UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended ~~February~~November 24, 2018

		OR

☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934

		For the transition period from ________________ to ________________

Commission file number: 001-08504

UNIFIRST CORPORATION

(Exact name of Registrant as Specified in Its Charter)



Massachusetts		04-2103460
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

68 Jonspin Road, Wilmington, MA		01887
(Address of Principal Executive Offices)		(Zip Code)

(978) 658-8888

(Registrant’s Telephone Number, Including Area Code)

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

Yes ☑ No

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

Yes ☑ No

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

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

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes No ☑

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

The number of outstanding shares of UniFirst Corporation Common Stock and Class B Common Stock at ~~March 30,~~December 28, 2018 were ~~15,420,788~~15,435,844 and ~~3,711,009,~~3,710,009, respectively.

UniFirst Corporation

Quarterly Report on Form 10-Q

For the Quarter ended ~~February~~November 24, 2018

Table of Contents



Part I – FINANCIAL INFORMATION	3

Item 1 – Unaudited Financial Statements	3

Consolidated Statements of Income for the Thirteen ~~and Twenty-six~~ Weeks ended ~~February~~November 24, 2018 and ~~February~~November 25, 2017	3

Consolidated Statements of Comprehensive Income for the Thirteen ~~and Twenty-six~~ Weeks ended ~~February~~November 24, 2018 and ~~February~~November 25, 2017	4

Consolidated Balance Sheets as of ~~February~~November 24, 2018 and August ~~26, 2017~~25, 2018	5

Consolidated Statements of ~~Cash Flows~~Shareholders' Equity for the ~~Twenty-six~~Thirteen Weeks ended ~~February~~November 24, 2018 and ~~February~~November 25, 2017	6

Consolidated Statements of Cash Flows for the Thirteen Weeks ended November 24, 2018 and November 25, 2017	7

Notes to Consolidated Financial Statements	78

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324

Item 3 – Quantitative and Qualitative Disclosures About Market Risk	3534

Item 4 – Controls and Procedures	3635

Part II – OTHER INFORMATION	3635

Item 1 – Legal Proceedings	3635

Item 1A – Risk Factors	3635

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	3635

Item 3 – Defaults Upon Senior Securities	3735

Item 4 – Mine Safety Disclosures	3736

Item 5 – Other Information	3736

Item 6 – Exhibits	37

Signatures	38

Certifications
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32.1 Section 906 Certification of CEO
Ex-32.2 Section 906 Certification of CFO

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Statements of Income

UniFirst Corporation and Subsidiaries

(Unaudited)


	Thirteen weeks ended						Twenty-six weeks ended
(In thousands, except per share data)	February 24, 2018			February 25, 2017			February 24, 2018			February 25, 2017
Thirteen weeks ended (In thousands, except per share data)													November 24, 2018			November 25, 2017

Revenues	$	419,264		$	391,427		$	835,042		$	777,535		$	438,550		$	415,778

Operating expenses:
Cost of revenues (1)	265,400			249,280			519,050			488,045			277,049			253,650
Selling and administrative expenses (1)	88,648			84,861			176,158			164,307			85,959			87,510
Depreciation and amortization	23,264			21,140			45,971			43,280			25,116			22,707
Total operating expenses	377,312			355,281			741,179			695,632			388,124			363,867

Operating income	41,952			36,146			93,863			81,903			50,426			51,911

Other (income) expense:
Interest income, net	(1,430		)	(1,120		)	(2,706		)	(1,921		)	(1,705		)	(1,276		)
Other (income) expense, net	(186		)	(108		)	(32		)	386
Other expense, net													172			154
Total other income, net	(1,616		)	(1,228		)	(2,738		)	(1,535		)	(1,533		)	(1,122		)

Income before income taxes	43,568			37,374			96,601			83,438			51,959			53,033
(Benefit) provision for income taxes	(14,810		)	14,858			4,017			32,708
Provision for income taxes													13,639			18,827

Net income	$	58,378		$	22,516		$	92,584		$	50,730		$	38,320		$	34,206

Income per share – Basic:
Common Stock	$	3.02		$	1.17		$	4.79		$	2.63		$	2.08		$	1.77
Class B Common Stock	$	2.42		$	0.93		$	3.83		$	2.10		$	1.67		$	1.42

Income per share – Diluted:
Common Stock	$	2.85		$	1.10		$	4.53		$	2.49		$	1.99		$	1.67

Income allocated to – Basic:
Common Stock	$	46,744		$	17,836		$	74,126		$	40,178		$	32,137		$	27,384
Class B Common Stock	$	11,634		$	4,518		$	18,458		$	10,184		$	6,183		$	6,822

Income allocated to – Diluted:
Common Stock	$	58,378		$	22,362		$	92,584		$	50,381		$	38,320		$	34,206

Weighted average number of shares outstanding – Basic:
Common Stock	15,481			15,305			15,471			15,295			15,432			15,462
Class B Common Stock	4,816			4,846			4,816			4,846			3,710			4,816

Weighted average number of shares outstanding – Diluted:
Common Stock	20,463			20,263			20,434			20,250			19,302			20,434

Dividends per share:
Common Stock	$	0.0375		$	0.0375		$	0.0750		$	0.0750
Class B Common Stock	$	0.0300		$	0.0300		$	0.0600		$	0.0600

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

The accompanying notes are an integral part of these

Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

UniFirst Corporation and Subsidiaries

(Unaudited)


	Thirteen weeks ended						Twenty-six weeks ended
(In thousands)	February 24, 2018			February 25, 2017			February 24, 2018			February 25, 2017
Thirteen weeks ended (In thousands)													November 24, 2018			November 25, 2017

Net income	$	58,378		$	22,516		$	92,584		$	50,730		$	38,320		$	34,206

Other comprehensive income (loss):
Other comprehensive (loss) income:
Foreign currency translation adjustments	1,250			3,332			(763		)	(1,797		)	(2,282		)	(2,013		)
Pension benefit liabilities	(1,192		)	—			(1,192		)	—
Change in fair value of derivatives, net of income taxes	(23		)	(202		)	59			122			132			82
Derivative financial instruments reclassified to earnings	10			(27		)	14			(103		)	(44		)	4

Other comprehensive income (loss)	45			3,103			(1,882		)	(1,778		)
Other comprehensive loss													(2,194		)	(1,927		)

Comprehensive income	$	58,423		$	25,619		$	90,702		$	48,952		$	36,126		$	32,279

The accompanying notes are an integral part of these

Consolidated Financial Statements.

Consolidated Balance Sheets

UniFirst Corporation and Subsidiaries

(Unaudited)


(In thousands, except share and par value data)	February 24, 2018			August 26, 2017			November 24, 2018			August 25, 2018

Assets
Current assets:
Cash, cash equivalents and short-term investments	$	387,691		$	349,752		$	276,536		$	270,512
Receivables, less reserves of $11,538 and $8,719	195,283			187,174
Receivables, less reserves of $11,926 and $9,237							212,655			200,797
Inventories	84,509			79,068			91,154			90,176
Rental merchandise in service	152,669			151,340			178,636			174,392
Prepaid taxes	9,407			29,968			11,578			27,024
Prepaid expenses and other current assets	24,945			16,924			38,854			21,899
Total current assets	854,504			814,226			809,413			784,800

Property, plant and equipment, net of accumulated depreciation of $730,702 and $702,325	543,342			525,115
Property, plant and equipment, net of accumulated depreciation of $767,605 and $751,831							558,442			559,576
Goodwill	389,465			376,110			397,296			397,422
Customer contracts, net	68,333			67,485			64,357			67,318
Other intangible assets, net	4,104			4,259			3,179			3,586
Deferred income taxes	418			394			423			425
Other assets	30,568			31,539			74,048			30,259

Total assets	$	1,890,734		$	1,819,128		$	1,907,158		$	1,843,386

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	58,747		$	64,691		$	71,987		$	73,500
Accrued liabilities	116,737			112,236			104,712			124,225
Accrued taxes	—			921			—			736
Total current liabilities	175,484			177,848			176,699			198,461

Accrued liabilities	107,208			106,736			104,124			105,888
Accrued and deferred income taxes	63,641			81,352			86,837			74,070

Total liabilities	346,333			365,936			367,660			378,419

Commitments and contingencies (Note 11)
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred Stock, $1.00 par value; 2,000,000 shares authorized; no shares issued and outstanding	—			—			—			—
Common Stock, $0.10 par value; 30,000,000 shares authorized; 15,492,219 and 15,453,308 shares issued and outstanding as of February 24, 2018 and August 26, 2017, respectively	1,549			1,545
Class B Common Stock, $0.10 par value; 20,000,000 shares authorized; 4,815,519 shares issued and outstanding as of February 24, 2018 and August 26, 2017	482			482
Common Stock, $0.10 par value; 30,000,000 shares authorized; 15,432,728 and 15,431,209 shares issued and outstanding as of November 24, 2018 and August 25, 2018, respectively							1,543			1,543
Class B Common Stock, $0.10 par value; 20,000,000 shares authorized; 3,710,009 shares issued and outstanding as of November 24, 2018 and August 25, 2018							371			371
Capital surplus	87,740			86,245			84,015			82,973
Retained earnings	1,478,030			1,386,438			1,480,922			1,405,239
Accumulated other comprehensive loss	(23,400		)	(21,518		)	(27,353		)	(25,159		)

Total shareholders’ equity	1,544,401			1,453,192			1,539,498			1,464,967

Total liabilities and shareholders’ equity	$	1,890,734		$	1,819,128		$	1,907,158		$	1,843,386

The accompanying notes are an integral part of these

Consolidated Financial Statements

Consolidated Statements of Shareholders’ Equity

UniFirst Corporation and Subsidiaries



(In thousands)	Common Shares	Class B Common Shares	Common Stock		Class B Common Stock		Capital Surplus		Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity
Balance, August 26, 2017	15,453	4,815	$	1,545	$	482	$	86,245	$	1,386,438		$	(21,518	)	$	1,453,192
Net income	—	—	—		—		—		34,206			—			34,206
Change in fair value of derivatives	—	—	—		—		—		—			86			86
Foreign currency translation	—	—	—		—		—		—			(2,013		)	(2,013		)
Dividends declared Common Stock ($0.0375 per share)	—	—	—		—		—		(582		)	—			(582		)
Dividends declared Class B Common Stock ($0.0300 per share)									(144		)				(144		)
Share-based compensation, net (2)	—	—	—		—		1,334		(738		)	—			596
Share-based awards exercised, net (1)	16	—	2		—		265		—			—			267
Balance, November 25, 2017	15,469	4,815	$	1,547	$	482	$	87,844	$	1,419,180		$	(23,445	)	$	1,485,608

Balance, August 25, 2018	15,431	3,710	$	1,543	$	371	$	82,973	$	1,405,239		$	(25,159	)	$	1,464,967
Net income	—	—	—		—		—		38,320			—			38,320
Change in fair value of derivatives	—	—	—		—		—		—			88			88
Foreign currency translation	—	—	—		—		—		—			(2,282		)	(2,282		)
Dividends declared Common Stock ($0.1125 per share)	—	—	—		—		—		(1,736		)	—			(1,736		)
Dividends declared Class B Common Stock ($0.0900 per share)									(334		)				(334		)
Share-based compensation, net (2)	—	—	—		—		1,042		—			—			1,042
Share-based awards exercised, net (1)	2	—	—		—		—		—			—			—
Cumulative effect of change in accounting principle, net (3)	—	—	—		—		—		39,433			—			39,433
Balance, November 24, 2018	15,433	3,710	$	1,543	$	371	$	84,015	$	1,480,922		$	(27,353	)	$	1,539,498

(1)These amounts are shown net of the effect of income taxes.

(2)These amounts are shown net of any shares withheld by the Company to satisfy certain tax withholdings obligations in connection with the vesting of certain shares of restricted stock or restricted stock units.

(3)These amounts consist of the cumulative impact of the adoption of the new revenue recognition accounting guidance. See Note 2, “Recent Accounting Pronouncements” in the Company's Consolidated Financial Statements.

The accompanying notes are an integral part of these

Consolidated Financial Statements.

ConsolidatedStatements of Cash Flows

UniFirst Corporation and Subsidiaries

(Unaudited)


Twenty-six weeks ended (In thousands)	February 24, 2018			February 25, 2017
Thirteen weeks ended (In thousands)							November 24, 2018			November 25, 2017
Cash flows from operating activities:
Net income	$	92,584		$	50,730		$	38,320		$	34,206
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	39,557			37,051			21,795			19,540
Amortization of intangible assets	6,414			6,229			3,321			3,167
Amortization of deferred financing costs	56			56			28			28
Gain on sale of assets	(135		)	(517		)	(19		)	—
Share-based compensation	2,417			4,370			1,182			1,114
Accretion on environmental contingencies	346			300			189			173
Accretion on asset retirement obligations	470			423			220			240
Deferred income taxes	(20,613		)	(1,346		)	(497		)	2,031
Changes in assets and liabilities, net of acquisitions:
Receivables, less reserves	(6,931		)	(12,887		)	(12,165		)	(12,879		)
Inventories	(5,296		)	9,233			(1,061		)	(2,882		)
Rental merchandise in service	(69		)	444			(4,513		)	(82		)
Prepaid expenses and other current assets and Other assets	(7,067		)	7,471			(6,884		)	(4,901		)
Accounts payable	(5,395		)	3,695			(1,264		)	(1,092		)
Accrued liabilities	39			704			(19,651		)	(7,456		)
Prepaid and accrued income taxes	22,535			8,793			13,256			16,420
Net cash provided by operating activities	118,912			114,749			32,257			47,627

Cash flows from investing activities:
Acquisition of businesses, net of cash acquired	(21,729		)	(121,414		)	—			(2,671		)
Capital expenditures	(56,653		)	(43,011		)	(23,285		)	(19,033		)
Proceeds from sale of assets	1,164			826			90			—
Other	(200		)	123			33			318
Net cash used in investing activities	(77,418		)	(163,476		)	(23,162		)	(21,386		)

Cash flows from financing activities:
Proceeds from exercise of share-based awards, including excess tax benefits	430			2,283
Proceeds from exercise of share-based awards							—			267
Taxes withheld and paid related to net share settlement of equity awards	(2,094		)	(1,546		)	(140		)	(522		)
Payment of cash dividends	(1,447		)	(1,448		)	(2,070		)	(726		)
Net cash used in financing activities	(3,111		)	(711		)	(2,210		)	(981		)

Effect of exchange rate changes	(444		)	(822		)	(861		)	(976		)

Net increase (decrease) in cash, cash equivalents and short-term investments	37,939			(50,260		)
Net increase in cash, cash equivalents and short-term investments							6,024			24,284
Cash, cash equivalents and short-term investments at beginning of period	349,752			363,795			270,512			349,752

Cash, cash equivalents and short-term investments at end of period	$	387,691		$	313,535		$	276,536		$	374,036

Supplemental disclosure of cash flow information:
Non-cash capital expenditures							$	14,894		$	10,994

The accompanying notes are an integral part of these

Consolidated Financial Statements.

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements

1. Basis of Presentation

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

It is suggested that these Consolidated Financial Statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August ~~26, 2017.~~25, 2018. There have been no material changes in the accounting policies followed by the Company during the current fiscal year other than the adoption of recent accounting pronouncements discussed in Note 2. Results for an interim period are not indicative of any future interim periods or for an entire fiscal year.

2. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued updated accounting guidance for revenue recognition, which ~~they have~~it has subsequently modified. This modified update provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The standard includes cost guidance, whereby all direct and incremental costs to obtain or fulfill a contract will be capitalized and amortized over the corresponding period of benefit, determined on a contract by contract basis. This guidance ~~will be effective for annual reporting periods,~~is also intended to improve disclosure requirements and ~~any interim periods within those annual periods,~~enhance the comparability of revenue recognition practices. Improved disclosures under the amended guidance relate to the nature, amount, timing and uncertainty of revenue that ~~begin after December 15, 2017. Accordingly,~~is recognized from contracts with customers. The Company adopted the standard ~~will be effective for the Company~~ on August 26, 2018. The Company has established an implementation team and is working on the completion of its project plan to address the requirements of this standard. The Company is currently reviewing its customer contracts, assessing its incremental costs of obtaining customer contracts, and identifying any potential changes to business processes and controls to support accounting and disclosure considerations under this standard. The Company expects to adopt this standard2018 using the modified retrospective adoption ~~method and continues to evaluate the impact that~~method. Upon adoption of this guidance, ~~will have on its financial statements and related disclosures.~~

~~In July 2015,~~ the ~~FASB issued updated guidance which changes the measurement principle for inventory from the lower of cost or market~~Company recorded an adjustment to the ~~lower~~opening balance of ~~cost~~retained earnings as of August 26, 2018. The adoption of the standard did not have any material impact to the timing or measurement of revenues. The adjustment to retained earnings relates to the capitalization of certain direct and incremental contract costs required by the new guidance, net ~~realizable value. Subsequent measurement is unchanged~~of the related income tax effect. Capitalized costs are amortized ratably over the anticipated period of benefit. The Company applied the new guidance to all contracts as of August 26, 2018. Results for ~~inventory measured using last-in, first-out or the retail inventory method. This guidance is effective for annual periods, and interim periods within those annual~~reporting periods beginning after ~~December 15, 2016,~~August 25, 2018 are presented under the new guidance, while comparative prior period amounts have not been restated and iscontinue to be ~~applied prospectively,~~presented under accounting standards in effect in those periods.

Capitalization of Contract Costs. The Company has elected to apply the guidance, as a practical expedient, to a portfolio of contracts (or performance obligations) with ~~early adoption permitted. Accordingly,~~similar characteristics because the Company ~~adopted~~reasonably expects that the effects on the Consolidated Financial Statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts within the portfolio. The Company also continues to expense certain costs to obtain a contract if those costs do not meet the criteria of the new standard or the amortization period of the asset would have been one year or less.

The cumulative effect of applying the new guidance was recorded as an adjustment to retained earnings as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the adjustments set forth in the table below were made to accounts on the consolidated balance sheet as of August 26, 2018:

UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)



Consolidated Balance Sheet (In thousands)	August 25, 2018		Capitalization of Contract Costs		August 26, 2018
Assets
Prepaid expenses and other current assets	$	21,899	$	10,789	$	32,688
Total current assets	784,800		10,789		795,589

Other assets	30,259		42,405		72,664

Total assets	$	1,843,386	$	53,194	$	1,896,580

Liabilities and shareholders’ equity
Accrued and deferred income taxes	$	74,070	$	13,761	$	87,831
Total liabilities	378,419		13,761		392,180

Retained earnings	1,405,239		39,433		1,444,672
Total shareholders' equity	1,464,967		39,433		1,504,400

Total liabilities and shareholders’ equity	$	1,843,386	$	53,194	$	1,896,580

The impacts of adopting this standard on ~~August 27, 2017.~~ the first quarter of fiscal 2019 Consolidated Financial Statements are presented in the following tables:



	Thirteen weeks ended November 24, 2018
Consolidated Statement of Income (In thousands, except per share data)	As Reported		Under Historical Guidance		Impact of Adopting New Revenue Standard
Operating expenses:
Selling and administrative expenses	$	85,959	$	86,875	$	(916	)
Total operating expenses	388,124		389,040		(916		)

Operating income	50,426		49,510		916

Income before income taxes	51,959		51,043		916
Provision for income taxes	13,639		13,399		240
Income from continuing operations
Net income	$	38,320	$	37,644	$	676
Income per share – Diluted:	$	1.99	$	1.95	$	0.04

UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)



	Balance at November 24, 2018
Consolidated Balance Sheet (In thousands)	As Reported		Under Historical Guidance		Impact of Adopting New Revenue Standard
Assets
Prepaid expenses and other current assets	$	38,854	$	28,065	$	10,789
Total current assets	809,413		798,624		10,789

Other assets	74,048		30,727		43,321

Total assets	$	1,907,158	$	1,853,048	$	54,110

Liabilities and shareholders’ equity
Accrued and deferred income taxes	$	86,837	$	72,836	$	14,001
Total liabilities	367,660		353,659		14,001

Retained earnings	1,480,922		1,440,813		40,109
Total shareholders' equity	1,539,498		1,499,389		40,109

Total liabilities and shareholders’ equity	$	1,907,158	$	1,853,048	$	54,110

The adoption of this ~~guidance did not have a material~~standard had no impact on the Company's first quarter of fiscal 2019 operating cash flow, and the only impact of the adoption on its ~~financial statements.~~

fiscal 2019 consolidated statement of comprehensive income was the impact to net income as presented in the table above.

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

In February 2016, the FASB issued updated guidance ~~that improves transparency~~which sets out the principles for the recognition, measurement, presentation and ~~comparability among companies by recognizing lease assets~~disclosure of leases for both parties to a contract (i.e., lessees and ~~lease liabilities~~lessors). The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the ~~balance sheet~~principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and ~~by disclosing key information about leasing arrangements.~~a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. This new guidance is effective for ~~annual periods, and interim periods within those annual~~reporting periods beginning after December 15, 2018, ~~with~~however, early adoption is permitted. ~~Accordingly,~~Entities are required to use a modified retrospective approach for leases that exist or are entered into after the ~~standard~~beginning of the earliest comparative period in their financial statements. The Company will ~~be effective for~~adopt the ~~Company~~new guidance on September 1, 2019. At August 25, 2018, the Company was contractually obligated to make future payments of $47.1 million under its operating lease obligations in existence as of that date, primarily related to long-term leases. The Company is ~~currently~~ evaluating the impact that this guidance will have on its financial ~~statements and related disclosures.~~

In March 2016, the FASB issued updated guidance that simplifies several aspects of accounting for share-based payment transactions. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 and, depending on the amendment, must be applied using a prospective transition method, retrospective transition method, modified retrospective transition method, prospectively and/or retroactively, with early adoption permitted. Accordingly,statements. While the Company ~~adopted~~is in the early stages of its implementation process of this ~~standard~~guidance, and has not yet determined its impact on ~~August 27, 2017. The adoption impact~~its consolidated balance sheet or consolidated statement of income, these leases would potentially be required to be presented on the consolidated balance sheet asin accordance with the requirements of February 24, 2018 was a cumulative-effect adjustment of $0.7 million, decreasing retained earnings and increasing capital surplus. The impact of the adoption on the consolidated statement of income was a decrease of $0.6 million and $2.2 million in the provision for income taxes during the thirteen and twenty-six weeks ended February 24, 2018 respectively. As a result of the adoption of the updated guidance, our excess tax benefit is no longer included in our calculation of diluted shares under the

~~UniFirst Corporation and Subsidiaries~~

~~Notesto Consolidated Financial Statements (Continued)~~

treasury stock method, resulting in an increase of a nominal amount of shares in the effect of dilutive securities for the thirteen and twenty-six weeks ended February 24, 2018. The election to recognize forfeitures of share-based awards as they occur resulted in an increase of $0.1 million and $0.2 million in share-based compensation for the thirteen and twenty-six weeks ended February 24, 2018 respectively. Prior periods have not been adjusted.

this guidance.

In August 2016, the FASB issued updated guidance that reduces diversity in how certain cash receipts and cash payments are presented and classified in the Consolidated Statements of Cash Flows. This guidance ~~will be~~is effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and ~~will be~~is required to be applied retrospectively, with early adoption permitted. Accordingly, the Company adopted this standard ~~will be effective for the Company~~ on August 26, 2018. The ~~Company is currently evaluating the impact that~~adoption of this guidance ~~will~~did not have a material impact on its financial ~~statements and related disclosures.~~

statements.

In October 2016, the FASB issued updated guidance to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This guidance ~~will be~~is effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and is required to be applied on a modified retrospective basis, with

UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)

early adoption permitted. Accordingly, the Company adopted this standard on August 26, 2018. The adoption of this guidance did not have a material impact on its financial statements.

In March 2017, the FASB issued updated guidance that requires a change in the presentation of net periodic benefit cost on the consolidated statements of operations. Specifically, entities must present the service cost component of net periodic benefit cost in the same financial statement line items as other compensation costs arising from services rendered by the related employees during the period, whereas the non-service components of net periodic benefit cost must be presented separately from the financial statement line items that include service cost and outside of operating income. The Company’s adoption of this guidance on August 26, 2018 did not have a material impact on its financial statements.

In August 2017, the FASB issued guidance that expands component and fair value hedging, specifies the presentation of the effects of hedging instruments, and eliminates the separate measurement and presentation of hedge ineffectiveness. The accounting update is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted, and is to be applied on a modified retrospective basis. The Company elected to early adopt this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on its financial statements.

In August 2018, the FASB issued updated guidance to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, ending after December 15, 2020 and will be required to be applied on a ~~modified~~ retrospective basis, with early adoption permitted. Accordingly, the standard will be effective for the Company on August ~~26, 2018.~~30, 2020. The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.

~~In February~~

3. Revenue Recognition

The following table presents the Company’s revenues for the thirteen weeks ended November 24, 2018 and November 25, 2017, respectively, disaggregated by service type:



	Thirteen weeks ended
	November 24, 2018				November 25, 2017
(In thousands, except percentages)	Revenues		% of Revenues		Revenues		% of Revenues

Core Laundry Operations	$	390,477	89.0	%	$	373,796	89.9	%
Specialty Garments	34,448		7.9	%	28,427		6.8	%
First Aid	13,625		3.1	%	13,555		3.3	%
Total Revenues	$	438,550	100.0	%	$	415,778	100.0	%

For the thirteen weeks ended November 24, 2018, the ~~FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification~~percentage of ~~Certain Tax Effects~~revenue recognized over time as the services are performed was 95.3% of Core Laundry Operations revenues and 83.9%of Specialty Garments revenues. See Note 16 “Segment Reporting” for additional details of segment definitions. During that same period, 4.7% of Core Laundry Operations revenues, 16.1% of Specialty Garments revenues and 100% of First Aid revenues were recognized at a point in time, which generally occurs when the goods are transferred to the customer.

UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)

Revenue Recognition Policy

Approximately 91.0% of the Company's revenues are derived from ~~Accumulated Other Comprehensive Income.” This ASU allows a reclassification from AOCI to retained earnings~~fees for ~~tax effects resulting~~route servicing of Core Laundry Operations, Specialty Garments, and First Aid performed by the Company’s employees at the customer's location of business. Revenues from the ~~Tax Cuts~~Company's route servicing customer contracts represent a single-performance obligation. The Company recognizes these revenues over time as services are performed based on the nature of services provided and ~~Jobs Act (the “Act”)~~contractual rates (input method). Certain of the Company's customer contracts, primarily within the Company's Core Laundry Operations, include pricing terms and ~~requires certain new disclosures. ASU 2018-02 will be effective for~~conditions that include components of variable consideration. The variable consideration is typically in the form of consideration due to a customer based on performance metrics specified within the contract. Specifically, some contracts contain discounts or rebates that the customer can earn through the achievement of specified volume levels. Each component of variable consideration is earned based on the Company's actual performance during the measurement period specified within the contract. To determine the transaction price, the Company ~~for fiscal years beginning after December 15, 2018, with early adoption permitted.The update~~estimates the variable consideration using the most likely amount method, based on the specific contract provisions and known performance results during the relevant measurement period. When determining if variable consideration should be constrained, the Company considers whether factors outside its control could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal. The Company's performance period generally corresponds with the monthly invoice period. No significant constraints on the Company's revenue recognition were applied ~~either~~during the thirteen weeks ended November 24, 2018. The Company reassesses these estimates during each reporting period. The Company maintains a liability for these discounts and rebates within accrued liabilities on the consolidated balance sheets. Variable consideration also includes consideration paid to a customer at the beginning of a contract. The Company capitalizes this consideration and amortizes it over the life of the contract as a reduction to revenue in accordance with the updated accounting guidance for revenue recognition. These assets are included in other assets on the consolidated balance sheets.

Costs to Obtain a Contract

The Company defers commission expenses paid to its employee-partners when the commissions are deemed to be incremental for obtaining the route servicing customer contract. The deferred commissions are amortized on a straight-line basis over the expected period of ~~adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized.~~benefit. The Company ~~elected~~reviews the deferred commission balances for impairment on an ongoing basis. Deferred commissions are classified as current or noncurrent based on the timing of when the Company expects to ~~early adopt ASU 2018-02~~recognize the expense. The current portion is included in prepaid expenses and other current assets and the ~~second quarter of fiscal 2018. The effect of~~non-current portion is included in other assets on the ~~adoption of the standard was an increase in AOCI of $1.2 million with the offset to retained earnings as recorded in the Company’s~~Company's consolidated balance ~~sheet~~sheets. As of November 24, 2018, the current and ~~statement of changes in stockholders’ equity for~~non-current assets related to deferred commissions totaled $10.8 million and $43.3 million, respectively. During the ~~twenty-six~~thirteen weeks ended ~~February~~November 24, ~~2018.~~2018, the Company recorded $2.8 million of amortization expense related to deferred commissions. This expense is classified in selling and administrative expense on the consolidated statements of income.

3.UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)

4. Business Acquisitions

During the ~~twenty-six~~thirteen weeks ended ~~February~~November 24, 2018, the Company ~~completed three~~acquired no businesses. Whenever the Company acquires a business, ~~acquisitions~~consistent with ~~an aggregate purchase price of approximately $25.8 million. The initial allocation of~~current accounting guidance, the ~~purchase price is incomplete with respect to certain assets acquired. The Company is still in the process of measuring the fair value of intangible assets acquired and liabilities assumed. The~~ results of operations of ~~these acquisitions have been~~the acquisition are included in the ~~Company’s~~Company's consolidated financial results ~~since their respective acquisition dates. These acquisitions were not significant in relation to~~from the ~~Company’s consolidated financial results and, therefore, pro-forma financial information has not been presented.~~date of the acquisition.

4.5. Fair Value Measurements

The assets or liabilities measured at fair value on a recurring basis are summarized in the tables below (in thousands):


	As of February 24, 2018								As of November 24, 2018
	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value
Assets:
Cash equivalents	$	79,297	$	—	$	—	$	79,297	$	143,122	$	—	$	—	$	143,122
Pension plan assets	—		5,043		—		5,043		—		6,137		—		6,137
Foreign currency forward contracts									—		243		—		243
Total assets at fair value	$	79,297	$	5,043	$	—	$	84,340	$	143,122	$	6,380	$	—	$	149,502
Liabilities:
Foreign currency forward contracts	$	—	$	54	$	—	$	54
Total liabilities at fair value	$	—	$	54	$	—	$	54

~~UniFirst Corporation and Subsidiaries~~

~~Notesto Consolidated Financial Statements (Continued)~~


	As of August 26, 2017								As of August 25, 2018
	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value
Assets:
Cash equivalents	$	81,253	$	—	$	—	$	81,253	$	103,190	$	—	$	—	$	103,190
Pension plan assets	—		5,097		—		5,097		—		6,325		—		6,325
Foreign currency forward contracts									—		127		—		127
Total assets at fair value	$	81,253	$	5,097	$	—	$	86,350	$	103,190	$	6,452	$	—	$	109,642
Liabilities:
Foreign currency forward contracts	$	—	$	177	$	—	$	177
Total liabilities at fair value	$	—	$	177	$	—	$	177

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

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

The Company’s foreign currency forward contracts represent contracts the Company has entered into to exchange Canadian dollars for U.S. dollars at fixed exchange rates in order to manage its exposure related to certain forecasted Canadian dollar denominated sales of one of its subsidiaries. These contracts were included in prepaid expenses and other ~~liabilities~~current assets and other long-term assets as of ~~February~~November 24, 2018 and August ~~26, 2017.~~25, 2018. The fair value of the forward contracts is based on similar exchange traded derivatives and are, therefore, included within Level 2 of the fair value hierarchy.

5.6. Derivative Instruments and Hedging Activities

As of ~~February~~November 24, 2018, the Company had forward contracts with a notional value of approximately ~~6.8~~13.4 million CAD outstanding and recorded ~~nominal amounts for~~ the fair value of the contracts of $0.2 million in other long-term assets and $0.1 million in prepaid expenses and other current ~~liabilities~~assets with a corresponding ~~loss~~decrease in accumulated other comprehensive loss of $0.2 million, which was recorded net of tax. During the ~~twenty-six~~thirteen weeks ended ~~February~~November 24, 2018, the Company reclassified a nominal amount from accumulated other comprehensive loss to revenue, related to the derivative financial instruments. The ~~loss~~ gain on these forward contracts that resulted

UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)

in a decrease to accumulated other comprehensive loss as of ~~February~~November 24, 2018 is expected to be reclassified to revenues prior to its maturity on February ~~22, 2019.~~25, 2022.

6.7. Employee Benefit Plans

Defined Contribution Retirement Savings Plan

The Company has a defined contribution retirement savings plan with a 401(k) feature for all eligible ~~U.S~~U.S. and Canadian employees not under collective bargaining agreements. The Company matches a portion of the employee’s contribution and may make an additional contribution at its discretion. Contributions charged to expense under the plan for the thirteen weeks ended ~~February~~November 24, 2018 and ~~February~~November 25, 2017 were ~~$3.9~~$4.5 million and ~~$3.7 million, respectively. Contributions charged to expense under the plan for the twenty-six weeks ended February 24, 2018 and February 25, 2017 were $8.0 million and $7.3~~$4.1 million, respectively.

Pension Plans and Supplemental Executive Retirement Plans

The Company maintains an unfunded Supplemental Executive Retirement Plan for certain eligible employees of the Company and two frozen non-contributory defined benefit pension plans. The amounts charged to expense related to these plans for the thirteen weeks ended ~~February~~November 24, 2018 and ~~February~~November 25, 2017 were ~~$0.6~~$0.5 million and ~~$0.9 million, respectively. The amounts charged to expense related to these plans for the twenty-six weeks ended February 24, 2018 and February 25, 2017 were $1.3 million and $1.7~~$0.7 million, respectively.

~~UniFirst Corporation and Subsidiaries~~

~~Notes~~8. ~~to Consolidated Financial Statements (Continued)~~

7.~~Net~~ Income Per Share

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


	Thirteen weeks ended				Twenty-six weeks ended				Thirteen weeks ended
	February 24, 2018		February 25, 2017		February 24, 2018		February 25, 2017		November 24, 2018		November 25, 2017

Net income available to shareholders	$	58,378	$	22,516	$	92,584	$	50,730	$	38,320	$	34,206

Allocation of net income for Basic:
Common Stock	$	46,744	$	17,836	$	74,126	$	40,178	$	32,137	$	27,384
Class B Common Stock	11,634		4,518		18,458		10,184		6,183		6,822
Unvested participating shares	—		162		—		368
	$	58,378	$	22,516	$	92,584	$	50,730	$	38,320	$	34,206

Weighted average number of shares for Basic:
Common Stock	15,481		15,305		15,471		15,295		15,432		15,462
Class B Common Stock	4,816		4,846		4,816		4,846		3,710		4,816
Unvested participating shares	—		139		—		140
	20,297		20,290		20,287		20,281		19,142		20,278

Earnings per share for Basic:
Income per share for Basic:
Common Stock	$	3.02	$	1.17	$	4.79	$	2.63	$	2.08	$	1.77
Class B Common Stock	$	2.42	$	0.93	$	3.83	$	2.10	$	1.67	$	1.42

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

The treasury stock method; or

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

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

For the thirteen ~~and twenty-six~~ weeks ended ~~February~~November 24, 2018 and November 25, 2017, the Company’s diluted ~~EPS~~income per share assumes the conversion of all vested Class B Common Stock into Common Stock and uses the two-class method for its unvested participating shares. The following table sets forth the computation of diluted ~~earnings~~income per share of Common Stock for the thirteen ~~and twenty-six~~ weeks ended ~~February~~November 24, 2018 and November 25, 2017 (in thousands, except per share data):


	Thirteen weeks ended February 24, 2018					Twenty-six weeks ended February 24, 2018					Thirteen weeks ended November 24, 2018					Thirteen weeks ended November 25, 2017
	Earnings to Common shareholders		Common Shares	EPS		Earnings to Common shareholders		Common Shares	EPS		Earnings to Common Shareholders		Common Shares	Income Per Share		Earnings to Common Shareholders		Common Shares	Income Per Share

As reported - Basic	$	46,744	15,481	$	3.02	$	74,126	15,471	$	4.79	$	32,137	15,432	$	2.08	$	27,384	15,462	$	1.77

Add: effect of dilutive potential common shares
Share-Based Awards	—		166			—		147			—		160			—		156
Class B Common Stock	11,634		4,816			18,458		4,816			6,183		3,710			6,822		4,816

Add: Undistributed earnings allocated to unvested participating shares	—		—			—		—

Less: Undistributed earnings reallocated to unvested participating shares	—		—			—		—

As reported – Diluted	$	58,378	20,463	$	2.85	$	92,584	20,434	$	4.53	$	38,320	19,302	$	1.99	$	34,206	20,434	$	1.67

Share-based awards that would result in the issuance of ~~4,368~~10,156 shares of Common Stock were excluded from the calculation of diluted ~~earnings~~income per share for the thirteen weeks ended ~~February~~November 24, 2018 because they were anti-dilutive. Share-based awards that would result in the issuance of ~~1,001~~117 shares of Common Stock were excluded from the calculation of diluted ~~earnings per share for the twenty-six weeks ended February 24, 2018 because they were anti-dilutive.~~

~~UniFirst Corporation and Subsidiaries~~

~~Notesto Consolidated Financial Statements (Continued)~~

For the thirteen and twenty-six weeks ended February 25, 2017, the Company’s diluted EPS assumes the conversion of all vested Class B Common Stock into Common Stock and uses the two-class method for its unvested participating shares. The following table sets forth the computation of diluted earnings per share of Common Stock for the thirteen and twenty-six weeks ended February 25, 2017 (in thousands, except per share data):

Thirteen weeks ended
February 25, 2017 Twenty-six weeks ended
February 25, 2017
Earnings
to Common
shareholders Common
Shares EPS Earnings
to Common
shareholders Common
Shares EPS

As reported - Basic $ 17,836
15,305
$ 1.17
$ 40,178
15,295
$ 2.63

Add: effect of dilutive potential common shares
Share-Based Awards —
112

—
109

Class B Common Stock 4,518
4,846

10,184
4,846

Add: Undistributed earnings allocated to unvested participating shares 158
—

357
—

Less: Undistributed earnings reallocated to unvested participating shares (150 ) —

(338 ) —

As reported – Diluted $ 22,362
20,263
$ 1.10
$ 50,381
20,250
$ 2.49

~~Share-based awards that would result in the issuance of 11,821 shares of Common Stock were excluded from the calculation of diluted earnings~~income per share for the thirteen weeks ended ~~February 25, 2017 because they were anti-dilutive. There were no share-based awards that were excluded from the calculation of diluted earnings per share for the twenty-six weeks ended February~~November 25, 2017 because they were anti-dilutive.

8.9. Inventories

Inventories are stated at the lower of cost or net realizable value, net of any reserve for excess and obsolete inventory. Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. Judgments and estimates are used in determining the likelihood that new goods on hand can be sold to customers or used in rental operations. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company uses the first-in, first-out (“FIFO”) method to value its inventories.

The components of inventory as of ~~February~~November 24, 2018 and August ~~26, 2017~~25, 2018 were as follows (in thousands):


	February 24, 2018		August 26, 2017		November 24, 2018		August 25, 2018
Raw materials	$	12,953	$	18,468	$	16,419	$	18,508
Work in process	3,227		4,159		3,707		3,271
Finished goods	68,329		56,441		71,028		68,397
Total inventories	$	84,509	$	79,068	$	91,154	$	90,176

~~UniFirst Corporation and Subsidiaries~~

~~Notesto Consolidated Financial Statements (Continued)~~

9.10. Goodwill and Other Intangible Assets

As discussed in Note ~~3, “Acquisitions”~~4, “Business Acquisitions”, when the Company acquires a business, the amount assigned to the tangible assets and liabilities and intangible assets acquired is based on their respective fair values determined as of the acquisition date. The excess of the purchase price over the tangible assets and liabilities and intangible assets is recorded as goodwill.

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

Balance as of August 26, 2017 $ 376,110
Goodwill recorded during the period 13,367
Other (12 )

Balance as of February 24, 2018 $ 389,465



Balance as of August 25, 2018	$	397,422
Other	(126		)

Balance as of November 24, 2018	$	397,296

UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)

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


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
February 24, 2018
November 24, 2018
Customer contracts	$	215,233	$	146,900	$	68,333	$	220,257	$	155,900	$	64,357
Other intangible assets	34,877		30,773		4,104		34,981		31,802		3,179
	$	250,110	$	177,673	$	72,437	$	255,238	$	187,702	$	67,536
August 26, 2017
August 25, 2018
Customer contracts	$	208,711	$	141,226	$	67,485	$	220,303	$	152,985	$	67,318
Other intangible assets	34,249		29,990		4,259		35,030		31,444		3,586
	$	242,960	$	171,216	$	71,744	$	255,333	$	184,429	$	70,904

~~10.~~11. Asset Retirement Obligations

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

A reconciliation of the Company’s asset retirement liability for the ~~twenty-six~~thirteen weeks ended ~~February~~November 24, 2018 was as follows (in thousands):


	February 24, 2018			November 24, 2018
Beginning balance as of August 26, 2017	$	13,400
Beginning balance as of August 25, 2018				$	13,668
Accretion expense	470			220
Effect of exchange rate changes	164			(70		)
Change in estimate	(405		)	(1,705		)
Ending balance as of February 24, 2018	$	13,629
Ending balance as of November 24, 2018				$	12,113

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

~~UniFirst Corporation and Subsidiaries~~

~~Notesto Consolidated Financial Statements (Continued)~~

~~11.~~12. Commitments and Contingencies

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

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. The Company regularly consults with attorneys and outside consultants in its consideration of the relevant facts and circumstances before recording a contingent liability. Changes in enacted laws, regulatory orders or decrees, management’s estimates of costs, risk-free interest rates, insurance proceeds, participation by other parties, the timing of payments, the input of the Company’s attorneys and outside consultants or other factual circumstances could have a material impact on the amounts recorded for environmental and other contingent liabilities.

UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)

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

The Company has accrued certain costs related to the sites described above as it has been determined that the costs are probable and can be reasonably estimated. The Company has potential exposure related to a parcel of land (the "Central Area") related to the Woburn, Massachusetts site mentioned above. Currently, the consent decree for the Woburn site does not define or require any remediation work in the Central Area. The United States Environmental Protection Agency (the "EPA") has provided the Company and other signatories to the consent decree with comments on the design and implementation of groundwater and soil remedies at the Woburn site and investigation of environmental conditions in the Central Area. The Company, and other signatories, have implemented and proposed to do additional work at the Woburn site but many of the EPA’s comments remain to be resolved. The Company has accrued costs to perform certain work responsive to EPA's comments. The Company has implemented mitigation measures and continues to monitor environmental conditions at the Somerville, Massachusetts site. In addition, the Company has received demands from the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station in the area of the ~~Company’s~~ Somerville site. This station is part of ~~a planned~~the extension of the transit system. The Company has 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. The Company has also received notice that the Massachusetts Department of Environmental Protection is conducting an audit of the Company’s investigation and remediation work with respect to the Somerville site.

~~UniFirst Corporation and Subsidiaries~~

~~Notesto Consolidated Financial Statements (Continued)~~

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

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

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

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

•The typical allocation of costs among PRPs.

There is usually a range of reasonable estimates of the costs associated with each site. In accordance with U.S. GAAP, the Company’s accruals reflect the amount within the range that it believes is the best estimate or the low end of a range of estimates if no point within the range is a better estimate. Where it believes that both the amount of a particular liability and the timing of the payments are reliably determinable, the Company adjusts the cost in current dollars using a rate of 3% for inflation until the time of expected payment and discounts the cost to present value using current risk-free interest rates. As of ~~February~~November 24, 2018, the risk-free interest rates utilized by the Company ranged from ~~2.9%~~3.1% to ~~3.2%~~3.3%.

UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)

For environmental liabilities that have been discounted, the Company includes interest accretion, based on the effective interest method, in selling and administrative expenses on the Consolidated Statements of Income. The changes to the Company’s environmental liabilities for the ~~twenty-six~~thirteen weeks ended ~~February~~November 24, 2018 were as follows (in thousands):


	February 24, 2018			November 24, 2018
Beginning balance as of August 26, 2017	$	25,419
Beginning balance as of August 25, 2018				$	25,486
Costs incurred for which reserves had been provided	(627		)	(195		)
Insurance proceeds	56			40
Interest accretion	346			189
Change in discount rates	(858		)	(699		)

Balance as of February 24, 2018	$	24,336
Balance as of November 24, 2018				$	24,821

Anticipated payments and insurance proceeds of currently identified environmental remediation liabilities as of ~~February~~November 24, 2018, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.


(In thousands)	2018			2019			2020			2021			2022			Thereafter			Total			2019			2020			2021			2022			2023			Thereafter			Total
Estimated costs – current dollars	$	8,658		$	1,880		$	1,477		$	1,305		$	1,157		$	12,304		$	26,781		$	9,299		$	2,122		$	1,635		$	1,272		$	1,175		$	12,137		$	27,640

Estimated insurance proceeds	(103		)	(173		)	(159		)	(173		)	(159		)	(993		)	(1,760		)	(133		)	(159		)	(173		)	(159		)	(173		)	(830		)	(1,627		)

Net anticipated costs	$	8,555		$	1,707		$	1,318		$	1,132		$	998		$	11,311		$	25,021		$	9,166		$	1,963		$	1,462		$	1,113		$	1,002		$	11,307		$	26,013

Effect of inflation																			7,623																					7,477
Effect of discounting																			(8,308		)																			(8,669		)

Balance as of February 24, 2018																			$	24,336
Balance as of November 24, 2018																																								$	24,821

Estimated insurance proceeds are primarily received from an annuity received as part of a legal settlement with an insurance company. Annual proceeds of approximately $0.3 million are deposited into an escrow account which funds remediation and monitoring costs for ~~three~~two sites related to former operations in Williamstown, Vermont. Annual proceeds received but not expended in the current year accumulate in this account and may be used in future years for costs related to this site through the year 2027.

~~UniFirst Corporation and Subsidiaries~~

~~Notesto Consolidated Financial Statements (Continued)~~

As of ~~February~~November 24, 2018, the balance in this escrow account, which is held in a trust and is not recorded in the Company’s accompanying Consolidated Balance Sheet, was approximately ~~$3.6~~$3.8 million. Also included in estimated insurance proceeds are amounts the Company is entitled to receive pursuant to legal settlements as reimbursements from three insurance companies for estimated costs at the site in Uvalde, Texas.

The Company’s nuclear garment decontamination facilities are licensed by the Nuclear Regulatory Commission (“NRC”), or, in certain cases, by the applicable state agency, and are subject to regulation by federal, state and local authorities. The Company also has nuclear garment decontamination facilities in the United Kingdom and the Netherlands. These facilities are licensed and regulated by the respective country’s applicable federal agency. In the past, scrutiny and regulation of nuclear facilities and related services have resulted in the suspension of operations at certain nuclear facilities served by the Company or disruptions in its ability to service such facilities. There can be no assurance that such regulation will not lead to material disruptions in the Company’s garment decontamination business.

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

While it is impossible for the Company to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits and environmental contingencies, the Company believes that the aggregate amount of such liabilities, if any, in excess of amounts covered by insurance have been properly accrued in accordance with U.S. GAAP. It is possible, however,

UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)

that the future financial position and/or results of operations for any particular future period could be materially affected by changes in the Company’s assumptions or strategies related to these contingencies or changes out of the Company’s control.

~~12.~~13. Income Taxes

In accordance with ASC 740, Income Taxes (“ASC 740”), each interim period is considered integral to the annual period and tax expense is measured using an estimated annual effective tax rate. An entity is required to record income tax expense each quarter based on its annual effective tax rate estimated for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, adjusted for discrete taxable events that occur during the interim period.

The Company’s effective tax rate for the thirteen weeks ended ~~February~~November 24, 2018 was ~~(34.0)%~~26.2% compared to ~~a provision of 39.8% for the corresponding period in the prior year. The Company’s effective tax rate for the twenty-six weeks ended February 24, 2018 was 4.2% compared to 39.2%~~35.5% for the corresponding period in the prior year. The reduction in the effective tax rates in the thirteen ~~and twenty-six~~ weeks ended ~~February~~November 24, 2018 as compared to the corresponding ~~periods~~period in the prior year was due primarily to the impact of ~~the~~Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017. As a result of ~~this law,~~the Act, U.S. corporations ~~will be~~are subject to lower income tax rates, which also caused the Company to remeasure its U.S. net deferred tax liabilities at the lower rates. ~~The remeasurement of the Company's net deferred tax assets and liabilities resulted in an estimated net benefit of $22.7 million recorded to the Company’s provision for income taxes.~~ Also because of this ~~law,~~Act, the Company ~~will be~~is subject to a one-time transition tax for the deemed repatriation of its foreign earnings. The Company recorded an estimated charge of $2.5 million for this transition tax which partially offset the benefit mentioned above. For the thirteen and twenty-six weeks ended February 24, 2018, the Company’s effective tax rates also were lower than the statutory tax rate due to the tax benefit from restricted stock units upon vesting.

U.S. Tax Reform

The Act, ~~reduces~~among other matters, reduced the U.S. federal corporate income tax rate from 35% to 21%, ~~requires~~required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and ~~creates~~created new taxes on certain foreign sourced earnings.

As of ~~February~~November 24, 2018, the Company had not completed its accounting for the tax effects of enactment of the ~~Act; however, as described below, the Company has made a reasonable estimate~~Act and is still analyzing certain aspects of the ~~effects on~~Act and refining its ~~existing~~calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax balances and the one-time transition tax, and recognized a provisional net benefit of $20.2 million, which is included in income tax expense for the thirteen and twenty-six weeks ended February 24, 2018.amounts.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Act (“SAB 118”) directing SEC registrants to consider the impact of the ~~U.S. legislation~~Act as “provisional” when they do not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete their accounting for the

~~UniFirst Corporation and Subsidiaries~~

~~Notesto Consolidated Financial Statements (Continued)~~

change in tax law. In accordance with SAB 118, the amounts recorded related to accounting for the Act represent the Company’s best estimate based on its interpretation of the ~~U.S. legislation~~Act as the Company is still accumulating data to finalize the underlying calculations, or in certain cases, the U.S. Treasury is expected to issue further guidance on the application of certain provisions of the ~~U.S. legislation.~~Act. In addition, wethe Company also used assumptions and estimates that may change as a result of future guidance and interpretation from the Internal Revenue Service, the SEC, the FASB and various other taxing jurisdictions. In particular, ~~we anticipate~~the Company anticipates that the U.S. state jurisdictions will continue to determine and announce their conformity or decoupling from the Act, either in its entirety or with respect to specific provisions. All of these potential legislative and interpretive actions could result in adjustments to ~~our~~the Company's provisional estimates when the accounting for the income tax effects of the Act is completed.

In the thirteen and twenty-six weeks ended February 24, 2018, the Company revised its estimated annual effective rate to reflect a change in the federal statutory income tax rate from 35% to 21%. The rate change is administratively effective at the beginning of the Company’s fiscal year, using a blended rate for the annual period. The Company's blended federal statutory income tax rate for fiscal 2018 is 25.9%.

The Company re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is 25.9% for fiscal 2018 reversals and 21% for post-fiscal 2018 reversals. However, the Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional net benefit amount recorded related to the re-measurement of the Company’s deferred tax balance was $22.7 million.

The one-time transition tax is based on the Company’s total post-1986 earnings and profits (“E&P”) which were previously deferred from U.S. income taxes. The Company recorded a provisional amount for its one-time transition tax liability related to the deemed repatriation of the earnings of its foreign subsidiaries, resulting in an increase in income tax expense of $2.5 million in the thirteen and twenty-six weeks ended February 24, 2018. The Company has not yet finalized its calculation of the total post-1986 foreign E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of its post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax and any additional outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations. The Company continues to evaluate this assertion in its ongoing analysis of the effects of tax reform on the Company's strategic initiatives. The Company believes that determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities (i.e., basis difference in excess of that subject to the one-time transition tax) is not practicable.

Uncertain tax positions

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense which is consistent with the recognition of these items in prior reporting periods. During the thirteen ~~and twenty-six~~ weeks ended ~~February~~November 24, 2018, there were no material changes in the amount of unrecognized tax benefits or the amount accrued for interest and penalties.

All U.S. and Canadian federal income tax statutes have lapsed for filings up to and including fiscal years ~~2012~~2013 and ~~2009, respectively, and the Company has concluded an audit of U.S. federal income taxes for~~ 2010, ~~and 2011.~~respectively. With a few exceptions, the Company is no longer subject to state and local income tax examinations for periods prior to fiscal ~~2013.~~2014. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly in the next 12 months.

~~13.~~14. Long-Term Debt

~~On April 11, 2016, the~~The Company ~~entered into an amended and restated~~has a $250 million unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of banks, which matures on April 11, 2021. Under the Credit Agreement, the Company is able to borrow funds at variable interest rates based on, at the Company’s election, the Eurodollar rate or a base rate, plus in each case a spread based on the Company’s consolidated funded debt ratio. Availability of credit requires compliance with certain financial and other covenants, including a maximum consolidated funded debt ratio and minimum consolidated interest coverage ratio as defined in the Credit Agreement. The Company tests its compliance with these financial covenants on a fiscal quarterly basis. ~~At February~~As of November 24, 2018, the interest rates applicable

UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)

to the Company’s borrowings under the Credit Agreement would be calculated as LIBOR plus 75 basis points at the time of the respective borrowing. As of ~~February~~November 24, 2018, the Company had no

~~UniFirst Corporation and Subsidiaries~~

~~Notesto Consolidated Financial Statements (Continued)~~

outstanding borrowings and had outstanding letters of credit amounting to ~~$77.6~~$71.4 million, leaving ~~$172.4~~$178.6 million available for borrowing under the Credit Agreement.

As of ~~February~~November 24, 2018, the Company was in compliance with all covenants under the Credit Agreement.

~~14.~~15. Accumulated Other Comprehensive ~~Income (Loss)~~Loss

The changes in each component of accumulated other ~~income (loss),~~comprehensive loss, net of tax, for the thirteen ~~and twenty-six~~ weeks ended ~~February~~November 24, 2018 and ~~February~~November 25, 2017 were as follows (in thousands):

Thirteen weeks ended February 24, 2018

Foreign
Currency
Translation

Pension-
related (1) (2)

Derivative
Financial
Instruments (1)

Total
Accumulated Other Comprehensive (Loss)
Income
Balance as of November 25, 2017 $ (17,945 ) $ (5,477 ) $ (23 ) $ (23,445 )

Other comprehensive income (loss) before reclassification 1,250
—
(23 ) 1,227
Amounts reclassified from accumulated other comprehensive income (loss) —
(1,192 ) 10
(1,182 )
Net current period other comprehensive income (loss) 1,250
(1,192 ) (13 ) 45

Balance as of February 24, 2018 $ (16,695 ) $ (6,669 ) $ (36 ) $ (23,400 )



	Thirteen weeks ended November 24, 2018
	Foreign Currency Translation			Pension- related (1)			Derivative Financial Instruments (1)			Total Accumulated Other Comprehensive Loss
Balance as of August 25, 2018	$	(21,116	)	$	(4,135	)	$	92		$	(25,159	)

Other comprehensive (loss) income before reclassification	(2,282		)	—			132			(2,150		)
Amounts reclassified from accumulated other comprehensive loss	—			—			(44		)	(44		)
Net current period other comprehensive (loss) income	(2,282		)	—			88			(2,194		)

Balance as of November 24, 2018	$	(23,398	)	$	(4,135	)	$	180		$	(27,353	)

Twenty-six weeks ended February 24, 2018

Foreign
Currency
Translation

Pension-
related (1) (2)

Derivative
Financial
Instruments (1)

Total
Accumulated Other Comprehensive (Loss)
Income
Balance as of August 26, 2017 $ (15,932 ) $ (5,477 ) $ (109 ) $ (21,518 )

Other comprehensive (loss) income before reclassification (763 ) —
59
(704 )
Amounts reclassified from accumulated other comprehensive (loss) income —
(1,192 ) 14
(1,178 )
Net current period other comprehensive (loss) income (763 ) (1,192 ) 73
(1,882 )

Balance as of February 24, 2018 $ (16,695 ) $ (6,669 ) $ (36 ) $ (23,400 )

~~UniFirst Corporation and Subsidiaries~~

~~Notesto Consolidated Financial Statements (Continued)~~

Thirteen weeks ended February 25, 2017

Foreign
Currency
Translation

Pension-
related (1)

Derivative
Financial
Instruments (1)

Total
Accumulated Other
Comprehensive (Loss)
Income
Balance as of November 26, 2016 $ (25,943 ) $ (8,251 ) $ 364
$ (33,830 )

Other comprehensive income (loss) before reclassification 3,332
—
(202 ) 3,130
Amounts reclassified from accumulated other comprehensive (loss) income —
—
(27 ) (27 )
Net current period other comprehensive income (loss) 3,332
—
(229 ) 3,103

Balance as of February 25, 2017 $ (22,611 ) $ (8,251 ) $ 135
$ (30,727 )

Twenty-six weeks ended February 25, 2017

Foreign
Currency
Translation

Pension-
related (1)

Derivative
Financial
Instruments (1)

Total
Accumulated Other
Comprehensive (Loss)
Income
Balance as of August 27, 2016 $ (20,814 ) $ (8,251 ) $ 116
$ (28,949 )

Other comprehensive (loss) income before reclassification (1,797 ) —
122
(1,675 )
Amounts reclassified from accumulated other comprehensive (loss) income —
—
(103 ) (103 )
Net current period other comprehensive (loss) income (1,797 ) —
19
(1,778 )

Balance as of February 25, 2017 $ (22,611 ) $ (8,251 ) $ 135
$ (30,727 )



	Thirteen weeks ended November 25, 2017
	Foreign Currency Translation			Pension- related (1)			Derivative Financial Instruments (1)			Total Accumulated Other Comprehensive (Loss) Income
Balance as of August 26, 2017	$	(15,932	)	$	(5,477	)	$	(109	)	$	(21,518	)

Other comprehensive (loss) income before reclassification	(2,013		)	—			82			(1,931		)
Amounts reclassified from accumulated other comprehensive loss	—			—			4			4
Net current period other comprehensive (loss) income	(2,013		)	—			86			(1,927		)

Balance as of November 25, 2017	$	(17,945	)	$	(5,477	)	$	(23	)	$	(23,445	)

(1)Amounts are shown net of tax.

~~(2)Current period activity represents the impact of the adoption of ASU 2018-02. See Note 2 for further details.~~

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Amounts reclassified from accumulated other comprehensive ~~income (loss),~~loss, net of tax, for the thirteen ~~and twenty-six~~ weeks ended ~~February~~November 24, 2018 and ~~February~~November 25, 2017 were as follows (in thousands):


	Thirteen weeks ended						Twenty-six weeks ended						Thirteen weeks ended
	February 24, 2018			February 25, 2017			February 24, 2018			February 25, 2017			November 24, 2018			November 25, 2017
Pension benefit liabilities, net:
Tax effect reclass (a)	$	(1,192	)	$	—		$	(1,192	)	$	—
Total, net of tax	(1,192		)	—			(1,192		)	—
Derivative financial instruments, net:
Forward contracts (b)	10			(27		)	14			(103		)
Forward contracts (a)													$	(44	)	$	4
Total, net of tax	10			(27		)	14			(103		)	(44		)	4

Total amounts reclassified, net of tax	$	(1,182	)	$	(27	)	$	(1,178	)	$	(103	)	$	(44	)	$	4

(a)~~Current period activity represents the impact of the adoption of ASU 2018-02. See Note 2 for further details.~~

~~(b)~~Amounts included in revenues in the accompanying Consolidated Statements of Income.

~~15.~~16. Segment Reporting

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

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

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

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

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

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

UniFirst Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)


Thirteen weeks ended	U.S. and Canadian Rental and Cleaning			MFG		Net Interco MFG Elim			Corporate			Subtotal Core Laundry Operations			Specialty Garments		First Aid		Total			U.S. and Canadian Rental and Cleaning			MFG		Net Interco MFG Elim			Corporate			Subtotal Core Laundry Operations			Specialty Garments		First Aid		Total

February 24, 2018
November 24, 2018
Revenues	$	368,386		$	59,769	$	(59,738	)	$	10,538		$	378,955		$	27,009	$	13,300	$	419,264		$	380,753		$	67,546	$	(67,511	)	$	9,689		$	390,477		$	34,448	$	13,625	$	438,550

Operating income (loss)	$	48,516		$	21,994	$	(2,797	)	$	(29,629	)	$	38,084		$	2,800	$	1,068	$	41,952		$	54,714		$	24,732	$	(3,747	)	$	(30,917	)	$	44,782		$	4,470	$	1,174	$	50,426

Interest (income) expense, net	$	(1,094	)	$	—	$	—		$	(336	)	$	(1,430	)	$	—	$	—	$	(1,430	)
Interest income, net																						$	(1,047	)	$	—	$	—		$	(658	)	$	(1,705	)	$	—	$	—	$	(1,705	)

Income (loss) before taxes	$	49,602		$	21,974	$	(2,797	)	$	(29,280	)	$	39,499		$	3,001	$	1,068	$	43,568		$	55,752		$	24,840	$	(3,747	)	$	(30,233	)	$	46,612		$	4,173	$	1,174	$	51,959


February 25, 2017
November 25, 2017
Revenues	$	350,059		$	46,224	$	(46,118	)	$	8,221		$	358,386		$	21,787	$	11,254	$	391,427		$	365,518		$	63,945	$	(63,919	)	$	8,252		$	373,796		$	28,427	$	13,555	$	415,778

Operating income (loss)	$	42,731		$	16,652	$	1,007		$	(27,331	)	$	33,059		$	2,095	$	992	$	36,146		$	54,798		$	23,987	$	(4,737	)	$	(27,690	)	$	46,358		$	4,477	$	1,076	$	51,911

Interest (income) expense, net	$	(925	)	$	—	$	—		$	(195	)	$	(1,120	)	$	—	$	—	$	(1,120	)
Interest income, net																						$	(949	)	$	—	$	—		$	(327	)	$	(1,276	)	$	—	$	—	$	(1,276	)

Income (loss) before taxes	$	43,691		$	16,630	$	1,007		$	(27,093	)	$	34,235		$	2,147	$	992	$	37,374		$	55,764		$	23,910	$	(4,737	)	$	(27,333	)	$	47,604		$	4,353	$	1,076	$	53,033

Twenty-six weeks ended

February 24, 2018
Revenues	$	733,904		$	123,714	$	(123,657	)	$	18,790		$	752,751		$	55,436	$	26,855	$	835,042

Operating income (loss)	$	103,314		$	45,981	$	(7,534	)	$	(57,319	)	$	84,442		$	7,277	$	2,144	$	93,863

Interest (income) expense, net	$	(2,043	)	$	—	$	—		$	(663	)	$	(2,706	)	$	—	$	—	$	(2,706	)

Income (loss) before taxes	$	105,366		$	45,884	$	(7,534	)	$	(56,613	)	$	87,103		$	7,354	$	2,144	$	96,601


February 25, 2017
Revenues	$	694,540		$	95,086	$	(94,922	)	$	15,525		$	710,229		$	44,143	$	23,163	$	777,535

Operating income (loss)	$	95,558		$	34,859	$	68		$	(53,753	)	$	76,732		$	3,246	$	1,925	$	81,903

Interest (income) expense, net	$	(1,759	)	$	—	$	—		$	(162	)	$	(1,921	)	$	—	$	—	$	(1,921	)

Income (loss) before taxes	$	97,399		$	34,852	$	68		$	(53,673	)	$	78,646		$	2,867	$	1,925	$	83,438

~~UniFirst Corporation~~17. Shares Repurchased and ~~Subsidiaries~~

~~Notesto Consolidated Financial Statements (Continued)~~

~~16. Subsequent Events~~Dividends

On March 27, 2018, UniFirst repurchased 1.105 million shares of Class B Common Stock and 0.073 million shares of Common Stock for a combined $146.0 million in a private transaction with the Croatti family at a per share price of $124.00.

This opportunity to repurchase shares from the Croatti family was evaluated by an independent special committee of the Board of Directors (the “Special Committee”). The sale of shares by the Croatti family was executed to provide liquidity as well as for estate and family financial planning following the passing of former UniFirst Chief Executive Officer, Ronald D. Croatti.

The Special Committee determined that a repurchase of Croatti family Class B Common Stock at a discount to market was in the best interests of the Company as it is accretive to ~~earnings~~income per share and addresses uncertainties that may have been created if the Croatti family had pursued other liquidity options. The Special Committee undertook its evaluation with the assistance of Stifel Financial Corp. (“Stifel”) and received an opinion from Stifel to the effect that, as of March 27, 2018, the $124.00 per share in cash to be paid was fair to the Company, from a financial point of view. The entire Board of Directors other than Cynthia Croatti, who is affiliated with the selling shareholders and therefore abstained, approved the transaction upon the recommendation of the Special Committee.

On March 28, 2018, the Company announced that it will be raising its quarterly dividend to $0.1125 per share for Common Stock and to $0.09 per share for Class B Common Stock, up from $0.0375 and $0.03 per share, respectively. The amount and timing of any dividend payment is subject to the approval of the Board of Directors each quarter.

UniFirst Corporation and Subsidiaries

Notesto Consolidated Financial Statements (Continued)

18. Subsequent Events

On January 2, 2019, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase from time to time up to $100.0 million of its outstanding shares of common stock. Repurchases made under the program, if any, will be made in either the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases will depend on a variety of factors, including economic and market conditions, the Company stock price, corporate liquidity requirements and priorities, applicable legal requirements and other factors. The share repurchase program will be funded using the Company's available cash or capacity under its Credit Agreement when implemented and may be suspended or discontinued at any time.

During fiscal 2017, the Company recorded a pre-tax non-cash impairment charge of $55.8 million once it was determined that it was not probable that the version of the Customer Relationship Management (“CRM”) system that was being developed would be completed and placed into service. On December 28, 2018, the Company entered into a settlement agreement with its lead contractor for the version of the CRM system with respect to which the Company recorded the impairment charge. As part of the settlement agreement, the Company will record a total gain of $20.3 million during the quarter ending February 23, 2019, which includes the Company’s receipt of a one-time cash payment in the amount of $13.0 million as well as the forgiveness of amounts previously due the contractor.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SAFE HARBOR FOR FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and any documents incorporated by reference contain forward looking statements within the meaning of the federal securities laws. Forward looking statements contained in this Quarterly Report on Form 10-Q and any documents incorporated by reference are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Forward looking statements may be identified by words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “could,” “should,” “may,” “will,” “strategy,” “objective,” “assume,” 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, the performance and success of our ~~new~~ Chief Executive Officer, uncertainties caused by adverse economic conditions and their impact on our customers’ businesses and workforce levels, uncertainties regarding our ability to consummate and successfully integrate acquired businesses, ~~our ability to maintain and grow Arrow Uniform’s customer base and enhance its operating margins,~~ uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, any adverse outcome of pending or future contingencies or claims, 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, any loss of key management or other personnel, increased costs as a result of any future changes in federal or state laws, rules and regulations or governmental interpretation of such laws, rules and regulations, uncertainties regarding the impact of the recently passed U.S. tax reform on our business, results of operations and financial condition, uncertainties regarding the price levels of natural gas, electricity, fuel and labor, the negative effect on our business from sharply depressed oil and natural gas prices, the continuing increase in domestic healthcare costs, including the ultimate impact of the Affordable Care Act, our ability to retain and grow our customer base, demand and prices for our products and services, fluctuations in our Specialty Garments business, ~~rampant criminal activity and~~ instability 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 customer relationship management (“CRM”) 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 ~~recent and proposed future~~any changes in Securities and Exchange Commission, New York Stock Exchange and accounting rules, 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 and general economic conditions, our ability to successfully implement our business strategies and processes, including our capital allocation strategies, and other factors described under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended August ~~26, 2017~~25, 2018 and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update any forward looking statements to reflect events or circumstances arising after the date on which such statements are made.

Business Overview

UniFirst Corporation, together with its subsidiaries, hereunder referred to as “we”, “our”, the “Company”, or “UniFirst”, is one of the largest providers of workplace uniforms and protective work wear clothing in the United States. We design, manufacture, personalize, rent, clean, deliver, and sell a wide range of uniforms and protective clothing, including shirts, pants, jackets, coveralls, lab coats, smocks, aprons and specialized protective wear, such as flame resistant and high visibility garments. We also rent and sell industrial wiping products, floor mats, facility service products and other non-garment items, and provide restroom and cleaning supplies and first aid cabinet services and other safety supplies, to a variety of manufacturers, retailers and service companies.

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

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

We continue to expand into additional geographic markets through acquisitions and organic growth. We currently service over 300,000 customer locations in the United States, Canada and Europe from over 250 customer service, distribution and manufacturing facilities.

As mentioned and described in Note 1516 to ~~the~~our Consolidated Financial Statements, we have five reporting segments: U.S. and Canadian Rental and Cleaning, 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 United States generally accepted accounting principles (“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 policies are defined as those that are reflective of significant judgments and uncertainties, the most important and pervasive accounting policies used and areas most sensitive to material changes from external factors. 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 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 ~~26, 2017.~~25, 2018.

Results of Operations

The following table presents certain selected financial data, including the percentage of revenues represented by each item, for the thirteen ~~and twenty-six~~ weeks ended ~~February~~November 24, 2018 and ~~February~~November 25, 2017.


	Thirteen weeks ended												Twenty-six weeks ended												Thirteen weeks ended
(In thousands, except percentages)	February 24, 2018			% of Rev.		February 25, 2017			% of Rev.		% Change		February 24, 2018			% of Rev.		February 25, 2017			% of Rev.		% Change		November 24, 2018			% of Revenues		November 25, 2017			% of Revenues		% Change

Revenues	$	419,264		100.0	%	$	391,427		100.0	%	7.1	%	$	835,042		100.0	%	$	777,535		100.0	%	7.4	%	$	438,550		100.0	%	$	415,778		100.0	%	5.5	%

Operating expenses:
Cost of revenues (1)	265,400			63.3		249,280			63.7		6.5		519,050			62.2		488,045			62.8		6.4		277,049			63.2		253,650			61.0		9.2
Selling and administrative expenses (1)	88,648			21.1		84,861			21.7		4.5		176,158			21.1		164,307			21.1		7.2		85,959			19.6		87,510			21.0		(1.8	)
Depreciation and amortization	23,264			5.5		21,140			5.4		10.0		45,971			5.5		43,280			5.6		6.2		25,116			5.7		22,707			5.5		10.6
Total operating expenses	377,312			90.0		355,281			90.8		6.2		741,179			88.8		695,632			89.5		6.5		388,124			88.5		363,867			87.5		6.7

Operating income	41,952			10.0		36,146			9.2		16.1		93,863			11.2		81,903			10.5		14.6		50,426			11.5		51,911			12.5		(2.9	)

Other income, net	(1,616		)	(0.4	)	(1,228		)	(0.3	)	31.6		(2,738		)	(0.3	)	(1,535		)	(0.2	)	78.4		(1,533		)	(0.3	)	(1,122		)	(0.3	)	36.6

Income before income taxes	43,568			10.4		37,374			9.5		16.6		96,601			11.6		83,438			10.7		15.8		51,959			11.8		53,033			12.8		(2.0	)
(Benefit) provision for income taxes	(14,810		)	(3.5	)	14,858			3.8		(199.7	)	4,017			0.5		32,708			4.2		(87.7	)
Provision for income taxes																									13,639			3.1		18,827			4.5		(27.6	)

Net income	$	58,378		13.9	%	$	22,516		5.8	%	159.3	%	$	92,584		11.1	%	$	50,730		6.5	%	82.5	%	$	38,320		8.7	%	$	34,206		8.2	%	12.0	%

(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, ~~Corporate,~~ Specialty Garments, First Aid and ~~First Aid.~~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.

We have a substantial number of plants and conduct a significant portion of our business in energy producing regions in the ~~U.S~~U.S. and Canada. In general, we are relatively more dependent on business in these regions than are many of our competitors. For example, the dramatic decrease in oil prices beginning in 2014 directly affected our customers in the oil industry as they curtailed their level of operations, which also had a corresponding effect on our customers in businesses which service or supply the oil industry as well as our customers in unrelated businesses located in areas which had benefited from the economic expansion generated by the robust growth driven by the higher oil prices in prior years. As a result, our organic growth in periods following this dramatic decrease in oil prices was negatively impacted by elevated headcount reductions in our wearer base as well as increased lost accounts. Recent trends indicate that increased energy prices have resulted in stabilized or improved wearer levels at existing customers in our North American energy-dependent markets. Our operating results are also directly impacted by the costs of the gasoline used to fuel our vehicles and the natural gas used to operate our plants. While it is difficult to quantify the positive and negative impacts on our future financial results from changes in energy prices, in general, we believe that significant decreases in oil and natural gas prices would have an overall negative

impact on our results due to cutbacks by our customers both in, and dependent upon, the oil ~~industry~~and natural gas industries, which would outweigh the benefits in our operating costs from lower energy costs.

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

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.~~regulations that impact our labor costs. We expect that our labor costs will rise in fiscal ~~2018~~2019 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 un~~employment~~unemployment environment. ~~Although the current changes to the Fair Labor Standards Act have been put on hold due to litigation, they may still become effective in their current or a revised form.~~

On January 2, 2019, our Board of Directors approved a share repurchase program authorizing us to repurchase from time to time up to $100.0 million of our outstanding shares of common stock. Repurchases made under the program, if any, will be made in either the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases will depend on a variety of factors, including economic and market conditions, our stock price, corporate liquidity requirements and priorities, applicable legal requirements and other factors. The share repurchase program will be funded using our available cash or capacity under our Credit Agreement when implemented and may be suspended or discontinued at any time.

During fiscal 2017, we recorded a pre-tax non-cash impairment charge of $55.8 million once it was determined that it was not probable that the version of the CRM system that was being developed would be completed and placed into service. On December 28, 2018, we entered into a settlement agreement with our lead contractor for the version of the CRM system with respect to which we recorded the impairment charge. As part of the settlement agreement, we will record a total gain of $20.3 million during the quarter ending February 23, 2019, which includes our receipt of a one-time cash payment in the amount of $13.0 million as well as the forgiveness of amounts previously due the contractor.

In our fourth fiscal quarter of 2018, we initiated a multiyear CRM project to further develop, implement and deploy a third-party application we licensed. This new solution is intended to improve functionality, capability and information flow as well as increase automation in servicing our customers. As of November 24, 2018, we have capitalized $3.8 million related to our new CRM project.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”), was enacted, which, among other provisions, ~~reduces~~reduced the U.S. federal corporate income tax rate effective January 1, 2018 from ~~its current~~a 35% rate to a new 21% corporate rate and ~~impose~~imposed a one-time transition tax on earnings held outside of the United States. We have made reasonable estimates of the effects of the Act and these estimates could change in future periods as we ~~complete our analysis of~~continue to analyze the effects of the Act (see Note 1213, “Income Taxes” to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q). As a result of this law, U.S. corporations are subject to lower income tax rates, and we were required to remeasure our U.S. net deferred tax liabilities at a lower rate, resulting in a net benefit of $22.7 million recorded in the provision for income taxes for both the thirteen and twenty-six weeks ended February 24, 2018. Partially offsetting this benefit, we recorded a charge of $2.5 million for transition taxes related to the deemed repatriation of foreign earnings for both the thirteen and twenty-six weeks ended February 24, 2018.

A portion of our sales is derived from international markets, including Canada. Revenues denominated in currencies other than the U.S. dollar represented approximately 7.9% and 8.0% of total consolidated revenues for ~~both~~ the thirteen ~~and twenty-six~~ weeks ended ~~February~~November 24, 2018 ~~respectively. Revenues denominated in currencies other than the U.S. dollar represented approximately 7.4%~~ and ~~7.3% of total consolidated revenues for the thirteen and twenty-six weeks ended February~~November 25, 2017, respectively. The operating results of our international subsidiaries are translated into U.S. dollars and such results are affected by movements in foreign currencies relative to the U.S. dollar. In addition, fluctuations in the Canadian dollar may have an effect on the margins of our Canadian business because a weaker Canadian dollar will increase the cost of merchandise and other operational inputs that are sourced from outside of Canada. Our operating results in future years could be negatively impacted by any devaluation, as compared to the U.S. dollar, of the Canadian dollar or any of the currencies of the other countries in which we operate.

On March 27, 2018, we repurchased 1.105 million shares of Class B Common Stock and 0.073 million shares of Common Stock for a combined $146.0 million in a private transaction with the Croatti family at a per share price of $124.00. This opportunity to repurchase shares from the Croatti family was evaluated by an independent special committee of the Board of Directors (the “Special Committee”). The sale of shares by the Croatti family was executed to provide liquidity as well as for estate and family financial planning following the passing of our former Chief Executive Officer, Ronald D. Croatti. The Special Committee determined that a repurchase of Croatti family Class B Common Stock at a discount to market was in our best interests as it is accretive to earnings per share and addresses uncertainties that may have been created if the Croatti family had pursued other liquidity options.

The Special Committee undertook its evaluation with the assistance of Stifel Financial Corp. (“Stifel”) and received an opinion from Stifel to the effect that, as of March 27, 2018, the $124.00 per share in cash to be paid was fair to us, from a financial point of view.

The entire Board of Directors other than Cynthia Croatti, who is affiliated with the selling shareholders and therefore abstained, approved the transaction upon the recommendation of the Special Committee.

On March 28, 2018, we announced that we will be raising our quarterly dividend to $0.1125 per share for Common Stock and to $0.09 per share for Class B Common Stock, up from $0.0375 and $0.03 per share, respectively. The amount and timing of any dividend payment is subject to the approval of the Board of Directors each quarter.

Thirteen weeks ended ~~February~~November 24, 2018 compared with thirteen weeks ended ~~February~~November 25, 2017

Revenues


(In thousands, except percentages)	February 24, 2018		February 25, 2017		Dollar Change		Percent Change		November 24, 2018		November 25, 2017		Dollar Change		Percent Change

Core Laundry Operations	$	378,955	$	358,386	$	20,569	5.7	%	$	390,477	$	373,796	$	16,681	4.5	%
Specialty Garments	27,009		21,787		5,222		24.0	%	34,448		28,427		6,021		21.2	%
First Aid	13,300		11,254		2,046		18.2	%	13,625		13,555		70		0.5	%
Consolidated total	$	419,264	$	391,427	$	27,837	7.1	%	$	438,550	$	415,778	$	22,772	5.5	%

~~For the thirteen weeks ended February 24, 2018,~~The increase in our consolidated revenues ~~increased by $27.8 million from the comparable period in fiscal 2017, or 7.1%. This increase~~ was primarily ~~due to a $20.6 million increase in revenues~~ from our Core Laundry Operations. ~~Revenues from our Core Laundry Operations increased to $379.0 million for the thirteen weeks ended February 24, 2018 from $358.4 million for the comparable period of fiscal 2017, or 5.7%.~~ Excluding the positive effect of acquisitions, which we estimate increased our revenues in Core Laundry Operations by approximately ~~0.4%~~0.7%, as well as a slightly ~~stronger~~weaker Canadian dollar, which ~~favorably~~unfavorably impacted our growth by 0.3%, organic growth for our Core Laundry Operations was ~~5.0%~~4.1%. Organic growth consists primarily of new sales, pricing adjustments, and net changes in the second quarter of fiscal 2018 benefited from solid new account sales as well as positive price adjustments and improved collections on merchandise recovery charges. These positive drivers were partiallywearer levels at our existing customers, offset by ~~moderately higher~~ lost ~~accounts compared to the second quarter of prior year.~~accounts.

Specialty Garments’ ~~revenues increased to $27.0 million in the second quarter of fiscal 2018 from $21.8 million in the comparable period of fiscal 2017, an increase of $5.2 million, or 24.0%. This segment’s~~ results are often affected by seasonality and the timing and length of its customers’ power reactor outages as well as its project-based activities. ~~The~~Excluding the positive effect of acquisitions, which we estimate increased our revenues in the Specialty Garments segment by approximately 11.3%, the improvement in results in the ~~second~~Specialty Garments segment in the first quarter of fiscal ~~2018~~2019 compared to the comparable period of fiscal ~~2017~~2018 was primarily due to increased outages and project-based activity at the segment’s Canadian ~~and European~~ nuclear customers as well as solid growth from the cleanroom division. ~~This segment’s results can vary significantly due to seasonality and the timing of reactor outages and projects.~~

First Aid revenues increased to $13.3 million in the second quarter of fiscal 2018 from $11.3 million in the comparable period in fiscal 2017, an increase of 18.2%. The improvement in the results was due to a strong performance from this segment's wholesale distribution business as well as a small acquisition that closed in the third quarter of fiscal 2017.

Cost of Revenues

~~For the thirteen weeks ended February 24, 2018 and February 25, 2017, cost~~



(In thousands, except percentages)	November 24, 2018		November 25, 2017		Dollar Change			Percent Change
Cost of revenues
Core Laundry Operations	$	245,178	$	226,856	$	18,322		8.1	%
Specialty Garments	22,756		17,536		5,220			29.8	%
First Aid	9,115		9,258		(143		)	(1.5	)%
Consolidated total	$	277,049	$	253,650	$	23,399		9.2	%
Gross profit
Core Laundry Operations	$	145,299	$	146,940	$	(1,641	)	(1.1	)%
Specialty Garments	$	11,692	$	10,891	$	801		7.4	%
First Aid	$	4,510	$	4,297	$	213		4.9	%
Consolidated total	$	161,501	$	162,128	$	(627	)	(0.4	)%

Cost of revenues was 63.3% and 63.7% of revenues respectively. The decrease was primarily due to lower merchandise costs and other production costs as a percentage of revenues. These favorable comparisons were partially offset by higher healthcare claims as a percentage of revenues was 63.2% in ~~our~~the first quarter of fiscal 2019 as compared to 61.0% in the prior year comparable period.

Our Core Laundry Operations cost of revenues as a percentage of revenues was 62.8% in the first quarter of fiscal 2019 as compared to 60.7% in the prior year comparable period. ~~In addition, our~~The increase in cost of revenues was due primarily to higher production and service and delivery payroll costs as well as higher merchandise costs. These increases were partially offset by lower healthcare claims.

Our Specialty Garments ~~segment's~~ costs of revenues ~~were~~as a percentage of revenues was 66.1% in the first quarter of fiscal 2019 as compared to 61.7% in the prior year comparable period. The increase in cost of revenues was due primarily to higher production and merchandise costs as well as higher expenses related to workers' compensation and auto claims.

Selling and Administrative Expenses



(In thousands, except percentages)	November 24, 2018			November 25, 2017			Dollar Change			Percent Change

Selling and administrative expenses	$	85,959		$	87,510		$	(1,551	)	(1.8	)%
% of Revenues	19.6		%	21.0		%

The decrease in our selling and administrative costs as a percentage of revenues in the ~~second quarter of fiscal~~thirteen weeks ended November 24, 2018 as compared to the ~~comparable~~ prior year comparable period was due primarily to a gain of $3.0 million from the settlement of environmental litigation in the first quarter of fiscal ~~2017 due to higher merchandise costs as a percentage~~2019, lower healthcare claims, and the capitalization of ~~revenue~~internal labor in the ~~quarter.~~

~~Selling and Administrative Expense~~

~~Selling~~quarter related to the development of the CRM project we initiated in fiscal 2018. The comparison of selling and administrative expenses ~~were 21.1% and 21.7%~~also benefited from the deferral of ~~revenues for~~commission costs upon the adoption of new revenue accounting guidance in the thirteen weeks ended ~~February~~November 24, ~~2018~~2018. These decreases to selling and February 25, 2017, respectively. This decrease was due primarily to lower stock compensation expense in the second quarter of fiscal 2018 as compared to the second quarter of fiscal 2017. This decrease wasadministrative costs were partially offset by ~~higher administrative payroll~~increases in advertising costs, ~~in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017.~~

sales incentive costs and recruitment costs.

Depreciation and Amortization

Our depreciation and amortization expense was $23.3 million, or 5.5% of revenues, for the thirteen weeks ended February 24, 2018 compared to $21.1 million, or 5.4% of revenues, for the thirteen weeks ended February 25, 2017.



(In thousands, except percentages)	November 24, 2018			November 25, 2017			Dollar Change		Percent Change

Depreciation and amortization	$	25,116		$	22,707		$	2,409	10.6	%
% of Revenues	5.7		%	5.5		%

Depreciation and amortization expense increased in the thirteen weeks ended November 24, 2018 as compared to the prior year comparable period due primarily to higher capital ~~expenditure activity~~expenditures placed in ~~earlier periods and amortization from acquisitions.~~service over the past several quarters.

Operating Income

For the thirteen weeks ended ~~February~~November 24, 2018 and ~~February~~November 25, 2017, changes in our revenues and costs as discussed above resulted in the following changes in our operating ~~income:~~

income and operating margin:

(In thousands, except percentages) February 24,
2018
February 25,
2017
Dollar
Change

Percent
Change

Core Laundry Operations
$ 38,084

$ 33,059

$ 5,025

15.2 %
Specialty Garments
2,800

2,095

705

33.6 %
First Aid
1,068

992

76

7.7 %
Consolidated total
$ 41,952

$ 36,146

$ 5,806

16.1 %



(In thousands, except percentages)	November 24, 2018			November 25, 2017			Dollar Change			Percent Change

Operating income	$	50,426		$	51,911		$	(1,485	)	(2.9	)%
Operating margin	11.5		%	12.5		%

Other Income, net

~~Other~~



(In thousands, except percentages)	November 24, 2018			November 25, 2017			Dollar Change			Percent Change

Interest income, net	$	(1,705	)	$	(1,276	)	$	(429	)	33.6	%
Other expense, net	172			154			18			11.7	%
Total other income, net	$	(1,533	)	$	(1,122	)	$	(411	)	36.6	%

The increase in other income, net which includes interest income, net and other expense, net, was income of $1.6 million in the thirteen weeks ended February 24, 2018 compared to income of $1.2 million in the thirteen weeks ended February 25, 2017. This increase of $0.4 million was primarily due to interest income, net of $1.4 million during the thirteen weeks ended ~~February~~November 24, 2018 as compared to the prior year comparable period was due primarily to an increase in interest income ~~of $1.1 million during the thirteen weeks ended February 25, 2017 and to lower foreign exchange losses compared to the same period a year ago.~~from higher interest rates.

Provision for Income Taxes

~~Our effective income tax rate for the thirteen weeks ended February 24, 2018 was (34.0)% compared to a provision of 39.8% for the thirteen weeks ended February 25, 2017.~~



(In thousands, except percentages)	November 24, 2018			November 25, 2017			Dollar Change			Percent Change

Provision for income taxes	$	13,639		$	18,827		$	(5,188	)	(27.6	)%
Effective income tax rate	26.2		%	35.5		%

The ~~benefit recorded~~decrease in the second quarter of fiscal 2018 is due primarily to the impact of the Act, enacted on December 22, 2017, which lowered the U.S. federal income tax rates as of January 1, 2018. These new rates required us to remeasure our U.S. net deferred income tax liabilities in the second quarter of fiscal 2018. Also, we will be subject to a one-time transition tax for the deemed repatriation of our foreign earnings. The remeasurement of our U.S. net deferred tax liabilities and the one-time transition tax resulted in a $20.2 million net benefit to our provision for income taxes in the second quarter of fiscal 2018. Our effective tax rate for the second quarter of fiscal 2018 also benefited from the effect of the lower U.S. federal income tax rates on our earnings for the first half of the year. In addition to the impact from the Act, our effective tax rate for the thirteen weeks ended ~~February~~November 24, 2018 was lower due to a discrete tax benefit of $0.6 million from the adoption of new accounting guidance during the first quarter of fiscal 2018 that requires tax effects of exercised or vested awards to be treated as ~~discrete items as a reduction of income tax expense in the reporting period in which they occur.~~

~~Twenty-six weeks ended February 24, 2018 compared with twenty-six weeks ended February 25, 2017~~

~~Revenues~~

(In thousands, except percentages) February 24,
2018 February 25,
2017
Dollar
Change

Percent
Change

Core Laundry Operations
$ 752,751

$ 710,229

$ 42,522

6.0 %
Specialty Garments
55,436

44,143

11,293

25.6 %
First Aid
26,855

23,163

3,692

15.9 %
Consolidated total
$ 835,042

$ 777,535

$ 57,507

7.4 %

For the twenty-six weeks ended February 24, 2018, our consolidated revenues increased by $57.5 million from the comparable period in fiscal 2017, or 7.4%. This increase was primarily due to a $42.5 million increase in revenues from our Core Laundry Operations. Revenues from our Core Laundry Operations increased to $752.8 million for the twenty-six weeks ended February 24, 2018 from $710.2

million for the comparable period of fiscal 2017, or 6.0%. Excluding the positive effect of acquisitions, which we estimate increased our revenues by approximately 0.9%, as well as a slightly stronger Canadian dollar, which favorably impacted our growth by 0.3%, organic growth for our Core Laundry Operations was 4.8%. 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 increased to $55.4 million in the first half of fiscal 2018 from $44.1 million in the comparable period of fiscal 2017, an increase of $11.3 million, or 25.6%. This segment’s results are often affected by the timing and length of its customers’ power reactor outages as well as its project-based activities. The improvement in results for the twenty-six weeks ended February 24, 2018 compared to the comparable period of fiscal 2017 was primarily due to increased outages and project-based activity at the segment’s Canadian and European nuclear customers, as well as solid growth from the cleanroom division. This segment’s results can vary significantly due to seasonality and the timing of reactor outages and projects.

First Aid revenues increased to $26.9 million in the first half of fiscal 2018 from $23.2 million in the comparable period in fiscal 2017, an increase of 15.9%. The improvement in the results was due to a strong performance from this segment's wholesale distribution business as well as a small acquisition that closed in the third quarter of fiscal 2017.

~~Cost of Revenues~~

For the twenty-six weeks ended February 24, 2018 and February 25, 2017, cost of revenues was 62.2% and 62.8% of revenues respectively. The decrease was primarily due to lower merchandise costs and other production costs as a percentage of revenues partially offset by higher levels of claims for healthcare and higher service payroll costs in our Core Laundry Operations. In addition, our Specialty Garments segment's costs of revenues were lower as a percentage of revenues due to the leverage created by the strong revenue growth in the twenty-six weeks ended February 24, 2018 compared to the prior year comparable ~~period.~~

~~Selling and Administrative Expense~~

While selling and administrative expenses were 21.1% of revenues for both the twenty-six weeks ended February 24, 2018 and February 25, 2017, they were positively impacted by lower stock compensation expense in the first half of fiscal 2018. This was offset by higher administrative payroll and other costs in the twenty-six weeks ended February 24, 2018.

~~Depreciation and Amortization~~

Our depreciation and amortization expense was $46.0 million, or 5.5%% of revenues, for the twenty-six weeks ended February 24, 2018 compared to $43.3 million, or 5.6% of revenues, for the twenty-six weeks ended February 25, 2017. Depreciation and amortization expense increased due primarily to capital expenditure activity in earlier periods.

~~Operating Income~~

~~For the twenty-six weeks ended February 24, 2018 and February 25, 2017, changes in our revenues and costs as discussed above resulted in the following changes in our operating income:~~

(In thousands, except percentages) February 24,
2018 February 25,
2017
Dollar
Change

Percent
Change

Core Laundry Operations
$ 84,442

$ 76,732

$ 7,710

10.0 %
Specialty Garments
7,277

3,246

4,031

124.2 %
First Aid
2,144

1,925

219

11.4 %
Consolidated total
$ 93,863

$ 81,903

$ 11,960

14.6 %

~~Other Income, net~~

Other income, net, which includes interest income, net and other expense, net, was income of $2.7 million in the twenty-six weeks ended February 24, 2018 compared to income of $1.5 million in the twenty-six weeks ended February 25, 2017. This increase of $1.2 million was primarily due to interest income, net of $2.7 million during the twenty-six weeks ended February 24, 2018 as compared to interest income of $1.9 million during the twenty-six weeks ended February 25, 2017 and to lower foreign exchange losses as compared to the same period ~~a year ago.~~

~~Provision for Income Taxes~~

~~Our effective income tax rate for the twenty-six weeks ended February 24, 2018 was 4.2% compared to 39.2% for the twenty-six weeks ended February 25, 2017. The change in our effective tax rate~~ was due primarily to the impact of the Act, which lowered the U.S. federal corporate income tax rates as of January 1, ~~2018. These new rates required us~~2018 to remeasure our U.S. net deferred income tax liabilities in the twenty-six weeks ended February 24, 2018. Also, we will be subject to a one-time transition tax for the deemed repatriation of our foreign earnings. The remeasurement of our U.S. net deferred tax liabilities and the one-time transition tax resulted in a $20.2 million net benefit to our provision for income taxes in the twenty-six weeks ended February 24, 2018. Our effective tax rate for the first half of fiscal 2018 also benefited21.0% from the effect of the lower U.S. federal income tax rates on our earnings. In addition to the impact from the Act, our effective tax rate for the twenty-six weeks ended February 24, 2018 was lower due to a discrete tax benefit of $2.2 million from the adoption of new accounting guidance during the first half of fiscal 2018 that requires tax effects of exercised or vested awards to be treated as discrete items as a reduction of income tax expense in the reporting period in which they occur.35.0%.

Liquidity and Capital Resources

General

Cash, cash equivalents and short-term investments totaled ~~$387.7~~$276.5 million as of ~~February~~November 24, 2018, an increase of ~~$37.9~~$6.0 million from August ~~26, 2017~~25, 2018 when the amount totaled ~~$349.8 million.~~$270.5 million, which includes $45.3 million in cash outside the United States. Our working capital was ~~$679.0~~$632.7 million as of ~~February~~November 24, 2018 compared to ~~$636.4~~$586.3 million as of August ~~26, 2017.~~25, 2018. We generated ~~$118.9~~$32.3 million and ~~$218.3~~$230.1 million in cash from operating activities in the ~~twenty-six~~thirteen weeks ended ~~February~~November 24, 2018 and the full fiscal year ended August ~~26, 2017,~~25, 2018, respectively. On March 27, 2018, we repurchased 1.105 million shares of Class B Common Stock and 0.073 million shares of Common Stock for a combined $146.0 million in a private transaction with the Croatti family at a per share price of $124.00. After this transaction, our cash, cash equivalents and short-term investments balance is over $200 million. We believe that our current cash, cash equivalents and short-term investments balances, our cash generated from future operations and amounts available under our Credit Agreement (defined below) will be sufficient to meet our current anticipated working capital and capital expenditure requirements for at least the next 12 months.

We have accumulated $55.2 million in cash outside the United States that will be subject to a one-time transition tax as discussed in Note 12 of our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. This cash is expected to be invested indefinitely in our foreign subsidiaries. If these funds were distributed to the U.S in the form of dividends, we would likely be subject to additional taxes including withholding taxes from the countries where the cash is currently held. We do not believe that any resulting taxes payable for cash outside the United States would have a material impact on our liquidity.

Cash flows provided by operating activities have historically been the primary source of our liquidity. We generally use these cash flows to fund most, if not all, of our operations, capital expenditure and acquisition activities as well as dividends on our common stock. We may also use cash flows provided by operating activities, 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 thirteen weeks ended November 24, 2018 and November 25, 2017, respectively, are summarized as follows:



Thirteen weeks ended (In thousands, except percentages)	November 24, 2018			November 25, 2017			Percent Change

Net cash provided by operating activities	$	32,257		$	47,627		(32.3	)%
Net cash used in investing activities	(23,162		)	(21,386		)	8.3	%
Net cash used in financing activities	(2,210		)	(981		)	125.3	%
Effect of exchange rate changes	$	(861	)	$	(976	)	(11.8	)%
Net increase in cash, cash equivalents and short-term investments	$	6,024		$	24,284		(75.2	)%

Cash Provided by Operating Activities

~~Cash provided by operating activities for the twenty-six weeks ended February 24, 2018 was $118.9 million, an increase of $4.2 million from the comparable period~~The decrease in ~~the prior year when cash provided by operating activities was $114.7 million. The increased~~ cash provided by operating activities was due primarily to ~~higher net income due~~the one-time bonus paid to our employees during the first quarter of fiscal 2019, increased merchandise placed in service, and an increase in ~~revenue and the impact of the Act. Also contributing to the increase~~our sales tax receivables. This decrease was ~~the timing of tax payments. These increases were~~ partially offset by ~~the $12.5 million of~~ cash received ~~in September 2016 related to a~~of $3.0 million from the settlement of environmental litigation ~~we entered into~~ in the ~~fourth~~first quarter of fiscal ~~2016, increases in inventory due to the growth in revenue, and the timing of accounts payable payments.~~2019.

Cash Used in Investing Activities

Cash used in investing activities for the twenty-six weeks ended February 24, 2018 was $77.4 million, a decrease of $86.1 million from the comparable period in the prior year when cash used in investing activities was $163.5 million. The ~~net decrease~~increase in cash used in investing activities was due primarily ~~the result of $119.9 million of~~to an increase in capital expenditures partially offset by a decrease in cash ~~paid during the twenty-six weeks ended February 25, 2017 in connection with our acquisition of Arrow Uniform in September 2016.~~outflows related to business acquisitions.

Cash Used in Financing Activities

~~Cash used~~The increase in ~~financing activities for the twenty-six weeks ended February 24, 2018 was $3.1 million compared to~~ cash used in financing activities was due primarily to an increase in the amount of ~~$0.7 million for~~cash dividends paid as a result of the ~~twenty-six weeks ended February 25, 2017. This change was primarily due to~~increase in quarterly dividends paid beginning in the ~~adoption of new~~

~~accounting guidance during the first~~third quarter of fiscal ~~2018 that requires that tax effect of exercised or vested equity awards to be treated as an operating activity instead of a financing activity on a prospective basis.~~2018.

Long-Term Debt and Borrowing Capacity

~~On April 11, 2016, we entered into an amended and restated~~We have a $250 million unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of banks, which matures on April 11, 2021. Under the Credit Agreement, we are able to borrow funds at variable interest rates based on, at our election, the Eurodollar rate or a base rate, plus in each case a spread based on our consolidated funded debt ratio. Availability of credit requires compliance with certain financial and other covenants, including a maximum consolidated funded debt ratio and minimum consolidated interest coverage ratio as defined in the Credit Agreement. We test our compliance with these financial covenants on a fiscal quarterly basis. As of ~~February~~November 24, 2018, the interest rates applicable to our borrowings under the Credit Agreement would be calculated as LIBOR plus 75 basis points at the time of the respective borrowing. As of ~~February~~November 24, 2018, we had no outstanding borrowings and had outstanding letters of credit amounting to ~~$77.6~~$71.4 million, leaving ~~$172.4~~$178.6 million available for borrowing under the Credit Agreement.

As of ~~February~~November 24, 2018, we were in compliance with all covenants under the Credit Agreement.

Derivative Instruments and Hedging Activities

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

In June 2018, we entered into twelve forward contracts to exchange CAD for U.S. dollars at fixed exchange rates in order to manage our exposure related to certain forecasted CAD denominated sales of one of our subsidiaries. The hedged transactions are specified as the first amount of CAD denominated revenues invoiced by one of our domestic subsidiaries each fiscal quarter, beginning in the third fiscal quarter of 2019 and continuing through the second fiscal quarter of 2022. In total, we will sell approximately 12.1 million CAD at an average Canadian-dollar exchange rate of 0.7814 over these quarterly periods. We concluded that the forward contracts met the criteria to qualify as a cash flow hedge under U.S. GAAP.

As of ~~February~~November 24, 2018, we had forward contracts with a notional value of approximately ~~6.8~~13.4 million CAD outstanding and recorded ~~nominal amounts for~~ the fair value of the contracts of $0.2 million in other long-term assets and $0.1 million in prepaid expenses and other current ~~liabilities~~assets with a corresponding ~~loss~~decrease in accumulated other comprehensive loss of $0.2 million, which was recorded net of tax. During the ~~twenty-six~~thirteen weeks ended ~~February~~November 24, 2018, we reclassified a nominal amount from accumulated other comprehensive loss to revenue, related to the derivative financial instruments. The ~~loss~~gain on these forward contracts that resulted in a decrease to accumulated other comprehensive loss as of ~~February~~November 24, 2018 is expected to be reclassified to revenues prior to its maturity on February ~~22, 2019.~~25, 2022.

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 waste water and other residues, and, in the past, used perchloroethylene and other dry cleaning solvents. We are attentive to the environmental concerns surrounding the disposal of these materials and have, through the years, taken measures to avoid their improper disposal. Over the years, we have settled, or contributed to the settlement of, actions or claims brought against us relating to the disposal of hazardous materials and there can be no assurance that we will not have to expend material amounts to remediate the consequences of any such disposal in the future.

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 sites located in or

related to Woburn, Massachusetts, Somerville, Massachusetts, Springfield, Massachusetts, Uvalde, Texas, Stockton, California, ~~three~~two sites related to former operations in Williamstown, Vermont, as well as sites located in Goldsboro, North Carolina and Wilmington, North ~~Carolina, and Landover, Maryland.~~Carolina.

We have accrued certain costs related to the sites described above as it has been determined that the costs are probable and can be reasonably estimated. We have potential exposure related to a parcel of land (the “Central Area”) related to the Woburn, Massachusetts site mentioned above. Currently, the consent decree for the Woburn site does not define or require any remediation work in the Central Area. The United States Environmental Protection Agency (the “EPA”) has provided us and other signatories to the consent decree with comments on the design and implementation of groundwater and soil remedies at the Woburn site and investigation of environmental conditions in the Central Area. We, and other signatories, have implemented and proposed to do additional work at the Woburn site but many of the EPA’s comments remain to be resolved. We have accrued costs to perform certain work responsive to EPA’s comments. We

have implemented mitigation measures and continue to monitor environmental conditions at the Somerville, Massachusetts site. In addition, we have received demands from the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station in the area of ~~our~~the Somerville site. This station is part of ~~a planned~~the 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 have also received notice that the Massachusetts Department of Environmental Protection is conducting an audit of the Company’s investigation and remediation work with respect to the Somerville site.

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 reflect 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. Where 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 ~~February~~November 24, 2018, the risk-free interest rates we utilized ranged from ~~2.9%~~3.1% to ~~3.2%~~3.3%.

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 ~~twenty-six~~thirteen weeks ended ~~February~~November 24, 2018 were as follows (in thousands):


	February 24, 2018			November 24, 2018
Beginning balance as of August 26, 2017	$	25,419
Beginning balance as of August 25, 2018				$	25,486
Costs incurred for which reserves had been provided	(627		)	(195		)
Insurance proceeds	56			40
Interest accretion	346			189
Change in discount rates	(858		)	(699		)

Balance as of February 24, 2018	$	24,336
Balance as of November 24, 2018				$	24,821

Anticipated payments and insurance proceeds relating to currently identified environmental remediation liabilities as of ~~February~~November 24, 2018, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.


(In thousands)	2018			2019			2020			2021			2022			Thereafter			Total			2019			2020			2021			2022			2023			Thereafter			Total
Estimated costs – current dollars	$	8,658		$	1,880		$	1,477		$	1,305		$	1,157		$	12,304		$	26,781		$	9,299		$	2,122		$	1,635		$	1,272		$	1,175		$	12,137		$	27,640

Estimated insurance proceeds	(103		)	(173		)	(159		)	(173		)	(159		)	(993		)	(1,760		)	(133		)	(159		)	(173		)	(159		)	(173		)	(830		)	(1,627		)

Net anticipated costs	$	8,555		$	1,707		$	1,318		$	1,132		$	998		$	11,311		$	25,021		$	9,166		$	1,963		$	1,462		$	1,113		$	1,002		$	11,307		$	26,013

Effect of inflation																			7,623																					7,477
Effect of discounting																			(8,308		)																			(8,669		)

Balance as of February 24, 2018																			$	24,336
Balance as of November 24, 2018																																								$	24,821

Estimated insurance proceeds are primarily received from an annuity received as part of our legal settlement with an insurance company. Annual proceeds of approximately $0.3 million are deposited into an escrow account which funds remediation and monitoring costs for ~~three~~

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 ~~February~~November 24, 2018, the balance in this escrow account, which is held in a trust and is not recorded in our Consolidated Balance Sheet, was approximately ~~$3.6~~$3.8 million. Also included in estimated insurance proceeds are amounts we are entitled to receive pursuant to legal settlements as reimbursements from three insurance companies for estimated costs at the site in Uvalde, Texas.

Our nuclear garment decontamination facilities are licensed by the Nuclear Regulatory Commission (“NRC”), or, in certain cases, by the applicable state agency, and are subject to regulation by federal, state and local authorities. We also have nuclear garment decontamination facilities in the United Kingdom and the Netherlands. These facilities are licensed and regulated by the respective country’s applicable federal agency. There can be no assurance that such regulation will not lead to material disruptions in our garment decontamination business.

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

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

Off-Balance Sheet Arrangements

As of ~~February~~November 24, 2018, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Securities and Exchange Commission Regulation S-K.

Seasonality

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

Effects of Inflation

In general, we believe that our results of operations are not dependent on moderate changes in the inflation rate. Historically, we have been able to manage the impacts of more significant changes in inflation rates through our customer relationships, customer agreements that generally provide for price increases consistent with the rate of inflation, and continued focus on improvements of operational productivity.

Contractual Obligations and Other Commercial Commitments

As of ~~February~~November 24, 2018, there were no material changes in our contractual obligations that were disclosed in our Annual Report on Form 10-K for the year ended August ~~26, 2017.~~25, 2018.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

We have determined that all of our foreign subsidiaries operate primarily in local currencies that represent the functional currencies of such subsidiaries. All assets and liabilities of our foreign subsidiaries are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date. The effect 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 ~~8.0%~~7.9% of total consolidated revenues for ~~both~~ the thirteen ~~and twenty-six~~ weeks ended ~~February~~November 24, 2018, and total assets denominated in currencies other than the U.S. dollar represented approximately ~~7.9%~~7.4% and ~~8.2%~~8.0% of total consolidated assets as of ~~February~~November 24, 2018 and August ~~26, 2017,~~25, 2018, respectively. If exchange rates had increased or decreased by 10% from the actual rates in effect during the thirteen ~~and twenty-six~~ weeks ended ~~February~~November 24, 2018, our revenues would have increased or decreased by approximately $3.4 million and ~~$6.7 million, respectively and~~ total assets as of ~~February~~November 24, 2018 would have increased or decreased by approximately ~~$15.0~~$14.0 million.

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

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 our foreign subsidiaries functional currencies, 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) expense. The intercompany payables and receivables are denominated in Canadian dollars, euros, British pounds, Mexican pesos and Nicaraguan cordobas. During the thirteen weeks ended ~~February~~November 24, 2018, transaction ~~gains~~losses included in other (income) expense, net were approximately $0.2 million. ~~During the twenty-six weeks ended February 24, 2018, transaction gains included in other (income) expense were a nominal amount.~~ If exchange rates had increased or decreased by 10% during the thirteen ~~and twenty-six~~ weeks ended ~~February~~November 24, 2018, we would have recognized exchange gains or losses of approximately ~~$1.0 million and $0.9 million, respectively.~~$1.1 million.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that material information relating to the Company required to be disclosed by the Company in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating 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 its judgment in designing and evaluating the controls and procedures. We continue to review our disclosure controls and procedures, and our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the ~~second~~first quarter of fiscal year ~~2018~~2019 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are subject to legal proceedings and claims arising from the current conduct of our business operations, including personal injury, customer contract, employment claims and environmental matters as described in our Consolidated Financial Statements. We maintain insurance coverage providing indemnification against many of such claims, and we do not expect that we will sustain any material loss as a result thereof. Refer to Note ~~11,~~12, “Commitments and Contingencies,” to the Consolidated Financial Statements, as well as Item 1A. Risk Factors below, for further discussion.

ITEM 1A. RISK FACTORS

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 ~~26, 2017,~~25, 2018, 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. ~~There~~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 ~~26, 2017, except as follows:~~

~~The impact of recently enacted U.S. tax laws is not yet clear.~~

Congress recently enacted legislation commonly known as “The Tax Cuts and Jobs Act” (the “Act”). The Act made significant changes to U.S. federal income tax laws. Certain provisions of the Act could have an adverse effect on our financial condition and results of operations. The interpretations of many provisions of the Act are still unclear. We cannot predict when or to what extent any U.S. federal tax laws, regulations, interpretations, or rulings clarifying the Act will be issued or the impact of any such guidance on the Company. Certain key provisions of the Act that could impact us include, but are not limited to international tax provisions that affect the overall tax rate applicable to income earned from non-U.S. operations and limitations on the deductibility of executive compensation. We have made reasonable estimates of the effects of the Act, but these estimates could change in future periods as we complete our analysis of the effects of the Act.

25, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



*	10.1 ~~Amendment No. 1 to Amended and Restated~~Form of Restricted Stock Unit Award Agreement under the UniFirst Corporation 2010 Stock Option and Incentive Plan (with respect to performance-based restricted stock unit awards)

*	31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

*	31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

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

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



*	101 The following materials from UniFirst Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~February~~November 24, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Shareholder's Equity, (v) Consolidated Statements of Cash Flows, and ~~(v)~~(vi) Notes to Consolidated Financial Statements.



*	Filed herewith

**	Furnished herewith

SIGNATURES

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



		UniFirst Corporation

~~April~~January 3, ~~2018~~2019	By:	/s/ Steven S. Sintros Steven S. Sintros President and Chief Executive Officer

~~April~~January 3, ~~2018~~2019	By:	/s/ Shane O’Connor Shane O’Connor Senior Vice President and Chief Financial Officer



	Thirteen weeks ended February 25, 2017						Twenty-six weeks ended February 25, 2017
	Earnings to Common shareholders			Common Shares	EPS		Earnings to Common shareholders			Common Shares	EPS

As reported - Basic	$	17,836		15,305	$	1.17	$	40,178		15,295	$	2.63

Add: effect of dilutive potential common shares
Share-Based Awards	—			112			—			109
Class B Common Stock	4,518			4,846			10,184			4,846

Add: Undistributed earnings allocated to unvested participating shares	158			—			357			—

Less: Undistributed earnings reallocated to unvested participating shares	(150		)	—			(338		)	—

As reported – Diluted	$	22,362		20,263	$	1.10	$	50,381		20,250	$	2.49



Balance as of August 26, 2017	$	376,110
Goodwill recorded during the period	13,367
Other	(12		)

Balance as of February 24, 2018	$	389,465



	Thirteen weeks ended February 24, 2018
	Foreign Currency Translation			Pension- related (1) (2)			Derivative Financial Instruments (1)			Total Accumulated Other Comprehensive (Loss) Income
Balance as of November 25, 2017	$	(17,945	)	$	(5,477	)	$	(23	)	$	(23,445	)

Other comprehensive income (loss) before reclassification	1,250			—			(23		)	1,227
Amounts reclassified from accumulated other comprehensive income (loss)	—			(1,192		)	10			(1,182		)
Net current period other comprehensive income (loss)	1,250			(1,192		)	(13		)	45

Balance as of February 24, 2018	$	(16,695	)	$	(6,669	)	$	(36	)	$	(23,400	)



	Thirteen weeks ended February 25, 2017
	Foreign Currency Translation			Pension- related (1)			Derivative Financial Instruments (1)			Total Accumulated Other Comprehensive (Loss) Income
Balance as of November 26, 2016	$	(25,943	)	$	(8,251	)	$	364		$	(33,830	)

Other comprehensive income (loss) before reclassification	3,332			—			(202		)	3,130
Amounts reclassified from accumulated other comprehensive (loss) income	—			—			(27		)	(27		)
Net current period other comprehensive income (loss)	3,332			—			(229		)	3,103

Balance as of February 25, 2017	$	(22,611	)	$	(8,251	)	$	135		$	(30,727	)