Q3 2015 Aramark 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 July 3, 2015 Commission File Number: 001-36223




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)
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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
x  
Smaller reporting company
o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of July 31, 2015, the number of shares of the registrant's common stock outstanding is 239,425,510.


    
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


PART I
Item 1.    Financial Statements
ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
 
July 3, 2015
 
October 3, 2014
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
117,836

 
$
111,690

Receivables (less allowances: 2015 - $39,642; 2014 - $37,381)
1,465,896

 
1,582,431

Inventories
550,922

 
553,815

Prepayments and other current assets
252,942

 
217,040

Total current assets
2,387,596

 
2,464,976

Property and Equipment, net
958,478

 
997,331

Goodwill
4,563,345

 
4,589,680

Other Intangible Assets
1,145,604

 
1,252,741

Other Assets
1,158,342

 
1,150,965

 
$
10,213,365

 
$
10,455,693

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities:
 
 
 
Current maturities of long-term borrowings
$
86,000

 
$
89,805

Accounts payable
689,260

 
986,240

Accrued expenses and other current liabilities
1,051,388

 
1,302,828

Total current liabilities
1,826,648

 
2,378,873

Long-Term Borrowings
5,531,964

 
5,355,789

Deferred Income Taxes and Other Noncurrent Liabilities
978,443

 
993,118

Redeemable Noncontrolling Interest
9,969

 
9,877

Stockholders' Equity:
 
 
 
Common stock, par value $.01 (authorized: 600,000,000 shares; issued: 2015—264,035,284 shares and 2014—256,086,839 shares; and outstanding: 2015—239,162,991 shares and 2014—233,910,487 shares)
2,640

 
2,561

Capital surplus
2,734,242

 
2,575,011

Accumulated deficit
(264,844
)
 
(382,463
)
Accumulated other comprehensive loss
(153,999
)
 
(106,298
)
Treasury stock (shares held in treasury: 2015—24,872,293 shares and 2014—22,176,352 shares)
(451,698
)
 
(370,775
)
Total stockholders' equity
1,866,341

 
1,718,036

 
$
10,213,365

 
$
10,455,693


The accompanying notes are an integral part of these condensed consolidated financial statements.

1
Table of Contents

ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
 
Three Months Ended
 
July 3, 2015
 
June 27, 2014
Sales
$
3,486,203

 
$
3,620,057

Costs and Expenses:
 
 
 
Cost of services provided
3,164,700

 
3,275,409

Depreciation and amortization
125,332

 
124,917

Selling and general corporate expenses
79,293

 
78,448

 
3,369,325

 
3,478,774

Operating income
116,878

 
141,283

Interest and Other Financing Costs, net
71,225

 
71,186

Income Before Income Taxes
45,653

 
70,097

Provision for Income Taxes
11,615

 
23,181

Net income
34,038

 
46,916

Less: Net income attributable to noncontrolling interest
277

 
43

Net income attributable to Aramark stockholders
$
33,761

 
$
46,873

 
 
 
 
Earnings per share attributable to Aramark stockholders:
 
 
 
Basic

$0.14

 

$0.20

Diluted

$0.14

 

$0.19

Weighted Average Shares Outstanding:
 
 
 
Basic
238,718

 
231,854

Diluted
247,224

 
243,739

 
Nine Months Ended
 
July 3, 2015
 
June 27, 2014
Sales
$
10,783,183

 
$
10,885,145

Costs and Expenses:
 
 
 
Cost of services provided
9,691,195

 
9,790,036

Depreciation and amortization
375,757

 
387,058

Selling and general corporate expenses
242,597

 
288,739

 
10,309,549

 
10,465,833

Operating income
473,634

 
419,312

Interest and Other Financing Costs, net
214,354

 
256,613

Income Before Income Taxes
259,280

 
162,699

Provision for Income Taxes
79,517

 
57,750

Net income
179,763

 
104,949

Less: Net income attributable to noncontrolling interest
682

 
398

Net income attributable to Aramark stockholders
$
179,081

 
$
104,551

 
 
 
 
Earnings per share attributable to Aramark stockholders:
 
 
 
Basic

$0.76

 

$0.47

Diluted

$0.73

 

$0.45

Weighted Average Shares Outstanding:
 
 
 
Basic
236,933

 
223,143

Diluted
246,035

 
234,822


The accompanying notes are an integral part of these condensed consolidated financial statements.

2
Table of Contents

ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
 
Three Months Ended
 
July 3, 2015
 
June 27, 2014
Net income
$
34,038

 
$
46,916

Other comprehensive income (loss), net of tax:
 
 
 
Pension plan adjustments
2,696

 
(567
)
Foreign currency translation adjustments
1,731

 
248

Fair value of cash flow hedges
4,260

 
(9,947
)
Other comprehensive income (loss), net of tax
8,687

 
(10,266
)
Comprehensive income
42,725

 
36,650

Less: Net income attributable to noncontrolling interest
277

 
43

Comprehensive income attributable to Aramark stockholders
$
42,448

 
$
36,607




 
Nine Months Ended
 
July 3, 2015
 
June 27, 2014
Net income
179,763

 
$
104,949

Other comprehensive income (loss), net of tax:
 
 
 
Pension plan adjustments
2,696

 
(875
)
Foreign currency translation adjustments
(36,101
)
 
(718
)
Fair value of cash flow hedges
(14,296
)
 
(8,288
)
Other comprehensive income (loss), net of tax
(47,701
)
 
(9,881
)
Comprehensive income
132,062

 
95,068

Less: Net income attributable to noncontrolling interest
682

 
398

Comprehensive income attributable to Aramark stockholders
$
131,380

 
$
94,670


The accompanying notes are an integral part of these condensed consolidated financial statements.


3
Table of Contents

ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
Nine Months Ended
 
July 3, 2015
 
June 27, 2014
Cash flows from operating activities:
 
 
 
Net income
$
179,763

 
$
104,949

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
375,757

 
387,058

Income taxes deferred
11,032

 
(46,190
)
Share-based compensation expense
51,984

 
83,017

Changes in operating assets and liabilities
(479,492
)
 
(562,432
)
Other operating activities
18,540

 
16,158

Net cash provided by (used in) operating activities
157,584

 
(17,440
)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment, client contract investments and other
(354,129
)
 
(326,317
)
Disposals of property and equipment
7,658

 
15,807

Proceeds from divestitures
—

 
24,000

Acquisition of certain businesses, net of cash acquired
(3,349
)
 
(20,335
)
Other investing activities
2,973

 
8,574

Net cash used in investing activities
(346,847
)
 
(298,271
)
Cash flows from financing activities:
 
 
 
Proceeds from long-term borrowings
234,856

 
1,725,047

Payments of long-term borrowings
(39,853
)
 
(1,919,980
)
Net change in funding under the Receivables Facility
(7,870
)
 
50,000

Payments of dividends
(61,236
)
 
(34,696
)
Proceeds from initial public offering, net
—

 
524,081

Proceeds from issuance of common stock
24,109

 
3,701

Other financing activities
45,403

 
(21,021
)
Net cash provided by financing activities
195,409

 
327,132

Increase in cash and cash equivalents
6,146

 
11,421

Cash and cash equivalents, beginning of period
111,690

 
110,998

Cash and cash equivalents, end of period
$
117,836

 
$
122,419

 
 
Nine Months Ended
(dollars in millions)
 
July 3, 2015
 
June 27, 2014
Interest paid
 
$
186.8

 
$
223.5

Income taxes paid
 
41.8

 
61.5


The accompanying notes are an integral part of these condensed consolidated financial statements.

4
Table of Contents

ARAMARK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)

 
Total
Stockholders'
Equity
 
Common
Stock
 
Capital
Surplus
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Treasury Stock
Balance, October 3, 2014
$
1,718,036

 
$
2,561

 
$
2,575,011

 
$
(382,463
)
 
$
(106,298
)
 
$
(370,775
)
Net income attributable to Aramark stockholders
179,081

 
 
 
 
 
179,081

 
 
 
 
Other comprehensive income (loss)
(47,701
)
 
 
 
 
 
 
 
(47,701
)
 
 
Capital contributions from issuance of common stock
57,297

 
79

 
57,218

 
 
 
 
 
 
Compensation expense related to stock incentive plans
51,984

 
 
 
51,984

 
 
 
 
 
 
Tax benefits related to stock incentive plans
50,029

 
 
 
50,029

 
 
 
 
 
 
Repurchases of common stock
(80,923
)
 
 
 
 
 
 
 
 
 
(80,923
)
Payments of dividends
(61,462
)
 
 
 
 
 
(61,462
)
 
 
 
 
Balance, July 3, 2015
$
1,866,341

 
$
2,640

 
$
2,734,242

 
$
(264,844
)
 
$
(153,999
)
 
$
(451,698
)

 
Total
Stockholders'
Equity
 
Common
Stock
 
Capital
Surplus
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Treasury Stock
Balance, September 27, 2013
$
903,707

 
$
2,194

 
$
1,693,663

 
$
(479,233
)
 
$
(59,225
)
 
$
(253,692
)
Net income attributable to Aramark stockholders
104,551

 
 
 
 
 
104,551

 
 
 
 
Other comprehensive income (loss)
(9,881
)
 
 
 
 
 
 
 
(9,881
)
 
 
Capital contributions from issuance of common stock
42,764

 
60

 
42,704

 
 
 
 
 
 
Capital contributions from initial public offering
524,081

 
280

 
523,801

 
 
 
 
 
 
Compensation expense related to stock incentive plans
83,017

 
 
 
83,017

 
 
 
 
 
 
Tax benefits related to stock incentive plans
27,236

 
 
 
27,236

 
 
 
 
 
 
Change due to termination of provision in Stockholders' Agreement
158,708

 
 
 
158,708

 
 
 
 
 
 
Repurchases of common stock
(79,765
)
 
 
 
 
 
 
 
 
 
(79,765
)
Payment of dividends
(34,696
)
 
 
 
 
 
(34,696
)
 
 
 
 
Balance, June 27, 2014
$
1,719,722

 
$
2,534

 
$
2,529,129

 
$
(409,378
)
 
$
(69,106
)
 
$
(333,457
)

The accompanying notes are an integral part of these condensed consolidated financial statements.


5
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
On January 26, 2007, investment funds associated with GS Capital Partners, CCMP Capital Advisors, J.P. Morgan Partners, Thomas H. Lee Partners and Warburg Pincus LLC (collectively the "Sponsors"), Joseph Neubauer, former Chairman and Chief Executive Officer of Aramark, and certain other members of Aramark's management, acquired all of the outstanding shares of Aramark (the "Company"), a Delaware corporation, in a going-private transaction (the "2007 Transaction").
On December 12, 2013, Aramark's common stock began trading on the New York Stock Exchange under the symbol "ARMK" after its initial public offering ("IPO") of 28,000,000 shares of its common stock at a price of $20.00 per share.
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 (“SEC”) and should be read in conjunction with the audited consolidated financial statements, and the notes to those statements, included in the Company's Form 10-K filed with the SEC on December 3, 2014. The Condensed Consolidated Balance Sheet as of October 3, 2014 was derived from audited financial statements which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of the Company, the statements include all adjustments, which are of a normal, recurring nature, required for a fair presentation for the periods presented. The results of operations for interim periods are not necessarily indicative of the results for a full year, due to the seasonality of some of the Company’s business activities and the possibility of changes in general economic conditions.
The condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries in which a controlling financial interest is maintained. All significant intercompany transactions and accounts have been eliminated. The Company has an ownership interest in a subsidiary with a redeemable noncontrolling interest. The Company classifies redeemable noncontrolling interest outside of stockholders' equity in the Condensed Consolidated Balance Sheets. For the three and nine months ended July 3, 2015, net income attributable to redeemable noncontrolling interest was $0.3 million and $0.7 million, respectively. Distributions to redeemable noncontrolling interest were $0.6 million for the nine months ended July 3, 2015. For the three and nine months ended June 27, 2014, net income attributable to redeemable noncontrolling interest was $0.1 million and $0.4 million, respectively. Distributions to redeemable noncontrolling interest were $0.6 million for the nine months ended June 27, 2014.
New Accounting Standard Updates
In July 2015, the Financial Accounting Standards Board ("FASB") issued an accounting standard update ("ASU") which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. The guidance is effective for the Company in the first quarter of fiscal 2017 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In April 2015, the FASB issued an ASU on debt issuance costs which requires presentation on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts, and will no longer be recorded as a separate asset. The guidance is effective for the Company in the first quarter of fiscal 2017 and early adoption is permitted. The Company is currently evaluating the impact of the pronouncement.
In June 2014, the FASB issued an ASU on stock compensation which requires that a performance target affecting vesting and that could be achieved after the requisite service period be treated as a performance condition. The guidance is effective for the Company beginning in the first quarter of fiscal 2017. The Company is currently evaluating the impact of the pronouncement relative to its stock incentive awards.
In May 2014, the FASB issued an ASU on revenue from contracts with customers which outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. On July 8, 2015, the FASB voted to defer the effective date of the new revenue standard by one year, but to permit entities to adopt one year earlier if they choose (i.e., the original effective date). The guidance is effective for the Company beginning in the first quarter of fiscal 2019. The Company is currently evaluating the impact of the pronouncement.
In January 2014, the FASB issued an ASU which states that companies should not account for certain service concession arrangements with public-sector entities as leases and should not recognize the related infrastructure as property, plant and equipment. The guidance is effective for the Company beginning in the first quarter of fiscal 2016. The Company is currently evaluating the impact of the pronouncement.

6
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Comprehensive Income
Comprehensive income includes all changes to stockholders' equity during a period, except those resulting from investments by and distributions to stockholders. Components of comprehensive income include net income (loss), changes in foreign currency translation adjustments (net of tax), pension plan adjustments (net of tax), changes in the fair value of cash flow hedges (net of tax) and changes to the share of any equity investees' comprehensive income (net of tax).
The summary of the components of comprehensive income (loss) is as follows (in thousands):
 
Three Months Ended
 
July 3, 2015
 
June 27, 2014
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
Net income
 
 
$
34,038

 
 
 
$
46,916

Pension plan adjustments
4,148

(1,452
)
2,696

 
(872
)
305

(567
)
Foreign currency translation adjustments
(1,882
)
3,613

1,731

 
(1,135
)
1,383

248

Fair value of cash flow hedges
7,211

(2,951
)
4,260

 
(16,398
)
6,451

(9,947
)
Other comprehensive income (loss)
9,477

(790
)
8,687

 
(18,405
)
8,139

(10,266
)
Comprehensive income
 
 
42,725

 
 
 
36,650

Less: Net income attributable to noncontrolling interest
 
 
277

 
 
 
43

Comprehensive income attributable to Aramark stockholders
 
 
$
42,448

 
 
 
$
36,607

 
Nine Months Ended
 
July 3, 2015
 
June 27, 2014
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
 
Pre-Tax Amount
Tax Effect
After-Tax Amount
Net income
 
 
$
179,763

 
 
 
$
104,949

Pension plan adjustments
4,148

(1,452
)
2,696

 
(1,346
)
471

(875
)
Foreign currency translation adjustments
(41,359
)
5,258

(36,101
)
 
(6,128
)
5,410

(718
)
Fair value of cash flow hedges
(23,572
)
9,276

(14,296
)
 
(13,396
)
5,108

(8,288
)
Other comprehensive income (loss)
(60,783
)
13,082

(47,701
)
 
(20,870
)
10,989

(9,881
)
Comprehensive income
 
 
132,062

 
 
 
95,068

Less: Net income attributable to noncontrolling interest
 
 
682

 
 
 
398

Comprehensive income attributable to Aramark stockholders
 
 
$
131,380

 
 
 
$
94,670

Accumulated other comprehensive loss consists of the following (in thousands):
 
July 3, 2015
 
October 3, 2014
Pension plan adjustments
$
(44,119
)
 
$
(44,119
)
Foreign currency translation adjustments
(64,095
)
 
(27,994
)
Cash flow hedges
(40,486
)
 
(26,190
)
Share of equity investee's accumulated other comprehensive loss
(5,299
)
 
(7,995
)
 
$
(153,999
)
 
$
(106,298
)

7
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Property, Plant and Equipment
During the third quarter of fiscal 2015, the Company recorded an impairment charge of approximately $8.7 million, which is included in "Cost of services provided" in the Condensed Consolidated Statement of Income, to write down the book value of one of its buildings within the Food and Support Services North America ("FSS North America") segment to its fair value. The Company is in the process of preparing this building for sale.
Other Assets
Other assets consist primarily of investments in 50% or less owned entities, client contract investments, deferred financing costs, computer software costs and long-term receivables. Client contract investments generally represent a cash payment provided by the Company to help finance improvement or renovation at the facility from which the Company operates. These amounts are amortized over the contract period. If a contract is terminated prior to its maturity date, the Company is generally reimbursed for the unamortized client contract investment amount. Client contract investments, net of accumulated amortization, were $738.7 million and $670.6 million as of July 3, 2015 and October 3, 2014, respectively.
The Company’s principal equity method investment is its 50% ownership interest in AIM Services Co., Ltd., a Japanese food and support services company (approximately $148.4 million and $180.3 million at July 3, 2015 and October 3, 2014, respectively, which is included in “Other Assets” in the Condensed Consolidated Balance Sheets). Summarized financial information for AIM Services Co., Ltd. follows (in thousands):
 
Three Months Ended
 
July 3, 2015
 
June 27, 2014
Sales
$
340,527

 
$
390,862

Gross profit
38,683

 
45,171

Net income
5,785

 
6,239

 
Nine Months Ended
 
July 3, 2015
 
June 27, 2014
Sales
$
1,029,733

 
$
1,156,205

Gross profit
113,304

 
130,735

Net income
17,058

 
19,572

The period to period comparisons of the summarized financial information for AIM Services Co., Ltd., presented in U.S. dollars above, are significantly impacted by currency translation. The Company’s equity in undistributed earnings of AIM Services Co., Ltd., net of amortization related to purchase accounting for the 2007 Transaction, was $2.2 million and $6.9 million for the three and nine months ended July 3, 2015, respectively, and is recorded as a reduction of "Cost of services provided" in the Condensed Consolidated Statements of Income. The Company's equity in undistributed earnings of AIM Services Co., Ltd., net of amortization related to purchase accounting for the 2007 Transaction, was $2.5 million and 7.9 million for the three and nine months ended June 27, 2014, respectively. During the nine months ended July 3, 2015, the Company received $18.7 million of cash distributions from AIM Services Co., Ltd.
NOTE 2. DIVESTITURES:
Fiscal 2015
Aramark India Private Limited Divestiture
During the second quarter of fiscal 2015, the Company completed the sale of Aramark India Private Limited ("India") resulting in a pretax loss of approximately $4.3 million (after tax gain of approximately $1.8 million due to the tax basis exceeding the book basis of the subsidiary), which is included in "Cost of services provided" in the Condensed Consolidated Statements of Income for the nine months ended July 3, 2015. The Company did not receive any proceeds from the sale of its India subsidiary. The results of operations and cash flows associated with the India subsidiary divestiture were not material to the Company's Condensed Consolidated Statements of Income and Cash Flows.

Fiscal 2014
McKinley Chalet Hotel Divestiture
During the first quarter of fiscal 2014, the Company completed the sale of its McKinley Chalet Hotel (the "Chalet") located adjacent to Denali National Park for approximately $24.0 million in cash. The transaction resulted in a pretax loss of

8
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

approximately $6.7 million (net of tax loss of approximately $9.1 million), which is included in "Cost of services provided" in the Condensed Consolidated Statements of Income for the nine months ended June 27, 2014. The pretax loss included a write-off of an allocation of goodwill of approximately $12.8 million. The fiscal 2014 results of operations and cash flows associated with the Chalet divestiture were not material to the Company's Condensed Consolidated Statements of Income and Cash Flows.
NOTE 3. SEVERANCE:
The Company previously initiated a series of actions and developed plans to drive efficiencies through the consolidation and centralization of select functions. During fiscal 2015 and fiscal 2014, as a result of additional cost saving and productivity initiatives offset by refinements to the Company's original plans for consolidation and centralization initiatives and actual attrition of the workforce, the Company recorded charges or reductions to severance expense relative to these actions. For the three and nine months ended July 3, 2015, the Company recorded net severance charges of $3.8 million and $0.9 million, respectively. The Company recorded a net reduction to severance expense of approximately ($1.3) million for the three months ended June 27, 2014 and a net severance charge of approximately $0.5 million for the nine months ended June 27, 2014.
As of July 3, 2015 and October 3, 2014, the Company had an accrual of approximately $13.9 million and $40.7 million, respectively, related to the unpaid obligations for these costs.
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill represents the excess of the fair value of consideration paid for an acquired entity over the fair value of assets acquired and liabilities assumed in a business combination. Goodwill is not amortized and is subject to an impairment test that the Company conducts annually or more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists, using discounted cash flows.
Changes in total goodwill during the nine months ended July 3, 2015 follow (in thousands):
Segment
October 3, 2014
 
Translation
 
July 3, 2015
FSS North America
$
3,583,656

 
$
(212
)
 
$
3,583,444

FSS International
431,245

 
(26,123
)
 
405,122

Uniform
574,779

 
—

 
574,779

 
$
4,589,680

 
$
(26,335
)
 
$
4,563,345

Other intangible assets consist of the following (in thousands):
 
July 3, 2015
 
October 3, 2014
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amount
Customer relationship assets
$
1,864,359

 
$
(1,466,806
)
 
$
397,553

 
$
1,885,222

 
$
(1,386,248
)
 
$
498,974

Trade names
749,684

 
(1,633
)
 
748,051

 
755,400

 
(1,633
)
 
753,767

 
$
2,614,043

 
$
(1,468,439
)
 
$
1,145,604

 
$
2,640,622

 
$
(1,387,881
)
 
$
1,252,741

Acquisition-related intangible assets consist of customer relationship assets, the Aramark trade name and other trade names. Customer relationship assets are being amortized principally on a straight-line basis over the expected period of benefit, 3 to 24 years, with a weighted average life of approximately 12 years. The Aramark trade name is an indefinite lived intangible asset and is not amortizable but is evaluated for impairment at least annually.
Amortization of intangible assets for the nine months ended July 3, 2015 and June 27, 2014 was approximately $100.7 million and $120.7 million, respectively.
NOTE 5. DERIVATIVE INSTRUMENTS:
The Company enters into contractual derivative arrangements to manage changes in market conditions related to interest on debt obligations, foreign currency exposures and exposure to fluctuating gasoline and diesel fuel prices. Derivative instruments utilized during the period include interest rate swap agreements, foreign currency forward exchange contracts and gasoline and diesel fuel agreements. All derivative instruments are recognized as either assets or liabilities on the balance sheet at fair value at the end of each quarter. The counterparties to the Company’s contractual derivative agreements are all major international financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The

9
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Company continually monitors its positions and the credit ratings of its counterparties, and does not anticipate nonperformance by the counterparties. For designated hedging relationships, the Company formally documents the hedging relationship and its risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items.
Cash Flow Hedges
The Company has $2.9 billion notional amount of outstanding interest rate swap agreements, fixing the rate on a like amount of variable rate borrowings. As a result of the amendment to the Company's senior secured credit agreement during fiscal 2014 ("2014 Amendment Agreement"), the Company de-designated the interest rate swap agreements as the terms of the interest rate swaps did not match the terms of the new term loans. Prior to the 2014 Amendment Agreement, these agreements met the required criteria to be designated as cash flow hedging instruments. As a result of the de-designation, the mark-to-market values of the Company's cash flow hedges included in Accumulated Other Comprehensive Loss, which was approximately $22.8 million of unrealized net of tax losses, were frozen as of the de-designation date and will be reclassified into earnings as the underlying hedged transactions affect earnings. In February 2014, the Company amended the interest rate swap agreements to match the terms of the new term loans under the 2014 Amendment Agreement to meet the criteria to be designated as cash flow hedging instruments.
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 (loss) and reclassified into earnings as the underlying hedged item affects earnings. As of July 3, 2015 and October 3, 2014, approximately ($33.5) million and ($19.7) million of unrealized net of tax losses related to the interest rate swaps were included in “Accumulated other comprehensive loss,” respectively. The hedge ineffectiveness for these cash flow hedging instruments during the nine months ended July 3, 2015 and June 27, 2014 was not material.
The Company has $74.3 million of outstanding amortizing cross currency swaps to mitigate the risk of variability in principal and interest payments on the Canadian subsidiary's variable rate debt denominated in U.S. dollars. As of July 3, 2015 and October 3, 2014, unrealized net of tax losses of approximately ($7.0) million and ($6.5) million related to the cross currency swap were included in “Accumulated other comprehensive loss,” respectively. There was no hedge ineffectiveness for this cash flow hedging instrument during the nine month periods of both fiscal 2015 and fiscal 2014.
The following table summarizes the net of tax effect of our derivatives designated as cash flow hedging instruments on Comprehensive Income (in thousands):
 
 
Three Months Ended
 
July 3, 2015
 
June 27, 2014
Interest rate swap agreements
$
7,029

 
$
(9,567
)
Cross currency swap agreements
(536
)
 
(380
)
 
$
6,493

 
$
(9,947
)
 
Nine Months Ended
 
July 3, 2015
 
June 27, 2014
Interest rate swap agreements
$
(10,036
)
 
$
(5,641
)
Cross currency swap agreements
8,992

 
(2,647
)
 
$
(1,044
)
 
$
(8,288
)
Derivatives not Designated in Hedging Relationships
The Company entered into a series of pay fixed/receive floating gasoline and diesel fuel agreements based on the Department of Energy weekly retail on-highway index in order to limit its exposure to price fluctuations for gasoline and diesel fuel. During the nine month period of fiscal 2015, the Company entered into contracts for approximately 12.4 million gallons. As of July 3, 2015, the Company has contracts for approximately 13.1 million gallons outstanding for fiscal 2015 and fiscal 2016. The Company does not record its gasoline and diesel fuel agreements as hedges for accounting purposes. The impact on earnings related to the change in fair value of these contracts was a gain of approximately $2.9 million and $0.2 million for the three and nine months ended July 3, 2015, respectively. The impact on earnings related to the change in fair value of these contracts for the three and nine months ended June 27, 2014 was a gain of approximately $0.5 million and $0.6 million, respectively.

10
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of July 3, 2015, the Company had foreign currency forward exchange contracts outstanding with notional amounts of €17.0 million, £7.0 million and CAD26.8 million to mitigate the risk of changes in foreign currency exchange rates on short-term intercompany loans to certain international subsidiaries. Gains and losses on these foreign currency exchange contracts are recognized in income as the contracts were not designated as hedging instruments, substantially offsetting currency transaction gains and losses on the short-term intercompany loans.
The following table summarizes the location and fair value, using Level 2 inputs, of the Company’s derivatives designated and not designated as hedging instruments in the Condensed Consolidated Balance Sheets (in thousands):
 
 
Balance Sheet Location
 
July 3, 2015
 
October 3, 2014
ASSETS
 
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
 
Cross currency swap agreements
 
Other Assets
 
$
2,315

 
$
—

 
 
 
 
 
 
 
Not designated as hedging instruments:
 
 
 
 
 
 
Foreign currency forward exchange contracts
 
Prepayments
 
260

 
379

 
 
 
 
$
2,575

 
$
379

LIABILITIES
 
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
 
Interest rate swap agreements
 
Accounts Payable
 
$
8,324

 
$
—

Interest rate swap agreements
 
Other Noncurrent Liabilities
 
35,280

 
27,015

Cross currency swap agreements
 
Other Noncurrent Liabilities
 
—

 
7,467

 
 
 
 
43,604

 
34,482

 
 
 
 
 
 
 
Not designated as hedging instruments:
 
 
 
 
 
 
Gasoline and diesel fuel agreements
 
Accounts Payable
 
1,603

 
1,783

 
 
 
 
$
45,207

 
$
36,265

The following table summarizes the location of (gain) loss reclassified from “Accumulated other comprehensive loss” into earnings for derivatives designated as hedging instruments and the location of (gain) loss for the Company's derivatives not designated as hedging instruments in the Condensed Consolidated Statements of Income (in thousands):
 
 
 
 
Three Months Ended
 
 
Account
 
July 3, 2015
 
June 27, 2014
Designated as hedging instruments:
 
 
 
 
 
 
Interest rate swap agreements
 
Interest Expense
 
$
7,838

 
$
6,933

Cross currency swap agreements
 
Interest Expense
 
(441
)
 
2,971

 
 
 
 
7,397

 
9,904

Not designated as hedging instruments:
 
 
 
 
 
 
Gasoline and diesel fuel agreements
 
Costs of services provided
 
$
(1,175
)
 
$
(533
)
Foreign currency forward exchange contracts
 
Interest Expense
 
184

 
1,122

 
 
 
 
(991
)
 
589

 
 
 
 
$
6,406

 
$
10,493


11
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 
 
 
 
Nine Months Ended
 
 
Account
 
July 3, 2015
 
June 27, 2014
Designated as hedging instruments:
 
 
 
 
 
 
Interest rate swap agreements
 
Interest Expense
 
$
23,458

 
$
23,116

Cross currency swap agreements
 
Interest Expense
 
(7,998
)
 
(1,853
)
 
 
 
 
15,460

 
21,263

Not designated as hedging instruments:
 
 
 
 
 
 
Cross currency swap agreements
 
Interest Expense
 
$
—

 
$
(5,111
)
Gasoline and diesel fuel agreements
 
Cost of services provided
 
4,224

 
(669
)
Foreign currency forward exchange contracts
 
Interest Expense
 
(4,373
)
 
5,407

 
 
 
 
(149
)
 
(373
)
 
 
 
 
$
15,311

 
$
20,890

At July 3, 2015, the net of tax loss expected to be reclassified from “Accumulated other comprehensive loss” into earnings over the next twelve months based on current market rates is approximately $19.2 million.
NOTE 6. CAPITAL STOCK:
On December 17, 2013, the Company completed an IPO of 28.0 million shares of its common stock at a price of $20.00 per share raising approximately $524.1 million, net of costs directly related to the IPO. GS Capital Partners and J.P. Morgan Partners each received approximately $6.5 million of underwriters' discounts relating to the shares sold by the Company which were included in the costs directly related to the IPO. The Company used the net proceeds to repay borrowings on the senior secured revolving credit facility of approximately $154.1 million and principal on the senior secured term loan facility of $370.0 million. In addition, the Company paid cash bonuses and certain other expenses of approximately $5.0 million related to the IPO which were included in the Condensed Consolidated Statements of Income for the nine months ended June 27, 2014.
During the nine months ended July 3, 2015 and June 27, 2014, the Company paid dividends of approximately $61.2 million and $34.7 million to its stockholders, respectively. On August 4, 2015, the Company's Board declared a $0.08625 dividend per share of common stock, payable on September 8, 2015, to shareholders of record on the close of business on August 18, 2015.
NOTE 7. SHARE-BASED COMPENSATION:
Share-based compensation expense charged to expense for the three and nine months ended July 3, 2015 was approximately $20.5 million, before taxes of approximately $8.0 million and approximately $52.0 million, before taxes of approximately $20.3 million, respectively. Share-based compensation expense charged to expense for the three and nine months ended June 27, 2014 was approximately $10.0 million, before taxes of approximately $3.9 million and approximately $83.0 million, before taxes of approximately $32.4 million, respectively. The compensation expense recognized is classified as "Selling and general corporate expenses" in the Condensed Consolidated Statements of Income. No compensation expense was capitalized.
Stock Options
Time-Based Options
The Company granted 2.8 million time-based options with a weighted-average grant-date fair value of $8.31 per option during the nine months ended July 3, 2015. The Company recorded compensation expense during the three and nine months ended July 3, 2015 for time-based options of approximately $4.2 million and $12.3 million, respectively. The compensation cost charged to expense during the three and nine months ended June 27, 2014 for time-based options was approximately $2.9 million and $9.7 million, respectively.
Performance-Based Options
During the third quarter of fiscal 2015, all unvested performance-based options granted under the 2007 Management Stock Incentive Plan (the "2007 MSIP") vested due to the Sponsors achieving the required rate of return on their sales of our stock to constitute a return-based event under the original terms of such options related to approximately 0.7 million shares.
On November 11, 2013, the Compensation Committee approved an amendment to all outstanding 2007 MSIP Option Agreements (the “Performance Option Amendment”) modifying the vesting provisions relating to outstanding performance-based options granted under the 2007 MSIP. The Performance Option Amendment provided that in the event of an initial public

12
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

offering of Aramark, subject to continued employment on such date, 50% of any then-unvested performance-based options that did not meet applicable performance thresholds in prior years (the “Missed Year Options”) would become vested if the initial public offering price for the common stock of Aramark equaled or exceeded $20.00 per share. In addition, during the 18 month period following the initial public offering, if the closing trading price for common stock of Aramark equaled or exceeded $25.00 per share over any consecutive twenty day trading period, 100% of the Missed Year Options would become vested. There were a total of approximately 5.0 million Missed Year Options which fully vested by the second quarter of fiscal 2014 as all performance targets were met.
During the three and nine months ended July 3, 2015, approximately $6.2 million and $10.8 million was charged to expense for performance-based options, respectively. During the three and nine months ended June 27, 2014, approximately $1.6 million and $57.0 million was charged to expense for performance-based options, respectively. The nine months ended June 27, 2014 included approximately $50.9 million related to the Missed Year Options that were modified.
Installment Stock Purchase Opportunities ("ISPO")
The Company recorded approximately $0.4 million and $1.3 million of compensation expense related to ISPOs and the exchanged restricted stock and non-qualified stock options during the three and nine months ended July 3, 2015, respectively. The Company recorded approximately $0.4 million and $1.6 million of compensation expense related to ISPOs during the three and nine months ended June 27, 2014, respectively.
Time-Based Restricted Stock Units ("RSUs")
The Company granted 0.5 million RSUs during the nine months ended July 3, 2015 at a weighted-average grant-date fair value of $29.42 per RSU. The compensation cost charged to expense during the three and nine months ended July 3, 2015 for RSUs was approximately $5.0 million and $14.3 million, respectively. The compensation cost charged to expense during the three and nine months ended June 27, 2014 for RSUs was approximately $3.6 million and $9.9 million, respectively.
Performance Stock Units ("PSUs")
The Company granted 0.8 million PSUs during the nine months ended July 3, 2015 at a weighted-average grant-date fair value of $28.76 per PSU with performance conditions based upon the achievement of a level of adjusted earnings per share. The Company recorded compensation expense during the three and nine months months ended July 3, 2015 for PSUs of approximately $4.4 million and $13.0 million, respectively. For the three and nine months months ended June 27, 2014, the compensation cost charged to expense for PSUs was approximately $1.5 million and $3.3 million, respectively.
Deferred Stock Units ("DSUs")
The Company granted 35,163 deferred stock units during the nine months ended July 3, 2015. The compensation cost charged to expense during the three and nine months ended July 3, 2015 for DSUs was approximately $0.3 million and $0.3 million, respectively. The compensation cost charged to expense during the three and nine months ended June 27, 2014 for deferred stock units was approximately $0 million and $1.5 million, respectively.

13
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 8. EARNINGS PER SHARE:
Basic earnings per share is computed using the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares outstanding adjusted to include the potentially dilutive effect of share-based awards.
The following table sets forth the computation of basic and diluted earnings per share attributable to the Company's stockholders (in thousands, except per share data):
 
 
Three Months Ended
 
Nine Months Ended
 
 
July 3, 2015
 
June 27, 2014
 
July 3, 2015
 
June 27, 2014
Earnings:
 
 
 
 
 
 
 
 
Net income attributable to Aramark stockholders
 

$33,761

 

$46,873

 

$179,081

 

$104,551

Shares:
 
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
 
238,718

 
231,854

 
236,933

 
223,143

Effect of dilutive securities
 
8,506

 
11,885

 
9,102

 
11,679

Diluted weighted-average shares outstanding
 
247,224

 
243,739

 
246,035

 
234,822

 
 
 
 
 
 
 
 
 
Basic Earnings Per Share:
 
 
 
 
 
 
 
 
Net income attributable to Aramark stockholders
 

$0.14

 

$0.20

 

$0.76

 

$0.47

 
 
 
 
 
 
 
 
 
Diluted Earnings Per Share:
 
 
 
 
 
 
 
 
Net income attributable to Aramark stockholders
 

$0.14

 

$0.19

 

$0.73

 

$0.45

Share-based awards to purchase 2.9 million and 1.6 million shares were outstanding for the three months ended July 3, 2015 and June 27, 2014, respectively, but were not included in the computation of diluted earnings per common share, as their effect would have been antidilutive. In addition, PSUs related to 0.8 million shares and 2.2 million shares of performance-based options and PSUs were outstanding for the three month periods of July 3, 2015 and June 27, 2014, respectively, but were not included in the computation of diluted earnings per common share, as the performance targets were not yet met.
Share-based awards to purchase 2.4 million shares and 1.3 million shares were outstanding for the nine month periods of July 3, 2015 and June 27, 2014, respectively, but were not included in the computation of diluted earnings per share, as their effect would have been antidilutive. In addition, PSUs related to 0.8 million shares and 3.4 million shares of performance-based options and PSUs were outstanding during the nine month periods of July 3, 2015 and June 27, 2014, respectively, but were not included in the computation of diluted earnings per share, as the performance targets were not yet met.
NOTE 9. ACCOUNTS RECEIVABLE SECURITIZATION:
The Company has an agreement (the "Receivables Facility") with two financial institutions, which expires May 2017, whereby it sells on a continuous basis an undivided interest in all eligible trade accounts receivable, as defined in the Receivables Facility. The maximum amount available under the Receivables Facility is $350.0 million. In addition, the Receivables Facility includes a seasonal tranche which increases the capacity of the Receivables Facility by $25.0 million from November to March. At July 3, 2015 and October 3, 2014, the amount of outstanding borrowings under the Receivables Facility was $342.1 million and $350.0 million, respectively and is included in “Long-Term Borrowings."
NOTE 10. COMMITMENTS AND CONTINGENCIES
Certain of the Company’s lease arrangements, primarily vehicle leases, with terms of one to eight years, contain provisions related to residual value guarantees. The maximum potential liability to the Company under such arrangements was approximately $127.7 million at July 3, 2015 if the terminal fair value of vehicles coming off lease was zero. Consistent with past experience, management does not expect any significant payments will be required pursuant to these arrangements. No amounts have been accrued for guarantee arrangements at July 3, 2015.
From time to time, the Company and its subsidiaries are a party to various legal actions, proceedings and investigations involving claims incidental to the conduct of their business, including actions by clients, consumers, employees, government entities and third parties, including under federal, state, international, national, provincial and local employment laws, wage and

14
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

hour laws, discrimination laws, immigration laws, human health and safety laws, import and export controls and customs laws, environmental laws, false claims or whistleblower statutes, minority, women and disadvantaged business enterprise statutes, tax codes, antitrust and competition laws, consumer protection statutes, procurement regulations, intellectual property laws, food safety and sanitation laws, cost and accounting principles, the Foreign Corrupt Practices Act, the U.K. Bribery Act, other anti-corruption laws, lobbying laws, motor carrier safety laws, data privacy laws and alcohol licensing and service laws, or alleging negligence and/or breaches of contractual and other obligations. Based on information currently available, advice of counsel, available insurance coverage, established reserves and other resources, the Company does not believe that any such actions are likely to be, individually or in the aggregate, material to its business, financial condition, results of operations or cash flows. However, in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to the Company’s business, financial condition, results of operations or cash flows.
NOTE 11. BUSINESS SEGMENTS:
The Company reports its operating results in three reportable segments: FSS North America, FSS International and Uniform and Career Apparel ("Uniform"). Corporate includes general expenses not specifically allocated to an individual segment and share-based compensation expense (see Note 7). Financial information by segment follows (in millions):
 
Sales
 
Three Months Ended
 
Nine Months Ended
 
July 3, 2015
 
June 27, 2014
 
July 3, 2015
 
June 27, 2014
FSS North America
$
2,382.6

 
$
2,468.9

 
$
7,466.1

 
$
7,449.8

FSS International
722.0

 
784.1

 
2,180.4

 
2,340.1

Uniform
381.6

 
367.1

 
1,136.7

 
1,095.2

 
$
3,486.2

 
$
3,620.1

 
$
10,783.2

 
$
10,885.1

 
Operating Income
 
Three Months Ended
 
Nine Months Ended
 
July 3, 2015
 
June 27, 2014
 
July 3, 2015
 
June 27, 2014
FSS North America
$
73.6

 
$
94.9

 
$
363.5

 
$
382.5

FSS International
32.3

 
37.3

 
83.4

 
78.6

Uniform
49.6

 
46.9

 
145.7

 
123.7

 
155.5

 
179.1

 
592.6

 
584.8

Corporate
(38.6
)
 
(37.8
)
 
(119.0
)
 
(165.5
)
Operating Income
116.9

 
141.3

 
473.6

 
419.3

Interest and Other Financing Costs, net
(71.2
)
 
(71.2
)
 
(214.3
)
 
(256.6
)
Income Before Income Taxes
$
45.7

 
$
70.1

 
$
259.3

 
$
162.7


NOTE 12. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are classified based upon the level of judgment associated with the inputs used to measure their fair value. The hierarchical levels related to the subjectivity of the valuation inputs are defined as follows:
•
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

15
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Recurring Fair Value Measurements
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, borrowings and derivatives. Management believes that the carrying value of cash and cash equivalents, accounts receivable and accounts payable are representative of their respective fair values. In conjunction with the fair value measurement of the derivative instruments, the Company made an accounting policy election to measure the credit risk of its derivative instruments that are subject to master netting agreements on a net basis by counterparty portfolio. The fair value of the Company’s debt at July 3, 2015 and October 3, 2014 was $5,672.2 million and $5,441.5 million, respectively. The carrying value of the Company’s debt at July 3, 2015 and October 3, 2014 was $5,618.0 million and $5,445.6 million, respectively. The fair values were computed using market quotes, if available, or based on discounted cash flows using market interest rates as of the end of the respective periods. The inputs utilized in estimating the fair value of the Company's debt has been classified as level 2 in the fair value hierarchy levels.
NOTE 13. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF ARAMARK AND SUBSIDIARIES:
The following condensed consolidating financial statements of the Company 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. Interest expense and certain other costs are partially allocated to all of the subsidiaries of the Company. Goodwill and other intangible assets have been allocated to the subsidiaries based on management’s estimates. The 5.75% Senior Notes are an obligation of the Company's wholly-owned subsidiary, Aramark Services, Inc., and are jointly and severally guaranteed on a senior unsecured basis by the Company and substantially all of the Company’s existing and future domestic subsidiaries (excluding the Receivables Facility subsidiary) (“Guarantors”). Each of the Guarantors is wholly-owned, directly or indirectly, by the Company. All other subsidiaries of the Company, either direct or indirect, do not guarantee the Senior Notes (“Non-Guarantors”). The Guarantors also guarantee certain other debt.

16
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


CONDENSED CONSOLIDATING BALANCE SHEETS
July 3, 2015
(in millions)
 
Aramark (Parent)
 
Aramark Services, Inc.
(Issuer)
 
Guarantors
 
Non
Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
25.7

 
$
39.4

 
$
52.7

 
$
—

 
$
117.8

Receivables
—

 
3.3

 
367.8

 
1,094.8

 
—

 
1,465.9

Inventories, at lower of cost or market
—

 
15.6

 
462.6

 
72.7

 
—

 
550.9

Prepayments and other current assets
—

 
89.5

 
73.9

 
89.5

 
—

 
252.9

Total current assets
—

 
134.1

 
943.7

 
1,309.7

 
—

 
2,387.5

Property and Equipment, net
—

 
29.4

 
770.1

 
159.0

 
—

 
958.5

Goodwill
—

 
173.1

 
3,982.7

 
407.5

 
—

 
4,563.3

Investment in and Advances to Subsidiaries
1,866.4

 
5,813.2

 
435.2

 
22.9

 
(8,137.7
)
 
—

Other Intangible Assets
—

 
29.7

 
1,015.1

 
100.9

 
—

 
1,145.7

Other Assets
—

 
69.3

 
860.2

 
230.8

 
(1.9
)
 
1,158.4

 
$
1,866.4

 
$
6,248.8

 
$
8,007.0

 
$
2,230.8

 
$
(8,139.6
)
 
$
10,213.4

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term borrowings
$
—

 
$
21.9

 
$
13.4

 
$
50.7

 
$
—

 
$
86.0

Accounts payable
—

 
129.5

 
300.0

 
259.8

 
—

 
689.3

Accrued expenses and other liabilities
0.1

 
144.8

 
639.6

 
266.8

 
0.1

 
1,051.4

Total current liabilities
0.1

 
296.2

 
953.0

 
577.3

 
0.1

 
1,826.7

Long-term Borrowings
—

 
4,683.6

 
46.3

 
802.1

 
—

 
5,532.0

Deferred Income Taxes and Other Noncurrent Liabilities
—

 
384.3

 
530.3

 
63.9

 
—

 
978.5

Intercompany Payable
—

 
—

 
5,401.0

 
998.8

 
(6,399.8
)
 
—

Redeemable Noncontrolling Interest
—

 
—

 
9.9

 
—

 
—

 
9.9

Total Stockholders' Equity
1,866.3

 
884.7

 
1,066.5

 
(211.3
)
 
(1,739.9
)
 
1,866.3

 
$
1,866.4

 
$
6,248.8

 
$
8,007.0

 
$
2,230.8

 
$
(8,139.6
)
 
$
10,213.4



17
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


CONDENSED CONSOLIDATING BALANCE SHEETS
October 3, 2014
(in millions)
 
 
Aramark (Parent)
 
Aramark Services, Inc.
(Issuer)
 
Guarantors 
 
Non
Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
26.3

 
$
41.6

 
$
43.8

 
$
—

 
$
111.7

Receivables
—

 
0.2

 
265.4

 
1,316.9

 
—

 
1,582.5

Inventories, at lower of cost or market
—

 
15.4

 
458.7

 
79.7

 
—

 
553.8

Prepayments and other current assets
—

 
73.5

 
67.4

 
76.1

 
—

 
217.0

Total current assets
—

 
115.4

 
833.1

 
1,516.5

 
—

 
2,465.0

Property and Equipment, net
—

 
24.9

 
796.5

 
175.9

 
—

 
997.3

Goodwill
—

 
173.1

 
3,982.8

 
433.8

 
—

 
4,589.7

Investment in and Advances to Subsidiaries
1,718.8

 
5,677.4

 
433.0

 
65.7

 
(7,894.9
)
 
—

Other Intangible Assets
—

 
29.7

 
1,101.3

 
121.7

 
—

 
1,252.7

Other Assets
—

 
70.1

 
821.4

 
261.5

 
(2.0
)
 
1,151.0

 
$
1,718.8

 
$
6,090.6

 
$
7,968.1

 
$
2,575.1

 
$
(7,896.9
)
 
$
10,455.7

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term borrowings
$
—

 
$
22.0

 
$
13.0

 
$
54.8

 
$
—

 
$
89.8

Accounts payable
—

 
189.8

 
577.4

 
219.0

 
—

 
986.2

Accrued expenses and other liabilities
0.8

 
140.8

 
861.1

 
300.1

 
0.1

 
1,302.9

Total current liabilities
0.8

 
352.6

 
1,451.5

 
573.9

 
0.1

 
2,378.9

Long-term Borrowings
—

 
4,503.7

 
41.3

 
810.8

 
—

 
5,355.8

Deferred Income Taxes and Other Noncurrent Liabilities
—

 
372.3

 
535.5

 
85.3

 
—

 
993.1

Intercompany Payable
—

 
—

 
4,968.2

 
1,291.5

 
(6,259.7
)
 
—

Redeemable Noncontrolling Interest
—

 
—

 
9.9

 
—

 
—

 
9.9

Total Stockholders' Equity
1,718.0

 
862.0

 
961.7

 
(186.4
)
 
(1,637.3
)
 
1,718.0

 
$
1,718.8

 
$
6,090.6

 
$
7,968.1

 
$
2,575.1

 
$
(7,896.9
)
 
$
10,455.7



18
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the three months ended July 3, 2015
(in millions)
 
 
Aramark (Parent)
 
Aramark Services, Inc.
(Issuer)
 
Guarantors 
 
Non
Guarantors
 
Eliminations
 
Consolidated
Sales
$
—

 
$
258.2

 
$
2,274.5

 
$
953.5

 
$
—

 
$
3,486.2

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of services provided
—

 
236.5

 
2,042.5

 
885.7

 
—

 
3,164.7

Depreciation and amortization
—

 
2.6

 
104.0

 
18.7

 
—

 
125.3

Selling and general corporate expenses
0.4

 
40.4

 
34.2

 
4.3

 
—

 
79.3

Interest and other financing costs, net
—

 
62.8

 
(0.7
)
 
9.1

 
—

 
71.2

Expense allocations
(0.4
)
 
(87.2
)
 
76.6

 
11.0

 
—

 
—

 
—

 
255.1

 
2,256.6

 
928.8

 
—

 
3,440.5

Income before Income Taxes
—

 
3.1

 
17.9

 
24.7

 
—

 
45.7

Provision for Income Taxes
—

 
1.0

 
2.2

 
8.4

 
—

 
11.6

Equity in Net Income of Subsidiaries
33.8

 
—

 
—

 
—

 
(33.8
)
 
—

Net income
33.8

 
2.1

 
15.7

 
16.3

 
(33.8
)
 
34.1

Less: Net income attributable to noncontrolling interest
—

 
—

 
0.3

 
—

 
—

 
0.3

Net income attributable to Aramark stockholders
33.8

 
2.1

 
15.4

 
16.3

 
(33.8
)
 
33.8

Other comprehensive income (loss), net of tax
8.7

 
10.7

 
2.1

 
(2.7
)
 
(10.1
)
 
8.7

Comprehensive income attributable to Aramark stockholders
$
42.5

 
$
12.8

 
$
17.5

 
$
13.6

 
$
(43.9
)
 
$
42.5



19
Table of Contents
ARAMARK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the nine months ended July 3, 2015
(in millions)
 
Aramark (Parent)
 
Aramark Services, Inc.
(Issuer)
 
Guarantors 
 
Non
Guarantors
 
Eliminations
 
Consolidated
Sales
$
—

 
$
759.8

 
$
7,096.2

 
$
2,927.2

 
$
—

 
$
10,783.2

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of services provided
—

 
670.1

 
6,305.9

 
2,715.2

 
—

 
9,691.2

Depreciation and amortization
—

 
8.1

 
309.2

 
58.4

 
—

 
375.7

Selling and general corporate expenses
1.8

 
125.6

 
102.6

 
12.6

 
—

 
242.6

Interest and other financing costs
—

 
190.7

 
(1.6
)
 
25.3

 
—

 
214.4

Expense allocations
(1.8
)
 
(250.0
)
 
218.8

 
33.0

 
—

 
—

 
—

 
744.5

 
6,934.9

 
2,844.5

 
—

 
10,523.9

Income before Income Taxes
—

 
15.3

 
161.3

 
82.7

 
—

 
259.3

Provision for Income Taxes
—

 
5.3

 
45.6

 
28.6

 
—

 
79.5

Equity in Net Income of Subsidiaries
179.1

 
—

 
—

 
—

 
(179.1
)
 
—

Net income
179.1

 
10.0

 
115.7

 
54.1

 
(179.1
)
 
179.8

Less: Net income attributable to noncontrolling interest
—

 
—

 
0.7

 
—

 
—