UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
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For the quarterly period ended April 1, 2008 or
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o
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from
to
Commission file number:
001-31904
CENTERPLATE, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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13-3870167
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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2187 Atlantic Street, Stamford, Connecticut, 06902
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(203) 975-5900
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(Address of principal executive offices, including zip code)
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(Registrants telephone number, including area code)
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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):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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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 May [16 ] , 2008 was
20,981,813.
CENTERPLATE, INC.
INDEX
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PART I - FINANCIAL INFORMATION
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2
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Item 1. Financial Statements (unaudited)
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2
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
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20
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
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24
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Item 4. Controls and Procedures
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24
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PART II - OTHER INFORMATION
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25
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Item 1. Legal Proceedings
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25
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Item 1A. Risk Factors
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25
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Item 6. Exhibits
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25
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- 1 -
PART I
FINANCIAL INFORMATION
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
APRIL 1, 2008 AND JANUARY 1, 2008
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April 1,
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January 1,
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ASSETS
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2008
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2008
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(In thousands, except share data)
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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41,405
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$
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33,853
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Restricted cash
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1,143
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1,146
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Accounts receivable, less allowance for doubtful accounts of
$1,077 and $993 at April 1, 2008 and January 1, 2008,
respectively
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28,018
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29,539
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Inventories
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29,083
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23,300
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Prepaid expenses and other
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4,720
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3,475
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Deferred tax assets
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5,123
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4,204
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Total current assets
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109,492
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95,517
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PROPERTY AND EQUIPMENT:
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Leasehold improvements
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41,930
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41,968
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Merchandising equipment
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87,324
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84,727
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Vehicles and other equipment
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18,656
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18,116
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Construction in process
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2,565
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1,895
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Total
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150,475
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146,706
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Less accumulated depreciation and amortization
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(97,963
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)
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(94,720
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)
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Property and equipment, net
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52,512
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51,986
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OTHER LONG-TERM ASSETS:
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Contract rights, net
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82,829
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85,183
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Restricted cash
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10,386
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10,307
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Cost in excess of net assets acquired
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41,142
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41,142
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Deferred financing costs, net
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9,719
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10,361
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Trademarks
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17,523
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17,523
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Deferred tax assets
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23,213
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15,867
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Other
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7,485
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4,465
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Total other long-term assets
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192,297
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184,848
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TOTAL ASSETS
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$
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354,301
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$
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332,351
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See notes to consolidated condensed financial statements.
- 2 -
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)(UNAUDITED)
APRIL 1, 2008 AND JANUARY 1, 2008
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April 1,
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January 1,
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2008
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2008
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LIABILITIES AND STOCKHOLDERS DEFICIENCY
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(In thousands, except share data)
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CURRENT LIABILITIES:
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Current portion of long-term debt
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$
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1,075
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$
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1,075
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Short-term borrowings
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57,000
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29,500
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Accounts payable
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31,330
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24,367
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Accrued salaries and vacations
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14,574
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15,704
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Liability for insurance
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4,866
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4,847
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Accrued taxes, including income taxes
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4,824
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5,220
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Accrued commissions and royalties
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25,194
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24,608
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Liability for derivatives
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923
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311
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Accrued interest
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1,788
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1,037
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Accrued dividends
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1,385
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1,385
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Advance deposits
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4,825
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3,436
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Other
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3,364
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3,502
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Total current liabilities
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151,148
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114,992
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LONG-TERM LIABILITIES:
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Long-term debt
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222,796
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223,334
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Liability for insurance
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10,645
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9,370
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Other liabilities
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2,976
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2,189
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Total long-term liabilities
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236,417
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234,893
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COMMITMENTS AND CONTINGENCIES
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STOCKHOLDERS DEFICIENCY:
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Common
stock, $0.01 par value - 100,000,000 shares authorized: 39,995,147
shares issued at April 1, 2008 and January 1, 2008; 20,981,813 shares outstanding at April 1, 2008 and January 1, 2008
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400
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400
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Additional paid-in capital
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218,331
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218,331
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Accumulated deficit
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(132,712
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)
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(117,375
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)
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Accumulated other comprehensive income
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1,657
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2,050
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Treasury
stock - at cost (19,013,332 shares)
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(120,940
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)
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(120,940
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)
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Total stockholders deficiency
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(33,264
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)
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(17,534
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)
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TOTAL LIABILITIES AND STOCKHOLDERS DEFICIENCY
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$
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354,301
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$
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332,351
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See notes to consolidated condensed financial statements.
- 3 -
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 1, 2008 AND APRIL 3, 2007
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Thirteen Weeks Ended
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April 1,
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April 3,
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2008
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2007
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(In thousands, except for share data)
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Net sales
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$
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133,224
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$
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125,333
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Cost of sales (excluding depreciation & amortization)
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116,174
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106,258
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Selling, general, and administrative
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19,209
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17,200
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Depreciation and amortization
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8,286
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7,382
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Operating loss
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(10,445
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(5,507
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)
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Interest expense
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9,395
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8,052
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Other income
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(173
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)
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(502
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)
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Income before income taxes
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(19,667
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)
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(13,057
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)
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Income tax benefit
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(8,485
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)
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(5,009
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)
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Net loss
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$
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(11,182
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)
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$
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(8,048
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)
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Basic and diluted net loss per share
with and without conversion option
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$
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(0.53
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)
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$
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(0.36
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)
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Weighted average shares outstanding
with conversion option
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4,060,997
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Weighted average shares outstanding
without conversion option
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20,981,813
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18,463,995
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Total weighted average shares outstanding
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20,981,813
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22,524,992
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Dividends declared per share
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$
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0.20
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$
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0.20
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- 4 -
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY AND COMPREHENSIVE LOSS (UNAUDITED)
FOR THE PERIOD FROM JANUARY 1, 2008 TO APRIL 1, 2008 AND THE THIRTEEN WEEKS ENDED APRIL 1, 2008 AND APRIL 3, 2007
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Accumulated
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Additional
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Other
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Common
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Common
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Paid-in
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Accumulated
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Comprehensive
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Treasury
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Shares
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Stock
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Capital
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Deficit
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Income
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Stock
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Total
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(In thousands, except share data)
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BALANCE, JANUARY 1, 2008
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39,995,147
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$
|
400
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$
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218,331
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$
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(117,375
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)
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$
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2,050
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$
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(120,940
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)
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$
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(17,534
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)
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Foreign currency translation
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(393
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)
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(393
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)
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Dividends declared
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(4,155
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)
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|
|
|
|
|
|
|
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(4,155
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)
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Net loss
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|
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(11,182
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)
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|
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|
|
|
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(11,182
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)
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BALANCE, APRIL 1, 2008
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|
|
39,995,147
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$
|
400
|
|
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$
|
218,331
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|
|
$
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(132,712
|
)
|
|
$
|
1,657
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|
|
$
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(120,940
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)
|
|
$
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(33,264
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Thirteen Weeks Ended
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|
|
April 1,
|
|
|
April 3,
|
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|
|
2008
|
|
|
2007
|
|
Net loss
|
|
$
|
(11,182
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)
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|
$
|
(8,048
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)
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Other comprehensive (loss) income -
foreign currency translation adjustment
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(393
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)
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74
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Comprehensive loss
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$
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(11,575
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)
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$
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(7,974
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)
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|
|
|
|
|
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|
See notes to consolidated condensed financial statements.
- 5 -
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTEEN WEEKS ENDED APRIL 1, 2008 AND APRIL 3, 2007
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|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
April 1,
|
|
|
April 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,182
|
)
|
|
$
|
(8,048
|
)
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
8,286
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|
|
|
7,382
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|
Amortization of deferred financing costs
|
|
|
642
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|
|
|
642
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|
Interest earned on restricted cash
|
|
|
(79
|
)
|
|
|
(115
|
)
|
Change in fair value of derivative
|
|
|
217
|
|
|
|
672
|
|
Deferred tax benefit
|
|
|
(8,264
|
)
|
|
|
(4,734
|
)
|
Gain on disposition of assets
|
|
|
(1
|
)
|
|
|
|
|
(Increase) decrease in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,521
|
|
|
|
302
|
|
Inventories
|
|
|
(5,783
|
)
|
|
|
(2,921
|
)
|
Prepaid expenses
|
|
|
(1,245
|
)
|
|
|
(1,650
|
)
|
Other assets
|
|
|
(1,166
|
)
|
|
|
(90
|
)
|
Accounts payable
|
|
|
12,569
|
|
|
|
(1,905
|
)
|
Accrued salaries and vacations
|
|
|
(1,130
|
)
|
|
|
(1,422
|
)
|
Liability for insurance
|
|
|
1,294
|
|
|
|
10
|
|
Accrued commissions and royalties
|
|
|
1,054
|
|
|
|
2,734
|
|
Other liabilities
|
|
|
1,826
|
|
|
|
(257
|
)
|
Non-cash effect of foreign currency translation on
assets and liabilities
|
|
|
(47
|
)
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,488
|
)
|
|
|
(9,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisition of business
|
|
|
(1,000
|
)
|
|
|
|
|
Purchase of property and equipment
|
|
|
(3,424
|
)
|
|
|
(3,306
|
)
|
Proceeds from sale of property and equipment
|
|
|
26
|
|
|
|
2
|
|
Contract rights acquired
|
|
|
(2,796
|
)
|
|
|
(2,397
|
)
|
Decrease in restricted cash
|
|
|
3
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7,191
|
)
|
|
|
(5,243
|
)
|
|
|
|
|
|
|
|
- 6 -
CENTERPLATE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(CONTINUED)(UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 1, 2008 AND APRIL 3, 2007
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
April 1,
|
|
|
April 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayments - revolving loans
|
|
$
|
(7,500
|
)
|
|
$
|
(11,000
|
)
|
Borrowings - revolving loans
|
|
|
36,000
|
|
|
|
23,500
|
|
Swingline borrowings, net
|
|
|
(1,000
|
)
|
|
|
4,000
|
|
Principal payments on long-term debt
|
|
|
(538
|
)
|
|
|
(269
|
)
|
Dividend payments
|
|
|
(4,155
|
)
|
|
|
(4,460
|
)
|
Decrease in bank overdrafts
|
|
|
(6,243
|
)
|
|
|
(3,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
16,564
|
|
|
|
7,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
|
|
|
7,552
|
|
|
|
(6,636
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
33,853
|
|
|
|
39,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
41,405
|
|
|
$
|
32,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
7,390
|
|
|
$
|
6,627
|
|
Income taxes paid
|
|
$
|
419
|
|
|
$
|
335
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL NON CASH FLOW INVESTING AND FINANCING ACTIVITIES:
|
Capital investment commitment accrued
|
|
$
|
2,741
|
|
|
$
|
2,490
|
|
Dividends declared and unpaid
|
|
$
|
1,384
|
|
|
$
|
1,487
|
|
See notes to consolidated condensed financial statements.
- 7 -
CENTERPLATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
THIRTEEN WEEK PERIODS ENDED APRIL 1, 2008 AND APRIL 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 13 week period ended April 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. 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. There have been no events since April 1, 2008 that would
cause the Company to have to reassess the carrying value of these assets.
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 1.99% and 3.34% at April
1, 2008 and January 1, 2008, 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 April 1, 2008 and January 1, 2008 were $14,570,000 and $13,204,000, respectively. The
related undiscounted amounts were $15,455,000 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 April 1, 2008 and January
1, 2008 was $857,000 and $760,000, respectively.
- 8 -
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 April 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 April 3, 2007, earnings per share for common stock with and without conversion rights
were equal and therefore no separate presentation was required. As of April 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 $.9 million at April 1,
2008 and $.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 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. A valuation
allowance is established for deferred tax assets when it is more likely than not that the benefits
of such assets will not be realized.
Income taxes for the 13 weeks ended April 1, 2008 and April 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 67%. 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 40%. The fluctuation in the projected effective annual tax rate is
primarily due to the sensitivity of the ratio involving expected ordinary income, permanent items
(primarily the interest charge related to the
- 9 -
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 $2.0 million and $2.1 million for total gross
unrecognized tax benefits as of April 1, 2008 and January 1, 2008, respectively. Of this total,
approximately $.8 and $1.0 million (net of federal benefit on state issues) as of April 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.
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 13 weeks ended April 1, 2008, the Company deducted
interest expense of approximately $4.0 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 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 $62 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.
- 10 -
The Companys continuing practice is to recognize interest and penalties related to income tax
matters in income tax expense. During the 13 weeks ended April 1, 2008, the Company had recorded
approximately $216,000 for interest and penalties.
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
We adopted the provisions of SFAS No. 157,
Fair Value Measurements
(FAS 157) on January 2, 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, 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, our adoption of this
standard in 2008 is limited to financial assets and liabilities, which primarily affects the
valuation of our interest rate swap agreement. We utilize 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 $.9 million at April 1, 2008. We are 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 our financial
statements upon full adoption in 2009.
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.
3. 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.
- 11 -
4. 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 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 below. 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 April 1, 2008, approximately $22,758,000 of letters of
credit were outstanding but undrawn and the Company had $57,000,000 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 agreements governing the Companys indebtedness impose 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 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 Credit Agreement also requires the Company to
maintain specified financial ratios and satisfy certain financial condition tests, including a
maximum net leverage ratio, a minimum interest coverage ratio and a maximum net senior leverage
ratio.
- 12 -
The Credit Agreement also contains significant restrictions on the Companys ability to pay
interest on the subordinated notes and dividends on shares of the Companys common stock. These
restrictions
are based, among other things, on the ability to meet separate but more rigorous financial
tests as those described in this item. 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 required to suspend the payment of dividends and
possibly defer current installments of interest on the subordinated notes absent obtaining a waiver
from the senior lenders.
In March and April 2008, the Company obtained waivers and amendments of certain provisions of
the Credit Agreement temporarily affecting the calculation of the
financial ratios that must be achieved
in order to pay dividends. Among other things, the waivers and amendments adjusted the senior
leverage ratio, total leverage ratio and interest coverage ratio
requirements for the 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,
after the effective date of the amendment, and the Company agreed to apply certain amounts
held in a cash collateral account to prepay approximately $8.0 million on the term loan.
Following
the May 2008 amendment, the applicable margin on revolving credit facility borrowings will range
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
will be 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, which was included in interest expense for the first quarter.
The Company expects to incur additional costs of approximately
$2.0 million in connection with the
May 2008 amendment, which will be included in interest expense for the second quarter.
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,
it is likely that 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 early May 2008, the Company announced that its Board of Directors has initiated a process
to evaluate a range of capital structure and other alternatives and has 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. The Company believes that it will be important to complete the evaluation process within
the five-month timeframe provided by the May amendment to the Credit Agreement.
The ability to comply with the financial covenants may be affected by events beyond the Companys control,
including prevailing economic, financial and industry conditions. A breach of any of these
covenants could result in a default under the Credit Agreement and/or the indenture governing
the subordinated notes. 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 was 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, the Companys assets may not be sufficient
to repay in full the indebtedness under the credit facility and the indenture.
5. SUBSEQUENT EVENTS
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.
In early May 2008, the Company announced that its Board of Directors has initiated a process
to evaluate a range of capital structure and other alternatives and
has 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. The Company believes that it will be important to complete the evaluation process within the
five-month timeframe provided by the May amendment to the Credit Agreement described in Note 4
above.
In connection with the May 2008 amendment to the Credit Agreement, the Company agreed to eliminate the monthly dividend payments on its common stock.
- 13 -
CONSOLIDATING CONDENSED INFORMATION
The $119,596,000 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 April 1, 2008 and January 1, 2008 (in the case of
the balance sheet) and for the 13 week periods ended April 1, 2008 and April 3, 2007 (in the case
of the statement of operations and the cash flows):
Consolidating Condensed Balance Sheet, April 1, 2008 (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
221
|
|
|
$
|
39,690
|
|
|
$
|
1,494
|
|
|
$
|
|
|
|
$
|
41,405
|
|
Accounts receivable
|
|
|
|
|
|
|
24,431
|
|
|
|
3,587
|
|
|
|
|
|
|
|
28,018
|
|
Other current assets
|
|
|
22
|
|
|
|
38,133
|
|
|
|
1,914
|
|
|
|
|
|
|
|
40,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
243
|
|
|
|
102,254
|
|
|
|
6,995
|
|
|
|
|
|
|
|
109,492
|
|
Property and equipment, net
|
|
|
|
|
|
|
50,446
|
|
|
|
2,066
|
|
|
|
|
|
|
|
52,512
|
|
Contract rights, net
|
|
|
13
|
|
|
|
82,030
|
|
|
|
786
|
|
|
|
|
|
|
|
82,829
|
|
Cost in excess of net assets acquired
|
|
|
6,974
|
|
|
|
34,168
|
|
|
|
|
|
|
|
|
|
|
|
41,142
|
|
Intercompany receivable (payable)
|
|
|
91,045
|
|
|
|
(103,465
|
)
|
|
|
4,408
|
|
|
|
8,012
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
(16,537
|
)
|
|
|
8,012
|
|
|
|
|
|
|
|
8,525
|
|
|
|
|
|
Other assets
|
|
|
6,824
|
|
|
|
58,343
|
|
|
|
3,159
|
|
|
|
|
|
|
|
68,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
88,562
|
|
|
$
|
231,788
|
|
|
$
|
17,414
|
|
|
$
|
16,537
|
|
|
$
|
354,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
2,230
|
|
|
$
|
141,529
|
|
|
$
|
6,722
|
|
|
$
|
667
|
|
|
$
|
151,148
|
|
Long-term debt
|
|
|
119,596
|
|
|
|
103,200
|
|
|
|
|
|
|
|
|
|
|
|
222,796
|
|
Other liabilities
|
|
|
|
|
|
|
12,660
|
|
|
|
961
|
|
|
|
|
|
|
|
13,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
121,826
|
|
|
|
257,389
|
|
|
|
7,683
|
|
|
|
667
|
|
|
|
387,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficiency) equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
Additional paid-in capital
|
|
|
218,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,331
|
|
Accumulated (deficit) earnings
|
|
|
(132,712
|
)
|
|
|
(25,601
|
)
|
|
|
8,074
|
|
|
|
17,527
|
|
|
|
(132,712
|
)
|
Treasury stock and other
|
|
|
(119,283
|
)
|
|
|
|
|
|
|
1,657
|
|
|
|
(1,657
|
)
|
|
|
(119,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficiency) equity
|
|
|
(33,264
|
)
|
|
|
(25,601
|
)
|
|
|
9,731
|
|
|
|
15,870
|
|
|
|
(33,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
(deficiency) equity
|
|
$
|
88,562
|
|
|
$
|
231,788
|
|
|
$
|
17,414
|
|
|
$
|
16,537
|
|
|
$
|
354,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 14 -
Consolidating Condensed Statement of Operations and Comprehensive Income (Loss) (UNAUDITED)
Thirteen Week Period Ended April 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
Net sales
|
|
$
|
|
|
|
$
|
117,486
|
|
|
$
|
15,738
|
|
|
$
|
|
|
|
$
|
133,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation &
amortization)
|
|
|
|
|
|
|
102,372
|
|
|
|
13,737
|
|
|
|
65
|
|
|
|
116,174
|
|
Selling, general, and administrative
|
|
|
480
|
|
|
|
17,208
|
|
|
|
1,521
|
|
|
|
|
|
|
|
19,209
|
|
Depreciation and amortization
|
|
|
5
|
|
|
|
7,958
|
|
|
|
323
|
|
|
|
|
|
|
|
8,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(485
|
)
|
|
|
(10,052
|
)
|
|
|
157
|
|
|
|
(65
|
)
|
|
|
(10,445
|
)
|
Interest expense
|
|
|
4,334
|
|
|
|
5,048
|
|
|
|
13
|
|
|
|
|
|
|
|
9,395
|
|
Intercompany interest, net
|
|
|
(3,925
|
)
|
|
|
3,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
(4
|
)
|
|
|
(140
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(890
|
)
|
|
|
(18,885
|
)
|
|
|
173
|
|
|
|
(65
|
)
|
|
|
(19,667
|
)
|
Income tax benefit
|
|
|
(377
|
)
|
|
|
(8,021
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
(8,485
|
)
|
Equity in (loss) earnings of subsidiaries
|
|
|
(10,669
|
)
|
|
|
195
|
|
|
|
|
|
|
|
10,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(11,182
|
)
|
|
|
(10,669
|
)
|
|
|
260
|
|
|
|
10,409
|
|
|
|
(11,182
|
)
|
Other comprehensive loss -foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(393
|
)
|
|
|
|
|
|
|
(393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(11,182
|
)
|
|
$
|
(10,669
|
)
|
|
$
|
(133
|
)
|
|
$
|
10,409
|
|
|
$
|
(11,575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 15 -
Consolidating Condensed Statement of Cash Flows (UNAUDITED)
Thirteen Week Period Ended April 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
Cash Flows Provided by (Used in) Operating Activities
|
|
$
|
(1,018
|
)
|
|
$
|
(1,746
|
)
|
|
$
|
1,276
|
|
|
$
|
(1,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
(1,000
|
)
|
Purchase of property and equipment
|
|
|
|
|
|
|
(3,152
|
)
|
|
|
(272
|
)
|
|
|
(3,424
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
Contract rights acquired
|
|
|
|
|
|
|
(2,640
|
)
|
|
|
(156
|
)
|
|
|
(2,796
|
)
|
Decrease in restricted cash
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(6,763
|
)
|
|
|
(428
|
)
|
|
|
(7,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments - revolving loans
|
|
|
|
|
|
|
(7,500
|
)
|
|
|
|
|
|
|
(7,500
|
)
|
Borrowings - revolving loans
|
|
|
|
|
|
|
36,000
|
|
|
|
|
|
|
|
36,000
|
|
Net
borrowings - swingline loans
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
(1,000
|
)
|
Principal payments on long-term debt
|
|
|
|
|
|
|
(538
|
)
|
|
|
|
|
|
|
(538
|
)
|
Dividend payments
|
|
|
(4,155
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,155
|
)
|
Decrease in bank overdrafts
|
|
|
|
|
|
|
(6,871
|
)
|
|
|
628
|
|
|
|
(6,243
|
)
|
Change in intercompany, net
|
|
|
5,176
|
|
|
|
2,988
|
|
|
|
(8,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
1,021
|
|
|
|
23,079
|
|
|
|
(7,536
|
)
|
|
|
16,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation on cash
|
|
|
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
3
|
|
|
|
14,570
|
|
|
|
(7,021
|
)
|
|
|
7,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents - beginning of period
|
|
|
218
|
|
|
|
25,120
|
|
|
|
8,515
|
|
|
|
33,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents - end of period
|
|
$
|
221
|
|
|
$
|
39,690
|
|
|
$
|
1,494
|
|
|
$
|
41,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 16 -
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 17 -
Consolidating Condensed Statement of Operations and Comprehensive Income (Loss) (UNAUDITED)
Thirteen Week Period Ended April 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
Net sales
|
|
$
|
|
|
|
$
|
111,169
|
|
|
$
|
14,164
|
|
|
$
|
|
|
|
$
|
125,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation
& amortization)
|
|
|
|
|
|
|
94,524
|
|
|
|
11,692
|
|
|
|
42
|
|
|
|
106,258
|
|
Selling, general, and administrative
|
|
|
423
|
|
|
|
15,396
|
|
|
|
1,381
|
|
|
|
|
|
|
|
17,200
|
|
Depreciation and amortization
|
|
|
15
|
|
|
|
7,026
|
|
|
|
341
|
|
|
|
|
|
|
|
7,382
|
|
|
Operating (loss) income
|
|
|
(438
|
)
|
|
|
(5,777
|
)
|
|
|
750
|
|
|
|
(42
|
)
|
|
|
(5,507
|
)
|
Interest expense
|
|
|
4,558
|
|
|
|
3,468
|
|
|
|
26
|
|
|
|
|
|
|
|
8,052
|
|
Intercompany interest, net
|
|
|
(3,925
|
)
|
|
|
3,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
1
|
|
|
|
(479
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(1,072
|
)
|
|
|
(12,691
|
)
|
|
|
748
|
|
|
|
(42
|
)
|
|
|
(13,057
|
)
|
Income tax (benefit) provision
|
|
|
(356
|
)
|
|
|
(4,798
|
)
|
|
|
145
|
|
|
|
|
|
|
|
(5,009
|
)
|
Equity in (loss) earnings of subsidiaries
|
|
|
(7,332
|
)
|
|
|
561
|
|
|
|
|
|
|
|
6,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(8,048
|
)
|
|
|
(7,332
|
)
|
|
|
603
|
|
|
|
6,729
|
|
|
|
(8,048
|
)
|
Other comprehensive income -
foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(8,048
|
)
|
|
$
|
(7,332
|
)
|
|
$
|
677
|
|
|
$
|
6,729
|
|
|
$
|
(7,974
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 18 -
Consolidating Condensed Statement of Cash Flows (UNAUDITED)
Thirteen Week Period Ended April 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-guarantor
|
|
|
|
|
|
|
Centerplate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
Cash Flows (Used in) Provided by Operating Activities
|
|
$
|
(1,107
|
)
|
|
$
|
(10,417
|
)
|
|
$
|
2,198
|
|
|
$
|
(9,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
(3,084
|
)
|
|
|
(222
|
)
|
|
|
(3,306
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Contract rights acquired
|
|
|
|
|
|
|
(2,397
|
)
|
|
|
|
|
|
|
(2,397
|
)
|
Decrease in restricted cash
|
|
|
|
|
|
|
458
|
|
|
|
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(5,021
|
)
|
|
|
(222
|
)
|
|
|
(5,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments - revolving loans
|
|
|
|
|
|
|
(11,000
|
)
|
|
|
|
|
|
|
(11,000
|
)
|
Borrowings - revolving loans
|
|
|
|
|
|
|
23,500
|
|
|
|
|
|
|
|
23,500
|
|
Net
borrowings - swingline loans
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
4,000
|
|
Principal payments on long-term debt
|
|
|
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
(269
|
)
|
Dividend payments
|
|
|
(4,460
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,460
|
)
|
Decrease in bank overdrafts
|
|
|
|
|
|
|
(3,838
|
)
|
|
|
|
|
|
|
(3,838
|
)
|
Change in intercompany, net
|
|
|
5,566
|
|
|
|
(5,580
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,106
|
|
|
|
6,813
|
|
|
|
14
|
|
|
|
7,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash
|
|
|
(1
|
)
|
|
|
(8,625
|
)
|
|
|
1,990
|
|
|
|
(6,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents - beginning of period
|
|
|
210
|
|
|
|
36,631
|
|
|
|
2,750
|
|
|
|
39,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents - end of period
|
|
$
|
209
|
|
|
$
|
28,006
|
|
|
$
|
4,740
|
|
|
$
|
32,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
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 13 weeks ended April 1, 2008 and April 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 early May 2008, we announced that our Board of Directors has initiated a process to
evaluate a range of capital structure and other alternatives and has
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. We also believe that we will complete the
evaluation process within the five-month timeframe provided by the
May amendment to the Credit Agreement.
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.
- 20 -
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:
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Seasonality and variations in scheduling of sporting and other events;
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Variability in the number, timing and type of new contracts;
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Timing of contract expirations and special events; and
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Level of attendance at the facilities which we serve.
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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 quarter of
2008, fiscal 2007, and fiscal 2006:
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|
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|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
1
st
Quarter
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|
$
|
133,224
|
|
|
$
|
125,333
|
|
|
$
|
113,505
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|
2
nd
Quarter
|
|
|
|
|
|
$
|
200,839
|
|
|
$
|
190,699
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|
3
rd
Quarter
|
|
|
|
|
|
$
|
246,141
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|
|
$
|
218,929
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|
4
th
Quarter
|
|
|
|
|
|
$
|
168,373
|
|
|
$
|
157,929
|
|
Results of Operations
Thirteen Weeks Ended April 1, 2008 Compared to the 13 Weeks Ended April 3, 2007
Net sales
Net sales of $133.2 million for the 13 weeks ended April 1, 2008 increased $7.9
million, or approximately 6.3%, from $125.3 million in the prior year period. The increase was
primarily due to $9.2 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 $6.2 million primarily
related to the hosting of Super Bowl XLII and the NBA All-Star Game. These improvements were
partially offset by a decline in sales at our convention centers of $5.0 million and a $1.9 million
decline related to the termination of, or decision not to renew, certain contracts. Sales at all
other facilities declined $0.6 million.
Cost of sales
Cost of sales of $116.2 million for the 13 weeks ended April 1, 2008 increased
approximately $9.9 million from $106.3 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 2.4% from the
prior year period. The increase was primarily the result of higher labor costs driven by softness
in our convention
- 21 -
centers where, due to the impact of a weakening economy, we experienced a decline in major events
and lower spending per event. This adversely impacted labor costs due to less favorable economies
of scale. Additionally, higher workers compensation expenses associated with several significant
one-time claims, and an increase in the workers compensation claims reserve due to lower interest
rates further adversely impacted the current period.
S
elling, general and administrative expenses
Selling, general and administrative expenses
were $19.2 million in the 13 weeks ended April 1, 2008 as compared to $17.2 million in the prior
year period, an increase of approximately $2.0 million. As a percentage of net sales, selling,
general and administrative costs increased approximately 0.7% from the prior year period. The
increase was primarily driven by the timing of expenses to acquire new accounts, higher legal fees
associated with obtaining a short-term amendment to our credit facility, and start-up expenses at
several new facilities.
Depreciation and amortization
Depreciation and amortization was $8.3 million for the 13
weeks ended April 1, 2008, compared to $7.4 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 $9.4 million for the thirteen weeks ended April 1,
2008, compared to $8.1 million in the prior year period. The increase was principally associated
with approximately $1.0 million fees paid to the lenders in connection with the waiver and
amendment of certain provisions of our credit agreement in the period (see Note 4 to the Notes to
the Consolidated Condensed Financial Statements for additional discussion). Interest expense also
reflects additional interest of $0.4 million related to the issuance of $14.4 million in additional
subordinated notes in December 2007 as part of the secondary offering of IDSs. In addition,
interest expense increased as a result of higher outstanding revolver borrowings under our credit
facility in the current period and interest charges related to our interest rate swap agreement
($0.4 million). Partially offsetting these increases was a decline in non-cash interest expense of
$0.5 million in the period related to changes in the fair market value of our derivative.
Other income, net
Other income consisting of interest income declined $0.3 million from the
prior year period primarily due to lower average cash balances during the 2008 period.
Income taxes
The income tax benefit for the 13 weeks ended April 1, 2008 and April 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 67%. In the prior year period, we estimated that our annual ETR for the fiscal year
ended January 1, 2008 would be 40%. 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 April 1, 2008, the projected annual effective tax rate of 67% 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.
- 22 -
Liquidity and Capital Resources
Net cash used in operating activities was $1.5 million for the 13 weeks ended April 1, 2008,
compared to $9.3 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 an increase in operating losses.
Net cash used in investing activities was $7.2 million for the 13 weeks ended April 1, 2008,
as compared to $5.2 million in the prior year period. The increase of $2.0 million is principally
attributable to additional capital invested in new accounts and an acquisition of a 51% controlling
interest in Harrys Tap Room, which will be accounted for on the equity method.
Net cash provided by financing activities was $16.6 million in the 13 weeks ended April 1,
2008 as compared to $7.9 million in the prior year period. The increase was primarily due to an
increase of $16.0 million in net revolver borrowings under our credit facility in the 2008 period.
We
are also often required to obtain performance bonds, bid bonds or letters of credit to
secure our contractual obligations. As of April 1, 2008, we had requirements outstanding for
performance bonds and letters of credit of $20.1 million and $22.8 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 (initially of $107.5 million, reduced
to $77.5 million in the May 2008 amendment). As of April 1, 2008, we had approximately $27.7
million available to be borrowed under the revolving portion of the credit facility. At that date,
there were $57.0 million in outstanding borrowings and $22.8 million of outstanding, undrawn
letters of credit reducing availability.
We believe that cash flow from operating activities, together with borrowings available under
the revolving portion of the credit facility, will be sufficient to fund our currently anticipated
capital investment requirements, interest (subject to limitations
contained in the Credit Agreement), 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
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 is being reduced by the excess and unused
portion of the revolver, and we believe this reduction will have minimal, if any, adverse
impact on liquidity. The waiver and amendments were necessitated primarily by a decrease in revenues
generated at our convention centers that we began to experience in January 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, 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, it is likely
that 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 on December 18, 2008, and the Credit Agreement
permits this payment even if the required ratios have not been met.
In
early May 2008, we announced that our Board of Directors has initiated a process to
evaluate a range of capital structure and other alternatives and have 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. We believe
that it will be important to complete the evaluation process within the five-month timeframe
provided by the May amendment to the Credit Agreement.
New Accounting Standards
See Note 2 to the Notes to the Consolidated Condensed Financial Statements for a summary of
new accounting standards.
- 23 -
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-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 April 1, 2008, we had $57.0 million in outstanding
borrowings under the revolving portion of our credit facility and a $104.3 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 $1.6 million. In order to minimize our exposure to interest rate
risk we have 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 April 1, 2008, cash and non-cash charges of $0.4 million
and $0.2 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 April 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 value. The fair value of the term loan approximates par.
As of April 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 April
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.
- 24 -
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 3 (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 4
(Debt) and Note 5 (Subsequent Events) in the Notes to the
Consolidated Condensed Financial Statements.
Item 6. Exhibits
(a) Exhibits:
10.1
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Form of Sixth Amendment to Credit Agreement made and entered into as of May 19, 2008, by and among Volume Services America, Inc.,
Volume Services, Inc., Service America Corporation, Centerplate, Inc.,
the Lenders signatory thereto, and General Electric Capital
Corporation, as Lender and as Administrative Agent.
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31.1
|
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Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes- Oxley Act of 2002.
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31.2
|
|
Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
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32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
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32.2
|
|
Certification of Principal Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
- 25 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May
19, 2008.
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Centerplate, Inc.
|
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By:
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/s/ Kevin F. McNamara
|
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Name:
|
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Kevin F. McNamara
|
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Title:
|
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Chief Financial Officer
|
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- 26 -
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