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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 1, 1999 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: $1.1 billion
Common stock outstanding at October 29, 1999: Class A Common Stock 2,667,136 shares
Class B Common Stock 65,199,321 shares
Documents incorporated by reference: Portions of the registrant's Proxy
Statement for the 2000 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 1
Item 1. Business
Description of Business Segments
The Company is engaged in providing or managing services, including
food and support services, in the United States and internationally, rental of
uniform and career apparel, direct marketing of 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 derives most of its sales from services provided in the
United States. The Company's international services, primarily the management of
food and support services, are provided in Belgium, Canada, the Czech Republic,
Germany, Hungary, Japan, Korea, Mexico, Spain and the United Kingdom.
For financial reporting purposes, the Company is comprised of five
operating business segments. 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 - United States
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 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 and national companies as well as from businesses
2
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, 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.
Food and Support Services - International
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 services are also
provided at sports and entertainment facilities, such as stadiums, arenas, and
fairgrounds.
Food, refreshment, specialized dietary and support services are
operated at customer locations generally under contracts of varying duration.
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 are generally owned by the Company, except in the United
Kingdom where that equipment is generally owned by the customer. 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 numerous companies within each country, 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 Belgium, Canada, Germany, Spain and the United Kingdom, but
that its volume of such business is small in relation to the total market.
Uniform and Career Apparel - Rental
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.
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.
The uniform rental service business is highly competitive in the areas
in which the Company operates, with numerous competitors in each major operating
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area. Although no one uniform rental services company is predominant in this
industry, the Company believes that it is a significant competitor.
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.
Uniform and Career Apparel - Direct Marketing
The Company is one of the largest direct marketers of personalized
uniforms, career apparel and related items and public safety equipment in the
United States. The direct marketing business is generally conducted under an
invoice arrangement with customers.
Competition in the direct marketing of work clothing, career apparel
and public safety equipment 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 direct marketing of uniform
and career apparel are the quality of services provided to customers and the
prices charged for such services. See note 10 to the consolidated financial
statements for information relating to the seasonal nature of this business.
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.
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.
General
The Company employs approximately 114,000 persons, both full and part
time in the United States, and approximately 38,000 employees internationally.
Approximately 27,000 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
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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
sales. 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.
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 segments and laundry equipment used by the Uniform and
Career Apparel - Rental segment. The vehicles include automobiles and delivery
trucks used in the Food and Support Services and Uniform and Career Apparel -
Rental segments, and automobiles, vans and small buses used in the Educational
Resources segment. The service equipment and fixtures represent 57% of the net
book value of all fixed assets as of October 1, 1999.
The Company's real estate is comprised of educational and childcare
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
segments. Additional information concerning property and equipment (including
leases and noncancelable lease commitments) is included in notes 1 and 8 to the
consolidated financial statements. No individual parcel of real estate owned or
leased is of material significance to the Company's total assets.
See note 11 to the consolidated financial statements for information
concerning the identifiable assets of the Company's business segments.
Item 3. Legal Proceedings
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.
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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
Lawrence T. Babbio, Jr............................... President and Chief Operating Officer
Bell Atlantic Corporation
Patricia C. Barron................................... Clinical Associate Professor,
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 Emeritus, 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
James E. Preston..................................... Retired Chairman, Avon Products, Inc.
Officers: Officer
Name (Age as of November 1, 1999) Office Held Since
- ----------------------------------- ------------ -----
Joseph Neubauer (58)................................. Chairman and Director................................ 1979
James E. Ksansnak (59)............................... Vice Chairman and Director........................... 1986
William Leonard (51)................................. President............................................ 1992
Charles E. Kiernan (54).............................. Executive Vice President............................. 1998
Brian G. Mulvaney (43)............................... Executive Vice President............................. 1993
Martin W. Spector (61)............................... Executive Vice President,
General Counsel and Secretary........................ 1976
L. Frederick Sutherland (47)......................... Executive Vice President and
Chief Financial Officer.............................. 1983
Barbara A. Austell (46).............................. Senior Vice President
and Treasurer........................................ 1996
Alan J. Griffith (45)................................ Vice President, Controller and
Chief Accounting Officer............................. 1994
Dean E. Hill (48).................................... Vice President....................................... 1993
Michael R. Murphy (42)................................ Director of Audit and Controls....................... 1995
Donald S. Morton (51)................................ Assistant Secretary and
Associate General Counsel............................ 1985
Richard M. Thon (44)................................. Assistant Treasurer.................................. 1994
6
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. Between 1994 and 1997 he was president and chief operating officer
of Duracell International, Inc. and then was a private consultant.
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.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There are currently approximately 2800 record holders of Class B common
stock of the Company, all of whom are or were employees or directors of the
Company (or members of their families or trusts created by them). There are
currently 190 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
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The following table presents summary consolidated financial data for
the Company. The following data should be read in conjunction with the
consolidated financial statements and the related notes thereto and Management's
Discussion and Analysis of Results of Operations and Financial Condition, each
included elsewhere herein.
ARAMARK Corporation and Subsidiaries
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Fiscal Year Ended on or near
September 30
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1999 1998 1997(1) 1996 1995
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(in millions, except per share amounts and ratios)
Income Statement Data:
Sales (2).......................................... $6,718.4 $6,615.7 $6,555.6 $6,353.8 $5,828.2
Earnings before depreciation and
amortization, interest, and income taxes........ 568.9 528.9 523.6 478.0 433.9
Earnings before interest
and income taxes (3)............................ 375.2 333.1 331.8 295.2 277.0
Interest expense, net.............................. 135.8 117.3 116.0 116.0 109.4
Income before extraordinary item (4)............... 150.2 133.7 146.1 112.2 100.2
Net income......................................... 150.2 129.2 146.1 109.5 93.5
Earnings per share: (5)
Income before extraordinary item: (4)
Basic...................................... $1.59 $1.17 $1.16 $.84 $.71
Diluted.................................... 1.48 1.10 1.10 .79 .67
Net Income:
Basic...................................... 1.59 1.14 1.16 .82 .66
Diluted.................................... 1.48 1.06 1.10 .77 .63
Ratio of earnings to fixed charges (6)............. 2.2x 2.3x 2.3x 2.1x 2.1x
Balance Sheet Data (at period end):
Total assets....................................... $2,870.5 $2,741.3 $2,753.6 $2,844.8 $2,643.3
Long-term borrowings: (7)
Senior.......................................... 1,583.0 1,678.3 1,084.9 1,160.8 1,109.4
Subordinated ................................... 26.7 26.7 129.0 161.2 165.4
Common stock subject to potential
repurchase (8).................................. 20.0 20.0 23.3 18.6 19.1
Shareholders' equity (deficit) (9)................. 126.6 (78.9) 370.0 296.2 252.3
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(1) Fiscal 1997 is a fifty-three week period. See note 1 to the consolidated
financial statements.
(2) See note 1 to the consolidated financial statements.
(3) See note 2 to the consolidated financial statements.
(4) See note 3 to the consolidated financial statements.
(5) Fiscal 1995 through 1997 earnings per share amounts have been restated to
reflect the 3 for 1 stock split effective on 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.
(6) 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).
(7) See note 4 to the consolidated financial statements.
(8) See note 7 to the consolidated financial statements.
(9) 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
During fiscal 1999 the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (see note 11 to the consolidated financial statements).
Management's discussion and analysis of results of operations for prior years
has been revised to conform with the current year segment presentation.
Fiscal 1999 Compared to Fiscal 1998
Overview. Sales for the fiscal year ended October 1, 1999 were $6.7
billion, an increase of 2% over fiscal 1998, with increases in all operating
segments being partially offset by the impact of the distribution business
transaction in fiscal 1998 (see note 2 to the consolidated financial
statements). Excluding the impact of the distribution business transaction,
sales increased 7% over the prior year. Operating income of $375.2 million
increased $42 million or 13% over the prior year. Total Company operating income
in fiscal 1998 includes other expense of $5 million as described in note 2 to
the consolidated financial statements. Excluding the impact of other expense and
the operating results of the distribution business, which are reflected in the
Corporate and Other segment, operating income increased 7% over the prior year
due to strong performances in the Food and Support Services - United States,
Uniform and Career Apparel - Rental, and Educational Resources segments,
partially offset by a decline in operating income in the Uniform and Career
Apparel - Direct Marketing segment and an increase in costs in the Corporate and
Other segment due in part to the impact in 1998 of a gain from the sale of
certain assets. Excluding other expense/income, the Company's operating income
margin increased to 5.6% from 5.1%, due primarily to the impact of the
distribution business transaction noted above.
Interest expense increased $18.4 million or 16% over the prior year due
primarily to increased debt levels resulting from the impact of the Tender Offer
in June 1998 (see note 7 to the consolidated financial statements).
Segment Results. Food and Support Services - United States segment
sales were 9% higher than the prior year due to increased volume (approximately
5%) and the acquisitions described in note 2 to the consolidated financial
statements (approximately 4%). Sales in the Food and Support Services -
International segment increased 4% versus the prior year due to new accounts
(approximately 3%) and increased volume (approximately 3%), partially offset by
the unfavorable impact of foreign currency translation (approximately 2%). Sales
in the Uniform and Career Apparel - Rental segment increased 6% over the prior
year period due to increased volume. Uniform and Career Apparel - Direct
Marketing sales increased 1% over the prior year period due to increased sales
of safety equipment and related accessories (approximately 4%) and the impact of
the Dyna Corporation acquisition (approximately 2%; see note 2 to the
consolidated financial statements), partially offset by a decline in sales of
uniforms and career apparel. Educational Resources segment sales increased 11%
versus the prior year due to pricing and new locations.
Food and Support Services - United States segment operating income
increased 14% due to the sales increases noted above and effective cost
controls. Food and Support Services - International segment operating income
decreased 1% versus the prior year as the impact of the increased volume noted
9
above plus effective cost controls was offset by operating losses at one
subsidiary and the unfavorable impact of foreign currency translation. Excluding
the impact of the operating losses noted above and foreign currency translation,
operating income in the Food and Support Services - International segment
increased 19%. Uniform and Career Apparel - Rental segment operating income
increased 6% due to the increased volume noted above and gains on disposition of
assets, partially offset by costs related to the startup of certain
manufacturing operations and the implementation of a new marketing initiative.
Operating income in the Uniform and Career Apparel - Direct Marketing segment
decreased 62% versus the prior year period due to the decline in sales of
uniforms and career apparel noted above, a reduction in gross margin reflecting
product mix changes and increased operating costs. Educational Resources segment
operating income increased 11% due to the sales growth noted above.
Fiscal 1998 Compared to Fiscal 1997
Overview. Sales for the fiscal year ended October 2, 1998 were $6.6
billion, an increase of 1% over fiscal 1997, with increases in all operating
segments being partially offset by the impact of the distribution business
transaction in fiscal 1998 and the sale of Spectrum in fiscal 1997 (see note 2
to the consolidated financial statements). Excluding the impact of the Spectrum
and distribution business transactions, sales 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 distribution business, operating income
increased 7% over the prior year, due to strong performances in the Food and
Support Services segments, the Uniform and Career Apparel - Rental segment and
the Educational Resources segment, partially offset by a decline in operating
income in the Uniform and Career Apparel - Direct Marketing segment. Excluding
other expense/income, the Company's operating income margin increased to 5.1%
from 4.9%, 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 - United States segment
sales were 5% higher than the prior year due to new accounts (approximately 3%)
and increased volume (approximately 2%). Sales in the Food and Support Services
- - International segment increased 3% versus the prior year due to new accounts
(approximately 5%) and increased volume (approximately 2%), partially offset by
the unfavorable impact of foreign currency translation (approximately 4%). Sales
in the Uniform and Career Apparel - Rental and Direct Marketing segments
increased 4% and 6%, respectively, due to increased volume. Educational
Resources segment sales increased 9% over the prior year period due to
enrollment growth, pricing and new locations.
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Food and Support Services - United States segment operating income
increased 13% over the prior year period due to the sales increases noted above
and effective cost controls. Operating income in the Food and Support Services -
International segment increased 27% versus the prior year due to the sales
increases noted above and effective cost controls, partially offset by the
unfavorable impact of foreign currency translation (approximately 3%). Uniform
and Career Apparel - Rental segment operating income increased 5% over the prior
year due to the increased sales noted above. Operating income in the Uniform and
Career Apparel - Direct Marketing segment decreased 59% as a result of the write
down of certain inventory to net realizable value and increased operating costs
which were partially offset by the impact of increased volume. Educational
Resources segment operating income increased 16% versus the prior year due to
the sales increased noted above. Included in the Corporate and Other segment in
fiscal 1998 are operating losses of approximately $14 million related to the
distribution business and in fiscal 1997 net operating losses of approximately
$11 million related to the distribution business and Spectrum (see notes 2 and
11 to the consolidated financial statements).
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operating activities was $293 million. Debt decreased
by $95 million as cash provided by operating activities exceeded cash used by
net investing activities. 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. Currently, the Company has approximately
$525 million of unused committed credit availability under its credit
facilities. As of October 1, 1999, the Company had capital commitments of
approximately $36 million related to several long-term concession contracts.
During fiscal 1999, the Company repurchased $8 million of its Class A
Common Stock and $28 million of its Class B Common Stock for $29 million in cash
and $7 million in installment notes. Additionally, the Company issued $17
million of Class B Common Stock to eligible employees, primarily through the
exercise of installment stock purchase opportunities. In the third quarter of
fiscal 1999, the Company sold for cash, without recourse, approximately $44
million of notes receivable related to prior employee stock purchases. The sales
price approximated book value and the proceeds were used to repay borrowings
under the credit facility (see note 7 to the consolidated financial statements).
Subsequent to yearend, the Company repurchased 3,159,223 shares of its Class B
Common Stock and 157,470 shares of its Class A Common Stock for approximately
$40 million in cash and $27 million in installment notes.
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.
For the past three years, the Company has been managing a project to
address its Year 2000 issues. The project has addressed 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
11
Year 2000 compliance efforts of key vendors and suppliers. The project has
consisted of the following phases:
1) Organizational awareness - general awareness of Year 2000 issues
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.
6) Conversion of systems, including rollout of compliant
hardware/software to front line locations.
7) Contingency planning.
Program management offices, staffed with a combination of business unit
personnel and external consultants, were established to address Year 2000
issues. Additionally, a Corporate Compliance Task Force consisting of internal
audit, information technology, legal and risk management personnel, with
assistance from external consultants, was formed in 1997 to review and monitor
the Year 2000 compliance programs. The Task Force has met regularly to review
corporate-wide Year 2000 issues and progress. The Company's Year 2000 compliance
effort has been monitored by senior management on a regular basis and the Audit
and Corporate Practices Committee of the Board of Directors has received
progress reports at least quarterly.
Internal information technology systems. As of October 31, 1999, the
inventory, risk assessment, replacement/remediation and Year 2000 testing phases
for all mission-critical systems have been completed. For a few systems,
remaining rollout of compliant hardware and software to a relatively small
number of frontline locations is expected to continue through November 1999.
Based on current status, 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 Company has determined that
there were only a few mission-critical systems at a limited number of locations
with non-compliant date logic. Replacement of these systems is expected to be
completed by November 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 communicated
with key third party suppliers and customers to determine the Company's
potential exposure in the event these third parties fail to remediate their own
Year 2000 issues. The Company has conducted on site reviews of key suppliers'
project status and issues. The Company continues to monitor suppliers' Year 2000
status and has developed contingency plans to address potential third party Year
2000 failures. 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 disruption of service by
utilities (electric, water, telephone, etc.), key 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.
12
Contingency Plans
The Company has contingency plans for computer failures, power outages,
natural disasters, etc. Year 2000 contingency plans for mission-critical
systems, in the areas discussed above, are being developed or refined and will
be integrated with the existing contingency plans where appropriate by December
1999.
Costs
The Company currently estimates spending approximately $14 million,
excluding internal costs, to complete its Year 2000 compliance program, which
spending is substantially completed. 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 disruption of
service by utilities, financial institutions or other key suppliers, or by
unanticipated problems identified in the ongoing compliance program.
[Space intentionally left blank]
13
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 1, 1999 and 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
respective periods. 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 1, 1999 and October 2,
1998, respectively. 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)
There- Fair
As of October 1, 1999 2000 2001 2002 2003 2004 after Total Value
- --------------------- ---- ---- ---- ---- ---- ----- ----- -----
Debt:
Fixed Rate $104 $25 $75 $25 $300(a) $615 (a) $1,144 $1,101
Average Interest Rate 9.3% 6.7% 7.6% 6.8% 6.8% 7.5% 7.4%
Variable Rate $25 $36 $4 $425 $490 $490
Average Interest Rate 5.8% 5.5% 6.6% 6.2% 6.2%
Interest Rate Swaps:
Receive Variable/Pay Fixed $75 $50 --
Average pay rate 6.1% 6.2%
Average receive rate 5.8% 6.2%
(a) Each balance includes $300 million of senior notes callable by the Company at any time.
There- Fair
As of October 2, 1998 1999 2000 2001 2002 2003 after Total 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.
14
The Company uses foreign currency debt as a hedge for its investment in
foreign subsidiaries. The tables above for fiscal 1999 and 1998 include $60
million of debt denominated in the functional currency of the Company's various
subsidiaries, primarily the Canadian dollar and the German deutschemark.
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 24, 1999
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 24, 1999.
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)
Lawrence T. Babbio, Jr.
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
James E. Preston
Martin W. Spector
- ------------------------------
Martin W. Spector
Attorney-in-Fact
ARAMARK CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Report of Independent Public Accountants S-1
Consolidated Balance Sheets:
As of October 1, 1999 and October 2, 1998 S-2
Consolidated Statements of Income:
Fiscal Years 1999, 1998 and 1997 S-4
Consolidated Statements of Cash Flows:
Fiscal Years 1999, 1998 and 1997 S-5
Consolidated Statements of Shareholders' Equity:
Fiscal Years 1999, 1998 and 1997 S-6
Notes to Consolidated Financial Statements S-9
Consolidated Supporting Schedules Filed:
Schedule
Number
- --------
I Condensed Financial Information of Registrant S-27
II Valuation and Qualifying Accounts and Reserves S-31
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 1, 1999 and
October 2, 1998, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended October 1, 1999. 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 1, 1999 and October 2, 1998, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended October 1, 1999, 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 8, 1999
S-1
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 1, 1999 and October 2, 1998
(dollars in thousands, except share amounts)
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 27,690 $ 20,614
Receivables (less allowances: 1999, $22,496 578,393 526,506
1998, $24,457)
Inventories 369,791 361,451
Prepayments and other current assets 68,492 60,734
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 1,044,366 969,305
- -----------------------------------------------------------------------------------------------------------------------------
Property and Equipment, at Cost:
Land, buildings and improvements 610,777 526,888
Service equipment and fixtures 1,272,322 1,212,369
Leased property under capital leases 6,857 8,958
- -----------------------------------------------------------------------------------------------------------------------------
1,889,956 1,748,215
Less-Accumulated depreciation 956,241 873,822
- -----------------------------------------------------------------------------------------------------------------------------
933,715 874,393
- -----------------------------------------------------------------------------------------------------------------------------
Goodwill 603,017 603,937
- -----------------------------------------------------------------------------------------------------------------------------
Other Assets 289,445 293,664
- -----------------------------------------------------------------------------------------------------------------------------
$2,870,543 $2,741,299
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
S-2
ARAMARK CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 24,761 $ 24,560
Accounts payable 387,127 373,696
Accrued payroll and related expenses 182,056 174,710
Other accrued expenses and current liabilities 331,809 327,772
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 925,753 900,738
- -----------------------------------------------------------------------------------------------------------------------------
Long-Term Borrowings:
Senior 1,606,671 1,701,125
Subordinated 26,689 26,689
Obligations under capital leases 1,060 1,795
- -----------------------------------------------------------------------------------------------------------------------------
1,634,420 1,729,609
Less-current portion 24,761 24,560
- -----------------------------------------------------------------------------------------------------------------------------
Total long-term borrowings 1,609,659 1,705,049
- -----------------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes and Other Noncurrent Liabilities 188,560 194,388
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 20,000 20,000
Shareholders' Equity/(Deficit) Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01; authorized:
25,000,000 shares; issued: 1999 - 2,719,453 shares;
1998 -2,516,081 shares 27 25
Class B common stock, par value $.01; authorized:
150,000,000 shares; issued: 1999 - 65,569,596 shares;
1998 - 62,927,645 shares 656 629
Capital surplus 57,356 -
Earnings retained for use in the business 93,376 (56,815)
Accumulated other comprehensive income (loss) (4,844) (2,715)
Impact of potential repurchase feature of common stock (20,000) (20,000)
- -----------------------------------------------------------------------------------------------------------------------------
Total 126,571 (78,876)
- -----------------------------------------------------------------------------------------------------------------------------
$2,870,543 $2,741,299
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
S-3
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Years Ended October 1, 1999, October 2, 1998 and October 3, 1997
(dollars in thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Sales $6,718,426 $ 6,615,749 $ 6,555,608
- ------------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of services provided 6,063,594 5,999,170 5,960,593
Depreciation and amortization 193,703 195,770 191,732
Selling and general corporate expense 85,963 82,680 83,079
Other expense (income), net - 5,000 (11,655)
- ------------------------------------------------------------------------------------------------------------------------------------
6,343,260 6,282,620 6,223,749
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 375,166 333,129 331,859
Interest Expense, net 135,753 117,357 116,012
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 239,413 215,772 215,847
Provision For Income Taxes 89,222 82,062 69,739
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item 150,191 133,710 146,108
Extraordinary Item Due to Early Extinguishment
of Debt (net of income taxes of $2,982) - 4,474 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 150,191 $ 129,236 $ 146,108
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Income before extraordinary item
Basic $1.59 $1.17 $1.16
Diluted $1.48 $1.10 $1.10
Net income
Basic $1.59 $1.14 $1.16
Diluted $1.48 $1.06 $1.10
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
S-4
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended October 1, 1999, October 2, 1998 and October 3, 1997
(in thousands)
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $150,191 $129,236 $146,108
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 193,703 195,770 191,732
Income taxes deferred 10,845 11,542 (11,049)
Extraordinary item - 4,474 -
Changes in noncash working capital:
Receivables (47,599) (51,743) (19,934)
Inventories (1,951) (9,240) (32,428)
Prepayments (1,922) (754) (5,740)
Accounts payable (10,095) (49,943) (61,348)
Accrued expenses 25,371 60,905 48,364
Changes in other noncurrent liabilities (3,319) (3,914) (1,651)
Changes in other assets (8,429) (8,934) (9,727)
Other, net (13,635) (695) (14,261)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 293,160 276,704 230,066
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (207,223) (164,286) (197,835)
Disposals of property and equipment 23,999 22,204 27,641
Sale of investments 40,722 5,779 9,284
Divestiture of certain businesses 8,380 31,116 119,152
Acquisition of certain businesses:
Working capital other than cash acquired (1,742) 9,550 (74)
Property and equipment (20,325) (17,309) (4,163)
Additions to intangibles and other assets (40,672) (35,199) (5,688)
Other (19,318) (41,452) (8,020)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (216,179) (189,597) (59,703)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 4,855 658,820 127,323
Payment of long-term borrowings including premiums (106,744) (167,942) (242,944)
Proceeds from issuance of common stock 60,731 22,303 14,338
Repurchase of common stock (28,563) (591,535) (65,463)
Other (184) (15,491) (1,548)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (69,905) (93,845) (168,294)
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 7,076 (6,738) 2,069
Cash and cash equivalents, beginning of year 20,614 27,352 25,283
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 27,690 $ 20,614 $ 27,352
================================================================================================================
The accompanying notes are an integral part of these financial statements.
S-5
ARAMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED OCTOBER 1, 1999
(in thousands)
Impact of
Potential Accumulated
Class A Class B Repurchase Other
Common Common Capital Retained Feature of Comprehensive
Stock Stock Surplus Earnings Common Stock Income (Loss) Total
----------- --------- ------- -------- ------------ -------------- --------
Balance, October 2, 1998 $25 $629 $ - $(56,815) $(20,000) $(2,715) $(78,876)
Net income 150,191 150,191
Foreign currency translation adjustments (2,129) (2,129)
--------
Total comprehensive income 148,062
--------
Issuance of Class A common stock to
employee benefit plans 1 14,506 14,507
Conversion of Class B to Class A 2 (18) 16 -
Issuance of Class B common stock 61 35,623 35,684
Sale of deferred payment obligations 44,172 44,172
Retirement of common stock (1) (16) (36,961) (36,978)
--- ---- ------- ------- -------- ------- --------
Balance, October 1, 1999 $27 $656 $57,356 $93,376 $(20,000) $(4,844) $126,571
=== ==== ======= ======= ======== ======= ========
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 Accumulated
Class A Class B Repurchase Other
Common Common Capital Retained Feature of Comprehensive
Stock Stock Surplus Earnings Common Stock Income (Loss) Total
-------- -------- ------- -------- ------------ ------------- ---------
Balance, October 3, 1997 $20 $205 $ - $391,443 $(23,254) $1,633 $370,047
Net income 129,236 129,236
Foreign currency translation adjustments (1,701) (1,701)
Change in unrealized gain on available
for sale investments (2,647) (2,647)
--------
Total comprehensive income 124,888
--------
Issuance of Class A common stock to
employee benefit plans 397 397
Issuance of Class B common stock 25 38,975 39,000
Retirement of common stock (12) (23) (39,372) (577,055) (616,462)
Common stock split 17 422 (439) -
Change during the period 3,254 3,254
--- ---- ------- -------- -------- ------- --------
Balance, October 2, 1998 $25 $629 $ - $(56,815) $(20,000) $(2,715) $(78,876)
=== ==== ======= ======== ======== ======= ========
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 Accumulated
Class A Class B Repurchase Other
Common Common Capital Retained Feature of Comprehensive
Stock Stock Surplus Earnings Common Stock Income (Loss) Total
-------- -------- ------- -------- ------------ ------------- ---------
Balance, September 27, 1996 $20 $227 $ - $309,437 $(18,614) $5,131 $296,201
Net income 146,108 146,108
Foreign currency translation adjustments (6,145) (6,145)
Change in unrealized gain on available
for sale investments 2,647 2,647
--------
Total comprehensive income 142,610
--------
Issuance of Class A common stock to
employee benefit plans 384 384
Issuance of Class B common stock 24 25,025 25,049
Retirement of common stock (46) (25,409) (64,102) (89,557)
Change during the period (4,640) (4,640)
--- ---- ------- -------- -------- ------- --------
Balance, October 3, 1997 $20 $205 $ - $391,443 $(23,254) $ 1,633 $370,047
=== ==== ======= ======== ======== ======= ========
The accompanying notes are an integral part of these financial statements.
S-8
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 1, 1999,
October 2, 1998 and October 3, 1997 are fifty-two, fifty-two and fifty-three
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. At fiscal 1999 yearend, the Company reclassified its
reporting of the reimbursement of direct costs under management fee contracts to
an element of sales rather than a reduction of the related expense item. The
change in classification, which was made to conform more closely to industry
practice, is not a change in revenue recognition policy and has no effect on
pre-tax or net income. Prior year amounts have been reclassified to conform with
the fiscal 1999 presentation.
In fiscal 2000, the Company is required to adopt Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 will not have a material effect on the consolidated
financial statements. In fiscal 2001, the Company is required to adopt Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company is currently assessing the
impact of this statement.
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.
COMPREHENSIVE INCOME
In the first quarter of fiscal 1999, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income". Comprehensive income includes all
changes to shareholders' equity during a period, except those resulting from
investments by and distributions to shareholders. The components of
comprehensive income are shown in the Consolidated Statements of Shareholders'
Equity.
CURRENCY TRANSLATION
Gains and losses resulting from the translation of financial statements of
non-U.S. subsidiaries are reflected as a component of comprehensive income in
shareholders' equity. Currency transaction gains and losses included in
operating results for fiscal 1999, 1998 and 1997 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.
S-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
CURRENT ASSETS (Continued)
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.
The components of inventories are as follows:
1999 1998
- -------------------------------------------------------------------------------
Food 25.8% 22.0%
Career apparel, safety equipment and linens 69.0% 70.3%
Parts, supplies and novelties 5.2% 7.7%
- -------------------------------------------------------------------------------
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 1999,
1998 and 1997 was $146.7 million $144.3 million and $136.1 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 1, 1999 and October 2, 1998 was $199.3 million and
$181.2 million, respectively.
OTHER ASSETS
Other assets consist primarily of investments in 50% or less owned entities,
contract rights, customer lists, computer software costs, 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.
S-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
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.
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 -- see Note 7). 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 applicable to common stock and common shares utilized in the
calculation of basic and diluted earnings per share are as follows:
1999 1998 1997
------ ------ ------
(in thousands, except per share data)
Earnings:
Earnings available to common
stock before extraordinary item $150,191 $133,710 $146,108
-------- -------- --------
Shares:
Weighted average number of common
shares outstanding used in basic
earnings per share calculation 94,197 113,859 125,625
Impact of potential exercise opportunities
under the ARAMARK Ownership Plan 7,275 8,096 6,813
-------- -------- --------
Total common shares used in diluted
earnings per share calculation 101,472 121,955 132,438
======= ======= =======
Basic earnings per common share $1.59 $1.17 $1.16
===== ===== =====
Diluted earnings per common share $1.48 $1.10 $1.10
===== ===== =====
S-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
1999 1998 1997
---- ---- ----
(in millions)
Interest Paid $131.4 $109.5 $106.4
Income Taxes Paid $70.5 $54.9 $63.0
Significant noncash investing and financing activities are as follows:
o During fiscal 1999, 1998 and 1997, the Company contributed $14.5 million,
$0.4 million and $0.4 million, respectively, of Class A Common Stock to its
employee benefit plans to fund previously accrued obligations. In addition,
during fiscal 1999, 1998 and 1997, the Company contributed $2.0 million,
$1.9 million and $2.3 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 1999, 1998 and 1997, the Company received $16.7 million,
$14.9 million and $10.5 million, respectively, of employee notes under its
Deferred Payment program as partial consideration for the issuance of
Common Stock, Class B. Also, during fiscal 1999, 1998 and 1997, the Company
issued installment notes of $6.7 million, $18.4 million and $21.9 million,
respectively, as partial consideration for repurchases of Common Stock. See
Note 7.
NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.:
During the second quarter of fiscal 1999, the Company acquired Restaura, Inc., a
provider of food and support services, and Dyna Corporation, a leading
distributor of emergency medical supplies for approximately $46 million and $13
million in cash, respectively. The acquisitions were accounted for under the
purchase method of accounting. The Company's pro forma results from operations
for fiscal 1999 and 1998 would not have been materially different assuming the
acquisitions had occurred at the beginning of the respective periods.
In the fourth quarter of fiscal 1998, the Company formed a joint venture between
its magazine and book distribution business and another leading magazine and
book wholesaler, Anderson News Corporation. The Company contributed
substantially all of its magazine and book distribution business 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 accounts for its interest in the venture on the cost
basis.
S-12
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. Also reflected in
other expense/income in fiscal 1997 are pre-tax charges of $69.8 million,
primarily to write off certain intangible assets in the Food and Support
Services segments and the magazine and book distribution business. 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 a fiscal 1996 divestiture.
The amount of the fiscal 1997 charges applicable to the Food and Support
Services - United States segment was approximately $9 million, to reduce certain
assets to net realizable value. The amount of the fiscal 1997 charges applicable
to the Food and Support Services - International segment was approximately $21
million due primarily to recognize an impairment of goodwill in a European
operation. The goodwill impairment was determined based on a discounted cash
flow basis. The amount of the fiscal 1997 charges related to the Uniform and
Career Apparel - Rental segment was approximately $6 million related primarily
to asset realization. The amount of charges applicable to the magazine and book
distribution business 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 indications of
value for those operations.
S-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTE 4. BORROWINGS:
Long-term borrowings at October 1, 1999 and October 2, 1998 are summarized in
the following table:
1999 1998
------ ------
(in thousands)
SENIOR:
Credit facility borrowings $425,000 $ 429,300
Canadian credit facility 35,579 31,728
6.75% notes, due August 2004 298,776 298,520
6.79% note, payable in installments through 2003 100,000 125,000
7.00% notes, due July 2006 299,933 299,921
7.10% notes, due December 2006 124,862 124,846
7.25% notes and debentures, due August 2007 32,160 32,160
8% notes, due April 2002 50,000 50,000
8.15% notes, due May 2005 150,000 150,000
10-5/8% notes, due August 2000 50,000 100,000
Other 40,361 59,650
- --------------------------------------------------------------------------------
1,606,671 1,701,125
- --------------------------------------------------------------------------------
SUBORDINATED:
10% exchangeable debentures and notes, due
August 2000 26,689 26,689
OBLIGATIONS UNDER CAPITAL LEASES 1,060 1,795
- --------------------------------------------------------------------------------
1,634,420 1,729,609
Less-current portion 24,761 24,560
- --------------------------------------------------------------------------------
$1,609,659 $1,705,049
================================================================================
S-14
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 1, 1999 - .30%) or the Certificate of Deposit Rate plus a spread
of .28% to .80% (as of October 1, 1999 - .40%), at the option of the Company.
There is a fee of .10% to .30% (as of October 1, 1999 - .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 1, 1999, all borrowings under this facility are payable
in Canadian dollars, with a weighted average interest rate of 5.4%. There is a
fee of .17% on the entire credit facility.
The Company's ARAMARK Educational Resources, Inc. (AER) 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 AER. There is a fee of .20% to .375% (as of October 1, 1999 - .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 1, 1999 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, 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% 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-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
Debt repayments of $104 million, contractually due in fiscal 2000, 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
$29.7 million at October 1, 1999 and $30.4 million at October 2, 1998 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 1, 1999
and October 2, 1998, the Company has $125 million and $219 million,
respectively, of interest rate swap agreements fixing the rate on a like amount
of borrowings under the Credit Agreement at an average effective rate of 6.5%
and 6.4%, respectively. As of October 1, 1999, interest rate swap agreements
remain in effect for periods ranging from 1 to 16 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
comprehensive income in shareholders' equity. 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 1, 1999 and October 2, 1998. 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.
1999 1998
------------------------------ ----------------------------
Carrying Fair Carrying Fair
Asset/(Liability) in millions Amount Value Amount Value
------ ----- ------ -----
Long-term debt $(1,634.4) $(1,590.7) $(1,729.6) $(1,793.0)
Interest rate swap agreements - - - (3.9)
Foreign currency swap agreement 4.5 4.1 2.4 1.1
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 1, 1999, the Company was in compliance with all of these covenants.
Assets with a net book value of $2.2 million at October 1, 1999, are subject to
liens under several of the Company's borrowing arrangements.
S-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BORROWINGS: (Continued)
Long-term borrowings maturing in the next five fiscal years, excluding capital
lease obligations, are as follows:
Amount
--------------
(in thousands)
2000 $24,293
2001 60,869
2002 75,290
2003 25,272
2004 304,186
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 1999, 1998 and 1997 was $16.2 million,
$15.7 million and $15.5 million, respectively. During fiscal 1999, 1998 and
1997, the Company contributed 106,703 shares, 4,161 shares and 5,985 shares,
respectively, of Common Stock, Class A to these plans to partially fund
previously accrued obligations. In addition, during fiscal 1999, 1998 and 1997,
the Company contributed to the stock unit retirement plan 135,508 stock units,
163,873 stock units and 363,555 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 $15.5
million, $14.8 million and $14.4 million for fiscal 1999, 1998 and 1997,
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 1, 1999, which is
fully funded, was $58.3 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 the Company settled certain prior
years' tax returns.
S-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
The components of income before income taxes, including the effects of other
expense/income (See Note 2), by source of income are as follows:
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
(in thousands)
United States $222,259 $188,132 $221,710
Non-U.S. 17,154 27,640 (5,863)
- -----------------------------------------------------------------------------------------------------------------
$239,413 $215,772 $215,847
=================================================================================================================
The provision for income taxes, including the effects of other expense/income
(See Note 2), consists of:
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
(in thousands)
Current:
Federal $60,402 $ 51,001 $60,370
State and local 13,016 7,643 13,366
Non-U.S. 4,959 11,876 7,052
- -----------------------------------------------------------------------------------------------------------------
78,377 70,520 80,788
- -----------------------------------------------------------------------------------------------------------------
Deferred:
Federal 8,453 9,369 (8,027)
State and local 1,624 2,171 (3,494)
Non-U.S. 768 2 472
- -----------------------------------------------------------------------------------------------------------------
10,845 11,542 (11,049)
- -----------------------------------------------------------------------------------------------------------------
$89,222 $82,062 $69,739
=================================================================================================================
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:
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
(% of pre-tax income)
United States statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes, resulting from:
State income taxes, net of Federal tax benefit 4.0 3.9 3.0
Foreign tax benefits (4.5) (.5) (.2)
Permanent book/tax difference related to the sale of Spectrum - - (11.3)
Permanent book/tax differences, primarily
resulting from purchase accounting 3.6 3.6 8.2
Favorable impact of tax settlements - (3.2) -
Tax credits and other (.8) (.8) (2.4)
- -----------------------------------------------------------------------------------------------------------------
Effective income tax rate 37.3% 38.0% 32.3%
=================================================================================================================
S-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES: (Continued)
As of October 1, 1999 and October 2, 1998, the components of deferred taxes are
as follows:
1999 1998
------ ------
(in thousands)
Deferred tax liabilities:
Property and equipment $77,929 $70,379
Inventory 6,431 5,428
Investments 10,161 13,520
Other 15,731 11,061
------- -------
Gross deferred tax liability 110,252 100,388
------- -------
Deferred tax assets:
Insurance $ 7,416 $ 8,694
Employee compensation and benefits 43,682 41,318
Accruals and allowances 30,744 29,917
Intangibles 3,182 5,458
Other 1,674 1,943
------- -------
Gross deferred tax asset 86,698 87,330
------- -------
Net deferred tax liability $23,554 $13,058
======= =======
NOTE 7. CAPITAL STOCK:
There are two classes of common stock authorized and outstanding, Common Stock,
Class A and Common Stock, Class B. Each Class A and Class B Share is entitled to
one vote on all matters submitted to shareholders, voting together as a single
class except where otherwise required by law. Each Class A Share is entitled to
ten times the dividends and other distributions payable on each Class B Share.
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.
S-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL STOCK: (Continued)
As of October 1, 1999, 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 exercise price of each option is equal to the current fair market value
at the date of grant. The Company granted installment stock purchase
opportunities under its stock ownership program in fiscal 1999, 1998 and 1997,
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. In fiscal 1999, 1998 and
1997, 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 installment purchase opportunities to defer a portion
of the total amount required to exercise the options. Interest currently accrues
on deferred payments at 7.75% and is payable when the deferred payments are due.
At October 1, 1999 and October 2, 1998, the receivables from individuals under
the Deferred Payment Program were $5.8 million and $35.7 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. In the third quarter of fiscal
1999, the Company sold for cash, without recourse, approximately $44 million of
Deferred Payment Program notes receivable. The sales price approximated book
value and the proceeds were used to repay borrowings under the credit facility.
Status of the options under the various ownership programs, adjusted to reflect
the three-for-one stock split in fiscal 1998, follows:
Number of Shares Average Option Price
--------------------------------------------- ----------------------------
1999 1998 1997 1999 1998 1997
------------- ------------- ------------- ------ ------ ------
Outstanding at beginning of year 24,701,205 26,832,636 31,103,952 $5.78 $4.74 $4.06
Options granted 4,912,500 9,634,800 10,371,000 $11.57 $7.47 $5.54
Options exercised 6,125,906 7,228,446 7,289,349 $5.28 $4.43 $3.23
Canceled/Forfeited 2,958,191 4,537,785 7,352,967 $6.50 $5.27 $4.31
Outstanding at end of year 20,529,608 24,701,205 26,832,636 $7.19 $5.78 $4.74
Exercisable at end of year 7,960 81,840 193,176 $13.05 $1.52 $2.96
The exercise prices on outstanding options at October 1, 1999 range from $3.73
to $13.05, with a weighted average remaining life of approximately three years.
The Company has reserved 22,706,945 shares of Common Stock, Class B at October
1, 1999 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-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL STOCK: (Continued)
1999 1998 1997
---- ---- ----
Net Income
As reported $150,191 $129,236 $146,108
Pro forma $146,501 $125,658 $143,570
Earnings per share
As reported:
Basic $1.59 $1.14 $1.16
Diluted $1.48 $1.06 $1.10
Pro forma:
Basic $1.56 $1.10 $1.14
Diluted $1.44 $1.03 $1.08
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 1999, 1998 and 1997
was $1.61, $1.12 and $0.88 per option, respectively. 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:
1999 1998 1997
---------- ---------- ----------
Risk-free interest rate 4.5 - 4.8% 5.3 - 5.9% 5.2 - 6.1%
Expected life in years 3.3 3.2 3.2
Dividend yield 0% 0% 0%
The Company and its shareholders are parties to an Amended and Restated
Stockholders' 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 1, 1999 and October 2, 1998. 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 ($25.1
million as of October 1, 1999 and $44.1 million as of October 2, 1998) is
included in the consolidated balance sheets as "Other Noncurrent Liabilities"
and the current portion of these notes ($18.9 million as of October 1, 1999 and
$26.0 million as of October 2, 1998) is included in the consolidated balance
sheets as "Accounts Payable." Subsequent to yearend, the Company repurchased
3,159,223 shares of its Class B common stock and 157,470 shares of its Class A
common stock for approximately $40 million in cash and $27 million in
installment notes.
S-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENCIES:
1999 1998
- -----------------------------------------------------------------------
(in thousands)
Facilities under capital leases $6,857 $8,958
Less-accumulated amortization 6,131 7,686
- -----------------------------------------------------------------------
$ 726 $1,272
=======================================================================
Rental expense for all operating leases was $146.5 million, $143.2 million and
$129.7 million for fiscal 1999, 1998 and 1997, respectively.
Following is a schedule of the future minimum rental commitments under all
noncancelable leases as of October 1, 1999:
Fiscal Year Operating Capital
- ---------------------------------------------------------------------------
(in thousands)
2000 $166,082 $523
2001 91,872 348
2002 69,137 128
2003 57,741 59
2004 45,192 44
Subsequent years 96,085 11
- ---------------------------------------------------------------------------
Total minimum rental obligations $526,109 1,113
=============================================================
Less-amount representing interest 53
- ---------------------------------------------------------------------------
Present value of capital leases 1,060
Less-current portion 468
- ---------------------------------------------------------------------------
Noncurrent obligations under capital leases $ 592
===========================================================================
The Company has capital commitments of approximately $36 million at October 1,
1999 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-22
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.
1999 1998 1997
------- ------ ------
(in thousands)
Sales $4,282,498 $3,910,124 $3,721,581
Cost of services provided 4,047,430 3,676,193 3,514,317
Net income 26,639 40,842 20,690
1999 1998
------ ------
(in thousands)
Current assets $ 519,356 $ 451,050
Noncurrent assets 2,072,161 2,079,782
Current liabilities 574,013 545,406
Noncurrent liabilities 1,815,161 1,823,868
S-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. QUARTERLY RESULTS (Unaudited):
The following table summarizes quarterly financial data for fiscal 1999 and
1998:
Fiscal Quarter
----------------------------------------------------------
1999 First Second Third Fourth Year
- ------------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
Sales $1,648,465 $1,658,845 $1,712,646 $1,698,470 $6,718,426
Cost of services provided 1,498,346 1,521,103 1,544,769 1,499,376 6,063,594
Net Income 30,083 19,427 41,859 58,822 150,191
Diluted earnings per share $.30 $.19 $.41 $.58 $1.48
Fiscal Quarter
----------------------------------------------------------
1998 First Second Third Fourth(1) Year
- ------------------------------------------------------------------------------------------------------------------
(in thousands, except earnings per share)
Sales $1,648,393 $1,648,641 $1,695,349 $1,623,366 $6,615,749
Cost of services provided 1,499,440 1,517,761 1,539,784 1,442,185 5,999,170
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
(1) Fiscal 1998 fourth quarter results reflect charges relating to the
contribution of the Company's magazine and book distribution business into a
joint venture. See Note 2.
(2) See Note 3.
In the first and second fiscal quarters, within the Food and Support Services -
United States 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-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. BUSINESS SEGMENTS:
In fiscal 1999 the Company adopted the provisions of SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information". Operating segment
information for fiscal 1998 and 1997 is also presented in accordance with SFAS
No. 131.
The Company provides or manages services in three strategic markets; Food and
Support Services, Uniform and Career Apparel and Educational Resources which are
organized and managed by the following reportable business segments:
Food and Support Services - United States - Food, refreshment, specialized
dietary and support services, including facility maintenance and housekeeping,
provided to business, educational, governmental and healthcare institutions and
in recreational and other facilities serving the general public.
Food and Support Services - International - Food, refreshment, specialized
dietary and support services, including facility maintenance and housekeeping,
provided to business, educational, governmental and healthcare institutions and
in recreational and other facilities serving the general public. Operations are
conducted in Belgium, Canada, the Czech Republic, Germany, Hungary, Japan,
Korea, Mexico, Spain and the United Kingdom.
Uniform and Career Apparel - Rental - Rental, sale, cleaning, maintenance and
delivery of personalized uniform and career apparel and other textile items on a
contract basis. Also provided are walk-off mats, cleaning cloths, disposable
towels and other environmental control items.
Uniform and Career Apparel - Direct Marketing - Direct marketing of personalized
uniforms and career apparel, public safety equipment and accessories to
businesses, public institutions and individuals.
Educational Resources - Provider of infant, toddler, pre-school and school-age
learning programs through community-based child care centers, before and after
school programs, employer on-site child care centers and private elementary
schools.
Corporate and Other - The corporate and other segment includes general corporate
expenses not specifically allocated to an individual segment and the sales and
operating results of the company's magazine and book distribution and Spectrum
Healthcare businesses which were divested in fiscal 1998 and 1997, respectively
(See Note 2). Included in the Corporate and Other segment in fiscal 1998 are
operating losses of approximately $14 million related to the distribution
business and in fiscal 1997 net operating losses of approximately $11 million
related to the distribution business and Spectrum.
Sales 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 corporate expenses applicable to more
than one segment.
Net property and equipment by geography is as follows:
1999 1998
------ ------
(in millions)
United States $887.6 $829.3
International 46.1 45.1
------ ------
Total $933.7 $874.4
====== ======
S-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. BUSINESS SEGMENTS: (Continued)
Sales Depreciation and Amortization
------------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- --------- -------- ------- --------
(in millions)
Food and Support Services - United States $3,993.5 $3,653.0 $3,472.5 $93.6 $86.8 $83.1
Food and Support Services - International 975.2 938.0 912.8 16.0 16.0 17.1
Uniform and Career Apparel - Rental 911.9 863.5 832.0 43.4 42.4 40.8
Uniform and Career Apparel - Direct Marketing 438.1 434.6 411.5 18.7 17.7 17.6
Educational Resources 399.7 360.8 332.1 20.0 18.8 17.0
Corporate and Other - 365.8 594.7 2.0 14.1 16.1
-------- -------- -------- ------ ------ ------
Total $6,718.4 $6,615.7 $6,555.6 $193.7 $195.8 $191.7
======== ======== ======== ====== ====== ======
Operating Income
-----------------------------------------------------
1999 1998 1997
------ ------ ------
(in millions)
Food and Support Services - United States $222.3 $195.1 $173.3
Food and Support Services - International 32.0 32.4 25.6
Uniform and Career Apparel - Rental 106.9 100.9 96.4
Uniform and Career Apparel - Direct Marketing 3.9 10.1 24.7
Educational Resources 34.7 31.2 26.9
------ ------ ------
$399.8 $369.7 $346.9
Corporate and Other (24.6) (31.6) (26.7)
Other Income/(Expense) - (5.0) 11.7
------ ------ ------
Operating Income 375.2 333.1 331.9
Interest Expense, Net (135.8) (117.3) (116.0)
------ ------ ------
Income Before Income Taxes
and Extraordinary Item $239.4 $215.8 $215.9
====== ====== ======
Capital Expenditures Identifiable Assets
----------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------
(in millions)
Food and Support Services - United States $94.6 $78.8 $81.7 $1,186.9 $1,069.7 $1,013.1
Food and Support Services - International 20.1 19.0 15.6 246.5 243.5 227.9
Uniform and Career Apparel - Rental 64.4 41.2 59.9 762.2 739.3 720.8
Uniform and Career Apparel - Direct Marketing 8.8 5.8 6.8 311.4 313.1 319.0
Educational Resources 39.6 24.0 36.0 234.7 218.3 207.9
Corporate and Other - 12.8 2.0 128.8 157.4 264.9
------ ------ ------ -------- -------- --------
$227.5 $181.6 $202.0 $2,870.5 $2,741.3 $2,753.6
====== ====== ====== ======== ======== ========
S-26
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ARAMARK CORPORATION
BALANCE SHEETS
OCTOBER 1, 1999 AND OCTOBER 2, 1998
(in thousands)
ASSETS
1999 1998
----------- ----------
Current Assets:
Cash and cash equivalents $ 200 $ -
Receivables 695 933
Inventories 23 23
Prepayments 1,840 1,565
---------- ----------
Total current assets 2,758 2,521
---------- ----------
Property & Equipment, net 2,140 2,947
Investment in Subsidiaries 1,379,139 1,214,682
Other Assets 2,048 1,669
---------- ----------
$1,386,085 $1,221,819
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 33,174 $ 29,963
Accrued expenses 13,027 24,689
---------- ----------
Total current liabilities 46,201 54,652
---------- ----------
Long-Term Borrowings 26,689 26,701
Other Noncurrent Liabilities 40,955 59,342
Payable to Subsidiaries 1,125,669 1,140,000
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement 20,000 20,000
Shareholders' Equity/(Deficit) Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01 27 25
Class B common stock, par value $.01 656 629
Capital Surplus 57,356 -
Earnings retained for use in the business 93,376 (56,815)
Accumulated other comprehensive income (loss) (4,844) (2,715)
Impact of potential repurchase feature of
common stock (20,000) (20,000)
---------- ----------
Total 126,571 (78,876)
---------- ----------
$1,386,085 $1,221,819
========== ==========
The accompanying notes are an integral part of these financial statements.
S-27
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
ARAMARK CORPORATION
STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED OCTOBER 1, 1999, OCTOBER 2, 1998 AND OCTOBER 3, 1997
(in thousands)
1999 1998 1997
-------- -------- --------
Equity in Net Income of Subsidiaries $150,191 $129,236 $146,108
-------- -------- --------
Management Fee Income 25,371 34,853 35,342
-------- -------- --------
General and Administrative Expenses 20,593 24,885 27,320
-------- -------- --------
Interest (Income) Expense -
Intercompany interest income - (5,568) (8,663)
Interest expense 4,778 10,678 16,685
-------- -------- --------
Interest Expense, net 4,778 5,110 8,022
-------- -------- --------
Income before income taxes 150,191 134,094 146,108
Provision for Income Taxes - 1,943 -
-------- -------- --------
Income Before Extraordinary Item 150,191 132,151 146,108
Extraordinary Item Due to Early Extinguishments
of Debt (net of income taxes of $1,943) - 2,915 -
-------- -------- --------
Net income $150,191 $129,236 $146,108
======== ======== ========
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 CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 1, 1999, OCTOBER 2, 1998 AND OCTOBER 3, 1997
(in thousands)
1999 1998 1997
---------- ---------- ----------
Cash flows from operating activities:
Net income $150,191 $ 129,236 $ 146,108
Equity in net income of subsidiaries (150,191) (129,236) (146,108)
Extraordinary item - 2,915 -
Other, primarily noncash working capital (26,819) 256 (6,204)
-------- --------- ---------
Net cash provided by (used in) operating activities (26,819) 3,171 (6,204)
-------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (31) (732) (469)
Other (314) (117) (322)
-------- --------- ---------
Net cash used in investing activities (345) (849) (791)
-------- --------- ---------
Cash flows from financing activities:
Payment of long-term borrowings including
premiums - (106,563) (32,160)
Change in notes receivable from
ARAMARK Services, Inc. - 100,000 -
Change in intercompany payable to
subsidiaries (4,804) 573,473 90,280
Proceeds from issuance of common stock 60,731 22,303 14,338
Repurchase of common stock (28,563) (591,535) (65,463)
-------- --------- ---------
Net cash provided by (used in) financing activities 27,364 (2,322) 6,995
-------- --------- ---------
Change in cash $ 200 $ - $ -
Cash, beginning of period - - -
-------- --------- ---------
Cash, end of period $ 200 $ - $ -
======== ========= =========
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
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 $1.6 billion on
October 1, 1999. See Note 4 to the Company's consolidated financial statements.
S-30
ARAMARK CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED OCTOBER 1, 1999, OCTOBER 2, 1998 AND OCTOBER 3, 1997
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 1999
- ----------------
Reserve for doubtful accounts,
advances & current notes receivable $24,457 $165 $13,413 $41 $15,498 $22,496
======= ==== ======= ==== ======= =======
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
======= ==== ======= ====== ====== =======
(1) Allowances granted and amounts determined not to be collectible.
S-31
INDEX TO EXHIBITS
3.1 Restated Certificate of Incorporation
3.2 Corporate By-Laws, as amended
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
4.3 7.0% Guaranteed Notes due July 15, 2006; Indenture dated July 15, 1991,
is incorporated by reference to the Company's Registration Statements on
Form S-3, Registration No. 33-525887, 33-64259 and 333-53161
4.4 6 3/4% Guaranteed Notes due August 1, 2004; Indenture dated July 15,
1991, is incorporated by reference to the Company's Registration
Statement on Form S-3, Registration No. 333-53161
Long-term debt instruments authorizing debt that does not exceed 10% of
the total consolidated assets of the Company are not filed herewith
but will be furnished on request of the Commission.
10.1 1999 Employment Agreement with Joseph Neubauer
10.2 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
10.3 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
10.4 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
10.5 Agreement relating to employment and post-employment competition dated
December 14, 1998 with Charles Kiernan
10.6 Credit and Guaranty Agreement dated January 7, 1998 and amendments
thereto dated May 7, 1998 and September 10, 1998 are incorporated by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended October 2, 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