UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 29, 1996 Commission file number 1-8827
-------------- ------
ARAMARK CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2319139
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ARAMARK TOWER
1101 Market Street
Philadelphia, Pennsylvania 19107
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215)238-3000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class A common stock outstanding at April 26, 1996: 2,039,689
Class B common stock outstanding at April 26, 1996: 22,863,499
- -------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
March 29, September 29,
1996 1995
----------- -------------
Current Assets:
Cash and cash equivalents $ 24,677 $ 23,082
Receivables 501,983 488,920
Inventories, at lower of cost or market 302,605 285,510
Prepayments and other current assets 112,896 64,772
----------- -----------
Total current assets 942,161 862,284
----------- -----------
Property and Equipment, net 783,443 756,082
Goodwill 641,747 506,193
Other Assets 283,979 475,127
----------- -----------
$ 2,651,330 $ 2,599,686
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 15,739 $ 8,384
Accounts payable 358,851 440,761
Accrued expenses and other liabilities 458,091 399,458
----------- -----------
Total current liabilities 832,681 848,603
----------- -----------
Long-Term Borrowings 1,308,477 1,274,771
Deferred Income Taxes and Other Noncurrent Liabilities 235,891 204,968
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 19,512 19,060
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Class C preferred stock, redemption value $1,000 .. 14,190 14,965
Class A common stock, par value $.01 20 21
Class B common stock, par value $.01 235 235
Earnings retained for use in the business 255,295 247,805
Cumulative translation adjustment 4,541 8,318
Impact of potential repurchase feature of
common stock (19,512) (19,060)
----------- -----------
Total 254,769 252,284
----------- -----------
$ 2,651,330 $ 2,599,686
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
For the Three Months Ended For the Six Months Ended
----------------------------- ------------------------------
March 29, March 31, March 29, March 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Revenues $ 1,464,626 $ 1,364,518 $ 3,014,000 $ 2,745,034
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of services provided 1,343,275 1,255,607 2,756,907 2,520,272
Depreciation and amortization 45,785 39,034 90,478 76,047
Selling and general corporate expenses 20,260 18,431 42,285 37,060
Other expense (income) -- -- (2,850) --
----------- ----------- ----------- -----------
1,409,320 1,313,072 2,886,820 2,633,379
----------- ----------- ----------- -----------
Operating income 55,306 51,446 127,180 111,655
Interest Expense, net 30,068 29,442 60,320 54,875
----------- ----------- ----------- -----------
Income before income taxes 25,238 22,004 66,860 56,780
Provision for Income Taxes 9,939 8,654 26,572 22,677
----------- ----------- ----------- -----------
Income before Extraordinary Item 15,299 13,350 40,288 34,103
Extraordinary Item due to Early Extinguishment
of Debt (net of income taxes) 1,589 -- 1,589 --
----------- ----------- ----------- -----------
Net income $ 13,710 $ 13,350 $ 38,699 $ 34,103
=========== =========== =========== ===========
Earnings Per Share:
Income before extraordinary item $ .32 $ .26 $ .84 $ .68
Net income $ .28 $ .26 $ .80 $ .68
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
For the Six Months Ended
---------------------------------
March 29, March 31,
1996 1995
------------ -----------
Cash flows from operating activities:
Net income $ 38,699 $ 34,103
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 90,478 76,047
Income taxes deferred (12,789) (1,822)
Extraordinary item 1,589 --
Changes in noncash working capital (79,010) (77,587)
Other operating activities (8,918) (1,789)
--------- ---------
Net cash provided by operating activities 30,049 28,952
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (77,222) (81,944)
Disposals of property and equipment 5,995 15,100
Sale of investments -- 16,203
Divestiture of certain businesses 50,823 1,583
Purchase of subsidiary stock -- (20,310)
Acquisition of certain businesses (10,295) (116,519)
Other investing activities (7,431) 2,787
--------- ---------
Net cash used in investing activities (38,130) (183,100)
--------- ---------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 129,219 176,711
Payment of long-term borrowings including premiums (93,078) (27,096)
Proceeds from issuance of common stock 9,978 7,613
Repurchase of stock (35,822) (9,223)
Other financing activities (621) (1,731)
--------- ---------
Net cash provided by financing activities 9,676 146,274
--------- ---------
Increase/(decrease) in cash and cash equivalents 1,595 (7,874)
Cash and cash equivalents, beginning of period 23,082 27,426
--------- ---------
Cash and cash equivalents, end of period $ 24,677 $ 19,552
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. In the
opinion of the Company, the statements include all adjustments (which
include only normal recurring adjustments) required for a fair statement
of financial position, results of operations and cash flows for such
periods. The results of operations for the interim periods are not
necessarily indicative of the results for a full year.
(2) OTHER INCOME:
During the first quarter of fiscal 1996, the Company sold a division of
its Uniform Services business. The net selling price was approximately
$51 million in cash and resulted in a pre-tax gain of $37 million, which
was offset by other charges related to asset realization ($20 million)
and insurance, legal and other matters ($14 million) and is reflected as
"other expense (income)" in the accompanying consolidated statements of
income. The divested operations were not material to the Company's
revenues or operating income.
(3) EARLY EXTINGUISHMENT OF DEBT:
In January 1996, the Company redeemed its $80 million 8-1/4% senior note
for a premium resulting in an extraordinary item for debt extinguishment
of $1.6 million (net of tax benefit of $1.0 million) and issued a $125
million 6.79% senior note due January 2003, with annual principal
repayments of $25 million beginning January 1999.
(4) CAPITAL STOCK:
During the first six months of fiscal 1996, pursuant to the ARAMARK
Ownership Program, employees purchased 1,746,200 shares or $14.8 million
of Class B Common Stock for $10.0 million of cash and $4.8 million of
deferred payment obligations.
(5) SUPPLEMENTAL CASH FLOW INFORMATION:
The Company made interest payments of $54.6 million and $51.5 million and
income tax payments of $46.3 million and $33.4 million during the first
six months of fiscal 1996 and 1995, respectively. During the first six
months of fiscal 1996, the Company purchased $.8 million of its Preferred
Stock, $22.6 million of its Class A Common Stock and $24.0 million of its
Class B Common Stock, issuing $11.5 million in subordinated installment
notes as partial consideration, and contributed $1.5 million of Class A
Common Stock to its employee benefit plans.
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(6) ARAMARK SERVICES, INC. AND SUBSIDIARIES:
The following financial information has been summarized from the separate
consolidated financial statements of ARAMARK Services, Inc. (a wholly
owned subsidiary of ARAMARK Corporation) and the subsidiaries which it
currently owns. ARAMARK Services, Inc. is the borrower under the
revolving credit facility and certain other senior debt agreements and
incurs the interest expense thereunder. This interest expense is only
partially allocated to all of the other subsidiaries of ARAMARK
Corporation.
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------------
March 29, March 31, March 29, March 31,
1996 1995 1996 1995
--------- ----------- ---------- ---------
(in thousands)
Revenues $ 820.0 $ 779.0 $ 1,653.4 $ 1,532.9
Cost of services provided 773.9 730.9 1,559.6 1,436.0
Net income 5.2 6.7 7.4 16.5
March 29, September 29,
1996 1995
-------- ------------
(in thousands)
Current assets $ 380.2 $ 366.4
Noncurrent assets 1,594.5 1,545.5
Current liabilities 454.7 435.3
Noncurrent liabilities 1,418.2 1,377.8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
Overview
- --------
Revenues of $1.5 billion for the second quarter and $3.0 billion for the six
month period increased 7% and 10%, respectively, over the comparable prior year
periods. Second quarter operating income of $55.3 million was $3.9 million or 8%
higher than the prior year period. As discussed below, the increase is
attributable to increased earnings of the Food, Leisure & Support and Uniform
Services segments, partially offset by a major decline in earnings of the
Distributive segment. Operating income for the six month period of $127.2
million was 14% higher than the prior year period as a result of improved
earnings in the Uniform Services, Health & Education and Food, Leisure & Support
segments, including the positive impact in fiscal 1996 from the return of
baseball and hockey, partially offset by the decline in earnings of the
Distributive segment. Fiscal 1996 year-to-date results also include other income
of $2.9 million (see note 2 to the condensed consolidated financial statements).
As a result, the Company's operating income margin for the six month period
(before other income) of 4.1% was unchanged from the comparable prior year
period.
Interest expense for the three and six month periods increased $0.6 million or
2% and $5.4 million or 10%, respectively, from the comparable prior year period
due to increased debt levels to finance acquisitions, partially offset by the
favorable impact of refinancing certain of the Company's subordinated debentures
and lower interest rates.
Segment Results
- ---------------
Revenues - Food, Leisure & Support Services segment second quarter revenues
increased 7% due primarily to new accounts and increased volume at both U.S. and
international food businesses. Food, Leisure & Support Services segment revenues
for the six month period increased 9% due to the growth noted above,
acquisitions and the return of baseball and hockey. Uniform Services segment
revenues increased 17% over the prior year for both the three and six month
periods due to the impact of recent acquisitions and increased volume in the
uniform rental business, partially offset by the divestiture discussed in note 2
and decreased volume from direct marketing of work clothing. Health and
Education segment revenues in the fiscal second quarter were equal with the
prior year period and increased 1% on a year-to-date basis, with increases in
enrollment and pricing at Children's World being offset by decreased revenues in
the healthcare business due to the impact of the severe winter weather in the
second quarter of fiscal 1996 and the expiration of a statewide correctional
healthcare contract. Distributive segment revenues for the three and six month
periods increased 5% and 13%, respectively, due to recent acquisitions.
Operating Income, Before Other Expense (Income) - Food, Leisure & Support
Services segment operating income increased 37% for the second quarter and 33%
for the six month period due to increased revenues, the return of baseball and
hockey in the first fiscal quarter and effective control of expenses. Uniform
Services segment operating income for the second quarter increased 22% over the
prior year period due to volume increases in the uniform rental business, recent
acquisitions and cost reduction initiatives in the direct marketing business,
partially offset by the impact of the divestiture described in note 2. Operating
income for the six month period increased 9% over the prior year period, with
increases related to uniform rental volume and acquisitions being partially
offset by the divestiture and increased operating and marketing costs in the
direct marketing business incurred in the first fiscal quarter. Health and
Education segment second quarter operating income decreased 4% as a result of
the impact of the revenue changes mentioned above. For the six month period,
operating income increased 7% over the prior year, primarily due to the revenue
related increases at Children's World. The Distributive segment incurred an
operating loss in the fiscal second quarter. As a result operating income
declined by approximately $8 million for both the second quarter and the six
months compared to the prior year periods. Results were impacted by higher
operating expenses due to increased competition and consolidation in the
magazine wholesale distribution industry resulting from large retail chains
consolidating magazine purchases from a reduced number of wholesalers. While the
Company believes it is well positioned to take advantage of the current
competitive conditions due to its size and reputation in this market, the future
impact of these changes on the Distributive segment is uncertain at this point
in time. For the remainder of fiscal 1996, the Company projects that operating
income in the Distributive segment will continue to be significantly lower than
the prior year period.
FINANCIAL CONDITION
- -------------------
The Company's indebtedness increased $41 million in the first six months of
fiscal 1996, principally to finance seasonal working capital needs which was
partially offset by the proceeds from the sale of a division (see note 2 to the
condensed consolidated financial statements).
The Company currently has approximately $370 million of unused credit
availability under its revolving credit facility, which management believes,
along with cash flows from operations, is sufficient to fund operating
requirements.
PART II - OTHER INFORMATION
Item 1: Not Applicable.
- -------
Item 2: Not Applicable.
- -------
Item 3: Not Applicable.
- -------
Item 4: Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
(a) The Annual Meeting of Stockholders was held on
February 13, 1996.
(b) Not Applicable
(c) (1) A proposal to approve the Company's Combined Stock
Ownership Plan (the "Plan") was voted upon and
approved.
There were 22,920,119 affirmative votes and 49,208
negative or abstained votes cast with respect to the
approval of the Plan.
(2) A proposal to approve the Company's Stock Unit
Retirement Plan (the "SURP") was voted upon and
approved.
There were 22,843,327 affirmative votes and 126,000
negative or abstained votes cast with respect to the
approval of the SURP.
(3) There were 22,930,669 affirmative votes and 38,658
negative or abstained votes cast with respect to the
uncontested election of directors.
(d) Not Applicable.
Item 5: Not Applicable.
- -------
Item 6: Exhibits.
- ------- ---------
(a) (1) Exhibit 4A - Combined Stock Ownership Plan, is
incorporated by reference to the Company's Proxy
Statement filed with the Securities and Exchange
Commission on January 9, 1996.
(2) Exhibit 4B - Stock Unit Retirement Plan is
incorporated by reference to the Company's Proxy
Statement filed with the Securities and Exchange
Commission on January 9, 1996.
(3) Exhibit 11 - Computation of Fully Diluted Earnings
Per Share
(4) Exhibit 27 - Financial Data Schedule
(b) None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARAMARK CORPORATION
/s/ Alan J. Griffith
-----------------------------
Alan J. Griffith
May 10, 1996 Vice President, Controller
and Chief Accounting Officer