Aramark 10-Q for FY2020 Q1

Aramark (ARMK)

10-Q 2020-02-04 For: 2019-12-27

Added on April 11, 2026

About this 10-Q

Aramark filed this 10-Q on February 4, 2020, covering the quarter ended December 27, 2019 (FY2020 Q1).

Headline figures

Quarter ended December 27, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $4.25B; down 0.3% from $4.27B a year earlier
Net income: $145.76M; down 41.9% from net income of $250.68M a year earlier
Diluted EPS: $0.57; down 42.4% from $0.99 a year earlier

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Aramark
(Exact name of registrant as specified in its charter)
Delaware		20-8236097
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
2400 Market Street		19103
Philadelphia,	Pennsylvania
(Address of principal executive offices)		(Zip Code)



Title of Each Class		Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock,	par value $0.01 per share	ARMK	New York Stock Exchange



Large Accelerated Filer	x	Accelerated filer	o	Non-accelerated filer	o	Smaller reporting company	☐	Emerging growth company	☐



TABLE OF CONTENTS
			Page
PART I - Financial Information
	Item 1.	Financial Statements	1
		Condensed Consolidated Balance Sheets (Unaudited)	1
		Condensed Consolidated Statements of Income (Unaudited)	2
		Condensed Consolidated Statements of Comprehensive Income (Unaudited)	3
		Condensed Consolidated Statements of Cash Flows (Unaudited)	4
		Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	5
		Notes to Condensed Consolidated Financial Statements (Unaudited)	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 3.	Quantitative and Qualitative Disclosure About Market Risk	36
	Item 4.	Controls and Procedures	36

PART II - Other Information
	Item 1.	Legal Proceedings	37
	Item 1A.	Risk Factors	37
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
	Item 6.	Exhibits	37



	December 27, 2019			September 27, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	264,618		$	246,643
Receivables (less allowances: 2020 - $42,951; 2019 - $49,566)	1,971,939			1,806,964
Inventories	397,933			411,319
Prepayments and other current assets	194,417			193,461
Total current assets	2,828,907			2,658,387
Property and Equipment, net	2,158,162			2,181,762
Goodwill	5,537,025			5,518,800
Other Intangible Assets	2,013,773			2,033,566
Operating Lease Right-of-use Assets (see Note 8)	561,872			—
Other Assets	1,173,326			1,343,806
	$	14,273,065		$	13,736,321
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings	$	82,981		$	69,928
Current operating lease liabilities (see Note 8)	75,751			—
Accounts payable	855,214			999,517
Accrued expenses and other current liabilities	1,283,547			1,635,853
Total current liabilities	2,297,493			2,705,298
Long-Term Borrowings	7,087,720			6,612,239
Noncurrent Operating Lease Liabilities (see Note 8)	345,500			—
Deferred Income Taxes and Other Noncurrent Liabilities	1,080,768			1,088,822
Redeemable Noncontrolling Interest	10,008			9,915
Stockholders' Equity:
Common stock, par value $.01 (authorized: 600,000,000 shares; issued: 2020—287,103,477 shares and 2019—282,919,536 shares; and outstanding: 2020—250,064,705 shares and 2019—247,756,091 shares)	2,871			2,829
Capital surplus	3,311,147			3,236,450
Retained earnings	1,223,078			1,107,029
Accumulated other comprehensive loss	(195,765		)	(216,965		)
Treasury stock (shares held in treasury: 2020—37,038,772 shares and 2019—35,163,445 shares)	(889,755		)	(809,296		)
Total stockholders' equity	3,451,576			3,320,047
	$	14,273,065		$	13,736,321



	Three Months Ended
	December 27, 2019		December 28, 2018
Revenue	$	4,253,597	$	4,265,349
Costs and Expenses:
Cost of services provided	3,768,113		3,794,445
Depreciation and amortization	147,936		150,721
Selling and general corporate expenses	83,255		104,130
Gain on sale of Healthcare Technologies	—		(157,309		)
	3,999,304		3,891,987
Operating income	254,293		373,362
Interest and Other Financing Costs, net	79,585		82,978
Income Before Income Taxes	174,708		290,384
Provision for Income Taxes	28,825		39,708
Net income	145,883		250,676
Less: Net income (loss) attributable to noncontrolling interest	122		(6		)
Net income attributable to Aramark stockholders	$	145,761	$	250,682

Earnings per share attributable to Aramark stockholders:
Basic	$	0.59	$	1.02
Diluted	$	0.57	$	0.99
Weighted Average Shares Outstanding:
Basic	248,731		246,887
Diluted	254,121		253,656



	Three Months Ended
(dollars in millions)	December 27, 2019		December 28, 2018
Interest paid	$	87.3	$	80.2
Income taxes paid	$	15.7	$	57.7



	Total Stockholders' Equity			Common Stock		Capital Surplus		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock
Balance, September 27, 2019	$	3,320,047		$	2,829	$	3,236,450	$	1,107,029		$	(216,965	)	$	(809,296	)
Net income attributable to Aramark stockholders	145,761							145,761
Other comprehensive income	21,200										21,200
Capital contributions from issuance of common stock	60,623			42		60,581
Share-based compensation expense	14,116					14,116
Repurchases of Common Stock	(80,459		)											(80,459		)
Payments of dividends	(29,712		)					(29,712		)
Balance, December 27, 2019	$	3,451,576		$	2,871	$	3,311,147	$	1,223,078		$	(195,765	)	$	(889,755	)



	December 27, 2019			September 27, 2019
Pension plan adjustments	$	(47,507	)	$	(47,222	)
Foreign currency translation adjustments	(113,534		)	(128,119		)
Cash flow hedges	(24,303		)	(31,056		)
Share of equity investee's accumulated other comprehensive loss	(10,421		)	(10,568		)
	$	(195,765	)	$	(216,965	)



Segment	September 27, 2019		Acquisitions		Translation		December 27, 2019
FSS United States	$	3,949,218	$	728	$	15	$	3,949,961
FSS International	608,468		220		17,101		625,789
Uniform	961,114		40		121		961,275
	$	5,518,800	$	988	$	17,237	$	5,537,025



	December 27, 2019							September 27, 2019
	Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
Customer relationship assets	$	2,189,753	$	(1,221,563	)	$	968,190	$	2,183,492	$	(1,193,525	)	$	989,967
Trade names	1,050,801		(5,218		)	1,045,583		1,047,959		(4,360		)	1,043,599
	$	3,240,554	$	(1,226,781	)	$	2,013,773	$	3,231,451	$	(1,197,885	)	$	2,033,566



	December 27, 2019			September 27, 2019
Senior secured revolving credit facility, due October 2023	$	78,711		$	51,410
Senior secured term loan facility, due October 2023	506,463			507,887
Senior secured term loan facility, due March 2024	829,535			829,344
Senior secured term loan facility, due March 2025	1,658,308			1,658,026
5.125% senior notes, due January 2024	902,213			902,351
5.000% senior notes, due April 2025	592,398			592,087
3.125% senior notes, due April 2025⁽¹⁾	360,128			352,363
4.750% senior notes, due June 2026	494,898			494,731
5.000% senior notes, due February 2028	1,137,923			1,137,625
Receivables Facility, due May 2021	450,000			—
Finance leases	142,552			148,754
Other	17,572			7,589
	7,170,701			6,682,167
Less—current portion	(82,981		)	(69,928		)
	$	7,087,720		$	6,612,239



	Balance Sheet Location	December 27, 2019		September 27, 2019
ASSETS
Designated as hedging instruments:
Interest rate swap agreements	Noncurrent Assets	$	200	$	—

Not designated as hedging instruments:
Foreign currency forward exchange contracts	Prepayments and other current assets	166		64
Gasoline and diesel fuel agreements	Prepayments and other current assets	2,652		—
		$	3,018	$	64
LIABILITIES
Designated as hedging instruments:
Interest rate swap agreements	Other Noncurrent Liabilities	$	31,996	$	43,112

Not designated as hedging instruments:
Gasoline and diesel fuel agreements	Accounts payable	—		462
		$	31,996	$	43,574



		Three Months Ended
	Income Statement Location	December 27, 2019			December 28, 2018
Designated as hedging instruments:
Interest rate swap agreements	Interest and Other Financing Costs, net	$	2,200		$	(1,702	)
Not designated as hedging instruments:
Gasoline and diesel fuel agreements	Costs of services provided / Selling and general corporate expenses	(3,798		)	9,144
Foreign currency forward exchange contracts	Interest and Other Financing Costs, net	(102		)	178
		(3,900		)	9,322
		$	(1,700	)	$	7,620



	Balance, September 27, 2019		Add: Net increase in current period deferred income	Less: Recognition of deferred income		Balance, December 27, 2019
Deferred income	$	319.0	240.3	(405.6	)	$	153.7



(1)	This is a Euro denominated borrowing.



	Three Months Ended
	December 27, 2019		December 28, 2018
FSS United States:
Business & Industry	$	405.5	$	399.9
Education	1,001.1		1,016.3
Healthcare	227.2		263.3
Sports, Leisure & Corrections	608.9		594.3
Facilities & Other	396.3		386.5
Total FSS United States	2,639.0		2,660.3

FSS International:
Europe	502.7		520.1
Rest of World	443.5		433.0
Total FSS International	946.2		953.1

Uniform	668.4		651.9

Total Revenue	$	4,253.6	$	4,265.3


•	the simplified approach to not recast comparative periods and to apply the new lease standard on a prospective basis beginning in the year of initial adoption;


•	the package of practical expedients to not reassess the lease determination, lease classification or initial direct costs for leases commenced prior to adoption;


•	the component election to not separate lease and nonlease components in all arrangements that contain a lease; and


•	the short-term lease recognition exemption whereby lease-related assets and liabilities are not recognized for arrangements with initial lease terms of one year or less.



Leases	Balance Sheet Location	December 27, 2019
Assets:
Operating	Operating Lease Right-of-use Assets	$	561,872
Finance	Property and Equipment, net	134,539
Total lease assets		$	696,411
Liabilities:
Current
Operating	Current operating lease liabilities	$	75,751
Finance	Current maturities of long-term borrowings	30,928
Noncurrent
Operating	Noncurrent Operating Lease Liabilities	345,500
Finance	Long-term borrowings	111,624
Total lease liabilities		$	563,803

Weighted average remaining lease term (in years)
Operating leases		9.1
Finance leases		8.5
Weighted average discount rate
Operating leases		3.6		%
Finance leases		4.1		%



		Three Months Ended
Lease Cost	Income Statement Location	December 27, 2019
Operating lease cost¹:
Fixed lease costs	Cost of services provided	$	29,529
Variable lease costs²	Cost of services provided	196,625
Short-term lease costs	Cost of services provided	21,330
Finance lease cost³:
Amortization of right-of-use-assets	Depreciation and amortization	7,087
Interest on lease liabilities	Interest and Other Financing Costs, net	1,291
Net lease cost		$	255,862



(1)	Excludes sublease income, which is immaterial.
(2)	Includes $193.6 million of costs related to leases associated with revenue contracts with customers. These costs represent the rent the Company pays its clients to operate at their locations, typically based on a percentage of sales.
(3)	Excludes variable lease costs, which are immaterial.



	Three Months Ended
	December 27, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	245,284
Operating cash flows from finance leases	1,270
Financing cash flows from finance leases	8,613
Right-of-use lease assets obtained in exchange for lease obligations:
Operating leases	$	23,768
Finance leases	1,722



	Operating leases			Finance leases			Total
Remainder of 2020	$	68,984		$	18,818		$	87,802
2021	76,092			35,769			111,861
2022	58,588			19,827			78,415
2023	46,282			16,558			62,840
2024	38,567			14,042			52,609
Thereafter	213,448			52,396			265,844
Total future minimum lease payments	501,961			157,410			659,371
Less: Interest	(80,710		)	(14,858		)	(95,568		)
Present value of lease liabilities	$	421,251		$	142,552		$	563,803



2020	$	101,061
2021	74,908
2022	56,765
2023	43,795
2024	36,215
2025-Thereafter	214,818
Total minimum rental obligations	$	527,562



	Shares Granted (in millions)	Weighted-Average Grant-Date Fair Value (dollars per share)
TBOs	1.5	$	9.49
RSUs	1.1	$	42.40
PSUs⁽¹⁾⁽²⁾	0.9	$	45.03
	3.5



(1)	Includes approximately 0.3 million shares resulting from the payout of the 2017 PSU grants due to exceeding the adjusted earnings per share target.
(2)	During the first quarter of fiscal 2020, the Company granted PSUs subject to the level of achievement of adjusted revenue growth, adjusted operating income growth, return on invested capital and a total shareholder return multiplier for the cumulative three year performance period and the participant's continued employment with the Company. The Company is accounting for this award as a market-based award which was valued utilizing the Monte Carlo Simulation pricing model, which calculates multiple potential outcomes for an award and establishes fair value based on the most likely outcome.


•	Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets


•	Level 2—inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument


•	Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement



	Aramark (Parent)		Issuers		Guarantors		Non Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	5	$	35,168	$	33,544	$	195,901	$	—		$	264,618
Receivables	—		1,388		551,947		1,418,604		—			1,971,939
Inventories	—		15,567		284,698		97,668		—			397,933
Prepayments and other current assets	—		46,536		68,272		79,609		—			194,417
Total current assets	5		98,659		938,461		1,791,782		—			2,828,907
Property and Equipment, net	—		43,896		1,763,268		350,998		—			2,158,162
Goodwill	—		173,104		4,695,304		668,617		—			5,537,025
Investment in and Advances to Subsidiaries	3,451,571		6,532,122		—		745,792		(10,729,485		)	—
Other Intangible Assets	—		21,526		1,804,342		187,905		—			2,013,773
Operating Lease Right-of-use Assets	—		20,700		457,597		83,575		—			561,872
Other Assets	—		18,440		798,897		357,991		(2,002		)	1,173,326
	$	3,451,576	$	6,908,447	$	10,457,869	$	4,186,660	$	(10,731,487	)	$	14,273,065
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings	$	—	$	6,662	$	27,491	$	48,828	$	—		$	82,981
Current operating lease liabilities	—		2,194		54,742		18,815		—			75,751
Accounts payable	—		128,402		421,271		305,541		—			855,214
Accrued expenses and other current liabilities	—		208,474		710,173		364,812		88			1,283,547
Total current liabilities	—		345,732		1,213,677		737,996		88			2,297,493
Long-term Borrowings	—		6,076,564		76,619		934,537		—			7,087,720
Noncurrent Operating Lease Liabilities	—		17,348		263,244		64,908		—			345,500
Deferred Income Taxes and Other Noncurrent Liabilities	—		366,329		549,167		165,272		—			1,080,768
Intercompany Payable	—		—		4,411,209		385,850		(4,797,059		)	—
Redeemable Noncontrolling Interest	—		—		10,008		—		—			10,008
Total Stockholders' Equity	3,451,576		102,474		3,933,945		1,898,097		(5,934,516		)	3,451,576
	$	3,451,576	$	6,908,447	$	10,457,869	$	4,186,660	$	(10,731,487	)	$	14,273,065



	Three Months Ended					Change
	December 27, 2019		December 28, 2018			$			%
Revenue	$	4,253.6	$	4,265.3		$	(11.7	)	—	%
Costs and Expenses:
Cost of services provided	3,768.1		3,794.4			(26.3		)	(1	)%
Other operating expenses	231.2		254.8			(23.6		)	(9	)%
Gain on sale of Healthcare Technologies	—		(157.3		)	157.3			(100	)%
	3,999.3		3,891.9			107.4			3	%
Operating income	254.3		373.4			(119.1		)	(32	)%
Interest and Other Financing Costs, net	79.6		83.0			(3.4		)	(4	)%
Income Before Income Taxes	174.7		290.4			(115.7		)	(40	)%
Provision for Income Taxes	28.8		39.7			(10.9		)	(27	)%
Net income	$	145.9	$	250.7		$	(104.8	)	(42	)%



	Three Months Ended						Change
Revenue by Segment⁽¹⁾	December 27, 2019			December 28, 2018			$			%
FSS United States	$	2,639.0		$	2,660.3		$	(21.3	)	(1	)%
FSS International	946.2			953.1			(6.9		)	(1	)%
Uniform	668.4			651.9			16.5			3	%
	$	4,253.6		$	4,265.3		$	(11.7	)	—	%

	Three Months Ended						Change
Operating Income by Segment⁽¹⁾	December 27, 2019			December 28, 2018			$			%
FSS United States	$	185.9		$	363.7		$	(177.8	)	(49	)%
FSS International	43.7			11.5			32.2			281	%
Uniform	53.3			52.7			0.6			1	%
Corporate	(28.6		)	(54.5		)	25.9			(47	)%
	$	254.3		$	373.4		$	(119.1	)	(32	)%


•	the negative impact of foreign currency translation (approximately -1%); and


•	the effect of the divestiture of HCT in the prior year (approximately -1%) and a decline in the Education sector in our FSS United States segment; which more than offset


•	growth in our Sports, Leisure & Corrections and Facilities & Other sectors in our FSS United States segment (approximately 1%); and


•	growth in South America in our FSS International segment (approximately 1%).