What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-07 compared with 2022-01-06 · 151 added, 124 removed, 187 unchanged (60% 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 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 significant increases in inflation or extraordinary events or circumstances such as geopolitical conflicts like the conflict between Russia and Ukraine or 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, or adverse impacts from increases in, 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 or additional Securities and Exchange Commission, New York Stock Exchange and accounting or other rules, including, without limitation, recent rules proposed by the Securities and Exchange Commission regarding climate-related and cybersecurity-related disclosures, 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.

6 unchanged sentences

We serve businesses of all sizes in numerous industry categories.

Typical customers include automobile service centers and dealers, delivery services, food and general merchandise retailers, food processors and service operations, light manufacturers, maintenance facilities, restaurants, service companies, soft and durable goods wholesalers, transportation companies, healthcare providers and others who require employee clothing for image, identification, protection or utility purposes.

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

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

16 unchanged sentences

COVID-19 Assessment

The 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.

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

At times during the global COVID-19 pandemic, our revenues have been significantly adversely impacted as a result of many customers closing their businesses or operating at limited capacities.

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

These adverse impacts and disruptions have recently declined.

Although COVID-19 cases have generally decreased significantly since the outbreak of a new COVID-19 variant several months ago, new COVID-19 variants could emerge and spread in the future and have an adverse impact on our business.

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

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

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

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

Given the unprecedented nature of this situation, 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 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.

Please see “Part I, Item 1A.

1 unchanged sentence

Results of Operations

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

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 26, 2022 and February 27, 2021.

Thirteen weeks ended

Twenty-six weeks ended

(In thousands, except percentages)

November 27, 2021

November 28, 2020

February 26, 2022

February 27, 2021

February 26, 2022

February 27, 2021

Operating expenses:

4 unchanged sentences

Operating income

Other expense, net

Other income, net

Income before income taxes

9 unchanged sentences

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.

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.

Our operating margins have been, and may continue to be, adversely impacted by the recent surge in energy prices.

In addition, 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.

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

2 unchanged sentences

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.

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

As of February 26, 2022, we have capitalized $37.2 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

We are depreciating this system over a 10-year life and recognized $0.8 million and $1.5 million of amortization expense during the thirteen and twenty-six weeks ended February 26, 2022, respectively.

Thirteen weeks ended February 26, 2022 compared with thirteen weeks ended February 27, 2021

(In thousands, except percentages)

November 27, 2021

November 28, 2020

February 26, 2022

February 27, 2021

Core Laundry Operations

1 unchanged sentence

Consolidated total

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

Core Laundry Operations’ revenues during the second 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 8.0%.

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.

This strong organic growth rate was primarily the result of customer re-openings in fiscal 2021, solid sales performance and improved customer retention 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 second quarter of fiscal 2022 increased compared to the prior year comparable period due primarily to growth in our cleanroom and European nuclear operations which was partially offset by higher direct sale activity in the prior year.

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

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

First Aid revenues in the second quarter of fiscal 2022 increased compared to the prior year comparable period due to increased sales in our van business.

Cost of Revenues

(In thousands, except percentages)

November 27, 2021

November 28, 2020

February 26, 2022

February 27, 2021

Cost of revenues

% of Revenues

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.

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

This increase was due primarily to higher merchandise amortization which continues to normalize from depressed levels during the pandemic as well as the effect of large national account installations which are providing additional merchandise amortization headwinds.

In addition, we incurred higher casualty claims and energy costs as a percentage of revenues and we continue to experience wage inflation responding to the very challenging employment environment.

Specialty Garments cost of revenues as a percentage of revenues increased in the second quarter of fiscal 2022 as compared to the prior year comparable period due primarily to higher gross margin on its direct sales in the prior year comparable period and higher labor costs in the second quarter of fiscal 2022.

Selling and Administrative Expenses

(In thousands, except percentages)

November 27, 2021

November 28, 2020

February 26, 2022

February 27, 2021

Selling and administrative expenses

% of Revenues

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.

Our selling and administrative costs increased as a percentage of revenues in the second 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 travel and stock-based compensation costs.

Depreciation and Amortization

(In thousands, except percentages)

November 27, 2021

November 28, 2020

February 26, 2022

February 27, 2021

Depreciation and amortization

% of Revenues

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.

Depreciation and amortization expense remained relatively consistent with the prior year comparable period.

Operating Income

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:

For the thirteen weeks ended February 26, 2022 and February 27, 2021, 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

February 26, 2022

February 27, 2021

Core Laundry Operations

2 unchanged sentences

Operating income margin

Other Expense, net

Other Income, net

(In thousands, except percentages)

November 27, 2021

November 28, 2020

February 26, 2022

February 27, 2021

Interest income, net

Other (income) expense, net

Total other income, net

The decrease in other income, net during the second quarter of fiscal 2022 as compared to the prior year comparable period was due primarily to foreign exchange losses in the current period as compared to foreign exchange gains in the prior year comparable period.

Provision for Income Taxes

(In thousands, except percentages)

February 26, 2022

February 27, 2021

Provision for income taxes

Effective income tax rate

The decrease in our effective tax rate for the second 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 release of certain tax reserves.

Twenty-six weeks ended February 26, 2022 compared with twenty-six weeks ended February 27, 2021

(In thousands, except percentages)

February 26, 2022

February 27, 2021

Core Laundry Operations

Specialty Garments

Consolidated total

Consolidated revenues during the twenty-six weeks ended February 26, 2022 increased compared to the prior year comparable period.

The increase was primarily driven by an increase in revenues in our Core Laundry Operations as a result of customer re-openings in fiscal 2021, solid sales performance and improved customer retention 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 during the twenty-six weeks ended February 26, 2022 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 26, 2022 increased compared to the prior year comparable period due to increased sales in our van business.

Cost of Revenues

(In thousands, except percentages)

February 26, 2022

February 27, 2021

Cost of revenues

% of Revenues

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

In addition, we incurred higher casualty claims and energy costs as a percentage of revenues and we continue to experience wage inflation responding to the very challenging employment environment.

Specialty Garments cost of revenues as a percentage of revenues increased during the twenty-six weeks ended February 26, 2022 as compared to the prior year comparable period due primarily to higher gross margin on its direct sales in the prior year comparable period as well as higher labor and transportation costs as a percentage of revenue.

Selling and Administrative Expenses

(In thousands, except percentages)

February 26, 2022

February 27, 2021

Selling and administrative expenses

% of Revenues

Our selling and administrative costs as a percentage of revenues increased during the twenty-six weeks ended February 26, 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, stock-based compensation costs and indirect taxes.

Depreciation and Amortization

(In thousands, except percentages)

February 26, 2022

February 27, 2021

Depreciation and amortization

% of Revenues

Depreciation and amortization expense increased during the twenty-six weeks ended February 26, 2022 as compared to the prior year comparable period due primarily to continued investment in our infrastructure as well as our key technology initiatives.

Operating Income

For the twenty-six weeks ended February 26, 2022 and February 27, 2021, 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 26, 2022

February 27, 2021

Core Laundry Operations

Specialty Garments

Operating income

Operating income margin

Other Income, net

(In thousands, except percentages)

February 26, 2022

February 27, 2021

Interest income, net

Other expense, net

Total other expense, net

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

Total other income, net

The decrease in other income, net, during the twenty-six weeks ended February 26, 2022 as compared to the prior year comparable period was due primarily to higher foreign exchange losses in the twenty-six weeks ended February 26, 2022.

Provision for Income Taxes

(In thousands, except percentages)

November 27, 2021

November 28, 2020

February 26, 2022

February 27, 2021

Provision for income taxes

Effective income tax rate

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.

The decrease in our effective tax rate during the twenty-six weeks ended February 26, 2022 was due primarily to a higher release of certain tax reserves in the twenty-six weeks ended February 26, 2022.

Liquidity and Capital Resources

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.

Cash, cash equivalents and short-term investments totaled $425.9 million as of February 26, 2022, a decrease of $83.7 million from February 27, 2021 when the amount totaled $509.6 million.

Our cash balance decreased primarily as a result of eight acquisitions that we completed during the twenty-six weeks ended February 26, 2022.

We generated $44.9 million and $128.0 million in cash from operating activities in the twenty-six weeks ended February 26, 2022 and February 27, 2021, respectively.

Pursuant to share repurchase programs approved by our Board of Directors on January 2, 2019 and October 28, 2021, we repurchased 75,250 shares of our Common Stock for an aggregate of approximately $14.8 million during the twenty-six weeks ended February 26, 2022.

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.

2 unchanged sentences

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

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

Sources and uses of cash flows for the twenty-six weeks ended February 26, 2022 and February 27, 2021, respectively, are summarized as follows:

(In thousands, except percentages)

November 27, 2021

November 28, 2020

February 26, 2022

February 27, 2021

Net cash provided by operating activities

2 unchanged sentences

Effect of exchange rate changes

Net decrease in cash, cash equivalents and

Net increase (decrease) in cash, cash equivalents and

short-term investments

Net Cash Provided by Operating Activities

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 net cash provided by operating activities during the twenty-six weeks ended February 26, 2022 decreased as compared to the prior year comparable period due primarily to lower profitability, which included costs incurred to support our CRM, ERP and branding initiatives, a decrease in accrued liabilities and increases in accounts receivable, supply inventory and merchandise in service.

The decrease in accrued liabilities was due primarily to the payment of $12.2 million of United States social security and Medicare taxes that we deferred under the Coronavirus Air, Relief, and Economic Security Act (the “CARES Act”) in fiscal years 2020 and 2021.

The Company expects to pay the remaining $12.1 million of deferred United State social security and Medicare taxes by the end of calendar year 2022.

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.

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

Net Cash Used in Investing Activities

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.

The net increase in cash used in investing activities during the twenty-six weeks ended February 26, 2022 was due primarily to an increase in acquisition related activity of $35.3 million as compared to the prior year comparable period.

This increase was partially offset by lower capital expenditures and capitalization of software costs of $6.7 million.

Net Cash Used in Financing Activities

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.

The increase in net cash used in financing activities during the twenty-six weeks ended February 26, 2022 was due primarily to incremental cash used for repurchases of Common Stock of $5.2 million, an increase in the cash paid for taxes withheld related to the net share settlement of equity awards of $1.2 million and an increase in dividends paid of $0.9 million.

Long-Term Debt and Borrowing Capacity

4 unchanged sentences

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

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.

As of February 26, 2022, 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 February 26, 2022, we had no outstanding borrowings and had outstanding letters of credit amounting to $67.6 million, leaving $107.4 million available for borrowing under the 2021 Credit Agreement.

As of February 26, 2022, we were in compliance with all covenants under the 2021 Credit Agreement.

Derivative Instruments and Hedging Activities

1 unchanged sentence

dollars at fixed exchange rates in order to manage our exposure related to the 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 third fiscal quarter of 2019 and continuing through the second fiscal quarter of 2022.

In total, we will sell approximately 12.1 million CAD at an average Canadian-dollar exchange rate of 0.7814 over these quarterly periods.

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

In total, we sold approximately 12.1 million CAD at an average Canadian-dollar exchange rate of 0.7814 over these quarterly periods.

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

These forward contracts matured on February 25, 2022.

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

3 unchanged sentences

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

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.

As of February 26, 2022, we had forward contracts with a notional value of approximately 8.1 million CAD outstanding and recorded the fair value of the contracts of a notional amount in prepaid expenses and other current assets and other long-term assets with a corresponding nominal gain in accumulated other comprehensive loss, which was recorded net of tax.

During the thirteen and twenty-six weeks ended February 26, 2022, we reclassified a nominal amount from accumulated other comprehensive loss 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 26, 2022 is expected to be reclassified to revenues prior to their maturity on August 29, 2026.

Commitments and Contingencies

18 unchanged sentences

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.

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.

This station is part of an ongoing extension of the transit system.

12 unchanged sentences

When we believe that both the amount of a particular liability and the timing of the payments are reliably determinable, we adjust the cost in current dollars using a rate of 3% for inflation until the time of expected payment and discount the cost to present value using current risk-free interest rates.

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

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

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

As of February 26, 2022, the risk-free interest rates we utilized ranged from 1.76% to 2.37%.

The changes to the amounts of our environmental liabilities for the twenty-six weeks ended February 26, 2022 were as follows (in thousands):

February 26, 2022

Balance as of August 28, 2021

Revisions in estimates

Costs incurred for which reserves have been provided

2 unchanged sentences

Changes in discount rates

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.

Balance as of February 26, 2022

Anticipated payments and insurance proceeds relating to currently identified environmental remediation liabilities as of February 26, 2022, for the next five fiscal years and thereafter, as measured in current dollars, are reflected below.

(In thousands)

4 unchanged sentences

Effect of discounting

Balance as of November 27, 2021

Balance as of February 26, 2022

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

1 unchanged sentence

Annual proceeds received but not expended in the current year accumulate in this account and may be used in future years for costs related to this site through the year 2027.

As of November 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.

As of February 26, 2022, the balance in this escrow account, which is held in a trust and is not recorded in our Consolidated Balance Sheet, was approximately $4.6 million.

Also included in estimated insurance proceeds are amounts we are entitled to receive pursuant to legal settlements as reimbursements from three insurance companies for estimated costs at the site in Uvalde, Texas.

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Off-Balance Sheet Arrangements

As of November 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 February 26, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Securities and Exchange Commission Regulation S-K.

Effects of Inflation

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Contractual Obligations and Other Commercial Commitments

As of 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.

As of February 26, 2022, 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

See Note 2, “Recent Accounting Pronouncements” to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for more information on recently implemented and issued accounting standards.

QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

We have determined that all of our foreign subsidiaries operate primarily in local currencies that represent the functional currencies of such subsidiaries.

All assets and liabilities of our foreign subsidiaries are translated into U.S.

dollars using the exchange rate prevailing at the balance sheet date.

The effects of exchange rate fluctuations on the translation of assets and liabilities are recorded as a component of shareholders’ equity.

Revenues and expenses are translated at the average exchange rates in effect during each month of the fiscal year.

As such, our financial condition and operating results are affected by fluctuations in the value of the U.S.

dollar as compared to currencies in foreign countries.

Revenues denominated in currencies other than the U.S.

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 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.

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

In total, we will sell approximately 12.1 million CAD at an average Canadian-dollar exchange rate of 0.7814 over these quarterly periods.

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

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.

Any losses or gains resulting from unhedged foreign currency transactions, including exchange rate fluctuations on intercompany accounts are reported as transaction losses (gains) in our other income, net.

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

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.

Risk Factors” in our Annual Report on Form 10-K for the year ended August 28, 2021 for an additional discussion of risks and potential risks of the COVID-19 pandemic on our business, financial performance and the market price of our Common Stock.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis