<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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<CAPTION>
<S> <C>
For the Quarterly Period Ended January 1, 1999 Commission file number 1-8827
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</TABLE>
ARAMARK CORPORATION
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2319139
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(215) 238-3000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class A common stock outstanding at January 29, 1999: 2,724,534
Class B common stock outstanding at January 29, 1999: 66,662,419
- ------------------------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
------
<TABLE>
<CAPTION>
January 1, October 2,
1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 31,676 $ 20,614
Receivables 533,466 526,506
Inventories, at lower of cost or market 363,763 361,451
Prepayments and other current assets 126,314 60,734
----------- -----------
Total current assets 1,055,219 969,305
----------- ----------
Property and Equipment, net 864,479 874,393
Goodwill 598,929 603,937
Other Assets 299,785 293,664
---------- -----------
$2,818,412 $2,741,299
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term borrowings $ 19,521 $ 24,560
Accounts payable 345,754 373,696
Accrued expenses and other liabilities 533,376 502,482
----------- -----------
Total current liabilities 898,651 900,738
----------- -----------
Long-Term Borrowings 1,744,750 1,705,049
Deferred Income Taxes and Other Noncurrent Liabilities 191,753 194,388
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 20,000 20,000
Shareholders' Equity/(Deficit) Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01 27 25
Class B common stock, par value $.01 625 629
Capital surplus 10,015 -
Earnings retained for use in the business (26,732) (56,815)
Cumulative translation adjustment (677) (2,715)
Impact of potential repurchase feature of
common stock (20,000) (20,000)
------------ ------------
Total (36,742) (78,876)
------------ -------------
$2,818,412 $2,741,299
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------------
January 1, January 2,
1999 1998
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<S> <C> <C>
Revenues $1,588,623 $1,590,661
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Costs and Expenses:
Cost of services provided 1,438,505 1,441,708
Depreciation and amortization 45,821 47,450
Selling and general corporate expenses 19,485 22,350
----------- --------------
1,503,811 1,511,508
---------- -----------
Operating income 84,812 79,153
Interest Expense, net 34,536 25,762
------------ -------------
Income before income taxes 50,276 53,391
Provision for Income Taxes 20,193 23,314
------------ -------------
Net income $ 30,083 $ 30,077
=========== =============
Earnings Per Share:
Basic $.33 $.25
==== ====
Diluted $.30 $.23
==== ====
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
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<CAPTION>
For the Three Months Ended
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January 1, January 2,
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 30,083 $ 30,077
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 45,821 47,450
Income taxes deferred 1,001 1,708
Changes in noncash working capital (67,515) (132,343)
Other operating activities (3,279) (6,543)
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Net cash provided by (used in) operating activities 6,111 (59,651)
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (29,824) (24,935)
Disposals of property and equipment 4,474 5,629
Sale of investments - 3,718
Divestiture of certain businesses 1,219 19,291
Acquisition of certain businesses (1,759) (9,175)
Other investing activities (2,178) (5,977)
----------- -----------
Net cash used in investing activities (28,068) (11,449)
---------- ----------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 42,270 69,047
Payment of long-term borrowings (7,608) (2,164)
Repurchase of stock (3,734) (3,300)
Proceeds from issuance of common stock 2,091 1,598
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Net cash provided by financing activities 33,019 65,181
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Increase (decrease) in cash and cash equivalents 11,062 (5,919)
Cash and cash equivalents, beginning of period 20,614 27,352
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Cash and cash equivalents, end of period $ 31,676 $ 21,433
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
--------------------------------------------
The condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the statements include all
adjustments (which include only normal recurring adjustments) required
for a fair statement of financial position, results of operations and
cash flows for such periods. The results of operations for the interim
periods are not necessarily indicative of the results for a full year.
(2) CAPITAL STOCK:
-------------
During the first quarter of fiscal 1999, pursuant to the ARAMARK
Ownership Program, employees purchased 574,380 shares or $3.0 million
of Class B Common Stock for $2.1 million cash plus $.9 million of
deferred payment obligations.
(3) SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
The Company made interest payments of $22.7 million and $29.5 million
and income tax payments of $18.4 million and $5.4 million during the
first quarter of fiscal 1999 and 1998, respectively. During the first
quarter of fiscal 1999, the Company purchased $3.7 million of its Class
B Common Stock.
(4) ARAMARK SERVICES, INC. AND SUBSIDIARIES:
----------------------------------------
The following financial information has been summarized from the
separate consolidated financial statements of ARAMARK Services, Inc.
(a wholly owned subsidiary of ARAMARK Corporation) and the subsidiaries
which it currently owns. ARAMARK Services, Inc. is the borrower under
the revolving credit facility and certain other senior debt agreements
and incurs the interest expense thereunder. This interest expense is
only partially allocated to all of the other subsidiaries of ARAMARK
Corporation.
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<CAPTION>
For the Three Months Ended
January 1, January 2,
1999 1998
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<S> <C> <C>
(in millions)
Revenues $1,017.3 $922.8
Cost of services provided 947.1 861.5
Net income 13.9 13.3
January 1, October 2,
1999 1998
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(in millions)
Current assets $ 505.9 $ 451.1
Noncurrent assets 2,125.4 2,079.8
Current liabilities 589.3 545.4
Noncurrent liabilities 1,864.6 1,823.9
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(5) EARNINGS PER SHARE:
------------------
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share." Earnings per share is
reported on a Common Stock, Class B equivalent basis (which reflects
Common Stock, Class A shares converted to a Class B basis, ten for
one). Basic earnings per share is based on the weighted average number
of common shares outstanding during the respective periods. Diluted
earnings per share is based on 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. Share and per share amounts for the prior year period
have been restated to reflect the three-for-one stock split in
September 1998. Earnings applicable to common stock and common shares
utilized in the calculation of basic and diluted earnings per share are
as follows:
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Three Months Ended
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January 1, January 2,
1999 1998
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(in thousands, except per share data)
Earnings:
Net income $30,083 $30,077
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Shares:
Weighted average number of common
shares outstanding used in basic
earnings per share calculation 90,566 122,211
Impact of potential exercise opportunities
under the ARAMARK Ownership Plan 8,568 7,423
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Total common shares used in diluted
earnings per share calculation 99,134 129,634
========= ========
Basic earnings per common share $.33 $.25
==== ====
Diluted earnings per common share $.30 $.23
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</TABLE>
(6) COMPREHENSIVE INCOME:
---------------------
In the first quarter of fiscal 1999, the Company adopted the provisions
of SFAS No. 130, "Reporting Comprehensive Income". Comprehensive income
includes all changes in shareholders' equity during a period, except
those resulting from investment by and distributions to shareholders.
Components of comprehensive income include net income, and changes in
foreign currency translation adjustments and unrealized holding
gains/losses in marketable equity securities. Total comprehensive
income was $32.1 million and $26.8 million for the three months ended
January 1, 1999 and January 2, 1998, respectively.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
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Overview
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Revenues for the first quarter of fiscal 1999 of $1.6 billion were equal with
the prior year period and operating income of $84.8 million was $5.7 million or
7% higher than the prior year period. Excluding the operating results of the
Distributive segment, which was contributed to a joint venture in exchange for a
minority interest in the venture in the fourth quarter of fiscal 1998, revenues
increased 8% over the prior year period due to increases in the Food and Support
Services, Uniform and Career Apparel and Educational Resources segments; and
operating income increased 5% due to increased earnings in the Food and Support
Services and Educational Resources segments partially offset by a decrease in
earnings in the Uniform and Career Apparel segment. Fiscal 1999 first quarter
operating results were also adversely affected by the National Basketball
Association (NBA) labor dispute, which delayed the start of the NBA season until
February 1999. Had the labor dispute not occurred, it is estimated that fiscal
1999 first quarter operating income and net income would have been 2% and 4%
higher, respectively. The Company's operating margin increased to 5.3% from
5.0%, primarily as a result of the previously described Distributive segment
transaction, partially offset by the impact of the NBA labor dispute and
increased operating costs in the Uniform and Career Apparel segment. Interest
expense, net increased $8.8 million or 34% due primarily to increased debt
levels resulting from the tender offer transaction in June 1998. The effective
income tax rate decreased to 40.2% in the first quarter of fiscal 1999 versus
43.7% in the prior year period due to the impact of permanent book/tax
differences.
Segment Results
- ---------------
Revenues - Food and Support Services segment revenues increased 8% over the
prior year period due to new accounts (approximately 5%) and increased volume
(approximately 4%), partially offset by the impact of the NBA labor dispute
(approximately 1%). Uniform and Career Apparel segment revenues increased 4%
over the prior year period due to increased volume, primarily in the uniform
rental business. Educational Resources segment revenues increased 13% over the
prior year period due to enrollment growth, pricing and new locations.
Operating Income - Food and Support Services operating income increased 11% over
the prior year period due to the revenue increases noted above and effective
cost controls, partially offset by the NBA labor situation. Had the labor
dispute not occurred, it is estimated that Food and Support Services segment
fiscal 1999 first quarter operating income would have been 4% higher. Uniform
and Career Apparel segment operating income decreased 14% from the prior year
period. Excluding the impact of gains on the sale of assets from both the
current and the prior year results, Uniform and Career Apparel segment operating
income decreased 8% due to increased costs incurred in connection with the
implementation of a new marketing initiative and increased product costs in the
direct marketing businesses, partially offset by increased earnings in the
uniform rental business. Educational Resources segment operating income
increased 19% due to the revenue increases noted above.
In January 1999, the National Basketball Association entered into a new labor
accord. A shortened basketball season began in early February 1999.
FINANCIAL CONDITION
- -------------------
The Company's indebtedness increased $35 million in the first three months of
fiscal 1999, principally to finance seasonal working capital needs and capital
additions. The Company currently has approximately $600 million of unused
committed credit availability under its credit facilities, which management
believes, along with cash flows from operations, is sufficient to fund operating
requirements.
<PAGE>
YEAR 2000 READINESS DISCLOSURE
- ------------------------------
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 may recognize the Year 2000 as
1900, or not at all, which may cause systems to fail or process financial and
operational information incorrectly.
The Company has developed plans to address its Year 2000 issues. The plans
address three broad areas: (1) internal information technology systems -
including financial and operational application systems, computer hardware and
systems software; (2) non-information technology systems - such as communication
systems, building systems and devices with embedded computer chips; and (3)
third party compliance - which addresses Year 2000 compliance efforts of key
vendors and suppliers. The project plans consist of the following phases:
1) Organizational awareness - general awareness of the Year 2000 issues,
which has been completed, and ongoing communication of Year 2000 project
status.
2) Inventory of current applications.
3) Risk assessment of inventoried systems, with identification of
mission-critical systems.
4) Replacement/remediation of systems.
5) Year 2000 testing and conversion of systems.
6) Contingency planning.
Program management offices, staffed with a combination of business unit
personnel and external consultants, have been established to address Year 2000
issues. Additionally, a Corporate Compliance Task Force consisting of internal
audit, information technology, legal and risk management personnel, with
assistance from external consultants, was formed in 1997 to review and monitor
the Year 2000 compliance programs. The Task Force meets regularly to review
corporate-wide Year 2000 issues and progress. The Company's Year 2000 compliance
effort is monitored by senior management on a regular basis and the Audit
Committee of the Board of Directors receives quarterly progress reports.
Internal information technology systems - As of February 12, 1999, the inventory
and risk assessment phases for mission-critical systems have been completed. For
some systems, replacement/remediation and the related testing and conversion
have been completed; for most other systems these activities continue, with
target completion dates ranging from February 1999 through June 1999. The
Company expects that mission-critical internal systems will be Year 2000
compliant by September 1999. Based on the current status of project plans, the
Company believes that Year 2000 events caused by the Company's internal
financial and operational systems would not have a material adverse impact on
the Company's operations or financial condition.
Non-information technology systems - The inventory and risk assessment phases
are nearing completion. Based on the results of these phases,
replacement/remediation plans will be developed for mission-critical equipment
and facilities, which are expected to be implemented by September 1999. Given
the nature and geographic dispersion of the Company's business units, the
Company believes that any events caused by Year 2000 failures of non-information
technology systems would be short-term in nature and would not have a material
adverse impact on the Company's operations or financial condition.
Third party compliance - The Company has identified, and initiated
communications with, key third party suppliers and customers to determine
potential exposure to these third parties' failure to remediate their own Year
2000 issues. In December 1998, the Company began conducting on site reviews of
key suppliers' project status and issues. The Company expects to complete its
third party reviews by April 1999 and will develop contingency plans to address
potential third party Year 2000 failures. The basic materials required to
operate the Company's businesses are generally available from a number of
suppliers, and in the event of an inability of a key supplier to deliver
product, the Company believes alternative sources will be available. However, an
extended outage by utilities (electric, water, telephone, etc.), key third-party
suppliers or financial institutions, while somewhat mitigated by the geographic
dispersion of the Company's businesses, could have material adverse impacts on
the Company's operations and financial condition.
<PAGE>
Contingency Plans
- -----------------
Company resources to date have been focused primarily on Year 2000 remediation.
The Company maintains contingency plans for computer failures, power outages,
natural disasters, etc. Year 2000 contingency plans for mission-critical
systems, in the areas discussed above, will be developed and integrated with the
existing contingency plans where appropriate by December 1999.
Costs
- -----
The Company currently estimates spending approximately $15 to $20 million,
excluding internal costs, to complete its Year 2000 compliance program,
including approximately $10 million that has been expended through the first
quarter of fiscal 1999. Year 2000 costs related to systems or equipment
replacement are capitalized in accordance with the Company's accounting
policies. Year 2000 remediation costs are expensed as incurred.
The Company's ability to achieve Year 2000 compliance, the level of costs
associated therewith and the resultant impact on operations and financial
condition could be adversely impacted by, among other things, the availability
and cost of applicable resources, vendors' ability to modify proprietary
software, and unanticipated problems identified in the ongoing compliance
program.
<PAGE>
PART II - OTHER INFORMATION
Item 1 through 5 are not applicable.
- ------------------------------------
Item 6: Exhibits.
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(a) Exhibit 27 - Financial Data Schedule for the three months ended
January 1, 1999
(b) Not Applicable
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARAMARK CORPORATION
February 15, 1999
/s/ Alan J. Griffith
-----------------------------
Alan J. Griffith
Vice President, Controller
and Chief Accounting Officer
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Income filed as part of Form 10-Q and is qualified in its entirety by reference
to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Oct-1-1999
<PERIOD-START> Oct-3-1998
<PERIOD-END> Jan-1-1999
<EXCHANGE-RATE> 1
<CASH> 31,676
<SECURITIES> 0
<RECEIVABLES> 533,466
<ALLOWANCES> 26,568
<INVENTORY> 363,763
<CURRENT-ASSETS> 1,055,219
<PP&E> 1,763,851
<DEPRECIATION> 899,372
<TOTAL-ASSETS> 2,818,412
<CURRENT-LIABILITIES> 898,651
<BONDS> 1,744,750
0
0
<COMMON> 652
<OTHER-SE> (37,394)
<TOTAL-LIABILITY-AND-EQUITY> 2,818,412
<SALES> 0
<TOTAL-REVENUES> 1,588,623
<CGS> 0
<TOTAL-COSTS> 1,438,505
<OTHER-EXPENSES> 45,821
<LOSS-PROVISION> 3,051
<INTEREST-EXPENSE> 34,536
<INCOME-PRETAX> 50,276
<INCOME-TAX> 20,193
<INCOME-CONTINUING> 30,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,083
<EPS-PRIMARY> .33<F1>
<EPS-DILUTED> .30<F1>
<FN>
<F1>Earnings per share have been prepared in accordance with SFAS No. 128,
"Earnings Per Share" and therefore basic and diluted earnings per share have
been entered in place of primary and fully diluted EPS, respectively.
</FN>
</TABLE>
