What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-10-27 compared with 2020-10-28 · 113 added, 162 removed, 382 unchanged (42% of the section changed)

9 unchanged sentences

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, UniFirst Corporation (NYSE:

UNF) is 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 its subsidiaries, the Company also provides first aid and safety products, and manages specialized garment programs for the cleanroom and nuclear industries.

UniFirst manufactures its own branded workwear, protective clothing, and floorcare products;

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

For more information, contact UniFirst at 800.455.7654 or visit UniFirst.com.

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.

17 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 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.

13 unchanged sentences

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

Revenues from Specialty Garments, which accounted for approximately 7% of our 2020 revenues, increase during outages and refueling by nuclear power plants, as garment usage increases at these times.

First Aid represented approximately 4% of our total revenue in fiscal 2020.

Revenues from Specialty Garments, which accounted for approximately 8.0% of our fiscal 2021 revenues, increase during outages and refueling by nuclear power plants, as garment usage increases at these times.

First Aid represented approximately 3.5% of our total revenues in fiscal 2021.

Critical Accounting Policies and Estimates

21 unchanged sentences

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.

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.

3 unchanged sentences

During fiscal 2021 and 2020, we recorded $14.4 million and $13.7 million, respectively, of amortization expense related to deferred commissions.

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

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

Inventories and Rental Merchandise in Service

12 unchanged sentences

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 2020 and the last day of the fourth quarter of each fiscal year in fiscal 2019 and 2018.

There have been no impairments of goodwill or other intangible assets in fiscal 2020, 2019 and 2018.

We completed our annual goodwill impairment test as of the first day of the fourth quarter in fiscal 2021 and fiscal 2020 and the last day of the fourth quarter of fiscal 2019.

There have been no impairments of goodwill or other intangible assets in fiscal 2021, 2020 or 2019.

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

4 unchanged sentences

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 2020, 2019, and 2018.

There were no material impairments of long-lived assets in fiscal 2021, 2020 or 2019.

We self-insure for certain obligations related to healthcare, workers’ compensation, vehicles and general liability programs.

8 unchanged sentences

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.

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.

15 unchanged sentences

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 will be 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.

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

7 unchanged sentences

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

Our effective tax rate differs from the statutory U.S.

income tax rate due to the effect of varying state and local income taxes, tax rates in foreign jurisdictions, tax credits, and certain nondeductible expenses.

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

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.

2 unchanged sentences

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

Tax authorities may disagree with certain positions we have taken.

In evaluating our exposure associated with various filing positions, we have recorded estimated reserves .

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

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.

COVID-19 Assessment

The outbreak of a novel strain of coronavirus (COVID-19) continues to impact a number of countries, including the United States, Canada, Mexico, Nicaragua and the European countries in which we operate.

Developments continue to occur rapidly with respect to the spread of COVID-19 and its impact on human health and businesses.

Developments continue to occur rapidly with respect to the spread of COVID-19 and its variants, and their impact on human health and businesses.

New and changing government actions to address the COVID-19 pandemic continue to occur on a daily basis.

Our revenues in the second half of fiscal 2020 were significantly adversely impacted as a result of many customers closing their businesses or operating at limited capacities.

Our revenues in the first half of fiscal 2021 were significantly adversely impacted as a result of many customers closing their businesses or operating at limited capacities.

Although many of our customers have reopened or increased their operating levels as government restrictions have begun to be lifted, our sales to many such customers are below their pre-pandemic levels and may not return to such pre-pandemic levels.

5 unchanged sentences

We will continue to review and assess the rapidly-changing 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.

Because developments with respect to the spread of COVID-19 and its impacts continue to occur so rapidly, and because of the unprecedented nature of the pandemic, we are unable to predict the extent and duration of the adverse impact of COVID-19 on our business, financial condition and results of operations.

We have assessed the current impact of COVID-19 on our consolidated financial condition, results of operations, and cash flows, as well as our estimates and accounting policies.

We have made additional disclosures of these assessments, as necessary.

Given the unprecedented nature of this situation, we cannot reasonably estimate the full extent of the impact COVID-19 will have on our consolidated financial condition, results of operations, and cash flows in the foreseeable future.

Given the unprecedented nature of this situation, including the emergence of new variants of the virus and delays in the distribution and administration of various vaccines, particularly in certain geographic regions, we cannot reasonably estimate the full extent or duration of the impact COVID-19 will have on our consolidated financial condition, results of operations, and cash flows in the foreseeable future.

The ultimate impact of COVID-19 on the Company is highly uncertain and will depend on future developments, and such impacts could exist for an extended period of time, even after the COVID-19 pandemic subsides.

As of August 29, 2020, our cash, cash equivalents, and short-term investments were $474.8 million, and we had access to $179.2 million of borrowing capacity under our $250 million unsecured revolving credit facility, which we believe will continue to help us manage the impacts of the COVID-19 pandemic on our business and address related liquidity needs.

National, state and local governments have responded to the COVID-19 pandemic in a variety of ways, including, without limitation, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), and in certain cases, ordering businesses to close or limit operations or people to stay at home.

Although we have been permitted to continue to operate in all of the jurisdictions in which we operate, including in jurisdictions that have mandated the closure of certain businesses and we expect to be permitted to continue to operate under any orders or other restrictions imposed by any government authorities in the future, there is no assurance that we will be permitted to operate under every future government order or other restriction and in every location.

If we were to be subject to government orders or other restrictions on the operation of our business, we may be required to limit , or close, our operations at certain locations in the future.

Any such limitations or closures could have a material adverse impact on our ability to service our customers and on our business, financial condition and results of operations.

In particular, any limitations on, or closures of, our manufacturing facilities in Mexico or Nicaragua, or our distribution center in Owensboro, Kentucky, could have a material adverse impact on our ability to manufacture products and service customers and could have a material adverse impact on our business, financial condition and results of operations.

The COVID-19 pandemic has caused significant disruptions to our business and operations and could cause material disruptions to our business and operations in the future as a result of, among other things, quarantines, worker illness, worker absenteeism as a result of illness or other factors, social distancing measures and other travel, health-related, business or other restrictions.

For similar reasons, the COVID-19 pandemic has also adversely impacted, and may continue to adversely impact, our suppliers and their manufacturers.

Depending on the extent and duration of all of the above-described effects on our business and operations and the business and operations of our suppliers, our costs could increase, including our costs to address the health and safety of personnel, our ability to obtain products or services from suppliers may be adversely impacted, our ability to service certain customers could be adversely impacted and, as a result, our business, financial condition and results of operations could be materially adversely affected.

In addition, depending on the extent and duration of the COVID-19 pandemic, we may be subject to significant increases in healthcare costs in the event that a significant number of our personnel become infected with COVID-19 and require medical treatment.

As a result, any significant increases in healthcare costs as a result of COVID-19 or otherwise could have a material adverse impact on our business, financial condition and results of operations.

The COVID-19 pandemic has also resulted in material adverse economic conditions that are impacting, and may continue to impact, our business and the businesses of our suppliers and customers.

Unemployment levels have increased significantly, and the U.S.

economy has entered an economic recession.

Some analysts have predicted that the current economic recession may persist for a significant period of time and become severe.

Although the extent and duration of the impact of the COVID-19 pandemic on our business and operations and the business and operations of our customers and suppliers remain uncertain, the continued spread of COVID-19, the imposition of related public health measures and travel, health-related, business and other restrictions and the resulting materially adverse economic conditions may materially adversely impact our business, financial condition, results of operations and cash flows.

As of August 28, 2021, our cash, cash equivalents, and short-term investments were $512.9 million.

We also have access to significant borrowing capacity under our unsecured revolving credit facility, which we believe, together with our cash balances, will continue to help us manage the impacts of the COVID-19 pandemic on our business and address related liquidity needs.

Please see “Item 1A.

33 unchanged sentences

In general, we are relatively more dependent on business in these regions than are many of our competitors.

Recent volatility in energy prices have had and may continue to have a significant impact on wearer levels at existing customers in our North American energy-dependent markets.

Recent volatility in energy prices has had and may continue to have a significant impact on wearer levels at existing customers in our North American energy-dependent markets.

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.

1 unchanged sentence

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 increased in fiscal 2020 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.

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted into law, which, among other provisions, reduced the U.S.

federal corporate income tax rate effective January 1, 2018 from a top marginal rate of 35% to a new 21% corporate rate and imposed a one-time transition tax on the deemed repatriation of certain deferred foreign income.

We have made reasonable estimates of the effects of the TCJA and these estimates could change in future periods as we continue to analyze the effects of the TCJA (see Note 4, “Income Taxes” to our Consolidated Financial Statements included in this Annual Report on Form 10-K).

As a result of the TCJA, U.S.

corporations are subject to lower income tax rates, and we were required to remeasure our U.S.

net deferred tax liabilities at a lower rate, resulting in a net benefit of $22.6 million recorded in the provision for income taxes as of August 25, 2018.

Partially offsetting this benefit, we recorded a charge of $2.5 million for transition taxes related to the deemed repatriation of foreign earnings as of August 29, 2019.

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.

4 unchanged sentences

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 2020 and 2019, foreign currency fluctuations impacted our consolidated revenues negatively by 0.1% and 0.3%, respectively.

In fiscal 2018, foreign currency fluctuations negligibly impacted our consolidated revenues.

In fiscal years 2021, 2020 and 2019, foreign currency fluctuations impacted our consolidated revenues negatively by 0.5%, 0.1% and 0.3%, respectively.

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

1 unchanged sentence

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

On March 27, 2018, we repurchased 1.105 million shares of Class B Common Stock and 0.073 million shares of Common Stock for a combined $146.0 million in a private transaction with the Croatti family at a per share price of $124.00.

This opportunity to repurchase shares from the Croatti family was evaluated by an independent special committee of the Board of Directors (the “Special Committee”).

The sale of shares by the Croatti family was executed to provide liquidity as well as for estate and family financial planning following the passing of our former Chief Executive Officer, Ronald D.

The Special Committee determined that a repurchase of Croatti family Class B Common Stock at a discount to market was in our

best interests as it is accretive to income per share and addresses uncertainties that may have been created if the Croatti family had pursued other liquidity options.

The Special Committee undertook its evaluation with the assistance of Stifel Financial Corp.

(“Stifel”) and received an opinion from Stifel to the effect that, as of March 27, 2018, the $124.00 per share in cash to be paid was fair to us, from a financial point of view.

The entire Board of Directors other than Cynthia Croatti, who is affiliated with the selling shareholders and therefore abstained, approved the transaction upon the recommendation of the Special Committee.

On March 28, 2018, we announced that we would be raising our quarterly dividend to $0.1125 per share for Common Stock and to $0.09 per share for Class B Common Stock, up from $0.0375 and $0.03 per share, respectively.

On October 23, 2019, we announced that we would be raising our 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.

On October 23, 2019, we announced that we would be raising our quarterly dividend to $0.25 per share for Common Stock and to $0.20 per share for Class B Common Stock, from $0.1125 and $0.09 per share, respectively.

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.

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 with available cash.

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.

During fiscal 2019, we repurchased 0.2 million shares for an average price per share of $154.78.

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 will be funded using the Company’s available cash or capacity under its Credit Agreement (as defined below) and may be suspended or discontinued at any time.

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

During fiscal 2019, the Company repurchased 0.2 million shares for an average price per share of $154.78.

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 2017, we 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 CRM system that was being developed would be completed and placed into service.

5 unchanged sentences

As of August 28, 2021, we have capitalized $34.2 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 2022 and 2023.

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

Our fiscal year ends on the last Saturday in August.

5 unchanged sentences

Total consolidated revenues

The decrease in our consolidated revenues in fiscal 2020 compared to the prior fiscal year was due primarily to a decline in our Core Laundry Operations.

Of this decline, 1.9% was due to the extra week in fiscal 2019.

Also contributing to the decline was the negative impact on rental revenues from COVID-19 related customer closures as well as related wearer

reductions at customers that remained open.

These declines were partially offset in fiscal 2020 by a large direct sale of $20.1 million .

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 2020 compared to fiscal 2019 was due primarily to increased direct sales activity in our nuclear operations in the U.S.

and Canada as well as strong performance in our cleanroom operations.

These increases were partially offset by a decline in revenue from the extra week in fiscal 2019.

The increase in our First Aid revenues in fiscal 2020 compared to fiscal 2019 was due primarily to the strong performance in our wholesale distribution business and increased demand for the segment’s safety and personal protective equipment offerings as a result of COVID-19.

These increases were partially offset by a decline in revenue from the extra week in fiscal 2019.

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

2 unchanged sentences

% of Revenues

Core Laundry Operations cost of revenues as a percentage of revenues in fiscal 2020 increased from the prior fiscal year.

This increase was due to a number of items, including the impact of the decline in our rental revenues on our cost structure, higher merchandise amortization as a percentage of revenues due to the amortization of prior period expenditures, higher cost of revenues related to the large $20.1 million direct sale, additional employee compensation expense, higher bad debt expense, higher casualty claims expense, as well as increased costs for internal-use safety supplies.

These items were partially offset by lower incentive compensation, energy, travel-related and healthcare claim costs in fiscal 2020.

Our Specialty Garments cost of revenues as a percentage of revenues decreased in fiscal 2020 as compared to the prior fiscal year.

The decrease was due primarily to lower production and service, delivery payroll and other delivery costs in fiscal 2020.

Core Laundry Operations cost of revenues as a percentage of revenues in fiscal 202 1 de creased from the prior fiscal year.

This de crease was d ue 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 expenses

2 unchanged sentences

% of Revenues

The increase in our selling and administrative expenses as a percentage of revenues in fiscal 2020 compared to fiscal 2019 was due primarily to a gain of $21.1 million in fiscal 2019 related to the settlement agreement with the lead contractor for the version of the CRM system with respect to which we recorded a $55.8 million impairment charge in fiscal 2017.

Also contributing to the increase was a gain of $3.0 million from the settlement of environmental litigation in fiscal 2019 and higher indirect tax costs in fiscal 2020.

The items driving the increase in fiscal 2020 were partially offset by lower healthcare claim, travel-related, incentive and other compensation-related costs.

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

2 unchanged sentences

% of Revenues

Depreciation and amortization expense increased in fiscal 2020 as compared to the prior fiscal year due primarily to capital expenditures placed in service over the past several quarters.

The increase in depreciation and amortization reflects our continued capital investments in the business.

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

10 unchanged sentences

Total other income, net

The decrease in other income, net, during fiscal 2020 as compared to the prior fiscal year was due primarily to lower interest income from declining interest rates partially offset by higher foreign currency exchange gains.

The decrease in other income, net, during fiscal 202 1 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

2 unchanged sentences

Effective income tax rate

The decrease in our effective income tax rate for fiscal 2020 as compared to fiscal 2019 was due primarily to a $1.8 million benefit as a result of the relief of certain tax reserves and a $1.6 million discrete tax benefit related to the exercise of stock appreciation rights.

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.

Fiscal Year Ended August 29, 2020 Compared with Fiscal Year Ended August 31, 2019

3 unchanged sentences

Total consolidated revenues

The increase of our consolidated revenues in fiscal 2019 compared to the prior fiscal year was due primarily to growth in our Core Laundry Operations.

The growth in our Core Laundry Operations was comprised of 3.8% of organic growth, 2.0% growth from the extra week in fiscal 2019 and 0.3% growth from acquisitions.

Organic growth consists primarily of new sales, price increases, and net changes in the wearer levels at our existing customers, offset by lost accounts.

Core Laundry Operations’ organic growth in fiscal 2019 benefitted from strong new accounts sales as well as reduced lost accounts.

The decrease in our consolidated revenues in fiscal 2020 compared to the prior fiscal year was due primarily to a decline in our Core Laundry Operations.

Of this decline, 1.9% was due to the extra week in fiscal 2019.

Also contributing to the decline was the negative impact on rental revenues from COVID-19 related customer closures as well as related wearer reductions at customers that remained open.

These declines were partially offset in fiscal 2020 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 2019 compared to fiscal 2018 was primarily comprised of 7.4% growth from acquisitions, 2.7% of organic growth from increased outages and project-

based activity at the segment’s Canadian and European nuclear cu stomers, and 2.0% growth from the extra week in fiscal 2019.

The increase of our First Aid revenues in fiscal 2019 compared to fiscal 2018 was comprised of 7.8% of organic growth, 1.9% growth from the extra week in fiscal 2019 and 1.5% growth from acquisitions.

The improvement in revenues in fiscal 2020 compared to fiscal 2019 was due primarily to increased direct sales activity in our nuclear operations in the U.S.

and Canada as well as strong performance in our cleanroom operations.

These increases were partially offset by a decline in revenue from the extra week in fiscal 2019.

Cost of revenues

2 unchanged sentences

% of Revenues

Cost of revenues as a percentage of revenues was 63.0% for fiscal 2019 as compared to 62.3% in fiscal 2018.

Our Core Laundry Operations cost of revenues as a percentage of revenues increased to 62.5% for fiscal 2019 from 61.8% for fiscal 2018.

This increase was due primarily to higher merchandise and service and delivery payroll costs, which were partially offset by lower healthcare claims.

Our Specialty Garments cost of revenues as a percentage of revenues was 67.1% for fiscal 2019 as compared to 65.3% for fiscal 2018.

The increase was due primarily to higher merchandise costs related to acquisitions in the second half of fiscal 2018 as well as higher expenses related to workers’ compensation and auto claims.

These increases were partially offset by lower healthcare claims.

Our First Aid costs of revenues as a percentage of revenues was 67.4% for fiscal 2019 as compared to 68.1% for fiscal 2018.

The decrease was due primarily to lower merchandise and production costs in our wholesale distribution business in fiscal 2019.

Core Laundry Operations cost of revenues as a percentage of revenues in fiscal 2020 increased from the prior fiscal year.

These items were partially offset by lower incentive compensation, energy, travel-related and healthcare claim costs in fiscal 2020.

Our Specialty Garments cost of revenues as a percentage of revenues decreased in fiscal 2020 as compared to the prior fiscal year.

The decrease was due primarily to lower production and service, delivery payroll and other delivery costs in fiscal 2020.

Selling and administrative expense

2 unchanged sentences

% of Revenues

The decrease in our selling and administrative expenses as a percentage of revenues in fiscal 2019 compared to fiscal 2018 was due primarily to a gain of $21.1 million in fiscal 2019 related to the settlement agreement with the lead contractor for the version of the CRM system with respect to which we recorded a $55.8 million impairment charge in fiscal 2017.

Also contributing to the decrease was a $7.2 million one-time cash bonus in fiscal 2018 to our employees so that they could share in the benefits received by the Company from U.S.

tax reform, a gain of $3.0 million from the settlement of environmental litigation in the first quarter of fiscal 2019, lower healthcare claims, the capitalization of internal labor costs beginning in the fourth quarter of fiscal 2018 related to the development of the new CRM project we initiated in fiscal 2018, and the capitalization of sales commission costs upon the adoption of new revenue accounting guidance in fiscal 2019.

Also contributing to the increase was a gain of $3.0 million from the settlement of environmental litigation in fiscal 2019 and higher indirect tax costs in fiscal 2020.

The items driving the increase in fiscal 2020 were partially offset by lower healthcare claim, travel-related, incentive and other compensation-related costs.

Depreciation and amortization

2 unchanged sentences

% of Revenues

The increase in depreciation and amortization reflects the Company’s continued capital investments in the business.

However, in fiscal 2019, depreciation and amortization remained consistent with fiscal 2018 as a percentage of revenue.

Depreciation and amortization expense increased in fiscal 2020 as compared to the prior fiscal year due primarily to capital expenditures placed in service over the past several quarters.

The increase in depreciation and amortization reflects our continued capital investments in the business.

Income from operations

10 unchanged sentences

Total other income, net

Other income, net, which includes interest income and other expense, increased by $1.0 million or 21.5% in fiscal 2019 as compared to fiscal 2018.

This change was due primarily to higher interest income from higher interest rates as well as greater amounts of cash invested.

This increase was partially offset by an increase in other expense from the adoption of new accounting guidance that resulted in the presentation of periodic pension costs amounting to $2.1 million in other income, net in fiscal 2019 that was presented in selling and administrative expenses in the prior fiscal year.

Provision for income taxes

2 unchanged sentences

Effective income tax rate

The increase in our effective income tax rate for fiscal 2019 as compared to fiscal 2018 was due primarily to the impact of the TCJA, which lowered the U.S.

federal corporate income tax rates as of January 1, 2018 to 21.0% from 35.0%.

These new rates required us to remeasure our U.S.

net deferred income tax liabilities in fiscal 2018.

Also, we were subject to a one-time transition tax for the deemed repatriation of our deferred foreign income.

The remeasurement of our U.S.

net deferred tax liabilities and the one-time transition tax resulted in a $20.1 million net benefit to our provision for income taxes in the second quarter of fiscal 2018.

For additional information pertaining to income taxes and the TCJA, please refer to Note 4, “Income Taxes” to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

Liquidity and Capital Resources

1 unchanged sentence

We generated $212.3 million and $286.7 million in cash from operating activities in the fiscal years ended August 28, 2021 and August 29, 2020, respectively.

Pursuant to a share repurchase program approved by the Board of Directors on January 2, 2019, we repurchased 0.1 million shares of our Common Stock for an aggregate of approximately $21.7 million during fiscal 2020 and 0.2 million shares of our Common Stock for an aggregate $30.5 million during fiscal 2019.

We believe , although there can be no assurance, t hat our current cash, cash equivalents and short-term investments balances, our cash generated from future operations and amounts available under our Credit Agreement (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 the COVID-19 pandemic on our business and address related liquidity needs .

Pursuant to a share repurchase program approved by the Board of Directors on January 2, 2019, we repurchased 0.1 million shares of our Common Stock for an aggregate of approximately $11.2 million during fiscal 2021, 0.1 million shares of our Common Stock for an aggregate of approximately $21.7 million during fiscal 2020 and 0.2 million shares of our Common Stock for an aggregate $30.5 million during fiscal 2019.

We believe, although there can be no assurance, that our current cash, cash equivalents and short-term investments 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 the COVID-19 pandemic on our business and address related liquidity needs.

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

9 unchanged sentences

Net Cash Provided by Operating Activities

The increase in net cash provided by operating activities was due primarily to lower expenditures on rental merchandise and declining accounts receivable in fiscal 2020 as compared to the prior fiscal year due to lower revenues.

Also contributing to the increase was the one-time bonus paid to our employees during the first quarter of fiscal 2019.

These increases were partially offset by cash received of $13.0 million in the second quarter of fiscal 2019 from the settlement agreement with the lead contractor for the version of the CRM system with respect to which we recorded a $55.8 million impairment charge in fiscal 2017.

Also partially offsetting the increases was $3.0 million from the settlement of environmental litigation in the first quarter of fiscal 2019.

The decrease in net cash provided by operating activities was due primarily to increases in inventory, rental merchandise expenditures and accounts receivable in fiscal 2021.

These increases were primarily due to sizable working capital needs of the business as some of our asset positions which were abnormally depressed during the COVID-19 pandemic have returned to their pre-pandemic balances.

Net Cash Used in Investing Activities

The net increase in cash used in investing activities was due primarily to the acquisition of a Missouri-based industrial laundry business, which was completed in September 2019 for $38.8 million, using available cash on hand.

This increase was partially offset by lower capital expenditures of $3.1 million in fiscal 2020 as compared to the prior year comparable period.

The decrease in net cash used in investing activities was due primarily to higher cash used in the prior year, including for the acquisition of a Missouri-based industrial laundry business for $38.8 million, for which we used available cash on hand.

The decrease in acquisition related activity is partially offset by an increase in capital expenditures related to our continued investment in our infrastructure as well as our key technology initiatives.

Net Cash Used in Financing Activities

The decrease in cash used in financing activities was due primarily to lower repurchases of Common Stock partially offset by an increase in dividends paid of $7.4 million in fiscal 2020 as compared to the prior fiscal year.

The decrease in net cash used in financing activities was due primarily to incremental cash used in the prior year period for repurchases of Common Stock of $10.5 million.

This decrease was partially offset by an increase in dividends paid of $2.4 million, cash outflows for deferred financing costs related to the 2021 Credit Agreement (as defined below) of $0.8 million and an increase in the cash paid for taxes withheld related to the net share settlement of equity awards in fiscal 2021 as compared to the prior year comparable period.

Long-term Debt and Borrowing Capacity

We have a $250.0 million unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of banks, which matures on April 11, 2021.

Under the Credit Agreement, we are able to 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 as defined in the Credit Agreement.

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 prior Credit Agreement (as defined below), 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.

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

As of August 29, 2020, the interest rates applicable to our borrowings under the Credit Agreement would be calculated as LIBOR plus 75 basis points at the time of the respective borrowing.

As of August 28, 2021, 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 28, 2021, we had no outstanding borrowings and had outstanding letters of credit amounting to $67.5 million, leaving $107.5 million available for borrowing under the 2021 Credit Agreement.

We expect to replace the Credit Agreement prior to its maturity with a new revolving credit facility.

As of August 28, 2021, we were in compliance with all covenants under the 2021 Credit Agreement.

Prior to March 26, 2021, we had a $250.0 million unsecured revolving credit agreement (the “Prior Credit Agreement”) with a syndicate of banks, which was scheduled to mature on April 11, 2021.

Under the Prior Credit Agreement, we were able to 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 required 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 Prior Credit Agreement.

Derivative Instruments and Hedging Activities

1 unchanged sentence

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.

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 will sell 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.

As of August 29, 2020, we had forward contracts with a notional value of approximately 5.0 million CAD outstanding and recorded the fair value of the contracts of 0.1 million CAD 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 2020, we reclassified $0.2 million from accumulated other comprehensive loss to revenue, related to the derivative financial instruments.

The gain on these forward contracts that results in a decrease to accumulated other comprehensive loss as of August 29, 2020 is expected to be reclassified to revenues prior to its maturity 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 28, 2021, we had forward contracts with a notional value of approximately 15.5 million CAD outstanding and recorded the fair value of the contracts of a nominal amount 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 2021, we reclassified a nominal amount 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 28, 2021 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.

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.

W e 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.

7 unchanged sentences

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

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

We, together with multiple other companies, are party to a consent decree related to our property and other parcels of land (the “Central Area”) at a site in Woburn, Massachusetts.

The United States Environmental Protection Agency (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 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 we made in 2009 for a portion of the site.

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

We have received, responded, and agreed to undertake additional actions responsive to notices received pertaining 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.

36 unchanged sentences

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 the Nuclear Regulatory Commission, or, in certain cases, by the applicable state agency, and are subject to regulation by federal, state and local authorities.

We also have nuclear garment decontamination facilities in the United Kingdom and the Netherlands.

These facilities are licensed and regulated by the respective country’s applicable federal agency.

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 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.

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.

20 unchanged sentences

All letters of credit expire in less than one year.

We expect to replace the Credit Agreement prior to its maturity with a new revolving line of credit on appropriate terms.

As discussed above under “Derivative Instruments and Hedging Activities”, as of August 29, 2020, we had forward contracts with a notional value of approximately 5.0 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 2020, we reclassified $0.2 million from accumulated other comprehensive loss to revenue, related to the derivative financial instruments.

The gain on these forward contracts that results in decrease to accumulated other comprehensive loss as of August 29, 2020 is expected to be reclassified to revenues prior to its maturity on February 25, 2022.

Off Balance Sheet Arrangements

As of August 29, 2020, we did not have any off balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Securities and Exchange Commission Regulation S-K.

As discussed above under “Derivative Instruments and Hedging Activities”, as of August 28, 2021, we had forward contracts with a notional value of approximately 15.5 million CAD outstanding and recorded the fair value of the contracts of a nominal amount 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 2021, we reclassified a nominal amount from accumulated other comprehensive loss to revenue, related to the derivative financial instruments.

Effects of Inflation

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.

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, we expect that the current inflationary environment will pressure our margins in future periods.

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

3 unchanged sentences

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 7. Management’s Discussion and Analysis