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 1, 2003 OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER: 333-79419
VOLUME SERVICES AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 57-0969174
------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 EAST BROAD STREET, SPARTANBURG, SOUTH CAROLINA 29306
- -------------------------------------------------- -----------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (864) 598-8600
------------------
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
( ) YES (X) NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's Common Stock, par value
$.01 per share, at May 15, 2003, was 100.
VOLUME SERVICES AMERICA, INC.
INDEX
PART I FINANCIAL INFORMATION..........................................................................................2
Item 1. Financial Statements.........................................................................................2
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................15
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................................22
Item 4. Controls and Procedures.....................................................................................22
PART II OTHER INFORMATION............................................................................................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)
APRIL 1, 2003 AND DECEMBER 31, 2002 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
April 1, December 31,
ASSETS 2003 2002
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents $ 11,301 $ 10,374
Accounts receivable, less allowance for doubtful accounts of
$715 and $810 at April 1, 2003 and December 31, 2002,
respectively 17,202 16,488
Merchandise inventories 16,535 13,682
Prepaid expenses and other 4,664 2,354
Deferred tax asset 2,764 2,764
-------------- --------------
Total current assets 52,466 45,662
-------------- --------------
PROPERTY AND EQUIPMENT:
Leasehold improvements 49,547 49,452
Merchandising equipment 52,537 51,185
Vehicles and other equipment 9,082 8,625
Construction in process 1,887 295
-------------- --------------
Total 113,053 109,557
Less accumulated depreciation and amortization (55,557) (53,498)
-------------- --------------
Property and equipment, net 57,496 56,059
-------------- --------------
OTHER ASSETS:
Contract rights, net 103,932 101,702
Cost in excess of net assets acquired, net 46,457 46,457
Deferred financing costs, net 6,728 7,086
Trademarks, net 17,049 17,049
Deferred tax asset 1,205 -
Other 6,090 6,177
-------------- --------------
Total other assets 181,461 178,471
-------------- --------------
TOTAL ASSETS $ 291,423 $ 280,192
============== ==============
-2-
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)(UNAUDITED)
APRIL 1, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT SHARE DATA)
- -----------------------------------------------------------------------------------------------------------------------------
April 1, December 31,
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2003 2002
------------------- -------------------
CURRENT LIABILITIES:
Short-term note payable $ 3,500 $ -
Current maturities of long-term debt 1,150 1,150
Accounts payable 16,511 14,798
Accrued salaries and vacations 11,460 8,683
Liability for insurance 4,538 4,441
Accrued taxes, including income taxes 3,983 3,890
Accrued commissions and royalties 13,101 13,627
Accrued interest 1,035 3,832
Other 7,074 6,057
--------- ---------
Total current liabilities 62,352 56,478
--------- ---------
LONG TERM LIABILITIES:
Long-term debt 236,962 224,250
Liability for insurance 2,975 2,001
Deferred income taxes - 2,031
Other liabilities 700 700
--------- ---------
Total long-term liabilities 240,637 228,982
--------- ---------
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 67,417 67,417
Accumulated deficit (28,111) (21,566)
Accumulated other comprehensive loss (197) (444)
Treasury stock - at cost (194 shares) (49,500) (49,500)
Loans to related parties (1,175) (1,175)
--------- ---------
Total stockholders' deficiency (11,566) (5,268)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 291,423 $ 280,192
========= =========
See notes to consolidated financial statements.
-3-
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 1, 2003 AND APRIL 2, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------
Thirteen Weeks Ended
-------------------------------------
April 1, April 2,
2003 2002
----------------- -----------------
Net sales $ 96,900 $ 87,840
Cost of sales 81,655 74,799
Selling, general, and administrative 13,375 11,633
Depreciation and amortization 6,475 5,593
Contract related losses 110 -
------------ ------------
Operating loss (4,715) (4,185)
Interest expense 5,071 5,357
Other income, net (5) (1,384)
------------ ------------
Loss before income taxes (9,781) (8,158)
Income tax benefit (3,236) (1,288)
------------ ------------
Net loss (6,545) (6,870)
Other comprehensive gain (loss) - foreign currency
translation adjustment 247 (14)
------------ ------------
Comprehensive loss $ (6,298) $ (6,884)
============ ============
Basic Net Loss per share $ (19,713.79) $ (20,691.49)
============ ============
Diluted Net Loss per share $ (19,713.79) $ (20,691.49)
============ ============
See notes to consolidated financial statements.
-4-
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (UNAUDITED)
FOR THE PERIOD FROM DECEMBER 31, 2002 TO APRIL 1, 2003
(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, DECEMBER 31, 2002 332 $ - $ 67,417 $ (21,566) $ (444) $ (49,500) $ (1,175) $ (5,268)
Foreign currency translation - - - - 247 - 247
Net loss - - - (6,545) - - - (6,545)
--- --- -------- --------- ----- -------- -------- ---------
BALANCE, APRIL 1, 2003 332 $ - $ 67,417 $ (28,111) $ (197) $ (49,500) $ (1,175) $(11,566)
=== === ======== ========= ====== ========= ======== =========
See notes to consolidated financial statements.
-5-
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 1, 2003 AND APRIL 2, 2002
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED
---------------------------------------
APRIL 1, APRIL 2,
2003 2002
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,545) $ (6,870)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 6,475 5,593
Amortization of deferred financing costs 358 358
Contract related losses 110 -
Deferred tax change (3,236) (1,288)
Loss on disposition of assets 24 -
Other 247 (14)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (545) 4,737
Merchandise inventories (2,853) (2,002)
Prepaid expenses (2,312) (809)
Other assets (267) 40
Increase (decrease) in liabilities:
Accounts payable 1,862 341
Accrued salaries and vacations 2,777 786
Liability for insurance 1,071 1,023
Accrued commissions and royalties (526) (782)
Other liabilities (1,687) (1,005)
-------- --------
Net cash (used in) provided by operating activities (5,047) 108
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (4,257) (2,651)
Contract rights acquired, net (5,832) (204)
-------- --------
Net cash used in investing activities (10,089) (2,855)
-------- --------
-6-
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)(UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 1, 2003 AND APRIL 2, 2002
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED
---------------------------------
APRIL 1, APRIL 2,
2003 2002
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings - revolving loans $ 16,500 $ 1,500
Principal payments on long-term debt (288) (287)
Principal payments on capital lease obligations - (57)
Decrease in bank overdrafts (149) (1,758)
-------- --------
Net cash provided by (used in) financing activities 16,063 (602)
-------- --------
INCREASE/(DECREASE) IN CASH 927 (3,349)
CASH AND CASH EQUIVALENTS:
Beginning of period 10,374 15,142
-------- --------
End of period $ 11,301 $ 11,793
======== ========
See notes to consolidated financial statements.
-7-
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 1, 2003 AND APRIL 2, 2002
- --------------------------------------------------------------------------------
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 beneficially owned by
its senior management and entities affiliated with Blackstone Management
Associates II L.L.C. ("Blackstone") 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 1,
2003 are not necessarily indicative of the results to be expected for the
fifty-two week fiscal year ending December 30, 2003 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 December 31, 2002 included in the Company's
annual report on Form 10-K.
On February 11, 2003, the Company announced that it changed its
tradename for its operating subsidiaries, Volume Services and Service America,
from Volume Services America to Centerplate.
On February 13, 2003, Volume Holdings filed a registration statement on
Form S-1 in respect of a proposed initial public offering of Income Deposit
Securities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COST IN EXCESS OF NET ASSETS ACQUIRED AND TRADEMARKS - The Company has
performed its annual impairment tests of goodwill and trademarks in accordance
with Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, and determined that no impairment exists.
RECLASSIFICATIONS - Certain amounts in 2002 have been reclassified,
where applicable, to conform to the financial statement presentation used in
2003.
NEW ACCOUNTING STANDARDS - 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
-8-
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. Lastly, SFAS No. 145 makes various technical
corrections to existing pronouncements that are not substantive in nature. The
implementation of this standard did not have a material effect on our financial
position or results of operations.
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) and is
effective for exit or disposal activities after December 31, 2002. The
implementation of this standard did not have a material effect on our financial
position or results of operations.
On November 25, 2002, the FASB issued Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees issued. It also clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The Interpretation expands on
the accounting guidance of SFAS No. 5 Accounting for Contingencies, SFAS No. 57,
Related Party Disclosures, and SFAS No. 107, Disclosures about Fair Value of
Financial Instruments. The Interpretation also incorporates, without change, the
provisions of FASB Interpretation No. 34, Disclosure of Indirect Guarantees of
Indebtedness of Others, which it supersedes. The Interpretation does identify
several situations where the recognition of a liability at inception for a
guarantor's obligation is not required. The initial recognition and measurement
provisions of Interpretation 45 apply on a prospective basis to guarantees
issued or modified after December 31, 2002, regardless of the guarantor's fiscal
year-end. The disclosures are effective for financial statements of interim or
annual periods ending after December 15, 2002. Adoption of this interpretation
did not have a material effect on our financial position or results of
operations.
On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition to SFAS No. 123's fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require
disclosure in the of significant policies of the effects of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
While SFAS No. 148 does not amend SFAS No. 123 to require companies to account
for employee stock options using the fair value method, the disclosure
provisions of SFAS No. 148's amendment of the transition and annual disclosure
requirements of SFAS No. 123 or the intrinsic value method of APB Opinion No.
25, Accounting for Stock Issued to Employees. SFAS No. 148's amendment of the
transition and annual disclosure requirements of SFAS No. 123 are effective for
fiscal years ending after December 15, 2002. The implementation of this standard
did not have a material effect on our financial position or results of
operations.
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements. This Interpretation applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest it acquired before February 1, 2003. This Interpretation may be applied
prospectively with a cumulative-effect adjustment as of the date on which it is
first applied or by restating previously issued financial statements for one or
more years with a cumulative-effect adjustment as of the beginning of the first
year restated. The interpretation is not expected to have a material effect
on our financial position or results of operations.
-9-
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 thirteen weeks ended April 1, 2003 and April 2,
2002 are calculated using the projected effective tax rate for fiscal 2003 and
2002, respectively, which includes the reversal of approximately $0.9 million
and $2.3 million, respectively, of valuation allowances on deferred tax assets
and the utilization of approximately $1.0 million of wage and tip credits in the
2003 period.
3. COMMITMENTS AND CONTINGENCIES
There are various claims and pending legal actions against or directly
involving the Company. It is the opinion of management, after considering a
number of factors, including but not limited to the current status of any
pending proceeding (including any settlement discussions), the views of retained
counsel, the nature of the litigation, prior experience and the amounts that
have accrued for known contingencies, that the ultimate disposition of any
currently pending proceeding or contingency will not have a material adverse
effect on the Company's financial condition or results of operations.
-10-
NON-GUARANTOR SUBSIDIARIES FINANCIAL STATEMENTS
The senior subordinated notes are jointly and severally guaranteed by
Volume Holdings and all of the subsidiaries of Volume Service America, except
for certain non-wholly owned U.S. subsidiaries and one non-U.S. subsidiary. The
following table sets forth the condensed consolidating financial statements of
the Parent Company, Guarantor Subsidiaries (including Volume Services America,
the issuer) and Non-Guarantor Subsidiaries as of April 1, 2003 and December 31,
2002 (in the case of the balance sheets) and for the thirteen week periods ended
April 1, 2003 and April 2, 2002 (in the case of the statements of operations and
comprehensive loss and statement of cash flows).
CONSOLIDATING CONDENSED BALANCE SHEET, APRIL 1, 2003 (IN THOUSANDS)
ISSUER AND
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
ASSETS HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Current assets:
Cash and cash equivalents $ - $ 11,064 $ 237 $ - $ 11,301
Accounts receivable - 15,233 1,969 - 17,202
Other current assets - 29,844 1,538 (7,419) 23,963
-------- -------- ------- -------- --------
Total current assets - 56,141 3,744 (7,419) 52,466
Property and equipment - 54,415 3,081 - 57,496
Contract rights, net - 103,281 651 - 103,932
Cost in excess of net assets acquired, net - 46,457 - - 46,457
Investment in subsidiaries (11,566) - - 11,566 -
Other assets - 31,021 51 - 31,072
-------- -------- ------- -------- --------
Total assets $(11,566) $291,315 $ 7,527 $ 4,147 $291,423
======== ======== ======= ======== ========
Liabilities and Stockholders' Deficiency
Current liabilities:
Intercompany liabilities $ - $ - $ 7,419 $ (7,419) $ -
Other current liabilities - 59,825 2,527 - 62,352
-------- -------- ------- -------- --------
Total current liabilities - 59,825 9,946 (7,419) 62,352
Long-term debt - 236,962 - - 236,962
Other liabilities - 3,675 - - 3,675
-------- -------- ------- -------- --------
Total liabilities - 300,462 9,946 (7,419) 302,989
-------- -------- ------- -------- --------
Stockholders' deficiency:
Common stock - - - - -
Additional paid-in capital 67,417 67,417 - (67,417) 67,417
Accumulated deficit (28,111) (25,889) (2,222) 28,111 (28,111)
Treasury stock and other (50,872) (50,675) (197) 50,872 (50,872)
-------- -------- ------- -------- ---------
Total stockholders' deficiency (11,566) (9,147) (2,419) 11,566 (11,566)
-------- -------- ------- -------- --------
Total liabilities and stockholders'
deficiency $(11,566) $291,315 $ 7,527 $ 4,147 $ 291,423
======== ======== ======= ======== =========
-11-
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
THIRTEEN WEEK PERIOD ENDED APRIL 1, 2003 (IN THOUSANDS)
ISSUER AND
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $ - $ 90,656 $ 6,244 $ - $ 96,900
Cost of sales - 76,048 5,607 - 81,655
Selling, general, and administrative - 12,619 756 - 13,375
Depreciation and amortization - 6,286 189 - 6,475
Contract related losses - 110 - - 110
-------- -------- ------- -------- --------
Operating loss - (4,407) (308) - (4,715)
Interest expense - 5,071 - 5,071
Other income, net - (2) (3) - (5)
-------- -------- ------- -------- --------
Loss before income taxes - (9,476) (305) - (9,781)
Income tax benefit - (3,236) - - (3,236)
-------- -------- ------- -------- --------
Loss in earnings of subsidiaries (6,545) - - 6,545 -
-------- -------- ------- -------- --------
Net loss (6,545) (6,240) (305) 6,545 (6,545)
Other comprehensive income -
foreign currency translation adjustment - - 247 - 247
-------- -------- ------- -------- --------
Comprehensive loss $ (6,545) $ (6,240) $ (58) $ 6,545 $ (6,298)
======== ======== ======= ======== ========
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THIRTEEN WEEK PERIOD ENDED APRIL 1, 2003 (IN THOUSANDS)
ISSUER AND
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
HOLDINGS SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
Cash Flows Provided by (Used In) Operating Activities $ - $ (5,094) $ 47 $ (5,047)
--- -------- ------ ----------
Cash Flows from Investing Activities:
Purchase of property and equipment, net - (4,223) (34) (4,257)
Contract rights acquired, net - (5,832) - (5,832)
--- -------- ------ ---------
Net cash used in investing activities - (10,055) (34) (10,089)
--- -------- ------ ---------
Cash Flows from Financing Activities:
Net borrowings - revolving loans - 16,500 - 16,500
Principal payments on long-term debt - (288) - (288)
Decrease in bank overdrafts - (149) (149)
--- -------- ------ ----------
Net cash provided by financing activities - 16,063 16,063
--- -------- ------ ----------
Increase in cash - 914 13 927
Cash and cash equivalents - beginning of period - 10,150 224 10,374
--- -------- ------ ---------
Cash and cash equivalents - end of period $ - $ 11,064 $ 237 $ 11,301
=== ======== ====== =========
-12-
CONSOLIDATING CONDENSED BALANCE SHEET, DECEMBER 31, 2002 (IN THOUSANDS)
ISSUER
AND
COMBINED COMBINED
VOLUME GUARANTOR NON-GUARANTOR
ASSETS HOLDINGS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Current assets:
Cash and cash equivalents $ $ 10,150 $ 224 $ $ 10,374
Accounts receivable 15,309 1,179 16,488
Other current assets 24,948 1,147 (7,295) 18,800
-------- -------- ------- ------- --------
Total current assets 50,407 2,550 (7,295) 45,662
Property and equipment 52,951 3,108 56,059
Contract rights, net 101,017 685 101,702
Cost in excess of net assets acquired, net 46,457 46,457
Investment in subsidiaries (5,268) 5,268
Other assets 30,290 22 30,312
-------- -------- ------- ------- --------
Total assets $ (5,268) $281,122 $ 6,365 $(2,027) $280,192
======== ======== ======= ======= ========
Liabilities and Stockholders' Deficiency
Current liabilities:
Intercompany liabilities $ $ $ 7,295 $(7,295) $
Other current liabilities 55,047 1,431 56,478
-------- -------- ------- ------- --------
Total current liabilities 55,047 8,726 (7,295) 56,478
Long-term debt 224,250 224,250
Other liabilities 4,732 4,732
-------- -------- ------- ------- --------
Total liabilities 284,029 8,726 (7,295) 285,460
-------- -------- ------- ------- --------
Stockholders' deficiency:
Common stock
Additional paid-in capital 67,417 67,417 (67,417) 67,417
Accumulated deficit (21,566) (19,649) (1,917) 21,566 (21,566)
Treasury stock and other (51,119) (50,675) (444) 51,119 (51,119)
-------- -------- ------- ------- --------
Total stockholders' deficiency (5,268) (2,907) (2,361) 5,268 (5,268)
-------- -------- ------- ------- --------
Total liabilities and stockholders'
deficiency $ (5,268) $281,122 $ 6,365 $(2,027) $280,192
======== ======== ======= ======= ========
-13-
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
THIRTEEN WEEK PERIOD ENDED APRIL 2, 2002 (IN THOUSANDS)
ISSUER AND
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)
ISSUER AND
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
=== ======= ====== ========
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion and analysis of our results of operations and
financial condition for the thirteen weeks ended April 1, 2003 and April 2, 2002
should be read in conjunction with our audited financial statements, including
the related notes, for the fiscal year ended December 31, 2002 included in our
annual report on Form 10-K. Our discussion contains forward-looking statements
based on our current expectations that involve risks and uncertainties, such as
our plans, objectives, opinions, expectations, anticipations and intentions.
Actual results and the timing of events could differ materially from those
anticipated in those forward-looking statements as a result of a number of
factors, including those set forth under the Forward Looking and Cautionary
Statements and elsewhere in this quarterly report on Form 10-Q. The following
data have been prepared in accordance with generally accepted accounting
principles in the United States of America ("U.S. GAAP").
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the financial statement date and reported amounts of revenues and
expenses, including amounts that are susceptible to change. Our critical
accounting policies include accounting methods and estimates underlying such
financial statement preparation, as well as judgments around uncertainties
affecting the application of those policies. In applying critical accounting
policies, materially different amounts or results could be reported under
different conditions or using different assumptions. We believe that our
critical accounting policies, involving significant estimates, uncertainties and
susceptibility to change, include the following:
o Recoverability of property and equipment, contract rights, cost in
excess of net assets acquired (goodwill) and other intangible assets.
As of April 1, 2003, net property and equipment of $57.5 million and
net contract rights of $103.9 million were recorded. In accordance
with Statement of Financial Accounting Standards (SFAS) No. 144, we
evaluate long-lived assets with definite lives for possible impairment
when an event occurs which would indicate that its carrying amount may
not be recoverable. The impairment analysis is made at the contract
level and evaluates the net property and equipment as well as the
contract rights related to that contract. The undiscounted future cash
flows are compared to the carrying value of the related long-lived
assets. If the undiscounted future cash flows are lower than the
carrying value, an impairment charge is recorded. The amount of the
impairment charge is equal to the difference between the balance of
the long-lived assets and the future discounted cash flows related to
the assets (using a rate based on our incremental borrowing rate). As
we base our estimates of undiscounted future cash flows on past
operating performance, including anticipated labor and other cost
increases, and prevailing market conditions, we cannot assure you that
our estimates are achievable. Different conditions or assumptions, if
significantly negative or unfavorable, could have a material adverse
effect on the outcome of our evaluation and our financial condition or
future results of operations. Events that would trigger an evaluation
at the contract level include the loss of a tenant team, notice from a
client indicating intent to terminate the contract, the bankruptcy of
a client, discontinuation of a sports league or a significant increase
in competition that could reduce the future profitability of the
contract, among others. As of April 1, 2003, net goodwill of $46.5
-15-
million and other intangible assets (trademarks) of $17.0 million were
recorded. In accordance with SFAS No. 142, on an annual basis, we test
our indefinite-lived intangible assets (goodwill and trademarks) for
impairment. Additionally, goodwill is tested between annual tests if
an event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying
amount. We have determined that the reporting unit is the Company. In
performing the annual goodwill assessment, we compare the fair value
of the Company to its carrying amount, including these indefinite
lived assets. If the fair value exceeds the carrying amount, then it
is determined that goodwill is not impaired. Should the carrying
amount exceed the fair value of the Company, then we would need to
perform the second step in the impairment test. Fair value for these
tests is determined based upon a discounted cash flow model (using a
rate based on our incremental borrowing rate). As we base our
estimates of cash flows on past operating performance, including
anticipated labor and cost increases and prevailing market conditions,
we cannot assure you that are estimates are achievable. Different
conditions or assumptions, if significantly negative or unfavorable,
could have a material adverse effect on the outcome of our evaluation
and on our financial condition or future results of operations. In
performing the annual trademark assessment, management compares the
fair value of the intangible assets to its carrying value. Fair value
is determined based on a discounted cash flow model (using a rate
based on our incremental borrowing rate). If the carrying amount of
the intangible asset exceeds its fair value, an impairment loss will
be recognized for the excess amount. If the fair value is greater than
the carrying amount no further assessment is performed. We have
performed our annual assessments of goodwill and trademarks and
determined that no impairment exists.
o Insurance. We have a high deductible insurance program for general
liability, auto liability and workers' compensation risk. We are
required to estimate and accrue for the amount of losses that we
expect to incur and will ultimately have to pay for under the
deductible during the policy year. These amounts are recorded in cost
of sales and selling, general and administrative expenses on the
statement of operations and accrued liabilities and long-term
liabilities on the balance sheet. Our estimates consider a number of
factors, including historical experience and actuarial assessment of
the liabilities for reported claims and claims incurred but not
reported. While we use outside parties to assist us in making these
estimates, it is difficult to provide assurance that the actual
amounts may not be materially different than what we have recorded.
In addition we are self-insured for employee medical benefits and
related liabilities. Our liabilities are based on historical trends
and claims filed and are estimated for claims incurred but not
reported. While the liabilities represent management's best estimate,
actual results could differ significantly from those estimates.
o Deferred income taxes. We recognize deferred tax assets and
liabilities based on the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets
and liabilities. Our primary deferred tax assets relate to net
operating losses and credit carryovers. The realization of these
deferred tax assets depends upon our ability to generate future
income. If our results of operations are adversely affected, not all
of our deferred taxes, if any, may be realized.
SEASONALITY AND QUARTERLY RESULTS
Our net 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
-16-
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 related
sales concentrated in the second and third quarter, the majority of National
Football League ("NFL") related 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 quarter of 2003, fiscal 2002 and fiscal 2001:
2003 2002 2001
---- ---- ----
1st Quarter $96,900 $ 87,840 $ 83,194
2nd Quarter $166,421 $157,646
3rd Quarter $195,100 $177,559
4th Quarter $127,801 $124,714
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 1, 2003 COMPARED TO THE THIRTEEN WEEKS ENDED APRIL 2,
2002
Net sales - Net sales of $96.9 million for the thirteen weeks ended
April 1, 2003 increased by $9.1 million (approximately 10%) from $87.8 million
in the prior year period. The increase was primarily attributable to new
accounts (approximately 6%) and higher convention center sales (approximately
4%). Convention center sales had been adversely impacted by the events of
September 11, 2001 during the first quarter of fiscal 2002.
Cost of sales - Cost of sales of $81.7 million for the thirteen weeks
ended April 1, 2003 increased by $6.9 million from $74.8 million in the prior
year period due primarily to the increase in sales volume. Cost of sales as a
percentage of net sales declined by approximately 1% from the prior year period
to 84%. The decline was mainly due to operating efficiencies, most notably in
cost of merchandise sold, achieved at certain facilities at which we operate.
Selling, general and administrative expenses - Selling, general and
administrative expenses of $13.4 million in the thirteen weeks ended April 1,
2003 increased approximately 0.6% as a percentage of net sales from the prior
year period. The increase was primarily the result of higher corporate overhead
expenses related to the addition of management positions during fiscal 2002 and
approximately $0.2 million in non-recurring marketing and other expenses
associated with the change in the tradename for our operating subsidiaries from
Volume Services America to Centerplate. We anticipate the fiscal 2003 impact of
the additional positions will be an increase in corporate overhead of 0.2%, as a
percentage of net sales, as compared to fiscal 2002; however, as a result of the
additional management positions, we expect to achieve improvements in operating
income at the facilities at which we provide services.
Depreciation and amortization - Depreciation and amortization was $6.5
million for the thirteen weeks ended April 1, 2003, compared to $5.6 million in
the prior year period. The increase was principally attributable to higher
amortization expense primarily related to investments made beginning in the
second quarter of fiscal 2002 for the renewal and/or acquisition of certain
contracts.
-17-
Contract related losses - Contract related losses of $0.1 million were
recorded in the thirteen weeks ended April 1, 2003 for a terminated contract.
No such charges were incurred in the prior year period.
Operating loss - Operating loss increased approximately $0.5 million
from the prior year period due to the factors described above.
Interest expense - Interest expense decreased by $0.3 million from the
prior year period principally due to lower interest rates on the Company's
variable rate debt, which were partially offset by an increase in borrowings.
Other income, net - During the first quarter of fiscal 2002, Service
America received approximately $1.4 million in connection with funds previously
set aside to satisfy creditors pursuant to a plan of reorganization approved in
1993. Under the plan of reorganization, Service America 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 - We have evaluated the available evidence about future
taxable income and other sources of realization of deferred tax assets and based
on our best current estimates believes taxable income will be realized in fiscal
2003. Accordingly, in the thirteen weeks ended April 1, 2003, a tax benefit of
$3.2 million was recognized in comparison to the recognition of a $1.3 million
tax benefit in the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
For the thirteen weeks ended April 1, 2003, net cash used in operating
activities was $5.0 million compared to net cash provided by operating
activities of $0.1 million in the prior year period. The $5.1 million decline in
cash provided from the prior year period was principally attributable to cash
used to fund working capital and other non-current assets and liabilities of
$4.8 million. The improvement in the convention center business discussed above
resulted in an increase in our accounts receivable, as a significant portion of
the sales resulted from an increase in catering sales where credit is granted to
our customer versus the predominantly cash sales made at sports facilities. The
additional working capital increases are seasonal and are reflective of an
anticipated temporary increase in working capital.
Net cash used in investing activities was $10.1 million for the
thirteen weeks ended April 1, 2003 compared to $2.9 million in the prior year.
Of this $10.1 million, $6.6 million was the result of investment in contract
rights and property and equipment associated with service contracts acquired in
the current period.
Net cash provided by financing activities was $16.1 million in the
thirteen weeks ended April 1, 2003 as compared to net cash used in financing
activities of $0.6 million in the prior year period, primarily reflecting higher
net borrowings under our revolving credit facility to fund the higher level of
contract investment and working capital requirements in the current period. As
of April 1, 2003, we had approximately $31.5 million in outstanding revolving
and swingline loans as compared to $14.3 million in the prior year period.
We are also required to obtain performance bonds, bid bonds or letters
of credit to secure our contractual obligations. As of April 1, 2003, we had
requirements outstanding for performance bonds and letters of credit of $13.3
million and $16.2 million, respectively.
-18-
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 $26.1 million in fiscal 2003, of which $10.1 million
has been invested to date. At April 1, 2003, $27.3 million of our $75.0 million
revolving credit facility was available to be borrowed, after taking account of
$16.2 million of outstanding, undrawn letters of credit which reduce
availability.
If we proceed with the offering of Income Deposit Securities ("IDSs")
(as discussed in our Form 10-K for the year ended December 31, 2002), we intend
for Volume Services America to enter into a new credit facility to refinance
its existing credit facility and to undertake a tender offer and consent
solicitation for all its outstanding 11 1/4% senior subordinated notes due 2009
and for Volume Holdings to repurchase shares of Volume Holdings' outstanding
common stock from our existing shareholders with the proceeds of the offering of
IDSs and our new credit facility. We cannot assure you that the offering of
IDSs or any of the above transactions will occur and we may elect not to proceed
with the offering of IDSs or any or all of the above transactions due to changes
in our business or strategic plans, general economic and market conditions or
any other factors.
We have future obligations for debt repayments, future minimum rental,
and similar commitments under non-cancelable operating leases as well as
contingent obligations related to outstanding letters of credit. These
obligations as of April 1, 2003 are summarized in the tables below:
CONTRACTUAL COMMITMENTS Payments due by period
----------------------
(in millions)
Less than More than
Contractual Obligations Total 1 year 1-3 years 4-5 years 5 years
- ----------------------- ----- ------ --------- --------- -------
Long-term borrowings $241.6 $ 4.4 $137.2 - $100.0
Operating leases 1.4 0.6 0.8 - -
Commissions and royalties 34.3 6.2 17.1 4.6 6.4
Other long-term obligations(1) 16.9 11.3 5.3 0.3 -
------ ----- ------ ---- ------
Total Contractual Obligations $294.2 $22.5 $160.4 $4.9 $106.4
====== ===== ====== ==== ======
(1) Represents capital commitments in connection with several long-term
concession contracts.
Payments due by period
----------------------
(in millions)
Less than More than
Other Commercial Commitments Total 1 year 1-3 years 4-5 years 5 years
- ---------------------------- ----- ------ --------- --------- -------
Letters of credit $16.3 $16.3 $ - $ - $ -
-19-
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") recently issued
several statements of Financial Accounting Standards ("SFAS"). The statements
relevant to our line of business and their impact on the Company are as follows:
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. Lastly, SFAS
No. 145 makes various technical corrections to existing pronouncements that are
not substantive in nature. The implementation of this standard did not have a
material effect on our financial position or results of operations.
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) and is
effective for exit or disposal activities after December 31, 2002. The
implementation of this standard did not have a material effect on our financial
position or results of operations.
On November 25, 2002, the FASB issued Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees issued. It also clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability fir the fair value of the
obligation undertaken in issuing the guarantee. The Interpretation expands on
the accounting guidance of SFAS No. 5 Accounting for Contingencies, SFAS No. 57,
Related Party Disclosures, and SFAS No. 107, Disclosures about Fair Value of
Financial Instruments. The Interpretation also incorporates, without change, the
provisions of FASB Interpretation No. 34, Disclosure of Indirect Guarantees of
Indebtedness of Others, which it supersedes. The Interpretation does identify
several situations where the recognition of a liability at inception for a
guarantor's obligation is not required. The initial recognition and measurement
provisions of Interpretation 45 apply on a prospective basis to guarantees
issued or modified after December 31, 2002, regardless of the guarantor's fiscal
year-end. The disclosures are effective for financial statements of interim or
annual periods ending after December 15, 2002. Adoption of this interpretation
did not have a material effect on our financial position or results of
operations.
On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition to SFAS No. 123's fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require
disclosure in the of significant policies of the effects of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
While SFAS No. 148 does not amend SFAS No. 123 to require companies to account
for employee stock options using the fair value method, the disclosure
-20-
provisions of SFAS No. 148's amendment of the transition and annual disclosure
requirements of SFAS No. 123 or the intrinsic value method of APB Opinion No.
25, Accounting for Stock Issued to Employees. SFAS No. 148's amendment of the
transition and annual disclosure requirements of SFAS No. 123 are effective for
fiscal years ending after December 15, 2002. The implementation of this standard
did not have a material effect on our financial position or results of
operations.
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements. This Interpretation applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
data. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest it acquired before February 1, 2003. This Interpretation may be applied
prospectively with a cumulative-effect adjustment as of the date on which it is
first applied or by restating previously issued financial statements for one or
more years with a cumulative-effect adjustment as of the beginning of the first
year restated. The interpretation is not expected to have a material effect on
our 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 risk of decreases in 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 these 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 the risk that we may not be able 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 or an
outbreak or escalation of any insurrection or armed conflict involving
the United States or any other national or international calamity;
o general risks associated with the food service industry;
o any future changes in government regulation; and
o any changes in local government policies and practices regarding
facility construction, taxes and financing.
-21-
We undertake no obligation to publicly update or review any
forward-looking statement, whether as a result of new information, future
developments or otherwise.
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 variable rate borrowings as of April 1, 2003 would cause a change in
annual interest expense of approximately $1.4 million. Volume Services America's
11 1/4% senior subordinated notes due 2009 are fixed interest rate debt
obligations.
As of April 1, 2003, there have been no material changes in the
quantitative and qualitative disclosures about market risk from the information
presented in our Form 10-K for the year ended December 31, 2002.
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 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
99.1 Section 906 Certificate of Chief Executive Officer
99.2 Section 906 Certificate of Chief Financial Officer
(b) Reports on Form 8-K:
On February 13, 2003, Volume Services America filed a Form 8-K
under Item 5 (Other Events) disclosing the filing of an S-1
registration statement by Volume Holdings in connection with its
potential offering of IDSs.
-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 May 16, 2003.
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.
Date: May 16, 2003
/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: May 16, 2003
/s/ Kenneth R. Frick
- ------------------------------------
Kenneth R. Frick
Chief Financial Officer
-25-
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
99.1 Section 906 Certificate of Chief Executive Officer
99.2 Section 906 Certificate of Chief Financial Officer
-26-