UniFirst(UNF) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents UniFirst Corporation's unaudited financial statements and management's discussion for recent interim periods ITEM 1. UNAUDITED FINANCIAL STATEMENTS This section presents UniFirst Corporation's unaudited consolidated financial statements and notes for the recent interim periods Consolidated Statements of Income This section provides the consolidated statements of income for the thirteen and twenty-six weeks ended February 26, 2022 Consolidated Statements of Income (Thirteen Weeks Ended) | (In thousands, except per share data) | February 26, 2022 | February 27, 2021 | | :---------------------------------- | :---------------- | :---------------- | | Revenues | $ 486,696 | $ 449,764 | | Operating income | $ 22,613 | $ 40,693 | | Net income | $ 18,451 | $ 32,585 | | Income per share – Basic: Common Stock | $ 1.02 | $ 1.80 | | Income per share – Diluted: Common Stock | $ 0.97 | $ 1.71 | Consolidated Statements of Income (Twenty-six Weeks Ended) | (In thousands, except per share data) | February 26, 2022 | February 27, 2021 | | :---------------------------------- | :---------------- | :---------------- | | Revenues | $ 972,860 | $ 896,617 | | Operating income | $ 67,403 | $ 96,735 | | Net income | $ 52,156 | $ 74,481 | | Income per share – Basic: Common Stock | $ 2.88 | $ 4.10 | | Income per share – Diluted: Common Stock | $ 2.75 | $ 3.91 | Consolidated Statements of Comprehensive Income This section presents the consolidated statements of comprehensive income for the thirteen and twenty-six weeks ended February 26, 2022 Consolidated Statements of Comprehensive Income (Thirteen Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | | :------------- | :---------------- | :---------------- | | Net income | $ 18,451 | $ 32,585 | | Other comprehensive income (loss) | $ 1,094 | $ 2,188 | | Comprehensive income | $ 19,545 | $ 34,773 | Consolidated Statements of Comprehensive Income (Twenty-six Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | | :------------- | :---------------- | :---------------- | | Net income | $ 52,156 | $ 74,481 | | Other comprehensive income (loss) | $ (1,658) | $ 3,477 | | Comprehensive income | $ 50,498 | $ 77,958 | Consolidated Balance Sheets This section details the consolidated balance sheets as of February 26, 2022, and August 28, 2021 Consolidated Balance Sheets (As of February 26, 2022 and August 28, 2021) | (In thousands) | February 26, 2022 | August 28, 2021 | | :------------- | :---------------- | :-------------- | | Total assets | $ 2,412,596 | $ 2,381,065 | | Total liabilities | $ 513,621 | $ 508,113 | | Total shareholders' equity | $ 1,898,975 | $ 1,872,952 | - Cash, cash equivalents and short-term investments decreased from $512.9 million as of August 28, 2021, to $425.9 million as of February 26, 2022[15] Consolidated Statements of Shareholders' Equity This section outlines changes in shareholders' equity from August 28, 2021, to February 26, 2022 Changes in Shareholders' Equity (August 28, 2021 to February 26, 2022) | (In thousands) | Balance, August 28, 2021 | Net Income | Dividends Declared | Repurchase of Common Stock | Balance, February 26, 2022 | | :------------- | :----------------------- | :--------- | :----------------- | :------------------------- | :------------------------- | | Total Equity | $ 1,872,952 | $ 52,156 | $ (10,871) | $ (14,766) | $ 1,898,975 | - Total shareholders' equity increased from $1,872,952 thousand as of August 28, 2021, to $1,898,975 thousand as of February 26, 2022, driven by net income partially offset by dividends and share repurchases[17] Consolidated Statements of Cash Flows This section presents the consolidated statements of cash flows for the twenty-six weeks ended February 26, 2022 Consolidated Statements of Cash Flows (Twenty-six Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | | :------------- | :---------------- | :---------------- | | Net cash provided by operating activities | $ 44,893 | $ 128,016 | | Net cash used in investing activities | $ (102,476) | $ (73,592) | | Net cash used in financing activities | $ (28,542) | $ (21,243) | | Net increase (decrease) in cash, cash equivalents and short-term investments | $ (86,981) | $ 34,725 | - Net cash provided by operating activities decreased significantly by 64.9% to $44.9 million for the twenty-six weeks ended February 26, 2022, compared to $128.0 million in the prior year[20][130] - Net cash used in investing activities increased by 39.2% to $102.5 million, primarily due to an increase in acquisition-related activity[20][130][132] Notes to Consolidated Financial Statements This section provides detailed explanatory notes supporting the consolidated financial statements Note 1. Basis of Presentation This note describes the basis of preparation for the unaudited consolidated financial statements - The unaudited Consolidated Financial Statements are prepared in accordance with SEC rules and U.S. GAAP, reflecting normal recurring adjustments, and interim results are not indicative of future periods[21][22] Note 2. Recent Accounting Pronouncements This note outlines the adoption and evaluation of recent accounting pronouncements - The Company adopted updated FASB guidance on defined benefit pension plans and income taxes on August 29, 2021, with no material impact on financial statements[23][24] - New guidance on acquired revenue contracts (effective September 1, 2024) and government assistance (effective August 28, 2022) is being evaluated for potential impact[25][26] Note 3. Revenue Recognition This note details the company's policies and breakdown for revenue recognition Revenues by Service Type (Thirteen Weeks Ended) | (In thousands) | February 26, 2022 | % of Revenues | February 27, 2021 | % of Revenues | | :------------- | :---------------- | :------------ | :---------------- | :------------ | | Core Laundry Operations | $ 433,056 | 89.0% | $ 398,235 | 88.5% | | Specialty Garments | $ 35,538 | 7.3% | $ 35,222 | 7.8% | | First Aid | $ 18,102 | 3.7% | $ 16,307 | 3.6% | | Total Revenues | $ 486,696 | 100.0% | $ 449,764 | 100.0% | Revenues by Service Type (Twenty-six Weeks Ended) | (In thousands) | February 26, 2022 | % of Revenues | February 27, 2021 | % of Revenues | | :------------- | :---------------- | :------------ | :---------------- | :------------ | | Core Laundry Operations | $ 861,902 | 88.6% | $ 791,425 | 88.3% | | Specialty Garments | $ 75,022 | 7.7% | $ 73,356 | 8.2% | | First Aid | $ 35,936 | 3.7% | $ 31,836 | 3.6% | | Total Revenues | $ 972,860 | 100.0% | $ 896,617 | 100.0% | - Approximately 91.5% and 91.4% of revenues for the thirteen and twenty-six weeks ended February 26, 2022, respectively, were derived from route servicing fees across Core Laundry Operations, Specialty Garments, and First Aid segments[29] - Deferred commission assets totaled $14.7 million (current) and $63.4 million (non-current) as of February 26, 2022, with amortization expense of $3.8 million and $7.6 million for the thirteen and twenty-six weeks ended, respectively[31] Note 4. Acquisitions This note summarizes business acquisitions completed during the period - During the twenty-six weeks ended February 26, 2022, UniFirst completed eight business acquisitions for approximately $43.7 million, primarily assigned to goodwill and intangible assets[32] Note 5. Fair Value Measurements This note provides details on assets measured at fair value Assets Measured at Fair Value (As of February 26, 2022) | (In thousands) | Level 1 | Level 2 | Level 3 | Fair Value | | :------------- | :------ | :------ | :------ | :--------- | | Cash equivalents | $ 197,120 | $ — | $ — | $ 197,120 | | Pension plan assets | $ — | $ 3,594 | $ — | $ 3,594 | | Foreign currency forward contracts | $ — | $ 31 | $ — | $ 31 | | Total assets at fair value | $ 197,120 | $ 3,625 | $ — | $ 200,745 | - Cash equivalents are classified as Level 1, while pension plan assets and foreign currency forward contracts are classified as Level 2 in the fair value hierarchy[34][35][36] Note 6. Derivative Instruments and Hedging Activities This note describes the company's derivative instruments and hedging strategies - As of February 26, 2022, the Company had foreign currency forward contracts with a notional value of approximately 8.1 million CAD outstanding, recorded at a nominal fair value[37] - A nominal amount from accumulated other comprehensive loss related to these derivatives was reclassified to revenue during the thirteen and twenty-six weeks ended February 26, 2022[37] Note 7. Employee Benefit Plans This note details contributions and changes to employee benefit plans Employee Benefit Plan Contributions (In thousands) | Plan Type | Thirteen weeks ended Feb 26, 2022 | Thirteen weeks ended Feb 27, 2021 | Twenty-six weeks ended Feb 26, 2022 | Twenty-six weeks ended Feb 27, 2021 | | :-------- | :-------------------------------- | :-------------------------------- | :---------------------------------- | :---------------------------------- | | Defined Contribution | $ 3,900 | $ 4,300 | $ 9,500 | $ 10,100 | | Pension Plans & SERP | $ 600 | $ 800 | $ 1,300 | $ 1,500 | - The Company adopted the UniFirst Corporation Deferred Compensation Plan (NQDC Plan) effective February 1, 2022, allowing eligible participants to defer salary and bonuses[40] Note 8. Income Per Share This note presents basic and diluted income per share calculations Basic Income Per Share (Thirteen Weeks Ended) | (In thousands, except per share data) | February 26, 2022 | February 27, 2021 | | :---------------------------------- | :---------------- | :---------------- | | Net income available to shareholders | $ 18,451 | $ 32,585 | | Common Stock (Basic EPS) | $ 1.02 | $ 1.80 | | Class B Common Stock (Basic EPS) | $ 0.81 | $ 1.44 | Diluted Income Per Share (Thirteen Weeks Ended) | (In thousands, except per share data) | February 26, 2022 | February 27, 2021 | | :---------------------------------- | :---------------- | :---------------- | | Common Shareholders (Diluted) | $ 18,451 | $ 32,585 | | Common Shares (Diluted) | 18,967 | 19,037 | | Common Stock (Diluted EPS) | $ 0.97 | $ 1.71 | - Share-based awards totaling 41,364 and 25,722 shares were excluded from diluted EPS calculations for the thirteen and twenty-six weeks ended February 26, 2022, respectively, as they were anti-dilutive[44] Note 9. Inventories This note provides a breakdown and valuation methods for inventories Inventory Components (In thousands) | Inventory Type | February 26, 2022 | August 28, 2021 | | :------------- | :---------------- | :-------------- | | Raw materials | $ 26,830 | $ 24,846 | | Work in process | $ 3,252 | $ 4,703 | | Finished goods | $ 130,753 | $ 114,042 | | Total inventories | $ 160,835 | $ 143,591 | - Inventories are valued at the lower of cost or net realizable value using the FIFO method, with judgments and estimates applied for excess and obsolete inventory[45] Note 10. Goodwill and Other Intangible Assets This note details the carrying amounts of goodwill and other intangible assets Goodwill Carrying Amount (In thousands) | Item | Amount | | :--- | :----- | | Balance as of August 28, 2021 | $ 429,538 | | Goodwill recorded during the period | $ 28,237 | | Other | $ (57) | | Balance as of February 26, 2022 | $ 457,718 | Intangible Assets, Net (In thousands) | Intangible Asset | February 26, 2022 | August 28, 2021 | | :--------------- | :---------------- | :-------------- | | Customer contracts, net | $ 53,595 | $ 49,129 | | Software, net | $ 34,353 | $ 33,712 | | Other intangible assets, net | $ 2,273 | $ 1,797 | | Total | $ 90,221 | $ 84,638 | Note 11. Asset Retirement Obligations This note reconciles and explains the company's asset retirement obligations Asset Retirement Liability Reconciliation (In thousands) | Item | February 26, 2022 | | :--- | :---------------- | | Beginning balance as of August 28, 2021 | $ 14,887 | | Accretion expense | $ 491 | | Effect of exchange rate changes | $ (154) | | Balance as of February 26, 2022 | $ 15,224 | - Asset retirement obligations are recognized when incurred and reasonably estimable, capitalized as part of the long-lived asset, and depreciated over 1 to 22 years[50] Note 12. Commitments and Contingencies This note outlines the company's operating lease costs and environmental liabilities Operating Lease Costs and Liabilities (Twenty-six Weeks Ended February 26, 2022) | (In thousands, except lease term and discount rate) | Amount | | :------------------------------------------------ | :----- | | Operating lease costs | $ 10,904 | | Cash paid for operating lease liabilities | $ 3,538 | | Operating lease right-of-use assets obtained | $ 14,552 | | Weighted-average remaining lease term | 4.23 years | | Weighted-average discount rate | 1.95% | - The Company is subject to environmental laws and regulations, with accrued costs for remediation at sites like Woburn and Somerville, Massachusetts[57][60] Environmental Liabilities Reconciliation (In thousands) | Item | February 26, 2022 | | :--- | :---------------- | | Balance as of August 28, 2021 | $ 32,859 | | Costs incurred for which reserves have been provided | $ (792) | | Insurance proceeds | $ 62 | | Interest accretion | $ 298 | | Changes in discount rates | $ (1,057) | | Balance as of February 26, 2022 | $ 31,370 | Note 13. Income Taxes This note presents the effective tax rates and changes in unrecognized tax positions Effective Tax Rates | Period | February 26, 2022 | February 27, 2021 | | :----- | :---------------- | :---------------- | | Thirteen weeks ended | 19.0% | 22.7% | | Twenty-six weeks ended | 22.7% | 24.0% | - The decrease in the effective tax rate for both periods was primarily due to the release of certain tax reserves[70] - A net decrease of $0.7 million in unrecognized tax positions related to existing reserves occurred during the twenty-six weeks ended February 26, 2022[71] Note 14. Long-Term Debt This note describes the company's unsecured revolving credit agreement and borrowing capacity - UniFirst has a $175.0 million unsecured revolving credit agreement (2021 Credit Agreement) maturing on March 26, 2026[73] - As of February 26, 2022, there were no outstanding borrowings, but $67.6 million in outstanding letters of credit, leaving $107.4 million available for borrowing[73] - The Company was in compliance with all covenants under the 2021 Credit Agreement as of February 26, 2022[74] Note 15. Accumulated Other Comprehensive Loss This note details the components and changes in accumulated other comprehensive loss Accumulated Other Comprehensive Loss (In thousands) | Component | February 26, 2022 | August 28, 2021 | | :-------- | :---------------- | :-------------- | | Foreign Currency Translation | $ (19,451) | $ (17,801) | | Pension related | $ (7,066) | $ (7,066) | | Derivative Financial Instruments | $ 23 | $ 31 | | Total Accumulated Other Comprehensive Loss | $ (26,494) | $ (24,836) | - The total accumulated other comprehensive loss increased from $(24,836) thousand to $(26,494) thousand from August 28, 2021, to February 26, 2022, primarily due to foreign currency translation adjustments[75] Note 16. Segment Reporting This note provides an overview of UniFirst's operating segments and their financial performance - UniFirst operates five reporting segments: U.S. and Canadian Rental and Cleaning, Manufacturing (MFG), Corporate, Specialty Garments, and First Aid[77] - Core Laundry Operations, combining U.S. and Canadian Rental and Cleaning, MFG, and Corporate segments, generated $433.1 million in revenues for the thirteen weeks ended February 26, 2022[81] Operating Income by Segment (Thirteen Weeks Ended February 26, 2022) | Segment | Operating Income (Loss) (In thousands) | | :------ | :----------------------------------- | | Core Laundry Operations | $ 18,745 | | Specialty Garments | $ 3,850 | | First Aid | $ 18 | | Total Operating Income | $ 22,613 | Note 17. Shares Repurchased and Dividends This note details the company's dividend policy and share repurchase activities - The quarterly dividend was raised to $0.30 per share for Common Stock and $0.24 per share for Class B Common Stock, effective October 20, 2021[82] - A new $100.0 million share repurchase program was authorized on October 18, 2021, inclusive of the prior program[83] Share Repurchases (Thirteen and Twenty-six Weeks Ended February 26, 2022) | Period | Shares Repurchased | Average Price Per Share | | :----- | :----------------- | :---------------------- | | Thirteen weeks ended Feb 26, 2022 | 52,500 | $ 190.37 | | Twenty-six weeks ended Feb 26, 2022 | 75,250 | $ 167.54 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's analysis of UniFirst Corporation's financial condition and operational results SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS This section cautions that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, including economic conditions, geopolitical conflicts, the COVID-19 pandemic, acquisitions, environmental liabilities, competition, currency fluctuations, supply chain disruptions, labor relations, and increased costs[84] Business Overview This section describes UniFirst's core business, services, customer base, and reporting segments - UniFirst is a leading provider of workplace uniforms, protective workwear, industrial wiping products, floor mats, facility service products, restroom and cleaning supplies, and first aid cabinet services[85][87] - The Company serves over 300,000 customer locations across the United States, Canada, and Europe, operating from over 260 customer service, distribution, and manufacturing facilities[89] - UniFirst's five reporting segments are U.S. and Canadian Rental and Cleaning, Manufacturing (MFG), Corporate, Specialty Garments, and First Aid, with the first three combined as 'Core Laundry Operations'[90] Critical Accounting Policies and Estimates This section highlights the reliance on management's estimates and judgments in financial reporting - The financial statements rely on management's estimates, judgments, and assumptions, which are subject to change and could lead to different actual results[91] - Critical accounting estimates are detailed in the Annual Report on Form 10-K for the fiscal year ended August 28, 2021[92] COVID-19 Assessment This section discusses the past and potential future impacts of the COVID-19 pandemic on the business - The COVID-19 pandemic previously impacted revenues and supply chains, but these adverse effects have recently declined[93] - New COVID-19 variants could still emerge and adversely affect the business, but the Company remains focused on employee safety and customer service[94][95] Results of Operations This section analyzes the company's financial performance for the reported periods General This section outlines the primary revenue sources and factors impacting operating results - Revenues are derived from designing, manufacturing, personalizing, renting, cleaning, delivering, and selling uniforms and protective clothing, as well as providing facility services and first aid supplies[100] - Operating results are impacted by energy prices (gasoline, natural gas), wage inflation, and the Canadian exchange rate[101][102][103] - The Company initiated a multiyear CRM project in fiscal 2018, with $37.2 million capitalized as of February 26, 2022, and recognized $0.8 million and $1.5 million in amortization expense for the thirteen and twenty-six weeks ended, respectively[104] Thirteen weeks ended February 26, 2022 compared with February 27, 2021 This section provides a comparative analysis of financial results for the thirteen-week periods Revenues This section analyzes revenue performance across segments for the thirteen-week period Revenues (Thirteen Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Core Laundry Operations | $ 433,056 | $ 398,235 | $ 34,821 | 8.7% | | Specialty Garments | $ 35,538 | $ 35,222 | $ 316 | 0.9% | | First Aid | $ 18,102 | $ 16,307 | $ 1,795 | 11.0% | | Consolidated total | $ 486,696 | $ 449,764 | $ 36,932 | 8.2% | - Core Laundry Operations' organic growth was 8.0%, driven by customer re-openings, strong sales, improved retention, and cost-sharing efforts due to inflation[105] Cost of Revenues This section examines the cost of revenues and its impact on margins for the thirteen-week period Cost of Revenues (Thirteen Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Cost of revenues | $ 324,816 | $ 289,455 | $ 35,361 | 12.2% | | % of Revenues | 66.7% | 64.4% | | | - Core Laundry Operations' cost of revenues increased as a percentage of revenues due to higher merchandise amortization, large national account installations, increased casualty claims, energy costs, and wage inflation[108] Selling and Administrative Expenses This section discusses changes in selling and administrative expenses for the thirteen-week period Selling and Administrative Expenses (Thirteen Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Selling and administrative expenses | $ 112,406 | $ 93,329 | $ 19,077 | 20.4% | | % of Revenues | 23.1% | 20.8% | | | - Selling and administrative costs increased as a percentage of revenues due to higher payroll, CRM, ERP, and branding initiatives, as well as increased travel and stock-based compensation[110] Depreciation and Amortization This section reviews depreciation and amortization expenses for the thirteen-week period Depreciation and Amortization (Thirteen Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Depreciation and amortization | $ 26,861 | $ 26,287 | $ 574 | 2.2% | | % of Revenues | 5.5% | 5.8% | | | - Depreciation and amortization expense remained relatively consistent with the prior year comparable period[111] Operating Income This section analyzes the consolidated operating income and margin for the thirteen-week period Operating Income (Thirteen Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Core Laundry Operations | $ 18,745 | $ 35,366 | $ (16,621) | (47.0)% | | Specialty Garments | $ 3,850 | $ 5,234 | $ (1,384) | (26.4)% | | First Aid | $ 18 | $ 93 | $ (75) | (80.6)% | | Operating income | $ 22,613 | $ 40,693 | $ (18,080) | (44.4)% | | Operating income margin | 4.6% | 9.0% | | | - Consolidated operating income decreased by 44.4% to $22.6 million, with the operating income margin falling from 9.0% to 4.6%[112] Other Income, net This section discusses the components and changes in other income, net, for the thirteen-week period Other Income, net (Thirteen Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Total other income, net | $ (157) | $ (1,447) | $ 1,290 | (89.1)% | - The decrease in other income, net, was primarily due to foreign exchange losses in the current period compared to gains in the prior year[113] Provision for Income Taxes This section reviews the provision for income taxes and effective tax rate for the thirteen-week period Provision for Income Taxes (Thirteen Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Provision for income taxes | $ 4,319 | $ 9,555 | $ (5,236) | (54.8)% | | Effective income tax rate | 19.0% | 22.7% | | | - The effective tax rate decreased to 19.0% from 22.7%, primarily due to an increased tax benefit from the release of certain tax reserves[114] Twenty-six weeks ended February 26, 2022 compared with February 27, 2021 This section provides a comparative analysis of financial results for the twenty-six-week periods Revenues This section analyzes revenue performance across segments for the twenty-six-week period Revenues (Twenty-six Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Core Laundry Operations | $ 861,902 | $ 791,425 | $ 70,477 | 8.9% | | Specialty Garments | $ 75,022 | $ 73,356 | $ 1,666 | 2.3% | | First Aid | $ 35,936 | $ 31,836 | $ 4,100 | 12.9% | | Consolidated total | $ 972,860 | $ 896,617 | $ 76,243 | 8.5% | - Consolidated revenues increased by 8.5%, primarily driven by growth in Core Laundry Operations due to customer re-openings, strong sales, improved retention, and cost-sharing efforts[116] Cost of Revenues This section examines the cost of revenues and its impact on margins for the twenty-six-week period Cost of Revenues (Twenty-six Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Cost of revenues | $ 634,946 | $ 565,255 | $ 69,691 | 12.3% | | % of Revenues | 65.3% | 63.0% | | | - Core Laundry Operations' cost of revenues increased as a percentage of revenues due to higher merchandise amortization, large national account installations, increased casualty claims, energy costs, and wage inflation[119] Selling and Administrative Expenses This section discusses changes in selling and administrative expenses for the twenty-six-week period Selling and Administrative Expenses (Twenty-six Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Selling and administrative expenses | $ 216,794 | $ 182,032 | $ 34,762 | 19.1% | | % of Revenues | 22.3% | 20.3% | | | - Selling and administrative costs increased as a percentage of revenues due to higher payroll, CRM, ERP, and branding initiatives, increased healthcare claims, travel, stock-based compensation, and indirect taxes[121] Depreciation and Amortization This section reviews depreciation and amortization expenses for the twenty-six-week period Depreciation and Amortization (Twenty-six Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Depreciation and amortization | $ 53,717 | $ 52,595 | $ 1,122 | 2.1% | | % of Revenues | 5.5% | 5.9% | | | - Depreciation and amortization expense increased due to continued investment in infrastructure and key technology initiatives[122] Operating Income This section analyzes the consolidated operating income and margin for the twenty-six-week period Operating Income (Twenty-six Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Core Laundry Operations | $ 55,252 | $ 84,236 | $ (28,984) | (34.4)% | | Specialty Garments | $ 12,479 | $ 12,393 | $ 86 | 0.7% | | First Aid | $ (328) | $ 106 | $ (434) | (409.4)% | | Operating income | $ 67,403 | $ 96,735 | $ (29,332) | (30.3)% | | Operating income margin | 6.9% | 10.8% | | | - Consolidated operating income decreased by 30.3% to $67.4 million, with the operating income margin falling from 10.8% to 6.9%[123] Other Income, net This section discusses the components and changes in other income, net, for the twenty-six-week period Other Income, net (Twenty-six Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Total other income, net | $ (69) | $ (1,266) | $ 1,197 | (94.5)% | - The decrease in other income, net, was primarily due to higher foreign exchange losses in the current period[124] Provision for Income Taxes This section reviews the provision for income taxes and effective tax rate for the twenty-six-week period Provision for Income Taxes (Twenty-six Weeks Ended) | (In thousands) | February 26, 2022 | February 27, 2021 | Dollar Change | Percent Change | | :------------- | :---------------- | :---------------- | :------------ | :------------- | | Provision for income taxes | $ 15,316 | $ 23,520 | $ (8,204) | (34.9)% | | Effective income tax rate | 22.7% | 24.0% | | | - The effective tax rate decreased to 22.7% from 24.0%, primarily due to a higher release of certain tax reserves[125] Liquidity and Capital Resources This section assesses the company's cash position, capital expenditures, and financing activities General This section provides an overview of the company's cash position and capital management strategy - Cash, cash equivalents, and short-term investments decreased by $83.7 million to $425.9 million as of February 26, 2022, primarily due to eight acquisitions[126] - The Company repurchased 75,250 shares of Common Stock for approximately $14.8 million during the twenty-six weeks ended February 26, 2022[127] - Management believes current cash, future operating cash flows, and available credit will be sufficient for anticipated working capital and capital expenditure requirements for at least the next 12 months[128] Net Cash Provided by Operating Activities This section analyzes the significant decrease in net cash provided by operating activities - Net cash provided by operating activities decreased to $44.9 million from $128.0 million in the prior year, primarily due to lower profitability, increased costs for CRM/ERP/branding initiatives, decreased accrued liabilities (including CARES Act tax payments), and increases in receivables, inventory, and rental merchandise[131] Net Cash Used in Investing Activities This section details the increase in net cash used in investing activities, mainly due to acquisitions - Net cash used in investing activities increased by $35.3 million, primarily due to higher acquisition-related activity, partially offset by lower capital expenditures and software capitalization costs[132] Net Cash Used in Financing Activities This section explains the increase in net cash used in financing activities - Net cash used in financing activities increased due to incremental cash used for Common Stock repurchases ($5.2 million), higher taxes withheld for equity awards ($1.2 million), and increased dividends paid ($0.9 million)[133] Long-Term Debt and Borrowing Capacity This section outlines the company's revolving credit agreement and available borrowing capacity - The Company has a $175.0 million unsecured revolving credit agreement (2021 Credit Agreement) maturing March 26, 2026[134] - As of February 26, 2022, there were no outstanding borrowings, with $67.6 million in outstanding letters of credit, leaving $107.4 million available[134] - The Company was in compliance with all covenants under the 2021 Credit Agreement[135] Derivative Instruments and Hedging Activities This section details the company's foreign currency forward contracts for hedging purposes - UniFirst entered into twenty forward contracts in August 2021 to exchange CAD for U.S. dollars, hedging forecasted CAD-denominated sales through Q4 2026, with a total notional value of approximately 14.1 million CAD at an average exchange rate of 0.7861[137] - As of February 26, 2022, approximately 8.1 million CAD notional value of forward contracts were outstanding, with a nominal fair value recorded in prepaid expenses and other current/long-term assets[138] Commitments and Contingencies This section discusses the company's environmental liabilities and ongoing remediation efforts - The Company is subject to various environmental laws and regulations, with ongoing remediation efforts at sites like Woburn and Somerville, Massachusetts[139][142] - Environmental liabilities are accrued when probable and estimable, with estimates based on management judgment, regulatory information, and PRP involvement[140][144] Environmental Liabilities Reconciliation (In thousands) | Item | February 26, 2022 | | :--- | :---------------- | | Balance as of August 28, 2021 | $ 32,859 | | Costs incurred for which reserves have been provided | $ (792) | | Insurance proceeds | $ 62 | | Interest accretion | $ 298 | | Changes in discount rates | $ (1,057) | | Balance as of February 26, 2022 | $ 31,370 | Off-Balance Sheet Arrangements This section confirms the absence of any off-balance sheet arrangements - As of February 26, 2022, UniFirst did not have any off-balance sheet arrangements[151] Effects of Inflation This section discusses the impact of the current inflationary environment on the company's margins - While generally not dependent on moderate inflation changes, the current inflationary environment has negatively impacted margins and is expected to continue to exert pressure[152] Contractual Obligations and Other Commercial Commitments This section states no material changes to contractual obligations since the last annual report - There were no material changes to contractual obligations as of February 26, 2022, compared to those disclosed in the Annual Report on Form 10-K for the year ended August 28, 2021[153] Recent Accounting Pronouncements This section refers to Note 2 for details on recently implemented accounting standards - Refer to Note 2 of the Consolidated Financial Statements for information on recently implemented and issued accounting standards[154] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details UniFirst Corporation's exposure to market risks, focusing on foreign currency exchange risk Foreign Currency Exchange Risk This section quantifies the impact of foreign currency fluctuations on revenues and assets - Foreign currency denominated revenues represented approximately 8.3% of total consolidated revenues for both the thirteen and twenty-six weeks ended February 26, 2022[155] - A 10% change in exchange rates would impact revenues by approximately $4.0 million (13 weeks) and $8.1 million (26 weeks), and total assets by $16.6 million as of February 26, 2022[155] - The Company uses forward contracts to hedge exposure to CAD-denominated sales, with approximately 8.1 million CAD notional value outstanding as of February 26, 2022, maturing by August 29, 2026[157][158][159] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of disclosure controls and procedures and reports no material changes Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of February 26, 2022, ensuring timely and accurate reporting of material information[162] Changes in Internal Control over Financial Reporting This section reports no material changes in internal control over financial reporting - There were no material changes in internal control over financial reporting during the second quarter of fiscal year 2022[163] PART II – OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, and corporate updates ITEM 1. LEGAL PROCEEDINGS This section outlines the company's involvement in routine legal proceedings and claims - UniFirst is subject to various legal proceedings and claims, including personal injury, customer contract, employment, and environmental matters[165] - The Company maintains insurance coverage and believes that aggregate liabilities in excess of insurance are properly accrued in accordance with U.S. GAAP[165] ITEM 1A. RISK FACTORS This section refers to the Annual Report for detailed risk factors and notes no material changes - Readers should consider risk factors detailed in the Annual Report on Form 10-K for the year ended August 28, 2021[166] - No material changes to the previously disclosed risk factors have occurred, except for updates provided in this Quarterly Report[166] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section provides details on UniFirst Corporation's share repurchase activities Equity Security Repurchases (Thirteen Weeks Ended February 26, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Dollar Value of Shares that May Yet be Purchased | | :----- | :------------------------------- | :--------------------------- | :------------------------------------------------------- | | November 28, 2021 - December 25, 2021 | 11,250 | $ 201.16 | $ 95,029,215 | | December 26, 2021 - January 22, 2022 | 12,000 | $ 201.05 | $ 92,631,728 | | January 23, 2022 - February 26, 2022 | 29,250 | $ 184.04 | $ 87,287,134 | | Total | 52,500 | | | - A new $100.0 million share repurchase program was authorized on October 18, 2021, inclusive of the prior program, funded by available cash[167] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that UniFirst Corporation had no defaults upon senior securities - There were no defaults upon senior securities[168] ITEM 4. MINE SAFETY DISCLOSURES This section indicates that Mine Safety Disclosures are not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[169] ITEM 5. OTHER INFORMATION This section announces Joseph M. Nowicki's appointment to the Board of Directors and committee roles - Joseph M. Nowicki was appointed to the Board of Directors as a Class I Director on April 5, 2022[170] - Mr. Nowicki previously served as EVP and CFO of Beacon Roofing Supply, Inc. and CFO of Spartan Motors, Inc., and is an 'audit committee financial expert'[171][173] - He has been appointed to the Audit Committee and Compensation Committee, with an intention to transition to Chair of the Audit Committee[173][174] ITEM 6. EXHIBITS This section lists all exhibits filed as part of UniFirst Corporation's Form 10-Q - The exhibits include Section 302 and 906 Certifications of the CEO and CFO, the UniFirst Corporation Deferred Compensation Plan, and various Inline XBRL Taxonomy Extension documents[178]