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 APRIL 2, 2002 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.
-----------------------------
(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 16, 2002, was 100.
VOLUME SERVICES AMERICA, INC.
INDEX
PART I FINANCIAL INFORMATION..........................................................................................1
Item 1. Financial Statements.........................................................................................1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................................15
PART II OTHER INFORMATION...........................................................................................15
Item 5. Other Information...........................................................................................15
Item 6. Exhibits and Reports on Form 8-K............................................................................15
i
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
APRIL 2, 2002 AND JANUARY 1, 2002 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
APRIL 2, JANUARY 1,
ASSETS 2002 2002
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents $ 11,793 $ 15,142
Accounts receivable, less allowance for doubtful accounts of
$816 and $984 at April 2, 2002 and January 1, 2002,
respectively 13,649 18,386
Merchandise inventories 15,223 13,221
Prepaid expenses and other 3,278 2,469
Deferred tax asset 701 701
---------- ----------
Total current assets 44,644 49,919
---------- ----------
PROPERTY AND EQUIPMENT:
Leasehold improvements 48,173 47,548
Merchandising equipment 47,813 46,410
Vehicles and other equipment 8,792 8,426
Construction in process 403 176
---------- ----------
Total 105,181 102,560
Less accumulated depreciation and amortization (47,424) (44,772)
---------- ----------
Property and equipment, net 57,757 57,788
---------- ----------
OTHER ASSETS:
Contract rights, net 78,133 80,680
Cost in excess of net assets acquired, net 46,457 46,457
Deferred financing costs, net 8,159 8,517
Trademarks, net 17,049 17,049
Deferred tax asset 1,320 32
Other 5,258 5,458
---------- ----------
Total other assets 156,376 158,193
---------- ----------
TOTAL ASSETS $ 258,777 $ 265,900
========== ==========
1
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)(UNAUDITED)
APRIL 2, 2002 AND JANUARY 1, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
APRIL 2, JANUARY 1,
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2002 2002
----------------- -----------------
CURRENT LIABILITIES:
Short-term note payable $ 1,250 $ 4,750
Current maturities of long-term debt 1,150 1,150
Current maturities of capital lease obligation 211 267
Accounts payable 13,560 14,977
Accrued salaries and vacations 9,332 8,546
Liability for insurance 4,057 2,934
Accrued taxes, including income taxes 3,223 3,235
Accrued commissions and royalties 11,119 11,901
Accrued interest 1,082 3,847
Other 6,211 4,439
--------- ---------
Total current liabilities 51,195 56,046
--------- ---------
LONG TERM LIABILITIES:
Long-term debt 223,112 218,400
Liability for insurance 738 838
Other liabilities 876 876
--------- ---------
Total long-term liabilities 224,726 220,114
--------- ---------
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 66,852 66,852
Accumulated deficit (32,932) (26,062)
Accumulated other comprehensive loss (485) (471)
Treasury stock - at cost (194 shares) (49,500) (49,500)
Loans to related parties (1,079) (1,079)
--------- ---------
Total stockholders' deficiency (17,144) (10,260)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 258,777 $ 265,900
========= =========
See notes to consolidated financial statements.
2
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 2, 2002 AND APRIL 3, 2001
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
Thirteen Weeks Ended
--------------------------------------
April 2, April 3,
2002 2001
----------------- -----------------
Net sales $ 87,840 $ 83,194
Cost of sales 74,799 70,972
Selling, general, and administrative 11,633 10,321
Depreciation and amortization 5,593 6,008
----------- ------------
Operating loss (4,185) (4,107)
Interest expense 5,357 6,545
Other income, net (1,384) (21)
----------- ------------
Loss before income taxes (8,158) (10,631)
Income tax benefit (1,288) -
----------- ------------
Net loss (6,870) (10,631)
Other comprehensive loss - foreign currency translation
adjustment (14) (192)
----------- -----------
Comprehensive loss $ (6,884) $ (10,823)
=========== ===========
See notes to consolidated financial statements.
3
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (UNAUDITED)
FOR THE PERIOD JANUARY 2, 2002 TO APRIL 2, 2002
(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 1, 2002 332 $ - $ 66,852 $ (26,062) $ (471) $ (49,500) $ (1,079) $ (10,260)
Foreign currency translation - - - - (14) - (14)
Net loss - - - (6,870) - - - (6,870)
--- --- -------- --------- ------- --------- -------- ---------
BALANCE, APRIL 2, 2002 332 $ - $ 66,852 $ (32,932) $ (485) $ (49,500) $ (1,079) $ (17,144)
=== === ======== ========= ====== ========= ======== =========
See notes to consolidated financial statements
4
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 2, 2002 AND APRIL 3, 2001
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
Thirteen Weeks Ended
---------------------------------------
April 2, April 3,
2002 2001
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,870) $ (10,631)
Depreciation and amortization 5,593 6,008
Amortization of deferred financing costs 358 358
Deferred tax change (1,288) -
Other (14) (192)
Changes in assets and liabilities:
Decrease (increase) in assets:
Accounts receivable 4,737 3,391
Merchandise inventories (2,002) (2,202)
Prepaid expenses (809) (835)
Other assets 40 (546)
Increase (decrease) in liabilities:
Accounts payable 341 934
Accrued salaries and vacations 786 628
Liability for insurance 1,023 130
Other liabilities (1,787) (3,420)
-------- --------
Net cash provided by (used in) operating activities 108 (6,377)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,651) (2,791)
Purchase of contract rights (204) (5,894)
-------- --------
Net cash used in investing activities (2,855) (8,685)
-------- --------
5
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)(UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 2, 2002 AND APRIL 3, 2001
(IN THOUSANDS)
THIRTEEN WEEKS ENDED
---------------------------------
APRIL 2, APRIL 3,
2002 2001
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings - revolving loans $ 1,500 $ 14,000
Principal payments on long-term debt (287) (287)
Principal payments on capital lease obligations (57) (55)
Decrease in bank overdrafts (1,758) (460)
Loans to related parties - (17)
------- --------
Net cash (used in) provided by financing activities (602) 13,181
------- --------
DECREASE IN CASH (3,349) (1,881)
CASH AND CASH EQUIVALENTS:
Beginning of period 15,142 14,726
------- --------
End of period $ 11,793 $ 12,845
======== ========
See notes to consolidated financial statements.
6
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 2, 2002 AND APRIL 3, 2001
- --------------------------------------------------------------------------------
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 2,
2002 are not necessarily indicative of the results to be expected for the
fifty-two week fiscal year ending December 31, 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 1, 2002.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING STANDARDS - In July 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 142 ("SFAS 142") "Goodwill and Other Intangible Assets", which
became effective for the Company on January 2, 2002. SFAS 142 requires, among
other things, the discontinuance of goodwill and trademarks amortization. In
addition, the standard includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the useful lives of
existing recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS 142 also
requires that the Company complete a transitional goodwill impairment test six
months from the date of adoption and then annually thereafter. The Company has
adopted SFAS 142 and in accordance with the standard has discontinued the
amortization of goodwill and trademarks which was $0.6 million for the thirteen
weeks ended April 3, 2001. The Company is currently evaluating the impact of the
transitional goodwill impairment test required by SFAS 142.
In October 2001, the FASB issued SFAS No. 144 ("SFAS 144") "Accounting
for the Impairment or Disposal of Long-Lived Assets" which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 superseded Statement of Financial Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS 144 became effective for the Company on January 2, 2002. The adoption
of SFAS 144 had no significant impact on the Company's financial position or
results of operation.
7
3. 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 consolidated financial statements of Volume Holdings, the Guarantor
Subsidiaries and the Non-Guarantor Subsidiaries as of April 2, 2002 and January
1, 2002 (in the case of the balance sheets) and for the thirteen week periods
ended April 2, 2002 and April 3, 2001 (in the case of the statements of
operations and cash flows).
CONSOLIDATING CONDENSED BALANCE SHEET, APRIL 2, 2002 (IN THOUSANDS)
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
ASSETS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Current assets:
Cash and cash equivalents $ - $ 11,584 $ 209 $ - $ 11,793
Accounts receivable - 12,402 1,247 - 13,649
Other current assets - 25,066 924 (6,788) 19,202
-------- -------- ------- ------- --------
Total current assets - 49,052 2,380 (6,788) 44,644
Property and equipment - 54,553 3,204 - 57,757
Contract rights, net - 77,513 620 - 78,133
Cost in excess of net assets acquired, net - 46,457 - - 46,457
Investment in subsidiaries (17,144) - - 17,144 -
Other assets - 31,780 6 - 31,786
-------- -------- ------- ------- --------
Total assets $(17,144) $259,355 $ 6,210 $10,356 $258,777
======== ======== ======= ======= ========
Liabilities and Stockholders' Deficiency
Current liabilities:
Intercompany liabilities $ - $ - $ 6,788 $ (6,788) $ -
Other current liabilities - 49,288 1,907 - 51,195
-------- -------- ------- -------- --------
Total current liabilities - 49,288 8,695 (6,788) 51,195
Long-term debt - 223,112 - - 223,112
Other liabilities - 1,614 - - 1,614
-------- --------- ------- -------- --------
Total liabilities - 274,014 8,695 (6,788) 275,921
-------- --------- ------- -------- --------
Stockholders' deficiency:
Common stock - - - - -
Additional paid-in capital 66,852 66,852 - (66,852) 66,852
Accumulated deficit (32,932) (30,932) (2,000) 32,932 (32,932)
Treasury stock and other (51,064) (50,579) (485) 51,064 (51,064)
--------- -------- ------- -------- --------
Total stockholders'
deficiency (17,144) (14,659) (2,485) 17,144 (17,144)
--------- -------- ------- -------- --------
Total liabilities and stockholders'
deficiency $ (17,144) $259,355 $ 6,210 $10,356 $258,777
========= ======== ======= ======= ========
8
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
THIRTEEN WEEK PERIOD ENDED APRIL 2, 2002 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $82,058 $5,782 $87,840
Cost of sales 69,679 5,120 74,799
Selling, general, and administrative 11,085 548 11,633
Depreciation and amortization 5,371 222 5,593
------- ------ ------
Operating loss (4,077) (108) (4,185)
Interest expense 5,357 5,357
Other income, net (1,384) (1,384)
------- ------ ------
Loss before income taxes (8,050) (108) (8,158)
Income tax benefit (1,288) - (1,288)
------- ------ ------
Loss in earnings of subsidiaries $ (6,870) - - $6,870 -
-------- ------- ------ ------ ------
Net loss (6,870) (6,762) (108) 6,870 (6,870)
Other comprehensive loss -
foreign currency translation adjustment - - (14) - (14)
-------- -------- ------ ------ -------
Comprehensive loss $ (6,870) $(6,762) $ (122) $6,870 $(6,884)
======== ======= ====== ====== =======
Consolidating Condensed Statement of Cash Flows
Thirteen Week Period Ended April 2, 2002 (in thousands)
Combined Combined
Volume Guarantor Non-guarantor
Holdings Subsidiaries Subsidiaries Consolidated
Cash Flows Provided by (Used In) Operating Activities $ - $ (109) $ 217 $ 108
--- -------- ----- -----
Cash Flows from Investing Activities:
Purchase of property and equipment - (2,477) (174) (2,651)
Purchase of contract rights - (204) - (204)
--- -------- ----- --------
Net cash used in investing activities - (2,681) (174) (2,855)
--- -------- ----- --------
Cash Flows from Financing Activities:
Net borrowings - revolving loans - 1,500 - 1,500
Principal payments on long-term debt - (287) - (287)
Principal payments on capital lease obligations - (57) - (57)
Decrease in bank overdrafts - (1,758) (1,758)
--- -------- ----- --------
Net cash used in financing activities - (602) - (602)
--- -------- ----- --------
Increase (decrease) in cash - (3,392) 43 (3,349)
Cash and cash equivalents - beginning of period - 14,976 166 15,142
--- -------- ----- --------
Cash and cash equivalents - end of period $ - $ 11,584 $ 209 $ 11,793
=== ======== ===== ========
9
CONSOLIDATING CONDENSED BALANCE SHEET, JANUARY 2, 2002 (IN THOUSANDS)
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
ASSETS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Current assets:
Cash and cash equivalents $ $ 14,976 $ 166 $ $ 15,142
Accounts receivable 16,471 1,915 18,386
Other current assets 23,667 1,028 (8,304) 16,391
--------- --------- ------- ------- --------
Total current assets 55,114 3,109 (8,304) 49,919
Property and equipment 54,607 3,181 57,788
Contract rights, net 79,890 790 80,680
Cost in excess of net assets acquired, net 46,457 46,457
Investment in subsidiaries $ (10,260) 10,260
Other assets 31,050 6 31,056
--------- --------- ------- ------- ---------
Total assets $ (10,260) $ 267,118 $ 7,086 $ 1,956 $ 265,900
========= ========= ======= ======= =========
Liabilities and Stockholders' Deficiency
Current liabilities:
Intercompany liabilities $ $ $ 8,304 $ (8,304) $
Other current liabilities 54,901 1,145 56,046
--------- --------- ------- -------- ---------
Total current liabilities 54,901 9,449 (8,304) 56,046
Long-term debt 218,400 218,400
Other liabilities 1,714 1,714
--------- --------- ------- --------- ---------
Total liabilities 275,015 9,449 (8,304) 276,160
--------- --------- ------- --------- ---------
Stockholders' deficiency:
Common stock
Additional paid-in capital 66,852 66,852 (66,852) 66,852
Accumulated deficit (26,062) (24,170) (1,892) 26,062 (26,062)
Treasury stock and other (51,050) (50,579) (471) 51,050 (51,050)
--------- --------- ------- --------- ---------
Total stockholders' deficiency (10,260) (7,897) (2,363) 10,260 (10,260)
--------- --------- ------- --------- ---------
Total liabilities and stockholders'
deficiency $ (10,260) $ 267,118 $ 7,086 $ 1,956 $ 265,900
========= ========= ======= ========= =========
10
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 (income) 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 in earnings 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
=== ========= ======= ========
11
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 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 ("MLB") and minor league baseball sales
concentrated in the second and third quarters, 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. 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 2001 and fiscal 2000:
2001 2000
---- ----
1st Quarter $ 83,194 $ 80,120
2nd Quarter $157,646 $143,637
3rd Quarter $177,559 $188,289
4th Quarter $124,714 $110,487
RESULTS OF OPERATIONS
QUARTER ENDED APRIL 2, 2002 COMPARED TO THE QUARTER ENDED APRIL 3, 2001
Net Sales - Net sales of $87.8 million for the quarter ended April 2, 2002
increased $4.6 million (approximately 6%) from $83.2 million in the prior year
period. The increase was attributable, in part, to five NFL games played during
the quarter, including four games which were postponed due to the events of
September 11, 2001, and Super Bowl XXXVI, which was hosted by the Louisiana
Superdome, a venue serviced by the Company. In the prior year period, two NFL
playoff games were played at Company facilities. The combined results at NFL
accounts represented approximately 3% of the increase in net sales. In addition,
newly acquired contracts, net of terminated contracts, accounted for
approximately 2% of the increase in net sales from the prior year period. New
account sales were primarily driven by the results of a new arena which
commenced operations in the Company's fourth fiscal quarter of 2001.
Cost of sales - The Company's cost of sales as a percentage of net sales of
85.2% in the quarter ended April 2, 2002 was consistent with the 85.3% in the
prior year period.
Selling, general and administrative expenses - Selling, general and
administrative expenses of $11.6 million increased approximately 0.8% as a
percentage of net sales from the prior year period. The largest single component
12
of the increase is higher insurance costs as a result of dramatic price
increases seen in the insurance market post September 11, 2001.
Depreciation and amortization - Depreciation and amortization of $5.6
million for the quarter ended April 2, 2002 declined $0.4 million from the prior
year period. The decrease was primarily due to a decline in amortization related
to the discontinuation of goodwill and trademark amortization ($0.6 million) in
accordance with Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" which became effective for the Company on January
2, 2002.
Operating loss - Operating loss declined approximately $0.1 million from
the prior year period primarily due to the factors discussed above.
Interest expense - Interest expense declined $1.2 million from the prior
year period chiefly associated with lower interest rates on the Company's
adjustable rate debt.
Other income - Service America received approximately $1.4 million in
connection with funds set aside to satisfy creditors pursuant to a plan of
reorganization approved in 1993. Under the plan of reorganization, the Company
was required to deposit funds with a disbursing agent for the benefit of its
creditors. Any funds which remained unclaimed by creditors after a period of two
years from the date of any distribution were forfeited and all interest in those
funds reverted to Service America. Counsel has advised that Service America has
no obligation to escheat such funds.
Income taxes - Management has evaluated the available evidence about future
taxable income and other possible sources of realization of deferred tax assets
and based on its best current estimates believes taxable income or benefit will
be realized in fiscal 2002. Accordingly in the quarter ended April 2, 2002, it
has recognized a tax benefit of approximately $1.3 million, in comparison to the
recognition of no tax benefit in the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended April 2, 2002, net cash provided by operating
activities was $0.1 million compared to net cash used in operating activities of
$6.4 million in the prior year period. Approximately $3.1 million of this $6.5
million increase from the prior year period was due to an increase in advance
deposits and a decrease in accounts receivable due to the timing of events.
Additionally, a decrease in interest expense and the recovery of funds by
Service America as discussed above, contributed $1.2 million and $1.4 million,
respectively, to the increase in cash from operating activities.
Net cash used in investing activities was $2.9 million in the quarter ended
April 2, 2002 compared to $8.7 million in the prior year period which primarily
reflects a higher level of investment in contract rights and property and
equipment associated with renewals of existing contracts in the prior year
period.
Net cash used in financing activities was $0.6 million in the quarter ended
April 2, 2002 as compared to $13.2 million in cash provided by financing
activities in the prior year period. The decrease primarily reflects net
borrowings of $1.5 million under the Company's revolving credit facility in the
current period as compared to $14.0 million in the prior year period to fund the
higher level of investment and working capital needs.
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 $47.0 million in fiscal 2002. At April 2, 2002,
$46.8 million of the Company's revolving credit facility was available to be
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borrowed. At that date, there were $14.3 million in outstanding revolving credit
borrowings and $13.9 million of outstanding, undrawn letters of credit reducing
availability.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142 ("SFAS 142")
"Goodwill and Other Intangible Assets", which became effective for the Company
on January 2, 2002. SFAS 142 requires, among other things, the discontinuance of
goodwill and trademarks amortization. In addition, the standard includes
provisions for the reclassification of certain existing recognized intangibles
as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires that the
Company complete a transitional goodwill impairment test six months from the
date of adoption and then annually thereafter. The Company has adopted SFAS 142
and in accordance with the standard has discontinued the amortization of
goodwill and trademarks which was $0.6 million for the quarter ended April
3, 2001. The Company is currently evaluating the impact of the transitional
goodwill impairment test required by SFAS 142.
In October 2001, the FASB issued SFAS No. 144 ("SFAS 144") "Accounting for
the Impairment or Disposal of Long-Lived Assets" which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 superseded Statement of Financial Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS 144 became effective for the Company on January 2, 2002. The adoption
of SFAS 144 had no significant impact on the Company's financial position or
results of operation.
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 the risk of weaker economic conditions within the United States;
o the risk of events similar to those of September 11, 2001;
o general risks associated with the food industry; and
o any future changes in government regulation.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk - We are exposed to interest rate volatility with regard
to existing issuances of variable rate debt. The Company's financial instruments
with market risk exposure consist of its term loans and revolving credit
facility borrowings. A change in interest rates of one percent on the
outstanding borrowings as of April 2, 2002 would cause a change in annual
interest expense of approximately $1.3 million. The Company's Senior
Subordinated Notes are fixed interest rate debt obligations.
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
Effective April 15, 2002, the Company elected Lawrence E. Honig as its
Chief Executive Officer and a member of its Board of Directors. John T. Dee, the
prior Chairman and Chief Executive Officer, remains Chairman of the Company's
Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Amendment to Amended and Restated Stockholders' Agreement, dated
as of April 15, 2002, among Volume Services America Holdings,
Inc., BCP Volume L.P., BCP Offshore Volume L.P., VSI Management
Direct L.P., and Recreational Services L.L.C.
10.2 Employment Agreement, dated April 15, 2002, by and between Volume
Services America Holdings, Inc., and Lawrence E. Honig.
10.3 Letter agreement dated April 17, 2002, amending the terms of the
Employment Agreement by and between Volume Services America
Holdings, Inc., and John T. Dee.
(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 16, 2002.
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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