UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 30, 1994 Commission file number 1-8827
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ARAMARK CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 23-2319139
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
The ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
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(Address of principal executive offices) (Zip Code)
(215) 238-3000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class A common stock outstanding at January 27, 1995: 2,120,764 shares
Class B common stock outstanding at January 27, 1995: 26,222,690 shares
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
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December 30, September 30,
1994 1994
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Current Assets:
Cash and cash equivalents $ 18,322 $ 27,426
Short-term investments held by the
Canadian subsidiary -- 16,203
Receivables 441,342 433,550
Inventories, at lower of cost or market 267,729 256,950
Prepayments and other current assets 129,781 69,865
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Total current assets 857,174 803,994
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Property and Equipment, net 688,052 681,907
Goodwill 447,600 438,725
Other Assets 321,930 197,324
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$2,314,756 $2,121,950
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current Liabilities:
Current maturities of long-term borrowings $ 10,578 $ 9,391
Accounts payable 341,766 372,908
Accrued expenses and other liabilities 409,657 374,902
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Total current liabilities 762,001 757,201
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Long-Term Borrowings 1,161,101 981,949
Deferred Income Taxes and Other Noncurrent Liabilities 171,177 168,638
Minority Interest 192 10,812
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 21,612 20,791
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Series C preferred stock, redemption value $1,000 16,666 16,949
Class A common stock, par value $.01 21 21
Class B common stock, par value $.01 244 243
Capital surplus 47 --
Earnings retained for use in the business 199,083 178,587
Cumulative translation adjustment 4,224 7,550
Impact of potential repurchase feature of
common stock (21,612) (20,791)
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Total 198,673 182,559
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$ 2,314,756 $ 2,121,950
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
For the Three Months Ended
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December 30, December 31,
1994 1993
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Revenues $ 1,380,516 $ 1,292,020
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Costs and Expenses:
Cost of services provided 1,264,665 1,179,726
Depreciation and amortization 37,013 34,381
Selling and general corporate expenses 18,629 16,403
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1,320,307 1,230,510
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Operating income 60,209 61,510
Interest Expense, net 25,433 29,481
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Income before income taxes 34,776 32,029
Provision for Income Taxes 14,064 13,140
Minority Interest (41) 502
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Income before Cumulative Effect of Change
in Accounting for Income Taxes and
Extraordinary Item 20,753 18,387
Cumulative Effect of Change in Accounting
for Income Taxes -- 1,277
Extraordinary Item Due to Early Extinguishment of Debt
(net of income taxes of $468) -- 702
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Net income $ 20,753 $ 16,408
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Earnings Per Share:
Income before cumulative effect of change
in accounting for income taxes and
extraordinary item $.42 $.36
Net income $.42 $.32
==== ====
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
For the Three Months Ended
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December 30, December 31,
1994 1993
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Cash flows from operating activities:
Net income $ 20,753 $ 16,408
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 37,013 34,381
Income taxes deferred (1,233) (1,067)
Minority interest (41) 502
Extraordinary item -- 702
Cumulative effect of accounting change -- 1,277
Changes in noncash working capital (79,340) (62,261)
Other operating activities (5,367) (2,189)
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Net cash used in operating activities (28,215) (12,247)
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Cash flows from investing activities:
Purchases of property and equipment (38,624) (28,213)
Disposals of property and equipment 2,923 4,209
Sale of investments 16,203 6,194
Purchase of subsidiary stock (19,758) --
Acquisition of certain businesses (115,680) (3,472)
Other investing activities 2,306 (814)
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Net cash used in investing activities (152,630) (22,096)
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Cash flows from financing activities:
Proceeds from additional long-term borrowings 179,541 49,163
Payment of long-term borrowings including premiums (6,202) (20,666)
Other financing activities (1,598) (262)
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Net cash provided by financing activities 171,741 28,235
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Decrease in cash and cash equivalents (9,104) (6,108)
Cash and cash equivalents, beginning of period 27,426 27,801
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Cash and cash equivalents, end of period $ 18,322 $ 21,693
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
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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) ACQUISITIONS:
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During the first quarter, the Company acquired Harry M. Stevens, a
provider of food and support services to stadiums and arenas, and
Rainier News a magazine distribution company, for approximately $130
million in cash, notes and preferred stock. Due to the timing of the
Harry M. Stevens acquisition, an appraisal of the assets acquired is not
yet completed and, accordingly, the investment is included in the
condensed consolidated balance sheet as "Other Assets."
The Company has a definitive agreement to purchase the TW Recreational
Services subsidiary of Flagstar Companies, Inc. for approximately $130
million. The acquisition is subject to certain third party approval.
During the first quarter, the Company completed the buyback of the
remaining minority interest of its Canadian subsidiary for cash
consideration of $19.8 million.
(3) NEW ACCOUNTING PRONOUNCEMENTS:
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During the first quarter of fiscal 1995, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) 112,
"Employers Accounting for Postemployment Benefits", SFAS 114,
"Accounting by Creditors for Impairment of a Loan", and SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
adoption of these standards was not material to the Company's
consolidated financial statements.
(4) DEBT:
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During the first quarter of fiscal 1995, the Company increased the
borrowing limits under its credit facility to $1 billion from $800
million. The additional borrowing capacity is reduced on a pro-rata
basis over the existing quarterly commitment reduction schedule.
(5) CAPITAL STOCK:
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During the first quarter of fiscal 1995, pursuant to the ARAMARK
Ownership Program, employees purchased 327,660 shares or $1.7 million of
Class B Common Stock for $0.8 million cash plus $0.9 million of deferred
payment obligations.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(6) SUPPLEMENTAL CASH FLOW INFORMATION:
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The Company made interest payments of $24.7 million and $20.6 million
and income tax payments of $14.3 million and $9.5 million during the
first quarter of fiscal 1995 and 1994, respectively. During the first
quarter of fiscal 1995, the Company purchased $2.8 million of its Class
B Common Stock, issuing $1.3 million in subordinated installment notes
as partial consideration, and contributed $1.3 million of Class A Common
Stock to its employee benefit plans. In connection with the acquisitions
described in Note 2, the Company issued promissory notes and preferred
stock of a subsidiary totaling $9 million.
(7) ARAMARK SERVICES, INC. AND SUBSIDIARIES:
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The following financial information has been summarized from the
separate consolidated financial statements of ARAMARK Services, Inc. (a
wholly owned subsidiary of ARAMARK Corporation) and the subsidiaries
which it currently owns. ARAMARK Services, Inc. is the borrower under
the revolving credit facility and certain other senior debt agreements
and incurs the interest expense thereunder. This interest expense is
only partially allocated to all of the other subsidiaries of ARAMARK
Corporation.
For the Three Months Ended
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December 30, December 31,
1994 1993
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(in millions)
Revenues $753.9 $715.5
Cost of services provided 705.1 670.0
Income before cumulative effect of
change in accounting for income
taxes 9.8 5.4
Cumulative effect of change in
accounting for income taxes -- 0.3
Net income 9.8 5.1
December 30, September 30,
1994 1994
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(in millions)
Current assets $ 350.4 $ 355.8
Noncurrent assets 1,346.1 1,223.8
Current liabilities 444.0 398.8
Noncurrent liabilities 1,171.2 1,093.6
Minority interest 0.2 10.8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
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Overview
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Revenues of $1.4 billion for the first quarter of fiscal 1995 were 7% higher
than the prior year period. First quarter operating income of $60.2 million was
$1.3 million or 2% lower than the prior year period. The decrease is primarily
attributable to the National Hockey League and Major League Baseball strikes in
the United States and Canada, partially offset by improved operating earnings in
certain business segments as discussed below. In addition, the Company incurred
expenses in connection with the change in corporate identity. It is estimated
that had the strikes not occurred, the Company's fiscal 1995 first quarter
revenues, operating income and net income would have been 1%, 3% and 6% higher,
respectively.
The Company's operating income margin decreased to 4.4% in 1995 from 4.8% in
1994. The decrease in margin is due primarily to the baseball and hockey strikes
and increased general corporate expenses referred to above.
First quarter interest expense declined $4.0 million or 14% due primarily to the
favorable impact of refinancing certain of the Company's subordinated debentures
during 1994. Fiscal 1995 first quarter income before cumulative effect and
extraordinary item was $20.7 million or a 13% increase over the prior year first
quarter.
Segment Results
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Food, Leisure and Support Services segment revenues increased 4% due primarily
to new accounts and increased volume at both domestic and international food
businesses, partially offset by the impact of the National Hockey League and
Major League Baseball strikes. Uniform Services segment revenues increased 14%,
reflecting increased volume at uniform rental operations and WearGuard. Health &
Education segment revenues increased 12% resulting from new contracts at
Spectrum Healthcare Services and continued enrollment and tuition increases at
Children's World. Distributive segment revenues increased 4% from increased unit
volume and the effect of the first quarter acquisition.
Food, Leisure and Support Services segment operating income increased 1% as a
result of increased revenues in the domestic food businesses, partially offset
by the impact of the hockey and baseball strikes and continuing start-up
problems of the Spanish foodservice business. Had the strikes not occurred, it
is estimated that Food, Leisure and Support segment fiscal 1995 first quarter
operating income would have been 8% higher. Uniform Services operating income
increased 7% due to the higher volume, partially offset by increases in
merchandise and other operating costs. Health & Education segment operating
income decreased 3%, due to new contract start-up costs and increased operating
costs at Spectrum Healthcare Services, partially offset by volume related
improvements in operating income at Children's World. Distributive segment
operating income decreased 11% due to higher operating expenses.
On January 11, 1995, the National Hockey League entered into a new labor accord.
A shortened hockey season began on January 20, 1995. As of February 10, 1995,
the Major League Baseball strike continues. Management cannot currently predict
the impact the strike may have on fiscal 1995 operating results if the strike
continues into the 1995 baseball season.
FINANCIAL CONDITION
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The Company's indebtedness increased $180 million during the first quarter of
fiscal 1995, principally to finance acquisitions (see note 2 to the condensed
consolidated financial statements), capital expenditures and a seasonal increase
in working capital. During the first quarter, the Company increased its
borrowing limit under its credit facility to $1 billion (see note 4). The
Company currently has approximately $350 million of unused committed credit
availability under this facility, which management believes, along with cash
flows from operations, is sufficient to fund operating requirements and the
potential acquisition (see note 2).
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PART II - OTHER INFORMATION
Items 1 through 4 are not applicable.
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Item 5: None
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Item 6: Exhibits and Reports on Form 8-K
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(a) Exhibit 11 - Computation of Fully Diluted Earnings Per Share
(b) None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARAMARK CORPORATION
February 10, 1995 s/Alan J. Griffith
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Alan J. Griffith
Controller and Chief Accounting Officer
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