# Unifirst Corp: Form 10-Q for the period ended May 27, 2023

- Company: [Unifirst Corp](/companies/unf.md) (CIK 717954)
- Form: 10-Q
- Filed: 2023-07-06
- Accepted by EDGAR: Jul 6, 2023, 14:40 ET
- Period: 2023-05-27
- Accession: 0000950170-23-031977
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/717954/000095017023031977/unf-20230527.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/717954/000095017023031977/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-05-27.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-02-26 to 2023-05-27 | $576.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-08-28 to 2023-05-27 | $1.66bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-02-26 to 2023-05-27 | $379.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-08-28 to 2023-05-27 | $1.10bn | us-gaap:CostOfRevenue |
| Selling, general and administrative | 3 months, 2023-02-26 to 2023-05-27 | $132.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-08-28 to 2023-05-27 | $372.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-02-26 to 2023-05-27 | $33.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-08-28 to 2023-05-27 | $97.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-02-26 to 2023-05-27 | $9.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-08-28 to 2023-05-27 | $26.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-02-26 to 2023-05-27 | $24.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-08-28 to 2023-05-27 | $76.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-02-26 to 2023-05-27 | $1.29 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-08-28 to 2023-05-27 | $4.06 | us-gaap:EarningsPerShareDiluted |
| Diluted shares (weighted) | 3 months, 2023-02-26 to 2023-05-27 | 18,748,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-08-28 to 2023-05-27 | 18,751,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-08-28 to 2023-05-27 | $142.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-08-28 to 2023-05-27 | $124.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2022-08-28 to 2023-05-27 | $16.5m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2022-08-28 to 2023-05-27 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-05-27 | $59.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-05-27 | $813.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-05-27 | $2.53bn | us-gaap:Assets |
| Current liabilities | at 2023-05-27 | $258.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-05-27 | $548.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-05-27 | $1.98bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 58,006 characters.

### SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and any documents incorporated by reference may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements contained in this Quarterly Report on Form 10-Q and any documents incorporated by reference are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “could,” “should,” “may,” “will,” “strategy,” “objective,” “assume,” “strive,” “design,” “assumption,” “vision” or the negative versions thereof, and similar expressions and by the context in which they are used. Such forward-looking statements are based upon our current expectations and speak only as of the date made. Such statements are highly dependent upon a variety of risks, uncertainties and other important factors that could cause actual results to differ materially from those reflected in such forward-looking statements. Such factors include, but are not limited to, uncertainties caused by an economic recession or other adverse economic conditions, including, without limitation, as a result of continued high inflation rates or further increases in inflation or interest rates or extraordinary events or circumstances such as geopolitical conflicts like the conflict between Russia and Ukraine or the COVID-19 pandemic, and their impact on our customers’ businesses and workforce levels, disruptions of our business and operations, including limitations on, or closures of, our facilities, or the business and operations of our customers or suppliers in connection with extraordinary events or circumstances such as the COVID-19 pandemic, uncertainties regarding our ability to consummate acquisitions and successfully integrate acquired businesses, including Clean Uniform (“Clean”), and the performance of such businesses, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, any adverse outcome of pending or future contingencies or claims, our ability to compete successfully without any significant degradation in our margin rates, seasonal and quarterly fluctuations in business levels, our ability to preserve positive labor relationships and avoid becoming the target of corporate labor unionization campaigns that could disrupt our business, the effect of currency fluctuations on our results of operations and financial condition, our dependence on third parties to supply us with raw materials, which such supply could be severely disrupted as a result of extraordinary events or circumstances such as the COVID-19 pandemic or the conflict between Russia and Ukraine, any loss of key management or other personnel, increased costs as a result of any changes in federal, state, international or other laws, rules and regulations or governmental interpretation of such laws, rules and regulations, uncertainties regarding, or adverse impacts from continued high price levels of natural gas, electricity, fuel and labor or increases in such costs, the negative effect on our business from sharply depressed oil and natural gas prices, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, the continuing increase in domestic healthcare costs, increased workers’ compensation claim costs, increased healthcare claim costs, including as a result of extraordinary events or circumstances such as the COVID-19 pandemic, our ability to retain and grow our customer base, demand and prices for our products and services, fluctuations in our Specialty Garments business, political or other instability, supply chain disruption or infection among our employees in Mexico and Nicaragua where our principal garment manufacturing plants are located, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, our ability to properly and efficiently design, construct, implement and operate a new customer relationship management (“CRM”) computer system and an enterprise resource planning (“ERP”) computer system, interruptions or failures of our information technology systems, including as a result of cyber-attacks, additional professional and internal costs necessary for compliance with any changes in or additional Securities and Exchange Commission (“SEC”), New York Stock Exchange and accounting or other rules, including, without limitation, recent rules proposed by the SEC regarding climate-related and cybersecurity-related disclosures, strikes and unemployment levels, our efforts to evaluate and potentially reduce internal costs, economic and other developments associated with the war on terrorism and its impact on the economy, the impact of foreign trade policies and tariffs or other impositions on imported goods on our business, results of operations and financial condition, general economic conditions, our ability to successfully implement our business strategies and processes, including our capital allocation strategies, our ability to successfully remediate the material weakness in internal control over financial reporting disclosed in our Annual Report on Form 10-K for the year ended August 27, 2022 and the other factors described under “Part I, Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended August 27, 2022 and in our other filings with the SEC, including, without limitation, under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. We undertake no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made.

### 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 U.S. We design, manufacture, personalize, rent, clean, deliver, and sell a wide range of uniforms and protective clothing, including shirts, pants, jackets, coveralls, lab coats, smocks, aprons and specialized protective wear, such as flame resistant and high visibility garments. We also rent and sell industrial wiping products, floor mats, facility service products and other non-garment items, and provide restroom and cleaning supplies and first aid cabinet services and other safety supplies as well as provide certain safety training to a variety of manufacturers, retailers and service companies.

We serve businesses of all sizes in numerous industry categories. Typical customers include automobile service centers and dealers, delivery services, food and general merchandise retailers, food processors and service operations, light manufacturers, maintenance facilities, restaurants, service companies, soft and durable goods wholesalers, transportation companies, healthcare providers and others who require employee clothing for image, identification, protection or utility purposes. We also provide our customers with restroom and cleaning supplies, including air fresheners, paper products and hand soaps.

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

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

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

### 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 accounting principles generally accepted in the United States (“U.S. GAAP”). As such, management is required to make certain estimates, judgments and assumptions that are believed to be reasonable based on the information available. These estimates and assumptions affect the reported amount of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties, the most important and pervasive accounting estimates used and areas most sensitive to material changes from external factors. The critical accounting estimates that we believe affect our more significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended August 27, 2022. There have been no significant changes in our critical accounting estimates since the year ended August 27, 2022.

### Effects of Inflation and Current Economic Conditions

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 and continued focus on improvements of operational productivity. However, the current inflationary environment has had a negative impact on our margins, including as a result of increased energy costs for our vehicles and our plants, as well as increasing wages in the labor markets in which we compete. Inflation could continue to pressure our margins in future periods. In addition, in response to the concerns over inflation risk in the broader U.S. economy, the U.S. Federal Reserve increased its benchmark interest rate between March 2022 and June 2023 by a cumulative 5.0 percentage points, and has signaled that it may approve one or more additional rate increases in the remainder of 2023. It is possible that increases in interest rates may ultimately result in an economic recession, which could have a material adverse impact on our business. Adverse economic conditions resulting from inflationary pressures, U.S. Federal Reserve actions, geopolitical issues or otherwise are difficult to predict and may have a material adverse impact on our business, results of operations and financial condition.

Please see Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended August 27, 2022 for an additional discussion of risks and potential risks of inflation and adverse economic conditions on our business, financial condition and results of operations.

### COVID-19 Assessment

At times during the global COVID-19 pandemic, our revenues were significantly adversely impacted as a result of many customers closing their businesses or operating at limited capacities. In addition, at times during the pandemic, we experienced supply chain disruptions with respect to certain products, including hand sanitizer and masks. Although our operating results continue to be impacted by supply chain disruption and increased costs for supplies, including as a result of general inflationary pressures and Russia’s invasion of Ukraine, these adverse impacts and disruptions have declined since the height of the pandemic.

We remain focused on the safety and well-being of our team partners and on the service of our customers. We will continue to review and assess the COVID-19 pandemic and its lasting impacts on our team partners, our customers, our suppliers and our business so that we can seek to address the impacts on our business and service our customers.

Please see Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended August 27, 2022 for an additional discussion of risks and potential risks of the COVID-19 pandemic on our business, financial condition and results of operations.

### Results of Operations

The following table presents certain selected financial data, including the percentage of revenues represented by each item, for the thirteen and thirty-nine weeks ended May 27, 2023 and May 28, 2022.

*(In thousands, except percentages)*

|  | Thirteen weeks ended May 27, 2023 | % of Revenues | May 28, 2022 | % of Revenues | % Change | Thirty-nine weeks ended May 27, 2023 | % of Revenues | May 28, 2022 | % of Revenues | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $576,668 | 100.0% | $511,548 | 100.0% | 12.7% | $1,661,157 | 100.0% | $1,484,408 | 100.0% | 11.9% |
| Operating expenses: |  |  |  |  |  |  |  |  |  |  |
| Cost of revenues (1) | 379,419 | 65.8 | 334,633 | 65.4 | 13.4 | 1,103,287 | 66.4 | 969,579 | 65.3 | 13.8 |
| Selling and administrative expenses (1) | 132,677 | 23.0 | 116,191 | 22.7 | 14.2 | 372,230 | 22.4 | 332,985 | 22.4 | 11.8 |
| Depreciation and amortization | 31,175 | 5.4 | 27,027 | 5.3 | 15.3 | 88,115 | 5.3 | 80,744 | 5.4 | 9.1 |
| Total operating expenses | 543,271 | 94.2 | 477,851 | 93.4 | 13.7 | 1,563,632 | 94.1 | 1,383,308 | 93.2 | 13.0 |
| Operating income | 33,397 | 5.8 | 33,697 | 6.6 | (0.9) | 97,525 | 5.9 | 101,100 | 6.8 | (3.5) |
| Other expense (income), net | 68 | 0.0 | 91 | 0.0 | (25.3) | (4,827) | (0.3) | 22 | 0.0 | (22,040.9) |
| Income before income taxes | 33,329 | 5.8 | 33,606 | 6.6 | (0.8) | 102,352 | 6.2 | 101,078 | 6.8 | 1.3 |
| Provision for income taxes | 9,053 | 1.6 | 8,539 | 1.7 | 6.0 | 26,309 | 1.6 | 23,855 | 1.6 | 10.3 |
| Net income | $24,276 | 4.2% | $25,067 | 4.9% | (3.2)% | $76,043 | 4.6% | $77,223 | 5.2% | (1.5)% |

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

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

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

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

In fiscal 2018, we initiated a multiyear CRM project to further develop, implement and deploy a third-party application we licensed. This new solution improves functionality, capability and information flow and increases automation in servicing our customers. As of

May 27, 2023, we capitalized $44.6 million related to this CRM project. We began deployment of our new CRM system during the second half of fiscal 2021 and anticipate that deployment will continue through fiscal 2023. We are depreciating this system over a 10-year life and recognized $0.9 million and $2.5 million of amortization expense during the thirteen and thirty-nine weeks ended May 27, 2023, respectively.

In fiscal 2022, we initiated a multiyear ERP project with a strong focus on supply chain and procurement automation and technology. We believe that this initiative will become the core of the UniFirst technology footprint and will integrate and complement the capabilities of the CRM system that we are currently deploying. We expect this system and the supply chain and procurement capabilities that it will provide will enable lower operating costs and customer churn through enhanced inventory utilization and vendor management, improved response times to customer orders and more efficient back-end processes. These capabilities will allow us to more effectively respond to and mitigate the types of supply chain challenges we experienced during the pandemic and continue to experience primarily as a result of the current inflationary environment.

Over the last few years, we have been focused on three discrete strategic initiatives that are critical to our efforts to transform the Company in terms of our overall capabilities and competitive positioning. These initiatives are the CRM implementation of the ERP system (discussed above) and investments in the UniFirst brand. We refer to these three initiatives together as our “Key Initiatives”. For the thirteen and thirty-nine weeks ended May 27, 2023, we incurred $8.4 million and $27.5 million, respectively, of costs directly attributable to our Key Initiatives. For the thirteen and thirty-nine weeks ended May 28, 2022, we incurred $11.4 million and $24.1 million, respectively, of costs directly attributable to our Key Initiatives.

On October 25, 2022, we announced that we will be raising our quarterly dividend to $0.31 per share of Common Stock and to $0.248 per share of Class B Common Stock, up from $0.30 and $0.24 per share, respectively. The amount and timing of any dividend payment is subject to the approval of our Board of Directors each quarter.

On October 18, 2021, our Board of Directors authorized a share repurchase program to repurchase from time to time up to $100.0 million of our outstanding shares of Common Stock, inclusive of the amount which remained available under the existing share repurchase program approved on January 2, 2019. Repurchases made under the program, if any, will be made in either the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases will depend on a variety of factors, including economic and market conditions, the Company stock price, corporate liquidity requirements and priorities, applicable legal requirements and other factors. The share repurchase program has been funded to date with our available cash and will be funded in the future using our available cash or capacity under our Credit Agreement (defined below) and may be suspended or discontinued at any time. During the thirty-nine weeks ended May 27, 2023, we did not repurchase any shares. During the thirteen and thirty-nine weeks ended May 28, 2022, we repurchased 52,500 and 75,250 shares, respectively, for an average price per share of $190.37 and $167.54, respectively, under the share repurchase program. As of May 27, 2023, we had $63.6 million remaining to repurchase under our share repurchase program.

On March 9, 2023, we exercised the accordion feature of the Credit Agreement pursuant to an amendment to the Credit Agreement. The exercise of the accordion feature increases the aggregate commitments under the Credit Agreement by $100.0 million, for a total aggregate commitment of up to $275.0 million. In addition, the amendment provides for the replacement of LIBOR with SOFR such that borrowings are based on, at our election, the SOFR rate or a base rate, plus in each case a spread based on our consolidated funded debt ratio. The amendment also refreshed the accordion feature, so that, provided there is no default or event of default under the Credit Agreement and we are in compliance with our financial covenants on a pro forma basis, we may request an increase in the aggregate commitments under the Credit Agreement (in the form of revolving or term tranches) of up to an additional $100.0 million, for a total aggregate commitment of up to $375.0 million.

On March 13, 2023, we completed our acquisition of the business and certain real estate assets of Clean from Clean Holdco, Inc. and certain of its affiliates for an aggregate purchase price of approximately $299.1 million, net of cash acquired. Clean is a uniform, workwear and facility service program provider with 11 locations covering Missouri, Illinois, Arkansas, Kansas and Oklahoma. The results of operations from Clean were included in our results under the Core Laundry Operations’ segment subsequent to the acquisition date of March 13, 2023. We paid for the acquisition of Clean with cash on hand and borrowings under the Credit Agreement, which we repaid in full during the third quarter of fiscal 2023. Transaction and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $0.7 million and $2.7 million, respectively for thirteen and thirty-nine weeks ended May 27, 2023. All transaction and related costs were expensed as incurred and are included in selling and administrative expenses.

### Thirteen weeks ended May 27, 2023 compared with thirteen weeks ended May 28, 2022

#### Revenues

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Core Laundry Operations | $501,719 | $450,039 | $51,680 | 11.5% |
| Specialty Garments | 49,407 | 41,198 | 8,209 | 19.9% |
| First Aid | 25,542 | 20,311 | 5,231 | 25.8% |
| Consolidated total | $576,668 | $511,548 | $65,120 | 12.7% |

The increase in consolidated revenues of 12.7% during the thirteen weeks ended May 27, 2023 compared to the prior year comparable period was due primarily to growth in our Core Laundry Operations of 11.5%. The increase in our Core Laundry Operations was due to organic growth of 7.8%, the effect of Canadian dollar exchange rate changes on our revenues of (0.7)%, and acquisition related growth of 4.4%. The Core Laundry Operations strong organic growth rate was primarily the result of pricing efforts over the last year to share with our customers the cost increases that we have incurred in our business due to the ongoing inflationary environment and solid new sales. The impact on our revenues from acquisitions was primarily the result of our acquisition of Clean, which was completed on March 13, 2023. During the thirteen weeks ended May 27, 2023, Clean accounted for $19.8 million of revenue, which was included in Core Laundry Operations. Organic growth consists primarily of new sales, price increases, and net changes in the wearer levels at our existing customers, offset by lost accounts.

Specialty Garments revenues in the thirteen weeks ended May 27, 2023 increased compared to the prior year comparable period. Cleanroom revenue growth accounted for growth of 6.1% and the North American nuclear operations accounted for growth of 14.3% due primarily to increased project work in thirteen weeks ended May 27, 2023. This was partially offset by the European nuclear operations which accounted for an effect on growth of (0.5)%. Specialty Garments’ results are often affected by seasonality and the timing and length of our customers’ power reactor outages as well as our project-based activities.

First Aid revenues in the thirteen weeks ended May 27, 2023 increased compared to the prior year comparable period. This growth continues to reflect our investment in expanding the first aid van business, which accounted for growth of 16.1%, and higher activity in the wholesale distribution business, which accounted for growth of 9.7%.

#### Cost of Revenues

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenues | $379,430 | $334,633 | $44,797 | 13.4% |
| % of Revenues | 65.8% | 65.4% |  |  |

The increase in consolidated costs of revenues of 13.4% during the thirteen weeks ended May 27, 2023 compared to the prior year comparable period was due primarily to the impact of the revenue growth, mentioned above. In addition, the cost of revenues increased primarily due to an increase in Core Laundry Operations’ merchandise expense as a percentage of revenues of 0.4% which is being impacted by the current inflationary environment.

#### Selling and Administrative Expenses

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Selling and administrative expenses | $132,677 | $116,191 | $16,486 | 14.2% |
| % of Revenues | 23.0% | 22.7% |  |  |

The increase in selling and administrative costs of 14.2% during the thirteen weeks ended May 27, 2023 compared to the prior year comparable period was due primarily to increased support for the revenue growth, mentioned above, as well as an increase in healthcare claims expense of $4.0 million and costs incurred in the quarter related to a legal matter of approximately $1.3 million. The increase in costs were partially offset by a decrease in spending on our Key Initiative and Clean acquisition-related costs from $11.4 million in the third quarter of fiscal 2022 to $9.1 million in the third quarter of fiscal 2023.

#### Depreciation and Amortization

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $31,175 | $27,027 | $4,148 | 15.3% |
| % of Revenues | 5.4% | 5.3% |  |  |

Depreciation and amortization expense increased by 15.3% but remained relatively consistent with the prior year comparable period as a percentage of revenues. The increase was due primarily to $3.1 million of depreciation and amortization related to the Clean acquisition in the third quarter of fiscal 2023, of which $2.2 million was intangibles amortization.

#### Operating Income

For the thirteen weeks ended May 27, 2023 and May 28, 2022, changes in our revenues and costs as discussed above resulted in the following changes in our operating income and margin:

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Core Laundry Operations | $20,995 | $26,431 | $(5,436) | (20.6)% |
| Specialty Garments | 12,455 | 7,161 | 5,294 | 73.9% |
| First Aid | (53) | 105 | (158) | (150.5)% |
| Operating income | $33,397 | $33,697 | $(300) | (0.9)% |
| Operating income margin | 5.8% | 6.6% |  |  |

#### Other Expense, net

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Interest income, net | $(553) | $(340) | $(213) | 62.6% |
| Other expense, net | 621 | 431 | 190 | 44.1% |
| Total other expense, net | $68 | $91 | $(23) | (25.3)% |

Other expense, net during the thirteen weeks ended May 27, 2023 was relatively consistent with the prior year comparable period.

#### Provision for Income Taxes

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Provision for income taxes | $9,053 | $8,539 | $514 | 6.0% |
| Effective income tax rate | 27.2% | 25.4% |  |  |

The increase in the effective tax rate for the thirteen weeks ended May 27, 2023 as compared to the corresponding period in the prior year was due primarily to lower tax credits in the third quarter of fiscal 2023.

### Thirty-nine weeks ended May 27, 2023 compared with thirty-nine weeks ended May 28, 2022

#### Revenues

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Core Laundry Operations | $1,456,167 | $1,311,941 | $144,226 | 11.0% |
| Specialty Garments | 135,613 | 116,220 | 19,393 | 16.7% |
| First Aid | 69,377 | 56,247 | 13,130 | 23.3% |
| Consolidated total | $1,661,157 | $1,484,408 | $176,749 | 11.9% |

The increase in consolidated revenues of 11.9% during the thirty-nine weeks ended May 27, 2023 compared to the prior year comparable period was due primarily to growth in our Core Laundry Operations of 11.0%. The increase in our Core Laundry Operations was due to organic growth of 9.6%, effect of Canadian dollar exchange rate changes on our revenues of (0.5)%, and acquisition related growth of 2.0%. The Core Laundry Operations strong organic growth rate was primarily the result of pricing efforts over the last year to share with our customers the cost increases that we have incurred in our business due to the ongoing inflationary environment, strong new sales and solid customer retention. The impact on our revenues from acquisitions was primarily the result of our acquisition of Clean, which was completed on March 13, 2023. During the thirty-nine weeks ended May 27, 2023, Clean accounted for $19.8 million of revenue, which was included in Core Laundry Operations. Organic growth consists primarily of new sales, price increases, and net changes in the wearer levels at our existing customers, offset by lost accounts.

Specialty Garments revenues in the thirty-nine weeks ended May 27, 2023 increased compared to the prior year comparable period. Cleanroom revenue growth accounted for growth of 8.8% and the North American nuclear operations accounted for growth of 7.7% due primarily to increased project work in fiscal 2023. The European nuclear operations effect on revenue growth was nominal. Specialty Garments’ results are often affected by seasonality and the timing and length of our customers’ power reactor outages as well as our project-based activities.

First Aid revenues in the thirty-nine weeks ended May 27, 2023 increased compared to the prior year comparable period. Increased activity in the wholesale distribution business accounted for growth of 11.8% and the van business accounted for growth of 11.5%.

#### Cost of Revenues

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenues | $1,103,298 | $969,579 | $133,719 | 13.8% |
| % of Revenues | 66.4% | 65.3% |  |  |

The increase in consolidated costs of revenues of 13.8% during the thirty-nine weeks ended May 27, 2023 compared to the prior year comparable period was due primarily to the impact of the revenue growth, as mentioned above. In addition, the cost of revenues increased primarily due to an increase in Core Laundry Operations’ merchandise expense as a percentage of revenues of 0.9% which is being impacted by the current inflationary environment.

#### Selling and Administrative Expenses

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Selling and administrative expenses | $372,230 | $332,985 | $39,245 | 11.8% |
| % of Revenues | 22.4% | 22.4% |  |  |

The increase in selling and administrative costs of 11.8% during the thirty-nine weeks ended May 27, 2023 compared to the prior year comparable period was due primarily to increased support for the revenue growth, mentioned above. Also contributing to the increase was an additional $3.5 million of costs to support our Key Initiatives compared to the prior year comparable period and $2.7 million of Clean acquisition-related costs in the thirty-nine weeks ended May 27, 2023.

#### Depreciation and Amortization

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $88,115 | $80,744 | $7,371 | 9.1% |
| % of Revenues | 5.3% | 5.4% |  |  |

Depreciation and amortization expense increased by 9.1% but remained relatively consistent with the prior year comparable period as a percentage of revenues. The increase was due primarily to continued investment in our technology capabilities and infrastructure to support our Key Initiatives and future growth as well as $3.1 million of depreciation and amortization related to the Clean acquisition in the third quarter of fiscal 2023, of which $2.2 million was intangibles amortization.

#### Operating Income

For the thirty-nine weeks ended May 27, 2023 and May 28, 2022, changes in our revenues and costs as discussed above resulted in the following changes in our operating income and margin:

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Core Laundry Operations | $68,468 | $81,683 | $(13,215) | (16.2)% |
| Specialty Garments | 30,683 | 19,640 | 11,043 | 56.2% |
| First Aid | (1,626) | (223) | (1,403) | 629.1% |
| Operating income | $97,525 | $101,100 | $(3,575) | (3.5)% |
| Operating income margin | 5.9% | 6.8% |  |  |

#### Other (Income) Expense, net

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Interest income, net | $(6,353) | $(1,739) | $(4,614) | 265.3% |
| Other expense, net | 1,526 | 1,761 | (235) | (13.3)% |
| Total other (income) expense, net | $(4,827) | $22 | $(4,849) | (22040.9)% |

The increase in other (income) expense, net during the thirty-nine weeks ended May 27, 2023 as compared to the prior year comparable period was due primarily to increases in interest income earned on our cash reserves and short-term investments as a result of rising interest rates.

#### Provision for Income Taxes

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Provision for income taxes | $26,309 | $23,855 | $2,454 | 10.3% |
| Effective income tax rate | 25.7% | 23.6% |  |  |

The increase in the effective tax rate for the thirty-nine weeks ended May 27, 2023 as compared to the corresponding period in the prior year was due primarily to the impact of higher tax benefits related primarily to the release of $1.2 million of certain tax reserves during the thirty-nine weeks ended May 28, 2022.

### Liquidity and Capital Resources

#### General

Cash and cash equivalents and short-term investments totaled $69.3 million as of May 27, 2023, a decrease from $376.4 million as of prior fiscal year end. The decrease in cash and cash equivalents and short-term investments was largely driven by our purchase of Clean for $299.1 million, net of cash, and continued investment in our business with capital expenditures. We generated $142.8 million and $88.8 million in cash from operating activities in the thirty-nine weeks ended May 27, 2023 and May 28, 2022, respectively. The increase was primarily due to lower working capital needs of the business. During the thirty-nine weeks ended May 27, 2023, we continued to invest in our business with capital expenditures totaling $126.1 million.

As described above, on March 13, 2023, we completed our acquisition of the business and certain real estate assets of Clean and certain of its affiliates for an aggregate purchase price of approximately $299.1 million, net of cash acquired of $3.3 million. Clean is a uniform, workwear and facility service program provider with 11 locations covering Missouri, Illinois, Arkansas, Kansas and Oklahoma. We borrowed and repaid $80.0 million from our Credit Agreement (as defined below) during the third quarter of fiscal 2023 to finance the acquisition of Clean and fund our day-to-day operations.

On March 9, 2023, we exercised the accordion feature of the Credit Agreement pursuant to an amendment to the Credit Agreement. The exercise of the accordion feature increases the aggregate commitments under the Credit Agreement by $100.0 million, for a total aggregate commitment of up to $275.0 million. In addition, the amendment provides for the replacement of LIBOR with SOFR such that borrowings are based on, at our election, the SOFR rate or a base rate, plus in each case a spread based on our consolidated funded debt ratio. The amendment also refreshed the accordion feature, so that, provided there is no default or event of default under the Credit Agreement and we are in compliance with our financial covenants on a pro forma basis, we may request an increase in the aggregate commitments under the Credit Agreement (in the form of revolving or term tranches) of up to an additional $100.0 million, for a total aggregate commitment of up to $375.0 million.

We did not repurchase any shares of our Common Stock during the thirty-nine weeks ended May 27, 2023 pursuant to our share repurchase program.

We believe, although there can be no assurance, that our current cash, cash equivalents and short-term investments balances, our cash generated from future operations and amounts available under our Credit Agreement will be sufficient to meet our current anticipated working capital and capital expenditure requirements for at least the next 12 months and address related liquidity needs.

Cash flows provided by operating activities have historically been the primary source of our liquidity. We generally use these cash flows to fund most, if not all, of our operations, capital expenditure and acquisition activities as well as dividends on our Common Stock and stock repurchases. We may also use cash flows provided by operating activities, as well as proceeds from loans payable and long-term debt, to fund growth and acquisition opportunities, as well as other cash requirements.

Sources and uses of cash flows for the thirty-nine weeks ended May 27, 2023 and May 28, 2022, respectively, are summarized as follows:

*(In thousands, except percentages)*

|  | May 27, 2023 | May 28, 2022 | Percent Change |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities | $142,807 | $88,838 | 60.7% |
| Net cash used in investing activities | (439,754) | (139,806) | 214.5% |
| Net cash used in financing activities | (20,225) | (49,760) | (59.4)% |
| Effect of exchange rate changes | 76 | (1,545) | (104.9)% |
| Net decrease in cash and cash equivalents | $(317,096) | $(102,273) | 210.0% |

#### Net Cash Provided by Operating Activities

The net cash provided by operating activities during the thirty-nine weeks ended May 27, 2023 increased as compared to the prior year comparable period due to positive impacts from inventories of $10.4 million, receivables of $9.9 million, and accrued liabilities of $8.0 million. The positive impact from inventories and merchandise in service was due primarily to a focused effort on managing our inventory balances in the current year and our balance sheet position continuing to normalize coming out of the COVID-19 pandemic. The positive impact from receivables was due primarily to a focused effort on collections. The positive impact from accrued liabilities was due primarily to higher health insurance claims as well as higher accruals for incentive compensation and a third-party consultant working on our ERP project partially, offset by a decline in our casualty insurance accrual.

#### Net Cash Used in Investing Activities

The net increase in cash used in investing activities during the thirty-nine weeks ended May 27, 2023 was primarily the result of our acquisition of Clean, which was completed on March 13, 2023 for a purchase price, net of cash acquired, of approximately $299.1 million. Also contributing to the increase were an increase in capital expenditures of $26.8 million as compared to the prior year comparable period and a purchase of certificates of deposit during the third quarter of fiscal 2023 at a cost of $10.0 million.

#### Net Cash Used in Financing Activities

The decrease in net cash used in financing activities during the thirty-nine weeks ended May 27, 2023 was due primarily to no Common Stock repurchases during the thirty-nine weeks ended May 27, 2023 as compared to $30.5 million of repurchases in the prior year comparable period. Furthermore, there was also a decrease in taxes withheld and paid related to net-share settlement of equity awards of $1.0 million. During the third quarter of fiscal 2023, we borrowed and repaid $80.0 million under our Credit Agreement. The funds were used primarily to finance the acquisition of Clean. This was partially offset by an increase in dividends paid of $1.1 million.

#### Long-Term Debt and Borrowing Capacity

On March 26, 2021, we entered into an amended and restated $175.0 million unsecured revolving credit agreement (as subsequently amended, the “Credit Agreement”) with a syndicate of banks, which matures on March 26, 2026. The Credit Agreement amended and restated our prior credit agreement, which was scheduled to mature on April 11, 2021. Under the Credit Agreement, we are able to borrow funds at variable interest rates based on, at our election, the Eurodollar rate or a base rate, plus in each case a spread based on our consolidated funded debt ratio.

On March 9, 2023, we exercised the accordion feature of the Credit Agreement pursuant to an amendment to the Credit Agreement. The exercise of the accordion feature increases the aggregate commitments under the Credit Agreement by $100.0 million, for a total aggregate commitment of up to $275.0 million. In addition, the amendment provides for the replacement of LIBOR with SOFR such that borrowings are based on, at our election, the SOFR rate or a base rate, plus in each case a spread based on our consolidated funded debt ratio. The amendment also refreshed the accordion feature, so that, provided there is no default or event of default under the Credit Agreement and we are in compliance with our financial covenants on a pro forma basis, we may request an increase in the aggregate commitments under the Credit Agreement (in the form of revolving or term tranches) of up to an additional $100.0 million, for a total aggregate commitment of up to $375.0 million. Availability of credit requires compliance with certain financial and other covenants, including a maximum consolidated funded debt ratio and minimum consolidated interest coverage ratio as defined in the

Credit Agreement. We test our compliance with these financial covenants on a fiscal quarterly basis. As of May 27, 2023, the interest rates applicable to our borrowings under the Credit Agreement would be calculated as SOFR plus 1.00% at the time of the respective borrowing.

During the third fiscal quarter of 2023, we borrowed $80.0 million under our Credit Agreement to finance the acquisition of Clean and fund our day-to-day operations. All borrowings were repaid as of May 27, 2023 and we had no outstanding amounts under our Credit Agreement as of May 27, 2023. As of May 27, 2023, we had outstanding letters of credit amounting to $66.5 million, leaving $208.5 million available for borrowing under the Credit Agreement.

As of May 27, 2023, we were in compliance with all covenants under the Credit Agreement.

#### Derivative Instruments and Hedging Activities

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

As of May 27, 2023, we had forward contracts with a notional value of approximately 5.8 million CAD outstanding and recorded the fair value of the contracts, in the amount of $0.2 million, in prepaid expenses and other current assets and other long-term assets with a corresponding $0.2 million gain in accumulated other comprehensive loss, which was recorded net of tax. During the thirteen and thirty-nine weeks ended May 27, 2023, we reclassified a nominal amount and $0.1 million, respectively, from accumulated other comprehensive loss to revenue, related to the derivative financial instruments. The gain on these forward contracts that resulted in a decrease to accumulated other comprehensive loss as of May 27, 2023 is expected to be reclassified to revenues prior to their maturity on August 29, 2026.

#### Commitments and Contingencies

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

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

Under environmental laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on, or in, or emanating from, such property, as well as related costs of investigation and property damage. Such laws often impose liability without regard to whether the owner or lessee knew of, or was responsible for the presence of such hazardous or toxic substances. There can be no assurances that acquired or leased locations have been operated in compliance with environmental laws and regulations or that future uses or conditions will not result in the imposition of liability upon our Company under such laws or expose our Company to third-party actions such as tort suits. We continue to address environmental conditions under terms of consent orders negotiated with the applicable environmental authorities or otherwise with respect to certain sites.

We have accrued certain costs related to certain sites, including but not limited to sites in Woburn and Somerville, Massachusetts, as it has been determined that the costs are probable and can be reasonably estimated. We, together with multiple other companies, are party to a consent decree related to our property and other parcels of land (the “Central Area”) at a site in Woburn, Massachusetts. The United States Environmental Protection Agency (the “EPA”) has provided us and other signatories to the consent decree with comments on the design and implementation of groundwater and soil remedies at the Woburn site and investigation of environmental conditions in the Central Area. The consent decree does not address any remediation work that may be required in the Central Area.

We, and other signatories, have implemented and proposed to do additional work at the Woburn site but many of the EPA’s comments remain to be resolved. We have accrued costs to perform certain work responsive to the EPA’s comments. Additionally, we have implemented mitigation measures and continue to monitor environmental conditions at the Somerville, Massachusetts site. We have agreed to undertake additional actions responsive to a notice of audit findings from the Massachusetts Department of Environmental Protection concerning a regulatory submittal that we made in 2009 for a portion of the site. We have received demands from the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station in the area of the Somerville site. We have reserved for costs in connection with this matter; however, in light of the uncertainties associated with this matter, these costs and the related reserve may change.

We routinely review and evaluate sites that may require remediation and monitoring and determine our estimated costs based on various estimates and assumptions. These estimates are developed using our internal sources or by third party environmental engineers or other service providers. Internally developed estimates are based on:

- Management’s judgment and experience in remediating and monitoring our sites;
- Information available from regulatory agencies as to costs of remediation and monitoring;
- The number, financial resources and relative degree of responsibility of other potentially responsible parties (“PRPs”) who may be liable for remediation and monitoring of a specific site; and
- The typical allocation of costs among PRPs.

There is usually a range of reasonable estimates of the costs associated with each site. In accordance with U.S. GAAP, our accruals represent the amount within the range that we believe is the best estimate or the low end of a range of estimates if no point within the range is a better estimate. When we believe that both the amount of a particular liability and the timing of the payments are reliably determinable, we adjust the cost in current dollars using a rate of 3% for inflation until the time of expected payment and discount the cost to present value using current risk-free interest rates. As of May 27, 2023, the risk-free interest rates we utilized ranged from 3.80% to 4.23%.

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-nine weeks ended May 27, 2023 were as follows (in thousands):

|  | May 27, 2023 |
| --- | ---: |
| Balance as of August 27, 2022 | $32,191 |
| Revisions in estimates | (5) |
| Costs incurred for which reserves have been provided | (1,374) |
| Insurance proceeds | 122 |
| Interest accretion | 777 |
| Changes in discount rates | (1,717) |
| Balance as of May 27, 2023 | $29,994 |

Anticipated payments and insurance proceeds relating to currently identified environmental remediation liabilities as of May 27, 2023, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.

*(In thousands)*

|  | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Estimated costs – current dollars | $10,819 | $3,051 | $1,741 | $1,437 | $1,250 | $14,947 | $33,245 |
| Estimated insurance proceeds | (113) | (159) | (173) | (159) | (173) | (230) | (1,007) |
| Net anticipated costs | $10,706 | $2,892 | $1,568 | $1,278 | $1,077 | $14,717 | $32,238 |
| Effect of inflation |  |  |  |  |  |  | 10,165 |
| Effect of discounting |  |  |  |  |  |  | (12,409) |
| Balance as of May 27, 2023 |  |  |  |  |  |  | $29,994 |

Estimated insurance proceeds are primarily received from an annuity received as part of our legal settlement with an insurance company. Annual proceeds of approximately $0.3 million are deposited into an escrow account which funds remediation and monitoring costs for two sites related to our former operations in Williamstown, Vermont. Annual proceeds received but not expended in the current year accumulate in this account and may be used in future years for costs related to this site through the year 2027. As of May 27, 2023, the balance in this escrow account, which is held in a trust and is not recorded in our Consolidated Balance Sheet, was approximately $5.2 million. Also included in estimated insurance proceeds are amounts we are entitled to receive pursuant to legal settlements as reimbursements from three insurance companies for estimated costs at the site in Uvalde, Texas.

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

In addition, in the fourth quarter of fiscal 2022, the Mexican federal tax authority issued a tax assessment on our subsidiary in Mexico for fiscal 2016 import taxes, value added taxes and custom processing fees of over $17.0 million, plus surcharges, fines and penalties of over $67.7 million for a total assessment of over $84.7 million, which accrues interest and other charges. We disagree with such tax assessment and are challenging the validity of the tax assessment through an appeal process. While we are unable to ascertain the ultimate outcome of this matter, based on the information currently available, we believe that a loss with respect to this matter is neither probable nor remote. Given the uncertainty associated with the ultimate resolution of this matter, we are unable to reasonably assess an estimate or range of estimates of any potential losses.

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 U.S. GAAP. It is possible, however, that the future financial position and/or results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of our control.

#### Contractual Obligations and Other Commercial Commitments

As of May 27, 2023, there were no material changes to our contractual obligations that were disclosed in our Annual Report on Form 10-K for the year ended August 27, 2022. As of May 27, 2023, we did not have any off-balance sheet arrangements.

### Recent Accounting Pronouncements

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

## Market risk

As filed, 5,215 characters.

#### Foreign Currency Exchange Risk

We have determined that all of our foreign subsidiaries operate primarily in local currencies that represent the functional currencies of such subsidiaries. All assets and liabilities of our foreign subsidiaries are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date. The effects of exchange rate fluctuations on the translation of assets and liabilities are recorded as a component of shareholders’ equity. Revenues and expenses are translated at the average exchange rates in effect during each month of the fiscal year. As such, our financial condition and operating results are affected by fluctuations in the value of the U.S. dollar as compared to currencies in foreign countries. Revenues denominated in currencies other than the U.S. dollar represented approximately 6.8% and 7.0%, respectively, of total consolidated revenues for the thirteen and thirty-nine weeks ended May 27, 2023. Total assets denominated in currencies other than the U.S. dollar represented approximately 6.6% and 7.0% of total consolidated assets as of May 27, 2023 and August 27, 2022, respectively. If exchange rates had increased or decreased by 10% from the actual rates in effect during the thirteen and thirty-nine weeks ended May 27, 2023, our revenues would have increased or decreased by $0.1 million and $0.3 million, respectively, and total assets as of May 27, 2023 would have increased or decreased by approximately $16.7 million.

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

As of May 27, 2023, we had forward contracts with a notional value of approximately 5.8 million CAD outstanding and recorded the fair value of the contracts, in the amount of $0.2 million, in prepaid expenses and other current assets and other long-term assets with a corresponding $0.2 million gain in accumulated other comprehensive loss, which was recorded net of tax. During the thirteen and thirty-nine weeks ended May 27, 2023, we reclassified a nominal amount and $0.1 million, respectively, from accumulated other comprehensive loss to revenue, related to the derivative financial instruments. The gain on these forward contracts that resulted in a decrease to accumulated other comprehensive loss as of May 27, 2023 is expected to be reclassified to revenues prior to their maturity on August 29, 2026.

Other than the forward contracts, discussed above, we do not operate a hedging program to mitigate the effect of a significant change in the value of the functional currencies of our foreign subsidiaries, which include the Canadian dollar, euro, British pound, Mexican peso and Nicaraguan cordoba, as compared to the U.S. dollar. Any losses or gains resulting from unhedged foreign currency transactions, including exchange rate fluctuations on intercompany accounts are reported as transaction losses (gains) in our other income, net. The intercompany payables and receivables are denominated in Canadian dollars, euros, British pounds, Mexican pesos and Nicaraguan cordobas. During the thirteen and thirty-nine weeks ended May 27, 2023, transaction loss of $0.4 million and gain of $0.8 million, respectively, and were included in other income. If exchange rates had increased or decreased by 10% during the thirteen and thirty-nine weeks ended May 27, 2023, we would have recognized exchange gains or losses of approximately $1.9 million and $1.1 million, respectively.

#### Interest Rate Sensitivity

We are exposed to market risk from changes in interest rates, which may adversely affect our financial position, results of operations and cash flows. In seeking to minimize the risks from interest rate fluctuations, we manage exposures through our operating and financing activities. We are exposed to interest rate risk primarily through borrowings under our Credit Agreement. During the third fiscal quarter of 2023, we borrowed and repaid $80.0 million under the Credit Agreement. Under the Credit Agreement, we borrow funds at variable interest rates based on, at our election, the SOFR rate or a base rate, plus in each case a spread based on our consolidated funded debt ratio. To the extent we have borrowings outstanding under the Credit Agreement, changes in interest rates result in changes in our interest expense.

Please see Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended August 27, 2022 for an additional discussion of risks and potential risks on our business, financial performance and the market price of our Common Stock.

## Controls and procedures

As filed, 4,442 characters.

#### 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, solely as a result of the material weakness previously identified by management and described in our Annual Report on Form 10-K for the year ended August 27, 2022, our disclosure controls and procedures were not 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 SEC rules and forms and to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply our 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

Other than the remediation measures with respect to the material weakness described below, there were no changes in our internal control over financial reporting during the third quarter of fiscal 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

#### Previously Identified Material Weakness

As described in Part II, Item 9A of our Annual Report on Form 10-K for the year ended August 27, 2022, our management identified a material weakness in internal control over financial reporting related to the revenue and accounts receivable process, primarily due to ineffective information technology general controls (ITGCs) in the area of user access over the CRM system that we are in the process of deploying. This issue was attributable to numerous role security defects that we experienced in the application and uncertainty that additional role security defects would not arise. Our business process controls within the revenue and accounts receivable process, both automated and manual, that are dependent on the completeness and accuracy of the information derived from the affected IT system were also deemed ineffective because they could have been adversely impacted.

#### Remediation

Management has worked with the application provider to implement security enhancements to the CRM system that provide improved control over user access. These enhancements are subject to management's testing, which will be performed in the fourth quarter of fiscal 2023. We believe that these actions as well as other enhancements to our business process controls, both automated and manual, will enable us to remediate the material weakness. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We currently believe, although there can be no assurance, that the remediation of the material weakness will be completed by the end of fiscal 2023.

Our Chief Executive Officer and Chief Financial Officer have certified in certifications furnished with this Quarterly Report on Form 10-Q that, to the best of their knowledge, the information contained in this Quarterly Report on Form 10-Q fairly present, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in this Quarterly Report on Form 10-Q.

## Risk factors

As filed, 1,069 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended August 27, 2022, which could materially affect our business, financial condition, and future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results. Except to the extent previously updated or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended August 27, 2022.

Filed Jul 6, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-031977. Last ingested by Listed: Nov 3, 2026, 21:35 ET. No prices; not investment advice.