SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

UNIFIRST CORPORATION

(Exact name of registrant as specified in its charter)

Massachusetts		04-2103460
(State of Incorporation)		(IRS Employer Identification Number)

68 Jonspin Road
Wilmington, Massachusetts 01887
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number: (978) 658-8888

Securities registered pursuant to Section 12(b) of the Act:

		Title of Class		Name of each exchange on which shares are traded
		Common Stock, $.10 par value per share		New York Stock Exchange

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

Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes þ No o

The number of outstanding shares of UniFirst Corporation Common Stock and Class B Common Stock at November 5, 2004 were 9,279,879 and 9,928,144, respectively. The aggregate market value of shares held by non-affiliates of the Company as of the end of the last business day of UniFirst’s most recently completed second fiscal quarter was $238,151,988 (based upon the closing price of the Company’s Common Stock on the New York Stock Exchange on said date and assuming the market value of a share of Class B Common Stock (which is generally non-transferable, but is convertible at any time into one share of Common Stock) is identical to the market value of the Common Stock).

 

 

UniFirst Corporation

Table of Contents

Explanatory Note

PART I

Documents Incorporated by Reference

Item 1. Business

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 6. Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Consolidated statements of income for each of the three years in the period ended August 28, 2004

Consolidated balance sheets as of August 28, 2004 and August 30, 2003

Consolidated statements of shareholders’ equity for each of the three years in the period ended August 28, 2004

Consolidated statements of cash flows for each of the three years in the period ended August 28, 2004

Notes to consolidated financial statements

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III

Item 10. Directors and Executive Officers of the Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

Ex-23.1 Consent of Ernst & Young LLP

Ex-31.1 Section 302 Certification of CEO

Ex-31.2 Section 302 Certification of CFO

Ex-32.1 Section 906 Certification of CEO

Ex-32.2 Section 906 Certification of CFO

EXPLANATORY NOTE

     On July 7, 2005, we announced that based on a periodic review of our quarterly and annual reports by the Securities and Exchange Commission (SEC), including the most recent correspondence received from the SEC dated June 30, 2005, UniFirst Corporation has determined that it will include additional segment disclosure information in its quarterly and annual filings. In addition, we agreed to subsequently amend this Annual Report on Form 10-K for the fiscal year ended August 28, 2004 (the “Original Report”) to include segment reporting and to revise certain other disclosures for the periods covered thereby. This Amendment No. 1 (the “Amended Report”) to the Original Report has been filed to address these issues in the Original Report and in the consolidated financial statements as of August 28, 2004 and August 30, 2003 and for each of the three years ended August 28, 2004 contained therein.

     The segment reporting and other revised disclosures are additional disclosure to the Original Report, and do not in any way affect or change UniFirst’s previously reported consolidated revenues, net income, income per share or other results of operations.

     For the reasons discussed above, we are filing this Amended Report to amend Item 1, “Business”, Item 6, “Selected Financial Data”, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, Item 7a, “Quantitative and Qualitative Disclosures about Market Risk”, Item 8, “Financial Statements and Supplementary Data” and Item 15 “Exhibits, Financial Statement Schedules and Reports on Form 8-K” to the extent necessary to reflect the additional disclosure discussed above. The remaining Items of our Original Report are not amended hereby and are repeated herein only for the reader’s convenience.

     In order to preserve the nature and character of the disclosures set forth in the Original Report, except as expressly noted above, this report speaks as of the date of the filing of the Original Report, November 12, 2004, and we have not updated the disclosures in this report to speak as of a later date. All information contained in this Amended Report is subject to updating and supplementing as provided in our reports filed with the SEC subsequent to the date of the Original Report.

PART I

Portions of the Company’s Proxy Statement for its 2005 Annual Meeting of Shareholders (which will be filed with the Securities and Exchange Commission within 120 days after the close of the 2004 fiscal year) are incorporated by reference into Part III hereof.

This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company’s actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference are discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

UniFirst Corporation (the “Company” or “UniFirst”) is one of the largest providers of workplace uniforms and protective clothing in the United States. The Company designs, manufactures, rents, cleans, delivers, and sells a wide range of uniforms and protective clothing, including shirts, pants, jackets, coveralls, jumpsuits, lab coats, smocks and aprons, and also rents industrial wiping products, floor mats, facility service products, other non-garment items, and provides 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. At certain specialized facilities, the Company also decontaminates and cleans work clothes 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 utilities operating nuclear reactors. In fiscal 2004, the Company generated $719.4 million in revenue, of which approximately 85% was from the rental and cleaning of uniforms and protective clothing and non-garment items and 8% was from the rental and cleaning of specialty garments such as nuclear contaminated and cleanroom garments. The direct sale of first aid cabinet services and other safety supplies represented 4% of total revenue and the direct sale of garments and other non-garment items represented 3% of total revenue.

We maintain our website at www.unifirst.com, and make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, including exhibits, and amendments to those reports filed or furnished to the Securities Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act, as amended, as soon as reasonably practicable after such documents are electronically filed, or furnished, to the SEC.

The Company provides its customers with personalized workplace uniforms and protective work clothing in a broad range of styles, colors, sizes and fabrics. The Company’s uniform products include shirts, pants, jackets, coveralls, jumpsuits, smocks, aprons and specialized protective wear, such as flame resistant and high visibility garments. At certain specialized facilities, the Company also decontaminates and cleans clothes which may have been exposed to radioactive materials and services special cleanroom protective wear. The Company also offers non-garment items and services, such as industrial wiping products, floor mats, dry and wet mops, and other textile products.

The Company offers its customers a range of garment service options, including full-service rental programs in which garments are cleaned and serviced by the Company, lease programs in which garments are cleaned and maintained by individual employees, and purchase programs to buy garments and related items directly. As part of its rental business, the Company picks up a customer’s soiled uniforms and/or other items on a periodic basis (usually weekly) and delivers back cleaned and processed replacement items. The Company’s centralized services, specialized equipment, and economies of scale generally allow it to be more cost effective in providing garment and related services than customers would be by themselves, particularly those customers with high employee turnover rates. The Company’s uniform program is intended not only to help its customers foster greater company identity, but to enhance their corporate image and improve employee safety, productivity and morale. The Company typically serves its customers pursuant to written service contracts that range in duration from three to five years.

The Company manufactured approximately 63% of all garments which it placed in service during fiscal 2004. These were primarily work pants manufactured at its plant in Ebano, San Luis Potosi, Mexico and shirts manufactured at its plant in Valles, San Luis Potosi, Mexico. The balance of the garments used in its programs are purchased from a variety of industry suppliers. While the Company currently acquires the raw materials with which it produces its garments from a limited number of suppliers, the Company believes that such materials are readily available from other sources. To date, the Company has experienced no significant difficulty in obtaining any of its raw materials or supplies.

At August 28, 2004, the Company employed approximately 9,000 persons. Approximately 2% of United States employees are represented by unions pursuant to two separate collective bargaining agreements. The Company considers its employee relations to be good.

The executive officers of the Company are as follows:

NAME		AGE				POSITION
Ronald D. Croatti			61			Chairman of the Board, President, and Chief Executive Officer
Cynthia Croatti			49			Executive Vice President and Treasurer
John B. Bartlett			63			Senior Vice President and Chief Financial Officer
Dennis G. Assad			59			Senior Vice President, Sales and Marketing
Bruce P. Boynton			56			Senior Vice President, Operations
David A. DiFillippo			47			Senior Vice President, Operations

The principal occupation and positions for the past five years of the executive officers named above are as follows:

Ronald D. Croatti joined the Company in 1965. Mr. Croatti became Chairman of the Board in fiscal 2002. He has served as Chief Executive Officer since 1991. Mr. Croatti has overall responsibility for the management of the Company.

Cynthia Croatti joined the Company in 1980. Ms. Croatti has served as Executive Vice President since January 2001, and as Treasurer since 1982 and has primary responsibility for overseeing the human resources and purchasing functions of the Company.

John B. Bartlett joined the Company in 1977. Mr. Bartlett has served as Senior Vice President and Chief Financial Officer since 1986 and has primary responsibility for overseeing the financial functions of the Company, as well as its information systems department.

Dennis G. Assad joined the Company in 1975. Mr. Assad has served as Senior Vice President, Sales and Marketing since 1995 and has primary responsibility for overseeing the sales and marketing functions of the Company.

Bruce P. Boynton joined the Company in 1976. Mr. Boynton has served as Senior Vice President, Operations since January 2001, is the chief operating officer for the Company’s Canadian operations and has primary responsibility for overseeing the operations of certain regions in the United States. Prior to January 2001, Mr. Boynton had served as Vice President, Operations since 1986.

David A. DiFillippo joined the Company in 1979. Mr. DiFillippo has served as Senior Vice President, Operations since January 2002, and has primary responsibility for overseeing the operations of certain regions in the United States. Prior to January 2002, Mr. DiFillippo had served as Vice President, Central Rental Group since January 2000. Prior to January 2000, Mr. DiFillippo had served as a Regional General Manager.

Ronald D. Croatti and Cynthia Croatti are siblings.

The Company and its operations are subject to various federal, state and local laws and regulations governing, among other things, the generation, handling, storage, transportation, treatment and disposal of hazardous wastes and other substances. In particular, industrial laundries use and must dispose of detergent waste water and other residues. 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 of money to remediate the consequences of any such disposal in the future. Further, 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, Uvalde, Texas, Williamstown, Vermont, and Springfield, Massachusetts. In addition, the Company is assessing the extent of environmental contamination and potential exposure at sites it recently acquired in connection with its acquisition of Textilease Corporation in September 2003, and it is defending against claims concerning alleged environmental conditions with respect to a site once owned by a former subsidiary in Somerville, Massachusetts.

Five Year Financial Summary
UniFirst Corporation and Subsidiaries

Fiscal Year Ended August
(In thousands, except per share data)		2004				2003				2002				2001				2000
Selected Balance Sheet Data
Total assets		$	700,822			$	514,587			$	494,835			$	491,813			$	500,150
Long-term obligations			178,841				69,812				85,096				94,795				126,638
Shareholders’ equity			367,749				335,380				309,740				285,545				271,172
Selected Income Statement Data
Revenues		$	719,356			$	596,936			$	578,898			$	556,371			$	528,726
Depreciation and amortization			44,889				39,659				38,031				37,568				34,710
Income from operations			64,004				48,838				51,979				47,565				39,244
Other expense, net			9,406				1,266				8,660				10,108				7,200
Provision for income taxes			21,020				18,310				16,460				14,233				12,176
Net income			33,578				27,020				26,859				23,224				19,868
Net income per Common share — basic		$	1.95			$	1.58			$	1.56			$	1.34			$	1.13
Net income per Class B Common share — basic		$	1.56			$	1.27			$	1.25			$	1.07			$	0.90
Net income per Common share — diluted		$	1.74			$	1.40			$	1.39			$	1.20			$	1.01
Net income per Class B Common share — diluted		$	1.56			$	1.26			$	1.25			$	1.07			$	0.90
Dividends per share
Common stock		$	0.15			$	0.15			$	0.15			$	0.15			$	0.15
Class B common stock		$	0.12			$	0.12			$	0.12			$	0.12			$	0.12

Refer to Note 2 of these Consolidated Financial Statements for discussion of the Company’s acquisition of Textilease Corporation on September 2, 2003.

Fiscal 2003 net income includes a charge of $2,242 (net of $1,404 tax) for a cumulative effect of accounting change.

Fiscal 2003 includes a reduction of basic net income per Common share of $0.13 for a cumulative effect of accounting change.

Fiscal 2003 includes a reduction of basic net income per Class B Common share of $0.10 for a cumulative effect of accounting change.

Fiscal 2003 includes a reduction of diluted net income per Common share of $0.12 for a cumulative effect of accounting change.

Fiscal 2003 includes a reduction of diluted net income per Class B Common share of $0.10 for a cumulative effect of accounting change.

The Specialty Garments operating segment purchases, rents, cleans, delivers and sells, specialty garments and non-garment items primarily for nuclear and clean room applications. The First Aid operating segment sells first aid cabinet services and other safety supplies. In fiscal 2003 and fiscal 2002, no assets or capital expenditures are presented for the First Aid operating segment as no assets were allocated to this operating segment in the information reviewed by the chief executive officer as they were not material. However, depreciation and amortization expense related to certain assets are reflected in income from operations and income before income taxes for the First Aid operating segment. The assets that give rise to this depreciation and amortization in fiscal 2003 and 2002 are included in the total assets of the US and Canadian Rental and Cleaning reporting segment as this is how they were tracked and reviewed by the Company. After the Textilease acquisition in fiscal 2004, the Company began allocating assets to this operating segment as the total assets related to First Aid increased.

Approximately 85% of the Company’s revenues in 2004 were derived from US and Canadian Rental and Cleaning through the rental of garment and non-garment items. A key driver of this business is the number of workers employed by the customers of the Company. Our revenues are directly impacted by declines or increases in those employment levels. Revenues from Specialty Garments, which accounted for 8% of our 2004 revenues, increase during outages and refueling by nuclear power plants, since garment usage is increased at these times. The direct sale of first aid cabinet services and other safety supplies represented 4% of total revenue and the direct sale of garments and other non-garment items represented 3% of total revenue.

The Company believes the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. There have been no changes in judgments or estimates that had a material effect on our consolidated financial statements for the periods presented.

The Company recognizes revenue from rental operations in the period in which the services are provided. Direct sale revenue is recognized in the period in which the product is shipped. Judgments and estimates are used in determining the collectability of accounts receivable. The Company analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Management judgments and estimates are used in connection with establishing the allowance in any accounting period. 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 differences may result in the amount and timing of bad debt expense recognition for any given period if management makes different judgments or utilizes different estimates.

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 last-in, first-out (LIFO) method to value a significant portion of its inventories. Substantially all inventories represent finished goods.

Rental merchandise in service is being amortized 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 different judgments or utilizes different estimates.

The Company adopted SFAS No. 142 effective August 26, 2001. Under SFAS No. 142, goodwill is no longer amortized. SFAS 142 also requires that companies test goodwill for impairment on an annual basis and when events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit to which goodwill is assigned below its carrying amount. Our evaluation considers changes in the operating environment, competitive information, market trends, operating performance and cash flow modeling. Management completes its annual impairment test in the fourth quarter of each fiscal year and there have been no impairments of goodwill or definite-lived intangible assets in fiscal 2004, 2003 or 2002. Future events could cause management to conclude that impairment indicators exist and that goodwill and other intangibles associated with acquired businesses are impaired. Any resulting impairment loss could have a material impact on our financial condition and results of operations.

Property, plant and equipment and definite-lived intangible assets are depreciated or amortized over their useful lives. Useful lives are based on management estimates of the period that the assets will generate revenue. Long-lived assets are evaluated for impairment whenever events and circumstances indicate an asset may be impaired.

The Company self-insures for certain obligations related to health, workers’ compensation, vehicles and general liability programs. The Company also purchases stop-loss insurance policies to protect it from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for losses that have occurred, but have not been reported. The Company’s estimates consider historical claim experience and other factors. The Company’s liabilities are based on estimates, and, while the Company believes that the accrual for loss is adequate, the ultimate liability may be in excess of or less than the amounts recorded. Changes in claim 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.

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 to ensure that all of the relevant facts and circumstances are considered, before a contingent liability is recorded. 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 and the timing of payments, and the input of outside consultants and attorneys.

The estimated liability for environmental contingencies has been discounted using risk-free rates of interest ranging from 4% to 5% 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, insurance proceeds, participation by other parties, the timing of payments and the input of outside consultants and attorneys based on changing legal or factual circumstances could have a material impact on the amounts recorded for environmental and other contingent liabilities. Refer to Note 6 of these Condensed Consolidated Financial Statements for additional discussion and analysis.

The Company’s policy of accounting for income taxes is in accordance with SFAS No. 109 — “Accounting for Income Taxes”. Deferred income taxes are provided for temporary differences between amounts recognized for income tax and financial reporting purposes at currently enacted tax rates. The Company computes income tax expense by jurisdiction based on its operations in each jurisdiction.

The Company is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions 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 for probable exposures, in accordance with SFAS No. 5 — “Accounting for Contingencies”. Based on the Company’s evaluation of current tax positions, the Company believes it has appropriately accrued for probable exposures.

Effective September 1, 2002, the Company adopted the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 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. Under the new accounting method, the Company now 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 will depreciate, on a straight-line basis, the amount added to property and equipment and recognize accretion expense in connection with the discounted liability over the various remaining lives which range from approximately one to thirty 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 3.00% — 7.25% over one to thirty 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 increasing or decreasing the carrying amount of the liability and the carrying amount of 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.

 

		US and
		Canadian
		Rental and								Net Interco				Specialty
Income (loss) from operations		Cleaning				MFG				MFG Elim				Garments				First-Aid				Corporate				Total
For the year-ended August 28, 2004		$	88,729			$	20,299			$	(5,277	)		$	7,113			$	1,722			$	(48,582	)		$	64,004
For the year-ended August 30, 2003		$	73,223			$	13,837			$	(3,415	)		$	9,306			$	45			$	(44,158	)		$	48,838
For the year-ended August 31, 2002		$	82,505			$	12,438			$	(5,086	)		$	8,244			$	(135	)		$	(45,987	)		$	51,979

Revenues. In 2004, revenues increased 20.5% to $719.4 million as compared with $596.9 million for 2003. The 20.5% increase can be attributed to acquisitions (11.9% related to US and Canadian Rental and Cleaning and 2.8% related to First Aid), primarily Textilease Corporation (“Textilease”), as well as growth from existing operations and price increases (5.8%). This increase in existing operations was primarily due to revenue growth in the industrial laundry operations which accounted for 5.6% of the increase. The increase in revenue due to price increases was modest due to a particularly competitive pricing environment.

Operating costs. Operating costs increased to $462.6 million for 2004 as compared with $381.1 million for 2003. As a percentage of revenues, operating costs increased to 64.3% from 63.9% for these periods, primarily due to significantly higher energy costs associated with operating industrial and Specialty Garments laundries as well as our fleet of delivery vehicles. Also, the Textilease industrial laundries, acquired in the first quarter of 2004, generally have higher production costs than the existing UniFirst facilities. The increase in operating costs is also attributable to the Company’s closure of a redundant facility during the fiscal year ended August 28, 2004. In connection with its plans to integrate the operations of Textilease, the Company closed its Richmond plant (UniFirst Richmond) and transferred the operations or the processing of garments to the Richmond plant acquired from Textilease. All costs incurred with the closure of the UniFirst Richmond plant, except the costs associated with the write-down to estimated fair value of certain machinery and equipment which is included in depreciation and amortization, have been recorded as operating costs during the fiscal year ended August 28, 2004. The Company also experienced an overall increase in merchandise costs due to high merchandise amortization recognized for the industrial laundry locations acquired in the Textilease acquisition. This increase in merchandise amortization was partially offset as a result of cost savings realized in MFG as well as improved garment utilization in US and Canadian Rental and Cleaning. In addition, the Company’s operating costs increased as a percentage of revenues due to costs recorded in the third and fourth quarters of fiscal 2004 totaling $742 related to the decommissioning of one of the facilities of Specialty Garments Rental and Cleaning.

Selling and administrative expenses. The Company’s selling and administrative expenses increased to $147.9 million, or 20.6% of revenues, for 2004 as compared with $127.3 million, or 21.3% of revenues, for 2003. The decline in selling and administrative expenses as a percentage of revenue is primarily due to a decrease in new sales generated by US and Canadian Rental and Cleaning during the fiscal year ended August 28, 2004 as compared to the fiscal year ended August 30, 2003. The Company has also begun to realize synergies in US and Canadian Rental and Cleaning from eliminating redundancies within the sales group from the acquisition of Textilease. The decrease in selling and administrative expenses as a percentage of revenue is partially offset by the continuing rise of health care costs.

Depreciation and amortization. The Company’s depreciation and amortization expense increased to $44.9 million, or 6.2% of revenues, for 2004, as compared with $39.7 million, or 6.6% of revenues, for 2003. The increase in depreciation and amortization expense was primarily related to the depreciation and amortization on the tangible and intangible assets acquired from Textilease in US and Canadian Rental and Cleaning and First Aid. The Company also recorded approximately $0.6 million in depreciation expense during the quarter ended May 29, 2004 related to the write-down, to estimated fair value, of certain machinery and equipment at UniFirst Richmond.

Income from operations. The Company’s income from operations increased $15.2 million to $64.0 million for the year ended August 28, 2004 as compared with $48.8 million for the year ended August 30, 2003. This increase is primarily due to an increase in income from operations during these periods of $15.5 million in US and Canadian Rental and Cleaning, $4.6 million in MFG, net of intercompany MFG elimination and $1.7 million in First Aid, offset by an increase in loss from operations of $4.4 million in Corporate and lower income from operations of $2.2 million in Specialty Garments. The increase in US and Canadian Rental and Cleaning income from operations is due to increased revenues offset by higher operating costs and higher selling and administrative costs. The reasons for these fluctuations in revenues and cost are primarily related to the Textilease acquisition and other factors discussed above. The increase in income from operations in First Aid is due to a significant increase in revenues related to the acquisition of Textilease. The increase in the loss from operations in Corporate is due primarily to increased payroll and other costs related to the Company’s distribution center and corporate offices as a result of the Textilease acquisition. The decrease in income from operations in Specialty Garments is due to minimal revenue growth offset by higher costs as a percentage of revenues. A large portion of this increase in costs is due to the $742 of costs related to the decommissioning of one of the facilities discussed above, increased depreciation expense, as well as higher other selling and administrative and payroll related costs.

Other expense (income). Other expense (income) (interest expense, interest rate swap expense (income) and interest income) was $9.4 million, or 1.3% of revenues, for 2004, as compared with $1.3 million, or 0.2% of revenues, for 2003. The increase in Other expense (income) was a result of the increased interest expense, which includes amortization of deferred financing costs of approximately $2.0 million associated with debt financing obtained in connection with the acquisition of Textilease. This is somewhat offset by an increase in the fair value of the $40 million SWAP, which generated $2.0 million of income for the fiscal year ended August 28, 2004,

compared to $1.3 million of income for the fiscal year ended August 30, 2003.

Provision for income taxes. The Company’s effective income tax rate was 38.5% for each of the fiscal years ended August 28, 2004 and August 30, 2003.

Revenues. In 2003, revenues increased 3.1% to $596.9 million as compared with $578.9 million for 2002, which had fifty-three weeks. On a comparative 52-week basis, revenues increased by 5.1%. The 3.1% increase can be attributed to growth from existing operations, acquisitions, and price increases in the US and Canadian Rental and Cleaning and Corporate which accounted for 2.0% of the increase and increased revenue from Specialty Garments which accounted for 1.2% of the increase offset by a decrease in First Aid of .1%.

Operating costs. Operating costs increased to $381.1 million for 2003 as compared with $360.0 million for 2002. As a percentage of revenues, operating costs increased to 63.9% from 62.2% for these periods, primarily due to increased non-garment merchandise costs in US and Canadian Rental and Cleaning, primarily mats and facility service products, increased merchandise amortization as a percentage of revenues in Specialty Garments as well as higher energy costs to operate the Company’s industrial and Specialty Garments laundries as well as our fleet of delivery vehicles, offset by a reduction in merchandise amortization costs resulting from improved garment utilization in US and Canadian Rental and Cleaning and the Company’s continuing transition of MFG to Mexico.

Selling and administrative expenses. The Company’s selling and administrative expenses decreased to $127.3 million, or 21.3% of revenues, for 2003 as compared with $128.9 million, or 22.3% of revenues, for 2002. On a comparative 52-week basis, selling and administrative expenses increased approximately $1.0 million from 2002 to 2003, primarily due to increased sales and marketing costs driven by sales force expansion in US and Canadian Rental and Cleaning, partially offset by reduced legal costs in Corporate.

Depreciation and amortization. The Company’s depreciation and amortization expense increased to $39.7 million, or 6.6% of revenues, for 2003, as compared with $38.0 million, or 6.6% of revenues, for 2002. The increase was due to an increase in depreciation related to additional capital expenditures, offset by a decrease in amortization due to certain intangible assets becoming fully amortized during fiscal 2003. These fluctuations in depreciation and amortization primarily relate to US and Canadian Rental and Cleaning.

Income from operations. The Company’s income from operations decreased $3.2 million to $48.8 million for the year ended August 30, 2003 as compared with $52.0 million for the year ended August 31, 2002. This decrease is primarily due to a decrease in income from operations during these periods of $9.3 million in US and Canadian Rental and Cleaning offset by an increase in income from operations of $3.1 million in MFG, net of intercompany MFG elimination, $1.1 million in Specialty Garments, $.2 million in First Aid and a decrease in loss from operations of $1.7 million in Corporate. The decrease in US and Canadian Rental and Cleaning is due to increased revenues offset by higher operating costs and higher selling and administrative costs. The reasons for these fluctuations in revenues and cost are discussed above. The increase in income from operations of Specialty Garments is due to a 14% increase in revenues offset by an increase in operating costs due primarily to higher merchandise amortization. The decrease in loss from operations from Corporate is due primarily to increased revenues and decreased legal costs partially offset by an increase in other various costs related to the Company’s distribution center and corporate offices.

Other expense (income). Net other expense (interest expense, interest rate swap expense (income) and interest income) was $1.3 million, or 0.2% of revenues, for 2003 as compared with $8.7 million, or 1.5% of revenues, for 2002. During the second quarter of fiscal 2002 the Company recorded a $2.3 million interest charge which was an estimate of the interest due from settling a revenue agent review with the IRS. Excluding this charge, net other expense would have been $6.4 million, or 1.1% of revenues, for 2002. The decrease in net other expense was also a result of lower interest rates and continued debt reduction, as well as changes in the fair value of the $40,000 SWAP, which was $1.3 million of income for 2003 as compared with $1.3 million of expense for 2002.

Provision for income taxes. The Company’s effective income tax rate was 38.5% for 2003 as compared to 38.0% for 2002. The primary reason for the increase is higher state income taxes.

Shareholders’ equity at August 28, 2004 was $367.7 million, or 67.3% of the Company’s total capitalization.

General. For the fiscal year ended August 28, 2004, the Company had a net decrease in cash and cash equivalents of $1.6 million. The Company completed the fiscal year ended August 28, 2004 with cash and cash equivalents of $4.4 million and working capital of $56.9 million. The Company believes that current cash and cash equivalent balances, cash generated from operations and amounts available under the Company’s Amended Credit Agreement (as defined below) will be sufficient to meet the Company’s anticipated working capital and capital expenditure requirements for at least the next 12 months.

Sources and uses of cash. During the fiscal year ended August 28, 2004, the Company generated cash primarily from two sources: operating activities and proceeds from long-term obligations. The Company’s operating activities provided net cash of $106.1 million, resulting primarily from net income of $33.6 million, amounts charged for depreciation and amortization of $46.9 million, increases in accounts payable and accruals of $16.4 million, a net decrease in rental merchandise in service of $9.8 million, offset by an increase in accounts receivable of $2.0 million. Also, the Company borrowed, net of repayments, approximately $106.5 million in 2004. The Company used its cash to, among other things, fund the acquisitions of businesses with an aggregate net purchase price of approximately $180.0 million, fund $30.9 million in capital expenditures to expand and update the Company’s facilities, pay deferred financing costs of $4.5 million, and pay approximately $2.6 million in cash dividends to Common and Class B Common shareholders.

Additional cash resources. In connection with the purchase of Textilease, the Company entered into a $285 million unsecured revolving credit agreement (the “Credit Agreement”), with a syndicate of banks. The Credit Agreement replaced the Company’s previous $125 million unsecured revolving credit agreement and, prior to its amendment, was due on the third anniversary of the Closing Date (September 2, 2006).

On June 14, 2004, the Company issued $165 million of fixed and floating rate notes pursuant to a Note Purchase Agreement (“Note Agreement”). Under the Note Agreement, the Company issued $75 million of notes with a seven year term bearing interest at 5.27% (“Fixed Rate Notes”). The Company also issued $90 million of floating rate notes due in ten years (“Floating Rate Notes”). Of the Floating Rate Notes, $75 million bear interest at LIBOR plus 70 basis points and may be repaid at face value two years from the date they were issued. The remaining $15 million of Floating Rate Notes bear interest at LIBOR plus 75 basis points and can be repaid at face value after one year. The Company also amended its Credit Agreement (“Amended Credit Agreement”) to, among other things, reduce the amount available for borrowing thereunder to $125 million and to reduce interest rates payable on such borrowings. As amended, loans under the Amended Credit Agreement bear interest at floating rates which vary based on the Company’s funded debt ratio. The proceeds from the Fixed Rate Notes and the Floating Rate Notes were used to repay borrowings under the Credit Agreement. At August 28, 2004, the interest rate applicable to the Company’s borrowings under the Amended Credit Agreement was LIBOR plus 100 basis points, which approximated 2.84%.

The Amended Credit Agreement runs through September 2, 2007. As of August 28, 2004, the maximum line of credit was $125 million of which approximately $94.5 million was available for borrowing thereunder. As of such date, the Company had outstanding borrowings of $10.6 million and letters of credit of $19.9 million. Under the Amended Credit Agreement, the Company may borrow funds at variable interest rates based on the Eurodollar rate or the bank’s prime rate, as selected by the Company. Availability of credit requires compliance with financial and other covenants, including minimum tangible net worth, maximum funded debt ratio, and minimum debt coverage, as defined in the Amended Credit Agreement. Compliance with these financial covenants is tested on a fiscal quarterly basis. Under the most restrictive of these provisions, the Company was required to maintain minimum consolidated tangible net worth of $124,789 as of August 28, 2004. As of August 28, 2004, the Company was in compliance with all covenants under the Note Agreement and the Amended Credit Agreement.

The Company and its operations are subject to various federal, state and local laws and regulations governing, among other things, the generation, handling, storage, transportation, treatment and disposal of hazardous wastes and other substances. In particular, industrial laundries use and must dispose of detergent waste water and other residues. 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.

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 to ensure that all of the relevant facts and circumstances are considered, before a contingent liability is recorded. Changes in enacted laws, regulatory orders or decrees, management’s estimates of costs, insurance proceeds, participation by other parties, the timing of payments and the input of outside consultants and attorneys based on changing legal or factual circumstances could have a material impact on the amounts recorded for environmental and other contingent liabilities.

Further, 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, Uvalde, Texas, Springfield, Massachusetts, Stockton, California, and three sites related to former operations in Williamstown, Vermont.

In addition, the Company is investigating the extent of environmental contamination and potential exposure at sites it recently acquired in connection with its acquisition of Textilease, and it is defending against claims concerning alleged environmental conditions with respect to a site once owned by a former subsidiary in Somerville, Massachusetts.

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 also has potential exposure related to an additional parcel of land (the Central Area) related to the Woburn, Massachusetts site discussed above. Currently, the consent order for the Woburn, Massachusetts site discussed above does not define or require any remediation work in the Central Area. The Company has not accrued for this contingency as the Company believes, at this time, the liability is not probable and the amount of such contingent liability can not be reasonably estimated.

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

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

There is usually a range of reasonable estimates of the costs associated with each site. We generally use the amount within the range that constitutes our best estimate. Where we believe that both the amount of a particular liability and the timing of the payments are reliably determinable, we adjust the cost in current dollars using a rate of 3% for inflation until the time of expected payment and discount the cost to present value using risk-free rates of interest ranging from 4% to 5%.

For environmental liabilities that have been discounted, we include interest accretion, based on the effective interest method, in operating costs on the consolidated statement of income. The changes to our environmental liabilities for the years ended August 28, 2004, August 30, 2003 and August 31, 2002 are as follows (in thousands):

		Year Ended				Year Ended
		August 30,				August 28,
		2003				2004
Beginning balance		$	5,377			$	5,377
Obligations assumed in connection with Textilease acquisition			—				3,200
Costs incurred for which reserves have been provided			(646	)			(859	)
Insurance proceeds received			227				263
Interest accretion			269				429
Revision in estimates			150				259
Ending balance		$	5,377			$	8,669

Anticipated payments and insurance proceeds of currently identified environmental remediation liabilities as of August 28, 2004 for the next five years and thereafter as measured in current dollars are reflected below.

(In Thousands)		2005				2006				2007				2008				2009				Thereafter				Total
Estimated costs — current dollars		$	1,409			$	1,420			$	2,203			$	823			$	758			$	8,975			$	15,588
Estimated insurance proceeds			(266	)			(247	)			(247	)			(266	)			(247	)			(3,818	)			(5,091	)
Net anticipated costs		$	1,143			$	1,173			$	1,956			$	557			$	511			$	5,157			$	10,497
Effect of Inflation																											2,975
Effect of Discounting																											(4,803	)
Balance, August 28, 2004																										$	8,669

Estimated insurance proceeds are primarily received from an annuity received as part of a legal settlement with an insurance company. Annual proceeds of approximately $330 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 28, 2004 the balance in this escrow account, which is held in a trust and is not recorded on the Company’s consolidated balance sheet, was approximately $1.6 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 litigation related to charges for certain ancillary services on invoices, personal injury claims, customer contract matters, employment claims and environmental matters as described above.

While it is impossible 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 accrued or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operation of the Company. It is possible, however, that future financial position 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.

On September 2, 2003 (“Closing Date”), the Company completed its acquisition of 100% of Textilease Corporation (“Textilease”). The purchase price of approximately $175,628 in cash was financed as part of a new $285,000 unsecured revolving credit agreement (“Credit Agreement”), with a syndicate of banks.

At the time of acquisition, management initiated a plan to integrate certain Textilease facilities into existing operations. Included in the purchase price allocation is an accrual for exit costs and employee termination benefits in accordance with EITF 95-3 of approximately $6,504, which included approximately $3,103 in severance-related costs for corporate and field employees and $3,401 in facility closing and lease cancellation costs. As of August 28, 2004, the Company paid and charged approximately $1,815 against this accrual for severance-related costs and $707 for facility closing and lease cancellation costs. As of August 28, 2004, the Company reversed approximately $1,965 of the initial accrual based upon its final analysis of the fair value of the liabilities assumed in connection with the acquisition, with a decrease in goodwill. The Company expects to incur substantially all of the remaining costs within twenty-four months of the Closing Date. The changes in accrual for the fiscal year ended August 28, 2004 are as follows:

						Facility Closing
						and Lease
		Severance Related				Cancellation
		Costs				Costs				Total
Balance at August 30, 2003		$	—			$	—			$	—
Initial set-up of liability			3,103				3,401				6,504
Charges			(1,815	)			(707	)			(2,522	)
Revisions			—				(1,965	)			(1,965	)
Balance at August 28, 2004		$	1,288			$	729			$	2,017

As part of the Company’s business, the Company regularly evaluates opportunities to acquire other garment service companies. In recent years, the Company has typically paid for acquisitions with cash and may continue to do so in the future. To pay for an acquisition, the Company may use cash on hand, cash generated from operations or borrowings under the Company’s Amended Credit Agreement, or the Company may pursue other forms of debt financing. The Company’s ability to secure short-term and long-term debt financing in the future will depend on several factors, including the Company’s future profitability, the levels of debt and equity and the overall credit and equity market environments.

The following information is presented as of August 28, 2004.

Payments Due by Fiscal Period
						Less
						than 1				1 - 3				3 - 5				More than
Contractual Obligations		Total				year				years				years				5 years
Private placement		$	165,000			$	—			$	—			$	—			$	165,000
Bank debt			11,597				389				288				288				10,632
Other debt			2,244				597				1,013				252				382
Operating Leases			11,181				4,513				4,797				1,785				86
Total Contractual Cash Obligations		$	190,022			$	5,499			$	6,098			$	2,325			$	176,100

At August 28, 2004, the Company had $125 million of available capacity under our Amended Credit Agreement. As of such date, approximately $94.5 million was available for borrowing thereunder. Also, as of such date, the Company had outstanding borrowings of $10.6 million included in bank debt in the above schedule and letters of credit of $19.9 million.

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

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

Significant increases in energy costs, specifically natural gas and gasoline, can materially affect our results of operations and financial condition. Currently, energy costs represent approximately 3% of our total revenue.

Forward looking statements contained in this annual report are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995 and are highly dependent upon a variety of important factors that could cause actual results to differ materially from those reflected in such forward looking statements. Such factors include uncertainties regarding the Company’s ability to consummate and successfully integrate acquired businesses, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the Company’s ability to compete successfully without any significant degradation in its margin rates, seasonal fluctuations in business levels, uncertainties regarding the price levels of natural gas, electricity, fuel, and labor, the impact of negative economic conditions on the Company’s customers and such customer’s workforce, the continuing increase in domestic healthcare costs, demand and prices for the Company’s products and services, additional professional and internal costs necessary for compliance with recent and proposed future changes in Securities and Exchange Commission (including the Sarbanes-Oxley Act of 2002), New York Stock Exchange, and accounting rules, strikes and unemployment levels, the Company’s efforts to evaluate and potentially reduce internal costs, economic and other developments associated with the war on terrorism and its impact on the economy and general economic conditions. When used in this annual report, the words “intend”, “anticipate”, “believe”, “estimate”, and “expect” and similar expressions as they relate to the Company are included to identify such forward looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management has determined that all of the Company’s foreign subsidiaries operate primarily in local currencies that represent the functional currencies of the subsidiaries. All assets and liabilities of foreign subsidiaries are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date. The effect of exchange rate fluctuations on translation of assets and liabilities are recorded as a component of stockholders’ equity. Income and expense accounts are translated at average exchange rates during the year. As such, the Company’s financial condition and operating results are affected by fluctuations in the value of the U.S. dollar as compared to currencies in foreign countries. Revenue denominated in currencies other than the U.S. dollar represented approximately 6% of total consolidated revenues for the years ended August 28, 2004, August 30, 2003 and August 31, 2002 and total assets denominated in currencies other than the U.S. dollar represented approximately 6% and 7% of total consolidated assets at August 28, 2004 and August 30, 2003. If exchange rates had changed by 10% from the actual rates in effect during the year ended and as of August 28, 2004, the Company’s revenues and assets for the year ended and as of August 28, 2004 would have changed by approximately $4.6 million and $4.0 million, respectively.

The Company does not operate a hedging program to mitigate the effect of a significant rapid change in the value of the Canadian Dollar, Euro, British Pound, or Mexican Peso as compared to the U.S. dollar. Any gains or losses resulting from foreign currency transactions, including exchange rate fluctuations on intercompany accounts are reported as transaction gains (losses) in selling and administrative expenses. The intercompany payables and receivables are denominated in Canadian Dollars, Euros, British Pounds and Mexican Pesos. During the year ended August 28, 2004 transaction gains (losses) included in selling and administrative expenses were not material. If the exchange rates had changed by 10% during the year ended August 28, 2004, the Company would have recognized an exchange gain or loss in other income (expense) of approximately $275.

The Company is exposed to market risk from changes in interest rates which may adversely affect its financial position, results of operations and cash flows. In seeking to minimize the risks from interest rate fluctuations, the Company manages exposures through its regular operating and financing activities. The Company is exposed to interest rate risk primarily through its borrowings under its $125 million Amended Credit Agreement with a syndicate of banks and its $90 million of Floating Rate Notes with a group of insurance companies. Under both agreements, the Company borrows funds at variable interest rates based on the Eurodollar rate or LIBOR rates. If the LIBOR and Eurodollar rates fluctuated by 10% from the actual rates in effect during the year ended August 28, 2004, interest expense would have fluctuated by approximately $647 from the interest expense recognized for the year ended August 28, 2004.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Statements of Income
UniFirst Corporation and Subsidiaries

Year Ended		August 28,				August 30,				August 31,
(In thousands, except per share data)		2004				2003				2002
Revenues		$	719,356			$	596,936			$	578,898
Cost and expenses:
Operating costs (1)			462,612				381,098				359,960
Selling and administrative expenses (1)			147,851				127,341				128,928
Depreciation and amortization			44,889				39,659				38,031
			655,352				548,098				526,919
Income from operations			64,004				48,838				51,979
Other expense (income):
Interest expense			12,522				4,010				8,843
Interest income			(1,135	)			(1,452	)			(1,439	)
Interest rate swap expense (income)			(1,981	)			(1,292	)			1,256
			9,406				1,266				8,660
Income before income taxes			54,598				47,572				43,319
Provision for income taxes			21,020				18,310				16,460
Income before cumulative effect of accounting change			33,578				29,262				26,859
Cumulative effect of accounting change (net of income tax benefit of $1,404 in fiscal 2003)			—				2,242				—
Net income		$	33,578			$	27,020			$	26,859
Income per Common share — basic
Before cumulative effect of an accounting change, net		$	1.95			$	1.71			$	1.56
Cumulative effect of an accounting change, net			—				(0.13	)			—
Net income per Common share — basic		$	1.95			$	1.58			$	1.56
Income per Class B Common share — basic
Before cumulative effect of an accounting change, net		$	1.56			$	1.37			$	1.25
Cumulative effect of an accounting change, net			—				(0.10	)			—
Net income per Class B Common share — basic		$	1.56			$	1.27			$	1.25
Income per Common share — diluted
Before cumulative effect of an accounting change, net		$	1.74			$	1.52			$	1.39
Cumulative effect of an accounting change, net			—				(0.12	)			—
Net income per Common share — diluted		$	1.74			$	1.40			$	1.39
Income per Class B Common share — diluted
Before cumulative effect of an accounting change, net		$	1.56			$	1.36			$	1.25
Cumulative effect of an accounting change, net			—				(0.10	)			—
Net income per Class B Common share — diluted		$	1.56			$	1.26			$	1.25
Weighted average number of shares outstanding — basic
Common stock			9,103				8,992				9,000
Class B common stock			10,091				10,190				10,222
			19,194				19,182				19,222
Weighted average number of shares outstanding — diluted
Common stock			9,167				9,032				9,056
Class B common stock			10,091				10,190				10,222
			19,258				19,222				19,278
Dividends per share
Common stock		$	0.15			$	0.15			$	0.15
Class B common stock		$	0.12			$	0.12			$	0.12

The accompanying notes are an integral part of these
consolidated financial statements.

Consolidated Balance Sheets
UniFirst Corporation and Subsidiaries

		Year Ended
		August 28,				August 30,
(In thousands, except per share data)		2004				2003
Assets
Current assets:
Cash and cash equivalents		$	4,436			$	6,053
Receivables, less reserves of $2,616 for 2004 and $2,611 for 2003			69,471				57,941
Inventories			31,060				25,355
Rental merchandise in service			60,544				60,490
Prepaid taxes and deferred tax assets			2,753				5,591
Prepaid expenses			1,857				407
Total current assets			170,121				155,837
Property and equipment:
Land, buildings and leasehold improvements			240,018				221,487
Machinery and equipment			258,736				238,820
Motor vehicles			70,048				66,081
			568,802				526,388
Less — accumulated depreciation			280,012				251,806
			288,790				274,582
Goodwill			180,685				62,608
Customer contracts, net			51,572				16,713
Intangible assets, net			6,301				3,811
Other assets			3,353				1,036
		$	700,822			$	514,587
Liabilities and Shareholders’ Equity
Current liabilities:
Current maturities of long-term obligations		$	986			$	2,493
Notes payable			—				104
Accounts payable			33,754				30,678
Accrued liabilities			72,824				53,670
Accrued income taxes			5,611				—
Total current liabilities			113,175				86,945
Long-term obligations, net of current maturities			177,855				67,319
Deferred income taxes			42,043				24,943
Commitments and Contingencies (Note 9)
Shareholders’ equity:
Preferred stock, $1.00 par value; 2,000,000 shares authorized; none issued		—					—
Common stock, $.10 par value; 30,000,000 shares authorized; issued 9,276,479 shares in 2004 and 10,599,359 shares in 2003			928				1,060
Class B common stock, $.10 par value; 20,000,000 shares authorized; Issued and outstanding 9,929,144 shares in 2004 and 10,175,144 shares in 2003			993				1,018
Treasury stock, 1,595,055 shares in 2003			—				(26,005	)
Capital surplus			13,138				12,693
Retained earnings			353,196				348,043
Accumulated other comprehensive loss			(506	)			(1,429	)
Total shareholders’ equity			367,749				335,380
		$	700,822			$	514,587

The accompanying notes are an integral part of these
consolidated financial statements.

Consolidated Statements of Shareholders’ Equity
UniFirst Corporation and Subsidiaries

																																		Accumulated
						Class B												Class B																Other
		Common				Common				Treasury				Common				Common				Treasury				Capital				Retained				Comprehensive				Comprehensive
(In thousands)		Shares				Shares				Shares				Stock				Stock				Stock				Surplus				Earnings				Income (Loss)				Income (Loss)
Balance, August 25, 2001			10,517				10,239				(1,535	)		$	1,052			$	1,024			$	(24,755	)		$	12,438			$	299,313			$	(3,527	)
Net income			—				—				—				—				—				—				—				26,859				—			$	26,859
Dividends			—				—				—				—				—				—				—				(2,577	)			—				—
Shares converted			34				(34	)			—				3				(3	)			—				—				—				—				—
Shares repurchased			—				—				—				—				—				(1	)			—				—				—				—
Stock options exercised			4				—				—				—				—				—				65				—				—				—
Foreign Currency translation adjustments			—				—				—				—				—				—				—				—				(471	)			(471	)
Change in fair value of derivative instruments, net of tax			—				—				—				—				—				—				—				—				320				320
Comprehensive income																																						$	26,708
Balance, August 31, 2002			10,555				10,205				(1,535	)		$	1,055			$	1,021			$	(24,756	)		$	12,503			$	323,595			$	(3,678	)
Net income			—				—				—				—				—				—				—				27,020				—			$	27,020
Dividends			—				—				—				—				—				—				—				(2,572	)			—				—
Shares converted			30				(30	)			—				3				(3	)			—				—				—				—				—
Shares repurchased			—				—				(60	)			—				—				(1,249	)			—				—				—				—
Stock options exercised			14				—				—				2				—				—				190				—				—				—
Foreign Currency translation adjustments			—				—				—				—				—				—				—				—				1,904				1,904
Change in fair value of derivative instruments, net of tax			—				—				—				—				—				—				—				—				345				345
Comprehensive income																																						$	29,269
Balance, August 30, 2003			10,599				10,175				(1,595	)		$	1,060			$	1,018			$	(26,005	)		$	12,693			$	348,043			$	(1,429	)
Net income			—				—				—				—				—				—				—				33,578				—			$	33,578
Dividends			—				—				—				—				—				—				—				(2,579	)			—				—
Shares converted			246				(246	)			—				25				(25	)			—				—				—				—				—
Shares repurchased			—				—				—				—				—				—				—				—				—				—
Stock options exercised			26				—				—				2				—				—				370				—				—				—
Elimination of treasury shares			(1,595	)			—				1,595				(159	)			—				26,005				—				(25,846	)			—				—
Other			—				—				—				—				—				—				—				—				(78	)			(78	)
Tax benefit from exercise of nonqualified stock option			—				—				—				—				—				—				75				—				—				—
Foreign Currency translation adjustments			—				—				—				—				—				—				—				—				1,001				1,001
Comprehensive income																																						$	34,501
Balance, August 28, 2004			9,276				9,929				—			$	928			$	993			$	—			$	13,138			$	353,196			$	(506	)