What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-01-06 compared with 2021-07-06 · 107 added, 161 removed, 204 unchanged (57% 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 “Part I, 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 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 “Part I, Item 1A.

Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended August 28, 2021 and in our other filings with the Securities and Exchange Commission, including, without limitation, under “Part II, Item 1A.

25 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, 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 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.

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.

The global COVID-19 pandemic continues to impact the countries in which we operate.

Developments continue to occur rapidly, including the recent emergence and spread of new COVID-19 variants.

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

If customers were to again be forced to close or limit operations as new COVID-19 outbreaks occur, any such closures or reductions in operating levels could have a significant adverse impact on our business.

At times during the pandemic, we have also experienced supply chain disruptions with respect to certain products, including hand sanitizer and masks.

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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 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.

Given the unprecedented nature of this situation, including the emergence of new COVID-19 variants, 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 May 29, 2021, our cash, cash equivalents, and short-term investments were $535.0 million.

As of November 27, 2021, our cash, cash equivalents, and short-term investments were $478.1 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 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.

If we were to be subject to government orders or other restrictions on the operation of our business, we may be required to limit, or close, our operations at certain locations in the future.

Any such limitations or closures could have a material adverse impact on our ability to service our customers and on our business, financial condition and results of operations.

In particular, any limitations on, or closures of, our manufacturing facilities in Mexico or Nicaragua, or our distribution center in Owensboro, Kentucky, could have a material adverse impact on our ability to manufacture products and service customers and could have a material adverse impact on our business, financial condition and results of operations.

The COVID-19 pandemic has caused significant disruptions to our business and operations and could cause material disruptions to our business and operations in the future as a result of, among other things, quarantines, worker illness, worker absenteeism as a result of illness or other factors, social distancing measures and other travel, health-related, business or other restrictions.

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 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.

As a result, any significant increases in healthcare costs as a result of COVID-19 or otherwise could have a material adverse impact on our business, financial condition and results of operations.

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 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 “Part I, Item 1A.

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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 29, 2021 and May 30, 2020.

The following table presents certain selected financial data, including the percentage of revenues represented by each item, for the thirteen weeks ended November 27, 2021 and November 28, 2020.

Thirteen weeks ended

Thirty-nine weeks ended

(In thousands, except percentages)

November 27, 2021

November 28, 2020

Operating expenses:

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Operating income

Other (income) expense, net

Other 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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Selling and administrative costs include costs related to our sales and marketing functions as well as general and administrative costs associated with our corporate offices, non-operating environmental sites and operating locations including information systems, engineering, materials management, manufacturing planning, finance, budgeting and human resources.

We have a substantial number of plants and conduct a significant portion of our business in energy producing regions in the U.S.

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

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.

Our operating results are also directly impacted by the costs of the gasoline used to fuel our vehicles and the natural gas used to operate our plants.

While it is difficult to quantify the positive and negative impacts on our future financial results from changes in energy prices, in general, we believe that significant decreases in oil and natural gas prices would have an overall negative impact on our results due to cutbacks by our customers both in, and dependent upon, the oil and natural gas industries, which would outweigh the benefits in our operating costs from lower energy costs.

Our results of operations may also be adversely impacted by the decline in the Canadian exchange rate.

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.

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 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.

On January 2, 2019, our Board of Directors approved a share repurchase program authorizing the Company to repurchase from time to time up to $100.0 million of its outstanding shares of Common Stock.

Repurchases made under the program, if any, will be made in either the open market or in privately negotiated transactions.

The timing, manner, price and amount of any repurchases 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 our 2021 Credit Agreement (as defined below) and may be suspended or discontinued at any time.

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 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

Labor costs have increased recently 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.

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

This new solution improves functionality, capability and information flow as well as increases automation in servicing our customers.

As of November 27, 2021, we have capitalized $35.9 million related to this CRM project.

We began deployment of our new CRM project during the second half of fiscal 2021 and anticipate this will continue through fiscal 2022 and 2023.

We are depreciating this system over a 10-year life and recognized $0.7 million of amortization expense during the thirteen weeks ended November 27, 2021.

Thirteen weeks ended November 27, 2021 compared with thirteen weeks ended November 28, 2020

(In thousands, except percentages)

November 27, 2021

November 28, 2020

Core Laundry Operations

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Consolidated total

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.

Core Laundry Operations’ revenues during the first quarter of fiscal 2022 increased compared to the prior year comparable period.

Core Laundry Operations’ organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar, was 8.6%.

This strong organic growth rate was primarily the result of customer reopenings, solid sales performance and improved customer retention in the first quarter of fiscal 2022 as well as efforts to share with our customers the cost increases that we are seeing in our business due to the current inflationary environment.

Specialty Garments revenues in the first quarter of fiscal 2022 increased compared to the prior year comparable period due primarily to growth in the cleanroom and European nuclear operations partially offset by a decrease in the US 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 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.

First Aid revenues in the first quarter of fiscal 2022 increased compared to the prior year comparable period due to growth in both our van and wholesale distribution businesses.

Cost of Revenues

(In thousands, except percentages)

November 27, 2021

November 28, 2020

Cost of revenues

% of Revenues

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.

Core Laundry Operations’ cost of revenues as a percentage of revenues increased in the first quarter of fiscal 2022 as compared to the prior year comparable period.

This increase was due primarily to higher merchandise, production payroll, energy and labor costs as a percentage of revenues.

In addition, we had elevated expense related to internal use safety supplies compared to the prior year comparable period.

Specialty Garments cost of revenues as a percentage of revenues decreased in the first quarter of fiscal 2022 as compared to the prior year comparable period.

This decrease was due primarily to lower merchandise and other production costs as percentages of revenue partially offset by higher production payroll and transportation costs as percentages of revenue.

Selling and Administrative Expenses

(In thousands, except percentages)

November 27, 2021

November 28, 2020

Selling and administrative expenses

% of Revenues

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.

Our selling and administrative costs increased as a percentage of revenues in the first quarter of fiscal 2022 as compared to the prior year comparable period due primarily to increased general and administrative payroll costs to advance our capabilities and costs directly attributable to our CRM, ERP and branding initiatives.

Also contributing to the increase were increased healthcare claims, travel costs and indirect taxes.

Depreciation and Amortization

(In thousands, except percentages)

November 27, 2021

November 28, 2020

Depreciation and amortization

% of Revenues

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.

Depreciation and amortization expense increased in the first quarter of fiscal 2022 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 second half of fiscal 2021.

Operating Income

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:

For the thirteen weeks ended November 27, 2021 and November 28, 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 27, 2021

November 28, 2020

Core Laundry Operations

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Operating income margin

Other (Income) Expense, net

(In thousands, except percentages)

Interest income, net

Other Expense, net

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)

Provision for income taxes

Effective income tax rate

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)

Core Laundry Operations

Specialty Garments

Consolidated total

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

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 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)

Cost of revenues

% of Revenues

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)

Selling and administrative expenses

% of Revenues

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)

Depreciation and amortization

% of Revenues

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 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)

Core Laundry Operations

Specialty Garments

Operating income

Operating income margin

Other Income, net

(In thousands, except percentages)

November 27, 2021

November 28, 2020

Interest income, net

Other expense, net

Total other income, net

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.

Total other expense, net

Other expense, net during the first quarter of fiscal 2022 remained relatively consistent with the prior year comparable period.

Provision for Income Taxes

(In thousands, except percentages)

November 27, 2021

November 28, 2020

Provision for income taxes

Effective income tax rate

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.

The decrease in our effective tax rate for the first quarter of fiscal 2022 as compared to the prior year comparable period was due primarily to the impact of an increased tax benefit related to the foreign derived intangible income deduction.

Liquidity and Capital Resources

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.

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 thirty-nine weeks ended May 29, 2021.

Cash, cash equivalents and short-term investments totaled $478.1 million as of November 27, 2021, an increase of $5.1 million from November 28, 2020 when the amount totaled $473.0 million.

We generated $7.8 million and $52.7 million in cash from operating activities in the thirteen weeks ended November 27, 2021 and November 28, 2020, respectively.

Pursuant to share repurchase programs approved by our Board of Directors on January 2, 2019 and October 18, 2021, we repurchased 22,750 shares of our Common Stock for an aggregate of approximately $4.8 million during the thirteen weeks ended November 27, 2021, of which $4.6 million was paid during the period.

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 thirty-nine weeks ended May 29, 2021 and May 30, 2020, respectively, are summarized as follows:

Sources and uses of cash flows for the thirteen weeks ended November 27, 2021 and November 28, 2020, respectively, are summarized as follows:

(In thousands, except percentages)

November 27, 2021

November 28, 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 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.

The net cash provided by operating activities during the thirteen weeks ended November 27, 2021 decreased as compared to the prior year comparable period due primarily to increases in inventories, rental merchandise in service and accounts receivable.

Also contributing to the decrease were decreases in net income and accrued liabilities.

The elevated inventories related to the ongoing supply chain disruption and the increased merchandise in service are attributable to our balance sheet position continuing to normalize coming out of the COVID-19 pandemic impacted period.

The increase in rental merchandise in service and accounts receivable was due to the increased revenue from the economic recovery from the earlier impacts of the COVID-19 pandemic.

The decrease in accrued liabilities was due primarily to $7.9 million of the employer portion of U.S.

social security taxes that we elected to defer paying in the first quarter of fiscal 2021 under the U.S.

These items causing a decrease to the net cash provided by operating activities were partially offset by a decrease in prepaid and accrued income taxes due primarily to overpayments of taxes made in fiscal 2021 that were applied to estimated tax payments in the first quarter of fiscal 2022.

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.

The net decrease in cash used in investing activities during the thirteen weeks ended November 27, 2021 was due primarily to lower capital expenditures and capitalization of software costs of $10.8 million.

Net Cash Used in Financing Activities

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.

The decrease in net cash used in financing activities was due primarily to a $2.6 million decrease in the repurchase of Common Stock in the thirteen weeks ended November 27, 2021 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 (as defined below), which was scheduled to mature on April 11, 2021.

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 our consolidated funded debt ratio.

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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.

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.

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

Derivative Instruments and Hedging Activities

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

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.

In August 2021, we entered into twenty forward contracts to exchange CAD for U.S.

dollars at fixed exchange rates in order to manage our exposure related to certain forecasted CAD denominated sales of one of our subsidiaries.

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 first fiscal quarter of 2022 and continuing through the fourth fiscal quarter of 2026.

In total, we will sell approximately 14.1 million CAD at an average Canadian-dollar exchange rate of 0.7861 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 27, 2021, we had forward contracts with a notional value of approximately 11.5 million CAD outstanding and recorded the fair value of the contracts of $0.1 million in prepaid expenses and other current assets and other long-term assets with a corresponding gain in accumulated other comprehensive loss of $0.1 million, which was recorded net of tax.

During the thirteen weeks ended November 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 November 27, 2021 is expected to be reclassified to revenues prior to their maturities on February 25, 2022 and August 29, 2026, respectively.

Commitments and Contingencies

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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 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.

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

We have agreed to undertake additional actions responsive to a notice of audit findings from the Massachusetts Department of Environmental

Protection concerning a regulatory submittal that we made in 2009 for a portion of the site.

We have received demands from the local transit authority for reimbursement of certain costs associated with its construction of a new municipal transit station in the area of the Somerville site.

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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 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 thirty-nine weeks ended May 29, 2021 were as follows (in thousands):

As of November 27, 2021, the risk-free interest rates we utilized ranged from 0.81% to 1.89%.

The changes to the amounts of our environmental liabilities for the thirteen weeks ended November 27, 2021 were as follows (in thousands):

November 27, 2021

Balance as of August 28, 2021

Revisions in estimates

Costs incurred for which reserves have been provided

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Changes in discount rates

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.

Balance as of November 27, 2021

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

Balance as of November 27, 2021

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 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.

As of November 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 $4.7 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 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.

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.

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Off-Balance Sheet Arrangements

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.

As of November 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

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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.

However, the current inflationary environment has had a negative impact on our margins and we expect that it will continue to pressure our margins in future periods.

Contractual Obligations and Other Commercial Commitments

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.

As of November 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 28, 2021.

Recent Accounting Pronouncements

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Revenues denominated in currencies other than the U.S.

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

dollar represented approximately 8.4% of total consolidated revenues for the thirteen weeks ended November 27, 2021.

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

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.

dollar represented approximately 6.9% and 7.0% of total consolidated assets as of November 27, 2021 and August 28, 2021.

If exchange rates had increased or decreased by 10% from the actual rates in effect during the thirteen weeks ended November 27, 2021, our revenues would have increased or decreased by approximately $4.1 million and, respectively, and total assets as of November 27, 2021 would have increased or decreased by approximately $16.6 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 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.

In August 2021, we entered into twenty forward contracts to exchange CAD for U.S.

dollars at fixed exchange rates in order to manage its exposure related to certain forecasted CAD denominated sales of one of its subsidiaries.

The hedged transactions are specified as the first amount of CAD denominated revenues invoiced by one of the Company’s domestic subsidiaries each fiscal quarter, beginning in the first fiscal quarter of 2022 and continuing through the fourth fiscal quarter of 2026.

In total, the Company will sell approximately 14.1 million CAD at an average Canadian-dollar exchange rate of 0.7861 over these quarterly periods.

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

During the thirteen weeks ended November 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 November 27, 2021 is expected to be reclassified to revenues prior to its maturity on February 25, 2022 and August 29, 2026, respectively.

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 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.

During the thirteen weeks ended November 27, 2021, transaction gains of $0.5 million were included in other expense, net.

If exchange rates had increased or decreased by 10% during the thirteen weeks ended November 27, 2021, we would have recognized exchange gains or losses of approximately $0.2 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