<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File
November 27, 1999 Number 1-8504
UNIFIRST CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2103460
(State of Incorporation) (IRS Employer ID Number)
68 Jonspin Road
Wilmington, Massachusetts 01887
(Address of principal executive offices)
Registrant's telephone number: (978) 658-8888
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 [ ]
The number of outstanding shares of the registrant's Common Stock and Class B
Common Stock as of January 5, 2000 were 9,408,134 and 10,255,744 respectively.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
November 27, August 28, November 28,
1999 1999* 1998
------------ ---------- ------------
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 2,101,000 $ 2,912,000 $ 7,385,000
Receivables 57,986,000 51,786,000 45,634,000
Inventories 22,055,000 27,194,000 23,804,000
Rental merchandise in service 57,688,000 55,631,000 47,361,000
Prepaid expenses 205,000 199,000 202,000
------------- ------------- -------------
Total current assets 140,035,000 137,722,000 124,386,000
------------- ------------- -------------
Property and equipment:
Land, buildings and leasehold improvements 180,736,000 174,979,000 154,667,000
Machinery and equipment 196,343,000 190,722,000 168,316,000
Motor vehicles 49,686,000 49,396,000 41,887,000
------------- ------------- -------------
426,765,000 415,097,000 364,870,000
Less - accumulated depreciation 179,480,000 172,912,000 152,118,000
------------- ------------- -------------
247,285,000 242,185,000 212,752,000
------------- ------------- -------------
Other assets 88,677,000 85,720,000 56,220,000
------------- ------------- -------------
$ 475,997,000 $ 465,627,000 $ 393,358,000
============= ============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 1,619,000 $ 1,911,000 $ 1,140,000
Notes payable 2,394,000 2,331,000 2,509,000
Accounts payable 18,277,000 17,659,000 17,918,000
Accrued liabilities 49,547,000 46,659,000 47,964,000
Accrued and deferred income taxes 10,205,000 7,754,000 4,961,000
------------- ------------- -------------
Total current liabilities 82,042,000 76,314,000 74,492,000
------------- ------------- -------------
Long-term obligations, net of current maturities 114,172,000 111,194,000 44,602,000
Deferred income taxes 20,931,000 20,686,000 18,743,000
------------- ------------- -------------
Shareholders' equity:
Preferred stock, $1.00 par value; 2,000,000
shares authorized; none issued -- -- --
Common stock, $.10 par value; 30,000,000
shares authorized; issued
10,499,634 shares 1,050,000 1,050,000 1,022,000
Class B Common stock, $.10 par value; 20,000,000
shares authorized; issued and outstanding
10,255,744 shares 1,026,000 1,026,000 1,029,000
Treasury stock, 1,091,500 shares, at cost (20,049,000) (16,583,000) --
Capital surplus 12,438,000 12,438,000 7,078,000
Retained earnings 266,250,000 261,450,000 248,807,000
Accumulated other comprehensive income (1,863,000) (1,948,000) (2,415,000)
------------- ------------- -------------
Total shareholders' equity 258,852,000 257,433,000 255,521,000
------------- ------------- -------------
$ 475,997,000 $ 465,627,000 $ 393,358,000
============= ============= =============
</TABLE>
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 3
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
weeks ended weeks ended
November 27, November 28,
1999 1998
------------- -------------
<S> <C> <C>
Revenues $ 131,790,000 $ 116,335,000
------------- -------------
Costs and expenses:
Operating costs 81,839,000 66,488,000
Selling and administrative expenses 31,023,000 26,989,000
Depreciation and amortization 8,531,000 7,258,000
------------- -------------
121,393,000 100,735,000
------------- -------------
Income from operations 10,397,000 15,600,000
------------- -------------
Interest expense (income):
Interest expense 1,709,000 712,000
Interest income (119,000) (58,000)
------------- -------------
1,590,000 654,000
------------- -------------
Income before income taxes 8,807,000 14,946,000
Provision for income taxes 3,347,000 5,530,000
------------- -------------
Net income $ 5,460,000 $ 9,416,000
============= =============
Weighted average number of shares outstanding -
basic & diluted 19,689,592 20,510,608
============= =============
Net income per share - basic & diluted $ 0.28 $ 0.46
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 4
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
weeks ended weeks ended
November 27, November 28,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 5,460,000 $ 9,416,000
Adjustments, net of acquisitions:
Depreciation 6,933,000 6,055,000
Amortization of intangible assets 1,598,000 1,203,000
Receivables (6,157,000) (3,366,000)
Inventories 5,327,000 331,000
Rental merchandise in service (1,894,000) (3,884,000)
Prepaid expenses (6,000) (14,000)
Accounts payable 507,000 3,923,000
Accrued liabilities 2,878,000 2,857,000
Accrued and deferred income taxes 2,434,000 2,402,000
Deferred income taxes 234,000 387,000
------------ ------------
Net cash provided by operating activities 17,314,000 19,310,000
------------ ------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (533,000) (3,654,000)
Capital expenditures (11,875,000) (7,400,000)
Other assets, net (3,246,000) (4,231,000)
------------ ------------
Net cash used in investing activities (15,654,000) (15,285,000)
------------ ------------
Cash flows from financing activities:
Increase in debt 3,090,000 40,000
Reduction of debt (1,435,000) (1,449,000)
Repurchase of common stock (3,466,000) --
Cash dividends (660,000) (561,000)
------------ ------------
Net cash used in financing activities (2,471,000) (1,970,000)
------------ ------------
Net increase (decrease) in cash (811,000) 2,055,000
Cash at beginning of period 2,912,000 5,330,000
------------ ------------
Cash at end of period $ 2,101,000 $ 7,385,000
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 1,642,000 $ 694,000
Income taxes paid 651,000 2,712,000
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 5
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 27, 1999
1. These condensed consolidated financial statements have been prepared by the
Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations; however, the
Company believes that the information furnished reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion
of management, necessary to a fair statement of results for the interim
period. It is suggested that these condensed consolidated financial
statements should be read in conjunction with the financial statements and
the notes, thereto, included in the Company's latest annual report on Form
10-K. Results for an interim period are not indicative of any future
interim periods or for an entire fiscal year.
2. From time to time, the Company is subject to legal proceedings and claims
arising from the conduct of its business operations, including legal
proceedings and claims relating to personal injury, customer contract,
employment and environmental matters. In the opinion of management, such
proceedings and claims are not likely to result in losses which would have
a material adverse effect upon the financial position or results of
operations of the Company.
3. In the first quarter of fiscal 1999, The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income". SFAS 130 established new rules for the reporting and display of
comprehensive income and its components. The adoption of this SFAS 130 had
no impact on the Company's net income or shareholders' equity, but it
requires the Company's foreign currency translation adjustment, which prior
to adoption was reported separately in shareholders' equity, to be included
in accumulated other comprehensive income. The components of comprehensive
income for the thirteen week periods ended November 27, 1999 and November
28, 1998 were as follows:
<TABLE>
<CAPTION>
Thirteen Thirteen
weeks ended weeks ended
November 27, November 28,
1999 1998
------------ ------------
<S> <C> <C>
Net income $5,460,000 $9,416,000
Other comprehensive income:
Foreign currency translation adjustments 85,000 292,000
---------- ----------
Comprehensive income $5,545,000 $9,708,000
========== ==========
</TABLE>
<PAGE> 6
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 27, 1999
RESULTS OF OPERATIONS
THIRTEEN WEEKS OF FISCAL 2000 COMPARED WITH THIRTEEN WEEKS OF FISCAL 1999
Revenues. Fiscal 2000 first quarter revenues increased $15.5 million or 13.3% to
$131.8 million as compared with $116.3 million for the fiscal 1999 first
quarter. This increase can be attributed to growth from existing operations
(6.7%), acquisitions (5.6%) and price increases (1.0%). Growth from existing
operations was primarily from the conventional uniform rental business (5.9%),
and from the nuclear garment services business (0.8%). The increase in revenues
from acquisitions resulted from seven acquisitions made in fiscal 1999 (one in
Wisconsin and one in Mississippi, both in October 1998, one in New England and
North Carolina in December 1998, one in Nevada in January 1999, another in
Wisconsin in April 1999, and one in Massachusetts and one in Missouri, both in
July 1999) and one acquisition in fiscal 2000 (in Maine in September 1999).
Operating Costs. Operating costs increased to $81.8 million for the first
quarter of fiscal 2000 as compared with $66.5 million for the same period of
fiscal 1999 as a result of costs associated with increased revenues. As a
percentage of revenues, operating costs increased to 62.1% from 57.2% for these
periods. In July 1998, the Company changed the estimated service lives and
related amortization periods for rental merchandise in service, from primarily
12 months to primarily 15 months, which is more consistent with their respective
useful lives (although the Company believes its principal publicly-held
competitors amortize their garments over an average of 15 to 18 months). This
resulted in a benefit of approximately 3% of revenues in the fiscal 1999 first
quarter compared to this year's first quarter, and is the primary reason for the
increase in operating costs as a percentage of revenues in the fiscal 2000 first
quarter. The Company also continues to assimilate last year's acquisitions and
deal with ongoing increases in labor, fuel and other operating costs.
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $31.0 million, or 23.5% of revenues, for the first quarter
of fiscal 2000 as compared with $27.0 million, or 23.2% of revenues, for the
same period in fiscal 1999. This increase was due primarily to increased costs
for professional sales training, national, catalog and internet sales to support
the Company's current and future revenue growth. The company also incurred
increased costs to upgrade its Information Systems.
Depreciation and Amortization. The Company's depreciation and amortization
expense increased to $8.5 million, or 6.5% of revenues, for the first quarter of
fiscal 2000 as compared with $7.3 million, or 6.2% of revenues, for the same
period in fiscal 1999. This increase was due primarily to increased amortization
costs due to acquisitions and increased capital expenditures for information
systems hardware and software to upgrade certain Company-wide systems.
<PAGE> 7
Net Interest Expense. Net interest expense was $1.6 million, or 1.2% of
revenues, for the first quarter of fiscal 2000 as compared with $0.7 million, or
0.6% of revenues, for the same period in fiscal 1999. The increase is primarily
attributable to higher debt levels in the fiscal 2000 quarter.
Income Taxes. The Company's effective income tax rate was 38.0% for the first
quarter of fiscal 2000 and 37.0% for the same period in fiscal 1999. The
increase is due primarily to higher state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Shareholders' equity at November 27, 1999 was $258.9 million, or 69.1% of total
capitalization.
During the thirteen weeks ended November 27, 1999 net cash provided by operating
activities ($17.3 million) was primarily used for capital expenditures ($11.9
million), repurchase of common stock ($3.5 million) and debt repayment ($1.4
million).
The Company had $2.1 million in cash and $12.4 million available on its $120
million unsecured line of credit with three banks as of November 27, 1999. This
agreement contains, among other things, a provision regarding net worth, which
the Company was out of compliance with as of November 27, 1999. The Company has
discussed this with the banks and expects to receive a waiver. The Company
believes its generated cash from operations and its borrowing capacity will
adequately cover its foreseeable capital requirements.
SEASONALITY
Historically, the Company's revenues and operating results have varied from
quarter to quarter and are expected to continue to fluctuate in the future.
These fluctuations have been due to a number of factors, including: general
economic conditions in the Company's markets; the timing of acquisitions and of
commencing start-up operations and related costs; the effectiveness of
integrating acquired businesses and start-up operations; the timing of nuclear
plant outages; capital expenditures; seasonal rental and purchasing patterns of
the Company's customers; and price changes in response to competitive factors.
In addition, the Company's operating results historically have been lower during
the second and fourth fiscal quarters than during the other quarters of the
fiscal year. The operating results for any historical quarter are not
necessarily indicative of the results to be expected for an entire fiscal year
or any other interim periods.
EFFECTS OF INFLATION
Inflation has had the effect of increasing the reported amounts of the Company's
revenues and costs. The Company uses the last-in, first-out (LIFO) method to
value a significant portion of inventories. This method tends to reduce the
amount of income due to inflation included in the Company's results of
operations. The Company believes that, through increases in its prices and
productivity improvements, it has been able to recover increases in costs and
expenses attributable to inflation.
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
Forward looking statements contained in this quarterly report are subject to the
safe harbor created by the Private Securities Litigation Reform Act of 1995 and
are highly dependent upon a variety of important factors that could cause actual
results to differ materially from those reflected in such forward looking
statements. Such factors include those indicated in the section entitled "Risk
Factors" in the Company's Prospectus, dated March 18, 1998, as well as the risks
and uncertainties relating to the centralization of certain of the Company's
operations at its Owensboro, KY distribution facility, the Company's handling of
the Year 2000 issue, and the Company's ability to control manufacturing and
operating costs. When used in this quarterly report, the words "intend,"
"anticipate," "believe," "estimate," and "expect" and similar expressions as
they relate to the Company are included to identify such forward looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For information regarding quantitative and qualitative disclosures about market
risk, see the Company's discussion under Item 7A of its Annual Report on Form
10-K for the fiscal year ended August 28, 1999. Between August 28, 1999 and
November 27, 1999, there were no material changes in the Company's market risk.
<PAGE> 8
PART II - OTHER INFORMATION
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K: None
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 of the
undersigned thereunto duly authorized.
UNIFIRST CORPORATION
/s/ RONALD D. CROATTI
---------------------
Ronald D. Croatti
President and Chief Executive Officer
Date: January 11, 2000
/s/ JOHN B. BARTLETT
--------------------
John B. Bartlett
Senior Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UNIFIRST CORPORATION FOR THE THIRTEEN WEEKS ENDED
NOVEMBER 27, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-26-2000
<PERIOD-START> AUG-29-1999
<PERIOD-END> NOV-27-1999
<EXCHANGE-RATE> 1
<CASH> 2,101
<SECURITIES> 0
<RECEIVABLES> 60,715
<ALLOWANCES> 2,729
<INVENTORY> 27,967
<CURRENT-ASSETS> 140,035
<PP&E> 426,765
<DEPRECIATION> 179,480
<TOTAL-ASSETS> 475,997
<CURRENT-LIABILITIES> 82,042
<BONDS> 114,172
0
0
<COMMON> 2,076
<OTHER-SE> 256,776
<TOTAL-LIABILITY-AND-EQUITY> 475,997
<SALES> 131,790
<TOTAL-REVENUES> 131,790
<CGS> 121,393
<TOTAL-COSTS> 121,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,590
<INCOME-PRETAX> 8,807
<INCOME-TAX> 3,347
<INCOME-CONTINUING> 5,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,460
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
</TABLE>
