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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 3, 1997 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to _________
Commission file number: 1-8827
ARAMARK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2319139
(State of incorporation) (I.R.S. Employer Identification No.)
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
(Address of principal executive offices)
Telephone Number: 215-238-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock,
$.01 par value
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Aggregate market value of the voting stock held by nonaffiliates: $726 million
Common stock outstanding at October 31, 1997
Class A Common stock 1,965,703 shares
Class B Common stock 20,350,000 shares
Documents incorporated by reference: Portions of the registrant's Proxy
Statement for the 1998 annual meeting of stockholders are incorporated by
reference in Part III of this Report.
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As used herein, references to the "Company" shall mean ARAMARK Corporation
and its subsidiaries (including ARAMARK Services, Inc.) unless the context
otherwise requires. References to "ARAMARK" shall mean ARAMARK Services, Inc.
and its subsidiaries unless the context otherwise requires.
PART I
Item 1. Business
Description of Business Segments
The Company is engaged in providing or managing services, including food
and support services, uniform and career apparel, educational resources and
magazine distribution. ARAMARK was organized in 1959 in Delaware. The Company
was formed in September 1984 by the management of ARAMARK and acquired ARAMARK
in December 1984 through a merger.
The Company provides most of its services in the United States. The
Company also conducts operations, primarily the management of food services, in
Belgium, Canada, the Czech Republic, Germany, Hungary, Japan, Korea, Mexico,
Spain and the United Kingdom.
Financial information by business segment and geographic area appears in
note 11 to the consolidated financial statements. The businesses of the Company
have been grouped into the segments described below.
Food and Support Services Group
The Company provides food, refreshment, specialized dietary and support
services (including maintenance and housekeeping) to businesses, and to
educational, governmental and medical institutions. Food, lodging and
merchandise services are also provided at sports and entertainment facilities
such as convention centers, stadiums, parks, arenas, race tracks and other
recreational facilities.
Food, refreshment, specialized dietary and support services are operated
at customer locations generally under contracts of indefinite duration which may
be subject to termination by either party. However, food and related services at
sports and entertainment facilities generally are for fixed contract terms well
in excess of one year. The Company's food and support services are performed
under various financial arrangements including various management-fee bases as
well as profit-and-loss bases.
At most customer food service locations, the equipment and facilities used
in providing these services are owned by the customer. Vending machines and
related equipment, however, are generally owned by the Company. At most sports
and entertainment facilities, the equipment is owned by the Company.
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There is a high level of competition in the food and support services
business from local, regional, national and international companies as well as
from businesses and institutions which operate their own services. This
competition takes a number of different forms, including pricing, maintaining
high food and service standards, and innovative approaches to marketing with a
strong emphasis on securing and retaining customer accounts. The Company
believes that it is a significant provider of food and support services in the
United States, Belgium, Canada, Germany and Spain, but that its volume of such
business is small in relation to the total market. See note 10 to the
consolidated financial statements for information relating to the seasonal
aspects of this business segment.
Uniform and Career Apparel Group
The Company rents, sells, cleans, maintains and delivers personalized work
apparel and other textile items for customers throughout the United States on a
contract basis. Also provided are walk-off mats, cleaning cloths, disposable
towels, and other environmental control items.
The Company operates one of the largest direct marketers of personalized
work clothing, uniforms and related accessories, primarily in the United States.
The Company also operates one of the largest direct marketers of public safety
equipment and public employee uniforms in the United States, and is a leading
provider of uniform apparel to the hospitality and healthcare markets.
Service contracts for the rental and laundering of work apparel and other
textile items are for well in excess of one year and typically for an initial
term of three to five years. Generally, the direct marketing business is
conducted under an invoice arrangement with customers.
The uniform rental services and sales business is highly competitive in
the areas in which the Company operates, with numerous competitors in each major
operating area. Although no one uniform rental services company is predominant
in this industry, the Company believes that it is a significant competitor.
Competition in the direct marketing of work clothing, career apparel,
public safety equipment and related items is from numerous retailers and other
direct marketers at local, regional and national levels. In this market, while
the Company is a significant competitor, the Company's volume of sales is small
in relation to the total market.
The significant competitive factors in the uniform and career apparel
business are the quality of services provided to customers and the prices
charged for such services.
Health and Educational Resources Group
The Company provides infant, toddler, pre-school, and school-age learning
programs. The Company operates community-based child care centers, before and
after school programs on the premises of elementary schools, private elementary
schools, and employer on-site child care centers. These services are provided
to, and are primarily paid for on a weekly or monthly basis directly by
individual families under short-term agreements. The Company leases a
significant number of its facilities under long-term arrangements.
2
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The Company believes it is a significant provider of educational and child
care services in the United States.
Competition in all phases of this business segment is from both national
and local providers of educational services as well as from private and public
institutions which provide for their own educational services. Significant
competitive factors in the Company's educational services business are the
quality of care, reputation, physical appearance of facilities, the types of
programs offered to the users of these services and the prices charged for such
services.
In January 1997, the Company sold an approximate 83% interest in its
healthcare subsidiary. See note 2 to the consolidated financial statements.
Distributive Services
The Company provides wholesale distribution of magazines, books and other
printed matter. These materials are purchased from national distributors and
publishers and are delivered to retail locations patronized by the general
public.
Distribution services are generally rendered under short-term agreements
and for larger accounts under multi-year agreements, which ordinarily permit the
return of unsold magazines and books with full credit being given to the
retailer and with the Company in turn receiving full credit from its suppliers.
Competition in the distribution of books and periodicals exists primarily
from magazine and book subscriptions, direct distribution by publishers to
retailers and from other wholesale distributors and alternative uses of retail
shelf space. While the Company's volume of business in the distribution of books
and periodicals is small in relation to the total market, the Company believes
the volume of its wholesale periodical and book distribution makes it a
significant wholesale distributor.
General
The Company employs approximately 150,000 persons, both full and part
time, including approximately 40,000 employees outside the United States.
Approximately 22,000 employees in the United States are represented by various
labor unions.
The Company believes it recognizes benefit from its corporate name
recognition. Nonetheless, consistent with its businesses, the Company does not
have any material trademarks or patents, and its research and development
expenditures are not material in amount. Although the Company pursues strategies
to increase the number and scope of the services it provides to existing
customers, no single customer of the Company accounts for more than 5% of its
revenues. While the Company focuses its purchasing on selected suppliers and
vendors to realize pricing, quality and service benefits, generally, all
materials and services that the Company purchases are available from more than
one supplier, and the loss of any supplier would not have a material impact on
the Company's results of operations. The Company's businesses are subject to
various governmental environmental regulations, and the Company has adopted
policies designed to comply with such regulations. Such compliance has not had a
material impact on the Company's capital expenditures, earnings or competitive
position.
3
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Item 2. Properties
The principal property and equipment of the Company are its service
equipment and fixtures (including vehicles) and real estate.
The service equipment and fixtures include vending, commissary, warehouse
and janitorial and maintenance equipment used primarily by the Food and Support
Services Group and laundry equipment used by the Uniform and Career Apparel
Group. The vehicles include automobiles and delivery trucks used in Distributive
Services, and Food and Support Services and Uniform and Career Apparel Groups.
The service equipment and fixtures represent 59% of the net book value of all
fixed assets as of October 3, 1997.
The Company's real estate is comprised of educational and child care
facilities, of which a significant number are held under long-term operating
leases. The Company also maintains other real estate and leasehold improvements
which it uses in Distributive Services, and Uniform and Career Apparel and Food
and Support Services Groups. Additional information concerning property and
equipment (including leases and noncancelable lease commitments) is included in
notes 1 and 8 to the consolidated financial statements. No individual parcel of
real estate owned or leased is of material significance to the Company's total
assets.
See note 11 to the consolidated financial statements for information
concerning the identifiable assets of the Company's business segments.
Item 3. Legal Proceedings
The Company and its subsidiaries are not parties to any lawsuits (other
than ordinary routine litigation incidental to its business) which are material
to the Company's business or financial condition. See note 8 to the consolidated
financial statements for additional information concerning legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
4
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Item 4A. Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>
Directors:
Name Principal Occupation
- ---- --------------------
<S> <C>
Joseph Neubauer................................ Chairman and Chief Executive Officer
ARAMARK Corporation
James E. Ksansnak.............................. Vice Chairman, ARAMARK Corporation
Patricia C. Barron............................. Vice President, Business Operations Support, Xerox Corporation
Robert J. Callander............................ Executive-in-Residence, Columbia University
Retired Vice Chairman
Chemical Banking Corporation
Alan K. Campbell............................... Retired Executive Vice President and
Vice Chairman, ARAMARK Corporation
Ronald R. Davenport............................ Chairman, Sheridan Broadcasting Corporation
Lee F. Driscoll, Jr............................ Corporate Director
Mitchell S. Fromstein.......................... Chairman, President and Chief Executive Officer Manpower Inc.
Edward G. Jordan............................... Former Chairman and Chief Executive Officer
Consolidated Rail Corporation
Thomas H. Kean................................. President, Drew University
Former Governor of New Jersey
Reynold C. MacDonald........................... Retired Chairman, Acme Metals Incorporated
James E. Preston............................... Chairman, President and Chief Executive Officer
Avon Products, Inc.
Officers: Officer
Name (Age as of November 1, 1997) Office Held Since
- ---------------------------------- ------------ -----
Joseph Neubauer (56)........................... Chairman and Director.............................. 1979
James E. Ksansnak (57)......................... Vice Chairman and Director ........................ 1986
William Leonard (49)........................... President.......................................... 1992
Brian G. Mulvaney (41)......................... Executive Vice President........................... 1993
Martin W. Spector (59)......................... Executive Vice President,
General Counsel and Secretary...................... 1976
L. Frederick Sutherland (45)................... Executive Vice President and
Chief Financial Officer............................ 1983
Barbara A. Austell (44)........................ Senior Vice President
and Treasurer...................................... 1996
Alan J. Griffith (43).......................... Vice President, Controller and
Chief Accounting Officer........................... 1994
Dean E. Hill (46).............................. Vice President..................................... 1993
John P. Kallelis (59).......................... Vice President..................................... 1982
Michael R. Murphy (40)......................... Director of Audit and Controls..................... 1995
Donald S. Morton (49).......................... Assistant Secretary and
Associate General Counsel.......................... 1985
Richard M. Thon (42)........................... Assistant Treasurer................................ 1994
</TABLE>
5
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Except as set forth below, the principal occupation of each executive
officer throughout the past five years has been the performance of the functions
of the corporate offices shown above.
Mr. Ksansnak was elected vice chairman of the Company in May 1997. From
February 1991 to May 1997 he was executive vice president of the Company and
chief financial officer from May 1986 to May 1997.
Mr. Leonard has been president and chief operating officer of the Company
since May 1997. He was executive vice president of the Company from May 1992
until May 1997.
Mr. Mulvaney was elected senior vice president of the Company in February
1995 and to his current position in August 1996. He was vice president of
ARAMARK Uniform Services from March 1987 until February 1993 when he was elected
vice president of the Company.
Mr. Sutherland became chief financial officer of the Company in May 1997.
He was elected executive vice president in May 1993.
Ms. Austell was elected senior vice president and treasurer of the
Company in August 1996. Prior to joining the Company in June 1996, she was a
managing director of J. P. Morgan & Co.
Mr. Griffith was elected vice president of the Company in February 1995.
In December 1993 he became controller and chief accounting officer.
Mr. Hill was elected vice president of the Company in January 1993. Prior
to joining the Company in 1993, he was vice president of Farley Industries, Inc.
and Fruit of the Loom, Inc.
Mr. Murphy became director of audit and controls in September 1995. He
joined the Company as senior audit manager in January 1993. Prior to that time
he was a senior audit manager with Arthur Andersen LLP.
Mr. Thon was elected assistant treasurer of the Company in August 1994.
Previously he held various treasury analyst positions since joining the Company
in 1987.
6
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There are currently approximately 1,300 record holders of Class B common
stock of the Company, all of whom are employees or directors of the Company (or
members of their families or trusts created by them). There are currently 127
record holders of the Class A common stock of the Company, all of whom are
institutional investors, Company benefit plans or individuals not employed by
the Company.
The Company has not paid a cash dividend during the last two fiscal years.
From time to time, the Board of Directors may consider paying cash dividends in
the future, based upon the Company's circumstances at that time.
There is no established public trading market for the common stock of the
Company. However, employees of the Company are able to sell shares of common
stock through various programs maintained by the Company. See note 7 to the
consolidated financial statements for information regarding the Company's
shareholders' agreement.
The Company recently announced Share 100, a proposed plan of
recapitalization. See Management's Discussion and Analysis of Results of
Operations and Financial Condition.
7
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Item 6. Selected Financial Data
The following table presents summary consolidated financial data for the
Company. The following data should be read in conjunction with the consolidated
financial statements and the related notes thereto and Management's Discussion
and Analysis of Results of Operations and Financial Condition, each included
elsewhere herein.
<TABLE>
<CAPTION>
ARAMARK Corporation and Subsidiaries
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Fiscal Year Ended on or near
September 30
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1997(1) 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
(in millions, except per share amounts and ratios)
Income Statement Data:
Revenues................................... $6,310.4 $6,122.5 $5,600.6 $5,161.6 $4,890.7
Earnings before depreciation and
amortization, interest, and income taxes 523.6 478.0 433.9 415.7 399.4
Earnings before interest
and income taxes (2).................... 331.9 295.2 277.0 272.0 268.9
Interest expense, net...................... 116.0 116.0 109.4 108.5 125.7
Income before extraordinary item
and cumulative effect of
change in accounting for
income taxes (3)........................ 146.1 112.2 100.2 95.0 84.3
Net income................................. 146.1 109.5 93.5 86.1 77.1
Earnings per share: (4)
Income before extraordinary item
and cumulative effect
of change in accounting for
income taxes (3)...................... $3.28 $2.37 $2.01 $1.87 $1.64
Net income.............................. $3.28 $2.31 $1.88 $1.69 $1.49
Ratio of earnings to fixed charges (5)..... 2.3x 2.1x 2.1x 2.1x 1.9x
Balance Sheet Data (at period end):
Total assets............................... $2,753.6 $2,844.8 $2,643.3 $2,122.0 $2,040.6
Long-term borrowings: (6)
Senior.................................. 1,084.9 1,160.8 1,109.4 691.5 533.8
Subordinated............................ 129.0 161.2 165.4 290.4 474.9
Common stock subject to potential
repurchase (7).......................... 23.3 18.6 19.1 20.8 21.7
Shareholders' equity....................... 370.0 296.2 252.3 182.6 124.1
</TABLE>
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(1) Fiscal 1997 is a fifty-three week period. See note 1 to the
consolidated financial statements.
(2) See note 2 to the consolidated financial statements.
(3) See note 3 to the consolidated financial statements.
(4) Based on weighted average shares of common stock outstanding for all
periods. See note 1 to the consolidated financial statements.
(5) For the purpose of determining the ratio of earnings to fixed
charges, earnings include pre-tax income plus fixed charges
(excluding capitalized interest). Fixed charges consist of interest
on all indebtedness (including capitalized interest) plus that
portion of operating lease rentals representative of the interest
factor (deemed to be one-third of operating lease rentals).
(6) See note 4 to the consolidated financial statements.
(7) See note 7 to the consolidated financial statements.
8
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Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 1996
Overview. Revenues for the fiscal year ended October 3, 1997 were $6.3
billion, an increase of 3% over fiscal 1996, with increases in the Food and
Support Services and Uniform and Career Apparel segments partially offset by a
decline in revenues in the Distributive segment and the Health and Educational
Resources segment reflecting the sale of Spectrum (see note 2 to the
consolidated financial statements). Excluding Spectrum, revenues increased 10%
over the prior year. Operating income of $331.9 million increased 12% compared
to the prior year. Total Company operating income includes other income of $11.7
million and $2.9 million in fiscal 1997 and 1996, respectively, as described in
note 2 to the consolidated financial statements. Excluding other income and the
operating results of Spectrum, operating income increased 16% over the prior
year, due to strong performances in the Food and Support Services and Uniform
and Career Apparel segments and Children's World, partially offset by increased
operating losses in the Distributive segment. Excluding other income, the
Company's operating income margin increased to 5.1% from 4.8%, due primarily to
improved cost controls and leveraging of fixed costs.
Interest expense was equal with the prior year, with the impact of
lower rates being offset by increased debt levels to finance capital
expenditures and working capital requirements. The effective income tax rate
decreased to 32% in fiscal 1997 from 37% in fiscal 1996 due primarily to the
favorable impact of a permanent difference in the book and tax basis of
Spectrum, partially offset by unfavorable permanent book/tax differences related
to certain intangible asset write-offs (see notes 2 and 6 to the consolidated
financial statements). Fiscal 1996 net income also includes an extraordinary
item for early extinguishment of debt of $2.8 million as described in note 3 to
the consolidated financial statements.
Segment Results. Food and Support Services segment revenues were 8%
higher than the prior year due to new accounts (approximately 3%) and increased
volume (approximately 6%), primarily in the United States food businesses,
partially offset by the unfavorable impact of foreign currency translation
(approximately 1%). Uniform and Career Apparel segment revenues increased 19%
due to the impact of recent acquisitions (approximately 11%) and increased
volume in both the uniform rental and direct marketing businesses. Health and
Educational Resources segment revenues, excluding the Spectrum operations,
increased 15% over the comparable prior year period due to enrollment growth,
pricing and new locations at Children's World. Distributive segment revenues
decreased 3% from the comparable prior year period due to a decrease in base
business of approximately 6%, partially offset by the impact of recent
acquisitions.
9
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Fiscal 1997 operating income for the Food and Support Services segment
includes charges of approximately $30 million due primarily to recognize an
impairment of goodwill in a European operation and to reduce certain other
assets to net realizable value as discussed in notes 2 and 11 to the
consolidated financial statements. Excluding the impact of these charges,
operating income increased 20% over the prior year period as a result of the
revenue increases noted above, plus effective cost controls at both United
States and international operations. Uniform and Career Apparel segment
operating income includes gains on the sale of assets of $9 million in 1997 and
$37 million in 1996 and charges related primarily to asset realization of $6
million and $5 million in fiscal 1997 and 1996, respectively (see notes 2 and 11
to the consolidated financial statements). Excluding the impact of these items,
fiscal 1997 operating income increased 11% from the prior year period due to the
revenue increases noted above plus effective cost controls in the direct
marketing businesses, partially offset by increased operating costs in the
uniform rental business. Health and Educational Resources fiscal 1997 operating
income includes the gain on sale of Spectrum of $72 million and fiscal 1996
operating income includes charges of $13 million as discussed in notes 2 and 11
to the consolidated financial statements. Excluding the impact of these items,
as well as the operating results of Spectrum, segment operating income increased
23% over the prior year due to the revenue increases at Children's World noted
above. The Distributive segment incurred a fiscal 1997 operating loss of $49.6
million, which includes charges of approximately $34 million related to asset
realization (see notes 2 and 11 to the consolidated financial statements) versus
an operating loss of $6.0 million in fiscal 1996. Results continue to be
severely impacted by higher operating expenses due to costs of servicing
customers and reduced volume and margins resulting from the increased
competition and consolidation in the magazine wholesale distribution industry.
Management is implementing a plan to improve the operating results of the
distributive business which includes the divestiture of certain operations,
selected acquisitions in certain geographic regions, and initiatives to increase
volume and margins and reduce costs. The impact of these initiatives is
uncertain at this time and the Company projects that fiscal 1998 operating
income in the Distributive segment will continue to be significantly below
historical levels prior to fiscal 1996. The decrease in fiscal 1997 General
Corporate and Other Expenses is due to reserves established in fiscal 1996 for
asset realization, legal, and other matters described in note 11 to the
consolidated financial statements.
Fiscal 1996 Compared to Fiscal 1995
Overview. Revenues for the fiscal year ended September 27, 1996 were
$6.1 billion, a 9% increase over fiscal 1995, with increases being recorded by
all business segments. Operating income of $295.2 million increased 7% compared
to the prior year. Earnings increased substantially in both the Food and Support
Services segment, including the positive impact in fiscal 1996 from the return
of hockey and baseball, and the Uniform and Career Apparel segment. Earnings
were equal to last year for the Health and Educational Resources segment and
declined dramatically in the Distributive segment. Total Company operating
income includes other income of $2.9 million described in note 2 to the
consolidated financial statements. The Company's operating income margin
decreased to 4.8% from 4.9%, primarily due to the decreased earnings of the
Distributive segment. Excluding the Distributive segment, the fiscal 1996 margin
was 5.3% and operating income increased 20% compared to the prior year period.
10
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Interest expense increased $6.6 million or 6% over the prior year due
to increased debt levels to finance acquisitions, partially offset by the
favorable impact of refinancing certain of the Company's subordinated debt and
lower interest rates. The effective income tax rate decreased to 37% in fiscal
1996 from 40% in fiscal 1995 due to the favorable impact resulting from the June
1996 settlement of certain prior years' tax returns. Fiscal 1996 and 1995 net
income reflect extraordinary items for early extinguishment of debt of $2.8
million and $6.7 million, respectively, as described in note 3 to the
consolidated financial statements.
Segment Results. Food and Support Services segment revenues were 8%
higher than the prior year due to new accounts and increased volume at both U.S.
and international food businesses, acquisitions and the return of hockey and
baseball (see notes 2 and 11 to the consolidated financial statements). Uniform
and Career Apparel segment revenues increased 17% as a result of yearend 1995
acquisitions and increased volume in the uniform rental business, partially
offset by decreased volume from direct marketing of work clothing and the
divestiture described in note 2 to the consolidated financial statements. Health
and Educational Resources segment revenues increased 5% as a result of
enrollment growth and pricing at Children's World and new contracts at
correctional institutions in the healthcare business. Revenue for the
Distributive segment increased 7% due to acquisitions completed during fiscal
1995 and the impact of the change in customer mix in 1996.
Operating income for the Food and Support Services segment increased
20% due to increased revenues, including those resulting from the return of
hockey and baseball. Fiscal 1996 operating income for the Uniform and Career
Apparel segment includes the $37 million gain on the sale of a division and
charges of $5 million related to changes in estimates regarding asset
realization and environmental matters described in note 11 to the consolidated
financial statements; excluding the impact of these items, as well as the
operating results of the 1996 divestiture, the increase in segment operating
income was approximately 16% as compared to fiscal 1995. Health and Educational
Resources segment operating income was equal to the prior year with revenue
related increases being offset by higher operating costs and increased reserves
for real estate values (see note 11 to the consolidated financial statements).
The Distributive segment incurred an operating loss of $6.0 million in fiscal
1996 versus operating income of $26.8 million in fiscal 1995. Results were
severely impacted by higher operating expenses due to costs of servicing new
customers and reduced margins resulting from the increased competition and
consolidation in the magazine wholesale distribution industry. These industry
changes continued to have an adverse impact on operating income in the
Distributive segment as discussed above. The increase in fiscal 1996 General
Corporate and Other Expenses is due primarily to reserves established for asset
realization, legal, and other matters described in note 11 to the consolidated
financial statements.
11
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Cash flows generated from operating activities were $230 million. Debt
decreased by $116 million, primarily from the application of the Spectrum sale
proceeds (see note 2 to the consolidated financial statements). The Company
expects to continue to fund capital expenditures, acquisitions and other
liquidity needs from cash provided by operating activities, normal disposals of
property and equipment and borrowings available under its credit facilities. As
of October 3, 1997, the Company had capital commitments of approximately $20
million related to several long-term concession contracts at stadiums and
arenas.
During fiscal 1997 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. Currently, the Company
has approximately $725 million of unused committed credit availability under its
credit facilities.
As discussed in note 2 to the consolidated financial statements, in
January 1997 the Company sold an approximate 83% interest in its Spectrum
subsidiary. The cash proceeds were used to repay borrowings under the $1 billion
credit facility. The sale will not have a material impact on the Company's
liquidity.
During fiscal 1997 the Company repurchased $32 million of its Class A
Common Stock and $55 million of its Class B Common Stock, with $22 million of
subordinated installment notes issued as partial consideration. Additionally,
the Company issued $14 million of Class B Common Stock to eligible employees,
primarily through the exercise of installment stock purchase opportunities (see
note 7 to the consolidated financial statements).
The Company has announced a plan of recapitalization which involves the
repurchase of all outstanding Class A Common Stock shares held by outside
stockholders and approximately 30% of the shares owned by its employee benefit
plans. The plan requires the approval of stockholders and is expected to be
implemented during the second quarter of fiscal 1998. The Company is in the
process of increasing its $1 billion credit facility and, upon consummation of
the recapitalization, debt will increase by approximately $440 million.
Management believes that credit availability under its credit facilities, as
amended, along with cash flows from operations will continue to be sufficient to
fund operating requirements.
The Year 2000 issue exists because many computer systems and
applications currently use two-digit date fields to designate a year. As a
result, on or near the change of the century, date-sensitive systems will
recognize the year 2000 as 1900, or not at all, which may cause systems to
process financial and operational information incorrectly. The Company has
assessed and continues to assess the impact of the Year 2000 issue, including
cost estimates to complete required changes. Plans to address the Year 2000
issue have been developed and are being implemented. Currently, the Company does
not expect that the costs to be incurred will be material to results of
operations or financial condition.
12
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Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Schedules at page S-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Items 10, 11, 12, and 13 of Part III are incorporated by reference to the
Section titled "Election of Directors" in the registrant's Proxy Statement for
its annual meeting of stockholders, to be filed with the Commission pursuant to
Regulation 14A (except for the stock price performance graph and the committee
report on executive compensation in the Company's Proxy Statement).
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to Financial Statements
See Index to Financial Statements and Schedules at page S-1.
(b) Reports on Form 8-K
None.
(c) Exhibits Required by Item 601 of Regulation S-K
See Index to Exhibits.
(d) Financial Statement Schedules
See Index to Financial Statements and Schedules at page S-1.
13
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ARAMARK CORPORATION
By: Alan J. Griffith
----------------------------
Alan J. Griffith
Vice President, Controller
and Chief Accounting Officer
November 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on November 26, 1997.
Signature Title
- --------- -----
Joseph Neubauer Chairman and Director
- ----------------------- (Principal Executive Officer)
Joseph Neubauer
L. Frederick Sutherland Executive Vice President
- ----------------------- (Principal Financial Officer)
L. Frederick Sutherland
Alan J. Griffith Vice President, Controller
- ----------------------- and Chief Accounting Officer
Alan J. Griffith (Principal Accounting Officer)
Patricia Barron
Robert J. Callander
Alan K. Campbell
Ronald R. Davenport
Lee F. Driscoll, Jr. Directors
Mitchell S. Fromstein
Edward G. Jordan
Thomas H. Kean
James E. Ksansnak
Reynold C. MacDonald
James E. Preston
Martin W. Spector
- -----------------------
Martin W. Spector
Attorney-in-Fact
95165
14
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Report of Independent Public Accountants S-2
Consolidated Balance Sheets:
As of October 3, 1997 and September 27, 1996 S-3
Consolidated Statements of Income:
Fiscal Years 1997, 1996 and 1995 S-5
Consolidated Statements of Cash Flows:
Fiscal Years 1997, 1996 and 1995 S-6
Consolidated Statements of Shareholders' Equity:
Fiscal Years 1997, 1996 and 1995 S-7
Notes to Consolidated Financial Statements S-10
Consolidated Supporting Schedules Filed:
Schedule
Number
I Condensed Financial Information of Registrant S-25
II Valuation and Qualifying Accounts and Reserves S-29
All other schedules are omitted because they are not applicable, not
required, or the information required to be set forth therein is included in the
consolidated financial statements or in the notes thereto.
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ARAMARK Corporation:
We have audited the accompanying consolidated balance sheets of ARAMARK
Corporation (a Delaware corporation) and subsidiaries as of October 3, 1997 and
September 27, 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended October 3, 1997. These consolidated financial statements and the
schedules referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ARAMARK Corporation and
subsidiaries as of October 3, 1997 and September 27, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended October 3, 1997, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
November 10, 1997
S-2
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 3, 1997 and September 27, 1996
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 27,352 $ 25,283
Receivables (less allowances: 1997, $23,158; 517,035 594,579
1996, $16,973)
Inventories 366,515 340,107
Prepayments and other current assets 67,314 68,651
- -------------------------------------------------------------------------------------------------
Total current assets 978,216 1,028,620
- -------------------------------------------------------------------------------------------------
Property and Equipment, at Cost:
Land, buildings and improvements 507,775 446,240
Service equipment and fixtures 1,170,230 1,139,262
Leased property under capital leases 10,992 12,489
- -------------------------------------------------------------------------------------------------
1,688,997 1,597,991
Less-Accumulated depreciation 821,821 770,327
- -------------------------------------------------------------------------------------------------
867,176 827,664
- -------------------------------------------------------------------------------------------------
Goodwill 623,841 683,814
- -------------------------------------------------------------------------------------------------
Other Assets 284,346 304,684
- -------------------------------------------------------------------------------------------------
$2,753,579 $2,844,782
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-3
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 18,517 $ 26,092
Accounts payable 459,847 506,803
Accrued payroll and related expenses 156,216 163,806
Other accrued expenses and current liabilities 302,171 281,027
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 936,751 977,728
- -------------------------------------------------------------------------------------------------------------------
Long-Term Borrowings:
Senior 1,100,819 1,183,047
Subordinated 129,027 161,189
Obligations under capital leases 2,615 3,846
- -------------------------------------------------------------------------------------------------------------------
1,232,461 1,348,082
Less-current portion 18,517 26,092
- -------------------------------------------------------------------------------------------------------------------
Total long-term borrowings 1,213,944 1,321,990
- -------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes and Other Noncurrent Liabilities 209,583 230,249
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 23,254 18,614
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01; authorized:
25,000,000 shares; issued: 1997 - 1,961,413 shares;
1996-1,978,326 shares 20 20
Class B common stock, par value $.01; authorized:
150,000,000 shares; issued: 1997 - 20,450,100 shares;
1996 -22,732,673 shares 205 227
Earnings retained for use in the business 394,090 309,437
Cumulative translation adjustment (1,014) 5,131
Impact of potential repurchase feature of common stock (23,254) (18,614)
- -------------------------------------------------------------------------------------------------------------------
Total 370,047 296,201
- -------------------------------------------------------------------------------------------------------------------
$2,753,579 $2,844,782
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-4
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Years Ended October 3, 1997, September 27, 1996 and
September 29, 1995
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $6,310,417 $6,122,500 $5,600,645
- --------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of services provided 5,715,402 5,565,038 5,094,179
Depreciation and amortization 191,732 182,785 156,869
Selling and general corporate expense 83,079 82,354 72,602
Other expense (income), net (11,655) (2,850) -
- --------------------------------------------------------------------------------------------------------------------------
5,978,558 5,827,327 5,323,650
- --------------------------------------------------------------------------------------------------------------------------
Operating income 331,859 295,173 276,995
Interest Expense, net 116,012 116,014 109,418
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 215,847 179,159 167,577
Provision For Income Taxes 69,739 66,931 67,388
- --------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item 146,108 112,228 100,189
Extraordinary Item Due to Early Extinguishment of Debt
(net of income taxes of $1,839 in 1996 and $4,458 in 1995) - 2,758 6,686
- --------------------------------------------------------------------------------------------------------------------------
Net Income $146,108 $109,470 $93,503
- --------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Income before extraordinary item $3.28 $2.37 $2.01
Net income $3.28 $2.31 $1.88
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-5
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Fiscal Years Ended October 3, 1997, September 27, 1996 and September 29,1995
(in thousands)
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 146,108 $ 109,470 $ 93,503
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 191,732 182,785 156,869
Income taxes deferred (11,049) (27,604) 4,920
Extraordinary item - 2,758 6,686
Changes in noncash working capital:
Receivables (19,934) (62,239) (25,162)
Inventories (32,428) (9,734) (13,992)
Prepayments (5,740) (209) 13,244
Accounts payable (61,348) 28,973 25,186
Accrued expenses 48,364 27,245 22,737
Changes in other noncurrent liabilities (1,651) (461) (6,525)
Changes in other assets (9,727) (9,217) 4,020
Other, net (14,261) (2,494) (2,232)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 230,066 239,273 279,254
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (197,835) (190,896) (193,470)
Disposals of property and equipment 27,641 13,099 16,063
Sale of investments 9,284 - 16,203
Divestiture of certain businesses 119,152 51,285 1,719
Purchase of subsidiary stock - - (20,491)
Acquisition of certain businesses:
Working capital other than cash acquired (74) (29,042) (12,227)
Property and equipment (4,163) (11,105) (36,261)
Additions to intangibles and other assets (5,688) (72,616) (306,067)
Other (8,020) (8,362) (2,268)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (59,703) (247,637) (536,799)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 127,323 155,510 486,844
Payment of long-term borrowings including premiums (242,944) (95,510) (209,742)
Redemption of preferred stock - (6,359) (1,984)
Proceeds from issuance of common stock 14,338 13,949 9,718
Repurchase of common stock (65,463) (54,849) (26,435)
Payment of preferred stock dividend - (1,067) (1,049)
Other (1,548) (1,109) (4,151)
- -----------------------------------------------------------------------------------------------------------------
Net cash (used in)/provided by financing activities (168,294) 10,565 253,201
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,069 2,201 (4,344)
Cash and cash equivalents, beginning of year 25,283 23,082 27,426
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 27,352 $ 25,283 $ 23,082
================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-6
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED OCTOBER 3, 1997
(in thousands)
<TABLE>
<CAPTION>
Impact of
Potential
Class A Class B Cumulative Repurchase
Common Common Capital Retained Translation Feature of
Stock Stock Surplus Earnings Adjustment Common Stock
-------- -------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 27, 1996 $20 $227 $ - $309,437 $ 5,131 $(18,614)
Net income 146,108
Issuance of Class A common stock to
employee benefit plans 384
Issuance of Class B common stock 24 25,025
Retirement of common stock (46) (25,409) (61,455)
Change during the period (6,145) (4,640)
--- ---- -------- -------- ------- -------
Balance, October 3, 1997 $20 $205 $ - $394,090 $(1,014) $(23,254)
=== ==== ========= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-7
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 1996
(in thousands)
<TABLE>
<CAPTION>
Impact of
Potential
Series C Class A Class B Cumulative Repurchase
Preferred Common Common Capital Retained Translation Feature of
Stock Stock Stock Surplus Earnings Adjustment Common Stock
---------- -------- --------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, September 29, 1995 $14,965 $21 $235 $ - $247,805 $8,318 $(19,060)
Net income 109,470
Dividends on preferred stock (769)
Issuance of Class A common stock to
employee benefit plans 5,728
Issuance of Class B common stock 25 30,519
Retirement of common and preferred stock (14,965) (1) (33) (36,247) (47,069)
Change during the period (3,187) 446
------------ ----- ------- ----------- ---------- ------- --------
Balance, September 27, 1996 $ - $20 $227 $ - $309,437 $ 5,131 $(18,614)
=========== === ==== =========== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-8
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 1995
(in thousands)
<TABLE>
<CAPTION>
Impact of
Potential
Series C Class A Class B Cumulative Repurchase
Preferred Common Common Capital Retained Translation Feature of
Stock Stock Stock Surplus Earnings Adjustment Common Stock
----------- --------- --------- ------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1994 $16,949 $21 $243 $ - $178,587 $7,550 $(20,791)
Net income 93,503
Dividends on preferred stock (1,046)
Issuance of Class A common stock to
employee benefit plans 6,576
Issuance of Class B common stock 31 20,637
Retirement of common and preferred stock (1,984) (39) (27,213) (23,239)
Change during the period 768 1,731
------- ----- ----- ----------- --------- ------ --------
Balance, September 29, 1995 $14,965 $ 21 $235 $ - $247,805 $8,318 $(19,060)
======= ===== ===== =========== ========= ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-9
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR
The Company's fiscal year is the fifty-two or fifty-three week period which ends
on the Friday nearest September 30th. The fiscal year ended October 3, 1997,
September 27, 1996 and September 29, 1995 are fifty-three, fifty-two and
fifty-two week periods, respectively.
PRINCIPLES OF CONSOLIDATION, ETC.
The consolidated financial statements include the accounts of the Company and
all its subsidiaries. All significant intercompany balances and transactions
have been eliminated. Certain reclassifications were made to the prior year
financial statements to conform to the fiscal 1997 presentation.
In fiscal 1998, the Company is required to adopt the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 requires the disclosure of "basic" and "diluted" earnings per share. For the
fiscal year ended October 3, 1997, pro forma basic earnings per share under SFAS
No. 128 would be $3.49. Diluted earnings per share would not be materially
different from reported earnings per share.
In fiscal 1999, the Company is required to adopt the provisions of SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". The Company is currently assessing
the impact the adoption will have on the consolidated financial statements. The
Company will complete its analysis of the disclosure requirements of these
standards in fiscal 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CURRENCY TRANSLATION
Gains and losses resulting from the translation of financial statements of
non-U.S. subsidiaries are reflected as a currency translation adjustment in
shareholders' equity. Currency transaction gains and losses included in
operating results for fiscal 1997, 1996 and 1995 were not significant.
CURRENT ASSETS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories are valued at the lower of cost (principally the first-in, first-out
method) or market. The LIFO (last-in, first-out) method of determining cost is
used to value directly marketed career apparel and public safety clothing and
equipment. The stated value of inventories determined using the LIFO method is
not significantly different from replacement or current cost. Personalized work
apparel and linens in service are recorded at cost and are amortized over their
estimated useful lives, approximately two years. In accordance with industry
practice, magazines and books are sold to retailers with the right to return
unsold items for ultimate credit from the publishers.
S-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
CURRENT ASSETS (Continued)
The components of inventories are as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Food 21.1% 22.5%
Career apparel, safety equipment and linens 64.5% 62.2%
Magazines and books 6.7% 7.0%
Parts, supplies and novelties 7.7% 8.3%
- -------------------------------------------------------------------------------------
100.0% 100.0%
- -------------------------------------------------------------------------------------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over their
estimated useful lives on a straight-line basis. Gains and losses on
dispositions are included in operating results. Maintenance and repairs are
charged to operations currently, and replacements and significant improvements
are capitalized. The estimated useful lives for the major categories of property
and equipment are 10 to 40 years for buildings and improvements and 3 to 10
years for service equipment and fixtures. Depreciation expense in fiscal 1997,
1996 and 1995 was $136.1 million, $129.1 million and $116.4 million,
respectively.
GOODWILL
Goodwill, which represents the excess of cost over fair value of the net assets
of acquired businesses, is being amortized on a straight-line basis principally
over 40 years. The Company develops operating income projections for each of its
lines of business and evaluates the recoverability and amortization period of
goodwill using these projections. In fiscal 1997, the Company wrote off certain
intangible assets as discussed in Note 2. Based upon management's current
assessment, the estimated remaining amortization period of goodwill is
appropriate and the remaining balance is fully recoverable. Accumulated
amortization at October 3, 1997 and September 27, 1996 was $162.2 million and
$150.5 million, respectively.
OTHER ASSETS
Other assets consist primarily of investments in less than 50% owned entities,
contract rights, customer lists, and long-term receivables. Investments in which
the Company owns more than 20% but less than a majority are accounted for using
the equity method. Investments in which the Company owns less than 20% are
accounted for under the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" or the cost as applicable. Contract
rights and customer lists are being amortized on a straight-line basis over the
expected period of benefit, 3 to 20 years.
OTHER LIABILITIES
Other noncurrent liabilities consist primarily of deferred compensation,
insurance accruals, deferred gains arising from sale and leaseback transactions
and subordinated installment notes arising from repurchases of common stock.
The Company is self-insured for a limited portion of the risk retained under its
general liability and workers' compensation arrangements. Self-insurance
reserves are determined based on actuarial analyses. The self-insurance reserves
for workers' compensation insurance are accrued on a present value basis using a
discount rate which approximates a risk-free rate.
S-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
EARNINGS PER SHARE
Earnings per share is reported on a fully diluted Common Stock, Class B
equivalent basis (which reflects Common Stock, Class A shares converted to a
Class B basis, ten for one) and is based upon the weighted average number of
common shares outstanding during the respective periods, plus the common
equivalent shares, if dilutive, that would result from the exercise of stock
options. Fully diluted earnings per share approximates primary earnings per
share and is equivalent to fully diluted earnings per share under the
"two-class" method.
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
Interest Paid $106.4 $108.1 $107.4
Income Taxes Paid $ 63.0 $ 91.4 $ 53.5
</TABLE>
Significant noncash investing and financing activities are as follows:
o During fiscal 1997, 1996 and 1995, the Company contributed $0.4 million,
$5.7 million and $6.6 million, respectively, of Class A Common Stock to its
employee benefit plans to fund previously accrued obligations. In addition,
during fiscal 1997, 1996 and 1995, the Company contributed $2.3 million,
$1.7 million and $1.8 million, respectively, of stock units to its stock
unit retirement plan in satisfaction of its accrued obligations. See Note
5.
o During fiscal 1997, 1996 and 1995, the Company received $10.5 million, $7.2
million and $9.4 million, respectively, of employee notes under its
Deferred Payment program as partial consideration for the issuance of
Common Stock Class B. Also, during fiscal 1997, 1996 and 1995, the Company
issued subordinated installment notes of $21.9 million, $26.8 million and
$22.5 million, respectively, as partial consideration for repurchases of
Common Stock. See Note 7.
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.:
In the second quarter of fiscal 1997, the Company sold an approximate 83%
interest in its Spectrum Healthcare Services, Inc. subsidiary (Spectrum). Total
consideration was approximately $158 million and included cash ($125 million),
notes and a warrant. The transaction resulted in a pre-tax gain of $72.4
million, net of transaction costs and reserves established for indemnification
of certain matters related to insurance, legal and other matters ($20 million),
and is included in "Other expense/income" in the accompanying consolidated
statements of income. No income taxes have been provided on the gain due to
permanent differences in the underlying book and tax basis of Spectrum. In
fiscal 1996, the business had approximately $500 million in annual revenues and
a normalized operating margin of approximately 4%. Cash proceeds from the
divestiture were used to repay borrowings under the $1 billion credit facility.
Also reflected in other expense/income, are pre-tax charges of $69.8 million,
primarily to write off certain intangible assets in the Food and Support
Services and Distributive segments. These charges were partially offset by a
gain of $9.1 million on the sale of an investment in Brylane, Inc., acquired in
connection with the fiscal 1996 King-Size divestiture described below.
S-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.: (Continued)
The amount of the charges applicable to the Food and Support Services segment
was approximately $30 million due primarily to recognize an impairment of
goodwill in a European operation and to reduce certain other assets to net
realizable value. Operating results at the subsidiary have continued to be
significantly below management's expectations and as a result, at year-end,
future operations have been reassessed. The goodwill impairment was determined
based on a discounted cash flow basis. Also, as a result of increased
competition and consolidation in the magazine wholesale distribution industry
and continuing operating losses in the Distributive segment, management recently
finalized a plan to reposition the distributive business, including the
divestiture of certain operations with a book value at October 3, 1997 of
approximately $29 million including intangibles. This resulted in a $34 million
pre-tax charge. The asset write-down was determined based on estimates of
discounted future cash flows. The impairment loss on operations to be divested
was based on preliminary indications of value for those operations and their
sale is expected to be completed during fiscal 1998.
In the first quarter of fiscal 1996, the Company sold the King-Size division of
its Uniform and Career Apparel business. The net selling price was approximately
$51 million in cash plus "warrants" in Brylane, Inc. 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),
including a $2 million charge for environmental liabilities, and is reflected as
"Other expense/income" in the accompanying consolidated statements of income.
The environmental liabilities related to several minor remediation projects
involving properties no longer in service. These remediation projects will not
have any material ongoing financial impact on the Company's financial
statements. The King-Size operations were not material to the Company's
consolidated revenues or operating income.
At fiscal 1996 yearend, the Company acquired Crest Uniform Company, a provider
of uniform apparel to the hospitality and healthcare markets for cash of
approximately $95 million. The acquisition was accounted for under the purchase
method of accounting. The Company's pro forma results of operations for fiscal
1996 and 1995 would not have been materially different assuming the acquisition
had occurred as of the beginning of the respective periods.
During fiscal 1995, the Company acquired the following businesses: Harry M.
Stevens, a provider of food and support services to stadiums and arenas late in
the first quarter for approximately $125 million in cash; two magazine and book
distribution companies, Meader Distributing Co., Inc. and Rainer News, Inc., one
in the first quarter and one late in the third quarter for approximately $28
million in cash; Todd Uniform, Inc., a uniform rental business late in the
fourth quarter for approximately $120 million in cash; and Gall's, Inc. a direct
marketer of public safety clothing and equipment late in the fourth quarter for
approximately $87 million in cash. The acquisitions were accounted for under the
purchase method of accounting and the fiscal 1995 financial statements reflect
the results of operations and cash flows of the acquired companies from the
dates of the acquisitions. Had these acquisitions occurred as of the beginning
of the fiscal period, pro forma consolidated revenues, income before
extraordinary items, net income and earnings per share, would have been
approximately $5.8 billion, $91.1 million, $84.4 million and $1.69,
respectively. These pro forma results are unaudited and are based on historical
results, adjusted for the impact of certain acquisition related adjustments,
such as: increased amortization of intangibles, increased interest expense on
acquisition debt, and the related income tax effects. Pro forma results do not
reflect any synergies that might be achieved from combined operations and
therefore, in management's opinion, are not indicative of what actual results
would have been if the acquisitions had occurred at the beginning of the
respective periods. In addition, they are not intended to be a projection of
future results.
S-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. EXTRAORDINARY ITEM:
During fiscal 1996, the Company redeemed its $80 million 8.25% senior notes for
a premium. The debt extinguishment was financed through the issuance of a $125
million 6.79% senior note. Additionally, the Company replaced its credit
facility with a new $1 billion credit facility (See Note 4), writing off the
unamoritized balance of financing costs related to the old credit facility. The
resultant extraordinary charge on these transactions was $2.8 million or $0.06
per share.
During fiscal 1995, the Company redeemed its $125 million 12% subordinated
debentures and its $50 million 10.25% senior note for a premium. The debt
extinguishment was financed through the issuance of 8.15% and 8% senior notes
(see Note 4). The resultant extraordinary charge was $6.7 million or $0.13 per
share.
NOTE 4. BORROWINGS:
Long-term borrowings at October 3, 1997 and September 27, 1996 are summarized
in the following table:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
SENIOR:
Credit facility borrowings $ 370,000 $ 596,400
Canadian credit facility 39,350 45,123
6.79% note, payable in installments through 2003 125,000 125,000
7.10% notes, due December 2006 124,827 -
7.25% notes and debentures due August 2007 32,160 -
8% notes, due April 2002 100,000 100,000
8.15% notes, due May 2005 150,000 150,000
10-5/8% notes, due August 2000 100,000 100,000
Other 59,482 66,524
- -------------------------------------------------------------------------------------------------------
1,100,819 1,183,047
- -------------------------------------------------------------------------------------------------------
SUBORDINATED:
8.5% subordinated notes, due June 2003 100,000 100,000
10% exchangeable debentures and notes, due August 2000 26,689 58,849
Other 2,338 2,340
- -------------------------------------------------------------------------------------------------------
129,027 161,189
- -------------------------------------------------------------------------------------------------------
OBLIGATIONS UNDER CAPITAL LEASES 2,615 3,846
- -------------------------------------------------------------------------------------------------------
1,232,461 1,348,082
Less-current portion 18,517 26,092
- -------------------------------------------------------------------------------------------------------
$1,213,944 $1,321,990
=======================================================================================================
</TABLE>
The non-amortizing $1.0 billion revolving credit facility ("Credit Agreement")
is provided by a group of banks and matures in June 2001. Interest under the
Credit Agreement is based on the Prime Rate, LIBOR plus a spread of .15% to
.625% (as of October 3, 1997 - .33%) or the Certificate of Deposit Rate plus a
spread of .25% to .725% (as of October 3, 1997 - .43%), at the option of the
Company. The Company pays a fee of .10% to .375% (as of October 3, 1997 - .17%)
on the entire credit facility. The spread and fee margins are based on certain
financial ratios as defined.
S-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
The non-amortizing C$80 million Canadian revolving credit facility provides for
either U.S. dollar or Canadian dollar borrowings and matures in June 2001.
Interest on this facility is based on the Canadian Bankers Acceptance Rate, U.S.
Prime Rate, Canadian Prime Rate or LIBOR plus a spread of up to 5/8%, as
defined. As of October 3, 1997, all borrowings under this facility are payable
in Canadian dollars, with a weighted average interest rate of 4.0%. The Company
pays a fee of .17% on the entire credit facility.
The Company's Children's World Learning Centers, Inc. (CWLC) subsidiary also has
a $125 million revolving credit facility with a group of banks. The credit
facility matures in August 2003, with quarterly commitment reductions of $5
million starting in September 2001, which increase to $6.25 million starting
September 2002. Interest under the credit facility is based on the Prime Rate
plus a spread of 0% to 1/4% or LIBOR plus a spread of 1/2% to 1%, at the option
of CWLC. CWLC pays a fee of .2% to .375% (as of October 3, 1997 - .225%) on the
unborrowed portion of the credit facility. The spread and fee margins are based
on certain financial ratios as defined. As of October 3, 1997 there were no
borrowings outstanding under this credit facility.
The 6.79% note is payable in $25 million annual installments beginning January
1999, with a final maturity of January 2003.
The 7.25% notes and debentures may be exchanged, at par, beginning in June 1998,
in whole or in part, at the option of the holder, for 7.10% senior notes due
December 2006. The Company has the right to redeem these notes and debentures,
at par, upon being presented with a notice of conversion or at any time after
June 2004.
The 10-5/8% senior notes require a sinking fund payment of $50 million in August
1999 with a final maturity in August 2000.
The 8-1/2% subordinated notes may be redeemed at the Company's option, in whole
or in part, beginning June 1998 at a price equal to 104.25% of their principal
amount and thereafter at prices declining to par in 2002, together with accrued
interest.
The 10% subordinated exchangeable debentures and notes may be exchanged at any
time in whole or part, at the option of the holder, for 10-5/8% senior notes due
August 2000 at an exchange ratio of .93.
Accrued interest on borrowings totaling $27.7 million at October 3, 1997 and
$24.3 million at September 27, 1996 is included in current liabilities as "Other
accrued expenses."
The Company utilizes derivative financial instruments, such as interest rate
swap and forward exchange agreements to manage changes in market conditions
related to debt obligations and foreign currency exposures. At October 3, 1997
and September 27, 1996, the Company has $197 million and $250 million,
respectively, of interest rate exchange agreements fixing the rate on a like
amount of borrowings under the Credit Agreement at an average effective rate of
6.7% and 6.2%, respectively. As of October 3, 1997, interest rate exchange
agreements remain in effect for periods ranging from 3 to 25 months. All
interest rate swaps are accounted for as hedges under the accrual method with
the net payments under the terms of the swap agreements recognized currently in
income as a component of interest expense. Gains or losses on the termination of
interest rate swaps are deferred and amortized over the remaining life of the
terminated swap agreement. Interest rate swaps, for which the designated debt
instrument being hedged is extinguished, are accounted for on the fair value
method from the extinguishment date, if not concurrently terminated, with gains
and losses recognized currently in the consolidated statement of income. The
Company has a $24 million foreign currency swap agreement maturing in August
2000. This swap hedges the currency exposure of its net investment in Spain and
accordingly, gains and losses on the currency swap are recorded as a component
S-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
of the cumulative translation adjustment. The counterparties to the above
derivative agreements are major international banks. The Company continually
monitors its positions and credit ratings of its counterparties, and does not
anticipate nonperformance by the counterparties.
The following summarizes the fair value of the Company's financial instruments
as of October 3, 1997 and September 27, 1996. The fair values were computed
using market quotes, if available, or based on discounted cash flows using
market interest rates as of the end of the respective periods.
<TABLE>
<CAPTION>
1997 1996
------------------------------- ---------------------------
Carrying Fair Carrying Fair
Asset/(Liability) in millions Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Long-term debt $(1,232.5) $(1,263.5) $(1,348.1) $(1,364.6)
Interest rate swap agreements - (0.7) - 0.1
Foreign currency swap agreement 3.6 2.8 0.4 0.1
</TABLE>
The Credit Agreement contains restrictive covenants which provide, among other
things, limitations on liens, dispositions of material assets and repurchases of
capital stock. The terms of the Credit Agreement also require that the Company
maintain certain specified minimum ratios of cash flow to fixed charges and to
total borrowings and certain minimum levels of net worth (as defined). At
October 3, 1997, the Company was in compliance with all of these covenants.
Assets with a net book value of $2.2 million at October 3, 1997, are subject to
liens under several of the Company's borrowing arrangements.
Long-term borrowings maturing in the next five years, excluding capital lease
obligations, are as follows:
Amount
--------------
(in thousands)
1998 $ 17,812
1999 78,568
2000 109,183
2001 460,209
2002 125,291
NOTE 5. EMPLOYEE PENSION AND PROFIT SHARING PLANS:
In the United States, the Company maintains qualified contributory and
non-contributory retirement plans for eligible employees, with Company
contributions to the plans based on earnings performance or salary level.
Qualified non-contributory profit sharing plans are maintained by certain
businesses, with annual contributions determined by management. The Company has
a non-qualified stock unit retirement plan for certain employees. The total
expense of the above plans for fiscal 1997, 1996 and 1995 was $15.5 million,
$15.7 million and $15.3 million, respectively. During fiscal 1997, 1996 and
1995, the Company contributed 1,995 shares, 32,475 shares and 41,114 shares,
respectively, of Common Stock, Class A to these plans to partially fund
previously accrued obligations. In addition, during fiscal 1997, 1996 and 1995,
the Company contributed to the stock unit retirement plan 121,185 stock units,
104,938 stock units and 120,700 stock units, respectively, which are convertible
into Common Stock, Class B, in satisfaction of its accrued obligations. The
value of the stock units was credited to capital surplus. The Company
participates in various multi-employer union administered pension plans.
Contributions to these plans, which are primarily defined benefit plans, result
from contractual provisions of labor contracts and were $14.4 million, $13.6
million and $13.1 million for fiscal 1997, 1996 and 1995, respectively.
S-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. EMPLOYEE PENSION AND PROFIT SHARING PLANS: (Continued)
Additionally, the Company maintains several contributory and noncontributory
defined benefit pension plans, primarily in Canada and the United Kingdom. The
projected benefit obligation of these plans as of October 3, 1997, which is
fully funded, was $48.6 million. Pension expense related to these plans is not
material to the consolidated financial statements.
NOTE 6. INCOME TAXES:
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires deferred tax assets or
liabilities to be recognized for the estimated future tax effects of temporary
differences between the financial reporting and tax bases of the Company's
assets and liabilities based on the enacted tax law and statutory tax rates
applicable to the periods in which the temporary differences are expected to
affect taxable income. In June 1996 the Company settled certain prior years' tax
returns.
The components of income before income taxes, including the effects of other
expense/income (See Note 2), by source of income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
United States $221,710 $172,572 $159,851
Non-U.S. (5,863) 6,587 7,726
- ------------------------------------------------------------------------------------------------
$215,847 $179,159 $167,577
================================================================================================
The provision for income taxes, including the effects of other expense/income
(See Note 2), consists of:
1997 1996 1995
- ------------------------------------------------------------------------------------------------
(in thousands)
Current:
Federal $60,370 $73,919 $46,579
State and local 13,366 17,335 12,064
Non-U.S. 7,052 3,281 3,825
- ------------------------------------------------------------------------------------------------
80,788 94,535 62,468
- ------------------------------------------------------------------------------------------------
Deferred:
Federal (8,027) (23,210) 3,189
State and local (3,494) (5,379) 739
Non-U.S. 472 985 992
- ------------------------------------------------------------------------------------------------
(11,049) (27,604) 4,920
- ------------------------------------------------------------------------------------------------
$ 69,739 $ 66,931 $ 67,388
================================================================================================
The provision for income taxes varies from the amount determined by applying the
United States Federal statutory rate to pre-tax income as a result of the
following:
1997 1996 1995
- ------------------------------------------------------------------------------------------------
(% of pre-tax income)
United States statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes, resulting from:
State income taxes, net of Federal tax benefit 3.0 4.3 4.7
Permanent book/tax difference related to the sale
of Spectrum (11.3) - -
Permanent book/tax differences, primarily
resulting from purchase accounting 8.4 2.1 1.7
Favorable impact of June 1996 tax settlement - (2.8) -
Tax credits and other (2.8) (1.2) (1.2)
- ------------------------------------------------------------------------------------------------
Effective income tax rate 32.3% 37.4% 40.2%
================================================================================================
</TABLE>
S-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
As of October 3, 1997 and September 27, 1996, the components of deferred taxes
are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment $ 57,720 $61,095
Inventory 5,066 5,549
Investments 15,709 12,813
Other 11,928 10,837
--------- --------
Gross deferred tax liability 90,423 90,294
--------- --------
Deferred tax assets:
Insurance $11,815 $26,455
Employee compensation and benefits 36,077 34,889
Accruals and allowances 33,159 30,638
Intangibles - 3,415
Other 6,561 8,709
Valuation allowance - (815)
-------- --------
Net deferred tax asset 87,612 103,291
-------- --------
Net deferred tax liability/(asset) $ 2,811 $(12,997)
======== ========
</TABLE>
NOTE 7. CAPITAL STOCK:
There are two classes of common stock authorized and outstanding, Common Stock,
Class A and Common Stock, Class B. Each Class A and Class B Share is entitled to
one vote on all matters submitted to shareholders, voting together as a single
class except where otherwise required by law. Each Class A Share is entitled to
ten times the dividends and other distributions payable on each Class B Share.
Class B Shares may be held only by employees, directors and their family
members, and upon termination of employment each Class B Share is automatically
converted into 1/10 of a Class A Share.
During fiscal 1996, the Company redeemed, at par, all its outstanding Series C
Preferred Stock for $6.4 million in cash and the issuance of $8.6 million of
Common Stock, Class B. During fiscal 1995 the Company repurchased 1,984
preferred shares for $2.0 million.
As of October 3, 1997, the Company's stock option plans provided for the
issuance of up to 44,861,642 options to purchase shares of Common Stock, Class
B. The Company granted installment stock purchase opportunities under its stock
ownership program in fiscal 1997, 1996 and 1995 which provide for the purchase
of shares of Common Stock, Class B. Installment stock purchase opportunities are
exercisable in six annual installments with the exercise price of each purchase
opportunity equal to the current fair market value at the time the purchase
opportunity is granted. The Company has a program to grant non-qualified stock
options to additional qualified employees on an annual basis. Under the program,
options vest after three years and may be exercised for a period of three years
after vesting. The exercise price of each option is equal to the current fair
market value at the date of grant. In fiscal 1997, 1996 and 1995, the Company
granted cumulative installment stock purchase opportunities under its existing
stock ownership program which are similar to the installment stock purchase
opportunities discussed above, however, any purchase opportunities not exercised
during an installment period may be carried forward to subsequent installment
periods. The Company has a Deferred Payment Program which enables holders of
non-qualified stock options and installment purchase opportunities to defer a
portion of the total amount required to exercise the options. Interest currently
accrues on deferred payments at 8.25% compounded annually and is payable when
the deferred payments are due. At October 3, 1997 and
S-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL STOCK: (Continued)
September 27, 1996, the receivables from individuals under the Deferred Payment
Program were $26.6 million and $19.0 million, respectively, which are reflected
as a reduction of Shareholders' Equity. The Company holds as collateral all
shares purchased in which any portion of the purchase price is financed under
the Deferred Payment Program until the deferred payment is received from the
individual by the Company. Status of the options, including installment stock
purchase opportunities, under the various ownership programs follows:
<TABLE>
<CAPTION>
Number of Shares Average Option Price
------------------------------------------ ----------------------------
1997 1996 1995 1997 1996 1995
------------- ------------- ------------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 10,367,984 10,107,199 10,383,764 $12.17 $10.47 $ 8.05
Options granted 3,457,000 4,133,100 4,409,920 $16.61 $14.75 $13.11
Options exercised 2,429,783 1,938,142 3,084,830 $9.70 $8.83 $6.17
Canceled/Forfeited 2,450,989 1,934,173 1,601,655 $12.92 $11.68 $10.51
Outstanding at end of year 8,944,212 10,367,984 10,107,199 $14.22 $12.17 $10.47
Exercisable at end of year 64,392 539,720 514,696 $8.87 $3.72 $2.14
</TABLE>
The exercise prices on outstanding options at October 3, 1997 range from $8.34
to $18.50 with a weighted average remaining life of approximately three years.
The Company has reserved 9,637,714 shares of Common Stock, Class B at October 3,
1997 for issuance of stock pursuant to its employee ownership and benefit
programs.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock option plans. Accordingly, no compensation expense has been recognized
related to the plans described above. If compensation cost for these plans had
been determined using the fair-value method prescribed by SFAS No. 123,
"Accounting for Stock Based Compensation," the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below.
1997 1996
---- ----
Net Income
As reported $146,108 $109,470
Pro forma 143,570 108,199
Fully diluted earnings per share
As reported $3.28 $2.31
Pro forma $3.23 $2.29
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to fiscal 1996, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.
The weighted average fair value of options granted in fiscal 1997 and 1996 was
$2.65 and $2.46, respectively. As the Company's stock is not publicly traded,
the fair value of each option was estimated on the grant date using the minimum
value method (which excludes a volatility assumption), with the following
assumptions:
1997 1996
--------------- ----------
Risk-free interest rate 5.2 - 6.1% 5.4 - 5.9%
Expected life in years 3.2 3.5
Dividend yield 0% 0%
S-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL STOCK: (Continued)
The Company and its shareholders are parties to an Amended and Restated
Shareholders' Agreement. Pursuant to this agreement, holders of common stock who
are individuals, upon their death, complete disability or normal retirement, may
cause the Company to repurchase up to 30% of their shares for cash at the then
appraised value, but only to the extent such repurchase by the Company is
permitted under the Credit Agreement. Under this Credit Agreement restriction,
repurchases of capital stock cannot exceed an aggregate limit, which amount was
$23.3 million at October 3, 1997 and $18.6 million at September 27, 1996.
Pursuant to interpretations of its rules related to "Redeemable Preferred
Stock," the Securities and Exchange Commission has requested that these amounts
representing the Company's potential repurchase of its Common Stock be presented
as a separate item and accordingly, the Company's Shareholders' Equity reflects
this reclassification in the consolidated financial statements. Also, the
Shareholders' Agreement provides that the Company may, at its option, repurchase
shares from individuals who are no longer employees. Such repurchased shares may
be resold to others including replacement personnel at prices equal to or
greater than the repurchase price. Generally, payment for shares repurchased can
be, at the Company's option, in cash or subordinated installment notes, which
are subordinated to all other indebtedness of the Company. Interest on these
notes is payable semi-annually and principal payments are made annually over
varying periods not to exceed ten years. The noncurrent portion of these notes
($50.9 million as of October 3, 1997 and $49.2 million as of September 27, 1996)
is included in the consolidated balance sheets as "Other Noncurrent Liabilities"
and the current portion of these notes ($19.9 million as of October 3, 1997 and
$13.4 million as of September 27, 1996) is included in the consolidated balance
sheets as "Accounts Payable."
NOTE 8. COMMITMENTS AND CONTINGENCIES:
1997 1996
- -----------------------------------------------------------------------
(in thousands)
Facilities under capital leases $10,992 $12,489
Less-accumulated amortization 8,961 9,269
- -----------------------------------------------------------------------
$ 2,031 $ 3,220
=======================================================================
Rental expense for all operating leases was $129.7 million, $128.6 million and
$124.2 million for fiscal 1997, 1996 and 1995, respectively.
Following is a schedule of the future minimum rental commitments under all
noncancelable leases as of October 3, 1997:
Fiscal Year Operating Capital
- -------------------------------------------------------------------------------
(in thousands)
1998 $151,578 $ 982
1999 84,681 802
2000 71,076 652
2001 63,361 275
2002 49,743 148
Subsequent years 144,362 115
- -------------------------------------------------------------------------------
Total minimum rental obligations $564,801 2,974
=============================================================
Less-amount representing interest 359
- -------------------------------------------------------------------------------
Present value of capital leases 2,615
Less-current portion 705
- -------------------------------------------------------------------------------
Noncurrent obligations under capital leases $1,910
===============================================================================
S-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENCIES: (Continued)
The Company has capital commitments of approximately $20 million at October 3,
1997 in connection with several long-term concession contracts at stadiums and
arenas. The Company is party to certain claims and litigation arising in the
ordinary course of business. The Company believes it has meritorious defenses to
these claims and is of the opinion that adequate reserves have been provided for
the ultimate resolution of these matters.
NOTE 9. 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 Credit Agreement and certain
other senior debt described in Note 4 and incurs the interest expense
thereunder. This interest expense is only partially allocated to all of the
other subsidiaries of ARAMARK Corporation.
1997 1996 1995
------------ ------------- ---------
(in thousands)
Revenues $3,464,051 $3,200,388 $2,975,397
Cost of services provided 3,256,787 3,024,136 2,808,554
Net income 20,690 15,503 14,749
1997 1996
----------- --------------
(in thousands)
Current assets $ 407,978 $ 395,243
Noncurrent assets 1,558,010 1,630,023
Current liabilities 507,179 495,147
Noncurrent liabilities 1,333,759 1,419,648
S-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. QUARTERLY RESULTS (Unaudited):
The following table summarizes quarterly financial data for fiscal 1997 and
1996:
<TABLE>
<CAPTION>
Fiscal Quarter
--------------------------------------------------------
1997 First Second(1) Third Fourth(2) Year
- ------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Revenues $1,686,751 $1,458,017 $1,531,614 $1,634,035 $6,310,417
Cost of services provided 1,540,226 1,336,421 1,384,834 1,453,921 5,715,402
Net income 27,655 87,952 30,134 367 146,108
Earnings per share:
Net income $.61 $1.95 $.69 $.01 $3.28
Fiscal Quarter
-------------------------------------------------------
1996 First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
Revenues $1,549,374 $1,464,626 $1,546,296 $1,562,204 $6,122,500
Cost of services provided 1,413,632 1,343,275 1,407,732 1,400,399 5,565,038
Income before extraordinary item 24,989 15,299 29,805 42,135 112,228
Extraordinary item (3) - 1,589 1,169 - 2,758
Net income 24,989 13,710 28,636 42,135 109,470
Earnings per share:
Income before extraordinary item $.52 $.32 $.64 $.92 $2.37
Net income $.52 $.28 $.61 $.92 $2.31
</TABLE>
(1) Fiscal 1997 second quarter results reflect the sale of Spectrum (See
Note 2).
(2) Fiscal 1997 fourth quarter results reflect charges primarily related to
asset realization (See Note 2).
(3) See Note 3.
In the first and second fiscal quarters, within the Food and Support Services
segment there is a lower level of activity at the higher margin leisure and
recreational food service operations which is partly offset by increased
activity in the educational market. In addition, there is a seasonal increase in
volume of directly marketed work clothing during the first quarter. Whereas in
the third and fourth fiscal quarters, there is a significant increase at leisure
and recreational accounts which is partially offset by the effect of summer
closings in the educational market.
S-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. BUSINESS SEGMENTS:
The Company provides or manages services in the following business segments:
Food and Support Services - Food, refreshment, specialized dietary and support
services, including maintenance and housekeeping, provided to business,
educational, governmental and medical institutions and in recreational and other
facilities serving the general public. Fiscal 1997 operating income includes
charges of approximately $30 million related primarily to asset realization (See
Note 2). The 1995 segment operating results were adversely impacted by the Major
League Baseball and National Hockey League strikes in the U.S. and Canada.
Additionally, the fiscal 1995 segment operating results were adversely impacted
by a decrease in average attendance at Major League Baseball games subsequent to
the resumption of the season in April 1995. Had the hockey strike and baseball
situation not occurred, it is estimated that segment reported results for
revenues and operating income would have been approximately 2% and 10% greater
in fiscal 1995. Also, total Company operating income and income before
extraordinary items would have been approximately 5% and 8% higher in fiscal
1995, respectively.
Uniform and Career Apparel - Rental of personalized work apparel and linens for
business and institutions on a contract basis and the direct marketing of work
clothing, safety equipment and accessories. Fiscal 1997 operating income
includes a $9 million gain on the sale of an investment and charges of
approximately $6 million, related primarily to asset realization (See Note 2).
Fiscal 1996 operating income includes the $37 million gain on the sale of a
division and charges of approximately $5 million related to changes in estimates
regarding asset realization and environmental matters (See Note 2). The divested
division was not material to segment revenues and contributed approximately 5%
of fiscal 1995 segment operating income.
Health and Educational Resources - Provider of educational and child care
services at both company operated and customer facilities. In 1997 the Company
sold an approximate 83% interest in Spectrum, a provider of general management
and specialized services to emergency rooms, and other hospital specialties, and
medical services to correctional institutions (See Note 2). The Spectrum
operations contributed 29%, 63% and 64% of segment revenues and 4%, 32% and 35%
of segment operating income in fiscal 1997, 1996 and 1995, respectively. Fiscal
1997 operating income includes the gain of $72 million from the sale of
Spectrum. Fiscal 1996 operating income includes charges of approximately $13
million for insurance claims and real estate exposures (See Note 2).
Distributive - Wholesale distribution of magazines and other published materials
to retail locations patronized by the general public. In fiscal 1997 and 1996,
the Distributive Segment operating results were severely impacted by higher
operating costs related to servicing customers and reduced margins resulting
from increased competition and consolidation in the magazine wholesale
distribution industry. As a result of management's plans to reposition the
distributive business, and the resultant changes in estimates of future cash
flows, fiscal 1997 includes charges of approximately $34 million related to
asset realization (See Note 2).
Revenues by segment are substantially comprised of services to unaffiliated
customers and clients. Operating income reflects expenses directly related to
individual segments plus an allocation of expenses applicable to more than one
segment. General corporate expenses include expenses not specifically
identifiable with an individual segment. The increase in fiscal 1996 General
Corporate expenses is due primarily to reserves established for asset
realization, legal and other matters (See Note 2). Direct selling expenses are
approximately 1% of revenues for fiscal 1997, 1996 and 1995. Corporate assets
consist principally of goodwill not allocable to any individual segment and
other noncurrent assets.
S-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. BUSINESS SEGMENTS: (Continued)
<TABLE>
<CAPTION>
Revenues Depreciation and Amortization
--------------------------------------- --------------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
(in millions)
Food and Support
Services $4,131.4 $3,816.0 $3,521.2 $100.2 $ 96.5 $ 89.7
Uniform and Career
Apparel 1,252.2 1,049.2 893.4 58.4 52.2 40.7
Health and Educational
Resources 466.0 781.0 742.9 18.2 19.6 18.2
Distributive 460.8 476.3 443.1 12.3 8.3 3.5
Corporate - - - 2.6 6.2 4.8
-------- -------- -------- ------ ------ ------
Total $6,310.4 $6,122.5 $5,600.6 $191.7 $182.8 $156.9
======== ======== ======== ====== ====== ======
Operating Income
-------------------------------------------------------
(in millions)
1997 1996 1995
----- ----- ------
<S> <C> <C> <C>
Food and Support Services $170.4 $166.9 $138.9
Uniform and Career Apparel 124.0 140.2 99.3
Health and Educational Resources 103.5 26.8 27.3
Distributive (49.6) (6.0) 26.8
----- ------ ------
348.3 327.9 292.3
General Corporate and Other Expenses (16.4) (32.7) (15.3)
------ ------- ------
Operating Income 331.9 295.2 277.0
Interest Expense, Net (116.0) (116.0) (109.4)
------ ------- ------
Income Before Income Taxes
and Extraordinary Item $215.9 $179.2 $167.6
====== ====== ======
Capital Expenditures Identifiable Assets
------------------------------------- ----------------------------------
1997 1996 1995 1997 1996 1995
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
(in millions)
Food and Support
Services $ 97.3 $ 99.5 $ 128.2 $1,258.8 $1,286.4 $1,264.5
Uniform and Career
Apparel 66.7 57.7 66.7 1,042.0 1,000.8 891.2
Health and Educational
Resources 36.0 39.2 26.6 210.4 308.3 272.0
Distributive 1.5 4.6 3.9 138.0 174.1 131.5
Corporate .5 1.0 4.3 104.4 75.2 84.1
------ ------ ------ -------- -------- --------
$202.0 $202.0 $229.7 $2,753.6 $2,844.8 $2,643.3
====== ====== ====== ======== ======== ========
</TABLE>
Most services are provided in the United States, with operations also being
conducted in Belgium, Canada, the Czech Republic, Germany, Hungary, Japan,
Korea, Mexico, Spain and the United Kingdom. The Company's non-U.S. operations
for each year contributed approximately 15% of total revenues and 8% of total
operating income (excluding the effect of other expense/income), and
identifiable assets for these operations were approximately 9% of the total.
S-24
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARAMARK CORPORATION
BALANCE SHEETS
OCTOBER 3, 1997 AND SEPTEMBER 27, 1996
(in thousands)
ASSETS
------
<TABLE>
<CAPTION>
1997 1996
------------- ---------
<S> <C> <C>
Current Assets:
Receivables $ 1,186 $ 1,946
Inventories 23 289
Prepayments 2,880 1,817
---------- --------
Total current assets 4,089 4,052
---------- --------
Property & Equipment, net 5,671 10,819
Investment in Subsidiaries 977,599 838,439
Notes Receivable from ARAMARK Services, Inc. 100,000 100,000
Other Assets 2,274 2,126
---------- --------
$1,089,633 $955,436
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 22,238 $ 17,013
Accrued expenses 14,924 17,289
---------- --------
Total current liabilities 37,162 34,302
---------- --------
Long-Term Borrowings 129,029 161,189
Other Noncurrent Liabilities 65,264 63,172
Payable to Subsidiaries 464,877 381,958
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 23,254 18,614
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01 20 20
Class B common stock, par value $.01 205 227
Earnings retained for use in the business 394,090 309,437
Cumulative translation adjustment (1,014) 5,131
Impact of potential repurchase feature of
common stock (23,254) (18,614)
---------- --------
Total 370,047 296,201
---------- --------
$1,089,633 $955,436
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-25
<PAGE>
ARAMARK CORPORATION AND SUSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED OCTOBER 3, 1997, SEPTEMBER 27, 1996
AND SEPTEMBER 29, 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- -------
<S> <C> <C> <C>
Equity in Net Income of Subsidiaries $146,108 $109,470 $ 93,503
-------- -------- --------
Management Fee Income 35,342 49,677 56,360
-------- ---------- ---------
General and Administrative Expenses 27,320 39,425 39,322
-------- ---------- ---------
Interest (Income) Expense -
Intercompany interest income (8,663) (8,477) (16,532)
Interest expense 16,685 18,729 25,916
-------- -------- --------
Interest Expense, net 8,022 10,252 9,384
-------- -------- --------
Income before income taxes 146,108 109,470 101,157
Provision for Income Taxes - - 3,062
-------- -------- --------
Income Before Extraordinary Item 146,108 109,470 98,095
Extraordinary Item Due to Early Extinguishments
of Debt (net of income taxes of $3,062 in 1995) - - 4,592
-------- -------- --------
Net income $146,108 $109,470 $93,503
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-26
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 3, 1997, SEPTEMBER 27, 1996
AND SEPTEMBER 29, 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 146,108 $109,470 $ 93,503
Equity in net income of subsidiaries (146,108) (109,470) (93,503)
Extraordinary item - - 4,592
Other, primarily noncash working capital (6,204) 445 (22,264)
----------- ---------- --------
Net cash provided by (used in) operating activities (6,204) 445 (17,672)
----------- ---------- --------
Cash flows from investing activities:
Purchases of property and equipment (469) (968) (4,258)
Other (322) 3,474 119
----------- ---------- --------
Net cash provided by (used in) investing activities (791) 2,506 (4,139)
----------- ---------- --------
Cash flows from financing activities:
Payment of long-term borrowings including
premiums (32,160) (4,225) (131,250)
Change in notes receivable from
ARAMARK Services, Inc. - - 125,000
Change in intercompany payable to
subsidiaries 90,280 49,600 47,811
Redemption of preferred stock - (6,359) (1,984)
Proceeds from issuance of common stock 14,338 13,949 9,718
Repurchase of common stock (65,463) (54,849) (26,435)
Payment of preferred stock dividend - (1,067) (1,049)
----------- ---------- --------
Net cash provided by (used in) financing activities 6,995 (2,951) 21,811
----------- ---------- --------
Change in cash $ - $ - $ -
============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-27
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1.
These statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto beginning on page S-3.
Property and equipment are stated at cost and are depreciated over
their estimated useful lives on a straight-line basis.
Other noncurrent liabilities consist primarily of deferred
compensation and subordinated installment notes arising from repurchases of
common stock.
Note 2.
The Company has guaranteed certain obligations of ARAMARK Services,
Inc., its wholly-owned subsidiary, primarily those incurred pursuant to the
Credit Agreement borrowings. See Note 4 to the Company's consolidated
financial statements. Total guarantees were $1.1 billion on October 3, 1997.
S-28
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED OCTOBER 3, 1997, SEPTEMBER 27, 1996
AND SEPTEMBER 29, 1995
<TABLE>
<CAPTION>
Additions Reductions
------------------------- ---------------------------
Balance, Acquisition Divestiture Deductions Balance,
Beginning of of Charged to of from End of
Description Fiscal Year Businesses Income Businesses Reserves(1) Fiscal Year
----------- ------------ ----------- ---------- ---------- ---------- -----------
- - - - - - - -- - - - - - - - - - (in thousands) - - - - - - - - - - - - - - - - - -
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year 1997
----------------
Reserve for doubtful accounts,
advances & current notes receivable $16,973 $141 $16,287 $1,988 $8,255 $23,158
======= ==== ======= ====== ====== =======
Fiscal Year 1996
----------------
Reserve for doubtful accounts,
advances & current notes receivable $15,996 $831 $6,875 $ - $6,729 $16,973
======= ==== ====== ========== ====== =======
Fiscal Year 1995
----------------
Reserve for doubtful accounts,
advances & current notes receivable $12,423 $3,828 $6,357 $ - $6,612 $15,996
======= ====== ====== ========== ====== =======
</TABLE>
(1) Allowances granted and amounts determined not to be collectible.
S-29
<PAGE>
9710KEXH.01
INDEX TO EXHIBITS
3.1 Restated Certificate of Incorporation is incorporated
by reference to the Company's quarterly report on Form
10-Q for the fiscal quarter ended December 29, 1995.
3.2 Corporate By-laws, as amended, are incorporated by
reference to the Company's Registration Statement on Form
S-8 (No. 33-14365).
4.1 Amended and Restated Stockholders' Agreement is
incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1994.
4.2 Amended and Restated Registration Rights Agreement is
incorporated by reference to the Company's quarterly
report on Form 10-Q for the fiscal quarter ended April 1,
1988.
Long-term debt instruments authorizing debt which does not
exceed 10% of the total consolidated assets of the Company
are not filed herewithin but will be furnished on request
of the Commission.
10.1 Restated Employment Agreement dated November 13, 1991 with
Joseph Neubauer is incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 27, 1991.
10.3 Agreement relating to employment and post-employment
competition dated May 6, 1986 with James E. Ksansnak is
incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended September 29, 1989.
10.4 Agreement relating to employment and post-employment
competition dated October 4, 1991 with William Leonard is
incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended October 1, 1993.
10.5 Agreement relating to employment and post-employment
competition dated December 19, 1983 with Martin W. Spector
is incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended September
29, 1989.
10.6 Agreement relating to employment and post-employment
competition dated June 7, 1993 with L. Frederick
Sutherland.*
10.8 Credit and Guaranty Agreement dated as of May 29, 1996.*
11 Computation of Earnings Per Share.
12 Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Registrant.
23 Consent of Arthur Andersen LLP, Independent Public
Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
*Incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended September 27, 1996.
<PAGE>
EXHIBIT 11
ARAMARK CORPORATION AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (1)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------------------------
October 3, September 27, September 29, September 30, October 1,
1997 1996 1995 1994 1993
---------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income ............................... $ 146,108 $ 109,470 $ 93,503 $ 86,079 $ 77,132
Preferred stock dividends ................ -- (769) (1,046) (1,337) (883)
--------- --------- --------- --------- ---------
Net income available to common stock ..... $ 146,108 $ 108,701 $ 92,457 $ 84,742 $ 76,249
========= ========= ========= ========= =========
Shares:
Weighted average number of common
shares outstanding (2) ................. 41,875 44,318 46,381 46,616 46,133
Impact of potential exercise opportunities
under the ARAMARK Ownership Program ... 2,608 2,670 2,928 3,512 4,873
--------- --------- --------- --------- ---------
Total common and common
equivalent shares ..................... 44,483 46,988 49,309 50,128 51,006
========= ========= ========= ========= =========
Fully diluted earnings per common and
common equivalent share ................ $ 3.28 $ 2.31 $ 1.88 $ 1.69 $ 1.49
========= ========= ========= ========= =========
</TABLE>
(1) Primary and fully diluted earnings per share are approximately the
same. Weighted average shares outstanding and earnings per share
amounts for the period ending October 1, 1993 have been retroactively
adjusted to reflect the November 1993 four-for-one stock split.
(2) Includes Class B plus Class A Common Shares stated on a Class B Common
Share Equivalent Basis.
<PAGE>
EXHIBIT 12
ARAMARK CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (A)
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------------------------------
October 3, September 27, September 29, September 30, October 1,
1997 1996 1995 1994 1993
---------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Income before income taxes
and minority interest ...... $ 215,847 $ 179,159 $ 167,577 $ 163,484 $ 143,265
Fixed charges, excluding
capitalized interest 163,404 160,740 152,991 150,432 168,158
Other, net ............. (67) (371) 1,502 (477) 1,222
--------- --------- --------- --------- ---------
Earnings, as adjusted .. $ 379,184 $ 339,528 $ 322,070 $ 313,439 $ 312,645
========= ========= ========= ========= =========
Interest expense ............. $ 119,284 $ 117,856 $ 111,605 $ 110,040 $ 128,367
Capitalized interest ... 223 414 79 27 47
Portion of operating lease
rentals representative
of interest factor ... 44,120 42,884 41,386 40,392 39,791
--------- --------- --------- --------- ---------
Fixed charges .......... $ 163,627 $ 161,154 $ 153,070 $ 150,459 $ 168,205
========= ========= ========= ========= =========
Ratio of earnings to
fixed charges .............. 2.3x 2.1x 2.1x 2.1x 1.9x
========= ========= ========= ========= =========
</TABLE>
(A) For the purpose of determining the ratio of earnings to fixed charges,
earnings include pre-tax income plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest on all
indebtedness (including capitalized interest) plus that portion of
operating lease rentals representative of the interest factor (deemed
to be one-third of operating lease rentals).
<PAGE>
EXHIBIT 21
Direct and Indirect Subsidiaries of ARAMARK Corporation
(Companies are incorporated in Delaware unless otherwise indicated)
Advertising & Display Services, Inc.
ARAMARK Advertising Services, Ltd. (PA)
ARAMARK Business Dining Services of Texas, Inc. (TX)
ARAMARK Cleanroom Services, Inc.
ARAMARK Consumer Discount Company (PA)
ARAMARK Convention Services, Inc. (PA)
ARAMARK Correctional Services, Inc.
ARAMARK Delaware, Inc.
ARAMARK Educational Group, Inc.
ARAMARK Educational Resources, Inc.
ARAMARK Educational Services of Texas, Inc. (TX)
ARAMARK Educational Services of Vermont, Inc. (VT)
ARAMARK Educational Services, Inc.
ARAMARK Facilities Management, Inc.
ARAMARK Facility Services, Inc. (MD)
ARAMARK Food and Support Services Group, Inc.
ARAMARK Health & Education Services, Inc.
ARAMARK Healthcare Support Services of Puerto Rico, Inc.
ARAMARK Healthcare Support Services of Texas, Inc. (TX)
ARAMARK Healthcare Support Services of the Virgin Islands, Inc.
ARAMARK Healthcare Support Services, Inc.
ARAMARK Industrial Services, Inc.
ARAMARK Kitty Hawk, Inc. (ID)
ARAMARK Magazine & Book Services, Inc.
ARAMARK Marketing Services Group, Inc.
ARAMARK Pittsburgh Limited
ARAMARK Pittsburgh Stadium Concessions, Inc. (PA)
ARAMARK RBI, Inc.
ARAMARK Refreshment Services, Inc.
ARAMARK Senior Notes Company
ARAMARK Services of Kansas, Inc. (KS)
ARAMARK Services of Puerto Rico, Inc.
ARAMARK Services, Inc.
ARAMARK Sports and Entertainment Group, Inc.
ARAMARK Sports and Entertainment Services of Texas, Inc. (TX)
ARAMARK Sports and Entertainment Services, Inc.
ARAMARK Summer Games 1996, Inc.
ARAMARK Uniform Manufacturing Company
ARAMARK Uniform Services Group, Inc.
ARAMARK Uniform Services, Inc.
ARAMARK/Gall's Group, Inc.
ARAMARK/HMS Company
Crest Uniform Co., Inc.
CWLC Brokerage, Inc. (CO)
D.G. Maren II, Inc.
Davre's Inc.
Delsac VI, Inc.
Delsac VII, Inc.
Delsac VIII, Inc.
Delsac X, Inc. (OH)
Dragon Wagon, Inc.
Fashion-Tex Services, Inc. (CA)
Gall's, Inc.
H.M.S. Delaware, Inc.
Harry M. Stevens, Inc. (NY)
Harry M. Stevens, Inc. of New Jersey (NJ)
Harry M. Stevens, Inc. of Penn. (PA)
Landy Textile Rental Services, Inc. (PA)
Linen Supply Service, Inc. (IL)
Main, Inc. (FL)
Meader Distributing Co., Inc. (MN)
Rainier News, Inc. (WA)
Smithsub, Inc
WearGuard Corporation
Woodhaven Foods, Inc.
For certain subsidiaries, individuals are the record owners of director's
qualifying shares and/or other shares held for regulatory purposes.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated November 10, 1997 included in this Form 10-K for the fiscal year
ended October 3, 1997 into the Company's previously filed Registration
Statements on Form S-8, Registration Nos. 33-11818, 33-30879, 33-33329,
33-44002, and 33-57825, and on Form S-3, Registration Nos. 33-47564, 33-52587,
and 33-64259.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
November 26, 1997
<PAGE>
EXHIBIT 24
JOSEPH NEUBAUER
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03, 1997, and amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 13, 1997 /s/ Joseph Neubauer
----------------- --------------------------
Joseph Neubauer
<PAGE>
EXHIBIT 24
ROBERT J. CALLANDER
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03,1997, and amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 11, 1997 /s/ Robert J. Callander
----------------- -----------------------------
Robert J. Callander
<PAGE>
EXHIBIT 24
ALAN K. CAMPBELL
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03, 1997, and amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 15, 1997 /s/ Alan K. Campbell
----------------- -------------------------
Alan K. Campbell
<PAGE>
EXHIBIT 24
RONALD R. DAVENPORT
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03, 1997, and amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 11, 1997 /s/ Ronald R. Davenport
-------------------- -----------------------------------
Ronald R. Davenport
<PAGE>
EXHIBIT 24
PATRICIA C. BARRON
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03, 1997, amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 11, 1997 /s/ Patricia C. Barron
---------------- -----------------------------------
Patricia C. Barron
<PAGE>
EXHIBIT 24
LEE F. DRISCOLL, JR.
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03, 1997, amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 14, 1997 /s/ Lee F. Driscoll, Jr.
------------------ ------------------------
Lee F. Driscoll, Jr.
<PAGE>
EXHIBIT 24
MITCHELL S. FROMSTEIN
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03, 1997, amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 11, 1997 /s/ Mitchell S. Fromstein
----------------- -------------------------------
Mitchell S. Fromstein
<PAGE>
EXHIBIT 24
EDWARD G. JORDAN
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03, 1997, amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 10, 1997 /s/ Edward G. Jordan
----------------- ----------------------------------
Edward G. Jordan
<PAGE>
EXHIBIT 24
THOMAS H. KEAN
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03, 1997, amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 11, 1997 /s/ Thomas H. Kean
---------------- ---------------------------------
Thomas H. Kean
<PAGE>
EXHIBIT 24
REYNOLD C. MACDONALD
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03, 1997, amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 11, 1997 /s/ Reynold C. MacDonald
----------------- ----------------------------------
Reynold C. MacDonald
<PAGE>
EXHIBIT 24
JAMES E. PRESTON
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03, 1997, amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 11, 1997 /s/ James E. Preston
----------------- ------------------------------
James E. Preston
<PAGE>
EXHIBIT 24
JAMES E. KSANSNAK
POWER OF ATTORNEY
The undersigned director of ARAMARK Corporation, a Delaware corporation (the
"Company"), hereby appoints Joseph Neubauer, James E. Ksansnak, Martin W.
Spector and Donald S. Morton as his Attorney-in-Fact and hereby grants to each
of them acting alone without the others, for him and in his name as such
director, full power to:
(a) sign the Annual Report on Form 10-K for the fiscal year ended
October 03, 1997, amendments thereto which the Company may
file with the Securities and Exchange Commission pursuant to
the requirements of Section 13 and/or Section 15(d) of the
Securities Exchange Act of 1934; and
(b) perform every other action which any such Attorney-in-fact may
deem necessary or proper in connection with any of such
reports or amendments
(all as approved by the Company's principal executive, financial and accounting
officers whose signatures to such report or amendment thereto shall be
conclusive evidence of such approval).
Dated: November 18, 1997 /s/ James E. Ksansnak
----------------- ----------------------------------
James E. Ksansnak
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-3-1997
<PERIOD-START> SEP-28-1996
<PERIOD-END> OCT-03-1997
<CASH> 27,352
<SECURITIES> 0
<RECEIVABLES> 517,035
<ALLOWANCES> 23,158
<INVENTORY> 366,515
<CURRENT-ASSETS> 978,216
<PP&E> 1,688,997
<DEPRECIATION> 821,821
<TOTAL-ASSETS> 2,753,579
<CURRENT-LIABILITIES> 936,751
<BONDS> 1,213,944
0
0
<COMMON> 225
<OTHER-SE> 369,822
<TOTAL-LIABILITY-AND-EQUITY> 2,753,579
<SALES> 0
<TOTAL-REVENUES> 6,310,417
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<TOTAL-COSTS> 5,715,402
<OTHER-EXPENSES> 191,732
<LOSS-PROVISION> 16,287
<INTEREST-EXPENSE> 116,012
<INCOME-PRETAX> 215,847
<INCOME-TAX> 69,739
<INCOME-CONTINUING> 146,108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,108
<EPS-PRIMARY> 0
<EPS-DILUTED> 3.28
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