<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000 Commission file number 1-8827
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ARAMARK CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 23-2319139
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107-2988
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(Address of principal executive offices) (Zip Code)
(215) 238-3000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class A common stock outstanding at July 28, 2000: 2,423,377
Class B common stock outstanding at July 28, 2000: 60,423,027
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
ASSETS
June 30, October 1,
2000 1999
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 39,047 $ 27,690
Receivables 559,662 578,393
Inventories, at lower of cost or market 400,263 369,791
Prepayments and other current assets 87,810 68,492
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Total current assets 1,086,782 1,044,366
----------- -----------
Property and Equipment, net 1,017,358 933,715
Goodwill 698,874 603,017
Other Assets 407,086 289,445
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$ 3,210,100 $ 2,870,543
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 25,763 $ 24,761
Accounts payable 367,723 387,127
Accrued expenses and other liabilities 571,023 513,865
----------- -----------
Total current liabilities 964,509 925,753
----------- -----------
Long-Term Borrowings 1,932,687 1,609,659
Deferred Income Taxes and Other Noncurrent Liabilities 215,395 188,560
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 24 27
Class B common stock, par value $.01 609 656
Capital surplus -- 57,356
Earnings retained for use in the business 105,409 93,376
Accumulated other comprehensive income (loss) (8,533) (4,844)
Impact of potential repurchase feature of
common stock (20,000) (20,000)
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Total 77,509 126,571
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$ 3,210,100 $ 2,870,543
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
------------------------------ ------------------------------
June 30, July 2, June 30, July 2,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $1,830,072 $1,707,257 $5,331,209 $5,014,567
---------- ---------- ---------- ----------
Costs and Expenses:
Cost of services provided 1,646,268 1,539,380 4,829,628 4,558,829
Depreciation and amortization 54,934 48,966 159,335 143,496
Selling and general corporate expenses 20,910 20,352 65,269 62,683
---------- ---------- ---------- ----------
1,722,112 1,608,698 5,054,232 4,765,008
---------- ---------- ---------- ----------
Operating income 107,960 98,559 276,977 249,559
Interest Expense, net 37,708 33,295 108,226 102,760
---------- ---------- ---------- ----------
Income before income taxes 70,252 65,264 168,751 146,799
Provision for Income Taxes 26,889 23,405 65,302 55,430
---------- ---------- ---------- ----------
Net income $ 43,363 $ 41,859 $ 103,449 $ 91,369
========== ========== ========== ==========
Earnings Per Share:
Basic $.49 $.44 $1.15 $.97
Diluted $.46 $.41 $1.08 $.90
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
---------------------------------
June 30, July 2,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 103,449 $ 91,369
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 159,335 143,496
Income taxes deferred 2,807 5,611
Changes in noncash working capital (11,388) (10,200)
Other operating activities (16,356) (11,854)
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Net cash provided by operating activities 237,847 218,422
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (158,912) (126,147)
Disposals of property and equipment 11,427 10,401
Sale of investments -- 40,722
Divestiture of certain businesses -- 8,380
Acquisition of certain businesses (245,782) (60,614)
Other investing activities (49,450) (14,425)
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Net cash used in investing activities (442,717) (141,683)
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Cash flows from financing activities:
Proceeds from additional long-term borrowings 399,465 4,323
Payment of long-term borrowings (80,435) (117,880)
Proceeds from issuance of common stock 32,243 59,336
Repurchase of stock (134,784) (16,313)
Other financing activities (262) (185)
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Net cash provided by (used in) financing activities 216,227 (70,719)
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Increase in cash and cash equivalents 11,357 6,020
Cash and cash equivalents, beginning of period 27,690 20,614
--------- ---------
Cash and cash equivalents, end of period $ 39,047 $ 26,634
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in consolidated financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion
of the Company, the statements include all adjustments (which include only
normal recurring adjustments) required for a fair statement of financial
position, results of operations and cash flows for such periods. The
results of operations for the interim periods are not necessarily
indicative of the results for a full year.
(2) LONG-TERM BORROWINGS
During the third quarter, the Company entered into two variable rate term
loan agreements totaling $125 million, which mature in May 2005. In July
2000, 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
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.
(3) CAPITAL STOCK:
During the first nine months of fiscal 2000, pursuant to the ARAMARK
Ownership Program, employees purchased 6,205,975 shares of Class B Common
Stock for total consideration of $36.4 million consisting of $32.2 million
in cash plus $4.2 million of deferred payment obligations.
(4) SUPPLEMENTAL CASH FLOW INFORMATION:
The Company made interest payments of $95.6 million and $88.4 million and
income tax payments of $44.2 million and $53.1 million during the first
nine months of fiscal 2000 and 1999, respectively. During the first nine
months of fiscal 2000, the Company purchased $21.7 million of its Class A
Common Stock and $182.6 million of its Class B Common Stock, issuing $69.5
million in installment notes as partial consideration, and contributed $7.1
million of Class A Common Stock to its employee benefit plan.
(5) COMPREHENSIVE INCOME:
Pursuant to the provisions of SFAS No. 130, "Reporting Comprehensive
Income", comprehensive income includes all changes in shareholders' equity
during a period, except those resulting from investment by and
distributions to shareholders. Components of comprehensive income include
net income, changes in foreign currency translation adjustments and
unrealized holding gains/losses in marketable equity securities. Total
comprehensive income was $39.7 million and $99.8 million for the three and
nine months ended June 30, 2000, respectively; and $42.0 million and $90.0
million for the three and nine months ended July 2, 1999, respectively.
(6) ACQUISITIONS:
On June 2, 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.
Amounts allocated to goodwill are being amortized on a straight-line basis
over 40 years. Annual sales of the acquired food and beverage concessions
business in 1999 were approximately $350 million.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(6) ACQUISITIONS: (Continued)
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 are
contingent upon the approval of other parties to the contracts. As of
June 30, 2000, venue management contracts representing $17.5 million of the
total selling price have been transferred and the proceeds received by the
Company.
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.
(7) ARAMARK SERVICES, INC. AND SUBSIDIARIES:
The following financial information has been summarized from the separate
consolidated financial statements of ARAMARK Services, Inc. (a wholly owned
subsidiary of ARAMARK Corporation) and the subsidiaries which it currently
owns. ARAMARK Services, Inc. is the borrower under the revolving credit
facility and certain other senior debt agreements and incurs the interest
expense thereunder. This interest expense is only partially allocated to
all of the other subsidiaries of ARAMARK Corporation.
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -----------------------------
June 30, July 2, June 30, July 2,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(in millions)
<S> <C> <C> <C> <C>
Sales $1,094.5 $1,062.2 $3,419.0 $3,264.9
Cost of services provided 1,037.9 1,004.2 3,226.7 3,071.1
Net income 2.9 8.4 21.3 32.2
June 30, October 1,
2000 1999
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(in millions)
Current assets $ 505.0 $ 519.4
Noncurrent assets 2,322.3 1,977.9
Current liabilities 556.9 574.0
Noncurrent liabilities 2,065.6 1,737.3
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(8) EARNINGS PER SHARE:
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share." Earnings per share is
reported on a Common Stock, Class B equivalent basis (which reflects Common
Stock, Class A shares converted to a Class B basis, ten for one). Earnings
applicable to common stock and common shares utilized in the calculation of
basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
June 30, July 2, June 30, July 2,
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Earnings:
Net income $ 43,363 $ 41,859 $103,449 $ 91,369
======== ======== ======== ========
Shares:
Weighted average number of common
shares outstanding used in basic
earnings per share calculation 88,245 95,707 90,292 93,812
Impact of potential exercise opportunities
under the ARAMARK Ownership Plan 5,113 6,639 5,938 7,407
-------- -------- -------- --------
Total common shares used in diluted
earnings per share calculation 93,358 102,346 96,230 101,219
======== ======== ======== ========
Basic earnings per common share $.49 $.44 $1.15 $.97
==== ==== ===== ====
Diluted earnings per common share $.46 $.41 $1.08 $.90
==== ==== ===== ====
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(9) SEGMENT INFORMATION:
Sales and operating income by segment are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
June 30, July 2, June 30, July 2,
Sales 2000 1999 2000 1999
---------------------------------------------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Food and Support Services - United States $1,119,841 $1,032,944 $3,187,588 $2,952,740
Food and Support Services - International 245,149 240,343 756,476 740,675
Uniform and Career Apparel - Rental 245,611 229,992 725,050 680,045
Uniform and Career Apparel - Direct Marketing 102,694 99,971 332,024 340,968
Educational Resources 116,777 104,007 330,071 300,139
---------- ---------- ---------- ----------
$1,830,072 $1,707,257 $5,331,209 $5,014,567
========== ========== ========== ==========
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
June 30, July 2, June 30, July 2,
Operating Income 2000 1999 2000 1999
----------------------------------------------- ---------- ---------- ---------- ----------
(in thousands)
Food and Support Services - United States $ 62,086 $ 61,931 $ 138,362 $ 132,854
Food and Support Services - International 8,162 5,066 32,203 26,437
Uniform and Career Apparel - Rental 29,852 26,696 85,160 74,491
Uniform and Career Apparel - Direct Marketing 1,568 481 9,063 5,116
Educational Resources 10,542 11,335 29,146 29,988
---------- ---------- ---------- ----------
112,210 105,509 293,934 268,886
Corporate and Other (4,250) (6,950) (16,957) (19,327)
---------- ---------- ---------- ----------
Operating Income 107,960 98,559 276,977 249,559
Interest Expense, Net (37,708) (33,295) (108,226) (102,760)
---------- ---------- ---------- ----------
Income Before Income Taxes $ 70,252 $ 65,264 $ 168,751 $ 146,799
========== ========== ========== ==========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
At fiscal yearend 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Prior year segment results have been restated to conform with the
current year segment presentation. See note 9 to the condensed consolidated
financial statements for the segment operating results.
Overview
Sales of $1.8 billion for the third quarter and $5.3 billion for the nine-month
period increased 7% and 6%, respectively, over the prior year periods. Sales
increased in all operating segments in the third quarter. For the nine-month
period, sales increases in the Food and Support Services, Uniform and Career
Apparel - Rental, and Educational Resources segments were partially offset by a
decline in sales in the Uniform and Career Apparel - Direct Marketing segment.
Operating income of $108 million for the third quarter and $277 million for the
nine-month period increased 10% and 11%, respectively, over the prior year
periods due primarily to increased earnings in the Food and Support Services and
Uniform and Career Apparel segments. Corporate and other costs declined for both
the three and nine-month periods due primarily to savings related to certain
insurance programs. The Company's operating margin for the nine months increased
to 5.2% from 5.0% due primarily to the leveraging of fixed costs and effective
cost controls in the Uniform and Career Apparel segments. Interest expense, net
for the three and nine-month periods increased 13% and 5%, respectively, over
the prior year periods due to increased borrowing levels, particularly in the
third quarter to fund an acquisition (see note 6 to the condensed consolidated
financial statements), and increased interest rates.
Segment Results
Sales - Food and Support Services - United States segment sales for both the
three and nine-month periods increased 8% versus the comparable prior year
periods due to increased volume (approximately 5%), and the impact of
acquisitions (approximately 3%). Sales in the Food and Support Services -
International segment, excluding the unfavorable impact of foreign currency
translation, increased 8% and 7% for the three and nine-month periods due to new
accounts (approximately 3% and 4%, respectively) and increased volume
(approximately 5% and 4%, respectively), partially offset by the impact of a
divestiture in the nine-month period (approximately 1%). After the unfavorable
impact of foreign currency translation, sales in the Food and Support
Services-International segment increased 2% for both the three and nine-month
periods. Uniform and Career Apparel - Rental segment sales for both the three
and nine-month periods increased 7% over the prior year due primarily to
increased volume. Uniform and Career Apparel - Direct Marketing sales increased
3% for the third quarter and decreased 3% for the nine months versus the
respective prior year periods. Segment sales performance reflects a decrease in
direct uniform sales for the three and nine-month periods, primarily as a result
of a planned reduction of catalog circulation (approximately 1% and 6%,
respectively), and an increase in sales of safety equipment and related
accessories for the three and nine-month periods due to increased volume and the
acquisition of Dyna Corporation in the second quarter of fiscal 1999
(approximately 4% and 3%, respectively). Educational Resources segment sales for
the three and nine-month periods increased 12% and 10%, respectively, over the
prior year periods due to pricing and new locations, partially offset by lower
enrollment at existing locations.
Operating Income - Food and Support Services - United States segment operating
income for the three-month period was equal with the prior year as the impact of
the increased sales noted above was offset primarily by increased employee
healthcare costs. Food and Support Services - United States segment operating
income for the nine-month period increased 4% 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. The impact of acquisitions was not material
for either the three or nine-month period. Food and Support Services -
International segment operating income for the three and nine-month periods
increased 61% and 22%, respectively. Excluding the impact of asset sale gains
from both years, foreign currency translation and operating losses at one
subsidiary in the prior year third quarter, operating income for the three and
nine-month periods increased 7% and 4%, respectively, due to the sales increases
noted above, partially offset by increased operating and overhead costs. Uniform
and Career
<PAGE>
Apparel - Rental segment operating income for the three and nine-month periods
increased 12% and 14% versus the respective prior year periods 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 for the
third quarter of fiscal 2000 was $1.6 million versus $481 thousand in the prior
year period. The improved earnings are due to the sales increases noted above,
increased margins and reduced catalog and other costs, partially offset by
increased costs related to a new distribution center. Operating income for the
nine-month period increased 77% over the prior year period due to increased
margins and reduced catalog and other costs, partially offset by the increased
distribution center costs noted above and lower sales. Educational Resources
segment operating income for the three and nine-month periods decreased 7% and
3%, respectively. Operating results have been adversely impacted by increased
labor and other operating costs resulting from the tight labor markets.
FINANCIAL CONDITION
The Company's indebtedness increased $324 million in the first nine months of
fiscal 2000, principally to finance acquisitions, common stock repurchases and
capital additions. The Company currently has approximately $400 million of
unused committed credit availability under its revolving credit facilities,
which management believes, along with cash flows from operations, is sufficient
to fund operating requirements.
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. In
July 2000, 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.
On June 2, 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 cash portion was
financed through the Company's revolving credit facility. 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 are contingent upon the approval of other
parties to the contracts. As of June 30, 2000, venue management contracts
representing $17.5 million of the total selling price have been transferred and
the proceeds received by the Company. See note 6 to the condensed consolidated
financial statements.
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 5 are not applicable.
Item 6: Exhibits
(a) Exhibit 27 - Financial Data Schedule
(b) Not Applicable
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARAMARK CORPORATION
August 14, 2000 s/Alan J. Griffith
---------------------------
Alan J. Griffith
Vice President, Controller
and Chief Accounting Officer
