Unifirst Corp 10-Q for FY2020 Q1

Unifirst Corp (UNF)

10-Q 2020-01-09 For: 2019-11-30

Added on April 11, 2026

About this 10-Q

Unifirst Corp filed this 10-Q on January 9, 2020, covering the quarter ended November 30, 2019 (FY2020 Q1).

Headline figures

Quarter ended November 30, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $465.4M; up 6.1% from $438.55M a year earlier
Net income: $48.24M; up 25.9% from net income of $38.32M a year earlier
Diluted EPS: $2.52; up 26.6% from $1.99 a year earlier

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Massachusetts	04-2103460
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

68 Jonspin Road, Wilmington, MA	01887
(Address of Principal Executive Offices)	(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.10 par value per share	UNF	New York Stock Exchange

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller Reporting Company	☐

Emerging Growth Company	☐

Part I – FINANCIAL INFORMATION	3

Item 1 – Unaudited Financial Statements	3

Consolidated Statements of Income for the Thirteen Weeks ended November 30, 2019 and November 24, 2018	3

Consolidated Statements of Comprehensive Income for the Thirteen Weeks ended November 30, 2019 and November 24, 2018	4

Consolidated Balance Sheets as of November 30, 2019 and August 31, 2019	5

Consolidated Statements of Shareholders’ Equity for the Thirteen Weeks ended November 30, 2019 and November 24, 2018	6

Consolidated Statements of Cash Flows for the Thirteen Weeks ended November 30, 2019 and November 24, 2018	7

Notes to Consolidated Financial Statements	8

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3 – Quantitative and Qualitative Disclosures About Market Risk	28

Item 4 – Controls and Procedures	28

Part II – OTHER INFORMATION	30

Item 1 – Legal Proceedings	30

Item 1A – Risk Factors	30

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3 – Defaults Upon Senior Securities	30

Item 4 – Mine Safety Disclosures	30

Item 5 – Other Information	30

Item 6 – Exhibits	31

Signatures	32

Certifications
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32.1 Section 906 Certification of CEO
Ex-32.2 Section 906 Certification of CFO

	Thirteen weeks ended
(In thousands, except per share data)	November 30, 2019			November 24, 2018
Revenues	$	465,398		$	438,550
Operating expenses:
Cost of revenues (1)		289,316			277,049
Selling and administrative expenses (1)		90,528			85,959
Depreciation and amortization		25,459			25,116
Total operating expenses		405,303			388,124

Operating income		60,095			50,426
Other (income) expense:
Interest income, net		(2,361	)		(1,705	)
Other expense, net		528			172
Total other income, net		(1,833	)		(1,533	)

Income before income taxes		61,928			51,959
Provision for income taxes		13,686			13,639
Net income	$	48,242		$	38,320
Income per share – Basic:
Common Stock	$	2.65		$	2.08
Class B Common Stock	$	2.12		$	1.67
Income per share – Diluted:
Common Stock	$	2.52		$	1.99
Income allocated to – Basic:
Common Stock	$	40,526		$	32,137
Class B Common Stock	$	7,716		$	6,183
Income allocated to – Diluted:
Common Stock	$	48,242		$	38,320
Weighted average shares outstanding – Basic:
Common Stock		15,308			15,432
Class B Common Stock		3,643			3,710
Weighted average shares outstanding – Diluted:
Common Stock		19,123			19,302


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	Thirteen weeks ended
(In thousands)	November 30, 2019			November 24, 2018
Net income	$	48,242		$	38,320
Other comprehensive income (loss):
Foreign currency translation adjustments		989			(2,282	)
Change in fair value of derivatives, net of income taxes		25			132
Derivative financial instruments reclassified to earnings		(30	)		(44	)
Other comprehensive income (loss)		984			(2,194	)
Comprehensive income	$	49,226		$	36,126

(In thousands, except share and par value data)	November 30, 2019			August 31, 2019
Assets
Current assets:
Cash, cash equivalents and short-term investments	$	356,588		$	385,341
Receivables, less reserves of $10,775 and $9,935		217,884			203,457
Inventories		99,794			100,916
Rental merchandise in service		184,889			184,318
Prepaid taxes		7,465			4,060
Prepaid expenses and other current assets		35,837			35,699
Total current assets		902,457			913,791

Property, plant and equipment, net		574,394			574,509
Goodwill		424,545			401,178
Customer contracts, net		64,590			56,588
Other intangible assets, net		22,922			16,132
Deferred income taxes		474			448
Operating lease, right-of-use assets, net		47,739			—
Other assets		86,464			84,674

Total assets	$	2,123,585		$	2,047,320

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	71,416		$	77,918
Accrued liabilities		114,203			111,721
Accrued taxes		—			205
Operating lease liabilities, current		12,013			—
Total current liabilities		197,632			189,844

Accrued liabilities		117,363			117,074
Accrued and deferred income taxes		98,963			99,172
Operating lease liabilities		33,619			—

Total liabilities		447,577			406,090
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred Stock, $1.00 par value; 2,000,000 shares authorized; no shares issued and outstanding		—			—
Common Stock, $0.10 par value; 30,000,000 shares authorized; 15,298,108 and 15,332,759 shares issued and outstanding as of November 30, 2019 and August 31, 2019, respectively		1,530			1,533
Class B Common Stock, $0.10 par value; 20,000,000 shares authorized; 3,643,009 shares issued and outstanding as of November 30, 2019 and August 31, 2019		364			364
Capital surplus		84,749			84,946
Retained earnings		1,622,069			1,588,075
Accumulated other comprehensive loss		(32,704	)		(33,688	)

Total shareholders’ equity		1,676,008			1,641,230

Total liabilities and shareholders’ equity	$	2,123,585		$	2,047,320

(In thousands)	Common Shares		Class B Common Shares		Common Stock		Class B Common Stock		Capital Surplus		Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity
Balance, August 25, 2018		15,431		3,710	$	1,543	$	371	$	82,973	$	1,405,239		$	(25,159	)	$	1,464,967
Net income		—		—		—		—		—		38,320			—			38,320
Change in fair value of derivatives		—		—		—		—		—		—			88			88
Foreign currency translation		—		—		—		—		—		—			(2,282	)		(2,282	)
Dividends declared Common Stock ($0.1125 per share)		—		—		—		—		—		(1,736	)		—			(1,736	)
Dividends declared Class B Common Stock ($0.0900 per share)		—		—		—		—		—		(334	)		—			(334	)
Share-based compensation, net (2)		—		—		—		—		1,042		—			—			1,042
Share-based awards exercised, net (1)		2		—		—		—		—		—			—			—
Cumulative effect of change in accounting principle, net		—		—		—		—		—		39,433			—			39,433
Balance, November 24, 2018		15,433		3,710	$	1,543	$	371	$	84,015	$	1,480,922		$	(27,353	)	$	1,539,498

Balance, August 31, 2019	15,333		3,643	$	1,533		$	364	$	84,946		$	1,588,075		$	(33,688	)	$	1,641,230
Net income	—		—		—			—		—			48,242			—			48,242
Change in fair value of derivatives	—		—		—			—		—			—			(5	)		(5	)
Foreign currency translation	—		—		—			—		—			—			989			989
Dividends declared Common Stock ($0.25 per share)	—		—		—			—		—			(3,825	)		—			(3,825	)
Dividends declared Class B Common Stock ($0.20 per share)	—		—		—			—		—			(729	)		—			(729	)
Shares repurchased	(51	)			(5	)				(274	)		(9,694	)					(9,973	)
Share-based compensation, net (2)	—		—		—			—		1,575			—			—			1,575
Share-based awards exercised, net (1)	16		—		2			—		(1,498	)		—			—			(1,496	)
Balance, November 30, 2019	15,298		3,643	$	1,530		$	364	$	84,749		$	1,622,069		$	(32,704	)	$	1,676,008

Thirteen weeks ended (In thousands)	November 30, 2019			November 24, 2018
Cash flows from operating activities:
Net income	$	48,242		$	38,320
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		25,459			25,116
Amortization of deferred financing costs		28			28
Share-based compensation		1,575			1,182
Accretion on environmental contingencies		134			189
Accretion on asset retirement obligations		232			220
Deferred income taxes		245			(497	)
Other		5			(19	)
Changes in assets and liabilities, net of acquisitions:
Receivables, less reserves		(12,771	)		(12,165	)
Inventories		1,195			(1,061	)
Rental merchandise in service		1,370			(4,513	)
Prepaid expenses and other current assets and Other assets		(2,074	)		(6,884	)
Accounts payable		(5,031	)		(1,264	)
Accrued liabilities		(2,678	)		(19,651	)
Prepaid and accrued income taxes		(3,497	)		13,256
Net cash provided by operating activities		52,434			32,257

Cash flows from investing activities:
Acquisition of businesses, net of cash acquired		(39,286	)		—
Capital expenditures, including capitalization of software costs		(28,975	)		(23,285	)
Proceeds from sale of assets		61			90
Other		—			33
Net cash used in investing activities		(68,200	)		(23,162	)

Cash flows from financing activities:
Proceeds from exercise of share-based awards		74			—
Taxes withheld and paid related to net share settlement of equity awards		(1,570	)		(140	)
Repurchase of Common Stock		(9,973	)		—
Payment of cash dividends		(2,056	)		(2,070	)
Net cash used in financing activities		(13,525	)		(2,210	)

Effect of exchange rate changes		538			(861	)

Net (decrease) increase in cash, cash equivalents and short-term investments		(28,753	)		6,024
Cash, cash equivalents and short-term investments at beginning of period		385,341			270,512
Cash, cash equivalents and short-term investments at end of period	$	356,588		$	276,536

Supplemental disclosure of cash flow information:
Non-cash capital expenditures	$	8,436		$	14,894

	As of November 30, 2019
	Level 1		Level 2		Level 3		Fair Value
Assets:
Cash equivalents	$	196,615	$	—	$	—	$	196,615
Pension plan assets		—		4,309		—		4,309
Foreign currency forward contracts		—		250		—		250
Total assets at fair value	$	196,615	$	4,559	$	—	$	201,174

	As of August 31, 2019
	Level 1		Level 2		Level 3		Fair Value
Assets:
Cash equivalents	$	214,038	$	—	$	—	$	214,038
Pension plan assets		—		4,603		—		4,603
Foreign currency forward contracts		—		254		—		254
Total assets at fair value	$	214,038	$	4,857	$	—	$	218,895

	Thirteen Weeks Ended November 30, 2019						Thirteen Weeks Ended November 24, 2018
	Earnings to Common Shareholders		Common Shares		Income Per Share		Earnings to Common Shareholders		Common Shares		Income Per Share
As reported - Basic	$	40,526		15,308	$	2.65	$	32,137		15,432	$	2.08
Add: effect of dilutive potential common shares
Share-Based Awards		—		172				—		160
Class B Common Stock		7,716		3,643				6,183		3,710
As reported – Diluted	$	48,242		19,123	$	2.52	$	38,320		19,302	$	1.99

	Thirteen Weeks Ended
	November 30, 2019					November 24, 2018
(In thousands, except percentages)	Revenues		% of Revenues			Revenues		% of Revenues
Core Laundry Operations		416,298		89.4	%	$	390,477		89.0	%
Specialty Garments		33,402		7.2	%		34,448		7.9	%
First Aid		15,698		3.4	%		13,625		3.1	%
Total Revenues	$	465,398		100.0	%	$	438,550		100.0	%

	November 30, 2019		August 31, 2019
Raw materials	$	20,904	$	23,000
Work in process		3,101		2,864
Finished goods		75,789		75,052
Total inventories	$	99,794	$	100,916

	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
November 30, 2019
Customer contracts	$	232,302	$	167,712	$	64,590
Software		56,397		35,878		20,519
Other intangible assets		35,675		33,272		2,403
	$	324,374	$	236,862	$	87,512
August 31, 2019
Customer contracts	$	221,306	$	164,718	$	56,588
Software		48,838		34,813		14,025
Other intangible assets		35,063		32,956		2,107
	$	305,207	$	232,487	$	72,720

	November 30, 2019
Beginning balance as of August 31, 2019	$	27,718
Revisions in estimates		1,200
Costs incurred for which reserves have been provided		(229	)
Insurance proceeds		31
Interest accretion		134
Changes in discount rates		(602	)
Ending balance as of November 30, 2019	$	28,252

Balance as of August 31, 2019	$	401,178
Goodwill recorded during the period		23,348
Other		19
Balance as of November 30, 2019	$	424,545

	November 30, 2019
Beginning balance as of August 31, 2019	$	12,727
Accretion expense		232
Effect of exchange rate changes		29
Ending balance as of November 30, 2019	$	12,988

(In thousands)	2020			2021			2022			2023			2024			Thereafter			Total
Estimated costs – current dollars	$	10,915		$	2,186		$	1,353		$	1,091		$	1,058		$	12,032		$	28,635
Estimated insurance proceeds		(128	)		(173	)		(159	)		(173	)		(159	)		(693	)		(1,485	)
Net anticipated costs	$	10,787		$	2,013		$	1,194		$	918		$	899		$	11,339		$	27,150
Effect of inflation																				7,388
Effect of discounting																				(6,286	)
Ending balance as of November 30, 2019																			$	28,252

	Thirteen Weeks Ended November 30, 2019
	Foreign Currency Translation			Pension- related (1)			Derivative Financial Instruments (1)			Total Accumulated Other Comprehensive Loss
Beginning balance as of August 31, 2019	$	(24,640	)	$	(9,239	)	$	191		$	(33,688	)
Other comprehensive income (loss) before reclassification		989			—			25			1,014
Amounts reclassified from accumulated other comprehensive loss		—			—			(30	)		(30	)
Net current period other comprehensive (loss) income		989			—			(5	)		984
Ending balance as of November 30, 2019	$	(23,651	)	$	(9,239	)	$	186		$	(32,704	)

	Thirteen Weeks Ended November 24, 2018
	Foreign Currency Translation			Pension- related (1)			Derivative Financial Instruments (1)			Total Accumulated Other Comprehensive Loss
Balance as of August 25, 2018	$	(21,116	)	$	(4,135	)	$	92		$	(25,159	)
Other comprehensive (loss) income before reclassification		(2,282	)		—			132			(2,150	)
Amounts reclassified from accumulated other comprehensive loss		—			—			(44	)		(44	)
Net current period other comprehensive (loss) income		(2,282	)		—			88			(2,194	)
Ending balance as of November 24, 2018	$	(23,398	)	$	(4,135	)	$	180		$	(27,353	)

Thirteen weeks ended	U.S. and Canadian Rental and Cleaning			MFG		Net Interco MFG Elim			Corporate			Subtotal Core Laundry Operations			Specialty Garments		First Aid		Total
November 30, 2019
Revenues	$	407,803		$	65,010	$	(65,010	)	$	8,495		$	416,298		$	33,402	$	15,698	$	465,398
Operating income (loss)	$	76,287		$	22,546	$	(2,526	)	$	(42,499	)	$	53,808		$	4,879	$	1,408	$	60,095
Interest income, net	$	(976	)	$	—	$	—		$	(1,385	)	$	(2,361	)	$	—	$	—	$	(2,361	)
Income (loss) before taxes	$	77,257		$	22,403	$	(2,526	)	$	(41,498	)	$	55,636		$	4,884	$	1,408	$	61,928
November 24, 2018
Revenues	$	380,788		$	67,546	$	(67,546	)	$	9,689		$	390,477		$	34,448	$	13,625	$	438,550
Operating income (loss)	$	54,714		$	24,732	$	(3,747	)	$	(30,917	)	$	44,782		$	4,470	$	1,174	$	50,426
Interest income, net	$	(1,047	)	$	—	$	—		$	(658	)	$	(1,705	)	$	—	$	—	$	(1,705	)
Income (loss) before taxes	$	55,752		$	24,840	$	(3,747	)	$	(30,233	)	$	46,612		$	4,173	$	1,174	$	51,959

(In thousands, except lease term and discount rate)
Lease cost
Operating lease costs including short-term lease expense and variable lease costs, which were immaterial in the quarter	$	4,567

Operating cash flow impacts
Cash paid for amounts included in the measurement of operating lease liabilities	$	3,235
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	1,909
Weighted-average remaining lease term - operating leases	4.8 years
Weighted-average discount rate - operating leases		2.86	%

(In thousands, except per share data)
2020 (remaining nine months)	$	9,928
2021		12,211
2022		9,025
2023		6,630
2024		4,397
Thereafter		6,544
Total payments		48,735
Less interest		(3,085	)
Total present value of lease payments	$	45,650

(In thousands, except percentages)	Thirteen Weeks			For the Thirteen Weeks Ended November 24,			Dollar Change		Percent Change
Core Laundry Operations	$	53,808		$	44,782		$	9,026		20.2	%
Specialty Garments		4,879			4,470			409		9.1	%
First Aid		1,408			1,174			234		19.9	%
Cost of revenues	$	60,095		$	50,426		$	9,669		19.2	%
% of Revenues		12.9	%		11.5	%

	(a) Total Number of Shares of Stock Purchased(1)		(b) Average Price Paid per Share(1)		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs(1)
September 1, 2019 - September 28, 2019		19,000	$	194.94		19,000	$	65,780,080
September 29, 2019 - October 26, 2019		19,600	$	193.65		19,600	$	61,986,162
October 27, 2019 - November 30, 2019		12,000	$	206.24		12,000	$	59,510,433
		50,600	$	197.11		50,600

10.1		Form of Stock Appreciation Right Award for Company Employees under the UniFirst Corporation Amended and Restated 2010 Stock Option and Incentive Plan (filed herewith).

10.2		Form of Restricted Stock Unit Award for Company Employees under the UniFirst Corporation Amended and Restated 2010 Stock Option and Incentive Plan (filed herewith).

31.1		Rule 13a-14(a)/15d-14(a) Certification of Steven S. Sintros (filed herewith).

31.2		Rule 13a-14(a)/15d-14(a) Certification of Shane O’Connor (filed herewith).

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101.SCH		Inline XBRL Taxonomy Extension Schema Document (filed herewith).
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
104		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101*) (filed herewith).


		UniFirst Corporation

January 9, 2020	By:	/s/ Steven S. Sintros
		Steven S. Sintros
		President and Chief Executive Officer

January 9, 2020	By:	/s/ Shane O’Connor
		Shane O’Connor
		Senior Vice President and Chief Financial Officer