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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 27, 1996 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: None
Securities registered pursuant to Section 12(g) of the Act: Class B Common
Stock, $.01 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: $626 million
Common stock outstanding at October 25, 1996 Class A Common stock 1,981,169 shares
Class B Common stock 21,742,472 shares
Documents incorporated by reference: Portions of the registrant's Proxy
Statement for the 1996 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
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Item 1. Business
- ------ --------
Description of Business Segments
The Company is engaged in providing or managing services, including food
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 and 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 and support services are performed under various
financial arrangements including a management-fee basis and a profit-and-loss
basis.
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
facilities, the equipment is owned by the Company.
There is a high level of competition in the food 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 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, sells, 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 operates one of the largest direct marketers of personalized
work clothing, uniforms and related accessories, primarily in the United States.
The Company also operates one of the largest direct marketers of public safety
equipment and public employee uniforms 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, public safety
equipment 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.
At the beginning of fiscal 1996, the Company sold a division of its
uniform services business. See note 2 to the consolidated financial statements.
At fiscal yearend 1996, the Company acquired a leading provider of uniform
apparel to the hospitality and healthcare markets. See note 2 to the
consolidated financial statements.
2
Health and 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 beneficiaries of
the Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS").
The Company also provides educational and child care services primarily at
Company-operated facilities, and to a lesser extent on customer sites and in
before and after school programs.
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.
Educational and child care services are provided to and are primarily paid
for on a weekly or semester basis directly by individual families under
short-term agreements. The Company leases a significant number of its 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 educational 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
and for larger accounts under multi-year 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 makes it a significant wholesale distributor.
3
Employees
The Company employs approximately 150,000 persons, both full and part
time, including approximately 40,000 employees outside the United States.
Approximately 16,000 employees in the United States are represented by various
labor unions.
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 and Support
Services segment, and laundry equipment used by the Uniform Services segment.
The vehicles include automobiles and delivery trucks used in the Food and
Support Services segment and in the Distributive Services and Uniform Services
segments. The service equipment and fixtures represent 63% of the net book value
of all fixed assets as of September 27, 1996.
The Company's real estate is comprised of educational and 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, Uniform Services and Food and
Support Services segments. Additional information concerning property and
equipment (including 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
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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
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Not Applicable.
4
Item 4A. Directors and Executive Officers of the Registrant
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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, 1996) Office Held Officer Since
- ---------------------------------- ------------ -------------
Joseph Neubauer (55)..................... President and Director............................... 1979
Julian L. Carr, Jr. (50)................. Executive Vice President............................. 1988
James E. Ksansnak (56)................... Executive Vice President,
Chief Financial Officer.............................. 1986
William Leonard (48)..................... Executive Vice President............................. 1992
Brian G. Mulvaney (40)................... Executive Vice President............................. 1993
Martin W. Spector (58)................... Executive Vice President,
General Counsel and Secretary........................ 1976
L. Frederick Sutherland (44)............. Executive Vice President............................. 1983
Barbara A. Austell (43).................. Senior Vice President
and Treasurer........................................ 1996
Brian J. Gail (49)....................... Senior Vice President................................ 1994
Alan J. Griffith (42).................... Vice President, Controller and
Chief Accounting Officer............................. 1994
Dean E. Hill (45)........................ Vice President....................................... 1993
John P. Kallelis (58).................... Vice President....................................... 1982
Michael R. Murphy (39)................... Director of Audit and Controls....................... 1995
Joan C. Mazzotti (46).................... Assistant Secretary and
Associate General Counsel............................ 1994
Donald S. Morton (48).................... Assistant Secretary and
Associate General Counsel............................ 1985
Richard M. Thon (41)..................... 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. Leonard was president of ARAMARK Uniform Services from 1984 until
March 1992 when he was elected to his current position.
Mr. Mulvaney was vice president of ARAMARK Uniform Services from 1988
until 1993 when he was elected vice president of the Company. He was elected
Senior Vice President in 1995 and to his current position in August 1996.
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.
Ms. Austell was elected senior vice president and treasurer of the Company
in August 1996. Prior to joining the Company in July 1996, she was a managing
director of J. P. Morgan & Co.
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. 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.
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
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------- ---------------------------------------------------------------------
There are currently approximately 1,450 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 124
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.
7
Item 6. Selected Financial Data
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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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1996 1995 1994 1993 1992 (1)
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(in millions, except per share amounts and ratios)
Income Statement Data:
Revenues........................................... $6,122.5 $5,600.6 $5,161.6 $4,890.7 $4,865.3
Earnings before depreciation and
amortization, interest, and income taxes........ 478.0 433.9 415.7 399.4 387.4
Earnings before interest
and income taxes (2)............................ 295.2 277.0 272.0 268.9 261.6
Interest expense, net.............................. 116.0 109.4 108.5 125.7 137.9
Income before extraordinary item
and cumulative effect of
change in accounting for
income taxes (3)................................ 112.2 100.2 95.0 84.3 70.7
Net income......................................... 109.5 93.5 86.1 77.1 67.4
Earnings per share: (4)
Income before extraordinary item
and cumulative effect
of change in accounting for
income taxes (3).............................. $2.37 $2.01 $1.87 $1.64 $1.40
Net income......................................... $2.31 $1.88 $1.69 $1.49 $1.33
Ratio of earnings to fixed charges (5)............. 2.1x 2.1x 2.1x 1.9x 1.7x
Balance Sheet Data (at period end):
Total assets....................................... $2,830.8 $2,643.3 $2,122.0 $2,040.6 $2,005.0
Long-term borrowings: (6)
Senior.......................................... 1,160.7 1,109.4 691.5 533.8 629.5
Subordinated.................................... 161.2 165.4 290.4 474.9 413.5
Common stock subject to potential
repurchase (7).................................. 18.6 19.1 20.8 21.7 20.4
Shareholders' equity............................... 296.2 252.3 182.6 124.1 103.8
- ----------------------------
(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 1996 Compared to Fiscal 1995
Overview. Revenues for the fiscal year ended September 27, 1996 were $6.1
billion, a 9% increase over fiscal 1995, with increases being recorded by all
business segments. Operating income of $295.2 million increased 7% compared to
the prior year. Earnings increased substantially in both the Food and Support
Services segment, including the positive impact in fiscal 1996 from the return
of hockey and baseball, and the Uniform Services segment. Earnings were equal to
last year for the Health and Education segment and declined dramatically in the
Distributive segment. Total Company operating income includes other income of
$2.9 million described in note 2 to the consolidated financial statements. The
Company's operating income margin decreased to 4.8% from 4.9%, primarily due to
the decreased earnings of the Distributive segment. Excluding the Distributive
segment, the fiscal 1996 margin was 5.3% and operating income increased 20%
compared to the prior year period.
Interest expense increased $6.6 million or 6% over the prior year due to
increased debt levels to finance acquisitions, partially offset by the favorable
impact of refinancing certain of the Company's subordinated debt and lower
interest rates. The effective income tax rate decreased to 37% in fiscal 1996
from 40% in fiscal 1995 due to the favorable impact resulting from the June 1996
settlement of certain prior years' tax returns. Fiscal 1996 and 1995 net income
reflect extraordinary items for early extinguishment of debt of $2.8 million and
$6.7 million, respectively, as described in note 3 to the consolidated financial
statements.
Segment Results. Food and Support Services segment revenues were 8% higher
than the prior year due to new accounts and increased volume at both U.S. and
international food businesses, acquisitions and the return of hockey and
baseball (see notes 2 and 11 to the consolidated financial statements). Uniform
Services segment revenues increased 17% as a result of yearend 1995 acquisitions
and increased volume in the uniform rental business, partially offset by
decreased volume from direct marketing of work clothing and the divestiture
described in note 2 to the consolidated financial statements. Health and
Education segment revenues increased 5% as a result of enrollment growth and
pricing at Children's World and new contracts at correctional institutions in
the healthcare business. Revenue for the Distributive segment increased 7% due
to acquisitions completed during fiscal 1995 and the impact of the change in
customer mix in 1996.
Operating income for the Food and Support Services segment increased 19%
due to increased revenues, including those resulting from the return of hockey
and baseball, although the baseball labor contract negotiations have not yet
been concluded. Fiscal 1996 operating income for the Uniform Services segment
includes the $37 million gain on the sale of a division and charges of $5
million related to changes in estimates regarding asset realization and
environmental matters described in note 11 to the consolidated financial
statements; excluding the impact of these items, as well as the operating
results of the 1996 divestiture,
9
the increase in segment operating income was approximately 16% as compared to
fiscal 1995. Health and Education segment operating income was equal to the
prior year with revenue related increases being offset by higher operating costs
and increased reserves for real estate values (see note 11 to the consolidated
financial statements). The Distributive segment incurred an operating loss of
$5.6 million in fiscal 1996 versus operating income of $27.4 million in fiscal
1995. Results continue to be severely impacted by higher operating expenses due
to costs of servicing new customers and reduced margins resulting from the
increased competition and consolidation in the magazine wholesale distribution
industry. The Company believes it is well positioned to take advantage of the
current competitive conditions in this industry, however, the future impact of
these changes is uncertain at this time. The Company currently projects that
fiscal 1997 operating income in the Distributive segment will continue to be
significantly below historical levels prior to fiscal 1996. The increase in
fiscal 1996 General Corporate and Other Expenses is due primarily to reserves
established for asset realization, legal and other matters described in note 11
to the consolidated financial statements.
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, 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.
10
Segment Results. Food and Support Services segment revenues were 8%
higher than the prior year due to new accounts and increased volume at both U.S.
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 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 segment increased 10% due primarily to the current year
acquisitions. See notes 2 and 11 to the consolidated financial statements.
Operating income for the Food and Support Services segment increased 6%.
Increased earnings were due to revenue growth and improved margins in the
U.S. 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 and 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 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 segment operating income increased
3%, with revenue related increases being partially offset by increased operating
expenses.
FINANCIAL CONDITION AND LIQUIDITY
Cash flows generated from operating activities were $239 million. Debt
increased by $65 million from the prior year due primarily to the yearend 1996
acquisition, partially offset by the sale of a division (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 facilities. As of September 27, 1996, the
Company has capital commitments of approximately $34 million related to several
long-term concession contracts at stadiums and arenas.
During fiscal 1996 the Company amended its U.S. and Canadian credit
facilities and established a $125 million credit facility for its childcare
business (see note 4 to the consolidated financial statements). Currently, the
Company has approximately $430 million of unused committed credit availability
under the above credit facilities. Also, during fiscal 1996, the Company issued
a $125 million, 6.79% note which was used primarily to refinance the redemption
of its $80 million, 8.25% senior note (see note 3 to the consolidated financial
statements).
During fiscal 1996, the Company redeemed its remaining outstanding
Series C Preferred Stock for $6.4 million in cash and the issuance of $8.6
million of its Class B Common Stock. The Company also repurchased $28 million of
its Class A Common Stock and $55 million of its Class B Common Stock, with $27
million of subordinated installment notes issued as partial consideration.
Additionally, the Company issued $14 million of Class B Common Stock to eligible
employees, primarily through the exercise of installment stock purchase
opportunities (see note 7 to the consolidated financial statements).
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 1996 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
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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 19, 1996
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 19, 1996.
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 27, 1996 and September 29, 1995 S-4
Consolidated Statements of Income:
Fiscal Years 1996, 1995 and 1994 S-6
Consolidated Statements of Cash Flows:
Fiscal Years 1996, 1995 and 1994 S-7
Consolidated Statements of Shareholders' Equity:
Fiscal Years 1996, 1995 and 1994 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 27, 1996
and September 29, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended September 27, 1996. 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 revenues representing 5.6% of consolidated
revenues for fiscal year 1994. 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 year 1994, 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 fiscal
1994, the financial statements referred to above present fairly, in all material
respects, the financial position of ARAMARK Corporation and subsidiaries as of
September 27, 1996 and September 29, 1995, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
September 27, 1996, 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 11, 1996
S-2
REPORT OF CHARTERED ACCOUNTANTS
To The Directors of Versa Services Ltd.:
We have audited the consolidated balance sheet of Versa Services Ltd. as at
September 28, 1994 and the consolidated statements of income and retained
earnings and cash flows for the fifty-two week period 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 audit.
We conducted our audit 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 financial statements present fairly, in all material
respects, the financial position of the company as at September 28, 1994, and
the results of its operations and the changes in its financial position for the
fifty-two week period 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 27, 1996 and September 29, 1995
(dollars in thousands, except share amounts)
- ------------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 25,283 $ 23,082
Receivables (less allowances: 1996, $16,351;
1995, $15,996) 576,447 503,835
Inventories 316,043 312,818
Prepayments and other current assets 67,977 70,675
- ------------------------------------------------------------------------------------------------------------------
Total current assets 985,750 910,410
- ------------------------------------------------------------------------------------------------------------------
Property and Equipment, at Cost:
Land, buildings and improvements 445,086 419,522
Service equipment and fixtures 1,137,387 1,047,559
Leased property under capital leases 12,489 10,213
- ------------------------------------------------------------------------------------------------------------------
1,594,962 1,477,294
Less-Accumulated depreciation 770,327 705,082
- ------------------------------------------------------------------------------------------------------------------
824,635 772,212
- ------------------------------------------------------------------------------------------------------------------
Goodwill 643,880 657,707
- ------------------------------------------------------------------------------------------------------------------
Other Assets (including $95 million invested
in an acquisition made at yearend 1996) 376,505 302,987
- ------------------------------------------------------------------------------------------------------------------
$2,830,770 $2,643,316
==================================================================================================================
The accompanying notes are an integral part of these financial statements.
S-4
ARAMARK CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 26,041 $ 8,384
Accounts payable 496,040 448,518
Accrued payroll and related expenses 163,151 157,106
Other accrued expenses and current liabilities 278,609 257,752
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 963,841 871,760
- ----------------------------------------------------------------------------------------------------------------
Long-Term Borrowings:
Senior 1,183,047 1,115,371
Subordinated 161,189 165,414
Obligations under capital leases 3,670 2,370
- ----------------------------------------------------------------------------------------------------------------
1,347,906 1,283,155
Less-current portion 26,041 8,384
- ----------------------------------------------------------------------------------------------------------------
Total long-term borrowings 1,321,865 1,274,771
- ----------------------------------------------------------------------------------------------------------------
Deferred Income Taxes and Other Noncurrent Liabilities 230,249 225,441
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 18,614 19,060
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Series C preferred stock, redemption value $1,000;
authorized: 40,000 shares; issued: 1996 - 0 shares;
1995 - 14,965 shares -- 14,965
Class A common stock, par value $.01; authorized:
25,000,000 shares; issued: 1996 - 1,978,326 shares;
1995 - 2,148,069 shares 20 21
Class B common stock, par value $.01; authorized:
150,000,000 shares; issued: 1996 - 22,732,673 shares;
1995 - 23,499,782 shares 227 235
Earnings retained for use in the business 309,437 247,805
Cumulative translation adjustment 5,131 8,318
Impact of potential repurchase feature of common stock (18,614) (19,060)
- -----------------------------------------------------------------------------------------------------------------
Total 296,201 252,284
- ----------------------------------------------------------------------------------------------------------------
$2,830,770 $2,643,316
- ----------------------------------------------------------------------------------------------------------------
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 27, 1996, September 29, 1995
and September 30, 1994
(dollars in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
Revenues $6,122,500 $5,600,645 $5,161,578
- ----------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of services provided 5,565,038 5,094,179 4,686,086
Depreciation and amortization 182,785 156,869 143,763
Selling and general corporate expense 82,354 72,602 70,196
Other expense (income), net (2,850) -- (5,792)
- -----------------------------------------------------------------------------------------------------------------
5,827,327 5,323,650 4,894,253
- ----------------------------------------------------------------------------------------------------------------
Operating income 295,173 276,995 267,325
Gain on Issuance of Stock by an Affiliate -- -- 4,658
- ----------------------------------------------------------------------------------------------------------------
Earnings before interest and income taxes 295,173 276,995 271,983
Interest Expense, net 116,014 109,418 108,499
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes 179,159 167,577 163,484
Provision For Income Taxes 66,931 67,388 67,119
Minority Interest -- -- 1,332
- ----------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item and Cumulative
Effect of Change in Accounting for Income Taxes 112,228 100,189 95,033
Extraordinary Item Due to Early Extinguishments
of Debt (net of income taxes of $1,839 in 1996,
$4,458 in 1995 and $5,118 in 1994) 2,758 6,686 7,677
Cumulative Effect of Change in Accounting for
Income Taxes -- -- 1,277
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 109,470 $ 93,503 $ 86,079
================================================================================================================
Earnings Per Share:
Income before extraordinary item and
cumulative effect of change in
accounting for income taxes $2.37 $2.01 $1.87
Net income $2.31 $1.88 $1.69
================================================================================================================
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 27, 1996, September 29,1995
and September 30, 1994 (in thousands)
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 109,470 $ 93,503 $ 86,079
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 182,785 156,869 143,763
Income taxes deferred (27,604) 4,920 (2,174)
Minority interest -- -- 1,332
Cumulative effect of accounting change -- -- 1,277
Gain on issuance of stock by affiliate -- -- (4,658)
Extraordinary item 2,758 6,686 7,677
Changes in noncash working capital:
Receivables (62,239) (25,162) (40,557)
Inventories (9,734) (13,992) (6,915)
Prepayments (209) 13,244 (15,675)
Accounts payable 28,973 25,186 36,956
Accrued expenses 27,245 22,737 36,926
Changes in other noncurrent liabilities (461) (6,525) (1,368)
Changes in other assets (9,217) 4,020 (6,445)
Other (2,494) (2,232) (9,186)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 239,273 279,254 227,032
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (190,896) (193,470) (145,935)
Disposals of property and equipment 13,099 16,063 11,525
Sale of investments -- 16,203 13,543
Divestiture of certain businesses 51,285 1,719 7,297
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 (8) (12,227) (3,066)
Property and equipment (8,076) (36,261) (573)
Additions to intangibles and other assets (104,679) (306,067) (6,734)
Other (8,362) (2,268) 7,758
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (247,637) (536,799) (150,011)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 155,510 486,844 167,329
Payment of long-term borrowings including premiums (95,510) (209,742) (210,511)
Redemption of preferred stock (6,359) (1,984) (17,647)
Proceeds from issuance of common stock 13,949 9,718 12,416
Repurchase of common stock (54,849) (26,435) (25,729)
Payment of preferred stock dividend (1,067) (1,049) (1,917)
Other (1,109) (4,151) (1,337)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) financing activities 10,565 253,201 (77,396)
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,201 (4,344) (375)
Cash and cash equivalents, beginning of year 23,082 27,426 27,801
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 25,283 $ 23,082 $ 27,426
=================================================================================================================
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 27, 1996
(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 29, 1995 $14,965 $21 $235 $ -- $247,805 $8,318 $(19,060)
Net income 109,470
Dividends on preferred stock (769)
Issuance of Class A common stock to
employee benefit plans 5,728
Issuance of Class B common stock 25 30,519
Retirement of common and preferred stock (14,965) (1) (33) (36,247) (47,069)
Change during the period (3,187) 446
----------- ----- ------- --------- --------- ------- ----------
Balance, September 27, 1996 $ -- $20 $227 $ -- $309,437 $ 5,131 $(18,614)
=========== ===== ======= ========= ======== ======= ========
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 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-9
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-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 fiscal years ended September 27, 1996,
September 29, 1995 and September 30, 1994 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. Certain reclassifications were made to the prior year
financial statements to conform to the fiscal 1996 presentation.
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 adoption
will not have a material impact on the consolidated financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 1996, 1995 and 1994 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.
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 public safety clothing and
equipment. 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 are as follows:
1996 1995
- --------------------------------------------------------------------------------
Food 24.2% 23.4%
Work clothing, safety equipment and linens 59.4% 61.0%
Magazines and books 7.5% 8.0%
Parts, supplies and novelties 8.9% 7.6%
- --------------------------------------------------------------------------------
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 1996,
1995 and 1994 was $129.1 million, $116.4 million and $107.5 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
27, 1996 and September 29, 1995 is $150.5 million and $130.2 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, 3 to 20 years. As
discussed in Note 2, at September 27, 1996, other assets includes approximately
$95 million related to the purchase price of an acquisition 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
1996 1995 1994
---- ---- ----
(in millions)
Interest Paid $108.1 $107.4 $108.2
Income Taxes Paid $91.4 $53.5 $54.0
Significant noncash investing and financing activities are as follows:
o During fiscal 1996, 1995 and 1994, the Company contributed $5.7 million,
$6.6 million and $8.9 million, respectively, of Class A Common Stock to
its employee benefit plans to fund previously accrued obligations. In
addition, during fiscal 1996, 1995 and 1994, the Company contributed $1.7
million, $1.8 million and $1.8 million, respectively, of stock units to its
stock unit retirement plan in satisfaction of its accrued obligations. See
Note 5.
o During fiscal 1996, 1995 and 1994, the Company received $7.2 million, $9.4
million and $4.0 million, respectively, of employee notes under its
Deferred Payment program as partial consideration for the issuance of
Common Stock Class B. Also, during fiscal 1996, 1995, and 1994, the Company
issued subordinated installment notes of $26.8 million, $22.5 million and
$13.2 million, respectively, as partial consideration for repurchases of
Common Stock. See Note 7.
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.:
In 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 consolidated revenues or operating income.
At fiscal 1996 yearend, the Company acquired a provider of uniform apparel
to the hospitality and healthcare markets for cash of approximately $95
million. The acquisition will be accounted for under the purchase method of
accounting. Due to the timing of the closing of the transaction, the cost of the
acquisition has been included in "Other Assets" until appraisals and other
valuations have been completed. The Company's pro forma results of operations
for fiscal 1996 and 1995 would not have been materially different assuming the
acquisition had occurred as of the beginning of the respective periods.
During fiscal 1995, the Company acquired a number of businesses: a provider of
food and support services to stadiums and arenas late in the first quarter; 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 dates of the acquisitions. Had these
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.
S-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.: (Continued)
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. Pro forma results do not 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 cash 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, received 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%.
NOTE 3. EXTRAORDINARY ITEM:
The following have been reflected as extraordinary items in the consolidated
financial statements:
During fiscal 1996, the Company redeemed its $80 million 8-1/4% senior notes for
a premium. The debt extinguishment was financed through the issuance of a $125
million 6.79% senior note. Additionally, the Company replaced its credit
facility with a new $1 billion credit facility (see Note 4), writing off the
unamoritized balance of financing costs related to the old credit facility. The
resultant extraordinary charge on these transactions was $2.8 million or $0.06
per share.
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.
S-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS:
Long-term borrowings at September 27, 1996 and September 29, 1995 are summarized
in the following table:
1996 1995
---- ----
(in thousands)
SENIOR:
Credit facility borrowings $ 596,400 $ 592,900
Canadian credit facility 45,123 50,674
6.79% note, payable in installments through 2003 125,000 -
8% notes, due April 2002 100,000 100,000
8.15% notes, due May 2005 150,000 150,000
10-5/8% notes, due August 2000 100,000 100,000
8-1/4% notes, redeemed in 1996 - 80,000
Other 66,524 41,797
- -----------------------------------------------------------------------------------------------------
1,183,047 1,115,371
- -----------------------------------------------------------------------------------------------------
SUBORDINATED:
8-1/2% subordinated notes, due June 2003 100,000 100,000
10% exchangeable debentures and notes, due August 2000 58,849 59,299
Other 2,340 6,115
- -----------------------------------------------------------------------------------------------------
161,189 165,414
- -----------------------------------------------------------------------------------------------------
OBLIGATIONS UNDER CAPITAL LEASES 3,670 2,370
- -----------------------------------------------------------------------------------------------------
1,347,906 1,283,155
Less-current portion 26,041 8,384
- -----------------------------------------------------------------------------------------------------
$1,321,865 $1,274,771
=====================================================================================================
The non-amortizing $1.0 billion revolving credit facility ("Credit Agreement")
is provided by a group of banks and matures in June 2001. Interest under the
Credit Agreement is based on the Prime Rate, LIBOR plus a spread of .15% to
.625% (as of September 27, 1996 - .33%) or the Certificate of Deposit Rate plus
a spread of .25% to .725% (as of September 27, 1996 - .43%), at the option of
the Company. The Company pays a fee of .10% to .375% (as of September 27, 1996 -
.17%) on the entire credit facility. The spread and fee margins are based on
certain financial ratios as defined.
The non-amortizing C$80 million Canadian revolving credit facility provides for
either U.S. dollar or Canadian dollar borrowings and matures in June 2001.
Interest on this facility is based on the Canadian Bankers Acceptance Rate, U.S.
Prime Rate, Canadian Prime Rate or LIBOR plus a spread of up to 5/8%, as
defined. As of September 27, 1996, all borrowings under this facility are
payable in Canadian dollars, with a weighted average interest rate of 4.6%. The
Company pays a fee of .17% on the entire credit facility.
The Company's Children's World Learning Centers, Inc. (CWLC) subsidiary also has
a $125 million revolving credit facility with a group of banks. The credit
facility matures in August 2003, with quarterly commitment reductions of $5
million starting in September 2001, which increase to $6.25 million starting
September 2002. Interest under the credit facility is based on the Prime Rate
plus a spread of 0% to 1/4% or LIBOR plus a spread of 1/2% to 1%, at the option
of CWLC. CWLC pays a fee of .2% to .375% (as of September 27, 1996 - 1/4%) on
the unborrowed portion of the credit facility. The spread and fee margins are
based on certain financial ratios as defined. As of September 27, 1996 there
were no borrowings outstanding under this credit facility.
S-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: BORROWINGS: (Continued)
The 6.79% note is payable in $25 million annual installments beginning January
1999, with a final maturity of January 2003.
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 $24.3 million at September 27, 1996 and
$22.0 million at September 29, 1995 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 27,
1996 and September 29, 1995, the Company has $250 million and $175 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 6.2% and 6.3%,
respectively. As of September 27, 1996, interest rate exchange agreements remain
in effect for periods ranging from 9 to 34 months. 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 1996, the Company entered into a $24 million foreign currency swap
agreement maturing in August 1998, 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 27, 1996 and September 29, 1995. 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.
1996 1995
------------------------------ -------------------------
Carrying Fair Carrying Fair
Asset/(Liability) in millions Amount Value Amount Value
- ----------------------------- ------ ----- ------ -----
Long-term debt $(1,347.9) $(1,364.6) $(1,283.2) $(1,313.3)
Interest rate swap agreements - 0.1 - 0.7
Foreign currency swap agreement 0.4 0.1 (2.6) (2.5)
The Credit Agreement contains restrictive covenants which provide, among other
things, limitations on liens, dispositions of material assets 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 27, 1996, 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)
1997 $ 26,041
1998 4,061
1999 79,719
2000 142,487
2001 686,941
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 1996, 1995 and 1994 was $15.7 million,
$15.3 million and $14.5 million, respectively. During fiscal 1996, 1995 and
1994, the Company contributed 32,475 shares, 41,114 shares and 59,919 shares,
respectively, of Common Stock, Class A to these plans to partially fund
previously accrued obligations. In addition, during fiscal 1996, 1995 and 1994,
the Company contributed to the stock unit retirement plan 104,938 stock units,
120,700 stock units and 143,125 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 $13.6 million, $13.1
million and $11.9 million for fiscal 1996, 1995 and 1994, 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 27, 1996, which is
fully funded, is $44.7 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." 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. In June 1996
the Company settled certain prior years' tax returns.
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:
1996 1995 1994
- ------------------------------------------------------------------------------
(in thousands)
United States $172,572 $159,851 $143,052
Non-U.S. 6,587 7,726 20,432
- -----------------------------------------------------------------------------
$179,159 $167,577 $163,484
=============================================================================
Non-U.S. income before income taxes includes the gain on the sale of an
affiliate's stock in fiscal 1994 (see Note 2), and increased interest expense
subsequent to fiscal 1994 due to increased borrowing levels.
The provision for income taxes consists of:
1996 1995 1994
- --------------------------------------------------------------------------------
(in thousands)
Current:
Federal $73,919 $46,579 $51,935
State and local 17,335 12,064 11,827
Non-U.S. 3,281 3,825 5,531
- --------------------------------------------------------------------------------
94,535 62,468 69,293
- --------------------------------------------------------------------------------
Deferred:
Federal (23,210) 3,189 (1,516)
State and local (5,379) 739 (351)
Non-U.S. 985 992 (307)
- --------------------------------------------------------------------------------
(27,604) 4,920 (2,174)
- --------------------------------------------------------------------------------
$66,931 $67,388 $67,119
================================================================================
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:
1996 1995 1994
- --------------------------------------------------------------------------------
(% of pre-tax income)
United States statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes, resulting from:
State income taxes, net of Federal tax
benefit 4.3 4.7 4.6
Permanent book/tax differences, primarily
resulting from purchase accounting 2.1 1.7 3.0
Favorable impact of June 1996 tax settlement (2.8) - -
Tax credits and other (1.2) (1.2) (1.6)
- --------------------------------------------------------------------------------
Effective income tax rate 37.4% 40.2% 41.0%
================================================================================
As of September 27, 1996 and September 29, 1995, the components of deferred
taxes are as follows (in thousands):
1996 1995
-------- --------
Deferred tax liabilities:
Property and equipment $ 61,095 $ 65,901
Inventory 5,549 10,451
Investments 12,813 12,406
Other 10,837 14,053
-------- --------
Gross deferred tax liability 90,294 102,811
-------- --------
S-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
1996 1995
--------- --------
Deferred tax assets:
Insurance $ 26,455 $23,579
Employee compensation and benefits 34,889 34,693
Accruals and allowances 30,638 27,530
Intangibles 3,415 6,534
Other 8,709 3,223
Valuation allowance (815) (1,240)
-------- -------
Net deferred tax asset 103,291 94,319
-------- -------
Net deferred tax liability/(asset) $(12,997) $ 8,492
======== =======
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 fiscal 1996, the Company redeemed, at par, all its outstanding Series C
Preferred Stock for $6.4 million in cash and the issuance of $8.6 million of
Common Stock, Class B. 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 27, 1996, the Company's stock option plans provided for the
issuance of up to 44,861,642 options to purchase shares of Common Stock, Class
B. The Company granted installment stock purchase opportunities under its stock
ownership program in fiscal 1996, 1995 and 1994 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
opportunity equal to the current fair market value at the time the purchase
opportunity is granted. The Company has a program to grant non-qualified stock
options to additional qualified employees on an annual basis. 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 and 1996, 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. The Company has a 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 8.25% compounded annually and is payable when
the deferred payments are due. At September 27, 1996 and September 29, 1995 the
receivables from individuals under the Deferred Payment Program were $19.0
million and $17.5 million, respectively, which are reflected 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
---------------------------------------- -----------------------------
1996 1995 1994 1996 1995 1994
---------- ------------- ------------- ------ ------ ------
Options granted 4,133,100 4,409,920 4,314,635 $14.75 $13.11 $11.19
Options exercised 1,938,142 3,084,830 2,588,030 $8.83 $6.17 $6.33
Options outstanding 10,367,984 10,107,199 10,383,764 $12.17 $10.47 $8.05
S-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL STOCK: (Continued)
At September 27, 1996, 539,720 of the outstanding option shares were exercisable
at an average option price of $3.72. The Company has reserved 11,117,149 shares
of Common Stock, Class B at September 27, 1996 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
$18.6 million at September 27, 1996 and $19.1 million at September 29, 1995.
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
($49.2 million as of September 27, 1996 and $36.8 million as of September 29,
1995) is included in the consolidated balance sheets as "Other Noncurrent
Liabilities" and the current portion of these notes ($13.4 million as of
September 27, 1996 and $11.3 million as of September 29, 1995) is included in
the consolidated balance sheets as "Accounts Payable."
NOTE 8. COMMITMENTS AND CONTINGENCIES:
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
(in thousands)
Facilities under capital leases $12,489 $10,213
Less-accumulated amortization 9,269 8,211
- --------------------------------------------------------------------------------
$ 3,220 $ 2,002
================================================================================
Rental expense for all operating leases was $128.6 million, $124.2 million and
$121.2 million for fiscal 1996, 1995 and 1994, respectively.
Following is a schedule of the future minimum rental commitments under all
noncancelable leases as of September 27, 1996:
Fiscal Year Operating Capital
- --------------------------------------------------------------------------------
(in thousands)
1997 $128,812 $1,220
1998 73,228 1,088
1999 66,948 837
2000 60,500 691
2001 54,393 255
Subsequent years 151,346 244
- ---------------------------------------------------------------------------
Total minimum rental obligations $535,227 4,335
=====================================================
Less-amount representing interest 665
- ---------------------------------------------------------------------------
Present value of capital leases 3,670
Less-current portion 796
- ---------------------------------------------------------------------------
Noncurrent obligations under capital leases $2,874
===========================================================================
S-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENCIES: (Continued)
The Company has capital commitments of approximately $34 million at September
27, 1996 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.
1996 1995 1994
------------- ------------ ----------
(in thousands)
Revenues $3,200,388 $2,975,397 $2,763,098
Cost of services provided 3,024,136 2,808,554 2,594,291
Net income 15,503 14,749 18,677
1996 1995
------------ -------------
(in thousands)
Current assets $ 395,243 $ 366,370
Noncurrent assets 1,630,023 1,545,474
Current liabilities 495,147 435,289
Noncurrent liabilities 1,419,648 1,377,799
S-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. QUARTERLY RESULTS (Unaudited):
The following table summarizes quarterly financial data for
fiscal 1996 and 1995:
Fiscal Quarter
-------------------------------------------------------
1996 First Second Third Fourth Year
- ----------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
Revenues $1,549,374 $1,464,626 $1,546,296 $1,562,204 $6,122,500
Cost of services provided 1,413,632 1,343,275 1,407,732 1,400,399 5,565,038
Income before extraordinary item 24,989 15,299 29,805 42,135 112,228
Extraordinary item (1) -- 1,589 1,169 -- 2,758
Net income 24,989 13,710 28,636 42,135 109,470
Earnings per share:
Income before extraordinary item $.52 $.32 $.64 $.92 $2.37
Net income $.52 $.28 $.61 $.92 $2.31
Fiscal Quarter
-------------------------------------------------------
1995 First(2) Second Third(3) 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
(1) See Note 3.
(2) Fiscal 1995 first quarter results were adversely impacted by the National
Hockey League strike (see Note 11).
(3) 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 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 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 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. Fiscal 1994 operating income includes a
$5.8 million gain on the sale of stock of an affiliate as described in Note 2.
The 1995 and 1994 segment operating results were adversely impacted by the Major
League Baseball strike in the U.S. and Canada. Additionally, the fiscal 1995
segment operating results were 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,
safety equipment and accessories. Fiscal 1996 operating income includes the $37
million gain on the sale of a division and charges of $5 million related to
changes in estimates regarding asset realization and environmental matters (see
Note 2); excluding the impact of these items as well as the impact of the
operating results of the 1996 divestiture the increase in segment operating
income was approximately 16%. The impact on revenues was not material. The
acquisition for $95 million consummated in the fourth quarter of fiscal 1996
discussed in Note 2 is included in the identifiable asset disclosure in fiscal
1996.
Health and Education - General management of child care centers, and specialized
services to emergency rooms, and other hospital specialties, and medical
services to correctional institutions. Fiscal 1996 operating income includes
additional charges of approximately $13 million for insurance claims and real
estate exposures (see Note 2). Fiscal 1995 segment operating income is lower
than 1994 primarily due to an increase in insurance reserves, reflecting a
refinement in the claims estimation methodology.
Distributive - Wholesale distribution of magazines and other published materials
to retail locations patronized by the general public. In fiscal 1996, the
Distributive Segment operating results were severely impacted by higher
operating costs related to servicing new customers and reduced margins resulting
from increased competition and consolidation in the magazine wholesale
distribution industry.
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 1996 General
Corporate expenses is due primarily to reserves established for asset
realization, legal and other matters (see Note 2). Direct selling expenses are
approximately 1% of revenues for fiscal 1996, 1995 and 1994. 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
--------------------------------------- --------------------------------------
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- -------
(in millions)
Food and Support
Services $3,816.0 $3,521.2 $3,274.3 $174.2 $146.4 $138.4
Uniform Services 1,049.2 893.4 810.5 144.2 102.6 96.0
Health and Education 781.0 742.9 673.3 28.1 28.5 37.2
Distributive 476.3 443.1 403.5 (5.6) 27.4 26.5
--------- -------- -------- ----- ----- -----
Total $6,122.5 $5,600.6 $5,161.6 340.9 304.9 298.1
========= ======== ========
General Corporate and Other Expenses (45.7) (27.9) (30.8)
----- ----- ----
Operating Income 295.2 277.0 267.3
Gain on Issuance of Stock by an Affiliate - - 4.7
Interest Expense, net (116.0) (109.4) (108.5)
------- -------- -------
Income Before Income Taxes, Minority Interest,
Extraordinary Item, and Accounting Change $179.2 $167.6 $163.5
====== ====== ======
Depreciation Capital
and Amortization Expenditures
--------------------------------- ----------------------------------
1996 1995 1994 1996 1995 1994
------ ------ ------ ------ ------ -----
(in millions)
Food and Support
Services $ 96.5 $ 89.7 $ 85.5 $ 99.5 $128.2 $ 83.2
Uniform Services 52.2 40.7 36.3 54.7 66.7 39.9
Health and Education 19.6 18.2 16.5 39.2 26.6 18.4
Distributive 8.3 3.5 2.3 4.6 3.9 2.0
------ ------- ------- ------ ------ -------
176.6 152.1 140.6 198.0 225.4 143.5
Corporate 6.2 4.8 3.2 1.0 4.3 3.0
------ ------- ------- ------ ------ -------
$182.8 $156.9 $ 143.8 $199.0 $229.7 $ 146.5
====== ======= ======= ====== ====== =======
Identifiable Assets
-----------------------------------------
1996 1995 1994
--------- ---------- --------
(in millions)
Food and Support
Services $1,286.4 $1,264.5 $1,085.7
Uniform Services 986.8 891.2 608.7
Health and Education 308.3 272.0 280.2
Distributive 174.1 131.5 74.2
-------- -------- --------
2,755.6 2,559.2 2,048.8
Corporate 75.2 84.1 73.2
-------- -------- --------
$2,830.8 $2,643.3 $2,122.0
======== ======== ========
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 15% of total revenues and 8% of total
operating income, and identifiable assets for these operations were
approximately 10% of the total.
S-24
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARAMARK CORPORATION
BALANCE SHEETS
SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(in thousands)
ASSETS
1996 1995
---------- ---------
Current Assets:
Receivables $ 1,946 $ 1,261
Inventories 289 292
Prepayments 1,817 1,560
--------- --------
Total current assets 4,052 3,113
--------- --------
Property & Equipment, net 10,819 11,924
Investment in Subsidiaries 838,439 732,156
Notes Receivable from ARAMARK Services, Inc. 100,000 100,000
Other Assets 2,126 10,245
--------- --------
$ 955,436 $857,438
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 17,013 $ 12,546
Accrued expenses 17,289 13,901
--------- --------
Total current liabilities 34,302 26,447
--------- --------
Long-Term Borrowings 161,189 165,414
Other Noncurrent Liabilities 63,172 54,936
Payable to Subsidiaries 381,958 339,297
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 18,614 19,060
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Series C preferred stock, redemption value $1,000 -- 14,965
Class A common stock, par value $.01 20 21
Class B common stock, par value $.01 227 235
Earnings retained for use in the business 309,437 247,805
Cumulative translation adjustment 5,131 8,318
Impact of potential repurchase feature of
common stock (18,614) (19,060)
--------- --------
Total 296,201 252,284
--------- --------
$ 955,436 $857,438
========= ========
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 27, 1996,
SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(in thousands)
1996 1995 1994
---------- ---------- --------
Equity in Net Income of Subsidiaries $109,470 $ 93,503 $86,079
-------- -------- -------
Management Fee Income 49,677 56,360 67,571
-------- -------- -------
General and Administrative Expenses 39,425 39,322 45,808
-------- -------- -------
Interest (Income) Expense -
Intercompany interest income (8,477) (16,532) (38,778)
Interest expense 18,729 25,916 47,746
-------- -------- -------
Interest Expense, net 10,252 9,384 8,968
-------- -------- -------
Income before income taxes 109,470 101,157 98,874
Provision for Income Taxes -- 3,062 5,118
-------- -------- -------
Income Before Extraordinary Item 109,470 98,095 93,756
Extraordinary Item Due to Early Extinguishments
of Debt (net of income taxes $3,062 in 1995 and
$5,118 in 1994) -- 4,592 7,677
-------- -------- -------
Net income $109,470 $ 93,503 $86,079
======== ======== =======
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 27, 1996,
SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(in thousands)
1996 1995 1994
---------- ---------- ---------
Cash flows from operating activities:
Net income $ 109,470 $ 93,503 $ 86,079
Equity in net income of subsidiaries (109,470) (93,503) (86,079)
Extraordinary item -- 4,592 7,677
Other, primarily noncash working capital 445 (22,264) (8,408)
--------- --------- --------
Net cash provided by (used in) operating activities 445 (17,672) (731)
--------- --------- --------
Cash flows from investing activities:
Purchases of property and equipment (968) (4,258) (3,023)
Other 3,474 119 2,072
--------- --------- --------
Net cash provided by (used in) investing activities 2,506 (4,139) (951)
--------- --------- --------
Cash flows from financing activities:
Payment of long-term borrowings including
premiums (4,225) (131,250) (194,694)
Change in notes receivable from
ARAMARK Services, Inc. -- 125,000 175,000
Change in intercompany payable to
subsidiaries 49,600 47,811 54,253
Redemption of preferred stock (6,359) (1,984) (17,647)
Proceeds from issuance of common stock 13,949 9,718 12,416
Repurchase of common stock (54,849) (26,435) (25,729)
Payment of preferred stock dividend (1,067) (1,049) (1,917)
--------- ---------- --------
Net cash provided by (used in) financing activities (2,951) 21,811 1,682
--------- ---------- --------
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 noncurrent liabilities consist primarily of deferred
compensation and subordinated installment notes arising from repurchases of
common stock.
Note 2.
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 27, 1996.
S-28
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED SEPTEMBER 27, 1996,
SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
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 1996
Reserve for doubtful accounts,
advances & current notes receivable $15,996 $209 $6,875 $ - $6,729 $16,351
======= ==== ====== ========== ====== =======
Fiscal Year 1995
Reserve for doubtful accounts,
advances & current notes receivable $12,423 $3,828 $6,357 $ - $6,612 $15,996
======= ====== ====== ========== ====== =======
Fiscal Year 1994
Reserve for doubtful accounts,
advances & current notes receivable $10,242 $1,288 $6,141 $ - $5,248 $12,423
======= ====== ====== ========= ====== =======
(1) Allowances granted and amounts determined not to be collectible.
S-29
INDEX TO EXHIBITS
3.1 Restated Certificate of Incorporation is incorporated by reference
to the Company's quarterly report on Form 10-Q for the fiscal
quarter ended December 29, 1995.
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 Agreement relating to employment and post-employment competition
dated June 7, 1993 with L. Frederick Sutherland.
10.7 Agreement relating to employment and post-employment competition
dated July 1, 1996 with Barbara A. Austell.
10.8 Credit and Guaranty Agreement dated as of May 29, 1996.
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.