UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(cid:1409)(cid:1409)
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended August 29, 2020
(cid:1407)
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 001-08504
UNIFIRST CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts
(State or Other Jurisdiction of
Incorporation or Organization)
04-2103460
(IRS Employer
Identification No.)
68 Jonspin Road
Wilmington, Massachusetts 01887
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code: (978) 658-8888
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.10 par value per share
Trading Symbol
UNF
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1409) No (cid:1407)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:1407) No (cid:1409)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (cid:1409) No (cid:1407)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes (cid:1409) No (cid:1407)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Non-accelerated filer
(cid:1409)
(cid:1407)
Accelerated filer
Smaller Reporting Company
Emerging Growth Company
(cid:1407)
(cid:1407)
(cid:1407)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:1407)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report. (cid:1409)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:1407) No (cid:1409)
The number of outstanding shares of the Registrant’s Common Stock and Class B Common Stock as of October 22, 2020 were 15,254,349 and 3,643,009,
respectively. The aggregate market value of the voting stock of the Registrant held by non-affiliates as of February 29, 2020 (the last business day of the
Registrant’s most recently completed second fiscal quarter), computed by reference to the closing sale price of such shares on such date, was approximately
$2,782,540,590.
The Registrant intends to file a Definitive Proxy Statement pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended, for its 2021 Annual Meeting of Shareholders within 120 days of the end of the fiscal year ended August 29, 2020. Portions of such Proxy
Statement are incorporated by reference in Part III of this Annual Report on Form 10-K.
Documents Incorporated By Reference
UniFirst Corporation
Annual Report on Form 10-K
For the Fiscal Year Ended August 29, 2020
Table of Contents
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Consolidated statements of income for each of the three years in the period ended August 29, 2020
Consolidated statements of comprehensive income for each of the three years in the period ended August
29, 2020
Consolidated balance sheets as of August 29, 2020 and August 31, 2019
Consolidated statements of shareholders’ equity for each of the three years in the period ended August 29,
2020
Consolidated statements of cash flows for each of the three years in the period ended August 29, 2020
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Management’s Report on Internal Control Over Financial Reporting
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Other Information
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Ex-21 List of Subsidiaries
Ex-23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32.1 Section 906 Certification of CEO
Ex-32.2 Section 906 Certification of CFO
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PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our actual results could
differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference
are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; “Safe Harbor
for Forward-Looking Statements” and “Risk Factors” included elsewhere in this Annual Report on Form 10-K.
ITEM 1. BUSINESS
GENERAL
UniFirst Corporation, a corporation organized under the laws of the Commonwealth of Massachusetts in 1950, together with
its subsidiaries, hereunder referred to as “we”, “our”, the “Company”, or “UniFirst”, is one of the largest providers of
workplace uniforms and protective work wear clothing in the United States. We design, manufacture, personalize, rent, clean,
deliver, and sell a wide range of uniforms and protective clothing, including shirts, pants, jackets, coveralls, lab coats,
smocks, aprons and specialized protective wear, such as flame resistant and high visibility garments. We also rent and sell
industrial wiping products, floor mats, facility service products and other non-garment items, and provide restroom and
cleaning supplies and first aid cabinet services and other safety supplies as well as certain safety training, to a variety of
manufacturers, retailers and service companies. We serve businesses of all sizes in numerous industry categories. At certain
specialized facilities, we also decontaminate and clean work clothes and other items that may have been exposed to
radioactive materials and service special cleanroom protective wear and facilities.
Our principal services include providing customers with uniforms and other non-garment items, picking up soiled uniforms
or other items on a periodic basis (usually weekly), and delivering, at the same time, cleaned and processed items. We offer
uniforms in a wide variety of styles, colors, sizes and fabrics and with personalized emblems selected by the customer. Our
centralized services, specialized equipment and economies of scale generally allow us to be more cost effective in providing
garment services than customers could be themselves, particularly those customers with high employee turnover rates.
During the fiscal year ended August 29, 2020 (“fiscal 2020”), we manufactured approximately 66% of the garments we
placed in service. These were primarily work pants and shirts manufactured at three of our plants located in San Luis Potosi,
Mexico, one plant located in Managua, Nicaragua, as well as at subcontract manufacturers that we utilize to supplement our
manufacturing capacity in periods of high demand. Because we design and manufacture a majority of our own uniforms and
protective clothes, we can produce custom garment programs for our larger customers, offer a diverse range of such designs
within our standard line of garments and better control the quality, price and speed at which we produce such garments.
PRODUCTS AND SERVICES
We provide our customers with personalized workplace uniforms and protective work clothing in a broad range of styles,
colors, sizes and fabrics. Our uniform products include shirts, pants, jackets, coveralls, lab coats, smocks, aprons and
specialized protective wear, such as flame resistant and high visibility garments. At certain specialized facilities, we also
decontaminate and clean clothes and other items which may have been exposed to radioactive materials and service special
cleanroom protective wear and facilities. We also offer non-garment items and services, such as industrial wiping products,
floor mats, dry and wet mops, restroom and cleaning supplies and other textile products.
We offer our customers a range of garment service options, including full-service rental programs in which garments are
cleaned and serviced by us, lease programs in which garments are cleaned and maintained by individual employees and
purchase programs to buy garments and related items directly. As part of our rental business, we pick up a customer’s soiled
uniforms and/or other items on a periodic basis (usually weekly) and deliver back cleaned and processed replacement items.
We believe our centralized services, specialized equipment and economies of scale generally allow us to be more cost
effective in providing garment and related services than customers would be themselves, particularly those customers with
high employee turnover rates. Our uniform program is intended not only to help our customers foster greater company
identity, but to enhance their corporate image and improve employee safety, productivity and morale. We primarily serve our
customers pursuant to written service contracts that range in duration from three to five years.
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Historically, our revenues and operating results have varied from quarter to quarter and are expected to continue to fluctuate
in the future. These fluctuations have been due to a number of factors, including: general economic conditions in our
markets; the timing of acquisitions and of commencing start-up operations and related costs; our effectiveness in integrating
acquired businesses and start-up operations; the timing of nuclear plant outages; capital expenditures; seasonal rental and
purchasing patterns of our customers; and price changes in response to competitive factors. In addition, our operating results
historically have been lower during the second and fourth fiscal quarters than during the other quarters of the fiscal year. The
operating results for any historical quarter are not necessarily indicative of the results to be expected for an entire fiscal year
or any other interim periods.
CUSTOMERS
We serve businesses of all sizes in numerous industry categories. During each of the past three years, no single customer in
our Core Laundry Operations segment accounted for more than 10% of our revenues. Our typical customers include
automobile service centers and dealers, delivery services, food and general merchandise retailers, light manufacturers,
maintenance facilities, restaurants, and food-related businesses, service providers, soft and durable goods wholesalers,
transportation companies, energy producing operations, healthcare providers and others who require employee clothing for
image, identification, protection and/ or utility purposes. Among our largest customers of our conventional uniform rental
business are divisions, units, regional operations or franchised agencies of major, nationally recognized organizations. With
respect to our Specialty Garments segment, typical customers include government agencies, research and development
laboratories, high technology companies, cleanroom operators, and utilities operating nuclear reactors. We currently service
over 300,000 customer locations in the United States, Canada and Europe from 260 customer service, distribution and
manufacturing facilities.
MARKETING, SALES, AND CUSTOMER SERVICE
We market our products and services to a diverse customer base and to prospects that range across virtually all industry
segments. Marketing contact is made through print advertising, direct mail, publicity, trade shows, catalogs, telemarketing,
multiple web sites and direct field sales representation. We have built and maintain an extensive, proprietary database of
prescreened and qualified business prospects that have been sourced from our various promotional initiatives, including
mailers, web site contacts, advertising responses, sales calls and lists purchased from third-party providers. These prospect
records serve as a primary targeting resource for our professional sales organization and are constantly updated, expanded
and maintained by an in-house team of specialist database qualifiers and managers. To aid in the effective marketing of
products and services, we supply sales representatives with an extensive selection of sales aids, brochures, presentation
materials and vertical market communications tools. We also provide representatives with detailed on-line profiles of high
opportunity markets to educate them to the typical issues, needs and concerns of those markets. This helps establish
credibility and aids their ability to deliver value-based solutions.
We employ a large team of trained professional sales representatives whose sole function is to market our services to
potential customers and develop new accounts. While most of our sales representatives are capable of presenting a full range
of service solutions, some are dedicated to developing business for a limited range of products and services or have a specific
market focus.
For example, in select geographic markets we employ teams of dedicated facility services sales representatives who focus
exclusively on developing business for our floor care, restroom and related service programs. We employ specialist
executive-level salespeople in our National Account Organization—some who specialize in rental programs and some who
specialize in direct sale programs—to target the very largest national companies with known uniform and/or facility services
program needs. We believe that effective customer service is the most important element in developing and maintaining our
market position. Our commitment to service excellence is reflected throughout our organization. Our route sales
representatives are the first line of continuing customer contact, who are supported by local customer service representatives,
local service management staff and local operations management leaders, all of whom are focused on addressing the ongoing
needs of customers, constantly delivering high-value service and pursuing total customer satisfaction. Our proprietary
information systems and our support service center enable us to respond to customer inquiries or issues within 24 hours, and
our service personnel are specially trained to handle the daily contact work necessary to effectively manage customer
relations.
We measure the speed and accuracy of our customer service efforts on a weekly basis and, through our “Customers for Life”
program, we continuously survey, record and report satisfaction levels as a means of evaluating current performance and
highlighting areas for improvement.
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COMPETITION
The uniform rental and sales industry is highly competitive. The principal methods of competition in the industry are the
quality of products, the quality of service and price. Our principal competitors include Cintas Corporation, Alsco and
Aramark. The remainder of the market, however, is divided among more than 600 smaller businesses, many of which serve
one or a limited number of markets or geographic service areas. In addition to our traditional rental competitors, we may
increasingly compete in the future with businesses that focus on selling uniforms and other related items. We also compete
with industry competitors for acquisitions.
MANUFACTURING AND SOURCING
We manufactured approximately 66% of all garments which we placed in service during fiscal 2020. These garments were
primarily work pants and shirts manufactured at three of our plants located in San Luis Potosi, Mexico, one plant located in
Managua, Nicaragua, as well as at subcontract manufacturers that we utilize to supplement our manufacturing capacity in
periods of high demand. The balance of the garments used in our programs are purchased from a variety of industry
suppliers. While we currently acquire the raw materials with which we produce our garments from a limited number of
suppliers, we believe that such materials are readily available from other sources. To date, we have experienced no significant
difficulty in obtaining any of our raw materials or supplies. Currently, we also manufacture approximately 97% of the mats
we place in service at our plant in Cave City, Arkansas.
EMPLOYEES
As of August 29, 2020, we employed approximately 14,000 persons, and approximately 1% of our United States employees
are represented by a union pursuant to a collective bargaining agreement. We consider our employee relations to be good.
EXECUTIVE OFFICERS
Our executive officers are as follows:
NAME
Steven S. Sintros
Shane O’Connor
Cynthia Croatti
David A. DiFillippo
David M. Katz
Michael A. Croatti
William M. Ross
AGE
47
46
65
63
57
51
59
POSITION
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Executive Vice President and Treasurer
Senior Vice President, Operations
Senior Vice President, Sales and Marketing
Senior Vice President, Operations
Senior Vice President, Operations
The principal occupation and positions for the past five years of our executive officers named above are as follows:
Steven S. Sintros joined our Company in 2004. Mr. Sintros is our President and Chief Executive Officer and a Director. He
has had overall responsibility for management of our Company since July 2017. He previously served as our Chief Financial
Officer from January 2009 until January 2018. Mr. Sintros served as a Finance Manager in 2004 and Corporate Controller
from 2005 until January 2009.
Shane O’Connor joined our Company in 2005. Mr. O’Connor is a Senior Vice President and our Chief Financial Officer. He
has had primary responsibility for overseeing the financial functions of our Company, as well as our information systems
department, since January 2018. Mr. O’Connor previously served as our Corporate Controller from 2009 to 2016. In 2016, he
left the Company to take the role of Senior Vice President and Chief Financial Officer at Unidine Corporation, a leader in
dining management services, and he then rejoined our Company in January 2018.
Cynthia Croatti joined our Company in 1980. Ms. Croatti is an Executive Vice President and her primary focus is on
advancing key initiatives aimed at enhancing the Company’s culture, branding, and long-term strategy. During her tenure at
the Company, she previously had primary responsibility for overseeing the human resources and purchasing functions. Ms.
Croatti has served as a Director since 1995 and previously served as Treasurer beginning in 1982.
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David A. DiFillippo joined our Company in 1979. Mr. DiFillippo is a Senior Vice President, Operations and has had primary
responsibility for overseeing the operations of certain regions in the United States and Canada since 2002. From 2000
through 2002, Mr. DiFillippo served as Vice President, Central Rental Group and, prior to 2000, he served as a Regional
General Manager.
David M. Katz joined our Company in 2009. Mr. Katz is a Senior Vice President and has had primary responsibility for
overseeing the sales and marketing functions since joining our Company. Prior to joining our Company, Mr. Katz worked for
DHL Express where he served as the Northeast Vice President of Field Sales from 2003 to 2007, the Northeast Vice
President of National Account Sales from 2007 to 2008 and the Senior Vice President and General Manager of the Northeast
from 2008 until 2009.
Michael A. Croatti joined our Company in 1987. Mr. Croatti is a Senior Vice President, Operations and has had primary
responsibility for overseeing specified regions in the United States and the Company’s overall service operations since 2015.
From 2012 through 2015, he served as Senior Vice President, Service; from 2002 through 2012, he served as Vice President,
Central Rental Group; and prior to 2002, he held various operating positions within the Company. Michael A. Croatti is the
nephew of Cynthia Croatti.
William M. Ross joined our Company in 1989. Mr. Ross is a Senior Vice President, Operations and has had primary
responsibility for overseeing specified regions in the United States since 2016. From 2002 to 2016, Mr. Ross served as
Regional Vice President of the Company. Prior to 2002, Mr. Ross held several sales and operations management positions at
the Company.
ENVIRONMENTAL MATTERS
We, like our competitors, are subject to various federal, state and local laws and regulations governing, among other things,
air emissions, wastewater discharges, and the generation, handling, storage, transportation, treatment and disposal of
hazardous wastes and other substances. In particular, industrial laundries currently use and must dispose of detergent waste
water and other residues, and, in the past, used perchloroethylene and other dry cleaning solvents. We are attentive to the
environmental concerns surrounding the disposal of these materials and have through the years taken measures to avoid their
improper disposal. We have settled, or contributed to the settlement of, past actions or claims brought against us relating to
the disposal of hazardous materials at several sites and there can be no assurance that we will not have to expend material
amounts to remediate the consequences of any such disposal in the future. Further, under environmental laws, an owner or
lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on,
or in, or emanating from such property, as well as related costs of investigation and property damage. Such laws often impose
liability without regard to whether the owner or lessee knew of, or was responsible for the presence of such hazardous or
toxic substances. There can be no assurance 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 us under
such laws or expose us to third-party actions such as tort suits. We continue to address environmental conditions under terms
of consent orders negotiated with the applicable environmental authorities or otherwise with respect to certain sites. For
additional discussion refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
the risk factors set forth in this Annual Report on Form 10-K.
Our nuclear garment decontamination facilities in the United States 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. In the past, scrutiny and regulation of nuclear facilities and
related services have resulted in the suspension of operations at certain nuclear facilities served by us or disruptions in our
ability to service such facilities. There can be no assurance that such scrutiny and regulation will not lead to the shut-down of
such facilities or otherwise cause material disruptions in our garment decontamination business.
AVAILABLE INFORMATION
We make available free of charge our Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, including exhibits and any amendments to those reports, as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. These reports are
available on our website at www.unifirst.com. In addition, you may request a copy of our filings, excluding exhibits, by
contacting our Investor Relations group at (978) 658-8888 or at UniFirst Corporation, 68 Jonspin Road, Wilmington, MA
01887. Information included on our website is not deemed to be incorporated into this Annual Report on Form 10-K or the
documents incorporated by reference into this Annual Report on Form 10-K.
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ITEM 1A. RISK FACTORS
The statements in this section, as well as statements described elsewhere in this Annual Report on Form 10-K, or in other
SEC filings, describe risks that could materially and adversely affect our business, financial condition and results of
operations and the trading price of our securities. These risks are not the only risks that we face. Our business, financial
condition and results of operations could also be materially affected by additional factors that are not presently known to us
or that we currently consider to be immaterial to our operations.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K and any documents incorporated by reference may contain forward-looking statements
within the meaning of the federal securities laws. Forward-looking statements contained in this Annual Report on Form 10-K
and any documents incorporated by reference are subject to the safe harbor created by the Private Securities Litigation
Reform Act of 1995. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “projects,”
“plans,” “expects,” “intends,” “believes,” “seeks,” “could,” “should,” “may,” “will,” “strategy,” “objective,” “assume,”
“strive,” or the negative versions thereof, and similar expressions and by the context in which they are used. Such forward-
looking statements are based upon our current expectations and speak only as of the date made. Such statements are highly
dependent upon a variety of risks, uncertainties and other important factors that could cause actual results to differ materially
from those reflected in such forward-looking statements. Such factors include, but are not limited to, uncertainties caused by
adverse economic conditions, including, without limitation, as a result of extraordinary events or circumstances such as the
COVID-19 pandemic, and their impact on our customers’ businesses and workforce levels, disruptions of our business and
operations, including limitations on, or closures of, our facilities, or the business and operations of our customers or suppliers
in connection with extraordinary events or circumstances such as the COVID-19 pandemic, uncertainties regarding our
ability to consummate and successfully integrate acquired businesses, uncertainties regarding any existing or newly-
discovered expenses and liabilities related to environmental compliance and remediation, any adverse outcome of pending or
future contingencies or claims, our ability to compete successfully without any significant degradation in our margin rates,
seasonal and quarterly fluctuations in business levels, our ability to preserve positive labor relationships and avoid becoming
the target of corporate labor unionization campaigns that could disrupt our business, the effect of currency fluctuations on our
results of operations and financial condition, our dependence on third parties to supply us with raw materials, which such
supply could be severely disrupted as a result of extraordinary events or circumstances such as the COVID-19 pandemic, any
loss of key management or other personnel, increased costs as a result of any changes in federal or state laws, rules and
regulations or governmental interpretation of such laws, rules and regulations, uncertainties regarding the price levels of
natural gas, electricity, fuel and labor, the negative effect on our business from sharply depressed oil and natural gas prices,
including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, the
continuing increase in domestic healthcare costs, increased workers’ compensation claim costs, increased healthcare claim
costs, including as a result of extraordinary events or circumstances such as the COVID-19 pandemic, our ability to retain
and grow our customer base, demand and prices for our products and services, fluctuations in our Specialty Garments
business, political instability, supply chain disruption or infection among our employees in Mexico and Nicaragua where our
principal garment manufacturing plants are located, including, without limitation, as a result of extraordinary events or
circumstances such as the COVID-19 pandemic, our ability to properly and efficiently design, construct, implement and
operate a new customer relationship management (“CRM”) computer system, interruptions or failures of our information
technology systems, including as a result of cyber-attacks, additional professional and internal costs necessary for compliance
with any changes in Securities and Exchange Commission, New York Stock Exchange and accounting rules, strikes and
unemployment levels, our efforts to evaluate and potentially reduce internal costs, economic and other developments
associated with the war on terrorism and its impact on the economy, the impact of foreign trade policies and tariffs or other
impositions on imported goods on our business, results of operations and financial condition, general economic conditions,
our ability to successfully implement our business strategies and processes, including our capital allocation strategies and the
other factors described under “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K. We undertake no
obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they
are made.
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
We face intense competition within our industry, which may adversely affect our results of operations and financial
condition.
The uniform rental and sales industry is highly competitive. The principal methods of competition in the industry are quality
of products, quality of service and price. Our leading competitors include Cintas Corporation, Alsco and Aramark. The
remainder of the market, however, is divided among more than 600 smaller businesses, many of which serve one or a limited
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number of markets or geographic service areas. In addition to our traditional rental competitors, we may increasingly
compete in the future with businesses that focus on selling uniforms and other related items, including single-use disposable
garments for use in the nuclear industry. Increased competition may result in price reductions, reduced gross margins and loss
of market share, any of which could have a material effect on our results of operations and financial condition. We also
compete with industry competitors for acquisitions, which has the effect of increasing the price for acquisitions and reducing
the number of acquisition candidates available to us. If we pay higher prices for businesses we acquire, our returns on
investment and profitability may be reduced.
Adverse economic and business conditions or geopolitical events, including public health events such as the COVID-19
pandemic, may affect our customer base and negatively impact our sales and operating results.
We supply uniform services to many industries that have been in the past, and may be in the future, subject to adverse
economic and business conditions resulting in shifting employment levels, workforce reductions, changes in worker
productivity, uncertainty regarding the impacts of rehiring and shifts to offshore manufacturing. In addition, geopolitical
conflicts, calamities or other events may disrupt domestic and global business and financial markets and conditions. Any
conditions or events that adversely affect our current customers or sales prospects may cause such customers or prospects to
restrict expenditures, reduce workforces or even to cease to conduct their businesses. Any of these circumstances would have
the effect of reducing the number of employees utilizing our uniform services, which adversely affects our sales and results
of operations.
The expenses we incur to comply with environmental regulations, including costs associated with potential environmental
remediation, may prove to be significant and could have a material adverse effect on our results of operations and
financial condition.
We, like our competitors, are subject to various federal, state and local laws and regulations governing, among other things,
air emissions, wastewater discharges, and the generation, handling, storage, transportation, treatment and disposal of
hazardous wastes and other substances. In particular, industrial laundries currently use and must dispose of detergent waste
water and other residues, and, in the past, used perchloroethylene and other dry cleaning solvents. We are attentive to the
environmental concerns surrounding the disposal of these materials and have, through the years, taken measures to avoid
their improper disposal. Over the years, 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. Further, under environmental
laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic
substances located on, or in, or emanating from such property, as well as related costs of investigation and property damage.
Such laws often impose liability without regard to whether the owner or lessee knew of, or was responsible for, the presence
of such hazardous or toxic substances. There can be no assurance 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 us under such laws or expose us to third-party actions such as tort suits.
We continue to address environmental conditions under terms of consent orders negotiated with the applicable environmental
authorities or otherwise with respect to sites located in or related to certain sites.
We have accrued certain costs related to certain sites, including but not limited to, sites in Woburn and Somerville,
Massachusetts, as it has been determined that the costs are probable and can be reasonably estimated. We have 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. 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. 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. We have received demands from
the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station
in the area of the Somerville site. This station is part of an ongoing extension of the transit system. We have reserved for
costs in connection with this matter; however, in light of the uncertainties associated with this matter, these costs and the
related reserve may change.
6
On a quarterly basis, we assess each of our environmental sites to determine whether the costs of investigation and
remediation of environmental conditions are probable and can be reasonably estimated as well as the adequacy of our
accruals with respect to such costs. There can be no assurance that our accruals with respect to our environmental sites will
be sufficient or that the costs of remediation and investigation will not substantially exceed our accruals as new facts,
circumstances or estimates arise.
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. In the past, scrutiny and regulation of nuclear facilities and related services
have resulted in the suspension of operations at certain nuclear facilities served by us or disruptions in our ability to service
such facilities. There can be no assurance that such scrutiny and regulation will not lead to the shut-down of such facilities or
otherwise cause material disruptions in our garment decontamination business.
In addition, our nuclear garment decontamination operations are subject to asset retirement obligations related to the
decommissioning of our nuclear laundry facilities. We recognize as a liability the present value of the estimated future costs
to decommission these facilities. The estimated liability is based on historical experience in decommissioning nuclear laundry
facilities, estimated useful lives of the underlying assets, external vendor estimates as to the cost to decommission these
assets in the future, and federal and state regulatory requirements. No assurances can be given that these accruals will be
sufficient or that the costs of such decommissioning will not substantially exceed such accruals, as our facts, circumstances or
estimates change, including changes in the Company’s estimated useful lives of the underlying assets, estimated dates of
decommissioning, changes in decommissioning costs, changes in federal or state regulatory guidance on the
decommissioning of such facilities, or other changes in estimates.
In addition to contingencies and claims relating to environmental compliance matters, we may from time to time be
subject to legal proceedings and claims related to our business operations which may adversely affect our financial
condition and operating results.
In addition to contingencies and claims relating to environmental compliance matters, we are subject from time to time to
legal proceedings, claims and disputes arising from the conduct of our business operations, including personal injury claims,
customer contract matters and employment claims. Certain of these claims are typically not covered by our available
insurance. In addition, claims occasionally result in significant investigation and litigation expenses and, if successful, may
result in material losses to us. Certain claims may also result in significant adverse publicity against us. As a consequence,
successful claims against us not covered by our available insurance coverage, or the impact of adverse publicity against us,
could have a material adverse effect on our business, financial condition and results of operation.
Our failure to implement successfully our acquisition strategy and to grow our business, due to the COVID-19 pandemic
or otherwise, could adversely affect our ability to increase our revenues and could negatively impact our profitability.
As part of our growth strategy, we intend to continue to actively pursue additional acquisition opportunities. However, as
discussed above, we compete with others within our industry for suitable acquisition candidates. This competition may
increase the price for acquisitions and reduce the number of acquisition candidates available to us. As a result, our ability to
acquire businesses in the future, and to acquire such businesses on favorable terms, may be limited. Even if we are able to
acquire businesses on favorable terms, managing growth through acquisition is a difficult process that includes integration
and training of personnel, combining plant and operating procedures and additional matters related to the integration of
acquired businesses within our existing organization. Unanticipated issues related to integration may result in additional
expense or in disruption to our operations, either of which could negatively impact our ability to achieve anticipated benefits.
While we believe we will be able to fully integrate acquired businesses, we can give no assurance that we will be successful
in this regard.
Growth of our business will likely require us to increase our work force, the scope of our operating and financial systems and
the geographic area of our operations. We believe this growth will increase our operating complexity and the level of
responsibility for both existing and new management personnel. Managing and sustaining our growth and expansion may
require substantial enhancements to our operational and financial systems and controls, as well as additional administrative,
operational and financial resources. There can be no assurance that we will be able to manage our expanding operations
successfully, that any acquired business will perform as we expect, or that we will be able to maintain or accelerate our
growth, and any failure to do so could have an adverse effect on our results of operations and financial condition.
7
In order to finance such acquisitions, we may need to obtain additional funds either through public or private financings,
including bank and other secured and unsecured borrowings and the issuance of debt or equity securities. There can be no
assurance that such financings would be available to us on reasonable terms or that any future issuances of securities in
connection with acquisitions will not be dilutive to our shareholders.
If we are unable to preserve positive labor relationships or become the target of corporate labor unionization campaigns,
the resulting labor unrest could disrupt our business by impairing our ability to produce and deliver our products.
As of August 29, 2020, we employ approximately 14,000 persons and approximately 1% of our United States employees are
represented by a union pursuant to a collective bargaining agreement. Competitors within our industry have been the target of
corporate unionization campaigns by multiple labor unions. While our management believes that our employee relations are
good, we cannot assure you that we will not become the target of campaigns similar to those faced by our competitors. The
potential for unionization could increase if the United States Congress passes federal “card check” legislation in the future. If
we do encounter pressure from any labor unions in connection with our acquisitions of other businesses, any resulting labor
unrest could disrupt our business by impairing our ability to produce and deliver our products. In addition, significant union
representation would require us to negotiate wages, salaries, benefits and other terms with many of our employees
collectively and could adversely affect our results of operations by increasing our labor costs or otherwise restricting our
ability to maximize the efficiency of our operations.
We may incur unexpected cost increases due to rising healthcare costs, the Affordable Care Act and other labor costs.
The cost of healthcare that we provide to our employees has grown over the last few years at a rate in excess of our revenue
growth and, as a result, has negatively impacted our operating results. Moreover, it is generally expected that healthcare costs
in the United States will increase over the coming years at rates in excess of inflation. In addition, we may incur significant
healthcare costs if a significant number of our employees experience injury or illness, including in connection with public
health emergencies such as the COVID-19 pandemic. For example, 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 of these factors, and depending on
the effect of any modifications we have made and may make in the future to our employee healthcare plans and enrollment
levels in those plans, including as a result of the Affordable Care Act or any future legislation or regulation affecting the
healthcare industry, we expect that our future operating results will continue to be further adversely impacted by increasing
healthcare costs.
Federal, state and municipal governments are mandating increases to minimum wage and other employee benefits. In
addition, we face wage pressure as the result of a low unemployment environment. We have raised, and expect to continue to
raise, our wage rates and benefits to reflect these changes, which has the effect of increasing our labor costs, which in turn
adversely affects our results of operation and financial condition. Our failure to comply with these regulatory requirements
would expose us to applicable penalties and increase the likelihood that we would be subject to unionization campaigns.
Further mandates would require additional increases to our labor costs and adversely affect our operating margin.
Our failure to retain our current customers, renew our existing customer contracts and enter into customer contracts with
new customers could adversely affect our business, results of operations and financial condition.
Our success depends on our ability to retain our current customers, renew our existing customer contracts and obtain new
customers. Our ability to do so generally depends on a variety of factors, including the quality, price and responsiveness of
our services, as well as our ability to market these services effectively and to differentiate ourselves from our competitors. In
addition, renewal rates and our ability to obtain new customers are generally adversely affected by difficult economic and
business conditions. We cannot assure you that we will be able to obtain new customers, renew existing customer contracts at
the same or higher rates or that our current customers will not turn to competitors, cease operations or terminate contracts
with us. Our failure to renew a significant number of our existing contracts would have an adverse effect on our results of
operations and financial condition and failure to obtain new customers could have an adverse effect on our growth and results
of operations.
Increases in fuel and energy costs could adversely affect our operating costs.
The price of fuel and energy needed to run our vehicles and equipment is unpredictable and fluctuates based on events
outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of
the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, war and unrest in oil producing countries,
8
regional production patterns, limits on refining capacities, natural disasters, environmental concerns and public health
emergencies, including pandemics such as the COVID-19 pandemic. Any increase in fuel and energy costs could adversely
affect our operating costs.
As a result of our significant presence in energy producing regions, a prolonged drop in energy prices could negatively
impact our financial results.
We have a substantial number of plants and conduct a significant portion of our business in energy producing regions in the
U.S. and Canada. In general, we are relatively more dependent on business in these regions than are many of our competitors.
For example, the dramatic decrease in oil prices beginning in 2014 directly affected our customers in the oil industry as they
curtailed their level of operations, which had a corresponding effect on our customers in businesses which service or supply
the oil industry as well as our customers in unrelated businesses located in areas which had benefited from the economic
expansion generated by the robust growth driven by the higher oil prices in prior years. As a result, our organic growth in
periods following that dramatic decrease in oil prices was negatively impacted by elevated headcount reductions in our
wearer base as well as increased lost accounts. 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. 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. While it is difficult to quantify the positive and negative impacts on our future financial results from changes in
energy prices, in general, we believe that significant decreases in oil and natural gas prices would have an overall negative
impact on our results due to cutbacks by our customers both in, and dependent upon, the oil and natural gas industries, which
would outweigh the benefits in our operating costs from lower energy costs.
Fluctuations in the nuclear portion of our Specialty Garments segment, including the loss of key customers or a
significant reduction in our business derived from key customers, could disproportionately impact our revenue and net
income and create volatility in the price of our Common Stock.
Our nuclear decontamination business is affected by shut-downs, outages and clean-ups of the nuclear facilities we service.
We are not able to control or predict with certainty when such shut-downs, outages and clean-ups will occur. In addition, our
nuclear decontamination business tends to generate more revenue in the first and third fiscal quarters, which is when nuclear
power plants typically schedule their plant outages and refuelings and thereby increase nuclear garment utilization. Moreover,
a significant percentage of this segment’s revenues are generated from a limited number of nuclear power plant operator
customers. This concentration subjects this business to significant risks and may result in greater volatility in this segment’s
results of operations. Fluctuations in our nuclear decontamination business, including the loss of key customers of our
Specialty Garments business, or a significant reduction in our business derived from such key customers, could materially
adversely affect our results of operations and financial condition.
Our international business results are influenced by currency fluctuations and other risks that could have an adverse
effect on our results of operations and financial condition.
A portion of our sales is derived from international markets. Revenue denominated in currencies other than the U.S. dollar
represented approximately 6.9%, 7.0% and 8.1% of total consolidated revenues for fiscal 2020, the fiscal year ended
August 31, 2019 (“fiscal 2019”) and the fiscal year ended August 25, 2018 (“fiscal 2018”), respectively. The operating
results of our international subsidiaries are translated into U.S. dollars and such results are affected by movements in foreign
currencies relative to the U.S. dollar. The strength of the U.S. dollar has generally increased recently as compared to other
currencies, which has had, and may continue to have, an adverse effect on our operating results as reported in U.S. dollars. 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. Our international
operations are also subject to other risks, including the requirement to comply with changing and conflicting national and
local regulatory requirements; potential difficulties in staffing and labor disputes; managing and obtaining support and
distribution for local operations; credit risk or financial condition of local customers; potential imposition of restrictions on
investments; potentially adverse tax consequences, including imposition or increase of withholding and other taxes on
remittances and other payments by subsidiaries; foreign exchange controls; and local political and social conditions. In
addition, U.S. and foreign trade policies and tariffs and other impositions on imported goods may have a negative impact on
our business. There can be no assurance that the foregoing factors will not have an adverse effect on our international
operations or on our consolidated financial condition and results of operations.
9
We own and operate manufacturing facilities in Mexico. Violence, crime and instability in Mexico has had, and may
continue to have, an adverse effect on our operations, including the hijacking of our trucks and the implementation of
security measures to protect our employees. We are not insured against such criminal attacks and there can be no assurance
that losses that could result from an attack on our trucks or our personnel would not have a material adverse effect on our
business, results of operations and financial condition. Operations in developing nations present several additional risks,
including greater fluctuation in currencies relative to the U.S. dollar, economic and governmental instability, civil
disturbances, volatility in gross domestic production, Foreign Corrupt Practice Act compliance issues and nationalization and
expropriation of private assets, which could have a material adverse effect on our business, results of operations and financial
condition.
Adverse global financial and economic conditions may result in impairment of our goodwill and intangibles.
Our market capitalization, from time to time, has experienced volatility due in part to turbulent economic conditions and
disruption in the global equity and credit markets. Under accounting principles generally accepted in the United States (“U.S.
GAAP”), we may be required to record an impairment charge if changes in circumstances or events indicate that the carrying
values of our goodwill and intangible assets exceed their fair value and are not recoverable. Any significant and other-than-
temporary decrease in our market capitalization could be an indicator, when considered together with other factors, that the
carrying values of our goodwill and intangible assets exceed their fair value, which may result in our recording an
impairment charge. We are unable to predict economic trends, but we continue to monitor the impact of changes in economic
and financial conditions, including as a result of the COVID-19 pandemic, on our operations and on the carrying value of our
goodwill and intangible assets. Should the value of our acquired goodwill or one or more of our acquired intangibles become
impaired, our consolidated earnings and net worth may be materially adversely affected.
Our failure to properly and efficiently design, construct, implement and operate a new customer relationship management
(CRM) computer system could materially disrupt our operations, adversely impact the servicing of our customers and
have a material adverse effect on our financial performance.
In the fourth quarter of fiscal 2018, we initiated a multiyear CRM project to further develop, implement and deploy a third-
party application we licensed. This new solution is intended to improve functionality, capability and information flow as well
as increase automation in servicing our customers. The new system is also intended to improve functionality and information
flow and increase automation in servicing our customers.
Our previous CRM systems project, which we terminated in 2018, did not result in the successful implementation of a CRM
system. The failure to properly, efficiently and economically complete and operate a new system on a timely basis or at all
could materially disrupt our operations, adversely impact the servicing of our customers and have a material adverse effect on
our financial results.
If our information technology systems suffer interruptions or failures, including as a result of cyber-attacks, our business
operations could be disrupted or other material adverse impacts on our business could result.
Our information technology systems serve an important role in the efficient operation of our business. The failure of these
information technology systems to perform as we anticipate could disrupt our business and negatively impact our results of
operations. In addition, our information technology systems could be damaged or cease to function properly due to any
number of causes, such as catastrophic events, power outages, security breaches, computer viruses or cyber-based attacks.
While we have contingency plans in place to prevent or mitigate the impact of these events, if such events were to occur and
our disaster recovery plans do not effectively address the issues on a timely basis, we could suffer interruptions in our ability
to manage our operations and service our customers, and we may be required to make a significant investment to fix or
replace our information technology systems, each of which may have a material adverse effect on our business and financial
results. In addition, if customer, employee or our proprietary information is compromised by a security breach or cyber-
attack, it could have a material adverse effect on our business, including as a result of remedial actions that we may be
required to take, potential liabilities and penalties, loss of business and reputational damage. Our failure to properly respond
to any such event could also result in exposure to liability. We are subject to numerous laws and regulations in the United
States and internationally designed to protect the information of clients, customers, employees, and other third parties that we
collect and maintain. These laws and regulations are increasing in complexity and number. If we fail to comply with such
laws or regulations, we may be subject to litigation, monetary damages, enforcement actions or fines in one or more
jurisdictions, which could have an adverse effect on our business.
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Failure to comply with state and federal regulations to which we are subject may result in penalties or costs that could
have a material adverse effect on our business.
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, data protection requirements and other laws and regulations. We have incurred, and will continue to incur, capital
and operating expenditures and other costs in the ordinary course of our business in complying with the laws and regulations
to which we are subject. Any appreciable increase in the statutory minimum wage rate, income or overtime pay, costs of
complying with healthcare insurance mandates, changes in the requirements under the Occupational Safety and Health Act of
1970, as amended, changes in environmental compliance requirements, or changes to immigration laws and citizenship
requirements would likely result in an increase in our labor costs and/or contribute to a shortage of available labor and such
cost increase or labor shortage, or the penalties for failing to comply with such statutory minimums or regulations, could have
an adverse effect on our business, liquidity and results of operations. The impact of any new laws and regulations cannot be
predicted. Any failure to comply with applicable laws and regulations could result in substantial fines by government
authorities, payment of damages to private litigants or possible revocation of our authority to conduct our operations, which
could adversely affect our ability to service customers and our results of operations.
Our business may be subject to seasonal and quarterly fluctuations.
Historically, our revenues and operating results have varied from quarter to quarter and are expected to continue to fluctuate
in the future. In addition, our operating results historically have been seasonally lower during the second and fourth fiscal
quarters than during the other quarters of the fiscal year. We incur various costs in integrating or establishing newly acquired
businesses or start-up operations, and the profitability of a new location is generally expected to be lower in the initial period
of its operation than in subsequent periods. Start-up operations in particular lack the support of an existing customer base and
require a significantly longer period to develop sales opportunities and meet targeted operating results.
These factors, among others, may cause our results of operations in some future quarters to be below the expectations of
securities analysts and investors, which could have an adverse effect on the market price of our Common Stock.
Loss of our key management or other personnel could adversely impact our business.
Our success is largely dependent on the skills, experience and efforts of our senior management, including our President and
Chief Executive Officer, and certain other key personnel. If, for any reason, one or more senior executives or key personnel
were not to remain active in our Company, our results of operations could be adversely affected. Our future success also
depends upon our ability to attract and retain key employees. There is competition in the market for the services of such
qualified personnel and hourly workers and our failure to attract and retain such personnel or workers could adversely affect
our results of operations.
We depend on third parties to supply us with raw materials and our results of operations could be adversely affected if we
are unable to obtain adequate raw materials in a timely manner.
We manufactured approximately 66% of all garments which we placed in service during fiscal 2020. These were primarily
work pants and shirts manufactured at three of our plants located in San Luis Potosi, Mexico, one plant located in Managua,
Nicaragua, as well as at subcontract manufacturers that we utilize to supplement our manufacturing capacity in periods of
high demand. The balance of the garments used in our programs are purchased from a variety of industry suppliers. While we
currently acquire the raw materials with which we produce our garments from a limited number of suppliers, we believe that
such materials are readily available from other sources. To date, we have experienced no significant difficulty in obtaining
any of our raw materials or supplies. However, if we were to experience difficulty obtaining any of our raw materials from
such suppliers and were unable to obtain new materials or supplies from other industry suppliers, or if the cost of obtaining
such materials or supplies were to increase, it could adversely affect our results of operations.
Unexpected events could disrupt our operations and adversely affect our operating results.
Unexpected events, including, without limitation, fires at facilities, natural disasters, such as hurricanes, earthquakes and
tornados, public health emergencies, war or terrorist activities, unplanned utility outages, pandemics such as the COVID-19
pandemic, supply disruptions, failure of equipment or information systems, temporary or long-term disruption of our
computer systems, or changes in laws and/or regulations impacting our business, could adversely affect our operating results.
These events could result in disruption of customer service, physical damage to one or more key operating facilities, the
temporary closure of one or more key operating facilities or the temporary disruption of information systems. In addition, the
destruction or temporary loss of our distribution facility in Owensboro, Kentucky would have a material adverse effect on our
operations and financial results.
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The COVID-19 pandemic and resulting material adverse economic conditions have had, and may continue to have, a
significant adverse impact on our business and could have a more material adverse impact on our business, financial
condition and results of operations.
An outbreak of a novel strain of coronavirus (COVID-19) has occurred in a number of countries, including the United States,
Canada, Mexico, Nicaragua and the European countries in which we operate. 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 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 continue to increase, including
our costs to address the health and safety of personnel, our ability to obtain products or services from suppliers may continue
to 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. The COVID-19 pandemic has also resulted in severe
disruption and volatility in the financial markets, and the market price of our Common Stock on the New York Stock
Exchange (“NYSE”) has, at times, declined dramatically. Depending on the extent and duration of the COVID-19 pandemic,
the price of our Common Stock on the NYSE may continue to experience volatility and declines.
Changes in or new interpretations of the governmental regulatory framework may affect our contract terms and may
reduce our sales or profits.
A portion of our total consolidated revenues is derived from business with U.S. federal, state and local governments and
agencies. Changes or new interpretations in, or changes in the enforcement of, the statutory or regulatory framework
applicable to services provided under governmental contracts or bidding procedures could result in fewer new contracts or
contract renewals, modifications to the methods we apply to price government contracts or in contract terms of shorter
duration than we have historically experienced, any of which could result in lower sales or profits than we have historically
achieved, which could have an adverse effect on our results of operations.
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The price of our Common Stock may be highly volatile, which could result in significant price declines.
The price of our Common Stock may experience significant volatility. Such volatility may be caused by fluctuations in our
operating results, changes in earnings estimated by investment analysts, the number of shares of our Common Stock traded
each day, the degree of success we achieve in implementing our business and growth strategies, changes in business or
regulatory conditions affecting us, our customers or our competitors and other factors. In addition, the New York Stock
Exchange historically has experienced extreme price and volume fluctuations that often have been unrelated to, or
disproportionate to, the operating performance of its listed companies. These fluctuations, as well as general economic,
political and market conditions, may adversely affect the market price of our Common Stock.
We are controlled by our principal shareholders, and our other shareholders may be unable to affect the outcome of
shareholder voting.
As of October 22, 2020, to the Company’s knowledge, the members of the Croatti family owned, directly or indirectly, in the
aggregate approximately 145,452 shares of our Common Stock and approximately 3,634,009 shares of our Class B Common
Stock, which represents approximately 20.0% of the aggregate number of outstanding shares of our Common Stock and
Class B Common Stock, but approximately 70.8% of the combined voting power of the outstanding shares of our Common
Stock and Class B Common Stock. As a result, the members of the Croatti family, acting with other family members, could
effectively control most matters requiring approval by our shareholders, including the election of a majority of the directors.
While historically the members of the Croatti family have individually voted their respective shares of Class B Common
Stock in the same manner, there is no contractual understanding requiring this and there is no assurance that the family
members will continue to individually vote their shares of Class B Common Stock in the same manner. This voting control
by the members of the Croatti family, together with certain provisions of our by-laws and articles of organization, could have
the effect of delaying, deferring or preventing a change in control of our Company that would otherwise be beneficial to our
public shareholders.
Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal
controls over financial reporting.
The design and effectiveness of our disclosure controls and procedures and internal controls over financial reporting may not
prevent all errors, misstatements or misrepresentations. While management will continue to review the effectiveness of our
disclosure controls and procedures and internal controls over financial reporting, there can be no guarantee that our internal
controls over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies,
including any material weakness, in our internal controls over financial reporting which may occur in the future could result
in misstatements of our results of operations, restatements of our financial statements, a decline in our stock price, or
otherwise materially adversely affect our business, reputation, results of operations, financial condition or liquidity.
If we are unable to accurately predict our future tax liabilities or become subject to increased levels of taxation or our tax
contingencies are unfavorably resolved, our results of operations and financial condition could be adversely affected.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the
legislative process and by the Internal Revenue Service (“IRS”) and the U.S. Treasury Department. Changes to tax laws
(which changes may have retroactive application) could adversely affect us or holders of our Common Stock. For example,
tax legislation commonly known as the “Tax Cuts and Jobs Act” (the “TCJA”), signed into law on December 22, 2017, made
significant changes to U.S. federal income tax laws, including a reduction of the corporate income tax rate from a top
marginal rate of 35% to a flat rate of 21%. Certain provisions of the TCJA include, without limitation, new taxes on certain
foreign sourced earnings and limitations on the deductibility of interest expense and executive compensation. The TCJA also
imposed new limitations on the deduction of net operating losses and modified or repealed other business deductions and
credits. Additionally, on March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic
Security Act (the “CARES Act”), which, among other things, suspends the limitation on the deduction for net operating
losses in taxable years beginning before January 1, 2021, permits a 5-year carryback of net operating losses arising in taxable
years beginning after December 31, 2017 and before January 1, 2021, and generally amends the TCJA by capping the
limitation on the deduction for net interest expense at 50% (as opposed to 30%) of adjusted taxable income for taxable years
beginning in 2019 and 2020. We cannot predict when or to what extent any U.S. federal tax laws, regulations, interpretations,
or rulings clarifying the TCJA or the CARES Act will be issued or the impact of any such guidance on the Company. Any
such tax laws, regulations, interpretations, or rulings could have an adverse effect on our financial condition and results of
operations. Certain key provisions of the TCJA that could impact us include, but are not limited to, international tax
provisions that affect the overall tax rate applicable to income earned from non-U.S. operations and limitations on the
deductibility of executive compensation. Other changes in tax laws or regulations in the jurisdictions in which we do
13
business, including the United States or various states, could further increase our effective tax rate or impose new restrictions,
costs or prohibitions on our current practices, reduce our net income and adversely affect our cash flows. During the second
quarter of fiscal 2019, the Company completed its accounting for the tax effects of enactment of the TCJA as required by the
SEC’s Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”).
There were no changes from the provisional calculation as recorded through August 25, 2018 to the final calculation.
In addition, we are also subject to tax audits in the United States and other jurisdictions in which we do business, including,
but not limited to, various states, as well as Canada and the Canadian provinces of Alberta, British Columbia, Ontario,
Saskatchewan, Quebec and New Brunswick. These audits can be complicated and can require several years to resolve. The
final resolution of any such tax audit could result in an increase in our income tax liabilities. Although we believe that our
current tax provisions are reasonable and appropriate, there can be no assurance that these items will be settled for the
amounts accrued, that additional tax exposures will not be identified in the future or that additional tax reserves will not be
necessary for any such exposures. Any increase in the amount of taxes we owe as a result of challenges to our tax filing
positions could result in a material adverse effect on our business, results of operations and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of August 29, 2020, we owned or leased approximately 270 facilities containing an aggregate of approximately
7.9 million square feet located in the United States, Canada, Mexico, Europe and Nicaragua. We owned 132 of these
facilities, containing approximately 5.8 million square feet. These facilities include our 347,500 square foot Owensboro,
Kentucky distribution center and almost all of our industrial laundry processing plants. We believe our industrial laundry
facilities are among the most modern in the industry.
We own substantially all of the machinery and equipment used in our operations. We believe that our facilities and our
production, cleaning and decontamination equipment have been well maintained and are adequate for our present needs. We
also own a fleet of approximately 4,200 delivery vans, trucks and other vehicles.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are subject to legal proceedings and claims arising from the current conduct of our business
operations, including personal injury, customer contract, employment claims and environmental matters as described in our
Consolidated Financial Statements. We maintain insurance coverage providing indemnification against many of such claims,
and we do not expect that we will sustain any material loss as a result thereof.
In addition, we, like our competitors, are subject to various federal, state and local laws and regulations governing, among
other things, air emissions, wastewater discharges, and the generation, handling, storage, transportation, treatment and
disposal of hazardous wastes and other substances. In particular, industrial laundries currently use and must dispose of
detergent waste water and other residues, and, in the past, used perchloroethylene and other dry cleaning solvents. We 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. Further, under environmental laws, an owner or lessee of real estate may be
liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in or emanating from
such property, as well as related costs of investigation and property damage. Such laws often impose liability without regard
to whether the owner or lessee knew of, or was responsible for, the presence of such hazardous or toxic substances. There can
be no assurance 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 us under such laws or expose us to third-
party actions such as tort suits. Refer to Note 11, “Commitments and Contingencies”, of our Consolidated Financial
Statements for further discussion.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
14
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
COMMON STOCK INFORMATION
Our Common Stock trades on the New York Stock Exchange under the symbol “UNF”, while our Class B Common Stock is
not publicly traded.
The approximate number of shareholders of record of our Common Stock and Class B Common Stock as of October 22,
2020 was 52 and 33, respectively. We believe that the number of beneficial owners of our Common Stock is substantially
greater than the number of record holders because a large portion of our Common Stock is held of record in broker “street
names”.
The following table sets forth information concerning our equity compensation plans as of August 29, 2020:
Plan category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
Equity Compensation Plan Information
Number of securities
to be issued upon
exercise of
outstanding
options, warrants
and rights (1)
(a)
Weighted average
exercise price
of outstanding
options, warrants
and rights (2)
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
referenced in
column (a))
(c)
552,853 $
132.14
311,055
—
552,853 $
N/A
132.14
—
311,055
Includes shares of Common Stock issuable upon vesting of restricted stock units.
(1)
(2) Restricted stock units are not included in the weighted-average exercise price calculation because there is no exercise
price associated with restricted stock units.
15
Stock Performance Graph
The graph below compares the cumulative five-year total return on UniFirst Corporation's Common Stock with the Russell
2000 Index and a customized peer group of three companies that includes: Aramark, Cintas Corporation and Rollins, Inc.
The graph assumes an investment of $100 in each of UniFirst Corporation’s Common Stock, the Russell 2000 Index, and the
performance through August 31, 2020, assuming the reinvestment of dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among UniFirst Corporation, the Russell 2000 Index,
and a Peer Group
$300
$250
$200
$150
$100
$50
$0
8/15
8/16
8/17
8/18
8/19
8/20
UniFirst Corporation
Russell 2000
Peer Group
*$100 invested on 8/31/15 in stock or index, including reinvestment of dividends.
Fiscal year ending August 31.
Copyright© 2020 Russell Investment Group. All rights reserved.
16
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements
and Notes to Consolidated Financial Statements included in Item 8.
The selected consolidated balance sheet data set forth below as of August 29, 2020 and August 31, 2019 and the selected
consolidated income statement data for each of the three years in the period ended August 29, 2020 are derived from our
audited Consolidated Financial Statements included in this Annual Report on Form 10-K. All other selected consolidated
financial data set forth below are derived from our audited financial statements not included in this Annual Report on Form
10-K. Current accounting guidance requires the income per share for each class of common stock to be calculated assuming
100% of our earnings are distributed as dividends to each class of common stock based on their respective dividend rights.
Our Common Stock has a 25% dividend preference to our Class B Common Stock. The Class B Common Stock, which has
ten votes per share as opposed to one vote per share for the Common Stock, is not freely transferable but may be converted at
any time on a one-for-one basis into Common Stock at the option of the holder of the Class B Common Stock.
Fiscal Year Ended August
(In thousands, except per share data)
Selected Balance Sheet Data:
Total assets
Notes payable and long-term debt
Shareholders’ equity
Selected Income Statement Data:
Revenues
Depreciation and amortization
Operating income
Other income, net
Provision for income taxes
Net income
Income per share:
Basic—Common stock
Basic—Class B Common Stock
Diluted—Common stock
Dividends per share:
Common stock
Class B Common Stock
Five Year Financial Summary
UniFirst Corporation and Subsidiaries
2020 (1)
2019 (2)
2018 (3)
2017 (4)
2016 (5)
$ 2,199,027 $ 2,047,320 $ 1,843,386 $ 1,819,128 $ 1,702,007
—
$
$ 1,741,129 $ 1,641,230 $ 1,464,967 $ 1,453,192 $ 1,364,781
— $
— $
— $
— $
$ 1,804,159 $ 1,809,376 $ 1,696,489 $ 1,590,958 $ 1,468,046
$ 104,697 $ 103,333 $
81,612
$ 172,729 $ 232,008 $ 182,376 $ 110,283 $ 201,160
(2,211 )
(4,870 ) $
$
(4,840 ) $
44,927 $
$
78,345
23,351 $
70,196 $ 125,026
$ 135,770 $ 179,134 $ 163,895 $
(5,916 ) $
58,790 $
(5,159 ) $
42,118 $
88,879 $
96,662 $
$
$
$
$
$
7.46 $
5.97 $
7.13 $
9.77 $
7.81 $
9.33 $
8.66 $
6.91 $
8.21 $
3.63 $
2.91 $
3.44 $
1.00 $
0.80 $
0.45 $
0.36 $
0.30 $
0.24 $
0.15 $
0.12 $
6.51
5.21
6.17
0.15
0.12
(1) During fiscal 2020, we purchased 0.1 million shares pursuant to a share repurchase program authorized by our Board of
Directors. This did not benefit our earnings per share during fiscal 2020.
(2) During fiscal 2019, we purchased 0.2 million shares pursuant to a share repurchase program authorized by our Board of
Directors. This benefitted the Company’s diluted income per share by $0.05 in fiscal 2019.
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 a CRM system that was being developed would be completed and placed into service. During
fiscal 2020, we entered into a settlement agreement with our lead contractor for the version of the CRM system with
respect to which we recorded the impairment charge. As part of the settlement agreement, we recorded a total gain of
$21.1 million as a reduction of selling and administrative expenses, which includes our 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. We also
received hardware and related maintenance service with a fair value of $0.8 million as part of the settlement. This gain,
net of tax, benefitted our diluted income per share by $0.81 in fiscal 2020.
17
(3) Our fiscal 2018 results include the impact of the Tax Cuts and Jobs Act enacted on December 22, 2017, which resulted
in a benefit to our provision for income taxes of $20.1 million ($1.01 per diluted share) from the remeasurement of
deferred tax balances and the one-time transition tax. Our fiscal 2018 results also included a $7.2 million pre-tax one-
time cash bonus to our employees to share with them the benefits received from recent U.S. tax reform. Such bonus
expense, net of tax, reduced our diluted earnings per share by $0.25 in fiscal 2018.
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, which benefited our diluted income per share by $0.20 in fiscal 2018.
(4) Our fiscal 2017 results included an impairment charge of capitalized costs as part of our ongoing CRM systems project
totaling $55.8 million before tax. This loss, net of tax reduced our diluted earnings per share by $1.68 in fiscal 2017.
Our fiscal 2017 results also include a $5.4 million pre-tax compensation expense as a result of the accelerated vesting
of certain shares of restricted stock upon the death of our former Chief Executive Officer, Ronald Croatti, during the
third quarter of fiscal 2017. This expense, net of tax, reduced our diluted earnings per share by $0.16.
(5)
In the fourth fiscal quarter of 2016, operating results benefited from a settlement of environmental litigation that
resulted in the Company recording a $15.9 million pre-tax gain. This gain, net of tax, increased our diluted earnings per
share by $0.48.
Our fiscal year ends on the last Saturday in August. For financial reporting purposes, fiscal 2019 consisted of 53 weeks and
fiscal 2020, 2018, 2017 and 2016 consisted of 52 weeks each.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Business Overview
UniFirst Corporation, together with its subsidiaries, hereunder referred to as “we”, “our”, the “Company”, or “UniFirst”, is
one of the largest providers of workplace uniforms and protective work wear clothing in the United States. We design,
manufacture, personalize, rent, clean, deliver, and sell a wide range of uniforms and protective clothing, including shirts,
pants, jackets, coveralls, lab coats, smocks, aprons and specialized protective wear, such as flame resistant and high visibility
garments. We also rent and sell industrial wiping products, floor mats, facility service products and other non-garment items,
and provide restroom and cleaning supplies and first aid cabinet services and other safety supplies as well as provide certain
safety training, to a variety of manufacturers, retailers and service companies.
We serve businesses of all sizes in numerous industry categories. Typical customers include automobile service centers and
dealers, delivery services, food and general merchandise retailers, food processors and service operations, light
manufacturers, maintenance facilities, restaurants, service companies, soft and durable goods wholesalers, transportation
companies, healthcare providers, and others who require employee clothing for image, identification, protection or utility
purposes. We also provide our customers with restroom and cleaning supplies, including air fresheners, paper products,
gloves, masks, hand soaps and sanitizers.
At certain specialized facilities, we also decontaminate and clean work clothes and other items that may have been exposed to
radioactive materials and service special cleanroom protective wear and facilities. Typical customers for these specialized
services include government agencies, research and development laboratories, high technology companies and utilities
operating nuclear reactors.
Headquartered in Wilmington, Massachusetts, 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. U.S. GAAP establishes standards for reporting information regarding operating segments in annual
financial statements and requires selected information of those segments to be presented in interim financial reports issued to
shareholders. Operating segments are identified as components of an enterprise for which separate discrete financial
information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions
on how to allocate resources and assess performance. Our chief operating decision-maker is our Chief Executive Officer. We
have six operating segments based on the information reviewed by our Chief Executive Officer: U.S. Rental and Cleaning,
Canadian Rental and Cleaning, Manufacturing (“MFG”), Specialty Garments Rental and Cleaning (“Specialty Garments”),
First Aid and Corporate. The U.S. Rental and Cleaning and Canadian Rental and Cleaning operating segments have been
combined to form the U.S. and Canadian Rental and Cleaning reporting segment. Refer to Note 15, “Segment Reporting”, of
our Consolidated Financial Statements for our disclosure of segment information.
The U.S. and Canadian Rental and Cleaning reporting segment purchases, rents, cleans, delivers and sells, uniforms and
protective clothing and non-garment items in the United States and Canada. The operations of the U.S. and Canadian Rental
and Cleaning reporting segment are referred to by us as our ‘industrial laundry operations’ and we refer to the locations
related to this reporting segment as our ‘industrial laundries’.
The MFG operating segment designs and manufactures uniforms and non-garment items primarily for the purpose of
providing these goods to the U.S. and Canadian Rental and Cleaning reporting segment. The amounts reflected as revenues
of MFG are primarily generated when goods are shipped from our manufacturing facilities, or subcontract manufacturers, to
our other locations. These intercompany revenues are recorded at a transfer price which is typically in excess of the actual
manufacturing cost. Products are carried in inventory and subsequently placed in service and amortized at this transfer price.
On a consolidated basis, intercompany MFG revenues and MFG income are eliminated and the carrying value of inventories
and rental merchandise in service is reduced to the manufacturing cost. Income before income taxes from MFG, net of the
intercompany MFG elimination, offsets the merchandise amortization costs incurred by the U.S. and Canadian Rental and
Cleaning reporting segment as the merchandise costs of this reporting segment are amortized and recognized based on
inventories purchased from MFG at the transfer price which is above our manufacturing cost.
The Corporate operating segment consists of costs associated with our distribution center, sales and marketing, information
systems, engineering, materials management, manufacturing planning, finance, budgeting, human resources, other general
19
and administrative costs and interest expense. The revenues generated from the Corporate operating segment represent
certain direct sales made directly from our distribution center. The products sold by this operating segment are the same
products rented and sold by the U.S. and Canadian Rental and Cleaning reporting segment. In the segment disclosures in
Note 15, “Segment Reporting”, of our Consolidated Financial Statements, no assets or capital expenditures are presented for
the Corporate operating segment as no assets are allocated to this operating segment in the information reviewed by our chief
executive officer. However, depreciation and amortization expense related to certain assets are reflected in income from
operations and income before income taxes for the Corporate operating segment. The assets that give rise to this depreciation
and amortization are included in the total assets of the U.S. and Canadian Rental and Cleaning reporting segment as this is
how they are tracked and reviewed by us.
We refer to our U.S. and Canadian Rental and Cleaning, MFG, and Corporate segments combined as our “Core Laundry
Operations”.
The Specialty Garments operating segment purchases, rents, cleans, delivers and sells, specialty garments and non-garment
items primarily for nuclear and cleanroom applications and provides cleanroom cleaning services at limited customer
locations. The First Aid operating segment sells first aid cabinet services and other safety supplies as well as maintains
wholesale distribution and pill packaging operations.
Approximately 89% of our revenues in fiscal 2020 were derived from U.S. and Canadian Rental and Cleaning and Corporate.
A key driver of this business is the number of workers employed by our customers. Our revenues are directly impacted by
fluctuations in these employment levels. Revenues from Specialty Garments, which accounted for approximately 7% 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.
Critical Accounting Policies and Estimates
We believe the following critical accounting policies reflect our more significant judgments and estimates used in the
preparation of our Consolidated Financial Statements.
Use of Estimates
We prepare our financial statements in conformity with U.S. GAAP, which requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and accompanying notes. We utilize key estimates in
preparing the financial statements, including casualty and environmental estimates, recoverability of goodwill, intangibles,
income taxes and long-lived assets. These estimates are based on historical information, current trends, and information
available from other sources. Our results are affected by economic, political, legislative, regulatory and legal actions.
Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies,
government policies surrounding the containment of COVID-19 and changes in the prices of raw materials, can have a
significant effect on operations. These factors and other events could cause actual results to differ from management's
estimates.
Revenue Recognition and Allowance for Doubtful Accounts
We recognize revenue from rental operations and related services in the period in which the services are provided. Direct sale
revenue is recognized in the period in which the services are performed or when the product is shipped. Our judgment and
estimates are used in determining the collectability of accounts receivable and evaluating the adequacy of the allowance for
doubtful accounts as well as our sales credits reserve. We consider specific accounts receivable and historical bad debt
experience, customer credit worthiness, current economic trends and the age of outstanding balances as part of our evaluation
in assessing the allowance for doubtful accounts. We consider our historical credit experience in assessing the sales credits
reserve. Changes in our estimates are reflected in the period they become known. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Material changes in our estimates may result in significant differences in the amount and timing of bad debt expense
recognition for any given period. Our revenues do not include taxes we collect from our customers and remit to governmental
authorities.
Costs to Obtain a Contract
We defer commission expenses paid to employee-partners when the commissions are deemed to be incremental for obtaining
the route servicing customer contract. The deferred commissions are amortized on a straight-line basis over the expected
period of benefit, which is generally the estimated life of the customer relationship. We review the deferred commission
20
balances for impairment on an ongoing basis. Deferred commissions are classified as current or noncurrent based on the
timing of when we expect to recognize the expense. The current portion is included in prepaid expenses and other current
assets and the non-current portion is included in other assets on our consolidated balance sheets. As of August 29, 2020, the
current and non-current assets related to deferred commissions totaled $13.3 million and $55.6 million, respectively. As of
August 31, 2019, the current and non-current assets related to deferred commissions totaled $12.4 million and $50.3 million,
respectively. During fiscal 2020 and 2019, we recorded $13.7 million and $11.8 million, respectively, of amortization
expense related to deferred commissions. This expense is classified in selling and administrative expenses on the
consolidated statements of income.
Inventories and Rental Merchandise in Service
Our inventories are stated at the lower of cost or net realizable value, net of any reserve for excess and obsolete inventory.
Judgments and estimates are used in determining the likelihood that new goods on hand can be sold to our customers or used
in our rental operations. Historical inventory usage and current revenue trends are considered in estimating both excess and
obsolete inventories. If actual product demand and market conditions are less favorable than the amount we projected,
additional inventory write-downs may be required. We use the first-in, first-out method to value our inventories, which
primarily consist of finished goods. Rental merchandise in service is being amortized on a straight-line basis over the
estimated service lives of the merchandise, which range from six to thirty-six months. In establishing estimated lives for
merchandise in service, our management considers historical experience and the intended use of the merchandise. Material
differences may result in the amount and timing of operating profit for any period if we make significant changes to our
estimates.
Goodwill, Intangibles and Other Long-Lived Assets
In accordance with U.S. GAAP, we do not amortize goodwill. Instead, we test goodwill at the reporting unit level for
impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that
the fair value of a reporting unit is less than its carrying value. Our evaluation considers changes in the operating
environment, competitive information, market trends, operating performance and cash flow modeling.
We completed our annual goodwill impairment test as of the first day of the fourth quarter in fiscal 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 cannot predict future economic conditions and their impact on the Company or the future net realizable value of our
stock. A decline in our market capitalization and/or deterioration in general economic conditions could negatively and
materially impact our assumptions and assessment of the fair value of our business. If general economic conditions or our
financial performance deteriorate, we may be required to record a goodwill impairment charge in the future which could have
a material impact on our financial condition and results of operations.
Property, plant and equipment, and definite-lived intangible assets are depreciated or amortized over their useful lives. Useful
lives are based on our estimates of the period that the assets will generate economic benefits. Long-lived assets are evaluated
for impairment whenever events or circumstances indicate an asset may be impaired. There were no material impairments of
long-lived assets in fiscal 2020, 2019, and 2018.
Insurance
We self-insure for certain obligations related to healthcare, workers’ compensation, vehicles and general liability programs.
We also purchase stop-loss insurance policies for workers’ compensation, vehicles and general liability programs to protect
ourselves from catastrophic losses. Judgments and estimates are used in determining the potential value associated with
reported claims and for events that have occurred but have not been reported. Our estimates consider historical claim
experience and other factors. Our liabilities are based on our estimates, and, while we believe that our accruals are adequate,
the ultimate liability may be significantly different from the amounts recorded. In certain cases where partial insurance
coverage exists, we must estimate the portion of the liability that will be covered by existing insurance policies to arrive at
our net expected liability. Receivables for insurance recoveries are recorded as assets, on an undiscounted basis. Changes in
our claim experience, our ability to settle claims or other estimates and judgments we use could have a material impact on the
amount and timing of expense for any given period.
Environmental and Other Contingencies
We are subject to legal proceedings and claims arising from the conduct of our business operations, including environmental
matters, personal injury, customer contract matters and employment claims. U.S. GAAP requires that a liability for
21
contingencies be recorded when it is probable that a liability has occurred, and the amount of the liability can be reasonably
estimated. Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded. We
regularly consult with our attorneys and outside consultants, in our consideration of the relevant facts and circumstances,
before recording a contingent liability. We record accruals for environmental and other contingencies based on enacted laws,
regulatory orders or decrees, our estimates of costs, insurance proceeds, participation by other parties, the timing of
payments, and the input of our attorneys and outside consultants.
The estimated liability for environmental contingencies has been discounted as of August 29, 2020 using risk-free interest
rates ranging from 0.7% to 1.5% over periods ranging from ten to thirty years. The estimated current costs, net of legal
settlements with insurance carriers, have been adjusted for the estimated impact of inflation at 3.0% per year. Changes in
enacted laws, regulatory orders or decrees, our estimates of costs, risk-free interest rates, insurance proceeds, participation by
other parties, the timing of payments, the input of our attorneys and outside consultants or other factual circumstances could
have a material impact on the amounts recorded for our environmental and other contingent liabilities. Refer to Note 11,
“Commitments and Contingencies”, of our Consolidated Financial Statements for additional discussion and analysis.
Asset Retirement Obligations
Under U.S. GAAP, asset retirement obligations generally apply to legal obligations associated with the retirement of long-
lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset.
Current accounting guidance requires that we recognize asset retirement obligations in the period in which they are incurred
if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset.
We have recognized as a liability the present value of the estimated future costs to decommission our nuclear laundry
facilities in accordance with U.S. GAAP. We depreciate, on a straight-line basis, the amount added to property, plant and
equipment and recognize accretion expense in connection with the discounted liability over the various remaining lives which
range from approximately one to twenty-five years.
Our estimated liability has been based on historical experience in decommissioning nuclear laundry facilities, estimated
useful lives of the underlying assets, external vendor estimates as to the cost to decommission these assets in the future, and
federal and state regulatory requirements. The estimated current costs have been adjusted for the estimated impact of inflation
at 3% per year. The liability has been discounted using credit-adjusted risk-free rates that range from approximately 7.0% to
7.5%. Revisions to the liability could occur due to changes in the estimated useful lives of the underlying assets, estimated
dates of decommissioning, changes in decommissioning costs, changes in federal or state regulatory guidance on the
decommissioning of such facilities, or other changes in estimates. Changes due to revisions in our estimates 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.
Supplemental Executive Retirement Plan and other Pension Plans
We recognize pension expense on an accrual basis over our employees’ estimated service periods. Pension expense is
generally independent of funding decisions or requirements.
The calculation of pension expense and the corresponding liability requires us to use a number of critical assumptions,
including the expected long-term rates of return on plan assets, the assumed discount rate, the assumed rate of compensation
increases and life expectancy of participants. Changes in our assumptions can result in different expense and liability
amounts, and future actual expense can differ from these assumptions. Pension expense increases as the expected rate of
return on pension plan assets decreases. Future changes in plan asset returns, assumed discount rates and various other factors
related to the participants in our pension plans will impact our future pension expense and liabilities. We cannot predict with
certainty what these factors will be in the future.
Income Taxes
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 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.
22
Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets will
be realized.
We are periodically reviewed by U.S. domestic and foreign tax authorities regarding the amount of taxes due. These reviews
typically include inquiries regarding the timing and amount of deductions and the allocation of income among various tax
jurisdictions. 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.
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. 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. 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. In addition, although many of our customers reopened or increased their operating levels, such
customers may again be forced to close or limit operations as any new COVID-19 outbreaks occur. Any such closures or
reductions in operating levels could have a significant adverse impact on our business. At times during the pandemic, we
have also experienced supply chain disruptions with respect to certain products, including hand sanitizer and masks. Such
disruptions continue to occur, but have moderated to some extent more recently.
We remain focused on the safety and well-being of our team partners and on the service of our customers. We will continue
to review and assess the 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.
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.
23
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.
Please see “Item 1A. Risk Factors” in this Annual Report on Form 10-K for an additional discussion of risks and potential
risks of the COVID-19 pandemic on our business, financial condition and results of operations.
Results of Operations
The following table presents certain selected financial data, including the percentage of revenues represented by each item,
for fiscal years 2020, 2019 and 2018.
(In thousands, except for percentages)
Revenues
Fiscal
2020
$ 1,804,159
% of
Revenues
Fiscal
2019
% of
Revenues
Fiscal
2018
% of
Revenues
% Change
Fiscal 2020
vs.
Fiscal 2019
Fiscal 2019
vs.
Fiscal 2018
100.0 % $ 1,809,376
100.0 % $ 1,696,489
100.0 %
-0.3 %
6.7 %
Costs and expenses:
Cost of revenue (1)
Selling and administrative
expenses (1)
361,801
Depreciation and amortization 104,697
1,631,430
1,164,932
64.6 1,139,195
63.0 1,056,724
62.3
2.3
20.1 334,840
5.8 103,333
90.4 1,577,368
18.5 360,727
5.7
96,662
87.2 1,514,113
21.3
5.7
89.2
8.1
1.3
3.4
Operating income
Other income, net
172,729
(5,159 )
9.6 232,008
(5,916 )
(0.3 )
12.8 182,376
(4,870 )
(0.3 )
10.8
(0.3 )
(25.6 )
(12.8 )
7.8
(7.2 )
6.9
4.2
27.2
21.5
Income before income taxes
Provision for income taxes
177,888
42,118
9.9 237,924
58,790
2.3
13.1 187,246
23,351
3.2
11.0
1.4
(25.2 )
(28.4 )
27.1
151.8
Net income
$ 135,770
7.5 % $ 179,134
9.9 % $ 163,895
9.7 %
(24.2 )%
9.3 %
(1) Exclusive of depreciation on our property, plant and equipment and amortization of our intangible assets.
24
Revenues and income (loss) from operations by reporting segment for fiscal 2020, 2019, and 2018 are presented in the
following table. Refer to Note 15, “Segment Reporting”, of our Consolidated Financial Statements for a discussion of our
reporting segments.
(In thousands)
Segment Information
Revenues
US and Canadian Rental and Cleaning
MFG
Net intercompany MFG elimination
Corporate
Subtotal: Core Laundry Operations
Specialty Garments
First Aid
Total consolidated revenues
Operating income (loss)
US and Canadian Rental and Cleaning
MFG
Net intercompany MFG elimination
Corporate
Subtotal: Core Laundry Operations
Specialty Garments
First Aid
Total operating income
General
Fiscal
2020
Fiscal
2019
Fiscal
2018
$
$
$
$
1,552,179 $
214,683
(214,683 )
49,306
1,601,485
133,185
69,489
1,804,159 $
1,582,416 $
254,218
(254,111 )
33,682
1,616,205
132,767
60,404
1,809,376 $
1,485,548
247,530
(247,424 )
37,994
1,523,648
118,477
54,364
1,696,489
247,392 $
64,097
10,012
(171,514 )
149,987
17,845
4,897
172,729 $
235,046 $
84,248
1,128
(107,468 )
212,954
14,145
4,909
232,008 $
213,322
89,035
(9,658 )
(129,111 )
163,588
14,070
4,718
182,376
We derive our revenues through the design, manufacture, personalization, rental, cleaning, delivering, and selling of a wide
range of uniforms and protective clothing, including shirts, pants, jackets, coveralls, lab coats, smocks and aprons and
specialized protective wear, such as flame resistant and high visibility garments. We also rent industrial wiping products,
floor mats, facility service products, other non-garment items, and provide restroom and cleaning supplies and first aid
cabinet services and other safety supplies, to a variety of manufacturers, retailers and service companies.
Cost of revenues include the amortization of rental merchandise in service and merchandise costs related to direct sales as
well as labor and other production, service and delivery costs, and distribution costs associated with operating our Core
Laundry Operations, Specialty Garments facilities, and First Aid locations. Selling and administrative costs include costs
related to our sales and marketing functions as well as general and administrative costs associated with our corporate offices,
non-operating environmental sites and operating locations including information systems, engineering, materials
management, manufacturing planning, finance, budgeting, and human resources.
We have a substantial number of plants and conduct a significant portion of our business in energy producing regions in the
U.S. and Canada. 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. 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. While it is difficult to quantify the
positive and negative impacts on our future financial results from changes in energy prices, in general, we believe that
significant decreases in oil and natural gas prices would have an overall negative impact on our results due to cutbacks by our
customers both in, and dependent upon, the oil and natural gas industries, which would outweigh the benefits in our operating
costs from lower energy costs.
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.
25
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.
A portion of our sales is derived from international markets, including Canada. Revenues denominated in currencies other
than the U.S. dollar represented approximately 6.9%, 7.0% and 8.1% of total consolidated revenues for fiscal years 2020,
2019 and 2018, respectively. The operating results of our international subsidiaries are translated into U.S. dollars and such
results are affected by movements in foreign currencies relative to the U.S. dollar. 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. These impacts were primarily driven by fluctuations in the
Canadian dollar. Our operating results in future years could be negatively impacted by any further devaluation, as compared
to the U.S. dollar, of the Canadian dollar or any of the currencies of the other countries in which we operate.
On 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. Croatti. 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. 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 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.
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. On
December 28, 2018, we entered into a settlement agreement with our lead contractor for the version of the CRM system with
respect to which we recorded the impairment charge. As part of the settlement agreement, we recorded in the second quarter
ended February 23, 2019 a total gain of $21.1 million as a reduction of selling and administrative expenses, which includes
26
our 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. We also received hardware and related maintenance service with a fair value of $0.8 million as part of the
settlement.
In fiscal 2018, we initiated a multiyear CRM project to further develop, implement and deploy a third-party application we
licensed. This new solution is intended to improve functionality, capability and information flow as well as increase
automation in servicing our customers. As of August 29, 2020, we have capitalized $22.6 million related to our new CRM
project.
Our fiscal year ends on the last Saturday in August. For financial reporting purposes fiscal 2020 and fiscal 2018 both
consisted of 52 weeks and fiscal 2019 consisted of 53 weeks.
Fiscal Year Ended August 29, 2020 Compared with Fiscal Year Ended August 31, 2019
Revenues
Core Laundry Operations
Specialty Garments
First Aid
Total consolidated revenues
Fiscal
2020
Fiscal
2019
Dollar
Change
Percent
Change
(In thousands, except percentages)
$ 1,601,485 $ 1,616,205 $
132,767
60,404
$ 1,804,159 $ 1,809,376 $
133,185
69,489
(14,720 )
418
9,085
(5,217 )
(0.9 )%
0.3 %
15.0 %
(0.3 )%
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 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.
Cost of revenues
(In thousands, except percentages)
Cost of revenues
% of Revenues
Fiscal 2019
Fiscal 2020
$ 1,164,932 $ 1,139,195 $
63.0 %
64.6 %
Dollar
Change
Percent
Change
25,737
2.3 %
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.
27
Selling and administrative expenses
(In thousands, except percentages)
Selling and administrative expenses
% of Revenues
Fiscal 2019
Fiscal 2020
$ 361,801 $ 334,840 $
18.5 %
20.1 %
Dollar
Change
Percent
Change
26,961
8.1 %
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.
Depreciation and amortization
(In thousands, except percentages)
Depreciation and amortization
% of Revenues
Fiscal 2019
Fiscal 2020
$ 104,697 $ 103,333 $
5.7 %
5.8 %
Dollar
Change
Percent
Change
1,364
1.3 %
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
For fiscal 2020, the changes in revenues in our Core Laundry Operations, Specialty Garments and First Aid segments, as well
as the changes in our costs discussed above, resulted in the following changes in our income from operations:
Fiscal
2020
Fiscal
2019
Dollar
Change
Percent
Change
(In thousands, except percentages)
Core Laundry Operations
Specialty Garments
First Aid
Total consolidated income from operations
Percentage of total revenues
Other income, net
(In thousands, except percentages)
Interest income, net
Other expense, net
Total other income, net
17,845
4,897
$ 149,987 $ 212,954 $
14,145
4,909
$ 172,729 $ 232,008 $
12.8 %
9.6 %
(62,967 )
3,700
(12 )
(59,279 )
(29.6 )%
26.2 %
(0.2 )%
(25.6 )%
Fiscal 2019
Dollar
Change
Percent
Change
Fiscal 2020
$
(6,382 ) $
1,223
(5,159 ) $
(9,082 ) $
3,166
(5,916 ) $
2,700
(1,943 )
757
(29.7 )%
(61.4 )%
(12.8 )%
$
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.
Provision for income taxes
(In thousands, except percentages)
Provision for income taxes
Effective income tax rate
Fiscal 2020
$
Fiscal 2019
42,118 $
23.7 %
58,790 $
24.7 %
Dollar
Change
Percent
Change
(16,672 )
(28.4 )%
28
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.
Fiscal Year Ended August 31, 2019 Compared with Fiscal Year Ended August 26, 2018
Revenues
Core Laundry Operations
Specialty Garments
First Aid
Total consolidated revenues
Fiscal
2019
Fiscal
2018
Dollar
Change
Percent
Change
(In thousands, except percentages)
$ 1,616,205 $ 1,523,648 $
118,477
54,364
$ 1,809,376 $ 1,696,489 $
132,767
60,404
92,557
14,290
6,040
112,887
6.1 %
12.1 %
11.1 %
6.7 %
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 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 customers, 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.
Cost of revenues
(In thousands, except percentages)
Cost of revenues
% of Revenues
Fiscal 2019
1,139,195
Fiscal 2018
1,056,724
63.0 %
62.3 %
Dollar
Change
Percent
Change
82,471
7.8 %
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.
29
Selling and administrative expense
(In thousands, except percentages)
Selling and administrative expenses
% of Revenues
Fiscal 2018
Fiscal 2019
$ 334,840 $ 360,727 $
21.3 %
18.5 %
Dollar
Change
Percent
Change
(25,887 )
(7.2 )%
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.
Depreciation and amortization
(In thousands, except percentages)
Depreciation and amortization
% of Revenues
Fiscal 2018
Fiscal 2019
$ 103,333 $
5.7 %
96,662 $
5.7 %
Dollar
Change
Percent
Change
6,671
6.9 %
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.
Income from operations
For fiscal 2019, the changes in revenues in our Core Laundry Operations, Specialty Garments and First Aid segments, as well
as the changes in our costs discussed above, resulted in the following changes in our income from operations:
Fiscal
2019
Fiscal
2018
Dollar
Change
Percent
Change
(In thousands, except percentages)
Core Laundry Operations
Specialty Garments
First Aid
Total consolidated income from operations
Percentage of total revenues
Other income, net
(In thousands, except percentages)
Interest income, net
Other expense, net
Total other income, net
14,145
4,909
$ 212,954 $ 163,588 $
14,070
4,718
$ 232,008 $ 182,376 $
10.8 %
12.8 %
49,366
75
191
49,632
30.2 %
0.5 %
4.0 %
27.2 %
Fiscal 2018
Dollar
Change
Percent
Change
Fiscal 2019
$
(9,082 ) $
3,166
(5,916 ) $
(5,543 ) $
673
(4,870 ) $
(3,539 )
2,493
(1,046 )
63.8 %
370.4 %
21.5 %
$
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.
30
Provision for income taxes
(In thousands, except percentages)
Provision for income taxes
Effective income tax rate
Fiscal 2019
$
Fiscal 2018
58,790 $
24.7 %
23,351 $
12.5 %
Dollar
Change
Percent
Change
35,439
151.8 %
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
General
Cash, cash equivalents and short-term investments totaled $474.8 million as of August 29, 2020, an increase of $89.5 million
from $385.3 million as of August 31, 2019. We generated $286.7 million and $282.1 million in cash from operating activities
in the fiscal years ended August 29, 2020 and August 31, 2019, 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. 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.
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 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.
Cash flows provided by operating activities have historically been the primary source of our liquidity. We generally use these
cash flows to fund most, if not all, of our operations, capital expenditure and acquisition activities as well as dividends on our
Common Stock. We may also use cash flows provided by operating activities, as well as proceeds from loans payable and
long-term debt, to fund growth and acquisition opportunities, as well as other cash requirements.
(In thousands, except percentages)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes
Net increase in cash, cash equivalents and
short-term investments
Net Cash Provided by Operating Activities
$
Fiscal
2020
286,684 $
(157,616 )
(41,103 )
1,532
Fiscal
2019
282,142
(124,329 )
(41,491 )
(1,493 )
Percent
Change
1.6 %
26.8 %
(0.9 )%
(202.6 )%
$
89,497 $
114,829
(22.1 )%
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
31
fiscal 2017. Also partially offsetting the increases was $3.0 million from the settlement of environmental litigation in the first
quarter of fiscal 2019.
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.
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.
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. 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 29, 2020, we 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. We expect to replace the Credit
Agreement prior to its maturity with a new revolving credit facility.
As of August 29, 2020, we were in compliance with all covenants under the Credit Agreement.
Derivative Instruments and Hedging Activities
In June 2018, we entered into twelve forward contracts to exchange CAD for U.S. dollars at fixed exchange rates in order to
manage our exposure related to certain forecasted CAD denominated sales of one of our subsidiaries. The hedged
transactions are specified as the first amount of CAD denominated revenues invoiced by one of our domestic subsidiaries
each fiscal quarter, beginning in the third fiscal quarter of 2019 and continuing through the second fiscal quarter of 2022. In
total, we 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. GAAP.
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.
Environmental and Legal Contingencies
We are subject to various federal, state and local laws and regulations governing, among other things, air emissions,
wastewater discharges, and the generation, handling, storage, transportation, treatment and disposal of hazardous wastes and
other substances. In particular, industrial laundries currently use and must dispose of detergent waste water and other
residues, and, in the past, used perchloroethylene and other dry cleaning solvents. We are attentive to the environmental
concerns surrounding the disposal of these materials and have, through the years, taken measures to avoid their improper
disposal. We have settled, or contributed to the settlement of, past actions or claims brought against us relating to the disposal
of hazardous materials at several sites and there can be no assurance that we will not have to expend material amounts to
remediate the consequences of any such disposal in the future.
U.S. GAAP requires that a liability for contingencies be recorded when it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence of a liability,
as well as the amount to be recorded. We regularly consult with attorneys and outside consultants in our consideration of the
relevant facts and circumstances before recording a contingent liability. Changes in enacted laws, regulatory orders or
decrees, our estimates of costs, risk-free interest rates, insurance proceeds, participation by other parties, the timing of
32
payments, the input of our attorneys and outside consultants or other factual circumstances could have a material impact on
the amounts recorded for our environmental and other contingent liabilities.
Under environmental laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances located on, or in, or emanating from such property, as well as related costs of investigation and
property damage. Such laws often impose liability without regard to whether the owner or lessee knew of, or was responsible
for, the presence of such hazardous or toxic substances. There can be no assurances that acquired or leased locations have
been operated in compliance with environmental laws and regulations or that future uses or conditions will not result in the
imposition of liability upon our Company under such laws or expose our Company to third party actions such as tort suits.
We continue to address environmental conditions under terms of consent orders negotiated with the applicable environmental
authorities or otherwise with respect to certain sites.
We have accrued certain costs related to certain sites, including but not limited to sites in Woburn and Somerville,
Massachusetts, as it has been determined that the costs are probable and can be reasonably estimated. We 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. 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. 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. We have received demands from
the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station
in the area of the Somerville site. This station is part of an ongoing extension of the transit system. We have reserved for
costs in connection with this matter; however, in light of the uncertainties associated with this matter, these costs and the
related reserve may change.
We routinely review and evaluate sites that may require remediation and monitoring and determine our estimated costs based
on various estimates and assumptions. These estimates are developed using our internal sources or by third-party
environmental engineers or other service providers. Internally developed estimates are based on:
•
•
•
•
Management’s judgment and experience in remediating and monitoring our sites;
Information available from regulatory agencies as to costs of remediation and monitoring;
The number, financial resources and relative degree of responsibility of other potentially responsible parties (PRPs)
who may be liable for remediation and monitoring of a specific site; and
The typical allocation of costs among PRPs.
There is usually a range of reasonable estimates of the costs associated with each site. In accordance with U.S. GAAP, our
accruals represent the amount within the range that we believe is the best estimate or the low end of a range of estimates if no
point within the range is a better estimate. When we believe that both the amount of a particular liability and the timing of the
payments are reliably determinable, we adjust the cost in current dollars using a rate of 3% for inflation until the time of
expected payment and discount the cost to present value using current risk-free interest rates. As of August 29, 2020, the risk-
free interest rates we utilized ranged from 0.7% to 1.5%.
For environmental liabilities that have been discounted, we include interest accretion, based on the effective interest method,
in selling and administrative expenses on the Consolidated Statements of Income. The changes to the amounts of our
environmental liabilities for the years ended August 29, 2020 and August 31, 2019 are as follows (in thousands):
Year ended
Beginning balance
Costs incurred for which reserves have been provided
Insurance proceeds
Interest accretion
Changes in discount rates
Revisions in estimates
Ending balance
33
August 29,
2020
August 31,
2019
27,718 $
(1,160 )
111
537
1,133
2,363
30,702 $
25,486
(1,079 )
143
755
2,239
174
27,718
$
$
Anticipated payments and insurance proceeds of currently identified environmental remediation liabilities as of August 29,
2020 for the next five fiscal years and thereafter, as measured in current dollars, are reflected below (in thousands).
2021
Fiscal year ended August
Estimated costs—current dollars $ 11,368 $
(197 )
Estimated insurance proceeds
Net anticipated costs
$ 11,171 $
Effect of inflation
Effect of discounting
Balance as of August 29, 2020
2022
2023
2024
2025
Thereafter
Total
2,668 $
(159 )
2,509 $
1,371 $
(173 )
1,198 $
1,073 $
(159 )
914 $
1,076 $ 11,852 $ 29,408
(1,382 )
(521 )
(173 )
903 $ 11,331 $ 28,026
7,251
(4,575 )
$ 30,702
Estimated insurance proceeds are primarily received from an annuity received as part of our legal settlement with an
insurance company. Annual proceeds of approximately $0.3 million are deposited into an escrow account which funds
remediation and monitoring costs for two sites related to our former operations. Annual proceeds received but not expended
in the current year accumulate in this account and may be used in future years for costs related to this site through the year
2027. As of August 29, 2020, the balance in this escrow account, which is held in a trust and is not recorded in our
Consolidated Balance Sheet, was approximately $4.5 million. Also included in estimated insurance proceeds are amounts we
are entitled to receive pursuant to legal settlements as reimbursements from three insurance companies for estimated costs at
one of our sites.
Our nuclear garment decontamination facilities are licensed by 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. 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.
Acquisitions
As part of our business, we regularly evaluate opportunities to acquire other garment service companies. In recent years, we
have typically paid for acquisitions with cash and may continue to do so in the future. To pay for an acquisition, we may use
cash on hand, cash generated from operations or borrowings under our Credit Agreement, or we may pursue other forms of
debt financing. Our ability to secure short-term and long-term debt financing in the future will depend on several factors,
including our future profitability, our levels of debt and equity, and the overall credit and equity market environments.
Contractual Obligations and Other Commercial Commitments
The following information is presented as of August 29, 2020 (in thousands).
Contractual Obligations
Retirement plan benefit payments
Asset retirement obligations
Operating leases
Forward contracts
Purchase Commitments*
Total contractual cash obligations
Total
$
44,084 $
13,920
44,228
4,950
22,400
$ 129,582 $
Payments Due by Fiscal Period
Less than
1 year
1 – 3 years
3 – 5 years
More than
5 years
1,917 $
—
13,458
3,510
19,000
37,885 $
3,254 $
3,514
18,273
1,440
3,200
29,681 $
3,871 $
—
8,602
—
200
12,673 $
35,042
10,406
3,895
—
—
49,343
*Includes non-cancellable purchase commitments for inventories, software, and services.
34
We have uncertain tax positions that are reserved totaling $6.3 million as of August 29, 2020 that are excluded from the
above table as we cannot make a reasonably reliable estimate of the period of cash settlement with the respective taxing
authority.
We have accrued $30.7 million in costs related to certain environmental obligations we have to address under terms of
consent orders negotiated with the applicable environmental authorities or otherwise. Refer to “Environmental and Legal
Contingencies”, above for additional discussion on our environmental obligations.
As discussed above under “Long-Term Debt and Borrowing Capacity”, as of August 29, 2020, we had borrowing capacity of
$250.0 million under our Credit Agreement, of which approximately $179.2 million was available for borrowing. Also, as of
such date, we had no outstanding borrowings and letters of credit outstanding of $70.8 million. 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.
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.
Energy Costs
Significant increases in energy costs, specifically with respect to natural gas and gasoline, can materially affect our operating
costs. During fiscal 2020, our energy costs, which include fuel, natural gas, and electricity, represented approximately 3.6%
of our total revenue.
Recent Accounting Pronouncements
See Note 1, “Summary of Significant Accounting Policies” to our Consolidated Financial Statements included in this Annual
Report on Form 10-K for more information on recently implemented and issued accounting standards
35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
We have determined that all of our foreign subsidiaries operate primarily in local currencies that represent the functional
currencies of such subsidiaries. All assets and liabilities of our foreign subsidiaries are translated into U.S. dollars using the
exchange rate prevailing at the balance sheet date. The effects of exchange rate fluctuations on the translation of assets and
liabilities are recorded as a component of shareholders’ equity. Revenues and expenses are translated at the average exchange
rates in effect during each month of the fiscal year. As such, our financial condition and operating results are affected by
fluctuations in the value of the U.S. dollar as compared to currencies in foreign countries. Revenues denominated in
currencies other than the U.S. dollar represented approximately 6.9%, 7.0% and 8.1% of our total consolidated revenues for
fiscal 2020, 2019 and 2018, respectively. Total assets denominated in currencies other than the U.S. dollar represented
approximately 6.7% and 6.9% of our total consolidated assets at August 29, 2020 and August 31, 2019, respectively. If
exchange rates had increased or decreased by 10% from the actual rates in effect during the fiscal year ended August 29,
2020, our revenues and assets for the year ended and as of August 29, 2020 would have increased or decreased by
approximately $12.5 million and $14.7 million, respectively.
In June 2018, we entered into twelve forward contracts to exchange CAD for U.S. dollars at fixed exchange rates in order to
manage our exposure related to certain forecasted CAD denominated sales of one of our subsidiaries. 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. GAAP.
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.
Other than the forward contracts discussed above, we do not operate a hedging program to mitigate the effect of a significant
change in the value of the functional currencies of our foreign subsidiaries, which include the Canadian dollar, euro, British
pound, Mexican peso and Nicaraguan cordoba, as compared to the U.S. dollar. Any losses or gains resulting from unhedged
foreign currency transactions, including exchange rate fluctuations on intercompany accounts are reported as transaction
losses (gains) in our other (income) expense, net. The intercompany payables and receivables are denominated in Canadian
dollars, euros, British pounds, Mexican pesos and Nicaraguan cordobas. During the fiscal year ended August 29, 2020,
transaction losses included in other expense (income), net, was $0.5 million. If exchange rates had changed by 10% during
fiscal 2020, we would have recognized exchange gains or losses of approximately $0.4 million.
Please see “Item 1A. Risk Factors” in this Annual Report on Form 10-K for an additional discussion of risks and potential
risks of the COVID-19 pandemic on our business, financial performance and the market price of our Common Stock.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
UniFirst Corporation and Subsidiaries
Year ended
(In thousands, except per share data)
Revenues
Operating expenses:
Cost of revenues (1)
Selling and administrative expenses (1)
Depreciation and amortization
Total operating expenses
Operating income
Other (income) expense:
Interest income, net
Other expense, net
Total other income, net
Income before income taxes
Provision for income taxes
Net income
Income per share—Basic:
Common Stock
Class B Common Stock
Income per share—Diluted:
Common Stock
Income allocated to—Basic:
Common Stock
Class B Common Stock
Income allocated to—Diluted:
Common Stock
Weighted average number of shares outstanding—Basic:
Common Stock
Class B Common Stock
Weighted average number of shares outstanding—Diluted:
Common Stock
August 29,
2020
1,804,159 $
August 31,
2019
1,809,376 $
August 25,
2018
1,696,489
$
1,164,932
361,801
104,697
1,631,430
1,139,195
334,840
103,333
1,577,368
1,056,724
360,727
96,662
1,514,113
172,729
232,008
182,376
(6,382 )
1,223
(5,159 )
(9,082 )
3,166
(5,916 )
(5,543 )
673
(4,870 )
177,888
42,118
237,924
58,790
187,246
23,351
$
135,770 $
179,134 $
163,895
$
$
7.46 $
5.97 $
9.77 $
7.81 $
8.66
6.91
$
7.13 $
9.33 $
8.21
$
$
114,017 $
21,753 $
150,247 $
28,887 $
133,802
30,093
$
135,770 $
179,134 $
163,895
15,276
3,643
15,385
3,697
15,454
4,357
19,042
19,196
19,963
(1) Exclusive of depreciation on the Company’s property, plant and equipment and amortization of its intangible assets.
The accompanying notes are an integral part of these Consolidated Financial Statements.
37
Consolidated Statements of Comprehensive Income
UniFirst Corporation and Subsidiaries
Year ended
(In thousands)
Net income
August 29,
2020
135,770 $
August 31,
2019
179,134 $
August 25,
2018
163,895
$
Other comprehensive (loss) income:
Foreign currency translation adjustments
Pension benefit liabilities, net of income taxes
Change in fair value of derivatives, net of income taxes
Derivative financial instruments reclassified to earnings
2,631
(787 )
25
(151 )
(3,524 )
(5,104 )
252
(153 )
(5,184 )
1,342
247
(46 )
Other comprehensive (loss) income
1,718
(8,529 )
(3,641 )
Comprehensive income
$
137,488 $
170,605 $
160,254
The accompanying notes are an integral part of these Consolidated Financial Statements.
38
Consolidated Balance Sheets
UniFirst Corporation and Subsidiaries
(In thousands, except share and par value data)
Assets
Current assets:
Cash, cash equivalents and short-term investments
Receivables, less reserves of $12,125 and $9,935, respectively
Inventories
Rental merchandise in service
Prepaid taxes
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Customer contracts, net
Other intangible assets, net
Deferred income taxes
Operating lease right-of-use assets, net
Other assets
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable
Accrued liabilities
Accrued taxes
Operating lease liabilities, current
Total current liabilities
Accrued liabilities
Accrued and deferred income taxes
Operating lease liabilities
Total liabilities
Commitments and contingencies (Note 11)
Shareholders’ equity:
Preferred Stock, $1.00 par value; 2,000,000 shares authorized; no shares
issued and outstanding
Common Stock, $0.10 par value; 30,000,000 shares authorized; 15,251,176 and
15,332,759 shares issued and outstanding in 2020 and 2019, respectively
Class B Common Stock, $0.10 par value; 20,000,000 shares authorized; 3,643,009
shares issued and outstanding in both 2020 and 2019
Capital surplus
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
August 29,
2020
August 31,
2019
474,838 $
190,916
106,269
154,278
7,115
35,918
969,334
582,470
424,844
56,946
28,590
522
42,710
93,611
2,199,027 $
64,035 $
132,965
527
12,569
210,096
132,820
85,721
29,261
457,898
385,341
203,457
100,916
184,318
4,060
35,699
913,791
574,509
401,178
56,588
16,132
448
—
84,674
2,047,320
77,918
111,721
205
—
189,844
117,074
99,172
—
406,090
—
—
1,525
1,533
364
86,645
1,684,565
(31,970 )
1,741,129
2,199,027 $
364
84,946
1,588,075
(33,688 )
1,641,230
2,047,320
$
$
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
39
Consolidated Statements of Shareholders’ Equity
UniFirst Corporation and Subsidiaries
(In thousands)
Balance, August 26, 2017
Net income
Pension benefit liabilities, net (1)
Change in fair value of derivatives
Foreign currency translation
Dividends declared
Share-based compensation, net (2)
Share-based awards exercised,
net (1)
Repurchase of Common Stock
Balance, August 25, 2018
Net income
Pension benefit liabilities, net (1)
Change in fair value of derivatives
Foreign currency translation
Dividends declared
Shares converted
Share-based compensation, net (2)
Share-based awards exercised,
net (1)
Repurchase of Common Stock
Cumulative effect of change in
accounting principle
Balance, August 31, 2019
Net income
Pension benefit liabilities, net (1)
Change in fair value of derivatives
Foreign currency translation
Dividends declared
Share-based compensation, net (2)
Share-based awards exercised,
net (1)
Repurchase of Common Stock
Balance, August 29, 2020
Common
Stock
Common
Shares
Class B
Common
Shares
15,453 4,815 $ 1,545 $
— — —
— — —
— — —
— — —
— — —
— — —
Class B
Common
Stock
Capital
Surplus
Retained
Earnings
482 $ 86,245 $ 1,386,438 $
— 163,895
—
—
—
1,192
—
—
—
—
—
—
—
—
(5,586 )
— 2,204
(738 )
Total
Equity
Accumulated
Other
Comprehensive
Loss
(21,518 ) $ 1,453,192
— 163,895
2,534
201
(5,184 )
(5,586 )
1,466
1,342
201
(5,184 )
—
—
51 —
(73 ) (1,105 )
5
(7 )
15,431 3,710 $ 1,543 $
— — —
— — —
— — —
— — —
— — —
67
7
(67 )
— — —
—
—
456
(111 ) (5,932 ) (139,962 )
371 $ 82,973 $ 1,405,239 $
— 179,134
—
—
—
—
—
—
—
—
—
—
—
—
(8,243 )
—
—
(7 )
—
— 2,997
—
461
— (146,012 )
(25,159 ) $ 1,464,967
— 179,134
(5,104 )
99
(3,524 )
(8,243 )
—
2,997
(5,104 )
99
(3,524 )
—
—
—
32 —
(197 ) —
3
(20 )
—
48
— (1,072 )
—
(29,423 )
—
—
51
(30,515 )
— — —
15,333 3,643 $ 1,533 $
— — —
— — —
— — —
— — —
— — —
— — —
—
—
41,368
364 $ 84,946 $ 1,588,075 $
— 135,770
—
—
—
—
—
—
—
—
—
—
—
—
(18,185 )
—
— 2,268
36 —
(118 ) —
3
(11 )
15,251 3,643 $ 1,525 $
—
—
70
(639 )
—
(21,095 )
364 $ 86,645 $ 1,684,565 $
—
41,368
(33,688 ) $ 1,641,230
— 135,770
(787 )
(126 )
2,631
(18,185 )
2,268
(787 )
(126 )
2,631
—
—
—
—
73
(21,745 )
(31,970 ) $ 1,741,129
(1) These amounts are shown net of the effect of income taxes.
(2) These amounts are shown net of any shares withheld by the Company to satisfy certain tax withholdings obligations in
connection with the vesting of certain shares of restricted stock.
The accompanying notes are an integral part of these Consolidated Financial Statements.
40
Consolidated Statements of Cash Flows
UniFirst Corporation and Subsidiaries
Year ended
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash provided by operating activities:
August 29,
2020
August 31,
2019
August 25,
2018
$
135,770 $
179,134 $
163,895
Depreciation and amortization
Amortization of deferred financing costs
Forgiveness of a liability
Share-based compensation
Accretion on environmental contingencies
Accretion on asset retirement obligations
Other
Deferred income taxes
Changes in assets and liabilities, net of acquisitions:
Receivables, less reserves
Inventories
Rental merchandise in service
Prepaid expenses and other current assets and Other assets
Accounts payable
Accrued liabilities
Prepaid and accrued income taxes
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired
Capital expenditures, including capitalization of software costs
Proceeds from sale of assets
Other
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from exercise of share-based awards
Taxes withheld and paid related to net share settlement of equity awards
Repurchase of Common Stock
Payment of cash dividends
Net cash used in financing activities
104,697
112
—
5,999
537
929
2,524
(12,152 )
14,589
(5,066 )
32,262
840
(10,702 )
19,866
(3,521 )
286,684
103,333
112
(7,346 )
5,761
755
865
(283 )
8,896
(3,189 )
(10,736 )
(10,324 )
(8,011 )
3,365
(1,027 )
20,837
282,142
(41,221 )
(116,717 )
322
—
(157,616 )
(4,919 )
(119,815 )
405
—
(124,329 )
73
(3,731 )
(21,745 )
(15,700 )
(41,103 )
51
(2,767 )
(30,515 )
(8,260 )
(41,491 )
96,662
112
—
4,638
692
935
(232 )
(7,861 )
(12,420 )
(11,051 )
(21,572 )
(5,643 )
4,573
12,233
5,112
230,073
(42,665 )
(112,747 )
1,777
(263 )
(153,898 )
461
(3,180 )
(146,011 )
(4,218 )
(152,948 )
Effect of exchange rate changes
1,532
(1,493 )
(2,467 )
Net (decrease) increase in cash, cash equivalents and short-term investments
Cash, cash equivalents and short-term investments at beginning of period
Cash, cash equivalents and short-term investments at end of period
Supplemental disclosure of cash flow information:
Capital expenditures in accounts payable
Interest paid
Income taxes paid, net of refunds received
$
$
$
$
89,497
385,341
474,838 $
114,829
270,512
385,341 $
(79,240 )
349,752
270,512
6,637 $
637 $
58,402 $
9,928 $
750 $
28,354 $
15,050
538
28,355
The accompanying notes are an integral part of these Consolidated Financial Statements.
41
Notes to Consolidated Financial Statements
UniFirst Corporation and Subsidiaries
1. Summary of Significant Accounting Policies
Business Description
UniFirst Corporation (the “Company”) is one of the largest providers of workplace uniforms and protective clothing in the
United States. The Company designs, manufactures, personalizes, rents, cleans, delivers, and sells a wide range of uniforms
and protective clothing, including shirts, pants, jackets, coveralls, lab coats, smocks, aprons and specialized protective wear,
such as flame resistant and high visibility garments. The Company also rents and sells industrial wiping products, floor mats,
facility service products and other non-garment items, and provides restroom and cleaning supplies and first aid cabinet
services and other safety supplies as well as provide certain safety training, to a variety of manufacturers, retailers and service
companies.
The Company serves businesses of all sizes in numerous industry categories. Typical customers include automobile service
centers and dealers, delivery services, food and general merchandise retailers, food processors and service operations, light
manufacturers, maintenance facilities, restaurants, service companies, soft and durable goods wholesalers, transportation
companies, healthcare providers, and others who require employee clothing for image, identification, protection or utility
purposes. The Company also provides its customers with restroom and cleaning supplies, including air fresheners, paper
products, gloves, masks, hand soaps and sanitizers.
At certain specialized facilities, the Company decontaminates and cleans work clothes and other items that may have been
exposed to radioactive materials and services special cleanroom protective wear. Typical customers for these specialized
services include government agencies, research and development laboratories, high technology companies and utility
providers operating nuclear reactors.
As discussed and described in Note 15, “Segment Reporting”, to these Consolidated Financial Statements, the Company has
five reporting segments: U.S. and Canadian Rental and Cleaning, Manufacturing (“MFG”), Specialty Garments Rental and
Cleaning (“Specialty Garments”), First Aid and Corporate. The operations of the U.S. and Canadian Rental and Cleaning
reporting segment are referred to by the Company as its “industrial laundry operations” and the locations related to this
reporting segment are referred to as “industrial laundries”. The Company refers to its U.S. and Canadian Rental and
Cleaning, MFG, and Corporate segments combined as its “Core Laundry Operations”.
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China, and has since
spread globally. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. Through the first
two quarters of fiscal 2020, the COVID-19 pandemic did not have a significant impact on the Company’s business. However,
efforts to contain the spread of COVID-19 intensified during the second half of the Company’s fiscal 2020. Most states and
municipalities within the U.S. enacted temporary closures of businesses, issued quarantine orders and took other restrictive
measures in response to the COVID-19 pandemic. Within the U.S., the Company’s business has been designated an essential
business, which allows the Company to continue to serve customers that remain open. In these consolidated financial
statements and related disclosures, the Company has assessed the current impact of COVID-19 on its consolidated financial
condition, results of operations, and cash flows, as well as our estimates and accounting policies. The Company has made
additional disclosures of these assessments, as necessary. Given the unprecedented nature of this situation, the Company
cannot reasonably estimate the full extent of the impact COVID-19 will have on its consolidated financial condition, results
of operations, or 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.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly-
owned. Intercompany balances and transactions are eliminated in consolidation.
42
Basis of Presentation
The Consolidated Financial Statements of the Company have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. There have been no material changes in the accounting policies followed by the
Company during the current fiscal year other than the adoption of recent accounting pronouncements as discussed in greater
detail in the Recent Accounting Pronouncements sub-section of this Note.
Use of Estimates
The preparation of these Consolidated Financial Statements is in conformity with accounting principles generally accepted in
the United States (“U.S. GAAP”) which requires management to make estimates and assumptions that affect the reported
amounts in the financial statements and accompanying notes. The Company utilizes key estimates in preparing the financial
statements including casualty and environmental estimates, recoverability of goodwill, intangibles, income taxes and long-
lived assets. These estimates are based on historical information, current trends, and information available from other
sources. The Company’s results are affected by economic, political, legislative, regulatory and legal actions. Economic
conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies,
government policies surrounding the containment of COVID-19 and changes in the prices of raw materials, can have a
significant effect on operations. These factors and other events could cause actual results to differ from management's
estimates.
Fiscal Year
The Company’s fiscal year ends on the last Saturday in August. For financial reporting purposes, fiscal year ended August
31, 2019 (“fiscal 2019”) consisted of 53 weeks, and fiscal years ended August 29, 2020 (“fiscal 2020”) and August 25, 2018
(“fiscal 2018”) both consisted of 52 weeks.
Cash, Cash Equivalents and Short-Term Investments
Cash, cash equivalents and short-term investments include cash in banks, money market securities, and bank short-term
investments having original maturities of twelve months or less. As of August 29, 2020, the Company had no short-term
investments. As of August 31, 2019, short-term investments consist of certificates of deposits totaling $4.9 million having
original maturities of six and twelve months.
Accounts receivable
Accounts receivable represents amounts due from customers and is presented net of an allowance for doubtful accounts. The
Company utilizes its judgment and estimates are used in determining the collectability of accounts receivable and evaluating
the adequacy of the allowance for doubtful accounts. The Company considers specific accounts receivable and historical bad
debt experience, customer credit worthiness, current economic trends and the age of outstanding balances as part of its
evaluation. When an account is considered uncollectible, it is written off against the allowance for doubtful accounts. In
response to the economic disruption created by the COVID-19 pandemic and the resulting impact on our customer base, the
Company performed an additional evaluation of amounts due from customers in fiscal 2020 that were deemed to be higher
collection risk. This evaluation resulted in an allowance for doubtful accounts in excess of historical rates. The judgment
applied to increase the allowance for doubtful accounts beyond our historical policy was deemed to be reasonable and
supportable based on the data available as of the consolidated balance sheet date.
Financial Instruments
The Company’s financial instruments, which may expose the Company to concentrations of credit risk, include cash, cash
equivalents and short-term investments, receivables, accounts payable and foreign exchange forward contracts. Each of these
financial instruments is recorded at cost, which approximates its fair value given the short maturity of each financial
instrument.
Revenue Recognition
Approximately 89.9% of the Company’s revenues are derived from fees for route servicing of Core Laundry Operations,
Specialty Garments and First Aid services performed by the Company’s employees at the customer’s location of business.
Revenues from the Company’s route servicing customer contracts represent a single-performance obligation. The Company
43
recognizes these revenues over time as services are performed based on the nature of services provided and contractual rates
(input method). Certain of the Company’s customer contracts, primarily within the Company’s Core Laundry Operations,
include pricing terms and conditions that include components of variable consideration. The variable consideration is
typically in the form of consideration due to a customer based on performance metrics specified within the contract.
Specifically, some contracts contain discounts or rebates that the customer can earn through the achievement of specified
volume levels. Each component of variable consideration is earned based on the Company’s actual performance during the
measurement period specified within the contract. To determine the transaction price, the Company estimates the variable
consideration using the most likely amount method, based on the specific contract provisions and known performance results
during the relevant measurement period. When determining if variable consideration should be constrained, the Company
considers whether factors outside its control could result in a significant reversal of revenue. In making these assessments, the
Company considers the likelihood and magnitude of a potential reversal. The Company’s performance period generally
corresponds with the monthly invoice period. No significant constraints on the Company’s revenue recognition were applied
during fiscal 2020. The Company reassesses these estimates during each reporting period. The Company maintains a liability
for these discounts and rebates within accrued liabilities on the consolidated balance sheets. Variable consideration also
includes consideration paid to a customer at the beginning of a contract. The Company capitalizes this consideration and
amortizes it over the life of the contract as a reduction to revenue in accordance with the accounting guidance for revenue
recognition. These assets are included in other assets on the consolidated balance sheets.
The following table presents the Company’s revenues for fiscal 2020, 2019, and 2018 disaggregated by service type:
August 29, 2020
Years ended
August 31, 2019
August 25, 2018
(In thousands, except percentages)
Core Laundry Operations
Specialty Garments
First Aid
Total Revenues
% of
Revenues
Revenues
% of
Revenues
Revenues
% of
Revenues
Revenues
$ 1,601,485
133,185
69,489
89.8 %
7.0 %
3.2 %
$ 1,804,159 100.0 % $ 1,809,376 100.0 % $ 1,696,489 100.0 %
89.3 % $ 1,523,648
7.3 % 118,477
54,364
3.4 %
88.8 % $ 1,616,205
7.4 % 132,767
60,404
3.9 %
During fiscal 2020, the percentage of revenues recognized over time as the services are performed was 94.7% of Core
Laundry Operations revenues and 79.2% of Specialty Garments revenues. During fiscal 2020, 5.3% of Core Laundry
Operations revenues, 20.8% of Specialty Garments revenues and 100% of First Aid revenues were recognized at a point in
time, which generally occurs when the goods are transferred to the customer.
Costs to Obtain a Contract
The Company defers commission expenses paid to its employee-partners when the commissions are deemed to be
incremental for obtaining the route servicing customer contract. The deferred commissions are amortized on a straight-line
basis over the expected period of benefit. The Company reviews the deferred commission balances for impairment on an
ongoing basis. Deferred commissions are classified as current or noncurrent based on the timing of when the Company
expects to recognize the expense. The current portion is included in prepaid expenses and other current assets and the non-
current portion is included in other assets on the Company’s consolidated balance sheets. As of August 29, 2020, the current
and non-current assets related to deferred commissions totaled $13.3 million and $55.6 million, respectively. As of August
31, 2019, the current and non-current assets related to deferred commissions totaled $12.4 million and $50.3 million,
respectively. During fiscal 2020 and 2019, we recorded $13.7 million and $11.8 million, respectively, of amortization
expense related to deferred commissions. This amortization expense is classified in selling and administrative expenses on
the consolidated statements of income.
Inventories and Rental Merchandise in Service
Inventories are stated at the lower of cost or net realizable value, net of any reserve for excess and obsolete inventory. Work-
in-process and finished goods inventories consist of materials, labor and manufacturing overhead. Judgments and estimates
are used in determining the likelihood that new goods on hand can be sold to customers or used in rental operations.
Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If
actual product demand and market conditions are less favorable than those projected by management, additional inventory
write-downs may be required. The Company uses the first-in, first-out (“FIFO”) method to value its inventories.
44
The components of inventory as of August 29, 2020 and August 31, 2019 were as follows (in thousands):
Raw materials
Work in process
Finished goods
Total inventory
August 29,
2020
August 31,
2019
$
$
20,266 $
2,730
83,273
106,269 $
23,000
2,864
75,052
100,916
Rental merchandise in service is amortized, primarily on a straight-line basis, over the estimated service lives of the
merchandise, which range from six to thirty-six months. The amortization expense is included in the cost of revenues on the
Company’s Consolidated Statements of Income. In establishing estimated lives for merchandise in service, management
considers historical experience and the intended use of the merchandise. Material differences may result in the amount and
timing of operating profit for any period if management makes significant changes to these estimates.
Property, plant and equipment
Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are expensed as incurred, while
expenditures for renewals and betterments are capitalized.
The components of property, plant and equipment as of August 29, 2020 and August 31, 2019 were as follows (in
thousands):
Land, buildings and leasehold equipment
Machinery and equipment
Motor vehicles
Less: accumulated depreciation
Total property, plant and equipment
August 29,
2020
August 31,
2019
$
$
558,277 $
585,211
278,098
1,421,586
839,116
582,470 $
527,419
565,319
253,841
1,346,579
772,070
574,509
The Company provides for depreciation on the straight-line method based on the date the asset is placed in service using the
following estimated useful lives:
Buildings (in years)
Building components (in years)
Leasehold improvements
Machinery and equipment (in years)
Motor vehicles (in years)
30 — 40
10 — 20
Shorter of useful
life or term of lease
3 — 10
3 — 5
Long-lived assets, including property, plant and equipment, are evaluated for impairment whenever events or circumstances
indicate an asset may be impaired. There were no material impairments of long-lived assets in fiscal 2020, 2019 and 2018.
Goodwill and Other Intangible Assets
In accordance with U.S. GAAP, the Company does not amortize goodwill. Instead, the Company tests goodwill for
impairment on an annual basis. Management completed its annual goodwill impairment test on the last day of the fourth
quarter of each fiscal year prior to fiscal 2020. In fiscal 2020, the Company changed its annual goodwill impairment test date
to the first day of the fourth quarter to better align with its internal business processes. In addition, U.S. GAAP requires that
companies test goodwill if events occur or circumstances change that would more likely than not reduce the fair value of a
reporting unit to which goodwill is assigned below its carrying amount.
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 the last day of the third quarter of fiscal
2020. Therefore, the Company qualitatively assessed whether it was more likely than not that the goodwill in each of its
45
reporting units was impaired as of the last day of the third quarter of fiscal 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 (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 the last day of the third quarter of fiscal 2020, the Company
determined that its goodwill was not impaired. The Company also concluded that its goodwill was not impaired on the first
day of the fourth quarter of fiscal 2020, its new annual impairment test date. 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. The majority of the Company’s goodwill resides within the US
Core Laundry Operations reporting unit, for which there continues to exist significant excess fair value over book value.
The Company cannot predict future economic conditions and their impact on the Company or the future net realizable value
of the Company’s stock. A decline in the Company’s market capitalization and/or deterioration in general economic
conditions could negatively and materially impact the Company’s assumptions and assessment of the fair value of the
Company’s business. If general economic conditions or the Company’s financial performance deteriorate, the Company may
be required to record a goodwill impairment charge in the future which could have a material impact on the Company’s
financial condition and results of operations.
Definite-lived intangible assets are amortized over their estimated useful lives, which are based on management’s estimates
of the period that the assets will generate economic benefits. Definite-lived intangible assets are evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable in
accordance with U.S. GAAP. There were no impairments of goodwill or indicators of impairment for definite-lived
intangible assets in fiscal 2020, 2019 and 2018.
As of August 29, 2020, definite-lived intangible assets have a weighted average useful life of approximately 12.1 years.
Customer contracts have a weighted average useful life of approximately 13.7 years and other intangible assets, net, which
consist of primarily, restrictive covenants, software and trademarks, have a weighted average useful life of approximately 8.8
years.
Environmental and Other Contingencies
The Company is subject to legal proceedings and claims arising from the conduct of its business operations, including
environmental matters, personal injury, customer contract matters and employment claims. Accounting principles generally
accepted in the United States require that a liability for contingencies be recorded when it is probable that a liability has
occurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine the
existence of a liability, as well as the amount to be recorded. The Company regularly consults with attorneys and outside
consultants in its consideration of the relevant facts and circumstances before recording a contingent liability. The Company
records accruals for environmental and other contingencies based on enacted laws, regulatory orders or decrees, the
Company’s estimates of costs, insurance proceeds, participation by other parties, the timing of payments, and the input of
outside consultants and attorneys.
The estimated liability for environmental contingencies has been discounted as of August 29, 2020 using risk-free interest
rates ranging from 0.7% to 1.5% over periods ranging from ten to thirty years. The estimated current costs, net of legal
settlements with insurance carriers, have been adjusted for the estimated impact of inflation at 3% per year. Changes in
enacted laws, regulatory orders or decrees, management’s estimates of costs, risk-free interest rates, insurance proceeds,
participation by other parties, the timing of payments, the input of the Company’s attorneys and outside consultants or other
factual circumstances could have a material impact on the amounts recorded for environmental and other contingent
liabilities. Refer to Note 11, “Commitments and Contingencies”, of these Consolidated Financial Statements for additional
discussion and analysis.
46
Asset Retirement Obligations
Under U.S. GAAP, asset retirement obligations generally apply to legal obligations associated with the retirement of long-
lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. The
Company recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair
value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.
The Company has recognized as a liability the present value of the estimated future costs to decommission its nuclear laundry
facilities. The Company depreciates, on a straight-line basis, the amount added to property, plant and equipment and
recognizes accretion expense in connection with the discounted liability over the various remaining lives which range from
approximately one to twenty-five years.
The estimated liability has been based on historical experience in decommissioning nuclear laundry facilities, estimated
useful lives of the underlying assets, external vendor estimates as to the cost to decommission these assets in the future, and
federal and state regulatory requirements. The estimated current costs have been adjusted for the estimated impact of inflation
at 3% per year. The liability has been discounted using credit-adjusted risk-free rates that range from approximately 7.0% to
7.5%. Revisions to the liability could occur due to changes in the Company’s estimated useful lives of the underlying assets,
estimated dates of decommissioning, changes in decommissioning costs, changes in federal or state regulatory guidance on
the decommissioning of such facilities, or other changes in estimates. Changes due to revised estimates 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.
Insurance
The Company is self-insured for certain obligations related to health, workers’ compensation, vehicles and general liability
programs. The Company also purchases stop-loss insurance policies for health, workers’ compensation, vehicles and general
liability programs to protect itself from catastrophic losses. Judgments and estimates are used in determining the potential
value associated with reported claims and for events that have occurred, but have not been reported. The Company’s
estimates consider historical claims experience and other factors. In certain cases where partial insurance coverage exists, the
Company estimates the portion of the liability that will be covered by existing insurance policies to arrive at its net expected
liability. Receivables for insurance recoveries are recorded as assets, on an undiscounted basis. The Company’s liabilities are
based on estimates, and, while the Company believes that its accruals are adequate, the ultimate liability may be significantly
different from the amounts recorded. Changes in claims experience, the Company’s ability to settle claims or other estimates
and judgments used by management could have a material impact on the amount and timing of expense for any period.
Supplemental Executive Retirement Plan and other Pension Plans
Pension expense is recognized on an accrual basis over employees’ estimated service periods. Pension expense is generally
independent of funding decisions or requirements.
The Company (1) recognizes in its statement of financial position the over-funded or under-funded status of its defined
benefit postretirement plans measured as the difference between the fair value of plan assets and the benefit obligation,
(2) recognizes as a component of other comprehensive (loss) income, net of tax, the actuarial gains and losses and the prior
service costs and credits that arise during the period but are not recognized as components of net periodic benefit cost,
(3) measures defined benefit plan assets and defined benefit plan obligations as of the date of its statement of financial
position, and (4) discloses additional information in the notes to financial statements about certain effects on net periodic
benefit cost in the upcoming fiscal year that arise from delayed recognition of the actuarial gains and losses and the prior
service costs and credits. Refer to Note 7, “Employee Benefit Plans”, of these Consolidated Financial Statements for further
discussion regarding the Company’s pension plans.
The calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions,
including the expected long-term rates of return on plan assets, the assumed discount rates, assumed rate of compensation
increases and life expectancy of participants. Changes in these assumptions can result in different expense and liability
amounts, and future actual experience can differ from these assumptions. Pension expense increases as the expected rate of
return on pension plan assets decreases. Future changes in plan asset returns, assumed discount rates and various other factors
related to the participants in the Company’s pension plans will impact the Company’s future pension expense and liabilities.
The Company cannot predict with certainty what these factors will be in the future.
47
Income Taxes
The Company computes income tax expense by jurisdiction based on its operations in each jurisdiction. Deferred income
taxes are provided for temporary differences between the amounts recognized for income tax and financial reporting purposes
at currently enacted tax rates. The Tax Cuts and Jobs Act of 2017 (the “TCJA”) included a mandatory one-time transition tax
on accumulated earnings of foreign subsidiaries and, as a result, previously unremitted earnings for which no U.S. deferred
tax liability had been accrued have now been subject to U.S. tax. Deferred tax assets and liabilities are determined by the
differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. See Note
4, “Income Taxes” in these Consolidated Financial Statements for the types of items that give rise to significant deferred
income tax assets and liabilities. Deferred income taxes are classified as assets or liabilities based on the classification of the
related asset or liability for financial reporting purposes. The Company regularly reviews deferred tax assets for
recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary
differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax
assets will be realized.
The Company is periodically reviewed by U.S. domestic and foreign tax authorities regarding the amount of taxes due. These
reviews typically include inquiries regarding the timing and amount of deductions and the allocation of income among
various tax jurisdictions. In evaluating the exposure associated with various filing positions, the Company records estimated
reserves. Refer to Note 4, “Income Taxes”, of these Consolidated Financial Statements for further discussion regarding the
Company’s accounting for income taxes and its uncertain tax positions for financial accounting purposes.
Advertising Costs
Advertising costs are expensed as incurred and are classified as selling and administrative expenses. The Company incurred
advertising costs of $3.8 million, $3.6 million and $2.8 million, for fiscal 2020, 2019 and 2018, respectively.
Share-Based Compensation
Compensation expense for all stock options, stock appreciation rights, unrestricted stock and restricted stock units
(collectively, “Share-Based Awards”) is recognized ratably over the related vesting period, net of actual forfeitures. Certain
Share-Based Awards in the form of stock appreciation rights and shares of unrestricted stock were granted during fiscal 2020,
2019 and 2018 to non-employee Directors of the Company, which were fully vested upon grant and, with respect to stock
appreciation rights, expire eight years after the grant date. Accordingly, compensation expense related to these Share-Based
Awards in fiscal 2020, 2019 and 2018 was recognized on the date of grant.
For performance-based restricted stock unit awards with revenue and adjusted operating margin targets, we evaluate the
probability of meeting the performance criteria at each balance sheet date and if probable, related compensation cost is
amortized over the performance period on a straight-line basis because such awards vest only at the end of the measurement
period. Changes to the probability assessment and the estimate of shares expected to vest will result in adjustments to the
related share-based compensation expense that will be recorded in the period of the change. If the performance targets are not
achieved, no compensation cost is recognized and any previously recognized compensation cost is reversed.
U.S. GAAP requires that share-based compensation cost be measured at the grant date based on the fair value of the award
and be recognized as expense over the requisite service period, which is generally the vesting period. Determining the fair
value of Share-Based Awards in the form of stock appreciation rights at the grant date requires judgment, including
estimating expected dividends and share price volatility. The fair value of each Share-Based Award in the form of stock
appreciation rights is estimated on the date of grant using the Black-Scholes option pricing model.
The Company recognizes compensation expense for restricted stock and restricted stock unit grants over the related vesting
period. The fair value for each restricted stock, unrestricted stock and restricted stock unit grant is determined by using the
closing price of the Company’s stock on the date of the grant. Refer to Note 12, “Share-Based Compensation”, of these
Consolidated Financial Statements for further discussion regarding the Company’s share-based compensation plans.
Income Per Share
The Company calculates income per share by allocating income to its unvested participating securities as part of its income
per share calculations.
48
The Class B Common Stock may be converted at any time on a one-for-one basis into Common Stock at the option of the
holder of the Class B Common Stock. Diluted income per share for the Company’s Common Stock assumes the conversion
of all of the Company’s Class B Common Stock into Common Stock, full vesting of outstanding restricted stock, and the
exercise of Share-Based Awards under the Company’s stock incentive plans.
The following table sets forth the computation of basic income per share using the two-class method for amounts attributable
to the Company’s shares of Common Stock and Class B Common Stock (in thousands, except per share data):
Year ended
Net income available to shareholders
Allocation of net income for Basic:
Common Stock
Class B Common Stock
Weighted average number of shares for Basic:
Common Stock
Class B Common Stock
Income per share for Basic:
Common Stock
Class B Common Stock
August 29,
2020
135,770 $
August 31,
2019
179,134 $
August 25,
2018
163,895
114,017 $
21,753
135,770 $
150,247 $
28,887
179,134 $
133,802
30,093
163,895
$
$
$
15,276
3,643
18,919
15,385
3,697
19,082
$
$
7.46 $
5.97 $
9.77 $
7.81 $
15,454
4,357
19,811
8.66
6.91
The Company is required to calculate the diluted income per share for Common Stock using the more dilutive of the
following two methods:
•
•
The treasury stock method; or
The two-class method assuming a participating security is not exercised or converted.
For fiscal 2020, 2019 and 2018, the Company’s diluted income per share assumes the conversion of all Class B Common
Stock into Common Stock and uses the two-class method for its unvested participating shares. The following table sets forth
the computation of diluted income per share of Common Stock for the years ended August 29, 2020, August 31, 2019 and
August 25, 2018 (in thousands, except per share data):
Year Ended August 29, 2020
Year Ended August 31, 2019
Year Ended August 25, 2018
As reported—Basic
Add: effect of dilutive potential
common shares
Share-Based Awards
Class B Common Stock
Diluted Income Per Share—
Common Stock
Earnings
to Common
Income
Per Share
shareholders
$ 114,017 15,276 $ 7.46 $ 150,247 15,385 $ 9.77 $ 133,802 15,454 $ 8.66
Earnings
to Common
shareholders
Earnings
to Common
shareholders
Income
Per Share
Income
Per Share
Common
Shares
Common
Shares
Common
Shares
—
123
21,753 3,643
—
114
28,887 3,697
—
152
30,093 4,357
$ 135,770 19,042 $ 7.13 $ 179,134 19,196 $ 9.33 $ 163,895 19,963 $ 8.21
Share-Based Awards that would result in the issuance of 8,094, 8,325 and 4,972 shares, respectively, of Common Stock were
excluded from the calculation of diluted earnings per share for fiscal 2020, 2019 and 2018 because they were anti-dilutive.
Foreign Currency Translation
The functional currency of our foreign operations is the local country’s currency. Transaction gains and losses, including
gains and losses on our intercompany transactions, are included in other (income) expense in the accompanying Consolidated
Statements of Income. Assets and liabilities of operations outside the United States are translated into U.S. dollars using
period-end exchange rates. Revenues and expenses are translated at the average exchange rates in effect during each month of
the fiscal year. The effects of foreign currency translation adjustments are included in shareholders’ equity as a component of
accumulated other comprehensive loss in the accompanying Consolidated Balance Sheets.
49
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.
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.
In August 2018, the FASB issued updated guidance to modify the disclosure requirements for employers that sponsor defined
benefit pension or other postretirement plans. This guidance will be effective for annual reporting periods, and any interim
periods within those annual periods, ending after December 15, 2020 and will be required to be applied on a retrospective
basis with early adoption permitted. Accordingly, the standard will be effective for the Company on August 29, 2021. The
Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.
In August 2018, the FASB issued guidance that addresses customer’s accounting for implementation costs incurred in a cloud
computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation
costs incurred for internal-use software and cloud computing arrangements. This guidance aligns the requirements for
capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include
an internal-use software license). 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. 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.
In December 2019, the FASB issued updated guidance to simplify accounting for income taxes by removing certain
exceptions and improving the consistent application of and simplifying U.S. GAAP in other areas of this topic. This guidance
is effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15,
2020 with early adoption permitted. Accordingly, the guidance will be effective for the Company on August 29, 2021. The
Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.
In March 2020, the FASB issued optional guidance for a limited period of time to ease the potential burden in accounting for
(or recognizing the effects of) reference rate reform on financial reporting. The guidance is effective for all entities as of
March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact that this guidance will have on
its financial statements and related disclosures.
50
2. Acquisitions
During fiscal 2020, the Company completed eight business acquisitions with an aggregate purchase price of approximately
$41.3 million. The allocations of the purchase prices with respect to certain assets acquired during fiscal 2020 are complete.
The results of operations of these acquisitions have been included in the Company’s consolidated financial results since their
respective acquisition dates. These acquisitions were not significant in relation to the Company’s consolidated financial
results and, therefore, pro forma financial information has not been presented.
Aggregate information relating to the acquisition of businesses which were accounted for as purchases is as follows (in
thousands, except number of businesses acquired):
Year ended
Number of businesses acquired
Tangible assets acquired
Goodwill
Customer contracts
Other intangible assets
Liabilities assumed
Acquisition of businesses
August 29,
2020
August 31,
2019
August 25,
2018
$
$
8 $
6,370
23,544
12,697
594
(1,872 )
41,333 $
6 $
322
3,929
1,344
118
—
5,713 $
9
7,743
21,459
11,751
900
(95 )
41,758
Tangible assets acquired primarily relate to accounts receivable, inventory, prepaid expenses and property, plant and
equipment. Liabilities assumed primarily relate to leases, accounts payable and accrued liabilities.
The amount assigned to intangible assets acquired was based on their respective fair values determined as of the acquisition
date. The excess of the purchase price over the tangible and intangible assets was recorded as goodwill. In fiscal 2020, 2019
and 2018, the goodwill was primarily allocated to the U.S. and Canadian Rental and Cleaning segment and is deductible for
tax purposes.
In September 2019, the Company completed an acquisition for approximately $38.8 million. The all-cash transaction was
structured as an asset acquisition, with the Company acquiring substantially all of the acquired company’s industrial laundry,
industrial uniform rental and industrial direct sales assets.
3. Fair Value Measurements
U.S. GAAP establishes a framework for measuring fair value and establishes disclosure requirements about fair value
measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. We considered non-performance risk when determining fair value of our derivative
financial instruments.
The fair value hierarchy prescribed under U.S. GAAP contains three levels as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and
liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques
that use significant unobservable inputs.
51
All financial assets or liabilities that are measured at fair value on a recurring basis (at least annually) have been segregated
into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the
measurement date. The assets or liabilities measured at fair value on a recurring basis are summarized in the tables below (in
thousands):
Assets:
Cash equivalents
Pension plan assets
Foreign currency forward contracts
Total assets at fair value
Assets:
Cash equivalents
Pension plan assets
Foreign currency forward contracts
Total assets at fair value
Level 1
Level 2
Level 3
Fair Value
As of August 29, 2020
$
$
196,478 $
—
—
196,478 $
— $
4,146
87
4,233 $
— $
—
—
— $
196,478
4,146
87
200,711
Level 1
Level 2
Level 3
Fair Value
As of August 31, 2019
$
$
214,038 $
—
—
214,038 $
— $
4,603
254
4,857 $
— $
—
—
— $
214,038
4,603
254
218,895
The Company’s cash equivalents listed above represent money market securities and are classified within Level 1 of the fair
value hierarchy because they are valued using quoted market prices. The Company does not adjust the quoted market price
for such financial instruments.
The Company’s pension plan assets listed above represent guaranteed deposit accounts that are maintained and operated by
Prudential Retirement Insurance and Annuity Company (“PRIAC”). All assets are merged with the general assets of PRIAC
and are invested predominantly in privately placed securities and mortgages. At the beginning of each calendar year, PRIAC
notifies the Company of the annual rates of interest which will be applied to the amounts held in the guaranteed deposit
account during the next calendar year. In determining the interest rate to be applied, PRIAC considers the investment
performance of the underlying assets of the prior year; however, regardless of the investment performance the Company is
contractually guaranteed a minimum rate of return. As such, the Company’s pension plan assets are included within Level 2
of the fair value hierarchy.
The Company’s foreign currency forward contracts represent contracts the Company has entered into to exchange Canadian
dollars for U.S. dollars at fixed exchange rates in order to manage its exposure related to certain forecasted Canadian dollar
denominated sales of one of its subsidiaries. These contracts are included in prepaid expenses and other current assets and
other long-term assets as of August 29, 2020 and August 31, 2019. 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.
4. Income Taxes
The provision / (benefit) for income taxes consists of the following (in thousands):
Fiscal year
Current:
Federal
Foreign
State
Total current
Deferred:
Federal
Foreign
State
Total deferred
Total
2020
2019
2018
$
$
$
$
$
40,084 $
1,589
12,865
54,538 $
(8,522 ) $
(599 )
(3,299 )
(12,420 ) $
42,118 $
38,545 $
(200 )
11,733
50,078 $
7,289 $
645
778
8,712 $
58,790 $
23,815
527
8,012
32,354
(11,517 )
363
2,151
(9,003 )
23,351
52
The following table reconciles the provision for income taxes using the statutory federal income tax rate to the actual
provision for income taxes:
Fiscal year
Income taxes at the statutory federal income tax rate
State income taxes
Other
Deemed Repatriation of Non—U.S. Earnings, net foreign
tax credits and other (collectively, Transition Tax)
Impact of U.S. tax reform federal tax rate reduction
Total
2020
2019
2018
21.0 %
4.4
(1.7 )
—
—
23.7 %
21.0 %
4.3
(0.6 )
—
—
24.7 %
25.9 %
4.1
(2.8 )
1.4
(16.1 )
12.5 %
The components of deferred income taxes included on the consolidated balance sheets are as follows (in thousands):
Deferred Tax Assets
Payroll and benefit related
Insurance related
Environmental
Accrued expenses
Operating lease liabilities
Other
Total deferred tax assets
Deferred Tax Liabilities
Payroll and benefit related
Tax in excess of book depreciation
Purchased intangible assets
Rental merchandise in service
Operating lease right-of-use assets
Other
Total deferred tax liabilities
Net deferred tax liability
August 29,
2020
August 31,
2019
$
$
$
$
17,451 $
13,790
7,856
6,270
8,720
7,536
61,623 $
17,722 $
41,713
32,892
38,846
8,952
191
140,316
78,693 $
15,929
11,948
7,093
2,164
—
7,301
44,435
16,056
42,691
29,633
46,649
—
290
135,319
90,884
The Company regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the
expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes
it is more likely than not that the recorded deferred tax assets will be realized.
U.S. Tax Reform
The TCJA enacted on December 22, 2017, among other matters, reduced the U.S. federal corporate income tax rate from
35.0% to 21.0%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were
previously tax deferred, and created new taxes on certain foreign sourced earnings.
On December 22, 2017, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 118,
Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing SEC registrants to consider the
impact of the U.S. legislation as “provisional” when a registrant does not have the necessary information available, prepared
or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. In accordance
with SAB 118, during fiscal 2018 the Company recorded its best estimates based on its interpretation of the U.S. legislation
while it continued to accumulate data to finalize the underlying calculations. This resulted in the Company recording a
provisional net income tax benefit of $20.1 million for the fiscal year ended August 25, 2018 related to remeasuring its U.S.
net deferred tax liabilities at the lower tax rate and the one-time transition tax.
As a result of the TCJA, U.S. corporations are subject to lower income tax rates. For fiscal 2020 and 2019, the statutory tax
rate was 21.0% compared to the applicable blended statutory tax rate of 25.9% for fiscal 2018.
During the second quarter of fiscal 2019, the Company completed its accounting for the tax effects of enactment of the TCJA
as required by SAB 118. There were no changes from the provisional calculation as recorded through August 25, 2018 to the
final calculation.
53
Effective tax rate
The Company’s effective tax rate for the fiscal year ended August 29, 2020 was 23.7% as compared to 24.7% for the
corresponding period in the prior year. The decrease in the effective tax rate was primarily due to higher benefits of $2.1
million resulting from the release of certain tax reserves and the tax benefit related to the exercise of stock appreciation rights
in fiscal 2020 compared to fiscal 2019.
Foreign tax effect
As of August 29, 2020, unremitted foreign earnings, have been retained by the Company’s foreign subsidiaries for indefinite
reinvestment. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company could be subject to
immaterial withholding taxes payable to the various foreign countries.
Uncertain tax positions
As of August 29, 2020 and August 31, 2019, there was $6.3 million and $7.7 million, respectively, of unrecognized tax
benefits, of which $5.6 million and $7.0 million, respectively, would favorably impact the Company’s effective tax rate, if
recognized. The Company recognized interest and penalties related to uncertain tax positions as a component of income tax
expense which is consistent with the recognition of these items in prior reporting periods. As of August 29, 2020 and
August 31, 2019, the Company had accrued a total of $0.2 million and $0.2 million, respectively, in interest and penalties, in
its long-term accrued liabilities. For the years ended August 29, 2020, August 31, 2019 and August 25, 2018 the Company
recognized a nominal expense in its Consolidated Statement of Income related to interest and penalties.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance at August 25, 2018
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Statute expirations
Balance at August 31, 2019
Additions based on tax positions related to the current year
Reduction for tax positions of prior years
Statute expirations
Balance at August 29, 2020
$
$
2,198
329
5,535
(394 )
7,668
475
(1,389 )
(424 )
6,330
The Company has a significant portion of its operations in the United States and Canada. It is required to file federal income
tax returns as well as state income tax returns in a majority of the U.S. states and also in a number of Canadian provinces. At
times, the Company is subject to audits in these jurisdictions, which typically are complex and can require several years to
resolve. The final resolution of any such tax audits could result in either a reduction in the Company’s accruals or an increase
in its income tax provision, both of which could have a material impact on the consolidated results of operations in any given
period.
All U.S. and Canadian federal income tax statutes have lapsed for filings up to and including fiscal years 2015 and 2012,
respectively. With a few exceptions, the Company is no longer subject to state and local income tax examinations for periods
prior to fiscal 2016. 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.
5. Loans Payable and Long-term Debt
As of August 29, 2020 and August 31, 2019, the Company had no outstanding loans payable.
The Company has 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, the Company is able to borrow funds at variable
interest rates based on, at its election, the Eurodollar rate or a base rate, plus in each case a spread based on the Company’s
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. The Company tests its compliance with these financial covenants on a fiscal quarterly basis. As of August
29, 2020, the interest rates applicable to the Company’s borrowings under the Credit Agreement would be calculated as
54
LIBOR plus 75 basis points at the time of the respective borrowing. As of August 29, 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 August 29, 2020, the Company was in compliance with all covenants under the Credit Agreement.
6. Derivative Instruments and Hedging Activities
The Company uses derivative financial instruments to mitigate its exposure to fluctuations in foreign currencies on certain
forecasted transactions denominated in foreign currencies. U.S. GAAP requires that all of the Company’s derivative
instruments be recorded on the balance sheet at fair value. All subsequent changes in a derivative’s fair value are recognized
in income, unless specific hedge accounting criteria are met.
Derivative instruments that qualify for hedge accounting are classified as a hedge of the variability of cash flows to be
received or paid related to a recognized asset, liability or forecasted transaction. Changes in the fair value of a derivative that
is highly effective and designated as a cash flow hedge are recognized in accumulated other comprehensive (loss) income
until the hedged item or forecasted transaction is recognized in earnings. The Company performs an assessment at the
inception of the hedge and on a quarterly basis thereafter, to determine whether its derivatives are highly effective in
offsetting changes in the value of the hedged items. Any changes in the fair value resulting from hedge ineffectiveness are
immediately recognized as income or expense.
In June 2018, the Company entered into twelve forward contracts to exchange CAD for U.S. dollars at fixed exchange rates
in order to manage its exposure related to certain forecasted CAD denominated sales of one of its subsidiaries. The hedged
transactions are specified as the first amount of CAD denominated revenues invoiced by one of the Company’s domestic
subsidiaries each fiscal quarter, beginning in the third fiscal quarter of 2019 and continuing through the second fiscal quarter
of 2022. In total, the Company will sell approximately 12.1 million CAD at an average Canadian-dollar exchange rate of
0.7814 over these quarterly periods. The Company concluded that the forward contracts met the criteria to qualify as a cash
flow hedge under U.S. GAAP.
As of August 29, 2020, the Company 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. For the fiscal year
ended August 29, 2020, the Company 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.
7. Employee Benefit Plans
Defined Contribution Retirement Savings Plan
The Company has a defined contribution retirement savings plan with a 401(k) feature for all eligible U.S. and Canadian
employees not under collective bargaining agreements. The Company matches a portion of the employee’s contribution and
may make an additional contribution at its discretion. Contributions charged to expense under the plan for fiscal 2020, 2019
and 2018 were $16.6 million, $19.7 million and $18.1 million, respectively.
Pension Plans and Supplemental Executive Retirement Plans
The Company accounts for its pension plans and Supplemental Executive Retirement Plan on an accrual basis over
employees’ estimated service periods.
The Company maintains an unfunded Supplemental Executive Retirement Plan (“SERP”) for certain eligible employees of
the Company. The benefits are based on the employee’s compensation upon retirement. The amount charged to expense
related to this plan amounted to approximately $2.6 million, $2.1 million and $2.1 million for fiscal 2020, 2019 and 2018,
respectively.
55
The Company maintains a non-contributory defined benefit pension plan (“UniFirst Plan”) covering employees at one of its
locations. The benefits are based on years of service. The UniFirst Plan assets are invested in a Guaranteed Deposit Account
(“GDA”) that is maintained and operated by Prudential Retirement Insurance and Annuity Company (“PRIAC”). All assets
are merged with the general assets of PRIAC and are invested predominantly in privately placed securities and mortgages. At
the beginning of each calendar year, PRIAC notifies the Company of the annual rates of interest which will be applied to the
amounts held in the GDA during the next calendar year. In determining the interest rate to be applied, PRIAC considers the
investment performance of the underlying assets of the prior year; however, regardless of the investment performance the
annual interest rate applied per the contract must be a minimum of 3.25%. The amount charged to expense related to this plan
amounted to approximately $0.2 million, $0.3 million and $0.3 million for fiscal 2020, 2019 and 2018.
In connection with one of the Company’s acquisitions, the Company assumed liabilities related to a frozen pension plan
covering many of the acquired Company’s former employees (“Textilease Plan”). The pension benefits are based on years of
service and the employee’s compensation. The Textilease Plan assets are held in a separate GDA with PRIAC; however the
minimum interest rate per the Textilease Plan contract is 1.5%. The amount charged to expense related to this plan amounted
to approximately $0, $0.5 million and $0.2 million, respectively, for fiscal 2020, 2019 and 2018.
The Company refers to its UniFirst Plan and Textilease Plan collectively as its “Pension Plans”.
The components of net periodic benefit cost related to the Company’s Pension Plans and SERP for fiscal 2020, 2019 and
2018 were as follows (in thousands):
Service cost
Interest cost
Expected return on assets
Amortization of prior service cost
Amortization of unrecognized loss
Other events
Net periodic benefit cost
2020
Pension Plans
2019
2018
2020
SERP
2019
$
$
113 $
131
(138 )
66
—
12
184 $
114 $
260
(199 )
66
51
503
795 $
115 $
257
(174 )
66
102
96
725 $
918 $
1,148
1,027
—
—
—
—
247
703
—
—
462 $ 2,648 $ 2,120 $
2018
694
1,027
—
—
362
—
2,083
The Company’s obligations and funded status related to its Pension Plans and SERP as of August 29, 2020 and August 31,
2019 were as follows (in thousands):
Change in benefit obligation:
Projected benefit obligation, beginning of year
Service cost
Interest cost
Actuarial loss
Benefits paid
Settlements
Projected benefit obligation, end of year
Change in plan assets:
Fair value of plan assets, beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Settlements
Fair value of plan assets, end of year
Funded status (net amount recognized):
Pension Plans
SERP
2020
2019
2020
2019
5,566 $
113
131
169
(224 )
(287 )
5,468 $
7,449 $
114
260
163
(50 )
(2,370 )
5,566 $
35,967 $
918
1,027
1,658
(954 )
—
38,616 $
27,547
725
1,148
7,456
(909 )
—
35,967
4,603 $
54
—
(224 )
(287 )
4,146 $
(1,322 ) $
6,325 $
170
528
(50 )
(2,370 )
4,603 $
(963 ) $
— $
—
—
—
—
— $
(38,616 ) $
—
—
—
—
—
—
(35,967 )
$
$
$
$
$
56
As of August 29, 2020 and August 31, 2019, the accumulated benefit obligations for the Company’s Pension Plans were
$5.5 million and $5.6 million, respectively. As of August 29, 2020 and August 31, 2019, the accumulated benefit obligations
for the Company’s SERP were $30.7 million and $27.4 million, respectively.
The amounts recorded on the Consolidated Balance Sheet for the Company’s Pension Plans and SERP as of August 29, 2020
and August 19, 2019 were as follows (in thousands):
Deferred tax assets
Accrued liabilities
Accumulated other comprehensive loss
Pension Plans
SERP
2020
2019
2020
2019
$
$
$
279 $
1,322 $
(819 ) $
254 $
963 $
(741 ) $
3,144 $
38,616 $
(9,234 ) $
2,912
35,967
(8,509 )
As of August 29, 2020 and August 31, 2019, the amounts recognized in accumulated other comprehensive loss for the
Company’s Pension Plans and SERP were as follows (in thousands):
Net actuarial gain (loss)
Unrecognized prior service cost
Accumulated other comprehensive loss
Pension Plans
SERP
2020
2019
2020
2019
$
$
(1,011 ) $
192
(819 ) $
(549 ) $
(192 )
(741 ) $
(9,234 ) $
—
(9,234 ) $
(8,509 )
—
(8,509 )
The weighted average assumptions used in calculating the Company’s projected benefit obligation as of August 29, 2020 and
August 31, 2019, were as follows:
Discount rate
Rate of compensation increase
Pension Plans
SERP
2020
2019
2020
2019
2.0 %
N/A
2.7 %
N/A
2.5 %
5.0 %
2.9 %
5.0 %
The weighted average assumptions used in calculating the Company’s net periodic service cost for the years ended August
29, 2020, August 31, 2019 and August 25, 2018, were as follows:
Discount rate
Expected return on plan assets
Rate of compensation increase
2020
Pension Plans
2019
2018
2020
SERP
2019
2018
2.7 %
3.5 %
N/A
3.8 %
3.5 %
N/A
3.2 %
3.5 %
N/A
2.9 %
N/A
5.0 %
4.0 %
N/A
5.0 %
3.6 %
N/A
5.0 %
The following benefit payments, which reflect expected future service, that are expected to be paid for the five fiscal years
subsequent to August 29, 2020 and thereafter are as follows (in thousands):
2021
2022
2023
2024
2025
Thereafter
Total benefit payments
Pension Plans
SERP
$
$
723 $
214
313
307
379
3,532
5,468 $
1,194
1,363
1,364
1,560
1,625
31,510
38,616
57
8. Goodwill and Other Intangible Assets
As discussed in Note 2, “Acquisitions”, when the Company acquires a business the amount assigned to the tangible assets
and liabilities and intangible assets acquired is based on their respective fair values determined as of the acquisition date. The
excess of the purchase price over the tangible assets and liabilities and intangible assets is recorded as goodwill. The
following details the changes in the Company’s intangible assets and goodwill related to the Company’s acquisitions for the
years ended August 29, 2020 and August 31, 2019 as well as the respective periods over which the assets will be amortized
(in thousands, except weighted average life in years). These amounts include additional payments associated with prior year
acquisitions:
Year ended
Goodwill
Customer contracts
Other intangible assets
Total intangible assets and goodwill acquired
August 29,
2020
Weighted
Average Life
in Years
August 31,
2019
Weighted
Average Life
in Years
$
$
23,544
12,697
594
36,835
N/A $
14.1
5.3
$
3,885
1,070
118
5,073
N/A
10.0
3.0
The Company does not amortize goodwill, but it is reviewed annually or more frequently if certain indicators arise, for
impairment. There were no impairment losses related to goodwill or intangible assets during the years ended August 29,
2020, August 31, 2019 and August 25, 2018.
The changes in the carrying amount of goodwill are as follows (in thousands):
Balance as of August 25, 2018
Goodwill recorded during the period
Other
Balance as of August 31, 2019
Goodwill recorded during the period
Other
Balance as of August 29, 2020
$
$
$
397,422
3,885
(129 )
401,178
23,544
122
424,844
As of August 29, 2020, the Company has allocated $413.2 million, $11.0 million and $0.6 million of goodwill to its U.S. and
Canadian Rental and Cleaning, Specialty Garments and First Aid segments, respectively.
Intangible assets, net in the Company’s accompanying Consolidated Balance Sheets are as follows (in thousands):
August 29, 2020
Customer contracts
Software
Other intangible assets
August 31, 2019
Customer contracts
Software
Other intangible assets
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
$
$
$
234,065 $
66,014
35,741
335,820 $
221,306 $
48,838
35,063
305,207 $
177,119 $
39,020
34,145
250,284 $
164,718 $
34,813
32,956
232,487 $
56,946
26,994
1,596
85,536
56,588
14,025
2,107
72,720
58
Estimated amortization expense for the five fiscal years subsequent to August 29, 2020 and thereafter, based on intangible
assets, net as of August 29, 2020 is as follows (in thousands):
2021
2022
2023
2024
2025
Thereafter
Total estimated amortization expense
9. Accrued Liabilities
$
$
14,127
12,573
10,633
9,367
8,276
30,560
85,536
Accrued liabilities in the accompanying Consolidated Balance Sheet consists of the following (in thousands):
Current liabilities:
Payroll and benefit related
Bonuses
Insurance related
Environmental related
Other
Total current liabilities
Long-term liabilities:
Benefit related
Environmental related
Asset retirement obligations
Insurance related
Total long-term liabilities
Total accrued liabilities
August 29,
2020
August 31,
2019
$
$
$
$
$
46,789 $
13,803
34,403
11,172
26,798
132,965 $
38,744 $
19,530
13,920
60,626
132,820 $
265,785 $
36,634
14,288
31,778
9,785
19,236
111,721
35,883
17,933
12,727
50,531
117,074
228,795
10. Asset Retirement Obligations
Asset retirement obligations generally result from legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and/or the normal operation of a long-lived asset. Accordingly, the
Company recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair
value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.
The Company continues to depreciate, on a straight-line basis, the amount added to property, plant and equipment and
recognizes accretion expense in connection with the discounted liability over the various remaining lives which range from
approximately one to twenty-five years.
The Company recognized as a liability the present value of the estimated future costs to decommission its nuclear laundry
facilities. The estimated liability is based on historical experience in decommissioning nuclear laundry facilities, estimated
useful lives of the underlying assets, external vendor estimates as to the cost to decommission these assets in the future, and
federal and state regulatory requirements. The estimated current costs have been adjusted for the estimated impact of inflation
at 3% per year. The liability has been discounted using credit-adjusted risk-free rates that range from approximately 7.0% to
7.5% over approximately one to twenty-five years. Revisions to the liability could occur due to changes in the Company’s
estimated useful lives of the underlying assets, estimated dates of decommissioning, changes in decommissioning costs,
changes in federal or state regulatory guidance on the decommissioning of such facilities, or other changes in estimates.
Changes due to revised estimates 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.
59
A rollforward of the Company’s asset retirement liability is as follows for fiscal 2020 and 2019 (in thousands):
Beginning balance
Accretion expense
Effect of exchange rate changes
Change in estimate
Ending balance
August 29,
2020
August 31,
2019
$
$
12,727 $
929
264
—
13,920 $
13,668
865
(165 )
(1,641 )
12,727
The Company’s asset retirement obligations are included in current accrued liabilities in the accompanying Consolidated
Balance Sheet.
11. 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 fifty-two weeks ended August 29, 2020:
(In thousands, except lease term and discount rate)
Lease cost
Operating lease costs including short-term lease expense and variable lease costs, which were
immaterial in the period
$
18,125
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
13,048
7,407
4.3
2.76 %
60
Total rent expense on all leases was $15.2 million, $16.5 million and $14.8 million for the fiscal 2020, 2019 and 2018,
respectively. The contractual future minimum lease payments of the Company's operating lease liabilities by fiscal year are
as follows as of August 29, 2020:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total payments
Less interest
Total present value of lease payments
Environmental and Legal Contingencies
$
$
13,458
10,581
7,692
5,314
3,288
3,895
44,228
2,380
41,848
The Company and its operations are subject to various federal, state and local laws and regulations governing, among other
things, air emissions, wastewater discharges, and the generation, handling, storage, transportation, treatment and disposal of
hazardous wastes and other substances. In particular, industrial laundries currently use and must dispose of detergent waste
water and other residues, and, in the past, used perchloroethylene and other dry-cleaning solvents. The Company is attentive
to the environmental concerns surrounding the disposal of these materials and has, through the years, taken measures to avoid
their improper disposal. The Company has settled, or contributed to the settlement of, past actions or claims brought against
the Company relating to the disposal of hazardous materials at several sites and there can be no assurance that the Company
will not have to expend material amounts to remediate the consequences of any such disposal in the future.
U.S. GAAP requires that a liability for contingencies be recorded when it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence of a liability,
as well as the amount to be recorded. The Company regularly consults with attorneys and outside consultants in its
consideration of the relevant facts and circumstances before recording a contingent liability. Changes in enacted laws,
regulatory orders or decrees, management’s estimates of costs, risk-free interest rates, insurance proceeds, participation by
other parties, the timing of payments, the input of the Company’s attorneys and outside consultants or other factual
circumstances could have a material impact on the amounts recorded for environmental and other contingent liabilities.
Under environmental laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances located on, or in, or emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose liability without regard to whether the owner or lessee knew of, or was responsible
for the presence of such hazardous or toxic substances. There can be no assurances that acquired or leased locations have
been operated in compliance with environmental laws and regulations or that future uses or conditions will not result in the
imposition of liability upon the Company under such laws or expose the Company to third-party actions such as tort suits.
The Company continues to address environmental conditions under terms of consent orders negotiated with the applicable
environmental authorities or otherwise with respect to certain sites.
61
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. The United States
Environmental Protection Agency (the “EPA”) has provided the Company and other signatories to the consent decree with
comments on the design and implementation of groundwater and soil remedies at the Woburn site and investigation of
environmental conditions in the Central Area. The Company, 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. The Company has accrued costs
to perform certain work responsive to the EPA’s comments. Additionally, the Company has implemented mitigation
measures and continues to monitor environmental conditions at the Somerville, Massachusetts 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. This station is part
of an ongoing extension of the transit system. The Company has reserved for costs in connection with this matter; however,
in light of the uncertainties associated with this matter, these costs and the related reserve may change.
The Company routinely reviews and evaluates sites that may require remediation and monitoring and determines its
estimated costs based on various estimates and assumptions. These estimates are developed using its internal sources or by
third party environmental engineers or other service providers. Internally developed estimates are based on:
•
•
•
•
Management’s judgment and experience in remediating and monitoring the Company’s sites;
Information available from regulatory agencies as to costs of remediation and monitoring;
The number, financial resources and relative degree of responsibility of other potentially responsible parties (“PRPs”)
who may be liable for remediation and monitoring of a specific site; and
The typical allocation of costs among PRPs.
There is usually a range of reasonable estimates of the costs associated with each site. In accordance with U.S. GAAP, the
Company’s accruals reflect the amount within the range that it believes is the best estimate or the low end of a range of
estimates if no point within the range is a better estimate. Where it believes that both the amount of a particular liability and
the timing of the payments are reliably determinable, the Company adjusts the cost in current dollars using a rate of 3% for
inflation until the time of expected payment and discounts the cost to present value using current risk-free interest rates. As of
August 29, 2020, the risk-free interest rates utilized by the Company ranged from 0.7 to 1.5%.
For environmental liabilities that have been discounted, the Company includes interest accretion, based on the effective
interest method, in selling and administrative expenses on the accompanying Consolidated Statements of Income. The
changes to the Company’s environmental liabilities for fiscal 2020 and 2019 were as follows (in thousands):
Year ended
Beginning balance
Costs incurred for which reserves have been provided
Insurance proceeds
Interest accretion
Changes in discount rates
Revisions in estimates
Ending balance
August 29,
2020
August 31,
2019
27,718 $
(1,160 )
111
537
1,133
2,363
30,702 $
25,486
(1,079 )
143
755
2,239
174
27,718
$
$
62
Anticipated payments and insurance proceeds of currently identified environmental remediation liabilities as of August 29,
2020, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.
(In thousands)
Estimated costs—current dollars
Estimated insurance proceeds
Net anticipated costs
Effect of inflation
Effect of discounting
Balance as of August 29, 2020
2021
2025
2023
2022
(159 )
(197 )
(173 )
$ 11,171 $ 2,509 $ 1,198 $
2024
$ 11,368 $ 2,668 $ 1,371 $ 1,073 $ 1,076 $ 11,852 $ 29,408
(521 ) (1,382 )
(173 )
903 $ 11,331 $ 28,026
7,251
(4,575 )
$ 30,702
(159 )
914 $
Thereafter Total
Estimated insurance proceeds are primarily received from an annuity received as part of a legal settlement with an insurance
company. Annual proceeds of approximately $0.3 million are deposited into an escrow account which funds remediation and
monitoring costs for two sites related to former operations. Annual proceeds received but not expended in the current year
accumulate in this account and may be used in future years for costs related to this site through the year 2027. As of August
29, 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 one of its sites.
The Company’s nuclear garment decontamination facilities are licensed by the Nuclear Regulatory Commission (“NRC”), or,
in certain cases, by the applicable state agency, and are subject to regulation by federal, state and local authorities. There can
be no assurance that such regulation will not lead to material disruptions in the Company’s garment decontamination
business.
During 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 a 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 second quarter of fiscal 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.
While it is impossible for the Company to ascertain the ultimate legal and financial liability with respect to contingent
liabilities, including lawsuits and environmental contingencies, the Company believes that the aggregate amount of such
liabilities, if any, in excess of amounts covered by insurance have been properly accrued in accordance with U.S. GAAP. It is
possible, however, that the future financial position and/or results of operations for any particular future period could be
materially affected by changes in the Company’s assumptions or strategies related to these contingencies or changes out of
the Company’s control.
Other Contingent Liabilities
As security for certain agreements with the NRC and various state agencies related to the nuclear operations (see above) and
certain insurance programs, the Company had standby irrevocable bank commercial letters of credit of $70.8 million and
$71.8 million outstanding as of August 29, 2020 and August 31, 2019, respectively.
Non-cancellable purchase commitments for inventories, software, and services amounted to $22.4 million as of August 29,
2020, of which $19.0 million will be paid in less than 1 year, $3.2 million will be paid in 1 to 3 years, and the remaining will
be paid in 3 to years.
63
12. Share-based Compensation
The Company adopted a stock incentive plan (the “1996 Plan”) in November 1996 and reserved 1,500,000 shares of
Common Stock for issuance under the 1996 Plan. The 1996 Plan provided for the issuance of stock options and stock
appreciation rights. The Company ceased granting new awards under the 1996 Plan as of January 21, 2011, and the 1996
Plan expired in accordance with its terms on January 8, 2012. The Company adopted a stock incentive plan (the “2010 Plan”)
in October 2010 and reserved 600,000 shares of Common Stock for issuance under the 2010 Plan. The 2010 Plan replaced
the Company’s 1996 Plan. The 2010 Plan permits the award of incentive and non-qualified stock options, stock appreciation
rights, restricted stock, restricted stock units, unrestricted stock and performance shares (collectively referred to as “Share-
Based Awards”) as well as dividend equivalent rights and cash-based awards. On October 27, 2014, the Board of Directors,
subject to the approval of the Company’s shareholders, which was received at the 2015 annual meeting of shareholders,
adopted an amendment to the 2010 Plan to, among other matters, reserve for issuance an additional 750,000 shares and
extend to 2025 the time period awards may be granted under the 2010 Plan. As of August 29, 2020, the number of remaining
shares available for future grants under the 2010 Plan was 311,055. Share-based compensation, which includes expense
related to Share-Based Awards, has been recorded in the accompanying Consolidated Statements of Income in selling and
administrative expenses.
All Share-Based Awards issued to management were recommended to the Board of Directors by the Compensation
Committee and approved by the Board of Directors. All Share-Based Awards issued to the Company’s non-employee
members of the Board of Directors (the “Directors”) under the 2010 Plan were recommended to the Board of Directors by the
Compensation Committee and approved by the Board of Directors. Share-Based Awards granted to non-employee Directors
are granted on the third business day following the annual shareholders’ meeting.
In fiscal 2019 and 2018, a total of 291 and 234 shares of fully vested unrestricted stock, respectively, were granted to certain
non-employee Directors of the Company. No such shares were granted during fiscal 2020. Accordingly, compensation
expense related to the 2019 and 2018 unrestricted stock was recognized on the date of grant.
In each of fiscal 2020, 2019 and 2018, the Company granted a total of 5,000 stock appreciation rights under the 2010 Plan to
the Company’s non-employee Directors. Such stock appreciation rights were fully vested upon grant, expire on the earlier of
the eighth anniversary of the grant date or the second anniversary of the date that the Director ceases to be a member of the
Board of Directors and must be settled in stock at the time of exercise. Accordingly, compensation expense related to the
stock appreciation rights was recognized on the date of grant.
As of August 29, 2020, the total compensation cost not yet recognized related to non-vested Share-Based Awards was
approximately $13.7 million. The weighted average period over which compensation cost for Share-Based Awards will be
recognized is 2.2 years.
All stock appreciation rights issued to employees were granted with an exercise price equal to the fair net realizable value of
the Company’s Common Stock on the date of grant. Other than certain stock appreciation rights which vest 20% on each
anniversary of the grant date over a five-year period and beginning in fiscal 2020, certain stock appreciation rights which vest
60% on the third anniversary of the grant date and 20% on each of the fourth and fifth anniversaries of the grant date, stock
appreciation rights are subject to a five-year cliff-vesting schedule under which the awards become fully vested or exercisable
after five years from the date of grant and expire ten years after the grant date. Share-Based Awards granted to the
Company’s non-employee Directors were fully vested as of the date of grant. Beginning in fiscal 2009, non-employee
Director Share-Based Award grants in the form of stock options and stock appreciation rights expire on the earlier of the
eighth anniversary of the grant date or the second anniversary of the date that the Director ceases to be a member of the
Board of Directors.
Time-based restricted stock units granted to employees vest either 20% on each anniversary of the grant date over a five-year
period, 33% on each anniversary of the grant date over a three-year period or on a five-year cliff vesting schedule under
which the awards become fully vested after five years from the date of grant. Beginning in fiscal 2020, certain time-based
restricted stock units granted to employees vest 60% on the third anniversary of the grant date and 20% on each of the fourth
and fifth anniversaries of the grant date. Generally, performance-based restricted stock units granted to employees are earned
based on whether and the extent to which the Company achieves certain consolidated revenues and adjusted operating
margins.
64
The fair value of each stock appreciation right is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used:
Fiscal year ended August
Risk-free interest rate
Expected dividend yield
Expected life in years
Expected volatility
2020
2019
2018
1.69 %
0.50 %
5.60
22.4 %
3.07 %
0.48 %
7.24
22.9 %
2.23 %
0.18 %
7.41
23.1 %
The weighted average fair values of Share-Based Awards granted in the form of stock appreciation rights during fiscal years
2020, 2019 and 2018 were $46.58, $46.20 and $47.51, respectively.
The following table summarizes the Share-Based Awards activity in the form of stock options and stock appreciation rights
for fiscal 2020:
Outstanding, August 31, 2019
Granted
Exercised
Forfeited
Outstanding, August 29, 2020
Exercisable, August 29, 2020
Number of
Shares
Weighted
Average
Exercise Price
570,250 $
35,396
(92,501 )
(18,212 )
494,933 $
122.03
203.04
98.96
121.83
132.14
150,099 $
113.69
The following table summarizes the Share-Based Awards activity in the form of restricted stock units for fiscal 2020:
Unvested balance at August 31, 2019
Granted
Vested
Forfeited
Unvested balance at August 29, 2020
13. Shareholders’ Equity
Number of
Shares
Weighted
Average
Grant Price
28,533 $
36,421
(6,434 )
(600 )
57,920 $
153.96
201.29
156.99
201.24
183.90
The Company has two classes of common stock: Common Stock and Class B Common Stock. Each share of Common Stock
is entitled to one vote, is freely transferable, and is entitled to a cash dividend equal to 125% of any cash dividend paid on
each share of Class B Common Stock. Each share of Class B Common Stock is entitled to ten votes and can be converted to
Common Stock on a share-for-share basis. However, until converted to Common Stock, shares of Class B Common Stock are
not freely transferable. For the year ended August 31, 2019, 67,000 shares of Class B Common Stock were converted to
Common Stock.
On March 27, 2018, the Company 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 former UniFirst Chief Executive Officer, Ronald D.
Croatti.
The Special Committee determined that a repurchase of Croatti family Class B Common Stock at a discount to market was in
the best interests of the Company 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
65
per share in cash to be paid was fair to the Company, 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, the Company announced that it would be raising its 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, the Company announced that it would be raising its quarterly dividend to $0.25 per share for Common
Stock and to $0.20 per share for Class B Common Stock, up from $0.1125 and $0.09 per share, respectively. The amount and
timing of any future dividend payment is subject to the approval of the Board of Directors each quarter.
On January 2, 2019, the Company’s Board of Directors approved a share repurchase program authorizing the Company to
repurchase from time to time up to $100.0 million of its outstanding shares of Common Stock. Repurchases made under the
program, if any, will be made in either the open market or in privately negotiated transactions. The 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 and may be
suspended or discontinued at any time. During fiscal 2020, the Company repurchased approximately 118,000 shares for an
average price per share of $184.67. During fiscal 2019, the Company repurchased 197,150 shares for an average price per
share of $154.78. Currently, there is $47.7 million remaining to repurchase outstanding shares of Common Stock under this
program.
14. Accumulated Other Comprehensive Loss
The changes in each component of accumulated other comprehensive loss for fiscal 2020 and 2019 are as follows (in
thousands):
Balance as of August 25, 2018
Change during the year
Balance as of August 31, 2019
Change during the year
Balance as of August 29, 2020
(1) Amounts are shown net of tax.
$
$
(21,116 ) $
(3,524 )
(24,640 )
2,631
(22,009 ) $
(4,135 ) $
(5,104 )
(9,239 )
(787 )
(10,026 ) $
Foreign
Currency
Translation
Pension-
related (1)
Derivative
Financial
Instruments (1)
Total
Accumulated
Other
Comprehensive
Loss
(25,159 )
(8,529 )
(33,688 )
1,718
(31,970 )
92 $
99
191
(126 )
65 $
Amounts reclassified from accumulated other comprehensive loss, net of tax, for fiscal 2020 and 2019 were as follows (in
thousands):
Pension benefit liabilities, net:
Actuarial losses (a)
Tax effect reclass
Total, net of tax
Derivative financial instruments, net:
Forward contracts loss (gain) (b)
Total, net of tax
Total amounts reclassified, net of tax
Year Ended
August 29, 2020
Year Ended
August 31,
2019
$
$
233 $
—
233
151
151
384 $
645
—
645
(153 )
(153 )
492
(a) Amounts included in selling and administrative expenses in the accompanying Consolidated Statements of Income.
(b) Amounts included in revenues in the accompanying Consolidated Statements of Income.
66
15. Segment Reporting
Operating segments are identified as components of an enterprise for which separate discrete financial information is
available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to
allocate resources and assess performance. The Company’s chief operating decision maker is the Company’s chief executive
officer. The Company has six operating segments based on the information reviewed by its chief executive officer: U.S.
Rental and Cleaning, Canadian Rental and Cleaning, MFG, Specialty Garments, First Aid and Corporate. The U.S. Rental
and Cleaning and Canadian Rental and Cleaning operating segments have been combined to form the U.S. and Canadian
Rental and Cleaning reporting segment, and as a result, the Company has five reporting segments.
The U.S. and Canadian Rental and Cleaning reporting segment purchases, rents, cleans, delivers and sells, uniforms and
protective clothing and non-garment items in the United States and Canada. The laundry locations of the U.S. and Canadian
Rental and Cleaning reporting segment are referred to by the Company as “industrial laundries” or “industrial laundry
locations.”
The MFG operating segment designs and manufactures uniforms and non-garment items primarily for the purpose of
providing these goods to the U.S. and Canadian Rental and Cleaning reporting segment. MFG revenues are primarily
generated when goods are shipped from the Company’s manufacturing facilities, or its subcontract manufacturers, to other
Company locations. These intercompany revenues are recorded at a transfer price which is typically in excess of the actual
manufacturing cost. Manufactured products are carried in inventory until placed in service at which time they are amortized
at this transfer price. On a consolidated basis, intercompany revenues and income are eliminated and the carrying value of
inventories and rental merchandise in service is reduced to the manufacturing cost. Income before income taxes from MFG
net of the intercompany MFG elimination offsets the merchandise amortization costs incurred by the U.S. 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.
The Corporate operating segment consists of costs associated with the Company’s distribution center, sales and marketing,
information systems, engineering, procurement, supply chain, accounting and finance, human resources, other general and
administrative costs and interest expense. The revenues generated from the Corporate operating segment represent certain
direct sales made by the Company directly from its distribution center. The products sold by this operating segment are the
same products rented and sold by the U.S. and Canadian Rental and Cleaning reporting segment. In the table below, no assets
or capital expenditures are presented for the Corporate operating segment because no assets are allocated to this operating
segment in the information reviewed by the chief executive officer. However, depreciation and amortization expense related
to certain assets are reflected in income from operations and income before income taxes for the Corporate operating
segment. The assets that give rise to this depreciation and amortization are included in the total assets of the U.S. and
Canadian Rental and Cleaning reporting segment as this is how they are tracked and reviewed by the Company. The majority
of expenses accounted for within the Corporate segment relate to costs of the U.S. and Canadian Rental and Cleaning
segment, with the remainder of the costs relating to the Specialty Garment and First Aid segments.
The Specialty Garments operating segment purchases, rents, cleans, delivers and sells, specialty garments and non-garment
items primarily for nuclear and cleanroom applications and provides cleanroom cleaning services at limited customer
locations. The First Aid operating segment sells first aid cabinet services and other safety supplies, provides certain safety
training and maintains wholesale distribution and pill packaging operations.
The Company refers to the U.S. and Canadian Rental and Cleaning, MFG, and Corporate reporting segments combined as its
“Core Laundry Operations,” which is included as a subtotal in the following tables (in thousands):
As of and for
the year ended August 29, 2020
Revenues
Income (loss) from operations
Interest (income) expense, net
Income (loss) before taxes
Depreciation and amortization
Capital expenditures
Total assets
US and
Canadian
Rental and
Cleaning
MFG
Net
Interco
MFG
Elim
Subtotal
Core
Laundry
Operations
Corporate
Specialty
Garments
First
Aid
Total
(3,741 ) $
$ 1,552,179 $ 214,683 $ (214,683 ) $ 49,306 $ 1,601,485 $ 133,185 $ 69,489 $ 1,804,159
$ 247,392 $ 64,097 $ 10,012 $ (171,514 ) $ 149,987 $ 17,845 $ 4,897 $ 172,729
$
(6,382 )
$ 251,088 $ 63,912 $ 10,012 $ (170,629 ) $ 154,383 $ 18,604 $ 4,901 $ 177,888
71,020 $ 2,404 $
98,407 $ 4,335 $ 1,955 $ 104,697
$
— $ 110,421 $ 4,864 $ 1,432 $ 116,717
$ 110,024 $
397 $
— $ 2,025,779 $ 131,328 $ 41,920 $ 2,199,027
$ 1,992,546 $ 33,233 $
— $ 24,983 $
— $
— $
(6,382 ) $
(2,641 ) $
— $
— $
— $
— $
67
As of and for
the year ended August 31, 2019
Revenues
Income (loss) from operations
Interest income, net
Income (loss) before taxes
Depreciation and amortization
Capital expenditures
Total assets
As of and for
the year ended August 25, 2018
Revenues
Income (loss) from operations
Interest (income) expense, net
Income (loss) before taxes
Depreciation and amortization
Capital expenditures
Total assets
US and
Canadian
Rental and
Cleaning
MFG
Net
Interco
MFG
Elim
Subtotal
Core
Laundry
Operations
Corporate
Specialty
Garments
First
Aid
Total
(4,105 ) $
$ 1,582,416 $ 254,218 $ (254,111 ) $ 33,682 $ 1,616,205 $ 132,767 $ 60,404 $ 1,809,376
1,128 $ (107,468 ) $ 212,954 $ 14,145 $ 4,909 $ 232,008
$ 235,046 $ 84,248 $
$
(9,082 )
— $
1,128 $ (104,742 ) $ 219,516 $ 13,499 $ 4,909 $ 237,924
$ 239,122 $ 84,008 $
96,858 $ 4,759 $ 1,716 $ 103,333
$
69,376 $ 2,384 $
920 $ 119,815
— $ 115,472 $ 3,423 $
401 $
$ 115,071 $
— $ 1,902,089 $ 110,335 $ 34,896 $ 2,047,320
$ 1,865,713 $ 36,376 $
— $ 25,098 $
— $
— $
— $ — $
(9,082 ) $
(4,977 ) $
— $
US and
Canadian
Rental and
Cleaning
MFG
Net
Interco
MFG
Elim
Subtotal
Core
Laundry
Operations
Corporate
Specialty
Garments
First
Aid
Total
(3,927 ) $
$ 1,485,548 $ 247,530 $ (247,424 ) $ 37,994 $ 1,523,648 $ 118,477 $ 54,364 $ 1,696,489
(9,658 ) $ (129,111 ) $ 163,588 $ 14,070 $ 4,718 $ 182,376
$ 213,322 $ 89,035 $
(5,543 )
— $
$
(9,658 ) $ (127,510 ) $ 168,940 $ 13,589 $ 4,717 $ 187,246
$ 217,252 $ 88,856 $
$
96,662
64,481 $ 2,238 $
— $ 108,363 $ 3,781 $
$ 105,481 $ 2,882 $
603 $ 112,747
— $ 1,704,335 $ 110,811 $ 28,240 $ 1,843,386
$ 1,670,713 $ 33,622 $
— $ 24,108 $
— $
— $
90,827 $ 4,244 $ 1,591 $
— $ — $
(1,616 ) $
(5,543 ) $
— $
The Company’s long-lived assets as of August 29, 2020 and August 31, 2019 and revenues and income before income taxes
for the years ended August 29, 2020, August 31, 2019 and August 25, 2018 were attributed to the following countries (in
thousands):
Long-lived assets as of:
United States
Europe, Canada, Mexico and Nicaragua (1)
Total
Revenues for fiscal years:
United States
Europe and Canada (1)
Total
Income before income taxes for fiscal years:
United States
Europe, Canada, Mexico and Nicaragua (1)
Total
August 29,
2020
1,177,107 $
52,586
1,229,693 $
August 31,
2019
1,087,901
45,628
1,133,529
$
$
2020
1,659,913 $
144,246
1,804,159 $
2019
1,683,321 $
126,055
1,809,376 $
2018
1,559,780
136,709
1,696,489
2020
2019
2018
175,301 $
2,587
177,888 $
236,843 $
1,081
237,924 $
184,605
2,641
187,246
$
$
$
$
(1)
No country accounts for greater than 10% of total long-lived assets, revenues or income before income taxes
68
To the Shareholders and the Board of Directors of UniFirst Corporation
Report of Independent Registered Public Accounting Firm
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of UniFirst Corporation and subsidiaries (the “Company”) as
of August 29, 2020 and August 31, 2019, and the related consolidated statements of income, comprehensive income,
shareholders’ equity, and cash flows for each of the three years in the period ended August 29, 2020, and the related notes
and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company at August 29, 2020 and August 31, 2019, and the results of its operations and its cash flows for each
of the three years in the period ended August 29, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of August 29, 2020, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated October 28, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures
that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Self-Insurance Accruals
Description of the
Matter
As of August 29, 2020, the Company had recognized current and long-term insurance related liabilities
of $33.4 million and $60.6 million, respectively. As discussed in Note 1 to the Company’s
consolidated financial statements, the Company is self-insured for certain obligations related to health,
workers’ compensation, vehicles and general liability programs and judgments and estimates are used
by the Company in determining the potential value associated with reported claims and for events that
have occurred but have not been reported.
Auditing management’s estimate of the portion of the insurance related liabilities related to workers’
compensation, vehicles and general liability is highly judgmental and complex due to the significant
uncertainty in the potential value of reported claims and the number and potential value of incurred but
not reported claims, the application of significant management judgment in making those estimates and
the use of various actuarial methods. The reserve estimate is sensitive to actuarial assumptions used to
estimate the ultimate liability for reported claims and to estimate the value of claims that have been
incurred but have not been reported.
69
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s self-insurance accrual process. This includes controls over the assumptions and
methods used to establish the estimate. Specifically, we tested controls related to management’s review
of data provided to the actuary, significant actuarial assumptions and the related reconciliations.
To test the self-insurance accrual, we performed audit procedures over the significant inputs used in
management’s analysis, including performing transactional testing over the completeness and accuracy
of claims data and vouching payments made to third parties. Furthermore, we involved our actuarial
specialists to assist in evaluating the key assumptions and methodologies used by management to
determine the reserve. We then compared the Company’s reserve amount to a range which our
actuarial specialist developed based on independently selected assumptions.
Environmental Contingencies
Description of the
Matter
As discussed in Note 11 to the Company’s consolidated financial statements, the Company is subject
to various federal, state, and local laws and regulations governing the treatment and disposal of
hazardous waste and other substances. As of August 29, 2020, the Company had recorded a current
and long-term liability of $11.2 million and $19.5 million, respectively, representing its best estimate
of losses related to these environmental matters.
Auditing management’s accounting for environmental loss contingencies was especially challenging,
as significant judgment is required by the Company to evaluate whether it is probable that an
environmental loss contingency has been incurred and to estimate the future costs to remediate the
environmental matters. These judgments include management’s identification of sites with potential
liabilities, management’s estimate of the amount and timing of remediation and other costs, allocation
of costs among other potentially responsible parties, changes to enacted laws and regulations, discount
rates, and evaluation of information available from regulatory agencies.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s identification and measurement of the environmental loss contingency. For
example, we tested controls over management’s review of the environmental loss contingency
calculation and management’s meetings where they evaluate key judgments and estimates affecting the
environmental loss contingency, including those outlined in the paragraph above.
To test the assessment of the probability of incurrence of a loss and whether the loss was reasonably
estimable, we inspected correspondence to and from regulatory agencies, obtained legal counsel
confirmation letters, met with the Company’s legal counsel and other members of management to
discuss environmental matters, inspected environmental studies, read the minutes of the meetings of
the Company’s Board of Directors and committees of the Company’s Board of Directors, and obtained
a representation letter from the Company. Additionally, we utilized our environmental specialists to
perform a search for unrecorded environmental liabilities related to the Company’s sites to look for
new or contrary evidence. To test the measurement of the environmental liabilities, we performed
detailed testing over costs incurred, and based on historical trends and input from management, we
evaluated the reasonableness of estimated costs to be incurred. We tested the allocation of costs
among potentially responsible parties by analyzing allocation settlement agreements, and tested other
assumptions impacting the estimate such as inflation and discount rates by agreeing to third party
sources. We also evaluated the accuracy of any changes in measurement of the liability through
comparison with historical data.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Boston, Massachusetts
October 28, 2020
70
Quarterly Financial Data (Unaudited)
The following is a summary of the results of operations for each of the quarters within the years ended August 29, 2020 and
August 31, 2019. This quarterly financial information was prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission; however, the Company believes that the information furnished
reflects all adjustments (consisting only of normal recurring adjustments) which were, in the opinion of management,
necessary for a fair statement of results in the interim periods. This summary should be read in conjunction with these
Consolidated Financial Statements and notes to Consolidated Financial Statements.
(In thousands, except per share data)
For the year ended August 29, 2020
Revenues
Income before income taxes
Provision for income taxes
Net income
Income per share—basic
Common Stock
Class B Common Stock
Income per share—diluted
Common Stock
Income allocated to—basic
Common Stock
Class B Common Stock
Income allocated to—diluted
Common Stock
First
Quarter (1)
Second
Quarter (2)
Third
Quarter (3)
Fourth
Quarter
$ 465,398 $ 464,600 $ 445,518 $ 428,643
42,991
11,428
31,563
27,206
5,921
21,285 $
45,763
11,083
34,680 $
61,928
13,686
48,242 $
$
$
$
2.65 $
2.12 $
1.90 $
1.52 $
1.17 $
0.94 $
1.74
1.39
$
2.52 $
1.82 $
1.12 $
1.66
$
$
40,526 $
7,716 $
29,129 $
5,551 $
17,871 $
3,414 $
26,499
5,064
$
48,242 $
34,680 $
21,285 $
31,563
Weighted average number of shares outstanding—basic
Common Stock
Class B Common Stock
Weighted average number of shares outstanding—diluted
Common Stock
15,308
3,643
15,293
3,643
15,255
3,643
15,250
3,643
19,123
19,105
18,995
19,019
(1) During the first quarter of fiscal 2020, the Company repurchased 50,600 shares for an average price per share of
$197.11.
(2) During the second quarter of fiscal 2020, the Company repurchased 20,500 shares for an average price per share of
$206.34.
(3) During the third quarter of fiscal 2020, the Company repurchased 46,667 shares for an average price per share of
$161.65.
71
(In thousands, except per share data)
For the year ended August 31, 2019
Revenues
Income before income taxes
Provision (benefit) for income taxes
Net income
Income per share—basic
Common Stock
Class B Common Stock
Income per share—diluted
Common Stock
Income allocated to—basic
Common Stock
Class B Common Stock
Income allocated to—diluted
Common Stock
Third
Second
First
Quarter
Quarter (1)
Fourth
Quarter (3)
$ 438,550 $ 437,485 $ 453,720 $ 479,621
60,870
14,882
45,988
63,395
15,789
47,606 $
51,959
13,639
38,320 $
61,700
14,480
47,220 $
Quarter (2)
$
$
$
2.08 $
1.67 $
2.59 $
2.07 $
2.58 $
2.06 $
2.52
2.01
$
1.99 $
2.48 $
2.46 $
2.40
$
$
32,137 $
6,183 $
39,923 $
7,683 $
39,563 $
7,657 $
38,619
7,369
$
38,320 $
47,606 $
47,220 $
45,988
Weighted average number of shares outstanding—basic
Common Stock
Class B Common Stock
Weighted average number of shares outstanding—diluted
Common Stock
15,432
3,710
15,428
3,710
15,341
3,710
15,340
3,659
19,302
19,232
19,168
19,159
(1) During the second quarter of fiscal 2019, the Company repurchased 45,000 shares for an average price per share of
$139.57.
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 a CRM system that was being developed would be completed and placed into service.
During fiscal 2020, we entered into a settlement agreement with our lead contractor for the version of the CRM
system with respect to which we recorded the impairment charge. As part of the settlement agreement, we
recorded a total gain of $21.1 million as a reduction of selling and administrative expenses, which includes our
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. We also received hardware and related maintenance service with a fair value of $0.8
million as part of the settlement. This gain, net of tax, benefitted the Company’s diluted income per share by $0.81
in fiscal 2020.
(2) During the third quarter of fiscal 2019, the Company repurchased 99,500 shares for an average price per share of
$147.47.
(3) During the fourth quarter of fiscal 2019, the Company repurchased 52,650 shares for an average price per share of
$181.61.
The Company’s fiscal year ends on the last Saturday in August. For financial reporting purposes, fiscal 2020 consisted of 52
weeks, and fiscal 2019 consisted of 53 weeks. Each of the quarterly periods contained 13 weeks except for the fourth quarter
of fiscal 2019 which contained 14 weeks.
72
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an
evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the
end of the period covered by this report. Based upon their evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective to ensure that material information relating to the
Company required to be disclosed by the Company in reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and
forms and to ensure that such information is accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and
management necessarily was required to apply its judgment in designing and evaluating the controls and procedures. We
continue to review our disclosure controls and procedures, and our internal control over financial reporting, and may from
time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended August 29, 2020 that have
materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Responsibility for Financial Statements
Our management is responsible for the preparation, integrity and objectivity of our Consolidated Financial Statements and
other financial information contained in our Annual Report on Form 10-K. Those Consolidated Financial Statements were
prepared in conformity with accounting principles generally accepted in the United States. In preparing those Consolidated
Financial Statements, management was required to make certain estimates and judgments, which are based upon currently
available information and management’s view of current conditions and circumstances.
The Audit Committee of our Board of Directors, which consists solely of independent directors, oversees our process of
reporting financial information and the audit of our Consolidated Financial Statements. The Audit Committee stays informed
of our financial condition and regularly reviews management’s financial policies and procedures, the independence of our
independent auditors, our internal control and the objectivity of our financial reporting. Our independent registered public
accounting firm has full access to the Audit Committee and meets with the Audit Committee periodically, both with and
without management present.
We have retained Ernst & Young LLP, an independent registered public accounting firm, to audit our Consolidated Financial
Statements found in this Annual Report on Form 10-K for the year ended August 29, 2020. We have made available to
Ernst & Young LLP all of our financial records and related data in connection with their audit of our Consolidated Financial
Statements.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles
generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Management has assessed the effectiveness of our internal control over financial reporting as
of August 29, 2020. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring
Organizations (“COSO”) of the Treadway Commission in Internal Control—Integrated Framework (2013 Framework).
Management concluded that based on its assessment, our internal control over financial reporting was effective as of August
29, 2020.
The effectiveness of our internal control over financial reporting as of August 29, 2020 has been audited by Ernst & Young
LLP, and a copy of its attestation report is included below.
73
To the Shareholders and the Board of Directors of UniFirst Corporation
Report of Independent Registered Public Accounting Firm
Opinion on Internal Control over Financial Reporting
We have audited UniFirst Corporation and subsidiaries’ internal control over financial reporting as of August 29, 2020, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework) (the COSO criteria). In our opinion, UniFirst Corporation (the Company)
maintained, in all material respects, effective internal control over financial reporting as of August 29, 2020, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of UniFirst Corporation as of August 29, 2020 and August 31, 2019, the related
consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in
the period ended August 29, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a)
of the Company and our report dated October 28, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
October 28, 2020
74
ITEM 9B. OTHER INFORMATION
On October 26, 2020, our board of directors and the compensation committee of our board of directors adopted an Executive
Employment Plan (the “Plan”). Senior Vice Presidents and above (each, a “Covered Executive”) are eligible to participate in
the Plan, subject to certain requirements, including their execution of a participation agreement that includes, among other
matters, certain noncompetition and non-solicitation obligations. The Plan provides that upon a termination of a Covered
Executive’s employment (a “Qualified Termination”) (1) by us for any reason other than “cause” (as defined in the Plan),
death, disability or retirement or (2) by a Covered Executive for “good reason” (as defined in the Plan), the Covered
Executive will be entitled to receive certain cash payments determined pursuant to the Plan. The amount of any payments
under the Plan in some cases will depend on whether the Qualified Termination is in connection with a “change in control”
(as defined in the Plan).
In addition, our board of directors and the compensation committee of our board of directors approved revised award forms
for equity awards to Covered Executives. The revised award forms provide for accelerated vesting under certain
circumstances, including upon a Qualified Termination in connection with a change in control.
Any such payments and benefits under the Plan and the award forms are subject to the Covered Executive’s execution of a
separation agreement that includes a release of claims in favor of the Company and the other terms and conditions of the Plan
and the awards.
The foregoing descriptions of the Plan and the award forms are qualified in their entirety by the provisions of the Plan and the
award forms, copies of which are filed herewith as Exhibits 10.19, 10.20, 10.21 and 10.22.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We have adopted a Statement of Corporate Policy and Code of Business Conduct and Ethics, which applies to our directors
and all of our employees, including our principal executive officer, principal financial officer, principal accounting officer
and corporate controller. Our Statement of Corporate Policy and Code of Business Conduct and Ethics is available, free of
charge, on our website at www.unifirst.com. Information contained on our website is not part of this Annual Report on Form
10-K or the documents incorporated by reference into this Annual Report on Form 10-K. We intend to disclose any
amendment to or waiver of a provision of the Statement of Corporate Policy and Code of Business Conduct and Ethics that
applies to our principal executive officer, principal financial officer, principal accounting officer or controller by posting such
information on our website at www.unifirst.com.
Information regarding our directors and executive officers required by this Item 10 will be included in our definitive Proxy
Statement to be filed with the Securities and Exchange Commission for our 2021 Annual Meeting of Shareholders and is
incorporated by reference into this Item 10. Certain information required by this Item 10 is set forth in Item 1 of this Annual
Report on Form 10-K under the heading “Executive Officers”.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 will be included in our definitive Proxy Statement to be filed with the Securities and
Exchange Commission for our 2021 Annual Meeting of Shareholders and is incorporated by reference into this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information required by this Item 12 will be included in our definitive Proxy Statement to be filed with the Securities and
Exchange Commission for our 2021 Annual Meeting of Shareholders and is incorporated by reference into this Item 12.
Information concerning our equity compensation plans contained in the table entitled “Equity Compensation Plan
Information” set forth in Item 5 of this Annual Report on Form 10-K is incorporated by reference into this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item 13 will be included in our definitive Proxy Statement to be filed with the Securities and
Exchange Commission for our 2021 Annual Meeting of Shareholders and is incorporated by reference into this Item 13.
75
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this Item 14 will be included in our definitive Proxy Statement to be filed with the Securities and
Exchange Commission for our 2021 Annual Meeting of Shareholders and is incorporated by reference into this Item 14.
76
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The financial statements listed below are filed as part of this report:
(1) and (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
The financial statements listed below are included under Item 8 of this Annual Report on Form 10-K:
Consolidated statements of income for each of the three years in the period ended August 29, 2020
Consolidated statements of comprehensive income for each of the three years in the period ended August 29, 2020
Consolidated balance sheets as of August 29, 2020 and August 31, 2019
Consolidated statements of shareholders’ equity for each of the three years in the period ended August 29, 2020
Consolidated statements of cash flows for each of the three years in the period ended August 29, 2020
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
The items listed below are included under Item 9a of this Annual Report on Form 10-K
Management’s Report on Internal Control Over Financial Reporting
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
The following additional schedule is filed herewith:
Schedule II—Valuation and qualifying accounts and reserves for each of the three years in the period ended August 29, 2020
UNIFIRST CORPORATION AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
AUGUST 29, 2020 (IN THOUSANDS)
Description
Reserves for Accounts Receivable
For the year ended August 29, 2020
For the year ended August 31, 2019
For the year ended August 25, 2018
Balance,
Beginning of
Period
Charged to
Costs and
Expenses
Charges for
Which
Reserves
Were Created
or Deductions
Balance,
End of
Period
$
$
$
9,935 $
9,237 $
8,719 $
6,027 $
5,996 $
5,882 $
(3,837 ) $
(5,298 ) $
(5,364 ) $
12,125
9,935
9,237
Separate financial statements of the Company have been omitted because the Company is primarily an operating company
and all subsidiaries included in the Consolidated Financial Statements are totally held.
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information required is included in the financial statements or the notes
thereto.
77
(3) EXHIBITS. The list of exhibits filed as part of this Annual Report on Form 10-K is set forth below.
DESCRIPTION
3.1 Restated Articles of Organization (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on
Form 8-K filed with the Commission on July 5, 2006)
3.2 Articles of Amendment dated January 13, 1988 (incorporated by reference to Exhibit 3.2 to the Company’s
Current Report on Form 8-K filed with the Commission on July 5, 2006)
3.3 Articles of Amendment dated January 21, 1993 (incorporated by reference to Exhibit 3.3 to the Company’s
Current Report on Form 8-K filed with the Commission on July 5, 2006)
3.4 By-laws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the
Commission on January 10, 2008)
4.1 Specimen Stock Certificate for Shares of Common Stock (incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed with the Commission on July 5, 2006)
4.2
Description of securities (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-
K filed with the Commission on October 30, 2019)
*10.1 UniFirst Corporation Unfunded Supplemental Executive Retirement Plan as restated January 11, 2017 to
incorporate and consolidate all previous amendments thereto (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed with the Commission on April 4, 2017)
*10.2 Employment Agreement, dated December 14, 2017, by and between UniFirst Corporation and Steven S. Sintros
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
Commission on December 20, 2017)
*10.3 Restricted Stock Unit Award Agreement, dated December 14, 2017, by and between UniFirst Corporation and
Steven S. Sintros (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed
with the Commission on December 20, 2017)
*10.4 UniFirst Corporation 2010 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the Commission on January 14, 2011)
*10.5 Form of Stock Appreciation Right Award Agreement for Company Employees under the UniFirst Corporation
2010 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed with the Commission on January 14, 2011)
*10.6 Form of Stock Appreciation Right Agreement for Non-Employee Directors under the UniFirst Corporation 2010
Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on
Form 8-K filed with the Commission on January 14, 2011)
*10.7 Form of Non-Qualified Stock Option Agreement for Company Employees under the UniFirst Corporation 2010
Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on
Form 8-K filed with the Commission on January 14, 2011)
*10.8 Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under the UniFirst Corporation
2010 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Current
Report on Form 8-K filed with the Commission on January 14, 2011)
10.9 Amended and Restated Credit Agreement, dated as of April 11, 2016, among UniFirst Corporation and certain
of its subsidiaries as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and an
L/C Issuer, JPMorgan Chase Bank, N.A., as an L/C Issuer and Syndication Agent, the other lenders a party
thereto, Merrill Lynch, Pierce Fenner & Smith Incorporated and JPMorgan Chase Bank, N.A., as Joint Lead
Arrangers and Book Managers, and Santander Bank, N.A. and Wells Fargo Bank, N.A., as Co-Documentation
Agents (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
Commission on April 13, 2016)
* 10.10 UniFirst Corporation CEO Cash Incentive Bonus Plan, as amended (incorporated by reference to Appendix A to
the Company’s Definitive Proxy Statement filed with the Commission on December 3, 2013)
*10.11 UniFirst Corporation Amended and Restated 2010 Stock Option and Incentive Plan (incorporated by reference
to Appendix A to the Company’s Definitive Proxy Statement filed with the Commission on December 2, 2014).
*10.12 Restricted Stock Unit Award Agreement, dated December 14, 2017, between the Company and Steven S.
Sintros (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the
Commission on December 20, 2017)
78
*10.13 Stock Appreciation Right Award Agreement, dated December 14, 2017, between the Company and Steven S.
Sintros (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the
Commission on December 20, 2017)
*10.14 Form of Restricted Stock Unit Award Agreement under the UniFirst Corporation Amended and Restated 2010
Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on
Form 8-K filed with the Commission on December 20, 2017)
*10.15 Form of Restricted Stock Unit Award Agreement under the UniFirst Corporation Amended and Restated 2010
Stock Option and Incentive Plan (with respect to performance-based restricted stock unit awards) (incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on
January 3, 2019)
*10.16 UniFirst Corporation Amendment No. 1 to Amended and Restated 2010 Stock Option and Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the
Commission on April 4, 2018)
*10.17
Form of Stock Appreciation Right Award for Company Employees under the UniFirst Corporation Amended
and Restated 2010 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q filed with the Commission on January 9, 2020)
*10.18
Form of Restricted Stock Unit Award for Company Employees under the UniFirst Corporation Amended and
Restated 2010 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q filed with the Commission on January 9, 2020)
*10.19
UniFirst Corporation Executive Employment Plan (filed herewith)
*10.20
Form of Stock Appreciation Right Award for eligible participants under the UniFirst Corporation Executive
Employment Plan pursuant to the UniFirst Corporation Amended and Restated 2010 Stock Option and Incentive
Plan (filed herewith)
*10.21
Form of Restricted Stock Unit Award for eligible participants under the UniFirst Corporation Executive
Employment Plan pursuant to the UniFirst Corporation Amended and Restated 2010 Stock Option and Incentive
Plan (filed herewith)
*10.22
Form of Restricted Stock Unit Award for eligible participants under the UniFirst Corporation Executive
Employment Plan pursuant to the UniFirst Corporation Amended and Restated 2010 Stock Option and Incentive
Plan (with respect to performance-based restricted stock unit awards) (filed herewith)
21 List of Subsidiaries (filed herewith)
23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed herewith)
31.1 Rule 13a-14(a)/15d-14(a) Certification of Steven S. Sintros (filed herewith)
31.2 Rule 13a-14(a)/15d-14(a) Certification of Shane O’Connor (filed herewith)
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes Oxley Act of 2002 (furnished herewith)
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes Oxley Act of 2002 (furnished herewith)
101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because
XBRL tags are embedded within the Inline XBRL document. (filed herewith)
101.SCH Inline XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104 Cover Page Interactive Data File (embedded within the Inline XBRL document) (filed herewith)
* Management contract, compensatory plan or arrangement
79
ITEM 16. FORM 10-K SUMMARY
Not Applicable.
80
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
UniFirst Corporation
By: /s/ Steven S. Sintros
Steven S. Sintros
President and Chief Executive Officer
October 28, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME
TITLE
/s/ Steven S. Sintros
Steven S. Sintros
President and Chief Executive Officer
(Principal Executive Officer)
Senior Vice President and Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
Director
Director
Director
Director
Director
/s/ Shane O’Connor
Shane O’Connor
/s/ Cynthia Croatti
Cynthia Croatti
/s/ Phillip L. Cohen
Phillip L. Cohen
/s/ Kathleen Camilli
Kathleen Camilli
/s/ Michael Iandoli
Michael Iandoli
/s/ Thomas Postek
Thomas S. Postek
/s/ Raymond Zemlin
Raymond C. Zemlin
DATE
October 28, 2020
October 28, 2020
October 28, 2020
October 28, 2020
October 28, 2020
October 28, 2020
October 28, 2020
Chairman of the Board of Directors
October 28, 2020
81
List of subsidiaries of the Company:
Name of Subsidiary
Jurisdiction of Organization or Incorporation
Exhibit 21
UniFirst Holdings, Inc.
UniTech Services Group, Inc.
UniFirst First-Aid Corporation
UniTech Services Canada Ltd.
UniTech Services SAS
UniTech Services B.V.
UniTech Services GmbH
UniTech Services Group Ltd.
UniFirst Canada Ltd.
RC Air LLC
UONE Corporation
Uniformes de San Luis S.A. de C.V.
UniFirst S.A. de C.V.
UniFirst Far East Limited
UniFirst Manufacturing Corporation
UniFirst Nicaragua S.A. de C.V.
Delaware
California
Maryland
Canada
France
Netherlands
Germany
United Kingdom
Canada
New Hampshire
Massachusetts
Mexico
Mexico
Hong Kong
Massachusetts
Nicaragua
82
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-177485) pertaining to the UniFirst Corporation
2010 Stock Option and Incentive Plan, and
(2) Registration Statement (Form S-8 No. 333-203339) pertaining to the UniFirst Corporation
Amended and Restated 2010 Stock Option and Incentive Plan;
of our reports dated October 28, 2020, with respect to the consolidated financial statements and
schedule of UniFirst Corporation and subsidiaries, and the effectiveness of internal control over
financial reporting of UniFirst Corporation and subsidiaries, included in this Annual Report (Form 10-
K) of UniFirst Corporation for the year ended August 29, 2020.
/s/ Ernst & Young LLP
Boston, Massachusetts
October 28, 2020
83
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES
EXCHANGE ACT RULE 13a-14(a)/15d-14(a) AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven S. Sintros, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of UniFirst Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Registrant as of,
and for, the periods presented in this report;
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant, and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred
during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s
internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the Registrant’s internal control over financial reporting.
Date: October 28, 2020
By: /s/ Steven S. Sintros
Steven S. Sintros
President and Chief Executive Officer
(Principal Executive Officer)
84
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES
EXCHANGE ACT RULE 13a-14(a)/15d-14(a) AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, Shane O’Connor, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of UniFirst Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Registrant as of,
and for, the periods presented in this report;
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant, and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred
during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s
internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the Registrant’s internal control over financial reporting.
Date: October 28, 2020
By: /s/ Shane O’Connor
Shane O’Connor
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)
85
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Steven S. Sintros, President and Chief
Executive Officer of UniFirst Corporation (the “Company”), do hereby certify, to the best of my knowledge, that:
(1) The Company’s Annual Report on Form 10-K for the year ended August 29, 2020 (the “Report”) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: October 28, 2020
By: /s/ Steven S. Sintros
Steven S. Sintros
President and Chief Executive Officer
(Principal Executive Officer)
86
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Shane O’Connor, Senior Vice President and
Chief Financial Officer of UniFirst Corporation (the “Company”), do hereby certify, to the best of my knowledge, that:
(1) The Company’s Annual Report on Form 10-K for the year ended August 29, 2020 (the “Report”) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: October 28, 2020
By: /s/ Shane O’Connor
Shane O’Connor
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)
87