Aramark — FY2015 Form 10-K
Business context and reporting period. Aramark provides food, facilities and uniform services through FSS North America, FSS International and Uniform. This 10-K covers the 52-week fiscal year ended October 2, 2015; the prior fiscal year had 53 weeks. The filing also reports fourth-quarter results. Amounts below are in U.S. dollars.
Key financial results
| Metric | FY2015 | FY2014 | Change |
|---|
| Sales | $14,329.1 million | $14,832.9 million | Down 3% |
| Operating income | $627.9 million | $564.6 million | Up 11% |
| Net income | $237.0 million | $149.5 million | Up 59% |
| Net income attributable to Aramark stockholders | $235.9 million | $149.0 million | Up 58% |
| Diluted EPS | $0.96 | $0.63 | Up 52% |
| Cash from operating activities | $683.0 million | $398.2 million | Up $284.9 million |
| Cash used in investing activities | $504.3 million | $505.2 million | Approximately unchanged |
| Cash from (used in) financing activities | $(168.0) million | $107.8 million | Declined |
- Operating margin was approximately 4.4%, versus 3.8% in FY2014; net margin was approximately 1.7%, versus 1.0%.
- Cost of services provided was 90% of sales in both years. Personnel costs were 47% of FY2015 cost of services, compared with 46% in FY2014.
- Fourth-quarter FY2015 sales were $3,546.0 million, net income attributable to Aramark stockholders was $56.9 million, and diluted EPS was $0.23. The filing reports FY2014 fourth-quarter sales of $3,947.8 million and attributable net income of $44.4 million; comparison is affected by FY2014’s extra week.
Segments and material changes
| Segment | FY2015 sales | Sales change | FY2015 operating income | Operating-income change |
|---|
| FSS North America | $9,950.3 million | Down 3% | $494.5 million | Down 1% |
| FSS International | $2,858.2 million | Down 8% | $95.3 million | Down 10% |
| Uniform | $1,520.6 million | Up 2% | $191.8 million | Up 11% |
- Consolidated sales declined principally because FY2014 had an estimated 53rd-week benefit and foreign-currency translation reduced FY2015 sales by approximately $474 million. Business & Industry and Sports, Leisure & Corrections also declined; Education and Uniform grew.
- FSS North America was pressured by weaker Business & Industry activity, including reduced Canadian oil-and-gas remote-services business, and lost venue business. Education grew. FSS International’s reported decline reflected approximately $367 million of adverse currency translation, partly offset by growth in several countries.
- Operating income increased despite lower sales, helped by Uniform growth and productivity, lower corporate expenses, reduced acquisition amortization and fewer branding-related charges. Offsets included weaker Business & Industry results, foreign exchange, impairments, asset write-downs, severance and the India divestiture loss.
Cash, debt and liquidity
- At October 2, 2015, cash and cash equivalents were $122.4 million. The company reported approximately $643.5 million available under its senior secured revolving credit facility.
- Total borrowings were $5,293.7 million, including $350 million outstanding under the receivables facility; long-term borrowings on the balance sheet were $5,212.3 million. FY2015 included $209.6 million of debt repayments.
- Management stated that cash and available committed credit were expected to meet anticipated working-capital, capital-spending, debt-service, refinancing, dividend and other needs. The company was in covenant compliance; its secured debt ratio was 3.29x against a 5.25x maximum, and its interest coverage ratio was 4.43x against a 2.00x minimum.
- FY2015 investing outflows included $524.4 million of property and equipment purchases, client-contract investments and other items. Operating cash flow benefited materially from collection timing, including approximately $308 million related mainly to a one-time Business & Industry facility project.
- The company paid $81.9 million in dividends during FY2015. In November 2015, it declared a $0.095-per-share dividend, subject to board discretion and debt-agreement restrictions.
Outlook, risks and unusual items
- No specific FY2016 revenue or earnings guidance is provided in the filing text. Management estimated an additional $40–$50 million of costs in FY2016 for ongoing efficiency and productivity plans, plus approximately $1.5 million to complete the exit from certain FSS International operations.
- FY2015 included approximately $14.6 million of charges for exiting certain international operations, a $4.3 million pretax loss on the sale of Aramark India, an $8.7 million building impairment, and approximately $23.1 million of net severance charges related to streamlining functions. The India sale generated no proceeds.
- Management highlighted risks from leverage and variable interest rates, labor and benefit costs, client retention and contract renewals, cost inflation and limited cost pass-through on profit-and-loss contracts, food safety, regulation, foreign currency, seasonality, and economic weakness in client sectors. Approximately 73% of FSS sales came from profit-and-loss contracts, under which Aramark bears operating costs.
- Sysco distributed approximately 57% of Aramark’s food and non-food products in the United States and Canada. Aramark said alternatives were available, but disruption could cause short-term operational and cost impacts.
- The company contributes to multiemployer pension plans, some of which were reported as critical or critical and declining; withdrawal or increased funding requirements could raise costs. Ordinary-course legal matters were not believed likely to be material based on information available, though an unfavorable resolution could be material.
- KPMG issued an unqualified opinion on the financial statements and internal controls. Management concluded internal control over financial reporting was effective as of October 2, 2015.
Important facts for investors to verify
- Whether underlying sales and operating trends improved after adjusting for FY2014’s 53rd week and the substantial adverse currency effect.
- How much FY2015 operating-cash-flow growth reflects repeatable operations versus collection timing and the one-time facility project.
- Progress against the planned FY2016 cost initiatives, including their estimated $40–$50 million cost and expected benefits.
- Debt-service capacity, refinancing needs, covenant headroom and exposure to variable rates, alongside the concentration of borrowings and receivables-facility usage.
- Developments in Canadian remote services, international exits, client renewals, multiemployer pension exposure and the ability to manage labor and food-cost inflation.
