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MarketScreener Homepage  >  Equities  >  Nyse  >  UniFirst Corporation    UNF

UNIFIRST CORPORATION

(UNF)
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UNIFIRST : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

10/28/2020 | 04:32pm EST

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

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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

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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

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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.

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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.

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National, state and local governments have responded to the COVID-19 pandemic in
a variety of ways, including, without limitation, by declaring states of
emergency, restricting people from gathering in groups or interacting within a
certain physical distance (i.e., social distancing), and in certain cases,
ordering businesses to close or limit operations or people to stay at home.
Although we have been permitted to continue to operate in all of the
jurisdictions in which we operate, including in jurisdictions that have mandated
the closure of certain businesses and we expect to be permitted to continue to
operate under any orders or other restrictions imposed by any government
authorities in the future, there is no assurance that we will be permitted to
operate under every future government order or other restriction and in every
location. If we were to be subject to government orders or other restrictions on
the operation of our business, we may be required to limit, or close, our
operations at certain locations in the future. Any such limitations or closures
could have a material adverse impact on our ability to service our customers and
on our business, financial condition and results of operations. In particular,
any limitations on, or closures of, our manufacturing facilities in Mexico or
Nicaragua, or our distribution center in Owensboro, Kentucky, could have a
material adverse impact on our ability to manufacture products and service
customers and could have a material adverse impact on our business, financial
condition and results of operations.

The COVID-19 pandemic has caused significant disruptions to our business and
operations and could cause material disruptions to our business and operations
in the future as a result of, among other things, quarantines, worker illness,
worker absenteeism as a result of illness or other factors, social distancing
measures and other travel, health-related, business or other restrictions. For
similar reasons, the COVID-19 pandemic has also adversely impacted, and may
continue to adversely impact, our suppliers and their manufacturers. Depending
on the extent and duration of all of the above-described effects on our business
and operations and the business and operations of our suppliers, our costs could
increase, including our costs to address the health and safety of personnel, our
ability to obtain products or services from suppliers may be adversely impacted,
our ability to service certain customers could be adversely impacted and, as a
result, our business, financial condition and results of operations could be
materially adversely affected. In addition, depending on the extent and duration
of the COVID-19 pandemic, we may be subject to significant increases in
healthcare costs in the event that a significant number of our personnel become
infected with COVID-19 and require medical treatment. As a result, any
significant increases in healthcare costs as a result of COVID-19 or otherwise
could have a material adverse impact on our business, financial condition and
results of operations.

The COVID-19 pandemic has also resulted in material adverse economic conditions
that are impacting, and may continue to impact, our business and the businesses
of our suppliers and customers. Unemployment levels have increased
significantly, and the U.S. economy has entered an economic recession. Some
analysts have predicted that the current economic recession may persist for a
significant period of time and become severe. Although the extent and duration
of the impact of the COVID-19 pandemic on our business and operations and the
business and operations of our customers and suppliers remain uncertain, the
continued spread of COVID-19, the imposition of related public health measures
and travel, health-related, business and other restrictions and the resulting
materially adverse economic conditions may materially adversely impact our
business, financial condition, results of operations and cash flows.

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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.



                                                                                                                                                     % Change
                                                                                                                                          Fiscal 2020        Fiscal 2019
                                           Fiscal           % of           Fiscal           % of           Fiscal           % of              vs.                vs.
(In thousands, except for percentages)      2020          Revenues          2019          Revenues          2018          Revenues        Fiscal 2019        Fiscal 2018
Revenues                                 $ 1,804,159           100.0 %   $ 1,809,376           100.0 %   $ 1,696,489           100.0 %            -0.3 %              6.7 %

Costs and expenses:
Cost of revenue (1)                        1,164,932            64.6       1,139,195            63.0       1,056,724            62.3               2.3                7.8
Selling and administrative
  expenses (1)                               361,801            20.1         334,840            18.5         360,727            21.3               8.1               (7.2 )
Depreciation and amortization                104,697             5.8         103,333             5.7          96,662             5.7               1.3                6.9
                                           1,631,430            90.4       1,577,368            87.2       1,514,113            89.2               3.4                4.2

Operating income                             172,729             9.6         232,008            12.8         182,376            10.8             (25.6 )             27.2
Other income, net                             (5,159 )          (0.3 )        (5,916 )          (0.3 )        (4,870 )          (0.3 )           (12.8 )             21.5

Income before income taxes                   177,888             9.9         237,924            13.1         187,246            11.0             (25.2 )             27.1
Provision for income taxes                    42,118             2.3          58,790             3.2          23,351             1.4             (28.4 )            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.



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.



                                        Fiscal          Fiscal          Fiscal
(In thousands)                           2020            2019            2018
Segment Information
Revenues
US and Canadian Rental and Cleaning   $ 1,552,179$ 1,582,416$ 1,485,548
MFG                                       214,683         254,218         

247,530

Net intercompany MFG elimination (214,683 ) (254,111 ) (247,424 ) Corporate

                                  49,306          33,682          

37,994

Subtotal: Core Laundry Operations       1,601,485       1,616,205       1,523,648
Specialty Garments                        133,185         132,767         118,477
First Aid                                  69,489          60,404          54,364
Total consolidated revenues           $ 1,804,159$ 1,809,376$ 1,696,489
Operating income (loss)
US and Canadian Rental and Cleaning   $   247,392$   235,046$   213,322
MFG                                        64,097          84,248          

89,035

Net intercompany MFG elimination           10,012           1,128          (9,658 )
Corporate                                (171,514 )      (107,468 )      (129,111 )
Subtotal: Core Laundry Operations         149,987         212,954         163,588
Specialty Garments                         17,845          14,145          14,070
First Aid                                   4,897           4,909           4,718
Total operating income                $   172,729$   232,008$   182,376




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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.

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.

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

                                       26

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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 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



                                Fiscal          Fiscal         Dollar        Percent
                                 2020            2019          Change        Change
                                        (In thousands, except percentages)
Core Laundry Operations       $ 1,601,485$ 1,616,205$ (14,720 )        (0.9 )%
Specialty Garments                133,185         132,767           418           0.3 %
First Aid                          69,489          60,404         9,085          15.0 %
Total consolidated revenues   $ 1,804,159$ 1,809,376$  (5,217 )        (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

                                       27

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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



                                                                        Dollar       Percent
(In thousands, except percentages)   Fiscal 2020      Fiscal 2019       Change       Change
Cost of revenues                     $  1,164,932$  1,139,195$ 25,737           2.3 %
% of Revenues                                64.6 %           63.0 %




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.

Selling and administrative expenses




                                                                                Dollar        Percent
(In thousands, except percentages)          Fiscal 2020       Fiscal 2019       Change         Change
Selling and administrative expenses        $     361,801$     334,840$  26,961            8.1 %
% of Revenues                                       20.1 %            18.5 %




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



                                                                                Dollar        Percent
(In thousands, except percentages)          Fiscal 2020       Fiscal 2019       Change         Change
Depreciation and amortization              $     104,697$     103,333$   1,364            1.3 %
% of Revenues                                        5.8 %             5.7 %




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.

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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        Fiscal        Dollar        Percent
                                              2020          2019         Change         Change
                                                     (In thousands, except percentages)
Core Laundry Operations                     $ 149,987$ 212,954$ (62,967 )        (29.6 )%
Specialty Garments                             17,845        14,145         3,700           26.2 %
First Aid                                       4,897         4,909           (12 )         (0.2 )%
Total consolidated income from operations   $ 172,729$ 232,008$ (59,279 )        (25.6 )%
Percentage of total revenues                      9.6 %        12.8 %




Other income, net



                                                                                Dollar        Percent
(In thousands, except percentages)          Fiscal 2020       Fiscal 2019       Change         Change
Interest income, net                       $      (6,382 )$      (9,082 )$   2,700          (29.7 )%
Other expense, net                                 1,223             3,166        (1,943 )        (61.4 )%
Total other income, net                    $      (5,159 )$      (5,916 )$     757          (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



                                                                                Dollar        Percent
(In thousands, except percentages)          Fiscal 2020       Fiscal 2019       Change         Change
Provision for income taxes                 $      42,118$      58,790$ (16,672 )        (28.4 )%
Effective income tax rate                           23.7 %            24.7 %




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



                                Fiscal          Fiscal         Dollar        Percent
                                 2019            2018          Change        Change
                                        (In thousands, except percentages)
Core Laundry Operations       $ 1,616,205$ 1,523,648$  92,557           6.1 %
Specialty Garments                132,767         118,477        14,290          12.1 %
First Aid                          60,404          54,364         6,040          11.1 %
Total consolidated revenues   $ 1,809,376$ 1,696,489$ 112,887           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-

                                       29

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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



                                                                        Dollar       Percent
(In thousands, except percentages)   Fiscal 2019      Fiscal 2018       Change       Change
Cost of revenues                        1,139,195        1,056,724       82,471           7.8 %
% of Revenues                                63.0 %           62.3 %



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.


Selling and administrative expense




                                                                                Dollar        Percent
(In thousands, except percentages)          Fiscal 2019       Fiscal 2018       Change         Change
Selling and administrative expenses        $     334,840$     360,727$ (25,887 )         (7.2 )%
% of Revenues                                       18.5 %            21.3 %




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




                                                                                Dollar        Percent
(In thousands, except percentages)          Fiscal 2019       Fiscal 2018       Change         Change
Depreciation and amortization              $     103,333$      96,662$   6,671            6.9 %
% of Revenues                                        5.7 %             5.7 %




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.

                                       30

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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        Fiscal        Dollar        Percent
                                              2019          2018         Change         Change
                                                     (In thousands, except percentages)
Core Laundry Operations                     $ 212,954$ 163,588$  49,366           30.2 %
Specialty Garments                             14,145        14,070            75            0.5 %
First Aid                                       4,909         4,718           191            4.0 %
Total consolidated income from operations   $ 232,008$ 182,376$  49,632           27.2 %
Percentage of total revenues                     12.8 %        10.8 %




Other income, net



                                                                                Dollar        Percent
(In thousands, except percentages)          Fiscal 2019       Fiscal 2018       Change         Change
Interest income, net                       $      (9,082 )$      (5,543 )$  (3,539 )         63.8 %
Other expense, net                                 3,166               673         2,493          370.4 %
Total other income, net                    $      (5,916 )$      (4,870 )$  (1,046 )         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.

Provision for income taxes



                                                                                Dollar        Percent
(In thousands, except percentages)          Fiscal 2019       Fiscal 2018       Change         Change
Provision for income taxes                 $      58,790$      23,351$  35,439          151.8 %
Effective income tax rate                           24.7 %            12.5 %




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.

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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.



                                               Fiscal         Fiscal       Percent
(In thousands, except percentages)              2020           2019         

Change

Net cash provided by operating activities $ 286,684$ 282,142

     1.6 %
Net cash used in investing activities          (157,616 )     (124,329 )       26.8 %
Net cash used in financing activities           (41,103 )      (41,491 )       (0.9 )%
Effect of exchange rate changes                   1,532         (1,493 )     (202.6 )%
Net increase in cash, cash equivalents and
  short-term investments                     $   89,497$  114,829        (22.1 )%



Net Cash Provided by Operating Activities


The increase in net cash provided by operating activities was due primarily to
lower expenditures on rental merchandise and declining accounts receivable in
fiscal 2020 as compared to the prior fiscal year due to lower revenues. Also
contributing to the increase was the one-time bonus paid to our employees during
the first quarter of fiscal 2019. These increases were partially offset by cash
received of $13.0 million in the second quarter of fiscal 2019 from the
settlement agreement with the lead contractor for the version of the CRM system
with respect to which we recorded a $55.8 million impairment charge in fiscal
2017. Also partially offsetting the increases was $3.0 million from the
settlement of environmental litigation in the first quarter of fiscal 2019.

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

                                       32

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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 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;



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• 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):



                                                        August 29,       August 31,
Year ended                                                 2020             2019
Beginning balance                                      $     27,718$     25,486

Costs incurred for which reserves have been provided (1,160 )

  (1,079 )
Insurance proceeds                                              111              143
Interest accretion                                              537              755
Changes in discount rates                                     1,133            2,239
Revisions in estimates                                        2,363              174
Ending balance                                         $     30,702$     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).



Fiscal year ended
August                    2021         2022         2023         2024         2025        Thereafter       Total
Estimated
costs-current dollars   $ 11,368$  2,668$  1,371$  1,073$  1,076$     11,852$ 29,408
Estimated insurance
proceeds                    (197 )       (159 )       (173 )       (159 )       (173 )           (521 )     (1,382 )
Net anticipated costs   $ 11,171$  2,509$  1,198$    914$    903$     11,331$ 28,026
Effect of inflation                                                                                          7,251
Effect of discounting                                                                                       (4,575 )
Balance as of August
29, 2020                                                                                                  $ 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

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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).



                                                             Payments Due by Fiscal Period
                                                    Less than                                           More than
Contractual Obligations                Total         1 year         1 - 3 years       3 - 5 years        5 years
Retirement plan benefit payments     $  44,084$     1,917$       3,254$       3,871$    35,042
Asset retirement obligations            13,920               -             3,514                 -          10,406
Operating leases                        44,228          13,458            18,273             8,602           3,895
Forward contracts                        4,950           3,510             1,440                 -               -
Purchase Commitments*                   22,400          19,000             3,200               200               -

Total contractual cash obligations $ 129,582$ 37,885$ 29,681$ 12,673$ 49,343

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

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,


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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

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