SecProbe.io

CORRESP
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filename1.htm

March
11, 2005

By EDGAR

Securities and Exchange Commission
450
Fifth Street, N.W., Mail Stop 0309
Washington, D.C. 20549

Attn:
Joe Kempf, Staff Accountant
              Joe Cascarano, Staff Accountant

Re:
       UniFirst Corporation
               Form 10-K for the
fiscal year ended August 28, 2004
               Filed November 12, 2004
               File
No. 001-08504

Ladies and Gentlemen:

        This
letter is submitted on behalf of UniFirst Corporation, Inc. (the “Company”) in
response to the comments of the staff of the Division of Corporation Finance (the
“Staff”) of the Securities and Exchange Commission (the “Commission”)
with respect to the Company’s Annual Report on Form 10-K for the fiscal year
ended August 28, 2004 (the “Form 10-K”), as set forth in a letter dated
February 18, 2004 to John B. Bartlett (the “Comment Letter”).

        For
reference purposes, the text of the Comment Letter has been reproduced herein with
responses below each numbered comment. For your convenience, we have italicized the
reproduced Staff comments from the Comment Letter and we have bolded the headings of our
responses thereto.

        Comment
No. 1

        In
future filings, please briefly describe your business combinations that would materially
affect the comparability of the information reflected in selected financial data, or
cross-reference to the appropriate footnote of the consolidated financials. See Item
301(b)(2) of Regulation S-K.

      Response
to Comment No. 1

        In
future filings, the Company will cross reference to the appropriate footnote that
describes the Company’s business combinations that would materially affect the
comparability of the information in the selected financial data as required by Item
301(b)(2) of Regulation S-K.

        Comment
No. 2

        We
refer you to your “Environmental and Other Contingencies” disclosures. MD&A
disclosures made pursuant to the guidance provided by the SEC should be sufficiently
specific to enable a reader to understand the scope of the contingencies affecting the
registrant. In this regard, in future filings, your discussion of historical and
anticipated environmental expenditures should, to the extent material, describe separately
(a) recurring costs associated with managing hazardous substances and pollution in
on-going operations, (b) capital expenditures to limit or monitor hazardous substances or
pollutants, (c) mandated expenditures to remediate previously contaminated sites, and (d)
other infrequent or non-recurring clean-up expenditures that can be anticipated but which
are not required in the present circumstances. Disaggregated disclosure that describes
accrued and reasonably likely losses with respect to particular environmental sites that
are individually material may be necessary for a full understanding of these
contingencies.

      Response
to Comment No. 2

        In
future filings the Company will include in its MD&A, disclosure consistent with the
Staff’s recommendations and the Company’s response to the Staff’s Comment
No. 10.  Please see the response to Comment No. 10 for the Company’s revised disclosures.

      Comment
No. 3

        Choose
from among the three disclosure formats provided by Item 305(a) and include more detailed
quantitative information about foreign currency and interest rate market risk in future
filings.

      Response
to Comment No. 3

        In
future filings, the Company will incorporate the Sensitivity Analysis disclosures as
described by Item 305(a)(ii). These disclosures will quantify the potential change in
future earnings resulting from hypothetical changes in interest rates and foreign currency
exchange rates. The following is an example of the Company’s revised disclosure as of
November 27, 2004.

Interest Rate Sensitivity

        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 rates fluctuated by 10%, interest expense would have fluctuated by
approximately $50,000 for the quarter ended November 27, 2004 based on the current level of
borrowing under these variable rate debt instruments as of November 27, 2004.

Foreign
Currency Exchange 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
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 the exchange rates had changed by 10% during the quarter
ended November 27, 2004, the Company’s revenues and assets for the quarter ended and as of
November 27, 2004 would have changed by approximately $1.3 million and $4.8 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 other
income (expense). The intercompany payables and receivables are denominated in Canadian
Dollars, Euros, British Pounds and Mexican Pesos. During the years ended August 28, 2004,
August 30, 2003 and August 31, 2002, transaction gains (losses) included in other income
(expense) were not material. If the exchange rates had changed by 10% during the quarter
ended November 27, 2004, the Company would have recognized an exchange gain or loss in
other income (expense) of approximately $300,000.

      Comment
No. 4

        We
note from your revenue descriptions in your general business section of Item 1 and in your
MD&A that approximately 85% of your revenues in 2004 were generated from rental
activity and the remaining 15% was generated from services and sales of garments. As
required by Rule 5-03(b)(1) of Regulation S-X, in future filings, please revise your
presentation in future filings to disclose separately revenues from rentals as compared to
those generated from service activity and other. Concomitantly, please state separately
expenses related to rental revenues from those related to services and other. See Rule
5-03(b)(2) of Regulation S-X. Please revise or advise.

      Response
to Comment No. 4

        In
Item I and in the MD&A, the Company stated the following:

        “In
fiscal 2004, the Company generated $719.4 million in revenue, of which approximately 58%
was from the rental of uniforms and protective clothing, 27% was from the rental of
non-garment items, 8% was from garment decontamination services, 4% was from first aid
cabinet services and other safety supplies, and 3% was from the direct sale of
garments.”

        In
future filings, the Company will revise its disclosure to reflect a more complete
description of its revenue categories. The revised disclosure will read as follows:

        In
fiscal 2004, the Company generated $719.4 million in revenue, of which approximately 93%
was from the rental and cleaning of uniforms and protective clothing, non-garment items
and specialty garments. Of the 93%, 54% of revenues were from the rental and cleaning of
uniforms and protective clothing, 31% was from the rental and cleaning of 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.

        Pursuant
to the Rule 5-03(b)(1) of Regulation S-X, the Company will state separately on its
Statement of Income, revenues and operating costs for the following categories;
“Rental and Cleaning” and “Direct Sales” in future filings. The
“Direct Sales” category will include sales and cost of sales as applicable,
related to the direct sale of first-aid cabinet services and safety supplies and direct
sale of garments, non-garment items and specialty garments.

      Comment
No. 5

        In
future filings, please revise the statements to comply with SAB Topic 11:B. We note that
you exclude depreciation and amortization from the line item for “operating
costs”.

      Response
to Comment No. 5

        In
future filings, the Company will comply with SAB Topic 11:B by modifying the income
statement caption for Operating costs to include the notation “exclusive of
depreciation and amortization”. The Company will also include this notation as part
of its caption for Selling and administrative expenses. The Company also feels it is
currently in compliance with the statement in SAB Topic 11:B related to not placing undue
emphasis on “cash flow”. The Company currently includes Depreciation and
amortization as a separate caption on its statement of income within costs and expenses
to compute income from operations which does not result in reporting an amount representing income before
depreciation and amortization.

      Comment
No. 6

        Please
tell us the basis of using a credit-adjusted risk-free rate of 4.0% for time periods
ranging from 10 to 30 years when discounting environmental contingencies. For example, in
comparison, we note that the credit-adjusted risk-free rates for discounting asset
retirement obligations, which range from 1 to 30 years, range from 3.00% to 7.25%.

      Response
to Comment No. 6

        The
Company’s current disclosure in Note 1 – Summary of Critical and Significant
Accounting Policies states, “The estimated liability for environmental and other
contingencies has been discounted using a credit-adjusted risk-free rate of interest of
4.0% over periods ranging from ten to thirty years.” This disclosure will be revised
to delete “credit-adjusted” and to state that the estimated liability for
environmental and other contingencies has been discounted using risk free rates of
interest ranging from 4% to 5%.

        SAB
Topic 5:Y addresses the rate to be used in valuing environmental contingencies. SAB Topic
5:Y states, “The rate used to discount the cash payments should be the rate that will
produce an amount at which the environmental or product liability could be settled in an
arm’s length transaction with a third party. SOP 96-1 further states that the
discount rate used to discount the cash payments should not exceed the interest rate on
monetary assets that are essentially risk free and have maturities comparable to
that of the environmental or product liability.”

        Therefore,
the Company believes that its use of rates ranging from 4% to 5% is appropriate as it
represents the “risk-free rates” applicable for the Company’s estimated
payments. The Company uses a “credit-adjusted risk-free rate” for discounting
asset retirement obligations as paragraph 9 of SFAS 143 requires. Please refer to the
Company’s response to the Staff’s Comment No. 10 for revised disclosure related
to environmental and other contingencies that the Company will use in future filings.

      Comment
No. 7

       We note that you recognize environmental liabilities on a discounted basis. Besides disclosing
the discount rate used, in future filings please disclose the following:
•    The
expected payment for each of the five succeeding years and the aggregate amount
thereafter;
•    A reconciliation of the expected aggregate
undiscounted amount to amounts recognized in the balance sheet;
•    An
explanation of material changes since the prior balance sheet date in the expected
aggregate amount of the obligations (other than those resulting from a pay down of the
obligation)
      Please
refer to SAB Topic 5Y.

      Response
to Comment No. 7

        In
future filings the Company will include in Note 1 – Summary of Critical and
Significant Accounting Policies disclosure consistent with the Staff’s
recommendations and the Company’s response to the Staff’s Comments No. 10.

      Comment
No. 8

        In
connection with the Textilease purchase, describe for us in more detail, how you came to
assign goodwill to one “reportable segment.” For example, explain to us whether
there are any reporting units as contemplated by paragraph 50 of SFAS 141 in your varied
list of business operations describing the one reportable segment in the fourth paragraph
of Note 2 – Acquisitions.

      Response
to Comment No. 8

        The
Company stated in Note 2 – “Acquisitions”, that it assigned goodwill from
the Textilease acquisition to only one reporting segment. The Company’s disclosure
will be revised in future filings to state that it assigned the goodwill from the
Textilease acquisition to only one reporting unit as defined by SFAS 142. The only
reporting unit the goodwill from the Textilease acquisition was assigned to was the US and
Canadian Rental and Cleaning reporting unit. This reporting unit designs, manufactures and
purchases, rents, cleans, delivers and sells uniforms and protective clothing and
non-garment items.

        The
Company has determined that it has three reporting units as defined by SFAS 142; the US
and Canadian Rental and Cleaning reporting unit, the Specialty Garments Rental and
Cleaning reporting unit and the First-Aid reporting unit. The First Aid reporting unit
provides its customers with first aid cabinet services and other safety supplies. Please
refer to the Company’s response to the Staff’s Comment No. 9 for detailed
discussion on how the Company determined its reporting units discussed above.

        In
connection with the Textilease acquisition, the Company did allocate certain tangible
assets and liabilities and amortizable intangible assets, based on a third-party
valuation, to the First Aid reporting unit. However, no goodwill was allocated to this
reporting unit. The Company’s decision was based on the guidance in paragraph 34 of
SFAS 142 which states, “Goodwill shall be assigned to reporting units of the
acquiring entity that are expected to benefit from the synergies of the combination even
though other assets or liabilities of the acquired entity may not be assigned to that
reporting unit.” In accordance with the guidance of SFAS 142 paragraph 34, the
Company concluded that the reporting unit that was expected to benefit from the synergies
of the business combination was the US and Canadian Rental and Cleaning reporting unit.

        The
Company’s interest in Textilease’s garment and non-garment rental and cleaning
operations, which represented approximately 82% of Textilease’s annua