<PAGE> 1
ELEVEN YEAR FINANCIAL SUMMARY UniFirst Corporation and Subsidiaries
FISCAL YEAR ENDED AUGUST (In thousands, except ratios and per share data)
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues $528,726 $487,100 $448,052 $419,093 $391,794 $355,041 $318,039 $287,728 $268,190
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) 73,954 83,471 80,804 70,387 61,729 53,725 50,369 47,199 42,010
Depreciation and
amortization 34,710 31,724 26,629 23,386 20,814 19,194 17,912 16,454 15,999
Income from
operations 39,244 51,747 54,175 47,001 40,915 34,531 32,457 30,745 26,011
Interest expense
(income), net 7,200 4,841 2,316 2,118 2,398 2,787 2,513 2,669 4,098
Provision for
income taxes 12,176 22,800 18,669 16,160 13,855 11,110 11,073 10,387 7,570
Net income 19,868 24,106 33,190 28,723 24,662 20,634 18,871 17,689 14,343*
===================================================================================================================================
FINANCIAL POSITION AT YEAR END
Total assets $500,150 $465,627 $376,130 $339,626 $302,378 $272,691 $250,160 $219,064 $212,097
Long-term obligations 126,638 113,105 47,149 40,837 39,365 36,376 41,602 32,231 47,641
Shareholders' equity 271,172 257,433 246,374 217,192 191,109 168,596 149,472 132,723 117,329
===================================================================================================================================
FINANCIAL RATIOS
Net income
as a % of revenues 3.8% 4.9% 7.4% 6.9% 6.3% 5.8% 5.9% 6.1% 5.3%
Return on average
shareholders' equity 7.5% 9.6% 14.3% 14.1% 13.7% 13.0% 13.4% 14.1% 12.9%
===================================================================================================================================
Weighted average number
of shares outstanding 19,670 20,438 20,511 20,511 20,511 20,511 20,506 20,453 20,451
===================================================================================================================================
PER SHARE DATA
Revenues $ 26.88 $ 23.83 $ 21.84 $ 20.43 $ 19.10 $ 17.31 $ 15.51 $ 14.07 $ 13.11
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) 3.76 4.08 3.94 3.43 3.01 2.62 2.46 2.31 2.05
Net Income - Diluted 1.01 1.18 1.62 1.40 1.20 1.01 0.92 0.86 0.67
Shareholders' equity 13.79 12.60 12.01 10.59 9.32 8.22 7.29 6.49 5.74
Dividends
Common stock .15 .14 .12 .12 .11 .10 .10 .10 .06
Class B common stock .12 .11 .10 .10 .09 .08 .08 .04 --
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1991 1990
---------------------------------------------------
<S> <C> <C>
SUMMARY OF OPERATIONS
Revenues $250,432 $226,682
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) 38,562 38,749
Depreciation and
amortization 14,229 12,422
Income from
operations 24,333 26,327
Interest expense
(income), net 4,320 3,513
Provision for
income taxes 6,803 8,516
Net income 13,210 14,298
===================================================
FINANCIAL POSITION AT YEAR END
Total assets $204,398 $189,411
Long-term obligations 52,032 53,134
Shareholders' equity 105,888 93,739
===================================================
FINANCIAL RATIOS
Net income
as a % of revenues 5.3% 6.3%
Return on average
shareholders' equity 13.2% 16.4%
===================================================
Weighted average number
of shares outstanding 20,426 20,431
===================================================
PER SHARE DATA
Revenues $ 12.26 $ 11.09
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) 1.89 1.90
Net Income - Diluted 0.63 0.67
Shareholders' equity 5.18 4.59
Dividends
Common stock .06 .06
Class B common stock -- --
===================================================
</TABLE>
Per share amounts for all years have been restated to reflect a two-for-one
stock split declared by the Board of Directors on November 18, 1993.
* Amount reflects income before extraordinary item and accounting change. Net
income was $12,923.
UniFirst Corporation 2000 Annual Report www.unifirst.com
<PAGE> 2
CONSOLIDATED STATEMENTS OF INCOME UniFirst Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended August 26, August 28, August 29,
(In thousands, except per share data) 2000 1999 1998
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 528,726 $ 487,100 $ 448,052
-------------------------------------------------------------------------------------------------
Cost and expenses:
Operating costs 336,324 294,517 269,660
Selling and administrative expenses 118,448 109,112 97,588
Depreciation and amortization 34,710 31,724 26,629
-------------------------------------------------------------------------------------------------
489,482 435,353 393,877
-------------------------------------------------------------------------------------------------
Income from operations 39,244 51,747 54,175
-------------------------------------------------------------------------------------------------
Interest expense (income):
Interest expense 7,459 4,990 2,613
Interest income (259) (149) (297)
-------------------------------------------------------------------------------------------------
7,200 4,841 2,316
-------------------------------------------------------------------------------------------------
Income before income taxes 32,044 46,906 51,859
Provision for income taxes 12,176 22,800 18,669
-------------------------------------------------------------------------------------------------
Net income $ 19,868 $ 24,106 $ 33,190
=================================================================================================
Weighted average number of shares outstanding - diluted 19,670 20,438 20,511
=================================================================================================
Net income per share - diluted $ 1.01 $ 1.18 $ 1.62
=================================================================================================
Dividends per share:
Common stock $ 0.15 $ 0.14 $ 0.12
Class B common stock 0.12 0.11 0.10
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 3
CONSOLIDATED BALANCE SHEETS UniFirst Corporation and Subsidiaries
<TABLE>
<CAPTION>
August 26, August 28,
(In thousands, except per share data) 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,137 $ 2,912
Receivables, less reserves of $3,110 in 2000 and $2,979 in 1999 54,015 51,786
Inventories 27,598 27,194
Rental merchandise in service 59,256 55,631
Prepaid expenses 299 199
----------------------------------------------------------------------------------------------------------
Total current assets 148,305 137,722
----------------------------------------------------------------------------------------------------------
Property and equipment:
Land, buildings and leasehold improvements 194,619 174,979
Machinery and equipment 205,883 190,722
Motor vehicles 53,535 49,396
----------------------------------------------------------------------------------------------------------
454,037 415,097
Less - accumulated depreciation 191,704 172,912
----------------------------------------------------------------------------------------------------------
262,333 242,185
----------------------------------------------------------------------------------------------------------
Other assets, net 89,512 85,720
----------------------------------------------------------------------------------------------------------
$ 500,150 $ 465,627
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 1,903 $ 1,911
Notes payable 1,118 2,331
Accounts payable 19,718 17,659
Accrued liabilities 47,170 46,659
Accrued and deferred income taxes 12,294 7,754
----------------------------------------------------------------------------------------------------------
Total current liabilities 82,203 76,314
----------------------------------------------------------------------------------------------------------
Long-term obligations, net of current maturities 124,735 111,194
Deferred income taxes 22,040 20,686
Commitments and Contingencies (Note 8)
----------------------------------------------------------------------------------------------------------
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 in 2000 and 10,499,634 shares in 1999 1,050 1,050
Class B common stock, $.10 par value; 20,000,000 shares authorized;
issued and outstanding 10,255,744 shares in 2000 and
10,255,744 shares in 1999 1,026 1,026
Treasury stock, 1,091,500 shares in 2000 and 857,500 shares in 1999, at cost (20,049) (16,583)
Capital surplus 12,438 12,438
Retained earnings 278,676 261,450
Accumulated other comprehensive loss (1,969) (1,948)
----------------------------------------------------------------------------------------------------------
Total shareholders' equity 271,172 257,433
----------------------------------------------------------------------------------------------------------
$ 500,150 $ 465,627
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
UniFirst Corporation 2000 Annual Report www.unifirst.com
<PAGE> 4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY UniFirst Corporation and
Subsidiaries
<TABLE>
<CAPTION>
Class B Class B
Common Common Treasury Common Common Treasury
(In thousands) Shares Shares Shares Stock Stock Stock
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 30, 1997 7,899 12,612 -- $ 790 $ 1,261 --
Net income -- -- -- -- -- --
Dividends -- -- -- -- -- --
Shares converted 2,318 (2,318) -- 232 (232) --
Foreign Currency
translation adjustments -- -- -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Balance, August 29, 1998 10,217 10,294 -- 1,022 1,029 --
Net income -- -- -- -- -- --
Dividends -- -- -- -- -- --
Shares issued in connection
with an acquisition 245 -- -- 25 -- --
Shares converted 38 (38) -- 3 (3) --
Shares repurchased -- -- (858) -- -- (16,583)
Foreign Currency
translation adjustments -- -- -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Balance, August 28, 1999 10,500 10,256 (858) 1,050 1,026 (16,583)
Net income -- -- -- -- -- --
Dividends -- -- -- -- -- --
Shares repurchased -- -- (234) -- -- (3,466)
Foreign Currency
translation adjustments -- -- -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Balance, August 26, 2000 10,500 10,256 (1,092) $ 1,050 $ 1,026 $ (20,049)
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Capital Retained Comprehensive
(In thousands) Surplus Earnings Loss
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, August 30, 1997 $ 7,078 $ 208,949 $ (886)
Net income -- 33,190 --
Dividends -- (2,187) --
Shares converted -- -- --
Foreign Currency
translation adjustments -- -- (1,821)
--------------------------------------------------------------------------------
Balance, August 29, 1998 7,078 239,952 (2,707)
Net income -- 24,106 --
Dividends -- (2,608) --
Shares issued in connection
with an acquisition 5,360 -- --
Shares converted -- -- --
Shares repurchased -- -- --
Foreign Currency
translation adjustments -- -- 759
--------------------------------------------------------------------------------
Balance, August 28, 1999 12,438 261,450 (1,948)
Net income -- 19,868 --
Dividends -- (2,642) --
Shares repurchased -- -- --
Foreign Currency
translation adjustments -- -- (21)
--------------------------------------------------------------------------------
Balance, August 26, 2000 $ 12,438 $ 278,676 $ (1,969)
================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS UniFirst Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended August 26, August 28, August 29,
(In thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 19,868 $ 24,106 $ 33,190
Adjustments:
Depreciation 28,042 25,923 22,074
Amortization of other assets 6,668 5,801 4,555
Changes in assets and liabilities, net of acquisitions:
Receivables (2,220) (5,639) (2,691)
Inventories 491 3,717 (4,684)
Rental merchandise in service (3,492) (7,957) (2,627)
Prepaid expenses (100) 41 (41)
Accounts payable 1,981 2,290 1,022
Accrued liabilities 509 1,235 (416)
Accrued and deferred income taxes 4,537 5,134 83
Deferred income taxes 1,352 2,257 1,302
--------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 57,636 56,908 51,767
--------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (6,783) (53,782) (7,470)
Capital expenditures (46,714) (45,083) (43,052)
Increase in other assets (5,032) (4,928) (3,479)
--------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (58,529) (103,793) (54,001)
--------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in debt 15,509 67,284 7,405
Reduction of debt (4,283) (3,626) (1,708)
Repurchase of common stock (3,466) (16,583) --
Cash dividends (2,642) (2,608) (2,187)
--------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,118 44,467 3,510
--------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,225 (2,418) 1,276
Cash and cash equivalents at beginning of year 2,912 5,330 4,054
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 7,137 $ 2,912 $ 5,330
==============================================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 7,745 $ 4,355 $ 2,613
Income taxes paid 6,282 15,246 17,445
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
UniFirst Corporation 2000 Annual Report www.unifirst.com
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UniFirst Corporation and Subsidiaries
(Amounts in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
UniFirst Corporation is a leading company in the garment service business. The
Company designs, manufactures, personalizes, rents, cleans, delivers and sells a
variety of superior quality occupational garments, career apparel and imagewear
programs to businesses of all kinds. It also services industrial wiper towels,
floor mats and other non-garment items. The Company also decontaminates and
cleans, in separate facilities, garments which may have been exposed to
radioactive materials.
PRINCIPLES OF CONSOLIDATION AND OTHER
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. Intercompany balances and
transactions are eliminated in consolidation. The Company recognizes revenues
when the actual services are provided to customers.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and accompanying notes.
Actual results could differ from those estimates.
FISCAL YEAR
The Company's fiscal year ends on the last Saturday in August. For financial
reporting purposes, fiscal 2000, 1999 and 1998 all had a 52-week year.
INVENTORIES
Inventories are stated at the lower of cost or market value. The Company uses
the last-in, first-out (LIFO) method to value a significant portion of its
inventories. Had the Company used the first-in, first-out (FIFO) accounting
method, inventories would have been approximately $1,489 and $1,356 higher at
August 26, 2000 and August 28, 1999, respectively.
RENTAL MERCHANDISE IN SERVICE
Rental merchandise in service, stated at cost less amortization, is being
amortized on a straight-line basis over the estimated service lives (primarily
15 months) of the merchandise. 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.
PROPERTY AND EQUIPMENT
The Company provides for depreciation on the straight-line method
based on the following estimated useful lives:
<TABLE>
<S> <C>
Buildings ................................................ 30-40 years
Leasehold improvements ................................... Term of lease
Machinery and equipment .................................. 3-10 years
Motor vehicles ........................................... 3-5 years
================================================================================
</TABLE>
AMORTIZATION OF INTANGIBLE ASSETS
Customer contracts are amortized over periods of eight to seventeen years.
Restrictive covenants are amortized over the terms of the respective
non-competition agreements, which range from five to fifteen years. Goodwill is
amortized over periods of thirty to forty years.
INCOME TAXES
Deferred income taxes are provided for temporary differences between amounts
recognized for income tax and financial reporting purposes at currently enacted
tax rates.
EARNINGS PER SHARE
Basic and diluted earnings per share (EPS) are computed in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". SFAS 128 requires basic EPS, for companies having two classes of common
stock with different dividend rights, to be calculated under the "two-class
method". The two-class method allocates income to the different classes of stock
based on their respective dividend rights and uses the weighted average shares
outstanding for each class of common stock to determine basic EPS by class.
Basic EPS under the two-class method for Common Stock was $1.13, $1.31 and $1.82
for fiscal years 2000, 1999 and 1998, respectively. Basic EPS under the
two-class method for Class B Common Stock was $.90, $1.05 and $1.46 for fiscal
years 2000, 1999 and 1998, respectively. Diluted EPS has been calculated under
the if-converted method, which assumes Class B Common Stock has been converted
to Common Stock.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in banks and bank short-term investments
with maturities of less than ninety days.
2. ACQUISITIONS
Information relating to the acquisition of businesses which were accounted for
as purchases is as follows:
<TABLE>
<CAPTION>
Year ended August 26, August 28, August 29,
2000 1999 1998
------------------------------------------
<S> <C> <C> <C>
Fair value of tangible
assets acquired $ 2,310 $ 26,927 $ 3,715
Fair value of intangible
assets acquired 5,568 35,990 3,790
Liabilities assumed
or created (1,095) (3,750) (35)
Common stock issued
(244,770 shares in 1999) -- (5,385) --
------------------------------------------
Acquisition of
businesses, net of
cash acquired $ 6,783 $ 53,782 $ 7,470
==========================================
</TABLE>
The results of operations of these acquisitions have been included on the
Company's consolidated financial statements since their respective acquisition
dates. None of these acquisitions were significant, individually or in the
aggregate, in relation to the Company's consolidated financial statements and
therefore pro forma financial information has not been presented.
23
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UniFirst Corporation and
Subsidiaries
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended August 26, August 28, August 29,
2000 1999 1998
------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal and Foreign $ 15,402 $ 12,463 $ 18,328
State 2,158 (102) 3,033
------------------------------------------------------
17,560 12,361 21,361
------------------------------------------------------
Deferred:
Federal and Foreign (4,798) 8,777 (1,875)
State (586) 1,662 (817)
------------------------------------------------------
(5,384) 10,439 (2,692)
------------------------------------------------------
$ 12,176 $ 22,800 $ 18,669
======================================================
</TABLE>
The following table reconciles the provision for income taxes using the
statutory federal income tax rate to the actual provision for income taxes:
<TABLE>
<CAPTION>
Year ended August 26, August 28, August 29,
2000 1999 1998
------------------------------------------------------
<S> <C> <C> <C>
Income taxes at the
statutory federal
income tax rate $ 11,215 $ 16,417 $ 18,151
Puerto Rico
exempt income (680) (652) (1,062)
Corporate-Owned
Life Insurance -- 5,500 (850)
State income taxes 986 798 1,434
Foreign income taxes 289 176 265
Other 366 561 731
------------------------------------------------------
$ 12,176 $ 22,800 $ 18,669
======================================================
</TABLE>
The Company's Puerto Rico subsidiary's income is 90% exempt from Puerto Rico
income taxes through 2001. The Company provides for anticipated tollgate taxes
on the repatriation of the subsidiary's accumulated earnings.
The tax effect of items giving rise to the Company's net deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
August 26, August 28, August 29,
2000 1999 1998
------------------------------------------------------
<S> <C> <C> <C>
Rental merchandise
in service $ 21,599 $ 20,234 $ 15,470
Tax in excess of
book depreciation 19,244 16,662 15,713
Accruals and other (17,358) (8,027) (12,753)
------------------------------------------------------
$ 23,485 $ 28,869 $ 18,430
======================================================
</TABLE>
4. LONG-TERM OBLIGATIONS
Long-term obligations outstanding on the accompanying consolidated balance
sheets are as follows:
<TABLE>
<CAPTION>
August 26, August 28,
2000 1999
------------------------------
<S> <C> <C>
Unsecured revolving credit agreement
with a syndicate of banks, interest
rates of 8.15% and 5.82%, respectively $119,000 $105,500
Notes payable, interest from
4.0% - 8.0%, payable in various
installments through 2007 5,815 4,963
Amounts due for restrictive covenants
and other, payable in various
installments through 2005 1,823 2,642
------------------------------
126,638 113,105
Less - current maturities 1,903 1,911
------------------------------
$124,735 $111,194
==============================
</TABLE>
Aggregate current maturities of long-term obligations for each of the next five
years are $1,903, $1,249, $120,033, $2,254, $378 and $821 thereafter.
The Company's unsecured revolving credit agreement runs through August 15, 2003.
As of August 26, 2000, the maximum line of credit was $170,000.
In 2000 the Company entered into an interest rate swap agreement with a bank,
notional amount $40,000 maturing October 13, 2004. The Company pays a fixed
rate of 6.38% and receives a variable rate tied to the LIBOR rate. As of August
26, 2000 the variable rate was 6.73%.
Certain of the long-term obligations contain, among other things, provisions
regarding net worth and debt coverage. Under the most restrictive of these
provisions, the Company was required to maintain minimum consolidated tangible
net worth of $164,787 as of August 26, 2000. Certain notes payable are
guaranteed or secured by assets of the Company.
As of August 26, 2000 and August 28, 1999, the fair market values of the
Company's outstanding debt and swap agreement approximate their carrying value.
5. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan with a 401(k) feature for all eligible
employees not under collective bargaining agreements. The Company matches a
portion of the employee's contribution and can make an additional contribution
at its discretion. Contributions charged to expense under the plan were $4,404
in 2000, $4,100 in 1999 and $5,649 in 1998.
Some employees under collective bargaining agreements are covered by
union-sponsored multi-employer pension plans. Company contributions, generally
based upon hours worked, are in accordance with negotiated labor contracts.
Payments to the plans amounted to $419 in 2000, $404 in 1999 and $389 in 1998.
Information is not readily available for the Company to determine its share of
unfunded vested benefits, if any, under these plans.
UniFirst Corporation 2000 Annual Report www.unifirst.com
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UniFirst Corporation and
Subsidiaries
6. OTHER ASSETS
Other assets on the accompanying consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
August 26, August 28,
2000 1999
----------------------
<S> <C> <C>
Customer contracts, restrictive
covenants and other assets arising
from acquisitions, less accumulated
amortization of $32,728 and
$27,807, respectively $28,075 $30,104
Goodwill, less accumulated
amortization of $7,238 and
$5,496, respectively 56,007 50,246
Other 5,430 5,370
----------------------
$89,512 $85,720
======================
</TABLE>
7. ACCRUED LIABILITIES
Accrued liabilities on the accompanying consolidated balance sheets are as
follows:
<TABLE>
<CAPTION>
August 26, August 28,
2000 1999
----------------------
<S> <C> <C>
Insurance $19,815 $18,245
Payroll related 12,025 15,090
Other 15,330 13,324
----------------------
$47,170 $46,659
======================
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain buildings from independent parties. Total rent
expense on all leases was $3,542 in 2000, $3,027 in 1999 and $2,685 in 1998.
Annual minimum lease commitments for all years subsequent to August 26, 2000 are
$2,760 in 2001, $2,101 in 2002, $1,418 in 2003, $848 in 2004, $464 in 2005 and
$182 thereafter.
CONTINGENCIES
The Company and its subsidiaries are subject to legal proceedings and claims
arising from the conduct of their business operations, including personal
injury, customer contract, employment claims 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.
As security for certain agreements, the Company had standby irrevocable bank
commercial letters of credit and mortgages of $17,203 and $16,326 outstanding as
of August 26, 2000 and August 28, 1999, respectively.
9. COMMON STOCK OPTIONS
The Company adopted an incentive stock option plan in November, 1996 and
reserved 150,000 shares of common stock for issue under the plan. Options
granted under the plan are at a price equal to the fair market value of the
Company's common stock on the date of grant and expire eight years after the
grant date. Each option is subject to a proportional four-year vesting schedule
with no options generally being vested or exercisable until one year from date
of grant. Options for 57,000 shares at $15.125 per share and 1,000 shares at
$11.875 per share were granted in 2000. As of August 26, 2000, none of the
options were exercisable and options to purchase 2,200 shares were forfeited.
The Company accounts for the stock option plan under Accounting Principles Board
No. 25, under which no compensation cost has been recognized related to stock
option grants. Had compensation cost for this plan been determined consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts:
<TABLE>
<S> <C>
NET INCOME: 2000
As reported ....... $ 19,868
Pro forma ......... 19,782
EARNINGS PER SHARE:
As reported ....... $ 1.01
Pro forma ......... 1.01
</TABLE>
Due to the fact that no options were granted prior to August 28, 1999, there was
no impact on the net income and earnings per share for the years ending August
29, 1998 and August 28, 1999. A summary of the status for all outstanding
options at August 26, 2000 and changes during the years then ended is presented
in the table below:
<TABLE>
<S> <C>
Balance August 28, 1999 0
Granted 58,000
Exercised 0
Forfeited 2,200
----------------------------------------------------
Balance August 26, 2000 55,800
====================================================
Exercisable at August 26, 2000 0
</TABLE>
The 55,800 options outstanding at August 26, 2000 have a remaining weighted
average contractual life of approximately seven years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 2000: weighted average risk-free interest rate of 6.34 percent;
weighted average expected lives of seven years; and expected volatility of 10%.
10. SHAREHOLDERS' EQUITY
The significant attributes of each type of stock are as follows:
Common stock -- Each share is entitled to one vote and is freely transferable.
Each share of common stock is entitled to a cash dividend equal to 125% of any
cash dividend paid on each share of Class B common stock.
Class B common stock -- Each share is entitled to ten votes and can be converted
to common stock on a share-for-share basis. Until converted to common stock,
however, Class B shares are not freely transferable.
11. COMPREHENSIVE INCOME
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 years ended August 26, 2000 and
August 28, 1999 were as follows:
<TABLE>
<CAPTION>
August 26, August 28,
2000 1999
---------------------------------
<S> <C> <C>
Net income $ 19,868 $ 24,106
Other comprehensive income:
Foreign currency
translation adjustments (21) 759
---------------------------------
Comprehensive income $ 19,847 $ 24,865
=================================
</TABLE>
25
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
12. SEGMENT REPORTING
In fiscal 1999, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS 131 established new rules for public companies relating to
the reporting of financial and descriptive information about their operating
segments in financial statements. Since the Company operates as a single
business segment, that being the design, rental, cleaning and delivery of
occupational garments, industrial wiper towels, floor mats and other non-garment
items, which represent more than 90% of consolidated net sales, the disclosure
of segment information is reflected in the financial statements contained
herein. UniFirst also has activities in Canada, which do not meet the thresholds
outlined in SFAS 131.
13. NEW ACCOUNTING STANDARDS
In June of 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement established
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts and for
hedging activities) be recorded in the balance sheet as either as asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedging accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. SFAS 133 is effective for fiscal years beginning after June 15,
2000.
In June 2000, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB No.
133", which defers for one year the effective date of SFAS No. 133. The Company
has not determined the timing of adoption, but does not anticipate the adoption
of this new standard to have a material impact on the Company's financial
position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements," ("SAB 101"),
which is required to be adopted in the fourth quarter of fiscal years beginning
after December 15, 1999. SAB 101 sets forth certain criteria, including the
existence of persuasive evidence of an arrangement, which must be met in order
that revenue be recognized. The Company anticipates that the adoption of SAB 101
will not have a significant effect on the financial condition or results of
operations of the Company.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation, and Interpretation of APB
Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of Accounting
Principles Board ("APB") Opinion No. 25 and among other issues clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 was
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. Since
adoption, the application of FIN 44 has not had a significant effect on the
financial condition or results of operations of the Company.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UniFirst Corporation:
We have audited the accompanying consolidated balance sheets of UniFirst
Corporation (a Massachusetts corporation) and subsidiaries as of August 26, 2000
and August 28, 1999 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended August 26, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UniFirst Corporation and
subsidiaries as of August 26, 2000 and August 28, 1999 and the results of its
operations and its cash flows for each of the three years in the period ended
August 26, 2000, in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 31, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UniFirst Corporation and Subsidiaries
FISCAL YEAR ENDED AUGUST 26, 2000
COMPARED WITH FISCAL YEAR ENDED AUGUST 28, 1999
Revenues. In 2000, revenues increased 8.5% to $528.7 million as compared with
$487.1 million for 1999. This increase can be attributed to growth from existing
operations (4.2%), acquisitions (3.3%) and price increases (1.0%). Growth from
existing operations was primarily from the conventional uniform rental business
(3.9%) and from the nuclear garment services business (0.3%). The increase in
revenues from acquisitions resulted from seven acquisitions made in fiscal 1999
and two acquisitions made fiscal 2000.
Operating Costs. Operating costs increased to $336.3 million for 2000 as
compared with $294.5 million for 1999 as a result of costs associated with
increased revenues. As a percentage of revenues, operating costs increased to
63.6% from 60.5% for these periods. The primary reason for the increase in
operating costs as a percentage of revenues was the negative impact from a
comparative year-to-year increase in merchandise expense. Last year the Company
realized a benefit compared to this year due to a change made effective July,
1998 in the estimated 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). Other operating cost increases were attributable to
integrating last year's acquisitions, primarily Standard Management and higher
labor, fuel and energy costs. There was also lower contribution from the nuclear
garment services business.
UniFirst Corporation 2000 Annual Report www.unifirst.com
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $118.4 million for 2000 as compared with $109.1 million
for 1999, primarily due to increased costs to support the Company's current and
future revenue growth.
Selling and administrative expenses as a percentage of revenue was 22.4% in both
periods.
Depreciation and Amortization. The Company's depreciation and amortization
expense increased to $34.7 million, or 6.6% of revenues, for 2000 as compared
with $31.7 million, or 6.5% of revenues, for 1999. This increase was due
primarily to increased amortization costs due to acquisitions.
Net Interest Expense. Net interest expense was $7.2 million, or 1.4% of
revenues, for 2000 as compared to $4.8 million, or 1.0% of revenues, for 1999.
The increase is primarily attributable to higher debt levels in 2000.
Income Taxes. The Company's effective income tax rate was 38.0% in 2000 and
48.6% in 1999. The decrease is due primarily to the special $5.5 million tax
reserve provided in the fourth quarter of 1999, as explained in the 1999
compared to 1998 discussion below.
FISCAL YEAR ENDED AUGUST 28, 1999
COMPARED WITH FISCAL YEAR ENDED AUGUST 29, 1998
Revenues. In 1999 revenues increased 8.7% to $487.1 million as compared with
$448.1 million for 1998. This increase can be attributed to growth from existing
operations (3.7%), acquisitions (4.0%) and price increases (1.0%). Growth from
existing operations was primarily from the conventional uniform rental business
(3.4%) and from the nuclear garment services business (0.3%). The increase in
revenues from acquisitions resulted from one acquisition made in fiscal 1998 (in
Alabama in June 1998) and 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).
Operating Costs. Operating costs increased to $294.5 million for 1999 as
compared with $269.7 million for 1998 as a result of costs associated with
increased revenues. As a percentage of revenues, operating costs increased to
60.5% from 60.2% for these periods. The increase in operating costs as a
percentage of revenues was primarily due to increased labor costs and other
operating margin pressures, due primarily to acquisitions. These increases were
offset somewhat by the benefit resulting from the change in estimated service
lives and related amortization periods for rental merchandise in service, as
explained in note one and in the 2000 compared to 1999 section above.
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $109.1 million, or 22.4% of revenues, for 1999 as compared
with $97.6 million, or 21.8% of revenues for 1998. 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 $31.7 million, or 6.5% of revenues, for 1999 as compared
with $26.6 million, or 5.9% of revenues, for 1998. This increase was due
primarily to increased capital expenditures for the Company's new distribution
center in Owensboro, KY, information systems hardware and software to upgrade
certain Company-wide systems and increased amortization costs due to
acquisitions.
Net Interest Expense. Net interest expense was $4.8 million, or 1.0% of
revenues, for 1999 as compared to $2.3 million, or 0.5% of revenues, for 1998.
The increase is primarily attributable to higher debt levels in 1999.
Income Taxes. The Company's effective income tax rate was 48.6% in 1999 and 36%
in 1998. The increase is due primarily to a $5.5 million tax reserve provided in
the fourth quarter of 1999 due to a decision by a tax court in the case of a
national business regarding the deductibility of interest on its leveraged
corporate owned life insurance (COLI) program. Although this ruling will be
appealed, the Company has a similar program and provided a reserve for this
potential liability. Without this $5.5 million reserve, the Company's effective
income tax rate would have been 36.9% in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Shareholders' equity at August 26, 2000 was $271.2 million, or 68.2% of total
capitalization.
Net cash provided by operating activities was $57.6 million in fiscal 2000 and
totaled $166.3 million for the three years ended August 26, 2000. These cash
flows, along with net additional borrowings of $80.6 million, were used
primarily to fund $134.8 million in capital expenditures to expand and update
Company facilities, including construction of new facilities in 2000 in Ebano,
San Luis Potosi, Mexico; Detroit, Michigan and Seattle, Washington and
significant building additions in Nashua, NH; Pittsburgh, PA and Dallas, TX.
Additionally, $68.0 million was used for acquisitions during this three year
period and $20.0 million was used to repurchase 1.1 million shares of the
Company's common stock.
The Company had $7.1 million in cash and $34.8 million available on its $170
million unsecured line of credit with a syndicate of banks as of August 26,
2000. 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.
27
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
Forward looking statements contained in this annual 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 uncertainties relating to the centralization of
certain of the Company's operations at its Owensboro, KY distribution facility,
uncertainties regarding the transfer of the Company's manufacturing facilities
to new facilities in Mexico, the Company's ability to consummate and
successfully integrate acquired businesses, uncertainties regarding any existing
or newly-discovered expenses and liabilities related to environmental compliance
and remediation, the Company's ability to compete successfully without any
significant degradation in its margin rates, seasonal fluctuations in business
levels, control of the Company by the Croatti family and general economic
conditions. When used in this annual 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
FOREIGN CURRENCY EXCHANGE RISK
Management has determined that all of the Company's foreign subsidiaries operate
primarily in local currencies that represent the functional currencies of the
subsidiaries. All assets and liabilities of foreign subsidiaries are translated
into U.S. dollars using the exchange rate prevailing at the balance sheet date,
while income and expense accounts are translated at average exchange rates
during the year. As such, the Company's operating results are affected by
fluctuations in the value of the U.S. dollar as compared to currencies in
foreign countries, as a result of the Company's transactions in these foreign
markets. The Company does not operate a hedging program to mitigate the effect
of a significant rapid change in the value of the Dutch Guilder or the Canadian
Dollar as compared to the U.S. dollar. If such a change did occur, the Company
would have to take into account a currency exchange gain or loss in the amount
of the change in the U.S. dollar denominated balance of the amounts outstanding
at the time of such change. While the Company does not believe such a gain or
loss is likely and would not likely be material, there can be no assurance that
such a loss would not have an adverse material effect on the Company's results
of operations or financial condition.
INTEREST RATE RISK
The Company is exposed to market risk from changes in interest rates which may
adversely affect its financial position, results of operations and cash flows.
In seeking to minimize the risks from interest rate fluctuations, the Company
manages exposures through its regular operating and financing activities. The
Company does not use financial instruments for trading or other speculative
purposes and is not party to any leveraged financial instruments.
The Company is exposed to interest rate risk primarily through its borrowings
under its $170 million unsecured line of credit with a syndicate of banks. Under
the line of credit, the Company may borrow funds at variable interest rates
based on the Eurodollar rate or the bank's money market rate, as selected by the
Company.
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the results of operations for each of the quarters
within the years ended August 26, 2000 and August 28, 1999.
(In thousands, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $131,790 $130,283 $134,497 $132,156
Income before income taxes 8,807 6,363 8,869 8,005
Net income 5,460 3,945 5,499 4,964
Weighted average
shares outstanding 19,690 19,664 19,664 19,664
Net income per share $ 0.28 $ 0.20 $ 0.28 $ 0.25
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $116,335 $120,066 $125,661 $125,038
Income before income taxes 14,946 10,887 12,264 8,809
Net income 9,416 6,859 7,726 105
Weighted average
shares outstanding 20,511 20,691 20,320 20,098
Net income per share $0.46 $0.33 $0.38 $0.01
------------------------------------------------------------------------------------------
</TABLE>
Common Stock Prices and Dividends Per Share for the Years Ended August 26, 2000
and August 28, 1999:
<TABLE>
<CAPTION>
Price Per Share Dividends Per Share
Class B
Common Common
2000 High Low Stock Stock
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $15.875 $10.188 $ 0.030 $0.0375
Second Quarter 15.313 10.250 0.030 0.0375
Third Quarter 11.750 8.000 0.030 0.0375
Fourth Quarter 11.125 7.438 0.030 0.0375
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
1999
<S> <C> <C> <C> <C>
First Quarter $28.750 $20.000 $ 0.024 $0.0300
Second Quarter 26.625 21.188 0.030 0.0375
Third Quarter 22.625 16.563 0.030 0.0375
Fourth Quarter 18.500 15.500 0.030 0.0375
=========================================================================
</TABLE>
The Company's common shares are traded on the New York Stock Exchange
(NYSE Symbol: UNF).
The approximate number of shareholders of record of the Company's common stock
and Class B common stock as of October 31, 2000 were 148 and 21 respectively.
UniFirst Corporation 2000 Annual Report www.unifirst.com
