10-K 1 form10k-01012002.txt FOR PERIOD ENDING 01-01-2002 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 1, 2002 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ COMMISSION FILE NUMBER: 333-79419 VOLUME SERVICES AMERICA, INC. ----------------------------- (Exact name of registrant as specified in its charter) DELAWARE 57-0969174 -------------------------------------------- ---------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 201 EAST BROAD STREET, SPARTANBURG, SOUTH CAROLINA 29306 -------------------------------------------------- --------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (864) 598-8600 --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) YES ( ) NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) The aggregate market value of the voting stock held by non-affiliates (shareholders holding less than 5% of the outstanding common stock, excluding directors and officers), as of March 26, 2002, was $0. The number of shares outstanding of the registrant's Common Stock, par value $.01 per share, at March 26, 2002, was 100. PART I ITEM 1. BUSINESS. OVERVIEW Volume Services America, Inc. ("Volume Services America"), a Delaware corporation, operates through its subsidiaries as a leading provider of food and beverage concession, high-end catering and merchandise services for sports facilities, convention centers and other entertainment facilities throughout the United States. We currently provide services at 128 client facilities, typically pursuant to long-term contracts that grant us the exclusive right to provide various food and beverage (and, under some contracts, merchandise) products and services within the facility. The breakdown of facilities that we serve by primary client category is as follows: 68 sports facilities, 29 convention centers and 31 other entertainment facilities. At two sports facilities, we have contracts to provide full facility management services. SERVICES AND CLIENT CATEGORIES Sports Facilities We currently have contracts to provide services, including food and beverage concessions and, in some cases, the selling of merchandise, at 68 such facilities, including stadiums and arenas. At some of these facilities, we also provide high-end catering services for premium seating, luxury suites and in-stadium restaurants. These facilities host sports teams as well as other forms of entertainment, such as concerts and other large civic events. These facilities may also host conventions, trade shows and meetings. Concession-style sales of food and beverages represent the majority of our business at sports facilities. High-end catering for premium seating, luxury suites and in-stadium restaurants is responsible for a significantly smaller portion of net sales at sports facilities. Our contracts with sport facilities are typically for terms ranging from five to twenty years. In general, stadium and, to a lesser extent, arena contracts require a larger up-front or committed future capital investment than contracts for convention centers and other entertainment facilities, and typically have a longer contract term. At two arenas, we have contracts to provide full facility management services. These services include licensing the arena (and its suites and premium seats) for events, providing security and ushering, maintaining the arena and preparing it for events, distributing tickets, printing programs and selling advertising. 1 The following chart lists some of our major contracts within the sports facilities category:

Convention Centers We currently have contracts to provide services, including banquet catering and food court operations, to 29 convention centers, two of which are located in Canada. Convention centers typically host conventions, industrial and trade shows, company meetings, banquets, receptions and consumer exhibitions, such as auto, boat or computer shows. The services that we provide at convention centers typically include catering services, including planning, preparing and serving banquets, providing food court operations, assisting in planning events, and marketing clients' facilities. Our contracts with convention centers are typically for terms ranging from two to five years. In general, convention center contracts are for a shorter contract term than contracts for sports facilities, but typically require less up-front or committed future capital investment. The following chart lists some of our major contracts within the convention center category: 2

Other Entertainment Facilities We have contracts to provide a wide range of services to 31 other entertainment facilities located throughout the United States. Such facilities include horse racing tracks, music amphitheaters, motor speedways, state parks, skiing facilities, theme parks and zoos. While the services that we provide can vary widely depending on the type of facility concerned, we primarily provide concession services at theme parks, zoos and music amphitheaters, high-end concession services at music amphitheaters, and in-facility restaurants, concession services, food court operations and high-end catering services at horse racing tracks. The duration, level of capital investment required and commission or management fee structure of the contracts for these other entertainment facilities vary from facility to facility. The following chart lists examples of our contracts within the other entertainment facilities category:

3 CONTRACTS We typically enter into one of three types of contract with our clients: o Profit and Loss Contracts; o Profit Sharing Contracts; and o Management Fee Contracts. Each of our contracts falls into one of these three categories. However, any particular contract may contain elements of any of the other types as well as other features specific to that contract. In general, our contract categories differ in the amount of risk that we bear and potential reward (profits or fees) we can receive. For example, in our Profit and Loss Contracts, we generally retain most profits and are responsible for most losses; this offers the highest potential upside and downside of our contracts. In our Profit Sharing Contracts, we generally receive a share of profits, and sometimes a fee, and receive no payments if there are losses. In our Management Fee Contracts, we generally earn a fee (but no profits) and are not responsible for losses; both our upside and downside potential are low. Profit and Loss Contracts. Under Profit and Loss Contracts, we receive all of the revenues and bear all of the expenses of the provision of our services at a facility. These expenses include commissions paid to the client. Some of our Profit and Loss Contracts contain minimum guaranteed commissions or equivalent payments to the client in connection with our right to provide services within the particular facility, regardless of the level of sales at the facility or whether a profit is being generated at the facility. As of January 1, 2002, we served 100 facilities under Profit and Loss Contracts. Profit Sharing Contracts. Under Profit Sharing Contracts, also commonly referred to in the industry as incentive bonus contracts, we receive a percentage of any profits earned from the provision of our services at a facility after deducting expenses. These expenses include commissions payable to the client. In addition, under some Profit Sharing Contracts, we receive a fixed fee prior to the determination of profits under the contract. Under Profit Sharing Contracts, we generally do not bear responsibility for any losses incurred in connection with the provision of our services as we are reimbursed for our on-site expenses. However, if a loss is incurred, we typically will receive no payments under the contract other than reimbursement of our expenses and our fixed fee, if any. As of January 1, 2002, we served 25 facilities under Profit Sharing Contracts. Management Fee Contracts. Under Management Fee Contracts, we receive a management fee, typically calculated as a fixed dollar amount and/or a fixed or variable percentage of various categories of sales. In addition, some Management Fee Contracts entitle us to incentive fees based upon our performance under the contract, as measured by factors such as revenues or operating costs. We are reimbursed for all of our on-site expenses under these contracts. As of January 1, 2002, we served 3 facilities under Management Fee Contracts. Substantially all of our contracts limit our ability to raise prices on the food, beverages and merchandise we sell within the particular facility without the client's consent. When we enter into new contracts, or extend or renew existing contracts (particularly for sports facilities), we are often required to make some form of up-front or committed future capital investment to help finance facility construction or renovation. This expenditure typically takes the form of investment in leasehold improvements, food service equipment and/or grants to owners or operators of facilities. At the end of the contract term, all capital investments that we have made typically remain the property of the client, but generally the client must reimburse us for any undepreciated or unamortized capital investments if the contract is terminated early (other than due to our default). 4 Commission and management fee rates vary significantly among contracts based primarily upon the amount of capital that we invest, the type of facility involved, the term of the contract and the services we provide. In general, within each client category, the level of capital investment and commission are related, such that the greater the capital investment that we make, the lower the commission we pay to the client. Our Profit Sharing Contracts generally provide that we are reimbursed each year for the amortization of our capital investments prior to determining the profits under the contract. The length of contracts that we enter into with clients varies. Contracts in connection with sports facilities generally require the highest capital investments but have correspondingly longer terms, typically of five to twenty years. Convention center contracts generally require lower capital investments and have average terms of two to five years. While our contracts are generally terminable only in limited circumstances, some of our contracts give the client the right to terminate the contract with or without cause on little or no notice. As we reported in our Annual Report on Form 10-K for our fiscal year 2000, we had a disagreement with one of our major customers that we were in the process of resolving. As anticipated, we have resolved all outstanding issues with this customer, which we reported in our Quarterly Report on Form 10-Q for the quarter ended July 3, 2001. In November 2001, Major League Baseball ("MLB") announced plans for a "contraction" to eliminate two MLB teams beginning with the 2002 baseball season. The status of the announced contraction and the teams to be eliminated if the contraction were to occur are currently unclear. However, it does not appear that a contraction will occur in the 2002 MLB season. Press accounts at the time the contraction was first announced indicated that the Tampa Bay Devil Rays were a possible target, although not a top target. We currently have a contract with the Tampa Bay Devil Rays. If they were to be eliminated by contraction without due compensation to us, it conceivably could have a material adverse effect on us. We do not have sufficient information to assess either the likelihood that the Tampa Bay Devil Rays would be subject to such a contraction or the nature and extent of the effect that it would have on us. COMPETITION The recreational food service industry is highly fragmented and competitive, with several national food service providers as well as a large number of smaller independent businesses serving discrete local and regional markets and/or competing in distinct areas. Those companies that lack a full-service capability, because, for example, they cannot cater for luxury suites at stadiums and arenas, often bid for contracts in conjunction with one of the other national food service companies that can offer such services. We compete for contracts against a variety of food service providers. However, our major competitors are other national food service providers, including ARAMARK, Delaware North Corporation, Fine Host Corporation and Compass Group PLC. We also face competition from regional and local service contractors, some of which are better established within a specific geographic region. Existing or potential clients may also elect to "self operate" their food services, eliminating the opportunity for us to compete for the account. Contracts are generally gained and renewed through a competitive bidding process. We selectively bid on contracts to provide services at both privately owned and publicly controlled facilities. The privately negotiated transactions are generally competitive in nature, with several other large national competitors submitting proposals. Contracts for publicly controlled facilities are generally awarded pursuant to a request-for-proposal process. Successful bidding on contracts for such publicly controlled facilities often requires a long-term effort focused on building relationships in the community in which the venue is located. We compete primarily on the following factors: 5 o the ability to make capital investments; o service innovation; o quality and breadth of products and services; and o reputation within the industry. Based on the number of facilities that we serve, we have a substantial market position. Management believes that our position in the market is a competitive strength because it increases the likelihood that we will be invited to bid for new contracts to supply food and beverage services to recreational facilities. Another competitive strength is our ability to make significant capital investments in clients' facilities, which has become an important competitive factor in the bidding process for contracts to serve some facilities, particularly sports facilities. However, some of our competitors may be prepared to accept less favorable financial returns than we are when bidding for contracts. A number of our competitors also have substantially greater financial and other resources than us. Furthermore, we have more indebtedness than some of our competitors, which could place us at a competitive disadvantage. PURCHASING We have a national distribution contract with SYSCO to cover our operations. We also have a number of national purchasing programs with major product suppliers that enable our general managers to receive discounted pricing on certain items. The purchase of other items, the most significant of which are alcoholic beverages that must, by law, be purchased in-state, is handled on a local basis. We generally purchase any equipment that we require directly from the manufacturer. We typically obtain several bids when filling our food service equipment requirements. EMPLOYEES As of January 1, 2002, we had approximately 1,600 full-time employees. During calendar 2001, approximately 28,600 employees were part-time or hired on an event-by-event basis. The number of part-time employees at any point in time varies significantly due to the seasonal nature of the business. As of January 1, 2002, approximately 39% of our employees, including full and part-time employees, were covered by collective bargaining agreements with several different unions. We have not experienced any significant interruptions or curtailments of operations due to disputes with our employees, and we consider our labor relations to be good. We have hired, and expect to continue to hire, a large number of qualified, temporary workers at particular events. At some locations, local charitable groups raise funds by working at our concessions operations in exchange for a percentage of gross revenues. SEASONALITY Our net sales and operating results have varied, and are expected to continue to vary, from quarter to quarter as a result of factors which include: o seasonal patterns within the industry; o the unpredictability in the number, timing and type of new contracts; o the timing of contract expirations and special events; and o the level of attendance at facilities that we serve. 6 Business at the principal types of facilities that we serve is seasonal in nature. MLB and minor league baseball sales are concentrated in the second and third quarters, the majority of NFL activity occurs in the third and fourth quarters and convention centers and arenas generally host fewer events during the summer months. Consequently, our results of operations for the first quarter are typically substantially lower than in other quarters and our results of operations for the third quarter are typically higher than in other quarters. Results of operations for any particular quarter may not be indicative of results of operations in the future. INTELLECTUAL PROPERTY We have the patents, trademarks, trade names and licenses that are necessary for the operation of our business as we currently conduct it. We do not consider our patents, trademarks, trade names and licenses to be material to the operation of our business. GOVERNMENT REGULATION Our operations are subject to various governmental regulations, such as those governing: o the service of food and alcoholic beverages; o minimum wage regulations; o employment; o environmental protection; and o human health and safety. In addition, our facilities and products are subject to periodic inspection by federal, state, and local authorities. The cost of regulatory compliance is subject to additions to or changes in federal or state legislation, or changes in regulatory implementation. If we fail to comply with applicable laws, we could be subject to civil remedies, including fines, injunctions, recalls, or seizures, as well as potential criminal sanctions. The United States Food and Drug Administration (the "FDA") regulates and inspects our kitchens. Every commercial kitchen in the United States must meet the FDA's minimum standards relating to the handling, preparation and delivery of food, including requirements relating to the temperature of food, the cleanliness of the kitchen and the hygiene of its personnel. We are also subject to various state, local and federal laws regarding the disposition of property and leftover foodstuffs. The cost of compliance with FDA regulations is subject to additions to or changes in FDA regulations. We serve alcoholic beverages at many facilities, and are subject to the "dram-shop" statutes of the states in which we serve alcoholic beverages. "Dram-shop" statutes generally provide that serving alcohol to an intoxicated or minor patron is a violation of law. In most states, if one of our employees sells alcoholic beverages to an intoxicated or minor patron, we may be liable to third parties for the acts of the patron. We sponsor regular training programs in cooperation with state authorities to minimize the likelihood of serving alcoholic beverages to intoxicated or minor patrons, and we maintain general liability insurance that includes liquor liability coverage. We are also subject to licensing with respect to the sale of alcoholic beverages in the states in which we serve alcoholic beverages. Failure to receive or retain, or the suspension of, liquor licenses or permits would interrupt or terminate our ability to serve alcoholic beverages at those locations. A few of our contracts require us to pay liquidated damages during any period in which our liquor license for the relevant facility is suspended and most contracts are subject to termination in the event that we lose our liquor license for the relevant facility. 7 GENERAL INFORMATION Volume Services America was formed on December 31, 1992. Its principal offices are at 201 East Broad Street, Spartanburg, SC 29306, and its telephone number is (864) 598-8600. Volume Services America is the wholly-owned subsidiary of Volume Services America Holdings, Inc. ("Volume Holdings"), a Delaware corporation. Volume Services America's subsidiaries include Volume Services, Inc. ("Volume Services") and Service America Corporation ("Service America"), each a Delaware corporation. We have no operations or assets in any foreign country other than Canada. During 2001, our Canadian revenues and Canadian assets were less than 2% of our total revenues and assets, respectively. ITEM 2. PROPERTIES. We lease our corporate headquarters of approximately 21,400 square feet in Spartanburg, South Carolina, the headquarters of Service America in Stamford, Connecticut of approximately 3,500 square feet, and a regional office in Fords, New Jersey. We currently provide our services at 128 client facilities, all of which are owned or leased by our clients. Our contracts with our clients generally permit us to use certain areas within the facility to perform our administrative functions and fulfill our warehousing needs, as well as provide food and beverage services. ITEM 3. LEGAL PROCEEDINGS. We are from time to time involved in various legal proceedings incidental to the conduct of our business. In the opinion of management, any liability arising out of any currently pending proceeding will not have a material adverse effect on our financial condition or results of operations. In July 2000, the Company entered into an agreement to manage an arena in the City of Bridgeport, Connecticut once the City completed its construction. The City recently asserted a claim against the Company of approximately $2.1 million dollars for certain construction charges the City incurred in building the arena. We believe that we have strong defenses to the claim. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. We did not submit any matters to a vote of security holders during the fourth quarter of our 2001 fiscal year. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Each registrant, other than Volume Holdings, is a direct or indirect wholly-owned subsidiary of Volume Holdings. There is no established public trading market for the equity securities of Volume Holdings. As of March 26, 2002, the latest practicable date, there were four holders of Volume Holdings' common stock. During our 2001 fiscal year, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended. ITEM 6. SELECTED FINANCIAL DATA. The following selected consolidated financial data is that of Volume Holdings, Volume Services America's parent company. Volume Holdings is a guarantor of the senior notes issued by Volume Services America in 1999 and has no substantial operations or assets other than its investment in Volume Services America. As a result, the consolidated financial condition and results of operations of Volume Holdings are substantially the same as those of Volume Services America. This table contains selected financial data and is qualified 8 by the more detailed consolidated financial statements, including notes to the financial statements, of Volume Holdings. The selected financial data should be read in conjunction with the consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FISCAL 2001 COMPARED TO FISCAL 2000 Net Sales - In fiscal 2001, net sales increased 3.9% or $20.6 million as compared to fiscal 2000. The increase was primarily due to net new accounts (approximately 5%) and an increase in MLB sales (approximately 3%). The Company commenced operations at seventeen new accounts during fiscal 2001 including one NFL stadium and six minor league baseball facilities generating additional revenues of $34.8 million. Partially offsetting this was the loss of $9.2 million in net sales associated with the closure of several accounts. The Company's increase in MLB sales of $14.8 million was primarily driven by results at three accounts where the tenant teams had highly successful seasons resulting in higher attendance and per capita spending. The increases were, in part, offset by a decline in NFL sales of $6.5 million (excluding one new facility) due primarily to four fewer post season NFL games in fiscal 2001 and the postponement of four NFL games until fiscal 2002 as a result of the September 11, 2001 terrorist attacks. Additionally, at two of the NFL facilities the Company services, non-NFL sales declined approximately 10 $4.9 million as a result of fewer concerts and other ancillary events. Sales at our convention center accounts which were adversely impacted by the general economic slowdown and the events of September 11, 2001, declined $9.8 million. We estimate that the impact of September 11, 2001 reduced our consolidated net sales approximately 2% in fiscal 2001 from the level we would have expected absent such conditions. Cost of sales - Cost of sales as a percentage of net sales increased 1% from fiscal 2000. The primary components of the increase were higher commission costs associated with an increase in sales at accounts with higher commission rates and a change in the sales mix to products with higher commission structures at certain accounts. Selling, general and administrative expenses - Selling, general and administrative expenses declined as a percentage of net sales as a result of effective cost controls. Depreciation and amortization - Depreciation and amortization declined $1.8 million from fiscal 2000. The decrease was primarily due to a decline in amortization which was the result of the expiration of the initial contract term of certain service contracts. Transaction related expenses - Non-recurring strategic corporate costs of $1.1 million were incurred during fiscal 2000. No such expenses were incurred in 2001. Contract related losses - Contract related losses of $4.8 million for fiscal 2001 reflects an impairment charge of $2.3 million for equipment, leasehold improvements and location contracts at certain contracts which the Company intends to continue operating. Additionally, the Company wrote off $2.5 million of other assets primarily representing long term receivables related to one of the Company's customers which filed for Chapter 11 Bankruptcy. The Company is currently still operating at the location; however, our ability to continue to operate at this account depends on the final outcome of contract negotiations and the bankruptcy proceedings. The Company has approximately $600,000 in equipment and leasehold improvements recorded for this location. Management is unable to predict the ultimate outcome or whether there will be additional losses related to this contract. Contract related losses of $2.5 million in the prior year period includes an impairment charge of approximately $1.5 million relating to certain contracts which the Company continues to operate and a $0.7 million charge for the write-off of a customer receivable and $0.3 million in related legal fees for a terminated service contract. Operating income - Operating income declined $1.4 million from fiscal 2000 primarily due to the factors discussed above. We estimate that the impact of September 11, 2001 reduced our operating income approximately 8% in fiscal 2001 from the level we would have expected absent such conditions. Interest expense - Interest expense declined $3.1 million from fiscal 2000 chiefly associated with lower interest rates on the Company's adjustable rate debt. FISCAL 2000 COMPARED TO FISCAL 1999 Net Sales. Net sales increased 21.1% or $91.0 million from $431.5 million in fiscal 1999 to $522.5 million in fiscal 2000. The increase was due primarily to new service contracts which generated additional revenues of $50.2 million. In addition, ten NFL games, six post-season playoff games and four 1999 regular season games that occurred in January 2000 contributed an increase in net sales of $12.0 million. Of the remaining $28.8 million increase, $16.4 million was the result of an increase in net sales at our convention center venues due primarily to an increase in corporate event bookings. Cost of sales. Cost of sales of $424.2 million in fiscal 2000 increased, as a percentage of net sales, 1.8% from fiscal 1999. The primary component of the increase was higher commission costs associated with our new service contracts. Selling, general and administrative expenses. Selling, general, and administrative expenses of $47.9 million in fiscal 2000 decreased 0.7%, as percentage of net sales from fiscal 1999. The decline was due primarily to fixed 11 expenses including corporate and field support overhead costs which show no marked increase as a result of the higher net sales. Depreciation and amortization. Depreciation and amortization of $26.3 million for fiscal 2000 decreased $0.5 million from the prior year period. Transaction related expenses. Costs of $1.1 million incurred in fiscal 2000 consists primarily of non-recurring strategic corporate costs. For fiscal 1999, $1.5 million in expenses were incurred primarily relating to personnel costs, rental costs, and professional fees associated with the acquisition of Service America in August, 1998 (the "Acquisition") and the subsequent downsizing of Service America's headquarters in Stamford, CT. Contract related losses. Contract related losses of $2.5 million in fiscal 2000 include an impairment charge of approximately $1.5 million relating to the property and equipment, contract rights and other assets for certain contracts which we continue to operate. Contract related losses also reflects a $0.7 million charge for the write-off of assets related to a litigation settlement involving a terminated contract and $0.3 million in related legal fees. Operating income. Operating income increased $4.1 million from $16.5 million in fiscal 1999 to $20.6 million in fiscal 2000. The increase was primarily due to the factors discussed above. Interest. Interest expense increased $3.6 million in fiscal 2000 chiefly associated with approximately one additional month of interest expense on Volume Service America's $100.0 million in senior subordinated notes, increased borrowings on Volume Service America's revolving line of credit and higher interest rates on adjustable rate debt during fiscal 2000 as compared to fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES For fiscal 2001, net cash provided by operating activities was $24.7 million as compared to $22.7 million in fiscal 2000. The $2.0 million increase was primarily due to lower interest costs and a decline in working capital partially offset by a decrease in income from operations. Net cash used in investing activities was $29.3 million in fiscal 2001 compared to $12.9 million in the prior year period. The $16.4 million increase in cash used in investing activities primarily reflects a higher level of investment in contract rights and property and equipment associated with new accounts in fiscal 2001. Net cash provided by financing activities was $5.0 million in fiscal 2001 as compared to $7.3 million used in financing activities in fiscal 2000. The change primarily reflects net borrowings of $6.8 million borrowed under the Company's revolving credit facility used primarily to finance capital investments as compared to the $3.5 million in net repayments in fiscal 2001. Additionally, bank overdrafts declined $.5 million compared to $2.4 million in fiscal 2000. For fiscal 2000, net cash provided by operating activities was $22.7 million compared to $16.1 million in fiscal 1999. The $6.6 million increase was primarily due to increased operating activities as a result of the higher overall sales mainly associated with our new service contracts. For fiscal 2000, net cash used in investing activities was $12.9 million compared to $25.4 million in fiscal 1999. For the 2000 period, the $12.9 million in investing activities primarily reflects investments for the purchases of property and equipment and investments in contract rights in connection with maintaining and/or renewing existing contracts. The higher capital expenditures in the 1999 period reflect $17.5 million in investments for newly acquired service contracts. For fiscal 2000, net cash used in financing activities was $7.3 million compared to $12.8 million in cash provided by financing activities in fiscal 1999. The fiscal 2000 activity primarily reflects the repayment of $3.5 million borrowed under the Volume Service America's revolving credit facility and $1.2 12 million of senior secured debt. The 1999 figure reflects the issuance of $100.0 million of senior subordinated notes, and the use of proceeds to retire $45.0 million of senior secured debt and $0.5 million of GE Capital debt, redeem $49.5 million of stock, and pay related fees of $6.2 million. Excluding the financing, $9.5 million was borrowed under the revolving credit facility to fund working capital and capital expenditures in fiscal 1999. Our liquidity is generated from cash flows from operations as described above and from revolving credit borrowings available through our credit facility. In December 1998, we entered into this credit facility with Chase Manhattan Bank, Goldman Sachs Credit Partners and other lenders to refinance the pre-Acquisition debt of Volume Services and Service America. At closing of the facility, we borrowed $160.0 million in term loans to refinance that debt, and we repaid $45.0 million of these term loans from the proceeds of our senior notes issuance in 1999. The credit facility also includes a $75.0 million revolving credit facility. We use the money we borrow under the revolving credit facility to fund our working capital needs and for the capital investments we make in connection with our contracts. Revolving credit borrowings may be made at prime rate or at a LIBO rate (available for various interest periods) plus, in each case, the applicable margin. All borrowings under the credit facility are secured by substantially all the assets of Volume Holdings and most of its subsidiaries, including Volume Services and Service America. At January 1, 2002, $50.2 million of the revolving credit facility was available to be borrowed under our credit facility. At that date, there were $12.8 million in outstanding borrowings and $12.0 million of outstanding, undrawn letters of credit reducing availability. FUTURE LIQUIDITY AND CAPITAL RESOURCES We believe that cash flow from operating activities, together with borrowings available under the revolving credit facility, will be sufficient to fund our currently anticipated capital investment requirements, interest and principal payment obligations and working capital requirements. We are currently committed under client contracts to fund capital investments of approximately $11.3 million and $1.2 million in 2002 and 2003, respectively. We anticipate total capital investment of $47.0 million in fiscal 2002. NEW ACCOUNTING STANDARDS The Company adopted SFAS 141 ("SFAS 141") "Business Combinations" as of July 4, 2001. SFAS 141 requires, among other things, the purchase method of accounting for business combinations initiated after June 30, 2001, eliminates the pooling-of-interests method and clarifies the criteria for recording intangible assets separate from goodwill. The adoption of SFAS 141 had no significant impact on the Company's financial position or results of operations. In July 2001, the FASB issued SFAS No. 142 ("SFAS 142") "Goodwill and Other Intangible Assets", which is effective for the Company on January 2, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill and trademark amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires that the Company complete a transitional goodwill impairment test six months from the date of adoption and then annually thereafter. The Company is currently evaluating the impact of the transitional goodwill impairment test required by SFAS 142. In October 2001, the FASB issued SFAS No. 144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived Assets" which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 superseded Statement of Financial Standards No. 121, "Accounting for 13 the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS 144 will be effective for the Company on January 2, 2002. The Company is currently assessing, but has not yet determined, the impact of SFAS 144 on its financial position and results of operations. FORWARD LOOKING AND CAUTIONARY STATEMENTS Except for the historical information and discussions contained herein, statements contained in this Form 10-K may constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including, among other things: o our high degree of leverage and significant debt service obligations; o our history of net losses; o the level of attendance at events held at the facilities at which we provide our services and the level of spending on the services that we provide at such events; o the risk of labor stoppages affecting sports teams at whose facilities we provide our services; o the risk of sports facilities at which we provide services losing their sports team tenants; o our ability to retain existing clients or obtain new clients; o the highly competitive nature of the recreational food service industry; o any future changes in management; o the risk of weaker economic conditions within the United States; o the risk of events similar to those of September 11, 2001; o general risks associated with the food industry; and o future changes in government regulation. 14 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to interest rate volatility with regard to existing issuances of variable rate debt. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.

15 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

16 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Volume Services America Holdings, Inc.: We have audited the accompanying balance sheets of Volume Services America Holdings, Inc. and subsidiaries (collectively the "Company") as of January 2, 2001 and January 1, 2002, and the related consolidated statements of operations and comprehensive loss, stockholders' deficiency, and cash flows for each of the three years in the period ended January 1, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2001 and January 1, 2002, and the results of its operations and cash flows for each of the three years in the period ended January 1, 2002 in conformity with accounting principles generally accepted in the United States of America. March 8, 2002 17

See notes to consolidated financial statements. 23 VOLUME SERVICES AMERICA HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 28, 1999, JANUARY 2, 2001 AND JANUARY 1, 2002 -------------------------------------------------------------------------------- 1. GENERAL Volume Services America Holdings, Inc. ("Volume Holdings," and together with its subsidiaries, the "Company") is a holding company, the principal assets of which are the capital stock of its subsidiary, Volume Services America, Inc. ("Volume Services America"). Volume Holdings' financial information is therefore substantially the same as that of Volume Services America. Volume Services America is also a holding company, the principal assets of which are the capital stock of its subsidiaries, Volume Services, Inc. ("Volume Services") and Service America Corporation ("Service America"). The Company is owned by its senior management, Blackstone Capital Partners II Merchant Banking Fund, L.P. ("BCP II"), and General Electric Capital Corporation ("GE Capital"). GE Capital controlled 36.4 percent of the Company at January 1, 2002. As of January 1, 2002, the remainder of the Company's capital stock was owned by BCP II through its limited partnerships, BCP Volume L.P. and BCP Offshore Volume L.P. ("Blackstone") (59.4 percent) and by current and former management employees of the Company (4.2 percent). At January 1, 2002, the Company had approximately 128 contracts to provide specified concession services, including catering and novelty merchandise items at stadiums, sports arenas, convention centers and other entertainment facilities at various locations in the United States and Canada. Contracts to provide these services were generally obtained through competitive bids. In most instances, the Company has the right to provide these services in a particular location for a period of several years, with the duration of time often a function of the required investment in facilities or other financial considerations. The contracts vary in length generally from 1 to 20 years. Certain of the contracts contain renewal clauses. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company, and its wholly owned subsidiary, Volume Services America, and its wholly owned subsidiaries, Volume Services and Service America. All significant intercompany transactions have been eliminated. FISCAL YEAR - The Company has adopted a 52-53 week period ending on the Tuesday closest to December 31 as its fiscal year end. The 1999 and 2001 fiscal years consisted of 52 weeks and fiscal year 2000 contained 53 weeks. CASH AND CASH EQUIVALENTS - The Company considers temporary cash investments purchased with an original maturity of three months or less to be cash. REVENUE RECOGNITION - The Company typically enters into one of three types of contracts: 1) profit and loss contracts, 2) profit sharing contracts, and 3) management fee contracts. Under profit and loss and profit-sharing contracts, revenue from food and beverage concessions and catering contract food services is recognized as net sales when the services are provided. Management fee contracts provide the Company with a fixed fee or a fixed fee plus an incentive fee and the Company bears no profit or loss risk. Fees received for management fee contracts are included in net sales when earned. 24 The aggregate amount of sales recognized by the Company and sales collected on behalf of others under management fee contracts from services provided to the end users of the products is defined as "managed revenues." The Company's total managed revenues for fiscal years 1999, 2000 and 2001 were approximately $452,679,000, $542,324,000 and $554,677,000, respectively. MERCHANDISE INVENTORIES - Merchandise inventories consist of food, beverage, team and other merchandise. Inventory is valued primarily at the lower of cost or market, determined on the first-in, first-out basis. DEPRECIATION - Property and equipment is stated at cost and is depreciated on the straight-line method over the lesser of the estimated useful life of the asset and the term of the contract at the site where such property and equipment is located. Following are the estimated useful lives of the property and equipment: o Leasehold improvements - generally 10 years - limited by the lease term or contract term, if applicable o Merchandising equipment - generally 5 to 10 years limited by the contract term, if applicable o Vehicles and other equipment - generally 2 to 10 years limited by the contract term, if applicable CONTRACT RIGHTS - Contract rights, net of accumulated amortization, consist primarily of certain directly attributable costs incurred by the Company in obtaining or renewing contracts with clients and the adjustment to fair value of contract rights acquired in the acquisitions of Volume Services in 1995 and Service America in 1998. These costs for the Company are amortized over the contract life of each such contract, including optional renewal periods where the option to renew rests solely with the Company. Accumulated amortization was approximately $29,789,000 at January 2, 2001 and $35,321,000 at January 1, 2002. COST IN EXCESS OF NET ASSETS ACQUIRED - Cost in excess of net assets acquired (goodwill) is being amortized on the straight-line basis over 30 years. Accumulated amortization was approximately $4,977,000 at January 2, 2001 and $6,748,000 at January 1, 2002. TRADEMARKS - Trademarks are being amortized on a straight-line basis over 30 years. Accumulated amortization was approximately $2,865,000 at January 2, 2001 and $3,551,000 at January 1, 2002. DEFERRED FINANCING COSTS - Deferred financing costs are being amortized as interest expense over the life of the respective debt using the interest method. Accumulated amortization was approximately $3,062,000 at January 2, 2001 and $4,492,000 at January 1, 2002. IMPAIRMENT OF LONG-LIVED ASSETS AND CONTRACT LOSSES - The Company reviews long-lived assets and contract assets for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. Accordingly, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss for long-lived assets, such as property, and certain identifiable intangibles, is based on the estimated fair value of the asset determined by future discounted net cash flows. 25 The Company assesses cost in excess of net assets acquired (goodwill) for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. To analyze recoverability, the Company projects future undiscounted cash flows over the remaining life of goodwill. If the sum of the expected future undiscounted cash flows is less than the carrying amount of goodwill, an impairment loss is recognized. Measurement of an impairment loss for goodwill is based upon the difference between the carrying amount of goodwill and the future undiscounted cash flows. DERIVATIVE FINANCIAL INSTRUMENTS - The Company accounts for derivative financial instruments in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of the Financial Accounting Standards Board ("FASB") Statement No. 133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which became effective for the Company on January 3, 2001. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities measured at fair value. In addition, all derivatives used in hedging relationships must be designated, reassessed and documented pursuant to the provisions of SFAS No. 133. The adoption of SFAS No. 133 had an insignificant impact on the Company's financial position. The Company is exposed to fluctuations in the fair value of certain liabilities. The Company uses derivative financial instruments such as interest rate swap agreements to manage exposure to fluctuations in the fair value of its fixed-rate debt instruments. The Company does not hold or issue any derivative financial instruments for trading purposes and is not a party to leveraged instruments. The credit risks associated with the Company's derivative financial instruments are controlled through the evaluation and monitoring of the creditworthiness of the counterparties. Although the Company may be exposed to losses in the event of nonperformance by the counterparties, the Company does not expect such losses, if any, to be significant. INSURANCE - At the beginning of fiscal 1999, the Company adopted a premium-based insurance program for general liability, automobile liability and workers' compensation risk. Prior to fiscal 1999, the Company was primarily self-insured for general liability, automobile liability and workers' compensation risks, supplemented by stop-loss type insurance policies. Management determines its estimate of the reserve for self-insurance considering a number of factors, including historical experience and actuarial assessment of the liabilities for reported claims and claims incurred but not reported. The self-insurance liabilities for estimated incurred losses were discounted (using rates between 4.92 percent and 5.11 percent at January 2, 2001 and 2.17 percent and 5.07 percent at January 1, 2002), to their present value based on expected loss payment patterns determined by experience. The total discounted self-insurance liabilities recorded by the Company at January 2, 2001 and January 1, 2002 were $2,755,000 and $2,061,000, respectively. The related undiscounted amounts were $3,256,000 and $2,184,000, respectively. The Company became self-insured for employee health insurance in December 1999. Prior to December 1999, the Company had a premium-based insurance program. The 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 January 2, 2001 and January 1, 2002 was $793,000 and $951,000, respectively. CASH OVERDRAFTS - The Company has included in accounts payable on the accompanying consolidated balance sheets cash overdrafts totaling $7,068,000 and $6,614,000 at January 2, 2001 and January 1, 2002, respectively. 26 FOREIGN CURRENCY - The balance sheet and results of operations of the Company's Canadian subsidiary (a subsidiary of Service America) are measured using the local currency as the functional currency. Assets and liabilities have been translated into United States dollars at the rates of exchange at the balance sheet date. Revenues and expenses are translated into United States dollars at the average rate during the period. The exchange gains and losses arising on transactions are charged to income as incurred. Translation gains and losses arising from the use of differing exchange rates from year to year are included in accumulated other comprehensive loss. These amounts were not significant for any period reported. TRANSACTION RELATED EXPENSES - Transaction related expenses in fiscal year 1999 primarily include personnel costs, rental costs and professional fees associated with downsizing Service America Corporation's Stamford, Connecticut office. Transaction related expenses in fiscal year 2000 consist primarily of nonrecurring strategic corporate costs. INCOME TAXES - The provision for income taxes includes federal, state and foreign taxes currently payable, and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established for deferred tax assets when it is more likely than not that the benefits of such assets will not be realized. SEGMENT REPORTING - The combined operations of the Company, consisting of contracts to provide concession services, including catering and novelty merchandise items at stadiums, sports arenas, convention centers and other entertainment facilities, comprise one reportable segment. RECLASSIFICATIONS - Certain amounts in 1999 and 2000 have been reclassified, where applicable, to conform to the financial statement presentation used in 2001. NONCASH COMPENSATION - The Company has elected to follow the accounting provisions of Accounting Principles Board Opinion ("APBO") No. 25, Accounting for Stock Issued to Employees for Stock-Based Compensation. NEW ACCOUNTING STANDARDS - The Company adopted SFAS 141 ("SFAS 141") "Business Combinations" as of July 4, 2001. SFAS 141 requires, among other things, the purchase method of accounting for business combinations initiated after June 30, 2001, eliminates the pooling-of-interests method and clarifies the criteria for recording intangible assets separate from goodwill. The adoption of SFAS 141 had no significant impact on the Company's financial position or results of operations. In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), which is effective for the Company on January 2, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill and trademark amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires that the Company complete a transitional impairment test six months from the date of adoption and then annually thereafter. The Company is currently evaluating the impact of the transitional impairment test required by SFAS 142. Goodwill and trademark amortization (pre-tax) was approximately $2,504,000, $2,458,000, and $2,458,000 for fiscal years 1999, 2000 and 2001, respectively. 27 In October 2001, the FASB issued SFAS No. 144 ("SFAS 144"), Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 superseded SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS 144 will be effective for the Company on January 2, 2002. The Company is currently assessing, but has not yet determined the impact of SFAS 144 on its financial position and results of operations. 3. CHANGE IN ACCOUNTING PRINCIPLE In fiscal year 1999, the Company adopted the provisions of the American Institute of Certified Public Accountants Statement of Position 98-5, Reporting on the Costs of Start-up Activities, which requires that costs of start-up activities be expensed as incurred, as of December 28, 1999. As a result, the Company recorded a charge of $256,000 net of tax (approximately $170,000) reflecting the effect of the change in accounting principle during fiscal year 1999. 4. SIGNIFICANT RISKS AND UNCERTAINTIES USE OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's most significant financial statement estimates include the estimate of the recoverability of contract rights and related assets, potential litigation claims and settlements, the liability for self-insured claims, the valuation allowance for deferred tax assets and the allowance for doubtful accounts. Actual results could differ from those estimates. CERTAIN RISK CONCENTRATIONS - Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash equivalents, short-term investments and accounts receivable. The Company places its cash equivalents and short-term investments with high-credit qualified financial institutions and, by practice, limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to accounts receivable are limited due to many customers comprising the Company's customer base and their dispersion across different geographic areas. For the fiscal years ended December 28, 1999, January 2, 2001 and January 1, 2002, the Company had one customer that accounted for approximately 11.1 percent, 9.8 percent, and 10.0 percent of operating revenues, respectively. The Company's revenues and earnings are dependent on various factors such as attendance levels and the number of games played by the professional football and baseball teams which are tenants at facilities serviced by the Company, which can be favorably impacted if the teams qualify for post-season play, or adversely affected if there are stoppages such as strikes by the teams. 28 5. DEBT Long-term debt consists of the following (in thousands): 2000 2001 Term B borrowings $ 112,700 $ 111,550 Revolving loans 5,000 8,000 Senior subordinated notes 100,000 100,000 --------- --------- 217,700 219,550 Less - current portion of long-term debt (1,150) (1,150) --------- --------- Total long-term debt $ 216,550 $ 218,400 ========= ========= 1998 CREDIT AGREEMENT - On December 3, 1998, Volume Services America (the "Borrower") entered into a credit agreement, which provided for $160,000,000 in term loans, consisting of $40,000,000 of Tranche A term loans ("Term Loan A") and $120,000,000 of Tranche B term loans ("Term Loan B" and together with Term Loan A, the "Term Loans") and a $75,000,000 revolving credit facility (the "Revolving Credit Facility"). Borrowings under the Term Loans were used to repay in full all outstanding indebtedness of Volume Services and Service America under their then existing credit facilities and to pay fees and expenses incurred in connection with the acquisition of Service America and the credit agreement. All borrowings under the credit facility are secured by substantially all the assets of Volume Holdings and the majority of its subsidiaries, including Volume Services and Service America. The commitments under the Revolving Credit Facility are available to fund capital investment requirements, working capital and general corporate needs of the Company. On March 4, 1999, the $40,000,000 of Term A borrowings and $5,000,000 of Term B borrowings were repaid with the proceeds from the Senior Subordinated Notes discussed below. Installments of Term Loan B are due in consecutive quarterly installments on the last day of each fiscal quarter with 25 percent of the following annual amounts being paid on each installment date: $1,150,000 in each year from 2002 through 2005, and $106,950,000 in 2006. The Revolving Credit Facility allows the Company to borrow up to $75,000,000 and includes a sub-limit of $35,000,000 for letters of credit which reduce availability under the Revolving Credit Facility and a sub-limit of $5,000,000 for Swingline Loans. Revolving Loans must be repaid at the Revolving Credit Facility maturity date and Swingline Loans must be either repaid within one month or converted to Revolving Loans. The Revolving Credit Facility will mature on December 3, 2004. At January 1, 2002, $12,750,000 was outstanding under the Revolving Credit Facility, consisting of $8,000,000 in Revolving Loans and $4,750,000 in Swingline Loans (included in short-term note payable), and approximately $12,039,000 of letters of credit were outstanding but undrawn. Borrowings under the credit agreement bear interest at floating rates based upon the interest rate option elected by the Company and the Company's leverage ratio. The weighted average interest rates at January 2, 2001 were 10.25 percent for Term Loan B and 11.5 percent for the Revolving Credit Facility. The weighted average interest rates at January 1, 2002 were 6.38 percent for Term Loan B and 5.61 percent for the Revolving Credit Facility. 29 The credit agreement calls for mandatory prepayment of the loans under certain circumstances and optional prepayment without penalty. The credit agreement contains covenants that require the Company to comply with certain financial covenants, including a maximum net leverage ratio, an interest coverage ratio and a minimum consolidated cash net worth test, as defined. At January 1, 2002, the Company was in compliance with all covenants. In addition, Volume Services America is restricted in its ability to pay dividends and other restricted payments in an amount greater than approximately $49,500,000 at January 1, 2002. SENIOR SUBORDINATED NOTES - On March 4, 1999, Volume Services America completed a private placement of 11-1/4 percent Senior Subordinated Notes in the aggregate principal amount of $100 million. On September 30, 1999, the Company exchanged the Senior Subordinated Notes for notes which have been registered under the Securities Act of 1933. The notes mature on March 1, 2009 and interest is payable on March 1 and September 1 of each year, beginning on September 1, 1999. Such notes are unsecured, are subordinated to all the existing debt and any future debt of Volume Services America, rank equally with all of the other Senior Subordinated debt of Volume Services America, and senior to all of Volume Services America's existing and subordinated debt. Furthermore, the debt is guaranteed by the Company and all of the subsidiaries of Volume Services America, except for certain non-wholly owned U.S. subsidiaries and one non-U.S. subsidiary. The proceeds of the notes were used to (i) repay $40,000,000 of Term A Borrowings and $5,000,000 of Term B Borrowings, (ii) fund the repurchase by Volume Holdings of 194 shares of Volume Holdings common stock for $49,500,000 and the repayment by Volume Holdings of a $500,000 note in favor of GE Capital and (iii) pay fees and expenses incurred in connection with the notes and the consent from lenders to an amendment to the Credit Agreement. In conjunction with the notes, Volume Services America recognized an extraordinary loss of $873,000, net of taxes (approximately $570,000), in its statement of operations for the early extinguishment of $45,000,000 of Term Loans in fiscal year 1999. Aggregate annual maturities of long-term debt at January 1, 2002 are as follows (in thousands): 2002 $ 1,150 2003 1,150 2004 9,150 2005 1,150 2006 106,950 Thereafter 100,000 --------- Total $ 219,550 ========= 6. CAPITAL LEASE OBLIGATION The Company is obligated to make minimum lease payments under a capital lease agreement. The following is a schedule of future minimum lease payments under the capital lease as of January 1, 2002 (in thousands): 2002 $ 279 Less - amount representing interest (12) ----- Total capital lease obligation $ 267 30 Under the terms of the lease agreement, certain equipment is pledged to secure performance as follows (in thousands): Equipment $ 914 Accumulated depreciation (343) ----- Total $ 571 ===== 7. INCOME TAXES The components of deferred taxes are (in thousands):

At January 1, 2002, the Company has approximately $15,105,000 of net operating loss carryforwards, $7,754,000 of which are from the acquisition of Service America. These carryforwards expire in varying amounts beginning in years 2004 through 2020. The Company's future ability to utilize the acquired Service America net operating loss carryforward is limited to some extent by Section 382 of the Internal Revenue Code of 1986, as amended. At January 1, 2002, the Company has approximately $5,212,000 of tax credit carryforwards. These tax credit carryforwards resulted primarily from wage credits generated pursuant to a review of prior year returns. These carryforwards expire in varying amounts beginning in years 2005 through 2021. 31 At January 1, 2002, the Company established a valuation allowance of $2,257,000 related to net operating losses and credit carryforwards. Management believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of these net operating losses and credit carryovers. These carryovers are dependent upon future income. Although realization of the net deferred tax assets is not assured, management believes that it is more likely than not that all of the net deferred tax assets will be realized. The amount of net deferred tax assets considered realizable, however, could be reduced in the near term based on changing conditions. The benefit for income taxes is as follows (in thousands):

The difference between the statutory federal income tax rate and the effective tax rate on net loss is as follows:

8. EQUITY TRANSACTIONS STOCK REDEMPTION - From the proceeds of the Senior Subordinated Notes described in Note 5, Volume Services America paid a $50,000,000 dividend in 1999 to Volume Holdings. Volume Holdings used the proceeds to redeem 194 shares of its common stock (the "Stock Redemption") and to repay a $500,000 note in favor of GE Capital. 32 LOANS TO RELATED PARTIES - At January 2, 2001 and January 1, 2002, the Company has made loans to VSI Management Direct L.P. and another partnership which hold a direct and an indirect ownership, respectively, in the Company. The loans were used to fund the repurchase of partnership interests from former members of management. Accordingly, these amounts have been included as a reduction to stockholders' equity. NONCASH COMPENSATION - During fiscal 2000, certain management employees purchased units in two partnerships that have an indirect ownership in the Company. These purchases were financed with nonrecourse loans. The terms of the purchase agreements are such that the issuance of these units is a variable plan, which requires the Company to revalue the units at each measurement date for changes in the fair value of the units. The related compensation expense is recorded in selling, general, and administrative expenses in the statement of operations and comprehensive loss, for fiscal years 2000 and 2001. Had compensation costs been determined as prescribed by SFAS No. 123, Accounting for Stock-Based Compensation, the effect on the Company's net earnings would not have been significant. 9. INTEREST RATE HEDGING ARRANGEMENTS Effective April 15, 1999, the Company entered into an interest cap transaction with the Union Bank of California ("UBOC") for a $10,000,000 notional amount for $4,200. The interest rate cap protected the Company if the three-month LIBOR exceeds 7.5 percent through January 16, 2001. The Company entered into an interest rate swap transaction on April 16, 1999 with UBOC for a $30,000,000 notional amount with no up front cost. This swap provided that the Company pay UBOC one-month LIBOR and that UBOC pay the Company 5.375 percent each month until April 20, 2001. On October 20, 1999, the Company sold an interest rate floor on this swap to UBOC and received $34,000. The interest rate floor was marked-to-market. Consequently, in the event that one-month LIBOR was less than 5.375 percent the Company would pay 5.375 percent. All interest rate hedging arrangements expired in fiscal 2001. 10. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of financial instruments and related underlying assumptions are as follows: LONG-TERM DEBT - The Company estimates that the carrying value at January 2, 2001 and January 1, 2002 approximates the fair value of the Term Loans and Revolving Credit Facility based upon the variable rate of interest and frequent repricing. The Company estimates the fair value of the Senior Subordinated Notes to be approximately $ 87,000,000 (book value of $100,000,000) at January 2, 2001 and $97,000,000 (book value $100,000,000) at January 1, 2002 based on third-party quotations for the same or similar issues. INTEREST RATE HEDGING ARRANGEMENTS - At January 2, 2001, the Company estimated the fair values of the interest rate swap, cap and floor as a loss of $114,389, $0 and a loss of $620, respectively. These figures represent the estimated amounts the Company would have paid or received to terminate these financial instrument agreements, as quoted by the financial institution. As of January 1, 2002 all arrangements the Company had been party to have matured. CURRENT ASSETS AND CURRENT LIABILITIES - The Company estimates the carrying value of these assets and liabilities to approximate their fair value based upon the nature of the financial instruments and their relatively short duration. 33 11. COMMITMENTS AND CONTINGENCIES LEASES AND CLIENT CONTRACTS - The Company operates primarily at its clients' premises pursuant to written contracts. The length of a contract generally ranges from 1 to 20 years. Certain of these client contracts provide for payment by the Company to the client for both fixed and variable commissions and royalties. Aggregate commission and royalty expense under these agreements was $131,056,000, $168,782,000 and $183,324,000 for fiscal years 1999, 2000 and 2001, respectively. Minimum guaranteed commission and royalty expense was approximately $9,955,000, $10,223,000 and $7,016,000 for fiscal years 1999, 2000 and 2001, respectively. The Company leases a number of real properties and other equipment under varying lease terms which are noncancelable. In addition, the Company has numerous month-to-month leases. Rent expense was approximately $1,085,000, $1,080,000 and $961,000 in fiscal 1999, fiscal 2000 and fiscal 2001, respectively. Future minimum commitments for all operating leases and minimum commissions and royalties due under client contracts are as follows (in thousands): COMMISSIONS OPERATING AND YEAR LEASES ROYALTIES 2002 $ 389 $ 7,610 2003 372 5,851 2004 155 5,211 2005 34 4,651 2006 - 2,406 Thereafter - 854 ----- -------- Total $ 950 $ 26,583 ===== ======== EMPLOYMENT CONTRACTS - The Company has employment agreements and arrangements with its executive officers and certain management personnel. The agreements generally continue until terminated by the executive or the Company, and provide for severance payments under certain circumstances. The agreements include a covenant against competition with the Company, which extends for a period of time after termination for any reason. As of January 1, 2002, if all of the employees under contract were to be terminated by the Company without good cause (as defined) under these contracts, the Company's liability would be approximately $6.0 million. COMMITMENTS - Pursuant to its contracts with various clients, the Company is committed to spend approximately $11,307,000 during 2002 and $1,186,000 during 2003 for equipment improvements and location contract rights. At January 1, 2002, the Company has $7,468,000 of letters of credit collateralizing the Company's performance and other bonds, and $3,145,000 in letters of credit collateralizing the self-insurance reserves of the Company, and $1,426,000 in other letters of credit. 34 CONTINGENCIES - On April 20, 2001 one of the Company's customers filed for Chapter 11 bankruptcy. The Company had approximately $3.2 million of receivables and leasehold improvements recorded at the time of the filings relating to this customer. The proceedings of the filing are in the preliminary stages; however, based on the most recent information, the Company wrote-off $2.5 million of other assets primarily representing long term receivables. The Company had approximately $600,000 in equipment and leasehold improvements recorded at January 1, 2002. In July 2000, the Company entered into an agreement to manage an arena in the City of Bridgeport, Connecticut once the City completed its construction. The City recently asserted a claim against the Company of approximately $2.1 million dollars for certain construction charges the City incurred in building the arena. The Company believes that it has a strong defense to the claim. LITIGATION - There are various claims and pending legal actions against or indirectly involving the Company. It is the opinion of management, after considering a number of factors, including, but not limited to, the current status of the litigation (including any settlement discussions), views of retained counsel, the nature of the litigation, the prior experience of the Company, and the amounts which the Company has accrued for known contingencies, that the ultimate disposition of these matters will not materially affect the financial position or future results of operations of the Company. 12. RELATED PARTY TRANSACTIONS MANAGEMENT FEES - Certain administrative and management functions are provided to the Company by the Blackstone Group and GE Capital through monitoring agreements. The Company paid Blackstone Management Partners II L.P., an affiliate of Blackstone, a fee of $250,000 in fiscal years 1999, 2000 and 2001. GE Capital was paid management fees of $167,000 in fiscal years 1999, 2000 and 2001. Such amounts are included in selling, general and administrative expenses. LEASING SERVICES - GE Capital and its affiliates provide leasing and financing services to the Company. Payments to GE Capital and its affiliates for fiscal years 1999, 2000 and 2001 for such services, net of discounts earned, were approximately $185,000, $165,000 and $95,000, respectively, and are included in selling, general and administrative expenses. The Company also leases equipment from GE Capital under a capital lease (Note 6). MANAGEMENT INCENTIVE AGREEMENT - The Company maintains a discretionary incentive plan whereby general managers and senior management personnel qualify for incentive payments in the event that the Company has exceeded certain financial performance targets determined on an annual basis. The Company has accrued approximately $1,597,000 and $1,096,000 in accrued salaries and vacations in the accompanying balance sheets at January 2, 2001 and January 1, 2002, respectively, for such incentives payable to certain general managers and senior management personnel. These amounts are included in selling, general, and administrative expenses. 13. RETIREMENT PLAN Effective February 15, 2000, the Volume Service 401(k) plan was merged into the Service America 40l(k) plan, forming the Volume Services America 401(k) defined contribution plan. This plan covers substantially all Volume Services America employees. Employees may contribute up to 16 percent of their eligible earnings and the Company will match 25 percent of employee contributions up to the first 6 percent of employee compensation, with an additional discretionary match up to 50 percent. The Company's contributions to the previous individual plans and the combined plan were approximately $178,000 for fiscal 1999, $319,000 for fiscal 2000 and $397,000 in fiscal 2001. 35 MULTI-EMPLOYER PENSION PLANS - Certain of the Company's union employees are covered by multi-employer defined benefit pension plans administered by unions. Under the Employee Retirement Income Security Act ("ERISA"), as amended, an employer upon withdrawal from a multi-employer pension plan is required to continue funding its proportionate share of the plan's unfunded vested benefits. Amounts charged to expense and contributed to the plans were not material for the periods presented. 14. CONTRACT RELATED LOSSES During fiscal years 1999, 2000 and 2001, several contracts which the Company intends to continue operating were identified as impaired, as the future undiscounted cash flows of each of these contracts was estimated to be insufficient to recover the related carrying value of the property and equipment and contract rights associated with each contract. As such, the carrying values of these contracts were written down to the Company's estimate of fair value based on the present value of the discounted future cash flows. The Company wrote down approximately $573,000 of property and equipment and $448,000 of contract rights in fiscal 1999 and approximately $976,000 of property and equipment, $221,000 of contract rights and $269,000 of other assets in fiscal 2000. In fiscal 2001, the Company wrote down approximately $2.3 million of property and equipment and contract rights. In addition, the Company recorded an impairment charge of approximately $2.5 million for the write down of other assets, as described in Note 11. During fiscal 1999, the Company recorded a loss for an underperforming contract to reserve for the estimated future losses of approximately $401,000. On June 12, 1998, Service America commenced arbitration proceedings through the American Arbitration Association in New York, New York against Silver Huntington Realty LLC and Silver Huntington LLC (see Note 12). In May 2000, the arbitrator reached a decision in this matter. The decision provided for no payment from either party to the other. As a result, the Company wrote off related assets in the amount of $754,000 and recorded approximately $305,000 in related legal fees. 36 15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Quarterly operating results for the years ended January 2, 2001 and January 1, 2002 are as follows (in thousands):

37 16. NON-GUARANTOR SUBSIDIARIES FINANCIAL STATEMENTS The senior subordinated notes are jointly and severally guaranteed by the Company and all of the subsidiaries of Volume Services America, except for certain non-wholly owned U.S. subsidiaries and one non-U.S. subsidiary. The following table sets forth the condensed consolidated financial statements of the Parent Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries as of and for the periods ended January 2, 2001 and January 1, 2002 (in the case of the balance sheet) and for the years ended December 28, 1999, January 2, 2001 and January 1, 2002 (in the case of the statement of operations and the cash flows):

43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following table provides information about each of our directors and executive officers.

John T. Dee, Chief Executive Officer and Chairman of the Board of Directors. Mr. Dee has served as Chief Executive Officer and Chairman of the Board of Directors of Volume Services America since August 1998. Mr. Dee has served as President, Chief Executive Officer and a director of Service America since January 1993 and as a consultant to Service America from November 1992 to January 1993. He has been Chairman of the Board of Directors of Service America since January 1997. From 1989 to 1992, Mr. Dee was President of Top Food Services, Inc., a company engaged in the food service business. From 1980 to 1989, he was Group President at ARAMARK (a food service company) with responsibility for ARAMARK's recreational food service and public restaurant operations. From 1979 to 1980, he held senior positions, including President, at Sportservice Corporation (a food service company), and was responsible for concessions and merchandise operations at airports, theaters, stadiums, arenas and racetracks. From 1968 to 1979, he held various positions at ARAMARK, including Vice President-Sales and President of the Leisure Services Group, a division of ARAMARK engaged in the recreational food service industry. Kenneth R. Frick, Executive Vice President and Chief Financial Officer. Mr. Frick has served as Chief Financial Officer of Volume Services America since August 1998 and as Chief Financial Officer of Volume Services since 1995. He served as Vice President from August 1998 to December 2000, when he became Executive Vice President. Mr. Frick has 18 years of experience in the recreational food service industry, 14 of them with Volume Services. Prior to becoming Chief Financial Officer of Volume Services in 1995, Mr. Frick was the Controller for Volume Services, and for seven years was Assistant Controller and Southeast Regional Controller of Volume Services. Mr. Frick is a certified public accountant. Janet L. Steinmayer, Executive Vice President, General Counsel and Secretary. Ms. Steinmayer has been General Counsel and Secretary of Volume Services America since August 1998. She served as Vice President from August 1998 to December 2000, when she became Executive Vice President. Ms. Steinmayer has been Corporate Vice President, General Counsel and Secretary of Service America since November 1993. From 1992 to 1993, she was Senior Vice President-- External Affairs and General Counsel of Trans World Airlines, Inc. ("TWA"). From 1990 to 1991, she served as Vice President--Law, Deputy General Counsel and Corporate Secretary at TWA. Ms. Steinmayer was a partner at the Connecticut law firm of Levett, Rockwood & Sanders, P.C. from 1988 to 1990. 44 Howard A. Lipson, Director. Mr. Lipson is Senior Managing Director of The Blackstone Group L.P., referred to in this Annual Report on Form 10-K as the "Blackstone Group", which he joined in 1988. He has been a director of Volume Services America since 1995. Prior to joining the Blackstone Group, Mr. Lipson was a member of the Mergers and Acquisitions Group of Salomon Brothers Inc. He currently serves on the Board of Directors of Allied Waste Industries, Inc., AMF Group Inc., Ritvik Holdings Inc. and Roses, Inc. and is a member of the Advisory Committee of Graham Packaging Company. David Blitzer, Director. Mr. Blitzer is a Senior Managing Director of the Blackstone Group, which he joined in 1991. He has been a director of Volume Services America since 1995. Mr. Blitzer is also a director of Allied Waste Industries, Inc., Haynes International, Inc., Republic Technologies International, Inc. and The Imperial Home Decor Group Inc. Peter Wallace, Director. Mr. Wallace has been associated with the Blackstone Group since 1997 and became an Associate in January 2001. He has been a director of Volume Services America since October 1999. The discussion of the amended stockholders' agreement in "Certain Relationships and Related Transactions -- Amended Stockholders' Agreement" below (with respect to the rights of management and various Blackstone entities to appoint directors) and the discussion of the employment agreements in "Executive Compensation" below, are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. EXECUTIVE COMPENSATION The table below provides information concerning the total compensation of the Chief Executive Officer and all other executive officers of Volume Services America based on 2001 salary and bonuses. These officers are referred to together as the "Named Executives".

DIRECTOR COMPENSATION Directors of Volume Services America do not receive compensation, except in their capacity as officers or employees. EMPLOYMENT AND SEVERANCE AGREEMENTS We have entered into the following arrangements with our directors and executive officers: On August 24, 1998, Volume Holdings entered into an employment agreement with Mr. Dee. The agreement provides that Mr. Dee will be employed by Volume Holdings at an annual base salary of $465,000 for a term of five years, subject to earlier termination by Volume Holdings for or without Cause, or by Mr. Dee for Good Reason, each as defined in the agreement. Mr. Dee is entitled to a bonus at the discretion of the Board of Directors of Volume Holdings and to participate in any executive bonus plan and all employee benefit plans maintained by Volume Holdings. The agreement provides for severance pay in the case of a termination by Volume Holdings without Cause or by Mr. Dee for Good Reason in an amount equal to Mr. Dee's annual base salary for the balance of the term of employment and ancillary benefits. During and for two years after Mr. Dee's employment, Mr. Dee has agreed that, without the written consent of Volume Holdings, he will not: o be engaged, in any capacity, in any business that competes with Volume Holdings' business; or o solicit any person who was employed by Volume Holdings during the 12 months preceding such solicitation. On November 17, 1995, Volume Services entered into an employment agreement with Mr. Frick. The agreement provides that Mr. Frick will be employed by Volume Services until he resigns or is dismissed by Volume Services for or without Cause, as defined in the agreement. Mr. Frick's base salary under the contract (including annual increases) is $204,750 subject to annual review. Mr. Frick is also entitled to receive an annual bonus pursuant to any management incentive compensation plan established by Volume Services. In the case of termination of employment due to resignation, Mr. Frick will receive his salary up to the 30th day following his resignation and any accrued but unpaid bonus. In the case of termination without Cause by Volume Services, Mr. Frick will receive a one-time payment of two times his base annual salary plus any accrued but unpaid bonus. During and for two years after his employment, Mr. Frick has agreed not to: o solicit employees of Volume Services to cease such employment without the written consent of Volume Services; or 46 o have any involvement in any capacity in any contract concessions business similar to that of Volume Services in those states in the United States in which Volume Services does business and over which Mr. Frick has had supervisory responsibility. On September 29, 1998, Volume Holdings entered into an employment agreement with Ms. Steinmayer. The agreement provides that Ms. Steinmayer will be employed by Volume Holdings at an annual base salary of $180,000 (which has been increased without formal amendment to $190,000), plus $250 per hour for each hour that she works in excess of 24 hours per week, until the agreement is terminated by Volume Holdings for or without Cause, or by Ms. Steinmayer for Good Reason, each as defined in the agreement. Ms. Steinmayer is entitled to a bonus at the discretion of the Board of Directors of Volume Holdings and to participate in any executive bonus plan and all employee benefit plans maintained by Volume Holdings. The agreement provides for severance pay in the case of a termination by Volume Holdings without Cause or by Ms. Steinmayer for Good Reason in an amount equal to two times her compensation in the one year period prior to the date of termination (annualized in the case of termination prior to the end of the first year), plus ancillary benefits. During and for two years after Ms. Steinmayer's employment, she has agreed that she will not, without the prior written consent of Volume Holdings: o have any involvement in any enterprise which provides food services, as defined in the agreement in any of the states in the United States in which Volume Holdings operates; or o solicit any employee of Volume Holdings to leave its employment. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Volume Services America is a wholly owned subsidiary of Volume Holdings. The following table and accompanying footnotes set forth certain information concerning the beneficial ownership of the Volume Holdings common stock. Except as disclosed below, none of our officers or directors beneficially owns any of our stock. Except as indicated in the footnotes to this table, we believe that the persons named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them. 47

48 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. TAX INDEMNITY AGREEMENT Service America ceased being a member of the General Electric Company consolidated group, referred to as the "GE Consolidated Group", for federal income tax purposes by reason of the Acquisition. Accordingly, Service America and GE Capital in January 1997 entered into a tax indemnity agreement. Under this agreement: o GE Capital agreed to indemnify Service America for, and became entitled to any refund of, all consolidated or combined federal, state and local income taxes payable while Service America was a member of the GE Consolidated Group; and o as authorized by the consolidated return Treasury Regulations, the GE Consolidated Group became entitled to re-attribute to itself the portion of Service America's net operating losses that did not exceed the amount of "disallowed losses" (as defined in those regulations) which GE Capital realized in connection with the recapitalization of Service America effected in January 1997 by GE Capital and some members of Service America's management. AMENDED STOCKHOLDERS' AGREEMENT On December 21, 1995, VSI Management Direct L.P. ("VSI Management"), BCP Volume L.P., BCP Offshore Volume L.P. and Volume Holdings entered into a stockholders' agreement. On August 24, 1998, these parties, together with GE Capital and Recreational Services, entered into an amended and restated stockholders' agreement. In the discussion of the stockholders' agreement below, we refer to BCP Volume L.P. and BCP Offshore Volume L.P. collectively as "Blackstone". Management; Board of Directors. The Board of Volume Holdings will be comprised of a Chairman, one director appointed by VSI Management (provided that the Chairman is not a partner of VSI Management and that VSI Management consults with Blackstone prior to the appointment) and three directors appointed by Blackstone (provided that Blackstone is the sole Controlling Stockholder, defined in the agreement). If Blackstone ceases to be the sole Controlling Stockholder, each of Blackstone and GE Capital will have the right to appoint two directors. Until GE Capital is entitled to appoint a director, it is entitled to appoint an Observer, as defined in the agreement, who is not entitled to vote on any Board matters. Transfers of Shares. No transfers of the shares of Volume Holdings' common stock, referred to as the "Shares", may be made by any stockholder, as defined in the agreement, within one year from the date of the amended stockholders' agreement other than: o to a defined category of persons affiliated with or successors in title to existing stockholders, each of whom agrees to be bound by the terms of the amended stockholders' agreement, each referred to as a "Permitted Transferee"; o pursuant to a public offering of the Shares; or o in accordance with the exercise of the drag-along or tag-along rights discussed below. If either of Blackstone or Recreational Services, for these purposes, referred to as the "Transferring Stockholder", intends to transfer its Shares while the amended stockholders' agreement is in effect (other than by way of a public offering or pursuant to Rule 144 under the Securities Act or to a Permitted Transferee) and the Transferring Stockholder still beneficially owns at least one-third of the number of Shares on a fully diluted basis that it held at the date of the amended stockholders' agreement, then each other stockholder will have the right to require the purchaser of such Transferring Stockholder's 49 Shares to purchase the same proportion of the Shares that such stockholder owns, on the same terms as those offered to the Transferring Stockholder, referred to as the "tag-along right". If all of the Controlling Stockholders accept an offer by a party other than a stockholder, referred to as a "Third Party", to purchase all of the Shares owned by the stockholders (and the Controlling Stockholder to whom the offer was made still owns at least one-third of the Shares owned by it at the date of the amended stockholders' agreement), then each stockholder is obliged to transfer its Shares to the Third Party on the same terms as those accepted by the Controlling Stockholders, referred to as the "drag-along right". After one year from the date of the amended stockholders' agreement, a stockholder may also transfer Shares: o pursuant to a transfer that is exempt from the registration requirements of the Securities Act; or o if such stockholder is not a Controlling Stockholder, after offering the Shares first to Volume Holdings and then to each of Blackstone and Recreational Services in proportion to their respective holdings of Shares. Unless a stockholder transfers Shares pursuant to a public offering, Rule 144 under the Securities Act or the drag-along right, all transferees are required to become bound by the terms of the amended stockholders' agreement. Restrictions on Corporate Action. For so long as Recreational Services owns at least 20% of the Shares, we may not take certain fundamental corporate actions without the consent of each of Recreational Services and Blackstone, including the amendment of the certificate of incorporation or by-laws of Volume Holdings or the modification of any stock option, bonus or benefit plan. Similarly, as long as Recreational Services owns at least 20% of the Shares, Volume Holdings may not enter into any transaction with Blackstone, or its affiliates, without the consent of Recreational Services, except for: o the payment of regular fees or expenses to its directors; o transactions that are reasonable in the light of industry practice and that are of a value not greater than $500,000 individually and $1,000,000 in the aggregate in any one year; o the payment of the monitoring fee discussed below; or o transaction fees up to 1% of the value of a company being acquired by Volume Holdings, as long as GE Capital also receives a proportional fee based on Recreational Services' Share ownership relative to Blackstone's Share ownership. Annual Fees. The amended stockholders' agreement permits the payment of annual monitoring fees by Volume Holdings of $250,000 to Blackstone and $167,000 to GE Capital. The fees payable to Blackstone and GE Capital have been accounted for as an expense. Registration Rights. Blackstone has the right to demand registration of the Shares by Volume Holdings under the Securities Act at any time, subject to a maximum of three such registrations. Recreational Services has the right to demand such registration on one occasion only, at any time on or after the third anniversary of the date of the amended stockholders' agreement. 50 LEASING SERVICES GE Capital and its affiliates provided us leasing and financing services during 2001 on arms-length terms. Payments to GE Capital and its affiliates during 2001, net of discounts earned, were approximately $95,000. We also lease equipment from GE Capital under a capital lease; payments to GE Capital under this lease were approximately $225,000 in 2001. LOANS TO VSI PARTNERSHIPS During 1999, 2000 and 2001, VSI Management and another partnership repurchased some of their partnership interests from some former members of management. To fund these purchases and to pay for tax preparation costs, Volume Services America loaned a total of $1,079,000 to these entities. The loans were on arms-length terms, with interest accruing at the applicable federal rate, and the full amount of the loans remained outstanding at January 1, 2002. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) See financial statements beginning at page 17. (b) We did not file any Current Report on Form 8-K during the last quarter of our 2001 fiscal year. (c) Exhibits:

(d) Financial Statement Schedules SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT We have not sent to shareholders any annual report to security holders, proxy statement, form of proxy or other proxy soliciting material during or with respect to our 2001 fiscal year. 53 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 March 28, 2002. Volume Services America, Inc. By: /s/ Kenneth R. Frick ----------------------------------------------------- Name: Kenneth R. Frick Title: Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each registrant and in the capacities indicated on March 28, 2002.

55 Exhibit 21 List of Subsidiaries of Volume Services America, Inc. JURISDICTION OF INCORPORATION SUBSIDIARY Events Center Catering, Inc. Wyoming Service America Concessions Corporation Maryland Service America Corporation Delaware Service America Corporation of Wisconsin Wisconsin Service America of Texas, Inc. Texas Servo-Kansas, Inc. Kansas Servomation Duchess, Inc. California Servomation, Inc. Quebec, Canada SVM of Texas, Inc. Texas Volume Services, Inc. Delaware Volume Services, Inc. Kansas V.S.I. of Maryland, Inc. Maryland 56

VOLUME SERVICES AMERICA INC 10-K