What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-01-07 compared with 2020-07-09 · 101 added, 145 removed, 223 unchanged (52% of the section changed)

6 unchanged sentences

Such statements are highly dependent upon a variety of risks, uncertainties and other important factors that could cause actual results to differ materially from those reflected in such forward-looking statements.

Such factors include, but are not limited to, uncertainties caused by adverse economic conditions, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, and their impact on our customers’ businesses and workforce levels, disruptions of our business and operations, including limitations on, or closures of, our facilities, or the business and operations of our customers or suppliers in connection with extraordinary events or circumstances such as the COVID-19 pandemic, uncertainties regarding our ability to consummate and successfully integrate acquired businesses, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, any adverse outcome of pending or future contingencies or claims, our ability to compete successfully without any significant degradation in our margin rates, seasonal and quarterly fluctuations in business levels, our ability to preserve positive labor relationships and avoid becoming the target of corporate labor unionization campaigns that could disrupt our business, the effect of currency fluctuations on our results of operations and financial condition, our dependence on third parties to supply us with raw materials, which such supply could be severely disrupted as a result of extraordinary events or circumstances such as the COVID-19 pandemic, any loss of key management or other personnel, increased costs as a result of any changes in federal or state laws, rules and regulations or governmental interpretation of such laws, rules and regulations, uncertainties regarding the price levels of natural gas, electricity, fuel and labor, the negative effect on our business from sharply depressed oil and natural gas prices, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, the continuing increase in domestic healthcare costs, increased workers’ compensation claim costs, increased healthcare claim costs, including as a result of extraordinary events or circumstances such as the COVID-19 pandemic, our ability to retain and grow our customer base, demand and prices for our products and services, fluctuations in our Specialty Garments business, instability, supply chain disruption or infection among our employees in Mexico and Nicaragua where our principal garment manufacturing plants are located, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, our ability to properly and efficiently design, construct, implement and operate a new customer relationship management (“CRM”) computer system, interruptions or failures of our information technology systems, including as a result of cyber-attacks, additional professional and internal costs necessary for compliance with any changes in Securities and Exchange Commission, New York Stock Exchange and accounting rules, strikes and unemployment levels, our efforts to evaluate and potentially reduce internal costs, economic and other developments associated with the war on terrorism and its impact on the economy, the impact of foreign trade policies and tariffs or other impositions on imported goods on our business, results of operations and financial condition, general economic conditions, our ability to successfully implement our business strategies and processes, including our capital allocation strategies and the other factors described under “Item 1A.

Such factors include, but are not limited to, uncertainties caused by adverse economic conditions, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, and their impact on our customers’ businesses and workforce levels, disruptions of our business and operations, including limitations on, or closures of, our facilities, or the business and operations of our customers or suppliers in connection with extraordinary events or circumstances such as the COVID-19 pandemic, uncertainties regarding our ability to consummate and successfully integrate acquired businesses, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, any adverse outcome of pending or future contingencies or claims, our ability to compete successfully without any significant degradation in our margin rates, seasonal and quarterly fluctuations in business levels, our ability to preserve positive labor relationships and avoid becoming the target of corporate labor unionization campaigns that could disrupt our business, the effect of currency fluctuations on our results of operations and financial condition, our dependence on third parties to supply us with raw materials, which such supply could be severely disrupted as a result of extraordinary events or circumstances such as the COVID-19 pandemic, any loss of key management or other personnel, increased costs as a result of any changes in federal or state laws, rules and regulations or governmental interpretation of such laws, rules and regulations, uncertainties regarding the price levels of natural gas, electricity, fuel and labor, the negative effect on our business from sharply depressed oil and natural gas prices, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, the continuing increase in domestic healthcare costs, increased workers’ compensation claim costs, increased healthcare claim costs, including as a result of extraordinary events or circumstances such as the COVID-19 pandemic, our ability to retain and grow our customer base, demand and prices for our products and services, fluctuations in our Specialty Garments business, political or other instability, supply chain disruption or infection among our employees in Mexico and Nicaragua where our principal garment manufacturing plants are located, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, our ability to properly and efficiently design, construct, implement and operate a new customer relationship management (“CRM”) computer system, interruptions or failures of our information technology systems, including as a result of cyber-attacks, additional professional and internal costs necessary for compliance with any changes in Securities and Exchange Commission, New York Stock Exchange and accounting rules, strikes and unemployment levels, our efforts to evaluate and potentially reduce internal costs, economic and other developments associated with the war on terrorism and its impact on the economy, the impact of foreign trade policies and tariffs or other impositions on imported goods on our business, results of operations and financial condition, general economic conditions, our ability to successfully implement our business strategies and processes, including our capital allocation strategies and the other factors described under “Item 1A.

Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended August 29, 2020 and in our other filings with the Securities and Exchange Commission, including, without limitation, under “Item 1A.

6 unchanged sentences

We serve 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, healthcare businesses and others who require employee clothing for image, identification, protection or utility purposes.

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, healthcare providers and others who require employee clothing for image, identification, protection or utility purposes.

We also provide our customers with restroom and cleaning supplies, including air fresheners, paper products and hand soaps.

16 unchanged sentences

COVID-19 Assessment

The outbreak of a novel strain of coronavirus (COVID-19) continues to impact a number of countries, including the United States, Canada and the European countries in which we operate.

The outbreak of a novel strain of coronavirus (COVID-19) continues to impact a number of countries, including the United States, Canada, Mexico, Nicaragua and the European countries in which we operate.

Developments continue to occur rapidly with respect to the spread of COVID-19 and its impact on human health and businesses.

New and changing government actions to address the COVID-19 pandemic continue to occur on a daily basis.

Our revenues in the third quarter of fiscal 2020 were significantly adversely impacted as a result of many customers closing their businesses or operating at limited capacities.

Although many of our customers have begun to reopen or increase their operating levels as government restrictions have begun to be lifted, our sales to many such customers are below their pre-pandemic levels and may not return to such pre-pandemic levels.

In addition, although some of our customers have begun to reopen or increase their operating levels, such customers may again be forced to close or limit operations as any new COVID-19 outbreaks occur.

Our revenues in the second half of fiscal 2020 and the first quarter of fiscal 2021 were significantly adversely impacted as a result of many customers closing their businesses or operating at limited capacities.

Although many of our customers have reopened or increased their operating levels as government restrictions have begun to be lifted, our sales to many such customers are below their pre-pandemic levels and may not return to such pre-pandemic levels.

In addition, although many of our customers reopened or increased their operating levels, such customers may again be forced to close or limit operations as any new COVID-19 outbreaks occur.

Any such closures or reductions in operating levels could have a significant adverse impact on our business.

1 unchanged sentence

Such disruptions continue to occur, but have moderated to some extent more recently.

As of May 30, 2020, our cash, cash equivalents, and short-term investments were $421.3 million, and we had access to $179.2 million of borrowing capacity under our $250 million unsecured revolving credit facility, which we believe will continue to help us manage the impacts of the COVID-19 pandemic on our business and address related liquidity needs.

We remain focused on the safety and well-being of our team partners and on the service of our customers.

1 unchanged sentence

Because developments with respect to the spread of COVID-19 and its impacts continue to occur so rapidly, and because of the unprecedented nature of the pandemic, we are unable to predict the extent and duration of the adverse impact of COVID-19 on our business, financial condition and results of operations.

We have assessed the current impact of COVID-19 on our consolidated financial condition, results of operations, and cash flows, as well as our estimates and accounting policies.

We have made additional disclosures of these assessments, as necessary.

Given the unprecedented nature of this situation, we cannot reasonably estimate the full extent of the impact COVID-19 will have on our consolidated financial condition, results of operations, and cash flows in the foreseeable future.

The ultimate impact of COVID-19 on the Company is highly uncertain and will depend on future developments, and such impacts could exist for an extended period of time, even after the COVID-19 pandemic subsides.

As of November 28, 2020, our cash, cash equivalents, and short-term investments were $473.0 million, and we had access to $177.3 million of borrowing capacity under our $250 million unsecured revolving credit facility, which we believe will continue to help us manage the impacts of the COVID-19 pandemic on our business and address related liquidity needs.

National, state and local governments have responded to the COVID-19 pandemic in a variety of ways, including, without limitation, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), and in certain cases, ordering businesses to close or limit operations or people to stay at home.

5 unchanged sentences

For similar reasons, the COVID-19 pandemic has also adversely impacted, and may continue to adversely impact, our suppliers and their manufacturers.

Depending on the extent and duration of all of the above-described effects on our business and operations and the business and operations of our suppliers, our costs could continue to increase, including our costs to address the health and safety of personnel, our ability to obtain products or services from suppliers may be adversely impacted, our ability to service certain customers could be adversely impacted and, as a result, our business, financial condition and results of operations could be materially adversely affected.

Depending on the extent and duration of all of the above-described effects on our business and operations and the business and operations of our suppliers, our costs could increase, including our costs to address the health and safety of personnel, our ability to obtain products or services from suppliers may be adversely impacted, our ability to service certain customers could be adversely impacted and, as a result, our business, financial condition and results of operations could be materially adversely affected.

In addition, depending on the extent and duration of the COVID-19 pandemic, we may be subject to significant increases in healthcare costs in the event that a significant number of our personnel become infected with COVID-19 and require medical treatment.

6 unchanged sentences

Please see “Item 1A.

Risk Factors” in this Quarterly Report on Form 10-Q for an additional discussion of risks and potential risks of the COVID-19 pandemic on our business, financial condition and results of operations.

Risk Factors” in our Annual Report on Form 10-K for the year ended August 29, 2020 for an additional discussion of risks and potential risks of the COVID-19 pandemic on our business, financial condition and results of operations.

Results of Operations

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 30, 2020 and May 25, 2019.

The following table presents certain selected financial data, including the percentage of revenues represented by each item, for the thirteen weeks ended November 28, 2020 and November 30, 2019.

Thirteen weeks ended

Thirty-nine weeks ended

(In thousands, except percentages)

November 28, 2020

November 30, 2019

Operating expenses:

Cost of revenues (1)

Selling and administrative

Selling and administrative expenses (1)

Depreciation and amortization

15 unchanged sentences

In general, we are relatively more dependent on business in these regions than are many of our competitors.

For example, the dramatic decrease in oil prices beginning in 2014 directly affected our customers in the oil industry as they curtailed their level of operations, which had a corresponding effect on our customers in businesses which service or supply the oil industry as well as our customers in unrelated businesses located in areas which had benefited from the economic expansion generated by the robust growth driven by the higher oil prices in prior years.

As a result, our organic growth in periods following that dramatic decrease in oil prices was negatively impacted by elevated headcount reductions in our wearer base as well as increased lost accounts.

Recent volatility in energy prices have had and may continue to have a significant impact on wearer levels at existing customers in our North American energy-dependent markets.

3 unchanged sentences

Our business is subject to various state and federal regulations, including employment laws and regulations, minimum wage requirements, overtime requirements, working condition requirements, citizenship requirements, healthcare insurance mandates and other laws and regulations that impact our labor costs.

We expect that our labor costs will rise in fiscal 2020 as a result of increases in state and local minimum wage levels.

Labor costs increased in fiscal 2020 as a result of increases in state and local minimum wage levels as well as the overall impact of wage pressure as the result of a low unemployment environment.

On October 23, 2019, we announced that we would be raising our quarterly dividend to $0.25 per share for Common Stock and to $0.20 per share for Class B Common Stock, up from $0.1125 and $0.09 per share, respectively.

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The timing, manner, price and amount of any repurchases will depend on a variety of factors, including economic and market conditions, the Company stock price, corporate liquidity requirements and priorities, applicable legal requirements and other factors.

The share repurchase program will be funded using the Company’s available cash or capacity under its credit agreement and may be suspended or discontinued at any time.

As of May 30, 2020, the Company had repurchased a total of 314,917 shares for an average price per share of $165.96 under the share repurchase program.

During the thirteen and thirty-nine weeks ended May 30, 2020, the Company repurchased 46,667 and 117,767 shares for an average price per share of $161.65 and $184.67 respectively.

During the thirteen and thirty-nine weeks ended May 25, 2019, the Company repurchased 99,500 and 144,500 shares for an average price per share of $147.01 and $145.01, respectively.

During fiscal 2017, we recorded a pre-tax non-cash impairment charge of $55.8 million once it was determined that it was not probable that the version of the CRM system that was being developed would be completed and placed into service.

On December 28, 2018, we entered into a settlement agreement with our lead contractor for the version of the CRM system with respect to which we recorded the impairment charge.

As part of the settlement agreement, we recorded in the thirteen weeks ended February 23, 2019 a total gain of $21.1 million as a reduction of selling and administrative expenses, which includes our receipt of a one-time cash payment in the amount of $13.0 million as well as the forgiveness of amounts previously due the contractor.

We also received hardware and related maintenance service with a fair value of $0.8 million as part of the settlement.

The share repurchase program will be funded using our available cash or capacity under its credit agreement and may be suspended or discontinued at any time.

As of November 28, 2020, we repurchased a total of 355,917 shares for an average price per share of $167.12 under the share repurchase program using cash on hand.

During the thirteen weeks ended November 28, 2020, we repurchased 41,000 shares for an average price per share of $176.01.

During the thirteen weeks ended November 30, 2019, we repurchased 50,600 shares for an average price per share of $197.11.

In our fourth fiscal quarter of 2018, we initiated a multiyear CRM project to further develop, implement and deploy a third-party application we licensed.

This new solution is intended to improve functionality, capability and information flow as well as increase automation in servicing our customers.

As of May 30, 2020, we have capitalized $20.6 million related to our new CRM project.

Thirteen weeks ended May 30, 2020 compared with thirteen weeks ended May 25, 2019

As of November 28, 2020, we have capitalized $25.5 million related to our new CRM project.

Thirteen weeks ended November 28, 2020 compared with thirteen weeks ended November 30, 2019

(In thousands, except percentages)

November 28, 2020

November 30, 2019

Core Laundry Operations

1 unchanged sentence

Consolidated total

Consolidated revenues during the thirteen weeks ended May 30, 2020 decreased compared to the thirteen weeks ended May 25, 2019 primarily driven by a decline in revenues in our Core Laundry Operations resulting from COVID-19 related customer closures as well as related wearer reductions at customers that remained open.

This decline in revenues was partially offset by a large direct sale of $20.1 million as well as increased safety and personal protective equipment sales in the thirteen weeks ended May 30, 2020.

Specialty Garments revenues in the third quarter of fiscal 2020 decreased compared to the third quarter of fiscal 2019 due primarily to decreased direct sales activity in our nuclear operations in the U.S.

and Canada, which was partially offset by growth in our cleanroom and European nuclear operations.

Consolidated revenues during the first quarter of fiscal 2021 decreased compared to the prior year comparable period.

The decrease was primarily driven by a decline in revenues in our Core Laundry Operations resulting from COVID-19 related customer closures as well as related wearer reductions at customers that remained open.

Specialty Garments revenues in the first quarter of fiscal 2021 increased compared to the prior year comparable period due primarily to increased direct sales activity in our nuclear operations in the U.S.

and Canada as well as growth in our cleanroom operations.

Specialty Garments’ results are often affected by seasonality and the timing and length of its customers’ power reactor outages as well as its project-based activities.

First Aid revenues in the third quarter of fiscal 2020 increased compared to the third quarter of fiscal 2019 due primarily to increased demand for the segment’s safety and personal protective equipment offerings as a result of COVID-19.

First Aid revenues in the first quarter of fiscal 2021 decreased compared to the prior year comparable period due to reduced sales from the segment’s wholesale distribution business.

Cost of Revenues

(In thousands, except percentages)

November 28, 2020

November 30, 2019

Cost of revenues

% of Revenues

Core Laundry Operations cost of revenues as a percentage of revenues increased in the thirteen weeks ended May 30, 2020 as compared to the prior year comparable period.

This increase was due to a number of items, including the impact of the decline in our rental revenues on our cost structure, higher merchandise amortization as a percentage of revenues due to the amortization of prior period expenditures, higher cost of revenues related to the large $20.1 million direct sale, additional costs we incurred related to certain temporary employee compensation programs we instituted during the quarter, higher bad debt expense as well as increased costs for internal-use safety supplies we sourced during the quarter for our employees.

These items were partially offset by lower incentive compensation, healthcare, energy and travel-related costs.

Specialty Garments cost of revenues as a percentage of revenues decreased in the thirteen weeks ended May 30, 2020 as compared to the prior year comparable period.

This decrease was due primarily to a bad debt recovery from a customer in bankruptcy as well as lower travel-related costs.

These items were partially offset by higher merchandise expense and costs incurred responding to the COVID-19 pandemic, including employee compensation and amounts paid for internal-use safety supplies.

Core Laundry Operations cost of revenues as a percentage of revenues decreased in the first quarter of fiscal 2021 as compared to the prior year comparable period.

This decrease was due primarily to lower healthcare and energy costs.

Specialty Garments cost of revenues as a percentage of revenues in the first quarter of fiscal 2021 were consistent with the prior year comparable period.

Selling and Administrative Expenses

(In thousands, except percentages)

November 28, 2020

November 30, 2019

Selling and administrative expenses

% of Revenues

Our selling and administrative costs increased in the thirteen weeks ended May 30, 2020 as compared to the prior year comparable period.

The increase was due primarily to higher indirect tax costs as well as additional costs we incurred related to certain temporary COVID-19 related employee compensation programs we instituted during the quarter.

These items contributing to the increase were partially offset by lower incentive compensation, healthcare and travel-related costs as a percentage of revenues.

Our selling and administrative costs increased as a percentage of revenues primarily due to the impact of the decline in rental revenues resulting in an increase in selling and administrative payroll expense as a percentage of revenues.

These increases were primarily offset by lower travel-related and healthcare costs.

Depreciation and Amortization

(In thousands, except percentages)

November 28, 2020

November 30, 2019

Depreciation and amortization

% of Revenues

Depreciation and amortization expense increased in the thirteen weeks ended May 30, 2020 as compared to the prior year comparable period due primarily to higher capital expenditures placed in service over the previous quarters.

The increase in depreciation and amortization reflects the Company’s continued capital investments in the business.

Depreciation and amortization expense increased in the first quarter of fiscal 2021 as compared to the prior year comparable period due primarily to higher capital expenditures placed in service over the previous quarters.

The increase in depreciation and amortization reflects our continued capital investments in the business.

Operating Income

For the thirteen weeks ended May 30, 2020 and May 25, 2019, changes in our revenues and costs as discussed above resulted in the following changes in our operating income and operating income margin:

For the thirteen weeks ended November 28, 2020 and November 30, 2019, changes in our revenues and costs as discussed above resulted in the following changes in our operating income and operating income margin:

(In thousands, except percentages)

November 28, 2020

November 30, 2019

Core Laundry Operations

4 unchanged sentences

(In thousands, except percentages)

Interest income, net

Other expense, net

Total other income, net

The decrease in other income, net during the thirteen weeks ended May 30, 2020 as compared to the prior year comparable period was due primarily to lower interest income from declining interest rates, an increase in foreign exchange losses and increased periodic pension costs.

Provision for Income Taxes

(In thousands, except percentages)

Provision for income taxes

Effective income tax rate

The decrease in our effective tax rate for the thirteen weeks ended May 30, 2020 as compared to the prior year comparable period was due primarily to a $0.4 million benefit as a result of the relief of certain tax reserves and a $0.5 million discrete tax benefit related to the exercise of stock appreciation rights.

Thirty-nine weeks ended May 30, 2020 compared with thirty-nine weeks ended May 25, 2019

(In thousands, except percentages)

Core Laundry Operations

Specialty Garments

Consolidated total

Consolidated revenues in the thirty-nine weeks ended May 30, 2020 increased compared to the thirty-nine weeks ended May 25, 2019 due primarily to revenue growth in our Core Laundry Operations.

Excluding the effect of acquisitions that increased our revenues by 0.7% and a weaker Canadian Dollar that decreased revenues by 0.1%, our organic growth for our Core Laundry Operations was 2.1%.

Organic growth consists primarily of new sales, price increases, and net changes in the wearer levels at our existing customers, offset by lost accounts.

During the thirty-nine weeks ended May 30, 2020, Core Laundry Operations rental revenues were negatively impacted by COVID-19 related customer closures as well as related wearer reductions at customers that remained open.

During the thirty-nine weeks ended May 30, 2020, we had a large direct sale of $20.1 million that partially offset the decline in our rental revenues.

Specialty Garments revenues in the thirty-nine weeks ended May 30, 2020 increased compared to the thirty-nine weeks ended May 25, 2019 due primarily to increased direct sales activity in our nuclear operations in the U.S.

and Canada as well as strong performance in our cleanroom operations.

Specialty Garments results are often affected by seasonality and the timing and length of its customers’ power reactor outages as well as its project-based activities.

The increase in First Aid revenues in the thirty-nine weeks ended May 30, 2020 as compared to the thirty-nine weeks ended May 25, 2019 was due primarily to the strong performance in our wholesale distribution business and increased demand for the segment’s safety and personal protective equipment offerings as a result of COVID-19.

Cost of Revenues

(In thousands, except percentages)

Cost of revenues

% of Revenues

Core Laundry Operations cost of revenues as a percentage of revenues in the thirty-nine weeks ended May 30, 2020 increased from the prior year comparable period.

This increase was due to a number of items, including the impact of the COVID-19 related decline in our rental revenues on our cost structure, higher merchandise amortization as a percentage of revenues due to the amortization of prior period expenditures, higher cost of revenues related to the large $20.1 million direct sale, additional employee compensation expense, higher bad debt expense as well as increased costs for internal-use safety supplies.

These items were partially offset by lower incentive compensation, healthcare, energy and travel-related costs.

Our Specialty Garments cost of revenues as a percentage of revenues decreased in the thirty-nine weeks ended May 30, 2020 as compared to the prior year comparable period.

The decrease in cost of revenues as a percentage of revenues was due primarily to lower production and service and delivery payroll costs as well as lower other delivery costs in the thirty-nine weeks ended May 30, 2020.

Selling and Administrative Expenses

(In thousands, except percentages)

Selling and administrative expenses

% of Revenues

Our selling and administrative costs increased in the thirty-nine weeks ended May 30, 2020 as compared to the prior year comparable period.

The increase was due primarily to a gain of $21.1 million in the thirty-nine weeks ended May 25, 2019 related to the settlement agreement with the lead contractor for the version of the CRM system with respect to which we recorded a $55.8 million impairment charge in fiscal 2017.

Also contributing to the increase was a gain of $3.0 million from the settlement of environmental litigation in the first quarter of fiscal 2019 and higher indirect tax costs in the thirty-nine weeks ended May 30, 2020.

These items driving the increase in thirty-nine weeks ended May 30, 2020 were partially offset by lower incentive compensation, healthcare and travel-related costs.

Depreciation and Amortization

(In thousands, except percentages)

Depreciation and amortization

% of Revenues

Depreciation and amortization expense increased in the thirty-nine weeks ended May 30, 2020 as compared to the prior year comparable period due primarily to higher capital expenditures placed in service over the past several quarters.

The increase in depreciation and amortization reflects the Company’s continued capital investments in the business.

Operating Income

For the thirty-nine weeks ended May 30, 2020 and May 25, 2019, changes in our revenues and costs as discussed above resulted in the following changes in our operating income and operating income margin:

(In thousands, except percentages)

Core Laundry Operations

Specialty Garments

Operating income

Operating income margin

Other Income, net

(In thousands, except percentages)

November 28, 2020

November 30, 2019

Interest income, net

1 unchanged sentence

Total other income, net

The decrease in other income, net, during the thirty-nine weeks ended May 30, 2020 as compared to the prior year comparable period was due primarily to lower interest income from declining interest rates and increased periodic pension costs.

The decrease in other income, net during the first quarter of fiscal 2021 as compared to the prior year comparable period was due primarily to lower interest income from declining interest rates.

Provision for Income Taxes

(In thousands, except percentages)

November 28, 2020

November 30, 2019

Provision for income taxes

Effective income tax rate

The decrease in our effective tax rate for the thirty-nine weeks ended May 30, 2020 as compared to the prior year comparable period was due primarily to a $1.5 million benefit as a result of the relief of certain tax reserves and a $1.9 million discrete tax benefit related to the exercise of stock appreciation rights.

The increase in our effective tax rate for the first quarter of fiscal 2021 as compared to the prior year comparable period was due primarily to a $1.3 million benefit in the prior year comparable period resulting from the release of certain tax reserves.

Liquidity and Capital Resources

Cash, cash equivalents and short-term investments totaled $421.3 million as of May 30, 2020, an increase of $71.8 million from May 25, 2019 when the amount totaled $349.4 million.

We generated $205.4 million and $199.4 million in cash from operating activities in the thirty-nine weeks ended May 30, 2020 and May 25, 2019, respectively.

Pursuant to a share repurchase program approved by our Board of Directors on January 2, 2019, we repurchased 117,767 shares of our Common Stock for an aggregate of approximately $21.7 million during the thirty-nine weeks ended May 30, 2020.

Cash, cash equivalents and short-term investments totaled $473.0 million as of November 28, 2020, an increase of $116.4 million from November 30, 2019 when the amount totaled $356.6 million.

We generated $52.7 million and $52.4 million in cash from operating activities in the thirteen weeks ended November 28, 2020 and November 30, 2019, respectively.

Pursuant to a share repurchase program approved by our Board of Directors on January 2, 2019, we repurchased 41,000 shares of our Common Stock for an aggregate of approximately $7.2 million during the thirteen weeks ended November 28, 2020.

We believe, although there can be no assurance, that our current cash, cash equivalents and short-term investments balances, our cash generated from future operations and amounts available under our Credit Agreement (defined below) will be sufficient to meet our current anticipated working capital and capital expenditure requirements for at least the next 12 months and will help us manage the impacts of the COVID-19 pandemic on our business and address related liquidity needs.

2 unchanged sentences

We may also use cash flows provided by operating activities, as well as proceeds from loans payable and long-term debt, to fund growth and acquisition opportunities, as well as other cash requirements.

Sources and uses of cash flows for the thirty-nine weeks ended May 30, 2020 and May 25, 2019, respectively, are summarized as follows:

Sources and uses of cash flows for the thirteen weeks ended November 28, 2020 and November 30, 2019, respectively, are summarized as follows:

(In thousands, except percentages)

November 28, 2020

November 30, 2019

Net cash provided by operating activities

2 unchanged sentences

Effect of exchange rate changes

Net increase (decrease) in cash, cash equivalents and

Net decrease in cash, cash equivalents and

short-term investments

Cash Provided by Operating Activities

The increase in cash provided by operating activities was due primarily to lower expenditures on rental merchandise and improved collections on accounts receivable in the thirty-nine weeks ended May 30, 2020 as compared to the prior year comparable period.

Also contributing to the increase was the one-time bonus paid to our employees during the first quarter of fiscal 2019.

These increases were partially offset by cash received of $13.0 million in the second quarter of fiscal 2019 from the settlement agreement with the lead contractor for the version of the CRM system with respect to which we recorded a $55.8 million impairment charge in fiscal 2017.

Also partially offsetting the increases was $3.0 million from the settlement of environmental litigation in the first quarter of fiscal 2019.

Cash Used in Investing Activities

The net increase in cash used in investing activities was due primarily to the acquisition of a Missouri-based industrial laundry business, which was completed in September 2019 for $38.8 million, using available cash on hand.

Also contributing to the increase was an increase in capital expenditures of $3.0 million in the thirty-nine weeks ended May 30, 2020 as compared to the prior year comparable period.

Cash Used in Financing Activities

The increase in cash used in financing activities was due primarily to an increase in dividends paid of $5.0 million in the thirty-nine weeks ended May 30, 2020 as compared to the prior year comparable period.

Net Cash Provided by Operating Activities

The net cash provided by operating activities remained relatively consistent in the thirteen weeks ended November 28, 2020 as compared to the prior year comparable period.

Net Cash Used in Investing Activities

The net decrease in cash used in investing activities was due primarily to the acquisition of a Missouri-based industrial laundry business, which was completed in the thirteen weeks ended November 30, 2019 for $38.5 million, using available cash on hand.

Offsetting this decrease in cash used in investing activities was an increase in capital expenditures of $12.9 million in the thirteen weeks ended November 28, 2020 as compared to the prior year comparable period.

Net Cash Used in Financing Activities

The decrease in cash used in financing activities was due primarily to a decrease in the repurchase of Common Stock of $2.8 million and a decrease in the cash paid for taxes withheld related to net share settlement of equity awards in the thirteen weeks ended November 28, 2020 as compared to the prior year comparable period.

These decreases were partially offset by an increase in dividends paid of $2.5 million in the thirteen weeks ended November 28, 2020 as compared to the prior year comparable period.

Long-Term Debt and Borrowing Capacity

3 unchanged sentences

We test our compliance with these financial covenants on a fiscal quarterly basis.

As of May 30, 2020, the interest rates applicable to our borrowings under the Credit Agreement would be calculated as LIBOR plus 75 basis points at the time of the respective borrowing.

As of May 30, 2020, we had no outstanding borrowings and had outstanding letters of credit amounting to $70.8 million, leaving $179.2 million available for borrowing under the Credit Agreement.

As of May 30, 2020, we were in compliance with all covenants under the Credit Agreement.

As of November 28, 2020, the interest rates applicable to our borrowings under the Credit Agreement would be calculated as LIBOR plus 75 basis points at the time of the respective borrowing.

As of November 28, 2020, we had no outstanding borrowings and had outstanding letters of credit amounting to $72.7 million, leaving $177.3 million available for borrowing under the Credit Agreement.

We expect to replace the Credit Agreement prior to its maturity with a new revolving line of credit on appropriate terms.

As of November 28, 2020, we were in compliance with all covenants under the Credit Agreement.

Derivative Instruments and Hedging Activities

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The hedged transactions are specified as the first amount of CAD denominated revenues invoiced by one of our domestic subsidiaries each fiscal quarter, beginning in the third fiscal quarter of 2019 and continuing through the second fiscal quarter of 2022.

In total, we will sell approximately 10.7 million CAD at an average Canadian-dollar exchange rate of 0.7814 over these quarterly periods.

In total, we will sell approximately 10.7 million

CAD at an average Canadian-dollar exchange rate of 0.7814 over these quarterly periods.

We concluded that the forward contracts met the criteria to qualify as a cash flow hedge under U.S.

As of May 30, 2020, we had forward contracts with a notional value of approximately $5.9 million CAD outstanding and recorded the fair value of the contracts of $0.1 million in other long-term assets and $0.2 million in prepaid expenses and other current assets with a corresponding decrease in accumulated other comprehensive loss of $0.2 million, which was recorded net of tax.

During both the thirteen and thirty-nine weeks ended May 30, 2020, we reclassified $0.1 million from accumulated other comprehensive income to revenue, related to the derivative financial instruments.

The gain on these forward contracts that results in decrease to accumulated other comprehensive loss as of May 30, 2020 is expected to be reclassified to revenues prior to its maturity on February 25, 2022.

As of November 28, 2020, we had forward contracts with a notional value of approximately $4.0 million CAD outstanding and recorded the fair value of the contracts of a nominal amount in other long-term assets and prepaid expenses and other current assets with a corresponding nominal gain in accumulated other comprehensive loss, which was recorded net of tax.

During the thirteen weeks ended November 28, 2020, we reclassified a nominal amount from accumulated other comprehensive income to revenue, related to the derivative financial instruments.

The gain on these forward contracts that resulted in a decrease to accumulated other comprehensive loss as of November 28, 2020 is expected to be reclassified to revenues prior to its maturity on February 25, 2022.

Commitments and Contingencies

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We are attentive to the environmental concerns surrounding the disposal of these materials and have, through the years, taken measures to avoid their improper disposal.

Over the years, we have settled, or contributed to the settlement of, actions or claims brought against us relating to the disposal of hazardous materials and there can be no assurance that we will not have to expend material amounts to remediate the consequences of any such disposal in the future.

We have settled, or contributed to the settlement of, past actions or claims brought against us relating to the disposal of hazardous materials at several sites and there can be no assurance that we will not have to expend material amounts to remediate the consequences of any such disposal in the future.

GAAP requires that a liability for contingencies be recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.

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We regularly consult with attorneys and outside consultants in our consideration of the relevant facts and circumstances before recording a contingent liability.

Changes in enacted laws, regulatory orders or decrees, our estimates of costs, risk-free interest rates, insurance proceeds, participation by other parties, the timing of payments, the input of our attorneys and outside consultants or other factual circumstances could have a material impact on the amounts recorded for our environmental and other contingent liabilities.

Under environmental laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on, or in, or emanating from, such property, as well as related costs of investigation and property damage.

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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 our Company under such laws or expose our Company to third-party actions such as tort suits.

We continue to address environmental conditions under terms of consent orders negotiated with the applicable environmental authorities or otherwise with respect to sites located in or related to Woburn, Massachusetts, Somerville, Massachusetts, Springfield, Massachusetts, Uvalde, Texas, Stockton, California, two sites related to former operations in Williamstown, Vermont, as well as sites located in Goldsboro, North Carolina and Wilmington, North Carolina.

We have accrued certain costs related to the sites described above as it has been determined that the costs are probable and can be reasonably estimated.

We have potential exposure related to a parcel of land (the “Central Area”) related to the Woburn, Massachusetts site mentioned above.

We continue to address environmental conditions under terms of consent orders negotiated with the applicable environmental authorities or otherwise with respect to certain sites.

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 have potential exposure related to a parcel of land (the “Central Area”) related to a site in Woburn, Massachusetts.

Currently, the consent decree for the Woburn site does not define or require any remediation work in the Central Area.

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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 the Somerville, Massachusetts site.

We have received and responded 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.

Additionally, we have implemented mitigation measures and continues to monitor environmental conditions at the Somerville, Massachusetts site.

We have received, responded, and agreed to undertake additional response actions pertaining 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.

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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 30, 2020, the risk-free interest rates we utilized ranged from 0.7% to 1.4%.

As of November 28, 2020, the risk-free interest rates we utilized ranged from 0.8% to 1.6%.

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 30, 2020 were as follows (in thousands):

The changes to the amounts of our environmental liabilities for the thirteen weeks ended November 28, 2020 were as follows (in thousands):

November 28, 2020

Beginning balance as of August 29, 2020

Revisions in estimates

Costs incurred for which reserves have been provided

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Changes in discount rates

Balance as of May 30, 2020

Anticipated payments and insurance proceeds relating to currently identified environmental remediation liabilities as of May 30, 2020, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.

Balance as of November 28, 2020

Anticipated payments and insurance proceeds relating to currently identified environmental remediation liabilities as of November 28, 2020, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.

(In thousands)

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Effect of discounting

Balance as of May 30, 2020

Balance as of November 28, 2020

Estimated insurance proceeds are primarily received from an annuity received as part of our legal settlement with an insurance company.

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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 30, 2020, the balance in this escrow account, which is held in a trust and is not recorded in our Consolidated Balance Sheet, was approximately $4.5 million.

As of November 28, 2020, the balance in this escrow account, which is held in a trust and is not recorded in our Consolidated Balance Sheet, was approximately $4.5 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 the site in Uvalde, Texas.

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Off-Balance Sheet Arrangements

As of May 30, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Securities and Exchange Commission Regulation S-K.

As of November 28, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Securities and Exchange Commission Regulation S-K.

Effects of Inflation

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Contractual Obligations and Other Commercial Commitments

As of May 30, 2020, there were no material changes to our contractual obligations that were disclosed in our Annual Report on Form 10-K for the year ended August 31, 2019.

As of November 28, 2020, there were no material changes to our contractual obligations that were disclosed in our Annual Report on Form 10-K for the year ended August 29, 2020.

Recent Accounting Pronouncements

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Revenues denominated in currencies other than the U.S.

dollar represented approximately 7.0% and 7.6% of total consolidated revenues for the thirteen and thirty-nine weeks ended May 30, 2020, respectively.

dollar represented approximately 8.0% and 7.7% of total consolidated revenues for the thirteen weeks ended November 28, 2020 and November 30, 2019, respectively.

Total assets denominated in currencies other than the U.S.

dollar represented approximately 6.5% of total consolidated assets as of May 30, 2020 and August 31, 2019, respectively.

If exchange rates had increased or decreased by 10% from the actual rates in effect during the thirteen and thirty-nine weeks ended May 30, 2020, our revenues would have increased or decreased by approximately $3.1 million and $10.5 million respectively, and total assets as of May 30, 2020 would have increased or decreased by approximately $14.0 million.

dollar represented approximately 6.1% and 6.7% of total consolidated assets as of November 28, 2020 and August 29, 2020, respectively.

If exchange rates had increased or decreased by 10% from the actual rates in effect during the thirteen weeks ended November 28, 2020, our revenues would have increased or decreased by approximately $5.1 million and total assets as of November 28, 2020 would have increased or decreased by approximately $13.7 million.

In June 2018, we entered into twelve forward contracts to exchange CAD for U.S.

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We concluded that the forward contracts met the criteria to qualify as a cash flow hedge under U.S.

The gain on these forward contracts that results in a decrease to accumulated other comprehensive loss as of May 30, 2020 is expected to be reclassified to revenues prior to its maturity on February 25, 2022.

During the thirteen weeks ended November 28, 2020, we reclassified a nominal amount from accumulated other comprehensive income to revenue, related to the derivative financial instruments.

Other than the forward contracts, discussed above, we do not operate a hedging program to mitigate the effect of a significant change in the value of the functional currencies of our foreign subsidiaries, which include the Canadian dollar, euro, British pound, Mexican peso and Nicaraguan cordoba, as compared to the U.S.

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The intercompany payables and receivables are denominated in Canadian dollars, euros, British pounds, Mexican pesos and Nicaraguan cordobas.

During the thirteen and thirty-nine weeks ended May 30, 2020, transaction losses of $1.0 million and $1.2 million, respectively, were included in other income.

If exchange rates had increased or decreased by 10% during the thirteen and thirty-nine weeks ended May 30, 2020, we would have recognized exchange gains or losses of approximately $0.3 million and $0.5 million, respectively.

During the thirteen weeks ended November 28, 2020, transaction losses of $0.3 million were included in other income.

If exchange rates had increased or decreased by 10% during the thirteen weeks ended November 28, 2020, we would have recognized exchange gains or losses of approximately $0.1 million.

Please see “Item 1A.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis