-----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, USVCBNwuHBfP8qAMyN78yvVPq8mZCg+yr2iH07aGqfBa6BbRI1AAEDH/xp64e2P8 hwKYCSlNNo7sx6XTeQgh3Q== 0000950116-01-500169.txt : 20010515 0000950116-01-500169.hdr.sgml : 20010515 ACCESSION NUMBER: 0000950116-01-500169 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010330 FILED AS OF DATE: 20010514 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: 1633388 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 ten-q.txt 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 March 30, 2001 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 27, 2001: 2,385,438 Class B common stock outstanding at April 27, 2001: 60,320,195 - -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands) ASSETS
March 30, September 29, 2001 2000 ----------- ----------- Current Assets: Cash and cash equivalents $ 30,022 $ 24,592 Receivables 433,446 585,630 Inventories, at lower of cost or market 417,521 416,413 Prepayments and other current assets 114,134 72,230 ---------- ----------- Total current assets 995,123 1,098,865 ---------- ----------- Property and Equipment, net 1,055,135 1,053,243 Goodwill 685,517 684,940 Other Assets 400,800 362,335 ---------- ----------- $3,136,575 $ 3,199,383 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current maturities of long-term borrowings $ 33,445 $ 59,736 Accounts payable 384,582 431,123 Accrued expenses and other liabilities 544,311 576,001 ---------- ----------- Total current liabilities 962,338 1,066,860 ---------- ----------- Long-Term Borrowings 1,763,641 1,777,660 Deferred Income Taxes and Other Noncurrent Liabilities 236,515 223,367 Common Stock Subject to Potential Repurchase Under Provisions of Shareholders' Agreement 20,000 20,000 Shareholders' Equity Excluding Common Stock Subject to Repurchase: Class A common stock, par value $.01 24 24 Class B common stock, par value $.01 606 598 Capital surplus 2,951 - Earnings retained for use in the business 192,754 149,771 Accumulated other comprehensive income (loss) (22,254) (18,897) Impact of potential repurchase feature of common stock (20,000) (20,000) ---------- ----------- Total 154,081 111,496 ---------- ----------- $3,136,575 $ 3,199,383 ========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 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 ------------------------------------ --------------------------------- March 30, March 31, March 30, March 31, 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Sales $1,881,033 $1,746,380 $3,828,311 $3,513,995 ---------- ---------- ---------- ---------- Costs and Expenses: Cost of services provided 1,716,998 1,597,660 3,468,967 3,196,218 Depreciation and amortization 60,431 52,737 119,060 104,401 Selling and general corporate expenses 24,462 21,826 49,276 44,359 ---------- ---------- ---------- ---------- 1,801,891 1,672,223 3,637,303 3,344,978 ---------- ---------- ---------- ---------- Operating income 79,142 74,157 191,008 169,017 Interest and other financing costs, net 41,505 36,734 82,102 70,518 ---------- ---------- ---------- ---------- Income before income taxes 37,637 37,423 108,906 98,499 Provision for Income Taxes 13,875 14,607 41,716 38,413 ---------- ---------- ---------- ---------- Net income $ 23,762 $ 22,816 $ 67,190 $ 60,086 ========== ========== ========== ========== Earnings Per Share: Basic $.27 $.25 $.78 $.66 Diluted $.26 $.24 $.74 $.62
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
For the Six Months Ended ------------------------------ March 30, March 31, 2001 2000 ----------- ---------- Cash flows from operating activities: Net income $ 67,190 $ 60,086 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 119,060 104,401 Income taxes deferred 1,599 1,865 Changes in noncash working capital (130,470) (34,458) Proceeds from sale of receivables 161,159 - Other operating activities (9,399) (11,940) ----------- ---------- Net cash provided by operating activities 209,139 119,954 ----------- ---------- Cash flows from investing activities: Purchases of property and equipment (108,998) (96,114) Disposals of property and equipment 15,664 7,718 Sale of investments 8,240 - Acquisition of certain businesses (48,127) (32,487) Other investing activities 5,399 (30,042) ----------- ---------- Net cash used in investing activities (127,822) (150,925) ----------- ---------- Cash flows from financing activities: Proceeds from additional long-term borrowings 31,835 182,542 Payment of long-term borrowings (98,795) (82,434) Proceeds from issuance of common stock 32,423 31,893 Repurchase of stock (41,119) (102,247) Other financing activities (231) - ----------- ---------- Net cash provided by (used in) financing activities (75,887) 29,754 ----------- ---------- Increase (decrease) in cash and cash equivalents 5,430 (1,217) Cash and cash equivalents, beginning of period 24,592 27,690 ----------- ---------- Cash and cash equivalents, end of period $ 30,022 $ 26,473 =========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 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 six months of fiscal 2001, pursuant to the ARAMARK Ownership Program, employees purchased 4,524,011 shares of Class B Common Stock for total consideration of $36.2 million consisting of $32.4 million in cash plus $3.8 million of deferred payment obligations. (3) SUPPLEMENTAL CASH FLOW INFORMATION: The Company made interest payments of $77.2 million and $67.8 million and income tax payments of $63.7 million and $42.4 million during the first six months of fiscal 2001 and 2000, respectively. During the first six months of fiscal 2001, the Company purchased $6.2 million of its Class A Common Stock and $63.5 million of its Class B Common Stock, issuing $28.6 million in installment notes as partial consideration. (4) 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). 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 ------------------------ -------------------------- March 30, March 31, March 30, March 31, 2001 2000 2001 2000 --------- --------- --------- --------- (in thousands, except per share data) Earnings: Net income $23,762 $22,816 $67,190 $60,086 ======= ======= ======= ======= Shares: Weighted average number of common shares outstanding used in basic earnings per share calculation 86,815 90,510 85,894 91,315 Impact of potential exercise opportunities under the ARAMARK Ownership Plan 4,527 5,487 5,060 6,339 ------- ------- ------- ------- Total common shares used in diluted earnings per share calculation 91,342 95,997 90,954 97,654 ======= ======= ======= ======= Basic earnings per common share $.27 $.25 $.78 $.66 ==== ==== ==== ==== Diluted earnings per common share $.26 $.24 $.74 $.62 ==== ==== ==== ====
5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (5) COMPREHENSIVE INCOME: Pursuant to 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 changes in the fair value of cash flow hedges (net of tax). Total comprehensive income was $11.1 million and $63.8 million for the three and six months ended March 30, 2001, respectively; and $20.6 million and $60.1 million for the three and six months ended March 31, 2000, respectively. (6) ACCOUNTING FOR DERIVATIVE INSTRUMENTS: The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities-an amendment of FASB Statement No. 133", on September 30, 2000. SFAS No. 133 requires the transition adjustment resulting from adopting these Statements to be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle. In accordance with the transition provisions of SFAS No. 133, the Company recorded a cumulative transition adjustment to decrease Other Comprehensive Income by approximately $2.5 million (net of tax), to recognize the fair value of its derivative instruments as of the date of adoption. The Company utilizes derivative financial instruments, such as interest rate swaps and forward exchange contract agreements to manage changes in market conditions related to debt obligations and foreign currency exposures. As of March 30, 2001, the Company has $300 million of interest rate swap agreements fixing the rate on a like amount of variable rate borrowings. There were no material forward exchange contract agreements outstanding as of March 30, 2001. The Company recognizes all derivatives on the balance sheet at fair value at the end of each quarter. Changes in the fair value of a derivative that is designated as and meets all the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income and reclassified into earnings as the underlying hedged item affects earnings. Amounts reclassified into earnings related to interest rate swap agreements are included in interest expense. During the first six months of fiscal 2001, unrealized net losses of approximately $5.6 million (net of tax) related to interest rate swaps were recorded in Other Comprehensive Income, including the approximately $2.5 million cumulative transition adjustment as of September 30, 2000. As of March 30, 2001, approximately $5.6 million of net unrealized losses related to interest rate swaps was included in Accumulated Other Comprehensive Income, approximately $3.7 million of which is expected to be reclassified into earnings during the next twelve months. The hedge ineffectiveness for existing derivative instruments for the first six months of fiscal 2001 was not material. 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (7) SEGMENT INFORMATION: Sales and operating income by segment are as follows:
Three Months Ended Six Months Ended ----------------------------- ---------------------------- March 30, March 31, March 30, March 31, Sales 2001 2000 2001 2000 -------------------------------------------- ------------ ----------- ------------ ----------- (in thousands) Food and Support Services - United States $1,117,120 $1,021,828 $2,303,454 $2,067,747 Food and Support Services - International 288,840 257,674 554,179 511,327 Uniform and Career Apparel - Rental 248,543 240,780 498,926 479,439 Uniform and Career Apparel - Direct Marketing 107,628 115,044 239,683 242,188 Educational Resources 118,902 111,054 232,069 213,294 ---------- ---------- ---------- ---------- $1,881,033 $1,746,380 $3,828,311 $3,513,995 ========== ========== ========== ========== Three Months Ended Six Months Ended ----------------------------- ---------------------------- March 30, March 31, March 30, March 31, Operating Income 2001 2000 2001 2000 -------------------------------------------- ------------ ----------- ------------- ---------- (in thousands) Food and Support Services - United States $ 38,549 $ 32,415 $ 98,499 $ 76,276 Food and Support Services - International 10,536 11,242 20,476 24,041 Uniform and Career Apparel - Rental 25,733 24,232 57,574 55,308 Uniform and Career Apparel - Direct Marketing 1,828 2,001 10,525 7,495 Educational Resources 9,361 10,776 15,667 18,604 -------- -------- -------- -------- 86,007 80,666 202,741 181,724 Corporate and Other (6,865) (6,509) (11,733) (12,707) -------- -------- -------- -------- Operating Income 79,142 74,157 191,008 169,017 Interest (41,505) (36,734) (82,102) (70,518) -------- -------- -------- -------- Income Before Income Taxes $ 37,637 $ 37,423 $108,906 $ 98,499 ======== ======== ======== ========
Included in "Corporate and Other" during the first six months of fiscal 2001 is a gain of $6.6 million resulting from the redemption of preferred stock by an entity which the Company divested in fiscal 1997. Also included in "Corporate and Other" in fiscal 2001 are charges related to certain litigation pertaining to a previously divested entity ($1.5 million), merger and acquisition related costs ($0.5 million), and the immaterial cumulative effect ($2.6 million) of a change by the Educational Resources business in accounting for non-refundable registration fees pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 101. (8) ACQUISITIONS: During the first quarter of fiscal 2001, the Company acquired the UK food and support services business of the Campbell Bewley Group Limited, issuing stock (8% interest) of a subsidiary as consideration. Additionally, the Company acquired a 45% interest in the Campbell Bewley Group Limited's food and support services business in Ireland for approximately $19 million in cash. During the second quarter of fiscal 2001, the Company acquired certain assets of Correctional Foodservice Management (CFM), from The Wackenhut Corporation for approximately $16 million in cash. 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (9) NEW ACCOUNTING PRONOUNCEMENTS: In September 2000, the Financial Accounting Standards Board issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.140 replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS No. 125's provisions without reconsideration. SFAS No. 140 is generally effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The disclosure requirements are effective for financial statements for fiscal years ending after December 15, 2000. The Company does not expect the adoption of SFAS No. 140 to have a material impact on its present securitization activities. (10) FINANCING ACTIVITIES: During the second quarter, the Company entered into 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. Pursuant to the Receivables Facility, the Company formed ARAMARK Receivables, LLC a wholly-owned, special purpose, 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, certain subsidiaries of the Company transfer without recourse all of their accounts receivable to ARAMARK Receivables, LLC. ARAMARK Receivables, LLC, in turn, has sold and, subject to certain conditions, may from time to time sell an undivided interest in these receivables up to $200 million. The Company has retained collection and administrative responsibility for the participating interests sold. The agreement expires in March 2004. This two-step transaction is accounted for as a sale of receivables following the provisions of SFAS No. 125. At March 30, 2001, $161 million of accounts receivable were sold and removed from the condensed consolidated balance sheet. The loss on the sale of receivables was $1.2 million and is included in "Interest and other financing costs, net." On March 30, 2001, the Company sold for cash, without recourse, approximately $24 million of notes receivable which resulted from sales of stock pursuant to the Company's stock ownership program. The sales price of $25.9 million resulted in a gain of approximately $1.5 million (net of transaction costs), which is included in "Interest and other financing costs, net." The proceeds from both the accounts receivable sale and the sale of notes receivable were used to repay borrowings under the credit facility. During the second quarter, ARAMARK Educational Resources, Inc. reduced its credit facility from $125 million to $25 million. The credit facility matures in August 2003. As of March 30, 2001, there were no borrowings under this facility. Additionally, the Company entered into a C$70 million Canadian revolving credit facility, which replaced its existing Canadian credit facility. The new Canadian credit facility currently matures in March 2002 and contains options to extend the maturity date. 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (11) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF ARAMARK CORPORATION AND SUBSIDIARIES: The following condensed consolidating financial statements of ARAMARK Corporation and subsidiaries have been prepared pursuant to Rule 3-10 of Regulation S-X. These condensed consolidating financial statements have been prepared from the Company's financial information on the same basis of accounting as the condensed consolidated financial statements. ARAMARK Services, Inc. is the borrower under the Credit Agreement and certain other senior debt and incurs interest expense thereunder. The interest expense and certain administrative costs are only partially allocated to all of the other subsidiaries of the Company. The Company has fully and unconditionally guaranteed certain debt obligations of ARAMARK Services, Inc., its wholly-owned subsidiary, which totaled $1.8 billion as of March 30, 2001. The Non-guarantor subsidiaries do not guarantee any registered securities of the Company or ARAMARK Services, Inc., although certain Non-guarantor subsidiaries guarantee, along with the Company, certain other unregistered debt. 9 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS March 30, 2001 (In Millions)
ASSETS ARAMARK Services, Inc. and Non-Guarantor ARAMARK Subsidiaries Subsidiaries Corporation Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ Current Assets: Cash and cash equivalents $ 17.0 $ 12.6 $ 0.4 $ - $ 30.0 Receivables 241.2 191.4 0.8 - 433.4 Inventories, at lower of cost or market 86.5 331.0 - - 417.5 Prepayments and other current assets 74.0 39.2 1.0 - 114.2 -------- -------- -------- --------- -------- Total current assets 418.7 574.2 2.2 - 995.1 -------- -------- -------- --------- -------- Property and Equipment, net 245.3 807.8 2.0 - 1,055.1 Goodwill 194.2 491.3 - - 685.5 Intercompany Receivable 2,210.0 105.6 - (2,315.6) - Investment in Subsidiaries - - 1,596.9 (1,596.9) - Other Assets 166.5 231.3 3.0 - 400.8 -------- -------- -------- --------- -------- $3,234.7 $2,210.2 $1,604.1 $(3,912.5) $3,136.5 ======== ======== ======== ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current maturities of long-term borrowings $ 33.0 $ 0.4 $ - $ - $ 33.4 Accounts payable 249.4 89.9 45.3 - 384.6 Accrued expenses and other liabilities 334.8 192.2 17.3 - 544.3 -------- -------- -------- --------- -------- Total current liabilities 617.2 282.5 62.6 - 962.3 -------- -------- -------- --------- -------- Long-Term Borrowings 1,756.1 7.5 - - 1,763.6 Deferred Income Taxes and Other Noncurrent Liabilities 71.6 98.1 66.8 - 236.5 Intercompany Payable 607.7 407.3 1,300.6 (2,315.6) - Common Stock Subject to Potential Repurchase Under Provisions of Shareholders' Agreement - - 20.0 - 20.0 Shareholders' Equity Excluding Common Stock Subject to Repurchase 182.1 1,414.8 154.1 (1,596.9) 154.1 -------- -------- -------- --------- -------- $3,234.7 $2,210.2 $1,604.1 $(3,912.5) $3,136.5 ======== ======== ======== ========= ========
10 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS September 29, 2000 (In Millions)
ASSETS ARAMARK Services, Inc. and Non-Guarantor ARAMARK Subsidiaries Subsidiaries Corporation Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ Current Assets: Cash and cash equivalents $ 19.5 $ 4.8 $ 0.3 $ - $ 24.6 Receivables 391.7 193.4 0.6 - 585.7 Inventories, at lower of cost or market 83.4 333.0 - - 416.4 Prepayments and other current assets 25.9 44.6 1.7 - 72.2 -------- -------- -------- --------- -------- Total current assets 520.5 575.8 2.6 - 1,098.9 -------- -------- -------- --------- -------- Property and Equipment, net 232.4 818.8 2.1 - 1,053.3 Goodwill 196.0 488.9 - - 684.9 Intercompany Receivable 2,186.4 105.6 - (2,292.0) - Investment in Subsidiaries - - 1,533.0 (1,533.0) - Other Assets 124.2 235.4 2.7 - 362.3 -------- -------- -------- --------- -------- $3,259.5 $2,224.5 $1,540.4 $(3,825.0) $3,199.4 ======== ======== ======== ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current maturities of long-term borrowings $ 57.7 $ 2.0 $ - $ - $ 59.7 Accounts payable 254.3 120.9 55.9 - 431.1 Accrued expenses and other liabilities 343.1 221.4 11.5 - 576.0 -------- -------- -------- --------- -------- Total current liabilities 655.1 344.3 67.4 - 1,066.8 -------- -------- -------- --------- -------- Long-Term Borrowings 1,776.8 0.9 - - 1,777.7 Deferred Income Taxes and Other Noncurrent Liabilities 61.4 97.5 64.5 - 223.4 Intercompany Payable 590.6 424.4 1,277.0 (2,292.0) - Common Stock Subject to Potential Repurchase Under Provisions of Shareholders' Agreement - - 20.0 - 20.0 Shareholders' Equity Excluding Common Stock Subject to Repurchase 175.6 1,357.4 111.5 (1,533.0) 111.5 -------- -------- -------- --------- -------- $3,259.5 $2,224.5 $1,540.4 $(3,825.0) $3,199.4 ======== ======== ======== ========= ========
11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME For the three months ended March 30, 2001 (In Millions)
ARAMARK Services, Inc. and Non-Guarantor ARAMARK Subsidiaries Subsidiaries Corporation Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ Sales $1,226.0 $ 655.0 $ - $ - $1,881.0 Equity in Net Income of Subsidiaries - - 23.8 (23.8) - Management Fee Income - - 7.5 (7.5) - -------- -------- -------- --------- -------- 1,226.0 655.0 31.3 (31.3) 1,881.0 Costs and Expenses: Cost of services provided 1,150.1 572.6 - (5.8) 1,716.9 Depreciation and amortization 25.1 35.2 - 0.1 60.4 Selling and general corporate expenses 11.9 6.9 5.8 (0.1) 24.5 -------- -------- -------- --------- -------- 1,187.1 614.7 5.8 (5.8) 1,801.8 -------- -------- -------- --------- -------- Operating Income 38.9 40.3 25.5 (25.5) 79.2 Interest and other financing costs, net: Interest expense, net 39.6 0.2 1.7 - 41.5 Intercompany interest, net (5.2) 6.9 - (1.7) - -------- -------- -------- --------- -------- Interest and other financing costs, net 34.4 7.1 1.7 (1.7) 41.5 -------- -------- -------- --------- -------- Income before income taxes 4.5 33.2 23.8 (23.8) 37.7 Provision for Income Taxes 0.6 13.3 - - 13.9 -------- -------- -------- --------- -------- Net Income $ 3.9 $ 19.9 $ 23.8 $ (23.8) $ 23.8 ======== ======== ======== ========= ========
12 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME For the three months ended March 31, 2000 (In Millions)
ARAMARK Services, Inc. and Non-Guarantor ARAMARK Subsidiaries Subsidiaries Corporation Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ Sales $1,161.7 $ 584.7 $ - $ - $1,746.4 Equity in Net Income of Subsidiaries - - 22.8 (22.8) - Management Fee Income - - 9.0 (9.0) - -------- -------- -------- --------- -------- 1,161.7 584.7 31.8 (31.8) 1,746.4 Costs and Expenses: Cost of services provided 1,095.7 508.7 - (6.7) 1,597.7 Depreciation and amortization 22.2 30.4 - 0.1 52.7 Selling and general corporate expenses 9.3 5.9 6.6 0.1 21.9 -------- -------- -------- --------- -------- 1,127.2 545.0 6.6 (6.5) 1,672.3 -------- -------- -------- --------- -------- Operating Income 34.5 39.7 25.2 (25.3) 74.1 Interest and other financing costs, net: Interest expense, net 34.3 - 2.4 - 36.7 Intercompany interest, net (12.2) 14.6 - (2.4) - -------- -------- -------- --------- -------- Interest and other financing costs, net 22.1 14.6 2.4 (2.4) 36.7 -------- -------- -------- --------- -------- Income before income taxes 12.4 25.1 22.8 (22.9) 37.4 Provision for Income Taxes 4.6 10.0 - - 14.6 -------- -------- -------- --------- -------- Net Income $ 7.8 $ 15.1 $ 22.8 $ (22.9) $ 22.8 ======== ======== ======== ========= ========
13 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME For the six months ended March 30, 2001 (In Millions)
ARAMARK Services, Inc. and Non-Guarantor ARAMARK Subsidiaries Subsidiaries Corporation Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ Sales $2,457.2 $1,371.1 $ - $ - $3,828.3 Equity in Net Income of Subsidiaries - - 67.2 (67.2) - Management Fee Income - - 17.5 (17.5) - -------- -------- -------- --------- -------- 2,457.2 1,371.1 84.7 (84.7) 3,828.3 Costs and Expenses: Cost of services provided 2,299.3 1,184.4 - (14.7) 3,469.0 Depreciation and amortization 48.4 70.4 - 0.2 119.0 Selling and general corporate expenses 21.4 13.4 14.5 - 49.3 -------- -------- -------- --------- -------- 2,369.1 1,268.2 14.5 (14.5) 3,637.3 -------- -------- -------- --------- -------- Operating Income 88.1 102.9 70.2 (70.2) 191.0 Interest and other financing costs, net: Interest expense, net 78.9 0.2 3.0 - 82.1 Intercompany interest, net (10.5) 13.5 - (3.0) - -------- -------- -------- --------- -------- Interest and other financing costs, net 68.4 13.7 3.0 (3.0) 82.1 -------- -------- -------- --------- -------- Income before income taxes 19.7 89.2 67.2 (67.2) 108.9 Provision for Income Taxes 10.5 31.2 - - 41.7 -------- -------- -------- --------- -------- Net Income $ 9.2 $ 58.0 $ 67.2 $ (67.2) $ 67.2 ======== ======== ======== ========= ========
14 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME For the six months ended March 31, 2000 (In Millions)
ARAMARK Services, Inc. and Non-Guarantor ARAMARK Subsidiaries Subsidiaries Corporation Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ Sales $2,324.5 $1,189.5 $ - $ - $3,514.0 Equity in Net Income of Subsidiaries - - 60.1 (60.1) - Management Fee Income - - 17.2 (17.2) - -------- -------- -------- --------- -------- 2,324.5 1,189.5 77.3 (77.3) 3,514.0 Costs and Expenses: Cost of services provided 2,188.8 1,020.1 - (12.6) 3,196.3 Depreciation and amortization 43.4 60.9 - 0.1 104.4 Selling and general corporate expenses 20.7 11.1 12.5 - 44.3 -------- -------- -------- --------- -------- 2,252.9 1,092.1 12.5 (12.5) 3,345.0 -------- -------- -------- --------- -------- Operating Income 71.6 97.4 64.8 (64.8) 169.0 Interest and other financing costs, net: Interest expense, net 65.6 0.2 4.7 - 70.5 Intercompany interest, net (23.6) 28.3 - (4.7) - -------- -------- -------- --------- -------- Interest and other financing costs, net 42.0 28.5 4.7 (4.7) 70.5 -------- -------- -------- --------- -------- Income before income taxes 29.6 68.9 60.1 (60.1) 98.5 Provision for Income Taxes 11.2 27.2 - - 38.4 -------- -------- -------- --------- -------- Net Income $ 18.4 $ 41.7 $ 60.1 $ (60.1) $ 60.1 ======== ======== ======== ========= ========
15 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the six months ended March 30, 2001 (In Millions)
ARAMARK Services, Inc. and Non-Guarantor ARAMARK Subsidiaries Subsidiaries Corporation Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ Net cash provided by (used in) operating activities $ 171.2 $ 63.7 $ (25.8) $ - $ 209.1 Cash flows from investing activities: Purchases of property and equipment (50.3) (58.7) - - (109.0) Disposals of property and equipment 2.5 13.2 - - 15.7 Sale of investments - 8.2 - - 8.2 Acquisition of certain businesses (35.5) (12.6) - - (48.1) Other investing activities (0.8) 6.2 - - 5.4 -------- -------- -------- --------- -------- Net cash used in investing activities (84.1) (43.7) - - (127.8) -------- -------- -------- --------- -------- Cash flows from financing activities: Proceeds from additional long-term borrowings 25.2 6.6 - - 31.8 Payment of long-term borrowings (97.1) (1.7) - - (98.8) Proceeds from issuance of common stock - - 32.4 - 32.4 Repurchase of stock - - (41.1) - (41.1) Change in intercompany, net (17.5) (17.1) 34.6 - - Other financing activities (0.2) - - - (0.2) -------- -------- -------- --------- -------- Net cash provided by (used in) financing activities (89.6) (12.2) 25.9 - (75.9) -------- -------- -------- --------- -------- Increase (decrease) in cash and cash equivalents (2.5) 7.8 0.1 - 5.4 Cash and cash equivalents, beginning of period 19.5 4.8 0.3 - 24.6 -------- -------- -------- --------- -------- Cash and cash equivalents, end of period $ 17.0 $ 12.6 $ 0.4 $ - $ 30.0 ======== ======== ======== ========= ========
16 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the six months ended March 31, 2000 (In Millions)
ARAMARK Services, Inc. and Non-Guarantor ARAMARK Subsidiaries Subsidiaries Corporation Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ Net cash provided by (used in) operating activities $ 78.5 $ 53.5 $ (12.1) $ - $ 119.9 Cash flows from investing activities: Purchases of property and equipment (35.6) (60.5) - - (96.1) Disposals of property and equipment 2.0 5.7 - - 7.7 Acquisition of certain businesses - (32.5) - - (32.5) Other investing activities (11.2) (18.8) - - (30.0) -------- -------- -------- --------- -------- Net cash used in investing activities (44.8) (106.1) - - (150.9) -------- -------- -------- --------- -------- Cash flows from financing activities: Proceeds from additional long-term borrowings 182.5 - - - 182.5 Payment of long-term borrowings (81.8) (0.6) - - (82.4) Proceeds from issuance of common stock - - 31.9 - 31.9 Repurchase of stock - - (102.2) - (102.2) Change in intercompany, net (136.7) 54.2 82.5 - - -------- -------- -------- --------- -------- Net cash provided by (used in) financing activities (36.0) 53.6 12.2 - 29.8 -------- -------- -------- --------- -------- Increase (decrease) in cash and cash equivalents (2.3) 1.0 0.1 - (1.2) Cash and cash equivalents, beginning of period 20.3 7.2 0.2 - 27.7 -------- -------- -------- --------- -------- Cash and cash equivalents, end of period $ 18.0 $ 8.2 $ 0.3 $ - $ 26.5 ======== ======== ======== ========= ========
17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following discussion should be read in conjunction with the business segment information included in Note 7 to the condensed consolidated financial statements. Overview Sales of $1.9 billion for the second quarter and $3.8 billion for the six-month period increased 8% and 9%, respectively, over the prior year periods. For both the three and six month periods, sales increases in the Food and Support Services, Uniform and Career Apparel - Rental and Educational Resources segments were partially offset by a decline in sales in the Uniform and Career Apparel - Direct Marketing segment. Excluding the impact of acquisitions, primarily in the Food and Support Services segments, and the unfavorable impact of foreign currency translation, sales for the three and six month periods increased 4% and 6% over the respective prior year periods. Operating income of $79.1 million for the second quarter and $191.0 million for the six-month period increased 7% and 13%, respectively, compared to prior year. Excluding the impact of acquisitions and foreign currency translation, operating income increased 6% and 12%, respectively, for the three and six month periods. Higher unemployment levels in the United States manufacturing and automotive sectors, along with increasing energy costs adversely impacted the Company's second quarter results. The operating margin for the six months increased to 5.0% from 4.8% due primarily to the leveraging of fixed costs in the Food and Support Services - United States segment. Interest and other financing costs, net for the three and six month periods increased 13% and 16%, respectively over the prior year due primarily to increased borrowing levels to fund acquisitions, stock repurchases and working capital requirements. In the current year, interest and other financing costs includes a loss on the sale of accounts receivable (approximately $1.2 million) and a gain from the sale of employee stock loans (approximately $1.5 million) as discussed in Note 10 to the condensed consolidated financial statements. Segment Results Sales - Food and Support Services - United States segment sales for the three and six months increased 9% and 11% over the prior year periods due to acquisitions (approximately 6% and 7%, respectively), net new accounts (approximately 2% and 1%, respectively) and increased volume (approximately 1% and 3%, respectively). Softness in employment levels in the manufacturing and automotive sectors slowed growth in the business services and vending markets, while sales growth was strong in the correctional and healthcare markets. Sales in the Food and Support Services - International segment increased 20% and 19% (excluding the unfavorable impact of foreign currency translation) for the three and six month periods due to net new accounts (approximately 11% and 10%, respectively), increased volume (approximately 3% and 5%, respectively) and the impact of the Campbell Bewley acquisition (approximately 6% and 4%, respectively), with double-digit organic growth in the United Kingdom and European markets. Sales in the Uniform and Career Apparel - Rental segment increased 3% and 4%, respectively for the three and six month periods due to increased volume (approximately 2% and 3%, respectively) and pricing (approximately 1% and 1%, respectively). Sales growth in this segment has also been impacted by softness in the manufacturing and automotive sectors. Uniform and Career Apparel - Direct Marketing segment sales decreased 6% and 1% for the three and six month periods due primarily to lower volume. The general softening of the economy and a decrease in business spending has adversely impacted fiscal 2001 sales. In fiscal 2000 sales to the safety equipment and accessories market were adversely impacted by the startup of a new distribution facility. Educational Resources segment sales increased 7% and 9% for the three and six month periods, respectively. Excluding the impact of the revenue accounting change (see note 7 to the condensed consolidated financial statements), sales increased 6% and 8%, compared to the prior year periods due primarily to new locations (approximately 8% and 8%, respectively) and pricing (approximately 4% and 5%, respectively), partially offset by lower enrollment at existing locations (approximately 6% and 5%, respectively). 18 Operating Income - Food and Support Services - United States segment operating income increased 19% and 29% for the three and six month periods. Excluding the impact of acquisitions, operating income increased 14% and 24% over the prior year periods due to the sales increases noted above and effective cost controls. Excluding the unfavorable impact of foreign currency translation and an asset sale gain in the prior year first quarter, Food and Support Services - International segment operating income for the three and six month periods increased 2% and 12%, respectively over the prior year due to the sales increases noted above, partially offset in the second quarter by increased infrastructure and acquisition integration costs in the UK and increased meat costs in Germany due to the BSE and foot and mouth disease outbreaks in Europe. Uniform and Career Apparel - Rental segment operating income increased 6% and 4% over the prior year for the three and six month periods, respectively, due to the sales increases noted above and the absence of garment manufacturing start up costs incurred in the prior year, partially offset by increased fuel, energy and other operating costs. Operating income in the Uniform and Career Apparel - Direct Marketing segment for the second quarter decreased 9% compared to the prior year due to decreased volume as noted above. For the six month period, operating income increased 40% over the prior year as operating results in this segment were adversely impacted in the prior year first quarter by start up costs related to a new distribution facility. Educational Resources segment operating income for the three and six month periods decreased 13% and 16%, respectively from the prior year periods. Excluding the impact of the revenue accounting change noted above, operating income for the three and six month periods decreased 19% and 23%, respectively from the prior year. Operating results continue to be adversely affected by reduced enrollment at mature centers and continuing high labor and employee medical costs. It is anticipated that reduced enrollment at mature centers may continue to adversely affect results in this segment during the remainder of fiscal 2001. FINANCIAL CONDITION AND LIQUIDITY - Reference to the condensed consolidated statement of cash flows on page 4 will facilitate understanding of the discussion that follows. Cash provided by operating activities for the six month period was $209 million in fiscal 2001 and $120 million in fiscal 2000. Excluding proceeds from the accounts receivable sale transaction (see Note 10), cash provided by operating activities for fiscal 2001 was $48 million, reflecting growth in accounts receivable due to increased sales and reduced current liabilities related to the timing of certain payments such as taxes, commissions and stock repurchase obligations. Debt decreased by $40 million during the six months ended March 30, 2001, primarily due to the accounts receivable sale transaction noted above, partially offset by the impact of capital expenditures and the assumption of $21 million of indebtedness in connection with the Campbell Bewley transaction (see Note 8). During the first six months of fiscal 2001, the Company repurchased $64 million of its Class B Common Stock, issuing $29 million in installment notes as partial consideration. Additionally, the Company received approximately $32 million (including proceeds from the sale of deferred payment obligations discussed in Note 10) related to the issuance of Class B Common Stock through the exercise of installment stock purchase opportunities. The Company has generally exercised its option to repurchase Common Stock when shares have become available. The amount of such repurchases and other liquidity needs, including those related to employee benefit plans, in the near term will likely approximate or exceed the fiscal 2000 level. During the fiscal 2001 second quarter, the Company reduced the borrowing capacity under the Educational Resources credit facility from $125 million to $25 million and the Canadian credit facility from C$80 million to C$70 million, and established a $200 million accounts receivable sale facility (see Note 10). Currently, the Company has approximately $450 million of unused committed credit availability under its credit facilities. Additionally, the Company has shelf registration statements on file with the Securities and Exchange Commission for the issuance of up to $500 million of debt securities. The Company currently expects to continue to fund acquisitions, capital expenditures and other liquidity needs from cash provided from operating activities, normal disposals of property and equipment and borrowings available under its credit facilities or note issuances. 19 FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements that reflect the Company's current views as to future events and financial performance with respect to its operations. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "aim," "anticipate," "estimate," "expect," "will be," "will continue," "will likely result," "project," "intend," "plan," "believe," and other words and terms of similar meaning in conjunction with a discussion of future operating or financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Factors that might cause such a difference include the possibility of greater than anticipated operating costs, lower sales volumes, the performance and costs of integration of acquisitions, fluctuations in costs of insurance, materials, labor and fuel, financing availability, the outcome of environmental and litigation matters, competition in terms of price and service, the ability of the Company to retain clients and obtain new clients on satisfactory terms, fluctuations or reductions in enrollment in the Educational Resources segment, and the effects of general economic conditions. Forward-looking statements speak only as of the date made. The Company undertakes no obligation to update any forward-looking statements to reflect the events or circumstances arising after the date as of which they are made. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements included in this report or that may be made elsewhere from time to time by, or on behalf of, the Company. 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 8, 2001. (b) Not Applicable. (c) (1) There were 51,618,603 affirmative votes and 70,695 votes withheld or abstained with respect to the uncontested election of directors. (2) There were 51,606,296 affirmative votes and 83,002 votes withheld or abstained with respect to the approval of the 2001 Stock Ownership Plan. (d) Not Applicable. Item 5: Not Applicable. Item 6: Exhibits (a) Not Applicable. 20 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 14, 2001 /s/John M. Lafferty --------------------------------- John M. Lafferty Senior Vice President, Controller and Chief Accounting Officer 21 -----END PRIVACY-ENHANCED MESSAGE-----