UniFirst(UNF) - 2019 Q4 - Annual Report

Company Overview - UniFirst manufactured approximately 67% of the garments placed in service during fiscal 2019, primarily work pants and shirts[13] - The company serves over 300,000 customer locations across the United States, Canada, and Europe from over 260 facilities[17] - Approximately 14,000 employees were employed as of August 31, 2019, with about 1% represented by a union[24] - The company has approximately 270 facilities totaling about 7.7 million square feet across the United States, Canada, Mexico, Europe, and Nicaragua, with 132 owned facilities covering approximately 5.8 million square feet[80] Financial Performance - Total revenues for fiscal 2019 were $1,809,376, an increase of 6.6% from $1,696,489 in fiscal 2018[1] - Net income for fiscal 2019 was $179,134, representing a 9.1% increase compared to $163,895 in fiscal 2018[1] - Basic income per share for Common Stock increased to $9.77 in fiscal 2019 from $8.66 in fiscal 2018, reflecting a growth of 12.8%[1] - Operating income for fiscal 2019 was $232,008, a 27.2% increase compared to $182,376 in fiscal 2018[133] - The cost of revenue for fiscal 2019 was $1,139,195, accounting for 63.0% of total revenues, up from 62.3% in fiscal 2018[133] - Income from operations rose by 27.2% to $232,008, representing 12.8% of total revenues[157] - Selling and administrative expenses decreased by 7.2% to $334,840, accounting for 18.5% of revenues[155] Market Competition - The uniform rental and sales industry is highly competitive, with principal competitors including Cintas Corporation and Aramark Corporation[22] - The company faces intense competition in the uniform rental and sales industry, primarily from Cintas Corporation and Aramark Corporation, which may lead to price reductions and reduced gross margins[37] Environmental and Regulatory Matters - The company is subject to various environmental regulations and has taken measures to address potential liabilities related to hazardous materials[32] - The company has accrued costs related to environmental remediation, with potential exposure at the Woburn, Massachusetts site, although specific amounts are not disclosed[42] - The company is addressing environmental conditions at multiple sites, including Woburn, Massachusetts, and has reserved costs for ongoing compliance and remediation efforts[41] - The company has accrued $27.7 million in costs related to environmental obligations as of August 31, 2019[197] - The company incurred costs of $1.079 million related to environmental liabilities during the fiscal year ended August 31, 2019[188] - The company is subject to legal proceedings and claims, including environmental matters, which may affect future financial positions[192] Labor and Cost Challenges - Rising healthcare costs have negatively impacted operating results, with expectations that these costs will continue to increase at rates exceeding inflation[51] - Federal, state, and municipal governments are mandating increases to minimum wage and employee benefits, which will increase labor costs and adversely affect operating margins[52] - The company expects labor costs to rise in fiscal 2020 due to increases in state and local minimum wage levels[138] Growth and Acquisitions - The company intends to actively pursue additional acquisition opportunities, but competition for suitable candidates may increase acquisition costs and limit favorable terms[47] - The company anticipates that managing growth through acquisitions will require substantial enhancements to operational and financial systems[48] Customer Relations and Retention - The company relies heavily on customer retention and contract renewals, with potential adverse effects on operations if significant contracts are not renewed[53] - The company initiated a multi-year CRM project in fiscal 2018 to improve customer service and operational efficiency[62] Stock and Shareholder Information - The company’s Common Stock trades on the New York Stock Exchange under the symbol "UNF," with 46 record shareholders as of October 25, 2019[85] - The company repurchased 197,150 shares in the year ended August 31, 2019, at an average price of $154.78 per share, with a remaining authorization of $69,484,398 for future repurchases[87] - As of October 17, 2019, the Croatti family owned approximately 184,959 shares of Common Stock and 3,643,009 shares of Class B Common Stock, representing about 20.2% of total shares but 70.8% of voting power[74] Tax Matters - The Tax Cuts and Jobs Act reduced the corporate income tax rate from 35% to 21%, impacting the company's overall tax obligations[76] - The effective tax rate for fiscal 2019 was impacted by varying state and local income taxes, tax rates in foreign jurisdictions, and certain nondeductible expenses[129] Operational Risks - The company faces risks from unexpected events such as natural disasters and public health emergencies that could disrupt operations[71] - Changes in governmental regulations may affect contract terms and could lead to reduced sales or profits[72] - Increases in fuel and energy costs are unpredictable and could negatively impact operating costs[54] - A prolonged drop in energy prices has historically affected financial results, particularly in energy-dependent regions[56] Financial Position and Assets - The company has no long-term debt, with total assets increasing to $2,047,320 in fiscal 2019 from $1,843,386 in fiscal 2018[1] - As of August 31, 2019, the company had $385.3 million in cash, cash equivalents, and short-term investments, an increase of $114.8 million from the previous year[169] - The company is in compliance with all covenants under its $250.0 million unsecured revolving credit agreement as of August 31, 2019[178] Revenue Segments - Approximately 89% of revenues in fiscal 2019 were derived from U.S. and Canadian Rental and Cleaning and Corporate segments[11] - Core Laundry Operations revenue increased by 6.1% to $1,616,205, driven by 3.8% organic growth, 2.0% from an extra week, and 0.3% from acquisitions[148] - Specialty Garments revenue grew by 12.1% to $132,767, with 7.4% from acquisitions and 2.7% from organic growth[149] - First Aid revenue increased by 11.1% to $60,404, with 7.8% from organic growth[150]