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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 28, 2019 Commission File Number: 001-36223

image0a11.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)
2400 Market Street
19103
Philadelphia,
Pennsylvania
(Address of principal executive offices)
(Zip Code)
(215) 238-3000
(Registrant's telephone number, including area code)
___________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on which Registered
Common Stock,
par value $0.01 per share
ARMK
New York Stock Exchange

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes  x    No  ¨

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
Emerging growth company
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 26, 2019, the number of shares of the registrant's common stock outstanding is 246,908,555.



    
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

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, anticipated effects of our adoption of new accounting standards, the expected impact of strategic portfolio actions, the benefits and costs of our acquisitions of each of Avendra, LLC ("Avendra") and AmeriPride Services, Inc. ("AmeriPride"), 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 or continue to be 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 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 21, 2018 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 28, 2019
 
September 28, 2018
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
220,055

 
$
215,025

Receivables (less allowances: 2019 - $48,666; 2018 - $52,682)
1,832,911

 
1,790,433

Inventories
393,115

 
724,802

Prepayments and other current assets
196,044

 
171,165

Total current assets
2,642,125

 
2,901,425

Property and Equipment, net
2,143,765

 
1,378,094

Goodwill
5,526,301

 
5,610,568

Other Intangible Assets
2,064,637

 
2,136,844

Other Assets
1,352,674

 
1,693,171

 
$
13,729,502

 
$
13,720,102

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities:
 
 
 
Current maturities of long-term borrowings
$
53,749

 
$
30,907

Accounts payable
819,922

 
1,018,920

Accrued expenses and other current liabilities
1,285,725

 
1,440,332

Total current liabilities
2,159,396

 
2,490,159

Long-Term Borrowings
7,198,918

 
7,213,077

Deferred Income Taxes and Other Noncurrent Liabilities
1,075,198

 
977,215

Redeemable Noncontrolling Interest
10,068

 
10,093

Stockholders' Equity:
 
 
 
Common stock, par value $.01 (authorized: 600,000,000 shares; issued: 2019—281,900,468 shares and 2018—279,314,297 shares; and outstanding: 2019—246,891,550 shares and 2018—246,744,438 shares)
2,819

 
2,793

Capital surplus
3,208,399

 
3,132,421

Retained earnings
1,048,606

 
710,519

Accumulated other comprehensive loss
(170,838
)
 
(91,223
)
Treasury stock (shares held in treasury: 2019—35,008,918 shares and 2018—32,569,859 shares)
(803,064
)
 
(724,952
)
Total stockholders' equity
3,285,922

 
3,029,558

 
$
13,729,502

 
$
13,720,102


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

1

Table of Contents

ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
 
Three Months Ended
 
June 28, 2019
 
June 29, 2018
Revenue
$
4,010,761

 
$
3,971,606

Costs and Expenses:
 
 
 
Cost of services provided
3,594,978

 
3,526,293

Depreciation and amortization
148,779

 
156,934

Selling and general corporate expenses
78,185

 
101,715

 
3,821,942

 
3,784,942

Operating income
188,819

 
186,664

Interest and Other Financing Costs, net
82,220

 
89,776

Income Before Income Taxes
106,599

 
96,888

Provision for Income Taxes
23,535

 
24,172

Net income
83,064

 
72,716

Less: Net income attributable to noncontrolling interest
109

 
139

Net income attributable to Aramark stockholders
$
82,955

 
$
72,577

 
 
 
 
Earnings per share attributable to Aramark stockholders:
 
 
 
Basic
$
0.34

 
$
0.29

Diluted
$
0.33

 
$
0.29

Weighted Average Shares Outstanding:
 
 
 
Basic
246,928

 
246,028

Diluted
251,147

 
251,857

 
Nine Months Ended
 
June 28, 2019
 
June 29, 2018
Revenue
$
12,276,097

 
$
11,876,035

Costs and Expenses:
 
 
 
Cost of services provided
11,029,382

 
10,611,532

Depreciation and amortization
447,408

 
443,646

Selling and general corporate expenses
270,600

 
282,327

Gain on sale of Healthcare Technologies
(156,309
)
 

 
11,591,081

 
11,337,505

Operating income
685,016

 
538,530

Interest and Other Financing Costs, net
249,375

 
256,562

Income Before Income Taxes
435,641

 
281,968

(Benefit) Provision for Income Taxes
72,589

 
(110,904
)
Net income
363,052

 
392,872

Less: Net income attributable to noncontrolling interest
60

 
442

Net income attributable to Aramark stockholders
$
362,992

 
$
392,430

 
 
 
 
Earnings per share attributable to Aramark stockholders:
 
 
 
Basic
$
1.47

 
$
1.60

Diluted
$
1.44

 
$
1.56

Weighted Average Shares Outstanding:
 
 
 
Basic
246,665

 
245,588

Diluted
251,271

 
252,231

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

2

Table of Contents

ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
 
Three Months Ended
 
June 28, 2019
 
June 29, 2018
Net income
$
83,064

 
$
72,716

Other comprehensive loss, net of tax
 
 
 
Pension plan adjustments
(179
)
 

Foreign currency translation adjustments
(2,002
)
 
(44,955
)
Fair value of cash flow hedges
(26,749
)
 
9,193

         Share of equity investee's comprehensive income (loss)
(257
)
 
391

Other comprehensive loss, net of tax
(29,187
)
 
(35,371
)
Comprehensive income
53,877

 
37,345

Less: Net income attributable to noncontrolling interest
109

 
139

Comprehensive income attributable to Aramark stockholders
$
53,768

 
$
37,206

 
Nine Months Ended
 
June 28, 2019
 
June 29, 2018
Net income
$
363,052

 
$
392,872

Other comprehensive income (loss), net of tax
 
 
 
Pension plan adjustments
574

 
13,379

Foreign currency translation adjustments
(11,036
)
 
(26,146
)
Fair value of cash flow hedges
(68,666
)
 
38,606

         Share of equity investee's comprehensive loss
(487
)
 
(145
)
Other comprehensive income (loss), net of tax
(79,615
)
 
25,694

Comprehensive income
283,437

 
418,566

Less: Net income attributable to noncontrolling interest
60

 
442

Comprehensive income attributable to Aramark stockholders
$
283,377

 
$
418,124


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

3

Table of Contents

ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
Nine Months Ended
 
June 28, 2019
 
June 29, 2018
Cash flows from operating activities:
 
 
 
Net income
$
363,052

 
$
392,872

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
447,408

 
443,646

Deferred income taxes
21,861

 
(155,050
)
Share-based compensation expense
48,414

 
68,318

         Net gain on sale of Healthcare Technologies
(139,165
)
 

Changes in operating assets and liabilities:
 
 
 
Accounts Receivable
(88,173
)
 
(101,538
)
Inventories
(37,133
)
 
(21,042
)
Prepayments and Other Current Assets
(33,586
)
 
16,092

Accounts Payable
(178,468
)
 
(149,627
)
Accrued Expenses
(164,584
)
 
(341,067
)
Payments made to clients on contracts (see Note 7)
(30,169
)
 

Other operating activities
(1,270
)
 
(7,092
)
Net cash provided by operating activities
208,187

 
145,512

Cash flows from investing activities:
 
 
 
Purchases of property and equipment and other
(340,449
)
 
(432,779
)
Disposals of property and equipment
11,020

 
7,686

Proceeds from divestiture
293,711

 

Acquisition of certain businesses, net of cash acquired
(35,515
)
 
(2,239,601
)
Other investing activities
21,841

 
(7,485
)
Net cash used in investing activities
(49,392
)
 
(2,672,179
)
Cash flows from financing activities:
 
 
 
Proceeds from long-term borrowings
107,796

 
3,146,069

Payments of long-term borrowings
(372,168
)
 
(701,062
)
Net change in funding under the Receivables Facility
255,000

 
145,800

Payments of dividends
(81,305
)
 
(77,317
)
Proceeds from issuance of common stock
21,339

 
15,961

Repurchase of stock
(50,000
)
 
(24,410
)
Other financing activities
(31,322
)
 
(47,113
)
Net cash provided by (used in) financing activities
(150,660
)
 
2,457,928

Effect of foreign exchange rates on cash and cash equivalents
(3,105
)
 
(4,090
)
Increase (decrease) in cash and cash equivalents
5,030

 
(72,829
)
Cash and cash equivalents, beginning of period
215,025

 
238,797

Cash and cash equivalents, end of period
$
220,055

 
$
165,968

 
Nine Months Ended
(dollars in millions)
June 28, 2019
 
June 29, 2018
Interest paid
$
248.3

 
$
227.7

Income taxes paid
$
137.4

 
$
94.0


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

4

Table of Contents

ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the nine months ended June 28, 2019
(Unaudited)
(in thousands)
 
Total
Stockholders'
Equity1
 
Common
Stock
 
Capital
Surplus
 
Retained Earnings1
 
Accumulated
Other
Comprehensive
Loss
 
Treasury Stock
Balance, September 28, 2018
$
3,029,558

 
$
2,793

 
$
3,132,421

 
$
710,519

 
$
(91,223
)
 
$
(724,952
)
Adoption of new accounting standard
58,395

 
 
 
 
 
58,395

 
 
 
 
Net income attributable to Aramark stockholders
250,682

 
 
 
 
 
250,682

 
 
 
 
Other comprehensive loss
(41,773
)
 
 
 
 
 
 
 
(41,773
)
 
 
Capital contributions from issuance of common stock
3,510

 
14

 
3,496

 
 
 
 
 
 
Share-based compensation expense
18,562

 
 
 
18,562

 
 
 
 
 
 
Repurchases of Common Stock
(71,884
)
 
 
 
 
 
 
 
 
 
(71,884
)
Payments of dividends
(29,157
)
 
 
 
 
 
(29,157
)
 
 
 
 
Balance, December 28, 2018
$
3,217,893

 
$
2,807

 
$
3,154,479

 
$
990,439

 
$
(132,996
)
 
$
(796,836
)
Net income attributable to Aramark stockholders
29,353

 
 
 
 
 
29,353

 
 
 
 
Other comprehensive loss
(8,655
)
 
 
 
 
 
 
 
(8,655
)
 
 
Capital contributions from issuance of common stock
11,790

 
5

 
11,785

 
 
 
 
 
 
Share-based compensation expense
14,679

 
 
 
14,679

 
 
 
 
 
 
Repurchases of Common Stock
(4,324
)
 
 
 
 
 
 
 
 
 
(4,324
)
Payments of dividends
(27,058
)
 
 
 
 
 
(27,058
)
 
 
 
 
Balance, March 29, 2019
$
3,233,680

 
$
2,812

 
$
3,180,943

 
$
992,736

 
$
(141,651
)
 
$
(801,160
)
Net income attributable to Aramark stockholders
82,955

 
 
 
 
 
82,955

 
 
 
 
Other comprehensive loss
(29,187
)
 
 
 
 
 
 
 
(29,187
)
 
 
Capital contributions from issuance of common stock
12,290

 
7

 
12,283

 
 
 
 
 
 
Share-based compensation expense
15,173

 
 
 
15,173

 
 
 
 
 
 
Repurchases of Common Stock
(1,904
)
 
 
 
 
 
 
 
 
 
(1,904
)
Payments of dividends
(27,085
)
 
 
 
 
 
(27,085
)
 
 
 
 
Balance, June 28, 2019
$
3,285,922

 
$
2,819

 
$
3,208,399

 
$
1,048,606

 
$
(170,838
)
 
$
(803,064
)
1May not foot due to rounding.

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

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ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the nine months ended June 29, 2018
(Unaudited)
(in thousands)
 
Total
Stockholders'
Equity
1
 
Common
Stock
 
Capital
Surplus
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
1
 
Treasury Stock
Balance, September 29, 2017
$
2,459,061

 
$
2,771

 
$
3,014,546

 
$
247,050

 
$
(123,760
)
 
$
(681,546
)
Net income attributable to Aramark stockholders
292,284

 
 
 
 
 
292,284

 
 
 
 
Other comprehensive income
11,604

 
 
 
 
 
 
 
11,604

 
 
Capital contributions from issuance of common stock
8,499

 
11

 
8,488

 
 
 
 
 
 
Share-based compensation expense
16,489

 
 
 
16,489

 
 
 
 
 
 
Repurchases of Common Stock
(38,463
)
 
 
 
 
 
 
 
 
 
(38,463
)
Payments of dividends
(27,080
)
 
 
 
 
 
(27,080
)
 
 
 
 
Balance, December 29, 2017
$
2,722,394

 
$
2,782

 
$
3,039,523

 
$
512,254

 
$
(112,156
)
 
$
(720,009
)
Net income attributable to Aramark stockholders
27,569

 
 
 
 
 
27,569

 
 
 
 
Other comprehensive income
49,460

 
 
 
 
 
 
 
49,460

 
 
Capital contributions from issuance of common stock
6,478

 
4

 
6,474

 
 
 
 
 
 
Share-based compensation expense
17,022

 
 
 
17,022

 
 
 
 
 
 
Repurchases of Common Stock
(1,533
)
 
 
 
 
 
 
 
 
 
(1,533
)
Payments of dividends
(25,768
)
 
 
 
 
 
(25,768
)
 
 
 
 
Balance, March 30, 2018
$
2,795,623

 
$
2,786

 
$
3,063,019

 
$
514,055

 
$
(62,695
)
 
$
(721,542
)
Net income attributable to Aramark stockholders
72,577

 
 
 
 
 
72,577

 
 
 
 
Other comprehensive loss
(35,371
)
 
 
 
 
 
 
 
(35,371
)
 
 
Capital contributions from issuance of common stock
7,088

 
4

 
7,084

 
 
 
 
 
 
Share-based compensation expense
34,807

 
 
 
34,807

 
 
 
 
 
 
Repurchases of Common Stock
(3,181
)
 
 
 
 
 
 
 
 
 
(3,181
)
Payments of dividends
(25,768
)
 
 
 
 
 
(25,768
)
 
 
 
 
Balance, June 29, 2018
$
2,845,775

 
$
2,790

 
$
3,104,910

 
$
560,864

 
$
(98,066
)
 
$
(724,723
)
1May not foot due to rounding.

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

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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").
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 21, 2018. The Condensed Consolidated Balance Sheet as of September 28, 2018 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 October 2018, the Financial Accounting Standards Board ("FASB") issued an accounting standards update ("ASU") which permits the use of the Overnight Index Swap Rate based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes. The guidance is effective for the Company in the first quarter of fiscal 2020. The Company early adopted the guidance in the first quarter of fiscal 2019, which did not have an impact on the condensed consolidated financial statements, as the Company's existing interest rate hedges use LIBOR as the benchmark interest rate. The use of the Secured Overnight Financing Rate Overnight Index Swap Rate as the benchmark interest rate may be contemplated in future hedging arrangements.
In February 2018, the FASB issued an ASU which provides clarification regarding guidance related to the financial instrument standard. The guidance was effective for the Company in the first quarter of fiscal 2019. The Company adopted the guidance in the first quarter of fiscal 2019, which did not have an impact on the condensed consolidated financial statements.
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 was effective for the Company in the first quarter of fiscal 2019. The Company adopted this standard in the first quarter of fiscal 2019, which did not have a material impact on the condensed consolidated financial statements.
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 was effective for the Company in the first quarter of fiscal 2019. The Company adopted the guidance during the first quarter of fiscal 2019, which did not result in an impact to net income. However, certain balances, including $1.5 million and $5.2 million for the three and nine month period ended June 29, 2018, were reclassified from "Cost of services provided" to "Interest and Other Financing Costs, net" on the Condensed Consolidated Statements of Income. The Company applied the practical expedient allowing for the use of amounts disclosed in the pension footnote for prior comparative periods as an estimation basis for applying the retrospective presentation requirements.
In February 2017, the FASB issued an ASU to clarify the accounting guidance for partial sales of nonfinancial assets. The guidance was effective for the Company in the first quarter of fiscal 2019. The Company adopted the guidance in the first quarter of fiscal 2019, which did not have an impact on the condensed consolidated financial statements.
In January 2017, the FASB issued an ASU to clarify the definition of a business. The guidance was effective for the Company in the first quarter of fiscal 2019. The Company adopted the guidance in the first quarter of fiscal 2019, using the prospective method, which did not have a material impact on the condensed consolidated financial statements.
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 was effective for the Company in the first quarter of fiscal 2019. The Company

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

adopted the guidance in the first quarter of fiscal 2019. Due to the lack of readily available fair values for the Company's equity investments, other than those accounted for under the equity method of accounting, the Company elected to apply the practical expedient to measure these investments at cost minus impairment plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The guidance did not have an impact to the Company's condensed consolidated financial statements.
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. The Company adopted this guidance on September 29, 2018.
In connection with the new revenue recognition guidance, the Company completed a comprehensive contract review project and an evaluation of the standard's impact on the timing and presentation of various financial aspects of its contractual arrangements. The Company identified and implemented appropriate changes to business processes, controls and systems to support recognition and disclosure under the new standard. The adoption of the guidance did not have a material impact on the timing of revenue recognition or net income, but it did have an impact on the financial statement line item classification of certain items (see Note 7).
The Company adopted the new revenue recognition guidance using the modified retrospective transition method. This method allows the new standard to be applied retrospectively through a cumulative catch up adjustment recognized upon adoption. As such, comparative information in the Company’s financial statements has not been restated and continues to be reported under the accounting standards in effect for those periods. The cumulative transition adjustment, net of tax, was an increase to retained earnings upon adoption (approximately $58.4 million) mainly to capitalize costs to obtain contracts related to employee commissions previously expensed. See Note 1 to the Company’s consolidated financial statements in its fiscal 2018 Form 10-K for further information on its significant accounting policies related to revenue recognition and see Note 7 for further information on the impact of adopting the new revenue recognition standard.
Standards Not Yet Adopted (from most to least recent date of issuance)
In May 2019, the FASB issued an ASU which provides the option to irrevocably elect to apply the fair value measurement option on an instrument-by-instrument basis for certain financial instruments within the scope of the credit losses on financial instruments standard. The guidance is effective for the Company in the first quarter of fiscal 2021 when the credit losses on financial instruments standard will be adopted and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In April 2019, the FASB issued an ASU which provides clarification, error corrections and improvements to existing guidance related to the credit losses on financial instruments ASU issued in June 2016, the derivatives and hedging ASU issued in August 2017 and the financial instruments ASU issued in January 2016. The guidance related to the credit losses on financial instruments ASU is effective for the Company in the first quarter of 2021 when the related ASU is adopted, while the guidance related to the derivatives and hedging and the financial instruments ASUs are effective for the Company in the first quarter of fiscal 2020 and the first quarter of 2021, respectively. Early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In March 2019, the FASB issued an ASU which provides clarification regarding three issues related to the lease recognition standard. The guidance is effective for the Company in the first quarter of fiscal 2020 when the lease recognition standard will be adopted and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In August 2018, the FASB issued an ASU which adds, modifies and removes several disclosure requirements related to defined benefit pension plans. The guidance is effective for the Company in the first quarter of fiscal 2022 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In August 2018, the FASB issued an ASU which adds, modifies and removes several disclosure requirements related to fair value measurements. 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 July 2018, the FASB issued two ASUs regarding the lease recognition standard. The guidance provides clarification on issues identified regarding the adoption of the standard, provides an additional transition method to adopt the standard and provides an additional practical expedient to lessors. The guidance is effective for the Company in the first quarter of fiscal 2020 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In July 2018, the FASB issued an ASU which clarifies, corrects errors in or makes minor improvements to the Accounting Standards Codification. The guidance is effective for the Company either upon issuance or in the first quarter of fiscal 2020, depending on the amendment. There was no impact on the condensed consolidated financial statements related to the

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

amendments that were effective upon issuance of the guidance and the Company is currently evaluating the impact of the remaining amendments 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 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 (see above) and the leases recognition standard (see below). The guidance is effective for the Company in the first quarter of fiscal 2019 with respect to the revenue recognition standard and in the first quarter of fiscal 2020 with respect to the lease recognition standard. Early adoption is permitted. The Company adopted the revenue related portions of this standard in conjunction with the revenue recognition standard during the first quarter of fiscal 2019, as described above. The lease related portions of this standard will be adopted in the first quarter of fiscal 2020 in conjunction with the lease recognition standard.
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. Recognition of expense on the Condensed Consolidated Statements of Income will continue in a manner similar to current guidance. The Company will adopt this guidance using the modified retrospective approach with an adjustment to recognize lease liabilities offset by a right-of-use asset. This adjustment will be recorded at the beginning of the period of adoption in the first quarter of fiscal 2020; therefore, the Company will recognize and measure leases without revising comparative period information or disclosure.
For existing leases as of the effective date, the Company will elect the package of practical expedients available at transition to not reassess historical lease determinations, lease classifications and initial direct costs. Additionally, the Company will not elect the use of hindsight for determining the reasonably certain lease term. The Company will elect the short-term lease recognition exemption whereby lease-related assets and liabilities will not be recognized for arrangements with terms less than one year.
The Company continues to review its lease arrangements in order to determine the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures. The Company has also implemented a new lease system in connection with the adoption of this standard. The majority of the Company's lease spend relates to certain real estate, with the remaining lease spend primarily related to vehicles and equipment. Based on its assessment, the Company expects adoption of this standard will result in a material increase in lease-related assets and liabilities in its Condensed Consolidated Balance Sheets, but does not expect it to have a significant impact in its Condensed Consolidated Statements of Income or Cash Flows. The Company continues to assess the disclosure requirements and implement appropriate changes to business processes, controls and systems.
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 (loss), 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).

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

The summary of the components of comprehensive income is as follows (in thousands):
 
Three Months Ended
 
June 28, 2019
 
June 29, 2018
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
Net income
 
 
$
83,064

 
 
 
$
72,716

Pension plan adjustments
(179
)

(179
)
 



Foreign currency translation adjustments
(2,002
)

(2,002
)
 
(45,185
)
230

(44,955
)
Fair value of cash flow hedges
(36,089
)
9,340

(26,749
)
 
12,966

(3,773
)
9,193

Share of equity investee's comprehensive income (loss)
(257
)

(257
)
 
391


391

Other comprehensive income (loss)
(38,527
)
9,340

(29,187
)
 
(31,828
)
(3,543
)
(35,371
)
Comprehensive income
 
 
53,877

 
 
 
37,345

Less: Net income attributable to noncontrolling interest
 
 
109

 
 
 
139

Comprehensive income attributable to Aramark stockholders
 
 
$
53,768

 
 
 
$
37,206


 
Nine Months Ended
 
June 28, 2019
 
June 29, 2018
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
Net income
 
 
$
363,052

 
 
 
$
392,872

Pension plan adjustments
574


574

 
32,730

(19,351
)
13,379

Foreign currency translation adjustments
(11,036
)

(11,036
)
 
(25,447
)
(699
)
(26,146
)
Fair value of cash flow hedges
(92,642
)
23,976

(68,666
)
 
54,451

(15,845
)
38,606

Share of equity investee's comprehensive loss
(487
)

(487
)
 
(145
)

(145
)
Other comprehensive income (loss)
(103,591
)
23,976

(79,615
)
 
61,589

(35,895
)
25,694

Comprehensive income
 
 
283,437

 
 
 
418,566

Less: Net income attributable to noncontrolling interest
 
 
60

 
 
 
442

Comprehensive income attributable to Aramark stockholders
 
 
$
283,377

 
 
 
$
418,124


Accumulated other comprehensive loss consists of the following (in thousands):
 
June 28, 2019
 
September 28, 2018
Pension plan adjustments
$
(24,054
)
 
$
(24,628
)
Foreign currency translation adjustments
(104,847
)
 
(93,811
)
Cash flow hedges
(32,474
)
 
36,192

Share of equity investee's accumulated other comprehensive loss
(9,463
)
 
(8,976
)
 
$
(170,838
)
 
$
(91,223
)

Currency Translation
During fiscal 2018, Argentina was determined to have a highly inflationary economy. As a result, the Company remeasured the financial statements of Argentina's operations in accordance with the accounting guidance for highly inflationary economies. During both the three and nine month periods of fiscal 2019, the impact of the foreign currency transactions were immaterial to the condensed consolidated financial statements. 
Other Assets
Other assets consist primarily of costs to obtain or fulfill contracts, long-term prepaid rent, investments in 50% or less owned entities, computer software costs, long-term receivables and personalized work apparel, linens and other rental items in service.

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

NOTE 2. DIVESTITURES:
On November 9, 2018, the Company completed the sale of its wholly-owned Healthcare Technologies ("HCT") business for $293.7 million in cash. The transaction resulted in a pretax gain of $156.3 million (tax effected gain of $139.2 million) in the Condensed Consolidated Statements of Income for the nine months ended June 28, 2019. The Company evaluated the sale under the rules for discontinued operations and concluded it did not meet all of the criteria required.
NOTE 3. SEVERANCE:
During 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 $19.8 million and $39.5 million for the nine months ended June 28, 2019 and June 29, 2018, respectively. As of June 28, 2019 and September 28, 2018, the Company had an accrual of approximately $17.3 million and $16.6 million, respectively, related to unpaid severance obligations. These obligations are expected to be paid through fiscal 2020.
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 28, 2019 is as follows (in thousands):
Segment
September 28, 2018
 
Acquisitions and Divestitures
 
Translation
 
June 28, 2019
FSS United States1
$
4,028,454

 
$
(86,280
)
 
$

 
$
3,942,174

FSS International
626,379

 
8,082

 
(9,830
)
 
624,631

Uniform
955,735

 
3,895

 
(134
)
 
959,496

 
$
5,610,568

 
$
(74,303
)
 
$
(9,964
)
 
$
5,526,301


(1)
Includes the removal of approximately $87.0 million of goodwill related to the divestiture of HCT during the first quarter of fiscal 2019 (see Note 2).

Other intangible assets consist of the following (in thousands):
 
June 28, 2019
 
September 28, 2018
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
Customer relationship assets
$
2,231,136

 
$
(1,211,039
)
 
$
1,020,097

 
$
2,244,215

 
$
(1,156,811
)
 
$
1,087,404

Trade names
1,047,425

 
(2,885
)
 
1,044,540

 
1,050,825

 
(1,385
)
 
1,049,440

 
$
3,278,561

 
$
(1,213,924
)
 
$
2,064,637

 
$
3,295,040

 
$
(1,158,196
)
 
$
2,136,844


Amortization of intangible assets for the nine months ended June 28, 2019 and June 29, 2018 was approximately $87.7 million and $82.3 million, respectively.

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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 28, 2019
 
September 28, 2018
Senior secured revolving credit facility, due October 2023
 
$
57,689

 
$
77,000

Senior secured term loan facility, due October 2023
 
516,473

 
538,674

Senior secured term loan facility, due March 2024
 
1,126,820

 
1,325,923

Senior secured term loan facility, due March 2025
 
1,657,745

 
1,656,919

5.125% senior notes, due January 2024
 
902,490

 
902,908

5.000% senior notes, due April 2025
 
591,780

 
590,884

3.125% senior notes, due April 2025(1)
 
366,180

 
373,240

4.750% senior notes, due June 2026
 
494,566

 
494,082

5.000% senior notes, due February 2028
 
1,137,331

 
1,136,472

Receivables Facility, due May 2021
 
255,000

 

Capital leases
 
141,297

 
143,388

Other
 
5,296

 
4,494

 
 
7,252,667

 
7,243,984

Less—current portion
 
(53,749
)
 
(30,907
)
 
 
$
7,198,918

 
$
7,213,077


(1)
This is a Euro denominated borrowing.

As of June 28, 2019, there was approximately $942.9 million of outstanding foreign currency borrowings.
Fiscal 2019 Refinancing Transactions
During the first quarter of fiscal 2019, the Company extended the maturity dates of the Revolving Credit Facility, Yen Term Loan due 2022, Canadian Term Loan due 2022, Canadian Term Loan due 2023 and Euro Term Loan due 2022 to October 1, 2023.
Also during the first quarter of fiscal 2019, the Company made an optional prepayment of approximately $200.0 million on the U.S. dollar denominated term loan due 2024.
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 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 $2.5 billion notional amount of outstanding interest rate swap agreements as of June 28, 2019, which fixes the rate on a like amount of variable rate borrowings through the first quarter of fiscal 2023. During the nine months ended June 28, 2019, the Company entered into approximately $500.0 million notional amount of forward starting 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 a notional amount of $575.0 million matured during the nine months ended June 28, 2019.
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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

interest expense as interest payments are made on the Company’s variable-rate debt. As of June 28, 2019 and September 28, 2018, approximately ($32.5) million and $36.2 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 28, 2019
 
June 29, 2018
Interest rate swap agreements
$
(33,975
)
 
$
12,257

 
Nine Months Ended
 
June 28, 2019
 
June 29, 2018
Interest rate swap agreements
$
(86,500
)
 
$
48,825


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 28, 2019, the Company has contracts for approximately 16.3 million gallons outstanding through the third quarter of fiscal 2020. 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 $1.1 million and a loss of approximately $3.2 million for the three and nine months ended June 28, 2019, respectively. 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 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 28, 2019, the Company had foreign currency forward exchange contracts outstanding with notional amounts of 41.0 million and £9.0 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 earnings as the contracts were not designated as hedging instruments, substantially offsetting currency transaction gains and losses on the short-term intercompany loans.

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Table of Contents
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 14 for a description of the fair value levels), of the Company's derivatives designated and not designated as hedging instruments in the Condensed Consolidated Balance Sheets (in thousands):
 
 
Balance Sheet Location
 
June 28, 2019
 
September 28, 2018
ASSETS
 
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
 
Interest rate swap agreements
 
Prepayments and other current assets
 
$

 
$
1,459

Interest rate swap agreements
 
Noncurrent Assets
 

 
54,708