-----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, EBYWuZemhKq9I3zRK0/QTCRjpDAcheLrph+9MzJ8dYTN+SYRgcEimVIELd8/oEnK yapkfnvX/OoAi0JTMJL5cw== 0000950116-99-001046.txt : 19990518 0000950116-99-001046.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950116-99-001046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990402 FILED AS OF DATE: 19990517 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: 99626802 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 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 April 2, 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 19107-2988 - -------------------------------------------------------------------------------- (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 April 30, 1999: 2,736,350 Class B common stock outstanding at April 30, 1999: 66,338,723 - --------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands)
ASSETS ------ April 2, October 2, 1999 1998 ----------- ----------- Current Assets: Cash and cash equivalents $ 22,057 $ 20,614 Receivables 516,451 526,506 Inventories, at lower of cost or market 367,041 361,451 Prepayments and other current assets 104,457 60,734 ----------- ----------- Total current assets 1,010,006 969,305 ----------- ----------- Property and Equipment, net 887,175 874,393 Goodwill 610,102 603,937 Other Assets 298,006 293,664 ----------- ----------- $ 2,805,289 $ 2,741,299 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Current maturities of long-term borrowings $ 21,021 $ 24,560 Accounts payable 360,017 373,696 Accrued expenses and other liabilities 533,934 502,482 ----------- ----------- Total current liabilities 914,972 900,738 ----------- ----------- Long-Term Borrowings 1,686,544 1,705,049 Deferred Income Taxes and Other Noncurrent Liabilities 192,957 194,388 Common Stock Subject to Potential Repurchase Under Provisions of Shareholders' Agreement 20,000 20,000 Shareholders' Deficit Excluding Common Stock Subject to Repurchase: Class A common stock, par value $.01 27 25 Class B common stock, par value $.01 664 629 Capital surplus 21,688 -- Earnings retained for use in the business (7,305) (56,815) Cumulative translation adjustment (4,258) (2,715) Impact of potential repurchase feature of common stock (20,000) (20,000) ----------- ----------- Total (9,184) (78,876) ----------- ----------- $ 2,805,289 $ 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 For the Six Months Ended April 2, April 3, April 2, April 3, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Revenues $1,597,297 $1,592,214 $3,185,920 $3,182,875 ---------- ---------- ---------- ---------- Costs and Expenses: Cost of services provided 1,459,554 1,461,334 2,898,059 2,903,042 Depreciation and amortization 48,709 49,552 94,530 97,002 Selling and general corporate expenses 22,846 21,226 42,331 43,576 ---------- ---------- ---------- ---------- 1,531,109 1,532,112 3,034,920 3,043,620 ---------- ---------- ---------- ---------- Operating income 66,188 60,102 151,000 139,255 Interest Expense, net 34,929 28,084 69,465 53,846 ---------- ---------- ---------- ---------- Income before income taxes 31,259 32,018 81,535 85,409 Provision for Income Taxes 11,832 13,360 32,025 36,674 ---------- ---------- ---------- ---------- Income before Extraordinary Item 19,427 18,658 49,510 48,735 Extraordinary Item due to Early Extinguishment of Debt (net of income taxes) -- 1,559 -- 1,559 ---------- ---------- ---------- ---------- Net income $ 19,427 $ 17,099 $ 49,510 $ 47,176 ========== ========== ========== ========== Earnings Per Share: Before Extraordinary Item: Basic $ .20 $ .15 $ .53 $ .39 Diluted $ .19 $ .14 $ .49 $ .37 Net Income: Basic $ .20 $ .14 $ .53 $ .38 Diluted $ .19 $ .13 $ .49 $ .36
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 Six Months Ended ------------------------ April 2, April 3, 1999 1998 --------- --------- Cash flows from operating activities: Net income $ 49,510 $ 47,176 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 94,530 97,002 Income taxes deferred 2,414 9,414 Extraordinary item -- 1,559 Changes in noncash working capital (17,939) (45,536) Other operating activities (10,571) (8,841) --------- --------- Net cash provided by operating activities 117,944 100,774 --------- --------- Cash flows from investing activities: Purchases of property and equipment (74,754) (65,191) Disposals of property and equipment 6,466 11,501 Sale of investments 40,722 5,779 Divestiture of certain businesses 8,380 22,920 Acquisition of certain businesses (60,614) (16,224) Other investing activities (10,109) (21,178) --------- --------- Net cash used in investing activities (89,909) (62,393) --------- --------- Cash flows from financing activities: Proceeds from additional long-term borrowings 5,897 59,137 Payment of long-term borrowings including premiums (34,641) (72,634) Proceeds from issuance of common stock 13,492 18,274 Repurchase of stock (11,309) (34,733) Other financing activities (31) (2,040) --------- --------- Net cash used in financing activities (26,592) (31,996) --------- --------- Increase in cash and cash equivalents 1,443 6,385 Cash and cash equivalents, beginning of period 20,614 27,352 --------- --------- Cash and cash equivalents, end of period $ 22,057 $ 33,737 ========= =========
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) LONG TERM BORROWINGS: In March 1998, the Company redeemed a $50 million 8% note due April 2002 for a premium resulting in an extraordinary item for debt extinguishment of $1.6 million (net of tax benefit of $1.0 million). (3) CAPITAL STOCK: During the first six months of fiscal 1999, pursuant to the ARAMARK Ownership Program, employees purchased 5,902,306 shares of Class B Common Stock for total consideration of $29.8 million consisting of $13.5 million in cash plus $16.3 million of deferred payment obligations. (4) SUPPLEMENTAL CASH FLOW INFORMATION: The Company made interest payments of $66.6 million and $53.1 million and income tax payments of $46.0 million and $29.8 million during the first six months of fiscal 1999 and 1998, respectively. During the first six months of fiscal 1999, the Company purchased $8.3 million of its Class A Common Stock and $9.7 million of its Class B Common Stock, issuing $6.7 million in installment notes as partial consideration. (5) 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, changes in foreign currency translation adjustments and unrealized holding gains/losses in marketable equity securities. Total comprehensive income was $15.8 million and $48.0 million for the three and six months ended April 2, 1999, respectively; and $16.5 million and $43.3 million for the three and six months ended April 3, 1998, respectively. (6) ACQUISITIONS: During the second quarter of fiscal 1999, the Company acquired Restaura, Inc. a provider of food and support services, and Dyna Corporation, a leading distributor of emergency medical supplies for approximately $46 million and $13 million in cash, respectively. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (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 For the Six Months Ended -------------------------------- -------------------------------- April 2, April 3, April 2, April 3, 1999 1998 1999 1998 ----------- ----------- -------------- ------------- (in millions) Revenues $1,053.1 $958.5 $2,070.4 $1,881.3 Cost of services provided 987.4 901.5 1,934.5 1,763.0 Net income 10.0 8.2 23.9 21.5 April 2, October 2, 1999 1998 ----------- ----------- (in millions) Current assets $ 483.6 $ 451.1 Noncurrent assets 2,096.7 2,079.8 Current liabilities 587.3 545.4 Noncurrent liabilities 1,809.2 1,823.9
(8) 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. Shares 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 Six Months Ended ------------------------- ------------------------------ April 2, April 3, April 2, April 3, 1999 1998 1999 1998 -------- ---------- --------- ------------ (in thousands, except per share data) Earnings: Income before extraordinary item $19,427 $18,658 $49,510 $48,735 ======= ======= ======= ======= Shares: Weighted average number of common shares outstanding used in basic earnings per share calculation 95,158 125,642 92,865 123,927 Impact of potential exercise opportunities under the ARAMARK Ownership Plan 6,952 7,644 7,770 7,650 ------- ------- ------- -------- Total common shares used in diluted earnings per share calculation 102,110 133,286 100,635 131,577 ======= ======= ======= ======== Basic earnings per common share $.20 $.15 $.53 $.39 ==== ==== ==== ==== Diluted earnings per common share $.19 $.14 $.49 $.37 ==== ==== ==== ====
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - --------------------- Overview - -------- Revenues of $1.6 billion for the second quarter and $3.2 billion for the six month period were equal with the prior year period; while operating income of $66.2 million for the second quarter and $151.0 million for the six month period increased 10% and 8%, respectively, over the prior year periods. 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 for the three and six month periods increased 8% over the prior year due to increases in the Food and Support Services, Uniform and Career Apparel and Educational Resources segments. Operating income excluding the Distributive segment equaled the prior year for the second quarter and increased 3% over the prior year for the six month period. Earnings increased for both the three and six month periods in the Food and Support Services and Educational Resources segments and decreased in the Uniform and Career Apparel segment. Fiscal 1999 results were also adversely impacted by the National Basketball Association (NBA) labor dispute, which was settled in January 1999. Had the labor dispute not occurred, it is estimated that fiscal 1999 operating income and net income would have been approximately 2% and 3% higher, respectively, for both the three and six month periods. The Company's operating margin for the six month period increased to 4.7% from 4.4%, primarily as a result of the previously described Distributive segment transaction, partially offset by the NBA labor dispute and increased operating costs in the Uniform and Career Apparel segment. Interest expense, net, increased 24% and 29% for the three and six month periods, respectively, due primarily to increased debt levels resulting from the tender offer transaction in June 1998. The effective income tax rate for both the three and six month periods decreased compared to the prior year periods due to the impact of permanent book/tax differences. Segment Results - --------------- Revenues - Food and Support Services segment revenues for both the three and six month periods increased 9% over the prior year periods due to new accounts (approximately 2% and 3%, respectively), acquisitions (approximately 3% and 2%, respectively) and increased volume (approximately 4% and 4%, respectively). Uniform and Career Apparel segment revenues for the three and six month periods increased 4% over the prior year periods due primarily to increased volume in the uniform rental business. Educational Resources segment revenues for the three and six month periods increased 11% and 12%, respectively, over the prior year periods due to pricing and new locations. Operating Income - Food and Support Services segment operating income increased 9% and 10% for the three and six month periods, respectively, versus the prior year periods due to the increased revenues noted above and effective cost controls, partially offset by the impact of the NBA labor situation. Had the labor dispute not occurred, it is estimated that Food and Support Services segment operating income for the three and six month periods would have been 2% and 3% higher, respectively. Uniform and Career Apparel segment operating income for the fiscal second quarter decreased 20% from the prior year period due to costs incurred in connection with the implementation of a new marketing initiative and increased costs in both the uniform rental and direct marketing businesses. Uniform and Career Apparel segment operating income for the six month period decreased 17% from the prior year period. Excluding the impact of gains on the sale of assets from both the current year and prior year results, Uniform and Career Apparel segment operating income for the six month period decreased 14% due to the marketing costs noted above and increased costs in the direct marketing businesses, partially offset by increased earnings in the uniform rental business. Educational Resources segment operating income for the three and six month periods increased 7% and 11%, respectively due to the revenue increases noted above. FINANCIAL CONDITION - ------------------- The Company's indebtedness decreased $22 million in the first six months of fiscal 1999. The Company currently has approximately $700 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, which has been completed. 3) Risk assessment of inventoried systems, with identification of mission-critical systems, which has been completed. 4) Replacement/remediation of systems. 5) Year 2000 testing and conversion of systems, including rollout of compliant hardware/software to front line locations. 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 progress reports at least quarterly. Internal information technology systems - As of May 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. Most other systems have been replaced or remediated, as necessary and Year 2000 testing or conversion is in process. For a few systems, replacement/remediation activities are still underway. 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 essentially completed. Based on the results of these phases, replacement/remediation plans are being 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. The Company has conducted on site reviews of key suppliers' project status and issues. The Company continues to monitor suppliers' Year 2000 status 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, are being developed and will be 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 $11 million that has been expended through the second 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: Not Applicable. Item 2: Not Applicable. Item 3: Not Applicable. Item 4: Submission of Matters to a Vote of Security Holders. (a) The Annual Meeting of Stockholders was held on February 9, 1999. (b) Not Applicable (c) (1) There were 59,363,109 affirmative votes and 36,711 votes withheld or abstained with respect to the uncontested election of directors. (2) There were 59,100,390 affirmative votes and 299,430 negative or abstained votes with respect to a proposal to amend and restate the Certificate of Incorporation to eliminate the automatic conversion of shares of Class B Common Stock into shares of Class A Common Stock upon termination of employment. (3) There were 58,453,882 affirmative votes and 945,938 negative or abstained votes with respect to a proposal to approve the Senior Executive Annual Performance Bonus Arrangement. (d) Not Applicable. Item 5: Not Applicable. Item 6: Exhibits (a) Exhibit 27 - Financial Data Schedule. (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 May 17, 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 6-MOS OCT-01-1999 OCT-03-1998 APR-02-1999 22,057 0 516,451 28,009 367,041 1,010,006 1,806,700 919,525 2,805,289 914,972 1,686,544 0 0 691 (9,875) 2,805,289 0 3,185,920 0 2,898,059 94,530 5,777 69,465 81,535 32,025 49,510 0 0 0 49,510 .53 .49 Earnings per share has 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.
-----END PRIVACY-ENHANCED MESSAGE-----