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UNIFIRST CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and any documents incorporated by reference
contain forward looking statements within the meaning of the federal securities
laws. Forward looking statements contained in this Quarterly Report on Form 10-Q
and any documents incorporated by reference are subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. Forward looking
statements may be identified by words such as "estimates," "anticipates,"
"projects," "plans," "expects," "intends," "believes," "seeks," "could,"
"should," "may," "will," or the negative versions thereof, and similar
expressions and by the context in which they are used. Such forward looking
statements are based upon our current expectations and speak only as of the date
made. Such statements are highly dependent upon a variety of risks,
uncertainties and other important factors that could cause actual results to
differ materially from those reflected in such forward looking statements. Such
factors include, but are not limited to, uncertainties caused by the continuing
adverse worldwide economic conditions, uncertainties regarding our ability to
consummate and successfully integrate acquired businesses, uncertainties
regarding any existing or newly-discovered expenses and liabilities related to
environmental compliance and remediation, our ability to compete successfully
without any significant degradation in our margin rates, seasonal fluctuations
in business levels, our ability to preserve positive labor relationships and
avoid becoming the target of corporate labor unionization campaigns that could
disrupt our business, the effect of currency fluctuations on our results of
operations and financial condition, our dependence on third parties to supply us
with raw materials, any loss of key management or other personnel, increased
costs as a result of any future changes in federal or state laws, rules and
regulations or governmental interpretation of such laws, rules and regulations,
uncertainties regarding the price levels of natural gas, electricity, fuel and
labor, the impact of adverse economic conditions and the current tight credit
markets on our customers and such customers' workforces, the level and duration
of workforce reductions by our customers, the continuing increase in domestic
healthcare costs, demand and prices for our products and services, rampant
criminal activity and instability in Mexico where our principal garment
manufacturing plants are located, our ability to properly and efficiently
design, construct, implement and operate our new CRM computer system, additional
professional and internal costs necessary for compliance with recent and
proposed future changes in Securities and Exchange Commission, New York Stock
Exchange and accounting rules, strikes and unemployment levels, our efforts to
evaluate and potentially reduce internal costs, economic and other developments
associated with the war on terrorism and its impact on the economy, general
economic conditions and other factors described under "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the year ended August 25, 2012 and in other
filings with the Securities and Exchange Commission. We undertake no obligation
to update any forward looking statements to reflect events or circumstances
arising after the date on which such statements are made.
Business Overview
UniFirst Corporation, together with its subsidiaries, hereunder referred to as
"we", "our", the "Company", or "UniFirst", is one of the largest providers of
workplace uniforms and protective clothing in the United States. We design,
manufacture, personalize, rent, clean, deliver, and sell a wide range of
uniforms and protective clothing, including shirts, pants, jackets, coveralls,
lab coats, smocks, aprons and specialized protective wear, such as flame
resistant and high visibility garments. We also rent industrial wiping products,
floor mats, facility service products and other non-garment items, and provide
first aid cabinet services and other safety supplies, to a variety of
manufacturers, retailers and service companies.
We serve businesses of all sizes in numerous industry categories. Typical
customers include automobile service centers and dealers, delivery services,
food and general merchandise retailers, food processors and service operations,
light manufacturers, maintenance facilities, restaurants, service companies,
soft and durable goods wholesalers, transportation companies, and others who
require employee clothing for image, identification, protection or utility
purposes. We also provide our customers with restroom supplies, including air
fresheners, paper products and hand soaps.
At certain specialized facilities, we also decontaminate and clean work clothes
that may have been exposed to radioactive materials and service special
cleanroom protective wear. Typical customers for these specialized services
include government agencies, research and development laboratories, high
technology companies and utilities operating nuclear reactors.
We continue to expand into additional geographic markets through acquisitions
and organic growth. We currently service over 240,000 customer locations in the
United States, Canada and Europe from 219 customer service, distribution and
manufacturing facilities.
As discussed and described in Note 11 to the Consolidated Financial Statements,
we have five reporting segments: US and Canadian Rental and Cleaning,
Manufacturing ("MFG"), Corporate, Specialty Garments Rental and Cleaning
("Specialty Garments") and First Aid. We refer to the laundry locations of the
US and Canadian Rental and Cleaning reporting segment as "industrial laundries"
or "industrial laundry locations", and to the US and Canadian Rental and
Cleaning, MFG, and Corporate reporting segments combined as our "core laundry
operations."
Critical Accounting Policies and Estimates
The discussion of our financial condition and results of operations is based
upon the Consolidated Financial Statements, which have been prepared in
conformity with United States generally accepted accounting principles ("US
GAAP"). As such, management is required to make certain estimates, judgments and
assumptions that are believed to be reasonable based on the information
available. These estimates and assumptions affect the reported amount of assets
and liabilities, revenues and expenses, and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results may differ
from these estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, the most important and pervasive
accounting policies used and areas most sensitive to material changes from
external factors. See the Critical Accounting Policies and Estimates included in
the Management Discussion and Analysis section of our Annual Report on Form 10-K
for the fiscal year ended August 25, 2012 for additional discussion of the
application of these policies.
Results of Operations
The following table presents certain selected financial data, including the
percentage of revenues represented by each item, for the thirteen weeks ended
November 24, 2012 and November 26, 2011. Cost of revenues presented in the table
below include merchandise costs related to the amortization of rental
merchandise in service and direct sales as well as labor and other production,
service and delivery costs associated with operating our industrial laundries,
Specialty Garments facilities, First Aid locations and our distribution center.
Selling and administrative costs include costs related to our sales and
marketing functions as well as general and administrative costs associated with
our corporate offices and operating locations including information systems,
engineering, materials management, manufacturing planning, finance, budgeting,
and human resources.
Thirteen weeks ended
(In thousands, except November 24, November 26,
percentages) 2012 % of Revenues 2011 % of Revenues % Change
Revenues $ 332,569 100 % $ 313,025 100.0 % 6.2 %
Operating expenses:
Cost of revenues (1) 201,551 60.6 195,139 62.3 3.3
Selling and administrative
expenses (1) 64,288 19.3 59,124 18.9 8.7
Depreciation and amortization 16,771 5.0 16,408 5.2 2.2
Total operating expenses 282,610 85.0 270,671 86.5 4.4
Income from operations 49,959 15.0 42,354 13.5 18.0
Other expense (income) (467 ) (0.1 ) 569 0.2 -182.1
Income before income taxes 50,426 15.2 41,785 13.3 20.7
Provision for income taxes 19,666 5.9 15,983 5.1 23.0
Net income $ 30,760 9.2 % $ 25,802 8.2 % 19.2 %
(1) Exclusive of depreciation on our property, plant and equipment and
amortization on our intangible assets.
General
We derive our revenues through the design, manufacture, personalization, rental,
cleaning, delivering, and selling of a wide range of uniforms and protective
clothing, including shirts, pants, jackets, coveralls, lab coats, smocks and
aprons and specialized protective wear, such as flame resistant and high
visibility garments. We also rent industrial wiping products, floor mats,
facility service products, other non-garment items, and provide first aid
cabinet services and other safety supplies, to a variety of manufacturers,
retailers and service companies. We have five reporting segments, US and
Canadian Rental and Cleaning, Manufacturing ("MFG"), Corporate, Specialty
Garments Rental and Cleaning ("Specialty Garments"), and First Aid. We refer to
the US and Canadian Rental and Cleaning, MFG, and Corporate reporting segments
combined as our "core laundry operations."
Cost of revenues include merchandise costs related to the amortization of rental
merchandise in service and direct sales as well as labor and other production,
service and delivery costs, and distribution costs associated with operating our
core laundry operations, Specialty Garments facilities, and First Aid locations.
Selling and administrative costs include costs related to our sales and
marketing functions as well as general and administrative costs associated with
our corporate offices and operating locations including information systems,
engineering, materials management, manufacturing planning, finance, budgeting,
and human resources.
As part of our recent revenue growth, we have been experiencing increased
merchandise costs. This increase has been primarily due to our increased
investment in merchandise to the levels needed to support our growing wearer
base. During fiscal 2009 and early fiscal 2010, our results of operations
benefited from our utilization of used garments that our customers returned to
us as a result of reductions in their workforces. Since then, we have put
significantly more new garments into service to meet the day-to-day needs of our
existing wearer base. In addition, increased new account sales, including some
larger national accounts, have also required us to make a large initial
investment in merchandise. The increased merchandise cost is also the result of
strong growth in our flame resistant and high visibility product lines. This
growth was largely the result of increased oil and natural gas exploration as
well as enhanced regulatory requirements that have caused uniform wearers in a
number of industries to convert to these more protective garments.
The price of fuel and energy needed to run our vehicles and equipment is
unpredictable and fluctuates based on events outside our control, including
geopolitical developments, supply and demand for oil and gas, actions by OPEC
and other oil and gas producers, war and unrest in oil producing countries,
regional production patterns, limits on refining capacities, natural disasters
and environmental concerns. Future increases in fuel costs could impact our
results going forward.
The current worldwide economic uncertainty may negatively impact our revenues
and operating performance in fiscal 2013 and beyond due to the impact on
spending plans and employment levels of our customers and sales
prospects. Throughout fiscal 2012 and into fiscal 2013, U.S. and Canadian
unemployment rates remained high, which had a negative effect on wearer levels
and, as a result, on our business.
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