SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
................................................................................
FORM 8-K/A
................................................................................
Current Report
Pursuant to Section 13 or 15 (d) of the Securities Act of 1934
Date of Report (Date of earliest event reported): May 23, 1996
Commission File Number: 0-18051
FLAGSTAR CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 13-3027522
(State of Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
203 East Main Street 29319-9966
Spartanburg, South Carolina (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:
(864) 597-8000
N/A
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
On May 23, 1996, as described more fully in the related press release (see
Exhibit 99.1 ), the Registrant, through FRD Acquisition Co. ("FRD"), a newly
formed subsidiary, consummated the acquisition of the Coco's and Carrows
restaurant chains ("the Acquisition") from Family Restaurants, Inc. ("FRI"). The
acquisition price of $306.0 million (which was paid in exchange for all of the
outstanding stock of FRI-M Corporation ("FRI-M"), the subsidiary of FRI which
owned the Coco's and Carrows chains) was financed with $125.0 million in cash
($75.0 million of which was provided pursuant to an equity investment by the
Registrant and the remaining $50.0 million pursuant to bank term loans from
Bankers Trust company, Chemical Bank, and Citicorp USA, Inc.), the issuance of
$150.0 million in senior notes to the seller and the assumption of certain
capital lease obligations of approximately $31.0 million and is subject to
adjustment. The total consideration for the acquired assets was determined by
arm's length negotiations.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
The Registrant hereby incorporates in this Form 8-K the audited combined
financial statements of FRI-M for the fiscal years ended December 25, 1994
and December 31, 1995 (see Exhibit 99.2) and the unaudited combined
financial statements of FRI-M for the quarters ended March 26, 1995 and
March 31, 1996 (see Exhibit 99.3) by reference to pages F-5 through F-20
of the Registration Statement on Form S-1 (No. 333-07601) of FRD
Acquisition Co. filed with the Securities and Exchange Commission on July
3, 1996.
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(b) Pro Forma financial information.
The following pro forma financial information is included herein:
Page
Number
in
Filing
Pro Forma Condensed Consolidated
(i) Balance Sheet (Unaudited) as of
March 31, 1996, 6
(ii) Pro Forma Condensed Statements of
Consolidated Operations (Unaudited)
for the Year Ended December 31, 1995,
and 9
(iii) Pro Forma Condensed Statements of
Consolidated Operations (Unaudited)
for the Three Months Ended March 31,
1996. 9
(c) Exhibits
Exhibit 2.1 - Stock Purchase Agreement by and among Family Restaurants,
Inc., Flagstar Companies, Inc., Flagstar Corporation and FRD Acquisition Co.,
dated as of March 1, 1996 *
Exhibit 23.1 - Consent of KPMG Peat Marwick LLP
Exhibit 99.1 - Press Release of the Registrant dated May 23, 1996 *
Exhibit 99.2 - The Audited Combined Financial Statements of FRI-M
Corporation for the Fiscal Years Ended December 25, 1994 and December 31, 1995
(incorporated by reference to pages F-5 through F-16 of the Registration
Statement on Form S-1 (333-07601) of FRD Acquisition, Co. ("the Form S-1")).
Exhibit 99.3 - The Unaudited Combined Financial Statements of FRI-M
Corporation for the Quarters Ended March 26, 1995 and March 31, 1996
(incorporated by reference to pages F-17 through F-20 on Form S-1).
-------
* Certain of the exhibits to this Current Report on Form 8-K/A, as
indicated by an asterisk, were previously physically filed with the original
Form 8-K No. 000-18051 filed with the Securities and Exchange Commission on June
7, 1996 and therefore are not physically attached to this filing.
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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 hereunto duly authorized.
Flagstar Corporation
Date: August 6, 1996 /S/ C. Robert Campbell
----------------------
C. Robert Campbell
Vice President and
Chief Financial Officer
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PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial statements
("Pro Forma Statements") are required by the rules of the Securities and
Exchange Commission ("SEC") and are provided for information purposes only. The
Pro Forma Statements should not be considered indicative of the results that
would have been or will be attained since they are based on historical rather
than prospective information and include certain assumptions and estimates which
are subject to change.
The Pro Forma Statements illustrate the effects of the transaction between the
Registrant and FRI, whereby the Registrant acquired the Coco's and Carrows
restaurant chains from FRI, and are based on the historical financial statements
of the Registrant and of FRI-M, the subsidiary of FRI which owned the Coco's and
Carrows chains, as of and for the year ended December 31, 1995 and the three
months ended March 31, 1996. The Pro Forma Statements reflect how the
Registrant's condensed consolidated balance sheet might have appeared if the
acquisition had occurred on March 31, 1996 and how the condensed consolidated
statements of operations for the year ended December 31, 1995 and the three
months ended March 31, 1996 might have appeared if the transaction had occurred
on January 1, 1995.
The Pro Forma Statements are unaudited and should be read in conjunction with
the accompanying notes thereto and with the historical financial statements and
related notes of the Registrant and FRI-M. The pro forma purchase adjustments
are based on assumptions and estimates made specifically for the purpose of
preparing these Pro Forma Statements and are not necessarily indicative of the
results that actually would have occurred had the acquisition been consummated
on the dates indicated or the results that may occur or be obtained in the
future.
The Registrant will account for the Acquisition using the purchase method of
accounting. Accordingly, the Registrant's cost to acquire FRI-M will be
allocated to the assets acquired and liabilities assumed according to their
respective fair values. The final allocation of the purchase price, including
the fair value of the senior notes, is dependent upon certain valuations and
other studies that have not progressed to a stage where there is sufficient
information to make such an allocation in the accompanying Pro Forma Statements.
Accordingly, the purchase allocation adjustments made in connection with the
preparation of the Pro Forma Statements are preliminary and have been made
solely for the purpose of preparing such Pro Forma Statements. The Registrant
anticipates finalizing the preliminary allocation by the end of 1996, and does
not anticipate the impact of the reallocation to be significant to the financial
statements.
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<TABLE>
<CAPTION>
Flagstar Corporation
Pro-Forma Condensed Consolidated Balance Sheet
as of March 31, 1996
(Unaudited)
(In thousands)
Historical Pro-Forma
---------------------------------------------------------------------
Flagstar FRI-M
Corporation Corporation Adjustments Consolidated
---------------- ------------------------------ ------------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 162,179 $ 5,410 $ (76,195)(a) $ 91,394
Receivables, net 26,830 6,958 (3,485)(b) 30,303
Merchandise and supply inventories 31,676 5,184 36,860
Other 35,117 4,150 (2,529)(c) 36,738
----------- --------- --------- -----------
255,802 21,702 (82,209) 195,295
----------- --------- --------- -----------
Property and equipment, net 1,079,105 141,671 1,220,776
Other Assets:
Other intangible assets, net 23,344 152,009 73,266 (e) 248,619
Deferred financing costs, net 61,635 61,635
Other 37,856 1,802 4,169 (c)(d) 43,827
----------- --------- --------- -----------
1,201,940 295,482 77,435 1,574,857
----------- --------- --------- -----------
Total Assets $ 1,457,742 $ 317,184 $ (4,774) $ 1,770,152
=========== ========= ========= ===========
Liabilities:
Current Liabilities:
Loans payable to bank $ 91,223 $ (91,223)(f)
Current maturities of long-term debt $ 38,771 4,912 4,000 (g) $ 47,683
Accounts payable 88,729 21,923 110,652
Accrued salaries and vacation 47,156 14,439 (389)(h) 61,206
Accrued insurance 47,670 6,875 54,545
Accrued taxes 29,843 456 30,299
Accrued interest and dividends 67,169 245 67,414
Other 76,646 7,916 4,850 (i) 89,412
----------- --------- --------- -----------
395,984 147,989 (82,762) 461,211
----------- --------- --------- -----------
Long-Term Liabilities:
Debt, less current maturities 1,990,008 25,780 207,000 (g) 2,222,788
Deferred income taxes 18,057 18,057
Liability for self-insured claims 52,270 11,216 (2,500)(k) 60,986
Other non-current liabilities and
deferred credits 157,180 5,687 (l) 162,867
----------- --------- --------- -----------
2,217,515 36,996 210,187 2,464,698
----------- --------- --------- -----------
Note payable to Flagstar Companies, Inc. 150,000 150,000
----------- --------- --------- -----------
Total Liabilities 2,763,499 184,985 127,425 3,075,909
----------- --------- --------- -----------
Shareholder's (Deficit) Equity (1,305,757) 132,199 (132,199)(j) (1,305,757)
----------- --------- --------- -----------
Total Liabilities and Shareholder's Deficit $ 1,457,742 $ 317,184 $ (4,774) $ 1,770,152
=========== ========= ========= ===========
See notes to pro forma condensed consolidated balance sheets.
</TABLE>
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Flagstar Corporation
Notes to Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1996
(a) To reflect proceeds of assumed borrowings of $5,000,000 (net
$1,500,000 paid in transaction fees) from the $35,000,000 revolving credit
facility which is also available for letters of credit and which expires
on August 31, 1999 ("the Credit Facility"), the transfer of $4,695,000 in
excess cash of FRI-M to FRI in accordance with the terms of the
Acquisition and the Registrant's payment of $75,000,000 as part of the
purchase price.
(b) To reflect the transfer of certain receivables to FRI totaling
$3,485,000, in accordance with the Acquisition agreement.
(c) To reflect the sale/leaseback of two restaurants previously reported
as assets held for sale of $2,338,000 to third parties and to reflect the
transfer of a utility deposit of $128,000 and a note receivable of
$394,000 to FRI in accordance with the terms of the Acquisition. The
current portion of the note receivable is $63,000.
(d) To reflect deferred financing costs representing bank fees and other
transaction costs incurred in connection with the financing of the
Acquisition of $4,500,000.
(e) To reflect the removal of FRI-M net reorganization costs of
$144,056,000 and to reflect the net effect of pro forma adjustments that
impact the excess purchase price and other direct expenses of the
Acquisition over the fair value of the net assets acquired ($217,322,000).
Other intangible assets of FRI-M includes amounts allocated to franchise
operating rights of $7,953,000.
(f) To reflect the removal of FRI-M's prior revolving credit facility that
was repaid on the date of the Acquisition.
(g) To reflect the Acquisition financing as follows:
Term loan $56,000,000
Working capital revolver 5,000,000
Long-term note payable to FRI 150,000,000
-----------
Acquisition financing $211,000,000
===========
(h) To reflect the elimination of $389,000 of administrative bonus
payments assumed by FRI.
(i) To reflect a liability for severance, software relicensing from FRI to
FRI-M, the relocation of certain FRI-M operations from California to South
Carolina, and various other items.
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(j) To reflect the removal of the FRI-M capital accounts.
(k) To reflect the discounted value of FRI-M's self insurance liabilities
as of March 31, 1996 in accordance with the Registrant's existing policy.
(l) To reflect the estimated liability which will result from adjustments
to the purchase price. To the extent that the purchase price increases (as
reflected in this estimate) additional senior notes will be issued.
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<PAGE>
<TABLE>
<CAPTION>
Flagstar Corporation
Pro-Forma Condensed Statements of Consolidated Operations
for the Year ended December 31, 1995
(Unaudited)
(In thousands)
Historical Pro-Forma
---------------------------------------------------------------
Flagstar FRI-M
Corporation Corporation Adjustments Consolidated
-------------- --------------- ------------ -------------------
<S> <C> <C> <C> <C>
Operating revenues $2,571,487 $ 501,248 $ $3,072,735
Operating expenses 2,473,253 473,339 (10,070)(a) 2,936,522
--------- --------- -------- ----------
Operating income 98,234 27,909 10,070 136,213
Other charges:
Interest and debt expense, net 243,305 16,515 14,729 (b) 274,549
Other, net 2,044 2,044
--------- --------- -------- ----------
Income (loss) before income taxes
from continuing operations (147,115) 11,394 (4,659) (140,380)
Provision (benefit) for income taxes (14) 6,670 (6,220)(c) 436
--------- --------- -------- ----------
Net income (loss) from continuing operations $(147,101) $ 4,724 $ 1,561 $ (140,816)
========= ========= ======== ==========
See notes to pro forma condensed statements of consolidated operations.
</TABLE>
<TABLE>
<CAPTION>
Flagstar Corporation
Pro-Forma Condensed Statements of Consolidated Operations
for the Three Months ended March 31, 1996
(Unaudited)
(In thousands)
Historical Pro-Forma
------------------------------------------------------
FRD
Flagstar Acquisition
Corporation Co. Adjustments Consolidated
---------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Operating revenues $550,425 $ 118,996 $ $669,421
Operating expenses 522,939 114,271 (3,108)(a) 634,102
-------- -------- ------- --------
Operating income 27,486 4,725 3,108 35,319
Other charges:
Interest and debt expense, net 61,249 3,931 3,796 (b) 68,976
Other, net (16) (16)
-------- -------- ------- --------
Income (loss) before income taxes
from continuing operations (33,747) 794 (688) (33,641)
Provision (benefit) for income taxes (2,890) 846 (746)(c) (2,790)
-------- -------- ------- --------
Net income (loss) from continuing operations $(30,857) $ (52) $ 58 $(30,851)
======== ======== ======= ========
See notes to pro forma condensed statements of consolidated operations.
</TABLE>
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Flagstar Corporation
Notes to Pro Forma Condensed Statements of Consolidated Operations
(a) To reflect for the year ended December 31, 1995 and three months ended
March 31, 1996 the reversal of amortization expense related to
reorganization costs of FRI-M of $5,280,000 and $1,320,000, respectively,
and to reflect the amortization of the excess of the purchase price paid
by the Registrant over the net assets acquired of $5,449,000 and
$1,363,000, respectively. The previous reorganization costs were being
amortized over a 30 year period and the acquisition related goodwill is
being amortized over a 40 year period. To also reflect for the year ended
December 31, 1995 and the three months ended March 31, 1996 the reduction
in corporate overhead charges previously incurred by FRI-M of $10,111,000
and $3,589,000, respectively as well as the elimination of the management
fee charged by FRI to FRI-M of $2,634,000 and $157,000, respectively. This
reduction is somewhat offset by an estimated increase in the Registrant's
overhead expense of approximately .5% of FRI-M operating revenues. The net
decrease in general and administrative expenses reflects anticipated cost
savings and efficiencies from combining the operations of the Registrant
and FRI-M.
(b) To reflect the elimination of interest of $13,117,000 and $3,167,000
for the year ended December 31, 1995 and three months ended March 31,
1996, respectively, on FRI-M's loan payable to banks, including
amortization of deferred financing costs and to reflect interest on (i)
the $150,000,000 of notes payable to FRI plus the estimated additional
notes to be issued of $5,687,000 at an annual interest rate of 12.5%, (ii)
the $56,000,000 term loan (including the current portion of $4,000,000) at
an annualized interest rate of 8.5%, (iii) assumed borrowings of
$5,000,000 on the revolving portion of the Credit Facility at an assumed
annual interest rate of 8.5% and (iv) use of the $23,100,000 of the
revolving portion of the Credit Facility to support letters of credit at
an annual interest rate of 3.0% and a commitment fee of 0.5% annually on
the unused portion of the revolving portion of the Credit Facility
($6,900,000). The adjustment also includes amortization of the deferred
financing costs incurred in connection with the financing of the
Acquisition and the accretion of interest on the discounted self insurance
reserves. The deferred financing costs of $3,900,000 in connection with
the Credit Facility and $600,000 on the Notes are amortized over 39 months
and 8 years, respectively. Interest expense on self insurance reserves is
$1,200,000 and $300,000 for the year ended December 31, 1995 and three
months ended March 31, 1996 and is based on a "risk free" discount rate of
approximately 6.5%.
(c) The pro forma adjustment reflects the fact that the Registrant's net
operating losses will offset FRI-M's separate tax provision when
calculated on a consolidated basis, except for current foreign and state
income taxes.
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Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
FRD Acquisition Co.:
We consent to the incorporation by reference of our report dated February 9,
1996 except as to the fifth paragraph of note 7 and note 14 which are as of May
23, 1996 with respect to the combined balance sheets of FRI-M which includes
FRI-M Corporation, a wholly owned subsidiary of Family Restaurants Inc., and
certain subsidiaries including those restaurants that make up the Family
Restaurant Division and including the FRD Commissary as of December 25, 1994 and
December 31, 1995, and the related combined statements of operations and net
combined equity and cash flows for the year ended December 26, 1993 and the one
month ended January 26, 1994 (Predecessor Company), and the eleven months ended
December 25, 1994 and the year ended December 31, 1995 (Successor Company) in
the Form 8-K of Flagstar Corporation dated May 23, 1996.
KPMG Peat Marwick LLP
Orange County, California
August 1, 1996
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