10-Q 1 q32018aramark10-q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

___________________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
___________________________________________

For the quarterly period ended June 29, 2018 Commission File Number: 001-36223

image0a08.jpg

Aramark
(Exact name of registrant as specified in its charter)
Delaware
20-8236097
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
Aramark Tower
1101 Market Street
Philadelphia, Pennsylvania
19107
(Address of principal executive offices)
(Zip Code)
(215) 238-3000
(Registrant's telephone number, including area code)
___________________________________________

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes  x    No  ¨

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
x  
Accelerated filer
o
Non-accelerated filer
o
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.   ¨  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of July 27, 2018, the number of shares of the registrant's common stock outstanding is 246,476,311.






Special Note About Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views as to future events and financial performance with respect to, without limitation, conditions in our industry, our operations, our economic performance and financial condition, including, in particular, with respect to, without limitation, the benefits and costs of our acquisitions of each of Avendra, LLC ("Avendra") and AmeriPride Services, Inc. ("AmeriPride") and related financings, as well as statements regarding these companies' services and products and statements relating to our business and growth strategy. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "outlook," "aim," "anticipate," "are or remain confident," "have confidence," "estimate," "expect," "will be," "will continue," "will likely result," "project," "intend," "plan," "believe," "see," "look to" and other words and terms of similar meaning or the negative versions of such words.
Forward-looking statements speak only as of the date made. All statements we make relating to our estimated and projected earnings, costs, expenditures, cash flows, growth rates, financial results and our estimated benefits and costs of our acquisitions are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could affect our results or the costs and benefits of the acquisitions include without limitation: unfavorable economic conditions; natural disasters, global calamities, sports strikes and other adverse incidents; the failure to retain current clients, renew existing client contracts and obtain new client contracts; a determination by clients to reduce their outsourcing or use of preferred vendors; competition in our industries; increased operating costs and obstacles to cost recovery due to the pricing and cancellation terms of our food and support services contracts; the inability to achieve cost savings through our cost reduction efforts; our expansion strategy; the failure to maintain food safety throughout our supply chain, food-borne illness concerns and claims of illness or injury; governmental regulations including those relating to food and beverages, the environment, wage and hour and government contracting; liability associated with noncompliance with applicable law or other governmental regulations; new interpretations of or changes in the enforcement of the government regulatory framework; currency risks and other risks associated with international operations, including Foreign Corrupt Practices Act, U.K. Bribery Act and other anti-corruption law compliance; continued or further unionization of our workforce; liability resulting from our participation in multiemployer defined benefit pension plans; risks associated with suppliers from whom our products are sourced; disruptions to our relationship with, or to the business of, our primary distributor; the inability to hire and retain sufficient qualified personnel or increases in labor costs; healthcare reform legislation; the contract intensive nature of our business, which may lead to client disputes; seasonality; disruptions in the availability of our computer systems or privacy breaches; failure to achieve and maintain effective internal controls; our leverage; the inability to generate sufficient cash to service all of our indebtedness; debt agreements that limit our flexibility in operating our business; our ability to successfully integrate the businesses of Avendra and AmeriPride and costs and timing related thereto, the risk of unanticipated restructuring costs or assumption of undisclosed liabilities, the risk that we are unable to achieve the anticipated benefits (including tax benefits) and synergies of the acquisition of AmeriPride and Avendra including whether the proposed transactions will be accretive and within the expected timeframes, the availability of sufficient cash to repay certain indebtedness and our decision to utilize the cash for that purpose, the disruption of the transactions to each of Avendra and AmeriPride and their respective managements; the effect of the transactions on each of Avendra's and AmeriPride's ability to retain and hire key personnel and maintain relationships with customers, suppliers and other third parties, our ability to attract new or maintain existing customer and supplier relationships at reasonable cost, our ability to retain key personnel and other factors set forth under the headings 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 our Annual Report on Form 10-K, filed with the SEC on November 22, 2017 as such factors may be updated from time to time in our other periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov and which may be obtained by contacting Aramark's investor relations department via its website www.aramark.com. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other filings with the SEC. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, us. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, changes in our expectations, or otherwise, except as required by law.



PART I
Item 1.    Financial Statements
ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
 
June 29, 2018
 
September 29, 2017
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
165,968

 
$
238,797

Receivables (less allowances: 2018 - $50,503; 2017 - $53,416)
1,851,928

 
1,615,993

Inventories
705,364

 
610,732

Prepayments and other current assets
186,806

 
187,617

Total current assets
2,910,066

 
2,653,139

Property and Equipment, net
1,321,366

 
1,042,031

Goodwill
5,606,234

 
4,715,511

Other Intangible Assets
2,170,608

 
1,120,824

Other Assets
1,657,266

 
1,474,724

 
$
13,665,540

 
$
11,006,229

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities:
 
 
 
Current maturities of long-term borrowings
$
81,970

 
$
78,157

Accounts payable
846,740

 
955,925

Accrued expenses and other current liabilities
1,213,904

 
1,334,013

Total current liabilities
2,142,614

 
2,368,095

Long-Term Borrowings
7,788,335

 
5,190,331

Deferred Income Taxes and Other Noncurrent Liabilities
878,771

 
978,944

Redeemable Noncontrolling Interest
10,045

 
9,798

Stockholders' Equity:
 
 
 
Common stock, par value $.01 (authorized: 600,000,000 shares; issued: 2018—279,024,864 shares and 2017—277,111,042 shares; and outstanding: 2018—246,460,602 shares and 2017—245,593,961 shares)
2,790

 
2,771

Capital surplus
3,104,910

 
3,014,546

Retained earnings
560,864

 
247,050

Accumulated other comprehensive loss
(98,066
)
 
(123,760
)
Treasury stock (shares held in treasury: 2018—32,564,262 shares and 2017—31,517,081 shares)
(724,723
)
 
(681,546
)
Total stockholders' equity
2,845,775

 
2,459,061

 
$
13,665,540

 
$
11,006,229


The accompanying notes are an integral part of these condensed consolidated financial statements.

1


ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
 
Three Months Ended
 
June 29, 2018
 
June 30, 2017
Sales
$
3,971,606

 
$
3,593,277

Costs and Expenses:
 
 
 
Cost of services provided
3,524,804

 
3,232,366

Depreciation and amortization
156,934

 
126,440

Selling and general corporate expenses
101,715

 
79,792

 
3,783,453

 
3,438,598

Operating income
188,153

 
154,679

Interest and Other Financing Costs, net
91,265

 
61,483

Income Before Income Taxes
96,888

 
93,196

Provision for Income Taxes
24,172

 
27,832

Net income
72,716

 
65,364

Less: Net income attributable to noncontrolling interest
139

 
69

Net income attributable to Aramark stockholders
$
72,577

 
$
65,295

 
 
 
 
Earnings per share attributable to Aramark stockholders:
 
 
 
Basic
$
0.29

 
$
0.27

Diluted
$
0.29

 
$
0.26

Weighted Average Shares Outstanding:
 
 
 
Basic
246,028

 
244,266

Diluted
251,857

 
251,156

 
Nine Months Ended
 
June 29, 2018
 
June 30, 2017
Sales
$
11,876,035

 
$
10,950,288

Costs and Expenses:
 
 
 
Cost of services provided
10,606,377

 
9,757,892

Depreciation and amortization
443,646

 
378,258

Selling and general corporate expenses
282,327

 
223,984

 
11,332,350

 
10,360,134

Operating income
543,685

 
590,154

Interest and Other Financing Costs, net
261,717

 
224,791

Income Before Income Taxes
281,968

 
365,363

(Benefit) Provision for Income Taxes
(110,904
)
 
104,334

Net income
392,872

 
261,029

Less: Net income attributable to noncontrolling interest
442

 
244

Net income attributable to Aramark stockholders
$
392,430

 
$
260,785

 
 
 
 
Earnings per share attributable to Aramark stockholders:
 
 
 
Basic
$
1.60

 
$
1.07

Diluted
$
1.56

 
$
1.04

Weighted Average Shares Outstanding:
 
 
 
Basic
245,588

 
244,399

Diluted
252,231

 
251,548

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
 
Three Months Ended
 
June 29, 2018
 
June 30, 2017
Net income
$
72,716

 
$
65,364

Other comprehensive income (loss), net of tax
 
 
 
Pension plan adjustments

 

Foreign currency translation adjustments
(44,955
)
 
16,994

Fair value of cash flow hedges
9,193

 
580

         Share of equity investee's comprehensive income (loss)
391

 

Other comprehensive income (loss), net of tax
(35,371
)
 
17,574

Comprehensive income
37,345

 
82,938

Less: Net income attributable to noncontrolling interest
139

 
69

Comprehensive income attributable to Aramark stockholders
$
37,206

 
$
82,869


 
Nine Months Ended
 
June 29, 2018
 
June 30, 2017
Net income
$
392,872

 
$
261,029

Other comprehensive income (loss), net of tax
 
 
 
Pension plan adjustments
13,379

 

Foreign currency translation adjustments
(26,146
)
 
(4,258
)
Fair value of cash flow hedges
38,606

 
28,968

         Share of equity investee's comprehensive income (loss)
(145
)
 

Other comprehensive income, net of tax
25,694

 
24,710

Comprehensive income
418,566

 
285,739

Less: Net income attributable to noncontrolling interest
442

 
244

Comprehensive income attributable to Aramark stockholders
$
418,124

 
$
285,495


The accompanying notes are an integral part of these condensed consolidated financial statements.


3


ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
Nine Months Ended
 
June 29, 2018
 
June 30, 2017
Cash flows from operating activities:
 
 
 
Net income
$
392,872

 
$
261,029

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
443,646

 
378,258

Deferred income taxes
(155,050
)
 
(21,094
)
Share-based compensation expense
68,318

 
50,318

Changes in operating assets and liabilities:
 
 
 
Accounts Receivable
(101,538
)
 
(46,305
)
Inventories
(21,042
)
 
19,307

Prepayments and Other Current Assets
16,092

 
92,224

Accounts Payable
(149,627
)
 
(125,842
)
Accrued Expenses
(341,067
)
 
(191,256
)
Other operating activities
(11,182
)
 
32,550

Net cash provided by operating activities
141,422

 
449,189

Cash flows from investing activities:
 
 
 
Purchases of property and equipment, client contract investments and other
(432,779
)
 
(340,294
)
Disposals of property and equipment
7,686

 
14,917

Acquisition of certain businesses, net of cash acquired
(2,239,601
)
 
(130,094
)
Other investing activities
(7,485
)
 
1,701

Net cash used in investing activities
(2,672,179
)
 
(453,770
)
Cash flows from financing activities:
 
 
 
Proceeds from long-term borrowings
3,146,069

 
3,707,408

Payments of long-term borrowings
(701,062
)
 
(3,561,500
)
Net change in funding under the Receivables Facility
145,800

 
82,000

Payments of dividends
(77,317
)
 
(75,543
)
Proceeds from issuance of common stock
15,961

 
23,048

Repurchase of stock
(24,410
)
 
(100,000
)
Other financing activities
(47,113
)
 
(68,738
)
Net cash provided by financing activities
2,457,928

 
6,675

Increase (decrease) in cash and cash equivalents
(72,829
)
 
2,094

Cash and cash equivalents, beginning of period
238,797

 
152,580

Cash and cash equivalents, end of period
$
165,968

 
$
154,674


 
 
Nine Months Ended
(dollars in millions)
 
June 29, 2018
 
June 30, 2017
Interest paid
 
$
227.7

 
$
147.3

Income taxes paid
 
$
94.0

 
$
81.3


The accompanying notes are an integral part of these condensed consolidated financial statements.

4

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Aramark (the "Company") is a leading global provider of food, facilities and uniform services to education, healthcare, business & industry and sports, leisure & corrections clients. The Company's core market is the United States, which is supplemented by an additional 18-country footprint. The Company operates its business in three reportable segments that share many of the same operating characteristics: Food and Support Services United States ("FSS United States"), Food and Support Services International ("FSS International") and Uniform and Career Apparel ("Uniform"). See Note 12 for further discussion over the FSS United States reporting segment reclassification and name change.
The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the audited consolidated financial statements, and the notes to those statements, included in the Company's Form 10-K filed with the SEC on November 22, 2017. The Condensed Consolidated Balance Sheet as of September 29, 2017 was derived from audited financial statements which have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of the Company, the statements include all adjustments, which are of a normal, recurring nature, required for a fair presentation for the periods presented. The results of operations for interim periods are not necessarily indicative of the results for a full year, due to the seasonality of some of the Company's business activities and the possibility of changes in general economic conditions.
The condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries in which a controlling financial interest is maintained. All significant intercompany transactions and accounts have been eliminated.
New Accounting Standards Updates
Adopted Standards
In August 2017, the Financial Accounting Standards Board ("FASB") issued an accounting standards update ("ASU") to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and simplify the application of hedge accounting. The guidance is effective for the Company in the first quarter of fiscal 2020 and early adoption is permitted. The Company early adopted the guidance in the third quarter of fiscal 2018, using the modified retrospective method as if the Company had adopted the standard as of the beginning of fiscal 2018. The guidance did not have a material impact on the condensed consolidated financial statements.
In May 2017, the FASB issued an ASU to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. The guidance is effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The Company early adopted the guidance in the first quarter of fiscal 2018, which did not have an impact on the condensed consolidated financial statements.
In January 2017, the FASB issued an ASU to simplify the subsequent measurement of goodwill as part of the impairment test. The guidance is effective for the Company in the first quarter of fiscal 2021 and early adoption is permitted. The Company early adopted the guidance in the first quarter of fiscal 2018, which did not have an impact on the condensed consolidated financial statements. The Company will apply the guidance during its annual impairment test or earlier if a change in circumstances or the occurrence of events indicates potential impairment exists.
In August 2016, the FASB issued an ASU to address the classification of certain cash receipts and cash payments in the Statement of Cash Flows. The guidance is effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The Company early adopted the guidance in the first quarter of fiscal 2018, which did not have an impact on the condensed consolidated financial statements.
In July 2015, the FASB issued an ASU which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. The guidance is effective for the Company in the first quarter of fiscal 2018 and early adoption was permitted. The Company adopted the guidance in the first quarter of fiscal 2018, which did not have an impact on the condensed consolidated financial statements.
Standards Not Yet Adopted (from most to least recent date of issuance)
In February 2018, the FASB issued an ASU which provides clarification regarding guidance related to the financial instrument standard. The guidance is effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In February 2018, the FASB issued an ASU which allows for the reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The guidance is effective for the

5

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Company in the first quarter of fiscal 2020 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In September 2017, the FASB issued an ASU to provide additional implementation guidance with respect to the revenue recognition standard and the leases recognition standard. The guidance is effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In May 2017, the FASB issued an ASU to clarify the determination of the customer of the operation services in a service concession arrangement. The guidance is effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The Company will adopt this standard in conjunction with the revenue recognition standard, as described below. The Company is currently evaluating the impact of the pronouncement.
In March 2017, the FASB issued an ASU to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The guidance is effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In February 2017, the FASB issued an ASU to clarify the accounting guidance for partial sales of nonfinancial assets. The guidance is effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In January 2017, the FASB issued an ASU to clarify the definition of a business. The guidance is effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In October 2016, the FASB issued an ASU to require entities to recognize the income tax consequences of certain intercompany assets transfers at the transaction date. The guidance is effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In June 2016, the FASB issued an ASU to require entities to account for expected credit losses on financial instruments including trade receivables. The guidance is effective for the Company in the first quarter of fiscal 2021 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In February 2016, the FASB issued an ASU requiring lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets and to disclose key information about lease arrangements. The guidance is effective for the Company in the first quarter of fiscal 2020 and early adoption is permitted. The Company is in the process of reviewing its lease arrangements in order to determine the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures. Based on the assessment to date, the Company expects adoption of this standard to result in a material increase in lease-related assets and liabilities in its Consolidated Balance Sheets, but does not expect it to have a significant impact in its Consolidated Statements of Income or Cash Flows.
In January 2016, the FASB issued an ASU to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Under this guidance, equity investments, other than those accounted for under the equity method of accounting or those that result in consolidation of the investee, are to be measured at fair value with the changes in fair value recognized in net income. The guidance is effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In May 2014, the FASB issued an ASU on revenue from contracts with customers which supersedes most current revenue recognition guidance. The standard outlines a single comprehensive model which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Additionally, the standard requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB voted to defer the effective date of the new revenue standard by one year, but to permit entities to adopt one year earlier if they choose (i.e., the original effective date). The guidance is effective for the Company beginning in the first quarter of fiscal 2019.
In connection with the new revenue recognition guidance, the Company has completed its comprehensive contract review project, including contracts relating to its recent acquisitions, and its evaluation of the standard's impact on the timing and presentation of various financial aspects of its contractual arrangements. The Company is in the process of finalizing the documentation of the conclusions reached. Based on this assessment, the Company does not believe this standard will have a material impact on the timing of revenue recognition or net income. The largest impacts to the Company's consolidated financial statements will result from an increase in revenue within the Uniform segment for the reclassification of certain fees currently recognized as a reduction to “Cost of services provided” and employee commissions being capitalized and amortized over the expected customer relationship period. The Company has identified and is in the process of implementing appropriate changes to business processes, controls and systems to support recognition and disclosure under the new standard. The Company plans to adopt the standard using the modified retrospective transition method, resulting in the recognition of a cumulative translation adjustment in retained earnings as of September 29, 2018.

6

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Comprehensive Income
Comprehensive income includes all changes to stockholders' equity during a period, except those resulting from investments by and distributions to stockholders. Components of comprehensive income include net income, changes in foreign currency translation adjustments (net of tax), pension plan adjustments (net of tax), changes in the fair value of cash flow hedges (net of tax) and changes to the share of any equity investees' comprehensive income or loss (net of tax).
The summary of the components of comprehensive income is as follows (in thousands):
 
Three Months Ended
 
June 29, 2018
 
June 30, 2017
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
Net income
 
 
$
72,716

 
 
 
$
65,364

Foreign currency translation adjustments
(45,185
)
230

(44,955
)
 
14,529

2,465

16,994

Fair value of cash flow hedges
12,966

(3,773
)
9,193

 
951

(371
)
580

Share of equity investee's comprehensive income (loss)
391


391

 



Other comprehensive income (loss)
(31,828
)
(3,543
)
(35,371
)
 
15,480

2,094

17,574

Comprehensive income
 
 
37,345

 
 
 
82,938

Less: Net income attributable to noncontrolling interest
 
 
139

 
 
 
69

Comprehensive income attributable to Aramark stockholders
 
 
$
37,206

 
 
 
$
82,869

 
Nine Months Ended
 
June 29, 2018
 
June 30, 2017
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
Net income
 
 
$
392,872

 
 
 
$
261,029

Pension plan adjustments(1)
32,730

(19,351
)
13,379

 



Foreign currency translation adjustments
(25,447
)
(699
)
(26,146
)
 
(11,429
)
7,171

(4,258
)
Fair value of cash flow hedges
54,451

(15,845
)
38,606

 
47,489

(18,521
)
28,968

Share of equity investee's comprehensive income (loss)
(145
)

(145
)
 



Other comprehensive income (loss)
61,589

(35,895
)
25,694

 
36,060

(11,350
)
24,710

Comprehensive income
 
 
418,566

 
 
 
285,739

Less: Net income attributable to noncontrolling interest
 
 
442

 
 
 
244

Comprehensive income attributable to Aramark stockholders
 
 
$
418,124

 
 
 
$
285,495

(1) The Company amended certain Canadian pension plans to freeze benefit accruals. The plan will be closed to new participants and current participants will no longer earn additional benefits.
Accumulated other comprehensive loss consists of the following (in thousands):
 
June 29, 2018
 
September 29, 2017
Pension plan adjustments
$
(31,896
)
 
$
(45,275
)
Foreign currency translation adjustments
(88,704
)
 
(62,558
)
Cash flow hedges
31,812

 
(6,794
)
Share of equity investee's accumulated other comprehensive loss
(9,278
)
 
(9,133
)
 
$
(98,066
)
 
$
(123,760
)
Other Assets
Other assets consist primarily of client contract investments, investments in 50% or less owned entities, computer software costs and long-term receivables. Client contract investments generally represent a cash payment provided by the Company to help finance improvement or renovation at the facility from which the Company operates. These amounts are amortized over

7

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

the contract period. If a contract is terminated prior to its maturity date, the Company is reimbursed for the unamortized client contract investment amount. Client contract investments, net of accumulated amortization, were $1,017.2 million and $981.3 million as of June 29, 2018 and September 29, 2017, respectively.
NOTE 2. ACQUISITIONS:
AmeriPride Services, Inc. ("AmeriPride") Acquisition
On January 19, 2018, the Company completed the acquisition of AmeriPride, a uniform and linen rental and supply company in the U.S. and Canada, pursuant to the Agreement and Plan of Merger ("AmeriPride Merger Agreement") dated as of October 13, 2017, by and among the Company, AmeriPride, Timberwolf Acquisition Corporation, and Bruce M. Steiner, in his capacity as Stockholder Representative. Upon completion of the acquisition, AmeriPride became a wholly owned subsidiary of the Company and its results will be included in the Company's Uniform segment. The total consideration paid for AmeriPride was $995.4 million, partially offset by $84.9 million of cash acquired. In order to finance the AmeriPride acquisition, the Company entered into a long-term financing agreement (see Note 5). During the nine month period ended June 29, 2018, the Company incurred acquisition-related costs of $12.7 million, included in "Selling and general corporate expenses," and $5.2 million of commitment fees, included in "Interest and Other Financing Costs, net" in the Company’s Condensed Consolidated Statements of Income.
Consideration
The Company has accounted for the AmeriPride acquisition as a business combination under the acquisition method of accounting. The Company has preliminarily allocated the purchase price for the transaction based upon the estimated fair value of net assets acquired and liabilities assumed at the date of acquisition. Accordingly, the preliminary purchase price allocation is subject to change. The Company expects to finalize the allocation of the purchase price upon finalization of the valuation for property and equipment and intangible assets. Any adjustments to the preliminary fair values will be made as soon as practicable but no later than one year from the acquisition date. These adjustments may have a material impact on the Company's results of operations and financial position. For tax purposes, this acquisition is a taxable transaction.
Recognition and Measurement of Assets Acquired and Liabilities Assumed at Fair Value
The following tables summarize the preliminary fair values of the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date (in thousands):
Current assets
$
237,538

Noncurrent assets
960,035

  Total assets
$
1,197,573

 
 
Current liabilities
$
135,427

Noncurrent liabilities
66,718

  Total liabilities
$
202,145

Intangible Assets
The following table identifies the Company’s preliminary allocations of purchase price to the intangible assets acquired by category:
 
 
Estimated Fair
Value
(in millions)
 
Weighted-
Average
Estimated
Useful Life
(in years)
Customer relationship assets
 
$
297.0

 
15
Trade names
 
 
24.0

 
3
to indefinite
   Total intangible assets
 
$
321.0

 
 

The estimated fair value of the customer relationship assets was determined using the “multi-period excess earnings method” which considers the present value of net cash flows expected to be generated by the customer relationships, excluding any cash flows related to contributory assets. The estimated fair value of the two trade names acquired were determined using the “relief-

8

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

from-royalty method” which considers the discounted estimated royalty payments that are expected to be avoided as a result of the trademarks being owned.
Goodwill 
The Company recorded approximately $363.2 million of goodwill in connection with its preliminary purchase price allocation relating to the AmeriPride acquisition, all of which was recognized in the Uniform reporting segment. Factors that contributed to the Company’s preliminary recognition of goodwill include the Company’s intent to expand and complement its existing uniform business and to enhance its customer service experience, in addition to the anticipated synergies the Company expects to generate from the acquisition. Goodwill related to the AmeriPride acquisition may be revised upon final determination of the purchase price allocation.
Avendra, LLC ("Avendra") Acquisition
On December 11, 2017, the Company completed the acquisition of Avendra, a hospitality procurement services provider in North America, which included the merger of Capital Merger Sub, LLC, a wholly owned subsidiary of the Company, with Avendra, pursuant to the Agreement and Plan of Merger ("Avendra Merger Agreement") dated as of October 13, 2017, by and among Aramark Services, Inc. (“ASI”), a wholly owned subsidiary of the Company, Avendra, Capital Merger Sub, LLC, and Marriott International, Inc., in its capacity as Holder Representative. Avendra continued as the surviving entity of the merger and is a wholly owned subsidiary of the Company whose financial results are included within the FSS United States reporting segment from December 11, 2017. The total consideration paid for Avendra was $1,386.4 million, partially offset by $87.3 million of cash and restricted investments acquired. In order to finance the Avendra acquisition, the Company entered into a long-term financing agreement (see Note 5). During the nine month period ended June 29, 2018, the Company incurred acquisition-related costs of $11.5 million, included in "Selling and general corporate expenses," and $6.7 million of commitment fees, included in "Interest and Other Financing Costs, net" in the Company’s Condensed Consolidated Statements of Income.
Consideration
The Company has accounted for the Avendra acquisition as a business combination under the acquisition method of accounting. The Company has preliminarily allocated the purchase price for the transaction based upon the estimated fair value of net assets acquired and liabilities assumed at the date of acquisition. Accordingly, the preliminary purchase price allocation is subject to change. The Company expects to finalize the allocation of the purchase price upon finalization of management's review of the final purchase price allocations. These adjustments may have a material impact on the Company's results of operations and financial position. For tax purposes, this acquisition is a taxable transaction.
Recognition and Measurement of Assets Acquired and Liabilities Assumed at Fair Value
The following tables summarize the preliminary fair values of the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date (in thousands):
Current assets
$
157,675

Noncurrent assets
1,343,035

  Total assets
$
1,500,710

 
 
Current liabilities
$
108,384

Noncurrent liabilities
5,949

  Total liabilities
$
114,333

Intangible Assets
The following table identifies the Company’s preliminary allocations of purchase price to the intangible assets acquired by category:

9

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 
 
Estimated Fair
Value
(in millions)
 
Weighted-
Average
Estimated
Useful Life
(in years)
Customer relationship assets
 
$
567.0

 
15
Trade name
 
 
222.0

 
indefinite
   Total intangible assets
 
$
789.0

 


The estimated fair value of the customer relationship assets was determined using the “multi-period excess earnings method” which considers the present value of net cash flows expected to be generated by the customer relationships, excluding any cash flows related to contributory assets. The estimated fair value of the trade name was determined using the “relief-from-royalty method” which considers the discounted estimated royalty payments that are expected to be avoided as a result of the trademarks being owned.
Goodwill 
The Company recorded approximately $528.0 million of goodwill in connection with its preliminary purchase price allocation relating to the Avendra acquisition, all of which was recognized in the FSS United States reporting segment. Factors that contributed to the Company’s preliminary recognition of goodwill include the Company’s intent to expand its buying scale through Avendra’s procurement capabilities and to expand its customer base outside of its traditional industries, in addition to the anticipated synergies the Company expects to generate from the acquisition. Goodwill related to the Avendra acquisition may be revised upon final determination of the purchase price allocation.
Combined Sales and Earnings for AmeriPride and Avendra
Included in the Company’s Condensed Consolidated Statements of Income for the three and nine months ended June 29, 2018 were combined sales from AmeriPride and Avendra of approximately $184.7 million and $338.0 million, respectively, related to these entities. Combined net income for the results of AmeriPride and Avendra was $12.6 million for the three months ended June 29, 2018, which excludes the impact of the increased interest expense incurred from the financing of the acquisitions.
Unaudited Pro Forma Results of Operations for AmeriPride and Avendra
The following table reflects the unaudited pro forma combined results of operations for the three and nine months ended June 29, 2018 for the Company, assuming the closing of both acquisitions occurred on October 1, 2016:
 
Three Months Ended
 
Nine Months Ended
 Unaudited (in thousands)
 
June 29, 2018
 
June 30, 2017
 
 
June 29, 2018
 
June 30, 2017
Total sales
 
$
3,971,606

 
$
3,789,191

 
 
$
12,100,865

 
$
11,526,351

Net income
 
 
79,817

 
 
55,107

 
 
 
435,707

 
 
226,264

The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the closing of the acquisitions taken place on October 1, 2016. Furthermore, the pro forma results do not purport to project the future results of operations of the Company.
The unaudited pro forma information primarily reflects the following adjustments:
adjustments to amortization expense related to identifiable intangible assets acquired;
adjustments to depreciation expense related to the fair value of property and equipment acquired;
adjustments to interest expense to reflect the long-term financing agreements used to finance the acquisitions (see Note 5); and
adjustments for the tax effect of the aforementioned adjustments.
Other Acquisitions
During the nine month period of fiscal 2018, the Company paid cash consideration of approximately $35.8 million for various acquisitions, excluding the purchases of AmeriPride and Avendra. The sales, net income, assets and liabilities of these acquisitions did not have a material impact on the Company's condensed consolidated financial statements.

10

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3. SEVERANCE:
During the second quarter of fiscal 2018, the Company commenced a new phase of strategic reinvestment and reorganization actions to streamline and improve efficiencies and effectiveness of its selling, general and administrative functions which resulted in a net severance charge of approximately $39.5 million for the nine months ended June 29, 2018. As of June 29, 2018 and September 29, 2017, the Company had an accrual of approximately $27.9 million and $17.8 million, respectively, related to unpaid severance obligations. These obligations are expected to be paid through the first six months of fiscal 2019.
NOTE 4. 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 the Company conducts annually or more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists, using discounted cash flows.
Changes in total goodwill during the nine months ended June 29, 2018 follow (in thousands):
Segment
September 29, 2017
 
Acquisitions
 
Translation
 
June 29, 2018
FSS United States
$
3,493,756

 
$
532,201

 
$

 
$
4,025,957

FSS International
637,816

 
2,656

 
(14,433
)
 
626,039

Uniform
583,939

 
370,856

 
(557
)
 
954,238

 
$
4,715,511

 
$
905,713

 
$
(14,990
)
 
$
5,606,234

During the first quarter of fiscal 2018, $173.3 million of goodwill related to certain Canadian businesses was reclassified out of the FSS United States segment and into the FSS International segment (see Note 12), which is reflected in the opening balance as of September 29, 2017. Goodwill related to the acquisitions made during the nine months ended June 29, 2018 may be revised upon final determination of the purchase price allocation (see Note 2).
Other intangible assets consist of the following (in thousands):
 
June 29, 2018
 
September 29, 2017
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
Customer relationship assets
$
2,253,545

 
$
(1,133,361
)
 
$
1,120,184

 
$
1,376,812

 
$
(1,063,350
)
 
$
313,462

Trade names
1,051,309

 
(885
)
 
1,050,424

 
807,362

 

 
807,362

 
$
3,304,854

 
$
(1,134,246
)
 
$
2,170,608

 
$
2,184,174

 
$
(1,063,350
)
 
$
1,120,824

During the nine months ended June 29, 2018, the Company acquired customer relationship assets and trade names with preliminary values of approximately $887.0 million and $246.0 million, respectively. Customer relationship assets are being amortized principally on a straight-line basis over the expected period of benefit, 5 to 24 years, with a weighted average life of approximately 15 years. The Aramark and a majority of the other trade names are indefinite lived intangible assets and are not amortizable but are evaluated for impairment at least annually. Other intangible asset values related to the acquisitions made during the nine months ended June 29, 2018 may be revised upon final determination of the purchase price allocation (see Note 2).
Amortization of acquired intangible assets for the nine months ended June 29, 2018 and June 30, 2017 was approximately $82.3 million and $66.3 million, respectively.

11

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 5. BORROWINGS:
Long-term borrowings, net, are summarized in the following table (in thousands):
 
 
June 29, 2018
 
September 29, 2017
Senior secured revolving credit facility, due March 2022
 
$
47,208

 
$

Senior secured term loan facility, due March 2022
 
454,273

 
1,125,858

Senior secured term loan facility, due February 2023
 
146,208

 

Senior secured term loan facility, due March 2024
 
1,403,203

 
1,403,429

Senior secured term loan facility, due March 2025
 
1,772,373

 

5.125% senior notes, due January 2024
 
903,048

 
903,654

5.000% senior notes, due April 2025
 
590,593

 
589,733

3.125% senior notes, due April 2025
 
375,646

 
379,429

4.750% senior notes, due June 2026
 
493,925

 
493,464

5.000% senior notes, due February 2028
 
1,136,192

 

Receivables Facility, due May 2021
 
400,000

 
254,200

Capital leases
 
137,068

 
114,400

Other
 
10,568

 
4,321

 
 
7,870,305

 
5,268,488

Less—current portion
 
(81,970
)
 
(78,157
)
 
 
$
7,788,335

 
$
5,190,331

As of June 29, 2018, there was approximately $997.6 million of outstanding foreign currency borrowings.
Fiscal 2018 Refinancing Transactions
Receivables Facility
During the third quarter of fiscal 2018, the Company extended the terms of the Receivables Facility from May 2019 to May 2021. The purchase limit increased from $350.0 million to $400.0 million and the additional seasonal capacity of the Receivables Facility increased from $50.0 million to $100.0 million from October through March. All other terms and conditions remain largely unchanged.
Term Loan B due 2024 and Yen Term Loan due 2022
On May 24, 2018, ASI, an indirect wholly owned subsidiary of the Company, entered into Amendment No. 5 ("Amendment No. 5") to the Credit Agreement dated March 28, 2017 (as supplemented or otherwise modified from time to time, the “Credit Agreement”) and last amended by Incremental Amendment No. 4 on May 11, 2018, Incremental Amendment No. 3 on February 28, 2018, Incremental Amendment No. 2 on December 11, 2017 and Incremental Amendment No. 1 on September 20, 2017, which replaced the existing Amended and Restated Credit Agreement, originally dated January 26, 2007 and last amended and restated on February 24, 2014 (the "Previous Credit Agreement"). Amendment No. 5 changed the applicable interest rate on the outstanding borrowings related to the U.S. dollar denominated Term Loan B due 2024 ("U.S. Term Loan B due 2024"). As a result of the amendment, the applicable margin on the U.S. Term Loan due 2024 was changed from 2.00% for borrowings based on the LIBOR rate to 1.75% and from 1.00% for borrowings based on the base rate to 0.75%. There were no other material changes to the terms of the U.S. Term Loan B due 2024.
On May 11, 2018, ASI entered into Incremental Amendment No. 4 ("Incremental Amendment No. 4") to the Credit Agreement. Incremental Amendment No. 4 changed the applicable interest rate on the outstanding borrowings related to the Yen denominated Term Loan due 2022 ("Yen Term Loan due 2022"). As a result of the amendment, the applicable margin on the Yen Term Loan due 2022 was changed from 1.75% to 1.50%. All other terms related to the Yen Term Loan due 2022 remained unchanged.
Canadian Term Loan A-1 due 2023
On February 28, 2018, ASI entered into Incremental Amendment No. 3 (“Incremental Amendment No. 3”) to the Credit Agreement. Incremental Amendment No. 3 provides for an incremental, senior secured credit facility under the Credit Agreement comprised of a Canadian dollar denominated term loan made to Aramark Canada Limited ("ACL"), a company

12

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

organized under the laws of Canada and an indirect subsidiary of ASI in an amount equal to CAD200 million (approximately $146.6 million as of June 29, 2018) due on February 28, 2023 (the "Canadian Term Loan A-1 due 2023").
The net proceeds from the Canadian Term Loan A-1 due 2023 were used to pay down certain borrowings on the revolving credit facility and to pay fees and expenses related to the consummation of Incremental Amendment No. 3.
The Canadian Term Loan A-1 due 2023 bears interest at a rate equal to, at the Company’s option, either (a) a Bank Act of Canada rate determined by reference to offered rates for bankers' acceptances, increased by 0.10% depending on the lender party or (b) a base rate or Canadian base rate determined by reference to the higher of (1) the prime rate of the administrative agent and (2) the Bank Act of Canada rate plus 1.00% plus an applicable margin set initially at 1.75% for borrowings based on the Bank Act of Canada rate and 0.75% for borrowings based on the Canadian base rate, in each case, subject to a reduction of 0.125% per each decline of 0.50 to 1.00 in the Company's consolidated leverage ratio from 4.75 to 1.00. Accordingly, the applicable margin spread for the Canadian Term Loan A-1 due 2023 is 1.25% to 1.75% (as of June 29, 2018 - 1.75%) with respect to Bank Act of Canada borrowings, subject to a floor of 0.00%, and 0.25% to 0.75% (as of June 29, 2018 - 0.75%) with respect to Canadian base rate borrowings, subject to a floor of 0.00%.
The Canadian Term Loan A-1 requires the payment of installments in quarterly principal amounts of CAD2.5 million from March 31, 2018 through December 31, 2019, CAD3.75 million from March 31, 2020 through December 31, 2020, CAD5.0 million from March 31, 2021 through December 31, 2021, CAD7.5 million from March 31, 2022 through December 31, 2022, and CAD115.0 million at maturity. The Canadian Term Loan A-1 is subject to substantially similar terms currently relating to guarantees, collateral, mandatory prepayments and covenants that are applicable to the Company’s existing term loans outstanding under the Credit Agreement.
5.000% Senior Notes due 2028
On January 18, 2018, ASI issued $1,150.0 million aggregate principal amount of 5.000% Senior Notes due February 1, 2028 (the "2028 Notes"). The net proceeds from the 2028 Notes were used to finance the AmeriPride acquisition, to pay down certain borrowings under the revolving credit facility and to pay fees related to the transaction. During the second quarter of fiscal 2018, the Company capitalized third-party costs of approximately $14.2 million directly attributable to the 2028 Notes, which are included in "Long-Term Borrowings" in the Condensed Consolidated Balance Sheets.
The 2028 Notes were issued pursuant to an indenture, dated as of January 18, 2018 (the "2028 Notes Indenture"), entered into by and among ASI, the Company and certain other Aramark entities, as guarantors, and the U.S. Bank National Association, as trustee. The 2028 Notes were issued at par.
The 2028 Notes are senior unsecured obligations of ASI. The 2028 Notes rank equal in right of payment to all of the Issuer's existing and future senior indebtedness and will rank senior in right of payment to the Issuer's future subordinated indebtedness. The 2028 Notes are guaranteed on a senior, unsecured basis by the Company and substantially all of the domestic subsidiaries of ASI. The guarantees of the 2028 Notes rank equal in right of payment to all of the senior obligations of such guarantor. The 2028 Notes are effectively subordinated to all of ASI's existing and future secured indebtedness, to the extent of the value of the assets securing that indebtedness, and structurally subordinated to all of the liabilities of any of ASI's subsidiaries that do not guarantee the 2028 Notes. Interest on the 2028 Notes is payable on February 1 and August 1 of each year, commencing on August 1, 2018.
At any time prior to February 1, 2023, ASI has the option to redeem all or a part of the 2028 Notes at a purchase price equal to 100% of the principal amount of such 2028 Notes plus an applicable premium and accrued and unpaid interest, if any, to but not including the date of redemption. Prior to February 1, 2021, ASI has the option to redeem up to 40% of the aggregate principal amount of all 2028 Notes at a purchase price equal to 105% of the principal amount of such 2028 Notes plus accrued and unpaid interest, if any, to but not including the date of redemption, with the net cash proceeds of one or more equity offerings, provided that at least 50% of the sum of the aggregate principal amount of the 2028 Notes originally issued remain outstanding immediately after the purchase.
The 2028 Notes Indenture contains covenants limiting ASI's ability and the ability of its restricted subsidiaries to: incur additional indebtedness or issue certain preferred shares; pay dividends and make certain distributions, investments and other restricted payments; create certain liens; sell assets; enter into transactions with affiliates; limit the ability of restricted subsidiaries to make payments to ASI; enter into sale and leaseback transactions; merge, consolidate, sell or otherwise dispose of all or substantially all of ASI's and its restricted subsidiaries assets; and designate ASI's subsidiaries as unrestricted subsidiaries. The 2028 Notes Indenture also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the applicable series of 2028 Notes to become or to be declared due and payable. Further, a failure to pay any obligations under the 2028 Notes Indenture as they become due or any event causing amounts to become due prior to their stated maturity could result in a cross-default and potential acceleration of the Company’s other outstanding debt obligations.

13

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

U.S. Term Loan B due 2025
On December 11, 2017, ASI entered into Incremental Amendment No. 2 (“Incremental Amendment No. 2”) to the Credit Agreement. Incremental Amendment No. 2 provides for an incremental senior secured credit facility under the Credit Agreement comprised of a U.S. dollar denominated term loan made to ASI in an amount equal to $1,785.0 million, due on March 11, 2025. On June 12, 2018, the Company entered into Amendment No. 6 ("Amendment No. 6") to the Credit Agreement, which changed the applicable interest rate on the outstanding U.S. Term Loan B due 2025 borrowings (see below for further discussion). There were no other material changes to the terms of the U.S. Term Loan B due 2025 as a result of Amendment No. 6.
The net proceeds from the U.S. Term Loan B due 2025 were used to finance the Avendra acquisition and, together with approximately $200.0 million of proceeds from a borrowing made under the Credit Agreement’s revolving credit facility, to repay the $633.8 million of principal outstanding on the U.S. Term Loan A under the Credit Agreement, along with accrued interest and certain fees and related expenses. The Company recorded $5.7 million of charges to "Interest and Other Financing Costs, net" in the Condensed Consolidated Statements of Income for the nine months ended June 29, 2018 for the write-off of debt issuance costs.
The Company capitalized third-party costs of approximately $8.9 million directly attributable to the U.S. Term Loan B due 2025 under the Credit Agreement, which are included in "Long-Term Borrowings" in the Condensed Consolidated Balance Sheets as of March 30, 2018.
The U.S. Term Loan B due 2025 bears interest at a rate equal to, at the Company’s option, either (a) a LIBOR rate determined by reference to the costs of funds for deposits in U.S. dollars for the interest period relevant to such borrowing adjusted for certain additional costs or (b) a base rate determined by reference to the highest of (1) the prime rate of the administrative agent, (2) the federal funds rate plus 0.50% and (3) the LIBOR rate plus 1.00% plus an applicable margin set initially at 2.00% for borrowings based on the LIBOR rate and 1.00% for borrowings based on the base rate, in each case, subject to a reduction of 0.25% upon compliance by the Company with a consolidated leverage ratio of 3.00 to 1.00. As a result of Amendment No. 6, the applicable margin was changed from 2.00% for borrowings based on the eurocurrency (LIBOR) rate to 1.75%, subject to a LIBOR floor of 0.00%, and from 1.00% for borrowings based on the base rate to 0.75%, subject to a minimum base rate of 0.00%.
The Company is required to make quarterly principal repayments on the U.S. Term Loan B due 2025 in quarterly amounts of 1.00% per annum of the funded total principal amount and is subject to substantially similar terms relating to guarantees, collateral, mandatory prepayments and covenants that are applicable to the Company’s existing U.S. Term Loan B due 2024 outstanding under the Credit Agreement.
Future Maturities
At June 29, 2018, annual maturities on long-term borrowings maturing between fiscal years 2018 and 2022 and thereafter (excluding the $60.5 million reduction to long-term borrowings from debt issuance costs and the increase of $13.0 million from the premium on the 5.125% Senior Notes due 2024 (the "2024 Notes")) are as follows (in thousands):
2018
$
26,067

2019
63,980

2020
120,216

2021
515,768

2022
468,881

Thereafter
6,722,925

NOTE 6. DERIVATIVE INSTRUMENTS:
The Company enters into contractual derivative arrangements to manage changes in market conditions related to interest on debt obligations, foreign currency exposures and exposure to fluctuating gasoline and diesel fuel prices. Derivative instruments utilized during the period include interest rate swap agreements, foreign currency forward exchange contracts and gasoline and diesel fuel agreements. All derivative instruments are recognized as either assets or liabilities on the balance sheet at fair value at the end of each quarter. The counterparties to the Company's contractual derivative agreements are all major international financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company continually monitors its positions and the credit ratings of its counterparties, and does not anticipate nonperformance by the counterparties. For designated hedging relationships, the Company formally documents the hedging relationship and its risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, and how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed prospectively

14

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

and retrospectively. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items.
Cash Flow Hedges
The Company has approximately $2.7 billion notional amount of outstanding interest rate swap agreements as of June 29, 2018, which fixes the rate on a like amount of variable rate borrowings through the first quarter of fiscal 2023. During the first quarter of fiscal 2018, the Company entered into approximately $1.6 billion notional amount of interest rate swap agreements to hedge the cash flow risk of variability in interest payments on variable rate borrowings. In addition, interest rate swaps with notional amounts of $450.0 million matured during the nine months of fiscal 2018, respectively.
Changes in the fair value of a derivative that is designated as and meets all the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income (loss) and reclassified into earnings as the underlying hedged item affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of June 29, 2018 and September 29, 2017, approximately $31.8 million and ($6.8) million of unrealized net of tax gains (losses) related to the interest rate swaps were included in "Accumulated other comprehensive loss," respectively.
The following table summarizes the effect of our derivatives designated as cash flow hedging instruments on Other comprehensive income (loss) (in thousands):
 
Three Months Ended
 
June 29, 2018
 
June 30, 2017
Interest rate swap agreements
$
12,257

 
$
(2,721
)
 
Nine Months Ended
 
June 29, 2018
 
June 30, 2017
Interest rate swap agreements
$
48,825

 
$
33,261

Derivatives not Designated in Hedging Relationships
The Company 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 in order to limit its exposure to price fluctuations for gasoline and diesel fuel. As of June 29, 2018, the Company has contracts for approximately 10.5 million gallons outstanding through fiscal 2019. The Company does not record its gasoline and diesel fuel agreements as hedges for accounting purposes. The impact on earnings related to the change in fair value of these unsettled contracts was a gain of approximately $0.1 million and a gain of approximately $0.3 million for the three and nine months ended June 29, 2018, respectively. The impact on earnings related to the change in fair value of these unsettled contracts was a loss of approximately $2.6 million and $3.6 million for the three and nine months ended June 30, 2017, respectively. The change in fair value for unsettled contracts is included in "Selling and general corporate expenses" in the Condensed Consolidated Statements of Income. When the contracts settle, the gain or loss is recorded to"Costs of services provided" in the Condensed Consolidated Statements of Income.
As of June 29, 2018, the Company had foreign currency forward exchange contracts outstanding with notional amounts of €40.0 million and £6.0 million to mitigate the risk of changes in foreign currency exchange rates on short-term intercompany loans to certain international subsidiaries. Gains and losses on these foreign currency exchange contracts are recognized in income as the contracts were not designated as hedging instruments, substantially offsetting currency transaction gains and losses on the short-term intercompany loans.

15

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the location and fair value, using Level 2 inputs (see Note 13), of the Company's derivatives designated and not designated as hedging instruments in the Condensed Consolidated Balance Sheets (in thousands):
 
 
Balance Sheet Location
 
June 29, 2018
 
September 29, 2017
ASSETS
 
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
 
Interest rate swap agreements
 
Prepayments and other current assets
 
$
1,795

 
$

Interest rate swap agreements
 
Noncurrent Assets
 
$
46,497

 
$

 
 
 
 
 
 
 
Not designated as hedging instruments:
 
 
 
 
 
 
Foreign currency forward exchange contracts
 
Prepayments and other current assets
 
$
293

 
$
80

Gasoline and diesel fuel agreements
 
Prepayments and other current assets
 
$
3,941

 
$
3,626

 
 
 
 
$
52,526

 
$
3,706

LIABILITIES
 
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
 
Interest rate swap agreements
 
Accrued expenses and other current liabilities
 
$

 
$
1,196

Interest rate swap agreements
 
Other Noncurrent Liabilities
 

 
9,313

 
 
 
 
$

 
$
10,509

The following table summarizes the location of (gain) loss reclassified from "Accumulated other comprehensive loss" into earnings for derivatives designated as hedging instruments and the location of (gain) loss for the Company's derivatives not designated as hedging instruments in the Condensed Consolidated Statements of Income (in thousands):
 
 
 
 
Three Months Ended
 
 
Income Statement Location
 
June 29, 2018
 
June 30, 2017
Designated as hedging instruments:
 
 
 
 
 
 
Interest rate swap agreements
 
Interest expense
 
$
709

 
$
3,732

Not designated as hedging instruments:
 
 
 
 
 
 
Gasoline and diesel fuel agreements
 
Costs of services provided / Selling and general corporate expenses
 
$
(2,070
)
 
$
2,404

Foreign currency forward exchange contracts
 
Interest expense
 
(603
)
 
1,673

 
 
 
 
(2,673
)
 
4,077

 
 
 
 
$
(1,964
)
 
$
7,809

 
 
 
 
Nine Months Ended
 
 
Income Statement Location
 
June 29, 2018
 
June 30, 2017
Designated as hedging instruments:
 
 
 
 
 
 
Interest rate swap agreements
 
Interest Expense
 
$
5,626

 
$
14,288

Not designated as hedging instruments:
 
 
 
 
Gasoline and diesel fuel agreements
 
Costs of services provided / Selling and general corporate expenses
 
$
(5,547
)
 
$
2,787

Foreign currency forward exchange contracts
 
Interest Expense
 
(152
)
 
(3,134
)
 
 
 
 
$
(5,699
)
 
$
(347
)
 
 
 
 
$
(73
)
 
$
13,941


The Company has a Japanese yen denominated term loan in the amount of ¥10,884.9 million. The term loan was designated as a hedge of the Company's net Japanese currency exposure represented by the equity investment in its Japanese affiliate, AIM

16

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Services Co., Ltd. Additionally, the Company has a Euro denominated term loan in the amount of €159.4 million. The term loan was designated as a hedge of the Company's net Euro currency exposure represented by certain holdings in its European affiliates.
At June 29, 2018, the net of tax gain expected to be reclassified from "Accumulated other comprehensive loss" into earnings over the next twelve months based on current market rates is approximately $5.6 million.
NOTE 7. INCOME TAXES:
On December 22, 2017, “H.R.1,” commonly referred to as the “Tax Cuts and Jobs Act” (the “Tax Legislation”) was signed into U.S. law. The Tax Legislation, which was effective on January 1, 2018, significantly revises the U.S. tax code by, among other things, lowering the corporate income tax rate from 35.0% to 21.0% and implementing a territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. Though certain key aspects of the new law are effective January 1, 2018 and have an immediate accounting impact, other significant provisions are not effective or may not result in accounting implications for the Company until fiscal year-end September 28, 2018 or after.
The impact of the corporate income tax rate change is reflected in the estimated annual effective tax rate for the fiscal year ending September 28, 2018. The legislation requires the Company to use a blended rate for its fiscal 2018 tax year by applying a prorated percentage of days before and after the January 1, 2018 effective date. As a result, the Company's 2018 annual statutory rate has been reduced to 24.5%.
As a result of the enactment of the Tax Legislation, the Company was required to recognize the effect of the corporate income tax rate change on its deferred tax assets and liabilities in the first quarter of fiscal 2018, the period in which the legislation was enacted. The Company recorded a provisional tax benefit from corporate income tax rate change and certain other adjustments, which resulted in a noncash benefit to the provision for income taxes of approximately $207.5 million, which was recorded to the Condensed Consolidated Statements of Income during the first quarter of fiscal 2018. A corresponding reduction to the Company's deferred income tax liability was also recorded to the Condensed Consolidated Balance Sheets during the first quarter of fiscal 2018. This was the Company’s provisional estimate and will be subject to adjustment as the computations are finalized.
The Tax Legislation also requires the Company to pay a one-time transition tax on unremitted earnings of certain non-U.S. subsidiaries. The Company recorded a provisional estimate of the tax expense of approximately $2.5 million during the first quarter of fiscal 2018 related to the one time transition tax, net of foreign tax credits. As a result of the Tax Legislation, the Company re-assessed the ability to recover its $21.2 million of foreign tax credit carryforwards. Based on currently available information, the Company believes it will not generate sufficient foreign source income in the carryforward period to utilize these credits. As a result, the Company recorded a valuation allowance of $21.2 million against its foreign tax credit carryforward during the first quarter of fiscal 2018, as a provisional estimate.
The Tax Legislation contains additional international provisions which may impact the Company prospectively, including the tax on “Global Intangible Low-Taxed Income” (“GILTI”). The Company is currently unable to provide a reasonable provisional estimate as to whether additional deferred tax assets and liabilities should be recognized for basis differences expected to reverse as GILTI in future years, pending clarification of interpretive issues and the availability of the necessary information to develop a reasonable estimate. Accordingly, the Company has yet to determine whether GILTI tax should be recorded as a period expense or measured as a deferred tax asset or liability. However, the Company does not believe the impact will be material.
As the result of the one-time transition tax on unremitted foreign earnings of non-U.S. subsidiaries, as well as the shift from a worldwide system of taxation to a participation exemption system, the Company generally will not incur additional U.S. tax liability on the distribution of unremitted foreign earnings. However, other items continue to trigger additional tax expense for which no deferred tax liability has been recorded, including Section 986(c) currency gain/loss, foreign withholding taxes and state taxes. As a result, the Company has performed a preliminary assessment of its indefinite reinvestment position, pending further analysis and expected guidance around newly enacted legislation of U.S. taxation of foreign multinational companies, including the transition tax, GILTI and the potential tax liabilities attributable to repatriation under the Tax Legislation. Accordingly, the provisional estimate of undistributed earnings of certain foreign subsidiaries for which no deferred tax liability was recorded amounted to approximately $71.6 million as of June 29, 2018. The provisional estimate of foreign withholding tax cost associated with remitting these earnings is approximately $3.9 million. Such amount has not been accrued by the Company as it believes those foreign earnings are permanently reinvested.
The Tax Legislation also contains limitations on the deductibility of interest expense and certain executive compensation, that are not expected to impact the Company until fiscal years ending after September 28, 2018. The Company continues to evaluate their impact on its consolidated financial statements.

17

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The provisional amounts are based on information available at this time and subject to change due to several factors, including, finalization of the Company’s annual financial closing and reporting processes, management’s further assessment of the Tax Legislation and related regulatory guidance, guidance that may be issued and actions the Company may take as a result of the Tax Legislation.
The Company is in the process of finalizing these provisional calculations, and will continue to evaluate the effect of tax reform on its financial results. Additional details will be included in the Company's Form 10-K for the fiscal year ended September 28, 2018.
The Company filed the fiscal 2017 federal income tax return in the fourth quarter of 2018, which included several accounting method changes that impact the income tax payable and deferred income tax assets and liabilities. Management is analyzing the results and will record the tax impact in the fourth quarter of fiscal 2018.  
NOTE 8. STOCKHOLDERS' EQUITY:
During the nine months ended June 29, 2018 and June 30, 2017, the Company paid dividends of approximately $77.3 million and $75.5 million to its stockholders, respectively. On August 1, 2018, the Company's Board declared a $0.105 dividend per share of common stock, payable on August 30, 2018, to shareholders of record on the close of business on August 16, 2018. During the first quarter of fiscal 2018, the Company completed a repurchase of 0.6 million shares of its common stock for $24.4 million. During the second quarter of fiscal 2017, the Company completed a repurchase of approximately 2.8 million shares of its common stock for $100.0 million.
NOTE 9. SHARE-BASED COMPENSATION:
The following table summarizes the share-based compensation expense and related information for Time-Based Options ("TBOs"), Time-Based Restricted Stock Units ("RSUs"), Performance Stock Units and Performance Restricted Stock ("PSUs"), and Deferred Stock and Other Units classified as "Selling and general corporate expenses" in the Condensed Consolidated Statements of Income (in millions).
 
 
Three Months Ended
 
Nine Months Ended
 
 
June 29, 2018
 
June 30, 2017
 
June 29, 2018
 
June 30, 2017
TBOs
 
$
4.2

 
$
5.2

 
$
14.0

 
$
15.7

RSUs
 
6.0

 
5.0

 
17.9

 
16.4

PSUs (1)
 
24.0

 
5.0

 
34.9

 
16.4

Deferred Stock and Other Units
 
0.6

 
0.4

 
1.5

 
1.8

 
 
$
34.8

 
$
15.6

 
$
68.3

 
$
50.3

 
 
 
 
 
 
 
 
 
Taxes related to share-based compensation
 
$
9.8

 
$
5.7

 
$
19.2

 
$
18.6

(1) During the third quarter of fiscal 2018, the Company increased the expected adjusted earnings per share target attainment percentage for both the fiscal 2016 and fiscal 2017 PSU grants, and recognized an additional $18.9 million of share-based compensation expense.
The below table summarizes the number of shares granted and the weighted-average grant-date fair value per unit during the nine months ended June 29, 2018:
 
 
Shares Granted (in millions)
 
Weighted-Average Grant-Date Fair Value (dollars per share)
TBOs
 
1.9

 
$
8.56

RSUs
 
1.2

 
$
40.46

PSUs
 
0.7

 
$
38.95

Deferred Stock Units
 
0.1

 
$
44.62

 
 
3.9

 
 

18

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 10. EARNINGS PER SHARE:
Basic earnings per share is computed using the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares outstanding adjusted to include the potentially dilutive effect of stock awards.
The following table sets forth the computation of basic and diluted earnings per share attributable to the Company's stockholders (in thousands, except per share data):
 
Three Months Ended
 
Nine Months Ended
 
June 29, 2018
 
June 30, 2017
 
June 29, 2018
 
June 30, 2017
Earnings:
 
 
 
 
 
 
 
Net income attributable to Aramark stockholders
$
72,577

 
$
65,295

 
$
392,430

 
$
260,785

Shares:
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
246,028

 
244,266

 
245,588

 
244,399

Effect of dilutive securities
5,829

 
6,890

 
6,643

 
7,149

Diluted weighted-average shares outstanding
251,857

 
251,156

 
252,231

 
251,548

 
 
 
 
 
 
 
 
Basic Earnings Per Share:
 
 
 
 
 
 
 
Net income attributable to Aramark stockholders
$
0.29

 
$
0.27

 
$
1.60

 
$
1.07

Diluted Earnings Per Share:
 
 
 
 
 
 
 
Net income attributable to Aramark stockholders
$
0.29

 
$
0.26

 
$
1.56

 
$
1.04

Share-based awards to purchase 3.7 million were outstanding for both the three months ended June 29, 2018 and June 30, 2017, but were not included in the computation of diluted earnings per common share, as their effect would have been antidilutive. In addition, PSUs related to 1.8 million shares and 1.2 million shares were outstanding for the three month periods of June 29, 2018 and June 30, 2017, respectively, but were not included in the computation of diluted earnings per common share, as the performance targets were not yet met.
Share-based awards to purchase 1.6 million and 3.9 million shares were outstanding for the nine months ended June 29, 2018 and June 30, 2017, respectively, but were not included in the computation of diluted earnings per common share, as their effect would have been antidilutive. In addition, PSUs related to 1.8 million shares and 1.2 million shares were outstanding for the nine month periods of June 29, 2018 and June 30, 2017, respectively, but were not included in the computation of diluted earnings per common share, as the performance targets were not yet met.
NOTE 11. COMMITMENTS AND CONTINGENCIES:
Certain of the Company's lease arrangements, primarily vehicle leases, with terms of one to eight years, contain provisions related to residual value guarantees. The maximum potential liability to the Company under such arrangements was approximately $119.5 million at June 29, 2018 if the terminal fair value of vehicles coming off lease was zero. Consistent with past experience, management does not expect any significant payments will be required pursuant to these arrangements. No amounts have been accrued for guarantee arrangements at June 29, 2018.
From time to time, the Company and its subsidiaries are a party to various legal actions, proceedings and investigations involving claims incidental to the conduct of their business, including actions by clients, consumers, 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, minority, women and disadvantaged business enterprise statutes, tax codes, antitrust and competition laws, consumer protection statutes, procurement regulations, intellectual property laws, food safety and sanitation laws, cost and accounting principles, the Foreign Corrupt Practices Act, the U.K. Bribery Act, other anti-corruption laws, lobbying laws, motor carrier safety laws, data privacy and security laws and alcohol licensing and service laws, or alleging negligence and/or breaches of contractual and other obligations. Based on information currently available, advice of counsel, available insurance coverage, established reserves and other resources, the Company does not believe that any such actions are likely to be, individually or in the aggregate, material to its business, financial condition, results of operations or cash flows. However, in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to the Company's business, financial condition, results of operations or cash flows.

19

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 12. BUSINESS SEGMENTS:
Prior to fiscal 2018, the Company reported its operating results in three reportable segments: FSS North America, FSS International and Uniform. Beginning in fiscal 2018, the segment reporting structure was modified to align more closely with the Company’s management and internal reporting structure, which was changed on September 30, 2017. Specifically, a majority of the Canadian operations, previously in the FSS North America segment, were combined with the FSS International reportable segment. The FSS North America reportable segment was then renamed the FSS United States reportable segment. All prior period segment information has been restated to reflect the new reportable segment structure. Management believes this new presentation enhances the utility of the segment information, as it reflects the Company’s current management structure and operating organization. The financial statement effect of this segment realignment was not material. Corporate includes general expenses not specifically allocated to an individual segment and share-based compensation expense (see Note 9). In the Company's food and support services segments, approximately 80% of the global sales is related to food services and 20% is related to facilities services. Financial information by segment follows (in millions):
 
Sales
 
Three Months Ended
 
June 29, 2018
 
June 30, 2017
FSS United States
$
2,501.0

 
$
2,383.7

FSS International
929.9

 
821.8

Uniform
540.7

 
387.8

 
$
3,971.6

 
$
3,593.3

 
Operating Income
 
Three Months Ended
 
June 29, 2018
 
June 30, 2017
FSS United States
$
134.6

 
$
119.9

FSS International
45.9

 
26.0

Uniform
57.1

 
45.0

 
237.6

 
190.9

Corporate
(49.4
)
 
(36.2
)
Operating Income
188.2

 
154.7

Interest and Other Financing Costs, net
(91.3
)
 
(61.5
)
Income Before Income Taxes
$
96.9

 
$
93.2

 
Sales
 
Nine Months Ended
 
June 29, 2018
 
June 30, 2017
FSS United States
$
7,657.0

 
$
7,341.6

FSS International
$
2,768.1

 
2,437.8

Uniform
1,450.9

 
1,170.9

 
$
11,876.0

 
$
10,950.3


20

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 
Operating Income
 
Nine Months Ended
 
June 29, 2018
 
June 30, 2017
FSS United States
$
451.5

 
$
437.7

FSS International
108.0

 
108.2

Uniform
132.0

 
144.2

 
691.5

 
690.1

Corporate
(147.8
)
 
(99.9
)
Operating Income
543.7

 
590.2

Interest and Other Financing Costs, net
(261.7
)
 
(224.8
)
Income Before Income Taxes
$
282.0

 
$
365.4

NOTE 13. 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 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, borrowings and derivatives. Management believes that the carrying value of cash and cash equivalents, accounts receivable and accounts payable are representative of their respective fair values. In conjunction with the fair value measurement of the derivative instruments, the Company made an accounting policy election to measure the credit risk of its derivative instruments that are subject to master netting agreements on a net basis by counterparty portfolio, the gross values would not be materially different. The fair value of the Company's debt at June 29, 2018 and September 29, 2017 was $7,865.2 million and $5,450.1 million, respectively. The carrying value of the Company's debt at June 29, 2018 and September 29, 2017 was $7,870.3 million and $5,268.5 million, respectively. The fair values were computed using market quotes, if available, or based on discounted cash flows using market interest rates as of the end of the respective periods. The inputs utilized in estimating the fair value of the Company's debt have been classified as level 2 in the fair value hierarchy levels.

21

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 14. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF ARAMARK AND SUBSIDIARIES:
The following condensed consolidating financial statements of the Company have been prepared pursuant to Rule 3-10 of Regulation S-X.
The condensed consolidating financial statements are presented for: (i) Aramark (the "Parent"); (ii) Aramark Services, Inc. and Aramark International Finance S.à r.l. (the "Issuers"); (iii) the guarantors; (iv) the non guarantors; (v) elimination entries necessary to consolidate the Parent with the Issuers, the guarantors and non guarantors; and (vi) the Company on a consolidated basis. Each of the guarantors is wholly-owned, directly or indirectly, by the Company. The 5.125% Senior Notes due 2024 (the "2024 Notes"), 5.000% Senior Notes due April 1, 2025 (the "5.000% 2025 Notes"), 3.125% Senior Notes due April 1, 2025 (the "3.125% 2025 Notes" and, together with the 5.000% 2025 Notes, the "2025 Notes"), 4.75% Senior Notes due June 1, 2026 ("2026 Notes") and 2028 Notes are obligations of the Company's wholly-owned subsidiary, Aramark Services, Inc., (other than the 3.125% 2025 Notes, which are obligations of the Company's wholly owned subsidiary, Aramark International Finance S.a.r.l) and are each jointly and severally guaranteed on a senior unsecured basis by the Company and substantially all of the Company's existing and future domestic subsidiaries (excluding the Receivables Facility subsidiary) ("Guarantors"). All other subsidiaries of the Company, either direct or indirect, do not guarantee the 2024 Notes, 2025 Notes, 2026 Notes or 2028 Notes ("Non Guarantors"). The Guarantors also guarantee certain other debt. These condensed consolidating financial statements have been prepared from the Company's financial information on the same basis of accounting as the condensed consolidated financial statements. Interest expense and certain other costs are partially allocated to all of the subsidiaries of the Company. Goodwill and other intangible assets have been allocated to the subsidiaries based on management's estimates.

22

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATING BALANCE SHEETS
June 29, 2018
(in thousands)

 
Aramark (Parent)
 
Issuers
 
Guarantors
 
Non
Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
5

 
$
27,472

 
$
26,034

 
$
112,457

 
$

 
$
165,968

Receivables

 
1,307

 
549,047

 
1,301,574

 

 
1,851,928

Inventories

 
15,142

 
575,835

 
114,387

 

 
705,364

Prepayments and other current assets

 
9,330

 
83,863

 
93,613

 

 
186,806

Total current assets
5

 
53,251

 
1,234,779

 
1,622,031

 

 
2,910,066

Property and Equipment, net

 
27,653

 
963,811

 
329,902

 

 
1,321,366

Goodwill

 
181,756

 
4,769,053

 
655,425

 

 
5,606,234

Investment in and Advances to Subsidiaries
2,845,770

 
7,507,640

 
90,049

 
634,463

 
(11,077,922
)
 

Other Intangible Assets

 
29,684

 
1,950,400

 
190,524

 

 
2,170,608

Other Assets

 
94,609

 
1,211,119

 
353,540

 
(2,002
)
 
1,657,266

 
$
2,845,775

 
$
7,894,593

 
$
10,219,211

 
$
3,785,885

 
$
(11,079,924
)
 
$
13,665,540

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term borrowings
$

 
$
32,162

 
$
27,022

 
$
22,786

 
$

 
$
81,970

Accounts payable

 
141,797

 
376,492

 
328,451

 

 
846,740

Accrued expenses and other current liabilities

 
197,794

 
681,087

 
334,935

 
88

 
1,213,904

Total current liabilities

 
371,753

 
1,084,601

 
686,172

 
88

 
2,142,614

Long-term Borrowings

 
6,773,741

 
74,602

 
939,992

 

 
7,788,335

Deferred Income Taxes and Other Noncurrent Liabilities

 
389,980

 
407,460

 
81,331

 

 
878,771

Intercompany Payable

 

 
5,328,743

 
519,783

 
(5,848,526
)
 

Redeemable Noncontrolling Interest

 

 
10,045

 

 

 
10,045

Total Stockholders' Equity
2,845,775

 
359,119

 
3,313,760

 
1,558,607

 
(5,231,486
)
 
2,845,775

 
$
2,845,775

 
$
7,894,593

 
$
10,219,211

 
$
3,785,885

 
$
(11,079,924
)
 
$
13,665,540



23

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATING BALANCE SHEETS
September 29, 2017
(in thousands)

 
Aramark (Parent)
 
Issuers
 
Guarantors 
 
Non
Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
5

 
$
111,512

 
$
37,513

 
$
89,767

 
$

 
$
238,797

Receivables

 
3,721

 
303,664

 
1,308,608

 

 
1,615,993

Inventories

 
15,737

 
514,267

 
80,728

 

 
610,732

Prepayments and other current assets

 
14,123

 
83,404

 
90,090

 

 
187,617

Total current assets
5

 
145,093

 
938,848

 
1,569,193

 

 
2,653,139

Property and Equipment, net

 
29,869

 
775,362

 
236,800

 

 
1,042,031

Goodwill

 
173,104

 
3,874,647

 
667,760

 

 
4,715,511

Investment in and Advances to Subsidiaries
2,459,056

 
5,248,858

 
90,049

 
567,277

 
(8,365,240
)
 

Other Intangible Assets

 
29,683

 
914,000

 
177,141

 

 
1,120,824

Other Assets

 
53,538

 
1,112,076

 
311,112

 
(2,002
)
 
1,474,724

 
$
2,459,061

 
$
5,680,145

 
$
7,704,982

 
$
3,529,283

 
$
(8,367,242
)
 
$
11,006,229

LIABILITIES AND 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term borrowings
$

 
$
33,487

 
$
20,330

 
$
24,340

 
$

 
$
78,157

Accounts payable

 
167,926

 
461,192

 
326,807

 

 
955,925

Accrued expenses and other current liabilities

 
200,130

 
814,542

 
319,253

 
88

 
1,334,013

Total current liabilities

 
401,543

 
1,296,064

 
670,400

 
88

 
2,368,095

Long-term Borrowings

 
4,460,730

 
63,604

 
665,997

 

 
5,190,331

Deferred Income Taxes and Other Noncurrent Liabilities

 
425,297

 
513,797

 
39,850

 

 
978,944

Intercompany Payable

 

 
5,224,196

 
747,347

 
(5,971,543
)
 

Redeemable Noncontrolling Interest

 

 
9,798

 

 

 
9,798

Total Stockholders' Equity
2,459,061

 
392,575

 
597,523

 
1,405,689

 
(2,395,787
)
 
2,459,061

 
$
2,459,061

 
$
5,680,145

 
$
7,704,982

 
$
3,529,283

 
$
(8,367,242
)
 
$
11,006,229



24

ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the three months ended June 29, 2018
(in thousands)
 
 
Aramark (Parent)
 
Issuers
 
Guarantors 
 
Non
Guarantors
 
Eliminations
 
Consolidated
Sales
$

 
$
261,383

 
$
2,580,276

 
$
1,129,947

 
$

 
$
3,971,606

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of services provided

 
235,789

 
2,263,239

 
1,025,776

 

 
3,524,804

Depreciation and amortization

 
4,771

 
127,321

 
24,842

 

 
156,934

Selling and general corporate expenses

 
51,310

 
43,179

 
7,226

 

 
101,715

Interest and other financing costs, net

 
85,080

 
(1,466
)
 
7,651

 

 
91,265

Expense allocations

 
(77,642
)
 
73,564

 
4,078

 

 

 

 
299,308

 
2,505,837

 
1,069,573

 

 
3,874,718

Income (Loss) before Income Tax

 
(37,925
)
 
74,439

 
60,374

 

 
96,888

Provision (Benefit) for Income Taxes

 
(9,612
)
 
17,470

 
16,314

 

 
24,172

Equity in Net Income of Subsidiaries
72,577

 

 

 

 
(72,577
)
 

Net income (loss)
72,577

 
(28,313
)
 
56,969

 
44,060

 
(72,577
)
 
72,716

Less: Net income attributable to noncontrolling interest

 

 
139

 

 

 
139

Net income (loss) attributable to Aramark stockholders
72,577

 
(28,313
)
 
56,830

 
44,060

 
(72,577
)
 
72,577

Other comprehensive income (loss), net of tax
(35,371
)
 
13,521

 

 
(100,736
)
 
87,215

 
(35,371
)