Vestis Corp 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO THE FINANCIAL STATEMENTS Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm (PCAOB ID 34) 46 Combined Balance Sheets as of September 29, 2023 and September 30, 2022 48 Combined Statements of Income for the fiscal years ended September 29, 2023 , September 30, 2022, and October 1, 2021 49 Combined Statements of Comprehensive Income for the fiscal years ended September 29, 2023 , September 30, 2022, and October 1, 2021 50 Combined Statements of Cash Flows for the fiscal years ended September 29, 2023 , September 30, 2022, and October 1, 2021 51 Combined Statements of Parent’s Equity for the fiscal years ended September 29, 2023 , September 30, 2022, and October 1, 2021 52 Notes to Combined Financial Statements 53 Note 1. Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies 53 Note 2. Severance 61 Note 3. Goodwill and Other Intangible Assets 62 Note 4 . Borrowings 63 Note 5 . Related Party Transactions and Parent Company Investment 65 Note 6 . Derivative Instruments 66 Note 7 . Revenue Recognition 67 Note 8 . Leases 67 Note 9 . Employee Pension and Profit Sharing Plans 70 Note 10 . Income Taxes 71 Note 1 1 . Share-Based Compensation 73 Note 1 2 . Commitments and Contingencies 77 Note 1 3 . Business Segments 78 Note 14. Subsequent Events 79 45 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Vestis Corporation Opinion on the Financial Statements We have audited the accompanying combined balance sheets of Vestis Corporation (the "Company") as of September 29, 2023 and September 30, 2022, the related combined statements of income, comprehensive income, cash flows and parent’s equity, for each of the three years in the period ended September 29, 2023, and the related notes (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 29, 2023 and September 30, 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 29, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Insurance – Refer to Note 1 to the financial statements Critical Audit Matter Description Aramark (the “Parent”) insures portions of its risk in general liability, automobile liability, workers’ compensation liability and property liability through a wholly owned captive insurance subsidiary, to enhance its risk financing strategies. The Parent’s reserves for retained costs associated with the Parent’s casualty program are estimated through actuarial methods, with the assistance of third-party actuaries, using loss development assumptions based on claims history. The Parent allocates certain costs associated to the captive insurance subsidiary to the Company. The Company does not recognize liabilities related to claims from general liability, automobile liability, workers' compensation liability and property liability on the combined balance sheets as the Parent's captive insurance subsidiary is the primary responsible party related to these obligations. The Parent's captive insurance subsidiary had estimated reserves of approximately $68.4 million and $61.7 million at September 29, 2023 and September 30, 2022, respectively, related to claims arising from the Company's operations. 46 Table of Contents We identified the valuation of insurance reserves and the allocation of associated costs to the Company as a critical audit matter because estimating projected settlement value of reported and unreported claims arising from the Company’s operations involves significant estimation by management. This required high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the insurance reserves and the allocation of associated costs to the Company included the following, among others: • We evaluated the inputs used to estimate the insurance reserves by: ◦ Reading the insurance policies and comparing the coverage and terms to the assumptions used. ◦ Testing the underlying historical claims data that served as the basis for the actuarial analysis. • With the assistance of our actuarial specialists, we: ◦ Evaluated the actuarial method used to estimate the insurance reserves. ◦ Compared prior-year assumptions of expected development and ultimate loss to actuals incurred during the current year to identify potential bias in the determination of the insurance reserves. ◦ Developed independent estimates of the insurance reserves, including loss data and industry claim development factors, and compared our estimates to recorded estimates. • We tested the allocation of costs associated to the captive insurance subsidiary to the Company. /s/ Deloitte & Touche LLP Atlanta, Georgia December 21, 2023 We have served as the Company’s auditor since 2023. 47 Table of Contents VESTIS CORPORATION COMBINED BALANCE SHEETS SEPTEMBER 29, 2023 AND SEPTEMBER 30, 2022 (in thousands) September 29, 2023 September 30, 2022 ASSETS Current Assets: Cash and cash equivalents $ 36,051 $ 23,736 Receivables (net of allowances: 2023 - $25,066; 2022 - $29,100) 392,916 368,714 Inventories, net 174,719 183,439 Rental merchandise in service, net 399,035 393,140 Other current assets 17,244 18,252 Total current assets 1,019,965 987,281 Property and Equipment, at cost: Land, buildings and improvements 585,797 579,915 Equipment 1,110,812 1,027,224 1,696,609 1,607,139 Less - Accumulated depreciation (1,032,078) (957,540) Total property and equipment, net 664,531 649,599 Goodwill 963,543 963,375 Other Intangible Assets, net 238,608 264,264 Operating Lease Right-of-use Assets 57,890 72,567 Other Assets 212,587 195,926 Total Assets $ 3,157,124 $ 3,133,012 LIABILITIES AND PARENT’S EQUITY Current Liabilities: Current maturities of long-term borrowings $ 26,250 $ — Current maturities of financing lease obligations 27,659 20,482 Current operating lease liabilities 19,935 20,899 Accounts payable 134,498 167,125 Accrued payroll and related expenses 113,771 119,032 Accrued expenses and other current liabilities 73,412 74,657 Total current liabilities 395,525 402,195 Long-Term Borrowings 1,462,693 — Noncurrent Financing Lease Obligations 105,217 86,783 Noncurrent Operating Lease Liabilities 46,084 54,017 Deferred Income Taxes 217,647 201,826 Other Noncurrent Liabilities 52,598 52,379 Total Liabilities 2,279,764 797,200 Commitments and Contingencies (see Note 12) Parent’s Equity: Net parent investment 908,533 2,367,492 Accumulated other comprehensive loss (31,173) (31,680) Total parent’s equity 877,360 2,335,812 Total Liabilities and Parent’s Equity $ 3,157,124 $ 3,133,012 Th e accompanying notes are an integral part of these Combined Financial Statements. 48 Table of Contents VESTIS CORPORATION COMBINED STATEMENTS OF INCOME FOR THE FISCAL YEARS ENDED SEPTEMBER 29, 2023, SEPTEMBER 30, 2022 AND OCTOBER 1, 2021 (in thousands) Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 Revenue $ 2,825,286 $ 2,687,005 $ 2,456,577 Operating Expenses: Cost of services provided (exclusive of depreciation and amortization) 1,970,215 1,909,676 1,765,635 Depreciation and amortization 136,504 134,352 133,306 Selling, general and administrative expenses 500,658 450,734 461,397 Total Operating Expenses 2,607,377 2,494,762 2,360,338 Operating Income 217,909 192,243 96,239 Gain on Sale of Equity Investment, net (51,831) — — Interest Expense and Other, net 10 2,284 (1,120) Income Before Income Taxes 269,730 189,959 97,359 Provision for Income Taxes 56,572 48,280 23,089 Net Income $ 213,158 $ 141,679 $ 74,270 The accompanying notes are an integral part of these Combined Financial Statements. 49 Table of Contents VESTIS CORPORATION COMBINED STATEMENTS OF COMPREHENSIVE INCOME FOR THE FISCAL YEARS ENDED SEPTEMBER 29, 2023, SEPTEMBER 30, 2022 AND OCTOBER 1, 2021 (in thousands) Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 Net Income $ 213,158 $ 141,679 $ 74,270 Other Comprehensive (Loss) Income, net of tax: Pension plan adjustments (655) 1,697 355 Foreign currency translation adjustments 1,162 (21,771) 6,362 Other Comprehensive (Loss) Income, net of tax 507 (20,074) 6,717 Comprehensive Income $ 213,665 $ 121,605 $ 80,987 The accompanying notes are an integral part of these Combined Financial Statements. 50 Table of Contents VESTIS CORPORATION COMBINED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED SEPTEMBER 29, 2023, SEPTEMBER 30, 2022 AND OCTOBER 1, 2021 (in thousands) Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 Cash flows from operating activities: Net Income $ 213,158 $ 141,679 $ 74,270 Adjustments to reconcile Net Income to Net cash provided by operating activities: Depreciation and amortization 136,504 134,352 133,306 Gain on sale of equity investment, net (51,831) — — Deferred income taxes 14,370 20,603 (615) Share-based compensation expense 14,467 17,398 15,427 Asset write-downs 7,698 — — Personal protective equipment charges — 26,183 34,472 Changes in operating assets and liabilities: Receivables, net (23,612) (53,860) (30,909) Inventories, net 8,929 (631) 6,508 Rental merchandise in service, net (5,334) (42,226) (10,514) Other current assets 1,050 (2,586) 503 Accounts payable (32,888) 31,398 10,298 Accrued expenses (7,928) (31,456) 15,183 Changes in other noncurrent liabilities (944) (2,183) 1,251 Changes in other assets (8,813) (4,140) (6,544) Other operating activities (7,849) (1,684) 1,699 Net cash provided by operating activities 256,977 232,847 244,335 Cash flows from investing activities: Purchases of property and equipment and other (77,870) (76,449) (90,138) Disposals of property and equipment 11,180 7,316 2,706 Acquisition of certain businesses, net of cash acquired — (17,200) (15,767) Proceeds from sale of equity investment 51,869 — — Other investing activities 75 200 43 Net cash used in investing activities (14,746) (86,133) (103,156) Cash flows from financing activities: Proceeds from long-term borrowings 1,500,000 — — Payments of financing lease obligations (27,601) (28,041) (29,917) Debt issuance costs (13,749) — — Net cash distributions to Parent (1,688,919) (134,502) (95,596) Net cash used in financing activities (230,269) (162,543) (125,513) Effect of foreign exchange rates on cash and cash equivalents 353 (1,541) 1,102 Increase (Decrease) in cash and cash equivalents 12,315 (17,370) 16,768 Cash and cash equivalents, beginning of period 23,736 41,106 24,338 Cash and cash equivalents, end of period $ 36,051 $ 23,736 $ 41,106 The accompanying notes are an integral part of these Combined Financial Statements. 51 Table of Contents VESTIS CORPORATION COMBINED STATEMENTS OF PARENT’S EQUITY FOR THE FISCAL YEARS ENDED SEPTEMBER 29, 2023, SEPTEMBER 30, 2022 AND OCTOBER 1, 2021 (in thousands) Net Parent Investment Accumulated Other Comprehensive Loss Total Parent’s Equity Balance, October 2, 2020 $ 2,362,287 $ (18,323) $ 2,343,964 Net Income 74,270 74,270 Net Transfers to Parent (92,966) (92,966) Other Comprehensive Loss 6,717 6,717 Balance, October 1, 2021 $ 2,343,591 $ (11,606) $ 2,331,985 Net Income 141,679 141,679 Net Transfers to Parent (117,778) (117,778) Other Comprehensive Income (20,074) (20,074) Balance, September 30, 2022 $ 2,367,492 $ (31,680) $ 2,335,812 Net Income 213,158 213,158 Net Transfers to Parent (1,672,117) (1,672,117) Other Comprehensive Loss 507 507 Balance, September 29, 2023 $ 908,533 $ (31,173) $ 877,360 The accompanying notes are an integral part of these Combined Financial Statements. 52 Table of Contents VESTIS CORPORATION NOTES TO THE COMBINED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Vestis Corporation ("Vestis", the "Company", “we” or “us”) is a carve-out business of Aramark (“Aramark”). Unless the context otherwise requires, references to “Vestis,” “we,” “us,” “our,” and the “Company” refer to (i) Aramark’s uniform services business prior to the Separation and (ii) Vestis Corporation and its subsidiaries following the Separation. On May 10, 2022, Aramark announced that its Board of Directors approved a plan to separate its Uniform and Career Apparel business. On September 30, 2023 (the "Distribution Date"), Aramark completed the previously announced spin-off of Vestis (the "Spin-Off," or the “Separation”). The Separation was completed through a distribution of the Company's common stock to holders of record of Aramark’s common stock as of the close of business on September 20, 2023 (the “Distribution”), which resulted in the issuance of approximately 131 million shares of common stock. Aramark stockholders of record received one share of Vestis common stock for every two shares of common stock, par value $0.01, of Aramark. As a result of the Distribution, the Company became an independent public company. Our common stock is listed under the symbol “VSTS” on the NYSE. Vestis is a leading provider of uniforms and workplace supplies across the United States and Canada. The Company provides uniforms, mats, towels, linens, restroom supplies, first-aid supplies and safety products. The Company’s customer base participates in a wide variety of industries, including manufacturing, hospitality, retail, food processing, pharmaceuticals, healthcare and automotive. The Company serves customers ranging from small, family-owned operations with a single location to large corporations and national franchises with multiple locations. The Company’s customers value the uniforms and workplace supplies it delivers as its services and products can help them reduce operating costs, enhance their brand image, maintain a safe and clean workplace and focus on their core business. The Company leverages its broad footprint and its supply chain, delivery fleet and route logistics capabilities to serve customers on a recurring basis, typically weekly, and primarily through multi-year contracts. In addition, the Company offers customized uniforms through direct sales agreements, typically for large, regional or national companies. The Company manages and evaluates its business activities based on geography and, as a result, determined that its United States and Canada businesses are its operating segments. The Company’s operating segments are also its reportable segments. The United States and Canada reportable segments both provide a range of uniforms and workplace supplies programs. The Company’s uniforms business (“Uniforms”) generates revenue from the rental, servicing and direct sale of uniforms to customers, including the design, sourcing, manufacturing, customization, personalization, delivery, laundering, sanitization, repair and replacement of uniforms. The uniform options include shirts, pants, outerwear, gowns, scrubs, high visibility garments, particulate-free garments and flame-resistant garments, along with shoes and accessories. The Company’s workplace supplies business (“Workplace Supplies”) generates revenue from the rental and servicing of workplace supplies, including managed restroom supply services, first-aid supplies and safety products, floor mats, towels and linens. Basis of Presentation The Combined Financial Statements reflect the combined historical results of operations, comprehensive income and cash flows for the years ended September 29, 2023, September 30, 2022 and October 1, 2021 and the financial position as of September 29, 2023 and September 30, 2022 for the Company and are denominated in United States (“U.S.”) dollars. The Combined Financial Statements have been derived from Aramark’s historical accounting records and were prepared on a standalone basis in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The assets, liabilities, revenue and expenses of the Company have been reflected in these Combined Financial Statements on a historical cost basis, as included in the consolidated financial statements of Aramark, using the historical accounting policies applied by Aramark. Historically, separate financial statements have not been prepared for the Company, and it has not operated as a standalone business from Aramark. The Company’s business has historically functioned together with other Aramark businesses. Accordingly, the Company relied on certain of Aramark’s corporate support functions to operate. The Combined Financial Statements include all revenues and costs directly attributable to the Company and an allocation of expenses related to certain Aramark corporate functions (see Note 5. Related Party Transactions and Parent Company Investment). These expenses have been 53 Table of Contents allocated to the Company on the basis of direct usage where identifiable, with the remainder allocated on a pro rata basis of revenues, headcount or other drivers. The Company considers these allocations to be a reasonable reflection of the utilization of services or the benefit received. However, the allocations may not be indicative of the actual expense that would have been incurred had the Company operated as an independent, standalone public entity, nor are they indicative of the Company’s future expenses. Following the Separation, certain functions that Aramark provided to the Company prior to the separation are being provided to the Company by Aramark under a transition services agreement or using the Company’s own resources or third-party service providers. The Company incurred certain one-time charges in its establishment as a standalone public company, and will incur ongoing additional costs associated with operating as an independent, publicly traded company. It is impracticable to estimate the costs that would have been incurred as a standalone public company during fiscal 2023, fiscal 2022 and fiscal 2021. The Combined Financial Statements include assets and liabilities that have been determined to be specifically identifiable or otherwise attributable to the Company. The Company’s cash flows within the United States segment are transferred to Aramark regularly as part of Aramark’s centralized cash management program. The Company’s cash flows within the Canada segment are reinvested locally. The cash and cash equivalents held by Aramark at the corporate level are not specifically identifiable to the Company and therefore were not allocated to any of the periods presented. Only cash amounts specifically attributable to the Company are reflected in the Combined Balance Sheets. Transfers of cash, both to and from Aramark’s central cash management system, are reflected as a component of “Net parent investment” on the Combined Balance Sheets and in “Net cash used in financing activities” on the accompanying Combined Statements of Cash Flows. Historically, Aramark’s long-term borrowings and related interest expense, exclusive of certain financing lease obligations, have not been attributed to the Company for any of the periods presented because the borrowings are neither directly attributable to the Company nor is the Company the primary legal obligor of such borrowings. However, the Company and certain of its subsidiaries entered into a credit agreement on September 29, 2023 (the "Credit Agreement") and borrowings under the Credit Agreement have been included in the Combined Financial Statements (see Note 4. Borrowings). All intercompany transactions and balances within the Company have been eliminated. Transactions between the Company and Aramark have been included in these Combined Financial Statements and are considered related party transactions (see Note 5. Related Party Transactions and Parent Company Investment). The “Provision for Income Taxes” in the Combined Statements of Income has been calculated as if the Company filed a separate tax return and was operating as a standalone company. Therefore, income tax expense, cash tax payments and items of current and deferred income taxes may not be reflective of the Company’s actual tax balances prior to or subsequent to the distribution. Fiscal Year The Company’s fiscal year is the 52- or 53-week period which ends on the Friday nearest to September 30th. The fiscal years ended September 29, 2023, September 30, 2022 and October 1, 2021 were each 52-week periods. New Accounting Standards Updates Adopted Standards (from most to least recent date of issuance) In November 2021, the FASB issued an ASU which required that an entity provide certain annual disclosures when they have received government assistance. The guidance was effective for the Company in the first quarter of fiscal 2023. The Company adopted the ASU prospectively and adoption of this guidance did not have a material impact on the Combined Financial Statements. Standards Not Yet Adopted (from most to least recent date of issuance) In September 2022, the FASB issued an ASU to enhance the transparency of supplier finance programs, which may be referred to as reverse factoring, payables finance or structured payables arrangements. The guidance will require 54 Table of Contents that a buyer in a supplier finance program disclose the program’s nature, activity and potential magnitude. The guidance is effective for the Company in the first quarter of fiscal 2024, and early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Combined Financial Statements. In October 2021, the FASB issued an ASU which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers as if it had originated the contracts. The guidance is effective for the Company in the first quarter of fiscal 2024 and early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Combined Financial Statements. Other new accounting pronouncements recently issued or newly effective were not applicable to the Company, did not have a material impact on the Combined Financial Statements or are not expected to have a material impact on the Combined Financial Statements. Revenue Recognition The Company generates and recognizes over 93% of its total revenue from route servicing contracts on both Uniforms, which the Company generally manufactures, and Workplace Supplies, such as mats, towels, and linens that are procured from third-party suppliers. Revenue from these contracts represent a single-performance obligation and are recognized over time as services are performed based on the nature of services provided and contractual rates (output method). The Company generates its remaining revenue primarily from the direct sale of uniforms to customers, with such revenue being recognized when the Company’s performance obligation is satisfied, typically upon the transfer of control of the promised product to the customer. Revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to in exchange for the services or products described above and is presented net of sales and other taxes we collect on behalf of governmental authorities. Certain customer route servicing contracts include terms and conditions that include components of variable consideration, which are typically in the form of consideration paid to a customer based on performance metrics specified within the contract. Some contracts provide for customer discounts or rebates that can be earned 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 assessing if variable consideration should be limited, the Company evaluates the likelihood of whether uncontrollable circumstances could result in a significant reversal of revenue. 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 2023, fiscal 2022 or fiscal 2021. The Company reassesses these estimates during each reporting period. The Company maintains a liability for these discounts and rebates within “Accrued expenses and other current liabilities” on the Combined Balance Sheets. Variable consideration can also include consideration paid to a customer at the beginning of a contract. This type of variable consideration is capitalized as an asset (in “Other Assets” on the Combined Balance Sheets) and is amortized over the life of the contract as a reduction to revenue in accordance with the accounting guidance for revenue recognition. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the Combined Financial Statements and accompanying notes. The Company utilizes key estimates in preparing the financial statements including environmental estimates, goodwill, intangibles, insurance reserves, income taxes and long-lived assets. These estimates are based on historical information, current trends and information available from other sources. Actual results could materially differ from those estimates. Fair Value of Financial Assets and Financial Liabilities Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are classified 55 Table of Contents based upon the level of judgment associated with the inputs used to measure their fair value. The hierarchical levels related to the subjectivity of the valuation inputs are defined as follows: • Level 1 —inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets • Level 2 —inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument • Level 3 —inputs to the valuation methodology are unobservable and significant to the fair value measurement Recurring Fair Value Measurements The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, financing leases and borrowings. Management believes that the carrying value of cash and cash equivalents, accounts receivable, accounts payable, financing leases and borrowings are representative of their respective fair values. Nonrecurring Fair Value Measurements The Company’s assets measured at fair value on a nonrecurring basis include long-lived assets, indefinite-lived intangible assets and goodwill. The Company reviews the carrying amounts of such assets at least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurement of the assets are considered to be Level 3 measurements. Acquisitions The Company had no business acquisitions during fiscal 2023. The Company completed business acquisitions with aggregate purchase price of approximately $17.2 million and $15.8 million during fiscal 2022 and fiscal 2021, respectively. The results of operations of these acquisitions have been included in the Company’s combined financial results since their respective acquisition dates. These acquisitions were not significant in relation to the Company’s combined financial results and, therefore, pro forma financial information has not been presented. Merger and Integration Costs During fiscal 2021, the Company incurred merger and integration costs of $22.2 million as a result of the AmeriPride acquisition that occurred during fiscal year 2018. The expenses mainly related to costs for transitional employees and integration-related consulting costs and charges related to plant consolidations, mainly asset write-downs, the implementation of a new laundry enterprise resource planning system and other expenses. Comprehensive Income Comprehensive income includes all changes to parent’s equity during a period, except those related to the net parent investment. Components of comprehensive income include net income, pension plan adjustments (net of tax) and changes in foreign currency translation adjustments (net of tax). 56 Table of Contents The summary of the components of comprehensive income is as follows (in thousands): Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 Pre-Tax Amount Tax Effect After-Tax Amount Pre-Tax Amount Tax Effect After-Tax Amount Pre-Tax Amount Tax Effect After-Tax Amount Net Income $ 213,158 $ 141,679 $ 74,270 Pension plan adjustments (884) 229 (655) 2,621 (924) 1,697 1,020 (665) 355 Foreign currency translation adjustments 2,251 (1,089) 1,162 (22,893) 1,122 (21,771) 6,079 283 6,362 Other Comprehensive (Loss) Income 1,367 (860) 507 (20,272) 198 (20,074) 7,099 (382) 6,717 Comprehensive Income $ 213,665 $ 121,605 $ 80,987 Accumulated other comprehensive loss consists of the following (in thousands): September 29, 2023 September 30, 2022 Pension plan adjustments $ (5,070) $ (4,414) Foreign currency translation adjustments (26,103) (27,266) $ (31,173) $ (31,680) Currency Translation The Company’s Canadian subsidiary’s functional currency is the local currency of operations, and the net assets of its Canadian operations are translated into U.S. dollars using current exchange rates. The U.S. dollar results that arise from such translation are included as a component of accumulated other comprehensive loss in parent’s equity. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Receivables Receivables represents amounts due from customers and is presented net of allowance for credit losses. Judgment and estimates are used in determining the collectability of receivables and evaluating the adequacy of the allowance for credit losses. The Company estimates and reserves for its credit loss exposure based on historical experience, current general and specific industry economic conditions and reasonable and supportable forecasts that affect the collectability of the reported amount in estimating credit losses. Credit loss expense is classified within “Cost of services provided (exclusive of depreciation and amortization)” in the Combined Statements of Income. When an account is considered uncollectible, it is written off against the allowance for credit losses. The amounts recognized in fiscal years 2023, 2022 and 2021 relating to allowance for credit losses, which are netted against “Receivables” in the Combined Balance Sheets, are as follows (in thousands): Fiscal Year Ended September 29, 2023 September 30, 2022 Balance, beginning of year $ 29,100 $ 34,104 Additions: Charged to Income 20,500 9,704 Reductions: Deductions from Reserves (1) (24,534) (14,708) Balance, end of year $ 25,066 $ 29,100 57 Table of Contents __________________ (1) Amounts determined not to be collectible and charged against the reserve and translation. Inventories Inventories are valued at the lower of cost (principally the first-in, first-out method) or net realizable value. The Company records valuation adjustments to its inventories if the cost of inventory on hand exceeds the amount it expects to realize from the ultimate sale or disposal of the inventory. These estimates are based on management’s judgment regarding future demand and market conditions and analysis of historical experience. As of September 29, 2023 and September 30, 2022, the Company’s reserve for inventory was approximately $18.7 million and $48.8 million, respectively. The inventory reserve is determined based on history and projected customer consumption and specific identification. During fiscal 2022, the Company decided to no longer sell certain personal protective equipment (“PPE”), which required inventory charges to reduce the carrying value of PPE to a zero net realizable value. The Company recorded $26.2 million in inventory charges within “Cost of services provided (exclusive of depreciation and amortization)” in the Combined Statements of Income during fiscal 2022 to reflect the net realizable value of certain PPE inventory. No charges were recorded in fiscal 2023 related to PPE and the decrease in the inventory reserve from fiscal 2022 to fiscal 2023 was primarily driven by the write-off of the previously reserved PPE inventory. The components of net inventories are as follows (in thousands): September 29, 2023 September 30, 2022 Raw Materials $ 35,332 $ 23,463 Work in Process 1,104 1,998 Finished Goods 138,284 157,978 $ 174,719 $ 183,439 Rental merchandise in service Rental merchandise in service represents personalized work apparel, linens and other rental items in service. Rental merchandise in service is valued at cost less amortization, calculated using the straight-line method. Rental merchandise in service is amortized over its useful life, which primarily range from one to four years. The amortization rates are based on the Company’s specific experience and wear tests performed by the Company. These factors are critical to determining the amount of rental merchandise in service and related Cost of services provided (exclusive of depreciation and amortization) that are presented in the Combined Financial Statements. Material differences may result in the amount and timing of operating income if management makes significant changes to these estimates. During the fiscal years ended September 29, 2023, September 30, 2022 and October 1, 2021, the Company recorded $344.5 million, $313.4 million and $300.2 million, respectively, of amortization related to rental merchandise in service within “Cost of services provided (exclusive of depreciation and amortization)” on the Combined Statements of Income. Other current assets “Other current assets” as presented in the Combined Balance Sheets is primarily comprised of prepaid insurance and prepaid taxes and licenses. Property and Equipment and Operating Lease Right-of-use Assets Property and equipment are stated at cost and are depreciated over their estimated useful lives on a straight-line basis. When a decision has been made to dispose of property and equipment prior to the end of the previously estimated useful life, depreciation estimates are revised to reflect the use of the asset over the shortened estimated useful life. Gains and losses on dispositions are included in operating results. Maintenance and repairs are charged to current operations and replacements, and significant improvements that extend the useful life of the asset are capitalized. The estimated useful lives for the major categories of property and equipment are 10 to 40 years for buildings and improvements and three to 10 years for equipment. Depreciation expense during fiscal 2023, fiscal 2022 and fiscal 2021 was $103.8 million, $103.3 million and $102.3 million, respectively. 58 Table of Contents During fiscal 2023, the Company completed a strategic review of certain administrative locations, taking into account facility capacity and current utilization, among other factors. Based on this review, the Company vacated or otherwise reduced its usage at certain of these locations, resulting in an analysis of the recoverability of the assets associated with the locations. As a result, the Company recorded an impairment charge of $7.7 million within its United States segment, which is included in “Selling, general and administrative expenses” in the Combined Statements of Income for fiscal 2023. The non-cash impairment charge consisted of operating lease right-of-use assets ($7.1 million) and other costs ($0.6 million). During fiscal 2023, the Company completed the sale of a property for cash proceeds of $9.6 million. As a result, the Company recorded a gain on disposal of $6.8 million within the United States segment, which is included in “Selling, general and administrative expenses” in the Combined Statements of Income for fiscal 2023. Other Assets “Other assets” as presented in the Combined Balance Sheets is primarily comprised of employee sales commissions, computer software costs, equity method investments, consideration payable to a customer at the beginning of the contract, noncurrent pension assets, preparation costs and long-term receivables. Employee sales commissions represent commission payments made to employees related to new or retained business contracts (see Note 7. Revenue Recognition). Computer software costs represent capitalized costs incurred to purchase or develop software for internal use, and are amortized over the estimated useful life of the software, generally a period of three to 10 years. The Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control, using the equity method. Under the equity method of accounting, the Company recognizes its share of the investee’s net income or loss. Equity method investments represent the 39% ownership interest in ARATEX, a Japanese uniform solutions company. On September 22, 2023, the Company sold its 25% interest in Sanikleen, a Japanese linen supply company for $51.9 million in cash resulting in a pre-tax gain on sale of this equity investment of $51.8 million for fiscal 2023. The pre-tax gain is included in “Gain on Sale of Equity Investment, net” on the Combined Statements of Income. Accrued Expenses and Other Current Liabilities “Accrued Expenses and Other Current Liabilities” as presented in the Combined Balance Sheets is primarily comprised of current deferred income, taxes, insurance, environmental reserves (see Note 12. Commitments and Contingencies), rebates and a deferral related to the employer portion of social security taxes as permitted under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Other Noncurrent Liabilities “Other Noncurrent Liabilities” as presented in the Combined Balance Sheets is primarily comprised of environmental reserves (see Note 12. Commitments and Contingencies), asset retirement obligations (see Note 12. Commitments and Contingencies) and noncurrent deferred income. Insurance Aramark insures portions of its risk in general liability, automobile liability, workers’ compensation liability and property liability through a wholly owned captive insurance subsidiary (the “Captive”), to enhance its risk financing strategies. The Captive is subject to regulations within its domicile of Bermuda, including regulations established by the Bermuda Monetary Authority (the “BMA”) relating to levels of liquidity and solvency as such concepts are defined by the BMA. The Captive was in compliance with these regulations as of September 29, 2023. Aramark allocates certain costs associated to the Captive to the Company. The Company does not recognize liabilities related to claims from general liability, automobile liability and workers’ compensation liability on the Combined Balance Sheets as Aramark’s Captive subsidiary is the primary responsible party related to these obligations. Aramark’s Captive insurance subsidiary had estimated reserves of approximately $68.4 million and $61.7 million at September 29, 2023 and September 30, 2022, respectively, related to claims arising from the Company’s operations. Aramark’s reserves for retained costs associated 59 Table of Contents with Aramark’s casualty program are estimated through actuarial methods, with the assistance of third-party actuaries, using loss development assumptions based on claims history. The Company entered into an independent property insurance policy and was no longer under Aramark’s property insurance policy effective June 1, 2023. No liabilities have been incurred as of September 29, 2023 under the new property insurance policy. Environmental Matters Capital expenditures for ongoing environmental remediation and compliance measures were recorded in Property and Equipment and related expenses were included in the normal operating expenses of conducting business. The Company accrued for environmental-related activities for which commitments or clean-up plans have been developed and when such costs could be reasonably estimated based on industry standards and professional judgment. Accrued amounts were primarily recorded on an undiscounted basis (see Note 12. Commitments and Contingencies). Income Taxes The Company’s operations are included in the tax returns of Aramark. Aramark remits funds to or receives refunds from governmental jurisdictions on behalf of the Company’s operations related to income taxes. In the future, as a standalone entity, the Company will file tax returns on its own behalf. Income taxes are presented in the Combined Financial Statements, whereas current and deferred income tax assets and liabilities of Aramark are attributed to the Company in a manner that is systematic, rational and consistent with the asset and liability method prescribed by the accounting guidance for income taxes. The income tax provision of the Company is prepared using the separate return method, which applies the accounting guidance for income taxes to the standalone financial statements as if the Company was a separate taxpayer and a standalone enterprise. The Company believes the assumptions supporting the allocation and presentation of income taxes on a separate return basis are reasonable. The Company has reviewed its needs in the United States for possible repatriation of undistributed earnings of its Canadian subsidiary and continues to invest earnings outside of the United States to fund foreign investments or meet foreign working capital and property and equipment needs. As a result, the Company is permanently reinvested with respect to all of its historical foreign earnings related to its Canadian subsidiary of $28.9 million and $17.2 million as of September 29, 2023 and September 30, 2022, respectively. The foreign withholding tax associated with remitting these earnings is immaterial as of September 29, 2023 and September 30, 2022. Deferred taxes are not provided on undistributed earnings of its Canadian subsidiary that are indefinitely reinvested. Aramark conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of tax jurisdictions. In evaluating the exposure associated with various tax filing positions, including foreign, the Company records accruals for uncertain tax positions, based on the technical support for the positions, past audit experience with similar situations and the potential interest and penalties related to the matters. The effects of tax adjustments and settlements from taxing authorities are presented in the Combined Financial Statements in the period to which they relate as if the Company was a separate filer. Aramark maintains valuation allowances where it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances are included in the tax provision in the period of change. In determining whether a valuation allowance is warranted, Aramark’s management evaluates factors such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. Net Parent Investment “Net parent investment” in the Combined Balance Sheets is presented in lieu of stockholders’ equity and represents Aramark’s historic investment in the Company, the accumulated net earnings after taxes of the Company and the net effect of the transactions with the allocations from Aramark. All transactions reflected in “Net parent investment” in the accompanying Combined Balance Sheets have been considered as financing activities for purposes of the Combined Statements of Cash Flows. For additional information, see Basis of Presentation above and Note 5. Related Party Transactions and Parent Company Investment. 60 Table of Contents Interest Expense and Other, net “Interest Expense and Other, net” as presented in the Combined Statements of Income is primarily comprised of interest expense recognized on financing leases (see Note 8. Leases) and the Company’s share of the financial results for its equity method investment. There was minimal interest expense incurred to date under the new Credit Agreement entered on September 29, 2023. See Note 4. Borrowings for additional detail. Impact of COVID-19 COVID-19 adversely affected global economies, disrupted global supply chains and labor force participation and created significant volatility and disruption of financial markets. COVID-19 related disruptions negatively impacted the Company’s financial and operating results beginning in the second quarter of fiscal 2020 through the first half of fiscal 2021. The Company’s financial results started to improve during the second half of fiscal 2021 and continued to improve throughout fiscal 2022 as COVID-19 restrictions were lifted and operations re-opened. The CARES Act provided for deferred payment of the employer portion of social security taxes through the end of calendar 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. Deferred social security taxes of $16.6 million were paid during both fiscal 2022 and fiscal 2023. Regarding our operations within Canada, the Canadian government provided companies with various forms of relief from COVID-19, including labor related tax credits. These labor related tax credits were generally earned if companies retained employees on their payroll, rather than furloughing or terminating employees as a result of the business disruption caused by COVID-19. The Company qualified for these tax credits. The Company recorded approximately $0.4 million and $17.9 million of labor related tax credits within “Cost of services provided (exclusive of depreciation and amortization)” and “Selling, general and administrative expenses” on the Combined Statements of Income during the fiscal years ended September 30, 2022 and October 1, 2021, respectively. The Company does not expect to receive additional tax credits related to COVID-19 relief at this time. The Company accounts for these labor related tax credits as a reduction to the expense that they were intended to compensate in the period in which the corresponding expense was incurred and there was reasonable assurance the Company would both receive the tax credits and comply with all conditions attached to the tax credits. Supplemental Cash Flow Information During fiscal 2023, fiscal 2022 and fiscal 2021, the Company executed finance lease transactions. The present value of the future rental obligations was $42.6 million, $28.9 million and $27.6 million for the respective periods, which is included in “Property and Equipment, at cost” and “Noncurrent Financing Lease Obligations” on the Combined Balance Sheets. The increase in fiscal 2023 was primarily driven by increasing the amount of finance lease transactions executed in connection with the Company’s plan. NOTE 2. SEVERANCE: During fiscal 2023, the Company approved headcount reductions to streamline and improve the efficiency and effectiveness of operational and administrative functions. As a result of these actions, severance charges of $7.6 million were recorded within “Selling, general and administrative expenses” on the Combined Statements of Income for the fiscal year ended September 29, 2023. As of September 29, 2023, the Company had an accrual of approximately $3.4 million related to unpaid severance obligations. During fiscal 2021, the Company approved action plans to streamline and improve the efficiency and effectiveness of its operations, including a series of facility consolidations and closures. As a result of these actions, severance charges of $9.0 million were recorded within “Selling, general and administrative expenses” and “Cost of services provided (exclusive of depreciation and amortization)” on the Combined Statements of Income for the fiscal year ended October 1, 2021. 61 Table of Contents The following table summarizes the unpaid obligations for severance and related costs as of September 29, 2023, which are included in “Accrued payroll and related expenses” on the Combined Balance Sheets. (dollars in thousands) September 30, 2022 Charges Payments and Other September 29, 2023 Fiscal 2023 Severance $ — $ 7,588 $ (4,174) $ 3,414 Fiscal 2021 Severance $ 3,448 $ — $ (3,448) $ — Total $ 3,448 $ 7,588 $ (7,622) $ 3,414 The following table summarizes the unpaid obligations for severance and related costs as of September 30, 2022, which are included in “Accrued payroll and related expenses” on the Combined Balance Sheets. (dollars in thousands) October 1, 2021 Charges Payments and Other September 30, 2022 Fiscal 2021 Severance $ 9,092 $ — $ (5,644) $ 3,448 Fiscal 2020 Severance 157 — (157) — Total $ 9,249 $ — $ (5,801) $ 3,448 NOTE 3. GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill represents the excess of the fair value of consideration paid for an acquired entity over the fair value of assets acquired and liabilities assumed in a business combination. Goodwill is not amortized and is subject to an impairment test that is conducted annually or more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists. Based on Aramark’s historical structure, goodwill for the Company is retained within one reporting unit. The annual impairment test is performed as of the end of the fiscal month of August. If results of the qualitative assessment indicate a more likely than not determination or if a qualitative assessment is not performed, a quantitative test is performed by comparing the estimated fair value, calculated using a discounted cash flow method, of the reporting unit with its estimated net book value. During the fourth quarter of fiscal 2023, fiscal 2022 and fiscal 2021, the annual impairment test for goodwill was performed by Aramark using a quantitative testing approach and no impairment was identified. The determination of fair value for the reporting unit includes assumptions, which are considered Level 3 inputs, that are subject to risk and uncertainty. The discounted cash flow calculations are dependent on several subjective factors, including the timing of future cash flows, the underlying margin projection assumptions, future growth rates and the discount rate. If assumptions or estimates in the fair value calculations change or if future cash flows, margin projections or future growth rates vary from what was expected, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges. Changes in total goodwill during fiscal 2023 are as follows (in thousands): September 30, 2022 Acquisitions Translation September 29, 2023 United States $ 896,237 $ — $ — $ 896,237 Canada 67,138 — 168 67,306 Total $ 963,375 $ — $ 168 $ 963,543 Changes in total goodwill during fiscal 2022 are as follows (in thousands): October 1, 2021 Acquisitions Translation September 30, 2022 United States $ 896,237 $ — $ — $ 896,237 Canada 68,659 — (1,521) 67,138 $ 964,896 $ — $ (1,521) $ 963,375 62 Table of Contents Other intangible assets consist of (in thousands): September 29, 2023 September 30, 2022 Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount Customer relationship assets $ 383,869 $ (161,773) $ 222,096 $ 383,801 $ (135,748) $ 248,053 Trade names 16,512 — 16,512 16,211 — 16,211 $ 400,381 $ (161,773) $ 238,608 $ 400,012 $ (135,748) $ 264,264 During fiscal 2022, the Company acquired customer relationship assets with a value of $15.1 million. Customer relationship assets are being amortized principally on a straight-line basis over the expected period of benefit with a weighted average life of approximately 14 years. The Canadian Linen trade name, which is our sole trade name, is an indefinite lived intangible asset and is not amortized, but is evaluated for impairment at least annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. The Company utilized the “relief-from-royalty” method, which considers the discounted estimated royalty payments that are expected to be avoided as a result of the trade name being owned. The Company’s annual trade name impairment test was completed by Aramark for fiscal 2023, fiscal 2022 and fiscal 2021, which did not result in an impairment charge. Amortization of other intangible assets for fiscal 2023, fiscal 2022 and fiscal 2021 was approximately $26.0 million, $25.9 million and $25.0 million, respectively. Based on the recorded balances at September 29, 2023, total estimated amortization of all acquisition-related intangible assets for fiscal years 2024 through 2028 are as follows (in thousands): 2024 $ 25,918 2025 26,333 2026 25,927 2027 25,666 2028 24,263 NOTE 4. BORROWINGS: Long-term borrowings, net, are summarized in the following table (in thousands): September 29, 2023 Senior secured term loan facility, due September 2025 $ 800,000 Senior secured term loan facility, due September 2028 700,000 Total principal debt issued 1,500,000 Unamortized debt issuance costs (11,057) Less - current portion (26,250) Long-term borrowings, net of current portion $ 1,462,693 Credit Agreement The Company and certain of its subsidiaries entered into a credit agreement on September 29, 2023 (the "Credit Agreement"). The Credit Agreement includes senior secured term loan facilities consisting of the following as of September 29, 2023: • A United States dollar denominated term loan A-1 tranche to the Company in the amount of $800 million ("Term Loan A-1"), • A United States dollar denominated term loan A-2 tranche to the Company in the amount of $700 million ("Term Loan A-2"). The Term Loan A-2 includes $8.75M of principal payments each quarter until the maturity date in which the remaining unpaid principal amount is due. 63 Table of Contents The Company used approximately $1,457 million of the proceeds of the senior secured term loans to transfer cash to Aramark in connection with the separation and distribution. The Company recorded approximately $11.1 million of debt issuance costs related to the term loans. Debt issuance costs are presented as a reduction of debt in the Combined Balance Sheets and are amortized as a component of interest expense over the term of the related debt using the effective interest method. The Credit Agreement also includes a revolving credit facility available for loans in United States dollars and Canadian dollars with aggregate commitments of $300 million as of September 29, 2023. As of September 29, 2023, there was $300 million available for borrowing under the revolving credit facility. The Company's revolving credit facility includes a $50 million sublimit for swingline loans. The Company's revolving credit facility includes a $30 million sublimit for letters of credit. The revolving credit facility may be drawn by the Company as well as by certain foreign subsidiaries. Each foreign borrower is subject to a sublimit of $100 million with respect to borrowings under the revolving credit facility. In addition to paying interest on outstanding principal under the senior secured credit facilities, the Company is required to pay a commitment fee to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. The revolving credit facility is subject to a commitment fee ranging from a rate of 0.20% to 0.30% per annum. The actual rate within the range is based on a Consolidated Total Net Leverage Ratio, as defined in the Credit Agreement. Additionally, the Company recorded approximately $2.6 million of debt issuance costs related to the revolving credit facility which are recorded as an asset in the Combined Balance Sheets and are amortized as a component of interest expense over the term of the related revolving credit facility using the effective interest method. The Term Loan A-1 will mature on September 29, 2025 (the “Term A-1 Maturity Date”) and the Term Loan A-2 will mature on the earlier of (i) September 29, 2028 and (ii) the date (the “Springing Maturity Date”) that is 4 months prior to the Term A-1 Maturity Date if any portion of the Term Loan A-1 (or indebtedness which extends, renews, refunds or replaces any portion of the Term Loan A-1) remains outstanding as of such date and has, as of such date, a scheduled maturity date prior to September 29, 2028. The Revolving Credit Facility will mature on the earliest of (i) September 29, 2028, (ii) the Springing Maturity Date, and (iii) the date of termination of all of the commitments under the Revolving Credit Facility or the date on which the loans under the Revolving Credit Facility become due and payable or the commitments under the Revolving Credit Facility are terminated. The applicable margin on the Term Loan A-1 and the Term Loan A-2 for fiscal 2024 is 2.25% with respect to Secured Overnight Financing Rate (“SOFR”) borrowings, subject to a floor of 0.00%. The applicable margin on the Term Loan A-1 and the Term Loan A-2 for fiscal 2025 and thereafter ranges from 1.50% to 2.50% based on the Consolidated Total Net Leverage Ratio, as defined in the Credit Agreement. The effective interest rate for the Term Loan A-1 and the Term Loan A-2 as of September 29, 2023 was 7.74%. The Company carries debt at historical cost and discloses fair value. As of September 29, 2023, the book value of the Company’s debt approximated fair value as the debt was issued on September 29, 2023. Prepayments The Credit Agreement may be prepaid at any time. The Credit Agreement requires the Company to prepay outstanding term loans, subject to certain exceptions, with: • 100% of the net cash proceeds of all non-ordinary course asset sales or other dispositions of property subject to certain exceptions and customary reinvestment rights; provided, further, that such prepayment shall only be required to the extent net cash proceeds exceeds the greater of (a) $30,000,000 and (b) 7.5% of Covenant Adjusted EBITDA; • 100% of the net cash proceeds of all casualty events with respect to any equipment, fixed assets, or real property; provided, further, that such prepayment shall only be required to the extent proceeds related to the event in excess $10 million are not reinvested within the reinvestment period; and • 100% of the net cash proceeds of any incurrence of debt, but excluding proceeds from certain debt permitted under the Credit Agreement. Guarantees All obligations under the Credit Agreement are unconditionally guaranteed by the Company and, subject to certain exceptions, substantially all of the Company’s existing and future wholly-owned domestic subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by (i) pledges of 100% of the capital stock 64 Table of Contents of the Company’s domestic subsidiaries, (ii) pledges of 65% of the capital stock of the Company’s foreign subsidiaries, and (iii) a security interest in, and mortgages on, substantially all tangible assets of the Company or any of the Guarantors. Covenants The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability and the ability of its restricted subsidiaries to: incur additional indebtedness; issue preferred stock or provide guarantees; create liens on assets; engage in mergers or consolidations; sell or dispose of assets; pay dividends, make distributions or repurchase its capital stock; engage in certain transactions with affiliates; make investments, loans or advances; create restrictions on the payment of dividends or other amounts to the Company from its restricted subsidiaries; amend material agreements governing the Company’s subordinated debt; repay or repurchase any subordinated debt, except as scheduled or at maturity; make certain acquisitions; change the Company’s fiscal year; and fundamentally change the Company’s business. The Credit Agreement also contains certain customary affirmative covenants, such as financial and other reporting, and certain events of default. The Credit Agreement requires the Company to maintain a maximum Consolidated Total Net Leverage Ratio, defined as consolidated total indebtedness over unrestricted cash divided by Covenant Adjusted EBITDA, not to exceed 5.25x for any fiscal quarter ending prior to March 31, 2025, and not to exceed 4.50x for any fiscal quarter ending on or after March 31, 2025, subject to certain exceptions. Consolidated total indebtedness is defined in the Credit Agreement as total indebtedness consisting of debt for borrowed money, finance leases, disqualified and preferred stock and advances under any Receivables Facility. Covenant Adjusted EBITDA is defined in the Credit Agreement as consolidated net income increased by interest expense, taxes, depreciation and amortization expense, initial public company costs, restructuring charges, write-offs and noncash charges, non-controlling interest expense, net cost savings in connection with any acquisition, disposition, or other permitted investment under the Credit Agreement, share-based compensation expense, non-recurring or unusual gains and losses, reimbursable insurance costs, cash expenses related to earn outs, and insured losses. The Credit Agreement establishes a minimum Interest Coverage Ratio, defined as Covenant Adjusted EBITDA divided by consolidated interest expense. The minimum Interest Coverage Ratio is required to be at least 2.00x for the term of the Credit Agreement. At September 29, 2023, the Company was in compliance with all covenants under the Credit Agreement. Debt Maturities At September 29, 2023, annual maturities on long-term borrowings maturing in the next five fiscal years and thereafter are as follows (in thousands): 2024 $ 26,250 2025 843,750 2026 35,000 2027 35,000 2028 560,000 Thereafter — Total 1,500,000 NOTE 5. RELATED PARTY TRANSACTIONS AND PARENT COMPANY INVESTMENT Corporate Allocations The Company’s Combined Financial Statements include general corporate expenses of Aramark, which were not historically allocated to the Company for certain support functions that are provided on a centralized basis by Aramark and are not recorded at the Company level, such as expenses related to finance, supply chain, human resources, information technology, share-based compensation, insurance and legal, among others (collectively, “General Corporate Expenses”). For purposes of these Combined Financial Statements, General Corporate Expenses have been allocated to the Company. 65 Table of Contents General Corporate Expenses are included in the Combined Statements of Income in “Selling, general and administrative expenses” with the impact related to Aramark’s gasoline, diesel and natural gas derivative agreements included in “Cost of services provided”. These expenses have been allocated to the Company on the basis of direct usage where identifiable, with the remainder allocated on a pro rata basis of revenues, headcount or other drivers. Management believes the assumptions underlying the Combined Financial Statements, including the assumptions regarding allocating General Corporate Expenses from Aramark, are reasonable. Nevertheless, the Combined Financial Statements may not include all of the actual expenses that would have been incurred and may not reflect the Company’s combined results of operations, financial position and cash flows had it been a standalone public company during the periods presented. Actual costs that would have been incurred if the Company had been a standalone public company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. During the years ended September 29, 2023, September 30, 2022 and October 1, 2021, General Corporate Expenses allocated to the Company were $24.4 million, $37.5 million and $30.6 million, respectively. Transactions with the Parent In the ordinary course of business, the Company provides uniforms to certain food and support services contracts of Aramark in the United States and Canada, the terms of which are at fair market value. During the years ended September 29, 2023, September 30, 2022 and October 1, 2021, these related party revenues were $54.6 million, $47.6 million and $36.0 million, respectively, with related costs of $49.7 million, $43.3 million and $33.9 million, respectively. Amounts receivable from Aramark for such revenues as of September 29, 2023 and September 30, 2022 were $1.2 million and $0.9 million, respectively. Parent Company Investment All significant intercompany transactions between the Company and Aramark have been included in the Combined Financial Statements. The total net effect of these intercompany transactions is reflected in the Combined Statements of Cash Flows as a financing activity and in the Combined Balance Sheets as “Net parent investment.” NOTE 6. DERIVATIVE INSTRUMENTS: Aramark enters into contractual derivative arrangements to manage changes in market conditions related to exposure to fluctuating gasoline, diesel and natural gas fuel prices at the Company. Derivative instruments utilized during the period include gasoline, diesel and natural gas fuel agreements. All derivative instruments are recognized as either assets or liabilities on the balance sheet of Aramark at fair value at the end of each quarter. The counterparties to Aramark’s contractual derivative agreements are all major international financial institutions. Aramark is exposed to credit loss in the event of nonperformance by these counterparties. Aramark continually monitors its positions and the credit ratings of its counterparties, and does not anticipate nonperformance by the counterparties. Aramark’s contractual derivative arrangements have not been included within the Company’s Combined Balance Sheets as the Company did not enter into such arrangements. The corresponding impact on earnings related to the contractual derivative arrangements have been allocated to the Company as the arrangements relate to gasoline, diesel and natural gas fuel utilized within the Company’s operations. Derivatives not Designated in Hedging Relationships Aramark entered into a series of pay fixed/receive floating gasoline and diesel fuel agreements based on the Department of Energy weekly retail on-highway index and natural gas agreements based on the Henry Hub New York Mercantile Exchange index in order to limit its exposure to price fluctuations for gasoline, diesel and natural gas fuel mainly for the Company’s operations. As of September 29, 2023, Aramark has contracts for approximately 7.2 million gallons outstanding through June of fiscal 2024 related to the Company. Aramark does not record its gasoline, diesel and natural gas fuel agreements as hedges for accounting purposes. The impact on earnings related to the change in fair value of these unsettled contracts related to the Company was a gain of $1.6 million for fiscal 2023, a loss of $4.6 million for fiscal 2022 and a gain of $3.9 million for fiscal 2021. 66 Table of Contents The following table summarizes the location of loss (gain) for the Company’s derivatives not designated as hedging instruments in the Combined Statements of Income (in thousands): Fiscal Year Ended Income Statement Location September 29, 2023 September 30, 2022 October 1, 2021 Gasoline, diesel and natural gas fuel agreements Cost of services provided (exclusive of depreciation and amortization) $ 3,488 $ (3,212) $ (7,220) NOTE 7. REVENUE RECOGNITION: Disaggregation of Revenue The following table presents revenue disaggregated by revenue source (in thousands): Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 United States: Uniforms $ 1,067,825 $ 1,067,815 $ 1,076,264 Workplace Supplies 1,507,527 1,379,212 1,174,492 Total United States 2,575,352 2,447,027 2,250,756 Canada: Uniforms $ 100,403 $ 100,787 $ 100,517 Workplace Supplies 149,531 139,191 105,304 Total Canada 249,934 239,978 205,821 Total Revenue $ 2,825,286 $ 2,687,005 $ 2,456,577 Contract Balances The Company defers sales commissions earned by its sales force that are considered to be incremental and recoverable costs of obtaining a contract. The deferred costs are amortized using the portfolio approach on a straight-line basis over the average period of benefit, approximately nine years, and are assessed for impairment on a periodic basis. Determination of the amortization period and the subsequent assessment for impairment of the contract cost asset requires judgment. The Company expenses sales commissions as incurred if the amortization period is one year or less. As of September 29, 2023 and September 30, 2022, the Company has $104.4 million and $99.0 million, respectively, of employee sales commissions recorded as assets within “Other Assets” on the Company’s Combined Balance Sheets. During the fiscal years ended September 29, 2023, September 30, 2022 and October 1, 2021, the Company recorded $20.1 million, $19.2 million and $18.0 million, respectively, of expense related to employee sales commissions within “Selling, general and administrative expenses” on the Combined Statements of Income. NOTE 8. LEASES: The Company has lease arrangements primarily related to real estate, vehicles and equipment, which generally have terms of one to 30 years. Finance leases primarily relate to vehicles. The Company assesses whether an arrangement is a lease, or contains a lease, upon inception of the related contract. A right-of-use asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (“short-term leases”). As a result of adopting ASC 842 on September 28, 2019 (the first day of fiscal 2020), the Company recognized operating lease liabilities and operating lease right-of-use assets on its Combined Balance Sheets. Operating lease right-of-use assets represent the Company’s right to use the underlying assets for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease liabilities and 67 Table of Contents operating lease right-of-use assets are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term. Deferred rent, tenant improvement allowances and prepaid rent are included in the operating lease right-of-use asset balances. Lease expense is recognized on a straight-line basis over the expected lease term. The Company has lease agreements with lease and non-lease components. Non-lease components are combined with the related lease components and accounted for as lease components for all classes of underlying assets. Variable lease payments, which primarily consist of real estate taxes, common area maintenance charges, insurance costs and other operating expenses, are not included in the operating lease right-of-use asset or operating lease liability balances and are recognized in the period in which the expenses are incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain they will be exercised or not, respectively. Options to extend lease terms that are reasonably certain of exercise are recognized as part of the operating lease right-of-use asset and operating lease liability balances. The Company is required to discount its future minimum lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. As the Company’s leases typically do not provide an implicit rate, the present value of our lease liability is determined using Aramark’s incremental borrowing rate at lease commencement based on the geographic location of the lease and the remaining lease term. The incremental borrowing rate is calculated using a base line rate plus an applicable margin. The following table summarizes the location of the operating and finance leases in the Company’s Combined Balance Sheets (in thousands), as well as the weighted average remaining lease term and weighted average discount rate: Leases Balance Sheet Location September 29, 2023 September 30, 2022 Assets: Operating Operating Lease Right-of-use Assets $ 57,890 $ 72,567 Finance Property and Equipment, net 121,930 99,294 Total lease assets $ 179,820 $ 171,861 Liabilities: Current Operating Current operating lease liabilities $ 19,935 $ 20,899 Finance Current maturities of financing lease obligations 27,659 20,482 Noncurrent Operating Noncurrent Operating Lease Liabilities 46,084 54,017 Finance Noncurrent Financing Lease Obligations 105,217 86,783 Total lease liabilities $ 198,895 $ 182,181 Weighted average remaining lease term (in years) Operating leases 4.7 5.1 Finance leases 5.7 5.7 Weighted average discount rate Operating leases 4.4 % 3.6 % Finance leases 4.3 % 3.9 % The following table summarizes the location of lease related costs in the Combined Statements of Income (in thousands): 68 Table of Contents Fiscal Year Ended Lease Cost Income Statement Location September 29, 2023 September 30, 2022 October 1, 2021 Operating lease cost (1): Fixed lease costs Cost of services provided (exclusive of depreciation and amortization) / Selling, general and administrative expenses $ 23,119 $ 25,376 $ 27,698 Variable lease costs Cost of services provided (exclusive of depreciation and amortization) / Selling, general and administrative expenses 9,888 9,114 7,529 Short-term lease costs Cost of services provided (exclusive of depreciation and amortization) / Selling, general and administrative expenses 8,175 6,371 5,430 Finance lease cost (2): Amortization of right-of-use-assets Depreciation and amortization 30,360 29,135 28,162 Interest on lease liabilities Interest Expense and Other, net 4,174 3,205 3,399 Net lease cost $ 75,716 $ 73,201 $ 72,218 __________________ (1) Excludes sublease income, which is immaterial. (2) Excludes variable lease costs, which are immaterial. Supplemental cash flow information related to leases for the period reported is as follows (in thousands): Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases (1) $ 24,208 $ 25,189 $ 27,102 Operating cash flows from finance leases 4,174 3,205 3,399 Financing cash flows from finance leases 27,601 28,042 29,917 Lease assets obtained in exchange for lease obligations: Operating leases 12,640 20,416 19,107 Finance leases $ 42,581 $ 28,895 $ 27,578 __________________ (1) For fiscal 2023, excludes cash paid for variable and short-term lease costs of $9.9 million and $8.2 million, respectively, that are not included within the measurement of lease liabilities. For fiscal 2022, excludes cash paid for variable and short-term lease costs of $9.1 million and $6.4 million, respectively, that are not included within the measurement of lease liabilities. For fiscal 2021, excludes cash paid for variable and short-term lease costs of $7.5 million and $5.4 million, respectively, that are not included within the measurement of lease liabilities. 69 Table of Contents Future minimum lease payments under non-cancelable leases as of September 29, 2023 are as follows (in thousands): Operating leases Finance leases Total 2024 $ 22,274 $ 33,300 $ 55,574 2025 17,273 30,390 47,663 2026 11,568 26,132 37,700 2027 7,958 21,588 29,546 2028 5,302 17,327 22,629 Thereafter 9,150 24,987 34,137 Total future minimum lease payments $ 73,525 $ 153,724 $ 227,249 Less: Interest (7,506) (20,848) (28,354) Present value of lease liabilities $ 66,019 $ 132,876 $ 198,895 NOTE 9. EMPLOYEE PENSION AND PROFIT SHARING PLANS: Defined Contribution Retirement Plans In the United States and Canada, the Company maintains qualified contributory defined contribution retirement plans for all Company employees meeting certain eligibility requirements, with Company contributions to the plans based on earnings performance or salary level. The total expense of the above plans for Company employees for fiscal 2023, fiscal 2022 and fiscal 2021 was $9.1 million, $8.7 million and $8.6 million, respectively, which were recorded in “Cost of services provided (exclusive of depreciation and amortization)” and “Selling, general and administrative expenses” on the Combined Statements of Income. Multiemployer Defined Benefit Pension Plans The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements (“CBAs”) that cover its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following respects: 1. Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. 2. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. 3. If the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. The Company’s participation in these plans for fiscal 2023 is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employee Identification Number (EIN) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in 2023 and 2022 is for the plans’ two most recent fiscal year-ends. The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the critical and declining zone are generally less than 65% funded and projected to become insolvent in the next 15 or 20 years depending on the ratio of active to inactive participants, plans in the critical zone are generally less than 65% funded, and plans in the green zone are at least 80% funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The contributions columns represent the recurring, required contributions made by the Company, which are typically based upon the number of employees participating 70 Table of Contents within the plan. The last column lists the expiration date(s) of the CBA(s) to which the plans are subject. There have been no significant changes that affect the comparability of fiscal 2023, fiscal 2022 and fiscal 2021 contributions. Pension Protection Act Zone Status Contributions by the Company (in thousands) Pension Fund EIN/Pension Plan Number 2023 2022 FIP/RP Status Pending/ Implemented 2023 2022 2021 Surcharge Imposed Range of Expiration Dates of CBAs National Retirement Fund 13-6130178/ 001 Critical Critical Implemented $ 2,994 $ 2,400 $ 2,545 No 3/25/2022 - 7/31/2026 Central States SE and SW Areas Pension Plan 36-6044243/ 001 Critical Critical and Declining Implemented 4,213 3,971 3,842 No 6/24/2022 - 9/22/2028 Retail, Wholesale and Department Store International Union and Industry Pension Fund(1) 63-0708442/ 001 Critical and Declining Critical and Declining Implemented 413 408 425 No 4/18/2025 - 5/22/2026 Local No. 731, I.B. of T. Pension Fund 36-6513567/ 001 Green Green N/A 1,129 997 852 No 5/1/2026 Other funds 9,009 8,369 8,422 Total contributions $ 17,758 $ 16,145 $ 16,086 __________________ (1) Over 60% of the Company’s participants in this fund are covered by a single CBA that expires on 5/22/2026. The Company provided more than 5% of the total contributions for the following plans and plan years: Pension Funds Contributions to the plan exceeded more than 5% of total contributions (as of the plan’s year-end) National Retirement Fund 12/31/2022, 12/31/2021, and 12/31/2020 NOTE 10. INCOME TAXES: The components of Income Before Income Taxes by source of income are as follows (in thousands): Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 United States $ 254,027 $ 172,948 $ 74,002 Non-United States 15,703 17,011 23,357 $ 269,730 $ 189,959 $ 97,359 71 Table of Contents The Provision for Income Taxes consists of (in thousands): Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 Current: Federal $ 29,704 $ 19,663 $ 12,435 State and local 10,126 6,958 4,833 Non-United States 2,372 1,056 6,436 42,202 27,677 23,704 Deferred: Federal 10,350 13,070 1,326 State and local 2,860 3,322 311 Non-United States 1,160 4,211 (2,252) 14,370 20,603 (615) $ 56,572 $ 48,280 $ 23,089 The Provision for Income Taxes varies from the amount determined by applying the United States Federal statutory rate to Income Before Income Taxes as a result of the following (all percentages are as a percentage of Income Before Income Taxes): Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 United States statutory income tax rate 21.0 % 21.0 % 21.0 % Increase (decrease) in taxes, resulting from: State income taxes, net of Federal tax benefit 3.8 4.2 4.2 Foreign taxes (0.1) 0.9 1.6 Foreign valuation allowances — — (2.3) Permanent book/tax differences 0.3 — (0.1) Nontaxable gain on foreign subsidiary disposition (4.0) — — Uncertain tax positions 0.5 0.1 0.4 Tax credits & other (0.5) (0.8) (1.1) Effective income tax rate 21.0 % 25.4 % 23.7 % The effective tax rate is based on expected income, statutory tax rates and tax planning opportunities available to the Company in the various jurisdictions in which it operates. Judgment is required in determining the effective tax rate and in evaluating the tax return positions. Reserves are established when positions are “more likely than not” to be challenged and not sustained. Reserves are adjusted at each financial statement date to reflect the impact of audit settlements, expiration of statutes of limitation, developments in tax law and ongoing discussions with tax authorities. Accrued interest and penalties associated with uncertain tax positions are recognized as part of the income tax provision. 72 Table of Contents As of September 29, 2023 and September 30, 2022, the components of Deferred Income Taxes are as follows (in thousands): September 29, 2023 September 30, 2022 Deferred tax liabilities: Property and equipment $ 62,295 $ 63,148 Other intangible assets including goodwill 77,603 70,982 Rental merchandise in service 80,579 66,572 Operating Lease Right-of-use Asset 14,025 18,625 Employee compensation and benefits 10,806 14,119 Other 12,019 7,954 Gross deferred tax liability 257,327 241,400 Deferred tax assets: Accruals and allowances 16,939 18,200 Operating lease liabilities 16,086 19,304 NOL/credit carryforward and other 6,655 2,070 Gross deferred tax asset 39,680 39,574 Net deferred tax liability $ 217,647 $ 201,826 As of September 29, 2023 and September 30, 2022, the Company did not have a valuation allowance against deferred tax assets. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits follows (in thousands): September 29, 2023 September 30, 2022 October 1, 2021 Balance, beginning of year $ 2,963 $ 2,854 $ 2,560 Additions based on tax positions taken in the current year 554 109 432 Additions for tax positions taken in prior years 875 — — Reductions for remeasurements, settlements and payments — — (138) Balance, end of year $ 4,392 $ 2,963 $ 2,854 The Company has $1.1 million, $0.2 million and $0.2 million accrued for interest and penalties as of September 29, 2023, September 30, 2022 and October 1, 2021, respectively, in the Combined Balance Sheets. Interest and penalties related to unrecognized tax benefits are recorded in "Provision for Income Taxes" on the Combined Statements of Income. Generally, a number of years may elapse before a tax reporting year is audited and finally resolved. With few exceptions, Aramark is no longer subject to United States federal, state or local examinations by tax authorities before 2015. While it is often difficult to predict the final outcome or the timing of or resolution of a particular tax matter, Aramark does not anticipate any adjustments resulting from United States federal, state or foreign tax audits that would result in a material change to the financial condition or results of operations. Adequate amounts are established for any adjustments that may result from examinations for tax years after 2015. However, an unfavorable settlement of a particular issue may impact the Company. NOTE 11. SHARE-BASED COMPENSATION: The Company had no share-based compensation plans as of September 29, 2023. Certain employees of the Company have historically participated in Aramark’s Stock Incentive Plan (“Aramark Stock Plan”). All awards granted under Aramark Stock Plan are approved by Aramark’s Compensation Committee of the Board of Directors or another committee authorized by Aramark’s Board of Directors. As such, all related equity account balances, other than allocations of share-based compensation expense (see Note 5. Related Party Transactions and Parent Company Investment), remain at the Aramark level. The following disclosure represents share-based compensation 73 Table of Contents attributable to the Company based on the awards and terms previously granted to Company employees under Aramark’s share-based payment plans and is representative of only those employees who are dedicated to the Company. Share-based compensation expense allocated to the Company for Aramark corporate employees who are not dedicated to the Company are included as a component of General Corporate Expenses. The allocation of share-based compensation expense for Aramark corporate employees was $3.9 million, $4.2 million and $3.6 million, respectively in fiscal 2023, 2022 and 2021. The following table summarizes the share-based compensation expense (reversal) and related information for Time-Based Options (“TBOs”), Time-Based Restricted Stock Units (“RSUs”), Performance Stock Units (“PSUs”) and Employee Stock Purchase Plan (“ESPP”) classified as “Selling, general and administrative expenses” on the Combined Statements of Income (in thousands). Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 TBOs $ 1,125 $ 1,064 $ 2,319 RSUs (1) 8,013 8,992 8,310 PSUs (2) 866 451 — ESPP (3) 597 2,609 1,201 $ 10,601 $ 13,116 $ 11,830 Taxes related to share-based compensation $ 2,568 $ 2,729 $ 2,751 __________________ (1) Share-based compensation expense for RSUs decreased during fiscal 2023 compared to fiscal 2022 due to a decrease in annual grants issued in fiscal 2023 compared to fiscal 2022 and due to an increase in the vesting period from three years to four years for fiscal 2023 grants. (2) Share-based compensation expense related to PSUs increased during fiscal 2023 compared to fiscal 2022 due to the issuance of new 2023 PSU grants. No PSUs were issued in fiscal 2021. (3) Share-based compensation expense related to the ESPP decreased during fiscal 2023 compared to fiscal 2022 as Aramark suspended its ESPP beginning in the second quarter of 2023. No compensation expense was capitalized. Prior to the fourth quarter of fiscal 2020, Aramark applied a forfeiture assumption of approximately 6.4% per annum in the calculation of such expenses. During the fourth quarter of fiscal 2020, Aramark increased its estimated forfeiture assumption to 9.0% per annum based on actual forfeiture activity, which remained in effect throughout fiscal 2021, 2022 and 2023. The below table summarizes the unrecognized compensation expense as of September 29, 2023 related to non-vested awards and the weighted-average period they are expected to be recognized: Unrecognized Compensation Expense (in thousands) Weighted-Average Period (Years) TBOs $ 1,989 2.7 RSUs 9,425 2.5 PSUs 2,567 2.5 Total $ 13,981 Stock Options Time-Based Options Aramark’s annual TBO grants for fiscal 2023 were awarded in November 2022, while Aramark’s annual TBO grants for fiscal 2022 were awarded in November 2021 and Aramark’s annual TBO grants for fiscal 2021 were awarded early in September 2020. The fiscal 2023 grants and TBO grants prior to September 2020 vest solely based upon continued employment over a four-year time period. The fiscal 2022 and 2021 TBO grants vest solely based upon continued employment over a three-year time period. All TBOs remain exercisable for 10 years from the date of grant. 74 Table of Contents The fair value of the TBOs granted was estimated using the Black-Scholes option pricing model. The expected volatility is based on the historic volatility of Aramark’s stock price over the expected term of the stock options. The expected life represents the period of time that options granted are expected to be outstanding and is calculated using the simplified method, as permitted under SEC rules and regulations, due to the method providing a reasonable estimate in comparison to actual experience. The simplified method uses the midpoint between an option’s vesting date and contractual term. The risk-free rate is based on the United States Treasury security with terms equal to the expected life of the option as of the grant date. Compensation expense for TBOs is recognized on a straight-line basis over the vesting period during which employees perform related services. The table below presents the weighted average assumptions and related valuations for TBOs. Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 Expected volatility 42 % 41 % 41 % Expected dividend yield 1.00% - 1.19% 1.18% - 1.29% 1 % Expected life (in years) 6.25 6.00 6.00 Risk-free interest rate 3.65% - 4.21% 1.35% - 2.96% 1 % Weighted-average grant-date fair value $ 16.9 $ 13.4 $ 12.4 A summary of TBO activity is presented below: Options Shares (000s) Weighted-Average Exercise Price Aggregate Intrinsic Value ($000s) Weighted-Average Remaining Term (Years) Outstanding at September 30, 2022 700 $ 35.48 Granted 128 $ 40.09 Exercised (379) $ 34.87 Forfeited and expired (99) $ 38.75 Outstanding at September 29, 2023 350 $ 36.89 $ 458 5.9 Exercisable at September 29, 2023 171 $ 34.83 $ 454 3.0 Expected to vest at September 29, 2023 158 $ 38.84 $ 4 8.7 Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 Total intrinsic value exercised (in thousands) $ 2,040 $ 3,054 $ 2,842 Total fair value that vested (in thousands) 1,106 1,681 1,742 Time-Based Restricted Stock Units Aramark’s annual RSU grants for fiscal 2023 were awarded in November 2022, while Aramark’s annual RSU grants for fiscal 2022 were awarded in November 2021 and Aramark’s annual RSU grants for fiscal 2021 were awarded early in September 2020. For RSU grants awarded in fiscal 2023 or prior to September 2020, the RSU agreement provides that 25% of each grant will vest and be settled in shares on each of the first four anniversaries of the grant date, subject to the participant’s continued employment with Aramark through each such anniversary. For RSU grants awarded during or subsequent to September 2020 and prior to fiscal 2023, the RSU agreement provides that 33% of each grant will vest and be settled in shares on each of the first three anniversaries of the date of grant, subject to the participant’s continued employment with Aramark through each such anniversary. The grant-date fair value of RSUs is based on the fair value of Aramark’s common stock. Participants holding RSUs will receive the benefit of any dividends paid on shares in the form 75 Table of Contents of additional RSUs. The unvested units are subject to forfeiture if employment is terminated other than due to death, disability or retirement, and the units are nontransferable while subject to forfeiture. Restricted Stock Units Units (000s) Weighted Average Grant-Date Fair Value Outstanding at September 30, 2022 557 $ 35.94 Granted 231 $ 40.23 Vested (266) $ 35.29 Forfeited (106) $ 36.38 Outstanding at September 29, 2023 416 $ 38.56 Fiscal Year Ended September 29, 2023 September 30, 2022 October 1, 2021 Total fair value that vested (in thousands) $ 9,396 $ 7,084 $ 9,714 Performance Stock Units Under the Aramark Stock Plan, Aramark is authorized to grant PSUs to its employees. A participant is eligible to become vested in a number of PSUs equal to a percentage, higher or lower, of the target number of PSUs granted based on the level of Aramark’s achievement of the performance condition. During fiscal 2020, Aramark granted PSUs subject to the level of achievement of adjusted revenue growth, adjusted operating income growth, return on invested capital and a total shareholder return multiplier for the cumulative performance period of three years and the participant’s continued employment with Aramark. During fiscal 2022, Aramark granted PSUs subject to the level of achievement of adjusted revenue growth, adjusted operating income growth and a total shareholder return multiplier for the cumulative performance period of three years and the participant’s continued employment with Aramark. Aramark also granted PSUs during fiscal 2022 subject to the level of achievement of actual return on invested capital for the cumulative performance period of three years and the participant’s continued employment with Aramark. During fiscal 2023, Aramark granted PSUs subject to the level of achievement of adjusted revenue growth, cumulative adjusted earnings per share, return on invested capital and a total shareholder return multiplier for the cumulative performance period of three years and the participant’s continued employment with Aramark which was increased to four years for fiscal 2023 grants. Aramark is accounting for the fiscal 2023 grants as performance-based awards, with a market condition, valued utilizing the Monte Carlo Simulation pricing model, which calculates multiple potential outcomes for an award and establishes fair value based on the most likely outcome. The grant-date fair value of the PSUs is based on the fair value of Aramark’s common stock. No share-based compensation expense was recorded during fiscal 2022 or 2021 related to PSUs awards granted during fiscal 2020 as the performance targets for the awards were not met. Performance Stock Units Units (000s) Weighted Average Grant-Date Fair Value Outstanding at September 30, 2022 97 $ 40.17 Granted 56 $ 48.64 Vested — $ — Forfeited (64) $ 44.97 Outstanding at September 29, 2023 89 $ 44.53 Employee Stock Purchase Plan On February 2, 2021, Aramark’s stockholders approved the Aramark 2021 ESPP. The ESPP allows eligible employees to contribute up to 10% of their eligible pay toward the quarterly purchase of Aramark’s common stock, subject to an annual maximum dollar amount. The purchase price is 85% of the lesser of the (i) fair market value per share of Aramark’s common stock as determined on the purchase date or (ii) fair market value per share of Aramark’s common stock as determined on the first trading day of the quarterly offering period. Purchases under the ESPP are made in March, June, September, and December. Aramark suspended its ESPP beginning in the second quarter of 2023. 76 Table of Contents NOTE 12. COMMITMENTS AND CONTINGENCIES: The Company has capital and other purchase commitments of approximately $7.4 million at September 29, 2023, primarily in connection with commitments for the purchase of raw materials from vendors. From time to time, the Company and its subsidiaries are a party to various legal actions, proceedings and investigations involving claims incidental to the conduct of their business, including actions by customers, employees, government entities and third parties, including under federal, state, international, national, provincial and local employment laws, wage and hour laws, discrimination laws, immigration laws, human health and safety laws, import and export controls and customs laws, environmental laws, false claims or whistleblower statutes, tax codes, antitrust and competition laws, customer protection statutes, procurement regulations, intellectual property laws, supply chain laws, the Foreign Corrupt Practices Act and other anti-corruption laws, lobbying laws, motor carrier safety laws, data privacy and security laws, or alleging negligence and/or breaches of contractual and other obligations. Based on information currently available, advice of counsel, available insurance coverage, established reserves and other resources, the Company does not believe that any such actions are likely to be, individually or in the aggregate, material to its business, financial condition, results of operations or cash flows. However, in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to the Company’s business, financial condition, results of operations or cash flows. The Company is involved with environmental investigation and remediation activities at some of its currently and formerly owned sites (including sites which were previously owned and/or operated by businesses acquired by the Company). The Company initially provides for estimated costs of environmental-related activities relating to its past operations and third-party sites for which commitments or clean-up plans have been developed and when such costs can be reasonably estimated based on industry standards and professional judgment. These estimated costs, which are mostly undiscounted, are determined based on currently available facts regarding each site. If the reasonably estimable costs can only be identified as a range and no specific amount within that range can be determined more likely, the minimum of the range is used. The Company continuously assesses its potential liability for investigation and remediation-related activities and adjusts its environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated. As of September 29, 2023 and September 30, 2022, the Company has $6.8 million and $6.3 million, respectively, recorded as liabilities within “Accrued expenses and other current liabilities” and $17.3 million and $18.0 million, respectively, recorded as liabilities within “Other Noncurrent Liabilities” on the Company’s Combined Balance Sheets. The Company records the fair value of a liability for an asset retirement obligation both as an asset and a liability when there is a legal obligation associated with the retirement of a tangible long-lived asset and the liability can be reasonably estimated. The Company has identified certain conditional asset retirement obligations at various current and closed facilities. These obligations relate primarily to asbestos abatement, underground storage tank closures and restoration of leased properties to the original condition. Using investigative, remediation and disposal methods that are currently available to the Company, the estimated costs of these obligations were accrued. As of September 29, 2023 and September 30, 2022, the Company has $12.3 million and $12.1 million, respectively, recorded as liabilities within “Other Noncurrent Liabilities” on the Company’s Combined Balance Sheets. On May 13, 2022, Cake Love Co. (“Cake Love”) commenced a putative class action lawsuit against AmeriPride Services, LLC (“AmeriPride”), a subsidiary of Vestis, in the United States District Court for the District of Minnesota. The lawsuit was subsequently updated to add an additional named plaintiff, Q-Mark Manufacturing, Inc. (“Q-Mark” and, together with Cake Love, the “Plaintiffs”). Plaintiffs allege that the defendants increased certain pricing charged to members of the purported class without the proper notice required by service agreements between AmeriPride and members of the purported class and that AmeriPride breached the duty of good faith and fair dealing. Plaintiffs seek damages on behalf of the purported class representing the amount of the allegedly improperly noticed price increases along with attorneys’ fees, interest and costs. The parties continue to engage in discovery. AmeriPride has moved for summary judgment related to Cake Love. The Company believes it has numerous defenses and intends to continue to vigorously defend the action. The Company cannot predict the outcome of this legal matter, nor can it predict whether any outcome will have a material adverse effect on the combined statements of income and/or combined statements of cash flows. Accordingly, the Company has made no provisions for this legal matter in the combined financial statements. 77 Table of Contents NOTE 13. BUSINESS SEGMENTS: The Company manages and evaluates its business activities based on geography and, as a result, determined that its United States and Canada businesses are its operating segments. The United States and Canada operating segments both provide a full range of uniform programs, managed restroom supply services and first-aid and safety products, as well as ancillary items such as floor mats, towels and linens. The Company’s operating segments are also its reportable segments. Corporate includes administrative expenses not specifically allocated to an individual segment. The Company evaluates the performance of each operating segment based on several factors of which the primary financial measure is operating income. The accounting policies of the operating segments are the same as those described in Note 1. COVID-19 had a negative impact on revenue, operating income, capital expenditures and other identifiable assets for all segments in fiscal 2021. The Company’s financial results began to improve during the second half of fiscal 2021 and throughout fiscal 2022 as lockdowns were lifted and operations re-opened. Financial information by segment is as follows (in thousands): Fiscal Year Ended Revenue September 29, 2023 September 30, 2022 October 1, 2021 United States $ 2,575,352 $ 2,447,027 $ 2,250,756 Canada 249,934 239,978 205,821 $ 2,825,286 $ 2,687,005 $ 2,456,577 Fiscal Year Ended Operating Income (Loss) September 29, 2023 September 30, 2022 October 1, 2021 United States $ 303,762 $ 242,971 $ 136,293 Canada 13,707 18,008 22,740 Total Segment Operating Income 317,469 260,979 159,033 Corporate (99,560) (68,736) (62,794) Total Operating Income $ 217,909 $ 192,243 $ 96,239 Fiscal Year Ended Reconciliation to Income Before Income Taxes September 29, 2023 September 30, 2022 October 1, 2021 Total Operating Income $ 217,909 $ 192,243 $ 96,239 Gain on Sale of Equity Investment, net (51,831) — — Interest Expense and Other, net 10 2,284 (1,120) Income Before Income Taxes $ 269,730 $ 189,959 $ 97,359 Fiscal Year Ended Depreciation and Amortization September 29, 2023 September 30, 2022 October 1, 2021 United States $ 125,167 $ 122,347 $ 120,941 Canada 10,819 11,484 11,727 Corporate 518 521 638 $ 136,504 $ 134,352 $ 133,306 Fiscal Year Ended Capital Expenditures September 29, 2023 September 30, 2022 October 1, 2021 United States $ 72,353 $ 72,197 $ 84,864 Canada 5,517 4,252 5,274 $ 77,870 $ 76,449 $ 90,138 78 Table of Contents Property and Equipment, net September 29, 2023 September 30, 2022 United States $ 578,997 $ 574,127 Canada 72,907 69,405 Corporate 12,627 6,067 $ 664,531 $ 649,599 Total Assets September 29, 2023 September 30, 2022 United States $ 2,863,616 $ 2,844,010 Canada 266,804 272,976 Corporate 26,704 16,026 $ 3,157,124 $ 3,133,012 NOTE 14. SUBSEQUENT EVENTS: On September 30, 2023, the Separation was completed through the Distribution of the Company’s common stock to Aramark shareholders who held shares of Aramark common stock as of the close of business on September 20, 2023, the record date for the Distribution, which resulted in the issuance of approximately 131 million shares of common stock. As a result of the Distribution, Aramark shareholders received one share of the Company’s common stock for every two shares of common stock, par value $0.01, of Aramark. On October 2, 2023, the Company began trading as an independent, publicly traded company under the stock symbol “VSTS” on the NYSE. In connection with the Separation, the Company entered into or adopted several agreements that provide a framework for the relationship between the Company and Aramark, including, but not limited to the following: Separation and Distribution Agreement - governs the rights and obligations of the parties regarding the distribution following the completion of the separation, including the transfer of assets and assumption of liabilities, and establishes certain rights and obligations between the Company and Aramark following the Distribution, including procedures with respect to claims subject to indemnification and related matters. Transition Services Agreement - governs services between the Company and Aramark and their respective affiliates to provide each other on an interim, transitional basis, various services, including, but not limited to, administrative, information technology and cybersecurity support services and certain finance, treasury, tax and governmental function services. The services commenced on the distribution date and terminate no later than 24 months following the distribution date. Tax Matters Agreement - governs the parties’ respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes. In addition, the Company is restricted from taking certain actions that could prevent the distribution and certain related transactions from being tax-free for U.S. federal income tax purposes, including specific restrictions on its ability to pursue or enter into acquisition, merger, sale and redemption transactions with respect to the Company’s stock. Employee Matters Agreement - governs the allocation of liabilities and responsibilities relating to employment matters, employee compensation and benefits plans and programs and other related matters. Effective as of September 30, 2023, the Company adopted the Vestis Corporation 2023 Long-Term Incentive Plan. Additionally, on November 28, 2023, the Vestis Compensation Committee adopted the Vestis’ Deferred Compensation Plan (the “Deferred Compensation Plan”). Under the Deferred Compensation Plan, non-employee directors will be able to elect to defer all or a portion of their annual retainer, chair fees and annual equity compensation payable to the director pursuant to restricted stock unit awards or similar awards under the Vestis Corporation 2023 Long-Term Incentive Plan. After the Separation, our Board of Directors declared a quarterly cash dividend of $0.035 per common share payable on January 4, 2024 to shareholders of record at the close of business on December 15, 2023. 79 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . None.