<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 24, 2000 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.)
275 GROVE STREET, SUITE 3-200, AUBURNDALE, MASSACHUSETTS 02466
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(617) 527-5222
(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 24, 2000
TABLE OF CONTENTS
PAGE
PART I. Financial Information
ITEM 1. Financial Statements:
Condensed Consolidated Statements of Income and
Comprehensive Income for the three months ended September
24, 2000 and September 26, 1999 (unaudited) 3
Condensed Consolidated Balance Sheets at September 24,
2000 (unaudited) and June 25, 2000 4
Condensed Consolidated Statements of Cash Flows for the
three months ended September 24, 2000 and September 26,
1999 (unaudited) 5
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 14
PART II. Other Information 15
Signatures 16
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 24, SEPTEMBER 26,
2000 1999
------------- -------------
<S> <C> <C>
Service revenues.......................... $138,874 $135,466
Cost of service revenues.................. 123,116 119,542
-------- --------
Gross profit........................... 15,758 15,924
Selling, general and administrative
expenses................................ 11,059 10,883
Amortization of intangible assets......... 946 1,020
-------- --------
Operating income....................... 3,753 4,021
Interest income........................... 33 361
Interest expense.......................... (1,893) (2,958)
-------- --------
Income from operations before income
taxes................................. 1,893 1,424
Provision for income taxes................ 372 344
-------- --------
Net income................................ $ 1,521 $ 1,080
======== ========
</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 24,
2000 JUNE 25,
(UNAUDITED) 2000
------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 3,512 $ 2,333
Accounts receivable, less reserves of $3,131 and $3,194.. 57,957 49,067
Unbilled receivables..................................... 27,362 24,567
Other current assets..................................... 4,327 5,679
-------- --------
Total current assets................................. 93,158 81,646
-------- --------
Property and equipment, at cost............................ 19,119 18,234
Less - accumulated depreciation and amortization......... 12,809 12,435
-------- --------
6,310 5,799
-------- --------
Notes receivable and accrued interest from officers........ 545 645
Intangible assets, net of amortization..................... 35,163 36,166
Other assets, net.......................................... 4,116 3,875
-------- --------
39,824 40,686
-------- --------
$139,292 $128,131
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft........................................... 7,574 2,597
Accounts payable......................................... 10,141 8,966
Accrued payroll and payroll-related expenses............. 14,813 16,301
Deferred income taxes.................................... 2,343 2,343
Other accrued expenses................................... 7,986 6,433
-------- --------
Total current liabilities............................ 42,857 36,640
-------- --------
Long-term liabilities:
Line of credit........................................... 29,221 25,886
Long-term debt, less current portion..................... 50,754 50,998
Other long-term liabilities.............................. 1,240 647
-------- --------
Total long-term liabilities.......................... 81,215 77,531
-------- --------
Commitments and Contingencies
Shareholders' equity:
Common shares............................................ 378 378
Retained earnings........................................ 15,555 14,234
Accumulated other comprehensive income................... (211) (150)
-------- --------
15,722 14,462
Less:
Treasury shares at cost.................................... (502) (502)
-------- --------
Total shareholders' equity............................ 15,220 13,960
-------- --------
$139,292 $128,131
======== ========
</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 24, SEPTEMBER 26,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows relating to operating activities:
Net income...................................... $ 1,521 $ 1,080
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Amortization of intangible assets............... 946 1,020
Amortization of debt issue costs and
discount....................................... 58 125
Depreciation and amortization................... 477 535
Loss on disposals............................... (7) (57)
Deferred compensation plan...................... (8) --
Changes in assets and liabilities:
Accounts receivable............................. (8,999) (1,853)
Unbilled receivables............................ (2,816) 2,047
Other current assets............................ 1,346 1,420
Other long-term assets.......................... (294) (48)
Accounts payable................................ 520 (1,701)
Accrued expenses and other current
liabilities................................... 771 452
Other long-term liabilities..................... 592 67
Other........................................... 115 24
-------- --------
Net cash (used in) provided by operating (5,778) 3,111
activities...................................... -------- --------
Cash flows relating to investing activities:
Purchases of property and equipment, net......... (1,032) (926)
Proceeds from sale of property and equipment..... 28 94
Payments received for notes receivable from 100 83
officers, net................................... -------- --------
Net cash used in investing activities........ (904) (749)
-------- --------
Cash flows relating to financing activities:
Cash overdraft................................... 4,977 --
Net proceeds from line of credit................. 3,335 --
Payments of debt................................. (250) (250)
Distributions to shareholders.................... (200) (200)
-------- --------
Net cash provided by (used in) financing
activities.................................. 7,862 (450)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents................................... (1) (2)
-------- --------
Net increase in cash and cash equivalents............ 1,179 1,910
Cash and cash equivalents, beginning of period....... 2,333 24,938
-------- --------
Cash and cash equivalents, end of period............. $ 3,512 $ 26,848
======== ========
</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 24, 2000
(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 24, 2000 and the results of
their operations and their cash flows for the three-month periods ended
September 24, 2000 and September 26, 1999, 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 25, 2000 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 24, 2000 and September 26, 1999 are set forth below:
(UNAUDITED)
IN THOUSANDS
--------------------------------------------
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 24, ENDED SEPTEMBER 26,
2000 1999
--------------------- --------------------
Net income 1,521 $1,080
Other comprehensive income-
Foreign currency translation
adjustment (53) (16)
Marketable securities (8) --
------ ------
Comprehensive income $1,460 $1,064
====== ======
6
<PAGE> 7
(3) 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 24, 2000 (UNAUDITED)
-----------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues...................... $ 116,106 $ 8,845 $13,923 $ -- $ 138,874
Cost of service revenues.............. 102,396 8,087 12,633 -- 123,116
--------- ------- ------- ----- ---------
Gross profit........................ 13,710 758 1,290 -- 15,758
Selling, general and administrative
expenses............................. 10,191 313 555 -- 11,059
Amortization of intangible assets..... 775 95 76 -- 946
--------- ------- ------- ----- ---------
Operating income.................... 2,744 350 659 -- 3,753
Interest income....................... 17 -- 16 -- 33
Interest expense...................... (1,607) (137) (149) -- (1,893)
--------- ------- ------- ----- ---------
Income from operations before income
taxes............................... 1,154 213 526 -- 1,893
Provision for income taxes............ 70 40 262 -- 372
--------- ------- ------- ----- ---------
Income from operations before equity
in net earnings of subsidiaries.... 1,084 173 264 -- 1,521
Equity in net earnings of
subsidiaries....................... 437 55 -- (492) --
--------- ------- ------- ----- ---------
Net income............................ $ 1,521 $ 228 $ 264 $(492) $ 1,521
========= ======= ======= ===== =========
</TABLE>
<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 continuing 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>
7
<PAGE> 8
CONDENSED CONSOLIDATING BALANCE SHEET - (IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 24, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $ 2,252 $ 13 $ 1,247 $ -- $ 3,512
Accounts receivable, less reserve of $3,131. 46,177 4,671 7,109 -- 57,957
Unbilled receivables........................ 22,733 2,998 1,631 -- 27,362
Intercompany receivable (payable)........... 5,428 2,560 (7,988) -- --
Other current assets........................ 3,891 -- 436 -- 4,327
-------- -------- ------- -------- ---------
Total current assets............... 80,481 10,242 2,435 -- 93,158
-------- -------- ------- -------- ---------
Property and equipment, at cost............. 15,487 996 2,636 -- 19,119
Less -accumulated depreciation and
amortization............................... 10,777 886 1,146 -- 12,809
-------- -------- ------- -------- ---------
Net property and equipment.............. 4,710 110 1,490 -- 6,310
-------- -------- ------- -------- ---------
Due from (to) affiliates.................... 14,509 (620) -- (13,889) --
Investment in subsidiary.................... 15,929 758 -- (16,687) --
Notes receivable and accrued interest from
officers................................... 545 -- -- -- 545
Intangible assets, net of amortization...... 27,834 3,720 3,609 -- 35,163
Other assets, net........................... 4,087 -- 29 -- 4,116
-------- -------- ------- -------- ---------
62,904 3,858 3,638 (30,576) 39,824
-------- -------- ------- -------- ---------
$148,095 $ 14,210 $ 7,563 $(30,576) $ 139,292
======== ======== ======= ======== =========
Liabilities and Shareholders' Equity
Current liabilities:
Cash overdraft.............................. $ 7,103 $ 471 $ -- $ -- $ 7,574
Accounts payable............................ 7,529 660 1,952 -- 10,141
Accrued payroll and payroll-related
expenses................................... 13,121 647 1,045 -- 14,813
Deferred income taxes....................... 2,145 198 -- -- 2,343
Other accrued expenses...................... 6,659 124 1,203 -- 7,986
-------- -------- ------- -------- ---------
Total current liabilities.......... 36,557 2,100 4,200 -- 42,857
-------- -------- ------- -------- ---------
Long-term liabilities:
Line of credit.............................. 29,221 -- -- -- 29,221
Long-term debt, less current portion........ 50,754 -- -- -- 50,754
Other long-term liabilities................. 1,240 -- -- -- 1,240
-------- -------- ------- -------- ---------
Total long-term liabilities........ 81,215 -- -- -- 81,215
-------- -------- ------- -------- ---------
Commitments and Contingencies
Shareholders' equity........................ 30,825 12,110 3,363 (30,576) 15,722
Less treasury shares at cost................ (502) -- -- -- (502)
-------- -------- ------- -------- ---------
Total shareholders' equity......... 30,323 12,110 3,363 (30,576) 15,220
-------- -------- ------- -------- ---------
$148,095 $ 14,210 $ 7,563 $(30,576) $ 139,292
======== ======== ======= ======== =========
</TABLE>
8
<PAGE> 9
CONDENSED CONSOLIDATING BALANCE SHEET - (IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 25, 2000
---------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $ 2,320 $ 13 $ -- $ -- $ 2,333
Accounts receivable, less reserve of $3,194. 38,387 3,888 6,792 -- 49,067
Unbilled receivables........................ 21,278 2,343 946 -- 24,567
Intercompany receivable (payable)........... 2,631 3,578 (6,209) -- --
Other current assets........................ 5,106 -- 573 -- 5,679
-------- -------- ------- -------- ---------
Total current assets............... 69,722 9,822 2,102 -- 81,646
-------- -------- ------- -------- ---------
Property and equipment, at cost............. 14,624 987 2,623 -- 18,234
Less -accumulated depreciation and
amortization.............................. 10,465 873 1,097 -- 12,435
-------- -------- ------- -------- ---------
Net property and equipment............. 4,159 114 1,526 -- 5,799
-------- -------- ------- -------- ---------
Due from (to) affiliates.................... 14,509 (620) -- (13,889) --
Investment in subsidiary.................... 15,492 703 -- (16,195) --
Notes receivable and accrued interest from
officers.................................. 645 -- -- -- 645
Intangible assets, net of amortization...... 28,609 3,815 3,742 -- 36,166
Other assets, net........................... 3,846 -- 29 -- 3,875
-------- -------- ------- -------- ---------
63,101 3,898 3,771 (30,084) 40,686
-------- -------- ------- -------- ---------
$136,982 $ 13,834 $ 7,399 $(30,084) $ 128,131
======== ======== ======= ======== =========
Liabilities and Shareholders' Equity
Current liabilities:
Cash overdraft.............................. $ 329 $ 399 $ 1,869 $ -- $ 2,597
Accounts payable............................ 7,168 689 1,109 -- 8,966
Accrued payroll and payroll-related
expenses.................................. 14,783 656 862 -- 16,301
Deferred income taxes....................... 2,145 198 -- -- 2,343
Other accrued expenses...................... 6,016 10 407 -- 6,433
-------- -------- ------- -------- ---------
Total current liabilities.......... 30,441 1,952 4,247 -- 36,640
-------- -------- ------- -------- ---------
Long-term liabilities:
Line of credit.............................. 25,886 -- -- -- 25,886
Long-term debt.............................. 50,998 -- -- -- 50,998
Other long-term liabilities................. 647 -- -- -- 647
-------- -------- ------- -------- ---------
Total long-term liabilities........ 77,531 -- -- -- 77,531
-------- -------- ------- -------- ---------
Commitments and Contingencies
Shareholders' equity........................ 29,512 11,882 3,152 (30,084) 14,462
Less treasury shares at cost................ (502) -- -- -- (502)
-------- -------- ------- -------- ---------
Total shareholders' equity......... 29,010 11,882 3,152 (30,084) 13,960
-------- -------- ------- -------- ---------
$136,982 $ 13,834 $ 7,399 $(30,084) $ 128,131
======== ======== ======= ======== =========
</TABLE>
9
<PAGE> 10
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 24, 2000 (UNAUDITED)
---------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income ................................ $ 1,521 $ 228 $ 264 $ (492) $ 1,521
Net earnings from equity investment........ (437) (55) -- 492 --
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of intangible assets....... 775 95 76 -- 946
Amortization of debt issue costs and
discount.............................. 58 -- -- -- 58
Depreciation and amortization........... 388 13 76 -- 477
Loss on disposals....................... (7) -- -- -- (7)
Deferred compensation plan.............. (8) -- -- -- (8)
Changes in assets and liabilities:
Accounts receivable................... (7,789) (783) (427) -- (8,999)
Unbilled receivables.................. (1,454) (656) (706) -- (2,816)
Intercompany receivable (payable)..... (2,796) 1,017 1,894 (115) --
Other current assets.................. 1,215 1 130 -- 1,346
Other long-term assets................ (294) -- -- -- (294)
Accounts payable...................... 361 (28) 187 -- 520
Accrued expenses and other current
liabilities......................... (1,020) 105 1,686 -- 771
Other long-term liabilities........... 592 -- -- -- 592
Other................................. -- -- -- 115 115
-------- ------- ------- ------ ---------
Net cash (used in) provided by operating
activities............................. (8,895) (63) 3,180 -- (5,778)
-------- ------- ------- ------ ---------
Cash flows relating to investing activities:
Purchase of property and equipment, net.... (960) (9) (63) -- (1,032)
Proceeds from sale of property and
equipment................................ 28 -- -- -- 28
Payments received for notes receivable from
officers, net............................ 100 -- -- -- 100
-------- ------- ------- ------ ---------
Net cash used in investing activities... (832) (9) (63) -- (904)
-------- ------- ------- ------ ---------
Cash flows relating to financing activities:
Cash overdraft............................. 6,774 72 (1,869) -- 4,977
Net proceeds from line of credit........... 3,335 -- -- -- 3,335
Payment on debt............................ (250) -- -- -- (250)
Distribution to shareholders............... (200) -- -- -- (200)
-------- ------- ------- ------ ---------
Net cash provided by (used in)
financing activities.................. 9,659 72 (1,869) -- 7,862
-------- ------- ------- ------ ---------
Effect of exchange rate changes on cash and
cash equivalents........................... -- -- (1) -- (1)
-------- ------- ------- ------ ---------
Net (decrease) increase in cash and cash
equivalents................................ (68) -- 1,247 -- 1,179
Cash and cash equivalents, beginning of period 2,320 13 -- -- 2,333
-------- ------- ------- ------ ---------
Cash and cash equivalents, end of period...... $ 2,252 $ 13 $ 1,247 $ -- $ 3,512
======== ======= ======= ====== =========
</TABLE>
10
<PAGE> 11
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
<TABLE>
<CAPTION>
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 (loss).......................... $ 1,080 $ 709 $ 166 $ (875) $ 1,080
Net earnings from equity investment........ (840) (35) -- 875 --
Adjustments to reconcile net income (loss)
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 (used in)
operating activities................. 2,889 78 290 (146) 3,111
-------- ------- ------- ------ ---------
Cash flows relating to investing activities:
Purchase of property plant 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>
11
<PAGE> 12
(4) 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.
(5) SUBSEQUENT EVENT
In October 2000, the Company received $440,000 of the potential $450,000 of
contingent purchase price related to the sale, effective December 31, 1999, of
certain janitorial service contracts. In the second quarter of fiscal 2001, the
Company will record a gain on sale of assets for the full amount received.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTH PERIODS ENDED SEPTEMBER 24, 2000 AND SEPTEMBER 26,
1999
REVENUES Revenues for the first quarter of fiscal 2001, which ended
September 24, 2000, were $138.9 million compared to $135.5 million for the first
quarter of fiscal 2000, which ended September 26, 1999, an increase of $3.4
million or 2.5%. The increase was attributable to revenue increases in the
Company's Commercial and Industrial divisions of $8.1 million and $1.5 million,
respectively. The revenue increases in the Commercial and Industrial divisions
were primarily the result of additional services performed under new and
existing contracts outpacing decreases in revenue due to reduction in scope of
work or lost contracts. No contracts lost in the first quarter of fiscal 2001
are considered material to the Company. The revenue increase in the Commercial
division was partially offset by a decrease in revenue of $6.2 million that was
the result of the sale of certain contracts, primarily in the Midwest, effective
December 31, 1999.
COST OF REVENUES Cost of revenues for the first quarter of fiscal 2001 were
$123.1 million, or 88.7% of revenues, compared to $119.5 million, or 88.2% of
revenues, for the first quarter of fiscal 2000. The increase in cost of revenues
was primarily the result of salary increases effective July 1, 2000 and
increases in the Company's workers' compensation and general liability insurance
premiums.
Subsequent to September 24, 2000, the Company was notified of the
cancellation of a certain contract. Revenues from this contract were
approximately $11.7 million in fiscal 2000. The Company anticipates that it will
incur a charge to operations of approximately $0.5 to $1.0 million in the second
quarter of fiscal 2001 as a result of severance expenses, the disposal of a
fleet of vehicles and other equipment and the abandonment of office space
utilized in the performance of the cancelled contract. The Company is currently
attempting to redeploy vehicles and take other appropriate steps in an effort
to mitigate the expected charge.
GROSS PROFIT As a result of the foregoing, gross profit for the first
quarter of fiscal 2001 was $15.8 million, or 11.3% of revenues, compared to
$15.9 million, which was 11.8% of revenues, for the comparable period in fiscal
2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses for the first quarter of fiscal 2001 were $11.1 million,
or 8.0% of revenues, compared to $10.9 million, or 8.0% of revenues, for the
first quarter of fiscal 2000. The increase is primarily the result of increase
in professional fees of $0.3 million, increased rent of $0.2 million and an
increase of $0.1 million related to changes in the exchange rate used to revalue
the Company's receivable from its Canadian subsidiary. The increase in
professional fees was primarily the result of consulting fees relating to the
implementation of the Company's shared service center. The increase in rent
expense was the result of higher rent at the Company's corporate headquarters,
which was relocated to a larger facility in May 2000. The Company also
experienced a $0.2 million increase in payroll expense that was primarily the
result of salary increases effective July 1, 2000. This increase was offset by a
$0.2 million decrease in payroll expense as a result of the sale of certain
contracts effective December 31, 1999. The Company also experienced a $0.2
million decrease in various non-payroll related expenses as a result of the sale
of certain contracts effective December 31, 1999. Advertising and promotion
expense also decreased $0.1 million compared to the first quarter of fiscal
2000.
AMORTIZATION OF INTANGIBLE ASSETS Amortization expense was $0.9 million in
the first quarter of fiscal 2001 and $1.0 million in the first quarter of fiscal
2000. The decrease in amortization expense is the result of the write-off of
intangible assets related to certain contracts sold effective December 31, 1999.
INCOME FROM OPERATIONS As a result of the foregoing, income from operations
for the first quarter of fiscal 2001 was $3.8 million, or 2.7% of revenues,
compared to $4.0 million, or 3.0% of revenues for the first quarter of fiscal
2000.
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EBITDA As a result of the foregoing, EBITDA for the first quarter of fiscal
2001 was $5.2 million, or 3.7% of revenues, compared to $5.6 million, or 4.1% of
revenues, for the first quarter of fiscal 2000. 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.
INTEREST EXPENSE Interest expense for the first quarter of fiscal 2001 was
$1.9 million, or 1.4% of revenues, compared to $3.0 million, or 2.2% of
revenues, for the first quarter of fiscal 2000. The decrease in interest expense
was the result of the repurchase of $57.9 million (face amount) of the Company's
Notes, which occurred during the second and third quarters of fiscal 2000.
INCOME TAXES Provision for income taxes for the first quarter of fiscal 2001
was $0.4 million, or 19.7% of income before provision for income taxes, compared
to $0.3 million, or 24% of income before provision for income taxes, for the
first quarter of fiscal 2000. 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 2001 was $1.5 million, or 1.1% of revenues, compared to net income of
$1.1 million, or 0.8% of revenues, for the first quarter of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended September 24, 2000, the Company's cash balance
increased by $1.2 million, including $5.8 million of net cash used by operating
activities and $0.9 million of net cash used by investing activities offset by
$7.9 million of net cash provided by financing activities.
Cash used in operating activities was primarily the result of an increase in
accounts receivable and unbilled receivables of $9.0 million and $2.8 million,
respectively. This decrease in cash was partially offset by an increase in cash
of $3.0 million related to net income adjusted for non-cash items such as
depreciation and amortization. The decrease in cash was further offset by a
decrease in other current assets of $1.3 million and increases in accounts
payable, accrued expenses and other long-term liabilities of $0.5 million, $0.8
million and $0.6 million, respectively.
Cash used in investing activities was primarily the result of capital
expenditures of $1.0 million.
Financing activities included a $5.0 million increase in the cash overdraft
as well as $3.3 million in additional borrowings from the line of credit, which
was used to fund the increase in receivables. During the quarter, the Company
made a $250,000 payment of principal on the Company's subordinated indebtedness
and a shareholder distribution of $200,000.
Capital expenditures were $1.0 million and $0.9 million, respectively, for
the three-month periods ended September 2001 and 2000. 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 2001.
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. 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 Company was in
compliance with all covenants as of September 24, 2000. 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.
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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. As of September 24, 2000, the Company had
outstanding cash borrowings of $29.2 million under the Credit Facility, as well
as outstanding letters of credit of $12.6 million. The increase in accounts
receivable and related days sales outstanding necessitated a higher level of
cash borrowings during the quarter. Availability under the Credit Facility was
$3.2 million as of September 24, 2000. The Company has determined that an
expansion of the Credit Facility to $55 million is required in order to meet
expected working capital requirements. The Company is in discussions with its
existing bank group to expand the Credit Facility to $55 million. The Company
believes that its cash flow from operations, together with its borrowing
capacity under an expanded Credit Facility, will be sufficient to meet such
requirements as they now exist.
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, covenants and restrictions in the Company's debt agreements,
dependence on key personnel, the short-term nature of the Company's contracts,
potential 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 25, 2000.
The Company had $29.2 million in cash borrowings under the Credit Facility
as of September 24, 2000. These funds were borrowed under two rates: (i)
$25,000,000 was borrowed at LIBOR plus 1.5% (8.12% as of September 24, 2000) and
(ii) the remaining outstanding balance was borrowed at the prime rate (9.5% as
of September 24, 2000).
At September 24, 2000, the Company had additional outstanding indebtedness
that consisted of $47.2 million of Senior Subordinated Notes and $3.75 million
of a Subordinated Promissory Note with fixed interest rates of 9.875% and 14%,
respectively.
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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 4 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.
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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 8, 2000 By: /s/ Steven C. Kletjian
------------------------------------
Steven C. Kletjian, President,
Chief Executive Officer
(Principal Executive Officer)
November 8, 2000 By: /s/ George A. Keches
------------------------------------
George A. Keches, Vice President -
Finance, Chief Financial Officer
and Treasurer (Principal Financial
and Accounting Officer)
16
