What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-10-26 compared with 2021-10-27 · 1588 added, 10 removed, 47 unchanged (97% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOC KHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Information

Our Common Stock trades on the New York Stock Exchange under the symbol “UNF”, while our Class B Common Stock is not publicly traded.

Our Common Stock trades on the NYSE under the symbol “UNF”, while our Class B Common Stock is not publicly traded.

On July 12, 2022, our Board of Directors declared a quarterly cash dividend of $0.30 per share of Common Stock and $0.24 per share of Class B Common Stock.

Both dividends were paid on September 28, 2022 to shareholders of record as of September 7, 2022.

On October 20, 2021, we announced that we would be raising our quarterly dividend to $0.30 per share for Common Stock and to $0.24 per share for Class B Common Stock.

The amount and timing of any future dividend payment is subject to the approval of the Board of Directors each quarter.

The approximate number of shareholders of record of our Common Stock and Class B Common Stock as of October 21, 2022 was 53 and 46, respectively.

We believe that the number of beneficial owners of our Common Stock is substantially greater than the number of record holders because a large portion of our Common Stock is held of record in broker “street names”.

Equity Compensation Plan Information

The following table sets forth information concerning our equity compensation plans as of August 27, 2022:

22 unchanged sentences

(2) Restricted stock units are not included in the weighted-average exercise price calculation because there is no exercise price associated with restricted stock units.

Issuer Purchases of Equity Securities

The following table provides information regarding our purchases of equity securities for the periods set forth therein:

Shares of Stock

13 unchanged sentences

(1) On January 2, 2019, our Board of Directors approved a share repurchase program authorizing the Company to repurchase from time to time up to $100.0 million of our outstanding shares of Common Stock.

On October 18, 2021, our Board of Directors approved a new share repurchase program authorizing the Company to repurchase from time to time up to $100.0 million of our outstanding shares of Common Stock, inclusive of the amount which remained available under the existing share repurchase program approved in January 2019.

On October 18, 2021, our Board of Directors approved a new share repurchase program authorizing the Company to repurchase from time to

time up to $100.0 million of our outstanding shares of Common Stock, inclusive of the amount which remained available under the existing share repurchase program approved in January 2019, which program has no scheduled expiration date.

Repurchases made under the program, if any, will continue to be made in either the open market or in privately negotiated transactions.

The timing, manner, price and amount of any repurchases will depend on a variety of factors, including economic and market conditions, the trading price of our Common Stock, corporate liquidity requirements and priorities, applicable legal

requirements and other factors.

The share repurchase program has been funded to date using our available cash and may be suspended or discontinued at any time.

In addition to the shares repurchased under our share repurchase program and reflected in the table, we repurchased 35,714 shares of Class B Common Stock for $168.00 per share in a privately negotiated transaction in July 2022.

Stock Performance Graph

The graph below compares the cumulative five-year total return on UniFirst Corporation's Common Stock with the Russell 2000 Index and a customized peer group of three companies that includes:

Aramark, Cintas Corporation and Rollins, Inc.

The graph assumes an investment of $100 in each of UniFirst Corporation’s Common Stock, the Russell 2000 Index, and the performance through August 31, 2021, assuming the reinvestment of dividends.

The graph below compares the cumulative five-year total return on UniFirst Corporation's Common Stock with the Russell 2000 Index and a customized peer group of three companies that includes Aramark, Cintas Corporation and Rollins, Inc.

The graph assumes an investment of $100 in each of UniFirst Corporation’s Common Stock, the Russell 2000 Index, and the performance through August 31, 2022, assuming the reinvestment of dividends.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 work wear 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 and sell industrial wiping products, floor mats, facility service products and other non-garment items, and provide restroom and cleaning supplies and first aid cabinet services and other safety supplies as well as provide certain safety training 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, healthcare providers and others who require employee clothing for image, identification, protection or utility purposes.

We also provide our customers with restroom and cleaning supplies, including air fresheners, paper products and hand soaps.

At certain specialized facilities, we also decontaminate and clean work clothes and other items that may have been exposed to radioactive materials and service special cleanroom protective wear and facilities.

Typical customers for these specialized services include government agencies, research and development laboratories, high technology companies and utilities operating nuclear reactors.

Headquartered in Wilmington, Massachusetts, we are a North American leader in the supply and servicing of uniform and workwear programs, as well as the delivery of facility service programs.

Together with our subsidiaries, we also provide first aid and safety products, and manage specialized garment programs for the cleanroom and nuclear industries.

We manufacture our own branded workwear, protective clothing, and floorcare products, as well as offer products from industry leading suppliers;

and with 260 service locations, over 300,000 customer locations, and 14,000 employee Team Partners, we outfit more than 2 million workers each business day.

GAAP establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in interim financial reports issued to shareholders.

Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance.

Our chief operating decision-maker is our Chief Executive Officer.

We have six operating segments based on the information reviewed by our Chief Executive Officer:

Rental and Cleaning, Canadian Rental and Cleaning, Manufacturing (“MFG”), Specialty Garments Rental and Cleaning (“Specialty Garments”), First Aid and Corporate.

Rental and Cleaning and Canadian Rental and Cleaning operating segments have been combined to form the U.S.

and Canadian Rental and Cleaning reporting segment.

Refer to Note 15, “Segment Reporting”, of our Consolidated Financial Statements for our disclosure of segment information.

and Canadian Rental and Cleaning reporting segment purchases, rents, cleans, delivers and sells, uniforms and protective clothing and non-garment items in the United States and Canada.

The operations of the U.S.

and Canadian Rental and Cleaning reporting segment are referred to by us as our ‘industrial laundry operations’

and we refer to the locations related to this reporting segment as our ‘industrial laundries’.

The MFG operating segment designs and manufactures uniforms and non-garment items primarily for the purpose of providing these goods to the U.S.

and Canadian Rental and Cleaning reporting segment.

The amounts reflected as revenues of MFG are primarily generated when goods are shipped from our manufacturing facilities, or subcontract manufacturers, to our other locations.

These intercompany revenues are recorded at a transfer price which is typically in excess of the actual manufacturing cost.

Products are carried in inventory and subsequently placed in service and amortized at this transfer price.

On a consolidated basis, intercompany MFG revenues and MFG income are eliminated and the carrying value of inventories and rental merchandise in service is reduced to the manufacturing cost.

Income before income taxes from MFG, net of the intercompany MFG elimination, offsets the merchandise amortization costs incurred by the U.S.

and Canadian Rental and Cleaning reporting segment as the merchandise costs of this reporting segment are amortized and recognized based on inventories purchased from MFG at the transfer price which is above our manufacturing cost.

The Corporate operating segment consists of costs associated with our distribution center, sales and marketing, information systems, engineering, materials management, manufacturing planning, finance, budgeting, human resources, other general and administrative costs and interest expense.

The revenues generated from the Corporate operating segment represent certain direct sales made directly from our distribution center.

The products sold by this operating segment are the same products rented and sold by the U.S.

and Canadian Rental and Cleaning reporting segment.

In the segment disclosures in Note 15, “Segment Reporting”, of our Consolidated Financial Statements, no assets or capital expenditures are presented for the Corporate operating segment as no assets are allocated to this operating segment in the information reviewed by our chief

executive officer.

However, depreciation and amortization expense related to certain assets are reflected in income from operations and income before income taxes for the Corporate operating segment.

The assets that give rise to this depreciation and amortization are included in the total assets of the U.S.

and Canadian Rental and Cleaning reporting segment as this is how they are tracked and reviewed by us.

We refer to our U.S.

and Canadian Rental and Cleaning, MFG, and Corporate segments combined as our “Core Laundry Operations”.

The Specialty Garments operating segment purchases, rents, cleans, delivers and sells, specialty garments and non-garment items primarily for nuclear and cleanroom applications and provides cleanroom cleaning services at limited customer locations.

The First Aid operating segment sells first aid cabinet services and other safety supplies as well as maintains wholesale distribution and pill packaging operations.

Approximately 88.5% of our revenues in fiscal 2022 were derived from our U.S.

and Canadian Rental and Cleaning and Corporate segments.

A key driver of this business is the number of workers employed by our customers.

Our revenues are directly impacted by fluctuations in these employment levels.

Revenues from Specialty Garments, which accounted for approximately 7.6% of our fiscal 2022 revenues, increase during outages and refueling by nuclear power plants, as garment usage increases at these times.

First Aid represented approximately 3.9% of our total revenues in fiscal 2022.

Critical Accounting Policies and Estimates

We believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

Use of Estimates

We prepare our financial statements in conformity with U.S.

GAAP, which requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes.

We utilize key estimates in preparing the financial statements, including casualty and environmental estimates, recoverability of goodwill, intangibles, income taxes and long-lived assets.

These estimates are based on historical information, current trends, and information available from other sources.

Our results are affected by economic, political, legislative, regulatory and legal actions.

Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies, government policies surrounding the containment of COVID-19 and changes in the prices of raw materials, can have a significant effect on operations.

These factors and other events could cause actual results to differ from management's estimates.

Revenue Recognition and Allowance for Doubtful Accounts

We recognize revenue from rental operations and related services in the period in which the services are provided.

Direct sale revenue is recognized in the period in which the services are performed or when the product is shipped.

Our judgment and estimates are used in determining the collectability of accounts receivable and evaluating the adequacy of the allowance for doubtful accounts as well as our sales credits reserve.

We consider specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances as part of our evaluation in assessing the allowance for doubtful accounts.

We consider our historical credit experience in assessing the sales credits reserve.

Changes in our estimates are reflected in the period they become known.

If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Material changes in our estimates may result in significant differences in the amount and timing of bad debt expense recognition for any given period.

Our revenues do not include taxes we collect from our customers and remit to governmental authorities.

Costs to Obtain a Contract

We defer commission expenses paid to employee-partners when the commissions are deemed to be incremental for obtaining the route servicing customer contract.

The deferred commissions are amortized on a straight-line basis over the expected period of benefit, which is generally the estimated life of the customer relationship.

We review the deferred commission balances for impairment on an ongoing basis.

Deferred commissions are classified as current or noncurrent based on the timing of when we expect to recognize the expense.

The current portion is included in prepaid expenses and other current assets and the non-current portion is included in other assets on our consolidated balance sheets.

As of August 27, 2022, the current and non-current assets related to deferred commissions totaled $15.2 million and $65.1 million, respectively.

As of August 28, 2021, the current and non-current assets related to deferred commissions totaled $14.2 million and $60.6 million, respectively.

During fiscal 2022 and 2021, we recorded $15.4 million and $14.4 million, respectively, of amortization expense related to deferred commissions.

This expense is classified in selling and administrative expenses on our consolidated statements of income.

Inventories and Rental Merchandise in Service

Our inventories are stated at the lower of cost or net realizable value, net of any reserve for excess and obsolete inventory.

Judgments and estimates are used in determining the likelihood that new goods on hand can be sold to our customers or used in our rental operations.

Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories.

If actual product demand and market conditions are less favorable than the amount we projected, additional inventory write-downs may be required.

We use the first-in, first-out method to value our inventories, which primarily consist of finished goods.

Rental merchandise in service is being amortized on a straight-line basis over the estimated service lives of the merchandise, which range from six to thirty-six months.

In establishing estimated lives for merchandise in service, our management considers historical experience and the intended use of the merchandise.

Material differences may result in the amount and timing of operating profit for any period if we make significant changes to our estimates.

Goodwill, Intangibles and Other Long-Lived Assets

In accordance with U.S.

GAAP, we do not amortize goodwill.

Instead, we test goodwill at the reporting unit level for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value.

Our evaluation considers changes in the operating environment, competitive information, market trends, operating performance and cash flow modeling.

We completed our annual goodwill impairment test as of the first day of the fourth quarter in fiscal 2022 and fiscal 2021 and the last day of the fourth quarter of fiscal 2020.

There have been no impairments of goodwill or other intangible assets in fiscal 2022, 2021 or 2020.

We cannot predict future economic conditions and their impact on the Company or the future net realizable value of our stock.

A decline in our market capitalization and/or deterioration in general economic conditions could negatively and materially impact our assumptions and assessment of the fair value of our business.

If general economic conditions or our financial performance deteriorate, we may be required to record a goodwill impairment charge in the future which could have a material impact on our financial condition and results of operations.

Property, plant and equipment, and definite-lived intangible assets are depreciated or amortized over their useful lives.

Useful lives are based on our estimates of the period that the assets will generate economic benefits.

Long-lived assets are evaluated for impairment whenever events or circumstances indicate an asset may be impaired.

There were no material impairments of long-lived assets in fiscal 2022, 2021 or 2020.

We self-insure for certain obligations related to healthcare, workers’

compensation, vehicles and general liability programs.

We also purchase stop-loss insurance policies for workers’

compensation, vehicles and general liability programs to protect ourselves from catastrophic losses.

Judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred but have not been reported.

Our estimates consider historical claim experience and other factors.

Our liabilities are based on our estimates, and, while we believe that our accruals are adequate, the ultimate liability may be significantly different from the amounts recorded.

In certain cases where partial insurance coverage exists, we must estimate the portion of the liability that will be covered by existing insurance policies to arrive at our net expected liability.

Receivables for insurance recoveries are recorded as assets, on an undiscounted basis.

Changes in our claim experience, our ability to settle claims or other estimates and judgments we use could have a material impact on the amount and timing of expense for any given period.

Environmental and Other Contingencies

We are subject to legal proceedings and claims arising from the conduct of our business operations, including environmental matters, personal injury, customer contract matters and employment claims.

GAAP requires that a liability for contingencies be recorded when it is probable that a liability has occurred, and the amount of the liability can be reasonably estimated.

Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded.

We regularly consult with our attorneys and outside consultants, in our consideration of the relevant facts and circumstances, before recording a contingent liability.

We record accruals for environmental and other contingencies based on enacted laws, regulatory orders or decrees, our estimates of costs, insurance proceeds, participation by other parties, the timing of payments, and the input of our attorneys and outside consultants.

The estimated liability for environmental contingencies has been discounted as of August 27, 2022 using risk-free interest rates ranging from 3.0% to 3.4% over periods ranging from ten to thirty years.

The estimated current costs, net of legal settlements with insurance carriers, have been adjusted for the estimated impact of inflation at 3.0% per year.

enacted laws, regulatory orders or decrees, our estimates of costs, risk-free interest rates, insurance proceeds, participation by other parties, the timing of payments, the input of our attorneys and outside consultants or other factual circumstances could have a material impact on the amounts recorded for our environmental and other contingent liabilities.

Refer to Note 11, “Commitments and Contingencies”, of our Consolidated Financial Statements for additional discussion and analysis.

Asset Retirement Obligations

GAAP, asset retirement obligations generally apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset.

Current accounting guidance requires that we recognize asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made.

The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.

We have recognized as a liability the present value of the estimated future costs to decommission our nuclear laundry facilities in accordance with U.S.

We depreciate, on a straight-line basis, the amount added to property, plant and equipment and recognize accretion expense in connection with the discounted liability over the various remaining lives which range from approximately one to twenty-two years.

Our estimated liability has been based on historical experience in decommissioning nuclear laundry facilities, estimated useful lives of the underlying assets, external vendor estimates as to the cost to decommission these assets in the future, and federal and state regulatory requirements.

The estimated current costs have been adjusted for the estimated impact of inflation at 3% per year.

The liability has been discounted using credit-adjusted risk-free rates that range from approximately 7.0% to 7.5%.

Revisions to the liability could occur due to changes in the estimated useful lives of the underlying assets, estimated dates of decommissioning, changes in decommissioning costs, changes in federal or state regulatory guidance on the decommissioning of such facilities, or other changes in estimates.

Changes due to revisions in our estimates are recognized by adjusting the carrying amount of the liability and the related long-lived asset if the assets are still in service or charged to expense in the period if the assets are no longer in service.

Supplemental Executive Retirement Plan and other Pension Plans

We recognize pension expense on an accrual basis over our employees’

estimated service periods.

Pension expense is generally independent of funding decisions or requirements.

The calculation of pension expense and the corresponding liability requires us to use a number of critical assumptions, including the expected long-term rates of return on plan assets, the assumed discount rate, the assumed rate of compensation increases and life expectancy of participants.

Changes in our assumptions can result in different expense and liability amounts, and future actual expense can differ from these assumptions.

Pension expense increases as the expected rate of return on pension plan assets decreases.

Future changes in plan asset returns, assumed discount rates and various other factors related to the participants in our pension plans will impact our future pension expense and liabilities.

We cannot predict with certainty what these factors will be in the future.

We compute income tax expense by jurisdiction based on our operations in each jurisdiction.

Deferred income taxes are provided for temporary differences between the amounts recognized for income tax and financial reporting purposes at currently enacted tax rates.

Deferred tax assets and liabilities are determined by the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities.

See Note 4, “Income Taxes”

of our Consolidated Financial Statements for the types of items that give rise to significant deferred income tax assets and liabilities.

Deferred income taxes are classified as assets or liabilities based on the classification of the related asset or liability for financial reporting purposes.

We regularly review deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences.

Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets will be realized.

We are periodically reviewed by U.S.

domestic and foreign tax authorities regarding the amount of taxes due.

These reviews typically include inquiries regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions.

In evaluating the exposure associated with various filing positions, we record estimated reserves .

Refer to Note 4, “Income Taxes”, of our Consolidated Financial Statements for further discussion regarding our accounting for income taxes and our uncertain tax positions for financial accounting purposes.

Effects of Inflation and Current Economic Conditions

In general, we believe that our results of operations are not dependent on moderate changes in the inflation rate.

Historically, we have been able to manage the impacts of more significant changes in inflation rates through our customer relationships, customer agreements that generally provide for price increases consistent with the rate of inflation and continued focus on improvements of operational productivity.

However, the current inflationary environment has had a negative impact on our margins, including as a result of increased energy costs for our vehicles and our plants, as well as increasing wages in the labor markets in which we compete.

We expect that inflation will continue to pressure our margins in future periods.

In addition, in response to the concerns over inflation risk in the broader U.S.

economy, the U.S.

Federal Reserve began to raise interest rates in March 2022 for the first time in over three years, and has continued to increase interest rates throughout 2022 and may continue to do so in the future.

It is possible that dramatic increases in interest rates may ultimately result in an economic recession.

Adverse economic conditions resulting from inflationary pressures, U.S.

Federal Reserve actions, geopolitical issues or otherwise are difficult to predict and may have a material adverse impact on our business, results of operation and financial condition.

Please see Part I, Item 1A.

“Risk Factors”

in this Annual Report on Form 10-K for an additional discussion of risks and potential risks of inflation and adverse economic conditions on our business, financial condition and results of operations.

COVID-19 Assessment

At times during the global COVID-19 pandemic, our revenues have been significantly adversely impacted as a result of many customers closing their businesses or operating at limited capacities.

In addition, at times during the pandemic, we have experienced supply chain disruptions with respect to certain products, including hand sanitizer and masks.

Although there continues to be supply chain disruption and increased costs for supplies that is impacting our operating results, including as a result of Russia’s invasion of Ukraine, these adverse impacts and disruptions have declined since the height of the pandemic.

As the COVID-19 pandemic has continued, instances of new COVID-19 cases have risen periodically with the outbreak of various COVID-19 variants, and new COVID-19 variants could emerge and spread in the future and have an adverse impact on our business.

We remain focused on the safety and well-being of our team partners and on the service of our customers.

We will continue to review and assess the ongoing COVID-19 pandemic and its impacts on our team partners, our customers, our suppliers and our business so that we can seek to address the impacts on our business and service our customers.

Please see Item 1A.

“Risk Factors”

in this Annual Report on Form 10-K for an additional discussion of risks and potential risks of the COVID-19 pandemic on our business, financial condition and results of operations.

Results of Operations

The following table presents certain selected financial data, including the percentage of revenues represented by each item, for fiscal years 2022, 2021 and 2020.

(In thousands, except for percentages)

Costs and expenses:

Cost of revenue (1)

Selling and administrative

Depreciation and amortization

Operating income

Other (income) expense, net

Income before income taxes

Provision for income taxes

(1) Exclusive of depreciation on our property, plant and equipment and amortization of our intangible assets.

Revenues and income (loss) from operations by reporting segment for fiscal 2022, 2021 and 2020 are presented in the following table.

Refer to Note 15, “Segment Reporting”, of our Consolidated Financial Statements for a discussion of our reporting segments.

(In thousands)

Segment Information

US and Canadian Rental and Cleaning

Net intercompany MFG elimination

Core Laundry Operations

Specialty Garments

Total consolidated revenues

Operating income (loss)

US and Canadian Rental and Cleaning

Net intercompany MFG elimination

Core Laundry Operations

Specialty Garments

Total operating income

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 restroom and cleaning supplies and first aid cabinet services and other safety supplies, to a variety of manufacturers, retailers and service companies.

Cost of revenues include the amortization of rental merchandise in service and merchandise costs related to 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, non-operating environmental sites and operating locations including information systems, engineering, materials management, manufacturing planning, finance, budgeting, and human resources.

Our operating results are also directly impacted by the costs of the gasoline used to fuel our vehicles and the natural gas used to operate our plants.

Our operating margins have been, and may continue to be, adversely impacted by the recent surge in energy prices.

In addition, as described above, the current inflationary environment has had a negative impact on our margins, and we expect that it will continue to pressure our margins in future periods.

Our business is subject to various state and federal regulations, including employment laws and regulations, minimum wage requirements, overtime requirements, working condition requirements, citizenship requirements, healthcare insurance mandates and other laws and regulations that impact our labor costs.

Labor costs have increased recently as a result of increases in state and local minimum wage levels as well as the overall impact of wage pressure as the result of a low unemployment environment.

A portion of our sales is derived from international markets, including Canada.

Revenues denominated in currencies other than the U.S.

dollar represented approximately 7.9%, 8.4% and 6.9% of total consolidated revenues for fiscal years 2022, 2021 and 2020, respectively.

The operating results of our international subsidiaries are translated into U.S.

dollars and such results are affected by movements in foreign currencies relative to the U.S.

In addition, a weaker Canadian dollar increases the costs to our Canadian operations of merchandise and other operational inputs that are sourced from outside

Canada, which has the effect of reducing the operating margins of our Canadian business if we are unable to recover these additional costs through price adjustments with our Canadian customers.

In fiscal years 2022, 2021 and 2020, foreign currency fluctuations impacted our consolidated revenues negatively by 0.1%, 0.5% and 0.1%, respectively.

These impacts were primarily driven by fluctuations in the Canadian dollar.

Our operating results in future years could be negatively impacted by any further devaluation, as compared to the U.S.

dollar, of the Canadian dollar or any of the currencies of the other countries in which we operate.

On October 20, 2021, we announced that we would be raising our quarterly dividend to $0.30 per share for Common Stock and to $0.24 per share for Class B Common Stock.

The amount and timing of any future dividend payment is subject to the approval of the Board of Directors each quarter.

On January 2, 2019, our Board of Directors approved a share repurchase program authorizing the Company to repurchase from time to time up to $100.0 million of its outstanding shares of Common Stock.

The share repurchase program was funded with available cash.

On October 18, 2021, our Board of Directors authorized a new share repurchase program to repurchase from time to time up to $100.0 million of our outstanding shares of Common Stock, inclusive of the amount which remained available under the existing share repurchase program approved on January 2, 2019.

Repurchases made under the program, if any, will be made in either the open market or in privately negotiated transactions.

The timing, manner, price and amount of any repurchases will depend on a variety of factors, including economic and market conditions, the Company stock price, corporate liquidity requirements and priorities, applicable legal requirements and other factors.

The share repurchase program may be funded using available cash or capacity under our 2021 Credit Agreement (as defined below) and may be suspended or discontinued at any time.

During fiscal 2022, we repurchased 0.2 million shares of Common Stock for an average price per share of $179.98.

During fiscal 2021, we repurchased 0.1 million shares for an average price per share of $184.13.

During fiscal 2020, we repurchased 0.1 million shares for an average price per share of $184.67.

As of August 27, 2022, we had $63.6 million remaining under our current share repurchase program.

In fiscal 2018, we initiated a multiyear CRM project to further develop, implement and deploy a third-party application we licensed.

This new solution is intended to improve functionality, capability and information flow as well as increase automation in servicing our customers.

As of August 27, 2022, we have capitalized $40.9 million related to our new CRM project.

We began deployment of our new CRM project during the second half of fiscal 2021 and anticipate this will continue through fiscal 2023.

We are depreciating this system over a 10-year life and recognized $3.2 million and $1.4 million of amortization expense in fiscal 2022 and fiscal 2021, respectively.

Over the next few years, we intend to focus on three discrete strategic initiatives that are critical in our efforts to transform the company in terms of our overall capabilities and competitive positioning.

These initiatives are the continued rollout of our new CRM system (discussed above), investments in the UniFirst brand, and a corporate-wide enterprise resource planning (“ERP”) system with a strong focus on supply chain and procurement automation and technology.

We refer to these initiatives together as our “Key Initiatives”.

For fiscal 2022, we incurred $19.7 million, $11.7 million and $1.7 million of costs related to our CRM system, UniFirst branding project and ERP system, respectively, for a total of $33.1 million directly attributable to our Key Initiatives.

Our fiscal year ends on the last Saturday in August.

For financial reporting purposes fiscal 2022, fiscal 2021 and fiscal 2020 all consisted of 52 weeks.

Fiscal Year Ended August 27, 2022 Compared with Fiscal Year Ended August 28, 2021

(In thousands, except percentages)

Core Laundry Operations

Specialty Garments

Total consolidated revenues

Core Laundry Operations’

revenues for fiscal 2022 increased compared to the prior fiscal year.

Core Laundry Operations’

organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar, was

This strong organic growth was primarily the result of customer re-openings in fiscal 2021, solid sales performance and improved customer retention in fiscal 2022 as well as efforts to share with our customers the inflationary cost increases that we experienced in our business due to the ongoing inflationary environment.

Specialty Garments revenues for fiscal 2022 increased compared to the prior fiscal year due primarily to growth in our cleanroom operations.

Specialty Garments’

results are often affected by seasonality and the timing and length of its customers’

power reactor outages as well as its project-based activities.

First Aid revenues for fiscal 2022 increased compared to the prior fiscal year due to higher revenues in our wholesale distribution business as well as strong growth in our van business due to our initiative to build out a national geographic footprint for these service capabilities.

Cost of revenues

(In thousands, except percentages)

Cost of revenues

% of Revenues

Core Laundry Operations’

cost of revenues as a percentage of revenues increased in fiscal 2022 as compared to the prior fiscal year.

This increase was due primarily to higher merchandise amortization which continued to normalize from depressed levels during the pandemic, the effect of the current inflationary environment on our cost of products, supply chain disruption as well as the effect of some large national account investments that are providing additional merchandise amortization headwinds.

In addition, we incurred higher energy costs as a percentage of revenues due to a surge in energy costs and elevated labor costs due to a very challenging employment environment.

Specialty Garments cost of revenues as a percentage of revenues increased in fiscal 2022 as compared to the prior year due primarily to higher merchandise, labor, and energy costs as a percentage of revenues in fiscal 2022.

Selling and administrative expenses

(In thousands, except percentages)

Selling and administrative expenses

% of Revenues

Our selling and administrative costs increased as a percentage of revenues in fiscal 2022 as compared to fiscal 2021 primarily due to costs we incurred related to our CRM, ERP and branding initiatives as well as higher labor costs as a percentage of revenues due to a very challenging employment environment.

Depreciation and amortization

(In thousands, except percentages)

Depreciation and amortization

% of Revenues

Depreciation and amortization expense increased in fiscal 2022 as compared to the prior fiscal year due primarily to continued investment in our infrastructure and technology initiatives.

Income from operations

For fiscal 2022, the changes in revenues in our Core Laundry Operations, Specialty Garments and First Aid segments, as well as the changes in our costs discussed above, resulted in the following changes in our income from operations:

(In thousands, except percentages)

Core Laundry Operations

Specialty Garments

Total consolidated income from operations

Percentage of total revenues

Other (income) expense, net

(In thousands, except percentages)

Interest income, net

Other expense, net

Total other (income) expense, net

The decrease in other (income) expense, net, in fiscal 2022 compared to the prior fiscal year was due primarily to larger foreign exchange losses in fiscal 2022.

Provision for income taxes

(In thousands, except percentages)

Provision for income taxes

Effective income tax rate

Our effective tax rate for fiscal 2022 remained consistent with fiscal 2021.

Fiscal Year Ended August 28, 2021 Compared with Fiscal Year Ended August 29, 2020

(In thousands, except percentages)

Core Laundry Operations

Specialty Garments

Total consolidated revenues

The increase in our consolidated revenues in fiscal 2021 compared to the prior fiscal year was primarily driven by the significant adverse impact of the COVID-19 pandemic on our consolidated revenues in fiscal 2020, including from COVID-19-related customer closures as well as related wearer reductions at customers that remained open.

The impact on the prior fiscal year was partially offset by a large direct sale of $20.1 million.

The Specialty Garments segment’s results are often affected by seasonality and the timing and length of its customers’

power reactor outages as well as its project-based activities.

The improvement in revenues in fiscal 2021 compared to the prior fiscal year was due primarily to growth in our cleanroom operations and our European nuclear operations.

The decrease in our First Aid revenues in fiscal 2021 compared to the prior fiscal year was due primarily to reduced sales from the segment’s wholesale distribution business coming off of an exceptionally strong year in fiscal 2020 driven by increased demand for the segment’s safety and personal protective equipment offerings as a result of the COVID-19 pandemic in fiscal 2020, which were partially offset by increased sales in our van business in fiscal 2021.

Cost of revenues

(In thousands, except percentages)

Cost of revenues

% of Revenues

Core Laundry Operations cost of revenues as a percentage of revenues in fiscal 2021 decreased from the prior fiscal year.

This decrease was due to a decrease in casualty claims expense in fiscal 2021 as well as a number of items affecting our prior fiscal year, including the impact of the decline in our rental revenues on our cost structure, higher cost of revenues related to the large $20.1 million direct sale in the prior fiscal year and additional costs we incurred responding to the COVID-19 pandemic.

These decreases were partially offset by increased healthcare claims and incentive-based compensation expense in fiscal 2021.

Our Specialty Garments cost of revenues as a percentage of revenues decreased in fiscal 2021 as compared to the prior fiscal year due primarily to lower merchandise costs as a percentage of revenue.

Selling and administrative expense

(In thousands, except percentages)

Selling and administrative expenses

% of Revenues

The increase in our selling and administrative expenses as a percentage of revenues in fiscal 2021 compared to the prior fiscal year was due primarily to increases in healthcare claims costs, incentive-based compensation expense and legal and environmental related expenses.

Depreciation and amortization

(In thousands, except percentages)

Depreciation and amortization

% of Revenues

Depreciation and amortization expense increased in fiscal 2021 as compared to the prior fiscal year due primarily to continued investment in our infrastructure as well as our key technology initiatives.

The higher expense includes amortization of $1.4 million for our new CRM project that we began to deploy in the third quarter of fiscal 2021.

Income from operations

For fiscal 2021, the changes in revenues in our Core Laundry Operations, Specialty Garments and First Aid segments, as well as the changes in our costs discussed above, resulted in the following changes in our income from operations:

(In thousands, except percentages)

Core Laundry Operations

Specialty Garments

Total consolidated income from operations

Percentage of total revenues

Other income, net

(In thousands, except percentages)

Interest income, net

Other expense, net

Total other income, net

The decrease in other income, net, during fiscal 2021 as compared to the prior fiscal year was due primarily to lower interest income from declining interest rates and lower foreign currency exchange gains.

Provision for income taxes

(In thousands, except percentages)

Provision for income taxes

Effective income tax rate

The decrease in our effective tax rate was primarily due to an increase in excess tax benefits from share-based compensation in fiscal 2021 compared to fiscal 2020.

Liquidity and Capital Resources

Cash and cash equivalents totaled $376.4 million as of August 27, 2022, a decrease of $136.5 million from $512.9 million as of August 28, 2021.

We generated $122.6 million and $212.3 million in cash from operating activities in the fiscal years ended August 27, 2022 and August 28, 2021, respectively.

Pursuant to our share repurchase program, we repurchased 0.2 million shares of our Common Stock for an aggregate of approximately $38.4 million during fiscal 2022, 0.1 million shares of our Common Stock for an aggregate of approximately $11.2 million during fiscal 2021 and 0.1 million shares of our Common Stock for an aggregate $21.7 million during fiscal 2020.

On July 15, 2022, we repurchased 35,714 shares of Class B Common Stock for $6.0 million in a privately negotiated transaction at a per share price of $168.00.

We believe, although there can be no assurance, that our current cash and cash equivalents balances, our cash generated from future operations and amounts available under our 2021 Credit Agreement (as defined below) will be sufficient to meet our current anticipated working capital and capital expenditure requirements for at least the next 12 months and will help us manage the impacts of inflation and address related liquidity needs.

Cash flows provided by operating activities have historically been the primary source of our liquidity.

We generally use these cash flows to fund most, if not all, of our operations, capital expenditure and acquisition activities as well as dividends on our Common Stock.

We may also use cash flows provided by operating activities, as well as proceeds from loans payable and long-term debt, to fund growth and acquisition opportunities, as well as other cash requirements.

(In thousands, except percentages)

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Effect of exchange rate changes

Net (decrease) increase in cash and cash equivalents

Net Cash Provided by Operating Activities

The net cash provided by operating activities in fiscal 2022 decreased as compared to fiscal 2021 due primarily to lower profitability, which included costs incurred to support our Key Initiatives, a decrease in accrued liabilities and increases in accounts receivable, supply inventory, merchandise in service, and prepaid income taxes.

The decrease in accrued liabilities was due primarily to the payment of $12.2 million of United States Social Security and Medicare taxes that we deferred

under the Coronavirus Air, Relief, and Economic Security Act (the “CARES Act”) in fiscal years 2020 and 2021.

The Company expects to pay the remaining $12.1 million of deferred United State Social Security and Medicare taxes by the end of calendar year 2022.

The elevated inventories related to the supply chain disruption and the increased merchandise in service are attributable to our balance sheet position continuing to normalize coming out of the COVID-19 pandemic impacted period.

The increase in accounts receivable was due in part to our revenue growth during the fiscal year.

The increase in prepaid income taxes was due primarily to excess payments made for fiscal 2022 income taxes.

Net Cash Used in Investing Activities

The net increase in cash used in investing activities in fiscal 2022 was due primarily to an increase in acquisition related activity of $35.8 million as compared to fiscal 2021.

Net Cash Used in Financing Activities

The increase in net cash used in financing activities in fiscal 2022 was due primarily to incremental cash used for repurchases of Common Stock and Class B Common Stock of $33.2 million and an increase in dividends paid of $2.6 million.

Long-term Debt and Borrowing Capacity

On March 26, 2021, we entered into an amended and restated $175.0 million unsecured revolving credit agreement (the “2021 Credit Agreement”) with a syndicate of banks, which matures on March 26, 2026.

The 2021 Credit Agreement amended and restated our $250.0 million unsecured revolving credit agreement, which was scheduled to mature on April 11, 2021.

Under the 2021 Credit Agreement, we may borrow funds at variable interest rates based on, at our election, the Eurodollar rate or a base rate, plus in each case a spread based on our consolidated funded debt ratio.

Availability of credit requires compliance with certain financial and other covenants, including a maximum consolidated funded debt ratio and minimum consolidated interest coverage ratio, each as defined in the 2021 Credit Agreement.

We test our compliance with these financial covenants on a fiscal quarterly basis.

As of August 27, 2022, the interest rates applicable to our borrowings under the 2021 Credit Agreement would be calculated as LIBOR plus 1.00% at the time of the respective borrowing.

As of August 27, 2022, we had no outstanding borrowings and had outstanding letters of credit amounting to $60.8 million, leaving $114.2 million available for borrowing under the 2021 Credit Agreement.

As of August 27, 2022, we were in compliance with all covenants under the 2021 Credit Agreement.

Derivative Instruments and Hedging Activities

In June 2018, we entered into twelve forward contracts to exchange CAD for U.S.

dollars at fixed exchange rates in order to manage our exposure related to certain forecasted CAD denominated sales of one of our subsidiaries.

The hedged transactions are specified as the first amount of CAD denominated revenues invoiced by one of our domestic subsidiaries each fiscal quarter, beginning in the third fiscal quarter of 2019 and continuing through the second fiscal quarter of 2022.

In total, we sold approximately 12.1 million CAD at an average Canadian-dollar exchange rate of 0.7814 over these quarterly periods.

We concluded that the forward contracts met the criteria to qualify as a cash flow hedge under U.S.

These forward contracts matured on February 25, 2022.

In August 2021, we entered into twenty forward contracts to exchange CAD for U.S.

dollars at fixed exchange rates in order to manage our exposure related to certain forecasted CAD denominated sales of one of our subsidiaries.

The hedged transactions are specified as the first amount of CAD denominated revenues invoiced by one of our domestic subsidiaries each fiscal quarter, beginning in the first fiscal quarter of 2022 and continuing through the fourth fiscal quarter of 2026.

In total, we will sell approximately 14.1 million CAD at an average Canadian-dollar exchange rate of 0.7861 over these quarterly periods.

We concluded that the forward contracts met the criteria to qualify as a cash flow hedge under U.S.

As of August 27, 2022, we had forward contracts with a notional value of approximately 7.2 million CAD outstanding and recorded the fair value of the contracts of $0.1 million in prepaid expenses and other current assets with a corresponding $0.1 million loss in accumulated other comprehensive loss, which was recorded net of tax.

During fiscal 2022, we reclassified $0.1 million from accumulated other comprehensive loss to revenue, related to the derivative financial instruments.

The loss on these forward contracts that results in an increase to accumulated other comprehensive loss as of August 27, 2022 is expected to be reclassified to revenues prior to their maturity on February 25, 2022 and August 29, 2026, respectively.

Environmental and Legal Contingencies

We are subject to various federal, state and local laws and regulations governing, among other things, air emissions, wastewater discharges, and the generation, handling, storage, transportation, treatment and disposal of hazardous wastes and other substances.

In particular, industrial laundries currently use and must dispose of detergent waste water and other residues, and, in the past, used perchloroethylene and other dry cleaning solvents.

We are attentive to the environmental concerns surrounding the disposal of these materials and have, through the years, taken measures to avoid their improper disposal.

We have settled, or contributed to the settlement of, past actions or claims brought against us relating to the disposal of hazardous materials at several sites and there can be no assurance that we will not have to expend material amounts to remediate the consequences of any such disposal in the future.

GAAP requires that a liability for contingencies be recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.

Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded.

We regularly consult with attorneys and outside consultants in our consideration of the relevant facts and circumstances before recording a contingent liability.

Changes in enacted laws, regulatory orders or decrees, our estimates of costs, risk-free interest rates, insurance proceeds, participation by other parties, the timing of payments, the input of our attorneys and outside consultants or other factual circumstances could have a material impact on the amounts recorded for our environmental and other contingent liabilities.

Under environmental laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on, or in, or emanating from, such property, as well as related costs of investigation and property damage.

Such laws often impose liability without regard to whether the owner or lessee knew of or was responsible for the presence of such hazardous or toxic substances.

There can be no assurances that acquired or leased locations have been operated in compliance with environmental laws and regulations or that future uses or conditions will not result in the imposition of liability upon our Company under such laws or expose our Company to third party actions such as tort suits.

We continue to address environmental conditions under terms of consent orders negotiated with the applicable environmental authorities or otherwise with respect to certain sites.

We have accrued certain costs related to certain sites, including but not limited to, sites in Woburn and Somerville, Massachusetts, as it has been determined that the costs are probable and can be reasonably estimated.

We, together with multiple other companies, are party to a consent decree related to our property and the Central Area in Woburn, Massachusetts.

The EPA has provided us and other signatories to the consent decree with comments on the design and implementation of groundwater and soil remedies at the Woburn site and investigation of environmental conditions in the Central Area.

The consent decree does not address any remediation work that may be required in the Central Area.

We, and other signatories, have implemented and proposed to do additional work at the Woburn site but many of the EPA’s comments remain to be resolved.

We have accrued costs to perform certain work responsive to the EPA’s comments.

Additionally, we have implemented mitigation measures and continue to monitor environmental conditions at a site in Somerville, Massachusetts.

We have agreed to undertake additional actions responsive to a notice of audit findings from the Massachusetts Department of Environmental Protection concerning a regulatory submittal that we made in 2009 for a portion of the site.

We have received demands from the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station in the area of the Somerville site.

This station is part of an ongoing extension of the transit system.

We have reserved for costs in connection with this matter;

however, in light of the uncertainties associated with this matter, these costs and the related reserve may change.

We routinely review and evaluate sites that may require remediation and monitoring and determine our estimated costs based on various estimates and assumptions.

These estimates are developed using our internal sources or by third-party environmental engineers or other service providers.

Internally developed estimates are based on:

Management’s judgment and experience in remediating and monitoring our sites;

Information available from regulatory agencies as to costs of remediation and monitoring;

The number, financial resources and relative degree of responsibility of other potentially responsible parties (PRPs) who may be liable for remediation and monitoring of a specific site;

The typical allocation of costs among PRPs.

There is usually a range of reasonable estimates of the costs associated with each site.

In accordance with U.S.

GAAP, our accruals represent the amount within the range that we believe is the best estimate or the low end of a range of estimates if no point within the range is a better estimate.

When we believe that both the amount of a particular liability and the timing of the payments are reliably determinable, we adjust the cost in current dollars using a rate of 3% for inflation until the time of expected payment and discount the cost to present value using current risk-free interest rates.

As of August 27, 2022, the risk-free interest rates we utilized ranged from 3.0% to 3.4%.

For environmental liabilities that have been discounted, we include interest accretion, based on the effective interest method, in selling and administrative expenses on the Consolidated Statements of Income.

The changes to the amounts of our environmental liabilities for the years ended August 27, 2022 and August 28, 2021 are as follows (in thousands):

Beginning balance

Costs incurred for which reserves have been provided

Insurance proceeds

Interest accretion

Changes in discount rates

Revisions in estimates

Ending balance

Anticipated payments and insurance proceeds of currently identified environmental remediation liabilities as of August 27, 2022 for the next five fiscal years and thereafter, as measured in current dollars, are reflected below (in thousands).

Fiscal year ended August

Estimated costs—current dollars

Estimated insurance proceeds

Net anticipated costs

Effect of inflation

Effect of discounting

Balance as of August 27, 2022

Estimated insurance proceeds are primarily received from an annuity received as part of our legal settlement with an insurance company.

Annual proceeds of approximately $0.3 million are deposited into an escrow account which funds remediation and monitoring costs for two sites related to our former operations.

Annual proceeds received but not expended in the current year accumulate in this account and may be used in future years for costs related to this site through the year 2027.

As of August 27, 2022, the balance in this escrow account, which is held in a trust and is not recorded in our Consolidated Balance Sheet, was approximately $4.8 million.

Also included in estimated insurance proceeds are amounts we are entitled to receive pursuant to legal settlements as reimbursements from three insurance companies for estimated costs at one of our sites.

Our nuclear garment decontamination facilities are licensed by respective state agencies, as delegated authority by the Nuclear Regulatory Commission (the “NRC”) pursuant to the NRC’s Agreement State program and are subject to applicable federal and state radioactive material regulations.

In addition, our international locations (Canada, the United Kingdom and the European Union) are regulated by equivalent respective jurisdictional authorities.

There can be no assurance that such regulation will not lead to material disruptions in our garment decontamination business.

From time to time, we are also subject to legal and regulatory proceedings and claims arising from the conduct of our business operations, including personal injury claims, customer contract matters, employment claims and environmental matters as described above.

We are subject to two actions filed by former employees in September 2022 alleging damages under the Fair Labor Standards Act.

We believe that we have meritorious defenses to such allegations and intend to defend ourselves vigorously in such matters.

While we are unable to ascertain the ultimate outcome of such actions, based on the information currently available, we believe that a loss with respect to such matters is neither probable nor remote.

Given the uncertainty associated with the ultimate resolution of such matters, we are unable to reasonably assess an estimate or range of estimates of any potential losses.

In addition, in the fourth quarter of fiscal 2022, the Mexican federal tax authority issued a tax assessment on our subsidiary in Mexico for fiscal 2016 import taxes, value added taxes and custom processing fees of over $17.0 million, plus surcharges, fines and penalties of over $67.7 million for a total assessment of over $84.7 million.

We disagree with such tax assessment and have filed an administrative appeal before the legal division of the Mexican federal tax authority challenging the validity of the tax assessment.

While we are unable to ascertain the ultimate outcome of this matter, based on the information currently available, we believe that a loss with respect to this matter is neither probable nor remote.

Given the uncertainty associated with the ultimate resolution of this matter, we are unable to reasonably assess an estimate or range of estimates of any potential losses.

While it is impossible for us to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits and environmental contingencies, we believe that the aggregate amount of such liabilities, if any, in excess of amounts covered by insurance have been properly accrued in accordance with accounting principles generally accepted in the United States.

It is possible, however, that the future financial position and/or results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of our control.

As part of our business, we regularly evaluate opportunities to acquire other garment service companies.

In recent years, we have typically paid for acquisitions with cash and may continue to do so in the future.

To pay for an acquisition, we may use cash on hand, cash generated from operations or borrowings under our 2021 Credit Agreement, or we may pursue other forms of debt financing.

Our ability to secure short-term and long-term debt financing in the future will depend on several factors, including our future profitability, our levels of debt and equity, and the overall credit and equity market environments.

Contractual Obligations and Other Commercial Commitments

The following information is presented as of August 27, 2022 (in thousands).

Payments Due by Fiscal Period

Contractual Obligations

Retirement plan benefit payments

Asset retirement obligations

Operating leases

Forward contracts

Purchase Commitments*

Total contractual cash obligations

*Includes non-cancellable purchase commitments for inventories, software, and services.

We have uncertain tax positions that are reserved totaling $9.3 million as of August 27, 2022 that are excluded from the above table as we cannot make a reasonably reliable estimate of the period of cash settlement with the respective taxing authority.

We have accrued $32.2 million in costs related to certain environmental obligations we have to address under terms of consent orders negotiated with the applicable environmental authorities or otherwise.

Refer to “Environmental and Legal Contingencies”, above for additional discussion on our environmental obligations.

As discussed above under “Long-Term Debt and Borrowing Capacity”, as of August 27, 2022, we had borrowing capacity of $175.0 million under our 2021 Credit Agreement, of which approximately $114.2 million was available for borrowing.

Also, as of such date, we had no outstanding borrowings and letters of credit outstanding of $60.8 million.

All letters of credit expire in less than one year.

As discussed above under “Derivative Instruments and Hedging Activities”, as of August 27, 2022, we had forward contracts with a notional value of approximately 7.2 million CAD outstanding and recorded the fair value of the contracts of $0.1 million in prepaid expenses and other current assets with a corresponding $0.1 million gain in accumulated other comprehensive loss, which was recorded net of tax.

During fiscal 2022, we reclassified $0.1 million from accumulated other comprehensive loss to revenue, related to the derivative financial instruments.

Significant increases in energy costs, specifically with respect to natural gas and gasoline, can materially affect our operating costs.

During fiscal 2022, our energy costs, which include fuel, natural gas, and electricity, represented approximately 4.7% of our total revenue.

Recent Accounting Pronouncements

See Note 1, “Summary of Significant Accounting Policies”

to our Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on recently implemented and issued accounting standards

QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

We have determined that all of our foreign subsidiaries operate primarily in local currencies that represent the functional currencies of such subsidiaries.

All assets and liabilities of our foreign subsidiaries are translated into U.S.

dollars using the exchange rate prevailing at the balance sheet date.

The effects of exchange rate fluctuations on the translation of assets and liabilities are recorded as a component of shareholders’

Revenues and expenses are translated at the average exchange rates in effect during each month of the fiscal year.

As such, our financial condition and operating results are affected by fluctuations in the value of the U.S.

dollar as compared to currencies in foreign countries.

Revenues denominated in currencies other than the U.S.

dollar represented approximately 7.9%, 8.4% and 6.9% of our total consolidated revenues for fiscal 2022, 2021 and 2020, respectively.

Total assets denominated in currencies other than the U.S.

dollar represented approximately 6.8% and 7.0% of our total consolidated assets at August 27, 2022 and August 28, 2021, respectively.

If exchange rates had increased or decreased by 10% from the actual rates in effect during the fiscal year ended August 27, 2022, our revenues and assets for the year ended and as of August 27, 2022 would have increased or decreased by approximately $0.5 million and $16.4 million, respectively.

In June 2018, we entered into twelve forward contracts to exchange CAD for U.S.

dollars at fixed exchange rates in order to manage our exposure related to certain forecasted CAD denominated sales of one of our subsidiaries.

In total, we sold approximately 12.1 million CAD at an average Canadian-dollar exchange rate of 0.7814 over these quarterly periods.

We concluded that the forward contracts met the criteria to qualify as a cash flow hedge under U.S.

These forward contracts matured on February 25, 2022.

In August 2021, we entered into twenty forward contracts to exchange CAD for U.S.

dollars at fixed exchange rates in order to manage our exposure related to certain forecasted CAD denominated sales of one of our subsidiaries.

In total, we will sell approximately 14.1 million CAD at an average Canadian-dollar exchange rate of 0.7861 over these quarterly periods.

We concluded that the forward contracts met the criteria to qualify as a cash flow hedge under U.S.

During fiscal 2022, we reclassified $0.1 million from accumulated other comprehensive loss to revenue, related to the derivative financial instruments.

Other than the forward contracts discussed above, we do not operate a hedging program to mitigate the effect of a significant change in the value of the functional currencies of our foreign subsidiaries, which include the Canadian dollar, euro, British pound, Mexican peso and Nicaraguan cordoba, as compared to the U.S.

Any losses or gains resulting from unhedged foreign currency transactions, including exchange rate fluctuations on intercompany accounts are reported as transaction losses (gains) in our other expense, net.

The intercompany payables and receivables are denominated in Canadian dollars, euros, British pounds, Mexican pesos and Nicaraguan cordobas.

During the fiscal year ended August 27, 2022, transaction gains included in other expense, net, was $2.2 million.

If exchange rates had changed by 10% during fiscal 2022, we would have recognized exchange gains or losses of approximately $0.4 million.

Please see Item 1A.

“Risk Factors”

in this Annual Report on Form 10-K for an additional discussion of risks and potential risks of the COVID-19 pandemic on our business, financial performance and the market price of our Common Stock.

FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA

Consolidated Stat ements of Income

UniFirst Corporation and Subsidiaries

(In thousands, except per share data)

Operating expenses:

Cost of revenues (1)

Selling and administrative expenses (1)

Depreciation and amortization

Total operating expenses

Operating income

Other (income) expense:

Interest income, net

Other expense, net

Total other (income) expense, net

Income before income taxes

Provision for income taxes

Income per share—Basic:

Class B Common Stock

Income per share—Diluted:

Income allocated to—Basic:

Class B Common Stock

Income allocated to—Diluted:

Weighted average number of shares outstanding—Basic:

Class B Common Stock

Weighted average number of shares outstanding—Diluted:

(1) Exclusive of depreciation on the Company’s property, plant and equipment and amortization of its intangible assets.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

UniFirst Corporation and Subsidiaries

(In thousands)

Other comprehensive (loss) income:

Foreign currency translation adjustments

Pension benefit liabilities, net of income taxes

Change in fair value of derivatives, net of income taxes

Derivative financial instruments reclassified to earnings

Other comprehensive income

Comprehensive income

The accompanying notes are an integral part of these Consolidated Financial Statements.

Consolidated B alance Sheets

UniFirst Corporation and Subsidiaries

(In thousands, except share and par value data)

Current assets:

Cash and cash equivalents

Receivables, less reserves of $ 15,605 and $ 11,122 , respectively

Rental merchandise in service

Prepaid taxes

Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net

Customer contracts, net

Other intangible assets, net

Deferred income taxes

Operating lease right-of-use assets, net

Liabilities and shareholders’

Current liabilities:

Accounts payable

Accrued liabilities

Accrued taxes

Operating lease liabilities, current

Total current liabilities

Accrued liabilities

Accrued and deferred income taxes

Operating lease liabilities

Total liabilities

Commitments and contingencies (Note 11)

Shareholders’

Preferred Stock, $ 1.00 par value;

2,000,000 shares authorized;

issued and outstanding

Common Stock, $ 0.10 par value;

30,000,000 shares authorized;

15,075,425 and

15,235,601 shares issued and outstanding in 2022 and 2021, respectively

Class B Common Stock, $ 0.10 par value;

20,000,000 shares authorized;

3,590,295 and 3,643,009 shares issued and outstanding in 2022 and 2021, respectively

Capital surplus

Retained earnings

Accumulated other comprehensive loss

Total shareholders’

Total liabilities and shareholders’

The accompanying notes are an integral part of these Consolidated Financial Statements.

Consolidated Statements of Shareholders’

UniFirst Corporation and Subsidiaries

(In thousands)

Comprehensive

Balance, August 31, 2019

Pension benefit liabilities, net (1)

Change in fair value of derivatives

Foreign currency translation

Dividends declared

Share-based compensation, net (2)

Share-based awards exercised,

Repurchase of Common Stock

Balance, August 29, 2020

Pension benefit liabilities, net (1)

Change in fair value of derivatives

Foreign currency translation

Dividends declared

Share-based compensation, net (2)

Share-based awards exercised,

Repurchase of Common Stock

Balance, August 28, 2021

Pension benefit liabilities, net (1)

Change in fair value of derivatives

Foreign currency translation

Dividends declared

Shares converted

Share-based compensation, net (2)

Share-based awards exercised,

Repurchase of Common Stock

Balance, August 27, 2022

(1) These amounts are shown net of the effect of income taxes.

(2) These amounts are shown net of any shares withheld by the Company to satisfy certain tax withholdings obligations in connection with the vesting of certain restricted stock units.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Consolidated Stateme nts of Cash Flows

UniFirst Corporation and Subsidiaries

(In thousands)

Cash flows from operating activities:

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization

Amortization of deferred financing costs

Share-based compensation

Accretion on environmental contingencies

Accretion on asset retirement obligations

Deferred income taxes

Changes in assets and liabilities, net of acquisitions:

Receivables, less reserves

Rental merchandise in service

Prepaid expenses and other current assets and Other assets

Accounts payable

Accrued liabilities

Prepaid and accrued income taxes

Net cash provided by operating activities

Cash flows from investing activities:

Acquisition of businesses, net of cash acquired

Capital expenditures, including capitalization of software costs

Proceeds from sale of assets

Net cash used in investing activities

Cash flows from financing activities:

Payment of deferred financing costs

Proceeds from exercise of share-based awards

Taxes withheld and paid related to net share settlement of equity awards

Repurchase of Common Stock

Payment of cash dividends

Net cash used in financing activities

Effect of exchange rate changes

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosure of cash flow information:

Capital expenditures in accounts payable

Interest paid

Income taxes paid, net of refunds received

The accompanying notes are an integral part of these Consolidated Financial Statements.

Notes to Consolidated Financial Statements

UniFirst Corporation and Subsidiaries

Summary of Significan t Accounting Policies

Business Description

UniFirst Corporation (the “Company”) is one of the largest providers of workplace uniforms and protective clothing in the United States.

The Company designs, manufactures, personalizes, rents, cleans, delivers, and sells 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.

The Company also rents and sells industrial wiping products, floor mats, facility service products and other non-garment items, and provides restroom and cleaning supplies and first aid cabinet services and other safety supplies as well as provide certain safety training, to a variety of manufacturers, retailers and service companies.

The Company serves businesses of all sizes in numerous industry categories.

Typical customers include automobile service centers and dealers, delivery services, food and general merchandise retailers, manufacturers, maintenance facilities, restaurants and food-related businesses, business service companies, soft and durable goods wholesalers, transportation companies, energy producing operations, healthcare providers and others who require employee clothing on the job for image, identification, protection or utility purposes.

The Company also provides its customers with restroom and cleaning supplies, including air fresheners, paper products, gloves, masks, hand soaps and sanitizers.

At certain specialized facilities, the Company decontaminates and cleans work clothes and other items that may have been exposed to radioactive materials and services special cleanroom protective wear.

Typical customers for these specialized services include government agencies, research and development laboratories, high technology companies and utility providers operating nuclear reactors.

As discussed and described in Note 15, “Segment Reporting”, to these Consolidated Financial Statements, the Company has five reporting segments:

and Canadian Rental and Cleaning, Manufacturing (“MFG”), Specialty Garments Rental and Cleaning (“Specialty Garments”), First Aid and Corporate.

The operations of the U.S.

and Canadian Rental and Cleaning reporting segment are referred to by the Company as its “industrial laundry operations”

and the locations related to this reporting segment are referred to as “industrial laundries”.

The Company refers to its U.S.

and Canadian Rental and Cleaning, MFG, and Corporate segments combined as its “Core Laundry Operations”.

The COVID-19 pandemic had a significant adverse impact on the Company’s revenues in the second half of fiscal 2020 and the first half of fiscal 2021.

In these consolidated financial statements and related disclosures, the Company has assessed the current impact of COVID-19 on its consolidated financial condition, results of operations, and cash flows, as well as the Company’s estimates and accounting policies.

The Company has made additional disclosures of these assessments, as necessary.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned.

Intercompany balances and transactions are eliminated in consolidation.

Basis of Presentation

The Consolidated Financial Statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.

There have been no material changes in the accounting policies followed by the Company during the current fiscal year other than the adoption of recent accounting pronouncements as discussed in greater detail in the Recent Accounting Pronouncements sub-section of this Note.

Use of Estimates

The preparation of these Consolidated Financial Statements is in conformity with accounting principles generally accepted in the United States (“U.S.

GAAP”) which requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes.

The Company utilizes key estimates in preparing the financial statements including casualty and environmental estimates, recoverability of goodwill, intangibles, income taxes and long-lived assets.

These estimates are based on historical information, current trends, and information available from other sources.

The Company’s results are affected by economic, political, legislative, regulatory and legal actions.

These factors and other events could cause actual results to differ from management's estimates.

The Company’s fiscal year ends on the last Saturday in August.

For financial reporting purposes, fiscal years ended August 27, 2022 (“fiscal 2022”), August 28, 2021 (“fiscal 2021”) and August 29, 2020 (“fiscal 2020 ”) all consisted of 52 weeks.

Cash and Cash Equivalents

Cash and cash equivalents include cash in banks and money market securities.

As of each of August 27, 2022 and August 28, 2021 , the Company had no short-term investments.

Accounts receivable

Accounts receivable represents amounts due from customers and is presented net of reserves for expected credit losses.

The Company utilizes its judgment and estimates are used in determining the collectability of accounts receivable and evaluating the adequacy of the reserve for expected credit losses.

The Company considers specific accounts receivable and historical credit loss experience, customer credit worthiness, current economic trends and the age of outstanding balances as part of its evaluation.

When an account is considered uncollectible, it is written off against the reserve for expected credit losses.

In response to the economic disruption created by the COVID-19 pandemic and the resulting impact on our customer base, the Company performed an additional evaluation of amounts due from customers in fiscal 2020 that were deemed to be higher collection risk.

This evaluation resulted in a reserve for expected credit losses in excess of historical rates.

The judgment applied to increase the reserve for expected credit losses beyond our historical policy was deemed to be reasonable and supportable based on the data available as of the consolidated balance sheet date.

Financial Instruments

The Company’s financial instruments, which may expose the Company to concentrations of credit risk, include cash and cash equivalents, receivables, accounts payable and foreign exchange forward contracts.

Each of these financial instruments is recorded at cost, which approximates its fair value given the short maturity of each financial instrument.

Revenue Recognition

In fiscal 2022, approximately 88.5 % of the Company’s revenues are derived from fees for route servicing of Core Laundry Operations, Specialty Garments and First Aid services performed by the Company’s employees at the customer’s location of business.

Revenues from the Company’s route servicing customer contracts represent a single-performance obligation.

The Company recognizes these revenues over time as services are performed based on the nature of services provided and contractual rates (input method).

Certain of the Company’s customer contracts, primarily within the Company’s Core Laundry Operations, include pricing terms and conditions that include components of variable consideration.

The variable consideration is typically in the form of consideration due to a customer based on performance metrics specified within the contract.

Specifically, some contracts contain discounts or rebates that the customer can earn through the achievement of specified volume levels.

Each component of variable consideration is earned based on the Company’s actual performance during the measurement period specified within the contract.

To determine the transaction price, the Company estimates the variable consideration using the most likely amount method, based on the specific contract provisions and known performance results during the relevant measurement period.

When determining if variable consideration should be constrained, the Company considers whether factors outside its control could result in a significant reversal of revenue.

In making these assessments, the Company considers the likelihood and magnitude of a potential reversal.

The Company’s performance period generally corresponds with the monthly invoice period.

No significant constraints on the Company’s revenue recognition were applied during fiscal 2022.

The Company reassesses these estimates during each reporting period.

The Company maintains a liability for these discounts and rebates within accrued liabilities on the consolidated balance sheets.

Variable consideration also includes consideration paid to a customer at the beginning of a contract.

The Company capitalizes this consideration and amortizes it over the life of the contract as a reduction to revenue in accordance with the accounting guidance for revenue recognition.

These assets are included in other assets on the consolidated balance sheets.

The following table presents the Company’s revenues for fiscal 2022, 2021, and 2020 disaggregated by service type:

August 27, 2022

August 28, 2021

August 29, 2020

(In thousands, except percentages)

Core Laundry Operations

Specialty Garments

Total Revenues

During fiscal 2022, 2021 and 2020 the percentage of revenues recognized over time as the services are performed was 88.4 % , 95.8 % and 94.7 % of Core Laundry Operations revenues, respectively, and 83.8 % , 81.8 % and 79.2 % of Specialty Garments revenues, respectively.

During fiscal 2022, 2021 and 2020, 11.6 % , 4.2 % and 5.3 % of Core Laundry Operations revenues, respectively, 16.2 % , 18.2 % and 20.8 % of Specialty Garments revenues, respectively, and 100 % of First Aid revenues were recognized at a point in time, which generally occurs when the goods are transferred to the customer.

Costs to Obtain a Contract

The Company defers commission expenses paid to its employee-partners when the commissions are deemed to be incremental for obtaining the route servicing customer contract.

The deferred commissions are amortized on a straight-line basis over the expected period of benefit.

The Company reviews the deferred commission balances for impairment on an ongoing basis.

Deferred commissions are classified as current or noncurrent based on the timing of when the Company expects to recognize the expense.

The current portion is included in prepaid expenses and other current assets and the non-current portion is included in other assets on the Company’s consolidated balance sheets.

As of August 27, 2022, the current and non-current assets related to deferred commissions totaled $ 15.2 million and $ 65.1 million , respectively.

As of August 28, 2021, the current and non-current assets related to deferred commissions totaled $ 14.2 million and $ 60.6 million , respectively.

During fiscal 2022 and 2021, we recorded $ 15.4 million and $ 14.4 million , respectively, of amortization expense related to deferred commissions.

This amortization expense is classified in selling and administrative expenses on the consolidated statements of income.

Inventories and Rental Merchandise in Service

Inventories are stated at the lower of cost or net realizable value, net of any reserve for excess and obsolete inventory.

Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead.

Judgments and estimates are used in determining the likelihood that new goods on hand can be sold to customers or used in rental operations.

Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories.

If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

The Company uses the first-in, first-out (“FIFO”) method to value its inventories.

The components of inventory as of August 27, 2022 and August 28, 2021 were as follows (in thousands):

Raw materials

Work in process

Finished goods

Total inventory

Rental merchandise in service is amortized, primarily on a straight-line basis, over the estimated service lives of the merchandise, which range from six to thirty-six months .

The amortization expense is included in the cost of revenues on the Company’s Consolidated Statements of Income.

In establishing estimated lives for merchandise in service, management considers historical experience and the intended use of the merchandise.

Material differences may result in the amount and timing of operating profit for any period if management makes significant changes to these estimates.

Property, plant and equipment

Property, plant and equipment are recorded at cost.

Expenditures for maintenance and repairs are expensed as incurred, while expenditures for renewals and betterments are capitalized.

The components of property, plant and equipment as of August 27, 2022 and August 28, 2021 were as follows (in thousands):

Land, buildings and leasehold equipment

Machinery and equipment

Motor vehicles

accumulated depreciation

Total property, plant and equipment

The Company provides for depreciation on the straight-line method based on the date the asset is placed in service using the following estimated useful lives:

Buildings (in years)

Building components (in years)

Leasehold improvements

Shorter of useful

life or term of lease

Machinery and equipment (in years)

Motor vehicles (in years)

Long-lived assets, including property, plant and equipment, are evaluated for impairment whenever events or circumstances indicate an asset may be impaired.

There were no material impairments of long-lived assets in fiscal 2022, 2021 and 2020 .

Goodwill and Other Intangible Assets

In accordance with U.S.

GAAP, the Company does not amortize goodwill.

Instead, the Company tests goodwill for impairment on an annual basis.

Management completed its annual goodwill impairment test on the last day of the fourth quarter of each fiscal year prior to fiscal 2020.

In fiscal 2020, the Company changed its annual goodwill impairment test date to the first day of the fourth quarter to better align with its internal business processes.

In addition, U.S.

GAAP requires that companies test goodwill if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit to which goodwill is assigned below its carrying amount.

The Company used the qualitative assessment option for its impairment testing for goodwill in fiscal 2022 and determined that the fair values of the reporting units more likely than not exceeded their carrying values and that there was no evidence of impairment as of May 29, 2022.

The Company cannot predict future economic conditions and their impact on the Company or the future net realizable value of the Company’s stock.

A decline in the Company’s market capitalization and/or deterioration in general economic conditions could negatively and materially impact the Company’s assumptions and assessment of the fair value of the Company’s business.

If general economic conditions or the Company’s financial performance deteriorate, the Company may be required to record a goodwill impairment charge in the future which could have a material impact on the Company’s financial condition and results of operations.

Definite-lived intangible assets are amortized over their estimated useful lives, which are based on management’s estimates of the period that the assets will generate economic benefits.

Definite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable in accordance with U.S.

There were no impairments of goodwill or indicators of impairment for definite-lived intangible assets in fiscal 2022, 2021 or 2020.

As of August 27, 2022 , definite-lived intangible assets have a weighted average useful life of approximately 13.5 years.

Customer contracts have a weighted average useful life of approximately 13.8 years and other intangible assets, net, which consist of primarily, restrictive covenants, software and trademarks, have a weighted average useful life of approximately 6.1 years.

Environmental and Other Contingencies

The Company is subject to legal proceedings and claims arising from the conduct of its business operations, including environmental matters, personal injury, customer contract matters and employment claims.

Accounting principles generally accepted in the United States require that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated.

Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded.

The Company regularly consults with attorneys and outside consultants in its consideration of the relevant facts and circumstances before recording a contingent liability.

The Company records accruals for environmental and other contingencies based on enacted laws, regulatory orders or decrees, the Company’s estimates of costs, insurance proceeds, participation by other parties, the timing of payments, and the input of outside consultants and attorneys.

The estimated liability for environmental contingencies has been discounted as of August 27, 2022 using risk-free interest rates ranging from 3.0 % to 3.4 % over periods ranging from ten to thirty years .

The estimated current costs, net of legal settlements with insurance carriers, have been adjusted for the estimated impact of inflation at 3 % per year.

Changes in enacted laws, regulatory orders or decrees, management’s estimates of costs, risk-free interest rates, insurance proceeds, participation by other parties, the timing of payments, the input of the Company’s attorneys and outside consultants or other factual circumstances could have a material impact on the amounts recorded for environmental and other contingent liabilities.

Refer to Note 11, “Commitments and Contingencies”, of these Consolidated Financial Statements for additional discussion and analysis.

Asset Retirement Obligations

The Company recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made.

The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.

The Company has recognized as a liability the present value of the estimated future costs to decommission its nuclear laundry facilities.

The Company depreciates, on a straight-line basis, the amount added to property, plant and equipment and recognizes accretion expense in connection with the discounted liability over the various remaining lives which range from approximately one to twenty-two years .

The estimated liability has been based on historical experience in decommissioning nuclear laundry facilities, estimated useful lives of the underlying assets, external vendor estimates as to the cost to decommission these assets in the future, and federal and state regulatory requirements.

The estimated current costs have been adjusted for the estimated impact of inflation at 3 % per year.

The liability has been discounted using credit-adjusted risk-free rates that range from approximately 7.00 % to 7.50 % .

Revisions to the liability could occur due to changes in the Company’s estimated useful lives of the underlying assets, estimated dates of decommissioning, changes in decommissioning costs, changes in federal or state regulatory guidance on the decommissioning of such facilities, or other changes in estimates.

Changes due to revised estimates are recognized by adjusting the carrying amount of the liability and the related long-lived asset if the assets are still in service, or charged to expense in the period if the assets are no longer in service.

The Company is self-insured for certain obligations related to health, workers’

compensation, vehicles and general liability programs.

The Company also purchases stop-loss insurance policies for health, workers’

compensation, vehicles and general liability programs to protect itself from catastrophic losses.

Judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred, but have not been reported.

The Company’s estimates consider historical claims experience and other factors.

In certain cases where partial insurance coverage exists, the Company estimates the portion of the liability that will be covered by existing insurance policies to arrive at its net expected liability.

Receivables for insurance recoveries are recorded as assets, on an undiscounted basis.

The Company’s liabilities are based on estimates, and, while the Company believes that its accruals are adequate, the ultimate liability may be significantly different from the amounts recorded.

Changes in claims experience, the Company’s ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.

Supplemental Executive Retirement Plan and other Pension Plans

Pension expense is recognized on an accrual basis over employees’

estimated service periods.

Pension expense is generally independent of funding decisions or requirements.

The Company (1) recognizes in its statement of financial position the over-funded or under-funded status of its defined benefit postretirement plans measured as the difference between the fair value of plan assets and the benefit obligation, (2) recognizes as a component of other comprehensive (loss) income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period but are not recognized as components of net periodic benefit cost, (3) measures defined benefit plan assets and defined benefit plan obligations as of the date of its statement of financial position, and (4) discloses additional information in the notes to financial statements about certain effects on net periodic benefit cost in the upcoming fiscal year that arise from delayed recognition of the actuarial gains and losses and the prior service costs and credits.

Refer to Note 7, “Employee Benefit Plans”, of these Consolidated Financial Statements for further discussion regarding the Company’s pension plans.

The calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions, including the expected long-term rates of return on plan assets, the assumed discount rates, assumed rate of compensation increases and life expectancy of participants.

Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions.

Pension expense increases as the expected rate of return on pension plan assets decreases.

Future changes in plan asset returns, assumed discount rates and various other factors related to the participants in the Company’s pension plans will impact the Company’s future pension expense and liabilities.

The Company cannot predict with certainty what these factors will be in the future.

Nonqualified Deferred Compensation Plan

The Company adopted the UniFirst Corporation Deferred Compensation Plan (the “NQDC Plan”) effective on February 1, 2022.

The NQDC Plan is an unfunded, nonqualified deferred compensation plan that allows eligible participants to voluntarily defer receipt of their salary and annual cash bonuses up to approved limits.

In its discretion, the Company may credit one or more additional contributions to participant accounts.

NQDC Plan participants who are not accruing benefits under the Supplemental Executive Retirement Plan are eligible to have discretionary annual employer contributions credited to their NQDC Plan accounts.

All participants are also eligible to have employer supplemental contributions and employer discretionary contributions credited to their NQDC Plan accounts.

The amounts of such contributions may differ from year to year and from participant to participant.

Refer to Note 7, “Employee Benefit Plans”, of these Consolidated Financial Statements for further discussion regarding the Company’s NQDC Plan.

The Company computes income tax expense by jurisdiction based on its operations in each jurisdiction.

Deferred income taxes are provided for temporary differences between the amounts recognized for income tax and financial reporting purposes at currently enacted tax rates.

Deferred tax assets and liabilities are determined by the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities.

See Note 4, “Income Taxes”

in these Consolidated Financial Statements for the types of items that give rise to significant deferred income tax assets and liabilities.

Deferred income taxes are classified as assets or liabilities based on the classification of the related asset or liability for financial reporting purposes.

The Company regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences.

Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets will be realized.

The Company is periodically reviewed by U.S.

domestic and foreign tax authorities regarding the amount of taxes due.

These reviews typically include inquiries regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions.

In evaluating the exposure associated with various filing positions, the Company records estimated reserves .

Refer to Note 4, “Income Taxes”, of these Consolidated Financial Statements for further discussion regarding the Company’s accounting for income taxes and its uncertain tax positions for financial accounting purposes.

Advertising Costs

Advertising costs are expensed as incurred and are classified as selling and administrative expenses.

The Company incurred advertising costs of $ 14.7 million , $ 3.5 million and $ 3.8 million , for fiscal 2022, 2021 and 2020 , respectively.

Share-Based Compensation

Compensation expense for all stock options, stock appreciation rights, unrestricted stock and restricted stock units (collectively, “Share-Based Awards”) is recognized ratably over the related vesting period, net of actual forfeitures.

Certain Share-Based Awards in the form of stock appreciation rights and shares of unrestricted stock were granted during fiscal 2022, 2021 and 2020 to non-employee Directors of the Company, which were fully vested upon grant and, with respect to stock appreciation rights, expire eight years after the grant date.

Accordingly, compensation expense related to these Share-Based Awards in fiscal 2022, 2021 and 2020 was recognized on the date of grant.

For performance-based restricted stock unit awards with revenue and earnings per share performance criteria, we evaluate the probability of meeting the performance criteria at each balance sheet date and, if probable, related compensation cost is amortized over the performance period on a straight-line basis because such awards vest only at the end of the measurement period.

Changes to the probability assessment and the estimate of shares expected to vest will result in adjustments to the related share-based compensation expense that will be recorded in the period of the change.

If the performance targets are not achieved, no compensation cost is recognized and any previously recognized compensation cost is reversed.

GAAP requires that share-based compensation cost be measured at the grant date based on the fair value of the award and be recognized as expense over the requisite service period, which is generally the vesting period.

Determining the fair value of Share-Based Awards in the form of stock appreciation rights at the grant date requires judgment, including estimating expected dividends and share price volatility.

The fair value of each Share-Based Award in the form of stock appreciation rights is estimated on the date of grant using the Black-Scholes option pricing model.

The Company recognizes compensation expense for restricted stock and restricted stock unit grants over the related vesting period.

The fair value for each restricted stock, unrestricted stock and restricted stock unit grant is determined by using the closing price of the Company’s stock on the date of the grant.

Refer to Note 12, “Share-Based Compensation”, of these Consolidated Financial Statements for further discussion regarding the Company’s share-based compensation plans.

Income Per Share

The Company calculates income per share by allocating income to its unvested participating securities as part of its income per share calculations.

The Class B Common Stock may be converted at any time on a one -for-one basis into Common Stock at the option of the holder of the Class B Common Stock.

Diluted income per share for the Company’s Common Stock assumes the conversion of all of the Company’s Class B Common Stock into Common Stock, full vesting of outstanding restricted stock, and the exercise of Share-Based Awards under the Company’s stock incentive plans.

The following table sets forth the computation of basic income per share using the two-class method for amounts attributable to the Company’s shares of Common Stock and Class B Common Stock (in thousands, except per share data):

Net income available to shareholders

Allocation of net income for Basic:

Class B Common Stock

Weighted average number of shares for Basic:

Class B Common Stock

Income per share for Basic:

Class B Common Stock

The Company is required to calculate the diluted income per share for Common Stock using the more dilutive of the following two methods:

The treasury stock method;

The two-class method assuming a participating security is not exercised or converted.

For fiscal 2022, 2021 and 2020 , the Company’s diluted income per share assumes the conversion of all Class B Common Stock into Common Stock and uses the two-class method for its unvested participating shares.

The following table sets forth the computation of diluted income per share of Common Stock for the years ended August 27, 2022, August 28, 2021 and August 29, 2020 (in thousands, except per share data):

Year Ended August 27, 2022

Year Ended August 28, 2021

Year Ended August 29, 2020

As reported—Basic

effect of dilutive potential

common shares

Share-Based Awards

Class B Common Stock

Diluted Income Per Share—

Share-Based Awards that would result in the issuance of 34,416 , 6,005 and 8,094 shares, respectively, of Common Stock were excluded from the calculation of diluted earnings per share for fiscal 2022, 2021 and 2020 because they were anti-dilutive.

Foreign Currency Translation

The functional currency of our foreign operations is the local country’s currency.

Transaction gains and losses, including gains and losses on our intercompany transactions, are included in other expense, net in the accompanying Consolidated Statements of Income.

Assets and liabilities of operations outside the United States are translated into U.S.

dollars using period-end exchange rates.

Revenues and expenses are translated at the average exchange rates in effect during each month of the fiscal year.

The effects of foreign currency translation adjustments are included in shareholders’

equity as a component of accumulated other comprehensive loss in the accompanying Consolidated Balance Sheets.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued updated guidance to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

This guidance was effective for annual reporting periods ending after December 15, 2020, and was required to be applied on a retrospective basis with early adoption permitted.

Accordingly, the standard was effective for the Company on August 29, 2021.

The Company’s adoption of this guidance on August 29, 2021 did no t have a material impact on its financial statements or related disclosures.

In December 2019, the FASB issued updated guidance to simplify accounting for income taxes by removing certain exceptions and improving the consistent application of and simplifying U.S.

GAAP in other areas of this topic.

This guidance was effective for annual reporting periods, and any interim periods within those annual periods, that began after December 15, 2020, with early adoption permitted.

The Company’s adoption of this guidance on August 29, 2021 did no t have a material impact on its financial statements.

In October 2021, the FASB issued updated guidance to improve the accounting for acquired revenue contracts with customers in a business combination.

This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2023 and will be required to be applied on a prospective basis with early adoption permitted.

Accordingly, the standard will be effective for the Company on September 1, 2024.

The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.

In November 2021, the FASB issued updated guidance to increase the transparency of government assistance, including the disclosure of the types of assistance, an entity’s accounting for the assistance and the effect of the assistance on an entity’s financial statements.

This guidance will be effective for annual reporting periods that begin after December 15, 2021 and will be required to be applied on a prospective basis with early adoption permitted.

Accordingly, the standard will be effective for the Company on August 28, 2022.

The Company does not expect this standard to have a material impact on its financial statements.

During fiscal 2022, the Company completed thirteen business acquisitions with an aggregate purchase price of approximately $ 44.8 million .

The allocations of the purchase prices with respect to certain assets acquired during fiscal 2022 are complete.

The results of operations of these acquisitions have been included in the Company’s consolidated financial results since their respective acquisition dates.

These acquisitions were not significant in relation to the Company’s consolidated financial results and, therefore, pro forma financial information has not been presented.

In September 2019, the Company completed an acquisition for approximately $ 38.8 million.

The all-cash transaction was structured as an asset acquisition, with the Company acquiring substantially all of the acquired company’s industrial laundry, industrial uniform rental and industrial direct sales assets.

Aggregate information relating to the acquisition of businesses which were accounted for as purchases is as follows (in thousands, except number of businesses acquired):

Number of businesses acquired

Tangible assets acquired

Customer contracts

Other intangible assets

Liabilities assumed

Acquisition of businesses

Tangible assets acquired primarily relate to accounts receivable, inventory, prepaid expenses and property, plant and equipment.

Liabilities assumed primarily relate to leases, accounts payable and accrued liabilities.

The amount assigned to intangible assets acquired was based on their respective fair values determined as of the acquisition date.

The excess of the purchase price over the tangible and intangible assets was recorded as goodwill.

In fiscal 2022, 2021 and 2020 , the goodwill was primarily allocated to the U.S.

and Canadian Rental and Cleaning segment and is deductible for tax purposes.

Fair Value Measurements

GAAP establishes a framework for measuring fair value and establishes disclosure requirements about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

We considered non-performance risk when determining fair value of our derivative financial instruments.

The fair value hierarchy prescribed under U.S.

GAAP contains three levels as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets;

quoted prices for identical or similar assets and liabilities in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

All financial assets or liabilities that are measured at fair value on a recurring basis (at least annually) have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

The assets or liabilities measured at fair value on a recurring basis are summarized in the tables below (in thousands):

As of August 27, 2022

Cash equivalents

Pension plan assets

Non-qualified deferred compensation plan assets

Foreign currency forward contracts

Total assets at fair value

As of August 28, 2021

Cash equivalents

Pension plan assets

Foreign currency forward contracts

Total assets at fair value

The Company’s cash equivalents listed above represent money market securities and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

The Company does not adjust the quoted market price for such financial instruments.

The Company’s pension plan assets listed above represent guaranteed deposit accounts that are maintained and operated by Prudential Retirement Insurance and Annuity Company (“PRIAC”).

All assets are merged with the general assets of PRIAC and are invested predominantly in privately placed securities and mortgages.

At the beginning of each calendar year, PRIAC notifies the Company of the annual rates of interest which will be applied to the amounts held in the guaranteed deposit account during the next calendar year.

In determining the interest rate to be applied, PRIAC considers the investment performance of the underlying assets of the prior year;

however, regardless of the investment performance the Company is contractually guaranteed a minimum rate of return.

As such, the Company’s pension plan assets are included within Level 2 of the fair value hierarchy.

The Company’s foreign currency forward contracts represent contracts the Company has entered into to exchange Canadian dollars for U.S.

dollars at fixed exchange rates in order to manage its exposure related to certain forecasted Canadian dollar denominated sales of one of its subsidiaries.

These contracts are included in prepaid expenses and other current assets and other long-term assets as of August 27, 2022 and August 28, 2021 .

The fair value of the forward contracts is based on similar exchange traded derivatives and are, therefore, included within Level 2 of the fair value hierarchy.

The provision / (benefit) for income taxes consists of the following (in thousands):

Total current

Total deferred

The following table reconciles the provision for income taxes using the statutory federal income tax rate to the actual provision for income taxes:

Income taxes at the statutory federal income tax rate

State income taxes

Adjustments to Tax Reserve

The components of deferred income taxes included on the consolidated balance sheets are as follows (in thousands):

Deferred Tax Assets

Payroll and benefit related

Insurance related

Environmental

Accrued expenses

Operating lease liabilities

Total deferred tax assets

Deferred Tax Liabilities

Payroll and benefit related

Tax in excess of book depreciation

Purchased intangible assets

Rental merchandise in service

Operating lease right-of-use assets

Total deferred tax liabilities

Net deferred tax liability

The Company regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences.

Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets will be realized.

Effective tax rate

The Company’s effective tax rate for the fiscal year ended August 27, 2022 was 23.0 % as compared to 23.2 % for the corresponding period in the prior year.

The decrease in the effective tax rate was primarily due to the tax benefit related to the release of existing tax reserves in fiscal 2022 compared to fiscal 2021.

Foreign tax effect

As of August 27, 2022, unremitted foreign earnings, have been retained by the Company’s foreign subsidiaries for indefinite reinvestment.

If the Company were to repatriate those earnings, in the form of dividends or otherwise, the Company could be subject to immaterial withholding taxes payable to the various foreign countries.

Uncertain tax positions

As of August 27, 2022 and August 28, 2021 , there was $ 6.4 million and $ 9.3 million, respectively, of unrecognized tax benefits, of which $ 5.7 million and $ 8.7 million, respectively, would favorably impact the Company’s effective tax rate, if recognized.

The Company recognized interest and penalties related to uncertain tax positions as a component of income tax expense which is consistent with the recognition of these items in prior reporting periods.

As of August 27, 2022 and August 28, 2021 , the Company had accrued a total of a nominal amount and $ 0.1 million, respectively, in interest and penalties, in its long-term accrued liabilities.

For the years ended August 27, 2022, August 28, 2021 and August 29, 2020 the Company recognized a nominal expense in its Consolidated Statement of Income related to interest and penalties.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at August 29, 2020

Additions based on tax positions related to the current year

Additions for tax positions of prior years

Reduction for tax positions of prior years

Statute expirations

Balance at August 28, 2021

Additions based on tax positions related to the current year

Additions for tax positions of prior years

Reduction for tax positions of prior years

Statute expirations

Balance at August 27, 2022

The Company has a significant portion of its operations in the United States and Canada.

It is required to file federal income tax returns as well as state income tax returns in a majority of the U.S.

states and also in a number of Canadian provinces.

At times, the Company is subject to audits in these jurisdictions, which typically are complex and can require several years to resolve.

The final resolution of any such tax audits could result in either a reduction in the Company’s accruals or an increase in its income tax provision, both of which could have a material impact on the consolidated results of operations in any given period.

and Canadian federal income tax statutes have lapsed for filings up to and including fiscal years 2017 and 2014, respectively.

With a few exceptions, the Company is no longer subject to state and local income tax examinations for periods prior to fiscal 2018.

The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly in the next 12 months.

Loans Payable and Long-term Debt

As of August 27, 2022 and August 28, 2021 , the Company had no outstanding loans payable.

On March 26, 2021, the Company entered into an amended and restated $ 175.0 million unsecured revolving credit agreement (the “2021 Credit Agreement”) with a syndicate of banks, which matures on March 26, 2026 .

The 2021 Credit Agreement amended and restated the $ 250.0 million unsecured revolving credit agreement, which was scheduled to mature on April 11, 2021 .

Under the 2021 Credit Agreement, the Company may borrow funds at variable interest rates based on, at the Company’s election, the Eurodollar rate or a base rate, plus in each case a spread based on the Company’s consolidated funded debt ratio.

The Company tests its compliance with these financial covenants on a fiscal quarterly basis.

As of August 27, 2022 , the interest rates applicable to the Company’s borrowings under the 2021 Credit Agreement would be calculated as LIBOR plus 1.00 % at the time of the respective borrowing.

As of August 27, 2022 , the Company had no outstanding borrowings and had outstanding letters of credit amounting to $ 60.8 million , leaving $ 114.2 million available for borrowing under the 2021 Credit Agreement.

As of August 27, 2022, the Company was in compliance with all covenants under the 2021 Credit Agreement.

Derivative Instruments and Hedging Activities

The Company uses derivative financial instruments to mitigate its exposure to fluctuations in foreign currencies on certain forecasted transactions denominated in foreign currencies.

GAAP requires that all of the Company’s derivative instruments be recorded on the balance sheet at fair value.

All subsequent changes in a derivative’s fair value are recognized in income, unless specific hedge accounting criteria are met.

Derivative instruments that qualify for hedge accounting are classified as a hedge of the variability of cash flows to be received or paid related to a recognized asset, liability or forecasted transaction.

Changes in the fair value of a derivative that is highly effective and designated as a cash flow hedge are recognized in accumulated other comprehensive (loss) income until the hedged item or forecasted transaction is recognized in earnings.

The Company performs an assessment at the inception of the hedge and on a quarterly basis thereafter, to determine whether its derivatives are highly effective in

offsetting changes in the value of the hedged items.

Any changes in the fair value resulting from hedge ineffectiveness are immediately recognized as income or expense.

In June 2018, the Company entered into twelve forward contracts to exchange CAD for U.S.

dollars at fixed exchange rates in order to manage its exposure related to certain forecasted CAD denominated sales of one of its subsidiaries.

The hedged transactions are specified as the first amount of CAD denominated revenues invoiced by one of the Company’s domestic subsidiaries each fiscal quarter, beginning in the third fiscal quarter of 2019 and continuing through the second fiscal quarter of 2022.

In total, the Company sold approximately 12.1 million CAD at an average Canadian-dollar exchange rate of 0.7814 over these quarterly periods.

The Company concluded that the forward contracts met the criteria to qualify as a cash flow hedge under U.S.

These forward contracts matured on February 25, 2022 .

In August 2021, the Company entered into twenty forward contracts to exchange CAD for U.S.

dollars at fixed exchange rates in order to manage its exposure related to certain forecasted CAD denominated sales of one of its subsidiaries.

The hedged transactions are specified as the first amount of CAD denominated revenues invoiced by one of the Company’s domestic subsidiaries each fiscal quarter, beginning in the first fiscal quarter of 2022 and continuing through the fourth fiscal quarter of 2026.

In total, the Company will sell approximately 14.1 million CAD at an average Canadian-dollar exchange rate of 0.7861 over these quarterly periods.

The Company concluded that the forward contracts met the criteria to qualify as a cash flow hedge under U.S.

As of August 27, 2022, the Company had forward contracts with a notional value of approximately 7.2 million CAD outstanding and recorded the fair value of the contracts of $ 0.1 million in prepaid expenses and other current assets with a corresponding loss of $ 0.1 million in accumulated other comprehensive loss, which was recorded net of tax.

For the fiscal year ended August 27, 2022, the Company reclassified $ 0.1 million from accumulated other comprehensive loss to revenue, related to the derivative financial instruments.

Employee Benefit Plans

Defined Contribution Retirement Savings Plan

The Company has a defined contribution retirement savings plan with a 401(k) feature for all eligible U.S.

and Canadian employees not under collective bargaining agreements.

The Company matches a portion of the employee’s contribution and may make an additional contribution at its discretion.

Contributions charged to expense under the plan for fiscal 2022, 2021 and 2020 were $ 18.2 million , $ 19.9 million and $ 16.6 million , respectively.

Pension Plans and Supplemental Executive Retirement Plans

The Company accounts for its pension plans and Supplemental Executive Retirement Plan on an accrual basis over employees’

estimated service periods.

The Company maintains an unfunded Supplemental Executive Retirement Plan (“SERP”) for certain eligible employees of the Company.

The benefits are based on the employee’s compensation upon retirement.

The amount charged to expense related to this plan amounted to approximately $ 1.5 million , $ 2.9 million and $ 2.6 million for fiscal 2022, 2021 and 2020, respectively.

The Company maintains a non-contributory defined benefit pension plan (“UniFirst Plan”) covering employees at one of its locations.

The benefits are based on years of service.

The UniFirst Plan assets are invested in a Guaranteed Deposit Account (“GDA”) that is maintained and operated by Prudential Retirement Insurance and Annuity Company (“PRIAC”).

All assets are merged with the general assets of PRIAC and are invested predominantly in privately placed securities and mortgages.

At the beginning of each calendar year, PRIAC notifies the Company of the annual rates of interest which will be applied to the amounts held in the GDA during the next calendar year.

In determining the interest rate to be applied, PRIAC considers the investment performance of the underlying assets of the prior year;

however, regardless of the investment performance the annual interest rate applied per the contract must be a minimum of 3.25 %.

The amount charged to expense related to this plan amounted to approximately $ 0.1 million for fiscal 2022 and $ 0.2 million for fiscal 2021 and 2020, respectively.

In connection with one of the Company’s acquisitions, the Company assumed liabilities related to a frozen pension plan covering many of the acquired Company’s former employees (“Textilease Plan”).

The Textilease Plan was terminated in fiscal 2020.

The pension benefits were based on years of service and the employee’s compensation.

The Textilease Plan assets were held in a separate GDA with PRIAC;

however the minimum interest rate per the Textilease Plan contract was 1.5 %.

The amount charged to expense related to this plan amounted to approximately $ 0.5 million for fiscal 2020 .

There was no expense incurred related to this plan in either fiscal 2022 or 2021.

The Company refers to its UniFirst Plan and Textilease Plan collectively as its “Pension Plans”.

The components of net periodic benefit cost related to the Company’s Pension Plans and SERP for fiscal 2022, 2021 and 2020 were as follows (in thousands):

Pension Plans

Interest cost

Expected return on assets

Amortization of prior service cost

Amortization of net loss

Net periodic benefit cost

The Company’s obligations and funded status related to its Pension Plans and SERP as of August 27, 2022 and August 28, 2021 were as follows (in thousands):

Pension Plans

Change in benefit obligation:

Projected benefit obligation, beginning of year

Interest cost

Actuarial (gain) loss

Benefits paid

Settlements/Curtailments

Projected benefit obligation, end of year

Change in plan assets:

Fair value of plan assets, beginning of year

Actual return on plan assets

Employer contributions

Benefits paid

Settlements/Curtailments

Fair value of plan assets, end of year

Funded status (net amount recognized):

As of August 27, 2022 and August 28, 2021, the accumulated benefit obligations for the Company’s Pension Plans were $ 3.8 million and $ 5.0 million , respectively.

As of August 27, 2022 and August 28, 2021, the accumulated benefit obligations for the Company’s SERP were $ 24.6 million and $ 30.6 million , respectively.

The amounts recorded on the Consolidated Balance Sheet for the Company’s Pension Plans and SERP as of August 27, 2022 and August 28, 2021 were as follows (in thousands):

Pension Plans

Deferred tax assets (liabilities)

Accrued liabilities

Accumulated other comprehensive loss

As of August 27, 2022 and August 28, 2021, the amounts recognized in accumulated other comprehensive loss for the Company’s Pension Plans and SERP were as follows (in thousands):

Pension Plans

Net actuarial gain (loss)

Unrecognized prior service cost

Accumulated other comprehensive loss

The weighted average assumptions used in calculating the Company’s projected benefit obligation as of August 27, 2022 and August 28, 2021, were as follows:

Pension Plans

Discount rate

Rate of compensation increase

The weighted average assumptions used in calculating the Company’s net periodic service cost for the years ended August 27, 2022, August 28, 2021 and August 29, 2020, were as follows:

Pension Plans

Discount rate

Expected return on plan assets

Rate of compensation increase

The benefit payments, which reflect expected future service, that are expected to be paid for the five fiscal years subsequent to August 27, 2022 and thereafter are as follows (in thousands):

Pension Plans

Total benefit payments

Nonqualified Deferred Compensation Plan

The Company adopted the UniFirst Corporation Deferred Compensation Plan (the “NQDC Plan”) effective on February 1, 2022.

The NQDC Plan is an unfunded, nonqualified deferred compensation plan that allows eligible participants to voluntarily defer receipt of their salary and annual cash bonuses up to approved limits.

In its discretion, the Company may credit one or more additional contributions to participant accounts.

All participants are also eligible to have employer supplemental contributions and employer discretionary contributions credited to their NQDC Plan accounts.

The amounts of such contributions may differ from year to

year and from participant to participant.

During the fiscal year ended August 27, 2022 , the NQDC Plan had aggregate contributions of $ 1.3 million credited to participant accounts.

The amount charged to expense was nominal for the year ended August 27, 2022 .

The Company, at its discretion, may also elect to transfer funds to a trust account with the intention to fund the future liability.

Total NQDC Plan assets were $ 1.3 million as of August 27, 2022 and are included within other long-term assets on the balance sheet.

Goodwill and Other Intangible Assets

As discussed in Note 2, “Acquisitions”, when the Company acquires a business the amount assigned to the tangible assets and liabilities and intangible assets acquired is based on their respective fair values determined as of the acquisition date.

The excess of the purchase price over the tangible assets and liabilities and intangible assets is recorded as goodwill.

The following details the changes in the Company’s intangible assets and goodwill related to the Company’s acquisitions for the years ended August 27, 2022 and August 28, 2021 as well as the respective periods over which the assets will be amortized (in thousands, except weighted average life in years).

These amounts include additional payments associated with prior year acquisitions:

Customer contracts

Other intangible assets

Total intangible assets and goodwill acquired

The Company does not amortize goodwill, but it is reviewed annually or more frequently if certain indicators arise, for impairment.

There were no impairment losses related to goodwill or intangible assets during the years ended August 27, 2022, August 28, 2021 and August 29, 2020.

The changes in the carrying amount of goodwill are as follows (in thousands):

Balance as of August 29, 2020

Goodwill recorded during the period

Balance as of August 28, 2021

Goodwill recorded during the period

Balance as of August 27, 2022

As of August 27, 2022, the Company has allocated $ 445.9 million , $ 10.8 million and $ 0.6 million of goodwill to its U.S.

and Canadian Rental and Cleaning, Specialty Garments and First Aid segments, respectively.

Intangible assets, net in the Company’s accompanying Consolidated Balance Sheets are as follows (in thousands):

August 27, 2022

Customer contracts

Other intangible assets

August 28, 2021

Customer contracts

Other intangible assets

Estimated amortization expense for the five fiscal years subsequent to August 27, 2022 and thereafter, based on intangible assets, net as of August 27, 2022 is as follows (in thousands):

Total estimated amortization expense

Accrued Liabilities

Accrued liabilities in the accompanying Consolidated Balance Sheet consists of the following (in thousands):

Current liabilities:

Payroll and benefit related

Insurance related

Environmental related

Total current liabilities

Long-term liabilities:

Benefit related

Environmental related

Asset retirement obligations

Insurance related

Total long-term liabilities

Total accrued liabilities

Asset Retirement Obligations

Asset retirement obligations generally result from legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset.

Accordingly, the Company recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made.

The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.

The Company continues to depreciate, on a straight-line basis, the amount added to property, plant and equipment and recognizes accretion expense in connection with the discounted liability over the various remaining lives which range from approximately one to twenty-two years .

The Company recognized as a liability the present value of the estimated future costs to decommission its nuclear laundry facilities.

The estimated liability is based on historical experience in decommissioning nuclear laundry facilities, estimated useful lives of the underlying assets, external vendor estimates as to the cost to decommission these assets in the future, and federal and state regulatory requirements.

The estimated current costs have been adjusted for the estimated impact of inflation at 3 % per year.

The liability has been discounted using credit-adjusted risk-free rates that range from approximately 7.00 % to 7.50 % over approximately one to twenty-two years .

A rollforward of the Company’s asset retirement liability is as follows for fiscal 2022 and 2021 (in thousands):

Beginning balance

Accretion expense

Effect of exchange rate changes

Ending balance

The Company’s asset retirement obligations are included in current accrued liabilities in the accompanying Consolidated Balance Sheet.

Commitments and Contingencies

Lease Commitments

The Company has operating leases for certain operating facilities, vehicles and equipment, which provide the right to use the underlying asset and require lease payments over the term of the lease.

Each new contract is evaluated to determine if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease.

All identified leases are recorded on the consolidated balance sheet with a corresponding operating lease right-of-use asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease.

Short-term operating leases, which have an initial term of twelve months or less, are not recorded on the consolidated balance sheet.

Operating lease right-of-use assets, net and operating lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised.

The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available as of the lease commencement date.

Lease expense for operating leases is recorded on a straight-line basis over the lease term and variable lease costs are recorded as incurred.

Both lease expense and variable lease costs are primarily recorded in cost of revenues on the Company's consolidated statements of income.

The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table presents the operating lease cost and information related to the operating lease right-of-use assets, net and operating lease liabilities for fiscal 2022 :

(In thousands, except lease term and discount rate)

Operating lease costs including short-term lease expense and variable lease costs, which were immaterial in the period

Operating cash flow impacts

Cash paid for amounts included in the measurement of operating lease liabilities

Operating lease right-of-use assets obtained in exchange for new operating lease liabilities

Weighted-average remaining lease term - operating leases

Weighted-average discount rate - operating leases

Total rent expense on all leases was $ 18.3 million , $ 16.2 million and $ 15.2 million for the fiscal 2022, 2021 and 2020, respectively.

The contractual future minimum lease payments of the Company's operating lease liabilities by fiscal year as of August 27, 2022 are as follows:

(In thousands)

Total payments

Less interest

Total present value of lease payments

Environmental and Legal Contingencies

The Company and its operations are subject to various federal, state and local laws and regulations governing, among other things, air emissions, wastewater discharges, and the generation, handling, storage, transportation, treatment and disposal of hazardous wastes and other substances.

In particular, industrial laundries currently use and must dispose of detergent waste water and other residues, and, in the past, used perchloroethylene and other dry-cleaning solvents.

The Company is attentive to the environmental concerns surrounding the disposal of these materials and has, through the years, taken measures to avoid their improper disposal.

The Company has settled, or contributed to the settlement of, past actions or claims brought against the Company relating to the disposal of hazardous materials at several sites and there can be no assurance that the Company will not have to expend material amounts to remediate the consequences of any such disposal in the future.

GAAP requires that a liability for contingencies be recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.

Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded.

The Company regularly consults with attorneys and outside consultants in its consideration of the relevant facts and circumstances before recording a contingent liability.

Such laws often impose liability without regard to whether the owner or lessee knew of, or was responsible for the presence of such hazardous or toxic substances.

There can be no assurances that acquired or leased locations have been operated in compliance with environmental laws and regulations or that future uses or conditions will not result in the imposition of liability upon the Company under such laws or expose the Company to third-party actions such as tort suits.

The Company continues to address environmental conditions under terms of consent orders negotiated with the applicable environmental authorities or otherwise with respect to certain sites.

The Company has accrued certain costs related to certain sites, including but not limited to, sites in Woburn and Somerville, Massachusetts, as it has been determined that the costs are probable and can be reasonably estimated.

The Company, together with multiple other companies, are party to a consent decree related to the Company's property and the Central Area in Woburn, Massachusetts.

The EPA has provided the Company and other signatories to the consent decree with comments on the design and implementation of groundwater and soil remedies at the Woburn site and investigation of environmental conditions in the Central Area.

The consent decree does not address any remediation work that may be required in the Central Area.

The Company, and other signatories, has implemented and proposed to do additional work at the Woburn site but many of the EPA’s comments remain to be resolved.

The Company has accrued costs to perform certain work responsive to the EPA’s comments.

Additionally, the Company has implemented mitigation measures and continue to monitor environmental conditions at a site in Somerville, Massachusetts.

The Company has agreed to undertake additional actions responsive to a notice of audit findings from the Massachusetts Department of Environmental Protection concerning a regulatory submittal that the Company made in 2009 for a portion of the site.

The Company has received demands from the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station in the area of the Somerville site.

This station is part of an ongoing extension of the transit system.

The Company has reserved for costs in

connection with this matter;

however, in light of the uncertainties associated with this matter, these costs and the related reserve may change.

The Company routinely reviews and evaluates sites that may require remediation and monitoring and determines its estimated costs based on various estimates and assumptions.

These estimates are developed using its internal sources or by third party environmental engineers or other service providers.

Internally developed estimates are based on:

Management’s judgment and experience in remediating and monitoring the Company’s sites;

Information available from regulatory agencies as to costs of remediation and monitoring;

The number, financial resources and relative degree of responsibility of other potentially responsible parties (“PRPs”) who may be liable for remediation and monitoring of a specific site;

The typical allocation of costs among PRPs.

There is usually a range of reasonable estimates of the costs associated with each site.

In accordance with U.S.

GAAP, the Company’s accruals reflect the amount within the range that it believes is the best estimate or the low end of a range of estimates if no point within the range is a better estimate.

Where it believes that both the amount of a particular liability and the timing of the payments are reliably determinable, the Company adjusts the cost in current dollars using a rate of 3 % for inflation until the time of expected payment and discounts the cost to present value using current risk-free interest rates.

As of August 27, 2022, the risk-free interest rates utilized by the Company ranged from 3.0 % to 3.4 % .

For environmental liabilities that have been discounted, the Company includes interest accretion, based on the effective interest method, in selling and administrative expenses on the accompanying Consolidated Statements of Income.

The changes to the Company’s environmental liabilities for fiscal 2022 and 2021 were as follows (in thousands):

Beginning balance

Costs incurred for which reserves have been provided

Insurance proceeds

Interest accretion

Changes in discount rates

Revisions in estimates

Ending balance

Anticipated payments and insurance proceeds of currently identified environmental remediation liabilities as of August 27, 2022, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.

(In thousands)

Estimated costs—current dollars

Estimated insurance proceeds

Net anticipated costs

Effect of inflation

Effect of discounting

Balance as of August 28, 2021

Estimated insurance proceeds are primarily received from an annuity received as part of a legal settlement with an insurance company.

Annual proceeds of approximately $ 0.3 million are deposited into an escrow account which funds remediation and monitoring costs for two sites related to former operations.

Annual proceeds received but not expended in the current year accumulate in this account and may be used in future years for costs related to this site through the year 2027.

As of August 27, 2022, the balance in this escrow account, which is held in a trust and is not recorded in the Company’s accompanying Consolidated Balance Sheet, was approximately $ 4.8 million .

Also included in estimated insurance proceeds are amounts the Company is entitled to receive pursuant to legal settlements as reimbursements from three insurance companies for estimated costs at one of its sites.

The Company’s nuclear garment decontamination facilities are licensed by respective state agencies, as delegated authority by the Nuclear Regulatory Commission (the “NRC”) pursuant to the NRC’s Agreement State program and are subject to applicable federal and state radioactive material regulations.

In addition, the Company’s international locations (Canada, the

United Kingdom and the European Union) are regulated by equivalent respective jurisdictional authorities.

There can be no assurance that such regulation will not lead to material disruptions in the Company’s garment decontamination business.

From time to time, the Company is also subject to legal and regulatory proceedings and claims arising from the conduct of its business operations, including personal injury claims, customer contract matters, employment claims and environmental matters as described above.

The Company is subject to two actions filed by former employees in September 2022 alleging damages under the Fair Labor Standards Act.

The Company believes that it has meritorious defenses to such allegations and intends to defend itself vigorously in such matters.

While the Company is unable to ascertain the ultimate outcome of such actions, based on the information currently available, the Company believes that a loss with respect to such matters is neither probable nor remote.

Given the uncertainty associated with the ultimate resolution of such matters, the Company is unable to reasonably assess an estimate or range of estimates of any potential losses.

In addition, in the fourth quarter of fiscal 2022, the Mexican federal tax authority issued a tax assessment on the Company’s subsidiary in Mexico for fiscal 2016 import taxes, value added taxes and custom processing fees of over $ 17.0 million, plus surcharges, fines and penalties of over $ 67.7 million for a total assessment of over $ 84.7 million.

The Company disagrees with such tax assessment and has filed an administrative appeal before the legal division of the Mexican federal tax authority challenging the validity of the tax assessment.

While the Company is unable to ascertain the ultimate outcome of this matter, based on the information currently available, the Company believes that a loss with respect to this matter is neither probable nor remote.

Given the uncertainty associated with the ultimate resolution of this matter, the Company is unable to reasonably assess an estimate or range of estimates of any potential losses.

While it is impossible for the Company to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits and environmental contingencies, the Company believes that the aggregate amount of such liabilities, if any, in excess of amounts covered by insurance have been properly accrued in accordance with U.S.

It is possible, however, that the future financial position and/or results of operations for any particular future period could be materially affected by changes in the Company’s assumptions or strategies related to these contingencies or changes out of the Company’s control.

Other Contingent Liabilities

As security for certain agreements with the NRC and various state agencies related to the nuclear operations (see above) and certain insurance programs, the Company had standby irrevocable bank commercial letters of credit of $ 60.8 million and $ 67.5 million outstanding as of August 27, 2022 and August 28, 2021, respectively.

Non-cancellable purchase commitments for inventories, software, and services amounted to $ 56.5 million as of August 27, 2022, of which $ 39.7 million will be paid in less than 1 year, $ 8.5 million will be paid in 1 to 3 years, and the remaining will be paid in 3 to 8 years.

Share-based Compensation

The Company adopted a stock incentive plan (the “1996 Plan”) in November 1996 and reserved 1,500,000 shares of Common Stock for issuance under the 1996 Plan.

The 1996 Plan provided for the issuance of stock options and stock appreciation rights.

The Company ceased granting new awards under the 1996 Plan as of January 21, 2011, and the 1996 Plan expired in accordance with its terms on January 8, 2012.

The Company adopted a stock incentive plan (the “2010 Plan”) in October 2010 and reserved 600,000 shares of Common Stock for issuance under the 2010 Plan.

The 2010 Plan replaced the Company’s 1996 Plan.

The 2010 Plan permits the award of incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock and performance shares (collectively referred to as “Share-Based Awards”) as well as dividend equivalent rights and cash-based awards.

On October 27, 2014, the Board of Directors, subject to the approval of the Company’s shareholders, which was received at the 2015 annual meeting of shareholders, adopted an amendment to the 2010 Plan to, among other matters, reserve for issuance an additional 750,000 shares and extend to 2025 the time period awards may be granted under the 2010 Plan.

As of August 27, 2022, the number of remaining shares available for future grants under the 2010 Plan was 173,581 .

Share-based compensation expense, which includes expense related to Share-Based Awards, has been recorded in the accompanying Consolidated Statements of Income in selling and administrative expenses.

All Share-Based Awards issued to management were recommended to the Board of Directors by the Compensation Committee and approved by the Board of Directors.

All Share-Based Awards issued to the Company’s non-employee members of the Board of Directors (the “Directors”) under the 2010 Plan were recommended to the Board of Directors by the Compensation Committee and approved by the Board of Directors.

In fiscal 2022 , a total of 1,025 shares of fully vested unrestricted stock were granted to certain non-employee Directors of the Company.

No such shares were granted during each of fiscal 2021 and 2020.

Accordingly, compensation expense related to the unrestricted stock granted in fiscal 2022 was recognized on the date of grant.

In fiscal 2022 , the Company granted a total of 9,750 stock appreciation rights under the 2010 Plan to the Company’s non-employee Directors.

In both fiscal 2021 and 2020 , the Company granted a total of 5,000 stock appreciation rights under the 2010 Plan to the Company’s non-employee Directors.

Such stock appreciation rights were fully vested upon grant, expire on the earlier of the eighth anniversary of the grant date or the second anniversary of the date that the Director ceases to be a member of the Board of Directors and must be settled in stock at the time of exercise.

Accordingly, compensation expense related to the stock appreciation rights was recognized on the date of grant.

As of August 27, 2022, the total compensation cost not yet recognized related to non-vested Share-Based Awards was approximately $ 14.4 million .

The weighted average period over which compensation cost for Share-Based Awards will be recognized is 1.5 years.

All stock appreciation rights issued to employees were granted with an exercise price equal to the fair net realizable value of the Company’s Common Stock on the date of grant.

Stock appreciation rights generally vest 20 % on each anniversary of the grant date over a five-year period and expire ten years after the grant date.

Share-Based Awards granted to the Company’s non-employee Directors were fully vested as of the date of grant.

Non-employee Director Share-Based Award grants in the form of stock appreciation rights expire on the earlier of the eighth anniversary of the grant date or the second anniversary of the date that the Director ceases to be a member of the Board of Directors.

Time-based restricted stock units granted to employees vest 20 % on each anniversary of the grant date over a five-year period.

Generally, performance-based restricted stock units granted to employees are earned based on whether and the extent to which the Company achieves certain consolidated revenues and earnings per share.

The fair value of each stock appreciation right is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used:

Fiscal year ended August

Risk-free interest rate

Expected dividend yield

Expected life in years

Expected volatility

The weighted average fair values of Share-Based Awards granted in the form of stock appreciation rights during fiscal years 2022, 2021 and 2020 were $ 51.25 , $ 42.63 and $ 46.58 , respectively.

The following table summarizes the Share-Based Awards activity in the form of stock options and stock appreciation rights for fiscal 2022:

Exercise Price

Outstanding, August 28, 2021

Outstanding, August 27, 2022

Exercisable, August 27, 2022

The following table summarizes the Share-Based Awards activity in the form of restricted stock units for fiscal 2022:

Unvested balance at August 28, 2021

Unvested balance at August 27, 2022

Shareholders’

The Company has two classes of common stock:

Common Stock and Class B Common Stock.

Each share of Common Stock is entitled to one vote, is freely transferable, and is entitled to a cash dividend equal to 125 % of any cash dividend paid on each share of Class B Common Stock.

Each share of Class B Common Stock is entitled to ten votes and can be converted to Common Stock on a share-for-share basis.

However, until converted to Common Stock, shares of Class B Common Stock are not freely transferable.

During fiscal 2022 , 17,000 shares of Class B Common Stock were converted to Common Stock.

No such conversions occurred during each of fiscal 2021 and 2020.

On October 23, 2019, the Company announced that it would be raising its quarterly dividend to $ 0.25 per share for Common Stock and to $ 0.20 per share for Class B Common Stock, up from $ 0.1125 and $ 0.09 per share, respectively.

The amount and timing of any future dividend payment is subject to the approval of the Board of Directors each quarter.

On October 20, 2021, the Company announced that it would be raising its quarterly dividend to $ 0.30 per share for Common Stock and to $ 0.24 per share for Class B Common Stock, up from $ 0.25 and $ 0.20 per share, respectively.

The amount and timing of any future dividend is subject to the approval of the Board of Directors each quarter.

On January 2, 2019, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase from time to time up to $ 100.0 million of its outstanding shares of Common Stock.

Repurchases made under the program, if any, will be made in either the open market or in privately negotiated transactions.

The share repurchase program has been funded to date with available cash and may be funded in the future using the Company’s available cash or capacity under its 2021 Credit Agreement and may be suspended or discontinued at any time.

On October 18, 2021, the Company’s Board of Directors approved a new share repurchase program authorizing the Company to repurchase from time to time up to $ 100.0 million of its outstanding shares of Common Stock, inclusive of the amount which remained available under the existing share repurchase program approved on January 2, 2019.

Repurchases made under the new program, if any, will continue to be made in either the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other relevant factors.

The timing, manner, price and amount of any repurchases will depend on a variety of factors and may be suspended or discontinued at any time.

During fiscal 2022, the Company repurchased 213,419 shares for an average price per share of $ 179.98 .

During fiscal 2021, the Company repurchased 60,950 shares for an average price per share of $ 184.13 .

During fiscal 2020, the Company repurchased 117,767 shares for an average price per share of $ 184.67 .

Currently, there is $ 63.6 million remaining to repurchase outstanding shares of Common Stock under this program.

On July 15, 2022, the Company repurchased 35,714 shares of Class B Common Stock for $ 6.0 million from a related party at a per share price of $ 168.00

Accumulated Other Comprehensive Loss

The changes in each component of accumulated other comprehensive loss for fiscal 2022 and 2021 are as follows (in thousands):

Instruments (1)

Comprehensive

Balance as of August 29, 2020

Change during the year

Balance as of August 28, 2021

Change during the year

Balance as of August 27, 2022

(1) Amounts are shown net of tax.

Amounts reclassified from accumulated other comprehensive loss, net of tax, for fiscal 2022 and 2021 were as follows (in thousands):

August 27, 2022

August 28, 2021

Pension benefit liabilities, net:

Actuarial loss (gain) (a)

Tax effect reclass

Total, net of tax

Derivative financial instruments, net:

Forward contracts loss (gain) (b)

Total, net of tax

Total amounts reclassified, net of tax

(a) Amounts included in selling and administrative expenses in the accompanying Consolidated Statements of Income.

(b) Amounts included in revenues in the accompanying Consolidated Statements of Income.

Segment Reporting

The Company’s chief operating decision maker is the Company’s chief executive officer.

The Company has six operating segments based on the information reviewed by its chief executive officer:

Rental and Cleaning, Canadian Rental and Cleaning, MFG, Specialty Garments, First Aid and Corporate.

Rental and Cleaning and Canadian Rental and Cleaning operating segments have been combined to form the U.S.

and Canadian Rental and Cleaning reporting segment, and as a result, the Company has five reporting segments.

and Canadian Rental and Cleaning reporting segment purchases, rents, cleans, delivers and sells, uniforms and protective clothing and non-garment items in the United States and Canada.

The laundry locations of the U.S.

and Canadian Rental and Cleaning reporting segment are referred to by the Company as “industrial laundries”

or “industrial laundry locations.”

The MFG operating segment designs and manufactures uniforms and non-garment items primarily for the purpose of providing these goods to the U.S.

and Canadian Rental and Cleaning reporting segment.

MFG revenues are primarily generated when goods are shipped from the Company’s manufacturing facilities, or its subcontract manufacturers, to other Company locations.

These intercompany revenues are recorded at a transfer price which is typically in excess of the actual manufacturing cost.

Manufactured products are carried in inventory until placed in service at which time they are amortized at this transfer price.

On a consolidated basis, intercompany revenues and income are eliminated and the carrying value of inventories and rental merchandise in service is reduced to the manufacturing cost.

Income before income taxes from MFG net of the intercompany MFG elimination offsets the merchandise amortization costs incurred by the U.S.

The Corporate operating segment consists of costs associated with the Company’s distribution center, sales and marketing, information systems, engineering, procurement, supply chain, accounting and finance, human resources, other general and administrative costs and interest expense.

The revenues generated from the Corporate operating segment represent certain direct sales made by the Company directly from its distribution center.

The products sold by this operating segment are the same products rented and sold by the U.S.

and Canadian Rental and Cleaning reporting segment.

In the table below, no assets or capital expenditures are presented for the Corporate operating segment because no assets are allocated to this operating segment in the information reviewed by the chief executive officer.

However, depreciation and amortization expense related to certain assets are reflected in income from operations and income before income taxes for the Corporate operating segment.

The assets that give rise to this depreciation and amortization are included in the total assets of the U.S.

and Canadian Rental and Cleaning reporting segment as this is how they are tracked and reviewed by the Company.

The majority of expenses accounted for within the Corporate segment relate to costs of the U.S.

and Canadian Rental and Cleaning segment, with the remainder of the costs relating to the Specialty Garment and First Aid segments.

The First Aid operating segment sells first aid cabinet services and other safety supplies, provides certain safety training and maintains wholesale distribution and pill packaging operations.

The Company refers to the U.S.

and Canadian Rental and Cleaning, MFG, and Corporate reporting segments combined as its “Core Laundry Operations,”

which is included as a subtotal in the following tables (in thousands):

As of and for

the year ended August 27, 2022

Income (loss) from operations

Interest (income) expense, net

Income (loss) before taxes

Depreciation and amortization

Capital expenditures

As of and for

the year ended August 28, 2021

Income (loss) from operations

Interest income, net

Income (loss) before taxes

Depreciation and amortization

Capital expenditures

As of and for

the year ended August 29, 2020

Income (loss) from operations

Interest (income) expense, net

Income (loss) before taxes

Depreciation and amortization

Capital expenditures

The Company’s long-lived assets as of August 27, 2022 and August 28, 2021 and revenues and income before income taxes for the years ended August 27, 2022, August 28, 2021 and August 29, 2020 were attributed to the following countries (in thousands):

Long-lived assets as of:

United States

Europe, Canada, Mexico and Nicaragua (1)

Revenues for fiscal years:

United States

Europe and Canada (1)

Income before income taxes for fiscal years:

United States

Europe, Canada, Mexico and Nicaragua (1)

(1) No country accounts for greater than 10% of total long-lived assets, revenues or income before income taxes

Report of Independent Regist ered Public Accounting Firm

To the Shareholders and the Board of Directors of UniFirst Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of UniFirst Corporation and subsidiaries (the “Company”) as of August 27, 2022 and August 28, 2021, and the related consolidated statements of income, comprehensive income, shareholders’

equity, and cash flows for each of the three years in the period ended August 27, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at August 27, 2022 and August 28, 2021, and the results of its operations and its cash flows for each of the three years in the period ended August 27, 2022, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of August 27, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated October 26, 2022 expressed an adverse opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Self-Insurance Accruals

Description of the Matter

As of August 27, 2022, the Company had recognized current and long-term insurance related liabilities of $32.4 million and $62.0 million, respectively.

As discussed in Note 1 to the Company’s consolidated financial statements, the Company is self-insured for certain obligations related to health, workers’

compensation, vehicles and general liability programs and judgments and estimates are used by the Company in determining the potential value associated with reported claims and for events that have occurred but have not been reported.

Auditing management’s estimate of the portion of the insurance related liabilities related to workers’

compensation, vehicles and general liability is highly judgmental and complex due to the significant uncertainty in the potential value of reported claims and the number and potential value of incurred but not reported claims, the application of significant management judgment in making those estimates and the use of various actuarial methods.

The reserve estimate is sensitive to actuarial assumptions used to estimate the ultimate liability for reported claims and to estimate the value of claims that have been incurred but have not been reported.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s self-insurance accrual process.

This includes controls over the assumptions and methods used to establish the estimate.

Specifically, we tested controls related to management’s review of data provided to the actuary, significant actuarial assumptions and the related reconciliations.

To test the self-insurance accrual, we performed audit procedures over the significant inputs used in management’s analysis, including performing transactional testing over the completeness and accuracy of claims data and vouching payments made to third parties.

Furthermore, we involved our actuarial specialists to assist in evaluating the key assumptions and methodologies used by management to determine the reserve.

We then compared the Company’s reserve amount to a range which our actuarial specialist developed based on independently selected assumptions.

Environmental Contingencies

Description of the Matter

As discussed in Note 11 to the Company’s consolidated financial statements, the Company is subject to various federal, state, and local laws and regulations governing the treatment and disposal of hazardous waste and other substances.

As of August 27, 2022, the Company had recorded a current and long-term liability of $12.3 million and $19.9 million, respectively, representing its best estimate of losses related to these environmental matters.

Auditing management’s accounting for environmental loss contingencies was especially challenging, as significant judgment is required by the Company to evaluate whether it is probable that an environmental loss contingency has been incurred and to estimate the future costs to remediate the environmental matters.

These judgments include management’s identification of sites with potential liabilities, management’s estimate of the amount and timing of remediation and other costs, allocation of costs among other potentially responsible parties, changes to enacted laws and regulation, discount rates, and evaluation of information available from regulatory agencies.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s identification and measurement of the environmental loss contingency.

For example, we tested controls over management’s review of the environmental loss contingency calculation and management’s meetings where they evaluate key judgments and estimates affecting the environmental loss contingency, including those outlined in the paragraph above.

To test the assessment of the probability of incurrence of a loss and whether the loss was reasonably estimable, we inspected correspondence to and from regulatory agencies, obtained legal counsel confirmation letters, met with the Company’s legal counsel and other members of management to discuss environmental matters, inspected environmental studies, read the minutes of the meetings of the Company’s Board of Directors and committees of the Company’s Board of Directors, and obtained a representation letter from the Company.

Additionally, we utilized our environmental specialists to perform a search for unrecorded environmental liabilities related to the Company’s sites to look for new or contrary evidence.

To test the measurement of the environmental liabilities, we performed detailed testing over costs incurred, and based on these historical trends and input from management, we evaluated the reasonableness of estimated costs to be incurred.

We tested the allocation of costs among potentially responsible parties by analyzing allocation settlement agreements, and tested other assumptions impacting the estimate such as inflation and discount rates by agreeing to third party sources.

We also evaluated the accuracy of any changes in measurement of the liability through comparison with historical data.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2002.

Boston, Massachusetts

October 26, 2022

CHANGES IN AND DISAGREEMENTS WITH ACCOU NTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity