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
March 2, 2002 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 April 5, 2002 were 8,993,354 and 10,227,344 respectively.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except per share data) March 2, August 25, February 24,
2002 2001* 2001
- ----------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 6,011 $ 5,699 $ 6,108
Receivables 57,476 55,427 58,321
Inventories 25,929 22,320 25,799
Rental merchandise in service 51,445 56,677 58,339
Prepaid expenses 261 275 296
- ----------------------------------------------------------------------------------------------
Total current assets 141,122 140,398 148,863
- ----------------------------------------------------------------------------------------------
Property and equipment:
Land, buildings and leasehold improvements 201,839 199,084 197,666
Machinery and equipment 220,365 224,143 215,326
Motor vehicles 59,728 57,620 57,944
- ----------------------------------------------------------------------------------------------
481,932 480,847 470,936
Less - accumulated depreciation 214,445 215,154 202,749
- ----------------------------------------------------------------------------------------------
267,487 265,693 268,187
- ----------------------------------------------------------------------------------------------
Goodwill, net 54,484 54,579 55,425
Other intangible assets 23,493 26,110 26,433
Other assets 5,846 5,033 5,054
- ----------------------------------------------------------------------------------------------
$ 492,432 $ 491,813 $ 503,962
==============================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 1,361 $ 1,664 $ 1,824
Notes payable 1,359 1,344 1,359
Accounts payable 16,907 19,334 18,359
Accrued liabilities 61,291 55,242 55,655
Accrued and deferred income taxes 8,716 11,928 12,450
- ----------------------------------------------------------------------------------------------
Total current liabilities 89,634 89,512 89,647
- ----------------------------------------------------------------------------------------------
Long-term obligations, net of current maturities 81,852 93,131 114,879
Deferred income taxes 24,150 23,625 22,491
- ----------------------------------------------------------------------------------------------
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
10,528,409 shares 1,053 1,052 1,051
Class B Common stock, $.10 par value; 20,000,000
shares authorized; issued and outstanding
10,227,344 shares 1,023 1,024 1,025
Treasury stock, 1,535,055 shares, at cost (24,755) (24,755) (23,171)
Capital surplus 12,443 12,438 12,438
Retained earnings 310,818 299,313 288,501
Accumulated other comprehensive income (3,786) (3,527) (2,899)
- ----------------------------------------------------------------------------------------------
Total shareholders' equity 296,796 285,545 276,945
- ----------------------------------------------------------------------------------------------
$ 492,432 $ 491,813 $ 503,962
==============================================================================================
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed consolidated
financial statements.
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Twenty-seven Twenty-six Fourteen Thirteen
weeks ended weeks ended weeks ended weeks ended
(In thousands, except per share data) March 2, February 24, March 2, February 24,
2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------
Revenues $ 294,148 $ 277,571 $ 151,523 $ 136,562
- -------------------------------------------------------------------------------------------------------------
Costs and expenses:
Operating costs 177,904 171,845 92,711 85,211
Selling and administrative expenses 71,813 62,889 37,618 31,730
Depreciation and amortization 18,508 18,719 9,360 9,438
- -------------------------------------------------------------------------------------------------------------
268,225 253,453 139,689 126,379
- -------------------------------------------------------------------------------------------------------------
Income from operations 25,923 24,118 11,834 10,183
- -------------------------------------------------------------------------------------------------------------
Other expense (income):
Interest expense 5,843 5,104 4,227 2,474
Interest income (825) (582) (451) (362)
Interest rate swap expense (income) 271 1,645 (263) 1,130
- -------------------------------------------------------------------------------------------------------------
5,289 6,167 3,513 3,242
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 20,634 17,951 8,321 6,941
Provision for income taxes 7,841 6,822 3,162 2,638
- -------------------------------------------------------------------------------------------------------------
Net income $ 12,793 $ 11,129 $ 5,159 $ 4,303
=============================================================================================================
Weighted average number of shares outstanding --
basic 19,220 19,491 19,221 19,362
=============================================================================================================
Weighted average number of shares outstanding --
diluted 19,265 19,491 19,276 19,362
=============================================================================================================
Net income per share - basic $ 0.67 $ 0.57 $ 0.27 $ 0.22
=============================================================================================================
Net income per share - diluted $ 0.66 $ 0.57 $ 0.27 $ 0.22
=============================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Twenty-Seven Twenty-Six
weeks ended weeks ended
(In thousands) March 2, February 24,
2002 2001
- -----------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $ 12,793 $ 11,129
Adjustments:
Depreciation 15,918 15,224
Amortization of other assets 2,590 3,495
Interest rate swap expense 271 1,645
Changes in assets and liabilities, net of acquisitions:
Receivables (2,170) (4,433)
Inventories (3,400) 1,741
Rental merchandise in service 5,109 (1,962)
Prepaid expenses 14 2
Accounts payable (2,636) (1,323)
Accrued liabilities 5,808 6,864
Accrued and deferred income taxes (3,154) 196
Deferred income taxes 549 477
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 31,692 33,055
- -----------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (18,046) (18,700)
Increase in other assets (501) (1,264)
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (18,547) (19,964)
- -----------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in debt - 291
Reduction of debt (11,550) (9,985)
Repurchase of common stock - (3,122)
Proceeds from exercise of stock options 5 -
Cash dividends (1,288) (1,304)
- -----------------------------------------------------------------------------------------
Net cash used in financing activities (12,833) (14,120)
- -----------------------------------------------------------------------------------------
Net increase (decrease) in cash 312 (1,029)
Cash at beginning of period 5,699 7,137
- -----------------------------------------------------------------------------------------
Cash at end of period $ 6,011 $ 6,108
=========================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 5,712 $ 4,098
Income taxes paid 10,528 6,215
=========================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SEVEN WEEKS ENDED MARCH 2, 2002
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 for a fair statement of results for the interim
periods. 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. Certain prior period amounts have been reclassified to conform with the
current period presentation.
4. The components of comprehensive income for the twenty-seven and fourteen
week periods ended March 2, 2002 and the twenty-six and thirteen week
periods ended February 24, 2001 were as follows:
Twenty-seven Twenty-six Fourteen Thirteen
weeks ended weeks ended weeks ended weeks ended
(in thousands) March 2, February 24, March 2, February 24,
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------
Net income $12,793 $11,129 $5,159 $4,303
Other comprehensive income (loss):
Foreign currency translation adjustments (171) (930) 444 (539)
Change in fair value of derivative
instruments, net (88) - 126 -
---------------------------------------------------------
Comprehensive income $12,534 $10,199 $5,729 $3,764
=========================================================
5. 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 and thirteen weeks ended
February 24, 2001 were excluded from the weighted average number of common
and dilutive potential common shares outstanding.
6. 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
eliminated 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 March 2, 2002, the applicable variable rate
was 1.83%. 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 accounting, the Company has recorded charges of $271 and
$1,645 for the twenty-seven weeks ended March 2, 2002 and twenty-six weeks
ended February 24, 2001, respectively, and (income) charges of $(263) and
$1,130 for the fourteen weeks ended March 2, 2002 and thirteen weeks ended
February 24, 2001, respectively, 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 March 2, 2002, the applicable variable rate
was 2.01%. This swap agreement meets the required criteria as defined in
SFAS No. 133 to use special hedge accounting, and the Company has recorded
charges (income) of $133, net of tax of $89, and $(29), net of tax of $(19)
for the twenty-seven and thirteen weeks ended March 2, 2002, respectively,
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
March 2, 2002, the Company had hedged approximately 657 MMBtus, paying
fixed prices between $3.79 and $3.92 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 income of $45, net of tax of
$30, and $97, net of tax of $65 for the twenty-seven and thirteen weeks
ended March 2, 2002, respectively, 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.
7. 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 adopted SFAS No. 142
effective August 26, 2001. The provisions of SFAS No. 142 were applied to
all goodwill and other intangible assets recognized in the Company's
consolidated financial statements as of August 26, 2001. There were no
impairment losses related to goodwill and intangible assets due to the
application of SFAS No. 142.
Upon adoption of SFAS No. 142, the Company discontinued the amortization of
goodwill. The following table presents a reconciliation of net income and
earnings per share, adjusted for the exclusion of goodwill, net of tax:
Twenty-seven Twenty-six Fourteen Thirteen
weeks ended weeks ended weeks ended weeks ended
(in thousands) March 2, February 24, March 2, February 24,
2002 2001 2002 2001
Reported net income $12,793 $11,129 $5,159 $4,303
Add: Goodwill amortization, net of tax - 593 - 332
---------------------------------------------------------
Adjusted net income 12,793 11,722 5,159 4,635
Reported basic earnings per share $0.67 $0.57 $0.27 $0.22
Add: Goodwill amortization, net of tax - 0.03 - 0.02
---------------------------------------------------------
Adjusted basic earnings per share $0.67 $0.60 $0.27 $0.24
Reported diluted earnings per share $0.66 $0.57 $0.27 $0.22
Add: Goodwill amortization, net of tax - 0.03 - 0.02
---------------------------------------------------------
Adjusted diluted earnings per share $0.66 $0.60 $0.27 $0.24
Information regarding the Company's intangible assets is as follows:
As of March 2, 2002
------------------------
Carrying Accumulated
Amount Amortization Net
Customer contracts, restrictive covenants
and other assets arising from acquisitions $ 63,847 $40,354 $23,493
Goodwill 63,675 9,191 54,484
Total $127,522 $49,545 $77,977
As of August 25, 2001
------------------------
Carrying Accumulated
Amount Amortization Net
Customer contracts, restrictive covenants
and other assets arising from acquisitions $63,926 $37,816 $26,110
Goodwill 63,770 9,191 54,579
Total $127,696 $47,007 $80,689
As of February 24, 2001
------------------------
Carrying Accumulated
Amount Amortization Net
Customer contracts, restrictive covenants
and other assets arising from acquisitions $ 61,675 $35,242 $26,433
Goodwill 63,640 8,215 55,425
Total $125,315 $43,457 $81,858
Amortization expense for the twenty-seven and fourteen weeks ended March 2, 2002
was $2,590 and $1,344, respectively. Amortization expense for the twenty-six and
thirteen weeks ended February 24, 2001 was $3,495 and $1,756, respectively.
Estimated amortization expense for each of the following fiscal years based on
the intangible assets as of March 2, 2002 is as follows:
2002 $4,927
2003 3,864
2004 3,117
2005 3,061
2006 2,986
8. 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 of Disposal of Long-Lived Assets." SFAS No. 144 addresses
financial accounting and reporting for the impariment 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.
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE TWENTY-SEVEN WEEKS ENDED MARCH 2, 2002
RESULTS OF OPERATIONS
TWENTY-SEVEN WEEKS OF FISCAL 2002 COMPARED WITH TWENTY-SIX WEEKS OF FISCAL 2001
Revenues. Revenues for the first twenty-seven weeks of fiscal 2002 increased
$16.6 million or 6.0% to $294.1 million as compared with $277.6 million for the
first twenty-six weeks of fiscal 2001. This increase can be attributed to an
extra week of revenue in fiscal 2002 (4.0%), increased revenue from the nuclear
garment services business (1.3%), and growth from existing operations and price
increases in the core uniform rental and first aid business (0.7%).
Operating Costs. Operating costs increased to $177.9 million for the first half
of fiscal 2002 as compared with $171.8 million for the first half of fiscal
2001. As a percentage of revenues, operating costs decreased to 60.5% from 61.9%
for these periods, primarily due to lower merchandise costs as the Company
continued to see benefits from its in-plant stockrooms and higher contribution
from its manufacturing operations. The Company also had slightly lower energy
related costs.
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $71.8 million, or 24.4% of revenues, for the first half of
fiscal 2002 as compared with $62.9 million, or 22.7% of revenues, for the first
half of fiscal 2001. In the first quarter of fiscal 2001 these costs were
favorably impacted by a $1.1 million settlement 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. The increase in selling and administrative expenses is primarily
attributable to higher selling costs as the Company has expanded its sales
force, and increased employee health care costs.
Depreciation and Amortization. The Company's depreciation and amortization
expense decreased to $18.5 million, or 6.3% of revenues, for the first half of
fiscal 2002 as compared with $18.7 million, or 6.7% of revenues, for the first
half of fiscal 2001. The decrease was primarily the result of the adoption of
SFAS No. 142 in the first quarter of fiscal 2002, whereby the Company ceased the
amortization of goodwill. See Note 7 for a further discussion of the impact of
this change.
Other Expense (Income). Net other expense (interest and interest rate swap
expense less interest income) was $5.3 million, or 1.8% of revenues, for the
first half of fiscal 2002 as compared with $6.2 million, or 2.2% of revenues,
for the first half of fiscal 2001. During the second quarter of fiscal 2002 the
Company recorded a $2.3 million interest charge which is an estimate of the
interest which will be due from settling a revenue agent review with the IRS.
Excluding this charge, net other expense would have been $3.0 million, or 1.0%
of revenues, in the first half of fiscal 2002. The decrease in net other expense
is attributable to lower interest rates and reduced debt in the first half of
fiscal 2002 as well as lower interest rate swap expense resulting from the
change in the fair value of the Company's $40 million notional amount interest
rate swap agreement.
Income Taxes. The Company's effective income tax rate was 38.0% for both the
first half of fiscal 2002 and the first half of fiscal 2001.
FOURTEEN WEEKS ENDED MARCH 2, 2002 COMPARED TO THIRTEEN WEEKS ENDED FEBRUARY 24,
2001
Revenues. Fiscal 2002 second quarter revenues increased $15.0 million or 11.0%
to $151.5 million as compared with $136.6 million for the second quarter of
fiscal 2001. This increase can be attributed to an extra week of revenue in the
fiscal 2002 second quarter (8.0%), increased revenue from the nuclear garment
services business (2.9%), and growth from existing operations and price
increases in the core uniform rental and first aid business (0.1%).
Operating Costs. Operating costs increased to $92.7 million for the second
quarter of fiscal 2002 as compared with $85.2 million for the second quarter of
fiscal 2001. As a percentage of revenues, operating costs decreased to 61.2%
from 62.4% for these periods, primarily due to lower merchandise costs as the
Company continued to see benefits from its in-plant stockrooms and higher
contribution from its manufacturing operations. The Company also had slightly
lower energy related costs.
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $37.6 million, or 24.8% of revenues, for the second
quarter of fiscal 2002 as compared with $31.7 million, or 23.2% of revenues, for
the
second quarter of fiscal 2001. The increase in selling and administrative
expenses is primarily attributable to higher selling costs and increased
employee health care costs.
Depreciation and Amortization. The Company's depreciation and amortization
expense was $9.4 million for both the second quarter of fiscal 2002 and the
second quarter of fiscal 2001. As a percentage of revenues, depreciation and
amortization expense decreased to 6.2% from 6.9% for these periods, primarily
due to the adoption of SFAS No. 142 in the first quarter of fiscal 2002, whereby
the Company ceased the amortization of goodwill. See Note 7 for a further
discussion of the impact of this change.
Other Expense (Income). Net other expense (interest and interest rate swap
expense less interest income) was $3.5 million, or 2.3% of revenues, for the
second quarter of fiscal 2002 as compared with $3.2 million, or 2.4% of
revenues, for the second quarter of fiscal 2001. During the second quarter of
fiscal 2002 the Company recorded a $2.3 million interest charge which is an
estimate of the interest which will be due from settling a revenue agent review
with the IRS. Excluding this charge, net other expense would have been $1.2
million, or 0.8% of revenues, in the fiscal 2002 second quarter. The decrease in
net other expense is attributable to lower interest rates and reduced debt in
the second quarter of fiscal 2002 as well as interest rate swap income of $0.3
million in the second quarter of fiscal 2002 as compared with expense of $1.1
million in the second quarter of fiscal 2001 resulting from the change in the
fair value of the Company's $40 million notional amount interest rate swap
agreement.
Income Taxes. The Company's effective income tax rate was 38.0% for both the
second quarter of fiscal 2002 and the second quarter of fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
Shareholders' equity at March 2, 2002 was $296.8 million, or 78.1% of total
capitalization.
During the twenty-seven weeks ended March 2, 2002 net cash provided by operating
activities ($31.7 million) was primarily used for capital expenditures ($18.0
million), debt repayment ($11.6 million) and dividends ($1.3 million).
The Company had $6.0 million in cash and $79.0 million available on its $170
million unsecured line of credit with a syndicate of banks as of March 2, 2002.
The Company expects to pay approximately $15 million by August, 2002 resulting
from the settlement of a revenue agent review with the IRS as discussed above.
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. These forward-looking statements are subject to certain risks and
uncertainties. The words "anticipate" and "should," and other expressions that
indicate future events and trends identify forward-looking statements. Actual
future results may differ materially from those anticipated depending on a
variety of factors, including, but not limited to, performance of acquisitions;
economic and business changes; fluctuations in the cost of materials, fuel and
labor; economic and other developments associated with the on-going war on
terrorism including the instability created by the escalating conflict in the
Middle East; strikes and
unemployment levels; demand and price for the Company's products and services;
improvement in under performing rental operations; and the outcome of pending
and future litigation and environmental matters.
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 three month LIBOR
rate. As of March 2, 2002, the applicable variable rate was 1.83%. On October
15, 2002 the bank has the option to terminate the swap agreement without further
obligation to make payments to the Company. In fiscal 2001, the Company entered
into a second interest rate swap agreement with a bank, notional amount $20
million, 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 March 2,
2002, the applicable variable rate was 2.01%. See Note 6 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. As of March 2, 2002 and February 24, 2001, the fair market value of the
Company's outstanding debt approximates its carrying value.
Other
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 March 2, 2002, the Company had
hedged approximately 657 MMBtus, paying fixed prices between $3.79 and $3.92 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 income of
$45, net of tax of $30, and $97, net of tax of $65 for the twenty-seven and
thirteen weeks ended March 2, 2002, respectively, 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.
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 8, 2002. Ronald
D. Croatti and Donald J. Evans were reelected and Anthony F. DiFillippo was
elected to the Board of Directors. With respect to Mr. Croatti, 7,051,893 shares
of Common Stock and 9,841,552 shares of Class B Common Stock were voted for his
election and 871,261 shares of Common Stock and no shares of Class B Common
Stock were withheld from voting for his election. With respect to Mr. Evans,
7,682,549 shares of Common Stock and 9,841,552 shares of Class B Common Stock
were voted for his election and 240,605 shares of Common Stock and no shares of
Class B Common Stock were withheld from voting for his election. With respect to
Mr. DiFillippo, 7,702,139 shares of Common Stock and 9,841,552 shares of Class B
Common Stock were voted for his election and 221,015 shares of Common Stock and
no shares of Class B Common Stock were withheld from voting for his election.
The terms of office of Ms. Cynthia Croatti and Messrs. Albert Cohen and Phillip
L. Cohen continued after the meeting.
At the annual meeting of shareholders, the shareholders also approved an
amendment to the Corporation's 1996 Stock Incentive Plan (the "Plan"), which
authorized the issuance of an additional 300,000 shares of Common Stock for
issuance under the Plan. With respect to this proposed amendment, 2,435,301
shares of Common Stock and 9,841,552 shares of Class B Common Stock were voted
in favor of approving such amendment, 29,570 shares of Common Stock and no
shares of Class B Common Stock were voted against such approval and no shares of
Common Stock or Class B Common Stock abstained from voting on the matter.
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 16, 2002
/s/ JOHN B. BARTLETT
------------------------------
John B. Bartlett
Senior Vice President
and Chief Financial Officer