What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-08 compared with 2021-01-07 · 161 added, 91 removed, 233 unchanged (52% of the section changed)

37 unchanged sentences

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

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.

Our revenues in the second half of fiscal 2020 and the first half 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.

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We will continue to review and assess the rapidly-changing COVID-19 pandemic and its impacts on our team partners, our customers, our suppliers and our business so that we can seek to address the impacts on our business and service our customers.

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.

Given the unprecedented nature of this situation, including the emergence of new variants of the virus and delays in the approval, distribution and administration of various vaccines, we cannot reasonably estimate the full extent or duration 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.

As of February 27, 2021, our cash, cash equivalents, and short-term investments were $509.6 million.

We also have access to significant borrowing capacity under our unsecured revolving credit facility, which we believe, together with our cash balances, will continue to help us manage the impacts of the COVID-19 pandemic on our business and address related liquidity needs.

social distancing), and in certain cases, ordering businesses to close or limit operations or people to stay at home.

Although we have been permitted to continue to operate in all of the jurisdictions in which we operate, including in jurisdictions that have mandated the closure of certain businesses and we expect to be permitted to continue to operate under any orders or other restrictions imposed by any government authorities in the future, there is no assurance that we will be permitted to operate under every future government order or other restriction and in every location.

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The COVID-19 pandemic has also resulted in material adverse economic conditions that are impacting, and may continue to impact, our business and the businesses of our suppliers and customers.

Unemployment levels have increased significantly, and the U.S.

economy has entered an economic recession.

Some analysts have predicted that the current economic recession may persist for a significant period of time and become severe.

While unemployment levels have improved from their peak during the pandemic, such levels still remain high.

Although the extent and duration of the impact of the COVID-19 pandemic on our business and operations and the business and operations of our customers and suppliers remain uncertain, the continued spread of COVID-19, the imposition of related public health measures and travel, health-related, business and other restrictions and the resulting materially adverse economic conditions may materially adversely impact our business, financial condition, results of operations and cash flows.

2 unchanged sentences

Results of Operations

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.

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 27, 2021 and February 29, 2020.

Thirteen weeks ended

Twenty-six weeks ended

(In thousands, except percentages)

November 28, 2020

November 30, 2019

February 27, 2021

February 29, 2020

February 27, 2021

February 29, 2020

Operating expenses:

9 unchanged sentences

We derive our revenues through the design, manufacture, personalization, rental, cleaning, delivering, and selling of a wide range of uniforms and protective clothing, including shirts, pants, jackets, coveralls, lab coats, smocks and aprons and specialized protective wear, such as flame resistant and high visibility garments.

We also rent industrial wiping products, floor mats, facility service products, other non-garment items, and provide restroom and cleaning supplies and first aid cabinet services and other safety supplies, to a variety of manufacturers, retailers and service companies.

to a variety of manufacturers, retailers and service companies.

We have five reporting segments, U.S.

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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.

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

The amount and timing of any future dividend payment is subject to the approval of the Board of Directors each quarter.

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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 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.

The share repurchase program will be funded using our available cash or capacity under our 2021 Credit Agreement (as defined below) and may be suspended or discontinued at any time.

As of February 27, 2021, we repurchased a total of 368,117 shares for an average price per share of $167.87 under the share repurchase program using cash on hand.

During the thirteen and twenty-six weeks ended February 27, 2021, we repurchased 12,200 and 53,200 shares for an average price per share of $189.96 and $179.21, respectively.

During the thirteen and twenty-six weeks ended February 29, 2020, we repurchased 20,500 and 71,100 shares for an average price per share of $206.34 and $199.77, respectively.

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 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

As of February 27, 2021, we have capitalized $27.7 million related to this CRM project.

The Company began deployment of our new CRM during the third quarter of fiscal 2021 and as such, commencement of depreciation will begin at that point.

Thirteen weeks ended February 27, 2021 compared with thirteen weeks ended February 29, 2020

(In thousands, except percentages)

November 28, 2020

November 30, 2019

February 27, 2021

February 29, 2020

Core Laundry Operations

1 unchanged sentence

Consolidated total

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.

Consolidated revenues during the second 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 the continued impact of the COVID-19 pandemic on our customers’ operations and wearer levels.

In addition, severe winter storms in Texas and the surrounding states during February 2021 contributed to the decline.

Specialty Garments revenues in the second quarter of fiscal 2021 decreased compared to the prior year comparable period due primarily to decreased revenues from our U.S.

and Canadian nuclear operations, which was partially offset by higher direct sales 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 first quarter of fiscal 2021 decreased compared to the prior year comparable period due to reduced sales from the segment’s wholesale distribution business.

First Aid revenues in the second quarter of fiscal 2021 decreased compared to the prior year comparable period due to reduced sales from the segment’s wholesale distribution business, which was partially offset by increased sales in our van business.

Cost of Revenues

(In thousands, except percentages)

November 28, 2020

November 30, 2019

February 27, 2021

February 29, 2020

Cost of revenues

% of Revenues

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.

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

This decrease was due primarily to lower merchandise costs and bad debt expense, which were partially offset by the impact of the severe winter storms in Texas and the surrounding states during February 2021 and higher healthcare claims costs.

Specialty Garments cost of revenues as a percentage of revenues decreased in the second quarter of fiscal 2021 as compared to the prior year comparable period due primarily to higher gross margin on its direct sales.

Selling and Administrative Expenses

(In thousands, except percentages)

November 28, 2020

November 30, 2019

February 27, 2021

February 29, 2020

Selling and administrative expenses

% 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.

Our selling and administrative costs increased as a percentage of revenues in the second quarter of fiscal 2021 as compared to the prior year comparable period primarily due to the impact of the decline in rental revenues on our cost structure as well as an increase in selling and administrative payroll expense and healthcare claims costs.

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

Depreciation and Amortization

(In thousands, except percentages)

November 28, 2020

November 30, 2019

February 27, 2021

February 29, 2020

Depreciation and amortization

% of Revenues

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.

Depreciation and amortization expense increased in the second 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 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:

For the thirteen weeks ended February 27, 2021 and February 29, 2020, changes in our revenues and costs as discussed above resulted in the following changes in our operating income and margin:

(In thousands, except percentages)

November 28, 2020

November 30, 2019

February 27, 2021

February 29, 2020

Core Laundry Operations

1 unchanged sentence

Operating income

Operating income margin

Other Income, net

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Interest income, net

Other expense, net

Total other income, net

The decrease in other income, net during the second quarter of fiscal 2021 as compared to the prior year comparable period was due primarily to lower interest income from declining interest rates, which was partially offset by increased foreign exchange gains.

Provision for Income Taxes

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Provision for income taxes

Effective income tax rate

The decrease in our effective tax rate for the second quarter of fiscal 2021 as compared to the prior year comparable period was due primarily to an increase in a discrete benefit related to stock-based compensation payments.

Twenty-six weeks ended February 27, 2021 compared with twenty-six weeks ended February 29, 2020

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Core Laundry Operations

Specialty Garments

Consolidated total

Consolidated revenues during the twenty-six weeks ended February 27, 2021 decreased compared to the prior year comparable period.

Specialty Garments revenues during the twenty-six weeks ended February 27, 2021increased compared to the prior year comparable period due primarily to growth in our cleanroom operations, which was partially offset by decreased revenues from our U.S.

and Canadian nuclear 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 during the twenty-six weeks ended February 27, 2021 decreased compared to the prior year comparable period due to reduced sales from the segment’s wholesale distribution business, which was partially offset by increased sales in our van business.

Cost of Revenues

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Cost of revenues

% of Revenues

Core Laundry Operations cost of revenues as a percentage of revenues decreased during the twenty-six weeks ended February 27, 2021 as compared to the prior year comparable period.

Specialty Garments cost of revenues as a percentage of revenues decreased during the twenty-six weeks ended February 27, 2021 as compared to the prior year comparable period due primarily to lower production and services costs as a percentage of revenue.

These decreases were partially offset by increased merchandise costs as a percentage of revenue.

Selling and Administrative Expenses

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Selling and administrative expenses

% of Revenues

Our selling and administrative costs as a percentage of revenues increased during the twenty-six weeks ended February 27, 2021 as compared to the prior year comparable period primarily due to the impact of the decline in rental revenues on our cost structure as well as an increase in selling and administrative payroll expense.

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

Depreciation and Amortization

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Depreciation and amortization

% of Revenues

Depreciation and amortization expense increased during the twenty-six weeks ended February 27, 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 twenty-six weeks ended February 27, 2021 and February 29, 2020, 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)

February 27, 2021

February 29, 2020

Core Laundry Operations

Specialty Garments

Operating income

Operating income margin

Other Income, net

(In thousands, except percentages)

November 28, 2020

November 30, 2019

February 27, 2021

February 29, 2020

Interest income, net

1 unchanged sentence

Total other income, net

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.

The decrease in other income, net during the twenty-six weeks ended February 27, 2021 as compared to the prior year comparable period was due primarily to lower interest income from declining interest rates, which was partially offset by increased foreign exchange gains.

Provision for Income Taxes

(In thousands, except percentages)

November 28, 2020

November 30, 2019

February 27, 2021

February 29, 2020

Provision for income taxes

Effective income tax rate

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.

The increase in our effective tax rate during the twenty-six weeks ended February 27, 2021 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 $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.

Cash, cash equivalents and short-term investments totaled $509.6 million as of February 27, 2021, an increase of $114.2 million from February 29, 2020 when the amount totaled $395.3 million.

We generated $128.0 million and $136.9 million in cash from operating activities in the twenty-six weeks ended February 27, 2021 and February 29, 2020, respectively.

Pursuant to a share repurchase program approved by our Board of Directors on January 2, 2019, we repurchased 53,200 shares of our Common Stock for an aggregate of approximately $9.5 million during the twenty-six weeks ended February 27, 2021.

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 2021 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.

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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 thirteen weeks ended November 28, 2020 and November 30, 2019, respectively, are summarized as follows:

Sources and uses of cash flows for the twenty-six weeks ended February 27, 2021 and February 29, 2020, respectively, are summarized as follows:

(In thousands, except percentages)

November 28, 2020

November 30, 2019

February 27, 2021

February 29, 2020

Net cash provided by operating activities

5 unchanged sentences

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.

The net cash provided by operating activities during the twenty-six weeks ended February 27, 2021 decreased as compared to the prior year comparable period due primarily to a decrease in revenue driving lower net income, increased inventory expenditures, and increased accounts receivable due to the impact of COVID-19.

These decreases were partially offset by the deferral of United States social security and Medicare taxes under the Coronavirus Aid, Relief, and Economic Security Act (the “Cares Act”).

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 $38.8 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.

The decrease in cash used in financing activities was due primarily to a decrease in the repurchase of Common Stock of $4.7 million and a decrease in the cash paid for taxes withheld related to net share settlement of equity awards in the twenty-six weeks ended February 27, 2021 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 twenty-six weeks ended February 27, 2021 as compared to the prior year comparable period.

Long-Term Debt and Borrowing Capacity

We have a $250 million unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of banks, which matures on April 11, 2021.

Under the Credit Agreement, we are able to borrow funds at variable interest rates based on, at our election, the Eurodollar rate or a base rate, plus in each case a spread based on our consolidated funded debt ratio.

On March 26, 2021, we entered into an amended and restated $175.0 million unsecured revolving credit agreement (the “2021 Credit Agreement”) with a syndicate of banks, which matures on March 26, 2026.

The 2021 Credit Agreement amended and restated our prior Credit Agreement, which was scheduled to mature on April 11, 2021.

Under the 2021 Credit Agreement, we are able to borrow funds at variable interest rates based on, at our election, the Eurodollar rate or a base rate, plus in each case a spread based on the Company’s consolidated funded debt ratio.

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 2021 Credit Agreement.

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

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.

Prior to March 26, 2021, we had a $250 million unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of banks, which was scheduled to mature on April 11, 2021.

Under the Credit Agreement, we were able to borrow funds at variable interest rates based on, at our election, the Eurodollar rate or a base rate, plus in each case a spread based on our consolidated funded debt ratio.

Availability of credit required 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.

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

As of February 27, 2021, 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 February 27, 2021, we had no outstanding borrowings and had outstanding letters of credit amounting to $67.5 million, leaving $182.5 million available for borrowing under the Credit Agreement.

As of February 27, 2021, we were in compliance with all covenants under the Credit Agreement.

Derivative Instruments and Hedging Activities

2 unchanged sentences

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 12.1 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 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.

As of February 27, 2021, we had forward contracts with a notional value of approximately $3.0 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 twenty-six weeks ended February 27, 2021, 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 February 27, 2021 is expected to be reclassified to revenues prior to its maturity on February 25, 2022.

Commitments and Contingencies

We are subject to various federal, state and local laws and regulations governing, among other things, air emissions, wastewater discharges, and the generation, handling, storage, transportation, treatment and disposal of hazardous wastes and other substances.

In particular, industrial laundries currently use and must dispose of detergent waste water and other residues, and, in the past, used perchloroethylene and other dry-cleaning solvents.

In particular, industrial laundries currently use and must dispose of detergent wastewater and other residues, and, in the past, used perchloroethylene and other dry-cleaning solvents.

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.

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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.

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.

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

As of February 27, 2021, the risk-free interest rates we utilized ranged from 1.4% to 2.2%.

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 thirteen weeks ended November 28, 2020 were as follows (in thousands):

November 28, 2020

Beginning balance as of August 29, 2020

The changes to the amounts of our environmental liabilities for the twenty-six weeks ended February 27, 2021 were as follows (in thousands):

February 27, 2021

Balance as of August 29, 2020

Costs incurred for which reserves have been provided

2 unchanged sentences

Changes in discount rates

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.

Balance as of February 27, 2021

Anticipated payments and insurance proceeds relating to currently identified environmental remediation liabilities as of February 27, 2021, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.

(In thousands)

4 unchanged sentences

Effect of discounting

Balance as of November 28, 2020

Balance as of February 27, 2021

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

1 unchanged sentence

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 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.

As of February 27, 2021, 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 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.

As of February 27, 2021, 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

2 unchanged sentences

Contractual Obligations and Other Commercial Commitments

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.

As of February 27, 2021, 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 8.0% and 7.7% of total consolidated revenues for the thirteen weeks ended November 28, 2020 and November 30, 2019, respectively.

dollar represented approximately 8.4% and 8.2% of total consolidated revenues for the thirteen and twenty-six weeks ended February 27, 2021, respectively.

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

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.

dollar represented approximately 6.8% and 6.7% of total consolidated assets as of February 27, 2021 and August 29, 2020, respectively.

If exchange rates had increased or decreased by 10% from the actual rates in effect during each of the thirteen and twenty-six weeks ended February 27, 2021, our revenues would have increased or decreased by approximately $5.7 million and $10.8 million, respectively, and total assets as of February 27, 2021 would have increased or decreased by approximately $15.4 million.

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

3 unchanged sentences

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

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.

During the twenty-six weeks ended February 27, 2021, 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 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.

During the thirteen and twenty-six weeks ended February 27, 2021, transaction gains of $1.1 million and $0.8 million, respectively, were included in other income.

If exchange rates had increased or decreased by 10% during each of the thirteen and twenty-six weeks ended February 27, 2021, we would have recognized exchange gains or losses of approximately $0.1 million.

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 performance and the market price of our Common Stock.

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 performance and the market price of our Common Stock.

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