What changed in this filing

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Item 1. Financial Statements

2021-01-07 compared with 2020-07-09 · 129 added, 225 removed, 429 unchanged (45% of the section changed)

3 unchanged sentences

Thirteen weeks ended

Thirty-nine weeks ended

(In thousands, except per share data)

November 28, 2020

November 30, 2019

Operating expenses:

7 unchanged sentences

Other expense, net

Total other income, net

Total other (income) expense, net

Income before income taxes

8 unchanged sentences

Class B Common Stock

Weighted average shares outstanding

Weighted average shares outstanding – Diluted:

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

4 unchanged sentences

Thirteen weeks ended

Thirty-nine weeks ended

(In thousands)

November 28, 2020

November 30, 2019

Other comprehensive income (loss):

Foreign currency translation adjustments

Pension benefit liabilities

Change in fair value of derivatives, net of

Derivative financial instruments reclassified

Other comprehensive income (loss)

Change in fair value of derivatives, net of income taxes

Derivative financial instruments reclassified to earnings

Other comprehensive income

Comprehensive income

4 unchanged sentences

(In thousands, except share and par value data)

November 28, 2020

August 29, 2020

30 unchanged sentences

15,220,271 and

15,332,759 shares issued and outstanding as of May 30, 2020 and

15,251,176 shares issued and outstanding as of November 28, 2020 and

August 29, 2020, respectively

1 unchanged sentence

20,000,000 shares authorized;

shares issued and outstanding as of May 30, 2020 and August 31, 2019,

shares issued and outstanding as of November 28, 2020 and August 29, 2020,

Capital surplus

18 unchanged sentences

Share-based awards exercised, net (2)

Cumulative effect of change in accounting

principle, net

Balance, November 24, 2018

Change in fair value of derivatives

Foreign currency translation

Dividends declared Common Stock

($ 0.1125 per share)

Dividends declared Class B Common Stock

($ 0.0900 per share)

Share-based compensation, net (2)

Share-based awards exercised, net (1)

Repurchase of Common Stock

Balance, February 23, 2019

Change in fair value of derivatives

Foreign currency translation

Dividends declared Common Stock

($ 0.1125 per share)

Dividends declared Class B Common Stock

($ 0.0900 per share)

Share-based compensation, net (2)

Share-based awards exercised, net (1)

Repurchase of Common Stock

Balance, May 25, 2019

Consolidated Statements of Shareholders’ Equity (Continued)

UniFirst Corporation and Subsidiaries

Balance, November 30, 2019

(In thousands)

11 unchanged sentences

Balance, November 28, 2020

Change in fair value of derivatives

Foreign currency translation

Pension benefit liabilities, net

Dividends declared Common Stock

($ 0.25 per share)

Dividends declared Class B Common Stock

($ 0.20 per share)

Repurchase of Common Stock

Share-based compensation, net (1)

Share-based awards exercised, net (2)

Balance, February 29, 2020

Change in fair value of derivatives

Foreign currency translation

Dividends declared Common Stock

($ 0.25 per share)

Dividends declared Class B Common Stock

($ 0.20 per share)

Share-based compensation, net (1)

Share-based awards exercised, net (2)

Repurchase of Common Stock

Balance, May 30, 2020

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 shares of restricted stock or restricted stock units.

4 unchanged sentences

UniFirst Corporation and Subsidiaries

Thirty-nine weeks ended

Thirteen weeks ended

(In thousands)

November 28, 2020

November 30, 2019

Cash flows from operating activities:

2 unchanged sentences

Amortization of deferred financing costs

Forgiveness of a liability

Loss on sale of property, plant & equipment

Share-based compensation

22 unchanged sentences

Effect of exchange rate changes

Net (decrease) increase in cash, cash equivalents and short-term investments

Net decrease in cash, cash equivalents and short-term investments

Cash, cash equivalents and short-term investments at beginning of period

15 unchanged sentences

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued updated guidance which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors).

The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.

A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.

Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.

The Company adopted this standard on September 1, 2019 using the modified retrospective adoption method.

The standard provides a number of optional practical expedients in transition and the Company has elected certain of these practical expedients upon adoption of this standard.

Specifically, the Company elected the package of practical expedients permitted under the standard, which allows a lessee to carry forward its population of existing leases, the classification of each lease, as well as the treatment of initial direct lease costs as of the period of adoption.

The Company also elected the practical expedient related to lease and non-lease components, as an accounting policy election which allows a lessee to not separate non-lease from lease components and instead account for consideration paid in a contract as a single lease component.

In addition, the Company elected the short-term lease recognition exemption for all leases with a term of 12 months or less, which means it will not recognize right-of-use assets or lease liabilities for these leases.

The adoption of this standard resulted in the Company recognizing right-of-use assets, net of $ 48.7 million and corresponding lease liabilities of $ 46.2 million and reductions of prepaid expenses and other current assets of $ 1.2 million and $ 1.3 million, respectively.

The adoption of this standard did not have a material impact on the Company's consolidated statement of income or consolidated statement of cash flows.

In June 2016, the FASB issued updated guidance that introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments including trade receivables.

The estimate of expected credit losses will require entities to incorporate historical information, current information and reasonable and supportable forecasts.

In June 2016, the FASB issued an accounting standard update that introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments including trade receivables.

The estimate of expected credit losses requires entities to incorporate historical information, current information and reasonable and supportable forecasts.

This guidance also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses.

This guidance is effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2019 with early adoption permitted.

Accordingly, the guidance will be effective for the Company on August 30, 2020.

The Company expects that adoption of this guidance will not have a material impact on its financial statements and related disclosures.

The Company’s adoption of this guidance on August 30, 2020 did not have a material impact on its financial statements .

In August 2018, the FASB issued updated guidance to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

6 unchanged sentences

The amendments in this update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

Accordingly, the guidance will be effective for the Company on August 30, 2020.

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

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

The Company’s adoption of this guidance on August 30, 2020 did not have a material impact on its financial statements.

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.

4 unchanged sentences

Revenue Recognition

The following table presents the Company’s revenues for the thirteen and thirty-nine weeks ended May 30, 2020 and May 25, 2019, respectively, disaggregated by service type:

The following table presents the Company’s revenues for the thirteen weeks ended November 28, 2020 and November 30, 2019, respectively, disaggregated by service type:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

November 28, 2020

November 30, 2019

(In thousands, except percentages)

2 unchanged sentences

Total Revenues

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

See Note 16 “Segment Reporting” for additional details of segment definitions.

Revenue Recognition Policy

During the thirteen weeks ended May 30, 2020 and May 25, 2019, approximately 85.7 % and 91.0 %, respectively, of the Company’s revenues were derived from fees for route servicing of Core Laundry Operations, Specialty Garments, and First Aid customers performed by the Company’s employees at the customer’s location of business.

During the thirty-nine weeks ended May 30, 2020 and May 25, 2019, approximately 89.2 % and 91.0 %, respectively, of the Company’s revenues were derived from fees for route servicing of Core Laundry Operations, Specialty Garments, and First Aid customers performed by the Company’s employees at the customer’s location of business.

During the thirteen weeks ended November 28, 2020 and November 30, 2019, approximately 91.0 % and 91.6 %, respectively, of the Company’s revenues were derived from fees for route servicing of Core Laundry Operations, Specialty Garments, and First Aid customers 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.

8 unchanged sentences

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

No significant constraints on the Company’s revenue recognition were applied during the thirteen and thirty-nine weeks ended May 30, 2020 or May 25, 2019.

No significant constraints on the Company’s revenue recognition were applied during the thirteen weeks ended November 28, 2020 or November 30, 2019.

The Company reassesses these estimates during each reporting period.

3 unchanged sentences

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

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Costs to Obtain a Contract

4 unchanged sentences

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 May 30, 2020, the current and non-current assets related to deferred commissions totaled $ 13.1 million and $ 54.9 million, respectively.

As of November 28, 2020, the current and non-current assets related to deferred commissions totaled $ 13.3 million and $ 57.3 million, respectively.

As of August 29, 2020, the current and non-current assets related to deferred commissions totaled $ 13.3 million and $ 55.6 million, respectively.

During the thirteen weeks ended May 30, 2020 and May 25, 2019, the Company recorded $ 3.4 million and $ 3.0 million, respectively, of amortization expense related to deferred commissions.

During the thirty-nine weeks ended May 30, 2020 and May 25, 2019, the Company recorded $ 10.2 million and $ 8.7 million, respectively, of amortization expense related to deferred commissions.

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

During the thirty-nine weeks ended May 30, 2020, the Company completed 8 business acquisitions with an aggregate purchase price of approximately $ 41.3 million, which includes $ 38.8 million related to the acquisition of a Missouri-based industrial laundry business (the “Missouri Acquisition”).

The Company has allocated $ 4.4 million, $ 23.5 million and $ 10.9 million to tangible assets, goodwill and intangibles, respectively, in the preliminary purchase accounting for the Missouri Acquisition.

During the thirteen weeks ended November 28, 2020 and November 30, 2019, the Company recorded $ 3.5 million and $ 3.5 million, respectively, of amortization expense related to deferred commissions.

During the thirteen weeks ended November 28, 2020, the Company completed 2 business acquisitions with an aggregate purchase price of approximately $ 0.7 million, primarily all of which was assigned to intangible assets.

The initial allocations of the purchase prices are incomplete with respect to certain assets acquired.

3 unchanged sentences

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

As of May 30, 2020

As of November 28, 2020

Cash equivalents

2 unchanged sentences

Total assets at fair value

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

As of August 29, 2020

11 unchanged sentences

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

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

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 the 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 May 30, 2020 and August 31, 2019 .

These contracts are included in prepaid expenses and other current assets and other long-term assets as of November 28, 2020 and August 29, 2020.

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.

Derivative Instruments and Hedging Activities

As of May 30, 2020, the Company had forward contracts with a notional value of approximately $ 5.9 million CAD outstanding and recorded the fair value of the contracts of $ 0.1 million in other long-term assets and $ 0.2 million in prepaid expenses and other current assets with a corresponding decrease in accumulated other comprehensive loss of $ 0.2 million, which was recorded net of tax.

During both the thirteen and thirty-nine weeks ended May 30, 2020, the Company reclassified $ 0.1 million from accumulated other comprehensive income to revenue, related to the derivative financial instruments.

The gain on these forward contracts that resulted in a decrease to accumulated other comprehensive loss as of May 30, 2020 is expected to be reclassified to revenues prior to its maturity on February 25, 2022.

As of November 28, 2020, the Company had forward contracts with a notional value of approximately $ 4.0 million CAD outstanding and recorded the fair value of the contracts of a nominal amount in other long-term assets and prepaid expenses and other current assets with a corresponding nominal gain in accumulated other comprehensive loss, which was recorded net of tax.

During the thirteen weeks ended November 28, 2020, the Company reclassified a nominal amount from accumulated other comprehensive income to revenue, related to the derivative financial instruments.

The gain on these forward contracts that resulted in a decrease to accumulated other comprehensive loss as of November 28, 2020 is expected to be reclassified to revenues prior to its maturity on February 25, 2022.

Employee Benefit Plans

3 unchanged sentences

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 the thirteen weeks ended May 30, 2020 and May 25, 2019 were $ 1.9 million and $ 5.8 million, respectively.

Contributions charged to expense under the plan for the thirty-nine weeks ended May 30, 2020 and May 25, 2019 were $ 12.4 million and $ 14.6 million, respectively.

Contributions charged to expense under the plan for the thirteen weeks ended November 28, 2020 and November 30, 2019 were $ 5.8 million and $ 5.5 million, respectively

Pension Plans and Supplemental Executive Retirement Plans

The Company maintains an unfunded Supplemental Executive Retirement Plan for certain eligible employees of the Company and two frozen non-contributory defined benefit pension plans.

The amounts charged to expense related to these plans for the thirteen weeks ended May 30, 2020 and May 25, 2019 were $ 0.7 million and $ 0.5 million, respectively.

The amounts charged to expense related to these plans for the thirty-nine weeks ended May 30, 2020 and May 25, 2019 were $ 0.7 million and $ 1.6 million, respectively.

The amounts charged to expense related to these plans for the thirteen weeks ended November 28, 2020 and November 30, 2019 were $ 0.8 million and $ 0.7 million, respectively.

Income Per Share

1 unchanged sentence

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):

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

November 28, 2020

November 30, 2019

Net income available to shareholders

5 unchanged sentences

Class B Common Stock

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

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

1 unchanged sentence

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

For the thirteen and thirty-nine weeks ended May 30, 2020 and May 25, 2019, the Company’s diluted income per share assumes the conversion of all vested Class B Common Stock into Common Stock and uses the two-class method for its unvested participating shares.

The following tables set forth the computation of diluted income per share of Common Stock for the thirteen and thirty-nine weeks ended May 30, 2020 and May 25, 2019 (in thousands, except per share data):

Thirteen weeks ended May 30, 2020

Thirty-nine weeks ended May 30, 2020

For the thirteen weeks ended November 28, 2020 and November 30, 2019, the Company’s diluted income per share assumes the conversion of all vested Class B Common Stock into Common Stock and uses the two-class method for its unvested participating shares.

The following tables set forth the computation of diluted income per share of Common Stock for the thirteen weeks ended November 28, 2020 and November 30, 2019 (in thousands, except per share data):

Thirteen weeks ended November 28, 2020

As reported - Basic

3 unchanged sentences

As reported – Diluted

Thirteen Weeks Ended May 25, 2019

Thirty-Nine Weeks Ended May 25, 2019

Thirteen Weeks Ended November 30, 2019

As reported - Basic

3 unchanged sentences

As reported – Diluted

Share-based awards that would result in the issuance of 7,328 and 2,724 shares, respectively, of Common Stock were excluded from the calculation of diluted income per share for the thirteen and thirty-nine weeks ended May 30, 2020 because they were anti-dilutive.

Share-based awards that would result in the issuance of 797 and 909 shares, respectively, of Common Stock were excluded from the calculation of diluted income per share for the thirteen and thirty-nine weeks ended May 25, 2019 because they were anti-dilutive.

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Share-based awards that would result in the issuance of 11,008 shares of Common Stock were excluded from the calculation of diluted income per share for the thirteen weeks ended November 28, 2020 because they were anti-dilutive.

Share-based awards that would result in the issuance of 178 shares of Common Stock were excluded from the calculation of diluted income per share for the thirteen weeks ended November 30, 2019 because they were anti-dilutive.

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

4 unchanged sentences

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

The components of inventory as of May 30, 2020 and August 31, 2019 were as follows (in thousands):

The components of inventory as of November 28, 2020 and August 29, 2020 were as follows (in thousands):

November 28, 2020

August 29, 2020

11 unchanged sentences

Goodwill recorded during the period

Balance as of May 30, 2020

Despite the significant excess fair value identified in the Company’s fiscal 2019 impairment assessment, the Company determined that its reduced cash flow projections and the significant decline in its market capitalization as a result of the COVID-19 pandemic indicated that an impairment loss may have been incurred as of May 30, 2020.

Therefore, the Company qualitatively assessed whether it was more likely than not that the goodwill in each of its reporting units was impaired as of May 30, 2020.

The Company reviewed its previous forecasts and assumptions based on its current projections, which are subject to various risks and uncertainties, including:

(1) forecasted revenues, expenses and cash flows, including the duration and extent of the impact of the COVID-19 pandemic on the Company’s business and (2) current discount rates, (3) the reduction in the Company’s market capitalization, (4) observable market transactions, (5) changes to the regulatory environment and (6) the nature and amount of government support that will be provided.

Based on the Company’s interim impairment assessment as of May 30, 2020, the Company has determined that its goodwill was not impaired.

However, the Company is unable to predict how long these conditions will persist, what additional measures may be introduced by governments or private parties or what effect any such additional measures may have on its business.

Balance as of November 28, 2020

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

Gross Carrying

November 28, 2020

Customer contracts

7 unchanged sentences

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 1 to 23 years .

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

A reconciliation of the Company’s asset retirement liability for the thirty-nine weeks ended May 30, 2020 was as follows (in thousands):

A reconciliation of the Company’s asset retirement liability for the thirteen weeks ended November 28, 2020 was as follows (in thousands):

November 28, 2020

Beginning balance as of August 29, 2020

1 unchanged sentence

Effect of exchange rate changes

Balance as of May 30, 2020

Balance as of November 28, 2020

Asset retirement obligations are included in long-term accrued liabilities in the accompanying Consolidated Balance Sheets.

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

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 the thirteen weeks ended November 28, 2020:

(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

The contractual future minimum lease payments of the Company's operating lease liabilities by fiscal year are as follows as of November 28, 2020:

(In thousands)

2021 (remaining nine months)

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.

1 unchanged sentence

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.

Over the years, the Company has settled, or contributed to the settlement of, actions or claims brought against the Company relating to the disposal of hazardous materials 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.

The Company has settled, or contributed to the settlement of, past actions or claims brought against the Company relating to the disposal of

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

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.

5 unchanged sentences

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 sites located in or related to Woburn, Massachusetts, Somerville, Massachusetts, Springfield, Massachusetts, Uvalde, Texas, Stockton, California, two sites related to former operations in Williamstown, Vermont, as well as sites located in Goldsboro, North Carolina and Wilmington, North Carolina.

The Company has accrued certain costs related to the sites described above as it has been determined that the costs are probable and can be reasonably estimated.

The Company has potential exposure related to a parcel of land (the “Central Area”) related to the Woburn, Massachusetts site mentioned above.

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 has potential exposure related to a parcel of land (the “Central Area”) related to a site in Woburn, Massachusetts.

Currently, the consent decree for the Woburn site does not define or require any remediation work in the Central Area.

3 unchanged sentences

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

The Company has received and responded 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, responded, and agreed to undertake additional response actions pertaining 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.

2 unchanged sentences

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

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

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

5 unchanged sentences

The typical allocation of costs among PRPs.

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

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

2 unchanged sentences

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 May 30, 2020, the risk-free interest rates utilized by the Company ranged from 0.7 % to 1.4 %.

As of November 28, 2020, the risk-free interest rates utilized by the Company ranged from 0.8 % to 1.6 %.

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 the thirty-nine weeks ended May 30, 2020 were as follows (in thousands):

The changes to the Company’s environmental liabilities for the thirteen weeks ended November 28, 2020 were as follows (in thousands):

November 28, 2020

Beginning balance as of August 29, 2020

Revisions in estimates

Costs incurred for which reserves have been provided

2 unchanged sentences

Changes in discount rates

Balance as of May 30, 2020

Anticipated payments and insurance proceeds of currently identified environmental remediation liabilities as of May 30, 2020, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.

Balance as of November 28, 2020

Anticipated payments and insurance proceeds of currently identified environmental remediation liabilities as of November 28, 2020, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.

(In thousands)

4 unchanged sentences

Effect of discounting

Balance as of May 30, 2020

Balance as of November 28, 2020

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

1 unchanged sentence

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 May 30, 2020, 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 $ 4.5 million.

As of November 28, 2020, 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 $ 4.5 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 the site in Uvalde, Texas.

1 unchanged sentence

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

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

During the year ended August 26, 2017 (“fiscal 2017”), the Company recorded a pre-tax non-cash impairment charge of $ 55.8 million once it was determined that it was not probable that the version of the Customer Relationship Management (“CRM”) system that was being developed would be completed and placed into service.

On December 28, 2018, the Company entered into a settlement agreement with its lead contractor for the version of the CRM system with respect to which the Company recorded the impairment charge.

As part of the settlement agreement, the Company recorded in the thirteen weeks ended February 23, 2019 a total gain of $ 21.1 million as a reduction of selling and administrative expenses, which includes the Company’s receipt of a one-time cash payment in the amount of $ 13.0 million as well as the forgiveness of amounts previously due the contractor.

The Company also received hardware and related maintenance service with a fair value of $ 0.8 million as part of the settlement.

From time to time, the Company is also subject to legal 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.

1 unchanged sentence

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.

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

In accordance with ASC 740, Income Taxes (“ASC 740”), each interim period is considered integral to the annual period and tax expense is measured using an estimated annual effective tax rate.

1 unchanged sentence

Effective tax rate

The Company’s effective tax rate for the thirteen weeks ended May 30, 2020 was 21.8 % as compared to 23.5 % for the corresponding period in the prior year.

The Company’s effective tax rate for the thirty-nine weeks ended May 30, 2020 was 22.8 % as compared to 24.8 % for the corresponding period in the prior year.

The decrease in the effective tax rate in the thirteen and thirty-nine weeks ended May 30, 2020 was primarily due to the benefit resulting from the release of certain tax reserves and to the tax benefit related to the exercise of stock appreciation rights.

There was a $ 0.4 million and $ 1.8 million discrete tax benefit resulting from the release of certain tax reserves and a $ 0.5 million and $ 1.9 million discrete tax benefit related to the exercise of stock appreciation rights during the thirteen and thirty-nine weeks ended May 30, 2020, respectively.

The Company’s effective tax rate for the thirteen weeks ended November 28, 2020 was 25.0 % as compared to 22.1 % for the corresponding period in the prior year.

The increase in the effective tax rate in the thirteen weeks ended November 28, 2020 as compared to the corresponding period in the prior year was due to the release of certain tax reserves.

Uncertain tax positions

The Company recognizes 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.

During the thirteen weeks ended May 30, 2020, there was a decrease of $ 0.4 million in unrecognized tax benefits to the Company.

During the thirty-nine weeks ended May 30, 2020, there was a decrease in unrecognized tax benefits of $ 1.8 million due to a release of tax reserves.

During the thirteen weeks ended November 28, 2020, there were no material changes in the amount of unrecognized tax benefits or the amount accrued for interest and penalties.

and Canadian federal income tax statutes have lapsed for filings up to and including fiscal years 2015 and 2012, respectively.

1 unchanged sentence

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.

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Long-Term Debt

3 unchanged sentences

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

As of May 30, 2020, the interest rates applicable to the Company’s borrowings under the Credit Agreement would be calculated as LIBOR plus 75 basis points at the time of the respective borrowing.

As of May 30, 2020, the Company had no outstanding borrowings and had outstanding letters of credit amounting to $ 70.8 million, leaving $ 179.2 million available for borrowing under the Credit Agreement.

As of May 30, 2020, the Company was in compliance with all covenants under the Credit Agreement.

As of November 28, 2020, the interest rates applicable to the Company’s borrowings under the Credit Agreement would be calculated as LIBOR plus 75 basis points at the time of the respective borrowing.

As of November 28, 2020, the Company had no outstanding borrowings and had outstanding letters of credit amounting to $ 72.7 million, leaving $ 177.3 million available for borrowing under the Credit Agreement.

As of November 28, 2020, the Company was in compliance with all covenants under the Credit Agreement.

Accumulated Other Comprehensive Loss

The changes in each component of accumulated other comprehensive loss, net of tax, for the thirteen and thirty-nine weeks ended May 30, 2020 and May 25, 2019 were as follows (in thousands):

Thirteen Weeks Ended May 30, 2020

The changes in each component of accumulated other comprehensive loss, net of tax, for the thirteen weeks ended November 28, 2020 and November 30, 2019 were as follows (in thousands):

Thirteen Weeks Ended November 28, 2020

Instruments (1)

Comprehensive

Beginning balance as of February 29, 2020

Beginning balance as of August 29, 2020

Other comprehensive income (loss) before reclassification

2 unchanged sentences

Net current period other comprehensive (loss) income

Ending balance as of May 30, 2020

Thirty-nine weeks ended May 30, 2020

Instruments (1)

Comprehensive

Balance as of August 31, 2019

Other comprehensive (loss) income before reclassification

Amounts reclassified from accumulated other

comprehensive loss

Net current period other comprehensive (loss) income

Ending balance as of May 30, 2020

Thirteen Weeks Ended May 25, 2019

Instruments (1)

Comprehensive

Beginning balance as of February 23, 2019

Other comprehensive (loss) income before reclassification

Amounts reclassified from accumulated other

comprehensive loss

Net current period other comprehensive (loss) income

Ending balance as of May 25, 2019

Ending balance as of November 28, 2020

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Thirty-nine weeks ended May 25, 2019

Thirteen weeks ended November 30, 2019

Instruments (1)

5 unchanged sentences

Net current period other comprehensive (loss) income

Ending balance as of May 25, 2019

Ending balance as of November 30, 2019

Amounts are shown net of tax.

Amounts reclassified from accumulated other comprehensive loss, net of tax, for the thirty-nine weeks ended May 30, 2020 and May 25, 2019 were as follows (in thousands):

Amounts reclassified from accumulated other comprehensive loss, net of tax, for the thirteen weeks ended November 28, 2020 and November 30, 2019 were as follows (in thousands):

Thirteen weeks ended

Thirty-nine weeks ended

Pension benefit liabilities (net):

Reclassification to income statement (a)

Total, net of tax

November 28, 2020

November 30, 2019

Derivative financial instruments, net:

Forward contracts (b)

Forward contracts (a)

Total, net of tax

Total amounts reclassified, net of tax

Amounts included in selling and administrative expenses in the accompanying Consolidated Statements of Income.

Amounts included in revenues in the accompanying Consolidated Statements of Income.

9 unchanged sentences

and Canadian Rental and Cleaning reporting segment are referred to by the Company as “industrial laundries” or “industrial laundry locations.”

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

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

6 unchanged sentences

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 the Company’s manufacturing cost.

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

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.

13 unchanged sentences

Thirteen weeks ended

Operating income (loss)

Interest income, net

Income (loss) before taxes

Operating income (loss)

Interest income, net

Income (loss) before taxes

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Thirty-nine weeks ended

November 28, 2020

Operating income (loss)

1 unchanged sentence

Income (loss) before taxes

November 30, 2019

Operating income (loss)

8 unchanged sentences

The share repurchase program will be funded using the Company’s available cash or capacity under its Credit Agreement and may be suspended or discontinued at any time.

As of May 30, 2020, the Company had repurchased a total of 314,917 shares for an average price per share of $ 165.96 under the share repurchase program using cash on hand.

During the thirteen and thirty-nine weeks ended May 30, 2020, the Company repurchased 46,667 and 117,767 shares, respectively, for an average price per share of $ 161.65 and $ 184.67 , respectively.

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.

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

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.

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

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 the thirty-nine weeks ended May 30, 2020:

(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

The contractual future minimum lease payments of the Company's operating lease liabilities by fiscal year are as follows as of May 30, 2020:

(In thousands)

2020 (remaining three months)

Total payments

Less interest

Total present value of lease payments

As of November 28, 2020, the Company had repurchased a total of 355,917 shares for an average price per share of $ 167.12 under the share repurchase program using cash on hand.

During the thirteen weeks ended November 28, 2020, the Company repurchased 41,000 shares for an average price per share of $ 176.01 .

During the thirteen weeks ended November 30, 2019, the Company repurchased 50,600 shares for an average price per share of $ 197.11 .

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-Q

Item 1. Financial Statements