<PAGE> 1
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 March 31, 1995
Commission file number 1-8827
ARAMARK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2319139
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class A common stock outstanding at April 28, 1995: 2,163,931
Class B common stock outstanding at April 28, 1995: 24,844,868
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
ASSETS
March 31, September 30,
1995 1994
------------ -------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 19,552 $ 27,426
Short-term investments held by the
Canadian subsidiary -- 16,203
Receivables 437,149 433,550
Inventories, at lower of cost or market 274,602 256,950
Prepayments and other current assets 104,774 69,865
---------- -----------
Total current assets 836,077 803,994
---------- -----------
Property and Equipment, net 709,016 681,907
Goodwill 492,461 438,725
Other Assets 251,043 197,324
---------- -----------
$2,288,597 $2,121,950
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 8,062 $ 9,391
Accounts payable 323,045 372,908
Accrued expenses and other liabilities 400,240 374,902
---------- -----------
Total current liabilities 731,347 757,201
---------- -----------
Long-Term Borrowings 1,139,043 981,949
Deferred Income Taxes and Other Noncurrent Liabilities 181,247 168,638
Minority Interest 316 10,812
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 22,315 20,791
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Class C preferred stock, redemption value $1,000 15,698 16,949
Class A common stock, par value $.01 21 21
Class B common stock, par value $.01 256 243
Capital surplus 521 --
Earnings retained for use in the business 212,160 178,587
Cumulative translation adjustment 7,988 7,550
Impact of potential repurchase feature of
common stock (22,315) (20,791)
---------- -----------
Total 214,329 182,559
---------- -----------
$2,288,597 $2,121,950
========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE> 3
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
----------------------------- -----------------------------
March 31, April 1, March 31, April 1,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,364,518 $ 1,257,614 $ 2,745,034 $ 2,549,634
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of services provided 1,255,607 1,156,230 2,520,272 2,335,956
Depreciation and amortization 39,034 34,845 76,047 69,226
Selling and general corporate expenses 18,431 17,069 37,060 33,472
----------- ----------- ----------- -----------
1,313,072 1,208,144 2,633,379 2,438,654
----------- ----------- ----------- -----------
Operating income 51,446 49,470 111,655 110,980
Interest Expense, net 29,442 28,275 54,875 57,756
----------- ----------- ----------- -----------
Income before income taxes 22,004 21,195 56,780 53,224
Provision for Income Taxes 8,548 7,750 22,612 20,890
Minority Interest 106 321 65 823
----------- ----------- ----------- -----------
Income before Cumulative Effect of Change
in Accounting for Income Taxes and
Extraordinary Item 13,350 13,124 34,103 31,511
Cumulative Effect of Change in Accounting
for Income Taxes -- -- -- 1,277
Extraordinary Item due to Early Extinguishment
of Debt (net of income taxes) -- 117 -- 819
----------- ----------- ----------- -----------
Net income $ 13,350 $ 13,007 $ 34,103 $ 29,415
=========== =========== =========== ===========
Earnings Per Share:
Income before cumulative effect of
change in accounting for income
taxes and extraordinary item $.26 $.25 $.68 $.61
Net income $.26 $.25 $.68 $.57
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE> 4
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------------
March 31, April 1,
1995 1994
----------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 34,103 $ 29,415
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 76,047 69,226
Income taxes deferred (1,822) (1,818)
Minority interest 65 823
Extraordinary item -- 819
Cumulative effect of accounting change -- 1,277
Changes in noncash working capital (77,587) (63,465)
Other operating activities (1,854) (3,579)
----------- ----------
Net cash provided by operating activities 28,952 32,698
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (81,944) (59,197)
Disposals of property and equipment 15,100 6,190
Sale of investments 16,203 6,194
Divestiture of certain businesses 1,583 5,223
Purchase of subsidiary stock (20,310) --
Acquisition of certain businesses (116,519) (6,279)
Other investing activities 2,787 (2,048)
----------- ----------
Net cash used in investing activities (183,100) (49,917)
----------- ----------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 176,711 52,863
Payment of long-term borrowings including premiums (27,096) (27,082)
Proceeds from issuance of common stock 7,613 10,584
Repurchase of stock (9,223) (21,435)
Other financing activities (1,731) (1,446)
----------- ----------
Net cash provided by financing activities 146,274 13,484
----------- ----------
Decrease in cash and cash equivalents (7,874) (3,735)
Cash and cash equivalents, beginning of period 27,426 27,801
----------- ----------
Cash and cash equivalents, end of period $ 19,552 $ 24,066
========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE> 5
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
-------------------------------------------
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. Certain information and footnote
disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. In the
opinion of the Company, the statements include all adjustments (which
include only normal recurring adjustments) required for a fair statement
of financial position, results of operations and cash flows for such
periods. The results of operations for the interim periods are not
necessarily indicative of the results for a full year.
(2) ACQUISITIONS:
------------
During the first quarter, the Company acquired Harry M. Stevens, a
provider of food and support services to stadiums and arenas, and Rainier
News a magazine distribution company, for approximately $130 million in
cash, notes and preferred stock, and additionally completed the buyback
of the remaining minority interest of its Canadian subsidiary for cash
consideration of $20.3 million.
The acquisitions have been accounted for by the purchase method. The
costs of the acquisitions were allocated to the assets acquired and
liabilities assumed based upon a preliminary estimate of their respective
fair values and will be finalized during fiscal 1995. Amounts allocated
to goodwill are being amortized on a straight-line basis over 40 years.
Recently, the Company terminated its agreement to purchase the TW
Recreational Services subsidiary of Flagstar Companies, Inc.
(3) EARLY EXTINGUISHMENT OF DEBT:
----------------------------
During the first six months of fiscal 1994, the Company redeemed $13.4
million of its 12.5% subordinated debentures for total cash premiums of
$1.2 million. The redemption premium (net of applicable income tax
benefit of $0.5 million) is reflected in the Condensed Consolidated
Statements of Income as an "Extraordinary Item".
In April 1995, the Company redeemed its $125 million 12% subordinated
debentures due 2000 and its $50 million 10.25% senior note due 1998 and
issued $150 million of 8.15% senior notes due 2005 and $100 million of 8%
senior notes due 2002. The premium related to the early extinguishment of
the debt, $6.7 million after tax, will be reflected as an extraordinary
item in the fiscal 1995 third quarter.
(4) CAPITAL STOCK:
-------------
During the first six months of fiscal 1995, pursuant to the ARAMARK
Ownership Program, employees purchased 2,751,395 shares or $16.5 million
of Class B Common Stock for $7.6 million of cash and $8.9 million of
deferred payment obligations.
(5) SUPPLEMENTAL CASH FLOW INFORMATION:
----------------------------------
The Company made interest payments of $51.5 million and $54.5 million and
income tax payments of $33.4 million and $23.9 million during the first
six months of fiscal 1995 and 1994, respectively. During the first six
months of fiscal 1995, the Company purchased $1.3 million of its
Preferred Stock and $15.3 million of its Class B Common Stock, issuing
$7.3 million in subordinated installment notes as partial consideration,
and contributed $1.4 million of Class A Common Stock to its employee
benefit plans. In connection with the acquisitions described in Note 2,
the company issued promissory notes and preferred stock of a subsidiary
totaling $8 million.
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(6) ARAMARK SERVICES, INC. AND SUBSIDIARIES:
---------------------------------------
The following financial information has been summarized from the separate
consolidated financial statements of ARAMARK Services, Inc. (a wholly
owned subsidiary of ARAMARK Corporation) and the subsidiaries which it
currently owns. ARAMARK Services, Inc. is the borrower under the
revolving credit facility and certain other senior debt agreements and
incurs the interest expense thereunder. This interest expense is only
partially allocated to all of the other subsidiaries of ARAMARK
Corporation.
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
--------------------------------- --------------------------------
March 31, April 1, March 31, April 1,
1995 1994 1995 1994
----------- ------------ -------------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Revenues $779.0 $707.7 $1,532.9 $1,423.2
Cost of services provided 730.9 665.5 1,436.0 1,335.5
Income before cumulative effect of
change in accounting for income
taxes 6.7 2.8 16.5 8.2
Cumulative effect of change in
accounting for income taxes -- -- -- 0.3
Net income 6.7 2.8 16.5 7.9
</TABLE>
March 31, September 30,
1995 1994
---------- -------------
(in thousands)
Current assets $ 345.1 $ 355.8
Noncurrent assets 1,401.1 1,223.8
Current liabilities 411.2 398.8
Noncurrent liabilities 1,235.1 1,093.6
Minority interest 0.3 10.8
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
Overview
- --------
Revenues of $1.4 billion for the second quarter and $2.7 billion for the
six-month period increased 9% and 8%, respectively, over the comparable prior
year periods. Second quarter operating income of $51.4 million was $2 million or
4% higher than the prior year period. The increase is due to improved earnings
in all business segments, as discussed below, partially offset by increased
costs related to the change in corporate identity and also the seasonal
operating loss related to the recent Harry M. Stevens (Stevens) acquisition (see
note 2 to the condensed consolidated financial statements). Operating income for
the six month period of $111.7 million was slightly higher than the prior year
period, with improvements in business segment earnings being offset by the
impact of the National Hockey League and Major League Baseball strikes in the
United States and Canada, and the corporate identity costs and the Stevens
seasonal loss noted above. Excluding the impact of the hockey and baseball
strikes and the Stevens acquisition, it is estimated that operating income
would have been approximately 4% higher for the second quarter and the six
months and, net income would have been about 13% higher for the six month
period.
The Company's operating income margin for the six month period decreased to 4.1%
in fiscal 1995 from 4.4% in fiscal 1994. The decrease in margin is due primarily
to the hockey and baseball strikes and increased corporate expenses referred to
above.
Second quarter interest expense increased $1.2 million, or 4%, due to increases
in debt levels from financing acquisitions and increases in short-term interest
rates, partially offset by the favorable impact of refinancing certain of the
Company's subordinated debentures during fiscal 1994. (See notes 2 and 3 to the
condensed consolidated financial statements). Interest expense for the six month
period decreased $2.9 million compared to the prior year period, primarily due
to the refinancing described above offset by the increase in interest due to the
acquisitions.
Segment Results
- ---------------
Food, Leisure and Support Services segment revenues increased 7% and 6%,
respectively, for the three and six month periods due to new accounts and
increased volume at both domestic and international food businesses and due to
the Stevens acquisition, partially offset by the impact of the National Hockey
League and Major League Baseball strikes. Uniform Services segment revenues
increased 11% and 12%, respectively, for the three and six month periods,
reflecting increased volume at both uniform rental operations and at WearGuard.
Health & Education segment revenues increased 13% and 12%, respectively for the
three and six month periods resulting from new contracts at Spectrum Healthcare
Services and continued enrollment and tuition increases at Children's World.
Distributive segment revenues for the three and six month periods increased 7%
and 5%, respectively, due to increased unit volume and the effect of the first
quarter acquisition (see note 2).
Food, Leisure and Support Services segment operating income for the fiscal
second quarter and six month period increased 13% and 7%, respectively, compared
to the comparable prior year period. The increases are attributable to increased
revenues in the domestic food businesses, partially offset by the seasonal
impact of the Stevens acquisition and the impact of the hockey and baseball
strikes. Excluding the effects of the strikes and the acquisition, segment
operating income would have been 11% and 9% higher for the second quarter and
six month periods, respectively. Uniform Services operating income increased 1%
and 5% for the three and six month periods, respectively, due to the higher
volume, partially offset by increases in merchandise and other operating costs.
Health & Education segment operating income increased 7% and 4% for the three
and six month periods, respectively, due to volume related improvements in
operating income at Children's World. Distributive segment second quarter
operating income increased 1% over the prior year period, due primarily to the
recent acquisition. Distributive segment operating income for the six month
period decreased 5% compared to the prior year period, with increases related to
unit volume and the acquisition, being off-set by higher operating expenses.
<PAGE> 8
On January 11, 1995, the National Hockey League entered into a new labor accord.
A shortened hockey season began on January 20, 1995. The Major League Baseball
strike which began on August 12, 1994 ended on April 2, 1995. The announced plan
is to have a shortened 1995 season with 144 games or 89% of the normal schedule.
Although the delay of the start of the season will have a negative impact on the
Company's third quarter results, management does not believe the planned
abbreviated season will have a material adverse impact on its full year 1995
operating results.
FINANCIAL CONDITION
- -------------------
The Company's indebtedness increased $156 million during the first six months of
fiscal 1995, principally to finance acquisitions (see note 2 to the condensed
consolidated financial statements), capital expenditures and a seasonal increase
in working capital.
In April 1995, the Company redeemed its $125 million 12% subordinated debentures
due 2000 and its $50 million 10.25% senior note due 1998 and issued $150 million
of 8.15% senior notes due 2005 and $100 million of 8% senior notes due 2002. The
premium related to the early extinguishment of the debt, $6.7 million after tax,
will be reflected as an extraordinary item in the fiscal 1995 third quarter.
Remaining proceeds from the note offering were used to reduce outstanding
borrowings on the credit facility. The financing transactions extended overall
maturities and decreased the Company's average borrowing rate.
The Company currently has approximately $450 million of unused committed credit
availability under its $1 billion revolving credit facility, which management
believes, along with cash flows from operations, is sufficient to fund operating
requirements.
<PAGE> 9
PART II - OTHER INFORMATION
Item 1: Not Applicable.
- -------
Item 2: Not Applicable.
- -------
Item 3: Not Applicable.
- -------
Item 4: Submission of Matters to a Vote of Security Holders.
- -------
(a) The Annual Meeting of Stockholders was held on
February 14, 1995.
(b) Not Applicable.
(c) A proposal to approve the Company's 1991 Stock
Ownership Plan, as amended (the "Plan") was voted upon
and approved.
There were 24,831,396 affirmative votes and 8,208
negative or abstained votes cast with respect to the
approval of the Plan.
There were 24,839,604 affirmative votes and no negative
or abstained votes cast with respect to the
uncontested election of directors.
(d) Not Applicable.
Item 5: Not Applicable.
- -------
Item 6: Exhibits.
- -------
(a) (1) Exhibit 4 - 1991 Stock Ownership Plan, as amended,
is incorporated by reference to the Company's Proxy
Statement filed with the Securities and Exchange
Commission on January 11, 1995
(2) Exhibit 11 - Computation of Fully Diluted Earnings
Per Share
(3) Exhibit 27 - Financial Data Schedule
(b) None
<PAGE> 10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARAMARK CORPORATION
/s/ Alan J. Griffith
----------------------------------------
Alan J. Griffith
Vice President & Controller and Chief
Accounting Officer
May 15, 1995
<PAGE> 11
EXHIBIT 11
ARAMARK CORPORATION AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (1)
(Unaudited)
(In Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
March 31, April 1, March 31, April 1,
1995 1994 1995 1994
---------- ----------- ---------- ---------
Earnings:
<S> <C> <C> <C> <C>
Net Income $ 13,350 $ 13,007 $ 34,103 $ 29,415
Preferred stock dividends (273) (301) (530) (811)
-------- -------- -------- --------
Earnings applicable to common stock $ 13,077 $ 12,706 $ 33,573 $ 28,604
======== ======== ======== ========
Shares:
Weighted average number of common
shares outstanding (2) 47,588 47,514 46,660 46,639
Impact of potential exercise opportunities
under the ARAMARK Ownership Program 2,633 3,241 3,074 3,572
-------- -------- -------- --------
Total common and common equivalent shares 50,221 50,755 49,734 50,211
======== ======== ======== ========
Fully diluted earnings per common and
common equivalent share $.26 $.25 $.68 $.57
==== ==== ==== ====
</TABLE>
(1) Primary and fully diluted earnings per share are approximately the same.
(2) Includes Class B plus Class A Common Shares stated on a Class B Common
Share Equivalent Basis.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-29-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<CASH> $19,552
<SECURITIES> 0
<RECEIVABLES> 437,149
<ALLOWANCES> 14,899
<INVENTORY> 274,602
<CURRENT-ASSETS> 836,077
<PP&E> 1,355,895
<DEPRECIATION> 646,879
<TOTAL-ASSETS> 2,288,597
<CURRENT-LIABILITIES> 731,347
<BONDS> 1,139,043
<COMMON> 277
0
15,698
<OTHER-SE> 198,354
<TOTAL-LIABILITY-AND-EQUITY> 2,288,597
<SALES> 0
<TOTAL-REVENUES> 2,745,034
<CGS> 0
<TOTAL-COSTS> 2,520,272
<OTHER-EXPENSES> 76,047
<LOSS-PROVISION> 3,585
<INTEREST-EXPENSE> 54,875
<INCOME-PRETAX> 56,780
<INCOME-TAX> 22,612
<INCOME-CONTINUING> 34,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,103
<EPS-PRIMARY> 0
<EPS-DILUTED> $.68
</TABLE>
