UniFirst Corporation (UNF) — FY2012 Form 10-K
Business and reporting period. UniFirst provides uniform and protective-clothing rental, cleaning, delivery and sales, alongside specialty garment, facility-service and first-aid offerings. The fiscal year ended August 25, 2012 (52 weeks). This is an annual filing; the fourth-quarter figures are included below for the period identified in the request.
Financial performance
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Revenue | $1,256.3 million | $1,134.1 million | +10.8% |
| Operating income | $151.1 million | $124.0 million | +21.9% |
| Operating margin | 12.0% | 10.9% | +1.1 percentage points |
| Net income | $95.0 million | $76.5 million | +24.2% |
| Diluted EPS, Common Stock | $4.76 | $3.85 | +23.6% |
| Operating cash flow | $161.7 million | $86.2 million | +$75.5 million |
| Capital expenditures | $74.5 million | $63.8 million | +$10.7 million |
Cost of revenue rose to 63.5% of sales from 62.8%, primarily due to higher merchandise costs; lower payroll and other production costs as a share of revenue partly offset the increase. Selling and administrative expense fell to 19.2% of revenue from 20.6%. Net margin was 7.6%, versus 6.7%.
Fourth quarter: Revenue was $312.4 million, compared with $290.9 million in Q4 FY2011; net income was $22.5 million versus $18.0 million. Quarterly results are unaudited.
Liquidity and debt: Cash and cash equivalents were $120.1 million at year-end, up from $48.8 million; working capital was $342.2 million. Total debt was $104.7 million, including $100.0 million of floating-rate notes due September 2013. The company had no revolver borrowings, with $206.3 million available under its $250 million credit facility after $43.7 million of letters of credit. It reported compliance with debt covenants. Shareholders’ equity was $896.9 million.
Changes and drivers
- Core laundry revenue grew 11.6%, including 10.8% organic growth, 1.0% acquisition-related growth and a 0.2% adverse Canadian currency impact. Strong new-account sales, improved pricing and protective-garment growth contributed; wearer levels at existing accounts were effectively flat.
- First Aid revenue rose 21.7%; Specialty Garments revenue decreased 0.5%, partly because two large reactor rebuild projects were completed. Specialty Garments operating income fell 12.0%.
- Operating income improved despite higher merchandise costs. Other expense declined to $0.4 million from $3.4 million, reflecting lower interest costs following debt repayment, partly offset by foreign-exchange losses.
- Operating cash flow less capital expenditures was approximately $87.2 million, versus $22.3 million in FY2011. The company reported a $71.3 million net increase in cash.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided. Management said cash, operating cash generation and available credit should meet anticipated working-capital and capital-expenditure needs for at least 12 months.
- Management cautioned that continuing economic uncertainty and high unemployment could affect customer employment, wearer levels, spending and results in FY2013 and beyond. Fuel and energy prices, labor costs, competition, customer retention and seasonal fluctuations are additional risks.
- A third-quarter environmental-litigation settlement produced a $6.7 million pre-tax gain, equivalent to a $0.21 diluted EPS benefit. This is a material nonrecurring item in FY2012 earnings.
- Environmental liabilities were accrued at $20.0 million. The company continues remediation and monitoring at multiple sites; EPA comments on Woburn remedies and investigation of a related area remained unresolved. Management cautioned that estimates may change and costs could exceed accruals.
- Other exposures include regulation or disruption of nuclear garment services, currency fluctuations, Mexico operating risks, self-insured claims, and execution of a CRM-system modernization. The Croatti family held approximately 77.1% of combined voting power, principally through Class B shares.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. No goodwill or other intangible-asset impairment was recorded in FY2012.
Investor verification priorities
- Assess how much of the 10.8% organic core-laundry growth came from new sales and pricing, and whether wearer levels recover from flat growth.
- Evaluate the sustainability of margin improvement given merchandise-cost growth and the $6.7 million environmental settlement gain.
- Review the $100 million note maturity in September 2013 and the company’s refinancing or repayment plans.
- Track environmental remediation assumptions, EPA developments, accrued liabilities and potential costs beyond current reserves.
- Compare cash generation with elevated capital spending and confirm the ongoing liquidity and covenant position.