<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 1999 COMMISSION FILE
NUMBER: 333-42407
UNICCO SERVICE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2872501
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
FOUR COPLEY PLACE, BOSTON, MASSACHUSETTS 02116
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(617) 859 - 9100
(REGISTRANT'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [x] NO [ ]
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<PAGE> 2
UNICCO SERVICE COMPANY
FORM 10-Q
QUARTER ENDED SEPTEMBER 26, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. Financial Information
ITEM 1. Financial Statements:
Condensed Consolidated Statements of Income and
Comprehensive Income for the 3 three months ended September
26, 1999 and September 27, 1998 (unaudited)
Condensed Consolidated Balance Sheets at September 26, 1999 (unaudited) and 4
June 27, 1998
Condensed Consolidated Statements of Cash Flows for the three months ended 5
September 26, 1999 and September 27, 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. Other Information 16
Signatures 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNICCO SERVICE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
SEPTEMBER 26, SEPTEMBER 27,
1999 1998
------------- -------------
<S> <C> <C>
Service revenues ................................... $ 135,466 $ 122,791
Cost of service revenues ........................... 119,542 108,311
--------- ---------
Gross profit .................................... 15,924 14,480
Selling, general and administrative expenses ....... 10,883 9,221
Amortization of intangible assets .................. 1,020 1,082
--------- ---------
Operating income ................................ 4,021 4,177
Interest income .................................... 361 161
Interest expense ................................... (2,958) (2,985)
--------- ---------
Income from continuing operations before
income taxes ................................... 1,424 1,353
Provision for income taxes ......................... 344 232
--------- ---------
Income from continuing operations .................. 1,080 1,121
Discontinued operations:
Income from discontinued operations,
net of tax of $13 ................................ -- 727
--------- ---------
Net income ......................................... $ 1,080 $ 1,848
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
UNICCO SERVICE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 26,
1999 JUNE 27,
(UNAUDITED) 1999
------------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 26,848 $ 24,938
Accounts receivable, less reserves of $2,507 and $2,467 ............ 50,657 48,781
Unbilled receivables ............................................... 23,109 25,158
Other current assets ............................................... 3,704 5,139
--------- ---------
Total current assets ........................................... 104,318 104,016
--------- ---------
Property and equipment, at cost ...................................... 17,713 17,021
Less - accumulated depreciation and amortization ................... 11,956 11,607
--------- ---------
5,757 5,414
--------- ---------
Notes receivable and accrued interest from officers .................. 1,127 1,210
Intangible assets, net of amortization ............................... 42,556 43,596
Other assets, net .................................................... 5,581 5,648
--------- ---------
49,264 50,454
--------- ---------
$ 159,339 $ 159,884
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable ................................................... 6,698 8,372
Accrued payroll and payroll-related expenses ....................... 16,734 18,840
Deferred income taxes .............................................. 2,214 2,214
Other accrued expenses ............................................. 9,488 6,947
--------- ---------
Total current liabilities ...................................... 35,134 36,373
--------- ---------
Long-term liabilities:
Long-term debt, less current portion ............................... 109,355 109,592
Other long-term liabilities ........................................ 227 160
--------- ---------
Total long-term liabilities .................................... 109,582 109,752
--------- ---------
Commitments and Contingencies
Shareholders' equity:
Common shares ...................................................... 378 378
Retained earnings .................................................. 15,001 14,121
Accumulated other comprehensive income ............................. (182) (166)
--------- ---------
15,197 14,333
Less:
Treasury shares at cost .............................................. (502) (502)
Notes receivable from stock sales .................................... (72) (72)
--------- ---------
Total shareholders' equity ...................................... 14,623 13,759
--------- ---------
$ 159,339 $ 159,884
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
UNICCO SERVICE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
SEPTEMBER 26, SEPTEMBER 27,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows relating to operating activities:
Net income ...................................................... $ 1,080 $ 1,848
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Amortization of intangible assets ........................... 1,020 1,232
Amortization of debt issue costs and discount ............... 125 125
Depreciation and amortization ............................... 535 499
Loss on disposals ........................................... (57) (4)
Changes in assets and liabilities:
Accounts receivable ......................................... (1,853) (4,171)
Unbilled receivables ........................................ 2,047 (1,238)
Other current assets ........................................ 1,420 288
Other long-term assets ...................................... (48) (190)
Cash overdraft .............................................. -- 1,479
Accounts payable ............................................ (1,701) (161)
Accrued expenses and other current liabilities .............. 452 (449)
Other long-term liabilities ................................. 67 (103)
Other ....................................................... 24 39
-------- -------
Net cash provided by (used in) operating activities ......... 3,111 (806)
-------- -------
Cash flows relating to investing activities:
Acquisition ..................................................... -- (4,436)
Purchases of property and equipment, net ........................ (926) (495)
Proceeds from sale of property and equipment .................... 94 19
Payments received for notes receivable from officers, net ....... 83 --
-------- -------
Net cash used in investing activities ....................... (749) (4,912)
-------- -------
Cash flows relating to financing activities:
Payments of debt ................................................ (250) --
Distributions to shareholders ................................... (200) (200)
-------- -------
Net cash used in financing activities ....................... (450) (200)
-------- -------
Effect of exchange rate changes on cash and cash equivalents ........ (2) (37)
-------- -------
Net increase (decrease) in cash and cash equivalents ................ 1,910 (5,955)
Cash and cash equivalents, beginning of period ...................... 24,938 9,151
-------- -------
Cash and cash equivalents, end of period ............................ $ 26,848 $ 3,196
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
UNICCO SERVICE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1999
(1) INTERIM FINANCIAL STATEMENTS
These condensed consolidated financial statements include the accounts of UNICCO
Service Company ("UNICCO" or the "Company") and its wholly-owned subsidiaries.
All significant intercompany transactions have been eliminated.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial position
of the Company and its subsidiaries at September 26, 1999 and the results of
their operations and their cash flows for the three month periods ended
September 26, 1999 and September 27, 1998, respectively.
Certain information and footnote disclosures normally included in financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted as allowed by Regulation S-X, Article
10. Results for any interim period are not necessarily indicative of results to
be anticipated for a full year. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements for the year ended June 27, 1999 in
its Annual Report on Form 10-K as filed with the Securities and Exchange
Commission.
(2) COMPREHENSIVE INCOME
The components of comprehensive income for the three-month periods ended
September 26, 1999 and September 27, 1998 are set forth below:
<TABLE>
<CAPTION>
(UNAUDITED)
IN THOUSANDS
-----------------------------------------------------
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 26, 1999 ENDED SEPTEMBER 27, 1998
------------------------- -------------------------
<S> <C> <C>
Net income $ 1,080 $ 1,848
Other comprehensive income-
Foreign currency translation adjustment (16) (36)
--------- ---------
Comprehensive income $ 1,064 $ 1,812
========= =========
</TABLE>
(3) SEGEMENT INFORMATION
The Company operates in one segment, that is, as a provider of integrated
facility services. Although management reviews and operates the business on a
regional basis, the economic characteristics of the regions' services and client
bases are similar. Therefore, the Company's regions are aggregated as one
business segment. The table below contains certain financial information by
geographic region (in thousands):
<TABLE>
<CAPTION>
NET REVENUE FROM LONG-LIVED
CONTINUING OPERATIONS ASSETS
--------------------------------
--------------- --------------
FOR THE THREE FOR THE THREE AS OF AS OF
MONTHS ENDED MONTHS ENDED SEPTEMBER 26, JUNE 27,
SEPTEMBER 26, SEPTEMBER 27, 1999 1999
1999 1998
---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
By Geographic Area
United States $ 122,926 $ 111,857 $ 45,245 $ 46,331
Canada 12,540 10,934 4,019 4,123
---------- ---------- --------- ---------
Consolidated $ 135,466 $ 122,791 $ 49,264 $ 50,454
========== ========== ========= =========
</TABLE>
6
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(4) CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
The Company's Senior Subordinated Notes due 2007 (the "Notes") are guaranteed,
fully, unconditionally and jointly and severally, by certain of UNICCO's
directly and indirectly wholly owned domestic subsidiaries. UNICCO's
wholly-owned Canadian subsidiary ("UFSCC") is not a guarantor of this debt.
Separate financial statements of the guarantor subsidiaries and of UNICCO
Finance Corp., a wholly-owned restricted-purpose subsidiary which is the
co-issuer of the Notes, are not presented because management has determined that
they would not be material to investors. The following presents consolidating
financial information for (i) UNICCO only, (ii) the guarantor subsidiaries on a
combined basis, (iii) the nonguarantor subsidiary - UFSCC - and (iv) the Company
on a consolidated basis.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - (IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 26, 1999 (UNAUDITED)
----------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service revenues ................................. $ 113,699 $ 9,227 $ 12,540 $ -- $ 135,466
Cost of service revenues ......................... 100,255 8,125 11,162 -- 119,542
--------- -------- -------- -------- ---------
Gross profit ................................... 13,444 1,102 1,378 -- 15,924
Selling, general and administrative
expenses ....................................... 9,850 306 727 -- 10,883
Amortization of intangible assets ................ 848 97 75 -- 1,020
--------- -------- -------- -------- ---------
Operating income ............................... 2,746 699 576 -- 4,021
Interest income .................................. 345 -- 16 -- 361
Interest expense ................................. (2,809) -- (149) -- (2,958)
--------- -------- -------- -------- ---------
Income from operations before income
taxes .......................................... 282 699 443 -- 1,424
Provision for income taxes ....................... 42 25 277 -- 344
--------- -------- -------- -------- ---------
Income from operations before equity in
net earnings of subsidiaries ................... 240 674 166 -- 1,080
Equity in net earnings of subsidiaries ........... 840 35 -- (875) --
--------- -------- -------- -------- ---------
Net income ....................................... $ 1,080 $ 709 $ 166 $ (875) $ 1,080
========= ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1998 (UNAUDITED)
----------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service revenues ................................. $ 103,894 $ 10,934 $ 7,963 $ -- $ 122,791
Cost of service revenues ......................... 92,001 9,232 7,078 -- 108,311
--------- -------- -------- -------- ---------
Gross profit ................................... 11,893 1,702 885 -- 14,480
Selling, general and administrative
expenses ....................................... 8,255 465 501 -- 9,221
Amortization of intangible assets ................ 909 127 46 -- 1,082
--------- -------- -------- -------- ---------
Operating income ............................... 2,729 1,110 338 -- 4,177
Interest income .................................. 144 2 15 -- 161
Interest expense ................................. (2,868) (20) (97) -- (2,985)
--------- -------- -------- -------- ---------
Income from continuing operations before
income taxes ................................... 5 1,092 256 -- 1,353
Provision for income taxes ....................... -- 50 182 -- 232
--------- -------- -------- -------- ---------
Income from continuing operations before
equity in net earnings of subsidiaries ......... 5 1,042 74 -- 1,121
Equity in net earnings of subsidiaries ........... 1,843 15 -- (1,858) --
--------- -------- -------- -------- ---------
Income from continuing operations ................ 1,848 1,057 74 (1,858) 1,121
Discontinued operations:
Income from discontinued operations, net
of tax of $13 .................................... -- 727 -- -- 727
--------- -------- -------- -------- ---------
Net income ....................................... $ 1,848 $ 1,784 $ 74 $ (1,858) $ 1,848
========= ======== ======== ======== =========
</TABLE>
7
<PAGE> 8
CONDENSED CONSOLIDATING BALANCE SHEET - (IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 26, 1999 (UNAUDITED)
----------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY - CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................ $ 25,774 $ 12 $ 1,490 $ (428) $ 26,848
Accounts receivable, less reserve of
$2,507 ............................................... 38,836 6,477 5,344 -- 50,657
Unbilled receivables ................................. 20,600 2,393 116 -- 23,109
Intercompany receivable (payable) .................... 5,845 460 (6,305) -- 0
Other current assets ................................. 2,815 61 828 -- 3,704
--------- -------- -------- --------- ---------
Total current assets ........................ 93,870 9,403 1,473 (428) 104,318
--------- -------- -------- --------- ---------
Property and equipment, at cost ...................... 14,229 973 2,511 -- 17,713
Less - accumulated depreciation and amortization...... 10,342 807 807 -- 11,956
--------- -------- -------- --------- ---------
Net property and equipment ....................... 3,887 166 1,704 -- 5,757
--------- -------- -------- --------- ---------
Due from (to) affiliates ............................. 14,509 (620) -- (13,889) --
Investment in subsidiary ............................. 15,628 704 -- (16,332) --
Notes receivable and accrued interest from
officers ............................................. 1,127 -- -- -- 1,127
Intangible assets, net of amortization ............... 34,463 4,105 3,988 -- 42,556
Other assets, net .................................... 5,550 -- 31 -- 5,581
--------- -------- -------- --------- ---------
71,277 4,189 4,019 (30,221) 49,264
--------- -------- -------- --------- ---------
$ 169,034 $ 13,758 $ 7,196 $ (30,649) $ 159,339
========= ======== ======== ========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Cash overdraft ....................................... $ -- $ 428 $ -- $ (428) $ --
Accounts payable ..................................... 5,301 446 951 -- 6,698
Accrued payroll and payroll-related expenses ......... 14,176 611 1,947 -- 16,734
Deferred income taxes ................................ 2,059 155 -- -- 2,214
Other accrued expenses ............................... 8,254 106 1,128 -- 9,488
--------- -------- -------- --------- ---------
Total current liabilities ................... 29,790 1,746 4,026 (428) 35,134
--------- -------- -------- --------- ---------
Long-term liabilities:
Long-term debt, less current portion ................. 109,355 -- -- -- 109,355
Other long-term liabilities .......................... 227 -- -- -- 227
--------- -------- -------- --------- ---------
Total long-term liabilities ................. 109,582 -- -- -- 109,582
--------- -------- -------- --------- ---------
Commitments and Contingencies
Shareholders' equity ................................. 30,236 12,012 3,170 (30,221) 15,197
Less treasury shares at cost ......................... (502) -- -- -- (502)
Less notes receivable from stock sales ............... (72) -- -- -- (72)
--------- -------- -------- --------- ---------
Total shareholders' equity .................. 29,662 12,012 3,170 (30,221) 14,623
--------- -------- -------- --------- ---------
$ 169,034 $ 13,758 $ 7,196 $ (30,649) $ 159,339
========= ======== ======== ========= =========
</TABLE>
8
<PAGE> 9
CONDENSED CONSOLIDATING BALANCE SHEET - (IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 27, 1999
----------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY - CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ......................... $ 24,002 $ 13 $ 1,205 $ (282) $ 24,938
Accounts receivable, less reserve of $2,467 ...... 39,294 3,777 5,710 -- 48,781
Unbilled receivables .............................. 23,253 1,783 122 -- 25,158
Intercompany receivable (payable) ................. 2,694 3,483 (6,177) -- --
Other current assets .............................. 4,252 61 826 -- 5,139
--------- -------- -------- --------- ---------
Total current assets ..................... 93,495 9,117 1,686 (282) 104,016
--------- -------- -------- --------- ---------
Property and equipment, at cost ................... 14,224 278 2,519 -- 17,021
Less -accumulated depreciation and amortization ... 10,714 180 713 -- 11,607
--------- -------- -------- --------- ---------
Net property and equipment ................... 3,510 98 1,806 -- 5,414
--------- -------- -------- --------- ---------
Due from (to) affiliates .......................... 14,509 (620) -- (13,889) --
Investment in subsidiary .......................... 14,788 669 -- (15,457) --
Notes receivable and accrued interest from
officers .......................................... 1,210 -- -- -- 1,210
Intangible assets, net of amortization ............ 35,311 4,202 4,083 -- 43,596
Other assets, net ................................. 5,608 -- 40 -- 5,648
--------- -------- -------- --------- ---------
71,426 4,251 4,123 (29,346) 50,454
--------- -------- -------- --------- ---------
$ 168,431 $ 13,466 $ 7,615 $ (29,628) $ 159,884
========= ======== ======== ========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Cash overdraft .................................... $ -- $ 282 $ -- $ (282) $ --
Accounts payable .................................. 5,886 1,060 1,426 -- 8,372
Accrued payroll and payroll-related expenses ..... 15,936 579 2,325 -- 18,840
Deferred income taxes ............................. 2,059 155 -- -- 2,214
Other accrued expenses ............................ 6,016 87 844 -- 6,947
--------- -------- -------- --------- ---------
Total current liabilities ................ 29,897 2,163 4,595 (282) 36,373
--------- -------- -------- --------- ---------
Long-term liabilities:
Long-term debt .................................... 109,592 -- -- -- 109,592
Other long-term liabilities ....................... 160 -- -- -- 160
--------- -------- -------- --------- ---------
Total long-term liabilities .............. 109,752 -- -- -- 109,752
--------- -------- -------- --------- ---------
Commitments and Contingencies
Shareholders' equity .............................. 29,356 11,303 3,020 (29,346) 14,333
Less treasury shares at cost ...................... (502) -- -- -- (502)
Less notes receivable from stock sales ............ (72) -- -- -- (72)
--------- -------- -------- --------- ---------
Total shareholders' equity ............... 28,782 11,303 3,020 (29,346) 13,759
--------- -------- -------- --------- ---------
$ 168,431 $ 13,466 $ 7,615 $ (29,628) $ 159,884
========= ======== ======== ========= =========
</TABLE>
9
<PAGE> 10
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 26, 1999 (UNAUDITED)
----------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY - CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income ...................................... $ 1,080 $ 709 $ 166 (875) $ 1,080
Net earnings from equity investment ............. (840) (35) -- 875 --
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of intangible assets ............ 848 97 75 -- 1,020
Amortization of debt issue costs and discount. 125 -- -- -- 125
Depreciation and amortization ................ 424 19 92 -- 535
Loss on disposals ............................ (50) (7) -- -- (57)
Changes in assets and liabilities:
Accounts receivable ........................ 457 (2,699) 389 -- (1,853)
Unbilled receivables ....................... 2,653 (612) 6 -- 2,047
Intercompany receivable (payable) .......... (3,151) 3,023 152 (24) --
Other current assets ....................... 1,437 (1) (16) -- 1,420
Other long-term assets ..................... (55) -- 7 -- (48)
Cash overdraft ............................. -- 146 -- (146) --
Accounts payable ........................... (584) (613) (504) -- (1,701)
Accrued expenses and other current
liabilities .............................. 477 52 (77) -- 452
Other long-term liabilities ................ 67 -- -- -- 67
Other ...................................... 1 (1) -- 24 24
-------- ------- ------- ----- --------
Net cash provided by operating activities .... 2,889 78 290 (146) 3,111
-------- ------- ------- ----- --------
Cash flows relating to investing activities:
Purchase of property and equipment, net ........ (837) (86) (3) -- (926)
Proceeds from sale of property and equipment .... 87 7 -- -- 94
Payments received for notes receivable from
officers, net ................................... 83 -- -- -- 83
-------- ------- ------- ----- --------
Net cash used in investing activities ........ (667) (79) (3) -- (749)
-------- ------- ------- ----- --------
Cash flows relating to financing activities:
Payment on debt ................................. (250) -- -- -- (250)
Distribution to shareholders .................... (200) -- -- -- (200)
-------- ------- ------- ----- --------
Net cash used in financing activities ........ (450) -- -- -- (450)
-------- ------- ------- ----- --------
Effect of exchange rate changes on cash and
cash equivalents ................................ -- -- (2) -- (2)
-------- ------- ------- ----- --------
Net increase (decrease) in cash and cash equivalents. 1,772 (1) 285 (146) 1,910
Cash and cash equivalents, beginning of period ..... 24,002 13 1,205 (282) 24,938
-------- ------- ------- ----- --------
Cash and cash equivalents, end of period ........... $ 25,774 $ 12 $ 1,490 $(428) $ 26,848
======== ======= ======= ===== ========
</TABLE>
10
<PAGE> 11
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1998 (UNAUDITED)
----------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY - CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income (loss) ............................... $ 1,848 $ 1,784 $ 74 (1,858) $ 1,848
Net earnings from equity investment ............. (1,843) (15) -- 1,858 --
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Amortization of intangible assets ............ 909 277 46 -- 1,232
Amortization of debt issue costs and
discount .................................... 125 -- -- -- 125
Depreciation and amortization ................ 413 66 20 -- 499
Loss on disposals ............................ (4) -- -- -- (4)
Changes in assets and liabilities:
Accounts receivable ........................ (2,708) (973) (490) -- (4,171)
Unbilled receivables ....................... (1,307) 20 49 -- (1,238)
Intercompany receivable (payable) .......... (2,788) (1,427) 4,254 (39) --
Other current assets ....................... 315 (41) 14 -- 288
Other long-term assets ..................... (234) 47 (3) -- (190)
Cash overdraft ............................. 340 (106) -- 1,245 1,479
Accounts payable ........................... (435) (262) 536 -- (161)
Accrued expenses and other current
liabilities .............................. (601) 376 (224) -- (449)
Other long-term liabilities ................ (103) -- -- -- (103)
Other ...................................... -- -- -- 39 39
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities ................................. (6,073) (254) 4,276 1,245 (806)
------- ------- ------- ------- -------
Cash flows relating to investing activities:
Acquisition ..................................... -- -- (4,436) -- (4,436)
Purchase of property and equipment, net ......... (495) -- -- -- (495)
Proceeds from sale of property and equipment .... 19 -- -- -- 19
------- ------- ------- ------- -------
Net cash used in investing activities ........ (476) -- (4,436) -- (4,912)
------- ------- ------- ------- -------
Cash flows relating to financing activities:
Distribution to shareholders .................... (200) -- -- -- (200)
------- ------- ------- ------- -------
Net cash used in financing activities ........ (200) -- -- -- (200)
------- ------- ------- ------- -------
Effect of exchange rate changes on cash and
cash equivalents ................................ -- -- (37) -- (37)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents ........................................ (6,749) (254) (197) 1,245 (5,955)
Cash and cash equivalents, beginning of period ..... 9,089 300 1,007 (1,245) 9,151
------- ------- ------- ------- -------
Cash and cash equivalents, end of period ........... $ 2,340 $ 46 $ 810 $ -- $ 3,196
======= ======= ======= ======= =======
</TABLE>
11
<PAGE> 12
(5) LITIGATION
In the ordinary course of business, the Company is party to various types of
litigation. The Company believes that, in the aggregate, the litigation
currently pending or threatened will not have a material adverse effect on the
Company's financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF THREE MONTH PERIODS ENDED SEPTEMBER 26, 1999 AND
SEPTEMBER 27, 1998
REVENUES Revenues for the first quarter of fiscal 2000, which ended
September 26, 1999, were $135.5 million compared to $122.8 million for the first
quarter of fiscal 1999, which ended September 27, 1998, an increase of $12.7
million or 10.3%. This increase was primarily attributable to revenue increases
in the Company's Canadian operations ($4.6 million) as a result of the September
1, 1998 acquisition of Empire Maintenance Industries, Inc., ("Empire"). The
Company also experienced revenue increases in the Northwest Region ($3.1
million), Northeast Region ($2.9 million), Southeast Region ($1.4 million),
Southwest Region ($1.2 million), Hawaiian Region ($0.4 million) and Eastern
Region ($0.3 million) as a result of additional services performed under new and
existing contracts. These increases were offset in part by a decrease in revenue
in the Midwest region of $1.2 million, where the loss of several contracts
outpaced the increase in revenue from new contracts. Management believes that
the loss of such contracts is not material to the Company's operations.
COST OF REVENUES Cost of revenues for the first quarter of fiscal 2000 were
$119.5 million, or 88.2% of revenues, compared to $108.3 million, or 88.2% of
revenues, for the first quarter of fiscal 1999.
GROSS PROFIT As a result of the foregoing, gross profit for the first
quarter of fiscal 2000 was $15.9 million, or 11.8% of revenues, compared to
$14.5 million, which was also 11.8% of revenues, for the comparable period in
fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses for the first quarter of fiscal 2000 were $10.9 million,
or 8.0% of revenues, compared to $9.2 million, or 7.5% of revenues, for the
first quarter of fiscal 1999. The increase of $1.7 million was primarily due to
the following factors. Salaries, wages and related benefits increased $0.6
million between the comparable periods, primarily due to annual salary increases
effective July 1, 1999, the impact of the Empire acquisition and, to a lesser
extent, headcount increases necessary to support the expanded size of the
business. Bonus and commission accruals increased $0.2 million between the
comparable periods due to projected increases in these expenses during fiscal
2000. Vehicle expense increased $0.5 million between the comparable periods,
primarily due to incremental lease and maintenance-related expenses for certain
transportation equipment. Professional fees, primarily consisting of information
systems and general business consulting services, increased $0.3 million between
comparable periods.
AMORTIZATION OF INTANGIBLE ASSETS Amortization expense was $1.0 million
in the first quarter of fiscal 2000 and fiscal 1999.
INCOME FROM OPERATIONS As a result of the foregoing, income from operations
for the first quarter of fiscal 1999 was $4.0 million, or 3.0% of revenues,
compared to $4.2 million, or 3.4% of revenues for the first quarter of fiscal
1999.
EBITDA As a result of the foregoing, EBITDA for the first quarter of fiscal 2000
was $5.6 million, or 4.1 % of revenues, compared to $ 5.7 million, or 4.6 % of
revenues, for the first quarter of fiscal 1999. EBITDA is defined as income from
continuing operations before provision for income taxes, interest expense,
interest income and depreciation and amortization. EBITDA as presented may not
be comparable to similarly titled measures used by other companies, depending
upon the non-cash charges included. When evaluating EBITDA, investors should
consider that EBITDA (i) should not be considered in isolation but together with
other factors which may influence operating and investing activities, such as
changes in operating assets and liabilities and purchases of property and
equipment; (ii) is not a measure of performance calculated in accordance with
generally accepted accounting principles; (iii) should not be construed as an
alternative or substitute for income from operations, net income or cash flows
from operating activities in analyzing the Company's operating performance,
financial position or cash flows; and (iv) should not be used as an indicator of
the Company's operating performance or as a measure of its liquidity.
12
<PAGE> 13
INTEREST EXPENSE Interest expense for the first quarter of fiscal 2000 was
$3.0 million, or 2.2% of revenues, compared to $3.0 million, or 2.4% of
revenues, for the first quarter of fiscal 1999.
INCOME TAXES Provision for income taxes for the first quarter of fiscal 2000
was $0.3 million, or 24% of income before provision for income taxes, compared
to $0.2 million, or 17% of income before provision for income taxes, for the
first quarter of fiscal 1999. The higher effective tax rate in the first quarter
of fiscal 2000 resulted from higher pre-tax income generated by the Canadian
operations which is taxed at a higher effective rate.
NET INCOME As a result of the foregoing, net income for the first quarter of
fiscal 2000 was $1.1 million, or 0.8% of revenues, compared to net income of
$1.8 million, or 1.5% of revenues, for the first quarter of fiscal 1999. Net
income for fiscal 1999 included $727,000 of income from the Company's
discontinued security business, which was sold in December 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended September 26, 1999, the Company's cash balance
increased by $1.9 million, including $3.1 million of net cash provided by
operating activities offset by $0.7 million and $0.5 million of net cash used
for investing and financing activities, respectively.
Financing activities included a $250,000 payment of principal on the Company's
subordinated indebtedness and a shareholder distribution of $200,000. For the
three months ended September 27, 1998, net cash used in investing activities was
$4.9 million, which consisted primarily of $4.4 million used for the purchase of
Empire.
Capital expenditures were $0.9 million and $0.5 million, respectively, for
the three-month periods ended September 1999 and l998. The Company's operations
do not generally require material investment in capital assets. The Company
expects that its capital expenditure requirements will not increase materially
during the next three quarters of fiscal 2000.
The Company is party to a revolving credit facility (the "Credit Facility")
under which the Company may borrow up to $45.0 million for acquisitions, working
capital and general corporate purposes, subject to certain conditions. There
were no cash borrowings under the Credit Facility as of September 26, 1999. The
Credit Facility, the Indenture governing the Company's Senior Subordinated Notes
(the "Notes") due 2007 and the terms of the Company's other subordinated
indebtedness include certain financial and operating covenants which, among
other things, restrict the ability of the Company to incur additional
indebtedness, make investments and take other actions. The ability of the
Company to meet its debt service obligations will be dependent upon the future
performance of the Company, which will be impacted by general economic
conditions and other factors.
As of September 26, 1999, the Company was in violation of one of its
financial ratio covenants under the Credit Facility. The Company has obtained a
waiver of this violation from the bank group.
Under the terms of the Indenture governing the Notes, the net proceeds from
the December 1998 sale of the Company's security business of $12 million may be
used to repay senior debt, make capital expenditures, acquire long-term assets
or acquire a controlling interest in another business. As of December 23, 1999,
the remaining net proceeds, if any, must be offered to repurchase Notes at a
price equal to 100% of the principal amount of the Notes plus accrued interest.
To date, the Company has used a portion of the proceeds for capital expenditures
and has invested the remaining funds in a money market account pending final
application.
The Company's principal capital requirements are to service the Company's
indebtedness, for working capital, to fund acquisitions and, to a lesser extent,
to fund capital expenditures. The Company believes that its cash flow from
operations, together with its borrowing capacity under the Credit Facility, will
be sufficient to meet such requirements as they now exist.
13
<PAGE> 14
YEAR 2000 COMPLIANCE
Status of Year 2000 Preparations. The Company's information technology
systems are licensed from outside vendors. The Company's principal outside
vendor has released an upgrade of the primary software used by the Company to
perform its accounting, payroll, accounts payable, invoicing and financial
reporting functions. The vendor has represented to the Company that this upgrade
is Year 2000 compliant. The Company implemented the software upgrade in March
1999. The Company successfully completed its compliance testing of the upgrade
in September of 1999. The Company believes that its primary information
technology systems in the United States are Year 2000 compliant. The Company's
primary systems at its Canadian subsidiary are not yet Year 2000 compliant.
However, the Company has scheduled an upgrade to the existing Canadian system
for November 1999 that will be completed by December 1999.
With respect to non-information technology systems, such as embedded
microprocessors in telephones, building systems and Company owned equipment, the
Company has completed its review of its potential Year 2000 exposure from these
systems. In April 1999, the Company completed its data gathering, identification
and risk assessment of business critical issues, and the development of a
remediation plan to address business critical issues. A high-level remediation
plan has been completed. In addition, detailed remediation plans have been
completed for a number of specific functions, including risk management,
purchasing and telephone and building systems. The Company expects to complete
the remaining portion of the remediation plan in November 1999.
Costs of Year 2000 Remediation. The Company's Year 2000 remediation costs
of approximately $30,000 in the first quarter of fiscal 2000 and $807,000 in
fiscal 1999, include costs of acquiring Year 2000 compliant software, hardware
and non-information technology equipment (other than replacements that would
have been purchased regardless of the Year 2000 issue), and hiring or
outsourcing Year 2000 solution providers. The Company's most recent assessment
of its total expenditures related to Year 2000 remediation of its primary
information technology systems is approximately $960,000. The expensed and
projected costs do not include internal costs, as the Company does not
separately track the internal costs of the Year 2000 project. Such costs are
principally the related payroll costs for the Company's information systems
group. Such estimate is subject to change, particularly as a result of
uncertainties resulting from the factors described below.
Year 2000 Risks. The Company does not believe at this time that Year 2000
issues will have a material adverse effect on its financial condition or results
of operations. However, there can be no assurance given, as most of the
Company's Year 2000 risk is in the hands of third parties. The Company is
relying on its principal outside software vendor for remediation of the
Company's own systems. In addition, the Company may face exposure to Year 2000
compliance issues affecting its customers, suppliers and other third parties.
These parties may not be able to process invoices or purchase orders immediately
following January 1, 2000. As part of the Company's Year 2000 risk assessment
process, the Company is using questionnaires to systematically survey vendors'
operations, in order to identify the status of their Year 2000 compliance and
their criticality to the Company's business operations. Approximately 69% of the
3,300 vendors surveyed have completed the questionnaires. Additionally, the
Company has sent letters to survey its customers' Year 2000 readiness. These
responses have provided only limited assurances regarding Year 2000 matters. The
Company cannot control its customers or vendors, and there can be no guarantee
that a Year 2000 problem that may originate with a customer or vendor will not
materially adversely affect the Company.
The Company, in the normal course of its business, maintains, services and
operates its customers' equipment and building management systems such as energy
management, HVAC, access control, elevators and escalators. This equipment and
systems may include date-sensitive microprocessors. While management does not
believe that Year 2000 remediation of such equipment and systems is the
Company's responsibility, there can be no assurance that a customer or building
occupant will not attempt to assess liability for any Year 2000 failures against
the Company.
Contingency Plans. The Company has developed contingency plans that address
each of the key functional areas. The Company believes that it can secure
additional external resources to minimize the likelihood of long-term, material
adverse effects in the event that its own and third-party systems experience
widespread Year 2000 failures.
GENERAL
Certain statements contained in this report are forward-looking and
represent the Company's expectations or beliefs concerning future events.
Without limiting the foregoing, the words "believes," "anticipates," "expects",
"will" and similar expressions are intended to identify forward-looking
statements. The Company cautions that these and similar statements are subject
to risks, uncertainties and assumptions that could cause actual results or
events to differ materially from those described in such forward-looking
statements. Factors which could cause such differences include the Company's
degree of leverage, restrictions in the Company's debt agreements, dependence on
key personnel, the short-term nature of the Company's contracts, potential
14
<PAGE> 15
environmental or other liabilities, competitive factors and pricing pressures,
assimilation of past or future acquisitions, general economic conditions and the
acts of third parties, as well as other factors which are described in the
Company's Registration Statement on Form S-4 (File No. 333-42407) and from time
to time in the Company's periodic reports filed with the Securities and Exchange
Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information provided below updates that which was previously presented
in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", in the
Company's Form 10-K for the fiscal year ended June 27,1999.
The Company had no outstanding cash balances under its Credit Facility as of
September 26, 1999. At September 26, 1999, the Company's outstanding
indebtedness consisted of $105.0 million of Senior Subordinated Notes and $4.75
million of a Subordinated Promissory Note with fixed interest rates of 9.875%
and 14%, respectively.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any pending legal
proceedings other than those arising in the ordinary
course of the Company's business. Management believes that
the resolution of these matters will not materially affect
the Company's financial position or results of operations
(see Note 5 to the accompanying Condensed Consolidated
Financial Statements).
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K:
None.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNICCO SERVICE COMPANY
---------------------------------------------------
Registrant
November 10, 1999 By: /s/ Steven C. Kletjian
------------------------------------------------
Steven C. Kletjian, President,
Chief Executive Officer
(Principal Executive Officer)
November 10, 1999 By: /s/ George A. Keches
------------------------------------------------
George A. Keches, Vice President -
Finance, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Financial Statements included in this report, and is
qualified in its entirety by reference to such financial statements and the
Notes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-25-2000
<PERIOD-END> SEP-26-1999
<CASH> 26,848
<SECURITIES> 0
<RECEIVABLES> 76,273
<ALLOWANCES> 2,507
<INVENTORY> 0
<CURRENT-ASSETS> 104,318
<PP&E> 17,713
<DEPRECIATION> 11,956
<TOTAL-ASSETS> 159,339
<CURRENT-LIABILITIES> 35,134
<BONDS> 109,355
0
0
<COMMON> 378
<OTHER-SE> 14,245
<TOTAL-LIABILITY-AND-EQUITY> 159,339
<SALES> 135,466
<TOTAL-REVENUES> 135,466
<CGS> 119,542
<TOTAL-COSTS> 119,542
<OTHER-EXPENSES> 11,903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,597
<INCOME-PRETAX> 1,424
<INCOME-TAX> 344
<INCOME-CONTINUING> 1,080
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,080
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>The Company's equity is not publicly traded.
</FN>
</TABLE>
