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Sequential Page 1 of 14
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, 1996, 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)
(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 10, 1996, 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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FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Flagstar Corporation
Statements of Consolidated Operations
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
(In thousands, except per share amounts)
<S> <C> <C>
Operating Revenue.................................... $550,425 $636,463
Operating Expenses:
Product costs...................................... 160,028 218,246
Payroll & benefits................................. 214,531 228,809
Depreciation & amortization expense................ 29,047 33,249
Utilities expense.................................. 22,754 23,261
Other.............................................. 96,579 95,559
522,939 599,124
Operating Income..................................... 27,486 37,339
Other Charges:
Interest and debt expense - net.................... 61,249 62,472
Other non-operating expenses - net................. (16) 345
Loss From Continuing Operations
Before Income Taxes................................ (33,747) (25,478)
Provision For(Benefit From) Income Taxes............. (2,890) 472
Loss From Continuing Operations...................... (30,857) (25,950)
Loss From Discontinued
Operations - Net of Provision for Income
Taxes of $360...................................... --- (8,657)
Net Loss............................................. $ (30,857) $(34,607)
</TABLE>
2
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FORM 10-Q
Flagstar Corporation
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(In thousands)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents............................$ 162,179 $ 196,966
Receivables, less allowance for doubtful accounts of:
1996 - $2,376; 1995 - $2,506...................... 26,830 29,855
Merchandise and supply inventories.................... 31,676 32,445
Other................................................. 35,117 26,087
255,802 285,353
Property:
Property owned (at cost):
Land.............................................. 256,195 255,393
Buildings and improvements........................ 825,433 838,956
Other property and equipment...................... 482,057 484,684
Total property owned................................. 1,563,685 1,579,033
Less accumulated depreciation........................ 576,190 569,079
Property owned - net................................. 987,495 1,009,954
Buildings and improvements, vehicles, and
other equipment held under capital
leases............................................. 175,558 170,859
Less accumulated amortization........................ 83,948 76,778
Property held under capital leases - net............. 91,610 94,081
1,079,105 1,104,035
Other Assets:
Other intangible assets - net........................ 23,344 22,380
Deferred financing costs - net....................... 61,635 63,482
Other................................................ 37,856 38,578
122,835 124,440
Total Assets $1,457,742 $1,513,828
</TABLE>
3
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FORM 10-Q
Flagstar Corporation
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(In thousands)
<S> <C> <C>
Liabilities
Current Liabilities:
Current maturities of long-term debt.................$ 38,771 $ 38,835
Accounts payable..................................... 88,729 125,467
Accrued salaries and vacations....................... 47,156 41,102
Accrued insurance.................................... 47,670 48,060
Accrued taxes........................................ 29,843 30,705
Accrued interest .................................... 67,169 42,916
Other................................................ 76,646 80,445
395,984 407,530
Long-Term Liabilities:
Debt, less current maturities........................ 1,990,008 1,996,111
Deferred income taxes................................ 18,057 18,175
Liability for self-insured claims.................... 52,270 53,709
Other non-current liabilities and
deferred credits................................... 157,180 163,203
2,217,515 2,231,198
Note Payable to FCI 150,000 150,000
Total Liabilities 2,763,499 2,788,728
Stockholder's Deficit (1,305,757) (1,274,900)
Total Liabilities & Stockholder's Deficit $ 1,457,742 $ 1,513,828
</TABLE>
4
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FORM 10-Q
Flagstar Corporation
Statements of Consolidated Cash Flows
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
(In thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(30,857) $(34,607)
Adjustments to reconcile net loss
to cash flows from (used in )operating activities:
Depreciation and amortization of property 27,646 31,621
Amortization of other intangible assets 1,400 1,629
Amortization of deferred financing costs 1,847 1,639
Deferred income tax benefit (118) (661)
Equity in loss of discontinued operations - net --- 8,657
Other (352) (2,208)
Decrease (increase) in assets:
Receivables 3,178 11,033
Inventories 768 (6,453)
Other current assets (8,212) (5,344)
Other assets (4,352) (477)
Increase (decrease) in liabilities:
Accounts payable (39,583) (10,381)
Accrued salary and vacations 6,055 1,342
Accrued taxes (5,978) (2,495)
Other accrued liabilities 24,475 13,684
Other non-current liabilities and deferred credits (1,484) (111)
Total adjustments 5,290 41,475
Net cash flows from (used in) operating activities (25,567) 6,868
Cash Flows From (Used In) Investing Activities:
Purchases of property (2,818) (24,489)
Proceeds from disposition of property 461 3,403
Advances to discontinued operations --- (14,135)
Other long-term assets - net 51 (645)
Net cash flows used in investing activities (2,306) (35,866)
</TABLE>
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FORM 10-Q
Flagstar Corporation
Statements of Consolidated Cash Flows
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
(In thousands)
<S> <C> <C>
Cash Flows From (Used in) Financing Activities:
Long-term debt payments $ (6,914) $ (7,541)
Net cash flows used in financing activities (6,914) (7,541)
Decrease in cash and cash equivalents (34,787) (36,539)
Cash and Cash Equivalents at:
Beginning of period 196,966 66,720
End of period $ 162,179 $ 30,181
Supplemental Cash Flow Information:
Income taxes paid $ 1,552 $ 480
Interest paid $ 35,264 $ 41,251
Non-cash financing activities:
Capital lease obligations $ 744 $ 1,113
</TABLE>
6
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FORM 10-Q
FLAGSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(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, 1996 and 1995, respectively,
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. Acquisition
In March 1996, the Company entered into an agreement to acquire the
Coco's and Carrows restaurant chains, consisting of approximately 350 units
operating in the family dining segment. If consummated, the purchase price
(including estimated expenses) would consist of $131 million of cash ($56
million of which will be financed by bank term loans), the issuance of notes
payable to the seller of $150 million, and the assumption of certain capital
lease obligations of approximately $31.5 million.
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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, 1996 and the results of operations for the
three months ended March 31, 1996 as compared to the corresponding 1995 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, 1995 and the related Management's
Discussion and Analysis of Financial Condition and Results of Operations, both
of which are contained in the Flagstar Corporation 1995 Annual Report on Form
10-K.
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
General:
Operating revenue from continuing operations for the first quarter of
1996 decreased by approximately $86.0 million (13.5%) as compared with the same
period in 1995. Approximately $65.9 million of this decrease is attributable to
a decrease in outside revenue attributable to the September 1995 sale of Denny's
distribution subsidiary, Proficient Food Company, ("PFC"), which was sold in
September 1995. In addition, revenue at the Company's Hardee's and Quincy's
restaurants decreased by $13.0 million and $3.9 million, respectively, during
the first quarter of 1996 as compared to the same period of 1995 due to weak
sales results at these restaurants and adverse winter weather conditions in the
Southeast. Comparable store sales for Denny's and El Pollo Loco increased by
3.3% and 7.9%, respectively, during the first quarter of 1996 over the
comparable 1995 period while Hardee's and Quincy's experienced decreases in
comparable store sales of 7.3% and 4.1%, respectively.
Operating expenses from continuing operations decreased by $76.2
million during the first quarter of 1996 as compared to the same period of 1995
primarily as a result of the decrease in operating revenue as previously
described above. Loss from continuing operations was $27.3 million during the
first quarter of 1996 as compared with $22.4 million during the same period of
1995.
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FORM 10-Q
Denny's:
<TABLE>
Three Months Ended
March 31,
Increase/
1996 1995 (Decrease)
<S> <C> <C> <C>
Revenue:
Restaurants $305,178 $304,983 $ 195
Processing and Distribution 529 69,496 (68,967)
Total 305,707 374,479 (68,772)
Operating Expenses 282,447 344,119 (61,672)
Operating Income $ 23,260 $ 30,360 $ (7,100)
</TABLE>
Denny's revenue decreased by $68.8 million during 1996 quarter as
compared with the 1995 period. This decrease resulted primarily from the sale of
Denny's distribution subsidiary, PFC, during September 1995. During the 1995
quarter, Denny's revenue included $65.9 million of outside sales by PFC. Outside
revenue at Denny's food processing subsidiary, Portion-Trol Foods, Inc.,
decreased by $3.1 million during the 1996 quarter in comparison to the 1995
period. Comparable store sales at Company-owned Denny's increased by 3.3%
reflecting increases in traffic of 2.0% and in average check of 1.3%. Such
increases are attributable to the successful launch of Denny's tiered menu items
during 1996. As a result of a 45-unit net decrease in the number of
Company-owned restaurants at March 31, 1996 in comparison to March 31, 1995,
however, revenue at Denny's restaurant subsidiary increased by only $0.2 million
during the 1996 quarter. The net decrease in restaurant units was due to the
Company's strategy of focusing on its franchise operations and the sale of
restaurants to franchisees, along with selected restaurant closures.
Operating expenses for the 1996 quarter as compared with the 1995
period increased by $0.5 million after deducting $62.3 million in operating
expenses for the 1995 period for the Denny's distribution subsidiary. During the
1995 quarter, operating expenses included gains on the sale of restaurants of
approximately $2.4 million. There were no gains in the first quarter of 1996.
Hardee's:
<TABLE>
Three Months Ended
March 31,
Increase/
1996 1995 (Decrease)
<S> <C> <C> <C>
Revenue $145,074 $158,026 $ (12,952)
Operating Expenses 140,515 151,055 (10,540)
Operating Income $ 4,559 $ 6,971 $ (2,412)
</TABLE>
Hardee's revenue decreased by $13.0 million during the 1996 quarter as
compared with the 1995 period principally due to the following: (i) continued
aggressive promotions by competitors within the quick-service segment, (ii)
inclement weather during the 1996 quarter, and (iii) a 19-unit decrease in the
number of restaurants operated at the end of the 1996 quarter in comparison to
the 1995 quarter-end. The first two factors resulted in a 7.3% decrease in
comparable store sales during the first quarter of 1996 as compared with the
comparable period of 1995 reflecting a decline of 8.8% in traffic which was only
partially mitigated by a 1.7% increase in average check.
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FORM 10-Q
Operating expenses for the 1996 quarter as compared to the same period
of 1995 decreased by $10.5 million principally due to lower comparable store
sales during the 1996 quarter, the decrease in the number of restaurants and a
reduction in depreciation and amortization expense during the 1996 quarter
following a charge for impaired assets of approximately $23.7 million recorded
during the fourth quarter of 1995.
Quincy's:
<TABLE>
Three Months Ended
March 31,
Increase/
1996 1995 (Decrease)
<S> <C> <C> <C>
Revenue $68,536 $72,416 $ (3,880)
Operating Expenses 63,277 68,218 (4,941)
Operating Income $ 5,259 $ 4,198 $ 1,061
</TABLE>
Quincy's revenue decreased by $3.9 million during the 1996 quarter from
the comparable period of 1995 principally due to a decrease in comparable store
sales of 4.1% and a 7-unit net decrease in the number of restaurants. Inclement
weather during the first quarter 1996 is also estimated to have adversely
affected revenue. The decrease in comparable store sales reflects a 10.2%
decrease in traffic which was partially offset by an increase in average check
of 6.9%.
Operating expenses for the 1996 quarter as compared to the 1995 period
decreased by $4.9 million principally due to favorable decreases in product
costs of $2.3 million, payroll of $1.1 million, advertising of $0.5 million and
overhead of $0.5 million.
El Pollo Loco:
<TABLE>
Three Months Ended
March 31,
Increase/
1996 1995 (Decrease)
<S> <C> <C> <C>
Revenue $31,108 $31,542 $ (434)
Operating Expenses 28,184 29,512 (1,328)
Operating Income $ 2,924 $ 2,030 $ 894
</TABLE>
Revenue at El Pollo Loco decreased by $0.4 million during the 1996
quarter from the comparable 1995 quarter primarily due to the sale of
restaurants to franchisees during 1995 in furtherance of the Company's franchise
strategy resulting in a 21-unit net decrease in the number of Company-owned
restaurants at March 31, 1996 as compared to March 31, 1995. Comparable store
sales for the 1996 quarter increased by 7.9% over the 1995 quarter reflecting
increases in traffic of 7.2% and average check of 0.6%, respectively. The
increase in traffic is primarily attributable to favorable customer responses to
the Pollo Bowl promotion and Foster's Freeze rollout.
Operating expenses for the 1996 quarter as compared to the 1995 period
decreased by $1.3 million primarily due to the above described 21-unit
10
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FORM 10-Q
decrease in the number of Company-owned restaurants. The decrease in operating
expenses was partially offset by a decrease in gains recognized on the sale of
restaurants to franchisees during the 1996 period of $0.3 million as compared to
$0.9 million for the 1995 period.
Interest and Debt Expense:
Total interest and debt expense from continuing operations and
discontinued operations totaled $61.3 million during the first quarter of 1996
as compared with $67.1 million during the comparable period of 1995 principally
due to the following: (i) a decrease in interest expense of $2.6 million during
the 1996 period related to changes in interest rate exchange agreements, (ii) a
decrease of approximately $1.5 million due to a reduction in principal
outstanding during the 1996 period, and (iii) an increase in interest income of
$1.3 million during 1996 due to increased cash and cash equivalents.
Liquidity and Capital Resources
At March 31, 1996 and December 31, 1995, the Company had working
capital deficits of $140.2 million and $122.2 million, respectively. The
increase in the deficit between December 31, 1995 and March 31, 1996 is
attributable primarily to a reduction in cash and cash equivalents which has
been used for Company operations and an increase in accrued interest due to the
timing of interest payments. The Company is able to operate with a substantial
working capital deficiency because (i) restaurant 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 related sales.
During April 1996, the Company entered into an agreement with a
syndicate of banks led by co-agents Bankers Trust Company, Chemical Bank, and
Citibank, N.A. for a new three-year $150 million revolving credit facility. The
new credit facility replaces the previously existing credit facility which was
scheduled to expire in June 1996 and will be used for the issuance of letters of
credit and for working capital purposes. The facility includes a sub-limit of
$75 million on working capital borrowings, but no such sub-limit for the
issuance of letters of credit. The Company believes that the new credit facility
will provide an additional source of liquidity and financial flexibility to the
operation and growth of the Company's four restaurant concepts and the
anticipated acquisition of the Coco's and Carrows restaurant chains.
11
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FORM 10-Q
PART II - OTHER INFORMATION
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 included as an exhibit to
this filing.
b. Not applicable.
12
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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 14, 1996 By: /s/ Rhonda J. Parish
Rhonda J. Parish
Senior Vice President and
General Counsel
Date: May 14, 1996 By: /s/ C. Robert Campbell
C. Robert Campbell
Executive Vice President
and Chief Financial Officer
13
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 162,179
<SECURITIES> 0
<RECEIVABLES> 29,206
<ALLOWANCES> 2,376
<INVENTORY> 31,676
<CURRENT-ASSETS> 255,802
<PP&E> 1,739,243
<DEPRECIATION> 660,138
<TOTAL-ASSETS> 1,457,742
<CURRENT-LIABILITIES> 395,984
<BONDS> 2,140,008
<COMMON> 0
0
0
<OTHER-SE> (1,305,757)
<TOTAL-LIABILITY-AND-EQUITY> 1,457,742
<SALES> 0
<TOTAL-REVENUES> 550,425
<CGS> 0
<TOTAL-COSTS> 522,939
<OTHER-EXPENSES> (16)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,249
<INCOME-PRETAX> (33,747)
<INCOME-TAX> (2,890)
<INCOME-CONTINUING> (30,857)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,857)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
