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 29, 2001 Commission file number 1-8827
-------------- ------
ARAMARK CORPORATION
- --------------------------------------------------------------------------------
(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
--------- ---------
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 27, 2001: 2,385,438
Class B common stock outstanding at July 27, 2001: 59,731,078
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
June 29, September 29,
2001 2000
----------- -------------
Current Assets:
Cash and cash equivalents $ 29,320 $ 24,592
Receivables 435,438 585,630
Inventories, at lower of cost or market 412,852 416,413
Prepayments and other current assets 106,244 72,230
----------- ------------
Total current assets 983,854 1,098,865
----------- ------------
Property and Equipment, net 1,070,003 1,053,243
Goodwill 711,286 684,940
Other Assets 367,945 362,335
----------- ------------
$ 3,133,088 $ 3,199,383
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 39,003 $ 59,736
Accounts payable 367,149 431,123
Accrued expenses and other liabilities 585,513 576,001
----------- ------------
Total current liabilities 991,665 1,066,860
----------- ------------
Long-Term Borrowings 1,713,222 1,777,660
Deferred Income Taxes and Other Noncurrent Liabilities 225,433 223,367
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 $.01 597 598
Earnings retained for use in the business 222,928 149,771
Accumulated other comprehensive income (loss) (20,781) (18,897)
Impact of potential repurchase feature of
common stock (20,000) (20,000)
----------- ------------
182,768 111,496
----------- ------------
$ 3,133,088 $ 3,199,383
=========== ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-1-
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
For the Three Months Ended For the Nine Months Ended
----------------------------- ------------------------------
June 29, June 30, June 29, June 30,
2001 2000 2001 2000
----------- ---------- ---------- ----------
Sales $1,980,854 $1,835,543 $5,809,165 $5,349,538
---------- ---------- ---------- ----------
Costs and Expenses:
Cost of services provided 1,777,069 1,651,739 5,246,036 4,847,957
Depreciation and amortization 60,459 54,934 179,519 159,335
Selling and general corporate
expenses 27,722 20,910 76,998 65,269
---------- ---------- ---------- ----------
1,865,250 1,727,583 5,502,553 5,072,561
---------- ---------- ---------- ----------
Operating income 115,604 107,960 306,612 276,977
Interest and other financing costs, net 37,631 37,708 119,733 108,226
---------- ---------- ---------- ----------
Income before income taxes 77,973 70,252 186,879 168,751
Provision for Income Taxes 29,922 26,889 71,638 65,302
---------- ---------- ---------- ----------
Net income $ 48,051 $ 43,363 $ 115,241 $ 103,449
========== ========== ========== ==========
Earnings Per Share:
Basic $.56 $.49 $1.34 $1.15
Diluted $.53 $.46 $1.27 $1.08
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-2-
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
For the Nine Months Ended
----------------------------
June 29, June 30,
2001 2000
--------- ---------
Cash flows from operating activities:
Net income $ 115,241 $ 103,449
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 179,519 159,335
Income taxes deferred 3,790 2,807
Changes in noncash working capital (127,214) (11,388)
Net proceeds from sale of receivables 159,767 -
Other operating activities (11,313) (16,356)
--------- ---------
Net cash provided by operating activities 319,790 237,847
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (169,987) (158,912)
Disposals of property and equipment 20,452 11,427
Sale of investments 8,240 -
Acquisition of certain businesses (46,654) (245,782)
Other investing activities 6,795 (49,450)
--------- ---------
Net cash used in investing activities (181,154) (442,717)
--------- ---------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 39,404 399,465
Payment of long-term borrowings (150,668) (80,435)
Proceeds from issuance of common stock 32,412 32,243
Repurchase of stock (54,622) (134,784)
Other financing activities (434) (262)
--------- ---------
Net cash provided by (used in) financing activities (133,908) 216,227
--------- ---------
Increase in cash and cash equivalents 4,728 11,357
Cash and cash equivalents, beginning of period 24,592 27,690
--------- ---------
Cash and cash equivalents, end of period $ 29,320 $ 39,047
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
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 nine months of fiscal 2001, pursuant to the ARAMARK
Ownership Program, employees purchased 4,527,256 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 $114.6 million and $95.6 million and
income tax payments of $69.6 million and $44.2 million during the first
nine months of fiscal 2001 and 2000, respectively. During the first nine
months of fiscal 2001, the Company purchased $6.2 million of its Class A
Common Stock and $84.0 million of its Class B Common Stock, issuing $35.6
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 Nine Months Ended
------------------------ ---------------------------
June 29, June 30, June 29, June 30,
2001 2000 2001 2000
------- ------- -------- --------
(in thousands, except per share data)
Earnings:
Net income $48,051 $43,363 $115,241 $103,449
======= ======= ======== ========
Shares:
Weighted average number of common
shares outstanding used in basic
earnings per share calculation 85,905 88,245 85,898 90,292
Impact of potential exercise opportunities
under the ARAMARK Ownership Plan 4,369 5,113 4,831 5,938
------- ------- -------- --------
Total common shares used in diluted
earnings per share calculation 90,274 93,358 90,729 96,230
======= ======= ======== ========
Basic earnings per common share $.56 $.49 $1.34 $1.15
==== ==== ===== =====
Diluted earnings per common share $.53 $.46 $1.27 $1.08
==== ==== ===== =====
-4-
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 $49.5 million and $113.4 million for the three
and nine months ended June 29, 2001, respectively; and $39.7 million and
$99.8 million for the three and nine months ended June 30, 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 June 29, 2001, the Company has $250 million of interest
rate swap agreements fixing the rate on a like amount of variable rate
borrowings.
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 nine months of fiscal 2001,
unrealized net losses of approximately $4.9 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 June 29, 2001, approximately $4.9 million
of net unrealized losses related to interest rate swaps was included in
Accumulated Other Comprehensive Income, approximately $3.9 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 nine months of fiscal 2001 was not material.
-5-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(7) SEGMENT INFORMATION:
Sales and operating income by segment are as follows:
Three Months Ended Nine Months Ended
--------------------------- --------------------------
June 29, June 30, June 29, June 30,
Sales 2001 2000 2001 2000
-------------------------------------------- ---------- ---------- ---------- ----------
(in thousands)
Food and Support Services - United States $1,230,394 $1,119,841 $3,533,848 $3,187,588
Food and Support Services - International 277,070 245,149 831,249 756,476
Uniform and Career Apparel - Rental 249,077 245,611 748,003 725,050
Uniform and Career Apparel - Direct Marketing 101,585 108,165 341,268 350,353
Educational Resources 122,728 116,777 354,797 330,071
---------- ---------- ---------- ----------
$1,980,854 $1,835,543 $5,809,165 $5,349,538
========== ========== ========== ==========
Three Months Ended Nine Months Ended
--------------------------- --------------------------
June 29, June 30, June 29, June 30,
Operating Income 2001 2000 2001 2000
-------------------------------------------- ---------- ---------- ---------- ----------
(in thousands)
Food and Support Services - United States $ 68,183 $ 62,086 $ 165,503 $ 138,362
Food and Support Services - International 8,562 8,162 29,038 32,203
Uniform and Career Apparel - Rental 30,276 29,852 88,015 85,160
Uniform and Career Apparel - Direct Marketing 3,155 1,568 13,731 9,063
Educational Resources 10,427 10,542 26,326 29,146
---------- ---------- ---------- ----------
120,603 112,210 322,613 293,934
Corporate and Other (4,999) (4,250) (16,001) (16,957)
---------- ---------- ---------- ----------
Operating Income 115,604 107,960 306,612 276,977
Interest (37,631) (37,708) (119,733) (108,226)
---------- ---------- ---------- ----------
Income Before Income Taxes $ 77,973 $ 70,252 $ 186,879 $ 168,751
========== ========== ========== ==========
Included in "Corporate and Other" during the first nine 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.
-6-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(9) NEW ACCOUNTING PRONOUNCEMENTS:
On June 30, 2001, the FASB finalized SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets. With the
adoption of SFAS No. 142, goodwill is no longer subject to amortization,
rather it will be subject to at least an annual assessment for impairment
by applying a fair value based test. The Company is required to adopt the
provisions of this pronouncement no later than the beginning of fiscal
2003. However, goodwill and other intangible assets acquired after June
30, 2001, are subject immediately to the nonamortization and amortization
provisions of this statement.
The Company is currently evaluating the impact of SFAS No. 142. Goodwill
amortization (pre-tax) was $18.8 million and $16.3 million for the first
nine months of fiscal 2001 and 2000, respectively.
(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. 140. At June 29, 2001, $160 million
of accounts receivable were sold and removed from the condensed
consolidated balance sheet. The loss on the sale of receivables in fiscal
2001 was $3.5 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 the accounts receivable sales 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 C$80
million Canadian credit facility. The new Canadian credit facility
currently matures in March 2002 and contains options to extend the
maturity date.
(11) SUBSEQUENT EVENT:
On July 17, 2001, a subsidiary of ARAMARK filed Form S-1 and S-4
registration statements with the Securities and Exchange Commission to
begin the process of becoming a publicly-traded company. The Company
expects to merge with this subsidiary just prior to the completion of the
public offering under the terms of a Merger Agreement. In the merger,
ARAMARK will merge with and into its newly formed subsidiary, ARAMARK
Worldwide Corporation, and each outstanding ARAMARK old Class B and old
Class A common share will become two shares and twenty shares,
respectively, of the surviving corporation's Class A common stock. ARAMARK
Worldwide Corporation's name will become ARAMARK Corporation, and the
surviving corporation will succeed to all of the assets, liabilities,
rights and obligations of ARAMARK.
-7-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(12) 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 June 29, 2001.
The other subsidiaries, which are not subsidiaries of ARAMARK Services,
Inc., do not guarantee any registered securities of the Company or ARAMARK
Services, Inc., although certain other subsidiaries guarantee, along with
the Company, certain other unregistered debt.
-8-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS
June 29, 2001
(In Millions)
ASSETS
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
-------------- ------------ ----------- ------------ ------------
Current Assets:
Cash and cash equivalents $ 17.3 $ 11.6 $ 0.4 $ - $ 29.3
Receivables 242.0 192.5 0.9 - 435.4
Inventories, at lower of cost or market 82.0 330.9 - - 412.9
Prepayments and other current assets 54.1 36.8 15.4 - 106.3
--------- ---------- ---------- --------- -----------
Total current assets 395.4 571.8 16.7 - 983.9
--------- ---------- ---------- --------- -----------
Property and Equipment, net 251.0 817.0 2.0 - 1,070.0
Goodwill 209.9 501.4 - - 711.3
Intercompany Receivable 2,260.1 105.6 - (2,365.7) -
Investment in Subsidiaries - - 1,646.4 (1,646.4) -
Other Assets 146.6 217.9 3.4 - 367.9
--------- ---------- ---------- --------- -----------
$ 3,263.0 $ 2,213.7 $ 1,668.5 $(4,012.1) $ 3,133.1
========= ========== ========== ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 38.6 $ 0.4 $ - $ - $ 39.0
Accounts payable 235.9 84.6 46.7 - 367.2
Accrued expenses and other liabilities 324.2 246.1 15.3 - 585.6
--------- ---------- ---------- --------- -----------
Total current liabilities 598.7 331.1 62.0 - 991.8
--------- ---------- ---------- --------- -----------
Long-Term Borrowings 1,706.3 6.9 - - 1,713.2
Deferred Income Taxes and Other Noncurrent
Liabilities 71.7 100.5 53.2 - 225.4
Intercompany Payable 702.3 312.8 1,350.6 (2,365.7) -
Common Stock Subject to Potential Repurchase
Under Provisions of Shareholders' Agreement - - 20.0 - 20.0
Shareholders' Equity Excluding Common Stock
Subject to Repurchase 184.0 1,462.4 182.7 (1,646.4) 182.7
--------- ---------- ---------- --------- -----------
$ 3,263.0 $ 2,213.7 $ 1,668.5 $(4,012.1) $ 3,133.1
========= ========== ========== ========= ===========
-9-
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 Other 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
========= ========== ========== ========= ===========
-10-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF INCOME
For the three months ended June 29, 2001
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
Sales $1,176.2 $ 804.7 $ - $ - $1,980.9
Equity in Net Income of Subsidiaries - - 48.0 (48.0) -
Management Fee Income - - 7.1 (7.1) -
-------- -------- ---------- --------- --------
1,176.2 804.7 55.1 (55.1) 1,980.9
Costs and Expenses:
Cost of services provided 1,109.4 673.3 - (5.6) 1,777.1
Depreciation and amortization 24.6 35.8 - 0.1 60.5
Selling and general corporate expenses 15.6 6.6 5.5 - 27.7
-------- -------- ---------- --------- --------
1,149.6 715.7 5.5 (5.5) 1,865.3
-------- -------- ---------- --------- --------
Operating Income 26.6 89.0 49.6 (49.6) 115.6
Interest and other financing costs, net:
Interest expense, net 36.3 (0.2) 1.5 - 37.6
Intercompany interest, net (10.5) 12.0 - (1.5) -
-------- -------- ---------- --------- --------
Interest and other financing costs, net 25.8 11.8 1.5 (1.5) 37.6
-------- -------- ---------- --------- --------
Income before income taxes 0.8 77.2 48.1 (48.1) 78.0
Provision for Income Taxes (0.2) 30.1 - - 29.9
-------- -------- ---------- --------- --------
Net Income $ 1.0 $ 47.1 $ 48.1 $ (48.1) $ 48.1
======== ======== ========== ========= ========
-11-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF INCOME
For the three months ended June 30, 2000
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
Sales $1,094.5 $ 741.0 $ - $ - $1,835.5
Equity in Net Income of Subsidiaries - - 43.4 (43.4) -
Management Fee Income - - 7.3 (7.3) -
-------- -------- ---------- --------- --------
1,094.5 741.0 50.7 (50.7) 1,835.5
Costs and Expenses:
Cost of services provided 1,037.9 619.1 - (5.3) 1,651.7
Depreciation and amortization 22.7 32.1 - 0.1 54.9
Selling and general corporate expenses 9.5 6.2 5.2 - 20.9
-------- -------- ---------- --------- --------
1,070.1 657.4 5.2 (5.2) 1,727.5
-------- -------- ---------- --------- --------
Operating Income 24.4 83.6 45.5 (45.5) 108.0
Interest and other financing costs, net:
Interest expense, net 35.6 - 2.1 - 37.7
Intercompany interest, net (16.0) 18.1 - (2.1) -
-------- -------- ---------- --------- --------
Interest and other financing costs, net 19.6 18.1 2.1 (2.1) 37.7
-------- -------- ---------- --------- --------
Income before income taxes 4.8 65.5 43.4 (43.4) 70.3
Provision for Income Taxes 2.0 24.9 - - 26.9
-------- -------- ---------- --------- --------
Net Income $ 2.8 $ 40.6 $ 43.4 $ (43.4) $ 43.4
======== ======== ========== ========= ========
-12-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF INCOME
For the nine months ended June 29, 2001
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
Sales $3,633.4 $2,175.8 $ - $ - $5,809.2
Equity in Net Income of Subsidiaries - - 115.3 (115.3) -
Management Fee Income - - 24.6 (24.6) -
-------- -------- ---------- --------- --------
3,633.4 2,175.8 139.9 (139.9) 5,809.2
Costs and Expenses:
Cost of services provided 3,408.7 1,857.7 - (20.3) 5,246.1
Depreciation and amortization 73.0 106.2 - 0.3 179.5
Selling and general corporate expenses 37.0 20.0 20.1 (0.1) 77.0
-------- -------- ---------- --------- --------
3,518.7 1,983.9 20.1 (20.1) 5,502.6
-------- -------- ---------- --------- --------
Operating Income 114.7 191.9 119.8 (119.8) 306.6
Interest and other financing costs, net:
Interest expense, net 115.2 - 4.5 - 119.7
Intercompany interest, net (21.0) 25.5 - (4.5) -
-------- -------- ---------- --------- --------
Interest and other financing costs, net 94.2 25.5 4.5 (4.5) 119.7
-------- -------- ---------- --------- --------
Income before income taxes 20.5 166.4 115.3 (115.3) 186.9
Provision for Income Taxes 10.3 61.3 - - 71.6
-------- -------- ---------- --------- --------
Net Income $ 10.2 $ 105.1 $ 115.3 $ (115.3) $ 115.3
======== ======== ========== ========= ========
-13-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF INCOME
For the nine months ended June 30, 2000
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
Sales $3,419.0 $1,930.5 $ - $ - $5,349.5
Equity in Net Income of Subsidiaries - - 103.5 (103.5) -
Management Fee Income - - 24.5 (24.5) -
-------- -------- ---------- --------- --------
3,419.0 1,930.5 128.0 (128.0) 5,349.5
Costs and Expenses:
Cost of services provided 3,226.6 1,639.2 - (17.9) 4,847.9
Depreciation and amortization 66.1 93.0 - 0.2 159.3
Selling and general corporate expenses 30.2 17.4 17.7 - 65.3
-------- -------- ---------- --------- --------
3,322.9 1,749.6 17.7 (17.7) 5,072.5
-------- -------- ---------- --------- --------
Operating Income 96.1 180.9 110.3 (110.3) 277.0
Interest and other financing costs, net:
Interest expense, net 101.1 0.3 6.8 - 108.2
Intercompany interest, net (39.5) 46.3 - (6.8) -
-------- -------- ---------- --------- --------
Interest and other financing costs, net 61.6 46.6 6.8 (6.8) 108.2
-------- -------- ---------- --------- --------
Income before income taxes 34.5 134.3 103.5 (103.5) 168.8
Provision for Income Taxes 13.1 52.2 - - 65.3
-------- -------- ---------- --------- --------
Net Income $ 21.4 $ 82.1 $ 103.5 $ (103.5) $ 103.5
======== ======== ========== ========= ========
-14-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOWS
For the nine months ended June 29, 2001
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities $ 188.5 $ 193.2 $ (61.9) $ - $ 319.8
Cash flows from investing activities:
Purchases of property and equipment (72.2) (97.8) - - (170.0)
Disposals of property and equipment 4.3 16.2 - - 20.5
Sale of investments - 8.2 - - 8.2
Acquisition of certain businesses (33.7) (13.0) - - (46.7)
Other investing activities (0.3) 7.4 (0.3) - 6.8
------- ------- ------- -------- -------
Net cash used in investing activities (101.9) (79.0) (0.3) - (181.2)
------- ------- ------- -------- -------
Cash flows from financing activities:
Proceeds from additional long-term
borrowings 32.8 6.6 - - 39.4
Payment of long-term borrowings (148.4) (2.3) - - (150.7)
Proceeds from issuance of common stock - - 32.4 - 32.4
Repurchase of stock - - (54.6) - (54.6)
Change in intercompany, net 27.2 (111.7) 84.5 - -
Other financing activities (0.4) - - - (0.4)
------- ------- ------- -------- -------
Net cash provided by (used in) financing
activities (88.8) (107.4) 62.3 - (133.9)
------- ------- ------- -------- -------
Increase (decrease) in cash and cash
equivalents (2.2) 6.8 0.1 - 4.7
Cash and cash equivalents, beginning
of period 19.5 4.8 0.3 - 24.6
------- ------- ------- -------- -------
Cash and cash equivalents, end of period $ 17.3 $ 11.6 $ 0.4 $ - $ 29.3
======= ======= ======= ======== =======
-15-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 2000
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities $ 76.3 $ 188.1 $ (26.5) $ - $ 237.9
Cash flows from investing activities:
Purchases of property and equipment (56.3) (102.6) - - (158.9)
Disposals of property and equipment 4.5 6.9 - - 11.4
Acquisition of certain businesses - (245.8) - - (245.8)
Other investing activities (32.9) (16.3) (0.3) - (49.5)
------- ------- ------- -------- -------
Net cash used in investing activities (84.7) (357.8) (0.3) - (442.8)
------- ------- ------- -------- -------
Cash flows from financing activities:
Proceeds from additional long-term
borrowings 399.5 - - - 399.5
Payment of long-term borrowings (77.3) (3.1) - - (80.4)
Repurchase of stock - - (134.8) - (134.8)
Proceeds from issuance of common stock - - 32.2 - 32.2
Change in intercompany, net (309.5) 180.0 129.5 - -
Other financing activities - (0.3) - - (0.3)
------- ------- ------- -------- -------
Net cash provided by (used in) financing
activities 12.7 176.6 26.9 - 216.2
------- ------- ------- -------- -------
Increase (decrease) in cash and cash
equivalents 4.3 6.9 0.1 - 11.3
Cash and cash equivalents, beginning
of period 20.3 7.2 0.2 - 27.7
------- ------- ------- -------- -------
Cash and cash equivalents, end of period $ 24.6 $ 14.1 $ 0.3 $ - $ 39.0
======= ======= ======= ======== =======
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following tables present our sales and operating income, and related
percentages, attributable to each operating segment for the three and nine-month
periods ended June 29, 2001 and June 30, 2000.
Three Months Ended Nine Months Ended
-------------------------------- ---------------------------------
June 30, 2000 June 29, 2001 June 30, 2000 June 29, 2001
--------------- --------------- --------------- ---------------
Sales $ % $ % $ % $ %
- --------------------------------------------- -------- ----- -------- ----- -------- ----- -------- -----
(dollars in millions)
Food & Support Services - United States $1,119.8 61% $1,230.4 62% $3,187.6 60% $3,533.8 61%
Food & Support Services - International 245.1 13% 277.1 14% 756.5 14% 831.3 14%
Uniform and Career Apparel - Rental 245.6 13% 249.1 13% 725.0 14% 748.0 13%
Uniform and Career Apparel - Direct Marketing 108.2 6% 101.6 5% 350.3 6% 341.3 6%
Educational Resources 116.8 7% 122.7 6% 330.1 6% 354.8 6%
-------- ---- -------- ---- -------- ---- -------- ----
$1,835.5 100% $1,980.9 100% $5,349.5 100% $5,809.2 100%
======== ==== ======== ==== ======== ==== ======== ====
Three Months Ended Nine Months Ended
-------------------------------- ---------------------------------
June 30, 2000 June 29, 2001 June 30, 2000 June 29, 2001
--------------- --------------- --------------- ---------------
Operating Income $ % $ % $ % $ %
- --------------------------------------------- -------- ----- -------- ----- -------- ----- -------- -----
(dollars in millions)
Food & Support Services - United States $ 62.1 57% $ 68.1 59% $ 138.4 50% $ 165.5 54%
Food & Support Services - International 8.2 8% 8.6 7% 32.2 12% 29.1 9%
Uniform and Career Apparel - Rental 29.9 28% 30.3 26% 85.2 31% 88.0 29%
Uniform and Career Apparel - Direct Marketing 1.6 1% 3.2 3% 9.1 3% 13.7 4%
Educational Resources 10.5 10% 10.4 9% 29.1 10% 26.3 9%
-------- -------- -------- --------
112.3 120.6 294.0 322.6
Corporate and Other (4.3) -4% (5.0) -4% (17.0) -6% (16.0) -5%
-------- ---- -------- ---- -------- ---- -------- ----
$ 108.0 100% $ 115.6 100% $ 277.0 100% $ 306.6 100%
======== ==== ======== ==== ======== ==== ======== ====
Consolidated Overview
Sales of $2.0 billion for the third quarter and $5.8 billion for the nine-month
period increased 8% and 9%, respectively, over the prior year periods. For both
the three and nine month periods, sales increases in the Food and Support
Services segments, Uniform and Career Apparel - Rental segment and Educational
Resources segment were partially offset by a decline 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 nine month periods
increased 4% and 5% over the respective prior year periods. Operating income of
$115.6 million for the third quarter and $306.6 million for the nine month
period increased 7% and 11%, respectively, compared to the prior year. Excluding
the impact of acquisitions and foreign currency translation, operating income
increased 3% and 8%, respectively, for the three and nine month periods. Higher
unemployment levels in the United States manufacturing and automotive sectors,
along with increased energy costs and the general economic slowdown in the
United States, have continued to adversely impact our operating results in the
third quarter of fiscal 2001. Interest and other financing costs in the third
quarter was equal to the prior year as the impact of higher borrowing levels was
offset by lower interest rates. For the nine month period, interest and other
financing costs increased 11% compared to the prior year due primarily to
increased borrowing levels to fund acquisitions, stock repurchases, and working
capital requirements.
-17-
Segment Results
Three Months Ended
June Change
--------------------- -----------------
2000 2001 $ %
--------------------- -----------------
(dollars in millions)
Sales by Segment
- ----------------
Food and Support Services - United States $1,119.8 $1,230.4 $110.6 10%
Food and Support Services - International 245.1 277.1 32.0 13
Uniform and Career Apparel - Rental 245.6 249.1 3.5 1
Uniform and Career Apparel - Direct Marketing 108.2 101.6 (6.6) (6)
Educational Resources 116.8 122.7 5.9 5
-------- -------- ------
Consolidated Sales $1,835.5 $1,980.9 $145.4 8%
======== ======== ======
Nine Months Ended
June Change
--------------------- -----------------
2000 2001 $ %
--------------------- -----------------
(dollars in millions)
Sales by Segment
- ----------------
Food and Support Services - United States $3,187.6 $3,533.8 $346.2 11%
Food and Support Services - International 756.5 831.3 74.8 10
Uniform and Career Apparel - Rental 725.0 748.0 23.0 3
Uniform and Career Apparel - Direct Marketing 350.3 341.3 (9.0) (3)
Educational Resources 330.1 354.8 24.7 7
-------- -------- ------
Consolidated Sales $5,349.5 $5,809.2 $459.7 9%
======== ======== ======
Food and Support Services - United States segment sales for the three and nine
months increased 10% and 11% over the prior year periods due to acquisitions,
primarily Ogden Entertainment, Inc. in the third quarter of fiscal 2000,
(approximately 6% in both periods), net new accounts (approximately 2% in both
periods) and increased volume (approximately 2% and 3%, respectively). Continued
softness during the third quarter of fiscal 2001 in employment levels,
particularly in the manufacturing and automotive sectors, slowed growth in the
business services and vending sectors, while sales growth was strong in the
correctional and healthcare sectors. Sales in the sports and entertainment
sector were also adversely impacted by the general economic slowdown,
particularly sales to parks and convention center customers. Sales in the Food
and Support Services - International segment increased 13% and 10% for the three
and nine month periods. Excluding the unfavorable impact of foreign currency
translation, sales increased 19% in both the three and nine month periods due to
net new accounts (approximately 7% and 9%, respectively), increased volume
(approximately 7% and 5%, respectively) and the impact of the Campbell Bewley
acquisition (approximately 5% in both periods), with double-digit growth in the
United Kingdom and European markets. Sales in the Uniform and Career Apparel -
Rental segment increased 1% for the three month period due primarily to price
increases, and increased 3% for the nine month period due to increased volume
(approximately 2%) and pricing (approximately 1%). Sales growth in this segment
has also been constrained by softness in the manufacturing and automotive
sectors. Uniform and Career Apparel - Direct Marketing segment sales decreased
6% and 3%, respectively, for the three and nine 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 the fiscal 2000 nine-month
period, sales to the safety equipment and accessories market were adversely
impacted by the startup of a distribution facility. Educational Resources
segment sales increased 5% and 7% for the three and nine month periods, due
primarily to new locations (approximately 5% and 7%, respectively), and pricing
(approximately 3% and 4%, respectively), partially offset by lower enrollment at
existing locations (approximately 3% and 4%, respectively).
-18-
Three Months Ended
June Change
--------------------- -----------------
2000 2001 $ %
--------------------- -----------------
(dollars in millions)
Operating Income by Segment
Food and Support Services - United States $ 62.1 $ 68.1 $ 6.0 10%
Food and Support Services - International 8.2 8.6 0.4 5
Uniform and Career Apparel - Rental 29.9 30.3 0.4 1
Uniform and Career Apparel - Direct Marketing 1.6 3.2 1.6 100
Educational Resources 10.5 10.4 (0.1) (1)
Corporate and Other (4.3) (5.0) (0.7) (18)
-------- -------- ------
Consolidated Operating Income $ 108.0 $ 115.6 $ 7.6 7%
======== ======== ======
Nine Months Ended
June Change
--------------------- -----------------
2000 2001 $ %
--------------------- -----------------
(dollars in millions)
Operating Income by Segment
Food and Support Services - United States $ 138.4 $ 165.5 $ 27.1 20%
Food and Support Services - International 32.2 29.1 (3.1) (10)
Uniform and Career Apparel - Rental 85.2 88.0 2.8 3
Uniform and Career Apparel - Direct Marketing 9.1 13.7 4.6 51
Educational Resources 29.1 26.3 (2.8) (10)
Corporate and Other (17.0) (16.0) 1.0 6
-------- -------- ------
Consolidated Operating Income $ 277.0 $ 306.6 $ 29.6 11%
======== ======== ======
Food and Support Services - United States segment operating income increased 10%
and 20% for the three and nine month periods. Excluding the impact of
acquisitions, operating income increased 3% and 13% over the prior year periods
due to the sales increases noted above. Reduced employment levels and generally
soft economic conditions in the U.S. continued to constrain profit growth,
particularly in the third quarter. Operating income in the Food and Support
Services - International segment increased 5% in the third quarter and decreased
10% for the nine-month period compared to the prior year periods. Excluding the
unfavorable impact of foreign currency translation and an asset sale gain in the
prior year first quarter, segment operating income increased 12% in both the
three and nine month periods due to the sales increases noted above, partially
offset by increased infrastructure and acquisition integration costs in the UK
and increased food costs in Germany as a result of previous bovine spongiform
encephalopathy (BSE), or so-called "mad cow disease" and foot and mouth
outbreaks in Europe. Uniform and Career Apparel - Rental segment operating
income increased 1% and 3% over the prior year for the three and nine 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. The slowdown in the
U.S. economy has constrained both volume and pricing growth negatively affecting
operating income, particularly in the third quarter. Operating income in the
Uniform and Career Apparel - Direct Marketing segment doubled to $3.2 million in
the third quarter and increased 51% for the nine month period, due to reduced
catalog, distribution, and administrative expenses, partially offset by the
impact of lower sales. Additionally, for the nine-month period, operating
results in this segment were adversely impacted in the prior year first quarter
by start up costs related to a distribution facility. Educational Resources
segment operating income for the three and nine month periods decreased 1% and
10%, respectively from the prior year periods. Excluding the impact of the
revenue accounting change for registration fees (see Note 7 to the condensed
consolidated financial statements), operating income for the three and nine
month periods decreased 7% and 16%, 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 the difficult economic conditions described previously
will continue during the fourth quarter of fiscal 2001, and similarly affect
operating results.
-19-
FINANCIAL CONDITION AND LIQUIDITY - Reference to the condensed consolidated
statements of cash flows on page 3 will facilitate understanding of the
discussion that follows.
Cash provided by operating activities for the nine month period was $320 million
in fiscal 2001 and $238 million in fiscal 2000. Excluding the impact of the
accounts receivable sale transaction (see Note 10), cash provided by operating
activities for fiscal 2001 was $160 million reflecting a reduction in current
liabilities due to the timing of certain payments such as taxes, commissions,
retirement benefits and stock repurchase obligations. Debt decreased by $85
million during the nine months ended June 29, 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 nine months of fiscal 2001, the Company repurchased $84 million
of its Class B Common Stock, issuing $36 million of 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.
During fiscal 2001, 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 $500 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 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.
On July 17, 2001, a subsidiary of ARAMARK filed Form S-1 and S-4 registration
statements with the Securities and Exchange Commission to begin the process of
becoming a publicly-traded company. The Company expects to merge with this
subsidiary just prior to the completion of the public offering under the terms
of a Merger Agreement. In the merger, ARAMARK will merge with and into its newly
formed subsidiary, ARAMARK Worldwide Corporation, and each outstanding ARAMARK
old Class B and old Class A common share will become two shares and twenty
shares, respectively, of the surviving corporation's Class A common stock.
ARAMARK Worldwide Corporation's name will become ARAMARK Corporation, and the
surviving corporation will succeed to all of the assets, liabilities, rights and
obligations of ARAMARK.
The proposed transaction is intended to put in place a capital structure that
will give ARAMARK greater financial flexibility to respond to changes in
worldwide market conditions with a publicly-traded equity security that can be
used, when appropriate, for strategic initiatives. ARAMARK intends to use a
portion of the proceeds of the public offering to fund a cash tender offer for
some of the new class A common stock which will be held by current shareholders
and to repurchase shares from employee benefit plans. ARAMARK intends to begin
the cash tender offer as soon as practicable after the proposed offering of
class B common stock. The remainder of the proceeds will be used for general
corporate purposes, including strategic initiatives. Until the proceeds are used
for these purposes, they will be used to reduce debt.
NEW ACCOUNTING PRONOUNCEMENTS
On June 30, 2001, the FASB finalized SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 addresses financial accounting and reporting
for acquired goodwill and other intangible assets. With the adoption of SFAS No.
142, goodwill is no longer subject to amortization, rather it will be subject to
at least an annual assessment for impairment by applying a fair value based
test. The Company is required to adopt the provisions of this pronouncement no
later than the beginning of fiscal 2003. However, goodwill and other intangible
assets acquired after June 30, 2001, are subject immediately to the
nonamortization and amortization provisions of this statement.
The Company is currently evaluating the impact of SFAS No. 142. Goodwill
amortization (pre-tax) was $18.8 million and $16.3 million for the first nine
months of fiscal 2001 and 2000, respectively.
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.
-20-
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:
unfavorable economic conditions, increased operating costs, shortages of
qualified personnel, costly compliance with governmental regulations, currency
risks and other risks associated with international markets, risks associated
with acquisitions, competition, decline in attendance at client facilities,
unpredictability of sales and expenses due to contract terms, high leverage,
claims relating to the provision of food services, liability associated with
non-compliance with governmental regulations, including regulations pertaining
to food services, the environment and childcare service, seasonality and adverse
publicity concerning incidents at childcare centers.
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
Items 1 through 6 are not applicable.
- -------------------------------------
-21-
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 13, 2001 /s/John M. Lafferty
----------------------------------
John M. Lafferty
Senior Vice President, Controller
and Chief Accounting Officer
-22-