<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 26, 1999 COMMISSION FILE
NUMBER: 333-42407
UNICCO SERVICE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2872501
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
FOUR COPLEY PLACE, BOSTON, MASSACHUSETTS 02116
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(617) 859 - 9100
(REGISTRANT'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [*] NO [ ]
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<PAGE> 2
UNICCO SERVICE COMPANY
FORM 10-Q
QUARTER ENDED DECEMBER 26, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. Financial Information
ITEM 1. Financial Statements:
Condensed Consolidated Statements of Income for the three months and six months 3
ended December 26, 1999 and December 27, 1998 (unaudited)
Condensed Consolidated Balance Sheets at December 26, 1999 (unaudited) and June 4
27, 1999
Condensed Consolidated Statements of Cash Flows for the six months ended 5
December 26, 1999 and December 27, 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II. Other Information 19
Signatures 20
</TABLE>
2
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNICCO SERVICE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service revenues ............................... $ 141,631 $ 130,081 $ 277,097 $ 252,872
Cost of service revenues ....................... 124,910 114,219 244,452 222,530
--------- --------- --------- ---------
Gross profit ................................ 16,721 15,862 32,645 30,342
Selling, general and administrative expenses.... 10,679 10,475 21,562 19,696
Amortization of intangible assets .............. 1,022 1,086 2,042 2,168
--------- --------- --------- ---------
Operating income ............................ 5,020 4,301 9,041 8,478
Interest income ................................ 372 46 733 207
Interest expense ............................... (2,885) (2,907) (5,843) (5,892)
--------- --------- --------- ---------
Income from continuing operations before
income taxes ................................ 2,507 1,440 3,931 2,793
Provision for income taxes ..................... 326 319 670 551
--------- --------- --------- ---------
Income from continuing operations .............. 2,181 1,121 3,261 2,242
Discontinued operations :
Income from discontinued operations,
net of tax of $(25) and $(12) ............... -- 416 -- 1,143
--------- --------- --------- ---------
Net income before extraordinary item ........... 2,181 1,537 3,261 3,385
Extraordinary gain, net of tax of $16 .......... 388 -- 388 --
--------- --------- --------- ---------
Net income ..................................... $ 2,569 $ 1,537 $ 3,649 $ 3,385
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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<PAGE> 4
UNICCO SERVICE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 26,
1999 JUNE 27,
(UNAUDITED) 1999
------------ --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 22,696 $ 24,938
Accounts receivable, less reserves of $2,793 and $2,467 . 45,355 48,781
Unbilled receivables .................................... 26,968 25,158
Other current assets .................................... 3,627 5,139
--------- ---------
Total current assets ................................ 98,646 104,016
--------- ---------
Property and equipment, at cost ........................... 18,290 17,021
Less - accumulated depreciation and amortization ........ 12,457 11,607
--------- ---------
5,833 5,414
--------- ---------
Notes receivable and accrued interest from officers ....... 701 1,210
Intangible assets, net of amortization .................... 41,541 43,596
Other assets, net ......................................... 5,350 5,648
--------- ---------
47,592 50,454
--------- ---------
$ 152,071 $ 159,884
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ 6,866 8,372
Accrued payroll and payroll-related expenses ............ 17,629 18,840
Deferred income taxes ................................... 2,214 2,214
Other accrued expenses .................................. 7,308 6,947
--------- ---------
Total current liabilities ........................... 34,017 36,373
--------- ---------
Long-term liabilities:
Long-term debt .......................................... 100,599 109,592
Other long-term liabilities ............................. 414 160
--------- ---------
Total long-term liabilities ......................... 101,013 109,752
--------- ---------
Commitments and Contingencies
Shareholders' equity:
Common shares ........................................... 378 378
Retained earnings ....................................... 17,370 14,121
Accumulated other comprehensive income .................. (133) (166)
--------- ---------
17,615 14,333
Less:
Treasury shares at cost ................................... (502) (502)
Notes receivable from stock sales ......................... (72) (72)
--------- ---------
Total shareholders' equity ........................... 17,041 13,759
--------- ---------
$ 152,071 $ 159,884
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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<PAGE> 5
UNICCO SERVICE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
DECEMBER 26, DECEMBER 27,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows relating to operating activities:
Net income ....................................................... $ 3,649 $ 3,385
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Amortization of intangible assets ............................ 2,042 2,467
Amortization of debt issue costs and discount ................ 138 251
Depreciation and amortization ................................ 1,086 1,085
Loss on disposals ............................................ (101) (21)
Extraordinary gain, net of tax ............................... (388) --
Other ........................................................ 17 151
Changes in assets and liabilities:
Accounts receivable .......................................... 3,394 (7,649)
Unbilled receivables ......................................... (1,810) (902)
Other current assets ......................................... 1,495 (36)
Other long-term assets ....................................... (102) (62)
Cash overdraft ............................................... -- 2,081
Accounts payable ............................................. (1,415) 825
Accrued expenses and other current liabilities ............... (760) (5)
Other long-term liabilities .................................. 254 (194)
-------- --------
Net cash provided by operating activities .................... 7,499 1,376
-------- --------
Cash flows relating to investing activities:
Purchases of property and equipment, net ......................... (1,560) (990)
Proceeds from sale of property and equipment...................... 144 61
Payments received (increase) for notes receivable from officers... 509 (332)
Acquisition ...................................................... -- (4,436)
-------- --------
Net cash used in investing activities ........................ (907) (5,697)
-------- --------
Cash flows relating to financing activities:
Debt prepayment plus accrued interest thereon .................... (8,424) --
Distributions to shareholders .................................... (400) (1,152)
-------- --------
Net cash used in financing activities ........................ (8,824) (1,152)
-------- --------
Effect of exchange rate changes on cash and cash equivalents ......... (10) (19)
-------- --------
Net decrease in cash and cash equivalents ............................ (2,242) (5,492)
Cash and cash equivalents, beginning of period ....................... 24,938 9,151
-------- --------
Cash and cash equivalents, end of period ............................. $ 22,696 $ 3,659
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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<PAGE> 6
UNICCO SERVICE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1999
(1) INTERIM FINANCIAL STATEMENTS
These condensed consolidated financial statements include the accounts of UNICCO
Service Company ("UNICCO" or the "Company") and its wholly-owned subsidiaries.
All significant intercompany transactions have been eliminated.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments consisting only of normal recurring
accruals necessary for a fair presentation of the financial position of the
Company and its subsidiaries at December 26, 1999 and the results of their
operations and their cash flows for the three and six month periods ended
December 26, 1999 and December 27, 1998, respectively.
Certain information and footnote disclosures normally included in financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted as allowed by Regulation S-X, Article
10. Results for any interim period are not necessarily indicative of results to
be anticipated for a full year. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements for the year ended June 27, 1999 in
its Annual Report on Form 10-K as filed with the Securities and Exchange
Commission.
(2) RETIREMENT OF DEBT
During the three month period ended December 26, 1999, the Company
repurchased, through a series of open market transactions, $8.55 million face
amount of its Senior Subordinated Notes (the "Notes). The $7.9 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. The Company recorded an
extraordinary gain of approximately $0.4 million, net of tax. The gain resulted
from the difference between the face amount of such notes and the repurchase
price, offset by the write-off of the related unamortized deferred financing
costs and bond discount. The Company also made a $0.25 million optional
principal payment on the Company's subordinated indebtedness.
(3) COMPREHENSIVE INCOME
The components of comprehensive income for the three-month and six-month periods
ended December 26, 1999 and December 27, 1998 are set forth below:
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
IN THOUSANDS IN THOUSANDS
------------------------------ ------------------------------
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1999 1998 1999 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 2,569 $ 1,537 $ 3,649 $ 3,385
Other comprehensive income-
Foreign currency translation adjustment 6 (276) (10) (312)
Marketable securities 43 -- 43 --
------- ------- ------- -------
Comprehensive income $ 2,618 $ 1,261 $ 3,682 $ 3,073
======= ======= ======= =======
</TABLE>
6
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<PAGE> 7
(4) SEGMENT INFORMATION
The Company operates in one segment, that is, as a provider of integrated
facility services. Although management reviews and operates the business on a
regional basis, the economic characteristics of the regions' services and client
bases are similar. Therefore, the Company's regions are aggregated as one
business segment. The table below contains certain financial information by
geographic region (in thousands):
<TABLE>
<CAPTION>
NET REVENUE FROM LONG-LIVED
CONTINUING OPERATIONS ASSETS
------------------------------------------------------------------ ----------------------------
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED AS OF AS OF
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27, DECEMBER 26, JUNE 27,
1999 1998 1999 1998 1999 1999
------------- ------------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
By Geographic Area
United States $128,713 $116,470 $251,639 $231,298 $ 47,834 $ 49,939
Canada 12,918 13,611 25,458 21,574 5,591 5,929
-------- -------- -------- -------- -------- --------
Consolidated $141,631 $130,081 $277,097 $252,872 $ 53,425 $ 55,868
======== ======== ======== ======== ======== ========
</TABLE>
7
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<PAGE> 8
(5) CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
The Company's Senior Subordinated Notes due 2007 (the "Notes") are guaranteed,
fully, unconditionally and jointly and severally, by certain of UNICCO's
directly and indirectly wholly owned domestic subsidiaries. UNICCO's
wholly-owned Canadian subsidiary ("UFSCC") is not a guarantor of this debt.
Separate financial statements of the guarantor subsidiaries and of UNICCO
Finance Corp., a wholly-owned restricted-purpose subsidiary which is the
co-issuer of the Notes, are not presented because management has determined that
they would not be material to investors. The following presents condensed
consolidating financial information for (i) UNICCO only, (ii) the guarantor
subsidiaries on a combined basis, (iii) the nonguarantor subsidiary - UFSCC -
and (iv) the Company on a consolidated basis.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - (IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 26, 1999 (UNAUDITED)
------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues .............................. $ 119,512 $ 9,201 $ 12,918 $ -- $ 141,631
Cost of service revenues ...................... 104,921 8,336 11,653 -- 124,910
--------- --------- --------- --------- ---------
Gross profit ................................ 14,591 865 1,265 -- 16,721
Selling, general and administrative expenses... 9,617 304 758 -- 10,679
Amortization of intangible assets ............. 848 97 77 -- 1,022
--------- --------- --------- --------- ---------
Operating income ............................ 4,126 464 430 -- 5,020
Interest income ............................... 354 -- 18 -- 372
Interest expense .............................. (2,454) (274) (157) -- (2,885)
--------- --------- --------- --------- ---------
Income before provision for income taxes ...... 2,026 190 291 -- 2,507
Provision for income taxes .................... 77 45 204 -- 326
--------- --------- --------- --------- ---------
Income before equity in net earnings of
subsidiaries and extraordinary item ........... 1,949 145 87 -- 2,181
Equity in net earnings of subsidiaries ........ 232 18 -- (250) --
--------- --------- --------- --------- ---------
Net income before extraordinary item .......... 2,181 163 87 (250) 2,181
Extraordinary gain, net of tax of $16 ......... 388 -- -- -- 388
--------- --------- --------- --------- ---------
Net income .................................... $ 2,569 $ 163 $ 87 $ (250) $ 2,569
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 27, 1998 (UNAUDITED)
------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues .................................. $ 106,166 $ 10,304 $ 13,611 $ -- $ 130,081
Cost of service revenues .......................... 93,615 8,515 12,089 -- 114,219
--------- --------- --------- --------- ---------
Gross profit .................................... 12,551 1,789 1,522 -- 15,862
Selling, general and administrative expenses ...... 9,179 439 857 -- 10,475
Amortization of intangible assets ................. 887 129 70 -- 1,086
--------- --------- --------- --------- ---------
Operating income ................................ 2,485 1,221 595 -- 4,301
Interest income ................................... 43 -- 3 -- 46
Interest expense .................................. (2,575) (185) (147) -- (2,907)
--------- --------- --------- --------- ---------
Income from continuing operations before income
taxes ............................................. (47) 1,036 451 -- 1,440
Provision for income taxes ........................ 21 45 253 -- 319
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before
equity in net earnings of subsidiaries ............ (68) 991 198 -- 1,121
Equity in net earnings of subsidiaries ............ 1,604 42 -- (1,646) --
--------- --------- --------- --------- ---------
Income from continuing operations ................. 1,536 1,033 198 (1,646) 1,121
Discontinued operations :
Income from discontinued operations, net
of tax of $(25) ................................... -- 416 -- -- 416
--------- --------- --------- --------- ---------
Net income ........................................ $ 1,536 $ 1,449 $ 198 $ (1,646) $ 1,537
========= ========= ========= ========= =========
</TABLE>
8
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<PAGE> 9
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - (IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED DECEMBER 26, 1999 (UNAUDITED)
------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues .............................. $ 233,211 $ 18,428 $ 25,458 $ -- $ 277,097
Cost of service revenues ...................... 205,176 16,461 22,815 -- 244,452
--------- --------- --------- --------- ---------
Gross profit ................................ 28,035 1,967 2,643 -- 32,645
Selling, general and administrative expenses... 19,467 610 1,485 -- 21,562
Amortization of intangible assets ............. 1,696 194 152 -- 2,042
--------- --------- --------- --------- ---------
Operating income ............................ 6,872 1,163 1,006 -- 9,041
Interest income ............................... 699 -- 34 -- 733
Interest expense .............................. (5,263) (274) (306) -- (5,843)
--------- --------- --------- --------- ---------
Income before provision for income taxes ...... 2,308 889 734 -- 3,931
Provision for income taxes .................... 119 70 481 -- 670
--------- --------- --------- --------- ---------
Income before equity in net earnings of
subsidiaries and extraordinary item ........... 2,189 819 253 -- 3,261
Equity in net earnings of subsidiaries ........ 1,072 53 -- (1,125) --
--------- --------- --------- --------- ---------
Net income before extraordinary item .......... 3,261 872 253 (1,125) 3,261
Extraordinary gain, net of tax of $16 ........ 388 -- -- -- 388
--------- --------- --------- --------- ---------
Net income .................................... $ 3,649 $ 872 $ 253 $ (1,125) $ 3,649
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED DECEMBER 27, 1998 (UNAUDITED)
------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues ................................. $ 210,060 $ 21,238 $ 21,574 $ -- $ 252,872
Cost of service revenues ......................... 185,616 17,747 19,167 -- 222,530
--------- --------- --------- --------- ---------
Gross profit ................................... 24,444 3,491 2,407 -- 30,342
Selling, general and administrative expenses ..... 17,434 904 1,358 -- 19,696
Amortization of intangible assets ................ 1,796 256 116 -- 2,168
--------- --------- --------- --------- ---------
Operating income ............................... 5,214 2,331 933 -- 8,478
Interest income .................................. 187 2 18 -- 207
Interest expense ................................. (5,443) (205) (244) -- (5,892)
--------- --------- --------- --------- ---------
Income from continuing operations before income
taxes ............................................ (42) 2,128 707 -- 2,793
Provision for income taxes ....................... 21 95 435 -- 551
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before
equity in net earnings of subsidiaries ........... (63) 2,033 272 -- 2,242
Equity in net earnings of subsidiaries ........... 3,447 57 -- (3,504) --
--------- --------- --------- --------- ---------
Income from continuing operations ................ 3,384 2,090 272 (3,504) 2,242
Discontinued operations :
Income from discontinued operations, net of tax
of $(12) ......................................... -- 1,143 -- -- 1,143
--------- --------- --------- --------- ---------
Net income ....................................... $ 3,384 $ 3,233 $ 272 $ (3,504) $ 3,385
========= ========= ========= ========= =========
</TABLE>
9
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<PAGE> 10
CONDENSED CONSOLIDATING BALANCE SHEET - (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 26, 1999 (UNAUDITED)
------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................ $ 22,726 $ 13 $ 161 $ (204) $ 22,696
Accounts receivable, less reserve of $2,793 .......... 34,911 4,105 6,339 -- 45,355
Unbilled receivables ................................. 24,603 2,267 98 -- 26,968
Intercompany receivable (payable) .................... 3,481 3,020 (6,501) -- --
Other current assets ................................. 2,825 54 748 -- 3,627
--------- --------- --------- --------- ---------
Total current assets ........................ 88,546 9,459 845 (204) 98,646
--------- --------- --------- --------- ---------
Property and equipment, at cost ...................... 14,772 973 2,545 -- 18,290
Less-accumulated depreciation and amortization ....... 10,720 835 902 -- 12,457
--------- --------- --------- --------- ---------
Net property and equipment ....................... 4,052 138 1,643 -- 5,833
--------- --------- --------- --------- ---------
Due from (to) affiliates ............................. 14,509 (620) -- (13,889) --
Investment in subsidiary ............................. 15,860 722 -- (16,582) --
Notes receivable and accrued interest from officers... 701 -- -- -- 701
Intangible assets, net of amortization ............... 33,615 4,008 3,918 -- 41,541
Other assets, net .................................... 5,320 -- 30 -- 5,350
--------- --------- --------- --------- ---------
70,005 4,110 3,948 (30,471) 47,592
--------- --------- --------- --------- ---------
$ 162,603 $ 13,707 $ 6,436 $ (30,675) $ 152,071
========= ========= ========= ========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Cash overdraft ....................................... $ -- $ 204 $ -- $ (204) $ --
Accounts payable ..................................... 5,489 550 827 -- 6,866
Accrued payroll and payroll-related expenses ......... 15,388 471 1,770 -- 17,629
Deferred income taxes ................................ 2,059 155 -- -- 2,214
Other accrued expenses ............................... 6,580 152 576 -- 7,308
--------- --------- --------- --------- ---------
Total current liabilities ................... 29,516 1,532 3,173 (204) 34,017
--------- --------- --------- --------- ---------
Long-term liabilities:
Long-term debt, less current portion ................. 100,599 -- -- -- 100,599
Other long-term liabilities .......................... 414 -- -- -- 414
--------- --------- --------- --------- ---------
Total long-term liabilities ................. 101,013 -- -- -- 101,013
--------- --------- --------- --------- ---------
Commitments and Contingencies
Shareholders' equity ................................. 32,648 12,175 3,263 (30,471) 17,615
Less treasury shares at cost ......................... (502) -- -- -- (502)
Less notes receivable from stock sales ............... (72) -- -- -- (72)
--------- --------- --------- --------- ---------
Total shareholders' equity .................. 32,074 12,175 3,263 (30,471) 17,041
--------- --------- --------- --------- ---------
$ 162,603 $ 13,707 $ 6,436 $ (30,675) $ 152,071
========= ========= ========= ========= =========
</TABLE>
10
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<PAGE> 11
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>
11
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<PAGE> 12
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 26, 1999 (UNAUDITED)
---------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income ............................................ $ 3,649 $ 872 $ 253 $ (1,125) $ 3,649
Net earnings from equity investment ................... (1,072) (53) -- 1,125 --
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of intangible assets .................. 1,696 194 152 -- 2,042
Amortization of debt issue costs and discount ...... 138 -- -- -- 138
Depreciation and amortization ...................... 854 46 186 -- 1,086
Gain on disposals .................................. (94) (7) -- -- (101)
Extraordinary gain ................................. (388) -- -- -- (388)
Other .............................................. 2 (2) -- 17 17
Changes in assets and liabilities:
Accounts receivable .............................. 4,383 (327) (662) -- 3,394
Unbilled receivables ............................. (1,350) (484) 24 -- (1,810)
Intercompany receivable (payable) ................ (787) 463 341 (17) --
Other current assets ............................. 1,427 6 62 -- 1,495
Other long-term assets ........................... (87) -- (15) -- (102)
Cash overdraft ................................... -- (78) -- 78 --
Accounts payable ................................. (397) (510) (508) -- (1,415)
Accrued expenses and other current
liabilities .................................... 114 (42) (832) -- (760)
Other long-term liabilities ...................... 254 -- -- -- 254
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities ....................................... 8,342 78 (999) 78 7,499
-------- -------- -------- -------- --------
Cash relating to investing activities:
Purchase of property and equipment, net ............... (1,440) (86) (34) -- (1,560)
Proceeds from sale of property and equipment .......... 137 7 -- -- 144
Payments received for notes receivable from officers 509 -- -- -- 509
-------- -------- -------- -------- --------
Net cash used in investing activities .............. (794) (79) (34) -- (907)
-------- -------- -------- -------- --------
Cash flows relating to financing activities:
Debt prepayment plus accrued interest thereon ......... (8,424) -- -- -- (8,424)
Distributions to shareholders ......................... (400) -- -- -- (400)
-------- -------- -------- -------- --------
Net cash used in financing activities .............. (8,824) -- -- -- (8,824)
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents ...................................... -- -- (10) -- (10)
-------- -------- -------- -------- --------
Net decrease in cash and cash equivalents ................ (1,276) (1) (1,043) 78 (2,242)
Cash and cash equivalents, beginning of period ........... 24,002 13 1,205 (282) 24,938
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period ................. $ 22,726 $ 12 $ 162 $ (204) $ 22,696
======== ======== ======== ======== ========
</TABLE>
12
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<PAGE> 13
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 27, 1998 (UNAUDITED)
---------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income ............................................ $ 3,384 $ 3,233 $ 272 $(3,504) $ 3,385
Net earnings from equity investment ................... (3,447) (57) -- 3,504 --
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Amortization of intangible assets .................. 1,796 555 116 -- 2,467
Amortization of debt issue costs and discount ...... 251 -- -- -- 251
Depreciation and amortization ...................... 806 128 151 -- 1,085
Loss on disposals .................................. (21) -- -- -- (21)
Other .............................................. -- -- -- 151 151
Changes in assets and liabilities:
Accounts receivable .............................. (5,495) (280) (1,874) -- (7,649)
Unbilled receivables ............................. (864) (212) 174 -- (902)
Intercompany receivable (payable) ................ (719) (3,497) 4,367 (151) --
Other current assets ............................. 70 (25) (81) -- (36)
Other long-term assets ........................... (117) 59 (4) -- (62)
Cash overdraft ................................... 1,127 (291) -- 1,245 2,081
Accounts payable ................................. 580 (148) 393 -- 825
Accrued expenses and other current
liabilities .................................... (1,083) 304 774 -- (5)
Other long-term liabilities ...................... (194) -- -- -- (194)
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities ....................................... (3,926) (231) 4,288 1,245 1,376
------- ------- ------- ------- -------
Cash relating to investing activities:
Acquisition ........................................... -- -- (4,436) -- (4,436)
Purchases of property and equipment, net .............. (938) (31) (21) -- (990)
Proceeds from sale of property and equipment .......... 61 -- -- -- 61
Payments received for notes receivable from officers... (332) -- -- -- (332)
------- ------- ------- ------- -------
Net cash used in investing activities .............. (1,209) (31) (4,457) -- (5,697)
------- ------- ------- ------- -------
Cash flows relating to financing activities:
Distributions to shareholders ......................... (1,152) -- -- -- (1,152)
------- ------- ------- ------- -------
Net cash used in financing activities .............. (1,152) -- -- -- (1,152)
------- ------- ------- ------- -------
Effect of exchange rate changes on cash and
cash equivalents ...................................... -- -- (19) -- (19)
------- ------- ------- ------- -------
Net decrease in cash and cash equivalents ................ (6,287) (262) (188) 1,245 (5,492)
Cash and cash equivalents, beginning of period ........... 9,089 300 1,007 (1,245) 9,151
------- ------- ------- ------- -------
Cash and cash equivalents, end of period ................. $ 2,802 $ 38 $ 819 $ -- $ 3,659
======= ======= ======= ======= =======
</TABLE>
13
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<PAGE> 14
(6) LITIGATION
In the ordinary course of business, the Company is party to various types
of litigation. The Company believes that, in the aggregate, the litigation
matters currently pending will not have a material adverse effect on the
Company's financial position, results of operations or cash flows, taken as a
whole.
(7) SUBSEQUENT EVENTS
Effective December 31, 1999, the Company sold certain contracts, primarily
in the Midwest Region, for $4.05 million in cash with an additional contingent
purchase price of $450,000. The Company expects to record a gain in the third
quarter in connection with this sale. The disposition of these contracts is not
considered material to the Company's ongoing operations.
Subsequent to December 26, 1999, the Company used cash of $50.1 million to
repurchase and retire Notes with a face amount of $49.3 million and pay accrued
interest through the date of the repurchase. 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 using cash generated by operations and
from borrowings under the Company's revolving credit facility. The Company
expects to record an extraordinary loss in the third quarter in connection with
the repurchase of these Notes due to the write-off of unamortized deferred
financing costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF THREE MONTH PERIODS ENDED DECEMBER 26, 1999 AND DECEMBER 27, 1998
REVENUES Revenues for the second quarter of fiscal 2000, which ended
December 26, 1999, were $141.6 million compared to $130.1 million for the second
quarter of fiscal 1999, which ended December 27, 1998, an increase of $11.5
million or 8.9%. This increase was primarily attributable to revenue increases
in the Company's Northeast Region ($4.9 million), Northwest Region ($3.0
million), Southeast Region ($1.5 million), Southwest Region ($1.5 million),
Eastern Region ($1.4 million) and the Hawaiian Region ($0.4 million) as a result
of services performed under new and existing contracts. These increases were
offset in part by a decrease in revenue in the Company's Canadian Region ($0.7
million) and the Midwest Region ($0.5 million). The decrease of revenue in these
two regions was the result of lost contracts outpacing the increase in revenue
from new contracts. Revenues from the Midwest Region are expected to further
decrease in subsequent quarters as a result of the sale of certain contracts
effective December 31, 1999.
COST OF REVENUES Cost of revenues for the second quarter of fiscal 2000
were $124.9 million, or 88.2% of revenues, compared to $114.2 million, or 87.8%
of revenues, for the second quarter of fiscal 1999. The increase in cost of
revenues as a percentage of revenue resulted primarily from increases in
salaries, wages and payroll related expenses primarily due to annual salary
increases effective July 1, 1999 and costs incurred in the start-up of new
contracts.
GROSS PROFIT As a result of the foregoing, gross profit for the second
quarter of fiscal 2000 was $16.7 million, or 11.8% of revenues, compared to
$15.9 million, or 12.2% of revenues, for the comparable period in fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses for the second quarter of fiscal 2000 were $10.7
million, or 7.5% of revenues, compared to $10.5 million, or 8.1% of revenues,
for the second quarter of fiscal 1999. The increase of $0.2 million was
primarily due to a $0.6 million increase in salaries, wages and payroll related
expenses primarily due to annual salary increases effective July 1, 1999 and
increases in bonus and commission accruals due to projected increases in these
expenses. The increase was offset in part by a $0.1 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 and a
decrease of $0.3 million in professional fees.
AMORTIZATION OF INTANGIBLE ASSETS Amortization expense was $1.0 million and
$1.1 million in the second quarter of fiscal 2000 and fiscal 1999, respectively.
OPERATING INCOME As a result of the foregoing, income from operations for
the second quarter of fiscal 2000 was $5.0 million, or 3.5% of revenues,
compared to $4.3 million, or 3.3% of revenues for the second quarter of fiscal
1999.
14
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<PAGE> 15
EBITDA EBITDA for the second quarter of fiscal 2000 was $6.6 million, or
4.7% of revenues, compared to $5.9 million, or 4.5% of revenues, for the second
quarter of fiscal 1999. EBITDA is defined as income from continuing operations
before provision for income taxes, interest expense, interest income and
depreciation and amortization. EBITDA as presented may not be comparable to
similarly titled measures used by other companies, depending upon the non-cash
charges included. When evaluating EBITDA, investors should consider that EBITDA
(i) should not be considered in isolation but together with other factors which
may influence operating and investing activities, such as changes in operating
assets and liabilities and purchases of property and equipment; (ii) is not a
measure of performance calculated in accordance with generally accepted
accounting principles; (iii) should not be construed as an alternative or
substitute for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial position
or cash flows; and (iv) should not be used as an indicator of the Company's
operating performance or as a measure of its liquidity.
INTEREST EXPENSE Interest expense for the second quarter of fiscal 2000 was
$2.9 million, or 2.0% of revenues, compared to $2.9 million, or 2.2% of
revenues, for the second quarter of fiscal 1999.
INCOME TAXES Provision for income taxes for the second quarter of fiscal
2000 was $0.3 million, or 13% of income before provision for income taxes,
compared to $0.3 million, or 22% of income before provision for income taxes,
for the second quarter of fiscal 1999. The lower effective tax rate in the
second quarter of fiscal 2000 resulted from the fact that a higher percentage of
income before income taxes was generated in the United States, which has a lower
effective rate than the Canadian subsidiary.
EXTRAORDINARY GAIN During the second quarter of fiscal 2000, the Company
recorded an extraordinary gain of $0.4 million, net of state tax benefit. The
extraordinary gain was attributable to the repurchase and retirement of $8.55
million of Notes. The extraordinary gain resulted from repurchasing the notes at
prices below par, partially offset by the write-off of unamortized deferred
financing costs and bond discount associated with the Notes.
NET INCOME As a result of the foregoing, net income for the second quarter
of fiscal 2000 was $2.6 million, or 1.8% of revenues, compared to $1.5 million,
or 1.2% of revenues, for the second quarter of fiscal 1999.
COMPARISON OF SIX MONTH PERIODS ENDED DECEMBER 26, 1999 AND DECEMBER 27, 1998
REVENUES Revenues for the six months ended December 26, 1999 were $277.1
million, compared to $252.9 million for the comparable period of fiscal 1999, an
increase of $24.2 million or 9.6%. This increase was primarily attributable to
two factors; (i) revenue increases in the Company's Canadian Region ($3.9
million) as a result of a full six month's of revenue following the September
1998 acquisition of Empire Maintenance Industries, Inc., and (ii) increases in
the Northeast Region ($7.8 million), Northwest Region ($6.1 million), Southeast
Region ($2.9 million), Southwest Region ($2.7 million), Eastern Region ($1.7
million) and the Hawaiian Region ($0.8 million) as a result of services
performed under new and existing contracts. These increases were offset in part
by a decrease in revenue in the Midwest Region ($1.7 million) where the loss of
several contracts outpaced the increase in revenue from new contracts.
COST OF REVENUES Cost of revenues for the six months ended December 1999
were $244.5 million, or 88.2% of revenues, compared to $222.5 million, or 88.0%
of revenues, for the comparable period of fiscal 1999. The increase of cost of
revenues as a percentage of revenues resulted primarily from increases in
salaries, wages and payroll related expenses primarily due to annual salary
increases effective July 1, 1999 and costs incurred during the three months
ended December 26, 1999 in the start-up of new contracts.
GROSS PROFIT As a result of the foregoing, gross profit for the six months
ended December 1999 was $32.6 million, or 11.8% of revenues, compared to $30.3
million, or 12.0% of revenues, for the comparable period in fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses for the six months ended December 26, 1999 were $21.6
million, or 7.8% of revenues, compared to $19.7 million, or 7.8% of revenues,
for the comparable period of fiscal 1999. The increase of $1.9 million was
primarily due to a $1.4 million increase in salaries, wages and related benefits
primarily due to annual salary increases effective July 1, 1999, the impact of
the Empire acquisition and increases in bonus and commission accruals due to
projected increases in these expenses, and a $0.5 million increase in
transportation expenses primarily due to incremental lease and
maintenance-related expenses for certain transportation equipment.
15
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<PAGE> 16
AMORTIZATION OF INTANGIBLE ASSETS Amortization expense was $2.0 million and
$2.2 million in the six month periods of fiscal 2000 and fiscal 1999,
respectively.
OPERATING INCOME As a result of the foregoing, income from operations for
the six-month period ended December 1999 was $9.0 million, or 3.3% of revenues,
compared to $8.5 million, or 3.4% of revenues for the comparable period.
EBITDA EBITDA for the six months ended December 26, 1999 was $12.2 million,
or 4.4% of revenues, compared to $11.7 million, or 4.6% of revenues, for the
comparable period. EBITDA is defined as income from continuing operations before
provision for income taxes, interest expense, interest income and depreciation
and amortization.
INTEREST EXPENSE Interest expense for the six months ended December 1999
was $5.8 million, or 2.1% of revenues, compared to $5.9 million, or 2.3% of
revenues, for the comparable period.
INCOME TAXES Provision for income taxes for the six months ended December
1999 was $0.7 million, or 17% of income before provision for income taxes,
compared to $0.6 million, or 20% of income before provision for income taxes,
for the comparable period. The lower effective tax rate in for the first six
months the second quarter of fiscal 2000 resulted from the fact that a higher
percentage of income before income taxes was generated in the United States,
which has a lower effective rate than the Canadian subsidiary.
EXTRAORDINARY GAIN As described in the three-month comparison above, during
the second quarter of fiscal 2000, the Company recorded an extraordinary gain of
$0.4 million, net of state tax provision.
NET INCOME As a result of the foregoing, net income for the six months
ended December 1999 was $3.6 million, or 1.3% of revenues, compared to $3.4
million, or 1.3% of revenues, for the comparable period.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended December 26, 1999, the Company's cash decreased by
$2.2 million, resulting from $7.5 million of net cash provided by operating
activities, more than offset by $0.9 million and $8.8 million of net cash used
for investing and financing activities, respectively.
Net cash used in investing activities was $0.9 million. Investing
activities consisted primarily of cash used of $1.6 million for capital
expenditures and the receipt of $0.5 million from the repayment of notes
receivable from officers. Net cash used in financing activities included
payments of $7.9 million to retire $8.55 million (face amount) of Notes and pay
the related accrued interest, $0.5 million of optional principal payments on the
Company's subordinated indebtedness and shareholder distributions of $0.4
million.
Subsequent to December 26, 1999, the Company repurchased and retired Notes
with a face amount of $49.3 million. This amount included $8.8 million 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 using cash generated by operations and from borrowings under
the Company's revolving credit facility. The Company expects to record an
extraordinary loss in the third quarter in connection with the repurchase of
these Notes due to the write-off of unamortized deferred financing costs.
Management may consider additional repurchases from time to time.
For the six months ended December 27, 1998, the Company's cash decreased by
$5.5 million. Net cash used in investing activities was $5.7 million. Investing
activities included cash used of $4.4 million for the Empire acquisition in
September 1998. Net cash used in financing activities was $1.2 million,
representing distributions to shareholders. A total of $0.8 million of such
distributions represented payments to cover federal income taxes paid by such
shareholders due to the Company's "S" corporation status. Net cash provided by
operating activities of $1.4 million included an increase of accounts receivable
of $7.6 million. This increase was primarily due to accounts receivable
generated from new business and the Empire acquisition.
Capital expenditures were $1.6 million and $1.0 million, respectively, for
the six-month periods ended December 1999 and l998. The Company's operations do
not generally require material investment in capital assets. The Company expects
that its capital expenditure requirements will not increase materially during
the next two quarters of fiscal 2000.
16
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<PAGE> 17
The Company is a party to an amended revolving credit facility (the "Credit
Facility") under which the Company may borrow up to $45.0 million for working
capital and general corporate purposes, subject to certain conditions. There
were no cash borrowings under the Credit Facility as of December 26, 1999. 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. The ability of the Company to meet its debt service obligations will be
dependent upon the future performance of the Company, which will be impacted by
general economic conditions and other factors.
As of December 26, 1999, the Company was in violation of one of its
financial ratio covenants under the Credit Facility. The Company obtained a
waiver of this violation from the bank group.
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 its borrowing capacity under the Credit Facility, will be sufficient to
meet such requirements as they now exist.
YEAR 2000 COMPLIANCE
Year 2000 Preparations. The Company's information technology systems are
licensed from outside vendors. The Company's principal outside vendor has
released an upgrade of the primary software used by the Company to perform its
accounting, payroll, accounts payable, invoicing and financial reporting
functions. The upgrade was implemented in March 1999 and tested in September
1999. The vendor had represented to the Company that this upgrade is Year 2000
compliant. Subsequent to the date change, the Company has experienced no
problems with its information technology systems related to the Year 2000 issue.
The Company's primary systems at its Canadian subsidiary were upgraded in
December of 1999. The Canadian subsidiary has not experienced any significant
problems with its primary systems related to the Year 2000.
With respect to non-information technology systems, such as embedded
microprocessors in telephones, building systems and Company owned equipment, in
April 1999, the Company completed its data gathering, identification and risk
assessment of business critical issues, and the development of a remediation
plan to address business critical issues. Prior to December 1999 the Company
completed all portions of its remediation plan, which included detailed
remediation plans for a number of specific functions, including risk management,
purchasing and telephone and building systems. The Company has not experienced
any significant problems from its non-information technology systems subsequent
to the date change.
Costs of Year 2000 Remediation. The Company's Year 2000 remediation costs
of approximately $55,000 for the first six months of fiscal 2000 and $807,000 in
fiscal 1999, include costs of acquiring Year 2000 compliant software, hardware
and non-information technology equipment (other than replacements that would
have been purchased regardless of the Year 2000 issue), and hiring or
outsourcing Year 2000 solution providers. The Company's total expenditures
related to Year 2000 remediation of its primary information technology systems
were approximately $927,000. The expensed and projected costs do not include
internal costs, as the Company did not separately track the internal costs of
the Year 2000 project. Such costs are principally the related payroll costs for
the Company's information systems group.
Year 2000 Risks. The Company has not experienced any material adverse
effects on its financial condition or results of operations due to Year 2000
issues. As of this point in time the Company has not experienced, nor is aware
of any problems with Year 2000 compliance issues which have affected its
customers, suppliers or other third parties. However, the Company cannot control
its customers or vendors, and there can be no guarantee that the Company will
not be made aware of Year 2000 problems which have affected it customers,
suppliers or other third parties that may materially affect the Company.
The Company, in the normal course of its business, maintains, services and
operates its customers' equipment and building management systems such as energy
management, HVAC, access control, elevators and escalators. This equipment and
systems may include date-sensitive microprocessors. While management does not
believe that Year 2000 remediation of such equipment and systems is the
Company's responsibility and the Company has not experienced any problems with
this issue to date, there can be no assurance that a customer or building
occupant will not attempt to assess liability in the future for any Year 2000
failures against the Company.
Contingency Plans. The Company had developed contingency plans that address
each of the key functional areas. The Company believes that it can secure
additional external resources to minimize the likelihood of long-term, material
adverse effects in the event that its own and third-party systems experience
widespread Year 2000 failures.
17
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<PAGE> 18
GENERAL
Certain statements contained in this report are forward-looking and
represent the Company's expectations or beliefs concerning future events.
Without limiting the foregoing, the words "believes," "anticipates," "expects",
"will" and similar expressions are intended to identify forward-looking
statements. The Company cautions that these and similar statements involve
risks, uncertainties and assumptions that could cause actual results or events
to differ materially from those described in such forward-looking statements.
Factors which could cause such differences include the Company's degree of
leverage, restrictions in the Company's debt agreements, dependence on key
personnel, the short-term nature of the Company's contracts, potential
environmental or other liabilities, competitive factors and pricing pressures,
assimilation of past or future acquisitions, general economic conditions and the
acts of third parties, as well as other factors which are described in the
Company's Registration Statement on Form S-4 (File No. 333-42407), and periodic
reports filed with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information provided below updates that which was previously presented
in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", in the
Company's Form 10-K for the fiscal year ended June 27,1999.
The Company had no outstanding cash borrowings under its Credit Facility as
of December 26, 1999. At December 26, 1999, the Company's outstanding
indebtedness consisted of $96.5 million of Senior Subordinated Notes and $4.5
million of Subordinated Promissory Notes with fixed interest rates of 9.875% and
14%, respectively.
18
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<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other
than those arising in the ordinary course of the Company's business.
Management believes that the resolution of these matters will not
materially affect the Company's financial position or results of
operations, taken as a whole (see Note 6 to the accompanying Condensed
Consolidated Financial Statements).
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
See the information regarding repurchases of the Company's Senior
Subordinated Notes in Notes 2 and 7 to the accompanying Condensed
Consolidated Financial Statements and under "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K:
Not applicable.
19
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<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNICCO SERVICE COMPANY
-------------------------------------
Registrant
February 9, 2000 By: /s/ Steven C. Kletjian
---------------------------------
Steven C. Kletjian, President,
Chief Executive Officer
(Principal Executive Officer)
February 9, 2000 By: /s/ George A. Keches
---------------------------------
George A. Keches, Vice President -
Finance, Chief Financial Officer
and Treasurer (Principal Financial
and Accounting Officer)
20
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THIS REPORT, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-25-2000
<PERIOD-END> DEC-26-1999
<CASH> 22,696
<SECURITIES> 0
<RECEIVABLES> 75,116
<ALLOWANCES> 2,793
<INVENTORY> 0
<CURRENT-ASSETS> 98,646
<PP&E> 18,290
<DEPRECIATION> 12,457
<TOTAL-ASSETS> 152,071
<CURRENT-LIABILITIES> 34,017
<BONDS> 100,599
0
0
<COMMON> 378
<OTHER-SE> 16,663
<TOTAL-LIABILITY-AND-EQUITY> 152,071
<SALES> 277,097
<TOTAL-REVENUES> 277,097
<CGS> 244,452
<TOTAL-COSTS> 244,452
<OTHER-EXPENSES> 23,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,110
<INCOME-PRETAX> 3,931
<INCOME-TAX> 670
<INCOME-CONTINUING> 3,261
<DISCONTINUED> 0
<EXTRAORDINARY> 388
<CHANGES> 0
<NET-INCOME> 3,649
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>THE COMPANY'S EQUITY IS NOT PUBLICLY TRADED.
</FN>
</TABLE>
