<PAGE>
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, 1996 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
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(Address of principal executive offices) (Zip Code)
(215) 238-3000
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(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 July 26, 1996: 1,994,849
Class B common stock outstanding at July 26, 1996: 23,027,082
- - --------------------------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
June 28, September 29,
1996 1995
------------ ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 21,060 $ 23,082
Receivables 533,568 488,920
Inventories, at lower of cost or market 305,506 285,510
Prepayments and other current assets 82,132 64,772
---------- ----------
Total current assets 942,266 862,284
----------- ----------
Property and Equipment, net 791,840 756,082
Goodwill 645,481 506,193
Other Assets 285,625 475,127
---------- ----------
$2,665,212 $2,599,686
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 14,491 $ 8,384
Accounts payable 365,614 440,761
Accrued expenses and other liabilities 456,359 399,458
---------- ---------
Total current liabilities 836,464 848,603
---------- ----------
Long-Term Borrowings 1,311,902 1,274,771
Deferred Income Taxes and Other Noncurrent Liabilities 231,830 204,968
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 16,820 19,060
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Class C preferred stock, redemption value $1,000 5,396 14,965
Class A common stock, par value $.01 20 21
Class B common stock, par value $.01 232 235
Earnings retained for use in the business 275,172 247,805
Cumulative translation adjustment 4,196 8,318
Impact of potential repurchase feature of
common stock (16,820) (19,060)
---------- ----------
Total 268,196 252,284
---------- ----------
$2,665,212 $2,599,686
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
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 Nine Months Ended
------------------------------------ -----------------------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
---------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $1,546,296 $1,423,824 $4,560,296 $4,168,858
---------- ---------- ---------- ----------
Costs and Expenses:
Cost of services provided 1,407,732 1,290,258 4,164,639 3,810,530
Depreciation and amortization 45,787 40,365 136,265 116,412
Selling and general corporate expenses 19,068 18,535 61,353 55,595
Other expense (income) - - (2,850) -
---------- ---------- ---------- ----------
1,472,587 1,349,158 4,359,407 3,982,537
---------- ---------- ---------- ----------
Operating income 73,709 74,666 200,889 186,321
Interest Expense, net 28,580 27,309 88,900 82,184
---------- ---------- ---------- ----------
Income before income taxes 45,129 47,357 111,989 104,137
Provision for Income Taxes 15,324 19,300 41,896 41,977
---------- ---------- ---------- ----------
Income before Extraordinary Item 29,805 28,057 70,093 62,160
Extraordinary Item due to Early Extinguishment
of Debt (net of income taxes) 1,169 6,686 2,758 6,686
---------- ---------- ---------- ----------
Net income $ 28,636 $ 21,371 $ 67,335 $ 55,474
========== =========== ========== ==========
Earnings Per Share:
Income before extraordinary item $.64 $.56 $1.47 $1.24
Net income $.61 $.43 $1.41 $1.10
==== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
------------------------------
June 28, June 30,
1996 1995
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 67,335 $ 55,474
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 136,265 116,412
Income taxes deferred (25,343) (2,399)
Extraordinary item 2,758 6,686
Changes in noncash working capital (89,961) (36,813)
Other operating activities (9,810) (3,590)
--------- ---------
Net cash provided by operating activities 81,244 135,770
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (119,197) (125,854)
Disposals of property and equipment 5,761 16,538
Divestiture of certain businesses 50,823 2,483
Sale of investments -- 16,203
Purchase of subsidiary stock -- (20,386)
Acquisition of certain businesses (10,445) (144,503)
Other investing activities (11,628) (44)
--------- ---------
Net cash used in investing activities (84,686) (255,563)
--------- ---------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 166,568 337,983
Payment of long-term borrowings including premiums (128,250) (209,085)
Proceeds from issuance of common stock 13,674 9,162
Repurchase of stock (48,956) (21,618)
Other financing activities (1,616) (4,637)
--------- ---------
Net cash provided by financing activities 1,420 111,805
--------- ---------
Decrease in cash and cash equivalents (2,022) (7,988)
Cash and cash equivalents, beginning of period 23,082 27,426
--------- ---------
Cash and cash equivalents, end of period $ 21,060 $ 19,438
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
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) OTHER INCOME:
During the first quarter of fiscal 1996, the Company sold a division of
its Uniform Services business. The net selling price was approximately
$51 million in cash and resulted in a pre-tax gain of $37 million, which
was offset by other charges related to asset realization ($20 million)
and insurance, legal and other matters ($14 million) and is reflected as
"other expense (income)" in the accompanying consolidated statements of
income. The divested operations were not material to the Company's
revenues or operating income.
(3) EARLY EXTINGUISHMENT OF DEBT:
In January 1996, the Company redeemed its $80 million 8-1/4% senior note
for a premium resulting in an extraordinary item for debt extinguishment
of $1.6 million (net of tax benefit of $1.0 million) and issued a $125
million 6.79% senior note due January 2003, with annual principal
repayments of $25 million beginning January 1999. During the third
quarter of fiscal 1996, the Company replaced its existing credit facility
with a new $1 billion credit facility. The new facility is non-amortizing
and matures on June 30, 2001. The Company wrote off the unamortized
balance of financing costs related to the old credit facility which is
reflected as an extraordinary item for debt extinguishment of $1.2
million (net of tax benefit of $0.8 million).
During the third quarter of fiscal 1995, the Company redeemed its $125
million 12% subordinated debentures due 2000 and its $50 million 10.25%
senior note due 1998, resulting in an early extinguishment item of $6.7
million (net of tax benefit of $4.4 million).
(4) CAPITAL STOCK:
During the first nine months of fiscal 1996, pursuant to the ARAMARK
Ownership Program, employees purchased 1,797,998 shares or $15.1 million
of Class B Common Stock for $13.7 million of cash and $1.4 million of
deferred payment obligations. As of the end of the third quarter, the
Company exchanged 8,606 shares of its Preferred Stock for 539,441 shares
of Class B Common Stock. In July the Company called for the redemption of
all its outstanding Preferred Stock as of September 4, 1996 for cash of
approximately $5.4 million.
(5) SUPPLEMENTAL CASH FLOW INFORMATION:
The Company made interest payments of $81.9 million and $76.8 million and
income tax payments of $70.6 million and $40.7 million during the first
nine months of fiscal 1996 and 1995, respectively. During the first nine
months of fiscal 1996, the Company purchased $1.0 million of its
Preferred Stock, $28.1 million of its Class A Common Stock and $39.6
million of its Class B Common Stock, issuing $19.7 million in
subordinated installment notes as partial consideration, and contributed
$1.6 million of Class A Common Stock to its employee benefit plans.
<PAGE>
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 Nine Months Ended
------------------------------ -----------------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
----------- ----------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C>
Revenues $789.6 $739.8 $2,443.0 $2,272.7
Cost of services provided 748.3 694.8 2,307.9 2,130.8
Net income 2.8 3.5 10.2 20.0
</TABLE>
<TABLE>
<CAPTION>
June 28, September 29,
1996 1995
-------- -------------
(in thousands)
<S> <C> <C>
Current assets $ 355.9 $ 366.4
Noncurrent assets 1,595.4 1,545.5
Current liabilities 435.1 435.3
Noncurrent liabilities 1,412.0 1,377.8
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Overview
Revenues were $1.5 billion for the third quarter and $4.6 billion for the nine
month period, representing increases of 9% over the comparable prior year
periods. Third quarter operating income of $73.7 million was approximately $1
million lower than the prior year period, due to a significant decline in the
earnings of the Distributive segment, which more than offset increased earnings
in the Food, Leisure & Support, Uniform Services and Health & Education
segments. Operating income for the nine month period of $200.9 million was 8%
higher than the prior year period as a result of improved earnings in the
Uniform Services, Health & Education and Food, Leisure & Support segments,
including the positive impact in fiscal 1996 from the return of baseball and
hockey, partially offset by the earnings decline in the Distributive segment.
Fiscal 1996 year-to-date results also include other income of $2.9 million (see
note 2 to the condensed consolidated financial statements). As a result of the
decreased earnings of the Distributive segment, the Company's operating income
margin for the nine month period (before other income) decreased to 4.3% from
4.5% in the comparable prior year period. Excluding the Distributive segment,
operating income increased 13% and 19% over the comparable prior year three
month and nine month periods, respectively.
Interest expense for the three and nine month periods increased $1.3 million or
5% and $6.7 million or 8%, respectively, from the comparable prior year period
due to increased debt levels to finance acquisitions, partially offset by the
favorable impact of refinancing certain of the Company's subordinated debentures
and lower interest rates. The effective income tax rate decreased for both the
third quarter and the nine months due to the favorable impact resulting from the
settlement of an audit of certain prior years' federal income tax returns in
June 1996.
Segment Results
Revenues - Food, Leisure and Support Services segment third quarter revenues
increased 7% due primarily to new accounts and increased volume at both U.S. and
international food businesses. Food Leisure and Support Services segment
revenues for the nine month period increased 8% due to the volume growth noted
above, acquisitions and the return of baseball and hockey. Uniform Services
segment revenues increased 16% and 17% over the prior year three and nine month
periods, respectively, due to the impact of recent acquisitions and increased
volume in the uniform rental business, partially offset by the divestiture
discussed in note 2 and decreased volume from direct marketing of work clothing.
Health and Education segment revenues in the fiscal third quarter increased 8%
compared to the prior year period due to enrollment growth and pricing at
Children's World and new contracts at correctional institutions in the
healthcare business. Health and Education segment revenues for the nine month
period increased 4% over the prior year period due primarily to the increased
revenues at Children's World noted above. Distributive segment revenues for the
three and nine month periods increased 8% and 12%, respectively, due to
acquisitions completed during fiscal 1995 and the impact of the change in
customer mix in 1996.
Operating Income, before Other Expense (Income) - Food, Leisure and Support
Services segment third quarter operating income increased 17% compared to the
prior year period due to the revenue growth noted above. Operating income for
the nine month period increased 24% from the prior year period due to increased
revenues in the food business and the return of baseball and hockey. Uniform
Services segment operating income for the third quarter increased 10% over the
prior year period due to volume increases in the uniform rental business, recent
acquisitions and cost reduction initiatives in the direct marketing business,
partially offset by the impact of the divestiture described in note 2. Operating
income for the nine month period increased 9% over the prior year period, with
increases related to uniform rental volume and acquisitions being partially
offset by the divestiture and increased operating and marketing costs in the
work clothing direct marketing business incurred in the first fiscal quarter.
Health and Education segment third quarter and year-to-date operating income
increased 7% over the comparable prior year periods, primarily due to the
revenue increases at Children's World partially offset by increased operating
costs in the healthcare
<PAGE>
business. The Distributive segment incurred an operating loss of $3.8 million in
the fiscal third quarter. Operating income for this segment was approximately
$10 million and $18 million lower compared to the prior year three and nine
month periods, respectively. Results continue to be impacted by higher operating
expenses due to the costs of servicing new customers and the increased
competition and consolidation in the magazine wholesale distribution industry.
The Company believes it is well positioned to take advantage of the current
competitive conditions, however, the future impact of these changes is uncertain
at this time. For the remainder of fiscal 1996, the Company projects that
operating income in the Distributive segment will continue to be significantly
lower than the prior year period.
FINANCIAL CONDITION
The Company's indebtedness increased $43 million in the first nine months of
fiscal 1996, principally to finance seasonal working capital needs, which was
partially offset by the proceeds from the sale of a division (see note 2 to the
condensed consolidated financial statements).
The Company currently has approximately $380 million of unused 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>
PART II - OTHER INFORMATION
Item 1: Not Applicable.
Item 2: Not Applicable.
Item 3: Not Applicable.
Item 4: Not Applicable.
Item 5: Not Applicable.
Item 6: Exhibits.
(a) (1) Exhibit 11 - Computation of Fully Diluted Earnings Per Share
(2) Exhibit 27 - Financial Data Schedule
(b) None
<PAGE>
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
August 12, 1996 Vice President, Controller and
Chief Accounting Officer
<PAGE>
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 Nine Months Ended
------------------------------ -----------------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Earnings:
Net Income $ 28,636 $ 21,371 $ 67,335 $ 55,474
Preferred stock dividends (236) (261) (731) (791)
-------- -------- -------- --------
Earnings applicable to common stock $ 28,400 $ 21,110 $ 66,604 $ 54,683
======== ======== ======== ========
Shares:
Weighted average number of common
shares outstanding (2) 43,909 46,928 44,624 46,667
Impact of potential exercise opportunities
under the ARAMARK Ownership Program 2,469 2,486 2,678 2,931
-------- -------- -------- --------
Total common and common equivalent shares 46,378 49,414 47,302 49,598
======== ======== ======== ========
Fully diluted earnings per common and
common equivalent share $ .61 $ .43 $ 1.41 $ 1.10
======== ======== ======== ========
</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
<CIK> 0000757523
<NAME> ARAMARK CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1996
<PERIOD-START> SEP-30-1995
<PERIOD-END> JUN-28-1996
<CASH> 21,060
<SECURITIES> 0
<RECEIVABLES> 533,568
<ALLOWANCES> 16,529
<INVENTORY> 305,506
<CURRENT-ASSETS> 942,266
<PP&E> 1,543,545
<DEPRECIATION> 751,705
<TOTAL-ASSETS> 2,665,212
<CURRENT-LIABILITIES> 836,464
<BONDS> 1,311,902
0
5,396
<COMMON> 252
<OTHER-SE> 262,548
<TOTAL-LIABILITY-AND-EQUITY> 2,665,212
<SALES> 0
<TOTAL-REVENUES> 4,560,296
<CGS> 0
<TOTAL-COSTS> 4,164,639
<OTHER-EXPENSES> 136,265
<LOSS-PROVISION> 4,394
<INTEREST-EXPENSE> 88,900
<INCOME-PRETAX> 111,989
<INCOME-TAX> 41,896
<INCOME-CONTINUING> 70,093
<DISCONTINUED> 0
<EXTRAORDINARY> 2,758
<CHANGES> 0
<NET-INCOME> 67,335
<EPS-PRIMARY> 0
<EPS-DILUTED> $1.41
</TABLE>
