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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 September 29, 2000 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: $1.2 billion
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Common stock outstanding at October 27, 2000: Class A Common Stock 2,422,396 shares
Class B Common Stock 58,804,479 shares
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Documents incorporated by reference: Portions of the registrant's Proxy
Statement for the 2000 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 1
Item 1. Business
----------------
Description of Business Segments
The Company is engaged in providing or managing services, including
food and support services, in the United States and internationally, rental of
uniform and career apparel, direct marketing of uniform and career apparel and
educational resources. 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 derives most of its sales from services provided in the
United States. The Company's international services, primarily the management of
food and support services, are provided primarily in Belgium, Canada, the Czech
Republic, Germany, Hungary, Japan, Korea, Mexico, Slovakia, Spain and the United
Kingdom.
For financial reporting purposes, the Company is comprised of five
operating business segments. Financial information by business segment and
geographic area appears in note 10 to the consolidated financial statements. The
businesses of the Company have been grouped into the segments described below.
Food and Support Services - United States
The Company provides food, refreshment, specialized dietary and support
services (including facility maintenance and housekeeping) to businesses, and to
educational, governmental and healthcare institutions. Food, lodging and
merchandise services are also provided at sports and entertainment facilities
such as convention centers, stadiums, parks, arenas 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 usually are for fixed contract
terms generally for five to fifteen years. The Company's food and support
services are performed under various financial arrangements including
management-fee and profit-and-loss based agreements.
In June, 2000, the Company acquired Ogden Entertainment, Inc., which
included substantially all of the food and beverage concessions and venue
management businesses of Ogden Corporation. See note 2 to the consolidated
financial statements.
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. The equipment is
owned by the Company at most sports and entertainment facilities, other than
amphitheaters and convention centers.
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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, but that its volume of such business is small in relation to
the total market. See note 9 to the consolidated financial statements for
information relating to the seasonal aspects of this business segment.
Food and Support Services - International
The Company provides food, refreshment, specialized dietary and support
services (including facility maintenance and housekeeping) to businesses, and to
educational, governmental and healthcare institutions. Food services are also
provided at sports and entertainment facilities, such as stadiums, arenas, and
fairgrounds.
Food, refreshment, specialized dietary and support services are
operated at customer locations generally under contracts of varying duration.
Food and related services at sports and entertainment facilities generally are
for fixed contract terms in excess of one year. The Company's food and support
services are performed under various financial arrangements including
management-fee and profit-and-loss based agreements.
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 are generally owned by the Company, except in the United
Kingdom where that equipment is generally owned by the customer. At most sports
and entertainment facilities, the equipment is owned by the Company.
There is a high level of competition in the food and support services
business from numerous companies within each country and from multinational
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 Belgium, Canada, Germany, Spain and the United Kingdom, but
that its volume of such business is small in relation to the total market.
Uniform and Career Apparel - Rental
The Company rents, sells, cleans, maintains and delivers personalized
uniform and career 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.
2
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Service contracts for the rental and laundering of work apparel and
other textile items are generally for periods in excess of one year and
typically for an initial term of three to five years.
The uniform rental service 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.
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.
Uniform and Career Apparel - Direct Marketing
The Company is one of the largest direct marketers of personalized
uniforms, career apparel and related items and public safety equipment in the
United States. The direct marketing business is generally conducted under an
invoice arrangement with customers.
Competition in the direct marketing of work clothing, career apparel
and public safety equipment 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 direct marketing of uniform
and career apparel are the quality of services provided to customers and the
prices charged for such services. See note 9 to the consolidated financial
statements for information relating to the seasonal nature of this business.
Educational Resources
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.
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.
3
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General
The Company has approximately 139,000 full and part-time employees in
the United States, and approximately 28,000 full and part-time employees
internationally. Approximately 32,500 employees in the United States are
represented by various labor unions. The number of employees varies during the
year due to the seasonal aspects of certain of the Company's businesses. See
note 9 to the consolidated financial statements.
The Company believes it recognizes benefits 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
sales. 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 regulations and environmental regulations. Environmental
compliance has not had a material impact on the Company's capital expenditures,
earnings or competitive position.
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 segments and laundry equipment used by the Uniform and
Career Apparel - Rental segment. The vehicles include automobiles and delivery
trucks used in the Food and Support Services and Uniform and Career Apparel -
Rental segments, and automobiles, vans and small buses used in the Educational
Resources segment. The service equipment and fixtures represent 57% of the net
book value of all fixed assets as of September 29, 2000.
The Company's real estate is comprised primarily of educational and
childcare 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 the Uniform and Career Apparel and Food and
Support Services segments. 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 10 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 that
are not covered by insurance (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.
4
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Item 4. Submission of Matters to a Vote of Security Holders
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Not Applicable.
Item 4A. Directors and Executive Officers of the Registrant
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Directors:
Name Principal Occupation
---- --------------------
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Joseph Neubauer...................................... Chairman and Chief Executive Officer
ARAMARK Corporation
James E. Ksansnak.................................... Vice Chairman, ARAMARK Corporation
Lawrence T. Babbio, Jr............................... Vice Chairman and President
Verizon Communications, Inc.
Patricia C. Barron................................... Clinical Associate Professor,
Leonard N. Stern School of Business
New York University
Robert J. Callander.................................. Retired Vice Chairman
Chemical Banking Corporation
Leonard S. Coleman, Jr. ............................. Senior Advisor, Major League Baseball
Ronald R. Davenport.................................. Chairman, Sheridan Broadcasting Corporation
Edward G. Jordan..................................... Former Chairman and Chief Executive Officer
Consolidated Rail Corporation
Thomas H. Kean....................................... President, Drew University
Former Governor of New Jersey
James E. Preston..................................... Retired Chairman, Avon Products, Inc.
Officers: Officer
Name (Age as of November 1, 2000) Office Held Since
----------------------------------- ------------ -----
Joseph Neubauer (59)................................. Chairman and Director................................ 1979
James E. Ksansnak (60)............................... Vice Chairman and Director........................... 1986
William Leonard (52)................................. President............................................ 1992
Bart J. Colli (52)................................... Executive Vice President
General Counsel and Secretary........................ 2000
Brian G. Mulvaney (44)............................... Executive Vice President............................. 1993
L. Frederick Sutherland (48)......................... Executive Vice President and
Chief Financial Officer.............................. 1983
John J. Zillmer (45)................................. Executive Vice President............................. 2000
Barbara A. Austell (47).............................. Senior Vice President
and Treasurer........................................ 1996
John M. Lafferty (56)................................ Senior Vice President, Controller and
Chief Accounting Officer............................. 2000
Dean E. Hill (49).................................... Vice President....................................... 1993
Donald S. Morton (52)................................ Vice President, Assistant Secretary and
Associate General Counsel............................ 1984
Michael R. Murphy (43)................................ Vice President....................................... 1995
Richard M. Thon (45)................................. 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 1986 to 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. Colli joined the Company in February 2000 as general counsel and
was elected executive vice president and secretary in March 2000. Prior to
joining the Company, he was a partner with McCarter & English LLP.
Mr. Mulvaney was elected executive vice president of the Company in
August 1996. He was senior vice president of the Company from February 1995 to
August 1996 and vice president from February 1993 to February 1995.
Mr. Sutherland became chief financial officer of the Company in May
1997. He was elected executive vice president in May 1993.
Mr. Zillmer was elected executive vice president of the Company in May
2000. He was president of ARAMARK Business Services from May 1995 to August 1999
when be became president of ARAMARK Food and Support Services International. He
became president of ARAMARK Food and Support Services in May 2000.
Mr. Lafferty joined the Company and was elected senior vice president
and appointed controller and chief accounting officer in August 2000. Prior to
joining the Company, he retired as a partner with Arthur Andersen LLP.
Ms. Austell was elected senior vice president and treasurer of the
Company in August 1996. Prior to joining the Company in July 1996, she was a
managing director of J. P. Morgan & Co.
Mr. Morton was elected vice president of the Company in August 2000. He
has been assistant secretary since 1984.
Mr. Murphy was elected vice president in February 2000. Prior to that
he was director of audit and controls since September 1995.
6
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
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There are currently approximately 3,100 record holders of Class B
common stock of the Company, all of whom are or were employees or directors of
the Company (or members of their families or trusts created by them). There are
currently 75 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 have been 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.
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.
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ARAMARK Corporation and Subsidiaries
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Fiscal Year Ended on or near
September 30
----------------------------------------------------------------
2000(3) 1999 1998 1997(1) 1996
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(in millions, except per share amounts and ratios)
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Income Statement Data:
Sales (2).......................................... $7,262.9 $6,742.3 $6,638.9 $6,576.1 $6,368.9
Earnings before depreciation and
amortization, interest, and income taxes........ 640.4 568.9 528.9 523.6 478.0
Earnings before interest
and income taxes (3)............................ 419.6 375.2 333.1 331.8 295.2
Interest expense, net.............................. 147.8 135.8 117.3 116.0 116.0
Income before extraordinary item (4)............... 168.0 150.2 133.7 146.1 112.2
Net income......................................... 168.0 150.2 129.2 146.1 109.5
Earnings per share: (5)
Income before extraordinary item: (4)
Basic...................................... $1.88 $1.59 $1.17 $1.16 $.84
Diluted.................................... 1.77 1.48 1.10 1.10 .79
Net Income:
Basic...................................... 1.88 1.59 1.14 1.16 .82
Diluted.................................... 1.77 1.48 1.06 1.10 .77
Ratio of earnings to fixed charges (6)............. 2.3x 2.2x 2.3x 2.3x 2.1x
Balance Sheet Data (at period end):
Total assets....................................... $3,199.4 $2,870.5 $2,741.3 $2,753.6 $2,844.8
Long-term borrowings: (7)
Senior.......................................... 1,777.7 1,583.0 1,678.3 1,084.9 1,160.8
Subordinated ................................... --- 26.7 26.7 129.0 161.2
Common stock subject to potential
repurchase (8).................................. 20.0 20.0 20.0 23.3 18.6
Shareholders' equity (deficit) (9)................. 111.5 126.6 (78.9) 370.0 296.2
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(1) Fiscal 1997 is a fifty-three week period. See note 1 to the consolidated
financial statements.
(2) See note 1 to the consolidated financial statements.
(3) See note 2 to the consolidated financial statements. Fiscal 1997 and 1996
include other income of $11.7 million and $2.9 million, respectively.
(4) See note 3 to the consolidated financial statements.
(5) Fiscal 1996 and 1997 earnings per share amounts have been restated to
reflect the 3 for 1 stock split effective on September 1, 1998 and the
adoption of Statement of Financial Accounting Standards No. 128, "Earnings
per Share" which was effective beginning in fiscal 1998. See notes 1 and 7
to the consolidated financial statements.
(6) 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).
(7) See note 4 to the consolidated financial statements.
(8) See note 7 to the consolidated financial statements.
(9) 1998 reflects the impact of the Common Stock Class A Tender Offer. 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
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Financial Condition
-------------------
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
selected financial data included on page 8 and the business segment information
included in note 10 to the consolidated financial statements.
Fiscal 2000 Compared to Fiscal 1999
Overview. Sales for the fiscal year ended September 29, 2000 were $7.3
billion, an increase of 8% over fiscal 1999. Sales increased in the Food and
Support Services, Uniform Career and Apparel - Rental and Educational Resources
segments and decreased slightly in the Uniform and Career Apparel - Direct
Marketing segment. Excluding the impact of acquisitions, primarily in the Food
and Support Services - United States segment (see note 2 to the consolidated
financial statements), sales increased approximately 5% over fiscal 1999.
Operating income of $419.6 million increased $44 million or 12% over the prior
year due to double digit earnings increases in the Food and Support Services and
Uniform and Career Apparel segments, partially offset by decreased earnings in
the Educational Resources segment. Excluding the impact of acquisitions,
operating income increased approximately 8% over the prior year period. The
Company's operating income margin increased to 5.8% from 5.6% due primarily to
the leveraging of fixed costs and effective cost controls in the Uniform and
Career Apparel segments. Throughout fiscal 2000 the operating results of several
business segments have been affected by the trend of rising labor, medical
insurance and fuel costs. Various cost containment and price increase programs
have been initiated, and such efforts will continue into fiscal 2001.
Interest expense increased $12.0 million or 9% over the prior year due
to increased debt levels, primarily to fund acquisitions and stock repurchases,
and increased interest rates.
Segment Results. Food and Support Services - United States segment
sales increased 10% over the prior year due to acquisitions (approximately 5%)
and increased volume (approximately 5%) including new accounts. Sales in the
Food and Support Services - International segment increased 3% compared to
fiscal 1999. Excluding the unfavorable impact of foreign currency translation,
sales in this segment increased 9% due to new accounts (approximately 5%) and
increased volume (approximately 5%), partially offset by the impact of a
divestiture in fiscal 1999 (approximately 1%). Sales in the Uniform and Career
Apparel - Rental segment increased 6% over the prior year period due to pricing
(approximately 2%) and increased volume (approximately 4%). Uniform and Career
Apparel - Direct Marketing segment sales decreased 1% from fiscal 1999. Segment
sales performance reflects a decrease in direct uniform sales (approximately
4%), primarily as a result of a planned reduction in catalog circulation, which
was partially offset by increased sales in the safety equipment and accessories
market (approximately 3%) due to increased volume and the acquisition of Dyna
Corporation in the second quarter of fiscal 1999 (see note 2 to the consolidated
financial statements). Educational Resources segment sales increased 10% over
the prior year due to pricing (approximately 5%) and new locations
(approximately 7%), partially offset by lower enrollment at existing locations
(approximately 2%).
9
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Food and Support Services - United States segment operating income
increased 10%. Excluding the impact of acquisitions, operating income increased
3% over fiscal 1999 due to the sales increases noted above, partially offset by
increased employee healthcare and other operating costs, including a provision
in the first quarter for a receivable from a customer that filed for bankruptcy.
Food and Support Services - International segment operating income increased 26%
over the prior year. Excluding the impact of asset sale gains from both years
($3.8 million and $1.1 million, respectively), foreign currency translation and
fiscal 1999 operating losses at a Mexican subsidiary, operating income increased
1% over the prior year due to the sales increases noted above, partially offset
by increased operating and business expansion costs. Uniform and Career Apparel
- Rental segment operating income increased 11% over the prior year period due
to the sales increases noted above and leveraging of fixed costs, partially
offset by costs related to the startup of certain garment manufacturing
operations. Operating income in the Uniform and Career Apparel - Direct
Marketing segment increased to $10.8 million in fiscal 2000 from $3.9 million in
fiscal 1999 due to increased margins and reduced catalog and other costs,
partially offset by the impact of lower sales and increased costs related to a
new distribution center. Educational Resources segment operating income
decreased 7%. Operating results have been adversely impacted by the limited
supply and increased cost of labor resulting from the very competitive labor
markets, as well as increased employee medical costs. It is anticipated that
competition for scarce labor resources will continue to affect results in this
segment during fiscal 2001.
Fiscal 1999 Compared to Fiscal 1998
Overview. Sales for the fiscal year ended October 1, 1999 were $6.7
billion, an increase of 2% over fiscal 1998, with increases in all operating
segments being partially offset by the impact of the distribution business
transaction in fiscal 1998 (see note 2 to the consolidated financial
statements). Excluding the impact of the distribution business transaction,
sales increased 7% over the prior year. Operating income of $375.2 million
increased $42 million or 13% over the prior year. Total Company operating income
in fiscal 1998 includes other expense of $5 million as described in note 2 to
the consolidated financial statements. Excluding the impact of other expense and
the operating results of the distribution business, which are reflected in the
Corporate and Other segment, operating income increased 7% over the prior year
due to strong performances in the Food and Support Services - United States,
Uniform and Career Apparel - Rental, and Educational Resources segments,
partially offset by a decline in operating income in the Uniform and Career
Apparel - Direct Marketing segment and an increase in costs in the Corporate and
Other segment due in part to the impact in 1998 of a gain from the sale of
certain assets. Excluding other expense/income, the Company's operating income
margin increased to 5.6% from 5.1%, due primarily to the impact of the
distribution business transaction noted above.
Interest expense increased $18.4 million or 16% over the prior year due
primarily to increased debt levels resulting from the impact of the Tender Offer
in June 1998 (see note 7 to the consolidated financial statements).
10
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Segment Results. Food and Support Services - United States segment
sales were 9% higher than the prior year due to increased volume (approximately
5%) and the acquisitions described in note 2 to the consolidated financial
statements (approximately 4%). Sales in the Food and Support Services -
International segment increased 4% versus the prior year due to new accounts
(approximately 3%) and increased volume (approximately 3%), partially offset by
the unfavorable impact of foreign currency translation (approximately 2%). Sales
in the Uniform and Career Apparel - Rental segment increased 6% over the prior
year period due to increased volume. Uniform and Career Apparel - Direct
Marketing sales increased 1% over the prior year period due to increased sales
of safety equipment and related accessories (approximately 4%) and the impact of
the Dyna Corporation acquisition (approximately 2%; see note 2 to the
consolidated financial statements), partially offset by a decline in sales of
uniforms and career apparel. Educational Resources segment sales increased 11%
versus the prior year due to pricing and new locations.
Food and Support Services - United States segment operating income
increased 14% due to the sales increases noted above and effective cost
controls. Food and Support Services - International segment operating income
decreased 1% versus the prior year as the impact of the increased volume noted
above plus effective cost controls was offset by operating losses at one
subsidiary and the unfavorable impact of foreign currency translation. Excluding
the impact of the operating losses noted above and foreign currency translation,
operating income in the Food and Support Services - International segment
increased 19%. Uniform and Career Apparel - Rental segment operating income
increased 6% due to the increased volume noted above and gains on disposition of
assets, partially offset by costs related to the startup of certain
manufacturing operations and the implementation of a new marketing initiative.
Operating income in the Uniform and Career Apparel - Direct Marketing segment
decreased 62% versus the prior year period due to the decline in sales of
uniforms and career apparel noted above, a reduction in gross margin reflecting
product mix changes and increased operating costs. Educational Resources segment
operating income increased 11% due to the sales growth noted above.
FINANCIAL CONDITION AND LIQUIDITY - Reference to the consolidated statement of
cash flows on page S-6 will facilitate understanding of the discussion that
follows.
Cash provided by operating activities in fiscal 2000 was $407 million,
an increase of $114 million over fiscal 1999, reflecting the growth in
operations and rigorous working capital management. Debt increased by $203
million, as cash required to fund acquisitions, capital expenditures and stock
repurchases exceeded cash provided by operating activities. The Company
currently expects to continue to fund capital expenditures, acquisitions and
other liquidity needs from cash provided from operating activities, normal
disposals of property and equipment and borrowings available under its credit
facilities or note issuances. Currently, the Company has approximately $450
million of unused committed credit availability under its credit facilities.
Additionally, the Company has registration statements on file with the
Securities and Exchange Commission for the issuance of up to $500 million of
debt securities. As of September 29, 2000, the Company had capital commitments
of approximately $70 million related to several long-term concession contracts.
11
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During the third quarter of fiscal 2000, the Company entered into two
variable rate term loan agreements totaling $125 million, which mature in May
2005. During the fourth quarter, the Company entered into a $45 million variable
rate term loan agreement which matures in July 2003. Proceeds from the term
loans were used to repay borrowings under the Company's revolving credit
facility. Additionally, during the third quarter, the Company entered into
interest rate swap agreements totaling $300 million (notional amount) which fix
the interest rate on a like amount of variable rate borrowings at an average
effective rate of 8.1%. The interest rate swaps have terms of one to three
years.
During fiscal 2000, the Company repurchased $53 million of its Class A
Common Stock and $190 million of its Class B Common Stock, for $155 million in
cash plus installment notes. Additionally, the Company received approximately
$31 million related to the issuance of Class B Common Stock to eligible
employees, primarily through the exercise of installment stock purchase
opportunities. The Company has generally exercised its option to repurchase
common stock when shares have become available. The amount of such repurchases
and other liquidity needs, including those related to employee benefit plans, in
the near term will likely approximate or exceed the fiscal 2000 level.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor from civil litigation for forward-looking statements that reflect the
Company's current views as to future events and financial performance with
respect to its operations. These statements can be identified by the fact that
they do not relate strictly to historical or current facts. They use words such
as "aim," "anticipate," "estimate," "expect," "will be," "will continue," "will
likely result," "project," "intend," "plan," "believe," and other words and
terms of similar meaning in conjunction with a discussion of future operating or
financial performance. These statements are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed or
implied in the forward-looking statements. Factors that might cause such a
difference include the possibility of greater than anticipated operating costs,
lower sales volumes, the performance and costs of integration of acquisitions,
fluctuations in costs of insurance, materials, labor and fuel, financing
availability, the outcome of environmental and litigation matters, competition
in terms of price and service, the ability of the Company to retain clients and
obtain new clients on satisfactory terms, and the effects of general economic
conditions. Forward-looking statements speak only as of the date made. The
Company undertakes no obligation to update any forward-looking statements to
reflect the events or circumstances arising after the date as of which they are
made.
As a result of these risks and uncertainties, readers are cautioned not
to place undue reliance on the forward-looking statements included in this
report or that may be made elsewhere from time to time by, or on behalf of, the
Company.
12
<PAGE>
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
------------------------------------------------------------------
The Company is exposed to the impact of interest rate changes and
manages this exposure through the use of variable-rate and fixed-rate debt and
by utilizing interest rate swaps. The Company does not enter into contracts for
trading purposes and does not use leveraged instruments. The information below
summarizes the Company's market risks associated with debt obligations and other
significant financial instruments as of September 29, 2000 and October 1, 1999.
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. The information presented below should be read in
conjunction with note 4 to the consolidated financial statements. For debt
obligations, the table presents principal cash flows and related interest rates
by expected fiscal year of maturity. Variable interest rates disclosed represent
the weighted-average rates of the portfolio at September 29, 2000 and October 1,
1999. For interest rate swaps, the table presents the notional amounts and
related weighted-average interest rates by fiscal year of maturity. The variable
rates presented are the average forward rates for the term of each contract.
<TABLE>
<CAPTION>
Expected Fiscal Year of Maturity
(US$ equivalent in millions)
------------------------------------------------------------------------------
There- Fair
As of September 29, 2000 2001 2002 2003 2004 2005 after Total Value
------------------------ ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt:
Fixed Rate $25 $25 $25 $300(a) $150 $467(a) $992 $951
Average Interest Rate 6.8% 6.8% 6.8% 6.8% 8.2% 7.1% 7.2%
Variable Rate $60 $45 $4 $736 $845 $845
Average Interest Rate 5.8% 8.0% 6.6% 7.6% 7.5%
Interest Rate Swaps:
Receive Variable/Pay Fixed $150 $100 $100 $(4)
Average pay rate 7.0% 7.6% 7.7%
Average receive rate 6.8% 6.7% 6.7%
There- Fair
As of October 1, 1999 2000 2001 2002 2003 2004 after Total Value
--------------------- ---- ---- ---- ---- ---- ----- ----- -----
Debt:
Fixed Rate $104 $25 $75 $25 $300(a) $615(a) $1,144 $1,101
Average Interest Rate 9.3% 6.7% 7.6% 6.8% 6.8% 7.5% 7.4%
Variable Rate $25 $36 $4 $425 $490 $490
Average Interest Rate 5.8% 5.5% 6.6% 6.2% 6.2%
Interest Rate Swaps:
Receive Variable/Pay Fixed $75 $50
Average pay rate 6.1% 6.2%
Average receive rate 5.8% 6.2%
</TABLE>
(a) Each balance includes $300 million of senior notes callable by the Company
at any time.
13
<PAGE>
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, the committee
report on executive compensation and the audit committee report in the Company's
Proxy Statement).
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
------------------------------------------------------------------------
(a) 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.
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 September 29, 2000 and October 1, 1999 S-3
Consolidated Statements of Income:
Fiscal Years 2000, 1999 and 1998 S-5
Consolidated Statements of Cash Flows:
Fiscal Years 2000, 1999 and 1998 S-6
Consolidated Statements of Shareholders' Equity:
Fiscal Years 2000, 1999 and 1998 S-7
Notes to Consolidated Financial Statements S-10
Consolidated Supporting Schedules Filed:
Schedule
Number
--------
II Valuation and Qualifying Accounts and Reserves S-36
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 September 29, 2000
and October 1, 1999, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended September 29, 2000. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 September 29, 2000 and October 1, 1999, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended September 29, 2000, in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states 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 6, 2000
S-2
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 29, 2000 and October 1, 1999
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 24,592 $ 27,690
Receivables (less allowances: 2000, $24,803 585,630 578,393
1999, $22,496)
Inventories 416,413 369,791
Prepayments and other current assets 72,230 68,492
----------------------------------------------------------------------------------------------------------------------------
Total current assets 1,098,865 1,044,366
----------------------------------------------------------------------------------------------------------------------------
Property and Equipment, at Cost:
Land, buildings and improvements 688,624 610,777
Service equipment and fixtures 1,409,265 1,279,179
----------------------------------------------------------------------------------------------------------------------------
2,097,889 1,889,956
Less-Accumulated depreciation 1,044,646 956,241
----------------------------------------------------------------------------------------------------------------------------
1,053,243 933,715
----------------------------------------------------------------------------------------------------------------------------
Goodwill 684,940 603,017
----------------------------------------------------------------------------------------------------------------------------
Other Assets 362,335 289,445
----------------------------------------------------------------------------------------------------------------------------
$3,199,383 $2,870,543
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-3
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 59,736 $ 24,761
Accounts payable 431,123 387,127
Accrued payroll and related expenses 198,958 182,056
Other accrued expenses and current liabilities 377,043 331,809
----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,066,860 925,753
----------------------------------------------------------------------------------------------------------------------------
Long-Term Borrowings:
Senior 1,837,396 1,607,731
Subordinated - 26,689
----------------------------------------------------------------------------------------------------------------------------
1,837,396 1,634,420
Less-current portion 59,736 24,761
----------------------------------------------------------------------------------------------------------------------------
Total long-term borrowings 1,777,660 1,609,659
----------------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes and Other Noncurrent Liabilities 223,367 188,560
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 20,000 20,000
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01; authorized:
25,000,000 shares; issued: 2000 - 2,422,396 shares;
1999 - 2,719,453 shares 24 27
Class B common stock, par value $.01; authorized:
150,000,000 shares; issued: 2000 - 59,802,606 shares;
1999 - 65,569,596 shares 598 656
Capital surplus - 57,356
Earnings retained for use in the business 149,771 93,376
Accumulated other comprehensive income (loss) (18,897) (4,844)
Impact of potential repurchase feature of common stock (20,000) (20,000)
----------------------------------------------------------------------------------------------------------------------------
Total 111,496 126,571
----------------------------------------------------------------------------------------------------------------------------
$3,199,383 $2,870,543
============================================================================================================================
</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 September 29, 2000, October 1, 1999 and October 2,
1998
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 7,262,867 $ 6,742,264 $ 6,638,872
------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of services provided 6,531,025 6,087,432 6,022,293
Depreciation and amortization 220,794 193,703 195,770
Selling and general corporate expense 91,465 85,963 82,680
Other expense - - 5,000
-----------------------------------------------------------------------------------------------------------------------------
6,843,284 6,367,098 6,305,743
-----------------------------------------------------------------------------------------------------------------------------
Operating income 419,583 375,166 333,129
Interest Expense, net 147,803 135,753 117,357
-----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 271,780 239,413 215,772
Provision For Income Taxes 103,820 89,222 82,062
-----------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item 167,960 150,191 133,710
Extraordinary Item Due to Early Extinguishment
of Debt (net of income taxes of $2,982) - - 4,474
-----------------------------------------------------------------------------------------------------------------------------
Net Income $ 167,960 $ 150,191 $ 129,236
=============================================================================================================================
Earnings Per Share:
Income before extraordinary item
Basic $1.88 $1.59 $1.17
Diluted $1.77 $1.48 $1.10
Net income
Basic $1.88 $1.59 $1.14
Diluted $1.77 $1.48 $1.06
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-5
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended September 29, 2000, October 1, 1999 and October 2,
1998
(in thousands)
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 167,960 $150,191 $129,236
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 220,794 193,703 195,770
Income taxes deferred 4,851 10,845 11,542
Extraordinary item - - 4,474
Changes in noncash working capital:
Receivables (14,716) (47,599) (51,743)
Inventories (35,992) (1,951) (9,240)
Prepayments 5,638 (1,922) (754)
Accounts payable (10,548) (10,095) (49,943)
Accrued expenses 90,311 25,371 60,905
Changes in other noncurrent liabilities (1,788) (3,319) (3,914)
Changes in other assets (8,063) (8,429) (8,934)
Other, net (11,387) (13,635) (695)
----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 407,060 293,160 276,704
----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (234,583) (207,223) (164,286)
Disposals of property and equipment 27,546 23,999 22,204
Sale of investments - 40,722 5,779
Divestiture of certain businesses - 8,380 31,116
Acquisition of certain businesses:
Working capital other than cash acquired 11,896 (1,742) 9,550
Property and equipment (76,717) (20,325) (17,309)
Additions to intangibles and other assets (168,741) (40,672) (35,199)
Other (42,973) (19,318) (41,452)
----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (483,572) (216,179) (189,597)
----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 357,717 4,855 658,820
Payment of long-term borrowings including premiums (159,741) (106,744) (167,942)
Proceeds from issuance of common stock 31,185 60,731 22,303
Repurchase of common stock (155,417) (28,563) (591,535)
Other (330) (184) (15,491)
----------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) financing activities 73,414 (69,905) (93,845)
----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (3,098) 7,076 (6,738)
Cash and cash equivalents, beginning of year 27,690 20,614 27,352
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 24,592 $ 27,690 $ 20,614
================================================================================================================
</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 SEPTEMBER 29, 2000
(in thousands)
<TABLE>
<CAPTION>
Impact of
Potential Accumulated
Class A Class B Repurchase Other
Common Common Capital Retained Feature of Comprehensive
Stock Stock Surplus Earnings Common Stock Income (Loss) Total
-------- -------- ------- -------- ------------ ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1999 $27 $656 $57,356 $93,376 $(20,000) $ (4,844) $ 126,571
Net income 167,960 167,960
Foreign currency translation adjustments (14,053) (14,053)
---------
Total comprehensive income 153,907
---------
Issuance of Class A common stock to 7,139 7,139
employee benefit plans
Issuance of Class B common stock 65 40,505 40,570
Sale of deferred payment obligations 26,710 26,710
Retirement of common stock (3) (123) (131,710) (111,565) (243,401)
--- ----- -------- -------- -------- -------- ---------
Balance, September 29, 2000 $24 $ 598 $ - $149,771 $(20,000) $(18,897) $ 111,496
=== ===== ======== ======== ======== ======== =========
</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 OCTOBER 1, 1999
(in thousands)
<TABLE>
<CAPTION>
Impact of
Potential Accumulated
Class A Class B Repurchase Other
Common Common Capital Retained Feature of Comprehensive
Stock Stock Surplus Earnings Common Stock Income (Loss) Total
-------- -------- ------- -------- ------------ ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 2, 1998 $25 $629 $ - $(56,815) $(20,000) $(2,715) $(78,876)
Net income 150,191 150,191
Foreign currency translation adjustments (2,129) (2,129)
--------
Total comprehensive income 148,062
--------
Issuance of Class A common stock to
employee benefit plans 1 14,506 14,507
Conversion of Class B to Class A 2 (18) 16 -
Issuance of Class B common stock 61 35,623 35,684
Sale of deferred payment obligations 44,172 44,172
Retirement of common stock (1) (16) (36,961) (36,978)
----- ---- ------- ------- -------- ------- --------
Balance, October 1, 1999 $27 $656 $57,356 $93,376 $(20,000) $(4,844) $126,571
=== ==== ======= ======= ======== ======= ========
</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 OCTOBER 2, 1998
(in thousands)
<TABLE>
<CAPTION>
Impact of
Potential Accumulated
Class A Class B Repurchase Other
Common Common Capital Retained Feature of Comprehensive
Stock Stock Surplus Earnings Common Stock Income (Loss) Total
-------- -------- ------- -------- ------------ ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 3, 1997 $20 $205 $ - $391,443 $(23,254) $1,633 $370,047
Net income 129,236 129,236
Foreign currency translation adjustments (1,701) (1,701)
Change in unrealized gain on available
for sale investments (2,647) (2,647)
--------
Total comprehensive income 124,888
--------
Issuance of Class A common stock to
employee benefit plans 397 397
Issuance of Class B common stock 25 38,975 39,000
Retirement of common stock (12) (23) (39,372) (577,055) (616,462)
Common stock split 17 422 (439) -
Change during the period 3,254 3,254
--- ---- ------- --------- -------- ------- --------
Balance, October 2, 1998 $25 $629 $ - $ (56,815) $(20,000) $(2,715) $(78,876)
=== ==== ======= ========= ======== ======= ========
</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 years ended September 29, 2000,
October 1, 1999 and October 2, 1998 are each fifty-two week periods.
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. At fiscal 1999 yearend, the Company reclassified its
reporting of the reimbursement of direct costs under management fee contracts to
an element of sales rather than a reduction of the related expense item. The
change in classification, which was made to conform more closely to industry
practice, is not a change in revenue recognition policy and has no effect on
pre-tax or net income. Prior year amounts have been reclassified to conform with
this presentation.
In fiscal 2000, the Company adopted Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 did not have a material effect on the consolidated
financial statements. At fiscal 2000 yearend, the Company adopted the provisions
of Emerging Issues Task Force (EITF) Issue No. 00-10, "Accounting for Shipping
and Handling Fees and Costs", which requires amounts billed to customers for
shipping and handling be classified as sales in the income statement.
Previously, amounts billed for shipping and handling have been shown as an
offset to shipping costs which are classified in costs of services provided in
the consolidated income statement. The impact of adopting EITF 00-10, which
primarily affects the Company's Direct Marketing segment (see Note 10), was not
material to the Company's consolidated financial statements. Prior year amounts
have been reclassified to conform with the current year presentation.
Beginning in the first quarter of fiscal 2001, the Company is required to adopt
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended. See Note 4.
The Securities and Exchange Commission (SEC) has issued Staff Accounting
Bulletin 101 (SAB 101) which sets forth the SEC's guidelines on revenue
recognition. The Company must adopt SAB 101 no later than the fourth quarter of
fiscal 2001. Adoption of SAB 101 is not expected to have a material impact on
consolidated financial condition or results of operations.
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.
S-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
COMPREHENSIVE INCOME
In fiscal 1999, the Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". Comprehensive income includes all changes to
shareholders' equity during a period, except those resulting from investments by
and distributions to shareholders. The components of comprehensive income are
shown in the Consolidated Statements of Shareholders' Equity.
CURRENCY TRANSLATION
Gains and losses resulting from the translation of financial statements of
non-U.S. subsidiaries are reflected as a component of comprehensive income in
shareholders' equity. Currency transaction gains and losses included in
operating results for fiscal 2000, 1999 and 1998 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.
The components of inventories are as follows:
2000 1999
------------------------------------------------------------------------------
Food 26.2% 25.8%
Career apparel, safety equipment and linens 68.7% 69.0%
Parts, supplies and novelties 5.1% 5.2%
------------------------------------------------------------------------------
100.0% 100.0%
------------------------------------------------------------------------------
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 2000,
1999, and 1998 was $162.8 million, $146.7 million and $144.3 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. 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 September
29, 2000 and October 1, 1999 was $220.8 million and $199.3 million,
respectively.
S-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
OTHER ASSETS
Other assets consist primarily of investments in 50% or less owned entities,
contract rights, customer lists, computer software costs, 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 method, 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.
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 - see Note 7). 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. Earnings
applicable to common stock and common shares utilized in the calculation of
basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C>
Earnings:
Earnings available to common
stock before extraordinary item $167,960 $150,191 $133,710
-------- -------- --------
Shares:
Weighted average number of common
shares outstanding used in basic
earnings per share calculation 89,344 94,197 113,859
Impact of potential exercise opportunities
under the ARAMARK Ownership Plan 5,763 7,275 8,096
-------- -------- --------
Total common shares used in diluted
earnings per share calculation 95,107 101,472 121,955
======== ======== ========
Basic earnings per common share $1.88 $1.59 $1.17
===== ===== =====
Diluted earnings per common share $1.77 $1.48 $1.10
===== ===== =====
</TABLE>
S-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
2000 1999 1998
---- ---- ----
(in millions)
Interest Paid $136.3 $131.4 $109.5
Income Taxes Paid $60.4 $70.5 $54.9
Significant noncash investing and financing activities are as follows:
o During fiscal 2000, 1999 and 1998, the Company contributed $7.1 million,
$14.5 million and $0.4 million, respectively, of Class A Common Stock to
its employee benefit plans to fund previously accrued obligations. In
addition, during fiscal 2000, 1999 and 1998, the Company contributed $2.1
million, $2.0 million and $1.9 million, respectively, of stock units to its
stock unit retirement plan in satisfaction of its accrued obligations. See
Note 5.
o During fiscal 1998, the Company contributed assets and liabilities with a
net book value of $14 million into a newly formed joint venture. See
Note 2.
o During fiscal 2000, 1999 and 1998, the Company received $31.8 million,
$16.7 million and $14.9 million, respectively, of employee notes under its
Deferred Payment program as partial consideration for the issuance of
Common Stock, Class B. Also, during fiscal 2000, 1999 and 1998, the Company
issued installment notes of $75.5 million, $6.7 million and $18.4 million,
respectively, as partial consideration for repurchases of Common Stock. See
Note 7.
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.:
During the third quarter of fiscal 2000, the Company acquired substantially all
of the food and beverage concessions and venue management businesses of Ogden
Corporation for approximately $235 million in cash and assumed debt. The
acquisition was accounted for as a purchase and was financed through the
Company's revolving credit facility. The results of the food and beverage
concessions businesses of Ogden Corporation have been included in the
accompanying consolidated financial statements since the date of acquisition.
The costs of the acquisition were allocated to the assets acquired and
liabilities assumed based on a preliminary estimate of their respective fair
values. The purchase price allocation may be revised in the future based on
final estimates. Amounts allocated to goodwill are being amortized on a
straight-line basis over 40 years.
In connection with this acquisition, the Company has an agreement to sell the
venue management portion of the business to an affiliate for approximately $35
million. The sale of the venue management contracts is contingent upon the
approval of other parties to the contracts. As of September 29, 2000, venue
management contracts representing $21 million of the total selling price have
been transferred and the proceeds received by the Company.
S-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.: (Continued)
Had the acquisition taken place at the beginning of the fiscal periods, pro
forma sales for fiscal 2000 and fiscal 1999 would have been approximately $7.5
billion and $7.1 billion, respectively. Pro forma net income and earnings per
share would not have been materially different from reported results. These pro
forma disclosures 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
acquisition had occurred at the beginning of the respective periods. Pro forma
results are not intended to be a projection of future results.
During the second quarter of fiscal 1999, the Company acquired Restaura, Inc., a
provider of food and support services, and Dyna Corporation, a leading
distributor of emergency medical supplies for approximately $46 million and $13
million in cash, respectively. The acquisitions were accounted for using the
purchase method of accounting. The Company's pro forma results from operations
for fiscal 1999 and 1998 would not have been materially different assuming the
acquisitions had occurred at the beginning of the respective periods.
In the fourth quarter of fiscal 1998, the Company formed a joint venture between
its magazine and book distribution business and another leading magazine and
book wholesaler, Anderson News Corporation. The Company contributed
substantially all of its magazine and book distribution business assets and
liabilities in exchange for a minority interest in the venture. In connection
with the transaction, the Company recorded a $5 million pre-tax charge, which is
reflected as "Other expense" in the accompanying consolidated statements of
income. The Company accounts for its interest in the venture on the cost basis.
During the fourth quarter of fiscal 1998, the Company acquired Facilities
Resource Management Co., a provider of energy and facilities management
consulting services, for approximately $20 million in cash and common stock. The
acquisition was accounted for using the purchase method of accounting. The
Company's pro forma results of operations for fiscal 1998 would not have been
materially different assuming the acquisition had occurred at the beginning of
the fiscal period.
S-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. EXTRAORDINARY ITEM:
During fiscal 1998, the Company exercised its option to redeem its $100 million
8.5% subordinated notes at a price of 104.25% of the principal amount and also
redeemed a $50 million 8% note due April 2002 for a premium. The resultant
extraordinary charge on these transactions was $4.5 million, or $0.04 per share.
NOTE 4. BORROWINGS:
Long-term borrowings at September 29, 2000 and October 1, 1999 are summarized
in the following table:
<TABLE>
<CAPTION>
2000 1999
--------- ----------
(in thousands)
<S> <C> <C>
SENIOR:
Credit facility borrowings $611,100 $ 425,000
Canadian credit facility 33,608 35,579
Bank term loan due July, 2003 45,000 -
Bank term loan due May, 2005 50,000 -
Bank term loan due May, 2005 75,000 -
6.75% notes, due August 2004 299,032 298,776
6.79% note, payable in installments through 2003 75,000 100,000
7.00% notes, due July 2006 299,945 299,933
7.10% notes, due December 2006 124,877 124,862
7.25% notes and debentures, due August 2007 30,730 32,160
8% notes, due April 2002 - 50,000
8.15% notes, due May 2005 150,000 150,000
10-5/8% notes, due August 2000 - 50,000
Other 43,104 41,421
----------------------------------------------------------------------------------------------------------
1,837,396 1,607,731
----------------------------------------------------------------------------------------------------------
SUBORDINATED:
10% exchangeable debentures and notes, due August 2000 - 26,689
----------------------------------------------------------------------------------------------------------
1,837,396 1,634,420
Less-current portion 59,736 24,761
----------------------------------------------------------------------------------------------------------
$1,777,660 $1,609,659
============================================================================================================
</TABLE>
S-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
The non-amortizing $1.0 billion revolving credit facility ("Credit Agreement")
is provided by a group of banks and matures in March 2005. Interest under the
Credit Agreement is based on the Prime Rate, LIBOR plus a spread of .18% to .70%
(as of September 29, 2000 - .30%) or the Certificate of Deposit Rate plus a
spread of .28% to .80% (as of September 29, 2000 - .40%), at the option of the
Company. There is a fee of .10% to .30% (as of September 29, 2000 - .15%) on the
entire credit facility. The spread and fee margins are based on certain
financial ratios as defined.
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 September 29, 2000, all borrowings under this facility are
payable in Canadian dollars, with a weighted average interest rate of 6.4%.
There is a fee of .17% on the entire credit facility.
The $170 million Bank Term Loans ("Term Loans") are comprised of three separate
Term Loans used to repay borrowings under the Credit Agreement. Interest under
the Term Loans is based on the higher of (a) the Prime Rate and (b) the sum of
.5% plus the Federal Funds Rate; or LIBOR plus a spread, as defined in the Term
Loans (approximately .90% for all three loans as of September 29, 2000). The
spread is based on certain financial ratios, as defined in the respective Term
Loans. $45 million of the Term Loans mature in July 2003 and the remaining $125
million matures in May 2005.
The Company's ARAMARK Educational Resources, Inc. (AER) 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 AER. There is a fee of .20% to .375% (as of September 29, 2000 - .20%) on the
unborrowed portion of the credit facility. The spread and fee margins are based
on certain financial ratios as defined. As of September 29, 2000 there were no
borrowings outstanding under this credit facility.
The 6.75% and 7.0% notes may be redeemed, in whole or in part, at any time at
the Company's option. The redemption price equals the greater of (i) 100% of the
principal amount or (ii) an amount based on the discounted present value of
scheduled principal and interest payments, as defined.
The 6.79% note is payable in $25 million annual installments, with a final
maturity of January 2003.
The 7.25% notes and debentures may be exchanged, 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.
S-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
Debt repayments of $25.0 million, contractually due in fiscal 2001, have been
classified as non-current in the accompanying consolidated balance sheet as the
Company has the ability and intent to finance the repayments through additional
borrowings under the Credit Agreement. Accrued interest on borrowings totaling
$36.6 million at September 29, 2000 and $29.7 million at October 1, 1999 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 September 29,
2000 and October 1, 1999, the Company has $350 million and $125 million,
respectively, of interest rate swap agreements fixing the rate on a like amount
of variable rate borrowings under the Credit Agreement at an average effective
rate of 7.9% and 6.5%, respectively. As of September 29, 2000, interest rate
swap agreements remain in effect for periods ranging from 4 to 32 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
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 September 29, 2000 and October 1, 1999. 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>
2000 1999
-------------------------- ------------------------
Carrying Fair Carrying Fair
Asset/(Liability) in millions Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Long-term debt $(1,837.4) $(1,796.3) $(1,634.4) $(1,590.7)
Interest rate swap agreements - (4.0) - -
Foreign currency swap agreement - - 4.5 4.1
</TABLE>
The Company is required to adopt the provisions of Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138, beginning in
the first quarter of fiscal 2001. This standard, as amended, requires that all
derivative instruments be recorded on the balance sheet at their fair value and
that changes in fair value be recorded each period in current earnings or
comprehensive income. The Company anticipates that the adoption of SFAS No. 133
will result in the recording of a cumulative adjustment as of the beginning of
fiscal 2001 to increase current liabilities to record the fair value of interest
rate swap agreements of approximately $4.0 million, and a decrease to other
comprehensive income of approximately $2.5 million (net of tax). The Company
currently does not expect the adoption of SFAS No. 133 to have a material impact
on future net income as current hedging instruments are considered to be highly
effective.
S-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
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
September 29, 2000, the Company was in compliance with all of these covenants.
Assets with a net book value of $2.1 million at September 29, 2000, are subject
to liens under several of the Company's borrowing arrangements.
Long-term borrowings maturing in the next five fiscal years are as follows:
Amount
--------------
(in thousands)
2001 $ 59,736
2002 25,518
2003 70,389
2004 304,311
2005 911,127
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. The
Company has a non-qualified stock unit retirement plan for certain employees.
The total expense of the above plans for fiscal 2000, 1999 and 1998 was $18.0
million, $16.2 million and $15.7 million, respectively. During fiscal 2000, 1999
and 1998, the Company contributed 42,800 shares, 106,703 shares and 4,161
shares, respectively, of Common Stock, Class A to these plans to partially fund
previously accrued obligations. In addition, during fiscal 2000, 1999, and 1998,
the Company contributed to the stock unit retirement plan 119,984 stock units,
135,508 stock units and 163,873 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 $15.8 million, $15.5
million and $14.8 million for fiscal 2000, 1999 and 1998, respectively.
Additionally, the Company maintains several contributory and non-contributory
defined benefit pension plans, primarily in Canada and the United Kingdom. The
projected benefit obligation of these plans as of September 29, 2000, which is
fully funded, was $61.0 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 following 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 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 September 1998 the Company settled certain prior year tax returns.
S-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
The components of income before income taxes by source of income are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
United States $249,093 $222,259 $188,132
Non-U.S. 22,687 17,154 27,640
----------------------------------------------------------------------------------------------------------------
$271,780 $239,413 $215,772
================================================================================================================
The provision for income taxes consists of:
2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
(in thousands)
Current:
Federal $74,879 $60,402 $51,001
State and local 14,627 13,016 7,643
Non-U.S. 9,463 4,959 11,876
-------------------------------------------------------------------------------------------------------------------
98,969 78,377 70,520
-------------------------------------------------------------------------------------------------------------------
Deferred:
Federal 5,713 8,453 9,369
State and local 1,042 1,624 2,171
Non-U.S. (1,904) 768 2
-------------------------------------------------------------------------------------------------------------------
4,851 10,845 11,542
-------------------------------------------------------------------------------------------------------------------
$103,820 $89,222 $82,062
===================================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
(% of pre-tax income)
<S> <C> <C> <C>
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 3.7 4.0 3.9
Foreign tax benefits (2.2) (4.5) (.5)
Permanent book/tax differences, primarily
resulting from purchase accounting 3.2 3.6 3.6
Favorable impact of tax settlements - - (3.2)
Tax credits and other (1.5) (.8) (.8)
-------------------------------------------------------------------------------------------------------------------
Effective income tax rate 38.2% 37.3% 38.0%
==================================================================================================================
</TABLE>
S-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
As of September 29, 2000 and October 1, 1999, the components of deferred taxes
are as follows:
2000 1999
--------- --------
(in thousands)
Deferred tax liabilities:
Property and equipment $ 77,902 $ 77,929
Inventory 1,840 6,431
Investments 21,386 10,161
Other 14,096 15,731
-------- --------
Gross deferred tax liability 115,224 110,252
-------- --------
Deferred tax assets:
Insurance $ 9,995 $ 7,416
Employee compensation and benefits 48,018 43,682
Accruals and allowances 22,935 30,744
Other 2,708 4,856
-------- --------
Gross deferred tax asset 83,656 86,698
-------- --------
Net deferred tax liability $ 31,568 $ 23,554
======== ========
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.
On June 15, 1998, the Company completed a cash tender offer (the "Tender Offer")
for outstanding shares of its Class A common stock at a price of $500 per share
(pre-split). Pursuant to the Tender Offer, the Company repurchased 1,062,485
shares (pre-split) for an aggregate purchase price of $531.2 million plus
transaction costs.
On August 11, 1998, the Company's Board of Directors declared, effective
September 1, 1998, a three-for-one split of the Class B and Class A Common Stock
effected in the form of a stock dividend to shareholders of record on September
1, 1998. The stated par value of $.01 per share of Class B and Class A common
stock was not changed.
S-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL STOCK: (Continued)
As of September 29, 2000, the Company's stock option plans provided for the
issuance of up to 134,584,926 options to purchase shares of Common Stock, Class
B. The exercise price of each option is equal to the current fair market value
at the date of grant. The Company granted installment stock purchase
opportunities under its stock ownership program in fiscal 2000, 1999 and 1998,
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 begin to vest after three years and may
be exercised for a period of three years after vesting. The Company also grants
cumulative installment stock purchase opportunities under its existing stock
ownership program which are similar to the installment stock purchase
opportunities discussed above; however, the number of installments and vesting
schedule may vary and 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 installment
purchase opportunities to defer a portion of the total amount required to
exercise the options. Interest currently accrues on deferred payments at rates
ranging from 7.75% to 8.75% and is payable when the deferred payments are due.
At September 29, 2000 and October 1, 1999, the receivables from individuals
under the Deferred Payment Program were $2.4 million and $5.8 million,
respectively, which are reflected as a reduction of Shareholders' Equity. The
deferred payments are full recourse obligations and 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. During fiscal 2000 and 1999, the
Company sold for cash, without recourse, approximately $27 million and $44
million, respectively, of Deferred Payment Program notes receivable. The sales
price approximated book value and the proceeds were used to repay borrowings
under the credit facility. Status of the options under the various ownership
programs, adjusted to reflect the three-for-one stock split in fiscal 1998,
follows:
<TABLE>
<CAPTION>
Number of Shares Average Option Price
--------------------------------------------- -----------------------------
2000 1999 1998 2000 1999 1998
------------- ------------- ------------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 20,529,608 24,701,205 26,832,636 $7.19 $5.78 $4.74
Options granted 7,380,700 4,912,500 9,634,800 $14.70 $11.57 $7.47
Options exercised 6,475,146 6,125,906 7,228,446 $6.20 $5.28 $4.43
Canceled/Forfeited 3,413,476 2,958,191 4,537,785 $8.56 $6.50 $5.27
Outstanding at end of year 18,021,686 20,529,608 24,701,205 $10.31 $7.19 $5.78
Exercisable at end of year 808,247 2,001,697 1,833,177 $5.39 $4.84 $4.87
</TABLE>
The exercise prices on outstanding options at September 29, 2000 range from
$4.50 to $16.50 with a weighted average remaining life of approximately three
years. The Company has reserved 19,991,742 shares of Common Stock, Class B at
September 29, 2000 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.
S-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL STOCK: (Continued)
2000 1999 1998
---- ---- ----
Net Income
As reported $167,960 $150,191 $129,236
Pro forma $163,760 $146,501 $125,658
Earnings per share
As reported:
Basic $1.88 $1.59 $1.14
Diluted $1.77 $1.48 $1.06
Pro forma:
Basic $1.83 $1.56 $1.10
Diluted $1.72 $1.44 $1.03
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 2000, 1999 and 1998
was $2.64, $1.61 and $1.12 per option, 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:
2000 1999 1998
------ ------ ------
Risk-free interest rate 5.2 - 6.1% 4.5 - 4.8% 5.3 - 5.9%
Expected life in years 3.4 3.3 3.2
Dividend yield 0% 0% 0%
The Company and its shareholders are parties to an Amended and Restated
Stockholders' 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
$20 million at September 29, 2000 and October 1, 1999. 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
($48.3 million as of September 29, 2000 and $25.1 million as of October 1, 1999)
is included in the consolidated balance sheets as "Other Noncurrent Liabilities"
and the current portion of these notes ($47.8 million as of September 29, 2000
and $18.9 million as of October 1, 1999) is included in the consolidated balance
sheets as "Accounts Payable."
S-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENCIES:
Rental expense for all operating leases was $167.4 million, $146.5 million and
$143.2 million for fiscal 2000, 1999 and 1998, respectively.
Following is a schedule of the future minimum rental and similar commitments
under all noncancelable operating leases as of September 29, 2000:
Fiscal Year
----------------------------------------------------------------------------
(in thousands)
2001 $221,354
2002 121,758
2003 108,872
2004 95,465
2005 74,492
Subsequent years 299,888
----------------------------------------------------------------------------
Total minimum rental obligations $921,829
============================================================================
The Company has capital commitments of approximately $70 million at September
29, 2000 in connection with several long-term concession contracts. The Company
is party to certain claims and litigation. Such items include, among others,
employment matters, compliance with various government regulations (including
certain issues related to divested businesses), contractual disputes and other
matters arising in the normal course of business. The Company is vigorously
defending these matters and believes that the ultimate resolution is not likely
to have a material effect on the consolidated financial condition or results of
operations.
S-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. QUARTERLY RESULTS (Unaudited):
The following table summarizes quarterly financial data for fiscal 2000 and
1999:
<TABLE>
<CAPTION>
Fiscal Quarter
--------------------------------------------------------------------------
2000 First Second Third Fourth Year
------------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Sales $1,767,615 $1,746,380 $1,835,543 $1,913,329 $7,262,867
Cost of services provided 1,598,558 1,597,660 1,651,739 1,683,068 6,531,025
Net Income 37,270 22,816 43,363 64,511 167,960
Diluted earnings per share $.38 $.24 $.46 $.70 $1.77
Fiscal Quarter
--------------------------------------------------------------------------
1999 First Second Third Fourth Year
------------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
Sales $1,656,243 $1,664,594 $1,712,650 $1,708,777 $6,742,264
Cost of services provided 1,506,125 1,526,851 1,544,773 1,509,683 6,087,432
Net Income 30,083 19,427 41,859 58,822 150,191
Diluted earnings per share $.30 $.19 $.41 $.58 $1.48
</TABLE>
In the first and second fiscal quarters, within the Food and Support Services -
United States 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. However, 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. In addition, there is a seasonal increase in volume of
directly marketed work clothing during the first quarter.
S-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. BUSINESS SEGMENTS:
The Company provides or manages services in three strategic markets; Food and
Support Services, Uniform and Career Apparel and Educational Resources which are
organized and managed by the following reportable business segments:
Food and Support Services - United States - Food, refreshment, specialized
dietary and support services, including facility maintenance and housekeeping,
provided to business, educational, governmental and healthcare institutions and
in recreational and other facilities serving the general public.
Food and Support Services - International - Food, refreshment, specialized
dietary and support services, including facility maintenance and housekeeping,
provided to business, educational, governmental and healthcare institutions and
in recreational and other facilities serving the general public. Operations are
conducted in Belgium, Canada, the Czech Republic, Germany, Hungary, Japan,
Korea, Mexico, Spain and the United Kingdom.
Uniform and Career Apparel - Rental - Rental, sale, cleaning, maintenance and
delivery of personalized uniform and career apparel and other textile items on a
contract basis. Also provided are walk-off mats, cleaning cloths, disposable
towels and other environmental control items.
Uniform and Career Apparel - Direct Marketing - Direct marketing of personalized
uniforms and career apparel, public safety equipment and accessories to
businesses, public institutions and individuals.
Educational Resources - Provider of infant, toddler, pre-school and school-age
learning programs through community-based child care centers, before and after
school programs, employer on-site child care centers and private elementary
schools.
Corporate and Other - The corporate and other segment includes general corporate
expenses not specifically allocated to an individual segment and the sales and
operating results of the company's magazine and book distribution business which
was divested in fiscal 1998 (See Note 2). Included in the Corporate and Other
segment in fiscal 1998 are operating losses of approximately $14 million related
to the magazine and book distribution business.
Sales 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 corporate expenses applicable to more
than one segment.
Net property and equipment by geographic area is as follows:
2000 1999
---------- -----------
(in millions)
United States $1,006.1 $887.6
International 47.1 46.1
-------- ------
Total $1,053.2 $933.7
======== ======
S-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. BUSINESS SEGMENTS: (Continued)
<TABLE>
<CAPTION>
Sales Depreciation and Amortization
------------------------------------- --------------------------------
2000 1999 1998 2000 1999 1998
----------- ----------- --------- -------- ------- ------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Food and Support Services - United States $4,396.3 $3,993.5 $3,653.0 $113.7 $93.6 $86.8
Food and Support Services - International 1,001.9 975.2 938.0 16.7 16.0 16.0
Uniform and Career Apparel - Rental 969.6 911.9 863.5 45.7 43.4 42.4
Uniform and Career Apparel - Direct Marketing 455.7 462.0 457.8 19.8 18.7 17.7
Educational Resources 439.4 399.7 360.8 23.0 20.0 18.8
Corporate and Other - - 365.8 1.9 2.0 14.1
------- -------- -------- ------ ----- ------
Total $7,262.9 $6,742.3 $6,638.9 $220.8 $193.7 $195.8
======== ======== ======== ====== ====== ======
Operating Income
-----------------------------------------------------
2000 1999 1998
------ ------ ------
(in millions)
Food and Support Services - United States $244.5 $222.3 $195.1
Food and Support Services - International 40.2 32.0 32.4
Uniform and Career Apparel - Rental 118.5 106.9 100.9
Uniform and Career Apparel - Direct Marketing 10.8 3.9 10.1
Educational Resources 32.3 34.7 31.2
------ ------- -------
446.3 399.8 369.7
Corporate and Other (26.7) (24.6) (31.6)
Other Income/(Expense) - - (5.0)
------ ------- -------
Operating Income 419.6 375.2 333.1
Interest Expense, Net (147.8) (135.8) (117.3)
------ ------- -------
Income Before Income Taxes
and Extraordinary Item $271.8 $239.4 $215.8
====== ====== ======
Capital Expenditures Identifiable Assets
------------------------------- --------------------------------
2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ -------
(in millions)
Food and Support Services - United States $160.6 $94.6 $78.8 $1,442.3 $1,186.9 $1,069.7
Food and Support Services - International 22.0 20.1 19.0 253.0 246.5 243.5
Uniform and Career Apparel - Rental 65.2 64.4 41.2 818.3 762.2 739.3
Uniform and Career Apparel - Direct Marketing 7.0 8.8 5.8 301.7 311.4 313.1
Educational Resources 56.4 39.6 24.0 257.4 234.7 218.3
Corporate and Other .1 - 12.8 126.7 128.8 157.4
------ ------ ------ -------- -------- --------
$311.3 $227.5 $181.6 $3,199.4 $2,870.5 $2,741.3
====== ====== ====== ======== ======== ========
</TABLE>
S-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF ARAMARK CORPORATION AND
SUBSIDIARIES
The following condensed consolidating financial statements of ARAMARK
Corporation and subsidiaries have been prepared pursuant to Rule 3-10 of
Regulation S-X.
These condensed consolidating financial statements have been prepared from the
Company's financial information on the same basis of accounting as the
consolidated financial statements. ARAMARK Services, Inc. is the borrower under
the Credit Agreement and certain other senior debt described in Note 4 and
incurs interest expense thereunder. The interest expense and certain
administrative costs are only partially allocated to all of the other
subsidiaries of the Company. The Company has fully and unconditionally
guaranteed certain debt obligations of ARAMARK Services, Inc., its wholly-owned
subsidiary, which totaled $2.1 billion as of September 29, 2000 (See Note 4).
Non-guarantor subsidiaries are all wholly owned subsidiaries of the Company that
are not subsidiaries of ARAMARK Services, Inc., and therefore are not issuers
under the Credit Agreement and certain other senior debt described in Note 4.
The Non-guarantor subsidiaries do not guarantee any registered securities of the
Company or ARAMARK Services, Inc., although certain Non-guarantor subsidiaries
guarantee, along with the Company, certain other unregistered debt.
S-27
<PAGE>
<TABLE>
<CAPTION>
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS
September 29, 2000
(In Thousands)
ASSETS
ARAMARK
SERVICES, INC. NON-GUARANTOR ARAMARK
AND SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS CONSOLIDATED
---------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 19,487 $ 4,784 $ 321 -- $ 24,592
Receivables 391,653 193,346 631 -- 585,630
Inventories 83,355 333,045 13 -- 416,413
Prepayments and other current assets 25,904 44,623 1,703 -- 72,230
---------- ---------- ---------- ----------- ----------
Total current assets 520,399 575,798 2,668 -- 1,098,865
---------- ---------- ---------- ----------- ----------
Property and Equipment, net 232,358 818,790 2,095 -- 1,053,243
Goodwill 196,046 488,894 -- -- 684,940
Intercompany Receivable 2,186,393 -- -- ($2,186,393) --
Investment in Subsidiaries -- -- 1,533,046 (1,533,046) --
Other Assets 18,551 341,043 2,741 -- 362,335
---------- ---------- ---------- ----------- ----------
$3,153,747 $2,224,525 $1,540,550 ($3,719,439) $3,199,383
========== ========== ========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 57,584 $ 2,152 -- -- $ 59,736
Accounts payable 254,272 120,896 $ 55,955 -- 431,123
Other accrued expenses and current liabilities 343,063 221,383 11,555 -- 576,001
---------- ---------- ---------- ----------- ----------
Total current liabilities 654,919 344,431 67,510 -- 1,066,860
---------- ---------- ---------- ----------- ----------
Long-Term Borrowings 1,776,804 856 -- -- 1,777,660
Deferred Income Taxes and Other Noncurrent Liabilities 61,424 97,399 64,544 -- 223,367
Intercompany Payable 484,996 424,397 1,277,000 ($2,186,393) --
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement -- -- 20,000 -- 20,000
Shareholders' Equity Excluding Common Stock
Subject to Repurchase 175,604 1,357,442 111,496 (1,533,046) 111,496
---------- ---------- ---------- ----------- ----------
$3,153,747 $2,224,525 $1,540,550 ($3,719,439) $3,199,383
========== ========== ========== =========== ==========
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS
October 1, 1999
(In Thousands)
ASSETS
ARAMARK
SERVICES, INC. NON-GUARANTOR ARAMARK
AND SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS CONSOLIDATED
---------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 20,263 $ 7,227 $ 200 -- $ 27,690
Receivables 389,294 188,404 695 -- 578,393
Inventories 80,409 289,359 23 -- 369,791
Prepayments and other current assets 29,390 37,262 1,840 -- 68,492
---------- ---------- ---------- ----------- ----------
Total current assets 519,356 522,252 2,758 -- 1,044,366
---------- ---------- ---------- ----------- ----------
Property and Equipment, net 231,302 700,273 2,140 -- 933,715
Goodwill 202,445 400,572 -- -- 603,017
Intercompany Receivable 1,535,066 -- -- ($1,535,066) --
Investment in Subsidiaries -- -- 1,379,139 (1,379,139) --
Other Assets 9,047 278,350 2,048 -- 289,445
---------- ---------- ---------- ----------- ----------
$2,497,216 $1,901,447 $1,386,085 ($2,914,205) $2,870,543
========== ========== ========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 24,138 $ 623 -- -- $ 24,761
Accounts payable 240,259 113,694 $ 33,174 -- 387,127
Other accrued expenses and current liabilities 309,616 191,222 13,027 -- 513,865
---------- ---------- ---------- ----------- ----------
Total current liabilities 574,013 305,539 46,201 -- 925,753
---------- ---------- ---------- ----------- ----------
Long-Term Borrowings 1,577,387 5,583 26,689 -- 1,609,659
Deferred Income Taxes and Other Noncurrent Liabilities 54,269 93,336 40,955 -- 188,560
Intercompany Payable 105,599 303,798 1,125,669 ($1,535,066) --
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement -- -- 20,000 -- 20,000
Shareholders' Equity Excluding Common Stock
Subject to Repurchase 185,948 1,193,191 126,571 (1,379,139) 126,571
---------- ---------- ---------- ----------- ----------
$2,497,216 $1,901,447 $1,386,085 ($2,914,205) $2,870,543
========== ========== ========== =========== ==========
</TABLE>
S-29
<PAGE>
<TABLE>
<CAPTION>
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the fiscal year ending September 29, 2000
(In Thousands)
ARAMARK
SERVICES, INC. NON-GUARANTOR ARAMARK
AND SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS CONSOLIDATED
---------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $4,477,900 $2,784,967 -- -- $7,262,867
Equity in Net Income of Subsidiaries -- -- $167,960 ($167,960) --
Management fee Income -- -- 29,461 (29,461) --
---------- ---------- -------- --------- ----------
$4,477,900 $2,784,967 $197,421 ($197,421) $7,262,867
Costs and Expenses
Cost of services provided 4,211,462 2.342.474 -- (22,911) 6,531,025
Depreciation and amortization 91,484 129,007 -- 303 220,794
Selling and general corporate expenses 45,426 23,431 21,055 1,553 91,465
---------- ---------- -------- --------- ----------
4,348,372 2,494,912 21,055 (21,055) 6,843,284
---------- ---------- -------- --------- ----------
Operating income 129,528 290,055 176,366 (176,366) 419,583
Interest, net:
Interest expense, net 139,066 331 8,406 -- 147,803
Intercompany interest income, net (19,777) 28,183 -- (8,406) --
---------- ---------- -------- --------- ----------
Interest Expense, net 119,289 28,514 8,406 (8,406) 147,803
---------- ---------- -------- --------- ----------
Income before income taxes 10,239 261,541 167,960 (167,960) 271,780
Provision for Income Taxes 6,699 97,121 -- -- 103,820
---------- ---------- -------- --------- ----------
Net income $3,540 $ 164,420 $167,960 ($167,960) $ 167,960
========== ========== ======== ========= ==========
</TABLE>
S-30
<PAGE>
<TABLE>
<CAPTION>
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the fiscal year ending October 1, 1999
(In Thousands)
ARAMARK
SERVICES, INC. NON-GUARANTOR ARAMARK
AND SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS CONSOLIDATED
---------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $4,282,371 $2,459,893 -- -- $6,742,264
Equity in Net Income of Subsidiaries -- -- $150,191 ($150,191) --
Management fee Income -- -- 25,371 (25,371) --
---------- ---------- -------- --------- ----------
$4,282,371 $2,459,893 $175,562 ($175,562) $6,742,264
Costs and Expenses
Cost of services provided 4,047,303 2,061,008 -- (20,879) 6,087,432
Depreciation and amortization 77,243 116,006 -- 454 193,703
Selling and general corporate expenses 40,608 24,930 20,593 (168) 85,963
---------- ---------- -------- --------- ----------
4,165,154 2,201,944 20,593 (20,593) 6,367,098
---------- ---------- -------- --------- ----------
Operating income 117,217 257,949 154,969 (154,969) 375,166
Interest, net:
Interest expense, net 130,397 578 4,778 -- 135,753
Intercompany interest income, net (50,433) 55,211 -- (4,778) --
---------- ---------- -------- --------- ----------
Interest Expense, net 79,964 55,789 4,778 (4,778) 135,753
---------- ---------- -------- --------- ----------
Income before income taxes 37,253 202,160 150,191 (150,191) 239,413
Provision for Income Taxes 10,614 78,608 -- -- 89,222
---------- ---------- -------- --------- ----------
Net income $ 26,639 $ 123,552 $150,191 ($150,191) $ 150,191
========== ========== ======== ========= ==========
</TABLE>
S-31
<PAGE>
<TABLE>
<CAPTION>
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the fiscal year ending October 2, 1998
(In Thousands)
ARAMARK
SERVICES, INC. NON-GUARANTOR ARAMARK
AND SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS CONSOLIDATED
---------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $3,910,124 $2,728,748 -- -- $6,638,872
Equity in Net Income of Subsidiaries -- -- $129,236 ($129,236) --
Management Fee Income -- -- 34,853 (34,853) --
---------- ---------- -------- --------- ----------
$3,910,124 $2,728,748 $164,089 ($164,089) $6,638,872
Costs and Expenses:
Cost of services provided 3,676,193 2,366,113 -- (20,013) 6,022,293
Depreciation and amortization 69,604 125,649 -- 517 195,770
Selling and general corporate expenses 36,516 26,668 24,885 (5,389) 82,680
Other expense -- 5,000 -- -- 5,000
---------- ---------- -------- --------- ----------
3,782,313 2,523,430 24,885 (24,885) 6,305,743
---------- ---------- -------- --------- ----------
Operating income 127,811 205,318 139,204 (139,204) 333,129
Interest, net:
Interest expense, net 105,194 1,485 10,678 -- 117,357
Intercompany interest income, net (41,896) 57,432 (5,568) (9,968) --
---------- ---------- -------- --------- ----------
Interest Expense, net 63,298 58,917 5,110 (9,968) 117,357
---------- ---------- -------- --------- ----------
Income before income taxes 64,513 146,401 134,094 (129,236) 215,772
Provision for Income Taxes 22,112 58,007 1,943 -- 82,062
---------- ---------- -------- --------- ----------
Income before Extraordinary Item 42,401 88,394 132,151 (129,236) 133,710
Extraordinary Item due to Early Extinguishment
of Debt (net of income taxes) 1,559 -- 2,915 -- 4,474
---------- ---------- -------- --------- ----------
Net income $ 40,842 $ 88,394 $129,236 ($129,236) $ 129,236
========== ========== ======== ========= ==========
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the fiscal year ending September 29, 2000
(In Thousands)
ARAMARK
SERVICES, INC. NON-GUARANTOR ARAMARK
AND SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS CONSOLIDATED
---------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ 165,481 $ 267,245 ($ 25,666) -- $ 407,060
Cash flows from investing activities:
Purchases of property and equipment (80,293) (154,262) (28) -- (234,583)
Disposals of property and equipment 11,514 16,032 -- -- 27,546
Acquisition of businesses -- (233,562) -- -- (233,562)
Other investing activities (28,100) (14,550) (323) -- (42,973)
--------- --------- -------- ---------- ---------
Net cash used in investing activities (96,879) (386,342) (351) -- (483,572)
--------- --------- -------- ---------- ---------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 357,717 -- -- -- 357,717
Payment of long-term borrowings (129,854) (3,198) (26,689) -- (159,741)
Proceeds from issuance of common stock -- -- 31,185 -- 31,185
Repurchase of common stock -- -- (155,417) -- (155,417)
Change in intercompany, net (296,911) 119,852 177,059 -- --
Other financing activities (330) -- -- -- (330)
--------- --------- -------- ---------- ---------
Net cash provided by (used in) financing activities (69,378) 116,654 26,138 -- 73,414
--------- --------- -------- ---------- ---------
Increase (decrease) in cash and cash equivalents (776) (2,443) 121 -- (3,098)
Cash and cash equivalents, beginning of period 20,263 7,227 200 -- 27,690
--------- --------- -------- ---------- ---------
Cash and cash equivalents, end of period $ 19,487 $ 4,784 $ 321 -- $ 24,592
========= ========= ======== ========== =========
</TABLE>
S-33
<PAGE>
<TABLE>
<CAPTION>
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the fiscal year ending October 1, 1999
(In Thousands)
ARAMARK
SERVICES, INC. NON-GUARANTOR ARAMARK
AND SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS CONSOLIDATED
---------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ 108,055 $ 211,924 ($ 26,819) -- $ 293,160
Cash flows from investing activities:
Purchases of property and equipment (78,407) (128,785) (31) -- (207,223)
Disposals of property and equipment 3,865 20,124 10 -- 23,999
Sale of investments -- 40,722 -- -- 40,722
Divestiture of certain businesses 8,468 (88) -- -- 8,380
Acquisition of businesses (45,004) (17,735) -- -- (62,739)
Other investing activities (24,115) 5,121 (324) -- (19,318)
--------- --------- --------- ---------- ---------
Net cash provided by (used in) investing activities (135,193) (80,641) (345) -- (216,179)
--------- --------- --------- ---------- ---------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 4,855 -- -- -- 4,855
Payment of long-term borrowings (106,112) (632) -- -- (106,744)
Proceeds from issuance of common stock -- -- 60,731 -- 60,731
Repurchase of common stock -- -- (28,563) -- (28,563)
Change in intercompany, net 134,736 (129,932) (4,804) -- --
Other financing activities (184) -- -- (184)
--------- --------- --------- ---------- ---------
Net cash provided by (used in) financing activities 33,295 (130,564) 27,364 -- (69,905)
--------- --------- --------- ---------- ---------
Increase in cash and cash equivalents 6,157 719 200 -- 7,076
Cash and cash equivalents, beginning of period 14,106 6,508 -- -- 20,614
--------- --------- --------- ---------- ---------
Cash and cash equivalents, end of period $ 20,263 $ 7,227 $ 200 -- $ 27,690
========= ========= ========= ========== =========
</TABLE>
S-34
<PAGE>
<TABLE>
<CAPTION>
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the fiscal year ending October 2, 1998
(In Thousands)
ARAMARK
SERVICES, INC. NON-GUARANTOR ARAMARK
AND SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS CONSOLIDATED
---------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities $ 121,296 $ 152,237 $ 3,171 -- $ 276,704
Cash flows from investing activities:
Purchases of property and equipment (75,812) (87,742) (732) -- (164,286)
Disposals of property and equipment 2,645 19,355 204 -- 22,204
Sale of investments -- 5,779 -- -- 5,779
Divestiture of certain businesses -- 31,116 -- -- 31,116
Acquisition of businesses (18,040) (24,918) -- -- (42,958)
Other investing activities (31,821) (9,310) (321) -- (41,452)
--------- --------- --------- --------- ---------
Net cash used in investing activities (123,028) (65,720) (849) -- (189,597)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 660,552 (1,732) -- -- 658,820
Payment of long-term borrowings (64,528) 3,149 (106,563) -- (167,942)
Proceeds from issuance of common stock -- -- 22,303 -- 22,303
Repurchase of common stock -- -- (591,535) -- (591,535)
Change in intercompany, net (588,328) (85,145) 673,473 -- --
Other financing activities (9,919) (5,572) -- -- (15,491)
--------- --------- --------- --------- ---------
Net cash used in financing activities (2,223) (89,300) (2,322) -- (93,845)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents (3,955) (2,783) -- -- (6,738)
Cash and cash equivalents, beginning of period 18,061 9,291 -- 27,352
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period $ 14,106 $ 6,508 -- -- $ 20,614
========= ========= ========= ========= =========
</TABLE>
S-35
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED SEPTEMBER 29, 2000, OCTOBER 1, 1999 AND
OCTOBER 2, 1998
<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 2000
Reserve for doubtful accounts,
advances & current notes receivable $22,496 $647 $15,048 $ - $13,388 $24,803
======= ==== ======= ===== ======= =======
Fiscal Year 1999
Reserve for doubtful accounts,
advances & current notes receivable $24,457 $165 $13,413 $41 $15,498 $22,496
======= ==== ======= === ======= =======
Fiscal Year 1998
Reserve for doubtful accounts,
advances & current notes receivable $23,158 $779 $12,209 $3,739 $7,950 $24,457
======= ==== ======= ====== ====== =======
</TABLE>
(1) Allowances granted and amounts determined not to be collectible.
S-36
<PAGE>
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: John M. Lafferty
----------------------------------
John M. Lafferty
Senior Vice President, Controller
and Chief Accounting Officer
November 22, 2000
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 22, 2000.
Signature Title
--------- -----
Joseph Neubauer Chairman and Director
------------------------------ (Principal Executive Officer)
Joseph Neubauer
L. Frederick Sutherland Executive Vice President
------------------------------ (Principal Financial Officer)
L. Frederick Sutherland
John M. Lafferty Senior Vice President, Controller
------------------------------ and Chief Accounting Officer
John M. Lafferty (Principal Accounting Officer)
Lawrence T. Babbio, Jr.
Patricia C. Barron
Robert J. Callander
Leonard S. Coleman, Jr.
Ronald R. Davenport Directors
Edward G. Jordan
Thomas H. Kean
James E. Ksansnak
James E. Preston
Donald S. Morton
------------------------------
Donald S. Morton
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Copies of any of the following exhibits are available to stockholders for the
cost of reproduction upon written request from the Assistant Secretary, ARAMARK
Corporation, 1101 Market Street, Philadelphia, PA 19107.
3.1 Restated Certificate of Incorporation is incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 1, 1999.
3.2 Corporate By-Laws, as ratified and approved February 8, 2000, are
incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended October 1, 1999.
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.
4.3 7.0% Guaranteed Notes due July 15, 2006; Indenture dated July 15, 1991,
is incorporated by reference to the Company's Registration Statements
on Form S-3, Registration No. 33-525887, 33-64259 and 333-53161.
4.4 6 3/4% Guaranteed Notes due August 1, 2004; Indenture dated July 15,
1991, is incorporated by reference to the Company's Registration
Statement on Form S-3, Registration No. 333-53161.
Long-term debt instruments authorizing debt that does not exceed 10% of
the total consolidated assets of the Company are not filed herewith but
will be furnished on request of the Commission.
10.1 1999 Employment Agreement with Joseph Neubauer is incorporated by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended October 1, 1999.
10.2 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.
10.3 Agreement relating to employment and post-employment competition dated
June 7, 1993 with L. Frederick Sutherland is incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal year ended
September 27, 1996.
10.4 Agreement relating to employment and post-employment competition dated
November 19, 1996 with Brian G. Mulvaney.
10.5 Agreement relating to employment and post-employment competition dated
April 17, 2000 with John J. Zillmer.
10.6 Credit and Guaranty Agreement dated January 7, 1998 and amendments
thereto dated May 7, 1998 and September 10, 1998 are incorporated by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended October 2, 1998.
12 Ratio of Earnings to Fixed Charges
21 Subsidiaries of Registrant
23 Consent of Arthur Andersen LLP
24 Powers of Attorney
27 Financial Data Schedule
