1998 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 2, 1998 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: $851 million
Common stock outstanding at
October 30, 1998 Class A Common stock 2,524,993 shares
Class B Common stock 62,725,606 shares
Documents incorporated by reference: Portions of the registrant's Proxy
Statement for the 1999 annual meeting of stockholders are incorporated by
reference in Part III of this Report.
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As used herein, references to the "Company" shall mean ARAMARK Corporation
and its subsidiaries (including ARAMARK Services, Inc.) unless the context
otherwise requires. References to "ARAMARK" shall mean ARAMARK Services, Inc.
and its subsidiaries unless the context otherwise requires.
PART I
Item 1. Business
Description of Business Segments
The Company is engaged in providing or managing services, including food
and support services, uniform and career apparel and educational resources.
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 facility maintenance and housekeeping) to businesses, and to
educational, governmental and healthcare institutions. Food, lodging and
merchandise services are also provided at sports and entertainment 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
sports and entertainment 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 management-fee and
profit-and-loss based agreements.
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 sports
and entertainment 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, national and international 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, Belgium, Canada, Germany and Spain, 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 and Career Apparel
The Company rents, sells, cleans, maintains and delivers personalized
uniform and career 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, and is a leading
provider of uniform apparel to the hospitality and healthcare markets.
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 three to five years. Generally, the direct marketing business is
conducted under an invoice arrangement with customers.
The uniform rental services and sales 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, career apparel,
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 and career apparel
business are the quality of services provided to customers and the prices
charged for such services.
Educational Resources
The Company provides infant, toddler, pre-school, and school-age learning
programs. The Company operates community-based child care centers, before and
after school programs on the premises of elementary schools, private elementary
schools, and employer on-site child care centers. These services are provided
to, and are primarily paid for on a weekly or monthly basis directly by
individual families under short-term agreements. The Company leases a
significant number of its facilities under long-term arrangements.
2
The Company believes it is a significant provider of 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 educational services as well as from private and public
institutions which provide for their own educational services. Significant
competitive factors in the Company's educational services business 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
Effective in July 1998, the Company formed a joint venture for its
distributive business with another leading magazine and book wholesaler. The
Company contributed substantially all of its distribution segment's assets and
liabilities to the venture in exchange for a minority interest in the venture.
See note 2 to the consolidated financial statements.
General
The Company employs approximately 150,000 persons, both full and part
time, including approximately 40,000 employees outside the United States.
Approximately 25,500 employees in the United States are represented by various
labor unions.
The Company believes it recognizes benefits from its corporate name
recognition. Nonetheless, consistent with its businesses, the Company does not
have any material trademarks or patents, and its research and development
expenditures are not material in amount. Although the Company pursues strategies
to increase the number and scope of the services it provides to existing
customers, no single customer of the Company accounts for more than 5% of its
revenues. While the Company focuses its purchasing on selected suppliers and
vendors to realize pricing, quality and service benefits, generally, all
materials and services that the Company purchases are available from more than
one supplier, and the loss of any supplier would not have a material impact on
the Company's results of operations. The Company's businesses are subject to
various governmental environmental regulations, and the Company has adopted
policies designed to comply with such regulations. Such compliance has not had a
material impact on the Company's capital expenditures, earnings or competitive
position.
3
Item 2. Properties
The principal property and equipment of the Company are its service
equipment and fixtures (including vehicles) and real estate.
The service equipment and fixtures include vending, commissary, warehouse
and janitorial and maintenance equipment used primarily by the Food and Support
Services Group and laundry equipment used by the Uniform and Career Apparel
Group. The vehicles include automobiles and delivery trucks used in the Food and
Support Services and Uniform and Career Apparel Groups. The service equipment
and fixtures represent 59% of the net book value of all fixed assets as of
October 2, 1998.
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 the Uniform and Career Apparel and Food and Support Services
Groups. 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
The Company and its subsidiaries are not parties to any lawsuits (other
than ordinary routine litigation incidental to its business) which are material
to the Company's business or financial condition. See note 8 to the consolidated
financial statements for additional information concerning legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
4
Item 4A. Directors and Executive Officers of the Registrant
Directors:
Name Principal Occupation
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Joseph Neubauer...................................... Chairman and Chief Executive Officer
ARAMARK Corporation
James E. Ksansnak.................................... Vice Chairman, ARAMARK Corporation
Patricia C. Barron................................... Executive-in-Residence and Senior Fellow,
Leonard N. Stern School of Business
New York University
Robert J. Callander.................................. Executive-in-Residence, Columbia University
Retired Vice Chairman, Chemical Banking Corporation
Ronald R. Davenport.................................. Chairman, Sheridan Broadcasting Corporation
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, Avon Products, Inc.
Officers: Officer
Name (Age as of November 1, 1998) Office Held Since
- ---------------------------------- ------------ -----
Joseph Neubauer (57)................................. Chairman and Director................................ 1979
James E. Ksansnak (58)............................... Vice Chairman and Director........................... 1986
William Leonard (50)................................. President............................................ 1992
Charles E. Kiernan (53).............................. Executive Vice President............................. 1998
Brian G. Mulvaney (42)............................... Executive Vice President............................. 1993
Martin W. Spector (60)............................... Executive Vice President,
General Counsel and Secretary........................ 1976
L. Frederick Sutherland (46)......................... Executive Vice President and
Chief Financial Officer.............................. 1983
Barbara A. Austell (45).............................. Senior Vice President
and Treasurer........................................ 1996
Alan J. Griffith (44)................................ Vice President, Controller and
Chief Accounting Officer............................. 1994
Dean E. Hill (47).................................... Vice President....................................... 1993
John P. Kallelis (60)................................ Vice President....................................... 1982
Michael R. Murphy (41)................................ Director of Audit and Controls....................... 1995
Donald S. Morton (50)................................ Assistant Secretary and
Associate General Counsel............................ 1985
Richard M. Thon (43)................................. 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. Ksansnak was elected vice chairman of the Company in May 1997. From
February 1991 to May 1997 he was executive vice president of the Company and
chief financial officer from May 1986 to May 1997.
Mr. Leonard has been president and chief operating officer of the Company
since May 1997. He was executive vice president of the Company from May 1992
until May 1997.
Mr. Kiernan was elected executive vice president of the Company in October
1998. Prior to that time he was president, Duracell North America and then in
1994, president and chief operating officer, Duracell International, Inc.
Mr. Mulvaney was elected executive vice president of the Company in
August 1996. He was senior vice president of the Company from February 1995 to
August 1996 and vice president from February 1993 to February 1995.
Mr. Sutherland became chief financial officer of the Company in May
1997. He was elected executive vice president in May 1993.
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. Griffith was elected vice president of the Company in February
1995. In December 1993 he became controller and chief accounting officer.
Mr. Murphy became director of audit and controls in September 1995. He
joined the Company as senior audit manager in January 1993. Prior to that time
he was a senior audit manager with Arthur Andersen LLP.
Mr. Thon was elected assistant treasurer of the Company in August 1994.
Previously he held various treasury analyst positions since joining the Company
in 1987.
6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There are currently approximately 2,200 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 170
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.
The Company has not paid a cash dividend during the last two fiscal years.
From time to time, the Board of Directors may consider paying cash dividends in
the future, based upon the Company's circumstances at that time.
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
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
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Fiscal Year Ended on or near
September 30
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1998 1997(1) 1996 1995 1994
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(in millions, except per share amounts and ratios)
Income Statement Data:
Revenues..................................................... $6,377.3 $6,310.4 $6,122.5 $5,600.6 $5,161.6
Earnings before depreciation and
amortization, interest, and income taxes.................. 528.9 523.6 478.0 433.9 415.7
Earnings before interest
and income taxes (2)...................................... 333.1 331.8 295.2 277.0 272.0
Interest expense, net........................................ 117.3 116.0 116.0 109.4 108.5
Income before extraordinary item
and cumulative effect of
change in accounting for
income taxes (3).......................................... 133.7 146.1 112.2 100.2 95.0
Net income................................................... 129.2 146.1 109.5 93.5 86.1
Earnings per share: (4)
Income before extraordinary item and
cumulative effect of change in accounting
for income taxes: (3)
Basic................................................ $1.17 $1.16 $.84 $.71 $.67
Diluted.............................................. 1.10 1.10 .79 .67 .63
Net Income:
Basic................................................ 1.14 1.16 .82 .66 .61
Diluted.............................................. 1.06 1.10 .77 .63 .57
Ratio of earnings to fixed charges (5)....................... 2.3x 2.3x 2.1x 2.1x 2.1x
Balance Sheet Data (at period end):
Total assets................................................. $2,741.3 $2,753.6 $2,844.8 $2,643.3 $2,122.0
Long-term borrowings: (6)
Senior.................................................... 1,678.3 1,084.9 1,160.8 1,109.4 691.5
Subordinated.............................................. 26.7 129.0 161.2 165.4 290.4
Common stock subject to potential
repurchase (7)............................................ 20.0 23.3 18.6 19.1 20.8
Shareholders' equity (deficit) (8)........................... (78.9) 370.0 296.2 252.3 182.6
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(1) Fiscal 1997 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 note 3 to the consolidated financial statements.
(4) Fiscal 1994 through 1997 earnings per share amounts have been
restated to reflect the 3 for 1 stock split effective September
1, 1998 and the adoption of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" which was effective
beginning in fiscal 1998. See Notes 1 and 7 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) 1998 reflects the impact of the Common Stock Class A Tender Offer.
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 1998 Compared to Fiscal 1997
Overview. Revenues for the fiscal year ended October 2, 1998 were $6.4
billion, an increase of 1% over fiscal 1997, with increases in the Food and
Support Services and Uniform and Career Apparel segments partially offset by
decreases in the Health and Educational Resources and Distributive segments due
to the sale of Spectrum in fiscal 1997 and the Distributive segment transaction
in fiscal 1998 (see note 2 to the consolidated financial statements). Excluding
the impact of the Spectrum and Distributive segment transactions, revenues
increased 5% over the prior year. Operating income of $333.1 million increased
$1.3 million over the prior year. Total Company operating income includes other
expense of $5 million in fiscal 1998 and other income of $11.7 million in fiscal
1997 as described in note 2 to the consolidated financial statements. Excluding
other expense/income and the operating results of Spectrum and the Distributive
segment, operating income increased 7% over the prior year, due to strong
performances in the Food and Support Services and Educational Resources
segments, partially offset by a decline in operating income in the Uniform and
Career Apparel segment. Excluding other expense/income, the Company's operating
income margin increased to 5.3% from 5.1%, due primarily to improved cost
controls and leveraging of fixed costs.
Interest expense increased $1.3 million or 1% over the prior year due
primarily to increased debt levels including the impact of the Tender Offer in
June 1998 (see note 7 to the consolidated financial statements). The fiscal 1998
effective tax rate was 38% which includes the favorable impact resulting from
the September 1998 settlement of certain prior years' tax returns. The fiscal
1997 effective tax rate of 32% reflects the favorable impact of a permanent
difference in the book and tax basis of Spectrum, net of the unfavorable
permanent book/tax differences related to certain intangible asset write-offs.
Fiscal 1998 net income also includes an extraordinary item for early
extinguishment of debt of $4.5 million as described in note 3 to the
consolidated financial statements.
Segment Results. Food and Support Services segment revenues were 5%
higher than the prior year due to new accounts (approximately 4%) and increased
volume at existing accounts (approximately 2%), partially off-set by the
unfavorable impact of foreign currency translation (approximately 1%). Uniform
and Career Apparel segment revenues increased 4% due to increased volume in both
the uniform rental and direct marketing businesses. Health and Educational
Resources segment revenues, excluding the fiscal 1997 Spectrum operations,
increased 9% over the comparable prior year period due to enrollment growth,
pricing and new locations at Educational Resources. Distributive segment
revenues decreased 21% from the prior year primarily due to the July 1998
transaction described below.
Food and Support Services operating income increased 35% versus the
prior year period. Fiscal 1997 operating income included charges of
approximately $30 million (see notes 2 and 11 to the consolidated financial
statements). Excluding the impact of these prior year charges, operating income
increased 15% as a result of the revenue increases noted above, plus effective
cost controls. Uniform and Career Apparel segment operating income decreased 6%
versus the prior year. Excluding a fiscal 1998 gain from the sale of certain
assets and fiscal 1997 other income, operating income decreased 7% as the direct
9
marketing businesses wrote down certain inventory to net realizable value and
incurred increased operating costs which were partially offset by the impact of
increased volume noted above. Excluding the impact of the Spectrum gain and its
operating results in fiscal 1997 (see note 2 to the consolidated financial
statements), operating income in the Health and Educational Resources segment
increased 19% versus the prior year due to the revenue increases at Educational
Resources noted above. In the fourth quarter of fiscal 1998, the Company
contributed substantially all of its Distributive segment's assets and
liabilities to a joint venture with another leading magazine and book
wholesaler, in exchange for a minority interest in the venture. The Company will
account for its interest in the venture on the cost basis. Operating losses in
the Distributive segment were $20.3 million and $49.6 million in fiscal 1998 and
1997, respectively, and include charges of $5 million and $34 million in fiscal
1998 and 1997, respectively, as described in notes 2 and 11 to the consolidated
financial statements. The increase in fiscal 1998 General Corporate and Other
Expenses relate to costs associated with several corporate development and
strategic initiatives.
Fiscal 1997 Compared to Fiscal 1996
Overview. Revenues for the fiscal year ended October 3, 1997 were $6.3
billion, an increase of 3% over fiscal 1996, with increases in the Food and
Support Services and Uniform and Career Apparel segments partially offset by a
decline in revenues in the Distributive segment and the Health and Educational
Resources segment reflecting the sale of Spectrum (see note 2 to the
consolidated financial statements). Excluding Spectrum, revenues increased 10%
over the prior year. Operating income of $331.8 million increased 12% compared
to the prior year. Total Company operating income includes other income of $11.7
million and $2.9 million in fiscal 1997 and 1996, respectively, as described in
note 2 to the consolidated financial statements. Excluding other income and the
operating results of Spectrum, operating income increased 16% over the prior
year, due to strong performances in the Food and Support Services and Uniform
and Career Apparel segments and Educational Resources, partially offset by
increased operating losses in the Distributive segment. Excluding other income,
the Company's operating income margin increased to 5.1% from 4.8%, due primarily
to improved cost controls and leveraging of fixed costs.
Interest expense was equal with the prior year, with the impact of
lower rates being offset by increased debt levels to finance capital
expenditures and working capital requirements. The effective income tax rate
decreased to 32% in fiscal 1997 from 37% in fiscal 1996 due primarily to the
favorable impact of a permanent difference in the book and tax basis of
Spectrum, partially offset by unfavorable permanent book/tax differences related
to certain intangible asset write-offs (see notes 2 and 6 to the consolidated
financial statements). Fiscal 1996 net income also includes an extraordinary
item for early extinguishment of debt of $2.8 million 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 (approximately 3%) and increased
volume (approximately 6%), primarily in the United States food businesses,
partially offset by the unfavorable impact of foreign currency translation
(approximately 1%). Uniform and Career Apparel segment revenues increased 19%
due to the impact of recent acquisitions (approximately 11%) and increased
volume in both the uniform rental and direct marketing businesses. Health and
Educational Resources segment revenues, excluding the Spectrum operations,
increased 15% over the comparable prior year period due to enrollment growth,
pricing and new locations at Educational Resources. Distributive segment
revenues decreased 3% from the comparable prior year period due to a decrease in
base business of approximately 6%, partially offset by the impact of recent
acquisitions.
10
Fiscal 1997 operating income for the Food and Support Services segment includes
charges of approximately $30 million due primarily to recognize an impairment of
goodwill in a European operation and to reduce certain other assets to net
realizable value as discussed in notes 2 and 11 to the consolidated financial
statements. Excluding the impact of these charges, operating income increased
20% over the prior year period as a result of the revenue increases noted above,
plus effective cost controls at both United States and international operations.
Uniform and Career Apparel segment operating income includes gains on the sale
of assets of $9 million in 1997 and $37 million in 1996 and charges related
primarily to asset realization of $6 million and $5 million in fiscal 1997 and
1996, respectively (see notes 2 and 11 to the consolidated financial
statements). Excluding the impact of these items, fiscal 1997 operating income
increased 11% from the prior year period due to the revenue increases noted
above plus effective cost controls in the direct marketing businesses, partially
offset by increased operating costs in the uniform rental business. Health and
Educational Resources fiscal 1997 operating income includes the gain on sale of
Spectrum of $72 million and fiscal 1996 operating income includes charges of $13
million as discussed in notes 2 and 11 to the consolidated financial statements.
Excluding the impact of these items, as well as the operating results of
Spectrum, segment operating income increased 23% over the prior year due to the
revenue increases at Educational Resources noted above. The Distributive segment
incurred a fiscal 1997 operating loss of $49.6 million, which includes charges
of approximately $34 million related to asset realization (see notes 2 and 11 to
the consolidated financial statements) versus an operating loss of $6.0 million
in fiscal 1996. Results continued to be severely impacted by higher operating
expenses due to costs of servicing customers and reduced volume and margins
resulting from the increased competition and consolidation in the magazine
wholesale distribution industry. The decrease in fiscal 1997 General Corporate
and Other Expenses is due to reserves established in fiscal 1996 for asset
realization, legal, and other matters described in note 11 to the consolidated
financial statements.
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operating activities was $277 million. Debt increased by $497
million, primarily due to the Tender Offer described below. 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 October 2,
1998, the Company had capital commitments of approximately $37 million related
to several long-term concession contracts.
During fiscal 1998, the Company amended its credit facility, increasing
availability to $1.4 billion, extending the maturity date to March 2005, and
revising certain financial covenant and ratio requirements to reflect the impact
of the Tender Offer discussed below. Subsequent to the Tender Offer and the
issuance of the senior notes discussed below, the Company reduced the credit
facility commitment to $1 billion. Currently, the Company has approximately $715
million of unused committed credit availability under its credit facilities.
On June 15, 1998, the Company completed a cash tender offer (the "Tender Offer")
for outstanding shares of its Class A common stock at a price of $500 per share
(pre-split). Pursuant to the Tender Offer, the Company repurchased 1,062,485
shares (pre-split) for an aggregate purchase price of $531.2 million plus
transaction costs. The purchase price was financed through additional borrowings
under the credit facility. Additionally, during fiscal 1998 the Company
repurchased $79 million of its Class B common stock, with $18 million of
subordinated installment notes issued as partial consideration. The Company also
issued $22 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
In the fourth quarter of fiscal 1998, the Company issued $300 million of 6.75%
senior notes due August 2004 and $300 million of 7% senior notes due July 2006.
The proceeds from the note offerings were used to repay borrowings under the
credit facility.
During fiscal 1998, the Company exercised its option to redeem its $100 million
8.5% subordinated notes at a price of 104.25% of the principal amount and, also
redeemed a $50 million 8% note due April 2002 for a premium. The redemptions
were financed through additional borrowings under the credit facility. The
resultant extraordinary charge on these transactions was $4.5 million (net of
income taxes) or $0.04 per share (see note 3 to the consolidated financial
statements).
On August 11, 1998, the Company's Board of Directors declared, effective
September 1, 1998, a three-for-one split of the Class B and Class A common stock
effected in the form of a stock dividend to shareholders of record on September
1, 1998 (see note 7 to the consolidated financial statements).
As discussed in note 2 to the consolidated financial statements, in July 1998
the Company contributed substantially all of the Distributive segment's assets
and liabilities to a joint venture. The transaction will not have a material
impact on the Company's liquidity.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As a result, on or near
the change of the century, date-sensitive systems may recognize the Year 2000 as
1900, or not at all, which may cause systems to fail or process financial and
operational information incorrectly.
The Company has developed plans to address its Year 2000 issues. The plans
address three broad areas: (1) internal information technology systems -
including financial and operational application systems, computer hardware and
systems software; (2) non-information technology systems - such as communication
systems, building systems and devices with embedded computer chips; and (3)
third party compliance - which addresses Year 2000 compliance efforts of key
vendors and suppliers. The project plans consist of the following phases:
1) Organizational awareness - general awareness of the Year 2000 issues, which
has been completed, and ongoing communication of Year 2000 project status.
2) Inventory of current applications.
3) Risk assessment of inventoried systems, with identification of
mission-critical systems.
4) Replacement/remediation of systems.
5) Year 2000 testing and conversion of systems.
6) Contingency planning.
Program management offices, staffed with a combination of business unit
personnel and external consultants, have been established to address Year 2000
issues. Additionally, a Corporate Compliance Task Force consisting of internal
audit, information technology, legal and risk management personnel, as well as
external consultants, was formed in 1997 to review and monitor the Year 2000
compliance programs. The Task Force meets regularly to review corporate-wide
Year 2000 issues and progress. The Company's Year 2000 compliance effort is
monitored by senior management on a regular basis and the Audit Committee of the
Board of Directors receives quarterly progress reports.
12
Internal information technology systems - As of November 23, 1998, the inventory
and risk assessment phases for mission-critical systems have been substantially
completed. Systems replacement/remediation is in process, with target completion
dates ranging from December 1998 through June 1999. Testing and conversion plans
have been, or are currently being, developed and implemented. The Company
expects that mission-critical internal systems will be Year 2000 compliant by
September 1999. Based on the current status of project plans, the Company
believes that Year 2000 events caused by the Company's internal financial and
operational systems would not have a material adverse impact on the Company's
operations or financial condition.
Non-information technology systems - The inventory and risk assessment phases
are currently in process. Based on the results of these phases,
replacement/remediation plans will be developed for mission-critical equipment
and facilities, which are expected to be implemented by September 1999. Given
the nature and geographic dispersion of the Company's business units, the
Company believes that any events caused by Year 2000 failures of non-information
technology systems would be short-term in nature and would not have a material
adverse impact on the Company's operations or financial condition.
Third party compliance - The Company has identified, and initiated
communications with, key third party suppliers and customers to determine
potential exposure to these third parties' failure to remediate their own Year
2000 issues. The Company expects to complete its third party reviews by March
1999 and will develop contingency plans to address potential third party Year
2000 failures. As discussed in the Business section of the Form 10-K, the basic
materials required to operate the Company's businesses are generally available
from a number of suppliers, and in the event of an inability of a key supplier
to deliver product, the Company believes alternative sources will be available.
However, an extended outage by utilities (electric, water, telephone, etc.), key
third-party suppliers or financial institutions, while somewhat mitigated by the
geographic dispersion of the Company's businesses, could have material adverse
impacts on the Company's operations and financial condition.
Contingency Plans
Company resources to date have been focused primarily on Year 2000 remediation.
The Company maintains contingency plans for computer failures, power outages,
natural disasters, etc. Year 2000 contingency plans for mission-critical
systems, in the areas discussed above, will be developed and integrated with the
existing contingency plans where appropriate by December 1999.
Costs
The Company currently estimates spending approximately $15 to 20 million,
excluding internal costs, to complete its Year 2000 compliance program,
including approximately $8 million that has been expended through fiscal 1998.
Year 2000 costs related to systems or equipment replacement are capitalized in
accordance with the Company's accounting policies. Year 2000 remediation costs
are expensed as incurred.
The Company's ability to achieve Year 2000 compliance, the level of costs
associated therewith and the resultant impact on operations and financial
condition could be adversely impacted by, among other things, the availability
and cost of applicable resources, vendors' ability to modify proprietary
software, and unanticipated problems identified in the ongoing compliance
program.
13
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
(the "participating countries") are scheduled to establish fixed conversion
rates between their existing sovereign currencies and establish the euro as
their common legal currency. Revenues and operating income of the Company's
businesses in participating countries are less than 6% of the Company's
consolidated results. The Company has established plans to address operational
and information system issues related to the euro conversion. Based on the
current status of existing plans, the Company does not expect the euro
conversion to have a material adverse impact on the Company's operations or
financial condition.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The Company is exposed to the impact of interest rate changes and manages this
exposure through the use of variable-rate and fixed-rate debt and by utilizing
interest rate swaps. The Company does not enter into contracts for trading
purposes and does not use leveraged instruments. The information below
summarizes the Company's market risks associated with debt obligations and other
significant financial instruments as of October 2, 1998. 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 period. The information
presented below should be read in conjunction with note 4 to the Consolidated
Financial Statements. For debt obligations, the table presents principal cash
flows and related interest rates by expected fiscal year of maturity. Variable
interest rates disclosed represent the weighted-average rates of the portfolio
at October 2, 1998. For interest rate swaps, the table presents the notional
amounts and related weighted-average interest rates by fiscal year of maturity.
The variable rates presented are the average forward rates for the term of each
contract.
Expected Fiscal Year of Maturity
(US$ equivalent in millions)
1999 2000 2001 2002 2003 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Debt:
Fixed rate $104 $25 $75 $25 $985 (a) $1,214 $1,277
Average Interest Rate 9.3% 6.8% 7.6% 6.8% 7.3% 7.5%
Variable Rate $24 $5 $32 $455 $516 $516
Average Interest Rate 6.0% 6.0% 6.3% 6.2% 6.2%
Interest Rate Swaps:
Receive Variable/
Pay Fixed $69 $75 $75 $(4)
Average pay rate 5.7% 6.1% 6.0%
Average receive rate 5.1% 4.9% 4.7%
(a) Balance includes $600 million of senior notes callable by the Company at any
time
The Company uses foreign currency debt as a hedge for its investment in foreign
subsidiaries. The table above includes $60 million of debt denominated in the
functional currency of the Company's various subsidiaries, primarily the
Canadian dollar and the German deutschemark.
14
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
Section titled "Election of Directors" in the registrant's Proxy Statement for
its annual meeting of stockholders, to be filed with the Commission pursuant to
Regulation 14A (except for the stock price performance graph and the committee
report on executive compensation in the Company's Proxy Statement).
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to Financial Statements
See Index to Financial Statements and Schedules at page S-1.
(b) Reports on Form 8-K
None.
(c) Exhibits Required by Item 601 of Regulation S-K
See Index to Exhibits.
(d) Financial Statement Schedules
See Index to Financial Statements and Schedules at page S-1.
Item 15. Cautionary Statement regarding Forward-Looking Statements
Certain statements made in this Form 10-K are forward-looking statements.
Because such statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, those discussed herein at Item 7, "Management's
Discussion and Analysis of Results of Operations and Financial Condition".
15
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 25, 1998
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 25, 1998.
Signature Title
- --------- -----
Joseph Neubauer Chairman and Director
- -------------------------- (Principal Executive Officer)
Joseph Neubauer
L. Frederick Sutherland Executive Vice President
- -------------------------- (Principal Financial Officer)
L. Frederick Sutherland
Alan J. Griffith Vice President, Controller
- -------------------------- and Chief Accounting Officer
Alan J. Griffith (Principal Accounting Officer)
Patricia C. Barron
Robert J. Callander
Ronald R. Davenport
Lee F. Driscoll, Jr. Directors
Mitchell S. Fromstein
Edward G. Jordan
Thomas H. Kean
James E. Ksansnak
Reynold C. MacDonald
James E. Preston
Martin W. Spector
- ------------------
Martin W. Spector
Attorney-in-Fact
16
ARAMARK CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Report of Independent Public Accountants S-2
Consolidated Balance Sheets:
As of October 2, 1998 and October 3, 1997 S-3
Consolidated Statements of Income:
Fiscal Years 1998, 1997 and 1996 S-5
Consolidated Statements of Cash Flows:
Fiscal Years 1998, 1997 and 1996 S-6
Consolidated Statements of Shareholders' Equity:
Fiscal Years 1998, 1997 and 1996 S-7
Notes to Consolidated Financial Statements S-10
Consolidated Supporting Schedules Filed:
Schedule
Number
- --------
I Condensed Financial Information of Registrant S-28
II Valuation and Qualifying Accounts and Reserves S-32
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.
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 October 2, 1998 and
October 3, 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended October 2, 1998. 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 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ARAMARK Corporation and
subsidiaries as of October 2, 1998 and October 3, 1997, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended October 2, 1998, 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.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
November 9, 1998
S-2
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 2, 1998 and October 3, 1997
(dollars in thousands, except share amounts)
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 20,614 $ 27,352
Receivables (less allowances: 1998, $24,457; 526,506 517,035
1997, $23,158)
Inventories 361,451 366,515
Prepayments and other current assets 60,734 67,314
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 969,305 978,216
- -----------------------------------------------------------------------------------------------------------------------------
Property and Equipment, at Cost:
Land, buildings and improvements 526,888 507,775
Service equipment and fixtures 1,212,369 1,170,230
Leased property under capital leases 8,958 10,992
- -----------------------------------------------------------------------------------------------------------------------------
1,748,215 1,688,997
Less-Accumulated depreciation 873,822 821,821
- -----------------------------------------------------------------------------------------------------------------------------
874,393 867,176
- -----------------------------------------------------------------------------------------------------------------------------
Goodwill 603,937 623,841
- -----------------------------------------------------------------------------------------------------------------------------
Other Assets 293,664 284,346
- -----------------------------------------------------------------------------------------------------------------------------
$2,741,299 $2,753,579
=============================================================================================================================
The accompanying notes are an integral part of these financial statements.
S-3
ARAMARK CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 24,560 $ 18,517
Accounts payable 373,696 459,847
Accrued payroll and related expenses 174,710 156,216
Other accrued expenses and current liabilities 327,772 302,171
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 900,738 936,751
- -----------------------------------------------------------------------------------------------------------------------------
Long-Term Borrowings:
Senior 1,701,125 1,100,819
Subordinated 26,689 129,027
Obligations under capital leases 1,795 2,615
- -----------------------------------------------------------------------------------------------------------------------------
1,729,609 1,232,461
Less-current portion 24,560 18,517
- -----------------------------------------------------------------------------------------------------------------------------
Total long-term borrowings 1,705,049 1,213,944
- -----------------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes and Other Noncurrent Liabilities 194,388 209,583
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 20,000 23,254
Shareholders' Equity/(Deficit) Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01; authorized:
25,000,000 shares; issued: 1998 - 2,516,081 shares;
1997 -1,961,413 shares 25 20
Class B common stock, par value $.01; authorized:
150,000,000 shares; issued: 1998 - 62,927,645 shares;
1997 - 20,450,100 shares 629 205
Earnings retained for use in the business (56,815) 394,090
Cumulative translation adjustment (2,715) (1,014)
Impact of potential repurchase feature of common stock (20,000) (23,254)
- -----------------------------------------------------------------------------------------------------------------------------
Total (78,876) 370,047
- -----------------------------------------------------------------------------------------------------------------------------
$2,741,299 $2,753,579
=============================================================================================================================
The accompanying notes are an integral part of these financial statements.
S-4
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Years Ended October 2, 1998, October 3, 1997 and
September 27, 1996
(dollars in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues $ 6,377,276 $ 6,310,417 $ 6,122,500
- ----------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of services provided 5,760,697 5,715,402 5,565,038
Depreciation and amortization 195,770 191,732 182,785
Selling and general corporate expense 82,680 83,079 82,354
Other expense (income), net 5,000 (11,655) (2,850)
- ----------------------------------------------------------------------------------------------------------------------------------
6,044,147 5,978,558 5,827,327
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income 333,129 331,859 295,173
Interest Expense, net 117,357 116,012 116,014
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 215,772 215,847 179,159
Provision For Income Taxes 82,062 69,739 66,931
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item 133,710 146,108 112,228
Extraordinary Item Due to Early Extinguishment
of Debt (net of income taxes of $2,982 in 1998
and $1,839 in 1996) 4,474 - 2,758
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 129,236 $ 146,108 $ 109,470
==================================================================================================================================
Earnings Per Share:
Income before extraordinary item
Basic $1.17 $1.16 $0.84
Diluted $1.10 $1.10 $0.79
Net income
Basic $1.14 $1.16 $0.82
Diluted $1.06 $1.10 $0.77
==================================================================================================================================
The accompanying notes are an integral part of these financial statements.
S-5
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended October 2, 1998, October 3, 1997 and
September 27, 1996 (in thousands)
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $129,236 $146,108 $109,470
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 195,770 191,732 182,785
Income taxes deferred 11,542 (11,049) (27,604)
Extraordinary item 4,474 - 2,758
Changes in noncash working capital:
Receivables (51,743) (19,934) (62,239)
Inventories (9,240) (32,428) (9,734)
Prepayments (754) (5,740) (209)
Accounts payable (49,943) (61,348) 28,973
Accrued expenses 60,905 48,364 27,245
Changes in other noncurrent liabilities (3,914) (1,651) (461)
Changes in other assets (8,934) (9,727) (9,217)
Other, net (695) (14,261) (2,494)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 276,704 230,066 239,273
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (164,286) (197,835) (190,896)
Disposals of property and equipment 22,204 27,641 13,099
Sale of investments 5,779 9,284 -
Divestiture of certain businesses 31,116 119,152 51,285
Acquisition of certain businesses:
Working capital other than cash acquired 9,550 (74) (29,042)
Property and equipment (17,309) (4,163) (11,105)
Additions to intangibles and other assets (35,199) (5,688) (72,616)
Other (41,452) (8,020) (8,362)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (189,597) (59,703) (247,637)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 658,820 127,323 155,510
Payment of long-term borrowings including premiums (167,942) (242,944) (95,510)
Redemption of preferred stock - - (6,359)
Proceeds from issuance of common stock 22,303 14,338 13,949
Repurchase of common stock (591,535) (65,463) (54,849)
Payment of preferred stock dividend - - (1,067)
Other (15,491) (1,548) (1,109)
- ------------------------------------------------------------------------------------------------------------------
Net cash (used in)/provided by financing activities (93,845) (168,294) 10,565
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (6,738) 2,069 2,201
Cash and cash equivalents, beginning of year 27,352 25,283 23,082
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 20,614 $ 27,352 $ 25,283
==================================================================================================================
The accompanying notes are an integral part of these financial statements.
S-6
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED OCTOBER 2, 1998
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Impact of
Potential
Class A Class B Cumulative Repurchase
Common Common Capital Retained Translation Feature of
Stock Stock Surplus Earnings Adjustment Common Stock
----- ----- ------- -------- ---------- ------------
Balance, October 3, 1997 $ 20 $ 205 $ -- $ 394,090 $ (1,014) $ (23,254)
Net income 129,236
Issuance of Class A common stock to
employee benefit plans 397
Issuance of Class B common stock 25 38,975
Retirement of common stock (12) (23) (39,372) (579,702)
Common stock split 17 422 (439)
Change during the period (1,701) 3,254
--------- --------- --------- --------- --------- ---------
Balance, October 2, 1998 $ 25 $ 629 $ -- $ (56,815) $ (2,715) $ (20,000)
========= ========= ========= ========= ========= =========
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 OCTOBER 3, 1997
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Impact of
Potential
Class A Class B Cumulative Repurchase
Common Common Capital Retained Translation Feature of
Stock Stock Surplus Earnings Adjustment Common Stock
----- ----- ------- -------- ---------- ------------
Balance, September 27, 1996 $ 20 $ 227 $ -- $ 309,437 $ 5,131 $ (18,614)
Net income 146,108
Issuance of Class A common stock to
employee benefit plans 384
Issuance of Class B common stock 24 25,025
Retirement of common stock (46) (25,409) (61,455)
Change during the period (6,145) (4,640)
--------- --------- --------- --------- --------- ---------
Balance, October 3, 1997 $ 20 $ 205 $ -- $ 394,090 $ (1,014) $ (23,254)
========= ========= ========= ========= ========= =========
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 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-9
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 October 2, 1998,
October 3, 1997 and September 27, 1996 are fifty-two, fifty-three and fifty-two
week periods, respectively.
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.
In fiscal 1999, the Company is required to adopt the provisions of SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The adoption of these standards will
not have a material impact on results of operations or financial statement
disclosures.
In fiscal 2000, the Company is required to adopt SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The Company is currently assessing the impact the adoption of
these standards will have 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 1998, 1997 and 1996 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 career apparel 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.
S-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
CURRENT ASSETS (Continued)
The components of inventories are as follows:
1998 1997
- --------------------------------------------------------------------------------
Food 22.0% 21.1%
Career apparel, safety equipment and linens 70.3% 64.5%
Parts, supplies and novelties 7.7% 7.7%
Magazines and books - 6.7%
- --------------------------------------------------------------------------------
100.0% 100.0%
- --------------------------------------------------------------------------------
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 1998,
1997 and 1996 was $144.3 million, $136.1 million and $129.1 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. In fiscal 1997, the Company wrote off certain
intangible assets as discussed in Note 2. 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 October 2, 1998 and October 3, 1997 was $181.2 million and
$162.2 million, respectively.
OTHER ASSETS
Other assets consist primarily of investments in 50% or less 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. Investments in which the Company owns less than 20% are
accounted for under the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" or the cost method, as applicable.
Contract rights and customer lists are being amortized on a straight-line basis
over the expected period of benefit, 3 to 20 years.
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 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.
S-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
EARNINGS PER SHARE
In fiscal 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share." Earnings per share is
reported on a Common Stock, Class B equivalent basis (which reflects Common
Stock, Class A shares converted to a Class B basis, ten for one). Basic earnings
per share is based on the weighted average number of common shares outstanding
during the respective periods. Diluted earnings per share is based on 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. Earnings per share for prior periods have been
restated to conform with the requirements of SFAS No. 128. Share and per share
amounts have also been restated to reflect the three-for-one stock split in
September 1998. See Note 7. Earnings applicable to common stock and common
shares utilized in the calculation of basic and diluted earnings per share are
as follows:
1998 1997 1996
--------- --------- ---------
(in thousands, except per share data)
Earnings:
Income before extraordinary item $ 133,710 $ 146,108 $ 112,228
Preferred stock dividends -- -- (769)
--------- --------- ---------
Earnings available to common
stock before extraordinary item $ 133,710 $ 146,108 $ 111,459
========= ========= =========
Shares:
Weighted average number of common
shares outstanding used in basic
earnings per share calculation 113,859 125,625 132,954
Impact of potential exercise opportunities
under the ARAMARK Ownership Plan 8,096 6,813 7,364
--------- --------- ---------
Total common shares used in diluted
earnings per share calculation 121,955 132,438 140,318
========= ========= =========
Basic earnings per common share $ 1.17 $ 1.16 $ 0.84
========= ========= =========
Diluted earnings per common share $ 1.10 $ 1.10 $ 0.79
========= ========= =========
S-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
1998 1997 1996
--------- --------- ---------
(in millions)
Interest Paid $109.5 $106.4 $108.1
Income Taxes Paid $54.9 $63.0 $91.4
Significant noncash investing and financing activities are as follows:
o During fiscal 1998, 1997 and 1996, the Company contributed $0.4 million,
$0.4 million and $5.7 million, respectively, of Class A Common Stock to its
employee benefit plans to fund previously accrued obligations. In addition,
during fiscal 1998, 1997 and 1996, the Company contributed $1.9 million,
$2.3 million and $1.7 million, respectively, of stock units to its stock
unit retirement plan in satisfaction of its accrued obligations. See Note
5.
o During fiscal 1998, the Company contributed assets and liabilities with a
net book value of $14 million into a newly formed joint venture. See Note
2.
o During fiscal 1998, 1997 and 1996, the Company received $14.9 million,
$10.5 million, and $7.2 million, respectively, of employee notes under its
Deferred Payment program as partial consideration for the issuance of
Common Stock, Class B. Also, during fiscal 1998, 1997 and 1996, the Company
issued subordinated installment notes of $18.4 million, $21.9 million and
$26.8 million, respectively, as partial consideration for repurchases of
Common Stock. See Note 7.
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.:
In the fourth quarter of fiscal 1998, the Company formed a joint venture between
its distributive business and another leading magazine and book wholesaler,
Anderson News Corporation. The Company contributed substantially all of its
Distributive segment's assets and liabilities in exchange for a minority
interest in the venture. In connection with the transaction, the Company
recorded a $5 million pre-tax charge, which is reflected as "Other
expense/income" in the accompanying consolidated statements of income. The
Company will account for its interest in the venture on the cost basis.
S-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.: (Continued)
During the fourth quarter of fiscal 1998, the Company acquired Facilities
Resource Management Co., a provider of energy and facilities management
consulting services, for approximately $20 million in cash and common stock. The
acquisition was accounted for under the purchase method of accounting. The
Company's pro forma results of operations for fiscal 1998 and 1997 would not
have been materially different assuming the acquisition had occurred at the
beginning of the respective periods.
In the second quarter of fiscal 1997, the Company sold an approximate 83%
interest in its Spectrum Healthcare Services, Inc. subsidiary (Spectrum). Total
consideration was approximately $158 million and included cash ($125 million),
notes and a warrant. The transaction resulted in a pre-tax gain of $72.4
million, net of transaction costs and reserves established for indemnification
of certain matters related to insurance, legal and other matters ($20 million),
and is included in "Other expense/income" in the accompanying consolidated
statements of income. No income taxes were provided on the gain due to permanent
differences in the underlying book and tax basis of Spectrum. In fiscal 1996,
the business had approximately $500 million in annual revenues and a normalized
operating margin of approximately 4%. Cash proceeds from the divestiture were
used to repay borrowings under the credit facility. Also reflected in other
expense/income are pre-tax charges of $69.8 million, primarily to write off
certain intangible assets in the Food and Support Services and Distributive
segments. These charges were partially offset by a gain of $9.1 million on the
sale of an investment in Brylane, Inc., acquired in connection with the fiscal
1996 King-Size divestiture described below.
The amount of the fiscal 1997 charges applicable to the Food and Support
Services segment was approximately $30 million due primarily to recognize an
impairment of goodwill in a European operation and to reduce certain other
assets to net realizable value. The goodwill impairment was determined based on
a discounted cash flow basis. The amount of charges applicable to the
Distribution segment was $34 million, reflecting an asset writedown which was
determined based on estimates of discounted future cash flows and an impairment
loss on operations to be divested, which was determined based on preliminary
indications of value for those operations.
In the first quarter of fiscal 1996, the Company sold the King-Size division of
its Uniform and Career Apparel business. The net selling price was approximately
$51 million in cash plus "warrants" in Brylane, Inc. 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),
including a $2 million charge for environmental liabilities, and is reflected as
"Other expense/income" in the accompanying consolidated statements of income.
The environmental liabilities related to several minor remediation projects
involving properties no longer in service. These remediation projects will not
have any material ongoing financial impact on the Company's financial
statements. The King-Size operations were not material to the Company's
consolidated revenues or operating income.
S-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.: (Continued)
At fiscal 1996 yearend, the Company acquired Crest Uniform Company, a provider
of uniform apparel to the hospitality and healthcare markets for cash of
approximately $95 million. The acquisition was accounted for under the purchase
method of accounting. The Company's pro forma results of operations for fiscal
1996 would not have been materially different assuming the acquisition had
occurred as of the beginning of the period.
NOTE 3. EXTRAORDINARY ITEM:
During fiscal 1998, the Company exercised its option to redeem its $100 million
8.5% subordinated notes at a price of 104.25% of the principal amount and also
redeemed a $50 million 8% note due April 2002 for a premium. The resultant
extraordinary charge on these transactions was $4.5 million or $0.04 per share.
During fiscal 1996, the Company redeemed its $80 million 8.25% 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
unamortized balance of financing costs related to the old credit facility. The
resultant extraordinary charge on these transactions was $2.8 million or $0.02
per share.
NOTE 4. BORROWINGS:
Long-term borrowings at October 2, 1998 and October 3, 1997 are summarized in
the following table:
1998 1997
---- ----
(in thousands)
SENIOR:
Credit facility borrowings $ 429,300 $ 370,000
Canadian credit facility 31,728 39,350
6.75% notes, due August 2004 298,520 --
6.79% note, payable in installments through 2003 125,000 125,000
7.00% notes, due July 2006 299,921 --
7.10% notes, due December 2006 124,846 124,827
7.25% notes and debentures due August 2007 32,160 32,160
8% notes, due April 2002 50,000 100,000
8.15% notes, due May 2005 150,000 150,000
10-5/8% notes, due August 2000 100,000 100,000
Other 59,650 59,482
- -----------------------------------------------------------------------------------------------
1,701,125 1,100,819
- -----------------------------------------------------------------------------------------------
SUBORDINATED:
8.5% subordinated notes, due June 2003 -- 100,000
10% exchangeable debentures and notes, due August 2000 26,689 26,689
Other -- 2,338
- -----------------------------------------------------------------------------------------------
26,689 129,027
- -----------------------------------------------------------------------------------------------
OBLIGATIONS UNDER CAPITAL LEASES 1,795 2,615
- -----------------------------------------------------------------------------------------------
1,729,609 1,232,461
Less-current portion 24,560 18,517
- -----------------------------------------------------------------------------------------------
$1,705,049 $1,213,944
===============================================================================================
S-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
The non-amortizing $1.0 billion revolving credit facility ("Credit Agreement")
is provided by a group of banks and matures in March 2005. Interest under the
Credit Agreement is based on the Prime Rate, LIBOR plus a spread of .18% to .70%
(as of October 2, 1998 - .30%) or the Certificate of Deposit Rate plus a spread
of .28% to .80% (as of October 2, 1998 - .40%), at the option of the Company.
There is a fee of .10% to .30% (as of October 2, 1998 - .15%) 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 October 2, 1998, all borrowings under this facility are payable
in Canadian dollars, with a weighted average interest rate of 6.2%. There is a
fee of .17% on the entire credit facility.
The Company's ARAMARK Educational Resources, Inc. (AERI) 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 AERI. There is a fee of .20% to .375% (as of October 2, 1998 - .20%) on the
unborrowed portion of the credit facility. The spread and fee margins are based
on certain financial ratios as defined. As of October 2, 1998 there were no
borrowings outstanding under this credit facility.
The 6.75% and 7.0% notes may be redeemed, in whole or in part, at any time at
the Company's option. The redemption price equals the greater of (i) 100% of the
principal amount or (ii) an amount based on the discounted present value of
scheduled principal and interest payments, as defined.
The 6.79% note is payable in $25 million annual installments beginning January
1999, with a final maturity of January 2003.
The 7.25% notes and debentures may be exchanged, in whole or in part, at the
option of the holder, for 7.10% senior notes due December 2006. The Company has
the right to redeem these notes and debentures, at par, upon being presented
with a notice of conversion or at any time after June 2004.
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 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.
S-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
Installment payments on the 6.79% and 10-5/8% notes due in fiscal 1999 have been
classified as non-current in the accompanying consolidated balance sheet as the
Company has the ability and intent to finance the repayments through additional
borrowings under the Credit Agreement. Accrued interest on borrowings totaling
$30.4 million at October 2, 1998 and $27.7 million at October 3, 1997 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 October 2, 1998
and October 3, 1997, the Company has $219 million and $197 million,
respectively, of interest rate exchange agreements fixing the rate on a like
amount of borrowings under the Credit Agreement at an average effective rate of
6.4% and 6.7%, respectively. As of October 2, 1998, interest rate exchange
agreements remain in effect for periods ranging from 1 to 28 months. All
interest rate swaps are accounted for as hedges under the accrual method with
the net payments under the terms of the swap agreements recognized currently in
income as a component of interest expense. Gains or losses on the termination of
interest rate swaps are deferred and amortized over the remaining life of the
terminated swap agreement. Interest rate swaps, for which the designated debt
instrument being hedged is extinguished, are accounted for on the fair value
method from the extinguishment date, if not concurrently terminated, with gains
and losses recognized currently in the consolidated statement of income. The
Company has a $24 million foreign currency swap agreement maturing in August
2000. This swap hedges the currency exposure of its net investment in Spain and
accordingly, gains and losses on the currency swap are recorded as a component
of the cumulative translation adjustment. 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 October 2, 1998 and October 3, 1997. 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.
1998 1997
------------------------------ ---------------------------
Carrying Fair Carrying Fair
Asset/(Liability) in millions Amount Value Amount Value
---------- ---------- ---------- ---------
Long-term debt $(1,729.6) $(1,793.0) $(1,232.5) $(1,263.5)
Interest rate swap agreements - (3.9) - (0.7)
Foreign currency swap agreement 2.4 1.1 3.6 2.8
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
October 2, 1998, the Company was in compliance with all of these covenants.
Assets with a net book value of $2.2 million at October 2, 1998, are subject to
liens under several of the Company's borrowing arrangements.
S-17
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)
--------------
1999 $ 23,962
2000 109,074
2001 57,020
2002 75,290
2003 25,259
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 1998, 1997 and 1996 was $15.7 million,
$15.5 million and $15.7 million, respectively. During fiscal 1998, 1997 and
1996, the Company contributed 4,161 shares, 5,985 shares and 97,425 shares,
respectively, of Common Stock, Class A to these plans to partially fund
previously accrued obligations. In addition, during fiscal 1998, 1997 and 1996,
the Company contributed to the stock unit retirement plan 163,873 stock units,
363,555 stock units and 314,814 stock units, respectively, which are convertible
into Common Stock, Class B, in satisfaction of its accrued obligations. Shares
contributed to these plans have been adjusted to reflect the stock split
described in Note 7. 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 $14.8
million, $14.4 million and $13.6 million for fiscal 1998, 1997 and 1996,
respectively.
Additionally, the Company maintains several contributory and non-contributory
defined benefit pension plans, primarily in Canada and the United Kingdom. The
projected benefit obligation of these plans as of October 2, 1998, which is
fully funded, was $51.8 million. Pension expense related to these plans is not
material to the consolidated financial statements.
NOTE 6. INCOME TAXES:
The Company accounts for income taxes under the provisions of 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. In September 1998 and June 1996 the Company settled
certain prior years' tax returns.
S-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
The components of income before income taxes, including the effects of other
expense/income (See Note 2), by source of income are as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
United States $ 188,132 $ 221,710 $ 172,572
Non-U.S 27,640 (5,863) 6,587
- ---------------------------------------------------------------------------------------------------------------------------------
$ 215,772 $ 215,847 $ 179,159
=================================================================================================================================
The provision for income taxes, including the effects of other expense/income
(See Note 2), consists of:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Current:
Federal $ 51,001 $ 60,370 $ 73,919
State and local 7,643 13,366 17,335
Non-U.S 11,876 7,052 3,281
- ---------------------------------------------------------------------------------------------------------------------------------
70,520 80,788 94,535
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal 9,369 (8,027) (23,210)
State and local 2,171 (3,494) (5,379)
Non-U.S 2 472 985
- ---------------------------------------------------------------------------------------------------------------------------------
11,542 (11,049) (27,604)
- ---------------------------------------------------------------------------------------------------------------------------------
$ 82,062 $ 69,739 $ 66,931
=================================================================================================================================
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:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(% 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 3.9 3.0 4.3
Permanent book/tax difference related to the sale of Spectrum -- (11.3) --
Permanent book/tax differences, primarily
resulting from purchase accounting 3.6 8.4 2.1
Favorable impact of tax settlements (3.2) -- (2.8)
Tax credits and other (1.3) (2.8) (1.2)
- ---------------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 38.0% 32.3% 37.4%
=================================================================================================================================
S-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
As of October 2, 1998 and October 3, 1997, the components of deferred taxes are
as follows:
1998 1997
-------- --------
(in thousands)
Deferred tax liabilities:
Property and equipment $ 70,379 $ 57,720
Inventory 5,428 5,066
Investments 13,520 15,709
Other 11,061 11,928
-------- --------
Gross deferred tax liability 100,388 90,423
-------- --------
Deferred tax assets:
Insurance $ 8,694 $ 11,815
Employee compensation and benefits 41,318 36,077
Accruals and allowances 29,917 33,159
Intangibles 5,458 4,147
Other 1,943 2,414
-------- --------
Gross deferred tax asset 87,330 87,612
-------- --------
Net deferred tax liability $ 13,058 $ 2,811
======== ========
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.
On June 15, 1998, the Company completed a cash tender offer (the "Tender Offer")
for outstanding shares of its Class A common stock at a price of $500 per share
(pre-split). Pursuant to the Tender Offer, the Company repurchased 1,062,485
shares (pre-split) for an aggregate purchase price of $531.2 million plus
transaction costs. The purchase price was financed through additional borrowings
under the Credit Agreement.
On August 11, 1998, the Company's Board of Directors declared, effective
September 1, 1998, a three-for-one split of the Class B and Class A Common Stock
effected in the form of a stock dividend to shareholders of record on September
1, 1998. The stated par value of $.01 per share of Class B and Class A common
stock was not changed.
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.
S-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL STOCK: (Continued)
As of October 2, 1998, the Company's stock option plans provided for the
issuance of up to 134,584,926 options to purchase shares of Common Stock, Class
B. The Company granted installment stock purchase opportunities under its stock
ownership program in fiscal 1998, 1997 and 1996 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 1998, 1997 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 October 2, 1998 and October 3, 1997, the
receivables from individuals under the Deferred Payment Program were $35.7
million and $26.6 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 under the various ownership programs, adjusted to
reflect the three-for-one stock split, follows:
Number of Shares Average Option Price
-------------------------------------------- -----------------------------
1998 1997 1996 1998 1997 1996
------------ ------------- ------------- ------ ------ -------
Outstanding at beginning of year 26,832,636 31,103,952 30,321,597 $4.74 $4.06 $3.49
Options granted 9,634,800 10,371,000 12,399,300 $7.47 $5.54 $4.92
Options exercised 7,228,446 7,289,349 5,814,426 $4.43 $3.23 $2.94
Canceled/Forfeited 4,537,785 7,352,967 5,802,519 $5.27 $4.31 $3.89
Outstanding at end of year 24,701,205 26,832,636 31,103,952 $5.78 $4.74 $4.06
Exercisable at end of year 81,840 193,176 1,619,160 $1.52 $2.96 $1.24
The exercise prices on outstanding options at October 2, 1998 range from $1.44
to $10.70 with a weighted average remaining life of approximately three years.
The Company has reserved 26,805,387 shares of Common Stock, Class B at October
2, 1998 for issuance of stock pursuant to its employee ownership and benefit
programs.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock option plans. Accordingly, no compensation expense has been recognized
related to the plans described above. If compensation cost for these plans had
been determined using the fair-value method prescribed by SFAS No. 123,
"Accounting for Stock Based Compensation," the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below.
S-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL STOCK: (Continued)
1998 1997 1996
---- ---- ----
Net Income
As reported $129,236 $146,108 $109,470
Pro forma $125,658 $143,570 $108,199
Earnings per share
As reported:
Basic $1.14 $1.16 $0.82
Diluted $1.06 $1.10 $0.77
Pro forma:
Basic $1.10 $1.14 $0.81
Diluted $1.03 $1.08 $0.77
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to fiscal 1996, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.
The weighted average fair value of options granted in fiscal 1998, 1997 and 1996
was $1.12, $0.88 and $0.82 per option, respectively, adjusted to reflect the
three-for-one stock split. As the Company's stock is not publicly traded, the
fair value of each option was estimated on the grant date using the minimum
value method (which excludes a volatility assumption), with the following
assumptions:
1998 1997 1996
------------ ------------- ------------
Risk-free interest rate 5.3 - 5.9% 5.2 - 6.1% 5.4 - 5.9%
Expected life in years 3.2 3.2 3.5
Dividend yield 0% 0% 0%
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
$20 million at October 2, 1998 and $23.3 million at October 3, 1997. 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
($44.1 million as of October 2, 1998 and $50.9 million as of October 3, 1997) is
included in the consolidated balance sheets as "Other Noncurrent Liabilities"
and the current portion of these notes ($26.0 million as of October 2, 1998 and
$19.9 million as of October 3, 1997) is included in the consolidated balance
sheets as "Accounts Payable."
S-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENCIES:
1998 1997
- ------------------------------------------------------------------------
(in thousands)
Facilities under capital leases $8,958 $10,992
Less-accumulated amortization 7,686 8,961
- ------------------------------------------------------------------------
$1,272 $ 2,031
========================================================================
Rental expense for all operating leases was $143.2 million, $129.7 million, and
$128.6 million for fiscal 1998, 1997 and 1996, respectively.
Following is a schedule of the future minimum rental commitments under all
noncancelable leases as of October 2, 1998:
Fiscal Year Operating Capital
- ------------------------------------------------------------------------------
(in thousands)
1999 $146,478 $848
2000 83,860 632
2001 72,595 255
2002 56,248 128
2003 50,103 59
Subsequent years 122,504 55
- ------------------------------------------------------------------------------
Total minimum rental obligations $531,788 1,977
==============================================================================
Less-amount representing interest 182
Present value of capital leases 1,795
Less-current portion 598
- ------------------------------------------------------------------------------
Noncurrent obligations under capital leases $1,197
==============================================================================
The Company has capital commitments of approximately $37 million at October 2,
1998 in connection with several long-term concession contracts. 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.
S-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
1998 1997 1996
---------- ---------- ---------
(in thousands)
Revenues $3,656,571 $3,464,051 $3,200,388
Cost of services provided 3,422,640 3,256,787 3,024,136
Net income 40,842 20,690 15,503
1998 1997
----------- ----------
(in thousands)
Current assets $ 451,050 $ 407,978
Noncurrent assets 2,079,782 1,558,010
Current liabilities 545,406 507,179
Noncurrent liabilities 1,823,868 1,333,759
S-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. QUARTERLY RESULTS (Unaudited):
The following table summarizes quarterly financial data for fiscal 1998
and 1997:
Fiscal Quarter
------------------------------------------------------
1998 First Second Third Fourth(1) Year
- ------------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
Revenues $1,590,661 $1,592,214 $ 1,634,325 $1,560,076 $6,377,276
Cost of services provided 1,441,708 1,461,334 1,478,760 1,378,895 5,760,697
Income before extraordinary item 30,077 18,658 37,169 47,806 133,710
Extraordinary item (2) - 1,559 2,915 - 4,474
Net income 30,077 17,099 34,254 47,806 129,236
Diluted earnings per share:
Income before extraordinary item $.23 $.14 $.30 $.49 $1.10
Net income $.23 $.13 $.27 $.49 $1.06
Fiscal Quarter
------------------------------------------------------
1997 First Second(3) Third Fourth(4) Year
- -------------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
Revenues $1,686,751 $1,458,017 $1,531,614 $1,634,035 $6,310,417
Cost of services provided 1,540,226 1,336,421 1,384,834 1,453,921 5,715,402
Net income 27,655 87,952 30,134 367 146,108
Diluted earnings per share:
Net income $.21 $.65 $.23 $ - $1.10
(1) Fiscal 1998 fourth quarter results reflect charges relating to the
contribution of the Company's distributive business into a joint venture.
See Note 2.
(2) See Note 3.
(3) Fiscal 1997 second quarter results reflect the sale of Spectrum. See Note
2.
(4) Fiscal 1997 fourth quarter results reflect charges primarily related to
asset realization. See Note 2. Also, fiscal 1997 was a fifty-three week
year with the fourth quarter being a fourteen week period.
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-25
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 1997 operating income includes
charges of approximately $30 million related primarily to asset realization. See
Note 2.
Uniform and Career Apparel - 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 1997 operating income
includes a $9 million gain on the sale of an investment and charges of
approximately $6 million related primarily to asset realization. See Note 2.
Fiscal 1996 operating income includes the $37 million gain on the sale of a
division and charges of approximately $5 million related to changes in estimates
regarding asset realization and environmental matters. See Note 2.
Health and Educational Resources - Provider of educational and child care
services at both company operated and customer facilities. In 1997 the Company
sold an approximate 83% interest in Spectrum, a provider of general management
and specialized services to emergency rooms, and other hospital specialties, and
medical services to correctional institutions. See Note 2. The Spectrum
operations contributed 29% and 63% of segment revenues and 4% and 32% of segment
operating income in fiscal 1997 and 1996, respectively. Fiscal 1997 operating
income includes the gain of $72 million from the sale of Spectrum. Fiscal 1996
operating income includes charges of approximately $13 million for insurance
claims and real estate exposures. See Note 2.
Distributive - Wholesale distribution of magazines and other published materials
to retail locations patronized by the general public. Distributive Segment
operating results were severely impacted by higher operating costs related to
servicing customers and reduced margins resulting from increased competition and
consolidation in the magazine wholesale distribution industry. Fiscal 1997
includes charges of approximately $34 million related to asset realization. See
Note 2. In July 1998, the Company contributed substantially all of the
Distributive segment operations into a joint venture and recorded a $5 million
pre-tax charge in connection with the transaction. See Note 2.
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. Fiscal 1998 General Corporate expenses
include costs related to several corporate development and strategic
initiatives. Fiscal 1996 General Corporate expenses reflect reserves established
for asset realization, legal and other matters. See Note 2. Direct selling
expenses are approximately 1% of revenues for fiscal 1998, 1997 and 1996.
Corporate assets consist principally of goodwill not allocable to any individual
segment and other noncurrent assets.
S-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. BUSINESS SEGMENTS: (Continued)
Revenues Depreciation and Amortization
------------------------------------------ ------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- --------- -------- ------- --------
(in millions)
Food and Support Services $4,342.3 $4,131.4 $3,816.0 $102.8 $100.2 $96.5
Uniform and Career Apparel 1,308.4 1,252.2 1,049.2 60.1 58.4 52.2
Health and Educational Resources 360.8 466.0 781.0 18.8 18.2 19.6
Distributive 365.8 460.8 476.3 12.0 12.3 8.3
Corporate - - - 2.1 2.6 6.2
-------- -------- -------- ------ ------ -------
Total $6,377.3 $6,310.4 $6,122.5 $195.8 $191.7 $182.8
======== ======== ======== ====== ====== =======
Operating Income
------------------------------------------------------
(in millions)
1998 1997 1996
------ ------ ------
Food and Support Services $ 229.6 $ 170.4 $ 166.9
Uniform and Career Apparel 116.4 124.0 140.2
Health and Educational Resources 31.5 103.5 26.8
Distributive (20.3) (49.6) (6.0)
------ ------ ------
357.2 348.3 327.9
General Corporate and Other Expenses (24.1) (16.4) (32.7)
------ ------ ------
Operating Income 333.1 331.9 295.2
Interest Expense, Net (117.3) (116.0) (116.0)
------ ------ ------
Income Before Income Taxes
and Extraordinary Item $ 215.8 $ 215.9 $ 179.2
====== ====== ======
Capital Expenditures Identifiable Assets
--------------------------------- --------------------------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ -------
(in millions)
Food and Support Services $ 97.7 $ 97.3 $99.5 $1,327.3 $1,258.8 $1,286.4
Uniform and Career Apparel 47.1 66.7 57.7 1,053.3 1,042.0 1,000.8
Health and Educational Resources 24.1 36.0 39.2 219.8 210.4 308.3
Distributive 12.0 1.5 4.6 28.7 138.0 174.1
Corporate .7 .5 1.0 112.2 104.4 75.2
------ ------ ------ -------- -------- --------
$181.6 $202.0 $202.0 $2,741.3 $2,753.6 $2,844.8
====== ====== ====== ======== ======== ========
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 10% of total
operating income (excluding the effect of other expense/income), and
identifiable assets for these operations were approximately 9% of the total.
S-27
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARAMARK CORPORATION
BALANCE SHEETS
OCTOBER 2, 1998 AND OCTOBER 3, 1997
(in thousands)
ASSETS
------
1998 1997
------------- ------------
Current Assets:
Receivables $ 933 $ 1,186
Inventories 23 23
Prepayments 1,565 2,880
----------- -----------
Total current assets 2,521 4,089
----------- -----------
Property & Equipment, net 2,947 5,671
Investment in Subsidiaries 1,214,682 977,599
Notes Receivable from ARAMARK Services, Inc. -- 100,000
Other Assets 1,669 2,274
----------- -----------
$ 1,221,819 $ 1,089,633
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 29,963 $ 22,238
Accrued expenses 24,689 14,924
----------- -----------
Total current liabilities 54,652 37,162
----------- -----------
Long-Term Borrowings 26,701 129,029
Other Noncurrent Liabilities 59,342 65,264
Payable to Subsidiaries 1,140,000 464,877
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 20,000 23,254
Shareholders' Equity (Deficit) Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01 25 20
Class B common stock, par value $.01 629 205
Earnings retained for use in the business (56,815) 394,090
Cumulative translation adjustment (2,715) (1,014)
Impact of potential repurchase feature of
common stock (20,000) (23,254)
----------- -----------
Total (78,876) 370,047
----------- -----------
$ 1,221,819 $ 1,089,633
=========== ===========
The accompanying notes are an integral part of these financial statements.
S-28
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED OCTOBER 2, 1998, OCTOBER 3, 1997 AND
SEPTEMBER 27, 1996
(in thousands)
1998 1997 1996
------------ ---------- ----------
Equity in Net Income of Subsidiaries $129,236 $146,108 $109,470
-------- -------- --------
Management Fee Income 34,853 35,342 49,677
-------- -------- --------
General and Administrative Expenses 24,885 27,320 39,425
-------- -------- --------
Interest (Income) Expense -
Intercompany interest income (5,568) (8,663) (8,477)
Interest expense 10,678 16,685 18,729
-------- -------- --------
Interest Expense, net 5,110 8,022 10,252
-------- -------- --------
Income before income taxes 134,094 146,108 109,470
Provision for Income Taxes 1,943 - -
-------- -------- --------
Income Before Extraordinary Item 132,151 146,108 109,470
Extraordinary Item Due to Early Extinguishments
of Debt (net of income taxes of $1,943 in 1998)
2,915 - -
-------- -------- --------
Net income $129,236 $146,108 $109,470
======== ======== ========
The accompanying notes are an integral part of these financial statements.
S-29
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 2, 1998, OCTOBER 3, 1997 AND
SEPTEMBER 27, 1996
(in thousands)
1998 1997 1996
------------ ---------- ----------
Cash flows from operating activities:
Net income $ 129,236 $ 146,108 $109,470
Equity in net income of subsidiaries (129,236) (146,108) (109,470)
Extraordinary item 2,915 - -
Other, primarily noncash working capital 256 (6,204) 445
--------- --------- --------
Net cash provided by (used in) operating activities 3,171 (6,204) 445
--------- --------- --------
Cash flows from investing activities:
Purchases of property and equipment (732) (469) (968)
Other (117) (322) 3,474
--------- --------- --------
Net cash provided by (used in) investing activities (849) (791) 2,506
--------- ---------- --------
Cash flows from financing activities:
Payment of long-term borrowings including
premiums (106,563) (32,160) (4,225)
Change in notes receivable from
ARAMARK Services, Inc. 100,000 - -
Change in intercompany payable to
subsidiaries 573,473 90,280 49,600
Redemption of preferred stock - - (6,359)
Proceeds from issuance of common stock 22,303 14,338 13,949
Repurchase of common stock (591,535) (65,463) (54,849)
Payment of preferred stock dividend - - (1,067)
--------- ---------- --------
Net cash provided by (used in) financing activities (2,322) 6,995 (2,951)
--------- ---------- --------
Change in cash $ - $ - $ -
========= ========== ========
The accompanying notes are an integral part of these financial statements.
S-30
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-3.
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 debt obligations of ARAMARK Services,
Inc., its wholly-owned subsidiary, which totaled $1.7 billion on October 2,
1998. See Note 4 to the Company's consolidated financial statements.
S-31
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED OCTOBER 2, 1998,
OCTOBER 3, 1997 AND SEPTEMBER 27, 1996
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 1998
- ----------------
Reserve for doubtful accounts,
advances & current notes receivable $23,158 $ 779 $12,209 $ 3,739 $ 7,950 $24,457
======= ======= ======= ========= ======= =======
Fiscal Year 1997
- ----------------
Reserve for doubtful accounts,
advances & current notes receivable $16,973 $ 141 $16,287 $ 1,988 $ 8,255 $23,158
======= ======= ======= ========= ======= =======
Fiscal Year 1996
- ----------------
Reserve for doubtful accounts,
advances & current notes receivable $15,996 $ 831 $ 6,875 $ -- $ 6,729 $16,973
======= ======= ======= ========= ======= =======
(1) Allowances granted and amounts determined not to be collectible.
S-32
INDEX TO EXHIBITS
3.1 Restated Certificate of Incorporation is incorporated by
reference to the Company'squarterly report on Form 10-Q for
the fiscal quarter ended July 3, 1998
3.2 Corporate By-Laws, as amended, are incorporated by reference
to the Company's quarterly report on Form 10-Q for the fiscal
quarter ended July 3, 1998
3.3 Amendment to By-Laws dated November 10, 1998
4.1 Amended and Restated Stockholders' Agreement is incorporated
by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1994
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
10.3 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 is
incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended September 27, 1996
10.8 Credit and Guaranty Agreement dated January 7, 1998 and
amendments thereto dated May 7, 1998 and September 10, 1998
12 Ratio of Earnings to Fixed Charges
21 Subsidiaries of Registrant
23 Consent of Arthur Andersen LLP, Independent Public Accountants
24 Powers of Attorney
27 Financial Data Schedule