-----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, RL2RvePeL4W0Dov9eKINRNWB6THoAqRpFpnhqq58Aw4dpmAF+eZ1a2knABmPkqVV 6jA+e61z3icMuuOslfdjug== 0000950116-97-001449.txt : 19970812 0000950116-97-001449.hdr.sgml : 19970812 ACCESSION NUMBER: 0000950116-97-001449 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970627 FILED AS OF DATE: 19970811 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 001-08827 FILM NUMBER: 97655690 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 June 27, 1997 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 July 25, 1997: 1,959,545 Class B common stock outstanding at July 25, 1997: 20,482,820 - -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands)
ASSETS ------ June 27, September 27, 1997 1996 -------- ------------- Current Assets: Cash and cash equivalents $ 28,731 $ 25,283 Receivables 486,963 576,447 Inventories, at lower of cost or market 359,511 316,043 Prepayments and other current assets 73,337 67,977 ----------- ----------- Total current assets 948,542 985,750 ----------- ----------- Property and Equipment, net 846,316 824,635 Goodwill 661,406 643,880 Other Assets 327,178 376,505 ----------- ----------- $ 2,783,442 $ 2,830,770 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Current maturities of long-term borrowings $ 16,565 $ 26,041 Accounts payable 396,980 496,040 Accrued expenses and other liabilities 455,264 441,760 ----------- ----------- Total current liabilities 868,809 963,841 ----------- ----------- Long-Term Borrowings 1,289,186 1,321,865 Deferred Income Taxes and Other Noncurrent Liabilities 220,815 230,249 Common Stock Subject to Potential Repurchase Under Provisions of Shareholders' Agreement 23,591 18,614 Shareholders' Equity Excluding Common Stock Subject to Repurchase: Class A common stock, par value $.01 20 20 Class B common stock, par value $.01 205 227 Earnings retained for use in the business 395,322 309,437 Cumulative translation adjustment 1,601 5,131 Unrealized gain on marketable securities, net 7,484 -- Impact of potential repurchase feature of common stock (23,591) (18,614) ----------- ----------- Total 381,041 296,201 ----------- ----------- $ 2,783,442 $ 2,830,770 =========== ===========
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 Nine Months Ended -------------------------------- ----------------------------- June 27, June 28, June 27, June 28, 1997 1996 1997 1996 -------------- ------------- ------------ --------- Revenues $ 1,531,614 $ 1,546,296 $ 4,676,382 $ 4,560,296 ----------- ----------- ----------- ----------- Costs and Expenses: Cost of services provided 1,384,834 1,407,732 4,261,481 4,164,639 Depreciation and amortization 47,658 45,787 143,438 136,265 Selling and general corporate expenses 20,803 19,068 60,695 61,353 Other expense (income), net -- -- (72,393) (2,850) ----------- ----------- ----------- ----------- 1,453,295 1,472,587 4,393,221 4,359,407 ----------- ----------- ----------- ----------- Operating income 78,319 73,709 283,161 200,889 Interest Expense, net 28,596 28,580 88,598 88,900 ----------- ----------- ----------- ----------- Income before income taxes 49,723 45,129 194,563 111,989 Provision for Income Taxes 19,589 15,324 48,822 41,896 ----------- ----------- ----------- ----------- Income before Extraordinary Item 30,134 29,805 145,741 70,093 Extraordinary Item due to Early Extinguishment of Debt (net of income taxes) -- 1,169 -- 2,758 ----------- ----------- ----------- ----------- Net income $ 30,134 $ 28,636 $ 145,741 $ 67,335 =========== =========== =========== =========== Earnings Per Share: Income before extraordinary item $ .69 $ .64 $ 3.26 $ 1.47 Net income $ .69 $ .61 $ 3.26 $ 1.41 =========== =========== =========== ===========
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 Nine Months Ended -------------------------------- June 27, June 28, 1997 1996 -------- -------- Cash flows from operating activities: Net income $ 145,741 $ 67,335 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 143,438 136,265 Income taxes deferred (1,344) (25,343) Extraordinary item -- 2,758 Changes in noncash working capital (87,544) (89,961) Other operating activities, including gain on divestiture of certain businesses (82,139) (9,810) --------- --------- Net cash provided by operating activities 118,152 81,244 --------- --------- Cash flows from investing activities: Purchases of property and equipment (136,497) (119,197) Disposals of property and equipment 14,439 5,761 Divestiture of certain businesses 111,613 50,823 Acquisition of certain businesses (9,536) (10,445) Other investing activities (4,698) (11,628) --------- --------- Net cash used in investing activities (24,679) (84,686) --------- --------- Cash flows from financing activities: Proceeds from additional long-term borrowings 128,869 166,568 Payment of long-term borrowings including premiums (171,200) (128,250) Proceeds from issuance of common stock 13,728 13,674 Repurchase of stock (59,874) (48,956) Other financing activities (1,548) (1,616) --------- --------- Net cash provided by (used in) financing activities (90,025) 1,420 --------- --------- Increase (decrease) in cash and cash equivalents 3,448 (2,022) Cash and cash equivalents, beginning of period 25,283 23,082 --------- --------- Cash and cash equivalents, end of period $ 28,731 $ 21,060 ========= =========
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) OTHER INCOME: ------------- In January 1997, the Company sold an approximate 83% interest in its Spectrum Healthcare Services, Inc. subsidiary (Spectrum). Total consideration was approximately $158 million and included cash ($125 million), notes and a warrant. The transaction resulted in a pre-tax gain of $72.4 million, net of transaction costs and reserves established for indemnification of certain matters related to insurance, legal and other matters ($20 million), and is reflected as "other expense (income)" in the accompanying condensed consolidated statements of income. No income taxes have been provided on the gain due to permanent differences in the underlying book and tax basis of the divested entity. In fiscal 1996, this business had approximately $500 million in annual revenues and a normalized operating margin of approximately 4%. Cash proceeds from the divestiture were used to repay borrowings under the $1 billion credit facility. In the first quarter of fiscal 1996, the Company sold the King Size division of its Uniform Services business. The net selling price was approximately $51 million in cash plus "warrants" and resulted in a pre-tax gain of $37 million, which was offset by other charges related to asset realization ($20 million) and insurance, legal and other matters ($14 million), including a $2 million charge for environmental liabilities, and is reflected as "other expense (income)" in the accompanying consolidated statement of income. The environmental liabilities relate to several minor remediation projects involving properties no longer in service. These remediation projects will not have any material on-going financial impact on the Company's financial statements. The King Size operations were not material to the Company's consolidated revenues or operating income. (3) LONG TERM BORROWINGS: --------------------- In November 1996, the Company issued $125 million of 7.10% senior notes due December 2006. The net proceeds from the note offering were used to repay borrowings under the $1 billion credit facility. In January 1996, the Company redeemed its $80 million 8-1/4% senior note for a premium resulting in an extraordinary item for debt extinguishment of $1.6 million (net of tax benefit of $1.0 million) and issued a $125 million 6.79% senior note due January 2003, with annual principal repayments of $25 million beginning January 1999. During the third quarter of fiscal 1996, the Company replaced its existing credit facility with a new $1 billion credit facility. The new facility is non-amortizing and matures on June 30, 2001. The Company wrote off the unamortized balances of financing costs related to the old credit facility which is reflected as an extraordinary item for debt extinguishment of $1.2 million (net of tax benefit of $0.8 million). (4) CAPITAL STOCK: -------------- During the first nine months of fiscal 1997, pursuant to the ARAMARK Ownership Program, employees purchased 2,111,131 shares or $20.9 million of Class B Common Stock for $13.7 million of cash and $7.2 million of deferred payment obligations. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (5) SUPPLEMENTAL CASH FLOW INFORMATION: ----------------------------------- The Company made interest payments of $84.6 million and $81.9 million and income tax payments of $43.7 million and $70.6 million during the first nine months of fiscal 1997 and 1996, respectively. During the first nine months of fiscal 1997, the Company purchased $31.6 million of its Class A Common Stock and $48.1 million of its Class B Common Stock, issuing $19.8 million in subordinated installment notes as partial consideration. (6) PROSPECTIVE ACCOUNTING CHANGES: ------------------------------- In fiscal 1997, the Company is required to adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation". As permitted by SFAS No. 123, the Company will continue to apply its existing accounting policy under APB Opinion No. 25, "Accounting for Stock Issued to Employees" and will provide the expanded disclosures required by SFAS No. 123 in the fiscal 1997 Form 10-K. In fiscal 1998, the Company is required to adopt the provisions of SFAS No. 128, "Earnings per Share". SFAS No. 128 requires the disclosure of "basic" and "diluted" earnings per share. For the three and nine month periods ended June 27, 1997, pro forma basic earnings per share under SFAS No. 128 would be $0.72 and $3.45, respectively. Diluted earnings per share would not be materially different from reported earnings per share. (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 Nine Months Ended -------------------------------- ----------------------------- June 27, June 28, June 27, June 28, 1997 1996 1997 1996 ----------- ----------- -------------- --------- (in thousands) Revenues $846.0 $789.6 $2,602.9 $2,443.0 Cost of services provided 795.5 748.3 2,447.8 2,307.9 Net income 6.9 2.8 21.4 10.2 June 27, September 27, 1997 1996 -------- ------------- (in thousands) Current assets $ 380.0 $ 395.2 Noncurrent assets 1,636.4 1,630.0 Current liabilities 473.5 495.1 Noncurrent liabilities 1,414.6 1,419.6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (8) DERIVATIVES: ------------ The Company utilizes derivative financial instruments, such as interest rate swaps and forward exchange agreements to manage changes in market conditions related to debt obligations and foreign currency exposures. All interest rate swaps are accounted for as hedges under the accrual method with the net payments under the terms of the swap agreements recognized currently in income as a component of interest expense. Gains or losses on the termination of interest rate swaps are deferred and amortized over the remaining life of the terminated swap agreement. Interest rate swaps, for which the designated debt instrument being hedged is extinguished, are accounted for on the fair value method from the extinguishment date, if not concurrently terminated, with gains and losses recognized currently in the condensed consolidated statement of income. The Company has a foreign currency swap agreement which hedges the currency exposure of its net investment in a foreign subsidiary and accordingly, gains and losses on the currency swap are recorded as a component of the cumulative translation adjustment. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - --------------------- Overview - -------- Revenues of $1.5 billion for the third quarter were 1% lower than the prior year period, and revenues of $4.7 billion for the nine month period increased 3% over the prior year period. Operating income for the three and nine month periods was $78.3 million and $283.2 million, respectively. Operating income for the nine month period includes a gain of $72.4 million from the divestiture of Spectrum Healthcare Services, Inc. (Spectrum), which is reflected as "other expense (income)" in the condensed consolidated statement of income (see note 2 to the condensed consolidated financial statements). Excluding "other expense (income)" and the operating results for Spectrum, revenues and operating income increased 8% and 15%, respectively, for the third quarter and increased 8% and 11%, respectively, for the nine months compared to the prior year periods. Interest expense for the three and nine months was equal with the prior year periods, with the impact of lower interest rates being offset by increased debt levels to finance acquisitions and working capital requirements. The effective income tax rate for the three and nine month periods was 39.4% and 25.1%, respectively. The decrease in the effective tax rate for the nine month period is a result of a permanent difference in the book and tax basis of the divested Spectrum business (see note 2 to the condensed consolidated financial statements). Excluding the Spectrum divestiture gain, the effective tax rate for the nine month fiscal 1997 period was 40%. The effective tax rates for the fiscal 1996 third quarter and nine months were 34.0% and 37.4%, respectively, and reflects the favorable impact from the settlement of an audit of certain prior years federal income tax returns in June 1996. Segment Results - --------------- Revenues - Food and Support Services segment revenues for the three and nine month periods increased 6% and 7%, respectively, over the prior year periods due to new accounts (approximately 5% and 3%, respectively) and increased volume (approximately 2% and 5%, respectively), primarily in the United States food businesses, partially offset by the unfavorable impact of foreign currency translation (1%). Uniform Services segment revenues for the three and nine month periods increased 20% and 17%, respectively, due to the impact of recent acquisitions (approximately 13% and 10%, respectively) and increased volume in both the uniform rental and direct marketing businesses. Health and Education segment revenues, excluding the divested Spectrum operations, for both the three and nine months increased 13% over the comparable prior year periods due to enrollment growth, pricing and new locations at Children's World. Distributive segment revenues for the third quarter and nine months decreased 6% and 3%, respectively, from the comparable prior year periods, due to a decrease in base business of 10% and 8%, respectively, partially offset by the impact of recent acquisitions. Operating Income, Before Other Expense (Income) - Food and Support Services segment operating income increased 19% and 18% for the three and nine month periods versus the comparable prior year period as a result of the revenue increase noted above plus effective cost controls at both United States and international operations. Uniform Services segment third quarter and nine month operating income increased 8% and 9%, respectively, over the prior year period due to the revenue increase noted above plus effective cost controls in the direct marketing businesses, partially offset by increased operating costs in the uniform rental business. Health and Education segment operating income for the three and nine month periods, excluding the operating results of the divested Spectrum business, increased 16% and 17%, respectively, over the comparable prior year period due to the revenue increases at Children's World noted above. The Distributive segment incurred an operating loss of $8.0 million and $13.4 million for the three and nine month periods, respectively, a deterioration from the comparable prior year periods of approximately $4.2 million and $13.9 million, respectively. During the third quarter the Distributive segment recorded a charge of approximately $4.0 million related to asset realization. Results for this segment continue to be severely impacted by higher operating expenses due to costs of servicing new customers and reduced margins and volume resulting from increased competition and consolidation in the magazine wholesale distribution industry. The Company continues to believe it is well positioned to take advantage of the current competitive conditions in the industry. However, the future impact of these changes is uncertain at this time. The Company projects that operating income in the Distributive segment will continue to be significantly below historical levels achieved prior to fiscal 1996. FINANCIAL CONDITION - ------------------- The Company's indebtedness decreased $42.2 million in the first nine months of fiscal 1997, with a reduction from application of the divestiture proceeds (see note 2) being partially offset by increased borrowings for seasonal working capital needs and capital additions. In November 1996, the Company issued $125 million of 7.10% senior notes due December 2006. The net proceeds from the note offering were used to repay borrowings under the $1 billion credit facility. As discussed in note 2 to the condensed consolidated financial statements, in January 1997, the Company sold an approximate 83% interest in its Spectrum subsidiary. The cash proceeds were used to repay borrowings under the $1 billion credit facility. The divestiture will not have a material impact on the Company's liquidity. The Company currently has approximately $675 million of unused credit availability under its credit facilities, which management believes, along with cash flows from operations, is sufficient to fund operating requirements. PART II - OTHER INFORMATION Item 1: Not Applicable. Item 2: Not Applicable. Item 3: Not Applicable. Item 4: Not Applicable. Item 5: Not Applicable. Item 6: Exhibits. (a) (1) Exhibit 11 - Computation of Fully Diluted Earnings Per Share. (2) Exhibit 27 - Financial Data Schedule (b) None 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 s/Alan J. Griffith ------------------ Alan J. Griffith August 11, 1997 Vice President, Controller Chief Accounting Officer EX-11 2 EXHIBIT 11 EXHIBIT 11 ARAMARK CORPORATION AND SUBSIDIARIES COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (1) (Unaudited) (In Thousands, except per share data)
Three Months Ended Nine Months Ended --------------------------- -------------------------- June 27, June 28, June 27, June 28, 1997 1996 1997 1996 ----------- ----------- ------------ ------ Earnings: Net Income $ 30,134 $ 28,636 $145,741 $ 67,335 Preferred stock dividends -- (236) -- (731) -------- -------- -------- -------- Earnings applicable to common stock $ 30,134 $ 28,400 $145,741 $ 66,604 ======== ======== ======== ======== Shares: Weighted average number of common shares outstanding (2) 41,666 43,909 42,237 44,624 Impact of potential exercise opportunities under the ARAMARK Ownership Program 2,131 2,469 2,496 2,678 -------- -------- -------- -------- Total common and common equivalent shares 43,797 46,378 44,733 47,302 ======== ======== ======== ======== Fully diluted earnings per common and common equivalent share $ .69 $ .61 $ 3.26 $ 1.41 ======== ======== ======== ========
(1) Primary and fully diluted earnings per share are approximately the same. (2) Includes Class B plus Class A Common Shares stated on a Class B Common Share Equivalent Basis. EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS OCT-03-1997 SEP-28-1996 JUN-27-1997 28,731 0 486,963 22,645 359,511 948,542 1,654,041 807,725 2,783,442 868,809 1,289,186 0 0 225 380,816 2,783,442 0 4,676,382 0 4,261,481 143,438 8,760 88,598 194,563 48,882 145,741 0 0 0 145,741 0 3.26
-----END PRIVACY-ENHANCED MESSAGE-----