UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 29, 2023
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-41783

vestis_logoxdescriptorxstaa.gif
Vestis Corporation
(Exact name of registrant as specified in its charter)
Delaware 92-2573927
(State or other jurisdiction of incorporation or organization) (I.R.S. employer
identification number)
500 Colonial Center Parkway, Suite 140, Roswell, Georgia
30076
(Address of Principal Executive
Offices)
(Zip Code)
(470) 226-3655
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.01 per share VSTS New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  o    No  x
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x   No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer
o
Non-accelerated filer  
x
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262 (b)) by the registered public accounting firm that prepared or issued its audit report. o
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes o   No  x
As of September 29, 2023, the last business day of the registrant’s most recently completed fiscal quarter, there was no established public market for the registrant’s common stock, par value $0.01 per share. The registrant’s common stock began “regular-way” trading on the New York Stock Exchange on October 2, 2023. The registrant had 131,431,959 shares of common stock outstanding as of November 30, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
None.


TABLE OF CONTENTS
Page No.







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Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the securities laws. All statements that reflect our expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts relating to discussions of future operations and financial performance (including volume growth, pricing, sales and cash flows) and statements regarding our strategy for growth, future product development, regulatory approvals, competitive position and expenditures. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our operations, our liquidity and capital resources, the conditions in our industry and our growth strategy. In some cases, forward-looking statements can be identified by words such as “believe,” “aim,” “anticipate,” “estimate,” “expect,” “future,” “goal,” “have confidence,” “intend,” “likely,” “look to,” “may,” “outlook,” “project,” “plan,” “seek,” “see,” “should,” “will,” “will be,” “will continue,” “will likely,” and other words and terms of similar meaning or the negative versions of such words. These forward-looking statements are subject to risks and uncertainties that may change at any time, and actual results or outcomes may differ materially from those that we expected. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Although we believe that the expectations reflected in any forward-looking statements we make are based on reasonable assumptions, we can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.
Such risks and uncertainties include, but are not limited to:
• unfavorable economic conditions including government shutdowns;
• increases in fuel and energy costs;
• the failure to retain current customers, renew existing customer contracts and obtain new customer contracts;
• natural disasters, global calamities, climate change, pandemics, strikes and other adverse incidents;
• competition in our industry;
• increased operating costs and obstacles to cost recovery due to the pricing and cancellation terms of our support services contracts;
• our leverage and ability to meet debt obligations;
• a determination by our customers to reduce their outsourcing or use of preferred vendors;
• risks associated with suppliers from whom our products are sourced;
• challenge of contracts by our customers;
• our expansion strategy and our ability to successfully integrate the businesses we acquire and costs and timing related thereto;
• currency risks and other risks associated with international operations, including compliance with a broad range of laws and regulations, including the United States Foreign Corrupt Practices Act;
• our inability to hire and retain key or sufficient qualified personnel or increases in labor costs;
• continued or further unionization of our workforce;
• liability resulting from our participation in multiemployer-defined benefit pension plans;
• liability associated with noncompliance with applicable law or other governmental regulations;
• laws and governmental regulations including those relating to the environment, wage and hour and government contracting;
• unanticipated changes in tax law;
• new interpretations of or changes in the enforcement of the government regulatory framework;
• a cybersecurity incident or other disruptions in the availability of our computer systems or privacy breaches;
• stakeholder expectations relating to environmental, social and governance (“ESG”) considerations which may
expose us to liabilities and other adverse effects on our business;
• the expected benefits of the Separation (as defined) from Aramark;
• the risk of increased costs from lost synergies due to the Separation;
• retention of existing management team members as a result of the Separation;
• reaction of customers, employees and other parties to the Separation, and the impact of the Separation on our business;
• any failure by Aramark to perform its obligations under the various separation agreements entered into in connection with the Separation;
• a determination by the IRS that the Separation or certain related transactions are taxable.
The above list of factors is not exhaustive or necessarily in order of importance. For additional information on identifying factors that may cause actual results to vary materially from those stated in forward-looking statements, see the discussions
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under Item 1A "Risk Factors," Item 3 "Legal Proceedings" and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections of this Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which it is made, and we assume no obligation to update or revise such statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

Summary of Risk Factors
An investment in Vestis is subject to a number of risks, including risks relating to its business and indebtedness, risks related to Vestis’ Separation from Aramark and risks related to Vestis common stock. Set forth below is a high-level summary of some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” of this information statement for a more thorough description of these and other risks.

Risks Related to Vestis’ Business
•Unfavorable economic conditions have in the past adversely affected, are currently adversely affecting and in the future could adversely affect Vestis’ business, financial condition or results of operations.
•Increases in fuel and energy costs could materially and adversely affect Vestis’ business, financial condition or results of operations.
•Vestis’ failure to retain its current customers, renew its existing customer contracts on comparable terms and obtain new customer contracts could adversely affect Vestis’ business, financial condition or results of operations.
•Natural disasters, global calamities, climate change, political unrest and other adverse incidents beyond Vestis’ control could adversely affect Vestis’ business, financial condition or results of operations.
•Competition in Vestis’ industry could adversely affect Vestis’ business, financial condition or results of operations.
•Vestis may be adversely affected if customers reduce their outsourcing or use of preferred vendors.
•Risks associated with Vestis’ suppliers and service providers could adversely affect Vestis’ business, financial condition or results of operations.
•Vestis’ contracts may be subject to challenge by its customers, which, if determined adversely, could affect Vestis’ business, financial condition or results of operations.
•Vestis’ expansion strategy involves risks.
•Vestis’ international business faces risks that could have an effect on Vestis’ business, financial condition or results of operations.
•Vestis’ business may suffer if it is unable to hire and retain sufficient qualified personnel or if labor costs increase.
•Continued or further unionization may increase Vestis’ costs and work stoppages could damage Vestis’ business.
•If Vestis fails to comply with requirements imposed by applicable law or regulations, it could significantly and adversely affect Vestis’ business, financial condition or results of operations.
•Environmental regulations may subject Vestis to significant liability and limit its ability to grow.
Risks Related to Vestis’ Indebtedness
•Vestis has debt obligations that could adversely affect its business and profitability and its ability to meet other obligations.
•Vestis is subject to interest rate risk.
•If Vestis’ financial performance deteriorates, it may not be able to service its indebtedness.
•Vestis’ debt agreements contain restrictions that limit its flexibility in operating its business.
Risks Related to the Separation
•Vestis has no history of operating as an independent company, and its historical financial information is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results.
•Following the Separation, Vestis’ financial profile has changed, and it is a smaller, less diversified company than Aramark prior to the Separation.
•Vestis may not achieve some or all of the expected benefits of the Separation.
•If Vestis is unable to replace the services that Aramark currently provides to Vestis on terms that are at least as favorable to Vestis as the terms on which Aramark is providing such services, Vestis’ business, financial condition or results of operations could be adversely affected.
•Vestis’ accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which Vestis is subject as a standalone publicly traded company following the Separation.
•Following the Separation, Vestis will reposition its brand to remove the Aramark name, which could adversely affect its ability to attract and maintain customers.
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•There can be no assurance that Vestis will have access to the capital markets on terms acceptable to Vestis.
•As an independent, publicly traded company, Vestis may not enjoy the same benefits that it did as a part of Aramark.
Risks Related to Vestis’ Common Stock and Organizational Documents
•Your percentage of ownership in Vestis may be diluted in the future.
•Vestis cannot guarantee the timing, declaration, amount or payment of dividends on its common stock.
•Anti-takeover provisions could enable Vestis’ Board of Directors to resist a takeover attempt by a third party and limit the power of its stockholders.
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PART I
Item 1.    Business
Overview

Vestis Corporation (“Vestis”, the “Company”, “our”, “we” or “us”) is a leading provider of uniform rentals and workplace supplies across the United States and Canada. We provide uniforms, mats, towels, linens, restroom supplies, first-aid supplies, safety products and other workplace supplies. In fiscal year 2023, we generated revenue of approximately $2.8 billion. We are one of the largest companies operating within the United States and Canada in our industry.
We have over 75 years of experience providing uniforms and workplace supplies and a broad footprint that supports efficient delivery of our services and products to more than 300,000 customer locations across the United States and Canada. Our customer base participates in a wide variety of industries including manufacturing, hospitality, retail, food processing, pharmaceuticals, healthcare and automotive. We serve customers ranging from small, family-owned operations with a single location to large corporations and national franchises with multiple locations.

Our customers value the uniforms and workplace supplies we deliver as our services and products can help them reduce operating costs, enhance brand image, maintain a safe and clean workplace and focus on their core business. We 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. Additionally, we provide garments and contamination control supplies that help customers maintain controlled, cleanroom environments commonly used in the manufacturing of electronics, pharmaceuticals and medical equipment.
Our team consists of approximately 20,000 teammates who operate over 350 sites including laundry plants, satellite plants, distribution centers and manufacturing plants. We leverage our broad footprint and our 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, we offer customized uniforms through direct sales agreements, typically for large regional or national companies.
Vestis is led by Kim Scott, President and Chief Executive Officer, Rick Dillon, Executive Vice President and Chief Financial Officer, Angela Kervin, Executive Vice President and Chief Human Resources Officer, Chris Synek, Executive Vice President and Chief Operating Officer and Timothy Donovan, Executive Vice President, Chief Legal Officer and General Counsel. These executives have deep expertise in their respective fields. They were recruited to lead Vestis as a standalone, independent company and are complemented by long-tenured members of management across the company’s commercial and operational functions as well as newly appointed leaders who bring functional expertise, diversity and depth to the Vestis leadership team.
On September 30, 2023 (the "Distribution Date"), Vestis Corporation completed its spin-off from Aramark (the "Spin-Off," or the “Separation”). On October 2, 2023 our common stock began regular-way trading on the New York Stock Exchange (“NYSE”) under the ticker symbol “VSTS”. Our corporate headquarters are in Roswell, Georgia.
Financial Profile
In fiscal year 2023, we generated revenue of approximately $2.8 billion, operating income of $217.9 million, or 7.7% of revenue, and net income of $213.2 million, or 7.5% of revenue. Cash provided from operating activities was $257.0 million. Revenue from our recurring rental business comprised 93% of total revenue, with 7% from direct sales. The contracted and recurring nature of our business provides a meaningful level of predictability to annual revenue. Additionally, the diversity of our customer base and the variety of industries in which our customers participate results in relatively low exposure to discrete industry trends. Our revenue is diversified across numerous sectors and customers operating primarily in manufacturing, hospitality, retail, food processing, automotive and healthcare. These are all sectors where we have decades of expertise. Geographically, 91% of our fiscal year 2023 revenue was from sales in the United States, with the remaining 9% from sales in Canada.
Industry Overview
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We operate within the uniforms, mats, towels, linens, restroom supplies, first-aid supplies and safety products industry in the United States and Canada. This includes businesses that outsource these services through rental programs or direct purchases, as well as non-programmers (which are businesses that maintain these services in-house).
We believe we are well positioned to take advantage of the various key trends and drivers that are impacting our industry. Demand in this industry is influenced primarily by macro-economic conditions, employment levels, increasing standards for workplace hygiene and safety and an ongoing trend of businesses outsourcing non-core, back-end operations. As noted above, the diversity of our customer base and the variety of industries in which our customers operate results in relatively low exposure to discrete industry trends.
Competition
Our industry is local in nature, fragmented and highly competitive. We believe we are a leading provider within this industry and we compete with national, regional and local providers who vary in size, scale, capabilities and product and service offering. Primary methods of competition include product quality, service quality and price.
Cintas Corporation and UniFirst Corporation are notable competitors of size and we have numerous local and regional competitors. Additionally, many businesses perform certain aspects of our product and service offerings in-house rather than outsourcing them.
Customers
Customers in our industry value the ability of providers to consistently deliver quality products on-time and with a high level of customer service. Additionally, they value trustworthy suppliers who partner with them to resolve workplace challenges that may arise with timely solutions that meet their needs.
We deliver to over 300,000 customer locations across the United States and Canada. We serve customers ranging from small, family-owned operations with a single location to large corporations and national franchises with multiple locations. Our revenue is diversified across our many customers as demonstrated by the revenue generated from our 10 largest customers accounting for less than 10% of total revenue in fiscal year 2023.
Our customers represent a diverse array of industries including sectors such as manufacturing, hospitality, retail, government, automotive, healthcare and food processing (illustrated in Figure A). The competitive landscape across these sectors for our products and services is highly fragmented and driven primarily by product quality, service quality and pricing of our competitors. We believe our competitive advantages identified below apply to each of the sectors. Across these sectors, we also serve customers who operate cleanrooms, or controlled environments where pollutants like dust, airborne microbes, and aerosol particles are removed to aid in providing clean work environments. Cleanrooms are typically used in the manufacturing of electronics, pharmaceutical products and medical equipment.
The diversity of our customers and the wide variety of industries in which they participate results in the demand for our services and products not being specifically linked to the cyclical nature of any one sector.
The vast majority of our customers are served under multi-year contracts. While customers are not required to make an up-front investment for their rental uniforms or other rented merchandise, a rental customer typically agrees to pay specified exit costs if it terminates its agreement early without cause.

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revbysectorfy23.gif
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Figure A: Revenue by Sector for fiscal 2023
Our Services and Products
We provide a full-service uniform solution on a contracted and recurring basis. Our full-service uniform offering includes the design, sourcing, manufacturing, customization, personalization, delivery, laundering, sanitization, repair and replacement of uniforms. Our uniform options include shirts, pants, outerwear, gowns, scrubs, high visibility garments, particulate-free garments and flame-resistant garments, along with shoes and accessories. In addition to uniforms, we also provide workplace supplies including managed restroom supply services, first-aid supplies and safety products, floor mats, towels and linens.
We believe our customers value our services and products for a variety of reasons:
Our full-service programs typically offer a lower-cost solution for customers than if they were serviced in-house, as evidenced by our historical experience and customer feedback, as we leverage our scale and network to achieve procurement and operating efficiencies.
We enable customers to focus on operating their core businesses as we take care of their needs for clean uniforms, fully stocked restrooms, complete first-aid kits and other workplace supplies.
We help customers establish corporate identity, foster a sense of team and belonging among employees, project a professional image and enhance brand awareness.
Our uniforms are reusable and can be assigned to another employee (rather than being discarded) when employees transition to new opportunities.
We offer a variety of specialty garments that help customers:
adhere to applicable regulatory standards;
safeguard against contamination in the production or service of items such as food, pharmaceuticals and healthcare products;
operate in static-free or low-static environments;
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enhance visibility and safety in work environments including construction, utility services, waste management and public safety; and
promote employee safety in workplace environments that involve heavy soils, heat, flame or chemicals in the production process.
We service our customers on a recurring basis, typically weekly, delivering clean uniforms and, in the same visit, picking up worn uniforms for inspection, cleaning and repair or replacement (illustrated in Figure B). In addition, we pick up used and soiled floor mats, towels and linens and replace them with clean products. We also restock restroom supplies, first-aid supplies and safety products as needed.
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Figure B: Illustrative uniform services weekly process
For our cleanroom customers who operate highly regulated and/or contamination-free processes in the healthcare, pharmaceutical and technology industries, we provide advanced static dissipative garments, sterile garments, barrier apparel and cleanroom application accessories.
We market and sell our services and products through multiple channels including sales representatives, telemarketing sales channels, our delivery drivers (who we refer to as route service representatives), territory managers and digital platforms.
Operations and Supply Chain
We operate a network of over 350 facilities including laundry plants, satellite plants, distribution centers and manufacturing plants along with a fleet of service vehicles that support over 3,400 pick-up and delivery routes. Our services and products are delivered to customers by route service representatives via delivery routes that originate from one of our laundry plants or satellite sites. Approximately 50% of our uniforms and linens are manufactured in our two manufacturing plants in Mexico. Our Mexican operations include approximately 189,000 square feet of manufacturing capacity and a 107,000 square foot distribution facility.
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Figure C: U.S. and Canada geographic service footprint
We are committed to operating sustainably with a focus on working to minimize fuel usage on our routes and to minimize energy and water usage in our laundry plant facilities. Additionally, we repair and reuse garments whenever possible to maximize the life cycle of our uniforms and support the circular economy.
We source raw materials as well as finished goods from a variety of domestic and international suppliers. Certain of our raw materials and products are currently limited to a single supplier. We maintain a Corporate Social Compliance Policy and related Vendor Code of Conduct both of which require the international manufacturing of our private label garments to occur under safe, lawful and humane working conditions. To support our Corporate Social Compliance Policy, our international private label garment manufacturers confirm annually their commitment to comply with our Vendor Code of Conduct. Further, the factories used to produce these products are subject to annual third-party social compliance audits.
Our Competitive Advantages
We believe we have significant competitive advantages including our full-service uniform solution offering, size and scale, extensive network footprint, long-tenured customer relationships and experienced leadership team. Given our robust capabilities, scale and talent, we are well positioned to partner with customers for their future needs across a range of services, use cases and business strategies. Some of our key competitive strengths include:
Full-Service Uniforms and Workplace Supplies Offering: We offer a full-service uniform solution including the ability to design, source, manufacture, customize, personalize, deliver, launder, sanitize, mend and replace uniforms on a regular and recurring basis. Our uniform offerings include shirts, pants, outerwear, gowns, scrubs, high visibility garments and flame-resistant garments, along with shoes and accessories. In addition to uniforms, we also provide workplace supplies including managed restroom supply services, first-aid supplies and safety products, floor mats, towels, linens and other workplace supplies.
Critical Scale in Growing, Fragmented Industry: We believe the market opportunity for our services is
significant and growing. We estimate our total addressable market to be approximately $48 billion as of March 31, 2023. Within the United States and Canada, we are the second largest provider in our industry, based on publicly reported information related to revenue, number of employees and facilities data for each of Cintas, Vestis and Unifirst. We believe our size and scale provide a competitive advantage in purchasing power, route density, operating efficiencies and ability to attract and retain talent as compared to smaller local and regional competitors.
Extensive Network Footprint: We serve over 95% of the largest metropolitan statistical areas in the United States and every province in Canada. Our footprint enables us to serve large, national customers across the United States and Canada.
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Long-Tenured Customer Relationships: We deliver to over 300,000 customer locations and serve businesses which participate across numerous industries. We maintain long-term relationships with our customers due to the quality of our services and products, our ability to deliver on-time and our ability to provide workplace supplies and services that support our customers’ individual strategies and needs.
A key differentiator in our service model is the relationship between our route service representatives and customers. We work to build relationships and trust through weekly, face-to-face interactions with our customers. Retaining existing customers affords us more opportunities to cross-sell high-value workplace supplies.
Experienced Leadership Team: The Company is led by Kim Scott, President and Chief Executive Officer, Rick Dillon, Executive Vice President and Chief Financial Officer, and Chris Synek, Executive Vice President and Chief Operating Officer. These executives have deep experience in their respective areas. They were hired to lead the Company as a standalone, independent company and are complemented by seasoned industry executives across the Company’s commercial and operational functions as well as newly appointed leaders who bring functional expertise, diversity and depth to the Company’s leadership team.
Ms. Scott has deep and relevant expertise with recurring revenue models having led and operated multiple businesses of this nature over the past 16 years. She also has extensive experience in logistics, route-based distribution and complex rental or subscription-based programs, including in her role as Chief Operating Officer of Terminix. Additionally, she has a broad operating background that includes plant management, logistics, procurement, engineering, acquisitions and large-scale integrations. She joined Aramark in October 2021 as President and CEO of Aramark Uniform Services to develop and launch an accelerated growth and value creation strategy for the company, while also preparing the Company to be a standalone, independent public company.
Mr. Dillon is a seasoned public company executive with more than 20 years of experience in finance leadership roles. Prior to joining Aramark, Mr. Dillon served as the Chief Financial Officer and Executive Vice President of two publicly traded companies, Enerpac Tool Group and Century Aluminum. He joined Aramark in May 2022 to serve as Chief Financial Officer of Aramark Uniform Services and to prepare the Company to be a standalone, independent public company.

Mr. Synek has extensive expertise in leadership roles in related recurring revenue model businesses. Previously, Mr. Synek served as Chief Executive Officer of Neovia Logistics, and President, Transportation North America for XPO Logistics, Inc. Additionally, Mr. Synek spent the first 16 years of his career developing uniform, laundry and workplace services experience at Cintas Corporation, eventually moving on to increasing roles of responsibility at Allied Waste Industries and Republic Services and Tervita Corporation. He joined Aramark in September 2023 to serve as Chief Operating Officer of Aramark Uniform Services.
Our executive leaders foster a culture of investing in our people, supporting their growth and development, instilling a sense of higher purpose, winning through teamwork with integrity and creating a safe environment for all. In addition, our commitment to diversity, equity and inclusion continues to shape our teammate engagement and recruiting efforts.
Value Creation Strategy
As an independent company, we are focused on the development, growth and expansion of our business, with increased flexibility to pursue independent strategic and financial plans, adapt quickly to the changing needs of our customers and sector dynamics, effectively allocate capital to invest in growth areas and accelerate decision-making processes. We are focused on long-term opportunities to make deliveries in our service network more effective, which we expect will drive revenue growth and margin expansion. Our new independence will enable sharper focus on our customers, which we believe will also enhance our competitive positioning and performance.
Our strategy is focused on creating shareholder value through high-quality and profitable revenue growth that is underpinned by efficient operations and a performance-driven culture. We are pursuing the following key strategies to drive value creation and grow our business:
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High-Quality Revenue Growth
Going forward, our strategy will continue to focus on retaining customers, with an increased emphasis on increasing revenue per stop through cross-selling, investing in attractive sectors, margin accretive products and service offerings and adding new customers on existing routes to increase our route density. We believe that, by focusing on these areas, we will achieve higher growth rates with more attractive margin profiles. 
Customer Retention: We serve an attractive, large and long-tenured customer base with services and products that generate recurring revenue streams that typically allow more predictability of revenue than non-recurring revenue business models. We continue to remain focused on retaining these customers, including by ensuring we are delivering new value through new or updated services and products. We will remain focused on modernizing the customer experience to make it easier for our customers to continue to do business with us. This includes investments in new technology, such as sophisticated, digital customer portals, as well as investments in our customer service process to enhance our route check-in process and predictive analytics that help us better anticipate customer service opportunities. 
Increasing Revenue Per Stop Through Cross-Selling to Leverage Fixed Costs: On average, our current customers take advantage of approximately 30% to 40% of our full line of services and products.  We believe there is a significant opportunity to increase our wallet share with our existing customers through cross-selling additional services and products, including compelling adjacent services such as first aid and managed restroom services.  This is expected to result in high-margin growth with existing customers by increasing revenue per stop and leveraging our existing delivery costs. We have invested in tools to support our trusted and tenured route service representative teammates and we are incentivizing them to pursue these opportunities with our existing customer base.
Targeting Attractive Sectors, Services and Products: We are implementing more targeted sales strategies to drive growth across high-value sectors, services and products. Using enhanced data analytics and insights will enable us to focus on customer wins that improve our revenue mix.
Increasing Route Density: We are establishing route density metrics to target sales along existing customer routes. We will focus on implementing analytical and geographical prospecting tools that will aid and reward our sales representatives for delivering growth that increases route density and lowers our overall cost to serve per route.
Efficient Operations
Our operations currently include significant cost inputs in areas such as labor, merchandise in service costs, plant operating costs and service-related costs.  We are working to instill a continuous improvement mindset in our teammates by instituting disciplined, financial metrics and reporting, key performance indicator monitoring and strengthening our leadership in key functional areas such as supply chain, logistics and plant operations.
In our collaboration with new function leaders, we have identified key areas of opportunity to reduce our operating costs and expand margins across our business:
Network Optimization: A comprehensive analysis of our plant network and customer flows (route movements from plant to customer) has revealed a significant opportunity throughout our network to lower our cost to serve. Further, we have identified a portfolio of initiatives related to routing and scheduling efficiencies and transport and logistics improvements. We believe we can deliver margin expansion through this flow optimization.
Workforce Management: We are working to reduce our labor costs by decreasing frontline turnover to improve plant productivity, reducing general and administrative costs and improving plant operations.
Merchandise Inventory Management: We are focused on lowering merchandise in service costs across our system in order to improve the profitability of new and existing business. Examples include delivering higher levels of garment and product reuse to reduce the issuance of new products and supply chain procurement strategies to reduce purchasing costs.
Performance-Driven Culture
Fostering a performance-driven culture is essential to the delivery of high-quality revenue growth and margin expansion. We are focused on further strengthening our capabilities and enhancing competencies in functional areas that
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are core to the delivery of our strategy such as sales and marketing, pricing, procurement, logistics, technology, talent acquisition and retention and plant operations. We have invested across these areas over the past year and will continue to strengthen these teams to support our strategy. We will make decisions that are informed by data and implement performance measurements and incentives that are aligned with the achievement of our strategic objectives.
Human Capital Resources
Our success begins with our people, and ensuring a safe workplace is our first priority. Investing in, developing and caring for our teammates is paramount to retaining our teammates. We believe serving our teammates in this manner significantly improves our ability to serve and retain customers, accelerate profitable growth and enhance productivity. This requires an unwavering commitment to safety, diversity and inclusion, professional growth opportunities and competitive total compensation and benefits that meet the needs of our teammates and their families.
We have approximately 20,000 teammates, primarily based in the United States, Canada and Mexico. As of September 29, 2023, approximately 10,500 of our teammates were represented by labor unions. We work to maintain productive working relationships with these unions.
Diversity, Equity and Inclusion. We believe that it is beneficial to align our diversity, equity and inclusion priorities with our business strategy.

As of September 29, 2023, 75% of our Board of Directors is from underrepresented groups, including females who represent 63% of our Board of Directors. Additionally, 80% of our named executive officers are from underrepresented groups including females, who represent 40% of our named executive officers; 67% of our executive officers are from underrepresented groups including females who represent 33% of our executive officers; and 45% of our senior leadership team are from underrepresented groups including females, who represent 32% of our senior leadership team. Continuing to increase diversity in executive and all levels of the leadership pipeline remains an organizational priority for the coming years. We will have multiple employee resource groups; examples include those supporting women, racially and ethnically diverse employees and the LGBTQ+ community.
Talent Acquisition, Development and Retention. Hiring, developing and retaining teammates is critically important to our operations and we are focused on creating experiences and programs that foster growth, performance and retention. We sponsor training and education programs for our teammates, from hourly teammates to upper levels of management, designed to enhance leadership and managerial capability, help ensure quality execution of our programs, drive customer satisfaction and increase return on investment.
Community Engagement. Through Aramark’s legacy, we have a strong culture of community engagement. As we move forward as an independent, standalone company, we will continue to embrace that legacy and build upon it by developing a community engagement program unique to our business that is aligned with our strategy, teammates, the customers we serve and the communities where we operate.
Compensation, Benefits, Safety and Wellness. In addition to offering market competitive salaries and wages, we offer comprehensive health and retirement benefits to our teammates. Our core health and welfare benefits are supplemented with specific programs to manage or improve common health conditions and include a variety of voluntary benefits and paid time away from work programs. We also provide programs designed to promote physical, emotional and financial well-being.
Government Regulation
Our business is subject to various federal, state, international, national, provincial and local laws and regulations, in areas such as environmental, labor, employment, immigration, privacy and data security, tax, transportation, health and safety, antitrust, anti-corruption, import/export, consumer protection, false claims and lobby and procurement laws. In addition, our facilities are subject to periodic inspection by federal, state, provincial, local and international authorities. We have various controls and procedures designed to maintain compliance with applicable laws and regulations. Our compliance requirements are subject to legislative changes, or changes in regulatory interpretation, implementation or enforcement. If we fail to comply with applicable laws, we may be subject to investigations, criminal sanctions or civil remedies, including fines, penalties, damages, reimbursement, injunctions, seizures, disgorgements or debarments from government contracts.
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Our business is subject to various environmental protection laws and regulations, including the United States Federal Clean Water Act, Clean Air Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act and similar local, provincial, state, federal and international laws and regulations governing the use, treatment, management, transportation, and disposal of wastes and hazardous materials.
We use and manage chemicals and hazardous materials as part of our operations. We are mindful of the environmental concerns surrounding the use, treatment, management, transportation and disposal of these chemicals and hazardous materials, and have taken and continue to take measures to comply with environmental protection laws and regulations. In particular, industrial laundries generate wastewater, air emissions and related wastes as part of operations relating to the laundering of garments and other merchandise. Residues removed from soiled garments and other merchandise laundered at our facilities and from detergents and chemicals used in our wash process may be contained in discharges to air and water (through sanitary sewer systems and publicly owned treatment works) and in waste generated by our wastewater treatment systems. Similar to other companies in our industry, our industrial laundries are subject to certain air and water pollution discharge limits, monitoring, permitting and recordkeeping requirements. Wastewater at our laundry facilities is treated as necessary to comply with local discharge requirements and permits prior to discharge to sanitary sewer systems or publicly owned treatment works. We also own or operate a limited number of aboveground and underground storage tank systems at some locations to store petroleum or propane for use in our operations. Certain of these storage tank systems are subject to performance standards, periodic monitoring, and recordkeeping requirements.
Given the regulated nature of some of our operations, we could face penalties and fines for non-compliance. In the past, we have settled, or contributed to the settlement of, actions or claims relating to the management of underground storage tanks and the handling and disposal of chemicals or hazardous materials, either on- or off-site. We may, in the future, be required to expend material amounts to rectify the consequences of any such events. Under environmental laws, we may be liable for the costs of removal or remediation of certain hazardous materials located on or in or migrating from our owned or leased property or located at sites that we operated in the past or to which we have sent waste for off-site disposal, as well as related costs of investigation and property damage. Such laws may impose liability without regard to our fault, knowledge or responsibility for the presence of such hazardous materials. We may not know whether our acquired or leased properties have been operated in compliance with environmental laws and regulations or that our future uses or conditions will not result in the imposition of liability upon us under such laws or expose us to third-party actions such as tort suits. We routinely review and evaluate sites that may require remediation and monitoring. Based on these reviews and various estimates and assumptions, we determine our estimated costs. As of September 29, 2023, we do not anticipate any expenditures for environmental remediation that would have a material effect on our financial condition. While environmental compliance is not a material component of our costs, we invest in equipment, technology and operating expenses, primarily for water treatment and waste removal, on a regular basis in order to comply with environmental laws and regulations, to promote the safety of our teammates, customers, and communities and to enhance the sustainability of our operations.
Intellectual Property
We have patents, trademarks, trade names and licenses that support the operation of our business. Historically, the Aramark brand, including its corporate starperson logo design, and the Aramark word mark have been used to market our business. In connection with the Separation, we will be repositioning our new Vestis brand to better represent our customer value proposition and value creation strategy as an independent, standalone uniform rental and workplace supplies company. We anticipate the repositioning of our brand will occur in stages, over time, and we intend to use trade advertising and targeted digital marketing to promote recognition of our brand.
Environmental, Social and Governance (ESG)
We have been engaged in actively supporting environmental, social and governance (ESG) efforts. Below are key areas of focus the Company has undertaken and intends to continue to pursue:
We maintain a Corporate Social Compliance Policy and related Vendor Code of Conduct that address the international manufacturing of our private label garments under safe, lawful and humane working conditions. To support our Corporate Social Compliance Policy, our international private label garment manufacturers annually confirm their commitment to comply with our Vendor Code of Conduct, and the factories used to produce these products are subject to annual third-party social compliance audits.
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We have made enhancements to our wash chemistry that allow us to conserve electricity, natural gas and water. Our most recent chemical enhancement has provided utility resource reductions with shorter washing machine run times (electricity), reduced water temperatures (natural gas) and fewer rinse cycles (water).
We focus on the efficient use of fossil fuels to reduce related emissions. We seek to increase route efficiency with technology and processes that reduce travel time, distance and fuel consumption. For example, our new telematics technology allows us to proactively reduce fuel usage by limiting idling through real-time, in-cab driver alerts.
Our Board of Directors and executive leadership are committed to leading a socially responsible organization that supports the health of our planet, cares for our employees, invests in the communities we work in and conducts business in an ethical manner with appropriate governance. Our Board of Directors will oversee our ESG goals and objectives, and will support the implementation of our ESG priorities and commitments.
Available Information

We file annual, quarterly and current reports as well as other information with the Securities and Exchange Commission (“SEC”). These filings are available to the public over the internet at the SEC's website at www.sec.gov. Our principal internet address is www.vestis.com where we make available free of charge our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The references to our website and the SEC's website are intended to be inactive textual references only and the contents of those websites are not incorporated by reference herein.
Item 1A.    Risk Factors.

You should carefully consider the following risks and other information in this Form 10-K in evaluating Vestis and Vestis’s common stock. Any of the following risks and uncertainties could materially adversely affect our business, financial condition or results of operations.
Risks Related to Our Business
Operational Risks
Unfavorable economic conditions have in the past adversely affected, are currently adversely affecting and in the future could adversely affect our business, financial condition or results of operations.
Unfavorable economic conditions may arise during times of national and international economic downturns, or may be attributed to natural disasters, calamities, public health crises, political unrest and global conflicts. Unfavorable economic conditions may also contribute to supply chain disruptions, geopolitical events, global energy shortages, major central bank policy actions including interest rate increases, public health crises or other factors. Unfavorable economic conditions could adversely affect the demand for our products and services. For example, in the early stages of the COVID-19 pandemic, we were negatively affected by reduced employment levels at our customers’ locations and declining levels of business and customer spending. In addition, adverse economic conditions, including increases in labor costs, labor shortages, higher materials and other costs, supply chain disruptions, inflation and other economic factors could increase our costs of selling and providing the products and services we offer, which in turn could have a material adverse impact on our business, financial condition or results of operations. Moreover, the impact of inflation on various areas of our business, including labor and product costs, has recently affected our business, financial condition or results of operations, and we may not be able to mitigate any future impacts of inflation by increases in pricing for our goods and services. We are unable to predict any future trends in the rate of inflation, and if (and to the extent that) we are unable to recover higher costs in the event of future increases in inflation, such increases in inflation could adversely affect our business, financial condition or results of operations.
Conditions or events that adversely affect our current customers or sales prospects may cause such customers or prospects to restrict expenditures, reduce workforces or even to cease to conduct their businesses. Any of these circumstances would have the effect of reducing the number of employees utilizing our uniform services, which could have a material adverse impact on our business, financial condition or results of operations. In addition, financial distress and insolvency experienced by customers, especially larger customers, has in the past made it difficult and in the future could make it difficult for us to collect amounts we are owed and could result in the voiding, termination or modification of
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existing contracts. For example, in response to the changed circumstances caused by shutdowns earlier in the COVID-19 pandemic, we worked with customers to renegotiate contracts in order to mitigate lost revenues caused by partial or full closure of customer premises. Similarly, financial distress or insolvency, if experienced by our key vendors and service providers such as insurance carriers, could significantly increase our costs.
Increases in fuel and energy costs could materially and adversely affect our business, financial condition or results of operations.
The prices of fuel and energy to run our vehicles, equipment and facilities are volatile and fluctuate based on factors outside of our control. For example, the ongoing conflict between Russia and Ukraine has disrupted supply chains and caused increases in fuel prices. Our operating margins have been and may continue to be impacted by such increased fuel prices. Continuing or additional increases in fuel and energy costs could have a material adverse effect on our business, financial condition or our results of operations.
Our failure to retain our current customers, renew our existing customer contracts on comparable terms and obtain new customer contracts could adversely affect our business, financial condition or results of operations.
Our success depends on our ability to retain our current customers, renew our existing customer contracts and obtain new business on commercially favorable terms. Our ability to do so generally depends on a variety of factors, including the quality, price and responsiveness of our services, as well as our ability to market these services effectively and differentiate ourself from our competitors. In addition, customers are increasingly focused on and requiring us to set targets and meet standards related to environmental sustainability matters, such as greenhouse gas emissions, packaging, waste and wastewater. When we renew existing customer contracts, it is often on terms that are less favorable or less profitable for us than the then-current contract terms. In addition, we typically incur substantial start-up and operating costs and experiences lower profit margin and operating cash flows in connection with the establishment of new business, and in periods with higher rates of new business, we have experienced and expect to continue to experience negative impact to our profit margin and our cash flows. There can be no assurance that we will be able to obtain new business, renew existing customer contracts at the same or higher levels of pricing or that our current customers will not turn to competitors, cease operations, elect to in-source or terminate contracts with us. These risks may be exacerbated by current economic conditions due to, among other things, increased cost pressure at our customers, tight labor markets and heightened competition in a contracted marketplace. The failure to renew a significant number of our existing contracts, including on the same or more favorable terms, could have a material adverse effect on our business, financial condition or results of operations, and the failure to obtain new business could have an adverse impact on our growth and financial results.
Natural disasters, global calamities, climate change, political unrest and other adverse incidents beyond our control could adversely affect our business, financial condition or results of operations.
Natural disasters, including hurricanes and earthquakes, global calamities and political unrest have affected, and in the future could affect, our business, financial condition or results of operations. In the past, due to more geographically isolated natural disasters, such as wildfires in the western United States and hurricanes and extreme cold conditions in the southern United States, we experienced lost and closed customer locations, business disruptions and delays, the loss of inventory and other assets, and asset impairments. The effects of global climate change will likely increase the frequency and severity of such natural disasters and may also impact the availability of water resources, forests or other natural resources.
In addition, political unrest and global conflicts like the ongoing conflict between Russia and Ukraine have disrupted, and in the future may further continue to disrupt, global supply chains and heighten volatility and disruption of global financial markets. While we do not have direct operations within Russia or Ukraine, the conflict involving these nations has heightened the disruption to our supply chain, triggered inflation in our labor costs and may increase our risk of cyberattacks. We do not have direct operations in the Middle East but the recent Israel-Hamas War and escalating tensions in the region may disrupt global markets and impact our supply chain. The impact of these global events on our longer-term operational and financial performance will depend on future developments, our response and governmental response to inflation, and the duration and severity of the conflict in Ukraine and the Middle East. Any terrorist attacks or incidents prompted by political unrest also may adversely affect our revenue and operating results.
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Competition in our industry could adversely affect our business, financial condition or results of operations.
The uniform apparel and workplace supply services industry is highly competitive. We face competition from major national competitors with significant financial resources. In addition, there are regional and local uniform suppliers whom we believe have strong customer loyalty. The primary areas of competition within the industry are price, design, quality of products and quality of services. While many customers focus primarily on quality of service, uniform rental is also a price-sensitive service and if existing or future competitors seek to gain customers or accounts by reducing prices, we may be required to lower prices, which would reduce our revenue and profits. Our industry competitors are also competitors for acquisitions, which may increase the cost of acquisitions or lower the number of potential targets. The uniform rental business requires investment capital for growth. Failure to maintain capital investment in this business would put us at a competitive disadvantage. In addition, to maintain a cost structure that allows for competitive pricing, it is important for us to source garments and other products internationally. To the extent we are not able to effectively source such products internationally and gain the related cost savings, we may be at a disadvantage in relation to some of our competitors. An increase in competition, from any of the foregoing or other sources, may require us to reduce prices and/or result in reduced profits and loss of market share, which may have a material adverse impact on our business, financial condition and results of operations.
We may be adversely affected if customers reduce their outsourcing or use of preferred vendors.
Our business and growth strategies depend in large part on the continuation of a current trend toward outsourcing services. Customers will outsource if they perceive that outsourcing may provide quality services at a lower overall cost and permit them to focus on their core business activities. We cannot be certain this trend will continue or not be reversed or that customers that have outsourced functions will not decide to perform these functions themselves. Unfavorable developments with respect to either outsourcing or the use of preferred vendors could have a material adverse effect on our business, financial condition and results of operations.
Risks associated with our suppliers and service providers could adversely affect our business, financial condition or results of operations.
The raw materials we use in our business and the finished products we sell are sourced from a variety of domestic and international suppliers. We seek to require our suppliers and service providers to comply with applicable laws and otherwise meet our quality and/or conduct standards. In addition, customer and stakeholder expectations regarding environmental, social and governance consideration for suppliers are evolving. Our ability to find qualified suppliers who meet our standards and to access raw materials and finished products in a timely and efficient manner can be a challenge, especially with respect to suppliers located and goods sourced outside the United States.
Insolvency or business disruption experienced by suppliers could make it difficult for us to source the items we need to run our business. Political and economic stability in the countries in which foreign suppliers are located, the financial stability of suppliers, suppliers’ failure to meet our standards, labor problems experienced by our suppliers, the availability of raw materials and labor to suppliers, cybersecurity issues, currency exchange rates, transport availability and cost, tariffs, inflation and other factors relating to the suppliers and the countries in which they are located are beyond our control. Certain of our raw materials and products are currently and may in the future be limited to a single supplier, and if such a supplier faces any difficulty in supplying the materials or products, we may not be able to find an alternative supplier in a timely manner or at all. Current global supply chain disruptions caused by the current macroeconomic environment, the COVID-19 pandemic and the Russia/Ukraine conflict have resulted, and may continue to result, in delivery delays as well as lower fill rates and higher substitution rates for a wide-range of products. We do not have direct operations in the Middle East but the recent Israel-Hamas War and escalating tensions in the region may disrupt global markets and impact our supply chain. While we have continued to modify our business model in response to the current environment, including proactively managing inflation and global supply chain disruption, through supply chain initiatives and by implementing pricing, including temporary fees, as appropriate, to cover incremental costs, there is no guarantee that we will be able to continue to do so successfully or on comparable terms in the future if supply chain disruptions continue or worsen.
Domestic foreign trade policies, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, the limitation on the importation of certain types of goods or of goods containing certain materials from other countries and other factors relating to foreign trade are beyond our control. If one of our suppliers were to violate the law, or engage in conduct that results in adverse publicity, our reputation may be harmed simply due to our association with that supplier. Drought, flood, natural disasters and other extreme weather events caused by climate change or other
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environmental conditions could also result in supply chain disruptions. These and other factors affecting our suppliers and our access to raw materials and finished products could adversely affect our business, financial condition or results of operations.
Our contracts may be subject to challenge by our customers, which, if determined adversely, could affect our business, financial condition or results of operations.
Our business is contract-intensive, and we are party to many contracts with customers. From time to time, our customers may challenge our contract terms or our interpretation of our contract terms. These challenges could result in disputes between us and our customers. The resolution of these disputes in a manner adverse to our interests could negatively affect revenue and operating results. If a large number of our customer arrangements were modified in response to any such matter, the effect could be materially adverse to our business, financial condition or results of operations.
Our expansion strategy involves risks.
We may seek to acquire companies or interests in companies, or enter into joint ventures that complement our business. Our inability to complete acquisitions, integrate acquired companies successfully or enter into joint ventures may render us less competitive. Our ability to engage in acquisitions, joint ventures and related business opportunities may be subject to additional limitations due to the Separation.
At any given time, we may be evaluating one or more acquisitions or engaging in acquisition negotiations. We cannot be sure that we will be able to continue to identify acquisition candidates or joint venture partners on commercially reasonable terms or at all. If we make acquisitions, we also cannot be sure that any benefits anticipated from the acquisitions will actually be realized. Likewise, we cannot be sure we will be able to obtain necessary financing for acquisitions. Such financing could be restricted by the terms of our debt agreements or it could be more expensive than our current debt. The amount of such debt financing for acquisitions could be significant and the terms of such debt instruments could be more restrictive than our current covenants. In addition, our ability to control the planning and operations of our joint ventures and other less than majority-owned affiliates may be subject to numerous restrictions imposed by the joint venture agreements and majority stockholders. Our joint venture partners may also have interests which differ from ours.
The process of integrating acquired operations into our existing operations may result in operating, contract and supply chain difficulties, such as the failure to retain existing customers or attract new customers, maintain relationships with suppliers and other contractual parties, or retain and integrate acquired personnel. In addition, cost savings that we expect to achieve, for example, from the elimination of duplicative expenses and the realization of economies of scale or synergies, may take longer than expected to realize or may ultimately be smaller than we expect. Also, in connection with any acquisition, we could fail to discover liabilities of the acquired company for which we may be responsible as a successor owner or operator in spite of any investigation we make prior to the acquisition, or significant compliance issues which require remediation, resulting in additional unanticipated costs, risk creation and potential reputational harm. In addition, labor laws in certain countries may require us to retain more employees than would otherwise be optimal from entities we acquire. Such integration difficulties may divert significant financial, operational and managerial resources from our existing operations and make it more difficult to achieve our operating and strategic objectives, which could have a material adverse effect on our business, financial condition or results of operations. Similarly, our business depends on effective information technology and financial reporting systems. Delays in or poor execution of the integration of these systems could disrupt our operations and increase costs, and could also potentially adversely impact the effectiveness of our disclosure controls and internal controls over financial reporting.
Possible future acquisitions could also result in additional contingent liabilities and amortization expenses related to intangible assets being incurred, which could have a material adverse effect on our business, financial condition or results of operations. In addition, goodwill and other intangible assets resulting from business combinations represent a significant portion of our assets. If goodwill or other intangible assets were deemed to be impaired, we would need to take a charge to earnings to write down these assets to their fair value.
Our international business faces risks that could have an effect on our business, financial condition or results of operations.
We operate primarily in the United States and Canada. During fiscal 2023, approximately 91% of our revenue was generated in the United States and approximately 9% of our revenue was generated in Canada. In addition, we operate
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manufacturing plants and a distribution center in Mexico that collectively employ approximately 2,000 personnel as of September 29, 2023. Our international operations are subject to risks that are different from those we face in the United States, including the requirement to comply with changing or conflicting national and local regulatory requirements and laws, as well as cybersecurity, data protection and supply chain laws; potential difficulties in staffing and labor disputes; managing and obtaining support and distribution for local operations; credit risk or financial condition of local customers; potential imposition of restrictions on investments; potentially adverse tax consequences, including imposition or increase of withholding, value-added tax (“VAT”) and other taxes on remittances and other payments by subsidiaries; foreign exchange controls; local political and social conditions; and the ability to comply with the terms of government assistance programs.
The operating results of our international subsidiaries (which are currently primarily in Canada) are translated into U.S. dollars and such results are affected by movements in foreign currencies relative to the U.S. dollar. Recently, the strength of the U.S. dollar has generally increased as compared to other currencies (including the Canadian dollar), which has had, and may continue to have, an adverse effect on our operating results as reported in U.S. dollars.
We own and operate facilities in Mexico. Violence, crime and instability in Mexico may have an adverse effect on our operations. We are not insured against such criminal attacks and there can be no assurance that losses that could result from an attack on our trucks or personnel would not have a material adverse effect on our business, financial condition or results of operations.
We may continue to consider opportunities to develop our business in emerging countries over the long term. Emerging international operations present several additional risks, including greater fluctuation in currencies relative to the U.S. dollar; economic and governmental instability; civil disturbances; volatility in gross domestic production; and nationalization and expropriation of private assets.
There can be no assurance that the foregoing factors will not have a material adverse effect on our international operations or on our consolidated financial condition and results of operations.
Labor-Related Risks
Our business may suffer if we are unable to hire and retain sufficient qualified personnel or if labor costs increase.

We believe much of our future growth and success depends on the continued availability, service and well-being of entry level personnel. We have had and may continue to have difficulty in hiring and retaining qualified personnel, particularly at the entry level. We will continue to have significant requirements to hire such personnel. At times when the United States or other geographic regions experience reduced levels of unemployment or a general scarcity of labor as has been seen in recent periods, there may be a shortage of qualified workers at all levels. Given that our workforce requires large numbers of entry level and skilled workers and managers, a general difficulty finding sufficient employees or mismatches between the labor markets and our skill requirements can compromise our ability in certain areas of our businesses to continue to provide quality service or compete for new business. We are also impacted by the costs and other effects of compliance with U.S. and international regulations affecting our workforce. These regulations are increasingly focused on employment issues, including wage and hour, healthcare, immigration, retirement and other employee benefits and workplace practices. Compliance and claims of non-compliance with these regulations could result in liability and expense to us. Competition for labor has at times resulted in wage increases in the past and future competition could substantially increase our labor costs. Due to the labor-intensive nature of our businesses, a shortage of labor or increases in wage levels in excess of normal levels could have a material adverse effect on our business, financial condition or results of operations.
Continued or further unionization of our workforce may increase our costs and work stoppages could damage our business.
As of September 29, 2023, approximately 10,500 of our employees were represented by labor unions and covered by over 200 collective bargaining agreements with various terms and dates of expiration. There can be no assurance that any current or future issues with our employees will be resolved or that we will not encounter future strikes, work stoppages or other disputes with labor unions or our employees. A work stoppage or other limitations on our operations and facilities for any reason could have an adverse effect on our business, financial condition or results of operations.
The continued or further unionization of our workforce could increase our overall costs and adversely affect our flexibility to run our business in the most efficient manner, to remain competitive and acquire new business. In addition,
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any significant increase in the number of work stoppages at any of our operations could adversely affect our business, financial condition or results of operations.
We may incur significant liability as a result of our participation in multiemployer-defined benefit pension plans.
A number of our locations operate under collective bargaining agreements. Under some of these agreements, we are obligated to contribute to multiemployer-defined benefit pension plans. As a contributing employer to such plans, should we trigger either a “complete” or “partial” withdrawal, or should the plan experience a “mass” withdrawal, we could be subject to withdrawal liability for our proportionate share of any unfunded, vested benefits which may exist for the particular plan. In addition, if a multiemployer-defined benefit pension plan fails to satisfy the minimum funding standards, we could be liable to increase our contributions to meet minimum funding standards. Also, if another participating employer withdraws from the plan or experiences financial difficulty, including bankruptcy, our obligation could increase. The financial status of a small number of the plans to which we contribute has deteriorated in the recent past and continues to deteriorate. We proactively monitor the financial status of these and the other multiemployer-defined benefit pension plans in which we participate. In addition, any increased funding obligations for underfunded multiemployer-defined benefit pension plans could have an adverse financial impact on us.
Legal, Regulatory, Safety and Security Risks
If we fail to comply with requirements imposed by applicable law or other governmental regulations, we could become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business, financial condition or results of operations.
We are subject to governmental regulation at the federal, state, international, national, provincial and local levels in many areas of our business, such as 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 anti-corruption laws, lobbying laws, motor carrier safety laws and data privacy and security laws. We are, from time to time, subject to varied and changing rules and regulations at the federal, state, international, national, provincial and local level, including vaccine and testing mandates, capacity limitations and cleaning and sanitation standards, which may in the future impact our operations across customer locations and business sectors.
From time to time, government agencies have conducted reviews and audits of certain of our practices as part of routine inquiries of providers of services under government contracts, or otherwise. Like others in our industry, we also receive requests for information from government agencies in connection with these reviews and audits.
While we attempt to comply with all applicable laws and regulations, there can be no assurance that we are in full compliance with all applicable laws and regulations or interpretations of these laws and regulations at all times or that we will be able to comply with any future laws, regulations or interpretations of these laws and regulations.
Government agencies may make changes in the regulatory frameworks within which we operate that may require us to incur substantial increases in costs in order to comply with such laws and regulations. For example, during the outbreak of the COVID-19 pandemic, businesses, such as ours, were subject to new, varied and evolving rules and regulations at all levels of government, including vaccine and testing mandates, capacity limitations, cleaning and sanitation standards and travel restrictions, which have impacted, and may in the future, materially impact our operations.
If we fail to comply with applicable laws and regulations, including those referred to above, we may be subject to investigations, criminal sanctions or civil remedies, including fines, penalties, damages, reimbursement, injunctions, seizures, disgorgements or debarments from government contracts or the loss of the ability to operate our motor vehicles. The cost of compliance or the consequences of non-compliance, including debarments, could have a material adverse effect on our business, financial condition or results of operations and cause reputational harm.
Environmental regulations may subject us to significant liability and limit our ability to grow.
We use and manage chemicals and hazardous materials as part of our operations. We are subject to various environmental protection laws and regulations, including the United States Federal Clean Water Act, Clean Air Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act and
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similar local, provincial, state, federal and international laws and regulations governing the use, treatment, management, transportation, and disposal of wastes and hazardous materials. We are mindful of the environmental concerns surrounding the use, treatment, management, transportation and disposal of these chemicals and hazardous materials, and have taken and continue to take measures to comply with environmental protection laws and regulations.
In particular, industrial laundries generate wastewater, air emissions and related wastes as part of operations relating to the laundering of garments and other merchandise. Residues removed from soiled garments and other merchandise laundered at our facilities and from detergents and chemicals used in our wash process may be contained in discharges to air and water (through sanitary sewer systems and publicly owned treatment works) and in waste generated by our wastewater treatment systems. Similar to other companies in our industry, our industrial laundries are subject to certain air and water pollution discharge limits, monitoring, permitting and recordkeeping requirements.
We also own or operate a limited number of aboveground and underground storage tank systems at some locations to store petroleum or propane for use in our operations. Certain of these storage tank systems are subject to performance standards, periodic monitoring and recordkeeping requirements. We also use and manage hazardous materials, chemicals and wastes in our operations from time to time. In the course of our business, we may be subject to penalties and fines and reputational harm for non-compliance with environmental protection laws and regulations, and we may settle, or contribute to the settlement of, actions or claims relating to the handling and disposal of wastes or hazardous materials. We may, in the future, be required to expend material financial amounts to rectify the consequences of any such events.
In addition, changes to environmental laws may subject us to additional costs or cause us to change aspects of our business. In particular, new laws and regulations related to climate change (including, but not limited to, certain requirements relating to the disclosure of greenhouse gas emissions and associated business risks), could affect our operations or result in significant additional expense and operating restrictions on us. Under environmental laws, we may be liable for the costs of removal or remediation of certain hazardous materials located on or in or migrating from our owned or leased property or located at sites that we operated in the past or to which we have sent waste for off-site disposal, as well as related costs of investigation and property damage. Such laws may impose liability without regard to our fault, knowledge, or responsibility for the presence of such hazardous materials. There can be no assurance that locations that we own, lease, or otherwise operate or operated in the past, or that we may acquire in the future, have been operated in compliance with environmental laws and regulations or that future uses or conditions will not result in the imposition of liability upon us under such laws or expose us to third-party actions such as tort suits. In addition, such regulations may limit our ability to identify suitable sites for new or expanded facilities. In connection with our present or past operations, including those by companies that we have acquired, hazardous substances may migrate from properties on which we operate or which were operated by our predecessors or companies we acquired to other properties. We may be subject to significant liabilities to the extent that human health is adversely affected or the value of such properties is diminished by such migration.
On a quarterly basis, we assess each of our environmental sites to determine whether the costs of investigation and remediation of environmental conditions are probable and can be reasonably estimated as well as the adequacy of our reserves with respect to such costs. There can be no assurance that our reserves with respect to our environmental sites will be sufficient or that the costs of remediation and investigation will not substantially exceed our reserves as new facts, circumstances or estimates arise.

Unanticipated changes in tax law could adversely impact our financial results.
We are subject to taxes in the United States and various foreign jurisdictions within which we conduct business. Considering the unpredictability of changes to tax laws and regulations in the jurisdictions in which we do business, it is difficult to estimate the potential adverse impact of these changes on our business and financial results. Changes in tax laws or regulations in these jurisdictions could increase our effective tax rate, restrict our ability to repatriate undistributed foreign earnings, or impose new restrictions, costs or prohibitions that could reduce our net income and adversely affect our cash flows.
Additionally, we may be under examination by the taxing authorities for historical tax positions, and we regularly assess the likelihood of adverse outcomes resulting from these audits. While we believe that our current tax provisions are appropriate, there can be no assurance that these items will be settled for the amounts accrued, that additional tax exposures will not be identified in the future or that additional tax reserves will not be necessary for any such exposure. Any increase
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in the amount of taxation incurred as a result of challenges to our tax filing positions could result in a material adverse effect on our business, consolidated results of operations and consolidated financial condition.
Our operations and reputation may be adversely affected by disruptions to or breaches of our information systems or if our data is otherwise compromised.
We are increasingly utilizing information technology systems, including with respect to administrative functions, financial and operational data, ordering, point-of-sale processing and payment and the management of our supply chain, to enhance the efficiency of our business and to improve the overall experience of our customers. We maintain confidential, proprietary and personal information about, or on behalf of, our potential, current and former customers, employees and other third parties in these systems or engage third parties in connection with storage and processing of this information. Such information includes employee, customer and third-party data, including credit card numbers, social security numbers, healthcare information and other personal information.
Our systems and the systems of our vendors and other third parties are subject to damage or interruption from power outages, computer or telecommunication failures, computer viruses, catastrophic events and implementation delays or difficulties, as well as usage errors by our employees or third-party service providers. These systems are also vulnerable to an increasing threat of rapidly evolving cyber-based attacks, including malicious software, attempts to deny access to systems or networks, attempts to gain unauthorized access to data, including through phishing emails, attempts to fraudulently induce employees or others to disclose information, the exploitation of software and operating vulnerabilities and physical device tampering/skimming at card reader units. The techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, may be difficult to detect for a long time and often are not recognized until after an attack is launched or occurs. As a result, we and such third parties may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, we or such third parties may decide to upgrade existing information technology systems from time to time to support the needs of our business and growth strategy and the risk of system disruption is increased when significant system changes are undertaken.
We intend to maintain a global cybersecurity program governed by an information security management system aligned with ISO27001. We have established and maintain a cross-functional Cyber Governance Committee that will be responsible for prioritizing and managing evolving cyber risks. During the normal course of business, we have experienced and expect to continue to experience cyber-based attacks and other attempts to compromise our information systems, although none, to our knowledge, has had a material adverse effect on our business, financial condition or results of operations.
Any damage to, or compromise or breach of, our systems or the systems of our vendors could impair our ability to conduct our business, result in transaction errors, result in corruption or loss of accounting or other data, which could cause delays in our financial reporting, and result in a violation of applicable privacy and other laws, significant legal and financial exposure, reputational damage, adverse publicity and a loss of confidence in our security measures. Any such event could cause us to incur substantial costs, including costs associated with systems remediation, customer protection, litigation, lost revenue or the failure to retain or attract customers following an attack. The failure to properly respond to any such event could also result in similar exposure to liability. While we maintain insurance coverage that may cover certain aspects of cyber risks, such insurance coverage may be unavailable or insufficient to cover all losses or all types of claims that may arise. Further, as cybersecurity risks evolve, such insurance may not be available to us on commercially reasonable terms or at all. The occurrence of some or all of the foregoing could have a material adverse effect on our results of operations, financial condition, business and reputation.
We are subject to numerous laws and regulations in the United States and internationally as well as contractual obligations and other security standards, each designed to protect the personal information of customers, employees and other third parties that we collect and maintain. These laws and regulations are evolving to match changes in cyber-attacks and protection programs, which require us to review and amend the legal framework we have in place.
Because we accept debit and credit cards for payment from customers, we are also subject to various industry data protection standards and protocols, such as payment network security operating guidelines and the Payment Card Industry Data Security Standard. In certain circumstances, payment card association rules and obligations make us liable to payment card issuers if information in connection with payment cards and payment card transactions that we hold is compromised, the liabilities for which could be substantial.
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These laws, regulations and obligations are increasing in complexity and number, change frequently and may be inconsistent across the various jurisdictions in which we operate. Additionally, the federal government and some states have adopted, are considering or in the future may adopt similar data protection laws. Our systems and the systems maintained or used by third parties and service providers to process data on our behalf may not be able to satisfy these changing legal and regulatory requirements, or may require significant additional investments or time to do so. If we fail to comply with these laws or regulations, we could be subject to significant litigation, monetary damages, regulatory enforcement actions or fines in one or more jurisdictions and we could experience a material adverse effect on our results of operations, financial condition and business.
We expect that stakeholder expectations relating to environmental, social and governance (“ESG”) considerations may expose us to liabilities, increased costs, reputational harm and other adverse effects on our business.
We, along with many governments, regulators, investors, employees, customers and other stakeholders, are increasingly focused on ESG considerations relating to our business, including greenhouse gas emissions, human and civil rights and diversity, equity and inclusion. New laws and regulations in these areas have been proposed and may be adopted, and the criteria used by regulators and other relevant stakeholders to evaluate our ESG practices, capabilities and performance may change rapidly, which in each case could require us to undertake costly initiatives or operational changes. Non-compliance with these emerging rules or standards or a failure to address regulator, stakeholder and societal expectations may result in potential cost increases, litigation, fines, penalties, production and sales restrictions, brand or reputational damage, loss of customers, suppliers and commercial partners, failure to retain and attract talent, lower valuation and higher investor activism activities. In addition, we may make statements about our ESG goals and initiatives through periodic financial and non-financial reports, information provided on our website, press statements and other communications. Managing these considerations and implementing these goals and initiatives involves risks and uncertainties, including increased costs, requires investments and often depends on third-party performance or data that is outside our control. We cannot guarantee that we will achieve any ESG goals and initiatives we may announce, satisfy all stakeholder expectations, or that the benefits of implementing or achieving these goals and initiatives will not surpass their projected costs. Any failure, or perceived failure, to achieve ESG goals and initiatives, as well as to manage ESG risks, adhere to public statements, comply with federal, state or international ESG laws and regulations or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially adversely affect our business, financial condition or results of operations.
We are subject to legal proceedings that may adversely affect our business, financial condition or results of operations.
We are subject to various litigation claims and legal proceedings arising from the ordinary course of our business, including personal injury, customer contract, environmental and employment claims. Certain of these lawsuits or potential future lawsuits, if decided adversely to us or settled by us, may result in liability and expense material to our consolidated financial condition and consolidated results of operations. See “Item 3. Legal Proceedings”.
Risks Related to Our Indebtedness
We have debt obligations that could adversely affect our business and profitability and our ability to meet other obligations.

We entered into a Credit Agreement in fiscal 2023 and completed financing transactions and as a result of such transactions we have approximately $1,500 million of indebtedness. We entered into senior secured financing with a syndicate of banks, financial institutions and/or other institutional lenders, with JPMorgan Chase Bank, N.A. acting as the administrative agent and the collateral agent, in an aggregate amount of $1,800 million, consisting of the Term Loan Facilities and the Revolving Credit Facility. The Term Loan Facilities mature no more than five years from the date thereof. Interest on the loans under the Credit Facilities is to be calculated by reference to the Secured Overnight Financing Rate (“SOFR”) or an alternative base rate, plus an applicable margin, which in the case of any SOFR loan will include a customary spread adjustment. We may also incur additional indebtedness in the future. Refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” for definitions for the Credit Agreement, Term Loan Facilities, Revolving Credit Facility, and Credit Facilities.
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This significant amount of debt could potentially have important consequences to us and our debt and equity investors, including:
requiring a substantial portion of our cash flow from operations to make interest payments, thereby reducing our ability to use our cash flow to fund operations, capital expenditures and future business opportunities;
making it more difficult to satisfy debt service and other obligations;
increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;
increasing our vulnerability to general adverse economic and industry conditions;
reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry;
limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt; and
limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise.
To the extent that we incur additional indebtedness, the foregoing risks could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly and potentially limit our ability to effectively refinance our indebtedness as it matures.

Borrowings under the Credit Facilities bear interest at variable rates and expose us to interest rate risk. If interest rates increase and we do not hedge such variable rates, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed will remain the same, which will negatively impact our net income and operating cash flows, including cash available for servicing our indebtedness.
Additionally, our ability to refinance portions of our indebtedness in advance of their maturity dates depends on securing new financing bearing interest at rates that we are able to service. While we believe that we currently have adequate cash flows to service the interest rates currently applicable to our indebtedness, if interest rates were to continue to rise significantly, we might be unable to maintain a level of cash flows from operating activities sufficient to meet our debt service obligations at such increased rates.

If our financial performance were to deteriorate, we may not be able to generate sufficient cash to service all of our
indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. While we believe that we currently have adequate cash flows to service our indebtedness, if our financial performance were to deteriorate significantly, we might be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If, due to such a deterioration in our financial performance, our cash flows and capital resources were to be insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be
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successful and may not permit us to meet our scheduled debt service obligations. In addition, if we were required to raise additional capital in the current financial markets, the terms of such financing, if available, could result in higher costs and greater restrictions on our business. In addition, if we were to need to refinance our existing indebtedness, the conditions in the financial markets at that time could make it difficult to refinance our existing indebtedness on acceptable terms or at all. If such alternative measures proved unsuccessful, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our Credit Agreement restricts our ability to dispose of assets and use the proceeds from any disposition of assets and to refinance our indebtedness. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

Our Credit Agreement contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and our restricted subsidiaries' ability to, among other things:
incur additional indebtedness, refinance or restructure indebtedness or issue certain preferred shares;
pay dividends on, repurchase or make distributions in respect of our capital stock;
make certain investments;
sell certain assets;
create liens;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and
enter into certain transactions with our affiliates.
In addition, our Credit Agreement requires us to satisfy and maintain specified financial ratios and other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control and, in the event of a significant deterioration of our financial performance, there can be no assurance that we will satisfy those ratios and tests. A breach of any of these covenants could result in a default under the Credit Agreement. Upon our failure to maintain compliance with these covenants that is not waived by the lenders under the Credit Agreement, the lenders under the credit facilities could elect to declare all amounts outstanding under the credit facilities to be immediately due and payable and terminate all commitments to extend further credit under such facilities. If we were unable to repay those amounts, the lenders under the credit facilities could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under the Credit Agreement. If the lenders under the credit facilities accelerate the repayment of borrowings, there can be no assurance that we will have sufficient assets to repay those borrowings, as well as our unsecured indebtedness.

Risks Related to the Separation
We have no history of operating as an independent company, and our historical financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.
The historical information about Vestis in this 10-K refers to Vestis as operated by and integrated with Aramark. The historical financial information of Vestis included in this 10-K is derived from the Combined Financial Statements and accounting records of Aramark. Accordingly, the historical financial information included in this 10-K does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future primarily as a result of the factors described below:
Generally, our working capital requirements and capital for our general corporate purposes, including capital expenditures and acquisitions, have historically been satisfied as part of the corporate-wide cash management
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policies of Aramark. Following the completion of the Separation, our results of operations and cash flows may be more volatile, and we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, which may or may not be available and may be more costly.
Prior to the Separation, our business was operated by Aramark as part of its broader corporate organization, rather than as an independent company. Aramark or one of its affiliates performed various corporate functions for us, such as legal, treasury, accounting, auditing, human resources, information technology, investor relations and finance. Our historical and financial results reflect allocations of corporate expenses from Aramark for such functions, which are likely to be less than the expenses we would have incurred had we operated as a separate publicly traded company.
Historically, our business was integrated with the other businesses of Aramark and our business shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. While Aramark has sought to minimize the impact on us when separating these arrangements, there is no guarantee these arrangements will continue to capture these benefits in the future.
After the Separation, the cost of capital for our business may be higher than Aramark’s cost of capital prior to the Separation.
As an independent public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act and are required to prepare standalone financial statements according to the rules and regulations required by the SEC. These reporting and other obligations will place significant demands on our management and administrative and operational resources. Moreover, to comply with these requirements, we anticipate that we will need to migrate our systems, including information technology systems, implement additional financial and management controls, reporting systems and procedures, and hire additional accounting, finance, and information technology staff. We expect to incur additional annual expenses related to these steps, and those expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, our ability to comply with financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired.
Following the separation, our financial profile has changed, and we are a smaller, less diversified company than Aramark prior to the Separation.
The Separation resulted in us being a smaller, less diversified company than Aramark. As a result, we may be more vulnerable to changing market conditions, which could have a material adverse effect on our business, financial condition or results of operations. In addition, the diversification of our revenues, costs, and cash flows will diminish as a standalone company, such that our results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and our ability to fund capital expenditures and investments, pay dividends and service debt may be diminished. Following the Separation, we may also lose capital allocation efficiency and flexibility, as we no longer have access to cash flow from Aramark to fund our business.
We may not achieve some or all of the expected benefits of the Separation.
We may not be able to achieve the full strategic and financial benefits expected to result from the Separation, or such benefits may be delayed or not occur at all. The Separation is expected to provide the following benefits, among others: (1) permitting us to more effectively pursue the distinct operating priorities and strategies of our respective businesses; (2) permitting us to allocate financial resources to meet the unique needs of our own business, which will allow us to intensify our focus on our distinct strategic priorities and to more effectively pursue our own distinct capital structures and capital allocation strategies; (3) allowing us to more effectively articulate a clear investment thesis to attract a long-term investor base suited to our business and facilitate our access to capital by providing investors with a distinct and targeted investment opportunity; (4) creating an independent equity security for Vestis, affording us direct access to the capital markets and enabling us to use our own industry-focused stock to consummate future acquisitions or other transactions; and (5) permitting us to more effectively recruit, retain and motivate employees through the use of stock-based compensation that more closely reflects and aligns management and employee incentives with specific growth
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objectives, financial goals and business performance and allows incentive structures and targets to be better aligned with our business.
We may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (1) the Separation will demand significant management resources and require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business; (2) following the Separation, we may be more susceptible to market fluctuations and other adverse events than if we were still a part of Aramark because our business will be less diversified than Aramark’s businesses prior to the completion of the Separation; (3) after the Separation, as a standalone company, we may be unable to obtain certain goods, services and technologies at prices or on terms as favorable as those Aramark obtained prior to completion of the Separation; (4) the Separation may require us to pay costs that could be substantial and material to our financial resources, including accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management and personnel new to us, tax costs and costs to separate information systems; and (5) under the terms of the tax matters agreement that we entered into with Aramark, we will be restricted from taking certain actions that could cause the Separation or certain related transactions to fail to qualify as tax-free to Aramark and Aramark stockholders, or could result in certain other taxes to Aramark, and these restrictions may limit us for a period of time from pursuing certain strategic transactions and equity issuances or engaging in other transactions that might increase the value of our business. If we fail to achieve some or all of the benefits expected to result from the Separation, or if such benefits are delayed, it could have a material adverse effect on our competitive position, cash flows and our business, financial condition or results of operations.
If we are unable to replace the services that Aramark currently provides to us under the transition services agreement on terms that are at least as favorable to us as the terms on which Aramark is providing such services, our business, financial condition or results of operations could be adversely affected.
We will engage in the process of creating our own, or engaging third parties separate from Aramark to provide, systems and services to replace many of the systems and services that Aramark currently provides to us under the transition services agreement, including, for example, information technology infrastructure and systems and accounting and reporting systems. We may incur temporary interruptions in business operations if we cannot transition effectively from Aramark’s existing operating systems, databases and programming languages that support these functions to our own systems. The failure to implement the new systems and transition data successfully and cost-effectively could disrupt our business operations and have a material adverse effect on our profitability. In addition, our costs for the operation of these systems may be higher than the amounts reflected in our historical Combined Financial Statements.
Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we are subject as a standalone publicly traded company following the Separation.
Our financial results previously were included within the consolidated results of Aramark. We were not directly subject to the reporting and other requirements of the Exchange Act. As a result of the Separation, we are directly subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of Sarbanes-Oxley Act, which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These reporting and other obligations place significant demands on our management and administrative and operational resources, including accounting resources.
Moreover, in connection with our compliance with these requirements, we are migrating our systems, including information technology systems, implementing additional financial and management controls, reporting systems and procedures and hiring additional accounting and finance staff. We are incurring additional annual expenses related to these steps, and these expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our cash flows and our business, financial condition or results of operations.
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We are repositioning our brand to remove the Aramark name, which could adversely affect our ability to attract and maintain customers.
We have historically marketed our products and services using the “Aramark” name and logo, which is a globally recognized brand with a strong reputation for high-quality products and services. Following the Separation, subject to limited exceptions, we are repositioning our brand and update, as applicable, our products and services using the “Vestis” name or other names and marks and removing the “Aramark” name and logo on our products and discontinuing its use in connection with our service offerings. These new names and brands may not benefit from the same recognition and association with product quality as the Aramark name, which could adversely affect our ability to attract and maintain our customers, who may prefer to use products with a more established brand identity.
We may be affected by restrictions under the tax matters agreement, including on our ability to engage in certain corporate transactions for a two-year period after the Separation, in order to avoid triggering significant tax-related liabilities.
Under current U.S. federal income tax law, a spin-off that otherwise qualifies for tax-free treatment can be rendered taxable to the parent corporation and its stockholders as a result of certain post-spin-off transactions, including certain acquisitions of shares or assets of the spun-off corporation. Under the tax matters agreement that we entered into with Aramark, we are restricted from taking certain actions that could prevent the Separation and certain related transactions from being tax-free for U.S. federal income tax purposes. In particular, under the tax matters agreement, for the two-year period following the Separation we are subject to specific restrictions on our ability to pursue or enter into acquisition, merger, sale and redemption transactions with respect to our stock. These restrictions may limit our ability to pursue certain strategic transactions or other transactions that we may believe to be in the best interests of our stockholders or that might increase the value of our business. In addition, under the tax matters agreement, we may be required to indemnify Aramark and its affiliates against any tax-related liabilities incurred by them as a result of the acquisition of our stock or assets, even if we do not participate in or otherwise facilitate the acquisition. Furthermore, we are subject to specific restrictions on discontinuing the active conduct of our trade or business, the issuance or sale of stock or other securities (including securities convertible into our stock but excluding certain compensatory arrangements), and sales of assets outside the ordinary course of business. Such restrictions may reduce our strategic and operating flexibility.
We may be held liable to Aramark if we fail to perform under our agreements with Aramark which may negatively affect our business, financial condition or results of operations.
In connection with the Separation, the Company and Aramark entered into various agreements, including a separation and distribution agreement, a transition services agreement, a tax matters agreement, an employee matters agreement and other transaction agreements. If we do not satisfactorily perform our obligations under these agreements, we may be held liable for any resulting losses suffered by Aramark, subject to certain limits.

Our agreements with Aramark may be on terms that are less beneficial to us than the terms may have otherwise been from unaffiliated third parties.
The agreements that we entered into with Aramark in connection with the Separation include the separation and distribution agreement, a transition services agreement, a tax matters agreement, an employee matters agreement and other transaction agreements. These agreements were prepared in the context of the Separation while we were still a wholly owned subsidiary of Aramark. Accordingly, during the period in which the terms of those agreements were prepared, we did not have an independent Board of Directors or a management team that was independent of Aramark. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties.
If there is a determination that the Separation or certain related transactions are taxable for U.S. federal income tax purposes, we could incur significant liabilities pursuant to our indemnification obligations under the tax matters agreement.
Aramark received a private letter ruling from the IRS and opinions of its outside tax advisors, in each case, satisfactory to the Aramark Board of Directors, regarding certain U.S. federal income tax matters relating to the Separation. The opinion of its outside tax advisors was based upon and relied on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of Aramark and us, including facts, assumptions, representations, statements and undertakings relating to the past and future conduct of the companies’ respective businesses
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and other matters. If any of these facts, assumptions, representations and statements were or become inaccurate or incomplete, or if any such undertaking is not complied with, Aramark may not be able to rely on the opinions of its outside tax advisors, and the conclusions reached therein could be jeopardized.
Notwithstanding Aramark’s receipt of the opinions of its outside tax advisors, the IRS could determine on audit that the Separation or certain related transactions are taxable for U.S. federal income tax purposes if it determines that any of the facts, assumptions, representations, statements and undertakings upon which the opinions were based are incorrect or have been violated, or if it disagrees with any of the conclusions in the opinions. Accordingly, notwithstanding Aramark’s receipt of the opinions of its outside tax advisors, there can be no assurance that the IRS will not assert that the Separation or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes, or that a court would not sustain such a challenge. In the event the IRS were to prevail in such a challenge, Aramark and Aramark’s stockholders could incur significant tax liabilities. Under the tax matters agreement that we entered into with Aramark, we generally will be required to indemnify Aramark for any taxes incurred by Aramark that arise as a result of (i) any representations made by us being inaccurate; (ii) an acquisition of our stock or assets or (iii) any other action undertaken or failure to act by us. Any such indemnification could materially adversely affect our business, financial condition or results of operations.
Satisfaction of indemnification obligations following the Separation could have a material adverse effect on our cash flows and our business, financial condition or results of operations.
Pursuant to the separation and distribution agreement and certain other agreements we entered into with Aramark in connection with the Separation, Aramark agrees to indemnify us for certain liabilities, and we agree to indemnify Aramark for certain liabilities. Indemnities that we will be required to provide Aramark could negatively affect our business.
The indemnity from Aramark may not be sufficient to protect us against the full amount of such liabilities if, for example, Aramark is not able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Aramark any amounts for which we are held liable, we may be temporarily required to bear these losses ourself, requiring us to divert cash that would otherwise have been used in furtherance of our operating business. In addition, third parties could also seek to hold us responsible for any of the liabilities that Aramark has agreed to retain. Each of these risks could have a material adverse effect on our cash flows and our business, financial condition or results of operations.
There can be no assurance that we will have access to the capital markets on terms acceptable to us.
From time to time we may need to access the long-term and short-term capital markets to obtain financing. Although we believe that the sources of capital in place at the time of the separation will permit us to finance our operations for the foreseeable future on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including, but not limited to: (1) our financial performance; (2) our credit ratings or absence of a credit rating; (3) the liquidity of the overall capital markets; and (4) the state of the economy. There can be no assurance, particularly as a new company, that we will have access to the capital markets on terms acceptable to us.
As an independent, publicly traded company, we do not enjoy the same benefits that we did as a part of Aramark.
As a result of the Separation, we are more susceptible to market fluctuations and other adverse events than we would have been if we were still a part of the Aramark organizational structure. As part of Aramark, we were able to enjoy certain benefits from Aramark’s operating diversity, size, purchasing power, cost of capital, and opportunities to pursue integrated strategies with Aramark’s other businesses. As an independent, publicly traded company, we do not have the same benefits. Additionally, as part of Aramark, we were able to leverage Aramark’s historical reputation, performance and brand identity to recruit and retain key personnel to run and operate our business. As an independent, publicly traded company, we will need to develop new strategies, and it may be more difficult for us to recruit or retain such key personnel.
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Risks Related to our Common Stock
Your percentage of ownership in Vestis may be diluted in the future.
In the future, your percentage ownership in Vestis may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including any equity awards that we will grant to our directors, officers and employees. Our employees have stock-based awards that correspond to shares of our common stock after the Separation as a result of conversion of their Aramark stock-based awards and have been issued new Vestis stock awards. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. From time to time, we will issue additional stock-based awards to our employees under our employee benefits plans.

We cannot guarantee the timing, declaration, amount or payment of dividends on our common stock.

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. However, the timing, declaration, amount and payment of any future dividends will continue to be within the discretion of our Board of Directors, and will depend upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with certain of our debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets and other factors deemed relevant by our Board of Directors. The aggregate amount of dividends paid by us and Aramark may differ from historical dividends paid by Aramark due to, among other matters, changes in the level of cash generated by our operations and changes in our capital needs. Moreover, there can be no assurance that we will continue to pay such dividends or the amount of such dividends.
Anti-takeover provisions could enable our Board of Directors to resist a takeover attempt by a third party and limit the power of our stockholders.
Our amended and restated certificate of incorporation and amended and restated bylaws contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids too expensive to the bidder and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover. These provisions are, among others:
until the third annual stockholder meeting following the Separation, our Board of Directors will be divided into three classes, with each class consisting, as nearly as may be possible, of one-third of the total number of directors, which could have the effect of making the replacement of incumbent directors more time consuming and difficult;
as long as the Board of Directors is classified, our directors can be removed by stockholders only for cause
vacancies occurring on the Board of Directors can only be filled by a majority of the remaining members of our Board of Directors or by a sole remaining director;
for two years following the Separation, stockholders do not have the right to call a special meeting;
stockholders do not have the ability to act by written consent;
our Board of Directors has the power to designate and issue, without any further vote or action by the our stockholders, shares of preferred stock from time to time in one or more series; and
stockholders have to follow certain procedures and notice requirements in order to present certain proposals or nominate directors for election at stockholder meetings.
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which could have the effect of delaying or preventing a change of control that you may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with persons that acquire, more than 15% of the outstanding voting stock of a Delaware corporation may not engage in a business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or any of its affiliates becomes the holder of more than 15% of the corporation’s outstanding voting stock.

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We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board of Directors and by providing the Board with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers; however, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board of Directors determines is not in the best interests of Vestis and its stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors. In addition, an acquisition or further issuance of our common stock could trigger the application of Section 355(e) of the Code, causing the Separation to be taxable to Aramark. Under the tax matters agreement, we are required to indemnify Aramark for the resulting tax, and this indemnity obligation might discourage, delay or prevent a change of control that our stockholders may consider favorable.
Our amended and restated certificate of incorporation designate the state courts within the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Vestis stockholders, which could discourage lawsuits against Vestis and our directors and officers.
Our amended and restated certificate of incorporation provides that, unless we (through approval of our Board of Directors) consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (1) any derivative action brought on behalf of Vestis, (2) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of Vestis to Vestis or Vestis’s stockholders, (3) any action asserting a claim against Vestis or any director or officer or other employee of Vestis arising pursuant to, or seeking to enforce any right, obligation or remedy under, any provision of the Delaware General Corporation Law (the “DGCL”) or Vestis’s amended and restated certificate of incorporation or amended and restated bylaws (as either may be amended from time to time), (4) any action asserting a claim against Vestis or any director or officer or other employee of Vestis governed by the internal affairs doctrine, which is a conflict of laws principle which recognizes that only one state should have the authority to regulate a corporation’s internal affairs or (5) any action as to which the DGCL (as it may be amended from time to time) confers jurisdiction on the Court of Chancery of the State of Delaware. If and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state court sitting in the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware). This exclusive forum provision applies to all covered actions, including any covered action in which the plaintiff chooses to assert a claim or claims under federal law in addition to a claim or claims under Delaware law. However, the exclusive forum provision does not apply to actions asserting only federal law claims under the Securities Act or the Exchange Act, regardless of whether the state courts in the State of Delaware have jurisdiction over those claims. Although we believe the exclusive forum provision benefits us by providing increased consistency in the application of law in the types of lawsuits to which it applies, the provision may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with Vestis or its directors or officers, and it may be costlier for our stockholders to bring a claim in the Court of Chancery of the State of Delaware than other judicial forums, each of which may discourage such lawsuits against Vestis and its directors and officers.
Although our amended and restated certificate of incorporation includes this exclusive forum provision, it is possible that a court could rule that this provision is inapplicable or unenforceable. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect our business, financial condition or results of operations.
Item 1B.    Unresolved Staff Comments.

None.
Item 2.    Properties.
Our principal executive offices are currently leased at 500 Colonial Center Parkway, Suite 140, Roswell, GA 30076. As of September 29, 2023, we operated 367 sites including laundry plants, satellite plants, distribution centers and manufacturing plants that are located across the United States, Canada, and Mexico. We own 191 buildings, including distribution centers and satellite plants. We own 162 buildings in the United States and 29 buildings in Canada. We lease 176 premises, consisting of offices, laundry plants, satellite plants, manufacturing plants, and distribution centers. We lease 163 premises in the United States and 13 premises in Canada. No individual parcel of real estate owned or leased is of material significance to our total assets.
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Item 3.    Legal Proceedings.

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. We believe we have numerous defenses and intend to continue to vigorously defend the action. We cannot predict the outcome of this legal matter, nor can we predict whether any outcome will have a material adverse effect on our combined statements of income and/or combined statements of cash flows. Accordingly, we have made no provisions for this legal matter in our combined financial statements.
Item 4.    Mine Safety Disclosures.

Not applicable.
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PART II
Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information
Shares of our common stock began regular-way trading on October 2, 2023 and are quoted on the NYSE under the ticker symbol “VSTS.” Prior to October 2, 2023 there was no public market for our common stock. As of November 30, 2023, there were approximately 798 holders of record of our outstanding common stock. This does not include persons who hold our common stock in nominee or “street name” accounts through brokers or banks. From October 2, 2023 through November 30, 2023, the highest sales price for our common stock on the NYSE was $19.31 per share, and the lowest sales price for our common stock on the NYSE was $13.83 per share.

Dividends
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. However, the timing, declaration, amount and payment of any future dividends will continue to be within the discretion of our Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with certain of our debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets and other factors deemed relevant by our Board of Directors. There can be no assurance that we will continue to pay such dividends or the amount of such dividends.

Securities Authorized for Issuance Under Equity Compensation Plans
As of September 29, 2023, we did not maintain an equity compensation plan and none of our securities were available for issuance under an equity compensation plan. While the Board of Directors adopted the Vestis Corporation 2023 Long-Term Incentive Plan in connection with the Spin-Off, no awards under it were outstanding as of September 29, 2023. Accordingly, no equity compensation plan information table is provided.
Item 6.    [ Reserved ].
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of Vestis Corporation’s (“Vestis”, the “Company”, “our”, “we” or “us”) financial condition and results of operations for the fiscal years ended September 29, 2023 and September 30, 2022 should be read in conjunction with our audited Combined Financial Statements and the notes to those statements. For additional information on the year ended October 1, 2021 and year-over-year comparisons to September 30, 2022, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-12B/A filed with the Securities and Exchange Commission (“SEC”) on September 6, 2023.

This discussion contains forward-looking statements, such as our plans, objectives, opinions, expectations, anticipations, intentions, and beliefs, that are based upon our current expectations but that involve risks and uncertainties. Actual results and the timing of events could differ materially from those anticipated in those forward-looking statements as a result of a number of factors, including those set forth under “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and “Business” sections and elsewhere in this Annual Report on Form 10-K (“Annual Report”).
All amounts discussed are in thousands of U.S. dollars, except where otherwise indicated.
Company Overview
We are a leading provider of uniforms and workplace supplies across the United States and Canada, with over 75 years of experience in the workplace apparel and supplies industry. We provide a full range of uniform programs, managed restroom supply services, first aid supplies and safety products, as well as ancillary items such as floor mats, towels, and linens, to more than 300,000 customer locations across the United States and Canada. We compete with national, regional, and local providers who vary in size, scale, capabilities and product and service offering. Primary methods of competition include product quality, service quality and price. Notable competitors of size include Cintas Corporation and UniFirst Corporation, as well as numerous regional and local competitors. Additionally, many businesses
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perform certain aspects of our product and service offerings in-house rather than outsourcing them and leveraging the benefits of full-service programs.
With approximately 20,000 employees, we operate a network of over 350 facilities including laundry plants, satellite plants, distribution centers and manufacturing plants along with a fleet of service vehicles that support over 3,400 pick-up and delivery routes. We have two manufacturing facilities in Mexico with approximately 189,000 square feet of manufacturing capacity between both plants that produce approximately 50% of our uniforms and linens products. We source raw materials, finished goods, equipment, and other supplies from a variety of domestic and international suppliers. We leverage our broad footprint, supply chain, delivery fleet and route logistics capabilities to serve customers on a recurring basis, typically weekly, and primarily through multi-year contracts.
Our full-service uniform offering (“Uniforms”) includes the design, sourcing, manufacturing, customization, personalization, delivery, laundering, sanitization, repair, and replacement of uniforms. Our uniform options include shirts, pants, outerwear, gowns, scrubs, high visibility garments, particulate-free garments, and flame-resistant garments, along with shoes and accessories. We service our customers on a recurring rental basis, typically weekly, delivering clean uniforms while, during the same visit, picking up worn uniforms for inspection, cleaning and repair or replacement. In addition to our weekly, recurring customer contracts, we offer customized uniforms through direct sales agreements, typically for large, regional, or national companies.
In addition to Uniforms, we also provide workplace supplies (“Workplace Supplies”) including managed restroom supply services, first aid supplies and safety products, floor mats, towels, and linens. Similar to our uniform offering, on a recurring rental basis, generally weekly, we pick up used and soiled floor mats, towels and linens, replacing them with clean products. We also restock restroom supplies, first aid supplies and safety products as needed.
We manage and operate our business in two reportable segments, United States and Canada. Both segments provide Uniforms and Workplace Supplies, as described above, to customers within their specific geographic territories.
Separation from and Relationship with Aramark
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 our outstanding common stock to stockholders of record of Aramark’s common stock as of the close of business on September 20, 2023. Aramark stockholders of record received one share of Vestis common stock for every two shares of common stock, par value $0.01, of Aramark.
Following the separation, certain functions that Aramark provided to us prior to the separation will continue to be provided to us by Aramark under a transition services agreement.
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 Vestis. 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 SEC. The assets, liabilities, revenue, and expenses of Vestis have been reflected in these Combined Financial Statements on a historical cost basis, as included in the Combined Financial Statements of Aramark, using the historical accounting policies applied by Aramark. Historically, separate financial statements have not been prepared for Vestis and it has not operated as a standalone business from Aramark. The historical results of operations, financial position and cash flows of Vestis presented in these Combined Financial Statements may not be indicative of what they would have been had we been an independent standalone public company, nor are they necessarily indicative of our future results of operations, financial position, and cash flows.
Our business has historically functioned together with other Aramark businesses. Accordingly, we relied on certain of Aramark’s corporate support functions to operate. The Combined Financial Statements include all revenues and costs directly attributable to us and an allocation of expenses related to certain Aramark corporate functions. These expenses have been allocated to us on the basis of direct usage where identifiable, with the remainder allocated on a pro rata basis of revenues, headcount or other drivers. We consider these allocations to be a reasonable reflection of the
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utilization of services or the benefit received. However, the allocations may not be indicative of the actual expense that would have been incurred had we operated as an independent, standalone public entity, nor are they indicative of our future expenses.
The Combined Financial Statements include assets and liabilities that have been determined to be specifically identifiable or otherwise attributable to us.
Our cash flows within the United States segment are transferred to Aramark regularly as part of Aramark’s centralized cash management program. Our 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 us and therefore were not allocated to any of the periods presented. Only cash amounts specifically attributable to us 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.
Aramark’s long-term borrowings and related interest expense, exclusive of certain financing lease obligations, have not been attributed to us for any of the periods presented because the borrowings are neither directly attributable to us nor are we the primary legal obligor of such borrowings. However, as of September 29, 2023, we incurred indebtedness in an aggregate principal amount of $1,500 million, which have been included in the Combined Financial Statements (see Note 4. Borrowings to our Combined Financial Statements).
All intercompany transactions and balances within Vestis have been eliminated. Transactions between us 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 Investments to our Combined Financial Statements).
The “Provision for Income Taxes” in the Combined Statements of Income has been calculated as if we filed a separate tax return and were 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 our actual tax balances prior to or subsequent to the distribution.
Sources of Revenue
We generate and recognize over 93% of our total revenue from route servicing contracts on both Uniforms, which we generally manufacture, 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). We generate the remaining revenue primarily from the direct sale of uniforms to customers, with such revenue being recognized when the related 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 we expect 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.
Costs and Expenses
Our costs and expenses are comprised of cost of services provided (exclusive of depreciation and amortization) (hereafter referred to as “cost of services provided”), depreciation and amortization and selling, general and administrative expenses.
Cost of services provided includes the costs associated with the recurring pickup, processing and delivery of products to rental customers, the amortized cost of merchandise in service for the rental business, and the cost of products sold to customers through our direct sales offerings.
Depreciation and amortization expense reflects the cost of investments in our manufacturing plants, processing facilities, distribution centers and technology capabilities, and the amortization of intangible assets related to acquisitions. More specifically, depreciation expense is related to processing operation assets such as washers, dryers, steam tunnels and related equipment, distribution centers and related product handling and storage equipment, company-owned and financed delivery vehicles, information technologies and other assets for which we expect to receive an economic benefit for greater than one year. The cost of these investments is depreciated on a straight-line basis over three to 40 years based upon the estimated useful life of the asset.
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Selling, general and administrative expenses include costs attributable to our sales team and the administrative functions required to support our customers and our team members.
Interest Expense and Other, net, is primarily comprised of interest expense recognized on financing leases, our share of the financial results for equity method investments and interest expense incurred under our Credit Agreement.
Provision for Income Taxes
The Provision for Income Taxes represents federal, foreign, state, and local income taxes. Our effective tax rate differs from the statutory United States income tax rate due to the effect of state and local income taxes, the tax rate in Canada where we have operations, nontaxable gain on the sale of our equity investment in Sanikleen, a Japanese linen supply company, tax credits and certain nondeductible expenses.
Foreign Currency Fluctuations
The impact from foreign currency translation assumes constant foreign currency exchange rates based on the rates in effect for the prior fiscal year period being used in translation for the comparable current year period. We believe that providing the impact of fluctuations in foreign currency rates on certain financial results can facilitate analysis of period-to-period comparisons of business performance.
Fiscal Year
Our 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.
Key Trends Affecting Our Results of Operations
We serve the uniforms, mats, towels, linens, restroom supplies, first-aid supplies and safety products industry within the United States and Canada. This includes businesses that outsource these services through rental programs or direct purchases, as well as non-programmers, or businesses that maintain these services in-house. We believe that demand in this industry is largely influenced by macro-economic conditions, employment levels, increasing standards for workplace hygiene and safety and an ongoing trend of businesses outsourcing non-core, back-end operations. As a result of the diversity of our customers and the wide variety of industries in which they participate, demand for our products and services is not specifically linked to the cyclical nature of any one sector.
Recent global events, including the COVID-19 pandemic, have 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 our financial and operating results beginning in the second quarter of fiscal 2020 through the first half of fiscal 2021. Our 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 reopened.
In addition, the ongoing conflict between Russia and Ukraine and the recent Israel-Hamas War, regions in which we do not have direct operations, further disrupted global supply chains and heightened volatility and disruption of global financial markets. The ongoing volatility and disruption of financial markets caused by these global events, as well as other current global economic factors, triggered inflation in labor and energy costs and has driven significant changes in foreign currencies. The impact on our longer-term operational and financial performance will depend on future developments, including our response and governmental response to inflation, the duration and severity of the ongoing volatility and disruption of global financial markets and our ability to effectively hire and retain personnel. Some of these future developments are outside of our control and are highly uncertain.
We continue to remain principally focused on the safety and well-being of our employees, customers, and everyone we serve, while simultaneously taking timely, proactive measures to adapt to the current environment. Throughout fiscal 2022, we saw continued improved profitability from customers reopening as COVID-19 restrictions eased as well as from effective management of operating costs and pricing including temporary fees to mitigate the effects of elevated inflation. We continue to evaluate and react to the effects of a prolonged global disruption, including items such as inflationary pressures on product and energy costs and greater labor challenges. These challenges have continued to impact our business during fiscal 2023. Our actions to mitigate the effects of inflation in fiscal 2022 and fiscal 2023 included operating cost reductions, reductions in discretionary spending and reductions in our non-operational footprint,
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along with the implementation of targeted and strategic price increases under the terms of our customer contracts. We do not know whether we will be able to mitigate any future impacts of inflation with further increases in pricing for our goods and services. We continue to evaluate and react to take appropriate actions to mitigate the risk in these areas. See “Risk Factors—Operational Risks—Unfavorable economic conditions have in the past adversely affected, are currently affecting and in the future could adversely affect our business, financial condition or results of operations.”
Results of Operations
Fiscal 2023 Compared to Fiscal 2022
The following table presents an overview of our results on a combined basis with the amount of and percentage change between periods for the fiscal years 2023 and 2022 (dollars in thousands).
Fiscal Year Ended Change Change
September 29, 2023 September 30, 2022 $ %
Revenue $ 2,825,286  $ 2,687,005  $ 138,281  5.1  %
Operating Expenses:
Cost of services provided(1)
1,970,215  1,909,676  60,539  3.2  %
Depreciation and amortization 136,504  134,352  2,152  1.6  %
Selling, general and administrative expenses 500,658  450,734  49,924  11.1  %
Total Operating Expenses 2,607,377  2,494,762  112,615  4.5  %
Operating Income 217,909  192,243  25,666  13.4  %
Gain on Sale of Equity Investment, net (51,831) —  (51,831) (100.0  %)
Interest Expense and Other, net 10  2,284  (2,274) (99.6  %)
Income Before Income Taxes 269,730  189,959  79,771  42.0  %
Provision for Income Taxes 56,572  48,280  8,292  17.2  %
Net Income $ 213,158  $ 141,679  $ 71,479  50.5  %
______________________
(1)Exclusive of depreciation and amortization
Consolidated revenue of $2,825.3 million increased 5.1% in fiscal 2023 compared to the prior fiscal year. This increase was driven by sales volume growth and pricing actions, partially offset by the approximately $14.5 million negative impact of foreign currency exchange rates between years. Sales volume growth contributed approximately $77.7 million to the increase. Pricing accounted for the remainder of the increase, including actions taken to offset the impact of inflationary pressures and increased merchandise amortization on sales growth. This includes the impact of a temporary energy fee implemented late in the second quarter of fiscal 2022, continuing through the second quarter of fiscal 2023. The revenue from the temporary energy fee was $26 million in both fiscal 2022 and fiscal 2023.
Cost of services provided increased 3.2% in fiscal 2023 compared to the prior fiscal year primarily due to approximately $31.1 million of incremental amortization of rental merchandise in service assets and due to roughly $30.8 million of higher labor and energy costs from the continuation of inflationary pressures.
Selling, general and administrative expenses increased 11.1% in fiscal 2023 compared to the prior fiscal year. The increase was primarily attributable to non-cash charges for the impairment of operating lease right-of-use assets and other costs ($7.7 million), incremental personnel and other expenses related to Aramark’s intention to spin off its Uniforms segment ($27.1 million), severance charges ($7.6 million), incremental charges for bad debt ($9.3 million), and incremental personnel costs related to merit and inflation ($5.0 million), partially offset by a gain on the sale of land ($6.8 million) recorded in fiscal 2023 and savings from severance actions in fiscal 2023 ($3.3 million).

Operating income of $217.9 million increased 13.4% in fiscal 2023 compared to the prior fiscal year driven by the growth in revenue offset by higher costs of services provided and selling, general and administrative expenses as noted above.
Operating income as a percentage of revenue (“operating income margin”) increased from 7.2% in fiscal 2022 to 7.7% in fiscal 2023, an improvement of approximately 50 basis points.
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Gain on Sale of Equity Investments, net increased $51.8 million in fiscal 2023 from the prior fiscal year. The increase was driven by the sale of our equity investment in Sanikleen, a Japanese linen supply company, for approximately $51.9 million.

Interest Expense and Other, net, decreased $2.3 million in fiscal 2023 from the prior fiscal year.
The provision for income taxes for fiscal 2023 was recorded at an effective rate of 21.0% compared to an effective rate of 25.4% in fiscal 2022. The lower effective tax rate was primarily due to a nontaxable gain on the sale of our equity investment in Sanikleen in fiscal 2023.
Net income of $213.2 million in fiscal 2023 represented an increase of $71.5 million, or 50.5% compared to the prior fiscal year.
Results of Operations—United States Results
Fiscal 2023 Compared to Fiscal 2022
The following table presents an overview of our United States reportable segment results with the amount of and percentage change between periods for the fiscal years 2023 and 2022 (dollars in thousands).
Fiscal Year Ended Change Change
September 29, 2023 September 30, 2022 $ %
Revenue $ 2,575,352  $ 2,447,027  $ 128,325  5.2  %
Segment Operating Income 303,762  242,971  60,791  25.0  %
Segment Operating Income % 11.8  % 9.9  %
United States revenue increased 5.2% in fiscal 2023 compared to the prior fiscal year. This increase was driven by sales volume growth and pricing actions. Sales volume growth in the U.S. contributed approximately $64.4 million to the increase. Pricing in the U.S. accounted for the remainder of the increase, including actions taken to offset the impact of inflationary pressures and increased merchandise amortization on sales growth. This includes the impact of a temporary energy fee implemented late in the second quarter of fiscal 2022, continuing through the second quarter of fiscal 2023. The revenue from the temporary energy fee was $26 million in both fiscal 2022 and fiscal 2023. Uniforms revenue for fiscal 2023 of approximately $1,068 million was essentially flat relative to fiscal 2022. Workplace Supplies revenue for fiscal 2023 of approximately $1,508 million increased roughly $128 million, or 9.3%, relative to fiscal 2022.
Segment operating income of $303.8 million in fiscal 2023 increased 25.0% compared to the prior fiscal year, primarily driven by:
an approximate $118.8 million increase in operating income from the higher year-over-year revenue during fiscal 2023 relative to the prior fiscal year;
an approximate $14.0 million in savings from permanent cost reduction actions taken earlier in fiscal year 2023; and
a $6.8 million gain on the sale of real estate property during fiscal 2023; partially offset by:
incremental labor and energy costs of approximately $47.2 million linked to a significant inflationary environment;
an approximate $27.1 million increase in rental merchandise amortization associated with incremental investments made in rental merchandise to support sales growth as we exited the COVID-19 pandemic;
severance costs of $7.6 million during fiscal 2023.
Segment operating income margin improved approximately 190 basis points from 9.9% in fiscal 2022 to approximately 11.8% in fiscal 2023.
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Results of Operations—Canada Results
Fiscal 2023 Compared to Fiscal 2022
The following table presents an overview of our Canada reportable segment results with the amount of and percentage change between periods for the fiscal years 2023 and 2022 (dollars in thousands).
Fiscal Year Ended Change Change
September 29, 2023 September 30, 2022 $ %
Revenue $ 249,934  $ 239,978  $ 9,956  4.1  %
Segment Operating Income 13,707  18,008  (4,301) (23.9) %
Segment Operating Income % 5.5  % 7.5  %
Canada revenue increased 4.1% in fiscal 2023 compared to the prior fiscal year was driven by sales volume growth and pricing, offset by an approximate $14.4 million negative impact of foreign currency exchange rates between years. Uniforms revenue for fiscal 2023 of approximately $100 million was essentially flat relative to fiscal 2022. Workplace Supplies revenue for fiscal 2023 of approximately $150 million increased roughly $11 million, or 7.6%, relative to fiscal 2022.
Segment operating income of 13.7 million decreased 23.9% in fiscal 2023 compared to the prior fiscal year primarily driven by:
incremental labor and energy costs of approximately $7.2 million linked to a significant inflationary environment; and
an approximate $4.2 million increase in rental merchandise amortization associated with incremental investments made in rental merchandise to support sales growth as we exited the COVID-19 pandemic; partially offset by:
an approximate $7.2 million increase in operating income from the higher year-over-year revenue during fiscal 2023 relative to the prior fiscal year.
Segment operating income margin decreased approximately 200 basis points from 7.5% in fiscal 2022 to 5.5% in fiscal 2023.
Liquidity and Capital Resources
Overview
Historically, our business generated positive cash flows from operations. Cash flows within our United States operations were transferred to Aramark regularly as part of Aramark’s centralized cash management program. This arrangement was used to manage liquidity of Aramark and fund the operations of our business as needed. This arrangement is not indicative of how we would have funded our operations had we been a standalone company separate from Aramark during the periods presented. Cash transferred to and from Aramark’s cash management accounts are reflected within net parent investment as a component of Aramark’s equity.
The cash and cash equivalents held by Aramark at the corporate level were not specifically identifiable to us and therefore were not allocated to any of the periods presented. The majority of our cash and cash equivalents balance is from our Canadian operations. Third-party debt and the related interest expense of Aramark has not been allocated to us for any of the periods presented because Aramark’s borrowings were not directly attributable to our standalone business.

On September 29, 2023, we entered into a senior secured financing in an aggregate amount of $1,800 million, consisting of the Term Loan Facilities and the Revolving Credit Facility. The Term Loan Facilities consist of a United States dollar denominated term loan A-1 tranche in the amount of $800 million (the "Term Loan A-1”), and a United States dollar denominated term loan A-2 tranche in the amount of $700 million (the "Term Loan A-2" and, together with the Term Loan A-1, the “Term Loan Facilities”). 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. Additionally, the Revolving Credit Facility is available for loans in United States dollars and Canadian dollars with aggregate commitments of $300 million (the “Revolving Credit Facility” and, together with the Term Loan Facilities, the “Credit Facilities”).

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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. Borrowings under the Credit Facilities will bear interest at rates calculated by reference to the Secured Overnight Financing Rate (“SOFR”) or the Base Rate (as defined in the definitive credit agreement entered into with respect to the Credit Facilities (the “Credit Agreement”)), at the option of the Company, plus a margin, which initially will be 2.25% for SOFR loans and 1.25% for Base Rate loans and thereafter will fluctuate based on the Company’s total net leverage ratio.

The Company’s obligations under the Credit Facilities are guaranteed by the Company’s existing and future wholly owned domestic material subsidiaries, subject to certain customary exceptions. Borrowings under the Credit Facilities are secured by first priority liens on substantially all the assets of the Company and the guarantors, subject to certain customary exceptions.

On September 29, 2023, concurrent with consummation of the Separation, we made a cash distribution of approximately $1,457 million to Aramark.

As of September 29, 2023, we had approximately $36 million of cash and cash equivalents and $300 million of availability for borrowing under the Revolving Credit Facility.
The table below summarizes our cash activity (in thousands):
Fiscal Year Ended
September 29, 2023 September 30, 2022
Net cash provided by operating activities $ 256,977  $ 232,847 
Net cash used in investing activities (14,746) (86,133)
Net cash used in financing activities (230,269) (162,543)
Reference to the audited Combined Statements of Cash Flows will facilitate understanding of the discussion that follows.
Cash Flows Provided by Operating Activities
Net cash provided by operating activities was $257.0 million during fiscal 2023 and $232.8 million during fiscal 2022, respectively. The change was driven by net income in fiscal 2023 of $213.2 million compared to net income in fiscal 2022 of $141.7 million, as discussed in "Results of Operations" above, and unfavorable non-cash adjustments to net income between fiscal years of $77.3 million, which were primarily driven by a $26.1 million inventory charge in fiscal 2022 that did not recur in fiscal 2023 and due to a $51.8 million gain on sale of an equity investment in fiscal 2023. The change in net income inclusive of non-cash adjustments was offset by the change in cash from operating assets and liabilities of $30.0 million, which was primarily due to:

Increase in operating cash flows during fiscal 2023 compared to fiscal 2022 due to the lower use of cash for rental merchandise in-service of $36.9 million as the result of the prior year period operations returning following the lifting of COVID-19 restrictions;
Increase in operating cash flows during fiscal 2023 compared to fiscal 2022 due to the lower use of cash from accounts receivables of $30.2 million as the prior year period had a higher use of cash from operations returning following the lifting of COVID-19 restrictions. Both periods were impacted by base and new business growth and timing of collections;
Increase in operating cash flows during fiscal 2023 compared to fiscal 2022 due to a greater source of cash from accrued expenses of $23.5 million primarily due to growth in business operations, higher severance charges recorded in fiscal 2023 and timing of other payments; partially offset by:
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Decrease in operating cash flows during fiscal 2023 compared to fiscal 2022 due to a lower source of cash from accounts payable of $64.3 million primarily due to the timing of disbursements.
Cash Flows Used in Investing Activities
Net cash used in investing activities of $14.7 million during fiscal 2023 was $71.4 million lower during fiscal 2023 relative to fiscal 2022 primarily due to cash proceeds of $51.9 million related to the sale of our Sanikleen equity investment and due to the prior year use of $17.2 million of cash to fund the acquisition of certain businesses.
Cash Flows Used in Financing Activities
During fiscal 2023, cash provided by financing activities was impacted by the following:
• cash receipts related to newly issued debt of ($1,500.0 million);
• cash transferred to Aramark ($1,688.9 million);
• payments related to finance leases ($27.6 million); and
• payments related to debt issuance costs ($13.7 million).
During fiscal 2022, cash used in financing activities was impacted by the following:
• cash transferred to Aramark ($134.5 million); and
• payments related to finance leases ($28.0 million).
Covenant Compliance

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability 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 our subordinated debt; repay or repurchase any subordinated debt, except as scheduled or at maturity; make certain acquisitions; change our fiscal year; and fundamentally change our business. The Credit Agreement contains certain customary affirmative covenants. The Credit Agreement also includes customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable at the option of the lenders, if we fail to comply with the terms of the Credit Agreement or if other customary events occur.

The Credit Agreement requires us 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.

Under the Credit Agreement, we are required to satisfy and maintain specified financial ratios and other financial condition tests and covenants. Our continued ability to meet those financial ratios, tests and covenants can be affected by events beyond our control, and there can be no assurance that we will meet those ratios, tests and covenants.

At September 29, 2023, we were in compliance with all covenants under the Credit Agreement.

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Future Liquidity and Contractual Obligations
We have historically relied on available cash, recurring cash flow provided by operations and Aramark’s centralized cash management program to fund operations. Going forward we will primarily rely on cash and recurring cash flow provided by operations to fund our operations. We also have access to our $300 million Revolving Credit Facility and expect to have access to capital markets for additional funding. The cost and availability of debt financing will be influenced by market conditions and our future credit ratings.
We believe that we will meet known and likely future cash requirements through the combination of cash flows from operating activities, available cash balances, available borrowings under our financing arrangements and access to capital markets.
Following the Separation, our recurring cash needs are primarily directed toward working capital requirements to support ongoing business activities, investments in growth initiatives, capital expenditures, acquisitions, interest payments and repayment of borrowings. Our ability to fund these needs will depend, in part, on our ability to generate or raise cash in the future, which is subject to general economic, financial, competitive, regulatory, and other factors that are beyond our control.
The following table summarizes our future obligations for long-term borrowings, estimated interest payments, finance leases, future minimum lease payments under noncancelable operating leases, purchase obligations and other liabilities as of September 29, 2023 (dollars in thousands):
Payments Due by Period
Contractual Obligations as of September 29, 2023 Total Less than
1 year
1-3 years 3-5 years More than
5 years
Long-term borrowings(1)
1,500,000  26,250  878,750  595,000  — 
Estimated interest payments(2)
362,574  86,568  176,958  99,049  — 
Finance lease obligations 153,724  33,300  56,522  38,915  24,987 
Operating leases 73,525  22,274  28,841  13,260  9,150 
Purchase obligations(3)
7,400  7,400  —  —  — 
Other liabilities(4)
3,400  3,400  —  —  — 
$ 238,049  $ 66,374  $ 85,363  $ 52,175  $ 34,137 
______________________
(1)Excludes the $11.1 million reduction to long-term borrowings from debt issuance costs
(2)Interest payments on long-term debt includes interest due on outstanding debt obligations under our Credit Agreement. Payments related to variable debt are based on applicable rates at September 29, 2023 plus the specified margin in the Credit Agreement for each period presented.
(3)Represents purchase commitments for inventory.
(4)Includes severance.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in the notes to the audited Combined Financial Statements included in this Annual Report. We have chosen accounting policies that management believes are appropriate to accurately and fairly report our operating results and financial position in conformity with U.S. GAAP. We apply these accounting policies in a consistent manner.
In preparing our Combined Financial Statements, management is required to make estimates and assumptions that, among other things, affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change, and where they can have a material impact on our financial condition and operating performance. If actual results were to differ materially from the estimates made, the reported results could be materially affected.
Critical accounting estimates and the related assumptions are evaluated periodically as conditions warrant, and changes to such estimates are recorded as new information or changed conditions require.
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Revenue Recognition
We generate and recognize over 93% of our total revenue from route servicing contracts on both Uniforms, which we generally manufacture, 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). We generate our remaining revenue primarily from the direct sale of uniforms to customers, with such revenue being recognized when our performance obligation is satisfied, typically upon the transfer of control of the promised product to the customer.
Goodwill
Annually, in our fiscal fourth quarter, we perform an impairment assessment of goodwill at the reporting unit level. This assessment may first consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Examples of qualitative factors include, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, entity-specific events, events affecting reporting units and sustained changes in our stock price. 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 using discounted cash flow calculations of each reporting unit with its estimated net book value. Historically, Vestis has represented one reporting unit under Aramark’s structure. During the fourth quarter of fiscal 2023, we performed the annual impairment test for goodwill using a quantitative testing approach. Based on our evaluation performed, we determined that the fair value of the reporting unit significantly exceeded its respective carrying amount, and therefore, we determined that goodwill was not impaired.
The determination of fair value for the Vestis 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 our assumptions or estimates in our fair value calculations change or if future cash flows, margin projections or future growth rates vary from what was expected, this may impact our 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.
We believe that an accounting estimate relating to goodwill impairment is a critical accounting estimate because the assumptions underlying future cash flow estimates are subject to change from time to time and the recognition of an impairment could have a significant impact on our Combined Statements of Income.
Litigation and Claims
From time to time, we and our subsidiaries are party to various legal actions, proceedings and investigations involving claims incidental to the conduct of our businesses, 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 claims alleging negligence and/or breach of contractual and other obligations. We consider the measurement of litigation reserves as a critical accounting estimate because of the significant uncertainty in some cases relating to the outcome of potential claims or litigation and the difficulty of predicting the likelihood and range of potential liability involved, coupled with the material impact on our results of operations that could result from litigation or other claims. In determining legal reserves, we consider, among other issues:
interpretation of contractual rights and obligations;
the status of government regulatory initiatives, interpretations, and investigations;
the status of settlement negotiations;
prior experience with similar types of claims;
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whether there is available insurance; and
advice of counsel.
Allowance for Credit Losses
We encounter credit loss risks associated with the collection of receivables. We analyze historical experience, current general and specific industry economic conditions, industry concentrations, such as exposure to small and medium-sized businesses, the nonprofit healthcare sector, federal and local governments, and reasonable and supportable forecasts that affect the collectability of the reported amount in estimating credit losses. The accounting estimate related to the allowance for credit losses is a critical accounting estimate because the underlying assumptions used for the allowance can change from time to time and credit losses could potentially have a material impact on our results of operations.
Inventories and Rental Merchandise In Service
We record an inventory obsolescence reserve for obsolete, excess, and slow-moving inventory. In calculating our inventory obsolescence reserve, we analyze historical and projected data regarding customer demand within specific product categories and make assumptions regarding economic conditions within customer specific industries, as well as style and product changes. Our accounting estimate related to inventory obsolescence is a critical accounting estimate because customer demand in certain industries can be variable and changes in our reserve for inventory obsolescence could materially affect our results of operations.
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 ranges from one to four years. The amortization rates are based on industry experience, intended use of the merchandise, our specific experience, and wear tests performed by us. These factors are critical to determining the amount of rental merchandise in service and related cost of services provided 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.
Costs to Obtain a Contract
We defer employee sales commissions earned by our 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.
New Accounting Standards Updates
See Note 1 to the audited Combined Financial Statements for a full description of recent accounting standards updates, including the expected dates of adoption.
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Risk
We are exposed to market risk from changes in foreign currency exchange rates. This exposure results from revenues and profits denominated in foreign currencies being translated into U.S. dollars and from our legal entities entering into transactions denominated in a foreign currency other than their functional currency. We currently do not enter into financial instruments to manage this foreign currency translation risk. Approximately 9% of our consolidated revenue and profit are generated from foreign denominated revenue and profit.

Interest Rate Risk
We are exposed to interest rate risk through fluctuations in interest rates on our debt obligations. Our outstanding Term Loan Facilities bear interest at variable rates. As a result, increases in interest rates could increase the cost of servicing our debt and could materially reduce our profitability and cash flows. We seek to manage exposure to adverse interest rate changes through our normal operating and financing activities, as well as through entering into interest rate derivative agreements. Excluding the impact of interest rate derivative agreements, each 1% increase in interest rates on the Term Loan Facilities would increase our annual interest expense by approximately $15 million based on the aggregate
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principal amount outstanding under the Term Loan Facilities as of September 29, 2023. As of September 29, 2023, $1,500 million aggregate principal amount was outstanding under the Term Loan Facilities.
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Item 8.    Financial Statements and Supplementary Data.
INDEX TO THE FINANCIAL STATEMENTS
Combined Balance Sheets as of September 29, 2023 and September 30, 2022
Combined Statements of Income for the fiscal years ended September 29, 2023, September 30, 2022, and October 1, 2021
Combined Statements of Comprehensive Income for the fiscal years ended September 29, 2023, September 30, 2022, and October 1, 2021
Combined Statements of Cash Flows for the fiscal years ended September 29, 2023, September 30, 2022, and October 1, 2021
Combined Statements of Parent’s Equity for the fiscal years ended September 29, 2023, September 30, 2022, and October 1, 2021
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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.
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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.
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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 
The accompanying notes are an integral part of these Combined Financial Statements.
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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.
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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.
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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.
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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.
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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
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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
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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
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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).
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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 
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__________________
(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.
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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
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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.
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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.
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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 
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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.
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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
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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.
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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.
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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
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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):
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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.
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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
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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 
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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.
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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
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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 
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(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