UNIFIRST CORP MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

0

SAFETY PORT FOR FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 Quarterly Report
on Form 10-Q 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 significant increases in inflation or extraordinary
events or circumstances such as geopolitical conflicts like the conflict between
Russia and Ukraine or 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, or adverse impacts from increases in, 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 or other 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 or additional Securities and Exchange Commission,
New York Stock Exchange and accounting or other rules, including, without
limitation, recent rules proposed by the Securities and Exchange Commission
regarding climate-related and cybersecurity-related disclosures, 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 "Part I, Item 1A.
Risk Factors" and elsewhere in our Annual Report on Form 10-K for the year ended
August 28, 2021 and in our other filings with the Securities and Exchange
Commission, including, without limitation, under "Part II, Item 1A. Risk
Factors" and elsewhere in this Quarterly Report on Form 10-Q. We undertake no
obligation to update any forward-looking statements to reflect events or
circumstances arising after the date on which they are made.

Company 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

                                       21
--------------------------------------------------------------------------------

others who require employee apparel for imagery, identification, protection, or utility purposes. We also provide our guests with toiletries and cleaning supplies, including air fresheners, paper products and hand soaps.

At certain specialized facilities, we also decontaminate and clean work clothes
and other items that may have been exposed to radioactive materials and service
special cleanroom protective wear and facilities. Typical customers for these
specialized services include government agencies, research and development
laboratories, high technology companies and utilities operating nuclear
reactors.

We continue to expand into additional geographic markets through acquisitions
and organic growth. We currently service over 300,000 customer locations in the
United States, Canada and Europe from over 260 customer service, distribution
and manufacturing facilities.

As mentioned and described in Note 16 to our Consolidated Financial Statements,
we have five reporting segments: U.S. and Canadian Rental and Cleaning, MFG,
Corporate, Specialty Garments and First Aid. We refer to the laundry locations
of the U.S. and Canadian Rental and Cleaning reporting segment as "industrial
laundries" or "industrial laundry locations", and to the U.S. and Canadian
Rental and Cleaning, MFG, and Corporate reporting segments combined as our "Core
Laundry Operations."

Significant Accounting Policies and Estimates

The discussion of our financial condition and results of operations is based
upon the Consolidated Financial Statements, which have been prepared in
conformity with United States generally accepted accounting principles ("U.S.
GAAP"). As such, management is required to make certain estimates, judgments and
assumptions that are believed to be reasonable based on the information
available. These estimates and assumptions affect the reported amount of assets
and liabilities, revenues and expenses, and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results may differ
from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, the most important and pervasive
accounting policies used and areas most sensitive to material changes from
external factors. The critical accounting estimates that we believe affect our
more significant judgments and estimates used in the preparation of our
consolidated financial statements presented in this report are described in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in the Notes to the Consolidated Financial Statements included in
our Annual Report on Form 10-K for the fiscal year ended August 28, 2021.

COVID-19 Assessment

At times during the global COVID-19 pandemic, our revenues have been
significantly adversely impacted as a result of many customers closing their
businesses or operating at limited capacities. In addition, at times during the
pandemic, we have experienced supply chain disruptions with respect to certain
products, including hand sanitizer and masks. These adverse impacts and
disruptions have recently declined.

Although COVID-19 cases have generally declined significantly since the appearance of a new variant of COVID-19 several months ago, new variants of COVID-19 may appear and spread in the future and have a negative impact on our business.

We remain focused on the safety and well-being of our team partners and on the
service of our customers. We will continue to review and assess the 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.

Please see "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for
the year ended August 28, 2021 for an additional discussion of risks and
potential risks of the COVID-19 pandemic on our business, financial condition
and results of operations.

                                       22
--------------------------------------------------------------------------------

Operating results

The following table shows selected financial data, including the percentage of revenue represented by each item, for the thirteen and twenty-six weeks ended. February 26, 2022 and February 27, 2021.

                                                    Thirteen weeks ended                                                      Twenty-six weeks ended
(In thousands, except        February          % of         February          % of           %          February          % of         February          % of           %
percentages)                 26, 2022        Revenues       27, 2021        Revenues      Change        26, 2022        Revenues       27, 2021        Revenues      Change
Revenues                    $   486,696          100.0 %   $   449,764          100.0 %       8.2 %    $   972,860          100.0 %   $   896,617          100.0 %       8.5 %
Operating expenses:
Cost of revenues (1)            324,816           66.7         289,455           64.4        12.2          634,946           65.3         565,255           63.0        12.3
Selling and
administrative expenses
(1)                             112,406           23.1          93,329           20.8        20.4          216,794           22.3         182,032           20.3        19.1
Depreciation and
amortization                     26,861            5.5          26,287            5.8         2.2           53,717            5.5          52,595            5.9         2.1
Total operating expenses        464,083           95.4         409,071           91.0        13.4          905,457           93.1         799,882           89.2        13.2
Operating income                 22,613            4.6          40,693            9.0       (44.4 )         67,403            6.9          96,735           10.8       (30.3 )
Other income, net                  (157 )         (0.0 )        (1,447 )         (0.3 )     (89.1 )            (69 )         (0.0 )        (1,266 )         (0.1 )     (94.5 )
Income before income
taxes                            22,770            4.7          42,140            9.4       (46.0 )         67,472            6.9          98,001           10.9       (31.2 )
Provision for income
taxes                             4,319            0.9           9,555            2.1       (54.8 )         15,316            1.6          23,520            2.6       (34.9 )
Net income                  $    18,451            3.8 %   $    32,585            7.2 %     (43.4 )%   $    52,156            5.4 %   $    74,481            8.3 %     (30.0 )%


(1) Excluding depreciation of our property, plant and equipment

amortization of our intangible assets.

General

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. We have five
reporting segments, U.S. and Canadian Rental and Cleaning, MFG, Specialty
Garments, First Aid and Corporate. We refer to the U.S. and Canadian Rental and
Cleaning, MFG, and Corporate reporting segments combined as our "Core Laundry
Operations."

Cost of revenues include the amortization of rental merchandise in service and
merchandise costs related to direct sales as well as labor and other production,
service and delivery costs and distribution costs associated with operating our
Core Laundry Operations, Specialty Garments facilities and First Aid locations.
Selling and administrative costs include costs related to our sales and
marketing functions as well as general and administrative costs associated with
our corporate offices, non-operating environmental sites and operating locations
including information systems, engineering, materials management, manufacturing
planning, finance, budgeting and human resources.

Our operating results are also directly impacted by the costs of the gasoline
used to fuel our vehicles and the natural gas used to operate our plants. Our
operating margins have been, and may continue to be, adversely impacted by the
recent surge in energy prices. In addition, the current inflationary environment
has had a negative impact on our margins, and we expect that it will continue to
pressure our margins in future periods.

Our results of operations could also be adversely affected by a decline in the Canadian exchange rate.

Our business is subject to various state and federal regulations, including
employment laws and regulations, minimum wage requirements, overtime
requirements, working condition requirements, citizenship requirements,
healthcare insurance mandates and other laws and regulations that impact our
labor costs. Labor costs have increased recently as a result of increases in
state and local minimum wage levels as well as the overall impact of wage
pressure as the result of a low unemployment environment.

In fiscal 2018, we initiated a multiyear CRM project to further develop,
implement and deploy a third-party application we licensed. This new solution
improves functionality, capability and information flow as well as increased
automation in servicing our customers. As of February 26, 2022, we have
capitalized $37.2 million related to this CRM project. We began deployment of
our new CRM project during the second half of fiscal 2021 and anticipate this
will continue through fiscal 2022 and 2023. We are depreciating this system over
a 10-year life and recognized $0.8 million and $1.5 million of amortization
expense during the thirteen and twenty-six weeks ended February 26, 2022,
respectively.

                                       23
--------------------------------------------------------------------------------


Thirteen weeks ended February 26, 2022 compared with thirteen weeks ended
February 27, 2021

Revenues

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change         Change
Core Laundry Operations                    $   433,056     $   398,235     $  34,821            8.7 %
Specialty Garments                              35,538          35,222           316            0.9 %
First Aid                                       18,102          16,307         1,795           11.0 %
Consolidated total                         $   486,696     $   449,764     $  36,932            8.2 %



Core Laundry Operations' revenues during the second quarter of fiscal 2022
increased compared to the prior year comparable period. Core Laundry Operations'
organic growth, which adjusts for the estimated effect of acquisitions as well
as fluctuations in the Canadian dollar, was 8.0%. This strong organic growth
rate was primarily the result of customer re-openings in fiscal 2021, solid
sales performance and improved customer retention as well as efforts to share
with our customers the cost increases that we are seeing in our business due to
the current inflationary environment.

Specialty Garments revenues in the second quarter of fiscal 2022 increased
compared to the prior year comparable period due primarily to growth in our
cleanroom and European nuclear operations which was partially offset by higher
direct sale activity in the prior year. Specialty Garments' results are often
affected by seasonality and the timing and length of its customers' power
reactor outages as well as its project-based activities.

First Aid’s revenues in the second quarter of fiscal 2022 increased compared to the comparable period of the prior year due to increased sales from our van business.

Cost of Revenues

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change         Change
Cost of revenues                           $   324,816     $   289,455     $  35,361           12.2 %
% of Revenues                                     66.7 %          64.4 %



Core Laundry Operations' cost of revenues as a percentage of revenues increased
in the second quarter of fiscal 2022 as compared to the prior year comparable
period. This increase was due primarily to higher merchandise amortization which
continues to normalize from depressed levels during the pandemic as well as the
effect of large national account installations which are providing additional
merchandise amortization headwinds. In addition, we incurred higher casualty
claims and energy costs as a percentage of revenues and we continue to
experience wage inflation responding to the very challenging employment
environment.

Specialty Garments cost of revenues as a percentage of revenues increased in the
second quarter of fiscal 2022 as compared to the prior year comparable period
due primarily to higher gross margin on its direct sales in the prior year
comparable period and higher labor costs in the second quarter of fiscal 2022.

Selling and administrative expenses

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change         Change
Selling and administrative expenses        $   112,406     $    93,329     $  19,077           20.4 %
% of Revenues                                     23.1 %          20.8 %



Our selling and administrative costs increased as a percentage of revenues in
the second quarter of fiscal 2022 as compared to the prior year comparable
period due primarily to increased general and administrative payroll costs to
advance our capabilities and costs directly attributable to our CRM, ERP and
branding initiatives. Also contributing to the increase were increased travel
and stock-based compensation costs.

                                       24
--------------------------------------------------------------------------------
Depreciation and Amortization

                                            February        February         Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021         Change         Change
Depreciation and amortization              $    26,861     $    26,287     $      574            2.2 %
% of Revenues                                      5.5 %           5.8 %


Depreciation charges remained relatively stable compared to the comparable period of the previous year.

Operating result

For the thirteen weeks ended February 26, 2022 and February 27, 2021, changes in
our revenues and costs as discussed above resulted in the following changes in
our operating income and margin:

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change         Change
Core Laundry Operations                    $    18,745     $    35,366     $ (16,621 )        (47.0 )%
Specialty Garments                               3,850           5,234        (1,384 )        (26.4 )%
First Aid                                           18              93           (75 )        (80.6 )%
Operating income                           $    22,613     $    40,693     $ (18,080 )        (44.4 )%
Operating income margin                            4.6 %           9.0 %


Other Income, net

                                           February 26,      February        Dollar        Percent
(In thousands, except percentages)             2022          27, 2021        Change        Change
Interest income, net                       $       (751 )   $      (863 )   $     112         (13.0 )%
Other (income) expense, net                         594            (584 )       1,178        (201.7 )%
Total other income, net                    $       (157 )   $    (1,447 )   $   1,290         (89.1 )%



The decrease in other income, net during the second quarter of fiscal 2022 as
compared to the prior year comparable period was due primarily to foreign
exchange losses in the current period as compared to foreign exchange gains in
the prior year comparable period.

Provision for income taxes

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change         Change
Provision for income taxes                 $     4,319     $     9,555     $  (5,236 )        (54.8 )%
Effective income tax rate                         19.0 %          22.7 %



The decrease in our effective tax rate for the second quarter of fiscal 2022 as
compared to the prior year comparable period was due primarily to the impact of
an increased tax benefit related to the release of certain tax reserves.

Twenty-six weeks ended February 26, 2022 compared with twenty-six weeks ended
February 27, 2021

Revenues

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change         Change
Core Laundry Operations                    $   861,902     $   791,425     $  70,477            8.9 %
Specialty Garments                              75,022          73,356         1,666            2.3 %
First Aid                                       35,936          31,836         4,100           12.9 %
Consolidated total                         $   972,860     $   896,617     $  76,243            8.5 %




                                       25
--------------------------------------------------------------------------------


Consolidated revenues during the twenty-six weeks ended February 26, 2022
increased compared to the prior year comparable period. The increase was
primarily driven by an increase in revenues in our Core Laundry Operations as a
result of customer re-openings in fiscal 2021, solid sales performance and
improved customer retention as well as efforts to share with our customers the
cost increases that we are seeing in our business due to the current
inflationary environment.

Specialty Garments revenues during the twenty-six weeks ended February 26, 2022
increased compared to the prior year comparable period due primarily to growth
in our cleanroom operations, which was partially offset by decreased revenues
from our U.S. and Canadian nuclear operations. Specialty Garments' results are
often affected by seasonality and the timing and length of its customers' power
reactor outages as well as its project-based activities.

First Aid revenues during the twenty-six weeks ended February 26, 2022 increased
compared to the prior year comparable period due to increased sales in our van
business.

Cost of Revenues

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change         Change
Cost of revenues                           $   634,946     $   565,255     $  69,691           12.3 %
% of Revenues                                     65.3 %          63.0 %



Core Laundry Operations' cost of revenues as a percentage of revenues increased
as compared to the prior year comparable period. This increase was due primarily
to higher merchandise amortization which continues to normalize from depressed
levels during the pandemic as well as the effect of large national account
installations which are providing additional merchandise amortization headwinds.
In addition, we incurred higher casualty claims and energy costs as a percentage
of revenues and we continue to experience wage inflation responding to the very
challenging employment environment.

Specialty Garments cost of revenues as a percentage of revenues increased during
the twenty-six weeks ended February 26, 2022 as compared to the prior year
comparable period due primarily to higher gross margin on its direct sales in
the prior year comparable period as well as higher labor and transportation
costs as a percentage of revenue.

Selling and administrative expenses

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change         Change
Selling and administrative expenses        $   216,794     $   182,032     $  34,762           19.1 %
% of Revenues                                     22.3 %          20.3 %



Our selling and administrative costs as a percentage of revenues increased
during the twenty-six weeks ended February 26, 2022 as compared to the prior
year comparable period due primarily to increased general and administrative
payroll costs to advance our capabilities and costs directly attributable to our
CRM, ERP and branding initiatives. Also contributing to the increase were
increased healthcare claims, travel, stock-based compensation costs and indirect
taxes.

Depreciation and Amortization

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change         Change
Depreciation and amortization              $    53,717     $    52,595     $   1,122            2.1 %
% of Revenues                                      5.5 %           5.9 %


Depreciation expense increased in the twenty-six weeks ended February 26, 2022 compared to the comparable period of the previous year mainly due to continued investments in our infrastructure as well as our key technology initiatives.

                                       26
--------------------------------------------------------------------------------

Operating result

For the twenty-six weeks ended February 26, 2022 and February 27, 2021, changes
in our revenues and costs as discussed above resulted in the following changes
in our operating income and operating income margin:

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change        Change
Core Laundry Operations                    $    55,252     $    84,236     $ (28,984 )       (34.4 )%
Specialty Garments                              12,479          12,393            86           0.7 %
First Aid                                         (328 )           106          (434 )      (409.4 )%
Operating income                           $    67,403     $    96,735     $ (29,332 )       (30.3 )%
Operating income margin                            6.9 %          10.8 %


Other Income, net

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change         Change
Interest income, net                       $    (1,399 )   $    (1,431 )   $      32           (2.2 )%
Other expense, net                               1,330             165         1,165          706.1 %
Total other income, net                    $       (69 )   $    (1,266 )   $   1,197          (94.5 )%



The decrease in other income, net, during the twenty-six weeks ended February
26, 2022 as compared to the prior year comparable period was due primarily to
higher foreign exchange losses in the twenty-six weeks ended February 26, 2022.

Provision for Income Taxes

                                            February        February        Dollar        Percent
(In thousands, except percentages)          26, 2022        27, 2021        Change         Change
Provision for income taxes                 $    15,316     $    23,520     $  (8,204 )        (34.9 )%
Effective income tax rate                         22.7 %          24.0 %


The decrease in our effective tax rate during the twenty-six weeks ended
February 26, 2022 was mainly attributable to a higher release of certain tax reserves during the twenty-six weeks ended February 26, 2022.

Cash and capital resources

General

Cash, cash equivalents and short-term investments totaled $425.9 million as of
February 26, 2022, a decrease of $83.7 million from February 27, 2021 when the
amount totaled $509.6 million. Our cash balance decreased primarily as a result
of eight acquisitions that we completed during the twenty-six weeks ended
February 26, 2022. We generated $44.9 million and $128.0 million in cash from
operating activities in the twenty-six weeks ended February 26, 2022 and
February 27, 2021, respectively.

As part of the share buyback programs decided by our Board of Directors on
January 2, 2019 and October 28, 2021we repurchased 75,250 common shares for a total of approximately $14.8 million during the twenty-six weeks ended February 26, 2022.

We believe, although there can be no assurance, that our current cash, cash
equivalents and short-term investments balances, our cash generated from future
operations and amounts available under our 2021 Credit Agreement (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.

                                       27
--------------------------------------------------------------------------------


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 and stock repurchases. 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.

Sources and uses of cash flows for the twenty-six weeks ended February 26, 2022
and February 27, 2021respectively, can be summarized as follows:

                                                 February       February 27,      Percent
(In thousands, except percentages)               26, 2022           2021    

Switch

Net cash flow generated by operating activities $44,893 $128,016 (64.9)% Net cash allocated to investing activities

              (102,476 )        (73,592 )         39.2 %
Net cash used in financing activities               (28,542 )        (21,243 )         34.4 %
Effect of exchange rate changes                        (856 )          1,544         (155.4 )%
Net increase (decrease) in cash, cash
equivalents and
  short-term investments                        $   (86,981 )   $     34,725         (350.5 )%



Net cash from operating activities

The net cash provided by operating activities during the twenty-six weeks ended
February 26, 2022 decreased as compared to the prior year comparable period due
primarily to lower profitability, which included costs incurred to support our
CRM, ERP and branding initiatives, a decrease in accrued liabilities and
increases in accounts receivable, supply inventory and merchandise in service.
The decrease in accrued liabilities was due primarily to the payment of $12.2
million of United States social security and Medicare taxes that we deferred
under the Coronavirus Air, Relief, and Economic Security Act (the "CARES Act")
in fiscal years 2020 and 2021. The Company expects to pay the remaining $12.1
million of deferred United State social security and Medicare taxes by the end
of calendar year 2022. The elevated inventories related to the ongoing supply
chain disruption and the increased merchandise in service are attributable to
our balance sheet position continuing to normalize coming out of the COVID-19
pandemic impacted period. The increase in accounts receivable was due in part to
the increased revenue from the economic recovery from the earlier impacts of the
COVID-19 pandemic.

Net cash used in investment activities

The net increase in cash used in investing activities during the twenty-six
weeks ended February 26, 2022 was due primarily to an increase in acquisition
related activity of $35.3 million as compared to the prior year comparable
period. This increase was partially offset by lower capital expenditures and
capitalization of software costs of $6.7 million.

Net cash used in fundraising activities

The increase in net cash used in financing activities during the twenty-six
weeks ended February 26, 2022 was due primarily to incremental cash used for
repurchases of Common Stock of $5.2 million, an increase in the cash paid for
taxes withheld related to the net share settlement of equity awards of $1.2
million and an increase in dividends paid of $0.9 million.

Long-term debt and borrowing capacity

On March 26, 2021, we entered into an amended and restated $175.0 million
unsecured revolving credit agreement (the "2021 Credit Agreement") with a
syndicate of banks, which matures on March 26, 2026. The 2021 Credit Agreement
amended and restated our prior credit agreement, which was scheduled to mature
on April 11, 2021. Under the 2021 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 2021 Credit Agreement. We
test our compliance with these financial covenants on a fiscal quarterly basis.
As of February 26, 2022, the interest rates applicable to our borrowings under
the 2021 Credit Agreement would be calculated as LIBOR plus 1.00% at the time of
the respective borrowing. As of February 26, 2022, we had no outstanding
borrowings and had outstanding letters of credit amounting to $67.6 million,
leaving $107.4 million available for borrowing under the 2021 Credit Agreement.

From February 26, 2022we complied with all the covenants of the 2021 credit agreement.

                                       28
--------------------------------------------------------------------------------

Derivatives 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 the
certain forecasted CAD denominated sales of one of our subsidiaries. The hedged
transactions were specified as the first amount of CAD denominated revenues
invoiced by one of our domestic subsidiaries each fiscal quarter, beginning in
the third fiscal quarter of 2019 and continuing through the second fiscal
quarter of 2022. In total, we sold approximately 12.1 million CAD at an average
Canadian-dollar exchange rate of 0.7814 over these quarterly periods. We
concluded that the forward contracts met the criteria to qualify as a cash flow
hedge under U.S. GAAP. These forward contracts matured on February 25, 2022.

In August 2021, we entered into twenty forward contracts to exchange CAD for
U.S. dollars at fixed exchange rates in order to manage our exposure related to
certain forecasted CAD denominated sales of one of our subsidiaries. The hedged
transactions are specified as the first amount of CAD denominated revenues
invoiced by one of our domestic subsidiaries each fiscal quarter, beginning in
the first fiscal quarter of 2022 and continuing through the fourth fiscal
quarter of 2026. In total, we will sell approximately 14.1 million CAD at an
average Canadian-dollar exchange rate of 0.7861 over these quarterly periods. We
concluded that the forward contracts met the criteria to qualify as a cash flow
hedge under U.S. GAAP.

As of February 26, 2022, we had forward contracts with a notional value of
approximately 8.1 million CAD outstanding and recorded the fair value of the
contracts of a notional amount in prepaid expenses and other current assets and
other long-term assets with a corresponding nominal gain in accumulated other
comprehensive loss, which was recorded net of tax. During the thirteen and
twenty-six weeks ended February 26, 2022, we reclassified a nominal amount from
accumulated other comprehensive loss to revenue, related to the derivative
financial instruments. The gain on these forward contracts that resulted in a
decrease to accumulated other comprehensive loss as of February 26, 2022 is
expected to be reclassified to revenues prior to their maturity on August 29,
2026.

Commitments and 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 wastewater 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 payments, the input of our 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 our Company under such laws or expose our Company
to third-party actions such as tort suits. We continue to address environmental
conditions under terms of consent orders negotiated with the applicable
environmental authorities or otherwise with respect to certain sites.

We have accrued certain costs related to certain sites, including but not
limited to sites in Woburn and Somerville, Massachusetts, as it has been
determined that the costs are probable and can be reasonably estimated. We,
together with multiple other companies, are party to a consent decree related to
our property and other parcels of land (the "Central Area") at a site in Woburn,
Massachusetts. The United States Environmental Protection Agency (the "EPA") has
provided us and other signatories to the consent decree with comments on the
design and implementation of groundwater and soil remedies at the Woburn site
and investigation of environmental conditions in the Central Area. The consent
decree does not address any remediation work that may be required in the Central
Area. We, and other signatories, have implemented and proposed to do additional
work at the Woburn site but many of the EPA's comments remain to be resolved. We
have accrued costs to perform certain work responsive to the EPA's comments.
Additionally, we have implemented mitigation measures and continue to monitor
environmental conditions at the Somerville, Massachusetts site. We have agreed
to undertake additional actions responsive to a notice of audit findings from
the Massachusetts Department of Environmental Protection concerning a regulatory
submittal that we made in 2009 for a portion of the site. We have received
demands from the local

                                       29
--------------------------------------------------------------------------------


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 regularly review and assess 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. The estimates developed internally are based on:

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

• Information available from regulators on remediation costs

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 February 26, 2022,
the risk-free interest rates we utilized ranged from 1.76% to 2.37%.

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 twenty-six weeks ended February 26, 2022
were as follows (in thousands):

                                                        February 26, 2022
Balance as of August 28, 2021                          $            32,859
Revisions in estimates                                                   -
Costs incurred for which reserves have been provided                  (792 )
Insurance proceeds                                                      62
Interest accretion                                                     298
Changes in discount rates                                           (1,057 )
Balance as of February 26, 2022                        $            31,370



Anticipated payments and insurance proceeds relating to currently identified
environmental remediation liabilities as of February 26, 2022, for the next five
fiscal years and thereafter, as measured in current dollars, are reflected
below.

(In thousands)                        2022        2023        2024        2025        2026        Thereafter       Total
Estimated costs - current dollars   $ 11,699     $ 2,530     $ 2,080     $ 1,366     $ 1,129     $     12,711     $ 31,515
Estimated insurance proceeds            (148 )      (159 )      (173 )      (159 )      (173 )           (380 )     (1,192 )
Net anticipated costs               $ 11,551     $ 2,371     $ 1,907     $ 1,207     $   956     $     12,331     $ 30,323
Effect of inflation                                                                                                  8,210
Effect of discounting                                                                                               (7,163 )
Balance as of February 26, 2022                                                                                   $ 31,370



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
in Williamstown, Vermont. 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 February 26, 2022, the
balance in this escrow account, which is held in a trust and is not recorded in
our Consolidated Balance Sheet, was approximately $4.6 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 the site in Uvalde, Texas.

Our nuclear garment decontamination facilities are licensed by respective state
agencies, as delegated authority by the Nuclear Regulatory Commission (the
"NRC") pursuant to the NRC's Agreement State program and are subject to
applicable federal and state radioactive material regulations. In addition, our
international locations (Canada, the United Kingdom and the European Union) are

                                       30
--------------------------------------------------------------------------------

regulated by respective equivalent jurisdictional authorities. There can be no assurance that such regulation will not result in significant disruptions to the Company’s garment decontamination activities.

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.

Off-balance sheet arrangements

As of February 26, 2022, 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. However, the current inflationary
environment has had a negative impact on our margins and we expect that it will
continue to pressure our margins in future periods.

Contractual obligations and other commercial commitments

From February 26, 2022there were no material changes to our contractual obligations which were disclosed in our annual report on Form 10-K for the year ended August 28, 2021.

Recent accounting pronouncements

See Note 2, "Recent Accounting Pronouncements" to our Consolidated Financial
Statements included in this Quarterly Report on Form 10-Q for more information
on recently implemented and issued accounting standards.

© Edgar Online, source Previews

Share.

Comments are closed.