1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 APRIL 3, 2001 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
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VOLUME SERVICES AMERICA, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 57-0969174
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
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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 16, 2001, was 100.
2
VOLUME SERVICES AMERICA, INC.
INDEX
PART I FINANCIAL INFORMATION........................................................................2
Item 1. Financial Statements.......................................................................2
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................16
PART II OTHER INFORMATION..........................................................................16
Item 6. Exhibits and Reports on Form 8-K...........................................................16
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
APRIL 3, 2001 AND JANUARY 2, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
APRIL 3, JANUARY 2,
ASSETS 2001 2001
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 12,845 $ 14,726
Accounts receivable, less allowance for doubtful accounts of
$748 and $876 at April 3, 2001 and January 2, 2001,
respectively 15,995 19,386
Merchandise inventories 13,726 11,524
Prepaid expenses and other 3,359 2,524
Deferred tax asset 2,064 2,064
--------- ---------
Total current assets 47,989 50,224
--------- ---------
PROPERTY AND EQUIPMENT:
Leasehold improvements 47,257 47,036
Merchandising equipment 44,551 43,746
Vehicles and other equipment 7,592 7,473
Construction in process 981 203
--------- ---------
Total 100,381 98,458
Less accumulated depreciation and amortization (37,722) (35,770)
--------- ---------
Property and equipment, net 62,659 62,688
--------- ---------
OTHER ASSETS:
Contract rights, net 74,513 70,793
Cost in excess of net assets acquired, net 47,786 48,228
Deferred financing costs, net 9,590 9,948
Trademarks, net 17,564 17,735
Other 6,727 6,080
--------- ---------
Total other assets 156,180 152,784
--------- ---------
TOTAL ASSETS $ 266,828 $ 265,696
========= =========
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VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)(UNAUDITED)
APRIL 3, 2001 AND JANUARY 2, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
APRIL 3, JANUARY 2,
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2001 2001
--------- ---------
CURRENT LIABILITIES:
Short-term note payable $ 0 $ 1,000
Current maturities of long-term debt 1,150 1,150
Current maturities of capital lease obligation 230 225
Accounts payable 15,312 14,838
Accrued salaries and vacations 9,335 8,707
Liability for insurance 2,256 2,522
Accrued taxes, including income taxes 1,671 2,536
Accrued commissions and royalties 12,855 12,332
Accrued interest 1,231 4,005
Other 3,360 3,164
--------- ---------
Total current liabilities 47,400 50,479
--------- ---------
LONG TERM LIABILITIES
Long term debt 231,263 216,550
Capital lease obligation 132 191
Deferred income taxes 2,242 2,242
Liability for insurance 2,005 1,608
Other liabilities 1,135 1,135
--------- ---------
Total long-term liabilities 236,777 221,726
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Common stock, $0.01 par value - authorized: 1,000 shares; issued:
526 shares; outstanding: 332 shares
Additional paid-in capital 66,754 66,754
Accumulated deficit (33,093) (22,462)
Accumulated other comprehensive loss (454) (262)
Treasury stock - at cost (194 shares) (49,500) (49,500)
Loans to related parties (1,056) (1,039)
--------- ---------
Total stockholders' deficiency (17,349) (6,509)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 266,828 $ 265,696
========= =========
See notes to consolidated financial statements.
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VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 3, 2001 AND MARCH 28, 2000
(IN THOUSANDS)
- --------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED
--------------------------
APRIL 3, MARCH 28,
2001 2000
-------- --------
Net sales $ 83,194 $ 80,120
Cost of sales 70,972 64,243
Selling, general, and administrative 10,321 9,577
Depreciation and amortization 6,008 6,489
Transaction related expenses -- 770
Contract related losses -- 205
-------- --------
Operating loss (4,107) (1,164)
Interest expense 6,545 6,602
Other income, net (21) (48)
-------- --------
Loss before income taxes (10,631) (7,718)
Income tax provision -- 124
-------- --------
Net loss (10,631) (7,842)
Other comprehensive gain (loss) - foreign currency translation
adjustment (192) 21
-------- --------
Comprehensive loss $(10,823) $ (7,821)
======== ========
See notes to consolidated financial statements.
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VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (UNAUDITED)
FOR THE PERIOD JANUARY 3, 2001 TO APRIL 3, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Accumulated
Additional Other Loans to
Common Common Paid-in Accumulated Comprehensive Treasury Related
Shares Stock Capital Deficit Loss Stock Parties Total
------ ------ ---------- ----------- ------------- --------- --------- ---------
BALANCE, JANUARY 2, 2001 332 $ -- $66,754 $(22,462) $(262) $(49,500) $(1,039) $ (6,509)
Loan to related parties -- -- -- -- -- -- (17) (17)
Foreign currency translation -- -- -- -- (192) -- (192)
Net loss -- -- -- (10,631) -- -- -- (10,631)
--- ---- ------- -------- ----- -------- ------- --------
BALANCE, APRIL 3, 2001 332 $ -- $66,754 $(33,093) $(454) $(49,500) $(1,056) $(17,349)
=== ==== ======= ======== ===== ======== ======= ========
See notes to consolidated financial statements
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VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 3, 2001 AND MARCH 28, 2000
(IN THOUSANDS)
- --------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED
--------------------------
April 3, March 28,
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,631) $ (7,842)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 6,008 6,489
Amortization of deferred financing costs 358 398
Deferred tax -- 124
Loss on disposition of assets -- 11
Other (192) 21
Changes in assets and liabilities:
Decrease (increase) in assets:
Accounts receivable 3,391 564
Merchandise inventories (2,202) (353)
Prepaid expenses (835) 178
Other assets (546) (399)
Increase (decrease) in liabilities:
Accounts payable 934 429
Accrued salaries and vacations 628 (658)
Liability for insurance 130 20
Other liabilities (3,420) (2,365)
-------- --------
Net cash used in operating activities (6,377) (3,383)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,791) (1,602)
Purchase of contract rights (5,894) (1,889)
-------- --------
Net cash used in investing activities (8,685) (3,491)
-------- --------
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VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 3, 2001 AND MARCH 28, 2000
(IN THOUSANDS)
- --------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED
--------------------------
April 3, March 28,
2001 2000
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings - revolving loans $ 14,000 $ 8,750
Principal payments on long-term debt (287) (287)
Principal payments on capital lease obligations (55) (50)
Decrease in bank overdrafts (460) (334)
Loans to related parties (17) (84)
-------- --------
Net cash provided by financing activities 13,181 7,995
-------- --------
INCREASE (DECREASE) IN CASH (1,881) 1,121
CASH AND CASH EQUIVALENTS:
Beginning of period 14,726 12,281
-------- --------
End of period $ 12,845 $ 13,402
======== ========
See notes to consolidated financial statements.
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VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 3, 2001 AND MARCH 28, 2000
- --------------------------------------------------------------------------------
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 its senior
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 April 3,
2001 are not necessarily indicative of the results to be expected for the
fifty-two week fiscal year ending January 1, 2002 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 January 2, 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING STANDARDS - In 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 133
"Accounting for Derivative Instruments and Hedging Activities", as amended by
SFAS No. 137 and SFAS No. 138. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133, as amended,
became effective for the Company on January 3, 2001 and the adoption of this
statement, as amended, had an insignificant impact on the Company's financial
position. At April 3, 2001, the Company was party to two interest rate hedging
arrangements, which terminated on April 20, 2001.
TRANSACTION RELATED EXPENSES - Transaction related expenses for the
thirteen weeks ended March 28, 2000 consist primarily of nonrecurring strategic
corporate costs.
3. COMMITMENTS AND CONTINGENCIES
On March 15, 2001 and April 20, 2001, respectively, two of the
Company's customers filed for Chapter 11 bankruptcy. The Company has
approximately $1.3 million of equipment and leasehold improvements and $3.2
million of receivables and leasehold improvements, respectively, recorded at
April 3, 2001 relating to these customers. At this time, management does not
anticipate any material adverse effect on the Company's financial position or
results of operations; however, management cannot predict the outcome of the
bankruptcy proceedings.
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4. CONTRACT RELATED LOSSES
The Company recorded approximately $205,000 of legal fees related to a
terminated contract in the thirteen weeks ended March 28, 2000.
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5. NON-GUARANTOR SUBSIDIARIES FINANCIAL STATEMENTS
The Company's $100 million senior subordinated notes 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 April 3, 2001 and January 2, 2001 (in the case
of the balance sheets) and for the thirteen week periods ended April 3, 2001 and
March 28, 2000 (in the case of the statements of operations and statements of
cash flows).
CONSOLIDATING CONDENSED BALANCE SHEET
APRIL 3, 2001 (IN THOUSANDS)
Combined Combined
Volume Guarantor Non-guarantor
ASSETS Holdings Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
Current Assets:
Cash and cash equivalents $ 11,473 $ 1,372 $ 12,845
Accounts receivable 14,210 1,785 15,995
Other current assets 27,155 1,028 $ (9,034) 19,149
--------- --------- --------- ---------
Total current assets 52,838 4,185 (9,034) 47,989
Property and equipment 59,294 3,365 -- 62,659
Contract rights, net 73,359 1,154 -- 74,513
Cost in excess of net assets acquired,
net 47,786 -- -- 47,786
Investment in subsidiaries $ (17,349) -- -- 17,349 --
Other assets -- 33,873 8 -- 33,881
--------- --------- --------- --------- ---------
TOTAL ASSETS $ (17,349) $ 267,150 $ 8,712 $ 8,315 $ 266,828
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Intercompany liabilities $ 9,034 $ (9,034)
Other current liabilities $ 44,648 2,752 -- $ 47,400
--------- --------- --------- ---------
Total current liabilities 44,648 11,786 (9,034) 47,400
Long-term debt 231,263 -- -- 231,263
Other liabilities 5,514 -- -- 5,514
--------- --------- --------- ---------
Total liabilities 281,425 11,786 (9,034) 284,177
--------- --------- --------- ---------
Stockholders' deficiency:
Common stock $ -- -- -- -- --
Additional paid-in capital 66,754 66,754 -- (66,754) 66,754
Accumulated deficit (33,093) (30,473) (2,620) 33,093 (33,093)
Treasury stock and other (51,010) (50,556) (454) 51,010 (51,010)
--------- --------- --------- --------- ---------
Total stockholders'
deficiency (17,349) (14,275) (3,074) 17,349 (17,349)
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ (17,349) $ 267,150 $ 8,712 $ 8,315 $ 266,828
========= ========= ========= ========= =========
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CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
Thirteen Week Period Ended April 3, 2001 (in thousands)
Combined Combined
Volume Guarantor Non-guarantor
Holdings Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
Net sales $ 76,673 $ 6,521 $ 83,194
Cost of sales 64,861 6,111 70,972
Selling, general, and administrative 9,528 793 10,321
Depreciation and amortization 5,651 357 6,008
-------- -------- --------
Operating loss (3,367) (740) (4,107)
Interest expense 6,583 (38) 6,545
Other income, net (11) (10) (21)
-------- -------- --------
Loss before income taxes (9,939) (692) (10,631)
Income tax provision (benefit) -- --
-------- -------- --------
Loss of subsidiaries $(10,631) -- -- $ 10,631 --
-------- -------- -------- -------- --------
Net loss (10,631) (9,939) (692) 10,631 (10,631)
Other comprehensive loss -
foreign currency translation adjustment -- -- (192) -- (192)
-------- -------- -------- -------- --------
Comprehensive loss $(10,631) $ (9,939) $ (884) $ 10,631 $(10,823)
======== ======== ======== ======== ========
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Thirteen Week Period Ended April 3, 2001 (in thousands)
Combined Combined
Volume Guarantor Non-guarantor
Holdings Subsidiaries Subsidiaries Consolidated
-------- ------------ ------------- ------------
Cash Flows Provided by (Used In) Operating Activities $ -- $ (7,054) $ 677 $ (6,377)
----- -------- ------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment -- (2,787) (4) (2,791)
Purchase of contract rights -- (5,894) -- (5,894)
----- -------- ------- --------
Net cash used in investing activities -- (8,681) (4) (8,685)
----- -------- ------- --------
Cash Flows from Financing Activities:
Net borrowings - revolving loans -- 14,000 -- 14,000
Principal payments on long-term debt -- (287) -- (287)
Principal payments on capital lease obligations -- (55) -- (55)
Increase (decrease) in bank overdrafts -- (603) 143 (460)
Loans to related parties -- (17) -- (17)
----- -------- ------- --------
Net cash provided by financing activities -- 13,038 143 13,181
----- -------- ------- --------
Increase (Decrease) in cash -- (2,697) 816 (1,881)
Cash and cash equivalents - beginning of period -- 14,158 568 14,726
----- -------- ------- --------
Cash and cash equivalents - end of period $ -- $ 11,461 $ 1,384 $ 12,845
===== ======== ======= ========
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CONSOLIDATING CONDENSED BALANCE SHEET
JANUARY 2, 2001 (IN THOUSANDS)
Combined Combined
Volume Guarantor Non-guarantor
ASSETS Holdings Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
Current Assets:
Cash and cash equivalents $ 14,158 $ 568 $ 14,726
Accounts receivable 17,272 2,114 19,386
Other current assets 23,791 990 $ (8,669) 16,112
--------- --------- --------- ---------
Total current assets 55,221 3,672 (8,669) 50,224
Property and equipment 59,045 3,643 -- 62,688
Contract rights, net 69,506 1,287 -- 70,793
Cost in excess of net assets acquired,
net 48,228 -- -- 48,228
Investment in subsidiaries $ (6,509) -- -- 6,509
Other assets -- 33,738 25 -- 33,763
--------- --------- --------- --------- ---------
TOTAL ASSETS $ (6,509) $ 265,738 $ 8,627 $ (2,160) $ 265,696
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Intercompany liabilities $ 8,669 $ (8,669)
Other current liabilities $ 48,331 2,148 $ 50,479
--------- --------- --------- ---------
Total current liabilities 48,331 10,817 (8,669) 50,479
Long-term debt 216,550 -- -- 216,550
Other liabilities 5,176 -- -- 5,176
--------- --------- --------- ---------
Total liabilities 270,057 10,817 (8,669) 272,205
--------- --------- --------- ---------
Stockholders' Deficiency:
Common stock
Additional paid-in capital $ 66,754 66,754 -- (66,754) 66,754
Accumulated deficit (22,462) (20,534) (1,928) 22,462 (22,462)
Treasury stock and other (50,801) (50,539) (262) 50,801 (50,801)
--------- --------- -------- --------- ---------
Total stockholders'
deficiency (6,509) (4,319) (2,190) 6,509 (6,509)
--------- --------- -------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ (6,509) $ 265,738 $ 8,627 $ (2,160) $ 265,696
========= ========= ======== ========= =========
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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
-------- ------------ ------------- ------------ ------------
Net sales $ 73,686 $ 6,434 $ 80,120
Cost of sales 58,818 5,425 64,243
Selling, general, and administrative 8,952 625 9,577
Depreciation and amortization 5,888 601 6,489
Transaction related expenses 770 -- 770
Contract related losses 205 -- 205
-------- -------- --------
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 in earnings of subsidiaries $ (7,842) -- -- $ 7,842 --
-------- -------- -------- -------- --------
Net loss (7,842) (7,633) (209) 7,842 (7,842)
Other comprehensive gain -
foreign currency translation adjustment -- -- 21 -- 21
-------- -------- -------- -------- --------
Comprehensive loss $ (7,842) $ (7,633) $ (188) $ 7,842 $ (7,821)
======== ======== ======== ======== ========
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
-------- ------------ ------------- ------------
Cash Flows Provided by (Used in) 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:
Net borrowings - revolving loans -- 8,750 -- 8,750
Principal payments on long-term debt -- (287) -- (287)
Principal payments on capital lease obligations -- (50) -- (50)
Decrease in bank overdrafts -- (1,123) 789 (334)
Loans to related parties -- (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
==== ======= ======= ========
********
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SEASONALITY AND QUARTERLY RESULTS
The Company's sales and operating results have varied and are expected to
continue to vary, from quarter to quarter, as a result of factors which
include:
o seasonal patterns within the industry;
o the unpredictability in the number, timing and type of new contracts;
o the timing of contract expirations and special events; and
o the level of attendance at the facilities which we serve.
Business at the principal types of facilities which we serve is seasonal in
nature with Major League Baseball and minor league baseball sales concentrated
in the second and third quarter, the majority of National Football League
("NFL") activity occurring in the fourth quarter and convention centers and
arenas generally hosting fewer events during the summer months. Consequently,
our results of operations for the first quarter are typically substantially
lower than other quarters. Results of operations for any particular quarter
may not be indicative of results of operations for future periods.
Set forth below are comparative net sales by quarter (in thousands) for fiscal
2000 and 1999:
2000 1999
---- ----
1st Quarter $80,120 $66,290
2nd Quarter 143,637 116,341
3rd Quarter 188,289 147,058
4th Quarter 110,487 101,764
RESULTS OF OPERATIONS
QUARTER ENDED APRIL 3, 2001 COMPARED TO THE QUARTER ENDED MARCH 28, 2000
Net Sales - Net sales of $83.2 million for the first quarter of fiscal
2001 increased $3.1 million or 4% from $80.1 million in the prior year period.
Increased sales, primarily due to new accounts (approximately 12%), were
partially offset by a decline in sales (approximately 7%) at accounts hosting
NFL games. Facilities that the Company services had ten NFL games, six
post-season playoff games and four 1999 regular season games in the first
quarter of fiscal 2000, as compared to two NFL playoff games in the first
quarter of fiscal 2001.
Cost of sales - Cost of sales of $71.0 million for the quarter
increased $6.8 million from $64.2 million in the prior year period. Cost of
sales as a percentage of net sales increased 5% from prior year due primarily to
higher costs experienced during the quarter in operating the Company's
convention center facilities, non-recurring start-up costs associated with the
opening of new service contracts and a higher concentration of sales in new
accounts with lower profit margins.
Selling, general and administrative expenses - Selling, general and
administrative expenses of $10.3 million increased $0.7 million from the prior
year period as a result of the higher sales volume. Selling, general and
administrative expenses as a percentage of net sales remained constant at
approximately 12% for both periods.
Depreciation and amortization - Depreciation and amortization of $6.0
million for the first quarter of fiscal 2001 declined $0.5 million from the
prior year period. The decrease was primarily due to a decline in
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amortization associated with the fair value of contract rights acquired related
to the acquisitions of Volume Services in 1995 and Service America in 1998 as
the result of the expiration of the initial contract term of certain service
contracts.
Transaction related expenses - Non-recurring strategic corporate costs
of $0.8 million were incurred in the first quarter of fiscal 2000.
Contract related losses - Contract related losses reflect $0.2 million
in legal fees incurred during the first quarter of fiscal 2000 as a result of
litigation involving a terminated account.
Operating loss - Operating loss increased $2.9 million from the prior
year period primarily due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
For the first fiscal quarter of 2001, net cash used in operating
activities was $6.4 million compared to $3.4 million in the prior year period.
The $3.0 million rise was primarily due to a $2.9 million increase in operating
losses.
Net cash used in investing activities was $8.7 million in the first
quarter of fiscal 2001 compared to $3.5 million in the prior year period. The
increase in cash used in investing activities primarily reflects a higher level
of investment in contract rights and property and equipment associated with the
renewal of existing service contracts during the first quarter of fiscal 2001.
Net cash provided by financing activities was $13.2 million in the
first fiscal quarter of 2001 as compared to $8.0 million in the prior year
period. The $5.2 million increase primarily reflects $14.0 million borrowed
during the quarter under the Company's revolving credit facility as compared to
$8.8 million in the prior year period. In both periods, the borrowings
principally funded 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 anticipate
total capital investments of $32.5 million in fiscal 2001 to meet commitments
under new and existing contracts. At April 3, 2001, $37.2 million of the
Company's revolving credit facility was available to be borrowed. At that date,
there were $20.0 million in outstanding revolving credit borrowings and $17.8
million of outstanding, undrawn letters of credit reducing availability. The
Company expects to reduce the outstanding revolving credit borrowings as of the
end of fiscal 2001.
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;
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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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of April 3, 2001, 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 January 2, 2001.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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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 17, 2001.
VOLUME SERVICES AMERICA, INC.
By: /s/ Kenneth R. Frick
----------------------------------------------------
Name: Kenneth R. Frick
Title: Executive Vice President and Chief Financial Officer
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