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 March 30, 2001 Commission file number 1-8827
-------------- ------
ARAMARK CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2319139
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107-2988
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215) 238-3000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class A common stock outstanding at April 27, 2001: 2,385,438
Class B common stock outstanding at April 27, 2001: 60,320,195
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
March 30, September 29,
2001 2000
----------- -----------
Current Assets:
Cash and cash equivalents $ 30,022 $ 24,592
Receivables 433,446 585,630
Inventories, at lower of cost or market 417,521 416,413
Prepayments and other current assets 114,134 72,230
---------- -----------
Total current assets 995,123 1,098,865
---------- -----------
Property and Equipment, net 1,055,135 1,053,243
Goodwill 685,517 684,940
Other Assets 400,800 362,335
---------- -----------
$3,136,575 $ 3,199,383
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 33,445 $ 59,736
Accounts payable 384,582 431,123
Accrued expenses and other liabilities 544,311 576,001
---------- -----------
Total current liabilities 962,338 1,066,860
---------- -----------
Long-Term Borrowings 1,763,641 1,777,660
Deferred Income Taxes and Other Noncurrent Liabilities 236,515 223,367
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 24
Class B common stock, par value $.01 606 598
Capital surplus 2,951 -
Earnings retained for use in the business 192,754 149,771
Accumulated other comprehensive income (loss) (22,254) (18,897)
Impact of potential repurchase feature of
common stock (20,000) (20,000)
---------- -----------
Total 154,081 111,496
---------- -----------
$3,136,575 $ 3,199,383
========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
For the Three Months Ended For the Six Months Ended
------------------------------------ ---------------------------------
March 30, March 31, March 30, March 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Sales $1,881,033 $1,746,380 $3,828,311 $3,513,995
---------- ---------- ---------- ----------
Costs and Expenses:
Cost of services provided 1,716,998 1,597,660 3,468,967 3,196,218
Depreciation and amortization 60,431 52,737 119,060 104,401
Selling and general corporate expenses 24,462 21,826 49,276 44,359
---------- ---------- ---------- ----------
1,801,891 1,672,223 3,637,303 3,344,978
---------- ---------- ---------- ----------
Operating income 79,142 74,157 191,008 169,017
Interest and other financing costs, net 41,505 36,734 82,102 70,518
---------- ---------- ---------- ----------
Income before income taxes 37,637 37,423 108,906 98,499
Provision for Income Taxes 13,875 14,607 41,716 38,413
---------- ---------- ---------- ----------
Net income $ 23,762 $ 22,816 $ 67,190 $ 60,086
========== ========== ========== ==========
Earnings Per Share:
Basic $.27 $.25 $.78 $.66
Diluted $.26 $.24 $.74 $.62
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
For the Six Months Ended
------------------------------
March 30, March 31,
2001 2000
----------- ----------
Cash flows from operating activities:
Net income $ 67,190 $ 60,086
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 119,060 104,401
Income taxes deferred 1,599 1,865
Changes in noncash working capital (130,470) (34,458)
Proceeds from sale of receivables 161,159 -
Other operating activities (9,399) (11,940)
----------- ----------
Net cash provided by operating activities 209,139 119,954
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (108,998) (96,114)
Disposals of property and equipment 15,664 7,718
Sale of investments 8,240 -
Acquisition of certain businesses (48,127) (32,487)
Other investing activities 5,399 (30,042)
----------- ----------
Net cash used in investing activities (127,822) (150,925)
----------- ----------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 31,835 182,542
Payment of long-term borrowings (98,795) (82,434)
Proceeds from issuance of common stock 32,423 31,893
Repurchase of stock (41,119) (102,247)
Other financing activities (231) -
----------- ----------
Net cash provided by (used in) financing activities (75,887) 29,754
----------- ----------
Increase (decrease) in cash and cash equivalents 5,430 (1,217)
Cash and cash equivalents, beginning of period 24,592 27,690
----------- ----------
Cash and cash equivalents, end of period $ 30,022 $ 26,473
=========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in consolidated financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion
of the Company, the statements include all adjustments (which include only
normal recurring adjustments) required for a fair statement of financial
position, results of operations and cash flows for such periods. The results
of operations for the interim periods are not necessarily indicative of the
results for a full year.
(2) CAPITAL STOCK:
During the first six months of fiscal 2001, pursuant to the ARAMARK
Ownership Program, employees purchased 4,524,011 shares of Class B Common
Stock for total consideration of $36.2 million consisting of $32.4 million
in cash plus $3.8 million of deferred payment obligations.
(3) SUPPLEMENTAL CASH FLOW INFORMATION:
The Company made interest payments of $77.2 million and $67.8 million and
income tax payments of $63.7 million and $42.4 million during the first six
months of fiscal 2001 and 2000, respectively. During the first six months of
fiscal 2001, the Company purchased $6.2 million of its Class A Common Stock
and $63.5 million of its Class B Common Stock, issuing $28.6 million in
installment notes as partial consideration.
(4) 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 Six Months Ended
------------------------ --------------------------
March 30, March 31, March 30, March 31,
2001 2000 2001 2000
--------- --------- --------- ---------
(in thousands, except per share data)
Earnings:
Net income $23,762 $22,816 $67,190 $60,086
======= ======= ======= =======
Shares:
Weighted average number of common
shares outstanding used in basic
earnings per share calculation 86,815 90,510 85,894 91,315
Impact of potential exercise opportunities
under the ARAMARK Ownership Plan 4,527 5,487 5,060 6,339
------- ------- ------- -------
Total common shares used in diluted
earnings per share calculation 91,342 95,997 90,954 97,654
======= ======= ======= =======
Basic earnings per common share $.27 $.25 $.78 $.66
==== ==== ==== ====
Diluted earnings per common share $.26 $.24 $.74 $.62
==== ==== ==== ====
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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 changes in the fair
value of cash flow hedges (net of tax). Total comprehensive income was $11.1
million and $63.8 million for the three and six months ended March 30, 2001,
respectively; and $20.6 million and $60.1 million for the three and six
months ended March 31, 2000, respectively.
(6) ACCOUNTING FOR DERIVATIVE INSTRUMENTS:
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities-an amendment of FASB Statement
No. 133", on September 30, 2000. SFAS No. 133 requires the transition
adjustment resulting from adopting these Statements to be reported in net
income or other comprehensive income, as appropriate, as the cumulative
effect of a change in accounting principle. In accordance with the
transition provisions of SFAS No. 133, the Company recorded a cumulative
transition adjustment to decrease Other Comprehensive Income by
approximately $2.5 million (net of tax), to recognize the fair value of its
derivative instruments as of the date of adoption.
The Company utilizes derivative financial instruments, such as interest rate
swaps and forward exchange contract agreements to manage changes in market
conditions related to debt obligations and foreign currency exposures. As of
March 30, 2001, the Company has $300 million of interest rate swap
agreements fixing the rate on a like amount of variable rate borrowings.
There were no material forward exchange contract agreements outstanding as
of March 30, 2001.
The Company recognizes all derivatives on the balance sheet at fair value at
the end of each quarter. Changes in the fair value of a derivative that is
designated as and meets all the required criteria for a cash flow hedge are
recorded in accumulated other comprehensive income and reclassified into
earnings as the underlying hedged item affects earnings. Amounts
reclassified into earnings related to interest rate swap agreements are
included in interest expense. During the first six months of fiscal 2001,
unrealized net losses of approximately $5.6 million (net of tax) related to
interest rate swaps were recorded in Other Comprehensive Income, including
the approximately $2.5 million cumulative transition adjustment as of
September 30, 2000. As of March 30, 2001, approximately $5.6 million of net
unrealized losses related to interest rate swaps was included in Accumulated
Other Comprehensive Income, approximately $3.7 million of which is expected
to be reclassified into earnings during the next twelve months. The hedge
ineffectiveness for existing derivative instruments for the first six months
of fiscal 2001 was not material.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(7) SEGMENT INFORMATION:
Sales and operating income by segment are as follows:
Three Months Ended Six Months Ended
----------------------------- ----------------------------
March 30, March 31, March 30, March 31,
Sales 2001 2000 2001 2000
-------------------------------------------- ------------ ----------- ------------ -----------
(in thousands)
Food and Support Services - United States $1,117,120 $1,021,828 $2,303,454 $2,067,747
Food and Support Services - International 288,840 257,674 554,179 511,327
Uniform and Career Apparel - Rental 248,543 240,780 498,926 479,439
Uniform and Career Apparel - Direct Marketing 107,628 115,044 239,683 242,188
Educational Resources 118,902 111,054 232,069 213,294
---------- ---------- ---------- ----------
$1,881,033 $1,746,380 $3,828,311 $3,513,995
========== ========== ========== ==========
Three Months Ended Six Months Ended
----------------------------- ----------------------------
March 30, March 31, March 30, March 31,
Operating Income 2001 2000 2001 2000
-------------------------------------------- ------------ ----------- ------------- ----------
(in thousands)
Food and Support Services - United States $ 38,549 $ 32,415 $ 98,499 $ 76,276
Food and Support Services - International 10,536 11,242 20,476 24,041
Uniform and Career Apparel - Rental 25,733 24,232 57,574 55,308
Uniform and Career Apparel - Direct Marketing 1,828 2,001 10,525 7,495
Educational Resources 9,361 10,776 15,667 18,604
-------- -------- -------- --------
86,007 80,666 202,741 181,724
Corporate and Other (6,865) (6,509) (11,733) (12,707)
-------- -------- -------- --------
Operating Income 79,142 74,157 191,008 169,017
Interest (41,505) (36,734) (82,102) (70,518)
-------- -------- -------- --------
Income Before Income Taxes $ 37,637 $ 37,423 $108,906 $ 98,499
======== ======== ======== ========
Included in "Corporate and Other" during the first six months of fiscal 2001
is a gain of $6.6 million resulting from the redemption of preferred stock
by an entity which the Company divested in fiscal 1997. Also included in
"Corporate and Other" in fiscal 2001 are charges related to certain
litigation pertaining to a previously divested entity ($1.5 million), merger
and acquisition related costs ($0.5 million), and the immaterial cumulative
effect ($2.6 million) of a change by the Educational Resources business in
accounting for non-refundable registration fees pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 101.
(8) ACQUISITIONS:
During the first quarter of fiscal 2001, the Company acquired the UK food
and support services business of the Campbell Bewley Group Limited, issuing
stock (8% interest) of a subsidiary as consideration. Additionally, the
Company acquired a 45% interest in the Campbell Bewley Group Limited's food
and support services business in Ireland for approximately $19 million in
cash.
During the second quarter of fiscal 2001, the Company acquired certain
assets of Correctional Foodservice Management (CFM), from The Wackenhut
Corporation for approximately $16 million in cash.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(9) NEW ACCOUNTING PRONOUNCEMENTS:
In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No.140 replaces SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." It revises the standards for accounting
for securitizations and other transfers of financial assets and collateral
and requires certain disclosures, but it carries over most of SFAS No.
125's provisions without reconsideration. SFAS No. 140 is generally
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The
disclosure requirements are effective for financial statements for fiscal
years ending after December 15, 2000. The Company does not expect the
adoption of SFAS No. 140 to have a material impact on its present
securitization activities.
(10) FINANCING ACTIVITIES:
During the second quarter, the Company entered into an agreement (the
"Receivables Facility") with several financial institutions whereby it
sells on a continuous basis an undivided interest in all eligible trade
accounts receivable, as defined. Pursuant to the Receivables Facility, the
Company formed ARAMARK Receivables, LLC a wholly-owned, special purpose,
bankruptcy-remote subsidiary. ARAMARK Receivables, LLC was formed for the
sole purpose of buying and selling receivables generated by certain
subsidiaries of the Company. Under the Receivables Facility, certain
subsidiaries of the Company transfer without recourse all of their accounts
receivable to ARAMARK Receivables, LLC. ARAMARK Receivables, LLC, in turn,
has sold and, subject to certain conditions, may from time to time sell an
undivided interest in these receivables up to $200 million. The Company has
retained collection and administrative responsibility for the participating
interests sold. The agreement expires in March 2004. This two-step
transaction is accounted for as a sale of receivables following the
provisions of SFAS No. 125. At March 30, 2001, $161 million of accounts
receivable were sold and removed from the condensed consolidated balance
sheet. The loss on the sale of receivables was $1.2 million and is included
in "Interest and other financing costs, net."
On March 30, 2001, the Company sold for cash, without recourse,
approximately $24 million of notes receivable which resulted from sales of
stock pursuant to the Company's stock ownership program. The sales price of
$25.9 million resulted in a gain of approximately $1.5 million (net of
transaction costs), which is included in "Interest and other financing
costs, net."
The proceeds from both the accounts receivable sale and the sale of notes
receivable were used to repay borrowings under the credit facility.
During the second quarter, ARAMARK Educational Resources, Inc. reduced its
credit facility from $125 million to $25 million. The credit facility
matures in August 2003. As of March 30, 2001, there were no borrowings
under this facility. Additionally, the Company entered into a C$70 million
Canadian revolving credit facility, which replaced its existing Canadian
credit facility. The new Canadian credit facility currently matures in
March 2002 and contains options to extend the maturity date.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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
condensed consolidated financial statements. ARAMARK Services, Inc. is the
borrower under the Credit Agreement and certain other senior debt 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 $1.8 billion as of March 30, 2001.
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.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS
March 30, 2001
(In Millions)
ASSETS
ARAMARK
Services, Inc.
and Non-Guarantor ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Current Assets:
Cash and cash equivalents $ 17.0 $ 12.6 $ 0.4 $ - $ 30.0
Receivables 241.2 191.4 0.8 - 433.4
Inventories, at lower of cost or market 86.5 331.0 - - 417.5
Prepayments and other current assets 74.0 39.2 1.0 - 114.2
-------- -------- -------- --------- --------
Total current assets 418.7 574.2 2.2 - 995.1
-------- -------- -------- --------- --------
Property and Equipment, net 245.3 807.8 2.0 - 1,055.1
Goodwill 194.2 491.3 - - 685.5
Intercompany Receivable 2,210.0 105.6 - (2,315.6) -
Investment in Subsidiaries - - 1,596.9 (1,596.9) -
Other Assets 166.5 231.3 3.0 - 400.8
-------- -------- -------- --------- --------
$3,234.7 $2,210.2 $1,604.1 $(3,912.5) $3,136.5
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 33.0 $ 0.4 $ - $ - $ 33.4
Accounts payable 249.4 89.9 45.3 - 384.6
Accrued expenses and other liabilities 334.8 192.2 17.3 - 544.3
-------- -------- -------- --------- --------
Total current liabilities 617.2 282.5 62.6 - 962.3
-------- -------- -------- --------- --------
Long-Term Borrowings 1,756.1 7.5 - - 1,763.6
Deferred Income Taxes and Other Noncurrent
Liabilities 71.6 98.1 66.8 - 236.5
Intercompany Payable 607.7 407.3 1,300.6 (2,315.6) -
Common Stock Subject to Potential Repurchase
Under Provisions of Shareholders' Agreement - - 20.0 - 20.0
Shareholders' Equity Excluding Common Stock
Subject to Repurchase 182.1 1,414.8 154.1 (1,596.9) 154.1
-------- -------- -------- --------- --------
$3,234.7 $2,210.2 $1,604.1 $(3,912.5) $3,136.5
======== ======== ======== ========= ========
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS
September 29, 2000
(In Millions)
ASSETS
ARAMARK
Services, Inc.
and Non-Guarantor ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Current Assets:
Cash and cash equivalents $ 19.5 $ 4.8 $ 0.3 $ - $ 24.6
Receivables 391.7 193.4 0.6 - 585.7
Inventories, at lower of cost or market 83.4 333.0 - - 416.4
Prepayments and other current assets 25.9 44.6 1.7 - 72.2
-------- -------- -------- --------- --------
Total current assets 520.5 575.8 2.6 - 1,098.9
-------- -------- -------- --------- --------
Property and Equipment, net 232.4 818.8 2.1 - 1,053.3
Goodwill 196.0 488.9 - - 684.9
Intercompany Receivable 2,186.4 105.6 - (2,292.0) -
Investment in Subsidiaries - - 1,533.0 (1,533.0) -
Other Assets 124.2 235.4 2.7 - 362.3
-------- -------- -------- --------- --------
$3,259.5 $2,224.5 $1,540.4 $(3,825.0) $3,199.4
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 57.7 $ 2.0 $ - $ - $ 59.7
Accounts payable 254.3 120.9 55.9 - 431.1
Accrued expenses and other liabilities 343.1 221.4 11.5 - 576.0
-------- -------- -------- --------- --------
Total current liabilities 655.1 344.3 67.4 - 1,066.8
-------- -------- -------- --------- --------
Long-Term Borrowings 1,776.8 0.9 - - 1,777.7
Deferred Income Taxes and Other Noncurrent
Liabilities 61.4 97.5 64.5 - 223.4
Intercompany Payable 590.6 424.4 1,277.0 (2,292.0) -
Common Stock Subject to Potential Repurchase
Under Provisions of Shareholders' Agreement - - 20.0 - 20.0
Shareholders' Equity Excluding Common Stock
Subject to Repurchase 175.6 1,357.4 111.5 (1,533.0) 111.5
-------- -------- -------- --------- --------
$3,259.5 $2,224.5 $1,540.4 $(3,825.0) $3,199.4
======== ======== ======== ========= ========
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF INCOME
For the three months ended March 30, 2001
(In Millions)
ARAMARK
Services, Inc.
and Non-Guarantor ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Sales $1,226.0 $ 655.0 $ - $ - $1,881.0
Equity in Net Income of Subsidiaries - - 23.8 (23.8) -
Management Fee Income - - 7.5 (7.5) -
-------- -------- -------- --------- --------
1,226.0 655.0 31.3 (31.3) 1,881.0
Costs and Expenses:
Cost of services provided 1,150.1 572.6 - (5.8) 1,716.9
Depreciation and amortization 25.1 35.2 - 0.1 60.4
Selling and general corporate expenses 11.9 6.9 5.8 (0.1) 24.5
-------- -------- -------- --------- --------
1,187.1 614.7 5.8 (5.8) 1,801.8
-------- -------- -------- --------- --------
Operating Income 38.9 40.3 25.5 (25.5) 79.2
Interest and other financing costs, net:
Interest expense, net 39.6 0.2 1.7 - 41.5
Intercompany interest, net (5.2) 6.9 - (1.7) -
-------- -------- -------- --------- --------
Interest and other financing costs, net 34.4 7.1 1.7 (1.7) 41.5
-------- -------- -------- --------- --------
Income before income taxes 4.5 33.2 23.8 (23.8) 37.7
Provision for Income Taxes 0.6 13.3 - - 13.9
-------- -------- -------- --------- --------
Net Income $ 3.9 $ 19.9 $ 23.8 $ (23.8) $ 23.8
======== ======== ======== ========= ========
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF INCOME
For the three months ended March 31, 2000
(In Millions)
ARAMARK
Services, Inc.
and Non-Guarantor ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Sales $1,161.7 $ 584.7 $ - $ - $1,746.4
Equity in Net Income of Subsidiaries - - 22.8 (22.8) -
Management Fee Income - - 9.0 (9.0) -
-------- -------- -------- --------- --------
1,161.7 584.7 31.8 (31.8) 1,746.4
Costs and Expenses:
Cost of services provided 1,095.7 508.7 - (6.7) 1,597.7
Depreciation and amortization 22.2 30.4 - 0.1 52.7
Selling and general corporate expenses 9.3 5.9 6.6 0.1 21.9
-------- -------- -------- --------- --------
1,127.2 545.0 6.6 (6.5) 1,672.3
-------- -------- -------- --------- --------
Operating Income 34.5 39.7 25.2 (25.3) 74.1
Interest and other financing costs, net:
Interest expense, net 34.3 - 2.4 - 36.7
Intercompany interest, net (12.2) 14.6 - (2.4) -
-------- -------- -------- --------- --------
Interest and other financing costs, net 22.1 14.6 2.4 (2.4) 36.7
-------- -------- -------- --------- --------
Income before income taxes 12.4 25.1 22.8 (22.9) 37.4
Provision for Income Taxes 4.6 10.0 - - 14.6
-------- -------- -------- --------- --------
Net Income $ 7.8 $ 15.1 $ 22.8 $ (22.9) $ 22.8
======== ======== ======== ========= ========
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF INCOME
For the six months ended March 30, 2001
(In Millions)
ARAMARK
Services, Inc.
and Non-Guarantor ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Sales $2,457.2 $1,371.1 $ - $ - $3,828.3
Equity in Net Income of Subsidiaries - - 67.2 (67.2) -
Management Fee Income - - 17.5 (17.5) -
-------- -------- -------- --------- --------
2,457.2 1,371.1 84.7 (84.7) 3,828.3
Costs and Expenses:
Cost of services provided 2,299.3 1,184.4 - (14.7) 3,469.0
Depreciation and amortization 48.4 70.4 - 0.2 119.0
Selling and general corporate expenses 21.4 13.4 14.5 - 49.3
-------- -------- -------- --------- --------
2,369.1 1,268.2 14.5 (14.5) 3,637.3
-------- -------- -------- --------- --------
Operating Income 88.1 102.9 70.2 (70.2) 191.0
Interest and other financing costs, net:
Interest expense, net 78.9 0.2 3.0 - 82.1
Intercompany interest, net (10.5) 13.5 - (3.0) -
-------- -------- -------- --------- --------
Interest and other financing costs, net 68.4 13.7 3.0 (3.0) 82.1
-------- -------- -------- --------- --------
Income before income taxes 19.7 89.2 67.2 (67.2) 108.9
Provision for Income Taxes 10.5 31.2 - - 41.7
-------- -------- -------- --------- --------
Net Income $ 9.2 $ 58.0 $ 67.2 $ (67.2) $ 67.2
======== ======== ======== ========= ========
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF INCOME
For the six months ended March 31, 2000
(In Millions)
ARAMARK
Services, Inc.
and Non-Guarantor ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Sales $2,324.5 $1,189.5 $ - $ - $3,514.0
Equity in Net Income of Subsidiaries - - 60.1 (60.1) -
Management Fee Income - - 17.2 (17.2) -
-------- -------- -------- --------- --------
2,324.5 1,189.5 77.3 (77.3) 3,514.0
Costs and Expenses:
Cost of services provided 2,188.8 1,020.1 - (12.6) 3,196.3
Depreciation and amortization 43.4 60.9 - 0.1 104.4
Selling and general corporate expenses 20.7 11.1 12.5 - 44.3
-------- -------- -------- --------- --------
2,252.9 1,092.1 12.5 (12.5) 3,345.0
-------- -------- -------- --------- --------
Operating Income 71.6 97.4 64.8 (64.8) 169.0
Interest and other financing costs, net:
Interest expense, net 65.6 0.2 4.7 - 70.5
Intercompany interest, net (23.6) 28.3 - (4.7) -
-------- -------- -------- --------- --------
Interest and other financing costs, net 42.0 28.5 4.7 (4.7) 70.5
-------- -------- -------- --------- --------
Income before income taxes 29.6 68.9 60.1 (60.1) 98.5
Provision for Income Taxes 11.2 27.2 - - 38.4
-------- -------- -------- --------- --------
Net Income $ 18.4 $ 41.7 $ 60.1 $ (60.1) $ 60.1
======== ======== ======== ========= ========
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOWS
For the six months ended March 30, 2001
(In Millions)
ARAMARK
Services, Inc.
and Non-Guarantor ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Net cash provided by (used in) operating
activities $ 171.2 $ 63.7 $ (25.8) $ - $ 209.1
Cash flows from investing activities:
Purchases of property and equipment (50.3) (58.7) - - (109.0)
Disposals of property and equipment 2.5 13.2 - - 15.7
Sale of investments - 8.2 - - 8.2
Acquisition of certain businesses (35.5) (12.6) - - (48.1)
Other investing activities (0.8) 6.2 - - 5.4
-------- -------- -------- --------- --------
Net cash used in investing activities (84.1) (43.7) - - (127.8)
-------- -------- -------- --------- --------
Cash flows from financing activities:
Proceeds from additional long-term
borrowings 25.2 6.6 - - 31.8
Payment of long-term borrowings (97.1) (1.7) - - (98.8)
Proceeds from issuance of common stock - - 32.4 - 32.4
Repurchase of stock - - (41.1) - (41.1)
Change in intercompany, net (17.5) (17.1) 34.6 - -
Other financing activities (0.2) - - - (0.2)
-------- -------- -------- --------- --------
Net cash provided by (used in) financing
activities (89.6) (12.2) 25.9 - (75.9)
-------- -------- -------- --------- --------
Increase (decrease) in cash and cash
equivalents (2.5) 7.8 0.1 - 5.4
Cash and cash equivalents, beginning of period 19.5 4.8 0.3 - 24.6
-------- -------- -------- --------- --------
Cash and cash equivalents, end of period $ 17.0 $ 12.6 $ 0.4 $ - $ 30.0
======== ======== ======== ========= ========
16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOWS
For the six months ended March 31, 2000
(In Millions)
ARAMARK
Services, Inc.
and Non-Guarantor ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Net cash provided by (used in) operating
activities $ 78.5 $ 53.5 $ (12.1) $ - $ 119.9
Cash flows from investing activities:
Purchases of property and equipment (35.6) (60.5) - - (96.1)
Disposals of property and equipment 2.0 5.7 - - 7.7
Acquisition of certain businesses - (32.5) - - (32.5)
Other investing activities (11.2) (18.8) - - (30.0)
-------- -------- -------- --------- --------
Net cash used in investing activities (44.8) (106.1) - - (150.9)
-------- -------- -------- --------- --------
Cash flows from financing activities:
Proceeds from additional long-term
borrowings 182.5 - - - 182.5
Payment of long-term borrowings (81.8) (0.6) - - (82.4)
Proceeds from issuance of common stock - - 31.9 - 31.9
Repurchase of stock - - (102.2) - (102.2)
Change in intercompany, net (136.7) 54.2 82.5 - -
-------- -------- -------- --------- --------
Net cash provided by (used in) financing
activities (36.0) 53.6 12.2 - 29.8
-------- -------- -------- --------- --------
Increase (decrease) in cash and cash
equivalents (2.3) 1.0 0.1 - (1.2)
Cash and cash equivalents, beginning of period 20.3 7.2 0.2 - 27.7
-------- -------- -------- --------- --------
Cash and cash equivalents, end of period $ 18.0 $ 8.2 $ 0.3 $ - $ 26.5
======== ======== ======== ========= ========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the business segment
information included in Note 7 to the condensed consolidated financial
statements.
Overview
Sales of $1.9 billion for the second quarter and $3.8 billion for the six-month
period increased 8% and 9%, respectively, over the prior year periods. For both
the three and six month periods, 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. Excluding the impact of acquisitions, primarily in the
Food and Support Services segments, and the unfavorable impact of foreign
currency translation, sales for the three and six month periods increased 4% and
6% over the respective prior year periods. Operating income of $79.1 million for
the second quarter and $191.0 million for the six-month period increased 7% and
13%, respectively, compared to prior year. Excluding the impact of acquisitions
and foreign currency translation, operating income increased 6% and 12%,
respectively, for the three and six month periods. Higher unemployment levels in
the United States manufacturing and automotive sectors, along with increasing
energy costs adversely impacted the Company's second quarter results. The
operating margin for the six months increased to 5.0% from 4.8% due primarily to
the leveraging of fixed costs in the Food and Support Services - United States
segment. Interest and other financing costs, net for the three and six month
periods increased 13% and 16%, respectively over the prior year due primarily to
increased borrowing levels to fund acquisitions, stock repurchases and working
capital requirements. In the current year, interest and other financing costs
includes a loss on the sale of accounts receivable (approximately $1.2 million)
and a gain from the sale of employee stock loans (approximately $1.5 million) as
discussed in Note 10 to the condensed consolidated financial statements.
Segment Results
Sales - Food and Support Services - United States segment sales for the three
and six months increased 9% and 11% over the prior year periods due to
acquisitions (approximately 6% and 7%, respectively), net new accounts
(approximately 2% and 1%, respectively) and increased volume (approximately 1%
and 3%, respectively). Softness in employment levels in the manufacturing and
automotive sectors slowed growth in the business services and vending markets,
while sales growth was strong in the correctional and healthcare markets. Sales
in the Food and Support Services - International segment increased 20% and 19%
(excluding the unfavorable impact of foreign currency translation) for the three
and six month periods due to net new accounts (approximately 11% and 10%,
respectively), increased volume (approximately 3% and 5%, respectively) and the
impact of the Campbell Bewley acquisition (approximately 6% and 4%,
respectively), with double-digit organic growth in the United Kingdom and
European markets. Sales in the Uniform and Career Apparel - Rental segment
increased 3% and 4%, respectively for the three and six month periods due to
increased volume (approximately 2% and 3%, respectively) and pricing
(approximately 1% and 1%, respectively). Sales growth in this segment has also
been impacted by softness in the manufacturing and automotive sectors. Uniform
and Career Apparel - Direct Marketing segment sales decreased 6% and 1% for the
three and six month periods due primarily to lower volume. The general softening
of the economy and a decrease in business spending has adversely impacted fiscal
2001 sales. In fiscal 2000 sales to the safety equipment and accessories market
were adversely impacted by the startup of a new distribution facility.
Educational Resources segment sales increased 7% and 9% for the three and six
month periods, respectively. Excluding the impact of the revenue accounting
change (see note 7 to the condensed consolidated financial statements), sales
increased 6% and 8%, compared to the prior year periods due primarily to new
locations (approximately 8% and 8%, respectively) and pricing (approximately 4%
and 5%, respectively), partially offset by lower enrollment at existing
locations (approximately 6% and 5%, respectively).
18
Operating Income - Food and Support Services - United States segment operating
income increased 19% and 29% for the three and six month periods. Excluding the
impact of acquisitions, operating income increased 14% and 24% over the prior
year periods due to the sales increases noted above and effective cost controls.
Excluding the unfavorable impact of foreign currency translation and an asset
sale gain in the prior year first quarter, Food and Support Services -
International segment operating income for the three and six month periods
increased 2% and 12%, respectively over the prior year due to the sales
increases noted above, partially offset in the second quarter by increased
infrastructure and acquisition integration costs in the UK and increased meat
costs in Germany due to the BSE and foot and mouth disease outbreaks in Europe.
Uniform and Career Apparel - Rental segment operating income increased 6% and 4%
over the prior year for the three and six month periods, respectively, due to
the sales increases noted above and the absence of garment manufacturing start
up costs incurred in the prior year, partially offset by increased fuel, energy
and other operating costs. Operating income in the Uniform and Career Apparel -
Direct Marketing segment for the second quarter decreased 9% compared to the
prior year due to decreased volume as noted above. For the six month period,
operating income increased 40% over the prior year as operating results in this
segment were adversely impacted in the prior year first quarter by start up
costs related to a new distribution facility. Educational Resources segment
operating income for the three and six month periods decreased 13% and 16%,
respectively from the prior year periods. Excluding the impact of the revenue
accounting change noted above, operating income for the three and six month
periods decreased 19% and 23%, respectively from the prior year. Operating
results continue to be adversely affected by reduced enrollment at mature
centers and continuing high labor and employee medical costs. It is anticipated
that reduced enrollment at mature centers may continue to adversely affect
results in this segment during the remainder of fiscal 2001.
FINANCIAL CONDITION AND LIQUIDITY - Reference to the condensed consolidated
statement of cash flows on page 4 will facilitate understanding of the
discussion that follows.
Cash provided by operating activities for the six month period was $209 million
in fiscal 2001 and $120 million in fiscal 2000. Excluding proceeds from the
accounts receivable sale transaction (see Note 10), cash provided by operating
activities for fiscal 2001 was $48 million, reflecting growth in accounts
receivable due to increased sales and reduced current liabilities related to the
timing of certain payments such as taxes, commissions and stock repurchase
obligations. Debt decreased by $40 million during the six months ended March 30,
2001, primarily due to the accounts receivable sale transaction noted above,
partially offset by the impact of capital expenditures and the assumption of $21
million of indebtedness in connection with the Campbell Bewley transaction (see
Note 8).
During the first six months of fiscal 2001, the Company repurchased $64 million
of its Class B Common Stock, issuing $29 million in installment notes as partial
consideration. Additionally, the Company received approximately $32 million
(including proceeds from the sale of deferred payment obligations discussed in
Note 10) related to the issuance of Class B Common Stock 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.
During the fiscal 2001 second quarter, the Company reduced the borrowing
capacity under the Educational Resources credit facility from $125 million to
$25 million and the Canadian credit facility from C$80 million to C$70 million,
and established a $200 million accounts receivable sale facility (see Note 10).
Currently, the Company has approximately $450 million of unused committed credit
availability under its credit facilities. Additionally, the Company has shelf
registration statements on file with the Securities and Exchange Commission for
the issuance of up to $500 million of debt securities. The Company currently
expects to continue to fund acquisitions, capital expenditures 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.
19
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, fluctuations or reductions in
enrollment in the Educational Resources segment, 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.
PART II - OTHER INFORMATION
Item 1: Not Applicable.
Item 2: Not Applicable.
Item 3: Not Applicable.
Item 4: Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on February 8,
2001.
(b) Not Applicable.
(c) (1) There were 51,618,603 affirmative votes and 70,695 votes
withheld or abstained with respect to the uncontested
election of directors.
(2) There were 51,606,296 affirmative votes and 83,002 votes
withheld or abstained with respect to the approval of the
2001 Stock Ownership Plan.
(d) Not Applicable.
Item 5: Not Applicable.
Item 6: Exhibits
(a) Not Applicable.
20
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
May 14, 2001 /s/John M. Lafferty
---------------------------------
John M. Lafferty
Senior Vice President, Controller
and Chief Accounting Officer
21