Notes
to Consolidated Financial Statements
UniFirst Corporation and Subsidiaries
1. Summary of Significant Accounting Policies
Business Description
UniFirst Corporation (the “Company”) is one of the largest providers of workplace uniforms and protective clothing in the United States. The Company designs, manufactures, personalizes, rents, cleans, delivers, and sells 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. The Company also rents and sells industrial wiping products, floor mats, facility service products and other non-garment items, and provides restroom and cleaning supplies and first aid cabinet services and other safety supplies, to a variety of manufacturers, retailers and service companies.
The Company serves 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. The Company also provides its customers with restroom and cleaning supplies, including air fresheners, paper products and hand soaps.
At certain specialized facilities, the Company decontaminates and cleans work clothes and other items that may have been exposed to radioactive materials and services special cleanroom protective wear. Typical customers for these specialized services include government agencies, research and development laboratories, high technology companies and utility providers operating nuclear reactors.
As discussed and described in Note 15, “Segment Reporting”, to these Consolidated Financial Statements, the Company has
five
reporting segments: US and Canadian Rental and Cleaning, Manufacturing (“MFG”), Specialty Garments Rental and Cleaning (“Specialty Garments”), First Aid and Corporate. The operations of the US and Canadian Rental and Cleaning reporting segment are referred to by the Company as its “industrial laundry operations” and the locations related to this reporting segment are referred to as “industrial laundries”. The Company refers to its US and Canadian Rental and Cleaning, MFG, and Corporate segments combined as its “Core Laundry Operations”.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. Intercompany balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of these Consolidated Financial Statements is in conformity with accounting principles generally accepted in the United States (“US GAAP”) which requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. These estimates are based on historical information, current trends, and information available from other sources. Actual results could differ from these estimates.
Fiscal Year
The Company’s fiscal year ends on the last Saturday in August. For financial reporting purposes, fiscal
2017
, fiscal
2016
and fiscal
2015
consisted of 52 weeks.
Cash, Cash Equivalents and Short-Term Investments
Cash, cash equivalents and short-term investments include cash in banks, money market securities, and bank short-term investments having original maturities of six months or less. Included in short-term investments are
two
certificates of deposits totaling
$100 million
having original maturities of
three
and
six
months.
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
Financial Instruments
The Company’s financial instruments, which may expose the Company to concentrations of credit risk, include cash, cash equivalents and short-term investments, receivables, accounts payable, loans payable and long-term debt. Each of these financial instruments is recorded at cost, which approximates its fair value given the short maturity of each financial instrument.
Revenue Recognition and Allowance for Doubtful Accounts
The Company recognizes revenue from rental operations and related services in the period in which the services are provided. Direct sales revenue is recognized in the period in which the services are performed or when the product is shipped. Management judgments and estimates are used in determining the collectability of accounts receivable and evaluating the adequacy of the allowance for doubtful accounts. The Company considers specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances as part of its evaluation. Changes in estimates are reflected in the period they become known. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Material changes in its estimates may result in significant differences in the amount and timing of bad debt expense recognition for any given period. Revenues do not include taxes we collect from our customers and remit to governmental authorities.
Inventories and Rental Merchandise in Service
Inventories are stated at the lower of cost or market value, net of any reserve for excess and obsolete inventory. Judgments and estimates are used in determining the likelihood that new goods on hand can be sold to customers or used in rental operations. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company uses the first-in, first-out (“FIFO”) method to value its inventories.
The components of inventory as of
August 26, 2017
and
August 27, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
August 26,
2017
|
|
August 27,
2016
|
Raw materials
|
$
|
18,468
|
|
|
$
|
16,826
|
|
Work in process
|
4,159
|
|
|
2,275
|
|
Finished goods
|
56,441
|
|
|
59,786
|
|
Total inventory
|
$
|
79,068
|
|
|
$
|
78,887
|
|
Rental merchandise in service is amortized, primarily on a straight-line basis, over the estimated service lives of the merchandise, which range from
6
to
36
months. In establishing estimated lives for merchandise in service, management considers historical experience and the intended use of the merchandise. Material differences may result in the amount and timing of operating profit for any period if management makes significant changes to these estimates.
Property, plant and equipment
Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are expensed as incurred, while expenditures for renewals and betterments are capitalized.
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
The components of property, plant and equipment as of
August 26, 2017
and
August 27, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
August 26,
2017
|
|
August 27,
2016
|
Land, buildings and leasehold equipment
|
$
|
467,050
|
|
|
$
|
432,716
|
|
Machinery and equipment
|
540,185
|
|
|
569,627
|
|
Motor vehicles
|
220,205
|
|
|
198,770
|
|
|
1,227,440
|
|
|
1,201,113
|
|
Less: accumulated depreciation
|
702,325
|
|
|
661,295
|
|
Total property, plant and equipment
|
$
|
525,115
|
|
|
$
|
539,818
|
|
The Company provides for depreciation on the straight-line method based on the date the asset is placed in service using the following estimated useful lives:
|
|
|
|
|
|
|
Buildings (in years)
|
30
|
|
—
|
|
40
|
Building components (in years)
|
10
|
|
—
|
|
20
|
Leasehold improvements
|
Shorter of useful life or term of lease
|
Machinery and equipment (in years)
|
3
|
|
—
|
|
10
|
Motor vehicles (in years)
|
3
|
|
—
|
|
5
|
Long-lived assets, including property, plant and equipment, are evaluated for impairment whenever events or circumstances indicate an asset may be impaired. There were
no
material impairments of long-lived assets in fiscal
2016
and
2015
. During the fourth quarter of fiscal 2017, the Company recognized a non-cash impairment charge in its US and Canadian Rental and Cleaning segment of $
55.8 million
on its on going CRM system project as the Company has now determined that it is no longer probable that the current version that was being developed will be completed and placed into service. Expenditures not impaired for computer software, including amounts capitalized related to the Company’s ongoing project to update its customer relationship management (“CRM”) systems, are included within machinery and equipment.
Goodwill and Other Intangible Assets
In accordance with US GAAP, the Company does not amortize goodwill. Instead, the Company tests goodwill for impairment on an annual basis. Management completes its annual goodwill impairment test in the fourth quarter of each fiscal year. In addition, US GAAP requires that companies test goodwill if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit to which goodwill is assigned below its carrying amount. The Company’s evaluation considers changes in the operating environment, competitive information, market trends, operating performance and cash flow modeling.
The Company cannot predict future economic conditions and their impact on the Company or the future market value of the Company’s stock. A decline in the Company’s market capitalization and/or deterioration in general economic conditions could negatively and materially impact the Company’s assumptions and assessment of the fair value of the Company’s business. If general economic conditions or the Company’s financial performance deteriorate, the Company may be required to record a goodwill impairment charge in the future which could have a material impact on the Company’s financial condition and results of operations.
Definite-lived intangible assets are amortized over their estimated useful lives, which are based on management’s estimates of the period that the assets will generate economic benefits. Definite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable in accordance with US GAAP. There were
no
impairments of goodwill or indicators of impairment for definite-lived intangible assets in fiscal
2017
,
2016
or
2015
.
As of
August 26, 2017
, definite-lived intangible assets have a weighted average useful life of approximately
13.9 years
. Customer contracts have a weighted average useful life of approximately
14.5 years
and other intangible assets, net, which
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
consist of primarily, restrictive covenants, deferred financing costs and trademarks, have a weighted average useful life of approximately
4.7 years
.
Environmental and Other Contingencies
The Company is subject to legal proceedings and claims arising from the conduct of its business operations, including environmental matters, personal injury, customer contract matters and employment claims. Accounting principles generally accepted in the United States require that a liability for contingencies be recorded when it is probable that a liability has occurred 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. The Company records accruals for environmental and other contingencies based on enacted laws, regulatory orders or decrees, the Company’s estimates of costs, insurance proceeds, participation by other parties, the timing of payments, and the input of outside consultants and attorneys.
The estimated liability for environmental contingencies has been discounted as of
August 26, 2017
using risk-free interest rates ranging from
2.2%
to
2.8%
over periods ranging from
ten
to
thirty
years. The estimated current costs, net of legal settlements with insurance carriers, have been adjusted for the estimated impact of inflation at
3%
per year. 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. Refer to Note 11, “Commitments and Contingencies”, of these Consolidated Financial Statements for additional discussion and analysis.
Asset Retirement Obligations
Under US GAAP, asset retirement obligations generally apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. 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 has recognized as a liability the present value of the estimated future costs to decommission its nuclear laundry facilities. The Company depreciates, 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-seven years
.
The estimated liability has been based on historical experience in decommissioning nuclear laundry facilities, estimated useful lives of the underlying assets, external vendor estimates as to the cost to decommission these assets in the future, and federal and state regulatory requirements. The estimated current costs have been adjusted for the estimated impact of inflation at
3%
per year. The liability has been discounted using credit-adjusted risk-free rates that range from approximately
7.0%
to
7.5%
. Revisions to the liability could occur due to changes in the Company’s estimated useful lives of the underlying assets, estimated dates of decommissioning, changes in decommissioning costs, changes in federal or state regulatory guidance on the decommissioning of such facilities, or other changes in estimates. Changes due to revised estimates will be recognized by adjusting the carrying amount of the liability and the related long-lived asset if the assets are still in service, or charged to expense in the period if the assets are no longer in service.
Insurance
The Company is self-insured for certain obligations related to health, workers’ compensation, vehicles and general liability programs. The Company also purchases stop-loss insurance policies for health, workers’ compensation, vehicles and general liability programs to protect itself from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred, but have not been reported. The Company’s estimates consider historical claims experience and other factors. In certain cases where partial insurance coverage exists, we must estimate the portion of the liability that will be covered by existing insurance policies to arrive at our net expected liability. Receivables for insurance recoveries are recorded as assets, on an undiscounted basis. The Company’s liabilities are based on estimates, and, while the Company believes that its accruals are adequate, the ultimate liability may be significantly different
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
from the amounts recorded. Changes in claims experience, the Company’s ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.
Supplemental Executive Retirement Plan and other Pension Plans
Pension expense is recognized on an accrual basis over employees’ estimated service periods. Pension expense is generally independent of funding decisions or requirements.
The Company (1) recognizes in its statement of financial position the over-funded or under-funded status of its defined benefit postretirement plans measured as the difference between the fair value of plan assets and the benefit obligation, (2) recognizes as a component of other comprehensive (loss) income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period but are not recognized as components of net periodic benefit cost, (3) measures defined benefit plan assets and defined benefit plan obligations as of the date of its statement of financial position, and (4) discloses additional information in the notes to financial statements about certain effects on net periodic benefit cost in the upcoming fiscal year that arise from delayed recognition of the actuarial gains and losses and the prior service costs and credits. Refer to Note 7, “Employee Benefit Plans”, of these Consolidated Financial Statements for further discussion regarding the Company’s pension plans.
The calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions, including the expected long-term rates of return on plan assets, the assumed discount rates, assumed rate of compensation increases and life expectancy of participants. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions. Pension expense increases as the expected rate of return on pension plan assets decreases. Future changes in plan asset returns, assumed discount rates and various other factors related to the participants in the Company’s pension plans will impact the Company’s future pension expense and liabilities. The Company cannot predict with certainty what these factors will be in the future.
Income Taxes
The Company computes income tax expense by jurisdiction based on its operations in each jurisdiction. Deferred income taxes are provided for temporary differences between the amounts recognized for income tax and financial reporting purposes at currently enacted tax rates.
The Company is periodically reviewed by U.S. domestic and foreign tax authorities regarding the amount of taxes due. These reviews typically include inquiries regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, the Company records estimated reserves
.
Refer to Note 4, “Income Taxes”, of these Consolidated Financial Statements for further discussion regarding the Company’s accounting for income taxes and its uncertain tax positions for financial accounting purposes.
The Company has undistributed earnings from its foreign subsidiaries of approximately
$128.0 million
as of
August 26, 2017
. The Company considers these undistributed earnings as indefinitely reinvested and therefore has not provided for U.S. income taxes or foreign withholding taxes. If these earnings were ultimately distributed to the U.S. in the form of dividends or otherwise, or if the shares of its international subsidiaries were sold or transferred, the Company would likely be subject to additional U.S. income taxes, net of the impact of any available foreign tax credits as well as foreign withholding taxes. It is not practicable to estimate the amount of unrecognized deferred U.S. taxes on these undistributed earnings.
Advertising Costs
Advertising costs are expensed as incurred and are classified as selling and administrative expenses. The Company incurred advertising costs of
$3.7 million
,
$1.5 million
and
$1.3 million
, for the fiscal years ended
August 26, 2017
,
August 27, 2016
and
August 29, 2015
, respectively.
Share-Based Compensation
Compensation expense for all Share-Based Awards is recognized ratably over the related vesting period. Certain Share-Based Awards and shares of unrestricted stock were granted during fiscal
2017
,
2016
and
2015
to non-employee Directors of the Company, which were fully vested upon grant and, with respect to stock appreciation rights, expire
eight
years after the grant
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
date. Accordingly, compensation expense related to these Share-Based Awards and shares of unrestricted stock in fiscal
2017
,
2016
and
2015
were recognized on the date of grant.
For performance restricted share awards with revenue and adjusted operating margin targets, we evaluate the probability of meeting the performance criteria at each balance sheet date and if probable, related compensation cost is amortized over the performance period on a straight-line basis because such awards vest only at the end of the measurement period. Changes to the probability assessment and the estimate of shares expected to vest will result in adjustments to the related share-based compensation expense that will be recorded in the period of the change. If the performance targets are not achieved, no compensation cost is recognized and any previously recognized compensation cost is reversed.
US GAAP requires that share-based compensation cost be measured at the grant date based on the value of the award and be recognized as expense over the requisite service period, which is generally the vesting period. Determining the fair value of Share-Based Awards at the grant date requires judgment, including estimating expected dividends, share price volatility and the amount of Share-Based Awards that are expected to be forfeited. The fair value of each Share-Based Award is estimated on the date of grant using the Black-Scholes option pricing model.
The Company recognizes compensation expense for restricted stock grants over the related vesting period. The fair value for each restricted and unrestricted stock grant is determined by using the closing price of the Company’s stock on the date of the grant. Refer to Note 12, “Share-Based Compensation”, of these Consolidated Financial Statements for further discussion regarding the Company’s share-based compensation plans.
Net Income Per Share
The Company calculates net income per share in accordance with US GAAP, which requires the Company to allocate income to its unvested participating securities as part of its earnings per share (“EPS”) calculations.
The Class B Common Stock may be converted at any time on a
one
-for-one basis into Common Stock at the option of the holder of the Class B Common Stock. Diluted earnings per share for the Company’s Common Stock assumes the conversion of all of the Company’s Class B Common Stock into Common Stock, full vesting of outstanding restricted stock, and the exercise of Share-Based Awards under the Company’s stock incentive plans.
The following table sets forth the computation of basic earnings per share using the two-class method for amounts attributable to the Company’s shares of Common Stock and Class B Common Stock (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
August 26,
2017
|
|
August 27,
2016
|
|
August 29,
2015
|
Net income available to shareholders
|
|
$
|
70,196
|
|
|
$
|
125,026
|
|
|
$
|
124,299
|
|
|
|
|
|
|
|
|
Allocation of net income for Basic:
|
|
|
|
|
|
|
Common Stock
|
|
$
|
55,903
|
|
|
$
|
99,282
|
|
|
$
|
98,665
|
|
Class B Common Stock
|
|
13,915
|
|
|
25,093
|
|
|
24,761
|
|
Unvested participating shares
|
|
378
|
|
|
651
|
|
|
873
|
|
|
|
$
|
70,196
|
|
|
$
|
125,026
|
|
|
$
|
124,299
|
|
|
|
|
|
|
|
|
Weighted average number of shares for Basic:
|
|
|
|
|
|
|
Common Stock
|
|
15,382
|
|
|
15,245
|
|
|
15,182
|
|
Class B Common Stock
|
|
4,786
|
|
|
4,816
|
|
|
4,763
|
|
Unvested participating shares
|
|
116
|
|
|
107
|
|
|
153
|
|
|
|
20,284
|
|
|
20,168
|
|
|
20,098
|
|
|
|
|
|
|
|
|
Earnings per share for Basic:
|
|
|
|
|
|
|
Common Stock
|
|
$
|
3.63
|
|
|
$
|
6.51
|
|
|
$
|
6.50
|
|
Class B Common Stock
|
|
$
|
2.91
|
|
|
$
|
5.21
|
|
|
$
|
5.20
|
|
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
The Company calculates diluted EPS for Common Stock using the more dilutive of the following two methods:
•
The treasury stock method; or
•
The two-class method assuming a participating security is not exercised or converted.
For the years ended
August 26, 2017
,
August 27, 2016
and
August 29, 2015
, the Company’s diluted EPS assumes the conversion of all vested Class B Common Stock into Common Stock and uses the two-class method for its unvested participating shares as it was the more dilutive of the two approaches. The following presents a reconciliation of basic and diluted net income per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 26, 2017
|
|
Year Ended August 27, 2016
|
|
Year Ended August 29, 2015
|
|
Earnings
to Common
shareholders
|
|
Common
Shares
|
|
EPS
|
|
Earnings
to Common
shareholders
|
|
Common
Shares
|
|
EPS
|
|
Earnings
to Common
shareholders
|
|
Common
Shares
|
|
EPS
|
As reported – Basic
|
$
|
55,903
|
|
|
15,382
|
|
|
$
|
3.63
|
|
|
99,282
|
|
|
15,245
|
|
|
$
|
6.51
|
|
|
$
|
98,665
|
|
|
15,182
|
|
|
$
|
6.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: effect of dilutive potential common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-Based Awards
|
—
|
|
|
108
|
|
|
|
|
|
—
|
|
|
93
|
|
|
|
|
|
—
|
|
|
134
|
|
|
|
|
Class B Common Stock
|
13,915
|
|
|
4,786
|
|
|
|
|
|
25,093
|
|
|
4,816
|
|
|
|
|
|
24,761
|
|
|
4,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Undistributed earnings allocated to unvested participating shares
|
362
|
|
|
—
|
|
|
|
|
|
636
|
|
|
—
|
|
|
|
|
|
853
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Undistributed earnings reallocated to unvested participating shares
|
(343
|
)
|
|
—
|
|
|
|
|
|
(602
|
)
|
|
—
|
|
|
|
|
|
(807
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS – Common Stock
|
$
|
69,837
|
|
|
20,276
|
|
|
$
|
3.44
|
|
|
124,409
|
|
|
20,154
|
|
|
$
|
6.17
|
|
|
$
|
123,472
|
|
|
20,079
|
|
|
$
|
6.15
|
|
Share-Based Awards that would result in the issuance of
16
shares of Common Stock were excluded from the calculation of diluted earnings per share for the year ended
August 26, 2017
because they were anti-dilutive. Share-Based Awards that would result in the issuance of
9,883
shares of Common Stock were excluded from the calculation of diluted earnings per share for the year ended
August 27, 2016
because they were anti-dilutive. Share-Based Awards that would result in the issuance of
10,702
shares of Common Stock were excluded from the calculation of diluted earnings per share for the year ended
August 29, 2015
because they were anti-dilutive.
Foreign Currency Translation
The functional currency of our foreign operations is the local country’s currency. Transaction gains and losses, including gains and losses on our intercompany transactions, are included in other (income) expense in the accompanying Consolidated Statements of Income. Assets and liabilities of operations outside the United States are translated into U.S. dollars using period-end exchange rates. Revenues and expenses are translated at the average exchange rates in effect during each month of the fiscal year. The effects of foreign currency translation adjustments are included in shareholders’ equity as a component of accumulated other loss income in the accompanying Consolidated Balance Sheets.
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued updated accounting guidance for revenue recognition, which they have subsequently modified. This modified update provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017. Accordingly, 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 standard using the modified retrospective adoption method and continues to evaluate the impact that this guidance will have on its financial statements and related disclosures.
In February 2015, the FASB issued updated accounting guidance on consolidation requirements. This update changes the guidance with respect to the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. Accordingly, the standard became effective for the Company on August 28, 2016. The Company adopted this guidance and the adoption did not have a material impact on its financial statements.
In April 2015, the FASB issued updated guidance on the presentation of debt issuance costs. This update changes the guidance with respect to presenting such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. Accordingly, the standard became effective for the Company on August 28, 2016. The Company adopted this guidance and the adoption did not have a material impact on its financial statements.
In July 2015, the FASB issued updated guidance which changes the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value. Subsequent measurement is unchanged for inventory measured using last-in, first-out or the retail inventory method. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016, and is to be applied prospectively, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 27, 2017. The Company expects that adoption of this guidance will not have a material impact on its financial statements.
In September 2015, the FASB issued updated guidance that require an entity to recognize adjustments made to provisional amounts that are identified in a business combination be recorded in the period such adjustments are determined, rather than retrospectively adjusting previously reported amounts. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, and is to be applied prospectively, with early adoption permitted. Accordingly, the standard became effective for the Company on August 28, 2016. The Company adopted this guidance and the adoption did not have a material impact on its financial statements.
In January 2016, the FASB issued updated guidance for the recognition, measurement, presentation, and disclosure of certain financial assets and liabilities. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 26, 2018. The Company expects that adoption of this guidance will not have a material impact on its financial statements.
In February 2016, the FASB issued updated guidance that improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. Accordingly, the standard will be effective for the Company on September 1, 2019. The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.
In March 2016, the FASB issued updated guidance that simplifies several aspects of accounting for share-based payment transactions. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 and, depending on the amendment, must be applied using a prospective transition method, retrospective
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
transition method, modified retrospective transition method, prospectively and/or retroactively, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 27, 2017. The Company does not expect that adoption of this guidance will have a material impact on its financial statements.
In August 2016, the FASB issued updated guidance that reduces diversity in how certain cash receipts and cash payments are presented and classified in the Consolidated Statements of Cash Flows. This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and will be required to be applied retrospectively, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 26, 2018. The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.
In October 2016, the FASB issued updated guidance to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and will be required to be applied on a modified retrospective basis, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 26, 2018. The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.
2. Acquisitions
During the fiscal year ended
August 26, 2017
, the Company completed
six
business acquisitions (including Arrow discussed below) with an aggregate purchase price of approximately
$125.5 million
. The results of operations of these acquisitions have been included in the Company’s consolidated financial results since their respective acquisition dates. These acquisitions were not significant in relation to the Company’s consolidated financial results and, therefore, pro forma financial information has not been presented.
Aggregate information relating to the acquisition of businesses which were accounted for as purchases is as follows (in thousands, except number of businesses acquired):
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|
|
|
|
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|
|
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Year ended
|
August 26,
2017
|
|
August 27,
2016
|
|
August 29,
2015
|
Number of businesses acquired
|
6
|
|
|
6
|
|
|
7
|
|
Tangible assets acquired
|
$
|
26,174
|
|
|
$
|
3,572
|
|
|
$
|
4,179
|
|
Intangible assets and goodwill acquired
|
101,530
|
|
|
14,239
|
|
|
18,190
|
|
Liabilities assumed
|
(2,156
|
)
|
|
(80
|
)
|
|
(10
|
)
|
|
|
|
|
|
|
Acquisition of businesses
|
$
|
125,548
|
|
|
$
|
17,731
|
|
|
$
|
22,359
|
|
Tangible assets acquired primarily relate to accounts receivable, inventory, prepaid expenses and property, plant and equipment. Liabilities assumed primarily relate to accounts payable and accrued liabilities.
The amount assigned to intangible assets acquired was based on their respective fair values determined as of the acquisition date. The excess of the purchase price over the tangible and intangible assets was recorded as goodwill. In fiscal
2017
and
2016
, all of the goodwill was allocated to the US and Canadian Rental and Cleaning segment and is deductible for tax purposes.
On September 19, 2016, the Company completed an acquisition of Arrow Uniform (“Arrow”) for approximately
$118.7 million
. The all-cash transaction was structured as an asset acquisition, with the Company acquiring substantially all of Arrow’s assets and a limited amount of liabilities. Arrow, headquartered in Taylor, Michigan, provided uniform and facility service rental programs as well as direct sales uniform programs to a wide range of large and small customers. Arrow operated from
12
locations with nearly
700
employees in
five
Midwestern states.
The Arrow acquisition was accounted for using the purchase method of accounting. The Company engaged specialists to assist in the valuation of intangible assets. The table below summarizes the final purchase price allocation to the estimated fair value of assets acquired and liabilities assumed at the acquisition date. Goodwill is calculated as the excess of the purchase price over the net assets recognized and represents the estimated future economic benefits arising from expected synergies and growth opportunities for the Company. All of the goodwill and intangible assets were allocated to the US and Canadian Rental and Cleaning segment and are deductible for tax purposes.
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
The components of the consideration transferred in conjunction with the Arrow acquisition and the final allocation of that consideration is as follows (in thousands):
|
|
|
|
|
|
Receivables
|
|
$
|
7,365
|
|
Inventories
|
|
1,824
|
|
Rental merchandise in service
|
|
7,175
|
|
Prepaid expense and other current assets
|
|
1,722
|
|
Property, plant and equipment
|
|
2,619
|
|
Goodwill
|
|
51,624
|
|
Customer contracts
|
|
41,199
|
|
Other intangible assets
|
|
2,580
|
|
Other assets
|
|
4,790
|
|
Accrued liabilities
|
|
(2,156
|
)
|
Total Purchase Price
|
|
$
|
118,742
|
|
3. Fair Value Measurements
US GAAP establishes a framework for measuring fair value and establishes disclosure requirements about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We considered non-performance risk when determining fair value of our derivative financial instruments.
The fair value hierarchy prescribed under US GAAP contains three levels as follows:
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Level 1 –
|
Quoted prices in active markets for identical assets or liabilities.
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Level 2 –
|
Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
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|
Level 3 –
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
|
All financial assets or liabilities that are measured at fair value on a recurring basis (at least annually) have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. The assets or liabilities measured at fair value on a recurring basis are summarized in the tables below (in thousands):
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|
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|
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As of August 26, 2017
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Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
81,253
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81,253
|
|
Pension plan assets
|
—
|
|
|
5,097
|
|
|
—
|
|
|
5,097
|
|
Total assets at fair value
|
$
|
81,253
|
|
|
$
|
5,097
|
|
|
$
|
—
|
|
|
$
|
86,350
|
|
Liabilities:
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
$
|
—
|
|
|
$
|
177
|
|
|
$
|
—
|
|
|
$
|
177
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
177
|
|
1
|
|
$
|
—
|
|
|
$
|
177
|
|
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
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|
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As of August 27, 2016
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Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
172,760
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
172,760
|
|
Pension plan assets
|
—
|
|
|
4,753
|
|
|
—
|
|
|
4,753
|
|
Foreign currency forward contracts
|
—
|
|
|
188
|
|
|
—
|
|
|
188
|
|
Total assets at fair value
|
$
|
172,760
|
|
|
$
|
4,941
|
|
|
$
|
—
|
|
|
$
|
177,701
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|
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. 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.
4. Income Taxes
The provision for income taxes consists of the following (in thousands):
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|
|
Year ended
|
August 26,
2017
|
|
August 27,
2016
|
|
August 29,
2015
|
Current:
|
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|
|
|
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Federal
|
$
|
37,027
|
|
|
$
|
54,654
|
|
|
$
|
65,656
|
|
Foreign
|
1,995
|
|
|
1,672
|
|
|
3,350
|
|
State
|
6,642
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|
|
9,996
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|
|
11,184
|
|
Total current
|
$
|
45,664
|
|
|
$
|
66,322
|
|
|
$
|
80,190
|
|
|
|
|
|
|
|
Deferred:
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|
|
|
|
Federal
|
$
|
(520
|
)
|
|
$
|
10,803
|
|
|
$
|
(2,705
|
)
|
Foreign
|
123
|
|
|
(217
|
)
|
|
34
|
|
State
|
(340
|
)
|
|
1,437
|
|
|
(550
|
)
|
Total deferred
|
$
|
(737
|
)
|
|
$
|
12,023
|
|
|
$
|
(3,221
|
)
|
|
|
|
|
|
|
Total
|
$
|
44,927
|
|
|
$
|
78,345
|
|
|
$
|
76,969
|
|
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
The following table reconciles the provision for income taxes using the statutory federal income tax rate to the actual provision for income taxes:
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|
|
|
|
|
|
|
|
|
August 26,
2017
|
|
August 27,
2016
|
|
August 29,
2015
|
Income taxes at the statutory federal income tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes
|
3.5
|
|
|
3.5
|
|
|
3.5
|
|
Other
|
0.5
|
|
|
—
|
|
|
(0.3
|
)
|
Total
|
39.0
|
%
|
|
38.5
|
%
|
|
38.2
|
%
|
The tax effect of items giving rise to the Company’s deferred tax assets and liabilities is as follows (in thousands):
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|
|
|
|
|
|
August 26,
2017
|
|
August 27,
2016
|
Deferred Tax Assets
|
|
|
|
Payroll and benefit related
|
$
|
26,391
|
|
|
$
|
25,091
|
|
Insurance related
|
17,691
|
|
|
14,404
|
|
Environmental
|
9,945
|
|
|
10,465
|
|
Accrued expenses
|
4,542
|
|
|
1,418
|
|
Other
|
9,725
|
|
|
8,902
|
|
Total deferred tax assets
|
$
|
68,294
|
|
|
$
|
60,280
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
Tax in excess of book depreciation
|
$
|
48,969
|
|
|
$
|
48,414
|
|
Purchased intangible assets
|
39,179
|
|
|
35,697
|
|
Rental merchandise in service
|
56,707
|
|
|
51,869
|
|
Other
|
25
|
|
|
—
|
|
Total deferred tax liabilities
|
144,880
|
|
|
135,980
|
|
|
|
|
|
Net deferred tax liability
|
$
|
76,586
|
|
|
$
|
75,700
|
|
The Company has evaluated its deferred tax assets and believes that they will be fully recovered. As a result, the Company has not established a valuation allowance.
As of
August 26, 2017
and
August 27, 2016
, there was
$3.6 million
and
$3.3 million
, respectively, in total unrecognized tax benefits, which if recognized, would favorably impact the Company’s effective tax rate. 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. As of
August 26, 2017
and
August 27, 2016
, the Company had accrued a total of
$0.1
million in interest and penalties, in its long-term accrued liabilities. For the years ended
August 26, 2017
,
August 27, 2016
and
August 29, 2015
the Company recognized a nominal expense in its Consolidated Statement of Income related to interest and penalties.
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at August 29, 2015
|
$
|
1,312
|
|
Additions based on tax positions related to the current year
|
424
|
|
Additions for tax positions of prior years
|
2,145
|
|
Statute expirations
|
(138
|
)
|
|
|
Balance at August 27, 2016
|
3,743
|
|
Additions based on tax positions related to the current year
|
490
|
|
Additions for tax positions of prior years
|
331
|
|
Statute expirations
|
(350
|
)
|
|
|
Balance at August 26, 2017
|
$
|
4,214
|
|
The Company has a significant portion of its operations in the United States and Canada. It is required to file federal income tax returns as well as state income tax returns in a majority of the U.S. states and also in the Canadian provinces of Alberta, British Columbia, Ontario, Saskatchewan, Quebec and New Brunswick. At times, the Company is subject to audits in these jurisdictions, which typically are complex and can require several years to resolve. The final resolution of any such tax audits could result in either a reduction in the Company’s accruals or an increase in its income tax provision, both of which could have a material impact on the consolidated results of operations in any given period.
All U.S. and Canadian federal income tax statutes have lapsed for filings up to and including fiscal years 2012 and 2009, respectively, and the Company has concluded an audit of U.S. federal income taxes for 2010 and 2011. With a few exceptions, the Company is no longer subject to state and local income tax examinations for periods prior to fiscal 2012. 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.
5. Loans Payable and Long-term Debt
As of
August 26, 2017
and
August 27, 2016
, the Company had
no
outstanding loans payable.
On April 11, 2016, the Company entered into an amended and restated
$250.0 million
unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of banks, which matures on
April 11, 2021
. Under the Credit Agreement, the Company is able to borrow funds at variable interest rates based on, at its 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. As of
August 26, 2017
, the interest rates applicable to the Company’s borrowings under the Credit Agreement would be calculated as LIBOR plus 75 basis points at the time of the respective borrowing. As of
August 26, 2017
, the Company had
no
outstanding borrowings and had outstanding letters of credit amounting to
$66.2 million
, leaving
$183.8 million
available for borrowing under the Credit Agreement.
As of
August 26, 2017
, the Company was in compliance with all covenants under the Credit Agreement.
6. Derivative Instruments and Hedging Activities
The Company uses derivative financial instruments to mitigate its exposure to fluctuations in foreign currencies on certain forecasted transactions denominated in foreign currencies. US GAAP requires that all of the Company's derivative instruments be recorded on the balance sheet at fair value. All subsequent changes in a derivative’s fair value are recognized in income, unless specific hedge accounting criteria are met.
Derivative instruments that qualify for hedge accounting are classified as a hedge of the variability of cash flows to be received or paid related to a recognized asset, liability or forecasted transaction. Changes in the fair value of a derivative that is highly effective and designated as a cash flow hedge are recognized in accumulated other comprehensive (loss) income until the
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
hedged item or forecasted transaction is recognized in earnings. The Company performs an assessment at the inception of the hedge and on a quarterly basis thereafter, to determine whether its derivatives are highly effective in offsetting changes in the value of the hedged items. Any changes in the fair value resulting from hedge ineffectiveness are immediately recognized as income or expense.
In January 2015, the Company entered into
sixteen
forward contracts to exchange Canadian dollars (“CAD”) for U.S. dollars at fixed exchange rates in order to manage its exposure related to certain forecasted CAD denominated sales of one of its subsidiaries. The hedged transactions are specified as the first amount of CAD denominated revenues invoiced by one of the Company’s domestic subsidiaries each fiscal quarter, beginning in the third fiscal quarter of fiscal 2015 and continuing through the second fiscal quarter of the fiscal year ended August 31, 2019. In total, the Company will sell approximately
31.0 million
CAD at an average Canadian-dollar exchange rate of
0.7825
over these quarterly periods. The Company concluded that the forward contracts met the criteria to qualify as a cash flow hedge under US GAAP. Accordingly, the Company has reflected all changes in the fair value of the forward contracts in accumulated other comprehensive loss, a component of shareholders’ equity. Upon the maturity of each foreign exchange forward contract, the gain or loss on the contract will be recorded as an adjustment to revenues.
As of
August 26, 2017
, the Company had forward contracts with a notional value of approximately
9.6 million
CAD outstanding and recorded the fair value of the contracts of
$0.2 million
in other current liabilities with a corresponding loss in accumulated other comprehensive loss of
$0.1 million
, which was recorded net of tax. For the fiscal year ended
August 26, 2017
, the Company reclassified
$0.2 million
from accumulated other comprehensive loss to revenue, related to the derivative financial instruments. The loss in accumulated other comprehensive loss as of
August 26, 2017
is expected to be reclassified to revenues prior to its maturity on February 22, 2019.
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. 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 fiscal 2017, 2016 and 2015 were
$15.0 million
,
$13.8 million
and
$15.8 million
, respectively.
Pension Plans and Supplemental Executive Retirement Plans
The Company accounts for its pension plans and Supplemental Executive Retirement Plan on an accrual basis over employees’ estimated service periods.
The Company (1) recognizes in its statement of financial position the over-funded or under-funded status of its defined benefit postretirement plans measured as the difference between the fair value of plan assets and the benefit obligation, (2) recognizes as a component of other comprehensive (loss) income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period but are not recognized as components of net periodic benefit cost, (3) measures defined benefit plan assets and defined benefit plan obligations as of the date of its statement of financial position, and (4) discloses additional information in the notes to financial statements about certain effects on net periodic benefit cost in the upcoming fiscal year that arise from delayed recognition of the actuarial gains and losses and the prior service costs and credits.
The Company maintains an unfunded Supplemental Executive Retirement Plan (“SERP”) for certain eligible employees of the Company. The benefits are based on the employee’s compensation upon retirement. The amount charged to expense related to this plan amounted to approximately
$2.5 million
,
$2.4 million
and
$2.8 million
for fiscal
2017
,
2016
and
2015
, respectively.
The Company maintains a non-contributory defined benefit pension plan (“UniFirst Plan”) covering union employees at one of its locations. The benefits are based on years of service. The UniFirst Plan assets are invested in a Guaranteed Deposit Account (“GDA”) that is 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
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
performance the annual interest rate applied per the contract must be a minimum of
3.25%
. The amount charged to expense related to this plan amounted to approximately
$0.5 million
for fiscal
2017
and
$0.4 million
for both fiscal
2016
and
2015
.
In connection with one of the Company’s acquisitions, the Company assumed liabilities related to a frozen pension plan covering many of the acquired Company’s former employees (“Textilease Plan”). The pension benefits are based on years of service and the employee’s compensation. The Textilease Plan assets are held in a separate GDA with PRIAC; however the minimum interest rate per the Textilease Plan contract is
1.5%
. The amount charged to expense related to this plan amounted to approximately
$0.2 million
for both fiscal
2017
and
2016
and
$0.3 million
for fiscal
2015
.
The Company refers to its UniFirst Plan and Textilease Plan collectively as its “Pension Plans”.
The components of net periodic benefit cost related to the Company’s Pension Plans and SERP for fiscal 2017, 2016 and 2015 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
SERP
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Service cost
|
$
|
271
|
|
|
$
|
204
|
|
|
$
|
192
|
|
|
$
|
785
|
|
|
$
|
819
|
|
|
$
|
821
|
|
Interest cost
|
244
|
|
|
307
|
|
|
294
|
|
|
1,003
|
|
|
984
|
|
|
1,133
|
|
Expected return on assets
|
(189
|
)
|
|
(177
|
)
|
|
(182
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
83
|
|
|
84
|
|
|
62
|
|
|
56
|
|
|
368
|
|
|
368
|
|
Amortization of unrecognized loss
|
149
|
|
|
105
|
|
|
152
|
|
|
653
|
|
|
274
|
|
|
461
|
|
Other events
|
125
|
|
|
43
|
|
|
174
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
683
|
|
|
$
|
566
|
|
|
$
|
692
|
|
|
$
|
2,497
|
|
|
$
|
2,445
|
|
|
$
|
2,783
|
|
The calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions, including the expected long-term rates of return on plan assets, the assumed discount rate, the assumed rate of compensation increases and life expectancy of participants. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions. Pension expense increases as the expected rate of return on pension plan assets decreases. Future changes in plan asset returns, assumed discount rates and various other factors related to the participants in the Company’s pension plans will impact its future pension expense and liabilities. The Company cannot predict with certainty what these factors will be in the future.
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
The Company’s obligations and funded status related to its Pension Plans and SERP as of
August 26, 2017
and
August 27, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
SERP
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
$
|
9,000
|
|
|
$
|
8,479
|
|
|
$
|
30,696
|
|
|
$
|
23,755
|
|
Service cost
|
271
|
|
|
204
|
|
|
785
|
|
|
819
|
|
Interest cost
|
244
|
|
|
307
|
|
|
1,003
|
|
|
984
|
|
Actuarial (gain) loss
|
(441
|
)
|
|
506
|
|
|
(3,130
|
)
|
|
5,568
|
|
Benefits paid
|
(326
|
)
|
|
(370
|
)
|
|
(553
|
)
|
|
(430
|
)
|
Settlements
|
(366
|
)
|
|
(126
|
)
|
|
—
|
|
|
—
|
|
Projected benefit obligation, end of year
|
$
|
8,382
|
|
|
$
|
9,000
|
|
|
$
|
28,801
|
|
|
$
|
30,696
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
$
|
4,753
|
|
|
$
|
4,757
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
63
|
|
|
71
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
973
|
|
|
420
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
(326
|
)
|
|
(370
|
)
|
|
—
|
|
|
—
|
|
Settlements
|
(366
|
)
|
|
(125
|
)
|
|
—
|
|
|
—
|
|
Fair value of plan assets, end of year
|
$
|
5,097
|
|
|
$
|
4,753
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Funded status (net amount recognized):
|
$
|
(3,285
|
)
|
|
$
|
(4,247
|
)
|
|
$
|
(28,801
|
)
|
|
$
|
(30,696
|
)
|
As of
August 26, 2017
and
August 27, 2016
, the accumulated benefit obligations for the Company’s Pension Plans were
$8.3 million
and
$8.9 million
, respectively. As of
August 26, 2017
and
August 27, 2016
, the accumulated benefit obligations for the Company’s SERP were
$22.3 million
and
$30.7 million
, respectively.
The amounts recorded on the Consolidated Balance Sheet for the Company’s Pension Plans and SERP as of
August 26, 2017
and
August 27, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
SERP
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Deferred tax assets
|
$
|
860
|
|
|
$
|
1,119
|
|
|
$
|
2,568
|
|
|
$
|
4,046
|
|
Accrued liabilities
|
$
|
3,285
|
|
|
$
|
4,247
|
|
|
$
|
28,801
|
|
|
$
|
30,696
|
|
Accumulated other comprehensive loss
|
$
|
(1,374
|
)
|
|
$
|
(1,788
|
)
|
|
$
|
(4,102
|
)
|
|
$
|
(6,463
|
)
|
As of
August 26, 2017
and
August 27, 2016
, the amounts recognized in accumulated other comprehensive loss for the Company’s Pension Plans and SERP (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
SERP
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net actuarial loss
|
$
|
(1,134
|
)
|
|
$
|
(1,497
|
)
|
|
$
|
(4,102
|
)
|
|
$
|
(6,429
|
)
|
Unrecognized prior service cost
|
(240
|
)
|
|
(291
|
)
|
|
—
|
|
|
(34
|
)
|
Accumulated other comprehensive loss
|
$
|
(1,374
|
)
|
|
$
|
(1,788
|
)
|
|
$
|
(4,102
|
)
|
|
$
|
(6,463
|
)
|
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
The weighted average assumptions used in calculating the Company’s projected benefit obligation as of
August 26, 2017
and
August 27, 2016
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
SERP
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Discount rate
|
3.2
|
%
|
|
2.9
|
%
|
|
3.6
|
%
|
|
3.3
|
%
|
Rate of compensation increase
|
N/A
|
|
|
N/A
|
|
|
5.0
|
%
|
|
5.0
|
%
|
The weighted average assumptions used in calculating the Company’s net periodic service cost for the years ended
August 26, 2017
,
August 27, 2016
and
August 29, 2015
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
SERP
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
2.9
|
%
|
|
3.8
|
%
|
|
3.6
|
%
|
|
3.3
|
%
|
|
4.2
|
%
|
|
3.8
|
%
|
Expected return on plan assets
|
3.9
|
%
|
|
3.9
|
%
|
|
3.9
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Rate of compensation increase
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
5.0
|
%
|
|
5.0
|
%
|
|
5.0
|
%
|
The following benefit payments, which reflect expected future service, that are expected to be paid for the five fiscal years subsequent to
August 26, 2017
and thereafter are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
SERP
|
2018
|
$
|
896
|
|
|
$
|
1,049
|
|
2019
|
732
|
|
|
1,051
|
|
2020
|
566
|
|
|
1,113
|
|
2021
|
396
|
|
|
1,325
|
|
2022
|
572
|
|
|
1,326
|
|
Thereafter
|
5,220
|
|
|
22,937
|
|
Total benefit payments
|
$
|
8,382
|
|
|
$
|
28,801
|
|
8. Goodwill and Other Intangible Assets
As discussed in Note 2, “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 following details the changes in the Company’s intangible assets and goodwill related to the Company’s acquisitions for the years ended
August 26, 2017
and
August 27, 2016
as well as the respective periods over which the assets will be amortized (in thousands, except weighted average life in years). These amounts include additional payments associated with prior year acquisitions as well as changes to acquisition purchase allocations that had not been finalized as of the end of the prior fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
August 26,
2017
|
|
Weighted
Average Life in
Years
|
|
August 27,
2016
|
|
Weighted
Average Life in
Years
|
Goodwill
|
$
|
55,302
|
|
|
N/A
|
|
$
|
7,481
|
|
|
N/A
|
Customer contracts
|
43,369
|
|
|
14.5
|
|
6,088
|
|
|
14.8
|
Other intangible assets
|
2,779
|
|
|
4.7
|
|
670
|
|
|
5.3
|
|
|
|
|
|
|
|
|
Total intangible assets and goodwill acquired
|
$
|
101,450
|
|
|
|
|
$
|
14,239
|
|
|
|
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
The Company does not amortize goodwill, but it is reviewed annually or more frequently if certain indicators arise, for impairment. There were
no
impairment losses related to goodwill or intangible assets during the years ended
August 26, 2017
,
August 27, 2016
or
August 29, 2015
.
The changes in the carrying amount of goodwill are as follows (in thousands):
|
|
|
|
|
Balance as of August 29, 2015
|
$
|
313,133
|
|
Goodwill recorded during the period
|
7,481
|
|
Other
|
27
|
|
|
|
Balance as of August 27, 2016
|
$
|
320,641
|
|
Goodwill recorded during the period
|
55,302
|
|
Other
|
167
|
|
|
|
Balance as of August 26, 2017
|
$
|
376,110
|
|
As of
August 26, 2017
, the Company has allocated
$371.4 million
,
$4.1 million
and
$0.6 million
of goodwill to its US and Canadian Rental and Cleaning, Specialty Garments and First Aid segments, respectively.
Intangible assets, net in the Company’s accompanying Consolidated Balance Sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
August 26, 2017
|
|
|
|
|
|
Customer contracts
|
$
|
208,711
|
|
|
$
|
141,226
|
|
|
$
|
67,485
|
|
Other intangible assets
|
34,249
|
|
|
29,990
|
|
|
4,259
|
|
|
$
|
242,960
|
|
|
$
|
171,216
|
|
|
$
|
71,744
|
|
August 27, 2016
|
|
|
|
|
|
Customer contracts
|
$
|
165,405
|
|
|
$
|
129,551
|
|
|
$
|
35,854
|
|
Other intangible assets
|
31,382
|
|
|
28,572
|
|
|
2,810
|
|
|
$
|
196,787
|
|
|
$
|
158,123
|
|
|
$
|
38,664
|
|
Estimated amortization expense for the five fiscal years subsequent to
August 26, 2017
and thereafter, based on intangible assets, net as of
August 26, 2017
is as follows (in thousands):
|
|
|
|
|
2018
|
12,652
|
|
2019
|
9,701
|
|
2020
|
8,319
|
|
2021
|
6,873
|
|
2022
|
5,362
|
|
Thereafter
|
28,837
|
|
Total estimated amortization expense
|
$
|
71,744
|
|
9. Accrued Liabilities
Accrued liabilities in the accompanying Consolidated Balance Sheet consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
August 26,
2017
|
|
August 27,
2016
|
Current liabilities:
|
|
|
|
Payroll and benefit related
|
$
|
52,037
|
|
|
$
|
47,423
|
|
Insurance related
|
29,318
|
|
|
25,612
|
|
Environmental related
|
9,126
|
|
|
9,500
|
|
Asset retirement obligations
|
559
|
|
|
1,275
|
|
Other
|
21,196
|
|
|
16,972
|
|
Total current liabilities
|
$
|
112,236
|
|
|
$
|
100,782
|
|
Long-term liabilities:
|
|
|
|
Benefit related
|
$
|
31,037
|
|
|
$
|
33,966
|
|
Environmental related
|
16,293
|
|
|
17,247
|
|
Asset retirement obligations
|
12,841
|
|
|
11,757
|
|
Insurance related
|
46,565
|
|
|
41,951
|
|
Total long-term liabilities
|
$
|
106,736
|
|
|
$
|
104,921
|
|
|
|
|
|
Total accrued liabilities
|
$
|
218,972
|
|
|
$
|
205,703
|
|
10. Asset Retirement Obligations
Asset retirement obligations generally applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. Accordingly, 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-seven years
.
The Company recognized as a liability the present value of the estimated future costs to decommission its nuclear laundry facilities. The estimated liability is based on historical experience in decommissioning nuclear laundry facilities, estimated useful lives of the underlying assets, external vendor estimates as to the cost to decommission these assets in the future, and federal and state regulatory requirements. The estimated current costs have been adjusted for the estimated impact of inflation at
3%
per year. The liability has been discounted using credit-adjusted risk-free rates that range from approximately
7.0%
to
7.5%
over
one
to
twenty-seven years
. Revisions to the liability could occur due to changes in the Company’s estimated useful lives of the underlying assets, estimated dates of decommissioning, changes in decommissioning costs, changes in federal or state regulatory guidance on the decommissioning of such facilities, or other changes in estimates. Changes due to revised estimates will be recognized by adjusting the carrying amount of the liability and the related long-lived asset if the assets are still in service, or charged to expense in the period if the assets are no longer in service.
A rollforward of the Company’s asset retirement liability is as follows for fiscal 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
August 26,
2017
|
|
August 27,
2016
|
Beginning balance
|
$
|
13,032
|
|
|
$
|
12,381
|
|
Accretion expense
|
853
|
|
|
826
|
|
Effect of exchange rate changes
|
230
|
|
|
(69
|
)
|
Asset retirement liabilities settled
|
—
|
|
|
(500
|
)
|
Change in estimate
|
(715
|
)
|
|
394
|
|
Ending balance
|
$
|
13,400
|
|
|
$
|
13,032
|
|
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
The Company’s asset retirement obligations are included in current and long-term accrued liabilities in the accompanying Consolidated Balance Sheet.
11. Commitments and Contingencies
Lease Commitments
The Company leases certain buildings and equipment from independent parties. Total rent expense on all leases was
$13.6 million
,
$10.1 million
and
$9.8 million
for the fiscal
2017
,
2016
and
2015
, respectively. Annual minimum lease commitments for the five fiscal years subsequent to
August 26, 2017
and thereafter are as follows (in thousands):
|
|
|
|
|
2018
|
11,153
|
|
2019
|
9,500
|
|
2020
|
8,344
|
|
2021
|
7,191
|
|
2022
|
3,882
|
|
Thereafter
|
4,434
|
|
Total lease commitments
|
$
|
44,504
|
|
Environmental and Legal Contingencies
The Company and its operations are subject to various federal, state and local laws and regulations governing, among other things, air emissions, wastewater discharges, and the generation, handling, storage, transportation, treatment and disposal of hazardous waste and other substances. In particular, industrial laundries use and must dispose of detergent waste water and other residues, and, in the past used perchloroethylene and other dry cleaning solvents. The Company is attentive to the environmental concerns surrounding the disposal of these materials and has, through the years, taken measures to avoid their improper disposal. In the past, the Company has settled, or contributed to the settlement of, actions or claims brought against the Company relating to the disposal of hazardous materials and there can be no assurance that the Company will not have to expend material amounts to remediate the consequences of any such disposal in the future.
US GAAP requires that a liability for contingencies be recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded. The Company regularly consults with attorneys and outside consultants in its consideration of the relevant facts and circumstances before recording a contingent liability. Changes in enacted laws, regulatory orders or decrees, management’s estimates of costs, risk-free interest rates, insurance proceeds, participation by other parties, the timing of payments, the input of the Company’s attorneys and outside consultants or other factual circumstances could have a material impact on the amounts recorded for environmental and other contingent liabilities.
Under environmental laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on, or in, or emanating from, such property, as well as related costs of investigation and property damage. Such laws often impose liability without regard to whether the owner or lessee knew of, or was responsible for the presence of such hazardous or toxic substances. There can be no assurances that acquired or leased locations have been operated in compliance with environmental laws and regulations or that future uses or conditions will not result in the imposition of liability upon the Company under such laws or expose the Company to third-party actions such as tort suits. The Company continues to address environmental conditions under terms of consent orders negotiated with the applicable environmental authorities or otherwise with respect to sites located in or related to Woburn, Massachusetts, Somerville, Massachusetts, Springfield, Massachusetts, Uvalde, Texas, Stockton, California,
three
sites related to former operations in Williamstown, Vermont, as well as sites located in Goldsboro, North Carolina, Wilmington, North Carolina, Landover, Maryland and Syracuse, New York.
The Company has accrued certain costs related to the sites described above as it has been determined that the costs are probable and can be reasonably estimated. The Company has potential exposure related to a parcel of land (the "Central Area") related to the Woburn, Massachusetts site mentioned above. Currently, the consent decree for the Woburn site does not define or require any remediation work in the Central Area. The United States Environmental Protection Agency (the "EPA") has provided the
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
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 extension of the transit system. Due to cost projections of the extension which substantially exceeded original estimates, the local transit authority had placed the extension on hold pending its redesign and receipt of related state and federal approvals and funding increases. It is now proceeding with the bidding process. 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.
During the fourth quarter of fiscal 2016, the Company entered into a settlement related to environmental litigation which resulted in a
$15.9 million
gain that was recorded as a reduction of selling and administrative expenses. This gain consisted of amounts previously received but not recognized into income as well as amounts that the Company received in September 2016.
The Company routinely reviews and evaluates sites that may require remediation and monitoring and determines its estimated costs based on various estimates and assumptions. These estimates are developed using its internal sources or by third party environmental engineers or other service providers. Internally developed estimates are based on:
|
|
•
|
Management’s judgment and experience in remediating and monitoring the Company’s sites;
|
|
|
•
|
Information available from regulatory agencies as to costs of remediation and monitoring;
|
|
|
•
|
The number, financial resources and relative degree of responsibility of other potentially responsible parties (“PRPs”) who may be liable for remediation and monitoring of a specific site; and
|
|
|
•
|
The typical allocation of costs among PRPs.
|
There is usually a range of reasonable estimates of the costs associated with each site. In accordance with US GAAP, the Company’s accruals reflect the amount within the range that it believes is the best estimate or the low end of a range of estimates if no point within the range is a better estimate. Where it believes that both the amount of a particular liability and the timing of the payments are reliably determinable, the Company adjusts the cost in current dollars using a rate of
3%
for inflation until the time of expected payment and discounts the cost to present value using current risk-free interest rates. As of
August 26, 2017
, the risk-free interest rates utilized by the Company ranged from
2.2%
to
2.8%
.
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 accompanying Consolidated Statements of Income. The changes to the Company’s environmental liabilities for fiscal 2017 and 2016 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Year ended
|
August 26,
2017
|
|
August 27,
2016
|
Beginning balance
|
$
|
26,748
|
|
|
$
|
23,307
|
|
Costs incurred for which reserves have been provided
|
(1,559
|
)
|
|
(1,417
|
)
|
Insurance proceeds
|
116
|
|
|
101
|
|
Interest accretion
|
600
|
|
|
669
|
|
Changes in discount rates
|
(1,027
|
)
|
|
1,348
|
|
Revisions in estimates
|
541
|
|
|
2,740
|
|
|
|
|
|
Ending balance
|
$
|
25,419
|
|
|
$
|
26,748
|
|
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
Anticipated payments and insurance proceeds of currently identified environmental remediation liabilities as of
August 26, 2017
, 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
|
Estimated costs – current dollars
|
$
|
9,285
|
|
|
$
|
1,880
|
|
|
$
|
1,477
|
|
|
$
|
1,305
|
|
|
$
|
1,157
|
|
|
$
|
12,305
|
|
|
$
|
27,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated insurance proceeds
|
(159
|
)
|
|
(173
|
)
|
|
(159
|
)
|
|
(173
|
)
|
|
(159
|
)
|
|
(993
|
)
|
|
(1,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net anticipated costs
|
$
|
9,126
|
|
|
$
|
1,707
|
|
|
$
|
1,318
|
|
|
$
|
1,132
|
|
|
$
|
998
|
|
|
$
|
11,312
|
|
|
$
|
25,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of inflation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,277
|
|
Effect of discounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of August 26, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,419
|
|
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
sites related to former operations in Williamstown, Vermont. Annual proceeds received but not expended in the current year accumulate in this account and may be used in future years for costs related to this site through the year 2027. As of
August 26, 2017
, 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
$3.7 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. 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 US GAAP. It is possible, however, that the future financial position and/or results of operations for any particular future period could be materially affected by changes in the Company’s assumptions or strategies related to these contingencies or changes out of the Company’s control.
Other Contingent Liabilities
As security for certain agreements with the NRC and various state agencies related to the nuclear operations (see above) and certain insurance programs, the Company had standby irrevocable bank commercial letters of credit of
$66.2 million
and
$53.0 million
outstanding as of
August 26, 2017
and
August 27, 2016
, respectively.
12. Share-based Compensation
The Company adopted a stock incentive plan (the “1996 Plan”) in November 1996 and reserved
1,500,000
shares of Common Stock for issuance under the 1996 Plan. The 1996 Plan provided for the issuance of stock options and stock appreciation rights (collectively referred to as “Share-Based Awards”). The Company ceased granting new awards under the 1996 Plan as of
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
January 21, 2011, and the 1996 Plan expired in accordance with its terms on January 8, 2012. The Company adopted a stock incentive plan (the “2010 Plan”) in October 2010 and reserved
600,000
shares of Common Stock for issuance under the 2010 Plan. The 2010 Plan replaced the Company’s 1996 Plan. The 2010 Plan permits the award of incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance shares, dividend equivalent rights and cash-based awards. No awards may be made under the 2010 Plan after January 11, 2021. On October 27, 2014, the Board of Directors, subject to the approval of the Company’s shareholders, which was received at the 2015 annual meeting of shareholders, adopted an amendment to the 2010 Plan to, among other matters, reserve for issuance an additional
750,000
shares and extend to 2025 the time period awards may be granted under the 2010 Plan. As of
August 26, 2017
, the number of remaining shares available for future grants under the 2010 Plan was
694,870
. Share-based compensation, which includes expense related to Share-Based Awards and unrestricted and restricted stock grants, has been recorded in the accompanying Consolidated Statements of Income in selling and administrative expenses.
All Share-Based Awards issued to management were recommended to the Board of Directors by the Compensation Committee and approved by the Board of Directors. All Share-Based Awards and shares of unrestricted stock issued to the Company’s non-employee members of the Board of Directors (the “Directors”) under the 2010 Plan were recommended to the Board of Directors by the Compensation Committee and approved by the Board of Directors. Share-Based Awards and shares of unrestricted stock granted to non-employee Directors are granted on the third business day following the annual shareholders’ meeting.
In fiscal
2017
,
2016
and
2015
, a total of
735
,
885
and
1,096
shares of fully vested unrestricted stock, respectively, were granted to certain non-employee Directors of the Company. Accordingly, compensation expense related to the
2017
,
2016
and
2015
unrestricted stock was recognized on the date of grant.
In fiscal
2017
,
2016
and
2015
, the Company granted a total of
4,940
,
6,675
and
4,875
stock appreciation rights, respectively, under the 2010 Plan to the Company’s non-employee Directors. Such stock appreciation rights were fully vested upon grant, expire on the earlier of the eighth anniversary of the grant date or the second anniversary of the date that the Director ceases to be a member of the Board of Directors and must be settled in stock at the time of exercise. Accordingly, compensation expense related to the stock appreciation rights was recognized on the date of grant.
All Share-Based Awards issued to employees were granted with an exercise price equal to the fair market value of the Company’s Common Stock on the date of grant and are subject to a
five
-year cliff-vesting schedule under which the awards become fully vested or exercisable after
five
years from the date of grant and expire
ten
years after the grant date. Share-Based Awards and shares of unrestricted stock granted to the Company’s non-employee Directors were fully vested as of the date of grant. Prior to fiscal 2009, non-employee Director Share-Based Award grants expired
ten
years from the grant date. Beginning in fiscal 2009, non-employee Director Share-Based Award grants expire on the earlier of the eighth anniversary of the grant date or the second anniversary of the date that the Director ceases to be a member of the Board of Directors.
On April 21, 2016, the Company entered into a Restricted Stock Award Agreement (the “Award Agreement”) with Mr. Croatti pursuant to which the Company granted
140,000
shares (the “Performance Restricted Shares”) of restricted Common Stock to Mr. Croatti. The number of Performance Restricted Shares earned under the Award Agreement depends on whether and the extent to which the Company achieves certain consolidated revenues and adjusted operating margins as set forth in the Award Agreement during certain performance periods set forth in such agreement, including performance periods relating to the second half of fiscal year 2016 and fiscal years 2017 and 2018 (collectively, the “Performance Criteria”). The threshold, target and maximum numbers of Performance Restricted Shares eligible to be earned under the Award Agreement were
100,000
,
120,000
and
140,000
, respectively. The Performance Restricted Shares earned upon achievement of the Performance Criteria vested in
two
equal amounts on the third and fourth anniversaries of the grant date provided that Mr. Croatti continued to be employed by the Company on each such date. Upon Mr. Croatti’s death, all of the Performance Restricted Shares that had been or will be earned upon achievement of the Performance Criteria through the end of fiscal 2017 became fully vested.
Upon the death of Mr. Croatti in the third quarter of fiscal 2017,
46,666
Performance Restricted Shares of Common Stock were forfeited and
46,667
Restricted Shares of Class B Common Stock earned in the performance period for the second half of fiscal 2016 became immediately vested. Additionally, the remaining
24,334
and
22,333
Restricted Shares of Class B Common Stock and Common Stock, respectively, were earned in the performance period for fiscal 2017. During fiscal 2017, the Company recognized expense on the Award Agreement of
$8.8 million
, of which
$5.4 million
was due to the accelerated vesting upon Mr. Croatti's death.
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
The fair value of the Performance Restricted Shares was the closing price on April 21, 2016, which was
$111.13
.
As of
August 26, 2017
, the total compensation cost not yet recognized related to non-vested Share-Based Awards was approximately $
6.7 million
. The weighted average period over which compensation cost for Share-Based Awards will be recognized is
2.1
years.
The fair value of each Share-Based Award is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used:
|
|
|
|
|
|
|
|
|
|
Fiscal year ended August
|
2017
|
|
2016
|
|
2015
|
Risk-free interest rate
|
1.58
|
%
|
|
1.76
|
%
|
|
1.92
|
%
|
Expected dividend yield
|
0.21
|
%
|
|
0.25
|
%
|
|
0.27
|
%
|
Expected life in years
|
7.43
|
|
|
7.40
|
|
|
7.44
|
|
Expected volatility
|
24.0
|
%
|
|
29.3
|
%
|
|
32.2
|
%
|
The weighted average fair values of Share-Based Awards granted during fiscal years
2017
,
2016
and
2015
were
$34.74
,
$35.81
and
$40.06
, respectively.
The following table summarizes the Share-Based Award activity for fiscal 2017:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
Outstanding, August 27, 2016
|
610,691
|
|
|
$
|
83.17
|
|
|
|
|
|
Granted
|
100,340
|
|
|
119.83
|
|
Exercised
|
(102,225
|
)
|
|
50.33
|
|
Forfeited
|
(8,200
|
)
|
|
76.14
|
|
|
|
|
|
Outstanding, August 26, 2017
|
600,606
|
|
|
$
|
94.98
|
|
|
|
|
|
Exercisable, August 26, 2017
|
116,456
|
|
|
$
|
72.13
|
|
13. Shareholders’ Equity
The Company has two classes of common stock: Common Stock and Class B Common Stock. Each share of Common Stock is entitled to
one
vote, is freely transferable, and is entitled to a cash dividend equal to
125%
of any cash dividend paid on each share of Class B Common Stock. Each share of Class B Common Stock is entitled to
ten
votes and can be converted to Common Stock on a share-for-share basis. However, until converted to Common Stock, shares of Class B Common Stock are not freely transferable. For the year ended
August 26, 2017
,
34,000
shares of Class B Common Stock were converted to Common Stock.
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
14. Accumulated Other Comprehensive Loss
The changes in each component of accumulated other comprehensive loss for fiscal
2017
and
2016
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
|
|
Pension-
related (1)
|
|
Derivative
Financial
Instruments (1)
|
|
Total
Accumulated
Other
Comprehensive
Loss
|
Balance as of August 29, 2015
|
$
|
(20,423
|
)
|
|
$
|
(4,719
|
)
|
|
$
|
729
|
|
|
$
|
(24,413
|
)
|
Change during the year
|
(391
|
)
|
|
(3,532
|
)
|
|
(613
|
)
|
|
(4,536
|
)
|
|
|
|
|
|
|
|
|
Balance as of August 27, 2016
|
(20,814
|
)
|
|
(8,251
|
)
|
|
116
|
|
|
(28,949
|
)
|
Change during the year
|
4,882
|
|
|
2,774
|
|
|
(225
|
)
|
|
7,431
|
|
|
|
|
|
|
|
|
|
Balance as of August 26, 2017
|
$
|
(15,932
|
)
|
|
$
|
(5,477
|
)
|
|
$
|
(109
|
)
|
|
$
|
(21,518
|
)
|
|
|
(1)
|
Amounts are shown net of tax
|
Amounts reclassified from accumulated other comprehensive loss, net of tax, for fiscal 2017 and 2016 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended
August 26,
2017
|
|
Year Ended
August 27,
2016
|
|
Pension benefit liabilities, net:
|
|
|
|
|
Actuarial (gain) losses (a)
|
$
|
(82
|
)
|
|
43
|
|
|
Total, net of tax
|
(82
|
)
|
|
43
|
|
|
Derivative financial instruments, net:
|
|
|
|
|
Forward contracts (b)
|
(180
|
)
|
|
(215
|
)
|
|
Total, net of tax
|
(180
|
)
|
|
(215
|
)
|
|
Total amounts reclassified, net of tax
|
(262
|
)
|
|
(172
|
)
|
|
(a)
Amounts included in selling and administrative expenses in the accompanying Consolidated Statements of Income.
(b)
Amounts included in revenues in the accompanying Consolidated Statements of Income.
15. Segment Reporting
Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the Company’s chief executive officer. The Company has
six
operating segments based on the information reviewed by its chief executive officer: US Rental and Cleaning, Canadian Rental and Cleaning, MFG, Specialty Garments, First Aid and Corporate. The US Rental and Cleaning and Canadian Rental and Cleaning operating segments have been combined to form the US and Canadian Rental and Cleaning reporting segment, and as a result, the Company has
five
reporting segments.
The US and Canadian Rental and Cleaning reporting segment purchases, rents, cleans, delivers and sells, uniforms and protective clothing and non-garment items in the United States and Canada. The laundry locations of the US and Canadian Rental and Cleaning reporting segment are referred to by the Company as “industrial laundries” or “industrial laundry locations.”
The MFG operating segment designs and manufactures uniforms and non-garment items primarily for the purpose of providing these goods to the US and Canadian Rental and Cleaning reporting segment. MFG revenues are primarily generated when
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
goods are shipped from the Company’s manufacturing facilities, or its subcontract manufacturers, to other Company locations. These intercompany revenues are recorded at a transfer price which is typically in excess of the actual manufacturing cost. Manufactured products are carried in inventory until placed in service at which time they are amortized at this transfer price. On a consolidated basis, intercompany revenues and income are eliminated and the carrying value of inventories and rental merchandise in service is reduced to the manufacturing cost. Income before income taxes from MFG net of the intercompany MFG elimination offsets the merchandise amortization costs incurred by the US and Canadian Rental and Cleaning reporting segment as the merchandise costs of this reporting segment are amortized and recognized based on inventories purchased from MFG at the transfer price which is above the Company’s manufacturing cost.
The Corporate operating segment consists of costs associated with the Company’s distribution center, sales and marketing, information systems, engineering, materials management, manufacturing planning, finance, budgeting, human resources, other general and administrative costs and interest expense. The revenues generated from the Corporate operating segment represent certain direct sales made by the Company directly from its distribution center. The products sold by this operating segment are the same products rented and sold by the US and Canadian Rental and Cleaning reporting segment. In the table below, no assets or capital expenditures are presented for the Corporate operating segment because no assets are allocated to this operating segment in the information reviewed by the chief executive officer. However, depreciation and amortization expense related to certain assets are reflected in income from operations and income before income taxes for the Corporate operating segment. The assets that give rise to this depreciation and amortization are included in the total assets of the US and Canadian Rental and Cleaning reporting segment as this is how they are tracked and reviewed by the Company. The majority of expenses accounted for within the Corporate segment relate to costs of the US and Canadian Rental and Cleaning segment, with the remainder of the costs relating to the Specialty Garment and First Aid segments.
The Specialty Garments operating segment purchases, rents, cleans, delivers and sells, specialty garments and non-garment items primarily for nuclear and cleanroom applications and provides cleanroom cleaning services at limited customer locations. The First Aid operating segment sells first aid cabinet services and other safety supplies as well as maintains wholesale distribution and pill packaging operations.
The Company refers to the US and Canadian Rental and Cleaning, MFG, and Corporate reporting segments combined as its “Core Laundry Operations,” which is included as a subtotal in the following tables (in thousands):
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended August 26, 2017
|
US and
Canadian
Rental and
Cleaning
|
|
MFG
|
|
Net Interco
MFG Elim
|
|
Corporate
|
|
Subtotal
Core Laundry
Operations
|
|
Specialty
Garments
|
|
First Aid
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,415,423
|
|
|
$
|
206,572
|
|
|
$
|
(206,316
|
)
|
|
$
|
26,470
|
|
|
$
|
1,442,149
|
|
|
$
|
98,024
|
|
|
$
|
50,785
|
|
|
$
|
1,590,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
$
|
200,585
|
|
|
$
|
76,115
|
|
|
$
|
(3,415
|
)
|
|
$
|
(176,978
|
)
|
|
$
|
96,307
|
|
|
$
|
9,018
|
|
|
$
|
4,958
|
|
|
$
|
110,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
$
|
(3,371
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(898
|
)
|
|
$
|
(4,269
|
)
|
|
|
|
|
$
|
—
|
|
|
$
|
(4,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
$
|
204,108
|
|
|
$
|
75,738
|
|
|
$
|
(3,415
|
)
|
|
$
|
(175,595
|
)
|
|
$
|
100,836
|
|
|
$
|
9,329
|
|
|
$
|
4,958
|
|
|
$
|
115,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
59,899
|
|
|
$
|
2,185
|
|
|
$
|
—
|
|
|
$
|
20,866
|
|
|
$
|
82,950
|
|
|
$
|
4,429
|
|
|
$
|
1,500
|
|
|
$
|
88,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
$
|
104,984
|
|
|
$
|
1,079
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
106,063
|
|
|
$
|
1,737
|
|
|
$
|
754
|
|
|
$
|
108,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,667,540
|
|
|
$
|
34,045
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,701,585
|
|
|
$
|
87,767
|
|
|
$
|
29,776
|
|
|
$
|
1,819,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended August 27, 2016
|
US and
Canadian
Rental and
Cleaning
|
|
MFG
|
|
Net Interco
MFG Elim
|
|
Corporate
|
|
Subtotal
Core Laundry
Operations
|
|
Specialty
Garments
|
|
First Aid
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,308,152
|
|
|
$
|
189,154
|
|
|
$
|
(188,904
|
)
|
|
$
|
20,973
|
|
|
$
|
1,329,375
|
|
|
$
|
91,257
|
|
|
$
|
47,414
|
|
|
$
|
1,468,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
$
|
201,148
|
|
|
$
|
67,385
|
|
|
$
|
(711
|
)
|
|
$
|
(81,748
|
)
|
|
$
|
186,074
|
|
|
$
|
10,204
|
|
|
$
|
4,882
|
|
|
$
|
201,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income) expense, net
|
$
|
(3,252
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
709
|
|
|
$
|
(2,543
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
$
|
204,433
|
|
|
$
|
67,407
|
|
|
$
|
(711
|
)
|
|
$
|
(82,714
|
)
|
|
$
|
188,415
|
|
|
$
|
10,074
|
|
|
$
|
4,882
|
|
|
$
|
203,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
57,062
|
|
|
$
|
2,073
|
|
|
$
|
—
|
|
|
$
|
16,918
|
|
|
$
|
76,053
|
|
|
$
|
4,332
|
|
|
$
|
1,227
|
|
|
$
|
81,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
$
|
91,384
|
|
|
$
|
1,598
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
92,982
|
|
|
$
|
4,682
|
|
|
$
|
571
|
|
|
$
|
98,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,567,943
|
|
|
$
|
32,556
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,600,499
|
|
|
$
|
77,728
|
|
|
$
|
23,780
|
|
|
$
|
1,702,007
|
|
Notes
to Consolidated Financial Statements (Continued)
UniFirst Corporation and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended August 29, 2015
|
US and
Canadian
Rental and
Cleaning
|
|
MFG
|
|
Net Interco
MFG Elim
|
|
Corporate
|
|
Subtotal
Core Laundry
Operations
|
|
Specialty
Garments
|
|
First Aid
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,305,240
|
|
|
$
|
192,188
|
|
|
$
|
(192,188
|
)
|
|
$
|
17,088
|
|
|
$
|
1,322,328
|
|
|
$
|
87,513
|
|
|
$
|
46,764
|
|
|
$
|
1,456,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
$
|
219,430
|
|
|
$
|
66,190
|
|
|
$
|
(733
|
)
|
|
$
|
(97,301
|
)
|
|
$
|
187,586
|
|
|
$
|
7,355
|
|
|
$
|
5,443
|
|
|
$
|
200,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income) expense, net
|
$
|
(3,189
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
752
|
|
|
$
|
(2,437
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2,437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
$
|
222,657
|
|
|
$
|
66,355
|
|
|
$
|
(733
|
)
|
|
$
|
(98,418
|
)
|
|
$
|
189,861
|
|
|
$
|
5,964
|
|
|
$
|
5,443
|
|
|
$
|
201,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
53,811
|
|
|
$
|
1,536
|
|
|
$
|
—
|
|
|
$
|
16,393
|
|
|
$
|
71,740
|
|
|
$
|
4,331
|
|
|
$
|
1,042
|
|
|
$
|
77,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
$
|
93,842
|
|
|
$
|
2,618
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96,460
|
|
|
$
|
3,820
|
|
|
$
|
883
|
|
|
$
|
101,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,401,346
|
|
|
$
|
34,075
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,435,421
|
|
|
$
|
74,449
|
|
|
$
|
23,367
|
|
|
$
|
1,533,237
|
|
The Company’s long-lived assets as of
August 26, 2017
and
August 27, 2016
and revenues and income before income taxes for the years ended
August 26, 2017
,
August 27, 2016
and
August 29, 2015
were attributed to the following countries (in thousands):
|
|
|
|
|
|
|
|
|
Long-lived assets as of:
|
August 26, 2017
|
|
August 27, 2016
|
United States
|
$
|
959,647
|
|
|
$
|
880,666
|
|
Europe, Canada, Mexico and Nicaragua (1)
|
45,255
|
|
|
43,727
|
|
Total
|
$
|
1,004,902
|
|
|
$
|
924,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues for the year ended:
|
August 26, 2017
|
|
August 27, 2016
|
|
August 29, 2015
|
United States
|
$
|
1,472,432
|
|
|
$
|
1,352,101
|
|
|
$
|
1,333,864
|
|
Europe and Canada (1)
|
118,526
|
|
|
115,945
|
|
|
122,741
|
|
Total
|
$
|
1,590,958
|
|
|
$
|
1,468,046
|
|
|
$
|
1,456,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes for the year ended:
|
August 26, 2017
|
|
August 27, 2016
|
|
August 29, 2015
|
United States
|
$
|
109,741
|
|
|
$
|
197,441
|
|
|
$
|
188,704
|
|
Europe, Canada, Mexico and Nicaragua (1)
|
5,382
|
|
|
5,930
|
|
|
12,564
|
|
Total
|
$
|
115,123
|
|
|
$
|
203,371
|
|
|
$
|
201,268
|
|
(1)
No country accounts for greater than 10% of total long-lived assets, revenues or income before income taxes