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Sequential Page 1 of 12
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1995, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
_____________
Commission file number 1-9364
FLAGSTAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3027522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
203 East Main Street
Spartanburg, South Carolina 29319-9966
(Address of principal executive offices)
(Zip Code)
(803) 597-8000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 5, 1995, 440 Shares of the registrant's Common Stock, par value
$0.01 per share, were outstanding, all of which are owned by the registrant's
parent, Flagstar Companies, Inc.
1
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements FORM 10-Q
Flagstar Corporation
Statements of Consolidated Operations
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
(In thousands)
<S> <C> <C>
Operating Revenues....................... $ 636,463 $ 626,273
Operating Expenses:
Product cost........................... 218,246 217,607
Payroll & benefits..................... 228,809 227,318
Depreciation & amortization expense.... 33,249 31,713
Utilities expense...................... 23,261 24,438
Other.................................. 95,559 86,444
599,124 587,520
Operating Income......................... 37,339 38,753
Other Charges:
Interest and debt expense.............. 62,472 57,115
Other - net............................ 345 255
62,817 57,370
Loss From Continuing Operations Before
Income Taxes (25,478) (18,617)
Provision for (Benefit from) Income
Taxes................................... 472 (2,411)
Loss From Continuing Operations.......... (25,950) (16,206)
Loss From Discontinued Operations - Net
of Provision For (Benefit From)Income
Taxes of: 1995-$360; 1994-$(2,531) (8,657) (10,419)
Net Loss................................. $ (34,607)$ (26,625)
</TABLE>
2
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FORM 10-Q
Flagstar Corporation
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(In thousands)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents................ $ 30,181 $ 66,720
Receivables, less allowance for doubtful
accounts of:
1995 - $4,882; 1994 - $4,561.......... 27,438 37,392
Merchandise and supply inventories....... 68,746 62,293
Net assets held for sale................. 82,798 77,320
Other.................................... 19,688 14,344
228,851 258,069
Property:
Property owned (at cost):
Land................................... 273,435 273,085
Buildings and improvements............. 835,167 813,305
Other property and equipment........... 468,267 462,421
Total property owned...................... 1,576,869 1,548,811
Less accumulated depreciation............. 509,858 477,176
Property owned - net...................... 1,067,011 1,071,635
Buildings and improvements, vehicles, and
other equipment held under capital
leases.................................. 194,091 194,348
Less accumulated amortization............. 73,940 69,958
Property held under capital leases - net.. 120,151 124,390
1,187,162 1,196,025
Other Assets:
Intangible assets - net................... 23,985 25,009
Deferred financing costs - net............ 70,315 71,955
Other..................................... 37,516 37,574
131,816 134,538
Total Assets $1,547,829 $1,588,632
</TABLE>
3
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FORM 10-Q
Flagstar Corporation
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(In thousands)
<S> <C> <C>
Liabilities
Current Liabilities:
Current maturities of long-term debt................ $ 31,636 $ 31,408
Accounts payable.................................... 92,293 102,464
Accrued salaries and vacations...................... 57,501 56,159
Accrued insurance................................... 45,637 45,165
Accrued taxes....................................... 19,300 21,795
Accrued interest.................................... 70,629 47,568
Accrued restructuring cost.......................... 13,943 13,771
Other............................................... 57,345 67,986
388,284 386,316
Long-Term Liabilities:
Debt, less current maturities....................... 2,060,813 2,067,648
Deferred income taxes............................... 23,928 21,679
Liability for self-insured claims................... 56,423 58,128
Other non-current liabilities and deferred credits.. 108,991 110,864
2,250,155 2,258,319
Note Payable to FCI 150,000 150,000
Total Liabilities 2,788,439 2,794,635
Shareholder's Deficit (1,240,610) (1,206,003)
Total Liabilities & Shareholder's Deficit $ 1,547,829 $1,588,632
</TABLE>
4
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Flagstar Corporation FORM 10-Q
Statements of Consolidated Cash Flows
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
(In thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (34,607) $ (26,625)
Adjustments to reconcile net loss
to cash flows from operating activities:
Depreciation and amortization of property 31,621 29,878
Amortization of intangible assets 1,629 1,834
Amortization of deferred financing costs 1,639 1,702
Deferred income taxes (661) 570
Equity in loss of discontinued operations 8,657 10,419
Other (2,208) 3,160
Decrease (increase) in assets:
Receivables 11,033 (3,546)
Inventories (6,453) (1,334)
Other current assets (5,344) (1,099)
Other assets (477) 92
Increase (decrease) in liabilities:
Accounts payable (10,381) (1,377)
Accrued salary and vacations 1,342 8,096
Accrued taxes (2,495) (9,166)
Other accrued liabilities 13,684 11,789
Other non-current liabilities and deferred
credits (111) (2,923)
Total adjustments 41,475 48,095
Net cash flows provided by operating activities 6,868 21,470
Cash Flows From Investing Activities:
Purchases of property (24,489) (20,139)
Proceeds from disposition of property 3,403 1,980
Receipts from (advances to)
discontinued operations (14,135) 18,065
Other (645) 187
Net cash flows provided by (used in) investing
activities (35,866) 93
</TABLE>
5
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<TABLE>
<CAPTION>
Flagstar Corporation FORM 10-Q
Statement of Consolidated Cash Flows
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
Three Months Ended March 31,
1995 1994
(In thousands)
<S> <C> <C>
Cash Flows From Financing Activities:
Net repayments under credit agreements $ --- $ (13,000)
Deferred financing costs --- (60)
Long-term debt payments (7,541) (8,164)
Other --- 1
Net cash flows used in financing activities (7,541) (21,223)
Increase (decrease) in cash and
cash equivalents (36,539) 340
Cash and Cash Equivalents at:
Beginning of period 66,720 24,174
End of period $ 30,181 $ 24,514
Supplemental Cash Flow Information:
Income taxes paid $ 480 $ 668
Interest paid $ 44,759 $ 40,508
Non-cash financing activities:
Capital lease obligations $ 1,113 $ 3,463
</TABLE>
6
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FORM 10-Q
FLAGSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(Unaudited)
Note 1. Introduction.
Flagstar Corporation ("Flagstar" or the "Company") is a wholly-owned
subsidiary of Flagstar Companies, Inc. ("FCI"). Flagstar, through its
wholly-owned subsidiaries, Denny's Holdings, Inc. and Spartan Holdings, Inc.
(and their respective subsidiaries), operates four restaurant chains.
Note 2. Interim Period Presentation.
The Statements of Consolidated Operations of Flagstar and its subsidiaries
for the three months ended March 31, 1995 and 1994 include all adjustments
management believes are necessary for a fair presentation of the results of
operations for such interim periods. All such adjustments are of a normal and
recurring nature.
Note 3. Per Share Data
As described in Note 1, the Company is a wholly-owned subsidiary of FCI.
Accordingly, per share data is not meaningful and has been omitted for all
periods.
Note 4. Divestiture of Canteen Holdings, Inc.
During the second quarter of 1994, the Company sold its food and vending
subsidiary for $447.1 million and adopted a plan to dispose of the remaining
concession and recreation services businesses of its subsidiary, Canteen
Holdings, Inc. The accompanying Consolidated Balance Sheets and Statements of
Consolidated Operations and Cash Flows reflect such businesses as discontinued
operations. During November 1994, the Company announced that it had entered
into an agreement to sell TW Recreational Services, Inc. ("TWRS"), which
operates its recreation services business. However, on May 12, 1995, the
Company received notification from the prospective buyer of TWRS' operation
that it was terminating such agreement. The Company will resume its efforts to
sell TWRS in light of this development. The Company is also continuing in its
efforts to sell Volume Services, Inc. ("Volume"), which operates its concession
services business. The major league baseball strike, which ended during April
1995, has delayed the sale of Volume beyond the time originally anticipated.
The Company has allocated to the discontinued segment a pro-rata portion
of its interest and debt expense related to its acquisition debt based on the
ratio of the net assets of its discontinued operations to its total consolidated
net assets as of the 1989 acquisition date. Interest and debt expense included
in discontinued operations for the quarters ended March 31, 1995 and 1994 were
$4.6 million and $14.4 million, respectively.
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FORM 10-Q
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results of Operations
The following discussion is intended to highlight significant changes in
financial position as of March 31, 1995 and the results of operations for the
first quarter of 1995 as compared to the corresponding 1994 period.
The interim Consolidated Financial Statements and this Management's
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto for the year ended December 31, 1994 and the related Management's
Discussion and Analysis of Financial Condition and Results of Operations, both
of which are contained in the Flagstar Corporation 1994 Annual Report on Form
10-K.
Results of Operations
Three Months Ended March 31, 1995 Compared to Three Months Ended March 31, 1994
Operating revenues from continuing operations for the first quarter increased
by approximately $10.2 million (1.6%) as compared with the same period in 1994.
Denny's revenues increased by $7.9 million (2.2%). Comparable store sales for
Denny's increased 3.9% in the first quarter of 1995 principally due to an 8.8%
increase in traffic offset, in part, by a 4.5% decrease in average check.
Denny's increase in comparable store sales reflects the continued success of
the concept's value strategy and the impact of remodeled restaurants. The
effect of the increase in Denny's comparable store sales was partially offset
by a 41-unit net decrease in the number of Company-owned restaurants, largely
due to the sale of restaurants to franchisees. During the 1995 quarter, the
Company completed remodels on 42 Company-owned restaurants bringing the total
completed to 166. Hardee's revenues decreased 1.9% to $158.0 million during the
first quarter of 1995 from $161.1 million during the comparable quarter of 1994
despite a 29-unit increase in the number of restaurants operated at March 31,
1995 as compared to March 31, 1994. Hardee's comparable store sales decreased
by 6.5% reflecting decreases in average check of 0.2% and in traffic of 6.4% as
the quick-service segment continues to be affected by the aggressive value
positioning of the Company's principal competitors. During the 1995 quarter,
the Company completed remodels on 40 of its Hardee's units. Quincy's revenues
increased 7.3% to $72.4 million during the first quarter of 1995 from $67.5
million during the comparable quarter in 1994 principally as a result of an
8.4% increase in comparable store sales. Such increase included a 10.2%
increase in traffic which was offset, in part, by a 1.6% decrease in average
check. Revenue gains at Quincy's were the result of successful product
promotions and the impact of remodeled restaurants. During the 1995 quarter,
the Company completed remodels on 16 of its Quincy's restaurants. El Pollo
Loco's revenues increased $0.4 million during the first quarter of 1995 to
$31.5 million over the comparable quarter of 1994. Comparable store sales
increased 6.2% during the 1995 quarter and include increases in traffic of 5.2%
and in average check of 1.0%, respectively. The favorable impact of small-meal
promotions and remodeled restaurants at El Pollo Loco resulted in the increase
in comparable store sales. Such increase was offset, in part, by a 19-unit
decrease in the number of Company-owned restaurants. During the 1995 quarter,
the Company completed remodels on 16 of its El Pollo Loco restaurants.
8
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FORM 10-Q
The Company's operating expenses increased by $11.6 million (2.0%) in the
first quarter of 1995 as compared with the same period of 1994. Denny's
operating expenses increased by $0.5 million during the first quarter of 1995
as compared with the first quarter of 1994 and reflect increases in advertising
of $1.6 million and depreciation and amortization of $1.0 million. Such
increases were offset by a decrease in payroll of $4.5 million which resulted
from favorable trends in self-insurance claims and a $0.8 million decrease in
product cost. Also, during the 1995 quarter, operating expenses reflect a
gain of approximately $2.3 million from the sale of ten Denny's restaurants,
compared with a gain of $3.5 million from the sale of 18 restaurants during the
prior year quarter. Hardee's operating expenses increased by $5.6 million
principally due to increases in payroll of $2.5 million, overhead expenses of
$1.2 million, and maintenance expenses of $0.6 million. The operating expenses
at Hardee's reflect a 29-unit increase in the number of restaurants operated at
the end of the 1995 quarter as compared with the 1994 quarter. Quincy's
experienced a $5.7 million increase in operating expenses during the first
quarter of 1995 over the 1994 quarter principally due to increases in payroll
of $1.9 million, product cost of $1.7 million, and advertising of $1.4 million.
The operating expenses of El Pollo Loco decreased by $1.1 million during the
1995 quarter in comparison to the comparable 1994 quarter principally as a
result of a gain of $0.9 million from the sale of seven restaurants during the
1995 quarter.
Total interest and debt expense decreased by $4.4 million in the first
quarter of 1995 principally as a result of a reduction in interest expense
following the payment during June 1994 of the principal amounts outstanding
under the term facility ($170.2 million) of the Company's Restated Credit
Agreement and certain other indebtedness following the sale of the Company's
food and vending subsidiary, and an increase in interest income offset by an
increase in expense related to interest rate exchange agreements. Interest and
debt expense allocated to continuing operations increased by $7.8 million in
the first quarter as a result of the Company's sale of its food and vending
subsidiary in June 1994.
Liquidity And Capital Resources
At March 31, 1995 and December 31, 1994, the Company had working capital
deficits of $159.4 million and $128.3 million, respectively. The increase in
the deficit between December 31, 1994 and March 31, 1995 is attributable
primarily to increases in accrued interest related to the timing of interest
payments and a reduction in cash and cash equivalents which has been used to
finance the Company's restaurant remodeling programs. The Company is able to
operate with a substantial working capital deficiency because (i) restaurant
operations and most other food service operations are conducted primarily on a
cash (and cash equivalent) basis with a low level of accounts receivable, (ii)
rapid turnover allows a limited investment in inventories and (iii) accounts
payable for food, beverages and supplies usually become due after the receipt
of cash from the related sales.
As a result of the termination of the agreement to sell TWRS on May 12, 1995
(as described in Note 4 to the consolidated financial statements), the Company
is continuing its efforts to sell TWRS, which operates the Company's recreation
services business, as well as Volume, which operates its concession services
business. The major league baseball strike, which ended during April 1995, has
delayed the sale of Volume beyond the time originally anticipated.
9
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PART II - OTHER INFORMATION FORM 10-Q
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b. The Registrant filed no reports on Form 8-K during the quarter for
which this report is filed.
10
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FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLAGSTAR CORPORATION
Date: May 15, 1995 By: /s/ Rhonda Parish
Rhonda Parish
Senior Vice President and General Counsel
Date: May 15, 1995 By: /s/ C. Robert Campbell
C. Robert Campbell
Executive Vice President and
Chief Financial Officer
11
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CAPTION>
Exhibit 27
FLAGSTAR CORPORATION
FINANCIAL DATA SCHEDULE
(In Thousands)
This schedule contains summary financial information extracted from the
financial statements of Flagstar Corporation as contained in its Form 10-Q for
the quarterly period ended March 31, 1995 and is qualified in its entirety by
reference to such financial statements.
<S> <C> <C>
<PERIOD-TYPE> QTR-1 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> MAR-31-1995 MAR-31-1995
<CASH> 30,181 0
<SECURITIES> 0 0
<RECEIVABLES> 32,320 0
<ALLOWANCES> 4,882 0
<INVENTORY> 68,746 0
<CURRENT-ASSETS> 228,851 0
<PP&E> 1,770,960 0
<DEPRECIATION> 583,798 0
<TOTAL-ASSETS> 1,547,829 0
<CURRENT-LIABILITIES> 388,284 0
<BONDS> 2,210,813 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (1,240,610) 0
<TOTAL-LIABILITY-AND-EQUITY> 1,547,829 0
<SALES> 0 636,463
<TOTAL-REVENUES> 0 636,463
<CGS> 0 0
<TOTAL-COSTS> 0 599,124
<OTHER-EXPENSES> 0 345
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 62,472
<INCOME-PRETAX> 0 (25,478)
<INCOME-TAX> 0 472
<INCOME-CONTINUING> 0 (25,950)
<DISCONTINUED> 0 (8,657)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 (34,607)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0
12
</TABLE>
