UniFirst Corp (UNF) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the UniFirst Corporation 2004 first quarter earnings release conference call.

During the presentation all participants will be in liven only mode.

Afterwards we will conduct a question-and-answer session.

At that time, if you have a question please press the 1 followed by the 4 on your telephone.

I would now like to turn the conference over to John Bartlett, Senior Vice President.

Please go ahead.

Thank you and welcome to UniFirst conference call to review our first quarter operating results for fiscal 2004 and to discuss our expectations going forward.

My name is John Bartlett, and I'm the Chief Financial Officer.

Joining me are Ronald Croatti, UniFirst president and CEO and Dennis Assad, Senior Vice President of sales and marketing.

This call will be in a listen-only mode until we complete our prepared remarks.

This call may contain forward-looking statements that reflect the company's current views with respect to future events and financial performance.

These forward-looking statements are subject to certain risks and uncertainties.

The words anticipate and should and other words to identify forward-looking statements, actual future results may differ materially from those anticipated depending on the 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 ongoing war on terrorism, strikes and unemployment levels, demand and price for the company's products and services, improvement in underperforming rental operations and the outcome of pending and future litigation and environmental matters.

Now, with that over with I'll turn the call over to Ron for his comments.

Thanks John.

I'd like to welcome all of you who are joining us for the review of our first quarter.

The company's most successful revenue period ever.

John will get to the details of the numbers in a bit but let me start with a brief recap.

I'm pleased to report the revenue for the first quarter of fiscal 2004 were $180.9 million, a 21.3% increase over the same period a year ago.

A big part of that came from the acquired businesses, primarily from Textilease, which we added right after the beginning of the fiscal year.

Though our key elements of the business contributed as well.

Acquisitions accounted for

16.3% of the total revenue growth.

Organic internal growth is 5%.

So despite reductions and account losses we saw our core uniform business move ahead, and that's a positive sign in the economy that's still in a recovery mode.

Price increases were less than 1%.

The major portion of the growth we posted came from our laundries, but we also benefited on the first aid side from the additions of Textilease's Medique and Medifirst operations to our green card division.

As expect our nuclear business was down slightly while our Canadian business was up.

Income before cumulative effect of accounting changes in 2003 was $9.5 million, or 50 cents per share, or 9.9% increase from last year's first quarter, 8.7 million, up 45 cents per share.

Net income showed a 48.3% increase from last year's 6.4 million or 33 cents per basic share.

This comparison benefited from the lack of cumulative effect of accounting changes which applied last year.

But beyond that, there was a real earnings improvement that we credit primarily to improved performance in our laundry operations and additional profit from manufacturing.

New uniform service sales for the quarter, that means newly contracted rental dollars, were down about 4% from the same period a year ago.

Partly that's due to the fact that fiscal year 2003's first quarter was especially strong, and partly that we're still seeing the effects of economic slow down and lack of business confidence that has resulted from it.

Also, we tightened up on our new account pricing policy and that had the effect of cutting out some opportunities for the sales reps might have previously pursued.

We watched these indicators just as you do.

And as we see the corporate layoffs are trending down, that the service sector is expanding, that even the Institute of Supply Management Manufacturing price index is ticked up, but the fact is the trends upward in the economy haven't been reflective in our market.

The people we're calling upon are still being cautious about new spending commitments.

We think that's a carryover effect that will take at least another quarter to diminish.

Our wear and shrinkage for the last quarter was half that of the last period, and stayed relatively flat in the 8% range.

We are though seeing higher account losses at the acquired Textilease locations, currently running at an annual run rate of almost 15%.

This is due to the competitive attack frenzy of acquired customers that normally follow a major deal of this sort.

We have taken all necessary steps to convert as many Textilease accounts as possible to new UniFirst agreements and this process is continuing.

Most businesses that lost in these situations tend to fall in the first few months, so we anticipate the effect of competitor efforts will diminish over the next quarter and it will see a slight reversal of the run rate.

Overall, the Textilease acquisition integration is proceeding essentially on plan, by mid December, the corporate functions, other than the route accounting, has been phased out.

We have also converted our first location to full UniFirst billing by the end of the first quarter.

All locations should be fully integrated by September, though rerouting and the introduction of full UniFirst systems will take some additional time beyond that.

As you expect, we are continuing to watch the spending very carefully.

And are keeping a tight rein on our capital projects already under way and rescheduling when possible any major new projects.

We expect a good year but we know that achieving it will depend on keeping our eye on the ball, not letting

those forecasts of quick turn around dictate our short term actions.

Now, for additional details regarding our financial performance here is John Bartlett, Chief Financial Officer.

Thank you Ron.

As Ron explained we were generally pleased with the results of operations for the first quarter of fiscal 2004.

This quarter was busy and challenging from an accounting standpoint.

First and foremost was the consolidation of many of the accounting operations for Textilease.

We assumed the general ledger and accounts payable for January, the beginning of our first cull year, the payroll procesing as of October 1st, 2003.

As with most come days it came with some problems, we are working through the issues and confident that assuming control immediately will give us better control as we move forward.

Revenues for the first quarter of fiscal 2004 were a record $180.9 million, a 21.3% increase over the prior year's first quarter.

Of this increase 16.3% arose from acquisitions, and the balance of 5% from internal growth and price increases.

The acquisition of Textilease accounted for substantially all the growth from acquisitions.

The laundry segment of our business increased 20.8% in fiscal 2004.

Of this increase 15% was due to acquisitions and the balance of 5.8% from internal growth and price increases.

The first aid business tripled due to the acquisition of Textilease.

We are confident it will make a positive contribution to our operations as we move forward.

Finally as expected our UniTech business declined 1.8% from the record results of the first fiscal quarter of 2003.

Operating cost increased from 92.7 million to 115.1 million or 24.2%.

As a percent of revenues these costs increased from 62.1% to 63.6% of revenues.

The primary driver in this increase was additional merchandise amortization resulting from the Textilease acquisition.

Also in general the Textilease laundries have higher production costs than the existing UniFirst facilities.

One of our goals will be to bring these costs in line as we consolidate these operations over the next couple of years.

We do not expect to see any significant benefit in until fiscal 2005 or 2006 when we will fully integrate the two entities.

Selling and administrative costs increased 15.4% from 31.9 million to 36.8 million in fiscal 2003, but declined as a percent of revenue, from 21.4% to 20.4%.

This benefit is the result of the quick closure of Textilease's corporate office as well as relatively fewer salespersons as a function of the combined operations.

Depreciation and amortization

increased 11.6% from 9.9 million to $11 million but also declined as a percent of sales from 6.6% to 6.1%.

This happened in spite of significant increases in depreciation and amortization as a result of the Textilease acquisition.

One factor was a year-over-year decline in amortization of intangible assets of approximately $300,000 from a large acquisition made in 1986.

The net result of the above factors was that income from operations increased $3.3 million from 14.7 million to 18 million, and was 9.9% of revenues for both periods.

Net interest expense for the first quarter increased significantly from $600,000 in fiscal 2003 to $2.5 million in fiscal 2004.

Effectively all of our borrowing is based on floating short term rates which have remained very favorable.

We are considering fixing the interest rate on a portion of our debt, which would result in higher interest cost going forward, but would provide protection against possible increases in interest rates.

The provision for income taxes remain constant in both periods at 38.5%.

Finally, income before the cumulative effect of the accounting change recorded in the first quarter of fiscal 2003 increased $850,000 or 9.9% from 8.7 million or 45 cents per basic share to 9.5 million or 50 cents per basic share.

In the first quarter of fiscal 2003 the company recorded an expense of 2.2 million net of tax, or 12 cents per basic share, as a result of implementing SFAS 143 regarding long lived assets.

Accordingly, total net income increased 48.3% or 3.1 million from 6.4 million or 33 cents per share to 9.5 million or 50 cents per basic share.

As expected the balance sheet of the company incurred a significant increase in debt as a result of the Textilease acquisition.

Total debt in November 29, 2003, was 40.9% of total capital as opposed to 17.3% at August 30, 2003.

However the cash flow of the company remains very strong and we expect to reducing the debt level significantly over the next couple of years.

The company has moderated its capital expenditure spending and anticipates capital expenditures to be approximately $30 million in fiscal 2004 as opposed to 38 million in fiscal 2003 and 33 million in fiscal 2002.

The impact of the Textilease acquisition, comparisons in the balance sheet are not meaningful.

The most significant increases are in intangible assets which have increased from 20.5 million for amortizable intangible assets, and 62.6 million goodwill as of August 30, 2003 to 57.9 million for amortizable intangible assets and 181.5 million for goodwill as of November 30, 2003.

The company has retained an independent third party to appraise the assets resulting from the acquisition.

We've included their preliminary results in these financial statements but the appraisal results are not yet final.

Overall we are pleased with the results for the first quarter.

In our November conference call we provided guidance that we expected fiscal 2004 revenues to be between 700 and $710 million and the basic income per share to be between $1.50 to $1.55 or essentially flat for fiscal 2004.

We are now more optimistic and believe revenues to be between 710 and 720 million and basic income between 1.55 and 1.65.

Now Dennis Assad, our Senior Vice President of sales and marking that has a few comments.

Thanks John.

As Ron pointed out new uniform service sales in the first quarter were off in the same period a year ago.

As he also pointed out the comparison doesn't benefit this year's performance due to the fact that the fist quarter of fiscal 2003 was an especially good one.

As you may recall, there was a blip of business optimism back then that reflected itself in that economy in those early results.

But that sunny period was short lived and the rest of the year proved to be somewhat of a struggle.

As Ron also suggested we are seeing a carryover of last year's buyer uncertainty in today's market, whatever the indicators may be saying.

Our on the street salespeople continue to face business buyers who are wary and extremely conscious.

Even beyond that we have adopted a strategic position that has also had a minor negative influence on the written business.

Competitive environment where price offers are being made by some competitors at near loss levels just to get contracts signed.

We decided not to play in that game.

We drew a line in the sand and let our salespeople know we would flat-out reject the smallish very low margin deals that some are gobbling up.

That maybe had something of a negative impact for short term but we believe it is the best course to follow for the longer term and we know it is giving our sales team more time to concentrate on the larger prospects that should be our primary targets anyway.

In other areas of sales development we are seeing some positive things.

Our national account team have carried the sales momentum they felt during the second half last year into the first quarter of this year and are running ahead of forecast in written business.

Our dedicate facility service organization is benefiting from more intensive training, new sales process model and higher levels of field support and our specialists in protective garment sales are beginning to make inroads with some major prospects and anticipate good sales results for later in the year.

Lastly our route sales organization continues to chip in with current account penetration increases as a result of our power routes customer promotion program.

There are also some good things going on that will benefit results downstream from our uniform services professional sales team who will continue to invest in database improvements and refinements upgrading record content and accuracy and giving sales reps and managers more ways to slice and dice information for better prospect targeting.

In the sales training area we are always pushing ahead with important advancement.

We have added a dedicated manager of curriculum development and are pushing forward with new programs for interactive intranet training and are developing tools for individual sales rep evaluation and assessment.

And in the area of prospect development, we've recently introduced further refinements to our large account targeting program which embrace east multifaceted contact process that can be fully directed and controlled by individual location sales managers.

This local ownership program has proven successful in several test locations that is now available system-wide.

We've seen a somewhat slow sales start to the year but we believe that we can expect steady improvements in the quarters ahead and once buyer confidence returns to the marketplace our numbers will match our optimism.

Thank you, Dennis.

That completes our prepared remarks so we'll turn it back to Cliff and then we'll be prepared to answer some questions.

Thank you.

Ladies and gentlemen if you would like to register for a question please press the 1 followed by the 4.

You will

hear a three tone prompt to acknowledge your question.

If you are using a speaker phone please lift your hand set before answering a question.

Please one mom please.

Michael Schneider from Robert W. Baird.

Good afternoon, gentlemen, nice quarter.

Congratulations.

The new sales number, did I hear you correctly that it was minus 4% in the quarter?

That's correct, quarter to quarter.

Could you build up to the 5%, with attrition, pricing a half a point positive, your sales down 4, I have a hard time believing the stops were plus five or six points to whatever it gets to 5% organic growth.

Well, they're not.

That's 16.8, was the new sales. 8.2 was the loss. 4.5 was the shrinkage, .9 was the price, gives you a net of 5.

Okay.

So then I'm sorry, could you then just define what you mean by new sales at minus 4 versus the 16.8 you're talking about?

I think we're at 20% La last year.

Mike, this is always confusing and I think it's confusing for our company and other companies.

The numbers that Dennis was reporting were new contracts written this year versus new contracts written a year ago.

For the first quarter only.

For the first quarter only.

So the new contracts he wrote in the first quarter of last year carry over and we're getting those revenues this year and in future years.

So the fact that we had a good year last year is impacting our results this year, more than the fact that we didn't have such a good year this first quarter.

In fact, we didn't do so well this first quarter will impact the future.

Sure.

So it's the contracts we're writing that we're reporting not the revenues reported in that -- in that fiscal quarter.

Okay.

And Dennis, you're reporting these in dollar terms, correct?

That's correct.

And then just along the Textilease loos book of business now, you mentioned that attrition is running at 15%.

Could you just annualize what sales are running at then if you do indeed divest the linen and some of the health care business what you expect annualized revenue to be?

Well, that's a good question.

First of all, we don't anticipate that run rate, that 15%, to hold up.

Thinking it will fall back to more like 12.

As far as the new sales side, the new sales, you know, they had 33 or 34 salespeople, and Dennis and Tim went through and interviewed them and determined how many we were going to keep or fit our mold or what have you.

I think we lost or we kept about 25%.

So the new sales coming out of Textilease right now are relatively minor.

As far as divesting the linen, it's a plant-by-plant divestiture.

Totally, it's probably about a $5 million deal.

But it will come out piece by piece as we find the buyers for it.

So net, Ron, do you think you end up with $80 million in revenue after the divestitures and the customer losses?

Boy, that's a tough one.

I would say right around that range.

You talking just rental or run or the total?

No, the total.

Yeah, total business.

Total business is, because we also might be looking at selling a portion of the first aid business.

The catalog portion of that first aid.

That's just a couple million, those?

That's correct.

That's correct.

Okay.

And just finally, your plans about integration going from here, it sounds like a plant integration won't go on until probably late '04?

Well, what we're basically doing, Michael, is all the accounting is over.

The route transitions of putting them on our billing system, and it's a two-part system.

First, there's the billing system and then there's the ordering system, our automated stockroom system.

They're 60 days apart.

So what we do basically is, we set up a schedule, hopefully we can stay to it, we've done one location before the holidays, we're doing the second location next week.

And that's the conversion of the billing.

We should be on a cycle about every four weeks of bringing a location on. 60 days after they're on our universe billing system, they go on our order maintenance system.

And that gives us the ability to use UniFirst commerce to the full extent, save that savings on the garments.

Okay.

That's just getting the billing converted and the routes running out of the right location.

The reconsolidation of the routes is going to be an '05 event.

Okay.

And final question, just stepping back to the Textilease accounts, how is it that the attrition runs so much higher?

I would presume these contracts are fully assignable.

Well, the contracts are assignable, but they did not do a good job keeping their contracts current.

Okay.

That explains it.

Thank you.

Uh-huh.

Ladies and gentlemen, as a reminder, if you wish to register a question please press the 1 followed which the 4 on your telephone.

Our next question comes from Rick Dotay of Columbia Management.

Hi guys.

How are you.

I believe on the last call, Dennis you may have said this already, could you get specific and in the number of folks that have come on since last quarter?

Actually, we're pretty flat.

I don't recall making a statement saying that we were going to add to it significantly.

But I'd say we're flat to 1 to 2% up.

Okay.

So is the plan not to add to sales?

Actually, I think we've got pretty much a full sales staff.

I think what we're trying to do at this point in time is increase productivity.

Okay.

I don't know if somebody -- I assume somebody's done this calculation.

But what was the net bottom line effect of Textilease in the quarter?

I think it's really hard to tell.

Because we already have kind of integrated some things, Rick.

We merged the accounting functions.

We assume some of those functions that they were doing and our kind of our corporate costs, but if you want me to guess, I mean, I think it was -- they operated at slightly less of a contribution than the UniFirst laundries, the revenues from Textilease of approximately 23 million or so was approximately a 10% margin.

And it pretty much offset the interest in the amortization, I think the improvements came more from the UniFirst doing a little bit better in the existing locations.

Right, okay.

But I think it was essentially about what we had expected or hoped for.

Getting back to the comment on attrition, you know, Ron and I talked about that back probably November/December.

But -- and at that point it wasn't clear that anything of significance had left.

You guys, I mean, is there some noticeable slow down at the rate of which you're losing business, or what's the response so far, and is it --

I think on the as-versus reductions, the wears, the run rate is about half last year.

This -- I'm talking about Textilease and the loss -- and the lost accounts.

Okay.

Textilease and the lost accounts, you know, the first three months, four months, our competitors were very active.

Okay.

Because that's, you know, I think Michael and I had a conversation, Michael Schneider, and that was what he was hearing.

And I went to you and it didn't sound like you were losing much and obviously you did lose a pretty good slug.

And what -- what makes you think -- is it more than you expected to lose?

I think you guys thought you'd retain quite a -- you know --

I think we're going to retain quite a bit.

I think it's just the first competitive frenzy that, you know, everybody's got a customer database and they know when their contracts are expiring.

Textilease's contracts were not up to where they should have been on renewing them.

So you guys knew that because you did due diligence.

And we did the due diligence and we went out there and tried to renew them.

You know, in some places, we renewed them, in some place a friendly competitor got them.

But I think we're seeing a slow down, you know, we saw a slow down in December.

But is that because of the holidays, people don't want to make decisions?

I think coming out of that, in this month and next month, we'll get a good read.

We have been pounding our people on getting the agreements signed.

Okay.

That's why I think it will not uphold that run rate.

So the new guidance obviously, obviously incorporates probably the worse than expected retention on --

That's correct.

Okay, all right, thank you.

Our next question comes from the line of Forest Temple.

Sorry guys I got on here late.

I wanted to check with you on the balance sheet, what were the moves that went on with long term debt, other assets, talk about what we're doing with receivables and inventories.

The affect of the balance sheet was clearly the function of recording the preliminary estimates of the Textilease acquisition, that was essentially almost all of the significant changes in the balance sheet arose from that.

I think receivables were up a little bit more than that percentage, and it's not unusual in the first quarter for our receivables to be up, impact from the UniTech business, which usually has a stronger first quarter than they do in the summer.

But I think it's more reflecting the Textilease.

How do you think about Textilease primarily?

We don't expect any problem with them.

I'm not sure what your question is.

You feel like right now the inventories, reflect pretty much what we ought to be on the inventory side, do you think you're running a little lean, in excess at all?

What do you think about the inventory?

I think really in two pieces.

If you back out the impact of Textilease, we're where we expect to be.

We have to integrate that inventory and utilize as much as we can.

That is perhaps some distortion in the short term.

If I look at inventory adjusting seasonality, going forward, the adjustment going forward the trend over the next few quarters would be down?

Think would be down little bit, yeah.

By year end.

By year end.

Okay.

Thank you.

Our next question comes from the line of Bruce Simpson of William Blair and Company.

Hi, Ron and John.

Hi Bruce, how are you?

Good.

I wonder if you could talk about industry pricing.

You touched on that particularly on the aftermath, Cintas have indicated they would make sticks in price increases from the February time frame.

When you look at new business pricing on a year-over-year basis from December 2003 versus the prior year, how does pricing feel for new business?

Is it stronger or weaker than your earlier and what's the trend?

I think it's getting -- this is Dennis.

I think it's getting a little stronger out there, there's no question.

Unfortunately, I feel that part of our problem has been that we've really tried to increase prices and in the six to eight to 10% range.

And that hasn't been flowing as well as we thought it might.

So I would suggest that the prices are coming up slightly, not to the degree that I'm hearing on these webcasts as well.

And then one quick kind of clarification, Ron, can you give us a ballpark for cost of borrowing to finance Textilease overall, should we be using 5% as kind of a benchmark figure?

Well, I can answer that.

The -- our -- essentially all of our borrowing even including the impact of the swap, because that's been mark-to-market, that's LIBOR plus two hundred basis points, it's been 3.75%, plus or minus that.

Now, in addition to that, we have some costs that we had to -- you know, we had significant costs to arrange the new deal, and that adds probably in the next three years, close to almost a half a point to that.

And then there's some stand by fees.

So if you use a 4% figure I think you're probably fairly close.

But it's all subject to the short-term rates.

And if they go up, it will go up.

And as I mentioned we're looking to fixing a portion of it with a private placement which would fix that portion of it.

John, do you have a breakout for this quarter for the swap impact?

Yeah, sure.

We put it in the press release.

But the swap was a benefit of $480,000 in the quarter.

Okay.

And I anticipate it will be in that range for the next three quarters.

And it will pretty much run out.

That's the end of the swap, after --

Well, it's October of 2004, so we'll be a little bit of carryover in the fiscal 2004.

But --

Okay.

I'll ask you guys to do the same thing that you did at the time of your prior call, which was you gave us an update on I think you have a week to week measure, how much we do with existing customers this week versus the prior week.

And as I remember at that call, you said for the months of October and November, seemed like it was sort of 50/50.

So if you could just kind of bring us up to date for the balance of what you've seen since then.

I'm digging for it.

I have the November year-to-date.

He wants --

Month by month?

I don't have the month by month.

I've got it.

Okay.

I think we've seen more ups and downs, you know, probably out of the 13 weeks, you could probably say seven or eight ups and five downs.

Okay.

But on a monthly basis, I give you the monthly number.

September was down.

October was plus.

And November was down.

Okay.

Do you have December yet?

Yeah, on another schedule.

December, I think, was up, people don't lay off people in December.

Like last year, second or third week of January, you know, it got blasted, people got laid off big time.

That's the way we saw it.

But I think that's where we're at.

Okay.

Ron, can you comment about, in Textilease, I know that at the time of the acquisition, the union was buzzing around there making some noise and I wasn't clear whether that was just to scare off Cintas or whether they're

interested in organizing those plants.

Is that an issue now or have they rescinded their activity given the deal is closed?

I think at the one location, it's still an issue.

They're still buzzing around one location.

Okay.

We have 14 unfair labor charges out of that one location we're dealing with.

Okay.

I guess the last thing is, John, if you could just comment on gross margin, as a percentage of revenue, and the, you know, how much of the change there -- I had it at 36.4 in the quarter, how much of the change there comes from Textilease, what we ought to be looking forward, is this kind of a typical quarter for Textilease's contribution, or you know, as we look to model, moving forward, what is the -- where will improvement be as you get Textilease sewn into your operations, will it be in gross margin or SG&A?

I don't see a big change for the balance of this year.

The big change we've already made.

We have taken over and effectively layered their top management, we didn't get all the benefit of that in the first quarter but we got a pretty big piece of it.

So I don't envision a big change in that as we go forward.

And we don't expect we will really get any benefit in the operating cost until we get them on our billing system and then we really start doing the rerouting and you know, consolidating plants and that nature and that won't be 'til fiscal 2005.

So I think as you model it, I think -- I mean our goal really is we won't be able to tell Textilease from UniFirst in eighteen months, it will all be one business, we already moved one branch to our Landover operation, so there's no difference from the corporate side, whether it's Textilease or UniFirst now.

Okay.

John, when you give us that guidance of 1.55 to 1.65, is that inclusive of the swap impact or does that screen it out?

That's everything.

Okay.

Thanks a lot, guys.

And the reason that's a little broad, I'll just say, we, as everyone think those that follow us, we had a tough second quarter last year.

And we'll feel a little more confident in the second quarter as what the balance of the year looks like.

Okay, thank you.

Our next question comes from the line of Michael Schneider of Robert W. Baird.

Just a couple of follow-ups on here.

Just on profitability.

I am struck that operating profit at 9.9% was flat with last year despite the fact that UniTech was weaker and the Textilease impact was presumably below the corporate average.

Can you shed some light on where the savings came from because it implies the core business was let's call it materially more profitable this quarter.

It really is hard to pinpoint.

But the pluses, we had a little bit more, I don't have a number for you, but the manufacturing impact was continuing to benefit, flow-through of the manufacturing profit from Mexico.

Really, the sales cost, we have very little selling expense for Textilease at this point, because what we've done is, we've terminated most of the salespeople.

And really, we're in a lot of those markets with our own sales force.

Any contracts we write we want to deliver it to our systems in our business.

It isn't we're selling on those markets, we're not selling and recording them through the Textilease operations.

As you look at the number of salespeople we have in relationship to the size of the business, it's down this year.

And Dennis, that begs the question though, that you've got a bigger animal to feed here.

How do you keep the momentum going if you keep the sales force as a percent down or smaller in size for this bigger business?

Well, we're -- that is a difficult problem, there's no question about it.

But we're trying to incorporate sales into the customer base, at the locations, the Textilease locations.

And that's really where we're focusing, you know, as we separate the two organizations.

So now, we do have a couple of salespeople actually three or four of them that are working in those locations, where we were not heavily penetrated.

So that's helped us a little bit.

But we're essentially maintaining, like I said, a very small increase in the sales staff, and the rest we'll have to get through increases in the customer base.

Okay.

And talk again, Dennis, about the pricing on the anniversaries of existing contracts.

Are you realizing on a net basis even CPI, or are we still talking low single digit pricing?

We're still talking low single digit.

The pricing really has not come up as much as we wanted it to.

Our competitors I know are trying to do the same thing.

But it is not taking effect yet.

We're getting very, very minor increases in new sales items.

So could you repeat again the statement that you were trying to put through 6, 8 and 10% price increases?

On those on renewals, new contracts?

Those are on new contracts only.

New contracts, okay.

And we are experiencing difficulties, you know, because again, competition was not following suit.

We're still pushing in that area, because we definitely want to try to get more profitable business.

Okay.

But it's just not going as well as we'd like it to.

And the national accounts business in the first quarter, could you quantify it and how much it grew?

I can't quantify it.

But it's improved over the last year, probably in the 15 to 16% range.

Okay.

And John, just two questions again on profitability.

With regard to the termination of the senior management at Textilease and the sales force, were there payouts or severance payments made to those people of any material amount in the quarter?

There were some pretty substantial severance agreements that their top management had.

And there were some payouts in the quarter that we have charged to a reserve.

And for the most part their top people got a year's severance, which we'll be paying out over the next year.

But that will not -- that will be treated in the purchase accounting and not impact the P&L.

Okay.

And the opposite effect, the integration cost in the quarter, just so the billing systems, et cetera, didn't sound like there was much in the quarter.

So do those expenses hit the P&L really beginning in this second fiscal quarter?

Well, the integration of the billing?

Yes.

The total of those, I don't think those will be substantial when we put the billing on.

But whatever cost we have will be in the P&L yes, as we do that.

Okay, that's it, thank you.

There are no further questions at this time.

Mr. Bartlett, I'll turn the call back to you.

Well, I certainly want to thank everybody for the interest in UniFirst.

We're very confident as we move along, on the revenue side, we're sure we'll get the sales up.

Dennis is working hard at that.

And we're doing our best to retain the customers we have, and Textilease's customers.

And we'll keep that pressure moving.

I want to thank you for following the company and have a good afternoon.

Thank you.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you very much for joining and ask you to disconnect your line.