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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 25, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-42407
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UNICCO SERVICE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2872501
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
275 GROVE STREET 02466
AUBURNDALE, MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 527-5222
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
NOT APPLICABLE
(TITLE OF CLASS)
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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 [ ]
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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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DOCUMENTS INCORPORATED BY REFERENCE
NOT APPLICABLE
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<PAGE> 2
UNICCO SERVICE COMPANY
FORM 10-K
FISCAL YEAR ENDED JUNE 25, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PART I PAGE
<S> <C>
1. Business............................................................... 3
2. Properties............................................................. 7
3. Legal Proceedings...................................................... 7
4. Submission of Matters to a Vote of Security Holders.................... 7
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.. 7
6. Selected Financial Data................................................ 8
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 9
7A. Quantitative and Qualitative Disclosures About Market Risk.............16
8. Financial Statements and Supplementary Data............................17
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................42
PART III
10. Directors and Executive Officers of the Registrant.....................42
11. Executive Compensation.................................................45
12. Security Ownership of Certain Beneficial Owners and Management.........46
13. Certain Relationships and Related Transactions.........................46
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......47
Signatures.............................................................51
</TABLE>
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report, particularly in Items 1, 2, 3,
7 and 7A hereof, 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, wage and insurance rates,
assimilation of past or future acquisitions, general economic conditions and
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.
PART I
ITEM 1. BUSINESS
BACKGROUND
UNICCO Service Company ("UNICCO" and, together with its subsidiaries on a
consolidated basis, the "Company") provides integrated facilities services to a
broad base of industrial, commercial and institutional clients throughout the
United States and Canada. The Company offers an extensive array of commercial,
operational and administrative services to its customers, providing a single
source solution for those services that can be cost-effectively outsourced.
Services offered by the Company include industrial and mechanical engineering,
plant operations, custodial and maintenance services and administrative
services. UNICCO was founded as a Massachusetts corporation in 1949, and was
reorganized as a Massachusetts business trust in 1988. UNICCO is a subchapter S
company for federal and certain state income tax purposes.
In June 1996, the Company consummated the strategic acquisition (the "Ogden
Acquisition") of the Allied Facilities Services business of Ogden Corporation
("Ogden"). The Ogden Acquisition expanded the Company's geographic range to
cover most of the United States and Canada.
In October 1997, the Company consummated a $105 million Senior Subordinated
Notes offering (the "Notes Offering") and entered into a $45 million Amended and
Restated Revolving Credit Agreement (the "Credit Facility"). The net proceeds
from the Notes Offering and the Credit Facility were used to repay approximately
$84.8 million of indebtedness under the Company's existing credit facilities and
$19.7 million to pay certain other indebtedness, fees and expenses incurred in
connection with such financing.
Effective February 1, 1998, the Company acquired 100% of the outstanding
common stock of American Building Services, Inc. ("ABS"). The acquisition was
accounted for as a purchase and the operations of ABS are included in the
accompanying consolidated financial statements since the effective date of the
acquisition. The aggregate purchase price was approximately $2.6 million in
cash.
Effective September 1, 1998, the Company acquired certain assets of Empire
Maintenance Industries, Inc., a Canadian janitorial services company ("Empire"),
for $4.4 million in cash. The acquisition was accounted for as a purchase and
the operations of Empire are included in the accompanying consolidated financial
statements since the effective date of the acquisition.
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In the fourth quarter of fiscal 1998, the Company's management and Advisory
Board approved a plan to divest the Company's security business, which it
acquired as part of the Ogden Acquisition. Effective December 28, 1998, the
Company sold its security business for $12 million in cash.
Effective December 31, 1999, the Company sold certain janitorial contracts,
located primarily in the Midwest, for $4.05 million in cash with an additional
contingent purchase price of $450,000. The contingent purchase price is payable
based upon such contracts achieving a defined minimum profit during the
six-month period following the sale.
During the second and third quarters of fiscal 2000, the Company
repurchased $57.9 million of its Senior Subordinated Notes (see Note 2 of Notes
to Consolidated Financial Statements).
The Company's fiscal year ends on the last Sunday in June of each year.
References herein to "fiscal 2000" refer to the Company's fiscal year ended June
25, 2000.
GENERAL
UNICCO offers a range of integrated outsourced facilities management and
support services relating to the operation and maintenance of buildings and
plants. These services are designed to optimize the facility's operating
efficiency while relieving the Company's customers from the management and
personnel burdens associated with non-core functions.
The Company's building operation and maintenance services include
traditional custodial functions such as janitorial and housekeeping services,
and mechanical and plant maintenance, which are provided to customers across the
Company's various market sectors. In connection with the Company's total
facility management concept, the Company provides additional contract building
services in the areas of grounds maintenance, mobile facilities maintenance,
utility operations, energy management, recycling, snow removal and building
systems controls.
The Company also supplies certain facility support services and a
combination of manufacturing and administrative support functions to its
customers. The Company has partnered with a number of organizations in supplying
process management and staffing in the areas of production support, warehousing,
distribution, shipping and receiving, preventive and predictive maintenance of
manufacturing equipment, vehicle maintenance, waste water treatment and chemical
distribution systems maintenance and reprographic and mailroom operations
support.
The Company also selects, manages and integrates services provided by third
parties into the Company's overall portfolio of services. For example, the
Company is able to provide sub-contracted services in areas such as facility
renovation, facility planning, space design and office relocation to relieve its
customers of individually searching for and contracting with suppliers of these
services.
During fiscal 2000, the Company moved its corporate headquarters from
Boston, Massachusetts to Auburndale, Massachusetts. The Company has two
operating units, a Commercial Division and an Industrial Division, which are
regionally organized. The Company's customer service functions in these
divisions are organized geographically under a system of regional managers.
SERVICES
The Company's principal service offerings are listed by category below.
Engineering:
- Mechanical Engineering - Energy Management
- Planning/Scheduling - Space Planning
- Power Generation Management - CAD Services
- Plant Engineering - CMMS Programs
- Environmental
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Commercial Services:
- Janitorial/Housekeeping - Window Washing
- Recycling - Pest Control
- Relamping Services - Specialty Cleaning
- Porter/Matron Services - Clean Rooms/High Tech
- Snow Removal - Sterile Environment
- Landscaping/Grounds Maintenance
Operations & Maintenance:
- Facility Management/Repair - Distribution Management
- Production Equipment Maintenance/Repair - Waste Management
- Warehouse Services and Inventory Control - Elevator/Escalator Maintenance
- Utility Program Operation - Fleet Maintenance
- Shipping/Receiving Services - Roof Repair
- Construction Project Management - Telecommunications
- Mobile Facilities Maintenance
Administration:
- Subcontract Administration - Audio/Visual Services
- Materials Procurement - Secretarial/Clerical Services
- Reprographics/Copy Center - Service Call Desk
- Mail Distribution - Switchboard/Reception
CUSTOMERS
The Company has approximately 1,300 active customer accounts, including
several of the Fortune 500 companies, operating in a wide variety of business
sectors including commercial real estate, banking, insurance, consumer products,
retail, automotive and heavy equipment manufacturing, pharmaceuticals,
telecommunications, high technology, aerospace, defense contracting and chemical
manufacturing. In addition, the Company provides services to government
agencies, colleges and universities and other organizations and institutions
such as museums and sports facilities.
The Company's revenue stream is diverse, with no single customer accounting
for more than 8% of the Company's revenues in fiscal 2000. The Company services
customers in 48 states, including Hawaii, and each of the Canadian provinces.
The Company has enjoyed a long-term relationship with many of its largest
customers.
CONTRACTS
The Company's business is generally conducted under written contracts with
its customers. Contracts vary in type and duration, with a majority having a
term of one to three years, often with automatic renewal clauses unless either
party elects to terminate. Most of the Company's contracts are subject to
termination without penalty at the option of the customer, or by either the
Company or the customer, upon 30 to 90 days notice.
The Company structures its service contracts under three principal methods:
fixed price, cost plus fixed fee and modified cost plus. All contracts are based
upon a defined scope and frequency of services to be provided. Under fixed price
contracts, which currently account for approximately 47% of the Company's
revenues, the customer agrees to a fixed dollar amount for all labor and
non-labor costs. Cost plus fixed fee contracts, which currently account for
approximately 31% of the Company's revenues, provide for the customer to be
billed for labor and non-labor costs, allocated overhead and a negotiated fee
based upon these costs. Modified cost plus contracts, which currently account
for approximately 22% of the Company's revenues, primarily provide for actual
hours worked to be billed at pre-determined hourly rates. In certain instances,
modifications to the cost plus fixed fee contracts are structured to include an
incentive fee or shared cost savings based upon operating efficiencies obtained.
Certain of the Company's contracts, particularly
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<PAGE> 6
government contracts, require the Company to post a performance bond and/or
payment bond as a condition of the contract award.
INDUSTRY AND COMPETITION
Over the last several years, a trend towards outsourcing of non-core
business functions has transformed the traditional facility services industry.
The larger facility services companies have expanded beyond providing
traditional cleaning services for commercial property managers and large
corporations to performing higher value added services for companies in the
industrial, manufacturing, education and healthcare sectors.
The facility services industry is characterized by a combination of a small
number of large national organizations, none of which has a dominant market
share, as well as numerous smaller companies providing a narrow range of
services in a limited geographic area. While the Company operates throughout the
United States and Canada, its services are delivered at the local level and as a
result it competes with both national organizations as well as the smaller
contractors.
There are many firms that provide traditional cleaning services,
principally in the Company's commercial market sector, on either a regional
basis or limited to a small number of geographically proximate cities or
contiguous states. In addition, the Company faces competition from large
national firms that have branch offices or operating locations in major cities
established to service the local business community.
In the broader market for providing bundled facility management services to
customers or for multi-site/multi-function contracts, as well as outsourced
manufacturing and administrative support services, the Company competes
primarily against large national firms. ABM Industries, Aramark, Encompass
(formerly Group Mac and Building One Services), Fluor Corp., Johnson Controls,
Marriott Corporation, OneSource and Service Master, among others, all supply
similar services to customers in the Company's principal market sectors. These
organizations generally have substantially greater financial and marketing
resources than the Company.
The Company believes that the principal competitive factors in the market
segments in which it operates are quality of service, cost, capability to
provide a broad range of fully integrated services, geographic scale of
operations and the ability to establish and maintain long-term customer
relationships. The Company believes that it competes favorably with respect to
each of these factors.
EMPLOYEES
The Company employs over 20,000 employees. Approximately 43% of the
Company's work force is unionized under more than 132 different union contracts.
The Company has not experienced any strikes or work stoppages, and management
generally considers its relationships with its employees and its unions to be
satisfactory.
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ITEM 2. PROPERTIES
The following table sets forth the Company's principal office facilities
throughout North America. The Company also has a number of smaller offices in
other cities, all of which are leased. The majority of the Company's employees
are engaged in providing services directly to customers at the customers'
facilities. Accordingly, the Company does not consider any of these locations to
be material to its operations as a whole.
<TABLE>
<CAPTION>
NO. OF LEASE
LOCATION SQUARE FEET EXPIRATION
-------- ----------- ----------
<S> <C> <C>
Arlington, Virginia...................... 4,555 2002
Auburndale, Massachusetts(1)............. 40,386 2010
Boston, Massachusetts.................... 12,800 2002
Bloomfield Hills, Michigan............... 3,150 2003
Honolulu, Hawaii......................... 3,260 2004
Oklahoma City, Oklahoma.................. 8,600 2001
Toronto, Ontario......................... 7,121 2004
Pine Brook, New Jersey................... 16,234 2002
Chelsea, Massachusetts................... 10,400 2006
</TABLE>
(1) This location serves as the Company's corporate headquarters.
The following locations are leased by the Company on behalf of a customer.
The Company is fully reimbursed by the customer for all rental expenses under
these leases. These leases are assignable to the customer if the Company's
services are terminated.
<TABLE>
<CAPTION>
NO. OF LEASE
LOCATION SQUARE FEET EXPIRATION
-------- ----------- ----------
<S> <C> <C>
Louisville, Kentucky 43,000 2003
Elyria, Ohio 66,000 2003
Lakewood, New Jersey 62,000 2004
Houston, Texas 52,000 2004
Port Allen, Louisiana 50,000 2005
Niagara Falls, Ontario 80,000 2007
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in numerous pending legal proceedings, primarily
employment and labor relations matters, 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 condition, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company is privately-owned and there is no public trading market for
the Company's equity securities.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the five years
in the period ended June 25, 2000 have been derived from, and are qualified by
reference to, the Consolidated Financial Statements of the Company. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company, including the notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------------------------
JUNE 30, JUNE 29, JUNE 28, JUNE 27, JUNE 25,
1996(a) 1997 1998 1999 2000
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues ............................... $ 98,315 $ 471,869 $ 491,014 $ 522,363 $ 555,084
Cost of service revenues ............... 84,244 421,487 436,599 462,563 493,007
-------- --------- --------- --------- ---------
Gross profit ......................... 14,071 50,382 54,415 59,800 62,077
Selling, general and
administrative expenses .............. 11,492 31,651 35,827 40,504 43,804
Amortization of intangible
assets ............................... 551 4,151 4,208 4,278 3,939
-------- --------- --------- --------- ---------
Income from continuing
operations ........................... 2,028 14,580 14,380 15,018 14,334
Interest income ........................ 85 66 201 826 914
Interest expense ....................... (178) (11,491) (11,631) (11,914) (9,872)
-------- --------- --------- --------- ---------
Income from continuing
operations before income
taxes and extraordinary
item ................................. 1,935 3,155 2,950 3,930 5,376
Provision for income
taxes(b) ............................. 189 2,328 646 824 1,005
-------- --------- --------- --------- ---------
Income from continuing
operations before
extraordinary item .................. 1,746 827 2,304 3,106 4,371
Discontinued operations:
Income from discontinued
operations, net of taxes
of $11, $591 and $(12) ............... -- 356 1,070 1,143 --
Gain on sale of discontinued
operations, net of taxes of $0 ....... -- -- -- 4,082 --
-------- --------- --------- --------- ---------
Income before extraordinary item ....... 1,746 1,183 3,374 8,331 4,371
Extraordinary loss, net of
tax benefit of $66 and $36 ............. -- -- (2,958) -- (897)
-------- --------- --------- --------- ---------
Net income ........................... $ 1,746 $ 1,183 $ 416 $ 8,331 $ 3,474
======== ========= ========= ========= =========
OTHER FINANCIAL DATA:
EBITDA(c) .............................. $ 3,398 $ 21,174 $ 20,870 $ 21,701 $ 20,462
EBITDA margin(d) ....................... 3.5% 4.5% 4.3% 4.2% 3.7%
Cash flows provided (used) by:
Operating activities ................. 5,643 (35,841) 24,137 14,821 9,441
Investing activities ................. (52,399) (2,528) (3,683) 4,397 1,873
Financing activities ................. 46,792 42,140 (15,159) (3,416) (33,922)
Depreciation and
amortization from
continuing operations .................. $ 1,370 $ 6,594 $ 6,490 $ 6,683 $ 6,128
Capital expenditures for
continuing operations .................. 1,227 2,484 1,513 2,308 2,813
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash ................................. $ 157 $ 3,928 $ 9,151 $ 24,938 $ 2,333
Working capital from
continuing operations .............. (2,278) 45,050 55,741 67,643 45,006
Total assets ......................... 85,167 161,087 150,789 159,884 128,131
Total long-term debt
(including current maturities) ....... 62,850 107,147 109,544 109,592 76,884
</TABLE>
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----------
(a) Fiscal 1996 was a 53-week year. As a result, the Company's results of
operations for fiscal 1996 include approximately $1.0 million of payroll and
payroll-related expenses attributable to the additional week of operations
that were not billed in the period to customers with fixed price contracts.
(b) For the year ended June 30, 1996, the Company was not subject to federal and
certain state income taxes as it had elected to be treated as a subchapter S
corporation. For the year ended June 29, 1997, certain subsidiaries of the
Company were taxed as C corporations through December 31, 1996, at which
time they elected to be treated as subchapter S corporations. See Note 10 of
Notes to the Company's Consolidated Financial Statements.
(c) EBITDA is defined as income from continuing operations before provision for
income taxes and extraordinary item, interest expense, interest income and
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator of a leveraged company's ability to service
and/or incur indebtedness and because management believes that EBITDA is a
relevant measure of the Company's ability to generate cash without regard to
the Company's capital structure or working capital needs. 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.
(d) EBITDA margin represents EBITDA as a percentage of revenues.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed below and elsewhere herein include forward-looking
statements regarding the future performance and financial condition of the
Company and other anticipated future events. These matters involve risks and
uncertainties that could cause actual results to differ materially from the
statements contained herein. See "Disclosure Regarding Forward-Looking
Statements" above.
GENERAL
The Company provides integrated facilities services to a broad base of
industrial, commercial and institutional clients throughout the United States
and Canada. Services offered by the Company include industrial and mechanical
engineering, plant operations, custodial and maintenance services and
administrative services.
The Company's cost of service revenues primarily consists of direct labor
costs and related benefits, insurance, supplies and equipment. For fiscal 2000
and fiscal 1999, 79.1% and 80.7%, respectively, of the cost of service revenues
consisted of direct labor costs and related benefits. Selling, general and
administrative expenses include employee compensation and benefits, travel,
insurance, rent, recruiting and training, professional fees and bad debt
expense. For fiscal 2000 and fiscal 1999, 52.5% and 51.5%, respectively, of
selling, general and administrative expenses consisted of employee compensation
and benefits.
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The Company's results of operations were significantly influenced by the
Ogden Acquisition on June 28, 1996 (during the last week of fiscal 1996). The
Company accounted for this transaction under the purchase method of accounting.
A significant portion of the purchase price of $62 million was allocated to
intangible assets. Accordingly, the Company incurred significant amortization
expenses beginning in fiscal 1997, and will continue to do so in the future.
Interest expense also increased significantly due to the indebtedness incurred
to finance the acquisition. The original acquisition indebtedness was
subsequently refinanced through the Notes Offering during October, 1997. In
addition, historical operating profit margins were negatively impacted by the
Ogden Acquisition because Ogden's business consisted of more lower margin
contracts than the Company's prior business.
DISCONTINUED OPERATIONS
The stock of the Company's security business, which was acquired in the
Ogden Acquisition, was sold for $12.0 million in cash effective December 28,
1998. Accordingly, the accompanying financial data and financial statements and
related notes set forth herein have been classified to present the security
services operations as discontinued operations. Revenues from these operations
were $28.6 million, $58.6 million and $62.0 million in fiscal years 1999, 1998
and 1997, respectively. The Company retained net assets of $7.4 million relating
to the security services operations, comprised primarily of accounts receivable
less accounts payable and payroll-related accruals. These net assets were
transferred to UNICCO Service Company and were excluded from the determination
of the gain on sale.
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RESULTS OF OPERATIONS
The following comparisons of the Company's results of operations for fiscal
years 2000, 1999 and 1998 should be read in conjunction with the Consolidated
Financial Statements of the Company, including the notes thereto. The following
table sets forth, for the periods indicated, certain operating data expressed
both in dollars and as a percentage of revenues for the period.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------------------------------
JUNE 25, 2000 JUNE 27, 1999 JUNE 28, 1998
---------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................. $ 555,084 100.0% $522,363 100.0% $491,014 100.0%
Cost of service revenues ............. 493,007 88.8 462,563 88.6 436,599 88.9
--------- ----- -------- ----- -------- -----
Gross profit ....................... 62,077 11.2 59,800 11.4 54,415 11.1
Selling, general and
administrative expenses ............ 43,804 7.9 40,504 7.7 35,827 7.3
Amortization of intangible
assets ............................. 3,939 0.7 4,278 0.8 4,208 0.9
--------- ----- -------- ----- -------- -----
Income from continuing
Operations ......................... 14,334 2.6 15,018 2.9 14,380 2.9
Interest income ...................... 914 0.2 826 0.2 201 --
Interest expense ..................... (9,872) (1.8) (11,914) (2.3) (11,631) (2.4)
--------- ----- -------- ----- -------- -----
Income from continuing
operations before income
taxes and extraordinary item ....... 5,376 1.0 3,930 0.8 2,950 0.6
Provision for income taxes ........... 1,005 0.2 824 0.2 646 0.1
--------- ----- -------- ----- -------- -----
Income from continuing
operations before
extraordinary item ................. 4,371 0.8 3,106 0.6 2,304 0.5
Discontinued operations:
Income from discontinued
operations, net of taxes of
$(12) and $591 ..................... -- -- 1,143 0.2 1,070 0.2
Gain on sale of
discontinued operations,
net of taxes of $0 ................. -- -- 4,082 0.8 -- --
--------- ----- -------- ----- -------- -----
Income before extraordinary item ..... 4,371 0.8 8,331 1.6 3,374 0.7
Extraordinary loss, net
of tax benefit of $36 and $66 ....... (897) (0.2) -- -- (2,958) (0.6)
--------- ----- -------- ----- -------- -----
Net income ......................... $ 3,474 0.6% $ 8,331 1.6% $ 416 0.1%
========= ===== ======== ===== ======== =====
</TABLE>
COMPARISON OF YEARS ENDED JUNE 25, 2000 AND JUNE 27, 1999
Revenues. Revenues for fiscal 2000 were $555.1 million, an increase of
$32.7 million, or 6.3%, compared to revenues of $522.4 million for fiscal 1999.
The increase was attributable to revenue increases in the Company's Commercial
and Industrial Divisions of $25.3 million and $16.9 million, respectively. The
revenue increase in the Commercial Division was primarily the result of the
following: (i) additional services performed under new and existing contracts
and (ii) a revenue increase in the Company's Canadian subsidiary as a result of
a full year of revenue following the September 1998 acquisition of Empire
Maintenance Industries, Inc. The revenue increase in the Industrial Division was
primarily the result of additional services performed under new and existing
contracts. The increase in the Commercial Division was partially offset by a
decrease in revenue of $9.5 million that was the result of the sale of certain
contracts, primarily in the Midwest, effective December 31, 1999. (See Note 3 to
the Company's Consolidated Financial Statements.)
Cost of Service Revenues. Cost of service revenues for fiscal 2000 was
$493.0 million, or 88.8% of revenues, compared to $462.6 million, or 88.6% of
revenues, for fiscal 1999. The increase in cost of revenues as a percentage of
revenues resulted primarily from increases in payroll and payroll related
expenses due to annual salary increases effective July 1, 1999 and costs
incurred in the start-up of new contracts.
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<PAGE> 12
Gross Profit. As a result of the foregoing, gross profit for fiscal 2000
was $62.1 million, or 11.2% of revenues, compared to $59.8 million, or 11.4% of
revenues, for fiscal 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 2000 were $43.8 million or 7.9% of revenues,
compared to $40.5 million or 7.7% of revenues, for fiscal 1999. The increase of
$3.3 million was primarily due to increases in payroll-related expenses, travel
and entertainment and vehicle expense. Payroll related expenses for the Company
increased $1.4 million primarily as a result of annual salary increases
effective July 1, 1999, and to a lesser extent headcount increases related to
the Company's implementation of a shared services center at its new
headquarters. These increases were partially offset by a $0.3 million decrease
in salaries due to headcount reductions as a result of the sale of certain
contracts effective December 31, 1999. (See Note 3 to the Company's Consolidated
Financial Statements). The Company also incurred $1.2 million of severance costs
in fiscal 2000. Travel and transportation expenses increased $0.7 million
primarily due to incremental lease and maintenance related expenses for certain
transportation equipment and as a result of the impact of new business
opportunities and servicing a growing, geographically dispersed customer base.
Professional fees for consulting related to the implementation of the shared
service center were $0.4 million in fiscal 2000. This increase over fiscal 1999
was offset by a decrease in professional fees related to the upgrade of the
Company's primary financial accounting system in preparation for the Year 2000.
There was also a $0.2 million increase in expense between the comparable periods
related to changes in the exchange rate used to revalue the Company's receivable
from its Canadian subsidiary.
The shared service center will process substantially all payroll, billing
and accounts payable transactions for the Company. Historically, such
transactions have been processed primarily by regional offices. Management
expects that the centralization of these processes will result in more
efficiency as well as a reduction of head count and other ancillary costs at
regional offices. The remaining implementation costs of the shared services
center are expected to be approximately $1.6 million in fiscal 2001.
The Company's principal executive office was moved on May 30, 2000. After
the move, the Company expects higher costs as a result of the relocation due to
an increase in rental expense and the cost of leasehold improvements associated
with the new facility.
Amortization of Intangible Assets. Amortization expense was $3.9 million in
fiscal 2000 as compared to $4.3 million in fiscal 1999. The decrease in
amortization expense is the result of the write-off of intangibles related to
certain contracts sold effective December 31, 1999. (See Note 3 to the Company's
Consolidated Financial Statements.)
Income from Continuing Operations. As a result of the foregoing, income
from continuing operations for fiscal 2000 was $14.3 million, or 2.6% of
revenues, compared to $15.0 million, or 2.9% of revenues, for fiscal 1999.
EBITDA. EBITDA for fiscal 2000 was $20.5 million, or 3.7% of revenues,
compared to $21.7 million, or 4.2% of revenues, for 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. Cash flows from operating, investing and financing activities for
fiscal 2000 were $9.4 million, $1.9 million and $(33.9) million, respectively.
Cash flows from operating, investing and financing activities for fiscal 1999
were $14.8 million, $4.4 million and $(3.4) million, respectively.
Interest Expense/Income. Interest expense for fiscal 2000 was $9.9 million,
or 1.8% of revenues, compared to $11.9 million, or 2.3% of revenues, for fiscal
1999. Interest income for fiscal 2000 was $0.9 million, compared to $0.8 million
for fiscal 1999. The decrease in interest expense was primarily the result of
the repurchase of $57.9 million face amount of the Company's Senior Subordinated
Notes (the "Notes") during the second and third quarters of fiscal 2000. (See
Note 2 to the Company's Consolidated Financial Statements.)
Income Taxes. Provision for income taxes for fiscal 2000 was $1.0 million,
or 18.7% of income from continuing operations before provision for income taxes,
compared to $0.8 million, or 21.0% of income from continuing operations before
provision for income taxes, for fiscal 1999. The lower effective tax rate for
fiscal 2000 resulted primarily from a decrease in taxable income of the
Company's Canadian subsidiary, which is taxed at the full Canadian statutory
rate.
Extraordinary Loss. During fiscal 2000, the Company recorded an
extraordinary loss of $0.9 million, net of state tax benefit. The extraordinary
loss was attributable to the repurchase and retirement of $57.9 million face
value of Notes. The extraordinary loss resulted from the write-off of
unamortized deferred financing costs and bond discount associated with the
Notes. This loss was partially offset by the gain recorded for the Notes which
were repurchased at prices below par.
-12-
<PAGE> 13
Net Income. As a result of the foregoing, net income for fiscal 2000 was
$3.5 million, or 0.6% of revenues, compared to $8.3 million, or 1.6% of revenues
for fiscal 1999. Fiscal 1999 included income of $5.2 million (net of tax) from
the operations and sale of the Company's discontinued security business.
COMPARISON OF YEARS ENDED JUNE 27, 1999 AND JUNE 28, 1998
Revenues. Revenues for fiscal 1999 were $522.4 million, an increase of
$31.4 million, or 6.4%, compared to revenues of $491.0 million for fiscal 1998.
This increase was primarily attributable to revenue increases in the Company's
Commercial and Industrial Divisions of $21.6 million and $9.8 million,
respectively. The revenue increase in the Commercial Division was primarily the
result of increased revenues in the Canadian subsidiary ($14.1 million)
primarily as a result of the September 1998 acquisition of Empire and increases
in revenue attributable to the Company's February 1998 acquisition of ABS. The
Commercial Division also experienced revenue increases of $4.1 million as a
result of additional services performed under new and existing contracts. The
revenue increase in the Industrial Division was primarily the result of
additional services performed under new and existing contracts, partially offset
by the loss of several contracts. Management believes the loss of such contracts
is not material to the consolidated results of operations.
Cost of Service Revenues. Cost of service revenues for fiscal 1999 was
$462.6 million, or 88.6% of revenues, compared to $436.6 million, or 88.9% of
revenues, for fiscal 1998. This improvement was primarily due to overall cost
reductions achieved through tighter management of internal and subcontracted
labor and expenditures, as well as the impact of new contracts with a lower cost
component.
Gross Profit. As a result of the foregoing, gross profit for fiscal 1999
was $59.8 million, or 11.4% of revenues, compared to $54.4 million, or 11.1% of
revenues, for fiscal 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1999 were $40.5 million, or 7.7% of revenues,
compared to $35.8 million, or 7.3% of revenues, for fiscal 1998. The increase of
$4.7 million was primarily due to increases in payroll related expenses, Year
2000 remediation expenses, professional fees and office and occupancy costs
throughout the Company's United States operations, as well as an increase in
expenses at the Company's Canadian subsidiary associated with the purchase of
Empire, effective September 1, 1998. Payroll related expenses for the Company
(excluding the Canadian subsidiary) increased $2.2 million as a result of
headcount increases and annual salary increases effective July 1, 1998. Year
2000 remediation costs increased $0.7 million between comparable periods.
Professional fees, primarily consisting of general business consulting services,
increased $0.3 million between comparable periods. Office and occupancy costs
increased $0.8 million, primarily as a result of increased equipment lease costs
and depreciation expense. The increase of $1.1 million at the Canadian
subsidiary was primarily the result of increased payroll related expenses due to
increased head count, increased travel and entertainment expense due to an
expanded geographic area and increased office and occupancy expense due to
increases in office locations associated with the Empire acquisition. These
increases were offset by a $0.5 million decrease in expense between the
comparable periods related to the effect of changes in the exchange rate used to
revalue the Company's receivable with its Canadian subsidiary.
Amortization of Intangible Assets. Amortization expense was $4.3 million in
fiscal 1999 as compared to $4.2 million in fiscal 1998. The increase is the
result of amortization of intangible assets acquired September 1, 1998 in
connection with the purchase of Empire and the effect of a full year of
amortization of intangible assets acquired February 1, 1998 in connection with
the purchase of ABS. (See Note 4 of Notes to Consolidated Financial Statements).
Income from Continuing Operations. As a result of the foregoing, income
from continuing operations for fiscal 1999 was $15.0 million, or 2.9% of
revenues, compared to $14.4 million, or 2.9% of revenues, for fiscal 1998.
EBITDA. EBITDA for fiscal 1999 was $21.7 million, or 4.2% of revenues,
compared to $20.9 million, or 4.3% of revenues, for fiscal 1998. Cash flows from
operating, investing and financing activities for fiscal 1999 were $14.8
million, $4.4 million and $(3.4) million, respectively. Cash flows from
operating, investing and financing activities for fiscal 1998 were $24.1
million, $(3.7) million and $(15.2) million, respectively.
-13-
<PAGE> 14
Interest Expense/Income. Interest expense for fiscal 1999 was $11.9
million, or 2.3% of revenues, compared to $11.6 million, or 2.4% of revenues,
for fiscal 1998. Interest income for fiscal 1999 was $0.8 million, compared to
$0.2 million for fiscal 1998. The increase in interest income is the result of
higher average invested cash balances resulting from the cash proceeds from the
sale of the Company's security business as well as the collection of the
retained accounts receivable relating to the security business.
Income Taxes. Provision for income taxes for fiscal 1999 was $0.8 million,
or 21.0% of income from continuing operations before provision for income taxes,
compared to $0.6 million, or 21.9% of income from continuing operations before
provision for income taxes, for fiscal 1998. The majority of the provision
relates to foreign taxes attributable to income generated by the Canadian
subsidiary. The remaining provision represents a current state tax provision
offset by a deferred state tax benefit.
Net Income. As a result of the foregoing, as well as income of $5.2 million
(net of tax) from the operations and the sale of the Company's discontinued
security business, net income for fiscal 1999 was $8.3 million, or 1.6% of
revenues, compared to $0.4 million, or 0.1% of revenues for fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
For fiscal 2000, the Company's cash balance decreased by $22.6 million. The
decrease was attributable to cash provided by operations of $9.4 million and
cash provided by investing activities of $1.8 million offset by cash used in
financing activities of $33.9 million. Cash provided by operations was primarily
the result of an increase to cash of $10.8 million related to net income
adjusted for non-cash items such as amortization of intangible assets, debt
issue costs and discount, depreciation and the extraordinary loss on the
retirement of debt. This increase was partially offset primarily by decreases in
the Company's accrued expenses and increases in the Company's accounts payable
and other assets. The increase in accounts payable of $1.4 million was primarily
the result of the overall growth of the Company. The increase in other assets is
primarily related to increases in prepaid insurance. Cash provided by investing
activities was primarily the result of proceeds from the sale of certain
contracts (See Note 3 of Notes to Consolidated Financial Statements) for $4.05
million. Proceeds of $0.6 and $0.2 million, respectively, were the result of
repayments of officer loans and the sale of property and equipment. These
increases in investing activities were partially offset by capital expenditures
of $2.8 million. Net cash used for financing activities included payments of
$59.0 million which was comprised of $58.1 million used to retire and pay the
related accrued interest on $57.9 million (face amount) of Notes and $1.0
million of optional principal payments on the Company's other subordinated
indebtedness. Net cash used in financing activities also included distributions
to shareholders of $3.4 million. These uses of cash in financing activities were
partially offset by proceeds from the Company's the line of credit of $25.9
million and a cash overdraft of $2.6 million.
For fiscal 1999, the Company's cash balance increased by $15.8 million. The
increase was primarily attributable to cash provided by operations of $14.8
million and cash provided by investing activities of $4.4 million offset by cash
used in financing activities of $3.4 million. Cash provided by operations was
primarily the result of $4.2 million of net income (excluding the gain on the
sale of discontinued operations), a decrease in accounts receivable and unbilled
receivables of $2.3 million, an increase in other current assets of $2.3 million
and an increase in accounts payable of $3.2 million. The reduction in accounts
receivable was the result of the collection of the receivables associated with
the sale of the Company's security business, which was sold effective December
28, 1998. The increase in other current assets was primarily the result of an
increase in prepaid insurance. The increase in accounts payable was primarily
the result of additional trade payables associated with the Empire acquisition
as well as the timing of disbursements to vendors and overall growth in the
Company's operations. Cash provided by investing activities was primarily the
result of proceeds from the sale of the Company's security business for $12.0
million, offset by decreases related to the purchase of Empire for $4.4 million
and capital expenditures of $2.3 million. Cash used for financing activities
represented distributions to shareholders of $3.4 million.
Capital expenditures were $2.8 million in fiscal 2000 and $2.3 million in
fiscal 1999. The Company's operations do not generally require material
investment in capital assets. The Company does not expect that its capital
expenditure requirements will increase materially in fiscal 2001.
-14-
<PAGE> 15
The Company's business generally is not seasonal. However, gross margin as
a percentage of revenue historically declines in the Company's third and fourth
quarters due to the impact of higher federal and state unemployment tax expense
beginning January 1.
In October 1997, the Company consummated the $105 million Notes Offering
and entered into the Credit Facility. The net proceeds from the Notes Offering
and the Credit Facility were used to repay approximately $84.8 million of
indebtedness under the Company's existing credit facilities and $19.7 million of
certain other indebtedness, fees and expenses incurred in connection with such
financing. In March 1998, the Company exchanged all $105 million in principal
amount of the privately-placed Senior Subordinated Notes issued in the Notes
Offering for a like amount of publicly traded Senior Subordinated Notes (the
"Notes"). The Company repurchased $57.9 million face amount of the Notes in
fiscal 2000, using cash on hand and $23.2 million in borrowings under the Credit
Facility (see Note 2 of Notes to Consolidated Financial Statements).
The remaining Notes will mature on October 15, 2007. The Notes will not be
redeemable at the Company's option prior to October 15, 2002. Thereafter, the
Notes will be subject to redemption at any time at the option of the issuers at
fixed redemption prices. Interest on the remaining Notes accrues at the rate of
9 7/8% per annum and is payable in arrears on April 15 and October 15 of each
year, in an annual amount equal to approximately $4.6 million. The payment of
principal and interest on the Notes is subordinated in right to the prior
payment of all senior debt of the Company, including borrowings under the Credit
Facility.
The Company's long-term indebtedness consists of borrowings under the
Credit Facility, approximately $47.0 million of Notes and $4.0 million of
subordinated indebtedness (which ranks equal in right of payment with the
Notes). Under the Credit Facility, the Company has the ability to borrow up to
$45.0 million for working capital and general corporate purposes, subject to
certain conditions. At June 25, 2000, the Company had $25.9 million in cash
borrowings outstanding under the Credit Facility. Available credit, after
deducting letters of credit, was $13.3 million at June 25, 2000. The Credit
Facility, the Indenture governing the Notes 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. As of June 25,
2000, the Company was in compliance with such covenants. As of the first and
second quarters of fiscal 2000, the Company was in violation of one of the
financial ratio covenants under the Credit Facility. The Company obtained
waivers of these violations from the lenders. 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.
The Company's principal capital requirements are to service the Company's
indebtedness, for working capital and, to a lesser extent, to fund capital
expenditures. The Company believes that its cash flow from operations, together
with cash on hand and its borrowing capacity under the Credit Facility, will be
sufficient to meet such requirements during fiscal 2001.
RECENT ACCOUNTING DEVELOPMENTS
In December 1999, the Security and Exchange Commission published Staff
Accounting Bulletin N0. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes some of the staff's interpretations of the application
of generally accepted accounting principles to revenue recognition. Conformity
with SAB 101 will not have a significant impact on the Company as the Company's
current revenue recognition policy is based on Statement of Position 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts" which is unchanged under SAB 101.
During fiscal 2000, the Financial Accounting Standards Board deferred the
adoption of Statement of Financial Accounting Standards No. 133, "Accounting for
Derivatives Instruments and Hedging Activities" (SFAS 133), to fiscal years
beginning after June 15, 2000. SFAS 133 established accounting and reporting
standards for derivative instruments and hedging activities. Adoption of SFAS
133 will not have any impact on the Company as the Company does not invest in
any derivative instruments.
-15-
<PAGE> 16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposures are in the areas of interest
rate risk and foreign currency exchange rate risk.
INTEREST RATE RISK
The Company's exposure to market risk associated with changes in interest
rates relates to variable-rate and fixed-rate debt arrangements. The table below
summarizes the Company's market risks associated with debt obligations as of
June 25, 2000. The $45.0 million Credit Facility is the Company's only
variable-rate debt arrangement, as the Notes and the Company's other
subordinated indebtedness bear fixed rates of interest. The Company had cash
borrowings of $25.9 million outstanding under the Credit Facility at June 25,
2000. The cash borrowings were outstanding at two interest rates; $5.9 million
was outstanding at the Base Rate plus the Applicable Base Rate Margin, as
defined (9.50% at June 25, 2000) and $20.0 million was outstanding at the
Adjusted Eurodollar Rate plus the Applicable Eurodollar Margin, as defined
(8.09% at June 25, 2000). There were no cash borrowings outstanding under the
Credit Facility at June 27, 1999. As the Company's other outstanding debt is at
a fixed rate, the Company has not entered into any interest rate protection
agreements.
<TABLE>
<CAPTION>
EXPECTED FISCAL YEAR OF MATURITY
2001 2002 2003 2004 2005 THEREAFTER
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Senior Subordinated Notes - - - - - $47,157,000
Interest rate - - - - - 9.875%
Credit Facility - - $25,886,000 - - -
Interest Rate - - 8.31% - - -
Fixed-Rate Subordinated
Promissory Note - $4,000,000 - - - -
Interest rate - 14.00% - - - -
</TABLE>
The estimated fair values of the Senior Subordinated Notes and the
Subordinated Promissory Note at June 25, 2000 are presented below (in
thousands):
CARRYING FAIR
AMOUNT VALUE
-------- -------
Fixed-Rate Senior Subordinated Notes $ 46,998 $45,153
Fixed-Rate Subordinated Promissory Note 4,000 4,390
Variable Rate Credit Facility 25,886 25,886
FOREIGN CURRENCY RISK
The Company also has exposure to foreign currency exchange rate
fluctuations for the cash flows received from its foreign affiliate. The U.S.
operations bear the risk of exchange rate fluctuations as the intercompany loan
to the Canadian subsidiary is repaid in Canadian dollars. This risk is mitigated
by the fact that the operations of its only foreign subsidiary, which is located
in Canada, are conducted in the local currency. Currently, the Company does not
engage in foreign currency hedging activities as it does not believe that its
foreign currency exchange rate risk is material.
-16-
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
UNICCO SERVICE COMPANY
PAGE
----
Report of Independent Accountants.........................................18
Consolidated Statement of Income for the years ended June 25, 2000,
June 27, 1999 and June 28, 1998.........................................19
Consolidated Balance Sheet at June 25, 2000 and June 27, 1999.............20
Consolidated Statement of Shareholders' Equity for the period from
June 29, 1997 to June 25, 2000..........................................21
Consolidated Statement of Cash Flows for the years ended
June 25, 2000, June 27, 1999 and June 28, 1998..........................22
Notes to Consolidated Financial Statements................................23
-17-
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of UNICCO Service Company
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of UNICCO
Service Company and its subsidiaries (the "Company") at June 25, 2000 and June
27, 1999 and the results of their operations and their cash flows for each of
the three years in the period ended June 25, 2000 in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedules listed in the index appearing under item
14(a)(2) on page 47 present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedules are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 8, 2000
-18-
<PAGE> 19
UNICCO SERVICE COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------
JUNE 25, JUNE 27, JUNE 28,
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Service revenues ...................................... $ 555,084 $ 522,363 $ 491,014
Cost of service revenues .............................. 493,007 462,563 436,599
--------- --------- ---------
Gross profit ....................................... 62,077 59,800 54,415
Selling, general and administrative expenses .......... 43,804 40,504 35,827
Amortization of intangible assets ..................... 3,939 4,278 4,208
--------- --------- ---------
Income from continuing operations .................. 14,334 15,018 14,380
Interest income ....................................... 914 826 201
Interest expense ...................................... (9,872) (11,914) (11,631)
--------- --------- ---------
Income from continuing operations before
income taxes and extraordinary item ................ 5,376 3,930 2,950
Provision for income taxes ............................ 1,005 824 646
--------- --------- ---------
Income from continuing operations before
extraordinary item .................................... 4,371 3,106 2,304
Discontinued operations:
Income from discontinued operations, net of tax of
$(12) and $591 -- 1,143 1,070
Gain on sale of discontinued operations, net
of tax of $0 .......................................... -- 4,082 --
--------- --------- ---------
Income before extraordinary item ...................... 4,371 8,331 3,374
Extraordinary loss, net of tax benefit of $36 and $66.. (897) -- (2,958)
--------- --------- ---------
Net income ............................................ $ 3,474 $ 8,331 $ 416
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-19-
<PAGE> 20
UNICCO SERVICE COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 25, JUNE 27,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 2,333 $ 24,938
Accounts receivable, less reserves of $3,194 and $2,467 at
June 25, 2000 and June 27, 1999, respectively ......... 49,067 48,781
Unbilled receivables ..................................... 24,567 25,158
Other current assets ..................................... 5,679 5,139
--------- ---------
Total current assets .................................. 81,646 104,016
--------- ---------
Property and equipment, at cost:
Transportation equipment ................................. 1,246 1,327
Machinery and equipment .................................. 10,832 10,054
Computer equipment and software .......................... 4,151 3,771
Furniture and fixtures ................................... 1,102 1,422
Leasehold improvements ................................... 903 447
--------- ---------
18,234 17,021
Less - accumulated depreciation and amortization ......... 12,435 11,607
--------- ---------
5,799 5,414
--------- ---------
Notes receivable and accrued interest from officers ........ 645 1,210
Intangible assets, net of amortization ..................... 36,166 43,596
Other assets, net .......................................... 3,875 5,648
--------- ---------
40,686 50,454
--------- ---------
$ 128,131 $ 159,884
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft ........................................... 2,597 --
Accounts payable ......................................... 8,966 8,372
Accrued payroll and payroll-related expenses ............. 16,301 18,840
Deferred income taxes .................................... 2,343 2,214
Other accrued expenses ................................... 6,433 6,947
--------- ---------
Total current liabilities ............................. 36,640 36,373
--------- ---------
Long-term liabilities:
Line of credit ........................................... 25,886 --
Long-term debt ........................................... 50,998 109,592
Other long-term liabilities .............................. 647 160
--------- ---------
Total long-term liabilities .......................... 77,531 109,752
--------- ---------
Commitments and Contingencies (Note 9)
Shareholders' equity:
Common shares ............................................ 378 378
Retained earnings ........................................ 14,234 14,121
Accumulated other comprehensive income ................... (150) (166)
--------- ---------
14,462 14,333
Less treasury shares at cost (66 shares) ................. (502) (502)
Less notes receivable from stock sales ................... -- (72)
--------- ---------
Total shareholders' equity ............................ 13,960 13,759
--------- ---------
$ 128,131 $ 159,884
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-20-
<PAGE> 21
UNICCO SERVICE COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED NOTES
TOTAL OTHER RECEIVABLE TREASURY
SHAREHOLDERS' COMMON STOCK RETAINED COMPREHENSIVE FROM STOCK
EQUITY SHARES AMOUNT EARNINGS INCOME STOCK SALES AMOUNT
------------ ------ ------ -------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
UNICCO SERVICE COMPANY
Balance, June 29, 1997 ......................... $ 9,624 1,120 $378 $ 9,994 $ (4) $(242) $(502)
USC, Inc. contribution (Note 11) ............... (788) -- -- (788) -- -- --
Components of comprehensive income:
Net income .................................. 416 -- -- 416 -- -- --
Foreign currency translation ................ (44) -- -- -- (44) -- --
--------
Total comprehensive income ............... 372
--------
Repayment of note receivable ................... 10 -- -- -- -- 10 --
Forgiveness of note receivable ................. 72 -- -- -- -- 72 --
Distributions to shareholders .................. (400) -- -- (400) -- -- --
-------- ----- ---- -------- ----- ----- -----
Consolidated balance, June 28, 1998 ............ $ 8,890 1,120 $378 $ 9,222 $ (48) $(160) $(502)
======== ===== ==== ======== ===== ===== =====
UNICCO SERVICE COMPANY
Consolidated balance, June 28, 1998 ............ 8,890 1,120 378 9,222 (48) (160) (502)
Components of comprehensive income:
Net income .................................. 8,331 -- -- 8,331 -- -- --
Foreign currency translation ................ (118) -- -- -- (118) -- --
--------
Total comprehensive income ............... 8,213
--------
Repayment of note receivable ................... 16 -- -- -- -- 16 --
Forgiveness of note receivable ................. 72 -- -- -- -- 72 --
Distributions to shareholders .................. (3,432) -- -- (3,432) -- -- --
-------- ----- ---- -------- ----- ----- -----
Consolidated balance, June 27, 1999 ............ $ 13,759 1,120 $378 $ 14,121 $(166) $ (72) $(502)
======== ===== ==== ======== ===== ===== =====
UNICCO SERVICE COMPANY
Balance, June 27, 1999 ......................... 13,759 1,120 378 14,121 (166) (72) (502)
Components of comprehensive income:
Net income .................................. 3,474 -- -- 3,474 -- -- --
Foreign currency translation ................ (28) -- -- -- (28) -- --
Unrealized gain on marketable securities .... 44 -- -- -- 44 -- --
--------
Total comprehensive income ............... 3,490
--------
Forgiveness of note receivable ................. 72 -- -- -- -- 72 --
Distributions to shareholders .................. (3,361) -- -- (3,361) -- -- --
-------- ----- ---- -------- ----- ----- -----
Consolidated balance, June 25, 2000 ............ $ 13,960 1,120 $378 $ 14,234 $(150) -- $(502)
======== ===== ==== ======== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-21-
<PAGE> 22
UNICCO SERVICE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------------
JUNE 25, 2000 JUNE 27, 1999 JUNE 28, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows relating to operating activities:
Net income ........................................... $ 3,474 $ 8,331 $ 416
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets .................. 3,939 4,577 4,806
Amortization of debt issue costs and discount ...... 290 500 676
Depreciation and amortization ...................... 2,189 2,460 2,394
(Gain) loss on disposals ........................... (94) (10) (82)
Extraordinary loss, net of tax ..................... 897 -- 2,958
Gain on sale of discontinued operations ............ -- (4,082) --
Deferred income taxes .............................. 182 (298) 618
Forgiveness of notes receivable and accrued
interest from officers ........................... 72 72 84
Deferred compensation plan ......................... 44 -- --
Changes in assets and liabilities:
Accounts receivable .............................. (337) 86 12,732
Unbilled receivables ............................. 585 2,202 572
Other current assets ............................. (577) (2,316) 1,147
Other long-term assets ........................... (456) (115) 137
Accounts payable ................................. 1,354 3,169 (2,447)
Accrued expenses and other current liabilities ... (2,664) 572 571
Other long-term liabilities ...................... 487 (194) (550)
Other ............................................ 56 (133) 105
-------- -------- ---------
Net cash provided by operating activities ..... 9,441 14,821 24,137
-------- -------- ---------
Cash flows relating to investing activities:
Acquisition, including working capital of $233, net of
acquired cash of $380 .............................. -- -- (2,257)
Acquisition, including working capital of $308 ....... -- (4,437) --
Proceeds from sale of contracts ...................... 4,050 -- --
Proceeds from sale of discontinued operations ........ -- 12,000 --
Purchases of property and equipment, net ............. (2,813) (2,310) (1,780)
Proceeds from sale of property and equipment ......... 171 84 125
Increases in notes receivable and accrued interest
from officers ...................................... -- (735) --
Payments received for notes receivable from officers . 565 -- 229
Increase in cash surrender value of officers'
life insurance ..................................... (100) (205) --
-------- -------- ---------
Net cash provided by (used in)
investing activities .......................... 1,873 4,397 (3,683)
-------- -------- ---------
Cash flows relating to financing activities:
Cash overdraft ....................................... 2,597 -- (11,316)
Net (payments) proceeds from line of credit .......... 25,886 -- (50,587)
Proceeds from debt ................................... -- -- 104,507
Payments on debt ..................................... (59,044) -- (52,400)
Increase in debt issuance costs ...................... -- -- (4,691)
Distributions to shareholders ........................ (3,361) (3,432) (400)
Payments on note receivable from stock sales ......... -- 16 10
Payment on note payable to related party ............. -- -- (282)
-------- -------- ---------
Net cash used in financing activities ............ (33,922) (3,416) (15,159)
-------- -------- ---------
Effect of exchange rate changes on cash and cash
equivalents ........................................... 3 (15) (72)
-------- -------- ---------
Net (decrease) increase in cash and cash equivalents .... (22,605) 15,787 5,223
Cash and cash equivalents, beginning of year ............ 24,938 9,151 3,928
-------- -------- ---------
Cash and cash equivalents, end of year .................. $ 2,333 $ 24,938 $ 9,151
======== ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest .............................................. $ 10,377 $ 11,069 $ 10,219
======== ======== =========
Income taxes .......................................... $ 1,052 $ 807 $ 577
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-22-
<PAGE> 23
UNICCO SERVICE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
These consolidated financial statements include the accounts of UNICCO
Service Company ("UNICCO" or the "Company") and its wholly owned subsidiaries
for the period subsequent to October 17, 1997. Prior to that time, the financial
statements were prepared on a combined basis as all entities within the
consolidated group (the "Group") had been owned, managed and controlled by
common shareholders (see Note 11). The Company provides integrated facilities
services, including industrial and mechanical engineering, plant operations,
custodial and maintenance services and administrative services. The Company's
customers include commercial, industrial and financial institutions, retail,
educational and healthcare facilities and state and federal government agencies.
2. RETIREMENT OF DEBT
During fiscal 2000, the Company repurchased through a series of open market
and privately-negotiated transactions, $57.9 million face amount of its Senior
Subordinated Notes (the "Notes"). This amount included $8.8 million (face
amount) of Notes repurchased with the remaining net proceeds from the December
1998 sale of the Company's security business as required by the terms of the
Indenture governing the Notes. The remaining Notes were repurchased in order to
reduce future interest expense. The $50.1 million in cash used for the
repurchase of the Notes and payment of accrued interest through the date of the
repurchase was funded from cash on hand and $23.2 million in proceeds from the
Company's revolving Credit Facility. The Company recorded an extraordinary loss
of approximately $0.9 million, net of tax. The extraordinary loss resulted from
the write-off of unamortized deferred financing costs and bond discount
associated with the Notes. This loss was partially offset by the gain recorded
for the Notes which were repurchased at prices below par. The Company also made
$1.0 million in optional principal payments on the Company's other subordinated
indebtedness.
3. SALE OF CERTAIN CONTRACTS
Effective December 31, 1999, the Company sold certain janitorial contracts,
primarily located in the Midwest, for $4.05 million in cash with an additional
contingent price of $450,000. The contingent purchase price is payable based
upon such contracts achieving a defined minimum profit during the six-month
period following the sale. The Company recorded an immaterial gain in connection
with this sale. The gain recorded was the net proceeds received, less severance
liabilities and the write-off of fixed assets and certain intangible assets. The
disposition of these contracts is not considered material to the Company's
ongoing operations.
4. DISCONTINUED OPERATIONS
The Company sold its security business for $12.0 million effective December
28, 1998. The Company recorded a gain of approximately $4.1 million in
connection with this sale. The Company did not provide for any state income
taxes as a result of the gain on the sale due to the utilization of state net
operating loss carryforwards. The gain and the operating results of the security
operations are reported as discontinued operations in the accompanying
consolidated financial statements. The Company retained net assets of $7.4
million relating to the discontinued security operations, comprised primarily of
accounts receivable, less accounts payable and payroll-related accruals. These
retained net assets were transferred to UNICCO Service Company and were excluded
from the determination of the gain on sale.
Operating results of discontinued operations were as follows:
1999 1998
IN THOUSANDS IN THOUSANDS
------------ ------------
Revenues........................... $ 28,569 $ 58,568
Income before income taxes......... $ 1,131 $ 1,661
Income taxes....................... (12) 591
---------- ----------
Net income......................... $ 1,143 $ 1,070
============ ==========
-23-
<PAGE> 24
From June 29, 1998 to December 28, 1998, the security business provided cash
flows from operating activities of $2.0 million, which was used to pay down
intercompany debt. During fiscal 1998, the security business used cash flows in
its operating and investing activities of $346,000 and $268,000, respectively.
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Significant intercompany transactions have been eliminated in
consolidation.
Fiscal Year
The Company is on a 52/53 week fiscal year ending on the close of business
on the last Sunday of June. All fiscal years presented are 52 week years.
Cash and Cash Equivalents
The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of acquisition to be cash
equivalents. The Company had no cash equivalents at June 25, 2000. Cash
equivalents of $24,938,000 at June 27, 1999 consist of an investment in a money
market mutual fund. At June 27, 1999, cash equivalents were carried at cost,
which approximated fair value.
Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations in amounts that allocate the cost of property and equipment and
leasehold improvements over their estimated useful lives using the declining
balance and straight-line methods as follows:
ESTIMATED
DESCRIPTION USEFUL LIFE
----------- -----------
Transportation equipment 3-5 years
Machinery and equipment 5-10 years
Computer equipment and software 3-5 years
Furniture and fixtures 5-10 years
Leasehold improvements Shorter of estimated
useful life or life of lease
Intangible Assets
Intangible assets consist primarily of acquired contract rights, favorable
lease arrangements, and goodwill, representing the excess of the purchase price
over the fair value of the net assets acquired in each acquisition accounted for
as purchase. Acquired contract rights are amortized on a straight-line basis
over the estimated remaining lives of the customer relationships, which range
from 7 to 15 years. These lives represent the estimated remaining average lives
of the contracts acquired which exceed the actual contract lives and are based
generally on the historical experience of the individual businesses and
contracts acquired. Goodwill is amortized on a straight-line basis over an
estimated life of 15 years. During the third quarter of fiscal 2000, the Company
wrote off the portion of its intangible assets that related to certain contracts
sold effective December 31, 1999, (See Note 3 of the Company's Consolidated
Financial Statements). Intangible assets consist of the following at June 25,
2000 and June 27, 1999:
2000 1999
IN THOUSANDS IN THOUSANDS
------------ ------------
Acquired contract rights........... $ 40,327 $ 43,952
Favorable leases................... 271 271
Goodwill........................... 12,334 13,068
--------- --------
52,932 57,291
Less-- Accumulated amortization.... (16,766) (13,695)
---------- --------
$ 36,166 $ 43,596
========= ========
-24-
<PAGE> 25
Impairment
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." In accordance with this Statement, the Company reviews
long-lived assets and related goodwill for impairment whenever events or changes
in circumstances indicate that the carrying amounts of such assets may not be
fully recoverable.
Other Assets
Other assets consist principally of deferred financing costs, which are
amortized over the repayment term of the respective debt.
Revenue Recognition
Service revenues are generated primarily by efforts expended on cost plus
fixed fee, fixed price and modified cost plus contracts. Revenue from cost plus
fixed fee contracts is recognized on the basis of direct and indirect expenses
incurred plus the allocable portion of the fixed fee. Revenues on fixed price
contracts are recognized based on the monthly amount as stipulated in the
contract and the performance of services. Revenues under modified cost plus
contracts are recorded at the contracted rates as labor efforts are expended and
other direct costs are incurred. Losses, if any, are provided for at the time
that management determines that costs, including estimated costs to complete,
exceed contract revenue.
Financial Instruments
The Company's financial instruments consist of cash, cash equivalents,
receivables, accounts payable, line of credit and debt instruments. The
estimated fair values of the Company's cash, cash equivalents, receivables,
accounts payable and line of credit approximate their carrying values. The fair
value of the Company's Notes is determined based on the price at which the Notes
were trading on the open market as of the last business day prior to the fiscal
2000 year end. The fair value of the Company's subordinated indebtedness is
calculated as the cash outflows related to the indebtedness, discounted at the
Adjusted Eurodollar Rate plus the Applicable Eurodollar Margin as defined by the
Company's Credit Facility.
Income Taxes
Income taxes for financial reporting purposes are recorded in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS 109). The asset and liability approach underlying FAS 109 requires
the recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the carrying amounts and tax
bases of the Company's assets and liabilities.
Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," the financial statements of UFSCC, the Company's
Canadian subsidiary, are translated into U.S. dollars as follows: assets and
liabilities at year-end exchange rates; income, expenses and cash flows at
average exchange rates; and shareholders' equity at historical exchange rates.
The resulting translation adjustment is recorded as a component of shareholders'
equity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts and disclosures reported in the accompanying
combined financial statements. Actual amounts could differ from those estimates.
-25-
<PAGE> 26
Concentration of Credit Risk
Concentrations of credit risk with respect to accounts receivable and
unbilled receivables are limited because a large number of North American
customers make up the Company's customer base, thus spreading trade credit risk.
In addition, the Company performs ongoing evaluations of customers' financial
position. The Company does not require collateral and maintains reserves for
potential uncollectible amounts that, in the aggregate, have not exceeded
management expectations.
Reclassifications
Certain prior year amounts have been reclassified within the financial
statements to conform to the current year presentation.
6. ACQUISITIONS
Effective September 1, 1998, the Company acquired certain assets of Empire
Maintenance Industries, Inc., a Canadian janitorial services company ("Empire"),
for $4.4 million in cash. The acquisition was accounted for as a purchase and
the operations of Empire are included in the accompanying consolidated financial
statements since the effective date of the acquisition.
Effective February 1, 1998, the Company acquired 100% of the outstanding
common stock of American Building Services, Inc. ("ABS"). The acquisition was
accounted for as a purchase and the operations of ABS, which was liquidated in
June 1999, are included in the accompanying consolidated financial statements
since the effective date of the acquisition. The aggregate purchase price was
approximately $2.6 million in cash.
These acquisitions are not considered material to the Company's operations.
7. DEBT
Notes Offering
On October 17, 1997, the Company consummated a $105 million Senior
Subordinated Notes Offering (the "Notes Offering") and entered into a $45
million Amended and Restated Revolving Credit Facility (the "Credit Facility").
The net proceeds from the Notes Offering and the Credit Facility were used to
repay approximately $84.8 million of indebtedness under the Company's existing
credit facilities and $19.7 million of certain other indebtedness, fees and
expenses incurred in connection with such financing. In addition, the Company
recorded $4.7 million of new deferred financing costs.
During fiscal 2000, the Company repurchased $57.9 million (face amount) of
the Notes (See Note 2).
The remaining Notes will mature on October 15, 2007. The Notes will not be
redeemable at the issuers' option prior to October 15, 2002. Thereafter, the
Notes will be subject to redemption at any time at the option of the issuers at
redemption prices set forth in the Notes. Interest on the Notes accrues at the
rate of 9 7/8% per annum and is payable semi-annually in arrears on April 15 and
October 15 of each year. The payment of principal and interest on the Notes is
subordinated in right to the prior payment of all senior debt, as defined.
Upon the occurrence of a change in control, as defined, the issuers will be
obligated to make an offer to each holder of the Notes to repurchase all or any
part of such holders' Notes at an offer price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest. Restrictions under
the Notes and the Credit Facility include limitations on certain sales of
assets, certain payments of dividends and incurrence of debt, and limitations on
certain mergers and transactions with affiliates.
-26-
<PAGE> 27
In connection with the Notes Offering, the Company recorded an
extraordinary loss of approximately $3.0 million, net of state tax benefit. A
total of $2.0 million of the loss was attributable to the write off of
unamortized deferred financing costs in connection with the refinancing of the
Company's indebtedness in October 1997. A total of $1.0 million of the
extraordinary loss was attributable to the payment of $11 million in October,
1997 to settle certain indebtedness incurred in connection with the June, 1996
Ogden acquisition. The book value of such indebtedness in the Company's balance
sheet at the settlement date (October 17, 1997) was $10.0 million.
Credit Facility
The Credit Facility described above is available for working capital
requirements and acquisition financing. Base Rate loans bear interest at the
Base Rate plus the Applicable Base Rate Margin, as defined (9.50% at June 25,
2000 and 9.25% at June 27, 1999). Eurodollar loans bear interest at the Adjusted
Eurodollar Rate plus the Applicable Eurodollar Margin, as defined (8.09% at June
25, 2000 and 8.18% at June 27, 1999). There were cash borrowings of $25.9
million outstanding under the Credit Facility at June 25, 2000 and no
outstanding cash borrowings as of June 27, 1999. The cash borrowings were
outstanding at the two interest rates; $5.9 million was outstanding at the Base
Rate plus the Applicable Base Rate Margin, as defined and $20.0 million was
outstanding at the Adjusted Eurodollar Rate plus the Applicable Eurodollar
Margin, as defined. The Credit Facility matures on October 14, 2002.
Availability under the Credit Facility is reduced by outstanding letters of
credit (see Note 9). The Credit Facility requires the Company to remain in
compliance with certain financial ratios as well as other restrictive covenants.
As of June 25, 2000, the Company was in compliance with such covenants. As of
the end of the first and second quarters of fiscal 2000, the Company was in
violation of one of its financial ratio covenants under the Credit Facility. The
Company obtained waivers of these violations from the lenders.
Subordinated Promissory Note
On June 28, 1996, the Company entered into a $5,000,000 subordinated
promissory note agreement with Massachusetts Capital Resource Company ("MCRC").
The promissory note is due on September 30, 2001 and provides for quarterly
interest payments based on an annual interest rate of 14%. This note was not
extinguished as part of the October 17, 1997 Notes Offering. The agreement
provides for certain restrictive covenants, substantially equivalent to those
governing the Notes. As of June 25, 2000, the Company was in compliance with
such covenants. During fiscal 2000, the Company made $1.0 million of optional
principal payments and $0.25 million in optional principal payments subsequent
to June 25, 2000 on this indebtedness.
Minimum future principal payments of long-term debt at June 25, 2000 are as
follows:
AMOUNT
FISCAL YEAR IN THOUSANDS
----------- ------------
2001.................................. $ 0
2002.................................. 4,000
2003.................................. 25,886
2004.................................. 0
2005.................................. 0
--------
$ 29,886
========
The estimated fair values of the Senior Subordinated Notes and the Subordinated
Promissory Note at June 25, 2000 are presented below (in thousands):
CARRYING FAIR
AMOUNT VALUE
-------- --------
Fixed-Rate Senior Subordinated Notes $ 46,998 $ 45,153
Fixed-Rate Subordinated Promissory Note 4,000 4,390
Variable-Rate Credit Facility 25,886 25,886
-27-
<PAGE> 28
8. TRANSACTIONS WITH RELATED PARTIES
Notes Receivable From Officers
Notes receivable from officers consist primarily of demand notes receivable
from officers/shareholders bearing interest at the applicable federal rate
(6.11% at June 25, 2000 and 5.00% at June 27, 1999). All notes receivable are
classified as long-term as the Company does not expect to collect the majority
of these notes within the next year. Interest receivable related to these notes
was approximately $241,000 and $241,000 at June 25, 2000 and June 27, 1999,
respectively.
On June 24, 1996, UNICCO loaned an officer of the Company approximately
$217,000 to purchase 27 shares of nonvoting common stock. This loan bears
interest at an average of the applicable federal rate. A portion of the note and
related accrued interest was forgiven in fiscal 2000, 1999 and 1998. The
outstanding balance was classified as a deduction from shareholders' equity.
There is no balance outstanding at June 25, 2000.
Lease Agreements With Affiliates
The Company leases certain office space, through November 2005, from an
affiliated company. Lease expense related to this lease was $57,000, $57,000
and $51,800 for fiscal 2000, 1999 and 1998, respectively. Approximate future
minimum lease payments under this agreement for fiscal 2001 through fiscal year
2005 are $68,700, $73,450, $73,450, $73,450 and $73,450. Such amounts are
included in Note 9.
On September 30, 1998, the Company entered into an agreement to lease
certain equipment from an affiliate. The monthly payments are $90,000 and the
lease expires in September 2002. Total annual payments made by the Company under
this lease were $1,080,000 in both fiscal 2000 and 1999. The Company is
responsible for all costs and expenses of owning, operating and maintaining the
equipment. These lease payments are included in Note 9.
Insurance Agreement With An Affiliate
Prior to the end of fiscal 1995, the Company insured its workers'
compensation and general liability risks through a combination of a
self-insurance program and indemnity coverage obtained from a third-party
carrier. At the end of fiscal 1995, the Company entered into an agreement with a
commercial insurance carrier whereby its workers' compensation and general
liability insurance risks are reinsured with an affiliated company. Under the
terms of this arrangement, the Company's obligations with respect to workers'
compensation and general liability claims are limited to the premiums paid for
such insurance. The Company's insurance premiums are actuarially determined
based on its historical loss experience. The amount charged to expense related
to the arrangement was approximately $10,748,000, $10,793,000 and $8,061,000 in
fiscal 2000, 1999 and 1998, respectively. Based on an audit conducted by the
commercial insurance carrier during fiscal 1999, an additional premium payment
of $1.6 million was required. This payment was made and charged to operations in
fiscal 1999. Current assets include prepaid insurance premiums of $1.7 million
and $1.5 million at June 25, 2000 and June 27, 1999, respectively.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain equipment and facilities under noncancelable
operating leases through October 31, 2006. Rent expense under these leases was
approximately $5,460,000, $4,892,000 and $3,348,000 for the years ended June 25,
2000, June 27, 1999 and June 28, 1998, respectively. The approximate future
minimum payments under these leases are as follows:
-28-
<PAGE> 29
AMOUNT
FISCAL YEAR IN THOUSANDS
----------- ------------
2001.............................. $ 6,800
2002.............................. 6,490
2003.............................. 5,050
2004.............................. 3,217
2005.............................. 2,335
Thereafter........................ 6,620
--------
$ 30,512
========
The Company leases certain facilities under tenancy-at-will agreements,
which are not included in the future minimum lease payments above. Future
payments above do not include the lease of warehouses at annual costs of
approximately $928,000, $894,000, $830,297, $575,025, $402,801 and $410,000 in
fiscal 2001, 2002, 2003, 2004, 2005 and beyond, respectively, which are fully
reimbursed by a customer. Such customer is liable for any remaining obligation
under these leases in the event that the customer terminates the Company's
contracts.
Letters of Credit
The Company was contingently liable under certain letters of credit, in the
aggregate amounts of approximately $5,851,000 and $1,324,000 as of June 25, 2000
and June 27, 1999, respectively. The letters of credit were primarily issued in
connection with the Company's insurance programs. The letters of credit expire
on various dates through June 30, 2000.
Stock Repurchase Agreement
All nonvoting common shares (see Note 11) may be redeemed by the Company,
at its option, at the then book value of the shares, as defined, in the event
that the shareholders cease employment with the Company.
Litigation
In July 1998, the Company settled a lawsuit with a former employee
regarding certain employment-related matters. The settlement amount of $345,000
is included in selling, general and administrative expenses in the accompanying
consolidated statement of income for fiscal 1998.
In the ordinary course of business, the Company is party to various types
of litigation. The Company believes litigation currently pending or threatened
will not have a material adverse effect on the Company's financial condition or
results of operations.
10. INCOME TAXES
UNICCO has elected to be taxed as an S corporation for federal and certain
state income tax purposes and is a business trust for Massachusetts state tax
purposes. UNICCO's provision for income taxes results from states that do not
recognize its S corporation status for state income tax purposes and its
business trust status in Massachusetts. UNICCO is on the cash basis of
accounting for income tax reporting purposes and the accrual basis of accounting
for financial reporting.
Effective January 1, 1997, the Company's subsidiary, USC, Inc. elected to
be taxed as an S corporation for federal and certain state income tax purposes.
Prior to January 1, 1997, USC, Inc. was a C corporation and was subject to
federal and state income taxes at the corporate level.
-29-
<PAGE> 30
Income from continuing operations before provision for income taxes and
extraordinary item was taxed under the following jurisdictions:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------
IN THOUSANDS
------------------------------
JUNE 25, JUNE 27, JUNE 28,
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Domestic................................ $ 4,725 $ 2,680 $ 2,223
Foreign................................. 651 1,250 727
------- ------- -------
$ 5,376 $ 3,930 $ 2,950
======= ======= =======
</TABLE>
The provision (benefit) for income taxes related to income from continuing
operations before extraordinary item consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------
IN THOUSANDS
------------------------------
JUNE 25, JUNE 27, JUNE 28,
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................... $ -- $ -- $ --
State................................. 330 316 35
Foreign............................... 493 806 584
Deferred:
Federal............................... -- -- --
State................................. 182 (298) 27
------- ------- -------
$ 1,005 $ 824 $ 646
======= ======= =======
</TABLE>
Deferred taxes arise primarily from book (accrual basis) and tax (cash
basis) differences in recording revenues and expenses. A portion of the state
tax deferred benefit recorded in fiscal 1999 relates to a reduction in the
Company's overall effective state tax rate resulting from changes in
apportionment factors and certain state tax planning strategies.
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
JUNE 25, JUNE 27,
2000 1999
IN THOUSANDS IN THOUSANDS
------------ ------------
<S> <C> <C>
Receivables.............................. $ (3,225) $ (3,214)
Other assets............................. (254) (217)
-------- --------
Gross deferred tax liabilities........... (3,479) (3,431)
-------- --------
Accounts payable......................... 337 324
Accrued payroll.......................... 579 662
Other accruals and reserves.............. 220 232
State net operating loss carryforwards... 345 425
-------- --------
Gross deferred tax assets................ 1,481 1,643
Valuation allowance...................... (228) (285)
-------- --------
Net deferred tax assets.................. 1,253 1,358
-------- --------
Net deferred tax liabilities............. $ (2,226) $ (2,073)
======== ========
</TABLE>
The deferred tax amounts relating to discontinued operations result
primarily from differences in the financial reporting and income tax basis of
the working capital associated with such operations. As previously discussed,
working capital associated with the discontinued operations was retained by the
Company. Accordingly, the above table includes deferred tax amounts relating to
both continuing and discontinued operations.
State net operating loss carryforwards are limited to those states which do
not recognize UNICCO's subchapter S status and are further limited to the
carryforward period for each respective state in which such loss was generated,
generally ranging from three to fifteen years. Management believes that it is
more likely than not that it will realize approximately $117,000 of the tax
benefit associated with the operating loss described above. This belief is based
upon a review of available evidence, including historical operating results,
projections of future taxable income, recognizing the limitations described
above, and tax planning strategies. The Company has recorded a valuation
allowance against the remaining portion of the deferred tax asset related to the
above referenced state net operating loss carryforwards. The decrease in the
valuation allowance was the result of the Company's ability to utilize state net
operating loss
-30-
<PAGE> 31
carryforwards to offset the tax gain recorded on the sale of certain contracts
effective December 31, 1999. (See Note 3 to the Company's Consolidated Financial
Statements).
The effective income tax rate differs from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
---------------------------
JUNE 25, JUNE 27, JUNE 28,
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate .................................... 35.0% 35.0% 35.0%
Income from S corporations not taxable for corporate
income tax purposes ....................................... (35.0) (35.0) (35.0)
State income taxes, net of federal benefit ................ 7.1 4.2 6.0
Rate difference - foreign taxes ........................... 9.2 20.5 19.8
Valuation allowance ....................................... 0.5 1.5 (4.6)
Other ..................................................... 1.9 (5.2) 0.7
---- ---- ----
18.7% 21.0% 21.9%
==== ==== ====
</TABLE>
The "Other" reconciling item in fiscal 1999 relates primarily to the
transfer of temporary differences of the discontinued security business. These
temporary differences were transferred to a tax paying entity with a lower
effective state income tax rate.
11. SHAREHOLDERS' EQUITY
Common shares of UNICCO consist of the following:
<TABLE>
<CAPTION>
JUNE 25, JUNE 27,
2000 1999
IN THOUSANDS IN THOUSANDS
------------ ------------
<S> <C> <C>
Common shares of beneficial interest, voting, no par
value--
Issued and outstanding-- 1,000 shares................ $ 10 $ 10
Common shares of beneficial interest, nonvoting, no par
value--
Issued-120 shares (includes 66 shares in treasury) .. 368 368
------ -----
$ 378 $ 378
====== =====
</TABLE>
The accompanying consolidated financial statements include the accounts of
UNICCO and USC, Inc., which were owned, managed and controlled by common
shareholders. In connection with the October 1997 Notes Offering, the
shareholders of UNICCO contributed their ownership interests in USC, Inc. (1,000
no par voting and 54 no par nonvoting common shares) to UNICCO. As a result, all
of the operations of the Company are now conducted through UNICCO and its
wholly-owned subsidiaries. This transaction was accounted for in a manner
similar to that in pooling of interests accounting with the assets and
liabilities being recorded at their historical cost due to the exchange of stock
occurring between entities under common control.
12. EMPLOYEE BENEFIT PLANS
Multiemployer Pension Plans
Certain employees under collective bargaining agreements are covered by
union-sponsored, multi-employer pension plans. Company contributions, generally
based on hours worked, are in accordance with negotiated labor contracts. The
Company recorded expenses of approximately $3,866,000, $4,150,000 and $4,274,000
in fiscal 2000, 1999 and 1998, respectively, related to the plans. Information
is not readily available for the Company to determine its share of unfunded
vested benefits, if any, under the plans.
-31-
<PAGE> 32
401(k) Investment Savings Plans
UNICCO maintains 401(k) retirement plans (the "Plans") covering all
employees who have completed one year of service, as defined, and are not
subject to a collective bargaining agreement. The Plans allow eligible employees
to make salary-deferred contributions for not less than 1% nor more than 20% of
their compensation for the contribution period, as defined, subject to certain
IRS limitations. The Company matches 50% of the employees' contribution up to 3%
of base salary. UNICCO made contributions of approximately $ 1,545,000,
$1,260,000 and $1,177,000 in fiscal 2000, 1999 and 1998, respectively.
Deferred Compensation Plan
Effective fiscal 2000, the Company established a deferred compensation plan
for certain employees of the Company as designated by the Compensation Committee
of the Advisory Board. Eligible employees may defer up to 13% of their annual
base salary. The Company matches the employee contribution dollar-for-dollar up
to 3% of the employee's base salary. Effective July 2001, the limit for the
Company match was increased to 5% of the employee's base salary. The investments
of the plan will be held in a so-called Rabbi trust. The assets held by the
trust are considered general, unrestricted assets of the Company and are always
subject to the claims of the Company's creditors. The Company contributed
$174,000 to the plan in fiscal 2000 and recorded additional compensation expense
of $44,000 related to the increase in the fair value of the assets held in the
trust.
Long-Term Incentive Plan
Effective fiscal 2000, the Company established a long-term incentive plan
for certain key employees. At each fiscal year end beginning with fiscal 1999
(the base year), a valuation of the Company will be performed. After each annual
valuation, up to 10% of the increase (if any) in the value of the Company will
be contributed at the Company's discretion on behalf of the employees covered by
the plan. The investments of the plan will be held in a Rabbi trust. The assets
held by the trust are considered general, unrestricted assets of the Company and
are always subject to the claims of the Company's creditors. There were no
contributions to the plan in fiscal 2000.
13. SEGMENT INFORMATION
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
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 divisional basis, the divisions are primarily segregated by region
and the economic characteristics of the divisions' services and client bases are
similar. Therefore, the Company's divisions are aggregated as one business
segment. The table below contains certain financial information by geographic
region (in thousands):
NET REVENUE FROM
CONTINUING OPERATIONS LONG-LIVED ASSETS
-------------------------------- ------------------
2000 1999 1998 2000 1999
-------- -------- -------- ------- -------
By Geographic Area
United States $502,866 $474,219 $456,946 $41,188 $49,939
Canada 52,218 48,144 34,068 5,297 5,929
-------- -------- -------- ------- -------
Consolidated $555,084 $522,363 $491,014 $46,485 $55,868
======== ======== ======== ======= =======
14. CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
The Notes are guaranteed by each of UNICCO's domestic subsidiaries. Each
guarantor subsidiary of UNICCO is under common management, is directly or
indirectly wholly-owned and the guarantees related to the Notes Offering are
full, unconditional and joint and several. UFSCC is indirectly wholly-owned and
is not a guarantor of this debt. Separate financial statements of the guarantor
subsidiaries are not presented because management has determined that they would
-32-
<PAGE> 33
not be material to investors. However, consolidating financial information as of
June 25, 2000 and June 27, 1999 and for the years then ended, are presented. The
following presents consolidating financial information (rounded to the nearest
thousand) for (i) UNICCO only, (ii) the guarantor subsidiaries on a combined
basis, (iii) the nonguarantor Canadian subsidiary -- UFSCC, and (iv) the Company
on a consolidated basis (see Note 11). The guarantor subsidiaries' income
statement and balance sheet for and as of June 27, 1999 and June 28, 1998
reflect the discontinued operations of the security business.
-33-
<PAGE> 34
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 25, 2000
---------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Service revenues ............................ $ 467,139 $ 35,727 $ 52,218 $ -- $ 555,084
Cost of service revenues .................... 413,150 32,600 47,257 -- 493,007
--------- -------- -------- ----- ---------
Gross profit .............................. 53,989 3,127 4,961 -- 62,077
Selling, general and administrative expenses 38,921 1,427 3,456 -- 43,804
Amortization of intangible assets ........... 3,247 386 306 -- 3,939
--------- -------- -------- ----- ---------
Income from operations .................... 11,821 1,314 1,199 -- 14,334
Interest income ............................. 851 0 63 -- 914
Interest expense ............................ (8,713) (548) (611) -- (9,872)
--------- -------- -------- ----- ---------
Income from continuing operations before
income taxes and extraordinary item........ 3,959 766 651 -- 5,376
Provision for income taxes .................. 292 220 493 -- 1,005
--------- -------- -------- ----- ---------
Income from continuing operations before
equity in net earnings of subsidiaries and
extraordinary item ........................ 3,667 546 158 -- 4,371
Equity in net earnings of subsidiaries ...... 704 34 -- (738) --
--------- -------- -------- ----- ---------
Income before extraordinary item ............ 4,371 580 158 (738) 4,371
Extraordinary loss, net of tax benefit of $36 (897) -- -- -- (897)
--------- -------- -------- ----- ---------
Net income .................................. $ 3,474 $ 580 $ 158 $(738) $ 3,474
========= ======== ======== ===== =========
</TABLE>
-34-
<PAGE> 35
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 27, 1999
-----------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues ....................... $ 442,472 $ 31,747 $ 48,144 $ -- $ 522,363
Cost of service revenues ............... 392,844 26,687 43,032 -- 462,563
--------- -------- -------- ------- ---------
Gross profit ......................... 49,628 5,060 5,112 -- 59,800
Selling, general and administrative
expenses ............................... 35,907 1,491 3,106 -- 40,504
Amortization of intangible assets ...... 3,619 389 270 -- 4,278
--------- -------- -------- ------- ---------
Income from operations ............... 10,102 3,180 1,736 -- 15,018
Interest income ........................ 771 -- 55 -- 826
Interest expense ....................... (10,802) (571) (541) -- (11,914)
--------- -------- -------- ------- ---------
Income from continuing operations
before income taxes .................. 71 2,609 1,250 -- 3,930
Provision for income taxes ............. (52) 70 806 -- 824
--------- -------- -------- ------- ---------
Income from continuing operations before
equity in net earnings of subsidiaries 123 2,539 444 -- 3,106
Equity in net earnings of subsidiaries . 8,208 93 -- (8,301) --
--------- -------- -------- ------- ---------
Income from continuing operations ...... 8,331 2,632 444 (8,301) 3,106
Discontinued operations:
Income from discontinued operations,
net of tax $(12) ..................... -- 1,143 -- -- 1,143
Gain on sale of discontinued
operations, net of tax of $0 ...... -- 4,082 -- -- 4,082
--------- -------- -------- ------- ---------
Net income ............................. $ 8,331 $ 7,857 $ 444 $(8,301) $ 8,331
========= ======== ======== ======= =========
</TABLE>
-35-
<PAGE> 36
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 28, 1998
-----------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues ............................ $ 415,397 $ 41,549 $ 34,068 $ -- $ 491,014
Cost of service revenues .................... 369,512 36,313 30,774 -- 436,599
--------- -------- -------- ------- ---------
Gross profit .............................. 45,885 5,236 3,294 -- 54,415
Selling, general and administrative expenses 32,685 1,105 2,037 -- 35,827
Amortization of intangible assets ........... 3,652 435 121 -- 4,208
--------- -------- -------- ------- ---------
Income from operations .................... 9,548 3,696 1,136 -- 14,380
Interest income ............................. 169 1 31 -- 201
Interest expense ............................ (8,437) (2,754) (440) -- (11,631)
--------- -------- -------- ------- ---------
Income from continuing operations before
income taxes and extraordinary item ....... 1,280 943 727 -- 2,950
Provision for income taxes .................. (168) 230 584 -- 646
--------- -------- -------- ------- ---------
Income from continuing operations before
equity in net earnings of subsidiaries and
extraordinary item ........................ 1,448 713 143 -- 2,304
Equity in net earnings of subsidiaries ...... 1,926 30 -- (1,956) --
--------- -------- -------- ------- ---------
Income from continuing operations ........... 3,374 743 143 (1,956) 2,304
Discontinued operations:
Income from discontinued operations,
net of tax $591 ........................... -- 1,070 -- -- 1,070
--------- -------- -------- ------- ---------
Income before extraordinary items ........... 3,374 1,813 143 (1,956) 3,374
Extraordinary loss, net of tax benefit of $66 (2,958) -- -- -- (2,958)
--------- -------- -------- ------- ---------
Net income .................................. $ 416 $ 1,813 $ 143 $(1,956) $ 416
========= ======== ======== ======= =========
</TABLE>
-36-
<PAGE> 37
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>
-37-
<PAGE> 38
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>
-38-
<PAGE> 39
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 25, 2000
-------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income .................................................. $ 3,474 $ 580 $ 158 $ (738) $ 3,474
Net earnings from equity investment ......................... (704) (34) -- 738 --
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of intangible assets ......................... 3,247 386 306 -- 3,939
Amortization of debt issue costs and discount ............. 290 -- -- -- 290
Depreciation and amortization ............................. 1,726 83 380 -- 2,189
Extraordinary loss on debt, net of tax .................... 897 -- -- -- 897
Gain on disposals ......................................... (88) (6) -- -- (94)
Deferred compensation plan ................................ 44 -- -- -- 44
Deferred income taxes ..................................... 139 43 -- -- 182
Forgiveness of notes receivable from officer .............. 72 -- -- -- 72
Changes in assets and liabilities:
Accounts receivable ....................................... 907 (111) (1,133) -- (337)
Unbilled receivables ...................................... 1,974 (560) (829) -- 585
Intercompany receivable (payable) ......................... 63 (95) 88 (56) --
Other current assets ...................................... (852) 62 213 -- (577)
Other long-term assets .................................... (465) -- 9 -- (456)
Accounts payable .......................................... 1,282 (371) 443 -- 1,354
Accrued expenses and other current liabilities ............ (71) -- (2,593) -- (2,664)
Other long-term liabilities ............................... 487 -- -- -- 487
Other ..................................................... 1 (1) -- 56 56
-------- ----- ------- ------- --------
Net cash provided by (used in) operating activities ..... 12,423 (24) (2,958) -- 9,441
-------- ----- ------- ------- --------
Cash flows relating to investing activities:
Proceeds from sale of contracts ............................. 4,050 -- -- -- 4,050
Purchases of property and equipment, net .................... (2,594) (100) (119) -- (2,813)
Proceeds from sale of property and equipment ................ 164 7 -- -- 171
Payments received for notes receivable and accrued
interest from officers .................................... 565 -- -- -- 565
Increase in cash surrender value of officers'
life insurance ............................................ (100) -- -- -- (100)
-------- ----- ------- ------- --------
Net cash provided by (used in)
investing activities ................................. 2,085 (93) (119) -- 1,873
-------- ----- ------- ------- --------
Cash flows relating to financing activities:
Cash overdraft .............................................. 329 117 1,869 282 2,597
Proceeds from line of credit ................................ 25,886 -- -- -- 25,886
Debt prepayments plus accrued interest ...................... (59,044) -- -- -- (59,044)
Distributions to shareholders ............................... (3,361) -- -- -- (3,361)
-------- ----- ------- ------- --------
Net cash (used in) provided by financing activities ..... (36,190) 117 1,869 282 (33,922)
-------- ----- ------- ------- --------
Effect of exchange rate charges on cash and cash equivalents .. -- -- 3 -- 3
-------- ----- ------- ------- --------
Net (decrease) increase in cash and cash equivalents .......... (21,682) -- (1,205) 282 (22,605)
Cash and cash equivalents, beginning of period ................ 24,002 13 1,205 (282) 24,938
-------- ----- ------- ------- --------
Cash and cash equivalents, end of period ...................... $ 2,320 $ 13 $ -- $ -- $ 2,333
======== ===== ======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest .................................................. $ 10,377 $ -- $ -- $ -- $ 10,377
======== ===== ======= ======= ========
Income taxes .............................................. $ 147 $ 191 $ 714 $ -- $ 1,052
======== ===== ======= ======= ========
</TABLE>
-39-
<PAGE> 40
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 27, 1999
--------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income ........................................ $ 8,331 $ 7,857 $ 444 $(8,301) $ 8,331
Net earnings from equity
investment ...................................... (8,208) (93) -- 8,301 --
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of intangible assets ............... 3,619 688 270 -- 4,577
Amortization of debt issue costs and discount ... 500 -- -- -- 500
Depreciation and amortization ................... 1,879 114 467 -- 2,460
Gain on disposals ............................... (9) -- (1) -- (10)
Gain on sale of discontinued operations ......... -- (4,082) -- -- (4,082)
Deferred income taxes ........................... (223) (75) -- -- (298)
Forgiveness of notes receivable from officer .... 72 -- -- -- 72
Changes in assets and liabilities:
Accounts receivable ............................. 1,037 1,422 (2,373) -- 86
Unbilled receivables ............................ 1,517 629 56 -- 2,202
Intercompany receivable (payable) .............. 1,974 (6,249) 4,142 133 --
Other current assets ............................ (2,154) 90 (252) -- (2,316)
Other long-term assets .......................... (97) -- (18) -- (115)
Accounts payable ................................ 2,203 55 911 -- 3,169
Accrued expenses and other current liabilities .. (703) 10 1,265 -- 572
Other long-term liabilities ..................... (194) -- -- -- (194)
Other ........................................... 287 (287) -- (133) (133)
-------- ------- ------- ------- --------
Net cash provided by (used in)
operating activities ....................... 9,831 79 4,911 -- 14,821
-------- ------- ------- ------- --------
Cash flows relating to investing activities:
Acquisition, including working capital of $308 .... 89 -- (4,526) -- (4,437)
Proceeds from sale of discontinued operations ..... 12,000 -- -- -- 12,000
Purchases of property and equipment, net .......... (2,059) (74) (177) -- (2,310)
Proceeds from sale of property and equipment ...... 79 -- 5 -- 84
Increase in notes receivable and accrued
interest from officers .......................... (735) -- -- -- (735)
Increase in cash surrender value of officers'
life insurance .................................. (205) -- -- -- (205)
-------- ------- ------- ------- --------
Net cash provided by (used in)
investing activities ........................ 9,169 (74) (4,698) -- 4,397
-------- ------- ------- ------- --------
Cash flows relating to financing activities:
Cash overdraft .................................... (671) (292) -- 963 --
Distributions to shareholders ..................... (3,432) -- -- -- (3,432)
Payments received for notes receivable from
stock sales ..................................... 16 -- -- -- 16
-------- ------- ------- ------- --------
Net cash used in financing activities ......... (4,087) (292) -- 963 (3,416)
-------- ------- ------- ------- --------
Effect of exchange rate charges on cash and cash
equivalents ....................................... -- -- (15) -- (15)
-------- ------- ------- ------- --------
Net increase (decrease) in cash and cash equivalents 14,913 (287) 198 963 15,787
Cash and cash equivalents, beginning of period ...... 9,089 300 1,007 (1,245) 9,151
-------- ------- ------- ------- --------
Cash and cash equivalents, end of period ............ $ 24,002 $ 13 $ 1,205 $ (282) $ 24,938
======== ======= ======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ........................................ $ 11,069 $ -- $ -- $ -- $ 11,069
======== ======= ======= ======= ========
Income taxes .................................... $ 280 $ 173 $ 354 $ -- $ 807
======== ======= ======= ======= ========
</TABLE>
-40-
<PAGE> 41
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 28, 1998
------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income ............................................... $ 416 $ 1,813 $ 143 $(1,956) $ 416
Net earnings from equity investment ...................... (1,926) (30) -- 1,956 --
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of intangible assets ...................... 3,652 1,033 121 -- 4,806
Amortization of debt issue costs and discount .......... 676 -- -- -- 676
Depreciation and amortization .......................... 2,049 223 122 -- 2,394
Gain on disposals ...................................... (69) (13) -- -- (82)
Extraordinary loss ..................................... 2,958 -- -- -- 2,958
Deferred income taxes .................................. (198) 816 -- -- 618
Forgiveness of notes receivable and accrued
interest from officers ................................. 84 -- -- -- 84
Changes in assets and liabilities:
Accounts receivable .................................... 6,991 5,741 -- -- 12,732
Unbilled receivables ................................... 2,532 (1,775) (185) -- 572
Intercompany receivable (payable) ..................... 8,696 (8,497) (94) (105) --
Other current assets ................................... 876 358 (87) -- 1,147
Other long-term assets ................................. 163 (25) (1) -- 137
Accounts payable ....................................... (1,726) (403) (318) -- (2,447)
Accrued expenses and other current liabilities ......... 898 (440) 133 -- 571
Other long-term liabilities ............................ (550) -- -- -- (550)
Other .................................................. -- -- -- 105 105
--------- ------- ------- ------- ---------
Net cash provided by (used in)
operating activities ............................... 25,502 (1,199) (166) -- 24,137
--------- ------- ------- ------- ---------
Cash flows relating to investing activities:
Due to/from affiliates ................................... (51) 51 -- -- --
Acquisition, including cash acquired ..................... (2,600) 343 -- -- (2,257)
Purchases of property and equipment, net ................. (1,411) (305) (64) -- (1,780)
Proceeds from sale of property and equipment ............. 105 20 -- -- 125
Payments received for notes receivable from officers ..... 229 -- -- -- 229
--------- ------- ------- ------- ---------
Net cash provided by (used in) investing activities .... (3,728) 109 (64) -- (3,683)
--------- ------- ------- ------- ---------
Cash flows relating to financing activities:
Cash overdraft ........................................... (10,840) 769 -- (1,245) (11,316)
Repayments from line of credit ........................... (50,587) -- -- -- (50,587)
Proceeds from debt ....................................... 104,507 -- -- -- 104,507
Payments of debt ......................................... (52,400) -- -- -- (52,400)
Increase in debt issuance costs .......................... (4,691) -- -- -- (4,691)
Distributions to shareholders ............................ (400) -- -- -- (400)
Payments received for notes receivable from stock sales .. 10 -- -- -- 10
Payment on notes payable to related party ................ (282) -- -- -- (282)
--------- ------- ------- ------- ---------
Net cash used in financing activities .................. (14,683) 769 -- (1,245) (15,159)
--------- ------- ------- ------- ---------
Effect of exchange rate changes on cash and cash equivalents -- -- (72) -- (72)
--------- ------- ------- ------- ---------
Net increase (decrease) in cash and cash equivalents ....... 7,091 (321) (302) (1,245) 5,223
Cash and cash equivalents, beginning of period ............. 1,998 621 1,309 -- 3,928
--------- ------- ------- ------- ---------
Cash and cash equivalents, end of period ................... $ 9,089 $ 300 $ 1,007 $(1,245) $ 9,151
========= ======= ======= ======= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ............................................... $ 10,219 $ -- $ -- $ -- $ 10,219
========= ======= ======= ======= =========
Income taxes ........................................... $ 253 $ -- $ 324 $ -- $ 577
========= ======= ======= ======= =========
</TABLE>
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<PAGE> 42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF TRUSTEES
UNICCO is a Massachusetts business trust and, as such, has a Board of
Trustees that serves a function similar to that of the board of directors of a
corporation. The Trustees serve for an indefinite term. The Company's Trustees
and executive officers are as follows:
TRUSTEES AND EXECUTIVE OFFICERS
NAME POSITION
---- --------
Steven C. Kletjian Chief Executive Officer and Chairman of
the Board of Trustees
Richard J. Kletjian Vice Chairman of the Board of Trustees
Robert P. Kletjian Vice President and Vice Chairman of the
Board of Trustees
George A. Keches Executive Vice President -- Finance and
Administration, Chief Financial Officer and Treasurer
Sharkay Kletjian Trustee
Bruce Charboneau Vice President and General Manager - Commercial
Division
John C. Feitor Senior Vice President - Operations
Richard T. Healey Vice President - Corporate Development
George R. Lohnes Vice President - Marketing
Jeffrey P. Peterson Vice President - Information Technology/Shared
Services
Joseph J. Tinney, Jr. Vice President and General Manager - Industrial
Division
ADVISORY BOARD
During fiscal 1998, the Company established an Advisory Board made up of
non-employee and non-shareholder independent advisors with whom senior
management consults on a periodic basis. The members of the Advisory Board are
as follows:
NAME POSITION
---- --------
Dr. Gregory Adamian (3) Former President, Bentley College
Anton Bernard (Ton) Funke
Kupper(2) Former President, HODON-GROUP
Leonard Lynch (1)(2) Retired Partner, Arthur Andersen LLP
Mitchell Reese (3) Managing Director, The Carlyle Group
Harvey Wagner (2) Executive Vice President - Finance, Chief
Financial Officer and Secretary, Paysys
International, Inc.
(1) Chairman, Advisory Board
(2) Member of Audit Committee
(3) Member of Compensation Committee
BIOGRAPHICAL INFORMATION
Set forth on the following pages is additional biographical information
regarding each of the persons listed in the tables above.
-42-
<PAGE> 43
TRUSTEES AND EXECUTIVE OFFICERS
STEVEN C. KLETJIAN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER Steven Kletjian,
56, has been Chairman and Chief Executive Officer of the Company since 1969. He
has over 33 years of service with the Company. He has served as a Trustee since
the Company's reorganization as a business trust in 1988, and had served as a
director of the Company's corporate predecessor.
RICHARD J. KLETJIAN, VICE CHAIRMAN Richard Kletjian, 53, has been Vice
Chairman of the Company since 1993 and served as President for six years prior
to 1993. From 1992 to 1993, he was also general manager of the Mid-Atlantic
Division, and was general manager of the Commercial Division from 1990 to 1992.
He has over 30 years of service with the Company. He has served as a Trustee
since 1988, and had served as a director of the Company's corporate predecessor.
ROBERT P. KLETJIAN, VICE PRESIDENT AND VICE CHAIRMAN Robert Kletjian, 50,
has been Vice Chairman of the Company since 1993 and was Vice President and
general manager of the Corporate and Education Division from 1990 to 1993. Prior
to 1990, Mr. Kletjian managed the Company's Hartford operations. He has over 27
years of service with the Company. He has served as a Trustee since 1988, and
had served as a director of the Company's corporate predecessor.
GEORGE A. KECHES, EXECUTIVE VICE PRESIDENT-- FINANCE AND ADMINISTRATION,
CHIEF FINANCIAL OFFICER AND Treasurer Mr. Keches, 43, joined the Company in 1991
having previously held management positions at The Westwood Group, Inc. and
Arthur Andersen & Co. Mr. Keches is a Certified Public Accountant, and serves as
the Company's principal financial officer.
SHARKAY KLETJIAN, TRUSTEE Ms. Kletjian, 80, co-founded the Company in 1949.
She served as a director of the Company's corporate predecessor, and has served
as a Trustee since 1988. Until 1997, she also served as Treasurer of the
Company.
BRUCE L. CHARBONEAU, VICE PRESIDENT AND GENERAL MANAGER - COMMERCIAL
DIVISION Mr. Charboneau, 58, joined the Company in 1994. Prior to joining the
Company, Mr. Charboneau served as President of the Eastern Region of National
Cleaning, Inc., another facilities services firm. He has over 30 years of
experience in the facilities services industry.
JOHN C. FEITOR, SENIOR VICE PRESIDENT - OPERATIONS Mr. Feitor, 55, has
worked for the Company since 1970. He has held various positions including Area
Manager and Vice President of Operations. He was promoted to Senior Vice
President - Operations in 1996.
RICHARD T. HEALEY, VICE PRESIDENT - CORPORATE DEVELOPMENT Mr. Healey, 58,
joined the Company as Vice President - Corporate Development in April, 1998,
having served in a similar capacity as a consultant to the Company since 1996.
From 1995 to 1996, Mr. Healey provided merger and acquisition consulting
services. Prior to that, he was Senior Vice President of I.T.E.C.O., a private
holding company.
GEORGE R. LOHNES, VICE PRESIDENT - MARKETING Mr. Lohnes, 43, joined the
Company in 2000 having previously held various marketing and strategy management
positions. Most recently he was Director, Marketing & Business Development
(North America) for Johnson Controls, an automotive systems and facility
management and control company. Prior to that, he served as Director, Strategic
Planning for Groupe Bull, an international computer manufacturer and service
company.
JEFFREY P. PETERSON, VICE PRESIDENT - INFORMATION TECHNOLOGY/SHARED
SERVICES Mr. Peterson, 41, joined the Company in September 1998. Prior to that,
he held several managerial positions with Arthur Andersen LLP, most recently as
Managing Director for Internal Systems in the Arthur Andersen Technology
Solutions (AATS) group. Mr. Peterson was with Arthur Andersen for 17 years prior
to joining UNICCO.
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<PAGE> 44
JOSEPH J. TINNEY, JR., VICE PRESIDENT AND GENERAL MANAGER - INDUSTRIAL
DIVISION Mr. Tinney, 43, joined the Company in June 1996 as a result of the
Ogden acquisition. Prior to assuming his current role in December of 1999, Mr.
Tinney held a variety of senior management positions including Vice President of
the Company's Business Development efforts. Mr. Tinney had served in Ogden's
Facilities Services Division as Director of National Sales from 1987 until 1996.
ADVISORY BOARD
GREGORY H. ADAMIAN, AB, MPA, J.D., PH.D. (HON.) Dr. Adamian, 74, currently
serves as Chancellor and President Emeritus of Bentley College in Waltham,
Massachusetts, having previously served 21 years as its President. Dr. Adamian
also serves on the boards of Bentley College and Joan Fabrics Corporation. He
was previously a director of Liberty Mutual Life Insurance Company and the West
End House.
ANTON BERNARD (TON) FUNKE KUPPER Mr. Funke Kupper, 71, is retired
President/CEO of HODON-GROUP (currently known as ABILIS International), a
multinational facility service company which is a market leader in the
Netherlands, Belgium and France, where he worked from 1959 to 1989. Mr. Funke
Kupper served as a board member of the U.S.A. Building Service Contractors
Association from 1985 to 1989, President of the World Federation of Building
Service Contractors from 1980 to 1982 and President of the Dutch Association of
Building Service Contractors from 1970 to 1983.
LEONARD LYNCH Mr. Lynch, 63, is a retired partner of Arthur
Andersen LLP where he served as the Director of the Audit and Business Advisory
Practice in the Boston and Southern California offices. He currently serves as a
consultant to the firm. Mr. Lynch has also served as a past trustee of the New
England Aquarium, member of the Advisory Board of the Heritage Plantation and a
member of Town Hall of Los Angeles.
MITCHELL REESE Mr. Reese, 41, is a Managing Director of The Carlyle Group,
where he is responsible for the operations of Carlyle Venture Partners, L.P., a
$250 million fund established to pursue venture-oriented investments. Prior to
joining The Carlyle Group, Mr. Reese was employed for seven years by Morgan
Keegan Inc., an investment banking firm, as President of its venture capital
division and co-head of its investment banking group. Prior thereto, Mr. Reese
was a Vice President in the mergers and acquisitions department of Alex. Brown &
Sons Incorporated.
HARVEY WAGNER Mr. Wagner, 59, serves as the Executive Vice President
Finance, Chief Financial Officer and Secretary of Paysys International, Inc.
From May 1998 to September 1999, he served as the Executive Vice President,
Finance and Administration and Chief Financial Officer at Premiere Technologies,
Inc. From June 1994 to April 1998, Mr. Wagner was the Senior Vice President of
Finance, Chief Financial Officer and Treasurer of Scientific-Atlanta, Inc. From
September 1989 to April 1994, Mr. Wagner was Vice President of Finance and Chief
Financial Officer of Computervision Corporation. Mr. Wagner is a founding Board
Member and President of the Wellness Community-Atlanta and sits on the Executive
Advisory Board of the Wharton School of the University of Pennsylvania.. Mr.
Wagner also sits on the Boards of several private companies.
-44-
<PAGE> 45
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information concerning
the compensation paid or accrued by the Company with respect to the Company's
Chief Executive Officer and certain other persons who served as executive
officers of the Company during the fiscal year ended June 25, 2000.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------------------------------------- -----------------------------
SHARES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS (1) COMPENSATION OPTIONS COMPENSATION(5)
---------------------------- ----------------- ---------- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C>
Steven C. Kletjian .............. 2000 $794,000 $200,000 $69,000(2) -- $113,000
Chief Executive Officer 1999 750,000 200,000 62,000(2) -- 108,000
and Chairman 1998 635,000 -- 26,000 -- 88,000
Richard J. Kletjian ............. 2000 390,000 -- 43,000 -- 75,000
Vice Chairman 1999 368,000 -- 37,000 -- 72,000
1998 373,000 -- 26,000 -- 52,000
Robert P. Kletjian .............. 2000 390,000 -- 35,000 -- 61,000
Vice President and Vice 1999 368,000 -- 23,000 -- 55,000
Chairman 1998 359,000 -- 24,000 -- 41,000
George A. Keches ................ 2000 229,000 80,000 121,000(3) -- 7,000
Executive Vice President 1999 216,000 70,000 87,000(3) -- 4,000
-- Finance and 1998 207,000 70,000 85,000(3) -- 6,000
Administration, Chief
Financial Officer and
Treasurer
Bruce Charboneau ................ 2000 209,000 70,000 11,000 -- 12,000
Vice President and General 1999 200,000 54,000 11,000 -- 7,000
Manager -- Commercial 1998 195,000 45,000 10,000 -- 7,000
Division
Robert J. Scoble ................ 2000 337,000 130,000 30,000(4) -- 16,000
Former Executive Vice President 1999 280,000 70,000 54,000(4) -- 5,000
of Operations (6) 1998 202,000 70,000 -- -- 6,000
</TABLE>
----------
(1) Bonus amounts in each fiscal year represent payment of bonus earned in the
prior fiscal year.
(2) Includes $41,000 and $40,000 in fiscal 2000 and 1999, respectively,
representing taxable fringe benefit associated with personal use of
Company-provided transportation.
(3) Includes forgiveness of indebtedness of $72,000, $72,000 and $84,000 in
fiscal 2000 and 1999 and 1998, respectively, representing a portion of the
indebtedness incurred in connection with the purchase of 27 non-voting
common shares of the Company.
(4) Includes $25,000 and $52,000 in fiscal 2000 and 1999, respectively, of
reimbursements related to relocation of this former executive officer. Such
reimbursements are grossed up to cover the employee's related federal tax
liability, pursuant to the Company's relocation policy.
(5) Includes premiums paid by the Company for life insurance for the designated
officer and matching contributions by the Company to the executives' 401(k)
and deferred compensation plans.
(6) Mr. Scoble was removed from the position of Executive Vice President of
Operations in November 1999 as a result of a reorganization of the
Company's business. He continues to be compensated by the Company.
-45-
<PAGE> 46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Under UNICCO's Declaration of Trust, UNICCO may issue an unlimited number
of shares of beneficial interest. The Trustees may determine the classes and
series of such shares and may designate the relative designations, preferences,
privileges, voting powers and restrictions applicable to the shares of each such
class and series. As of the date hereof, the outstanding securities of UNICCO
consist of an aggregate of 1,054 common shares of beneficial interest,
consisting of 1,000 voting common shares and 54 non-voting common shares.
The following table sets forth the beneficial and record ownership of
UNICCO's voting and non-voting common shares of beneficial ownership, taken
together as a single class.
NUMBER OF PERCENTAGE OF PERCENTAGE OF
SHAREHOLDER SHARES CLASS VOTING POWER
----------- -------- ------------- -------------
Steven C. Kletjian..... 510 48.4% 51.0%
Richard J. Kletjian.... 245 23.2 24.5
Robert P. Kletjian..... 245 23.2 24.5
John C. Feitor......... 27(1) 2.6 --
George A. Keches....... 27(1) 2.6 --
----- ----- -----
1,054 100.0% 100.0%
===== ===== =====
----------
(1) Non-voting shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A component of the Company's operating expenses consists of insurance
premiums for workers' compensation and general liability insurance. In May 1995,
the Company's shareholders organized Ashmont Insurance Company, Limited
("Ashmont"), as a captive insurance company. Ashmont is incorporated in the
Cayman Islands. Premiums for workers' compensation and general liability
insurance are paid by the Company to a commercial insurance carrier. After
deducting pre-determined fees for administration, claims processing and taxes,
the carrier remits the net premiums to Ashmont pursuant to a re-insurance
agreement. Ashmont, as re-insurer, then reimburses the carrier for insurance
losses paid on a monthly basis. Net insurance premiums received by Ashmont
pursuant to this arrangement aggregated $10.0 million for fiscal 2000. Workers'
compensation insurance premiums are based on statutory rates within the states
that the Company operates, adjusted for the Company's claims experience;
accordingly, management believes that these insurance premiums are consistent
with the premiums that would be paid for comparable insurance coverage obtained
on an arm's-length basis.
The Company holds notes receivable aggregating approximately $645,000 from
four of its officer/shareholders consisting primarily of demand notes that bear
interest at an average Applicable Federal Rate (6.1% at June 25, 2000). Interest
receivables related to those notes were approximately $241,000 at June 25, 2000.
During fiscal 2000, the Company forgave the remaining $72,000 of the principal
amount of such notes on account of the continued employment of one of the
shareholders.
The Company leases certain office space, through November 2005, from an
affiliated company. Lease expense related to this lease was $57,000, $57,000
and $51,800 for fiscal 2000, 1999 and 1998, respectively. Approximate future
minimum lease payments under this agreement for fiscal 2001 through fiscal year
2005 are $68,700, $73,450, $73,450, $73,450 and $73,450. Such amounts are
included in Note 9.
On September 30, 1998, the Company entered into an agreement to lease
certain equipment from an affiliate. The monthly payments are $90,000 and the
lease expires in September 2002. Total payments made by the Company under this
lease were $1,080,000 for fiscal 2000. The Company is responsible for all costs
and expenses of owning, operating
-46-
<PAGE> 47
and maintaining the equipment. These lease payments are included in Note 8 of
Notes to Consolidated Financial Statements.
In fiscal 2000, the Company paid consulting fees of $19,000 to Leonard
Lynch, Chairman of the Advisory Board. The Company also paid $98,000 in
consulting fees to D.M. Adamian, Inc., a company owned by Deborah Adamian. Ms.
Adamian is the wife of Gregory Adamian, a member of the Advisory Board.
In connection with the Ogden Acquisition in June 1996, the Company borrowed
$3.0 million from the Company's shareholders. The notes bore interest at 15%,
which was payable in-kind until the notes were to mature in October 2001. The
Company used a portion of the net proceeds of the Notes Offering to repay such
notes, including accrued interest. In addition, upon the repayment of the Ogden
Note, Steven C. Kletjian, the Company's Chief Executive Officer and principal
shareholder, was released from a limited recourse guarantee of the Ogden Note
and the pledge of Mr. Kletjian's shares of Ashmont which secured such guarantee.
In September, 1997, the Company repaid a note payable to Sharkay Kletjian,
a Trustee of the Company, in the aggregate principal amount of approximately
$282,000. Interest on this note was payable at a rate of 20% per annum.
PART IV
ITEM. 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements are listed in the Index to Financial
Statements contained in Item 8 of this Report.
2. Financial Statement Schedules, to the extent required, appear in
subsection (d) below.
3. Exhibits are listed in subsection (c) below.
(b) Reports on Form 8-K:
None
(c) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1(a) Amended Declaration of Trust of UNICCO Service Company
3.2(a) Certificate of Incorporation of UNICCO Finance Corp.
3.3(a) By-laws of UNICCO Service Company
3.4(a) By-laws of UNICCO Finance Corp.
3.5(a) Articles of Organization of USC, Inc.
3.6(a) Certificate of Incorporation of UNICCO Government S
ervices, Inc.
3.7(a) By-laws of USC, Inc.
3.8(a) By-laws of UNICCO Government Services, Inc.
3.9(b) Articles of Incorporation of UNICCO Service Company of
M.I., Inc.
3.10(b) Certificate of Incorporation of UNICCO Service of N.J., Inc.
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<PAGE> 48
3.11(b) By-laws of UNICCO Service of M.I., Inc
3.12(b) By-laws of UNICCO Service of N.J., Inc.
4.1(a) Indenture dated October 17, 1997 among UNICCO Service
Company, UNICCO Finance Corp., the Guarantors party thereto
and State Street Bank and Trust Company, as Trustee
4.2(c) First Supplemental Indenture and Guarantee
4.3(d) Second Supplemental Indenture and Guarantee
4.4(a) Form of Notes (included in Exhibit 4.1)
4.5(a) Form of Guaranty (included in Exhibit 4.1)
10.1(a) Amended and Restated Revolving Credit Agreement dated as of
October 17, 1997 by and among BankBoston, N.A. and other
banks party thereto, and UNICCO Service Company, USC, Inc.,
UNICCO Finance Corp., UNICCO Security Services, Inc. and
UNICCO Government Services, Inc.
10.2(e) Modification No. 1 dated as of March 31, 1998 to Amended and
Restated Revolving Credit Agreement
10.3(e) Second Amendment dated as of June 30, 1998 to Amended and
Restated Revolving Credit Agreement
10.4(d) Third Amendment dated as of December 28, 1998 to Amended and
Restated Revolving Credit Agreement
10.5(a) Share Purchase Agreement with George A. Keches dated June
20, 1996 and Amendment No. 1 to Share Purchase Agreement
dated February 2, 1998
10.6(a) Share Purchase Agreement with John C. Feitor dated July 1,
1989 and Amendment No. 1 to Share Purchase Agreement dated
February 2, 1998
10.7(a) Note Purchase Agreement dated June 28, 1996 by and among
Massachusetts Capital Resource Company and UNICCO Service
Company, USC, Inc., UNICCO Security Services, Inc. and
UNICCO Government Services, Inc., as amended by First
Amendment to Note Purchase Agreement dated October 17, 1997
10.8(d) Waiver and Second Amendment to Note Purchase Agreement dated
as of December 28, 1998
10.9(f) Stock Purchase Agreement for the Acquisition of UNICCO
Security Services, Inc. dated as of October 26, 1998 with
Argenbright Security, Inc.
10.10(d) First Amendment to Stock Purchase Agreement dated as of
December 11, 1998
10.11(g) UNICCO Service Company Deferred Compensation Plan
10.12(b) Fourth Amendment dated as of May 31, 2000 to Amended
and Restated Revolving Credit Agreement.
21.1(d) Subsidiaries of the Registrant
23.1(b) Consent of PricewaterhouseCoopers LLP
27.1(b) Financial Data Schedule
----------
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<PAGE> 49
(a) Incorporated by reference to the Company's Form S-4 Registration Statement
declared effective by the Commission on February 6, 1998 (File No.
333-42407).
(b) Filed herewith.
(c) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1998.
(d) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 27, 1999.
(e) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 28, 1998.
(f) Incorporated by reference to the Company's Current Report on Form 8-K filed
November 2, 1998.
(g) Incorporated by reference to the Company's Form S-8 Registration Statement
filed July 8, 1999.
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<PAGE> 50
(d) - Financial statement schedules
SCHEDULE I -VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
YEAR ENDED JUNE 25, 2000
------------------------
<TABLE>
<CAPTION>
BEGINNING CHARGED TO COSTS DEDUCTIONS/
DESCRIPTION BALANCE AND EXPENSES ADJUSTMENT ENDING BALANCE
----------- --------- ---------------- ----------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $2,467 $1,420 $(693) $3,194
====== ====== ===== ======
</TABLE>
YEAR ENDED JUNE 27, 1999
------------------------
<TABLE>
<CAPTION>
BEGINNING CHARGED TO COSTS DEDUCTIONS/
DESCRIPTION BALANCE AND EXPENSES ADJUSTMENT ENDING BALANCE
----------- --------- ---------------- ----------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $2,010 $ 998 $ (541) $ 2,467
====== ===== ====== =======
</TABLE>
YEAR ENDED JUNE 28, 1998
------------------------
<TABLE>
<CAPTION>
BEGINNING CHARGED TO COSTS DEDUCTIONS/
DESCRIPTION BALANCE AND EXPENSES ADJUSTMENT ENDING BALANCE
----------- --------- ---------------- ----------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $1,561 $1,166 $(717) $2,010
====== ====== ===== ======
</TABLE>
-50-
<PAGE> 51
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.
UNICCO SERVICE COMPANY
Dated: September 20, 2000 By: /s/ Steven C. Kletjian
----------------------------------
Steven C. Kletjian
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Steven C. Kletjian Chief Executive Officer September 20, 2000
-------------------------------- and Chairman of the
Steven C. Kletjian Board of Trustees (Principal
Executive Officer)
/s/ George A. Keches Executive Vice President, September 20, 2000
-------------------------------- Chief Financial Officer
George A. Keches and Treasurer (Principal
Financial and Accounting
Officer)
/s/ Richard J. Kletjian Trustee September 20, 2000
--------------------------------
Richard J. Kletjian
/s/ Robert P. Kletjian Trustee September 20, 2000
--------------------------------
Robert P. Kletjian
/s/ Sharkay Kletjian Trustee September 20, 2000
--------------------------------
Sharkay Kletjian
</TABLE>
-51-
