What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-12-21 compared with 2021-12-22 · 196 added, 272 removed, 329 unchanged (59% of the section changed)

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Factors that might cause such differences include, but are not limited to, those discussed in Part 1.

of this Form 10-K under Item 1A., “Risk Factors,” which are incorporated herein by reference.

of this Form 10-K under Item 1A.

, “Risk Factors,” which are incorporated herein by reference.

Our future results and financial condition may be materially different from those we currently anticipate.

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ELEVATE Transformation

Through our ELEVATE strategy, as described in Item 1., “Business.,” we plan to primarily focus our efforts on:

• the client experience, by enhancing service delivery through the development of a new workforce management platform with modern timekeeping, scheduling, and forecasting modules to create a digital connection with our workforce;

• the team member experience, by investing in development programs, talent acquisition tools, and training;

• the use of technology and data in our systems, tools, business processes, and operating models.

Through our ELEVATE strategy, as described in Item 1., “Business.,” we continue to focus our efforts on:

• the client experience, by serving as a trusted advisor who can provide innovative multiservice solutions and consistent service delivery;

• the team member experience, by investing in workforce management, training, developing the next generation of ABM leaders, and building on our inclusive culture;

• our use of technology and data to power client and employee experiences with cutting-edge data and analytics, processes, and tools that will fundamentally change how we operate our business.

We believe that our technology and data investments will enable:

the development and deployment of client-facing technology to improve service delivery to our clients;

the use of advanced data analytics for sales targeting, team member retention, and recruiting;

the use of advanced data analytics for sales targeting, employee retention, and recruiting;

and the upgrade of our Enterprise Resource Planning and payroll systems.

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COVID-19 Pandemic

COVID-19 has resulted in a worldwide health Pandemic.

To date, COVID-19 has surfaced in regions all around the world and resulted in business slowdowns and shutdowns, as well as global travel restrictions.

We, along with many of our clients, have been impacted by recommendations and/or mandates from federal, state, and local authorities to practice social distancing, to refrain from gathering in groups, and, in some areas, to refrain from non-essential movements outside of homes.

The Pandemic has also created unanticipated circumstances and uncertainty, disruption, and significant volatility in the broader economy.

These factors have led to lower demand for some of our services in certain end-markets, particularly in our Aviation segment.

The COVID-19 Pandemic has led to an increased demand for our services, including higher margin work orders and our EnhancedClean services.

While overall demand for these services has decreased as pandemic-related restrictions continue to loosen, we experienced that ongoing concerns around COVID-19 variants combined with our ELEVATE strategy led to new and incremental opportunities for our services.

Refer to “Consolidated Results of Operations” and “Results of Operations by Segment” for additional information related to the impact of the Pandemic on our financial results.

Given the unprecedented and uncertain nature and potential duration of this situation, we cannot reasonably estimate the full extent of the impact the Pandemic will have on our financial condition, results of operations, or cash flows.

The ultimate extent of the effects of the Pandemic on our company is highly uncertain and will depend on future developments, and we may continue to experience adverse effects on our business, consolidated results of operations, financial position, and cash flows resulting from a recessionary economic environment that may persist.

Our priority has been and continues to be the health, safety, and support of our employees, our clients, and the communities that we serve.

We have also taken actions to strengthen our liquidity, cash flows, and financial position to help mitigate potential future impacts on our operations and financial performance.

These priorities and measures include, but are not limited to, the following:

Health and Safety of our Employees and Clients

As the Pandemic has developed, we have taken steps to support our employees and clients based on recommendations from various global experts, including the World Health Organization, the Centers for Disease Control and Prevention, the Occupational Safety and Health Administration, and the U.K.

National Health Service.

To help protect our employees and our clients, face masks and other personal protective equipment (“PPE”) are being used by our employees.

We have also encouraged our employees to practice social distancing and wash hands frequently.

Additionally, we transitioned many office-based employees to a remote work environment, suspended non-essential travel, and adopted technologies to allow employees to effectively perform their functions remotely.

Over the past few years, we have focused on consolidating purchasing activities to leverage our scale and identify preferred suppliers.

While we have seen a reduction in the availability of supplies and an increase in costs, our procurement efforts have helped create a positive supply chain for our company and clients during the Pandemic.

We will continue to monitor our supply chain for potential impacts as future developments unfold.

The Pandemic continues to create a dynamic client environment, and we are working diligently to ensure our clients’ changing staffing and service needs are met.

We developed new cleaning initiatives in accordance with various protocols issued by global experts, including deep cleaning services, special project cleaning services, and other work orders.

In April 2020, we announced our EnhancedClean TM Program (“EnhancedClean”), an innovative solution that helps provide clients with healthy spaces.

We designed EnhancedClean under the guidance of experts on infectious diseases and industrial hygiene to help provide our clients with processes that use hospital-grade disinfectants, specialized equipment, and innovative solutions and technology.

These solutions include:

hygiene and safety protocols, utilization of disinfecting procedures and products for high-touch surfaces, employment of PPE, and communication and training protocols.

Management of Direct Labor

As we adapt to the changing demand environment resulting from the Pandemic, we continue to actively manage direct labor and related personnel costs, including furloughs or reduced hours for certain frontline employees in markets significantly impacted by business slowdowns and shutdowns.

Liquidity, Cash Flows, and Financial Position

We have taken and continue to take actions to help preserve cash, increase liquidity, and strengthen our financial position, including:

• Amending our credit facility on June 28, 2021, to increase our borrowing capacity and further enhance our financial flexibility (refer to “Liquidity and Capital Resources” for more information);

• Focusing on collection of client receivables and monitoring the adequacy of our reserves;

• Extending vendor payment terms where possible;

• Utilizing certain governmental relief efforts (as further described below).

In response to the Pandemic, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on March 27, 2020.

The CARES Act provides various stimulus measures, including several income tax and payroll tax provisions.

Among the payroll tax provisions is the creation of a refundable credit for employee retention and the deferral of certain payroll tax remittances through December 31, 2020, to future years (with 50% of the deferred amount due by December 31, 2021, and the remaining 50% due by December 31, 2022).

We evaluated the impact of business tax provisions in the CARES Act and determined the impact of the income tax provisions is not material.

The impact of the payroll tax provisions was the deferral of approximately $132 million of payroll tax as of October 31, 2021.

Additionally, we received grants under the United Kingdom’s job retention scheme to reimburse us for a portion of certain furloughed employees’ salaries from March 2020 through September 2021.

As a result of the actions taken above, we were able to strengthen our cash flow in fiscal 2021.

As of October 31, 2021, these actions resulted in a borrowing capacity of $875.0 million.

Insurance Reserves

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Key Financial Highlights

• Revenues increased by $241.0 million, or 4.0%, during 2021, as compared to 2020, primarily driven by a $101.1 million revenue increase due to the Able Acquisition in the fourth quarter of 2021, an increase in work orders (primarily as a result of the Pandemic), new business within B&I, T&M, and Technical Solutions, and the recovery of volume in Education and Technical Solutions as Pandemic-related disruptions eased in the last half of fiscal year 2021.

• Operating profit increased by $110.6 million during 2021, as compared to 2020.

• Revenues increased by $1,578.0 million, or 25.3%, to $7,806.6 million during 2022, as compared to 2021.

Revenue growth was comprised of acquisition growth of 18.0% and organic growth of 7.3%.

Acquisition growth was primarily driven by an $1,064.4 million revenue increase due to the Able Acquisition, completed in the fourth quarter of 2021.

Organic growth was primarily driven by the recovery in volume of our business as pandemic disruptions eased (primarily in B&I and Aviation) and new business within M&D, Technical Solutions, and Education.

The increase in revenues was partially offset by a decrease in work orders for pandemic-related demands (primarily in M&D and B&I) and the loss of certain accounts within Education in the third quarter of 2021.

• Operating profit increased by $142.5 million to $348.8 million during 2022, as compared to 2021.

The increase in operating profit was attributable to:

◦ the absence of prior year impairment charges recorded on goodwill and intangible assets totaling $172.8 million due to the adverse impact of market and business conditions resulting from the Pandemic;

◦ higher margins on work orders as a result of the Pandemic;

◦ a decrease in bad debt expense, primarily associated with higher reserves established for client receivables in the prior year, due to increasing credit risk resulting from the Pandemic;

◦ the absence of a reserve on notes receivable related to a unique, entertainment-related project within Technical Solutions, mainly associated with increasing credit risk resulting from the Pandemic.

◦ the absence of legal costs and settlements attributed to the legal reserve for the Bucio case;

◦ increase in the volume in our business due to the Able Acquisition and the easing of pandemic disruptions and net new business;

◦ the absence of a non-cash impairment charge for previously capitalized internal-use software related to our ERP system implementation.

The increase was partially offset by:

◦ the accrual of a legal settlement for the Bucio case;

◦ increase in compensation and related expenses primarily attributable to talent acquisition activities and limited labor supply in certain markets;

◦ additional overhead and amortization of intangibles related to the Able Acquisition;

◦ increased expenditures for certain technology projects and other enterprise initiatives (including ELEVATE ).

◦ the absence of management and staff furloughs that occurred in the prior year in response to the Pandemic;

◦ acquisition and integration costs related to the Able Acquisition.

• Our effective tax rate on income from continuing operations was 29.8% for 2021, as compared to 99.6% during 2020, with the decrease primarily due to the impairment of non-deductible goodwill during 2020 and not recurring in 2021.

• Our effective tax rate on income from continuing operations was 25.7% for 2022, as compared to 29.8% during 2021.

• Net cash provided by operating activities of continuing operations was $20.4 million during 2022.

Our total operating cash flows were lower, primarily due to the timing of certain working capital requirements, which included a $143.8 million payment for the Bucio case and a $66 million payment for deferred payroll taxes under the CARES Act in the current fiscal year.

• Dividends of $51.9 million were paid to shareholders, and dividends totaling $0.78 per common share were declared during 2022.

• At October 31, 2021, total outstanding borrowings under our credit facility were $888.8 million, and we had up to $875.0 million of borrowing capacity.

• At October 31, 2022, total outstanding borrowings under our Amended Credit Facility and Receivables Facility were $1,271.3 million, and we had up to $612.9 million of borrowing capacity.

Results of Operations

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Impairment loss of goodwill and other intangibles — — 172.8 — NM*

Operating profit 206.3 95.7 208.3 110.6 NM*

Operating profit 348.8 206.3 95.7 142.5 69.1%

Income from unconsolidated affiliates 2.4 2.1 2.2 0.3 16.5%

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Income from continuing operations before

income taxes 179.8 53.3 160.2 126.5 NM*

income taxes 310.0 179.8 53.3 130.2 72.4%

Income tax provision (79.6) (53.5) (53.1) 26.1 (48.9)%

Income from continuing operations 126.3 0.2 127.5 126.1 NM*

Income from continuing operations 230.4 126.3 0.2 104.1 82.4%

Income (loss) from discontinued operations,

net of taxes — — 0.1 — NM*

Net income 126.3 0.3 127.4 126.0 NM*

Net income 230.4 126.3 0.3 104.1 82.4%

Other comprehensive income (loss)

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Income tax (provision) benefit (10.5) (1.5) 2.4 (9.0) NM*

Comprehensive income (loss) $ 134.5 $ (6.6) $ 112.5 $ 141.1 NM*

Comprehensive income (loss) $ 236.9 $ 134.5 $ (6.6) $ 102.4 76.1%

*Not meaningful

The Year Ended October 31, 2022 Compared with the Year Ended October 31, 2021

Revenues increased by $241.0 million, or 4.0%, during 2021, as compared to 2020.

The increase in revenues was primarily driven by a $101.1 million revenue increase due to the Able Acquisition in the fourth quarter of 2021, an increase in work orders (primarily as a result of the Pandemic), new business within B&I, T&M, and Technical Solutions, and the recovery of volume in Education and Technical Solutions as Pandemic-related disruptions eased in the last half of fiscal year 2021.

Revenues increased by $1,578.0 million, or 25.3%, to $7,806.6 million during 2022, as compared to 2021.

Revenue growth was comprised of acquisition growth of 18.0% and organic growth of 7.3%.

Acquisition growth was primarily driven by an $1,064.4 million revenue increase due to the Able Acquisition, completed in the fourth quarter of 2021.

Operating Expenses

Operating expenses increased by $101.2 million, or 2.0%, during 2021, as compared to 2020.

Gross margin increased by 171 bps to 15.6% in 2021 from 13.9% in 2020.

The increase in gross margin was primarily associated with higher margins on new business within B&I and Aviation and an increase in work orders with higher margins as a result of the Pandemic (primarily within B&I).

The increase in gross margin was also driven by lower self-insurance expense, due to decreased claim frequency as a result of our safety and claims management program and reduced workplace occupancy as a result of the Pandemic.

Operating expenses increased by $1,499.3 million, or 28.5%, to $348.8 million during 2022, as compared to 2021.

Gross margin decreased by 214 bps to 13.4% in 2022 from 15.6% in 2021.

The decrease in gross margin was primarily driven by the decrease in cleaning services for pandemic-related demands (primarily in M&D and B&I), which have higher margins, and the changes in contract mix due to the Able Acquisition.

In addition, gross margin was negatively impacted by an increase in direct labor and related costs (primarily in B&I, Aviation, and Education) and the amortization of intangibles acquired as part of the Able Acquisition.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $213.1 million, or 42.1%, during 2021, as compared to 2020.

The increase in selling, general and administrative expenses was primarily attributable to:

• a $144.2 million increase in legal costs and settlements, primarily attributed to the accrual of a legal settlement for the Bucio case;

• a $43.2 million increase in certain technology projects and other enterprise initiatives (including ELEVATE ), in addition to marketing events;

• a $38.8 million increase in compensation and related expenses, primarily driven by corporate and staff labor reductions that occurred in the prior period due to the Pandemic, including wage reductions, employee furloughs, and the suspension of certain benefits such as 401(k) matching.

The increase was also due to updated assessments regarding financial performance target achievements in connection with certain performance share awards and cash incentive plans;

• a $21.9 million increase in acquisition and integration costs attributable to the Able Acquisition;

• a $9.1 million non-cash impairment charge for previously capitalized internal-use software related to our ERP system implementation as we determined that certain components developed will no longer be incorporated into the new ERP system;

This increase was partially offset by:

• a $19.0 million decrease in bad debt expense, primarily associated with higher reserves established for client receivables in the prior year, due to increasing credit risk resulting from the Pandemic;

• the absence of a $17.6 million reserve on notes receivable related to a unique, entertainment-related project within Technical Solutions, mainly associated with increasing credit risk resulting from the Pandemic;

• an $11.7 million decrease in prior year medical and dental self-insurance reserves as a result of actuarial evaluations completed in fiscal year 2021.

Restructuring and Related Expenses

Restructuring and related expenses decreased by $7.6 million during 2021, as compared to 2020.

We substantially completed the restructuring program by the end of fiscal year 2020.

Selling, general and administrative expenses decreased by $90.9 million, or 12.6%, to $628.3 million during 2022, as compared to 2021.

The decrease in selling, general and administrative expenses was primarily attributable to:

• a $160.1 million decrease in legal costs and settlements, of which $142.9 million was attributed to the accrual of a legal reserve for the Bucio case during 2021;

• the absence of a $9.1 million non-cash impairment charge for previously capitalized internal-use software related to our ERP system implementation as we determined that certain components developed will no longer be incorporated into the new ERP system during 2021;

• a $7.6 million gain recognized on the sale of a group of customer contracts related to healthcare technology management services within Technical Solutions;

• a $9.8 million decrease in bad debt expense;

• a $5.7 million decrease in acquisition and integration costs primarily attributable to the Able acquisition partially offset by an increase due to our Momentum and RavenVolt acquisitions.

This decrease was partially offset by:

• a $46.1 million increase in compensation and related expenses primarily attributable to talent acquisition activities;

• a $31.4 million increase in certain technology projects primarily attributable to discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics;

• a $16.9 million increase related to the Able Acquisition;

• a $6.7 million decrease in favorable self-insurance adjustments related to prior year claims as the result of actuarial evaluations completed on our medical and dental self-insurance plans.

Amortization of Intangible Assets

Amortization of intangible assets decreased by $3.4 million, or 7.1%, during 2021, as compared to 2020, mainly due to the lower intangible assets balance resulting from the impairment loss recorded in the second quarter of 2020 and to certain intangible assets being amortized using the sum-of-the-years’-digits method, which results in declining amortization expense over the useful lives of the assets.

Impairment Loss

During 2020, we recorded impairment charges on goodwill related to our Education, Aviation, and U.K.

Technical Solutions businesses totaling $163.8 million.

Additionally, we recorded impairment charges on customer relationships related to our Aviation and U.K.

Technical Solutions businesses totaling $9.0 million.

During the second quarter of 2020, these businesses were adversely impacted by the market and business conditions resulting from the Pandemic.

During 2021, we did not record any impairment charges to goodwill or intangible assets.

Amortization of intangible assets increased by $27.1 million, or 60.2%, to $72.1 million during 2022, as compared to 2021.

This increase was primarily due to the amortization of intangibles acquired as part of the Able Acquisition.

Interest Expense

Interest expense decreased by $16.0 million, or 35.9%, during 2021, as compared to 2020, primarily attributable to lower relative interest rates as the result of amending our credit facility in 2021 and lower average outstanding borrowings under our credit facility throughout the year.

Interest expense increased by $12.5 million, or 43.9%, to $41.1 million during 2022, as compared to 2021, primarily driven by the indebtedness to fund acquisitions and working capital requirements and an increase in the reference rates on our debt borrowings beginning the second quarter of 2022.

This increase was partially offset by more favorable terms in the current year as the result of amending our credit facility in the third quarter of 2021.

Income Taxes from Continuing Operations

During 2022 and 2021, we had effective tax rates of 25.7% and 29.8%, respectively, resulting in a provision for tax of $79.6 million and $53.5 million, respectively.

Our effective tax rate for 2021 was also impacted by the following discrete items:

Our effective tax rate for 2022 was impacted by the following items:

a $8.1 million benefit for expiring statutes of limitations;

a $1.4 million benefit for share-based compensation;

and a $1.3 million provision for true-ups.

Our effective tax rate for 2021 was also impacted by the following items:

a $3.0 million provision for nondeductible transaction costs;

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and a $1.2 million benefit for energy efficiency incentives.

Our effective tax rate for 2020 was impacted by the following discrete items:

a $5.7 million benefit from true-ups;

a $2.3 million provision related to the Work Opportunity Tax Credit (“WOTC”);

a $2.1 million benefit from

energy efficiency incentives;

and a $1.1 million benefit from change of tax reserves.

The effective tax rate for the year ended October 31, 2020, excluding a nondeductible impairment loss of $163.8 million, was 24.4%.

Interest Rate Swaps

We had a gain of $4.5 million on interest rate swaps during the year ended October 31, 2021, as compared to a loss of $7.6 million during the year ended October 31, 2020, primarily due to underlying changes in the fair value of our interest rate swaps.

We had a gain of $36.7 million on interest rate swaps during the year ended October 31, 2022, as compared to a gain of $4.5 million during the year ended October 31, 2021, primarily due to underlying changes in the fair value of our interest rate swaps.

Foreign Currency Translation and Other

We had a foreign currency translation gain of $5.3 million during the year ended October 31, 2021, as compared to a foreign currency translation loss of $1.8 million during the year ended October 31, 2020.

We had a foreign currency translation loss of $19.8 million during the year ended October 31, 2022, as compared to a foreign currency translation gain of $5.3 million during the year ended October 31, 2021.

This change was due to fluctuations in the exchange rate between the U.S.

Dollar (“USD”) and the British pound sterling (“GBP”).

Dollar (“USD”) and the British pound sterling

Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of foreign currencies to the USD and the extent of our foreign assets and liabilities.

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Segment Information

Our current reportable segments consist of B&I, T&M, Education, Aviation, and Technical Solutions.

Our current reportable segments consist of B&I, M&D, Education, Aviation, and Technical Solutions.

Financial Information for Each Reportable Segment

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Business & Industry $ 4,095.9 $ 2,853.8 $ 2,856.4 $ 1,242.1 43.5%

Technology & Manufacturing 987.1 956.0 917.0 31.1 3.3%

Manufacturing & Distribution 1,445.2 1,363.1 1,151.4 82.1 6.0%

Education 834.7 830.8 805.1 3.9 0.5%

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Technical Solutions 626.8 529.8 504.0 97.0 18.3%

Elimination of inter-segment revenues (144.2) (122.4) (127.7) (21.8) (17.8)%

$ 7,806.6 $ 6,228.6 $ 5,987.6 $ 1,578.0 25.3%

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Operating profit margin 8.2 % 10.0 % 8.0 % (184) bps

Technology & Manufacturing 103.8 84.4 72.5 19.4 22.9%

Manufacturing & Distribution 161.8 155.5 108.0 6.3 4.0%

Operating profit margin 11.2 % 11.4 % 9.4 % (21) bps

Education 60.5 (41.1) 39.0 101.6 NM*

Operating margin 7.2 % (5.1) % 4.6 % NM*

Aviation 32.5 (59.6) 21.1 92.1 NM*

Operating margin 4.9 % (8.7) % 2.1 % NM*

Technical Solutions 49.8 9.5 55.4 40.3 NM*

Education 47.1 61.5 (39.9) (14.4) (23.4)%

Operating profit margin 5.6 % 7.4 % (5.0 %) (176) bps

Government Services (0.2) (0.1) (0.1) (0.1) NM*

Aviation 29.3 32.1 (60.1) (2.8) (8.6)%

Operating profit margin 3.6 % 4.9 % (9.0 %) (128) bps

Technical Solutions 63.8 49.4 9.7 14.4 29.2%

Operating profit margin 10.2 % 9.3 % 1.9 % 86 bps

Government Services (0.3) (0.2) (0.1) (0.1) (72.4)%

Operating profit margin NM* NM* NM* NM*

Corporate (374.6) (146.9) (159.0) (227.7) NM*

Corporate (284.5) (374.6) (146.9) (90.1) 24.0%

Adjustment for income from unconsolidated

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Technical Solutions (0.9) (1.2) (2.1) 0.3 27.7%

$ 206.3 $ 95.7 $ 208.3 $ 110.6 NM*

$ 348.8 $ 206.3 $ 95.7 $ 142.5 69.1%

*Not meaningful

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Operating profit margin 8.2 % 10.0 % (184) bps

B&I revenues increased by $188.7 million, or 6.0%, during 2021, as compared to 2020.

The increase was primarily driven by a $101.1 million revenue increase due to the Able Acquisition in the fourth quarter of 2021.

The remaining increase was due to an increase in work orders (as a result of the Pandemic) and net new business in our U.K.

B&I revenues increased by $1,242.1 million, or 43.5%, to $4,095.9 million during 2022, as compared to 2021.

Revenue growth was comprised of acquisition growth of 38.5% and organic growth of 5.0%.

Acquisition growth was primarily driven by a $1,058.9 million revenue increase due to the Able Acquisition, completed in the fourth quarter of 2021.

Organic growth was primarily driven by the recovery of certain accounts as pandemic-related disruptions continue to ease and targeted expansion of certain key clients, as well as lower sales allowance reserve, while partially offset by decrease in pandemic-related cleaning services.

Management reimbursement revenues for this segment totaled $227.8 million and $185.8 million during 2022 and 2021, respectively.

Operating profit increased by $84.1 million, or 33.1%, during 2021, as compared to 2020.

Operating profit margin increased by 206 bps to 10.1% in 2021 from 8.0% in 2020.

The increase in operating profit margin was primarily associated with higher margins on certain accounts in both our U.S.

businesses and an increase in work orders, which have higher margins.

Operating margin was also positively impacted by lower insurance expense related to our self-insurance program and a decrease in bad debt expense as higher reserves were recorded in the prior year, mainly associated with increasing credit risk resulting from the Pandemic.

Technology & Manufacturing

Operating profit increased by $49.0 million, or 17.1%, to $334.9 million during 2022, as compared to 2021.

Operating profit margin decreased by 184 bps to 8.2% in 2022 from 10.0% in 2021.

The decrease in operating profit margin was primarily driven by an increase in direct labor and related costs due to a limited labor supply in certain non-union markets;

a decrease in pandemic-related cleaning services, which have higher margins;

and changes in contract mix as a result of the Able Acquisition, partially offset by lower bad debt expense.

In addition, operating profit margin was negatively impacted by the amortization of intangibles acquired as part of the Able Acquisition.

Manufacturing & Distribution

Years Ended October 31,

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Operating profit margin 11.2 % 11.4 % (21) bps

T&M revenues increased by $31.1 million, or 3.3%, during 2021, as compared to 2020.

The increase was primarily attributable to net new business and an increase in work orders (primarily as a result of the Pandemic).

Operating profit increased by $19.4 million, or 22.9%, during 2021, as compared to 2020.

Operating profit margin increased by 168 bps to 10.5% in 2021 from 8.8% in 2020.

The increase in operating profit margin was primarily attributable to a decrease in bad debt expense, as higher reserves were recorded in the prior year mainly associated with increasing credit risk resulting from the Pandemic, and higher margins on work orders.

M&D revenues increased by $82.1 million, or 6.0%, to $1,445.2 million during 2022, as compared to 2021.

The increase was primarily attributable to the expansion of business with existing customers led by distribution clients, partially offset by a decrease in work orders for pandemic-related demands.

Operating profit increased by $6.3 million, or 4.0%, to $161.8 million during 2022, as compared to 2021.

Operating profit margin decreased by 21 bps to 11.2% in 2022 from 11.4% in 2021.

The decrease in operating profit margin was primarily attributable to the decrease in pandemic-related work orders, which have higher margins.

Years Ended October 31,

($ in millions) 2021 2020 Increase

($ in millions) 2022 2021 Increase / (Decrease)

Revenues $ 834.7 $ 830.8 $ 3.9 0.5%

Operating profit (loss) 60.5 (41.1) 101.6 NM*

Operating margin 7.2 % (5.1) % NM*

*Not meaningful

Education revenues increased by $27.6 million, or 3.4%, during 2021, as compared to 2020.

The increase was primarily attributable to an increase in work orders as a result of Pandemic-related demands and recovery in the volume of our business as schools gradually reopened.

The increase was partially offset by the loss of certain accounts during the year.

Education had an operating profit of $60.5 million during 2021, as compared to an operating loss of $41.1 million during 2020.

Operating margin increased to 7.2% in 2021 from (5.1)% in 2020.

The increase in operating profit margin was primarily attributable to the absence of prior year goodwill impairment charges of $99.3 million.

Additionally, operating margin was positively impacted by higher margin work orders, a decrease in bad debt expense, driven by net recoveries of certain previously reserved receivables, and lower amortization of intangible assets.

The increase in operating margin, excluding the impact of prior year impairment, was mostly offset by the increase in direct labor and related costs as schools reopened.

Operating profit 47.1 61.5 (14.4) (23.4)%

Operating profit margin 5.6 % 7.4 % (176) bps

Education revenues increased by $3.9 million, or 0.5%, to $834.7 million during 2022, as compared to 2021.

The increase was primarily attributable to new business and recovery in the volume of our business as schools reopened to full capacity.

The increase was partially offset by a loss of certain accounts in the third quarter of 2021.

Operating profit decreased by $14.4 million, or 23.4% to $47.1 million during 2022, as compared to 2021.

Operating margin decreased to 5.6% in 2022 from 7.4% in 2021.

The decrease in operating margin was primarily attributable to an increase in direct labor and related costs due to the return to in-person learning and a limited labor supply in certain geographies.

Operating margin was positively impacted by lower amortization of intangible assets.

Years Ended October 31,

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Revenues $ 804.0 $ 651.1 $ 152.9 23.5%

Operating profit (loss) 32.5 (59.6) 92.1 NM*

Operating margin 4.9 % (8.7) % NM*

*Not meaningful

Aviation revenues decreased by $12.1 million, or 1.8%, during 2021, as compared to 2020.

The decrease was primarily attributable to travel restrictions and a decline in passenger demand resulting from the Pandemic.

While demand and revenue improved during the third and fourth quarter of 2021, Pandemic-related volume reductions continued to impact parking, janitorial, passenger services, transportation, and catering accounts.

The decrease was partially offset by Pandemic-related cleaning services and new parking-related services.

Operating profit 29.3 32.1 (2.8) (8.6)%

Operating profit margin 3.6 % 4.9 % (128) bps

Aviation revenues increased by $152.9 million, or 23.5% to $804.0 million, during 2022, as compared to 2021.

The increase was primarily attributable to a recovery in consumer and business travel (both domestic and international) and new parking-related services.

Management reimbursement revenues for this segment totaled $52.6 million and $54.5 million during 2022 and 2021, respectively.

Aviation had an operating profit of $32.5 million during 2021, as compared to an operating loss of $59.6 million during 2020.

Operating margin increased to 4.9% during 2021, from (8.7)% during 2020.

This increase in operating profit margin was primarily attributable to the absence of prior year impairment charges of $55.5 million on goodwill and $5.6 million on customer relationships.

Additionally, operating margin increased as the result of management of direct labor and related personnel costs during the Pandemic, higher margins on Pandemic-related cleaning services, and a strategic shift toward securing higher margin contracts with airports and related facilities.

Operating profit decreased by $2.8 million, or 8.6%, to $29.3 million during 2022, as compared to 2021.

Operating margin decreased to 3.6% during 2022, from 4.9% during 2021.

The decrease was primarily attributable to delays in work order acceptance from a client related to a parking project, whereby direct labor and related costs were incurred in the current year while related revenue did not meet the criteria for revenue recognition.

It is expected that the revenue that was not recognized in 2022 will be recognized in a future period.

The decrease was partially offset by the contract mix.

Technical Solutions

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Revenues $ 626.8 $ 529.8 $ 97.0 18.3%

Operating profit 49.8 9.5 40.3 NM*

Operating profit 63.8 49.4 14.4 29.2%

Operating profit margin 10.2 % 9.3 % 86 bps

*Not meaningful

Technical Solutions revenues increased by $27.4 million, or 5.4%, during 2021, as compared to 2020.

The increase was primarily attributable to an increase in the volume of our U.S.

businesses due to the easing of Pandemic-related lockdowns, which provided access to facilities that were previously restricted.

In addition, the revenue increase was driven by growth in electric vehicle charging station installation sales.

Operating profit increased by $40.3 million during 2021, as compared to 2020.

Technical Solutions revenues increased by $97.0 million, or 18.3%, to $626.8 million during 2022, as compared to 2021.

Revenue growth was comprised of acquisition growth of 2.8% and organic growth of 15.5%.

The organic revenue growth was primarily driven by the growth in electric vehicle charging station installation sales.

Acquisition growth was primarily driven by a $14.7 million revenue increase due to the RavenVolt Acquisition, completed in the fourth quarter of 2022.

Operating profit increased by $14.4 million, or 29.2%, to $63.8 million during 2022, as compared to 2021.

Operating profit margin increased by 86 bps to 10.2% in 2022 from 9.3% in 2021.

The increase in operating profit margin was primarily attributable to the absence of a prior year $17.6 million reserve on notes receivable related to a unique, entertainment-related project, mainly associated with increasing credit risk resulting from the Pandemic.

The increase was also due to the absence of prior year impairment charges of $9.0 million on goodwill and $3.4 million on customer relationships related to our U.K.

The increase in operating profit margin was primarily attributable to the $7.6 million gain recognized on the sale of a group of customer contracts related to healthcare technology management services and lower bad debt expense partially offset by the contract mix.

Years Ended October 31,

($ in millions) 2021 2020 Increase

Corporate expenses $ (374.6) $ (146.9) $ (227.7) NM*

*Not meaningful

Corporate expenses increased by $227.7 million during 2021, as compared to 2020.

The increase in corporate expenses was primarily related to:

• a $145.8 million increase in legal costs and settlements, primarily attributed to the accrual of a legal settlement for the Bucio case;

• a $43.2 million increase in certain technology projects and other enterprise initiatives (including ELEVATE ), in addition to marketing events;

• a $33.4 million increase in compensation and related expenses, primarily driven by corporate and staff labor reductions that occurred in the prior period due to the Pandemic, including wage reductions, employee furloughs, and the suspension of certain benefits such as 401(k) matching.

The increase was also due to updated assessments regarding financial performance target achievements in connection with certain performance share awards and cash incentive plans;

• a $21.9 million increase in acquisition and integration costs attributable to the Able Acquisition;

This increase was partially offset by:

• a $17.4 million decrease in insurance expense as the result of favorable self-insurance reserve adjustments from actuarial evaluations completed in fiscal year 2021 as compared to 2020;

• a $7.6 million decrease in restructuring and related expenses due to the completion of our restructuring program in fiscal year 2020.

($ in millions) 2022 2021 Decrease

Corporate expenses $ (284.5) $ (374.6) $ (90.1) 24.0%

Corporate expenses decreased by $90.1 million, or 24.0%, to $284.5 million during 2022, as compared to 2021.

The decrease in corporate expenses was primarily related to:

• a $158.0 million decrease in legal costs and settlements, of which $142.9 million was attributed to the accrual of a legal reserve for the Bucio case during 2021;

• a $5.7 million decrease in acquisition and integration costs primarily attributable to the Able acquisition partially offset by an increase due to our Momentum and RavenVolt acquisitions.

This decrease was partially offset by:

• a $26.2 million increase in compensation and related expenses primarily attributable to talent acquisition activities;

• a $32.2 million increase in certain technology projects primarily attributable to discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics;

• a $14.9 million increase related to the Able Acquisition;

• a $6.7 million decrease in favorable self-insurance adjustments related to prior year claims as the result of actuarial evaluations completed on our medical and dental self-insurance plans.

The Year Ended October 31, 2021 Compared with the Year Ended October 31, 2020

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As such, we project our anticipated cash requirements as well as cash flows generated from operating activities to meet those needs.

In addition to normal working capital requirements, we anticipate that our short- and long-term cash requirements will include funding legal settlements, insurance claims, dividend payments, capital expenditures, share repurchases, mandatory loan repayments, and systems and technology transformation initiatives under our ELEVATE strategy.

In addition to normal working capital requirements, we anticipate that our short- and long-term cash requirements will include funding insurance claims, dividend payments, capital expenditures, share repurchases, mandatory loan repayments, and systems and technology transformation initiatives under our ELEVATE strategy.

We anticipate long-term cash uses may also include strategic acquisitions.

On a long-term basis, we will continue to rely on our credit facility for any long-term funding not provided by operating cash flows.

We believe that the Pandemic has had, and will likely continue to have, an impact on our consolidated financial position, results of operations, and cash flows.

Since we cannot predict the duration or scope of the Pandemic, we cannot fully anticipate or reasonably estimate all the ways in which the current global health crisis and financial market conditions could adversely impact our business in fiscal 2022 or in the future.

We have taken and continue to take certain steps to preserve liquidity, including:

imposing furloughs or reduced hours for certain service employees in markets significantly impacted by business slowdowns and shutdowns;

managing our operating expenditures and certain selling, general and administrative expenses;

amending our credit facility, as further described under “Credit Facility” below;

and suspending share repurchases under our share repurchase program.

In addition, we continue focusing on collection of customer receivables, monitoring the adequacy of our reserves, and extending vendor payment terms where possible.

We also evaluated the business tax provisions of the CARES Act and have deferred remittance of approximately $132 million of payroll tax through December 31, 2020, which the CARES Act requires to be remitted by December 31, 2021, and December 31, 2022, in equal parts.

We believe that our operating cash flows and borrowing capacity under our credit facility are sufficient to fund our cash requirements for the next 12 months.

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However, there can be no assurance that such financing will be available to us should we need it or, if available, that the terms will be satisfactory to us and not dilutive to existing shareholders.

Credit Facility

Debt Facilities

On September 1, 2017, we refinanced and replaced our then-existing $800.0 million credit facility with a new senior, secured five-year syndicated credit facility (the “Credit Facility”), consisting of a $900.0 million revolving line of credit and an $800.0 million amortizing term loan.

In accordance with the terms of the Credit Facility, the revolving line of credit was reduced to $800.0 million on September 1, 2018.

On May 28, 2020, we amended and restated our Credit Facility (“the First Amendment”) to further enhance our financial flexibility as a precautionary measure in response to uncertainty arising from the Pandemic.

The First Amendment modified certain financial covenants, the interest rate, interest margins, and commitment fees applicable to loans and commitments under the Credit Facility.

The First Amendment made certain additional changes to the negative covenants restrictions under the Credit Facility, including, subject to certain exceptions:

restrictions on our ability to make acquisitions, share repurchases, and other defined restricted payments, depending on our total net leverage ratio.

On June 28, 2021, the Company amended and restated the Credit Facility (the “Second Amendment,” and the Credit Facility as amended, the “Amended Credit Facility”), extending the maturity date to June 28, 2026, and increasing the capacity of the revolving credit facility from $800.0 million to $1.3 billion and the then-remaining term loan outstanding from $620.0 million to $650.0 million.

The Second Amendment also removed the anti-cash hoarding mandatory prepayment requirement as well as other restrictions that limited our ability to make acquisitions, share repurchases, and other defined restricted payments under the First Amendment.

Additionally, the Second Amendment modified certain financial covenants, terms, interest rates, interest margins, and commitment fees applicable to loans and commitments under the prior Credit Facility.

The Amended Credit Facility provides for the issuance of up to $350.0 million for standby letters of credit and the issuance of up to $75.0 million in swingline advances.

The obligations under the Amended Credit Facility are secured on a first-priority basis by a lien on

substantially all of our assets and properties, subject to certain exceptions.

The obligations under the Amended Credit Facility are secured on a first-priority basis by a lien on substantially all of our assets and properties, subject to certain exceptions.

We may repay amounts borrowed under the Amended Credit Facility at any time without penalty.

Under the Amended Credit Facility, the term loan and U.S.-dollar-denominated borrowings under the revolver bear interest at a rate equal to one-month LIBOR plus a spread based upon our leverage ratio.

Under the Amended Credit Facility, the term loan and U.S.-dollar-denominated borrowings under the revolver bear interest at a rate equal to the one-month London Interbank Offered Rate (“LIBOR”) plus a spread based upon our leverage ratio.

Euro- and sterling-denominated borrowings under the revolver bear at the interest rate of the Euro Interbank Offered Rate (EURIBOR) and the daily Sterling Overnight Index Average (SONIA) reference rate, respectively, plus a spread that is based upon our leverage ratio.

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At October 31, 2022, we were in compliance with these covenants and expect to be in compliance in the foreseeable future.

On March 1, 2022, we entered into a new uncommitted receivable repurchase facility (the “Receivables Facility”) of up to $150 million, which expires on February 28, 2023.

The Receivables Facility allows the Company to sell a portfolio of available and eligible outstanding U.S.

trade accounts receivable to a participating institution and simultaneously agree to repurchase them generally on a monthly basis.

Under this arrangement, we make floating

rate interest payments equal to the forward-looking term rate based on Secured Overnight Financing Rate (“SOFR”) plus 1.05%.

These interest payments are payable monthly in arrears.

The repurchase price of the receivables in the facility is the original face value.

Outstanding receivables must be repurchased on a date agreed upon by both the buyer and seller, generally on a monthly basis, and on the termination date of the repurchase facility.

This facility is considered a secured borrowing and provides the buyer with customary rights of termination upon the occurrence of certain events of default.

We have guaranteed all of the sellers’ obligations under the facility.

During 2022, we made $32.5 million of principal payments under the term loan.

At October 31, 2021, the total outstanding borrowings under our Amended Credit Facility in the form of cash borrowings and standby letters of credit were $888.8 million and $167.7 million, respectively.

At October 31, 2022, the total outstanding borrowings and standby letters of credit were $1,271.3 million and $158.3 million, respectively.

At October 31, 2022, we had up to $612.9 million of borrowing capacity.

On March 5, 2021, the United Kingdom’s Financial Conduct Authority, the regulator of LIBOR, announced that the USD LIBOR rates will no longer be published after June 30, 2023.

While we expect LIBOR to be available in substantially its current form until at least the end of June 30, 2023, it is possible that LIBOR will become unavailable prior to that point, which may impact our Amended Credit Facility and interest rate swaps.

Our current credit agreement as well as our International Swaps and Derivatives Association, Inc.

agreement provide for any changes away from LIBOR to a successor rate to be based on prevailing or equivalent standards.

Additionally, our interest rate swaps mature before June 30, 2023.

As such, we do not anticipate a material impact related to the LIBOR transition and will continue to monitor developments related to the LIBOR transition and/or identification of an alternative, market-accepted rate.

The Alternative Reference Rates Committee, a group of market participants convened by the U.S.

Federal Reserve Board and the Federal Reserve Bank of New York, has recommended SOFR, a rate calculated based on repurchase agreements backed by treasury securities, as its recommended alternative benchmark rate to replace USD LIBOR.

We transitioned the outstanding debt from a LIBOR-based interest rate to a term SOFR-based interest rate, which is set to take effect on November 1, 2022.

Reinvestment of Foreign Earnings

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Effective December 18, 2019, our Board of Directors replaced our then-existing share repurchase program with a new share repurchase program under which we may repurchase up to $150.0 million of our common stock.

We repurchased shares under the 2019 Share Repurchase Program during the second quarter of 2020.

However, due to the market and business conditions arising from the Pandemic, we suspended further repurchases of our common stock in March 2020 and did not repurchase any shares of our outstanding common stock during fiscal year 2021.

We repurchased shares under the Share Repurchase Program during 2022, as summarized below.

At October 31, 2022, authorization for $47.4 million of repurchases remained under the Share Repurchase Program.

Effective December 9, 2022, our Board of Directors expanded the Share Repurchase Program by an additional $150.0 million.

There were no share repurchases during 2021.

Years Ended October 31,

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Regulatory Environment

Our operations are subject to various federal, state, and/or local laws, rules, and regulations regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, as well as laws and regulations relating to, among other things, labor, wages, and health and safety matters.

Our operations are subject to various federal, state, and/or local laws, rules, and regulations regulating among other things, labor, wages, and health and safety matters, as well as laws and regulations relating to the discharge of materials into the environment or otherwise relating to the protection of the environment.

Historically, the cost of complying with these laws, rules, and regulations has not had a material adverse effect on our financial position, results of operations, or cash flows.

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Net cash provided by operating activities of continuing operations $ 20.4 $ 314.3 $ 457.4

Net cash provided by (used in) operating activities of discontinued operations — 0.1 (0.1)

Net cash provided by operating activities of discontinued operations — — 0.1

Net cash provided by operating activities 20.4 314.3 457.5

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Net cash provided by operating activities of continuing operations decreased by $293.9 million during 2022, as compared to 2021.

The decrease was primarily related to the timing of working capital changes, partially offset by deferred remittance of payroll taxes under the CARES Act.

Net cash provided by operating activities of continuing operations increased by $194.6 million during 2020, as compared to 2019.

The increase was primarily related to the timing of client receivable collections and deferred remittance of approximately $101 million of payroll taxes under the CARES Act, partially offset by the timing of vendor payments.

The decrease was primarily driven by payments made for the Bucio settlement, which was recorded within “Other Accrued Liabilities” in the Consolidated Balance Sheets, and deferred remittance of payroll taxes in the current year and the timing of client receivable collections and vendor payments.

Net cash provided by operating activities of continuing operations decreased by $143.1 million during 2021, as compared to 2020.

The decrease was primarily related to the timing of client receivable collections and deferred remittance of payroll taxes under the CARES Act in 2021, partially offset by the timing of vendor payments.

Investing Activities

Net cash used in investing activities increased by $712.5 million during 2021, as compared to 2020.

The increase was primarily related to the Able Acquisition during the fourth quarter of 2021.

Net cash used in investing activities decreased by $30.8 million during 2020, as compared to 2019.

The decrease was primarily related to lower additions to property, plant and equipment in 2020.

Additionally, the implementation of the new ERP system was temporarily suspended during 2020 due to the Pandemic.

Net cash used in investing activities changed by $498.5 million during 2022, as compared to 2021.

The change was primarily related to the Able Acquisition during the fourth quarter of 2021, partially offset by Momentum and RavenVolt acquisitions.

Net cash used in investing activities changed by $712.5 million during 2021, as compared to 2020.

The change was primarily related to the Able Acquisition during the fourth quarter of 2021.

Financing Activities

Net cash provided by financing activities was $235.5 million in 2022, as compared to net cash used in financing activities of $92.4 million in 2021.

The change was primarily related to an increase in net borrowings from our Amended Credit Facility and Receivable Facility to fund acquisitions and working capital requirements.

Net cash provided by financing activities was $92.4 million in 2021, as compared to net cash used in financing activities of $94.1 million in 2020, primarily due to higher net borrowings to partially fund the purchase price of the Able Acquisition.

Net cash used in financing activities decreased by $90.7 million during 2020, as compared to 2019, primarily due to lower repayments of our borrowings in 2020.

On December 5, 2022, we announced a quarterly cash dividend of $0.22 per share on our common stock, payable on February 6, 2023.

We declared a quarterly cash dividend on our common stock every quarter during 2021, 2020, and 2019.

We declared a quarterly cash dividend on our common stock every quarter during

2022, 2021, and 2020.

We paid total annual dividends of $51.9 million, $51.0 million, and $49.3 million during 2022, 2021, and 2020, respectively.

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• Debt Obligations and Interest Payments – Outstanding payments on our Amended Credit Facility were $1,271.3 million, with $32.5 million payable within 12 months.

Additionally, we had future interest payments based on our hedged borrowings under our Amended Credit Facility of $5.0 million, which is payable within 12 months.

In addition, we have $150.0 million payable under our Receivables Facility that allows us to sell a portfolio of available and eligible outstanding U.S.

trade accounts receivable of up to $150.0 million to a participating institution and simultaneously agree to repurchase them generally on a monthly basis.

We had future interest payments based on our hedged borrowings under our Amended Credit Facility of $16.3 million, which is payable within 12 months.

The interest payments on our remaining borrowings under the Amended Credit Facility will be determined based upon the average outstanding balance of our borrowings and the prevailing interest rate during that time.

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We had contractual payments for these arrangements of $66.0 million, with $17.3 million payable within 12 months.

• Information Technology Service Agreements – Information technology service agreements represent outsourced services and licensing costs pursuant to our information technology agreements.

• Information Technology Service Agreement s – Information technology service agreements represent outsourced services and licensing costs pursuant to our information technology agreements.

We had contractual payments for these agreements of $61.4 million, with $38.8 million payable within 12 months.

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These amounts are based on expected future service and were calculated using the same assumptions used to measure our benefit obligation at October 31, 2022.

• Litigation Settlements – A litigation settlement of $142.9 million related to the Bucio case is payable in 12 months.

See Note 13, “Commitments and Contingencies,” in the Financial Statements for further details.

• CARES Act Tax Obligations – We deferred approximately $132 million of payroll tax provisions under the CARES Act with $66 million payable in 12 months.

• CARES Act Tax Obligations – We deferred approximately $66 million of payroll tax provisions under the CARES Act, which we paid in December 2022.

See Note 16, “Income Taxes,” in the Financial Statements for further details.

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In addition, certain of these matters may not require cash settlements due to the exercise of credits and net operating loss carryforwards as well as other offsets, including the indirect benefit from other taxing jurisdictions that may be available.

• Contingent Consideration Payable in Connection with Our Acquisition of RavenVolt – At October 31, 2022, contingent consideration of up to $280.0 million in cash may be paid in calendar years 2024, 2025, and 2026, if the RavenVolt business achieves certain financial targets, as defined in the merger agreement, in calendar years 2023, 2024, and 2025 .

Off-Balance Sheet Arrangements

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As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

There have been no significant changes to our critical accounting policies and estimates for the year ended October 31, 2021.

As a result of our Acquisition of RavenVolt, we added “Contingent Consideration” to our critical accounting policies and estimates in 2022.

We removed “Customer Relationships” and “Contingencies and Litigation”.

There have been no other significant changes to our critical accounting policies and estimates for the year ended October 31, 2022.

We believe the following critical accounting policies govern the more significant judgments and estimates used in the preparation of our Financial Statements.

Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions

Customer Relationships

When we acquire a company, we determine the fair value on the acquisition date of assets acquired and liabilities assumed.

We anticipate that for most acquisitions, we will exercise significant judgment in estimating the fair value of intangible assets.

In a typical acquisition, customer relationships are our most significant definite-lived intangible asset.

In valuing these relationships, we engage a third-party valuation expert to fair value these assets using a version of the income approach known as the “excess earnings method.”

This method uses a discounted cash flow approach that is derived from historical information, future revenue and operating profit margins, contributory asset charges, and the selection of an appropriate discount rate.

We consider this approach the most appropriate valuation technique because the inherent value of these assets is their ability to generate current and future income.

Future revenue growth, future operating performance margin as a percentage of revenues, customer attrition rate, and discount rate applied are the significant estimates used in the excess earnings method to determine the fair value of customer relationships.

These estimates are influenced by many factors, including historical financial information, estimated retention rates, and management's expectations for future customer growth as a combined company.

Another estimate that impacts the valuation is the contributory charge for the acquired workforce, which involves management assumptions based on historical experience, including interview time and new hire productivity.

The estimated life is determined by calculating the number of years necessary to obtain 90% of the value of the discounted cash flows of the relationships and is directly tied to the accuracy of the above assumptions.

We have not made any changes in the accounting methodology used to determine the fair value of customer relationships during the last three years.

If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop the values of the identifiable intangible assets, then we could record material impairment losses.

With other assumptions held constant, a 10% increase in the calculated fair value of the Able customer relationships would increase the annual amortization expense by $2.8 million in 2022.

See the “Valuation of Long-Lived Assets” critical accounting policy for information about impairment evaluations.

Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions

Valuation of Long-Lived Assets

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Our goodwill is included in the following segments:

$1.1 billion — B&I (includes $554.0 million related to the Able Acquisition on September 30, 2021)

$407.2 million — T&M

$1.1 billion — B&I

$502.2 million — M&D

$459.3 million — Education

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For the three goodwill reporting units tested quantitatively, we estimated the fair value using a weighting of fair values derived from an income approach and a market approach.

Based on the evaluation performed, we determined that goodwill was impaired for each of the three goodwill reporting units evaluated and recognized a non-cash impairment charge totaling $163.8 million ($99.3 million related to Education, $55.5 million related to Aviation, and $9.0 million related to our U.K.

Technical Solutions business).

We also recognized intangible asset impairment charges of $5.6 million related to Aviation and $3.4 million related to our U.K.

Technical Solutions business.

We also recognized intangible asset impairment charges of $5.6 million related to Aviation and $3.4 million related to our UK Technical Solutions business.

We performed our annual goodwill impairment analysis on August 1, 2020, using a qualitative approach since there were no indicators of impairment subsequent to our quantitative analysis performed in the second quarter of 2020 as discussed above.

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Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions

Contingencies and Litigation

We are a party to a number of lawsuits, claims, and proceedings incident to the operation of our business, including those pertaining to labor and employment, contracts, personal injury, and other matters, some of which allege substantial monetary damages.

Some of these actions may be brought as class actions on behalf of a class or purported class of employees.

We accrue for loss contingencies when losses become probable and are reasonably estimable.

If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability.

We do not accrue for contingent losses that, in our judgment, are considered to be reasonably possible but not probable.

Litigation outcomes are difficult to predict and are often resolved over long periods of time.

Estimating probable and reasonably possible losses requires the analysis of multiple possible outcomes that often depend on judgments about potential actions by third parties, such as future changes in facts and circumstances, differing interpretations of the law, assessments of the amount of damages, and other factors beyond our control.

There is the potential for a material adverse effect on our Financial Statements if one or more matters are resolved in a particular period in an amount materially in excess of what we anticipated.

In addition, in some cases, although a loss is probable or reasonably possible, we cannot reasonably estimate the maximum potential losses for probable matters or the range of losses for reasonably possible matters.

Therefore, our accrual for probable losses and our estimated range of loss for reasonably possible losses do not represent our maximum possible exposure.

We have not made any changes in the accounting methodology used to establish our loss contingencies during the past three years.

Our management currently estimates the range of loss for all reasonably possible losses for which a reasonable estimate of the loss can be made is between zero and $6 million.

Factors underlying this estimated range of loss may change from time to time, and actual results may vary significantly from this estimate.

Contingent Consideration

The acquisition of RavenVolt included contingent earn-out arrangement, which is based on the achievement of future income thresholds or other metrics.

The contingent earn-out arrangements are based upon our valuations of the acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved.

The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates.

For each transaction, we estimate the fair value of contingent earn-out payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability on the Consolidated Balance Sheets.

The fair values of the earn-out arrangements are estimated by discounting the expected future contingent payments to present value using a variation of the Income Approach, known as the Real Option method.

To estimate the fair value of the contingent consideration on the date of acquisition, we used the Real Options method.

The key assumptions used in our valuation were:

i) forecast of revenues and EBITDA margins, ii) the volatility associated with the EBITDA, iii) risk-adjusted discount rate applied to forecasted EBITDA, and (iv) the credit-adjusted discount rate related to the payment of the contingent consideration.

A simulation of one million scenarios was performed with the assistance of a third-party valuation specialist, resulting in a fair value for the cumulative contingent consideration for calendar years 2023 through 2025 totaling $59 million.

These estimates are influenced by many factors, including historical financial information, guideline public company data, and management's expectations for future customer growth as a combined company.

Changes in these inputs could have a significant impact on the initial fair value of the contingent consideration liability.

We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could be materially different from the initial estimates or prior quarterly amounts.

Changes in the estimated fair value of our contingent consideration and adjustments to the estimated fair value related to changes in all other unobservable inputs will be recognized within “Operating Expenses” in the Consolidated Statements of Comprehensive Income (Loss).

At October 31, 2022, we recorded $59.0 million of contingent consideration liability related to the RavenVolt acquisition.

The cumulative maximum of the earn-out payments is $280.0 million, if RavenVolt achieves certain EBITDA (as defined in the RavenVolt merger agreement) targets.

Pursuant to the RavenVolt merger agreement, former owners of RavenVolt would be entitled to a payment of up to $75.0 million in calendar year 2024 for achieving certain EBITDA targets in calendar year 2023;

$75.0 million in calendar year 2025 for achieving certain EBITDA targets in calendar year 2024;

and $130.0 million in calendar year 2026 for achieving certain EBITDA targets in calendar year 2025.

If the EBITDA achieved for calendar years 2023 - 2025 cumulatively meets the defined EBITDA targets, the entire $280.0 million would be paid in calendar year 2026, minus any earn-out payments made in 2024 and 2025.

The actual achievement of contingent considerations payments in 2024, 2025, and 2026 could be materially different than the initial fair value of $59 million.

Recent Accounting Pronouncements

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Scope This Accounting Standard Update (“ASU”), issued in January 2021, clarifies that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions under Topic 848.

While we are currently evaluating the impact of implementing this guidance on our financial statements, we do not expect adoption to have a material impact.

Effective November 1, 2023, we applied available practical expedients under ASC 848 to account for modifications, changes in critical terms, and updates to the designated hedged risks as qualifying changes have been made to applicable debt and derivative contracts as if they were not substantial.

This update was effective upon issuance and can be applied to hedging relationships retrospectively or prospectively through December 31, 2022.

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The expedients allow companies to ease the potential accounting burden when modifying contracts and hedging relationships that use LIBOR as a reference rate, if certain criteria are met.

While we are currently evaluating the impact of implementing this guidance on our financial statements, we do not expect adoption to have a material impact.

This update was effective upon issuance and can be applied prospectively to contract modifications made and hedging relationships entered into or evaluated through December 31, 2022.

2020-01 Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 This ASU, issued in January 2020, clarifies the interaction between Topic 321, Topic 323, and Topic 815.

The new guidance, among other things, states that a company should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the fair value measurement alternative immediately before applying or upon discontinuing the equity method.

While we are currently evaluating the impact of implementing this guidance on our financial statements, we do not expect adoption to have a material impact.

November 1, 2021

This update will be applied prospectively.

2019-12 Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes This ASU, issued in December 2019, removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences.

This ASU also amends other aspects of the guidance to help simplify and promote consistent application of Topic 740.

We are currently evaluating the impact of implementing this guidance on our financial statements.

November 1, 2021

The amendments have differing adoption methods, including retrospectively, prospectively, and/or on a modified retrospective basis.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis