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 June 27, 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 August 9, 2000, was 100.
VOLUME SERVICES AMERICA, INC.
INDEX
Part I Financial Information........................................................................................2
Item 1. Financial Statements (unaudited) -
Volume Services America Holdings, Inc. and Subsidiaries......................................................2
Consolidated Balance Sheets as of June 27, 2000 and December 28, 1999
Volume Services America Holdings, Inc........................................................................2
Consolidated Statements of Operations and Comprehensive Gain (Loss)
for the Thirteen and Twenty-Six Week Periods Ended June 27, 2000 and June 29, 1999...............
Consolidated Statement of Stockholders' Deficiency
for the Period December 29, 1999 to June 27, 2000.................................
Consolidated Statements of Cash Flows
for the Twenty-Six Week Periods Ended June 27, 2000 and June 29, 1999................
Notes to Consolidated Financial Statements
for the Twenty-Six Week Periods Ended June 27, 2000 and June 29, 1999.................
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................19
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................
Part II Other Information...........................................................................................22
Item 1. Legal Proceedings...........................................................................................22
Item 4. Submission of Matters to a Vote of Security Holders...............................
Item 6. Exhibits and Reports on Form 8-K..............................................................................22
i
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 27, 2000 AND DECEMBER 28, 1999 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
JUNE 27, DECEMBER 28,
ASSETS 2000 1999
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents $ 14,880 $ 12,281
Accounts receivable, less allowance for doubtful accounts of
$674 and $1,348 at June 27, 2000 and December 28, 1999,
respectively 19,036 16,935
Merchandise inventories 14,398 10,947
Prepaid expenses and other 3,472 6,870
Deferred tax asset 3,756 3,756
---------------- --------------
Total current assets 55,542 50,789
---------------- ---------------
PROPERTY AND EQUIPMENT:
Leasehold improvements 46,192 44,518
Merchandising equipment 43,705 43,261
Vehicles and other equipment 7,474 6,953
Construction in process 418 474
----------------- ---------------
Total 97,789 95,206
Less accumulated depreciation and amortization (31,195) (25,805)
------------------ ---------------
Property and equipment, net 66,594 69,401
------------------ ---------------
OTHER ASSETS:
Contract rights, net 74,726 73,808
Cost in excess of net assets acquired, net 49,114 50,000
Deferred financing costs, net 10,663 11,459
Trademarks, net 18,078 18,422
Other 5,134 4,742
----------------- ---------------
Total other assets 157,715 158,431
----------------- ---------------
TOTAL ASSETS $ 279,851 $ 278,621
================= ===============
-2-
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 27, 2000 AND DECEMBER 28, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
JUNE 27, DECEMBER 28,
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2000 1999
----------------- -----------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,150 $ 1,150
Current maturities of capital lease obligation 215 206
Accounts payable 22,198 17,116
Accrued salaries and vacations 11,343 8,050
Liability for self-insured claims 2,099 2,186
Accrued taxes, including income taxes 4,352 2,706
Accrued commissions and royalties 20,614 10,258
Accrued interest 3,699 3,873
Other 4,098 4,304
-------- --------
Total current liabilities 69,768 49,849
-------- --------
LONG TERM LIABILITIES:
Long term debt 212,125 222,200
Capital lease obligation 306 416
Deferred income tax 3,086 5,091
Liability for self-insured claims 1,786 1,370
Other liabilities 1,090 2,081
-------- --------
Total long term liabilities 218,393 231,158
------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Common stock, $0.01 par value:
Authorized - 1,000 shares; issued: 332 at June 27, 2000 and
December 28, 1999; outstanding: 332 at June 27, 2000 and
December 28, 1999 - -
Additional paid-in capital 66,474 66,474
Accumulated deficit (24,038) (18,243)
Accumulated other comprehensive loss (241) (198)
Treasury stock - at cost (194 shares at June 27, 2000 and
December 28, 1999) (49,500) (49,500)
Other (1,005) (919)
-------- --------
Total stockholders' deficiency (8,310) (2,386)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 279,851 $ 278,621
========= =========
See notes to consolidated financial statements.
-3-
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE GAIN (LOSS) (UNAUDITED)
THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED JUNE 27, 2000 AND JUNE 29, 1999
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
--------------------------------------------------------------------------
JUNE 27, JUNE 29, JUNE 27, JUNE 29,
2000 1999 2000 1999
------------------ ----------------- ------------------ --------------
Net sales $ 143,637 $ 116,341 $ 223,757 $ 182,631
Cost of sales 115,733 90,206 179,976 144,520
Selling, general, and administrative 13,037 10,453 22,614 19,897
Depreciation and amortization 6,686 6,818 13,175 13,165
Transaction related expenses 12 209 782 1,227
Contract related losses 1,809 - 2,014 -
--------------- -------------- -------------- -------------
Operating profit 6,360 8,655 5,196 3,822
Interest expense 6,551 5,923 13,153 10,555
Other income, net (109) (113) (157) (215)
--------------- -------------- -------------- -------------
Profit (loss) before income taxes (82) 2,845 (7,800) (6,518)
Income tax provision (benefit) (2,129) 2,650 (2,005) (19)
--------------- -------------- -------------- -------------
Profit (loss) before extraordinary item and cumulative
effect of change in accounting principle 2,047 195 (5,795) (6,499)
Extraordinary loss on debt extinguishment, net of taxes - - - 873
Cumulative effect of change in accounting principle,
net of taxes - - - 256
--------------- -------------- -------------- -------------
Net profit (loss) 2,047 195 (5,795) (7,628)
Other comprehensive loss - foreign currency translation
adjustment (64) (130) (43) (150)
--------------- -------------- -------------- -------------
Comprehensive gain (loss) $ 1,983 $ 65 $ (5,838) $ (7,778)
=============== ============== =============== =============
See notes to consolidated financial statements.
-4-
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY (UNAUDITED)
FOR THE PERIOD DECEMBER 29, 1999 TO JUNE 27, 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
BALANCE,
DECEMBER 28, 1999 332 $ - $ 66,474 $(49,500) $ (18,243) $ (198) $ (919) $ (2,386)
Loan to investors - - - - - - (86) (86)
Foreign currency
translation - - - - - (43) - (43)
Net loss - - - - (5,795) - - (5,795)
----- ----- --------- --------- ---------- ------- --------- ---------
BALANCE,
JUNE 27, 2000 332 $ - $ 66,474 $(49,500) $ (24,038) $ (241) $ (1,005) $ (8,310)
===== ===== ========= ========= ========== ======= ========= =========
See notes to consolidated financial statements
-5-
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
TWENTY-SIX WEEK PERIODS ENDED JUNE 27, 2000 AND JUNE 29, 1999
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
TWENTY-SIX WEEKS ENDED
---------------------------------------
---------------------------------------
JUNE 27, JUNE 29,
2000 1999
---------------- ----------------
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,795) $ (7,628)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Extraordinary item - 873
Cumulative effect of change in accounting
principle - 256
Depreciation and amortization 13,175 13,165
Amortization of deferred financing costs 796 574
Contract related losses 1,709 -
Deferred tax change (2,005) (120)
(Gain) loss on disposition of assets 7 (5)
Other (43) (150)
Changes in assets and liabilities:
Decrease (increase) in assets:
Accounts and notes receivable (2,818) (789)
Merchandise inventories (3,451) (2,474)
Prepaid expenses 1,459 (1,676)
Other assets (751) (138)
Increase (decrease) in liabilities:
Accounts payable 3,686 (2,033)
Accrued salaries and vacations 3,293 1,150
Liabilities for self-insurance 329 (977)
Other liabilities 10,450 8,993
-------- -------
Net cash provided by operating activities 20,041 9,021
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of acquisition costs (10)
Purchase of property and equipment (3,681) (4,205)
Purchase of contract rights (4,896) (5,966)
-------- -------
Net cash used in investing activities (8,577) (10,181)
-------- --------
-6-
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
TWENTY-SIX WEEK PERIODS ENDED JUNE 27, 2000 AND JUNE 29, 1999
(IN THOUSANDS)
TWENTY-SIX WEEKS ENDED
-------------------------------
JUNE 27, JUNE 29,
2000 1999
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt $ (575) $ (45,788)
Net borrowings (repayments) - revolving loans (9,500) 5,000
Proceeds from long-term debt 100,000
Payments of financing costs (5,682)
Principal payments on capital lease obligations (100) (93)
Increase in bank overdrafts 1,396 3,734
Net increase (decrease) in other equity (86) 731
Redemption of stock - (49,500)
--------- -----------
Net cash provided by (used in) financing
activities (8,865) 8,402
--------- -----------
INCREASE IN CASH 2,599 7,242
CASH AND CASH EQUIVALENTS:
Beginning of period 12,281 8,828
--------- -----------
End of period $ 14,880 $ 16,070
========= ===========
See notes to consolidated financial statements.
-7-
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TWENTY-SIX WEEK PERIODS ENDED JUNE 27, 2000 AND JUNE 29, 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 twenty-six week period ended June 27,
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
twenty-six weeks ended June 27, 2000 consist of direct costs incurred in
connection with the Company's attempt to purchase certain assets. Transaction
related expenses for the twenty-six weeks ended June 29, 1999 primarily relate
to personnel costs, rental costs, and professional fees associated with the
acquisition of Service America Corporation.
3. CONTRACT RELATED LOSSES
During the thirteen weeks ended June 27, 2000, a contract that the
Company intends to continue operating was identified as impaired, as the future
undiscounted cash flows were estimated to be insufficient to recover the related
carrying value of the property and equipment and other assets. 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 $686,000 of property and equipment and $269,000 of other assets.
-8-
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 Hungtington Enterprises LLC. In May 2000, the
arbitrator reached a decision in this matter. The decision provided for no
payment from either paty 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. Approximately $100,000 of the legal fees were incurred in
the thirteen weeks ended June 27, 2000 and $205,000 were incurred in the
thirteen weeks ended March 28, 2000.
-9-
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 June 27, 2000 and December
28, 1999 (in the case of the balance sheets) for the thirteen and twenty-six
week periods ended June 27, 2000 and June 29, 1999 (in the case of the
statements of operations) and for the twenty-six week periods ended June 27,
2000 and June 29, 1999 (in the case of the statements of cash flows).
-10-
CONSOLIDATING CONDENSED BALANCE SHEET
JUNE 27, 2000 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
ASSETS HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Current Assets:
Cash and cash equivalents $13,874 $ 1,006 $14,880
Accounts receivable 17,039 1,997 19,036
Other current assets 29,479 1,150 $(9,003) 21,626
-------- -------- -------- --------
Total current assets 60,392 4,153 (9,003) 55,542
Property and equipment 62,766 3,828 - 66,594
Contract rights, net 72,551 2,175 - 74,726
Cost in excess of net assets acquired,
net 49,114 - - 49,114
Investment in subsidiaries $ (8,310) - - 8,310 -
Other assets - 33,868 7 - 33,875
--------- -------- ------- -------- --------
TOTAL ASSETS $ (8,310) $278,691 $10,163 $ (693) $279,851
========= ======== ======== ======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Intercompany liabilities $ 9,003 $(9,003)
Other current liabilities $66,560 3,208 - $69,768
--------- -------- -------- --------
Total current liabilities 66,560 12,211 (9,003) 69,768
Long-term debt 212,125 - - 212,125
Other liabilities 6,268 - - 6,268
--------- -------- -------- --------
Total liabilities 284,953 12,211 (9,003) 288,161
--------- -------- -------- --------
Stockholders' deficiency:
Common stock $ - - - - -
Additional paid-in capital 66,474 66,474 - (66,474) 66,474
Accumulated deficit (24,038) (22,231) (1,807) 24,038 (24,038)
Other (50,746) (50,505) (241) 50,746 (50,746)
-------- --------- -------- -------- --------
Total stockholders'
deficiency (8,310) (6,262) (2,048) 8,310 (8,310)
-------- --------- -------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ (8,310) $ 278,691 $10,163 $ (693) $279,851
========= ========== ======== ======== =========
-11-
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE GAIN ( LOSS)
THIRTEEN WEEK PERIOD ENDED JUNE 27, 2000 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $ 136,429 $ 7,208 $ 143,637
Cost of sales 109,836 5,897 115,733
Selling, general, and administrative 12,107 930 13,037
Depreciation and amortization 6,064 622 6,686
Transaction related expenses 12 - 12
Contract related losses - 1,809 - - 1,809
------- ---------- -------- -------- ----------
Operating profit (loss) 6,601 (241) 6,360
Interest expense 6,551 - 6,551
Other income, net - (97) (12) - (109)
------- ---------- -------- -------- ----------
Loss before income taxes 147 (229) (82)
Income tax benefit - (2,129) - - (2,129)
------- ---------- -------- -------- ----------
Profit (Loss) before extraordinary item 2,276 (229) 2,047
Extraordinary loss -
Equity in earnings of subsidiaries $ 2,047 - - $ (2,047) -
-------- ---------- -------- --------- ----------
Net profit (loss) 2,047 2,276 (229) (2,047) 2,047
Other comprehensive loss - - (64) - (64)
------- ---------- -------- --------- ----------
Comprehensive gain (loss) $ 2,047 $ 2,276 $ (293) $ (2,047) $ 1,983
======== ========== ======== ========= ==========
-12-
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
TWENTY-SIX WEEK PERIOD ENDED JUNE 27, 2000 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $ 210,115 $ 13,642 $ 223,757
Cost of sales 168,654 11,322 179,976
Selling, general, and administrative 21,059 1,555 22,614
Depreciation and amortization 11,951 1,224 13,175
Transaction related expenses 782 - 782
Contract related losses - 2,014 - - 2,014
-------- ---------- --------- -------- ----------
Operating profit (loss) 5,655 (459) 5,196
Interest expense 13,153 - 13,153
Other income, net - (137) (20) - (157)
-------- ---------- --------- -------- ----------
Loss before income taxes (7,361) (439) (7,800)
Income tax benefit - (2,005) - - (2,005)
-------- ---------- --------- -------- ----------
Loss before extraordinary item (5,356) (439) (5,795)
Extraordinary loss -
Equity in earnings of subsidiaries $ (5,795) - - $ 5,795 -
--------- ---------- --------- -------- ----------
Net loss (5,795) (5,356) (439) 5,795 (5,795)
Other comprehensive loss - - (43) - (43)
--------- ---------- --------- --------
Comprehensive loss $ (5,795) $ (5,356) $ (482) $ 5,795 $ (5,838)
========= ========== ========= ======== ==========
-13-
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
TWENTY-SIX WEEK PERIOD ENDED JUNE 27, 2000 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
Cash Flows from Operating Activities $ - $ 19,996 $ 45 $ 20,041
---- --------- -------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment - (3,299) (382) (3,681)
Purchase of contract rights - (4,096) (800) (4,896)
---- --------- -------- ---------
Net cash used in investing activities - (7,395) (1,182) (8,577)
---- --------- -------- ---------
Cash Flows from Financing Activities:
Principal payments on long-term debt - (575) - (575)
Net repayments - revolving loans - (9,500) - (9,500)
Principal payments on capital lease obligations - (100) - (100)
Increase (decrease) in bank overdrafts - 2,140 (744) 1,396
Decrease in other equity - (86) - (86)
---- --------- -------- ---------
Net cash used in financing activities - (8,121) (744) (8,865)
---- --------- -------- ---------
Increase (decrease)in cash - 4,480 (1,881) 2,599
Cash and cash equivalents - beginning of period - 9,392 2,889 12,281
---- --------- -------- --------
Cash and cash equivalents - end of period $ - $ 13,872 $ 1,008 $ 14,880
==== ========= ======== =========
-14-
CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 28, 1999 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
ASSETS HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
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
========= ========= ======== ========= ==========
-15-
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE GAIN (LOSS)
THIRTEEN WEEK PERIOD ENDED JUNE 29, 1999 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $ 107,225 $ 9,116 $ 116,341
Cost of sales 83,135 7,071 90,206
Selling, general, and administrative 9,410 1,043 10,453
Depreciation and amortization 6,133 685 6,818
Transaction related expenses 209 - 209
-------- ---------- -------- ------- ----------
Operating profit 8,338 317 8,655
Interest expense 5,879 44 5,923
Other income, net (103) (10) (113)
-------- ---------- -------- ------- ----------
Profit before income taxes 2,562 283 2,845
Income tax provision 2,650 - 2,650
-------- ---------- -------- ------- ----------
Profit (Loss) before extraordinary item
and cumulative effect of change in
accounting principle (88) 283 195
Extraordinary item, net of
taxes -
Cumulative effect of change in
accounting principle, net of
taxes -
Equity in earnings of subsidiaries $ 195 - - $ (195) -
------- --------- ------- ------- ---------
Net profit (loss) 195 (88) 283 (195) 195
Other comprehensive loss
foreign currency - - (130) - (130)
------- --------- ------- ------- ---------
Comprehensive gain (loss) $ 195 $ (88) $ 153 $ (195) $ 65
======= ========= ======= ======= =========
-16-
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
TWENTY-SIX WEEK PERIOD ENDED JUNE 29, 1999 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $ 166,477 $ 16,154 $ 182,631
Cost of sales 131,415 13,105 144,520
Selling, general, and administrative 18,010 1,887 19,897
Depreciation and amortization 11,819 1,346 13,165
Transaction related expenses 1,227 - 1,227
------- ---------- --------- ------- ----------
Operating profit (loss) 4,006 (184) 3,822
Interest expense 10,511 44 10,555
Other income, net (205) (10) (215)
------- ---------- --------- -------- ----------
Loss before income taxes (6,300) (218) (6,518)
Income tax benefit (19) - (19)
------- ---------- --------- -------- ----------
Loss before extraordinary item
and cumulative effect of change in
accounting principle (6,281) (218) (6,499)
Extraordinary item, net of
taxes 873 - 873
Cumulative effect of change in
accounting principle, net of
taxes 256 - 256
Equity in earnings of subsidiaries $ (7,628) - - $ 7,628 -
--------- --------- --------- -------- ----------
Net loss (7,628) (7,410) (218) 7,628 (7,628)
Other comprehensive loss
foreign currency - - (150) - (150)
--------- --------- --------- -------- ----------
Comprehensive loss $ (7,628) $ (7,410) $ (368) $ 7,628 $ (7,778)
========= ========= ========= ======== ==========
-17-
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
TWENTY-SIX WEEK PERIOD ENDED JUNE 29, 1999 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
Cash Flows from Operating Activities $ - $ 6,947 $ 2,074 $ 9,021
Cash Flows from Investing Activities:
Payment of acquisition costs - (10) - (10)
Purchase of property and equipment - (3,338) (867) (4,205)
Purchase of contract rights - (5,305) (661) (5,966)
---- -------- -------- ---------
Net cash used in investing activities - (8,653) (1,528) (10,181)
---- -------- -------- ---------
Cash Flows from Financing Activities:
Principal payments on long-term debt - (45,788) - (45,788)
Net borrowings - revolving loans - 5,000 - 5,000
Proceeds from long-term debt - 100,000 - 100,000
Payments of financing costs - (5,682) - (5,682)
Principal payments on capital lease obligations - (93) - (93)
Increase (decrease) in bank overdrafts - 2,868 866 3,734
Redemption of stock (49,500) - (49,500)
Increase in other equity - 731 - 731
---- --------- -------- ---------
Net cash provided by financing activities - 7,536 866 8,402
---- --------- -------- ---------
Increase in cash - 5,830 1,412 7,242
Cash and cash equivalents - beginning of period - 8,692 136 8,828
---- --------- -------- ---------
Cash and cash equivalents - end of period $ - $ 14,522 $ 1,548 $ 16,070
==== ========= ======== =========
********
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 27, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 29,
1999
NET SALES - Net sales of $143.6 million for the three months ended June 27,
2000 increased $27.3 million from $116.3 million in the comparable period of
1999. The increase was primarily due to seven new accounts which opened between
July, 1999 and April, 2000 generating an increase in net sales of $25.5 million.
Two new Major League Baseball ("MLB") venues, Pacific Bell Ball Park, home of
the San Francisco Giants, and Safeco Field, home of the Seattle Mariners,
accounted for $20.1 million of the increase.
COST OF SALES - Cost of sales of $115.7 million for the three month period
ended June 27, 2000 increased $25.5 million from $90.2 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 June 27, 2000,
an increase of 3.1% from 77.5% in the three months ended June 29, 1999. The
increase was primarily the result of higher commission costs associated with the
aforementioned new service contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses of $13.0 million for the three months ended June 27,
2000 were $2.5 million higher than the comparable 1999 period. The increase in
expenses was directly related to higher net sales. As a percentage of net sales,
there was no material change in selling, general and administrative expenses.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization of $6.7
million for the three months ended June 27, 2000 decreased $0.1 million from the
comparable period of 1999.
TRANSACTION RELATED EXPENSES - No material costs were incurred for the
three months ended June 27, 2000. For the three months ended June 29, 1999, $.2
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 $1.8 million in the
three months ended June 27, 2000 include an impairment charge of approximately
$1.0 million relating to the property and equipment and other assets for a
contract which the Company continues to operate. Contract related losses also
reflects a $0.7 million charge for the write off a receivable for the terminated
Huntington Townhouse contract and $0.1 million in related legal fees.
OPERATING PROFIT - Operating profit decreased $2.3 million in the three
months ended June 27, 2000 from the comparable period of 1999. The decline was
primarily due to the factors discussed above.
INTEREST - Interest expense was $0.6 million higher in the three months
ended June 27, 2000 as compared to the comparable period of 1999 chiefly
associated with increased borrowings on the Company's revolving line of credit
and higher interest rates on adjustable rate debt.
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Six Months Ended June 27, 2000 Compared to the Six Months Ended June 29, 1999
NET SALES - For the six months ended June 27, 2000, net sales increased
$41.1 million to $223.8 million from $182.6 million in the comparable 1999
period. The increase was due primarily to the aforementioned new service
contracts which generated additional revenues of $24.8 million. In addition, ten
National Football League ("NFL") games, six post-season playoff games and four
1999 regular season games that occurred in January 2000 contributed an increase
in net sales of $5.0 million. Of the remaining $11.3 million increase, $6.1
million was the result of an increase in net sales at the Company's convention
center venues.
COST OF SALES - Cost of sales for the six months ended June 27, 2000 were
$180.0 million compared to $144.5 million in the comparable 1999 period, an
increase of $35.5 million. Cost of sales as a percentage of net sales, increased
from 79.1% in the 1999 period to 80.4% in the 2000 period. The primary component
in the 1.3% increase was higher commission costs associated with the Company's
new service contracts. The increase in commission costs was partially offset by
significant cost savings achieved through operating efficiencies at certain
accounts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general, and
administrative expenses of $22.6 million in the six months ended June 27, 2000
increased $2.7 million from $19.9 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 0.8% from 10.9% in the
six months ended June 29, 1999 to 10.1% in the six months ended June 27, 2000.
The decline was primarily due 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 was $13.2
million for both the six months ended June 27, 2000 and June 29, 1999.
TRANSACTION RELATED EXPENSES - Costs of $0.8 million were incurred in the
six months ended June 27, 2000 in connection with the Company's attempt to
acquire certain assets. For the six months ended June 29, 1999, $1.2 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 $2.0 million in the
six months ended June 27, 2000 include an impairment charge of approximately
$1.0 million relating to the property and equipment and other assets for a
contract which the Company continues to operate. Contract related losses also
reflects a $0.7 million charge for the write-off of a receivable for the
terminated Huntington Townhouse contract and $0.3 million in related legal fees.
OPERATING PROFIT - Operating profit increased $1.4 million from $3.8
million in the six months ended June 29, 1999 to $5.2 million in the six months
ended June 27, 2000. The increase was primarily due to the factors discussed
above.
INTEREST - Interest expense was $2.6 million higher in the six months ended
June 27, 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.
-20-
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 27, 2000, net cash provided by operating
activities was $20.0 million compared to $9.0 million in the six months ended
June 29, 1999. The $11.0 million improvement was primarily due to a net decrease
in working capital. For the 1999 period, working capital (excluding revolving
loans) decreased $8.3 million as compared to a decrease of $17.8 million for the
2000 period, a net decrease of $9.5 million.
For the six months ended June 27, 2000 net cash used in investing
activities was $8.6 million compared to $10.2 million in the six months ended
June 29, 1999. For the 2000 period, the $8.6 million in investing activities
primarily reflects investments for the purchases of property and equipment and
investments in contract rights in connection with maintaining and/or renewing
existing contracts.
For the six months ended June 27, 2000, net cash used in financing
activities was $8.9 million compared to $8.4 million in cash provided by
financing activities in the six months ended June 29, 1999. The activity for the
six months ended June 27, 2000 primarily reflects the repayment of $9.5 million
borrowed under the Company's revolving credit facility to fund working capital
partially offset by an increase in bank overdrafts (outstanding checks) of $1.4
million. 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 $3.7 million and $5.0 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
$6.0 million and $8.0 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;
-21-
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 June 27, 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.
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-
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 August 10, 2000.
VOLUME SERVICES AMERICA, INC.
By:
Name: Kenneth R. Frick
Title: Vice President and Chief Financial Officer