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 February 24, 2001 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 March 30, 2001 were 9,011,634 and 10,243,744 respectively.
2 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) <TABLE> <CAPTION> (In thousands, except per share data) February 24, August 26, February 26, 2001 2000* 2000 - -------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Assets Current assets: Cash $ 6,108 $ 7,137 $ 2,405 Receivables 58,321 54,015 56,591 Inventories 25,799 27,598 24,682 Rental merchandise in service 60,821 59,256 57,573 Prepaid expenses 296 299 212 - -------------------------------------------------------------------------------------------------------------- Total current assets 151,345 148,305 141,463 - -------------------------------------------------------------------------------------------------------------- Property and equipment: Land, buildings and leasehold improvements 197,666 194,619 187,345 Machinery and equipment 212,844 205,883 198,956 Motor vehicles 57,944 53,535 49,898 - -------------------------------------------------------------------------------------------------------------- 468,454 454,037 436,199 Less - accumulated depreciation 202,749 191,704 184,355 - -------------------------------------------------------------------------------------------------------------- 265,705 262,333 251,844 - -------------------------------------------------------------------------------------------------------------- Other assets 86,912 89,512 87,481 - -------------------------------------------------------------------------------------------------------------- $ 503,962 $ 500,150 $ 480,788 ============================================================================================================== Liabilities and Shareholders' Equity Current liabilities: Current maturities of long-term obligations $ 1,824 $ 1,903 $ 1,435 Notes payable 1,359 1,118 2,187 Accounts payable 18,359 19,718 18,125 Accrued liabilities 54,010 47,170 51,287 Accrued and deferred income taxes 13,031 12,294 10,078 - -------------------------------------------------------------------------------------------------------------- Total current liabilities 88,583 82,203 83,112 - -------------------------------------------------------------------------------------------------------------- Long-term obligations, net of current maturities 114,879 124,735 113,977 Deferred income taxes 22,535 22,040 21,111 - -------------------------------------------------------------------------------------------------------------- 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 1,051 1,050 1,050 Class B Common stock, $.10 par value; 20,000,000 shares authorized; issued and outstanding 10,243,744 shares 1,025 1,026 1,026 Treasury stock, 1,414,800 shares, at cost (23,171) (20,049) (20,049) Capital surplus 12,438 12,438 12,438 Retained earnings 289,521 278,676 269,534 Accumulated other comprehensive income (2,899) (1,969) (1,411) - -------------------------------------------------------------------------------------------------------------- Total shareholders' equity 277,965 271,172 262,588 - -------------------------------------------------------------------------------------------------------------- $ 503,962 $ 500,150 $ 480,788 ============================================================================================================== </TABLE> * Condensed from audited financial statements The accompanying notes are an integral part of these condensed consolidated financial statements.
3 FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) <TABLE> <CAPTION> Twenty-six Twenty-six Thirteen Thirteen weeks ended weeks ended weeks ended weeks ended (In thousands, except per share data) February 24, February 26, February 24, February 26, 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Revenues $ 277,571 $ 262,073 $ 136,562 $ 130,283 - ------------------------------------------------------------------------------------------------------------------------------ Costs and expenses: Operating costs 172,107 164,523 85,358 82,684 Selling and administrative expenses 62,889 62,011 31,730 30,988 Depreciation and amortization 18,457 17,076 9,291 8,545 - ------------------------------------------------------------------------------------------------------------------------------ 253,453 243,610 126,379 122,217 - ------------------------------------------------------------------------------------------------------------------------------ Income from operations 24,118 18,463 10,183 8,066 - ------------------------------------------------------------------------------------------------------------------------------ Interest expense (income): Interest expense 5,104 3,458 2,474 1,749 Interest income (582) (165) (362) (46) - ------------------------------------------------------------------------------------------------------------------------------ 4,522 3,293 2,112 1,703 - ------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 19,596 15,170 8,071 6,363 Provision for income taxes 7,447 5,765 3,067 2,418 - ------------------------------------------------------------------------------------------------------------------------------ Net income $ 12,149 $ 9,405 $ 5,004 $ 3,945 ============================================================================================================================== Weighted average number of shares outstanding - basic & diluted 19,491 19,677 19,362 19,664 ============================================================================================================================== Net income per share - basic & diluted $ 0.62 $ 0.48 $ 0.26 $ 0.20 ============================================================================================================================== </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
4 FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) <TABLE> <CAPTION> Twenty-Six Twenty-Six weeks ended weeks ended (In thousands) February 24, February 26, 2001 2000 - ------------------------------------------------------------------------------------------------ <S> <C> <C> Cash flows from operating activities: Net Income $ 12,149 $ 9,405 Adjustments: Depreciation 14,962 13,805 Amortization of other assets 3,495 3,271 Changes in assets and liabilities, net of acquisitions: Receivables (4,433) (4,720) Inventories 1,741 2,559 Rental merchandise in service (1,700) (1,740) Prepaid expenses 2 (12) Accounts payable (1,323) 341 Accrued liabilities 6,864 4,608 Accrued and deferred income taxes 777 2,291 Deferred income taxes 521 404 - ------------------------------------------------------------------------------------------------ Net cash provided by operating activities 33,055 30,212 - ------------------------------------------------------------------------------------------------ Cash flows from investing activities: Acquisition of businesses, net of cash acquired -- (533) Capital expenditures (18,700) (23,160) Increase in other assets (1,264) (3,308) - ------------------------------------------------------------------------------------------------ Net cash used in investing activities (19,964) (27,001) - ------------------------------------------------------------------------------------------------ Cash flows from financing activities: Increase in debt 291 3,661 Reduction of debt (9,985) (2,592) Repurchase of common stock (3,122) (3,466) Cash dividends (1,304) (1,321) - ------------------------------------------------------------------------------------------------ Net cash used in financing activities (14,120) (3,718) - ------------------------------------------------------------------------------------------------ Net decrease in cash (1,029) (507) Cash at beginning of period 7,137 2,912 - ------------------------------------------------------------------------------------------------ Cash at end of period $ 6,108 $ 2,405 ================================================================================================ Supplemental disclosure of cash flow information: Interest paid $ 4,098 $ 3,496 Income taxes paid 6,215 3,014 ================================================================================================ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
5 FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWENTY-SIX WEEKS ENDED FEBRUARY 24, 2001 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. The components of comprehensive income for the twenty-six and thirteen week periods ended February 24, 2001 and February 26, 2000 were as follows: <TABLE> <CAPTION> Twenty-six Twenty-six Thirteen Thirteen weeks ended weeks ended weeks ended weeks ended (in thousands) February 24, February 26, February 24, February 26, 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net income $ 12,149 $ 9,405 $ 5,004 $ 3,945 Other comprehensive income: Foreign currency translation adjustments (930) 537 (539) 452 -------------------------------------------------------------------- Comprehensive income $ 11,219 $ 9,942 $ 4,465 $ 4,397 ==================================================================== </TABLE> 4. Net income per share is calculated using the weighted average number of common and dilutive potential common shares outstanding during the year. Anti-dilutive shares of 113,500 for the twenty-six weeks ended February 24, 2001 have been excluded from the weighted average number of common and dilutive potential common shares outstanding.
6 FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE TWENTY-SIX WEEKS ENDED FEBRUARY 24, 2001 RESULTS OF OPERATIONS TWENTY-SIX WEEKS OF FISCAL 2001 COMPARED WITH TWENTY-SIX WEEKS OF FISCAL 2000 Revenues. Revenues for the first twenty-six weeks of fiscal 2001 increased $15.5 million or 5.9% to $277.6 million as compared with $262.1 million for the first twenty-six weeks of fiscal 2000. This increase can be attributed to growth from existing operations (4.6%), price increases (1.0%) and acquisitions (.3%). Growth from existing operations was primarily from the conventional uniform rental business (3.5%), and from the nuclear garment services business (1.1%). The increase in revenues from acquisitions resulted from one acquisition made in fiscal 2000. Operating Costs. Operating costs increased to $172.1 million for the first half of fiscal 2001 as compared with $164.5 million for the same period of fiscal 2000. As a percentage of revenues, operating costs decreased to 62.0% from 62.8% for these periods, primarily due to lower merchandise costs, offset somewhat by significant increases in energy related costs such as natural gas, electricity and fuel. Selling and Administrative Expenses. The Company's selling and administrative expenses increased to $62.9 million, or 22.7% of revenues, for the first half of fiscal 2001 as compared with $62.0 million, or 23.7% of revenues, for the same period in fiscal 2000. These costs were favorably impacted by a $1.1 million settlement received in the first quarter of fiscal 2001 from a lawsuit related to the Company's nuclear garment services business. Excluding this settlement these expenses would have been $64.0 million, or 23.1% of revenues, in the first half of fiscal 2001. Depreciation and Amortization. The Company's depreciation and amortization expense increased to $18.5 million or 6.6% of revenues for the first half of fiscal 2001, comparable to $17.1 million or 6.5% of revenues for the same period in fiscal 2000. Net Interest Expense. Net interest expense was $4.5 million, or 1.6% of revenues, for the first half of fiscal 2001 as compared with $3.3 million, or 1.3% of revenues, for the same period in fiscal 2000. The increase is primarily attributable to higher interest rates in the first half of fiscal 2001. Income Taxes. The Company's effective income tax rate was 38.0% for both the first half of fiscal 2001 and the first half of fiscal 2000.
7 THIRTEEN WEEKS ENDED FEBRUARY 24, 2001 COMPARED TO THIRTEEN WEEKS ENDED FEBRUARY 26, 2000 Revenues. Fiscal 2001 second quarter revenues increased $6.3 million or 4.8% to $136.6 million as compared with $130.3 million for the fiscal 2000 second quarter. This increase can be attributed to growth from existing operations (3.5%), price increases (1.0%) and acquisitions (.3%). Growth from existing operations was primarily from the conventional uniform rental business (3.3%) and from the nuclear garment services business (0.2%). The increase in revenues from acquisitions resulted from one acquisition made in fiscal 2000. Operating Costs. Operating costs increased to $85.4 million for the second quarter of fiscal 2001 as compared with $82.7 million for the same period of fiscal 2000. As a percentage of revenues, operating costs decreased to 62.5% from 63.5% for these periods primarily due to lower merchandise costs, offset somewhat by significant increases in energy related costs such as natural gas, electricity and fuel. Selling and Administrative Expenses. The Company's selling and administrative expenses increased to $31.7 million, or 23.2% of revenues, for the second quarter of fiscal 2001, comparable to $31.0 million, or 23.8% of revenues for the same period in fiscal 2000. Depreciation and Amortization. The Company's depreciation and amortization expense increased to $9.3 million, or 6.8% of revenues, for the second quarter of fiscal 2001, comparable to $8.5 million, or 6.6% of revenues, for the same period in fiscal 2000. Net Interest Expense. Net interest expense was $2.1 million, or 1.5% of revenues, for the second quarter of fiscal 2001 as compared with $1.7 million, or 1.3% of revenues, for the same period in fiscal 2000. The increase is primarily attributable to higher interest rates in the fiscal 2001 second quarter, offset somewhat by higher interest income resulting from charges to customers for overdue receivable balances. Income Taxes. The Company's effective income tax rate was 38.0% for both the second quarter of fiscal 2001 and the second quarter of fiscal 2000.
8 LIQUIDITY AND CAPITAL RESOURCES Shareholders' equity at February 24, 2001 was $278.0 million, or 70.4% of total capitalization. During the twenty-six weeks ended February 24, 2001 net cash provided by operating activities ($33.1 million) was primarily used for capital expenditures ($18.7 million), debt repayment ($10.0 million), repurchase of common stock ($3.1 million) and dividends ($1.3 million). The Company had $6.1 million in cash and $43.8 million available on its $170 million unsecured line of credit with a syndicate of banks as of February 24, 2001. 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 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, uncertainties regarding the price levels of natural gas, electricity and fuel, control of the Company by the Croatti family and general economic conditions. 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.
9 ITEM 3. 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 Canadian Dollar, Euro or Mexican Peso 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. In fiscal 2000 the Company entered into an interest rate swap agreement with a bank, notional amount $40 million, 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 February 24, 2001 the variable rate was 5.68%. 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. As of February 24, 2001 and February 26, 2000, the fair market values of the Company's outstanding debt and swap agreement approximate their carrying value.
10 PART II - OTHER INFORMATION FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders was held on January 9, 2001. Cynthia Croatti was reelected and Phillip L. Cohen was elected to the Board of Directors. With respect to Ms. Croatti, 6,333,876 shares of Common Stock and 9,853,952 shares of Class B Common Stock were voted for her election and 801,075 shares of Common Stock were voted against her election. With respect to Mr. Cohen, 6,333,876 shares of Common Stock were voted for his election and 801,075 shares of Common Stock were voted against his election. The terms of office of Messrs. Aldo Croatti, Ronald D. Croatti, Donald J. Evans and Albert Cohen continued after the meeting. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (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: April 10, 2001 /s/ John B. Bartlett ----------------------------- John B. Bartlett Senior Vice President and Chief Financial Officer