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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, 1994, 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 0-18051
FLAGSTAR COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3487402
(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) 597-8700
(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 16, 1994, 42,369,319 shares of the registrant's Common Stock, par
value $.50 per share, were outstanding.
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FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Flagstar Companies, Inc.
Statements of Consolidated Operations
For the Three Months Ended March 31, 1994 and 1993
(Unaudited)
Three Months Ended
March 31,
1994 1993
(In thousands, except per share amounts)
Operating Revenues....................... $ 626,273$ 592,783
Operating Expenses:
Product cost........................... 217,607 198,163
Payroll & benefits..................... 227,318 216,319
Depreciation & amortization expense.... 31,713 40,644
Utilities expense...................... 24,438 23,681
Other.................................. 86,371 86,824
587,447 565,631
Operating Income......................... 38,826 27,152
Other Charges:
Interest and debt expense.............. 53,643 52,122
Other - net............................ 247 (332)
53,890 51,790
Loss From Continuing Operations Before
Income Taxes (15,064) (24,638)
Benefit From Income Taxes................ (2,411) (2,236)
Loss From Continuing Operations.......... (12,653) (22,402)
Loss From Discontinued Operations - Net
of Income Tax Benefits of:
$1994-$2,531; 1993 - $5,085 (10,419) (7,669)
Extraordinary Item - Net of Income Tax
Benefit of $51 - (81)
Cumulative Effect of Change in Accounting
Principle - Net of Income Tax Benefit
of $4,659.............................. - (7,441)
Net Loss................................. (23,072) (37,593)
Dividends on Preferred Stock............. (3,544) (3,544)
Net Loss Applicable to Common
Shareholders........................... $ (26,616)$(41,137)
Loss Per Share Applicable to Common
Shareholders:
Loss From Continuing Operations........ $ (0.38)$ (0.62)
Loss From Discontinued Operations-Net. (0.25) (0.18)
Extraordinary Item - Net............... - -
Cumulative Effect of Change in
Accounting Principle - Net........... - (0.18)
Net loss.............................. $ (0.63)$ (0.98)
Average Outstanding and Equivalent
Common Shares......................... 42,369 42,370
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FORM 10-Q
Flagstar Companies, Inc.
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993
(Unaudited)
March 31, December 31,
1994 1993
(In thousands)
Assets
Current Assets:
Cash and cash equivalents................ $ 24,525 $ 24,174
Receivables, less allowance for doubtful
accounts of:
1994 - $4,073; 1993 - $4,790.......... 36,612 32,929
Merchandise and supply inventories....... 63,881 62,633
Net assets held for sale................. 87,389 103,208
Other.................................... 3,594 2,495
216,001 225,439
Property:
Property owned (at cost):
Land................................... 268,396 265,671
Buildings and improvements............. 756,397 749,001
Other property and equipment........... 416,760 413,212
Total property owned...................... 1,441,553 1,427,884
Less accumulated depreciation............. 409,425 387,439
Property owned - net...................... 1,032,128 1,040,445
Buildings and improvements, vehicles, and
other equipment held under capital
leases.................................. 180,039 177,819
Less accumulated amortization............. 55,747 51,095
Property held under capital leases - net.. 124,292 126,724
1,156,420 1,167,169
Other Assets:
Other intangible assets - net............. 24,666 25,567
Deferred financing costs - net............ 89,065 91,086
Other..................................... 34,285 29,662
148,016 146,315
Total Assets $1,520,437 $1,538,923
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FORM 10-Q
Flagstar Companies, Inc.
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993
(Unaudited)
March 31, December 31,
1994 1993
(In thousands)
Liabilities
Current Liabilities:
Current maturities of long-term debt.................. $ 34,948 $ 34,213
Accounts payable...................................... 92,057 93,435
Accrued salaries and vacations........................ 55,435 47,338
Accrued insurance..................................... 53,109 49,585
Accrued taxes......................................... 12,688 21,853
Accrued interest and dividends........................ 68,018 41,187
Accrued restructuring cost............................ 15,146 19,404
Other................................................. 90,945 88,217
422,346 395,232
Long-Term Liabilities:
Debt, less current maturities......................... 2,321,836 2,341,164
Deferred income taxes................................. 24,001 23,861
Liability for self-insured claims..................... 61,294 60,720
Other non-current liabilities and deferred credits.... 140,124 140,495
2,547,255 2,566,240
Total Liabilities 2,969,601 2,961,472
Shareholders' Deficit (1,449,164) (1,422,549)
Total Liabilities & Shareholders' Deficit $ 1,520,437 $ 1,538,923
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Flagstar Companies, Inc. FORM 10-Q
Statements of Consolidated Cash Flows
For the Three Months Ended March 31, 1994 and 1993
(Unaudited) Three Months Ended
March 31,
1994 1993
(In thousands)
Cash Flows From Operating Activities:
Net loss $ (23,072) $ (37,593)
Adjustments to reconcile net loss
to cash flows from operating activities:
Depreciation and amortization of property 29,878 30,896
Amortization of goodwill --- 6,845
Amortization of other intangible assets 1,834 2,905
Amortization of deferred financing costs 1,702 2,461
Provision for deferred income taxes 570 800
Cumulative effect of change in accounting
principle, net --- 7,441
Extraordinary item, net --- 81
Equity in loss of discontinued operations 10,419 7,669
Other 3,160 2,465
Decrease (increase) in assets:
Receivables (3,546) (1,762)
Inventories (1,334) (2,505)
Other current assets (1,099) (4,074)
Other assets 92 (1,646)
Increase (decrease) in liabilities:
Accounts payable (1,377) 8,419
Accrued salary and vacations 8,096 6,886
Accrued taxes (9,166) (7,751)
Other accrued liabilities 11,789 35,606
Other non-current liabilities and deferred
credits (2,923) (15,769)
Total adjustments 48,095 78,967
Net cash flows from operating activities 25,023 41,374
Cash Flows From Investing Activities:
Purchases of property (20,139) (21,624)
Proceeds from disposition of property 1,980 9,169
Receipts from (advances to)
discontinued operations 18,065 (3,079)
Other 187 (561)
Net cash flows from (used in)
investing activities 93 (16,095)
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FORM 10-Q
Flagstar Companies, Inc.
Statement of Consolidated Cash Flows
For the Three Months Ended March 31, 1994 and 1993
(Unaudited)
Three Months Ended
March 31,
1994 1993
(In thousands)
Cash Flows From Financing Activities:
Net repayments under credit agreements (13,000) (17,200)
Long-term borrowings --- 10,785
Deferred financing costs (60) (157)
Long-term debt payments (8,164) (12,262)
Cash dividends on preferred stock (3,544) (3,544)
Other 2 ---
Net cash flows used in financing activities (24,766) (22,378)
Increase (decrease) in cash and cash equivalents 350 2,901
Cash and Cash Equivalents at:
Beginning of period 24,174 20,662
End of period $ 24,524 $ 23,563
Supplemental Cash Flow Information:
Income taxes paid $ 668 $ 2,874
Interest paid $ 36,810 $ 20,454
Non-cash financing activities:
Capital lease obligations $ 3,463 $ 12,955
Dividends declared but not paid $ 3,544 $ 3,544
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FORM 10-Q
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
(Unaudited)
Note 1. Introduction.
Flagstar Companies, Inc. ("FCI" or, together with its subsidiaries, the
"Company") is the holding company parent of Flagstar Corporation ("Flagstar").
Flagstar, through its wholly-owned subsidiaries, Denny's Holdings, Inc., Spartan
Holdings, Inc. and Canteen Holdings, Inc. (and their respective subsidiaries),
operates four restaurant chains and a contract food and vending and recreation
services business.
Note 2. Interim Period Presentation.
The Statements of Consolidated Operations of FCI and its subsidiaries for
the three months ended March 31, 1994 and 1993 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. Divestiture of Canteen Holdings, Inc.
On April 27, 1994, the Company announced the signing of a definitive
agreement to sell its food and vending subsidiary for $450.0 million.
Concurrently, the Company adopted a plan to dispose of the remaining concession
and recreation services businesses of its subsidiary, Canteen Holdings, Inc.
The Consolidated Balance Sheets and Statements of Consolidation Operations and
Cash Flows for 1993 have been reclassified to reflect such businesses as
discontinued operations.
The anticipated sale of the food and vending subsidiary is expected to
result in a gain in the Company's second quarter. The dispositions of the
concession and recreation services businesses are expected to occur within 12
months and are expected to result in gains in the period of disposal.
The Company has allocated to the discontinued segment a pro-rata portion
of its interest expense of $12.3 million and $11.1 million for the quarters
ended March 31, 1994 and 1993, 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, 1994 and the results of operations for the
first quarter of 1994 as compared to the corresponding 1993 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, 1993 and the related Management's
Discussion and Analysis of Financial Condition and Results of Operations, both
of which are contained in the Flagstar Companies, Inc. 1993 Annual Report on
Form 10-K.
Liquidity And Capital Resources
At March 31, 1994 and December 31, 1993, the Company had working capital
deficits of $206.3 million and $169.8 million, respectively. The increase is
attributable primarily to increases in accrued interest and dividends related
to the timing of interest payments and a reduction in the carrying value of the
Company's net assets held for sale due to a net loss and an excess of receipts
over advances from Canteen Holdings, Inc. during the first quarter of 1994.
The Company also reduced its accrued liability for restructuring by $4.3
million at March 31, 1994 in comparison to December 31, 1993 primarily as a
result of severance and relocation payments made in the first quarter of 1994.
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.
On April 27, 1994, the Company announced the signing of a definitive
agreement to sell its food and vending subsidiary, which is owned by Canteen
Holdings, Inc., for total consideration of $450.0 million. After payment of
expenses and income taxes applicable to the transaction, the Company intends to
use a portion of the remaining proceeds to reduce the borrowings outstanding
under its Restated Credit Agreement. In addition, the Company intends to sell
its food and recreation services subsidiaries which are also owned by Canteen
Holdings, Inc. Such transactions are expected to be consummated within twelve
months. The net cash proceeds from these transactions are expected to be used
to reinvest in its present businesses by improving or expanding its restaurant
facilities and to reduce debt.
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FORM 10-Q
Results of Operations
Three Months Ended March 31, 1994 Compared to Three Months Ended March 31, 1993
Operating revenues from continuing operations for the first quarter
increased by approximately $33.5 million (5.6%) as compared with the same
period in 1993. Denny's revenues increased by $17.9 million (5.1%). This
increase at Denny's was primarily attributable to increased revenues from
distribution operations resulting from Denny's sales of $12.1 million to
Canteen, a discontinued segment. Average unit sales for Denny's were unchanged
in the first quarter of 1994 in comparison to the same quarter of 1993
reflecting an increase in average check of 7.2% which was offset by a decrease
in traffic of 6.7%. The decline in traffic was due to reduced discounting in
the first quarter of 1994 as compared to the first quarter of 1993, a
comparative 1993 period which included breakfast promotions, and severe winter
weather during the first quarter of 1994. The reduction in discounting and
trade-ups to higher priced menu items in the first quarter of 1994 resulted in
the increase in average check. The number of Company-owned Denny's decreased
by 8 units at March 31, 1994 as compared with March 31, 1993 primarily as a
result of the sale of 13 Company-operated restaurants to a franchisee on March
30, 1994. Hardee's revenues increased by $9.9 million to $161.1 million during
the first quarter of 1994 as compared with the same period of 1993, primarily
as a result of the net addition of 38 new restaurants. Hardee's increase in
average check of 2.4% during the first quarter of 1994 in comparison to the
first quarter of 1993 was more than offset by a 3.0% decrease in traffic
resulting in a decrease in average unit sales of 0.6%. The first quarter of
1994 at Hardee's included heavy discounting by competitors in the market
segment. Quincy's revenues of $67.5 million in the first quarter of 1994 were
flat as compared to the first quarter of 1993. Average unit sales at Quincy's
increased 2.1% during the 1994 quarter and are the result of an increase in
average check of 5.7% which was mitigated, in part, by a decrease in traffic of
3.4%. Revenues of El Pollo Loco, which account for only 5.0% of total
restaurant operating revenues, increased by $5.8 million during the first
quarter of 1994 over the same period of 1993 as a result of a 21-unit increase
in Company-owned restaurants offset by a 25-unit decrease in franchised and
international units. Average unit sales for El Pollo Loco increased 7.2%
during the first quarter of 1994 over the same period of 1993 and include
increases in traffic of 6.9% and in average check of 0.3%. The majority of the
21-unit increase in Company- operated restaurants was due to the acquisition of
high-volume franchise units during the fourth quarter of 1993.
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FORM 10-Q
The Company's operating expenses increased by $21.8 million (3.9%) in the
first quarter of 1994 as compared with the same period of 1993. A significant
portion of this increase is attributable to an increase in operating expenses
at Denny's ($13.2 million) and at Hardee's ($7.5 million). Operating expenses
at Quincy's decreased by $3.4 million. The increase in operating expenses at
Denny's is due primarily to increased revenues and is comprised principally of
an increase in product costs of $16.9 million and an increase in payroll and
benefits expense of $5.9 million and also reflects reduced depreciation and
amortization charges of $5.7 million related to the year-end 1993 write-off of
assets. Denny's operating expenses during the first quarter of 1994 also
reflect a gain of approximately $3.4 million related to the sale of 13
Company-owned restaurants to a franchisee on March 30, 1994. The increase in
operating expenses at Hardee's is also due primarily to increased revenues and
consists principally of an increase in payroll and benefits expense of $3.8
million, an increase in product costs of $3.7 million and an increase in
occupancy expenses of $1.0 million, and also reflects reduced depreciation and
amortization charges of $1.8 million related to the year-end 1993 write-off of
assets. Conversely, the $3.4 million decrease in operating expenses at
Quincy's is attributable to the decrease in revenues and consists principally
of a decrease in product costs of $0.6 million and a decrease in payroll and
benefits expenses of $0.3 million, together with reduced depreciation and
amortization charges of $2.2 million related to the year-end 1993 write-off of
assets. Corporate and other expenses increased by $0.9 million due primarily
to an increase in payroll and benefits expense of $0.3 million and an increase
in occupancy expenses of $0.3 million, and also reflects reduced depreciation
and amortization charges of $0.5 million related to the year-end 1993 write-off
of assets.
Interest and debt expense increased by $1.5 million in the first quarter
of 1994 as compared to the same period of 1993, primarily due to an increase in
cash interest of $1.9 million. This increase is attributable to the higher
fixed interest rates which accrued during the 1994 quarter on the $400.0
million of senior notes and senior subordinated debentures which were issued
during the third quarter of 1993 to refinance a portion of the Company's bank
facility which accrued interest at lower variable rates. Such increases were
offset, in part, by lower interest rates charged on the Company's remaining
variable rate indebtedness during the 1994 quarter in comparison to the prior
year quarter. The increase in cash interest was offset, in part, by a
reduction in non-cash interest expense of $0.4 million resulting primarily from
reduced amortization of deferred financing costs. This reduction relates to
the write-off of unamortized deferred financing costs associated with the
prepayment of a portion of the Company's indebtedness under its bank facility
in September 1993.
The Company's contract food and vending and recreation services businesses
which are accounted for as discontinued operations included operating revenues
of $314.0 million during the first quarter of 1994, an increase of $27.8 million
(9.7%) over the same period of 1993. The increase in revenues includes a $23.4
million (9.6%) increase in the food and vending segment of Canteen primarily due
to revenues from acquisitions consummated during 1993. The revenues from the
concession and recreation services operations increased by $4.4 million (10.1%)
to $47.6 million during the first quarter of 1994 as compared to the same period
of 1993. Operating expenses for Canteen's contract food and vending and
recreation services businesses increased by $26.6 million primarily due to
increases in product cost of $11.5 million and payroll and benefits expense of
$10.9 million, respectively.
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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. The following is filed as an exhibit to this report:
Exhibit Number Description
10.1 Stock Purchase Agreement among Flagstar
Corporation, Canteen Holdings, Inc., Compass
Group, PLC, and Compass Holdings, Inc. dated as
of April 26, 1994.
10.2 Fourth Amendment, Waiver and Consent, dated as of
April 26, 1994, to the Amended and Restated
Credit Agreement, dated as of October 26, 1992,
among Flagstar and TWS Funding, Inc., as
borrowers, certain lenders and co-agents named
therein, and Citibank, N. A., as managing agent.
b. The Registrant filed a report on Form 8-K dated January 24, 1994
providing certain information regarding Item 5 Other Events related
to the fourth quarter of 1993. This filing reported the write-off
of $1.5 billion in goodwill and other intangible assets and a charge
for restructuring costs during the fourth quarter ended December 31,
1993. Such charges were reflected in the financial statements of
the Company's Annual Report on Form 10-K for the year ended December
31, 1993.
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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 COMPANIES, INC.
Date: May 16, 1994 By: /s/ Robert L. Wynn, III
Robert L. Wynn, III
Vice President and
General Counsel
Date: May 16, 1994 By: /s/ A. Ray Biggs
A. Ray Biggs
Vice President and
Chief Financial Officer
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