-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TEq5PVXKN80uDLu0u+vTLGooGa2QE+zLjZH8RC2KsR7cG08a+ygyMLWSj5E/SMxg /Y2uBZ5qRpum9zbcozQNgQ== 0000950116-99-000242.txt : 19990217 0000950116-99-000242.hdr.sgml : 19990217 ACCESSION NUMBER: 0000950116-99-000242 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990101 FILED AS OF DATE: 19990216 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: 0927 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08827 FILM NUMBER: 99541074 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 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 1, 1999 Commission file number 1-8827 ---------------- ------
ARAMARK CORPORATION ------------------------------------------------------- (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) ARAMARK Tower 1101 Market Street Philadelphia, Pennsylvania 19107 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (215) 238-3000 ------------------------------------------------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class A common stock outstanding at January 29, 1999: 2,724,534 Class B common stock outstanding at January 29, 1999: 66,662,419 - ------------------------------------------------------------------------------ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands) ASSETS ------
January 1, October 2, 1999 1998 ------------ ------------ Current Assets: Cash and cash equivalents $ 31,676 $ 20,614 Receivables 533,466 526,506 Inventories, at lower of cost or market 363,763 361,451 Prepayments and other current assets 126,314 60,734 ----------- ----------- Total current assets 1,055,219 969,305 ----------- ---------- Property and Equipment, net 864,479 874,393 Goodwill 598,929 603,937 Other Assets 299,785 293,664 ---------- ----------- $2,818,412 $2,741,299 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Current maturities of long-term borrowings $ 19,521 $ 24,560 Accounts payable 345,754 373,696 Accrued expenses and other liabilities 533,376 502,482 ----------- ----------- Total current liabilities 898,651 900,738 ----------- ----------- Long-Term Borrowings 1,744,750 1,705,049 Deferred Income Taxes and Other Noncurrent Liabilities 191,753 194,388 Common Stock Subject to Potential Repurchase Under Provisions of Shareholders' Agreement 20,000 20,000 Shareholders' Equity/(Deficit) Excluding Common Stock Subject to Repurchase: Class A common stock, par value $.01 27 25 Class B common stock, par value $.01 625 629 Capital surplus 10,015 - Earnings retained for use in the business (26,732) (56,815) Cumulative translation adjustment (677) (2,715) Impact of potential repurchase feature of common stock (20,000) (20,000) ------------ ------------ Total (36,742) (78,876) ------------ ------------- $2,818,412 $2,741,299 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In Thousands, Except Per Share Amounts)
For the Three Months Ended -------------------------------- January 1, January 2, 1999 1998 --------- ---------- Revenues $1,588,623 $1,590,661 ---------- ---------- Costs and Expenses: Cost of services provided 1,438,505 1,441,708 Depreciation and amortization 45,821 47,450 Selling and general corporate expenses 19,485 22,350 ----------- -------------- 1,503,811 1,511,508 ---------- ----------- Operating income 84,812 79,153 Interest Expense, net 34,536 25,762 ------------ ------------- Income before income taxes 50,276 53,391 Provision for Income Taxes 20,193 23,314 ------------ ------------- Net income $ 30,083 $ 30,077 =========== ============= Earnings Per Share: Basic $.33 $.25 ==== ==== Diluted $.30 $.23 ==== ====
The accompanying notes are an integral part of these condensed consolidated financial statements. ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
For the Three Months Ended ----------------------------- January 1, January 2, 1999 1998 ---------- ----------- Cash flows from operating activities: Net income $ 30,083 $ 30,077 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 45,821 47,450 Income taxes deferred 1,001 1,708 Changes in noncash working capital (67,515) (132,343) Other operating activities (3,279) (6,543) ---------- ----------- Net cash provided by (used in) operating activities 6,111 (59,651) ----------- ---------- Cash flows from investing activities: Purchases of property and equipment (29,824) (24,935) Disposals of property and equipment 4,474 5,629 Sale of investments - 3,718 Divestiture of certain businesses 1,219 19,291 Acquisition of certain businesses (1,759) (9,175) Other investing activities (2,178) (5,977) ----------- ----------- Net cash used in investing activities (28,068) (11,449) ---------- ---------- Cash flows from financing activities: Proceeds from additional long-term borrowings 42,270 69,047 Payment of long-term borrowings (7,608) (2,164) Repurchase of stock (3,734) (3,300) Proceeds from issuance of common stock 2,091 1,598 ----------- ----------- Net cash provided by financing activities 33,019 65,181 ---------- ---------- Increase (decrease) in cash and cash equivalents 11,062 (5,919) Cash and cash equivalents, beginning of period 20,614 27,352 ----------- ---------- Cash and cash equivalents, end of period $ 31,676 $ 21,433 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. ARAMARK CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: -------------------------------------------- The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with 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) CAPITAL STOCK: ------------- During the first quarter of fiscal 1999, pursuant to the ARAMARK Ownership Program, employees purchased 574,380 shares or $3.0 million of Class B Common Stock for $2.1 million cash plus $.9 million of deferred payment obligations. (3) SUPPLEMENTAL CASH FLOW INFORMATION: ----------------------------------- The Company made interest payments of $22.7 million and $29.5 million and income tax payments of $18.4 million and $5.4 million during the first quarter of fiscal 1999 and 1998, respectively. During the first quarter of fiscal 1999, the Company purchased $3.7 million of its Class B Common Stock. (4) 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 January 1, January 2, 1999 1998 ---------- ----------- (in millions) Revenues $1,017.3 $922.8 Cost of services provided 947.1 861.5 Net income 13.9 13.3 January 1, October 2, 1999 1998 ---------- ---------- (in millions) Current assets $ 505.9 $ 451.1 Noncurrent assets 2,125.4 2,079.8 Current liabilities 589.3 545.4 Noncurrent liabilities 1,864.6 1,823.9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (5) EARNINGS PER SHARE: ------------------ The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." Earnings per share is reported on a Common Stock, Class B equivalent basis (which reflects Common Stock, Class A shares converted to a Class B basis, ten for one). Basic earnings per share is based on the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share is based on 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. Share and per share amounts for the prior year period have been restated to reflect the three-for-one stock split in September 1998. Earnings applicable to common stock and common shares utilized in the calculation of basic and diluted earnings per share are as follows:
Three Months Ended -------------------------------------- January 1, January 2, 1999 1998 ---------- ---------- (in thousands, except per share data) Earnings: Net income $30,083 $30,077 ======= ======= Shares: Weighted average number of common shares outstanding used in basic earnings per share calculation 90,566 122,211 Impact of potential exercise opportunities under the ARAMARK Ownership Plan 8,568 7,423 -------- --------- Total common shares used in diluted earnings per share calculation 99,134 129,634 ========= ======== Basic earnings per common share $.33 $.25 ==== ==== Diluted earnings per common share $.30 $.23 ==== ====
(6) COMPREHENSIVE INCOME: --------------------- In the first quarter of fiscal 1999, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income". Comprehensive income includes all changes in shareholders' equity during a period, except those resulting from investment by and distributions to shareholders. Components of comprehensive income include net income, and changes in foreign currency translation adjustments and unrealized holding gains/losses in marketable equity securities. Total comprehensive income was $32.1 million and $26.8 million for the three months ended January 1, 1999 and January 2, 1998, respectively. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - --------------------- Overview - -------- Revenues for the first quarter of fiscal 1999 of $1.6 billion were equal with the prior year period and operating income of $84.8 million was $5.7 million or 7% higher than the prior year period. Excluding the operating results of the Distributive segment, which was contributed to a joint venture in exchange for a minority interest in the venture in the fourth quarter of fiscal 1998, revenues increased 8% over the prior year period due to increases in the Food and Support Services, Uniform and Career Apparel and Educational Resources segments; and operating income increased 5% due to increased earnings in the Food and Support Services and Educational Resources segments partially offset by a decrease in earnings in the Uniform and Career Apparel segment. Fiscal 1999 first quarter operating results were also adversely affected by the National Basketball Association (NBA) labor dispute, which delayed the start of the NBA season until February 1999. Had the labor dispute not occurred, it is estimated that fiscal 1999 first quarter operating income and net income would have been 2% and 4% higher, respectively. The Company's operating margin increased to 5.3% from 5.0%, primarily as a result of the previously described Distributive segment transaction, partially offset by the impact of the NBA labor dispute and increased operating costs in the Uniform and Career Apparel segment. Interest expense, net increased $8.8 million or 34% due primarily to increased debt levels resulting from the tender offer transaction in June 1998. The effective income tax rate decreased to 40.2% in the first quarter of fiscal 1999 versus 43.7% in the prior year period due to the impact of permanent book/tax differences. Segment Results - --------------- Revenues - Food and Support Services segment revenues increased 8% over the prior year period due to new accounts (approximately 5%) and increased volume (approximately 4%), partially offset by the impact of the NBA labor dispute (approximately 1%). Uniform and Career Apparel segment revenues increased 4% over the prior year period due to increased volume, primarily in the uniform rental business. Educational Resources segment revenues increased 13% over the prior year period due to enrollment growth, pricing and new locations. Operating Income - Food and Support Services operating income increased 11% over the prior year period due to the revenue increases noted above and effective cost controls, partially offset by the NBA labor situation. Had the labor dispute not occurred, it is estimated that Food and Support Services segment fiscal 1999 first quarter operating income would have been 4% higher. Uniform and Career Apparel segment operating income decreased 14% from the prior year period. Excluding the impact of gains on the sale of assets from both the current and the prior year results, Uniform and Career Apparel segment operating income decreased 8% due to increased costs incurred in connection with the implementation of a new marketing initiative and increased product costs in the direct marketing businesses, partially offset by increased earnings in the uniform rental business. Educational Resources segment operating income increased 19% due to the revenue increases noted above. In January 1999, the National Basketball Association entered into a new labor accord. A shortened basketball season began in early February 1999. FINANCIAL CONDITION - ------------------- The Company's indebtedness increased $35 million in the first three months of fiscal 1999, principally to finance seasonal working capital needs and capital additions. The Company currently has approximately $600 million of unused committed credit availability under its credit facilities, which management believes, along with cash flows from operations, is sufficient to fund operating requirements. YEAR 2000 READINESS DISCLOSURE - ------------------------------ The Year 2000 issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As a result, on or near the change of the century, date-sensitive systems may recognize the Year 2000 as 1900, or not at all, which may cause systems to fail or process financial and operational information incorrectly. The Company has developed plans to address its Year 2000 issues. The plans address three broad areas: (1) internal information technology systems - including financial and operational application systems, computer hardware and systems software; (2) non-information technology systems - such as communication systems, building systems and devices with embedded computer chips; and (3) third party compliance - which addresses Year 2000 compliance efforts of key vendors and suppliers. The project plans consist of the following phases: 1) Organizational awareness - general awareness of the Year 2000 issues, which has been completed, and ongoing communication of Year 2000 project status. 2) Inventory of current applications. 3) Risk assessment of inventoried systems, with identification of mission-critical systems. 4) Replacement/remediation of systems. 5) Year 2000 testing and conversion of systems. 6) Contingency planning. Program management offices, staffed with a combination of business unit personnel and external consultants, have been established to address Year 2000 issues. Additionally, a Corporate Compliance Task Force consisting of internal audit, information technology, legal and risk management personnel, with assistance from external consultants, was formed in 1997 to review and monitor the Year 2000 compliance programs. The Task Force meets regularly to review corporate-wide Year 2000 issues and progress. The Company's Year 2000 compliance effort is monitored by senior management on a regular basis and the Audit Committee of the Board of Directors receives quarterly progress reports. Internal information technology systems - As of February 12, 1999, the inventory and risk assessment phases for mission-critical systems have been completed. For some systems, replacement/remediation and the related testing and conversion have been completed; for most other systems these activities continue, with target completion dates ranging from February 1999 through June 1999. The Company expects that mission-critical internal systems will be Year 2000 compliant by September 1999. Based on the current status of project plans, the Company believes that Year 2000 events caused by the Company's internal financial and operational systems would not have a material adverse impact on the Company's operations or financial condition. Non-information technology systems - The inventory and risk assessment phases are nearing completion. Based on the results of these phases, replacement/remediation plans will be developed for mission-critical equipment and facilities, which are expected to be implemented by September 1999. Given the nature and geographic dispersion of the Company's business units, the Company believes that any events caused by Year 2000 failures of non-information technology systems would be short-term in nature and would not have a material adverse impact on the Company's operations or financial condition. Third party compliance - The Company has identified, and initiated communications with, key third party suppliers and customers to determine potential exposure to these third parties' failure to remediate their own Year 2000 issues. In December 1998, the Company began conducting on site reviews of key suppliers' project status and issues. The Company expects to complete its third party reviews by April 1999 and will develop contingency plans to address potential third party Year 2000 failures. The basic materials required to operate the Company's businesses are generally available from a number of suppliers, and in the event of an inability of a key supplier to deliver product, the Company believes alternative sources will be available. However, an extended outage by utilities (electric, water, telephone, etc.), key third-party suppliers or financial institutions, while somewhat mitigated by the geographic dispersion of the Company's businesses, could have material adverse impacts on the Company's operations and financial condition. Contingency Plans - ----------------- Company resources to date have been focused primarily on Year 2000 remediation. The Company maintains contingency plans for computer failures, power outages, natural disasters, etc. Year 2000 contingency plans for mission-critical systems, in the areas discussed above, will be developed and integrated with the existing contingency plans where appropriate by December 1999. Costs - ----- The Company currently estimates spending approximately $15 to $20 million, excluding internal costs, to complete its Year 2000 compliance program, including approximately $10 million that has been expended through the first quarter of fiscal 1999. Year 2000 costs related to systems or equipment replacement are capitalized in accordance with the Company's accounting policies. Year 2000 remediation costs are expensed as incurred. The Company's ability to achieve Year 2000 compliance, the level of costs associated therewith and the resultant impact on operations and financial condition could be adversely impacted by, among other things, the availability and cost of applicable resources, vendors' ability to modify proprietary software, and unanticipated problems identified in the ongoing compliance program. PART II - OTHER INFORMATION Item 1 through 5 are not applicable. - ------------------------------------ Item 6: Exhibits. - ------ --------- (a) Exhibit 27 - Financial Data Schedule for the three months ended January 1, 1999 (b) Not Applicable SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ARAMARK CORPORATION February 15, 1999 /s/ Alan J. Griffith ----------------------------- Alan J. Griffith Vice President, Controller and Chief Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Income filed as part of Form 10-Q and is qualified in its entirety by reference to such Form 10-Q. 1,000 U.S. DOLLARS 3-MOS Oct-1-1999 Oct-3-1998 Jan-1-1999 1 31,676 0 533,466 26,568 363,763 1,055,219 1,763,851 899,372 2,818,412 898,651 1,744,750 0 0 652 (37,394) 2,818,412 0 1,588,623 0 1,438,505 45,821 3,051 34,536 50,276 20,193 30,083 0 0 0 30,083 .33 .30 Earnings per share have been prepared in accordance with SFAS No. 128, "Earnings Per Share" and therefore basic and diluted earnings per share have been entered in place of primary and fully diluted EPS, respectively.
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