UNIFIRST CORP

Previous wording

In general, we believe that our results of operations are not dependent on moderate changes in the inflation rate. Historically, we have been able to manage the impacts of more significant changes in inflation rates through our customer relationships, customer agreements that generally provide for price increases and continued focus on improvements of operational productivity. However, the inflationary environment of 2022 and 2023 had a negative impact on our margins, including as a result of increased energy costs for our vehicles and our plants, as well as increasing wages in the labor markets in which we compete. While inflation has moderated recently, a period of sustained inflation could pressure our margins in future periods. In addition, in response to the concerns over inflation risk in the broader U.S. economy, the U.S. Federal Reserve increased its benchmark interest rate significantly during 2022 and 2023. Interest rates may remain high through 2024. Adverse economic conditions resulting from inflationary pressures, U.S. Federal Reserve actions, including continued high interest rates and/or increases in interest rates, geopolitical issues or otherwise are difficult to predict and may have a material adverse impact on our business, results of operations and financial condition.

Current wording

In general, we believe that our results of operations are not dependent on moderate changes in the inflation rate. Historically, we have been able to manage the impacts of more significant changes in inflation rates through our customer relationships, customer agreements that generally provide for price increases and continued focus on improvements of operational productivity. However, the inflationary environment in recent years had a negative impact on our margins, including as a result of increased energy costs for our vehicles and our plants, as well as increasing wages in the labor markets in which we compete. While inflation has moderated recently, a period of sustained inflation could pressure our margins in future periods. In addition, the U.S. Federal Reserve has delayed decreasing its benchmark interest rate during 2024 in response to sustained elevated inflation. Adverse economic conditions resulting from inflationary pressures, U.S. Federal Reserve actions, including elevated interest rates and/or increases in interest rates, geopolitical issues or otherwise are difficult to predict and may have a material adverse impact on our business, results of operations and financial condition.

Previous wording

The following table presents certain selected financial data, including the percentage of revenues represented by each item, for the thirteen and twenty-six weeks ended February 24, 2024 and February 25, 2023.

Current wording

The following table presents certain selected financial data, including the percentage of revenues represented by each item, for the thirteen and thirty-nine weeks ended May 25, 2024 and May 27, 2023.

Previous wording

In fiscal 2018, we initiated a multiyear CRM project to further develop, implement and deploy a third-party software application we licensed. This new solution is intended to improve functionality, capability and information flow as well as increase automation for our operations in servicing our customers. We began deployment of our new CRM project during the second half of fiscal 2021 and concluded the deployment to our U.S. locations in the first quarter of fiscal 2024. We are depreciating this system over a 10-year life and recognized $1.0 million and $1.8 million of amortization expense during each of the thirteen and twenty-six weeks ended February 24, 2024, respectively.

Current wording

In fiscal 2018, we initiated a multiyear CRM project to further develop, implement and deploy a third-party software application we licensed. This new solution is intended to improve functionality, capability and information flow as well as increase automation for our operations in servicing our customers. We began deployment of our new CRM project during the second half of fiscal 2021 and concluded the deployment to our U.S. locations in the first quarter of fiscal 2024. We are depreciating this system over a 10-year life and recognized $0.9 million and $2.7 million of amortization expense during the thirteen and thirty-nine weeks ended May 25, 2024, respectively.

Previous wording

In fiscal 2022, we initiated a multiyear ERP project that we currently anticipate will continue through 2027, with early phases focused on master data management and finance capabilities followed by subsequent phases with a strong focus on supply chain and procurement automation and technology. We believe that this initiative will become the core of the UniFirst systems technology footprint and will integrate and complement the capabilities of the CRM system. We expect the ERP system and the new supply chain and procurement capabilities that it will provide to enable lower operating costs and reduced customer churn. Such benefits are expected to be delivered through enhanced inventory utilization and vendor management, improved response times to customer orders and more efficient back-end processes. These capabilities will allow us to more effectively respond to and mitigate the types of supply chain challenges that we experienced during the COVID-19 pandemic and that we continue to experience primarily as a result of the current inflationary environment.

Current wording

In fiscal 2022, we initiated a multiyear ERP project that we currently anticipate will continue through 2027, with early phases focused on master data management and finance capabilities followed by subsequent phases with a strong focus on supply chain and procurement automation and technology. We believe that this initiative will become the core of the UniFirst systems technology footprint and will integrate and complement the capabilities of the CRM system. We expect the ERP system and the new supply chain and procurement capabilities that it will provide to enable lower operating costs and reduced customer churn. Such benefits are expected to be delivered through enhanced inventory utilization and vendor management, improved response times to customer orders and more efficient back-end processes. These capabilities will allow us to more effectively respond to and mitigate the types of supply chain challenges that we experienced during the COVID-19 pandemic and inflationary environment of 2022 and 2023.

Previous wording

We refer to our CRM and ERP projects together as our (“Key Initiatives”). For the thirteen weeks ended February 24, 2024, we expensed $3.2 million of non-recurring costs related to our Key Initiatives, primarily relating to our ERP project. For the twenty-six weeks ended February 24, 2024, we expensed $6.1 million of non-recurring costs related to our Key Initiatives, primarily relating to our ERP project.

Current wording

We refer to our CRM and ERP projects together as our (“Key Initiatives”). For the thirteen weeks ended May 25, 2024, we expensed $3.9 million of non-recurring costs related to our Key Initiatives, primarily relating to our ERP project. For the thirty-nine weeks ended May 25, 2024, we expensed $10.0 million of non-recurring costs related to our Key Initiatives, primarily relating to our ERP project.

Previous wording

On October 24, 2023, our Board of Directors authorized a new share repurchase program to repurchase up to $100.0 million of our outstanding shares of Common Stock, inclusive of the amount which remained available under the existing share repurchase program approved on October 18, 2021. Repurchases from time to time under the new program, if any, will be made in either the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases depend on a variety of factors, including economic and market conditions, our stock price, corporate liquidity requirements and priorities, applicable legal requirements and other factors. The share repurchase program may be funded using available cash or capacity under our Credit Agreement (as defined below) and may be suspended or discontinued at any time. During the thirteen and twenty-six weeks ended February 24, 2024, we repurchased 45,250 and 46,750 shares, respectively, for an average price per share of $173.79 and $173.67, respectively, under the share repurchase program. During the thirteen and twenty-six weeks ended February 25, 2023, we did not repurchase any shares. As of February 24, 2024, we had $91.9 million remaining under our share repurchase program.

Current wording

On October 24, 2023, our Board of Directors authorized a share repurchase program to repurchase up to $100.0 million of our outstanding shares of Common Stock. Repurchases from time to time under the new program, if any, will be made in either the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases depend on a variety of factors, including economic and market conditions, our stock price, corporate liquidity requirements and priorities, applicable legal requirements and other factors. The share repurchase program may be funded using available cash or capacity under our Credit Agreement (as defined below) and may be suspended or discontinued at any time.

Previous wording

The increase in consolidated revenues of 8.8% during the thirteen weeks ended February 24, 2024 compared to the prior year comparable period was due primarily to growth in our Core Laundry Operations of 9.5%. The increase in our Core Laundry Operations was due to organic growth of 4.8%, the effect of Canadian dollar exchange rate changes on our revenues of 0.1%, and acquisition related growth of 4.7%. The Core Laundry Operations strong organic growth rate was primarily the result of solid new account sales and improved pricing with our customers. The impact on our revenues from acquisitions was primarily the result of our acquisition of Clean, which was completed on March 13, 2023.

Current wording

The increase in consolidated revenues of 4.6% during the thirteen weeks ended May 25, 2024 compared to the prior year comparable period was due primarily to growth in our Core Laundry Operations of 5.3%. The increase in our Core Laundry Operations was due to organic growth of 4.7% and acquisition related growth of 0.6%. The effect of Canadian dollar exchange rate changes on our revenues was nominal. The Core Laundry Operations strong organic growth rate was primarily the result of solid new account sales and improved pricing with our customers.

Previous wording

In the thirteen weeks ended February 24, 2024, Specialty Garments revenues increased compared to the prior year comparable period due primarily to growth in our cleanroom operations. First Aid revenues in the same period increased 5.6% compared to the prior year comparable period with the growth coming from the First Aid van business, which was partially offset by a decline in our wholesale operations.

Current wording

First Aid revenues in the same period increased 6.9% compared to the prior year comparable period due primarily to growth in our van business.

Previous wording

The increase in consolidated cost of revenues of 7.1% during the thirteen weeks ended February 24, 2024 compared to the prior year comparable period was due primarily to the impact of revenue growth mentioned above. While overall cost of revenues increased, cost of revenues as a percentage of revenues decreased due primarily to lower manufacturing, freight and merchandise costs.

Current wording

The increase in consolidated cost of revenues of 3.1% during the thirteen weeks ended May 25, 2024 compared to the prior year comparable period was due primarily to the impact of revenue growth mentioned above. While overall cost of revenues increased, cost of revenues as a percentage of revenues decreased due primarily to lower merchandise costs and production costs.

Previous wording

The increase in selling and administrative costs of 6.1% during the twenty-six weeks ended February 24, 2024 compared to the prior year comparable period was due primarily to continued investments we have made in our corporate capabilities over the last year and $12.4 million of additional costs from the Clean acquisition. The increase in costs was partially offset by a decrease in spending on our Key Initiatives from $19.1 million in the first half of fiscal 2023 to $6.1 million in the first half of fiscal 2024. In addition, we incurred $2.0 million of Clean acquisition-related costs during the first half of fiscal 2023.

Current wording

The decrease in selling and administrative costs of 2.7% during the thirteen weeks ended May 25, 2024 compared to the prior year comparable period was due primarily to a decrease in spending on our Key Initiatives from $8.4 million in the third quarter of fiscal 2023 to $3.9 million in the third quarter of fiscal 2024. Also, we benefited from a decrease in healthcare claims expense of $3.4 million compared to the prior year comparable period and costs incurred in the third quarter of fiscal 2023 related to a legal matter of approximately $1.3 million. In addition, we incurred $0.7 million of Clean acquisition-related costs during the third quarter of fiscal 2023. These decreases in costs were partially offset by continued investments we have made in our corporate capabilities over the last year.

Previous wording

Depreciation and amortization expense increased by 21.0% during the twenty-six weeks ended February 24, 2024 compared to the prior year comparable period due primarily to continued investment in our systems and technology capabilities and infrastructure to support our future growth. Also contributing to this increase was $7.1 million of depreciation and amortization in the first half of fiscal 2024 related to the Clean acquisition, of which $4.8 million was acquisition-related intangibles amortization.

Current wording

Depreciation and amortization expense increased by 10.9% during the thirteen weeks ended May 25, 2024 compared to the prior year comparable period, due primarily to continued investment in our systems and technology capabilities and infrastructure to support our future growth.

Previous wording

The increase in the effective tax rate for the thirteen weeks ended February 24, 2024 was due primarily to increases in non-deductible expenses in the current period as compared to the corresponding period in the prior year.

Current wording

The decrease in the effective tax rate for the thirteen weeks ended May 25, 2024 as compared to the corresponding period in the prior year was due primarily to favorable adjustments to our tax reserves during the current period.

Previous wording

The increase in consolidated revenues of 9.2% during the twenty-six weeks ended February 24, 2024 compared to the prior year comparable period was due primarily to growth in our Core Laundry Operations of 9.6%. The increase in our Core Laundry Operations was due to organic growth of 4.9%, the effect of Canadian dollar exchange rate changes on our revenues of (0.1)%, and acquisition related growth of 4.8%. The Core Laundry Operations strong organic growth rate was primarily the result of solid new account sales and improved pricing with our customers. The impact on our revenues from acquisitions was primarily the result of our acquisition of Clean, which was completed on March 13, 2023.

Current wording

The increase in consolidated revenues of 7.6% during the thirty-nine weeks ended May 25, 2024 compared to the prior year comparable period was due primarily to growth in our Core Laundry Operations of 8.2%. The increase in our Core Laundry Operations was due to organic growth of 4.9% and acquisition related growth of 3.3%. The effect of Canadian dollar exchange rate changes on our revenues was nominal. The Core Laundry Operations strong organic growth rate was primarily the result of solid new account sales and improved pricing with our customers. The impact on our revenues from acquisitions was primarily the result of our acquisition of Clean, which was completed on March 13, 2023.

Previous wording

In the twenty-six weeks ended February 24, 2024, Specialty Garments revenues slightly increased compared to the prior year comparable period due primarily to growth in our cleanroom operations. First Aid revenues in the same period increased 13.4% compared to the prior year comparable period due primarily to growth in the First Aid van business.

Current wording

In the thirty-nine weeks ended May 25, 2024, Specialty Garments revenues remained consistent compared to the prior year comparable period due primarily to growth in our cleanroom operations offset by a decline in our North American and European nuclear businesses. First Aid revenues in the same period increased 11.0% compared to the prior year comparable period due primarily to growth in our van business.

Previous wording

The increase in consolidated cost of revenues of 7.8% during the twenty-six weeks ended February 24, 2024 compared to the prior year comparable period was due primarily to the impact of revenue growth mentioned above. While overall cost of revenues increased, cost of revenues decreased as a percentage of revenue due primarily to lower freight, energy and merchandise costs.

Current wording

The increase in consolidated cost of revenues of 6.2% during the thirty-nine weeks ended May 25, 2024 compared to the prior year comparable period was due primarily to the impact of revenue growth mentioned above. While overall cost of revenues increased, cost of revenues decreased as a percentage of revenue due primarily to lower merchandise costs and production costs.

Previous wording

The increase in selling and administrative costs of 7.6% during the thirteen weeks ended February 24, 2024 compared to the prior year comparable period was due primarily to continued investments we have made in our corporate capabilities over the last year and

Current wording

The increase in selling and administrative costs of 3.0% during the thirty-nine weeks ended May 25, 2024 compared to the prior year comparable period was due primarily to incremental costs from the Clean acquisition as compared to the prior year comparable period.

Previous wording

Depreciation and amortization expense increased by 17.6% during the thirteen weeks ended February 24, 2024 compared to the prior year comparable period, due primarily to continued investment in our systems and technology capabilities and infrastructure to support our future growth. Also contributing to this increase was $3.5 million of depreciation and amortization in the second quarter of fiscal 2024 related to the Clean acquisition, of which $2.4 million was acquisition-related intangibles amortization.

Current wording

Depreciation and amortization expense increased by 17.4% during the thirty-nine weeks ended May 25, 2024 compared to the prior year comparable period due primarily to continued investment in our systems and technology capabilities and infrastructure to support our future growth. Also contributing to this increase was higher depreciation and amortization of $7.6 million related to the Clean acquisition that occurred early in the third quarter of fiscal 2023. Total depreciation and amortization for Clean was $10.7 million and $3.1 million in the thirty-nine weeks ended May 25, 2024 and the prior year comparable period, respectively, of which $7.2 million and $2.2 million were intangibles amortization, respectively.

Previous wording

For the twenty-six weeks ended February 24, 2024 and February 25, 2023, changes in our revenues and costs as discussed above resulted in the following changes in our operating income and margin:

Current wording

For the thirty-nine weeks ended May 25, 2024 and May 27, 2023, changes in our revenues and costs as discussed above resulted in the following changes in our operating income and margin:

Previous wording

Other income, net during the twenty-six weeks ended February 24, 2024 decreased as compared to the prior year comparable period due primarily to lower interest income resulting from lower cash reserves subsequent to the acquisition of Clean in our third fiscal quarter of 2023. This was partially offset by $2.1 million of interest income recorded in the twenty-six weeks ended February 24, 2024 as a result of a tax dispute we were able to favorably resolve.

Current wording

Other income, net during the thirty-nine weeks ended May 25, 2024 decreased as compared to the prior year comparable period due primarily to lower interest income resulting from lower cash reserves subsequent to the acquisition of Clean in our third fiscal quarter of 2023. This was partially offset by $2.1 million of interest income recorded in the thirty-nine weeks ended May 25, 2024 as a result of a tax dispute we were able to favorably resolve.

Previous wording

The decrease in the effective tax rate for the twenty-six weeks ended February 24, 2024 as compared to the corresponding period in the prior year was due primarily to the release of certain tax reserves and a U.S. state legislative change enacted during the first quarter of fiscal 2024.

Current wording

The decrease in the effective tax rate for the thirty-nine weeks ended May 25, 2024 as compared to the corresponding period in the prior year was due primarily to favorable adjustments to our tax reserves during the current period.

Previous wording

Cash and cash equivalents, and short-term investments totaled $101.9 million as of February 24, 2024, an increase of $12.3 million from $89.6 million as of August 26, 2023. The increase in cash and cash equivalents and short-term investments was largely driven by our cash flows from operating activities. We generated $106.7 million and $64.2 million in cash from operating activities in the twenty-six weeks ended February 24, 2024 and February 25, 2023, respectively. The increase was due primarily to increased profitability and lower working capital needs of the business. During the twenty-six weeks ended February 24, 2024, we continued to invest in our business with capital expenditures totaling $72.9 million.

Current wording

Cash and cash equivalents, and short-term investments totaled $125.4 million as of May 25, 2024, an increase of $35.8 million from $89.6 million as of August 26, 2023. The increase in cash and cash equivalents and short-term investments was largely driven by our cash flows from operating activities. We generated $193.0 million and $142.8 million in cash from operating activities in the thirty-nine weeks ended May 25, 2024 and May 27, 2023, respectively. The increase was due primarily to increased profitability and lower working capital needs of the business. During the thirty-nine weeks ended May 25, 2024, we continued to invest in our business with capital expenditures totaling $121.9 million.

Previous wording

Pursuant to the share repurchase program approved by our Board of Directors on October 24, 2023, we repurchased 46,750 shares of our Common Stock for an aggregate of approximately $8.1 million during the twenty-six weeks ended February 24, 2024.

Current wording

Pursuant to the share repurchase program approved by our Board of Directors on October 24, 2023, we repurchased 94,000 shares of our Common Stock for an aggregate of approximately $16.0 million during the thirty-nine weeks ended May 25, 2024.

Previous wording

Sources and uses of cash flows for the twenty-six weeks ended February 24, 2024 and February 25, 2023, respectively, are summarized as follows:

Current wording

Sources and uses of cash flows for the thirty-nine weeks ended May 25, 2024 and May 27, 2023, respectively, are summarized as follows:

Previous wording

The net cash provided by operating activities during the twenty-six weeks ended February 24, 2024 increased as compared to the prior year comparable period due to our improved profitability and benefit of depreciation and amortization as well as positive impacts from rental merchandise in service of $20.7 million, receivables of $15.1 million and accrued liabilities of $10.9 million. These increases were partially offset by a decrease in inventory of $10.6 million, a decrease of in prepaid expenses and other current and noncurrent assets of $9.6 million and a decrease in accounts payable of $7.1 million.

Current wording

The net cash provided by operating activities during the thirty-nine weeks ended May 25, 2024 increased as compared to the prior year comparable period due to our improved profitability and benefit of depreciation and amortization as well as positive impacts from rental merchandise in service of $24.9 million, receivables of $16.9 million and accrued liabilities of $9.9 million. These increases were partially offset by a decrease in inventory of $15.2 million, a decrease of in prepaid expenses and other current and noncurrent assets of $11.6 million and a decrease in accounts payable of $8.6 million.

Previous wording

The positive impact from merchandise in service was due primarily to a focused effort on managing our inventory balances in the current year and our balance sheet position continuing to normalize coming out of the COVID-19 pandemic. The positive impact from receivables was due primarily to a focused effort on collections and timing. The decrease in inventories was due primarily to elevated inventories in the prior year attributable to pandemic supply chain disruption that has improved over the past twelve months. The negative impact on prepaid expenses and other current assets was due primarily to increases in information technology prepaid contracts and deferred commission costs. The negative impact on accounts payable was due primarily to timing.

Current wording

The positive impact from merchandise in service was due primarily to fewer garments being placed in service to support our rental customers. The positive impact from receivables was due primarily to a focused effort on collections and timing. The negative impact from inventories was due primarily to higher production that will be used to meet future demand. The negative impact from prepaid expenses and other current assets was due primarily to increases in information technology prepaid contracts and deferred commission costs. The negative impact from accounts payable was due primarily to timing.

Previous wording

The net cash used in investing activities during the twenty-six weeks ended February 24, 2024 decreased as compared to the prior year comparable period due to reduced investment of purchases of certificates of deposit, net of maturing certificates of deposit, of $99.8 million and no acquisition activity during the twenty-six weeks ended February 24, 2024.

Current wording

The net cash used in investing activities during the thirty-nine weeks ended May 25, 2024 decreased as compared to the prior year comparable period due primarily to the Clean acquisition in the third quarter of fiscal 2023 and a reduced net investment in certificates of deposit of $7.1 million during the thirty-nine weeks ended May 25, 2024.

Previous wording

The net cash used in financing activities during the twenty-six weeks ended February 24, 2024 increased as compared to the prior year comparable period due primarily to a $8.1 million increase in the repurchase of Common Stock during the period.

Current wording

The net cash used in financing activities during the thirty-nine weeks ended May 25, 2024 increased as compared to the prior year comparable period due primarily to a $16.0 million increase in the repurchase of Common Stock during the period.

Previous wording

As of February 24, 2024, we had no outstanding borrowings and had outstanding letters of credit amounting to $62.4 million, leaving $212.6 million available for borrowing under the Credit Agreement.

Current wording

As of May 25, 2024, we had no outstanding borrowings and had outstanding letters of credit amounting to $62.7 million, leaving $212.3 million available for borrowing under the Credit Agreement.

Previous wording

As of February 24, 2024, we had forward contracts with a notional value of approximately 4.5 million CAD outstanding and recorded the fair value of the contracts of $0.2 million in prepaid expenses and other current assets with a corresponding gain of $0.1 million in accumulated other comprehensive loss, which was recorded net of tax. During the thirteen and twenty-six weeks ended February 24, 2024, we reclassified a nominal amount from accumulated other comprehensive loss to revenue related to the derivative financial instruments. The gain on these forward contracts that results in a decrease to accumulated other comprehensive loss as of February 24, 2024 is expected to be reclassified to revenues prior to their maturity on August 29, 2026.

Current wording

As of May 25, 2024, we had forward contracts with a notional value of approximately 4.1 million CAD outstanding and recorded the fair value of the contracts of $0.2 million in prepaid expenses and other current assets with a corresponding gain of $0.1 million in accumulated other comprehensive loss, which was recorded net of tax. During the thirteen and thirty-nine weeks ended May 25, 2024, we reclassified a nominal amount and $0.1 million, respectively, from accumulated other comprehensive loss to revenue related to the derivative financial instruments. The gain on these forward contracts that results in a decrease to accumulated other comprehensive loss as of May 25, 2024 is expected to be reclassified to revenues prior to their maturity on August 29, 2026.

Previous wording

We have accrued certain costs related to certain sites, including but not limited to, sites in Woburn and Somerville, Massachusetts, as it has been determined that the costs are probable and can be reasonably estimated. We, together with multiple other companies, are party to a consent decree related to our property and other parcels of land (the “Central Area”) at a site in Woburn, Massachusetts. The United States Environmental Protection Agency (the “EPA”) has provided us and other signatories to the consent decree with comments on the design and implementation of groundwater and soil remedies at the Woburn site and investigation of environmental conditions in the Central Area. The consent decree does not address any remediation work that may be required in the Central Area. We, and other signatories, have implemented and proposed to do additional work at the Woburn site but many of the EPA’s comments remain to be resolved. We have accrued costs to perform certain work responsive to the EPA’s comments. Additionally, we have implemented mitigation measures and continue to monitor environmental conditions at a site in Somerville, Massachusetts. We have agreed to undertake additional actions responsive to a notice of audit findings from the Massachusetts Department of Environmental Protection concerning a regulatory submittal that we made in 2009 for a portion of the site. We have received demands from the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station in the area of the Somerville site. This station is part of an ongoing extension of the transit system. We have reserved for costs in connection with this matter; however, in light of the uncertainties associated with this matter, these costs and the related reserve may change.

Current wording

We have accrued certain costs related to certain sites, including but not limited to, sites in Woburn and Somerville, Massachusetts, as it has been determined that the costs are probable and can be reasonably estimated. We, together with multiple other companies, are party to a consent decree related to our property and other parcels of land (the “Central Area”) at a site in Woburn, Massachusetts. The United States Environmental Protection Agency (the “EPA”) has provided us and other signatories to the consent decree with comments on the design and implementation of groundwater and soil remedies at the Woburn site and investigation of environmental conditions in the Central Area. The consent decree does not address any remediation work that may be required in the Central Area. We, and other signatories, have implemented and proposed to do additional work at the Woburn site but many of the EPA’s comments remain to be resolved. We have accrued costs to perform certain work responsive to the EPA’s comments. Additionally, we have implemented mitigation measures and continue to monitor environmental conditions at a site in Somerville, Massachusetts. We have agreed to undertake additional actions responsive to a notice of audit findings from the Massachusetts Department of Environmental Protection concerning a regulatory submittal that we made in 2009 for a portion of the site. We have received demands from the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station in the area of the Somerville site. This station was part of an extension of the transit system. We have reserved for costs in connection with this matter; however, in light of the uncertainties associated with this matter, these costs and the related reserve may change.

Previous wording

There is usually a range of reasonable estimates of the costs associated with each site. In accordance with U.S. GAAP, our accruals represent the amount within the range that we believe is the best estimate or the low end of a range of estimates if no point within the range is a better estimate. When we believe that both the amount of a particular liability and the timing of the payments are reliably determinable, we adjust the cost in current dollars using a rate of 3% for inflation until the time of expected payment and discount the cost to present value using current risk-free interest rates. As of February 24, 2024, the risk-free interest rates we utilized ranged from 4.37% to 4.51%.

Current wording

There is usually a range of reasonable estimates of the costs associated with each site. In accordance with U.S. GAAP, our accruals represent the amount within the range that we believe is the best estimate or the low end of a range of estimates if no point within the range is a better estimate. When we believe that both the amount of a particular liability and the timing of the payments are reliably determinable, we adjust the cost in current dollars using a rate of 3% for inflation until the time of expected payment and discount the cost to present value using current risk-free interest rates. As of May 25, 2024, the risk-free interest rates we utilized ranged from 4.57% to 4.65%.

Previous wording

For environmental liabilities that have been discounted, we include interest accretion, based on the effective interest method, in selling and administrative expenses on the Consolidated Statements of Income. The changes to the amounts of our environmental liabilities for the twenty-six weeks ended February 24, 2024 were as follows (in thousands):

Current wording

For environmental liabilities that have been discounted, we include interest accretion, based on the effective interest method, in selling and administrative expenses on the Consolidated Statements of Income. The changes to the amounts of our environmental liabilities for the thirty-nine weeks ended May 25, 2024 were as follows (in thousands):

Previous wording

Estimated insurance proceeds are primarily received from an annuity received as part of our legal settlement with an insurance company. Annual proceeds of approximately $0.3 million are deposited into an escrow account which funds remediation and monitoring costs for two sites related to our former operations. Annual proceeds received but not expended in the current year accumulate in this account and may be used in future years for costs related to this site through the year 2027. As of February 24, 2024, the balance in this escrow account, which is held in a trust and is not recorded in our Consolidated Balance Sheet, was approximately $5.2 million. Also included in estimated insurance proceeds are amounts we are entitled to receive pursuant to legal settlements as reimbursements from three insurance companies for estimated costs at one of our sites.

Current wording

Estimated insurance proceeds are primarily received from an annuity received as part of our legal settlement with an insurance company. Annual proceeds of approximately $0.3 million are deposited into an escrow account which funds remediation and monitoring costs for two sites related to our former operations. Annual proceeds received but not expended in the current year accumulate in this account and may be used in future years for costs related to this site through the year 2027. As of May 25, 2024, the balance in this escrow account, which is held in a trust and is not recorded in our Consolidated Balance Sheet, was approximately $5.5 million. Also included in estimated insurance proceeds are amounts we are entitled to receive pursuant to legal settlements as reimbursements from three insurance companies for estimated costs at one of our sites.