UNIFIRST CORP

4. Income Taxes

Income before taxes consists of the following components:

The provision for income taxes consists of the following (in thousands):

The reconciliation of income tax expense using the statutory federal income tax rate and actual income tax expense is as follows for fiscal 2026 (in thousands):

(1) State taxes in California, Florida, Illinois, New York and Texas make up the majority (greater than 50%) of the tax effect in the state and local income tax category.

The following table reconciles the provision for income taxes using the statutory federal income tax rate to the actual provision for income taxes:

During the fiscal year ended August 29, 2026, income taxes paid, net of any refunds, were $30.6 million, which included federal tax payments of $22.9 million, state and local tax payments of $6.1 million and foreign tax payments of $1.6 million.

The decrease in the effective tax rate for fiscal 2026 compared to the prior fiscal year was primarily due to provision-to-return adjustments associated with income tax credits recognized upon finalization of the prior-year U.S. federal income tax return. These adjustments reflect refinement of estimates used in the prior year tax provision and resulted in a tax benefit in the current period.

The components of deferred income taxes included on the Consolidated Balance Sheets are as follows (in thousands):

The Company regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets will be realized.

Foreign tax effect

As of August 29, 2026, unremitted foreign earnings have been retained by the Company’s foreign subsidiaries for indefinite reinvestment. If the Company were to repatriate those earnings, in the form of dividends or otherwise, the Company could be subject to immaterial withholding taxes payable to the various foreign countries.

Uncertain tax positions

As of August 29, 2026, and August 30, 2025, there were $5.6 million and $3.9 million, respectively, of unrecognized tax benefits, of which $5.2 million and $3.7 million, respectively, would favorably impact the Company’s effective tax rate, if recognized. The Company recognized interest and penalties related to uncertain tax positions as a component of income tax expense which is consistent with the recognition of these items in prior reporting periods. As of August 29, 2026, and August 30, 2025, the Company had accrued a nominal amount in interest and penalties, in its long-term accrued liabilities. For fiscal 2026, 2025 and 2024, the Company recognized a nominal expense in its Consolidated Statements of Income related to interest and penalties.

A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits (exclusive of interest and penalties) is as follows (in thousands):

The Company has a significant portion of its operations in the U.S. and Canada. The Company is required to file federal income tax returns as well as state income tax returns in most of the U.S. states and in several Canadian provinces. At times, the Company is subject to audits in these jurisdictions, which typically are complex and can take several years to resolve. The final resolution of any such tax audits could result in either a reduction in the Company’s accruals or an increase in its income tax provision, both of which could have a material impact on the consolidated results of operations in any given period.

All U.S. and Canadian federal income tax statutes have lapsed for filings up to and including fiscal years 2022 and 2018, respectively. With a few exceptions, the Company is no longer subject to state and local income tax examinations for periods prior to fiscal 2022. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly in the next 12 months.

5. Long-Term Debt

On August 12, 2025, the Company entered into an amended and restated $300.0 million unsecured revolving credit agreement, (the “Credit Agreement”) with a syndicate of banks, which matures on August 12, 2030. Under the Credit Agreement, the Company is able to borrow funds at variable interest rates based on, at the Company’s election, the Secured Overnight Financing Rate (“SOFR”) or a base rate, plus in each case a spread based on the Company’s consolidated funded debt ratio. Provided there is no default or event of default under the Credit Agreement and the Company is in compliance with its financial covenants on a pro forma basis, the Company may request an increase in the aggregate commitments under the Credit Agreement (in the form of revolving or term tranches) of up to an additional $100.0 million, for a total aggregate commitment of up to $400.0 million.

Availability of credit requires compliance with certain financial and other covenants, including a maximum consolidated funded debt ratio and minimum consolidated interest coverage ratio as defined in the Credit Agreement. The Company evaluates its compliance with these financial covenants on a fiscal quarterly basis. As of August 29, 2026, the interest rates applicable to the Company’s borrowings under the Credit Agreement would be calculated as SOFR plus 1.00% at the time of the respective borrowing.

As of August 29, 2026, the Company hadno outstanding borrowings and had outstanding letters of credit amounting to $101.3 million, leaving $198.7 million available for borrowing under the Credit Agreement.

As of August 29, 2026, the Company was in compliance with all covenants under the Credit Agreement.