<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
December 27, 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)
The 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 January 24, 1997: 2,060,934
Class B common stock outstanding at January 24, 1997: 21,748,763
- --------------------------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
ASSETS
------
December 27, September 27,
1996 1996
------------ -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 22,545 $ 25,283
Receivables 622,256 576,447
Inventories, at lower of cost or market 349,043 316,043
Prepayments and other current assets 139,474 67,977
----------- -----------
Total current assets 1,133,318 985,750
----------- -----------
Property and Equipment, net 828,654 824,635
Goodwill 675,100 643,880
Other Assets 299,424 376,505
----------- -----------
$ 2,936,496 $ 2,830,770
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term borrowings $ 28,443 $ 26,041
Accounts payable 414,226 496,040
Accrued expenses and other liabilities 499,648 441,760
----------- -----------
Total current liabilities 942,317 963,841
----------- -----------
Long-Term Borrowings 1,436,515 1,321,865
Deferred Income Taxes and Other Noncurrent Liabilities 239,081 230,249
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 19,193 18,614
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01 19 20
Class B common stock, par value $.01 218 227
Earnings retained for use in the business 313,380 309,437
Cumulative translation adjustment 4,966 5,131
Impact of potential repurchase feature of
common stock (19,193) (18,614)
----------- -----------
Total 299,390 296,201
----------- -----------
$ 2,936,496 $ 2,830,770
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
For the Three Months Ended
----------------------------------
December 27, December 29,
1996 1995
------------ ------------
Revenues $ 1,686,751 $ 1,549,374
----------- -----------
Costs and Expenses:
Cost of services provided 1,540,226 1,413,632
Depreciation and amortization 48,606 44,693
Selling and general corporate expenses 21,190 22,025
Other expense (income) -- (2,850)
----------- -----------
1,610,022 1,477,500
----------- -----------
Operating income 76,729 71,874
Interest Expense, net 30,484 30,252
----------- -----------
Income before income taxes 46,245 41,622
Provision for Income Taxes 18,590 16,633
----------- -----------
Net income $ 27,655 $ 24,989
=========== ===========
Earnings Per Share $ .61 $ .52
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
For the Three Months Ended
----------------------------
December 27, December 29,
1996 1995
------------ ------------
Cash flows from operating activities:
Net income $ 27,655 $ 24,989
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 48,606 44,693
Income taxes deferred (1,619) (5,961)
Changes in noncash working capital (142,276) (75,890)
Other operating activities (1,725) (671)
--------- ---------
Net cash used in operating activities (69,359) (12,840)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (32,590) (32,658)
Disposals of property and equipment 3,330 3,522
Divestiture of certain businesses -- 50,823
Acquisition of certain businesses (4,093) (5,471)
Other investing activities (1,255) (2,649)
--------- ---------
Net cash provided by (used in) investing activities (34,608) 13,567
--------- ---------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 141,443 16,125
Payment of long-term borrowings (24,567) (1,483)
Repurchase of stock (16,335) (18,350)
Other financing activities 688 27
--------- ---------
Net cash provided by (used in) financing activities 101,229 (3,681)
--------- ---------
Decrease in cash and cash equivalents (2,738) (2,954)
Cash and cash equivalents, beginning of period 25,283 23,082
--------- ---------
Cash and cash equivalents, end of period $ 22,545 $ 20,128
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<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:
-------------
In 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 statement
of income. The divested operations were not material to the Company's
consolidated revenues or operating income.
(3) CAPITAL STOCK:
--------------
During the first quarter of fiscal 1997, pursuant to the ARAMARK
Ownership Program, employees purchased 227,262 shares or $2.9 million
of Class B Common Stock for $2.3 million cash plus $0.6 million of
deferred payment obligations.
(4) SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
The Company made interest payments of $27.7 million and $28.8 million
and income tax payments of $5.5 million and $8.0 million during the
first quarter of fiscal 1997 and 1996, respectively. During the first
quarter of fiscal 1997, the Company purchased $18.7 million of its
Class B Common Stock, issuing $10.3 million in subordinated installment
notes as partial consideration.
(5) SUBSEQUENT EVENT:
-----------------
In January 1997, the Company sold an approximate 83% interest in its
business which provides specialized services for hospital emergency
rooms and other specialties and medical services to correctional
institutions. In fiscal 1996, this business had approximately $500
million in annual revenues and a normalized operating margin of
approximately 4%. The gain from the sale, which will be finalized and
recognized in the second quarter of fiscal 1997, will increase net
income by approximately $70 million.
4
<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.
For the Three Months Ended
--------------------------------------
December 27, December 29,
1996 1995
------------ ------------
(in millions)
Revenues $ 903.3 $833.3
Cost of services provided 847.8 785.7
Net income 9.0 2.2
December 27, September 27,
1996 1996
------------ ------------
(in millions)
Current assets $ 460.0 $ 395.2
Noncurrent assets 1,725.7 1,630.0
Current liabilities 531.0 495.1
Noncurrent liabilities 1,535.4 1,419.6
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
Overview
- --------
Revenues of $1.7 billion for the first quarter of fiscal 1997 were 9% higher
than the prior year period. First quarter operating income of $76.7 million was
$7.7 million or 11% higher than the prior year period (excluding other income of
$2.9 million in fiscal 1996 - see note 2 to the condensed consolidated financial
statements), with increased earnings in the Food and Support Services, Uniform
Services and Health and Education segments being partially offset by a
significant decline in Distributive segment earnings. First quarter interest
expense was equal with the prior year period, as the impact of increased debt
levels to finance acquisitions and working capital requirements was offset by
lower interest rates.
Segment Results
- ---------------
Revenues - Food and Support Services segment revenues increased 8% due to new
accounts and increased volume, primarily in the United States food businesses.
Uniform Services segment revenues increased 12% due to the impact of recent
acquisitions and increased volume in both the uniform rental and direct
marketing businesses. Health and Education segment revenues increased 15% due to
new contracts at correctional institutions in the healthcare business and
enrollment growth, pricing and new locations at Children's World. Distributive
segment revenues decreased 3% from the prior year period due to a decline in
same store sales, partially offset by the impact of recent acquisitions.
Operating Income, Before Other Income - Food and Support Services, Uniform
Services and Health and Education segment operating income increased 21%, 15%
and 18%, respectively, due to the increased revenues noted above plus effective
control of operating costs. The Distributive segment incurred an operating loss
of $2.2 million, a decrease of approximately $8 million from the prior year
period. Results for this segment continue to be severely impacted by higher
operating expenses due to costs of servicing new customers and reduced margins
and volume resulting from increased competition and consolidation in the
magazine wholesale distribution industry. The Company continues to believe it is
well positioned to take advantage of the current competitive conditions in this
industry. However, the future impact of these changes is uncertain at this time.
The Company projects that fiscal 1997 operating income in the Distributive
segment will continue to be significantly below historical levels achieved prior
to fiscal 1996.
FINANCIAL CONDITION
- -------------------
The Company's indebtedness increased $117.1 million in the first three months of
fiscal 1997, principally to finance seasonal working capital needs and capital
additions.
In November 1996, the Company issued $125 million of 7.10% senior notes due
December 2006. The net proceeds from the note offering were used to repay
borrowings under the $1 billion credit facility.
The Company currently has approximately $575 million of unused credit
availability under its credit facilities, which management believes, along with
cash flows from operations, is sufficient to fund operating requirements.
6
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 4 are not applicable.
Item 5: None
Item 6: Exhibits and Reports on Form 8-K
(a) (1) Exhibit 11 - Computation of Fully Diluted Earnings Per Share
(2) Exhibit 27 - Financial Data Schedule
(b) None
7
<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
February 10, 1997 s/Alan J. Griffith
-------------------------------
Alan J. Griffith
Vice President, Controller
and Chief Accounting Officer
8
<PAGE>
EXHIBIT 11
ARAMARK CORPORATION AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(Unaudited)
(In thousands, except per share data)
Three Months Ended
-----------------------------
December 27, December 29,
1996 1995
------------ ------------
Earnings:
Net Income $ 27,655 $ 24,989
Preferred stock dividends -- (249)
-------- --------
Earnings applicable to common stock $ 27,655 $ 24,740
======== ========
Shares:
Weighted average number of common
shares outstanding (1) 42,344 44,924
Impact of potential exercise opportunities
under the ARAMARK Ownership Plan 2,712 2,702
-------- --------
Total common and common
equivalent shares 45,056 47,626
======== ========
Fully diluted earnings per common share (2) $ .61 $ .52
======== ========
(1) Includes Class B plus Class A Common Shares stated on a Class B Common
Share Equivalent Basis.
(2) Primary and fully diluted earnings per share are approximately the same.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000757523
<NAME> ARAMARK CORPORATION & SUBSIDIARIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-03-1997
<PERIOD-START> SEP-28-1996
<PERIOD-END> DEC-27-1996
<CASH> 22,545
<SECURITIES> 0
<RECEIVABLES> 622,256
<ALLOWANCES> 20,345
<INVENTORY> 349,043
<CURRENT-ASSETS> 1,133,318
<PP&E> 1,615,212
<DEPRECIATION> 786,558
<TOTAL-ASSETS> 2,936,496
<CURRENT-LIABILITIES> 942,317
<BONDS> 1,436,515
0
0
<COMMON> 237
<OTHER-SE> 299,153
<TOTAL-LIABILITY-AND-EQUITY> 2,936,496
<SALES> 0
<TOTAL-REVENUES> 1,686,751
<CGS> 0
<TOTAL-COSTS> 1,540,226
<OTHER-EXPENSES> 48,606
<LOSS-PROVISION> 2,826
<INTEREST-EXPENSE> 30,484
<INCOME-PRETAX> 46,245
<INCOME-TAX> 18,590
<INCOME-CONTINUING> 27,655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,655
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.61
</TABLE>
