UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 29, 2002 Commission file number 001-16807
-------------- ---------
ARAMARK CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-3086414
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ARAMARK Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215) 238-3000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class A common stock outstanding at April 26, 2002: 154,061,803
Class B common stock outstanding at April 26, 2002: 37,609,953
EXPLANATORY NOTE
This Quarterly Report on Form 10-Q/A amends "Item 1. Financial Statements - Note
(14) - Condensed Consolidating Financial Statements of ARAMARK Corporation and
Subsidiaries" of Part I - Financial Information of the registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 29, 2002 to correct a
clerical error in the condensed consolidating financial statements. The
operating income and net income of ARAMARK Services, Inc. and subsidiaries was
revised to $82.1 million and $33.0 million, respectively, for the three months
ended March 29, 2002, and to $137.2 million and $48.0 million, respectively, for
the six months ended March 29, 2002. The operating income and net income of the
Other subsidiaries was revised to $54.2 million and $31.4 million, respectively,
for the three months ended March 29, 2002, and to $117.0 million and $67.8
million, respectively, for the six months ended March 29, 2002. This correction
also changed the condensed consolidating balance sheets as of March 29, 2002 and
the condensed consolidating statements of cash flows for the six months ended
March 29, 2002. This change had no impact on the consolidated financial
statements of ARAMARK Corporation. No other changes have been made to the
Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2002.
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
------
March 29, September 28,
2002 2001
---------- ------------
Current Assets:
Cash and cash equivalents $ 39,013 $ 24,799
Receivables 527,072 503,291
Inventories, at lower of cost or market 419,244 415,798
Prepayments and other current assets 163,615 76,310
---------- ----------
Total current assets 1,148,944 1,020,198
---------- ----------
Property and Equipment, net 1,148,111 1,087,833
Goodwill 1,306,654 705,016
Other Intangible Assets 259,658 104,272
Other Assets 247,266 299,075
---------- ----------
$4,110,633 $3,216,394
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term borrowings $ 43,568 $ 34,710
Accounts payable 376,249 459,249
Accrued expenses and other liabilities 670,298 590,192
---------- ----------
Total current liabilities 1,090,115 1,084,151
---------- ----------
Long-Term Borrowings 1,946,062 1,635,867
Deferred Income Taxes and Other Noncurrent Liabilities 267,655 229,484
Common Stock Subject to Potential Repurchase Under
Provisions of Shareholders' Agreement - 20,000
Shareholders' Equity Excluding Common Stock
Subject to Repurchase:
Class A common stock, par value $.01 1,711 1,672
Class B common stock, par value $.01 375 -
Capital surplus 817,298 1,065
Earnings retained for use in the business 398,939 283,125
Accumulated other comprehensive income (loss) (22,033) (18,970)
Treasury stock (389,489) -
Impact of potential repurchase feature of
common stock - (20,000)
---------- ----------
Total 806,801 246,892
---------- ----------
$4,110,633 $3,216,394
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
March 29, March 30, March 29, March 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Sales $2,150,536 $1,881,033 $4,260,224 $3,828,311
---------- ---------- ---------- ----------
Costs and Expenses:
Cost of services provided 1,957,424 1,716,998 3,861,413 3,468,967
Depreciation and amortization 65,835 60,431 126,188 119,060
Selling and general corporate expenses 28,923 24,462 56,321 49,276
Other income (Note 12) (37,889) - (37,889) -
---------- ---------- ---------- ----------
2,014,293 1,801,891 4,006,033 3,637,303
---------- ---------- ---------- ----------
Operating income 136,243 79,142 254,191 191,008
Interest and Other Financing Costs, net 35,395 41,505 70,893 82,102
---------- ---------- ---------- ----------
Income before income taxes 100,848 37,637 183,298 108,906
Provision for Income Taxes 36,477 13,875 67,484 41,716
---------- ---------- ---------- ----------
Net income $ 64,371 $ 23,762 $ 115,814 $ 67,190
========== ========== ========== ==========
Earnings Per Share:
Basic $ .32 $ .14 $ .62 $ .39
Diluted $ .31 $ .13 $ .58 $ .37
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
For the Six Months Ended
---------------------------
March 29, March 30,
2002 2001
--------- ---------
Cash flows from operating activities:
Net income $ 115,814 $ 67,190
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 126,188 119,060
Income taxes deferred 15,196 1,599
Gain on sale of investment (37,889) -
Changes in noncash working capital (123,391) (130,470)
Net proceeds from sale of receivables 35,805 161,159
Other operating activities (7,948) (9,399)
--------- ---------
Net cash provided by operating activities 123,775 209,139
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (99,892) (108,998)
Disposals of property and equipment 8,403 15,664
Sale of investments 68,750 8,240
Divestiture of certain businesses 3,348 -
Acquisition of certain businesses (795,349) (48,127)
Other investing activities 17,146 5,399
--------- ---------
Net cash used in investing activities (797,594) (127,822)
--------- ---------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 701,087 31,835
Payment of long-term borrowings (384,321) (98,795)
Proceeds from issuance of common stock 764,558 32,423
Repurchase of stock (391,121) (41,119)
Other financing activities (2,170) (231)
--------- ---------
Net cash provided by (used in) financing activities 688,033 (75,887)
--------- ---------
Increase in cash and cash equivalents 14,214 5,430
Cash and cash equivalents, beginning of period 24,799 24,592
--------- ---------
Cash and cash equivalents, end of period $ 39,013 $ 30,022
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ARAMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
--------------------------------------------
The condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the statements include all
adjustments (which include only normal recurring adjustments) required
for a fair statement of financial position, results of operations and
cash flows for such periods. The results of operations for interim
periods are not necessarily indicative of the results for a full year.
(2) CAPITAL STOCK:
-------------
On December 14, 2001, the Company completed an initial public offering
of 34,500,000 shares of its Class B common stock at a price of $23.00
per share, raising approximately $742.9 million, net of issuance costs.
Just prior to the completion of the initial public offering, old
ARAMARK Corporation merged with its wholly owned subsidiary, ARAMARK
Worldwide Corporation. Each outstanding ARAMARK old Class B and old
Class A common share was exchanged for two shares and twenty shares,
respectively, of the surviving corporation's Class A common stock which
had the effect of a two-for-one stock split. ARAMARK Worldwide's name
was changed to ARAMARK Corporation, and it succeeded to all the assets,
liabilities, rights and obligations of old ARAMARK. Shareholders'
equity, share and per share amounts have been restated to give effect
to the two-for-one merger exchange ratio and the change in capital
stock of the Company. The restatement had no effect on other amounts,
including net income previously reported by ARAMARK. Upon completion of
the merger, the Amended and Restated Stockholders' Agreement was
terminated and the Company's limited obligation to repurchase shares
was eliminated.
Although the Class B shares contain the same economic interests in the
Company as the Class A shares, the Class A shares entitle holders to
ten votes per share while the Class B shareholders are entitled to one
vote per share. After the completion of the initial public offering,
but prior to the stock buybacks discussed below, Class A shares
constituted about 83% of our total outstanding stock and about 98% of
our total voting power, while the Class B shares constituted about 17%
of our total outstanding shares and about 2% of our total voting power.
On December 14, 2001, the Company purchased 3,276,700 Class A shares
owned by employee benefit plans for $23.00 per share, resulting in a
cash expenditure of $75.4 million. These shares, which are reflected as
treasury shares, represented 10% of all Class A shares owned by these
benefit plans.
On December 17, 2001, the Company announced an offer to purchase up to
10% of its Class A common stock, excluding shares owned by benefit
plans, for $23.00 per share. On January 25, 2002, the Company completed
the tender offer for its Class A common stock and purchased 13.7
million shares for approximately $314 million. The remaining proceeds
from the initial public offering were used to repay a portion of the
bridge loan discussed in Note 10.
On December 10, 2001, shareholders approved the ARAMARK 2001 Equity
Incentive Plan, which provides for the initial issuance of up to
30,000,000 shares of either Class A or Class B common stock, with an
additional 3% of the Company's common stock outstanding as of the end
of the prior calendar year becoming available under the plan on each
January 1 following the adoption of the plan. Concurrent with the
initial public offering, the Company granted 3.7 million options to
purchase Class A common stock under the plan. The options vest ratably
over four years, with an exercise price equal to the initial public
offering price. No future stock option grants will be made under the
ARAMARK Ownership Plan.
Additionally, during the first six months of fiscal 2002, pursuant to
the ARAMARK Ownership Program, employees purchased approximately 7.1
million shares or $28.2 million of Class A Common Stock for $21.7
million cash plus $6.5 million of deferred payment obligations. Also,
during the first six months of fiscal 2002, approximately 2.9 million
Class A shares were converted to Class B shares.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(3) GOODWILL AND OTHER INTANGIBLE ASSETS:
------------------------------------
At the beginning of the first quarter of fiscal 2002, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets" in accordance with the early
adoption provisions of the standard. With the adoption of SFAS No. 142,
goodwill is no longer subject to amortization, rather it is subject to
at least an annual assessment for impairment by applying a fair value
based test. The Company has completed the transitional goodwill
impairment tests required by SFAS No. 142, which did not result in an
impairment charge.
The elimination of goodwill amortization would have increased net
income by $5.6 million and $10.9 million for the three and six months
ended March 30, 2001, respectively, or $.03 and $.06 per basic and
diluted share for the three and six months, respectively.
Goodwill as of March 29, 2002 allocated by segment follows:
September 28, 2001 Acquisitions Translation and Other March 29, 2002
------------------ ------------ --------------------- --------------
(in thousands)
Food and Support
Services - United States $ 340,562 $ 600,272 $ - $ 940,834
Food and Support
Services - International 41,852 2,257 (1,090) 43,019
Uniform and Career
Apparel - Rental 147,800 199 - 147,999
Uniform and Career
Apparel - Direct Marketing 104,066 - - 104,066
Educational Resources 70,736 - - 70,736
----------- ----------- ----------- -----------
$ 705,016 $ 602,728 $ (1,090) $ 1,306,654
=========== =========== =========== ===========
The increase in goodwill results principally from the acquisition of
ServiceMaster Management Services (see Note 10) completed on November
30, 2001, and this amount will be revised based upon final
determination of the purchase price allocation. During the 2002 second
quarter a preliminary adjustment of approximately $113 million was
recorded to reflect the results of an independent valuation of certain
intangible assets.
Other intangible assets as of March 29, 2002 consist of:
Gross Accumulated
Amount Amortization
------ ------------
(in thousands)
Customer relationship assets $340,748 $ 99,547
Other 26,023 7,566
-------- ---------
Total $366,771 $ 107,113
======== =========
All intangible assets are amortizable and consist primarily of contract
rights, customer lists and non-compete agreements. Net intangible
assets increased $155.4 million during fiscal 2002, primarily due to
the acquisition of ServiceMaster Management Services (see Note 10).
Amortization expense related to intangible assets for the six months
ended March 29, 2002 was $22.7 million.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(4) SUPPLEMENTAL CASH FLOW INFORMATION:
----------------------------------
The Company made interest payments of $68.7 million and $77.2 million
and income tax payments of $57.6 million and $63.7 million during the
first six months of fiscal 2002 and 2001, respectively. Included in net
cash provided by operating activities is the tax benefit to the Company
from the exercise of non-qualified stock options of approximately $13.3
million and $8.0 million during the first six months of fiscal 2002 and
2001, respectively.
(5) EARNINGS PER SHARE:
------------------
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share." Prior year earnings per
share amounts have been restated to reflect the merger discussed in
Note 2. Pro forma net income and earnings per share information are
shown as if the provisions of SFAS No. 142 were in effect for fiscal
2001 (see Note 3). Earnings applicable to common stock and common
shares utilized in the calculation of basic and diluted earnings per
share are as follows:
Three Months Ended Pro Forma
--------------------------------- ------------
March 29, March 30, March 30,
2002 2001 2001
------------- --------------- ------------
(in thousands, except per share data)
Earnings:
Net income $ 64,371 $ 23,762 $ 29,331
======== ======== ========
Shares:
Weighted average number of common
shares outstanding used in basic
earnings per share calculation 198,210 173,629 173,629
Impact of potential exercise opportunities
under the ARAMARK Ownership and
Equity Incentive Plans 11,013 9,055 9,055
-------- -------- --------
Total common shares used in diluted
earnings per share calculation 209,223 182,684 182,684
======== ======== ========
Basic earnings per common share $ .32 $ .14 $ .17
======== ======== ========
Diluted earnings per common share $ .31 $ .13 $ .16
======== ======== ========
Six Months Ended Pro Forma
-------------------------------- -----------
March 29, March 30, March 30,
2002 2001 2001
------------ ------------ ---------
(in thousands, except per share data)
Earnings:
Net income $115,814 $ 67,190 $ 78,044
======== ======== ========
Shares:
Weighted average number of common
shares outstanding used in basic
earnings per share calculation 187,097 171,788 171,788
Impact of potential exercise opportunities
under the ARAMARK Ownership and
Equity Incentive Plans 11,595 10,120 10,120
-------- -------- --------
Total common shares used in diluted
earnings per share calculation 198,692 181,908 181,908
======== ======== ========
Basic earnings per common share $ .62 $ .39 $ .45
======== ======== ========
Diluted earnings per common share $ .58 $ .37 $ .43
======== ======== ========
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(6) COMPREHENSIVE INCOME:
--------------------
Pursuant to the provisions of SFAS No. 130, "Reporting Comprehensive
Income", comprehensive income includes all changes in shareholders'
equity during a period, except those resulting from investment by and
distributions to shareholders. Components of comprehensive income
include net income, changes in foreign currency translation adjustments
and changes in the fair value of cash flow hedges (net of tax). Total
comprehensive income was $67.2 million and $112.8 million for the three
and six months ended March 29, 2002, respectively; and $11.1 million
and $63.8 million for the three and six months ended March 30, 2001.
(7) ACCOUNTING FOR DERIVATIVE INSTRUMENTS:
--------------------------------------
The Company utilizes derivative financial instruments, such as interest
rate swaps and forward exchange contract agreements to manage changes
in market conditions related to debt obligations and foreign currency
exposures. As of March 29, 2002, the Company has $200 million of
interest rate swap agreements fixing the rate on a like amount of
variable rate borrowings. There were no forward exchange contract
agreements outstanding as of March 29, 2002.
The Company recognizes all derivatives on the balance sheet at fair
value at the end of each quarter. Changes in the fair value of a
derivative that is designated as and meets all the required criteria
for a cash flow hedge are recorded in accumulated other comprehensive
income and reclassified into earnings as the underlying hedged item
affects earnings. Amounts reclassified into earnings related to
interest rate swap agreements are included in interest expense. During
the six months ended March 29, 2002, unrealized net gains of
approximately $2.9 million (net of tax) related to interest rate swaps
were recorded in Other Comprehensive Income. As of March 29, 2002,
approximately $3.6 million of net unrealized losses related to interest
rate swaps was included in Accumulated Other Comprehensive Income,
approximately $3.3 million of which is expected to be reclassified into
earnings during the next twelve months. The hedge ineffectiveness for
existing derivative instruments for the quarter ending March 29, 2002
was not material.
(8) ACCOUNTS RECEIVABLE SECURITIZATION:
----------------------------------
The Company has an agreement (the "Receivables Facility") with several
financial institutions whereby it sells on a continuous basis an
undivided interest in all eligible trade accounts receivable, as
defined in the Receivables Facility. Pursuant to the Receivables
Facility, the Company formed ARAMARK Receivables, LLC, a wholly-owned,
bankruptcy-remote subsidiary. ARAMARK Receivables, LLC was formed for
the sole purpose of buying and selling receivables generated by certain
subsidiaries of the Company. Under the Receivables Facility, certain
subsidiaries of the Company transfer without recourse all of their
accounts receivable to ARAMARK Receivables, LLC. ARAMARK Receivables,
LLC, in turn, has sold and, subject to certain conditions, may from
time to time sell an undivided interest in these receivables up to $200
million. The Company has retained collection and administrative
responsibility for the participating interest sold. The agreement
expires in March 2004. This two-step transaction is accounted for as a
sale of receivables following the provisions of SFAS No. 140. At March
29, 2002, $173.9 million of accounts receivable were sold and removed
from the consolidated balance sheet. The loss on the sale of
receivables in the first six months of fiscal 2002 was $2.6 million and
is included in "Interest and other financing costs, net."
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(9) SEGMENT INFORMATION:
--------------------
Sales and operating income by segment follow:
Three Months Ended Six Months Ended
------------------------ ------------------------
March 29, March 30, March 29, March 30,
Sales 2002 2001 2002 2001
--------------------------------------------- ---------- ---------- ---------- ----------
(in thousands)
Food and Support Services - United States $1,386,875 $1,117,120 $2,700,092 $2,303,454
Food and Support Services - International 291,519 288,840 595,686 554,179
Uniform and Career Apparel - Rental 251,578 248,543 502,174 498,926
Uniform and Career Apparel - Direct Marketing 104,367 107,628 232,907 239,683
Educational Resources 116,197 118,902 229,365 232,069
---------- ---------- ---------- ----------
$2,150,536 $1,881,033 $4,260,224 $3,828,311
========== ========== ========== ==========
Three Months Ended Pro Forma
------------------------ -----------
March 29, March 30, March 30,
Operating Income 2002 2001 2001
--------------------------------------------- ---------- ---------- -----------
(in thousands)
Food and Support Services - United States $ 51,267 $ 37,462 $ 40,089
Food and Support Services - International 11,253 10,536 11,135
Uniform and Career Apparel - Rental 29,323 26,137 27,437
Uniform and Career Apparel - Direct Marketing 4,949 1,847 2,619
Educational Resources 10,099 9,451 10,236
-------- -------- --------
106,891 85,433 91,516
Corporate and Other (8,537) (6,291) (5,970)
Other Income (Note 12) 37,889 - -
-------- -------- --------
Operating Income 136,243 79,142 85,546
Interest Expense, net (35,395) (41,505) (41,505)
-------- -------- --------
Income Before Income Taxes $100,848 $ 37,637 $ 44,041
======== ======== ========
Six Months Ended Pro Forma
------------------------ -----------
March 29, March 30, March 30,
Operating Income 2002 2001 2001
--------------------------------------------- ---------- ---------- -----------
(in thousands)
Food and Support Services - United States $118,219 $ 97,807 $103,088
Food and Support Services - International 22,780 20,476 21,362
Uniform and Career Apparel - Rental 59,624 58,144 60,735
Uniform and Career Apparel - Direct Marketing 14,716 10,594 12,139
Educational Resources 17,342 15,989 17,545
-------- -------- --------
232,681 203,010 214,869
Corporate and Other (16,379) (12,002) (11,360)
Other Income (Note 12) 37,889 - -
-------- -------- --------
Operating Income 254,191 191,008 203,509
Interest Expense, net (70,893) (82,102) (82,102)
-------- -------- --------
Income Before Income Taxes $183,298 $108,906 $121,407
======== ======== ========
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(9) SEGMENT INFORMATION: (Continued)
--------------------
Pro forma segment information is shown as if the provisions of SFAS No.
142 were in effect for fiscal 2001 (see Note 3).
Included in "Corporate and Other" in the first quarter of fiscal 2001 is a
gain of $6.6 million resulting from the redemption of preferred stock by
an entity which the Company divested in fiscal 1997. Also included in
"Corporate and Other" in fiscal 2001 are charges related to certain
litigation pertaining to a previously divested entity ($1.5 million),
merger and acquisition related costs ($0.5 million), and the immaterial
cumulative effect ($2.6 million) of a change by the Educational Resources
business in accounting for non-refundable registration fees pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 101.
Certain prior year amounts have been reclassified to conform to current
year presentation.
(10) ACQUISITIONS:
-------------
On November 30, 2001 the Company completed the acquisition of the
management services division of The ServiceMaster Company (ServiceMaster
Management Services). The aggregate consideration for the transaction was
approximately $790 million in cash, subject to post closing adjustments,
plus costs of the acquisition.
ServiceMaster Management Services is a leader in the provision of facility
management services in the United States, providing a complete range of
facility management services to the healthcare, education and business and
industry client sectors. The facility management services provided include
custodial services, plant operations and management, groundskeeping,
technical support and food services. ServiceMaster Management Services
also has operations in Canada and maintains licensing arrangements with
local service providers in approximately 25 other countries.
The Company believes that the acquisition of ServiceMaster Management
Services will further enhance its position as a leading provider of
outsourced services. The Company believes the acquisition will enable it
to strengthen its portfolio of services by broadening its facility
services base in the United States and internationally. In addition, the
Company believes the acquisition will provide ARAMARK with additional
strategic benefits, including opportunities to cross-sell food and support
services and other outsourced services to ServiceMaster Management
Services' existing clients.
The Company financed the acquisition and related expenses in an aggregate
of approximately $800 million by borrowing approximately an additional
$200 million under the Company's senior revolving credit facility and $600
million under a new bridge financing facility with a group of banks. A
portion of the bridge financing was repaid with proceeds from the initial
public offering of Class B common stock discussed in Note 2. The bridge
loan was repaid in full in April 2002 with proceeds from the issuance of
the Company's 7% Senior Notes due 2007 (see Note 13).
The results of ServiceMaster Management Services have been included in the
accompanying condensed consolidated financial statements since the date of
acquisition and are included in the Food and Support Services - United
States segment. The cost of the acquisition was allocated to the assets
acquired and liabilities assumed based on a preliminary estimate of their
respective fair values. The Company is in the process of obtaining
independent appraisals and other information supporting the fair value of
the individual assets acquired and liabilities assumed in order to
complete the allocation of the purchase price. The initial purchase price
allocation may be revised in the future based on such additional
information.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(10) ACQUISITIONS: (Continued)
------------
The following table presents pro forma financial information as if the
acquisition of ServiceMaster Management Services had occurred at the
beginning of the respective fiscal periods:
Three Months Ended Six Months Ended
March 30, 2001 March 29, 2002 March 30, 2001
------------------ ---------------- ----------------
(in millions, except per share amounts)
Sales $2,119.7 $4,421.7 $4,310.5
Net Income $ 21.2 $ 116.1 $ 63.2
Diluted Earnings per Share $ .12 $ .58 $ .35
These pro forma disclosures are unaudited and are based on historical
results, adjusted for the impact of certain acquisition related items,
such as: amortization of intangibles, increased interest expense on
acquisition debt and the related income tax effects. Pro forma results do
not reflect any synergies that might be achieved from the combined
operations, and therefore, in management's opinion, are not indicative of
what actual results would have been if the acquisition had occurred at the
beginning of the respective periods. Pro forma results are not intended to
be a projection of future results.
During the first quarter of fiscal 2001, the Company acquired the UK food
and support services business of the Campbell Bewley Group Limited,
issuing stock of a subsidiary (8% interest) as consideration.
Additionally, the Company acquired a 45% interest in the Campbell Bewley
Group Limited's food and support services business in Ireland for
approximately $19 million in cash.
(11) NEW ACCOUNTING PRONOUNCEMENTS:
------------------------------
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. In August
2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. The Company is required to adopt these standards no later than the
beginning of fiscal 2003, and is currently evaluating the impact of both.
(12) SALE OF INVESTMENT IN BOSTON RED SOX:
-------------------------------------
In February 2002, the Company sold its interests in the Boston Red Sox
Baseball Club and a related entity, which controls rights to broadcast Red
Sox games. The sale resulted in a pre-tax gain of approximately $37.9
million which is presented as "Other income" in the accompanying condensed
consolidated statements of income.
(13) SUBSEQUENT EVENT:
-----------------
In April 2002, a subsidiary of the Company issued $300 million of 7% notes
(the Notes) which mature on May 1, 2007. The Notes are fully and
unconditionally guaranteed by the Company and will rank equally with all
of the Company's other unsecured senior indebtedness. The net proceeds of
the offering (approximately $297.1 million) were used to repay the
outstanding borrowings under the ServiceMaster acquisition bridge
financing facility described in Note 10 and a portion of the senior
revolving credit facility. Concurrent with the issuance of the Notes, the
Company entered into a $300 million notional amount interest rate swap to
receive fixed (7%)/pay variable (six month LIBOR). The swap matures on May
1, 2007 and is being accounted for as a fair-value hedge in accordance
with the provisions of Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
as amended.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(14) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF ARAMARK CORPORATION AND
-----------------------------------------------------------------------
SUBSIDIARIES:
------------
The following condensed consolidating financial statements of ARAMARK
Corporation and subsidiaries have been prepared pursuant to Rule 3-10
of Regulation S-X.
These condensed consolidating financial statements have been prepared
from the Company's financial information on the same basis of
accounting as the condensed consolidated financial statements. ARAMARK
Services, Inc. is the borrower under the Credit Agreement and certain
other senior debt and incurs interest expense thereunder. The interest
expense and certain administrative costs are only partially allocated
to all of the other subsidiaries of the Company. The Company has fully
and unconditionally guaranteed certain debt obligations of ARAMARK
Services, Inc., its wholly-owned subsidiary, which totaled $2.0 billion
as of March 29, 2002. The other subsidiaries do not guarantee any
registered securities of the Company or ARAMARK Services, Inc.,
although certain other subsidiaries guarantee, along with the Company,
certain other unregistered debt.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
March 29, 2002
(In Millions)
ASSETS
------
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Current Assets:
Cash and cash equivalents $ 27.5 $ 11.1 $ 0.4 $ - $ 39.0
Receivables 334.5 192.1 0.5 - 527.1
Inventories, at lower of cost or market 96.5 322.7 - - 419.2
Prepayments and other current assets 104.6 29.5 29.5 - 163.6
--------- --------- -------- ----------- ---------
Total current assets 563.1 555.4 30.4 - 1,148.9
--------- --------- -------- ----------- ---------
Property and Equipment, net 309.1 836.7 2.3 - 1,148.1
Goodwill 805.4 501.2 - - 1,306.6
Other Intangible Assets 188.9 70.8 - - 259.7
Intercompany Receivable 2,215.3 105.6 - (2,320.9) -
Investment in Subsidiaries - - 2,178.5 (2,178.5) -
Other Assets 142.2 101.5 3.6 - 247.3
--------- --------- -------- ----------- ---------
$ 4,224.0 $ 2,171.2 $2,214.8 $ (4,499.4) $ 4,110.6
========= ========= ======== =========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term borrowings $ 39.2 $ 4.4 $ - $ - $ 43.6
Accounts payable 236.7 94.9 44.6 - 376.2
Accrued expenses and other liabilities 454.0 199.2 17.0 - 670.2
--------- --------- -------- ----------- ---------
Total current liabilities 729.9 298.5 61.6 - 1,090.0
--------- --------- -------- ----------- ---------
Long-Term Borrowings 1,945.9 0.2 - - 1,946.1
Deferred Income Taxes and Other Noncurrent
Liabilities 127.8 99.4 40.5 - 267.7
Intercompany Payable 857.6 157.4 1,305.9 (2,320.9) -
Shareholders' Equity Excluding Common
Stock Subject to Repurchase 562.8 1,615.7 806.8 (2,178.5) 806.8
--------- --------- -------- ----------- ---------
$ 4,224.0 $ 2,171.2 $2,214.8 $ (4,499.4) $ 4,110.6
========= ========= ======== =========== =========
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
September 28, 2001
(In Millions)
ASSETS
------
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Current Assets:
Cash and cash equivalents $ 17.3 $ 7.1 $ 0.4 $ - $ 24.8
Receivables 310.8 191.6 0.9 - 503.3
Inventories, at lower of cost or market 93.3 322.5 - - 415.8
Prepayments and other current assets 34.0 39.9 2.4 - 76.3
--------- --------- --------- -------- ----------
Total current assets 455.4 561.1 3.7 - 1,020.2
--------- --------- --------- -------- ----------
Property and Equipment, net 249.1 836.4 2.3 - 1,087.8
Goodwill 206.2 498.8 - - 705.0
Intercompany Receivable 2,243.5 105.6 - (2,349.1) -
Investment in Subsidiaries - - 1,709.5 (1,709.5) -
Other Intangible Assets 28.2 76.1 - - 104.3
Other Assets 162.0 133.6 3.5 - 299.1
--------- --------- --------- --------- ----------
$ 3,344.4 $ 2,211.6 $ 1,719.0 $(4,058.6) $ 3,216.4
========= ========= ========= ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term borrowings $ 34.3 $ 0.4 $ - $ - $ 34.7
Accounts payable 293.6 117.0 48.6 - 459.2
Accrued expenses and other liabilities 348.4 224.1 17.7 - 590.2
--------- --------- --------- --------- ----------
Total current liabilities 676.3 341.5 66.3 - 1,084.1
--------- --------- --------- --------- ----------
Long-Term Borrowings 1,629.4 6.5 - - 1,635.9
Deferred Income Taxes and Other Noncurrent
Liabilities 74.1 103.7 51.7 - 229.5
Intercompany Payable 773.4 241.6 1,334.1 (2,349.1) -
Common Stock Subject to Potential Repurchase
Under Provisions of Shareholders' Agreement - - 20.0 - 20.0
Shareholders' Equity Excluding Common Stock
Subject to Repurchase 191.2 1,518.3 246.9 (1,709.5) 246.9
--------- --------- --------- --------- ----------
$ 3,344.4 $ 2,211.6 $ 1,719.0 $(4,058.6) $ 3,216.4
========= ========= ========= ========= ==========
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the three months ended March 29, 2002
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------- ------------- ------------ ------------ -------------
Sales $1,484.9 $665.6 $ - $ - $2,150.5
Equity in Net Income of Subsidiaries - - 64.4 (64.4) -
Management Fee Income - - 9.3 (9.3) -
-------- --------- -------- -------- --------
1,484.9 665.6 73.7 (73.7) 2,150.5
Costs and Expenses:
Cost of services provided 1,393.9 572.0 - (8.5) 1,957.4
Depreciation and amortization 33.3 32.4 - 0.1 65.8
Selling and general corporate expenses 13.5 7.0 8.5 (0.1) 28.9
Other income (37.9) - - - (37.9)
-------- --------- -------- -------- --------
1,402.8 611.4 8.5 (8.5) 2,014.2
-------- --------- -------- -------- --------
Operating Income 82.1 54.2 65.2 (65.2) 136.3
Interest and other financing costs, net:
Interest expense, net 34.3 0.3 0.8 - 35.4
Intercompany interest, net (4.1) 4.9 - (0.8) -
-------- --------- -------- -------- --------
Interest and other financing costs, net 30.2 5.2 0.8 (0.8) 35.4
-------- --------- -------- -------- --------
Income before income taxes 51.9 49.0 64.4 (64.4) 100.9
Provision for Income Taxes 18.9 17.6 - - 36.5
-------- --------- -------- -------- --------
Net Income $ 33.0 $ 31.4 $64.4 $(64.4) $ 64.4
======== ========== ======== ======== ========
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSLIDATING STATEMENTS OF INCOME
For the three months ended March 30, 2001
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Sales $1,226.0 $655.0 $ - $ - $1,881.0
Equity in Net Income of Subsidiaries - - 23.8 (23.8) -
Management Fee Income - - 7.5 (7.5) -
-------- --------- ------- ------- ---------
1,226.0 655.0 31.3 (31.3) 1,881.0
Costs and Expenses:
Cost of services provided 1,150.1 572.6 - (5.8) 1,716.9
Depreciation and amortization 25.1 35.2 - 0.1 60.4
Selling and general corporate expenses 11.9 6.9 5.8 (0.1) 24.5
-------- --------- ------- ------- ---------
1,187.1 614.7 5.8 (5.8) 1,801.8
-------- --------- ------- ------- ---------
Operating Income 38.9 40.3 25.5 (25.5) 79.2
Interest and other financing costs, net:
Interest expense, net 39.6 0.2 1.7 - 41.5
Intercompany interest, net (5.2) 6.9 - (1.7) -
-------- --------- ------- ------- ---------
Interest and other financing costs, net 34.4 7.1 1.7 (1.7) 41.5
-------- --------- ------- ------- ---------
Income before income taxes 4.5 33.2 23.8 (23.8) 37.7
Provision for Income Taxes 0.6 13.3 - 13.9
-------- --------- ------- ------- ---------
Net Income $ 3.9 $ 19.9 $ 23.8 $ (23.8) $ 23.8
======== ========= ======= ======= =========
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the six months ended March 29, 2002
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Sales $ 2,889.8 $ 1,370.4 $ - $ - $ 4,260.2
Equity in Net Income of Subsidiaries - - 115.8 (115.8) -
Management Fee Income - - 17.7 (17.7) -
---------- ---------- -------- ---------- ----------
2,889.8 1,370.4 133.5 (133.5) 4,260.2
Costs and Expenses:
Cost of services provided 2,702.3 1,174.8 - (15.7) 3,861.4
Depreciation and amortization 61.5 64.5 - 0.2 126.2
Selling and general corporate expenses 26.7 14.1 15.7 (0.2) 56.3
Other income (37.9) - - - (37.9)
---------- ---------- -------- ---------- ----------
2,752.6 1,253.4 15.7 (15.7) 4,006.0
---------- ---------- -------- ---------- ----------
Operating Income 137.2 117.0 117.8 (117.8) 254.2
Interest and other financing costs, net:
Interest expense, net 68.4 0.5 2.0 - 70.9
Intercompany interest, net (8.0) 10.0 - (2.0) -
---------- ---------- -------- ---------- ----------
Interest and other financing costs, net 60.4 10.5 2.0 (2.0) 70.9
---------- ---------- -------- ---------- ----------
Income before income taxes 76.8 106.5 115.8 (115.8) 183.3
Provision for Income Taxes 28.8 38.7 - - 67.5
---------- ---------- -------- ---------- ----------
Net Income $ 48.0 $ 67.8 $ 115.8 $ (115.8) $ 115.8
========== ========== ======== ========== ==========
16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the six months ended March 30, 2001
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Sales $ 2,457.2 $ 1,371.1 $ - $ - $ 3,828.3
Equity in Net Income of Subsidiaries - - 67.2 (67.2) -
Management Fee Income - - 17.5 (17.5) -
---------- ---------- ------- ---------- ----------
2,457.2 1,371.1 84.7 (84.7) 3,828.3
Costs and Expenses:
Cost of services provided 2,299.3 1,184.4 - (14.7) 3,469.0
Depreciation and amortization 48.4 70.4 - 0.2 119.0
Selling and general corporate expenses 21.4 13.4 14.5 - 49.3
---------- ---------- ------- ---------- ----------
2,369.1 1,268.2 14.5 (14.5) 3,637.3
---------- ---------- ------- ---------- ----------
Operating Income 88.1 102.9 70.2 (70.2) 191.0
Interest and other financing costs, net:
Interest expense, net 78.9 0.2 3.0 - 82.1
Intercompany interest, net (10.5) 13.5 - (3.0) -
---------- ---------- ------- ---------- ----------
Interest and other financing costs, net 68.4 13.7 3.0 (3.0) 82.1
---------- ---------- ------- ---------- ----------
Income before income taxes 19.7 89.2 67.2 (67.2) 108.9
Provision for Income Taxes 10.5 31.2 - - 41.7
---------- ---------- ------- ---------- ----------
Net Income $ 9.2 $ 58.0 $ 67.2 $ (67.2) $ 67.2
========== ========== ======= ========== ==========
17
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the six months ended March 29, 2002
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Net cash provided by (used in) operating activities $ 85.3 $ 75.1 $ (36.6) $ - $ 123.8
Cash flows from investing activities:
Purchases of property and equipment (44.3) (55.6) - - (99.9)
Disposals of property and equipment 6.5 1.9 - - 8.4
Net proceeds from sale of investments 68.8 - - - 68.8
Divestiture of certain businesses 3.3 - - - 3.3
Acquisition of certain businesses,
Net of cash acquired (794.5) (0.8) - - (795.3)
Other investing activities 13.7 3.4 - - 17.1
-------- ------- -------- --------- ----------
Net cash used in investing activities (746.5) (51.1) - - (797.6)
-------- ------- -------- --------- ----------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 701.3 (0.2) - - 701.1
Payment of long-term borrowings (381.9) (2.4) - - (384.3)
Repurchase of stock - - (391.1) - (391.1)
Proceeds from issuance of common stock - - 764.5 - 764.5
Change in intercompany, net 354.2 (17.4) (336.8) - -
Other financing activities (2.2) - - - (2.2)
-------- ------- -------- --------- ----------
Net cash provided by financing activities 671.4 (20.0) 36.6 - 688.0
-------- ------- -------- --------- ----------
Increase (decrease) in cash and cash equivalents 10.2 4.0 - - 14.2
Cash and cash equivalents, beginning of period 17.3 7.1 0.4 - 24.8
-------- ------- -------- --------- ----------
Cash and cash equivalents, end of period $ 27.5 $ 11.1 $ 0.4 $ - $ 39.0
======== ======= ======== ========= ==========
18
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ARAMARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the six months ended March 30, 2001
(In Millions)
ARAMARK
Services, Inc.
and Other ARAMARK
Subsidiaries Subsidiaries Corporation Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
Net cash provided by (used in) operating activities $ 171.2 $ 63.7 $ (25.8) $ - $ 209.1
Cash flows from investing activities:
Purchases of property and equipment (50.3) (58.7) - - (109.0)
Disposals of property and equipment 2.5 13.2 - - 15.7
Sale of investments - 8.2 - - 8.2
Acquisition of certain businesses (35.5) (12.6) - - (48.1)
Other investing activities (0.8) 6.2 - - 5.4
-------- ------- ------- ----- --------
Net cash used in investing activities (84.1) (43.7) - - (127.8)
-------- ------- ------- ----- --------
Cash flows from financing activities:
Proceeds from additional long-term borrowings 25.2 6.6 - - 31.8
Payment of long-term borrowings (97.1) (1.7) - - (98.8)
Proceeds from issuance of common stock - - 32.4 - 32.4
Repurchase of stock - - (41.1) - (41.1)
Change in intercompany, net (17.5) (17.1) 34.6 - -
Other financing activities (0.2) - - - (0.2)
-------- ------- ------- ----- --------
Net cash provided by (used in) financing activities (89.6) (12.2) 25.9 - (75.9)
-------- ------- ------- ----- --------
Increase (decrease) in cash and cash equivalents (2.5) 7.8 0.1 - 5.4
Cash and cash equivalents, beginning of period 19.5 4.8 0.3 - 24.6
-------- ------- ------- ----- --------
Cash and cash equivalents, end of period $ 17.0 $ 12.6 $ 0.4 $ - $ 30.0
======== ======= ======= ===== ========
19
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARAMARK CORPORATION
May 31, 2002 s/John M. Lafferty
----------------------------------
John M. Lafferty
Senior Vice President, Controller
and Chief Accounting Officer
20