-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, WSaFM1L/YkvHFbzbgRsx+9CElj6pwJ7GL6JdwvNj7Sf71FZD5xd9lnP4TSWMxiqE NEca8mUw9QhWkM15jNXj1w== 0000950109-95-001449.txt : 19950428 0000950109-95-001449.hdr.sgml : 19950428 ACCESSION NUMBER: 0000950109-95-001449 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950427 SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARAMARK CORP CENTRAL INDEX KEY: 0000757523 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 232319139 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 424B5 SEC ACT: 1933 Act SEC FILE NUMBER: 033-52587 FILM NUMBER: 95531986 BUSINESS ADDRESS: STREET 1: THE ARA TOWER STREET 2: 1101 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19107 BUSINESS PHONE: 2152383000 MAIL ADDRESS: STREET 1: ARA GROUP INC STREET 2: 1101 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19107 FORMER COMPANY: FORMER CONFORMED NAME: ARA GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ARA HOLDING CO DATE OF NAME CHANGE: 19880515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARA SERVICES INC CENTRAL INDEX KEY: 0000007032 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 952051630 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 424B5 SEC ACT: 1933 Act SEC FILE NUMBER: 033-52587-01 FILM NUMBER: 95531987 BUSINESS ADDRESS: STREET 1: 1101 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19107 BUSINESS PHONE: 215-238-3000 424B5 1 PROSPECTUS SUPPLEMENT RULE 424(b)(5) REGISTRATION NO. 33-52587 PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 25, 1995 (ART) $150,000,000 ARAMARK SERVICES, INC. 8.15% GUARANTEED NOTES DUE MAY 1, 2005 UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST BY ARAMARK CORPORATION ----------- The Notes are unconditionally guaranteed as to the payment of principal, premium, if any, and interest by ARAMARK Corporation. The Notes may not be redeemed prior to maturity. Interest on the Notes is payable on May 1 and November 1 of each year, commencing November 1, 1995. The Notes will be issued only in registered form in denominations of $1,000 and integral multiples thereof. See "Description of Securities and Guarantee" in the Prospectus. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -----------
PROCEEDS TO INITIAL PUBLIC UNDERWRITING ARAMARK SERVICES, OFFERING PRICE(1) DISCOUNT(2) INC.(1)(3) ----------------- ------------ ----------------- Per Note........................ 99.919% 0.750% 99.169% Total........................... $149,878,500 $1,125,000 $148,753,500
- ----- (1) Plus accrued interest from May 1, 1995. (2) ARAMARK Services, Inc. and ARAMARK Corporation have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (3) Before deducting estimated expenses of $150,000 payable by ARAMARK Services, Inc. ----------- The Notes offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of the Notes will be made through the facilities of The Depository Trust Company on or about May 2, 1995 against payment therefor in immediately available funds. GOLDMAN, SACHS & CO. J.P. MORGAN SECURITIES INC. ----------- The date of this Prospectus Supplement is April 25, 1995. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS IN THE NOTES WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. RECENT DEVELOPMENTS Effective October 10, 1994, ARAMARK Corporation (ARAMARK) changed its name from The ARA Group, Inc. to ARAMARK Corporation. Its subsidiary, ARA Services, Inc., changed its name to ARAMARK Services, Inc. There was no change in ownership or control of ARAMARK. In December 1994, ARAMARK acquired Harry M. Stevens (HMS), a provider of food and support services to stadiums and arenas. Baseball stadiums serviced by HMS include Fenway Park in Massachusetts, the Astrodome in Texas, and Shea Stadium in New York. Arenas serviced by HMS include Nassau Coliseum in New York and Miami Arena in Florida. Other sports facilities serviced by HMS include the Meadowlands Sports Complex in New Jersey and Churchill Downs in Kentucky. ARAMARK has a definitive agreement, subject to third party approval, to purchase the TW Recreational Services (TW) subsidiary of Flagstar Companies. Management currently expects that the acquisition will be completed within the next several weeks and the total consideration will be approximately $115 million. TW provides food, refreshment and recreational services at various state and national parks. National park sites serviced by TW include Yellowstone in Wyoming, Mount Rushmore in South Dakota, the North Rim of the Grand Canyon in Arizona and Bryce and Zion in Utah. On January 11, 1995, the National Hockey League entered into a new labor accord. A shortened hockey season began on January 20, 1995. The Major League Baseball strike which began on August 12, 1994 ended on April 2, 1995. The announced plan is to have a shortened 1995 season with 144 games or 89% of the normal schedule. Although the delay of the start of the season will have a negative impact on ARAMARKs third quarter results, management does not believe the planned abbreviated season will have a material adverse impact on its full year 1995 operating results. In April 1995, ARAMARK redeemed $125 million of its 12% subordinated debentures and its $50 million 10.25% senior notes and also issued $100 million of 8% seven year senior notes. Currently ARAMARK has approximately $325 million of unused committed credit availability under its $1 billion credit facility. USE OF PROCEEDS The proceeds of the offering of the Notes will be used by ARAMARK Services, Inc. ("Services") to repay borrowings under the Credit Agreement. See Underwriting and "The Credit Agreement" in the Prospectus. S-2 CAPITALIZATION The following table shows the consolidated capitalization of ARAMARK as of December 30, 1994, the proforma impact of significant financing transactions subsequent to December 30, 1994, and as adjusted for the issuance of $150 million of the Notes. The net proceeds from this transaction will be used to repay borrowings under the Credit Agreement. See "The Credit Agreement" in the Prospectus.
December 30, 1994 -------------------------------------------- Actual Proforma As Adjusted ---------- ---------- ----------- (in thousands) Long-Term Borrowings (including current maturities: Subsidiaries' Borrowings Bank Loan (variable rate)(1)(2)(4)................. $ 484,500 $ 680,123 $ 531,369 Promissory notes(4)................................ 101,490 6,150 6,150 8.25% Term Note(4)................................. 100,000 80,000 80,000 10.625% Senior Notes Due 2000...................... 100,000 100,000 100,000 10.25% Senior Note Due 1998(4)..................... 50,000 - - Other Senior Debt.................................. 42,216 42,216 42,216 Capital Lease Obligations.......................... 3,059 3,059 3,059 8% Senior Notes Due 2002(4)........................ - 100,000 100,000 The Notes.......................................... - - 150,000 ARAMARK's Borrowings Subordinated Debentures Due 2000 (12%)(4).......... 125,000 - - Subordinated Notes Due 2003 (8 1/2%)............... 100,000 100,000 100,000 Subordinated Notes Due 2000 (10%).................. 30,650 30,650 30,650 Subordinated Debentures Due 2000 (10%)............. 28,649 28,649 28,649 Other Subordinated Debt............................ 6,115 6,115 6,115 ---------- ---------- ---------- Total Long-Term Borrowings....................... 1,171,679 1,176,962 1,178,208 ---------- ---------- ---------- Common Stock Subject to Potential Repurchase(3)........ 21,612 21,612 21,612 ---------- ---------- ---------- Shareholder's Equity: Preferred Stock...................................... 16,666 16,666 16,666 Common Stock......................................... 265 265 265 Other Shareholders' Equity(5)........................ 203,354 196,654 196,654 Common Stock Subject to Potential Repurchase......... (21,612) (21,612) (21,612) ---------- ---------- ---------- Total Shareholders' Equity......................... 198,673 191,973 191,973 ---------- ---------- ---------- Total Capitalization............................. $1,391,964 $1,390,547 $1,391,793 ========== ========== ==========
(1) There are in effect various interest rate hedging agreements which fix/cap the rate on $325 million of variable rate debt at an average effective rate of 6.7% for remaining periods ranging between 8 months and 36 months. (2) After giving effect to the issuance of the Notes and the transactions reflected in the Proforma column, approximately $475 million of unused borrowings will be available under the Credit Agreement. See The Credit Agreement in the Prospectus. (3) See note 7 to the consolidated financial statements. (4) The Proforma column reflects the following transactions which occurred subsequent to December 30, 1994: a) call of the $125 million 12% Subordinated Debentures due 2000; b) repayment of $95.3 million of promissory notes; c) issuance of $100 million in new seven-year senior notes; d) prepayment of the $50 million 10.25% Senior Note; and e) payment of a $20 million scheduled maturity on the 8.25% Term Note. (5) Proforma "Other Shareholders' Equity" reflects the extraordinary item loss due to early extinguishment of debt discussed in note (4) above. S-3 SELECTED FINANCIAL DATA The following table presents summary historical consolidated financial data for ARAMARK. For additional information see Financial Statements attached as Schedule A hereto. In the opinion of management, such financial statements contain all the adjustments necessary to present fairly the financial position and the results of operations as of the dates and for the periods indicated below. The following data should be read in conjunction with the consolidated financial statements and the related notes thereto and the condensed consolidated financial statements and the related notes thereto, and Managements Discussion and Analysis of Results of Operations and Financial Condition each included herein, in Schedule A attached to the accompanying Prospectus.
ARAMARK Corporation and Subsidiaries ------------------------------------------------------------------------------ Fiscal Year Ended on or near Three Months Ended September 30, --------------------------- ---------------------------------------------- December 30, December 31, 1994 1993 1994 1993 1992(1) 1991 1990 ------------ ------------ ------ ------ -------- ------ ------ (in millions, except per share amounts and ratios) Income Statement Data: Revenues...................................... $1,380.5 $1,292.0 $5,161.6 $4,890.7 $4,865.3 $4,774.4 $4,595.5 Earnings before depreciation and amortization, interest, and income taxes................... 97.2 95.9 415.8 399.4 387.4 388.2 371.1 Depreciation and amortization................. 37.0 34.4 143.8 130.5 125.8 128.0 114.1 Earnings before interest and income taxes(2).. 60.2 61.5 272.0 268.9 261.6 260.2 257.0 Interest expense, net......................... 25.4 29.5 108.5 125.7 137.9 142.3 149.8 Income before extraordinary item and cumulative effect of change in accounting for income taxes(3)..................................... 20.8 18.4 95.0 84.3 70.7 64.2 51.8 Net income.................................... 20.8 16.4 86.1 77.1 67.4 64.2 51.8 Earnings per share:(4) Income before extraordinary item and cumulative effect of change in accounting for income taxes(3)......................... $ .42 $ .36 $ 1.87 $ 1.64 $ 1.40 $ 1.23 $ .91 Net income................................... $ .42 $ .32 $ 1.69 $ 1.49 $ 1.33 $ 1.23 $ .91 Ratio of earnings to fixed charges(5)......... 1.9x 1.8x 2.1x 1.9x 1.7x 1.6x 1.5x Balance Sheet Data (at period end): Total assets.................................. $2,314.8 $2,115.6 $2,122.0 $2,040.6 $2,005.0 $2,002.6 $1,917.2 Long-term borrowings:(6) Senior....................................... 870.7 578.1 691.5 533.8 629.5 722.1 728.7 Subordinated................................. 290.4 463.5 290.4 474.9 413.5 415.1 369.1 Common stock subject to potential repurchase(7)................................ 21.6 22.5 20.8 21.7 20.4 17.7 17.5 Shareholders' equity.......................... 198.7 144.3 182.6 124.1 103.8 40.6 49.3
(1) Fiscal 1992 is a fifty-three week period. See note 1 to the consolidated financial statements. (2) See note 2 to the consolidated financial statements. (3) See notes 3 and 6 to the consolidated financial statements. (4) Based on weighted average shares of common stock outstanding for all periods. See note 1 to the consolidated financial statements. (5) For the purposes of determining the ratio of earnings to fixed charges, earnings include pre-tax income plus fixed charges (excluding capitalized interest). Fixed charges consist of interest on all indebtedness (including capitalized interest) plus that portion of operating lease rentals representative of the interest factor (deemed to be one-third of operating lease rentals). (6) See note 4 to the consolidated financial statements. (7) See note 7 to the consolidated financial statements. S-4 FINANCIAL REPORTING BY BUSINESS SEGMENTS The following is a summary of financial information for each of ARAMARK's business segments for each of the three fiscal years ended September 30, 1994. For additional financial information concerning ARAMARK for the three fiscal years ended September 30, 1994 and the fiscal period ended December 30, 1994, see Financial Statements. Revenues by segment are substantially comprised of services to unaffiliated customers and clients. Operating income reflects expenses directly related to individual segments plus an allocation of expenses applicable to more than one segment. General corporate expenses include expenses not specifically identifiable with an individual segment.
REVENUES OPERATING INCOME ---------------------------------- ------------------------------ 1994 1993 1992 1994 1993 1992 -------- -------- -------- ------ ------- ------- (in millions) Food, Leisure & Support Services $3,274.3 $3,149.6 $ 3,151.8 $ 138.4 $ 137.4 $ 133.2 Uniform Services 810.5 731.0 632.9 96.0 87.6 76.5 Health & Education 673.3 619.3 687.3(1) 37.2 33.7 53.0(1) Distributive 403.5 390.8 393.3 26.5 24.8 27.1 -------- -------- --------- ------- ------- -------- Total $5,161.6 $4,890.7 $ 4,865.3 298.1 283.5 289.8 ======== ======== ========= General Corporate and Other Expenses (30.8) (22.6) (28.2) Gain on Sale of Remaining Living Centers Common Stock - 8.0(1) - ------- ------- -------- Operating Income 267.3 268.9 261.6 Gain on Issuance of Stock by an Affiliate 4.7 - - Interest Expense, net (108.5) (125.7) (137.9) ------- ------- -------- Income Before Income Taxes, Minority Interest, Extraordinary Item, and Accounting Change $ 163.5 $ 143.2 $ 123.7 ======= ======= ========
(1) Includes impact of Living Centers, a wholly-owned subsidiary to February, 1992, the date of divestiture. See notes 2 and 11 to the consolidated financial statements for further information on the transaction and other variations in segment results. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS FISCAL 1995 INTERIM PERIOD COMPARED TO 1994 INTERIM PERIOD Overview. Revenues of $1.4 billion for the first quarter of fiscal 1995 were 7% higher than the prior year period. First quarter operating income of $60.2 million was $1.3 million or 2% lower than the prior year period. The decrease is primarily attributable to the National Hockey League and Major League Baseball strikes in the United States and Canada, partially offset by improved operating earnings in certain business segments as discussed below. In addition, the Company incurred expenses in connection with the change in corporate identity. It is estimated that had the strikes not occurred, the Company's fiscal 1995 first quarter revenues, operating income and net income would have been 1%, 3% and 6% higher, respectively. The Company's operating income margin decreased to 4.4% in 1995 from 4.8% in 1994. The decrease in margin is due primarily to the baseball and hockey strikes and increased general corporate expenses referred to above. S-5 First quarter interest expense declined $4.0 million or 14% due primarily to the favorable impact of refinancing certain of the Company's subordinated debentures during 1994. Fiscal 1995 first quarter income before cumulative effect and extraordinary item was $20.7 million or a 13% increase over the prior year first quarter. Segment Results. Food, Leisure and Support Services segment revenues increased 4% due primarily to new accounts and increased volume at both domestic and international food businesses, partially offset by the impact of the National Hockey League and Major League Baseball strikes. Uniform Services segment revenues increased 14% reflecting increased volume at uniform rental operations and WearGuard. Health & Education segment revenues increased 12% resulting from new contracts at Spectrum Healthcare Services and continued enrollment and tuition increases at Children's World. Distributive segment revenues increased 4% from increased unit volume and the effect of the first quarter acquisition. Food, Leisure and Support Services segment operating income increased 1% as a result of increased revenues in the domestic food businesses, partially offset by the impact of the hockey and baseball strikes and continuing start-up problems of the Spanish food service business. Had the strikes not occurred, it is estimated that Food, Leisure and Support Services segment fiscal 1995 first quarter operating income would have been 8% higher. Uniform Services segment operating income increased 7% due to the higher volume, partially offset by increases in merchandise and other operating costs. Health & Education segment operating income decreased 3%, due to new contract start-up costs and increased operating costs at Spectrum Healthcare Services, partially offset by volume related improvements in operating income at Children's World. Distributive segment operating income decreased 11% due to higher operating expenses. On January 11, 1995, the National Hockey League entered into a new labor accord. A shortened hockey season began on January 20, 1995. The Major League Baseball strike which began on August 12, 1994 ended on April 2, 1995. The announced plan is to have a shortened 1995 season with 144 games or 89% of the normal schedule. Although the delay of the start of the season will have a negative impact on ARAMARK's third quarter results, management does not believe the planned abbreviated season will have a material adverse impact on its full year 1995 operating results. Fiscal 1994 Compared to Fiscal 1993 Overview. Revenues for the fiscal year ended September 30, 1994 were $5.2 billion, a 6% increase over fiscal 1993. Earnings before interest and taxes of $272 million increased 1% compared to the prior year. Each of ARAMARK's business segments reflected improvements in operating earnings. However, the 1994 results were adversely impacted by the Major League Baseball strike in the United States and Canada and costs associated with several corporate development and strategic initiatives, including costs related to a change in corporate identity. See note 11 to the consolidated financial statements. Earnings before interest and taxes for both fiscal 1994 and fiscal 1993 include other income of $5.8 million and $5.0 million, respectively, and in fiscal 1994 a gain of $4.7 million on the issuance of stock by an affiliate. See note 2 to the consolidated financial statements. ARAMARK's operating income margin decreased to 5.2% from 5.5%. The decrease in margin is due primarily to the baseball strike and increased general corporate expenses referred to above. Interest expense declined $17.2 million or 14%, due primarily to lower borrowing levels and the impact of refinancing certain of ARAMARK's indebtedness. Fiscal 1994 and 1993 net income include an extraordinary item for the early extinguishment of debt of $7.7 million and $7.2 million, respectively, as described in note 3 to the consolidated financial statements. Fiscal 1994 net income also includes a charge of $1.3 million related to the cumulative effect of adopting Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. See note 6 to the consolidated financial statements. Segment Results. Food, leisure and support services segment revenues were 4% greater than prior year. Increases related to new accounts, primarily in the U.S. business and education markets, and an acquisition of a company in Spain were partially offset by the effects of a divestiture in late fiscal 1993 and the baseball strike in fiscal 1994. See notes 2 and 11 to the consolidated financial statements. Uniform Services segment revenues increased 11% as a result of increased volume in both the uniform rental and direct marketing businesses. Health and Education Services segment revenues increased 9% as a result of new contracts at S-6 correctional institutions and hospitals and continued enrollment growth in the child care services business. Revenues for the Distributive Services segment increased 3% due to increased volume. Operating income for the Food, Leisure and Support Services segment increased 1% over the prior year. Increased earnings in the U.S. business dining market and the gain from the sale of stock of an affiliate were offset by the impact of the baseball strike, start-up costs on new contracts, and continued sluggish economic conditions in selected European markets. Depreciation and amortization in this segment increased by $9 million due to acquisition related amortization and depreciation on recent capital projects. Uniform Services operating income increased 9% as a result of the revenue growth. Operating income for the Health and Education Services segment increased 11% due to revenue growth plus improvements in operating efficiency due to leveraging of overhead costs. Distributive Services operating income increased 7%, primarily due to increased volume with costs remaining relatively constant. In fiscal 1994, management estimates that consolidated operating income and income before extraordinary item would have been approximately 3% and 5% higher, respectively, had the baseball strike not occurred. See note 11 to the consolidated financial statements. Fiscal 1993 Compared to Fiscal 1992 Overview. Revenues for the fiscal year ended October 1, 1993 were $4.9 billion. Operating income for fiscal 1993 was $269 million, an increase of $7 million or 3% over fiscal 1992. Excluding the unfavorable impact of currency translation, revenues and operating income increased 2% and 4%, respectively, over fiscal 1992. Operating results for fiscal 1993 and fiscal 1992 include other income of $5.0 million and $4.2 million, respectively. See note 2 to the consolidated financial statements. ARAMARK's operating margin increased from 5.4% in fiscal 1992 to 5.5% in fiscal 1993 reflecting declines in cost of services provided and selling and general corporate expenses as a percentage of revenues. The declines are primarily due to the favorable impact of effective controls of costs relative to revenue growth plus the impact of unusual costs included in fiscal 1992 selling and general corporate expenses in connection with a potential acquisition and several special development programs. Interest expense declined $12.2 million or 9% due primarily to lower interest rates and the impact of refinancing ARAMARK's senior notes and subordinated debentures. Fiscal 1993 and 1992 net income includes an extraordinary item due to early extinguishments of debt of $7.2 million and $3.3 million, respectively. See note 3 to the consolidated financial statements for a description of the debt refinancings and extraordinary item. Income before the extraordinary item for fiscal 1993 was $84.3 million, which exceeded the prior year by 19%. Segment Results. Food, Leisure and Support Services segment revenues approximated prior year. The impact of new accounts in international and domestic markets for this segment was offset by the adverse effect of economic conditions in the United States and Canada on selected business dining and other accounts and a 2% revenue decline attributable to unfavorable currency exchange rates. Uniform Services segment revenues increased 15% due to the acquisition of WearGuard in fiscal 1992 and growth in volume at uniform rental operations which accounted for 3% of the increase. Health and Education Services segment revenues, excluding the revenues of Living Centers which was divested in fiscal 1992, increased 12% due primarily to new contracts at correctional institutions and hospitals, continued enrollment growth at Children's World and a fiscal 1992 acquisition of a business providing management services to hospital emergency departments. Revenues for the Distributive Services Segment declined slightly due to the continued adverse effect of the economic slowdown on consumer spending particularly in southern California. Operating income for the Food, Leisure and Support Services segment increased 3% over the prior year. The positive effects of new business, operating efficiencies, and effective controls over product and overhead costs plus a fiscal 1993 divestiture gain, described in note 2 to the consolidated financial statements, contributed to the increase. This was partially offset by the previously described impact of adverse economic conditions, start-up costs at new accounts, a 2% decline in operating income attributable to unfavorable currency exchange rates and the reserve established for potential adjustments described in note 2 to the consolidated financial statements. Uniform Services operating income increased 15% due to the acquisition of WearGuard in fiscal 1992 and revenue growth coupled with higher operating margins at uniform rental operations which accounted for 6% of the increase. Depreciation and amortization expense increased by $7.5 million for this segment due S-7 primarily to the acquisition of WearGuard in fiscal 1992. Excluding the fiscal 1992 operating results and divestiture gain related to Living Centers, operating income for the Health and Education Services segment increased 4% as higher revenues plus an increase in operating income due to the fiscal 1992 acquisition described above were partially offset by higher operating costs. Distributive Services operating income declined 8% reflecting lower operating margins as a result of the impact of the economic slowdown coupled with an increase in operating costs. FINANCIAL CONDITION The Company's indebtedness increased $180 million during the first quarter of fiscal 1995, principally to finance acquisitions (see note 2 to the condensed consolidated financial statements), capital expenditures and a seasonal increase in working capital. During the first quarter, the Company increased its borrowing limit under its credit facility to $1 billion (see note 4 to the condensed consolidated financial statements and "The Credit Agreement" in the Prospectus). After giving effect to the transactions described below, the Company has approximately $325 million of unused committed credit availability under this facility, which management believes, along with cash flows from operations, is sufficient to fund operating requirements and the potential acquisition of TW (see note 2 to the condensed consolidated financial statements). During fiscal 1994, ARAMARK redeemed $182.3 million of its 12-1/2% subordinated debentures. See note 3 to the consolidated financial statements. During fiscal 1994, ARAMARK repurchased $17.6 million of its Series C Preferred Stock, repurchased $29.7 million of its Class B Common Stock and issued $13.2 million of subordinated installment notes as partial consideration. ARAMARK also purchased $9.2 million of its Class A Common Stock. Additionally, ARAMARK issued $12.4 million of Class B Common Stock to eligible employees, primarily through the exercise of installment stock purchase opportunities. As of September 30, 1994, ARAMARK has capital commitments of approximately $52 million related to several long-term concession contracts at stadiums and arenas. Subsequent to December 30, 1994, the Company paid off at scheduled maturity $95.3 million of promissory notes, redeemed $125 million of its 12% subordinated debentures and its $50 million 10.25% senior note for a premium, and made a $20 million scheduled term payment on its 8.25% term note. The payments were funded through a combination of the Credit Agreement and the issuance of $100 million of 8% seven year senior notes. BUSINESS ARAMARK is engaged in providing or managing services, including food, leisure and support services, uniform services, health and education services and distributive services. Services was organized in 1959. ARAMARK was formed in September 1984 by the management of Services and acquired Services in December 1984 through a merger. ARAMARK provides most of its services in the United States. ARAMARK also conducts operations, primarily the management of food services, in Belgium, Canada, the Czech Republic, Germany, Hungary, Japan, Korea, Mexico, Spain and the United Kingdom. Financial information by business segment and geographic area appears in note 11 to the consolidated financial statements. The businesses of ARAMARK have been grouped into the segments described below. FOOD, LEISURE & SUPPORT SERVICES ARAMARK provides food, refreshment, specialized dietary and support services (including maintenance and housekeeping) to business, educational, governmental and medical institutions. These services (and to a lesser extent, merchandise operations) are also provided at leisure and other public facilities such as convention centers, stadiums, parks, arenas, race tracks and recreational facilities. Food, refreshment, specialized dietary and support services are operated at customer locations generally under contracts of indefinite duration which may be subject to termination by either party. However, food and related services at leisure and other public facilities generally are for fixed contract terms well in excess of one S-8 year. ARAMARK's food, leisure and support services are performed under various financial arrangements including a management-fee basis and a profit-and-loss basis. See note 2 to the consolidated financial statements. In most instances, the equipment and facilities used in providing these services are owned by the customer. Vending machines and related equipment, however, are generally owned by ARAMARK. There is a high level of competition in the food, leisure and support services business from local, regional and national companies as well as from businesses and institutions which operate their own services. This competition takes a number of different forms, including pricing, maintaining high food and service standards, and innovative approaches to marketing with a strong emphasis on securing and retaining customer accounts. ARAMARK believes that it is a significant provider of food, leisure and support services in the United States, Spain, Germany, Belgium and Canada, but that its volume of such business is small in relation to the total market. See note 10 to the consolidated financial statements for information relating to the seasonal aspects of this business segment. In December 1994, ARAMARK acquired Harry M. Stevens, a provider of food and support services to stadiums and arenas. See note 2 to the condensed consolidated financial statements. UNIFORM SERVICES ARAMARK rents, cleans, maintains and delivers personalized work apparel and other textile items for customers throughout the United States on a contract basis. Also provided are walk-off mats, cleaning cloths, disposable towels, and other environmental control items. ARAMARK also operates one of the largest direct marketers of personalized work clothing, uniforms, casual apparel and related accessories, primarily in the United States. Service contracts for the rental and laundering of work apparel and other textile items are for well in excess of one year and typically for an initial term of five years. Generally, the direct marketing business is conducted under an invoice arrangement with customers. The uniform rental services business is highly competitive in the areas in which ARAMARK operates, with numerous competitors in each major operating area. Although no one uniform rental services company is predominant in this industry, ARAMARK believes that it is a significant competitor. Competition in the sale of work clothing and related items is from numerous retailers and other direct marketers at local, regional and national levels. In this market, while ARAMARK is a significant competitor, ARAMARK's volume of sales is small in relation to the total market. The significant competitive factors in the uniform services business are the quality of services provided to customers and the prices charged for such services. HEALTH & EDUCATION SERVICES ARAMARK provides management services (including physician staffing and other specialized services) to hospital emergency and other departments and to military healthcare facilities and clinics as well as medical services to correctional institutions. ARAMARK also provides child care services primarily at Company-operated facilities, and to a lesser extent on customer sites and in before and after school programs. Revenues from emergency and primary care management services are received generally from the hospitals and clinics at which the care is provided under contracts generally with a term of one or more years and from third party payors. Revenues from medical services to correctional institutions are received directly from governmental authorities under contracts with terms of one or more years. S-9 Child care services are provided to and are primarily paid for on a weekly basis directly by individual families under short-term agreements. ARAMARK leases a significant number of its child care facilities under long-term arrangements. ARAMARK believes it is a significant provider of emergency and primary care management services, medical services to correctional institutions and child care services in the United States. Competition in all phases of this business segment is from both national and local providers of health and education services as well as from private and public institutions which provide for their own health and education services. Significant competitive factors in ARAMARK's health and education services businesses are the quality of care, reputation, physical appearance of facilities, the types of programs offered to the users of these services and the prices charged for such services. DISTRIBUTIVE SERVICES ARAMARK provides wholesale distribution of magazines, books and other printed matter. These materials are purchased from national distributors and publishers and are delivered to retail locations patronized by the general public. Distribution services are generally rendered under short-term agreements, which ordinarily permit the return of unsold magazines and books with full credit being given to the retailer and with ARAMARK in turn receiving full credit from its suppliers. Competition in the distribution of books and periodicals exists primarily from magazine and book subscriptions, direct distribution by publishers to retailers and from other wholesale distributors. While ARAMARK's volume of business in the distribution of books and periodicals is small in relation to the total market, ARAMARK believes the volume of its wholesale periodical and book distribution units makes it a significant wholesale distributor. In October 1994, ARAMARK acquired Ranier News, a wholesale magazine and book distribution business serving the northwest area of Washington state. See note 2 to the condensed consolidated financial statements. EMPLOYEES ARAMARK employs approximately 140,000 persons both full and part time, including approximately 30,000 employees outside the United States. Approximately 23,000 employees in the United States are represented by various labor unions. DESCRIPTION OF THE NOTES The following description of the particular terms of the Notes offered hereby (referred to in the accompanying Prospectus as the "Guaranteed Securities") supplements, and to the extent inconsistent therewith replaces, the description of the general terms and provisions of the Guaranteed Securities set forth in the Prospectus, to which description reference is hereby made. The Notes are to be issued under an Indenture, dated as of July 15, 1991 (the "Guaranteed lndenture"), among ARAMARK, as guarantor, Services, as issuer, and The Bank of New York (Delaware), as trustee (the "Guaranteed Trustee"). The Notes are subject to defeasance as described under "Description of Securities and Guarantee -- Defeasance" in the Prospectus. The Notes when issued will rank on a parity with all other unsecured and unsubordinated indebtedness of Services. ARAMARK will guarantee the punctual payment of the principal of, premium, if any, and interest on the Notes, when and as the same are due and payable. The Guarantee is absolute and unconditional, S-10 irrespective of any circumstances that might otherwise constitute a legal or equitable discharge of a surety or guarantor. The Guarantee will rank on a parity with unsecured and unsubordinated indebtedness of ARAMARK. The Notes will be issued only in fully registered form and only in principal amounts of $1,000 or integral multiples thereof. (Section 302 of the Guaranteed Indenture) The Notes initially will be limited to $150,000,000 aggregate principal amount. The Notes will mature on May 1, 2005. The Notes will bear interest at 8.15% per annum, payable semi-annually in arrears on each May 1 and November 1, commencing on November 1, 1995 and accruing from their date of issuance. The Notes will not be redeemable by ARAMARK or Services prior to their Stated Maturity, and will not have the benefit of any sinking fund. CERTAIN COVENANTS APPLICABLE TO THE NOTES The covenants described in the Prospectus under the captions Certain Covenants Applicable to Subordinated Securities and Guaranteed Securities -- Mergers, Consolidations and Certain Sales and Purchases of Assets, -- Provision of Financial Statements, -- Limitation on Restricted Payments, and -- Limitation on Certain Security Interests will not apply to the Notes and will be replaced by the covenants described below. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Guaranteed Indenture or the Board resolutions authorizing the Notes, as the case may be. Limitations on Liens. ARAMARK covenants that it will not issue, incur, create, assume, guarantee or suffer to exist, and will not permit any Restricted Subsidiary to issue, incur, create, assume, guarantee or suffer to exist, any debt for borrowed money secured by a mortgage, security interest, pledge, lien, charge or other encumbrance (mortgages) upon any Principal Property (as defined below) of ARAMARK or any Restricted Subsidiary or upon any shares of stock or indebtedness of any Restricted Subsidiary (whether such Principal Property, shares or indebtedness are now existing or owned or hereafter created or acquired) without in any such case effectively providing concurrently with the issuance, incurrence, creation, assumption or guarantee of any such secured debt, or the grant of a mortgage with respect to any such indebtedness, that the Notes (together with, if ARAMARK shall so determine, any other indebtedness of or guarantee by ARAMARK ranking equally with the Guarantee or any indebtedness of or guaranteed by any Restricted Subsidiary, as the case may be) shall be secured equally and ratably with (or, at the option of ARAMARK, prior to) such secured debt. The foregoing restriction, however, will not apply to: (a) mortgages on property existing at the time of acquisition thereof by ARAMARK or any Subsidiary, provided that such mortgages were in existence prior to, and not incurred in contemplation of, such acquisition; (b) mortgages on property, shares of stock or indebtedness or other assets of any corporation existing at the time such corporation becomes a Restricted Subsidiary, provided that such mortgages are not incurred in anticipation of such corporation becoming a Restricted Subsidiary; (c) mortgages on property, shares of stock or indebtedness to secure the payment of all or any part of the purchase price thereof, or mortgages on property, shares of stock or indebtedness to secure any indebtedness for borrowed money incurred prior to, at the time of, or within 270 days after, the latest of the acquisition thereof, or, in the case of property, the completion of construction, the completion of improvements, or the commencement of substantial commercial operation of such property, for the purpose of financing all or any part of the purchase price thereof, such construction, or the making of such improvements; (d) mortgages to secure indebtedness owing to ARAMARK or to a Restricted Subsidiary; (e) mortgages existing at the date of the issuance of the Notes; (f) mortgages on property of a corporation existing at the time such corporation is merged into or consolidated with ARAMARK or a Restricted Subsidiary or at the time of a sale, lease or other disposition of the properties of a corporation as an entirety or substantially as an entirety to ARAMARK or a Restricted Subsidiary, provided that such mortgage was not incurred in anticipation of such merger or consolidation or sale, lease or other disposition; (g) mortgages in favor of the United States or any State, territory or possession thereof (or the District of Columbia), or any department, agency, instrumentality or political subdivision of the United States or any State, territory or possession thereof (or the District of Columbia ), to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of constructing or improving the property subject to such mortgages; and (h) extensions, renewals, refinancings or replacements of any mortgage referred to in the foregoing clauses (a), (b), (c), (e) and (f); provided, however, that any mortgages permitted by any of the foregoing clauses (a), (b), (c), (e) and (f) shall not extend to or cover any property of ARAMARK or such S-11 Restricted Subsidiary, as the case may be, other than the property, if any, specified in such clauses and improvements thereto. Notwithstanding the restrictions outlined in the preceding paragraph, ARAMARK or any Restricted Subsidiary will be permitted to issue, incur, create, assume, guarantee or suffer to exist, debt secured by a mortgage which would otherwise be subject to such restrictions, without equally and ratably securing the Notes, provided that after giving effect thereto, the sum of (i) all debt so secured by mortgages (not including mortgages permitted under clauses (a) through (h) above) and (ii) all Attributable Debt (as defined below) with respect to Sale and Lease-Back Transactions (as defined below) with respect to any Principal Property, at the time of determination, does not exceed 10% of the Consolidated Tangible Assets of ARAMARK. Limitations on Sale and Lease-Back Transactions. ARAMARK covenants that it will not, nor will it permit any Restricted Subsidiary to, enter into any Sale and Lease-Back Transaction with respect to any Principal Property, other than any such transaction involving a lease for a term of not more than three years or any such transaction between ARAMARK and a Restricted Subsidiary or between Restricted Subsidiaries, unless: (a) ARAMARK or such Restricted Subsidiary would be entitled to incur indebtedness secured by a mortgage on the Principal Property involved in such transaction at least equal in amount to the Attributable Debt with respect to such Sale and Lease-Back Transaction, without equally and ratably securing the Notes, pursuant to the limitation on liens in the covenant described above; or (b) ARAMARK shall apply an amount equal to the greater of the net proceeds of such sale or the Attributable Debt with respect to such Sale and Lease-Back Transaction within 120 days of such sale to either (or a combination of) the retirement (other than any mandatory retirement, mandatory prepayment or sinking fund payment or by payment at maturity) of debt for borrowed money of ARAMARK or a Restricted Subsidiary that matures more than twelve months after the creation of such indebtedness or the purchase, construction or development of other comparable property. Certain Definitions Applicable to Covenants. The term Attributable Debt when used in connection with a Sale and Lease-Back Transaction involving a Principal Property shall mean, at the time of determination, the lesser of: (a) the fair value of such property (as determined in good faith by the Board of Directors of ARAMARK); or (b) the present value of the total net amount of rent required to be paid under such lease during the remaining term thereof (including any renewal term or period for which such lease has been extended), discounted at the rate of interest set forth or implicit in the terms of such lease or, if not practicable to determine such rate, the interest rate per annum borne by the Notes compounded semi-annually. For purposes of the foregoing definition, rent shall not include amounts required to be paid by the lessee, whether or not designated as rent or additional rent, on account of or contingent upon maintenance and repairs, insurance, taxes, assessments, water rates and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall be the lesser of the net amount determined assuming termination upon the first date such lease may be terminated (in which case the net amount shall also include the amount of the penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated) or the net amount determined assuming no such termination. The term Principal Property shall mean the land, land improvements, buildings and fixtures (to the extent they constitute real property interests) (including any leasehold interest therein) constituting the principal corporate office or any distribution, operation or maintenance facility (whether now owned or hereafter acquired) which: (a) is owned by ARAMARK or any Subsidiary; (b) has not been determined in good faith by the Board of Directors of ARAMARK not to be materially important to the total business conducted by ARAMARK and its Subsidiaries taken as a whole; and (c) has a market value on the date as of which the determination is being made in excess of 1.0% of Consolidated Tangible Assets of ARAMARK as most recently determined on or prior to such date. The term Restricted Subsidiary shall mean any Subsidiary that owns any Principal Property or any shares or debt of another Restricted Subsidiary. The Term Sale and Lease-Back Transaction shall mean any arrangement with any person providing for the leasing by ARAMARK or any Restricted Subsidiary of any Principal Property, which property has been or is to be sold or transferred by ARAMARK or such Restricted Subsidiary to such person. Consolidation, Merger and Sale of Assets. ARAMARK covenants that (i) it will not consolidate with or merge into any other person or convey, transfer or lease its properties and assets substantially as an entirety to S-12 any person, and ARAMARK shall not permit any person to consolidate with or merge into ARAMARK and (ii) it will not permit Services to consolidate with or merge into any other person or convey, transfer or lease its properties and assets substantially as an entirety to any person, and shall not permit any person to consolidate with or merge into Services, unless: (1) in case ARAMARK or Services shall consolidate with or merge into another person or convey, transfer or lease its properties and assets substantially as an entirety to any person, the person formed by such consolidation or into which ARAMARK or Services, as the case may be, is merged or the person which acquires by conveyance or transfer, or which leases, the properties and assets of ARAMARK or Services, as the case may be, substantially as an entirety shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States, any State thereof or the District of Columbia and shall expressly assume, by a supplemental Guaranteed Indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, (a) the due and punctual performance of the Guarantee and the performance or observance of every covenant of the Guaranteed Indenture on the part of ARAMARK, in the case of a transaction involving ARAMARK, or (b) the due and punctual payment of the principal of and any premium and interest on the Notes and the performance or observance of every covenant of the Guaranteed Indenture on the part of Services, in the case of a transaction involving Services; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of ARAMARK or any Subsidiary as a result of such transaction as having been incurred by ARAMARK or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (3) if, as a result of any such consolidation or merger or such conveyance, transfer or lease, properties or assets of ARAMARK or any Restricted Subsidiary would become subject to a mortgage, pledge, lien, security interest or other encumbrance which would not be permitted by the Guaranteed Indenture, ARAMARK or such successor person, as the case may be, shall take such steps as shall be necessary effectively to secure the Notes equally and ratably with (or prior to) all indebtedness secured thereby. GLOBAL NOTES The Notes will be issued in the form of one or more fully registered global Notes which will be deposited with, or on behalf of, The Depository Trust Company, as Depositary (the DEPOSITARY), LOCATED IN THE BOROUGH OF MANHATTAN, THE CITY OF NEW YORK, AND WILL BE REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY. Ownership of beneficial interests in a global Note will be limited to participants and to persons that may hold interests through institutions that have accounts with the Depositary (participants). Ownership of beneficial interests by participants in a global Note will be shown on, and the transfer of that ownership interest will be effected only through, records maintained by the Depositary for such global Note. Ownership of beneficial interests in such global Note by persons that hold through participants will be shown on, and the transfer of that ownership interest within each participant will be effected only through, records maintained by such participants. Payment of principal of and interest on the Notes represented by any such global Note will be made to the Depositary or its nominee, as the case may be, as the sole registered owner and the sole Holder of the Notes represented thereby for all purposes under the Guaranteed Indenture. None of the Company, the Trustee or any agent of the Company or the Trustee will have any responsibility or liability for any aspect of the Depositarys records relating to, or payments made on account of, beneficial ownership interests in a global Note representing any Notes or any other aspect of the relationship between the Depositary and its participants or the relationship between such participants and the owners of beneficial interests in a global Note owning through such participants or for maintaining, supervising or reviewing any of the Depositarys records relating to such beneficial ownership interests. S-13 The Company has been advised by the Depositary that upon receipt of any payment of principal of or interest on any such global Note, the Depositary will immediately credit, on its book-entry registration and transfer system, the accounts of participants with payments in amounts proportionate to their respective beneficial interests in the principal amount of such global Note as shown on the records of the Depositary. The accounts to be credited shall be designated by the Underwriters. Payments by participants to owners of beneficial interests in a global Note held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for customer accounts registered in street name, and will be the sole responsibility of such participants. No global Note may be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor of the Depositary or a nominee of such successor. A global Note representing Notes is exchangeable for definitive Notes in registered form, only if (x) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such global Note or if at any time the Depositary ceases to be clearing agency registered under the Securities Exchange Act of 1934 (the Exchange Act), (y) the Company in its sole discretion determines that such global Note shall be exchangeable for definitive Notes in registered form and notifies the Trustee thereof or (z) an Event of Default with respect to the Notes represented by such global Note has occurred and is continuing. Any global Note that is exchangeable pursuant to the preceding sentence shall be exchangeable for definitive Notes issuable in authorized denominations in registered form, aggregating a like amount. Such definitive Notes shall be registered in the names of the owners of the beneficial interests in such global Note as the Depositary shall direct. Except as provided above, owners of beneficial interests in such a global Note will not be entitled to receive physical delivery of Notes in definitive form and will not be considered the Holders thereof for any purpose under the Guaranteed Indenture, and no global Note representing Notes shall be exchangeable. Accordingly, each person owning a beneficial interest in such a global Note must rely on the procedures of the Depositary and, if such person is not a participant, on the procedures of the participant through which such person owns its interest, to exercise any rights of a Holder under the Indenture or such global Note. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a global Note. UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, Services and ARAMARK have agreed to sell to each of the Underwriters named below, and each of such Underwriters has severally agreed to purchase, the principal amount of the Notes set forth opposite its name below: PRINCIPAL UNDERWRITER AMOUNT OF NOTES ----------- --------------- Goldman, Sachs & Co............................ $ 75,000,000 J.P. Morgan Securities INC..................... $ 75,000,000 ------------ Total......................................... $150,000,000 ============ Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all of the Notes if any are taken. The Underwriters propose to offer the Notes in part directly to retail purchasers at the initial public offering price set forth on the cover page of this Prospectus Supplement and in part to certain securities dealers at such price less a concession of 0.45% of the principal amount of the Notes. The Underwriters may allow, and such dealers may reallow, a concession not to exceed 0.25% of the principal amount of the Notes to certain brokers and dealers. After the Notes are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Underwriters. S-14 The Notes are a new issue of securities with no established trading market. Services and ARAMARK have been advised by the Underwriters that they intend to make a market in the Notes but are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Notes. There is no assurance that the Notes will trade at their principal amount. Services and ARAMARK have agreed to jointly and severally indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. The Underwriters and their affiliates maintain ongoing business relationships with ARAMARK and in connection therewith may provide investment banking, commercial banking and advisory services for which they receive customary fees. Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan Securities Inc., is co-agent under the Credit Agreement and is expected to receive up to $8,000,000 of the net proceeds from the offering of the Notes. See Use of Proceeds S-15 DEBT SECURITIES OF ARAMARK CORPORATION OR ARAMARK SERVICES, INC. _______________ ARAMARK Corporation ("ARAMARK") may offer from time to time subordinated debt securities (the "Subordinated Securities") and ARAMARK Services, Inc. ("Services") may offer from time to time its debt securities (the "Guaranteed Securities," and collectively with the Subordinated Securities, the "Securities") with an aggregate principal amount or, if Securities are issued at original issue discount, such higher principal amount as may be sold for an initial public offering price of up to $300,000,000. The issuer, the specific title, the aggregate principal amount, the purchase price, the maturity, the rate and time of payment of any interest, any redemption provisions, any other specific terms of the Securities, and the agents and dealers or underwriters in connection with the sale of the Securities in respect of which this Prospectus is being delivered are set forth in the accompanying supplement to this Prospectus (the "Prospectus Supplement"). The Guaranteed Securities when issued will rank on a parity with all other unsecured and unsubordinated indebtedness of Services and will be entitled to the Guarantee of ARAMARK, which Guarantee will rank on a parity with all unsecured and unsubordinated indebtedness of ARAMARK. The Subordinated Securities are unsecured and subordinated to all present and future Senior Indebtedness of ARAMARK and will rank on a parity with ARAMARK's outstanding subordinated indebtedness. See "Description of Securities and Guarantee." ARAMARK or Services may sell the Securities to or through underwriters, and also may sell the Securities directly to other purchasers or through agents. The accompanying Prospectus Supplement sets forth the names of any underwriters or agents involved in the sale of the Securities in respect of which this Prospectus is being delivered, the principal amounts, if any, to be purchased by underwriters and the compensation, if any, of such underwriters or agents. _______________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. _______________ GOLDMAN, SACHS & CO. J.P. MORGAN SECURITIES INC. _______________ The date of this Prospectus is April 25, 1995. AVAILABLE INFORMATION ARAMARK is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information concerning ARAMARK can be inspected and copied at the Commission's office at 450 Fifth Street, N.W., Washington, D.C., and the Commission's Regional Offices in New York (7 World Trade Center, New York, New York) and Chicago (Northwest Atrium Center, 500 W. Madison, Suite 1400, Chicago, Illinois), and copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, reports and other information concerning ARAMARK may be inspected at the offices of the Philadelphia Stock Exchange, 1900 Market Street, Philadelphia, Pennsylvania. This Prospectus does not contain all of the information set forth in the Registration Statement which ARAMARK and Services have filed with the Commission under the Securities Act of 1933 and to which reference is hereby made. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ARAMARK and Services hereby incorporate by reference in this Prospectus the following documents: (a) ARAMARK's Annual Report on Form 10-K for the year ended September 30, 1994, filed pursuant to Section 13 of the Exchange Act; and (b) ARAMARK's Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 1994, filed pursuant to Section 13 of the Exchange Act. All documents filed by ARAMARK or Services subsequent to the date of this Prospectus and prior to the termination of the offering of the Securities pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein or in the accompanying Prospectus Supplement modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Any person receiving a copy of this Prospectus may obtain without charge, upon request, a copy of any of the documents incorporated by reference herein, except for the exhibits to such documents. Written or telephone requests should be directed to Donald S. Morton, ARAMARK, 1101 Market Street, Philadelphia, Pennsylvania 19107 or (215) 238-3240 or to ARAMARK c/o Registration Department, Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Donald T. Hansen. 2 ARAMARK CORPORATION ARAMARK, through Services and its other subsidiaries, is engaged in providing or managing services, including food, leisure and support services, uniform services, health and education services and distributive services. ARAMARK provides most of its services in the United States. ARAMARK also conducts operations, primarily management of food services, in Belgium, Canada, the Czech Republic, Germany, Hungary, Japan, Korea, Mexico, Spain and the United Kingdom. See "Business." Services provides the majority of the food services provided by ARAMARK's operations to businesses, government, educational and health care institutions. Through subsidiaries, Services also conducts the majority of ARAMARK's operations outside the United States. ARAMARKs management shareholders (approximately 1,000 individuals) and their permitted transferees own approximately 55% of the outstanding common stock on a common stock equivalent basis (representing approximately 92.4% of the voting power) and ARAMARKs employee benefit plans own an additional approximately 21% of the outstanding common stock on a common stock equivalent basis. ARAMARK and Services, each a Delaware corporation, have their principal executive offices at ARAMARK Tower, 1101 Market Street, Philadelphia, Pennsylvania 19107, and their telephone number is (215) 238-3000. Unless the context otherwise requires, references to ARAMARK include ARAMARK and its subsidiaries and references to Services include Services and its subsidiaries. USE OF PROCEEDS Unless otherwise indicated in the applicable Prospectus Supplement, the proceeds of the offering of Securities will be used by ARAMARK or Services to repay borrowings under the Credit Agreement. See "The Credit Agreement." THE CREDIT AGREEMENT ARAMARK, through its wholly-owned subsidiary Services, has a $1.0 billion revolving credit facility with a group of banks (the "Credit Agreement"). Interest under the Credit Agreement is based on the Prime Rate plus a spread of 0% to 5/8% (as of April 1, 1995 - 0%), London Inter-Bank Offered Rate (LIBOR) plus a spread of 1/8% to 1-1/8% (as of April 1, 1995 - 1/2%) or the Certificate of Deposit Rate plus a spread of 1/4% to 1-1/4% (as of April 1, 1995 - 5/8%), at the option of Services. The spread is based on certain financial ratios and borrowing levels as defined. Services also pays a fee of 1/4 of 1% on the entire credit facility. Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan Securities Inc., is a co-agent under the Credit Agreement. Commitment Reductions. The Outstanding commitments of $1.0 billion under the Credit Agreement are subject to quarterly reductions of $15.6 million starting in December 1995 which increase annually thereafter. The final maturity for the Credit Agreement is October 2001. In addition, certain asset sales and other transactions would result in commitment reductions. Covenants; Events of Default. The Credit Agreement contains restrictive covenants which provide, among other things, limitations on (i) the incurrence of debt, (ii) the creation of mortgages or security interests, (iii) dispositions of material assets, (iv) the payment of dividends on, or redemption of, certain classes of capital stock of ARAMARK and Services, and (v) certain significant changes of control of ARAMARK. Under the Credit Agreement, ARAMARK is required to maintain certain specified minimum ratios of cash flow to fixed charges and to total borrowings and certain minimum levels of net worth. The Credit Agreement contains various event of default provisions, including default in payment of principal or interest, material misrepresentations in the Credit Agreement, default in compliance with the other terms of the Credit Agreement or the related Guarantees, bankruptcy, default on other indebtedness, failure to satisfy or stay certain judgments or orders entered against ARAMARK or any of its subsidiaries, failure to pay when due certain amounts with respect to certain employee benefit plans, and other events with respect to such plans. 3 Guarantees. Borrowings under the Credit Agreement are Guaranteed by all of ARAMARK's and Services' wholly-owned domestic subsidiaries and by ARAMARK. DESCRIPTION OF SECURITIES AND GUARANTEE Subordinated Securities may be issued from time to time in one or more series under an Indenture (the "Subordinated Indenture") between ARAMARK and The Bank of New York, as Trustee (the "Subordinated Trustee"). The Guaranteed Securities may be issued from time to time in one or more series under an Indenture (the "Guaranteed Indenture") among ARAMARK, Services and The Bank of New York, as Trustee (the "Guaranteed Trustee"). The Subordinated Indenture and the Guaranteed Indenture are sometimes referred to collectively as the "lndentures," and the Subordinated Trustee and the Guaranteed Trustee are sometimes referred to collectively as the "Trustee." The statements under this caption are brief summaries of certain provisions contained in the lndentures, do not purport to be complete and are qualified in their entirety by reference to the lndentures, including the definitions therein of certain terms, copies of which are filed as exhibits to the Registration Statement of which this Prospectus is a part. GENERAL Each Indenture provides for the issuance of debt securities in one or more series, and does not limit the principal amount of debt securities which may be issued thereunder. Reference is made to the Prospectus Supplement for the following terms of the Securities being offered hereby: (1) the title of the Securities; (2) whether the Securities are Subordinated Securities or Guaranteed Securities; (3) the aggregate principal amount of the Securities; (4) the date on which the principal of the Securities is payable; (5) the rate or rates or the method for determining such rate or rates, if any, at which the Securities will bear interest; (6) the times at which any such interest will be payable; (7) any provisions relating to optional or mandatory redemption of the Securities; (8) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which the Securities are authorized to be issued; (9) the place or places at which ARAMARK or Services will make payments of principal (and premium, if any) and interest, if any; (10) the person to whom any Security of such series will be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; (11) any additional covenants (or modifications to covenants set forth herein); (12) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity; (13) the Offer to Purchase Price, the Applicable Average Life, the Applicable Stated Maturity and the Acquisition Average Life applicable to the Securities of any series; and (14) any other specific terms of the Securities, which terms shall not be inconsistent with such Indentures. One or more series of the Securities may be issued as Original Issue Discount Securities. An "Original Issue Discount Security" is a Security, including any zero-coupon Security, which is issued at a price lower than the amount payable at the Stated Maturity thereof or which provides that upon redemption or acceleration of the Maturity thereof an amount less than the amount payable upon the Stated Maturity thereof and determined in accordance with the terms thereof shall become due and payable. FORM, EXCHANGE, REGISTRATION AND TRANSFER Securities may be presented for registration of transfer (with the form of transfer endorsed thereon duly executed), at the office of the Security Registrar or at the office of any transfer agent designated by ARAMARK or Services, as the case may be, for such purpose with respect to any series of Securities and referred to in an applicable Prospectus Supplement, without service charge and upon payment of any taxes and other governmental charges as described in the relevant Indenture. Such transfer or exchange will be effected upon the Security Registrar or such transfer agent, as the case may be, being satisfied with the documents of title and identity of the person making the request. ARAMARK and Services have appointed the Trustee as Security Registrar with respect to the Securities. 4 In the event of any redemption in part, ARAMARK or Services, as the case may be, shall not be required to (i) issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Securities of like tenor and of the series of which such Security is a part, and ending at the close of business on the date of such mailing and (ii) register the transfer of or exchange any Security so selected for redemption, in whole or in part, except the unredeemed portion of any Security being redeemed in part. PAYMENT AND PAYING AGENT Unless otherwise indicated in an applicable Prospectus Supplement, payment of principal of and premium (if any) on any Security will be made only against surrender to the Paying Agent of such Security. Unless otherwise indicated in an applicable Prospectus Supplement, principal of and any premium, if any, and interest on Securities will be payable, subject to any applicable laws and regulations, at the office of such Paying Agent or Paying Agents as ARAMARK or Services, as the case may be, may designate from time to time, except that at the option of ARAMARK or Services, as the case may be, payment of any interest may be made by check mailed to the address of the person entitled thereto as such address shall appear in the Security Register with respect to such Securities. Unless otherwise indicated in an applicable Prospectus Supplement, payment of interest on a Security on any Interest Payment Date will be made to the person in whose name such Security (or a Predecessor Security) is registered at the close of business on the Regular Record Date for such interest. Unless otherwise indicated in an applicable Prospectus Supplement, the corporate trust office of The Bank of New York in The City of New York will be designated ARAMARK's and Services' sole Paying Agent for payments with respect to Securities of each series. All moneys paid by ARAMARK or Services to a Paying Agent for the payment of the principal of and premium, if any, or interest on any Security of any series which remain unclaimed at the end of two years after such principal, premium, if any, or interest shall have become due and payable will be repaid to ARAMARK and Services, as the case may be, and the holder of such Security will thereafter look only to ARAMARK or Services, as the case may be, for payment thereof. CERTAIN COVENANTS APPLICABLE TO SUBORDINATED SECURITIES AND GUARANTEED SECURITIES Unless otherwise indicated in the applicable Prospectus Supplement, the following covenants are applicable to Subordinated Securities and Guaranteed Securities. Mergers, Consolidations and Certain Sales and Purchases of Assets. ARAMARK (i) shall not consolidate with or merge with or into any Person who is not a Subsidiary or permit any Person who is not a Subsidiary to consolidate with or merge with or into ARAMARK or any Subsidiary; (ii) shall not directly or indirectly transfer, convey, sell, lease or otherwise dispose of all or substantially all of its assets as an entirety; and (iii) shall not, and shall not permit any Subsidiary to, acquire Capital Stock of any other Person who is not a Subsidiary such that such Person becomes a Subsidiary or directly or indirectly purchase, lease or otherwise acquire all or substantially all of the assets of any Person as an entirety or any existing business (whether existing as a separate entity, subsidiary, division, unit or otherwise) of any Person, unless (with respect to this clause (iii)) either (X) the amount of consideration (including any Indebtedness assumed by or which becomes an obligation of ARAMARK or such Subsidiary in connection therewith and the fair market value of property other than cash, as determined in good faith by the Board of Directors) paid for such Capital Stock or assets of any Person is less than or equal to 1% of Consolidated Tangible Assets as of the most recently available quarterly or annual consolidated balance sheet of ARAMARK or (Y) the amount of consideration (including any Indebtedness assumed by or which becomes an obligation of ARAMARK or such Subsidiary in connection therewith and the fair market value of property other than cash, as determined in good faith by the Board of Directors) paid for such Capital Stock or assets plus the aggregate amount of consideration (including any Indebtedness assumed by or which becomes an obligation of ARAMARK or such Subsidiary in connection therewith and the fair market value of property other than cash, as determined in good faith by the Board of Directors) paid by ARAMARK or its Subsidiaries for other such acquisitions (excluding acquisitions referred to in clause (X) and excluding acquisitions permitted below and excluding any acquisitions in respect of which ARAMARK makes an Offer to Purchase in accordance with the provisions of the following paragraph) consummated during the prior 12 months does not exceed 10% of the Consolidated Tangible Assets of ARAMARK as of the most recently available quarterly or annual consolidated balance sheet of ARAMARK. Notwithstanding the above, any such transaction described above may occur if: (1) in the case ARAMARK or Services shall consolidate with or merge with or into 5 another Person or shall directly or indirectly transfer, convey, sell, lease or otherwise dispose of all or substantially all of its assets as an entirety, the successor company shall be a domestic corporation, partnership, or trust and shall expressly assume the obligations of ARAMARK or Services, as the case may be, under the Indenture; (2) immediately before and after giving effect to such transaction and treating any Indebtedness which becomes an obligation of ARAMARK or a Subsidiary as a result of such transaction as having been incurred by ARAMARK or such Subsidiary at the time of the transaction, no default shall have happened and be continuing; and (3) immediately after giving effect to such transaction or, if applicable, the portion of such transaction that exceeds the amount of consideration otherwise permitted under clause (iii) above, the Consolidated Cash Flow Ratio of ARAMARK or, if applicable, a successor company for the immediately preceding four full fiscal quarters, for which quarterly or annual consolidated financial statements of ARAMARK are available on a pro forma basis, as if such transaction had taken place at the beginning of such four full fiscal quarters, is equal to or greater than 2.0 to 1 or such other ratios specified in the applicable Prospectus Supplement. No default in the performance, or breach, of the Mergers, Consolidations and Certain Sales and Purchases of Assets covenant shall be deemed to have occurred so as to result in an Event of Default with respect to the Securities of any series by reason of any merger, consolidation, divestiture, sale, disposition or acquisition described above, unless and until ARAMARK fails to make an Offer to Purchase within five Business Days of any such merger, consolidation, divestiture, sale, disposition or acquisition at a price equal to the Offer to Purchase Price. (Section 801 of the Subordinated Indenture and Section 801 of the Guaranteed Indenture) Provision of Financial Statements. For so long as ARAMARK is subject to the Exchange Act, ARAMARK shall file with the Commission the annual reports, quarterly reports and other documents (the "Documents") on or prior to the respective dates (the "Required Filing Dates") such Documents are required to be so filed under the Exchange Act. If ARAMARK is not required to file Documents under the Exchange Act, ARAMARK shall prepare quarterly and annual financial statements including any notes thereto in accordance with generally accepted accounting principles (and with respect to any annual financial statement, obtain an auditors' report by a firm of established national reputation), and a quarterly and annual "Management's Discussion and Analysis of Financial Condition and Results of Operations," prepared substantially in accordance with the requirements of the Exchange Act or any successor provision thereto (collectively with the quarterly and annual financial statements, the "Alternative Documents"). ARAMARK shall (X) within 30 days of each Required Filing Date (i) transmit by mail to all Holders, as their names and addresses appear in the Security Register, without cost to such Holders, and (ii) file with the Trustee copies of the Documents or the Alternative Documents and (Y) if filing such Documents by ARAMARK with the Commission is not required under the Exchange Act, promptly upon written request supply copies of Alternative Documents to any legitimate prospective Holder. (Section 1008 of the Subordinated Indenture and Section 1009 of the Guaranteed Indenture) Limitation on Restricted Payments. As long as the Securities of any series are outstanding ARAMARK (i) shall not, directly or indirectly, declare or pay any dividend or make any distribution in cash or property, in respect of any class of its Capital Stock, or to the holders of any class of its Capital Stock (including pursuant to a merger or consolidation of ARAMARK, but excluding any dividends or distributions payable solely in shares of its Capital Stock or in options, warrants or other rights to acquire its Capital Stock), (ii) shall not, and shall not permit any Subsidiary to, directly or indirectly, purchase, redeem or otherwise acquire or retire for value (a) any Capital Stock of ARAMARK or (b) any options, warrants or right to purchase or acquire shares of Capital Stock of ARAMARK, (iii) shall not after the date of the Indentures make, or permit any Subsidiary to make, any loan, advance, capital contribution to or investment in, or payment on a Guarantee of any obligation of, any Affiliate, other than ARAMARK, a Subsidiary or an Affiliate that becomes a Subsidiary by reason of any such payment and (iv) shall not, and shall not permit any Subsidiary to, directly or indirectly, declare or pay any dividend or make any distribution in cash or property, in respect of any Minority Interest hereinafter created (excluding any dividends or distributions payable solely in shares of Capital Stock of such Subsidiary or in options, warrants or other right to acquire such Capital Stock) (except as further excluded below, the transactions described in clauses (i) through (iv), only to the extent they exceed in the aggregate in any fiscal year 3% of Consolidated Tangible Assets as of the most recently available annual consolidated balance sheet of ARAMARK, are referred to herein as "Restricted Payments"), if at the time thereof: (1) a default, or an event that with the lapse of time or the giving of notice, or both, would constitute a default, shall have occurred and is continuing, or (2) such transaction constitutes a Restricted Payment and upon giving effect to such Restricted Payment, the aggregate of all Restricted Payments from May 15, 1989 exceeds the sum of: (a) 50% of cumulative Consolidated Net Income (or, in the case cumulative Consolidated Net Income shall be negative, minus 100% of such deficit) for the period from September 30, 1988 to the end of the most recently available quarterly or annual consolidated 6 income statements of ARAMARK; provided, however, that the net income (loss) of any Person acquired by ARAMARK in a pooling-of-interests transaction for any period prior to the date of such transaction shall not be included in the calculation of cumulative Consolidated Net Income; and (b) 100% of the aggregate net proceeds, including the fair value of property other than cash, from the issuance of Capital Stock of ARAMARK (and, in the event ARAMARK merges or consolidates with another Person in a transaction in which the outstanding common stock of ARAMARK prior to the transaction is canceled, the Consolidated Net Worth of such other Person but not less than zero) and warrants, rights or options on Capital Stock and the principal amount of Indebtedness of ARAMARK that has been converted into Capital Stock of ARAMARK after the date of the original issuance of securities of such series. Restricted Payments shall not include the following: (i) the payment of any dividend within 60 days after declaration thereof if at the declaration date such payment would have complied with the foregoing provisions; (ii) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of ARAMARK's Series Preferred Stock and dividends paid in respect thereof; or (iii) payments in redemption of Capital Stock or options to purchase Capital Stock but only to the extent that the cash payments (for either direct cash payments or for cash principal payments on notes issued in connection with any such redemption of Capital Stock or options), in respect of such Capital Stock shall not exceed in any fiscal year 1% of Consolidated Tangible Assets as of the most recently available quarterly or annual consolidated balance sheet of ARAMARK. No default in the performance, or breach, of this covenant shall be deemed to have occurred so as to result in an Event of Default with respect to the Securities of such series by reason of any Restricted Payment, (A) if the Consolidated Cash Flow Ratio for the immediately preceding four full fiscal quarters for which quarterly or annual consolidated financial statements of ARAMARK are available, on a pro forma basis, as if such Restricted Payment (or portion thereof) made after the end of such four full fiscal quarters had been made at the beginning of such four full fiscal quarters is equal to or greater than 2.0 to 1 or such other ratios specified in the applicable Prospectus Supplement; or (B) unless and until ARAMARK fails to make an Offer to Purchase the Securities within five Business Days of such Restricted Payment at a price equal to the Offer to Purchase Price. (Section 1009 of the Subordinated Indenture and Section 1010 of the Guaranteed Indenture) Limitation on Certain Security Interests. The Indentures provide that ARAMARK may not create, incur or permit to exist any security interest in shares of Capital Stock of Services (except those security interests arising with respect to Indebtedness of Services), without making effective provision whereby the Securities will be secured equally and ratably with (or prior to) such security interest; provided, however, that the foregoing shall not apply with respect to a security interest arising with respect to indebtedness of any Subsidiary. Compliance by ARAMARK with the foregoing may be waived by the holders of not less than a majority of the principal amount of Securities of each series at the time outstanding. The limitation on certain security interests would automatically terminate in the event of a merger or consolidation of ARAMARK and Services or the sale of substantially all of the assets of Services or ARAMARK to the other. (Section 1006 of the Subordinated Indenture and Section 1007 of the Guaranteed Indenture) See "The Credit Agreement." REDEMPTION If the Securities of a series provide for mandatory redemption by ARAMARK or Services, as the case may be, or redemption at the election of ARAMARK or Services, as the case may be, unless otherwise provided in the applicable Prospectus Supplement, such redemption shall be on not less than 30 nor more than 60 days' notice and, in the event of redemption in part, the Securities to be redeemed will be selected by the Trustee in such usual manner as it shall deem fair and appropriate. Notice of such redemption will be mailed to holders of Securities of such series to their last addresses as they appear on the register of the Securities of such series. DEFEASANCE The Prospectus Supplement will state if any defeasance provision will apply to the Securities of the Series offered thereby. The Indentures provide, if such provision is made applicable to the Securities of any series pursuant to Section 301 of the Indentures, that ARAMARK or Services, as the case may be, may elect either (A) to defease and be discharged from any and all obligations with respect to such Securities (except for the obligations to register the transfer or exchange of such Securities, to replace temporary or mutilated, destroyed, lost or stolen 7 Securities, to maintain an office or agency in respect of the Securities and to hold moneys for payment in trust) ("defeasance") or (B) to be released from its obligations with respect to such Securities under Section 501(6) and 1007 through 1010 of the Guaranteed Indenture or Sections 1006 through 1010 of the Subordinated Indenture (being the cross-default provision described in clause (vi) under "Events of Default" and the restrictions described under "Certain Covenants Applicable to Subordinated Securities and Guaranteed Securities" and, in the case of Subordinated Securities, "Terms Applicable to the Subordinated Securities --Certain Additional Covenants Applicable to Subordinated Securities" (covenant defeasance")), upon the deposit with the Trustee (or other qualifying trustee), in trust for such purpose, of money and/or U.S. Government Obligations which through the payment of principal and interest in accordance with their terms will provide money in an amount sufficient to pay the principal of (and premium, if any) and interest on such Securities, and any mandatory sinking fund or analogous payments thereon, on the scheduled due dates therefor. Such a trust may be established only if, among other things, ARAMARK or Services, as the case may be, has delivered to the Trustee an opinion of counsel (as specified in the Indentures) to the effect that the Holders of such Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred. Such opinion, in the case of defeasance under clause (A) above, must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable Federal income tax law occurring after the date of the Indentures. The Prospectus Supplement may further describe the provisions, if any, permitting such defeasance or covenant defeasance with respect to the Securities of a particular series. (Article Thirteen of the Guaranteed Indenture and Article Fourteen of the Subordinated Indenture) SOLELY CORPORATE OBLIGATIONS No recourse for payment of principal of or interest on any Security or for any claim based on any Security or the lndentures shall be had against the Trustee, the Paying Agent, the Security Registrar or any director, officer or stockholder of ARAMARK or Services. GOVERNING LAW The Indentures and the Securities will be governed by, and construed in accordance with, the laws of the State of New York. TERMS APPLICABLE TO THE SUBORDINATED SECURITIES MODIFICATION OF THE SUBORDINATED INDENTURE The Subordinated Indenture contains provisions permitting ARAMARK and the Trustee, with the consent of holders of not less than 66 2/3% in principal amount of the debt securities which are affected by the modification, to modify the Subordinated Indenture or any supplemental indenture or the rights of the holders of the debt securities issued under such Indenture; provided that no such modification may, without the consent of the holder of each outstanding debt security affected thereby, (a) change the Stated Maturity of the principal of, or any installment of principal of or interest, if any, on, any Security, (b) reduce the principal amount of, or premium or rate of interest, if any, on, any Security, (c) reduce the amount of principal of an Original Issue Discount Security payable upon acceleration of the maturity thereof, (d) change the place or currency of payment of principal of, or premium or interest, if any, on, any Security, (e) impair the right to institute suit for the enforcement of any payment on or with respect to any Security, (f) reduce the percentage in principal amount of Outstanding Securities of any series, the consent of whose holders is required for modification or amendment of the Subordinated Indenture or for waiver of compliance with certain provisions of the Subordinated Indenture or for waiver of certain defaults, or (g) modify any of the provisions enumerated under "Terms Applicable to the Subordinated Securities Modification of the Subordinated Indenture," except to increase any such percentage or to provide that certain other provisions of the Subordinated Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby. (Section 902 of the Subordinated Indenture) 8 SUBORDINATION The indebtedness evidenced by the Subordinated Securities (including principal and interest) will be subordinated in right of payment to all present and future Senior Indebtedness. (Section 1301 of the Subordinated Indenture) "Senior Indebtedness" is defined in the Subordinated Indenture to mean "principal of, premium, if any, and interest on: (1) all indebtedness incurred or Guaranteed by ARAMARK, either before or after the date hereof, which is evidenced by an instrument of indebtedness or reflected on the accounting records of ARAMARK as a payable (excluding ARAMARK's 8 1/2% Subordinated Notes Due 2003, 10% Subordinated Notes Due 2000, 10% Subordinated Debentures Due 2000, 13% Subordinated Debentures Due 1997 and 12 1/2% Subordinated Convertible Installment Notes due 2000, all of which shall rank pari passu with the Subordinated Securities, and any other debt which by the terms of the instrument creating or evidencing the same is not superior in right of payment to the Subordinated Securities) including, without limitation, as Senior Indebtedness (a) any amount payable with respect to any lease, conditional sale or installment sale agreement or other financing instrument or agreement which in accordance with generally accepted accounting principles is, at the date hereof or at the time the lease, conditional sale or installment sale agreement or other financing instrument or agreement is entered into, or assumed or Guaranteed by, directly or indirectly, ARAMARK, required to be reflected as a liability on the face of the balance sheet of ARAMARK and (b) any amounts payable in respect to any interest rate exchange agreement, currency exchange agreement or similar agreement and (c) any subordinated indebtedness of a corporation merged with or into or acquired by ARAMARK and (2) any renewals or extensions or refunding of any such Senior Indebtedness or evidences of indebtedness issued in exchange for such Senior Indebtedness." (Section 101 of the Subordinated Indenture) The Subordinated Indenture provides that, in the event of dissolution, winding up, liquidation or reorganization of ARAMARK, all Senior Indebtedness must be paid in full, or provision made for such payment, before any payment or distribution is made upon principal of or interest on Subordinated Securities. (Section 1302 of the Subordinated Indenture) By reason of such subordination, in the event of liquidation or insolvency, creditors of ARAMARK who are holders of Senior Indebtedness, which, as indicated above, would include trade creditors and other general creditors of ARAMARK, may recover more, ratably, than the holders of the Subordinated Securities. In addition, such subordination will prevent ARAMARK from making any payment with respect to the Subordinated Securities in the event and during the continuation of any default with respect to Senior Indebtedness that would permit or automatically effect acceleration of the maturity thereof, or if a payment with respect to the Subordinated Securities would result in any such event of default with respect to Senior Indebtedness, or if any payment with respect to Senior Indebtedness is then due and payable. (Section 1305 of the Subordinated Indenture) The Subordinated Indenture does not limit the aggregate amount of Senior Indebtedness which may be issued. See "Certain Additional Covenants Applicable to Subordinated Securities" for certain other restrictions. EVENTS OF DEFAULT An "Event of Default" with respect to Subordinated Securities of any series is defined in the Subordinated Indenture to mean, among other things: (i) failure to pay principal of (and premium, if any, on) any Subordinated Security of such series when due, including by reason of an Offer to Purchase that has been mailed; (ii) failure to pay interest on any Subordinated Security of such series when due and continuance of such failure for 30 days; (iii) failure by ARAMARK to comply with the provisions described under "Certain Covenants Applicable to Subordinated Securities and Guaranteed Securities -- Mergers, Consolidations and Certain Sales and Purchases of Assets" and "-- Limitation on Restricted Payments;" (iv) failure to make any sinking fund payment, if any, applicable to the Securities of such series; (v) failure by ARAMARK to perform any other covenant in the Subordinated Indenture and continuance of such failure for 60 days after notice given to ARAMARK by the Trustee or to ARAMARK and the Trustee by the Holders of at least 25% in principal amount of the Subordinated Securities of such series at the time outstanding; (vi) a default under any indebtedness for money borrowed by ARAMARK or any Subsidiary in excess of $10,000,000, if such indebtedness is not discharged, or such acceleration is not annulled, within 10 days after notice given to ARAMARK by the Trustee or to ARAMARK and the Trustee by the Holders of at least 25% in principal amount of the Subordinated Securities of such series; and (vii) certain events of bankruptcy, insolvency or reorganization of ARAMARK or any Significant Subsidiary. (Section 501 of the Subordinated Indenture) 9 ARAMARK is required to furnish to the Trustee within 120 days after the end of each fiscal year a statement of certain officers of ARAMARK as to whether such officers have obtained knowledge of any default under the Subordinated Indenture during such fiscal year. (Section 1004 of the Subordinated Indenture) The Trustee or the Holders of 25% in principal amount of the outstanding Subordinated Securities of any series may declare to be due and payable immediately, by a notice in writing to ARAMARK (and to the Trustee if given by Holders of Subordinated Securities), upon the happening of any Event of Default with respect to the Subordinated Securities of such series, all unpaid principal on the Subordinated Securities of such series outstanding at that time. (Section 502 of the Subordinated Indenture) Upon any such declaration, all such unpaid principal will become immediately due and payable on all outstanding Subordinated Securities of any series. (Section 502 of the Subordinated Indenture) The Holders of not less than a majority in principal amount of the outstanding Subordinated Securities of any series are authorized to waive any past default and its consequences, except a default in the payment of principal of (and premium, if any, on) or interest on any Subordinated Security, or a default with respect to a covenant or provision which cannot be modified or amended without the consent of the Holder of each outstanding Subordinated Security of any series affected. (Section 513 of the Subordinated Indenture) Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Subordinated Indenture at the request or direction of any of the Holders of Subordinated Securities of any series unless such Holders have offered to the Trustee reasonable indemnity. (Section 603(e) of the Subordinated Indenture) Subject to all provisions of the Subordinated Indenture and applicable law, the Holders of a majority in principal amount of the Subordinated Securities of any series outstanding at that time have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. (Section 512 of the Subordinated Indenture) CERTAIN ADDITIONAL COVENANTS APPLICABLE TO SUBORDINATED SECURITIES Unless otherwise indicated in the applicable Prospectus Supplement, the following covenant, in addition to the covenants set forth under "Certain Covenants Applicable to Subordinated Securities and Guaranteed Securities, " shall be applicable to the Subordinated Securities of any series. Limitation on Layered Indebtedness and Subsidiary Preferred Stock. ARAMARK shall not (i) permit any Restricted Subsidiary to incur any Indebtedness that would rank subordinate in right of payment to any other Indebtedness of such Restricted Subsidiary or to issue any Preferred Stock or (ii) incur any Indebtedness or, if ARAMARK and Services merge with or consolidate into each other and such Successor Company becomes the primary obligor with respect to any significant portion of the then existing consolidated indebtedness owing to a bank or syndicate of banks, Incur any indebtedness which is subordinate in right of payment to any other indebtedness for borrowed money of such Successor Company, unless, in either case, such indebtedness is Pari Passu Debt or is subordinate in right of payment to the Subordinated Securities of any series. The foregoing limitation shall not apply to (A) distinctions between categories of Indebtedness which exist by reason of any liens arising or created in respect of some but not all Indebtedness or (B) any intercreditor agreements (to which ARAMARK is not a party) among different classes of creditors of ARAMARK. Notwithstanding the foregoing, ARAMARK (i) may Incur any subordinated Indebtedness in connection with the funding of a payment in redemption of Capital Stock as is permitted under the provisions described under "Certain Covenants Applicable to Subordinated Securities and Guaranteed Securities -- Limitation on Restricted Payments" above; (ii) may Guarantee any Indebtedness of any Subsidiary; (iii) may Incur any Indebtedness owed by ARAMARK to any Subsidiary (provided that such Indebtedness is at all times held by the Subsidiary of ARAMARK); provided, however, that for purposes of this covenant, upon either (x) the transfer or other disposition by such Subsidiary of any Indebtedness so permitted to a Person other than ARAMARK or another Subsidiary of ARAMARK or (y) the issuance (other than directors' qualifying shares), sale, lease, transfer or other disposition of shares of Capital Stock (including by consolidation or merger) of such Subsidiary to a Person other than ARAMARK or another such wholly-owned Subsidiary such that the Subsidiary is no longer a Subsidiary, the provisions of the clause (iii) shall no longer be applicable to such indebtedness and such indebtedness shall be deemed to have been Incurred at the time of such transfer or other disposition; (iv) may, and may permit any Restricted Subsidiary to, Incur any Indebtedness of a Person through the acquisition of such Person, subject to the Mergers, Consolidations and Certain Sales and Purchases of Assets covenant, so long as such Indebtedness was incurred by such Person prior to the time (A) such Person became a Subsidiary, (B) such Person merges with or consolidates with or into a Subsidiary or (C) another Subsidiary merges with or into such Person (in a 10 transaction in which such Person becomes a Subsidiary), and such Indebtedness was not Incurred in anticipation of such acquisition and was outstanding prior to such acquisition; (v) may, and may permit any Restricted Subsidiary to, Incur subordinated Indebtedness in principal amount and issue Preferred Stock having a liquidation value which in aggregate does not exceed 2% of Consolidated Tangible Assets as of the most recently available quarterly or annual consolidated balance sheet outstanding; and (vi) may Incur any Indebtedness in contemplation of a refunding or refinancing of any existing Pari Passu Debt; provided, however, that such new Indebtedness (A) is Pari Passu Debt or is subordinate in right of payment to the Subordinated Securities, and (B) does not exceed the principal amount of Indebtedness so refunded or refinanced. (Section 1010 of the Subordinated Indenture) TERMS APPLICABLE TO THE GUARANTEED SECURITIES MODIFICATION OF THE GUARANTEED INDENTURE The Guaranteed Indenture contains provisions permitting Services, ARAMARK and the Guaranteed Trustee, with the consent of Holders of not less than 66 2/3% in principal amount of the Guaranteed Securities which are affected by the modification, to modify the Guaranteed Indenture or any supplemental indenture or the rights of the holders of the debt securities issued under such Indenture; provided that no such modification may, without the consent of the holder of each outstanding debt security affected thereby, (a) change the stated maturity date of the principal of, or any installment of principal of or interest, if any, on, any Guaranteed Security, (b) reduce the principal amount of, or premium or rate of interest, if any, on, any Security, (c) reduce the amount of principal of an original issue discount Guaranteed Security payable upon acceleration of the maturity thereof, (d) change the place or currency of payment of principal of, or premium or interest, if any, on, any Guaranteed Security, (e) impair the right to institute suit for the enforcement of any payment on or with respect to any Guaranteed Security, (f) reduce the percentage in principal amount of Outstanding Guaranteed Securities of any series the consent of whose holders is required for modification or amendment of the Guaranteed Indenture or for waiver of compliance with certain provisions of the Guaranteed Indenture or for waiver of certain defaults, or (g) modify any of the provisions enumerated under "Terms Applicable to the Guaranteed Securities -- Modification of the Guaranteed Indenture" except to increase any such percentage or to provide that certain other provisions of the Guaranteed Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby. (Section 902 of the Guaranteed Indenture) EVENTS OF DEFAULT An "Event of Default" with respect to any series of Guaranteed Securities is defined in the Guaranteed Indenture to mean, among other things: (i) failure to pay principal of (and premium, if any, on) any Guaranteed Security of such series when due, including by reason of the Offer to Purchase that has been mailed; (ii) failure to pay interest on any Guaranteed Security of such series when due and continuance of such failure for 30 days; (iii) failure by ARAMARK or Services to comply with the provisions described under "Certain Covenants Applicable to Subordinated Securities and Guaranteed Securities -- Mergers, Consolidations and Certain Sales and Purchases of Assets" and "Certain Covenants Applicable to Subordinated Securities and Guaranteed Securities -- Limitation on Restricted Payments;" (iv) failure to make any sinking fund payment applicable to the Guaranteed Securities of such series; (v) failure by ARAMARK or Services to perform any other covenant in the Guaranteed Indenture and continuance of such failure for 60 days after notice given to ARAMARK and Services by the Trustee or to Services and the Trustee by the Holders of at least 25% in principal amount of the Guaranteed Securities of such series at the time outstanding; (vi) a default under any indebtedness for money borrowed by Services, ARAMARK or any Subsidiary of ARAMARK in excess of $10,000,000, if such indebtedness is not discharged, or such acceleration is not annulled, within 10 days after notice given to Services by the Trustee or to Services and the Trustee by the Holders of at least 25% in principal amount of the Guaranteed Security of such series; and (vii) certain events of bankruptcy, insolvency or reorganization of ARAMARK, Services or any Significant Subsidiary. (Section 501 of the Guaranteed Indenture) ARAMARK and Services are required to furnish to the Trustee within 120 days after the end of each fiscal year a statement of certain officers of ARAMARK and Services as to whether such officers have obtained knowledge of any default under the Indenture during such fiscal year. (Section 1004 and Section 1005 of the Guaranteed Indenture) 11 The Trustee or the Holders of 25% in principal amount of the outstanding Guaranteed Securities of each series may declare to be due and payable immediately, by a notice in writing to Services (and to the Guaranteed Trustee if given by Holders), upon the happening of any Event of Default with respect to the Guaranteed Securities of such series, all unpaid principal on the Guaranteed Securities of such series outstanding at that time. (Section 50 2 of the Guaranteed Indenture) Upon any such declaration, all such unpaid principal will become immediately due and payable on all outstanding Guaranteed Securities of such series. (Section 502 of the Guaranteed Indenture) The Holders of not less than a majority in principal amount of the outstanding Guaranteed Securities of such series are authorized to waive any past default and its consequences, except a default in the payment of principal of (and premium, if any, on) or interest on any Guaranteed Security, or a default with respect to a covenant or provision which cannot be modified or amended without the consent of the Holder of each outstanding Guaranteed Security affected. (Section 513 of the Guaranteed Indenture) Subject to the provisions of the Guaranteed Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Guaranteed Indenture at the request or direction of any of the Holders of the Guaranteed Securities of such series unless such Holders have offered to the Trustee reasonable indemnity. (Section 603 of the Guaranteed Indenture) Subject to all provisions of the Guaranteed Indenture and applicable law, the Holders of a majority in principal amount of the Guaranteed Securities of such series outstanding at that time have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. (Section 512 of the Guaranteed Indenture) GUARANTEE ARAMARK will Guarantee the punctual payment of the principal of, premium, if any, and interest on the Guaranteed Securities, when and as the same shall be due and payable. The Guarantee is absolute and unconditional, irrespective of any circumstance that might otherwise constitute a legal or equitable discharge of a surety or guarantor. To evidence the Guarantee, a Guarantee, executed by ARAMARK will be endorsed on each Guaranteed Security. CERTAIN DEFINITIONS "Affiliate" of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Affiliate shall include, for purposes of the provisions described under "Certain Covenants Applicable to Subordinated Securities and Guaranteed Securities -- Limitation on Restricted Payments," without limitation, any Person owning (a) 5% or more of ARAMARK's outstanding Common Stock, or (b) 5% or more of ARAMARK's Voting Stock. "Consolidated Cash Flow Available for Fixed Charges" means with respect to ARAMARK and its Subsidiaries for any period Consolidated Net Income for such period plus the aggregate amounts deducted in determining Consolidated Net Income for such period in respect of (i) income taxes, (ii) Consolidated Interest Expense, (iii) depreciation, amortization and other similar non-cash charges and (iv) minority interest as determined in accordance with generally accepted accounting principles. "Consolidated Cash Flow Ratio" means with respect to ARAMARK and its Subsidiaries for any period the ratio of (i) Consolidated Cash Flow Available for Fixed Charges for the period for which such calculation is made to (ii) Consolidated Interest Expense for such period; provided, that in making such computation, the Consolidated Interest Expense shall be reduced by the interest expense attributable to any Indebtedness not outstanding at the end of the period. "Consolidated Interest Expense" means for any period the aggregate interest expense (net of interest income) of ARAMARK and its Subsidiaries for such period including, without limitation (i) the portion of any obligation in respect of any Capital Lease Obligation allocable to interest expense in accordance with generally accepted accounting principles and (ii) the portion of any debt discount that shall be amortized in such period. 12 "Consolidated Net Income means for any period the consolidated net income (or loss) of ARAMARK and its Subsidiaries determined in accordance with generally accepted accounting principles, excluding any unusual items of gain or loss. "Consolidated Net Worth" of a Person other than ARAMARK means the consolidated shareholders' equity of such Person and its subsidiaries, as determined on a consolidated basis in accordance with generally accepted accounting principles. "Consolidated Tangible Assets" of ARAMARK and its Subsidiaries means total assets of ARAMARK and its Subsidiaries less goodwill, all determined in accordance with generally accepted accounting principles. "Incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, assume, Guarantee, incur or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to generally accepted accounting principles, of any such Indebtedness or other obligation on the consolidated balance sheet of any such Person (and "lncurrence," "Incurred" and "Incurring" shall have meanings correlative to the foregoing); provided, however, that a change in generally accepted accounting principles that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an Incurrence of such Indebtedness. "Indebtedness" shall mean (without duplication), with respect to any Person, (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations Incurred in connection with the acquisition of property, assets or businesses, (iii) every obligation of such Person issued or assumed as the deferred purchase price of property (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue by more than 90 days or which are being contested in good faith), (iv) all Capital Lease Obligations of such Person and (v) every obligation of the type referred to in clauses (i) through (iv) of another Person and all dividends of another Person for the payment of which, in either case, such Person has Guaranteed or is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise. "Minority Interests" means Capital Stock of a Restricted Subsidiary not owned by ARAMARK or another Subsidiary. "Offer to Purchase" means with respect to any series of Securities, a written notice (referred to as the "Notice") delivered to the Trustee and given by ARAMARK or Services, as the case may be, via first-class mail, postage prepaid, to each Holder of Securities of such series at his address appearing in the Security Register, stating that the Holder may elect to have his Securities purchased by ARAMARK or Services, as the case may be, either in whole or in part in integral multiples of $1,000 of principal amount, at the applicable purchase price. The Notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such Notice (referred to as the "Purchase Date"). The Notice shall contain all instructions and materials necessary to enable such Holder to tender Securities of such series pursuant to an Offer to Purchase. The Notice, which shall govern the terms of an Offer to Purchase, shall state: (1) the Section of the lndenture under which the Offer to Purchase is being made; (2) that the Offer to Purchase is for any and all Securities of such series, the applicable purchase price and the Purchase Date; (3) the name and address of the Paying Agent and that Securities of such series called for purchase must be surrendered to the Paying Agent to collect the purchase price; (4) that interest on any Security of such series not tendered or tendered but not purchased by ARAMARK or Services, as the case may be, will continue to accrue; (5) that any Security of such series accepted for payment pursuant to an Offer to Purchase shall cease to accrue interest after the Purchase Date; 13 (6) that each Holder of Securities of such series electing to have a Security of such series purchased pursuant to an Offer to Purchase will be required to surrender such Security to the Paying Agent at the address specified in the Notice prior to the close of business on the Purchase Date; and (7) that Holders of Securities of such series will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security of such series the Holder delivered for purchase, the certificate number of the Security the Holder delivered and a statement that such Holder is withdrawing his election to have the Securities purchased. "Offer to Purchase Price" with respect to the Securities of any series means the price or prices specified in the applicable Prospectus Supplement as the price or prices at which an Offer to Purchase will be made in accordance with the covenants described under "Certain Covenants Applicable to Subordinated Securities and Guaranteed Securities -- Mergers, Consolidations and Certain Sales and Purchases of Assets" and "-- Limitation on Restricted Payments." "Pari Passu Debt" means any Indebtedness of ARAMARK for money borrowed whether outstanding at the date hereof or incurred thereafter, that ranks pari passu with the Subordinated Securities. "Restricted Subsidiary" means any domestic corporation of which more than 80 percent of the outstanding Voting Stock shall, at the time as of which any determination is being made, be owned by ARAMARK either directly or through subsidiaries. "Significant Subsidiary" means each and any Subsidiary which (i) accounted for more than 5% of the consolidated revenues of ARAMARK and its Subsidiaries for the fiscal year ended on the date of the most recently available audited consolidated balance sheet; (ii) accounted for more than 5% of the Consolidated Net Income of ARAMARK and its Subsidiaries for the fiscal year ended on the date of the most recently available audited consolidated balance sheet; or (iii) was the owner of more than 5% of the consolidated assets of ARAMARK and its Subsidiaries as of the date of the most recently available audited consolidated balance sheet. "Voting Stock" means, with respect to any Person, Capital Stock (however designated) having general voting power for the election of a majority of the members of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). (Section 101 of the Subordinated Indenture and Section 101 of the Guaranteed Indenture) VALIDITY OF SECURITIES AND GUARANTEE The validity of the Securities and Guarantee will be passed upon for ARAMARK and Services by Martin W. Spector, Executive Vice President, Secretary and General Counsel of ARAMARK and for the underwriters by Sullivan & Cromwell, New York, New York. Mr. Spector owns 782,012 shares of Class B Common Stock of ARAMARK. EXPERTS The audited consolidated financial statements of ARAMARK Corporation and subsidiaries included in this Prospectus and the Schedules included in ARAMARK's Annual Report on Form 10-K for the year ended September 30, 1994 incorporated herein by reference have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their reports also included and incorporated herein by reference. In their reports, that firm states that with respect to amounts included for Versa Services Ltd. (ARAMARK's Canadian subsidiary), its opinion is based on the reports of other auditors, namely Ernst & Young, Chartered Accountants, whose reports are also included and incorporated herein by reference. The financial statements and schedules referred to above have been included herein in reliance upon the reports of said firms and upon the authority of said firms as experts in accounting and auditing. Subsequent audited financial statements of ARAMARK and the reports thereon of ARAMARK's independent public accountants, to the extent incorporated herein by reference, have been so incorporated in reliance upon the reports of those accountants and upon the authority of those accountants as experts in accounting and auditing to the extent such accountants have audited those financial statements and consented to the use in this Prospectus of their reports thereon. 14 PLAN OF DISTRIBUTION ARAMARK or Services may sell the Securities to or through underwriters, and also may sell the Securities directly to other purchasers or through agents. The distribution of the Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. In connection with the sale of the Securities, underwriters may receive compensation from ARAMARK or Services or from purchasers of the Securities for whom they may act as agents in the form of discounts, concessions or commissions. Underwriters may sell the Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution of the Securities may be deemed to be underwriters, and any discounts or commissions received by them from ARAMARK or Services and any profit on the resale of the Securities by them may be deemed to be underwriting discounts and commissions under the Securities Act of 1933 (the "Act"). Any such underwriter or agent will be identified, and any such compensation received from ARAMARK or Services will be described, in the Prospectus Supplement. Under agreements which may be entered into by ARAMARK or Services, underwriters and agents who participate in the distribution of the Securities may be entitled to indemnification by ARAMARK and Services against certain liabilities, including liabilities under the Act. If so indicated in the Prospectus Supplement, ARAMARK and Services will authorize underwriters or other persons acting as ARAMARK's and Services' agents to solicit offers by certain institutions to purchase the Securities from ARAMARK or Services pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must be approved by ARAMARK and Services. The obligations of any purchaser under any such contract will be subject to the condition that the purchase of the Securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such contracts. 15 SCHEDULE A INDEX TO FINANCIAL STATEMENTS PAGE ---- ARAMARK CORPORATION AND SUBSIDIARIES Report of Independent Public Accountants F-2 Report of Chartered Accountants F-3 Consolidated Balance Sheets - As of September 30, 1994 and October 1, 1993 F-4 Consolidated Statements of Income - Fiscal Years 1994, 1993 and 1992 F-6 Consolidated Statements of Cash Flows - Fiscal Years 1994, 1993 and 1992 F-7 Consolidated Statements of Shareholders Equity - Fiscal Years 1994, 1993 and 1992 F-8 Notes to Consolidated Financial Statements F-11 ARAMARK CORPORATION AND SUBSIDIARIES (UNAUDITED) Condensed Consolidated Balance Sheets - As of December 30, 1994 and September 30, 1994 F-26 Condensed Consolidated Statements of Income - Three Months Ended December 30, 1994 and December 31, 1993 F-27 Condensed Consolidated Statements of Cash Flows - Three Months Ended December 30, 1994 and December 31, 1993 F-28 Notes to Condensed Consolidated Financial Statements F-29 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To ARAMARK Corporation: We have audited the accompanying consolidated balance sheets of ARAMARK Corporation (a Delaware corporation) (formerly The ARA Group, Inc.) and subsidiaries as of September 30, 1994 and October 1, 1993, and the related consolidated statements of income, shareholders equity and cash flows for each of the three fiscal years in the period ended September 30, 1994. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Versa Services Ltd., the Companys Canadian subsidiary, which statements reflect assets representing 3.6% of consolidated assets as of both September 30, 1994 and October 1, 1993, and revenues representing 5.6%, 6.3% and 7.4% of consolidated revenues for the fiscal years 1994, 1993 and 1992, respectively. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Versa Services Ltd., is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of ARAMARK Corporation and subsidiaries as of September 30, 1994 and October 1, 1993, and the results of their operations and their cash flows for each of the three fiscal years in the period ended September 30, 1994, in conformity with generally accepted accounting principles. As discussed in Note 6 to the consolidated financial statements, ARAMARK Corporation changed its method of accounting for income taxes in fiscal 1994. ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania November 7, 1994 F-2 REPORT OF CHARTERED ACCOUNTANTS To The Directors of Versa Services Ltd.: We have audited the consolidated balance sheets of Versa Services Ltd. as at September 28, 1994 and September 29, 1993 and the consolidated statements of income and retained earnings and cash flows for the fifty-two week period ended September 28, 1994, the fifty-two week period ended September 29, 1993, and the fifty-three week period ended September 30, 1992 (not presented separately herein). These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at September 28, 1994 and September 29, 1993, and the results of its operations and the changes in its financial position for the fifty-two week period ended September 28, 1994, the fifty-two week period ended September 29,1993 and the fifty-three week period ended September 30, 1992 in accordance with accounting principles generally accepted in Canada. ERNST & YOUNG Chartered Accountants Mississauga, Canada November 16, 1994 F-3 ARAMARK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1994 AND OCTOBER 1, 1993 (dollars in thousands, except per share amounts)
- ---------------------------------------------------------------------------- 1994 1993 - ---------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 27,426 $ 27,801 Short-term investments held by the Canadian subsidiary 16,203 - Receivables (less allowances: 1994, $12,423; 1993, $10,242) 433,550 388,768 Inventories 256,950 249,858 Prepayments and other current assets 69,865 63,381 - ---------------------------------------------------------------------------- Total current assets 803,994 729,808 - ---------------------------------------------------------------------------- Property and Equipment, at Cost: Land, buildings and improvements 379,671 355,744 Service equipment and fixtures 888,134 783,393 Leased property under capital leases 8,204 8,204 - ---------------------------------------------------------------------------- 1,276,009 1,147,341 Less-Accumulated depreciation 594,102 498,962 - ---------------------------------------------------------------------------- 681,907 648,379 - ---------------------------------------------------------------------------- Goodwill 438,725 446,261 - ---------------------------------------------------------------------------- Other Assets 197,324 216,193 - ---------------------------------------------------------------------------- $2,121,950 $2,040,641 ============================================================================
The accompanying notes are an integral part of these financial statements. F-4 ARAMARK CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------- 1994 1993 - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current maturities of long-term borrowings $ 9,391 $ 15,615 Accounts payable 372,908 329,129 Accrued payroll and related expenses 142,911 132,045 Other accrued expenses and current liabilities 231,991 208,677 - -------------------------------------------------------------------------------- Total current liabilities 757,201 685,466 - -------------------------------------------------------------------------------- Long-Term Borrowings: Senior 697,695 544,971 Subordinated 290,414 474,875 Obligations under capital leases 3,231 4,443 - -------------------------------------------------------------------------------- 991,340 1,024,289 Less-current portion 9,391 15,615 - -------------------------------------------------------------------------------- Total long-term borrowings 981,949 1,008,674 - -------------------------------------------------------------------------------- Deferred Income Taxes and Other Noncurrent Liabilities 168,638 182,693 Minority Interest 10,812 18,084 Common Stock Subject to Potential Repurchase Under Provisions of Shareholders' Agreement 20,791 21,651 Shareholders' Equity Excluding Common Stock Subject to Repurchase: Series C preferred stock, redemption value $1,000; authorized: 40,000 shares; issued: 1994 - 16,949 shares; 1993 - 34,596 shares 16,949 34,596 Class A common stock, par value $.01; authorized: 25,000,000 shares; issued: 1994 - 2,074,251 shares; 1993 - 2,068,396 shares 21 21 Class B common stock, par value $.01; authorized: 150,000,000 shares; issued: 1994 - 24,338,494 shares; 1993 - 24,276,512 shares 243 243 Earnings retained for use in the business 178,587 104,827 Cumulative translation adjustment 7,550 6,037 Impact of potential repurchase feature of common stock (20,791) (21,651) - -------------------------------------------------------------------------------- Total 182,559 124,073 - -------------------------------------------------------------------------------- $2,121,950 $2,040,641 ================================================================================
The accompanying notes are an integral part of these financial statements. F-5 ARAMARK CORPORATIONAND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1994, OCTOBER 1, 1993 AND OCTOBER 2, 1992 (dollars in thousands, except per share amounts) - -------------------------------------------------------------------------------- 1994 1993 1992 - --------------------------------------------------------------------------------
Revenues $5,161,578 $4,890,738 $4,865,343 - -------------------------------------------------------------------------------- Costs and Expenses: Cost of services provided 4,686,086 4,432,840 4,412,374 Depreciation and amortization 143,763 130,511 125,798 Selling and general corporate expense 70,196 63,406 69,760 Other expense (income) (5,792) (4,955) (4,174) - -------------------------------------------------------------------------------- 4,894,253 4,621,802 4,603,758 - -------------------------------------------------------------------------------- Operating income 267,325 268,936 261,585 Gain on Issuance of Stock by an Affiliate 4,658 - - - -------------------------------------------------------------------------------- Earnings before interest and income taxes 271,983 268,936 261,585 Interest Expense, net 108,499 125,671 137,862 - -------------------------------------------------------------------------------- Income before income taxes 163,484 143,265 123,723 Provision For Income Taxes 67,119 57,526 51,507 Minority Interest 1,332 1,405 1,518 - -------------------------------------------------------------------------------- Income Before Extraordinary Item and Cumulative Effect of Change in Accounting for Income Taxes 95,033 84,334 70,698 Extraordinary Item Due to Early Extinguishments of Debt (net of income taxes of $5,118 in 1994, $4,660 in 1993 and $1,943 in 1992) 7,677 7,202 3,317 Cumulative Effect of Change in Accounting for Income Taxes 1,277 - - - -------------------------------------------------------------------------------- Net Income $ 86,079 $ 77,132 $ 67,381 ================================================================================ Earnings Per Share: Income before extraordinary item and cumulative effect of change in accounting for income taxes $1.87 $1.64 $1.40 Net income $1.69 $1.49 $1.33 ================================================================================
The accompanying notes are an integral part of these financial statements. F-6 ARAMARK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1994, OCTOBER 1, 1993 AND OCTOBER 2, 1992 (in thousands)
1994 1993 1992 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 86,079 $ 77,132 $ 67,381 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 143,763 130,511 125,798 Income taxes deferred (2,174) 6,058 13,695 Minority interest 1,332 1,405 1,518 Cumulative effect of accounting change 1,277 - - Gain on issuance of stock by affiliate (4,658) - - Extraordinary item 7,677 7,202 3,317 Changes in noncash working capital: Receivables (40,557) (933) (31,451) Inventories (6,915) (6,425) (9,901) Prepayments (15,675) 53,288 10,265 Accounts payable 36,956 (11,395) 18,855 Accrued expenses 36,926 (198) 8,814 Changes in noncurrent liabilities (1,368) 8,541 (14,940) Changes in other assets (6,445) 4,106 4,338 Other (9,186) (5,604) (6,822) - -------------------------------------------------------------------------------- Net cash provided by operating activities 227,032 263,688 190,867 - -------------------------------------------------------------------------------- Cash flows from investing activities: Purchases of property and equipment (145,935) (142,121) (157,313) Disposals of property and equipment 11,525 11,348 11,073 Sale of investments 13,543 15,945 - Divestiture of certain businesses 7,297 11,928 180,765 Increase in short-term investments (16,203) - - Purchase of subsidiary stock (17,623) - - Acquisition of certain businesses: Working capital other than cash acquired (3,066) 8,697 (25,450) Property and equipment (573) (4,544) (32,896) Additions to intangibles (6,734) (45,547) (75,085) Assumed borrowings - 2,885 1,994 Other 7,758 (5,368) (3,241) - -------------------------------------------------------------------------------- Net cash used in investing activities (150,011) (146,777) (100,153) - -------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from additional long-term borrowings 167,329 108,174 5,076 Payment of long-term borrowings including premiums (210,511) (157,407) (85,647) Redemption of preferred stock (17,647) (137) - Proceeds from issuance of common stock 12,416 9,462 8,675 Repurchase of common stock (25,729) (45,795) (14,644) Payment of special dividend - (24,157) - Payment of preferred stock dividend (1,917) - - Other (1,337) (3,035) (126) - -------------------------------------------------------------------------------- Net cash used in financing activities (77,396) (112,895) (86,666) - -------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (375) 4,016 4,048 Cash and cash equivalents, beginning of year 27,801 23,785 19,737 - -------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 27,426 $ 27,801 $ 23,785 ================================================================================
The accompanying notes are an integral part of these financial statements. F-7 ARAMARK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994 (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------ Impact of Potential Series C Class A Class B Cumulative Repurchase Preferred Common Common Capital Retained Translation Feature of Stock Stock Stock Surplus Earnings Adjustment Common Stock --------- ------- ------- -------- -------- ----------- ------------- Balance, October 1, 1993 $ 34,596 $21 $243 $ - $104,827 $6,037 $(21,651) Net income 86,079 Dividends on preferred stock (1,337) Issuance of Class A common stock to employee benefit plans 1 8,881 Issuance of Class B common stock 25 18,910 Retirement of common and preferred stock (17,647) (1) (25) (27,791) (10,982) Change during the period 1,513 860 ------- --- ---- -------- -------- ------ -------- Balance, September 30, 1994 $16,949 $21 $243 $ - $178,587 $7,550 $(20,791) ======= === ==== ======== ======== ====== ========
The accompanying notes are an integral part of these financial statements. F-8 ARAMARK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE FISCAL YEAR ENDED OCTOBER 1, 1993 (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------ Impact of Potential Series C Class A Class B Cumulative Repurchase Preferred Common Common Capital Retained Translation Feature of Stock Stock Stock Surplus Earnings Adjustment Common Stock --------- ------- ------- -------- -------- ----------- ------------- Balance, October 2, 1992 $ - $ 6 $ 53 $ - $113,091 $11,070 $(20,437) Net income 77,132 Special dividend 34,733 (59,514) Dividends on preferred stock (883) Issuance of Class A common stock to employee benefit plans 10,688 Issuance of Class B common stock 11 18,420 Retirement of common and preferred stock (137) (1) (3) (29,108) (24,801) Common stock split 16 182 (198) Change during the period (5,033) (1,214) ------- --- ---- -------- -------- ------- -------- Balance, October 1, 1993 $34,596 $21 $243 $ - $104,827 $ 6,037 $(21,651) ======= === ==== ======== ======== ======= ========
The accompanying notes are an integral part of these financial statements. F-9 ARAMARK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE FISCAL YEAR ENDED OCTOBER 2, 1992 (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------ Impact of Potential Class A Class B Cumulative Repurchase Common Common Capital Retained Translation Feature of Stock Stock Surplus Earnings Adjustment Common Stock ------- ------- -------- -------- ----------- ------------- Balance, September 27, 1991 $5 $56 $ - $ 46,134 $12,081 $(17,662) Net income 67,381 Issuance of Class A common stock to employee benefit plans 1 8,619 Issuance of common stock 4 12,648 Retirement of common stock (7) (21,267) (424) Change during the period (1,011) (2,775) -- --- -------- -------- ------- -------- Balance, October 2, 1992 $6 $53 $ - $113,091 $11,070 $(20,437) == === ======== ======== ======= ========
The accompanying notes are an integral part of these financial statements. F-10 ARAMARK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Effective October 10, 1994 the Company changed its name from The ARA Group, Inc. to ARAMARK Corporation. FISCAL YEAR The Company's fiscal year is the fifty-two or fifty-three week period which ends on the Friday nearest September 30th. The years ended September 30, 1994, October 1, 1993 and October 2, 1992 are fifty-two, fifty-two and fifty-three week periods, respectively. PRINCIPLES OF CONSOLIDATION, ETC. The consolidated financial statements include the accounts of the Company and all its subsidiaries. All significant intercompany balances and transactions have been eliminated and net income is reduced by the portion of income applicable to minority shareholders of less than wholly-owned subsidiaries. Certain 1993 items have been reclassified to conform to the 1994 presentation. In fiscal 1995, the Company is required to adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits," and SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Adoption of these standards will not have a material impact on the consolidated financial statements. CURRENCY TRANSLATION Gains and losses resulting from the translation of financial statements of non- U.S. subsidiaries are reflected as a currency translation adjustment in shareholders' equity. Currency transaction gains and losses included in operating results for fiscal 1994, 1993 and 1992 were not significant. CURRENT ASSETS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At September 30, 1994, securities having maturities in excess of three months, all of which were owned by the Company's Canadian subsidiary, are classified as short-term investments and are recorded at cost which approximates market value. Inventories are valued at the lower of cost (principally the first-in, first-out method) or market. The LIFO (last-in, first-out) method of determining cost is used to value directly marketed work clothing and casual apparel. The stated value of inventories determined using the LIFO method is not significantly different from replacement or current cost. Personalized work apparel and linens in service are recorded at cost and are amortized over their estimated useful lives, approximately two years. In accordance with industry practice, magazines and books are sold to retailers with the right to return unsold items for ultimate credit from the publishers. The components of inventories as of the respective year-ends are as follows:
1994 1993 ---- ---- Food 24.9% 29.0% Work apparel, casual apparel and linens 60.9% 55.7% Magazines and books 5.6% 4.7% Parts, supplies and novelties 8.6% 10.6% ----- ----- 100.0% 100.0% ----- -----
F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost and are depreciated over their estimated useful lives on a straight-line basis. Gains and losses on dispositions are included in operating results. Maintenance and repairs are charged to operations currently, and replacements and significant improvements are capitalized. The estimated useful lives for the major categories of property and equipment are 10 to 40 years for buildings and improvements and 3 to 10 years for service equipment and fixtures. GOODWILL Goodwill, which represents the excess of cost over fair value of the net assets of acquired businesses, is being amortized on a straight-line basis principally over 40 years. The Company develops operating income projections for each of its lines of business and evaluates the recoverability and amortization period of goodwill using these projections. Based upon management's current assessment, the estimated remaining amortization period of goodwill is appropriate and the remaining balance is fully recoverable. Accumulated amortization at September 30, 1994 and October 1, 1993 is $113.7 million and $97.4 million, respectively. OTHER ASSETS Other assets consist primarily of investments in less than 50% owned entities, contract rights, customer lists, long-term receivables and noncurrent marketable equity securities. Investments in which the Company owns more than 20% but less than a majority are accounted for using the equity method. Contract rights and customer lists are being amortized on a straight-line basis over the expected period of benefit, 5 to 20 years. Noncurrent marketable equity securities are stated at the lower of aggregate cost or market. At September 30, 1994 and October 1, 1993 the cost and market value of the Company's noncurrent marketable equity securities approximated $2 million and $5 million, respectively. OTHER LIABILITIES Other noncurrent liabilities consist primarily of deferred compensation, insurance accruals, deferred gains arising from sale and leaseback transactions and subordinated installment notes arising from repurchases of common stock. The Company is self-insured for a limited portion of the risk retained under its general liability and workers' compensation insurance arrangements. Self- insurance reserves are actuarially determined based on the estimated timing of future insurance claim payments associated with the Company's retained risk. The current and noncurrent portions of the self-insurance reserves for workers' compensation insurance are accrued on a present value basis using a discount rate which approximates a risk-free rate. EARNINGS PER SHARE Earnings per share is reported on a fully diluted Common Stock, Class B equivalent basis (which reflects Common Stock, Class A shares converted to a Class B basis; ten for one) and is based upon the weighted average number of common shares outstanding during the respective periods, plus the common equivalent shares, if dilutive, that would result from the exercise of stock options. Fully diluted earnings per share approximates primary earnings per share and is equivalent to fully diluted earnings per share under the "two- class" method. F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) SUPPLEMENTAL CASH FLOW INFORMATION
1994 1993 1992 ------ ------ ------ (in millions) Interest Paid $108.2 $113.5 $127.3 Income Taxes Paid $ 54.0 $ 41.0 $ 39.0
Significant noncash investing and financing activities are as follows: . During fiscal 1994, 1993, and 1992, the Company contributed $8.9 million, $10.7 million, and $8.6 million, respectively, of Class A Common Stock to its employee benefit plans to fund previously accrued obligations. In addition, during fiscal 1994, 1993 and 1992 the Company contributed $1.8 million, $1.7 million and $1.7 million, respectively, of stock units to its stock unit retirement plan in satisfaction of its accrued obligations. See Note 5 to the consolidated financial statements. . During the third quarter of fiscal 1993, the Company paid a special dividend on its common stock which included $34.7 million of new Series C Preferred Stock. See Note 7 to the consolidated financial statements. . During fiscal 1994 and 1993, the Company received $4.0 million and $5.9 million, respectively, of employee notes under its Deferred Payment program as partial consideration for the issuance of Common Stock Class B. Also, during fiscal 1994, 1993, and 1992, the Company issued subordinated installment notes of $13.2 million, $8.3 million and $7.1 million, respectively, as part consideration for repurchases of Common Stock. See Note 7 to the consolidated financial statements. NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.: During the fourth quarter of fiscal 1994, an affiliate, 33% owned by the Company, sold common stock through a public offering. The Company sold approximately 9% of its equity investment in connection with the public offering, receiving net proceeds of $6.9 million and recorded a gain of $5.8 million, which is included in "Other expense (income)." At the time a subsidiary/affiliate sells its stock to third parties, the Company recognizes the resultant change in its net investment in the subsidiary/affiliate through the income statement in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 51 (SAB No. 51). In accordance with SAB No. 51, the Company recognized a pre-tax gain of $4.7 million, and recorded a related tax provision of $1.9 million, representing the increase in book value of the Company's remaining investment created by the sale of the incremental new shares in the public offering. The Company's percentage ownership of the affiliate after the transaction is 28%. F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. ACQUISITIONS AND DIVESTITURES, ETC.: (CONTINUED) In September 1993, the Company acquired an 80% interest in the contract food service division of the HUSA Group ("HUSA"), a provider of food services to hospitals, schools and governmental facilities located in Spain, for aggregate consideration, including all costs, of approximately $30 million. The purchase price of the HUSA acquisition was allocated principally to contract rights and goodwill. The Company's unaudited pro forma results of operations for fiscal 1993 and 1992 would not be materially different assuming the acquisition occurred as of the beginning of the respective periods. During the fourth quarter of fiscal 1993, the Company sold Encore Service Systems, Inc. for approximately $20 million resulting in a gain of approximately $15 million. In addition, all of the Company's remaining shares of Living Centers of America common stock were sold during fiscal 1993 for approximately $16 million, resulting in a gain of approximately $8 million. These gains have been included in "Other expense (income)" in the accompanying consolidated statements of income. Also included in "Other expense (income)" is an amount of $18 million to establish a reserve for potential adjustments related to certain cost-based food service contracts. This resulted from a 1993 internal review of billing procedures covering primarily insurance and employee fringe benefits. The review revealed some past inconsistencies between the billings and the literal contractual language. During the second quarter of fiscal 1992, the Company acquired the assets of WearGuard Corporation ("WearGuard"), a direct marketer of work clothing and casual apparel and late in the third quarter acquired the business of Coordinated Health Services, Inc. ("CHS"), a provider of physician staffing and patient billing services for hospital emergency departments for aggregate consideration of $124 million. Also in the second quarter of 1992, the Company divested approximately 90% of its interest in Living Centers of America, Inc. ("Living Centers") in a sale of stock through a public offering. The net effect of these transactions resulted in a reduction of the Company's indebtedness of approximately $69 million. "Other expense (income)" of $4.2 million in fiscal 1992 represents a gain of $13 million on the Living Centers divestiture transaction partially offset by charges for insurance and related matters. The Company's fiscal 1992 financial statements reflect results of operations and cash flows for WearGuard and CHS for seven months and four months, respectively. The Company's unaudited pro forma results of operations for fiscal 1992 would not be materially different assuming the acquisitions occurred as of the beginning of the period. Subsequent to fiscal yearend 1994, the Company has entered into definitive agreements for the acquisition of three businesses (two are in the Food, Leisure and Support business segment and one in the Distributive segment) for total consideration, in the form of cash and preferred stock, of approximately $260 million. Revenues of these businesses would increase the Company's total revenues by approximately 5.5%. The cash portion of the consideration will be financed through the Company's existing Credit Agreement. The acquisitions, subject to certain third party approvals, are presently expected to close by the end of calendar year 1994. In the fourth quarter of fiscal 1994, the Company initiated a tender offer for the 30% minority interest of its Canadian subsidiary. The transaction is expected to be completed by the end of calendar year 1994 for total consideration of approximately $33 million, of which $17.6 million has been paid as of September 30, 1994. NOTE 3. EXTRAORDINARY ITEM: The following items have been reflected as extraordinary items in the consolidated financial statements. During fiscal 1994, the Company redeemed the remaining $182.3 million of its 12- 1/2% subordinated debentures for a premium. The debt extinguishment was financed through borrowings under the Company's revolving credit facility. The resultant extraordinary charge was $7.7 million or $0.15 per share. F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. EXTRAORDINARY ITEM: (CONTINUED) During fiscal 1993, the Company repurchased the entire $100 million of its 10.55% senior notes for a premium and concurrently issued $100 million of 8-1/4% senior notes. The Company also paid a premium to redeem $38.6 million of its 12-1/2% subordinated debentures. During fiscal 1992, the Company exchanged $28.6 million of 10% subordinated debentures plus a premium for $28.6 million of its 13% subordinated debentures and paid a premium to redeem $1.5 million of its 12-1/2% subordinated convertible notes. NOTE 4. BORROWINGS: Long-term borrowings at September 30, 1994 and October 1, 1993 are summarized in the following table:
1994 1993 -------- -------- (in thousands) SENIOR: Credit facility borrowings $401,600 $ 260,700 10-1/4% note, due April 1998 50,000 50,000 8-1/4% notes, payable in installments through 1999 100,000 100,000 10-5/8% notes, due August 2000 100,000 100,000 Other, including mortgages and notes payable 46,095 34,271 -------- ---------- 697,695 544,971 -------- ---------- SUBORDINATED: 8-1/2% subordinated notes, due June 2003 100,000 100,000 10% exchangeable debentures and notes, due August 2000 59,299 61,465 12% debentures, due April 2000 125,000 125,000 12-1/2% debentures, due July 2001 - 182,295 12-1/2% convertible notes, due February 2000 2,340 2,340 13% debentures, due January 1997 3,775 3,775 -------- ---------- 290,414 474,875 -------- ---------- OBLIGATIONS UNDER CAPITAL LEASES 3,231 4,443 -------- ---------- 991,340 1,024,289 Less-current portion 9,391 15,615 -------- ---------- $981,949 $1,008,674 ======== ==========
The $800 million revolving credit facility ("Credit Agreement") is provided by a group of banks and matures in October 2001 with quarterly commitment reductions of $12.5 million starting in December 1995 which increase annually thereafter. Interest under the credit agreement is based on the Prime Rate plus a spread of 0% to 5/8% (as of September 30, 1994 - 0%), London Inter-Bank Offered Rate (LIBOR) plus a spread of 1/8% to 1-1/8% (as of September 30, 1994 - 1/2%) or the Certificate of Deposit Rate plus a spread of 1/4% to 1-1/4% (as of September 30, 1994 - 5/8%), at the option of the Company. The spread is based on certain financial ratios and borrowing levels as defined. The Company pays a fee of 1/4 of 1% on the entire credit facility. The 8-1/4% notes are payable in $20 million annual installments commencing March 1995 with a final maturity of March 1999. The $20 million installment due in fiscal 1995 has been classified as non-current in the accompanying consolidated balance sheet as the Company has the ability and intent to finance it through additional borrowings under the Credit Agreement. F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. BORROWINGS: (CONTINUED) The 10-5/8% senior notes require a sinking fund payment of $50 million in August 1999 with a final maturity in August 2000. The 8-1/2% subordinated notes may be redeemed at the Company's option, in whole or in part, beginning June 1998 at a price equal to 104.25% of their principal amount and thereafter at prices declining to par in 2002, together with accrued interest. The 10% subordinated exchangeable debentures and notes may be exchanged at any time in whole or part, at the option of the holder, for 10-5/8% senior notes due August 2000 at an exchange ratio of .93. The 12% subordinated debentures may be redeemed at the Company's option, in whole or in part, beginning April 1995 at a price equal to 105% of the principal amount and thereafter at prices declining to par in April 1997, together with accrued interest. The 12-1/2% subordinated convertible notes are convertible at par, in whole, at the option of the holder, into a series of the Company's 13% subordinated debentures due January 1997. At any time on or after January 15, 1998, the Company may, at its option, redeem the notes, in whole or in part, at a price equal to 100% of their principal amount plus accrued interest. The 13% subordinated debentures may be redeemed by the Company on or after January 15, 1996, in whole or in part, at a price equal to 100% of their principal amount plus accrued interest. The fair value of the Company's aggregate senior and subordinated debt, based primarily on quoted market prices, was $705 million and $291 million, respectively at September 30, 1994 and $568 million and $511 million, respectively, at October 1, 1993. Accrued interest on borrowings totaling $23.6 million in 1994 and $29.2 million in 1993 is included in current liabilities as "Other accrued expenses." At September 30, 1994, the Company has $200 million of interest rate exchange agreements fixing the rate on a like amount of borrowings under the Credit Agreement at an average effective rate of 5.7% for remaining periods ranging between 1 and 34 months. The counterparties to the interest rate exchange 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. All interest rate agreements are accounted for as hedges and the related gains or losses are recognized in income as a component of interest expense over the period being hedged. As of October 1, 1993 the Company had $202 million of interest rate exchange agreements fixing the rate on a like amount of variable rate borrowings at an average effective rate of 6.3%. During fiscal 1993, the Company entered into a $28 million foreign currency swap agreement maturing in August 1996, which hedges the currency exposure of its net investment in Spain. See Note 2. The fair value of the Company's swap agreements as of September 30, 1994 is approximately $5.5 million. At October 1, 1993, the fair value of the swap agreements was not significant. The Credit Agreement contains restrictive covenants which provide, among other things, limitations on the incurrence of debt, dispositions of material assets, payment of dividends and repurchases of capital stock. The terms of the Credit Agreement also limit the transfer of funds to the Company by its subsidiaries and require that the Company maintain certain specified minimum ratios of cash flow to fixed charges and to total borrowings and certain minimum levels of net worth (as defined). At September 30, 1994, the Company was in compliance with all of these covenants. F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. BORROWINGS: (CONTINUED) Long-term borrowings maturing in the next five years, excluding capital lease obligations, are as follows: Amount -------------- (in thousands) 1995 $ 8,701 1996 22,080 1997 25,571 1998 71,771 1999 85,015 NOTE 5. EMPLOYEE PENSION AND PROFIT SHARING PLANS: The Company maintains contributory and non-contributory defined benefit pension plans, primarily in Canada and the United Kingdom, providing retirement benefits to eligible employees not covered by collective bargaining agreements. Total pension expense under these plans for fiscal 1994, 1993 and 1992 was $1.4 million, $1.3 million and $1.1 million, respectively. The Company's policy is to fund the minimum contribution required under the applicable law. Defined benefit pension expense for 1994, 1993 and 1992 includes the following components:
1994 1993 1992 -------- -------- -------- (in thousands) Service cost - benefits earned during the period $ 1,791 $ 1,628 $ 1,758 Interest cost on projected benefit obligations 2,459 2,309 2,228 Change in market valuation and return on plan assets (37) (5,071) (675) Net amortization and deferral (2,857) 2,456 (2,194) ------- ------- ------- $ 1,356 $ 1,322 $ 1,117 ======= ======= ======= Assumptions: Discount rate 8.4% 8.2% 8.2% Compensation increase 5.3% 5.4% 5.4% Rate of return on assets 8.4% 8.3% 8.4%
The discount rates and rates of return on assets represent weighted averages that reflect the combined assumptions of plans located primarily in Canada and the United Kingdom. The defined benefit pension plans' funded status at September 30, 1994 and October 1, 1993 is as follows:
1994 1993 -------- -------- (in thousands) Pension plan obligations: Accumulated benefits (including vested benefits of $26,805 and $24,047 in 1994 and 1993, respectively) $26,983 $24,374 ======= ======= Projected benefits $33,728 $31,050 Market value of assets (primarily listed securities and government obligations) 35,179 32,665 ------- ------- Funded status 1,451 1,615 Unrecognized net loss (gain) 96 (767) Unrecognized net transition asset (2,905) (3,206) Unrecognized prior service cost 1,565 1,658 ------- ------- Prepaid (accrued) pension cost $ 207 $ (700) ======= =======
F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. EMPLOYEE PENSION AND PROFIT SHARING PLANS: (CONTINUED) In the United States, the Company also maintains qualified contributory and non- contributory retirement plans for eligible employees, with Company contributions to the plans based on earnings performance or salary level. Qualified non- contributory profit sharing plans are maintained by certain businesses, with annual contributions determined by management. The Company has a non-qualified stock unit retirement plan for certain employees. The total expense of the above plans for fiscal 1994, 1993 and 1992 was $14.5 million, $14.1 million and $13.6 million, respectively. During fiscal 1994, 1993 and 1992, the Company contributed 59,919 shares, 86,184 shares and 75,684 shares, respectively, of Common Stock, Class A to these plans to fund previously accrued obligations. In addition, during fiscal 1994, 1993 and 1992, the Company contributed to the stock unit retirement plan 143,125 stock units, 159,144 stock units and 175,596 stock units, respectively, which are convertible into Common Stock, Class B, in satisfaction of its accrued obligations. The value of the stock units was credited to capital surplus. The Company participates in various multi-employer union administered pension plans. Contributions to these plans, which are primarily defined benefit plans, result from contractual provisions of labor contracts and were $11.9 million, $10.2 million and $10.3 million for fiscal 1994, 1993 and 1992, respectively. NOTE 6. INCOME TAXES: Effective October 2, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes." Prior to fiscal 1994, the Company followed the provisions of Accounting Principles Board Opinion No. 11. SFAS No. 109 requires deferred tax assets or liabilities to be recognized for the estimated future tax effects of temporary differences between the financial reporting and tax bases of the Company's assets and liabilities based on the enacted tax law and statutory tax rates applicable to the periods in which the temporary differences are expected to affect taxable income. The cumulative effect of this change in accounting principle was a charge of $1.3 million, or $0.03 per share, in the first quarter of fiscal 1994. The components of income before income taxes by source of income are as follows:
1994 1993 1992 --------- -------- -------- (in thousands) United States $143,052 $121,818 $ 99,582 Non-U.S. 20,432 21,447 24,141 -------- -------- -------- $163,484 $143,265 $123,723 ======== ======== ========
The provision for income taxes consists of:
1994 1993 1992 -------- -------- -------- (in thousands) Current: Federal $ 51,935 $ 34,345 $ 22,737 State and local 11,827 7,024 5,614 Non-U.S. 5,531 10,099 9,461 -------- -------- -------- 69,293 51,468 37,812 -------- -------- -------- Deferred: Federal (1,516) 5,230 11,034 State and local (351) 736 1,499 Non-U.S. (307) 92 1,162 -------- -------- -------- (2,174) 6,058 13,695 -------- -------- -------- $ 67,119 $ 57,526 $ 51,507 ======== ======== ========
F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. INCOME TAXES: (CONTINUED) The provision for income taxes varies from the amount determined by applying the United States Federal statutory rate to pre-tax income as a result of the following:
1994 1993 1992 ------ ------ ------ (% of pre-tax income) United States statutory income tax rate 35.0% 34.8% 34.0% Increase (decrease) in taxes, resulting from: State income taxes, net of Federal tax benefit 4.6 3.7 4.2 Permanent book/tax differences, primarily resulting from purchase accounting 3.0 2.4 4.6 Tax credits (1.5) (1.5) (2.4) Other, net (.1) .8 1.2 ---- ---- ---- Effective income tax rate 41.0% 40.2% 41.6% ==== ==== ====
As of September 30, 1994, the components of the net deferred tax asset are as follows: Deferred tax liabilities: Property and equipment $64,718 Inventory 5,484 Other 4,725 ------- Gross deferred tax liability 74,927 ------- Deferred tax assets: Insurance 17,797 Employee compensation and benefits 30,228 Accruals and allowances 20,648 Intangibles 9,954 Other 2,254 Valuation allowance (1,000) ------- Net deferred tax asset 79,881 ------- Net deferred tax asset $ 4,954 =======
The Company does not provide for U.S. or foreign taxes on the undistributed earnings of non-U.S. subsidiaries that are considered to be permanently reinvested. At September 30, 1994, undistributed earnings of these foreign subsidiaries or affiliates totaled $38.7 million, which will not be subject to U.S. tax until distributed as dividends. Foreign tax credits will be available to reduce U.S. taxes on this income upon distribution. Determination of the unrecognized deferred tax liability for temporary differences related to the undistributed earnings is not practicable. F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. INCOME TAXES: (CONTINUED) The components of deferred income taxes for years prior to the adoption of SFAS No. 109 are as follows:
1993 1992 -------- -------- (in thousands) Excess of tax over book depreciation $ 1,905 $ 5,445 Accrued vacation 52 (3,272) Provision for insurance costs (3,009) (1,668) Tax vs. book basis of dispositions 5,598 12,755 Other 1,512 435 ------- ------- $ 6,058 $13,695 ======= =======
NOTE 7. CAPITAL STOCK: There are two classes of common stock authorized and outstanding, Common Stock, Class A and Common Stock, Class B. Each Class A and Class B Share is entitled to one vote on all matters submitted to stockholders, voting together as a single class except where otherwise required by law. Each Class A Share is entitled to ten times the dividends and other distributions payable on each Class B Share. Class B Shares may be held only by employees, directors and their family members, and upon termination of employment each Class B Share is automatically converted into 1/10 of a Class A Share. During the third quarter of fiscal 1993, the Company paid a special dividend of $5 per Class B equivalent share on all shares of its Common Stock owned as of April 19, 1993, with $2 per Class B equivalent share, or $24.2 million, paid in cash and $3 per Class B equivalent share, or $34.7 million, in new Series C Preferred Stock ("Preferred Stock"). Concurrent with the dividend, the Company repurchased for cash 55,495 shares of its Class A Common Stock for $28.9 million. Holders of the Preferred Stock are entitled to cumulative dividends payable semi-annually; voting rights in the event of failure to pay dividends for four consecutive periods (two years); and upon liquidation, $1,000 per share plus accrued and unpaid dividends. The current dividend rate on the Preferred Stock is $60 per share and is reset annually in December of each year at a rate equal to $1,000 multiplied by 80% of Chemical Bank's announced prime rate of interest, but not less than $60 per share nor greater than $100 per share. The Preferred Stock may be repurchased, in whole or in part, at any time only at the Company's option at a price equal to $1,000 per share plus accrued and unpaid dividends. During fiscal 1994 the Company repurchased 17,647 preferred shares for $17.6 million. On November 9, 1993, the Company's Board of Directors declared a four-for-one split of the Class B and Class A Common Stock effected in the form of a stock dividend to shareholders of record on November 10. The Company issued 18,158,097 shares of Common Stock, Class B and 1,544,868 shares of Common Stock, Class A in connection with the stock split. The stated par value of $.01 per share of Class B and Class A common stock was not changed. As of September 30, 1994 the Company's stock option plans provided for the issuance of up to 33,001,148 options to purchase shares of Common Stock, Class B. The Company granted installment stock purchase opportunities under its stock ownership program in fiscal 1994, 1993 and 1992 which provide for the purchase of shares of Common Stock, Class B. Installment stock purchase opportunities are exercisable in six annual installments with the exercise price of each purchase opportunity equal to the current fair market value at the time the purchase opportunity is granted. During fiscal 1994, the Company implemented a program to extend non-qualified stock options to additional qualified employees. Under the program, options vest after three years and may be exercised for a period of three years after vesting. The exercise price of each option is equal to the current fair market value at the date of grant. In 1993, the Company implemented the Deferred Payment Program which enables holders of non-qualified stock options and installment purchase opportunities to defer a portion of the total amount required to exercise the options. Interest currently accrues on deferred payments at 6% compounded annually and is payable when the deferred payments are due. At September 30, 1994 and October 1, 1993 the receivables from individuals under the Deferred Payment Program were $9.8 million and $5.9 million, F-20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. CAPITAL STOCK: (CONTINUED) respectively, which are classified in the consolidated balance sheet as a reduction of Shareholders' Equity. The Company holds as collateral all shares purchased in which any portion of the purchase price is financed under the Deferred Payment Program until the deferred payment is received from the individual by the Company. Status of the options, including installment stock purchase opportunities, under the various ownership programs follows:
Number of Shares Average Option Price ------------------------------- ------------------------------- 1994 1993 1992 1994 1993 1992 ------- -------- -------- -------- ------- -------- Options granted 4,314,635 2,776,296 3,716,400 $11.19 $9.14 $8.13 Options exercised 2,588,030 4,904,360 1,757,568 $ 6.33 $3.14 $4.95 Options outstanding 10,383,764 10,030,024 12,500,840 $ 8.05 $6.26 $4.88
At September 30, 1994, 1,129,160 of the outstanding option shares were exercisable at an average option price of $1.81. The Company has reserved 11,063,004 shares of Common Stock, Class B at September 30, 1994 for issuance of stock pursuant to its employee ownership and benefit programs. The Company and its shareholders are parties to an Amended and Restated Shareholders' Agreement. Pursuant to this agreement, holders of common stock who are individuals, upon their death, complete disability or normal retirement, may cause the Company to repurchase up to 30% of their shares for cash at the then appraised value, but only to the extent such repurchase by the Company is permitted under the Credit Agreement. Under this Credit Agreement restriction, repurchases of capital stock cannot exceed an aggregate limit, which amount was $20.8 million at September 30, 1994 and $21.7 million at October 1, 1993. Pursuant to interpretations of its rules related to "Redeemable Preferred Stock," the Securities and Exchange Commission has requested that these amounts representing the Company's potential repurchase of its Common Stock be presented as a separate item and accordingly, the Company's Shareholders' Equity reflects this reclassification in the consolidated financial statements. Also, the Shareholders' Agreement provides that the Company may, at its option, repurchase shares from individuals who are no longer employees. Such repurchased shares may be resold to others including replacement personnel at prices equal to or greater than the repurchase price. Generally, payment for shares repurchased can be, at the Company's option, in cash or subordinated installment notes, which are subordinated to all other indebtedness of the Company. Interest on these notes is payable semi-annually and principal payments are made annually over varying periods not to exceed ten years. The noncurrent portion of these notes ($24.9 million as of September 30, 1994, $20.4 million as of October 1, 1993) is included in the consolidated balance sheets as "Other Noncurrent Liabilities" and the current portion of these notes ($8.7 million as of September 30, 1994 and $6.2 million as of October 1, 1993) is included in the consolidated balance sheets as "Accounts Payable."
NOTE 8. COMMITMENTS AND CONTINGENCIES: 1994 1993 -------- -------- (in thousands) Facilities under capital leases $8,204 $8,204 Less-accumulated amortization 5,590 4,891 ------ ------ $2,614 $3,313 ====== ======
Rental expense for all operating leases was $121.2 million, $119.4 million and $118.5 million for fiscal 1994, 1993 and 1992, respectively. F-21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. COMMITMENTS AND CONTINGENCIES: (CONTINUED) Following is a schedule of the future minimum rental commitments under all noncancelable leases as of September 30, 1994:
Fiscal Year Operating Capital - ----------- --------- ------- (in thousands) 1995 $115,003 $ 962 1996 71,781 778 1997 63,407 695 1998 58,555 551 1999 53,384 368 Subsequent years 218,265 743 -------- ------ Total minimum rental obligations $580,395 4,097 ======== Less-amount representing interest 866 ------ Present value of capital leases 3,231 Less-current portion 690 ------ Noncurrent obligations under capital leases $2,541 ======
The Company has capital commitments of approximately $52 million at September 30, 1994 in connection with several long-term concession contracts at stadiums and arenas. The Company is party to certain claims and litigation arising in the ordinary course of business, including a dispute with a former insurance carrier involving certain coverages relating to prior years. The Company believes it has meritorious defenses to the insurance and other claims and is of the opinion that adequate reserves have been provided for the ultimate resolution of these matters. NOTE 9. ARAMARK SERVICES, INC. AND SUBSIDIARIES: The following financial information has been summarized from the separate consolidated financial statements of ARAMARK Services, Inc. (a wholly owned subsidiary of ARAMARK Corporation) and the subsidiaries which it currently owns. ARAMARK Services, Inc. is the borrower under the Credit Agreement and certain other senior debt described in Note 4 and incurs the interest expense thereunder. This interest expense is only partially allocated to all of the other subsidiaries of ARAMARK Corporation.
1994 1993 1992 ---------- ----------- ---------- (in thousands) Revenues $2,763,098 $2,607,630 $2,613,564 Cost of services provided 2,594,291 2,439,471 2,446,908 Net income (loss) 18,677 (357) 2,864 1994 1993 ---------- ---------- (in thousands) Current assets $ 355,841 $ 339,920 Noncurrent assets 1,223,750 1,221,164 Current liabilities 398,814 364,653 Noncurrent liabilities 1,093,563 1,126,087 Minority interest 10,812 18,084
F-22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. QUARTERLY RESULTS (UNAUDITED): The following table summarizes quarterly financial data for fiscal 1994 and 1993.
Fiscal Quarter ------------------------------------------------------------- 1994 First Second Third Fourth Year - -------------------------------------------------------------------------------------------------------------- (in thousands, except earnings per share) Revenues $1,292,020 $1,257,614 $1,309,085 $1,302,859 $5,161,578 Cost of services provided 1,179,726 1,156,230 1,185,363 1,164,767 4,686,086 Income before extraordinary item and cumulative effect of accounting change 18,387 13,124 27,121 36,401 95,033 Extraordinary item (1) 702 117 2,518 4,340 7,677 Net income (2) 16,408 13,007 24,603 32,061 86,079 Earnings per share: Income before extraordinary item and cumulative effect of accounting change $ .36 $ .25 $ .53 $ .73 $ 1.87 Net income $ .32 $ .25 $ .48 $ .64 $ 1.69 Fiscal Quarter ------------------------------------------------------------- 1993 First Second Third Fourth Year - --------------------------------------------------------------------------------------------------------------- (in thousands, except earnings per share) Revenues $1,214,882 $1,188,456 $1,242,155 $1,245,245 $4,890,738 Cost of services provided 1,110,111 1,090,870 1,124,615 1,107,244 4,432,840 Income before extraordinary item 16,192 11,634 22,280 34,228 84,334 Extraordinary item (1) 4,297 - 902 2,003 7,202 Net income 11,895 11,634 21,378 32,225 77,132 Earnings per share: Income before extraordinary item $ .32 $ .23 $ .44 $ .68 $ 1.64 Net income $ .24 $ .23 $ .42 $ .64 $ 1.49
(1) See Note 3. (2) Includes cumulative effect of change in accounting for income taxes of $1,277 in the fiscal 1994 first quarter. See Note 6. In the first and second fiscal quarters, within the Food, Leisure and Support Services segment there is a lower level of activity at the higher margin leisure and recreational food service operations which is partly offset by increased activity in the educational market. In addition, there is a seasonal increase in volume of directly marketed work clothing and casual apparel during the first quarter. Whereas in the third and fourth fiscal quarters, there is a significant increase at leisure and recreational accounts which is partially offset by the effect of summer closings in the educational market. F-23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. BUSINESS SEGMENTS: The Company provides or manages services in the following business segments: Food, Leisure and Support Services - Food, refreshment, specialized dietary and - ---------------------------------- support services, including maintenance and housekeeping, provided to business, educational, governmental and medical institutions and in recreational and other facilities serving the general public. Fiscal 1994 operating income includes a $5.8 million gain on the sale of stock of an affiliate and the 1993 operating income includes a $15 million gain from a divestiture and a reserve of approximately $18 million for potential adjustments as described in Note 2. The 1994 segment operating results have been adversely impacted by the U.S. Major League Baseball strike which began on August 12. Had the strike not occurred, it is estimated that segment revenues and operating income would have been approximately 2% and 6% greater than the reported results, respectively. Also, total Company operating income and income before extraordinary items would have been approximately 3% and 5% higher, respectively. Uniform Services - Rental of personalized work apparel and linens for business - ---------------- and institutions on a contract basis and the direct marketing of work clothing, casual apparel, and accessories. Health and Education Services - General management of child care centers, and - ----------------------------- specialized services to emergency rooms, and other hospital specialties, and medical services to correctional institutions. As described in Note 2, the Company divested Living Centers, the operator of nursing care facilities, in February 1992 and sold its remaining Living Centers common stock during fiscal 1993. Revenues related to Living Centers for fiscal 1992 were $132.8 million. The Health and Education Services segment operating income for fiscal 1992 includes a divestiture gain of $13 million, as described in Note 2. Approximately 40% of the segment operating income for fiscal 1992 was related to Living Centers, including the 1992 divestiture gain. The operating income of this segment, excluding Living Centers results, was $32.5 million in 1992. Distributive Services - Wholesale distribution of magazines and other published - --------------------- materials to retail locations patronized by the general public. Revenues by segment are substantially comprised of services to unaffiliated customers and clients. Operating income reflects expenses directly related to individual segments plus an allocation of expenses applicable to more than one segment. General corporate expenses include expenses not specifically identifiable with an individual segment. Fiscal 1994 expenses include unusual costs related to several corporate development and strategic initiatives, including costs related to a change in corporate identity. In 1992 unusual costs were incurred in connection with a potential acquisition and several special development programs. Direct selling expenses are approximately 1% of revenues for fiscal 1994, 1993 and 1992. Corporate assets consist principally of goodwill not allocable to any individual segment and other noncurrent assets.
Revenues Operating Income ---------------------------- ---------------------------- 1994 1993 1992 1994 1993 1992 -------- -------- -------- -------- -------- -------- (in millions) Food, Leisure & Support Services $3,274.3 $3,149.6 $3,151.8 $ 138.4 $ 137.4 $ 133.2 Uniform Services 810.5 731.0 632.9 96.0 87.6 76.5 Health & Education 673.3 619.3 687.3 37.2 33.7 53.0 Distributive 403.5 390.8 393.3 26.5 24.8 27.1 -------- -------- -------- ------- ------- ------- Total $5,161.6 $4,890.7 $4,865.3 298.1 283.5 289.8 ======== ======== ======== General Corporate and Other Expenses (30.8) (22.6) (28.2) Gain on Sale of Remaining Living Centers Common Stock - 8.0 - -------- -------- ------- Operating Income 267.3 268.9 261.6 Gain on Issuance of Stock by an Affiliate 4.7 - - Interest Expense, net (108.5) (125.7) (137.9) ------- ------- ------- Income Before Income Taxes, Minority Interest, Extraordinary Item, and Accounting Change $ 163.5 $ 143.2 $ 123.7 ======== ======= =======
F-24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. BUSINESS SEGMENTS: (CONTINUED) Depreciation and Amortization, Capital Expenditures and Identifiable Assets
Depreciation Capital and Amortization Expenditures --------------------------- --------------------- 1994 1993 1992 1994 1993 1992 -------- -------- -------- ------ ------ ------ (in millions) Food, Leisure & Support Services $ 85.5 $ 76.6 $ 75.9 $ 83.2 $ 82.4 $104.2 Uniform Services 36.3 33.9 26.4 39.9 37.9 67.1 Health & Education 16.5 15.1 18.5 18.4 22.5 15.6 Distributive 2.3 2.1 2.2 2.0 1.4 1.8 -------- -------- -------- ------ ------ ------ 140.6 127.7 123.0 143.5 144.2 188.7 Corporate 3.2 2.8 2.8 3.0 2.5 1.5 -------- -------- -------- ------ ------ ------ $ 143.8 $ 130.5 $ 125.8 $146.5 $146.7 $190.2 ======== ======== ======== ====== ====== ====== Identifiable Assets --------------------------- 1994 1993 1992 -------- -------- -------- (in millions) Food, Leisure & Support Services $1,085.7 $1,054.6 $1,046.5 Uniform Services 608.7 570.7 567.6 Health & Education 280.2 261.3 241.0 Distributive 74.2 65.6 69.1 -------- -------- -------- 2,048.8 1,952.2 1,924.2 Corporate 73.2 88.4 80.8 -------- -------- -------- $2,122.0 $2,040.6 $2,005.0 ======== ======== ========
Most services are provided in the United States, with operations also being conducted in Belgium, Canada, the Czech Republic, Germany, Hungary, Japan, Korea, Mexico, Spain and the United Kingdom. The Company's non-U.S. operations for each year contributed approximately 15% of total revenues and 9% of total operating income, and identifiable assets for these operations were approximately 11% of the total. F-25 ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands) ASSETS ------
December 30, September 30, 1994 1994 ------------ ------------- Current Assets: Cash and cash equivalents $ 18,322 $ 27,426 Short-term investments held by the Canadian subsidiary - 16,203 Receivables 441,342 433,550 Inventories, at lower of cost or market 267,729 256,950 Prepayments and other current assets 129,781 69,865 ---------- ---------- Total current assets 857,174 803,994 ---------- ---------- Property and Equipment, net 688,052 681,907 Goodwill 447,600 438,725 Other Assets 321,930 197,324 ---------- ---------- $2,314,756 $2,121,950 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Current maturities of long-term borrowings $ 10,578 $ 9,391 Accounts payable 341,766 372,908 Accrued expenses and other liabilities 409,657 374,902 ---------- ---------- Total current liabilities 762,001 757,201 ---------- ---------- Long-Term Borrowings 1,161,101 981,949 Deferred Income Taxes and Other Noncurrent Liabilities 171,177 168,638 Minority Interest 192 10,812 Common Stock Subject to Potential Repurchase Under Provisions of Shareholders' Agreement 21,612 20,791 Shareholders' Equity Excluding Common Stock Subject to Repurchase: Series C preferred stock, redemption value $1,000 16,666 16,949 Class A common stock, par value $.01 21 21 Class B common stock, par value $.01 244 243 Capital surplus 47 - Earnings retained for use in the business 199,083 178,587 Cumulative translation adjustment 4,224 7,550 Impact of potential repurchase feature of common stock (21,612) (20,791) ---------- ---------- Total 198,673 182,559 ---------- ---------- $2,314,756 $2,121,950 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-26 ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In Thousands, Except Per Share Amounts)
For the Three Months Ended ----------------------------- December 30, December 31, 1994 1993 ------------ ------------ Revenues $1,380,516 $1,292,020 ---------- ---------- Costs and Expenses: Cost of services provided 1,264,665 1,179,726 Depreciation and amortization 37,013 34,381 Selling and general corporate expenses 18,629 16,403 ---------- ---------- 1,320,307 1,230,510 ---------- ---------- Operating income 60,209 61,510 Interest Expense, net 25,433 29,481 ---------- ---------- Income before income taxes 34,776 32,029 Provision for Income Taxes 14,064 13,140 Minority Interest (41) 502 ---------- ---------- Income before Cumulative Effect of Change in Accounting for Income Taxes and Extraordinary Item 20,753 18,387 Cumulative Effect of Change in Accounting for Income Taxes - 1,277 Extraordinary Item Due to Early Extinguishment of Debt (net of income taxes of $468) - 702 ---------- ---------- Net income $ 20,753 $ 16,408 ========== ========== Earnings Per Share: Income before cumulative effect of change in accounting for income taxes and extraordinary item $.42 $.36 Net income $.42 $.32 ==== ====
The accompanying notes are an integral part of these condensed consolidated financial statements. F-27 ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
For the Three Months Ended --------------------------- December 30, December 31, 1994 1993 ------------ ------------ Cash flows from operating activities: Net income $ 20,753 $ 16,408 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 37,013 34,381 Income taxes deferred (1,233) (1,067) Minority interest (41) 502 Extraordinary item - 702 Cumulative effect of accounting change - 1,277 Changes in noncash working capital (79,340) (62,261) Other operating activities (5,367) (2,189) --------- -------- Net cash used in operating activities (28,215) (12,247) --------- -------- Cash flows from investing activities: Purchases of property and equipment (38,624) (28,213) Disposals of property and equipment 2,923 4,209 Sale of investments 16,203 6,194 Purchase of subsidiary stock (19,758) - Acquisition of certain businesses (115,680) (3,472) Other investing activities 2,306 (814) --------- -------- Net cash used in investing activities (152,630) (22,096) --------- -------- Cash flows from financing activities: Proceeds from additional long-term borrowings 179,541 49,163 Payment of long-term borrowings including premiums (6,202) (20,666) Other financing activities (1,598) (262) --------- -------- Net cash provided by financing activities 171,741 28,235 --------- -------- Decrease in cash and cash equivalents (9,104) (6,108) Cash and cash equivalents, beginning of period 27,426 27,801 --------- -------- Cash and cash equivalents, end of period $ 18,322 $ 21,693 ========= ========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-28 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 the interim periods are not necessarily indicative of the results for a full year. (2) ACQUISITIONS: During the first quarter, the Company acquired Harry M. Stevens, a provider of food and support services to stadiums and arenas, and Rainier News a magazine distribution company, for approximately $130 million in cash, notes and preferred stock. Due to the timing of the Harry M. Stevens acquisition, an appraisal of the assets acquired is not yet completed and, accordingly, the investment is included in the condensed consolidated balance sheet as "Other Assets." The Company has a definitive agreement to purchase the TW Recreational Services subsidiary of Flagstar Companies, Inc. for approximately $130 million. The acquisition is subject to certain third party approval. During the first quarter, the Company completed the buyback of the remaining minority interest of its Canadian subsidiary for cash consideration of $19.8 million. (3) NEW ACCOUNTING PRONOUNCEMENTS: During the first quarter of fiscal 1995, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) 112, "Employers Accounting for Postemployment Benefits", SFAS 114, "Accounting by Creditors for Impairment of a Loan", and SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". The adoption of these standards was not material to the Company's consolidated financial statements. (4) DEBT: During the first quarter of fiscal 1995, the Company increased the borrowing limits under its credit facility to $1 billion from $800 million. The additional borrowing capacity is reduced on a pro-rata basis over the existing quarterly commitment reduction schedule. (5) CAPITAL STOCK: During the first quarter of fiscal 1995, pursuant to the ARAMARK Ownership Program, employees purchased 327,660 shares or $1.7 million of Class B Common Stock for $0.8 million cash plus $0.9 million of deferred payment obligations. F-29 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (6) SUPPLEMENTAL CASH FLOW INFORMATION: The Company made interest payments of $24.7 million and $20.6 million and income tax payments of $14.3 million and $9.5 million during the first quarter of fiscal 1995 and 1994, respectively. During the first quarter of fiscal 1995, the Company purchased $2.8 million of its Class B Common Stock, issuing $1.3 million in subordinated installment notes as partial consideration, and contributed $1.3 million of Class A Common Stock to its employee benefit plans. In connection with the acquisitions described in Note 2, the Company issued promissory notes and preferred stock of a subsidiary totaling $9 million. (7) ARAMARK SERVICES, INC. AND SUBSIDIARIES: The following financial information has been summarized from the separate consolidated financial statements of ARAMARK Services, Inc. (a wholly owned subsidiary of ARAMARK Corporation) and the subsidiaries which it currently owns. ARAMARK Services, Inc. is the borrower under the revolving credit facility and certain other senior debt agreements and incurs the interest expense thereunder. This interest expense is only partially allocated to all of the other subsidiaries of ARAMARK Corporation.
For the Three Months Ended --------------------------- December 30, December 31, 1994 1993 ------------ ------------- (in millions) Revenues $ 753.9 $ 715.5 Cost of services provided 705.1 670.0 Income before cumulative effect of change in accounting for income taxes 9.8 5.4 Cumulative effect of change in accounting for income taxes - 0.3 Net income 9.8 5.1 December 30, September 30, 1994 1994 ------------ ------------- (in millions) Current assets $ 350.4 $ 355.8 Noncurrent assets 1,346.1 1,223.8 Current liabilities 444.0 398.8 Noncurrent liabilities 1,171.2 1,093.6 Minority interest 0.2 10.8
F-30 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE- SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SE- CURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION. -------------- TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE ---- Recent Developments........................................................ S-2 Use of Proceeds............................................................ S-2 Capitalization............................................................. S-3 Selected Financial Data.................................................... S-4 Financial Reporting by Business Segments................................... S-5 Management's Discussion and Analysis of Results of Operations and Financial Condition ................ S-5 Business................................................................... S-8 Description of the Notes................................................... S-10 Underwriting............................................................... S-14 PROSPECTUS Available Information...................................................... 2 Incorporation of Certain Documents by Reference............................ 2 ARAMARK Corporation........................................................ 3 Use of Proceeds............................................................ 3 The Credit Agreement....................................................... 3 Description of Securities and Guarantee.................................... 4 Validity of Securities and Guarantee....................................... 14 Experts.................................................................... 14 Plan of Distribution....................................................... 15 Financial Statements....................................................... F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- $150,000,000 ARAMARK SERVICES, INC. 8.15% GUARANTEED NOTES DUE MAY 1, 2005 UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST BY ARAMARK CORPORATION -------------- (ART) -------------- GOLDMAN, SACHS & CO. J.P. MORGAN SECURITIES INC. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----