# Unifirst Corp: Form 10-Q for the period ended Nov 30, 2024

- Company: [Unifirst Corp](/companies/unf.md) (CIK 717954)
- Form: 10-Q
- Filed: 2025-01-10
- Accepted by EDGAR: Jan 10, 2025, 08:36 ET
- Period: 2024-11-30
- Accession: 0000950170-25-003833
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/717954/000095017025003833/unf-20241130.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/717954/000095017025003833/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-11-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-09-01 to 2024-11-30 | $604.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-09-01 to 2024-11-30 | $381.1m | us-gaap:CostOfRevenue |
| Selling, general and administrative | 3 months, 2024-09-01 to 2024-11-30 | $133.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-09-01 to 2024-11-30 | $55.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-09-01 to 2024-11-30 | $14.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-09-01 to 2024-11-30 | $43.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-09-01 to 2024-11-30 | $2.31 | us-gaap:EarningsPerShareDiluted |
| Diluted shares (weighted) | 3 months, 2024-09-01 to 2024-11-30 | 18,666,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-09-01 to 2024-11-30 | $58.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-09-01 to 2024-11-30 | $33.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-09-01 to 2024-11-30 | $5.9m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2024-09-01 to 2024-11-30 | $6.4m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-11-30 | $166.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-11-30 | $916.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-11-30 | $2.70bn | us-gaap:Assets |
| Current liabilities | at 2024-11-30 | $260.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-11-30 | $568.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-11-30 | $2.13bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,623 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 elevated inflation or interest rates or extraordinary events or circumstances such as geopolitical conflicts like the conflict between Russia and Ukraine and disruption in the Middle East, 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, uncertainties regarding our ability to consummate acquisitions and successfully integrate acquired businesses, 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 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, the continuing increase in domestic healthcare costs, increased workers’ compensation claim costs, increased healthcare claim costs, 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, our ability to properly and efficiently design, construct, implement and operate a new 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 adopted by the SEC regarding climate-related and cybersecurity-related disclosures, strikes and unemployment levels, our efforts to evaluate and potentially reduce internal costs, the impact of foreign trade policies and tariffs or other impositions on imported goods on our business, results of operations and financial condition, our ability to successfully implement our business strategies and processes, including our capital allocation strategies, our ability to successfully remediate the material weaknesses in internal control over financial reporting disclosed in our Annual Report on Form 10-K for the year ended August 31, 2024 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 31, 2024 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 leading providers of workplace uniforms and protective work wear clothing in North America. 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 across multiple industry sectors. 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.

Headquartered in Wilmington, Massachusetts, we are a North American leader in the supply and servicing of uniform and workwear programs, as well as the delivery of facility service programs. Together with our subsidiaries, we also provide first aid and safety products, and manage specialized garment programs for the cleanroom and nuclear industries. We manufacture our own branded workwear, protective clothing, and floorcare products, as well as offer products from industry leading suppliers; and with 270 service locations, over 300,000 customer locations, and approximately 16,000 employee Team Partners, we outfit more than 2 million workers each business day.

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”), Specialty Garments, First Aid and Corporate. 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 31, 2024. There have been no significant changes in our critical accounting estimates since the year ended August 31, 2024.

### Effects of Inflation and Adverse 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 inflationary environment in recent years 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. While inflation has moderated recently, a period of sustained inflation could pressure our margins in future periods. Adverse economic conditions resulting from inflationary pressures, U.S. Federal Reserve actions, including elevated interest rates and/or increases in interest rates, geopolitical issues or other causes 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 31, 2024 for an additional discussion of risks and potential risks of inflation and adverse economic conditions 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 weeks ended November 30, 2024 and November 25, 2023.

*(In thousands, except percentages)*

|  | Thirteen Weeks Ended November 30, 2024 | % of Revenues | November 25, 2023 | % of Revenues | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Revenues | $604,908 | 100.0% | $593,525 | 100.0% | 1.9% |
| **Operating expenses:** |  |  |  |  |  |
| Cost of revenues (1) | 381,054 | 63.0 | 383,796 | 64.7 | (0.7) |
| Selling and administrative expenses (1) | 133,515 | 22.1 | 122,859 | 20.7 | 8.7 |
| Depreciation and amortization | 34,808 | 5.8 | 33,733 | 5.7 | 3.2 |
| Total operating expenses | 549,377 | 90.9 | 540,388 | 91.1 | 1.7 |
| Operating income | 55,531 | 9.2 | 53,137 | 9.0 | 4.5 |
| Other income, net | (2,405) | (0.4) | (2,118) | (0.4) | 13.6 |
| Income before income taxes | 57,936 | 9.6 | 55,255 | 9.4 | 4.9 |
| Provision for income taxes | 14,831 | 2.5 | 12,930 | 2.2 | 14.7 |
| Net income | $43,105 | 7.1% | $42,325 | 7.2% | 1.8% |

(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, the cost of electricity for our electric vehicles and the natural gas or other sources of energy used to operate our plants. Our operating margins have been, and may continue to be, adversely impacted by volatility in energy prices. In addition, as described above, the inflationary environment in recent years had a negative impact on our margins. While inflation has moderated recently, a period of sustained inflation could 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 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 customer relationship management (“CRM”) project to further develop, implement and deploy a third-party software application we licensed. This new solution is intended to improve functionality, capability and information flow as well as increase automation for our operations in servicing our customers. We began deployment of our new CRM project during the second half of fiscal 2021 and concluded the deployment to our U.S. locations in the first quarter of fiscal 2024. We are depreciating this system over a 10-year life and recognized $1.0 million and $0.8 million of amortization expense during the thirteen weeks ended November 30, 2024 and November 25, 2023, respectively.

In fiscal 2022, we initiated a multiyear ERP project that we plan to continue through 2027, with early phases focused on master data management and finance capabilities followed by subsequent phases with a strong focus on supply chain and procurement automation and technology. We believe that this initiative will become the core of the UniFirst systems technology footprint and will integrate and complement the capabilities of the CRM system. We expect the ERP system and the new supply chain and procurement capabilities that it will provide to enable lower operating costs and reduced customer churn. Such benefits are expected to be delivered 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 that we experienced during the COVID-19 pandemic and inflationary environment of 2022 and 2023.

We refer to our CRM and ERP projects together as our “Key Initiatives”. For the thirteen weeks ended November 30, 2024, we expensed $2.5 million of non-recurring costs related to our Key Initiatives, primarily relating to our ERP project. As of November 30, 2024, we capitalized $47.2 million related to our CRM project and $24.4 million related to our ERP project.

On October 24, 2023, our Board of Directors authorized a share repurchase program to repurchase 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 in 2021. Repurchases from time to time under the new 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 depend on a variety of factors, including economic and market conditions, our stock price, corporate liquidity requirements and priorities, applicable legal requirements and other factors. The share repurchase program has been funded to date with the Company’s available cash and will be funded in the future using available cash or capacity under our Credit Agreement (as defined below) and may be suspended or discontinued at any time.

During the thirteen weeks ended November 30, 2024 and November 25, 2023, we repurchased 33,605 and 1,500 shares, respectively, for an average price per share of $189.64 and $170.07, respectively, under the share repurchase program. As of November 30, 2024, we had $69.8 million remaining to repurchase shares under the share repurchase program.

On October 29, 2024, our Board of Directors declared increased quarterly cash dividends of $0.350 per share of Common Stock and $0.280 per share of Class B Common Stock, up from $0.33 and $0.264 per share, respectively. Such dividends were paid on January 3, 2025 to shareholders of record on December 6, 2024. The amount and timing of any future dividend payment is subject to the approval of our Board of Directors each quarter.

### Thirteen weeks ended November 30, 2024 compared with thirteen weeks ended November 25, 2023

#### Revenues

*(In thousands, except percentages)*

|  | November 30, 2024 | November 25, 2023 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Core Laundry Operations | $532,743 | $523,989 | $8,754 | 1.7% |
| Specialty Garments | 45,943 | 44,669 | 1,274 | 2.9% |
| First Aid | 26,222 | 24,867 | 1,355 | 5.4% |
| Total consolidated revenues | $604,908 | $593,525 | $11,383 | 1.9% |

The increase in consolidated revenues of 1.9% during the thirteen weeks ended November 30, 2024 compared to the prior year comparable period was due primarily to growth in our Core Laundry Operations of 1.7%. The increase in our Core Laundry Operations was due to organic growth of 1.7%. The effect of Canadian dollar exchange rate changes on our revenues was nominal. The Core Laundry Operations organic growth rate was primarily the result of solid new account sales and improved pricing with our customers.

In the thirteen weeks ended November 30, 2024, Specialty Garments revenues increased compared to the prior year comparable period due primarily to the growth in the European and North American nuclear operations partially offset by a decrease in our cleanroom operations. Specialty Garments’ results are often affected by seasonality and the timing and length of its customers’ power reactor outages as well as its project-based activities.

First Aid revenues in the same period increased 5.4% compared to the prior year comparable period due to double digit growth in our van business partially offset by a decrease in our wholesale business.

#### Cost of revenues

*(In thousands, except percentages)*

|  | November 30, 2024 | November 25, 2023 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenues | $381,054 | $383,796 | $(2,742) | (0.7)% |
| % of Revenues | 63.0% | 64.7% |  |  |

Consolidated cost of revenues and cost of revenues as a percentage of revenue both decreased in the thirteen weeks ended November 30, 2024 compared to the prior year comparable period due primarily to lower merchandise costs and other production costs.

#### Selling and administrative expenses

*(In thousands, except percentages)*

|  | November 30, 2024 | November 25, 2023 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Selling and administrative expenses | $133,515 | $122,859 | $10,656 | 8.7% |
| % of Revenues | 22.1% | 20.7% |  |  |

The increase in selling and administrative costs during the thirteen weeks ended November 30, 2024 compared to the prior year comparable period was due primarily to increased healthcare costs of $2.6 million, $1.2 million of environmental-related costs, and $1.1 million in executive transition costs related to the hiring of two new executives and the retirement of a former executive. Higher selling costs related to improved staffing and the timing of certain selling events also contributed to the increase.

#### Depreciation and amortization

*(In thousands, except percentages)*

|  | November 30, 2024 | November 25, 2023 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $34,808 | $33,733 | $1,075 | 3.2% |
| % of Revenues | 5.8% | 5.7% |  |  |

Depreciation and amortization expense increased by 3.2% during the thirteen weeks ended November 30, 2024 compared to the prior year comparable period, due primarily to continued investment in operating facilities and technology to improve our efficiency and support our continued future growth.

#### Operating income

For the thirteen weeks ended November 30, 2024 and November 25, 2023, changes in our revenues and costs as discussed above resulted in the following changes in our operating income and margin:

*(In thousands, except percentages)*

|  | November 30, 2024 | November 25, 2023 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Core Laundry Operations | $43,023 | $42,091 | $932 | 2.2% |
| Specialty Garments | 12,167 | 12,117 | 50 | 0.4% |
| First Aid | 341 | (1,071) | 1,412 | (131.8)% |
| Operating income | $55,531 | $53,137 | $2,394 | 4.5% |
| Operating income margin | 9.2% | 9.0% |  |  |

#### Other income, net

*(In thousands, except percentages)*

|  | November 30, 2024 | November 25, 2023 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Interest income, net | $(2,695) | $(2,834) | $139 | (4.9)% |
| Other expense, net | 290 | 716 | (426) | (59.5)% |
| Total other income, net | $(2,405) | $(2,118) | $(287) | 13.6% |

Other income, net during the thirteen weeks ended November 30, 2024 remained relatively consistent with the prior year comparable period.

#### Provision for income taxes

*(In thousands, except percentages)*

|  | November 30, 2024 | November 25, 2023 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Provision for income taxes | $14,831 | $12,930 | $1,901 | 14.7% |
| Effective income tax rate | 25.6% | 23.4% |  |  |

The increase in the effective tax rate for the thirteen weeks ended November 30, 2024 as compared to the corresponding period in the prior year was due primarily to favorable adjustments to our tax reserves during the corresponding prior period.

### Liquidity and Capital Resources

#### General

Cash and cash equivalents, and short-term investments totaled $181.0 million as of November 30, 2024, an increase of $5.9 million from $175.1 million as of August 31, 2024. The increase in cash and cash equivalents and short-term investments was largely driven by our cash flows from operating activities. We generated $58.1 million and $45.7 million in cash from operating activities in the thirteen weeks ended November 30, 2024 and November 25, 2023, respectively. The increase was due primarily to increased profitability and lower working capital needs of the business. During the thirteen weeks ended November 30, 2024, we continued to invest in our business with capital expenditures totaling $33.6 million.

Pursuant to the share repurchase program approved by our Board of Directors on October 24, 2023, we repurchased 33,605 shares of our Common Stock for an aggregate of approximately $6.4 million during the thirteen weeks ended November 30, 2024. As of November 30, 2024, we had $69.8 million remaining to repurchase shares under the share repurchase program.

We believe, although there can be no assurance, that our current cash and cash equivalents, our cash generated from future operations and amounts available under our Credit Agreement (as defined below) will be sufficient to meet our current anticipated working capital and capital expenditure requirements for at least the next 12 months and will enable us to manage the impacts of inflation 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 long-term debt, to fund growth and acquisition opportunities, as well as other cash requirements.

Sources and uses of cash flows for the thirteen weeks ended November 30, 2024 and November 25, 2023, respectively, are summarized as follows:

*(In thousands, except percentages)*

|  | November 30, 2024 | November 25, 2023 | Dollar Change | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Net cash provided by operating activities | $58,124 | $45,670 | $12,454 | 27.3% |
| Net cash used in investing activities | (37,460) | (39,621) | 2,161 | (5.5)% |
| Net cash used in financing activities | (15,551) | (8,116) | (7,435) | 91.6% |
| Effect of exchange rate changes | (438) | 4 | (442) | (11050.0)% |
| Net increase (decrease) in cash and cash equivalents | $4,675 | $(2,063) | $6,738 | (326.6)% |

#### Net Cash Provided by Operating Activities

The net cash provided by operating activities during the thirteen weeks ended November 30, 2024 increased as compared to the prior year comparable period due to our improved profitability as well as positive impacts from receivables of $16.8 million, rental merchandise in service of $4.1 million, inventories of $1.9 million and a decrease of in prepaid expenses and other current and noncurrent assets of $1.1 million.

The positive impact from receivables was due primarily to a focused effort on collections and timing of cash receipts. The positive impact from merchandise in service was due primarily to fewer garments being placed in service to support our rental customers. The positive impact from prepaid expenses and other current assets was due primarily to increases in information technology prepaid contracts and the timing of policy renewals.

These increases were partially offset by a $12.0 million decrease in accrued liabilities, which was due primarily to a $7.0 million decrease in accrued payroll and a $3.7 million decrease in the bonus accrual during the thirteen weeks ended November 30, 2024 as compared to the prior year comparable period.

#### Net Cash Used in Investing Activities

The net cash used in investing activities during the thirteen weeks ended November 30, 2024 decreased as compared to the prior year comparable period due primarily to reduced capital expenditures of $5.5 million. Offsetting this decrease was an increase in cash paid for acquisitions of $2.4 million during the thirteen weeks ended November 30, 2024 as compared to the prior year comparable period.

#### Net Cash Used in Financing Activities

The net cash used in financing activities during the thirteen weeks ended November 30, 2024 increased as compared to the prior year comparable period due primarily to a $6.1 million increase in the repurchase of Common Stock during the period and increases in taxes withheld and paid related to net-share settlement of equity awards of $1.0 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 increased 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 provided for the replacement of LIBOR with Secured Overnight Financing Rate (“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 November 30, 2024, 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.

As of November 30, 2024, we had no outstanding borrowings and had outstanding letters of credit amounting to $75.8 million, leaving $199.2 million available for borrowing under the Credit Agreement.

As of November 30, 2024, 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 November 30, 2024, we had forward contracts with a notional value of approximately 3.2 million CAD outstanding and recorded the fair value of the contracts of $0.2 million in prepaid expenses and other current assets with a corresponding gain of $0.1 million in accumulated other comprehensive loss, which was recorded net of tax. During the thirteen weeks ended November 30, 2024, we reclassified a nominal amount from accumulated other comprehensive loss to revenue related to the derivative financial instruments. The gain on these forward contracts that results in a decrease to accumulated other comprehensive loss as of November 30, 2024 is expected to be reclassified to revenues prior to their maturity on August 29, 2026.

#### Environmental and Legal Contingencies

We are subject to various federal, state and local laws and regulations governing, among other things, air emissions, wastewater discharges, and the generation, handling, storage, transportation, treatment and disposal of hazardous wastes and other substances. In particular, industrial laundries currently use and must properly 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 our environmental and other contingent liabilities.

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

We have accrued certain costs related to certain sites, including but not limited to, sites in Woburn and Somerville, Massachusetts, as it has been determined that the costs are probable and can be reasonably estimated. We, 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 a site in Somerville, Massachusetts. 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 received in December 2024 an additional notice related to the scope of its ongoing environmental work at the Somerville site, and additional actions responsive to this notice may follow. We have received demands from the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station in the area of the Somerville site. This station was part of an extension of the transit system. We have reserved for costs in connection with this matter; however, in light of the uncertainties associated with this matter, these costs and the related reserve may change.

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

- Management’s judgment and experience in remediating and monitoring our sites;
- 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 November 30, 2024, the risk-free interest rates we utilized ranged from 4.36% to 4.45%.

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 thirteen weeks ended November 30, 2024 are as follows (in thousands):

|  | November 30, 2024 |
| --- | ---: |
| Balance as of August 31, 2024 | $31,255 |
| Costs incurred for which reserves have been provided | (714) |
| Insurance proceeds | 76 |
| Interest accretion | 320 |
| Changes in discount rates | (337) |
| Revisions in estimates | 765 |
| Balance as of November 30, 2024 | $31,365 |

Anticipated payments and insurance proceeds relating to currently identified environmental remediation liabilities as of November 30, 2024, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below (in thousands):

|  | 2025 | 2026 | 2027 | 2028 | 2029 | Thereafter | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Estimated costs – current dollars | $13,767 | $2,836 | $1,527 | $1,280 | $997 | $15,047 | $35,454 |
| Estimated insurance proceeds | (180) | (195) | (159) | (173) | (9) | (230) | (946) |
| Net anticipated costs | $13,587 | $2,641 | $1,368 | $1,107 | $988 | $14,817 | $34,508 |
| Effect of inflation |  |  |  |  |  |  | 9,821 |
| Effect of discounting |  |  |  |  |  |  | (12,964) |
| Balance as of November 30, 2024 |  |  |  |  |  |  | $31,365 |

Estimated insurance proceeds are primarily obtained from an annuity received as part of our legal settlement with an insurance company. Annual proceeds of approximately $0.3 million are deposited into an escrow account which funds remediation and monitoring costs for two sites related to our former operations. Annual proceeds received but not expended in the current year accumulate in this account and may be used in future years for costs related to this site through the year 2027. As of November 30, 2024, the balance in this escrow account, which is held in a trust and is not recorded in our Consolidated Balance Sheets, was approximately $5.6 million. Also included in estimated insurance proceeds are amounts we are entitled to receive pursuant to legal settlements as reimbursements from three insurance companies for estimated costs at one of our sites.

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 our garment decontamination business.

From time to time, we are also subject to legal and regulatory proceedings and claims arising from the conduct of our business operations, including but not limited to, 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. We challenged the validity of the tax assessment through an appeal process. In the first quarter of fiscal 2025, the Federal Tax Court in Mexico made a determination partially in our favor. Following the

Federal Tax Court’s determination, we filed a constitutional action before the Federal Administrative Court. In addition, the federal tax authority appealed the determination of the Federal Tax Court. 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 accounting principles under 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 November 30, 2024, 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 31, 2024. As of November 30, 2024, 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, 4,879 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 7.1% of total consolidated revenues for the thirteen weeks ended November 30, 2024. Total assets denominated in currencies other than the U.S. dollar represented approximately 6.7% and 6.8% of our total consolidated assets as of November 30, 2024 and August 31, 2024, respectively. If exchange rates had increased or decreased by 10% from the actual rates in effect during the thirteen weeks ended November 30, 2024, our revenues would have increased or decreased by $4.3 million and total assets as of November 30, 2024 would have increased or decreased by approximately $18.0 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 November 30, 2024, we had forward contracts with a notional value of approximately 3.2 million CAD outstanding and recorded the fair value of the contracts of $0.2 million in prepaid expenses and other current assets with a corresponding gain of $0.1 million in accumulated other comprehensive loss, which was recorded net of tax. During the thirteen weeks ended November 30, 2024, we reclassified a nominal amount from accumulated other comprehensive loss to revenue related to the derivative financial instruments. The gain on these forward contracts that resulted in a decrease to accumulated other comprehensive loss as of November 30, 2024 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 weeks ended November 30, 2024, transaction gains of a nominal amount were included in other income. If exchange rates had increased or decreased by 10% during the thirteen weeks ended November 30, 2024, we would have recognized exchange gains or losses of approximately $0.1 million.

#### 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. 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 31, 2024 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, 4,877 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 weaknesses previously identified by management and described in our Annual Report on Form 10-K for the year ended August 31, 2024, 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 weaknesses described below, there were no changes in our internal control over financial reporting during the first quarter of fiscal 2025 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 fiscal 2024, we previously identified material weaknesses that include design and operating deficiencies in the manage change and manage access processes impacting all financially relevant business processes. Consequently, our automated and manual business process controls that rely upon information from our IT systems were also deemed ineffective because they could have been adversely impacted.

#### Remediation

Our management is committed to maintaining a strong internal control environment. In response to the material weaknesses described above, management is continuing to take actions to remediate the material weaknesses in internal control over financial reporting.

The intended remediation actions include: (i) reassessing and redesigning our manage change and manage access processes and controls, (ii) enhancing oversight and involvement from our recently created business controls group, (iii) strengthening our internal policies related to IT general controls (“ITGCs”), (iv) enhancing training and awareness programs addressing ITGCs and policies, including further education of control owners regarding the principles and requirements of each control, (v) implementing an Identity and Access Management (IAM) system, which will provide enhanced control over the provisioning of user access management, and (vi) onboarding our new Chief Information and Technology Officer, which occurred during the first quarter of fiscal 2025, who is overseeing and informing the remediation actions.

We believe that these actions, when fully implemented, will remediate the material weaknesses, however, as we continue to evaluate and improve the applicable controls, management may determine that additional remediation measures are required. The material weaknesses will not be considered remediated until applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Management is committed to successfully remediating the material weaknesses as promptly as possible.

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 presents, 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 31, 2024, 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 31, 2024.

Filed Jan 10, 2025.
Source: SEC EDGAR, the filing index for accession 0000950170-25-003833. Last ingested by Listed: Nov 3, 2026, 21:35 ET. No prices; not investment advice.