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Summary of Significant Accounting Policies | 12 Months Ended
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Aug. 31, 2019
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies Business Description UniFirst Corporation (the “Company”) is one of the largest providers of workplace uniforms and protective clothing in the United States. The Company designs, manufactures, personalizes, rents, cleans, delivers, and sells a wide range of uniforms and protective clothing, including shirts, pants, jackets, coveralls, lab coats, smocks, aprons and specialized protective wear, such as flame resistant and high visibility garments. The Company also rents and sells industrial wiping products, floor mats, facility service products and other non-garment items, and provides restroom and cleaning supplies and first aid cabinet services and other safety supplies, to a variety of manufacturers, retailers and service companies. The Company serves 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, and others who require employee clothing for image, identification, protection or utility purposes. The Company also provides its customers with restroom and cleaning supplies, including air fresheners, paper products and hand soaps. At certain specialized facilities, the Company decontaminates and cleans work clothes and other items that may have been exposed to radioactive materials and services special cleanroom protective wear. Typical customers for these specialized services include government agencies, research and development laboratories, high technology companies and utility providers operating nuclear reactors. As discussed and described in Note 15, “Segment Reporting”, to these Consolidated Financial Statements, the Company has five reporting segments: U.S. and Canadian Rental and Cleaning, Manufacturing (“MFG”), Specialty Garments Rental and Cleaning (“Specialty Garments”), First Aid and Corporate. The operations of the U.S. and Canadian Rental and Cleaning reporting segment are referred to by the Company as its “industrial laundry operations” and the locations related to this reporting segment are referred to as “industrial laundries”. The Company refers to its U.S. and Canadian Rental and Cleaning, MFG, and Corporate segments combined as its “Core Laundry Operations”. Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. Intercompany balances and transactions are eliminated in consolidation. Basis of Presentation The Consolidated Financial Statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. There have been no material changes in the accounting policies followed by the Company during the current fiscal year other than the adoption of recent accounting pronouncements as discussed in greater detail in the Recent Accounting Pronouncements sub-section of this Note. Certain prior year amounts have been reclassified to conform to current year presentation. The Company has reclassified $11.6 million of software from property, plant, and equipment, net to intangible assets as of August 25, 2018. This reclassification did not impact current or historical net income or shareholder’s equity. Use of Estimates The preparation of these Consolidated Financial Statements is in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) which requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. These estimates are based on historical information, current trends, and information available from other sources. Actual results could differ from these estimates. Fiscal Year The Company’s fiscal year ends on the last Saturday in August. For financial reporting purposes, fiscal 2019 consisted of 53 weeks, and fiscal 2018 and fiscal 2017 both consisted of 52 weeks. The additional week was included in the fourth quarter of fiscal 2019. Cash, Cash Equivalents and Short-Term Investments Cash, cash equivalents and short-term investments include cash in banks, money market securities, and bank short-term investments having original maturities of twelve months or less. As of August 31, 2019, short-term investments consist of certificates of deposits totaling $4.9 million having original maturities of six and twelve months. As of August 25, 2018, short-term investments consist of certificates of deposits totaling $67.6 million having original maturities of three, six and twelve months. Accounts receivable Accounts receivable represents amounts due from customers and is presented net of an allowance for doubtful accounts. The Company utilizes its judgment and estimates are used in determining the collectability of accounts receivable and evaluating the adequacy of the allowance for doubtful accounts. The Company considers specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances as part of its evaluation. When an account is considered uncollectible, it is written off against the allowance for doubtful accounts. Financial Instruments The Company’s financial instruments, which may expose the Company to concentrations of credit risk, include cash, cash equivalents and short-term investments, receivables and accounts payable. Each of these financial instruments is recorded at cost, which approximates its fair value given the short maturity of each financial instrument. Revenue Recognition As discussed and described in greater detail in the Recent Accounting Pronouncements sub-section of this Note, the Company adopted the new revenue recognition guidance on August 26, 2018. As accounted for under the new guidance, approximately 91.6% of the Company’s revenues are derived from fees for route servicing of Core Laundry Operations, Specialty Garments and First Aid services performed by the Company’s employees at the customer’s location of business. Revenues from the Company’s route servicing customer contracts represent a single-performance obligation. The Company recognizes these revenues over time as services are performed based on the nature of services provided and contractual rates (input method). Certain of the Company’s customer contracts, primarily within the Company’s Core Laundry Operations, include pricing terms and conditions that include components of variable consideration. The variable consideration is typically in the form of consideration due to a customer based on performance metrics specified within the contract. Specifically, some contracts contain discounts or rebates that the customer can earn through the achievement of specified volume levels. Each component of variable consideration is earned based on the Company’s actual performance during the measurement period specified within the contract. To determine the transaction price, the Company estimates the variable consideration using the most likely amount method, based on the specific contract provisions and known performance results during the relevant measurement period. When determining if variable consideration should be constrained, the Company considers whether factors outside its control could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal. The Company’s performance period generally corresponds with the monthly invoice period. No significant constraints on the Company’s revenue recognition were applied during fiscal 2019. The Company reassesses these estimates during each reporting period. The Company maintains a liability for these discounts and rebates within accrued liabilities on the consolidated balance sheets. Variable consideration also includes consideration paid to a customer at the beginning of a contract. The Company capitalizes this consideration and amortizes it over the life of the contract as a reduction to revenue in accordance with the updated accounting guidance for revenue recognition. These assets are included in other assets on the consolidated balance sheets. The following table presents the Company’s revenues for fiscal 2019, disaggregated by service type:
|  | Years ended |
|  | August 31, 2019 |  |  | August 25, 2018 |  |  | August 26, 2017 |
(In thousands, except percentages) |  | Revenues |  |  | % of Revenues |  |  | Revenues |  |  | % of Revenues |  |  | Revenues |  |  | % of Revenues |
Core Laundry Operations |  |  | 1,616,205 |  |  |  | 89.3 | % |  | $ | 1,523,648 |  |  |  | 89.8 | % |  | $ | 1,442,149 |  |  |  | 90.6 | %
Specialty Garments |  |  | 132,767 |  |  |  | 7.3 | % |  |  | 118,477 |  |  |  | 7.0 | % |  |  | 98,024 |  |  |  | 6.2 | %
First Aid |  |  | 60,404 |  |  |  | 3.4 | % |  |  | 54,364 |  |  |  | 3.2 | % |  |  | 50,785 |  |  |  | 3.2 | %
Total Revenues |  | $ | 1,809,376 |  |  |  | 100.0 | % |  | $ | 1,696,489 |  |  |  | 100.0 | % |  | $ | 1,590,958 |  |  |  | 100.0 | %
During fiscal 2019, the percentage of revenues recognized over time as the services are performed was 95.8% of Core Laundry Operations revenues and 82.7% of Specialty Garments revenues. During fiscal 2019, 4.2% of Core Laundry Operations revenues, 17.3% of Specialty Garments revenues and 100% of First Aid revenues were recognized at a point in time, which generally occurs when the goods are transferred to the customer. Costs to Obtain a Contract The Company defers commission expenses paid to its employee-partners when the commissions are deemed to be incremental for obtaining the route servicing customer contract. The deferred commissions are amortized on a straight-line basis over the expected period of benefit. The Company reviews the deferred commission balances for impairment on an ongoing basis. Deferred commissions are classified as current or noncurrent based on the timing of when the Company expects to recognize the expense. The current portion is included in prepaid expenses and other current assets and the non-current portion is included in other assets on the Company’s consolidated balance sheets. As of August 31, 2019, the current and non-current assets related to deferred commissions totaled $12.4 million and $50.3 million, respectively. During fiscal 2019, the Company recorded $11.8 million of amortization expense related to deferred commissions. This expense is classified in selling and administrative expenses on the consolidated statements of income. Inventories and Rental Merchandise in Service Inventories are stated at the lower of cost or net realizable value, net of any reserve for excess and obsolete inventory. Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. Judgments and estimates are used in determining the likelihood that new goods on hand can be sold to customers or used in rental operations. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company uses the first-in, first-out (“FIFO”) method to value its inventories. The components of inventory as of August 31, 2019 and August 25, 2018 were as follows (in thousands):
|  | August 31, 2019 |  |  | August 25, 2018 |
Raw materials |  | $ | 23,000 |  |  | $ | 18,508 |
Work in process |  |  | 2,864 |  |  |  | 3,271 |
Finished goods |  |  | 75,052 |  |  |  | 68,397 |
Total inventory |  | $ | 100,916 |  |  | $ | 90,176 |
Rental merchandise in service is amortized, primarily on a straight-line basis, over the estimated service lives of the merchandise, which range from six to thirty-six months. The amortization expense is included in the cost of revenues on the Company’s Consolidated Statements of Income. In establishing estimated lives for merchandise in service, management considers historical experience and the intended use of the merchandise. Material differences may result in the amount and timing of operating profit for any period if management makes significant changes to these estimates. Property, plant and equipment Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are expensed as incurred, while expenditures for renewals and betterments are capitalized. The components of property, plant and equipment as of August 31, 2019 and August 25, 2018 were as follows (in thousands):
|  | August 31, 2019 |  |  | August 25, 2018 |
Land, buildings and leasehold equipment |  | $ | 527,419 |  |  | $ | 496,966 |
Machinery and equipment |  |  | 565,319 |  |  |  | 534,469 |
Motor vehicles |  |  | 253,841 |  |  |  | 238,087 |
|  |  | 1,346,579 |  |  |  | 1,269,522 |
Less: accumulated depreciation |  |  | 772,070 |  |  |  | 721,526 |
Total property, plant and equipment |  | $ | 574,509 |  |  | $ | 547,996 |
The Company provides for depreciation on the straight-line method based on the date the asset is placed in service using the following estimated useful lives:
Buildings (in years) |  | 30 — 40
Building components (in years) |  | 10 — 20
Leasehold improvements |  | Shorter of useful life or term of lease
Machinery and equipment (in years) |  | 3 — 10
Motor vehicles (in years) |  | 3 — 5
Long-lived assets, including property, plant and equipment, are evaluated for impairment whenever events or circumstances indicate an asset may be impaired. There were no material impairments of long-lived assets in fiscal 2019 and 2018. During the fourth quarter of fiscal 2017, the Company recognized a non-cash impairment charge in its U.S. and Canadian Rental and Cleaning segment of $55.8 million on its ongoing customer relationship management (“CRM”) systems project as the Company determined that it was no longer probable that the version being developed at the end of fiscal 2017 would be placed into service. During fiscal 2018, the previous version of the CRM system being developed was abandoned, and the Company is now working on a new CRM system. Expenditures not impaired for computer software, including amounts capitalized related to the Company’s CRM systems project, are included within other intangible assets, net. Goodwill and Other Intangible Assets In accordance with U.S. GAAP, the Company does not amortize goodwill. Instead, the Company tests goodwill for impairment on an annual basis. Management completes its annual goodwill impairment test in the fourth quarter of each fiscal year. In addition, U.S. GAAP requires that companies test goodwill if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit to which goodwill is assigned below its carrying amount. The Company used the qualitative assessment option for our impairment testing in fiscal 2019 for goodwill and determined that the fair values of the reporting units more likely than not exceeded their carrying values and that there was no evidence of impairment as of August 31, 2019. The Company cannot predict future economic conditions and their impact on the Company or the future market value of the Company’s stock. A decline in the Company’s market capitalization and/or deterioration in general economic conditions could negatively and materially impact the Company’s assumptions and assessment of the fair value of the Company’s business. If general economic conditions or the Company’s financial performance deteriorate, the Company may be required to record a goodwill impairment charge in the future which could have a material impact on the Company’s financial condition and results of operations. Definite-lived intangible assets are amortized over their estimated useful lives, which are based on management’s estimates of the period that the assets will generate economic benefits. Definite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable in accordance with U.S. GAAP. There were no impairments of goodwill or indicators of impairment for definite-lived intangible assets in fiscal 2019, 2018 or 2017. As of August 31, 2019, definite-lived intangible assets have a weighted average useful life of approximately 11.3 years. Customer contracts have a weighted average useful life of approximately 13.6 years and other intangible assets, net, which consist of primarily, restrictive covenants, deferred financing costs, software and trademarks, have a weighted average useful life of approximately 3.3 years. Environmental and Other Contingencies The Company is subject to legal proceedings and claims arising from the conduct of its business operations, including environmental matters, personal injury, customer contract matters and employment claims. Accounting principles generally accepted in the United States require that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated. Significant judgment is required to determine the existence of a liability, as well as the amount to be recorded. The Company regularly consults with attorneys and outside consultants in its consideration of the relevant facts and circumstances before recording a contingent liability. The Company records accruals for environmental and other contingencies based on enacted laws, regulatory orders or decrees, the Company’s estimates of costs, insurance proceeds, participation by other parties, the timing of payments, and the input of outside consultants and attorneys. The estimated liability for environmental contingencies has been discounted as of August 31, 2019 using risk-free interest rates ranging from 1.5% to 2.0% over periods ranging from ten to thirty years. The estimated current costs, net of legal settlements with insurance carriers, have been adjusted for the estimated impact of inflation at 3% per year. Changes in enacted laws, regulatory orders or decrees, management’s estimates of costs, risk-free interest rates, insurance proceeds, participation by other parties, the timing of payments, the input of the Company’s attorneys and outside consultants or other factual circumstances could have a material impact on the amounts recorded for environmental and other contingent liabilities. Refer to Note 11, “Commitments and Contingencies”, of these Consolidated Financial Statements for additional discussion and analysis. Asset Retirement Obligations Under U.S. GAAP, asset retirement obligations generally apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. The Company recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company has recognized as a liability the present value of the estimated future costs to decommission its nuclear laundry facilities. The Company depreciates, on a straight-line basis, the amount added to property, plant and equipment and recognizes accretion expense in connection with the discounted liability over the various remaining lives which range from approximately one to twenty-five years. The estimated liability has been based on historical experience in decommissioning nuclear laundry facilities, estimated useful lives of the underlying assets, external vendor estimates as to the cost to decommission these assets in the future, and federal and state regulatory requirements. The estimated current costs have been adjusted for the estimated impact of inflation at 3% per year. The liability has been discounted using credit-adjusted risk-free rates that range from approximately 7.0% to 7.5%. Revisions to the liability could occur due to changes in the Company’s estimated useful lives of the underlying assets, estimated dates of decommissioning, changes in decommissioning costs, changes in federal or state regulatory guidance on the decommissioning of such facilities, or other changes in estimates. Changes due to revised estimates will be recognized by adjusting the carrying amount of the liability and the related long-lived asset if the assets are still in service, or charged to expense in the period if the assets are no longer in service. Insurance The Company is self-insured for certain obligations related to health, workers’ compensation, vehicles and general liability programs. The Company also purchases stop-loss insurance policies for health, workers’ compensation, vehicles and general liability programs to protect itself from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred, but have not been reported. The Company’s estimates consider historical claims experience and other factors. In certain cases where partial insurance coverage exists, the Company estimates the portion of the liability that will be covered by existing insurance policies to arrive at its net expected liability. Receivables for insurance recoveries are recorded as assets, on an undiscounted basis. The Company’s liabilities are based on estimates, and, while the Company believes that its accruals are adequate, the ultimate liability may be significantly different from the amounts recorded. Changes in claims experience, the Company’s ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period. Supplemental Executive Retirement Plan and other Pension Plans Pension expense is recognized on an accrual basis over employees’ estimated service periods. Pension expense is generally independent of funding decisions or requirements. The Company (1) recognizes in its statement of financial position the over-funded or under-funded status of its defined benefit postretirement plans measured as the difference between the fair value of plan assets and the benefit obligation, (2) recognizes as a component of other comprehensive (loss) income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period but are not recognized as components of net periodic benefit cost, (3) measures defined benefit plan assets and defined benefit plan obligations as of the date of its statement of financial position, and (4) discloses additional information in the notes to financial statements about certain effects on net periodic benefit cost in the upcoming fiscal year that arise from delayed recognition of the actuarial gains and losses and the prior service costs and credits. Refer to Note 7, “Employee Benefit Plans”, of these Consolidated Financial Statements for further discussion regarding the Company’s pension plans. The calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions, including the expected long-term rates of return on plan assets, the assumed discount rates, assumed rate of compensation increases and life expectancy of participants. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions. Pension expense increases as the expected rate of return on pension plan assets decreases. Future changes in plan asset returns, assumed discount rates and various other factors related to the participants in the Company’s pension plans will impact the Company’s future pension expense and liabilities. The Company cannot predict with certainty what these factors will be in the future. Income Taxes The Company computes income tax expense by jurisdiction based on its operations in each jurisdiction. Deferred income taxes are provided for temporary differences between the amounts recognized for income tax and financial reporting purposes at currently enacted tax rates. The Tax Cuts and Jobs Act of 2017 (the “Act”) included a mandatory one-time transition tax on accumulated earnings of foreign subsidiaries and, as a result, previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Deferred tax assets and liabilities are determined by the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. See Note 4, “Income Taxes” in these Consolidated Financial Statements for the types of items that give rise to significant deferred income tax assets and liabilities. Deferred income taxes are classified as assets or liabilities based on the classification of the related asset or liability for financial reporting purposes. The Company regularly reviews deferred tax assets for recoverability based upon projected future taxable income and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets will be realized. The Company is periodically reviewed by U.S. domestic and foreign tax authorities regarding the amount of taxes due. These reviews typically include inquiries regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, the Company records estimated reserves. Refer to Note 4, “Income Taxes”, of these Consolidated Financial Statements for further discussion regarding the Company’s accounting for income taxes and its uncertain tax positions for financial accounting purposes. Advertising Costs Advertising costs are expensed as incurred and are classified as selling and administrative expenses. The Company incurred advertising costs of $3.6 million, $2.8 million and $3.7 million, for fiscal 2019, 2018 and 2017, respectively. Share-Based Compensation Compensation expense for all stock options, stock appreciation rights, unrestricted stock and restricted stock units (collectively, “Share-Based Awards”) is recognized ratably over the related vesting period, net of actual forfeitures. Certain Share-Based Awards in the form of stock appreciation rights and shares of unrestricted stock were granted during fiscal 2019, 2018 and 2017 to non-employee Directors of the Company, which were fully vested upon grant and, with respect to stock appreciation rights, expire eight years after the grant date. Accordingly, compensation expense related to these Share-Based Awards in fiscal 2019, 2018 and 2017 were recognized on the date of grant. For performance-based restricted stock unit awards with revenue and adjusted operating margin targets, we evaluate the probability of meeting the performance criteria at each balance sheet date and if probable, related compensation cost is amortized over the performance period on a straight-line basis because such awards vest only at the end of the measurement period. Changes to the probability assessment and the estimate of shares expected to vest will result in adjustments to the related share-based compensation expense that will be recorded in the period of the change. If the performance targets are not achieved, no compensation cost is recognized and any previously recognized compensation cost is reversed. U.S. GAAP requires that share-based compensation cost be measured at the grant date based on the fair value of the award and be recognized as expense over the requisite service period, which is generally the vesting period. Determining the fair value of Share-Based Awards in the form of stock appreciation rights at the grant date requires judgment, including estimating expected dividends and share price volatility. The fair value of each Share-Based Award in the form of stock appreciation rights is estimated on the date of grant using the Black-Scholes option pricing model. The Company recognizes compensation expense for restricted stock and restricted stock unit grants over the related vesting period. The fair value for each restricted stock, unrestricted stock and restricted stock unit grant is determined by using the closing price of the Company’s stock on the date of the grant. Refer to Note 12, “Share-Based Compensation”, of these Consolidated Financial Statements for further discussion regarding the Company’s share-based compensation plans. Income Per Share The Company calculates income per share by allocating income to its unvested participating securities as part of its income per share calculations. The Class B Common Stock may be converted at any time on a one-for-one basis into Common Stock at the option of the holder of the Class B Common Stock. Diluted income per share for the Company’s Common Stock assumes the conversion of all of the Company’s Class B Common Stock into Common Stock, full vesting of outstanding restricted stock, and the exercise of Share-Based Awards under the Company’s stock incentive plans. The following table sets forth the computation of basic income per share using the two-class method for amounts attributable to the Company’s shares of Common Stock and Class B Common Stock (in thousands, except per share data):
Year ended |  | August 31, 2019 |  |  | August 25, 2018 |  |  | August 26, 2017 |
Net income available to shareholders |  | $ | 179,134 |  |  | $ | 163,895 |  |  | $ | 70,196 |
Allocation of net income for Basic: |  |  |  |  |  |  |  |  |  |  |  |
Common Stock |  | $ | 150,247 |  |  | $ | 133,802 |  |  | $ | 55,903 |
Class B Common Stock |  |  | 28,887 |  |  |  | 30,093 |  |  |  | 13,915 |
Unvested participating shares |  |  | — |  |  |  | — |  |  |  | 378 |
|  | $ | 179,134 |  |  | $ | 163,895 |  |  | $ | 70,196 |
Weighted average number of shares for Basic: |  |  |  |  |  |  |  |  |  |  |  |
Common Stock |  |  | 15,385 |  |  |  | 15,454 |  |  |  | 15,382 |
Class B Common Stock |  |  | 3,697 |  |  |  | 4,357 |  |  |  | 4,786 |
Unvested participating shares |  |  | — |  |  |  | — |  |  |  | 116 |
|  |  | 19,082 |  |  |  | 19,811 |  |  |  | 20,284 |
Income per share for Basic: |  |  |  |  |  |  |  |  |  |  |  |
Common Stock |  | $ | 9.77 |  |  | $ | 8.66 |  |  | $ | 3.63 |
Class B Common Stock |  | $ | 7.81 |  |  | $ | 6.91 |  |  | $ | 2.91 |
The Company is required to calculate the diluted income per share for Common Stock using the more dilutive of the following two methods:
• | The treasury stock method; or
• | The two-class method assuming a participating security is not exercised or converted.
For the years ended August 31, 2019, August 25, 2018 and August 26, 2017, the Company’s diluted income per share assumes the conversion of all vested Class B Common Stock into Common Stock and uses the two-class method for its unvested participating shares. The following table sets forth the computation of diluted income per share of Common Stock for the years ended August 31, 2019, August 25, 2018 and August 26, 2017 (in thousands, except per share data):
|  | Year Ended August 31, 2019 |  |  | Year Ended August 25, 2018 |  |  | Year Ended August 26, 2017 |
|  | Earnings to Common shareholders |  |  | Common Shares |  |  | Income Per Share |  |  | Earnings to Common shareholders |  |  | Common Shares |  |  | Income Per Share |  |  | Earnings to Common shareholders |  |  | Common Shares |  |  | Income Per Share |
As reported—Basic |  | $ | 150,247 |  |  |  | 15,385 |  |  | $ | 9.77 |  |  | $ | 133,802 |  |  |  | 15,454 |  |  | $ | 8.66 |  |  | $ | 55,903 |  |  |  | 15,382 |  |  | $ | 3.63 |
Add: effect of dilutive potential common shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Share-Based Awards |  |  | — |  |  |  | 114 |  |  |  |  |  |  |  | — |  |  |  | 152 |  |  |  |  |  |  |  | — |  |  |  | 108 |  |  |  |  |
Class B Common Stock |  |  | 28,887 |  |  |  | 3,697 |  |  |  |  |  |  |  | 30,093 |  |  |  | 4,357 |  |  |  |  |  |  |  | 13,915 |  |  |  | 4,786 |  |  |  |  |
Add: Undistributed earnings allocated to unvested participating shares |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | 362 |  |  |  | — |  |  |  |  |
Less: Undistributed earnings reallocated to unvested participating shares |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | (343 | ) |  |  | — |  |  |  |  |
Diluted Income Per Share— Common Stock |  | $ | 179,134 |  |  |  | 19,196 |  |  | $ | 9.33 |  |  | $ | 163,895 |  |  |  | 19,963 |  |  | $ | 8.21 |  |  | $ | 69,837 |  |  |  | 20,276 |  |  | $ | 3.44 |
Share-Based Awards that would result in the issuance of 8,325, 4,972 and 16 shares, respectively, of Common Stock were excluded from the calculation of diluted earnings per share for the fiscal 2019, 2018 and 2017 because they were anti-dilutive. Foreign Currency Translation The functional currency of our foreign operations is the local country’s currency. Transaction gains and losses, including gains and losses on our intercompany transactions, are included in other (income) expense in the accompanying Consolidated Statements of Income. Assets and liabilities of operations outside the United States are translated into U.S. dollars using period-end exchange rates. Revenues and expenses are translated at the average exchange rates in effect during each month of the fiscal year. The effects of foreign currency translation adjustments are included in shareholders’ equity as a component of accumulated other comprehensive loss in the accompanying Consolidated Balance Sheets. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued updated accounting guidance for revenue recognition, which it has subsequently modified. This modified update provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The standard includes cost guidance, whereby all direct and incremental costs to obtain or fulfill a contract will be capitalized and amortized over the corresponding period of benefit, determined on a contract by contract basis. This guidance is also intended to improve disclosure requirements and enhance the comparability of revenue recognition practices. Improved disclosures under the amended guidance relate to the nature, amount, timing and uncertainty of revenue that is recognized from contracts with customers. The Company adopted the standard on August 26, 2018 using the modified retrospective adoption method. Upon adoption of this guidance, the Company recorded an adjustment to the opening balance of retained earnings as of August 26, 2018. The adoption of the standard did not have any material impact to the timing or measurement of revenues. The adjustment to retained earnings relates to the capitalization of certain direct and incremental contract costs required by the new guidance, net of the related income tax effect. Capitalized costs are amortized ratably over the anticipated period of benefit. The Company applied the new guidance to all contracts as of August 26, 2018. Results for reporting periods beginning after August 25, 2018 are presented under the new guidance, while comparative prior period amounts have not been restated and continue to be presented under accounting standards in effect in those periods. Capitalization of Contract Costs. The Company has elected to apply the guidance, as a practical expedient, to a portfolio of contracts (or performance obligations) with similar characteristics because the Company reasonably expects that the effects on the Consolidated Financial Statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts within the portfolio. The Company also continues to expense certain costs to obtain a contract if those costs do not meet the criteria of the new standard or the amortization period of the asset would have been one year or less. The cumulative effect of applying the new guidance was recorded as an adjustment to retained earnings as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the adjustments set forth in the table below were made to accounts on the consolidated balance sheet as of August 26, 2018:
Consolidated Balance Sheet (In thousands) |  | August 25, 2018 |  |  | Capitalization of Contract Costs |  |  | August 26, 2018 |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Prepaid expenses and other current assets |  | $ | 21,899 |  |  | $ | 11,389 |  |  | $ | 33,288 |
Total current assets |  |  | 784,800 |  |  |  | 11,389 |  |  |  | 796,189 |
Other assets |  |  | 30,259 |  |  |  | 44,405 |  |  |  | 74,664 |
Total assets |  | $ | 1,843,386 |  |  | $ | 55,794 |  |  | $ | 1,899,180 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Accrued and deferred income taxes |  | $ | 74,070 |  |  | $ | 14,427 |  |  | $ | 88,497 |
Total liabilities |  |  | 378,419 |  |  |  | 14,427 |  |  |  | 392,846 |
Retained earnings |  |  | 1,405,239 |  |  |  | 41,367 |  |  |  | 1,446,606 |
Total shareholders’ equity |  |  | 1,464,967 |  |  |  | 41,367 |  |  |  | 1,506,334 |
Total liabilities and shareholders’ equity |  | $ | 1,843,386 |  |  | $ | 55,794 |  |  | $ | 1,899,180 |
The impacts of adopting this standard on the fiscal 2019 Consolidated Financial Statements are presented in the following tables:
|  | Year Ended August 31, 2019 |
Consolidated Statement of Income (In thousands, except per share data) |  | As Reported |  |  | Under Historical Guidance |  |  | Impact of Adopting New Revenue Standard |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |
Selling and administrative expenses |  | $ | 334,840 |  |  | $ | 341,795 |  |  | $ | (6,955 | )
Total operating expenses |  |  | 1,577,368 |  |  |  | 1,584,323 |  |  |  | (6,955 | )
Operating income |  |  | 232,008 |  |  |  | 225,053 |  |  |  | 6,955 |
Income before income taxes |  |  | 237,924 |  |  |  | 230,969 |  |  |  | 6,955 |
Provision for income taxes |  |  | 58,790 |  |  |  | 57,010 |  |  |  | 1,780 |
Net income |  | $ | 179,134 |  |  | $ | 173,959 |  |  | $ | 5,175 |
Income per share – Diluted: |  | $ | 9.33 |  |  | $ | 9.06 |  |  | $ | 0.27 |
|  | Balance at August 31, 2019 |
Consolidated Balance Sheet (In thousands) |  | As Reported |  |  | Under Historical Guidance |  |  | Impact of Adopting New Revenue Standard |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Prepaid expenses and other current assets |  | $ | 35,699 |  |  | $ | 23,285 |  |  | $ | 12,414 |
Total current assets |  |  | 913,791 |  |  |  | 901,377 |  |  |  | 12,414 |
Other assets |  |  | 84,674 |  |  |  | 34,339 |  |  |  | 50,335 |
Total assets |  | $ | 2,047,320 |  |  | $ | 1,984,571 |  |  | $ | 62,749 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Accrued and deferred income taxes |  | $ | 99,172 |  |  | $ | 83,114 |  |  | $ | 16,058 |
Total liabilities |  |  | 406,090 |  |  |  | 390,032 |  |  |  | 16,058 |
Retained earnings |  |  | 1,588,075 |  |  |  | 1,541,384 |  |  |  | 46,691 |
Total shareholders’ equity |  |  | 1,641,230 |  |  |  | 1,594,539 |  |  |  | 46,691 |
Total liabilities and shareholders’ equity |  | $ | 2,047,320 |  |  | $ | 1,984,571 |  |  | $ | 62,749 |
The adoption of this standard had no impact on the Company’s fiscal 2019 operating cash flow with the exception of the impact to net income as presented in the tables above. In January 2016, the FASB issued updated guidance for the recognition, measurement, presentation, and disclosure of certain financial assets and liabilities. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. Accordingly, the Company adopted this standard on August 26, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements. In February 2016, the FASB issued updated guidance which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. This new guidance is effective for reporting periods beginning after December 15, 2018. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in their financial statements. The Company adopted the new guidance on September 1, 2019. In accordance with Topic 842, a registrant can elect not to present comparative financial information under Topic 842 if it recognizes a cumulative-effect adjustment to retained earnings upon adoption. The Company intends to make this transition election. The majority of the Company’s lease spend relates to certain real estate with the remaining lease spend primarily related to vehicles and equipment. In addition to the new qualitative and quantitative disclosures that will be required upon adoption of this standard, the Company anticipates recognizing lease assets and liabilities on the balance sheet in the range of approximately $40.0 million to $50.0 million, based on the Company's portfolio of leases at August 31, 2019. The Company does not expect a material impact on its consolidated statements of income or consolidated statements of cash flows. The Company is substantially complete with its implementation efforts. In August 2016, the FASB issued updated guidance that reduces diversity in how certain cash receipts and cash payments are presented and classified in the Consolidated Statements of Cash Flows. This guidance is effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and is required to be applied retrospectively, with early adoption permitted. Accordingly, the Company adopted this guidance on August 26, 2018. The adoption of this guidance did not have a material impact on its financial statements. In June 2016, the FASB issued updated guidance that introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments including trade receivables. The estimate of expected credit losses will require entities to incorporate historical information, current information and reasonable and supportable forecasts. This guidance also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. This guidance is effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2019 with early adoption permitted. Accordingly, the guidance will be effective for the Company on August 30, 2020. The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures. In October 2016, the FASB issued updated guidance to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This guidance is effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2017 and is required to be applied on a modified retrospective basis, with early adoption permitted. Accordingly, the Company adopted this standard on August 26, 2018. The adoption of this guidance did not have a material impact on its financial statements. In March 2017, the FASB issued updated guidance that requires a change in the presentation of net periodic benefit cost on the consolidated statements of operations. Specifically, entities must present the service cost component of net periodic benefit cost in the same financial statement line items as other compensation costs arising from services rendered by the related employees during the period, whereas the non-service components of net periodic benefit cost must be presented separately from the financial statement line items that include service cost and outside of operating income. The Company’s adoption of this guidance on August 26, 2018 did not have a material impact on its financial statements. In August 2017, the FASB issued guidance that expands component and fair value hedging, specifies the presentation of the effects of hedging instruments, and eliminates the separate measurement and presentation of hedge ineffectiveness. The accounting update is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted, and is to be applied on a modified retrospective basis. The Company elected to early adopt this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on its financial statements. In August 2018, the FASB issued updated guidance to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This guidance will be effective for annual reporting periods, and any interim periods within those annual periods, ending after December 15, 2020 and will be required to be applied on a retrospective basis, with early adoption permitted. Accordingly, the standard will be effective for the Company on August 29, 2021. The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures. In August 2018, the FASB issued guidance that addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This guidance is effective for annual reporting periods, and any interim periods within those annual periods, that begin after December 15, 2019 with early adoption permitted. The amendments in this update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Accordingly, the guidance will be effective for the Company on August 30, 2020. The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.

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