Table Of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

 

SECURITIES EXCHANGE ACT OF 1934

  
 

For the quarterly period endedMay 28, 2016November 26, 2016

  
 

OR

  

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

 

SECURITIES EXCHANGE ACT OF 1934

  
 

For the transition period from ________________ to ________________

 

Commission file number:001-08504

 

UNIFIRST CORPORATION

(Exact name of Registrant as Specified in Its Charter)

 

Massachusetts

 

04-2103460

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

   

68 Jonspin Road, Wilmington, MA

 

01887

(Address of Principal Executive Offices)

 

(Zip Code)

 

(978) 658-8888
(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes   No         

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      

 

Yes   No       

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer       Accelerated filer        Smaller Reporting Company          Non-accelerated filer             

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes             No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

The number of outstanding shares of UniFirst Corporation Common Stock and Class B Common Stock at July 1,December 30, 2016 were 15,406,532and 4,849,519,15,436,109 and 4,845,519, respectively.

 

 

 
 

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UniFirst Corporation

QuarterlyReport on Form 10-Q

For the Quarter ended May 28, 2016November 26, 2016

 

Tableof Contents

 

 

Part I – FINANCIAL INFORMATION

 

 

 

Item 1 – Unaudited Financial Statements

 

 

 

Consolidated Statements of Income for the Thirteen and Thirty-nine Weeks ended May 28,November 26, 2016 and May 30,November 28, 2015

 
  

Consolidated Statements of Comprehensive Income for the Thirteen and Thirty-nine Weeks ended May 28,November 26, 2016 and May 30,November 28, 2015

 
  

Consolidated Balance Sheets as of May 28,November 26, 2016 and August 29, 201527, 2016

 

 

 

Consolidated Statements of Cash Flows for the Thirty-nineThirteen Weeks ended May 28,November 26, 2016 and May 30,November 28, 2015

 

 

 

Notes to Consolidated Financial Statements

 

 

 

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

 

 

 

Item 4 – Controls and Procedures

 

 

 

Part II – OTHER INFORMATION

 

 

 

Item 1 – Legal Proceedings

 
  

Item 1A – Risk Factors

 
  

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

 
  

Item 3 – Defaults Upon Senior Securities

 
  

Item 4 – Mine Safety Disclosures

 
  

Item 5 – Other Information

 
  

Item 6 – Exhibits

 

 

 

Signatures

 
  

Exhibit Index

 
  

Certifications

 

Ex-31.1 Section 302 Certification of CEO

 

Ex-31.2 Section 302 Certification of CFO

 

Ex-32.1 Section 906 Certification of CEO

 

Ex-32.2 Section 906 Certification of CFO

 

 

 

 
 

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PARTI – FINANCIAL INFORMATION

ITEM1. UNAUDITED FINANCIAL STATEMENTS

 

ConsolidatedStatements of Income

UniFirst Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

 

 

Thirteen weeks ended

  

Thirty-nine weeks ended

 
 

May 28,

  

May30,

  

May 28,

  

May 30,

 

(In thousands, except per share data)

 

2016

  

2015

  

2016

  

2015

 
                

Thirteen weeks ended

(In thousands, except per share data)

 

November 26,

2016

  

November 28,

2015

 

Revenues

 $367,799  $365,574  $1,104,280  $1,097,397  $386,108  $373,384 
                        

Operating expenses:

                        

Cost of revenues (1)

  224,932   221,995   677,207   665,222   238,765   222,603 

Selling and administrative expenses (1)

  74,541   72,205   222,713   221,832   79,446   72,749 

Depreciation and amortization

  20,409   19,022   59,956   55,851   22,140   19,738 

Total operating expenses

  319,882   313,222   959,876   942,905   340,351   315,090 
                        

Income from operations

  47,917   52,352   144,404   154,492   45,757   58,294 
                        

Other (income) expense:

                        

Interest expense

  211   221   650   648   182   221 

Interest income

  (902

)

  (784

)

  (2,558

)

  (2,532

)

  (983

)

  (764

)

Foreign exchange (gain) loss

  (91

)

  72   256   1,323 

Foreign exchange loss

  494   479 

Total other (income) expense

  (782

)

  (491

)

  (1,652

)

  (561

)

  (307

)

  (64

)

                        

Income before income taxes

  48,699   52,843   146,056   155,053   46,064   58,358 

Provision for income taxes

  18,555   20,344   56,524   59,695   17,850   22,468 
                        

Net income

 $30,144  $32,499  $89,532  $95,358  $28,214  $35,890 
                        

Income per share – Basic:

                        

Common Stock

 $1.57  $1.70  $4.67  $4.99  $1.46  $1.88 

Class B Common Stock

 $1.26  $1.36  $3.74  $3.99  $1.17  $1.50 
                        

Income per share – Diluted:

                        

Common Stock

 $1.49  $1.61  $4.43  $4.72 

CommonStock

 $1.38  $1.78 
                        

Income allocated to – Basic:

                        

Common Stock

 $23,939  $25,817  $71,172  $75,650  $22,342  $28,539 

Class B Common Stock

 $6,061  $6,483  $17,956  $18,954  $5,668  $7,193 
                        

Income allocated to – Diluted:

                        

Common Stock

 $30,007  $32,310  $89,149  $94,644  $28,020  $35,741 
                        

Weighted average number of shares outstanding – Basic:

                        

Common Stock

  15,253   15,207   15,238   15,173   15,285   15,218 

Class B Common Stock

  4,827   4,773   4,805   4,752   4,847   4,795 
                        

Weighted average number of shares outstanding – Diluted:

                        

Common Stock

  20,183   20,118   20,141   20,057   20,249   20,132 
                        

Dividends per share:

                        

Common Stock

 $0.0375  $0.0375  $0.1125  $0.1125  $0.0375  $0.0375 

Class B Common Stock

 $0.0300  $0.0300  $0.0900  $0.0900  $0.0300  $0.0300 

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

  

The accompanying notes are an integral part of theseConsolidated Financial Statements.

 

 

 
 

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UniFirst Corporation and Subsidiaries

ConsolidatedConsolidatedStatements of Comprehensive Income

UniFirst Corporation and Subsidiaries

(Unaudited)

 

Thirteen weeks ended

  

Thirty-nine weeks ended

 
 

May 28,

  

May 30,

  

May 28,

  

May 30,

 

(In thousands)

 

2016

  

2015

  

2016

  

2015

 
                

Net Income

 $30,144  $32,499  $89,532  $95,358 

Thirteen weeks ended

(In thousands)

 

November 26,

2016

  

November 28,

2015

 

Net income

 $28,214  $35,890 
                        

Other comprehensive (loss) income:

                        

Foreign currency translation adjustments

  3,806   62   223   (16,830

)

  (5,129

)

  (1,572

)

Pension benefit liabilities, net of income taxes

        (218

)

  (1,266

)

     (218

)

Change in fair value of derivatives, net of income taxes

  (344

)

  219   (392

)

  (425

)

  324   (223

)

Derivative financial instruments (gain) loss reclassified

  (36

)

  70   (201

)

  70 

Derivative financial instruments reclassified to earnings

  (76

)

  (72

)

                        

Other comprehensive (loss) income

  3,426   351   (588

)

  (18,451

)

  (4,881

)

  (2,085

)

                        

Comprehensive income

 $33,570  $32,850  $88,944  $76,907   23,333   33,805 

   

The accompanying notes are an integral part of theseConsolidated Financial Statements.

  

 

 
 

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UniFirstConsolidatedBalance Sheets

UniFirst Corporation and Subsidiaries

ConsolidatedBalance Sheets

(Unaudited)

      

(In thousands, except share and par value data)

 

May 28,

2016

  

August 29,

2015

  

November 26,

2016

  

August 27,

2016

 
                

Assets

                

Current assets:

                

Cash and cash equivalents

 $347,583  $276,553  $286,119  $363,795 

Receivables, less reserves of $10,252 and $6,007

  158,273   151,851 

Receivables, less reserves of $9,974 and $7,675

  176,404   156,578 

Inventories

  76,347   80,449   73,164   78,887 

Rental merchandise in service

  140,279   140,384   144,637   138,105 

Prepaid and deferred income taxes

  424   204 

Prepaid taxes

     10,418 

Prepaid expenses and other current assets

  12,993   12,382   23,917   29,831 

Total current assets

  735,899   661,823   704,241   777,614 
                

Property, plant and equipment, net of accumulated depreciation of $649,289 and $618,269

  532,881   513,853 

Property, plant and equipment, net of accumulated depreciation of $674,102 and $661,295

  541,300   539,818 

Goodwill

  320,247   313,133   367,663   320,641 

Customer contracts, net

  35,889   38,024   76,208   35,854 

Other intangible assets, net

  2,687   2,025   5,121   2,810 

Deferred income taxes

     1,475   338   97 

Other assets

  3,388   2,904   29,914   25,173 
                

Total assets

 $1,630,991  $1,533,237  $1,724,785  $1,702,007 
                

Liabilities and shareholders’ equity

                

Current liabilities:

                

Loans payable

 $  $1,385 

Accounts payable

  49,216   50,826  $49,255  $50,884 

Accrued liabilities

  120,425   113,022   94,202   100,782 

Accrued and deferred income taxes

     18,878 

Accrued taxes

  7,621   969 

Total current liabilities

  169,641   184,111   151,078   152,635 
                

Accrued liabilities

  58,151   54,566   104,193   104,921 

Accrued and deferred income taxes

  73,623   52,352   79,742   79,670 
                

Total liabilities

  301,415   291,029   335,013   337,226 
                

Commitments and contingencies (Note 10)

        

Commitments and contingencies (Note 11)

        

Shareholders’ equity:

                

Preferred Stock, $1.00 par value; 2,000,000 shares authorized; no shares issued and outstanding

            

Common Stock, $0.10 par value; 30,000,000 shares authorized; 15,400,818 and 15,246,588 shares issued and outstanding as of May 28, 2016 and August 29, 2015, respectively

  1,540   1,525 

Class B Common Stock, $0.10 par value; 20,000,000 shares authorized; 4,849,519 and 4,854,519 shares issued and outstanding as of May 28, 2016 and August 29, 2015, respectively

  485   485 

Common Stock, $0.10 par value; 30,000,000 shares authorized; 15,433,608 and 15,415,125 shares issued and outstanding as of November 26, 2016 and August 27, 2016, respectively

  1,543   1,542 

Class B Common Stock, $0.10 par value; 20,000,000 shares authorized; 4,845,519 and 4,849,519 shares issued and outstanding as of November 26, 2016 and August 27, 2016, respectively

  485   485 

Capital surplus

  68,179   67,611   74,941   72,561 

Retained earnings

  1,284,373   1,197,000   1,346,633   1,319,142 

Accumulated other comprehensive (loss) income

  (25,001

)

  (24,413

)

  (33,830

)

  (28,949

)

                

Total shareholders’ equity

  1,329,576   1,242,208   1,389,772   1,364,781 
                

Total liabilities and shareholders’ equity

 $1,630,991  $1,533,237  $1,724,785  $1,702,007 

  

The accompanying notes are an integral part of theseConsolidated Financial Statements.

Statements

 

 
 

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UniFirst Corporation and Subsidiaries

ConsolidatedStatements of Cash Flows

UniFirst Corporation and Subsidiaries

(Unaudited)

Thirty-nine weeks ended

(In thousands)

 

May 28,

2016

  

May 30,

2015

 
      

Thirteen weeks ended

(In thousands)

 

November 26,

2016

  

November 28,

2015

 

Cash flows from operating activities:

                

Net income

 $89,532  $95,358  $28,214  $35,890 

Adjustments to reconcile net income to cash provided by operating activities:

                

Depreciation

  53,556   49,270   18,500   17,643 

Amortization of intangible assets

  6,400   6,581   3,640   2,095 

Amortization of deferred financing costs

  156   156   28   52 

Share-based compensation

  3,625   4,413   2,015   1,260 

Accretion on environmental contingencies

  502   452   150   167 

Accretion on asset retirement obligations

  599   503   205   199 

Deferred income taxes

  6,034   6,668   (746

)

  26 

Changes in assets and liabilities, net of acquisitions:

                

Receivables, less reserves

  (5,698

)

  (9,463

)

  (13,112

)

  (17,376

)

Inventories

  4,063   (5,714

)

  7,526   3,452 

Rental merchandise in service

  1,571   1,417   152   (1,280

)

Prepaid expenses and other current assets

  (1,356

)

  (7,812

)

  9,288   (2,286

)

Accounts payable

  (1,627

)

  (2,106

)

  (1,113

)

  7,913 

Accrued liabilities

  6,358   10,283   (8,837

)

  (4,967

)

Prepaid and accrued income taxes

  (2,635

)

  8,408   17,589   14,853 

Net cash provided by operating activities

  161,080   158,414   63,499   57,641 
                

Cash flows from investing activities:

                

Acquisition of businesses, net of cash acquired

  (10,861

)

  (19,815

)

  (120,391

)

  (73

)

Capital expenditures

  (72,065

)

  (82,272

)

  (18,233

)

  (21,049

)

Other

  (64

)

  (1,160

)

  281   223 

Net cash used in investing activities

  (82,990

)

  (103,247

)

  (138,343

)

  (20,899

)

                

Cash flows from financing activities:

                

Proceeds from loans payable and long-term debt

     5,401 

Payments on loans payable and long-term debt

  (1,326

)

  (9,580

)

     (764

)

Payment of deferred financing costs

  (813

)

   

Proceeds from exercise of share-based awards, including excess tax benefits

  1,394   8,055   929   383 

Taxes withheld and paid related to net share settlement of equity awards

  (4,425

)

  (5,002

)

  (566

)

   

Payment of cash dividends

  (2,155

)

  (2,151

)

  (724

)

  (717

)

        

Net cash used in financing activities

  (7,325

)

  (3,277

)

  (361

)

  (1,098

)

                

Effect of exchange rate changes

  265   (7,987

)

  (2,471

)

  (665

)

                

Net increase in cash and cash equivalents

  71,030   43,903 

Net (decrease) increase in cash and cash equivalents

  (77,676)  34,979 

Cash and cash equivalents at beginning of period

  276,553   191,769   363,795   276,553 
                

Cash and cash equivalents at end of period

 $347,583  $235,672  $286,119  $311,532 

  

The accompanying notes are an integral part of theseConsolidated Financial Statements.

 

 

 

 
 

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UniFirst Corporation and Subsidiaries

Notestoto Unaudited Consolidated Financial Statements

 

1. Basis of Presentation

 

These Consolidated Financial Statements of UniFirst Corporation (“Company”) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the information furnished reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim period.

 

It is suggested that these Consolidated Financial Statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 29, 2015.27, 2016. There have been no material changes in the accounting policies followed by the Company during the current fiscal year. Results for an interim period are not indicative of any future interim periods or for an entire fiscal year.

 

2.2. Recent Accounting Pronouncements

 

In May 2014, the FASB issued updated accounting guidance for revenue recognition, which they have subsequently modified. This modified update provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and will be required to be applied retrospectively, (full or modified), with early adoption permitted. Accordingly, the standard will be effective for the Company on August 26, 2018. The Company is currently evaluating the adoption method it will apply and the impact that this guidance will have on its financial statements and related disclosures.

 

In February 2015, the FASB issued updated accounting guidance on consolidation requirements. This update changes the guidance with respect to the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. Accordingly, the standard will bebecame effective for the Company on August 28, 2016. The Company expects that adoption ofadopted this guidance willand the adoption did not have a material impact on its financial statements.

 

In April 2015, the FASB issued updated guidance on the presentation of debt issuance costs. This update changes the guidance with respect to presenting such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. Accordingly, the standard will bebecame effective for the Company on August 28, 2016. The Company expects that adoption ofadopted this guidance will not have a material impact on its financial statements.

In May 2015,and the FASB issued updated guidance to remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. This guidance also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, and is to be applied retrospectively to all periods presented, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 28, 2016. The Company expects that adoption of this guidance willdid not have a material impact on its financial statements.

 

In July 2015, the FASB issued updated guidance which changes the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value. Subsequent measurement is unchanged for inventory measured using last-in, first-out or the retail inventory method.Thismethod. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016, and is to be applied prospectively, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 27, 2017. The Company expects that adoption of this guidance will not have a material impact on its financial statements.

 

In September 2015, the FASB issued updated guidance that requires an entity to recognize adjustments made to provisional amounts that are identified in a business combination be recorded in the period such adjustments are determined, rather than retrospectively adjusting previously reported amounts. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, and is to be applied prospectively, with early adoption permitted. Accordingly, the standard will bebecame effective for the Company on August 28, 2016. The Company expects that adoption ofadopted this guidance willand the adoption did not have a material impact on its financial statements.


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In November 2015, the FASB issued updated guidance on the presentation of deferred income taxes. This update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 and is to be applied prospectively, and may also be applied retrospectively to all periods presented, with early adoption permitted. The Company adopted this standard prospectively on February 27, 2016 and prior periods were not retroactively adjusted.

 

In January 2016, the FASB issued updated guidance for the recognition, measurement, presentation, and disclosure of certain financial assets and liabilities. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 26, 2018. The Company expects that adoption of this guidance will not have a material impact on its financial statements.

 

In February 2016, the FASB issued updated guidance that improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. Accordingly, the standard will be effective for the Company on September 1, 2019. The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.

 

In March 2016, the FASB issued updated guidance that simplifies several aspects of accounting for share-based payment transactions. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 and, depending on the amendment, must be applied using a prospective transition method, retrospective transition method, modified retrospective transition method, prospectively and/or retroactively, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 27, 2017. The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.

 


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In August 2016, the FASB issued updated guidance that reduces diversity in how certain cash receipts and cash payments are presented and classified in the Consolidated Statements of Cash Flows. This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and will be required to be applied retrospectively, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 26, 2018. The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.

In October 2016, the FASB issued updated guidance to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and will be required to be applied on a modified retrospective basis, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 26, 2018. The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.

3. Business Acquisitions

 

During the thirty-nine weeks ended May 28,On September 19, 2016, the Company completed two business acquisitionsan acquisition of Arrow Uniform (“Arrow”) for approximately $118.2 million and contingent consideration subject to certain holdback provisions of $1.7 million. The all-cash transaction was structured as an asset acquisition, with an aggregatethe Company acquiring substantially all of Arrow’s assets and a limited amount of liabilities. Arrow, headquartered in Taylor, Michigan, provides uniform and facility service rental programs as well as direct sales uniform programs to a wide range of large and small customers. Arrow operates from 12 locations with nearly 700 employees in five Midwestern states.

The acquisition was accounted for using the purchase pricemethod of approximately $14.1 million.accounting. The results of Arrow’s operations of these acquisitions have been included in the Company’s consolidated financial results since theirthe acquisition dates. These acquisitions weredate. This acquisition was not significant in relation to the Company’s consolidated financial results and, therefore, pro forma financial information has not been presented. Since the acquisition was only recently completed, the initial allocation of the purchase price is incomplete related to substantially all of the assets acquired and liabilities assumed. The Company is still in the process of identifying and measuring the fair value of tangible and intangible assets acquired and liabilities assumed. The Company has engaged specialists to assist in the valuation of intangible assets for which certain assumptions have not yet been finalized. The table below summarizes the preliminary purchase price allocation to the estimated fair value of assets acquired and liabilities assumed at the acquisition date. Goodwill is calculated as the excess of the purchase price over the net assets recognized and represents the estimated future economic benefits arising from expected synergies and growth opportunities for the Company. All of the goodwill and intangible assets were allocated to the US and Canadian Rental and Cleaning segment and are deductible for tax purposes. The cash paid upon closing for the acquisition was approximately $119.9 million. The difference between the cash paid and the total purchase price represents amounts owed from the seller as a result of final closing adjustments. As such, a receivable due from the seller of $1.7 million is included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheet as of November 26, 2016.

  

Receivables

 $7,365 

Inventories

  1,824 

Rental merchandise in service

  7,175 

Prepaid expense and other current assets

  1,722 

Property, plant and equipment

  4,140 

Goodwill

  47,181 

Customer contracts

  43,700 

Other intangible assets

  2,620 

Other assets

  4,790 

Accrued liabilities

  (2,364)
     

Total Purchase Price

 $118,153 

Goodwill, customer contracts and other intangible assets are estimated utilizing Level 3 valuation inputs to the fair value hierarchy, which are unobservable and consist of discounted future cash flow estimates, while the remaining assets acquired and liabilities assumed were measured using Level 2 inputs which principally include estimated market values of comparable assets.

4. Fair Value Measurements

 

US GAAP establishes a framework for measuring fair value and establishes disclosure requirements about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We considered non-performance risk when determining fair value of our derivative financial instruments.

 

The fair value hierarchy prescribed under US GAAP contains three levels as follows:

 

  Level 1 –  

Quoted prices in active markets for identical assets or liabilities.

 

  Level 2 –  

Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

  Level 3 –  

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

All financial assets or liabilities that are measured at fair value on a recurring basis (at least annually) have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.  The assets or liabilities measured at fair value on a recurring basis are summarized in the tables below (in thousands):

 

 

As of May 28, 2016

  

As ofNovember 26, 2016

 
 

Level 1

  

Level 2

  

Level 3

  

Fair Value

  

Level 1

  

Level 2

  

Level 3

  

Fair Value

 

Assets:

                                

Cash equivalents

 $52,615  $  $  $52,615  $173,725  $  $  $173,725 

Pension plan assets

     4,661      4,661      4,534      4,534 

Foreign currency forward contracts

     220      220      593      593 

Total assets at fair value

 $52,615  $4,881  $  $57,496  $173,725  $5,127  $  $178,852 

 

 

As of August 29, 2015

  

As of August 27, 2016

 
 

Level 1

  

Level 2

  

Level 3

  

Fair Value

  

Level 1

  

Level 2

  

Level 3

  

Fair Value

 

Assets:

                                

Cash equivalents

 $42,093  $  $  $42,093  $172,760  $  $  $172,760 

Pension plan assets

     4,757      4,757      4,753      4,753 

Foreign currency forward contracts

     524      524      188      188 

Total assets at fair value

 $42,093  $5,281  $  $47,374  $172,760  $4,941  $  $177,701 

  

The Company’s cash equivalents listed above represent money market securities and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The Company does not adjust the quoted market price for such financial instruments.

 

The Company’s pension plan assets listed above represent guaranteed deposit accounts that are maintained and operated by Prudential Retirement Insurance and Annuity Company (“PRIAC”). All assets are merged with the general assets of PRIAC and are invested predominantly in privately placed securities and mortgages. At the beginning of each calendar year, PRIAC notifies the Company of the annual rates of interest which will be applied to the amounts held in the guaranteed deposit account during the next calendar year. In determining the interest rate to be applied, PRIAC considers the investment performance of the underlying assets of the prior year; however, regardless of the investment performance the Company is contractually guaranteed a minimum rate of return. As such, the Company’s pension plan assets are included within Level 2 of the fair value hierarchy.

 

The Company’s foreign currency forward contracts represent contracts the Company has entered into to exchange Canadian dollars for U.S. dollars at fixed exchange rates in order to manage its exposure related to certain forecasted Canadian dollar denominated sales of one of its subsidiaries. These contracts were included in other assets as of November 26, 2016. The fair value of the forward contracts is based on similar exchange traded derivatives and are, therefore, included within Level 2 of the fair value hierarchy.

 

5. Derivative Instruments and Hedging Activities

 

The Company uses derivative financial instruments to mitigate its exposure to fluctuations in foreign currencies on certain forecasted transactions denominated in foreign currencies. US GAAP requires that all of itsthe Company’s derivative instruments be recorded on the balance sheet at fair value. All subsequent changes in a derivative’s fair value are recognized in income, unless specific hedge accounting criteria are met.

 

Derivative instruments that qualify for hedge accounting are classified as a hedge of the variability of cash flows to be received or paid related to a recognized asset, liability or forecasted transaction. Changes in the fair value of a derivative that is highly effective and designated as a cash flow hedge are recognized in accumulated other comprehensive (loss) income until the hedged item or forecasted transaction is recognized in earnings. The Company performs an assessment at the inception of the hedge and on a quarterly basis thereafter, to determine whether its derivatives are highly effective in offsetting changes in the value of the hedged items. Any changes in the fair value resulting from hedge ineffectiveness are immediately recognized as income or expense.

 

In January 2015, the Company entered into sixteen forward contracts to exchange Canadian dollars (“CAD”) for U.S. dollars at fixed exchange rates in order to manage its exposure related to certain forecasted CAD denominated sales of one of its subsidiaries. The hedged transactions are specified as the first amount of CAD denominated revenues invoiced by one of the Company’s domestic subsidiaries each fiscal quarter, beginning in the third fiscal quarter of 2015 and continuing through the second fiscal quarter of 2019. In total, the Company will sell approximately 31.0 million CAD at an average Canadian-dollar exchange rate of 0.7825 over these quarterly periods. The Company concluded that the forward contracts met the criteria to qualify as a cash flow hedge under US GAAP. Accordingly, the Company has reflected all changes in the fair value of the forward contracts in accumulated other comprehensive (loss) income, a component of shareholders’ equity. Upon the maturity of each foreign exchange forward contract, the gain or loss on the contract will be recorded as an adjustment to revenues.

 

As of May 28,November 26, 2016, the Company had forward contracts with a notional value of approximately 18.315.3 million CAD outstanding and recorded the fair value of the contracts of $0.1$0.3 million in other long-term assets and $0.1$0.3 million in prepaid expenses and other current assets with a corresponding gain in accumulated other comprehensive (loss) income of $0.1$0.4 million, which was recorded net of tax. During the thirteen weeks ended May 28,November 26, 2016, the Company reclassified a nominal amount from accumulated other comprehensive (loss) income to revenue, related to the derivative financial instruments. During the thirty-nine weeks ended May 28, 2016, the Company reclassified $0.2$0.1 million from accumulated other comprehensive (loss) income to revenue, related to the derivative financial instruments. The gain in accumulated other comprehensive (loss) income as of May 28,November 26, 2016 is expected to be reclassified to revenues prior to its maturity on February 22, 2019.

 

6. Employee Benefit Plans

 

Defined Contribution Retirement Savings Plan

 

The Company has a defined contribution retirement savings plan with a 401(k) feature for all eligible U.S.U.S and Canadian employees not under collective bargaining agreements. The Company matches a portion of the employee’s contribution and may make an additional contribution at its discretion. Contributions charged to expense under the plan for the thirteen weeks endedMay 28,endedNovember 26, 2016 and May 30,November 28, 2015 were $3.6 million and $3.8 million respectively. Contributions charged to expense under the plan for the thirty-nine weeks endedMay 28, 2016 and May 30, 2015 were$10.8 million and $11.8$3.7 million, respectively.

 

Pension Plans and Supplemental Executive Retirement Plans

 

The Company maintains an unfunded Supplemental Executive Retirement Plan for certain eligible employees of the Company, a non-contributory defined benefit pension plan covering union employees at one of its locations, and a frozen pension plan the Company assumed in connection with its acquisition of Textilease Corporation in fiscal 2004. The amounts charged to expense related to these plans for both the thirteen weeks endedMay 28,endedNovember 26, 2016 and May 30,November 28, 2015 were $0.9 million. The amounts charged to expense related to these plans for both the thirty-nine weeks endedMay 28, 2016 and May 30, 2015 were $2.6 million.

 

7.Net Income Per Share

 

The Company calculates net income per share in accordance with US GAAP, which requires the Company to allocate income to its unvested participating securities as part of its earnings per share (“EPS”) calculations.The following table sets forth the computation of basic earnings per share using the two-class method for amounts attributable to the Company’s shares of Common Stock and Class B Common Stock (in thousands, except per share data):

 

 

Thirteen weeks ended

  

Thirty-nine weeks ended

  

Thirteen weeks ended

 
 

May 28,

  

May 30,

  

May 28,

  

May 30,

  

November 26,

  

November 28,

 
 

2016

  

2015

  

2016

  

2015

  

2016

  

2015

 
                        

Net income

 $30,144  $32,499  $89,532  $95,358 

Net income available to shareholders

 $28,214  $35,890 
                        

Allocation of net income for Basic:

                        

Common Stock

 $23,939  $25,817  $71,172  $75,650  $22,342  $28,539 

Class B Common Stock

  6,061   6,483   17,956   18,954   5,668   7,193 

Unvested participating shares

  144   199   404   754   204   158 
 $30,144  $32,499  $89,532  $95,358  $28,214  $35,890 
                        

Weighted average number of shares for Basic:

                        

Common Stock

  15,253   15,207   15,238   15,173   15,285   15,218 

Class B Common Stock

  4,827   4,773   4,805   4,752   4,847   4,795 

Unvested participating shares

  97   134   96   173   140   95 
  20,177   20,114   20,139   20,098   20,272   20,108 
                        

Earnings per share for Basic:

                        

Common Stock

 $1.57  $1.70  $4.67  $4.99  $1.46  $1.88 

Class B Common Stock

 $1.26  $1.36  $3.74  $3.99  $1.17  $1.50 

 

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

 

The treasury stock method; or

 

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

 

For the thirteen and thirty-nine weeks ended May 28, 2016, the Company’s diluted EPS assumes the conversion of all vested Class B Common Stock into Common Stock and uses the two-class method for its unvested participating shares as it was the more dilutive of the two methods. The following table sets forth the computation of diluted earnings per share of Common Stock for the thirteen and thirty-nine weeks ended May 28, 2016 (in thousands, except per share data):

  

Thirteen weeks

  

Thirty-nine weeks

 
  

ended May 28, 2016

  

ended May 28, 2016

 
  

Earnings

          

Earnings

         
  

to Common

  

Common

      

to Common

  

Common

     
  

Shareholders

  

Shares

  

EPS

  

Shareholders

  

Shares

  

EPS

 
                         

As reported - Basic

 $23,939   15,253  $1.57  $71,172   15,238  $4.67 
                         

Add: effect of dilutive potential common shares

                        

Share-based awards

     103          98     

Class B Common Stock

  6,061   4,827       17,956   4,805     
                         

Add: Undistributed earnings allocated to unvested participating shares

  141          395        
                         

Less: Undistributed earnings reallocated to unvested participating shares

  (134

)

         (374

)

       
                         

Diluted EPS – Common Stock

 $30,007   20,183  $1.49  $89,149   20,141  $4.43 

Share-based awards that would result in the issuance of 14,959 shares of Common Stock were excluded from the calculation of diluted earnings per share for the thirteen weeks ended MayNovember 26, 2016 and November 28, 2016 because they were anti-dilutive. Share-based awards that would result in the issuance of 6,716 shares of Common Stock were excluded from the calculation of diluted earnings per share for the thirty-nine weeks ended May 28, 2016 because they were anti-dilutive.

For the thirteen and thirty-nine weeks ended May 30, 2015, the Company’s diluted EPS assumes the conversion of all vested Class B Common Stock into Common Stock and uses the two-class method for its unvested participating shares as it was the more dilutive of the two methods.shares. The following table sets forth the computation of diluted earnings per share of Common Stock for the thirteen and thirty-nine weeks ended May 30,November 26, 2016 and November 28, 2015 (in thousands, except per share data):

 

 

Thirteen weeks

  

Thirty-nine weeks

 
 

ended May 30, 2015

  

ended May 30, 2015

  

Thirteen weeks ended

November 26, 2016

  

Thirteen weeks ended

November 28, 2015

 
 

Earnings

          

Earnings

          

Earnings

          

Earnings

         
 

to Common

  

Common

      

to Common

  

Common

      

to Common

  

Common

      

to Common

  

Common

     
 

Shareholders

  

Shares

  

EPS

  

Shareholders

  

Shares

  

EPS

  

shareholders

  

Shares

  

EPS

  

shareholders

  

Shares

  

EPS

 
                                                

As reported - Basic

 $25,817   15,207  $1.70  $75,650   15,173  $4.99  $22,342   15,285  $1.46  $28,539   15,218  $1.88 
                                                

Add: effect of dilutive potential common shares

                                                

Share-based awards

     138          132     

Share-Based Awards

     117          119     

Class B Common Stock

  6,483   4,773       18,954   4,752       5,668   4,847       7,193   4,795     
                                                

Add: Undistributed earnings allocated to unvested participating shares

  194          737          199          154        
                                                

Less: Undistributed earnings reallocated to unvested participating shares

  (184

)

         (697

)

         (189

)

         (145

)

       
                                                

Diluted EPS – Common Stock

 $32,310   20,118  $1.61  $94,644   20,057  $4.72  $28,020   20,249  $1.38  $35,741   20,132  $1.78 

 

There were no share-based awards that were excluded from the calculation of diluted earnings per share for the thirteen weeks ended November 26, 2016 because they were anti-dilutive.  Share-based awards that would result in the issuance of 25,7268,761 shares of Common Stock were excluded from the calculation of diluted earnings per share for the thirteen weeks ended May 30, 2015 because they were anti-dilutive. Share-based awards that would result in the issuance of 10,429 shares of Common Stock were excluded from the calculation of diluted earnings per share for the thirty-nine weeks ended May 30,November 28, 2015 because they were anti-dilutive.

 

8. Inventories

 

Inventories are stated at the lower of cost or market 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 customers or used in rental operations. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company uses the first-in, first-out (“FIFO”) method to value its inventories.

 

The components of inventory as of May 28,November 26, 2016 and August 29, 201527, 2016 were as follows (in thousands):

 

 

May 28,

2016

  

August 29,

2015

  

November 26,

2016

  

August 27,

2016

 

Raw materials

 $15,772  $17,658  $14,815  $16,826 

Work in process

  3,103   2,415   2,954   2,275 

Finished goods

  57,472   60,376   55,395   59,786 

Total inventories

 $76,347  $80,449  $73,164  $78,887 

 

9. Goodwill and Other Intangible Assets

As discussed in Note 3, “Acquisitions”, when the Company acquires a business the amount assigned to the tangible assets and liabilities and intangible assets acquired is based on their respective fair values determined as of the acquisition date. The excess of the purchase price over the tangible assets and liabilities and intangible assets is recorded as goodwill.

The changes in the carrying amount of goodwill are as follows (in thousands):

Balance as of August 27, 2016

 $320,641 

Goodwill recorded during the period

  47,181 

Other

  (159

)

     

Balance as of November 26, 2016

 $367,663 

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

  

Gross Carrying

Amount

  

Accumulated

Amortization

  

Net Carrying

Amount

 

November26, 2016

            

Customer contracts

 $209,015  $132,808  $76,207 

Other intangible assets

  33,883   28,761   5,122 
  $242,898  $161,569  $81,329 

August 27, 2016

            

Customer contracts

 $165,405  $129,551  $35,854 

Other intangible assets

  31,382   28,572   2,810 
  $196,787  $158,123  $38,664 

10. Asset Retirement Obligations

 

The Company recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company continues to depreciate, on a straight-line basis, the amount added to property, plant and equipment and recognizes accretion expense in connection with the discounted liability over the various remaining lives which range from approximately fiveone to twenty-eighttwenty-seven years.

 

The changes toA reconciliation of the Company’s asset retirement liability for the thirty-ninethirteen weeks ended wereNovember 26, 2016 was as follows (in thousands):

 

  

May 28,

2016

 

Beginning balance as of August 29, 2015

 $12,381 

Accretion expense

  599 

Effect of exchange rate changes

  (44

)

Asset retirement liabilities settled

  (392

)

Ending balance as of May 28, 2016

 $12,544 
  

November 26,

2016

 

Beginning balance as of August 27, 2016

 $13,032 

Accretion expense

  205 

Effect of exchange rate changes

  (207

)

Change in estimate

  (156

)

Ending balance as of November 26, 2016

 $12,874 

 

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

 

10.11. Commitments and Contingencies

 

The Company and its operations are subject to various federal, state and local laws and regulations governing, among other things, air emissions, wastewater discharges, and the generation, handling, storage, transportation, treatment and disposal of hazardous waste and other substances. In particular, industrial laundries use and must dispose of detergent waste water and other residues, and, in the past used perchloroethylene and other dry cleaning solvents. The Company is attentive to the environmental concerns surrounding the disposal of these materials and has, through the years, taken measures to avoid their improper disposal. In the past, the Company has settled, or contributed to the settlement of, actions or claims brought against the Company relating to the disposal of hazardous materials and there can be no assurance that the Company will not have to expend material amounts to remediate the consequences of any such disposal in the future.

 

US GAAP requires that a liability for contingencies be recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded. The Company regularly consults with attorneys and outside consultants in its consideration of the relevant facts and circumstances before recording a contingent liability. Changes in enacted laws, regulatory orders or decrees, management’s estimates of costs, risk-free interest rates, insurance proceeds, participation by other parties, the timing of payments, the input of the Company’s attorneys and outside consultants or other factual circumstances could have a material impact on the amounts recorded for environmental and other contingent liabilities.

 

Under environmental laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on, or in, or emanating from, such property, as well as related costs of investigation and property damage. Such laws often impose liability without regard to whether the owner or lessee knew of, or was responsible for the presence of such hazardous or toxic substances. There can be no assurances that acquired or leased locations have been operated in compliance with environmental laws and regulations or that future uses or conditions will not result in the imposition of liability upon the Company under such laws or expose the Company to third-party actions such as tort suits. The Company continues to address environmental conditions under terms of consent orders or otherwise negotiated with the applicable environmental authorities or otherwise with respect to sites located in or related to Woburn, Massachusetts, Somerville, Massachusetts, Springfield, Massachusetts, Uvalde, Texas, Stockton, California, three sites related to former operations in Williamstown, Vermont, as well as sites located in Goldsboro, North Carolina, Wilmington, North Carolina, Landover, Maryland and Landover, Maryland.Syracuse, New York.

 

The Company has accrued certain costs related to the sites described above as it has been determined that the costs are probable and can be reasonably estimated. The Company has potential exposure related to a parcel of land (the "Central Area") related to the Woburn, Massachusetts site mentioned above. Currently, the consent decree for the Woburn site does not define or require any remediation work in the Central Area. The United States Environmental Protection Agency (the "EPA") has provided the Company and other signatories to the consent decree with comments on the design and implementation of groundwater and soil remedies at the Woburn site and investigation of environmental conditions in the Central Area. The Company, and other signatories, have implemented and proposed to do additional work at the Woburn site but many of the EPA’s comments remain to be resolved. The Company has accrued costs to perform certain work responsive to EPA's comments. The Company has negotiated a settlement in principle, subject to final government approval, with EPA concerning past invoices for oversight costs with respect to the Woburn site and the Central Area. The Company has implemented mitigation measures and continues to monitor environmental conditions at the Somerville, Massachusetts site.In addition, the Company has received demands from the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station in the area of the Company’s Somerville site. This station is part of a planned extension of the transit system. Due to cost projections of the extension which now substantially exceed original estimates, the local transit authority has placed the extension on hold pending its redesign and receipt of related state and federal approvals and funding increases. The Company has reserved for costs it expects to incur in connection with this matter; however, in light of the uncertainties associated with this matter, these costs and the related reserve may change. The Company has also received notice that the Massachusetts Department of Environmental Protection is conducting an audit of the Company’s investigation and remediation work with respect to the Somerville site.

During the fourth quarter of fiscal 2016, the Company entered into a settlement related to environmental litigation which resulted in a $15.9 million gain that was recorded as a reduction of selling and administrative expenses. This gain consisted of amounts previously received but not recognized into income as well as amounts that the Company received in September 2016.

 

The Company routinely reviews and evaluates sites that may require remediation and monitoring and determines its estimated costs based on various estimates and assumptions. These estimates are developed using its internal sources or by third party environmental engineers or other service providers. Internally developed estimates are based on:

 

Management’s judgment and experience in remediating and monitoring the Company’s sites;

 

Information available from regulatory agencies as to costs of remediation and monitoring;

 

The number, financial resources and relative degree of responsibility of other potentially responsible parties (“PRPs”) who may be liable for remediation and monitoring of a specific site; and

 

The typical allocation of costs among PRPs.

  

There is usually a range of reasonable estimates of the costs associated with each site. In accordance with US GAAP, the Company’s accruals reflect the amount within the range that it believes is the best estimate or the low end of a range of estimates if no point within the range is a better estimate. Where it believes that both the amount of a particular liability and the timing of the payments are reliably determinable, the Company adjusts the cost in current dollars using a rate of 3% for inflation until the time of expected payment and discounts the cost to present value using current risk-free interest rates.Asrates. As of May 28,November 26, 2016, the risk-free interest rates utilized by the Company ranged from 1.9%2.4% to 2.7%3.0%.

 

For environmental liabilities that have been discounted, the Company includes interest accretion, based on the effective interest method, in selling and administrative expenses on the Consolidated Statements of Income. The changes to the Company’s environmental liabilities for the thirty-ninethirteen weeks ended May 28,November 26, 2016 arewere as follows (in thousands):

 

 

May 28, 2016

  

November

26, 2016

 

Beginning balance as of August 29, 2015

 $23,307 

Beginning balance as of August 27, 2016

 $26,748 

Costs incurred for which reserves had been provided

  (820

)

  (850

)

Insurance proceeds

  68   38 

Interest accretion

  502   150 

Change in discount rates

  579   (1,544

)

        

Balance as of May 28, 2016

 $23,636 

Balance as of November 26, 2016

 $24,542 

 

Anticipated payments and insurance proceeds of currently identified environmental remediation liabilities as of May 28,November 26, 2016, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.

 

(In thousands)

 

2016

  

2017

  

2018

  

2019

  

2020

  

Thereafter

  

Total

 

Estimated costs – current dollars

 $6,593  $1,829  $1,476  $1,309  $1,361  $12,493  $25,061 
                             

Estimated insurance proceeds

  (91

)

  (173

)

  (159

)

  (173

)

  (159

)

  (1,293

)

  (2,048

)

                             

Net anticipated costs

 $6,502  $1,656  $1,317  $1,136  $1,202  $11,200  $23,013 
                             

Effect of inflation

                          7,757 

Effect of discounting

                          (7,134

)

                             

Balance as of May 28, 2016

                         $23,636 

(In thousands)

 

2017

  

2018

  

2019

  

2020

  

2021

  

Thereafter

  

Total

 

Estimated costs – current dollars

 $8,824  $1,859  $1,492  $1,284  $1,172  $12,390  $27,021 
                             

Estimated insurance proceeds

  (135

)

  (159

)

  (173

)

  (159

)

  (173

)

  (1,129

)

  (1,928

)

                             

Net anticipated costs

 $8,689  $1,700  $1,319  $1,125  $999  $11,261  $25,093 
                             

Effect of inflation

                          7,406 

Effect of discounting

                          (7,957

)

                             

Balance as of November 26, 2016

                         $24,542 

 

Estimated insurance proceeds are primarily received from an annuity that wasreceived as part of a legal settlement with an insurance company. Annual proceeds of approximately $0.3 million are deposited into an escrow account which funds remediation and monitoring costs for three sites related to 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 May 28,November 26, 2016, the balance in this escrow account, which is held in a trust and is not recorded in the Company’s accompanying Consolidated Balance Sheet, was approximately $3.5$3.4 million. Also included in estimated insurance proceeds are amounts the Company is entitled to receive pursuant to legal settlements as reimbursements from three insurance companies for estimated costs at the site in Uvalde, Texas.

 

The Company’s nuclear garment decontamination facilities are licensed by the Nuclear Regulatory Commission (“NRC”), or, in certain cases, by the applicable state agency, and are subject to regulation by federal, state and local authorities. The Company also has 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 the Company’s garment decontamination business.

 

From time to time, the Company is also subject to legal proceedings and claims arising from the conduct of its business operations, including personal injury claims, customer contract matters, employment claims and environmental matters as described above.

 

While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits and environmental contingencies, the Company believes that the aggregate amount of such liabilities, if any, in excess of amounts covered by insurance have been properly accrued in accordance with US GAAP. It is possible, however, that the future financial position or results of operations for any particular period could be materially affected by changes in the Company’s assumptions or strategies related to these contingencies or changes out of the Company’s control.

 

11.12. Income Taxes

 

The Company’s effective income tax rate was 38.1%38.8% and 38.7%38.5% for the thirteen and thirty-nine weeks ended May 28,November 26, 2016 respectively, as compared to 38.5% for bothand the thirteen and thirty-nine weeks ended May 30, 2015.November 28, 2015, respectively. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expensewhich is consistent with the recognition of these items in prior reporting periods.During the thirty-ninethirteen weeks ended May 28,November 26, 2016, there were no material changes in the amount of unrecognized tax benefits or the amount accrued for interest and penalties.

 

U.S. and Canadian federal income tax statutes have lapsed for filings up to and including fiscal years 2012 and 2008, respectively, and the Company has concluded an audit of U.S. federal income taxes for 2010 and 2011. With a few exceptions, the Company is no longer subject to state and local income tax examinations for periods prior to fiscal 2011. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly in the next 12 months.

 

12.13. Long-Term Debt

 

On April 11, 2016, the Company entered into an amended and restated $250.0 million unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of banks, which matures on April 11, 2021. The Credit Agreement amended and restated the Company’s prior $250.0 million revolving credit agreement, which was scheduled to mature on May 4, 2016. Under the Credit Agreement, the Company is able to borrow funds at variable interest rates based on, at the Company’s election, the Eurodollar rate or a base rate, plus in each case a spread based on the Company’s consolidated funded debt ratio. Availability of credit requires compliance with certain financial and other covenants, including a maximum consolidated funded debt ratio and minimum consolidated interest coverage ratio as defined in the Credit Agreement. The Company tests its compliance with these financial covenants on a fiscal quarterly basis. At May 28,November 26, 2016, the interest rates applicable to the Company’s borrowings under the Credit Agreement would be calculated as LIBOR plus 75 basis points at the time of the respective borrowing. As of May 28,November 26, 2016, the Company had no outstanding borrowings and had outstanding letters of credit amounting to $52.6$58.0 million, leaving $197.4$192.0 million available for borrowing under the Credit Agreement.

 

As of May 28,November 26, 2016, the Company was in compliance with all covenants under the Credit Agreement.

 

13.14. Accumulated Other Comprehensive(Loss)Income

 

The changes in each component of accumulated other comprehensive (loss) income, net of tax,for the thirteen and thirty-nine weeks ended May 28,November 26, 2016 and May 30,November 28, 2015 were as follows(in thousands):

 

  

Thirteen Weeks Ended May 28, 2016

 
  

Foreign

Currency Translation

  

Pension-

related

  

Derivative

Financial

Instruments

  Total

Accumulated Other Comprehensive (Loss) Income

 

Balance as of February 27, 2016

 $(24,006

)

 $(4,937

)

 $516  $(28,427

)

                 

Other comprehensive (loss) income before reclassification

  3,806      (344

)

  3,462 

Amounts reclassified from accumulated other comprehensive loss

        (36

)

  (36

)

Net current period other comprehensive (loss) income

  3,806      (380)  3,426 
                 

Balance as of May 28, 2016

 $(20,200

)

 $(4,937

)

 $136  $(25,001

)

  

Thirteen Weeks EndedNovember 26, 2016

 
  

Foreign

Currency

Translation

  

Pension-

related(1)

  

Derivative

Financial

Instruments (1)

  Total

AccumulatedOther

Comprehensive (Loss) 

Income

 

Balance as of August 27, 2016

 $(20,814

)

 $(8,251

)

 $116  $(28,949

)

                 

Other comprehensive (loss) income before reclassification

  (5,129

)

     324   (4,805

)

Amounts reclassified from accumulated other comprehensive (loss) income

        (76

)

  (76

)

Net current period other comprehensive (loss) income

  (5,129

)

     248   (4,881

)

                 

Balance as of November 26, 2016

 $(25,943

)

 $(8,251

)

 $364  $(33,830

)

  

  

Thirteen Weeks EndedNovember 28, 2015

 
  

Foreign

Currency

Translation

  

Pension-

related(1)

  

Derivative

Financial

Instruments(1)

  

Total

Accumulated Other

Comprehensive(Loss)

Income

 

Balance as of August 29, 2015

 $(20,423

)

 $(4,719

)

 $729  $(24,413

)

                 

Other comprehensive (loss) income before reclassification

  (1,572

)

  (261

)

  (223

)

  (2,056

)

Amounts reclassified from accumulated other comprehensive (loss) income

     43   (72

)

  (29

)

Net current period other comprehensive (loss) income

  (1,572

)

  (218

)

  (295

)

  (2,085

)

                 

Balance as of November 28, 2015

 $(21,995

)

 $(4,937

)

 $434  $(26,498

)

 

  

Thirty-nine Weeks Ended May 28, 2016

 
  

Foreign

Currency Translation

  

Pension-

related

  

Derivative

Financial

Instruments

  Total

Accumulated Other Comprehensive (Loss) Income

 

Balance as of August 29, 2015

 $(20,423

)

 $(4,719

)

 $729  $(24,413

)

                 

Other comprehensive (loss) income before reclassification

  223   (261

)

  (392

)

  (430

)

Amounts reclassified from accumulated other comprehensive loss

     43   (201

)

  (158

)

Net current period other comprehensive (loss) income

  223   (218

)

  (593

)

  (588

)

                 

Balance as of May 28, 2016

 $(20,200

)

 $(4,937

)

 $136  $(25,001

)

  

Thirteen Weeks Ended May 30, 2015

 
  

Foreign

Currency Translation

  

Pension-

related

  

Derivative

Financial

Instruments

  Total

Accumulated Other Comprehensive (Loss) Income

 

Balance as of February 28, 2015

 $(14,181

)

 $(6,510

)

 $(644

)

 $(21,335

)

                 

Other comprehensive (loss) income before reclassification

  62      219   281 

Amounts reclassified from accumulated other comprehensive loss

        70   70 

Net current period other comprehensive (loss) income

  62      289   351 
                 

Balance as of May 30, 2015

 $(14,119

)

 $(6,510

)

 $(355

)

 $(20,984

)

  

Thirty-nine Weeks Ended May 30, 2015

 
  

Foreign

Currency Translation

  

Pension-

related

  

Derivative

Financial

Instruments

  Total

Accumulated Other Comprehensive (Loss) Income

 

Balance as of August 30, 2014

 $2,711  $(5,244

)

 $  $(2,533

)

                 

Other comprehensive (loss) income before reclassification

  (16,830

)

  (1,417

)

  (425

)

  (18,672

)

Amounts reclassified from accumulated other comprehensive loss

     151   70   221 

Net current period other comprehensive (loss) income

  (16,830

)

  (1,266

)

  (355

)

  (18,451

)

                 

Balance as of May 30, 2015

 $(14,119

)

 $(6,510

)

 $(355

)

 $(20,984

)

(1)

Amounts are shown net of tax

 

Amounts reclassified from accumulated other comprehensive (loss) income, net of tax, for the thirteen and thirty-nine weeks ended May 28,November 26, 2016 and May 30,November 28, 2015 were as follows (in thousands):

 

 

Thirteen weeks ended

  

Thirty-nine weeks ended

  

Thirteen weeks ended

 
 

May 28,

  

May 30,

  

May 28,

  

May 30,

  

November 26,

  

November 28,

 
 

2016

  

2015

  

2016

  

2015

  

2016

  

2015

 

Pension benefit liabilities, net:

                        

Actuarial losses

 $  $  $43(a) $151(a) $  $43(a)

Total, net of tax

        43   151      43 

Derivative financial instruments, net:

                        

Forward contracts (b)

  (36

)

  70   (201

)

  70   (76

)

  (72

)

Total, net of tax

  (36

)

  70   (201

)

  70   (76

)

  (72

)

                

Total amounts reclassified, net of tax

  (36

)

  70   (158

)

  221   (76

)

  (29

)

 

 

(a)

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

 

 

(b)

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

 

14.15. Segment Reporting

 

Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the Company’s chief executive officer. The Company has six operating segments based on the information reviewed by its chief executive officer: US Rental and Cleaning, Canadian Rental and Cleaning, Manufacturing (“MFG”), Corporate, Specialty Garments Rental and Cleaning (“Specialty Garments”) and First Aid. The US Rental and Cleaning and Canadian Rental and Cleaning operating segments have been combined to form the US and Canadian Rental and Cleaning reporting segment, and as a result, the Company has five reporting segments.

 

The US and Canadian Rental and Cleaning reporting segment purchases, rents, cleans, delivers and sells, uniforms and protective clothing and non-garment items in the United States and Canada. The laundry locations of the US and Canadian Rental and Cleaning reporting segment are referred to by the Company as “industrial laundries” or “industrial laundry locations.”

 

The MFG operating segment designs and manufactures uniforms and non-garment items primarily for the purpose of providing these goods to the US and Canadian Rental and Cleaning reporting segment. MFG revenues are generated when goods are shipped from the Company’s manufacturing facilities, or its subcontract manufacturers, to other Company locations. These revenues are recorded at a transfer price which is typically in excess of the actual manufacturing cost. Manufactured products are carried in inventory until placed in service at which time they are amortized at this transfer price. On a consolidated basis, intercompany revenues and income are eliminated and the carrying value of inventories and rental merchandise in service is reduced to the manufacturing cost. Income before income taxes from MFG net of the intercompany MFG elimination offsets the merchandise amortization costs incurred by the US and Canadian Rental and Cleaning reporting segment as the merchandise costs of this reporting segment are amortized and recognized based on inventories purchased from MFG at the transfer price which is above the Company’s manufacturing cost.

 

The Corporate operating segment consists of costs associated with the Company’s distribution center, sales and marketing, information systems, engineering, materials management, manufacturing planning, finance, budgeting, human resources, other general and administrative costs and interest expense. The revenues generated from the Corporate operating segment represent certain direct sales made by the Company directly from its distribution center. The products sold by this operating segment are the same products rented and sold by the US and Canadian Rental and Cleaning reporting segment.The majority of expenses accounted for within the Corporate segment relate to costs of the US and Canadian Rental and Cleaning segment, with the remainder of the costs relating to the Specialty Garment and First Aid segments.

 

The Specialty Garments operating segment purchases, rents, cleans, delivers and sells, specialty garments and non-garment items primarily for nuclear and cleanroom applications and provides cleanroom cleaning services at limited customer locations. The First Aid operating segment sells first aid cabinet services and other safety supplies as well as maintains wholesale distribution and pill packaging operations.

 

The Company refers to the US and Canadian Rental and Cleaning, MFG, and Corporate reporting segments combined as its “Core Laundry Operations,” which is included as a subtotal in the following tables (in thousands):

 

 US and              Subtotal              

US and

                             
 Canadian              Core              

Canadian

              

Subtotal

             
 Rental and      Net Interco       Laundry  Specialty          

Rental and

      

Net Interco

      

Core Laundry

  

Specialty

         
Thirteen weeks ended Cleaning  MFG  MFG Elim  Corporate  Operations  Garments  First Aid  Total  

Cleaning

  

MFG

  

MFG Elim

  

Corporate

  

Operations

  

Garments

  

First Aid

  

Total

 
                                                                

May 28, 2016

                                

November 26, 2016

                                

Revenues

 $325,822  $49,482  $(49,482

)

 $5,402  $331,224  $24,081  $12,494  $367,799  $344,481  $48,862  $(48,804

)

 $7,304  $351,843  $22,356  $11,909  $386,108 
                                                                

Income (loss) from operations

 $49,653  $18,633  $(1,746

)

 $(23,756

)

 $42,784  $3,559  $1,574  $47,917  $52,827  $18,207  $(939

)

 $(26,422

)

 $43,673  $1,151  $933  $45,757 
                                                                

Interest (income) expense, net

 $(857

)

 $  $  $166  $(691

)

 $  $  $(691

)

 $(834

)

 $  $  $33  $(801

)

 $  $  $(801

)

                                                                

Income (loss) before taxes

 $50,507  $18,609  $(1,746

)

 $(23,915

)

 $43,455  $3,670  $1,574  $48,699  $53,708  $18,222  $(939

)

 $(26,580

)

 $44,411  $720  $933  $46,064 
                                                                
                                

May 30, 2015

                                

November 28, 2015

                                

Revenues

 $323,584  $46,997  $(46,997

)

 $4,186  $327,770  $25,854  $11,950  $365,574  $329,780  $45,815  $(45,815

)

 $5,257  $335,037  $26,770  $11,577  $373,384 
                                                                

Income (loss) from operations

 $53,537  $16,984  $(431

)

 $(23,156

)

 $46,934  $4,032  $1,386  $52,352  $56,726  $16,544  $(51

)

 $(20,247

)

 $52,972  $4,286  $1,036  $58,294 
                                                                

Interest (income) expense, net

 $(785

)

 $  $  $222  $(563

)

 $  $  $(563

)

 $(744

)

 $  $  $201  $(543

)

 $  $  $(543

)

                                                                

Income (loss) before taxes

 $54,344  $17,015  $(431

)

 $(23,413

)

 $47,515  $3,942  $1,386  $52,843  $57,493  $16,536  $(51

)

 $(20,578

)

 $53,400  $3,922  $1,036  $58,358 
                                

Thirty-nine weeks ended

                                
                                

May 28, 2016

                                

Revenues

 $981,703  $137,733  $(137,733

)

 $15,923  $997,626  $71,302  $35,352  $1,104,280 
                                

Income (loss) from operations

 $149,496  $49,228  $(45

)

 $(66,794

)

 $131,885  $8,991  $3,528  $144,404 
                                

Interest (income) expense, net

 $(2,419

)

 $  $  $511  $(1,908

)

 $  $  $(1,908

)

                                

Income (loss) before taxes

 $151,948  $49,243  $(45

)

 $(67,533

)

 $133,613  $8,915  $3,528  $146,056 
                                
                                

May 30, 2015

                                

Revenues

 $982,435  $149,669  $(149,669

)

 $13,250  $995,685  $66,991  $34,721  $1,097,397 
                                

Income (loss) from operations

 $168,527  $52,218  $(2,563

)

 $(73,451

) (a)

 $144,731  $5,865  $3,896  $154,492 
                                

Interest (income) expense, net

 $(2,456

)

 $  $  $572  $(1,884

)

 $  $  $(1,884

)

                                

Income (loss) before taxes

 $171,033  $52,341  $(2,563

)

 $(74,314

)

 $146,497  $4,660  $3,896  $155,053 

 

(a)

The Company increased its environmental contingency reserves during the thirty-nine weeks ended May 30, 2015 by $3.4 million. This increase was due to additional costs the Company expects to incur associated with the construction of a planned municipal transit station in the area of its Somerville site as well as the impact of lower interest rates in calculating the net present value of its anticipated future environmental liabilities.

 

 

ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

SAFE HARBOR FOR FORWARD LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q and any documents incorporated by reference 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,” 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, our ability to compete successfully without any significant degradation in our margin rates, uncertainties caused by the continuing adverse worldwide economic conditions and their impact on our customers’ businesses and workforce levels, uncertainties regarding our ability to consummate and successfully integrate acquired businesses, our ability to maintain and grow Arrow’s customer base and enhance its operating margins, 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, uncertainties regarding our ability to consummatecompete successfully without any significant degradation in our margin rates, seasonal and successfully integrate acquired businesses,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 continuing increaseeffect of currency fluctuations on our results of operations and financial condition, our dependence on third parties to supply us with raw materials, any loss of key management or other personnel, increased costs as a result of any future changes in domestic healthcare costs, including the ultimate impactfederal or state laws, rules and regulations or governmental interpretation of the Affordable Care Act, our retention of customerssuch laws, rules and renewal of customer contracts,regulations, uncertainties regarding the price levels of natural gas, electricity, fuel and labor, the negative effect on our business from sharply depressed oil prices, fluctuation onthe continuing increase in domestic healthcare costs, including the ultimate impact of the Affordable Care Act, our revenueability to retain and net income fromgrow our specialty garments segment, the effect of currencycustomer base, demand and prices for our products and services, fluctuations onin our results of operations and financial condition,Specialty Garments business, rampant criminal activity and instability in Mexico where our principal garment manufacturing plants are located, the impact on our goodwill and intangibles that might result from adverse financial and economic changes, our ability to properly and efficiently design, construct, implement and operate our new customer relationship management (“CRM”) computer system, interruptions or failures of our information technology systems, including as a result of cyber-attacks, failure to complyadditional professional and internal costs necessary for compliance with other staterecent and federal regulations that might result in penalties or costs, seasonal and quarterly fluctuations in business levels, any loss of key management or other personnel, our dependence on third parties to supply us with raw materials, increased costs as a result of anyproposed future changes in federal or state laws,Securities and Exchange Commission, New York Stock Exchange and accounting rules, strikes and regulations or governmental interpretation of such laws, rulesunemployment levels, our efforts to evaluate and regulations, demand and prices for our products and services,potentially reduce internal costs, economic and other developments associated with the war on terrorism and its impact on the economy and general economic conditions and other factors described under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended August 29, 201527, 2016 and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update any forward looking statements to reflect events or circumstances arising after the date on which such statements are made.

 

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, 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, 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 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 more than 275,000300,000 customer locations in the United States, Canada and Europe from more than 225240 customer service, distribution and manufacturing facilities.

 

As mentioned and described in Note 1415 to the Consolidated Financial Statements, we have five reporting segments: US and Canadian Rental and Cleaning, Manufacturing (“MFG”),MFG, Corporate, Specialty Garments Rental and Cleaning (“Specialty Garments”) and First Aid. We refer to the laundry locations of the US and Canadian Rental and Cleaning reporting segment as “industrial laundries” or “industrial laundry locations”, and to the US and Canadian Rental and Cleaning, MFG, and Corporate reporting segments combined as our “Core Laundry Operations.”

 

Critical 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 (“US 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. See Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 29, 201527, 2016 for additional discussion regarding our application of these and other accounting policies.

 

Results of Operations

 

The following table presents certain selected financial data, including the percentage of revenues represented by each item, for the thirteen and thirty-nine weeks ended May 28,November 26, 2016 and the thirteen and thirty-nine weeks ended May 30,November 28, 2015.

 

 Thirteen weeks ended  Thirty-nine weeks ended  

Thirteen weeks ended

 
(In thousands, except percentages) 

May 28,2016

  % of Rev.  May 30, 2015  % of Rev.  % Change  

May 28,2016

  % of Rev.  

May 30,2015

  % of Rev.  % Change  

November 26,

2016

  

% of

Revenues

  

November 28,

2015

  

% of

Revenues

  

% Change

 
                                                            

Revenues

 $367,799   100.0

%

 $365,574   100.0

%

  0.6

%

 $1,104,280   100.0

%

 $1,097,397   100.0

%

  0.6

%

 $386,108   100.0

%

 $373,384   100.0

%

  3.4

%

                                                            

Operating expenses:

                                                            

Cost of revenues (1)

  224,932   61.2   221,995   60.7   1.3   677,207   61.3   665,222   60.6   1.8   238,765   61.8   222,603   59.6   7.3 

Selling and administrative expenses (1)

  74,541   20.3   72,205   19.8   3.2   222,713   20.2   221,832   20.2   0.4   79,446   20.6   72,749   19.5   9.2 

Depreciation and amortization

  20,409   5.5   19,022   5.2   7.3   59,956   5.4   55,851   5.1   7.3   22,140   5.7   19,738   5.3   12.2 

Total operating expenses

  319,882   87.0   313,222   85.7   2.1   959,876   86.9   942,905   85.9   1.8   340,351   88.1   315,090   84.4   8.0 
                                                            

Income from operations

  47,917   13.0   52,352   14.3   (8.5

)

  144,404   13.1   154,492   14.1   (6.5

)

  45,757   11.9   58,294   15.6   -21.5 
                                                            

Other (income) expense

  (782

)

  (0.2

)

  (491

)

  (0.1

)

  59.3   (1,652

)

  (0.1

)

  (561

)

  (0.1

)

  194.5 

Other income

  307   0.1   64   0.0   379.7 
                                                            

Income before income taxes

  48,699   13.2   52,843   14.5   (7.8

)

  146,056   13.2   155,053   14.1   (5.8

)

  46,064   11.9   58,358   15.6   -21.1 

Provision for income taxes

  18,555   5.0   20,344   5.6   (8.8

)

  56,524   5.1   59,695   5.4   (5.3

)

  17,850   4.6   22,468   6.0   -20.6 
                                                            

Net income

 $30,144   8.2

%

 $32,499   8.9   (7.2

)%

 $89,532   8.1

%

 $95,358   8.7

%

  (6.1

)%

 $28,214   7.3

%

 $35,890   9.6

%

  -21.4

%

 

(1) Exclusive of depreciation on our property, plant and equipment and amortization on 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, US and Canadian Rental and Cleaning, Manufacturing (“MFG”),MFG, Corporate, Specialty Garments, Rental and Cleaning (“Specialty Garments”), and First Aid. We refer to the US 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.

 

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. The dramatic decrease in oil prices beginning in 2014 and continuing to the present has directly affected our customers in the oil industry as they have curtailed their level of operations. In addition, this decline has also had a corresponding effect on our customers in businesses which service or supply the oil industry as well as our customers in unrelated businesses located in areas which had benefited from the economic expansion generated by the robust growth driven by the higher oil prices in prior years. As a result, our organic growth has been impacted by elevated headcount reductions in our wearer base as well as increased lost accounts. We expect the headcount reductions that we continuehave experienced throughout fiscal 2016 to experience at a higher than normal rate will also have annegatively impact on our organic growth into fiscal 2017. On the other hand, we have benefited from lower costs of the gasoline used to fuel our vehicles and the natural gas used to operate our plants. Since there are substantial uncertainties regarding the extent, timing and effect of lower oil prices,While it is difficult to quantify the positive and negative impacts on our future financial results from lower oil prices. Nevertheless,prices, the negative impact on our results from the cutbacks by our customers in the oil industry and other affected businesses have and will continue to outweigh the benefits from lower energy costs.

 

The cost of healthcare that we provide to our employees has grown over the last few years at a rate in excess of our revenue growth and as a result, has negatively impacted our operating results. In fiscal 2015, the Affordable Care Act (“ACA”) required us to modify one of the healthcare plans we provided to our employees. In addition, we have and will continue to incur additional costs related to ACA transitional reinsurance fees in fiscal years 2016 and 2017. Moreover, it is generally expected that healthcare costs in the United States will increase over the coming years at rates in excess of inflation. As a result of these factors, and depending on the effect of the modifications we have made, and may make in the future, to our employee healthcare plans and enrollment levels in those plans, we expect that our future operating results will continue to be further adversely impacted by increasing healthcare costs.

 

We are currently undertaking a company-wide initiative to update our customer relationship management (“CRM”) systems. As of May 28,November 26, 2016, we have capitalized $48.0$50.5 million related to our CRM project (“Unity 20/20”). Although we willhave not deploydeployed the system, we have continued to make investments in IT infrastructure, including headcount, to help support this system in fiscal 2016,and other technology initiatives that have impacted our results of operations. In addition, our future operating results will be impacted by the eventual depreciation of our Unity 20/20 investment. In addition,

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. We expect that our results from operations are being affected by higherlabor costs related to additional investmentswill rise in our IT infrastructure, including headcount, to help support Unity 20/20fiscal 2017 as a result of increases in state and local minimum wage levels as well as other technology initiatives.the recent update to the regulations under the Fair Labor Standards Act which has expanded the number of employees entitled to overtime pay. Although the current changes to the Fair Labor Standards Act have been put on hold due to litigation, they may still become effective in their current or a revised form.

 

A portion of our sales is derived from international markets, including Canada. Revenues denominated in currencies other than the U.S. dollar representedapproximately 8.5%7.2% and 8.2%8.1% of total consolidated revenues for the thirteen and thirty-nine weeks ended MayNovember 26, 2016 and November 28, 2016, respectively. Revenues denominated in currencies other than the U.S. dollar representedapproximately 8.1% and 8.5% of total consolidated revenues for the thirteen and thirty-nine weeks ended May 30, 2015, respectively. Therespectively.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, fluctuations in the Canadian dollar may have an effect on the margins of our Canadian business because a weaker Canadian dollar will increase the cost of merchandise and other operational inputs that are sourced from outside of Canada. Our operating results in future years could be negatively impacted by any 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.

 

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. We expect that our labor costs will rise in fiscal 2017 as a result of increases in state and local minimum wage levels as well as the recent update to the regulations under the Fair Labor Standards Act which has expanded the number of employees entitled to overtime pay. The Company is currently evaluating the impact of the updated standard on our labor costs but anticipates that our future operating results will be adversely impacted.

Thirteen weeks ended May 28,November 26, 2016 compared with thirteen weeks ended May 30,November 28, 2015

Revenues 

 

  

May 28,

  

May 30,

  

Dollar

  

Percent

 

(In thousands, except percentages)

 

2016

  

2015

  

Change

  

Change

 
                 

Core Laundry Operations

 $331,224  $327,770  $3,454   1.1

%

Specialty Garments

  24,081   25,854   (1,773

)

  (6.9

)

First Aid

  12,494   11,950   544   4.6 

Consolidated total

 $367,799  $365,574  $2,225   0.6

%

  

November 26,

  

November28,

  

Dollar

  

Percent

 

(In thousands, except percentages)

 

2016

  

2015

  

Change

  

Change

 
                 

Core Laundry Operations

 $351,843  $335,037  $16,806   5.0

%

Specialty Garments

  22,356   26,770   (4,414

)

  -16.5 

First Aid

  11,909   11,577   332   2.9 

Consolidated total

 $386,108  $373,384  $12,724   3.4

%

 

For the thirteen weeks ended May 28,November 26, 2016, our consolidated revenues increased $2.2by $12.7 million from the comparable period in fiscal 2015,2016, or 0.6%3.4%. This increase was primarily due to a $3.5$16.8 million increase in revenues from our Core Laundry Operations. Revenues from our Core Laundry Operations’ revenuesOperations increased to $331.2$351.8 million for the thirteen weeks ended May 28,November 26, 2016 from $327.8$335.0 million for the comparable period of fiscal 2015,2016, or 1.1%5.0%. Excluding the negative effect of a weaker Canadian dollar, which reduced our revenues in the third quarter of 2016 by 0.3%, as well as the positive effect of acquisitions which increased our revenues for this period by 0.4%4.4%, our organic growth for our Core Laundry Operations was 1.0%0.6%. Revenues from Core Laundry Operations were not significantly impacted by changes in foreign currency exchange rates compared to a year ago. The impact on our revenues from acquisitions was primarily the result of our acquisition of Arrow Uniform (“Arrow”) which was completed on September 19, 2016. Organic growth consists primarily of new sales, price increases, and net changes in the wearer levels at our existing customers, offset by lost accounts. Our organic growth during the thirteen weeks ended May 28,November 26, 2016 continued to be negatively impacted by reductions at our customers that directly or indirectly support oil or other energy production in the United States and Canada.

 

Specialty Garments’ revenues decreased to $24.1$22.4 million in the thirdfirst fiscal quarter of 20162017 from $25.9$26.8 million in the comparable period of fiscal 2015,2016, a decrease of $1.8$4.4 million or 6.9%16.5%. This segment’s results are often affected by the timing and length of its customers’ power reactor outages as well as its project-based activities.Firstactivities. First Aid revenues increased to $12.5million$11.9 million in the thirdfirst quarter of 20162017 from $12.0million$11.6 million in the comparable period of fiscal 2015,2016, an increase of $0.5$0.3 million or 4.6%2.9%.

 

Cost of Revenues

 

For the thirteen weeks ended May 28,November 26, 2016, cost of revenues increased to 61.2%61.8% of revenues, or $224.9$238.8 million, from 60.7%59.6% of revenues, or $222.0$222.6 million, for the thirteen weeks ended May 30,November 28, 2015. This increase was primarilyis partially the result of higher payroll and other productionthe Arrow acquisition. The operations related to the Arrow acquisition had costs as a percent of revenues. Bad debt expense was also higherrevenues during the quarter compared to the prior year period primarily due to concerns around amounts owed by our customers in energy and energy-dependent industries that are experiencing financial difficulties. Thesewere significantly higher costs were partially offset by lower fuel costs associated with our fleet of delivery vehicles and lower natural gas costs used to operate our plants compared to the prior year period.

Selling and Administrative Expense

For the thirteen weeks ended May 28, 2016, selling and administrative expenses increased to 20.3% of revenues, or $74.5 million, from 19.8% of revenues, or $72.2 million, for the thirteen weeks ended May 30, 2015. This increase was primarily due to higher payroll and other administrative costs as a percentage of revenues incurred duringthan the quarterremaining Core Laundry Operations. In addition, our Core Laundry Operations, not including the new Arrow business, had higher merchandise, payroll and other production related expenses as a percentage of revenues compared to the prior year period primarily due to the lack of revenue growth. These increases were partially offset by lower legal costs in the thirteen weeks ended MayNovember 28, 2016 compared2015, partially due to the comparable period in 2015.

Depreciation and Amortization

Our depreciation and amortization expense was $20.4 million, or 5.5% of revenues, for the thirteen weeks ended May 28, 2016 compared to $19.0 million, or 5.2% of revenues, for the thirteen weeks ended May 30, 2015. The increase in depreciation and amortization expense was due to capital expenditure and acquisition activity in earlier periods.

Income (Loss) from Operations

For the thirteen weeks ended May 28, 2016 and May 30, 2015, changes in our revenues and costs as mentioned above resulted in the following changes in our income (loss) from operations:

  

May 28,

  

May 30,

  

Dollar

  

Percent

 

(In thousands, except percentages)

 

2016

  

2015

  

Change

  

Change

 
                 

Core Laundry Operations

 $42,784  $46,934  $(4,150

)

  (8.8

)%

Specialty Garments

  3,559   4,032   (473

)

  (11.7

)

First Aid

  1,574   1,386   188   13.6 

Consolidated total

 $47,917�� $52,352  $(4,435

)

  (8.5

)%

Other (Income) expense

Other (income) expense, which includes interest expense, interest income and exchange rate loss, was $0.8 million of income in the thirteen weeks ended May 28, 2016 compared to $0.5 million of income during the thirteen weeks ended May 30, 2015. This change was primarily due to foreign currency gains of $0.1 million during the thirteen weeks ended May 28, 2016 compared to foreign currency losses of $0.1 million during the thirteen weeks ended May 30, 2015.slow organic revenue growth discussed above.

 

 

 

Provision for Income TaxesSelling and Administrative Expense

 

Our effective income tax rate was 38.1%Selling and administrative expenses were 20.6% and 19.5% of revenues for the thirteen weeks ended MayNovember 26, 2016 and November 28, 2016 compared to 38.5% for2015, respectively. During the thirteenweeks ended May 30, 2015. The decrease in our effective tax rate was primarily due to lower U.S. state income taxes compared to prior year.

Thirty-ninethirteen weeks ended May 28,November 26, 2016, compared with thirty-nine weeks ended May 30, 2015

Revenues

  

May 28,

  

May 30,

  

Dollar

  

Percent

 

(In thousands, except percentages)

 

2016

  

2015

  

Change

  

Change

 
                 

Core Laundry Operations

 $997,626  $995,685  $1,941   0.2

%

Specialty Garments

  71,302   66,991   4,311   6.4 

First Aid

  35,352   34,721   631   1.8 

Consolidated total

 $1,104,280  $1,097,397  $6,883   0.6

%

For the thirty-nine weeks ended May 28, 2016, our consolidated revenues increased by $6.9 million from the comparable period in fiscal 2015, or 0.6%.Core Laundry Operations’ revenues increased to $997.6 million for the thirty-nine weeks ended May 28, 2016 from $995.7 million for the comparable period of fiscal 2015, anthis increase of 0.2%. Excluding the effect of acquisitions and a weaker Canadian dollar, Core Laundry Operations’ revenues grew 0.6% organically. Organic growth consists primarily of new sales, price increases, and net changes in the wearer levels at our existing customers, offset by lost accounts. Our organic growth during the thirty-nine weeks ended May 28, 2016 was negatively impacted by reductions in wearer levels at our customers that directly or indirectly support oil or other energy production in the United States and Canada.

Specialty Garments’ revenues increased to $71.3 million in the thirty-nine weeks ended May 28, 2016 from $67.0 million in the comparable period of 2015, an increase of 6.4%. This increase was primarily the result of increased power reactor business in North America compared to a year ago. This segment’s results are affected by the timing and length of its customers’ power reactor outages as well as its project-based activities.First Aid’s revenues increased to $35.4 million for the thirty-nine weeks ended May 28, 2016 from $34.7 million for the comparable period of fiscal 2015, an increase of 1.8%.

Cost of Revenues

For the thirty-nine weeks ended May 28, 2016, cost of revenues increased to61.3% of revenues, or $677.2 million, from 60.6% of revenues, or $665.2 million, for the thirty-nine weeks ended May 30, 2015. This increase in the cost of revenues was primarily driven by higher merchandise amortization, payroll costs and healthcareother administrative costs, as well aspartially the result of investments in our CRM systems project and other technology initiatives. In addition, stock compensation expense was higher other production costs as a percent of revenues.during the quarter due to the April 2016 restricted stock grant to our Chief Executive Officer. These higher costs were partially offset by lower fuel costs associated with our fleet of delivery vehicleslegal and lower natural gas costs used to operate our plantsenvironment contingencies compared to the prior year period.

Selling and Administrative Expense

Our selling and administrative expenses were $222.7 million for the thirty-ninethirteen weeks ended MayNovember 28, 2016 and $221.8 million for the thirty-nine weeks ended May 30, 2015 and 20.2% of revenues for both periods. For the thirty-nine weeks ended May 28, 2016, payroll and other administrative costs were higher as a percentage of revenues, which were offset by lower legal and environmental costs. The decrease in environmental costs was primarily due to additional reserves of $3.6 million we recorded related to our environmental contingencies during our second fiscal quarter of 2015.

 

Depreciation and Amortization

 

Our depreciation and amortization expense was $60.0$22.1 million, or5.4%or 5.7% of revenues, for the thirty-ninethirteen weeks ended May 28,November 26, 2016 compared to$55.9to $19.7 million, or 5.1%5.3% of revenues, for the thirty-ninethirteen weeks ended May 30,November 28, 2015. DepreciationThe increase in depreciation and amortization expense increasedwas primarily due to an increase in amortization resulting from the intangible assets acquired from Arrow as well as normal capital expenditure and acquisition activity in earlier periods.

 

Income from Operations

For the thirty-ninethirteen weeks ended May 28,November 26, 2016 and May 30,November 28, 2015, the revenue growthchanges in our operations, as well as the change in ourrevenues and costs as mentioneddiscussed above resulted in the following changes in our income from operations:

 

 

May 28,

  

May 30,

  

Dollar

  

Percent

  

November 26,

  

November 28,

  

Dollar

  

Percent

 

(In thousands, except percentages)

 

2016

  

2015

  

Change

  

Change

  

2016

  

2015

  

Change

  

Change

 
                                

Core Laundry Operations

 $131,885  $144,731  $(12,846

)

  (8.9

)%

 $43,673  $52,972  $(9,299

)

  -17.6

%

Specialty Garments

  8,991   5,865   3,126   53.3   1,151   4,286   (3,135

)

  -73.1 

First Aid

  3,528   3,896   (368

)

  (9.4

)

  933   1,036   (103

)

  -10.0 

Consolidated total

 $144,404  $154,492  $(10,088

)

  (6.5

)%

 $45,757  $58,294  $(12,537

)

  -21.5

%

Other (Income) ExpenseIncome

 

Other (income) expense,income, which includes interest expense, interest income and foreign currency exchange rate loss was$1.7(gain), was $0.3 million of income forin the thirty-ninethirteen weeks ended May 28,November 26, 2016 as compared to$0.6to income of $0.1 million of income forin the thirty-ninethirteen weeks ended May 30,November 28, 2015. This changeincrease of $0.2 million was primarily due to foreign currency lossesinterest income of $0.3$1.0 million during the thirty-ninethirteen weeks ended May 28,November 26, 2016 compared to foreign currency lossesinterest income of $1.3$0.8 million during the thirty-ninethirteen weeks ended May 30,November 28, 2015.

 

Provision for Income Taxes

 

Our effective income tax rate was 38.7%38.8% for the thirty-ninethirteen weeks ended May 28,November 26, 2016 compared to 38.5% for the thirty-ninethirteen weeks ended May 30, 2015.November 28, 2015, respectively. The increase in our effective tax rate was due to a change in the mix of our jurisdictional earnings.

 

Liquidity and Capital Resources

 

General 

 

Cash and cash equivalents totaled $347.6$286.1 million as of May 28,November 26, 2016, an increasea decrease of $71.0$77.7 million from August 29, 201527, 2016 when the amount totaled $276.6$363.8 million. Our working capital was $566.3$553.2 million as of May 28,November 26, 2016 compared to $477.7$625.0 million as of August 29, 2015. In addition,27, 2016. On September 19, 2016, we expended $119.9 million in cash upon closing of our acquisition of Arrow. We generated $161.1$63.5 million and $226.9$207.6 million in cash from operating activities in the thirty-ninethirteen weeks ended May 28,November 26, 2016 and the full fiscal year ended August 29, 2015,27, 2016, respectively. We believe that our current cash and cash equivalent balances, our cash generated from our 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.

 

We have accumulated $57.8$53.8 million in cash outside the United States that is expected to be invested indefinitely in our foreign subsidiaries. If these funds were distributed to the U.S. in the form of dividends, we would likely be subject to additional U.S. income taxes. However, we do not believe that any resulting taxes payable would have a material impact on our liquidity.

 

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, andas well as proceeds from loans payable and long-term debt, to fund growth and acquisition opportunities, as well as other cash requirements.

 

Cash Provided by Operating Activities

 

Cash providedby operating activities for the thirty-ninethirteen weeks ended May 28,November 26, 2016 was $161.1$63.5 million, an increase of $2.7$5.9 million from the comparable period in the prior year when cash provided by operating activities was $158.4$57.6 million. This net increaseThe increased cash provided by operating activities was primarily drivenrelated to a settlement of environmental litigation we entered into in the fourth quarter of fiscal 2016 which resulted in a gain of $15.9 million booked as a reduction of selling and administrative expenses. The cash received related to this gain of $12.5 million was received in September 2016. This positive impact on net cash provided by an increase in cash flows of $5.7 million generatedoperating activities was partially offset by changes in working capital primary due to decreased investments in our inventory andlower net income during the timing of our prepaid expenses and other current assets.quarter.

 

 

 

Cash Used in Investing Activities

 

Cash used in investing activities for the thirty-ninethirteen weeks ended May 28,November 26, 2016 was$83.0138.3 million, a decreasean increase of $20.3$117.4 million from the thirty-nine weeks ended May 30, 2015comparable period in the prior year when cash used in investing activities was $103.2$20.9 million. The net decreaseincrease in cash used in investing activities was primarily driven by a decrease in cash outflowsthe result of $10.2 million for capital expenditures as well as a decrease in cash outflow of $9.0 million for theour acquisition of businesses.Arrow which was completed on September 19, 2016 for approximately $119.9 million.

 

Cash Used inin Financing Activities

 

Cash used in financing activities for the thirty-ninethirteen weeks ended MayNovember 26, 2016 was $0.4 million compared to cash used in financing activities of $1.1 million for the thirteen weeks ended November 28, 2016 increased to $7.3 million from $3.3 million during the comparable period in 2015. This change was primarily due to higher proceeds received from the exercisea decrease in payments on loans; as of share based awards during the thirty-nine weeks ended May 30, 2015, which was partially offset by increased cash outflows related to loans payable andNovember 26, 2016 there is no long-term debt in the thirty-nine weeks ended May 30, 2015.outstanding.

 

Long-Term Debt and Borrowing Capacity

 

On April 11, 2016, we entered into an amended and restated $250.0 million unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of banks, which matures on April 11, 2021. The Credit Agreement amended and restated our prior $250.0 million revolving credit agreement, which was scheduled to mature on May 4, 2016. 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. At May 28,November 26, 2016, 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 May 28,November 26, 2016, we had no outstanding borrowings and had outstanding letters of credit amounting to $52.6$58.0 million, leaving $197.4$192.0 million available for borrowing under the Credit Agreement.

 

As of May 28,November 26, 2016, we were in compliance with all covenants under the Credit Agreement.

 

Derivative Instruments and Hedging Activities

 

In January 2015, we entered into sixteen forward contracts to exchange Canadian dollars (“CAD”) for U.S. dollars at fixed exchange rates in order to manage ourits exposure related to certain forecasted CAD denominated sales of one of ourits subsidiaries. The hedged transactions are specified as the first amount of CAD denominated revenues invoiced by one of our domestic subsidiaries each fiscal quarter, beginning in the third fiscal quarter of 2015 and continuing through the second fiscal quarter of 2019. In total, we will sell approximately 31.0 million CAD at an average Canadian-dollar exchange rate of 0.7825 over these quarterly periods. We concluded that the forward contracts met the criteria to qualify as a cash flow hedge under US GAAP. Accordingly, we have reflected all changes in the fair value of the forward contracts in accumulated other comprehensive (loss) income, a component of shareholders’ equity. Upon the maturity of each foreign exchange forward contract, the gain or loss on the contract will be recorded as an adjustment to revenues.

 

As of May 28,November 26, 2016, we had forward contracts with a notional value of approximately 18.315.3 million CAD outstanding and recorded the fair value of the contracts of $0.1$0.3 million in other long-term assets and $0.1$0.3 million in prepaid expenses and other current assets with a corresponding gain in accumulated other comprehensive (loss) income of $0.1million,$0.4 million, which was recorded net of tax. During the thirteen weeks ended May 28,November 26, 2016, we reclassified a nominal amount from accumulated other comprehensive (loss) income to revenue, related to the derivative financial instruments. During the thirty-nine weeks ended May 28, 2016, we reclassified $0.2$0.1 million from accumulated other comprehensive (loss) income to revenue, related to the derivative financial instruments. The gain in accumulated other comprehensive (loss) income as of May 28,November 26, 2016 is expected to be reclassified to revenues prior to its maturity on February 22, 2019.

 

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 wasteswaste 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. OverIn the years,past, we have settled, or contributed to the settlement of, actions or claims brought against us relating to the disposal of hazardous materials 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.

 

US 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, ourmanagement’s 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 partythird-party actions such as tort suits. We continue to address environmental conditions under terms of consent orders or otherwise negotiated with the applicable environmental authorities or otherwise with respect to sites located in or related to Woburn, Massachusetts, Somerville, Massachusetts, Springfield, Massachusetts, Uvalde, Texas, Stockton, California, three sites related to former operations in Williamstown, Vermont, as well as sites located in Goldsboro, North Carolina, Wilmington, North Carolina, Landover, Maryland and Landover, Maryland.Syracuse, New York.

 

We have accrued certain costs related to the sites described above 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”"Central Area") related to the Woburn, Massachusetts site mentioned above. 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”"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 EPA’sEPA's comments. We have negotiated a settlement in principle, subject to final government approval, with EPA concerning past invoices for oversight costs with respect to the Woburn site and the Central Area.We have implemented mitigation measures and continue to monitor environmental conditions at the Somerville, Massachusetts site.Insite. In addition, 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 our Somerville site. This station is part of a planned extension of the transit system. Due to cost projections of the extension which now substantially exceed original estimates, the local transit authority has placed the extension on hold pending its redesign and receipt of related state and federal approvals and funding increases. We have reserved for costs we expect to incur in connection with this matter; however, in light of the uncertainties associated with this matter, these costs and the related reserve may change. We have also received notice that the Massachusetts Department of Environmental Protection is conducting an audit of ourthe Company’s investigation and remediation work with respect to the Somerville site.

During the fourth quarter of fiscal 2016, we entered into a settlement related to environmental litigation which resulted in a $15.9 million gain that was recorded as a reduction of selling and administrative expenses. This gain consisted of amounts previously received but not recognized into income as well as amounts that the Company received in September 2016.

 

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-partythird party environmental engineers or other service providers. Internally developed estimates are based on:

 

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

 

Information available from regulatory agencies as to costs of remediation and monitoring;

 

The number, financial resources and relative degree of responsibility of other potentially responsible parties (PRPs)(“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 US GAAP, our accruals representreflect 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. WhenWhere 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 May 28,November 26, 2016, the risk-free interest rates we utilized ranged from 1.9%2.4% to 2.7%3.0%.

 

 

 

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 thirty-ninethirteen weeks endedMay 28,endedNovember 26, 2016 were as follows (in thousands):

 

 

May 28, 2016

  

November

26, 2016

 

Beginning balance as of August 29, 2015

 $23,307 

Beginning balance as of August 27, 2016

 $26,748 

Costs incurred for which reserves have been provided

  (820

)

  (850

)

Insurance proceeds

  68   38 

Interest accretion

  502   150 

Change in discount rates

  579   (1,544

)

        

Balance as of May 28, 2016

 $23,636 

Balance as of November 26, 2016

 $24,542 

 

Anticipated payments and insurance proceeds relating to currently identified environmental remediation liabilities as of May 28,November 26, 2016, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.

 

(In thousands)

 

2016

  

2017

  

2018

  

2019

  

2020

  

Thereafter

  

Total

  

2017

  

2018

  

2019

  

2020

  

2021

  

Thereafter

  

Total

 

Estimated costs – current dollars

 $6,593  $1,829  $1,476  $1,309  $1,361  $12,493  $25,061  $8,824  $1,859  $1,492  $1,284  $1,172  $12,390  $27,021 
                                                        

Estimated insurance proceeds

  (91

)

  (173

)

  (159

)

  (173

)

  (159

)

  (1,293

)

  (2,048

)

  (135

)

  (159

)

  (173

)

  (159

)

  (173

)

  (1,129

)

  (1,928

)

                                                        

Net anticipated costs

 $6,502  $1,656  $1,317  $1,136  $1,202  $11,200  $23,013  $8,689  $1,700  $1,319  $1,125  $999  $11,261  $25,093 
                                                        

Effect of inflation

                          7,757                           7,406 

Effect of discounting

                          (7,134

)

                          (7,957

)

                                                        

Balance as of May 28, 2016

                         $23,636 

Balance as of November 26, 2016

                         $25,542 

 

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 three 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 May 28,November 26, 2016, the balance in this escrow account, which is held in a trust and is not recorded in our Consolidated Balance Sheet, was approximately $3.5$3.4 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 the Nuclear Regulatory Commission (“NRC”), or, in certain cases, by the applicable state agency, and are subject to regulation by federal, state and local authorities. We also have nuclear garment decontamination facilities in the United Kingdom and the Netherlands. These facilities are licensed and regulated by the respective country’s applicable federal agency. There can be no assurance that such regulation will not lead to material disruptions in our garment decontamination business.

 

From time to time, we are also subject to legal proceedings and claims arising from the conduct of our business operations, including personal injury claims, customer contract matters, employment claims and environmental matters as described above.

 

While it is impossible for us to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits and environmental contingencies, we believe that the aggregate amount of such liabilities, if any, in excess of amounts covered by insurance have been properly accrued in accordance with accounting principles generally accepted in the United States. It is possible, however, that the future financial position and/or results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of our control.

Off-Balance Sheet Arrangements

 

As of May 28,November 26, 2016, 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.

 

Seasonality

 

Historically, our revenues and operating results have varied from quarter to quarter and are expected to continue to fluctuate in the future. These fluctuations have been due to a number of factors, including: general economic conditions in our markets; the timing of acquisitions and of commencing start-up operations and related costs; our effectiveness in integrating acquired businesses and start-up operations; the timing of nuclear plant outages; capital expenditures; seasonal rental and purchasing patterns of our customers; and price changes in response to competitive factors. In addition, our operating results historically have been lower during the second and fourth fiscal quarters than during the other quarters of the fiscal year. The operating results for any historical quarter are not necessarily indicative of the results to be expected for an entire fiscal year or any other interim periods.

 

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.

Contractual Obligations and Other Commercial Commitments

 

As of May 28,November 26, 2016, there were no material changes in our contractual obligations that were disclosed in our Annual Report on Form 10-K for the year ended August 29, 2015.27, 2016.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued updated accounting guidance for revenue recognition, which they have subsequently modified. This modified update provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and will be required to be applied retrospectively, (full or modified), with early adoption permitted. Accordingly, the standard will be effective for us on August 26, 2018. We are currently evaluating the adoption method we will apply and the impact that this guidance will have on our financial statements and related disclosures.

 

In February 2015, the FASB issued updated accounting guidance on consolidation requirements. This update changes the guidance with respect to the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. Accordingly, the standard will bebecame effective for us on August 28, 2016. We expect that adoption ofadopted this guidance willand the adoption did not have a material impact on our financial statements.

 

In April 2015, the FASB issued updated guidance on the presentation of debt issuance costs. This update changes the guidance with respect to presenting such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. Accordingly, the standard will bebecame effective for usthe Company on August 28, 2016. We expect that adoption ofadopted this guidance will not have a material impact on our financial statements.

In May 2015,and the FASB issued updated guidance to remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. This guidance also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, and is to be applied retrospectively to all periods presented, with early adoption permitted. Accordingly, the standard will be effective for us on August 28, 2016. We expect that adoption of this guidance willdid not have a material impact on our financial statements.

 

In July 2015, the FASB issued updated guidance which changes the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value. Subsequent measurement is unchanged for inventory measured using last-in, first-out or the retail inventory method.Thismethod. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016, and is to be applied prospectively, with early adoption permitted. Accordingly, the standard will be effective for us on August 27, 2017. We expect that adoption of this guidance will not have a material impact on our financial statements.

 

In September 2015, the FASB issued updated guidance that requires an entity to recognize adjustments made to provisional amounts that are identified in a business combination be recorded in the period such adjustments are determined, rather than retrospectively adjusting previously reported amounts. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, and is to be applied prospectively, with early adoption permitted. Accordingly, the standard will bebecame effective for us on August 28, 2016. We expect that adoption ofadopted this guidance willand the adoption did not have a material impact on our financial statements.

In November 2015, the FASB issued updated guidance on the presentation of deferred income taxes. This update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 and is to be applied prospectively, and may also be applied retrospectively to all periods presented, with early adoption permitted. We adopted this standard prospectively on February 27, 2016 and prior periods were not retroactively adjusted.

 

In January 2016, the FASB issued updated guidance for the recognition, measurement, presentation, and disclosure of certain financial assets and liabilities. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. Accordingly, the standard will be effective for us on August 26, 2018. We expect that adoption of this guidance will not have a material impact on our financial statements.

 

In February 2016, the FASB issued updated guidance that improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. Accordingly, the standard will be effective for us on September 1, 2019. We are currently evaluating the impact that this guidance will have on our financial statements and related disclosures.

 

In March 2016, the FASB issued updated guidance that simplifies several aspects of accounting for share-based payment transactions. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 and, depending on the amendment, must be applied using a prospective transition method, retrospective transition method, modified retrospective transition method, prospectively and/or retroactively, with early adoption permitted. Accordingly, the standard will be effective for us on August 27, 2017. We are currently evaluating the impact that this guidance will have on our financial statements and related disclosures.

 

In August 2016, the FASB issued updated guidance that reduces diversity in how certain cash receipts and cash payments are presented and classified in the Consolidated Statements of Cash Flows. This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and will be required to be applied retrospectively, with early adoption permitted. Accordingly, the standard will be effective for us on August 26, 2018. We are currently evaluating the impact that this guidance will have on our financial statements and related disclosures.

In October 2016, the FASB issued updated guidance to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and will be required to be applied on a modified retrospective basis, with early adoption permitted. Accordingly, the standard will be effective for us on August 26, 2018. We are currently evaluating the impact that this guidance will have on our financial statements and related disclosures.

ITEM33.. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Foreign Currency Exchange Risk

 

We have determined that all of our foreign subsidiaries operate primarily in local currencies that represent the functional currencies of such subsidiaries. All assets and liabilities of our foreign subsidiaries are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date. The effectseffect of exchange rate fluctuations on the translation of assets and liabilities are recorded as a component of shareholders’ equity. Revenues and expenses are translated at the average exchange rates in effect during each month of the fiscal year. As such, our financial condition and operating results are affected by fluctuations in the value of the U.S. dollar as compared to currencies in foreign countries. Revenues denominated in currencies other than the U.S. dollar representedapproximately 8.5% and 8.2%7.2% of total consolidated revenues for the thirteen and thirty-nine weeks ended May 28,November 26, 2016, respectively, and total assets denominated in currencies other than the U.S. dollar represented approximately 8.4%approximately7.8% and 8.9%8.2% of total consolidated assets at May 28,as of November 26, 2016 and August 29, 2015,27, 2016, respectively. If exchange rates had increased or decreased by 10%by10% from the actual rates in effect during the thirteen and thirty-nine weeks ended and as of May 28,November 26, 2016, our revenues would have increased or decreased by approximately $3.1 million and $9.0 million, respectively, and assets for the thirteen weeks ended and as of May 28,November 26, 2016 would have increased or decreased by approximately $13.6 million.$2.8 million and $13.4 million, respectively.

 

In January 2015, we entered into sixteen forward contracts to exchange Canadian dollars (“CAD”) for U.S. dollars at fixed exchange rates in order to manage our exposure related to certain forecasted CAD denominated sales of one of our subsidiaries. The hedged transactions are specified as the first amount of CAD denominated revenues invoiced by one of our domestic subsidiaries each fiscal quarter, beginning in the third fiscal quarter of 2015 and continuing through the second fiscal quarter of 2019. In total, we will sell approximately 31.0 million CAD at an average Canadian-dollar exchange rate of 0.7825 over these quarterly periods. We concluded that the forward contracts met the criteria to qualify as a cash flow hedge under US GAAP. Accordingly, we have reflected all changes in the fair value of the forward contracts in accumulated other comprehensive (loss) income, a component of shareholders’ equity. Upon the maturity of each foreign exchange forward contract, the gain or loss on the contract will be recorded as an adjustment to revenues.

 

As of May 28,November 26, 2016, we had forward contracts with a notional value of approximately 18.315.3 million CAD outstanding and recorded the fair value of the contracts of $0.1$0.3 million in other long-term assets and $0.1$0.3 million in prepaid expenses and other current assets with a corresponding gain in accumulated other comprehensive (loss) income of $0.1million,$0.4 million, which was recorded net of tax.During the thirteen weeks ended May 28,November 26, 2016, we reclassified a nominal amount from accumulated other comprehensive (loss) income to revenue, related to the derivative financial instruments. During the thirty-nine weeks ended May 28, 2016, we reclassified $0.2$0.1 million from accumulated other comprehensive (loss) income to revenue, related to the derivative financial instruments. The gain in accumulated other comprehensive (loss) income as of May 28,November 26, 2016 is expected to be reclassified to revenues prior to its maturity on February 22, 2019.

 

Other than the forward contracts, mentioneddiscussed above, we do not operate a hedging program to mitigate the effect of a significant change in the value of our foreign subsidiaries functional currencies, which include the Canadian dollar, euro, British pound, Mexican peso and Nicaraguan Cordoba,cordoba, as compared to the U.S. dollar. Any losses or gains resulting from unhedged foreign currency transactions, including exchange rate fluctuations on intercompany accounts are reported as transaction losses (gains) in our other (income) expense. The intercompany payables and receivables are denominated in Canadian dollars, euros, British pounds, Mexican pesos and Nicaraguan Cordoba.cordobas. During the thirteen weeks ended May 28, 2016, transaction gains included in other (income) expensewere approximately $0.1 million. During the thirty-nine weeks ended May 28,November 26, 2016, transaction losses included in other (income) expensewere approximately $0.3$0.5 million. If the exchange rates had increased or decreased by 10%changed by10% during the thirteen and thirty-nine weeks ended May 28,November 26, 2016, we would have recognized exchangetransaction gains or losses of approximately $0.9 million and $0.8 million, respectively.million.

 

ITEM4.4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that material information relating to the Company required to be disclosed by the Company in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures. We continue to review our disclosure controls and procedures, and our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

 

Changes in Internal Control over Financial Reporting 

 

There were no changes in our internal control over financial reporting during the thirdfirst quarter of fiscal year 2016that2017that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

PARTII – OTHER INFORMATION

 

ITEM1. LEGAL PROCEEDINGS

 

From time to time, we are subject to legal proceedings and claims arising from the current conduct of our business operations, including personal injury, customer contract, employment claims and environmental matters as described in our Consolidated Financial Statements. We maintain insurance coverage providing indemnification against many of such claims, and we do not expect that we will sustain any material loss as a result thereof. Refer to Note 10,11, “Commitments and Contingencies,” to the Consolidated Financial Statements, as well as Item 1A. Risk Factors below, for further discussion.

 

ITEM 1A.1A. RISK FACTORS

 

To our knowledge, there have been no material changes in the risk factors described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended August 29, 2015.27, 2016. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors mentioneddiscussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended August 29, 2015,27, 2016, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

 

ITEM 2. UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINESAFETY DISCLOSURES

Not Applicable.

ITEM 5.OTHER INFORMATION

 

None.

 

 

 

ITEM6.3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

 

10.1 Amended and Restated Credit Agreement, dated as of April 11, 2016, by and among UniFirst Corporation and certain of its subsidiaries, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, JPMorgan Chase Bank, N.A., as an L/C Issuer and Syndication Agent, the other lenders party thereto, Merrill Lynch, Pierce Fenner & Smith Incorporated and JPMorgan Chase Bank, N.A., as Joint Lead Arrangers and Book Managers, and Santander Bank, N.A. and Wells Fargo Bank, N.A., as Co-Documentation Agents (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 13, 2016)

10.2 Amended and Restated Employment Agreement, dated as of April 21, 2016, between the Company and Ronald D. Croatti (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 22, 2016)

10.3 Restricted Stock Award Agreement, dated April 21, 2016, between the Company and Ronald D. Croatti (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 22, 2016)

*

31.1 Rule 13a-14(a)/15d-14(a) Certification of Ronald D. Croatti

 

*

31.2 Rule 13a-14(a)/15d-14(a) Certification of Steven S. Sintros

 

**

32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

**

32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*

101 The following materials from UniFirst Corporation’s Quarterly Report on Form 10-Q for the quarter ended May 28,November 26, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.

  

 

*

Filed herewith

 

 

**

Furnished herewith

 

 

  

SIGNATURESSIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

  

UniFirst Corporation

   

July 7, 2016January 5, 2017

By:

/s/ Ronald D. Croatti

Ronald D. Croatti

President and Chief Executive Officer

   

July 7, 2016January 5, 2017

By:

/s/ Steven S. Sintros

Steven S. Sintros

Senior Vice President and Chief Financial Officer

  

 

 

EXHIBITEXHIBITINDEX

 

10.1 Amended and Restated Credit Agreement, dated as of April 11, 2016, by and among UniFirst Corporation and certain of its subsidiaries, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, JPMorgan Chase Bank, N.A., as an L/C Issuer and Syndication Agent, the other lenders party thereto, Merrill Lynch, Pierce Fenner & Smith Incorporated and JPMorgan Chase Bank, N.A., as Joint Lead Arrangers and Book Managers, and Santander Bank, N.A. and Wells Fargo Bank, N.A., as Co-Documentation Agents (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 13, 2016)

10.2 Amended and Restated Employment Agreement, dated as of April 21, 2016, between the Company and Ronald D. Croatti (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 22, 2016)

10.3 Restricted Stock Award Agreement, dated April 21, 2016, between the Company and Ronald D. Croatti (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 22, 2016)

*

31.1 Rule 13a-14(a)/15d-14(a) Certification of Ronald D. Croatti

 

*

31.2 Rule 13a-14(a)/15d-14(a) Certification of Steven S. Sintros

 

**

32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

**

32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

*

101 The following materials from UniFirst Corporation’s Quarterly Report on Form 10-Q for the quarter ended May 28,November 26, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.

 

 

*

Filed herewith

 

 

**

Furnished herewith