What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-06 compared with 2021-04-08 · 95 added, 124 removed, 270 unchanged (45% 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, 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.

Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

37 unchanged sentences

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

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.

Given the unprecedented nature of this situation, including the emergence of new variants of the virus and delays in the distribution and administration of various vaccines, particularly in certain geographic regions, 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 February 27, 2021, our cash, cash equivalents, and short-term investments were $509.6 million.

As of May 29, 2021, our cash, cash equivalents, and short-term investments were $535.0 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.

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.

National, state and local governments 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.

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.

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

While unemployment levels have improved considerably from their peak during the pandemic, such levels still remain higher than pre-pandemic levels.

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.

Please see “Item 1A.

Please see “Part I, Item 1A.

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 twenty-six weeks ended February 27, 2021 and February 29, 2020.

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 29, 2021 and May 30, 2020.

Thirteen weeks ended

Twenty-six weeks ended

Thirty-nine weeks ended

(In thousands, except percentages)

February 27, 2021

February 29, 2020

February 27, 2021

February 29, 2020

Operating expenses:

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Operating income

Other income, net

Other (income) expense, net

Income before income taxes

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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.

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.

We have five reporting segments, U.S.

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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.

As of May 29, 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.

We did not repurchase any shares during the thirteen weeks ended May 29, 2021.

During the thirty-nine weeks ended May 29, 2021, we repurchased 53,200 shares for an average price per share of $179.21.

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

As of May 29, 2021, we have capitalized $32.0 million related to this CRM project.

We began deployment of our new CRM project during the third quarter of fiscal 2021 and recognized $0.7 million of amortization expense.

Thirteen weeks ended May 29, 2021 compared with thirteen weeks ended May 30, 2020

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Core Laundry Operations

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Consolidated total

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.

Core Laundry Operations’ revenues during the third quarter of fiscal 2021 increased compared to the prior year comparable period.

The increase was primarily driven by the prior year comparable period being significantly impacted by the COVID-19 pandemic.

The impact on the prior year comparable period was partially offset by a large direct sale of $20.1 million.

Specialty Garments revenues in the third quarter of fiscal 2021 increased compared to the prior year comparable period due primarily to growth in cleanroom operations and European 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 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.

First Aid revenues in the third quarter of fiscal 2021 decreased compared to the prior year comparable period due to reduced sales of the segment’s safety and personal protective equipment offerings that experienced increased demand as a result of the COVID-19 pandemic in the prior year comparable period, which were 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 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.

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

This decrease was due primarily to a number of items affecting our prior year comparable period, including the impact of the decline in our rental revenues on our cost structure, higher cost of revenues related to the large $20.1 million direct sale and additional costs we incurred responding to the COVID-19 pandemic.

Also contributing to the decrease was lower bad debt expense in the third quarter of fiscal 2021.

These decreases were partially offset by increased healthcare claims and profit-sharing costs in the third quarter of fiscal 2021.

Specialty Garments cost of revenues as a percentage of revenues decreased in the third quarter of fiscal 2021 as compared to the prior year comparable period due primarily to lower merchandise costs, which were partially offset by increased profit-sharing costs.

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 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.

Our selling and administrative costs increased as a percentage of revenues in the third quarter of fiscal 2021 as compared to the prior year comparable period due primarily to increased healthcare claims, incentive-based compensation and travel costs in the third quarter of fiscal 2021.

These increases were primarily offset by lower indirect taxes as well as additional costs we incurred responding to the COVID-19 pandemic in the third quarter of fiscal 2020.

Depreciation and Amortization

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Depreciation and amortization

% of Revenues

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.

Depreciation and amortization expense increased in the third quarter of fiscal 2021 as compared to the prior year comparable period due primarily to continued investment in our infrastructure as well as our key technology initiatives.

The higher expense includes amortization of $0.7 million for our new CRM project that we began to deploy in the third quarter of fiscal 2021.

Operating Income

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:

For the thirteen weeks ended May 29, 2021 and May 30, 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)

February 27, 2021

February 29, 2020

Core Laundry Operations

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Operating income margin

Other Income, net

Other (Income) Expense, 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.

Total other (income) expense, net

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

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

The increase in our effective tax rate for the third quarter of fiscal 2021 as compared to the prior year comparable period was due primarily to a higher impact from discrete tax benefits in the prior year comparable period.

Thirty-nine weeks ended May 29, 2021 compared with thirty-nine weeks ended May 30, 2020

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Core Laundry Operations

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Consolidated total

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

Consolidated revenues during the thirty-nine weeks ended May 29, 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.

Specialty Garments revenues during the thirty-nine weeks ended May 29, 2021 increased 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.

First Aid revenues during the thirty-nine weeks ended May 29, 2021 decreased compared to the prior year comparable period due to reduced sales from the segment’s wholesale distribution business, which were partially offset by increased sales in our van business.

Contributing to the decrease was 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 the COVID-19 pandemic in the prior year comparable period.

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.

Core Laundry Operations’ cost of revenues as a percentage of revenues decreased as compared to the prior year comparable period.

This decrease was due primarily to a number of items affecting our prior year comparable period, including the impact of the decline in our rental revenues on our cost structure, higher cost of revenues related to the large $20.1 million direct sale in the prior year comparable period and additional costs we incurred responding to the COVID-19 pandemic.

Also contributing to the decrease was lower bad debt expense in the thirty-nine weeks ended May 29, 2021.

These decreases were partially offset by increased healthcare claims and profit-sharing costs in the thirty-nine weeks ended May 29, 2021.

Specialty Garments cost of revenues as a percentage of revenues decreased during the thirty-nine weeks ended May 29, 2021 as compared to the prior year comparable period due primarily to lower 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.

Our selling and administrative costs as a percentage of revenues increased during the thirty-nine weeks ended May 29, 2021 as compared to the prior year comparable period primarily due to increases in selling and administrative payroll expense, health care claims costs and incentive-based compensation expense.

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

Depreciation and amortization expense increased during the thirty-nine weeks ended May 29, 2021 as compared to the prior year comparable period due primarily to continued investment in our infrastructure as well as our key technology initiatives.

The higher expense includes amortization of $0.7 million for our new CRM project that we began to deploy in the third quarter of fiscal 2021.

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:

For the thirty-nine weeks ended May 29, 2021 and May 30, 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

4 unchanged sentences

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Interest income, net

1 unchanged sentence

Total other income, net

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.

The decrease in other income, net, during the thirty-nine weeks ended May 29, 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 foreign exchange gains as compared to foreign exchange losses incurred in the prior year comparable period.

Provision for Income Taxes

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Provision for income taxes

Effective income tax rate

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.

The increase in our effective tax rate during the thirty-nine weeks ended May 29, 2021 was due primarily to a higher release of certain tax reserves in the prior year comparable period.

Liquidity and Capital Resources

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.

Cash, cash equivalents and short-term investments totaled $535.0 million as of May 29, 2021, an increase of $113.8 million from May 30, 2020 when the amount totaled $421.3 million.

We generated $187.5 million and $205.4 million in cash from operating activities in the thirty-nine weeks ended May 29, 2021 and May 30, 2020, respectively.

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 twenty-six weeks ended February 27, 2021 and February 29, 2020, respectively, are summarized as follows:

Sources and uses of cash flows for the thirty-nine weeks ended May 29, 2021 and May 30, 2020, respectively, are summarized as follows:

(In thousands, except percentages)

February 27, 2021

February 29, 2020

Net cash provided by operating activities

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Net Cash Provided by Operating Activities

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”).

The net cash provided by operating activities during the thirty-nine weeks ended May 29, 2021 decreased as compared to the prior year comparable period due primarily to increases in inventory, rental merchandise expenditures and accounts receivable.

These decreases were due to increasing demand and revenue as compared to the prior year comparable period, which was most impacted by the COVID-19 pandemic in these specific areas.

The decreases were partially offset by an increase in profitability and an increase in accounts payable due to the prior year comparable period being the most impacted by the COVID-19 pandemic.

Net Cash Used in Investing Activities

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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 $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.

The decrease in net cash used in financing activities was due primarily to a decrease in the repurchase of Common Stock of $12.1 million in the thirty-nine weeks ended May 29, 2021 compared to the prior year comparable period.

This decrease was partially offset by an increase in dividends paid of $2.4 million, cash outflows for deferred financing costs related to the 2021 Credit Agreement of $0.8 million and an increase in the cash paid for taxes withheld related to the net share settlement of equity awards in the thirty-nine weeks ended May 29, 2021 as compared to the prior year comparable period.

Long-Term Debt and Borrowing Capacity

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.

The 2021 Credit Agreement amended and restated our prior Credit Agreement (as defined below), which was scheduled to mature on April 11, 2021.

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 May 29, 2021, the interest rates applicable to our borrowings under the 2021 Credit Agreement would be calculated as LIBOR plus 1.00% at the time of the respective borrowing.

As of May 29, 2021, we had no outstanding borrowings and had outstanding letters of credit amounting to $67.5 million, leaving $107.5 million available for borrowing under the 2021 Credit Agreement.

As of May 29, 2021, we were in compliance with all covenants under the 2021 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.

1 unchanged sentence

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

4 unchanged sentences

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

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.

As of May 29, 2021, we had forward contracts with a notional value of approximately $2.2 million CAD outstanding and recorded the fair value of the contracts of $0.1 million in accrued liabilities with a corresponding loss of $0.1 million in accumulated other comprehensive loss, which was recorded net of tax.

During the thirty-nine weeks ended May 29, 2021, we reclassified a nominal amount from accumulated other comprehensive income to revenue, related to the derivative financial instruments.

The loss on these forward contracts that resulted in an increase to accumulated other comprehensive loss as of May 29, 2021 is expected to be reclassified to revenues prior to its maturity on February 25, 2022.

Commitments and Contingencies

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

As of May 29, 2021, the risk-free interest rates we utilized ranged from 1.58% to 2.26%.

For environmental liabilities that have been discounted, we include interest accretion, based on the effective interest method, in selling and administrative expenses on the Consolidated Statements of Income.

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

February 27, 2021

The changes to the amounts of our environmental liabilities for the thirty-nine weeks ended May 29, 2021 were as follows (in thousands):

Balance as of August 29, 2020

Revisions in estimates

Costs incurred for which reserves have been provided

2 unchanged sentences

Changes in discount rates

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.

Balance as of May 29, 2021

Anticipated payments and insurance proceeds relating to currently identified environmental remediation liabilities as of May 29, 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 February 27, 2021

Balance as of May 29, 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 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.

As of May 29, 2021, the balance in this escrow account, which is held in a trust and is not recorded in our Consolidated Balance Sheet, was approximately $4.8 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.

Our nuclear garment decontamination facilities are licensed by the Nuclear Regulatory Commission or, in certain cases, by the applicable state agency, and are subject to regulation by federal, state and local authorities.

We also have nuclear garment decontamination facilities in the United Kingdom and the Netherlands.

These facilities are licensed and regulated by the respective country’s applicable federal agency.

There can be no assurance that such regulation will not lead to material disruptions in our garment decontamination business.

Our nuclear garment decontamination facilities are licensed by respective state agencies, as delegated authority by the Nuclear Regulatory Commission (the “NRC”) pursuant to the NRC’s Agreement State program and are subject to applicable federal and state radioactive material regulations.

In addition, our international locations (Canada, the United Kingdom and the European Union) are regulated by equivalent respective jurisdictional authorities.

There can be no assurance that such regulation will not lead to material disruptions in the Company’s garment decontamination business.

From time to time, we are also subject to legal proceedings and claims arising from the conduct of our business operations, including personal injury claims, customer contract matters, employment claims and environmental matters as described above.

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Off-Balance Sheet Arrangements

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.

As of May 29, 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

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Historically, we have been able to manage the impacts of more significant changes in inflation rates through our customer relationships, customer agreements that generally provide for price increases consistent with the rate of inflation and continued focus on improvements of operational productivity.

However, the current inflationary environment is expected to pressure our margins in future periods.

Contractual Obligations and Other Commercial Commitments

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.

As of May 29, 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 8.4% and 8.2% of total consolidated revenues for the thirteen and twenty-six weeks ended February 27, 2021, respectively.

dollar represented approximately 8.6% and 8.4% of total consolidated revenues for the thirteen and thirty-nine weeks ended May 29, 2021, respectively.

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

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.

dollar represented approximately 7.0% and 6.7% of total consolidated assets as of May 29, 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 thirty-nine weeks ended May 29, 2021, our revenues would have increased or decreased by approximately $8.4 million and $11.9 million, respectively, and total assets as of May 29, 2021 would have increased or decreased by approximately $16.3 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.

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.

During the thirty-nine weeks ended May 29, 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 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.

During the thirteen and thirty-nine weeks ended May 29, 2021, transaction gains of $0.1 million and $1.0 million, respectively, were included in other income.

If exchange rates had increased or decreased by 10% during each of the thirteen and thirty-nine weeks ended May 29, 2021, 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