ARAMARK CORP - FORM 10-Q - August 11, 2010

ARAMARK CORP - FORM 10-Q - August 11, 2010

Attached files

Attached files

ARAMARK CORP Reports

file	filename
EX-31.1 - SECTION 302 CEO CERTIFICATION - ARAMARK CORP	dex311.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - ARAMARK CORP	dex322.htm
EX-10.1 - SCHEDULE 1 TO FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT - ARAMARK CORP	dex101.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - ARAMARK CORP	dex321.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - ARAMARK CORP	dex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended July 2, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-04762

ARAMARK CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

95-2051630

(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 registrant was required to submit and post such files). Yes ¨ 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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common stock outstanding at July 30, 2010: 1,000 shares

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands, Except Share Amounts)


	July 2, 2010			October 2, 2009
ASSETS
Current Assets:
Cash and cash equivalents	$	85,608		$	224,644
Receivables		826,490			807,974
Inventories, at lower of cost or market		436,970			464,157
Prepayments and other current assets		182,303			191,659

Total current assets		1,531,371			1,688,434

Property and Equipment, net		1,052,397			1,160,511
Goodwill		4,524,770			4,526,376
Other Intangible Assets		1,940,388			2,056,337
Other Assets		877,306			867,767

	$	9,926,232		$	10,299,425


LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities:
Current maturities of long-term borrowings	$	41,226		$	43,943
Accounts payable		588,284			669,704
Accrued expenses and other current liabilities		998,991			1,020,932

Total current liabilities		1,628,501			1,734,579

Long-Term Borrowings		5,479,852			5,677,740
Deferred Income Taxes and Other Noncurrent Liabilities		1,281,150			1,350,346
Common Stock Subject to Repurchase		183,628			176,395
Shareholder’s Equity:
Common stock, par value $.01 (authorized: 1,000 shares; issued and outstanding: 1,000 shares)		—			—
Capital surplus		1,444,273			1,445,451
Earnings retained for use in the business		58,193			48,608
Accumulated other comprehensive loss		(149,365	)		(133,694	)

Total shareholder’s equity		1,353,101			1,360,365

	$	9,926,232		$	10,299,425

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

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In Thousands)


	Three Months Ended July 2, 2010			Three Months Ended July 3, 2009
Sales	$	3,120,944		$	3,022,067


Costs and Expenses:
Cost of services provided		2,854,712			2,754,385
Depreciation and amortization		126,738			127,965
Selling and general corporate expenses		44,162			40,213

		3,025,612			2,922,563

Operating income		95,332			99,504
Interest and Other Financing Costs, net		108,811			119,432

Loss before income taxes		(13,479	)		(19,928	)
Benefit for Income Taxes		(7,159	)		(13,769	)

Net loss	$	(6,320	)	$	(6,159	)

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

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In Thousands)


	Nine Months Ended July 2, 2010			Nine Months Ended July 3, 2009
Sales	$	9,413,662		$	9,225,325


Costs and Expenses:
Cost of services provided		8,544,990			8,399,872
Depreciation and amortization		382,159			375,548
Selling and general corporate expenses		147,875			143,376

		9,075,024			8,918,796

Operating income		338,638			306,529
Interest and Other Financing Costs, net		335,766			363,843

Income (Loss) before income taxes		2,872			(57,314	)
Benefit for Income Taxes		(6,713	)		(33,972	)

Net income (loss)	$	9,585		$	(23,342	)

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)


	Nine Months Ended July 2, 2010			Nine Months Ended July 3, 2009

Cash flows from operating activities:
Net income (loss)	$	9,585		$	(23,342	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		382,159			375,548
Income taxes deferred		(45,014	)		(29,304	)
Share-based compensation expense		17,335			22,348
Changes in noncash working capital		(112,126	)		(3,202	)
Net change in proceeds from sale of receivables		11,580			(17,120	)
Other operating activities		31,705			65,169

Net cash provided by operating activities		295,224			390,097


Cash flows from investing activities:
Purchases of property and equipment and client contract investments		(172,787	)		(267,269	)
Disposals of property and equipment		20,798			20,275
Acquisition of certain businesses, net of cash acquired		(84,305	)		(135,314	)
Other investing activities		(2,950	)		934

Net cash used in investing activities		(239,244	)		(381,374	)


Cash flows from financing activities:
Proceeds from long-term borrowings		4,777			56,400
Payment of long-term borrowings		(180,576	)		(33,110	)
Proceeds from issuance of common stock		2,234			1,302
Repurchase of stock		(8,735	)		(14,468	)
Other financing activities		(12,716	)		71

Net cash provided by (used in) financing activities		(195,016	)		10,195

Increase (Decrease) in cash and cash equivalents		(139,036	)		18,918
Cash and cash equivalents, beginning of period		224,644			148,919

Cash and cash equivalents, end of period	$	85,608		$	167,837

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)

BASIS OF PRESENTATION:

ARAMARK Corporation (the “Company” or “ARAMARK”) was acquired on January 26, 2007 through a merger transaction with RMK Acquisition Corporation, a Delaware corporation controlled by 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, Chairman and Chief Executive Officer of ARAMARK, and certain other members of the Company’s management. The acquisition was accomplished through the merger of RMK Acquisition Corporation with and into ARAMARK Corporation with ARAMARK Corporation being the surviving company (the “Transaction”).

The Company is a wholly-owned subsidiary of ARAMARK Intermediate Holdco Corporation, which is wholly-owned by ARAMARK Holdings Corporation (the “Parent Company”). ARAMARK Holdings Corporation, ARAMARK Intermediate Holdco Corporation and RMK Acquisition Corporation were formed for the purpose of facilitating the Transaction and have no operations other than ownership of the Company. ARAMARK Holdings Corporation has 600.0 million common shares authorized, approximately 209.2 million issued and approximately 203.6 million outstanding as of July 2, 2010.

On March 30, 2007, ARAMARK Corporation was merged with and into ARAMARK Services, Inc. with ARAMARK Services, Inc. being the surviving corporation. In connection with the consummation of the merger, ARAMARK Services, Inc. changed its name to ARAMARK Corporation.

The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. The condensed consolidated financial statements exclude the accounts of ARAMARK Holdings Corporation and ARAMARK Intermediate Holdco Corporation, but do reflect the Sponsors’ investment cost basis allocated to the assets and liabilities acquired on January 26, 2007.

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 Annual Report on Form 10-K for the fiscal year ended October 2, 2009. The condensed consolidated balance sheet as of October 2, 2009 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. In the opinion of the Company, the statements include all adjustments (which, other than the effects of the Transaction, 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 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.

Certain prior period balances in the Company’s condensed consolidated statement of cash flows related to cashless settlements of the exercise price and related employee minimum tax withholding liabilities of share-based payment awards have been reclassified to conform to current year presentation. The effect was not material. The Company calculated the benefit for income taxes for interim periods in fiscal 2010 and fiscal 2009 based on actual year-to-date results.

(2)

ACQUISITIONS:

On October 30, 2009, ARAMARK Ireland Holdings Limited and ARAMARK Investments Limited, subsidiaries of the Company, completed the acquisition of the facilities management and property management businesses of Veris plc, an Irish company, for consideration of approximately $74.3 million in cash and the assumption of a pension liability of approximately $1.0 million. These business interests include Vector Workplace and Facility Management Ltd, Irish Estates (Facilities Management) Ltd, Irish Estates (Management) Ltd, Premier Management Company (Dublin) Ltd, Glenrye Properties Services Ltd, Spokesoft Technologies Ltd, Orange Support Services Ltd, Orange Environmental Building Services Ltd and Vector Environmental Services Ltd, all of which are companies that were owned by Veris plc. The facilities management business provides a broad range of facility and project management and consulting services for clients across a wide range of industrial and commercial sectors in Ireland and the United Kingdom. The property management business operates three business units – commercial, residential and retail – through which it manages mixed and single use property developments.

The Company followed the acquisition method of accounting in accordance with the new accounting pronouncement related to business combinations, which the Company adopted in the first quarter of fiscal 2010 (see Note 14). The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed from Veris plc on October 30, 2009, based on the current best estimates of management. The Company is in the process of finalizing its assessment of the fair value of the assets acquired and liabilities assumed. Property and equipment, intangible assets and deferred income taxes were based on preliminary valuation data and estimates. Accordingly, the fair values of these assets and liabilities are subject to change.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


	(in thousands)
Purchase consideration	$	74,335

Current assets	$	43,313
Current liabilities		(48,473	)
Property and equipment		1,005
Customer relationship assets		40,079
Goodwill		43,480
Other assets		956
Long-term borrowings		(77	)
Deferred income taxes and other noncurrent liabilities		(5,948	)

	$	74,335

The goodwill arising from the acquisition consists largely of the growth opportunity the Company anticipates in the core businesses acquired. None of the goodwill is expected to be deductible for tax purposes. All of the goodwill recorded is included in the Food and Support Services—International segment.

The following unaudited pro forma results of operations (in thousands) for the nine months ended July 2, 2010 and July 3, 2009 assume the facilities management and property management businesses of Veris plc had been acquired at the beginning of each fiscal period. This unaudited pro forma information does not purport to be indicative of the results that would have been obtained if the acquisition had actually occurred at the beginning of each fiscal period, nor of the results that may be reported in the future.


	Nine Months Ended July 2, 2010		Nine Months Ended July 3, 2009
Sales	$	9,428,750	$	9,293,681
Net income (loss)		11,058		(22,057	)

For the three and nine months ended July 2, 2010, $20.3 million and $49.1 million of sales and $0.8 million and $0.5 million of net income, respectively, were recorded in the Condensed Consolidated Statements of Operations related to the acquisition of the facilities management and property management businesses of Veris plc. Approximately $1.8 million of pretax transaction-related costs related to the acquisition were included in the nine months ended July 2, 2010. These charges were expensed in accordance with the accounting pronouncement for business combinations and were recorded in “Selling and general corporate expenses” in the Condensed Consolidated Statement of Operations.

During the second quarter of fiscal 2009, the Company paid approximately $24.5 million towards the acquisition of the remaining 20% of its Chilean subsidiary. The Company’s pro forma results of operations for the first nine months of fiscal 2009 would not have been materially different than reported, assuming the acquisition had occurred at the beginning of the respective fiscal period. During the third quarter of fiscal 2009, the Company paid $85.0 million as additional consideration related to the fiscal 2006 acquisition of an online catering company per the terms of the acquisition agreement.

(3)

SUPPLEMENTAL CASH FLOW INFORMATION AND OTHER:

The Company made interest payments of approximately $284.9 million and $304.6 million and income tax payments of approximately $27.9 million and $34.6 million during the nine months ended July 2, 2010 and July 3, 2009, respectively.

Pension expense related to defined benefit plans for the nine months ended July 2, 2010 and July 3, 2009 was approximately $6.9 million and $5.6 million, respectively.

(4)

COMPREHENSIVE INCOME (LOSS):

Comprehensive income includes all changes to shareholders’ equity during a period, except those resulting from investment by and distributions to shareholders. Components of comprehensive income include net income (loss), changes in foreign currency translation adjustments (net of tax), pension plan adjustments (net of tax) and changes in the fair value of cash flow hedges (net of tax). Total comprehensive loss for the three and nine months ended July 2, 2010 was approximately ($26.3) million and ($6.1) million, respectively. For the three and nine months ended July 3, 2009, total comprehensive income (loss) was approximately $36.2 million and ($51.5) million, respectively. As of July 2, 2010 and October 2, 2009, “Accumulated other comprehensive loss” consists of pension plan adjustments (net of tax) of approximately ($17.3) million and ($17.7) million, respectively, foreign currency translation adjustment (net of tax) of approximately ($12.0) million and $22.2 million, respectively, and fair value of cash flow hedges (net of tax) of approximately ($120.1) million and ($138.2) million, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(5)

GOODWILL AND OTHER INTANGIBLE ASSETS:

Goodwill represents the excess of the cost of 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 we conduct 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 2, 2010 follow (in thousands):


Segment	October 2, 2009		Acquisitions		Translation and Other		July 2, 2010
Food and Support Services—North America	$	3,484,841	(1,518	)	(4,844	)	$	3,478,479
Food and Support Services—International		441,525	43,144		(39,051	)		445,618
Uniform and Career Apparel		600,010	663		—			600,673

	$	4,526,376	42,289		(43,895	)	$	4,524,770

The amounts for fiscal 2010 acquisitions may be revised upon final determination of the purchase price allocations. The other adjustment to the Food and Support Services—North America segment represents an immaterial correction related to the Transaction accounting.

Other intangible assets consist of (in thousands):


	July 2, 2010							October 2, 2009
	Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
Customer relationship assets	$	1,813,415	$	(629,285	)	$	1,184,130	$	1,780,875	$	(488,238	)	$	1,292,637
Trade name		756,258		—			756,258		763,700		—			763,700

	$	2,569,673	$	(629,285	)	$	1,940,388	$	2,544,575	$	(488,238	)	$	2,056,337

Acquisition-related intangible assets consist of customer relationship assets and the ARAMARK trade name. Customer relationship assets are amortizable and are being amortized on a straight-line basis over the expected period of benefit, 3 to 17 years, with a weighted average life of about 10 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 2, 2010 and July 3, 2009 was approximately $141.0 million and $136.4 million, respectively.

(6)

BORROWINGS:

On March 26, 2010, the Company amended and restated its senior secured credit agreement (“Restated Credit Agreement”). Among other things, the Restated Credit Agreement: (i) extends the maturity date of $1,407.4 million of the Company’s U.S. denominated term loan and $92.6 million of the letter of credit deposits securing the Company’s synthetic letter of credit facility to July 26, 2016; provided that if any of the Company’s $1.28 billion of 8.5% senior notes due 2015 or $500 million of senior floating rate notes due 2015 are outstanding on October 31, 2014, the maturity date of such term loans and letter of credit deposits shall be October 31, 2014, (ii) permits future extensions and refinancings of the maturity date of the Company’s term loans, letter of credit deposits and revolving credit commitments under the Restated Credit Agreement, (iii) establishes a sub-limit of $250 million for revolving letters of credit under the Restated Credit Agreement, and (iv) permits the Company to refinance term loans in the future with the proceeds of unsecured or secured notes issued by the Company; provided that any such secured notes are subject to a customary first- or second-lien intercreditor agreement, as applicable. The Restated Credit Agreement also increases the applicable margin with respect to the extended term loans to 3.25% for LIBOR borrowings and extended letter of credit facility fees and to 2.25% with respect to extended term loan base-rate borrowings. It also provides for a 1.0% prepayment premium if any extended term loans are prepaid prior to March 26, 2011 with the proceeds of new term loans having lower interest margins than the extended term loans’ margins. The maturity date, interest margins and letter of credit fees for loans and letters of credit deposits that were not extended remain unchanged. Consenting lenders received a one-time amendment fee of approximately $1.9 million in the aggregate on their total loan commitments. During the second quarter of fiscal 2010, approximately $8.3 million of third-party costs directly attributable to the amendment were expensed and are included in “Interest and Other Financing Costs, net” in the Condensed Consolidated Statements of Operations. Approximately $7.5 million of the third-party costs were paid to entities affiliated with Goldman Sachs Capital Partners and J.P. Morgan Partners. In June 2010, the Company made an optional prepayment of outstanding un-extended U.S. denominated term loan of $150.0 million.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(7)

ACCOUNTING FOR DERIVATIVE INSTRUMENTS:

The Company enters into derivative contractual arrangements to manage changes in market conditions related to debt obligations, foreign currency exposures and exposure to fluctuating natural gas, gasoline and diesel fuel prices. Derivative instruments utilized during the period include interest rate swap agreements, foreign currency forward exchange contracts, and natural gas, gasoline and diesel fuel hedge 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 Company continually monitors its positions and the credit ratings of its counterparties, and does not anticipate nonperformance by the counterparties. For all 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

As of July 2, 2010, the Company has outstanding $3.0 billion and ¥5.0 billion of interest rate swap agreements, fixing the rate on a like amount of variable rate term loan borrowings and floating rate notes. During the nine months ended July 2, 2010, $680.0 million and £50.0 million of interest rate swap agreements matured. The Company entered into $200 million of forward starting interest rate swap agreements during the nine months ended July 2, 2010 to hedge the cash flow risk of variability in interest payments on variable rate borrowings. 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 2, 2010 and October 2, 2009, approximately ($111.7) million and ($128.1) million of unrealized losses, net of tax, 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 2, 2010 and July 3, 2009 was immaterial.

The Company entered into a $169.6 million amortizing forward starting cross currency swap to mitigate the risk of variability in principal and interest payments on the Canadian subsidiary’s variable rate debt denominated in U.S. dollars. The agreement fixes the rate on the variable rate borrowings and mitigates changes in the Canadian dollar/U.S. dollar exchange rate. 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. During the nine months ended July 2, 2010 and July 3, 2009, approximately ($3.0) million of unrealized losses, net of tax, and $7.1 million of unrealized gains, net of tax, related to the swap were recorded in “Accumulated other comprehensive loss,” respectively. Approximately $4.0 million and ($7.9) million were reclassified to offset net translation gains (losses) on the foreign currency denominated debt during the nine months ended July 2, 2010 and July 3, 2009, respectively. As of July 2, 2010 and October 2, 2009, approximately ($7.4) million and ($8.4) million of unrealized losses, net of tax, related to the cross currency swap were included in “Accumulated other comprehensive loss,” respectively. The hedge ineffectiveness for this cash flow hedging instrument during the nine months ended July 2, 2010 and July 3, 2009 was immaterial.

The Company entered into a series of pay fixed/receive floating natural gas hedge agreements based on a NYMEX price in order to limit its exposure to price increases for natural gas, primarily in the Uniform and Career Apparel segment. As of July 2, 2010, the Company has contracts for approximately 241,000 MMBtu’s outstanding for fiscal 2010 and fiscal 2011 that are designated as cash flow hedging instruments. During the nine months ended July 2, 2010, the Company entered into contracts totaling approximately 186,000 MMBtu’s. These contracts are recorded in accumulated other comprehensive income (loss) and reclassified into earnings as the underlying hedged item affects earnings. As of July 2, 2010 and October 2, 2009, approximately ($0.2) million and ($0.6) million of unrealized losses, net of tax, were recorded in “Accumulated other comprehensive loss” for these contracts, respectively. There was no hedge ineffectiveness for the nine months ended July 2, 2010 and July 3, 2009.

The Company entered into a series of pay fixed/receive floating gasoline and diesel fuel hedge 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. As of July 2, 2010, the Company has contracts for approximately 5.5 million gallons outstanding for fiscal 2010 and fiscal 2011 that are designated as cash flow hedging instruments. During the nine months ended July 2, 2010, the Company entered into contracts totaling approximately 5.0 million gallons. These contracts are recorded in accumulated other comprehensive income (loss) and reclassified into earnings as the underlying hedged item affects earnings. As of July 2, 2010 and October 2,

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2009, approximately ($0.8) million and ($1.1) million of unrealized losses, net of tax, were recorded in “Accumulated other comprehensive loss” for these contracts, respectively. The hedge ineffectiveness for the gasoline and diesel fuel hedging instruments for the nine months ended July 2, 2010 and July 3, 2009 was immaterial.

The following table summarizes the effect of our derivatives designated as cash flow hedging instruments on Comprehensive Income (Loss) (in thousands):


	Three Months Ended July 2, 2010			Three Months Ended July 3, 2009
Interest rate swap agreements	$	(5,993	)	$	11,120
Cross currency swap agreements		1,554			3,375
Natural gas hedge agreements		272			690
Gasoline and diesel fuel hedge agreements		(1,166	)		2,696

	$	(5,333	)	$	17,881


	Nine Months Ended July 2, 2010			Nine Months Ended July 3, 2009
Interest rate swap agreements	$	16,371		$	(40,114	)
Cross currency swap agreements		956			(700	)
Natural gas hedge agreements		455			381
Gasoline and diesel fuel hedge agreements		359			(276	)

	$	18,141		$	(40,709	)

Derivatives not Designated in Hedging Relationships

As of July 2, 2010, the Company had foreign currency forward exchange contracts outstanding with notional amounts of €59.6 million, £7.5 million and CAD71.0 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 currently 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 of our derivatives designated and not designated as hedging instruments in our Condensed Consolidated Balance Sheets (in thousands):


	Balance Sheet Location	July 2, 2010		October 2, 2009
ASSETS
Not designated as hedging instruments:
Foreign currency forward exchange contracts	Prepayments	$	1,443	$	—

Total derivatives		$	1,443	$	—


LIABILITIES
Designated as hedging instruments:
Natural gas hedge agreements	Accounts Payable	$	287	$	1,039
Gasoline and diesel fuel hedge agreements	Accounts Payable		1,217		1,810
Interest rate swap agreements	Accrued Expenses		—		19,640
Interest rate swap agreements	Other Noncurrent Liabilities		186,031		196,039
Cross currency swap agreements	Other Noncurrent Liabilities		28,849		24,183

			216,384		242,711


Not designated as hedging instruments:
Foreign currency forward exchange contracts	Accounts Payable		1,000		392

Total derivatives		$	217,384	$	243,103

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the location of (gain) loss reclassified from “Accumulated other comprehensive loss” into earnings for our derivatives designated as hedging instruments in our Condensed Consolidated Statements of Operations (in thousands):


	Account	Three Months Ended July 2, 2010		Three Months Ended July 3, 2009
Interest rate swap agreements	Interest Expense	$	27,904	$	34,480
Cross currency swap agreements	Interest Expense		5,782		1,370
Natural gas hedge agreements	Cost of services provided		369		1,453
Gasoline and diesel fuel hedge agreements	Cost of services provided		373		4,130

		$	34,428	$	41,433


	Account	Nine Months Ended July 2, 2010		Nine Months Ended July 3, 2009
Interest rate swap agreements	Interest Expense	$	103,323	$	78,078
Cross currency swap agreements	Interest Expense		9,753		2,744
Natural gas hedge agreements	Cost of services provided		1,683		4,222
Gasoline and diesel fuel hedge agreements	Cost of services provided		1,699		9,601

		$	116,458	$	94,645

The following table summarizes the location of (gain) loss for our derivatives not designated as hedging instruments in our Condensed Consolidated Statements of Operations (in thousands):


	Account	Three Months Ended July 2, 2010			Three Months Ended July 3, 2009
Foreign currency forward exchange contracts	Interest Expense	$	(8,371	)	$	347


	Account	Nine Months Ended July 2, 2010			Nine Months Ended July 3, 2009
Foreign currency forward exchange contracts	Interest Expense	$	(14,444	)	$	535

(8)

CAPITAL STOCK:

Pursuant to the Stockholders Agreement of the Parent Company, commencing on January 26, 2008, upon termination of employment from the Company or one of its subsidiaries, members of the Company’s management (other than Mr. Neubauer) who hold shares of common stock of the Parent Company can cause the Parent Company to repurchase all of their initial investment shares at fair market appraised value. Generally, payment for shares repurchased could be, at the Parent Company’s option, in cash or installment notes, which would be effectively subordinated to all indebtedness of the Company. The amount of this potential repurchase obligation has been classified outside of shareholder’s equity, which reflects the Parent Company’s investment basis and capital structure in the Company’s condensed consolidated financial statements. The amount of common stock subject to repurchase as of July 2, 2010 and October 2, 2009 was $183.6 million and $176.4 million, which is based on approximately 12.9 million and 13.4 million shares of common stock of the Parent Company valued at $14.18 and $13.15 per share, respectively. The fair value of our common stock subject to repurchase is calculated using discounted cash flow techniques, comparable public company trading multiples and transaction multiples. During the nine months ended July 2, 2010 and July 3, 2009, approximately $21.2 million and $23.7 million of common stock of the Parent Company was repurchased, respectively. The Stockholders Agreement, the senior secured credit agreement and the indenture governing the 8.50% senior notes due 2015 and the senior floating rate notes due 2015 contain limitations on the amount the Company can expend for such share repurchases.

(9)

SHARE-BASED COMPENSATION:

During the three and nine months ended July 2, 2010, share-based compensation expense was approximately $0.3 million, before taxes of $0.1 million, and approximately $17.3 million, before taxes of $6.8 million, respectively. During the three and nine months ended July 3, 2009, share-based compensation expense was approximately $3.0 million, before taxes of $1.2 million, and approximately $22.3 million, before taxes of $8.8 million, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Stock Options

Time-Based Options

The compensation cost charged to expense during the three and nine months ended July 2, 2010 for Time-Based Options was approximately $3.6 million and $10.4 million, respectively. The compensation cost charged to expense during the three and nine months ended July 3, 2009 for Time-Based Options was approximately $2.7 million and $8.2 million, respectively. As of July 2, 2010, there was approximately $23.4 million of unrecognized compensation expense related to nonvested Time-Based Options, which is expected to be recognized over a weighted-average period of approximately 2.87 years.

A summary of Time-Based Options activity is presented below:


Options	Shares (000s)		Weighted- Average Exercise Price
Outstanding at October 2, 2009	12,927		$	10.70
Granted	4,076		$	14.05
Exercised	(415	)	$	10.04
Forfeited	(371	)	$	11.44

Outstanding at July 2, 2010	16,217		$	11.54

Performance-Based Options

On December 9, 2009, the Parent Company Board waived the EBIT target for fiscal 2009 with respect to approximately 1.1 million options representing 35% of the portion of the Performance-Based Options whose vesting was subject to the achievement of the Company’s fiscal 2009 EBIT target. Accordingly, such portion of the Performance-Based Options vest when the time-based vesting requirement of such options is satisfied. In addition on December 9, 2009, the Parent Company Board approved new annual and cumulative EBIT targets for fiscal 2010 that were revised to recognize the effects of the economic environment on the Company’s business. Approximately 3.3 million options were affected by the new annual and cumulative EBIT targets for fiscal 2010. On March 1, 2010, the Parent Company Board approved new annual and cumulative EBIT targets for fiscal 2011 and beyond. Approximately 0.8 million options were affected by the new annual and cumulative EBIT targets for fiscal 2011 and beyond. The fair value of these Performance-Based Options were revalued at the award modification dates in accordance with authoritative accounting guidance. The fair value of the Performance-Based Options modified during the nine months ended July 2, 2010 was estimated using the Black-Scholes option pricing model and the following weighted-average assumptions noted in the table below.


		Nine Months Ended July 2, 2010
Expected volatility		30%
Expected dividend yield		0%
Expected life (in years)		3.6-6.8
Risk-free interest rate		1.23% - 3.04%

The weighted-average fair value of the Performance-Based Options modified during the nine months ended July 2, 2010 was $5.19 per option.

The Company recognized a credit to expense of approximately ($3.4) million during the three months ended July 2, 2010 and a charge to expense of $6.4 million for the nine months ended July 2, 1010. The compensation cost charged to expense during the three and nine months ended July 3, 2009 for Performance-Based Options was approximately $0.3 million and $13.7 million, respectively. During the third quarter of fiscal 2010, the Company reversed approximately $3.6 million of compensation expense related to expense previously recognized for the Performance-Based Options tied to fiscal 2010 through fiscal 2012.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

A summary of Performance-Based Options activity is presented below:


Options	Shares (000s)		Weighted- Average Exercise Price
Outstanding at October 2, 2009	13,199		$	10.69
Granted	4,076		$	14.05
Exercised	(357	)	$	10.04
Forfeited	(704	)	$	10.85

Outstanding at July 2, 2010	16,214		$	11.54

Deferred Stock Units

The Company granted 32,015 deferred stock units during the nine months ended July 2, 2010. The compensation cost charged to expense during the three and nine months ended July 2, 2010 for deferred stock units was approximately $0.1 million and $0.5 million, respectively. The Company granted 31,920 deferred stock units during the nine months ended July 3, 2009. The compensation cost charged to expense during the three and nine months ended July 3, 2009 was approximately $0 and $0.4 million, respectively.

(10)

ACCOUNTS RECEIVABLE SECURITIZATION:

The Company has an agreement (the Receivables Facility) with several financial institutions whereby it sells on a continuous basis an undivided interest in all eligible trade accounts receivable, as defined in the Receivables Facility. The maximum amount of the facility is $250 million. Pursuant to the Receivables Facility, the Company formed ARAMARK Receivables, LLC, a wholly-owned, consolidated, bankruptcy-remote subsidiary. ARAMARK Receivables, LLC was formed for the sole purpose of buying and selling receivables generated by certain subsidiaries of the Company. Under the Receivables Facility, the Company and certain of its subsidiaries transfer without recourse all of their accounts receivable to ARAMARK Receivables, LLC. ARAMARK Receivables, LLC, in turn, has sold and, subject to certain conditions, may from time to time sell an undivided interest in these receivables. As collections reduce previously sold interests, interests in new, eligible receivables can be sold, subject to meeting certain conditions. This two-step transaction is accounted for as a sale of receivables following the provisions of the authoritative accounting guidance.

The Company has retained an undivided interest in the transferred receivables of approximately $103.5 million and $264.3 million at July 2, 2010 and October 2, 2009, respectively, which is subject to a security interest. Because the sold accounts receivable underlying the retained ownership interest are generally short-term in nature, the fair value of the retained interest approximated its carrying value at both July 2, 2010 and October 2, 2009. The fair value of the retained interest is measured based on expected future cash flows adjusted for unobservable inputs used to assess the risk of credit losses. Those inputs reflect the diversified customer base, the short-term nature of the securitized asset, aging trends and historic collections experience. The Company believes that the allowance for doubtful accounts balance is a reasonable approximation of any credit risk of the customers that generated the receivables. At July 2, 2010 and October 2, 2009, approximately $247.0 million and $235.4 million of accounts receivable were sold and removed from the Condensed Consolidated Balance Sheets, respectively. The Company has retained collection and administrative responsibility for the participating interest sold but has not recorded an asset or liability related to the servicing responsibility retained as the fees earned for servicing were estimated to approximate fair value of the services provided. During the nine months ended July 2, 2010 and July 3, 2009, ARAMARK Receivables, LLC sold an undivided interest in approximately $2.18 billion and $2.20 billion of trade account receivables, respectively, and remitted to bank conduits, pursuant to the servicing agreement, approximately $2.17 billion and $2.23 billion in collections on trade account receivables previously sold, respectively. The discount on the sale of the undivided interest in the transferred receivables is based on the cost of the commercial paper borrowings of the buyers. The loss on the sale of receivables was $2.1 million and $4.3 million for the nine months ended July 2, 2010 and July 3, 2009, respectively, and is included in “Interest and Other Financing Costs, net” in the Condensed Consolidated Statements of Operations.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(11)

EQUITY INVESTMENTS:

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 $225.5 million and $212.3 million at July 2, 2010 and October 2, 2009, 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 2, 2010		Nine Months Ended July 2, 2010
Sales	$	403,229	$	1,179,284
Gross profit		49,085		146,606
Net income		5,971		25,028

	Three Months Ended July 3, 2009		Nine Months Ended July 3, 2009
Sales	$	366,834	$	1,129,228
Gross profit		45,210		138,858
Net income		6,948		25,349

ARAMARK’s equity in undistributed earnings of AIM Services Co., Ltd., net of amortization related to purchase accounting for the Transaction, was $4.2 million and $11.4 million for the three and nine months ended July 2, 2010, respectively. For the three and nine months ended July 3, 2009, ARAMARK’s equity in undistributed earnings of AIM Services Co., Ltd., net of amortization of allocated purchase consideration, was $2.6 million and $9.8 million, respectively.

(12)

DEVELOPMENTS IN THE UNIFORM AND CAREER APPAREL SEGMENT

During the second quarter of fiscal 2009, the Company initiated a repositioning effort to reduce the cost structure and address the demand softness in the WearGuard direct marketing business. The Company exited a portion of its direct marketing business directed at consumers and very small businesses and migrated its distribution and customization functions from its facilities in Norwell, Massachusetts to its facilities in Salem, Virginia and Reno, Nevada. In addition, the Company reduced its headcount in all the other businesses in the Uniform and Career Apparel segment. As a result of these actions, the Company recorded a total charge of approximately $34.2 million during the second quarter of fiscal 2009 for severance and other related costs (approximately $8.5 million), inventory write-downs (approximately $18.5 million primarily as a result of the exit from a portion of its direct marketing business and approximately $2.2 million at other businesses within the segment in response to demand softness) and other asset write-downs (approximately $5.0 million, of which $2.0 million related to additional reserves for receivables and $3.0 million related to facility and equipment write-downs), which is included in “Cost of services provided” in the Condensed Consolidated Statements of Operations. During the first quarter of fiscal 2010, the Company recorded an additional facility write-down of approximately $1.5 million. During the third quarter of fiscal 2010, the Company finalized the sale of its direct marketing facility in Norwell.

(13)

BUSINESS SEGMENTS:

Sales and operating income by reportable segment follow (in thousands):


Sales	Three Months Ended July 2, 2010		Three Months Ended July 3, 2009
Food and Support Services—North America	$	2,149,903	$	2,057,553
Food and Support Services—International		603,085		584,630
Uniform and Career Apparel		367,956		379,884

	$	3,120,944	$	3,022,067

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Operating Income	Three Months Ended July 2, 2010			Three Months Ended July 3, 2009
Food and Support Services—North America	$	57,904		$	61,953
Food and Support Services—International		19,013			23,705
Uniform and Career Apparel		26,423			24,176

		103,340			109,834
Corporate		(8,008	)		(10,330	)

Operating Income		95,332			99,504
Interest, net		(108,811	)		(119,432	)

Loss Before Taxes	$	(13,479	)	$	(19,928	)


Sales	Nine Months Ended July 2, 2010			Nine Months Ended July 3, 2009
Food and Support Services—North America	$	6,419,641		$	6,270,386
Food and Support Services—International		1,885,277			1,746,376
Uniform and Career Apparel		1,108,744			1,208,563

	$	9,413,662		$	9,225,325


Operating Income	Nine Months Ended July 2, 2010			Nine Months Ended July 3, 2009
Food and Support Services—North America	$	251,419		$	251,008
Food and Support Services—International		57,903			62,933
Uniform and Career Apparel		69,442			40,057

		378,764			353,998
Corporate		(40,126	)		(47,469	)

Operating Income		338,638			306,529
Interest, net		(335,766	)		(363,843	)

Income (Loss) Before Taxes	$	2,872		$	(57,314	)

In the first and second fiscal quarters, within the “Food and Support Services—North America” segment, historically there has been a lower level of activity at the higher margin sports, entertainment and recreational food service operations which is partly offset by increased activity in the educational operations. However, in the third and fourth fiscal quarters, historically there has been a significant increase at sports, entertainment and recreational accounts which is partially offset by the effect of summer recess on the educational accounts.

During the second quarter of fiscal 2009, the Company initiated a repositioning effort to reduce the cost structure and address the demand softness in the WearGuard direct marketing business. In addition, the Company reduced its headcount in all the other businesses in the Uniform and Career Apparel segment. The Company recorded a charge of approximately $34.2 million in the second quarter of fiscal 2009 related to these actions (see Note 12).

Corporate expenses include share-based compensation expense (see Note 9).

(14)

NEW ACCOUNTING STANDARD UPDATES:

In September 2006, the Financial Accounting Standards Board (“FASB”) issued a new accounting pronouncement which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. This accounting pronouncement became effective for ARAMARK beginning in fiscal 2009 for financial assets and financial liabilities and fiscal 2010 for nonfinancial assets and nonfinancial liabilities. The Company adopted this accounting pronouncement for financial assets and financial liabilities in fiscal 2009 (see Note 16). The Company adopted this accounting pronouncement for nonfinancial assets and nonfinancial liabilities in the first quarter of fiscal 2010, the effect of which was not material.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In December 2008, the FASB issued a new accounting pronouncement to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The disclosures about plan assets are required for annual periods only and are effective for ARAMARK in fiscal 2010. The Company is currently evaluating this pronouncement.

In April 2008, the FASB issued a new accounting pronouncement which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The amended guidance is to be applied prospectively to intangible assets acquired after the effective date; however, the disclosure requirements of the amended guidance shall be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The Company adopted this accounting pronouncement in the first quarter of fiscal 2010. The adoption did not have an impact on our consolidated financial statements as the useful lives of the Company’s intangible assets were not impacted by renewal or extension provisions.

In December 2007, the FASB issued a new accounting pronouncement which significantly changes the accounting for business combinations and impacts financial statements both on the acquisition date and in subsequent periods. Under this accounting pronouncement, an acquiring entity is required to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, measured at their fair values as of the acquisition date, with limited exceptions. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement periods impact income tax expense. The accounting pronouncement also includes a substantial number of new disclosure requirements. The Company adopted this accounting pronouncement in the first quarter of fiscal 2010 (see Note 2).

In December 2007, the FASB issued a new accounting pronouncement which establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Among other matters, it also requires the recognition of a noncontrolling interest as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the consolidated statement of income. The presentation and disclosure requirements require retrospective application to all prior periods presented. This accounting pronouncement was effective for ARAMARK in the first quarter of fiscal 2010, the effect of which was not material.

In June 2009, the FASB issued an accounting standard update which amends certain requirements for enterprises involved with variable interest entities to improve financial reporting and to provide more relevant and reliable information to users of financial statements. This accounting standard update is effective for ARAMARK beginning in fiscal 2011. The Company is currently evaluating this standard.

In June 2009, the FASB issued an accounting standard update regarding transfers of financial assets which eliminates the concept of a qualifying special-purpose entity, changes the requirements for derecognizing financial assets and requires enhanced disclosures to provide financial statement users with greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. This accounting standard update is effective for ARAMARK beginning in fiscal 2011. The Company is currently evaluating this standard.

In January 2010, the FASB issued an accounting standard update that will require new disclosures about recurring and non-recurring fair value measurements. The new disclosures include significant transfers into and out of level 1 and 2 measurements and will change the current disclosure requirement of level 3 measurement activity from a net basis to a gross basis. The standard also clarifies existing disclosure guidance about the level of disaggregation, inputs and valuation techniques. The new and revised disclosures are effective for ARAMARK in fiscal 2010, except for the revised disclosures about level 3 measurement activity, which are not effective for ARAMARK until beginning in fiscal 2012. The new standard impacts disclosures only and has no impact on the Company’s results of operations or financial position. The Company is currently evaluating the disclosure impact on level 3 measurement activity.

In July 2010, the FASB issued an accounting standard update that will require new disclosures about the credit quality of financing receivables and the allowance for credit losses. The enhanced disclosures will improve a financial statement users’ understanding of the nature of credit risk associated in a company’s financing receivables, how that risk is analyzed in determining the related allowance for credit losses and changes to the allowance during the reporting period. The disclosures about the credit quality of financing receivables is effective for ARAMARK beginning in the first quarter of fiscal 2011. The disclosures about the activity in the allowance for credit losses is effective for ARAMARK beginning in the second quarter of fiscal 2011. The Company is currently evaluating this standard.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(15)

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 ARAMARK under such arrangements was approximately $91.4 million at July 2, 2010 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 2, 2010.

From time to time, the Company is a party to various legal actions and investigations involving claims incidental to the conduct of its business, including actions by clients, customers, employees, government entities and third parties, including under federal and state employment laws, wage and hour laws, immigration laws, human health and safety laws, import and export controls and customs laws, environmental laws, false claims statutes, contractual disputes and dram shop laws. 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.

On October 3, 2008, the Company and a subsidiary were served with a complaint in a Qui Tam action filed by Relator Robert Pritsker (which was originally filed on October 30, 2003) naming the Company and certain other companies in its industry in the United States District Court, E.D.PA. and alleging, among other things, that the defendants, including the Company, caused the making of certain false certifications to the federal government of compliance with U.S.D.A. regulations and seeking unspecified damages. The United States declined to join in this action in 2005. On March 6, 2009, in response to motions by all defendants, the Court dismissed this action with prejudice. On April 3, 2009, the Relator appealed, and on February 9, 2010, the United States Court of Appeals for the Third Circuit affirmed the dismissal. Subsequent motions by the Relator to the Third Circuit were also promptly denied. A petition for certiorari to the United States Supreme Court was filed in June 2010. The Company expects that the Supreme Court will determine whether to accept this petition by the early fall of 2010.

On July 29, 2009, Genaro Zendejas Morales, a former employee of the Company, and Ricky Silva and Cristian Sanchez, current employees of ARAMARK Sports, LLC, filed a proposed class action complaint against the Company, ARAMARK Sports, Inc., and ARAMARK Sports, LLC in the United States District Court, Central District of California. The complaint, as filed, purports to assert class claims that defendants did not pay all monies due under California wage and hour laws. The plaintiffs are seeking unspecified monetary damages and injunctive relief. The parties have executed a memorandum of understanding for a full settlement of the matter. The settlement is conditioned on final approval by the court. The Company has accrued its best estimate of the settlement amount as of July 2, 2010.

(16)

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:

In fiscal 2009, the Company adopted the accounting pronouncement for financial assets and liabilities reported at fair value and related disclosures. The cumulative effect of adoption resulted in a reduction to “Accumulated other comprehensive loss” of approximately $7.5 million, net of tax, related to considering both the Company’s and the counterparties’ credit risk in the fair value measurement of our interest rate swaps. The pronouncement discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The pronouncement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

•

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

The fair value of the Company’s debt at July 2, 2010 and October 2, 2009 was $5,319.1 million and $5,414.0 million, respectively. The carrying value of the Company’s debt at July 2, 2010 and October 2, 2009 was $5,521.1 million and $5,721.7 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

At July 2, 2010 and October 2, 2009, the following financial assets and financial liabilities were measured at fair value on a recurring basis using the type of inputs shown (in thousands):


	July 2, 2010								October 2, 2009
	Level 1		Level 2		Level 3		Total		Total
Assets:
Undivided retained interest in trade receivables sold under the Company’s Receivable Facility	$	—	$	—	$	103,465	$	103,465	$	264,335
Foreign currency forward exchange contracts		—		1,443		—		1,443		—

Total assets measured at fair value on a recurring basis	$	—	$	1,443	$	103,465	$	104,908	$	264,335


Liabilities:
Interest rate swap agreements	$	—	$	186,031	$	—	$	186,031	$	215,679
Cross currency swap agreements		—		28,849		—		28,849		24,183
Natural gas hedge agreements		—		287		—		287		1,039
Gasoline and diesel fuel hedge agreements		—		1,217		—		1,217		1,810
Foreign currency forward exchange contracts		—		1,000		—		1,000		392

Total liabilities measured at fair value on a recurring basis	$	—	$	217,384	$	—	$	217,384	$	243,103


Common Stock Subject to Repurchase	$	—	$	—	$	183,628	$	183,628	$	176,395

At October 2, 2009, the Company’s derivative instruments were measured at fair value using significant other observable inputs (Level 2).

The following table presents the changes in financial instruments for which Level 3 inputs were significant to their valuation for the nine months ended July 2, 2010 (in thousands):


	Undivided retained interest in trade receivables			Common Stock Subject to Repurchase
Balance at October 2, 2009	$	264,335		$	176,395
Net realized gains/(losses) included in earnings		(1,929	)		—
Net purchases, issuances and settlements		(158,941	)		(6,520	)
Change in fair market value of common stock of the Parent Company		—			13,753

Balance at July 2, 2010	$	103,465		$	183,628

Net realized gain/(losses) are included in “Cost of services provided” in the Condensed Consolidated Statements of Operations.

(17)

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF ARAMARK CORPORATION AND SUBSIDIARIES:

The following condensed consolidating financial statements of ARAMARK Corporation and subsidiaries have been prepared pursuant to Rule 3-10 of Regulation S-X.

These condensed consolidating financial statements have been prepared from the Company’s financial information on the same basis of accounting as the condensed consolidated financial statements. Interest expense and certain administrative costs are partially allocated to all of the subsidiaries of the Company. Goodwill and other intangible assets have been allocated to all of the subsidiaries of the Company based on management’s estimates. On January 26, 2007, in connection with the Transaction, the Company issued 8.50% senior notes due 2015 and senior floating rate notes due 2015. The senior notes are jointly and severally guaranteed on a senior unsecured basis by 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 unregistered debt.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

July 2, 2010

(in millions)


	ARAMARK Corporation		Guarantors		Non Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	11.0	$	30.2	$	44.4	$	—		$	85.6
Receivables		2.0		276.0		548.5		—			826.5
Inventories, at lower of cost or market		17.1		356.0		63.9		—			437.0
Prepayments and other current assets		2.9		125.4		53.9		—			182.2

Total current assets		33.0		787.6		710.7		—			1,531.3

Property and Equipment, net		39.6		807.6		205.2		—			1,052.4
Goodwill		173.1		3,896.2		455.4		—			4,524.7
Investment in and Advances to Subsidiaries		6,795.2		104.1		292.9		(7,192.2	)		—
Other Intangible Assets		63.2		1,641.2		236.0		—			1,940.4
Other Assets		94.2		492.3		292.8		(2.0	)		877.3

	$	7,198.3	$	7,729.0	$	2,193.0	$	(7,194.2	)	$	9,926.1

LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities:
Current maturities of long-term borrowings	$	6.1	$	12.7	$	22.4	$	—		$	41.2
Accounts payable		106.1		243.1		239.0		—			588.2
Accrued expenses and other liabilities		179.4		590.9		228.6		0.1			999.0

Total current liabilities		291.6		846.7		490.0		0.1			1,628.4

Long-Term Borrowings		4,970.5		30.2		479.1		—			5,479.8
Deferred Income Taxes and Other Noncurrent Liabilities		399.5		754.8		126.9		—			1,281.2
Intercompany Payable		—		5,950.6		880.2		(6,830.8	)		—
Common Stock Subject to Repurchase		183.6		—		—		—			183.6
Shareholder’s Equity		1,353.1		146.7		216.8		(363.5	)		1,353.1

	$	7,198.3	$	7,729.0	$	2,193.0	$	(7,194.2	)	$	9,926.1

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

October 2, 2009

(in millions)


	ARAMARK Corporation		Guarantors		Non Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	156.8	$	26.6	$	41.2	$	—		$	224.6
Receivables		6.1		140.5		661.4		—			808.0
Inventories, at lower of cost or market		16.7		376.7		70.7		—			464.1
Prepayments and other current assets		43.2		126.2		22.3		—			191.7

Total current assets		222.8		670.0		795.6		—			1,688.4

Property and Equipment, net		39.5		895.0		226.0		—			1,160.5
Goodwill		173.1		3,902.0		451.3		—			4,526.4
Investment in and Advances to Subsidiaries		6,740.0		179.8		232.2		(7,152.0	)		—
Other Intangible Assets		70.2		1,747.8		238.4		—			2,056.4
Other Assets		104.7		489.4		275.6		(2.0	)		867.7

	$	7,350.3	$	7,884.0	$	2,219.1	$	(7,154.0	)	$	10,299.4

LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities:
Current maturities of long-term borrowings	$	9.4	$	14.2	$	20.4	$	—		$	44.0
Accounts payable		104.3		312.4		253.0		—			669.7
Accrued expenses and other liabilities		163.0		667.9		190.0		—			1,020.9

Total current liabilities		276.7		994.5		463.4		—			1,734.6

Long-Term Borrowings		5,121.2		39.4		517.1		—			5,677.7
Deferred Income Taxes and Other Noncurrent Liabilities		415.6		813.5		121.2		—			1,350.3
Intercompany Payable		—		5,864.3		1,000.9		(6,865.2	)		—
Common Stock Subject to Repurchase		176.4		—		—		—			176.4
Shareholder’s Equity		1,360.4		172.3		116.5		(288.8	)		1,360.4

	$	7,350.3	$	7,884.0	$	2,219.1	$	(7,154.0	)	$	10,299.4

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the three months ended July 2, 2010

(in millions)


	ARAMARK Corporation			Guarantors			Non Guarantors		Eliminations		Consolidated
Sales	$	276.0		$	1,944.6		$	900.3	$	—	$	3,120.9

Costs and Expenses:
Cost of services provided		265.6			1,754.8			834.3		—		2,854.7
Depreciation and amortization		5.4			96.0			25.3		—		126.7
Selling and general corporate expenses		10.8			27.2			6.2		—		44.2
Interest and other financing costs		98.5			0.2			10.1		—		108.8
Expense allocation		(95.3	)		93.8			1.5		—		—

		285.0			1,972.0			877.4		—		3,134.4

Income (Loss) before income taxes		(9.0	)		(27.4	)		22.9		—		(13.5	)
Provision (Benefit) for Income Taxes		(8.5	)		(3.8	)		5.1		—		(7.2	)
Equity in Net Loss of Subsidiaries		(5.8	)		—			—		5.8		—

Net income (loss)	$	(6.3	)	$	(23.6	)	$	17.8	$	5.8	$	(6.3	)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the nine months ended July 2, 2010

(in millions)


	ARAMARK Corporation			Guarantors			Non Guarantors		Eliminations			Consolidated
Sales	$	756.5		$	5,958.3		$	2,698.9	$	—		$	9,413.7

Costs and Expenses:
Cost of services provided		719.0			5,337.4			2,488.6		—			8,545.0
Depreciation and amortization		15.3			290.6			76.2		—			382.1
Selling and general corporate expenses		48.8			79.3			19.8		—			147.9
Interest and other financing costs		312.9			1.1			21.8		—			335.8
Expense allocation		(315.8	)		302.6			13.2		—			—

		780.2			6,011.0			2,619.6		—			9,410.8

Income (Loss) before income taxes		(23.7	)		(52.7	)		79.3		—			2.9
Provision (Benefit) for Income Taxes		(8.9	)		(17.0	)		19.2		—			(6.7	)
Equity in Net Income of Subsidiaries		24.4			—			—		(24.4	)		—

Net income (loss)	$	9.6		$	(35.7	)	$	60.1	$	(24.4	)	$	9.6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the three months ended July 3, 2009

(in millions)


	ARAMARK Corporation			Guarantors			Non Guarantors		Eliminations		Consolidated
Sales	$	245.3		$	1,972.1		$	804.7	$	—	$	3,022.1

Costs and Expenses:
Cost of services provided		231.2			1,781.6			741.6		—		2,754.4
Depreciation and amortization		5.3			98.1			24.6		—		128.0
Selling and general corporate expenses		11.1			23.7			5.4		—		40.2
Interest and other financing costs		109.9			0.3			9.2		—		119.4
Expense allocation		(103.2	)		96.8			6.4		—		—

		254.3			2,000.5			787.2		—		3,042.0

Income (Loss) before income taxes		(9.0	)		(28.4	)		17.5		—		(19.9	)
Provision (Benefit) for Income Taxes		(6.3	)		(12.3	)		4.9		—		(13.7	)
Equity in Net Loss of Subsidiaries		(3.5	)		—			—		3.5		—

Net income (loss)	$	(6.2	)	$	(16.1	)	$	12.6	$	3.5	$	(6.2	)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the nine months ended July 3, 2009

(in millions)


	ARAMARK Corporation			Guarantors			Non Guarantors		Eliminations		Consolidated
Sales	$	744.9		$	6,051.5		$	2,428.9	$	—	$	9,225.3

Costs and Expenses:
Cost of services provided		702.3			5,457.8			2,239.7		—		8,399.8
Depreciation and amortization		16.9			292.2			66.5		—		375.6
Selling and general corporate expenses		53.5			74.2			15.7		—		143.4
Interest and other financing costs		330.9			1.2			31.7		—		363.8
Expense allocation		(330.8	)		317.1			13.7		—		—

		772.8			6,142.5			2,367.3		—		9,282.6

Income (Loss) before income taxes		(27.9	)		(91.0	)		61.6		—		(57.3	)
Provision (Benefit) for Income Taxes		(16.6	)		(32.6	)		15.2		—		(34.0	)
Equity in Net Loss of Subsidiaries		(12.0	)		—			—		12.0		—

Net income (loss)	$	(23.3	)	$	(58.4	)	$	46.4	$	12.0	$	(23.3	)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the nine months ended July 2, 2010

(in millions)


	ARAMARK Corporation			Guarantors			Non Guarantors			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	103.9		$	(44.5	)	$	237.8		$	(2.0	)	$	295.2

Cash flows from investing activities:
Purchases of property and equipment and client contract investments		(9.0	)		(123.6	)		(40.2	)		—			(172.8	)
Disposals of property and equipment		1.1			16.1			3.7			—			20.9
Acquisitions of businesses, net of cash acquired		—			(6.8	)		(77.5	)		—			(84.3	)
Other investing activities		(0.8	)		1.3			(3.5	)		—			(3.0	)

Net cash used in investing activities		(8.7	)		(113.0	)		(117.5	)		—			(239.2	)

Cash flows from financing activities:
Proceeds from additional long-term borrowings		—			—			4.8			—			4.8
Payment of long-term borrowings		(158.8	)		(11.4	)		(10.4	)		—			(180.6	)
Proceeds from issuance of Parent Company common stock		2.2			—			—			—			2.2
Repurchase of Parent Company common stock		(8.7	)		—			—			—			(8.7	)
Other financing activities		(10.3	)		(2.4	)					—			(12.7	)
Change in intercompany, net		(65.4	)		174.9			(111.5	)		2.0			—

Net cash provided by (used in) financing activities		(241.0	)		161.1			(117.1	)		2.0			(195.0	)

Increase (Decrease) in cash and cash equivalents		(145.8	)		3.6			3.2			—			(139.0	)
Cash and cash equivalents, beginning of period		156.8			26.6			41.2			—			224.6

Cash and cash equivalents, end of period	$	11.0		$	30.2		$	44.4		$	—		$	85.6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ARAMARK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the nine months ended July 3, 2009

(in millions)


	ARAMARK Corporation			Guarantors			Non Guarantors			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(29.6	)	$	251.6		$	171.7		$	(3.6	)	$	390.1

Cash flows from investing activities:
Purchases of property and equipment and client contract investments		(3.1	)		(200.9	)		(63.3	)		—			(267.3	)
Disposals of property and equipment		1.8			15.8			2.7			—			20.3
Acquisitions of businesses, net of cash acquired		—			(91.9	)		(43.4	)		—			(135.3	)
Other investing activities		(0.7	)		0.8			0.9			—			1.0

Net cash used in investing activities		(2.0	)		(276.2	)		(103.1	)		—			(381.3	)

Cash flows from financing activities:
Proceeds from additional long-term borrowings		—			—			56.4			—			56.4
Payment of long-term borrowings		(1.7	)		(12.0	)		(19.4	)		—			(33.1	)
Proceeds from issuance of Parent Company common stock		1.3			—			—			—			1.3
Repurchase of Parent Company stock		(14.6	)		—			—			—			(14.6	)
Other financing activities		0.1			—			—			—			0.1
Change in intercompany, net		73.3			32.4			(109.3	)		3.6			—

Net cash provided by (used in) financing activities		58.4			20.4			(72.3	)		3.6			10.1

Increase (Decrease) in cash and cash equivalents		26.8			(4.2	)		(3.7	)		—			18.9
Cash and cash equivalents, beginning of period		78.4			31.7			38.8			—			148.9

Cash and cash equivalents, end of period	$	105.2		$	27.5		$	35.1		$	—		$	167.8

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations for the three and nine months ended July 2, 2010 and July 3, 2009 should be read in conjunction with the Company’s audited consolidated financial statements, and the notes to those statements, included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 2, 2009.

Our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, opinions, expectations, anticipations, intentions and beliefs. Actual results and the timing of events could differ materially from those anticipated in those forward-looking statements as a result of a number of factors, including those set forth under the Special Note About Forward-Looking Statements and elsewhere in this Quarterly Report on Form 10-Q. In the following discussion and analysis of results of operations and financial condition, certain financial measures may be considered “non-GAAP financial measures” under Securities and Exchange Commission (“SEC”) rules. These rules require supplemental explanation and reconciliation, which is provided elsewhere in this Quarterly Report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s significant accounting policies are described in the notes to the consolidated financial statements included in our fiscal 2009 Annual Report on Form 10-K filed with the SEC. As described in such notes, the Company recognizes sales in the period in which services are provided pursuant to the terms of our contractual relationships with our clients.

In preparing our financial statements, management is required to make estimates and assumptions that, among other things, affect the reported amounts of assets, liabilities, sales and expenses. These estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change, and where they can have a material impact on our financial condition and operating performance. We discuss below the more significant estimates and related assumptions used in the preparation of our consolidated financial statements. If actual results were to differ materially from the estimates made, the reported results could be materially affected.

Asset Impairment Determinations

Goodwill and trade name are indefinite lived intangible assets that are not amortizable and are subject to an impairment test that we conduct annually or more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists, using discounted cash flows. The Company performs its assessment of goodwill at the operating segment level unless specific circumstances require evaluation at a lower level. Within the Food and Support Services—International segment, each country is evaluated separately since such operating units are relatively autonomous and separate goodwill balances have been recorded for each entity.

With respect to our other long-lived assets, we are required to test for asset impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. If indicators of impairment are present, the Company compares the sum of the future expected cash flows from the asset, undiscounted and without interest charges, to the asset’s carrying value. If the sum of the future expected cash flows from the asset is less than the carrying value, an impairment would be recognized for the difference between the estimated fair value and the carrying value of the asset.

In making future cash flow analyses of various assets, the Company makes assumptions relating to the following:

•

The intended use of assets and the expected future cash flows resulting directly from such use;

•

Comparable market valuations of businesses similar to ARAMARK’s business segments;

•

Industry specific economic conditions;

•

Competitor activities and regulatory initiatives; and

•

Client and customer preferences and behavior patterns.

We believe that an accounting estimate relating to asset impairment is a critical accounting estimate because the assumptions underlying future cash flow estimates are subject to change from time to time and the recognition of an impairment could have a significant impact on our income statement.

Environmental Loss Contingencies

Accruals for environmental loss contingencies (i.e., environmental reserves) are recorded when it is probable that a liability has been incurred and the amount can reasonably be estimated. Management views the measurement of environmental reserves as a critical accounting estimate because of the considerable uncertainty surrounding estimation, including the need to forecast well into the future. We are involved in legal proceedings under state, federal and local environmental laws in connection with our operations or businesses conducted by our predecessors or companies that we have acquired. The calculation of environmental reserves is based on the evaluation of currently available information, prior experience in the remediation of contaminated sites and assumptions with respect to government regulations and enforcement activity, changes in remediation technology and practices, and financial obligations and creditworthiness of other responsible parties and insurers.

Litigation and Claims

The Company is a party to various legal actions and investigations including, among others, employment matters, compliance with government regulations, including import and export controls and customs laws, federal and state employment laws, including wage and hour laws, immigration laws, human health and safety laws, dram shop laws, environmental laws, false claim statutes, contractual disputes and other matters, including matters arising in the ordinary course of business. These claims may be brought by, among others, the government, clients, customers, employees and third parties. Management considers the measurement of litigation reserves as a critical accounting estimate because of the significant uncertainty in some cases relating to the outcome of potential claims or litigation and the difficulty of predicting the likelihood and range of potential liability involved, coupled with the material impact on our results of operations that could result from litigation or other claims. In determining legal reserves, management considers, among other issues:

•

Interpretation of contractual rights and obligations;

•

The status of government regulatory initiatives, interpretations and investigations;

•

The status of settlement negotiations;

•

Prior experience with similar types of claims;

•

Whether there is available insurance; and

•

Advice of counsel.

Allowance for Doubtful Accounts

We encounter risks associated with sales and the collection of the associated accounts receivable. We record a provision for accounts receivable that are considered to be uncollectible. In order to calculate the appropriate provision, management analyzes the creditworthiness of specific customers and the aging of customer balances. Management also considers general and specific industry economic conditions, industry concentrations, such as exposure to small and medium-sized businesses, the non-profit healthcare sector and the automotive, airline and financial services industries, and contractual rights and obligations. Management believes that the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because the underlying assumptions used for the allowance can change from time to time and uncollectible accounts could potentially have a material impact on our results of operations.

Inventory Obsolescence

We record an inventory obsolescence reserve for obsolete, excess and slow-moving inventory, principally in the Uniform and Career Apparel segment. In calculating our inventory obsolescence reserve, management analyzes historical and projected data regarding customer demand within specific product categories and makes assumptions regarding economic conditions within customer specific industries, as well as style and product changes. Management believes that its accounting estimate related to inventory obsolescence is a critical accounting estimate because customer demand in certain of our businesses can be variable and changes in our reserve for inventory obsolescence could materially affect our financial result.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. We must make assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset. Our assumptions, judgments and estimates relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. Our assumptions, judgments and estimates relative to the amount of deferred income taxes take into account estimates of the amount of future taxable income, and actual operating results in future years could render our current assumptions, judgments and estimates inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates.

Generally, accounting standards require companies to provide for income taxes each quarter based on their estimate of the effective tax rate for the full year. The authoritative guidance for accounting for income taxes allows an alternative method including, in certain situations, using the actual interim period effective tax rate when it provides the best estimate of the annual effective tax rate. The Company applied this alternative method and computed the discrete benefit for income taxes for interim periods in fiscal 2010 and fiscal 2009 based on actual year-to-date results. Due to the effect that tax credits and other items have on our reduced pretax income (loss) as a result of the Transaction, we anticipate that our effective tax rate may be volatile in future periods.

Share-Based Compensation

As discussed in Note 11 to the consolidated financial statements in our fiscal 2009 Annual Report on Form 10-K, we value our employee stock options using the Black-Scholes option valuation model. The Black-Scholes option valuation model uses assumptions of expected volatility, the expected dividend yield of our stock, the expected term of the options and the risk-free interest rate. Since our stock is not publicly traded, the expected volatility is based on an average of the historical volatility of our competitors’ stocks over the expected term of the stock options. The dividend yield assumption is based on our history and expected future dividend payouts. The expected term of stock options represents the weighted-average period the stock options are expected to remain outstanding. The expected term was calculated using the simplified method permitted under SEC rules and regulations due to the lack of history. The risk-free interest rate assumption is based upon the rate applicable to the U.S. Treasury security with a maturity equal to the expected term of the option on the grant date.

As share-based compensation expense recognized in the Condensed Consolidated Statements of Operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. The authoritative accounting pronouncement for share-based compensation expense requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on our historical experience.

For the Performance-Based Options, management must assess the probability of the achievement of the earnings before interest and taxes (“EBIT”) targets. If the EBIT targets are not probable of achievement, changes in the recognition of share-based compensation expense may occur. Management makes its probability assessments based on the Company’s actual and projected results of operations.

Management believes that the accounting estimate related to the expense of stock options is a critical accounting estimate because the underlying assumptions can change from time to time and, as a result, the compensation expense that we record in future periods may differ significantly from what we have recorded in the current period with respect to similar instruments.

Fair Value of Assets and Liabilities

In fiscal 2009, the Company adopted the new accounting pronouncement on fair value measurements for financial assets and financial liabilities, which defines fair value, provides guidance for measuring fair value and requires certain disclosures. This accounting pronouncement does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. It also discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The pronouncement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

•

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

•

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

We disclosed the fair values of our assets and liabilities in Note 16 to the condensed consolidated financial statements. Management believes that the carrying value of cash and cash equivalents, accounts receivable and accounts payable are representative of their respective fair values. The fair value of the Company’s debt was computed using market quotes, if available, or based on discounted cash flows using market interest rates as of the end of the period. The fair values for interest rate swap agreements, foreign currency forward exchange contracts and natural gas, gasoline and diesel fuel hedge agreements are based on quoted market prices from various banks for similar instruments, adjusted for the Company’s and the counterparties’ credit risk. The Company performs an independent review of these values to determine if they are reasonable. The fair value of our derivative instruments are impacted by changes in interest rates, foreign exchange rates, and the prices of natural gas, gasoline and diesel fuel. The fair value of our undivided retained interest in trade receivables and common stock subject to repurchase are derived principally from unobservable inputs. Management believes that the accounting estimate related to the fair value of our financial assets and financial liabilities is a critical accounting estimate due to its complexity and the significant judgments and estimates involved in determining fair value in the absence of quoted market prices.

*****

Critical accounting estimates and the related assumptions are evaluated periodically as conditions warrant, and changes to such estimates are recorded as new information or changed conditions require revision.

RESULTS OF OPERATIONS

The following tables present our sales and operating income, and related percentages, attributable to each operating segment, for the three and nine months ended July 2, 2010 and July 3, 2009 (dollars in millions).


	Three Months Ended										Nine Months Ended
	July 2, 2010					July 3, 2009					July 2, 2010					July 3, 2009
Sales by Segment	$			%		$			%		$			%		$			%
Food and Support Services – North America	$	2,149.9		69	%	$	2,057.6		68	%	$	6,419.7		68	%	$	6,270.4		68	%
Food and Support Services – International		603.1		19	%		584.6		19	%		1,885.3		20	%		1,746.4		19	%
Uniform and Career Apparel		367.9		12	%		379.9		13	%		1,108.7		12	%		1,208.5		13	%

	$	3,120.9		100	%	$	3,022.1		100	%	$	9,413.7		100	%	$	9,225.3		100	%


	Three Months Ended										Nine Months Ended
	July 2, 2010					July 3, 2009					July 2, 2010					July 3, 2009
Operating Income by Segment	$			%		$			%		$			%		$			%
Food and Support Services – North America	$	57.9		61	%	$	61.9		62	%	$	251.4		74	%	$	251.0		82	%
Food and Support Services – International		19.0		20	%		23.7		24	%		57.9		17	%		62.9		21	%
Uniform and Career Apparel		26.4		28	%		24.2		24	%		69.4		21	%		40.1		13	%

		103.3		109	%		109.8		110	%		378.7		112	%		354.0		116	%
Corporate		(8.0	)	-9	%		(10.3	)	-10	%		(40.1	)	-12	%		(47.5	)	-16	%

	$	95.3		100	%	$	99.5		100	%	$	338.6		100	%	$	306.5		100	%

Consolidated Overview

Sales of $3.1 billion for the third quarter of fiscal 2010 represented an increase of 3% over the prior year period, with the impact of acquisitions contributing 1%. Growth in the Education, Healthcare and the Business & Industry sectors in the Food and Support Services—North America segment and Chile in the Food & Support Services—International segment more than offset the sales decline in the Sports & Entertainment sector, the Uniform and Career Apparel segment and the difficult economic environments and lost business in the U.K., Ireland, Korea and Spain in the Food and Support Services—International segment. For the nine month period of fiscal 2010, sales of $9.4 billion represented an increase 2% over the prior year period, as the positive impact of foreign currency translation (approximately 2%) and growth in Higher Education and the Healthcare sector in the Food and Support Services—North America segment more than offset the year-over-year impact that the increased unemployment levels had on the Business & Industry sector in the Food and Support Services—North America segment, the reduced client employee headcounts in the Uniform and Career Apparel segment and the difficult economic environments and lost business in the U.K., Ireland, Korea and Spain.

Operating income was $95.3 million for the three months of fiscal 2010 compared to $99.5 million for the prior year period as profit growth in the Uniform and Career Apparel segment and in the Sports & Entertainment sector due to effective control of costs and the reversal of share-based compensation expense of approximately $3.6 million related to expense previously recognized for

Performance-Based Options (see Note 9 to the condensed consolidated financial statements) were more than offset by profit declines in the U.K. and Healthcare sector. For the nine-month period, operating income was $338.6 million compared to $306.5 million for the prior year period. The increase in operating income is attributable to profit growth in the Education sector, effective control of costs in the Sports & Entertainment sector, foreign currency translation (approximately 3%) and the approximately $34.2 million charge recorded during the second quarter of fiscal 2009 related to the repositioning of the Uniform and Career Apparel segment, which more than offset the current year profit declines in the U.K. and in the Business & Industry and Healthcare sectors.

Interest and other financing costs, net, for the three and nine months of fiscal 2010 decreased approximately $10.6 million and $28.1 million from the prior year periods, respectively, primarily due to lower interest rates. The decrease for the nine months of fiscal 2010 was partially offset by the $8.3 million of third-party costs related to the amendment of the senior secured credit agreement (see Note 6 to the condensed consolidated financial statements). The effective tax rate for the third quarter of fiscal 2010 and 2009 was 53.1% and 69.1%, respectively. The benefit for income taxes was $6.7 million on pretax income of $2.9 million for the nine months of fiscal 2010 compared to $34.0 million on pretax loss of ($57.3) million in the prior year period. The changes in both periods principally relate to the relative mix and amount of U.S. and non-U.S. income or loss and the impact of tax credits relative to pretax amounts.

Net income (loss) for the three and nine months of fiscal 2010 was ($6.3) million and $9.6 million, compared to ($6.2) million and ($23.3) million in the prior year periods, respectively.

Segment Results

The following tables present a fiscal 2010/2009 comparison of segment sales and operating income together with the amount of and percentage change between periods (dollars in millions).


	Three Months Ended											Nine Months Ended
Sales by Segment	July 2, 2010			July 3, 2009			Change					July 2, 2010			July 3, 2009			Change
Sales by Segment	July 2, 2010			July 3, 2009			$			%		July 2, 2010			July 3, 2009			$			%
Food and Support Services – North America	$	2,149.9		$	2,057.6		$	92.3		4	%	$	6,419.7		$	6,270.4		$	149.3		2	%
Food and Support Services – International		603.1			584.6			18.5		3	%		1,885.3			1,746.4			138.9		8	%
Uniform and Career Apparel		367.9			379.9			(12.0	)	-3	%		1,108.7			1,208.5			(99.8	)	-8	%

	$	3,120.9		$	3,022.1		$	98.8		3	%	$	9,413.7		$	9,225.3		$	188.4		2	%


	Three Months Ended											Nine Months Ended
Operating Income by Segment	July 2, 2010			July 3, 2009			Change					July 2, 2010			July 3, 2009			Change
Operating Income by Segment	July 2, 2010			July 3, 2009			$			%		July 2, 2010			July 3, 2009			$			%
Food and Support Services – North America	$	57.9		$	61.9		$	(4.0	)	-7	%	$	251.4		$	251.0		$	0.4		0	%
Food and Support Services – International		19.0			23.7			(4.7	)	-20	%		57.9			62.9			(5.0	)	-8	%
Uniform and Career Apparel		26.4			24.2			2.2		9	%		69.4			40.1			29.3		n/m	(1)
Corporate		(8.0	)		(10.3	)		2.3		-22	%		(40.1	)		(47.5	)		7.4		-15	%

	$	95.3		$	99.5		$	(4.2	)	-4	%	$	338.6		$	306.5		$	32.1		10	%

(1)	Not meaningful

Food and Support Services—North America Segment

Food and Support Services—North America segment sales for the third quarter of fiscal 2010 increased 4% over the prior year period as growth in the Business & Industry, Education and Healthcare sectors and the positive impact of foreign currency translation (approximately 1%) more than offset the decline in the Sports & Entertainment sector. For the nine month period of fiscal 2010, segment sales increased 2% over the prior year period as growth in Higher Education and the Healthcare sector and the positive impact of foreign currency translation (approximately 1%) more than offset the decline in the Business & Industry sector. The Business & Industry sector had a high-single digit sales growth for the third quarter due to the contract to provide support services, including temporary accommodations and feeding, for the Canadian security detail that served the G-8 and G-20 meetings in Toronto. For the nine month period of 2010, the Business & Industry sector had a low-single digit sales decline resulting from the year-over-year lower employee population levels at many of our client locations. The Education sector had high-single digit sales growth for the third quarter and mid-single digit sales growth for the nine month period of 2010 due to base business growth in the Higher Education food business. The Healthcare sector had mid-single digit sales growth for the three and nine month periods of 2010, primarily due to growth in base and new business. Our Sports & Entertainment sector had a low-single digit sales decline for the third quarter of fiscal 2010 as growth in the Parks, Destinations & Cultural Attractions business was more than offset by lower average attendance at Major League Baseball games as compared to the prior year. For the nine month period of 2010, the Sports & Entertainment sector had flat sales as compared to the prior year.

Operating income in the Food and Support Services—North America segment was $57.9 million for the third quarter of fiscal 2010 compared to $61.9 million in the prior year period. Profit growth in the Education sector and the Sports & Entertainment sector due to effective control of costs and the positive impact of foreign currency translation (approximately 2%) were more than offset by the profit declines in the Business & Industry and Healthcare sectors due to the budgetary challenges affecting many of our clients. Operating income in the Food and Support Services—North America segment was $251.4 million for the nine month period of fiscal 2010 compared to $251.0 million in the prior year period as increased profit performance in the Education sector, effective control of costs in the Sports & Entertainment sector and the positive impact of foreign currency translation (approximately 3%) more than offset the profit declines in the Business & Industry sector and some softness in Healthcare base business profitability due to the budgetary challenges affecting many of our clients.

Food and Support Services—International Segment

Sales in the Food and Support Services—International segment for the third quarter of fiscal 2010 were $603.1 million, an increase of 3% compared to the prior year period, as growth in base and net new business in Chile, China, Argentina and Germany and acquisitions (approximately 4%) more than offset the negative impact of foreign currency translation (approximately -3%) and the sales declines in the U.K., Ireland, Korea and Spain due to the difficult economic environments and lost business. Segment sales for the nine months of fiscal 2010 were $1.9 billion, an increase of 8% compared to the prior year period, as growth in base and net new business in Chile, China, Argentina and Germany, acquisitions (approximately 2%) and the positive impact of foreign currency translation (approximately 6%) more than offset the sales declines in the U.K., Ireland, Korea and Spain due to the difficult economic environments and lost business.

Operating income for the third quarter of fiscal 2010 was $19.0 million, down 20% from the prior year quarter, as increased profits in Chile were more than offset by the negative impact of foreign currency translation (approximately -4%), profit decline in the U.K. and the timing of the FIFA World Cup in Germany, which reduced the number of soccer games in our German stadiums as compared to the prior year. For the nine month period of fiscal 2010, operating income was $57.9 million, down 8% over the prior year period as profits in Chile and the positive impact of foreign currency translation (approximately 3%) were more than offset by the profit decline in the U.K. due to the difficult economic environment and lost business. Operating income for the nine month period of fiscal 2010 was also negatively impacted by the earthquake in Chile (approximately $1.9 million).

Uniform and Career Apparel Segment

In the Uniform and Career Apparel segment, sales for the three and nine months of fiscal 2010 were $367.9 million and $1.1 billion, down 3% and 8% from the prior year periods, respectively, resulting primarily from a reduction in the number of uniform wearers at our existing client locations compared to the prior year periods.

Operating income for the third quarter of fiscal 2010 was $26.4 million compared to $24.2 million in the prior year period, primarily due to cost reduction efforts and lower energy costs in the uniform rental business and reduced operating losses in the Galls business. For the nine month period of fiscal 2010, operating income was $69.4 million compared to $40.1 million in the prior year period, primarily due to the charge related to the repositioning effort in fiscal 2009. During the second quarter of fiscal 2009, the Company initiated a repositioning effort to reduce the cost structure and address the demand softness in the WearGuard direct marketing business. The Company exited a portion of its direct marketing business and migrated its distribution and customization functions from its facilities in Norwell, Massachusetts to its facilities in Salem, Virginia and Reno, Nevada. In addition, the Company reduced its headcount in all the other businesses in this segment. As a result of these actions, the Company recorded a total charge of approximately $34.2 million during the second quarter of fiscal 2009 related to severance and other related costs, inventory write-downs and other asset write-downs, which is included in “Cost of services provided” in the Condensed Consolidated Statements of Operations. Operating income for the nine months of fiscal 2010 was also impacted by the decline in sales in the uniform rental business, which more than offset the reduced operating losses in the Galls business.

Corporate

Corporate expenses, those administrative expenses not allocated to the business segments, were $8.0 million for the three month period of fiscal 2010, compared to $10.3 million in the prior year period. For the nine month period of fiscal 2010, corporate expenses were $40.1 million compared to $47.5 million for the prior year period. The decrease in both periods is due to the reversal of share-based compensation expense of approximately $3.6 million related to expense previously recognized for Performance-Based Options (see Note 9 to the condensed consolidating financial statements). In addition, corporate expenses are down due to reduced staff and administrative spending in the current year.

OUTLOOK

We anticipate that the current economic environment, including reduced consumer and client spending, reduced headcount at our clients, bankruptcies and companies going out of business and the variability of food and fuel costs, will likely continue to have an impact on our operations, particularly at our business, sports and entertainment and uniform client locations. In response to the lower levels of demand across our more economically sensitive food and facility services businesses, we will continue to pursue both revenue enhancements and appropriate cost controls. The uniform segment is focused on managing the business through this environment with a particular focus on appropriately reducing the cost structure, while maintaining high levels of customer service and continued efforts to acquire new customers. However, we are beginning to see signs of stabilization in our more economically sensitive food and facility services businesses and in our uniform business. Finally, as we experienced during fiscal 2009 and the first nine months of fiscal 2010, to the extent the U.S. dollar fluctuates against other currencies, it could continue to affect the reported results for our international operations.

LIQUIDITY AND CAPITAL RESOURCES

Reference to the Condensed Consolidated Statements of Cash Flows will facilitate understanding of the discussion that follows.

Cash provided by operating activities was $295.2 million in the fiscal 2010 nine month period compared to $390.1 million in the comparable nine month period of fiscal 2009. The principal components (in millions) of the net change of $94.9 million were:


• Increase in the total of net income and noncash charges	$	18.8
• Increase in accounts receivable sale proceeds		28.7
• Increased working capital requirements		(108.9	)
• Other, net		(33.5	)

	$	(94.9	)

The increase in the total of net income and noncash charges results mainly from the higher operating results of the Company, as discussed above. The accounts receivable proceeds increased primarily as a result of timing of funding under the facility in fiscal 2010 and fiscal 2009. As expected and consistent with historical patterns, working capital was a use of cash for us during the nine month period of fiscal 2010. The change in working capital requirements relates principally to changes in Accounts Receivable (approximately $220.8 million), primarily due to the improvement in collection efforts in fiscal 2009 that created a large source of cash, whereas fiscal 2010 has been a normal use of cash, and Inventory (approximately $36.3 million), primarily due to inventory reductions in the Uniform and Career Apparel segment and other Company-wide inventory control measures in fiscal 2009, partially offset by changes in Accounts Payable (approximately $88.5 million) and Accrued Expenses (approximately $19.1 million) due to timing of disbursements and Prepayments (approximately $40.7 million) due to changes in current income tax receivable in fiscal 2009. The “Other, net” caption decreased primarily due to $24.2 million of cash distributions received in fiscal 2009 versus $3.5 million in fiscal 2010 from our 50% ownership interest in AIM Services Co., Ltd. and fluctuations in certain noncurrent liabilities (primarily insurance).

Management believes that the Company’s cash and cash equivalents, cash flows provided by operating activities and the unused portion of our committed credit availability under our senior secured revolving credit facility (approximately $532.7 million and $582.9 million at July 30, 2010 and July 2, 2010, respectively) will be adequate to meet anticipated cash requirements to fund working capital, capital spending, debt repayments and other cash needs. While we believe we enjoy a strong liquidity position overall, the Company will continue to seek to invest strategically but prudently in certain sectors and geographies. Over time, the Company has repositioned its service portfolio so that today a significant portion of the Food and Support Services operating income in North America comes from sectors such as education, healthcare and corrections, which we believe to be economically less sensitive. In addition, we have worked to further diversify our international business by geography and sector. The Company is closely monitoring its cash flow as well as the condition of the capital markets in order to respond to changing conditions.

As of July 2, 2010, the senior secured term loan facility consisted of the following subfacilities: a U.S. dollar denominated term loan to the Company in the amount of $1,483.7 million (un-extended) and $1,407.4 million (extended); a yen denominated term loan to the Company in the amount of ¥5,232.3 million; a U.S. dollar denominated term loan to a Canadian subsidiary in the amount of $164.1 million; a Euro denominated term loan to an Irish subsidiary in an amount of €42.5 million; a sterling denominated term loan to a U.K. subsidiary in an amount of £117.7 million; and a Euro denominated term loan to German subsidiaries in the amount of €65.6 million. As of July 2, 2010, there was approximately $396.9 million outstanding in foreign currency borrowings.

During the first quarter of fiscal 2010, the Company completed the acquisition of the facilities management and property management businesses of Veris plc, an Irish company, for consideration of approximately $74.3 million in cash (see Note 2 to the condensed consolidated financial statements). During the second quarter of fiscal 2009, the Company paid approximately $24.5 million towards the acquisition of the remaining 20% of its Chilean subsidiary. During the third quarter of fiscal 2009, the Company paid $85.0 million as additional consideration related to the fiscal 2006 acquisition of an online catering company per the terms of the acquisition agreement.

term loan and $92.6 million of the letter of credit deposits securing the Company’s synthetic letter of credit facility to July 26, 2016; provided that if any of the Company’s $1.28 billion of 8.5% senior notes due 2015 or $500 million of senior floating rate notes due 2015 are outstanding on October 31, 2014, the maturity date of such term loans and letter of credit deposits shall be October 31, 2014, (ii) permits future extensions and refinancings of the maturity date of the Company’s term loans, letter of credit deposits and revolving credit commitments under the Restated Credit Agreement, (iii) establishes a sub-limit of $250 million for revolving letters of credit under the Restated Credit Agreement, and (iv) permits the Company to refinance term loans in the future with the proceeds of unsecured or secured notes issued by the Company; provided that any such secured notes are subject to a customary first- or second-lien intercreditor agreement, as applicable. The Restated Credit Agreement also increases the applicable margin with respect to the extended term loans to 3.25% for LIBOR borrowings and extended letter of credit facility fees and to 2.25% with respect to extended term loan base-rate borrowings. It also provides for a 1.0% prepayment premium if any extended term loans are prepaid prior to March 26, 2011 with the proceeds of new term loans having lower interest margins than the extended term loans’ margins. The maturity date, interest margins and letter of credit fees for loans and letters of credit deposits that were not extended remain unchanged. Consenting lenders received a one-time amendment fee of approximately $1.9 million in the aggregate on their total loan commitments. For the three and nine months ended July 2, 2010, approximately $8.3 million of third-party costs directly attributable to the amendment were expensed and are included in “Interest and Other Financing Costs, net” in the Condensed Consolidated Statements of Operations. Approximately $7.5 million of the third-party costs were paid to entities affiliated with Goldman Sachs Capital Partners and J.P. Morgan Partners. In June 2010, the Company made an optional prepayment of outstanding un-extended U.S. denominated term loan of $150.0 million.

Covenant Compliance

The senior secured credit agreement contains a number of covenants that, among other things, restrict our ability to: incur additional indebtedness; issue preferred stock or provide guarantees; create liens on assets; engage in mergers or consolidations; sell assets; pay dividends, make distributions or repurchase our capital stock; make investments, loans or advances; repay or repurchase any notes, except as scheduled or at maturity; create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries; make certain acquisitions; engage in certain transactions with affiliates; amend material agreements governing the notes (or any indebtedness that refinances the notes); and fundamentally change the Company’s business. The indenture governing the 8.50% senior notes due 2015 and the senior floating rate notes due 2015 contains similar provisions. As of July 2, 2010, we were in compliance with these covenants.

Under the senior secured credit agreement and the indenture governing the 8.50% senior notes due 2015 and the senior floating rate notes due 2015, we are required to satisfy and maintain specified financial ratios and other financial condition tests and covenants. Our continued ability to meet those financial ratios, tests and covenants can be affected by events beyond our control, and we cannot assure you that we will meet those ratios, tests and covenants.

EBITDA is defined as net income (loss) plus interest and other financing costs, net, provision for income taxes, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA, further adjusted to give effect to adjustments required in calculating covenant ratios and compliance under our senior secured credit agreement and the indenture. EBITDA and Adjusted EBITDA are not presentations made in accordance with GAAP, are not measures of financial performance or condition, liquidity or profitability, and should not be considered as an alternative to (1) net income, operating income or any other performance measures determined in accordance with GAAP or (2) operating cash flows determined in accordance with GAAP. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements.

Our presentation of EBITDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, these presentations of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. We believe that the presentation of EBITDA and Adjusted EBITDA is appropriate to provide additional information about the calculation of certain financial covenants in the senior secured credit agreement and the indenture. Adjusted EBITDA is a material component of these covenants. For instance, our senior secured credit agreement and the indenture contain financial ratios that are calculated by reference to Adjusted EBITDA. Non-compliance with the maximum Consolidated Secured Debt Ratio contained in our senior secured credit agreement could result in the requirement to immediately repay all amounts outstanding under such agreement, while non-compliance with the Interest Coverage Ratio contained in our senior secured credit agreement and the Fixed Charge Coverage Ratio contained in the indenture could prohibit us from being able to incur additional indebtedness, other than the additional funding provided for under the senior secured credit agreement and pursuant to specified exceptions, and make certain restricted payments.

The following is a reconciliation of net income (loss), which is a GAAP measure of our operating results, to Adjusted EBITDA as defined in our debt agreements. The terms and related calculations are defined in the senior secured credit agreement and indenture.


(dollars in millions)	Three Months Ended July 2, 2010			Three Months Ended April 2, 2010			Three Months Ended January 1, 2010		Three Months Ended October 2, 2009		Twelve Months Ended July 2, 2010
Net income (loss)	$	(6.3	)	$	(9.8	)	$	25.7	$	16.5	$	26.1
Interest and other financing costs, net		108.8			117.8			109.1		108.5		444.2
Provision (benefit) for income taxes		(7.2	)		(10.3	)		10.7		6.1		(0.7	)
Depreciation and amortization		126.7			127.3			128.1		127.6		509.7

EBITDA		222.0			225.0			273.6		258.7		979.3
Share-based compensation expense ⁽¹⁾		0.3			11.4			5.6		3.0		20.3
Unusual or non-recurring losses ⁽²⁾		—			—			1.5		—		1.5
Pro forma EBITDA for equity method investees ⁽³⁾		3.8			6.5			7.0		2.4		19.7
Pro forma EBITDA for certain transactions ⁽⁴⁾		—			—			1.8		2.8		4.6
Other ⁽⁵⁾		3.6			0.2			1.1		10.0		14.9

Adjusted EBITDA	$	229.7		$	243.1		$	290.6	$	276.9	$	1,040.3

(1)	Represents share-based compensation expense resulting from the application of accounting for stock options and deferred stock unit awards (see Note 9 to the condensed consolidated financial statements).

(2)	Represents charges for the repositioning of the Uniform and Career Apparel segment (see Note 12 to the condensed consolidated financial statements).

(3)

Represents our estimated share of EBITDA from our AIM Services Co., Ltd. equity method investment not already reflected in our EBITDA. EBITDA for this equity method investee is calculated in a manner consistent with consolidated EBITDA but does not represent cash distributions received from this investee.

(4)	Represents the annualizing of estimated EBITDA from acquisitions made during the period.

(5)

Other includes certain other miscellaneous items (the three months ended July 2, 2010 and October 2, 2009 include approximately $2.5 million and $10.3 million, respectively, of severance and other related costs incurred in the Food and Support Services—North America and Food and Support Services—International segments).

Our covenant requirements and actual ratios for the twelve months ended July 2, 2010 are as follows:


	Covenant Requirements	Actual Ratios
Maximum Consolidated Secured Debt Ratio (1)	5.00x	3.51x
Interest Coverage Ratio (Fixed Charge Coverage Ratio) (2)	2.00x	2.33x

(1)

Our senior secured credit agreement requires us to maintain a maximum Consolidated Secured Debt Ratio, defined as consolidated total indebtedness secured by a lien to Adjusted EBITDA, of 5.875x, being reduced over time to 4.25x by the end of 2013. Consolidated total indebtedness secured by a lien is defined in the senior secured credit agreement as total indebtedness outstanding under the senior secured credit agreement, capital leases, advances under the Receivables Facility and any other indebtedness secured by a lien reduced by the lesser of the amount of cash and cash equivalents on our balance sheet that is free and clear of any lien and $75 million. Non-compliance with the maximum Consolidated Secured Debt Ratio could result in the requirement to immediately repay all amounts outstanding under such agreement, which, if our lenders failed to waive any such default, would also constitute a default under our indenture.

(2)

Our senior secured credit agreement establishes an incurrence-based minimum Interest Coverage Ratio, defined as Adjusted EBITDA to consolidated interest expense, the achievement of which is a condition for us to incur additional indebtedness and to make certain restricted payments. If we do not maintain this minimum Interest Coverage Ratio calculated on a pro forma basis for any such additional indebtedness or restricted payments, we could be prohibited from being able to incur additional indebtedness, other than the additional funding provided for under the senior secured credit agreement and pursuant to specified exceptions, and make certain restricted payments, other than pursuant to certain exceptions. The minimum Interest Coverage Ratio is 2.00x for the term of the senior secured credit agreement. Consolidated interest expense is defined in the senior secured credit agreement as consolidated interest expense excluding interest income, adjusted for acquisitions (including the Transaction) and dispositions, further adjusted for certain non-cash or nonrecurring interest expense and our estimated share of interest expense from one equity method investee. The indenture includes a similar requirement which is referred to as a Fixed Charge Coverage Ratio.

The Company and its subsidiaries, affiliates or significant shareholders may from time to time, in their sole discretion, purchase, repay, redeem or retire any of the Company’s outstanding debt securities (including any publicly issued debt securities), in privately negotiated or open market transactions, by tender offer or otherwise.

The Company’s business activities do not include the use of unconsolidated special purpose entities, and there are no significant business transactions that have not been reflected in the accompanying financial statements. The Company is self-insured for a limited portion of the risk retained under its general liability and workers’ compensation arrangements. Self-insurance reserves are recorded based on actuarial analyses.

LEGAL PROCEEDINGS

Our business is subject to various federal, state and local laws and regulations governing, among other things, the generation, handling, storage, transportation, treatment and disposal of water wastes and other substances. We engage in informal settlement discussions with federal, state and local authorities regarding allegations of violations of environmental laws in connection with our operations or businesses conducted by our predecessors or companies that we have acquired, the aggregate amount of which and related remediation costs we do not believe should have a material adverse effect on our financial condition or results of operations.

From time to time, we are a party to various legal actions and investigations involving claims incidental to the conduct of our business, including actions by clients, customers, employees, government entities and third parties, including under federal and state employment laws, wage and hour laws, immigration laws, human health and safety laws, import and export controls and customs laws, environmental laws, false claims statutes, contractual disputes and dram shop laws. Based on information currently available, advice of counsel, available insurance coverage, established reserves and other resources, we do not believe that any such current actions are likely to be, individually or in the aggregate, material to our business, financial condition, results of operations or cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to our business, financial condition, results of operations or cash flows.

On October 3, 2008, the Company and a subsidiary were served with a complaint in a Qui Tam action filed by Relator Robert Pritsker (which was originally filed on October 30, 2003) naming the Company and certain other companies in its industry in the United States District Court, E.D.PA. and alleging, among other things, that the defendants, including the Company, caused the making of certain false certifications to the federal government of compliance with U.S.D.A. regulations and seeking unspecified damages. The United States declined to join in this action in 2005. On March 6, 2009, in response to motions by all defendants, the Court dismissed this action with prejudice. On April 3, 2009, the Relator appealed, and on February 9, 2010, the United States Court of Appeals for the Third Circuit affirmed the dismissal. Subsequent motions by the Relator to the Third Circuit were also promptly denied. A petition for certiorari to the United States Supreme Court was filed in June 2010. We expect that the Supreme Court will determine whether to accept this petition by the early fall of 2010.

One of our subsidiaries, ARAMARK Sports and Entertainment Services, LLC, recently received a request from the United States Environmental Protection Agency (the “EPA”) to show cause why the EPA should not file an administrative complaint against it for suspected violations of underground storage tank leak detection requirements at its wayside facilities in Shenandoah National Park, Virginia by failing to provide monthly leak detection records. We provided information that we believe is responsive to the EPA request.

NEW ACCOUNTING STANDARD UPDATES

See Note 14 of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting standard updates, including the expected dates of adoption.

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views as to future events and financial performance with respect to our operations. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “aim,” “anticipate,” “are confident,” “estimate,” “expect,” “should,” “will be,” “will continue,” “will likely result,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in conjunction with a discussion of future operating or financial performance.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Factors that might cause such a difference include: unfavorable economic conditions, including ramifications of any future terrorist attacks or increased security alert levels; increased operating costs, including increased food costs, labor-related, energy or product sourcing and distribution costs; shortages of qualified personnel or increases in labor costs; costs and possible effects of further unionization of our workforce; currency risks and other risks associated with international markets; risks associated with acquisitions, including acquisition integration issues and costs; our ability to integrate and derive the expected benefits from our recent acquisitions; competition; a decline in attendance at client facilities; the unpredictability of sales and expenses due to contract terms and terminations; the impact of natural disasters or a flu pandemic on our sales and operating results; the risk that clients may become insolvent; the risk that our insurers may become insolvent or may liquidate; the contract intensive nature of our business, which may lead to client disputes; high leverage; claims relating to the provision of food services; costs of compliance with governmental regulations and government investigations; liability associated with noncompliance with our business conduct policy and governmental regulations, including regulations pertaining to food services, the environment, the Federal school lunch program, Federal and state employment and wage and hour laws, immigration laws, human health and safety laws and import and export controls and customs laws; dram shop compliance and litigation; contract compliance and administration issues, inability to retain current clients and renew existing client contracts; a determination by customers to reduce their outsourcing and use of preferred vendors; seasonality; our competitor’s activities or announced planned activities; the effect on our operations of increased leverage and limitations on our flexibility as a result of increased restrictions in our debt agreements; potential future conflicts of interest between our Sponsors and other stakeholders; the impact on our business if we are unable to generate sufficient cash to service all of our indebtedness; the inability of our subsidiaries to generate enough cash flow to repay our debt; risks related to the structuring of our debt; our potential inability to repurchase our notes upon a change of control; and other risks that are set forth in the “Risk Factors,” “Legal Proceedings” and “Management Discussion and Analysis of Financial Condition and Results of Operations” sections and other sections of our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Forward-looking statements speak only as of the date made. We undertake no obligation to update any forward-looking statements to reflect the events or circumstances arising after the date as of which they are made. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements included in this report or that may be made in other filings with the Securities and Exchange Commission or elsewhere from time to time by, or on behalf of, us.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of interest rate changes and manage this exposure through the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps. See Note 7 to the condensed consolidated financial statements for a discussion of the Company’s derivative instruments. We do not enter into contracts for trading purposes and do not use leveraged instruments. The market risk associated with debt obligations as of July 2, 2010 has not materially changed from October 2, 2009 (See Item 7A of our Annual Report on Form 10-K for the year ended October 2, 2009). See Note 16 to the condensed consolidated financial statements for disclosure of the fair value and related carrying value of the Company’s debt obligations as of July 2, 2010.

ITEM 4.

CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, management, with the participation of the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

No change in the Company’s internal control over financial reporting occurred during the Company’s third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

See Part 1, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Legal Proceedings” for a description of the Company’s legal proceedings.

ITEM 5.

OTHER INFORMATION

Schedule 1 to Form of Non-Qualified Stock Option Agreement

Stock options granted under the Parent Company’s 2007 Management Stock Incentive Plan have been, and will in the future be, awarded pursuant to a Non-Qualified Stock Option Agreement with the Parent Company (the “Option Agreement”). On August 11, 2010, the Board of Directors of the Parent Company approved a revised Schedule 1 to the form of Option Agreement that reflects a new annual EBIT performance target for 2014. For grants made in the future, the EBIT performance targets will be as set forth in a revised Schedule 1 to the Option Agreement, which is attached to this Form 10-Q as Exhibit 10.1. The performance targets are not a prediction of how the Company will perform during the fiscal years 2011 through 2014. The Company is not providing any guidance, nor updating any prior guidance, of its future performance with the disclosure of these performance targets, and you are cautioned not to rely on these performance targets as a prediction of the Company’s future performance. The form of Non-Qualified Stock Option Agreement was filed as exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on November 16, 2007.

ITEM 6.

EXHIBITS


3.1		Certificate of Incorporation of ARAMARK Corporation (incorporated by reference to Exhibit 3.1 to ARAMARK Corporation’s Current Report on Form 8-K filed with the SEC on April 5, 2007, pursuant to the Exchange Act (file number 001-16807)).

3.2		By-laws of ARAMARK Corporation (incorporated by reference to Exhibit 3.2 to ARAMARK Corporation’s Current Report on Form 8-K filed with the SEC on April 5, 2007, pursuant to the Exchange Act (file number 001-16807)).

10.1		Schedule 1 to Form of Non-Qualified Stock Option Agreement (beginning with 2011 EBIT targets).

31.1		Certification of Joseph Neubauer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of L. Frederick Sutherland pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Joseph Neubauer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of L. Frederick Sutherland pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

August 11, 2010				/s/ JOSEPH MUNNELLY
				Joseph Munnelly
				Senior Vice President, Controller and Chief Accounting Officer

EXHIBIT INDEX



3.1		Certificate of Incorporation of ARAMARK Corporation (incorporated by reference to Exhibit 3.1 to ARAMARK Corporation’s Current Report on Form 8-K filed with the SEC on April 5, 2007, pursuant to the Exchange Act (file number 001-16807)).

3.2		By-laws of ARAMARK Corporation (incorporated by reference to Exhibit 3.2 to ARAMARK Corporation’s Current Report on Form 8-K filed with the SEC on April 5, 2007, pursuant to the Exchange Act (file number 001-16807)).

10.1		Schedule 1 to Form of Non-Qualified Stock Option Agreement (beginning with 2011 EBIT targets).

31.1		Certification of Joseph Neubauer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of L. Frederick Sutherland pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Joseph Neubauer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of L. Frederick Sutherland pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company