##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K

|                                 |  |                                                                                                 
|-------------------------------- |  | ------------------------------------------------------------------------------------------------
|(Mark One)                       |  |                                                                                                 
|þ                                |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                
|                                 |  | For the fiscal year ended December 30,
    2003                                                 
|                                
|o                                |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|                                
|                                 |  | For the transition period
    from           to           .                                     
|                                
|Commission file number 001-31904

Volume Services America
Holdings, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                                                            |  |                                                                       
|--------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------
|Delaware                                                                                                                    |  | 13-3870167                                                            
|(State of incorporation)                                                                                                    |  | (I.R.S. Employer Identification No.)                                  
|                                                                                                                           
|201 East Broad Street
    Spartanburg, South Carolina 29306(Address of principal executive
    offices, including zip code) |  | (864) 598-8600(Registrants telephone
    number, including area code)

http://www.centerplate.com

(Registrants URL)


Securities of Volume Services America
Holdings, Inc. registered pursuant to Section 12(b) of
the Act

|                                                                                               |  |                                                   
|---------------------------------------------------------------------------------------------- |  | --------------------------------------------------
|Title of Each Class                                                                            |  | Name of Each Exchange on Which Registered         
|                                                                                               |  |                                                   
|Income Deposit Securities (representing shares
    of
    common stock and subordinated notes) |  | American Stock Exchange
    Toronto Stock Exchange

Securities of Volume Services America
Holdings, Inc. registered pursuant to Section 12(g) of
the Act:     None

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.     Yes þ          No o

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.     þ

Indicate by check
mark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Securities Exchange Act of
1934).     Yes o          No þ

The aggregate
market value of the Income Deposit Securities (IDSs) held by
non-affiliates of Volume Services America Holdings, Inc. as
of December 30, 2003 was approximately $248,400,000. For
purposes of this disclosure, IDSs held by persons who hold
more than 5% of the outstanding IDSs and IDSs held by officers
and directors of the registrant have been excluded because such
persons may be deemed to be affiliates. This determination is
not necessarily conclusive. Volume Services America
Holdings, Inc. did not have publicly traded securities as
of the last business day of its most recently completed second
fiscal quarter.

The number of
shares of common stock of Volume Services America
Holdings, Inc. outstanding as of March 26, 2004 was
22,524,992.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Proxy
Statement for the 2004 Annual Meeting of Security Holders of
Volume Services America Holdings, Inc. are incorporated by
reference into Items 10, 11, 12, 13 and 14 hereof.



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VOLUME SERVICES AMERICA
HOLDINGS, INC.

FISCAL YEAR 2003

FORM 10-K


ANNUAL REPORT



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TABLE OF CONTENTS

|                                                  |          |  |                                                                                                                       |  |  |     | 
|------------------------------------------------- | -------- |  | --------------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|PART I                                            |          |  | 2                                                                                                                     | 
|                                                  | Item 1.  |  | Business                                                                                                              |  |  | 2   | 
|                                                  | Item 2.  |  | Properties                                                                                                            |  |  | 12  | 
|                                                  | Item 3.  |  | Legal Proceedings                                                                                                     |  |  | 13  | 
|                                                  | Item 4.  |  | Submission of Matters to a
    Vote of Security Holders                                                               |  |  | 13  | 
|PART II                                           |          |  | 13                                                                                                                    | 
|                                                  | Item 5.  |  | Market for Registrants
    Common Equity, Related Stockholder Matters, and Issuer Purchases
    of Equity Securities |  |  | 13  | 
|                                                  | Item 6.  |  | Selected Financial Data                                                                                               |  |  | 16  | 
|                                                  | Item 7.  |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                             |  |  | 20  | 
|                                                  | Item 7A. |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                        |  |  | 33  | 
|                                                  | Item 8.  |  | Financial Statements and
    Supplementary Data                                                                       |  |  | F-1 | 
|                                                  | Item 9.  |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                              |  |  | 34  | 
|                                                  | Item 9A. |  | Internal Control over
    Financial Reporting                                                                         |  |  | 34  | 
|PART III                                          |          |  | 34                                                                                                                    | 
|                                                  | Item 10. |  | Directors and Executive
    Officers of the Registrant                                                                |  |  | 34  | 
|                                                  | Item 11. |  | Executive Compensation                                                                                                |  |  | 34  | 
|                                                  | Item 12. |  | Security Ownership of
    Certain Beneficial Owners and Management                                                    |  |  | 34  | 
|                                                  | Item 13. |  | Certain Relationships and
    Related Transactions                                                                    |  |  | 34  | 
|                                                  | Item 14. |  | Principal Accountant Fees
    and Services                                                                            |  |  | 35  | 
|PART IV                                           |          |  | 35                                                                                                                    | 
|                                                  | Item 15. |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                                  |  |  | 35  | 
|AMENDED AND RESTATED BY-LAWS                     
|BOARD OBSERVER AGREEMENT                         
|LONG-TERM INCENTIVE PLAN                         
|COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
|CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER     
|CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER     
|CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER     
|CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER     



1



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##### Table of Contents






PART I

Introductory Note

Throughout this Annual Report on Form 10-K,
we refer to Volume Services America Holdings, Inc. as
VSAH and, together with its consolidated operations,
as we, our and us, unless
otherwise indicated. VSAH is a holding company and has no direct
operations. Any reference to VSA refers to our
wholly owned subsidiary, Volume Services America, Inc., a
Delaware corporation, and its consolidated operations, unless
otherwise indicated. In addition to VSA, VASHs
subsidiaries also include Volume Services, Inc. (VS)
and Service America Corporation (Service America),
each a Delaware corporation.






|        |         
|------- | --------
|Item 1. | Business

Overview

We are a leading provider of food and beverage
concessions, catering and merchandise services in sports
facilities, convention centers and other entertainment
facilities. We operate throughout the United States and in
Canada. Based on the number of facilities served, we are one of
the largest providers of food and beverage services to a variety
of recreational facilities in the United States and are:



| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The second largest provider to National Football
    League (NFL) facilities (10 teams);                                                                                          
|
| |  | The third largest provider to Major League
    Baseball (MLB) facilities (6 teams);                                                                                               
|
| |  | The largest provider to minor league baseball and
    spring training facilities (25 teams); and                                                                                    
|
| |  | One of the largest providers to major convention
    centers, which we define as those with greater than
    approximately 300,000 square feet of exhibition space (10
    centers).

We have a large, diversified client base, serving
129 facilities as of December 30, 2003, and the average
length of our client relationships is over 15 years. Our
contracts are typically long-term and exclusive.

We have provided our services to several of the
highest profile sporting and other events, including:



| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | 24 World Series events;                                                 
|
| |  | Three U.S. Presidential Inaugural Balls;                                
|
| |  | Nine Super Bowls, including the 2003 Super Bowl
    at Qualcomm Stadium;
|
| |  | Eight NCAA Final Four Mens Basketball
    Tournaments; and             
|
| |  | 14 World Cup Soccer games.                                              

On February 11, 2003, we announced that we
changed the trade name for our operating businesses from Volume
Services America to Centerplate.

History

We, including our subsidiaries and their
predecessors, have been in operation for over 35 years.
VSAH was organized as a Delaware corporation on
November 21, 1995. In August 1998, through our wholly owned
subsidiary, VSA, the parent company of VS, then one of the
leading suppliers of food and beverage services to sports
facilities in the United States, we acquired Service America,
then one of the leading suppliers of food and beverage services
to convention centers in the United States. This acquisition
allowed us to enter the convention center market with a
significant presence in major convention centers and resulted in
our having a substantially more diversified client base and
revenue stream.

2



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##### Table of Contents



Clients and Services



| |         
| | --------
| | Overview

We provide a number of services to our clients.
Our principal services include food and beverage concession and
catering services in sports and other entertainment facilities;
small- to large-scale banquet catering and food court operations
in convention centers; and in-facility restaurants and catering
across the range of facilities that we serve. We also provide
merchandise and program sales services in many of the sports
facilities we serve. We are responsible for all personnel,
inventory control, purchasing and food preparation where we
provide these services.

In addition, we provide full facility management
services, which can include a variety of services such as event
planning and marketing, maintenance, ticket distribution,
program printing, advertising and licensing rights for the
facility, its suites and premium seats. Currently, we provide
facility management services in two arenas.

We believe that we have built strong
relationships with many of our clients. We often work closely
with clients in designing or renovating the portion of the
facilities where we provide our services. By using our in-house
capabilities in conjunction with outside consultants, we have
designed state-of-the-art concessions and restaurant facilities
in, among other facilities, INVESCO Field at Mile High Stadium,
home of the Denver Broncos, and SBC Park, home of the
San Francisco Giants.

We also provide for our clients a dedicated
central staff for equipment placement and construction design.
Our design and construction capabilities are being used in a
number of new and existing client facilities where we and the
client believe there is an opportunity for additional revenue
growth through better design.

We typically provide services in our
clients facilities pursuant to long-term contracts that
grant us the exclusive right to provide certain food and
beverage products and services and, under some contracts,
merchandise products and other services within the facility. As
of December 30, 2003, our contracts had an overall average,
weighted by net sales generated by each contract, of
approximately 5.6 years left to run before their scheduled
expiration, representing approximately 6.8, 3.5 and
2.9 years for sports facilities, convention centers and
other entertainment facilities, respectively. The overall
average, weighted by the number of contracts, and not by net
sales, was approximately 4.1 years left to run before
scheduled expiration, representing approximately 5.4, 3.1 and
2.4 years for sports facilities, convention centers and
other entertainment facilities, respectively.

We typically renegotiate existing contracts prior
to their expiration. From 1999 through 2003, contracts came up
for renewal that generated, on average, approximately 15.8% of
our net sales for each year. During this period, we retained
contracts up for renewal that generated, on average,
approximately 89.0% of our net sales for each year, which
together with the contracts that did not come up for renewal
resulted in our retaining contracts that generated, on average,
approximately 98.3% of our net sales for each year. As of
December 30, 2003, we had been providing services to our
clients facilities for an average of approximately
15.4 years. Four of our major accounts  Yankee
Stadium in New York City, home of the Yankees, Qualcomm
Stadium in San Diego, home of the Chargers, Arrowhead
Stadium in Kansas City, home of the Chiefs, and Kaufmann Field
in Kansas City, home of the Royals  have been our
accounts for more than 30 years.

3



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##### Table of Contents



The following chart shows the number of our
contracts scheduled to expire in the three years beginning in
2004 which have not been renewed as of December 30, 2003,
by year and by primary facility category, and the percentage of
fiscal 2003 net sales attributable to the contracts
expiring in each year.

|                                    |  |      |      |      |  |      |     |   |  |  |      |  
|----------------------------------- |  | ---- | ---- | ---- |  | ---- | --- | - |  |  | ---- | -
|                                    |  | 2004 |      | 2005 |  | 2006
|                                    |  |      |      |      |  |     
|Facility Category:                  |  |      |      |      |  |      |     |   |  |  |      |  
|Sports facilities                   |  |      | 9    |      |  |      | 7   |   |  |  | 12   |  
|Convention centers                  |  |      | 4    |      |  |      | 7   |   |  |  | 4    |  
|Other entertainment facilities      |  |      | 13   |      |  |      | 9   |   |  |  | 3    |  
|                                    |  |      |      |      |  |      |     |   |  |  |      |  
|Total number of contracts           |  |      | 26   |      |  |      | 23  |   |  |  | 19   |  
|                                    |  |      |      |      |  |      |     |   |  |  |      |  
|Percentage of fiscal 2003 net sales |  |      | 16.9 | %    |  |      | 9.2 | % |  |  | 17.9 | %



| |              
| | -------------
| | Concentration

For fiscal 2003, our largest client, Yankee
Stadium in New York City, accounted for approximately 10.2%
of our net sales; our three largest clients together accounted
for approximately 21.8% of our net sales; our 10 largest clients
together accounted for approximately 43.9% of our net sales; and
our 20 largest clients together accounted for approximately
61.3% of our net sales. We have no operations or assets in any
foreign country other than Canada. During fiscal 2003, our
Canadian net sales and Canadian long-lived assets accounted for
less than 3% of our total net sales and long-lived assets,
respectively.



| |                  
| | -----------------
| | Sports Facilities

We have contracts to provide services, including
food and beverage concessions and, in some cases, the selling of
merchandise, in 68 sports facilities, including stadiums and
arenas throughout the United States and in Canada. These
facilities host sports teams and civic events and provide other
forms of entertainment, such as concerts, ice shows and
circuses. These facilities may also host conventions, trade
shows and meetings. The stadiums and arenas in which we provide
our services seat from approximately 7,500 to
100,000 persons and typically host sporting events such as
NFL and college football games, MLB or minor league baseball
games, NBA and college basketball games, NHL and minor league
hockey games, concerts, ice shows and circuses. For fiscal 2003,
sports facility contracts accounted for approximately 66.4% of
our net sales.

Concession-style sales of food and beverages
represent the majority of our business in sports facilities.
Catering for luxury suites, premium concession services for
premium seating and in-stadium restaurants are currently
responsible for a significantly smaller portion of net sales at
sports facilities, but have been gaining importance because of
the general growth of premium seating as a proportion of total
stadium and arena seating and the general increase in demand for
a variety of food and beverage offerings. Also, premium seating
and suites are important to our clients because of the
significant net sales generated for those clients by purchasers
of luxury seats and suites. Consequently, the ability to provide
quality and variety is an important factor when competing for
contracts, and we expect it to become more important in the
future.

Our contracts for sports facilities are typically
for terms ranging from five to 20 years. In general,
stadium and 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. In addition, some sports
facility contracts require greater capital investment than
others, and we typically receive a more favorable commission
structure at facilities where we have made larger capital
investments.

4



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##### Table of Contents



The following chart lists all our major league
sports facility tenants as of December 30, 2003:

|                                           |  |                    |  |                      |  |                  |            |  
|------------------------------------------ |  | ------------------ |  | -------------------- |  | ---------------- | ---------- | -
|                                           |  |                    |  |                      |  | Seating Capacity
|Facility Name                              |  | Location           |  | Sports Team Tenant   |  | (Sport)         
|                                           |  |                    |  |                      |  |                 
|ALLTEL Stadium                             |  | Jacksonville, FL   |  | Jacksonville Jaguars |  |                  | 73,000(NFL | )
|Arrowhead Stadium                          |  | Kansas City, MO    |  | Kansas City Chiefs   |  |                  | 79,000(NFL | )
|FedEx Field                                |  | Landover, MD       |  | Washington Redskins  |  |                  | 80,000(NFL | )
|HHH Metrodome                              |  | Minneapolis, MN    |  | Minnesota Vikings    |  |                  | 64,000(NFL | )
|                                           |  |                    |  | Minnesota Twins      |  |                  | 44,000(MLB | )
|INVESCO Field at Mile High Stadium         |  | Denver, CO         |  | Denver Broncos       |  |                  | 76,000(NFL | )
|Kaufmann Field                             |  | Kansas City, MO    |  | Kansas City Royals   |  |                  | 40,600(MLB | )
|Louisiana Superdome                        |  | New Orleans, LA    |  | New Orleans Saints   |  |                  | 70,054(NFL | )
|New Orleans Arena                          |  | New Orleans, LA    |  | New Orleans Hornets  |  |                  | 18,500(NBA | )
|SBC Park                                   |  | San Francisco, CA  |  | San Francisco Giants |  |                  | 42,000(MLB | )
|Palace of Auburn Hills                     |  | Auburn Hills, MI   |  | Detroit Pistons      |  |                  | 21,000(NBA | )
|Qualcomm Stadium                           |  | San Diego, CA      |  | San Diego Chargers   |  |                  | 71,400(NFL | )
|RCA Dome                                   |  | Indianapolis, IN   |  | Indianapolis Colts   |  |                  | 60,000(NFL | )
|Safeco Field                               |  | Seattle, WA        |  | Seattle Mariners     |  |                  | 47,145(MLB | )
|San Francisco Stadium at Candlestick Point |  | San Francisco, CA  |  | San Francisco 49ers  |  |                  | 68,000(NFL | )
|The Coliseum                               |  | Nashville, TN      |  | Tennessee Titans     |  |                  | 68,500(NFL | )
|Tropicana Field                            |  | St. Petersburg, FL |  | Tampa Bay Devil Rays |  |                  | 48,500(MLB | )
|Xcel Energy Center                         |  | St. Paul, MN       |  | Minnesota Wild       |  |                  | 18,064(NHL | )
|Yankee Stadium                             |  | New York, NY       |  | New York Yankees     |  |                  | 55,000(MLB | )



| |                   
| | ------------------
| | Convention Centers

We have contracts to provide services in 30
convention centers, including 10 major convention centers
such as the Washington, D.C. Convention Center, the
San Diego Convention Center, the Jacob K. Javits Convention
Center in New York City and the National Trade Centre in
Toronto. Services we provide at convention centers typically
include catering, operating food courts, assisting in planning
events and assisting in marketing the clients facilities.
For fiscal 2003, convention center contracts accounted for
approximately 22.3% of our net sales.

Catering services consist primarily of providing
large-scale banquet services for functions held in the
facilities ballrooms and banquet halls. We are equipped to
tailor our services for small groups to groups of several
thousand persons in the facility. To cater meals in certain
facilities for larger groups, we may draw, as needed, on the
services of chefs, event managers and other Company employees
throughout the region in which the facility is located. In
operating food courts in convention centers, we typically
provide concession services from several different locations
that sell a variety of specialty foods and beverages, including
nationally-branded, franchised food and beverage products.

Our contracts with convention centers are
generally for a shorter term than contracts for sports
facilities. We typically receive a more favorable commission
structure at facilities where we have made larger capital
investments.

5



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##### Table of Contents



The following chart lists alphabetically our
largest contracts within the convention center category based on
fiscal 2003 net sales:

|                                                                |  |                  |  |               |           | 
|--------------------------------------------------------------- |  | ---------------- |  | ------------- | --------- | 
|                                                                |  |                  |  | Size (Approx.
|Facility Name                                                   |  | Location         |  | Sq. Ft.)(1)  
|                                                                |  |                  |  |              
|Colorado Convention Center                                      |  | Denver, CO       |  |               | 300,000   | 
|Dallas Convention Center                                        |  | Dallas, TX       |  |               | 951,726   | 
|Indiana Convention Center                                       |  | Indianapolis, IN |  |               | 403,700   | 
|Jacob K. Javits Center                                          |  | New York, NY     |  |               | 814,400   | 
|Kentucky Fair & Expo Center                                     |  | Louisville, KY   |  |               | 1,068,050 | 
|San Diego Convention Center                                     |  | San Diego, CA    |  |               | 616,363   | 
|Vancouver Convention & Exhibition
    Center  BC Place Stadium |  | Vancouver, BC    |  |               | 357,809   | 
|Washington, D.C. Convention Center                              |  | Washington, DC   |  |               | 725,000   | 



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|    |                                                                
|--- | ---------------------------------------------------------------
|(1) | Source: Tradeshow Weeks Major
    Exhibit Hall Directory 2003.



| |                                   
| | ----------------------------------
| | Other Entertainment
    Facilities

We have contracts to provide a wide range of
services in 31 other entertainment facilities located
throughout the United States. Such facilities include horse
racing tracks, music amphitheaters, motor speedways, skiing
facilities and a zoo.

Our services vary widely among other
entertainment facilities. We primarily provide concession
services at our zoo and music amphitheaters, high-end concession
services at music amphitheaters and in-facility restaurants and
food courts, and we provide catering services at horse racing
tracks. For fiscal 2003, contracts to serve these other
entertainment facilities accounted for approximately 11.3% of
our net sales.

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. We typically receive a more favorable
commission structure at facilities where we have made larger
capital investments.

The following chart lists alphabetically our
largest contracts within the other entertainment facilities
category based on fiscal 2003 net sales:

|                                                                                                |  |                  |  |             
|----------------------------------------------------------------------------------------------- |  | ---------------- |  | ------------
|Facility Name                                                                                   |  | Location         |  | Venue Type  
|                                                                                                |  |                  |  |             
|Dover Downs                                                                                     |  | IL, TN           |  | Speedway    
|DTE Energy Music Theatre                                                                        |  | Auburn Hills, MI |  | Amphitheater
|Los Angeles Zoo                                                                                 |  | Los Angeles, CA  |  | Zoo         
|New York Racing Association (Belmont Park
    and Aqueduct Racetracks and Saratoga Race Course) |  | NY               |  | Horse Tracks
|Verizon Wireless Amphitheater                                                                   |  | Irvine, CA       |  | Amphitheater

Client Contracts

We enter into one of three types of contracts
with our clients: profit and loss contracts, profit sharing
contracts and management fee contracts.

Although each of our contracts falls into one of
these three categories, any particular contract may contain
elements of any of the other types as well as other features
unique to that contract. We draw on our substantial operational
and financial experience in attempting to structure contracts to
include a mix of up-front fees, required capital investment and
ongoing commissions to our customers.

6



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##### Table of Contents





| |                          
| | -------------------------
| | Profit and Loss Contracts

Under profit and loss contracts, we receive all
of the net sales and bear all of the expenses from the provision
of services at a facility. These expenses include commissions
paid to the client, which are typically calculated as a fixed or
variable percentage of various categories of sales. While we
benefit from greater upside potential with profit and loss
contracts, because we are entitled to retain all profits from
the provision of our services at a facility after paying
expenses, including commissions to the client, we are
responsible for all associated costs, and therefore we are also
responsible for any losses incurred. We consequently bear
greater risk with a profit and loss contract than with a profit
sharing or management fee contract. In order to achieve our
anticipated level of profitability on a profit and loss
contract, we must carefully control our operating expenses and
obtain price increases commensurate with our cost increases. As
of December 30, 2003, we served 98 facilities under profit
and loss contracts, which accounted for approximately 72.7% of
our net sales.

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.
These guaranteed payments are often structured as a fixed dollar
amount, frequently increasing over the life of the contract, or
as a fixed per capita amount, generally on an escalating scale
based on event attendance or per capita spending levels.



| |                         
| | ------------------------
| | Profit Sharing Contracts

Profit sharing contracts are generally profit and
loss contracts with the feature that the commission paid to the
client is in whole or in part a specified percentage of the
profits generated by our concessions operation in the relevant
facility. In calculating profit for those purposes, expenses
include commissions payable to the client that are not based on
profits. These commissions are typically calculated as a fixed
or variable percentage of various categories of sales. In
addition, under certain profit sharing contracts, we receive a
fixed fee prior to the determination of profits under the
contract. As of December 30, 2003, we served 29 facilities
under profit sharing contracts, which accounted for
approximately 26.5% of our net sales.



| |                         
| | ------------------------
| | Management Fee Contracts

Under our management fee contracts, we receive a
management fee, calculated as a fixed dollar amount, or a fixed
or variable percentage of various categories of sales, or some
combination of both. In addition, our management fee contracts
entitle us to receive incentive fees based upon our performance
under the contract as measured by factors such as net sales or
operating costs. We are reimbursed for all of our on-site
expenses under these contracts. The benefit of this type of
contract is that we do not bear the risks associated with the
provision of our services in the facility. However, as a result
of this reduced risk, we also have reduced upside potential,
because we are entitled to receive only a management fee, and
any incentive fees provided for in the contract, and we do not
share in any profits. As of December 30, 2003, we served
two facilities under management fee contracts, which accounted
for approximately 0.8% of our net sales.



| |                                        
| | ---------------------------------------
| | Additional Contract
    Characteristics

Although the contracts generally fall within one
of the three types discussed above, we often include in our
contracts a variety of features to meet our needs and the needs
of a particular client. These features include: step-scale
commissions, in which our commission payment to a client will
vary according to sales performance; minimum attendance
thresholds, in which a client will refund a portion of the
commissions that it receives from us if a minimum attendance
level is not reached in the facility; and inventory guarantees,
under which we return certain unsold inventory to the client
without charge to us.

Most 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. Some
contracts allow us to raise our prices without the clients
consent if we are able to demonstrate that prices on similar
items in specified benchmark facilities have increased.

7



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##### Table of Contents



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. However, most of our contracts require our
client to return to us any unamortized capital investment and
any up-front fees, if the contract is cancelled before its
scheduled termination, other than due to breach by us.

Recent Developments

On December 10, 2003, VSAH completed its
initial public offering (IPO) of 16,785,450 Income
Deposit Securities (IDSs), representing
16,785,450 shares of common stock and $95,677,065 aggregate
principal amount of 13.5% subordinated notes due 2013
governed by the Indenture dated as of December 10, 2003
(2003 notes). On December 16, 2003, VSAH sold
an additional 1,678,545 IDSs, representing
1,678,545 shares of common stock and $9,567,706.50
aggregate principal amount of 2003 notes, pursuant to the
exercise of the underwriters over-allotment option.

Concurrently with the closing of the IPO, VSA
refinanced its then existing credit facility, entered into on
December 3, 1998 (1998 credit facility), and
entered into a new senior secured credit facility with a
syndicate of financial institutions, including CIBC World
Markets Corp., as lead arranger (2003 credit
facility). The 2003 credit facility is comprised of a
secured revolving credit facility with a total principal amount
of $50 million (less amounts reserved for letters of
credit) and a term facility consisting of senior secured notes
in an aggregate principal amount of $65 million.

On October 22, 2003, VSA commenced a tender
offer and consent solicitation with respect to all of its then
outstanding $100.0 million aggregate principal amount of
11 1/4% senior subordinated notes due 2009 governed by
the Indenture dated as of March 4, 1999 (1999
notes). As of the closing of VSAHs IPO, 87.75% of
the 1999 notes were tendered and repurchased by VSA in part
from the proceeds of the IPO and borrowings under the 2003
credit facility. In March 2004, the remaining $12.3 million
aggregate principal amount of the 1999 notes that were not
tendered were redeemed by VSA pursuant to the mandatory
redemption provisions of the 1999 notes at a price equal to
105.625% of the principal amount, plus accrued and unpaid
interest to the redemption date. As of the date of this report,
there are no outstanding 1999 notes.

We are in the process of renegotiating one of our
major contracts. While we believe the new terms proposed for the
agreement are favorable to us, the new agreement would result in
a return to us of a substantial capital investment we initially
made to obtain the contract. We would need to reinvest the
amount of the capital investment returned to us in other, new
contracts. While we believe we will be able to reinvest these
amounts successfully, if we were unable to do so reasonably
promptly, it could have a material adverse impact on our
financial results.

Sales and Marketing

Our chief executive officer determines the
direction of our sales and marketing efforts, aided by a senior
vice president  sales administration, who heads their
implementation and coordinates the efforts of one director of
sales.

Our primary sales goal is to acquire new
contracts. To this end, we use an internal tracking system,
review trade publications and other industry sources, and poll
our on-site general managers to identify information about both
new and expiring contracts in the recreational food service
industry, including contracts for existing and new or
prospective facilities. We also draw upon our reservoir of
developed relationships with a wide variety of participants in
the industry, including the general managers of public and
private facilities, league and team owners, event sponsors, and
a network of consultants whom facility owners often hire to
formulate bid specifications.

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##### Table of Contents



Competition



| |            
| | -----------
| | Competitors

The recreational food service industry is highly
fragmented and competitive, with several national and
international food service providers as well as a large number
of smaller independent businesses serving discrete local and
regional markets and competing in distinct areas.

Our principal competitors for food and beverage
contracts are other national and international food service
providers, including ARAMARK Corporation, Levy Restaurants,
Delaware North Corporation (which operates under the trade name
Sportservice), Compass Group plc (which partially
owns Levy Restaurants), Boston Concessions Group (which operates
under the trade name Distinctive Gourmet) and
Sodexho USA. 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.

We compete primarily to provide concession,
catering and other related services at recreational facilities.
Our competitors often operate more narrowly, for example, in
catering only, or more broadly, e.g., in food services in other
kinds of facilities and in other services altogether.

We compete for facility management contracts with
Spectacor Management Group (which is a joint venture between
ARAMARK Corporation and Hyatt Hotels Inc.) and Global Spectrum,
which together manage most privately-managed facilities. Most
other facilities are managed internally, by the facility owner,
by the owner of a team which plays in the facility or by local
service providers.



| |                          
| | -------------------------
| | Competition for Contracts

Contracts are generally gained and renewed
through a competitive bidding process. We selectively bid on
contracts to provide services in 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: the ability to make capital
investments; reputation within the industry; commission on
revenues or management fee structure; service innovation; and
quality and breadth of products and services.

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.

Suppliers

To supply our operations, we have a national
distribution contract with SYSCO Corporation as well as
contracts with the manufacturers of many of the products that
are distributed by SYSCO. We do not believe that we are
substantially dependent on our contract with SYSCO. We believe
that if the SYSCO contract were terminated or not renewed, we
could obtain comparably-priced alternative distribution services
of these products from the national competitors of SYSCO, such
as US Foodservice and independent distributors that have entered
into a national alliance such as Distributor Marketing Alliance
and Uni-Pro, or from the network of local suppliers discussed
below from which we are currently purchasing some of our food,
beverage and disposable non-alcoholic products.

We have a number of national purchasing programs
with major product suppliers that enable us 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.

If a contract with a particular client requires
us to use a specific branded product for which we do not have a
purchasing program or distribution contract, or if the
requirement results in our bearing additional

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##### Table of Contents



costs, the client will typically be required to
pay any excess cost associated with the use of the brand name
product.


From time to time we engage local, regional and
national subcontractors who provide food, beverages or other
services at our and our clients behest, and from whom we
collect a portion of revenue, depending upon contractual
arrangements with the subcontractor and the client.

We generally purchase equipment we require
directly from the manufacturer. We typically obtain several bids
when filling our food service equipment requirements.

Controls

Because a large portion of our business is
transacted in cash, principally food and beverage concessions
and food court operation sales, we have stringent inventory and
cash controls in place. We typically record inventory levels
before and after each event to determine if the sales recorded
match the decline in inventory. The process is typically
completed within hours of conclusion of the event so that any
discrepancy can generally be traced to either specific points of
sale or control processes set up throughout the facility. We
also run yield reports on food supplies on a monthly basis to
determine if there is any significant difference between
inventory and sales.

Employees

As of December 30, 2003, we had
approximately 1,700 full-time employees. Of these,
approximately 800 provide on-site administrative support and
supervision in the facilities we serve, approximately 800
provide a variety of services (for example, food preparation,
warehousing and merchandise sales) in those facilities, and
approximately 100 provide management and staff support at the
corporate and regional levels. During fiscal 2003, we had
approximately 28,000 employees who were part-time or hired on an
event-by-event basis. The number of part-time employees at any
point in time varies significantly because of the seasonal
nature of our business.

As of December 30, 2003, approximately 36%
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.

Seasonality of Operations

Our sales and operating results have varied, and
are expected to continue to vary, from quarter to quarter, as a
result of factors that include: seasonality of sporting and
other events; unpredictability in the number, timing and type of
new contracts; timing of contract expirations and special
events; and level of attendance at events in the facilities
which we serve.

Business in the principal types of facilities
that we serve is seasonal in nature. MLB and minor league
baseball-related sales are concentrated in the second and third
quarters, the majority of NFL-related activity occurs in the
fourth quarter 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 results of operations for the
third quarter are typically higher than in other quarters.

Regulatory Matters

Our operations are subject to various
governmental regulations, such as those governing the service of
food and alcoholic beverages, minimum wage regulations,
employment, environmental protection, and human health and
safety.

In addition, our facilities and products are
subject to periodic inspection by federal, state, provincial and
local authorities. The cost of regulatory compliance is subject
to additions to or changes in federal, state or

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##### Table of Contents



provincial 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 U.S. Food and Drug Administration
(FDA) regulates and inspects our kitchens in the
United States. Every U.S. commercial kitchen 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. The Canadian Food
Inspection Agency (CFIA) regulates food safety in
Canada, applying similar standards to those required by the FDA.
We are also subject to various state, provincial, local and
federal laws regarding the disposition of property and leftover
foodstuffs. The cost of compliance with FDA and CFIA regulations
is subject to additions to or changes in FDA and CFIA
regulations.

We serve alcoholic beverages in many facilities
and are subject to the dram-shop statutes of the
states and provinces 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 and provinces, 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 and
provincial 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 and provinces 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
in 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 we lose our liquor license
for the relevant facility.

Environmental Matters

Laws and regulations concerning the discharge of
pollutants into the air and water, the handling and disposal of
hazardous materials, the investigation and remediation of
property contamination and other aspects of environmental
protection are in effect in all locations in which we operate.
Our current operations do not involve material costs to comply
with such laws and regulations, and they have not given rise to,
and are not expected to give rise to, material liabilities under
these laws and regulations for investigation or remediation of
contamination.

Claims for environmental liabilities arising out
of property contamination have been asserted against us and our
predecessors from time to time, and in some cases such claims
have been associated with businesses, including waste-disposal
and waste-management businesses, related to entities we acquired
and have been based on conduct that occurred prior to our
acquisition of those entities. Several such claims were resolved
during the 1990s in bankruptcy proceedings involving some of our
predecessors. More recently, private corporations asserted a
claim under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) against us
for contribution to address past and future remediation costs at
a site in Illinois. The site allegedly was used by, among
others, a waste disposal business related to a predecessor for
which we allegedly are responsible. In addition, the United
States Environmental Protection Agency, asserting authority
under CERCLA, recently issued a unilateral administrative order
concerning the same Illinois site naming approximately 75
entities as respondents, including the plaintiffs in the CERCLA
lawsuit against us and the waste disposal business for which the
plaintiffs allege we are responsible. We believe that we have
valid defenses (including discharge in bankruptcy related to
certain bankruptcy proceedings filed in the 1990s) to any
claimed liability at this site and further believe that our
potential liability, if any, is not likely to be significant.
However, because these claims are in their early stages, we
cannot predict at this time whether we will eventually be held
liable at this site or whether such liability will be material.
Furthermore, additional environmental liabilities relating to
any of our former operations or any entities we have acquired
could be identified and give rise to claims against us involving
significant losses.

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##### Table of Contents



Intellectual Property

We have the trademarks, trade names and licenses
necessary for the operation of our business as we currently
conduct it. We do not consider our trademarks, trade names or
licenses to be material to the operation of our business.

Executive Officers

The following table sets forth the names and
positions of our current executive officers:

|                    |  |     |    |          |  |                                                                   
|------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|Lawrence E. Honig   |  |     | 56 |          |  | Chief Executive Officer and Chairman of the Board
    of Directors
|Janet L. Steinmayer |  |     | 48 |          |  | Senior Executive Vice President, General Counsel
    and Secretary
|Kenneth R. Frick    |  |     | 48 |          |  | Executive Vice President and Chief Financial
    Officer          

Lawrence E. Honig(Spartanburg, South Carolina) has
served as our chief executive officer and director since April
2002 and was elected chairman of our board of directors in
December 2003. From February 2000 until April 2001,
Mr. Honig served as managing director of eHatchery LLC, an
early-stage facilitator for internet-based start-up companies.
From January 1998 to July 1999, Mr. Honig was chairman,
president and chief executive officer of Edison Brothers
Stores, Inc., a specialty retailer, also serving as a
director from September 1997 to March 1999. (Edison Brothers
Stores, Inc. filed for bankruptcy protection in March
1999.) He previously served as president and chief executive
officer of Federated Systems Group, a division of Federated
Department Stores, from 1994 to 1998. From 1982 to 1992,
Mr. Honig was executive vice president and then vice
chairman and a member of the board of The May Department Stores
Company. Previously, he was a principal of McKinsey &
Company, Inc., an international consulting firm.

Janet L. Steinmayer(Old Greenwich, Connecticut) is our
senior executive vice president, general counsel and secretary.
Ms. Steinmayer has been our general counsel and secretary
since August 1998. She served as our vice president from August
1998 to December 2000, when she became executive vice president.
She became our senior executive vice president in January 2004.
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.,
or TWA. (TWA filed for bankruptcy protection in January 1992.)
From April 1990 to 1991, she served as vice president-law,
deputy general counsel and corporate secretary at TWA.
Ms. Steinmayer was a partner of the Connecticut law firm of
Levett, Rockwood & Sanders, P.C. from 1988 to 1990.

Kenneth R. Frick(Campobello, South Carolina) is our
executive vice president and chief financial officer.
Mr. Frick has served as our chief financial officer since
August 1998 and as chief financial officer of VS since December
1995. He served as our vice president from August 1998 to
December 2000, when he became executive vice president.
Mr. Frick has worked with VS and its predecessors since
1982. Prior to becoming chief financial officer of VS in 1995,
Mr. Frick was the controller for VS for two years, and for
seven years was assistant controller and Southeast Regional
Controller of VS. Mr. Frick is a certified public
accountant.






|        |           
|------- | ----------
|Item 2. | Properties

Properties

We lease our corporate headquarters of
approximately 20,000 square feet in Spartanburg, South
Carolina and approximately 4,000 square feet in Stamford,
Connecticut.

We currently provide our services in
129 client facilities, all of which are owned or leased by
our clients. The 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 to provide food and beverage services.

12



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##### Table of Contents








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Litigation

We are from time to time involved in various
legal proceedings incidental to the conduct of our business. In
May 2003, a purported class action entitled Holden v.
Volume Services America, Inc. et al. was filed
against us in the Superior Court of California for the County of
Orange by a former employee at one of the California stadiums we
serve alleging violations of local overtime wage, rest and meal
period and related laws with respect to this employee and others
purportedly similarly situated at any and all of the facilities
we serve in California. We had removed the case to the United
States District Court for the Central District of California,
but in November 2003 the court remanded the case back to the
California Superior Court. The purported class action seeks
compensatory, special and punitive damages in unspecified
amounts, penalties under the applicable local laws and
injunctions against the alleged illegal acts. We are in the
process of evaluating this case and, while our review is
preliminary, we believe that our business practices are, and
were during the period alleged, in compliance with the law. We
intend to vigorously defend this case. However, due to the early
stage of this case and our evaluation, we cannot predict the
outcome of this case and, if an ultimate ruling is made against
us, whether such ruling would have a material effect on us.

Except for the case described above, in our
opinion, after considering a number of factors, including, but
not limited to, the current status of any currently pending
proceeding (including any settlement discussions), views of
retained counsel, the nature of the litigation, our prior
experience and the amounts that we have accrued for known
contingencies, the ultimate disposition of any currently pending
proceeding will not have a material adverse effect on our
financial condition or results of operations.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

No matters were submitted to a vote of
stockholders during the fourth quarter of our 2003 fiscal year.




PART II






|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity,
    Related Stockholder Matters, and Issuer Purchases of Equity
    Securities

Our Income Deposit Securities (IDSs) 
representing shares of common stock and subordinated
notes  are traded on The American Stock Exchange (the
AMEX) under the symbol CVP and on the
Toronto Stock Exchange under the symbol CVP.un and
have been so traded since December 5, 2003. As of
March 10, 2003, we had one holder of record, Cede & Co.
(nominee for the Depository Trust Company (DTC)),
which holds the IDSs on behalf of approximately
99 participants in the DTC system, which in turn hold on
behalf of beneficial owners. The closing price of our IDSs on
the AMEX was $17.30 on March 10, 2004. From their issue
through December 30, 2003, the low sale price on the AMEX
was $15.10 and the high sale price on the AMEX was $16.60.

As of March 11, 2004, holders of IDSs have
the right to separate each IDS into the shares of common stock
and notes represented thereby. According to the records of our
transfer agent, we had five holders of record of common stock as
of March 10, 2004, one of which, Cede & Co., holds
the common stock on behalf of approximately 99 participants
in the DTC system, which in turn hold on behalf of beneficial
owners.

Dividend Policy

Our board of directors adopted a dividend policy
pursuant to which, in the event and to the extent we have any
available cash for distribution to the holders of shares of our
common stock as of the tenth day of any calendar month, and
subject to applicable law, as described below, and the terms of
our 2003 credit facility, the indenture governing our 2003 notes
and any other then outstanding indebtedness of ours, our board
of directors will declare cash dividends on our common stock.
The initial dividend rate is to be equal to $0.79 per share
per annum, subject to adjustment. We will pay those dividends on
or about the 20th day of each month.

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As of the date of this report, we have paid
dividends on or about the 20th of each of January, February, and
March of 2004.


If we have any remaining cash after the payment
of dividends as contemplated above, our board of directors will,
in its sole discretion, decide to use that cash to fund growth
capital expenditures or acquisitions, repay indebtedness, pay
additional dividends or for general corporate purposes.

The indenture governing our 2003 notes restricts
our ability to declare and pay dividends on our common stock as
follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We may not pay dividends if such payment will
    exceed the quarterly base dividend level in any fiscal quarter;
    provided that if such payment is less than the quarterly base
    dividend level in any fiscal quarter, 50% of the difference
    between the aggregate amount of dividends actually paid and the
    quarterly base dividend level for such quarter will be available
    for the payment of dividends at a later date. The quarterly base
    dividend level for any given fiscal quarter shall equal 85% of
    our excess cash (as defined below) for the 12 month period
    ending on the last day of our then most recently ended fiscal
    quarter for which internal financial statements are available at
    the time such dividend is declared and paid, divided by
    four (4). Excess cash shall mean with respect
    to any period, Adjusted EBITDA, as defined in the indenture,
    minus the sum of (i) cash interest expense and
    (ii) cash income tax expense, in each case, for such period;
|
| |  | We may not pay any dividends if not permitted
    under any of our senior indebtedness;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | We may not pay any dividends while interest on
    the 2003 notes is being deferred or, after the end of any
    interest deferral, so long as any deferred interest has not been
    paid in full; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | We may not pay any dividends if a default or
    event of default under the indenture has occurred and is
    continuing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

The 2003 credit facility restricts our ability to
declare and pay dividends on our common stock if and for so long
as we do not meet the interest coverage ratio, total leverage
ratio or senior leverage ratio financial levels specified in the
2003 credit facility. If we fail to achieve any of these ratios
for any month but resume compliance in a subsequent month and
satisfy the other conditions specified in the 2003 credit
facility (including timely delivery of applicable financial
statements), we may resume the payment of dividends. The 2003
credit facility also restricts our ability to declare and pay
dividends on our common stock if either a default or event of
default under the 2003 credit facility has occurred and is
continuing or the payment of interest on our 2003 notes has been
suspended or deferred interest on our 2003 notes has not been
paid or if we have not maintained certain minimum balances in
the cash collateral account. The 2003 credit facility permits us
to use up to 100% of the distributable cash, as defined in the
2003 credit facility (plus withdrawals from the dividend/capex
funding account) to fund dividends on our shares of common
stock. During any period in which payment of dividends is
suspended, the applicable amount of the distributable cash must
be applied to mandatory prepayments of certain borrowings under
the 2003 credit facility.

Our board of directors may, in its discretion,
amend or repeal this dividend policy. Our board of directors may
decrease the level of dividends provided for in this dividend
policy or discontinue entirely the payment of dividends.

Future dividends with respect to shares of our
capital stock, if any, will depend on, among other things, our
results of operations, cash requirements, financial condition,
contractual restrictions, provisions of applicable law and other
factors that our board of directors may deem relevant. Under
Delaware law, our board of directors may declare dividends only
to the extent of our surplus (which is defined as
total assets at fair market value minus total liabilities, minus
statutory capital), or if there is no surplus, out of our net
profits for the then current and/or immediately preceding fiscal
year.

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Use of Proceeds

In December, 2003, we registered and sold to the
public 18,463,995 IDSs, each consisting of one share of common
stock, par value $0.01 of VSAH, and one 13.5% subordinated
note due 2013 with $5.70 principal amount, at an aggregate
offering price of $276,959,925 or $15 per IDS pursuant to
registration statement No. 333-103169, which was declared
effective on December 4, 2003. All securities registered in
the IPO, including the over-allotment option, were sold and the
IPO has terminated. The lead underwriter of the IPO was CIBC
World Markets Corp. Through December 30, 2003, we incurred
the following expenses in connection with our IPO:

|                                               |  |               |       | 
|---------------------------------------------- |  | ------------- | ----- | 
|                                               |  | (In millions)
|                                               |  |              
|Gross Proceeds                                 |  | $             | 277.0 | 
|Underwriters Commissions                      |  |               | 16.6  | 
|Other costs of issuance paid by the Company(1) |  |               | 12.4  | 
|                                               |  |               |       | 
|Total Expenses                                 |  | $             | 29.0  | 
|                                               |  |               |       | 
|                                              
|Net Proceeds to the Company                    |  | $             | 248.0 | 

The net IPO proceeds to us through
December 30, 2003 after deducting the total expenses above
were approximately $248.0 million. These proceeds, together
with $65.0 million of borrowings under the 2003 credit
facility, were used to fund the following:

|                                                                 |                      |                          |      |                     |     |  |      |       |    
|---------------------------------------------------------------- | -------------------- | ------------------------ | ---- | ------------------- | --- |  | ---- | ----- | ---
|Use of Proceeds                                                  |                      | Intended Expenditures(2) |      | Actual Expenditures
|                                                                 |                      |                          |      |                    
|                                                                 |                      |                         
|                                                                 |                      | (In millions)           
|Repayment of indebtedness                                        |                      |                          |      |                     |     |  |      |      
|                                                                 | 1998 Credit Facility |                          | $    | 114.5               | (3) |  | $    | 116.8 |    
|                                                                 | 1999 Notes           |                          |      | 109.6               |     |  |      | 111.2 | (4)
|Payments under employee agreements and Management
    Bonus Plan |                      |                          | 2.0  |                     |     |  | 2.6  |      
|Common stock repurchase from existing stockholders               |                      |                          | 70.2 |                     |     |  | 71.4 |      



---



|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a $0.9 million arrangers fee paid
    to The Blackstone Group L.P., an owner of an excess of 10%
    of our outstanding common stock.
|   
|(2) | As per VSAHs registration statement on
    Form S-1 filed in connection with the IPO (the
    Form S-1).                                   
|   
|(3) | Form S-1 reflects VSAHs indebtedness
    as of September 30, 2003.                                                                           
|   
|(4) | Includes $13.6 million for the redemption
    price of $12.3 million in 1999 notes plus accrued interest
    repaid on March 1, 2004.         

15



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following table sets forth selected
consolidated financial data for the last five years. The
selected consolidated financial data should be read together
with our audited consolidated financial statements for fiscal
2001, 2002 and 2003 and the related notes, included in
Item 8 of this Form 10-K, and Managements
Discussion and Analysis of Financial Condition and Results of
Operations, included in Item 7 of this
Form 10-K. The figures in the following table reflect
rounding adjustments.

|                                                                                            |                     |                                      |       |       |   |      |       |       |   |      |       |       |   |   |       |      |   |   |       |       |  
|------------------------------------------------------------------------------------------- | ------------------- | ------------------------------------ | ----- | ----- | - | ---- | ----- | ----- | - | ---- | ----- | ----- | - | - | ----- | ---- | - | - | ----- | ----- | -
|                                                                                            |                     |                                     
|                                                                                            |                     | Fiscal(1)                           
|                                                                                            |                     |                                     
|                                                                                            |                     | 1999                                 |       | 2000  |   | 2001 |       | 2002  |   | 2003
|                                                                                            |                     |                                      |       |       |   |      |       |       |   |     
|                                                                                            |                     |                                     
|                                                                                            |                     | (In millions, except per share data)
|Statement of operations data:                                                               |                     |                                      |       |       |   |      |       |       |   |      |       |       |   |   |       |      |   |   |       |      
|Net sales                                                                                   |                     | $                                    | 431.5 |       |   | $    | 522.5 |       |   | $    | 543.1 |       |   | $ | 577.2 |      |   | $ | 616.1 |      
|Cost of sales                                                                               |                     |                                      | 342.5 |       |   |      | 424.2 |       |   |      | 446.6 |       |   |   | 470.9 |      |   |   | 504.0 |      
|Selling, general and administrative                                                         |                     |                                      | 42.7  |       |   |      | 47.9  |       |   |      | 48.1  |       |   |   | 55.3  |      |   |   | 59.6  |      
|Depreciation and amortization                                                               |                     |                                      | 26.8  |       |   |      | 26.3  |       |   |      | 24.5  |       |   |   | 26.2  |      |   |   | 27.1  |      
|Transaction related expenses                                                                |                     |                                      | 1.5   |       |   |      | 1.1   |       |   |      |      |       |   |   | 0.6   |      |   |   | 2.6   |      
|Contract related losses                                                                     |                     |                                      | 1.4   |       |   |      | 2.5   |       |   |      | 4.8   |       |   |   | 0.7   |      |   |   | 0.8   |      
|                                                                                            |                     |                                      |       |       |   |      |       |       |   |      |       |       |   |   |       |      |   |   |       |      
|Operating income                                                                            |                     |                                      | 16.5  |       |   |      | 20.6  |       |   |      | 19.2  |       |   |   | 23.5  |      |   |   | 22.0  |      
|                                                                                            | Interest expense(2) |                                      |       | 23.6  |   |      |       | 26.6  |   |      |       | 23.4  |   |   |       | 20.7 |   |   |       | 32.8  |  
|                                                                                            | Other income, net   |                                      |       | (0.5  | ) |      |       | (0.5  | ) |      |       | (0.2  | ) |   |       | (1.5 | ) |   |       | (0.1  | )
|                                                                                            |                     |                                      |       |       |   |      |       |       |   |      |       |       |   |   |       |      |   |   |       |      
|Income (loss) before income taxes                                                           |                     |                                      | (6.6  | )     |   |      | (5.5  | )     |   |      | (4.0  | )     |   |   | 4.3   |      |   |   | (10.7 | )    
|Income tax benefit                                                                          |                     |                                      | 1.3   |       |   |      | 1.3   |       |   |      | 0.4   |       |   |   | 0.2   |      |   |   | 6.3   |      
|Income (loss) before cumulative effect of change
    in accounting principle                |                     |                                      | (5.4  | )     |   |      | (4.2  | )     |   |      | (3.6  | )     |   |   | 4.5   |      |   |   | (4.4  | )    
|Cumulative effect of change in accounting
    principle, net of taxes(3)                    |                     |                                      | (0.2  | )     |   |      |      |       |   |      |      |       |   |   |      |      |   |   |      |      
|                                                                                            |                     |                                      |       |       |   |      |       |       |   |      |       |       |   |   |       |      |   |   |       |      
|Net income (loss)(6)                                                                        |                     |                                      | (5.6  | )     |   |      | (4.2  | )     |   |      | (3.6  | )     |   |   | 4.5   |      |   |   | (4.4  | )    
|Other comprehensive income (loss) 
    foreign translation adjustment                      |                     |                                      | (0.1  | )     |   |      | (0.1  | )     |   |      | (0.2  | )     |   |   |      |      |   |   | 0.7   |      
|                                                                                            |                     |                                      |       |       |   |      |       |       |   |      |       |       |   |   |       |      |   |   |       |      
|Comprehensive income (loss)                                                                 |                     | $                                    | (5.8  | )     |   | $    | (4.3  | )     |   | $    | (3.8  | )     |   | $ | 4.5   |      |   | $ | (3.7  | )    
|                                                                                            |                     |                                      |       |       |   |      |       |       |   |      |       |       |   |   |       |      |   |   |       |      
|Per share data(9):                                                                          |                     |                                      |       |       |   |      |       |       |   |      |       |       |   |   |       |      |   |   |       |      
|Income (loss) before cumulative effect of change
    in accounting principle, net of taxes: |                     |                                      |       |       |   |      |       |       |   |      |       |       |   |   |       |      |   |   |       |      
|                                                                                            | Basic               |                                      | $     | (0.36 | ) |      | $     | (0.31 | ) |      | $     | (0.26 | ) |   | $     | 0.33 |   |   | $     | (0.31 | )
|                                                                                            | Diluted             |                                      | $     | (0.36 | ) |      | $     | (0.31 | ) |      | $     | (0.26 | ) |   | $     | 0.33 |   |   | $     | (0.31 | )
|Net income (loss):                                                                          |                     |                                      |       |       |   |      |       |       |   |      |       |       |   |   |       |      |   |   |       |      
|                                                                                            | Basic               |                                      | $     | (0.37 | ) |      | $     | (0.31 | ) |      | $     | (0.26 | ) |   | $     | 0.33 |   |   | $     | (0.31 | )
|                                                                                            | Diluted             |                                      | $     | (0.37 | ) |      | $     | (0.31 | ) |      | $     | (0.26 | ) |   | $     | 0.33 |   |   | $     | (0.31 | )
|Cash flow data:                                                                             |                     |                                      |       |       |   |      |       |       |   |      |       |       |   |   |       |      |   |   |       |      
|Net cash provided by operating activities                                                   |                     | $                                    | 16.1  |       |   | $    | 22.7  |       |   | $    | 24.7  |       |   | $ | 38.6  |      |   | $ | 27.2  |      
|Net cash used in investing activities                                                       |                     | $                                    | (25.4 | )     |   | $    | (12.9 | )     |   | $    | (29.3 | )     |   | $ | (45.0 | )    |   | $ | (23.3 | )    
|Net cash provided by (used in) financing
    activities                                     |                     | $                                    | 12.8  |       |   | $    | (7.3  | )     |   | $    | 5.0   |       |   | $ | 1.7   |      |   | $ | 8.7   |      

16



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##### Table of Contents



|                                                               |  |                                      |      |      |  |      |      |      |  |      |      |   |  |   |      |  |  |   |       |  
|-------------------------------------------------------------- |  | ------------------------------------ | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- |  |  | - | ----- | -
|                                                               |  |                                     
|                                                               |  | Fiscal(1)                           
|                                                               |  |                                     
|                                                               |  | 1999                                 |      | 2000 |  | 2001 |      | 2002 |  | 2003
|                                                               |  |                                      |      |      |  |      |      |      |  |     
|                                                               |  |                                     
|                                                               |  | (In millions, except per share data)
|Other data:                                                    |  |                                      |      |      |  |      |      |      |  |      |      |   |  |   |      |  |  |   |       |  
|Maintenance capital expenditures(4)                            |  | $                                    | 4.9  |      |  | $    | 8.3  |      |  | $    | 12.7 |   |  | $ | 31.2 |  |  | $ | 8.3   |  
|Growth capital expenditures(4)                                 |  |                                      | 21.4 |      |  |      | 5.6  |      |  |      | 16.7 |   |  |   | 16.4 |  |  |   | 15.6  |  
|                                                               |  |                                      |      |      |  |      |      |      |  |      |      |   |  |   |      |  |  |   |       |  
|Aggregate capital expenditures(4)                              |  | $                                    | 26.3 |      |  | $    | 13.9 |      |  | $    | 29.4 |   |  | $ | 47.6 |  |  | $ | 23.9  |  
|Ratio of earnings to fixed charges(5)                          |  |                                      |     |      |  |      |     |      |  |      |     |   |  |   | 1.2  |  |  |   |      |  
|Deficiency in the coverage of earnings to fixed
    charges(5) |  | $                                    | (6.6 | )    |  | $    | (5.5 | )    |  | $    | (4.0 | ) |  |   |     |  |  |   | (10.7 | )

|                                           |  |               |       |            |  |            |       |              |  |              |       |  |  |   |       |  |  |   |       | 
|------------------------------------------ |  | ------------- | ----- | ---------- |  | ---------- | ----- | ------------ |  | ------------ | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                           |  | December 28,  |       | January 2, |  | January 1, |       | December 31, |  | December 30,
|                                           |  | 1999          |       | 2001       |  | 2002       |       | 2002         |  | 2003        
|                                           |  |               |       |            |  |            |       |              |  |             
|                                           |  |              
|                                           |  | (In millions)
|Balance sheet data:                        |  |               |       |            |  |            |       |              |  |              |       |  |  |   |       |  |  |   |       | 
|Total assets                               |  | $             | 278.6 |            |  | $          | 265.7 |              |  | $            | 265.9 |  |  | $ | 280.2 |  |  | $ | 322.3 | 
|Long-term debt (including current portion) |  | $             | 224.0 |            |  | $          | 219.1 |              |  | $            | 224.6 |  |  | $ | 225.4 |  |  | $ | 186.5 | 

|                                                                             |                                                  |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |       |      | 
|---------------------------------------------------------------------------- | ------------------------------------------------ | ------------- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | - | ---- | ---- |  | - | ----- | ---- | 
|                                                                             |                                                  |              
|                                                                             |                                                  | Fiscal(1)    
|                                                                             |                                                  |              
|                                                                             |                                                  | 1999          |      | 2000 |  | 2001 |      | 2002 |  | 2003
|                                                                             |                                                  |               |      |      |  |      |      |      |  |     
|                                                                             |                                                  |              
|                                                                             |                                                  | (In millions)
|EBITDA:                                                                      |                                                  |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |       |     
|Net income (loss)(6)                                                         |                                                  | $             | (5.6 | )    |  | $    | (4.2 | )    |  | $    | (3.6 | )    |  | $ | 4.5  |      |  | $ | (4.4  | )   
|Cumulative effect of change in accounting
    principle, net of taxes(3)     |                                                  |               | 0.2  |      |  |      |     |      |  |      |     |      |  |   |     |      |  |   |      |     
|                                                                             |                                                  |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |       |     
|Income (loss) before cumulative effect of change
    in accounting principle |                                                  |               | (5.4 | )    |  |      | (4.2 | )    |  |      | (3.6 | )    |  |   | 4.5  |      |  |   | (4.4  | )   
|Income tax benefit                                                           |                                                  |               | 1.3  |      |  |      | 1.3  |      |  |      | 0.4  |      |  |   | 0.2  |      |  |   | 6.3   |     
|                                                                             |                                                  |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |       |     
|Income (loss) before income taxes                                            |                                                  | $             | (6.6 | )    |  | $    | (5.5 | )    |  | $    | (4.0 | )    |  | $ | 4.3  |      |  | $ | (10.7 | )   
|Adjustments:                                                                 |                                                  |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |       |     
|                                                                             | Interest expense(2)                              |               |      | 23.6 |  |      |      | 26.6 |  |      |      | 23.4 |  |   |      | 20.7 |  |   |       | 32.8 | 
|                                                                             | Depreciation and amortization                    |               |      | 26.8 |  |      |      | 26.3 |  |      |      | 24.5 |  |   |      | 26.2 |  |   |       | 27.1 | 
|                                                                             |                                                  |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |       |     
|EBITDA(7)                                                                    |                                                  | $             | 43.7 |      |  | $    | 47.4 |      |  | $    | 43.9 |      |  | $ | 51.2 |      |  | $ | 49.2  |     
|                                                                             |                                                  |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |       |     
|Unusual item included in EBITDA:                                             |                                                  |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |       |     
|                                                                             | Return of bankruptcy funds to Service America(8) |               |      |     |  |      |      |     |  |      |      |     |  |   | $    | 1.4  |  |   |       |     | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We have adopted a 52-53 week period ending
    on the Tuesday closest to December 31 as our fiscal year.
    The 1999, 2001, 2002 and 2003 fiscal years consisted of
    52 weeks, and the 2000 fiscal year consisted of
    53 weeks.                                                                                                                                                                                                                                 
|   
|(2) | Included in interest expense for fiscal 1999 is a
    $0.6 million loss on debt extinguishment that resulted from
    the early retirement of a portion of the 1998 credit facility.
    Interest expense for fiscal 2003 includes a $5.3 million
    non-cash charge related to the early extinguishment of debt as a
    result of the refinancing of the 1998 credit facility and
    $7.2 million in expenses associated with the repurchase of
    the 1999 notes.
|   
|(3) | For fiscal 1999, we 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 a result, we recorded a charge of
    $0.2 million reflecting the cumulative effect of a change
    in accounting principle, net of taxes.                                                

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##### Table of Contents





|    |                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | The sum of maintenance and growth capital
    expenditures equals the sum of contract rights acquired, net
    (purchase of contract rights) and the purchase of property and
    equipment, net for the relevant periods as displayed in the
    statement of cash flows, as follows:

|                               |                                                                 |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |      |      | 
|------------------------------ | --------------------------------------------------------------- | ------------- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | - | ---- | ---- |  | - | ---- | ---- | 
|                               |                                                                 |              
|                               |                                                                 | Fiscal(1)    
|                               |                                                                 |              
|                               |                                                                 | 1999          |      | 2000 |  | 2001 |      | 2002 |  | 2003
|                               |                                                                 |               |      |      |  |      |      |      |  |     
|                               |                                                                 |              
|                               |                                                                 | (In millions)
|Statement of cash flow data:   |                                                                 |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |      |     
|                               | Contract rights acquired, net (purchase of
    contract rights) |               | $    | 15.9 |  |      | $    | 7.5  |  |      | $    | 21.3 |  |   | $    | 37.7 |  |   | $    | 16.0 | 
|                               | Purchase of property and equipment, net                         |               |      | 10.4 |  |      |      | 6.4  |  |      |      | 8.1  |  |   |      | 9.9  |  |   |      | 7.9  | 
|                               |                                                                 |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |      |     
|Aggregate capital expenditures |                                                                 | $             | 26.3 |      |  | $    | 13.9 |      |  | $    | 29.4 |      |  | $ | 47.6 |      |  | $ | 23.9 |     
|                               |                                                                 |               |      |      |  |      |      |      |  |      |      |      |  |   |      |      |  |   |      |     



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Maintenance capital expenditures are capital
    expenditures made to secure renewals of our existing contracts
    and maintain these contracts following renewal. Growth capital
    expenditures are those made to secure new contracts and maintain
    these contracts during their initial term. Accordingly, growth
    capital expenditures in any given year consist of up-front
    capital investments in new contracts and additional committed
    investments in existing contracts that have never previously
    been renewed.                                                                                                                                                                                                                                                                  
|
| |  | From year to year, our aggregate capital
    expenditures can vary considerably. This is because (a) the
    pattern of renewals (which may give rise to maintenance capital
    expenditures) varies based on the term of existing contracts,
    and (b) our pattern of obtaining new contracts (which may
    give rise to growth capital expenditures) varies over time.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | We believe that the identification and separation
    of maintenance and growth capital expenditures are important
    factors in evaluating our financial results. While we strive to
    maintain our present level of EBITDA by securing renewals of our
    existing contracts, we cannot be assured that we will maintain
    our present level of EBITDA in part because we cannot predict
    the future financial requirements of our clients. Contracts may
    be renewed at significantly different commission rates and,
    thus, significantly different levels of EBITDA, depending on the
    clients financial requirements at the time of renewal. See
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations  Liquidity and
    Capital Resources.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | For purposes of determining the ratio of earnings
    to fixed charges, earnings are defined as income (loss) before
    income taxes and cumulative effect of change in accounting
    principle plus fixed charges. Fixed charges include interest
    expense on all indebtedness, amortization of deferred financing
    costs and one-third of rental expense on operating leases
    representing that portion of rental expense deemed to be
    attributable to interest. Where earnings are inadequate to cover
    fixed charges, the deficiency is reported.
|   
|(6) | In accordance with Statement of Financial
    Accounting Standards (SFAS) No. 142,
    Goodwill and Other Intangible Assets,
    effective January 2, 2002, we discontinued the amortization
    of goodwill and trademarks and identified intangible assets
    which we believe have indefinite lives. Adjusted net loss to
    give effect to SFAS No. 142 would have been
    $3.9 million for fiscal 1998, $3.1 million for fiscal
    1999, $1.8 million for fiscal 2000 and $1.1 million
    for fiscal 2001.                                               
|   
|(7) | EBITDA is not a measure in accordance with GAAP.
    EBITDA is not intended to represent cash flows from operations
    as determined by GAAP and should not be used as an alternative
    to income (loss) before taxes or net income (loss) as an
    indicator of operating performance or to cash flows as a measure
    of liquidity. We believe that EBITDA is an important measure of
    the cash returned on our investment in capital expenditures
    under our contracts.                                                                                  



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Adjusted EBITDA, as defined in the
    indenture governing our 2003 notes, is determined as EBITDA, as
    adjusted for transaction related expenses, contract related
    losses, other non-cash charges, and the annual management fee
    paid to affiliates of the existing equity investors, less any
    non-cash credits. We present this discussion of Adjusted EBITDA
    because covenants in the indenture governing our 2003 notes
    contain ratios based on this measure. For example, our ability
    to incur additional debt and make restricted payments requires a
    ratio of Adjusted EBITDA to fixed charges of 2.0 to 1.0, except
    that we

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##### Table of Contents



may incur certain debt and make certain
restricted payments without regard to the ratio, including our
ability to incur an unlimited amount of indebtedness in
connection with the issuance of additional IDSs so long as the
ratio of the aggregate principal amount of the additional notes
to the number of the additional shares of our common stock will
not exceed the equivalent ratio represented by the then existing
IDSs.


On a historical basis, we made the following
adjustments to EBITDA to compute Adjusted EBITDA:

|                                                                     |  |                              |      |      |  |      |      |      |  |      |      |  |  |   |      |  |  |   |      | 
|-------------------------------------------------------------------- |  | ---------------------------- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- |  |  | - | ---- | 
|                                                                     |  |                             
|                                                                     |  | Fiscal(1)                   
|                                                                     |  |                             
|                                                                     |  | 1999                         |      | 2000 |  | 2001 |      | 2002 |  | 2003
|                                                                     |  |                              |      |      |  |      |      |      |  |     
|                                                                     |  |                             
|                                                                     |  | (In millions, except ratios)
|EBITDA                                                               |  | $                            | 43.7 |      |  | $    | 47.4 |      |  | $    | 43.9 |  |  | $ | 51.2 |  |  | $ | 49.2 | 
|Adjustments: Transaction related expenses                            |  |                              | 1.5  |      |  |      | 1.1  |      |  |      |     |  |  |   | 0.6  |  |  |   | 2.6  | 
|Contract related losses                                              |  |                              | 1.4  |      |  |      | 2.5  |      |  |      | 4.8  |  |  |   | 0.7  |  |  |   | 0.8  | 
|Non-cash compensation                                                |  |                              |     |      |  |      | 0.3  |      |  |      | 0.1  |  |  |   | 0.6  |  |  |   | 0.1  | 
|Management fees paid to affiliates of Blackstone
    and GE Capital  |  |                              | 0.4  |      |  |      | 0.4  |      |  |      | 0.4  |  |  |   | 0.4  |  |  |   | 0.4  | 
|                                                                     |  |                              |      |      |  |      |      |      |  |      |      |  |  |   |      |  |  |   |      | 
|Adjusted EBITDA                                                      |  | $                            | 47.1 |      |  | $    | 51.7 |      |  | $    | 49.2 |  |  | $ | 53.5 |  |  | $ | 53.1 | 
|                                                                     |  |                              |      |      |  |      |      |      |  |      |      |  |  |   |      |  |  |   |      | 
|Unusual item included in EBITDA and Adjusted
    EBITDA:             |  |                              |      |      |  |      |      |      |  |      |      |  |  |   |      |  |  |   |      | 
|Return of bankruptcy funds to Service America
    (see note 8 below) |  |                              |     |      |  |      |     |      |  |      |     |  |  |   | 1.4  |  |  |   |     | 
|Ratio of Adjusted EBITDA to fixed charges                            |  |                              | 2.13 |      |  |      | 2.06 |      |  |      | 2.24 |  |  |   | 2.77 |  |  |   | 2.05 | 

Explanations of the adjustments are listed below:



| |   |                                      
| | - | -------------------------------------
| |  | Transaction related expenses include:



| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | For fiscal 1999, $1.5 million of cash
    expenses related to the elimination of redundant office
    functions of the Service America corporate office in connection
    with the business combination of VS and Service America;
|
| |  | For fiscal 2000, $1.1 million of cash
    non-recurring corporate costs consisting primarily of expenses
    incurred in connection with the analysis of a potential
    recapitalization and strategic investment opportunities; 
|
| |  | For fiscal 2002, $0.6 million of acquisition
    related cash costs relating primarily to expenses incurred in
    connection with the structuring and evaluation of financing and
    recapitalization strategies; and           
|
| |  | For fiscal 2003, $2.6 million in expenses
    related to executive compensation associated with the issuance
    of the IDSs.                                                                                                     



| |   |                                 
| | - | --------------------------------
| |  | Contract related losses include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | For fiscal 1999, $1.4 million of non-cash
    charges related to the write-down of impaired assets for certain
    contracts where the estimated future cash flows from the
    contract were insufficient to cover the carrying cost of the
    related long-lived assets;                                                                                                                                                                                      
|
| |  | For fiscal 2000, $1.5 million of non-cash
    charges related to the write-down of impaired assets for certain
    contracts where the estimated future cash flows from the
    contract were insufficient to cover the carrying cost of the
    related long-lived assets, $0.7 million of non-cash charges
    related to the write-off of assets related to litigation
    settlement and a non-recurring $0.3 million cash expense in
    related legal fees;

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| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | For fiscal 2001, $4.8 million of non-cash
    charges related to the write-down of impaired assets for certain
    contracts where the estimated future cash flows from the
    contract were insufficient to cover the carrying cost of the
    related long-lived assets;
|
| |  | For fiscal 2002, $0.7 million of non-cash
    charges related to the write-down of impaired assets for a
    contract which was terminated; and                                                                                                                            
|
| |  | For fiscal 2003, $0.8 million of non-cash
    charges for the write-down of impaired assets for certain
    terminated and/or assigned contracts.                                                                                                                          



| |   |                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Non-cash compensation expenses related to the
    revaluation of partnership units purchased by certain members of
    our management financed with nonrecourse loans include for
    fiscal 2000, 2001, 2002 and 2003, $0.3 million,
    $0.1 million, $0.6 million and $0.1 million,
    respectively.                     
|
| |  | Management fees paid to affiliates of Blackstone
    and GE Capital include $0.4 million for each of fiscal
    1999, 2000, 2001, 2002 and 2003. The management fees were paid
    quarterly in arrears and ceased upon the closing of the IPO.                                                                              
|
| |  | For purposes of calculating the ratio of Adjusted
    EBITDA to fixed charges, fixed charges includes interest expense
    (excluding amortization of deferred financing fees) plus
    capitalized interest, the earned discount or yield with respect
    to the sale of receivables and cash dividends on preferred stock.



|    |                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8) | During fiscal 2002, Service America received
    approximately $1.4 million from funds previously set aside
    to satisfy creditors pursuant to a plan of reorganization
    approved in 1993.
|   
|(9) | Per share information was adjusted for a 40,920
    (rounded to the nearest share) for one split of the common stock
    that was effective December 2, 2003.                                  






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations



| |        
| | -------
| | General

Managements discussion and analysis is a
review of our results of operations and our liquidity and
capital resources. The following discussion should be read in
conjunction with Selected Financial Data and the
financial statements, including the related notes, appearing
elsewhere in this report. The following data has been prepared
in accordance with GAAP.



| |         
| | --------
| | Overview

We believe that the ability to retain existing
accounts and to win new accounts are the key drivers to
maintaining and growing our net sales. Net sales historically
have also increased when there has been an increase in the
number of events or attendance at our facilities in connection
with major league sports post-season and play-off games. Another
key factor is our skill at controlling product costs, cash and
labor during the events where we provide our services.

When renewing an existing contract or securing a
new contract, we usually have to make a capital expenditure in
our clients facility and offer to pay the client a
percentage of the net sales or profits in the form of a
commission. Over the past three years, we have reinvested the
cash flow generated by operating activities in order to renew or
obtain contracts. We believe that these investments have
provided a diversified account base of exclusive, long-term
contracts. However, as a result of the changes to our capital
structure (including refinancing the 1998 credit facility,
entering into the 2003 credit facility, repurchasing the 1999
notes and completing our IPO) and the dividend and interest
payments to our IDS holders, we may be limited in our ability to
grow our business, and our related levels of growth capital
expenditures, at rates as great as the relatively rapid growth
that we experienced over the last several years. In particular,
we may not be able to pursue future growth opportunities if
borrowings under our 2003 credit facility or additional
issuances of our IDSs or other securities are not available to
us on favorable terms or at all.

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Critical Accounting Policies

The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at
the financial statement date and reported amounts of revenues
and expenses, including amounts that are susceptible to change.
Our critical accounting policies include accounting methods and
estimates underlying such financial statement preparation, as
well as judgments around uncertainties affecting the application
of those policies. In applying critical accounting policies,
materially different amounts or results could be reported under
different conditions or using different assumptions. We believe
that our critical accounting policies, involving significant
estimates, uncertainties and susceptibility to change, include
the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recoverability of Property and Equipment,
    Contract Rights, Cost in Excess of Net Assets Acquired
    (Goodwill) and Other Intangible
    Assets.As of December 30, 2003,
    net property and equipment of $52.8 million and net
    contract rights of $101.5 million were recorded. In
    accordance with SFAS No. 144, we evaluate long-lived
    assets with definite lives for possible impairment when an event
    occurs which would indicate that its carrying amount may not be
    recoverable. The impairment analysis is made at the contract
    level and evaluates the net property and equipment as well as
    the contract rights related to that contract. The undiscounted
    future cash flows from a contract are compared to the carrying
    value of the related long-lived assets. If the undiscounted
    future cash flows are lower than the carrying value, an
    impairment charge is recorded. The amount of the impairment
    charge is equal to the difference between the balance of the
    long-lived assets and the future discounted cash flows related
    to the assets (using a rate based on our incremental borrowing
    rate). As we base our estimates of undiscounted future cash
    flows on past operating performance, including anticipated labor
    and other cost increases, and prevailing market conditions, we
    cannot make assurances that our estimates are achievable.
    Different conditions or assumptions, if significantly negative
    or unfavorable, could have a material adverse effect on the
    outcome of our evaluation and our financial condition or future
    results of operations. Events that would trigger an evaluation
    at the contract level include the loss of a tenant team, intent
    to cease operations at a facility due to contract termination or
    other means, the bankruptcy of a client, discontinuation of a
    sports league or a significant increase in competition that
    could reduce the future profitability of the contract, among
    others. As of December 30, 2003, net goodwill of
    $46.5 million and other intangible assets (trademarks) of
    $17.3 million were recorded. In accordance with
    SFAS No. 142, on an annual basis, we test our
    indefinite-lived intangible assets (goodwill and trademarks) for
    impairment. Additionally, goodwill is tested between annual
    tests if an event occurs or circumstances change that would more
    likely than not reduce the fair value of a reporting unit below
    its carrying amount. We have determined that the reporting unit
    for testing the goodwill for impairment is VSAH. In performing
    the annual goodwill assessment, we compare the fair value of
    VSAH to its net asset carrying amount, including goodwill and
    trademarks. If the fair value of VSAH exceeds the carrying
    amount, then it is determined that goodwill is not impaired.
    Should the carrying amount exceed the fair value, then we would
    need to perform the second step in the impairment test to
    determine the amount of the goodwill write-off. Fair value for
    these tests is determined based upon a discounted cash flow
    model, using a rate based on our incremental borrowing rate. As
    we base our estimates of cash flows on past operating
    performance, including anticipated labor and other cost
    increases and prevailing market conditions, we cannot make
    assurances that our estimates are achievable. Different
    conditions or assumptions, if significantly negative or
    unfavorable, could have a material adverse effect on the outcome
    of our evaluation and on our financial condition or future
    results of operations. In performing the annual trademark
    assessment, management compares the fair value of the intangible
    asset to its carrying value. Fair value is determined based on a
    discounted cash flow model, using a rate based on our
    incremental borrowing rate. If the carrying amount of the
    intangible asset exceeds its fair value, an impairment loss will
    be recognized for the excess amount. If the fair value is
    greater than the carrying amount, no further assessment is
    performed. We have performed our annual assessments of goodwill
    and trademarks on April 1, 2003 and determined that no
    impairment exists.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Insurance.We have a
    high deductible insurance program for general liability, auto
    liability and workers compensation risk. We are required
    to estimate and accrue for the amount of losses that we expect
    to incur and will ultimately have to pay for under the
    deductible during the policy year. These amounts are recorded in
    cost of sales and selling, general and administrative expenses
    on the statement of operations and accrued liabilities and
    long-term liabilities on the balance sheet. Our estimates
    consider a number of factors, including historical experience
    and actuarial assessment of the liabilities for reported claims
    and claims incurred but not reported. While we use outside
    parties to assist us in making these estimates, it is difficult
    to provide assurance that the actual amounts may not be
    materially different than what we have recorded. In addition we
    are self-insured for employee medical benefits and related
    liabilities. Our liabilities are based on historical trends and
    claims filed and are estimated for claims incurred but not
    reported. While the liabilities represent managements best
    estimate, actual results could differ significantly from those
    estimates.
|
| |  | Deferred Income
    Taxes.We recognize deferred tax
    assets and liabilities based on the expected future tax
    consequences of temporary differences between the carrying
    amounts and the tax basis of assets and liabilities. Our primary
    deferred tax assets relate to net operating losses and credit
    carryovers. The realization of these deferred tax assets depends
    upon our ability to generate future income. If our results of
    operations are adversely affected, not all of our deferred tax
    assets, if any, may be realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Seasonality and Quarterly Results

Our net sales and operating results have varied,
and are expected to continue to vary, from quarter to quarter (a
quarter is comprised of thirteen or fourteen weeks), as a result
of factors which include:



| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | seasonality of sporting and other events;                            
|
| |  | unpredictability in the number, timing and type
    of new contracts;
|
| |  | timing of contract expirations and special
    events; and           
|
| |  | level of attendance at the facilities which we
    serve.            

Business at the principal types of facilities we
serve is seasonal in nature. MLB and minor league baseball
related sales are concentrated in the second and third quarters,
the majority of NFL related activity occurs in the fourth
quarter and convention centers and arenas generally host fewer
events during the summer months. Results of operations for any
particular quarter may not be indicative of results of
operations for future periods.

Set forth below are comparative net sales by
quarter for fiscal 2003, 2002 and 2001, as well as operating
income (loss) and net income (loss), on an actual and per share
basis (in thousands, except per share data):

|            |  |       |         |           |  |                   |        |           |  |                  |       |   |  |   |         |   |  |   |       |  
|----------- |  | ----- | ------- | --------- |  | ----------------- | ------ | --------- |  | ---------------- | ----- | - |  | - | ------- | - |  | - | ----- | -
|            |  |      
|            |  | 2003 
|            |  |      
|            |  |       |         | Basic and |  |                   |        | Basic and
|            |  |       |         | Operating |  | Diluted Operating |        | Net       |  | Diluted Earnings
|            |  |       |         | Income    |  | Income (Loss)     |        | Income    |  | (Loss) Per      
|            |  | Sales |         | (Loss)    |  | Per Share(1)      |        | (Loss)    |  | Share(1)        
|            |  |       |         |           |  |                   |        |           |  |                 
|1st Quarter |  | $     | 96,900  |           |  | $                 | (4,715 | )         |  | $                | (0.35 | ) |  | $ | (6,545  | ) |  | $ | (0.48 | )
|2nd Quarter |  | $     | 172,733 |           |  | $                 | 10,460 |           |  | $                | 0.77  |   |  | $ | 2,876   |   |  | $ | 0.21  |  
|3rd Quarter |  | $     | 214,636 |           |  | $                 | 16,583 |           |  | $                | 1.22  |   |  | $ | 10,674  |   |  | $ | 0.78  |  
|4th Quarter |  | $     | 131,788 |           |  | $                 | (375   | )         |  | $                | (0.02 | ) |  | $ | (11,423 | ) |  | $ | (0.70 | )

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|            |  |       |         |           |  |                   |        |           |  |                  |       |   |  |   |        |   |  |   |       |  
|----------- |  | ----- | ------- | --------- |  | ----------------- | ------ | --------- |  | ---------------- | ----- | - |  | - | ------ | - |  | - | ----- | -
|            |  |      
|            |  | 2002 
|            |  |      
|            |  |       |         | Basic and |  |                   |        | Basic and
|            |  |       |         | Operating |  | Diluted Operating |        | Net       |  | Diluted Earnings
|            |  |       |         | Income    |  | Income (Loss)     |        | Income    |  | (Loss) Per      
|            |  | Sales |         | (Loss)    |  | Per Share(1)      |        | (Loss)    |  | Share(1)        
|            |  |       |         |           |  |                   |        |           |  |                 
|1st Quarter |  | $     | 87,840  |           |  | $                 | (4,185 | )         |  | $                | (0.31 | ) |  | $ | (6,870 | ) |  | $ | (0.50 | )
|2nd Quarter |  | $     | 166,421 |           |  | $                 | 9,813  |           |  | $                | 0.72  |   |  | $ | 3,841  |   |  | $ | 0.28  |  
|3rd Quarter |  | $     | 195,100 |           |  | $                 | 15,892 |           |  | $                | 1.17  |   |  | $ | 9,783  |   |  | $ | 0.72  |  
|4th Quarter |  | $     | 127,801 |           |  | $                 | 1,975  |           |  | $                | 0.15  |   |  | $ | (2,258 | ) |  | $ | (0.17 | )

|            |  |       |         |           |  |                   |        |           |  |                  |       |   |  |   |         |   |  |   |       |  
|----------- |  | ----- | ------- | --------- |  | ----------------- | ------ | --------- |  | ---------------- | ----- | - |  | - | ------- | - |  | - | ----- | -
|            |  |      
|            |  | 2001 
|            |  |      
|            |  |       |         | Basic and |  |                   |        | Basic and
|            |  |       |         | Operating |  | Diluted Operating |        | Net       |  | Diluted Earnings
|            |  |       |         | Income    |  | Income (Loss)     |        | Income    |  | (Loss) Per      
|            |  | Sales |         | (Loss)    |  | Per Share(1)      |        | (Loss)    |  | Share(1)        
|            |  |       |         |           |  |                   |        |           |  |                 
|1st Quarter |  | $     | 83,194  |           |  | $                 | (4,107 | )         |  | $                | (0.30 | ) |  | $ | (10,631 | ) |  | $ | (0.78 | )
|2nd Quarter |  | $     | 157,646 |           |  | $                 | 8,117  |           |  | $                | 0.60  |   |  | $ | 2,155   |   |  | $ | 0.16  |  
|3rd Quarter |  | $     | 177,559 |           |  | $                 | 13,862 |           |  | $                | 1.02  |   |  | $ | 8,399   |   |  | $ | 0.62  |  
|4th Quarter |  | $     | 124,714 |           |  | $                 | 1,283  |           |  | $                | 0.09  |   |  | $ | (3,523  | ) |  | $ | (0.26 | )



---



|    |                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The basic and diluted operating income (loss) and
    basic and diluted earnings (loss) per share reflect a 40,920
    (rounded to the nearest share) for one split of the common stock
    that was effected on December 2, 2003.

Results of Operations



| |                                        
| | ---------------------------------------
| | Fiscal 2003 Compared to Fiscal
    2002

Net sales.Net sales
of $616.1 million for fiscal 2003 increased by
$38.9 million or 6.7% from $577.2 million in fiscal
2002. The increase was primarily due to 17 new accounts
(including contracts executed in fiscal 2002 where revenue was
not fully annualized until fiscal 2003), which generated net
sales of $37.1 million partially offset by 11 expired
and/or terminated accounts, which decreased net sales by
$7.8 million. Additionally, MLB related sales increased
$14.3 million from the prior year period primarily
attributable to an overall increase in attendance and per capita
spending and also included an increase of approximately
$4.4 million related to post-season games. The remaining
decline in net sales was primarily due to decreased volume in
various facilities where we provide our services.

Cost of sales.Cost
of sales of $504.0 million for fiscal 2003 increased by
$33.1 million from $470.9 million in fiscal 2002 due
primarily to the higher sales volume. Cost of sales as a
percentage of net sales increased by approximately 0.2% from the
prior year period. The increase was primarily the result of
higher commission costs related to higher commission rates paid
to our largest client in connection with the renewal of that
clients contract and a change in the sales mix to client
facilities with higher commission rates. These increases were
partially offset by lower product costs as a percentage of net
sales resulting from efficiencies achieved in some of the
facilities we serve.

Selling, general and administrative
expenses.Selling, general and
administrative expenses of $59.6 million in fiscal 2003
increased by $4.3 million from $55.3 million in fiscal
2002. The increase was primarily associated with higher
corporate overhead expenses of $4.3 million related to the
addition of management positions during fiscal 2002 and to an
increase in professional and legal fees. These additions to
management were designed to increase and upgrade the
senior-level management available to our clients. In addition,
higher insurance costs of approximately $1.1 million were
incurred; however; these costs were offset by savings in other
cost categories.

Depreciation and
amortization.Depreciation and
amortization was $27.1 million for fiscal 2003, compared to
$26.2 million in fiscal 2002. The increase was principally
attributable to higher amortization expense primarily related to
investments for the renewal and/or acquisition of certain
contracts.

23



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##### Table of Contents



Transaction related
expenses.Transaction related expenses
of $2.6 million in fiscal 2003 include certain expenses
related to executive compensation associated with our IPO of
IDSs. The fiscal 2002 costs related primarily to the expenses
incurred in connection with the structuring and evaluation of
financing and recapitalization strategies.

Contract related
losses.Contract related losses of
$0.8 million recorded in fiscal 2003 reflected an
impairment charge of approximately $0.2 million for the
write-down of property and equipment for a contract which has
been assigned to a third-party, and $0.6 million for the
write-down of contract rights and other assets for certain
terminated contracts. In fiscal 2002, contract related losses of
$0.7 million reflected an impairment charge for the
write-down of contract rights.

Operating income.Operating income decreased approximately $1.5 million from
fiscal 2002 due to the factors described above.

Interest expense.Interest expense of $32.8 million in fiscal 2003 included a
$5.3 million non-cash charge for the early extinguishment
of debt resulting from the refinancing of our 1998 credit
facility and $7.2 million in expenses related to the
repurchase of our 1999 notes. These interest expenses, which
were precipitated by our IPO, contributed substantially to the
net loss we reported for fiscal 2003. With the proceeds from the
IPO and funds received under our 2003 credit facility, we repaid
all outstanding borrowings under our 1998 credit facility and
redeemed 87.75% of our $100 million in aggregate principal
amount of the 1999 notes at a redemption price of approximately
108.1% of the aggregate principal amount of the 1999 notes plus
accrued and unpaid interest. Excluding these charges, interest
of $20.3 million decreased by $0.4 million from fiscal
2002 principally due to the refinancing of our 1998 credit
facility.

Other income, net.During the first quarter of fiscal 2002, Service America
received approximately $1.4 million in connection with
funds previously set aside to satisfy creditors pursuant to a
plan of reorganization approved in 1993. Under the plan of
reorganization, Service America was required to deposit funds
with a disbursing agent for the benefit of its creditors. Any
funds which remained unclaimed by its creditors after a period
of two years from the date of distribution were forfeited and
all interest in those funds reverted back to Service America.
Service America does not believe that it has any obligation to
escheat such funds. This event was not repeated in 2003.

Income taxes.We
have evaluated the available evidence about future taxable
income and other possible sources of realization of deferred tax
assets and based on our best current estimates believe that
taxable income will be realized in fiscal 2004 and beyond.
Accordingly, in fiscal 2003, we have eliminated the valuation
allowance of approximately $0.9 million and recorded a tax
benefit of $6.3 million in comparison to the recognition of
a $0.2 million benefit in the prior year period. The
effective tax rate for fiscal 2003 was significantly impacted by
recognizing the tax benefits associated with approximately
$2.1 million of prior and current year tax credits and the
release of the valuation allowance of approximately
$0.9 million. The benefit associated with the credits arose
as we determined that we could obtain the credits without
increasing the amount of taxes that were payable.

Other comprehensive
income The foreign
currency translation gain of $0.7 million in fiscal 2003
reflects the favorable Canadian dollar exchange rate versus the
U.S. dollar at our Canadian operations.



| |                                        
| | ---------------------------------------
| | Fiscal 2002 Compared to Fiscal
    2001

Net Sales.Net sales
of $577.2 million during fiscal 2002 increased
$34.1 million or approximately 6% from $543.1 million
in fiscal 2001. Our sports facility accounts accounted for
approximately $20.2 million of the increase, of which
$10.5 million was related to NFL venues. Five additional
NFL games were played in our clients facilities in fiscal
2002, including four games that had been postponed from fiscal
2001 due to the events of September 11, 2001, and Super
Bowl XXXVI. Additionally, a slight increase of
$0.8 million was generated in MLB venues due primarily to
an increase in sales as a result of post-season activity,
including the World Series. Sales in convention centers and
other entertainment facilities increased $2.3 million and
$6.2 million, respectively. In addition, newly acquired
service contracts generated net sales of $4.6 million.

24



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##### Table of Contents



Cost of Sales.Cost
of sales of $470.9 million for fiscal 2002 increased by
$24.3 million from $446.6 million for fiscal 2001. The
increase was due primarily to the increase in sales volume. Cost
of sales as a percentage of net sales decreased by approximately
0.4% from fiscal 2001 to 81.6%. This decrease was due mainly to
efficiencies associated with the greater sales volume.

Selling, General and Administrative
Expenses.Selling, general and
administrative expenses of $55.3 million increased
approximately 0.7% as a percentage of net sales as compared to
fiscal 2001. The increase was primarily the result of higher
insurance costs due to dramatic price increases in the insurance
market post September 11, 2001, higher corporate overhead
expenses related to the addition of management positions and an
increase in professional fees. With respect to the insurance
increase, we obtained estimates for the casualty insurance
program (workers compensation, general liability, and
automobile liability policies) from multiple insurance companies
at the end of 2001. Due to increased rates across the insurance
market in the wake of September 11, 2001, and after
reviewing the results of the estimates obtained along with an
independent actuarial analysis, it was our assessment that a
high deductible program was more cost effective than a
guaranteed cost (zero deductible) program.

Depreciation and
Amortization.Depreciation and
amortization was $26.2 million in fiscal 2002 compared to
$24.5 million in fiscal 2001. The increase was principally
attributable to higher amortization expense related to
investments for the renewal and/or acquisition of certain
contracts, partially offset by a decline in amortization as a
result of the discontinuation of goodwill and trademark
amortization ($2.5 million) in accordance with
SFAS No. 142.

Transaction Related
Expenses.Acquisition related costs of
$0.6 million were incurred in fiscal 2002 relating
primarily to expenses incurred in connection with the
structuring and evaluation of financing and recapitalization
strategies, including proposals for securities offerings that
preceded the proposed offering of IDSs and the related
refinancing of the 1998 credit facility and 1999 notes. No such
expenses were incurred in 2001.

Contract Related
Losses.Contract related losses of
$0.7 million in fiscal 2002 reflected an impairment charge
related to a write-down of contract rights for one contract. In
fiscal 2001, contract related losses of $4.8 million
reflected an impairment charge of $2.3 million for
equipment, leasehold improvements and location contracts with
respect to certain contracts. Most of the $2.3 million
impairment charge related to two of our clients which filed for
Chapter 11 bankruptcy in 2001. Additionally,
$2.5 million in other assets  chiefly long-term
receivables related to one of those clients  was
written off.

Operating Income.Operating income increased approximately $4.3 million in
fiscal 2002 as compared to fiscal 2001 due to the factors
described above.

Interest Expense.Interest expense decreased by $2.7 million from fiscal 2001
due primarily to lower interest rates on our variable rate debt.

Other Income, net.During fiscal 2002, Service America received approximately
$1.4 million in connection with funds set aside to satisfy
creditors pursuant to a plan of reorganization approved in 1993.
Under the plan of reorganization, Service America was required
to deposit funds with a disbursing agent for the benefit of its
creditors. Any funds which remained unclaimed by its creditors
after a period of two years from the date of distribution were
forfeited and all interest in those funds reverted back to
Service America. Service America does not believe that it has
any obligation to escheat such funds.

Income Taxes.Management has evaluated the available evidence about future
taxable income and other possible sources of realization of
deferred tax assets, and, based on its best current estimates,
believes taxable income or benefit will be realized in fiscal
2002 and beyond. Accordingly, in fiscal 2002 we have reduced the
valuation allowance by $1.3 million and recorded a tax
benefit of approximately $0.2 million in comparison to the
recognition of a benefit of $0.4 million in fiscal 2001.

25



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##### Table of Contents





| |        
| | -------
| | Outlook

The weak economy and related factors in the last
several years have had an adverse impact on the levels of
attendance at some sports events and in many convention center
facilities we serve and on the levels of spending in the
convention center facilities. Looking forward, we hope that
economic conditions will improve, but we have no evidence that
2004 will be significantly different from 2003.

The events of September 11, 2001 caused a
significant increase in our insurance costs related to the
recreational facilities in which we provide services. Recently
there has been some improvement in insurance rates, although
insurance costs remain high for desirable coverage.

Liquidity and Capital Resources

For fiscal 2003, net cash provided by operating
activities was $27.2 million compared to $38.6 million
in fiscal 2002. The $11.4 million decline in cash provided
was principally attributable to IPO related expenses, including
$7.2 million for the repurchase of the 1999 notes, as
discussed above, and $2.6 million in expenses related to
executive compensation associated with the issuance of the IDSs.
In addition, in fiscal 2002, approximately $1.4 million in
funds was recovered by Service America, as discussed above.

Net cash used in investing activities was
$23.3 million for fiscal 2003 compared to
$45.0 million in fiscal 2002 reflecting a higher level of
investment associated with renewals of existing contracts in the
prior year period, including the renewal of our largest client.

Net cash provided by financing activities was
$8.7 million in fiscal 2003 as compared to
$1.7 million in fiscal 2002, the increase primarily
reflecting the IPO. The proceeds of the term loans from our 2003
credit facility were combined with proceeds from the IPO and the
combined funds of $341.7 were used to repay the outstanding
balance under our 1998 credit facility of $116.8 million,
repay $87.8 million of 1999 notes, establish cash reserves
of $22.0 million for the benefit of the new lenders,
repurchase the remaining 1999 notes, repurchase common stock
from the investors in the amount of $71.4 million and pay
fees and expenses in connection with the IPO, the 2003 credit
facility and the notes thereunder.

For fiscal 2002, net cash provided by operating
activities was $38.6 million as compared to
$24.7 million in fiscal 2001. The $13.9 million
increase was principally attributable to a $8.1 million
increase in net income, mainly as the result of the
$4.3 million improvement in operating income,
$2.7 million decline in interest expense and the recovery
of $1.4 million in funds by Service America, as discussed
above. Additionally, our working capital decreased as compared
to the prior year period chiefly due to higher accrued
commissions, insurance and legal fees.

Net cash used in investing activities was
$45.0 million in fiscal 2002 compared to $29.3 million
in fiscal 2001, primarily reflecting a higher level of
investment in contract rights and property and equipment
associated with renewals of existing contracts in fiscal 2002.

Net cash provided by financing activities was
$1.7 million in fiscal 2002 as compared to
$5.0 million in fiscal 2001. As of December 31, 2002,
$15.0 million in revolving loans were outstanding under our
1998 credit facility as compared to $12.8 million at the
end of fiscal 2001; however, the increase in net borrowings was
only $2.2 million in fiscal 2002 versus $6.8 million
in fiscal 2001. In addition, net cash provided by bank
overdrafts increased by approximately $1.4 million in
fiscal 2002 as compared to fiscal 2001.

We are also often required to obtain performance
bonds, bid bonds or letters of credit to secure our contractual
obligations. As of December 30, 2003, we had requirements
outstanding for performance bonds and letters of credit of
$13.4 million and $20.3 million, respectively. Under
the 2003 credit facility, we have an aggregate of
$35.0 million available for letters of credit, subject to
an overall borrowing limit of $50.0 million under that
facility. As of December 30, 2003 we had approximately
$25.7 million available to be borrowed under the revolving
credit facility. At that date there were $4.0 million in
outstanding borrowings and $20.3 million of outstanding
undrawn letters of credit reducing availability. At
December 31, 2002, $43.7 million was available to be
borrowed under our 1998 credit facility. At that date, there were

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$15.0 million in outstanding borrowings and
$16.3 million of outstanding, undrawn letters of credit
reducing availability.


Our capital expenditures can be categorized into
two types: maintenance and growth. Maintenance capital
expenditures are associated with securing renewals of our
existing contracts and maintaining those contracts following
renewal. Growth capital expenditures are those made in
connection with securing new contracts and maintaining those
contracts during their initial term. In both cases, particularly
for sports facilities, capital expenditures are often required
in the form of contract acquisition fees or 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 and food service
equipment and grants to owners or operators of facilities. We
provide our historical maintenance and growth capital
expenditures for each of the five fiscal years ended
December 30, 2003 in Item 6 Selected Financial
Data. The amount of maintenance capital expenditures in
fiscal 2002, a total of $31.2 million, increased
significantly due to the renewal of several large long-term
contracts. We have historically financed our capital
expenditures with a combination of cash from operating
activities and borrowings under the revolving line of credit of
the credit facility.

We believe that the identification and separation
of maintenance and growth capital expenditures are important
factors in evaluating our business results. While we strive to
maintain our present levels of net sales and EBITDA by securing
renewals of our existing contracts, we cannot make assurances
that we will maintain our present levels of net sales and EBITDA
since we cannot predict the future financial requirements of our
clients. Contracts may be renewed at significantly different
commission rates, and thus levels of net sales and EBITDA,
depending on the clients financial requirements at the
time of renewal.

The amount of capital commitment required by us
can vary significantly. The ability to make those expenditures
is often an essential element of a successful bid on a new
contract or renewal of an existing contract. The following table
shows our net sales for fiscal 2003, which equaled
$616.1 million, as allocated according to the expiration
year of our contracts:

|                       |  |       |  |        |  |       |  |                |       | 
|---------------------- |  | ----- |  | ------ |  | ----- |  | -------------- | ----- | 
|                      
|Contracts Expiring in:
|                      
|2004                   |  | 2005  |  | 2006   |  | 2007  |  | 2008 and After
|                       |  |       |  |        |  |       |  |               
|                      
|(In millions)         
|$104.3                 |  | $56.8 |  | $110.1 |  | $81.0 |  | $              | 260.2 | 

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 provided by us. 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 profits under the contract.

At the end of the contract term, all capital
investments that we have made typically remain the property of
the client, but our contracts generally provide that the client
must reimburse us for any undepreciated or unamortized capital
investments or fees made pursuant to the terms of the contract
if the contract is terminated early, other than due to our
default.

We believe that cash flow from operating
activities, together with borrowings available under the 2003
credit facility, will be sufficient to fund our currently
anticipated capital investment requirements, interest and
principal payment obligations, working capital requirements and
anticipated dividend payments. In fiscal 2003, we made capital
investments of $23.9 million. We are currently committed to
fund aggregate capital investments of approximately
$12.4 million, $1.7 million, $2.7 million and $0.3
million in 2004, 2005, 2006 and 2007, respectively. We expect
that future maintenance capital expenditures will be financed
through net cash provided by operating activities. We expect
that future growth capital expenditures will be financed through
borrowings under the revolving portion of our 2003 credit
facility, issuances of additional IDSs or other securities of
ours, net cash provided by operating activities or a combination
of these alternatives.

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| |                      
| | ---------------------
| | 2003 Credit Agreement

On December 10, 2003, VSA entered into the
2003 credit facility under a credit agreement providing for
$65,000,000 in fixed rate term loans and a $50,000,000 revolving
portion. The term loans bear interest at a fixed rate of 7.24%
and mature on June 10, 2008. The revolving portion of the
2003 credit facility allows VSA to borrow up to $50,000,000 and
includes a sub-limit of $35,000,000 for letters of credit (which
reduce availability under the revolving portion of the 2003
credit facility) and a sub-limit of $5,000,000 for swingline
loans. Revolving loans must be repaid on the maturity date of
the revolving portion of the 2003 credit facility and are
subject to an annual clean-up period of thirty days. Swingline
loans must be either repaid within five days or converted to
revolving loans. The revolving portion of the 2003 credit
facility is subject to an annual clean-up period of thirty days
and matures on December 10, 2006. Borrowings under the
revolving portion of the 2003 credit facility bear interest at
floating rates based upon the interest rate option elected by
VSA and its leverage ratio.

The credit agreement calls for mandatory
prepayment of the loans under certain circumstances and optional
prepayment without penalty. There are further provisions that
limit VSAs ability to make interest payments on the 2003
notes, make dividend payments and invest in capital
expenditures. The credit agreement contains provisions that
require VSA to comply with certain financial covenants,
including a maximum net total leverage ratio, a maximum net
senior leverage ratio and an interest coverage ratio. At
December 30, 2003, VSA was in compliance with all covenants.



| |                                      
| | -------------------------------------
| | Subordinated Notes Issued in
    2003

During December 2003, in connection with our IPO,
we issued $105,245,000 in aggregate principal amount of
13.50% Subordinated Notes (2003 notes). The
2003 notes mature on December 10, 2013 and are subject to
extension by two successive five year terms at VSAs option
provided that certain financial conditions are met. Interest on
the 2003 notes is payable on or about the 20th day of each
month. The 2003 notes are unsecured, are subordinated to all of
VSAHs existing and future senior indebtedness, and rank
equally with all of VSAHs existing and future
indebtedness. Furthermore, the debt is guaranteed by all of the
wholly-owned subsidiaries of VSAH.

Contractual Commitments

We have future obligations for debt repayments,
future minimum rental and similar commitments under
non-cancelable operating leases as well as contingent
obligations related to outstanding letters of credit. These
obligations as of December 30, 2003 are summarized below:

|                               |  |               |       |                        |  |       |      |       |  |           |      |  |  |   |      |  |  |   |       | 
|------------------------------ |  | ------------- | ----- | ---------------------- |  | ----- | ---- | ----- |  | --------- | ---- |  |  | - | ---- |  |  | - | ----- | 
|                               |  |               |       |                       
|                               |  |               |       | Payments Due by Period
|                               |  |               |       |                       
|                               |  |               |       | Less Than              |  | 1-3   |      | 4-5   |  | More Than
|                               |  | Total         |       | 1 Year                 |  | Years |      | Years |  | 5 Years  
|                               |  |               |       |                        |  |       |      |       |  |          
|                               |  |              
|                               |  | (In millions)
|Long-term borrowings           |  | $             | 186.5 |                        |  | $     | 16.3 |       |  | $         |     |  |  | $ | 65.0 |  |  | $ | 105.2 | 
|Insurance                      |  |               | 8.8   |                        |  |       | 4.5  |       |  |           | 3.6  |  |  |   | 0.5  |  |  |   | 0.2   | 
|Operating leases               |  |               | 1.3   |                        |  |       | 0.5  |       |  |           | 0.8  |  |  |   |     |  |  |   |      | 
|Commissions and royalties      |  |               | 38.4  |                        |  |       | 8.3  |       |  |           | 17.1 |  |  |   | 6.1  |  |  |   | 6.9   | 
|Capital Commitments(1)         |  |               | 17.1  |                        |  |       | 12.4 |       |  |           | 4.7  |  |  |   |     |  |  |   |      | 
|Other long-term liabilities(2) |  |               | 0.7   |                        |  |       | 0.5  |       |  |           | 0.1  |  |  |   | 0.1  |  |  |   |      | 
|                               |  |               |       |                        |  |       |      |       |  |           |      |  |  |   |      |  |  |   |       | 
|Total contractual obligations  |  | $             | 252.8 |                        |  | $     | 42.5 |       |  | $         | 26.3 |  |  | $ | 71.7 |  |  | $ | 112.3 | 
|                               |  |               |       |                        |  |       |      |       |  |           |      |  |  |   |      |  |  |   |       | 



---



|    |                                                                                              
|--- | ---------------------------------------------------------------------------------------------
|(1) | Represents capital commitments in connection with
    several long-term concession contracts.
|   
|(2) | Represents various long-term obligations
    reflected on the balance sheet.                 

|                             |  |               |      |                        |  |       |      |       |  |           |   |  |  |   |   |  |  |   |   | 
|---------------------------- |  | ------------- | ---- | ---------------------- |  | ----- | ---- | ----- |  | --------- | - |  |  | - | - |  |  | - | - | 
|                             |  |               |      |                       
|                             |  |               |      | Payments Due by Period
|                             |  |               |      |                       
|                             |  |               |      | Less Than              |  | 1-3   |      | 4-5   |  | More Than
|Other Commercial Commitments |  | Total         |      | 1 Year                 |  | Years |      | Years |  | 5 Years  
|                             |  |               |      |                        |  |       |      |       |  |          
|                             |  |              
|                             |  | (In millions)
|Letters of credit            |  | $             | 20.3 |                        |  | $     | 20.3 |       |  | $         |  |  |  | $ |  |  |  | $ |  | 

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We believe that our net cash provided by
operating activities and borrowing capacity under the 2003
credit facility will be sufficient to enable us to fund our
liquidity needs for the foreseeable future. Should we be unable
to borrow under the 2003 credit facility, we would seek other
sources of debt or equity funding. However, we cannot make
assurances that we will be successful in obtaining alternate
sources of funding in sufficient amounts or on acceptable terms.

New Accounting Standards

In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 143,
Accounting for Asset Retirement Obligations.
The provisions of SFAS No. 143 require that asset
retirement obligations that are identifiable upon acquisition
and construction, and during the operating life of a long-lived
asset, be recorded as a liability using the present value of the
estimated cash flows. A corresponding amount would be
capitalized as part of the assets carrying amount and
amortized to expense over the assets useful life. We have
adopted the provisions of SFAS No. 143 effective
January 1, 2003. The adoption of this statement has not had
and is not expected to have a material impact on our financial
position, results of operations or cash flows.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. This statement addresses financial accounting
and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employees
Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring)and is
effective for exit or disposal activities after
December 31, 2002. The implementation of this statement did
not have a material effect on our financial position or results
of operations.

On November 25, 2002, the FASB issued
Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others,which elaborates on
the disclosures to be made by a guarantor about its obligations
under certain guarantees issued. It also clarifies that a
guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Interpretation expands
on the accounting guidance of SFAS No. 5,
Accounting for Contingencies,SFAS No. 57,
Related Party Disclosures,and SFAS No. 107,
Disclosures about Fair Value of Financial Instruments.
The Interpretation also incorporates, without change, the
provisions of FASB Interpretation No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others,which it
supersedes. The Interpretation does identify several situations
where the recognition of a liability at inception for a
guarantors obligation is not required. The initial
recognition and measurement provisions of Interpretation
No. 45 apply on a prospective basis to guarantees issued or
modified after December 31, 2002, regardless of the
guarantors fiscal year-end. The disclosures are effective
for financial statements of interim or annual periods ending
after December 15, 2002. The disclosure requirements,
initial recognition and initial measurement provisions are
currently effective and did not have a material effect on our
financial position or results of operations.

On December 31, 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS
No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation,to provide alternative methods of
transition to SFAS No. 123s fair value method of
accounting for stock-based employee compensation. SFAS
No. 148 also amends the disclosure provisions of SFAS
No. 123 and Accounting Principles Board (APB)
Opinion No. 28, Interim Financial Reporting,to
require disclosure in the summary of significant accounting
policies of the effects of an entitys accounting policy
with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim
financial statements. While SFAS No. 148 does not amend
SFAS No. 123 to require companies to account for employee
stock options using the fair value method, the disclosure
provisions of SFAS No. 148 are applicable to all companies
with stock-based compensation, regardless of whether they
account for that compensation using the fair value method of
SFAS No. 123 or the intrinsic value method of APB Opinion
No. 25, Accounting for Stock Issued to Employees.
SFAS No. 148s amendment of the transition and annual
disclosure requirements of SFAS No. 123 are effective for
fiscal years ending after December 15, 2002. The
implementation of this standard did not have a material effect
on our financial position or results of operations.

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In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements (FIN 46).
This Interpretation applies immediately to variable interest
entities created after January 31, 2003. In October 2003,
certain provisions of FIN 46 were amended. FIN 46, as
amended, applies to the first fiscal year or interim period
ending after December 15, 2003, to those variable interest
entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. This Interpretation
may be applied prospectively with a cumulative-effect adjustment
as of the date on which it is first applied or by restating
previously issued financial statements for one or more years
with a cumulative-effect adjustment as of the beginning of the
first year restated. Certain provisions of FIN 46 were
deferred until the period ending after March 15, 2004. The
implementation of FIN 46 for provisions effective during
2003 did not have a material impact on our financial position or
results of operations.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This
statement amends and clarifies financial accounting and
reporting for derivative instruments including certain
derivatives embedded in other contracts. This statement is
effective for contracts entered into or modified after
June 30, 2003. The implementation of this statement did not
have a material effect on our financial position or results of
operations.

In May 2003, the FASB issued
SFAS No. 150,Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards for
classification and measurement of certain financial instruments
with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at
the beginning of the first interim period after June 15,
2003. In October 2003, the FASB deferred the implementation of
certain provisions of this standard indefinitely. The
implementation of this standard did not have a material effect
on our financial position or results of operations.

Cautionary Statement Regarding Forward-Looking
Statements

Some of the statements under
Managements Discussion and Analysis of Financial
Condition and Results of Operations, Business
and elsewhere in this Annual Report on Form 10-K may
include forward-looking statements which reflect our current
views with respect to future events and financial performance.
Statements which include the words expect,
intend, plan, believe,
project, anticipate and similar
statements of a future or forward-looking nature identify
forward-looking statements for purposes of the federal
securities laws or otherwise.

All forward-looking statements address matters
that involve risks and uncertainties. Accordingly, there are or
will be important factors that could cause actual results to
differ materially from those indicated in these statements or
that could adversely affect the holders of our IDSs, 2003 notes
and common stock. We believe that these factors include the
following:



| |   |                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have substantial indebtedness, which could
    restrict our ability to pay interest and principal on our 2003
    notes and to pay dividends with respect to shares of our common
    stock represented by the IDSs and impact our financing options
    and liquidity position.
|
| |  | We may amend the terms of our 2003 credit
    facility, or we may enter into new agreements that govern our
    senior indebtedness, and the amended or new terms may
    significantly affect our ability to pay interest and dividends
    to IDS holders.                       
|
| |  | We are subject to restrictive debt covenants and
    other requirements related to our outstanding debt that limit
    our business flexibility by imposing operating and financial
    restrictions on our operations.                                                            
|
| |  | We are a holding company and rely on dividends,
    interest and other payments, advances and transfers of funds
    from our subsidiaries to meet our debt service and other
    obligations.                                                                                     
|
| |  | Our interest expense may increase significantly
    and could cause our net income and distributable cash to decline
    significantly.                                                                                                                                            

30



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| |   |                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We may not generate sufficient funds from
    operations to pay our indebtedness at maturity or upon the
    exercise by holders of their rights upon a change of control.                                                                                                                                                         
|
| |  | The indenture governing our 2003 notes and our
    2003 credit facility permit us to pay a significant portion of
    our free cash flow to stockholders in the form of dividends. Any
    amounts paid by us in the form of dividends will not be
    available in the future to satisfy our obligations under the
    2003 notes.
|
| |  | The realizable value of our assets upon
    liquidation may be insufficient to satisfy claims.                                                                                                                                                                                                                                     
|
| |  | Deferral of interest payments would have adverse
    tax consequences for holders of our 2003 notes and may adversely
    affect the trading price of the 2003 notes.                                                                                                                                                              
|
| |  | Because of the subordinated nature of the 2003
    notes, their holders may not be entitled to be paid in full, if
    at all, in a bankruptcy, liquidation or reorganization or
    similar proceeding.                                                                                                                           
|
| |  | The guarantees of the 2003 notes by our
    subsidiaries may not be enforceable.                                                                                                                                                                                                                                                   
|
| |  | Seasonality and variability of our businesses may
    cause volatility in the market value of our IDSs and may hinder
    our ability to make timely distributions on the IDSs.                                                                                                                                                    
|
| |  | The U.S. federal income tax consequences of
    the purchase, ownership and disposition of IDSs are unclear.                                                                                                                                                                                                                       
|
| |  | The Internal Revenue Service may not view the
    interest rate on the 2003 notes as an arms length rate.                                                                                                                                                                                                                         
|
| |  | Before our IPO there was no public market for our
    IDSs, shares of our common stock or 2003 notes. The price of the
    IDSs may fluctuate substantially, which could negatively affect
    IDS holders.                                                                                                                        
|
| |  | Future sales or the possibility of future sales
    of a substantial amount of IDSs, shares of our common stock or
    our 2003 notes may depress the price of our outstanding IDSs and
    the shares of our common stock and our 2003 notes.                                                                                     
|
| |  | Our restated certificate of incorporation and
    amended and restated by-laws and several other factors could
    limit another partys ability to acquire us and deprive our
    investors of the opportunity to obtain a takeover premium for
    their securities.                                                             
|
| |  | If attendance or the number of events held at our
    clients facilities decreases, our net sales and cash flow
    may significantly decline.                                                                                                                                                                                    
|
| |  | The pricing and termination provisions of our
    contracts may constrain our ability to recover costs and to make
    a profit on our contracts.                                                                                                                                                                                  
|
| |  | We have a history of losses and may experience
    losses in the future.                                                                                                                                                                                                                                                           
|
| |  | We may not be able to recover our capital
    investments in clients facilities, which may significantly
    reduce our profits or cause losses.                                                                                                                                                                                  
|
| |  | If the sports team tenant of a facility we serve
    relocates or the ownership of a facility we serve changes, we
    may lose the contract for that facility.                                                                                                                                                                    
|
| |  | If we were to lose any of our largest clients,
    our results of operations could be significantly harmed.                                                                                                                                                                                                                        
|
| |  | A contraction of MLB that eliminates any of the
    teams playing in any of the facilities we serve would likely
    have a material adverse effect on our results of operations.                                                                                                                                                  
|
| |  | We may not have sufficient funds available to
    make capital investments in clients facilities necessary
    to maintain these relationships and increased capital
    investments or commissions to renew such relationships may lower
    our operating results for such facilities.                                          
|
| |  | Our historical rapid growth rates may not be
    indicative of future results, given our new capital structure
    and dividend policy and our reliance on other financing sources.                                                                                                                                                

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| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | If labor or other operating costs increase, we
    may not be able to make a corresponding increase in the prices
    of our products and services and our profitability may decline
    significantly.                                                                        
|
| |  | We may incur significant liabilities or
    reputational harm if claims of illness or injury associated with
    our service of food and beverage to the public are brought
    against us.                                                                                    
|
| |  | The loss of any of our liquor licenses or permits
    could adversely affect our ability to carry out our business.                                                                                                                                                            
|
| |  | 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.                                                                                                                     
|
| |  | If we fail to comply with applicable governmental
    regulations, we may become subject to lawsuits and other
    liabilities or restrictions on our operations which could
    significantly reduce our net sales and cash flow and undermine
    the growth of our business.
|
| |  | We are subject to litigation, which, if
    determined adversely, could be material.                                                                                                                                                                                           
|
| |  | We may be subject to significant environmental
    liabilities.                                                                                                                                                                                                                
|
| |  | We depend on a relatively small executive
    management team and the loss of any of them could adversely
    affect our business.                                                                                                                                             
|
| |  | We could incur significant liability for
    withdrawing from multi-employer pension plans.                                                                                                                                                                                    
|
| |  | If we fail to remain competitive within our
    industry, we will not be able to maintain our clients or obtain
    new clients, which would materially adversely affect our
    financial condition, results of operations and liquidity.                                     
|
| |  | An outbreak or escalation of any insurrection or
    armed conflict involving the United States or any other national
    or international calamity could significantly harm our business.                                                                                     
|
| |  | A terrorist attack on any facility which we
    serve, particularly large sports facilities, could significantly
    harm or business, and our contracts do not provide for the
    recovery by us of our cost in the event of a terrorist attack on
    a facility.           
|
| |  | We may not be able to obtain insurance, or obtain
    insurance on commercially acceptable terms, which could result
    in a material adverse effect on our financial condition, results
    of operations or liquidity.                                                      
|
| |  | Weaker economic conditions within the United
    States could adversely affect our business.                                                                                                                                                                                   
|
| |  | Our net sales could decline if there were a labor
    stoppage affecting any of the sports teams at whose facilities
    we provide our services.                                                                                                                              

Any forward-looking statement speaks only as of
the date on which such statement is made, and we undertake no
obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future
developments or otherwise.

32



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##### Table of Contents







|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

We are exposed to interest rate volatility with
regard to existing issuance of variable rate debt. The table
presents principal cash flows and related weighted average
interest rates.

|                   |                      |                       |     |      |       |               |   |      |  |      |   |            |  |       |   |          |  |  |   |      |      |   |   |       |       |   |     |       |  |   |     |       |  | 
|------------------ | -------------------- | --------------------- | --- | ---- | ----- | ------------- | - | ---- |  | ---- | - | ---------- |  | ----- | - | -------- |  |  | - | ---- | ---- | - | - | ----- | ----- | - | --- | ----- |  | - | --- | ----- |  | 
|                   |                      |                       |     |      |       |               |   |      |  |      |   |            |  |       |   | Fair    
|                   |                      |                       |     |      |       |               |   |      |  |      |   |            |  |       |   | Value   
|                   |                      | 2004                  |     | 2005 |       | 2006          |   | 2007 |  | 2008 |   | Thereafter |  | Total |   | 12/30/03
|                   |                      |                       |     |      |       |               |   |      |  |      |   |            |  |       |   |         
|                   |                      |                       |     |      |       |               |   |      |  |      |   |           
|                   |                      |                       |     |      |       | (In millions) |   |      |  |      |   |           
|Variable rate debt |                      | $                     | 4.0 |      |       |               |  |      |  |      |  |            |  |       |  |          |  |  |  |      |      |   |  |       |       | $ | 4.0 |       |  | $ | 4.0 |      
|                   |                      | Average interest rate |     |      | 5.29  | %             |   |      |  |      |   |            |  |       |   |          |  |  |   |      |      |   |   |       |       |   |     |       |  |   |     |       |  | 
|Fixed rate debt:   |                      |                       |     |      |       |               |   |      |  |      |   |            |  |       |   |          |  |  |   |      |      |   |   |       |       |   |     |       |  |   |     |      
|                   | Represented by IDSs  |                       |     |     |       |               |   |     |  |      |   |           |  |       |   |         |  |  |   |     |      |   | $ | 105.2 |       |   |     | 105.2 |  |   |     | 105.2 | 
|                   |                      | Average interest rate |     |      |       |               |   |      |  |      |   |            |  |       |   |          |  |  |   |      |      |   |   |       | 13.50 | % |     |       |  |   |     |       |  | 
|                   | Term loans           |                       |     |     |       |               |   |     |  |      |   |           |  |       |   |         |  |  | $ | 65.0 |      |   |   |      |       |   |     | 65.0  |  |   |     | 65.0  | 
|                   |                      | Average interest rate |     |      |       |               |   |      |  |      |   |            |  |       |   |          |  |  |   |      | 7.24 | % |   |       |       |   |     |       |  |   |     |       |  | 
|                   | Remaining 1999 notes |                       | $   | 12.3 |       |               |   |     |  |      |   |           |  |       |   |         |  |  |   |     |      |   |   |      |       |   | $   | 12.3  |  |   | $   | 12.9  | 
|                   |                      | Average interest rate |     |      | 11.25 | %             |   |      |  |      |   |            |  |       |   |          |  |  |   |      |      |   |   |       |       |   |     |       |  |   |     |       |  | 

As of December 30, 2003, after giving effect
to our IPO, including the use of proceeds from the IPO, the
repayment of all outstanding borrowings under VSAs 1998
credit facility, the purchase of $87.7 million of the VSA
1999 notes by the tender offer and the borrowings under the 2003
credit facility, we had $182.5 million of fixed rate
long-term debt, consisting of $105.2 million of the 2003
notes represented by the IDSs, $65.0 million of term loans,
and $12.3 million of the remaining 1999 notes, which were
redeemed as of March 1, 2004. As of December 30, 2003,
we also had $4.0 million outstanding in revolving loans on
our $50.0 million revolving portion of the 2003 credit
facility.

33



---








|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data






VOLUME SERVICES AMERICA
HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                 |                                                                           |      |     |     | 
|---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ---- | --- | --- | 
|                                                                                                                 |                                                                           | Page
|                                                                                                                 |                                                                           |     
|INDEPENDENT AUDITORS
    REPORT                                                                                 |                                                                           |      | F-2 |    
|CONSOLIDATED FINANCIAL
    STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2002
    AND DECEMBER 30, 2003: |                                                                           |      |     |    
|                                                                                                                 | Consolidated Balance
    Sheets                                           |      |     | F-3 | 
|                                                                                                                 | Consolidated Statements of
    Operations and Comprehensive Income (Loss) |      |     | F-5 | 
|                                                                                                                 | Consolidated Statements of
    Stockholders Equity (Deficiency)          |      |     | F-6 | 
|                                                                                                                 | Consolidated Statements of
    Cash Flows                                 |      |     | F-7 | 
|                                                                                                                 | Notes to Consolidated
    Financial Statements                            |      |     | F-9 | 



F-1



---



##### Table of Contents






INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of

Volume Services America Holdings, Inc.:


We have audited the accompanying consolidated
balance sheets of Volume Services America Holdings, Inc.
and subsidiaries (the Company) as of
December 31, 2002 and December 30, 2003, and the
related consolidated statements of operations and comprehensive
income (loss), stockholders equity (deficiency), and cash
flows for each of the three years in the period ended
December 30, 2003. 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 consolidated financial
statements present fairly, in all material respects, the
financial position of Volume Services America
Holdings, Inc. and subsidiaries at December 31, 2002
and December 30, 2003, and the results of their operations
and their cash flows for each of the three years in the period
ended December 30, 2003 in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated
financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assetsas of
January 2, 2002.

/s/ Deloitte & Touche LLP

March 26, 2004

Charlotte, North Carolina


F-2



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##### Table of Contents






VOLUME SERVICES AMERICA
HOLDINGS, INC.



CONSOLIDATED BALANCE SHEETS


December 31, 2002 and December 30,
2003


|                        |                                                                                                                                             |                             |         |              |         |   |         |         |         | 
|----------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------- | ------------ | ------- | - | ------- | ------- | ------- | 
|                        |                                                                                                                                             | December 31,                |         | December 30,
|                        |                                                                                                                                             | 2002                        |         | 2003        
|                        |                                                                                                                                             |                             |         |             
|                        |                                                                                                                                             |                            
|                        |                                                                                                                                             | (In thousands,             
|                        |                                                                                                                                             | except share data)         
|ASSETS                 
|CURRENT ASSETS:         |                                                                                                                                             |                             |         |              |         |   |         |        
|                        | Cash and cash equivalents                                                                                                                   |                             | $       | 10,374       |         |   | $       | 22,929  |        
|                        | Restricted cash                                                                                                                             |                             |         |             |         |   |         | 13,628  |        
|                        | Accounts receivable, less allowance for doubtful
    accounts of $810 and $348 at December 31, 2002 and
    December 30, 2003, respectively |                             |         | 16,488       |         |   |         | 17,737  |        
|                        | Merchandise inventories                                                                                                                     |                             |         | 13,682       |         |   |         | 14,865  |        
|                        | Prepaid expenses and other                                                                                                                  |                             |         | 2,354        |         |   |         | 3,322   |        
|                        | Deferred tax asset                                                                                                                          |                             |         | 2,764        |         |   |         | 4,121   |        
|                        |                                                                                                                                             |                             |         |              |         |   |         |        
|                        |                                                                                                                                             | Total current assets        |         |              | 45,662  |   |         |         | 76,602  | 
|                        |                                                                                                                                             |                             |         |              |         |   |         |        
|PROPERTY AND EQUIPMENT: |                                                                                                                                             |                             |         |              |         |   |         |        
|                        | Leasehold improvements                                                                                                                      |                             |         | 49,452       |         |   |         | 45,828  |        
|                        | Merchandising equipment                                                                                                                     |                             |         | 51,185       |         |   |         | 54,635  |        
|                        | Vehicles and other equipment                                                                                                                |                             |         | 8,625        |         |   |         | 9,791   |        
|                        | Construction in process                                                                                                                     |                             |         | 295          |         |   |         | 168     |        
|                        |                                                                                                                                             |                             |         |              |         |   |         |        
|                        |                                                                                                                                             | Total                       |         |              | 109,557 |   |         |         | 110,422 | 
|                        | Less accumulated depreciation and amortization                                                                                              |                             |         | (53,498      | )       |   |         | (57,671 | )      
|                        |                                                                                                                                             |                             |         |              |         |   |         |        
|                        |                                                                                                                                             | Property and equipment, net |         |              | 56,059  |   |         |         | 52,751  | 
|                        |                                                                                                                                             |                             |         |              |         |   |         |        
|OTHER ASSETS:           |                                                                                                                                             |                             |         |              |         |   |         |        
|                        | Contract rights, net                                                                                                                        |                             |         | 101,702      |         |   |         | 101,512 |        
|                        | Restricted cash                                                                                                                             |                             |         |             |         |   |         | 8,420   |        
|                        | Cost in excess of net assets acquired                                                                                                       |                             |         | 46,457       |         |   |         | 46,457  |        
|                        | Deferred financing costs, net                                                                                                               |                             |         | 7,086        |         |   |         | 13,017  |        
|                        | Trademarks                                                                                                                                  |                             |         | 17,049       |         |   |         | 17,274  |        
|                        | Deferred tax asset                                                                                                                          |                             |         |             |         |   |         | 2,790   |        
|                        | Other                                                                                                                                       |                             |         | 6,177        |         |   |         | 3,450   |        
|                        |                                                                                                                                             |                             |         |              |         |   |         |        
|                        |                                                                                                                                             | Total other assets          |         |              | 178,471 |   |         |         | 192,920 | 
|                        |                                                                                                                                             |                             |         |              |         |   |         |        
|                       
|TOTAL ASSETS            |                                                                                                                                             | $                           | 280,192 |              |         | $ | 322,273 |        
|                        |                                                                                                                                             |                             |         |              |         |   |         |        

F-3



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.

CONSOLIDATED BALANCE
SHEETS  (Continued)

December 31, 2002 and December 30,
2003


|                                                            |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |          |         | 
|----------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------- | ------------ | ------- | - | ------- | -------- | ------- | 
|                                                            |                                                                                                                                                                                                                                         | December 31,                            |         | December 30,
|                                                            |                                                                                                                                                                                                                                         | 2002                                    |         | 2003        
|                                                            |                                                                                                                                                                                                                                         |                                         |         |             
|                                                            |                                                                                                                                                                                                                                         |                                        
|                                                            |                                                                                                                                                                                                                                         | (In thousands,                         
|                                                            |                                                                                                                                                                                                                                         | except share data)                     
|                                                           
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIENCY)      
|CURRENT LIABILITIES:                                        |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |         
|                                                            | Short-term note payable                                                                                                                                                                                                                 |                                         | $       |             |         |   | $       | 4,000    |        
|                                                            | Current maturities of long-term debt                                                                                                                                                                                                    |                                         |         | 1,150        |         |   |         | 12,250   |        
|                                                            | Accounts payable                                                                                                                                                                                                                        |                                         |         | 14,798       |         |   |         | 18,054   |        
|                                                            | Accrued salaries and vacations                                                                                                                                                                                                          |                                         |         | 8,683        |         |   |         | 11,297   |        
|                                                            | Liability for insurance                                                                                                                                                                                                                 |                                         |         | 4,441        |         |   |         | 4,537    |        
|                                                            | Accrued taxes, including income taxes                                                                                                                                                                                                   |                                         |         | 3,890        |         |   |         | 3,947    |        
|                                                            | Accrued commissions and royalties                                                                                                                                                                                                       |                                         |         | 13,627       |         |   |         | 14,053   |        
|                                                            | Accrued interest                                                                                                                                                                                                                        |                                         |         | 3,832        |         |   |         | 1,566    |        
|                                                            | Accrued dividends                                                                                                                                                                                                                       |                                         |         |             |         |   |         | 1,982    |        
|                                                            | Other                                                                                                                                                                                                                                   |                                         |         | 6,057        |         |   |         | 5,082    |        
|                                                            |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |         
|                                                            |                                                                                                                                                                                                                                         | Total current liabilities               |         |              | 56,478  |   |         |          | 76,768  | 
|                                                            |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |         
|LONG-TERM LIABILITIES:                                      |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |         
|                                                            | Long-term debt                                                                                                                                                                                                                          |                                         |         | 224,250      |         |   |         | 170,245  |        
|                                                            | Deferred income taxes                                                                                                                                                                                                                   |                                         |         | 2,031        |         |   |         |         |        
|                                                            | Liability for insurance                                                                                                                                                                                                                 |                                         |         | 2,001        |         |   |         | 4,245    |        
|                                                            | Other liabilities                                                                                                                                                                                                                       |                                         |         | 700          |         |   |         | 699      |        
|                                                            |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |         
|                                                            |                                                                                                                                                                                                                                         | Total long-term liabilities             |         |              | 228,982 |   |         |          | 175,189 | 
|                                                            |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |         
|COMMITMENTS AND CONTINGENCIES                               |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |         
|STOCKHOLDERS EQUITY (DEFICIENCY):                          |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |         
|                                                            | Common stock, $0.01 par value 
    authorized: 100,000,000 shares; issued:
    21,531,152 shares and 39,995,145 shares; outstanding:
    13,612,829 and 22,524,992 shares at December 31, 2002
    and December 30, 2003, respectively |                                         |         | 215          |         |   |         | 400      |        
|                                                            | Additional paid-in capital                                                                                                                                                                                                              |                                         |         | 67,202       |         |   |         | 218,598  |        
|                                                            | Accumulated deficit                                                                                                                                                                                                                     |                                         |         | (21,566      | )       |   |         | (27,966  | )      
|                                                            | Accumulated other comprehensive income (loss)                                                                                                                                                                                           |                                         |         | (444         | )       |   |         | 224      |        
|                                                            | Treasury stock  at cost (7,918,323 and
    17,470,153 shares at December 31, 2002 and
    December 30, 2003, respectively)                                                                                                             |                                         |         | (49,500      | )       |   |         | (120,940 | )      
|                                                            | Loans to related parties                                                                                                                                                                                                                |                                         |         | (1,175       | )       |   |         |         |        
|                                                            |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |         
|                                                            |                                                                                                                                                                                                                                         | Total stockholders equity (deficiency) |         |              | (5,268  | ) |         |          | 70,316  | 
|                                                            |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |         
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIENCY) |                                                                                                                                                                                                                                         | $                                       | 280,192 |              |         | $ | 322,273 |         
|                                                            |                                                                                                                                                                                                                                         |                                         |         |              |         |   |         |         

See notes to consolidated financial statements.

F-4



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##### Table of Contents






VOLUME SERVICES AMERICA
HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)

Years Ended January 1, 2002,
December 31, 2002 and December 30, 2003


|                                                                                |  |                                       |            |              |  |              |            |   |  |   |            |  
|------------------------------------------------------------------------------- |  | ------------------------------------- | ---------- | ------------ |  | ------------ | ---------- | - |  | - | ---------- | -
|                                                                                |  | January 1,                            |            | December 31, |  | December 30,
|                                                                                |  | 2002                                  |            | 2002         |  | 2003        
|                                                                                |  |                                       |            |              |  |             
|                                                                                |  |                                      
|                                                                                |  | (In thousands, except per share data)
|Net sales                                                                       |  | $                                     | 543,113    |              |  | $            | 577,162    |   |  | $ | 616,057    |  
|Cost of sales                                                                   |  |                                       | 446,596    |              |  |              | 470,929    |   |  |   | 503,986    |  
|Selling, general and administrative                                             |  |                                       | 48,108     |              |  |              | 55,257     |   |  |   | 59,591     |  
|Depreciation and amortization                                                   |  |                                       | 24,492     |              |  |              | 26,185     |   |  |   | 27,119     |  
|Transaction related expenses                                                    |  |                                       |           |              |  |              | 597        |   |  |   | 2,577      |  
|Contract related losses                                                         |  |                                       | 4,762      |              |  |              | 699        |   |  |   | 831        |  
|                                                                                |  |                                       |            |              |  |              |            |   |  |   |            |  
|Operating income                                                                |  |                                       | 19,155     |              |  |              | 23,495     |   |  |   | 21,953     |  
|Interest expense                                                                |  |                                       | 23,429     |              |  |              | 20,742     |   |  |   | 32,763     |  
|Other income, net                                                               |  |                                       | (242       | )            |  |              | (1,556     | ) |  |   | (55        | )
|                                                                                |  |                                       |            |              |  |              |            |   |  |   |            |  
|Income (loss) before income taxes                                               |  |                                       | (4,032     | )            |  |              | 4,309      |   |  |   | (10,755    | )
|Income tax benefit                                                              |  |                                       | (432       | )            |  |              | (187       | ) |  |   | (6,337     | )
|                                                                                |  |                                       |            |              |  |              |            |   |  |   |            |  
|Net income (loss)                                                               |  |                                       | (3,600     | )            |  |              | 4,496      |   |  |   | (4,418     | )
|Other comprehensive income (loss) 
    foreign currency translation adjustment |  |                                       | (209       | )            |  |              | 27         |   |  |   | 668        |  
|                                                                                |  |                                       |            |              |  |              |            |   |  |   |            |  
|Comprehensive income (loss)                                                     |  | $                                     | (3,809     | )            |  | $            | 4,523      |   |  | $ | (3,750     | )
|                                                                                |  |                                       |            |              |  |              |            |   |  |   |            |  
|Basic Net Income (Loss) per share                                               |  | $                                     | (0.26      | )            |  | $            | 0.33       |   |  | $ | (0.31      | )
|                                                                                |  |                                       |            |              |  |              |            |   |  |   |            |  
|Diluted Net Income (Loss) per share                                             |  | $                                     | (0.26      | )            |  | $            | 0.33       |   |  | $ | (0.31      | )
|                                                                                |  |                                       |            |              |  |              |            |   |  |   |            |  
|Weighted average shares outstanding                                             |  |                                       | 13,612,829 |              |  |              | 13,612,829 |   |  |   | 14,263,164 |  
|                                                                                |  |                                       |            |              |  |              |            |   |  |   |            |  

See notes to consolidated financial statements.

F-5



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIENCY)


Years Ended January 1, 2002,
December 31, 2002 and December 30, 2003


|                           |                                 |                                   |            |            |  |            |     |             |  |               |         |          |  |          |         |        |   |   |      |      |   |   |          |         |   |   |        |       |   |   |         |         |  
|-------------------------- | ------------------------------- | --------------------------------- | ---------- | ---------- |  | ---------- | --- | ----------- |  | ------------- | ------- | -------- |  | -------- | ------- | ------ | - | - | ---- | ---- | - | - | -------- | ------- | - | - | ------ | ----- | - | - | ------- | ------- | -
|                           |                                 |                                   |            |            |  |            |     |             |  | Accumulated   |         |          |  |          |         |       
|                           |                                 |                                   |            |            |  | Additional |     |             |  | Other         |         |          |  | Loans to |         |       
|                           |                                 | Common                            |            | Common     |  | Paid-in    |     | Accumulated |  | Comprehensive |         | Treasury |  | Related  |         |       
|                           |                                 | Shares                            |            | Stock      |  | Capital    |     | Deficit     |  | Income (Loss) |         | Stock    |  | Parties  |         | Total 
|                           |                                 |                                   |            |            |  |            |     |             |  |               |         |          |  |          |         |       
|                           |                                 |                                  
|                           |                                 | (In thousands, except share data)
|BALANCE, JANUARY 2, 2001   |                                 |                                   | 21,531,152 |            |  | $          | 215 |             |  | $             | 66,539  |          |  |          | (22,462 | )      |   |   | (262 | )    |   |   | (49,500  | )       |   |   | (1,039 | )     |   |   | (6,509  | )      
|                           | Noncash compensation            |                                   |            |           |  |            |     |            |  |               |         | 98       |  |          |         |       |   |   |      |     |   |   |          |        |   |   |        |      |   |   |         | 98      |  
|                           | Loans to related parties        |                                   |            |           |  |            |     |            |  |               |         |         |  |          |         |       |   |   |      |     |   |   |          |        |   |   |        | (40   | ) |   |         | (40     | )
|                           | Foreign currency translation    |                                   |            |           |  |            |     |            |  |               |         |         |  |          |         |       |   |   |      | (209 | ) |   |          |        |   |   |        |      |   |   |         | (209    | )
|                           | Net loss                        |                                   |            |           |  |            |     |            |  |               |         |         |  |          |         | (3,600 | ) |   |      |     |   |   |          |        |   |   |        |      |   |   |         | (3,600  | )
|                           |                                 |                                   |            |            |  |            |     |             |  |               |         |          |  |          |         |        |   |   |      |      |   |   |          |         |   |   |        |       |   |   |         |        
|BALANCE, JANUARY 1, 2002   |                                 |                                   | 21,531,152 |            |  |            | 215 |             |  |               | 66,637  |          |  |          | (26,062 | )      |   |   | (471 | )    |   |   | (49,500  | )       |   |   | (1,079 | )     |   |   | (10,260 | )      
|                           | Noncash compensation            |                                   |            |           |  |            |     |            |  |               |         | 565      |  |          |         |       |   |   |      |     |   |   |          |        |   |   |        |      |   |   |         | 565     |  
|                           | Loans to related parties        |                                   |            |           |  |            |     |            |  |               |         |         |  |          |         |       |   |   |      |     |   |   |          |        |   |   |        | (96   | ) |   |         | (96     | )
|                           | Foreign currency translation    |                                   |            |           |  |            |     |            |  |               |         |         |  |          |         |       |   |   |      | 27   |   |   |          |        |   |   |        |      |   |   |         | 27      |  
|                           | Net income                      |                                   |            |           |  |            |     |            |  |               |         |         |  |          |         | 4,496  |   |   |      |     |   |   |          |        |   |   |        |      |   |   |         | 4,496   |  
|                           |                                 |                                   |            |            |  |            |     |             |  |               |         |          |  |          |         |        |   |   |      |      |   |   |          |         |   |   |        |       |   |   |         |        
|BALANCE, DECEMBER 31, 2002 |                                 |                                   | 21,531,152 |            |  |            | 215 |             |  |               | 67,202  |          |  |          | (21,566 | )      |   |   | (444 | )    |   |   | (49,500  | )       |   |   | (1,175 | )     |   |   | (5,268  | )      
|                           | Proceeds from IDS issuance, net |                                   |            | 18,463,993 |  |            |     | 185         |  |               |         | 151,332  |  |          |         |       |   |   |      |     |   |   |          |        |   |   |        | 1,241 |   |   |         | 152,758 |  
|                           | Repurchase of stock             |                                   |            |           |  |            |     |            |  |               |         |         |  |          |         |       |   |   |      |     |   |   |          | (71,440 | ) |   |        |      |   |   |         | (71,440 | )
|                           | Noncash compensation            |                                   |            |           |  |            |     |            |  |               |         | 64       |  |          |         |       |   |   |      |     |   |   |          |        |   |   |        |      |   |   |         | 64      |  
|                           | Loans to related parties        |                                   |            |           |  |            |     |            |  |               |         |         |  |          |         |       |   |   |      |     |   |   |          |        |   |   |        | (66   | ) |   |         | (66     | )
|                           | Foreign currency translation    |                                   |            |           |  |            |     |            |  |               |         |         |  |          |         |       |   |   |      | 668  |   |   |          |        |   |   |        |      |   |   |         | 668     |  
|                           | Dividends declared              |                                   |            |           |  |            |     |            |  |               |         |         |  |          |         | (1,982 | ) |   |      |     |   |   |          |        |   |   |        |      |   |   |         | (1,982  | )
|                           | Net loss                        |                                   |            |           |  |            |     |            |  |               |         |         |  |          |         | (4,418 | ) |   |      |     |   |   |          |        |   |   |        |      |   |   |         | (4,418  | )
|                           |                                 |                                   |            |            |  |            |     |             |  |               |         |          |  |          |         |        |   |   |      |      |   |   |          |         |   |   |        |       |   |   |         |        
|BALANCE, DECEMBER 30, 2003 |                                 |                                   | 39,995,145 |            |  | $          | 400 |             |  | $             | 218,598 |          |  | $        | (27,966 | )      |   | $ | 224  |      |   | $ | (120,940 | )       |   | $ |       |       |   | $ | 70,316  |        
|                           |                                 |                                   |            |            |  |            |     |             |  |               |         |          |  |          |         |        |   |   |      |      |   |   |          |         |   |   |        |       |   |   |         |        

See notes to consolidated financial statements.

F-6



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC



CONSOLIDATED STATEMENTS OF CASH
FLOWS


Years Ended January 1, 2002,
December 31, 2002 and December 30, 2003


|                                      |                                                                                              |                                          |                                     |                                           |        |              |         |         |        |  |         |         |        |   |         |  
|------------------------------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------- | ----------------------------------- | ----------------------------------------- | ------ | ------------ | ------- | ------- | ------ |  | ------- | ------- | ------ | - | ------- | -
|                                      |                                                                                              |                                         
|                                      |                                                                                              | Years Ended                             
|                                      |                                                                                              |                                         
|                                      |                                                                                              | January 1,                               |                                     | December 31,                              |        | December 30,
|                                      |                                                                                              | 2002                                     |                                     | 2002                                      |        | 2003        
|                                      |                                                                                              |                                          |                                     |                                           |        |             
|                                      |                                                                                              |                                         
|                                      |                                                                                              | (In thousands)                          
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                              |                                          |                                     |                                           |        |              |         |         |        |  |         |        
|                                      | Net income (loss)                                                                            |                                          | $                                   | (3,600                                    | )      |              | $       | 4,496   |        |  | $       | (4,418  | )     
|                                      | Adjustments to reconcile net income (loss) to net
    cash provided by operating activities: |                                          |                                     |                                           |        |              |         |         |        |  |         |         |       
|                                      |                                                                                              | Depreciation and amortization            |                                     |                                           | 24,492 |              |         |         | 26,185 |  |         |         | 27,119 |  
|                                      |                                                                                              | Amortization of deferred financing costs |                                     |                                           | 1,431  |              |         |         | 1,431  |  |         |         | 6,906  |  
|                                      |                                                                                              | Contract related losses                  |                                     |                                           | 4,762  |              |         |         | 699    |  |         |         | 831    |  
|                                      |                                                                                              | Noncash compensation                     |                                     |                                           | 98     |              |         |         | 565    |  |         |         | 64     |  
|                                      |                                                                                              | Deferred tax change                      |                                     |                                           | (911   | )            |         |         |       |  |         |         | (6,178 | )
|                                      |                                                                                              | (Gain) loss on disposition of assets     |                                     |                                           | (37    | )            |         |         | 70     |  |         |         | (69    | )
|                                      |                                                                                              | Other                                    |                                     |                                           | (209   | )            |         |         | 27     |  |         |         | 668    |  
|                                      |                                                                                              | Changes in assets and liabilities:       |                                     |                                           |        |              |         |         |        |  |         |         |        |  
|                                      |                                                                                              |                                          | Decrease (increase) in assets:      |                                           |        |              |         |         |        |  |         |         |        |   |        
|                                      |                                                                                              |                                          |                                     | Accounts receivable                       |        |              | 767     |         |        |  | 1,898   |         |        |   | (1,080  | )
|                                      |                                                                                              |                                          |                                     | Merchandise inventories                   |        |              | (1,697  | )       |        |  | (461    | )       |        |   | (1,183  | )
|                                      |                                                                                              |                                          |                                     | Prepaid expenses                          |        |              | 55      |         |        |  | 115     |         |        |   | (970    | )
|                                      |                                                                                              |                                          |                                     | Other assets                              |        |              | (1,612  | )       |        |  | (1,920  | )       |        |   | 1,525   |  
|                                      |                                                                                              |                                          | Increase (decrease) in liabilities: |                                           |        |              |         |         |        |  |         |         |        |   |        
|                                      |                                                                                              |                                          |                                     | Accounts payable                          |        |              | 593     |         |        |  | (1,147  | )       |        |   | 1,974   |  
|                                      |                                                                                              |                                          |                                     | Accrued salaries and vacations            |        |              | (161    | )       |        |  | 137     |         |        |   | 2,614   |  
|                                      |                                                                                              |                                          |                                     | Liability for insurance                   |        |              | (358    | )       |        |  | 2,670   |         |        |   | 2,340   |  
|                                      |                                                                                              |                                          |                                     | Accrued commissions and royalties         |        |              | (431    | )       |        |  | 1,726   |         |        |   | 426     |  
|                                      |                                                                                              |                                          |                                     | Other liabilities                         |        |              | 1,557   |         |        |  | 2,082   |         |        |   | (3,410  | )
|                                      |                                                                                              |                                          |                                     |                                           |        |              |         |         |        |  |         |        
|                                      |                                                                                              |                                          |                                     | Net cash provided by operating activities |        |              | 24,739  |         |        |  | 38,573  |         |        |   | 27,159  |  
|                                      |                                                                                              |                                          |                                     |                                           |        |              |         |         |        |  |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                              |                                          |                                     |                                           |        |              |         |         |        |  |         |        
|                                      | Purchase of property and equipment                                                           |                                          |                                     | (8,052                                    | )      |              |         | (9,901  | )      |  |         | (7,904  | )     
|                                      | Proceeds from sale of property and equipment                                                 |                                          |                                     | 139                                       |        |              |         | 2,515   |        |  |         | 585     |       
|                                      | Purchase of contract rights                                                                  |                                          |                                     | (21,367                                   | )      |              |         | (37,660 | )      |  |         | (16,029 | )     
|                                      |                                                                                              |                                          |                                     |                                           |        |              |         |         |        |  |         |        
|                                      |                                                                                              |                                          |                                     | Net cash used in investing activities     |        |              | (29,280 | )       |        |  | (45,046 | )       |        |   | (23,348 | )
|                                      |                                                                                              |                                          |                                     |                                           |        |              |         |         |        |  |         |        

F-7



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

Years Ended January 1, 2002,
December 31, 2002 and December 30, 2003


|                                               |                                                   |                                           |     |              |       |              |        |        |       |  |        |          |       | 
|---------------------------------------------- | ------------------------------------------------- | ----------------------------------------- | --- | ------------ | ----- | ------------ | ------ | ------ | ----- |  | ------ | -------- | ----- | 
|                                               |                                                   |                                          
|                                               |                                                   | Years Ended                              
|                                               |                                                   |                                          
|                                               |                                                   | January 1,                                |     | December 31, |       | December 30,
|                                               |                                                   | 2002                                      |     | 2002         |       | 2003        
|                                               |                                                   |                                           |     |              |       |             
|                                               |                                                   |                                          
|                                               |                                                   | (In thousands)                           
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                   |                                           |     |              |       |              |        |        |       |  |        |         
|                                               | Net borrowings (repayments)  revolving
    loans |                                           | $   | 6,750        |       |              | $      | 2,250  |       |  | $      | (11,000  | )    
|                                               | Principal payments on long-term debt              |                                           |     | (1,150       | )     |              |        | (1,150 | )     |  |        | (110,400 | )    
|                                               | Proceeds from issuance of long-term debt          |                                           |     |             |       |              |        |       |       |  |        | 65,000   |      
|                                               | Proceeds from issuance of stock, net              |                                           |     |             |       |              |        |       |       |  |        | 151,517  |      
|                                               | Proceeds from issuance of subordinated notes      |                                           |     |             |       |              |        |       |       |  |        | 105,245  |      
|                                               | Payment of existing subordinated notes            |                                           |     |             |       |              |        |       |       |  |        | (87,750  | )    
|                                               | Repurchase of stock                               |                                           |     |             |       |              |        |       |       |  |        | (71,440  | )    
|                                               | Proceeds from loans to related parties            |                                           |     |             |       |              |        |       |       |  |        | 1,241    |      
|                                               | Payments of debt issuance costs                   |                                           |     |             |       |              |        |       |       |  |        | (12,837  | )    
|                                               | Restricted cash                                   |                                           |     |             |       |              |        |       |       |  |        | (22,048  | )    
|                                               | Principal payments on capital lease obligations   |                                           |     | (149         | )     |              |        | (267   | )     |  |        |         |      
|                                               | Increase (decrease) in bank overdrafts            |                                           |     | (454         | )     |              |        | 968    |       |  |        | 1,282    |      
|                                               | Loans to related parties                          |                                           |     | (40          | )     |              |        | (96    | )     |  |        | (66      | )    
|                                               |                                                   |                                           |     |              |       |              |        |        |       |  |        |         
|                                               |                                                   | Net cash provided by financing activities |     |              | 4,957 |              |        |        | 1,705 |  |        |          | 8,744 | 
|                                               |                                                   |                                           |     |              |       |              |        |        |       |  |        |         
|INCREASE (DECREASE) IN CASH                    |                                                   |                                           | 416 |              |       |              | (4,768 | )      |       |  | 12,555 |         
|CASH AND CASH EQUIVALENTS:                     |                                                   |                                           |     |              |       |              |        |        |       |  |        |         
|                                               | Beginning of year                                 |                                           |     | 14,726       |       |              |        | 15,142 |       |  |        | 10,374   |      
|                                               |                                                   |                                           |     |              |       |              |        |        |       |  |        |         
|                                               | End of year                                       |                                           | $   | 15,142       |       |              | $      | 10,374 |       |  | $      | 22,929   |      
|                                               |                                                   |                                           |     |              |       |              |        |        |       |  |        |         
|SUPPLEMENTAL CASH FLOW INFORMATION:            |                                                   |                                           |     |              |       |              |        |        |       |  |        |         
|                                               | Interest paid                                     |                                           | $   | 22,155       |       |              | $      | 18,493 |       |  | $      | 35,029   |      
|                                               |                                                   |                                           |     |              |       |              |        |        |       |  |        |         
|                                               | Income taxes paid                                 |                                           | $   | 696          |       |              | $      | 188    |       |  | $      | 125      |      
|                                               |                                                   |                                           |     |              |       |              |        |        |       |  |        |         
|SUPPLEMENTAL NON CASH FLOW FINANCING ACTIVITY: |                                                   |                                           |     |              |       |              |        |        |       |  |        |         
|                                               | Dividends declared                                |                                           | $   |             |       |              | $      |       |       |  | $      | 1,982    |      
|                                               |                                                   |                                           |     |              |       |              |        |        |       |  |        |         

See notes to consolidated financial statements.

F-8



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


Years Ended January 1, 2002,
December 31, 2002 and December 30, 2003




|   |        
|-- | -------
|1. | General

Volume Services America Holdings, Inc.
(VSAH and together with its subsidiaries, the
Company) is a holding company, the principal assets
of which are the capital stock of its subsidiary, Volume
Services America, Inc. (Volume Services
America). Volume Services America is also a holding
company, the principal assets of which are the capital stock of
its subsidiaries, Volume Services, Inc. (Volume
Services) and Service America Corporation (Service
America).

On February 11, 2003, the Company announced
that it changed the trade name for its operating businesses from
Volume Services America to Centerplate.

On December 1, 2003, the Board of Directors
authorized and the Company effected on December 2, 2003 a
40,920 (rounded to the nearest share) for 1 split of the common
stock. Share and per share amounts for all years presented give
effect to this stock split.

On December 4, 2003, VSAHs
registration statement on Form S-1 in respect of a proposed
initial public offering (IPO) of Income Deposit
Securities (IDSs) was declared effective by the
Security and Exchange Commission. Each IDS represents one share
of common stock and a 13.5% subordinated note with a $5.70
principal amount and the proceeds were allocated to the
underlying stock or subordinated notes based upon the relative
fair values of each. Trading of the IDSs began on the American
Stock Exchange on December 5, 2003 and on the Toronto Stock
Exchange on December 8, 2003. On December 10, 2003,
the IPO transaction closed and the Company simultaneously
entered into a new senior credit facility (see 2003 Credit
Agreement, Note 4). From the IPO transaction, the
Company raised approximately $251,800,000 on December 10,
2003 and an additional $25,200,000 on December 16, 2003 in
connection with the underwriters over-allotment option. With the
proceeds from the IPO and the new senior credit facility, the
Company repaid its existing senior credit facility, repaid
$87,750,000 of its $100,000,000 11.25% senior subordinated
notes due 2009, repurchased common stock held by existing equity
investors, established certain restricted cash and other cash
accounts and paid related fees and expenses.

The Company is in the business of providing
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. At December 30, 2003, the Company
had 129 contracts to provide these services which 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 VSAH,
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 2001, 2002 and
2003 fiscal years consisted of 52 weeks.

Cash and Cash
Equivalents The Company
considers temporary cash investments purchased with an original
maturity of three months or less to be cash equivalents.

Restricted
Cash Restricted cash
consists of approximately $13,600,000 recorded in current assets
set aside to retire $12,250,000 in senior subordinated notes
during 2004 plus accrued interest (See Note 4). In
addition, approximately $8,400,000 is recorded in other assets
representing five months of interest on the Companys
subordinated notes, plus $2,500,000. In addition, beginning in
December 2004 the Company must

F-9



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

restrict $60,000 per month for the life of
the 2003 credit agreement. Such funds are restricted from the
Companys use until term loans have been repaid.

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.

Merchandise
Inventories Merchandise
inventories consist of food, beverage, team and other
merchandise. Inventory is valued at the lower of cost or market,
determined on the first-in, first-out basis. Merchandise
inventory is net of reserve of $227,000 and $151,000,
respectively, as of December 31, 2002 and December 30,
2003.

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 or 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:



| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | Leasehold improvements 
    10 years  limited by the lease term or contract
    term, if applicable
|
| |  | Merchandising equipment  5 to
    10 years  limited by the contract term, if
    applicable        
|
| |  | Vehicles and other equipment  2 to
    10 years  limited by the contract term, if
    applicable   

Contract
Rights Contract rights,
net of accumulated amortization, consist primarily of certain
direct incremental 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 are
amortized over the contract life of each such contract,
including optional renewal periods where the option to renew
rests solely with the Company and they intend to exercise that
option. Accumulated amortization was approximately $34,396,000
at December 31, 2002 and $47,838,000 at December 30,
2003. Amortization expense for fiscal 2004 through 2008 is
estimated to be approximately $14,334,000, $13,870,000,
$12,221,000, $11,224,000, and $6,679,000, respectively.

Cost in Excess of Net Assets Acquired and
Trademarks During fiscal
2003, the Company incurred approximately $225,000 of costs
associated with the change of its trade name to Centerplate.
Such costs were included in Trademarks and are subject to the
provisions of Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets.

As of January 2, 2002, the Company adopted
SFAS No. 142. With the adoption of
SFAS No. 142, cost in excess of net assets acquired
(goodwill) and trademarks were no longer subject to
amortization, rather they are subject to at least an annual
assessment for impairment by applying a fair value based test.
The Company completed the impairment tests required by
SFAS No. 142 including the annual impairment test on
July 2, 2002 and April 1, 2003, which did not result
in an impairment charge. Accumulated amortization for goodwill
and trademarks were approximately $6,748,000 and $3,551,000,
respectively at December 31, 2002 and December 30,
2003. Goodwill and trademark amortization (pre-tax) was
approximately $2,458,000 in fiscal

F-10



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2001. Had SFAS No. 142 been in effect
for the fiscal year ended January 1, 2002, the adjusted net
income (loss) would have been as follows:

|                            |                            |                                       |        |              |   |              |       |      |  |   |        |       |  
|--------------------------- | -------------------------- | ------------------------------------- | ------ | ------------ | - | ------------ | ----- | ---- |  | - | ------ | ----- | -
|                            |                            |                                      
|                            |                            | Fiscal Year Ended                    
|                            |                            |                                      
|                            |                            | January 1,                            |        | December 31, |   | December 30,
|                            |                            | 2002                                  |        | 2002         |   | 2003        
|                            |                            |                                       |        |              |   |             
|                            |                            |                                      
|                            |                            | (In thousands, except per share data)
|Reported net income (loss)  |                            | $                                     | (3,600 | )            |   | $            | 4,496 |      |  | $ | (4,418 | )    
|                            | Goodwill amortization      |                                       |        | 1,771        |   |              |       |     |  |   |        |      |  
|                            | Trademark amortization     |                                       |        | 687          |   |              |       |     |  |   |        |      |  
|                            |                            |                                       |        |              |   |              |       |      |  |   |        |      
|Adjusted net income (loss)  |                            | $                                     | (1,142 | )            |   | $            | 4,496 |      |  | $ | (4,418 | )    
|                            |                            |                                       |        |              |   |              |       |      |  |   |        |      
|Basic net loss per share:   |                            |                                       |        |              |   |              |       |      |  |   |        |      
|                            | Reported net income (loss) |                                       | $      | (0.26        | ) |              | $     | 0.33 |  |   | $      | (0.31 | )
|                            | Goodwill amortization      |                                       |        | 0.13         |   |              |       |     |  |   |        |      |  
|                            | Trademark amortization     |                                       |        | 0.05         |   |              |       |     |  |   |        |      |  
|                            |                            |                                       |        |              |   |              |       |      |  |   |        |      
|Adjusted net income (loss)  |                            | $                                     | (0.08  | )            |   | $            | 0.33  |      |  | $ | (0.31  | )    
|                            |                            |                                       |        |              |   |              |       |      |  |   |        |      
|Diluted net loss per share: |                            |                                       |        |              |   |              |       |      |  |   |        |      
|                            | Reported net income (loss) |                                       | $      | (0.26        | ) |              | $     | 0.33 |  |   | $      | (0.31 | )
|                            | Goodwill amortization      |                                       |        | 0.13         |   |              |       |     |  |   |        |      |  
|                            | Trademark amortization     |                                       |        | 0.05         |   |              |       |     |  |   |        |      |  
|                            |                            |                                       |        |              |   |              |       |      |  |   |        |      
|Adjusted net income (loss)  |                            | $                                     | (0.08  | )            |   | $            | 0.33  |      |  | $ | (0.31  | )    
|                            |                            |                                       |        |              |   |              |       |      |  |   |        |      

Deferred Financing
Costs Deferred financing
costs are being amortized as interest expense over the life of
the respective debt using the effective interest method.
Accumulated amortization was $5,923,000 at December 31,
2002. As a result of the Companys new credit facility and
the repurchase of the Companys existing subordinated
notes, at December 30, 2003 all existing deferred financing
costs had been written-off except for approximately $301,000
(net of accumulated amortization of approximately $462,000)
associated with the untendered subordinated notes (see
Note 4). The Company incurred approximately $12,837,000 in
deferred financing cost associated with the IDSs issuance and
new credit facility in fiscal 2003. At December 30, 2003,
accumulated amortization of the deferred financing costs on the
IDSs was approximately $121,000.

Impairment of Long-Lived Assets and Contract
Losses In accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, 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 group may not be recoverable. Accordingly, the
Company estimates the future undiscounted cash flows expected to
result from the use of the asset group and their eventual
disposition. If the sum of the expected future undiscounted cash
flows is less than the carrying amount of the asset group, 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.

Derivative Financial
Instruments The Company
accounts for derivative financial instruments in accordance with
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 Activitiesand
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.
SFAS No. 133 requires that an entity

F-11



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 Company is exposed to fluctuations in the
fair value of certain liabilities. 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 2002, the Company adopted a high
deductible insurance program for general liability, auto
liability, and workerscompensation risk. Since fiscal
1999, the Company had been 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 the
estimate of the reserve for the deductible and self-insurance
considering a number of factors, including historical experience
and actuarial assessment of the liabilities for reported claims
and claims incurred but not reported. The self-insurance
liabilities for estimated incurred losses were discounted (using
rates between 1.32 percent and 3.83 percent at
December 31, 2002 and 1.46 percent and
4.29 percent at December 30, 2003), to their present
value based on expected loss payment patterns determined by
experience. The total discounted self-insurance liabilities
recorded by the Company at December 31, 2002 and
December 30, 2003 were $4,654,000 and $7,734,000,
respectively. The related undiscounted amounts were $4,955,000
and $8,232,000, respectively.

The employee health self-insurance liability is
based on claims filed and estimates for claims incurred but not
reported. The total liability recorded by the Company at
December 31, 2002 and December 30, 2003 was $1,222,000
and $1,319,000, respectively.

Cash
Overdrafts The Company has
included in accounts payable on the accompanying consolidated
balance sheets cash overdrafts totaling approximately $7,582,000
and $8,864,000 at December 31, 2002 and December 30,
2003, respectively.

Dividends
The Companys board of directors approved a dividend of
$0.088 per share of common stock payable in January 2004.
The total liability recorded as of December 30, 2003 was
approximately $1,982,000.

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 income (loss).

Transaction Related
Expenses Transaction
related expenses in fiscal year 2002 consist primarily of
expenses incurred in connection with the structuring and
evaluation of financing and recapitalization strategies.
Transaction related expenses in fiscal 2003 include certain
expenses related to executive compensation associated with the
IPO (see Note 4).

Interest
Interest expense for fiscal 2003 includes a non-cash charge of
approximately $5.3 million for the early extinguishment of
debt resulting from the refinancing of the Companys credit
agreement and $7.2 million in expenses related to the
repurchase of our existing high yield notes.

F-12



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 2001 and 2002 have been reclassified, where
applicable, to conform to the financial statement presentation
used in 2003.

Noncash
Compensation The Company
has elected to follow the accounting provisions of Accounting
Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees for Stock-Based
Compensation. The Company has accounted for existing
stock-based compensation relating to the non-recourse loans
using the fair value method and applied the disclosure
provisions of SFAS No. 148 Accounting for
Stock-Based Compensation  Transition and
Disclosure (see new Accounting Standards). As of
December 30, 2003, all non-recourse loans have been repaid.



| |                         
| | ------------------------
| | New Accounting Standards

In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 143,
Accounting for Asset Retirement Obligations. The
provisions of SFAS No. 143 require that asset
retirement obligations that are identifiable upon acquisition
and construction, and during the operating life of a long-lived
asset, be recorded as a liability using the present value of the
estimated cash flows. A corresponding amount would be
capitalized as part of the assets carrying amount and
amortized to expense over the assets useful life. The
Company adopted the provisions of SFAS No. 143
effective January 1, 2003. The adoption of this statement
has not had and is not expected to have a material impact on the
Companys financial position, results of operations or cash
flows.

In June 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This statement addresses
financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task
Force Issue No. 94-3, Liability Recognition for Certain
Employees Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)and is effective for exit or disposal activities after
December 31, 2002. The implementation of this statement did
not have a material effect on the Companys financial
position or results of operations.

On November 25, 2002, the FASB issued
Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which elaborates on
the disclosures to be made by a guarantor about its obligations
under certain guarantees issued. It also clarifies that a
guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Interpretation expands
on the accounting guidance of SFAS No. 5,
Accounting for Contingencies, SFAS No 57,
Related Party Disclosures, and SFAS No. 107,
Disclosures about Fair Value of Financial Instruments.
The Interpretation also incorporates, without change, the
provisions of FASB Interpretation No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others, which it
supersedes. The Interpretation does identify several situations
where the recognition of a liability at inception for a
guarantors obligation is not required. The initial
recognition and measurement provisions of Interpretation
No. 45 apply on a prospective basis to guarantees issued or
modified after December 31, 2002, regardless of the
guarantors fiscal year-end. The disclosures are effective
for financial statements of interim or annual periods ending
after December 15, 2002. The disclosure requirements,
initial recognition and initial

F-13



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

measurement provisions are currently effective
and did not have a material effect on the Companys
financial position or results of operations.

On December 31, 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS
No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of
transition to SFAS No. 123s fair value method of
accounting for stock-based employee compensation. SFAS
No. 148 also amends the disclosure provisions of SFAS
No. 123 and Accounting Principles Board
(APB) Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of
significant accounting policies of the effects of an
entitys accounting policy with respect to stock-based
employee compensation on reported net income and earnings per
share in annual and interim financial statements. While SFAS
No. 148 does not amend SFAS No. 123 to require
companies to account for employee stock options using the fair
value method, the disclosure provisions of SFAS No. 148 are
applicable to all companies with stock-based compensation,
regardless of whether they account for that compensation using
the fair value method of SFAS No. 123 or the intrinsic
value method of APB Opinion No. 25, Accounting for
Stock Issued to Employees. SFAS No. 148s
amendment of the transition and annual disclosure requirements
of SFAS No. 123 are effective for fiscal years ending after
December 15, 2002. The implementation of this standard did
not have a material effect on the Companys financial
position or results of operations.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements(FIN 46).
This Interpretation applies immediately to variable interest
entities created after January 31, 2003. In October 2003,
certain provisions of FIN 46 were amended. FIN 46, as
amended, applies to the first fiscal year or interim period
ending after December 15, 2003, to those variable interest
entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. This Interpretation
may be applied prospectively with a cumulative-effect adjustment
as of the date on which it is first applied or by restating
previously issued financial statements for one or more years
with a cumulative-effect adjustment as of the beginning of the
first year restated. Certain provisions of FIN 46 were
deferred until the period ending after March 15, 2004. The
implementation of FIN 46 for provisions effective during
2003 did not have a material impact on the Companys
financial position or results of operations.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This
statement amends and clarifies financial accounting and
reporting for derivative instruments including certain
derivatives embedded in other contracts. This statement is
effective for contracts entered into or modified after
June 30, 2003. The implementation of this statement did not
have a material effect on the Companys financial position
or results of operations.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards for
classification and measurement of certain financial instruments
with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at
the beginning of the first interim period after June 15,
2003. In October 2003, the FASB deferred the implementation of
certain provisions of this standard indefinitely. The
implementation of this standard did not have a material effect
on the Companys financial position or results of
operations.



|   |                                    
|-- | -----------------------------------
|3. | 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
recover-

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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

ability 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
January 1, 2002, December 31, 2002 and
December 30, 2003, the Company had one contract that
accounted for approximately 10.0 percent, 8.6 percent,
and 10.2 percent of net sales, respectively.

The Company is in the process of renegotiating
one of its major contracts. While the Company believes the new
terms proposed for the agreement are favorable to the Company,
the new agreement would result in a return to the Company of a
substantial capital investment initially made to obtain the
contract. The Company would need to reinvest the amount of the
capital investment returned in other, new contracts. While the
Company believes it will be able to reinvest these amounts
successfully, if the Company were unable to do so reasonably
promptly, it could have a material adverse impact on our
financial results.

The Companys revenues and earnings are
dependent on various factors such as attendance levels and the
number of games played by the professional sports 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
players of the teams.



|   |     
|-- | ----
|4. | Debt

Long-term debt consists of the following:

|                                              |  |                |         |      |  |   |         |  
|--------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                              |  | 2002           |         | 2003
|                                              |  |                |         |     
|                                              |  |               
|                                              |  | (In thousands)
|Term B borrowings  1998 Credit
    Agreement |  | $              | 110,400 |      |  | $ |        |  
|Revolving loans  1998 Credit Agreement       |  |                | 15,000  |      |  |   |        |  
|VSA subordinated notes  Issued in 1999       |  |                | 100,000 |      |  |   | 12,250  |  
|Term Loans  2003 Credit Agreement            |  |                |        |      |  |   | 65,000  |  
|Revolving loans  2003 Credit Agreement       |  |                |        |      |  |   | 4,000   |  
|VSAH subordinated notes  Issued in 2003      |  |                |        |      |  |   | 105,245 |  
|                                              |  |                |         |      |  |   |         |  
|                                              |  |                | 225,400 |      |  |   | 186,495 |  
|Less  current portion of long-term debt      |  |                | (1,150  | )    |  |   | (16,250 | )
|                                              |  |                |         |      |  |   |         |  
|Total long-term debt                          |  | $              | 224,250 |      |  | $ | 170,245 |  
|                                              |  |                |         |      |  |   |         |  

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). At December 31, 2002, $15,000,000 in
Revolving Loans were outstanding under the Revolving Credit
Facility, and approximately $16,277,000 of letters of credit
were outstanding but undrawn. 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. Borrowings under the credit

F-15



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

facility were secured by substantially all the
assets of VSAH and the majority of its subsidiaries, including
Volume Services and Service America. 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 Issued in 1999 discussed below.
During fiscal 2003, loans outstanding under the 1998 Credit
Agreement were repaid with the proceeds from the IPO and the new
credit agreement.

Senior Subordinated Notes Issued in
1999 On March 4,
1999, Volume Services America completed a private placement of
11.25% 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
were registered under the Securities Act of 1933. The notes were
to mature on March 1, 2009 and interest was payable on
March 1 and September 1 of each year, beginning on
September 1, 1999. Such notes were unsecured, were
subordinated to all the existing debt and any future debt of
Volume Services America, ranked 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 was guaranteed by VSAH
and all of the subsidiaries of Volume Services America, except
for certain non-wholly owned U.S. subsidiaries and one
non-U.S. subsidiary. As of December 30, 2003,
$87,750,000 of the senior subordinated notes were repaid with
the proceeds of the IPO and the credit agreement with the
remaining $12,250,000 balance repaid on March 1, 2004 at a
price equal to 105.625% of the principal amount plus accrued
interest. As of December 30, 2003, approximately
$13.6 million in proceeds from the IPO were set aside to
pay such redemption price plus accrued interest. Such amount was
recorded in current assets as restricted cash.

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 VSAH of 7,918,323 shares of VSAHs
common stock for $49,500,000 and the repayment by VSAH 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.

2003 Credit
Agreement On
December 10, 2003, Volume Services America (the
Borrower) entered into a senior secured credit
agreement which provided for $65,000,000 in fixed rate term
loans and a $50,000,000 revolving credit facility (the
Revolving Credit Facility). The term loans bear interest
at a fixed rate of 7.24% and mature on June 10, 2008. The
Revolving Credit Facility allows the Company to borrow up to
$50,000,000 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.
Under the Swingline sub-limit, advances will be provided for up
to five business days and with respect to any loans not repaid
prior to the fifth business day, they will automatically convert
to a Revolver loan. Revolving Loans must be repaid at the
Revolving Credit Facility maturity date and are subject to an
annual clean-up period. During the annual clean-up period the
revolving credit exposure is reduced to zero during at least one
consecutive thirty day period beginning during fiscal 2004. The
credit agreement provides that any letter of credit amounts
outstanding as of the commencement of the annual clean-up period
are permitted to remain outstanding during the annual clean-up
period. The Revolving Credit Facility will mature on
December 10, 2006. At December 30, 2003, $4,000,000 in
Revolving Loans were outstanding under the Revolving Credit
Facility, and approximately $20,250,000 of letters of credit
were outstanding but undrawn. Borrowings under the Revolving
Credit Facility bear interest at floating rates based upon the
interest rate option elected by the Company subject to
adjustment based on the Companys leverage ratio. The
weighted average interest rate at December 30, 2003 was
5.29% for the Revolving Credit Facility.

The credit agreement calls for mandatory
prepayment of the loans under certain circumstances and optional
prepayment without penalty. There are further provisions that
limit the ability of the Company to make interest payment on the
Subordinated Notes Issued in 2003 and dividend payments if
it is not in compliance with certain financial covenants,
including a maximum total leverage ratio, a maximum senior

F-16



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

leverage ratio and an interest coverage ratio. At
December 30, 2003, the Company was in compliance with all
covenants. The credit agreement also contains provisions that
limit the Companys capital expenditures.

Subordinated Notes Issued in
2003 During December 2003,
as part of the IPO, Volume Services America Holdings, Inc.
issued $105,245,000 in 13.50% Subordinated Notes. The notes
mature on December 10, 2013 and are subject to extension by
two successive five year terms at the Companys option
provided that certain financial conditions are met. Interest on
the notes is payable on the twentieth day of each month. Such
notes are unsecured, are subordinated to all the existing and
any future senior indebtedness of the Company, and rank equally
with all existing and future indebtedness of the Company.
Furthermore, the debt is guaranteed by all of the subsidiaries
of Volume Services America Holdings, Inc., except for
certain non-wholly owned U.S. subsidiaries and one
non-U.S. subsidiary.

Use of
Proceeds The proceeds of
the term loans and notes issued in 2003 were combined with
proceeds from the IPO and were used to (i) repay
$116,828,000 outstanding under the 1998 Credit Agreement,
(ii) repay $87,750,000 of Senior Subordinated Notes issued
in 1999, (iii) establish cash reserves of $22,048,000 for
the benefit of the new lenders and to repurchase the remaining
Senior Subordinated Notes issued in 1999, (iv) repurchase
common stock from the investors in the amount of $71,440,000 and
(v) pay fees and expenses incurred in connection with the
initial public offering, the 2003 Credit Agreement and the notes
issued in 2003.

Aggregate annual maturities of long-term debt at
December 30, 2003 are as follows (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 16,250  | 
|2005       |  |   |        | 
|2006       |  |   |        | 
|2007       |  |   |        | 
|2008       |  |   | 65,000  | 
|Thereafter |  |   | 105,245 | 
|           |  |   |         | 
|Total      |  | $ | 186,495 | 
|           |  |   |         | 



|   |             
|-- | ------------
|5. | Income Taxes

|                          |                                                            |                |        |        |   |  |        |        |  
|------------------------- | ---------------------------------------------------------- | -------------- | ------ | ------ | - |  | ------ | ------ | -
|                          |                                                            | 2002           |        | 2003  
|                          |                                                            |                |        |       
|                          |                                                            |               
|                          |                                                            | (In thousands)
|Deferred tax liabilities: |                                                            |                |        |        |   |  |        |       
|                          | Intangibles (goodwill, contract rights and
    trademarks) |                | $      | (5,853 | ) |  | $      | (5,298 | )
|                          | Differences between book and tax basis of property         |                |        | (858   | ) |  |        | (1,569 | )
|                          | Other                                                      |                |        | (1,115 | ) |  |        | (875   | )
|                          |                                                            |                |        |        |   |  |        |       
|                          |                                                            |                | (7,826 | )      |   |  | (7,742 | )     
|                          |                                                            |                |        |        |   |  |        |       

F-17



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                                                   |                                               |                |       |        |   |   |        |       | 
|------------------------------------------------------------------------------------------------------------------ | --------------------------------------------- | -------------- | ----- | ------ | - | - | ------ | ----- | 
|                                                                                                                   |                                               | 2002           |       | 2003  
|                                                                                                                   |                                               |                |       |       
|                                                                                                                   |                                               |               
|                                                                                                                   |                                               | (In thousands)
|Deferred tax assets:                                                                                               |                                               |                |       |        |   |   |        |      
|                                                                                                                   | Bad debt reserves                             |                |       | 158    |   |   |        | 108   | 
|                                                                                                                   | Inventory reserves                            |                |       | 91     |   |   |        | 60    | 
|                                                                                                                   | Other reserves and accrued liabilities        |                |       | 4,441  |   |   |        | 3,963 | 
|                                                                                                                   | General business and AMT credit carryforwards |                |       | 3,020  |   |   |        | 5,167 | 
|                                                                                                                   | Accrued compensation and vacation             |                |       | 1,205  |   |   |        | 2,314 | 
|                                                                                                                   | Net operating loss carryforward               |                |       | 586    |   |   |        | 3,041 | 
|                                                                                                                   |                                               |                |       |        |   |   |        |      
|                                                                                                                   |                                               |                | 9,501 |        |   |   | 14,653 |      
|Valuation allowance                                                                                                |                                               |                | (942  | )      |   |   |       |      
|                                                                                                                   |                                               |                |       |        |   |   |        |      
|                                                                                                                   |                                               |                | 8,559 |        |   |   | 14,653 |      
|Net deferred tax asset                                                                                             |                                               | $              | 733   |        |   | $ | 6,911  |      
|                                                                                                                   |                                               |                |       |        |   |   |        |      
|Net deferred tax asset is recognized as follows
    in the accompanying 2002 and 2003 consolidated balance sheets: |                                               |                |       |        |   |   |        |      
|                                                                                                                   | Current deferred tax asset                    |                | $     | 2,764  |   |   | $      | 4,121 | 
|                                                                                                                   | Noncurrent deferred tax asset (liability)     |                |       | (2,031 | ) |   |        | 2,790 | 
|                                                                                                                   |                                               |                |       |        |   |   |        |      
|Net deferred tax asset                                                                                             |                                               | $              | 733   |        |   | $ | 6,911  |      
|                                                                                                                   |                                               |                |       |        |   |   |        |      

At December 30, 2003, the Company has
approximately $19,723,000 of federal net operating loss
carryforwards, $13,000,000 of which are from the acquisition of
Service America and will reduce goodwill when utilized. These
carryforwards expire in various periods between 2004 and 2023.
The Companys future ability to utilize its net operating
loss carryforward is limited to some extent by Section 382
of the Internal Revenue Code of 1986, as amended. At
December 30, 2003, the Company has approximately $6,848,000
of federal tax credit carryforwards, $1,712,000 which are from
the acquisition of Service America and will reduce goodwill when
utilized. These carryforwards expire in various periods between
2004 and 2023. In addition, the Company has approximately
$663,000 of Canadian net operating loss carryforwards. These
carryforwards expire in various periods ending between 2003 and
2010.

At December 30, 2003, the Company did not
have a valuation allowance related to the deferred tax assets
associated with certain net operating loss and credit
carryforwards. Management believes that, based on a number of
factors, the available objective evidence creates sufficient
certainty regarding the realizability of these net operating
losses and credit carryovers. Management eliminated the
valuation allowance in fiscal 2003 since they believe 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 components of the benefit for income taxes on
income (loss) are as follows:

|                               |  |                   |      |              |  |              |      |   |  |   |        |  
|------------------------------ |  | ----------------- | ---- | ------------ |  | ------------ | ---- | - |  | - | ------ | -
|                               |  |                  
|                               |  | Fiscal Year Ended
|                               |  |                  
|                               |  | January 1,        |      | December 31, |  | December 30,
|                               |  | 2002              |      | 2002         |  | 2003        
|                               |  |                   |      |              |  |             
|                               |  |                  
|                               |  | (In thousands)   
|Current provision (benefit)    |  | $                 | 478  |              |  | $            | (187 | ) |  | $ | (159   | )
|Deferred benefit               |  |                   | (910 | )            |  |              |     |   |  |   | (6,178 | )
|                               |  |                   |      |              |  |              |      |   |  |   |        |  
|Total benefit for income taxes |  | $                 | (432 | )            |  | $            | (187 | ) |  | $ | (6,337 | )
|                               |  |                   |      |              |  |              |      |   |  |   |        |  

F-18



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A reconciliation of the provision for income
taxes on continuing operations to the federal statutory rate
follows:

|                               |                                                  |                   |     |              |   |              |    |     |   |  |     |     |  
|------------------------------ | ------------------------------------------------ | ----------------- | --- | ------------ | - | ------------ | -- | --- | - |  | --- | --- | -
|                               |                                                  |                  
|                               |                                                  | Fiscal Year Ended
|                               |                                                  |                  
|                               |                                                  | January 1,        |     | December 31, |   | December 31,
|                               |                                                  | 2002              |     | 2002         |   | 2003        
|                               |                                                  |                   |     |              |   |             
|Statutory rate                 |                                                  |                   | (34 | )%           |   |              | 34 | %   |   |  | (34 | )% 
|Differences:                   |                                                  |                   |     |              |   |              |    |     |   |  |     |    
|                               | State income taxes                               |                   |     | 11           |   |              |    | 2   |   |  |     | (4  | )
|                               | Nondeductible expenses (meals and entertainment) |                   |     | 2            |   |              |    | 2   |   |  |     | 1   |  
|                               | Adjustment to valuation allowance                |                   |     | 56           |   |              |    | (31 | ) |  |     | (9  | )
|                               | Goodwill                                         |                   |     | 13           |   |              |    |    |   |  |     |    |  
|                               | Federal tax credits                              |                   |     | (56          | ) |              |    | (5  | ) |  |     | (13 | )
|                               | Reserve for tax audit                            |                   |     |             |   |              |    | (9  | ) |  |     |    |  
|                               | Nondeductible compensation                       |                   |     | 1            |   |              |    | 4   |   |  |     |    |  
|                               | Other                                            |                   |     | (4           | ) |              |    | (1  | ) |  |     |    |  
|                               |                                                  |                   |     |              |   |              |    |     |   |  |     |    
|Total benefit for income taxes |                                                  |                   | (11 | )%           |   |              | (4 | )%  |   |  | (59 | )% 
|                               |                                                  |                   |     |              |   |              |    |     |   |  |     |    

The Company has accounted for its issuance of IDS
units in December 2003 as representing shares of common stock
and the 2003 Subordinated Notes (see Note 4), by allocating
the proceeds for each IDS unit to the underlying stock or
Subordinated Note based upon the relative fair values of each.
Accordingly, the portion of the aggregate IDSs outstanding that
represents Subordinated Notes has been accounted for by the
Company as long-term debt bearing a stated interest rate of
13.5% maturing on December 10, 2013. During the year ended
December 30, 2003, the Company has deducted interest
expense of approximately $829,000 on the Subordinated Notes from
taxable income for U.S. federal and state income tax
purposes. There can be no assurances that the Internal Revenue
Service or the courts will not seek to challenge the treatment
of these notes as debt or the amount of interest expense
deducted, although to date the Company has not been notified
that the notes should be treated as equity rather than debt for
U.S. federal and state income tax purposes. If the notes
were reclassified as equity the cumulative interest expense
associated with the notes of approximately $829,000 would not be
deductible from taxable income. The additional tax due to the
federal and state authorities would be zero based on the
Companys estimate that it will generate a tax loss for the
year ended December 30, 2003. The Company has not recorded
a liability for the potential disallowance of this deduction.



|   |                    
|-- | -------------------
|6. | Equity Transactions

Loans to Related
Parties Loans to VSI
Management Direct L.P. and another partnership which holds a
direct and an indirect ownership interest, respectively, in the
Company were outstanding at December 31, 2002. The loans
were used to fund the repurchase of partnership interests from
former members of management of the Company. Accordingly, these
amounts were included as a reduction to stockholders
equity at December 31, 2002. In December 2003, these loans
were repaid.

Noncash
Compensation During fiscal
2000, certain management employees purchased units in the two
partnerships described above. 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 income (loss) for fiscal years 2001, 2002 and
2003. As of December 30, 2003, all non-recourse loans have
been repaid.

F-19



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                    
|-- | -----------------------------------
|7. | 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 December 31, 2002 approximates
the fair value of the 1998 Term Loans and 1998 Revolving Credit
Facility based upon the variable rate of interest and frequent
repricing. The Company estimates the fair value of the 1999
Senior Subordinated Notes to be approximately $95,000,000 (book
value $100,000,000) and $12,900,000 (book value $12,250,000) at
December 31, 2002 and December 30, 2003, respectively,
based on third-party quotations for the same or similar issues.
In December 2003, in connection with the IPO and the refinancing
of the 1998 Credit Agreement (see Note 4), the Company
issued new subordinated notes in the amount of $105,245,000
bearing a fixed interest rate of 13.5% and new term loans in the
amount of $65,000,000 bearing a fixed interest rate of 7.24%.
The Company believes that the market value approximates the
carrying cost at December 30, 2003 due to the nearness of
the date of issue to the Companys fiscal year end. The
table presents principal cash flows and related average rates as
of December 30, 2003:

|                   |                      |                       |     |      |       |      |   |      |  |      |   |            |  |       |   |            |  |  |   |      |      |   |   |       |       |   |     |       |  |   |     |       |  | 
|------------------ | -------------------- | --------------------- | --- | ---- | ----- | ---- | - | ---- |  | ---- | - | ---------- |  | ----- | - | ---------- |  |  | - | ---- | ---- | - | - | ----- | ----- | - | --- | ----- |  | - | --- | ----- |  | 
|                   |                      |                       |     |      |       |      |   |      |  |      |   |            |  |       |   | Fair Value
|                   |                      | 2004                  |     | 2005 |       | 2006 |   | 2007 |  | 2008 |   | Thereafter |  | Total |   | 12/30/03  
|                   |                      |                       |     |      |       |      |   |      |  |      |   |            |  |       |   |           
|                   |                      |                      
|                   |                      | (In millions)        
|Variable rate debt |                      | $                     | 4.0 |      |       |      |  |      |  |      |  |            |  |       |  |            |  |  |  |      |      |   |  |       |       | $ | 4.0 |       |  | $ | 4.0 |      
|                   |                      | Average interest rate |     |      | 5.29  | %    |   |      |  |      |   |            |  |       |   |            |  |  |   |      |      |   |   |       |       |   |     |       |  |   |     |       |  | 
|Fixed rate debt:   |                      |                       |     |      |       |      |   |      |  |      |   |            |  |       |   |            |  |  |   |      |      |   |   |       |       |   |     |       |  |   |     |      
|                   | Represented by IDSs  |                       |     |     |       |      |   |     |  |      |   |           |  |       |   |           |  |  |   |     |      |   | $ | 105.2 |       |   | $   | 105.2 |  |   | $   | 105.2 | 
|                   |                      | Average interest rate |     |      |       |      |   |      |  |      |   |            |  |       |   |            |  |  |   |      |      |   |   |       | 13.50 | % |     |       |  |   |     |       |  | 
|                   | Term loans           |                       |     |     |       |      |   |     |  |      |   |           |  |       |   |           |  |  | $ | 65.0 |      |   |   |      |       |   | $   | 65.0  |  |   | $   | 65.0  | 
|                   |                      | Average interest rate |     |      |       |      |   |      |  |      |   |            |  |       |   |            |  |  |   |      | 7.24 | % |   |       |       |   |     |       |  |   |     |       |  | 
|                   | Remaining 1999 notes |                       | $   | 12.3 |       |      |   |     |  |      |   |           |  |       |   |           |  |  |   |     |      |   |   |      |       |   | $   | 12.3  |  |   | $   | 12.9  | 
|                   |                      | Average interest rate |     |      | 11.25 | %    |   |      |  |      |   |            |  |       |   |            |  |  |   |      |      |   |   |       |       |   |     |       |  |   |     |       |  | 

Current Assets and Current
Liabilities The Company
estimates the carrying value of current assets and liabilities
to approximate their fair value based upon the nature of the
financial instruments and their relatively short duration.



|   |                              
|-- | -----------------------------
|8. | 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 $183,324,000,
$192,499,000 and $208,637,000 for fiscal years 2001, 2002, and
2003, respectively. Minimum guaranteed commission and royalty
expense was approximately $7,016,000, $7,625,000 and $7,818,000
for fiscal years 2001, 2002, and 2003, 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 $961,000,
$1,112,000 and $1,151,000 in fiscal 2001, fiscal 2002, and
fiscal 2003, respectively.

F-20



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Future minimum commitments for all operating
leases and minimum commissions and royalties due under client
contracts are as follows:

|           |  |                |       |             |  |   |        | 
|---------- |  | -------------- | ----- | ----------- |  | - | ------ | 
|           |  |                |       | Commissions
|           |  | Operating      |       | and        
|Year       |  | Leases         |       | Royalties  
|           |  |                |       |            
|           |  |               
|           |  | (In thousands)
|2004       |  | $              | 526   |             |  | $ | 8,266  | 
|2005       |  |                | 435   |             |  |   | 7,995  | 
|2006       |  |                | 260   |             |  |   | 5,869  | 
|2007       |  |                | 66    |             |  |   | 3,269  | 
|2008       |  |                | 12    |             |  |   | 3,113  | 
|Thereafter |  |                |      |             |  |   | 9,864  | 
|           |  |                |       |             |  |   |        | 
|Total      |  | $              | 1,299 |             |  | $ | 38,376 | 
|           |  |                |       |             |  |   |        | 

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 December 30, 2003,
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
$5.1 million.

Commitments
Pursuant to its contracts with various clients, the Company is
committed to spend approximately $12.4 million during 2004
and $1.7 million during 2005 for equipment improvements and
location contract rights.

At December 30, 2003, the Company has
$8,927,000 of letters of credit collateralizing the
Companys performance and other bonds, and $9,733,000 in
letters of credit collateralizing the self-insurance reserves of
the Company, and $1,550,000 in other letters of credit.

As of December 30, 2003, the Company has
long-term insurance liabilities and other long-term liabilities
of approximately $4,245,000 and $699,000, respectively, which
were estimated to become payable as follows:

|          |  |                |       |      |  |      |       |      |  |      |       |            |  |       |     |  |  |   |     |  |  |   |     |  |  |   |       | 
|--------- |  | -------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---------- |  | ----- | --- |  |  | - | --- |  |  | - | --- |  |  | - | ----- | 
|          |  | 2005           |       | 2006 |  | 2007 |       | 2008 |  | 2009 |       | Thereafter |  | Total
|          |  |                |       |      |  |      |       |      |  |      |       |            |  |      
|          |  |               
|          |  | (In thousands)
|Insurance |  |                | 755   |      |  |      | 1,575 |      |  |      | 1,210 |            |  |       | 252 |  |  |   | 204 |  |  |   | 249 |  |  |   | 4,245 | 
|Other     |  |                | 484   |      |  |      | 116   |      |  |      | 50    |            |  |       | 50  |  |  |   |    |  |  |   |    |  |  |   | 699   | 
|          |  |                |       |      |  |      |       |      |  |      |       |            |  |       |     |  |  |   |     |  |  |   |     |  |  |   |       | 
|Total     |  | $              | 1,239 |      |  | $    | 1,691 |      |  | $    | 1,260 |            |  | $     | 302 |  |  | $ | 204 |  |  | $ | 249 |  |  | $ | 4,944 | 

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.
In fiscal 2001, the Company wrote-off $2.5 million of other
assets primarily representing long-term receivables. In 2002,
the Company filed a bankruptcy claim in the amount of
$3.2 million. In fiscal 2003, the Company received a
settlement payment for approximately $0.8 million. Such
amount was recorded in selling, general and administrative
expenses.

Litigation
We are from time to time involved in various legal proceedings
incidental to the conduct of our business. In May 2003, a
purported class action entitled Holden v. Volume
Services America, Inc. et al. was filed against us
in the Superior Court of California for the County of Orange by
a former employee at one of the California stadiums we serve
alleging violations of local overtime wage, rest and meal period
and related laws with respect to this employee and others
purportedly similarly situated at any and all of the facilities
we

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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

serve in California. We had removed the case to
the United States District Court for the Central District of
California, but in November 2003 the court remanded the case
back to the California Superior Court. The purported class
action seeks compensatory, special and punitive damages in
unspecified amounts, penalties under the applicable local laws
and injunctions against the alleged illegal acts. We are in the
process of evaluating this case and, while our review is
preliminary, we believe that our business practices are, and
were during the period alleged, in compliance with the law. We
intend to vigorously defend this case. However, due to the early
stage of this case and our evaluation, we cannot predict the
outcome of this case and, if an ultimate ruling is made against
us, whether such ruling would have a material adverse effect on
our financial position or results of operations.

Laws and regulations concerning the discharge of
pollutants into the air and water, the handling and disposal of
hazardous materials, the investigation and remediation of
property contamination and other aspects of environmental
protection are in effect in all locations in which the Company
operates. The Companys current operations do not involve
material costs to comply with such laws and regulations, and
they have not given rise to, and are not expected to give rise
to, material liabilities under these laws and regulations for
investigation or remediation of contamination.

Claims for environmental liabilities arising out
of property contamination have been asserted against the Company
and the Companys predecessors from time to time, and in
some cases such claims have been associated with businesses,
including waste-disposal and waste-management businesses,
related to entities we acquired and have been based on conduct
that occurred prior to the Companys acquisition of those
entities. Several such claims were resolved during the 1990s in
bankruptcy proceedings involving some of the Companys
predecessors. More recently, private corporations asserted a
claim under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) against the
Company for contribution to address past and future remediation
costs at a site in Illinois. The site allegedly was used by,
among others, a waste disposal business related to a predecessor
for which the Company allegedly is responsible. In addition, the
United States Environmental Protection Agency, asserting
authority under CERCLA, recently issued a unilateral
administrative order concerning the same Illinois site naming
approximately 75 entities as respondents, including the
plaintiffs in the CERCLA lawsuit against us and the waste
disposal business for which the plaintiffs allege the Company is
responsible. Management believes that the Company has a valid
defense (including discharge in bankruptcy related to certain
bankruptcy proceedings filed in the 1990s) to any claimed
liability at this site and further believes that the
Companys potential liability, if any, is not likely to be
significant. However, because these claims are in their early
stages, management cannot predict at this time whether the
Company will eventually be held liable at this site or whether
such liability will be material. Furthermore, additional
environmental liabilities relating to any of the Companys
former operations or any entities the Company has acquired could
be identified and give rise to claims against the Company
involving significant losses.

There are also other 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.



|   |                           
|-- | --------------------------
|9. | Related Party Transactions

Management
Fees Certain
administrative and management functions were 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 2001 and 2002 and $236,000 in fiscal
2003. GE Capital was paid management fees of $167,000 in fiscal
years 2001 and 2002 and

F-22



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$158,000 in fiscal 2003. Such amounts are
included in selling, general and administrative expenses. These
fees were ceased upon the closing of the IPO.

Blackstone Group was paid an $875,000 arrangers
fee in connection with the IPO. A portion of this amount was
capitalized on the Companys balance sheet as deferred
financing costs with the remainder charged to Additional Paid in
Capital, based on the relative fair value of each component of
the IDSs (See Note 1).

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 2001, 2002 and 2003 for such services, net of discounts
earned, were approximately $95,000, $75,000 and $47,000,
respectively, and are included in selling, general and
administrative expenses.

Annual Bonus
Plan The Company maintains
a discretionary annual bonus plan subject to the board of
directors approval whereby general managers and senior
management personnel qualify for bonus payments in the event
that the Company has exceeded certain financial performance
targets determined on an annual basis.

Long Term Incentive
Compensation In connection
with its IPO, the Company adopted a Long Term Incentive Plan
(the LTIP) designed to strengthen the mutuality of
interests between executives and security holders. Under the
LTIP, the Compensation Committee determines who is eligible to
participate in the LTIP, the level of participation of each
individual in the incentive pool and the conditions that must be
satisfied for an individual to vest in their allocated incentive
pool amount. LTIP payouts may be in cash or shares of common
stock. The Compensation Committee has the power to amend or
terminate the LTIP at any time. No awards have been vested,
accrued or granted under the LTIP.



|    |                
|--- | ---------------
|10. | Retirement Plan

The Volume Services America 401(k) defined
contribution plan covers substantially all Volume Services
America employees. Employees may contribute up to
50 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 as determined by the
board of directors. The Companys contributions to the plan
were approximately $397,000 in fiscal 2001, $313,000 in fiscal
2002 and $314,000 in fiscal 2003.

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.



|    |                        
|--- | -----------------------
|11. | Contract Related Losses

During fiscal years 2001 and 2002, 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. 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. In fiscal 2002, the Company wrote
down approximately $0.7 million in contract rights related
to a certain contract. In fiscal 2003, the Company wrote down
approximately $0.6 million of contract rights and

F-23



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##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

other assets for certain contracts that have been
terminated and approximately $0.2 million for the
write-down of property and equipment for a contract which has
been assigned to a third party.



|    |             
|--- | ------------
|12. | Other Income

During fiscal 2002, Service America, received
approximately $1.4 million from funds previously set aside
to satisfy creditors pursuant to a plan of reorganization
approved in 1993. Under the plan of reorganization, Service
America was required to deposit funds with a disbursing agent
for the benefit of its creditors. Any funds which remained
unclaimed by its creditors after a period of two years from the
date of distribution were forfeited and all interest in those
funds reverted back to Service America. Counsel has advised that
Service America has no obligation to escheat such funds. These
funds were recorded in Other income, net.



|    |                                
|--- | -------------------------------
|13. | Executive Employment Agreements

Effective April 15, 2002 the Company entered
into an Executive Employment Agreement (the
Agreement) with its Chief Executive Officer,
Lawrence E. Honig. The Agreement provides that Mr. Honig
would be employed as the Companys Chief Executive Officer
until April 14, 2004, subject to automatic one-year
extensions of the term of the Agreement and his employment with
the Company, unless earlier terminated. The Agreement may be
terminated by either party at any time for any reason, provided
that Mr. Honig gives the Company 60 days advance
written notice of his resignation. The agreement also may be
terminated by the Company for cause or by Mr. Honig for
good reason. Mr. Honigs base salary under the
agreement is $450,000, subject to increases at the discretion of
the Board of Directors. Mr. Honig is eligible to earn a
bonus pursuant to the Companys annual bonus plan, targeted
to be at least 50% of his base salary. Mr. Honig is also
entitled to participate in all employee benefits plans
maintained by the Company. In the case of termination of his
employment by the Company without cause or by Mr. Honig for
good reason, Mr. Honig will receive his annual base salary
and continued benefits for one year following the date of his
termination, plus any accrued but unpaid bonus amounts.

Under the terms of the agreement, Mr. Honig
was to be granted options on 3% of the Companys common
stock pursuant to a long-term equity incentive plan that was to
be implemented within 180 days after the date of the
Agreement. In the event of certain corporate transactions, such
as the IPO, the Company had guaranteed that these options would
have a value equal to $1 million. Because the Company did
not implement a long-term equity incentive plan and therefore
did not grant Mr. Honig these options, the Company amended
the Agreement to provide that he would be paid the
$1 million guaranteed option value to which he was
originally entitled upon the closing of the IPO. Such amount was
paid on December 10, 2003 in connection with the closing of
the IPO.

F-24



---



##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                
|--- | -----------------------------------------------
|14. | Quarterly Results of Operations
    (Unaudited)

Quarterly operating results for the years ended
December 31, 2002 and December 30, 2003 are as follows:

|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|------------------------------------ |  | -------------- | ------ | ------- |  | ------- | ------- | ------- |  | ----- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                     |  | First          |        | Second  |  | Third   |         | Fourth  |  |      
|                                     |  | Quarter        |        | Quarter |  | Quarter |         | Quarter |  | Total
|                                     |  |                |        |         |  |         |         |         |  |      
|                                     |  |               
|                                     |  | (In thousands)
|Year Ended December 31, 2002         |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|Net sales                            |  | $              | 87,840 |         |  | $       | 166,421 |         |  | $     | 195,100 |   |  | $ | 127,801 |   |  | $ | 577,162 |  
|Cost of sales                        |  |                | 74,799 |         |  |         | 134,279 |         |  |       | 156,459 |   |  |   | 105,392 |   |  |   | 470,929 |  
|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|Gross profit                         |  |                | 13,041 |         |  |         | 32,142  |         |  |       | 38,641  |   |  |   | 22,409  |   |  |   | 106,233 |  
|Selling, general, and administrative |  |                | 11,633 |         |  |         | 14,951  |         |  |       | 16,015  |   |  |   | 12,658  |   |  |   | 55,257  |  
|Depreciation and amortization        |  |                | 5,593  |         |  |         | 6,679   |         |  |       | 6,734   |   |  |   | 7,179   |   |  |   | 26,185  |  
|Transaction related expenses         |  |                |       |         |  |         |        |         |  |       |        |   |  |   | 597     |   |  |   | 597     |  
|Contract related losses              |  |                |       |         |  |         | 699     |         |  |       |        |   |  |   |        |   |  |   | 699     |  
|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|Operating income (loss)              |  |                | (4,185 | )       |  |         | 9,813   |         |  |       | 15,892  |   |  |   | 1,975   |   |  |   | 23,495  |  
|Interest expense, net                |  |                | 5,357  |         |  |         | 5,175   |         |  |       | 5,129   |   |  |   | 5,081   |   |  |   | 20,742  |  
|Other income, net                    |  |                | (1,384 | )       |  |         | (34     | )       |  |       | (28     | ) |  |   | (110    | ) |  |   | (1,556  | )
|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|Income (loss) before income taxes    |  |                | (8,158 | )       |  |         | 4,672   |         |  |       | 10,791  |   |  |   | (2,996  | ) |  |   | 4,309   |  
|Income tax provision (benefit)       |  |                | (1,288 | )       |  |         | 831     |         |  |       | 1,008   |   |  |   | (738    | ) |  |   | (187    | )
|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|Net income (loss)                    |  | $              | (6,870 | )       |  | $       | 3,841   |         |  | $     | 9,783   |   |  | $ | (2,258  | ) |  | $ | 4,496   |  
|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  

|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|------------------------------------ |  | -------------- | ------ | ------- |  | ------- | ------- | ------- |  | ----- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                     |  | First          |        | Second  |  | Third   |         | Fourth  |  |      
|                                     |  | Quarter        |        | Quarter |  | Quarter |         | Quarter |  | Total
|                                     |  |                |        |         |  |         |         |         |  |      
|                                     |  |               
|                                     |  | (In thousands)
|Year Ended December 30, 2003         |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|Net sales                            |  | $              | 96,900 |         |  | $       | 172,733 |         |  | $     | 214,636 |   |  | $ | 131,788 |   |  | $ | 616,057 |  
|Cost of sales                        |  |                | 81,655 |         |  |         | 140,664 |         |  |       | 173,378 |   |  |   | 108,289 |   |  |   | 503,986 |  
|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|Gross profit                         |  |                | 15,245 |         |  |         | 32,069  |         |  |       | 41,258  |   |  |   | 23,499  |   |  |   | 112,071 |  
|Selling, general, and administrative |  |                | 13,375 |         |  |         | 14,177  |         |  |       | 17,719  |   |  |   | 14,320  |   |  |   | 59,591  |  
|Depreciation and amortization        |  |                | 6,475  |         |  |         | 6,895   |         |  |       | 6,956   |   |  |   | 6,793   |   |  |   | 27,119  |  
|Transaction related expenses         |  |                |       |         |  |         |        |         |  |       |        |   |  |   | 2,577   |   |  |   | 2,577   |  
|Contract related losses              |  |                | 110    |         |  |         | 537     |         |  |       |        |   |  |   | 184     |   |  |   | 831     |  
|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|Operating income (loss)              |  |                | (4,715 | )       |  |         | 10,460  |         |  |       | 16,583  |   |  |   | (375    | ) |  |   | 21,953  |  
|Interest expense, net                |  |                | 5,071  |         |  |         | 5,124   |         |  |       | 4,833   |   |  |   | 17,735  |   |  |   | 32,763  |  
|Other income, net                    |  |                | (5     | )       |  |         | (14     | )       |  |       | (8      | ) |  |   | (28     | ) |  |   | (55     | )
|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|Income (loss) before income taxes    |  |                | (9,781 | )       |  |         | 5,350   |         |  |       | 11,758  |   |  |   | (18,082 | ) |  |   | (10,755 | )
|Income tax provision (benefit)       |  |                | (3,236 | )       |  |         | 2,474   |         |  |       | 1,084   |   |  |   | (6,659  | ) |  |   | (6,337  | )
|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  
|Net income (loss)                    |  | $              | (6,545 | )       |  | $       | 2,876   |         |  | $     | 10,674  |   |  | $ | (11,423 | ) |  | $ | (4,418  | )
|                                     |  |                |        |         |  |         |         |         |  |       |         |   |  |   |         |   |  |   |         |  

Certain amounts in the quarter ended July 2,
2002 have been reclassified from the presentation as filed in
the Companys report on Form 10-Q with the
Securities & Exchange Commission for that quarterly
period to conform to the financial statement presentation used
for the year ended December 31, 2002. The reclassification
from cost of sales to selling, general and administrative
expenses in the second quarter of fiscal 2002 was $417,000.

F-25



---



##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                    
|--- | ---------------------------------------------------
|15. | Non-Guarantor Subsidiaries Financial
    Statements

The $105,245,000 in 13.5% Subordinated Notes are
jointly and severally guaranteed by each of VSAHs (the
issuer) direct and indirect wholly owned subsidiaries, except
for certain non-wholly owned U.S. subsidiaries and one
non-U.S. subsidiary. The redeemed $100,000,000 in
11 1/4 Senior Subordinated Notes were jointly guaranteed by
VSAH and all of the subsidiaries of Volume Services America (the
issuer), except for certain non-wholly owned
U.S. subsidiary and one non-U.S. subsidiary. The
following table sets forth the condensed consolidating financial
statements of VSAH as of and for the periods ended
December 30, 2002 and December 31, 2003 (in the case
of the balance sheet) and for the years ended January 1,
2002, December 31, 2002 and December 30, 2003 (in the
case of the statement of operations and the cash flows):



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Consolidating Condensed Statement of
    Operations and Comprehensive Loss, Year Ended 
     January 1, 2002

|                                          |  |                |        |              |  |               |         |              |  |              |        |   |  |   |       |  |  |   |         |  
|----------------------------------------- |  | -------------- | ------ | ------------ |  | ------------- | ------- | ------------ |  | ------------ | ------ | - |  | - | ----- |  |  | - | ------- | -
|                                          |  |                |        | Issuer and   |  |               |         |              |  |             
|                                          |  |                |        | Combined     |  | Combined      |         |              |  |             
|                                          |  |                |        | Guarantor    |  | Non-guarantor |         |              |  |             
|                                          |  | VSAH           |        | Subsidiaries |  | Subsidiaries  |         | Eliminations |  | Consolidated
|                                          |  |                |        |              |  |               |         |              |  |             
|                                          |  |               
|                                          |  | (In thousands)
|Net sales                                 |  | $              |       |              |  | $             | 518,714 |              |  | $            | 24,399 |   |  | $ |      |  |  | $ | 543,113 |  
|Cost of sales                             |  |                |       |              |  |               | 424,623 |              |  |              | 21,973 |   |  |   |      |  |  |   | 446,596 |  
|Selling, general, and administrative      |  |                |       |              |  |               | 46,503  |              |  |              | 1,605  |   |  |   |      |  |  |   | 48,108  |  
|Depreciation and amortization             |  |                |       |              |  |               | 23,678  |              |  |              | 814    |   |  |   |      |  |  |   | 24,492  |  
|Transaction related expenses              |  |                |       |              |  |               |        |              |  |              |       |   |  |   |      |  |  |   |        |  
|Contract related losses                   |  |                |       |              |  |               | 4,762   |              |  |              |       |   |  |   |      |  |  |   | 4,762   |  
|                                          |  |                |        |              |  |               |         |              |  |              |        |   |  |   |       |  |  |   |         |  
|Operating income                          |  |                |       |              |  |               | 19,148  |              |  |              | 7      |   |  |   |      |  |  |   | 19,155  |  
|Interest expense                          |  |                |       |              |  |               | 23,429  |              |  |              |       |   |  |   |      |  |  |   | 23,429  |  
|Other income, net                         |  |                |       |              |  |               | (213    | )            |  |              | (29    | ) |  |   |      |  |  |   | (242    | )
|                                          |  |                |        |              |  |               |         |              |  |              |        |   |  |   |       |  |  |   |         |  
|Income (loss) before income taxes         |  |                |       |              |  |               | (4,068  | )            |  |              | 36     |   |  |   |      |  |  |   | (4,032  | )
|Income tax benefit                        |  |                |       |              |  |               | (432    | )            |  |              |       |   |  |   |      |  |  |   | (432    | )
|Loss in earnings of subsidiaries          |  |                | (3,600 | )            |  |               |        |              |  |              |       |   |  |   | 3,600 |  |  |   |        |  
|                                          |  |                |        |              |  |               |         |              |  |              |        |   |  |   |       |  |  |   |         |  
|Net income (loss)                         |  |                | (3,600 | )            |  |               | (3,636  | )            |  |              | 36     |   |  |   | 3,600 |  |  |   | (3,600  | )
|Other comprehensive loss foreign currency |  |                |       |              |  |               |        |              |  |              | (209   | ) |  |   |      |  |  |   | (209    | )
|                                          |  |                |        |              |  |               |         |              |  |              |        |   |  |   |       |  |  |   |         |  
|Comprehensive loss                        |  | $              | (3,600 | )            |  | $             | (3,636  | )            |  | $            | (173   | ) |  | $ | 3,600 |  |  | $ | (3,809  | )
|                                          |  |                |        |              |  |               |         |              |  |              |        |   |  |   |       |  |  |   |         |  

F-26



---



##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                
| | -------------------------------------------------------------------------------
| | Consolidating Condensed Statement of Cash
    Flows, Year Ended January 1, 2002

|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |      |      |      |   |        |         |         |  
|------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | - | ------------ | - | ------------- | ------ | ------------ | ------- | - | ---- | ---- | ---- | - | ------ | ------- | ------- | -
|                                      |                                                         |                                           |   | Issuer and   |   |               |        |             
|                                      |                                                         |                                           |   | Combined     |   | Combined      |        |             
|                                      |                                                         |                                           |   | Guarantor    |   | Non-guarantor |        |             
|                                      |                                                         | VSAH                                      |   | Subsidiaries |   | Subsidiaries  |        | Consolidated
|                                      |                                                         |                                           |   |              |   |               |        |             
|                                      |                                                         |                                          
|                                      |                                                         | (In thousands)                           
|Cash flows from operating activities  |                                                         | $                                         |  |              |   | $             | 24,874 |              |         | $ | (135 | )    |      | $ | 24,739 |        
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |      |      |      |   |        |        
|Cash flows from investing activities: |                                                         |                                           |   |              |   |               |        |              |         |   |      |      |      |   |        |        
|                                      | Purchase of property and equipment                      |                                           |   |             |   |               |        | (7,785       | )       |   |      | (267 | )    |   |        | (8,052  | )      
|                                      | Proceeds from sale of property, plant and
    equipment |                                           |   |             |   |               |        | 139          |         |   |      |     |      |   |        | 139     |        
|                                      | Purchase of contract rights                             |                                           |   |             |   |               |        | (21,367      | )       |   |      |     |      |   |        | (21,367 | )      
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |      |      |      |   |        |        
|                                      |                                                         | Net cash used in investing activities     |   |              |  |               |        |              | (29,013 | ) |      |      | (267 | ) |        |         | (29,280 | )
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |      |      |      |   |        |        
|Cash flows from financing activities: |                                                         |                                           |   |              |   |               |        |              |         |   |      |      |      |   |        |        
|                                      | Net borrowings  revolving loans                        |                                           |   |             |   |               |        | 6,750        |         |   |      |     |      |   |        | 6,750   |        
|                                      | Principal payments on long-term debt                    |                                           |   |             |   |               |        | (1,150       | )       |   |      |     |      |   |        | (1,150  | )      
|                                      | Principal payments on capital lease obligations         |                                           |   |             |   |               |        | (149         | )       |   |      |     |      |   |        | (149    | )      
|                                      | Decrease in bank overdrafts                             |                                           |   |             |   |               |        | (454         | )       |   |      |     |      |   |        | (454    | )      
|                                      | Increase in loans to related parties                    |                                           |   |             |   |               |        | (40          | )       |   |      |     |      |   |        | (40     | )      
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |      |      |      |   |        |        
|                                      |                                                         | Net cash provided by financing activities |   |              |  |               |        |              | 4,957   |   |      |      |     |   |        |         | 4,957   |  
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |      |      |      |   |        |        
|Increase (decrease) in cash           |                                                         |                                           |  |              |   |               | 818    |              |         |   | (402 | )    |      |   | 416    |        
|Cash and cash equivalents:            |                                                         |                                           |   |              |   |               |        |              |         |   |      |      |      |   |        |        
|                                      | Beginning of year                                       |                                           |   |             |   |               |        | 14,158       |         |   |      | 568  |      |   |        | 14,726  |        
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |      |      |      |   |        |        
|                                      | End of year                                             |                                           | $ |             |   |               | $      | 14,976       |         |   | $    | 166  |      |   | $      | 15,142  |        
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |      |      |      |   |        |        

F-27



---



##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                             
| | ------------------------------------------------------------
| | Consolidating Condensed Balance Sheet,
    December 31, 2002

|                                                   |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |         |         |  
|-------------------------------------------------- | -------------------------- | ------------------------------ | ------ | ------------ | ------ | ------------- | ------- | ------------ | ------- | ------------ | ----- | ------ | ------ | - | ------ | ------- | ------ | - | ------- | ------- | ------- | -
|                                                   |                            |                                |        | Issuer and   |        |               |         |              |         |             
|                                                   |                            |                                |        | Combined     |        | Combined      |         |              |         |             
|                                                   |                            |                                |        | Guarantor    |        | Non-guarantor |         |              |         |             
|                                                   |                            | VSAH                           |        | Subsidiaries |        | Subsidiaries  |         | Eliminations |         | Consolidated
|                                                   |                            |                                |        |              |        |               |         |              |         |             
|                                                   |                            |                               
|                                                   |                            | (In thousands)                
|ASSETS                                            
|Current assets:                                    |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        
|                                                   | Cash and cash equivalents  |                                | $      |             |        |               | $       | 10,150       |         |              | $     | 224    |        |   | $      |        |        |   | $       | 10,374  |        
|                                                   | Accounts receivable        |                                |        |             |        |               |         | 15,309       |         |              |       | 1,179  |        |   |        |        |        |   |         | 16,488  |        
|                                                   | Other current assets       |                                |        |             |        |               |         | 24,948       |         |              |       | 1,147  |        |   |        | (7,295  | )      |   |         | 18,800  |        
|                                                   |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        
|                                                   |                            | Total current assets           |        |              |        |               |         |              | 50,407  |              |       |        | 2,550  |   |        |         | (7,295 | ) |         |         | 45,662  |  
|Property and equipment                             |                            |                                |       |              |        |               | 52,951  |              |         |              | 3,108 |        |        |   |       |         |        |   | 56,059  |        
|Contract rights, net                               |                            |                                |       |              |        |               | 101,017 |              |         |              | 685   |        |        |   |       |         |        |   | 101,702 |        
|Cost in excess of net assets acquired, net         |                            |                                |       |              |        |               | 46,457  |              |         |              |      |        |        |   |       |         |        |   | 46,457  |        
|Investment in subsidiaries                         |                            |                                | (5,268 | )            |        |               |        |              |         |              |      |        |        |   | 5,268  |         |        |   |         |        
|Other assets                                       |                            |                                |       |              |        |               | 30,290  |              |         |              | 22    |        |        |   |       |         |        |   | 30,312  |        
|                                                   |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        
|Total assets                                       |                            | $                              | (5,268 | )            |        | $             | 281,122 |              |         | $            | 6,365 |        |        | $ | (2,027 | )       |        | $ | 280,192 |        
|                                                   |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        
|                                                  
|LIABILITIES AND STOCKHOLDERS
    DEFICIENCY      
|Current liabilities:                               |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        
|                                                   | Intercompany liabilities   |                                | $      |             |        |               | $       |              |         |              | $     | 7,295  |        |   | $      | (7,295  | )      |   | $       |         |        
|                                                   | Other current liabilities  |                                |        |             |        |               |         | 55,047       |         |              |       | 1,431  |        |   |        |        |        |   |         | 56,478  |        
|                                                   |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        
|                                                   |                            | Total current liabilities      |        |              |       |               |         |              | 55,047  |              |       |        | 8,726  |   |        |         | (7,295 | ) |         |         | 56,478  |  
|Long-term debt                                     |                            |                                |       |              |        |               | 224,250 |              |         |              |      |        |        |   |       |         |        |   | 224,250 |        
|Other liabilities                                  |                            |                                |       |              |        |               | 4,732   |              |         |              |      |        |        |   |       |         |        |   | 4,732   |        
|                                                   |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        
|                                                   |                            | Total liabilities              |        |              |       |               |         |              | 284,029 |              |       |        | 8,726  |   |        |         | (7,295 | ) |         |         | 285,460 |  
|                                                   |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        
|Stockholders deficiency:                          |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        
|                                                   | Common stock               |                                |        | 215          |        |               |         | 215          |         |              |       |       |        |   |        | (215    | )      |   |         | 215     |        
|                                                   | Additional paid-in capital |                                |        | 67,202       |        |               |         | 67,202       |         |              |       |       |        |   |        | (67,202 | )      |   |         | 67,202  |        
|                                                   | Accumulated deficit        |                                |        | (21,566      | )      |               |         | (19,649      | )       |              |       | (1,917 | )      |   |        | 21,566  |        |   |         | (21,566 | )      
|                                                   | Treasury stock and other   |                                |        | (51,119      | )      |               |         | (50,675      | )       |              |       | (444   | )      |   |        | 51,119  |        |   |         | (51,119 | )      
|                                                   |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        
|                                                   |                            | Total stockholders deficiency |        |              | (5,268 | )             |         |              | (2,907  | )            |       |        | (2,361 | ) |        |         | 5,268  |   |         |         | (5,268  | )
|                                                   |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        
|Total liabilities and stockholders
    deficiency |                            | $                              | (5,268 | )            |        | $             | 281,122 |              |         | $            | 6,365 |        |        | $ | (2,027 | )       |        | $ | 280,192 |        
|                                                   |                            |                                |        |              |        |               |         |              |         |              |       |        |        |   |        |         |        |   |         |        

F-28



---



##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Consolidating Condensed Statement of
    Operations and Comprehensive Income, Year Ended 
     December 31, 2002

|                                            |  |                |       |              |  |               |         |              |  |              |        |   |  |   |        |   |  |   |         |  
|------------------------------------------- |  | -------------- | ----- | ------------ |  | ------------- | ------- | ------------ |  | ------------ | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                            |  |                |       | Issuer and   |  |               |         |              |  |             
|                                            |  |                |       | Combined     |  | Combined      |         |              |  |             
|                                            |  |                |       | Guarantor    |  | Non-guarantor |         |              |  |             
|                                            |  | VSAH           |       | Subsidiaries |  | Subsidiaries  |         | Eliminations |  | Consolidated
|                                            |  |                |       |              |  |               |         |              |  |             
|                                            |  |               
|                                            |  | (In thousands)
|Net sales                                   |  | $              |      |              |  | $             | 547,188 |              |  | $            | 29,974 |   |  | $ |       |   |  | $ | 577,162 |  
|Cost of sales                               |  |                |      |              |  |               | 444,767 |              |  |              | 26,162 |   |  |   |       |   |  |   | 470,929 |  
|Selling, general, and administrative        |  |                |      |              |  |               | 52,369  |              |  |              | 2,888  |   |  |   |       |   |  |   | 55,257  |  
|Depreciation and amortization               |  |                |      |              |  |               | 25,209  |              |  |              | 976    |   |  |   |       |   |  |   | 26,185  |  
|Transaction related expenses                |  |                |      |              |  |               | 597     |              |  |              |       |   |  |   |       |   |  |   | 597     |  
|Contract related losses                     |  |                |      |              |  |               | 699     |              |  |              |       |   |  |   |       |   |  |   | 699     |  
|                                            |  |                |       |              |  |               |         |              |  |              |        |   |  |   |        |   |  |   |         |  
|Operating income (loss)                     |  |                |      |              |  |               | 23,547  |              |  |              | (52    | ) |  |   |       |   |  |   | 23,495  |  
|Interest expense                            |  |                |      |              |  |               | 20,727  |              |  |              | 15     |   |  |   |       |   |  |   | 20,742  |  
|Other income, net                           |  |                |      |              |  |               | (1,553  | )            |  |              | (3     | ) |  |   |       |   |  |   | (1,556  | )
|                                            |  |                |       |              |  |               |         |              |  |              |        |   |  |   |        |   |  |   |         |  
|Income (loss) before income taxes           |  |                |      |              |  |               | 4,373   |              |  |              | (64    | ) |  |   |       |   |  |   | 4,309   |  
|Income tax benefit                          |  |                |      |              |  |               | (148    | )            |  |              | (39    | ) |  |   |       |   |  |   | (187    | )
|Equity in earnings of subsidiaries          |  |                | 4,496 |              |  |               |        |              |  |              |       |   |  |   | (4,496 | ) |  |   |        |  
|                                            |  |                |       |              |  |               |         |              |  |              |        |   |  |   |        |   |  |   |         |  
|Net income (loss)                           |  |                | 4,496 |              |  |               | 4,521   |              |  |              | (25    | ) |  |   | (4,496 | ) |  |   | 4,496   |  
|Other comprehensive income foreign currency |  |                |      |              |  |               |        |              |  |              | 27     |   |  |   |       |   |  |   | 27      |  
|                                            |  |                |       |              |  |               |         |              |  |              |        |   |  |   |        |   |  |   |         |  
|Comprehensive income                        |  | $              | 4,496 |              |  | $             | 4,521   |              |  | $            | 2      |   |  | $ | (4,496 | ) |  | $ | 4,523   |  
|                                            |  |                |       |              |  |               |         |              |  |              |        |   |  |   |        |   |  |   |         |  

F-29



---



##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Consolidating Condensed Statement of Cash
    Flows, Year Ended December 31, 2002

|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |     |      |      |   |        |         |         |  
|------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | - | ------------ | - | ------------- | ------ | ------------ | ------- | - | --- | ---- | ---- | - | ------ | ------- | ------- | -
|                                      |                                                         |                                           |   | Issuer and   |   |               |        |             
|                                      |                                                         |                                           |   | Combined     |   | Combined      |        |             
|                                      |                                                         |                                           |   | Guarantor    |   | Non-guarantor |        |             
|                                      |                                                         | VSAH                                      |   | Subsidiaries |   | Subsidiaries  |        | Consolidated
|                                      |                                                         |                                           |   |              |   |               |        |             
|                                      |                                                         |                                          
|                                      |                                                         | (In thousands)                           
|Cash flows from operating activities  |                                                         | $                                         |  |              |   | $             | 37,906 |              |         | $ | 667 |      |      | $ | 38,573 |        
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |     |      |      |   |        |        
|Cash flows from investing activities: |                                                         |                                           |   |              |   |               |        |              |         |   |     |      |      |   |        |        
|                                      | Purchase of property and equipment                      |                                           |   |             |   |               |        | (9,292       | )       |   |     | (609 | )    |   |        | (9,901  | )      
|                                      | Proceeds from sale of property, plant and
    equipment |                                           |   |             |   |               |        | 2,515        |         |   |     |     |      |   |        | 2,515   |        
|                                      | Purchase of contract rights                             |                                           |   |             |   |               |        | (37,660      | )       |   |     |     |      |   |        | (37,660 | )      
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |     |      |      |   |        |        
|                                      |                                                         | Net cash used in investing activities     |   |              |  |               |        |              | (44,437 | ) |     |      | (609 | ) |        |         | (45,046 | )
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |     |      |      |   |        |        
|Cash flows from financing activities: |                                                         |                                           |   |              |   |               |        |              |         |   |     |      |      |   |        |        
|                                      | Net borrowings  revolving loans                        |                                           |   |             |   |               |        | 2,250        |         |   |     |     |      |   |        | 2,250   |        
|                                      | Principal payments on long-term debt                    |                                           |   |             |   |               |        | (1,150       | )       |   |     |     |      |   |        | (1,150  | )      
|                                      | Principal payments on capital lease obligations         |                                           |   |             |   |               |        | (267         | )       |   |     |     |      |   |        | (267    | )      
|                                      | Increase in bank overdrafts                             |                                           |   |             |   |               |        | 968          |         |   |     |     |      |   |        | 968     |        
|                                      | Increase in loans to related parties                    |                                           |   |             |   |               |        | (96          | )       |   |     |     |      |   |        | (96     | )      
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |     |      |      |   |        |        
|                                      |                                                         | Net cash provided by financing activities |   |              |  |               |        |              | 1,705   |   |     |      |     |   |        |         | 1,705   |  
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |     |      |      |   |        |        
|Increase (decrease) in cash           |                                                         |                                           |  |              |   |               | (4,826 | )            |         |   | 58  |      |      |   | (4,768 | )      
|Cash and cash equivalents:            |                                                         |                                           |   |              |   |               |        |              |         |   |     |      |      |   |        |        
|                                      | Beginning of year                                       |                                           |   |             |   |               |        | 14,976       |         |   |     | 166  |      |   |        | 15,142  |        
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |     |      |      |   |        |        
|                                      | End of year                                             |                                           | $ |             |   |               | $      | 10,150       |         |   | $   | 224  |      |   | $      | 10,374  |        
|                                      |                                                         |                                           |   |              |   |               |        |              |         |   |     |      |      |   |        |        

F-30



---



##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                             
| | ------------------------------------------------------------
| | Consolidating Condensed Balance Sheet,
    December 30, 2003

|                                                            |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |          |         | 
|----------------------------------------------------------- | -------------------------- | --------------------------------------- | ------- | ------------- | ------- | ------------ | ----- | ------------ | ----- | - | ------ | ------ | ------ | - | ------- | -------- | ------- | 
|                                                            |                            | Issuer and                              |         |               |         |              |       |             
|                                                            |                            | Combined                                |         | Combined      |         |              |       |             
|                                                            |                            | Guarantor                               |         | Non-guarantor |         |              |       |             
|                                                            |                            | Subsidiaries                            |         | Subsidiaries  |         | Eliminations |       | Consolidated
|                                                            |                            |                                         |         |               |         |              |       |             
|                                                            |                            |                                        
|                                                            |                            | (In thousands)                         
|ASSETS                                                     
|Current assets:                                             |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         
|                                                            | Cash and cash equivalents  |                                         | $       | 22,696        |         |              | $     | 233          |       |   | $      |       |        |   | $       | 22,929   |        
|                                                            | Restricted cash            |                                         |         | 13,628        |         |              |       |             |       |   |        |       |        |   |         | 13,628   |        
|                                                            | Accounts receivable        |                                         |         | 15,619        |         |              |       | 2,118        |       |   |        |       |        |   |         | 17,737   |        
|                                                            | Other current assets       |                                         |         | 27,993        |         |              |       | 1,586        |       |   |        | (7,271 | )      |   |         | 22,308   |        
|                                                            |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         
|                                                            |                            | Total current assets                    |         |               | 79,936  |              |       |              | 3,937 |   |        |        | (7,271 | ) |         |          | 76,602  | 
|Property and equipment                                      |                            |                                         | 49,240  |               |         |              | 3,511 |              |       |   |       |        |        |   | 52,751  |         
|Contract rights, net                                        |                            |                                         | 100,571 |               |         |              | 941   |              |       |   |       |        |        |   | 101,512 |         
|Cost in excess of net assets acquired, net                  |                            |                                         | 46,457  |               |         |              |      |              |       |   |       |        |        |   | 46,457  |         
|Other assets                                                |                            |                                         | 44,939  |               |         |              | 12    |              |       |   |       |        |        |   | 44,951  |         
|                                                            |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         
|Total assets                                                |                            | $                                       | 321,143 |               |         | $            | 8,401 |              |       | $ | (7,271 | )      |        | $ | 322,273 |         
|                                                            |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIENCY)      
|Current liabilities:                                        |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         
|                                                            | Intercompany liabilities   |                                         | $       |              |         |              | $     | 7,271        |       |   | $      | (7,271 | )      |   | $       |         |        
|                                                            | Other current liabilities  |                                         |         | 75,188        |         |              |       | 1,580        |       |   |        |       |        |   |         | 76,768   |        
|                                                            |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         
|                                                            |                            | Total current liabilities               |         |               | 75,188  |              |       |              | 8,851 |   |        |        | (7,271 | ) |         |          | 76,768  | 
|Long-term debt                                              |                            |                                         | 170,245 |               |         |              |      |              |       |   |       |        |        |   | 170,245 |         
|Other liabilities                                           |                            |                                         | 4,944   |               |         |              |      |              |       |   |       |        |        |   | 4,944   |         
|                                                            |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         
|                                                            |                            | Total liabilities                       |         |               | 250,377 |              |       |              | 8,851 |   |        |        | (7,271 | ) |         |          | 251,957 | 
|                                                            |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         
|Stockholders equity (deficiency):                          |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         
|                                                            | Common stock               |                                         |         | 400           |         |              |       |             |       |   |        |       |        |   |         | 400      |        
|                                                            | Additional paid-in capital |                                         |         | 218,598       |         |              |       |             |       |   |        |       |        |   |         | 218,598  |        
|                                                            | Accumulated deficit        |                                         |         | (27,292       | )       |              |       | (674         | )     |   |        |       |        |   |         | (27,966  | )      
|                                                            | Treasury stock and other   |                                         |         | (120,940      | )       |              |       | 224          |       |   |        |       |        |   |         | (120,716 | )      
|                                                            |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         
|                                                            |                            | Total stockholders equity (deficiency) |         |               | 70,766  |              |       |              | (450  | ) |        |        |       |   |         |          | 70,316  | 
|                                                            |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         
|Total liabilities and stockholders equity
    (deficiency) |                            | $                                       | 321,143 |               |         | $            | 8,401 |              |       | $ | (7,271 | )      |        | $ | 322,273 |         
|                                                            |                            |                                         |         |               |         |              |       |              |       |   |        |        |        |   |         |         

F-31



---



##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | Consolidating Condensed Statement of
    Operations and Comprehensive Income (Loss), Year Ended
    December 30, 2003

|                                            |  |                |         |               |  |              |        |   |  |   |         |  
|------------------------------------------- |  | -------------- | ------- | ------------- |  | ------------ | ------ | - |  | - | ------- | -
|                                            |  | Issuer and     |         |               |  |             
|                                            |  | Combined       |         | Combined      |  |             
|                                            |  | Guarantor      |         | Non-guarantor |  |             
|                                            |  | Subsidiaries   |         | Subsidiaries  |  | Consolidated
|                                            |  |                |         |               |  |             
|                                            |  |               
|                                            |  | (In thousands)
|Net sales                                   |  | $              | 579,329 |               |  | $            | 36,728 |   |  | $ | 616,057 |  
|Cost of sales                               |  |                | 472,706 |               |  |              | 31,280 |   |  |   | 503,986 |  
|Selling, general, and administrative        |  |                | 55,710  |               |  |              | 3,881  |   |  |   | 59,591  |  
|Depreciation and amortization               |  |                | 26,308  |               |  |              | 811    |   |  |   | 27,119  |  
|Transaction related expenses                |  |                | 2,577   |               |  |              |       |   |  |   | 2,577   |  
|Contract related losses                     |  |                | 647     |               |  |              | 184    |   |  |   | 831     |  
|                                            |  |                |         |               |  |              |        |   |  |   |         |  
|Operating income                            |  |                | 21,381  |               |  |              | 572    |   |  |   | 21,953  |  
|Interest expense                            |  |                | 32,763  |               |  |              |       |   |  |   | 32,763  |  
|Other income, net                           |  |                | (47     | )             |  |              | (8     | ) |  |   | (55     | )
|                                            |  |                |         |               |  |              |        |   |  |   |         |  
|Income (loss) before income taxes           |  |                | (11,335 | )             |  |              | 580    |   |  |   | (10,755 | )
|Income tax provision (benefit)              |  |                | (6,341  | )             |  |              | 4      |   |  |   | (6,337  | )
|                                            |  |                |         |               |  |              |        |   |  |   |         |  
|Net income (loss)                           |  |                | (4,994  | )             |  |              | 576    |   |  |   | (4,418  | )
|Other comprehensive income foreign currency |  |                |        |               |  |              | 668    |   |  |   | 668     |  
|                                            |  |                |         |               |  |              |        |   |  |   |         |  
|Comprehensive income (loss)                 |  | $              | (4,994  | )             |  | $            | 1,244  |   |  | $ | (3,750  | )
|                                            |  |                |         |               |  |              |        |   |  |   |         |  

F-32



---



##### Table of Contents



VOLUME SERVICES AMERICA
HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Consolidating Condensed Statement of Cash
    Flows, Year Ended December 30, 2003

|                                      |                                                         |                                           |        |               |         |              |       |        |        |   |        |          |         |  
|------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ------ | ------------- | ------- | ------------ | ----- | ------ | ------ | - | ------ | -------- | ------- | -
|                                      |                                                         | Issuer and                                |        |               |         |             
|                                      |                                                         | Combined                                  |        | Combined      |         |             
|                                      |                                                         | Guarantor                                 |        | Non-guarantor |         |             
|                                      |                                                         | Subsidiaries                              |        | Subsidiaries  |         | Consolidated
|                                      |                                                         |                                           |        |               |         |             
|                                      |                                                         |                                          
|                                      |                                                         | (In thousands)                           
|Cash flows from operating activities  |                                                         | $                                         | 25,753 |               |         | $            | 1,406 |        |        | $ | 27,159 |         
|                                      |                                                         |                                           |        |               |         |              |       |        |        |   |        |         
|Cash flows from investing activities: |                                                         |                                           |        |               |         |              |       |        |        |   |        |         
|                                      | Purchase of property and equipment                      |                                           |        | (6,507        | )       |              |       | (1,397 | )      |   |        | (7,904   | )      
|                                      | Proceeds from sale of property, plant and
    equipment |                                           |        | 585           |         |              |       |       |        |   |        | 585      |        
|                                      | Purchase of contract rights                             |                                           |        | (16,029       | )       |              |       |       |        |   |        | (16,029  | )      
|                                      |                                                         |                                           |        |               |         |              |       |        |        |   |        |         
|                                      |                                                         | Net cash used in investing activities     |        |               | (21,951 | )            |       |        | (1,397 | ) |        |          | (23,348 | )
|                                      |                                                         |                                           |        |               |         |              |       |        |        |   |        |         
|Cash flows from financing activities: |                                                         |                                           |        |               |         |              |       |        |        |   |        |         
|                                      | Net repayments  revolving loans                        |                                           |        | (11,000       | )       |              |       |       |        |   |        | (11,000  | )      
|                                      | Principal payments on long-term debt                    |                                           |        | (110,400      | )       |              |       |       |        |   |        | (110,400 | )      
|                                      | Proceeds from issuance of long-term debt                |                                           |        | 65,000        |         |              |       |       |        |   |        | 65,000   |        
|                                      | Proceeds from issuance of stock, net                    |                                           |        | 151,517       |         |              |       |       |        |   |        | 151,517  |        
|                                      | Proceeds from issuance of subordinated notes            |                                           |        | 105,245       |         |              |       |       |        |   |        | 105,245  |        
|                                      | Payment of existing subordinated notes                  |                                           |        | (87,750       | )       |              |       |       |        |   |        | (87,750  | )      
|                                      | Repurchase of common stock                              |                                           |        | (71,440       | )       |              |       |       |        |   |        | (71,440  | )      
|                                      | Proceeds from loans to related parties                  |                                           |        | 1,241         |         |              |       |       |        |   |        | 1,241    |        
|                                      | Payment of debt issuance costs                          |                                           |        | (12,837       | )       |              |       |       |        |   |        | (12,837  | )      
|                                      | Restricted cash                                         |                                           |        | (22,048       | )       |              |       |       |        |   |        | (22,048  | )      
|                                      | Increase in bank overdrafts                             |                                           |        | 1,282         |         |              |       |       |        |   |        | 1,282    |        
|                                      | Loans to related parties                                |                                           |        | (66           | )       |              |       |       |        |   |        | (66      | )      
|                                      |                                                         |                                           |        |               |         |              |       |        |        |   |        |         
|                                      |                                                         | Net cash provided by financing activities |        |               | 8,744   |              |       |        |       |   |        |          | 8,744   |  
|                                      |                                                         |                                           |        |               |         |              |       |        |        |   |        |         
|Increase (decrease) in cash           |                                                         |                                           | 12,546 |               |         |              | 9     |        |        |   | 12,555 |         
|Cash and cash equivalents:            |                                                         |                                           |        |               |         |              |       |        |        |   |        |         
|                                      | Beginning of year                                       |                                           |        | 10,150        |         |              |       | 224    |        |   |        | 10,374   |        
|                                      |                                                         |                                           |        |               |         |              |       |        |        |   |        |         
|                                      | End of year                                             |                                           | $      | 22,696        |         |              | $     | 233    |        |   | $      | 22,929   |        
|                                      |                                                         |                                           |        |               |         |              |       |        |        |   |        |         

F-33



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.






|         |                                              
|-------- | ---------------------------------------------
|Item 9A. | Internal Control over Financial
    Reporting

Evaluation of disclosure controls and
procedures.We maintain disclosure
controls and procedures that are designed to ensure that
information required to be disclosed in our report under the
Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules
and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosures. Any controls
and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives. Our management, with the participation of
our Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of December 30, 2003.
Based upon that evaluation and subject to the foregoing, our
Chief Executive Officer and Chief Financial Officer concluded
that the design and operation of our disclosure controls and
procedures provided reasonable assurance that the disclosure
controls and procedures are effective to accomplish their
objectives.

Changes in internal control over financial
reporting.There was no change in our
internal control over financial reporting that occurred during
the fourth fiscal quarter of the year covered by this Annual
Report on Form 10-K that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information required by this Item with
respect to the directors and compliance with Section 16(a)
of the Securities and Exchange Act is incorporated by reference
from the information provided under the headings Proposal
One  Election of Directors and
Section 16(a) Beneficial Ownership Reporting
Compliance respectively, contained in our Proxy Statement
to be filed with the Securities and Exchange Commission in
connection with the solicitation of proxies for our Annual
Meeting of Stockholders to be held on May 20, 2004. The
information required by this Item with respect to our executive
officers is contained in Item 1 of Part I of this
Annual Report under the heading Executive Officers.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this Item is
incorporated by reference from the information provided under
the heading Executive Compensation of our Proxy
Statement. The information specified in Item 402
(k) and (1) of Regulation S-K and set forth in
our Proxy Statement is not incorporated herein by reference.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

Information required by this Item is incorporated
herein by reference from the information provided under the
headings Share Ownership of Certain Beneficial Owners and
Management of our Proxy Statement.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this Item is
incorporated herein by reference from the information provided
under the heading Management Ownership and Transactions
with Management of our Proxy Statement.

34



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##### Table of Contents








|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The information required by this Item is
incorporated by reference from the information provided under
the heading Independent Auditor Fees of our Proxy
Statement.




PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) The following documents are filed as a
part of this report:

1. Financial Statements: See Index to
Consolidated Financial Statements under Item 8 on
Page F-1 of this report.

2. Financial Statement Schedules: None.

3. Exhibits

The following exhibits are filed herewith or are
incorporated by reference to exhibits previously filed with the
SEC.

|        |    |               |  |                                                                                                                                                                                                                                                                                                                                             
|------- | -- | ------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |              
|Number  |    | Exhibit Title
|        |    |              
|        | 3  | .1(5)         |  | Restated Certificate of Incorporation of Volume
    Services America Holdings, Inc.                                                                                                                                                                                                                                                         
|        | 3  | .2            |  | Amended and Restated By-laws of Volume Services
    America Holdings, Inc.                                                                                                                                                                                                                                                                  
|        | 4  | .1(2)         |  | Indenture, dated as of March 4, 1999, among
    Volume Services America, Inc., the guarantors thereto and
    Norwest Bank Minnesota, National Association, as Trustee
    (including Form of Senior Subordinated Note).                                                                                                                    
|        | 4  | .2(4)         |  | Form of Supplemental Indenture, among Volume
    Services America, Inc., the guarantors thereto and Wells
    Fargo Bank Minnesota, N.A., as successor to Norwest Bank
    Minnesota, National Association, as Trustee.                                                                                                                     
|        | 4  | .3(6)         |  | Indenture, dated as of December 10, 2003,
    among Volume Services America Holdings, Inc., the
    guarantors thereto and The Bank of New York, as Trustee.                                                                                                                                                                                
|        | 4  | .4(6)         |  | Form of Subordinated Note (included in
    Exhibit 4.3).                                                                                                                                                                                                                                                                                    
|        | 4  | .5(6)         |  | Registration Rights Agreement, dated as of
    December 10, 2003, among Volume Services America
    Holdings, Inc., BCP Volume L.P., BCP Offshore Volume L.P.I
    Management Direct L.P., Lawrence E. Honig, Kenneth R. Frick and
    Recreational Services, L.L.C.                                                                        
|        | 4  | .6(6)         |  | Amended and Restated Stockholders Agreement                                                                                                                                                                                                                                                                                                 
|        | 4  | .7(4)         |  | Form of stock certificate for common stock, dated
    as of December 10, 2003, among Volume Services America
    Holdings, Inc., BCP Volume L.P., BCP Offshore Volume L.P.,
    VSI Management Direct L.P. and Recreational Services L.L.C.                                                                                                 
|        | 4  | .8(6)         |  | Global IDS Certificate.                                                                                                                                                                                                                                                                                                                     
|        | 4  | .9            |  | Board Observer Agreement, dated December 10,
    2003, between Volume Services America Holdings, Inc. and
    Blackstone Capital Partners II Merchant Banking Fund.                                                                                                                                                                         
|        | 10 | .1(6)         |  | Credit Agreement, dated as of December 10,
    2003, among Volume Services America, Inc., Volume Services
    America Holdings, Inc., certain financial institutions as
    the Lenders, CIBC World Markets Corp. as Lead Arranger and
    KeyBank National Association as the Fronting Bank, Swingline
    Lender and Administrative Agent.
|        | 10 | .2(3)         |  | Volume Services America Deferred Compensation
    Plan, effective as of June 1, 2000.*                                                                                                                                                                                                                                                      
|        | 10 | .3(1)         |  | Employment Agreement, dated as of August 24,
    1998, by and between VSI Acquisition II Corporation and John T.
    Dee.*                                                                                                                                                                                                                  
|        | 10 | .4(1)         |  | Letter Agreement, dated May 1, 2002,
    amending the terms of the Employment Agreement by and between
    Volume Services America Holdings, Inc. (formerly VSI
    Acquisition II Corporation) and John T. Dee.*                                                                                                                           

35



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##### Table of Contents



|        |    |               |  |                                                                                                                                                                                                                                              
|------- | -- | ------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |              
|Number  |    | Exhibit Title
|        |    |              
|        | 10 | .5(4)         |  | Separation Agreement, dated as of August 28,
    2003, by and between Volume Services America Holdings, Inc.
    and John T. Dee.*                                                                                                           
|        | 10 | .6(1)         |  | Employment Agreement dated as of
    November 17, 1995, by and between Volume
    Services, Inc. (a Delaware corporation) and Kenneth R.
    Frick.*                                                                                         
|        | 10 | .7(1)         |  | Employment Agreement dated as of
    September 29, 1998, by and between VSI Acquisition II
    Corporation and Janet L. Steinmayer.*                                                                                                         
|        | 10 | .8(1)         |  | Employment Agreement, dated April 15, 2002
    by and between Volume Services America Holdings, Inc. and
    Lawrence E. Honig.*                                                                                                             
|        | 10 | .9(3)         |  | Amendment and Waiver Agreement, dated as of
    July 1, 2003, by and between Volume Services America
    Holdings, Inc. and Lawrence E. Honig.*                                                                                              
|        | 10 | .10           |  | Volume Services America Holdings, Inc.
    Long-Term Incentive Plan.*                                                                                                                                                                        
|        | 12 | .1            |  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                           
|        | 21 | .1(5)         |  | Subsidiaries of Volume Services America
    Holdings, Inc. (d/b/a Centerplate).                                                                                                                                                              
|        | 31 | .1            |  | Certification of Principal Executive Officer of
    Volume Services America Holdings, Inc., pursuant to
    Rule 13a-14 of the Securities Exchange Act of 1934, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.
|        | 31 | .2            |  | Certification of Principal Financial Officer of
    Volume Services America Holdings, Inc., pursuant to
    Rule 13a-14 of the Securities Exchange Act of 1934, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.
|        | 32 | .1            |  | Certification of Principal Executive Officer of
    Volume Services America Holdings, Inc., pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                
|        | 32 | .2            |  | Certification of Principal Financial Officer of
    Volume Services America Holdings, Inc., pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                



---



|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(1) | Incorporated by reference to the Form S-1/ A
    filed on May 14, 2003.    
|   
|(2) | Incorporated by reference to the Form S-1/ A
    filed on July 16, 2003.   
|   
|(3) | Incorporated by reference to the Form S-1/ A
    filed on August 26, 2003. 
|   
|(4) | Incorporated by reference to the Form S-1/ A
    filed on November 7, 2003.
|   
|(5) | Incorporated by reference to the Form S-1/ A
    filed on December 4, 2003.
|   
|(6) | Incorporated by reference to the Form 8-K
    filed December 10, 2003.     



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| | * | Management contract or compensatory plan or
    arrangement required to be filed and herein incorporated as an
    exhibit.

(b) Reports on Form 8-K

VSAH filed a Current Report on Form 8-K
dated December 19, 2003 with the Commission reporting under
Item 5, Other Events, the completion of its IPO
of IDSs.

36



---



##### Table of Contents



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, thereto duly authorized, on March 26, 2004.



| |                                       
| | --------------------------------------
| | VOLUME SERVICES AMERICA HOLDINGS, INC.
|
| | By: /s/ LAWRENCE E. HONIG             

| |  | 
| |  | 
| |  | 

| |                        
| | -----------------------
| | Name: Lawrence E. Honig

| |        |                                                                   
| | ------ | ------------------------------------------------------------------
| | Title: | Chief Executive Officer and Chairman of the
    Board of Directors

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant and in the
capacities and on the date indicated.

|                                             |  |                                                                                                                      |  |                |  | 
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                             |  |                                                                                                                      |  |               
|Name                                         |  | Title                                                                                                                |  | Date          
|                                             |  |                                                                                                                      |  |               
|                                            
|/s/ LAWRENCE E. HONIGLawrence E. Honig       |  | Chief Executive Officer and Chairman of the Board
    of Directors
    (Principal Executive Officer)                 |  | March 26, 2004
|                                            
|/s/ KENNETH R. FRICKKenneth R. Frick         |  | Executive Vice President, Chief Financial Officer
    and Treasurer (Principal Financial and
    Accounting Officer) |  | March 26, 2004
|                                            
|/s/ FELIX P. CHEEFelix P. Chee               |  | Director                                                                                                             |  | March 26, 2004
|                                            
|/s/ PAUL HORNUNGPaul Hornung                 |  | Director                                                                                                             |  | March 26, 2004
|                                            
|/s/ MICHAEL A. WADSWORTHMichael A. Wadsworth |  | Director                                                                                                             |  | March 26, 2004
|                                            
|/s/ PETER WALLACEPeter Wallace               |  | Director                                                                                                             |  | March 26, 2004
|                                            
|/s/ DAVID M. WILLIAMSDavid M. Williams       |  | Director                                                                                                             |  | March 26, 2004

37