Exhibit 13
ELEVEN YEAR FINANCIAL SUMMARY
UniFirst Corporation and Subsidiaries
FISCAL YEAR ENDED AUGUST (In thousands, except ratios and per share data)
2001 2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Revenues $556,371 $528,726 $487,100 $448,052 $419,093 $391,794 $355,041
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) 85,133 73,954 83,471 80,804 70,387 61,729 53,725
Depreciation and
amortization 37,568 34,710 31,724 26,629 23,386 20,814 19,194
Income from
operations 47,565 39,244 51,747 54,175 47,001 40,915 34,531
Other expense
(income), net 10,108 7,200 4,841 2,316 2,118 2,398 2,787
Provision for
income taxes 14,233 12,176 22,800 18,669 16,160 13,855 11,110
Net income 23,224 19,868 24,106 33,190 28,723 24,662 20,634
================================================================================================================================
FINANCIAL POSITION AT YEAR END
Total assets $491,813 $500,150 $465,627 $376,130 $339,626 $302,378 $272,691
Long-term obligations 94,795 126,638 113,105 47,149 40,837 39,365 36,376
Shareholders' equity 285,545 271,172 257,433 246,374 217,192 191,109 168,596
================================================================================================================================
FINANCIAL RATIOS
Net income
as a % of revenues 4.2% 3.8% 4.9% 7.4% 6.9% 6.3% 5.8%
Return on average
shareholders' equity 8.3% 7.5% 9.6% 14.3% 14.1% 13.7% 13.0%
================================================================================================================================
Weighted average number
of shares outstanding - basic 19,364 19,670 20,438 20,511 20,511 20,511 20,511
================================================================================================================================
PER SHARE DATA
Revenues $ 28.73 $ 26.88 $ 23.83 $ 21.84 $ 20.43 $ 19.10 $ 17.31
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) 4.40 3.76 4.08 3.94 3.43 3.01 2.62
Net income - basic & diluted 1.20 1.01 1.18 1.62 1.40 1.20 1.01
Shareholders' equity 14.75 13.79 12.60 12.01 10.59 9.32 8.22
Dividends
Common stock .15 .15 .14 .12 .12 .11 .10
Class B common stock .12 .12 .11 .10 .10 .09 .08
================================================================================================================================
1994 1993 1992 1991
- -------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Revenues $318,039 $287,728 $268,190 $250,432
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) 50,369 47,199 42,010 38,562
Depreciation and
amortization 17,912 16,454 15,999 14,229
Income from
operations 32,457 30,745 26,011 24,333
Other expense
(income), net 2,513 2,669 4,098 4,320
Provision for
income taxes 11,073 10,387 7,570 6,803
Net income 18,871 17,689 14,343* 13,210
===========================================================================================
FINANCIAL POSITION AT YEAR END
Total assets $250,160 $219,064 $212,097 $204,398
Long-term obligations 41,602 32,231 47,641 52,032
Shareholders' equity 149,472 132,723 117,329 105,888
===========================================================================================
FINANCIAL RATIOS
Net income
as a % of revenues 5.9% 6.1% 5.3% 5.3%
Return on average
shareholders' equity 13.4% 14.1% 12.9% 13.2%
===========================================================================================
Weighted average number
of shares outstanding - basic 20,506 20,453 20,451 20,426
===========================================================================================
PER SHARE DATA
Revenues $ 15.51 $ 14.07 $ 13.11 $ 12.26
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) 2.46 2.31 2.05 1.89
Net income - basic & diluted 0.92 0.86 0.67 0.63
Shareholders' equity 7.29 6.49 5.74 5.18
Dividends
Common stock .10 .10 .06 .06
Class B common stock .08 .04 -- --
===========================================================================================
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.
16 UniFirst Corporation
CONSOLIDATED STATEMENTS OF INCOME
UniFirst Corporation and Subsidiaries
Year Ended August 25, August 26, August 28,
(In thousands, except per share data) 2001 2000 1999
- ---------------------------------------------------------------------------------------------------
Revenues $ 556,371 $ 528,726 $ 487,100
- ---------------------------------------------------------------------------------------------------
Cost and expenses:
Operating costs 349,449 336,324 294,517
Selling and administrative expenses 121,789 118,448 109,112
Depreciation and amortization 37,568 34,710 31,724
- ---------------------------------------------------------------------------------------------------
508,806 489,482 435,353
- ---------------------------------------------------------------------------------------------------
Income from operations 47,565 39,244 51,747
- ---------------------------------------------------------------------------------------------------
Other expense (income):
Interest expense 9,107 7,459 4,990
Interest income (1,239) (259) (149)
Interest rate swap expense 2,240 -- --
- ---------------------------------------------------------------------------------------------------
10,108 7,200 4,841
- ---------------------------------------------------------------------------------------------------
Income before income taxes 37,457 32,044 46,906
Provision for income taxes 14,233 12,176 22,800
- ---------------------------------------------------------------------------------------------------
Net income $ 23,224 $ 19,868 $ 24,106
===================================================================================================
Weighted average number of shares outstanding - basic 19,364 19,670 20,438
===================================================================================================
Weighted average number of shares outstanding - diluted 19,378 19,670 20,438
===================================================================================================
Net income per share - basic & diluted $ 1.20 $ 1.01 $ 1.18
===================================================================================================
Dividends per share:
Common stock $ 0.15 $ 0.15 $ 0.14
Class B common stock 0.12 0.12 0.11
===================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
UniFirst Corporation 17
CONSOLIDATED BALANCE SHEETS
UniFirst Corporation and Subsidiaries
(In thousands, except per share data) August 25, August 26,
2001 2000
- -------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,699 $ 7,137
Receivables, less reserves of $3,237 in 2001 and $3,110 in 2000 55,427 54,015
Inventories 22,320 27,598
Rental merchandise in service 56,677 59,256
Prepaid expenses 275 299
=============================================================================================================
Total current assets 140,398 148,305
- -------------------------------------------------------------------------------------------------------------
Property and equipment:
Land, buildings and leasehold improvements 199,084 194,619
Machinery and equipment 224,143 205,883
Motor vehicles 57,620 53,535
- -------------------------------------------------------------------------------------------------------------
480,847 454,037
Less - accumulated depreciation 215,154 191,704
- -------------------------------------------------------------------------------------------------------------
265,693 262,333
- -------------------------------------------------------------------------------------------------------------
Other assets, net 85,722 89,512
- -------------------------------------------------------------------------------------------------------------
$ 491,813 $ 500,150
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 1,664 $ 1,903
Notes payable 1,344 1,118
Accounts payable 19,334 19,718
Accrued liabilities 55,242 47,170
Accrued and deferred income taxes 11,928 12,294
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 89,512 82,203
- -------------------------------------------------------------------------------------------------------------
Long-term obligations, net of current maturities 93,131 124,735
Deferred income taxes 23,625 22,040
Commitments and Contingencies (Note 9)
- -------------------------------------------------------------------------------------------------------------
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 10,516,634 shares in 2001 and 10,499,634 shares in 2000 1,052 1,050
Class B common stock, $.10 par value; 20,000,000 shares authorized; issued and
outstanding 10,238,744 shares in 2001 and 10,255,744 shares in 2000 1,024 1,026
Treasury stock, 1,535,000 shares in 2001 and 1,091,500 shares in 2000, at cost (24,755) (20,049)
Capital surplus 12,438 12,438
Retained earnings 299,313 278,676
Accumulated other comprehensive loss (3,527) (1,969)
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 285,545 271,172
- -------------------------------------------------------------------------------------------------------------
$ 491,813 $ 500,150
=============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
18 UniFirst Corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UniFirst Corporation and Subsidiaries
Class B Class B
Common Common Treasury Common Common
(In thousands) Shares Shares Shares Stock Stock
- --------------------------------------------------------------------------------------------------------------------
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) -- --
Foreign currency
translation adjustments -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Comprehensive income
====================================================================================================================
Balance, August 28, 1999 10,500 10,256 (858) 1,050 1,026
Net income -- -- -- -- --
Dividends -- -- -- -- --
Shares repurchased -- -- (234) -- --
Foreign currency
translation adjustments -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Comprehensive income
====================================================================================================================
Balance, August 26, 2000 10,500 10,256 (1,092) 1,050 1,026
Net income -- -- -- -- --
Dividends -- -- -- -- --
Shares converted 17 (17) -- 2 (2)
Shares repurchased -- -- (443) -- --
Foreign currency
translation adjustments -- -- -- -- --
Change in fair value of
derivative instruments, net -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Comprehensive income
====================================================================================================================
Balance, August 25, 2001 10,517 10,239 (1,535) $ 1,052 $ 1,024
====================================================================================================================
Accumulated
Other
Treasury Capital Retained Comprehensive Comprehensive
(In thousands) Stock Surplus Earnings Income (Loss) Income (Loss)
- ------------------------------------------------------------------------------------------------------------------------
Balance, August 29, 1998 -- $ 7,078 $ 239,952 $ (2,707) --
Net income -- -- 24,106 -- $ 24,106
Dividends -- -- (2,608) -- --
Shares issued in connection
with an acquisition -- 5,360 -- -- --
Shares converted -- -- -- -- --
Shares repurchased (16,583) -- -- -- --
Foreign currency
translation adjustments -- -- -- 759 759
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 24,865
========================================================================================================================
Balance, August 28, 1999 (16,583) 12,438 261,450 (1,948) --
Net income -- -- 19,868 -- 19,868
Dividends -- -- (2,642) -- --
Shares repurchased (3,466) -- -- -- --
Foreign currency
translation adjustments -- -- -- (21) (21)
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 19,847
========================================================================================================================
Balance, August 26, 2000 (20,049) 12,438 278,676 (1,969) --
Net income -- -- 23,224 -- 23,224
Dividends -- -- (2,587) -- --
Shares converted -- -- -- -- --
Shares repurchased (4,706) -- -- -- --
Foreign currency
translation adjustments -- -- -- (893) (893)
Change in fair value of
derivative instruments, net -- -- -- (665) (665)
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 21,666
========================================================================================================================
Balance, August 25, 2001 $ (24,755) $ 12,438 $ 299,313 $ (3,527)
======================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
UniFirst Corporation 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
UniFirst Corporation and Subsidiaries
Year Ended August 25, August 26, August 28,
(In thousands) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 23,224 $ 19,868 $ 24,106
Adjustments:
Depreciation 30,553 28,042 25,923
Amortization of other assets 7,015 6,668 5,801
Interest rate swap expense 2,240 -- --
Changes in assets and liabilities, net of acquisitions:
Receivables (1,446) (2,220) (5,639)
Inventories 5,161 491 3,717
Rental merchandise in service 2,439 (3,492) (7,957)
Prepaid expenses 23 (100) 41
Accounts payable (143) 1,981 2,290
Accrued liabilities 5,856 509 1,235
Accrued and deferred income taxes (324) 4,537 5,134
Deferred income taxes 1,613 1,352 2,257
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 76,211 57,636 56,908
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (1,300) (6,783) (53,782)
Capital expenditures (34,196) (46,714) (45,083)
Increase in other assets (3,261) (5,032) (4,928)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (38,757) (58,529) (103,793)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in debt 981 15,509 67,284
Reduction of debt (32,580) (4,283) (3,626)
Repurchase of common stock (4,706) (3,466) (16,583)
Cash dividends (2,587) (2,642) (2,608)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (38,892) 5,118 44,467
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,438) 4,225 (2,418)
Cash and cash equivalents at beginning of year 7,137 2,912 5,330
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 5,699 $ 7,137 $ 2,912
================================================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 8,588 $ 7,745 $ 4,355
Income taxes paid 13,014 6,282 15,246
================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
20 UniFirst Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UniFirst Corporation and Subsidiaries
(Amounts in thousands, except share and 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 and provides first aid cabinet services
and other safety supplies. The Company also decontaminates and cleans, in
separate facilities, garments which may have been exposed to radioactive
materials.
PRINCIPLES OF CONSOLIDATION
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. 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.
REVENUE RECOGNITION
The Company recognizes revenues when services are provided or products are
shipped to customers.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts in
the consolidated 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 2001, 2000 and 1999 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 $1,493 and $1,489 higher at
August 25, 2001 and August 26, 2000, 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.
PROPERTY AND EQUIPMENT
The Company provides for depreciation on the straight-line method based on the
following estimated useful lives:
Buildings ....................................................... 30-40 years
Leasehold improvements .......................................... Term of lease
Machinery and equipment ......................................... 3-10 years
Motor vehicles .................................................. 3-5 years
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 two to fifteen years. Goodwill is
amortized over periods of fifteen 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.
NET INCOME PER SHARE
Basic and diluted net income per share is calculated using the weighted average
number of common and dilutive potential common shares outstanding during the
year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in banks and bank short-term investments
with maturities of less than ninety days.
FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments, which include
cash and cash equivalents, receivables, accounts payable and accrued
liabilities, approximate the carrying values of those instruments.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with current year
presentation.
2. ACQUISITIONS
Information relating to the acquisition of businesses which were accounted for
as purchases is as follows:
Year ended August 25, August 26, August 28,
2001 2000 1999
- --------------------------------------------------------------------------------
Fair value of tangible
assets acquired $ 300 $ 2,310 $ 26,927
Fair value of intangible
assets acquired 1,000 5,568 35,990
Liabilities assumed
or created -- (1,095) (3,750)
Common stock issued
(244,770 shares in 1999) -- -- (5,385)
- --------------------------------------------------------------------------------
Acquisition of businesses,
net of cash acquired $1,300 $ 6,783 $ 53,782
================================================================================
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.
UniFirst Corporation 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UniFirst Corporation and Subsidiaries
3. INCOME TAXES
The provision for income taxes consists of the following:
Year ended August 25, August 26, August 28,
2001 2000 1999
- --------------------------------------------------------------------------------
Current:
Federal and Foreign $ 14,466 $ 8,020 $ 12,463
State 1,873 1,151 (102)
- --------------------------------------------------------------------------------
16,339 9,171 12,361
- --------------------------------------------------------------------------------
Deferred:
Federal and Foreign (1,208) 2,584 8,777
State (898) 421 1,662
- --------------------------------------------------------------------------------
(2,106) 3,005 10,439
- --------------------------------------------------------------------------------
$ 14,233 $ 12,176 $ 22,800
================================================================================
The following table reconciles the provision for income taxes using the
statutory federal income tax rate to the actual provision for income taxes:
Year ended August 25, August 26, August 28,
2001 2000 1999
- --------------------------------------------------------------------------------
Income taxes at the
statutory federal
income tax rate $ 13,110 $ 11,215 $ 16,417
Puerto Rico exempt income (183) (680) (652)
Corporate-Owned
Life Insurance -- -- 5,500
State income taxes 385 986 798
Foreign income taxes 481 289 176
Other 440 366 561
- --------------------------------------------------------------------------------
$ 14,233 $ 12,176 $ 22,800
================================================================================
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:
August 25, August 26, August 28,
2001 2000 1999
- --------------------------------------------------------------------------------
Rental merchandise
in service $ 20,061 $ 21,599 $ 20,234
Tax in excess of
book depreciation 20,151 19,244 16,662
Accruals and other (13,991) (12,516) (8,027)
- --------------------------------------------------------------------------------
$ 26,221 $ 28,327 $ 28,869
================================================================================
4. LONG-TERM OBLIGATIONS
Long-term obligations outstanding on the accompanying consolidated balance
sheets are as follows:
August 25, August 26,
2001 2000
- --------------------------------------------------------------------------------
Unsecured revolving credit agreement
with a syndicate of banks, interest
rates of 5.03% and 8.15%, respectively $ 88,275 $119,000
Notes payable, interest rates from
4.9% - 7.5%, payable in various
installments through 2007 4,924 5,815
Amounts due for restrictive covenants
and other, payable in various
installments through 2005 1,596 1,823
- --------------------------------------------------------------------------------
94,795 126,638
Less - current maturities 1,664 1,903
- --------------------------------------------------------------------------------
$ 93,131 $124,735
================================================================================
Aggregate current maturities of long-term obligations for all years subsequent
to August 25, 2001 are $1,664 in 2002, $89,565 in 2003, $2,258 in 2004, $441 in
2005, $349 in 2006 and $518 thereafter.
The Company's unsecured revolving credit agreement runs through August 15, 2003.
As of August 25, 2001, the maximum available line of credit was $170,000. Under
this 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. This agreement contains, 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
$168,947 as of August 25, 2001. As of August 25, 2001, the Company was in
compliance with these provisions.
5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended, in
2001. SFAS No. 133 establishes standards for accounting and reporting derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities.
The Company has entered into interest rate swap agreements to manage its
exposure to movements in interest rates on its variable rate debt. The swap
agreements are cash flow hedges and are used to manage exposure to interest rate
movement by effectively changing the variable rate to a fixed rate. Such
instruments are matched with the underlying borrowings. SFAS No. 133 eliminates
special hedge accounting if a swap agreement does not meet certain criteria,
thus requiring the Company to reflect all changes in the fair value of the swap
agreement in earnings in the period of change.
In October 1999, 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 three month LIBOR
rate. As of August 25, 2001, the variable rate was 3.76%. On October 15, 2002,
the bank has the option to terminate the swap agreement without further
obligation to make payments to the Company. Since this swap agreement does not
meet the required criteria necessary to use special hedge
22 UniFirst Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UniFirst Corporation and Subsidiaries
accounting, the Company has recorded a $2,240 charge in 2001, through other
expense, as a result of the change in the fair value of the swap agreement.
In June 2001, the Company entered into a second interest rate swap agreement
with a bank, notional amount $20,000, maturing June 5, 2003. The Company pays a
fixed rate of 4.69% and receives a variable rate tied to the three month LIBOR
rate. As of August 25, 2001, the variable rate was 3.94%. This swap agreement
meets the required criteria as defined in SFAS No. 133 to use special hedge
accounting, and the Company has recorded a $150 charge, net of tax of $100, in
2001, through other comprehensive income, for the change in the fair value of
the swap agreement.
During 2001, the Company entered into natural gas swap agreements to mitigate
the commodity price risk associated with the natural gas used at certain laundry
facilities. These agreements were based on forecasted monthly usage for certain
laundry facilities through December 2002. As of August 25, 2001, the Company had
hedged approximately 882 MMBtus, paying fixed prices between $3.79 and $4.78 and
receiving variable prices based on the New York Mercantile Exchange closing
prices for each month during the lives of the contracts. The swap agreements
meet the required criteria as defined in SFAS No. 133 to use special hedge
accounting as cash flow hedges. As a result, the Company has recorded a $515
charge, net of tax of $343, in 2001, through other comprehensive income, for the
change in the fair value of the swap agreements. These amounts will be
recognized in operating costs in the accompanying consolidated statements of
income as the natural gas is used in the laundry facilities.
6. 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 $5,744
in 2001, $4,404 in 2000 and $4,100 in 1999.
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 $282 in 2001, $419 in 2000 and $404 in 1999.
Information is not readily available for the Company to determine its share of
unfunded vested benefits, if any, under these plans.
7. OTHER ASSETS
Other assets on the accompanying consolidated balance sheets are as follows:
August 25, August 26,
2001 2000
- --------------------------------------------------------------------------------
Customer contracts, restrictive
covenants and other assets arising from
acquisitions, less accumulated amortization of
$37,816 and $32,728, respectively $26,110 $28,075
Goodwill, less accumulated
amortization of $9,191 and
$7,238, respectively 54,579 56,007
Other 5,033 5,430
- --------------------------------------------------------------------------------
$85,722 $89,512
=========================================================================-======
8. ACCRUED LIABILITIES
Accrued liabilities on the accompanying consolidated balance sheets are as
follows:
August 25, August 26,
2001 2000
- --------------------------------------------------------------------------------
Insurance $20,212 $19,815
Payroll related 13,216 12,025
Other 21,814 15,330
- --------------------------------------------------------------------------------
$55,242 $47,170
================================================================================
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain buildings from independent parties. Total rent
expense on all leases was $3,564 in 2001, $3,542 in 2000 and $3,027 in 1999.
Annual minimum lease commitments for all years subsequent to August 25, 2001 are
$2,643 in 2002, $1,961 in 2003, $1,213 in 2004, $603 in 2005, $246 in 2006 and
$48 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 $13,327 and $17,203 outstanding as
of August 25, 2001 and August 26, 2000, respectively.
10. 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. Options for 57,700 shares at $10.063 were granted in 2001.
The Company accounts for the stock option plan under Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost has been recognized related to stock option grants. Had
compensation cost for this plan been determined consistent with
UNIFIRST CORPORATION 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UniFirst Corporation and Subsidiaries
10. COMMON STOCK OPTIONS (CONTINUED)
Statement of Financial Accounting Standards (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:
2001 2000
- --------------------------------------------------------------------------------
NET INCOME:
As reported $ 23,224 $ 19,868
Pro forma 23,078 19,782
EARNINGS PER SHARE:
As reported $ 1.20 $ 1.01
Pro forma 1.19 1.01
- --------------------------------------------------------------------------------
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 year ending August
28, 1999. A summary of the status for all outstanding options and changes during
2000 and 2001 is presented in the table below:
2001 2000
- --------------------------------------------------------------------------------
Balance, beginning of year 55,800 0
Granted 57,700 58,000
Exercised 0 0
Forfeited (5,700) (2,200)
- --------------------------------------------------------------------------------
Balance, end of year 107,800 55,800
================================================================================
Exercisable, end of year 13,075 0
================================================================================
The fair value of each option grant is calculated using the Black-Scholes option
pricing model, as prescribed by SFAS No. 123, based upon the date of grant, with
the following assumptions used for grants each year:
2001 2000
- --------------------------------------------------------------------------------
Risk-free interest rate 5.78% 6.34%
Expected dividend yield 1.00% 1.00%
Expected life in years 8 8
Expected volatility 30% 30%
Weighted average remaining contractual
life of options outstanding in years 7 7
- --------------------------------------------------------------------------------
The weighted average fair value of options granted during 2001 and 2000 were
$4.28 and $6.63, respectively.
11. 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.
12. OTHER COMPREHENSIVE INCOME (LOSS)
In 1999, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income." SFAS No. 130 established new rules
for the reporting and display of comprehensive income and its components. The
adoption of SFAS No. 130 had no impact on the Company's net income. The
components of accumulated other comprehensive income (loss) were as follows:
August 25, August 26, August 28,
2001 2000 1999
- --------------------------------------------------------------------------------
Foreign currency
translation adjustments $(2,862) $(1,969) $(1,948)
Fair value of derivative
instruments, net (665) -- --
- --------------------------------------------------------------------------------
Accumulated other
comprehensive
income (loss) $(3,527) $(1,969) $(1,948)
- --------------------------------------------------------------------------------
13. SEGMENT REPORTING
In 1999, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 established new rules for public companies relating to the
reporting of financial and descriptive information about their operating
segments in consolidated 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 consolidated financial statements
contained herein. UniFirst also has activities in Canada and Europe, which do
not meet the thresholds outlined in SFAS No. 131.
24 UniFirst Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UniFirst Corporation and Subsidiaries
14. NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations." SFAS
No. 141 requires that all business combinations be accounted for using one
method, the purchase method. The provisions of this Statement apply to all
business combinations initiated after June 30, 2001. SFAS No. 141 supersedes
Accounting Principles Board (APB) Opinion No. 16, "Business Combinations," and
SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises."
In June 2001, the FASB also issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for goodwill
and other intangible assets. SFAS No. 142 supersedes APB Opinion No. 17,
"Intangible Assets." The Company has adopted SFAS No. 142 effective August 26,
2001. The Company is currently assessing the impact of adopting SFAS No. 142.
The provision of SFAS No. 142 will be applied to all goodwill and other
intangible assets recognized in the Company's consolidated financial statements
as of August 26, 2001. Impairment losses related to goodwill and
indefinite-lived intangible assets that arise due to the initial application of
SFAS No. 142 will be reported as a change in accounting principle.
In addition, in June 2001, the FASB approved the issuance of SFAS No. 143,
"Accounting for Asset Retirement Obligations." SFAS No. 143 establishes
accounting standards for the recognition and measurement of legal obligations
associated with the retirement of tangible long-lived assets and requires
recognition of a liability for an asset retirement obligation in the period in
which it is incurred. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The Company has not yet determined the adoption date or the
impact of adopting SFAS No. 143.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The provisions of
this statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company has not yet determined the
adoption date or the impact of adopting SFAS No. 144.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
UniFirst Corporation and Subsidiaries
To UniFirst Corporation:
We have audited the accompanying consolidated balance sheets of UniFirst
Corporation (a Massachusetts corporation) and subsidiaries as of August 25, 2001
and August 26, 2000, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended August 25, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
UniFirst Corporation and subsidiaries as of August 25, 2001 and August 26, 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended August 25, 2001, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 31, 2001
UniFirst Corporation 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
UniFirst Corporation and Subsidiaries
FISCAL YEAR ENDED AUGUST 25, 2001 COMPARED WITH FISCAL YEAR ENDED AUGUST 26,
2000
Revenues. In 2001, revenues increased 5.2% to $556.4 million as compared with
$528.7 million for 2000. This increase can be attributed to growth from existing
operations (4.0%), price increases (1.0%) and acquisitions (0.2%). Growth from
existing operations was primarily from the conventional uniform rental business
(3.1%) and from the nuclear garment services business (0.9%).
Operating Costs. Operating costs increased to $349.4 million for 2001 as
compared with $336.3 million for 2000 as a result of costs associated with
increased revenues. As a percentage of revenues, operating costs decreased to
62.8% from 63.6% for these periods, primarily due to lower merchandise costs
resulting from improved product utilization, 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 $121.8 million, or 21.9% of revenues, for 2001 as compared
with $118.4 million, or 22.4% of revenues, for 2000. These costs were favorably
impacted by a $1.1 million settlement received in the first quarter of 2001 from
a lawsuit related to the Company's nuclear garment services business. Excluding
this settlement, these expenses would have been $122.9 million, or 22.1% of
revenues, for 2001.
Depreciation and Amortization. The Company's depreciation and amortization
expense increased to $37.6 million, or 6.8% of revenues, for 2001, as compared
with $34.7 million, or 6.6% of revenues, for 2000. This increase was due
primarily to higher depreciation expense in 2001.
Other Expense (Income). Net interest expense (interest expense less interest
income) was $7.9 million, or 1.4% of revenues, for 2001 as compared with $7.2
million, or 1.4% of revenues, for 2000. The increase is primarily attributable
to higher interest rates during 2001, offset somewhat by higher interest income
resulting from charges to customers for overdue receivable balances. Interest
rate swap expense was $2.2 million, or 0.4% of revenues, for 2001 due to the
implementation of Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended. See
Note 5 for a further discussion of the impact of this change.
Income Taxes. The Company's effective income tax rate was 38.0% in both 2001 and
2000.
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 in 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.
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.
26 UniFirst Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
UniFirst Corporation and Subsidiaries
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 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 25, 2001 was $285.5 million, or 75.1% of total
capitalization.
Net cash provided by operating activities was $76.2 million in fiscal 2001 and
totaled $190.8 million for the three years ended August 25, 2001. These cash
flows, along with net additional borrowings of $43.3 million, were used to fund
$126.0 million in capital expenditures to expand and update Company facilities,
$61.9 million was used for acquisitions, and $24.8 million was used to
repurchase 1.5 million shares of the Company's common stock.
The Company had $5.7 million in cash and $69.4 million available on its $170
million unsecured line of credit with a syndicate of banks as of August 25,
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 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 regarding the transfer of the
Company's manufacturing operations 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, uncertainties arising
from the war on terrorism and its impact on the economy 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
UniFirst Corporation 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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. See
Note 5 for details on the Company's derivative instruments and hedging
activities.
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)
UniFirst Corporation and Subsidiaries
The following is a summary of the results of operations for each of the quarters
within the years ended August 25, 2001 and August 26, 2000.
(In thousands, except per share data)
First Second Third Fourth
2001 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
Revenues $141,009 $136,562 $140,625 $138,175
Income before income taxes 11,010 6,941 10,251 9,255
Net income 6,826 4,303 6,356 5,739
Weighted average
shares outstanding - basic 19,620 19,362 19,256 19,220
Net income per share -
basic & diluted $ 0.35 $ 0.22 $ 0.33 $ 0.30
- --------------------------------------------------------------------------------
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Common Stock Prices and Dividends Per Share for the Years Ended August 25, 2001
and August 26, 2000:
Price Per Share Dividends Per Share
Class B
Common Common
2001 High Low Stock Stock
- --------------------------------------------------------------------------------
First Quarter $10.625 $ 8.875 $ 0.030 $0.0375
Second Quarter 13.938 9.063 0.030 0.0375
Third Quarter 19.700 12.350 0.030 0.0375
Fourth Quarter 19.250 15.600 0.030 0.0375
- --------------------------------------------------------------------------------
Price Per Share Dividends Per Share
Class B
Common Common
2000 High Low Stock Stock
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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, 2001 were 142 and 21
respectively.
28 UniFirst Corporation