FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 25, 1996
OR
[ ] 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: 000-28590
Fine Host Corporation
Delaware 06 - 1156070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Greenwich Office Park
Greenwich, CT 06831
(203) 629 - 4320
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 filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ____
The Registrant had 6,212,016 shares of common stock, $.01 par value, outstanding
as of November 12, 1996.
<PAGE>
TABLE OF CONTENTS
Part I - Financial Information
Page No.
Item 1 - Financial Statements (unaudited)
* Consolidated Balance Sheets - September 25, 1996
and December 27, 1995 3
* Consolidated Statements of Income- Three and Nine
Months Ended September 25, 1996 and
September 27, 1995 4
* Consolidated Statement of Stockholders' Equity -
Nine Months Ended September 25, 1996 5
* Consolidated Statements of Cash Flows - Nine Months
Ended September 25, 1996 and September 27, 1995 6
* Notes to Consolidated Financial Statements 7 - 11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 15
Part II - Other Information
Item 1 - Legal Proceedings 16
- ------
Item 2 - Changes in Securities 16
- ------
Item 6 - Exhibits and Reports on Form 8-K 17
- ------
Signature 18
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 25, December 27,
1996 1995
(unaudited)
ASSETS
Current assets:
Cash $ 3,871 $ 634
Accounts receivable 13,970 7,548
Notes receivable 568 520
Inventories 3,018 2,099
Prepaid expenses and other current assets 2,792 1,893
--------- -------
Total current assets 24,219 12,694
Contract rights, net 18,867 12,866
Fixtures and equipment, net 18,230 15,829
Notes receivable 1,596 1,391
Excess of cost over fair value of
net assets acquired, net 20,801 13,406
Other assets 8,223 4,395
--------- ---------
Total assets $91,936 $60,581
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $18,732 $12,467
Current portion of long-term debt 598 2,981
Current portion of subordinated debt 1,532 1,745
-------- -------
Total current liabilities 20,862 17,193
Deferred income taxes 8,952 6,421
Long-term debt 12,808 15,326
Subordinated debt 4,438 8,879
-------- -------
Total liabilities 47,060 47,819
Stock warrants -- 1,380
Stockholders' equity:
Convertible Preferred Stock,$.01 par value,
1,000,000 shares authorized, 134,171
issued and outstanding at December 27, 1995 -- 1
Common Stock, $.01 par value, 25,000,000
shares authorized, 6,212,016 and 2,048,200
issued and outstanding at September 25, 1996
and December 27, 1995, respectively 62 20
Additional paid-in capital 41,778 8,933
Retained earnings 3,225 2,617
Receivables from stockholders for purchase
of Common Stock (189) (189)
------- -------
Total stockholders' equity 44,876 11,382
------- -------
Total liabilities and stockholders' equity $91,936 $60,581
======= =======
See accompanying notes to unaudited consolidated
financial statements.
3
<PAGE>
<TABLE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 25, September 27, September 25, September 27,
1996 1995 1996 1995
------------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Net sales $37,272 $26,340 $87,236 $69,859
Cost of sales 32,766 23,002 77,786 62,719
------- -------- ------ --------
Gross profit 4,506 3,338 9,450 7,140
General and administrative expenses 1,467 870 4,044 2,883
-------- --------- ------- ---------
Income from operations 3,039 2,468 5,406 4,257
Interest expense, net 496 642 2,018 1,971
--------- -------- ------- ---------
Income before tax provision 2,543 1,826 3,388 2,286
Tax provision 1,144 781 1,480 959
-------- --------- ------- ----------
Net income 1,399 1,045 1,908 1,327
Accretion to redemption value of warrants - (212) (1,300) (286)
-------- --------- ------ ---------
Net income available
to Common Stockholders $ 1,399 $ 833 $ 608 $ 1,041
======= ======== ======= ========
Earnings per share
of Common Stock $.22 $.26 $.14 $.31
==== ==== ==== ====
Average number of shares
of Common Stock outstanding 6,235 3,245 4,476 3,347
===== ===== ===== =====
Earnings per share of Common
Stock assuming full dilution $.22 $.25 $.13 $.32
==== ==== ==== ====
Average number of shares of Common
Stock outstanding assuming full dilution 6,249 3,363 4,525 3,278
===== ===== ===== =====
See accompanying notes to unaudited consolidated
financial statements.
</TABLE>
4
<PAGE>
<TABLE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)
<CAPTION>
Receivables
from
Stockholders
for
Convertible Additional Purchase of
Preferred Stock Common Stock Paid-In Retained Common Stockholders'
Shares Amount Shares Amount Capital Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 27, 1995 134,171 $1 2,048,200 $20 $ 8,933 $2,617 $(189) $11,382
Stock warrant accretion (1,300) (1,300)
Shares issued in connection
with Sun West acquisition 25,900 1 369 370
Shares issued in connection
with initial public offering 2,890,218 29 30,513 30,542
Conversion of Preferred Stock (134,171) (1) 939,197 9 (8) -
Warrants exercised 123,585 1 608 609
Warrants redeemed (200) (200)
Shares issued upon exercise
of over allotment option 174,500 1 1,454 1,455
Options exercised 2,916 - 19 19
Stock issued to non-employee
directors 7,500 1 90 91
Net income _______ __ ________ ___ _______ 1,908 _____ 1,908
-------- ---------
Balance, September 25, 1996 - $ - 6,212,016 $62 $41,778 $3,225 $(189) $44,876
============== ==== ========= === ======= ====== ===== =======
See accompanying notes to unaudited consolidated
financial statements.
</TABLE>
5
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 25, September 27,
1996 1995
---------------------------
Cash flows from operating activities:
Net income $1,908 $1,327
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization 3,115 2,369
Deferred income tax provision 1,479 959
Changes in operating assets and liabilities:
Accounts receivable (4,381) (231)
Inventories (549) 83
Prepaid expenses and other current assets (1,788) (896)
Accounts payable and accrued expenses 735 762
Increase in other assets (3,565) (1,195)
------- -------
Net cash (used in) provided by operating activities (3,046) 3,178
Cash flows from investing activities:
Increase in contract rights (4,679) (2,953)
Purchases of fixtures and equipment (3,914) (2,643)
Sale of fixtures and equipment 64 --
Acquisition of business, net of cash acquired (5,169) (3,478)
Collection of notes receivable 494 1,987
------- -------
Net cash used in investing activities (13,204) (7,087)
Cash flows from financing activities:
Borrowings under long-term debt agreement 14,367 8,284
Proceeds from issuance of preferred stock -- 1,500
Proceeds from issuance of common stock 32,016 --
Payment of long-term debt (19,268) (1,674)
Payment of subordinated debt (8,037) (3,276)
Redemption of warrants (200) --
Proceeds from exercise of warrants 609 --
------- ------
Net cash provided by financing activities 19,487 4,834
Net increase in cash 3,237 925
Cash, beginning of period 634 1,532
------- ------
Cash, end of period $3,871 $2,457
======== ======
See accompanying notes to unaudited consolidated financial
statements.
6
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation--The unaudited consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and accounts have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The unaudited financial statements include all
adjustments, all of which are of a normal recurring nature, which, in the
opinion of management, are necessary for a fair presentation of the results of
operations for the three and nine months ended September 25, 1996 and September
27, 1995. The accompanying unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements of the Company
and notes thereto for the fiscal year ended December 27, 1995 included in the
Company's Registration Statement on Form S-1 declared effective by the
Securities and Exchange Commission on June 19, 1996.
Earnings (Loss) Per Share--Earnings (loss) per share of Common Stock is
computed based on the weighted average number of common and common equivalent
shares outstanding during each period. Earnings (loss) per share assuming full
dilution gives effect to the assumed exercise of all dilutive stock options and
the assumed conversion of dilutive convertible securities (warrants) except when
their effect is antidilutive. In calculating earnings (loss) per share, net
income has been reduced for the accretion to the redemption value of warrants by
$0, $212, $1,300 and $286 for the three and nine months ended September 25, 1996
and September 27, 1995, respectively.
2. Acquisitions
On November 8, 1996, the Company acquired 100% of the stock of HCS
Management Corporation ("HCS"). HCS, through its operating subsidiaries,
provides non-patient contract food and other services to hospitals and
corporations. The purchase price was approximately $6,000 consisting of cash to
the seller plus assumed debt of HCS.
On July 31, 1996, the Company acquired 100% of the outstanding stock of
Ideal Management Services, Inc. ("Ideal"). Ideal provides contract food and
beverage services to public school districts in New York State. The purchase
price was approximately $3,600, consisting of cash, convertible subordinated
notes with interest at 7 1/4%, and a seven year covenant not to compete. At the
option of the note holders, the outstanding principal balance of the notes is
convertible into Common Stock at a conversion price of $15 per share.
On March 25, 1996, the Company acquired 100% of the outstanding stock of
Sun West Services, Inc. ("Sun West"). Sun West provides contract food and
beverage services primarily in the education market as well as to other
institutional clients. The purchase price was approximately $5,200, consisting
of cash, five-year subordinated notes to the sellers with interest at 7% and
25,900 shares of Common Stock.
In July 1995, the Company acquired 100% of the outstanding stock of
Northwest Food Service, Inc. ("Northwest"). Northwest provides contract food and
beverage services, primarily in the education and corporate dining markets. The
purchase price was approximately $2,500 consisting of subordinated notes to the
seller and cash.
7
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands,except share and per share data)
(unaudited)
The aforementioned acquisitions have been accounted for under the purchase
method of accounting and, accordingly, the accompanying unaudited consolidated
financial statements reflect the fair values of the assets acquired and
liabilities assumed or incurred as of the effective date of the acquisitions.
The results of operations of the acquired companies are included in the
accompanying unaudited consolidated financial statements since their respective
dates of acquisition.
The following table summarizes pro forma information as follows: (i) with
respect to the income statement data for the nine months ended September 27,
1995, as if the acquisitions of Ideal, Sun West, and Northwest had been
completed as of the beginning of such period; and (ii) with respect to the
income statement data for the nine months ended September 25, 1996, as if the
acquisition of Ideal and Sun West had been completed as of the beginning of such
period. No adjustment for acquisition synergies (i.e. overhead reductions)
have been reflected:
Nine Months Ended
September 25, September 27,
1996 1995
------------------------------
Summary statement of income data:
Net sales $95,690 $92,375
Income from operations 5,258 3,788
Net Income 231 28
Net income per share assuming full dilution $ .05 $ .01
====== =======
This pro forma information is provided for informational purposes only. It is
based on historical information and does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results of operations of the combined enterprise.
3. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
September 25, December 27,
1996 1995
-----------------------------
Accounts payable $ 7,666 $ 5,197
Accrued wages and benefits 3,918 1,607
Accrued rent to clients 3,676 2,576
Accrued other 3,472 3,087
------- -------
Total $18,732 $12,467
======= =======
8
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data)
(unaudited)
4. Long-Term Debt
Long-term debt consists of the following:
September 25, December 27,
1996 1995
------------------------------
Term Loan $ -- $ 9,100
Working Capital Line 10,417 6,000
Guidance Line 2,989 3,207
-------- -------
13,406 18,307
Less: current portion 598 2,981
--------- -------
Total $12,808 $15,326
======= =======
The Company's bank agreement was amended and restated on June 19, 1996 in
connection with the initial public offering (the "Restated Bank Agreement") and
provides for (i) a working capital revolving credit line (the "Working Capital
Line") for general obligations and letters of credit of the Company, in the
maximum amount of $20,000 and (ii) a line of credit to provide for future
expansion by the Company (the "Guidance Line") in the maximum amount of $55,000.
The maximum borrowing under the Restated Bank Agreement was $75,000 as of June
19, 1996. The Restated Bank Agreement terminates on April 30, 1999.
The Company's obligations under the Restated Bank Agreement are
collateralized by a pledge of shares of the common stock or other equity
interests of the Company's subsidiaries, as well as by certain fixtures and
equipment, notes receivable and other assets, as well as the receipt, if any, of
certain funds paid to the Company with respect to the termination of client
contracts prior to their expiration.
The Restated Bank Agreement contains various financial and other
restrictions, including, but not limited to, restrictions on indebtedness,
capital expenditures and commitments. Additional obligations require maintenance
of certain financial ratios, including the ratio of total debt to operating cash
flow, operating cash flow to cash interest expense, and minimum net worth and
operating cash flow. The Restated Bank Agreement also contains prohibitions on
the payment of dividends.
5. Subordinated Debt
In July 1996, as part of the acquisition of Ideal (see Note 2), the Company
issued to the stockholders of Ideal two convertible subordinated promissory
notes each with a face value of $710 at 7 1/4% interest per annum, payable
in quarterly installments. At the option of the note holders, the outstanding
principal balance of the notes is convertible into Common Stock at a conversion
price of $15 per share. The notes were discounted to present value using a
market rate of 13.0% and had a combined balance at September 25, 1996 of $1,213,
of which $957 was classified as long-term.
In March 1996, as part of the acquisition of Sun West (see Note 2), the
Company issued to the stockholders of Sun West the following: (1) a subordinated
promissory note with a face value of $1,350 at 7% interest per annum, payable in
four annual installments beginning in 1998; and (2) a subordinated promissory
note with a face value of $638 at 7% interest per annum, payable in three annual
installments beginning in 1997. The notes were discounted to present value using
a market rate of 10%. The respective balances at September 25, 1996 were $1,214
and $598, of which $1,183 and $326 were classified as long term.
9
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data)
(unaudited)
In July 1995, as part of the purchase price of Northwest (see Note 2), the
Company issued a $1,350 note to the seller at 6% interest per annum payable in
six equal annual installments. The note was discounted to present value using a
market rate of 12.5% and had a balance at September 25, 1996 of $1,197, of which
$967 was classified as long-term.
6. Stockholders' Equity
On July 19, 1996, pursuant to the terms of the over-allotment option
granted to the underwriters of the Company's initial public offering, the
Company sold 174,500 shares of common stock at the initial public offering price
of $12.00 per share, generating net proceeds of approximately $1,500, after
deducting the underwriting discount and certain expenses. The net proceeds have
been invested in short term investments in accordance with the Company's
investment policy.
On June 19, 1996, the effective date of the initial public offering, the
Company sold 2,890,218 shares at a price of $12.00 per share, generating net
proceeds (including the net proceeds received by the Company upon the exercise
of certain warrants) of approximately $31,100, after deducting the underwriting
discount and offering expenses paid by the Company. The net proceeds were used
to repay obligations under the Company's credit facility in effect prior to the
public offering and subordinated notes, as well as the amount required to
repurchase certain warrants. In addition, all of the then outstanding Series A
Convertible Preferred Stock was converted into 939,197 shares of Common Stock.
On March 29, 1996, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the sale
by the Company of 2,890,218 shares of Common Stock to the public. In connection
therewith, the Company's Board of Directors declared a 7-for-1 stock split in
the form of a stock dividend which was effected prior to the offering. Current
and prior year information has been restated to reflect this stock split.
7. Income Taxes
The income tax provision consists of the following:
Three Months Ended Nine Months Ended
September 25, September 27, September 25, September 27,
1996 1995 1996 1995
Current:
Federal $ - $ - $ - $ -
State and local - - 1 3
---------- -------- ------- -----
Total current - - 1 3
---------- -------- ------- -----
Deferred:
Federal 865 621 1,152 777
State and local 279 160 327 179
---------- -------- ------- ------
Total deferred 1,144 781 1,479 956
---------- -------- ------- ------
Total $1,144 $781 $1,480 $959
========== ======== ======= ======
At September 25, 1996, the Company had, for Federal income tax reporting,
an estimated net operating loss carryforward of approximately $2,800 that will
begin to expire in 2008.
10
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data)
(unaudited)
8. Major Client
During the nine months ended September 25, 1996 one client represented 9.8%
of net sales and for the nine months ended September 27, 1995 another client
represented 15.4% of net sales, respectively.
9. Subsequent Events
On November 8, 1996, the Company acquired 100% of the outstanding stock of
HCS Management Corporation ("HCS"). HCS provides non-patient contract food and
other services to hospitals and corporations. (See Note 2).
On November 11, 1996, the Company signed an agreement in principle to
purchase all of the issued and outstanding capital stock of a contract food
service provider operating primarily at education and corporate dining
facilities in the Northeast. The estimated annual revenues are $34 million.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company was formed in 1985 and has grown to become a leading provider of
food and beverage concession and catering services to more than 250 facilities
in 35 states(including HCS Management Corporation acquired on November 8, 1996)
The Company targets four distinct markets within the contract food service
industry: the recreation and leisure market ("Recreation and Leisure"),
serving arenas, stadiums, amphitheaters, civic centers and other recreational
facilities; the convention center market ("Convention Centers"); the educational
facilities market ("Education"), which the Company entered in 1994, serving
colleges, universities and public and private schools; and the corporate dining
market ("Corporate Dining"), which the Company entered in 1994, serving
corporate cafeterias, office complexes and manufacturing plants.
The matters discussed in this Form 10-Q contain forward looking statements
that involve risks and uncertainties including risks associated with the food
service industry and other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission.
<TABLE>
Results of Operations
The following table sets forth, for the periods indicated, certain
financial data as a percentage of the Company's net sales:
<CAPTION>
Three Months Ended Nine Months Ended
September 25, September 27, September 25, September 27,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.9 87.3 89.2 89.8
------ ------ ------ ------
Gross profit 12.1 12.7 10.8 10.2
General and administrative expenses 3.9 3.3 4.6 4.1
------ ------- ------ ------
Income from operations 8.2 9.4 6.2 6.1
Interest expense, net 1.3 2.4 2.3 2.8
------ ------- ------ ------
Income before tax provision 6.9 7.0 3.9 3.3
Tax provision 3.1 3.0 1.7 1.4
------ ------- ------ ------
Net income 3.8% 4.0% 2.2% 1.9%
====== ====== ====== ======
</TABLE>
<TABLE>
The following table sets forth net sales attributable to the Company's
principal operating markets, expressed in dollars (in thousands) and as a
percentage of total net sales:
<CAPTION>
Three Months Ended Nine Months Ended
September 25, September 27, September 25, September 27,
1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Recreation and Leisure $16,381 43.9% $14,156 53.8% $30,850 35.4% $32,339 46.3%
Convention Centers 9,856 26.4 7,266 27.6 30,224 34.6 25,106 35.9
Education 6,405 17.2 2,381 9.0 14,522 16.6 5,518 7.9
Corporate Dining 4,630 12.5 2,537 9.6 11,640 13.4 6,896 9.9
-------- ---- -------- --- -------- ---- -------- ---
Total $37,272 100% $26,340 100% $87,236 100% $69,859 100%
======= === ======= === ======= === ======= ===
</TABLE>
12
<PAGE>
<TABLE>
The following table sets forth the net sales and gross profit attributable to
the Company's principal types of contracts in dollars (in thousands):
<CAPTION>
Three Months Ended Nine Months Ended
September 25, September 27, September 25, September 27,
1996 1995 1996 1995
Summary By Net Gross Net Gross Net Gross Net Gross
Contract Type Sales Profit Sales Profit Sales Profit Sales Profit
- ------------- ----- ------ ----- ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
P&L $22,099 $3,130 $15,117 $1,951 $52,282 $6,359 $37,695 $3,926
Profit sharing 12,399 787 10,585 871 28,633 1,572 29,925 1,827
Management fee 2,774 589 638 516 6,321 1,519 2,239 1,387
------- ------- --------- ------- ------- -------- -------- --------
$37,272 $ 4,506 $26,340 $ 3,338 $87,236 $9,450 $69,859 $ 7,140
======= ======= ======= ======= ======= ====== ======= =======
</TABLE>
Three Months Ended September 25, 1996 Compared to
Three Months Ended September 27, 1995
Net Sales. The Company's net sales increased 41.8% to $37.3 million for the
three months ended September 25, 1996 from $26.3 million for the three months
ended September 27, 1995. Net sales increased in all market areas. Recreation
and Leisure net sales increased 15.7% primarily due to the impact of new
contracts such as the Coral Sky Amphitheater in West Palm Beach, Florida and the
Concord Pavilion in Concord, California. Net sales from Convention Centers
increased 35.6% primarily as a result of increased sales from existing contracts
such as the Orange County Convention Center and the Albuquerque Convention
Center. Net sales in Education and Corporate Dining more than doubled, primarily
as a result of the impact of the acquisition of Sun West in March 1996 and Ideal
in July 1996, and from the impact of new contracts such as Boise State
University in Boise, Idaho and St. Edwards College in Austin, Texas.
Gross Profit. Gross profit increased to $4.5 million or 12.1% of net sales
from $3.3 million or 12.7% of net sales for the comparable 1995 period. The
decrease in gross profit as a percentage of net sales was attributable
to a one time retroactive adjustment in September 1995 relating to an
acquisition completed in 1994. If this one time retroactive adjustment was
excluded, gross profit for the 1995 period would have been 12.1%.
General and Administrative Expenses. General and administrative expenses
increased to $1.5 million (or 3.9% of net sales) for the three months ended
September 25, 1996 from $870,000 (or 3.3% of net sales) for the three months
ended September 27, 1995. The increase was attributable primarily to the
Company's additional investment in regional staff and training to support the
Company's growth.
Operating Income. Operating income increased 23.1% to $3.0 million for the
three months ended September 25, 1996, from $2.5 million for the three months
ended September 27, 1995, primarily as a result of the factors discussed above.
Interest Expense. Interest expense decreased approximately $146,000 for the
three months ended September 25, 1996, due primarily to decreased debt levels
resulting from the repayment of certain obligations under the Company's credit
facility with the net proceeds from the initial public offering.
13
<PAGE>
Nine Months Ended September 25, 1996 Compared
to Nine Months Ended September 27, 1995
Net Sales. The Company's net sales increased 24.9% to $87.2 million for the
nine months ended September 25, 1996, from $69.9 million for the nine months
ended September 27, 1995. Net sales increased in all market areas, except
Recreation and Leisure. Recreation and Leisure net sales decreased 4.6%,
primarily because of a decrease in attendance at Florida Marlins Major League
baseball games and the decision by a private tenant of one of the Company's
clients to build a new facility and self-operate its food service. Net sales
from Convention Centers increased 20.4% primarily as a result of increased sales
from existing contracts, mentioned above. Net sales in Education and Corporate
Dining more than doubled, resulting from the impact of the acquisition of
Northwest in June 1995, Sun West in March 1996 and Ideal in July 1996 and the
impact of new contracts mentioned above.
Gross Profit. Gross profit increased to $9.5 million or 10.8% of net sales,
from $7.1 million or 10.2% of net sales for the comparable 1995 period. The
increase in gross profit percentage was attributable to the mix of higher
margin business and from purchasing efficiencies realized from an expanded base
of business.
General and Administrative Expenses. General and administrative expenses
increased to $4.0 million (or 4.6% of net sales) for the nine months ended
September 25, 1996 from $2.9 million (or 4.1% of net sales) for the nine months
ended September 27, 1995. The increase was attributable primarily to additional
investment in regional staff and training to support the Company's growth.
Operating Income. Operating income increased 27.0% to $5.4 million for the
nine months ended September 25, 1996 from $4.3 million for the nine months ended
September 27, 1995, primarily as a result of the factors discussed above.
Interest Expense. Interest expense increased approximately $47,000 for the
nine months ended September 25, 1996, due primarily to increased debt levels
prior to the initial public offering, incurred to finance investments in both
new accounts and acquisitions.
Liquidity and Capital Resources
The Company has funded its capital requirements from a combination of
operating cash flow, debt and equity financing. Cash flow from operating
activities was a use of funds of approximately $3.0 million for the nine
months ended September 25, 1996, compared to a source of funds of
approximately $3.2 million for the nine months ended September 27, 1995.
This use of funds resulted primarily from an increase in trade receivables
related to new business acquired (see page 15 seasonal trends).
EBITDA was $8.7 million or 10.0% of net sales, compared to $6.9 million or
9.9% of net sales for the nine months ended September 25, 1996 and September 27,
1995, respectively. The increase in the EBITDA as a percentage of net sales is
attributable to a higher EBITDA from our existing business units. EBITDA
represents earnings before interest expense, income tax expense and depreciation
and amortization. EBITDA is not a measurement in accordance with GAAP and should
not be considered an alternative to, or more meaningful than, income from
operations, net income or cash flows as defined by GAAP as a measure of the
Company's profitability or liquidity.
Cash flows used in investing activities were approximately $13.2 million and
$7.1 million for the nine months ended September 25, 1996 and September 27,
1995, respectively. In fiscal 1996, $5.2 million was used in connection with the
Sun West acquisition and Ideal acquisition and $8.5 million was used for
contract investments, including $4.0 million for additions to fixed assets.
14
<PAGE>
On July 19, 1996, pursuant to the terms of the over-allotment option granted
to the underwriters of the Company's initial public offering, the Company sold
an additional 174,500 shares of the Company's common stock at the initial public
offering price of $12.00 per share, resulting in net proceeds of approximately
$1.5 million after deducting underwriting discounts and certain expenses.
In connection with the Company's offering, the Company's credit facility was
amended and restated on June 19, 1996 ( the "Restated Bank Agreement"). The
Restated Bank Agreement provides for (i) a working capital revolving credit line
for general obligations and letters of credit, in the maximum aggregate amount
of $20.0 million (the "Working Capital Line") and (ii) a line of credit to
provide for future expansion by the Company, in the maximum amount of $55.0
million. The maximum aggregate allowable borrowings under the Restated Bank
Agreement is $75.0 million. The Restated Bank Agreement terminates on April 30,
1999.
The Company believes that the proceeds of its initial public offering,
internally generated funds and amounts available under the Restated Bank
Agreement are sufficient to satisfy the Company's presently anticipated capital
requirements.
At September 25, 1996 the Company's current assets exceeded its current
liabilities, resulting in a working capital surplus of $3.4 million and at
December 27, 1995 the Company's current liabilities exceeded its current assets,
resulting in a working capital deficit of $4.5 million. The surplus is the
result of the fact that the markets in which the recent acquisitions operate
(ie. School Nutrition, Corporate Dining) generally invest in shorter term assets
(ie. accounts receivable) as compared to the Company's recreation and leisure
business which invest in longer term assets (ie. fixtures and equipment). The
Working Capital Line provides funds for liquidity, seasonal borrowing needs and
other general corporate purposes.
On November 8, 1996, the Company acquired 100% of the stock of HCS
Management Corporation ("HCS"). HCS, through its operating subsidiaries,
provides non-patient contract food and other services to hospitals and
corporations. The purchase price was approximately $6 million consisting of cash
to the seller plus assumed debt of HCS.
On November 11, 1996, the Company reached an agreement in principle to
purchase all of the issued and outstanding capital stock of a contract food
service provider operating primarily at education and corporate dining
facilities in the Northeast. The estimated annual revenues are $34 million.
15
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Reference is made to the discussion of legal proceedings found in the
Company's Registration Statement on Form S-1 declared effective by the
Securities and Exchange Commission on June 19, 1996 and the Company's Form 10-Q
for the period ended June 26, 1996. There have been no material changes in the
status of the proceedings referenced therein.
The Company is involved in certain legal proceedings incidental to the
normal conduct of its business. The Company does not believe that any
liabilities relating to such legal proceedings to which it is a party are likely
to be, individually or in the aggregate, material to its consolidated financial
position or results of operations.
Item 2. Changes in Securities
On July 31, 1996, as part of the acquisition of Ideal (see Note 2), the
Company issued to the stockholders of Ideal two convertible subordinated
promissory notes each with a face value of $710,000 bearing interest at 7 1/4%
interest per annum, payable in quarterly installments. At the option of the note
holders, the outstanding principal balance of the notes is convertible into
Common Stock at a conversion price of $15 per share. The transaction was a
private transaction not involving a public offering and was exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
pursuant to Section 4 (2) thereof. The issuance of the securities was without
the use of an underwriter, and the securities bear a restrictive legend
permitting the transfer thereof only upon registration or an exemption under the
Act.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits:
*3.1 Restated Certificate of Incorporation
*3.2 By-Laws
*4 Specimen of Registrant's Common Stock certificate
11 Computations of Per Share Earnings
27 Financial Data Schedule
* Filed as exhibits to the Company's Registration Statement on Form S-1,
declared effective by the Securities and Exchange Commission on June 19, 1996,
and hereby incorporated by reference.
B) Reports on Form 8-K - None
- ------------------------------------------------------------------
Omitted from this Part II are items which are inapplicable or to which the
answer is negative for the period presented.
17
<PAGE>
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.
Fine Host Corporation
By: /s/ Nelson A. Barber
Nelson A. Barber
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial
and Accounting Officer)
Date: November 11, 1996
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
*3.1 Restated Certificate of Incorporation
*3.2 By-Laws
*4 Specimen of Registrant's Common Stock certificate
11 Computations of Per Share Earnings
27 Financial Data Schedule
* Filed as exhibits to the Company's Registration Statement on Form S-1,
declared effective by the Securities and Exchange Commission on June 19, 1996,
and hereby incorporated by reference.
<PAGE>
<TABLE>
EXHIBIT 11
FINE HOST CORPORATION
Computation of Per Share Earnings
<CAPTION>
Three Months Ended Nine Months Ended
September 25, September 27, September 25, September 27,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Income applicable to Common Stock $ 1,399 $ 1,045 $ 1,908 $ 1,327
Stock warrant accretion - (212) (1,300) (286)
------------- ------------- ------------- -------------
Net income available to Common
Stockholders $ 1,399 $ 833 $ 608 $ 1,041
============= ============= ============= =============
Weighted average number of common shares
outstanding 6,165,475 2,048,200 3,209,653 2,048,200
Average convertible Preferred shares
outstanding - 890,713 939,197 805,435
Assumed conversion of:
Warrants - 405,402 292,502 405,402
Options 83,194 19,090 83,420 19,090
----------- ----------- ----------- -----------
Average number of shares of Common Stock
outstanding assuming full dilution 6,248,669 3,363,405 4,524,772 3,278,127
========= ========= ========= =========
Net earnings per share assuming full dilution $.22 $.25 $.13 $.32
==== ==== ==== ====
</TABLE>
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains Summary Financial Information
extracted from the Balance Sheet and Income Statement for
the nine months ended September 25, 1996 for Fine Host
Corporation, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0001011584
<NAME> FINE HOST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1996
<PERIOD-START> DEC-28-1995
<PERIOD-END> SEP-25-1996
<CASH> 3,871
<SECURITIES> 0
<RECEIVABLES> 13,970
<ALLOWANCES> 0
<INVENTORY> 3,018
<CURRENT-ASSETS> 24,219
<PP&E> 23,514
<DEPRECIATION> 5,784
<TOTAL-ASSETS> 91,936
<CURRENT-LIABILITIES> 20,862
<BONDS> 0
0
0
<COMMON> 62
<OTHER-SE> 44,814
<TOTAL-LIABILITY-AND-EQUITY> 91,936
<SALES> 87,236
<TOTAL-REVENUES> 87,236
<CGS> 77,786
<TOTAL-COSTS> 77,786
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,018
<INCOME-PRETAX> 3,388
<INCOME-TAX> 1,480
<INCOME-CONTINUING> 1,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 608
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.13
</TABLE>
