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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
June 1, 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 July 8, 2002 were 9,013,054 and 10,212,144, 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) June 1, August 25, May 26,
2002 2001* 2001
- --------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 3,538 $ 5,699 $ 8,302
Receivables 58,811 55,427 58,210
Inventories 27,442 22,320 22,880
Rental merchandise in service 52,905 56,677 59,054
Prepaid expenses 241 275 296
- --------------------------------------------------------------------------------------------
Total current assets 142,937 140,398 148,742
- --------------------------------------------------------------------------------------------
Property and equipment:
Land, buildings and leasehold improvements 203,268 199,084 199,567
Machinery and equipment 225,868 224,143 220,186
Motor vehicles 60,869 57,620 57,630
- --------------------------------------------------------------------------------------------
490,005 480,847 477,383
Less - accumulated depreciation 221,723 215,154 208,949
- --------------------------------------------------------------------------------------------
268,282 265,693 268,434
- --------------------------------------------------------------------------------------------
Goodwill, net 54,610 54,579 54,950
Other intangible assets 23,128 26,110 25,373
Other assets 5,196 5,033 4,565
- --------------------------------------------------------------------------------------------
$494,153 $491,813 $502,064
============================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 1,392 $ 1,664 $ 1,900
Notes payable 1,283 1,344 1,315
Accounts payable 14,555 19,334 13,070
Accrued liabilities 59,102 55,242 57,913
Accrued and deferred income taxes 2,944 11,928 12,966
- --------------------------------------------------------------------------------------------
Total current liabilities 79,276 89,512 87,164
- --------------------------------------------------------------------------------------------
Long-term obligations, net of current maturities 85,794 93,131 111,000
Deferred income taxes 24,503 23,625 22,760
- --------------------------------------------------------------------------------------------
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
10,548,109 shares 1,055 1,052 1,051
Class B Common stock, $.10 par value; 20,000,000
shares authorized; issued and outstanding
10,212,144 shares 1,021 1,024 1,025
Treasury stock, 1,535,055 shares, at cost (24,756) (24,755) (24,755)
Capital surplus 12,503 12,438 12,438
Retained earnings 317,706 299,313 294,205
Accumulated other comprehensive loss (2,949) (3,527) (2,824)
- --------------------------------------------------------------------------------------------
Total shareholders' equity 304,580 285,545 281,140
- --------------------------------------------------------------------------------------------
$494,153 $491,813 $502,064
============================================================================================
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Forty Thirty-nine Thirteen Thirteen
weeks ended weeks ended weeks ended weeks ended
(In thousands, except per share data) June 1, May 26, June 1, May 26,
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Revenues $438,407 $418,196 $144,259 $140,625
- ---------------------------------------------------------------------------------------------------------------
Costs and expenses:
Operating costs 263,939 258,953 86,035 87,108
Selling and administrative expenses 106,649 94,638 34,836 31,749
Depreciation and amortization 28,175 28,156 9,667 9,437
- ---------------------------------------------------------------------------------------------------------------
398,763 381,747 130,538 128,294
- ---------------------------------------------------------------------------------------------------------------
Income from operations 39,644 36,449 13,721 12,331
- ---------------------------------------------------------------------------------------------------------------
Other expense (income):
Interest expense 7,547 7,440 1,704 2,336
Interest income (1,133) (871) (308) (289)
Interest rate swap expense 447 1,678 176 33
- ---------------------------------------------------------------------------------------------------------------
6,861 8,247 1,572 2,080
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 32,783 28,202 12,149 10,251
Provision for income taxes 12,458 10,717 4,617 3,895
- ---------------------------------------------------------------------------------------------------------------
Net income $ 20,325 $ 17,485 $ 7,532 $ 6,356
===============================================================================================================
Weighted average number of shares outstanding -- basic 19,221 19,413 19,223 19,256
===============================================================================================================
Weighted average number of shares outstanding -- diluted 19,275 19,421 19,293 19,274
===============================================================================================================
Net income per share -- basic $ 1.06 $ 0.90 $ 0.39 $ 0.33
===============================================================================================================
Net income per share -- diluted $ 1.05 $ 0.90 $ 0.39 $ 0.33
===============================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Forty Thirty-Nine
weeks ended weeks ended
(In thousands) June 1, May 26,
2002 2001
- --------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $ 20,325 $ 17,485
Adjustments:
Depreciation 24,184 22,875
Amortization of other assets 3,991 5,281
Interest rate swap expense 447 1,678
Changes in assets and liabilities, net of acquisitions:
Receivables (3,354) (4,340)
Inventories (5,044) 4,497
Rental merchandise in service 3,801 (3,205)
Prepaid expenses 34 2
Accounts payable (5,034) (6,486)
Accrued liabilities 3,406 9,093
Accrued and deferred income taxes (8,998) 717
Deferred income taxes 872 750
- --------------------------------------------------------------------------------------
Net cash provided by operating activities 34,630 48,347
- --------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (26,719) (26,140)
Increase in other assets (2,026) (855)
- --------------------------------------------------------------------------------------
Net cash used in investing activities (28,745) (26,995)
- --------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in debt 99 831
Reduction of debt (6,277) (14,356)
Repurchase of common stock -- (4,706)
Proceeds from exercise of stock options 64 --
Cash dividends (1,932) (1,956)
- --------------------------------------------------------------------------------------
Net cash used in financing activities (8,046) (20,187)
- --------------------------------------------------------------------------------------
Net increase (decrease) in cash (2,161) 1,165
Cash at beginning of period 5,699 7,137
- --------------------------------------------------------------------------------------
Cash at end of period $ 3,538 $ 8,302
======================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 7,555 $ 5,888
Income taxes paid 20,564 9,325
======================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FORTY WEEKS ENDED JUNE 1, 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 to a fair statement of results for the interim
period. It is suggested that these condensed consolidated financial
statements should be read in conjunction with the financial statements and
the notes, thereto, included in the Company's latest annual report on Form
10-K. Results for an interim period are not indicative of any future
interim periods or for an entire fiscal year.
2. From time to time, the Company is subject to legal proceedings and claims
arising from the conduct of its business operations, including legal
proceedings and claims relating to personal injury, customer contract,
employment and environmental matters. In the opinion of management, such
proceedings and claims are not likely to result in losses which would have
a material adverse effect upon the financial position or results of
operations of the Company.
3. Certain prior period amounts have been reclassified to conform with the
current period presentation.
4. The components of comprehensive income for the forty and thirteen week
periods ended June 1, 2002 and the thirty-nine and thirteen week periods
ended May 26, 2001 were as follows:
Forty Thirty-nine Thirteen Thirteen
weeks ended weeks ended weeks ended weeks ended
(in thousands) June 1, May 26, June 1, May 26,
2002 2001 2002 2001
------------------------------------------------------------------------------------------------------
Net income $20,325 $17,485 $7,532 $6,356
Other comprehensive income (loss):
Foreign currency translation adjustments 252 (855) 423 74
Change in fair value of derivative
instruments, net of tax 326 -- 414 --
---------------------------------------------------------
Comprehensive income $20,903 $16,630 $8,369 $6,430
=========================================================
5. Net income per share is calculated using the weighted average number of
common and dilutive potential common shares outstanding during the year.
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
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.
5
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 June 1, 2002, the applicable variable rate
was 1.98%. 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 $447 and
$1,678 for the forty weeks ended June 1, 2002 and thirty-nine weeks ended
May 26, 2001, respectively, and charges of $176 and $33 for the thirteen
weeks ended June 1, 2002 and May 26, 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 June 1, 2002, the applicable variable rate
was 1.90%. This swap agreement meets the required criteria as defined in
SFAS No. 133 to use special hedge accounting, and the Company has recorded
charges of $189, net of tax of $126, and $56, net of tax of $37 for the
forty and thirteen weeks ended June 1, 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. During the third quarter of fiscal 2002 the
Company liquidated these natural gas swap agreements. The impact of this
liquidation was not material to the Company's financial condition or
results of operations.
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 indefinite-lived 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:
Forty Thirty-nine Thirteen Thirteen
weeks ended weeks ended weeks ended weeks ended
(in thousands) June 1, May 26, June 1, May 26,
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------
Reported net income $20,325 $17,485 $7,532 $6,356
Add: Goodwill amortization, net of tax -- 1,178 -- 584
---------------------------------------------------------
Adjusted net income 20,325 18,663 7,532 6,940
=========================================================
Reported basic earnings per share $1.06 $0.90 $0.39 $0.33
Add: Goodwill amortization, net of tax -- 0.06 -- 0.03
---------------------------------------------------------
Adjusted basic earnings per share $1.06 $0.96 $0.39 $0.36
=========================================================
Reported diluted earnings per share $1.05 $0.90 $0.39 $0.33
Add: Goodwill amortization, net of tax -- 0.06 -- 0.03
---------------------------------------------------------
Adjusted diluted earnings per share $1.05 $0.96 $0.39 $0.36
=========================================================
6
Information regarding the Company's other intangible assets are as follows:
AS OF JUNE 1, 2002
------------------
Carrying Accumulated
Amount Amortization Net
------------------------------------------
Customer contracts, restrictive covenants
and other assets arising from acquisitions $ 64,945 $41,817 $23,128
Goodwill 63,801 9,191 54,610
------------------------------------------
Total $128,746 $51,008 $77,738
==========================================
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 MAY 26, 2001
------------------
Carrying Accumulated
Amount Amortization Net
------------------------------------------
Customer contracts, restrictive covenants
and other assets arising from acquisitions $ 61,938 $36,565 $25,373
Goodwill 63,634 8,684 54,950
------------------------------------------
Total $125,572 $45,249 $80,323
==========================================
Amortization expense for the forty and thirteen weeks ended June 1, 2002
was $3,991 and $1,401, respectively. Amortization expense for the
thirty-nine and thirteen weeks ended May 26, 2001 was $5,281 and $1,785,
respectively. Estimated amortization expense for each of the following
fiscal years based on the intangible assets as of June 1, 2002 is as
follows:
2002 $5,151
2003 3,997
2004 3,249
2005 3,212
2006 3,163
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 will adopt SFAS No. 143 on
September 1, 2002, but has not yet determined the impact of adopting this
statement.
7
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 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 will adopt SFAS No. 144 on September 1, 2002, but has not
yet determined the impact of adopting this statement.
8
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FOR THE FORTY WEEKS ENDED JUNE 1, 2002
RESULTS OF OPERATIONS
FORTY WEEKS OF FISCAL 2002 COMPARED WITH THIRTY-NINE WEEKS OF FISCAL 2001
Revenues. Revenues for the first forty weeks of fiscal 2002 increased $20.2
million or 4.8% to $438.4 million as compared with $418.2 million for the first
thirty-nine weeks of fiscal 2001. This increase can be attributed to an extra
week of revenue in fiscal 2002 (2.6%), increased revenue from the UniTech
nuclear garment services business (1.7%), and growth from existing operations
and price increases in the core uniform rental and first aid business (0.5%).
Operating Costs. Operating costs increased to $263.9 million for the first nine
months of fiscal 2002 as compared with $259.0 million for the first nine months
of fiscal 2001. As a percentage of revenues, operating costs decreased to 60.2%
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 benefited from
the strong performance of its UniTech nuclear garment services business and had
slightly lower energy related costs.
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $106.6 million, or 24.3% of revenues, for the first nine
months of fiscal 2002 as compared with $94.6 million, or 22.6% of revenues, for
the first nine months 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 UniTech nuclear garment services business. Excluding
this settlement, these expenses would have been $95.7 million, or 22.9% of
revenues, in the first nine months 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 was $28.2 million for both the first nine months of fiscal 2002 and the
first nine months of fiscal 2001. As a percentage of revenues, depreciation and
amortization expense decreased to 6.4% from 6.7% for these periods, primarily as
a 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 adopting this statement.
Other Expense (Income). Net other expense (interest and interest rate swap
expense less interest income) was $6.9 million, or 1.6% of revenues, for the
first nine months of fiscal 2002 as compared with $8.2 million, or 2.0% of
revenues, for the first nine months 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 due from settling a revenue agent review with the IRS.
Excluding this charge, net other expense would have been $4.6 million, or 1.0%
of revenues, in the first nine months of fiscal 2002. The decrease in net other
expense is attributable to lower interest rates and reduced debt in the first
nine months 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 nine months of fiscal 2002 and the first nine months of fiscal 2001.
THIRTEEN WEEKS ENDED JUNE 1, 2002 COMPARED TO THIRTEEN WEEKS ENDED MAY 26, 2001
Revenues. Fiscal 2002 third quarter revenues increased $3.6 million or 2.6% to
$144.3 million as compared with $140.6 million for the third quarter of fiscal
2001. This increase is entirely attributable to increased revenue from the
UniTech nuclear garment services business.
Operating Costs. Operating costs decreased to $86.0 million, or 59.6% of
revenues, for the third quarter of fiscal 2002 as compared with $87.1 million,
or 61.9% of revenues, for the third quarter of fiscal 2001, 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 benefited from the strong performance of its UniTech nuclear
garment services business.
9
Selling and Administrative Expenses. The Company's selling and administrative
expenses increased to $34.8 million, or 24.1% of revenues, for the third quarter
of fiscal 2002 as compared with $31.7 million, or 22.6% of revenues, for the
third 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 $9.7 million, or 6.7% of revenues, for the third quarter of fiscal
2002 as compared with $9.4 million, or 6.7% of revenues for the third quarter of
fiscal 2001. The increase in depreciation and amortization expense is primarily
the result of higher depreciation costs. This increase was offset by lower
amortization expense, 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 adopting this statement.
Other Expense (Income). Net other expense (interest and interest rate swap
expense less interest income) was $1.6 million, or 1.1% of revenues, for the
third quarter of fiscal 2002 as compared with $2.1 million, or 1.5% of revenues,
for the third quarter of fiscal 2001. The decrease in net other expense is
attributable to lower interest rates and reduced debt in the third quarter of
fiscal 2002.
Income Taxes. The Company's effective income tax rate was 38.0% for both the
third quarter of fiscal 2002 and the third quarter of fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
Shareholders' equity at June 1, 2002 was $304.6 million, or 77.7% of total
capitalization.
During the forty weeks ended June 1, 2002 net cash provided by operating
activities ($34.6 million) was primarily used for capital expenditures ($26.7
million) and debt repayment ($6.3 million).
The Company had $3.5 million in cash and $75.0 million available on its $170
million unsecured line of credit with a syndicate of banks as of June 1, 2002.
The Company believes that its cash generated 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
10
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 June 1, 2002, the applicable variable rate was 1.98%. 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 June 1, 2002,
the applicable variable rate was 1.90%. 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 June 1, 2002 and May 26, 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. During the third quarter of fiscal 2002 the Company liquidated these
natural gas swap agreements. The impact of this liquidation was not material to
the Company's financial condition or results of operations.
11
PART II - OTHER INFORMATION
FORM 10-Q
UNIFIRST CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
On June 27, 2002, the Company filed a Form 8-K to report the change in the
Registrant's Certifying Accountant. On June 24, 2002, the Company's Board of
Director's decided to no longer engage Arthur Andersen LLP as its independent
auditors and instead engage Ernst & Young LLP to serve as the Company's
independent auditors for the year ending August 31, 2002.
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: July 16, 2002
/s/ JOHN B. BARTLETT
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John B. Bartlett
Senior Vice President
and Chief Financial Officer