Accounts Receivable Securitization

9 Months Ended

Jul. 01, 2011

Accounts Receivable Securitization

Accounts Receivable Securitization

(10) ACCOUNTS RECEIVABLE SECURITIZATION:

The Company has an agreement (the Receivables Facility) with several financial institutions whereby it sells on a continuous basis an undivided interest in all eligible trade accounts receivable, as defined in the Receivables Facility. The maximum amount of the facility is $250 million, which expires in January 2013. Pursuant to the Receivables Facility, the Company formed ARAMARK Receivables, LLC, a wholly-owned, consolidated, bankruptcy-remote subsidiary. ARAMARK Receivables, LLC was formed for the sole purpose of buying and selling receivables generated by certain subsidiaries of the Company. Under the Receivables Facility, the Company and certain of its subsidiaries transfer without recourse all of their accounts receivable to ARAMARK Receivables, LLC. As collections reduce previously transferred interests, interests in new, eligible receivables are transferred to ARAMARK Receivables, LLC, subject to meeting certain conditions.

Prior to October 2, 2010, the funding transactions under the Receivables Facility were accounted for as a sale of receivables under the provisions of the authoritative accounting guidance. At October 1, 2010, the Company retained an undivided interest in the transferred receivables of approximately $253.3 million and approximately $220.9 million of accounts receivable were sold and removed from the Condensed Consolidated Balance Sheet. Because the sold accounts receivable underlying the retained ownership interest are generally short-term in nature, the fair value of the retained interest approximated its carrying value at October 1, 2010. The fair value of the retained interest is measured based on expected future cash flows adjusted for unobservable inputs used to assess the risk of credit losses. Those inputs reflect the diversified customer base, the short-term nature of the securitized asset, aging trends and historic collections experience. The Company believes that the allowance for doubtful accounts balance is a reasonable approximation of any credit risk of the customers that generated the receivables.

In the first quarter of fiscal 2011, the Company adopted the new authoritative accounting guidance regarding transfers of financial assets. On a prospective basis, the Company is required to report its receivables securitization facility as a secured borrowing instead of as a sale of receivables. The impact of the new accounting treatment upon adoption resulted in the recognition of both the receivables securitized under the program and the borrowings they collateralize on the Condensed Consolidated Balance Sheet, which led to a $220.9 million increase in "Receivables" and "Long-Term Borrowings." At July 1, 2011, the amount of outstanding borrowings under the Receivables Facility was $210.8 million and is included in "Long-Term Borrowings." The Company's debt covenants are not impacted by the balance sheet recognition of the secured borrowings, as borrowings under the Receivables Facility were always considered borrowings in the debt covenant calculations. Additionally, the Company's Consolidated Statement of Cash Flows during fiscal 2011 reflects the final remittance of cash associated with the $220.9 million of receivables sold at October 1, 2010 and subsequently collected by the Company on behalf of the bank conduits as an operating cash outflow. Any subsequent borrowing activity with the bank conduits will now be treated as financing cash flows, which was $210.8 million during the nine months ended July 1, 2011. The overall effect on the Condensed Consolidated Statement of Cash Flows was a reduction in cash from operating activities and an increase in cash from financing activities, whereas under the previous guidance, these cash flows were presented net as cash from operating activities.