Form 10-Q

10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended July 1, 2005

Commission file number 001-16807

ARAMARK CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		23-3086414
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class A common stock outstanding at July 29, 2005: 62,927,591 shares

Class B common stock outstanding at July 29, 2005: 119,040,702 shares

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands)


	July 1, 2005			October 1, 2004
ASSETS
Current Assets:
Cash and cash equivalents	$	42,320		$	45,319
Receivables		748,117			759,822
Inventories, at lower of cost or market		471,309			471,839
Prepayments and other current assets		78,049			63,035

Total current assets		1,339,795			1,340,015

Property and Equipment, net		1,206,734			1,214,382
Goodwill		1,677,610			1,589,144
Other Intangible Assets		282,201			271,343
Other Assets		536,310			406,689

	$	5,042,650		$	4,821,573

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term borrowings	$	40,506		$	25,523
Accounts payable		481,261			566,474
Accrued expenses and other liabilities		800,041			862,933

Total current liabilities		1,321,808			1,454,930

Long-Term Borrowings		1,971,674			1,843,200
Deferred Income Taxes and Other Noncurrent Liabilities		491,624			373,788
Shareholders’ Equity:
Class A common stock, par value $.01		821			893
Class B common stock, par value $.01		1,454			1,330
Capital surplus		1,097,641			1,007,687
Earnings retained for use in the business		1,246,630			1,080,020
Accumulated other comprehensive loss		(955	)		(4,144	)
Treasury stock		(1,088,047	)		(936,131	)

Total shareholders’ equity		1,257,544			1,149,655

	$	5,042,650		$	4,821,573

The accompanying notes are an integral part of these condensed consolidated financial statements.

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In Thousands, Except Per Share Amounts)


	For the Three Months Ended				For the Nine Months Ended
	July 1, 2005		July 2, 2004		July 1, 2005		July 2, 2004
Sales	$	2,792,366	$	2,594,924	$	8,181,741	$	7,571,310

Costs and Expenses:
Cost of services provided		2,533,272		2,356,471		7,437,654		6,881,367
Depreciation and amortization		79,410		74,781		235,962		218,106
Selling and general corporate expenses		35,752		31,722		104,347		95,217

		2,648,434		2,462,974		7,777,963		7,194,690

Operating income		143,932		131,950		403,778		376,620
Interest and Other Financing Costs, net		32,222		30,873		96,857		92,443

Income before income taxes		111,710		101,077		306,921		284,177
Provision for Income Taxes		40,327		36,617		109,998		105,711

Net income	$	71,383	$	64,460	$	196,923	$	178,466

Earnings Per Share:
Basic	$	0.38	$	0.34	$	1.06	$	0.94
Diluted	$	0.38	$	0.33	$	1.04	$	0.92

The accompanying notes are an integral part of these condensed consolidated financial statements.

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)


	For the Nine Months Ended
	July 1, 2005			July 2, 2004
Cash flows from operating activities:
Net income	$	196,923		$	178,466
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		235,962			218,106
Income taxes deferred		(3,055	)		21,539
Changes in noncash working capital		(124,043	)		(138,381	)
Net proceeds from sale of receivables		30,500			—
Other operating activities		(26,067	)		(39,618	)

Net cash provided by operating activities		310,220			240,112

Cash flows from investing activities:
Purchases of property and equipment and client contract investments		(227,040	)		(212,710	)
Disposals of property and equipment		13,522			12,708
Proceeds from sale of investment		—			8,500
Acquisition of certain businesses, net of cash acquired		(108,448	)		(141,286	)
Other investing activities		18,688			4,718

Net cash used in investing activities		(303,278	)		(328,070	)

Cash flows from financing activities:
Proceeds from additional long-term borrowings		380,799			352,842
Payment of long-term borrowings		(234,932	)		(167,249	)
Proceeds from issuance of common stock		30,997			37,578
Repurchase of stock		(147,069	)		(118,803	)
Dividend payments		(30,313	)		(27,946	)
Other financing activities		(9,423	)		11,824

Net cash provided by (used in) financing activities		(9,941	)		88,246

Increase (decrease) in cash and cash equivalents		(2,999	)		288
Cash and cash equivalents, beginning of period		45,319			44,475

Cash and cash equivalents, end of period	$	42,320		$	44,763

The accompanying notes are an integral part of these condensed consolidated financial statements.

ARAMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1)

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Certain prior period balances have been reclassified to conform to the current period classification. The effect of such reclassifications was not material. 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, due to the seasonality of some of our business activities and the possibility of changes in general economic conditions.

(2)

SUPPLEMENTAL CASH FLOW INFORMATION, ETC.:

The Company made interest payments of $99.6 million and $99.2 million and income tax payments of $102.8 million and $85.7 million during the first nine months of fiscal 2005 and 2004, respectively. During the first quarter of fiscal 2004, the Company completed the sale of its interest in a previously divested periodicals distribution business and received cash proceeds of $8.5 million. Pension expense related to defined benefit pension plans was not material for the three and nine month periods of both fiscal 2005 and 2004, and funding requirements for such plans will not be material in fiscal 2005.

Cash provided by operating activities includes tax benefits of approximately $29.3 million and $24.7 million from the employee exercise of non-qualified stock options during the first nine months of fiscal 2005 and 2004, respectively. Cash flow from other investing activities in fiscal 2005 includes approximately $14.1 million representing a special distribution of proceeds from a real estate sale by a 50%-owned equity affiliate.

(3)

COMPREHENSIVE INCOME:

Pursuant to 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. Components of comprehensive income include net income, changes in foreign currency translation adjustments, minimum pension liability and changes in the fair value of cash flow hedges (net of tax). Total comprehensive income was $64.1 million and $200.1 million for the three and nine months ended July 1, 2005, respectively, and $62.3 million and $186.7 million for the three and nine months ended July 2, 2004, respectively.

(4)

CAPITAL STOCK:

During the first nine months of fiscal 2005, 2.7 million options were granted to purchase common stock under the 2001 Equity Incentive Plan (2001 EIP). The options vest ratably over four years, with an exercise price equal to the fair market value at the date of grant. During the first nine months of fiscal 2005, employees, through stock option exercises, purchased approximately 4.8 million shares of common stock for $45.8 million, of which $15.3 million was satisfied through the exchange of previously-owned shares. Also, during the first nine months of fiscal 2005, approximately 9.6 million Class A shares were converted to Class B shares. During the first nine months of fiscal 2005, the Company issued 0.4 million restricted stock units under the 2001 EIP, which vest ratably over four years. Compensation expense related to the restricted stock unit grants is recognized ratably over the vesting period based on the fair value of the shares at date of grant, and totaled $2.5 million during the first nine months of fiscal 2005.

During the first nine months of fiscal 2005, the Company repurchased 5.2 million shares of Class B common stock at an aggregate cost of approximately $136.6 million, leaving approximately $88 million available for common stock repurchases under the existing Board authorization.

During each of the first three quarters of fiscal 2005, the Company paid a cash dividend of $0.055 per share, which totaled $30.3 million. At its August 9, 2005 meeting, the Board of Directors declared a dividend in the amount of $0.055 per share, payable on September 8, 2005 to holders of record of the Company’s Class A and Class B common stock at the close of business on August 19, 2005.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(5)

GOODWILL AND OTHER INTANGIBLE ASSETS:

The Company follows the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” Goodwill, allocated by reportable segment, follows (in thousands):


	October 1, 2004		Acquisitions		Translation and Other			July 1, 2005
Food and Support Services – United States	$	1,081,205	$	1,183	$	(840	)	$	1,081,548
Food and Support Services – International		207,961		56,177		(1,202	)		262,936
Uniform and Career Apparel – Rental		190,559		33,148		—			223,707
Uniform and Career Apparel – Direct Marketing		109,419		—		—			109,419

	$	1,589,144	$	90,508	$	(2,042	)	$	1,677,610

Goodwill additions during the nine months ended July 1, 2005 reflect (i) the increase of ownership in our Irish foodservice company from 45% to 90%, which is included in the Food and Support – International segment, and (ii) the acquisition of several regional uniform rental companies. These amounts may be revised upon final determination of the purchase price allocations.

Other intangible assets consist of (in thousands):


	July 1, 2005							October 1, 2004
	Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
Customer relationship assets	$	513,192	$	(232,216	)	$	280,976	$	479,660	$	(210,690	)	$	268,970
Other		21,598		(20,373	)		1,225		21,363		(18,990	)		2,373

	$	534,790	$	(252,589	)	$	282,201	$	501,023	$	(229,680	)	$	271,343

All intangible assets are amortizable and consist primarily of contract rights, customer lists and non-compete agreements. The intangible assets are being amortized on a straight-line basis over the expected period of benefit, 3 to 20 years. Intangible assets of approximately $48.6 million were acquired through business combinations during the first nine months of fiscal 2005. Amortization of intangible assets for the first nine months of fiscal 2005 was approximately $36.3 million. Amortization for the first nine months of fiscal 2004 was approximately $37.3 million.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(6)

EARNINGS PER SHARE:

The Company follows the provisions of SFAS No. 128, “Earnings per Share.” Earnings applicable to common stock and common shares used in the calculation of basic and diluted earnings per share follow:


	Three Months Ended				Nine Months Ended
	July 1, 2005		July 2, 2004		July 1, 2005		July 2, 2004
	(in thousands, except per share data)
Earnings:
Net income	$	71,383	$	64,460	$	196,923	$	178,466

Shares:
Weighted average number of common shares outstanding used in basic earnings per share calculations		186,264		189,446		186,425		189,131
Impact of unvested restricted stock units and potential exercise opportunities under the ARAMARK Ownership and Equity Incentive Plans		1,814		4,331		2,412		5,031

Total common shares used in diluted earnings per share calculations		188,078		193,777		188,837		194,162

Basic earnings per common share:	$	0.38	$	0.34	$	1.06	$	0.94

Diluted earnings per common share:	$	0.38	$	0.33	$	1.04	$	0.92

Options to purchase 2,368,641 shares were outstanding at July 1, 2005, but were not included in the computation of diluted earnings per common share for the three months then ended, as the effect would have been antidilutive. Options to purchase 2,734,241 shares were outstanding at July 1, 2005, but were not included in the computation of diluted earnings per common share for the nine months then ended, as the effect would have been antidilutive.

Options to purchase 172,580 shares were outstanding at July 2, 2004, but were not included in the computation of diluted earnings per common share for the three months then ended, as the effect would have been antidilutive. Options to purchase 553,920 shares were outstanding at July 2, 2004, but were not included in the computation of diluted earnings per common share for the nine months then ended, as the effect would have been antidilutive.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(6)

EARNINGS PER SHARE (CONTINUED):

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. 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 following pro forma amounts:


	Three Months Ended				Nine Months Ended
	July 1, 2005		July 2, 2004		July 1, 2005		July 2, 2004
	(in thousands, except per share data)
Net Income
As reported	$	71,383	$	64,460	$	196,923	$	178,466

Pro forma	$	67,442	$	60,817	$	185,500	$	168,354

Earnings per share
As reported:
Basic	$	0.38	$	0.34	$	1.06	$	0.94

Diluted	$	0.38	$	0.33	$	1.04	$	0.92

Pro forma:
Basic	$	0.36	$	0.32	$	1.00	$	0.89

Diluted	$	0.36	$	0.31	$	0.98	$	0.87

(7)

ACCOUNTING FOR DERIVATIVE INSTRUMENTS:

The Company follows the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities—an Amendment of FASB Statement No. 133.” Derivative financial instruments, such as interest rate swaps and forward exchange contract agreements, are used to manage changes in market conditions related to debt obligations and foreign currency exposures. All derivatives are recognized on the balance sheet at fair value at the end of each quarter. The counterparties to the Company’s derivative agreements are major international banks. The Company continually monitors its positions and the credit ratings of its counterparties, and does not anticipate nonperformance by the counterparties.

As of July 1, 2005, the Company had $300 million and 93 million British pounds of interest rate swap agreements, which are designated as cash flow hedging instruments, fixing the rate on a like amount of variable rate borrowings and $300 million of swap agreements designated as fair-value hedging instruments. There were no material forward exchange contract agreements outstanding as of July 1, 2005. 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 (loss) 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 first nine months of fiscal 2005 and 2004, respectively, a charge of approximately $2.9 million (net of tax) and a credit of approximately $1.0 million (net of tax) related to interest rate swaps were recorded in comprehensive income. As of July 1, 2005, approximately $7.1 million of net unrealized losses related to interest rate swaps were included in “Accumulated other comprehensive income.” Changes in the fair value of a derivative that is designated as and meets all the required criteria for a fair value hedge are recognized currently in earnings, offset by recognizing currently in earnings the change in the fair value of the underlying hedged item. As of July 1, 2005, approximately $6.1 million has been included in “Other Non-current Liabilities,” with an offsetting decrease in “Long-term borrowings” in the consolidated balance sheet related to fair value hedges. The hedge ineffectiveness for cash flow and fair value hedging instruments for the first nine months of fiscal 2005 and 2004 was not material.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(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, consolidated, 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 $225 million. The Company amended the Receivables Facility during the first quarter of fiscal 2005 and increased the maximum sale amount from $200 million to $225 million. The Company has retained collection and administrative responsibility for the participating interest sold, and has retained an undivided interest in the transferred receivables of approximately $189.2 million and $286.4 million at July 1, 2005 and October 1, 2004, respectively, which is subject to a security interest. This two-step transaction is accounted for as a sale of receivables following the provisions of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a Replacement of FASB Statement No. 125.” At July 1, 2005 and October 1, 2004, respectively, $187.8 million and $157.3 million of accounts receivable were sold and removed from the condensed consolidated balance sheet. The loss on the sale of receivables was $4.7 million and $2.1 million for the first nine months of fiscal 2005 and 2004, respectively, and is included in “Interest and other financing costs, net.”

(9)

SEGMENT INFORMATION:

Sales and operating income by reportable segment follow:


	Three Months Ended						Nine Months Ended
Sales	July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
	(in thousands)
Food and Support Services—United States	$	1,815,272		$	1,752,173		$	5,297,508		$	5,085,759
Food and Support Services—International		594,035			475,595			1,715,328			1,366,679
Uniform and Career Apparel—Rental		282,879			262,312			839,853			778,480
Uniform and Career Apparel—Direct Marketing		100,180			104,844			329,052			340,392

	$	2,792,366		$	2,594,924		$	8,181,741		$	7,571,310


	Three Months Ended						Nine Months Ended
Operating Income	July 1, 2005			July 2, 2004			July 1, 2005			July 2, 2004
	(in thousands)
Food and Support Services—United States	$	97,670		$	89,361		$	269,952		$	239,793
Food and Support Services—International		21,250			19,172			60,084			58,836
Uniform and Career Apparel—Rental		31,329			29,124			91,355			84,741
Uniform and Career Apparel—Direct Marketing		2,576			2,428			12,135			18,752

		152,825			140,085			433,526			402,122
Corporate		(8,893	)		(8,135	)		(29,748	)		(25,502	)

Operating Income		143,932			131,950			403,778			376,620
Interest Expense, net		(32,222	)		(30,873	)		(96,857	)		(92,443	)

Income Before Income Taxes	$	111,710		$	101,077		$	306,921		$	284,177

“Food and Support Services—United States” operating income for the nine-month period of fiscal 2005 included a gain of approximately $9.7 million representing the Company’s share of the gain from a real estate sale by a 50%-owned equity affiliate.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(9)

SEGMENT INFORMATION (CONTINUED):

“Food and Support Services—International” operating income for the nine-month period of fiscal 2005 included a charge of approximately $7.4 million related to withdrawing from our offshore oil service business in West Africa and management separation costs in the UK.

In the first and second fiscal quarters, within the “Food and Support Services—United States” segment, historically there has been a lower level of activity at the higher margin sports, entertainment and recreational food service operations that is partly offset by increased activity in the educational operations. However, in the third and fourth fiscal quarters, historically there has been a significant increase at sports, entertainment and recreational accounts that is partially offset by the effect of summer recess on the educational accounts. In addition, there is a seasonal increase in volume of directly marketed work clothing during the first fiscal quarter.

The National Hockey League Collective Bargaining Agreement expired in September 2004 and the National Hockey League (“NHL”) and the NHL Players’ Association failed to agree on the terms of a new Collective Bargaining Agreement. On September 17, 2004, the owners of the NHL teams locked out the NHL players. As a result, the Food and Support Services—United States segment results for 2005 do not include operating results from NHL venues. In July 2005, the NHL and the NHL Players’ Association announced they have reached an agreement which will be effective for the 2005/2006 hockey season.

(10)

NEW/PROPOSED ACCOUNTING PRONOUNCEMENTS:

In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs - An Amendment of ARB No. 43, Chapter 4.” The provisions of SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005, and are not expected to have a material effect on the Company’s financial statements.

In December 2004, the FASB issued a revision of SFAS No. 123, “Accounting for Stock-Based Compensation,” which also supersedes APB Opinion No. 25, “Accounting for Stock Issued to its Employees,” and its related implementation guidance. This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, and recognize the cost over the period during which an employee is required to provide service in exchange for the award—the requisite service period. This Statement is effective for annual reporting periods beginning after June 15, 2005, and applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. The Company is currently evaluating the transitional and other provisions of this Statement. Adoption of the Statement will result in a reduction of reported earnings, which management believes, based on the analysis to date, will be similar to that reflected in the pro forma information included in Note 6.

On March 30, 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,” which clarifies the term “conditional asset retirement obligation” as used in FASB Statement No. 143. The Interpretation is effective for ARAMARK no later than the end of fiscal 2006. The Company is currently evaluating the Interpretation, but has not yet determined what effect adoption will have on the consolidated financial statements.

(11)

ACQUISITIONS:

During the second quarter of fiscal 2005, the Company increased its ownership in its Irish food service affiliate from 45% to 90%, for approximately $61 million in cash. Also, during fiscal 2005, the Company acquired several regional uniform rental companies for a total of approximately $44 million in cash. The Company’s pro forma results of operations for the first nine months of fiscal 2005 and 2004 would not have been materially different than reported, assuming that these acquisitions had occurred at the beginning of the respective fiscal periods.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(12)

COMMITMENTS AND CONTINGENCIES:

Certain of the Company’s operating lease arrangements, primarily vehicle leases, with terms of one to eight years, contain provisions related to residual value guarantees. The maximum potential liability to ARAMARK under such arrangements was approximately $72.3 million at July 1, 2005 if the terminal fair value of vehicles coming off lease was zero. Consistent with past experience, management does not expect any significant payments will be required pursuant to these arrangements. No amounts have been accrued for guarantee arrangements at July 1, 2005.

The Company may be exposed to liability resulting from the non-performance of certain indemnification obligations by an entity currently in bankruptcy from which the Company acquired a business in fiscal 2000. The amount of such exposure cannot be quantified at the present time due to uncertainty with respect to the number and amount of claims, if any, originating from or relating to, the pre-acquisition period. The Company has $25 million of insurance coverage for such exposure with a $5 million retained loss limit.

In connection with our acquisition of certain assets of Fine Host, we have received and are cooperating with document requests from the U.S. Attorney’s Office for the Southern District of New York and the U.S. Department of Agriculture’s Office of Inspector General regarding certain billing practices that Fine Host put in place prior to our acquisition of the assets of Fine Host. We are pursuing our indemnification rights under the purchase agreement relating to the issues raised by the government document requests, the costs of responding to such requests and certain other matters.

From time to time, we are a party to various legal actions involving claims incidental to the conduct of our business, including actions by clients, customers, employees and third parties, including under federal and state employment laws, wage and hour laws and customs, import and export control laws and dram shop laws. Based on information currently available, advice of counsel, available insurance coverage, established reserves and other resources, we do not believe that any such actions are likely to be, individually or in the aggregate, material to our business, financial condition, results of operations or cash flows. However, in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to our business, financial condition, results of operations or cash flows.

On July 21, 2004, agents of the Department of Commerce, among others, executed a search warrant at the Lexington, Kentucky facilities of Galls, a division of the Company, to gather records in connection with record keeping and documentation of certain export sales, and two grand jury subpoenas were subsequently issued from the United States District Court in the District of Columbia seeking certain records at Galls’ California facilities and U.K. facilities, among others. The investigation surrounds the possible failure to obtain proper export licenses or prepare accurate shipping declarations in connection with the export of Galls products. Galls is continuing to provide records in response and is cooperating fully in the investigation. The Company can give no assurance as to the outcome of this investigation.

On January 18 and 19, 2005, a New Jersey jury found various ARAMARK entities liable for approximately $30 million in compensatory damages and $75 million in punitive damages in connection with an automobile accident caused by an intoxicated driver who attended a professional football game at which certain affiliates of the Company provided food and beverage service. ARAMARK filed certain post-trial motions, which the trial court denied on March 18, 2005, and the Company and its affiliates appealed the judgment to the Appellate Division of Superior Court of New Jersey on April 13, 2005. This process is likely to take considerable time. The Company believes that it has adequate insurance and other resources to address this matter. Based on the information currently available, and acknowledging the uncertainty of litigation, the July 1, 2005 consolidated balance sheet reflects the amount awarded and the related expected recovery should such liability be confirmed. Such amounts are included in “Other Noncurrent Liabilities” and “Other Assets,” respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(13)

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 July 1, 2005. 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

July 1, 2005

(In Millions)


	ARAMARK Services, Inc. and Subsidiaries		Other Subsidiaries			ARAMARK Corporation		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	31.7	$	10.5		$	0.1	$	—		$	42.3
Receivables		543.2		204.9			—		—			748.1
Inventories, at lower of cost or market		116.9		354.4			—		—			471.3
Prepayments and other current assets		55.2		18.5			4.3		—			78.0

Total current assets		747.0		588.3			4.4		—			1,339.7

Property and Equipment, net		439.7		764.9			2.1		—			1,206.7
Goodwill		1,153.6		524.0			—		—			1,677.6
Intercompany Receivables		1,693.9		—			—		(1,693.9	)		—
Investment in Subsidiaries		—		—			2,992.1		(2,992.1	)		—
Other Intangible Assets		229.2		53.0			—		—			282.2
Other Assets		316.4		217.5			2.5		—			536.4

	$	4,579.8	$	2,147.7		$	3,001.1	$	(4,686.0	)	$	5,042.6

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term borrowings	$	29.3	$	11.2		$	—	$	—		$	40.5
Accounts payable		396.3		74.7			10.3		—			481.3
Accrued expenses and other liabilities		544.9		241.4			13.7		—			800.0

Total current liabilities		970.5		327.3			24.0		—			1,321.8

Long-Term Borrowings		1,948.9		22.8			—		—			1,971.7
Deferred Income Taxes and Other Noncurrent Liabilities		225.4		240.5			25.7		—			491.6
Intercompany Payable		415.0		(415.0	)		1,693.9		(1,693.9	)		—
Shareholders’ Equity		1,020.0		1,972.1			1,257.5		(2,992.1	)		1,257.5

	$	4,579.8	$	2,147.7		$	3,001.1	$	(4,686.0	)	$	5,042.6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

October 1, 2004

(In Millions)


	ARAMARK Services, Inc. and Subsidiaries		Other Subsidiaries		ARAMARK Corporation		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	33.8	$	11.4	$	0.1	$	—		$	45.3
Receivables		557.1		202.6		0.1		—			759.8
Inventories, at lower of cost or market		125.0		346.8		—		—			471.8
Prepayments and other current assets		53.0		7.9		2.2		—			63.1

Total current assets		768.9		568.7		2.4		—			1,340.0

Property and Equipment, net		450.1		762.1		2.2		—			1,214.4
Goodwill		1,099.3		489.9		—		—			1,589.2
Intercompany Receivables		1,585.1		765.8		—		(2,350.9	)		—
Investment in Subsidiaries		—		—		2,792.0		(2,792.0	)		—
Other Intangible Assets		224.2		47.1		—		—			271.3
Other Assets		298.3		105.9		2.5		—			406.7

	$	4,425.9	$	2,739.5	$	2,799.1	$	(5,142.9	)	$	4,821.6

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term borrowings	$	17.9	$	7.6	$	—	$	—		$	25.5
Accounts payable		439.7		103.1		23.7		—			566.5
Accrued expenses and other liabilities		624.5		226.0		12.4		—			862.9

Total current liabilities		1,082.1		336.7		36.1		—			1,454.9

Long-Term Borrowings		1,823.9		19.3		—		—			1,843.2
Deferred Income Taxes and Other Noncurrent Liabilities		228.4		117.2		28.2		—			373.8
Intercompany Payable		446.5		319.3		1,585.1		(2,350.9	)		—
Shareholders’ Equity		845.0		1,947.0		1,149.7		(2,792.0	)		1,149.7

	$	4,425.9	$	2,739.5	$	2,799.1	$	(5,142.9	)	$	4,821.6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

For the three months ended July 1, 2005

(In Millions)


	ARAMARK Services, Inc. and Subsidiaries			Other Subsidiaries		ARAMARK Corporation		Eliminations			Consolidated
Sales	$	2,035.4		$	757.0	$	—	$	—		$	2,792.4
Equity in Net Income of Subsidiaries		—			—		71.4		(71.4	)		—
Management Fee Income		—			—		9.1		(9.1	)		—

		2,035.4			757.0		80.5		(80.5	)		2,792.4
Costs and Expenses:
Cost of services provided		1,911.6			630.2		—		(8.5	)		2,533.3
Depreciation and amortization		47.2			32.2		—		—			79.4
Selling and general corporate expenses		17.6			9.7		9.1		(0.6	)		35.8

		1,976.4			672.1		9.1		(9.1	)		2,648.5

Operating income		59.0			84.9		71.4		(71.4	)		143.9
Interest and Other Financing Costs, net:
Interest expense, net		31.8			0.4		—		—			32.2
Intercompany interest, net		(20.8	)		20.8		—		—			—

Interest and Other Financing Costs, net		11.0			21.2		—		—			32.2

Income before income taxes		48.0			63.7		71.4		(71.4	)		111.7
Provision for Income Taxes		13.0			27.3		—		—			40.3

Net income	$	35.0		$	36.4	$	71.4	$	(71.4	)	$	71.4

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

For the three months ended July 2, 2004

(In Millions)


	ARAMARK Services, Inc. and Subsidiaries			Other Subsidiaries		ARAMARK Corporation		Eliminations			Consolidated
Sales	$	1,833.8		$	761.1	$	—	$	—		$	2,594.9
Equity in Net Income of Subsidiaries		—			—		64.5		(64.5	)		—
Management Fee Income		—			—		6.3		(6.3	)		—

		1,833.8			761.1		70.8		(70.8	)		2,594.9
Costs and Expenses:
Cost of services provided		1,720.0			644.4		—		(7.9	)		2,356.5
Depreciation and amortization		44.7			30.0		—		—			74.7
Selling and general corporate expenses		15.8			8.0		6.3		1.6			31.7

		1,780.5			682.4		6.3		(6.3	)		2,462.9

Operating income		53.3			78.7		64.5		(64.5	)		132.0
Interest and Other Financing Costs, net:
Interest expense, net		30.7			0.2		—		—			30.9
Intercompany interest, net		(9.1	)		9.1		—		—			—

Interest and Other Financing Costs, net		21.6			9.3		—		—			30.9

Income before income taxes		31.7			69.4		64.5		(64.5	)		101.1
Provision for Income Taxes		10.3			26.3		—		—			36.6

Net income	$	21.4		$	43.1	$	64.5	$	(64.5	)	$	64.5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

For the nine months ended July 1, 2005

(In Millions)


	ARAMARK Services, Inc. and Subsidiaries			Other Subsidiaries		ARAMARK Corporation		Eliminations			Consolidated
Sales	$	6,220.5		$	1,961.2	$	—	$	—		$	8,181.7
Equity in Net Income of Subsidiaries		—			—		196.9		(196.9	)		—
Management Fee Income		—			—		28.1		(28.1	)		—

		6,220.5			1,961.2		225.0		(225.0	)		8,181.7
Costs and Expenses:
Cost of services provided		5,824.7			1,639.6		—		(26.6	)		7,437.7
Depreciation and amortization		141.2			94.7		—		0.1			236.0
Selling and general corporate expenses		49.2			28.6		28.1		(1.6	)		104.3

		6,015.1			1,762.9		28.1		(28.1	)		7,778.0

Operating income		205.4			198.3		196.9		(196.9	)		403.7
Interest and Other Financing Costs, net:
Interest expense, net		95.8			1.0		—		—			96.8
Intercompany interest, net		(62.3	)		62.3		—		—			—

Interest and Other Financing Costs, net		33.5			63.3		—		—			96.8

Income before income taxes		171.9			135.0		196.9		(196.9	)		306.9
Provision for Income Taxes		46.8			63.2		—		—			110.0

Net income	$	125.1		$	71.8	$	196.9	$	(196.9	)	$	196.9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

For the nine months ended July 2, 2004

(In Millions)


	ARAMARK Services, Inc. and Subsidiaries			Other Subsidiaries		ARAMARK Corporation		Eliminations			Consolidated
Sales	$	5,608.5		$	1,962.8	$	—	$	—		$	7,571.3
Equity in Net Income of Subsidiaries		—			—		178.5		(178.5	)		—
Management Fee Income		—			—		23.5		(23.5	)		—

		5,608.5			1,962.8		202.0		(202.0	)		7,571.3
Costs and Expenses:
Cost of services provided		5,240.2			1,666.6		—		(25.4	)		6,881.4
Depreciation and amortization		129.1			88.8		—		0.2			218.1
Selling and general corporate expenses		45.9			24.1		23.2		2.0			95.2

		5,415.2			1,779.5		23.2		(23.2	)		7,194.7

Operating income		193.3			183.3		178.8		(178.8	)		376.6
Interest and Other Financing Costs, net
Interest expense, net		91.4			0.7		0.3		—			92.4
Intercompany interest, net		(27.1	)		27.4		—		(0.3	)		—

Interest and Other Financing Costs, net		64.3			28.1		0.3		(0.3	)		92.4

Income before income taxes		129.0			155.2		178.5		(178.5	)		284.2
Provision for Income Taxes		45.5			60.2		—		—			105.7

Net income	$	83.5		$	95.0	$	178.5	$	(178.5	)	$	178.5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the nine months ended July 1, 2005

(In Millions)


	ARAMARK Services, Inc. and Subsidiaries			Other Subsidiaries			ARAMARK Corporation			Eliminations		Consolidated
Net cash provided by operating activities	$	167.5		$	133.9		$	8.8		$	—	$	310.2
Cash flows from investing activities:
Purchases of property and equipment and client contract investments		(145.4	)		(81.5	)		(0.1	)		—		(227.0	)
Disposals of property and equipment		10.0			3.5			—			—		13.5
Acquisitions of businesses, net of cash acquired		(63.9	)		(44.6	)		—			—		(108.5	)
Other investing activities		8.2			10.5			—			—		18.7

Net cash used in investing activities		(191.1	)		(112.1	)		(0.1	)		—		(303.3	)

Cash flows from financing activities:
Proceeds from additional long-term borrowings		380.8			—			—			—		380.8
Payment of long-term borrowings		(229.8	)		(5.1	)		—			—		(234.9	)
Proceeds from issuance of common stock		—			—			31.0			—		31.0
Repurchase of stock		—			—			(147.1	)		—		(147.1	)
Payment of dividends		—			—			(30.3	)		—		(30.3	)
Other financing activities		(10.5	)		—			1.1			—		(9.4	)
Change in intercompany, net		(119.0	)		(17.6	)		136.6			—		—

Net cash provided by (used in) financing activities		21.5			(22.7	)		(8.7	)		—		(9.9	)

Decrease in cash and cash equivalents		(2.1	)		(0.9	)		—			—		(3.0	)
Cash and cash equivalents, beginning of period		33.8			11.4			0.1			—		45.3

Cash and cash equivalents, end of period	$	31.7		$	10.5		$	0.1		$	—	$	42.3

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the nine months ended July 2, 2004

(In Millions)


	ARAMARK Services, Inc. and Subsidiaries			Other Subsidiaries			ARAMARK Corporation			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	96.8		$	150.5		$	(7.2	)	$	—	$	240.1
Cash flows from investing activities:
Purchases of property and equipment and client contract investments		(124.1	)		(88.7	)		0.1			—		(212.7	)
Disposals of property and equipment		8.8			3.9			—			—		12.7
Proceeds from sale of investment		—			8.5			—			—		8.5
Acquisitions of businesses, net of cash acquired		(119.3	)		(22.0	)		—			—		(141.3	)
Other investing activities		0.7			4.0			—			—		4.7

Net cash used in investing activities		(233.9	)		(94.3	)		0.1			—		(328.1	)

Cash flows from financing activities:
Proceeds from additional long-term borrowings		352.6			0.2			—			—		352.8
Payment of long-term borrowings		(163.0	)		(4.2	)		—			—		(167.2	)
Proceeds from issuance of common stock		—			—			37.6			—		37.6
Repurchase of stock		—			—			(118.8	)		—		(118.8	)
Change in intercompany, net		(68.6	)		(46.0	)		114.6			—		—
Payment of dividend		—			—			(27.9	)		—		(27.9	)
Other financing activities		10.2			—			1.6			—		11.8

Net cash provided by (used in) financing activities		131.2			(50.0	)		7.1			—		88.3

Increase (decrease) in cash and cash equivalents		(5.9	)		6.2			—			—		0.3
Cash and cash equivalents, beginning of period		40.5			3.9			0.1			—		44.5

Cash and cash equivalents, end of period	$	34.6		$	10.1		$	0.1		$	—	$	44.8

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following discussion and analysis of our results of operations and financial condition for the three and nine months ended July 1, 2005 and July 2, 2004 should be read in conjunction with our audited consolidated financial statements, and the notes to those statements, for the fiscal year ended October 1, 2004. Our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our estimates, plans, objectives, opinions, expectations, anticipations, intentions and beliefs. Actual results and the timing of events could differ materially from those anticipated in those forward-looking statements as a result of a number of factors, including those set forth under the Special Note About Forward-Looking Statements and elsewhere in this quarterly report on Form 10-Q. In the following discussion and analysis of results of operations and financial condition, certain financial measures may be considered “non-GAAP financial measures” under Securities and Exchange Commission rules. These rules require supplemental explanation and reconciliation, which is provided in Exhibit 99.1 to this quarterly report on Form 10-Q, and is incorporated by reference herein.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s significant accounting policies are described in the notes to the consolidated financial statements included in our 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission. As described in such notes, the Company recognizes sales in the period in which services are provided pursuant to the terms of our contractual relationships with our clients.

In preparing our financial statements, management is required to make estimates and assumptions that, among other things, affect the reported amounts of assets, liabilities, sales and expenses. These estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change, and where they can have a material impact on our financial condition and operating performance. We discuss below the more significant estimates and related assumptions used in the preparation of our consolidated financial statements. If actual results were to differ materially from the estimates made, the reported results could be materially affected.

Asset Impairment Determinations

As a result of the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” goodwill is no longer amortized. Under this accounting standard, goodwill is subject to an impairment test that we conduct at least annually, using a discounted cash flow technique.

With respect to our other long-lived assets, we are required to test for asset impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. We apply Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” in order to determine whether or not an asset was impaired. This standard requires an impairment analysis when indicators of impairment are present. If such indicators are present, the standard indicates that if the sum of the future expected cash flows from the asset, undiscounted and without interest charges, is less than the carrying value, an asset impairment must be recognized in the financial statements. The amount of the impairment is the difference between the fair value of the asset and the carrying value of the asset.

In making future cash flow analyses of various assets, the Company makes assumptions relating to the following:

•

The intended use of assets and the expected future cash flows resulting directly from such use.

•

Comparable market valuations of businesses similar to ARAMARK’s business segments.

•

Industry specific economic conditions.

•

Competitor activities and regulatory initiatives.

•

Client and customer preferences and behavior patterns.

We believe that an accounting estimate relating to asset impairment is a critical accounting estimate because the assumptions underlying future cash flow estimates are subject to change from time to time and the recognition of an impairment could have a significant impact on our income statement.

Environmental Loss Contingencies

Accruals for environmental loss contingencies (i.e., environmental reserves) are recorded when it is probable that a liability has been incurred and the amount can reasonably be estimated. Management views the measurement of environmental reserves as a critical accounting estimate because of the considerable uncertainty surrounding estimation, including the need to forecast well into the future. We are involved in legal proceedings under state, federal and local environmental laws in connection with operations of our uniform rental segment or businesses conducted by our predecessors or companies that we have acquired. The calculation of environmental reserves is based on the evaluation of currently available information, prior experience in the remediation of contaminated sites and assumptions with respect to government regulations and enforcement activity, changes in remediation technology and practices, and financial obligations and credit worthiness of other responsible parties and insurers.

Litigation and Claims

The Company is a party to various legal actions and investigations including, among others, employment matters, compliance with government regulations, including import and export controls and customs laws, federal and state employment laws, including wage and hour laws, contractual disputes, dram shop litigation and other matters, including matters arising in the ordinary course of business. These claims may be brought by, among others, the government, clients, customers, employees and third parties. Management considers the measurement of litigation reserves as a critical accounting estimate because of the significant uncertainty in some cases relating to the outcome of potential claims or litigation and the difficulty of predicting the likelihood and range of potential liability involved, coupled with the material impact on our results of operations that could result from litigation or other claims. In determining legal reserves, management considers, among other issues:

•

Interpretation of contractual rights and obligations.

•

The status of government regulatory initiatives, interpretations and investigations.

•

The status of settlement negotiations.

•

Prior experience with similar types of claims.

•

Whether there is available insurance.

•

Advice of counsel.

Allowance for Doubtful Accounts

We encounter risks associated with sales and the collection of the associated accounts receivable. We record a provision for accounts receivable that are considered to be uncollectible. In order to calculate the appropriate provision, management analyzes the creditworthiness of specific customers and the aging of customer balances. Management also considers general and specific industry economic conditions, industry concentrations, such as exposure to the non-profit healthcare sector and the airline industry, and contractual rights and obligations.

Management believes that the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because the underlying assumptions used for the allowance can change from time to time and uncollectible accounts could potentially have a material impact on our results of operations.

Inventory Obsolescence

We record an inventory obsolescence reserve for obsolete, excess and slow-moving inventory, principally in the uniform and career apparel segments. In calculating our inventory obsolescence reserve, management analyzes historical data regarding customer demand within specific product categories and makes assumptions regarding economic conditions within customer specific industries, as well as style and product changes. Management believes that its accounting estimate related to inventory obsolescence is a critical accounting estimate because customer demand in certain of our businesses can be variable and changes in our reserve for inventory obsolescence could materially affect our financial results.

Critical accounting estimates and the related assumptions are evaluated periodically as conditions warrant, and changes to such estimates are recorded as new information or changed conditions require revision.

RESULTS OF OPERATIONS

These tables present our sales and operating income, and related percentages attributable to each operating segment, for the three and nine months ended July 1, 2005 and July 2, 2004.


	Three Months Ended										Nine Months Ended
	July 1, 2005					July 2, 2004					July 1, 2005					July 2, 2004
Sales by Segment	$			%		$			%		$			%		$			%
	(dollars in millions)
Food & Support Services - United States	$	1,815.3		65	%	$	1,752.2		68	%	$	5,297.5		65	%	$	5,085.8		67	%
Food & Support Services - International		594.0		21	%		475.6		18	%		1,715.3		21	%		1,366.6		18	%
Uniform and Career Apparel - Rental		282.9		10	%		262.3		10	%		839.9		10	%		778.5		10	%
Uniform and Career Apparel - Direct Marketing		100.2		4	%		104.8		4	%		329.0		4	%		340.4		5	%

	$	2,792.4		100	%	$	2,594.9		100	%	$	8,181.7		100	%	$	7,571.3		100	%


	Three Months Ended										Nine Months Ended
	July 1, 2005					July 2, 2004					July 1, 2005					July 2, 2004
Operating Income by Segment	$			%		$			%		$			%		$			%
	(dollars in millions)
Food & Support Services - United States	$	97.7		67	%	$	89.4		68	%	$	270.0		67	%	$	239.8		64	%
Food & Support Services - International		21.2		15	%		19.2		14	%		60.1		15	%		58.8		16	%
Uniform and Career Apparel - Rental		31.3		22	%		29.1		22	%		91.3		22	%		84.7		22	%
Uniform and Career Apparel - Direct Marketing		2.6		2	%		2.4		2	%		12.1		3	%		18.8		5	%
Corporate		(8.9	)	-6	%		(8.1	)	-6	%		(29.7	)	-7	%		(25.5	)	-7	%

	$	143.9		100	%	$	132.0		100	%	$	403.8		100	%	$	376.6		100	%

Consolidated Overview

Sales of $2.8 billion for the fiscal 2005 third quarter and $8.2 billion for the nine-month period increased 8% over the respective prior year periods. Sales increased in both the three and nine-month periods in the two Food & Support Services segments and the Uniform and Career Apparel – Rental segment, while sales in the Uniform and Career Apparel – Direct Marketing segment were lower in both periods. Excluding the impact of acquisitions, divestitures and foreign currency translation, consolidated sales increased 4% for both the three and nine-month periods. Operating income was $143.9 million for the 2005 third quarter and $403.8 million for the nine-month period, an increase of 9% and 7%, respectively, compared to the prior year periods. Operating income for the 2005 nine-month period includes $9.7 million ($7.8 million net of tax) representing our share of the gain on a real estate sale by a 50%-owned equity affiliate. The 2005 nine-month period also includes a charge of $7.4 million ($4.8 million net of tax) which includes the effects of our decision to exit the West African oil services business and UK severance costs. Excluding acquisitions, divestitures and the impact of foreign currency translation, consolidated operating income increased 8% and 5% for the three and nine-month periods, respectively. Consolidated operating income margins were comparable during the periods.

Interest and other financing costs, net, for the three and nine-month periods of fiscal 2005 increased approximately $1.3 million and $4.4 million, respectively, from the prior year periods due to higher average borrowing levels and higher interest rates. The effective income tax rate for the fiscal 2005 nine-month period was 35.8% compared to 37.2% in fiscal 2004. Higher employment related tax credits and the tax effect related to the real estate sale gain were the principal factors resulting in a lower effective rate for the 2005 period.

Net income for the three and nine-months of fiscal 2005 was $71.4 million and $196.9 million, compared to $64.5 million and $178.5 million in the prior year periods, an increase of 11% and 10%, respectively. Third quarter 2005 diluted earnings per share were $0.38, on a weighted average share base of 188.1 million shares, an increase of 15% over the $0.33 per share reported last year on a share base of 193.8 million shares. For the nine-month periods, diluted earnings per share were $1.04 in 2005 and $0.92 in 2004 on a weighted average share base of 188.8 million and 194.2 million, respectively.

Segment Results

The following tables present a fiscal 2005/2004 comparison of segment sales and operating income together with the amount of and percentage change between periods.


	Three Months Ended											Nine Months Ended
	July 1, 2005			July 2, 2004			Change					July 1, 2005			July 2, 2004			Change
Sales by Segment	July 1, 2005			July 2, 2004			$			%		July 1, 2005			July 2, 2004			$			%
	(dollars in millions)
Food & Support Services - United States	$	1,815.3		$	1,752.2		$	63.1		4	%	$	5,297.5		$	5,085.8		$	211.7		4	%
Food & Support Services - International		594.0			475.6			118.4		25	%		1,715.3			1,366.6			348.7		26	%
Uniform and Career Apparel - Rental		282.9			262.3			20.6		8	%		839.9			778.5			61.4		8	%
Uniform and Career Apparel - Direct Marketing		100.2			104.8			(4.6	)	-4	%		329.0			340.4			(11.4	)	-3	%

	$	2,792.4		$	2,594.9		$	197.5		8	%	$	8,181.7		$	7,571.3		$	610.4		8	%


	Three Months Ended											Nine Months Ended
	July 1, 2005			July 2, 2004			Change					July 1, 2005			July 2, 2004			Change
Operating Income by Segment	July 1, 2005			July 2, 2004			$			%		July 1, 2005			July 2, 2004			$			%
	(dollars in millions)
Food & Support Services - United States	$	97.7		$	89.4		$	8.3		9	%	$	270.0		$	239.8		$	30.2		13	%
Food & Support Services - International		21.2			19.2			2.0		11	%		60.1			58.8			1.3		2	%
Uniform and Career Apparel - Rental		31.3			29.1			2.2		8	%		91.3			84.7			6.6		8	%
Uniform and Career Apparel - Direct Marketing		2.6			2.4			0.2		6	%		12.1			18.8			(6.7	)	-35	%
Corporate		(8.9	)		(8.1	)		(0.8	)	9	%		(29.7	)		(25.5	)		(4.2	)	17	%

	$	143.9		$	132.0		$	11.9		9	%	$	403.8		$	376.6		$	27.2		7	%

Food and Support Services—United States Segment

Food and Support Services – United States segment sales for the three and nine-month periods increased 4% over the respective prior year periods due principally to increased volume (base business). The 2004/2005 nine-month comparison was affected by the cancellation of the National Hockey League season. The National Hockey League Collective Bargaining Agreement expired in September 2004 and on September 17, 2004 the owners of the NHL teams locked out the NHL players. Sales from NHL venues were approximately $73 million in the 2004 nine-month period. In July 2005, the NHL and the NHL Players’ Association announced they have reached an agreement which will be effective for the 2005/2006 hockey season.

For the 2005 third quarter, sales growth in the Business Services sector was in the mid single digits, driven primarily by base business growth. Sales growth in the Education sector was in the high single digits, also reflecting base business growth, and to a lesser extent, the positive effect of the timing of the Easter holiday. The Healthcare sector reported mid single digits sales growth due to base business growth and net new business. Sports & Entertainment sector sales declined approximately 7% as improved performance at convention centers and existing stadiums and arenas was more than offset by the loss of two Major League Baseball clients, a weaker concert schedule in our amphitheaters and the NHL lockout.

Segment operating income for the three and nine-month periods increased 9% and 13%, respectively, compared to the prior year. The 2005 nine-month period includes approximately $9.7 million representing our share of the gain from a real estate sale by a 50%-owned equity affiliate. Excluding the $9.7 million, operating income increased 9% for the nine-month period. Fiscal 2005 nine-month operating income increased despite the effect of the NHL lockout, due primarily to strong performances in the Education sector and the Healthcare sector, where prior year results were lowered by start-up costs at new accounts and high labor and material costs in the clinical equipment services business. The 2005 third quarter was also positively affected by improved Sports & Entertainment results, due principally to convention center growth and improved results at existing stadiums and arenas and our parks and resorts. Operating income margin for the 2005 third quarter was 5.4%, an increase of approximately 30 basis points as compared to the 2004 third quarter.

Food and Support Services—International Segment

Sales in the Food and Support Services – International segment for the three and nine-month periods increased 25% and 26% compared to the prior year due to foreign currency translation (approximately 7% and 8%, respectively), acquisitions (approximately 10% and 13%, respectively), net new accounts (approximately 1% and 1%, respectively), and increased volume (approximately 7% and 4%, respectively). In the 2005 third quarter, strong sales growth in Canada, Germany, Spain and Chile was offset by sales declines in the UK due to challenging trading conditions and lost business.

Segment operating income for the three and nine-month periods increased 11% and 2%, respectively, compared to the prior year, of which approximately 5% represented currency translation in both periods. The 2005 nine-month period includes a charge of $7.4 million representing the estimated cost of exiting the West African oil services business and a management separation charge in the UK. During the second quarter, the decision was made to cease operations in West Africa. This business has been operating at a loss and efforts to renegotiate a client contract have proved unsuccessful. We are working towards an orderly withdrawal and expect to exit the region before calendar year end. Provision has been made for the losses, principally asset write-offs, expected to be incurred during the withdrawal. For the 2005 three-month period, operating income increased $2.0 million to $21.2 million reflecting profit improvement in most major countries, offset by lower profits in the UK due to the challenging trading environment and lost business. The fiscal 2004 nine-month period includes currency transaction gains of approximately $0.8 million.

Uniform and Career Apparel—Rental Segment

Uniform and Career Apparel – Rental segment sales increased 8% for the three and nine-month periods compared to the prior year periods. Organic sales growth, which excludes the effects of acquisitions and divestitures, was 5% in both periods. Growth in the sales of apparel and ancillary products to rental customers contributed to this performance.

Operating income increased 8% for both the three and nine-month periods due to increased sales, lower garment costs and a gain on the sale of a dormant property, partially offset by higher energy costs and labor-related expenses, new systems implementation costs and increased selling expense. Operating income margins were comparable during the periods.

Uniform and Career Apparel—Direct Marketing Segment

Uniform and Career Apparel – Direct Marketing segment sales decreased 4% and 3%, respectively, for the three and nine-month periods as compared to the prior year periods. WearGuard-Crest continued to experience softness in the quick service restaurant channel and demand for safety products remained soft.

Segment operating income for the 2005 third quarter increased slightly to $2.6 million compared to $2.4 million in the prior year period. For the current nine-month period, operating income was $12.1 million compared to $18.8 million in the prior year period. Operating income has decreased due to lower sales volume and gross margin erosion at WearGuard-Crest. Margins have been negatively affected by the roll-out of a new program in the quick service restaurant channel. For the nine months, ongoing costs of the Gall’s investigation have also contributed to the lower income. We expect these conditions to continue for the remainder of 2005.

Corporate

Corporate expenses, those administrative expenses not allocated to the business segments, were $8.9 million and $29.7 million for the three and nine-month periods of fiscal 2005, compared to $8.1 million and $25.5 million for the comparable prior year periods. Restricted stock unit expense and the increased costs of regulatory initiatives, specifically the costs of complying with Sarbanes-Oxley requirements, contributed to the increase.

OUTLOOK

Looking forward to the remainder of fiscal 2005, we expect the business environment in both the U.S. and Europe to remain competitive. We will continue to focus on improving operating results in our UK business, including our planned withdrawal from West Africa. We also expect the profit pressures being experienced by our Uniform and Career Apparel – Direct Marketing segment to continue. In the Uniform and Career Apparel – Rental segment, margins will continue to be pressured if energy costs remain at historically high levels.

FINANCIAL CONDITION AND LIQUIDITY

Reference to the condensed consolidated statements of cash flows will facilitate understanding of the discussion that follows.

Cash provided by operating activities for the nine-month periods was $310 million in fiscal 2005 compared to $240 million in fiscal 2004, an increase of $70 million. The principal components (in millions) of the change were:


• Increase in net income and noncash charges	$	12
• Increase in accounts receivable sale proceeds, due principally to increasing the size of the sale facility		31
• Reduced working capital requirements		14
• Other, net		13

	$	70

Although net income increased, net noncash charges (depreciation and deferred income taxes) decreased approximately $6.7 million for the nine-month period of fiscal 2005 compared to the prior year period, due to the lower deferred tax provision. A recent change in the tax depreciation rules is expected to reduce the annual tax depreciation deduction resulting in the lower deferred tax provision. The accounts receivable sale facility (see Note 8) was increased by $25.0 million in December 2004.

Total debt increased $143 million since October 1, 2004 due principally to normal seasonal working capital needs, stock repurchases and acquisition activities.

During the first nine months of fiscal 2005, the Company increased its ownership in its Irish food service affiliate from 45% to 90%, paying approximately $61 million in cash. The Company also acquired several regional uniform rental companies for a total of approximately $44 million in cash. These acquisitions were funded through borrowings under the revolving credit facilities.

During the third quarter of fiscal 2005, ARAMARK Services, Inc. issued $250 million of 5.00% guaranteed notes due June 1, 2012. Proceeds from the offering were used primarily to repay maturing obligations. At July 29, 2005, there was approximately $600 million of unused committed credit availability under our U.S. Credit Facility. Additionally, the Company has a shelf registration statement on file with the SEC for the issuance of up to $150 million of debt securities. The Company currently expects to fund acquisitions, capital expenditures, dividends and additional share repurchases and other liquidity needs from cash provided from operating activities, normal disposals of property and equipment, and borrowings available under our credit facilities or registered or private note issuances. As of July 1, 2005, there was approximately $453 million outstanding in foreign currency borrowings.

The following table summarizes the Company’s future obligations for debt repayments, capital leases, future minimum rental and similar commitments under noncancelable operating leases as well as contingent obligations related to outstanding letters of credit and guarantees as of October 1, 2004.


	Payments Due by Period
Contractual Obligations as of October 1, 2004	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term borrowings	$	1,827,405	$	18,191	$	830,764	$	968,350	$	10,100
Capital lease obligations		41,318		7,332		10,794		8,516		14,676
Operating leases		541,755		148,901		121,663		83,773		187,418
Purchase obligations ⁽¹⁾		161,543		129,720		17,743		7,585		6,495
Other long-term liabilities reflected on the balance sheet ⁽²⁾		124,303		—		30,114		—		94,189

	$	2,696,324	$	304,144	$	1,011,078	$	1,068,224	$	312,878


	Amount of Commitment Expiration Per Period
Other Commercial Commitments as of October 1, 2004	Total Amounts Committed		Less than 1 year		1-3 years		3-5 years		Over 5 years
Letters of credit	$	60,869	$	60,369	$	500	$	—	$	—
Guarantees		8,992		8,992		—		—		—

	$	69,861	$	69,361	$	500	$	—	$	—

⁽¹⁾	Represents capital commitments in connection with several long-term concession contracts, client contract commitments and a commitment to increase our ownership in our Irish food and support venture.

⁽²⁾	Primarily represents certain unfunded employee retirement obligations and $30 million related to the Fine Host holdback (See Note 3 to the consolidated financial statements of our fiscal 2004 Annual Report on Form 10-K).

As noted above, debt levels have increased since October 1, 2004, and the Company increased its ownership in its Irish food service affiliate. The Company is also committed to increase its ownership in its Chilean subsidiary at a price to be determined based on future operating results of the subsidiary. Further, since October 1, 2004, the Company has issued letters of credit in support of insurance arrangements of $77.0 million, and was released from a debt guarantee of approximately $9.0 million. Other than those changes, through July 1, 2005, there has been no material change in the Company’s future obligations since October 1, 2004.

The Company’s business activities do not include the use of unconsolidated special purpose entities, and there are no significant business transactions that have not been reflected in the accompanying financial statements. ARAMARK may be exposed to liability resulting from the non-performance of certain indemnification obligations by an entity currently in bankruptcy from which ARAMARK acquired a business in fiscal 2000. The amount of such exposure cannot be quantified at the present time due to uncertainty with respect to the number and amount of claims, if any, originating from or relating to the pre-acquisition period. ARAMARK has $25 million of insurance coverage for such exposure with a $5.0 million retained loss limit. The Company retains a limited portion of the risk under its general liability and workers’ compensation arrangements. When required, reserves are recorded based on actuarial analyses.

On January 18 and 19, 2005, a New Jersey jury found various ARAMARK entities liable for approximately $30 million in compensatory damages and $75 million in punitive damages. The Company filed certain post-trial motions, which the trial court denied on March 18, 2005, and the Company appealed the judgment to the Appellate Division of Superior Court of New Jersey on April 13, 2005. This process is likely to take considerable time. The Company believes that it has adequate insurance and other resources to address this matter. Based on the information currently available, and acknowledging the uncertainty of litigation, the July 1, 2005 consolidated balance sheet reflects the amount awarded and the related expected recovery should such liability be confirmed. Such amounts are included in “Other Noncurrent Liabilities” and “Other Assets,” respectively.

NEW/PROPOSED ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs – An Amendment of ARB No. 43, Chapter 4.” The provisions of SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005, and are not expected to have a material effect on the Company’s financial statements.

In December 2004, the FASB issued a revision of SFAS No. 123, “Accounting for Stock-Based Compensation,” which also supersedes APB Opinion No. 25, “Accounting for Stock Issued to its Employees,” and its related implementation guidance. This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, and recognize the cost over the period during which an employee is required to provide service in exchange for the award—the requisite service period. This Statement is effective for annual reporting periods beginning after June 15, 2005, and applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. The Company is currently evaluating the transitional and other provisions of this Statement. Adoption of the Statement, which is required in the first quarter of fiscal 2006, will result in a reduction of reported earnings, which management believes, based on the analysis to date, will be similar to that reflected in the pro forma information included in Note 6.

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views as to future events and financial performance with respect to our operations. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “aim,” “anticipate,” “are confident,” “estimate,” “expect,” “will be,” “will continue,” “will likely result,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in conjunction with a discussion of future operating or financial performance.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Factors that might cause such a difference include: unfavorable economic conditions; ramifications of any future terrorist attacks or increased security alert levels; increased operating costs, including labor-related and energy costs; shortages of qualified personnel or increases in labor costs; costs and possible effects of union organizing activities; currency risks and other risks associated with international markets; risks associated with acquisitions, including acquisition integration issues and costs; our ability to integrate and derive the expected benefits from our recent acquisitions; competition; decline in attendance at client facilities; unpredictability of sales and expenses due to contract terms and terminations; the risk that clients may become insolvent; the contract intensive nature of our business, which may lead to client disputes; high leverage; claims relating to the provision of food services; costs of compliance with governmental regulations and government investigations; liability associated with noncompliance with governmental regulations, including regulations pertaining to food services, the environment, Federal and state employment and wage and hour laws and import and export controls and customs laws; dram shop litigation; contract compliance and administration issues, inability to retain current clients and renew existing client contracts; determination by customers to reduce their outsourcing and use of preferred vendors; seasonality; and other risks that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Results of Operations and Financial Condition” section and other sections of our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Forward-looking statements speak only as of the date made. We undertake no obligation to update any forward-looking statements to reflect the events or circumstances arising after the date as of which they are made. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements included in this report or that may be made in other filings with the Securities and Exchange Commission or elsewhere from time to time by, or on behalf of, us.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of interest rate changes and manage this exposure through the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps. We do not enter into contracts for trading purposes and do not use leveraged instruments. The market risk associated with debt obligations and other significant instruments as of July 1, 2005, has not materially changed from October 1, 2004 (See Item 7A of the Annual Report on Form 10-K).

ITEM 4.

CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Change in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the Company’s third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

In March 2000, Antonia Verni, by guardian ad litem, and Fazila Verni sued certain affiliates of the Company, along with Ronald Verni, David Lanzaro, the New Jersey Sports & Exposition Authority, the N.Y. Giants, Harry M. Stevens, Inc. of New Jersey, Shakers, The Gallery, Toyota Motors of North America, Inc. and the National Football League, for monetary damages for injuries they suffered in connection with an automobile accident caused by an intoxicated driver who attended a professional football game at which certain affiliates of the Company provided food and beverage service. On January 18 and 19, 2005, a New Jersey jury found various ARAMARK entities liable for approximately $30 million in compensatory damages and $75 million in punitive damages. ARAMARK filed certain post-trial motions, which the trial court denied on March 18, 2005, and the Company and its affiliates appealed the judgment to the Appellate Division of Superior Court of New Jersey on April 13, 2005. This process is likely to take considerable time. The Company believes that it has adequate insurance and other resources to address this matter.

ITEM 2.

CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

ISSUER PURCHASES OF EQUITY SECURITIES

(Third Quarter 2005)


Period	(a) Total Number of Shares Purchased⁽¹⁾	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as a result of Publicly Announced Plans or Programs⁽²⁾	(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs
Month 1 (April 2, 2005 – April 29, 2005)	1,166	$	26.69	0	$	140,157,008
Month 2 (April 30, 2005 – May 27, 2005)	760,000	$	25.63	760,000	$	120,674,499
Month 3 (May 28, 2005 – July 1, 2005)	1,230,000	$	26.60	1,230,000	$	87,957,112

⁽¹⁾	The numbers in this column include shares of the Company’s common stock surrendered by stock option holders to pay the exercise price of stock options as follows: 1,166 for Month 1, zero for Month 2 and zero for Month 3.

⁽²⁾

On May 28, 2002, the Company announced the establishment of a Stock Repurchase Program. Under the Stock Repurchase Program, the Board of Directors approved the use of up to $200 million to repurchase shares of the Company’s Class A or Class B common stock. On May 8, 2003, the Company announced the addition of $150 million to the repurchase program and on February 3, 2004, the Company announced the addition of another $150 million to the repurchase program. On November 2, 2004, the Company announced the addition of $200 million to the repurchase program. The repurchase program will expire when all monies authorized for use in the program have been utilized.

ITEM 6.

EXHIBITS


31.1		Certification of Joseph Neubauer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of L. Frederick Sutherland pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Joseph Neubauer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of L. Frederick Sutherland pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1		Reconciliation of non-GAAP financial measures.

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

August 10, 2005				/s/ JOHN M. LAFFERTY
				John M. Lafferty
				Senior Vice President, Controller and Chief Accounting Officer