Derivative Instruments

12 Months Ended

Sep. 29, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS: The Company enters into contractual derivative arrangements to manage changes in market conditions related to interest on debt obligations and exposure to fluctuating gasoline and diesel fuel prices. Derivative instruments utilized during the period include interest rate swap agreements 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 for designated hedges. 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 $2.2 billion notional amount of outstanding interest rate swap agreements as of September 29, 2023, which fix the rate on a like amount of variable rate borrowings with varying maturities through December of fiscal 2028. During fiscal 2023, the Company entered into $150.0 million notional amount of interest rate swap agreements to hedge the cash flow risk of variability in interest payments on variable rate borrowings and $1.2 billion notional amount of previously forward starting interest rate swap agreements became effective. In addition, interest rate swaps with notional amounts of $1.6 billion matured during fiscal 2023.

During fiscal 2023, the Company entered into bilateral agreements with its swap counterparties to transition all of its interest rate swap agreements to use SOFR as the reference rate in anticipation of the discontinuance of LIBOR. There are no changes to interest rate swap parties, notional amounts or settlement dates as a result of these amendments. As of September 29, 2023, all of the Company's interest rate swap agreements were indexed to SOFR.

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 loss and reclassified into earnings as the underlying hedged item affects earnings. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Cash flows from hedging transactions are classified in the same category as the cash flows from the respective hedged item. As of September 29, 2023 and September 30, 2022, $109.1 million and $114.7 million, respectively, of unrealized net of tax gains related to the interest rate swaps were included in "Accumulated other comprehensive loss."

The following table summarizes the effect of the Company's derivatives designated as cash flow hedging instruments on Other comprehensive income (in thousands):


	Fiscal Year Ended
	September 29, 2023		September 30, 2022		October 1, 2021
Interest rate swap agreements(1)	$	51,541	$	193,616	$	1,228


(1)			Change in the amounts driven by changes in forward interest rates.

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 September 29, 2023, the Company has contracts for approximately 6.6 million gallons outstanding through June of fiscal 2024. The majority of these gasoline and diesel fuel agreements support the Uniform segment with the remaining agreements supporting the FSS United States segment, whereas the impact will be immaterial following the separation and distribution of the Uniform segment subsequent to fiscal year-end (see Note 1). 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 $2.6 million for fiscal 2023, a loss of $5.2 million for fiscal 2022 and a gain of $4.4 million for fiscal 2021. The change in fair value for unsettled contracts is included in "Selling and general corporate expenses" on the Consolidated Statements of Income (Loss). When the contracts settle, the gain or loss is recorded in "Cost of services provided (exclusive of depreciation and amortization)" on the Consolidated Statements of Income (Loss).

The following table summarizes the location and fair value, using Level 2 inputs (see Note 16 for a description of the fair value levels), of the Company's derivatives designated and not designated as hedging instruments on the Consolidated Balance Sheets (in thousands):


	Balance Sheet Location	September 29, 2023		September 30, 2022
ASSETS
Designated as hedging instruments:
Interest rate swap agreements	Prepayments and other current assets	$	—	$	5,278
Interest rate swap agreements	Other Assets	147,458		149,755
		$	147,458	$	155,033





LIABILITIES





Not designated as hedging instruments:
Gasoline and diesel fuel agreements	Accounts Payable	$	1	$	2,631
		$	1	$	2,631

The following table summarizes the location of the (gain) loss reclassified from "Accumulated other comprehensive loss" into earnings for derivatives designated as hedging instruments and the location of the loss (gain) for the Company's derivatives not designated as hedging instruments on the Consolidated Statements of Income (Loss) (in thousands):


		Fiscal Year Ended
	Income Statement Location	September 29, 2023		September 30, 2022		October 1, 2021
Designated as hedging instruments:
Interest rate swap agreements(1)	Interest and Other Financing Costs, net	$	(59,117)	$	27,970	$	50,595



Not designated as hedging instruments:

Gasoline and diesel fuel agreements	Cost of services provided (exclusive of depreciation and amortization)/ Selling and general corporate expenses	314		(3,203)		(8,044)
		$	(58,803)	$	24,767	$	42,551


(1)			Change in the amounts driven by changes in forward interest rates.

As of September 29, 2023, the Company has a Euro denominated term loan in the amount of €90.2 million. The term loan was designated as a hedge of the Company's net Euro currency exposure represented by certain holdings in the Company's European affiliates.

At September 29, 2023, 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 $53.7 million.