SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended October 1, 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
VOLUME SERVICES AMERICA, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 57-0969174
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
201 East Broad Street, Spartanburg, South Carolina 29306
- -------------------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (864) 598-8600
--------------
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(X) YES ( ) NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's Common Stock, par value
$.01 per share, at November 15, 2002, was 100.
VOLUME SERVICES AMERICA, INC.
INDEX
PART I FINANCIAL INFORMATION..........................................................................................1
Item 1. Financial Statements.........................................................................................2
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................17
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................................21
Item 4. Controls and Procedures
PART II OTHER INFORMATION............................................................................................22
Item 1. Legal Proceedings...........................................................................................22
Item 6. Exhibits and Reports on Form 8-K............................................................................22
1
PART I
FINANCIAL INFORMATION
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
OCTOBER 1, 2002 AND JANUARY 1, 2002 (In Thousands, Except Per Share Data)
- ----------------------------------------------------------------------------------------------------------------------
OCTOBER 1, JANUARY 1,
ASSETS 2002 2002
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents $ 10,460 $ 15,142
Accounts receivable, less allowance for doubtful accounts of
$884 and $984 at October 1, 2002 and January 1, 2002,
respectively 18,157 18,386
Merchandise inventories 16,544 13,221
Prepaid expenses and other 2,333 2,469
Deferred income taxes 2,056 701
------------ ------------
Total current assets 49,550 49,919
------------ ------------
PROPERTY AND EQUIPMENT:
Leasehold improvements 49,842 47,548
Merchandising equipment 50,545 46,410
Vehicles and other equipment 9,172 8,426
Construction in process 945 176
------------ ------------
Total 110,504 102,560
Less accumulated depreciation and amortization (53,512) (44,772)
------------ ------------
Property and equipment, net 56,992 57,788
------------ ------------
OTHER ASSETS:
Contract rights, net 103,750 80,680
Cost in excess of net assets acquired, net 46,457 46,457
Deferred financing costs, net 7,444 8,517
Trademarks, net 17,049 17,049
Other 4,620 5,490
------------ ------------
Total other assets 179,320 158,193
------------ ------------
TOTAL ASSETS $ 285,862 $ 265,900
============ ============
2
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)(UNAUDITED)
OCTOBER 1, 2002 AND JANUARY 1, 2002
(In Thousands, Except Per Share Data)
- --------------------------------------------------------------------------------------------------------------------------
OCTOBER 1, JANUARY 1,
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2002 2002
----------------- -----------------
CURRENT LIABILITIES:
Short-term note payable $ - $ 4,750
Current maturities of long-term debt 1,150 1,150
Current maturities of capital lease obligation - 267
Accounts payable 18,877 14,977
Accrued salaries and vacations 13,042 8,546
Liability for insurance 3,831 2,934
Accrued taxes, including income taxes 6,437 3,235
Accrued commissions and royalties 24,958 11,901
Accrued interest 1,019 3,847
Other 4,821 4,439
-------- ---------
Total current liabilities 74,135 56,046
-------- ---------
LONG TERM LIABILITIES:
Long-term debt 209,538 218,400
Liability for insurance 2,488 838
Deferred income taxes 1,874 -
Other liabilities 848 876
-------- --------
Total long-term liabilities 214,748 220,114
-------- --------
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 67,330 66,852
Accumulated deficit (19,308) (26,062)
Accumulated other comprehensive loss (464) (471)
Treasury stock - at cost (194 shares) (49,500) (49,500)
Loans to related parties (1,079) (1,079)
-------- --------
Total stockholders' deficiency (3,021) (10,260)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $285,862 $265,900
======== ========
See notes to consolidated financial statements.
3
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)(UNAUDITED)
THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED OCTOBER 1, 2002 AND OCTOBER 2, 2001
(In Thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------------------------------------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
2002 2001 2002 2001
---------------- ---------------- ---------------- ----------------
Net sales $ 195,100 $ 177,559 $ 449,361 $ 418,399
Cost of sales 156,459 143,533 365,537 342,476
Selling, general, and administrative 16,015 13,155 42,599 35,759
Depreciation and amortization 6,734 6,076 19,006 18,161
Contract related losses - 933 699 4,132
--------------- --------------- --------------- ---------------
Operating income 15,892 13,862 21,520 17,871
Interest expense 5,129 5,554 15,661 18,104
Other income, net (28) (91) (1,446) (155)
--------------- --------------- --------------- ---------------
Income (loss) before income taxes 10,791 8,399 7,305 (78)
Income tax provision 1,008 - 551 -
--------------- --------------- --------------- ---------------
Net income (loss) 9,783 8,399 6,754 (78)
Other comprehensive gain (loss) - foreign currency
translation adjustment (152) (133) 7 (176)
--------------- --------------- --------------- ---------------
Comprehensive income (loss) $ 9,631 $ 8,266 $ 6,761 $ (254)
=============== =============== =============== ===============
See notes to consolidated financial statements.
4
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (UNAUDITED)
FOR THE PERIOD JANUARY 1, 2002 TO OCTOBER 1, 2002
(In Thousands, Except 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)
Noncash compensation - - 478 - - - - 478
Foreign currency translation - - - - 7 - 7
Net income - - - 6,754 - - - 6,754
--- --- -------- -------- ------- -------- -------- -------
BALANCE, OCTOBER 1, 2002 332 $- $ 67,330 $(19,308) $ (464) $(49,500) $ (1,079) $(3,021)
=== === ======== ======== ====== ======== ======== =======
See notes to consolidated financial statements.
5
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTY-NINE WEEK PERIODS ENDED OCTOBER 1, 2002 AND OCTOBER 2, 2001
(In Thousands)
- ----------------------------------------------------------------------------------------------------------------------
THIRTY-NINE WEEKS ENDED
---------------------------------------
OCTOBER 1, OCTOBER 2,
2002 2001
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,754 $ (78)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 19,006 18,161
Amortization of deferred financing costs 1,073 1,074
Contract related losses 699 4,132
Noncash compensation 478 107
Deferred tax change 551 -
Gain on disposition of assets (39) (32)
Other 7 (176)
Changes in assets and liabilities:
Decrease (increase) in assets:
Accounts receivable 229 794
Merchandise inventories (3,323) (5,592)
Prepaid expenses 136 (332)
Other assets 37 (2,232)
Increase (decrease) in liabilities:
Accounts payable 1,552 4,303
Accrued salaries and vacations 4,496 2,446
Liability for insurance 2,547 254
Accrued commissions and royalties 13,057 3,978
Other liabilities 728 (711)
-------- -------
Net cash provided by operating activities 47,988 26,096
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (7,622) (6,185)
Proceeds from sale of property and equipment 2,387 62
Contract rights acquired, net (35,904) (16,420)
-------- -------
Net cash used in investing activities (41,139) (22,543)
-------- -------
6
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)(UNAUDITED)
THIRTY-NINE WEEK PERIODS ENDED OCTOBER 1, 2002 AND OCTOBER 2, 2001
(In Thousands)
THIRTY-NINE WEEKS ENDED
---------------------------------
OCTOBER 1, OCTOBER 2,
2002 2001
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments - revolving loans $ (12,750) $ (2,000)
Principal payments on long-term debt (862) (862)
Principal payments on capital lease obligations (267) (167)
Increase in bank overdrafts 2,348 1,745
Loans to related parties - (35)
--------- --------
Net cash used in financing activities (11,531) (1,319)
--------- --------
INCREASE/(DECREASE) IN CASH (4,682) 2,234
CASH AND CASH EQUIVALENTS:
Beginning of period 15,142 14,726
--------- --------
End of period $ 10,460 $ 16,960
========= ========
See notes to consolidated financial statements.
7
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THIRTY-NINE WEEK PERIODS ENDED OCTOBER 1, 2002 AND OCTOBER 2, 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 thirty-nine week period ended October 1,
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 accompanying 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 included in the Company's annual report on Form 10-K.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications - Certain amounts in 2001 have been reclassified, where
applicable, to conform to the financial statement presentation used in
2002.
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, discontinuing amortization of goodwill
and identifiable intangible assets with indefinite lives. 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.
The Company has adopted SFAS 142 and completed the required transitional
impairment test and found there to be no related impairments. In
accordance with the standard, the Company discontinued the amortization of
goodwill and trademarks, identified intangible assets which management
believe have indeterminable lives. A reconciliation of net income (loss)
to adjusted net income is as follows:
8
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------ -----------------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
2002 2001 2002 2001
-------------- -------------- ------------ -------------
(In thousands)
Reported net income (loss) $ 9,783 $ 8,399 $ 6,754 $ (78)
Goodwill amortization - 443 - 1,328
Trademark amortization - 171 - 515
------- ------- ------- -------
Adjusted net income $ 9,783 $ 9,013 $ 6,754 $ 1,765
======= ======= ======= =======
In August 2001, the FASB issued SFAS No. 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 No. 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 No. 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 operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. First, SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and an amendment of that statement,
SFAS No. 64, Extinguishment of Debt Made to Satisfy Sinking-Fund
Requirements. Because of the rescission of SFAS No. 4, the gains and losses
from the extinguishment of debt are no longer required to be classified as
extraordinary items. SFAS No. 64 amended SFAS No. 4 and is no longer needed
because SFAS No. 4 is rescinded. Second, SFAS No. 145 rescinds SFAS No. 44,
Accounting for Intangible Assets of Motor Carriers. This statement was
originally issued to establish accounting requirements for the effects of
transition to the provisions of the Motor Carrier Act of 1980. As those
transitions are complete, SFAS No. 44 is no longer needed. Third, SFAS No.
145 amends SFAS No. 13, Accounting for Leases, to require sale-leaseback
accounting for certain lease modifications that have economic effects that
are similar to sale-leaseback transactions. The amendment of SFAS No. 13 is
effective for transactions occurring after May 15, 2002. There has been no
impact on the Company due to the amendment of SFAS No. 13. Lastly, SFAS No.
145 makes various technical corrections to existing pronouncements that are
not substantive in nature. The Company has not yet evaluated the impact of
the rescission on its financial position or results of operations of SFAS
No. 4, 44 and 64 and the other technical corrections prescribed by this
statement, all of which become effective for the Company in fiscal 2003.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force ("EITF") Issue No.
94-3, Liability Recognition for Certain Employees Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring). The Company has not yet evaluated the impact of this
statement on its financial position or results of operations.
Contract rights - During the thirty-nine weeks ended October 1, 2002, the
Company entered into contracts to provide specified concession and other
services. Contract rights of approximately $35.9 million were purchased and
will be amortized on a straight line basis over the lives of the
agreements.
Insurance - At the beginning of fiscal 2002, the Company adopted a high
deductible insurance program for general liability, auto liability and
workers' compensation risk supplemented by stop-loss type insurance
policies. During the fiscal years 1999 through 2001, the Company had a
premium-based insurance program for general liability, automobile liability
and workers' compensation risk. Prior to fiscal 1999, the Company was
primarily self-insured for general liability, automobile liability and
workers' compensation risks, supplemented by
9
stop-loss type insurance policies. Management determines the estimate of
the reserve for the deductible and self-insurance considering a number of
factors, including historical experience and actuarial assessment of the
liabilities for reported claims and claims incurred but not reported.
The Company became self-insured for employee health insurance in December
1999. Prior to December 1999, the Company had a premium-based insurance
program. The reserve for the employee health self-insurance liability is
based on claims filed and estimates for claims incurred but not reported.
Income Taxes - The provision for income taxes includes federal, state and
foreign taxes currently payable, and the change in deferred tax assets and
liabilities. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities. A valuation
allowance is established for deferred tax assets when it is more likely
than not that the benefits of such assets will not be realized.
Income taxes for the thirty-nine weeks ended October 1, 2002 and October 2,
2001 are calculated using the projected effective tax rate for fiscal 2002
and 2001, respectively, which in fiscal 2002 includes the reversal of
approximately $0.8 million of valuation allowances on deferred tax assets
and the utilization of approximately $0.9 million of wages and tip credits.
3. CONTRACT RELATED LOSSES
Contract related losses for the thirty-nine weeks ended October 1, 2002
reflect an impairment charge of approximately $0.7 million for the
write-down of contract rights. For the thirty-nine weeks ended October 2,
2001, contract related losses consist of approximately $1.8 million for the
write-down of property and equipment and a receivable reserve of $2.3
million related to two of the Company's customers which filed for
reorganization under Chapter 11 of the Bankruptcy Code.
4. COMMITMENTS AND CONTINGENCIES
The Company is from time to time involved in various legal proceedings
incidental to the conduct of its business. In the opinion of management,
any liabilities arising out of any currently pending proceedings will not
have a material adverse effect on our financial condition or results of
operations.
5. EXECUTIVE EMPLOYMENT AGREEMENT
Effective April 15, 2002, the Company entered into an Executive Employment
Agreement (the "Agreement") with its Chief Executive Officer, Lawrence E.
Honig. The Agreement provides for the grant of stock options equal to three
percent of the total outstanding number of shares of Volume Holdings on the
option issuance date pursuant to a stock option plan that was to be adopted
within 180 days of the effective date of the Agreement. As of November 15,
2002, The Company and the Chief Executive Officer are working to develop
the stock option plan, which they anticipate will be completed in the near
future. The exercise price is to be equivalent to the fair value of the
common stock as established by the board of directors on the grant date and
the stock options will vest 20% per year during a period of five years. The
stock options will terminate ten years from the grant date. The Company
plans to measure compensation cost, if any, associated with the stock
options based upon the intrinsic value of the stock options measured at the
grant date, in accordance with the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees".
10
6. 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 October 1, 2002 and January 1, 2002 (in the case of the balance sheets),
for the thirteen and thirty-nine week periods ended, October 1, 2002 and
October 2, 2001 (in the case of the statements of operations and
comprehensive income (loss)) and for the thirty-nine week periods ended,
October 1, 2002 and October 2, 2001 (in the case of the statements of cash
flows).
CONSOLIDATING CONDENSED BALANCE SHEET, OCTOBER 1, 2002 (IN THOUSANDS)
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
ASSETS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Current assets:
Cash and cash equivalents $ - $ 10,241 $ 219 $ - $ 10,460
Accounts receivable - 16,695 1,462 - 18,157
Other current assets - 26,613 1,655 (7,335) 20,933
-------- -------- ------- -------- --------
Total current assets - 53,549 3,336 (7,335) 49,550
Property and equipment - 53,748 3,244 - 56,992
Contract rights, net - 102,922 828 - 103,750
Cost in excess of net assets acquired, net - 46,457 - - 46,457
Investment in subsidiaries (3,021) - - 3,021 -
Other assets - 29,091 22 - 29,113
-------- -------- ------- -------- --------
Total assets $ (3,021) $285,767 $ 7,430 $ (4,314) $285,862
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Intercompany liabilities $ - $ - $ 7,335 $ (7,335) $ -
Other current liabilities - 71,842 2,293 - 74,135
-------- -------- ------- -------- --------
Total current liabilities - 71,842 9,628 (7,335) 74,135
Long-term debt - 209,538 - - 209,538
Other liabilities - 5,210 - - 5,210
-------- -------- ------- -------- --------
Total liabilities - 286,590 9,628 (7,335) 288,883
-------- -------- ------- -------- --------
Stockholders' deficiency:
Common stock - - - - -
Additional paid-in capital 67,330 67,330 - (67,330) 67,330
Accumulated deficit (19,308) (17,574) (1,734) 19,308 (19,308)
Treasury stock and other (51,043) (50,579) (464) 51,043 (51,043)
-------- -------- ------- -------- --------
Total stockholders' deficiency (3,021) (823) (2,198) 3,021 (3,021)
-------- -------- ------- -------- --------
Total liabilities and stockholders'
deficiency $ (3,021) $285,767 $ 7,430 $ (4,314) $285,862
======== ======== ======= ======== ========
11
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
THIRTEEN WEEK PERIOD ENDED OCTOBER 1, 2002 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $ $ 186,674 $ 8,426 $ $ 195,100
Cost of sales 149,211 7,248 156,459
Selling, general, and administrative 15,129 886 16,015
Depreciation and amortization 6,483 251 6,734
--------- --------- ------- ----------- ---------
Operating income 15,851 41 15,892
Interest expense 5,129 5,129
Other income, net (28) (28)
--------- --------- ------- ----------- ---------
Income before income taxes 10,750 41 10,791
Income tax provision 1,008 - 1,008
--------- --------- -------- ----------- ---------
Equity in earnings of subsidiaries 9,783 - - (9,783) -
--------- --------- -------- ----------- ---------
Net income 9,783 9,742 41 (9,783) 9,783
Other comprehensive loss -
foreign currency translation adjustment - - (152) - (152)
--------- --------- -------- ----------- ---------
Comprehensive income (loss) $ 9,783 $ 9,742 $ (111) $ (9,783) $ 9,631
========= ========= ======== =========== =========
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
THIRTY-NINE WEEK PERIOD ENDED OCTOBER 1, 2002 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $ $ 426,300 $ 23,061 $ $ 449,361
Cost of sales 345,646 19,891 365,537
Selling, general, and administrative 40,316 2,283 42,599
Depreciation and amortization 18,291 715 19,006
Contract related losses 699 - 699
-------- --------- --------- --------- ---------
Operating income 21,348 172 21,520
Interest expense 15,646 15 15,661
Other income, net (1,445) (1) (1,446)
-------- --------- --------- --------- ---------
Income before income taxes 7,147 158 7,305
Income tax provision 551 - 551
-------- --------- --------- --------- ---------
Loss in earnings of subsidiaries 6,754 - - (6,754) -
-------- --------- --------- --------- ---------
Net income 6,754 6,596 158 (6,754) 6,754
Other comprehensive gain -
foreign currency translation adjustment - - 7 - 7
-------- --------- --------- --------- ---------
Comprehensive income $ 6,754 $ 6,596 $ 165 $ (6,754) $ 6,761
======== ========= ========= ========= =========
12
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THIRTY-NINE WEEK PERIOD ENDED OCTOBER 1, 2002 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
Cash Flows Provided by Operating Activities $ - $ 47,331 $ 657 $ 47,988
---- -------- ----- --------
Cash Flows from Investing Activities:
Purchase of property and equipment, net - (7,018) (604) (7,622)
Proceeds from sale of property, plant and equipment 2,387 2,387
Contract rights acquired, net - (35,904) - (35,904)
---- -------- ----- --------
Net cash used in investing activities - (40,535) (604) (41,139)
---- -------- ----- --------
Cash Flows from Financing Activities:
Net repayments - revolving loans - (12,750) - (12,750)
Principal payments on long-term debt - (862) - (862)
Principal payments on capital lease obligations - (267) - (267)
Increase in bank overdrafts - 2,348 2,348
---- -------- ----- --------
Net cash used in financing activities - (11,531) (11,531)
---- -------- ----- --------
Increase (decrease) in cash - (4,735) 53 (4,682)
Cash and cash equivalents - beginning of period - 14,976 166 15,142
---- -------- ----- --------
Cash and cash equivalents - end of period $ - $ 10,241 $ 219 $ 10,460
==== ======== ===== ========
13
CONSOLIDATING CONDENSED BALANCE SHEET JANUARY 1, 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
======== ======== ======= ========= =========
14
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
THIRTEEN WEEK PERIOD ENDED OCTOBER 2, 2001 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTO NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $170,669 $ 6,890 $177,559
Cost of sales 137,704 5,829 143,533
Selling, general, and administrative 12,672 483 13,155
Depreciation and amortization 5,864 212 6,076
Contract related losses 933 - 933
-------- ------- --------
Operating income 13,496 366 13,862
Interest expense 5,443 111 5,554
Other income, net (85) (6) (91)
-------- ------- --------
Equity in earnings of subsidiaries $ 8,399 - - $ (8,399) -
------- -------- ------- -------- --------
Net income 8,399 8,138 261 (8,399) 8,399
Other comprehensive loss -
foreign currency translation adjustment - - (133) - (133)
------- ------- ------- -------- --------
Comprehensive income $ 8,399 $ 8,138 $ 128 $ (8,399) $ 8,266
======= ======= ======= ======== ========
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
THIRTY-NINE WEEK PERIOD ENDED OCTOBER 2, 2001 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $399,266 $19,133 $418,399
Cost of sales 325,686 16,790 342,476
Selling, general, and administrative 34,504 1,255 35,759
Depreciation and amortization 17,562 599 18,161
Contract related losses 4,132 - 4,132
-------- ------- --------
Operating income 17,382 489 17,871
Interest expense 17,993 111 18,104
Other income, net (130) (25) (155)
-------- ------- --------
Income (loss) before income taxes (481) 403 (78)
Loss in earnings of subsidiaries $ (78) - - $ 78 -
----- -------- ------- ---- --------
Net income (loss) (78) (481) 403 78 (78)
Other comprehensive loss -
foreign currency translation adjustment - - (176) - (176)
----- ------- ------- ---- --------
Comprehensive income (loss) $ (78) $ (481) $ 227 $ 78 $ (254)
===== ======== ======= ==== ========
15
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THIRTY-NINE WEEK PERIOD ENDED OCTOBER 2, 2001 (IN THOUSANDS)
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
Cash Flows from Operating Activities $ - $ 26,375 $ (279) $ 26,096
--- -------- ------ --------
Cash Flows from Investing Activities:
Purchase of property and equipment - (6,120) (65) (6,185)
Proceeds from sale of property and equipment - 62 - 62
Purchase of contract rights - (16,420) - (16,420)
--- -------- ------- ---------
Net cash used in investing activities - (22,478) (65) (22,543)
--- -------- ------ ---------
Cash Flows from Financing Activities:
Principal payments on long-term debt - (862) - (862)
Net repayments - revolving loans - (2,000) - (2,000)
Principal payments on capital lease obligations - (167) - (167)
Increase in bank overdrafts - 1,745 - 1,745
Increase in loans to related parties - (35) - (35)
--- -------- ------ ---------
Net cash used in financing activities - (1,319) - (1,319)
--- -------- ------ ---------
Increase (decrease) in cash - 2,578 (344) 2,234
Cash and cash equivalents - beginning of period - 14,158 568 14,726
--- -------- ------ ---------
Cash and cash equivalents - end of period $ - $ 16,736 $ 224 $ 16,960
=== ======== ====== =========
16
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 (a quarter is comprised of thirteen or
fourteen weeks), 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 we serve.
Business at the principal types of facilities we serve is seasonal in nature
with Major League Baseball ("MLB") 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. 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 the
first three quarters of fiscal 2002 and four quarters of fiscal 2001 and fiscal
2000:
2002 2001 2000
---- ---- ----
1st Quarter....... $87,840 $ 83,194 $ 80,120
2nd Quarter....... $166,421 $157,646 $143,637
3rd Quarter....... $195,100 $177,559 $188,289
4th Quarter....... - $124,714 $110,487
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED OCTOBER 1, 2002 COMPARED TO THE THIRTEEN WEEKS ENDED
OCTOBER 2, 2001
Net sales - Net sales of $195.1 million for the thirteen weeks ended
October 1, 2002 increased by $17.5 million (approximately 10%) from $177.6
million in the prior year period. The Company's results for the thirteen week
period of 2001 were adversely impacted by the events of September 11, 2001 which
are estimated to have reduced net sales during the period by 7%. The
postponement of 28 MLB games until the 4th fiscal quarter and four NFL games
until fiscal 2002 had the most significant impact on the Company's net sales.
For the current year period, 28 more MLB games were played including one playoff
game resulting in higher net sales of approximately $7.1 million at the
Company's MLB accounts. Net sales at NFL venues generated an additional $5.1
million due primarily to 4 additional games. Finally, a successful summer music
amphitheater season contributed an increase in net sales of $3.4 million during
the period.
17
Cost of sales - Cost of sales of $156.5 million for the thirteen week
ended October 1, 2002 increased by $13.0 million from $143.5 million from the
prior year period due primarily to the increase in sales volume. Cost of sales
as a percentage of net sales decreased by approximately 1% from the prior year
period to 80%. This decrease was due mainly to efficiencies associated with the
greater sales volume and an overall lower commission rate arising from a change
in sales mix from contracts with high commission rates in the prior year period
to those with slightly lower rates in the current period.
Selling, general and administrative expenses - Selling, general and
administrative expenses of $16.0 million increased approximately .8% as a
percentage of net sales from the prior year period. The increase was primarily
the result of higher insurance costs due to dramatic price increases in the
insurance market following September 11, 2001, higher corporate overhead
expenses related to the addition of management positions and an increase in
professional fees.
Depreciation and amortization - For the thirteen weeks ended October 1,
2002, depreciation and amortization was $6.7 million compared to $6.1 million in
the prior year period. The increase was principally attributable to higher
amortization expense related to investments for the renewal and/or acquisition
of certain contracts, partially offset by a decline in amortization as a result
of the discontinuation of goodwill and trademark amortization ($.6 million) in
accordance with Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets."
Contract related losses - The prior year period reflects an impairment
charge in the amount of $.9 million relating primarily to the write-down of
equipment and leasehold improvements for certain contracts.
Operating income - Operating income increased approximately $2.0
million from the prior year period due to the factors described above.
Interest expense - Interest expense decreased by $.4 million from the
prior year period due primarily to lower interest rates on the Company's
variable rate debt.
Income taxes - Management has evaluated the available evidence about
future taxable income and other possible sources of realization of deferred tax
assets. Income taxes for the thirteen weeks ended October 1, 2002 and October
2, 2001 are calculated using the projected effective tax rate for fiscal 2002
and 2001, respectively, which in fiscal 2002 includes the reversal of
approximately $0.8 million of valuation allowances on deferred tax assets and
the utilization of approximtely $0.9 million of wage and top credits.
THIRTY-NINE WEEKS ENDED OCTOBER 1, 2002 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 2, 2001
Net sales - Net sales of $449.4 million for the thirty-nine weeks ended
October 1, 2002 increased by $31.0 million (approximately 7%) from $418.4
million in the prior year period. The Company's results for the thirty-nine week
period of 2001 were adversely impacted by the events of September 11, 2001 which
are estimated to have reduced net sales during the period by 3%. As discussed
above, the postponement of NFL and MLB games had the most significant impact on
the Company's net sales. As of the thirty-nine week period ended October 1,
2002, nine additional NFL games have been played as compared to the prior year
period. Five of the games were played during the first thirteen weeks of the
period, including four games which were postponed due to the events of September
11, 2001, and Super Bowl XXXVI, which was hosted by a venue served by the
Company. In the prior year period, two NFL playoff games were played at
facilities served by the Company. In the aggregate, net sales attributable to
NFL activity were $8.0 million greater in the current period as compared to the
prior year period. MLB games including one playoff game contributed $4.3 million
to the increase primarily as a result of an increase in the number of games
played in the 2002 period due to the postponement of games in the prior year
period. In addition, newly acquired service contracts generated net sales of
$6.6 million and a successful summer music amphitheatre season contributed an
increase in net sales of $2.5 million during the period.
18
Cost of sales - Cost of sales of $365.5 million for the thirty-nine
weeks ended October 1, 2002 increased by $23.0 million from $342.5 million from
the prior year period due primarily to the increase in sales volume. Cost of
sales as a percentage of net sales decreased by approximately 0.5% from the
prior year period to 81%. This decrease was due mainly to efficiencies
associated with the greater sales volume.
Selling, general and administrative expenses - Selling, general and
administrative expenses of $42.6 million increased approximately 1% as a
percentage of net sales from the prior year period. The increase was primarily
the result of higher insurance costs due to dramatic price increases in the
insurance market post September 11, 2001, higher corporate overhead expenses
related to the addition of management positions and an increase in professional
fees.
Depreciation and amortization - For the thirty-nine weeks ended October
1, 2002, depreciation and amortization was $19.0 million compared to $18.2
million in the prior year period. The increase was principally attributable to
higher amortization expense related to investments for the renewal and/or
acquisition of certain contracts, partially offset by a decline in amortization
as a result of the discontinuation of goodwill and trademark amortization ($1.8
million) in accordance with Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets."
Contract related losses - Contract related losses in the thirty-nine
weeks ended October 1, 2002, of $.7 million reflect an impairment charge related
to a write-down of contract rights. In the prior year period, contract related
losses reflect an impairment charge in the amount of $1.8 million and a
receivable reserve of $2.3 million related to two of the Company's customers
which filed for reorganization under Chapter 11 of the Bankruptcy Code.
Operating income - Operating income increased approximately $3.6
million from the prior year period due to the factors described above.
Interest expense - Interest expense decreased by $2.4 million from the
prior year period due primarily to lower interest rates on the Company's
variable rate debt.
Other income, net - The Company's wholly-owned subsidiary, Service
America Corporation, received approximately $1.4 million during the thirty-nine
week period ended October 1, 2002 from funds previously 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
its creditors after a period of two years from the date of distribution were
forfeited and all interest in those funds reverted back 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. Income taxes for the thirty-nine weeks ended October 1, 2002 and October
2, 2001 are calculated using the projected effective tax rate for fiscal 2002
and 2001, respectively, which in fiscal 2002 includes the reversal of
approximately $0.8 million of valuation allowances on deferred tax assets and
the utilization of approximtely $0.9 million of wage and top credits.
LIQUIDITY AND CAPITAL RESOURCES
For the thirty-nine weeks ended October 1, 2002, net cash provided by
operating activities was $48.0 million compared to net cash provided by
operating activities of $26.1 million in the prior year period. The $21.9
million increase from the prior year period was principally attributable to a
decrease of $7.1 million in net losses, mainly as the result of the $3.6 million
improvement in operating income, a $2.4 million decline in interest expense and
the recovery of $1.4 million in funds by Service America, as discussed above.
Additionally, the Company's working capital decreased as compared to the prior
year period chiefly due to timing of payments to vendors and employees and
higher accrued commissions and other contractual obligations related to the
Company's MLB and NFL clients.
19
Net cash used in investing activities was $41.1 million in the
thirty-nine weeks ended October 1, 2002 compared to $22.5 million in the prior
year period. This primarily reflects a higher level of investment in contract
rights and property and equipment associated with renewals of existing contracts
in the current period.
For the thirty-nine weeks ended October 1, 2002, net cash used in
financing activities was $11.5 million as compared to $1.3 million in the prior
year period. This primarily reflects higher net repayments of funds borrowed
under the Company's revolving credit facility.
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
net capital investments of $46.1 million in fiscal 2002 of which $41.1 million
has been invested to date. At October 1, 2002, $58.6 million of the Company's
$75.0 million revolving credit facility was available to be borrowed with $16.4
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, Goodwill and Other
Intangible Assets, which became effective for the Company on January 2, 2002.
SFAS No. 142 requires, among other things, discontinuing amortization of
goodwill and identifiable intangible assets with indefinite lives. 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. The Company has
adopted SFAS No. 142 and completed the required transitional impairment test and
found there to be no related impairments. In accordance with the standard, the
Company discontinued the amortization of goodwill and trademarks, identified
intangible assets which management believe have indeterminable lives.
In August 2001, the FASB issued SFAS No. 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 No. 144 superseded SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144
became effective for the Company on January 2, 2002. The adoption of SFAS No.
144 had no significant impact on the Company's financial position or results of
operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. First, SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses
from Extinguishment of Debt, and an amendment of that statement, SFAS No. 64,
Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements. Because of the
rescission of SFAS No. 4, the gains and losses from the extinguishment of debt
are no longer required to be classified as extraordinary items. SFAS No. 64
amended SFAS No. 4 and is no longer needed because SFAS No. 4 is rescinded.
Second, SFAS No. 145 rescinds SFAS No. 44, Accounting for Intangible Assets of
Motor Carriers. This statement was originally issued to establish accounting
requirements for the effects of transition to the provisions of the Motor
Carrier Act of 1980. As those transitions are complete, SFAS No. 44 is no longer
needed. Third, SFAS No. 145 amends SFAS No. 13, Accounting for Leases, to
require sale-leaseback accounting for certain lease modifications that have
economic effects that are similar to sales-leaseback transactions. The amendment
of SFAS No. 13 is effective for transactions occurring after May 15, 2002. There
has been no impact on the Company due to the amendment of SFAS No. 13. Lastly,
SFAS No. 145 makes various technical corrections to existing pronouncements that
are not substantive in nature. The Company has not yet evaluated the impact on
20
its financial position or results of operations of the rescission of SFAS No. 4,
44 and 64 and the other technical corrections prescribed by this statement, all
of which become effective for the Company in fiscal 2003.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability
Recognition for Certain Employees Termination Benefits and Other Costs to Exit
an Activity (Including Certain Costs Incurred in a Restructuring). The Company
has not yet evaluated the impact of this statement on its financial position or
results of operations.
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 actions taken by our suppliers over which we have no control;
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;
o any future changes in government regulation; and
o any changes in local government policies and practices regarding
facility construction, taxes and financing.
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 October 1, 2002 would cause a change in annual
interest expense of approximately $1.1 million. The Company's Senior
Subordinated Notes are fixed interest rate debt obligations.
As of October 1, 2002, there hs 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 1, 2002.
21
ITEM 4. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report, and, based on their evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that these controls and procedures are
effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As disclosed in the Company's report on Form 10-K for the fiscal year
ended January 1, 2002, the City of Bridgeport, Connecticut asserted a claim
against the Company of approximately $2.1 million for certain construction
charges the City incurred in building an arena in the City. In August 2002,
the Company and the City entered into a final settlement agreement, pursuant to
which the Company will pay the City approximately $58,000.
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.
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 November 15, 2002.
VOLUME SERVICES AMERICA, INC.
By: /s/ Kenneth R. Frick
---------------------------------
Name: Kenneth R. Frick
Title: Executive Vice President and Chief
Financial Officer
23
CERTIFICATION
I, Lawrence E. Honig, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Volume
Services America, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 15, 2002
/s/ Lawrence E. Honig
- ------------------------------------------
Lawrence E. Honig
Chief Executive Officer
24
CERTIFICATION
I, Kenneth R. Frick, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Volume
Services America, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 15, 2002
/s/ Kenneth R. Frick
- ----------------------------------
Kenneth R. Frick
Chief Financial Officer
25