<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 6, 1998
----------------
FINE HOST CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 000-28590 06-1156070
- ---------------------------- ---------------- -------------------
(State of other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
3 GREENWICH OFFICE PARK, GREENWICH, CT 06831
- ---------------------------------------- --------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (203) 629-4320
--------------
<PAGE>
ITEM 5. OTHER EVENTS
------------
On February 6, 1998, Fine Host Corporation (the "Company") issued a press
release announcing that it will restate its financial statements for fiscal
years 1994 through 1996, and for the nine months ended September 24, 1997. As a
result of the restatement, the Company will report pre-tax losses of
approximately $1.6 million for 1994; $4.3 million for 1995; $6.3 million for
1996; and $11.4 million for the nine months ended September 24, 1997. The
Company announced that the restatement will include a cumulative negative
adjustment of $2.8 million for years prior to 1994. Interim results for 1997
are unaudited. The restatements resulted from the discovery in December 1997 of
certain errors in the Company's accounting practices and procedures. A copy of
the Company's press release and restated financial statements are filed as
exhibits to this Form 8-K.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(c) Exhibits:
The following Exhibits are filed as part of this report.
Exhibit 99.1 Press Release of the Company dated February 6, 1998
Exhibit 99.2 Restated Financial Statements of the Company for the
years 1994 through 1996 and the Nine Months Ended
September 24, 1997.
3
<PAGE>
SIGNATURES
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 hereunto duly authorized.
FINE HOST CORPORATION
Dated: February 6, 1998 By: /s/ Randy B. Spector
--------------------
Name: Randy B. Spector
Title: President
Chief Operating Officer
4
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
Exhibit 99.1 Press Release of the Company dated February 6, 1998
Exhibit 99.2 Restated Financial Statements of the Company for the years 1994
through 1996 and the Nine Months Ended September 24, 1997.
5
<PAGE>
Exhibit 99.1
Analyst Contact: Media Contact:
Catherine James Sitrick And Company
Executive Vice President & Sandra Sternberg
Chief Financial Officer Ann Julsen
(203) 532-4320 OR (310) 788-2850
(203) 532-2626
FINE HOST RESTATES RESULTS FOR PRIOR PERIODS; COMPANY SAYS CASH POSITION AND
OPERATIONS REMAIN STRONG
GREENWICH, CONN. -- FEBRUARY 6, 1998 -- Fine Host Corporation (NASDAQ:
FINE) announced today that the Company will restate its financial statements for
fiscal years 1994, 1995 and 1996, and for the nine months ended September 24,
1997. Fine Host previously disclosed that it would have to restate earnings in
announcements on December 12, 1997 and December 15, 1997.
As a result of the restatement, the Company will report pre-tax losses of
approximately $1.6 million for 1994; $4.3 million for 1995; $6.3 million for
1996; and $11.4 million for the nine months ended September 24, 1997. The
Company said that the restatement will include a cumulative negative adjustment
of $2.8 million for years prior to 1994. Interim results for 1997 are
unaudited.
The principal adjustments to net income are the result of improper
capitalization of overhead expenses, improper charges to acquisition reserves
and recognition of certain income in periods prior to earning such income.
At the same time, the Company said that, despite the losses reflected by
the restatement, it continues to be in a strong cash position and that its
operating businesses remain strong. The Company said it had signed contracts
with seven new clients and 12 renewals since the December discovery of certain
errors in its accounting practices and procedures, and that it will fulfill all
contractual commitments it has made to clients. As of January 31, 1998, the
Company had cash and cash equivalents of approximately $100 million.
According to Gerald P. Buccino, whose national management consulting firm
Buccino & Associates, Inc. has been retained to oversee the management of Fine
Host, the Company has been reviewing every aspect of the Company's operations.
"The Company has moved quickly to identify and correct irregularities that
occurred in the past. Our mission now is to refocus our resources on maximizing
the profitability and quality of our operating businesses."
Mr. Buccino noted that there have been no significant changes in the
Company's relationships with its vendors or customers since the Company's
December announcements.
<PAGE>
"The Company is meeting with clients, employees and suppliers to reassure
them that we are taking all steps necessary to correct past accounting
irregularities," Mr. Buccino said. "To date, no contracts that have been
terminated or not renewed as a result of this issue."
Randy B. Spector, Fine Host president and chief operating officer, said
that the business continues to operate uninterrupted and unimpaired by the
accounting problems. "New business continues to be written and renewals of
existing contracts continue to be signed."
Mr. Spector said that the Company would announce details of several
contracts signed since December 12 in the next few weeks.
The accounting restatements resulted from the discovery in December of
certain errors in the Company's accounting practices and procedures. The
Company previously disclosed that it had terminated the employment of Richard E.
Kerley, chairman of the board and chief executive officer, and Nelson A. Barber,
senior vice president and treasurer. Mr. Kerley resigned from the Board on
January 21.
The Company said that its representatives appeared on February 5 at a
hearing before a panel authorized by the National Association of Securities
Dealers (NASD) to appeal Nasdaq's decision to delist the Company's common stock.
The Company said that it expects to receive a response from the panel shortly.
Additionally, the Company said that the Securities and Exchange Commission (SEC)
has informed it that it is conducting an informal investigation of the Company.
The Company said that as a result of the delay required by the need to
restate its financial statements, it has been unable to file a Registration
Statement in connection with its October 1997 offering of $175 million, 5%
Convertible Subordinated Notes due 2004, which would have allowed such Notes to
be freely tradable. The Company said it is therefore obligated to pay liquidated
damages on the Notes as of January 25, in the form of increased interest, which
increases every quarter to a maximum increase of approximately 1.3% a year.
Fine Host said that between December 15, 1997 and February 4, 1998, 13
purported class action lawsuits were filed against the Company and certain of
its officers and/or directors in the U.S. District Court for the District of
Connecticut. A suit by three purported holders of the Company's 5% Convertible
Subordinated Notes due 2004 was filed in the Southern District of New York. The
Company said that it is currently reviewing these complaints, and that it is
unable to assess the impact of these suits on its financial condition or results
of operations at this time.
<PAGE>
Fine Host Corporation provides food and beverage concession and catering
services to more than 900 facilities, primarily through multi-year contracts in
the following markets: the recreation and leisure market (arenas, stadiums,
amphitheatres, civic centers and other recreational facilities); the convention
center market; the education market (colleges, universities and elementary and
secondary school nutrition programs); the business dining market (corporate
cafeterias, office complexes and manufacturing plants); the health care market
(long-term care facilities and hospitals); and the corrections market (prisons
and jails).
THIS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS PURSUANT TO THE SAFE
HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES WHICH ARE
DESCRIBED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
# # #
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
Financial Statements as of December 25, 1996 and December 27, 1995 (as
restated) and for the Three Years Ended December 25, 1996 (as restated), and
Independent Auditors' Report
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 25, 1996 and December 27, 1995.................................. F-3
Consolidated Statements of Operations for the fiscal years ended December 25, 1996, December 27, 1995 and
December 28, 1994........................................................................................ F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended December 25, 1996, December 27,
1995 and December 28, 1994............................................................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended December 25, 1996, December 27, 1995 and
December 28, 1994........................................................................................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
FINE HOST CORPORATION
We have audited the accompanying consolidated balance sheets of Fine Host
Corporation and subsidiaries (the "Company") as of December 25, 1996 and
December 27, 1995, and the consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
December 25, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Fine Host Corporation and
subsidiaries as of December 25, 1996 and December 27, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 25, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note 17, the accompanying financial statements as of
December 25, 1996 and December 27, 1995 and for each of the three years in the
period ended December 25, 1996 have been restated.
Deloitte & Touche LLP
New York, New York
February 28, 1997, except for Note 17,
as to which the date is January 28, 1998
F-2
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
DECEMBER 25, 1996 DECEMBER 27, 1995
----------------- -----------------
(AS RESTATED, SEE NOTE 17)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 4,747 $ 634
Accounts receivable....................................................... 12,065 6,782
Inventories............................................................... 3,260 2,099
Prepaid expenses and other current assets................................. 1,658 1,850
------- -------
Total current assets..................................................... 21,730 11,365
Contract rights, net...................................................... 16,909 6,316
Fixtures and equipment, net............................................... 17,300 13,271
Excess of cost over fair value of net assets acquired, net................ 31,527 13,591
Other assets.............................................................. 8,527 4,445
------- -------
Total assets............................................................. $ 95,993 $ 48,988
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...................................... $ 22,174 $ 14,383
Current portion of long-term debt.......................................... 264 2,981
Current portion of subordinated debt....................................... 3,045 1,745
------- -------
Total current liabilities................................................ 25,483 19,109
Deferred income taxes...................................................... 4,702 3,387
Long-term debt............................................................. 32,250 15,326
Subordinated debt.......................................................... 5,014 8,879
------- -------
Total liabilities........................................................ 67,449 46,701
Commitments and contingencies
Stock warrants............................................................. -- 1,380
Stockholders' equity:
Convertible Preferred Stock, $.01 par value, 250,000 shares authorized, 0
and 134,171 issued and outstanding at December 25, 1996 and December 27,
1995, respectively....................................................... -- 1
Common Stock, $.01 par value, 25,000,000 shares authorized, 6,212,016 and
2,048,200 issued and outstanding at December 25, 1996 and December 27,
1995, respectively....................................................... 62 20
Additional paid-in-capital................................................. 42,270 8,933
Deficit.................................................................... (13,599) (7,858)
Receivables from stockholders for purchase of
Common Stock............................................................. (189) (189)
------- -------
Total stockholders' equity............................................... 28,544 907
------- -------
Total liabilities and stockholders' equity............................... $ 95,993 $ 48,988
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------
DECEMBER 25, DECEMBER 27, DECEMBER 28,
1996 1995 1994
------------ --------- ------------
<S> <C> <C> <C>
(AS RESTATED, SEE NOTE 17)
Net sales................................................................. $ 130,639 $ 95,382 $ 82,113
Cost of sales............................................................. 118,818 86,426 74,130
------------ --------- ------------
Gross profit.............................................................. 11,821 8,956 7,983
General and administrative expenses....................................... 15,504 10,541 7,956
------------ --------- ------------
(Loss)/income from operations............................................. (3,683) (1,585) 27
Interest expense, net..................................................... 2,618 2,678 1,617
------------ --------- ------------
Loss before tax benefit................................................... (6,301) (4,263) (1,590)
Tax benefit............................................................... (1,860) (1,554) (377)
------------ --------- ------------
Net loss.................................................................. (4,441) (2,709) (1,213)
Accretion to redemption value of warrants................................. (1,300) (900) (250)
------------ --------- ------------
Net loss applicable to Common Stockholders................................ $ (5,741) $ (3,609) $ (1,463)
------------ --------- ------------
------------ --------- ------------
Loss per share of Common Stock............................................ $ (1.39) $ (1.76) $ (.71)
------------ --------- ------------
------------ --------- ------------
Average number of shares of Common Stock outstanding...................... 4,137 2,048 2,048
------------ --------- ------------
------------ --------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Receivables
from
Stockholders
Convertible for
Preferred Stock Common Stock Additional Purchase of
----------------------- ----------------------- Paid in Common
Shares Amount Shares Amount Capital Deficit Stock
---------- ----------- ---------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(as restated, see note 17)
Balance, December 29, 1993,
as previously reported..... 102,592 $ 1 2,048,200 $ 20 $ 7,433 $ (295) $ (189)
Adjustment for restatement
(Note 17).................. -- -- -- -- -- (2,491) --
---------- ----------- ---------- ----------- ----------- ---------- -------------
Balance, December 29, 1993,
as restated................ 102,592 1 2,048,200 20 7,433 (2,786) (189)
Net loss................... -- -- -- -- -- (1,213) --
Stock warrant accretion.... -- -- -- -- -- (250) --
---------- ----------- ---------- ----------- ----------- ---------- -------------
Balance, December 28, 1994... 102,592 1 2,048,200 20 7,433 (4,249) (189)
Net loss................... -- -- -- -- -- (2,709) --
Stock warrant accretion.... -- -- -- -- -- (900) --
Shares issued.............. 31,579 -- -- -- 1,500 -- --
---------- ----------- ---------- ----------- ----------- ---------- -------------
Balance, December 27, 1995... 134,171 1 2,048,200 20 8,933 (7,858) (189)
Net loss..................... -- -- -- -- -- (4,441) --
Stock warrant accretion...... -- -- -- -- -- (1,300) --
Shares issued in connection
with Sun West
acquisition................ -- -- 25,900 1 369 -- --
Shares issued in connection
with initial public
offering................... -- -- 3,064,718 30 32,459 -- --
Conversion of Preferred
Stock...................... (134,171) (1) 939,197 9 (8) -- --
Warrants exercised........... -- -- 123,585 1 608 -- --
Warrants redeemed............ -- -- -- -- (200) -- --
Other........................ -- -- 10,416 1 109 -- --
---------- ----------- ---------- ----------- ----------- ---------- -------------
Balance, December 25, 1996... -- $ -- 6,212,016 $ 62 $ 42,270 $ (13,599) $ (189)
---------- ----------- ---------- ----------- ----------- ---------- -------------
---------- ----------- ---------- ----------- ----------- ---------- -------------
<CAPTION>
Total
Stockholders'
Equity
------------
<S> <C>
Balance, December 29, 1993,
as previously reported..... $ 6,970
Adjustment for restatement
(Note 17).................. (2,491)
------------
Balance, December 29, 1993,
as restated................ 4,479
Net loss................... (1,213)
Stock warrant accretion.... (250)
------------
Balance, December 28, 1994... 3,016
Net loss................... (2,709)
Stock warrant accretion.... (900)
Shares issued.............. 1,500
------------
Balance, December 27, 1995... 907
Net loss..................... (4,441)
Stock warrant accretion...... (1,300)
Shares issued in connection
with Sun West
acquisition................ 370
Shares issued in connection
with initial public
offering................... 32,489
Conversion of Preferred
Stock...................... --
Warrants exercised........... 609
Warrants redeemed............ (200)
Other........................ 110
------------
Balance, December 25, 1996... $ 28,544
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
December 25, December 27, December 28,
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
(as restated, see note 17)
Cash flows from operating activities:
Net loss.............................................................. $ (4,441) $ (2,709) $ (1,213)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization....................................... 3,573 3,497 2,089
Deferred income tax benefit......................................... (1,940) (1,603) (403)
Loss from renegotiation of contract................................. -- -- 1,568
Changes in operating assets and liabilities:
Accounts receivable............................................... (1,351) (69) (1,866)
Inventories....................................................... (366) 306 (367)
Prepaid expenses and other current assets......................... 1,060 (161) (912)
Accounts payable and accrued expenses............................. (4,154) (339) 3,947
(Increase) decrease in other assets................................... (36) 171 (334)
------------ ------------ -------------
Net cash (used) provided by operating activities.................... (7,655) (907) 2,509
------------ ------------ -------------
Cash flows from investing activities:
Increase in contract rights........................................... (5,754) (582) (920)
Purchases of fixtures and equipment................................... (3,534) (2,315) (5,767)
Sales of fixtures and equipment....................................... 64 -- --
Acquisition of business, net of cash acquired......................... (9,387) (3,478) (566)
Collection of notes receivable........................................ 494 2,129 548
Issuance of notes receivable.......................................... -- -- (2,280)
------------ ------------ -------------
Net cash used in investing activities............................... (18,117) (4,246) (8,985)
------------ ------------ -------------
Cash flows from financing activities:
Issuance of common stock.............................................. 32,489 -- --
Issuance of convertible preferred stock............................... -- 1,500 --
Borrowings under long-term debt agreement............................. 27,844 8,580 10,739
Payment of long-term debt and capital lease........................... (22,461) (2,300) (1,529)
Payment of subordinated debt.......................................... (8,396) (3,525) (1,578)
Redemption of warrants................................................ (200) -- --
Proceeds from exercise of warrants.................................... 609 -- --
------------ ------------ -------------
Net cash provided by financing activities........................... 29,885 4,255 7,632
------------ ------------ -------------
Increase (decrease) in cash and cash equivalents...................... 4,113 (898) 1,156
Cash and cash equivalents, beginning of year.......................... 634 1,532 376
------------ ------------ -------------
Cash and cash equivalents, end of year................................ $ 4,747 $ 634 $ 1,532
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
Supplemental disclosure of non-cash financing activities:
A capital lease obligation of $1,159 was incurred in 1996 when the Company
entered into a lease agreement for new equipment.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(as restated, see Note 17)
1. DESCRIPTION OF BUSINESS
Fine Host Corporation and its subsidiaries ( the "Company") provides
contract food service management to four distinct markets within the contract
food service industry: the recreation and leisure market (arenas, stadiums,
amphitheaters, civic centers and other recreational facilities); the
convention center market; the education market (colleges, universities and
elementary and secondary schools); and the business dining market (corporate
cafeterias, office complexes and manufacturing plants).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The 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.
Cash and Cash Equivalents--Cash and cash equivalents include cash, money
market funds, commercial paper and certain U.S. Government securities with an
original maturity of three months or less and are deposited with a number of
institutions with high credit ratings. The Company does not believe it is
exposed to any significant credit risk related to cash and cash equivalents.
Inventories--Inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
Contract Rights--Certain directly attributable costs, primarily direct
payments to clients to acquire contracts ("direct payments") and the cost of
licenses and permits, incurred by the Company in obtaining contracts with
clients, are recorded as contract rights and are amortized over the contract
life of each such contract without consideration of future renewals. The
costs of licenses and permits are amortized over the shorter of the related
contract life or the term of the license or permit, ranging from 1 to 10
years. The unamortized value of direct payments and licenses and permits was
approximately $7,400 at December 25, 1996. Direct payments are being
amortized over a range of 1 to 20 years. The value of contract rights
acquired through acquisitions has been determined through independent
valuation based on projected cash flows discounted at a rate that market
participants would use to determine fair value and is being amortized over
the projected lives as determined through the valuation process, with an
average amortization period of 10 years as of December 25, 1996. The
unamortized value of contract rights acquired through acquisitions was
$13,521 at December 25, 1996, consisting of rights relating to 259 contracts.
Total contract rights' accumulated amortization was $4,395 and $3,301 at
December 25, 1996 and December 27, 1995, respectively. The carrying value of
the asset would be reduced if it is probable that management's best estimate
of future cash flows from related operations over the remaining amortization
period, on an undiscounted basis, will be less than the carrying amount of
the asset, plus allocated goodwill if acquired in a business combination. Any
such impairment loss would be measured as the amount by which the carrying
value of the asset exceeds the fair value determined as the present value of
estimated expected future cash flow discounted at a rate that market
participants would use to determine fair value.
F-7
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(as restated, see Note 17)
Fixtures and Equipment--Acquisitions of fixtures and equipment are
recorded at cost and are depreciated using the straight line method over the
shorter of estimated useful lives of the assets or the term of the customer
concession and catering contract. Fixtures and equipment are periodically
reviewed to determine recoverability by comparing the carrying value to
expected future cash flows.
Excess of Cost Over Fair Value of Net Assets Acquired--The excess of cost
over fair value of net assets acquired is amortized using the straight line
method over periods generally ranging from 20 to 30 years. Accumulated
amortization was $1,647 and $830 at December 25, 1996 and December 27, 1995,
respectively.
The carrying value of the net asset would be reduced if it is probable
that management's best estimate of future cash flows from related operations,
on an undiscounted basis, will be less than the carrying amount of the asset
over the remaining amortization period. Any such impairment loss would be
measured as the amount by which the carrying value of the asset exceeds the
fair value determined as the present value of estimated expected future cash
flow.
Revenue Recognition and Cost of Sales--Sales from food and beverage
concession and catering contract food services are recognized as the services
are provided.
The Company generally enters into one of three types of contracts for its
food services: profit and loss contracts ("P&Ls"), profit sharing contracts
and management fee contracts. Under P&L contracts, all food and beverage
sales are recorded in net sales. P&Ls require the Company to bear all the
expenses of the operation, including rent paid to the client (usually
calculated as a fixed percentage of various categories of sales). Under the
profit sharing contracts, the Company receives a percentage of profits earned
at the facility after the payment of all expenses of the operation plus a
fixed fee or percentage of sales as an administrative fee. Under this type of
contract, the fixed and administrative fees and all food and beverage sales
generated at a location are recorded in net sales. Management fee contracts
provide for a fixed fee. Fine Host is also reimbursed for all of its on-site
expenses incurred in providing food and beverage services under management
fee contracts. Certain of the Company's management fee contracts provide for
an additional incentive fee based on a percentage of sales over a base
threshold level. In the case of a management fee contract, the Company
records only the fixed and incentive fee, if any, as net sales.
Cost of sales is composed of the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- --------- ---------
Wages and benefits.............................................................. $ 39,591 $ 27,024 $ 20,079
Food and beverages.............................................................. 38,954 24,670 18,463
Rent paid to clients............................................................ 24,792 22,453 25,345
Other operating expenses........................................................ 11,944 9,045 8,170
Depreciation and amortization................................................... 3,537 3,234 2,073
---------- --------- ---------
$ 118,818 $ 86,426 $ 74,130
---------- --------- ---------
---------- --------- ---------
</TABLE>
P&L and profit sharing contracts include all on-site costs for the above
items. Management fee contracts include only the amortization of invested
capital.
F-8
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(as restated, see Note 17)
Income Taxes--Deferred tax assets or liabilities (shown net) are
recognized for the estimated future tax effects attributable to temporary
differences, principally depreciation, amortization of contract rights and
operating loss carryforwards. A temporary difference is the difference
between the tax basis of an asset or liability and its reported amount in the
financial statements.
Stock Option Plan--Stock options are recorded in accordance with
Accounting Principles Board Opinion ("APB") No. 25, with pro forma
disclosures of net income and earnings per share as if Statement of Financial
Accounting Standards ("SFAS") No. 123 had been applied.
Loss Per Share--Loss per share of Common Stock is computed based on the
weighted average number of common and common equivalent shares outstanding,
unless antidilutive, during each year. Prior to the initial public offering
(the "IPO"), the fair value was estimated through analysis of transactions in
the Company's stock involving third parties. This increase in the number of
shares of Common Stock was reduced by the number of shares of Common Stock
which are assumed to have been purchased with the proceeds from the exercise
of the warrants. These purchases were assumed to have been made at the
average fair value of the Common Stock during the year. In calculating loss
per share, net loss has been increased for the accretion to the redemption
value of warrants by $1,300, $900, and $250 in fiscal 1996, 1995 and 1994,
respectively (see Note 10).
Fiscal Year--The Company's fiscal year ends on the last Wednesday in
December.
3. ACQUISITIONS
On December 8, 1996, the Company acquired 100% of the stock of Republic
Management Corp. ("Republic"). Republic provides contract food service and
vending to various corporations and elementary and secondary schools. The
purchase price was approximately $8,600 consisting of cash to the sellers, a
subordinated note payable with interest at 8 3/4% to one shareholder plus
assumed debt of Republic.
In November 1996, the Company acquired 100% of the stock of PCS Holding
Corporation (formerly known as HCS Management Corporation) ("PCS"). PCS,
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.
F-9
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(as restated, see Note 17)
In July 1996, the Company acquired 100% of the outstanding stock of Ideal
Management Services, Inc. ("Ideal"). Ideal provides contract food and
beverage services to elementary and secondary schools in New York State. The
purchase price was approximately $3,200, consisting of cash, convertible
subordinated notes with interest at 7 1/4%, and a seven year covenant not to
compete valued at $400. 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.
In March 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 to elementary and secondary schools 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 business dining
markets. The purchase price was approximately $2,500 consisting of
subordinated notes to the seller and cash.
The aforementioned acquisitions have been accounted for under the
purchase method of accounting and, accordingly, the accompanying 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 consolidated financial statements since their respective dates
of acquisition.
The following table summarizes unaudited pro forma information as
follows: (i) with respect to the income statement data for fiscal year 1995
as if the acquisitions of Republic, PCS, 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 fiscal year 1996 as if the acquisition of
Republic, PCS, Ideal and Sun West had been completed as of the beginning of
such period. No adjustments for acquisition synergies (i.e. overhead
reductions) have been reflected.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------
DECEMBER 25, DECEMBER 27,
1996 1995
------------ ------------
<S> <C> <C>
Summary statement of income data:
Net sales............................................................................ $ 163,919 $ 150,952
Loss from operations................................................................. (4,460) (2,065)
Net loss before warrant accretion.................................................... (5,833) (4,162)
Loss per share of common stock before warrant accretion.............................. $ (1.35) $ (1.94)
------------ ------------
------------ ------------
</TABLE>
The above pro forma information is provided for informational purposes
only. It is based on unaudited 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.
F-10
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(as restated, see Note 17)
4. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 27,
1996 1995
------------- -------------
<S> <C> <C>
Food and liquor...................................................................... $ 2,814 $ 1,333
Beverage............................................................................. 41 447
Other................................................................................ 405 319
------ ------
Total................................................................................ $ 3,260 $ 2,099
------ ------
------ ------
</TABLE>
5. FIXTURES AND EQUIPMENT
Fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 27,
1996 1995
------------ ------------
<S> <C> <C>
Furniture and fixtures............................................................... $ 12,573 $ 11,826
Office equipment..................................................................... 3,550 1,811
Leasehold improvements............................................................... 1,405 1,114
Smallwares........................................................................... 3,846 2,306
Other................................................................................ 2,135 1,218
------------ ------------
23,509 18,275
Less: accumulated depreciation....................................................... 6,209 5,004
------------ ------------
Fixtures and equipment, net.......................................................... $ 17,300 $ 13,271
------------ ------------
------------ ------------
</TABLE>
The Company invests in fixtures and equipment at various locations. Upon
termination of a concession agreement, the client is generally required to
purchase the assets from the Company for an amount equal to their net book
value.
All fixtures and equipment are depreciated over their useful lives ranging
from 3 to 20 years, except smallwares which are depreciated over periods ranging
from 3 to 5 years.
F-11
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(as restated, see Note 17)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 27,
1996 1995
------------ ------------
<S> <C> <C>
Accounts payable..................................................................... $ 9,138 $ 5,765
Accrued wages and benefits........................................................... 2,682 1,607
Accrued rent to clients.............................................................. 3,287 2,994
Accrued other........................................................................ 7,067 4,017
------------ ------------
Total................................................................................ $ 22,174 $ 14,383
------------ ------------
------------ ------------
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 27,
1996 1995
------------ ------------
<S> <C> <C>
Working Capital Line................................................................. $ 15,818 $ 6,000
Guidance Line........................................................................ 15,744 3,207
Capital Lease Obligation, effective interest rate of 5.2%............................ 952 --
Term Loan............................................................................ -- 9,100
------------ ------------
32,514 18,307
Less: current portion................................................................ 264 2,981
------------ ------------
Total................................................................................ $ 32,250 $ 15,326
------------ ------------
------------ ------------
</TABLE>
F-12
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
The Company's bank agreement was amended and restated on June 19, 1996 in
connection with the IPO (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 available to the Company under the Restated Bank Agreement
was $75,000 as of December 25, 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, and 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. (See Note 16.)
The net proceeds from the IPO, including the exercise of option over
allotment granted to the underwriters (see Note 9), were used to repay
substantially all of the long term debt then outstanding at the close of the
transactions.
The Company's capital lease, signed on January 16, 1996, is for equipment
with a net book value of $951 at December 25, 1996.
On December 25, 1996, the prime rate was 8.25%. Interest payable on the
Working Capital Line is prime or LIBOR plus 2.0% and the Guidance Line is the
prime plus .5% or the 180 day LIBOR rate plus 2.0%.
Long-term debt at December 25, 1996 is payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
------------ ------
<S> <C>
December 31, 1997................................................... $ 264
December 30, 1998................................................... 264
December 29, 1999................................................... 16,082
December 27, 2000................................................... 3,413
December 26, 2001................................................... 3,149
Thereafter.......................................................... 9,446
--------
32,618
Less portion of lease payments
representing interest............................................... 104
-------
Total................................................................ $ 32,514
---------
---------
</TABLE>
F-13
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
The net proceeds from the second offering on February 7, 1997, including
the exercise of the warrants and option granted to the underwriters (see Note
16), were used to repay all of the long term debt outstanding at the close of
the transaction.
The Company's financial instruments are comprised of various classes of
long-term debt, including subordinated debt (see Note 8). The carrying
amounts, stated interest rates and maturities are described in Notes 7 and 8.
It is not practicable to estimate the fair value of either the Working
Capital Line, the Guidance Line or the subordinated notes because there are
no quoted market prices for these (or similar) instruments, management has
not completed a valuation model and the cost of independent appraisals is
excessive.
Interest paid on long-term debt was $2,183, $1,645 and $639 for fiscal
1996, 1995 and 1994, respectively.
8. SUBORDINATED DEBT
In December 1996, as part of the acquisition of Republic (see Note 3),
the Company issued to a stockholder of Republic a subordinated promissory
note with a face value of $1,000 at 8.75% interest per annum, payable in
quarterly installments. The note was discounted to present value using a
market rate of 11% and had a balance of $958 at December 25, 1996, of which
$623 was classified as long term.
In July 1996, as part of the acquisition of Ideal (see Note 3), 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% and had a combined balance at December 25,
1996 of $1,144, of which $870 was classified as long-term.
In March 1996, as part of the acquisition of Sun West (see Note 3), 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 December 25, 1996 were $1,221 and $602, of which $1,221 and $330
were classified as long term.
In July 1995, as part of the purchase price of Northwest (see Note 3),
the Company issued a $1,350 note to the seller at 7% interest per annum. The
note was discounted to present value using a market rate of 12.5% and had a
balance at December 25, 1996 of $1,207 of which $1,135 was classified as
long-term.
In April 1993, the Company entered into a subordinated loan agreement, as
amended (the "Subordinated Loan Agreement"), pursuant to which the Company
sold $8,500 of its variable rate subordinated notes (the "Notes"), together
with detachable warrants to purchase a maximum of 867,230 shares of a new
class of Non-Voting Common Stock. The proceeds of the issuance of the Notes
were used to repay existing indebtedness. A portion of the net proceeds from
the IPO (see Note 9) were used to repay these Notes.
F-14
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
Subordinated debt at December 25, 1996 is payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
--------------- ---------
<S> <C>
December 31, 1997............................................. $ 3,259
December 30, 1998............................................. 2,165
December 29, 1999............................................. 1,870
December 27, 2000............................................. 885
December 26, 2001............................................. 625
Thereafter.................................................... --
---------
8,804
Less: discount on subordinated note........................... 745
--------
Total......................................................... $ 8,059
---------
---------
</TABLE>
Interest paid on subordinated debt was $392, $1,427 and $1,253 for fiscal
1996, 1995 and 1994, respectively.
9. STOCKHOLDERS' EQUITY
Common Stock--Holders of Common Stock are entitled to one vote per share
in all matters to be voted on by the stockholders of the Company. Subject to
preferences that may be applicable to any Preferred Stock outstanding at the
time, holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor.
On June 19, 1996, the effective date of the IPO, as authorized by the
Board of Directors, the Company sold 3,064,718 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 and options) of
approximately $32.6 million, 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 IPO
and subordinated notes, as well as to repurchase certain warrants; and the
remainder was used for general corporate purposes.
On February 7, 1997, the Company made a second offering resulting in net
proceeds of approximately $59.1 million after deducting underwriting
discounts and certain expenses (see Note 16).
Preferred Stock--Holders of the Series A Convertible Preferred Stock are
entitled to receive, when and as declared, out of the net profits of the
Company, dividends in an amount per share equal to the aggregate per share
amount of all cash dividends declared on the Common Stock multiplied by the
number of shares of Common Stock into which a share of Series A Convertible
Preferred Stock is convertible on the date on which such dividend is to be
paid in full. All dividends declared upon Series A Convertible Preferred
Stock shall be declared pro rata per share. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the
holders of the shares of Series A Convertible Preferred Stock then
outstanding shall be entitled to share ratably with holders of the shares of
Common Stock in any distribution of the assets and funds of the Company. Each
share of Series A Convertible Preferred Stock is convertible into seven
shares of Common Stock, subject to certain adjustments. In conjunction with
the IPO all of the then outstanding Convertible Preferred Stock was converted
into 939,197 shares of common stock.
F-15
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
1996 Non-Employee Director Stock Plan--The 1996 Non-Employee Director
Stock Plan (the "Directors Plan") authorizes the grant of an aggregate of
50,000 shares of Common Stock. Common Stock is granted pursuant to the
Directors Plan only to members of the Board of Directors who are not officers
or employees of the company ("Non-Employee"). Upon consummation of the IPO,
each Non-Employee Director was granted 1,250 shares pursuant to the terms of
the Directors Plan. Thereafter, for the remainder of the term of the
Directors Plan and provided he or she remains a director of the Company, on
the date of each of the Company's annual meeting of Stockholders, each
Non-Employee Director will be automatically granted, without further action
by the Board of Directors, a number of shares of Common Stock equal to
$15,000 divided by the Fair Market Value (as defined in the Director's Plan)
of one share of Common Stock on the date of grant.
Three officers of the Company purchased in 1987 and 1991 an aggregate of
154,000 shares of Common Stock for cash and notes at prices ranging from
$0.32 to $1.40 per share. The subject notes have an aggregate outstanding
balance of $189 and are due on June 30, 1999. Upon closing of the IPO,
pursuant to the terms of the employee notes to the Company, the interest on
the notes was forgiven, and interest thereafter ceased to accrue.
10. STOCK OPTIONS AND WARRANTS
Stock Options--The 1994 Stock Option Plan provides for granting of either
incentive stock options or non qualified options to purchase shares of Common
Stock. The plan provides that (i) the option price of an incentive stock
option may not be less than the fair market value of the Common Stock on the
date of grant and (ii) the option price of an option which is not an
incentive stock option shall not be less than 85% of the fair value.
Generally, options granted become exercisable after one year in 20%
increments per year and expire ten years from the date of grant. The Company
has reserved 566,084 shares for distribution under the Plan. In addition,
included in the table below are 27,944 options issued in connection with the
Fanfare acquisition in 1993.
A summary of the status of the Company's stock option plan as of December
25, 1996, December 27, 1995 and December 28, 1994 and changes during the
years ending on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ----------- --------- -----------
Outstanding at beginning of year....................... 143,444 $ 6.19 132,944 $ 6.11 27,944 $ 4.93
Granted................................................ 380,750 12.82 10,500 7.14 105,000 6.43
Exercised.............................................. 2,916 6.43 -- -- -- --
Canceled............................................... 30,084 10.92 -- -- -- --
--------- --------- ---------
Outstanding at end of year............................. 491,194 11.03 143,444 6.19 132,944 6.11
--------- --------- ---------
--------- --------- ---------
Options exercisable at year-end........................ 88,204 6.20 50,090 6.13 6,148 4.93
--------- --------- ---------
--------- --------- ---------
Options available for grant at end of year............. 102,834 453,500 464,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-16
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
The following table summarizes information about stock options
outstanding at December 25, 1996:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------------------------------ ------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
- ---------------------------------------------------- ----------- --------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$4.93-$7.14......................................... 134,694 7 $ 6.17 88,204 $6.20
$7.15-$12.00........................................ 250,500 9 $12.00 -- --
$12.01-$15.63....................................... 106,000 10 $14.93 -- --
----------- --------------- ----------- ----- ------
491,194 9 $11.03 88,204 $6.20
----------- --------------- ----------- ------------- -------------
----------- --------------- ----------- ------------- -------------
</TABLE>
If the fair value based accounting method was used to account for
stock-based compensation costs, pro forma net loss and loss per share for the
fiscal years ended December 25, 1996 and December 27, 1995 would have been
$5,816, and $3,614, and $1.41 and $1.76, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1996, and 1995 respectively: no dividend yield; expected volatility
of 15% and risk-free interest rates of 5%.
HOLDERS OF SUBORDINATED NOTES -
In conjunction with the Ideal acquisition (Note 3) convertible
subordinated notes were issued. At the option of the note holders the
outstanding principle balance is convertible into common stock at a
conversion price of $15 per share. The outstanding principle balance at
December 25, 1996 was $1,282.
Pursuant to the issuance and sale of the Notes (see Note 8), the
purchaser received warrants to purchase 733,467 and 133,763 shares of
Non-Voting Common Stock at exercise prices $4.93 a share (the "$4.93
Warrants") and $.01 a share (the "$.01 Warrants"), respectively. The warrants
were valued at $230.
The $4.93 and the $.01 Warrants were exercisable from the date of issue
through the periods ended April 29, 2001 and April 29, 2003, respectively.
Both the number of shares and exercise price were subject to adjustment under
various antidilution provisions.
Upon achieving specified levels of earnings in each of fiscal 1993 and
1994, the Company had the right to earn back, in respect of each such year,
the portion of the $4.93 Warrants issued to the purchaser of the Notes
representing the right to acquire 1% of the fully diluted Common Stock. The
Company originally reported earnings sufficient to achieve the required
earnings levels specified for those fiscal years. Accordingly, in each of May
1994 and June 1995, respectively, the Company canceled $4.93 Warrants to
acquire the equivalent of 1% of the fully diluted Common Stock, or
approximately 43,365 shares (in each year). Based on restated results of
operations, the Company would not have had the right to cancel the warrants
and, accordingly, they would be outstanding at the end of each year. As a
result of the refinancing completed prior to the IPO, the Company redeemed an
additional amount of the $4.93 Warrants equal to 2% of the fully diluted
Common Stock, or 86,730 shares.
F-17
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
Upon achieving specified levels of earnings in each of fiscal 1993, 1994,
1995 and 1996, the Company had the right to earn back the total of the $.01
Warrant issued (133,763) to the Note holder. Since the Company originally
reported earnings sufficient to achieve the required earnings level specified
for fiscal 1993, 1994 and 1995, the Company, in each of fiscal 1994, 1995 and
1996 canceled 33,439 of the $.01 Warrants held by the purchaser of the Notes,
respectively. Based on restated results of operations, the Company would not
have had the right to cancel the warrants and, accordingly, they would be
outstanding at the end of each year.
During a specified repurchase period, the Company was obligated (the "Put
Repurchase"), subject to certain conditions, to repurchase all or a
designated portion of the issuable warrant shares within 120 days after
notification of a put option exercise. The Put Repurchase period began on the
earlier of (i) April 29, 1997, (ii) the prepayment of 50% of the original
principal amount of the Notes issued under the Subordinated Loan Agreement,
or (iii) a Change of Control, as defined, of the Company. The Put Repurchase
price was based upon the greater of the Appraised Value (as defined in the
warrant agreement) of the Common Stock, and the result obtained by dividing a
multiple of the Company's adjusted earnings, as defined, by the number of
fully diluted shares of Common Stock. The Put Repurchase was accreted to its
highest redemption price based on the IPO offering price. Upon the closing of
the IPO, holders of Warrants to acquire an aggregate of 296,726.5 additional
shares of Common Stock (280,003.5 at $4.93 per share and 16,723 at $.01 per
share) were obligated to sell these Warrants to the Company at a price equal
to $2,180.
In March 1996, the holder of the Notes sold the Notes to a non-affiliate
of the Company. The purchaser also acquired 280,003.5 of the $4.93 Warrants
and 16,723 of the $.01 Warrants. In connection with this transaction, the
purchaser granted the Company an option to purchase all of the warrants for
prices ranging from $500 to $1500 in the event the Notes were fully redeemed
before various dates from June 30, 1996 to December 31, 1996. In the event
the Company increased its bank borrowings in excess of $32,500, the option
price would increase by $200 for each additional $2,500 of borrowings,
subject to a maximum increase in the option price of $600. Upon the closing
of the IPO, the Company repurchased these warrants for an aggregate
repurchase price of $700.
HOLDERS OF SERIES A CONVERTIBLE PREFERRED STOCK -
In connection with the sale in fiscal 1993 by the Company of the Series A
Convertible Preferred Stock to an investor and one of its directors
(described in Note 9), each purchaser received $4.93 warrants and $.01
warrants to purchase Common Stock. The investor received 118,307 of the $4.93
Warrants and the director received 21,294 of the $4.93 Warrants. The investor
received 453,432 of the $.01 Warrants. and the director received 81,613 of
the $.01 Warrants. Both the number of shares and exercise price are subject
to adjustment under various antidilution provisions.
The $4.93 Warrants issued by the Company to the investor and the director
(139,601 in total) are subject to cancellation to the extent that the Company
earns back $4.93 Warrants issued to the purchaser of its Notes (see above).
Since the Company had originally reported achieving the earnings level
specified for fiscal 1993 and 1994 required under the Notes, 8,253 of these
$4.93 Warrants, the maximum allowed during the 1993 reduction period, were
canceled in June 1994, and an additional 7,763, the maximum allowed during
the 1994 reduction period, were canceled in June 1995. In conjunction with
the IPO, these holders of $4.93 Warrants exercised the remaining 123,585
$4.93 Warrants and sold such shares in the IPO.
F-18
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
Upon achieving specified levels of earnings in fiscal 1993, 1994, 1995
and 1996, the Company had the right to earn back the total of the $.01
Warrants (535,045 in the aggregate) issued to the holders of the Series A
Convertible Preferred Stock. Since the Company originally reported earnings
sufficient to achieve the required earnings level specified for each of
fiscal 1993, 1994 and 1995, the Company, in 1994, 1995 and 1996,
respectively, canceled 133,763 of these warrants, representing 113,358
warrants for the investor and 20,405 for the director. Based on restated
results of operations, the Company would not have had the right to cancel the
warrants and, accordingly, they would be outstanding at the end of each year.
The Company originally reported earnings sufficient to achieve the specified
earnings in fiscal 1996 as required under the $.01 Warrants. As a result, in
fiscal 1997, the Company redeemed and canceled the remaining $.01 Warrants
held by the investor and the director (133,756 in total). Based on restated
results of operations, the Company would not have had the right to cancel the
warrants in 1997.
11. COMMITMENTS AND CONTINGENCIES
The Company operates principally at its clients' premises pursuant to
written contracts ("Client Contracts"). The length of Client Contracts
generally ranges from one to ten years with options to renew for periods of
one to ten years. Certain of these Client Contracts provide for base rent and
contingent rent. Aggregate rent expense under these agreements for fiscal
1996, 1995 and 1994 was $24,792, $22,453 and $25,345 respectively.
Future minimum commitments as of December 25, 1996 for all noncancellable
operating leases and client contracts are as follows:
<TABLE>
<CAPTION>
Year Ending Amount
------------ --------
<S> <C>
1997 $2,751
1998 1,628
1999 605
2000 410
2001 301
Thereafter 150
---------
Total $5,845
---------
---------
</TABLE>
Pursuant to its contracts with various clients, the Company is committed
to spend approximately $3,765 for equipment and capital improvements as of
December 25, 1996. At December 25, 1996, the Company was contingently liable
for the following: (1) a standby Letter of Credit for $1,000, the principal
amount of which is reduced annually pursuant to its terms and (2) performance
bonds in the aggregate amount of $4,483.
The Company has entered into purchasing agreements with various national
and regional suppliers pursuant to which the Company agreed to purchase its
requirements of products (as defined in the agreements). If the Company
exceeds the agreed-upon purchasing levels, additional rebates and promotional
allowances may be payable by the suppliers. If the Company fails to meet
agreed-upon purchasing levels during the term of the agreements, the
suppliers may elect to extend the term of the agreements by one year, or a
longer period, if necessary, to reach agreed-upon purchasing levels.
F-19
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
12. INCOME TAXES
The income tax benefit consists of the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------
<S> <C> <C> <C>
DECEMBER 25, DECEMBER 27, DECEMBER 28,
1996 1995 1994
------------ ------------ -------------
Current provision:
Federal............................................................ $ -- $ -- $ --
State and local.................................................... 80 49 26
------------ ------------ -----
Total current......................................................... 80 49 26
------------ ------------ -----
Deferred:
Federal............................................................ (1,588) (1,312) (330)
State and local.................................................... (352) (291) (73)
------------ ------------ -----
Total deferred........................................................ (1,940) (1,603) (403)
------------ ------------ -----
Total................................................................. $ (1,860) $ (1,554) $ (377)
------------ ------------ -----
------------ ------------ -----
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 27,
1996 1995
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................................... $ 2,929 $ 1,767
Other.............................................................................. 709 553
------ ------
Total deferred tax assets............................................................ 3,638 2,320
Deferred tax liabilities:
Tax in excess of book depreciation................................................. 1,196 1,033
Excess tax deduction attributable to contract rights............................... 6,765 4,616
Other.............................................................................. 379 58
------ ------
Total deferred tax liabilities....................................................... 8,340 5,707
------ ------
Total................................................................................ $ 4,702 $ 3,387
------ ------
------ ------
</TABLE>
F-20
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
The Company's effective income tax rate differed from the Federal statutory
rate as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------------------
DECEMBER 25, DECEMBER 27, DECEMBER 28,
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Federal statutory rate................................................ (34.0)% (34.0)% (34.0)%
Excess of cost over fair value of net assets acquired................. 4.4 0.6 7.0
State & local taxes net of Federal tax benefits....................... (4.6) (4.6) (2.2)
Other, net............................................................ 4.7 1.6 5.5
----- ----- -----
Effective income tax rate............................................. (29.5)% (36.4)% (23.7)%
----- ----- -----
----- ----- -----
</TABLE>
At December 25, 1996, the Company had, for Federal income tax reporting, an
estimated net operating loss carryforward of approximately $7,600 that expires
at various dates through 2011.
Income taxes paid in fiscal 1996, 1995 and 1994 were $80, $49 and $26,
respectively.
13. LITIGATION
In January 1996, the Company was served with a complaint naming it as one of
five defendants in a lawsuit brought by multiple plaintiffs alleging damages
arising out of the Woodstock II Festival held in August 1994 in Saugerties, New
York. The promoter of the Festival is also a defendant. Plaintiffs were hired by
the Company (which had a concession agreement with the promoters of Woodstock
II) as subcontractors of food, beverage and/or merchandise. In their complaint,
which seeks approximately $5,900, plaintiffs allege damages arising primarily
from the failure to (i) provide adequate security; and (ii) prevent Festival
attendees from bringing food and beverages in to the Festival. The Company's
concession agreement with the promoter made the promoter solely responsible for
providing security and preventing food and beverage from being brought onto the
premises, and the Company has made claim for indemnification under applicable
provisions of the concession agreement, which has been rejected by the promoter.
On April 4, 1996, the other defendants named in the suit answered the complaint
and asserted cross-claims for contribution and indemnification against the
Company. Thereafter, the Company cross-claimed for contribution and
indemnification against a co-defendant. The Company believes that its ultimate
liability, if any, will not be material.
The Company has also sued a former client in the Jefferson Circuit Court of
the Commonwealth of Kentucky for certain amounts owed by the former client under
the food service contract between the parties, and the former client has filed a
counterclaim against the Company seeking unspecified damages for the Company's
alleged tortious interference with a prospective contractual relationship with
another food service provider. The Company believes that its ultimate liability,
if any, will not be material.
The Company is involved in certain other legal proceedings incidental to the
normal conduct of its business. The Company does not believe that any
liabilities relating to any of the 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.
F-21
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
14. RELATED PARTY TRANSACTION
For each of fiscal 1996, 1995 and 1994, the Company incurred $150 in
advisory fees with a company whose sole owner is the Chairman of the Board of
the Company. On March 20, 1997, the Company terminated the advisory agreement.
15. MAJOR CLIENT
During fiscal 1996, one client represented 10.0% of net sales and during
fiscal 1995 and 1994 another client represented 13.7% and 19.5% of net sales,
respectively.
16. Subsequent Events (Unaudited)
On December 30, 1996, the Company acquired 100% of the stock of Service
Dynamics Corp. ("Service Dynamics"). Service Dynamics provides contract food
service to various corporations and schools. The purchase price was
approximately $3,000 consisting of cash paid to the seller.
On January 23, 1997, the Company acquired 100% of the stock of Versatile
Holding Corporation, which owns 100% of the stock of Serv-Rite Corporation
("Serv-Rite"), a contract food services management company that provides food
services to the education and business dining markets in New York and
Pennsylvania. The purchase price was approximately $7,500, consisting of cash
and assumed debt of Serv-Rite.
On February 7, 1997, the Company made a second offering, as authorized by
the Board of Directors, selling 2,689,000 shares at a price of $23.50 per
share, generating net proceeds (including the net proceeds received by the
Company upon the exercise of certain options) of approximately $59.1 million,
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 the remainder was
invested in short term investments in accordance with the Company's
investment policy. Assuming this transaction had occurred at the beginning of
fiscal year 1996, supplemental pro forma 1996 net loss per share would have
been $1.32 and was calculated based upon (i) net loss adjusted for the
reduction in interest expense resulting from the application of the net
proceeds of the Offering to reduce indebtedness of the Company and (ii) the
average number of shares of Common Stock outstanding as adjusted to reflect
the sale by the Company of a number of shares in the Offering.
On July 30, 1997, the Company entered into the Fourth Amended and
Restated Loan Agreement (the "Credit Facility"), a $200 million credit
facility with Bank Boston, N.A. as administrative agent, US Trust, as
Documentation Agent, and certain banks and other financial institutions party
thereto. The credit facility provides for (1) a five year working capital
revolving credit line for general corporate purposes and letters of credit,
in the maximum aggregate amount of $50 million (the "Working Capital Line")
and (ii) a line of credit to provide for future expansion by the Company, in
the maximum amount of $150 million (the "Guidance line"). The Working Capital
Line provides funds for liquidity, seasonal borrowing needs and other general
corporate purposes. Outstanding letters of credit issued under the Working
Capital Line cannot exceed $25 million in the aggregate. The Guidance Line is
available on a revolving basis until July 30, 2000, to fund the Company's
acquisitions and for investments made in connection with facility agreements.
At July 30, 2000, all loans outstanding under the Guidance Line will convert
to term loans, payable quarterly over a three-year period. Interest on all
loans under the Credit Facility are based on, at the Company's option, either
a prime rate or a LIBOR rate plus an incremental rate based on a ratio of
debt to EBITDA, not to be less than .75% or greater
F-22
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
than 1.5%. EBITDA (as defined in the Credit Facility) represents earnings
before interest expense, income tax expense, depreciation and amortization.
The Company's obligations under the Credit Facility 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,
accounts 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 Credit Facility contains various financial and other restrictions,
including, but not limited to, restrictions on indebtedness, capital
expenditures, acquisitions and investments. In addition, the Credit Facility
requires maintenance of (i) certain financial ratios, including ratios of
total debt to EBITDA and EBITDA to interest paid and (ii) minimum EBITDA. As
of January 28, 1998, the Company had no outstanding loans under the Guidance
Line or the Working Capital Line but has outstanding obligations in respect
of the Standby Letter of Credit issued by BankBoston, N.A.; or the benefit of
the Maryland Stadium Authority ("MSA") in the amount of $10,000 which letter
of credit was issued to secure the Company's obligation to pay MSA up to
$20,000 over the term of the Company's Concessions Management Agreement with
the Baltimore Ravens Limited Partnership dated August 14, 1997. The Company
is currently in default under certain provisions of the Credit Facility and,
on December 15, 1997, the Agent notified the Company that it would no longer
extend loans to the Company under the Credit Facility.
On July 30, 1997, the outstanding principal balance of the Ideal
Convertible Notes (see Note 8) were converted into 76,332 shares of common
stock.
On August 6, 1997, the Company acquired 100% of the stock of Statewide
Industrial Catering, Inc. ("Statewide"). Statewide provides contract food
service to 25 school districts in the New York City Metropolitan Area. The
purchase price was $3,200, consisting of cash, assumed debt of Statewide and
a subordinated promissory note.
On August 27, 1997, the Company acquired 100% of the stock of Best,
Inc.("Best"). Best provides contract food service to approximately 150,
healthcare, corrections, business dining and education clients. The purchase
price was $26,500, consisting of cash and assumed debt.
On October 27, 1997, the Company issued $175.09 million of 5% convertible
Subordinated Notes due 2004 (the "Convertible Notes") in a private placement
under Rule 144A of the Securities Act of 1933. The Convertible Notes are
unsecured obligations of the Company and are convertible into common stock at
a conversion price of $44.50 per share. The net proceeds of $169.1 million,
after deducting discounts and certain expenses, were used to repay
approximately $50.0 million in outstanding bank debt. The remaining proceeds
were invested in short-term investments in accordance with the Company's
investment policy.
On October 31, 1997, the Company acquired 100% of the stock of Total Food
Service Direction, Inc., a Miami based food services company, serving the
business dining market, for $4,500 consisting of cash and assumed debt.
On December 12, 1997, the Company announced that the Audit Committee of
its Board of Directors had instructed the commencement of an inquiry into
certain accounting practices, including the capitalization of certain
expenses, and that the Audit Committee determined on December 12, 1997, based
upon their preliminary inquiry, that certain expenses incurred during 1997
were incorrectly capitalized rather than expensed in the period in which they
were incurred. The Company stated that it believed the amounts would be
material and that earnings for each of the first three quarters of 1997 would
need to be restated.
F-23
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
On December 15, 1997, the Company announced that preliminary indications
were that the accounting problems were not limited to the incorrect
capitalization of expenses and that periods prior to 1997 would also need to
be restated. The Company also stated that the outside directors of the
Company's Board of Directors (the "Outside Directors") had terminated the
employment of Richard E. Kerley, Chairman of the Board and Chief Executive
Officer, and Nelson A. Barber, Senior Vice President and Treasurer.
On December 16, 1997, the Company retained a crisis management firm and
counsel to the Outside Directors retained an independent accounting firm to
conduct a forensic review of the Company's accounting practices. On December
18, 1997, Neal F. Finnegan resigned as a director of the Company. On December
19, 1997, the Board of Directors held a special meeting and appointed a
Special Committee (the "Special Committee") comprised of the Outside
Directors.
The Nasdaq Stock Market ("Nasdaq") suspended trading in shares of the
Company's common stock on December 12, 1997. In early January 1998, Nasdaq
commenced a proceeding to delist the common stock from trading. The Company
promptly appealed Nasdaq's determination, resulting in a stay of the
proceeding pending a hearing scheduled for February 5, 1998. The Company
expects to receive a response from Nasdaq following the hearing.
Counsel to the Special Committee met with representatives of the
Securities and Exchange Commission (the "SEC") in January 12, 1998. The SEC
is currently pursuing an informal investigation.
On January 21, 1998, Mr. Kerley resigned as a director of the Company.
Between December 15, 1997 and February 4, 1998, thirteen purported class
action lawsuits were filed in the United States District Court for the
District of Connecticut against the Company and certain of its officers
and/or directors. On or about January 30, 1998, the Company was named as a
defendant in an action arising out of the issuance and sale in October 1997
or $175 million in the aggregate principal amount of the Company's 5%
Convertible Subordinated Notes due 2004 (the "Notes"). The plaintiffs
allegedly purchased Notes in the aggregate principal amount of $7.5 million.
The complaint alleges, among other things, that the Offering Memorandum
prepared by the Company in connection with this offering contained materially
false information. The complaint asserts various claims against the Company,
including claims alleging violations of Sections 10(b), 18(a) and 20(a) of
the Securities Exchange Act of 1934 and various rules promulgated thereunder,
as well as fraud and negligent misrepresentation. The relief sought by
plaintiffs includes damages, including the alleged difference in the value of
the Notes when purchased and their actual value, or alternatively rescission
of their purchase of the Notes, plus interest, costs and disbursements, and
attorneys' fees. The Company is currently reviewing these complaints. The
Company is unable to assess the impact of these suits on its financial
condition or results of operations, but expects that the impact will be
material.
In connection with the Company's private offering of the Convertible
Notes, the Company had agreed to file a shelf Registration Statement, which
would cause the Convertible Notes to be freely tradable. As a result of the
need to restate financial statements, the Company has been unable to file the
shelf Registration Statement and, therefore, is obligated to pay liquidated
damages on the Convertible Notes, from January 25, 1998, in the amount of
$.05 per week per $1 principal amount, or an aggregate of $9 per week,
subject to increase every quarter up to a maximum amount.
F-24
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
17. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's 1996 Consolidated Financial
Statements, the Company's management determined that (i) certain overhead
expenses had been improperly capitalized; (ii) insufficient reserves and
accruals had been recorded, including inappropriate purchase accounting
reserves; (iii) certain non-performing assets had not been written-off; (iv)
improper revenue recognition had been used in regards to certain contracts
and agreements; and (v) adjustments for the settlement of certain terminated
contracts were not recorded.
As a result, the Company's financial statements for the years ended
December 25, 1996 December 27, 1995 and December 28, 1994 have been restated
from the amounts previously reported to (i) reflect certain items previously
improperly capitalized as period costs; (ii) adjust previously recorded
reserves and accruals for certain items (iii) write off certain
non-performing assets; (iv) properly recognize revenue related to certain
contracts and agreements; and (v) record adjustments for the settlement of
certain terminated contracts.
The summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
----------------------------------------------------------------------
DECEMBER 25, 1996 DECEMBER 27, 1995 DECEMBER 28, 1994
---------------------- ---------------------- ----------------------
AS AS AS
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
---------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................................... $ 127,925 $ 130,639 $ 95,462 $ 95,382 $ 82,119 $ 82,113
Cost of sales....................................... 113,703 118,818 85,576 86,426 73,833 74,130
Gross profit........................................ 14,222 11,821 9,886 8,956 8,286 7,983
General and administrative expenses................. 5,388 15,504 3,626 10,541 3,406 7,956
Income/(loss) from
operations.......................................... 8,834 (3,683) 6,260 (1,585) 4,880 27
Interest expense, net............................... 2,330 2,618 2,479 2,678 1,629 1,617
Income/(loss) before tax provision.................. 6,504 (6,301) 3,781 (4,263) 3,251 (1,590)
Tax provision/(benefit)............................. 2,700 (1,860) 1,585 (1,554) 1,385 (377)
Net income/(loss)................................... 3,804 (4,441) 2,196 (2,709) 1,866 (1,213)
Net income/(loss) available to common
stockholders...................................... 2,504 (5,741) 1,296 (3,609) 1,616 (1,463)
Income/(loss) per share of common stock............. .51 (1.39) .39 (1.76) .50 (.71)
</TABLE>
F-25
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share data)
(as restated, see Note 17)
<TABLE>
<CAPTION>
AS OF DECEMBER 25, AS OF DECEMBER 27,
1996 1995
AS AS
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents............................................ $ 4,724 $ 4,747 $ 634 $ 634
Accounts receivable.................................................. 14,580 12,065 7,548 6,782
Inventories.......................................................... 3,260 3,260 2,099 2,099
Prepaid expenses and other current assets............................ 3,749 1,658 2,413 1,850
Total current assets................................................. 26,313 21,730 12,694 11,365
Contract rights, net................................................. 22,869 16,909 12,866 6,316
Fixtures and equipment, net.......................................... 24,057 17,300 15,829 13,271
Excess of cost over fair value of net assets acquired, net........... 34,362 31,527 13,406 13,591
Other assets......................................................... 9,842 8,527 5,786 4,445
Total assets......................................................... 117,443 95,993 60,581 48,988
Accounts payable and accrued expenses................................ 18,690 22,174 12,467 14,383
Current portion of long-term debt.................................... 264 2,981 2,981
Total current liabilities............................................ 21,735 25,483 17,193 19,109
Deferred income taxes................................................ 12,360 4,702 6,421 3,387
Long-term debt....................................................... 31,562 32,250 15,326 15,326
Total liabilities.................................................... 70,671 67,449 47,819 46,701
Additional paid-in capital........................................... 41,778 42,270 8,933 8,933
Retained earnings (deficit).......................................... 5,121 (13,599) 2,617 7,858
Total stockholders' equity/deficiency in net assets.................. 46,772 28,544 11,382 907
Total liabilities and stockholders' equity/deficiency in net
assets............................................................. 117,443 95,993 60,581 48,988
</TABLE>
<TABLE>
<CAPTION>
AS
PREVIOUSLY AS
REPORTED RESTATED
------------- ---------
<S> <C> <C>
Balance at December 29, 1993
Deficit...................................................................................... $ 295 $ 2,786
</TABLE>
F-26
