SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended October 3, 2000 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: 333-79419
---------
VOLUME SERVICES AMERICA, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 57-0969174
-------------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 East Broad Street, Spartanburg, South Carolina 29306
-------------------------------------------------- ---------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (864) 598-8600
---------------------
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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.
(X) YES ( ) NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's Common Stock, par value
$.01 per share, at November 14, 2000, was 100.
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<CAPTION>
VOLUME SERVICES AMERICA, INC.
INDEX
<S> <C>
Part I Financial Information..........................................................................................2
Item 1. Financial Statements (unaudited)-- Volume Services America Holdings, Inc. and Subsidiaries...................2
Consolidated Balance Sheets as of October 3, 2000 and December 28, 1999......................................2
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
Fourteen and Forty Week Period Ended October 3, 2000 and for the
Thirteen and Thirty-Nine Week Period Ended September 28, 1999................................................4
Consolidated Statement of Stockholders' Deficiency for the Period December 29, 1999
to October 3, 2000...........................................................................................5
Consolidated Statements of Cash Flows for the Forty Week Period Ended October 3, 2000
and for the Thirty-Nine Week Period Ended September 28, 1999.................................................6
Notes to Consolidated Financial Statements for the Forty Week Period Ended October 3, 2000
and for the Thirty-Nine Week Period Ended September 28, 1999.................................................8
Part II Other Information...........................................................................................22
Item 1. Legal Proceedings.........................................................................................22
Item 6.Exhibits and Reports on Form 8-K..............................................................................22
</TABLE>
i
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VOLUME SERVICES AMERICA HOLDINGS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
OCTOBER 3, 2000 AND DECEMBER 28, 1999 (IN THOUSANDS)
--------------------------------------------------------------------------------
OCTOBER 3, DECEMBER 28,
ASSETS 2000 1999
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 28,669 $ 12,281
Accounts receivable, less allowance for doubtful accounts of
$878 and $1,348 at October 3, 2000 and December 28, 1999,
respectively 20,911 16,935
Merchandise inventories 14,221 10,947
Prepaid expenses and other 3,657 6,870
Deferred tax asset 3,756 3,756
---------- ---------
Total current assets 71,214 50,789
---------- ---------
PROPERTY AND EQUIPMENT:
Leasehold improvements 46,848 44,518
Merchandising equipment 43,673 43,261
Vehicles and other equipment 7,562 6,953
Construction in process 376 474
---------- ---------
Total 98,459 95,206
Less accumulated depreciation and amortization (34,017) (25,805)
---------- ---------
Property and equipment, net 64,442 69,401
---------- ---------
OTHER ASSETS:
Contract rights, net 72,127 73,808
Cost in excess of net assets acquired, net 48,671 50,000
Deferred financing costs, net 10,305 11,459
Trademarks, net 17,907 18,422
Other 5,737 4,742
---------- ---------
Total other assets 154,747 158,431
---------- ---------
TOTAL ASSETS $ 290,403 $ 278,621
========== =========
</TABLE>
2
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<TABLE>
<CAPTION>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
OCTOBER 3, 2000 AND DECEMBER 28, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------------------------------------------------------------------
OCTOBER 3, DECEMBER 28,
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2000 1999
----------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,150 $ 1,150
Current maturities of capital lease obligation 220 206
Accounts payable 22,118 17,116
Accrued salaries and vacations 13,105 8,050
Liability for self-insured claims 2,340 2,186
Accrued taxes, including income taxes 5,365 2,706
Accrued commissions and royalties 21,812 10,258
Accrued interest 1,073 3,873
Other 5,245 4,304
--------------- ---------------
Total current liabilities 72,428 49,849
--------------- ---------------
LONG TERM LIABILITIES:
Long term debt 211,838 222,200
Capital lease obligation 249 416
Deferred income tax 5,198 5,091
Liability for self-insured claims 1,786 1,370
Other liabilities 1,090 2,081
--------------- ---------------
Total long term liabilities 220,161 231,158
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Common stock, $0.01 par value:
Authorized - 1,000 shares; issued: 526 at October 3, 2000 and
December 28, 1999; outstanding: 332 at October 3, 2000 and
December 28, 1999 - -
Additional paid-in capital 66,474 66,474
Accumulated deficit (17,854) (18,243)
Accumulated other comprehensive loss (297) (198)
Treasury stock - at cost (194 shares at October 3, 2000 and
December 28, 1999) (49,500) (49,500)
Other (1,009) (919)
--------------- ---------------
Total stockholders' deficiency (2,186) (2,386)
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 290,403 $ 278,621
=============== ===============
See notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) FOURTEEN AND FORTY WEEK PERIODS ENDED OCTOBER 3,
2000 AND THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 28, 1999
(IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------------------------
Fourteen Thirteen Forty Thirty-nine
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
-----------------------------------------------------------------------------
October 3, September 28, October 3, September 28,
2000 1999 2000 1999
----------------- ----------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 188,289 $ 147,058 $ 412,046 $ 329,689
Cost of sales 151,810 115,033 331,786 259,553
Selling, general, and administrative 14,235 13,244 36,849 33,141
Depreciation and amortization 6,791 6,721 19,966 19,886
Transaction related expenses 9 328 791 1,555
Contract related losses 510 - 2,524 -
------------ ----------- ---------- ------------
Operating profit 14,934 11,732 20,130 15,554
Interest expense 6,773 6,215 19,926 16,770
Other income, net (135) (53) (292) (268)
----------- ----------- ---------- ------------
Profit (loss) before income taxes, 8,296 5,570 496 (948)
extraordinary item and cumulative
effect of change in accounting principle
Income tax provision (benefit) 2,112 (187) 107 (206)
----------- ----------- ---------- ------------
Profit (loss) before extraordinary
item and cumulative effect of
change in accounting principle 6,184 5,757 389 (742)
Extraordinary loss on debt - - - 873
extinguishment, net of taxes
Cumulative effect of change in
accounting principle, net of taxes - - - 256
----------- ----------- ---------- -----------
Net profit (loss) 6,184 5,757 389 (1,871)
Other comprehensive income (loss)
foreign currency translation (56) 24 (99) (126)
adjustment ----------- ----------- ---------- -----------
Comprehensive income (loss) $ 6,128 $ 5,781 $ 290 $ (1,997)
=========== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY (UNAUDITED)
FOR THE PERIOD DECEMBER 29, 1999 TO OCTOBER 3, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
COMMON COMMON PAID-IN TREASURY ACCUMULATED COMPREHENSIVE
SHARES STOCK CAPITAL STOCK DEFICIT LOSS OTHER TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 28, 1999 332 $ - $ 66,474 $ (49,500) $ (18,243) $ (198) $ (919) $ (2,386)
Loan to investors - - - - - - (90) (90)
Foreign currency
translation - - - - - (99) - (99)
Net profit - - - - 389 - - 389
---- ---- -------- ---------- --------- ------- --------- ---------
BALANCE,
OCTOBER 3, 2000 332 $ - $ 66,474 $ (49,500) $ (17,854) $ (297) $ (1,009) $ (2,186)
==== ==== ======== ========== ========== ======= ========= =========
</TABLE>
See notes to consolidated financial statements.
5
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<TABLE>
<CAPTION>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FORTY WEEK PERIOD ENDED OCTOBER 3, 2000 AND THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 28, 1999
(IN THOUSANDS)
----------------------------------------------------------------------------------------------------------------------
Forty Thirty-nine
Weeks ended Weeks ended
------------------------------------------
October 3, September 28,
2000 1999
---------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss) $ 389 $ (1,871)
Adjustments to reconcile net profit (loss) to net
cash provided by operating activities:
Extraordinary item - 873
Cumulative effect of change in accounting
principle - 256
Depreciation and amortization 19,966 19,886
Amortization of deferred financing costs 1,154 844
Contract related losses 2,220 -
Deferred tax change 107 (476)
(Gain) loss on disposition of assets (6) (15)
Other (99) (126)
Changes in assets and liabilities:
Decrease (increase) in assets:
Accounts and notes receivable (4,743) (2,342)
Merchandise inventories (3,274) (3,481)
Prepaid expenses 1,274 (2,469)
Other assets (1,452) (959)
Increase (decrease) in liabilities:
Accounts payable 4,248 648
Accrued salaries and vacations 5,055 826
Liabilities for self-insurance 570 (1,393)
Other liabilities 11,363 9,427
------ ------
Net cash provided by operating activities 36,772 19,628
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of acquisition costs (175)
Purchase of property and equipment (5,311) (7,690)
Proceeds from sale of property and equipment 603
Purchase of contract rights (5,825) (13,371)
------ ------
Net cash used in investing activities (10,533) (21,236)
------ ------
</TABLE>
6
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<TABLE>
<CAPTION>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FORTY WEEK PERIOD ENDED OCTOBER 3, 2000 AND THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 28, 1999
(IN THOUSANDS)
Forty Thirty-nine
Weeks ended Weeks ended
----------- -------------
October 3, September 28,
2000 1999
---------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt $ (862) $ (46,362)
Net borrowings (repayments) - revolving loans (9,500) 1,750
Proceeds from long-term debt 100,000
Payments of financing costs (6,108)
Principal payments on capital lease obligations (153) (140)
Increase in bank overdrafts 754 8,018
Net increase (decrease) in other equity (90) 701
Redemption of stock - (49,500)
--------- ---------
Net cash provided by (used in) financing
activities (9,851) 8,359
--------- ---------
INCREASE IN CASH 16,388 6,751
CASH AND CASH EQUIVALENTS:
Beginning of period 12,281 8,828
-------- --------
End of period $ 28,669 $ 15,579
======== =========
See notes to consolidated financial statements.
</TABLE>
7
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORTY WEEK PERIOD ENDED OCTOBER 3, 2000 AND THE
THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 28, 1999
--------------------------------------------------------------------------------
1. GENERAL
Volume Services America Holdings, Inc. ("Volume Holdings," and together
with its subsidiaries, the "Company") is a holding company, the principal assets
of which are the capital stock of its subsidiary, Volume Services America, Inc.
("Volume Services America"). Volume Holdings' financial information is therefore
substantially the same as that of Volume Services America. Volume Services
America is also a holding company, the principal assets of which are the capital
stock of its subsidiaries, Volume Services, Inc. ("Volume Services") and Service
America Corporation ("Service America"). The Company is owned by current and
former members of management, Blackstone Capital Partners II Merchant Banking
Fund, L.P. ("BCP II"), and General Electric Capital Corporation ("GE Capital").
The accompanying financial statements of Volume Holdings have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for interim financial reporting. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. However, such information reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of results for the
interim periods.
The results of operations for the forty week period ended October 3,
2000 are not necessarily indicative of the results to be expected for the
fifty-three week fiscal year ending January 2, 2001 due to the seasonal aspects
of the business. The consolidated financial statements and notes thereto should
be read in conjunction with the audited financial statements and notes thereto
for the year ended December 28, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TRANSACTION RELATED EXPENSES - Transaction related expenses for the
forty weeks ended October 3, 2000 consist primarily of direct costs incurred in
connection with the Company's attempt to purchase certain assets. Transaction
related expenses for the thirty-nine weeks ended September 28, 1999 primarily
relate to personnel costs, rental costs, and professional fees associated with
the acquisition of Service America Corporation.
NEW ACCOUNTING STANDARDS - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("FAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities", as amended
by FAS No. 137 and FAS No. 138. FAS No. 133, as amended, is effective for the
Company beginning January 1, 2001 and establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivative's fair value be recognized currently in
earnings or other comprehensive income depending on whether a derivative is
designed as part of a hedge transaction. The Company has assessed the effect of
this standard and has determined that adoption of this statement, as amended,
will not have a material impact on the Company's financial position, results of
operations or cash flows.
8
<PAGE>
3. CONTRACT RELATED LOSSES
During the forty weeks ended October 3, 2000 certain contracts which
the Company intends to continue operating were identified as impaired. As such,
the carrying values were written down to the Company's estimate of fair value
based on the present value of the discounted future cash flows. The Company
wrote down approximately $976,000 of property and equipment, $221,000 of
contract rights and $269,000 of other assets.
On June 12, 1998, Service America commenced arbitration proceedings
through the American Arbitration Association in New York, New York against
Silver Huntington Realty LLC and Silver Huntington Enterprises LLC. In May 2000,
the arbitrator reached a decision in this matter. The decision provided for no
payment from either party to the other. As a result the Company wrote off its
receivable in the amount of $754,000 and recorded approximately $305,000 in
related legal fees.
9
<PAGE>
4. NON-GUARANTOR SUBSIDIARIES FINANCIAL STATEMENTS
The Company's $100 million in 11 1/4% senior subordinated notes due 2009
are jointly and severally, guaranteed by Volume Holdings and all of the
subsidiaries of Volume Service America (the "Guarantor Subsidiaries") except for
certain non-wholly owned U.S. subsidiaries and one non-U.S. subsidiary (together
the "Non-Guarantor Subsidiaries"). The following table sets forth the condensed
consolidating financial statements of Volume Holdings, the Guarantor
Subsidiaries and the Non-Guarantor Subsidiaries as of October 3, 2000 and
December 28, 1999 (in the case of the balance sheets) and for the fourteen and
forty week periods ended October 3, 2000 and the thirteen and thirty-nine week
periods ended September 28, 1999 (in the case of the statements of operations)
and for the forty week period ended October 3, 2000 and the thirty-nine week
period ended and September 28, 1999 (in the case of the statements of cash
flows).
10
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<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED BALANCE SHEET
OCTOBER 3, 2000 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
ASSETS HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 27,474 $ 1,195 $ 28,669
Accounts receivable 19,490 1,421 20,911
Other current assets 29,201 1,523 $ (9,090) 21,634
-------- ------- --------- ---------
Total current assets 76,165 4,139 (9,090) 71,214
Property and equipment 60,717 3,725 - 64,442
Contract rights, net 70,452 1,675 - 72,127
Cost in excess of net assets acquired,
net 48,671 - - 48,671
Investment in subsidiaries $ (2,186) - - 2,186 -
Other assets - 33,845 104 - 33,949
--------- --------- ------- --------- ----------
TOTAL ASSETS $ (2,186) $ 289,850 $ 9,643 $ (6,904) $ 290,403
========= ========= ======= ========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Intercompany liabilities $ 9,090 $ (9,090)
Other current liabilities $ 69,478 2,950 - $ 72,428
--------- ------- --------- ---------
Total current liabilities 69,478 12,040 (9,090) 72,428
Long-term debt 211,838 - - 211,838
Other liabilities 8,323 - - 8,323
--------- ------- --------- ---------
Total liabilities 289,639 12,040 (9,090) 292,589
--------- ------- --------- ---------
Stockholders' deficiency:
Common stock $ - - - - -
Additional paid-in capital 66,474 66,474 - (66,474) 66,474
Accumulated deficit (17,854) (15,754) (2,100) 17,854 (17,854)
Other (50,806) (50,509) (297) 50,806 (50,806)
--------- --------- -------- -------- ----------
Total stockholders'
deficiency (2,186) 211 (2,397) 2,186 (2,186)
--------- --------- -------- -------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ (2,186) $ 289,850 $ 9,643 $ (6,904) $ 290,403
========= ========= ======== ========= ==========
</TABLE>
11
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<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME ( LOSS)
FOURTEEN WEEK PERIOD ENDED OCTOBER 3, 2000 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales $180,252 $8,037 $ 188,289
Cost of sales 145,037 6,773 151,810
Selling, general, and administrative 13,337 898 14,235
Depreciation and amortization 6,126 665 6,791
Transaction related expenses 9 - 9
Contract related losses - 510 - - 510
------ --------- ------- ------- ---------
Operating profit (loss) 15,233 (299) 14,934
Interest expense 6,773 - 6,773
Other income, net - (129) (6) - (135)
------ --------- ------- ------- ---------
Profit (loss) before income taxes 8,589 (293) 8,296
Income tax provision - 2,112 - - 2,112
------ -------- ------- ------- ---------
Profit (loss) before extraordinary item 6,477 (293) 6,184
Extraordinary loss -
Equity in earnings of subsidiaries $6,184 - - $(6,184) -
------ -------- ------- -------- ---------
Net profit (loss) 6,184 6,477 (293) (6,184) 6,184
Other comprehensive loss - - (56) - (56)
------ -------- ------- -------- ---------
Comprehensive income (loss) $6,184 $ 6,477 $ (349) $(6,184) $ 6,128
====== ======== ======= ======== =========
</TABLE>
12
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<TABLE>
<CAPTION>
Consolidating Condensed Statement of Operations and Comprehensive Income (Loss)
Forty Week Period Ended October 3, 2000 (in thousands)
Combined Combined
Volume Guarantor Non-guarantor
Holdings Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net sales $390,367 $21,679 $412,046
Cost of sales 313,692 18,094 331,786
Selling, general, and administrative 34,396 2,453 36,849
Depreciation and amortization 18,077 1,889 19,966
Transaction related expenses 791 - 791
Contract related losses - 2,524 - - 2,524
------ --------- -------- ------- -------
Operating profit (loss) 20,887 (757) 20,130
Interest expense 19,926 - 19,926
Other income, net - (266) (26) - (292)
------ --------- -------- ------- --------
Profit (loss) before income taxes 1,227 (731) 496
Income tax provision - 107 - - 107
------ --------- -------- ------- --------
Profit (loss) before extraordinary item 1,120 (731) 389
Extraordinary loss -
Equity in earnings of subsidiaries $ 389 - - $ (389) -
------ -------- -------- -------- --------
Net profit (loss) 389 1,120 (731) (389) 389
Other comprehensive loss - - (99) - (99)
------ -------- -------- -------- --------
Comprehensive income (loss) $ 389 $ 1,120 $ (830) $ (389) $ 290
====== ======== ======== ======== ========
</TABLE>
13
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<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FORTY WEEK PERIOD ENDED OCTOBER 3, 2000 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities $ - $ 35,712 $1,060 $ 36,772
---- -------- ------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment - (4,849) (462) (5,311)
Proceeds from sale of property and equipment - 603 - 603
Purchase of contract rights - (5,025) (800) (5,825)
---- -------- ------- ---------
Net cash used in investing activities - (9,271) (1,262) (10,533)
---- -------- ------- ---------
Cash Flows from Financing Activities:
Principal payments on long-term debt - (862) - (862)
Net borrowings - revolving loans - (9,500) - (9,500)
Principal payments on capital lease obligations - (153) - (153)
Increase (decrease) in bank overdrafts - 2,246 (1,492) 754
Decrease in other equity - (90) - (90)
---- -------- ------- ---------
Net cash used in financing activities - (8,359) (1,492) (9,851)
---- -------- ------- ---------
Increase in cash - 18,082 (1,694) 16,388
Cash and cash equivalents - beginning of period - 9,392 2,889 12,281
---- ------- ------- ---------
Cash and cash equivalents - end of period $ - $ 27,474 $1,195 $ 28,669
==== ========= ======= =========
</TABLE>
14
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<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 28, 1999 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
ASSETS HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 9,392 $ 2,889 $ 12,281
Accounts receivable 15,619 1,316 16,935
Other current assets 29,775 869 $ (9,071) 21,573
---------- -------- --------- ----------
Total current assets 54,786 5,074 (9,071) 50,789
Property and equipment 65,343 4,058 - 69,401
Contract rights, net 71,814 1,994 - 73,808
Cost in excess of net assets acquired,
net 50,000 - - 50,000
Investment in subsidiaries $ (2,386) - - 2,386
Other assets - 34,616 7 - 34,623
--------- ---------- -------- --------- ----------
TOTAL ASSETS $ (2,386) $ 276,559 $11,133 $ (6,685) $ 278,621
========= ========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Intercompany liabilities $ 9,071 $ (9,071)
Other current liabilities $ 46,220 3,629 $ 49,849
---------- -------- --------- ----------
Total current liabilities 46,220 12,700 (9,071) 49,849
Long-term debt 222,200 - - 222,200
Other liabilities 8,958 - - 8,958
---------- -------- --------- ----------
Total liabilities 277,378 12,700 (9,071) 281,007
---------- -------- --------- ----------
Stockholders' Deficiency:
Common stock
Additional paid-in capital $ 66,474 16,974 - (16,974) 66,474
Accumulated deficit (18,243) (16,874) (1,369) 18,243 (18,243)
Other (50,617) (919) (198) 1,117 (50,617)
--------- ---------- -------- --------- ----------
Total stockholders'
deficiency (2,386) (819) (1,567) 2,386 (2,386)
--------- ---------- -------- --------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ (2,386) $ 276,559 $11,133 $ (6,685) $ 278,621
========= ========== ======== ========= ==========
</TABLE>
15
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<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
THIRTEEN WEEK PERIOD ENDED SEPTEMBER 28, 1999 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales $139,827 $ 7,231 $ 147,058
Cost of sales 109,219 5,814 115,033
Selling, general, and administrative 12,320 924 13,244
Depreciation and amortization 6,191 530 6,721
Transaction related expenses 328 - 328
-------- --------- -------- -------- ----------
Operating profit (loss) 11,769 (37) 11,732
Interest expense 6,172 43 6,215
Other income, net (52) (1) (53)
-------- --------- -------- -------- ----------
Profit (loss) before income taxes 5,649 (79) 5,570
Income tax benefit (187) - (187)
-------- --------- -------- -------- ----------
Loss before extraordinary item
and cumulative effect of change in
accounting principle 5,836 (79) 5,757
Extraordinary item, net of
taxes -
Cumulative effect of change in
accounting principle, net of
taxes -
Equity in earnings of subsidiaries $ 5,757 - - $ (5,757) -
--------- --------- -------- --------- ---------
Net profit (loss) 5,757 5,836 (79) (5,757) 5,757
Other comprehensive income
foreign currency - - 24 - 24
--------- --------- -------- --------- ---------
Comprehensive income (loss) $ 5,757 $ 5,836 $ (55) $ (5,757) $ 5,781
========= ========= ======== ========= =========
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 28, 1999 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales $306,304 $23,385 $329,689
Cost of sales 240,635 18,918 259,553
Selling, general, and administrative 30,329 2,812 33,141
Depreciation and amortization 18,010 1,876 19,886
Transaction related expenses 1,555 - 1,555
-------- --------- -------- -------- ---------
Operating profit (loss) 15,775 (221) 15,554
Interest expense 16,683 87 16,770
Other income, net (257) (11) (268)
-------- --------- -------- -------- ---------
Loss before income taxes (651) (297) (948)
Income tax benefit (206) - (206)
-------- --------- -------- -------- ---------
Loss before extraordinary item
and cumulative effect of change in
accounting principle (445) (297) (742)
Extraordinary item, net of
taxes 873 - 873
Cumulative effect of change in
accounting principle, net of
taxes 256 - 256
Equity in earnings of subsidiaries $(1,871) - - $ 1,871 -
-------- --------- ------- -------- ---------
Net loss (1,871) (1,574) (297) 1,871 (1,871)
Other comprehensive loss
foreign currency - - (126) - (126)
-------- --------- ------- -------- ---------
Comprehensive loss $(1,871) $ (1,574) $ (423) $ 1,871 $ (1,997)
======== ========= ======= ======== =========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 28, 1999 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities $ - $ 17,420 $ 2,208 $ 19,628
---- --------- -------- ---------
Cash Flows from Investing Activities:
Payment of acquisition costs - (175) - (175)
Purchase of property and equipment - (6,749) (941) (7,690)
Purchase of contract rights - (12,710) (661) (13,371)
---- --------- -------- ---------
Net cash used in investing activities - (19,634) (1,602) (21,236)
---- --------- -------- ---------
Cash Flows from Financing Activities:
Principal payments on long-term debt - (46,362) - (46,362)
Net borrowings - revolving loans - 1,750 - 1,750
Proceeds from long-term debt - 100,000 - 100,000
Payments of financing costs - (6,108) - (6,108)
Principal payments on capital lease obligations - (140) - (140)
Increase (decrease) in bank overdrafts - 7,563 455 8,018
Redemption of stock (49,500) - (49,500)
Increase in other equity - 701 - 701
---- --------- -------- ---------
Net cash provided by financing activities - 7,904 455 8,359
---- --------- -------- ---------
Increase in cash - 5,690 1,061 6,751
Cash and cash equivalents - beginning of period - 8,672 156 8,828
---- --------- -------- ---------
Cash and cash equivalents - end of period $ - $ 14,362 $ 1,217 $ 15,579
==== ========= ======== =========
</TABLE>
********
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 3, 2000 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER
28, 1999
NET SALES - Net sales of $188.3 million for the three months ended
October 3, 2000 increased $41.2 million from $147.1 million in the comparable
period of 1999. The increase was due in part to seven new accounts including one
new Major League Baseball ("MLB") venue, Pacific Bell Ball Park, home of the San
Francisco Giants, which generated a combined increase in net sales of $17.2
million. In addition, net sales increased $7.0 million at the National Football
League ("NFL") venues which the Company services due primarily to nine
additional NFL games being played as a result of scheduling and the opening of
the National Football League's 2000 season one week earlier than the 1999
season. Also contributing to the improvement over prior year was a $5.8 million
increase in net sales at the Company's convention center venues due primarily to
an increase in corporate event bookings. Additionally, MLB accounts (excluding
Pacific Bell Ball Park) accounted for a $4.6 million net sales increase due
mainly to an increase in per capita spending.
COST OF SALES - Cost of sales of $151.8 million for the three month
period ended October 3, 2000 increased $36.8 million from $115.0 million in the
comparable period of 1999, primarily as a result of the higher sales volume.
Cost of sales as a percentage of net sales was 80.6% in the three months ended
October 3, 2000, an increase of 2.4% from 78.2% in the three months ended
September 28, 1999. The increase was primarily the result of higher commission
and product costs associated with the aforementioned new service contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses of $14.2 million for the three months ended October 3,
2000 were $1.0 million higher than the comparable 1999 period. The increase in
expenses was directly related to higher net sales.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization of $6.8
million for the three months ended October 3, 2000 increased $0.1 million from
the comparable period of 1999.
TRANSACTION RELATED EXPENSES - No material costs were incurred for the
three months ended October 3, 2000. For the three months ended September 28,
1999, $0.3 million in expenses were incurred primarily relating to personnel
costs, rental costs, and professional fees associated with the acquisition of
Service America Corporation in August 1998 and the subsequent downsizing of the
Stamford, CT office.
CONTRACT RELATED LOSSES - Contract related losses of $0.5 million in
the three months ended October 3, 2000 reflect an impairment charge relating to
property and equipment and contract rights for certain contracts which the
Company continues to operate.
OPERATING PROFIT - Operating profit increased $3.2 million in the three
months ended October 3, 2000 from the comparable period of 1999. The improvement
was primarily due to the factors discussed above.
INTEREST - Interest expense was $0.6 million higher in the three months
ended October 3, 2000 as compared to the comparable period of 1999 chiefly
associated with higher interest rates on adjustable rate debt.
NINE MONTHS ENDED OCTOBER 3, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
28, 1999
NET SALES - For the nine months ended October 3, 2000, net sales
increased $82.3 million to $412.0 million from $329.7 million in the comparable
1999 period. The increase was due primarily to the aforementioned new service
contracts which generated additional revenues of $42.0 million. In addition, ten
National Football League ("NFL") games, six post-season playoff games and four
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<PAGE>
1999 regular season games that occurred in January 2000 and nine additional NFL
games in the three months ended October 3, 2000 period contributed an increase
in net sales of $12.0 million. Of the remaining $28.3 million increase, $11.9
million was the result of an increase in net sales at the Company's convention
center venues due primarily to an increase in corporate event bookings.
COST OF SALES - Cost of sales for the nine months ended October 3, 2000
were $331.8 million compared to $259.6 million in the comparable 1999 period, an
increase of $72.2 million. As a percentage of net sales, cost of sales increased
from 78.7% in the 1999 period to 80.5% in the 2000 period. The primary component
in the 1.8% increase was higher commission costs associated with the Company's
new service contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general, and
administrative expenses of $36.8 million in the nine months ended October 3,
2000 increased $3.7 million from $33.1 million in the comparable 1999 period
primarily due to the increase in net sales. As a percentage of net sales,
selling, general, and administrative expenses declined 1.2% from 10.1% in the
nine months ended September 28, 1999 to 8.9% in the nine months ended October 3,
2000. The decline was due in part to corporate and field support overhead costs
which show no marked increase as a result of the higher net sales.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization of $20.0
million for the nine months ended October 3, 2000 increased $0.1 million from
the prior year period.
TRANSACTION RELATED EXPENSES - Costs of $0.8 million were incurred in
the nine months ended October 3, 2000 primarily in connection with the Company's
attempt to acquire certain assets. For the nine months ended September 28, 1999,
$1.6 million in expenses were incurred primarily relating to personnel costs,
rental costs, and professional fees associated with the acquisition of Service
America in August, 1998 and the subsequent downsizing of Service America's
headquarters in Stamford, CT.
CONTRACT RELATED LOSSES - Contract related losses of $2.5 million in
the nine months ended October 3, 2000 include an impairment charge of
approximately $1.5 million relating to the property and equipment, contract
rights and other assets for certain contracts which the Company continues to
operate. Contract related losses also reflects a $0.7 million charge for the
write-off of an unrecoverable customer receivable and $0.3 million in related
legal fees.
OPERATING PROFIT - Operating profit increased $4.5 million from $15.6
million in the nine months ended September 28, 1999 to $20.1 million in the nine
months ended October 3, 2000. The increase was primarily due to the factors
discussed above.
INTEREST - Interest expense was $3.2 million higher in the nine months
ended October 3, 2000 as compared to the 1999 period chiefly associated with
approximately one additional month of interest expense on the Company's $100.0
million in senior subordinated notes, increased borrowings on the Company's
revolving line of credit and higher interest rates on adjustable rate debt.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended October 3, 2000, net cash provided by
operating activities was $36.8 million compared to $19.6 million in the nine
months ended September 28, 1999. The $17.2 million improvement was due in part
to a net decrease in working capital. For the 1999 period, working capital
decreased $8.5 million as compared to a decrease of $18.5 million for the 2000
period, a net decrease of $10.0 million. The primary components of the decrease
in the 2000 period were an increase in accrued commissions and royalties and
accrued salaries and vacations primarily as a result of the new service
contracts. Additionally, profits from operations (excluding non-cash charges)
increased $3.7 million in the nine months ended October 3, 2000 as compared to
the 1999 period.
For the nine months ended October 3, 2000 net cash used in investing
activities was $10.5 million compared to $21.2 million in the nine months ended
September 28, 1999. For the 2000 period, the $10.5 million in investing
activities primarily reflects the purchases of property and equipment and
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<PAGE>
investments in contract rights in connection with maintaining and/or renewing
existing contracts. The higher capital expenditures in the 1999 period reflect
$14.8 million in investments for newly acquired service contracts with the
remaining $6.4 million expended on maintenance and/or renewals for existing
contracts.
For the nine months ended October 3, 2000, net cash used in financing
activities was $9.9 million compared to $8.4 million in the nine months ended
October 3, 1999. The activity for the nine months ended October 3, 2000
primarily reflects the repayment of $9.5 million borrowed under the Company's
revolving credit facility to fund working capital. The 1999 figure reflects the
issuance of $100.0 million of senior subordinated notes, and the use of proceeds
to retire $45.0 million of senior secured debt and $0.5 million of GE Capital
debt, redeem $49.5 million of stock, and pay related fees of $5.7 million.
Excluding the financing, bank overdrafts increased by $8.0 million and $1.8
million was borrowed under the revolving credit facility to fund working capital
and capital expenditures.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
We believe that cash flow from operating activities, together with
borrowings available under the revolving credit facility, will be sufficient to
fund our currently anticipated capital investment requirements, interest and
principal payment obligations and working capital requirements. We are currently
committed under client contracts to fund capital investments of approximately
$2.2 million in the remainder of 2000 and $10.3 million in 2001. We anticipate
total capital investments of $15.0 million in fiscal 2000.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by FAS No. 137 and FAS No. 138.
FAS No. 133, as amended, is effective for the Company beginning January 1, 2001
and establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings or other
comprehensive income depending on whether a derivative is designed as part of a
hedge transaction. The Company has assessed the effect of this standard and has
determined that adoption of this statement, as amended, will not have a material
impact on the Company's financial position, results of operations or cash flows.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
Except for the historical information and discussions contained herein,
statements contained in this form 10-Q may constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, including, among
other things:
o our high degree of leverage and significant debt service obligations;
o our history of net losses;
o the level of attendance at events held at the facilities at which we
provide our services and the level of spending on the services that we
provide at such events;
o the risk of labor stoppages affecting sports teams at whose facilities we
provide our services;
o the risk of sports facilities at which we provide services losing their
sports team tenants;
o our ability to retain existing clients or obtain new clients;
o the highly competitive nature of the recreational food service industry;
o any future changes in management;
o general risks associated with the food industry; and
21
<PAGE>
o future changes in government regulation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of October 3, 2000, there have been no material changes in the
quantitative and qualitative disclosures about market risk than were presented
in the Company's Form 10-K for the year ended December 28, 1999.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On June 12 1998, Service America commenced arbitration proceedings through
the American Arbitration Association in New York, New York against Silver
Huntington Realty LLC and Silver Huntington Enterprises LLC. In May 2000, the
arbitrator reached a decision in this matter. The decision provided for no
payments from either party to the other. As a result, the Company wrote off its
receivable in the amount of $754,000 and recorded approximately $305,000 in
related legal fees.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
22
<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, thereunto duly authorized, on November 16, 2000.
VOLUME SERVICES AMERICA, INC.
By: /s/ Kenneth R. Frick
------------------------
Name: Kenneth R. Frick
Title: Vice President and Chief
Financial Officer
23
