1995 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
|X| Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 29, 1995 or
| | Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to
__________
Commission file number: 1-8827
ARAMARK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2319139
(State of incorporation) (I.R.S. Employer Identification No.)
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
(Address of principal executive offices)
Telephone Number: 215-238-3000
Securities registered pursuant to Section 12(b) of the Act:
Name Of Each Exchange
Title Of Each Class On Which Registered
------------------------------------ -----------------------------
13% Subordinated Debentures Due 1997 Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, $.01 par value
Series C Preferred Stock, $1.00 par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Aggregate market value of the voting stock held by nonaffiliates: $612 million
Common stock outstanding at October 27, 1995:
Class A Common stock 2,182,300 shares
Class B Common stock 22,667,009 shares
Documents incorporated by reference: Portions of the registrant's Proxy
Statement for the 1995 annual meeting of stockholders are incorporated by
reference in Part III of this Report.
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As used herein, references to the "Company" shall mean ARAMARK Corporation
and its subsidiaries (including ARAMARK Services, Inc.) unless the context
otherwise requires. References to "ARAMARK" shall mean ARAMARK Services, Inc.
and its subsidiaries unless the context otherwise requires.
PART I
Item 1. Business
Description of Business Segments
The Company is engaged in providing or managing services, including food,
leisure and support services, uniform services, health and education services
and distributive services. ARAMARK was organized in 1959 in Delaware. The
Company was formed in September 1984 by the management of ARAMARK and acquired
ARAMARK in December 1984 through a merger.
The Company provides most of its services in the United States. The
Company also conducts operations, primarily the management of food services, in
Belgium, Canada, the Czech Republic, Germany, Hungary, Japan, Korea, Mexico,
Spain and the United Kingdom.
Financial information by business segment and geographic area appears in
note 11 to the consolidated financial statements. The businesses of the Company
have been grouped into the segments described below.
Food, Leisure & Support Services
The Company provides food, refreshment, specialized dietary and support
services (including maintenance and housekeeping) to businesses, and to
educational, governmental and medical institutions. Food, lodging and
merchandise services are also provided at leisure facilities such as convention
centers, stadiums, parks, arenas, race tracks and other recreational facilities.
Food, refreshment, specialized dietary and support services are operated
at customer locations generally under contracts of indefinite duration which may
be subject to termination by either party. However, food and related services at
leisure facilities generally are for fixed contract terms well in excess of one
year. The Company's food, leisure and support services are performed under
various financial arrangements including a management-fee basis and a
profit-and-loss basis. See note 2 to the consolidated financial statements.
At most customer food service locations, the equipment and facilities used
in providing these services are owned by the customer. Vending machines and
related equipment, however, are generally owned by the Company. At most leisure
services customer locations, the equipment is owned by the Company.
1
There is a high level of competition in the food, leisure and support
services business from local, regional and national companies as well as from
businesses and institutions which operate their own services. This competition
takes a number of different forms, including pricing, maintaining high food and
service standards, and innovative approaches to marketing with a strong emphasis
on securing and retaining customer accounts. The Company believes that it is a
significant provider of food, leisure and support services in the United States,
Spain, Germany, Belgium and Canada, but that its volume of such business is
small in relation to the total market. See note 10 to the consolidated financial
statements for information relating to the seasonal aspects of this business
segment.
Uniform Services
The Company rents, cleans, maintains and delivers personalized work
apparel and other textile items for customers throughout the United States on a
contract basis. Also provided are walk-off mats, cleaning cloths, disposable
towels, and other environmental control items.
The Company also operates one of the largest direct marketers of
personalized work clothing, uniforms, casual apparel and related accessories,
primarily in the United States.
Service contracts for the rental and laundering of work apparel and other
textile items are for well in excess of one year and typically for an initial
term of five years. Generally, the direct marketing business is conducted under
an invoice arrangement with customers.
The uniform rental services business is highly competitive in the areas in
which the Company operates, with numerous competitors in each major operating
area. Although no one uniform rental services company is predominant in this
industry, the Company believes that it is a significant competitor.
Competition in the direct marketing of work clothing and related items is
from numerous retailers and other direct marketers at local, regional and
national levels. In this market, while the Company is a significant competitor,
the Company's volume of sales is small in relation to the total market.
The significant competitive factors in the uniform services business are
the quality of services provided to customers and the prices charged for such
services.
During the year the Company acquired certain uniform rental services
businesses and also acquired a direct marketing public safety equipment
business. See note 2 to the consolidated financial statements.
Health & Education Services
The Company provides contract management services (including physician
staffing and other specialized services) to hospital emergency and other
departments and to military healthcare facilities and clinics, as well as
contract medical services to correctional institutions and to CHAMPUS
beneficiaries. The Company also provides child care services primarily at
Company-operated facilities, and to a lesser extent on customer sites and in
before and after school programs.
2
Revenues from emergency and primary care management services are received
generally from the hospitals and clinics at which the care is provided under
contracts generally with a term of one or more years and from third party
payors. Revenues from medical services to correctional institutions are received
directly from governmental authorities under contracts with terms of one or more
years.
Child care services are provided to and are primarily paid for on a weekly
basis directly by individual families under short-term agreements. The Company
leases a significant number of its child care facilities under long-term
arrangements.
The Company believes it is a significant provider of emergency care
management services, medical services to correctional institutions and CHAMPUS
beneficiaries, and child care services in the United States.
Competition in all phases of this business segment is from both national
and local providers of health and education services as well as from private and
public institutions which provide for their own health and education services.
Significant competitive factors in the Company's health and education services
businesses are the quality of care, reputation, physical appearance of
facilities, the types of programs offered to the users of these services and the
prices charged for such services.
Distributive Services
The Company provides wholesale distribution of magazines, books and other
printed matter. These materials are purchased from national distributors and
publishers and are delivered to retail locations patronized by the general
public.
Distribution services are generally rendered under short-term agreements,
which ordinarily permit the return of unsold magazines and books with full
credit being given to the retailer and with the Company in turn receiving full
credit from its suppliers.
Competition in the distribution of books and periodicals exists primarily
from magazine and book subscriptions, direct distribution by publishers to
retailers and from other wholesale distributors. While the Company's volume of
business in the distribution of books and periodicals is small in relation to
the total market, the Company believes the volume of its wholesale periodical
and book distribution units makes it a significant wholesale distributor.
During the year the Company acquired certain wholesale magazine and book
distribution businesses. See note 2 to the consolidated financial statements.
Employees
The Company employs approximately 140,000 persons, both full and part
time, including approximately 39,000 employees outside the United States.
Approximately 28,000 employees in the United States are represented by various
labor unions.
3
Item 2. Properties
The principal property and equipment of the Company are its service
equipment and fixtures (including vehicles) and real estate.
The service equipment and fixtures include vending, commissary, warehouse
and janitorial and maintenance equipment used primarily by the food, leisure and
support services segment, and laundry equipment used by the uniform services
segment. The vehicles include automobiles and delivery trucks used in the food,
leisure and support services segment and in the distributive services and
uniform services segments. The service equipment and fixtures represent 62% of
the net book value of all fixed assets as of September 29, 1995.
The Company's real estate is comprised of child care facilities, of which
a significant number are held under long-term operating leases. The Company also
maintains other real estate and leasehold improvements which it uses in its
distributive services and uniform services segments and in commissary and
distribution operations in its food, leisure and support services segment.
Additional information concerning property and equipment (including other real
estate leases and noncancelable lease commitments) is included in notes 1 and 8
to the consolidated financial statements. No individual parcel of real estate
owned or leased is of material significance to the Company's total assets.
See note 11 to the consolidated financial statements for information
concerning the identifiable assets of the Company's business segments.
Item 3. Legal Proceedings
The Company and its subsidiaries are not parties to any lawsuits (other
than ordinary routine litigation incidental to its business) which are material
to the Company's business or financial condition. See note 8 to the consolidated
financial statements for additional information concerning legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
4
Item 4A. Directors and Executive Officers of the Registrant
Directors:
Name Principal Occupation
- ---- --------------------
Joseph Neubauer.......................................Chairman and Chief Executive Officer
ARAMARK Corporation
Robert J. Callander...................................Executive-in-Residence, Columbia University
Retired Vice Chairman, Chemical Banking Corporation
Alan K. Campbell......................................Retired Executive Vice President and
Vice Chairman, ARAMARK Corporation
Ronald R. Davenport...................................Chairman, Sheridan Broadcasting Corporation
Philip L. Defliese....................................Professor Emeritus, Columbia University
Retired Chairman, Coopers & Lybrand
Lee F. Driscoll, Jr...................................Corporate Director
Mitchell S. Fromstein.................................Chairman, President and Chief Executive Officer
Manpower, Inc.
Edward G. Jordan......................................Former Chairman and Chief Executive Officer
Consolidated Rail Corporation
Thomas H. Kean........................................President, Drew University
Former Governor of New Jersey
Reynold C. MacDonald..................................Retired Chairman, Acme Metals Incorporated
James E. Preston......................................Chairman, President and Chief Executive Officer
Avon Products, Inc.
Officers:
Name (Age as of November 1, 1995) Office Held Officer Since
- ----------------------------------- ------------ -------------
Joseph Neubauer (54)..................................Chairman, President...................................1979
and Director
Julian L. Carr, Jr. (49)..............................Executive Vice President..............................1988
James E. Ksansnak (55)................................Executive Vice President
and Chief Financial Officer...........................1986
William Leonard (47)..................................Executive Vice President..............................1992
Martin W. Spector (57)................................Executive Vice President
General Counsel and Secretary.........................1976
L. Frederick Sutherland (43)..........................Executive Vice President..............................1983
Brian J. Gail (48)....................................Senior Vice President.................................1994
Brian G. Mulvaney (39)................................Senior Vice President ................................1993
Alan J. Griffith (41).................................Vice President, Controller and
Chief Accounting Officer..............................1994
Dean E. Hill (44).....................................Vice President........................................1993
John P. Kallelis (57).................................Vice President........................................1982
Michael R. Murphy (38)................................Director of Audit and Controls........................1995
Melvin M. Mahoney (47)................................Treasurer.............................................1985
Joan C. Mazzotti (45).................................Assistant Secretary and
Associate General Counsel.............................1994
Donald S. Morton (47).................................Assistant Secretary and
Associate General Counsel.............................1985
Richard M. Thon (40)..................................Assistant Treasurer...................................1994
5
Except as set forth below, the principal occupation of each executive officer
throughout the past five years has been the performance of the functions of the
corporate offices shown above.
Mr. Carr was vice president of the Company from November 1988 until
February 1991 when he was elected to his current position.
Mr. Ksansnak was senior vice president of the Company from May 1986 until
February 1991 when he was elected to his current position.
Mr. Leonard was president of ARAMARK Uniform Services from 1984 until March
1992 when he was elected to his current position.
Mr. Sutherland was vice president and treasurer of the Company from 1983
until February 1991 when he was elected senior vice president. In May 1993 he
was elected to his current position.
Mr. Gail was elected senior vice president of the Company in August 1994.
Prior to joining the Company in May 1994, he was president and chief executive
officer and prior thereto senior vice president of FCB - Philadelphia.
Mr. Mulvaney was vice president of ARAMARK Uniform Services from 1988 until
February 1993 when he was elected vice president of the Company. In February,
1995 he was elected to his current position.
Mr. Griffith was elected vice president of the Company in February 1995. He
was assistant controller of the Company from May 1985 until November 1991 when
he became the director of corporate planning. In December 1993 he became
controller and chief accounting officer.
Mr. Hill was elected vice president of the Company in January 1993. Prior
to joining the Company in 1993, he was vice president of Farley Industries, Inc.
and Fruit of the Loom, Inc.
Mr. Murphy became director of audit and controls in September 1995. He
joined the Company as senior audit manager in January 1993. Prior to that time
he was a senior audit manager with Arthur Andersen LLP.
Mr. Mahoney was elected treasurer of the Company in February 1991. He had
been assistant treasurer since 1985.
Ms. Mazzotti was elected assistant secretary in 1994. She has been with the
Company since 1977 as assistant and then associate general counsel.
Mr. Thon was elected assistant treasurer of the Company in August 1994.
Previously he held various treasury analyst positions since joining the Company
in 1987.
6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There are currently approximately 1,300 record holders of Class B common
stock of the Company, all of whom are employees or directors of the Company (or
members of their families or trusts created by them). There are currently 135
record holders of the Class A common stock of the Company, all of whom are
institutional investors, Company benefit plans or individuals not employed by
the Company.
There is no established public trading market for the common stock of the
Company. However, employees of the Company are able to sell shares of common
stock through various programs maintained by the Company. See note 7 to the
consolidated financial statements for information regarding the Company's
shareholders' agreement.
Under the Company's primary credit agreement, there are various covenants
that restrict the amount of cash dividends that may be paid to the holders of
outstanding common stock of the Company. See note 4 to the consolidated
financial statements.
7
Item 6. Selected Financial Data
The following table presents summary consolidated financial data for the
Company. The following data should be read in conjunction with the consolidated
financial statements and the related notes thereto and Management's Discussion
and Analysis of Results of Operations and Financial Condition, each included
elsewhere herein.
ARAMARK Corporation and Subsidiaries
--------------------------------------------------------------------
Fiscal Year Ended on or near
September 30,
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1995 1994 1993 1992(1) 1991
-------- -------- -------- -------- --------
(In millions, except per share amounts and ratios)
Income Statement Data:
Revenues.................................... $5,600.6 $5,161.6 $4,890.7 $4,865.3 $4,774.4
Earnings before interest
and income taxes (2)....................... 277.0 272.0 268.9 261.6 260.2
Interest expense, net....................... 109.4 108.5 125.7 137.9 142.3
Income before extraordinary item
and cumulative effect of
change in accounting for
income taxes (3)........................... 100.2 95.0 84.3 70.7 64.2
Net income.................................. 93.5 86.1 77.1 67.4 64.2
Earnings per share: (4)
Income before extraordinary item
and cumulative effect
of change in accounting for
income taxes (3).......................... $2.01 $1.87 $1.64 $1.40 $1.23
Net income................................. $1.88 $1.69 $1.49 $1.33 $1.23
Ratio of earnings to fixed charges (5)...... 2.1x 2.1x 1.9x 1.7x 1.6x
Balance Sheet Data (at period end):
Total assets................................ $2,599.7 $2,122.0 $2,040.6 $2,005.0 $2,002.6
Long-term borrowings: (6)
Senior..................................... 1,109.4 691.5 533.8 629.5 722.1
Subordinated............................... 165.4 290.4 474.9 413.5 415.1
Common stock subject to potential
repurchase (7)............................. 19.1 20.8 21.7 20.4 17.7
Shareholders' equity........................ 252.3 182.6 124.1 103.8 40.6
- ----------
(1) Fiscal 1992 is a fifty-three week period. See note 1 to the consolidated
financial statements.
(2) See note 2 to the consolidated financial statements.
(3) See notes 3 and 6 to the consolidated financial statements.
(4) Based on weighted average shares of common stock outstanding for
all periods. See note 1 to the consolidated financial statements.
(5) For the purpose of determining the ratio of earnings to fixed charges,
earnings include pre-tax income plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest on all indebtedness
(including capitalized interest) plus that portion of operating lease
rentals representative of the interest factor (deemed to be one-third of
operating lease rentals).
(6) See note 4 to the consolidated financial statements.
(7) See note 7 to the consolidated financial statements.
8
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULTS OF OPERATIONS
Fiscal 1995 Compared to Fiscal 1994
Overview. Revenues for the fiscal year ended September 29, 1995 were $5.6
billion, a 9% increase over fiscal 1994. Operating income of $277 million
increased 4% compared to the prior year. Revenues increased over the prior year
in all business segments and, with the exception of Health and Education
Services, all business segments posted year-over-year improvements in operating
earnings. Fiscal 1995 consolidated results were adversely impacted by the
National Hockey League strike and Major League Baseball situation in the United
States and Canada. The hockey strike, which ended in January 1995, resulted in a
season that was approximately half the normal schedule. The baseball strike,
which began in August 1994 and also adversely impacted fiscal 1994 results,
ended in April 1995 resulting in a shortened 1995 season. A decline in average
attendance from prior year was experienced after the resumption of the season.
The baseball situation is still unsettled and may impact fiscal 1996. Had the
hockey strike and baseball situation not occurred, management estimates that
consolidated operating income and income before extraordinary items would have
been approximately 5% and 8% higher in fiscal 1995, and 3% and 5% higher in
fiscal 1994, respectively.
The Company's operating income margin, excluding "other income" of $5.8
million in 1994, decreased to 4.9% from 5.1%. The decrease in margin is due
primarily to the impact of the baseball and hockey situation described above.
Interest expense increased approximately $1.0 million or 1%, due primarily
to increased debt levels to finance acquisitions and increased interest rates,
largely offset by the impact of refinancing certain of the Company's
indebtedness. See notes 2 and 3 to the consolidated financial statements. Fiscal
1995 and 1994 net income include an extraordinary item for early extinguishment
of debt of $6.7 million and $7.7 million, respectively, as described in note 3
to the consolidated financial statements. Fiscal 1994 net income also included a
charge of $1.3 million related to the cumulative effect of adopting Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. See note 6
to the consolidated financial statements.
Segment Results. Food, Leisure and Support Services segment revenues were
8% higher than the prior year due to new accounts and increased volume at both
domestic and international food businesses plus the impact of the current year
acquisition, partially offset by the effects of the hockey and baseball
situation (see notes 2 and 11 to the consolidated financial statements). Uniform
Services segment revenues increased 10% as a result of increased volume at both
the uniform rental and direct marketing businesses. Health and Education
Services segment revenues increased 10% as a result of new contracts at
correctional institutions and enrollment growth and pricing at Children's World.
Revenue for the Distributive Services segment increased 10% due primarily to the
current year acquisitions. See notes 2 and 11 to the consolidated financial
statements.
9
Operating income for the Food, Leisure and Support Services segment
increased 6%. Increased earnings were due to revenue growth and improved margins
in the domestic food business plus the current year acquisition. However,
earnings were adversely impacted by the hockey and baseball situation
described above (see note 11 to the consolidated financial statements). Fiscal
1994 operating income for the Food & Support Services segment also included the
$5.8 million gain on the sale of stock of an affiliate. Uniform Services segment
operating income increased 7% as a result of revenue growth, reduced by higher
merchandise and other operating costs. Operating income for the Health and
Education Services segment decreased 23% from the prior year due primarily to
higher operating costs and an increase in insurance reserves in the healthcare
services business (see note 11 to the consolidated financial statements),
partially offset by revenue related increases at Children's World. Distributive
Services segment operating income increased 3%, with revenue related increases
being partially offset by increased operating expenses.
Fiscal 1994 Compared to Fiscal 1993
Overview. Revenues for the fiscal year ended September 30, 1994 were $5.2
billion, a 6% increase over fiscal 1993. Earnings before interest and taxes of
$272 million increased 1% compared to the prior year. Each of the Company's
business segments reflected improvements in operating earnings. However, the
1994 results were adversely impacted by the Major League Baseball strike in the
United States and Canada and costs associated with several corporate development
and strategic initiatives, including costs related to a change in corporate
identity. See note 11 to the consolidated financial statements. Earnings before
interest and taxes for both fiscal 1994 and fiscal 1993 include other income of
$5.8 million and $5.0 million, respectively, and in fiscal 1994 a gain of $4.7
million on the issuance of stock by an affiliate. See note 2 to the consolidated
financial statements.
The Company's operating income margin decreased to 5.2% from 5.5%. The
decrease in margin is due primarily to the baseball strike and increased general
corporate expenses referred to above.
Interest expense declined $17.2 million or 14%, due primarily to lower
borrowing levels and the impact of refinancing certain of the Company's
indebtedness. Fiscal 1994 and 1993 net income include an extraordinary item for
the early extinguishment of debt of $7.7 million and $7.2 million, respectively,
as described in note 3 to the consolidated financial statements. Fiscal 1994 net
income also includes a charge of $1.3 million related to the cumulative effect
of adopting Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. See note 6 to the consolidated financial statements.
Segment Results. Food, Leisure and Support Services segment revenues were
4% greater than prior year. Increases related to new accounts, primarily in the
U.S. business and education markets, and an acquisition of a company in Spain
were partially offset by the effects of a divestiture in late fiscal 1993 and
the baseball strike in fiscal 1994. See notes 2 and 11 to the consolidated
financial statements. Uniform Services segment revenues increased 11% as a
result of increased volume in both the uniform rental and direct marketing
businesses. Health and Education Services segment revenues increased 9% as a
result of new contracts at correctional institutions and hospitals and continued
enrollment growth in the child care services business. Revenues for the
Distributive Services segment increased 3% due to increased volume.
10
Operating income for the Food, Leisure and Support Services segment
increased 1% over the prior year. Increased earnings in the U.S. business dining
market and the gain from the sale of stock of an affiliate were offset by the
impact of the baseball strike, startup costs of new contracts, and continued
sluggish economic conditions in selected European markets. Depreciation and
amortization in this segment increased by $9 million due to acquisition related
amortization and depreciation on recent capital projects. Uniform Services
operating income increased 9% as a result of the revenue growth. Operating
income for the Health and Education Services segment increased 11% due to
revenue growth plus improvements in operating efficiency due to leveraging of
overhead costs. Distributive Services operating income increased 7%, primarily
due to increased volume with costs remaining relatively constant.
FINANCIAL CONDITION AND LIQUIDITY
Cash flows generated from operating activities increased 23% or $52
million from the prior year. Debt increased by $292 million from the prior year
due primarily to acquisition activity. See note 2 to the consolidated financial
statements. The Company expects to continue to fund capital expenditures,
acquisitions and other liquidity needs from cash provided by operating
activities, normal disposals of property and equipment and borrowings available
under its credit facility. As of September 29, 1995, the Company has capital
commitments of approximately $47 million related to several long-term concession
contracts at stadiums and arenas.
During fiscal 1995, the Company amended its credit facility, increasing
the maximum borrowing amount from $800 million to $1 billion. See note 4 to the
consolidated financial statements. Currently, the Company has approximately $375
million of unused committed credit availability under its credit facility,
including the availability under a C$73 million Canadian credit facility which
was established during fiscal 1995 to finance the purchase of the remaining
minority interest of its Canadian subsidiary (see note 2 to the consolidated
financial statements). Also, during fiscal 1995, the Company issued $150 million
of 8.15% notes and $100 million of 8% notes which were used primarily to
refinance the redemption of its 12% subordinated debentures and 10.25% senior
note. See note 3 to the consolidated financial statements.
During fiscal 1995, the Company repurchased $2 million of its Series C
Preferred Stock and $5 million of its Class A Common Stock. The Company also
repurchased $44 million of its Class B Common Stock, with $23 million of
subordinated installment notes issued as partial consideration. Additionally,
the Company issued $10 million of Class B Common Stock to eligible employees,
primarily through the exercise of installment stock purchase opportunities.
11
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Schedules at page S-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Items 10, 11, 12, and 13 of Part III are incorporated by reference to the
registrant's Proxy Statement for its 1995 Annual Stockholders' Meeting to be
filed with the Commission pursuant to Regulation 14A (except for the stock price
performance graph and the committee report on executive compensation in the
Company's Proxy Statement).
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to Financial Statements
See Index to Financial Statements and Schedules at page S-1.
(b) Reports on Form 8-K
None.
(c) Exhibits Required by Item 601 of Regulation S-K
See Index to Exhibits.
(d) Financial Statement Schedules
See Index to Financial Statements and Schedules at page S-1.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ARAMARK CORPORATION
By: Alan J. Griffith
--------------------------
Alan J. Griffith
Vice President, Controller
and Chief Accounting Officer
November 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on November 22, 1995.
Signature Title
- --------- -----
Joseph Neubauer Chairman and President and Director
- -------------------------- (Principal Executive Officer)
Joseph Neubauer
James E. Ksansnak Executive Vice President
- -------------------------- (Principal Financial Officer)
James E. Ksansnak
Alan J. Griffith Vice President, Controller
- -------------------------- and Chief Accounting Officer
Alan J. Griffith (Principal Accounting Officer)
Robert J. Callander
Alan K. Campbell
Ronald R. Davenport
Philip L. Defliese
Lee F. Driscoll, Jr. Directors
Mitchell S. Fromstein
Edward G. Jordan
Thomas H. Kean
Reynold C. MacDonald
James E. Preston
Martin W. Spector
- --------------------------
Martin W. Spector
Attorney-in-Fact
13
ARAMARK CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Report of Independent Public Accountants S-2
Report of Chartered Accountants S-3
Consolidated Balance Sheets:
As of September 29, 1995 and September 30, 1994 S-4
Consolidated Statements of Income:
Fiscal Years 1995, 1994 and 1993 S-6
Consolidated Statements of Cash Flows:
Fiscal Years 1995, 1994 and 1993 S-7
Consolidated Statements of Shareholders' Equity:
Fiscal Years 1995, 1994 and 1993 S-8
Notes to Consolidated Financial Statements S-11
Consolidated Supporting Schedules Filed:
Schedule
Number
- --------
I Condensed Financial Information of Registrant S-25
II Valuation and Qualifying Accounts and Reserves S-29
All other schedules are omitted because they are not applicable, not
required, or the information required to be set forth therein is included in the
consolidated financial statements or in the notes thereto.
S-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ARAMARK Corporation:
We have audited the accompanying consolidated balance sheets of ARAMARK
Corporation (a Delaware corporation) and subsidiaries as of September 29, 1995
and September 30, 1994, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended September 29, 1995. These consolidated financial statements and the
schedules referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedules based on our audits. We did not audit the financial
statements of Versa Services Ltd., the Company's Canadian subsidiary, prior to
fiscal 1995, which statements reflect assets representing 3.6% of consolidated
assets as of September 30, 1994, and revenues representing 5.6% and 6.3% of
consolidated revenues for the fiscal years 1994 and 1993, respectively. Those
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to the amounts included for Versa
Services Ltd. for fiscal years 1994 and 1993, is based solely on the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors for 1994
and 1993, the financial statements referred to above present fairly, in all
material respects, the financial position of ARAMARK Corporation and
subsidiaries as of September 29, 1995 and September 30, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended September 29, 1995, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
As discussed in Note 6 to the consolidated financial statements, ARAMARK
Corporation changed its method of accounting for income taxes in fiscal 1994.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
November 13, 1995
S-2
REPORT OF CHARTERED ACCOUNTANTS
To The Directors of Versa Services Ltd.:
We have audited the consolidated balance sheets of Versa Services Ltd. as at
September 28, 1994 and September 29, 1993 and the consolidated statements of
income and retained earnings and cash flows for the fifty-two week periods then
ended (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at September 28,
1994 and September 29, 1993, and the results of its operations and the changes
in its financial position for the fifty-two week periods then ended in
accordance with accounting principles generally accepted in Canada.
Mississauga, Canada ERNST & YOUNG
November 16, 1994 Chartered Accountants
S-3
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 29, 1995 and September 30, 1994
(dollars in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 23,082 $ 27,426
Short-term investments held by the
Canadian subsidiary - 16,203
Receivables (less allowances: 1995, $15,096;
1994, $12,423) 488,920 433,550
Inventories 285,510 256,950
Prepayments and other current assets 64,772 69,865
- ------------------------------------------------------------------------------------------------------------------
Total current assets 862,284 803,994
- ------------------------------------------------------------------------------------------------------------------
Property and Equipment, at Cost:
Land, buildings and improvements 411,993 379,671
Service equipment and fixtures 1,038,958 888,134
Leased property under capital leases 10,213 8,204
- ------------------------------------------------------------------------------------------------------------------
1,461,164 1,276,009
Less-Accumulated depreciation 705,082 594,102
- ------------------------------------------------------------------------------------------------------------------
756,082 681,907
- ------------------------------------------------------------------------------------------------------------------
Goodwill 506,193 438,725
- ------------------------------------------------------------------------------------------------------------------
Other Assets (including $208 million of investments
in acquisitions made at yearend 1995) 475,127 197,324
- ------------------------------------------------------------------------------------------------------------------
$2,599,686 $2,121,950
==================================================================================================================
The accompanying notes are an integral part of these financial statements.
S-4
ARAMARK CORPORATION AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 8,384 $ 9,391
Accounts payable 440,761 372,908
Accrued payroll and related expenses 152,664 142,911
Other accrued expenses and current liabilities 246,794 231,991
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 848,603 757,201
- ----------------------------------------------------------------------------------------------------------------
Long-Term Borrowings:
Senior 1,115,371 697,695
Subordinated 165,414 290,414
Obligations under capital leases 2,370 3,231
- ----------------------------------------------------------------------------------------------------------------
1,283,155 991,340
Less-current portion 8,384 9,391
- ----------------------------------------------------------------------------------------------------------------
Total long-term borrowings 1,274,771 981,949
- ----------------------------------------------------------------------------------------------------------------
Deferred Income Taxes and Other Noncurrent Liabilities 204,968 168,638
Minority Interest - 10,812
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 19,060 20,791
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Series C preferred stock, redemption value $1,000;
authorized: 40,000 shares; issued: 1995 - 14,965 shares;
1994 - 16,949 shares 14,965 16,949
Class A common stock, par value $.01; authorized:
25,000,000 shares; issued: 1995 - 2,148,069 shares;
1994 - 2,074,251 shares 21 21
Class B common stock, par value $.01; authorized:
150,000,000 shares; issued: 1995 - 23,499,782 shares;
1994 - 24,338,494 shares 235 243
Earnings retained for use in the business 247,805 178,587
Cumulative translation adjustment 8,318 7,550
Impact of potential repurchase feature of common stock (19,060) (20,791)
- ----------------------------------------------------------------------------------------------------------------
Total 252,284 182,559
- ----------------------------------------------------------------------------------------------------------------
$2,599,686 $2,121,950
================================================================================================================
The accompanying notes are an integral part of these financial statements.
S-5
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Years Ended September 29, 1995, September 30, 1994 and October 1,
1993
(dollars in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
Revenues $5,600,645 $5,161,578 $4,890,738
- ----------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of services provided 5,094,179 4,686,086 4,432,840
Depreciation and amortization 156,869 143,763 130,511
Selling and general corporate expense 72,602 70,196 63,406
Other expense (income) - (5,792) (4,955)
- ----------------------------------------------------------------------------------------------------------------
5,323,650 4,894,253 4,621,802
- ----------------------------------------------------------------------------------------------------------------
Operating income 276,995 267,325 268,936
Gain on Issuance of Stock by an Affiliate - 4,658 -
- ----------------------------------------------------------------------------------------------------------------
Earnings before interest and income taxes 276,995 271,983 268,936
Interest Expense, net 109,418 108,499 125,671
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes 167,577 163,484 143,265
Provision For Income Taxes 67,388 67,119 57,526
Minority Interest - 1,332 1,405
- ----------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item and Cumulative
Effect of Change in Accounting for Income Taxes 100,189 95,033 84,334
Extraordinary Item Due to Early Extinguishments
of Debt (net of income taxes of $4,458 in 1995,
$5,118 in 1994 and $4,660 in 1993) 6,686 7,677 7,202
Cumulative Effect of Change in Accounting for
Income Taxes - 1,277 -
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 93,503 $ 86,079 $ 77,132
================================================================================================================
Earnings Per Share:
Income before extraordinary item and
cumulative effect of change in
accounting for income taxes $2.01 $1.87 $1.64
Net income $1.88 $1.69 $1.49
================================================================================================================
The accompanying notes are an integral part of these financial statements.
S-6
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended September 29, 1995, September 30, 1994 and October 1,
1993 (in thousands)
- ----------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $93,503 $ 86,079 $ 77,132
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 156,869 143,763 130,511
Income taxes deferred 4,920 (2,174) 6,058
Minority interest - 1,332 1,405
Cumulative effect of accounting change - 1,277 -
Gain on issuance of stock by affiliate - (4,658) -
Extraordinary item 6,686 7,677 7,202
Changes in noncash working capital:
Receivables (25,162) (40,557) (933)
Inventories (13,992) (6,915) (6,425)
Prepayments 13,244 (15,675) 53,288
Accounts payable 25,186 36,956 (11,395)
Accrued expenses 22,737 36,926 (198)
Changes in noncurrent liabilities (6,525) (1,368) 8,541
Changes in other assets 4,020 (6,445) 4,106
Other (2,232) (9,186) (5,604)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 279,254 227,032 263,688
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (193,470) (145,935) (142,121)
Disposals of property and equipment 16,063 11,525 11,348
Sale of investments 16,203 13,543 15,945
Divestiture of certain businesses 1,719 7,297 11,928
Increase in short-term investments - (16,203) -
Purchase of subsidiary stock (20,491) (17,623) -
Acquisition of certain businesses:
Working capital other than cash acquired 7,877 (3,066) 8,697
Property and equipment (20,131) (573) (4,544)
Additions to intangibles and other assets (342,301) (6,734) (45,547)
Assumed borrowings - - 2,885
Other (2,268) 7,758 (5,368)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (536,799) (150,011) (146,777)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 486,844 167,329 108,174
Payment of long-term borrowings including premiums (209,742) (210,511) (157,407)
Redemption of preferred stock (1,984) (17,647) (137)
Proceeds from issuance of common stock 9,718 12,416 9,462
Repurchase of common stock (26,435) (25,729) (45,795)
Payment of special dividend - - (24,157)
Payment of preferred stock dividend (1,049) (1,917) -
Other (4,151) (1,337) (3,035)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) financing activities 253,201 (77,396) (112,895)
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (4,344) (375) 4,016
Cash and cash equivalents, beginning of year 27,426 27,801 23,785
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 23,082 $ 27,426 $ 27,801
================================================================================================================
The accompanying notes are an integral part of these financial statements.
S-7
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 1995
(in thousands)
Impact of
Potential
Series C Class A Class B Cumulative Repurchase
Preferred Common Common Capital Retained Translation Feature of
Stock Stock Stock Surplus Earnings Adjustment Common Stock
--------- ------- ------- ------- -------- ---------- ------------
Balance, September 30, 1994 $16,949 $21 $243 $ - $178,587 $7,550 $(20,791)
Net income 93,503
Dividends on preferred stock (1,046)
Issuance of Class A common stock
to employee benefit plans 6,576
Issuance of Class B common stock 31 20,637
Retirement of common
and preferred stock (1,984) (39) (27,213) (23,239)
Change during the period 768 1,731
------- ------- ----- -------- -------- ------- --------
Balance, September 29, 1995 $14,965 $21 $235 $ - $247,805 $8,318 $(19,060)
======= ======= ===== ======== ======== ====== ========
The accompanying notes are an integral part of these financial statements.
S-8
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
(in thousands)
Impact of
Potential
Series C Class A Class B Cumulative Repurchase
Preferred Common Common Capital Retained Translation Feature of
Stock Stock Stock Surplus Earnings Adjustment Common Stock
--------- ------- ------- ------- -------- ----------- ------------
Balance, October 1, 1993 $34,596 $21 $243 $ - $104,827 $6,037 $(21,651)
Net income 86,079
Dividends on preferred stock (1,337)
Issuance of Class A common stock to
employee benefit plans 1 8,881
Issuance of Class B common stock 25 18,910
Retirement of common and preferred stock (17,647) (1) (25) (27,791) (10,982)
Change during the period 1,513 860
------- ---- ---- ------- --------- ------ --------
Balance, September 30, 1994 $16,949 $21 $243 $ - $178,587 $7,550 $(20,791)
======= ==== ==== ======= ======== ====== ========
The accompanying notes are an integral part of these financial statements.
S-9
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED OCTOBER 1, 1993
(in thousands)
Impact of
Potential
Series C Class A Class B Cumulative Repurchase
Preferred Common Common Capital Retained Translation Feature of
Stock Stock Stock Surplus Earnings Adjustment Common Stock
--------- ------- ------- ------- -------- ----------- ------------
Balance, October 2, 1992 $ - $ 6 $ 53 $ - $113,091 $11,070 $(20,437)
Net income 77,132
Special dividend 34,733 (59,514)
Dividends on preferred stock (883)
Issuance of Class A common stock to
employee benefit plans 10,688
Issuance of Class B common stock 11 18,420
Retirement of common and preferred stock (137) (1) (3) (29,108) (24,801)
Common stock split 16 182 (198)
Change during the period (5,033) (1,214)
------ --- ----- -------- -------- ------- ---------
Balance, October 1, 1993 $34,596 $21 $243 $ - $104,827 $ 6,037 $(21,651)
======= === ==== ======== ======== ======= ========
The accompanying notes are an integral part of these financial statements.
S-10
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR
The Company's fiscal year is the fifty-two or fifty-three week period which ends
on the Friday nearest September 30th. The years ended September 29, 1995,
September 30, 1994 and October 1, 1993 are fifty-two week periods.
PRINCIPLES OF CONSOLIDATION, ETC.
The consolidated financial statements include the accounts of the Company and
all its subsidiaries. All significant intercompany balances and transactions
have been eliminated and net income is reduced by the portion of income
applicable to minority shareholders of less than wholly-owned subsidiaries.
In fiscal 1997, the Company is required to adopt the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company will
complete its analysis of the impact of this standard in fiscal 1996, but
currently does not anticipate that the adoption will have a material impact on
the consolidated financial statements.
CURRENCY TRANSLATION
Gains and losses resulting from the translation of financial statements of
non-U.S. subsidiaries are reflected as a currency translation adjustment in
shareholders' equity. Currency transaction gains and losses included in
operating results for fiscal 1995, 1994 and 1993 were not significant.
CURRENT ASSETS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. At September 30, 1994,
securities having maturities in excess of three months, all of which were owned
by the Company's Canadian subsidiary, were classified as short-term investments
and were recorded at cost which approximated market value.
Inventories are valued at the lower of cost (principally the first-in, first-out
method) or market. The LIFO (last-in, first-out) method of determining cost is
used to value directly marketed work clothing and casual apparel. The stated
value of inventories determined using the LIFO method is not significantly
different from replacement or current cost. Personalized work apparel and linens
in service are recorded at cost and are amortized over their estimated useful
lives, approximately two years. In accordance with industry practice, magazines
and books are sold to retailers with the right to return unsold items for
ultimate credit from the publishers.
The components of inventories as of the respective year-ends are as follows:
1995 1994
- -------------------------------------------------------------------------------
Food 25.7% 24.9%
Work apparel, casual apparel and linens 57.2% 60.9%
Magazines and books 8.8% 5.6%
Parts, supplies and novelties 8.3% 8.6%
- -------------------------------------------------------------------------------
100.0% 100.0%
- -------------------------------------------------------------------------------
S-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over their
estimated useful lives on a straight-line basis. Gains and losses on
dispositions are included in operating results. Maintenance and repairs are
charged to operations currently, and replacements and significant improvements
are capitalized. The estimated useful lives for the major categories of property
and equipment are 10 to 40 years for buildings and improvements and 3 to 10
years for service equipment and fixtures. Depreciation expense in fiscal 1995,
1994 and 1993 was $116.4 million, $107.5 million and $99.0 million,
respectively.
GOODWILL
Goodwill, which represents the excess of cost over fair value of the net assets
of acquired businesses, is being amortized on a straight-line basis principally
over 40 years. The Company develops operating income projections for each of its
lines of business and evaluates the recoverability and amortization period of
goodwill using these projections. Based upon management's current assessment,
the estimated remaining amortization period of goodwill is appropriate and the
remaining balance is fully recoverable. Accumulated amortization at September
29, 1995 and September 30, 1994 is $130.2 million and $113.7 million,
respectively.
OTHER ASSETS
Other assets consist primarily of investments in less than 50% owned entities,
contract rights, customer lists, and long-term receivables . Investments in
which the Company owns more than 20% but less than a majority are accounted for
using the equity method. Contract rights and customer lists are being amortized
on a straight-line basis over the expected period of benefit, 5 to 20 years. As
discussed in Note 2, at September 29, 1995, other assets includes approximately
$208 million related to the purchase price of acquisitions consummated at
yearend.
OTHER LIABILITIES
Other noncurrent liabilities consist primarily of deferred compensation,
insurance accruals, deferred gains arising from sale and leaseback transactions
and subordinated installment notes arising from repurchases of common stock.
The Company is self-insured for a limited portion of the risk retained under its
general liability and workers' compensation and malpractice insurance
arrangements. Self-insurance reserves are determined based on actuarial
analyses. The self-insurance reserves for workers' compensation insurance are
accrued on a present value basis using a discount rate which approximates a
risk-free rate.
EARNINGS PER SHARE
Earnings per share is reported on a fully diluted Common Stock, Class B
equivalent basis (which reflects Common Stock, Class A shares converted to a
Class B basis; ten for one) and is based upon the weighted average number of
common shares outstanding during the respective periods, plus the common
equivalent shares, if dilutive, that would result from the exercise of stock
options. Fully diluted earnings per share approximates primary earnings per
share and is equivalent to fully diluted earnings per share under the
"two-class" method.
S-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
1995 1994 1993
---- ---- ----
(in millions)
Interest Paid $107.4 $108.2 $113.5
Income Taxes Paid $53.5 $54.0 $41.0
Significant noncash investing and financing activities are as follows:
o During fiscal 1995, 1994, and 1993, the Company contributed $6.6 million,
$8.9 million, and $10.7 million, respectively, of Class A Common Stock to
its employee benefit plans to fund previously accrued obligations. In
addition, during fiscal 1995, 1994 and 1993 the Company contributed $1.8
million, $1.8 million and $1.7 million, respectively, of stock units to its
stock unit retirement plan in satisfaction of its accrued obligations. See
Note 5 to the consolidated financial statements.
o During the third quarter of fiscal 1993, the Company paid a special
dividend on its common stock which included $34.7 million of new Series C
Preferred Stock. See Note 7 to the consolidated financial statements.
o During fiscal 1995, 1994 and 1993, the Company received $9.4 million, $4.0
million and $5.9 million, respectively, of employee notes under its
Deferred Payment program as partial consideration for the issuance of
Common Stock Class B. Also, during fiscal 1995, 1994, and 1993, the Company
issued subordinated installment notes of $22.5 million, $13.2 million and
$8.3 million, respectively, as partial consideration for repurchases of
Common Stock. See Note 7 to the consolidated financial statements.
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.:
During fiscal 1995, late in the first quarter the Company acquired a provider of
food and support services to stadiums and arenas; two magazine and book
distribution companies, one in the first quarter and one late in the third
quarter; a uniform rental business late in the fourth quarter; and a direct
marketer of public safety clothing and equipment late in the fourth quarter, all
for aggregate consideration of approximately $360 million in cash.
The acquisitions were accounted for under the purchase method of accounting and
the fiscal 1995 financial statements reflect the results of operations and cash
flows of the acquired companies from the date of the acquisitions. The two
fourth quarter acquisitions were closed in September 1995, and pending
completion of appraisals and other valuations, the cost of these investments
(approximately $208 million) has been included in "Other Assets."
Had the above acquisitions occurred as of the beginning of the fiscal period,
pro forma consolidated revenues and earnings before interest, taxes,
depreciation and amortization would have been approximately 4% and 6%, and 6%
and 7% greater in fiscal 1995 and 1994, respectively. Additionally, net income
and earnings per share would have been approximately 9% and 18% lower in fiscal
1995 and 1994, respectively.
The pro forma results are unaudited and are based on historical results,
adjusted for the impact of certain acquisition related adjustments, such as:
increased amortization of intangibles, increased interest expense on acquisition
debt, and the related income tax effects. The pro forma results do not
S-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.: (Continued)
reflect any synergies that might be achieved from combined operations and
therefore, in management's opinion, are not indicative of what actual results
would have been if the acquisitions had occurred at the beginning of the
respective periods. In addition, they are not intended to be a projection of
future results.
In the fourth quarter of fiscal 1994, the Company initiated a tender offer for
the 30% minority interest of its Canadian subsidiary. The transaction was
completed in fiscal 1995 for total consideration of approximately $38 million,
of which $20.5 million was paid in fiscal 1995.
During the fourth quarter of fiscal 1994, an affiliate, 33% owned by the
Company, sold common stock through a public offering. The Company sold
approximately 9% of its equity investment in connection with the public
offering, receiving net proceeds of $6.9 million and recorded a gain of $5.8
million, which is included in "Other expense (income)." At the time a
subsidiary/affiliate sells its stock to third parties, the Company recognizes
the resultant change in its net investment in the subsidiary/affiliate through
the income statement in accordance with the Securities and Exchange Commission
Staff Accounting Bulletin No. 51 (SAB No. 51). In accordance with SAB No. 51,
the Company recognized a pre-tax gain of $4.7 million, and recorded a related
tax provision of $1.9 million, representing the increase in book value of the
Company's remaining investment created by the sale of the incremental new shares
in the public offering. The Company's percentage ownership of the affiliate
after the transaction is 28%.
During the fourth quarter of fiscal 1993, the Company sold Encore Service
Systems, Inc. for approximately $20 million resulting in a gain of approximately
$15 million. In addition, all of the Company's remaining shares of Living
Centers of America common stock were sold during fiscal 1993 for approximately
$16 million, resulting in a gain of approximately $8 million. These gains have
been included in "Other expense (income)" in the accompanying consolidated
statements of income. Also included in "Other expense (income)" is an amount of
$18 million to establish a reserve for potential adjustments related to certain
cost-based food service contracts. This resulted from a 1993 internal review of
billing procedures covering primarily insurance and employee fringe benefits.
The review revealed some past inconsistencies between the billings and the
literal contractual language.
NOTE 3. EXTRAORDINARY ITEM:
The following items have been reflected as extraordinary items in the
consolidated financial statements. During fiscal 1995, the Company redeemed its
$125 million 12% subordinated debentures and its $50 million 10.25% senior note
for a premium. The debt extinguishment was financed through the issuance of
8.15% and 8% senior notes (see Note 4). The resultant extraordinary charge was
$6.7 million or $0.13 per share.
During fiscal 1994, the Company redeemed the remaining $182.3 million of its
12-1/2% subordinated debentures for a premium. The debt extinguishment was
financed through borrowings under the Company's revolving credit facility. The
resultant extraordinary charge was $7.7 million or $0.15 per share.
During fiscal 1993, the Company repurchased the entire $100 million of its
10.55% senior notes for a premium and concurrently issued $100 million of 8-1/4%
senior notes. The Company also paid a premium to redeem $38.6 million of its
12-1/2% subordinated debentures.
S-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS:
Long-term borrowings at September 29, 1995 and September 30, 1994 are summarized
in the following table:
1995 1994
---- ----
(in thousands)
SENIOR:
Credit facility borrowings $ 592,900 $401,600
Canadian credit facility 50,674 -
8% notes, due April 2002 100,000 -
8.15% notes due May 2005 150,000 -
10-5/8% notes, due August 2000 100,000 100,000
8-1/4% notes, payable in installments through 1999 80,000 100,000
10-1/4% note, due April 1998 - 50,000
Other, including mortgages and notes payable 41,797 46,095
- -------------------------------------------------------------------------------
1,115,371 697,695
- -------------------------------------------------------------------------------
SUBORDINATED:
8-1/2% subordinated notes, due June 2003 100,000 100,000
10% exchangeable debentures and notes, due August 2000 59,299 59,299
Other, due 1997 - 2000 6,115 6,115
12% debentures, due April 2000 - 125,000
- -------------------------------------------------------------------------------
165,414 290,414
- -------------------------------------------------------------------------------
OBLIGATIONS UNDER CAPITAL LEASES 2,370 3,231
- -------------------------------------------------------------------------------
1,283,155 991,340
Less-current portion 8,384 9,391
- -------------------------------------------------------------------------------
$1,274,771 $981,949
===============================================================================
The $1.0 billion revolving credit facility ("Credit Agreement") is provided by a
group of banks and matures in October 2001 with quarterly commitment reductions
of $15.6 million starting in December 1995 which increase annually thereafter.
Interest under the credit agreement is based on the Prime Rate plus a spread of
0% to 5/8% (as of September 29, 1995 - 0%), London Inter-Bank Offered Rate
(LIBOR) plus a spread of 1/8% to 1-1/8% (as of September 29, 1995 - 1/2%) or the
Certificate of Deposit Rate plus a spread of 1/4% to 1-1/4% (as of September 29,
1995 - 5/8%), at the option of the Company. The spread is based on certain
financial ratios and borrowing levels as defined. The Company pays a fee of 1/4
of 1% on the entire credit facility.
The C$73 million Canadian revolving credit facility provides for either U.S.
dollar or Canadian dollar borrowings and matures in June 2000, with quarterly
commitment reductions of C$1.9 million which generally increase annually.
Interest on this facility is based on the Canadian Bankers Acceptance Rate, U.S.
Base Rate, Canadian Prime Rate, LIBOR, or the Euro-Canadian Rate plus a spread
of up to 1-1/8%, as defined. As of September 29, 1995, all borrowings under this
facility are payable in Canadian dollars, with a weighted average interest rate
of 7.0%. The Company pays a fee of 1/4 of 1% on the entire credit facility.
The 8-1/4% notes are payable in $20 million annual installments with a final
maturity of March 1999. The $20 million installment due in fiscal 1996 has been
classified as non-current in the accompanying consolidated balance sheet as the
Company has the ability and intent to finance it through additional borrowings
under the Credit Agreement.
S-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: BORROWINGS: (Continued)
The 10-5/8% senior notes require a sinking fund payment of $50 million in August
1999 with a final maturity in August 2000.
The 8-1/2% subordinated notes may be redeemed at the Company's option, in whole
or in part, beginning June 1998 at a price equal to 104.25% of their principal
amount and thereafter at prices declining to par in 2002, together with accrued
interest.
The 10% subordinated exchangeable debentures and notes may be exchanged at any
time in whole or part, at the option of the holder, for 10-5/8% senior notes due
August 2000 at an exchange ratio of .93.
Accrued interest on borrowings totaling $22.0 million at September 29, 1995 and
$23.6 million at September 30, 1994 is included in current liabilities as "Other
accrued expenses."
The Company utilizes derivative financial instruments, such as interest rate
swap and forward exchange agreements to manage changes in market conditions
related to debt obligations and foreign currency exposures. At September 29,
1995 and September 30, 1994, the Company has $175 million and $200 million of
interest rate exchange agreements fixing the rate on a like amount of borrowings
under the Credit Agreement at an average effective rate of 6.3% and 5.7%,
respectively. As of September 29, 1995, interest rate exchange agreements remain
in effect for periods ranging from 7 to 28 months. Additionally, at September
29, 1995, the Company has $100 million of interest rate cap agreements (expiring
in October 1995) which cap a like amount of variable rate borrowings at 5.5%.
All interest rate agreements are accounted for as hedges and the related gains
or losses are recognized in income as a component of interest expense over the
period being hedged. During fiscal 1993, the Company entered into a $28 million
foreign currency swap agreement maturing in August 1996, which hedges the
currency exposure of its net investment in Spain. The counterparties to the
above derivative agreements are major international banks. The Company
continually monitors its positions and credit ratings of its counterparties, and
does not anticipate nonperformance by the counterparties.
The following summarizes the fair value of the Company's financial instruments
as of September 29, 1995 and September 30, 1994. The fair values were computed
using market quotes, if available, or based on discounted cash flows using
market interest rates as of the end of the respective periods.
1995 1994
------------------------ --------------------
Carrying Fair Carrying Fair
Asset/(Liability) in millions Amount Value Amount Value
------ ----- ------ -----
Long-term debt $(1,283.2) $(1,313.3) $(991.3) $(996.0)
Interest rate swap agreements - 0.7 - 6.4
Foreign currency swap agreement (2.6) (2.5) (1.5) (0.9)
The Credit Agreement contains restrictive covenants which provide, among other
things, limitations on the incurrence of debt, dispositions of material assets,
payment of dividends and repurchases of capital stock. The terms of the Credit
Agreement also require that the Company maintain certain specified minimum
ratios of cash flow to fixed charges and to total borrowings and certain minimum
levels of net worth (as defined). At September 29, 1995, the Company was in
compliance with all of these covenants.
S-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
Long-term borrowings maturing in the next five years, excluding capital lease
obligations, are as follows:
Amount
------
(in thousands)
1996 $ 7,993
1997 34,217
1998 31,903
1999 202,181
2000 319,923
NOTE 5: EMPLOYEE PENSION AND PROFIT SHARING PLANS:
In the United States, the Company maintains qualified contributory and
non-contributory retirement plans for eligible employees, with Company
contributions to the plans based on earnings performance or salary level.
Qualified non-contributory profit sharing plans are maintained by certain
businesses, with annual contributions determined by management. The Company has
a non-qualified stock unit retirement plan for certain employees. The total
expense of the above plans for fiscal 1995, 1994 and 1993 was $15.3 million,
$14.5 million and $14.1 million, respectively. During fiscal 1995, 1994 and
1993, the Company contributed 41,114 shares, 59,919 shares and 86,184 shares,
respectively, of Common Stock, Class A to these plans to fund previously accrued
obligations. In addition, during fiscal 1995, 1994 and 1993, the Company
contributed to the stock unit retirement plan 120,700 stock units, 143,125 stock
units and 159,144 stock units, respectively, which are convertible into Common
Stock, Class B, in satisfaction of its accrued obligations. The value of the
stock units was credited to capital surplus. The Company participates in various
multi-employer union administered pension plans. Contributions to these plans,
which are primarily defined benefit plans, result from contractual provisions of
labor contracts and were $13.1 million, $11.9 million and $10.2 million for
fiscal 1995, 1994 and 1993, respectively.
Additionally, the Company maintains several contributory and noncontributory
defined benefit pension plans, primarily in Canada and the United Kingdom. The
projected benefit obligation of these plans as of September 29, 1995, which is
fully funded, is $43.1 million. Pension expense related to these plans is not
material to the consolidated financial statements.
NOTE 6. INCOME TAXES:
Effective October 2, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." Prior to fiscal 1994, the Company followed the provisions of
Accounting Principles Board Opinion No. 11. SFAS No. 109 requires deferred tax
assets or liabilities to be recognized for the estimated future tax effects of
temporary differences between the financial reporting and tax bases of the
Company's assets and liabilities based on the enacted tax law and statutory tax
rates applicable to the periods in which the temporary differences are expected
to affect taxable income. The cumulative effect of this change in accounting
principle was a charge of $1.3 million, or $0.03 per share, in the first quarter
of fiscal 1994.
S-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
The components of income before income taxes by source of income are as follows:
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
(in thousands)
United States $153,551 $143,052 $121,818
Non-U.S. 14,026 20,432 21,447
- --------------------------------------------------------------------------------------------------------------
$167,577 $163,484 $143,265
==============================================================================================================
The provision for income taxes consists of:
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
(in thousands)
Current:
Federal $46,579 $51,935 $34,345
State and local 12,064 11,827 7,024
Non-U.S. 3,825 5,531 10,099
- --------------------------------------------------------------------------------------------------------------
62,468 69,293 51,468
- --------------------------------------------------------------------------------------------------------------
Deferred:
Federal 3,189 (1,516) 5,230
State and local 739 (351) 736
Non-U.S. 992 (307) 92
- --------------------------------------------------------------------------------------------------------------
4,920 (2,174) 6,058
- --------------------------------------------------------------------------------------------------------------
$67,388 $67,119 $57,526
==============================================================================================================
The provision for income taxes varies from the amount determined by applying the
United States Federal statutory rate to pre-tax income as a result of the
following:
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
(% of pre-tax income)
United States statutory income tax rate 35.0% 35.0% 34.8%
Increase (decrease) in taxes, resulting from:
State income taxes, net of Federal tax benefit 4.7 4.6 3.7
Permanent book/tax differences, primarily
resulting from purchase accounting 1.7 3.0 2.4
Tax credits (1.2) (1.5) (1.5)
Other, net - (.1) .8
-------------------------------------------------------------------------------------------------------------
Effective income tax rate 40.2% 41.0% 40.2%
==============================================================================================================
As of September 29, 1995 and September 30, 1994 the components of the net
deferred tax asset are as follows (in thousands):
1995 1994
---- ----
Deferred tax liabilities:
Property and equipment $63,959 $64,718
Inventory 5,037 5,484
Investments 12,406 3,523
Other 12,165 1,202
-------- ---------
Gross deferred tax liability 93,567 74,927
-------- ---------
S-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
1995 1994
------- -------
Deferred tax assets:
Insurance 23,183 17,797
Employee compensation and benefits 34,459 30,228
Accruals and allowances 19,461 20,648
Intangibles 4,749 9,954
Other 3,648 2,254
Valuation allowance (425) (1,000)
------ ------
Net deferred tax asset 85,075 79,881
------ ------
Net deferred tax liability/(asset) $ 8,492 $(4,954)
======= =======
The components of deferred income taxes for 1993, the year prior to the adoption
of SFAS No. 109 are as follows:
(in thousands)
Excess of tax over book depreciation $ 1,905
Accrued vacation 52
Provision for insurance costs (3,009)
Tax vs. book basis of dispositions 5,598
Other 1,512
-------
$ 6,058
=======
NOTE 7. CAPITAL STOCK:
There are two classes of common stock authorized and outstanding, Common Stock,
Class A and Common Stock, Class B. Each Class A and Class B Share is entitled to
one vote on all matters submitted to shareholders, voting together as a single
class except where otherwise required by law. Each Class A Share is entitled to
ten times the dividends and other distributions payable on each Class B Share.
Class B Shares may be held only by employees, directors and their family
members, and upon termination of employment each Class B Share is automatically
converted into 1/10 of a Class A Share.
During the third quarter of fiscal 1993, the Company paid a special dividend of
$5 per Class B equivalent share on all shares of its Common Stock owned as of
April 19, 1993, with $2 per Class B equivalent share, or $24.2 million, paid in
cash and $3 per Class B equivalent share, or $34.7 million, in new Series C
Preferred Stock ("Preferred Stock"). Concurrent with the dividend, the Company
repurchased for cash 55,495 shares of its Class A Common Stock for $28.9
million.
Holders of the Preferred Stock are entitled to cumulative dividends payable
semi-annually; voting rights in the event of failure to pay dividends for four
consecutive periods (two years); and upon liquidation, $1,000 per share plus
accrued and unpaid dividends. The current dividend rate on the Preferred Stock
is $68 per share and is reset annually in December of each year at a rate equal
to $1,000 multiplied by 80% of Chemical Bank's announced prime rate of interest,
but not less than $60 per share nor greater than $100 per share. The Preferred
Stock may be repurchased, in whole or in part, at any time only at the Company's
option at a price equal to $1,000 per share plus accrued and unpaid dividends.
During fiscal 1995 and 1994 the Company repurchased 1,984 and 17,647 preferred
shares for $2.0 million and $17.6 million, respectively.
As of September 29, 1995 the Company's stock option plans provided for the
issuance of up to 33,001,148 options to purchase shares of Common Stock, Class
B. The Company granted installment stock purchase opportunities under its stock
ownership program in fiscal 1995, 1994 and 1993 which provide for the purchase
of shares of Common Stock, Class B. Installment stock purchase opportunities are
exercisable in six annual installments with the exercise price of each purchase
S-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL STOCK: (Continued)
opportunity equal to the current fair market value at the time the purchase
opportunity is granted. During fiscal 1994, the Company implemented a program to
extend non-qualified stock options to additional qualified employees. Under the
program, options vest after three years and may be exercised for a period of
three years after vesting. The exercise price of each option is equal to the
current fair market value at the date of grant. In fiscal 1995, the Company
granted cumulative installment stock purchase opportunities under its existing
stock ownership program which are similar to the installment stock purchase
opportunities discussed above, however, any purchase opportunities not exercised
during an installment period may be carried forward to subsequent installment
periods. In 1993, the Company implemented the Deferred Payment Program which
enables holders of non-qualified stock options and installment purchase
opportunities to defer a portion of the total amount required to exercise the
options. Interest currently accrues on deferred payments at 8.75% compounded
annually and is payable when the deferred payments are due. At September 29,
1995 and September 30, 1994 the receivables from individuals under the Deferred
Payment Program were $17.5 million and $9.8 million, respectively, which are
classified in the consolidated balance sheet as a reduction of Shareholders'
Equity. The Company holds as collateral all shares purchased in which any
portion of the purchase price is financed under the Deferred Payment Program
until the deferred payment is received from the individual by the Company.
Status of the options, including installment stock purchase opportunities, under
the various ownership programs follows:
Number of Shares Average Option Price
----------------------------------------- ------------------------
1995 1994 1993 1995 1994 1993
----------- ----------- ----------- ------ ------ -----
Options granted 4,409,920 4,314,635 2,776,296 $13.11 $11.19 $9.14
Options exercised 3,084,830 2,588,030 4,904,360 $6.17 $6.33 $3.14
Options outstanding 10,107,199 10,383,764 10,030,024 $10.47 $8.05 $6.26
At September 29, 1995, 514,696 of the outstanding option shares were exercisable
at an average option price of $2.14. The Company has reserved 10,804,832 shares
of Common Stock, Class B at September 29, 1995 for issuance of stock pursuant to
its employee ownership and benefit programs.
The Company and its shareholders are parties to an Amended and Restated
Shareholders' Agreement. Pursuant to this agreement, holders of common stock who
are individuals, upon their death, complete disability or normal retirement, may
cause the Company to repurchase up to 30% of their shares for cash at the then
appraised value, but only to the extent such repurchase by the Company is
permitted under the Credit Agreement. Under this Credit Agreement restriction,
repurchases of capital stock cannot exceed an aggregate limit, which amount was
$19.1 million at September 29, 1995 and $20.8 million at September 30, 1994.
Pursuant to interpretations of its rules related to "Redeemable Preferred
Stock," the Securities and Exchange Commission has requested that these amounts
representing the Company's potential repurchase of its Common Stock be presented
as a separate item and accordingly, the Company's Shareholders' Equity reflects
this reclassification in the consolidated financial statements. Also, the
Shareholders' Agreement provides that the Company may, at its option, repurchase
shares from individuals who are no longer employees. Such repurchased shares may
be resold to others including replacement personnel at prices equal to or
greater than the repurchase price. Generally, payment for shares repurchased can
be, at the Company's option, in cash or subordinated installment notes, which
are subordinated to all other indebtedness of the Company. Interest on these
notes is payable semi-annually and principal payments are made annually over
varying periods not to exceed ten years. The noncurrent portion of these notes
($36.8 million as of September 29, 1995 and $24.9 million as of September 30,
1994) is included in the consolidated balance sheets as "Other Noncurrent
Liabilities" and the current portion of these notes ($11.3 million as of
September 29, 1995 and $8.7 million as of September 30, 1994) is included in
the consolidated balance sheets as "Accounts Payable."
S-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENCIES:
1995 1994
- -------------------------------------------------------------------------------
(in thousands)
Facilities under capital leases $10,213 $8,204
Less-accumulated amortization 8,211 5,590
- -------------------------------------------------------------------------------
$ 2,002 $2,614
===============================================================================
Rental expense for all operating leases was $124.2 million, $121.2 million and
$119.4 million for fiscal 1995, 1994 and 1993, respectively.
Following is a schedule of the future minimum rental commitments under all
noncancelable leases as of September 29, 1995:
Fiscal Year Operating Capital
- -------------------------------------------------------------------------------
(in thousands)
1996 $126,461 $660
1997 71,494 737
1998 64,964 485
1999 58,940 268
2000 53,889 255
Subsequent years 183,421 499
- -------------------------------------------------------------------------------
Total minimum rental obligations $559,169 2,904
===============================================================================
Less-amount representing interest 534
- -------------------------------------------------------------------------------
Present value of capital leases 2,370
Less-current portion 390
- -------------------------------------------------------------------------------
Noncurrent obligations under capital leases $1,980
===============================================================================
The Company has capital commitments of approximately $47 million at September
29, 1995 in connection with several long-term concession contracts at stadiums
and arenas. The Company is party to certain claims and litigation arising in the
ordinary course of business. The Company believes it has meritorious defenses to
these claims and is of the opinion that adequate reserves have been provided for
the ultimate resolution of these matters.
NOTE 9. ARAMARK SERVICES, INC. AND SUBSIDIARIES:
The following financial information has been summarized from the separate
consolidated financial statements of ARAMARK Services, Inc. (a wholly owned
subsidiary of ARAMARK Corporation) and the subsidiaries which it currently owns.
ARAMARK Services, Inc. is the borrower under the Credit Agreement and certain
other senior debt described in Note 4 and incurs the interest expense
thereunder. This interest expense is only partially allocated to all of the
other subsidiaries of ARAMARK Corporation.
1995 1994 1993
-------------- ------------- ------------
(in thousands)
Revenues $2,975,397 $2,763,098 $2,607,630
Cost of services provided 2,808,554 2,594,291 2,439,471
Net income (loss) 14,749 18,677 (357)
1995 1994
--------------- --------------
(in thousands)
Current assets $ 366,370 $ 355,841
Noncurrent assets 1,545,474 1,223,750
Current liabilities 435,289 398,814
Noncurrent liabilities 1,377,799 1,093,563
Minority interest - 10,812
S-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. QUARTERLY RESULTS (Unaudited):
The following table summarizes quarterly financial data for fiscal 1995 and
1994.
Fiscal Quarter
------------------------------------------------------
1995 First (3) Second(4) Third(5) Fourth Year
- -------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
Revenues $1,380,516 $1,364,518 $1,423,824 $1,431,787 $5,600,645
Cost of services provided 1,264,665 1,255,607 1,290,258 1,283,649 5,094,179
Income before extraordinary item 20,753 13,350 28,057 38,029 100,189
Extraordinary item (1) - - 6,686 - 6,686
Net income 20,753 13,350 21,371 38,029 93,503
Earnings per share:
Income before extraordinary item $.42 $.26 $.56 $.77 $2.01
Net income $.42 $.26 $.43 $.77 $1.88
Fiscal Quarter
-----------------------------------------------------
1994 First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
Revenues $1,292,020 $1,257,614 $1,309,085 $1,302,859 $5,161,578
Cost of services provided 1,179,726 1,156,230 1,185,363 1,164,767 4,686,086
Income before extraordinary item
and cumulative effect of
accounting change 18,387 13,124 27,121 36,401 95,033
Extraordinary item (1) 702 117 2,518 4,340 7,677
Net income (2) 16,408 13,007 24,603 32,061 86,079
Earnings per share:
Income before extraordinary item
and cumulative effect of
accounting change $.36 $.25 $.53 $.73 $1.87
Net income $.32 $.25 $.48 $.64 $1.69
(1) See Note 3.
(2) Includes cumulative effect of change in accounting for income taxes of
$1,277 in the fiscal 1994 first quarter. See Note 6.
(3) Fiscal 1995 first quarter results were adversely impacted by the National
Hockey League strike (See Note 11).
(4) Fiscal 1995 second quarter results were adversely impacted by the
incremental seasonal operating loss related to the Harry M. Stevens
acquisition.
(5) Fiscal 1995 third quarter results were adversely impacted by the Major
League Baseball strike (See Note 11).
In the first and second fiscal quarters, within the Food, Leisure and Support
Services segment there is a lower level of activity at the higher margin leisure
and recreational food service operations which is partly offset by increased
activity in the educational market. In addition, there is a seasonal increase in
volume of directly marketed work clothing and casual apparel during the first
quarter. Whereas in the third and fourth fiscal quarters, there is a significant
increase at leisure and recreational accounts which is partially offset by the
effect of summer closings in the educational market.
S-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. BUSINESS SEGMENTS:
The Company provides or manages services in the following business segments:
Food, Leisure and Support Services - Food, refreshment, specialized dietary and
support services, including maintenance and housekeeping, provided to business,
educational, governmental and medical institutions and in recreational and other
facilities serving the general public. The current year acquisition discussed in
Note 2 was not material to segment revenues and operating income. Fiscal 1994
operating income includes a $5.8 million gain on the sale of stock of an
affiliate and the 1993 operating income includes a $15 million gain from a
divestiture and a reserve of approximately $18 million for potential adjustments
as described in Note 2. The 1995 and 1994 segment operating results have been
adversely impacted by the Major League Baseball strike in the U.S. and Canada.
Additionally, the fiscal 1995 segment operating results have been adversely
impacted by the National Hockey League strike in the U.S. and Canada and a
decrease in average attendance at Major League Baseball games subsequent to the
resumption of the season in April 1995. Had the hockey strike and baseball
situation not occurred, it is estimated that segment reported results for
revenues and operating income would have been approximately 2% and 10% greater
in fiscal 1995, and 2% and 6% greater in fiscal 1994, respectively. Also, total
Company operating income and income before extraordinary items would have been
approximately 5% and 8% higher in fiscal 1995, and 3% and 5% higher in fiscal
1994, respectively.
Uniform Services - Rental of personalized work apparel and linens for business
and institutions on a contract basis and the direct marketing of work clothing,
casual apparel, safety equipment, and accessories. The acquisitions consummated
in the fourth quarter discussed in Note 2 are included in the identifiable asset
disclosure in fiscal 1995.
Health and Education Services - General management of child care centers, and
specialized services to emergency rooms, and other hospital specialties, and
medical services to correctional institutions. Fiscal 1995 segment operating
income is lower than prior year primarily due to an increase in insurance
reserves, reflecting a refinement in the claims estimation methodology.
Distributive Services - Wholesale distribution of magazines and other published
materials to retail locations patronized by the general public. The acquisitions
discussed in Note 2 contributed approximately 6% of segment revenues and were
not material to reported operating income in fiscal 1995.
Revenues by segment are substantially comprised of services to unaffiliated
customers and clients. Operating income reflects expenses directly related to
individual segments plus an allocation of expenses applicable to more than one
segment. General corporate expenses include expenses not specifically
identifiable with an individual segment. The increase in fiscal 1994 expenses is
primarily due to incremental costs related to a change in corporate identity.
Direct selling expenses are approximately 1% of revenues for fiscal 1995, 1994
and 1993. Corporate assets consist principally of goodwill not allocable to any
individual segment and other noncurrent assets.
S-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. BUSINESS SEGMENTS: (Continued)
Revenues Operating Income
--------------------------------------- ----------------------------------------
1995 1994 1993 1995 1994 1993
---------- ---------- ---------- ---------- ---------- -------
(in millions)
Food, Leisure &
Support Services $3,521.2 $3,274.3 $3,149.6 $146.4 $138.4 $137.4
Uniform Services 893.4 810.5 731.0 102.6 96.0 87.6
Health & Education 742.9 673.3 619.3 28.5 37.2 33.7
Distributive 443.1 403.5 390.8 27.4 26.5 24.8
-------- -------- -------- ------ ------ ------
Total $5,600.6 $5,161.6 $4,890.7 304.9 298.1 283.5
======== ======== ========
General Corporate and Other Expenses (27.9) (30.8) (22.6)
Gain on Sale of Remaining Living Centers Common Stock - - 8.0
------ ------ ------
Operating Income 277.0 267.3 268.9
Gain on Issuance of Stock by an Affiliate - 4.7 -
Interest Expense, net (109.4) (108.5) (125.7)
------ ------ ------
Income Before Income Taxes, Minority Interest,
Extraordinary Item, and Accounting Change $167.6 $163.5 $143.2
====== ====== ======
Depreciation and Amortization, Capital Expenditures and Identifiable Assets
Depreciation Capital
and Amortization Expenditures
--------------------------------- -----------------------------------
1995 1994 1993 1995 1994 1993
------ ------ ------ ------ ------ -----
(in millions)
Food, Leisure &
Support Services $ 89.7 $ 85.5 $ 76.6 $128.2 $ 83.2 $ 82.4
Uniform Services 40.7 36.3 33.9 50.6 39.9 37.9
Health & Education 18.2 16.5 15.1 26.6 18.4 22.5
Distributive 3.5 2.3 2.1 3.9 2.0 1.4
------ ------ ------ ------ ------ ------
152.1 140.6 127.7 209.3 143.5 144.2
Corporate 4.8 3.2 2.8 4.3 3.0 2.5
------ ------ ------ ------ ------ ------
$156.9 $143.8 $130.5 $213.6 $146.5 $146.7
====== ====== ====== ====== ====== ======
Identifiable Assets
----------------------------------------
1995 1994 1993
--------- ---------- -------
(in millions)
Food, Leisure &
Support Services $1,264.5 $1,085.7 $1,054.6
Uniform Services 847.6 608.7 570.7
Health & Education 272.0 280.2 261.3
Distributive 131.5 74.2 65.6
-------- -------- --------
2,515.6 2,048.8 1,952.2
Corporate 84.1 73.2 88.4
-------- -------- --------
$2,599.7 $2,122.0 $2,040.6
======== ======== ========
Most services are provided in the United States, with operations also being
conducted in Belgium, Canada, the Czech Republic, Germany, Hungary, Japan,
Korea, Mexico, Spain and the United Kingdom. The Company's non-U.S. operations
for each year contributed approximately 16% of total revenues and 8% of total
operating income, and identifiable assets for these operations were
approximately 11% of the total.
S-24
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARAMARK CORPORATION
BALANCE SHEETS
SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(in thousands)
ASSETS
------
1995 1994
------- -------
Current Assets:
Receivables $ 1,261 $ 498
Inventories 292 187
Prepayments 1,560 2,032
-------- --------
Total current assets 3,113 2,717
-------- --------
Property & Equipment, net 11,924 9,436
Investment in Subsidiaries 732,156 634,154
Notes Receivable from ARAMARK Services, Inc. 100,000 225,000
Other Assets 10,245 6,634
-------- --------
$857,438 $877,941
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 12,546 $ 12,832
Accrued expenses 13,901 23,093
-------- --------
Total current liabilities 26,447 35,925
-------- --------
Long-Term Borrowings 165,414 290,414
Other Noncurrent Liabilities 54,936 45,217
Payable to Subsidiaries 339,297 303,035
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 19,060 20,791
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Series C preferred stock, redemption value $1,000 14,965 16,949
Class A common stock, par value $.01 21 21
Class B common stock, par value $.01 235 243
Earnings retained for use in the business 247,805 178,587
Cumulative translation adjustment 8,318 7,550
Impact of potential repurchase feature of
common stock (19,060) (20,791)
-------- --------
Total 252,284 182,559
-------- --------
$857,438 $877,941
======== ========
The accompanying notes are an integral part of these financial statements.
S-25
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED SEPTEMBER 29, 1995,
SEPTEMBER 30, 1994 AND OCTOBER 1, 1993
(in thousands)
1995 1994 1993
---------- ---------- -------
Equity in Net Income of Subsidiaries $93,503 $86,079 $ 67,640
------- ------- --------
Gain on Divestiture of an affiliate - - 14,570
------- ------- --------
Management Fee Income 56,360 67,571 49,592
------- ------- --------
General and Administrative Expenses 39,322 45,808 27,652
------- ------- --------
Interest (Income) Expense -
Intercompany interest income (16,532) (38,778) (36,774)
Interest expense 25,916 47,746 54,503
------- ------- --------
Interest Expense, net 9,384 8,968 17,729
------- ------- --------
Income before income taxes 101,157 98,874 86,421
Provision for Income Taxes 3,062 5,118 6,748
------- ------- --------
Income Before Extraordinary Item 98,095 93,756 79,673
Extraordinary Item Due to Early Extinguishments
of Debt (net of income taxes of $3,062
in 1995, $5,118 in 1994 and $1,670 in 1993) 4,592 7,677 2,541
------- ------- --------
Net income $93,503 $86,079 $77,132
======= ======= =======
The accompanying notes are an integral part of these financial statements.
S-26
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 29, 1995,
SEPTEMBER 30, 1994 AND OCTOBER 1, 1993
(in thousands)
1995 1994 1993
---------- ---------- -------
Cash flows from operating activities:
Net income $ 93,503 $ 86,079 $ 77,132
Equity in net income of subsidiaries (93,503) (86,079) (67,640)
Extraordinary item 4,592 7,677 2,541
Gain on divestiture - - (14,570)
Other, primarily noncash working capital (22,264) (8,408) 4,298
---------- -------- --------
Net cash provided by (used in) operating activities (17,672) (731) 1,761
---------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (4,258) (3,023) (2,486)
Other 119 2,072 120
---------- -------- --------
Net cash used in investing activities (4,139) (951) (2,366)
---------- -------- --------
Cash flows from financing activities:
Proceeds from additional long-term borrowings - - 100,000
Payment of long-term borrowings including
premiums (131,250) (194,694) (45,470)
Change in notes receivable from
ARAMARK Services, Inc. 125,000 175,000 (100,000)
Change in intercompany payable to
subsidiaries 47,811 54,253 106,702
Redemption of preferred stock (1,984) (17,647) (137)
Proceeds from issuance of common stock 9,718 12,416 9,462
Repurchase of common stock (26,435) (25,729) (45,795)
Payment of special dividend - - (24,157)
Payment of preferred stock dividend (1,049) (1,917) -
---------- --------- ---------
Net cash provided by financing activities 21,811 1,682 605
---------- --------- ---------
Change in cash $ - $ - $ -
========== ========= =========
The accompanying notes are an integral part of these financial statements.
S-27
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1.
These statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto beginning on page S-4.
Property and equipment are stated at cost and are depreciated over their
estimated useful lives on a straight-line basis.
Other assets consist primarily of long-term receivables arising from the
divestiture of subsidiaries.
Other noncurrent liabilities consist primarily of deferred compensation and
subordinated installment notes arising from repurchases of common stock.
Note 2.
During fiscal 1993, certain subsidiaries of the Company made a dividend
distribution totaling approximately $140 million. This transaction resulted in a
reduction in the payable to subsidiaries.
Note 3.
The Company has guaranteed certain obligations of ARAMARK Services, Inc.,
its wholly-owned subsidiary, primarily those incurred pursuant to the Credit
Agreement borrowings. See Note 4 to the Company's consolidated financial
statements. Total guarantees were $1.2 billion on September 29, 1995.
S-28
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED SEPTEMBER 29, 1995, SEPTEMBER 30, 1994
AND OCTOBER 1, 1993
Additions Reductions
------------------------- --------------------------
Balance, Acquisition Divestiture Deductions Balance,
Beginning of of Charged to of from End of
Description Fiscal Year Businesses Income Businesses Reserves(1) Fiscal Year
----------- ------------ ----------- ---------- ---------- ----------- -----------
- - - - - - - - - - - - - - - - (in thousands) - - - - - - - - - - - - - - - - - - - - -
Fiscal Year 1995
----------------
Reserve for doubtful accounts,
advances & current notes receivable $12,423 $2,928 $6,357 $ - $6,612 $15,096
======= ====== ====== ======= ====== =======
Fiscal Year 1994
----------------
Reserve for doubtful accounts,
advances & current notes receivable $10,242 $1,288 $6,141 $ - $5,248 $12,423
======= ====== ====== ======= ====== =======
Fiscal Year 1993
----------------
Reserve for doubtful accounts,
advances & current notes receivable $ 9,881 $ 37 $7,425 $ 19 $7,082 $10,242
======== ====== ====== ======= ====== =======
(1) Allowances granted and amounts determined not to be collectible.
S-29
INDEX TO EXHIBITS
3.1 Restated Certificate of Incorporation.*
3.2 Corporate By-laws, as amended, are incorporated by
reference to the Company's Registration
Statement on Form S-8 (No. 33-14365).
4.1 Amended and Restated Stockholders' Agreement.*
4.2 Amended and Restated Registration Rights Agreement is
incorporated by reference to the Company's quarterly
report on Form 10-Q for the fiscal quarter ended April 1,
1988.
Long-term debt instruments authorizing debt which does not
exceed 10% of the total consolidated assets of the Company
are not filed herewithin but will be furnished on request
of the Commission.
10.1 Restated Employment Agreement dated November 13, 1991 with
Joseph Neubauer is incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 27, 1991.
10.2 Agreement relating to employment and post-employment
competition dated October 1, 1991 with
Julian L. Carr, Jr.*
10.3 Agreement relating to employment and post-employment
competition dated May 6, 1986 with James E. Ksansnak is
incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended September 29, 1989.
10.4 Agreement relating to employment and post-employment
competition dated October 4, 1991 with William Leonard is
incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended October 1, 1993.
10.5 Agreement relating to employment and post-employment
competition dated December 19, 1983 with Martin W. Spector
is incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended September
29, 1989.
10.6 Amended and Restated Credit and Guaranty Agreement dated
as of March 12, 1993.*
11 Computation of Earnings Per Share.
12 Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
23.2 Consent of Ernst & Young, Chartered Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
* Incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994.