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 March 28, 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 May 10, 2000, was 100.
<PAGE>
VOLUME SERVICES AMERICA, INC.
INDEX
<TABLE>
<S> <C> <C>
Part I Financial Information........................................................................................1
Item 1. Financial Statements (unaudited) -
Volume Services America Holdings, Inc. and Subsidiaries......................................................1
Consolidated Balance Sheets as of March 28, 2000 and December 28, 1999.......................................1
Consolidated Statements of Operations and Comprehensive Loss
for the Thirteen Week Periods Ended March 28, 2000 and March 30, 1999........................................3
Consolidated Statement of Stockholders' Deficiency
for the Period December 29, 1999 to March 28, 2000...........................................................4
Consolidated Statements of Cash Flows
for the Thirteen Week Periods Ended March 28, 2000 and March 30, 1999........................................5
Notes to Consolidated Financial Statements
for the Thirteen Week Periods Ended March 28, 2000 and March 30, 1999........................................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................15
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................................17
Part II Other Information...........................................................................................17
Item 1. Legal Proceedings ............. ............................................................................17
Item 4. Submission of Matters to a Vote of Security Holders.........................................................17
Item 6. Exhibits and Reports on Form 8-K............................................................................17
</TABLE>
i
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 28, 2000 AND DECEMBER 28, 1999 (IN THOUSANDS)
- --------------------------------------------------------------------------------
MARCH 28, DECEMBER 28,
ASSETS 2000 1999
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,402 $ 12,281
Accounts receivable, less allowance for doubtful accounts of
$971 and $1,348 at March 28, 2000 and December 28, 1999,
respectively 16,371 16,935
Merchandise inventories 11,300 10,947
Prepaid expenses and other 6,692 6,870
Deferred tax asset 3,756 3,756
----- -----
Total current assets 51,521 50,789
------ ------
PROPERTY AND EQUIPMENT:
Leasehold improvements 45,159 44,518
Merchandising equipment 43,583 43,261
Vehicles and other equipment 7,015 6,953
Construction in process 1,000 474
----- ---
Total 96,757 95,206
Less accumulated depreciation and amortization (28,680) (25,805)
------- -------
Property and equipment, net 68,077 69,401
------ ------
OTHER ASSETS:
Contract rights, net 72,747 73,808
Cost in excess of net assets acquired, net 49,557 50,000
Deferred financing costs, net 11,061 11,459
Trademarks, net 18,250 18,422
Other 5,132 4,742
----- -----
Total other assets 156,747 158,431
------- -------
TOTAL ASSETS $ 276,345 $ 278,621
============ ===========
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 28, 2000 AND DECEMBER 28, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------------------------------------------------
MARCH 28, 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 211 206
Accounts payable 17,211 17,116
Accrued salaries and vacations 7,392 8,050
Liability for self-insured claims 2,206 2,186
Accrued taxes, including income taxes 2,591 2,706
Accrued commissions and royalties 8,474 10,258
Accrued interest 1,199 3,873
Other 6,948 4,304
----- -----
Total current liabilities 47,382 49,849
------ ------
LONG TERM LIABILITIES
Long term debt 230,663 222,200
Capital lease obligation 361 416
Deferred income tax 5,215 5,091
Liability for self-insured claims 1,370 1,370
Other liabilities 1,645 2,081
----- -----
Total long term liabilities 239,254 231,158
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Common stock, $0.01 par value:
Authorized - 1,000 shares; issued: 526 at March 28, 2000 and
December 28, 1999; outstanding: 332 at March 28, 2000 and
December 28, 1999 - -
Additional paid-in capital 66,474 66,474
Accumulated deficit (26,085) (18,243)
Accumulated other comprehensive loss (177) (198)
Treasury stock - at cost (194 shares at March 28, 2000 and
December 28, 1999) (49,500) (49,500)
Other (1,003) (919)
------ ----
Total stockholders' deficiency (10,291) (2,386)
------- ------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 276,345 $ 278,621
========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED MARCH 28, 2000 AND MARCH 30, 1999
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED
-------------------------------------
MARCH 28, MARCH 30,
2000 1999
----------------- -----------------
<S> <C> <C>
Net sales $ 80,120 $ 66,290
Cost of sales 64,243 54,314
Selling, general, and administrative 9,782 9,444
Depreciation and amortization 6,489 6,347
Transaction related expenses 770 1,018
--- -----
Operating loss (1,164) (4,833)
Interest expense 6,602 4,632
Other income, net (48) (101)
--- ----
Loss before income taxes (7,718) (9,364)
Income tax provision (benefit) 124 (2,670)
--- ------
Loss before extraordinary item and cumulative effect of
change in accounting principle (7,842) (6,694)
Extraordinary loss on debt extinguishment, net of taxes - 873
Cumulative effect of change in accounting principle,
net of taxes - 256
---
Net loss (7,842) (7,823)
Other comprehensive gain (loss) - foreign currency translation
adjustment 21 (20)
-- ---
Comprehensive loss $ (7,821) $ (7,843)
=========== ===============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY (UNAUDITED)
FOR THE PERIOD DECEMBER 29, 1999 TO MARCH 28, 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 - - - - - - (84) (84)
Foreign currency translation - - - - - 21 - 21
Net loss - - - - (7,842) - - (7,842)
------ ------
BALANCE,
MARCH 28, 2000 332 $ - $ 66,474 $ (49,500) $ (26,085) $ (177) $ (1,003) $ (10,291)
=== == ======== ========= ========= ====== ======== =========
See notes to consolidated financial statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED MARCH 28, 2000 AND MARCH 30, 1999
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED
---------------------------------------
MARCH 28, MARCH 30,
2000 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,842) $ (7,823)
Adjustments to reconcile net loss to net
cash used in operating activities:
Extraordinary item - 873
Cumulative effect of change in accounting
principle - 256
Depreciation and amortization 6,489 6,347
Amortization of deferred financing costs 398 304
Deferred tax change 124 (2,682)
Loss on disposition of assets 11 -
Other 21 -
Changes in assets and liabilities:
Decrease (increase) in assets:
Accounts and notes receivable 564 (892)
Merchandise inventories (353) (1,233)
Prepaid expenses 178 (481)
Other assets (399) (583)
Increase (decrease) in liabilities:
Accounts payable 429 186
Accrued salaries and vacations (658) (509)
Liabilities for self-insurance 20 (474)
Other liabilities (2,365) 764
------ ---
Net cash used in operating activities (3,383) (5,947)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,602) (1,224)
Purchase of contract rights (1,889) (25)
------ ---
Net cash used in investing activities (3,491) (1,249)
------ ------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED MARCH 28, 2000 AND MARCH 30, 1999
(IN THOUSANDS)
THIRTEEN WEEKS ENDED
--------------------
MARCH 28, MARCH 30,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt $ (287) $ (45,788)
Net borrowings - revolving loans 8,750 4,500
Proceeds from long-term debt 100,000
Payments of financing costs (5,575)
Principal payments on capital lease obligations (50) (46)
Increase (decrease) in bank overdrafts (334) 3,110
Net increase (decrease) in other equity (84) 627
Redemption of stock - (49,500)
------- -------
Net cash provided by financing
activities 7,995 7,328
----- -----
INCREASE IN CASH 1,121 132
CASH AND CASH EQUIVALENTS:
Beginning of period 12,281 8,828
------ -----
End of period $ 13,402 $ 8,960
======== =======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED MARCH 28, 2000 AND MARCH 30, 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 thirteen week period ended March 28, 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
thirteen weeks ended March 28, 2000 consist of direct costs incurred in
connection with the Company's attempt to purchase certain assets. Transaction
related expenses for the thirteen weeks ended March 30, 1999 primarily relate to
personnel costs, rental costs, and professional fees associated with the
acquisition of Service America Corporation.
7
<PAGE>
3. NON-GUARANTOR SUBSIDIARIES FINANCIAL STATEMENTS
The Company's 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 March 28, 2000 and December 28, 1999 (in the
case of the balance sheets) and for the thirteen week periods ended March 28,
2000 and March 30, 1999 (in the case of the statements of operations and the
statements of cash flows).
8
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED BALANCE SHEET
MARCH 28, 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 $ 9,956 $ 3,446 $13,402
Accounts receivable 14,775 1,596 16,371
Other current assets 29,933 1,138 $(9,323) 21,748
------ ----- ------- ------
Total current assets 54,664 6,180 (9,323) 51,521
Property and equipment 64,132 3,945 - 68,077
Contract rights, net 70,409 2,338 - 72,747
Cost in excess of net assets acquired,
net 49,557 - - 49,557
Investment in subsidiaries $(10,291) - - 10,291 -
Other assets - 34,437 6 - 34,443
--------- ------ ---- ------ ------
TOTAL ASSETS $(10,291) $273,199 $12,469 $ 968 $276,345
======== ======== ======= ===== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Intercompany liabilities $ 9,323 $(9,323)
Other current liabilities $42,482 4,900 - $47,382
------- ----- -------- -------
Total current liabilities 42,482 14,223 (9,323) 47,382
Long-term debt 230,663 - - 230,663
Other liabilities 8,591 - - 8,591
----- -----
Total liabilities 281,736 14,223 (9,323) 286,636
------- ------ ------ -------
Stockholders' deficiency:
Common stock $ - - - - -
Additional paid-in capital 66,474 66,474 - (66,474) 66,474
Accumulated deficit (26,085) (24,508) (1,577) 26,085 (26,085)
Other (50,680) (50,503) (177) 50,680 (50,680)
------- ------- ---- ------ -------
Total stockholders'
deficiency (10,291) (8,537) (1,754) 10,291 (10,291)
------- ------ ------ ------ -------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $(10,291) $273,199 $12,469 $ 968 $276,345
======== ======== ======= ===== ========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
THIRTEEN WEEK PERIOD ENDED MARCH 28, 2000 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales $73,686 $ 6,434 $80,120
Cost of sales 58,818 5,425 64,243
Selling, general, and administrative 9,157 625 9,782
Depreciation and amortization 5,888 601 6,489
Transaction related expenses 770 - 770
--- --- ---
Operating loss (947) (217) (1,164)
Interest expense 6,602 - 6,602
Other income, net (40) (8) (48)
--- -- ---
Loss before income taxes (7,509) (209) (7,718)
Income tax provision 124 - 124
--- ---- ---
Loss before extraordinary item (7,633) (209) (7,842)
Extraordinary loss -
Equity in earnings of subsidiaries $ (7,842) - - $ 7,842 -
-------- ------ ---- ------- ------
Net loss (7,842) (7,633) (209) 7,842 (7,842)
Other comprehensive gain - - 21 - 21
-------- ------ ---- ------- ------
Comprehensive loss $ (7,842) $(7,633) $ (188) $ 7,842 $(7,821)
======== ======= ====== ======= =======
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THIRTEEN WEEK PERIOD ENDED MARCH 28, 2000 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities $ - $ (3,957) $ 574 $ (3,383)
-- -------- ----- --------
Cash Flows from Investing Activities:
Purchase of property and equipment - (1,598) (4) (1,602)
Purchase of contract rights - (1,089) (800) (1,889)
------ ---- ------
Net cash used in investing activities - (2,687) (804) (3,491)
------ ---- ------
Cash Flows from Financing Activities:
Principal payments on long-term debt - (287) - (287)
Net borrowings - revolving loans - 8,750 - 8,750
Principal payments on capital lease obligations - (50) - (50)
Decrease in bank overdrafts - (1,123) 789 (334)
Increase in other equity - (84) - (84)
--- ---
Net cash provided by financing activities - 7,206 789 7,995
----- --- -----
Increase in cash - 562 559 1,121
Cash and cash equivalents - beginning of period - 9,392 2,889 12,281
----- ----- ------
Cash and cash equivalents - end of period $ - $ 9,954 $ 3,448 $ 13,402
== ======= ======= ========
</TABLE>
11
<PAGE>
<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>
12
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
THIRTEEN WEEK PERIOD ENDED MARCH 30, 1999 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales $ 59,252 $ 7,038 $ 66,290
Cost of sales 48,280 6,034 54,314
Selling, general, and administrative 8,599 845 9,444
Depreciation and amortization 5,687 660 6,347
Transaction related expenses 1,018 - 1,018
----- ----- -----
Operating loss (4,332) (501) (4,833)
Interest expense 4,632 - 4,632
Other income, net (101) (101)
---- ----- ----
Loss before income taxes (8,863) (501) (9,364)
Income tax benefit (2,670) - (2,670)
------ ----- ------
Loss before extraordinary item
and cumulative effect of change in
accounting principle (6,193) (501) (6,694)
Extraordinary item, net of
taxes 873 - 873
Cumulative effect of change in
accounting principle, net of
taxes 256 - 256
Equity in earnings of subsidiaries $(7,823) - - $ 7,823 -
------- ------ ----- ------- -----
Net loss (7,823) (7,322) (501) 7,823 (7,823)
Other comprehensive loss
foreign currency - - (20) - (20)
------- ------ ----- ------- -----
Comprehensive loss $(7,823) $ (7,322) $ (521) $ 7,823 $ (7,843)
======= ======== ====== ======= ========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THIRTEEN WEEK PERIOD ENDED MARCH 30, 1999 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities $ - $ (7,706) $ 1,759 $ (5,947)
-- -------- ------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment - (813) (411) (1,224)
Purchase of contract rights - (25) - (25)
--- ---- ------
Net cash used in investing activities - (838) (411) (1,249)
---- ---- ------
Cash Flows from Financing Activities:
Principal payments on long-term debt - (45,788) - (45,788)
Net borrowings - revolving loans - 4,500 - 4,500
Proceeds from long-term debt - 100,000 - 100,000
Payments of financing costs - (5,575) - (5,575)
Principal payments on capital lease obligations - (46) - (46)
Increase (decrease) in bank overdrafts - 4,412 (1,302) 3,110
Redemption of stock (49,500) - (49,500)
Increase in other equity - 627 - 627
--- ------ ----- ------
Net cash provided by (used in) financing activities - 8,630 (1,302) 7,328
--- ----- ------ ------
Increase in cash - 86 46 132
Cash and cash equivalents - beginning of period - 8,692 136 8,828
--- ----- --- -----
Cash and cash equivalents - end of period $ - $ 8,778 $ 182 $ 8,960
== ======= ===== =======
</TABLE>
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Quarter Ended March 28, 2000 Compared to the Quarter Ended March 30, 1999
NET SALES - Net sales of $80.1 million for the quarter ended March 28, 2000
increased $13.8 million from $66.3 million in the prior year. The increase was
due in part to ten National Football League ("NFL") games, six post-season
playoff games and four 1999 regular season games, that occurred in the first
quarter of fiscal 2000, as compared to three games in the first quarter of
fiscal 1999. The NFL activity generated an increase in net sales of $5.0
million. In addition, net sales increased by $5.0 million as a result of five
new service contracts including the Louisiana Superdome and New Orleans Sports
Arena. Of the remaining $3.8 million increase, $2.9 million was due primarily to
an increase in convention center net sales.
COST OF SALES - Cost of sales of $64.2 million for the quarter ended March
28, 2000 increased $9.9 million from $54.3 million in the prior year period as a
result of the higher sales volume. Cost of sales as a percentage of net sales
declined 1.7% from the prior year due primarily to non-recurring start-up costs
associated with the opening of five new service contracts in the 1999 period,
significant cost savings achieved through operating efficiencies at certain
accounts, a change in the sales mix (with a higher concentration of sales in
sports facilities, which typically have lower cost margins than convention
centers), and the closure of two large convention center accounts with high cost
to sales ratios.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses of $9.8 million for the quarter ended March 28, 2000
were $0.3 million higher than the 1999 period. Selling, general and
administrative expenses as a percentage of net sales declined from 14.2% in the
1999 period to 12.2% in the first quarter of fiscal 2000 primarily as a result
of the synergies achieved through the acquisition and integration of Service
America with Volume Services.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization of $6.5
million for the quarter ended March 28, 2000 increased $0.2 million from the
prior year. The increase was primarily due to capital expenditures of $28.6
million made from March 31, 1999 through March 28, 2000.
TRANSACTION RELATED EXPENSES - Costs of $0.8 million were incurred in the
quarter ended March 28, 2000 in connection with the Company's attempt to acquire
certain assets. For the quarter ended March 30, 1999, $1.0 million in expenses
were incurred primarily relating to personnel costs, rental costs, and
professional fees associated with the acquisition of Service America and the
subsequent downsizing of Service America's headquarters in Stamford, CT.
OPERATING LOSS - Operating loss declined $3.7 million in the quarter ended
March 28, 2000 from the prior year. The improvement was primarily due to the
factors discussed above.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended March 28, 2000, net cash used in operating activities
was $3.4 million compared to $5.9 million in the prior year. The $2.5 million
improvement was primarily due to the previously noted $4.0 million decrease in
operating loss in the 2000 period as compared to the 1999 period, partially
offset by a $2.0 million increase in interest expense due primarily to the 1999
issuance of $100.0 million of senior subordinated notes.
For the quarter ended March 28, 2000, net cash used in investing activities
was $3.5 million compared to $1.2 million in the quarter ended March 30, 1999.
The components of net cash used in investing activities were the purchases of
property and equipment and investments in contract rights in connection with
acquiring or renewing contracts. The $2.3 million increase in cash used in
investing activities primarily relates to $1.9 million for the purchase of
contract rights associated with three new service contracts and the renewal of
three existing service contracts.
For the quarter ended March 28, 2000, net cash provided by financing
activities was $8.0 million compared to $7.3 million in the quarter ended March
30, 1999. The activity in the first quarter of fiscal 2000 primarily reflects
$8.8 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 $5.6 million. Excluding the financing, we
borrowed $4.5 million under our revolving credit facility in the 1999 period and
increased bank overdrafts (outstanding checks) by $3.1 million 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
$6.3 million and $0.6 million in 2000 and 2001, respectively. We anticipate
total capital investments of $15.0 million in fiscal 2000.
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
o future changes in government regulation.
16
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of March 28, 2000, there have been no material changes in the
quantitative and qualitative disclosures about market risk that 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. On May 9, 2000, the
arbitrator reached a decision in this matter, and the decision does not have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As of March 29, 2000, the registrant's sole shareholder elected each of
David Blitzer, John T. Dee, Howard A. Lipson and Peter Wallace by written
consent to serve as directors of the registrant.
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.
17
<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 May 11, 2000.
VOLUME SERVICES AMERICA, INC.
By: /s/ Kenneth R. Frick
-------------------------------------
Name: Kenneth R. Frick
Title: Vice President and
Chief Financial Officer
18
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