-----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, do7LCszIa9iW4RF9W8Wjyobw+CHiiwTl/Z50iam/AGnMePi2pDExtwmuE+qMuNzs KJ8qEjYbr+bX9ORf4ekOUA== 0000950116-94-000015.txt : 19940215 0000950116-94-000015.hdr.sgml : 19940215 ACCESSION NUMBER: 0000950116-94-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARA GROUP INC CENTRAL INDEX KEY: 0000757523 STANDARD INDUSTRIAL CLASSIFICATION: 5812 IRS NUMBER: 232319139 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 001-08827 FILM NUMBER: 94507361 BUSINESS ADDRESS: STREET 1: THE ARA TOWER STREET 2: 1101 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19107 BUSINESS PHONE: 2152383000 FORMER COMPANY: FORMER CONFORMED NAME: ARA HOLDING CO DATE OF NAME CHANGE: 19880515 10-Q 1 FORM 10-Q (1ST QUARTER) 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended Commission file number December 31, 1993 1-8827 ------------------ ------ THE ARA GROUP, INC. -------------------------------------- (Exact name of registrant as specified in its charter) Delaware 23-2319139 --------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) The ARA Tower 1101 Market Street Philadelphia, Pennsylvania 19107 ---------------------------- -------------- (Address of principal executive offices) (Zip Code) (215) 238-3000 --------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class A common stock outstanding at January 28, 1994: 2,100,761 Class B common stock outstanding at January 28, 1994: 26,139,143 - -------------------------------------------------------------------- 2 PART I - FINANCIAL INFORMATION THE ARA GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1993 AND OCTOBER 1, 1993 (Unaudited) (In Thousands)
ASSETS ------ December 31, October 1, 1993 1993 Current Assets: ------------- ---------- Cash and cash equivalents $ 21,693 $ 27,801 Receivables 392,550 388,768 Inventories, at lower of cost or market 246,333 249,858 Prepayments and other current assets 144,002 63,381 ---------- ---------- Total current assets 804,578 729,808 ---------- ---------- Property and Equipment, net 658,071 648,379 Goodwill 443,849 446,261 Other Assets 209,147 216,193 ---------- ---------- $2,115,645 $2,040,641 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: ------------------------------------ Current maturities of long-term borrowings $ 12,405 $ 15,615 Accounts payable 286,704 329,129 Accrued expenses and other liabilities 409,947 340,722 ---------- ---------- Total current liabilities 709,056 685,466 ---------- ---------- Long-Term Borrowings 1,041,551 1,008,674 Deferred Income Taxes and Other Noncurrent Liabilities 180,177 182,693 Minority Interest 18,052 18,084 Common Stock Subject to Potential Repurchase Under Provisions of Shareholders' Agreement 22,488 21,651 Shareholders' Equity Excluding Common Stock Subject to Repurchase: Series C preferred stock, redemption value $1,000 34,445 34,596 Class A common stock, par value $.01 21 21 Class B common stock, par value $.01 248 243 Capital surplus 5,813 - Earnings retained for use in the business 120,720 104,827 Cumulative translation adjustment 5,562 6,037 Impact of potential repurchase feature of common stock (22,488) (21,651) ---------- ---------- Total 144,321 124,073 ---------- ---------- $2,115,645 $2,040,641 ========== ========== The accompanying notes are an integral part of these condensed consolidated financial statements.
3 THE ARA GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED DECEMBER 31, 1993 AND JANUARY 1, 1993 (Unaudited) (In Thousands, Except Per Share Amounts) Fiscal Fiscal 1994 1993 ---------- ---------- Revenues $1,292,020 $1,214,882 ---------- ---------- Costs and Expenses: Cost of services provided 1,179,726 1,110,111 Depreciation and amortization 34,381 32,114 Selling and general corporate expenses 16,403 15,674 Other income - (3,610) ---------- ---------- 1,230,510 1,154,289 ---------- ---------- Operating income 61,510 60,593 Interest Expense, net 29,481 32,818 ---------- ---------- Income before income taxes 32,029 27,775 Provision for Income Taxes 13,140 11,196 Minority Interest 502 387 ---------- ---------- Income before Cumulative Effect of Change in Accounting for Income Taxes and Extraordinary Item 18,387 16,192 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 in fiscal 1994 and $2,747 in fiscal 1993) 702 4,297 ---------- ---------- Net income $ 16,408 $ 11,895 ========== ========= Earnings Per Share: Income before cumulative effect of change in accounting for income taxes and extraordinary item $.36 $.32 Net income $.32 $.24 ==== ==== The accompanying notes are an integral part of these condensed consolidated financial statements. 4 THE ARA GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1993 AND JANUARY 1, 1993 (Unaudited) (In Thousands) Fiscal Fiscal 1994 1993 -------- -------- Cash flows from operating activities: Net income $ 16,408 $ 11,895 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 34,381 32,114 Income taxes deferred (1,067) 785 Minority interest 502 387 Extraordinary item 702 4,297 Cumulative effect of accounting change 1,277 - Changes in noncash working capital (62,261) (57,614) Other operating activities (2,189) 85 -------- -------- Net cash used in operating activities (12,247) (8,051) -------- -------- Cash flows from investing activities: Purchases of property and equipment (28,213) (24,381) Disposals of property and equipment 4,209 4,239 Sale of investments 6,194 8,270 Acquisition of certain businesses (3,472) (7,413) Other investing activities (814) (1,460) -------- -------- Net cash used in investing activities (22,096) (20,745) -------- -------- Cash flows from financing activities: Proceeds from additional long-term borrowings 49,163 33,589 Payment of long-term borrowings including premiums (20,666) (12,152) Other financing activities (262) 2,181 -------- -------- Net cash provided by financing activities 28,235 23,618 -------- -------- Decrease in cash and cash equivalents (6,108) (5,178) Cash and cash equivalents, beginning of period 27,801 23,785 -------- -------- Cash and cash equivalents, end of period $ 21,693 $ 18,607 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. 5 THE ARA GROUP, INC. 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) OTHER INCOME: ------------- During the first quarter of fiscal 1993, the Company sold 509,000 shares of stock of Living Centers of America, Inc. for $8.3 million, resulting in a gain of $3.6 million which is reflected in the Condensed Consolidated Statement of Income as "Other Income". (3) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES: ----------------------------------------------------------- On October 2, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes", which requires a change from the deferred method to the liability method of income tax accounting. FAS 109 was adopted prospectively by recording a cumulative effect adjustment of $1.3 million ($.03 per share). The adoption of FAS 109 did not have a material impact on the Company's effective tax rate. The components of the Company's deferred tax assets and liabilities at the beginning of fiscal 1994 are as follows (in millions): Deferred tax liabilities: Depreciation and amortization $70.8 Inventory 5.8 Other 3.7 ----- Gross deferred tax liability 80.3 ===== Deferred tax assets: Insurance 16.1 Employee compensation and benefits 24.9 Other accruals and allowances 24.4 Valuation allowance (2.3) ----- Net deferred tax asset 63.1 ----- Net deferred income taxes $17.2 ===== 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued) The Company has not provided for possible U.S. or foreign taxes on the undistributed earnings of non-U.S. subsidiaries that are considered to be permanently invested. Determination of the unrecognized deferred tax liability for temporary differences related to the undistributed earnings is not practicable. Certain fiscal 1993 balance sheet items have been reclassified to conform to the fiscal 1994 presentation. (4) EARLY EXTINGUISHMENT OF DEBT: ----------------------------- During the first quarter of fiscal 1994, the Company redeemed $11.4 million of its 12.5% subordinated debentures for a $1 million cash premium. The Company entered into an agreement during the first quarter of fiscal 1993 to redeem $100 million of its 10.55% senior notes for a $7 million cash premium paid in March, 1993. The redemption premiums, net of related tax benefits, are reflected in the Condensed Consolidated Statements of Income as an "Extraordinary Item". (5) CAPITAL STOCK: -------------- During the first quarter of fiscal 1994, pursuant to the ARA Ownership Program, employees purchased 652,128 shares or $3.9 million of Class B Common Stock for $2.8 million cash plus $1.1 million of deferred payment obligations. (6) SUPPLEMENTAL CASH FLOW INFORMATION: ----------------------------------- The Company made interest payments of $20.6 million and $21.1 million and income tax payments of $9.5 million and $8.5 million during the first quarter of fiscal 1994 and 1993, respectively. During the first quarter of fiscal 1994, the Company purchased $2.2 million of its Class B Common Stock, issuing $0.6 million in subordinated installment notes as partial consideration, and contributed $3.4 million of Class A Common Stock to its employee benefit plans. (7) ARA SERVICES, INC. AND SUBSIDIARIES: ------------------------------------ The following financial information has been summarized from the separate consolidated financial statements of ARA Services, Inc. (a wholly owned subsidiary of The ARA Group, Inc.) and the subsidiaries which it currently owns. ARA 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 The ARA Group, Inc. 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued) For the Three Months Ended -------------------------- December 31, January 1, 1993 1993 ------------ ---------- (in millions) Revenues $715.5 $673.4 Cost of services provided 670.0 628.0 Income before cumulative effect of change in accounting for income taxes and extraordinary item 5.4 6.7 Cumulative effect of change in accounting for income taxes 0.3 - Extraordinary item - 4.3 Net income 5.1 2.4 December 31, October 1, 1993 1993 ------------ ---------- (in millions) Current assets $ 348.2 $ 339.9 Noncurrent assets 1,303.3 1,221.2 Current liabilities 405.7 364.6 Noncurrent liabilities 1,170.8 1,126.1 Minority interest 18.1 18.1 8 THE ARA GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - --------------------- Overview - -------- Revenues of $1.3 billion for the first quarter of fiscal 1994 were 6% higher than the comparable prior year. First quarter operating income of $61.5 million was 2% higher than the comparable prior year period. Excluding the fiscal 1993 $3.6 million other income described in note 2, operating income increased 8%. First quarter interest expense declined $3.3 million or 10% due primarily to the favorable impact of refinancing certain of the Company's long-term notes and subordinated debentures. The first quarter net income for fiscal 1994 and 1993 includes an extraordinary item due to early extinguishments of debt of $.7 million and $4.3 million, respectively. Fiscal 1994 first quarter net income also reflects a $1.3 million cumulative effect adjustment for the change in method of accounting for income taxes. See notes 3 and 4 to the condensed consolidated financial statements. Income before the extraordinary item and cumulative effect adjustment was $18.4 million or 14% higher than the prior year. Segment Results - --------------- Food, Leisure and Support Services segment revenues increased 5% due to new accounts in domestic food business, new arena contracts, and the September 1993 acquisition of a Spanish food service company. Uniform Services segment revenues increased 12% reflecting increased volume at uniform rental operations and WearGuard. Revenues for the Health and Education Services segment increased 9% due to new contracts, higher volume at existing accounts at Spectrum Healthcare Services and continued enrollment growth at Children's World. The Distributive Services segment recorded a 4% increase in revenues resulting from the favorable impact of higher unit volume of magazines in certain geographical areas. Food, Leisure and Support Services segment operating income increased 3% due to the positive effects of higher revenues partially offset by lower operating margins due to somewhat higher costs. Uniform Services operating income increased 11% due to the higher revenues. Operating income for the Health and Education Services segment increased 2% due primarily to the higher segment revenues and operating efficiencies at Children's World partially offset by an increase in costs incurred at Spectrum Healthcare Services. The Distributive Services segment recorded a 12% increase in operating income as higher revenues coupled with operating efficiencies resulted in improved profits. On January 17, 1994, Southern California, where the Company operates a number of facilities, experienced a significant earthquake. The damage to the Company's facilities and the related interruption in business were minor and will not have a material affect on results of operations or financial condition. 9 FINANCIAL CONDITION - ------------------- The Company's indebtedness increased $30 million during the first quarter of fiscal 1994 principally to finance capital expenditures and a seasonal increase in working capital. The Company currently has approximately $280 million of unused committed credit availability under its $650 million revolving credit facility. The Company adopted Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes" during the first quarter of 1994. The cumulative effect of the change in method of accounting for income taxes was to reduce net income by $1.3 million ($.03 per share). See note 3 to the condensed consolidated financial statements. 10 PART II - OTHER INFORMATION Items 1 through 4 are not applicable. - ------------------------------------- Item 5: None - ------- Item 6: Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibit 11 - Computation of Fully Diluted Earnings Per Share (b) None 11 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE ARA GROUP, INC. s/Alan J. Griffith ------------------------------- February 11, 1994 Alan J. Griffith Controller and Chief Accounting Officer EX-11 2 EXHIBIT 11 12 EXHIBIT 11 THE ARA GROUP, INC. AND SUBSIDIARIES COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (Unaudited) (In thousands, except per share data) Three Months Ended ------------------------- December 31, January 1, 1993 1993 ------------ ---------- Earnings: Net Income $16,408 $11,895 Preferred stock dividends (511) - ------- ------- Earnings applicable to common stock $15,897 $11,895 ======= ======= Shares: Weighted average number of common shares outstanding (2) 45,758 44,851 Impact of potential exercise opportunities under the ARA Ownership Plan 3,828 5,687 ------- ------- Total common and common equivalent shares 49,586 50,538 ======= ======= Fully diluted earnings per common share (1) $.32 $.24 ==== ==== (1) Primary and fully diluted earnings per share are approximately the same. (2) Includes Class B plus Class A Common Shares stated on a Class B Common Share Equivalent Basis. -----END PRIVACY-ENHANCED MESSAGE-----