UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
|
|
þ
|
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
|
For the quarterly period ended July 1, 2008
or
|
|
|
o
|
|
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:
001-31904
CENTERPLATE, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
13-3870167
|
|
|
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
2187Atlantic Street, Stamford, Connecticut, 06902
|
|
(203) 975-5900
|
|
|
|
(Address of principal executive offices, including zip code)
|
|
(Registrants telephone number, including area code)
|
http:www.centerplate.com
(Registrants URL)
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.
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large accelerated filer
o
|
|
Accelerated filer
þ
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
|
|
|
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o
Yes
þ
No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of common stock of Centerplate, Inc. outstanding as of August 8, 2008 was
20,981,813.
CENTERPLATE, INC.
INDEX
- 1 -
PART I
FINANCIAL INFORMATION
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
JULY 1, 2008 AND JANUARY 1, 2008
|
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
January 1,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(In thousands, except share data)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
45,215
|
|
|
$
|
33,853
|
|
Restricted cash
|
|
|
792
|
|
|
|
1,146
|
|
Accounts receivable, less allowance for doubtful accounts of
$996 and $993 at July 1, 2008 and January 1, 2008, respectively
|
|
|
34,122
|
|
|
|
29,539
|
|
Merchandise inventories
|
|
|
31,387
|
|
|
|
23,300
|
|
Prepaid expenses and other
|
|
|
3,846
|
|
|
|
3,475
|
|
Deferred tax assets
|
|
|
3,405
|
|
|
|
4,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
118,767
|
|
|
|
95,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
|
41,956
|
|
|
|
41,968
|
|
Merchandising equipment
|
|
|
90,125
|
|
|
|
84,727
|
|
Vehicles and other equipment
|
|
|
18,755
|
|
|
|
18,116
|
|
Construction in process
|
|
|
3,878
|
|
|
|
1,895
|
|
|
|
|
|
|
|
|
Total
|
|
|
154,714
|
|
|
|
146,706
|
|
Less accumulated depreciation and amortization
|
|
|
(101,492
|
)
|
|
|
(94,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
53,222
|
|
|
|
51,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER LONG-TERM ASSETS:
|
|
|
|
|
|
|
|
|
Contract rights, net
|
|
|
95,106
|
|
|
|
85,183
|
|
Restricted cash
|
|
|
|
|
|
|
10,307
|
|
Cost in excess of net assets acquired
|
|
|
41,142
|
|
|
|
41,142
|
|
Deferred financing costs, net
|
|
|
11,687
|
|
|
|
10,361
|
|
Trademarks
|
|
|
17,523
|
|
|
|
17,523
|
|
Deferred tax assets
|
|
|
23,656
|
|
|
|
15,867
|
|
Other
|
|
|
7,318
|
|
|
|
4,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other long-term assets
|
|
|
196,432
|
|
|
|
184,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
368,421
|
|
|
$
|
332,351
|
|
|
|
|
|
|
|
|
See notes to consolidated condensed financial statements.
- 2 -
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)(UNAUDITED)
JULY 1, 2008 AND JANUARY 1, 2008
|
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
January 1,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(In thousands, except share data)
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
1,075
|
|
|
$
|
1,075
|
|
Short-term borrowings
|
|
|
45,500
|
|
|
|
29,500
|
|
Accounts payable
|
|
|
36,287
|
|
|
|
24,367
|
|
Accrued salaries and vacations
|
|
|
18,792
|
|
|
|
15,704
|
|
Liability for insurance
|
|
|
4,783
|
|
|
|
4,847
|
|
Accrued taxes, including income taxes
|
|
|
6,810
|
|
|
|
5,220
|
|
Accrued commissions and royalties
|
|
|
38,799
|
|
|
|
24,608
|
|
Liability for derivatives
|
|
|
498
|
|
|
|
311
|
|
Accrued interest
|
|
|
929
|
|
|
|
1,037
|
|
Accrued dividends
|
|
|
|
|
|
|
1,385
|
|
Advance deposits
|
|
|
6,845
|
|
|
|
3,436
|
|
Other
|
|
|
4,021
|
|
|
|
3,502
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
164,339
|
|
|
|
114,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
214,494
|
|
|
|
223,334
|
|
Liability for insurance
|
|
|
11,152
|
|
|
|
9,370
|
|
Other liabilities
|
|
|
10,432
|
|
|
|
2,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
236,078
|
|
|
|
234,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS DEFICIENCY:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value - 100,000,000 shares
authorized: 39,995,147 shares issued at July 1, 2008
and January 1,
2008;20,981,813 shares outstanding at July 1, 2008
and January 1, 2008
|
|
|
400
|
|
|
|
400
|
|
Additional paid-in capital
|
|
|
218,331
|
|
|
|
218,331
|
|
Accumulated deficit
|
|
|
(131,547
|
)
|
|
|
(117,375
|
)
|
Accumulated other comprehensive income
|
|
|
1,760
|
|
|
|
2,050
|
|
Treasury stock at cost (19,013,332 shares)
|
|
|
(120,940
|
)
|
|
|
(120,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficiency
|
|
|
(31,996
|
)
|
|
|
(17,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
$
|
368,421
|
|
|
$
|
332,351
|
|
|
|
|
|
|
|
|
See notes to consolidated condensed financial statements.
- 3 -
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED JULY 1, 2008 AND JULY 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-six Weeks Ended
|
|
|
|
July 1,
|
|
|
July 3,
|
|
|
July 1,
|
|
|
July 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except for share data)
|
|
Net sales
|
|
$
|
238,292
|
|
|
$
|
200,839
|
|
|
$
|
371,516
|
|
|
$
|
326,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation &
amortization)
|
|
|
194,117
|
|
|
|
162,948
|
|
|
|
310,291
|
|
|
|
269,206
|
|
Selling, general, and administrative
|
|
|
24,060
|
|
|
|
20,161
|
|
|
|
43,269
|
|
|
|
37,361
|
|
Depreciation and amortization
|
|
|
8,842
|
|
|
|
7,713
|
|
|
|
17,128
|
|
|
|
15,095
|
|
Transaction related expenses
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
11,273
|
|
|
|
9,684
|
|
|
|
828
|
|
|
|
4,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
7,297
|
|
|
|
7,079
|
|
|
|
16,692
|
|
|
|
15,131
|
|
Other income
|
|
|
(111
|
)
|
|
|
(542
|
)
|
|
|
(284
|
)
|
|
|
(1,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
4,087
|
|
|
|
3,147
|
|
|
|
(15,580
|
)
|
|
|
(9,910
|
)
|
Income tax provision (benefit)
|
|
|
1,537
|
|
|
|
907
|
|
|
|
(6,948
|
)
|
|
|
(4,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,550
|
|
|
$
|
2,240
|
|
|
$
|
(8,632
|
)
|
|
$
|
(5,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per
share with and without conversion option
|
|
$
|
0.12
|
|
|
$
|
0.10
|
|
|
$
|
(0.41
|
)
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
with conversion option
|
|
|
|
|
|
|
4,060,997
|
|
|
|
|
|
|
|
4,060,997
|
|
Weighted average shares outstanding
without conversion option
|
|
|
20,981,813
|
|
|
|
18,463,995
|
|
|
|
20,981,813
|
|
|
|
18,463,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average shares outstanding
|
|
|
20,981,813
|
|
|
|
22,524,992
|
|
|
|
20,981,813
|
|
|
|
22,524,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$
|
0.07
|
|
|
$
|
0.20
|
|
|
$
|
0.27
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated condensed financial statements.
- 4 -
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY AND COMPREHENSIVE INCOME (LOSS)(UNAUDITED)
FOR THE PERIOD FROM JANUARY 1, 2008 TO JULY 1, 2008 AND THE THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 1, 2008 AND JULY 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
without
|
|
|
without
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Conversion
|
|
|
Conversion
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
|
Option
|
|
|
Option
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (loss)
|
|
|
Stock
|
|
|
Total
|
|
|
|
(In thousands, except share data)
|
|
BALANCE, JANUARY 1, 2008
|
|
|
39,995,147
|
|
|
$
|
400
|
|
|
$
|
218,331
|
|
|
$
|
(117,375
|
)
|
|
$
|
2,050
|
|
|
$
|
(120,940
|
)
|
|
$
|
(17,534
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(290
|
)
|
|
|
|
|
|
|
(290
|
)
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,540
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,540
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,632
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JULY 1, 2008
|
|
|
39,995,147
|
|
|
$
|
400
|
|
|
$
|
218,331
|
|
|
$
|
(131,547
|
)
|
|
$
|
1,760
|
|
|
$
|
(120,940
|
)
|
|
$
|
(31,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Twenty-six Weeks Ended
|
|
|
|
July 1,
|
|
|
July 3,
|
|
|
July 1,
|
|
|
July 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net income (loss)
|
|
$
|
2,550
|
|
|
$
|
2,240
|
|
|
$
|
(8,632
|
)
|
|
$
|
(5,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) -
foreign currency translation adjustment
|
|
|
103
|
|
|
|
636
|
|
|
|
(290
|
)
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
2,653
|
|
|
$
|
2,876
|
|
|
$
|
(8,922
|
)
|
|
$
|
(5,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated condensed financial statements.
- 5 -
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
TWENTY-SIX WEEKS ENDED JULY 1, 2008 AND JULY 3, 2007
|
|
|
|
|
|
|
|
|
|
|
Twenty-six Weeks Ended
|
|
|
|
July 1,
|
|
|
July 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,632
|
)
|
|
$
|
(5,808
|
)
|
Adjustments to reconcile net loss to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
17,128
|
|
|
|
15,095
|
|
Amortization of deferred financing costs
|
|
|
1,970
|
|
|
|
1,284
|
|
Interest earned on restricted cash
|
|
|
(111
|
)
|
|
|
(232
|
)
|
Change in fair value of derivative
|
|
|
(311
|
)
|
|
|
118
|
|
Deferred tax benefit
|
|
|
(6,989
|
)
|
|
|
(3,985
|
)
|
Gain on disposition of assets
|
|
|
(2
|
)
|
|
|
(26
|
)
|
(Increase)/decrease in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,583
|
)
|
|
|
(4,884
|
)
|
Merchandise inventories
|
|
|
(8,087
|
)
|
|
|
(5,521
|
)
|
Prepaid expenses
|
|
|
(371
|
)
|
|
|
(145
|
)
|
Other assets
|
|
|
(2,188
|
)
|
|
|
|
(167
|
)
|
Accounts payable
|
|
|
9,218
|
|
|
|
3,219
|
|
Accrued salaries and vacations
|
|
|
3,088
|
|
|
|
(111
|
)
|
Liability for insurance
|
|
|
1,718
|
|
|
|
177
|
|
Accrued commissions and royalties
|
|
|
7,430
|
|
|
|
13,888
|
|
Other liabilities
|
|
|
13,189
|
|
|
|
3,113
|
|
Non-cash effect of foreign currency
translation on assets and liabilities
|
|
|
(30
|
)
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
22,437
|
|
|
|
16,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisition of business
|
|
|
(1,000
|
)
|
|
|
|
|
Purchase of property and equipment
|
|
|
(8,123
|
)
|
|
|
(8,110
|
)
|
Proceeds from sale of property and equipment
|
|
|
58
|
|
|
|
17
|
|
Contract rights acquired
|
|
|
(12,678
|
)
|
|
|
(4,043
|
)
|
Restricted cash
|
|
|
354
|
|
|
|
849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(21,389
|
)
|
|
|
(11,287
|
)
|
|
|
|
|
|
|
|
See notes to consolidated condensed financial statements.
- 6 -
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)(UNAUDITED)
TWENTY-SIX WEEK PERIODS ENDED JULY 1, 2008 AND JULY 3, 2007
|
|
|
|
|
|
|
|
|
|
|
Twenty-six Weeks Ended
|
|
|
|
July 1,
|
|
|
July 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
$
|
8,033
|
|
|
$
|
|
|
Repayments revolving loans
|
|
|
(42,500
|
)
|
|
|
(41,000
|
)
|
Borrowings revolving loans
|
|
|
62,500
|
|
|
|
38,500
|
|
Swingline borrowings, net
|
|
|
(4,000
|
)
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(8,840
|
)
|
|
|
(538
|
)
|
Dividend payments
|
|
|
(6,925
|
)
|
|
|
(8,920
|
)
|
Increase in bank overdrafts
|
|
|
2,286
|
|
|
|
1,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
10,554
|
|
|
|
(10,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
|
|
|
11,362
|
|
|
|
(5,178
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
33,853
|
|
|
|
39,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
45,215
|
|
|
$
|
34,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
17,543
|
|
|
$
|
13,721
|
|
Income taxes paid
|
|
$
|
657
|
|
|
$
|
452
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL NON CASH FLOW INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital investment commitment accrued
|
|
$
|
9,895
|
|
|
$
|
5,909
|
|
Dividends declared and unpaid
|
|
$
|
|
|
|
$
|
1,487
|
|
See notes to consolidated condensed financial statements.
- 7 -
CENTERPLATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
TWENTY-SIX WEEK PERIODS ENDED JULY 1, 2008 AND JULY 3, 2007
1. GENERAL
Centerplate, Inc. (Centerplate
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 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 accompanying financial statements of Centerplate 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 annual 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 26 week period ended July 1, 2008 are not necessarily
indicative of the results to be expected for the 52 week fiscal year ending December 30, 2008 due
to the seasonal aspects of the business. The accompanying consolidated condensed financial
statements and notes thereto should be read in conjunction with the audited financial statements
and notes thereto for the year ended January 1, 2008 included in the Companys annual report on
Form 10-K.
2. LIQUIDITY AND DEBT COVENANT COMPLIANCE
In March and April 2008, the Company obtained waivers and amendments of
certain provisions of the Companys Credit Agreement temporarily affecting the
calculation of the financial ratios that must be achieved in order to pay
dividends. Refer to Note 5 for a discussion of the overall terms and conditions
of the Credit Agreement. Among other things, the waivers and amendments
adjusted the senior leverage ratio, total leverage ratio and interest coverage
ratio requirements for first quarter 2008 to levels that permitted the Company
to pay dividends and interest on the subordinated notes through May 2008. In
addition, the April 2008 amendment allowed the Company to invest in a potential
new service contract and increased the amount of capital expenditures the
Company can make in fiscal 2008. The amendment also adjusted the interest rate
on the term loan portion of the credit facility to 1.75% over a defined prime
rate, or 3.75% over a Eurodollar rate.
On May 19, 2008, the Company obtained an additional amendment to the
Credit Agreement that adjusted the senior leverage ratio, total leverage ratio
and interest coverage ratio to levels that are expected to permit the Company
to pay interest on the subordinated notes on a monthly basis through October
2008. Thereafter, the ratios will be reset to the levels in effect in January
2008. The May amendment permits the Company to make additional capital
expenditures in 2008 that would otherwise be permitted to be made only in 2009.
In connection with the amendment, the Company agreed, among other things, to
eliminate the dividend on its common stock following payment of the May 2008
dividend. Also, the amendment adjusted the interest rates as described below.
In connection with the amendment, maximum availability under the revolving
credit facility was reduced to $77.5 million on May 19, 2008, and the Company
agreed to apply certain amounts held in a cash collateral account to prepay
approximately $8.0 million on the term loan, which was paid. Following the May
2008 amendment, the applicable margin on revolving credit facility borrowings
ranges from 2.75% to 3.50% over a defined prime rate or 3.75% to 4.50% over a
Eurodollar rate, in each case depending on the Companys total leverage ratio.
The applicable margin for the term loan is 3.50% over the defined prime rate
and 4.50% over the Eurodollar rate. The Eurodollar rate shall not be lower
than 3.0%.
The 2008 waivers and amendments were necessitated primarily by a decrease
in revenues generated at the Companys convention center contracts that the
Company began to experience in January 2008, as well as more stringent ratio
requirements for the payment of dividends and interest under the Credit
Agreement effective in January 2008 (going from 2.25:1.00 in 2007 to 2.15:1.00
in 2008). In connection with the March and April 2008 amendments, the Company
paid approximately $1.0 million in amendment fees and other expenses. The Company incurred
additional fees and expenses of approximately $2.3 million in connection with
the May 2008 amendments. All fees and expenses incurred in connection
with these amendments were capitalized and will be amortized over the
remaining life of the credit facility.
If the Company is unable to meet the Credit Agreement financial ratios for
the payment of monthly installments of interest on the subordinated notes as
set forth in the May 2008 amendment or as set forth in the Credit Agreement
after October 2008, the Credit Agreement requires the Company to defer interest
on the subordinated notes, subject to certain limitations set forth in the
indenture. If the Company were unable to obtain a further amendment to the
Credit Agreement, interest on the subordinated notes will need to be deferred
after the October 2008 interest payment. Interest on deferred interest accrues
at the rate of 13.5% per annum. All interest deferred prior to December 10,
2008 must be paid no later than December 18, 2008, and the Credit Agreement
permits this payment even if the required ratios have not been met.
In May 2008, the Company announced that its Board of Directors initiated a
process to evaluate a range of capital structure and other alternatives and
engaged UBS Securities LLC as the Companys
financial advisor to assist in this process. The Company believes its
current Income Deposit Security structure may limit its ability to invest to
strengthen and grow its business. If this process is not completed by October
2008, which is within the five month timeframe provided by the May 2008
amendment, the Company will require a further amendment to its credit facility
as further discussed below. The Company intends to vigorously pursue the
necessary amendments to the Credit Agreement; however, the Company can give no
assurance as to the outcome of any such negotiations with its lenders.
If
the evaluation process described above is not completed by October
2008, and the Company is not otherwise able to obtain a further amendment to its credit facility by
such time, the Company intends to implement a restructuring plan designed to
achieve significant cost reductions and reduce the level of future capital
expenditures, both of which would limit the Company's ability to make
capital investments to obtain new contracts at levels consistent with
recent years. The cost reductions and reduced capital expenditures would be
required in order to satisfy the senior leverage and interest coverage
financial covenants contained in the Credit Agreement, and certain
actions to be taken would require approval from our senior lenders. If the Company is unable
to significantly reduce costs and capital expenditures, the Company expects (i)
it would be required to defer interest on the subordinated notes beginning with
the November 2008 interest payment (subject to certain limitations in the
indenture), and (ii) it would eventually be unable to comply
with the reinstated monthly financial
maintenance covenants in the Credit Agreement, which would result in an event
of default under the Credit Agreement. In the event necessary, the Company
believes that it would be able to achieve sufficient reductions in cost and
capital expenditures such that the Company could maintain compliance with the
financial maintenance covenants contained in the Credit Agreement over the
remaining term of the Credit Agreement. However, there can be no assurances to this effect as the
ability to comply with the financial maintenance covenants contained in the
Credit Agreement is impacted by a number of factors, some of which are not
within the Companys control, as discussed in Note 5.
The Companys non-compliance with the financial maintenance covenants
under the Credit Agreement would result in the Companys inability to make
further borrowings under its revolver. Upon the occurrence of an event of
default under the Credit Agreement, the lenders could elect to declare all
amounts outstanding, together with accrued interest, to be immediately due and
payable. If the Company were unable to repay those amounts, the lenders could
proceed against the security granted to them to secure that indebtedness. If
the lenders were to accelerate the payment of the indebtedness under the Credit
Agreement, this would result in a default under the indenture governing the
subordinated notes. The Companys assets may not be sufficient to repay in
full the indebtedness under the credit facility and the indenture.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have not been any changes in our significant accounting policies from those disclosed in
the Companys annual report for fiscal year 2007 on Form 10-K for the fiscal year ended January 1,
2008.
Cost in Excess of Net Assets Acquired and Trademarks
The Company performed its annual
impairment tests of goodwill and trademarks as of April 1, 2008 in accordance with Statement of
Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets
, and
determined that no impairment existed. Based on the Companys evaluation of events since April 1,
2008 , it continues to believe that no impairment exists as of July 1, 2008.
Accounts Receivable and Allowance for Doubtful Accounts
The Company, from time to time,
extends credit to customers for food and related services provided on terms generally similar to a
vendor relationship. The allowance for doubtful accounts is maintained at a level considered by
management to be adequate to absorb an estimate of probable future losses at the balance sheet
date. In estimating probable losses, management reviews accounts receivable that are past due and
arrives at an estimation for the aggregate balance of receivables. This process is based on
estimates and ultimate losses may differ from those estimates. Receivable balances are written off
when management determines that the balance is uncollectible. Subsequent recoveries, if any, are
credited to bad debt expense when received.
Insurance
The Company has a high deductible insurance program for general liability, auto
liability, and workers compensation risk and self-insures its employee health plans. Management
establishes a reserve for the high deductible and self-insurance liabilities considering a number
of factors, including historical experience and an actuarial assessment of the liabilities for
reported claims and claims incurred but not reported. The estimated liabilities for these programs, except for employee health
insurance, are then discounted using rates of 2.92% and 3.34% at July 1, 2008 and January 1, 2008,
- 8 -
respectively,
to their present value based on expected loss payment patterns determined by
experience. The total discounted high deductible liabilities recorded by the Company at July 1,
2008 and January 1, 2008 were $14,923,000 and $13,204,000, respectively. The related undiscounted
amounts were $16,311,000 and $14,488,000, respectively.
The employee health self-insurance liability is based on claims filed and estimates for claims
incurred but not reported. The total liability recorded by the Company at July 1, 2008 and
January 1, 2008 was $871,000 and $760,000, respectively.
Accounting Treatment for IDSs, Common Stock Owned by Initial Equity Investors and Derivative
Financial Instruments
The Companys Income Deposit Securities (IDSs) include common stock and
subordinated notes, the latter of which has three embedded derivative features. The embedded
derivative features include a call option, a change of control put option, and a term-extending
option on the notes. The call option allows the Company to repay the principal amount of the
subordinated notes after the fifth anniversary of the issuance, provided that the Company also pays
all of the interest that would have been paid during the initial 10-year term of the notes,
discounted to the date of repayment at a risk-free rate. Under the change of control put option,
the holders have the right to cause the Company to repay the subordinated notes at 101% of face
value upon a change of control, as defined in the subordinated note agreement. The term-extending
option allows the Company to unilaterally extend the term of the subordinated notes for two
five-year periods at the end of the initial 10-year period provided that it is in compliance with
the requirements of the indenture. The Company has accounted for these embedded derivatives in
accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
, as
amended and interpreted. Based on SFAS No. 133, as amended and interpreted, the call option and the
change of control put option are required to be separately valued. As of July 1, 2008 and
January 1, 2008, the fair value of these embedded derivatives was determined to be insignificant.
The term extending option was determined to be inseparable from the underlying subordinated notes.
Accordingly, it will not be separately accounted for in the current or future periods.
In December 2007, the Company issued additional IDSs pursuant to the Amended Stockholders
Agreement entered into by the Company on December 10, 2003 with those investors who held stock
prior to the IPO (Initial Equity Investors) in connection with the Companys initial public
offering (IPO). The common stock held by the Initial Equity Investors was initially treated as a
separate class of common stock for presentation of earnings per share. Although the common stock
held by the Initial Equity Investors is part of the same class of stock as the common stock
included in the IDSs for purposes of Delaware corporate law, the right to convert the shares into
IDSs that was granted in the Companys Amended and Restated Stockholders Agreement caused the stock
held by the Initial Equity Investors to have features of a separate class of stock for accounting
purposes. At July 3, 2007, earnings per share for common stock with and without conversion rights
were equal and therefore no separate presentation was required. As of July 1, 2008 there were no
shares of common stock with conversion options outstanding.
In order to minimize our exposure to interest rate risk, the Company has an interest rate swap
agreement for a notional amount of $100 million. The agreement is based on three month LIBOR and
contains a collar feature with an interest rate floor of 4.82% and cap of 6%. The Company has
recorded a liability for the fair value of this derivative of approximately $0.5 million at July 1,
2008 and $0.3 million at January 1, 2008. Changes in the market value of this derivative are
recognized in earnings currently as a component of interest expense.
Income Taxes
The provision (benefit) 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 and
the future benefits of net operating loss carryforwards and tax credits. 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.
- 9 -
Income taxes for the 26 weeks ended July 1, 2008 and July 3, 2007 were calculated using the
projected annual effective tax rate for fiscal 2008 and 2007, respectively, in accordance with SFAS
No. 109
Accounting for Income Taxes
and APB No. 28
Interim Financial Reporting
. Currently, the
Company estimates that in the fiscal year ending December 30, 2008, it will have an effective
annual tax rate of approximately 47%. In determining the effective annual tax rate, the Companys
book income, permanent tax adjustments, and tax credits have been factored into the calculation.
In the previous year, the Company estimated that its effective annual tax rate for the fiscal year
ended January 1, 2008 would be 43%. The fluctuation in the projected effective annual tax rate is
primarily due to the sensitivity of the ratio involving expected ordinary income and permanent
items (primarily the interest charge related to the Companys derivatives, and federal tax
credits). The interim income tax provision (or benefit) can fluctuate considerably from quarter to
quarter as a result of changes in the projected effective annual tax rate.
The Company has uncertain tax positions and in accordance with FIN 48
Accounting for
Uncertainity in Income Taxes
an interpretation of the Statement No. 109,
Accounting for Income
Taxes,
has recorded a liability of approximately $2.2 million and $2.1 million for total gross
unrecognized tax benefits as of July 1, 2008 and January 1, 2008, respectively. Of this total,
approximately $0.8 and $1.0 million (net of federal benefit on state issues) as of July 1, 2008 and
January 1, 2008, respectively, represent the amount of unrecognized tax benefits that are permanent
in nature and, if recognized, would affect the annual effective tax rate.
At
July 1, 2008, the Company had recorded net deferred tax assets
of $27.0 million, net of a
valuation allowance of $0.4 million related to certain tax credits for which realization was not
considered more likely than not.
The Companys ability to realize the net deferred tax asset recorded at July1, 2008 depends on
the Companys ability to generate sufficient taxable income within the carryforward periods
provided for in the tax law for each applicable tax jurisdiction. The establishment of a valuation
allowance is based on the Companys consideration of all available evidence, both positive and
negative, concerning the expectation of future realization, and considers, among other things,
historical operating results; forecasts of future operations; the duration of statutory
carryforward periods; the Companys experience with tax attributes expiring unused; and tax
planning alternatives. In making such judgments, greater weight is given to evidence that can be
objectively verified.
The
Company performs ongoing evaluations of the valuation allowance recorded and the need for
adjustments based on current facts and conditions. Changes in the Companys assessment of the
expected realization of deferred tax assets, based on the evaluation criteria required by SFAS 109,
could result in changes to the valuation allowance in future periods. Such changes would be
recognized as adjustments to income tax expense in the period in which the change occurs.
The Company has accounted for the issuance of IDS units in December 2003 and December 2007 as
representing shares of common stock and subordinated notes by allocating the proceeds from each IDS
unit to the underlying stock or subordinated note based upon the relative fair values of each.
Accordingly, the portion of the aggregate IDS units outstanding that represents subordinated notes
has been accounted for by the Company as long-term debt bearing a stated interest rate of 13.5% and
maturing on December 10, 2013. During the 26 weeks ended July 1, 2008, the Company deducted
interest expense of approximately $8 million on the subordinated notes for purposes of computing
taxable income for U.S. federal and state income tax purposes.
The determination as to whether an instrument is treated as debt or equity for income tax
purposes is based on the facts and circumstances. There is no clear statutory definition of debt
and its characterization is governed by principles developed in case law, which analyzes numerous
factors that are intended to identify the economic substance of the investors interest in the
corporation. The Company believes that the subordinated notes issued in 2003 and 2007 should be
treated as debt for U.S. federal income tax purposes. However, no ruling on this issue has been
requested from any federal
- 10 -
or state tax authority, and there is no authority that directly
addresses the tax treatment of securities with terms substantially similar to the subordinated
notes or offered as a unit consisting of subordinated notes and common stock. In light of this
absence of direct authority, there can be no assurance that the subordinated notes will be treated
as debt for income tax purposes. If the subordinated notes were treated as equity rather than as
debt for income tax purposes, the stated interest on the subordinated notes would be treated as a
distribution with respect to stock and would not be deductible for income tax purposes.
Additionally, there can be no assurance that a taxing authority will not challenge the
determination that the interest rate on the subordinated notes represents an arms length rate. If
such a challenge were successful, any excess amount over arms length would not be deductible and
could be recharacterized as a dividend payment instead of an interest payment for income tax
purposes.
Since issuance of the IDS units in December 2003 and 2007, the cumulative amount of interest
expense associated with the notes has been approximately $66 million and the additional tax due to
the federal and state authorities, would be approximately $7.2 million based on the Companys
ability to utilize net operating losses and tax credits to offset a portion of the tax liability,
if the subordinated notes were to be treated as equity for income tax purposes since inception.
Such reclassification, however, would also cause the Company to utilize more of its deferred tax
assets at a faster rate than it otherwise would. The Company believes the interest on the
subordinated notes should be deductible for federal and state income taxes and, as such, has not
recorded a liability for the potential disallowance of this deduction.
The Company is subject to U.S and Canadian income taxes, as well as various other state and
local jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state
and local, or non-U.S. income tax examinations by tax authorities for years before 2003, although
carryforward attributes that were generated prior to 2004 may still be adjusted upon examination by
the IRS if they either have been or will be used in a future period.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties as
income tax expense. Related to the unrecognized tax benefits noted above, the Company accrued
penalties of $49,000 and interest of $27,000 during 2008 and in total, as of July 1, 2008, has
recognized a liability for penalties of $146,000 and interest of $83,000.
The Company does not expect that the total amounts of unrecognized tax benefits will
significantly increase or decrease within the next 12 months.
New Accounting Standards
The Company adopted the provisions of SFAS No. 157,
Fair Value
Measurements
(FAS 157) on January 1, 2008 as amended to defer the effective date for certain
nonfinancial assets and liabilities to years beginning after November 15, 2008. FAS 157 defines
fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands
disclosures about fair value measurements. FAS 157 is applicable whenever another accounting
pronouncement requires or permits assets and liabilities to be measured at fair value. FAS 157
does not expand or require any new fair value measures, however the application of this statement
may change current practice. In February 2008, Financial Accounting Standards Board (the FASB)
decided that an entity need not apply this standard to nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a nonrecurring basis until
2009. Accordingly, the Companys adoption of this standard in 2008 is limited to financial assets
and liabilities, which primarily affects the valuation of our interest rate swap agreement. The
Company utilizes the market approach to measure the fair market value. The market approach
uses prices and other relevant information generated by market transactions involving identical or
comparable assets or liabilities. The Company has recorded a liability for the fair value of this
derivative of $.5 million at July 1, 2008. The Company is still in the process of evaluating this
standard with respect to its effect on nonfinancial assets and liabilities and therefore have not
yet determined the impact that it will have on the Companys financial statements upon full
adoption in 2009.
- 11 -
We adopted SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities
Including an Amendment of FASB Statement No. 115
(FAS 159) on January 2, 2008. FAS 159 permits
entities to choose to measure many financial instruments and certain other items at fair value.
Entities that elect the fair value option will report unrealized gains and losses in earnings at
each subsequent reporting date. The fair value option may be elected on an
instrument-by-instrument basis, with few exceptions. FAS 159 also establishes presentation and
disclosure requirements to facilitate comparisons between companies that choose different
measurement attributes for similar assets and liabilities. The adoption of FAS 159 did not have an
effect on our financial condition or results of operations as we did not elect this fair value
option, nor is it expected to have a material impact on future periods as the election of this
option for our financial instruments is expected to be limited.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations
, which will
significantly change the accounting for business combinations. SFAS No. 141R is effective for the
Company for business combinations beginning in fiscal 2009. The Company is currently evaluating
this statement.
4. COMMITMENTS AND CONTINGENCIES
There are various claims and pending legal actions against or directly involving Centerplate
that are incidental to the conduct of its business. 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 been accrued for known contingencies, that
the ultimate disposition of any of these pending proceedings or contingencies will not have a
material adverse effect on our financial condition or results of operations.
5. DEBT
Credit Agreement
On April 1, 2005, the Company entered into a credit agreement pursuant to
which General Electric Capital Corporation (GE Capital) agreed to provide up to $215 million of
senior secured financing. The financing was comprised of a term loan in the initial amount of
$107.5 million and revolving credit facility also in the initial amount of $107.5 million (the
Credit Agreement). The Credit Agreement bears interest at a floating rate equal to a margin over
a defined prime rate (initially 1.25% for the term loan and 1.5% for the revolving credit facility)
or a percentage over a Eurodollar rate (initially of 3.25% for the term loan and 3.5% for the
revolving credit facility). The applicable margins for the revolving credit facility are subject to
adjustment (initially from 1.0% to 1.75% for loans based on a defined prime rate and from 3.0% to
3.75% for Eurodollar loans) based on our total leverage ratio. The applicable margins were
increased in connection with the April and May 2008 Amendments
as described in Note 2. The proceeds of
the term loan were used to repay the prior $65 million term loan, outstanding revolving loans of
$23.25 million, as well as interest, related fees and expenses, including a prepayment premium of
approximately $4.6 million on the term loan facility. The revolving portion of the Credit Agreement
has a $35 million letter of credit sub-limit and a $10 million swing line loan sub-limit. At July
1, 2008, approximately $24,800,000 of letters of credit were outstanding but undrawn and the
Company had $45,500,000 in short-term revolving loans outstanding.
The term loan matures in October 2010 and requires quarterly principal payments of $269,000.
The availability of funding under the revolving credit facility depends on the satisfaction of
various financial and other conditions, including restrictions in the indenture governing the
subordinated notes. The revolving credit facility matures in April 2010 and is subject to an annual
thirty-day pay down requirement, exclusive of letters of credit and certain specified levels of
permitted acquisition and service contract-related revolving credit advances. Borrowings under the
Credit Agreement are secured by substantially all of the Companys assets and rank senior to the
subordinated notes. The Credit Agreement contains customary events of default.
The Credit Agreement requires the Company to maintain specified financial ratios and satisfy
- 12 -
certain financial condition tests, including a maximum net leverage ratio, a minimum interest
coverage ratio and a maximum net senior leverage ratio. The Credit Agreement also imposes
significant operating and financial restrictions on the Company. These restrictions prohibit or
limit, among other things,
|
|
|
the incurrence of additional indebtedness
|
|
|
|
|
the issuance of preferred stock and certain redeemable common stock;
|
|
|
|
|
the payment of dividends;
|
|
|
|
|
the payment of interest on subordinated notes
|
|
|
|
|
the purchase or redemption of the Companys outstanding common stock;
|
|
|
|
|
specified sales of assets
|
The terms of the Credit Agreement include other, more restrictive, covenants and prohibit the
Company from prepaying other indebtedness, including the subordinated notes, while indebtedness
under the Credit Agreement is outstanding
The ability to meet these financial tests could be affected by the loss of significant
contracts, the failure to generate new business, unexpected liabilities, increased expenses,
increased interest costs due to additional revolver borrowings or higher interest rates on the
credit facility, general economic conditions, or other events affecting the Companys operations.
In the event the Company is unable to satisfy the required ratios for any monthly test in the
future, the Company would be prohibited from paying any dividends and would be required to defer
current installments of interest on the subordinated notes absent obtaining a waiver from the
senior lenders.
Please see Note 2
for a discussion of liquidity and debt covenant compliance.
- 13 -
6. SIGNIFICANT CONCENTRATION RISK
In April 2008, the Company was informed by the New York Yankees that it will not be the
concessionaire for the new Yankee Stadium set to open in 2009. This does not affect Centerplates
current contract covering the existing Yankee Stadium, which runs through December 31, 2008. Thus,
this decision by the Yankees is not expected to affect the Companys 2008 financial results. In
fiscal 2007, the New York Yankees accounted for approximately 9.6% of the Companys net sales.
- 14 -
7. CONSOLIDATING CONDENSED INFORMATION
The $119,596,000 original principal amount of Centerplates 13.5% subordinated notes are
jointly and severally and fully and non-conditionally guaranteed by each of Centerplates direct
and indirect 100% owned subsidiaries, except for certain non-100% owned U.S. subsidiaries and one
non-U.S. subsidiary. The following table sets forth the consolidating condensed financial
statements of Centerplate as of the period ended July 1, 2008 and January 1, 2008 (in the case of
the balance sheet) and for the 13 and 26 week periods ended July 1, 2008 and July 3, 2007 (in the
case of the statement of operations) and for the 26 week periods ended July 1, 2008 and July 3,
2007 (in the case of the statement of cash flows):
Consolidating Condensed Balance Sheet, July 1, 2008 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
223
|
|
|
$
|
43,678
|
|
|
$
|
1,314
|
|
|
$
|
|
|
|
$
|
45,215
|
|
Accounts receivable
|
|
|
|
|
|
|
31,558
|
|
|
|
2,564
|
|
|
|
|
|
|
|
34,122
|
|
Other current assets
|
|
|
45
|
|
|
|
37,260
|
|
|
|
2,125
|
|
|
|
|
|
|
|
39,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
268
|
|
|
|
112,496
|
|
|
|
6,003
|
|
|
|
|
|
|
|
118,767
|
|
Property and equipment, net
|
|
|
|
|
|
|
50,537
|
|
|
|
2,685
|
|
|
|
|
|
|
|
53,222
|
|
Contract rights, net
|
|
|
11
|
|
|
|
94,285
|
|
|
|
810
|
|
|
|
|
|
|
|
95,106
|
|
Cost in excess of net assets acquired
|
|
|
6,974
|
|
|
|
34,168
|
|
|
|
|
|
|
|
|
|
|
|
41,142
|
|
Intercompany receivable (payable)
|
|
|
87,369
|
|
|
|
(101,474
|
)
|
|
|
5,458
|
|
|
|
8,647
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
(13,242
|
)
|
|
|
8,647
|
|
|
|
|
|
|
|
4,595
|
|
|
|
|
|
Other assets
|
|
|
6,993
|
|
|
|
50,239
|
|
|
|
2,952
|
|
|
|
|
|
|
|
60,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
88,373
|
|
|
$
|
248,898
|
|
|
$
|
17,908
|
|
|
$
|
13,242
|
|
|
$
|
368,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIENCY)
|
|
Current liabilities
|
|
$
|
773
|
|
|
$
|
156,535
|
|
|
$
|
6,456
|
|
|
$
|
575
|
|
|
$
|
164,339
|
|
Long-term debt
|
|
|
119,596
|
|
|
|
94,898
|
|
|
|
|
|
|
|
|
|
|
|
214,494
|
|
Other liabilities
|
|
|
|
|
|
|
20,623
|
|
|
|
961
|
|
|
|
|
|
|
|
21,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
120,369
|
|
|
|
272,056
|
|
|
|
7,417
|
|
|
|
575
|
|
|
|
400,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficiency) equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
Additional paid-in capital
|
|
|
218,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,331
|
|
Accumulated earnings (deficit)
|
|
|
(131,547
|
)
|
|
|
(23,158
|
)
|
|
|
8,731
|
|
|
|
14,427
|
|
|
|
(131,547
|
)
|
Treasury stock and other
|
|
|
(119,180
|
)
|
|
|
|
|
|
|
1,760
|
|
|
|
(1,760
|
)
|
|
|
(119,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders
(deficiency) equity
|
|
|
(31,996
|
)
|
|
|
(23,158
|
)
|
|
|
10,491
|
|
|
|
12,667
|
|
|
|
(31,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
(deficiency) equity
|
|
$
|
88,373
|
|
|
$
|
248,898
|
|
|
$
|
17,908
|
|
|
$
|
13,242
|
|
|
$
|
368,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 15 -
Consolidating Condensed Statement of Operations and Comprehensive Income (Loss) (Unaudited)
Thirteen Week Period Ended July 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
Net sales
|
|
$
|
|
|
|
$
|
222,623
|
|
|
$
|
15,669
|
|
|
$
|
|
|
|
$
|
238,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation
& amortization)
|
|
|
|
|
|
|
181,361
|
|
|
|
12,631
|
|
|
|
125
|
|
|
|
194,117
|
|
Selling, general, and administrative
|
|
|
745
|
|
|
|
21,874
|
|
|
|
1,441
|
|
|
|
|
|
|
|
24,060
|
|
Depreciation and amortization
|
|
|
1
|
|
|
|
8,501
|
|
|
|
340
|
|
|
|
|
|
|
|
8,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(746
|
)
|
|
|
10,887
|
|
|
|
1,257
|
|
|
|
(125
|
)
|
|
|
11,273
|
|
Interest expense
|
|
|
4,291
|
|
|
|
2,997
|
|
|
|
9
|
|
|
|
|
|
|
|
7,297
|
|
Intercompany interest, net
|
|
|
(3,925
|
)
|
|
|
3,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
(1
|
)
|
|
|
(100
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(1,111
|
)
|
|
|
4,065
|
|
|
|
1,258
|
|
|
|
(125
|
)
|
|
|
4,087
|
|
Income tax (benefit) provision
|
|
|
(470
|
)
|
|
|
1,623
|
|
|
|
384
|
|
|
|
|
|
|
|
1,537
|
|
Equity in earnings (loss) of
subsidiaries
|
|
|
3,191
|
|
|
|
749
|
|
|
|
|
|
|
|
3,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
2,550
|
|
|
|
3,191
|
|
|
|
874
|
|
|
|
4,065
|
|
|
|
2,550
|
|
Other comprehensive income -
foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
2,550
|
|
|
$
|
3,191
|
|
|
$
|
977
|
|
|
$
|
4,065
|
|
|
$
|
2,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 16 -
Consolidating Condensed Statement of Operations and Comprehensive Income (Loss) (Unaudited)
Twenty-six Week Period Ended July 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
340,109
|
|
|
$
|
31,407
|
|
|
$
|
|
|
|
$
|
371,516
|
|
|
Cost of sales (excluding depreciation
& amortization)
|
|
|
|
|
|
|
283,733
|
|
|
|
26,368
|
|
|
|
190
|
|
|
|
310,291
|
|
Selling, general, and administrative
|
|
|
1,225
|
|
|
|
39,082
|
|
|
|
2,962
|
|
|
|
|
|
|
|
43,269
|
|
Depreciation and amortization
|
|
|
6
|
|
|
|
16,459
|
|
|
|
663
|
|
|
|
|
|
|
|
17,128
|
|
Transaction related expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(1,231
|
)
|
|
|
835
|
|
|
|
1,414
|
|
|
|
(190
|
)
|
|
|
828
|
|
Interest expense
|
|
|
8,625
|
|
|
|
8,045
|
|
|
|
22
|
|
|
|
|
|
|
|
16,692
|
|
Intercompany interest, net
|
|
|
(7,850
|
)
|
|
|
7,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
(5
|
)
|
|
|
(240
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(2,001
|
)
|
|
|
(14,820
|
)
|
|
|
1,431
|
|
|
|
(190
|
)
|
|
|
(15,580
|
)
|
Income tax (benefit) provision
|
|
|
(847
|
)
|
|
|
(6,398
|
)
|
|
|
297
|
|
|
|
|
|
|
|
(6,948
|
)
|
Equity in (loss) earnings of
subsidiaries
|
|
|
(7,478
|
)
|
|
|
944
|
|
|
|
|
|
|
|
6,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(8,632
|
)
|
|
|
(7,478
|
)
|
|
|
1,134
|
|
|
|
6,344
|
|
|
|
(8,632
|
)
|
Other comprehensive income -
foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
(290
|
)
|
|
|
|
|
|
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(8,632
|
)
|
|
$
|
(7,478
|
)
|
|
$
|
844
|
|
|
$
|
6,344
|
|
|
$
|
(8,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 17 -
Consolidating Condensed Statement of Cash Flows (Unaudited)
Twenty-six Week Period Ended July 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
Cash Flows Provided by (Used in) Operating Activities
|
|
$
|
(1,922
|
)
|
|
$
|
21,068
|
|
|
$
|
3,291
|
|
|
$
|
22,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquistion of subsidiary
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
(1,000
|
)
|
Purchase of property and equipment
|
|
|
|
|
|
|
(6,868
|
)
|
|
|
(1,255
|
)
|
|
|
(8,123
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
58
|
|
Contract rights acquired
|
|
|
|
|
|
|
(12,522
|
)
|
|
|
(156
|
)
|
|
|
(12,678
|
)
|
Restricted Cash
|
|
|
|
|
|
|
354
|
|
|
|
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(19,978
|
)
|
|
|
(1,411
|
)
|
|
|
(21,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
8,033
|
|
|
|
|
|
|
|
8,033
|
|
Repayments revolving loans
|
|
|
|
|
|
|
(42,500
|
)
|
|
|
|
|
|
|
(42,500
|
)
|
Borrowings revolving loans
|
|
|
|
|
|
|
62,500
|
|
|
|
|
|
|
|
62,500
|
|
Net borrowings swingline loans
|
|
|
|
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
(4,000
|
)
|
Principal payments on long-term debt
|
|
|
|
|
|
|
(8,840
|
)
|
|
|
|
|
|
|
(8,840
|
)
|
Dividend payments
|
|
|
(6,925
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,925
|
)
|
Increase in bank overdrafts
|
|
|
|
|
|
|
1,913
|
|
|
|
373
|
|
|
|
2,286
|
|
Change in intercompany, net
|
|
|
8,852
|
|
|
|
362
|
|
|
|
(9,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
1,927
|
|
|
|
17,468
|
|
|
|
(8,841
|
)
|
|
|
10,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation on cash
|
|
|
|
|
|
|
|
|
|
|
(240
|
)
|
|
|
(240
|
)
|
|
Increase (decrease) in cash
|
|
|
5
|
|
|
|
18,558
|
|
|
|
(7,201
|
)
|
|
|
11,362
|
|
|
Cash and cash equivalents beginning of period
|
|
|
218
|
|
|
|
25,120
|
|
|
|
8,515
|
|
|
|
33,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
223
|
|
|
$
|
43,678
|
|
|
$
|
1,314
|
|
|
$
|
45,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 18 -
Consolidating Condensed Balance Sheet, January 1, 2008 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
218
|
|
|
$
|
25,120
|
|
|
$
|
8,515
|
|
|
$
|
|
|
|
$
|
33,853
|
|
Accounts receivable
|
|
|
|
|
|
|
26,058
|
|
|
|
3,481
|
|
|
|
|
|
|
|
29,539
|
|
Other current assets
|
|
|
4
|
|
|
|
30,289
|
|
|
|
1,832
|
|
|
|
|
|
|
|
32,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
222
|
|
|
|
81,467
|
|
|
|
13,828
|
|
|
|
|
|
|
|
95,517
|
|
Property and equipment
|
|
|
|
|
|
|
49,884
|
|
|
|
2,102
|
|
|
|
|
|
|
|
51,986
|
|
Contract rights, net
|
|
|
18
|
|
|
|
84,534
|
|
|
|
631
|
|
|
|
|
|
|
|
85,183
|
|
Cost in excess of net assets acquired, net
|
|
|
6,974
|
|
|
|
34,168
|
|
|
|
|
|
|
|
|
|
|
|
41,142
|
|
Intercompany receivable (payable)
|
|
|
96,219
|
|
|
|
(100,738
|
)
|
|
|
(3,756
|
)
|
|
|
8,275
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
(5,473
|
)
|
|
|
8,275
|
|
|
|
|
|
|
|
(2,802
|
)
|
|
|
|
|
Other assets
|
|
|
6,745
|
|
|
|
50,546
|
|
|
|
1,232
|
|
|
|
|
|
|
|
58,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
104,705
|
|
|
$
|
208,136
|
|
|
$
|
14,037
|
|
|
$
|
5,473
|
|
|
$
|
332,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIENCY)
|
|
Current liabilities
|
|
$
|
2,643
|
|
|
$
|
107,574
|
|
|
$
|
4,108
|
|
|
$
|
667
|
|
|
$
|
114,992
|
|
Long-term debt
|
|
|
119,596
|
|
|
|
103,738
|
|
|
|
|
|
|
|
|
|
|
|
223,334
|
|
Other liabilities
|
|
|
|
|
|
|
11,559
|
|
|
|
|
|
|
|
|
|
|
|
11,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
122,239
|
|
|
|
222,871
|
|
|
|
4,108
|
|
|
|
667
|
|
|
|
349,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficiency) equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
Additional paid-in capital
|
|
|
218,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,331
|
|
Accumulated deficit
|
|
|
(117,375
|
)
|
|
|
(14,735
|
)
|
|
|
7,879
|
|
|
|
6,856
|
|
|
|
(117,375
|
)
|
Treasury stock and other
|
|
|
(118,890
|
)
|
|
|
|
|
|
|
2,050
|
|
|
|
(2,050
|
)
|
|
|
(118,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficiency)
equity
|
|
|
(17,534
|
)
|
|
|
(14,735
|
)
|
|
|
9,929
|
|
|
|
4,806
|
|
|
|
(17,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
(deficiency) equity
|
|
$
|
104,705
|
|
|
$
|
208,136
|
|
|
$
|
14,037
|
|
|
$
|
5,473
|
|
|
$
|
332,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
Consolidating Condensed Statement of Operations and Comprehensive Income (Loss) (Unaudited)
Thirteen Week Period Ended July 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
188,121
|
|
|
$
|
12,718
|
|
|
$
|
|
|
|
$
|
200,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation
& amortization)
|
|
|
|
|
|
|
152,259
|
|
|
|
10,595
|
|
|
|
94
|
|
|
|
162,948
|
|
Selling, general, and administrative
|
|
|
612
|
|
|
|
18,051
|
|
|
|
1,498
|
|
|
|
|
|
|
|
20,161
|
|
Depreciation and amortization
|
|
|
6
|
|
|
|
7,365
|
|
|
|
342
|
|
|
|
|
|
|
|
7,713
|
|
Transaction related expenses
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(951
|
)
|
|
|
10,446
|
|
|
|
283
|
|
|
|
(94
|
)
|
|
|
9,684
|
|
Interest expense
|
|
|
3,260
|
|
|
|
3,797
|
|
|
|
22
|
|
|
|
|
|
|
|
7,079
|
|
Intercompany interest, net
|
|
|
(3,925
|
)
|
|
|
3,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
(3
|
)
|
|
|
(508
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
(542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(283
|
)
|
|
|
3,232
|
|
|
|
292
|
|
|
|
(94
|
)
|
|
|
3,147
|
|
Income tax provision (benefit)
|
|
|
(80
|
)
|
|
|
846
|
|
|
|
141
|
|
|
|
|
|
|
|
907
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
2,443
|
|
|
|
57
|
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
2,240
|
|
|
|
2,443
|
|
|
|
151
|
|
|
|
(2,594
|
)
|
|
|
2,240
|
|
Other comprehensive income -
foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
636
|
|
|
|
|
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
2,240
|
|
|
$
|
2,443
|
|
|
$
|
787
|
|
|
$
|
(2,594
|
)
|
|
$
|
2,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 20 -
Consolidating Condensed Statement of Operations and Comprehensive Income (Loss) (Unaudited)
Twenty-six Week Period Ended July 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
299,290
|
|
|
$
|
26,882
|
|
|
$
|
|
|
|
$
|
326,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation
& amortization)
|
|
|
|
|
|
|
246,783
|
|
|
|
22,287
|
|
|
|
136
|
|
|
|
269,206
|
|
Selling, general, and administrative
|
|
|
1,035
|
|
|
|
33,447
|
|
|
|
2,879
|
|
|
|
|
|
|
|
37,361
|
|
Depreciation and amortization
|
|
|
21
|
|
|
|
14,391
|
|
|
|
683
|
|
|
|
|
|
|
|
15,095
|
|
Transaction related expenses
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,389
|
)
|
|
|
4,669
|
|
|
|
1,033
|
|
|
|
(136
|
)
|
|
|
4,177
|
|
Interest expense
|
|
|
7,818
|
|
|
|
7,265
|
|
|
|
48
|
|
|
|
|
|
|
|
15,131
|
|
Intercompany interest, net
|
|
|
(7,850
|
)
|
|
|
7,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
(2
|
)
|
|
|
(987
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
(1,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(1,355
|
)
|
|
|
(9,459
|
)
|
|
|
1,040
|
|
|
|
(136
|
)
|
|
|
(9,910
|
)
|
Income tax provision (benefit)
|
|
|
(436
|
)
|
|
|
(3,952
|
)
|
|
|
286
|
|
|
|
|
|
|
|
(4,102
|
)
|
Equity in earnings (loss) of subsidiaries
|
|
|
(4,889
|
)
|
|
|
618
|
|
|
|
|
|
|
|
4,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(5,808
|
)
|
|
|
(4,889
|
)
|
|
|
754
|
|
|
|
4,135
|
|
|
|
(5,808
|
)
|
Other comprehensive income -
foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
710
|
|
|
|
|
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(5,808
|
)
|
|
$
|
(4,889
|
)
|
|
$
|
1,464
|
|
|
$
|
4,135
|
|
|
$
|
(5,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 21 -
Consolidating Condensed Statement of Cash Flows (Unaudited)
Twenty-six Week Period Ended July 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidated
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Cash Flows Provided by (Used in) Operating Activities
|
|
$
|
(2,139
|
)
|
|
$
|
16,954
|
|
|
$
|
1,910
|
|
|
$
|
16,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
(7,735
|
)
|
|
|
(375
|
)
|
|
|
(8,110
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
Contract rights acquired
|
|
|
|
|
|
|
(4,043
|
)
|
|
|
|
|
|
|
(4,043
|
)
|
Return of unamortized capital investment
|
|
|
|
|
|
|
849
|
|
|
|
|
|
|
|
849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(10,912
|
)
|
|
|
(375
|
)
|
|
|
(11,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments revolving loans
|
|
|
|
|
|
|
(41,000
|
)
|
|
|
|
|
|
|
(41,000
|
)
|
Borrowings revolving loans
|
|
|
|
|
|
|
38,500
|
|
|
|
|
|
|
|
38,500
|
|
Principal payments on long-term debt
|
|
|
|
|
|
|
(538
|
)
|
|
|
|
|
|
|
(538
|
)
|
Dividend payments
|
|
|
(8,920
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,920
|
)
|
Increase in bank overdrafts
|
|
|
|
|
|
|
1,342
|
|
|
|
|
|
|
|
1,342
|
|
Change in intercompany, net
|
|
|
11,061
|
|
|
|
(10,903
|
)
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
2,141
|
|
|
|
(12,599
|
)
|
|
|
(158
|
)
|
|
|
(10,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
2
|
|
|
|
(6,557
|
)
|
|
|
1,377
|
|
|
|
(5,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
|
210
|
|
|
|
36,631
|
|
|
|
2,750
|
|
|
|
39,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
212
|
|
|
$
|
30,074
|
|
|
$
|
4,127
|
|
|
$
|
34,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 22 -
Item 2. Managements 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 26 weeks ended July 1, 2008 and July 3, 2007 should be read in conjunction with our audited
financial statements, including the related notes, included in our annual report on Form 10-K for
the year ended January 1, 2008. The financial data has been prepared in accordance with generally
accepted accounting principles in the United States (GAAP).
Overview
We are a leading provider of food and related services, including concessions, catering and
merchandise services in sports facilities, convention centers and other entertainment facilities
throughout the United States and in Canada. Based on the number of facilities served, we are one
of the largest providers of food and beverage services to a variety of recreational facilities in
the United States.
We believe that the ability to retain existing accounts and to win new accounts are key
factors in maintaining and growing our business. Net sales historically have also increased when
there has been an increase in the number of events or attendance at our sports facilities due to a
higher number of post-season and playoff games. Net sales also have increased as a result of more
events at our convention centers and entertainment venues. These higher sales, along with our
ability to control product and labor costs, and our ability to increase per capita spending are
primary drivers of earnings before interest, taxes, depreciation and amortization (EBITDA) and
net income growth.
When renewing an existing contract or securing a new contract, we often have to make a capital
investment in our clients facility and agree to pay the client a percentage of the net sales or
profits in the form of a commission. We reinvest the cash flow generated by operating activities in
order to renew or obtain contracts. We believe that these investments have provided a diversified
account base of exclusive, long-term contracts.
Our strategic initiatives and infrastructure development have helped position our company for
growth, but this process is not complete, and we must continue to invest in our business in order
to operate successfully in a very competitive environment. In addition, we seek to broaden our
strategic horizons and garner a wide range of potential opportunities in order to reduce our
dependence on any single account. In 2008, we will look to grow net sales and EBITDA through new
accounts, acquisitions and/or joint ventures that will expand upon the scope of our business and
enhance our existing operating platforms.
In May 2008, we announced that our Board of Directors initiated a process to evaluate a range
of capital structure and other alternatives and engaged UBS Securities LLC as the Companys
financial advisor to assist in this process. We believe our current Income Deposit Security
structure may limit our ability to invest to strengthen and grow our business. If this process is
not completed by October 2008, which is within the five month timeframe provided by the May 2008
amendment to our Credit Agreement, we will require a further amendment to our credit facility as
dicussed in the Liquidity and Capital Resources section below. We intend to vigorously pursue the
necessary amendments to the Credit Agreement; however, we can give no assurance as to the outcome
of any such negotiations with our lenders.
Critical Accounting Policies
Our critical accounting policies are those that require significant judgment. There have been
no material changes to the critical accounting policies previously reported in our Annual Report on
Form 10-K for the year ended January 1, 2008.
- 23 -
Seasonality and Quarterly Results
Our operating results have varied, and are expected to continue to vary, from quarter to
quarter (a quarter is comprised of 13 or 14 weeks), as a result of factors which include:
|
|
|
Seasonality and variations in scheduling of sporting and other events;
|
|
|
|
|
Variability in the number, timing and type of new contracts;
|
|
|
|
|
Timing of contract expirations and special events; and
|
|
|
|
|
Level of attendance at the facilities which we serve.
|
Business at the principal types of facilities we serve is seasonal in nature. Major League
Baseball (MLB) and minor league baseball related sales are concentrated in the second and third
quarters, the majority of National Football League (NFL) related activity occurs in the fourth
quarter, and convention centers and arenas generally host fewer events during the summer months.
Results of operations for any particular quarter may not be indicative of results of operations for
future periods.
In addition, our need for capital varies significantly from quarter to quarter based on the
timing of contract renewals and the contract bidding process.
Set forth below are comparative net sales by quarter (in thousands) for the first and second
quarters of 2008, fiscal 2007, and fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
1
st
Quarter
|
|
$
|
133,224
|
|
|
$
|
125,333
|
|
|
$
|
113,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
nd
Quarter
|
|
$
|
238,292
|
|
|
$
|
200,839
|
|
|
$
|
190,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
rd
Quarter
|
|
|
|
|
|
$
|
246,141
|
|
|
$
|
218,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
th
Quarter
|
|
|
|
|
|
$
|
168,373
|
|
|
$
|
157,929
|
|
Results of Operations
Thirteen Weeks Ended July 1, 2008 Compared to the 13 Weeks Ended July 3, 2007
Net sales
Net sales of $238.3 million for the 13 weeks ended July 1, 2008 increased $37.5
million, or approximately 18.6%, from $200.8 million in the prior year period. The increase was
primarily due to an increase in MLB sales of $25.3 million as a result of the opening of Nationals
Park in Washington, D.C. and improved attendance and per capita spending at a number of our other
MLB facilities. In addition, sales at arenas increased $4.0 million mainly due to results from the
Prudential Center, which was not yet open in the prior year quarter, and New Orleans Arena, which
hosted several NBA post-season games. Sales at convention centers also increased $2.9 million due
to additional events at some of our major convention centers. Sales at all other facilities
increased $5.6 million.
Cost of sales
Cost of sales of $194.1 million for the 13 weeks ended July 1, 2008 increased
approximately $31.2 million from $162.9 million in the prior year period due in part to the higher
sales volume. As a percentage of net sales, cost of sales increased by approximately .4% from the
prior year period. The increase was primarily the result of higher commissions paid to our clients
in the current
- 24 -
period resulting from certain new contracts and a higher concentration of sales at key profit
sharing contracts, where higher commissions are typically paid.
S
elling, general and administrative expenses
Selling, general and administrative expenses
were $24.1 million in the 13 weeks ended July 1, 2008 as compared to $20.2 million in the prior
year period, an increase of approximately $3.9 million. As a percentage of net sales, selling,
general and administrative costs increased approximately 0.1% from the prior year period. In the
current period, selling, general and administrative costs include approximately $1.5 million in
costs associated with the exploration of the Companys capital structure. Excluding these costs,
selling, general and administrative expense as a percentage of sales would have been 9.5%, a
decline of 0.5% from the prior year period. The improvement was due to lower other operating expenses
at certain facilities and a decline in overhead costs as a percentage of sales, due to the
relatively fixed nature of these expenses.
Depreciation and amortization
Depreciation and amortization was $8.8 million for the 13
weeks ended July 1, 2008, compared to $7.7 million in the prior year period. The increase was
primarily attributable to depreciation and amortization related to capital expenditures associated
with account renewals and investments in newly acquired contracts.
Interest
expense
Interest expense was $7.3 million for the 13 weeks ended July 1, 2008,
compared to $7.1 million in the prior year period. The increase
of $0.2 million was principally
associated with additional interest of $0.4 million related to the subordinated notes issued in December 2007 as part of the
secondary offering of IDSs.
Other income
Other income consisting of interest income declined $0.4 million from the
prior year period primarily due to lower interest rates and lower balances in the cash reserve
accounts during the 2008 period.
Income taxes
The income tax benefit for the 13 weeks ended July 1, 2008 and July 3, 2007
were calculated using the projected annual effective tax rate (ETR) for fiscal 2008 and 2007,
respectively, in accordance with Accounting Principles Board Opinion No. 28,
Interim Financial
Reporting
(APB 28), and Financial Accounting Standards Board (FASB) Interpretation No. 18,
Accounting for Income Taxes in Interim Periods an interpretation of APB Opinion No. 28
(FIN 18).
We estimate that in the fiscal year ending December 30, 2008, we will have an annual ETR of
approximately 47%. In the prior year period, we estimated that our annual ETR for the fiscal year
ended January 1, 2008 would be 43%. The fluctuation in the projected effective annual tax rate is
primarily due to the sensitivity of the ratio involving expected ordinary income and permanent
items (primarily the interest charge related to the Companys derivatives). (See income tax
section under Summary of Significant Accounting Policies for a more detailed discussion.)
For the 13 weeks ended July 1, 2008, the projected annual effective tax rate of 47% was not
utilized to record the Companys tax benefit for the period, due to the limitations applicable
pursuant to the guidance provided by FIN 18
Accounting for Income Taxes In Interim Periods
(an
interpretation of APB No. 28). Our annual effective tax rate is revised as of the end of each
quarter, in accordance with APB Opinion No. 28. As a result, the interim income tax provision (or
benefit) can fluctuate due to many factors, including changes in the projected book income,
fluctuations in the valuation of the companys derivative, permanent tax adjustments, tax credits
and discrete items within the first quarter. The annual effective tax rate is revised at the end
of each successive interim period during the fiscal year to our current best estimate in accordance
with APB 28.
- 25 -
Twenty-six Weeks Ended July 1, 2008 Compared to the 26 Weeks Ended July 3, 2007
Net sales
Net sales of $371.5 million for the 26 weeks ended July 1, 2008 increased $45.3
million, or approximately 13.9%, from $326.2 million in the prior year period. The increase was
primarily due to $36.0 million in sales from new accounts including the Prudential Center in New
Jersey, home of the NHLs New Jersey Devils, and Nationals Park in Washington, D.C., home of MLBs
Washington Nationals. In addition, sales at two of the Companys venues, the University of Phoenix
Stadium in Glendale, Arizona and the New Orleans Arena, increased $8.3 million primarily related to
the hosting of Super Bowl XLII, the NBA All-Star Game, and NBA post-season games. Sales increased
$5.3 million at existing MLB facilities mainly as a result of improved attendance and per capita
spending at a number of the facilities. These improvements were partially offset by a $4.1 million
decline related to the termination of, or decision not to renew, certain contracts. Sales at all
other facilities declined $0.2 million.
Cost of sales
Cost of sales of $310.3 million for the 26 weeks ended July 1, 2008 increased
approximately $41.1 million from $269.2 million in the prior year period due in part to the higher
sales volume. As a percentage of net sales, cost of sales increased by approximately 1.0% from the
prior year period. The increase was primarily the result of higher commissions paid to our clients
in the current period resulting from certain new contracts and a higher concentration of sales at
key profit sharing contracts, where higher commissions are typically paid.
Selling, general and administrative expenses
Selling, general and administrative expenses
were $43.3 million in the 26 weeks ended July 1, 2008 as compared to $37.4 million in the prior
year period, an increase of approximately $5.9 million. As a percentage of net sales, selling, general and
administrative costs increased approximately 0.1% from the prior year period. In the current
period, selling, general and administrative costs include approximately $1.5 million in costs
associated with the exploration of the Companys capital structure and other alternatives.
Excluding these costs, selling, general and administrative expense as a percentage of sales would
have been 11.2%, a decline of 0.3% from the prior year period. The improvement was mainly
attributable to lower overhead costs as a percentage of sales, due to the relatively fixed nature
of these expenses.
Depreciation and amortization
Depreciation and amortization was $17.1 million for the 26
weeks ended July 1, 2008, compared to $15.1 million in the prior year period. The increase was
primarily attributable to depreciation and amortization related to capital expenditures associated
with account renewals and investments in newly acquired contracts.
Interest
expense
Interest expense was $16.7 million for the 26 weeks ended July 1, 2008,
compared to $15.1 million in the prior year period. The increase
of $1.6 million was principally
associated with additional interest of $0.9 million related to the subordinated notes issued in December
2007 as part of the secondary offering of IDSs. Additionally, interest expense reflects an
increase of $0.8 million related to our interest rate swap
agreement.
Other income
Other income consisting of interest income declined $0.8 million from the
prior year period primarily due to lower interest rates and lower balances in the cash reserve
accounts during the 2008 period.
Income taxes The income tax benefit for the 26 weeks ended July 1, 2008 and July 3, 2007
were calculated using the projected annual effective tax rate (ETR) for fiscal 2008 and 2007,
respectively, in accordance with Accounting Principles Board Opinion No. 28,
Interim Financial
- 26 -
Reporting
(APB 28), and Financial Accounting Standards Board (FASB) Interpretation No. 18,
Accounting for Income Taxes in Interim Periods an interpretation of APB Opinion No. 28
(FIN 18).
We estimate that in the fiscal year ending December 30, 2008, we will have an annual ETR of
approximately 47%. In the prior year period, we estimated that our annual ETR for the fiscal year
ended January 1, 2008 would be 23%. The fluctuation in the projected effective annual tax rate is
primarily due to the sensitivity of the ratio involving expected ordinary income and permanent
items (primarily the interest charge related to the Companys derivatives). (See income tax
section under Summary of Significant Accounting Policies for a more detailed discussion.)
For the 13 weeks ended July 1, 2008, the projected annual effective tax rate of 47% was not
utilized to record the Companys tax benefit for the period, due to the limitations applicable
pursuant to the guidance provided by FIN 18
Accounting for Income Taxes In Interim Periods
(an
interpretation of APB No. 28). Our annual effective tax rate is revised as of the end of each
quarter, in accordance with APB Opinion No. 28. As a result, the interim income tax provision (or
benefit) can fluctuate due to many factors, including changes in the projected book income,
fluctuations in the valuation of the companys derivative, permanent tax adjustments, tax credits
and discrete items within the first quarter. The annual effective tax rate is revised at the end
of each successive interim period during the fiscal year to our current best estimate in accordance
with APB 28.
Liquidity and Capital Resources
Net cash provided by operating activities was $22.4 million for the 26 weeks ended July 1,
2008, compared to $16.7 million in the prior year period. The improvement was primarily due to
fluctuations in working capital, which varies from quarter to quarter as a result of the timing and number of
events at the facilities we serve, partially offset by a decrease in operating income and higher
interest costs.
Net cash used in investing activities was $21.4 million for the 26 weeks ended July 1, 2008,
as compared to $11.3 million in the prior year period. The
increase of $10.1 million is principally
attributable to additional capital invested in the acquisition of new accounts, notably the
acquisition of four food and beverage contracts from Sun Capital, parent company of Crystal Food
Services, in April 2008.
Net cash provided by financing activities was $10.6 million in the 26 weeks ended July 1, 2008
as compared to net cash used in financing activities of $10.6 million in the prior year period. The
increase was primarily due to $16.0 million in net revolver borrowings under our credit facility in
the 2008 period as compared to the repayment of $2.5 million in the prior year period.
Additionally, dividend payments declined by $2.0 million as a result of the cessation of payments in May 2008.
We are also often required to obtain performance bonds, bid bonds or letters of credit to
secure our contractual obligations. As of July 1, 2008, we had requirements outstanding for
performance bonds and letters of credit of $20.1 million and $24.8 million, respectively. Under the
credit facility, we have an aggregate of $35.0 million available for letters of credit, subject to
an overall borrowing limit of $77.5 million. As of July 1, 2008, we had approximately $7.2 million
available to be borrowed under the revolving portion of the credit facility. At that date, there
were $45.5 million in outstanding borrowings and $24.8 million of outstanding, undrawn letters of
credit reducing availability.
We believe that cash flow from operating activities, together with borrowings under the
revolving portion of the credit facility (which are available only so long as we meet required
financial maintenance ratios, see below), will be sufficient to fund our currently anticipated
capital investment requirements, interest, and working capital requirements. In fiscal 2008,
contracts representing 19.4% of our 2007 net sales, or $144.0 million, are up for renewal and as a
result we expect to spend $20.0 million to $25.0 million in maintenance capital expenditures to
renew these contracts, including rollover capital expenditures associated with our 2007
commitments. In addition, we are anticipating growth capital expenditures in the range of $10.0
million to $15.0 million to acquire new contracts.
In the first quarter, we obtained waivers and amendments of certain provisions of the Credit
Agreement temporarily affecting the calculation of the ratios that must be achieved in order to pay
- 27 -
dividends. In May 2008, we obtained an additional amendment to the Credit Agreement that adjusted
the ratios that must be achieved in order to pay monthly installments of interest on the
subordinated notes
through October 2008. In connection with the May amendment, we agreed to eliminate the
dividend on the common stock. In addition, the revolving credit facility was reduced to $77.5
million, effective after the date of the amendment, and we agreed to apply certain amounts held in
a cash collateral account to prepay approximately $8.0 million on the term loan. The revolving
credit facility was reduced by the excess and unused portion of the revolver and it is possible
that this reduction may have an adverse impact on long-term liquidity, particularly given the seasonality of our business. The waiver and amendments
were necessitated primarily by a decrease in revenues generated at our convention centers that we
experienced in the first quarter of 2008, as well as a more stringent senior leverage ratio
requirement for the payment of dividends under the Credit Agreement in 2008 (going from 2.25:1.00
in 2007 to 2.15:1.00 in 2008).
If we are unable to meet the Credit Agreement financial ratios for the payment of
monthly installments of interest on the subordinated notes as set forth in the May 2008 amendment
or as set forth in the Credit Agreement after October 2008 for
those months in which the Company is unable to comply with the
required ratios (subject to certain limitations in the indenture), the Credit Agreement requires the
Company to defer interest on the subordinated notes, subject to certain limitations set forth in
the indenture. If we were unable to obtain a further amendment to the Credit Agreement, the
interest on the subordinated notes will need to be deferred after the October 2008 interest
payment for
those months in which the Company is unable to comply with the
required ratios (subject to certain limitations in the indenture). Interest on deferred interest accrues at the rate of 13.5% per annum. All interest
deferred prior to December 10, 2008 must be paid on December 18, 2008, and the Credit Agreement
permits this payment even if the required ratios have not been met.
In May 2008, we announced that our Board of Directors initiated a process to
evaluate a range of capital structure and other alternatives and engaged UBS Securities LLC as the
Companys financial advisor to assist in this process. We believe our current Income Deposit
Security structure may limit our ability to invest to strengthen and grow our business. If this
process is not completed by October 2008, which is within the five month timeframe provided by the
May 2008 amendment to the Credit Agreement, we will require a further amendment to our credit
facility as further discussed below. We intend to vigorously pursue the necessary amendments to the
Credit Agreement; however, we can give no assurance as to the outcome of any such negotiations with
our lenders.
If the evaluation process described above is not completed by October
2008, and we are not otherwise able to obtain a further amendment to
our credit facility by such time, we intend to
implement a restructuring plan designed to achieve significant cost
reductions and reduce the level
of future capital expenditures, both of which would limit our ability
to make capital investments to obtain new contracts at levels
consistent with recent years. The cost reductions and reduced capital expenditures would be
required in order to satisfy the senior leverage and interest coverage financial covenants
contained in the Credit Agreement, and certain actions to be taken
would require approval from our senior lenders. If we are unable to significantly reduce costs and capital
expenditures, we expect (i) we would be required to defer interest on the subordinated notes
beginning with the November 2008 interest payment (subject to certain limitations in the
indenture), and (ii) we would eventually be unable to comply with the reinstated monthly financial maintenance
covenants in the Credit Agreement, which would result in an event of default under the Credit
Agreement. In the event necessary, we believe that we would be able to achieve sufficient
reductions in cost and capital expenditures such that we could maintain compliance with the
financial maintenance covenants contained in the Credit Agreement over the remaining term of the
Credit Agreement. However, there can be no assurances to this effect
as the ability to comply with the
financial maintenance covenants contained in the Credit Agreement is impacted by a number of factors, some of
which are not within our control, as discussed in Note 5.
Our
non-compliance with the financial maintenance covenants under the Credit Agreement would result in
our inability to make further borrowings under our revolver. Upon the occurrence of an event of
default under the Credit Agreement, the lenders could elect to declare all amounts outstanding,
together with accrued interest, to be immediately due and payable. If we were unable to repay
those amounts, the lenders could proceed against the security granted to them to secure that
indebtedness. If the lenders were to accelerate the payment of the indebtedness under the Credit
Agreement, this would result in a default under the indenture governing the subordinated notes.
Our assets may not be sufficient to repay in full the indebtedness under the credit facility and
the indenture.
New Accounting Standards
See New Accounting Standards section of Note 3 in the Notes to the Consolidated Condensed
Financial Statements for a summary of new accounting standards.
Cautionary Statement Regarding Forward-looking Statements
Some of the statements under Managements Discussion and Analysis of Financial Condition and
Results of Operations, and elsewhere in this Quarterly Report on Form 10-Q may be forward-
- 28 -
looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements reflect our current views with respect to future
events
and financial performance. These statements may include the words expect, intend, plan,
believe, project, anticipate and similar statements of a future or forward-looking nature.
All forward-looking statements address matters that involve risks and uncertainties that could
cause actual results to differ materially from those indicated in these statements or that could
adversely affect the holders of our securities. Some of these risks and uncertainties are
discussed under Risk Factors in our Annual Report on Form 10-K for the year ended January 1, 2008
and Item 1A of Part II of this Quarterly Report on Form 10-Q.
Any forward-looking statement speaks only as of the date on which such statement is made, and
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 our
revolving credit facility borrowings and term loan. As of July 1, 2008, we had $45.5 million in
outstanding borrowings under the revolving portion of our credit facility and a $96.0 million
balance on our term loan. A change in interest rate of one percent on these borrowings would cause
a change in the annual interest expense of $1.4 million. In order to minimize our exposure to
interest rate risk we entered into an interest rate swap agreement for a notional amount of $100
million. The agreement is based on three months LIBOR and contains a collar feature with an
interest rate floor of 4.82% and cap of 6.0%. As of July 1, 2008, cash and non-cash charges of
$0.9 million and -$0.3 million, respectively, were recorded to our consolidated statement of
operations to record interest expense under the swap agreement and changes in the fair value of
this derivative, respectively. As of July 1, 2008, there is no market or quotable price for our
subordinated notes, because there is no separate market for the notes, thus it is impracticable to
estimate their fair market value. The fair market value of the term loan approximates par.
As of July 1, 2008, there have been no material changes, except as discussed above, in the
quantitative and qualitative disclosures about market risk from the information presented in our
Form 10-K for the year ended January 1, 2008.
Item 4. Controls and Procedures
.
Evaluation of disclosure controls and procedures
.
We maintain disclosure controls and procedures designed to ensure that information required to
be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the SEC rules and forms,
and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosures. Any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives. Our management,
with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated
the effectiveness of the design and operation of our disclosure controls and procedures as of July
1, 2008. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and
Chief Financial Officer concluded that the design and operation of our disclosure controls and
procedures provided reasonable assurance that the disclosure controls and procedures are effective
to accomplish their objectives.
- 29 -
During the period covered by this report there have been no changes in our internal control
over financial reporting that have materially affected or are reasonably likely to materially
affect our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 (Commitments and Contingencies) in the Notes to the Consolidated Condensed
Financial Statements.
Item 1A. Risk Factors
There has been no material change to the disclosure in our Annual Report on Form 10-K for the
fiscal year ended January 1, 2008, except as disclosed in Note 2 (Liquidity and Debt Covenant Compliance), Note 5 (Debt) and Note 6 (Significant Concentration Risk) in the Notes to the Consolidated Condensed Financial Statements.
Item 4. Submission of Matters to a Vote of Securities Holders
The 2008 Annual Meeting of Security Holders was held on May 22, 2008. At the meeting, six
directors of the Company were elected and our security holders ratified the appointment of Deloitte
& Touche LLP as our independent registered accounting firm for the fiscal year ending December 31,
2008.
1. The security holders elected the following directors to serve until the next annual meeting
of security holders or until their successors are duly elected and qualified:
|
|
|
|
|
|
|
|
|
Name of Director
|
|
Number of Shares Voted For
|
|
Number of Shares Withheld
|
David M. Williams
|
|
|
16,614,160
|
|
|
|
1,801,882
|
|
Janet L. Steinmayer
|
|
|
16,602,677
|
|
|
|
1,813,365
|
|
Felix P. Chee
|
|
|
16,629,872
|
|
|
|
1,786,170
|
|
Sue Ling Gin
|
|
|
16,622,698
|
|
|
|
1,793,074
|
|
Alfred Poe
|
|
|
16,622,982
|
|
|
|
1,793,060
|
|
Glenn R. Zander
|
|
|
16,621,024
|
|
|
|
1,795,018
|
|
2. The security holders ratified the appointment of Deloitte & Touche LLP:
|
|
|
|
|
|
|
|
|
Number of Shares Voted For
|
|
Number of Shares Against
|
|
Number of Shares Abstained
|
17,590,589
|
|
|
628,172
|
|
|
|
197,281
|
|
Item 6. Exhibits
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
|
|
31.2
|
|
Certification of Principal Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
|
|
32.2
|
|
Certification of Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
- 30 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on
August 11, 2008.
|
|
|
|
|
|
|
|
|
Centerplate, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Kevin F. McNamara
|
|
|
|
|
Name:
|
|
Kevin F. McNamara
|
|
|
|
|
Title:
|
|
Chief Financial Officer
|
|
|
Centerplate (AMEX:CVP)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
Centerplate (AMEX:CVP)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024