<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1999 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
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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)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class A common stock outstanding at January 28, 2000: 2,498,809
Class B common stock outstanding at January 28, 2000: 64,090,278
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
------
December 31, October 1,
1999 1999
------------ ----------
Current Assets:
Cash and cash equivalents $ 21,895 $ 27,690
Receivables 564,381 578,393
Inventories, at lower of cost or market 373,308 369,791
Prepayments and other current assets 128,466 68,492
---------- ----------
Total current assets 1,088,050 1,044,366
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Property and Equipment, net 938,304 933,715
Goodwill 605,476 603,017
Other Assets 287,812 289,445
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$2,919,642 $2,870,543
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term borrowings $ 31,368 $ 24,761
Accounts payable 326,456 387,127
Accrued expenses and other liabilities 540,021 513,865
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Total current liabilities 897,845 925,753
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Long-Term Borrowings 1,706,537 1,609,659
Deferred Income Taxes and Other Noncurrent Liabilities 245,650 188,560
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 25 27
Class B common stock, par value $.01 621 656
Capital surplus - 57,356
Earnings retained for use in the business 71,606 93,376
Accumulated other comprehensive income (loss) (2,642) (4,844)
Impact of potential repurchase feature of
common stock (20,000) (20,000)
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Total 49,610 126,571
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$2,919,642 $2,870,543
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
For the Three Months Ended
--------------------------
December 31, January 1,
1999 1999
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Sales $1,760,736 $1,648,465
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Costs and Expenses:
Cost of services provided 1,591,679 1,498,347
Depreciation and amortization 51,664 45,821
Selling and general corporate expenses 22,533 19,485
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1,665,876 1,563,653
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Operating income 94,860 84,812
Interest Expense, net 33,784 34,536
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Income before income taxes 61,076 50,276
Provision for Income Taxes 23,806 20,193
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Net income $ 37,270 $ 30,083
========== ===========
Earnings Per Share:
Basic $.40 $.33
==== ====
Diluted $.38 $.30
==== ====
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
For the Three Months Ended
--------------------------
December 31, January 1,
1999 1999
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Cash flows from operating activities:
Net income $ 37,270 $ 30,083
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 51,664 45,821
Income taxes deferred 649 1,001
Changes in noncash working capital (92,376) (67,515)
Other operating activities (6,641) (3,279)
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Net cash provided by (used in) operating activities (9,434) 6,111
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Cash flows from investing activities:
Purchases of property and equipment (38,374) (29,824)
Disposals of property and equipment 4,982 4,474
Divestiture of certain businesses - 1,219
Acquisition of certain businesses (18,123) (1,759)
Other investing activities (3,816) (2,178)
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Net cash used in investing activities (55,331) (28,068)
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Cash flows from financing activities:
Proceeds from additional long-term borrowings 156,291 42,270
Payment of long-term borrowings (52,806) (7,608)
Repurchase of stock (46,398) (3,734)
Proceeds from issuance of common stock 1,883 2,091
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Net cash provided by financing activities 58,970 33,019
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Increase (decrease) in cash and cash equivalents (5,795) 11,062
Cash and cash equivalents, beginning of period 27,690 20,614
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Cash and cash equivalents, end of period $ 21,895 $ 31,676
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
--------------------------------------------
The condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the statements include all
adjustments (which include only normal recurring adjustments) required
for a fair statement of financial position, results of operations and
cash flows for such periods. The results of operations for the interim
periods are not necessarily indicative of the results for a full year.
(2) CAPITAL STOCK:
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During the first quarter of fiscal 2000, pursuant to the ARAMARK
Ownership Program, employees purchased 458,683 shares or $3.2 million
of Class B Common Stock for $1.9 million cash plus $1.3 million of
deferred payment obligations.
Pursuant to a December 1999 agreement, in January 2000 the Company
repurchased 2,658,636 shares of class B common stock for $40.4 million
($20.2 million in cash and $20.2 million in subordinated installment
notes). Accordingly, the total consideration of $40.4 million was
reclassified from shareholders' equity and reflected as a liability in
the accompanying balance sheet as of December 31, 1999.
(3) SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
The Company made interest payments of $22.5 million and $22.7 million
and income tax payments of $12.6 million and $18.4 million during the
first quarter of fiscal 2000 and 1999, respectively. During the first
quarter of fiscal 2000, the Company purchased $3.0 million of its Class
A Common Stock and $83.3 million of its Class B Common Stock, issuing
$39.9 million in subordinated installment notes as partial
consideration, and contributed $7.1 million of Class A Common Stock to
its employee benefit plans.
(4) ARAMARK SERVICES, INC. AND SUBSIDIARIES:
---------------------------------------
The following financial information has been summarized from the
separate consolidated financial statements of ARAMARK Services, Inc. (a
wholly owned subsidiary of ARAMARK Corporation) and the subsidiaries
which it currently owns. ARAMARK Services, Inc. is the borrower under
the revolving credit facility and certain other senior debt agreements
and incurs the interest expense thereunder. This interest expense is
only partially allocated to all of the other subsidiaries of ARAMARK
Corporation.
For the Three Months Ended
-------------------------------------
December 31, January 1,
1999 1999
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(in millions)
Sales $1,162.8 $1,083.8
Cost of services provided 1,093.1 1,013.6
Net income 10.6 13.9
December 31, October 1,
1999 1999
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(in millions)
Current assets $ 571.5 $ 519.4
Noncurrent assets 2,051.6 1,977.9
Current liabilities 591.1 574.0
Noncurrent liabilities 1,833.3 1,737.3
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(5) EARNINGS PER SHARE:
-------------------
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share." Earnings per share is
reported on a Common Stock, Class B equivalent basis (which reflects
Common Stock, Class A shares converted to a Class B basis, ten for
one). Earnings applicable to common stock and common shares utilized in
the calculation of basic and diluted earnings per share are as follows:
Three Months Ended
-------------------------------
December 31, January 1,
1999 1999
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(in thousands, except per share data)
Earnings:
Net income $37,270 $30,083
======= =======
Shares:
Weighted average number of common
shares outstanding used in basic
earnings per share calculation 92,121 90,566
Impact of potential exercise
opportunities under the
ARAMARK Ownership Plan 7,187 8,568
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Total common shares used in diluted
earnings per share calculation 99,308 99,134
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Basic earnings per common share $.40 $.33
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Diluted earnings per common share $.38 $.30
==== ====
(6) 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 $39.5 million and $32.1 million for the three
months ended December 31, 1999 and January 1, 1999, respectively.
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(7) SEGMENT INFORMATION
Sales and operating income by segment are as follows:
Three Months Ended
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December 31, January 1,
Sales 1999 1999
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(in thousands)
Food and Support Services - United States $1,045,919 $ 943,890
Food and Support Services - International 253,653 250,801
Uniform and Career Apparel - Rental 238,659 225,106
Uniform and Career Apparel - Direct Marketing 120,265 134,255
Educational Resources 102,240 94,413
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$1,760,736 $1,648,465
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Three Months Ended
----------------------------
December 31, January 1,
Operating Income 1999 1999
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(in thousands)
Food and Support Services - United States $ 43,861 $41,200
Food and Support Services - International 12,799 9,600
Uniform and Career Apparel - Rental 31,076 26,791
Uniform and Career Apparel - Direct Marketing 5,494 5,003
Educational Resources 7,828 7,274
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101,058 89,868
Corporate and Other (6,198) (5,056)
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Operating Income 94,860 84,812
Interest Expense, Net (33,784) (34,536)
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Income Before Income Taxes $ 61,076 $50,276
======== =======
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- ------- FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
In fiscal 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 7 to the condensed consolidated financial
statements for the segment operating results for the first quarter of fiscal
2000 and fiscal 1999.
Overview
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Sales for the first quarter of fiscal 2000 of $1.8 billion increased 7% over the
prior year period, with increases in the Food and Support Services, Uniform and
Career Apparel - Rental and Educational Resources segments being partially
offset by a decline in sales at the Uniform and Career Apparel - Direct
Marketing segment. Operating income of $94.9 million increased 12% over the
prior year due to increased earnings in all operating segments. The Company's
operating margin increased to 5.4% from 5.1% due primarily to the leveraging of
fixed costs, effective cost controls and the impact of the National Basketball
Association (NBA) labor dispute in the prior year first quarter. Interest
expense, net was $33.8 million, a decrease of 2% from the prior year period due
primarily to lower debt levels.
Segment Results
- ---------------
Sales - Food and Support Services - United States segment sales were 11% higher
than the prior year due to increased volume (5%), the impact of acquisitions
(5%) and the impact of the NBA labor dispute on the prior year results (1%).
Sales in the Food and Support Services - International segment increased 1% over
the prior year period due to new accounts (4%) and increased volume (3%),
partially offset by the unfavorable impact of foreign currency translation (4%)
and the impact of a divestiture (2%). Sales in the Uniform and Career Apparel -
Rental segment increased 6% due to increased volume. Uniform and Career Apparel
- - Direct Marketing segment sales decreased 10% from the prior year period. The
decrease was due to a decline in sales of uniforms and career apparel (13%),
resulting from a planned reduction of catalog circulation, partially offset by
increased sales of safety equipment and related accessories (3%), primarily from
the acquisition of Dyna Corporation in the second quarter of fiscal 1999.
Educational Resources segment sales increased 8% versus the prior year due to
pricing and new locations.
Operating Income - Food and Support Services - United States segment operating
income increased 6% due to the sales increases noted above and the impact of the
NBA labor dispute in the prior year, partially offset by increased operating
costs, including a provision for a receivable from a customer that filed for
bankruptcy. Food and Support Services - International segment operating income
increased 33% versus the prior year due primarily to a gain from the sale of an
asset plus the sales increases noted above, partially offset by the negative
impact of foreign currency translation. Uniform and Career Apparel - Rental
segment operating income increased 16% versus 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 manufacturing operations. Operating
income in the Uniform and Career Apparel - Direct Marketing segment increased
10% versus the prior year due to increased margins and reduced catalog and other
costs, partially offset by startup costs related to a new distribution facility
and lower sales. Educational Resources segment operating income increased 8% due
to the sales growth noted above.
FINANCIAL CONDITION
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The Company's indebtedness increased $103 million in the first three months of
fiscal 2000, principally to finance seasonal working capital needs, common stock
repurchases and capital additions. The Company currently has approximately $475
million of unused committed credit availability under its credit facilities,
which management believes, along with cash flows from operations, is sufficient
to fund operating requirements.
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<PAGE>
Pursuant to a December 1999 agreement, in January 2000 the Company repurchased
2,658,636 shares of class B common stock for $40.4 million ($20.2 million in
cash and $20.2 million in subordinated installment notes). Accordingly, the
total consideration of $40.4 million was reclassified from shareholders' equity
and reflected as a liability in the accompanying balance sheet as of December
31, 1999.
YEAR 2000 READINESS DISCLOSURE
- ------------------------------
To date, the Company's internal financial and operational systems have
experienced no material adverse impact from the transition to the Year 2000. In
addition, the Company is not aware that any of its customers, suppliers or other
third parties with whom it has business relationships have experienced any
significant Year 2000 issues that affect the Company. While unforeseen Year 2000
related failures could still occur, the Company does not currently expect that
any such failures would have a material adverse impact on the Company's
operations and financial condition. The Company does not expect to incur any
significant additional costs relating to Year 2000 issues.
PART II - OTHER INFORMATION
Item 1 through 5 are not applicable.
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Item 6: Exhibits.
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(a) Exhibit 27 - Financial Data Schedule for the three months ended
December 31, 1999.
(b) Not Applicable
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARAMARK CORPORATION
February 14, 2000 /s/ Alan J. Griffith
------------------------------
Alan J. Griffith
Vice President, Controller
and Chief Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Income filed as part of Form 10-Q and is qualified in its entirety by reference
to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-2000
<PERIOD-START> OCT-02-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 21,895
<SECURITIES> 0
<RECEIVABLES> 564,381
<ALLOWANCES> 26,176
<INVENTORY> 373,308
<CURRENT-ASSETS> 1,088,050
<PP&E> 1,921,863
<DEPRECIATION> 983,559
<TOTAL-ASSETS> 2,919,642
<CURRENT-LIABILITIES> 897,845
<BONDS> 1,706,537
0
0
<COMMON> 646
<OTHER-SE> 48,964
<TOTAL-LIABILITY-AND-EQUITY> 2,919,642
<SALES> 0
<TOTAL-REVENUES> 1,760,736
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<LOSS-PROVISION> 4,239
<INTEREST-EXPENSE> 33,784
<INCOME-PRETAX> 61,076
<INCOME-TAX> 23,806
<INCOME-CONTINUING> 37,270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,270
<EPS-BASIC> .40
<EPS-DILUTED> .38
</TABLE>
