $ | 0.37 | ||||||
Income per Class B Common share - diluted | ||||||||||||||
Before cumulative effect of an accounting change, net | $ | 0.40 | $ | 0.18 | $ | 0.45 | $ | 0.33 | ||||||
Cumulative effect of an accounting change, net | (0.10 | ) | -- | -- | -- | |||||||||
Net income per Class B Common share - diluted | $ | 0.30 | $ | 0.18 | $ | 0.45 | $ | 0.33 | ||||||
Weighted average number of shares outstanding - basic | ||||||||||||||
Common stock | 9,013 | 8,963 | 8,993 | 8,997 | ||||||||||
Class B common stock | 10,205 | 10,205 | 10,175 | 10,175 | ||||||||||
19,218 | 19,168 | 19,168 | 19,172 | |||||||||||
Weighted average number of shares outstanding - diluted | ||||||||||||||
Common stock | 9,066 | 9,003 | 9,000 | 9,058 | ||||||||||
Class B common stock | 10,205 | 10,205 | 10,175 | 10,175 | ||||||||||
19,271 | 19,208 | 19,175 | 19,233 | |||||||||||
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the Exchange Act), the Company carried out an evaluation under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of the end of the period covered by this report. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective to ensure that material information relating to the Company required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In designing and evaluating the disclosure controls and procedures, the Companys management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures. The Company currently is in the process of further reviewing and documenting its disclosure controls and procedures, and its internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the fourth quarter of fiscal year 2004 that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION
On October 25, 2004, each non-employee director of the Company received a grant of an option to purchase 1,000 shares of Common Stock pursuant to the UniFirst Corporation 1996 Stock Incentive Plan (the Stock Incentive Plan) (attached hereto as Exhibit 10-D). The exercise price of each option was $27.98, the closing price on October 25, 2004. The options are fully vested and expire ten years from the date of grant. A copy of the form of outside director stock option agreement under the Stock Incentive Plan is attached to this Annual Report on Form 10-K as Exhibit 10-E and is incorporated herein by reference.
Also, on October 25, 2004, the Company granted options under the Stock Incentive Plan to purchase (i) 2,100 shares of its Common Stock to Ronald D. Croatti, Chariman of the Board, President and Chief Executive Officer, (ii) 1,400 shares of its Common Stock to Cynthia Croatti, Executive Vice President and Treasurer, (iii) 1,400 shares of its Common Stock to John B. Bartlett, Senior Vice President and Chief Financial Officer, (iv) 1,100 shares of its Common Stock to Dennis G. Assad, Senior Vice President, Sales and Marketing, (v) 1,100 shares of its Common Stock to Bruce P. Boynton, Senior Vice President, Operations, (vi) 1,100 shares of its Common Stock to David A. DiFillippo, Senior Vice President, Operations. The exercise price of each option was $27.98, the closing price on October 25, 2004. The options vest on the fifth anniversary of the date of grant or earlier as provided in the applicable stock option agreement or the Stock Incentive Plan and expire ten years from the date of grant. A copy of the form of employee stock option agreement under the Stock Incentive Plan is attached to this Annual Report on Form 10-K as Exhibit 10-F and is incorporated herein by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the information provided under the caption Election of Directors in the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the information provided under the caption Summary Compensation Table, Option Grants with Respect to Fiscal Year 2004, Option Exercises and Year-End Holdings, Supplemental Executive Retirement Plan and Stock Performance Graph in the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND RELATED STOCKHOLDER MATTERS
Incorporated by reference to the information provided under the captions Election of Directors, and Security Ownership of Management and Principal Shareholders, in the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders and Equity Compensation Plan Information in Item 5 of this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the information provided under the caption Certain Relationships and Related Transactions in the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference to the information provided under the caption Independent Auditors in the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders.
PART IV
ITEM 15. 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 listed below are included under Item 8 of this Form 10-K.
Consolidated statements of income for each of the three years in the period ended August 28, 2004
Consolidated balance sheets as of August 28, 2004 and August 30, 2003
Consolidated statements of shareholders equity for each of the three years in the period ended August 28, 2004
Consolidated statements of cash flows for each of the three years in the period ended August 28, 2004
Notes to consolidated financial statements
Report of Ernst & Young LLP, Independent Auditors
The following additional schedule is filed herewith:
Schedule II Valuation and qualifying accounts and reserves for each of the three years in the period ended August 28, 2004
UNIFIRST CORPORATION
AND SUBSIDIARIES
SCHEDULE
II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED AUGUST 28, 2004
Description |
Balance, Beginning of Period |
Charged to Costs and Expenses |
Charges for Which Reserves Were Created |
Balance, End of Period | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
For the year ended August 28, 2004 | ||||||||||||||
Allowance for doubtful accounts | $ | 2,611 | $ | 3,132 | $ | (3,127 | ) | $ | 2,616 | |||||
For the year ended August 30, 2003 | ||||||||||||||
Allowance for doubtful accounts | $ | 2,687 | $ | 3,066 | $ | (3,142 | ) | $ | 2,611 | |||||
For the year ended August 31, 2002 | ||||||||||||||
Allowance for doubtful accounts | $ | 3,237 | $ | 3,326 | $ | (3,876 | ) | $ | 2,687 | |||||
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 totally held.
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 list of exhibits filed as part of this annual report on Form 10-K are set forth at (c) below.
(c) Exhibits
DESCRIPTION
2.1 Stock Purchase Agreement dated as of July 17, 2003 by and among the Company and the stockholders of Textilease Corporation signatory thereto incorporated by reference to the Companys Current Report on Form 8-K filed on September 17, 2003.
3-A Restated Articles of Organization incorporated by reference to Exhibit 3-A to the Companys Registration Statement on Form S-1 (No. 2-83051) and the Articles of Amendment dated January 12, 1988, a copy of which was filed as an exhibit to the Companys Annual Report on Form 10-K for the fiscal year ended August 27, 1988 and the Articles of Amendment dated January 21, 1993, a copy of which was filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended February 27, 1993.
3-B By-laws incorporated by reference to Exhibit 3-B to the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 1991.
10-A UniFirst Corporation Profit Sharing Plan incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-8 (No. 33-60781) and the Amendment dated June 27, 1995, a copy of which was filed as an exhibit to the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 1996.
10-D UniFirst Corporation 1996 Stock Incentive Plan, as amended, (incorporated by reference to Exhibit 10-D to the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 2002.
* 10-E Form of UniFirst Corporation stock option award to non-employee directors.
* 10-F Form of UniFirst Corporation stock option award to executive officers.
14.1 UniFirst Corporation Statement of Corporate Policy and Code of Business Conduct and Ethics incorporated by reference to Appendix B to the Companys Proxy Statement on Schedule 14A filed on December 10, 2003.
* 21 List of Subsidiaries
* 23.1 Consent of Ernst & Young LLP, Independent Auditors
* 31.1 Rule 13a-14(a)/15d-14(a) certification of Ronald D. Croatti
* 31.2 Rule 13a-14(a)/15d-14(a) certification of John B. Bartlett
** 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
** 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
* Filed herewith
** Furnished
herewith
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: /s/ Ronald D. Croatti | |
Ronald D. Croatti | |
President and Chief Executive Officer |
November 12, 2004
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 |
---|---|---|
/s/ Ronald D. Croatti Ronald D. Croatti /s/ John B. Bartlett John B. Bartlett /s/ Cynthia Croatti Cynthia Croatti /s/ Donald J. Evans Donald J. Evans /s/ Albert Cohen Albert Cohen /s/ Phillip L. Cohen Phillip L. Cohen /s/ Anthony F. DiFillippo Anthony F. DiFillippo /s/ Lawrence Pugh Lawrence Pugh |
Principal Executive Officer and Director Principal Financial Officer and Principal Accounting Officer Director Director Director Director Director Director |
November 12, 2004 November 12, 2004 November 12, 2004 November 12, 2004 November 12, 2004 November 12, 2004 November 12, 2004 November 12, 2004 |
EXHIBIT INDEX
DESCRIPTION
2.1 Stock Purchase Agreement dated as of July 17, 2003 by and among the Company and the stockholders of Textilease Corporation signatory thereto incorporated by reference to the Companys Current Report on Form 8-K filed on September 17, 2003.
3-A Restated Articles of Organization incorporated by reference to Exhibit 3-A to the Companys Registration Statement on Form S-1 (No. 2-83051) and the Articles of Amendment dated January 12, 1988, a copy of which was filed as an exhibit to the Companys Annual Report on Form 10-K for the fiscal year ended August 27, 1988 and the Articles of Amendment dated January 21, 1993, a copy of which was filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended February 27, 1993.
3-B By-laws incorporated by reference to Exhibit 3-B to the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 1991.
10-A UniFirst Corporation Profit Sharing Plan incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-8 (No. 33-60781) and the Amendment dated June 27, 1995, a copy of which was filed as an exhibit to the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 1996.
10-D UniFirst Corporation 1996 Stock Incentive Plan, as amended, (incorporated by reference to Exhibit 10-D to the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 2002.
* 10-E Form of UniFirst Corporation stock option award to non-employee directors.
* 10-F Form of UniFirst Corporation stock option award to executive officers.
14.1 UniFirst Corporation Statement of Corporate Policy and Code of Business Conduct and Ethics incorporated by reference to Appendix B to the Companys Proxy Statement on Schedule 14A filed on December 10, 2003.
* 21 List of Subsidiaries
* 23.1 Consent of Ernst & Young LLP, Independent Auditors
* 31.1 Rule 13a-14(a)/15d-14(a) certification of Ronald D. Croatti
* 31.2 Rule 13a-14(a)/15d-14(a) certification of John B. Bartlett
** 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
** 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
* Filed herewith
** Furnished
herewith
Exhibit 10-E
FORM OF UNIFIRST CORPORATION STOCK OPTION AWARD TO NON-EMPLOYEE DIRECTORS
UNIFIRST CORPORATION
NON-QUALIFIED STOCK
OPTION GRANTED
UNDER THE UNIFIRST
CORPORATION AMENDED
1996 STOCK INCENTIVE PLAN
Pursuant to the UniFirst Corporation Amended 1996 Stock Incentive Plan (the Plan), UniFirst Corporation (the Company) hereby grants to the Optionee named above an option (the Stock Option) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $.10 per share (the Stock) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. Capitalized terms used herein without definition shall have the respective meanings ascribed to them in the Plan.
1. | Vesting Schedule. This Stock Option shall be exercisable in full on the grant date. |
2. | Manner of Exercise. The Optionee may exercise this Stock Option as set forth in, and subject to the provisions of, Section 5(b)(ii)(B) of the Plan. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the shares of Stock transferred to the Optionee upon the exercise of this Stock Option shall be net of the number of shares attested to. Certificates for shares of Stock purchased upon exercise of this Stock Option shall be issued and delivered to the Optionee upon compliance, to the satisfaction of the Committee, with all requirements under applicable laws or regulations in connection with such issuance and with the requirements hereof and of the Plan. The determination of the Committee as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company shall have issued and delivered the shares to the Optionee, and the Optionees name shall have been entered as the stockholder of record on the books of the Company. |
3. | Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan. |
4. | Nontransferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionees lifetime, only by the Optionee, and thereafter, only by the Optionees legal representative or legatee. |
5. | Miscellaneous. |
(a) | Notice hereunder shall be given to the Company (attention to its Chief Financial Officer) at its principal place of business, and shall be given to the Optionee at his or her most recent address as maintained on the Companys records, or in either case at such other address as one party may subsequently furnish to the other party in writing. |
(b) | This Stock Option does not confer upon the Optionee any rights with respect to continuance of service as a Director of the Company. |
UniFirst Corporation By: /s/ Ronald D. Croatti Ronald D. Croatti, Chief Executive Officer | |
Exhibit 10-F
FORM OF UNIFIRST CORPORATION STOCK OPTION AWARD TO EXECUTIVE OFFICERS
UNIFIRST CORPORATION
NON-QUALIFIED STOCK
OPTION GRANTED
UNDER THE UNIFIRST
CORPORATION
1996 STOCK INCENTIVE PLAN
Pursuant to the UniFirst Corporation 1996 Stock Incentive Plan (the Plan), UniFirst Corporation (the Company) hereby grants to the Optionee named above an option (the Stock Option) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $.10 per share (the Stock) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. Capitalized terms used herein without definition shall have the respective meanings ascribed to them in the Plan.
1. | Vesting Schedule. No portion of this Stock Option may be exercised until such portion shall have vested. Except as set forth below, and subject to the discretion of the Committee to accelerate the vesting schedule hereunder, this Stock Option shall be vested and exercisable only as follows: 100% of the Option Shares shall become vested and exercisable on the fifth anniversary of the Grant Date. Upon the occurrence of a Change of Control of the Company, this Stock Option shall become fully vested and exercisable, whether or not this Stock Option or any portion hereof is otherwise vested and exercisable at such time. |
2. | Manner of Exercise. The Optionee may exercise this Stock Option as set forth in, and subject to the provisions of, Section 5(a)(iv) of the Plan. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the shares of Stock transferred to the Optionee upon the exercise of this Stock Option shall be net of the number of shares attested to. Certificates for shares of Stock purchased upon exercise of this Stock Option shall be issued and delivered to the Optionee upon compliance, to the satisfaction of the Committee, with all requirements under applicable laws or regulations in connection with such issuance and with the requirements hereof and of the Plan. The determination of the Committee as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company shall have issued and delivered the shares to the Optionee, and the Optionees name shall have been entered as the stockholder of record on the books of the Company. |
3. | Termination of Employment. If the Optionees employment by the Company or a Subsidiary is terminated, this Stock Option shall (except as set forth in Section 3(c) hereof or as otherwise determined by the Committee in the sole authority and discretion) immediately cease to vest and may be subject to earlier termination as set forth below. |
(a) | Termination Due to Death. If the Optionees employment terminates by reason of death, that portion of this Stock Option which was vested and exercisable at the date of death may thereafter be exercised by the Optionees legal representative or legatee for a period of one year from the date of death or until the Expiration Date, if earlier. |
(b) | Termination Due to Disability. If the Optionees employment terminates by reason of Disability (as determined in the sole authority and discretion of the Committee), that portion of this Stock Option which was vested and exercisable at the time of such termination may thereafter be exercised for a period of one year from the date of such termination or until the Expiration Date, earlier. |
© | Termination Due to Normal Retirement. If the Optionees employment terminates by reason of Normal Retirement (as determined in the sole authority and discretion of the Committee), this Stock Option shall be deemed to have fully vested and be exercisable as of the date of normal retirement and shall continue to be exercisable until the Expiration Date |
(d) | Termination for Cause. If the Optionees employment terminates for Cause, any Stock Option held by the Optionee shall terminate immediately and be of no further force and effect. |
(e) | Other Termination. If the Optionees employment terminates for any reason other than death, Disability, Normal Retirement or Cause, that portion of this Stock Option which was vested and exercisable on the date of such termination may thereafter be exercisable for a period of three months from the date of termination or until the Expiration Date, if earlier. |
The Committees determination of the reason for termination of the Optionees employment shall be conclusive and binding on the Optionee and his or her representatives or legatees. Any portion of this Stock Option which terminates shall be of no further force and effect.
4. | Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan. |
5. | Nontransferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionees lifetime, only by the Optionee, and thereafter, only by the Optionees legal representative or legatee. |
6. | Tax Withholding. By exercising any portion of this Stock Option, Optionee agrees that he or she shall, not later than the date as of which the exercise of this Stock Option becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Committee for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. |
7.Miscellaneous. |
|
(a) | Notice hereunder shall be given to the Company (attention to its Chief Financial Officer) at its principal place of business, and shall be given to the Optionee at his or her most recent address as maintained on the Companys employment records, or in either case at such other address as one party may subsequently furnish to the other party in writing. |
(b) | This Stock Option does not confer upon the Optionee any rights with respect to continuance of employment by the Company or any Subsidiary. |
UniFirst Corporation By: /s/ Ronald D. Croatti Ronald D. Croatti, Chief Executive Officer | |
Exhibit 21
List of subsidiaries of the Company:
UniTech Services Group, Inc. UniFirst Holdings, L.P. UONE Corporation UTWO Corporation UR Corporation UniFirst First-Aid Corporation RC Air, LLC Euro Nuclear Services B.V. Euro Nuklear Services, GmbH Euro Nuclear Services Limited UniFirst Canada Ltd. Uniformes de San Luis S.A. de C.V. UniFirst S.A. de C.V. Interstate Uniform Manufacturing of Puerto Rico, Inc. Pride America Garments, Inc. |
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 33-60781, 333-96097, and 333-82682) of UniFirst Corporation of our report dated October 26, 2004, with respect to the consolidated financial statements and schedule of UniFirst Corporation included in this Annual Report (Form 10-K) for the year ended August 28, 2004.
/s/ Ernst & Young LLP
Boston, Massachusetts
November
10, 2004
Exhibit 31.1
CERTIFICATION OF CHIEF
EXECUTIVE OFFICER PURSUANT TO SECURITIES
EXCHANGE ACT RULE 13a-15(e)/15d-15(e) AS ADOPTED PURSUANT
TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, | Ronald D. Croatti, certify that: |
1. | I have reviewed this annual report on Form 10-K for the fiscal year ended August 28, 2004 of UniFirst Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant, and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(c) | Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting and; |
5. | The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
Date: November 12, 2004 | By: /s/ Ronald D. Croatti Ronald D. Croatti, Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF
FINANCIAL OFFICER PURSUANT TO SECURITIES
EXCHANGE ACT RULE 13a-15(e)/15d-15(e) AS ADOPTED PURSUANT
TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, | John B. Bartlett, certify that: |
1. | I have reviewed this annual report on Form 10-K for the fiscal year ended August 28, 2004 of UniFirst Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant, and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(c) | Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting and; |
5. | The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
Date: November 12, 2004 | By: /s/ John B. Bartlett John B. Bartlett, Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
I, | Ronald D. Croatti, certify that: |
1. | I have reviewed this annual report on Form 10-K of UniFirst Corporation; |
2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. |
Date: November 12, 2004 | By: /s/ Ronald D. Croatti Ronald D. Croatti, President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
I, | John B. Bartlett , certify that: |
1. | I have reviewed this annual report on Form 10-K of UniFirst Corporation; |
2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. |
Date: November 12, 2004 | By: /s/ John B. Bartlett John B. Bartlett, Chief Financial Officer (Principal Financial Officer) |