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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Act of 1934
Date of Report (Date of earliest event reported): January 24, 1994
Commission File Number: 0-18051
FLAGSTAR COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3487402
(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:
(803) 597-8700
N/A
(Former name or former address, if changed since last report)
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Item 5. Other Events.
On January 24, 1994, Flagstar Companies, Inc. ("FCI"), announced that
its Board of Directors has approved the write-off of $1.5 billion in goodwill
and other intangible assets and a charge of $225 million for restructuring
costs in the fourth quarter ended December 31, 1993. For additional
information concerning such matters, reference is made to FCI's press
release, a copy of which is attached hereto as Exhibit 99.
Item 7. Financial Statements and Exhibits.
Exhibit No. Description
99 Press Release of FCI dated
January 24, 1994.
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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 COMPANIES, INC.
Date: January 24, 1994 /s/ A. Ray Biggs
A. Ray Biggs,
Vice President and
Chief Financial Officer
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EXHIBIT 99
Media Contact: Coleman Sullivan
Karen Randall
803-597-8642
Investor Contact: Larry Gosnell
803-597-8658
FOR IMMEDIATE RELEASE
FLAGSTAR REPORTS FOURTH QUARTER AND YEAR-END RESULTS;
GOODWILL AND RESTRUCTURING CHARGES TAKEN IN FOURTH QUARTER
SPARTANBURG, S.C., Jan. 24 -- Flagstar Companies, Inc.
(NASDAQ:FLST) announced today that its Board of Directors has
approved the write-off of $1.5 billion in goodwill and other
intangible assets and a charge of $225 million for restructuring
costs in the fourth quarter ended December 31, 1993.
The Company also reported a 9.6 percent increase in revenues
for the fourth quarter ended December 31, 1993 to $1.02 billion, up
from $925.9 million in the comparable quarter last year. As a
result of the goodwill write-off and restructuring charges, the
Company incurred an operating loss of $1.64 billion for the fourth
quarter, compared to operating income of $60.1 million for the same
period of 1992. Excluding the goodwill write-off and restructuring
charges, operating income increased 7.8 percent to $64.9 million,
while earnings before interest, taxes, depreciation and
amortization (EBITDA) increased 8.2 percent to $131.0 million,
compared with the same quarter last year.
Goodwill and Restructuring Charges
The write-off of goodwill and other intangible assets is a
non-cash charge with no significant effect on Flagstar's future
operations. It resulted from the determination by Flagstar that,
in light of 1993 results, projections based on four-year historical
operating trends are not sufficient to support the future
amortization of the Company's remaining goodwill. This shortfall
results primarily from declining customer traffic trends, increased
competition, adverse economic conditions and limited capital to
address both operational issues and new restaurant growth. The
Company believes that its future cash flows will continue to be
adequate to meet debt service requirements and to fund capital
projects necessary to maintain present operations during the period
of implementation of the restructuring.
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The restructuring charges of $225 million are the result of a
comprehensive financial and operational review initiated in 1993 as
a result of disappointing operating results.
The costs of the restructuring plan fall into two broad
categories. Approximately $120 million represents predominantly
non-cash adjustments made to reduce to net realizable value
approximately 270 of the Company's 1,941 restaurants. These
restaurants have been identified for sale to franchisees or
closure. The remaining charges of approximately $105 million
represent a combination of personnel-related costs such as
severance, relocation, and training resulting from changes to the
field management structure of the restaurant group and restaurant
repositioning principally within the Denny's chain as well as
systems development costs necessary to support the new
organizational structure.
"In view of recent Company developments, now is the time to
make the hard decisions to bring our balance sheet into better
alignment with current market realities," said Jerome J.
Richardson, chairman and chief executive officer. "Since 1989,
when the goodwill was recorded, Flagstar's earnings have fallen
short of expectations. Results for 1993 were particularly
disappointing. It is now clear that if current trends continue,
our earnings will not be sufficient to support future amortization
of goodwill."
"During the past year, we have restructured our debt and made
senior management changes at Denny's, Quincy's, El Pollo Loco and
Canteen," Richardson said. "In addition, we have undertaken a
strategic business review which has led to critical initiatives to
upgrade facilities, streamline operations and reposition our
concepts to compete more effectively. Acknowledging that operating
trends do not justify carrying goodwill on the books and
recognizing the cost of our restructuring programs upfront will
enable us to establish an appropriate basis against which future
performance can be measured."
Richardson said that the majority of the restructuring
initiatives will be completed over the next 18 months.
Fourth-Quarter Results
Principally as a result of the goodwill write-off and
restructuring charges, the company reported a loss before
extraordinary items of $1.63 billion, or $38.62 per share for the
fourth quarter compared to a loss before extraordinary items of
$13.5 million or $0.53 per share for the same quarter in 1992. The
net loss for the fourth quarter was $1.65 billion, or $38.97 per
share, compared to a net loss of $158.2 million, or $5.00 per share
for the comparable 1992 period.
As a result of the impact of the fourth quarter goodwill
write-off and restructuring charges on the effective tax rate for
1993, the company reduced the tax benefit previously associated
with the extraordinary items and cumulative effect of the change in
accounting principle. Accordingly, the net charge for
extraordinary items and the cumulative effect of the change in
accounting principle increased by $10.1 million and $4.6 million,
respectively, resulting in charges of $26.4 million and $12.0
million for the full year of 1993, respectively.
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The Company's results for the fourth quarter of 1992 reflect
a charge for extraordinary items of $144.8 million, net of income
taxes, attributable to premiums paid to retire certain indebtedness
and to write-off related unamortized deferred financing costs in
connection with the Company's 1992 recapitalization.
Full-Year Results
Revenues for full year 1993 were $3.97 billion, an increase of
6.7 percent from $3.72 billion reported last year. Excluding the
goodwill write-off and restructuring charges, operating income for
the full year declined 16.4 percent to $206.1 million, from $246.4
million recorded for full year 1992, while EBITDA was $453.1
million, a decline of 4.3 percent from the $473.6 million reported
last year.
For full year 1993, the Company reported a loss before
extraordinary items and cumulative effect of change in accounting
principle of $1.68 billion, or $40.02 per share, compared with a
loss of $51.8 million, or $2.32 per share for 1992. The net loss
for the 1993 year was $1.72 billion, or $40.93 per share for the
year, compared with a net loss of $225.0 million, or $9.29 per
share in 1992.
Per share amounts for the quarter and year ended December 31,
1993 and 1992 reflect, where applicable, the issuance in November
1992 of 100 million additional shares (pre-split) of common stock
and a June 16, 1993 five-for-one reverse stock split.
Restaurants
Denny's reported a 10.9 percent increase in revenues to $395.7
million for the quarter, up from $356.7 million last year. This
increase reflected the net addition of 61 new company-owned and
franchise restaurants, offset in part by a 1.3 percent decrease in
average unit sales compared to the prior year period. Excluding
the goodwill write-off and restructuring charges, Denny's reported
a 1.3 percent increase in operating income to $29.3 million,
compared with $29.0 million reported in the prior year quarter.
Denny's operating margin was lower in the fourth quarter due to
higher product costs. Denny's traffic declined 7.0 percent during
the fourth quarter, which in part was due to the discontinuance of
the free birthday meal program and reduced discounting. Fourth
quarter revenue and operating income results for Denny's reflect a
14-week accounting period in 1993 versus a 13-week accounting
period in 1992.
Hardee's fourth quarter revenues increased 8.4 percent to
$172.1 million, from $158.7 million reported in the prior year,
reflecting the net addition of 36 new restaurants and a 1.9 percent
increase in average unit sales. While traffic declined 2.6 percent
during the quarter -- partially as a result of strong year-over-
year comparisons with a 1992 period during which many of the
restaurants had just begun introducing the popular fresh fried
chicken product -- the average check increased 4.6 percent in the
fourth quarter of 1993 compared with the prior year period due to the
impact of the fresh fried chicken and a marketing emphasis on other
higher priced menu items.
Hardee's operating income, excluding the goodwill write-off
and restructuring charges, was $23.2 million, an increase of 19.9
percent over $19.4 million reported in the fourth quarter of 1992.
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Average unit sales for Quincy's Family Steakhouse increased
3.1 percent during the quarter, while total revenues increased 1.1
percent to $68.5 million compared with the same quarter last year.
Four Quincy's units were closed during 1993. Quincy's operating
income, excluding the goodwill write-off and restructuring charges,
increased 21.8 percent to $4.3 million from $3.6 million in the
prior year quarter. The Company began to test a new all-buffet
concept in the Columbia, S.C. area, and results thus far have been
encouraging.
While revenues at El Pollo Loco increased 13.7 percent to
$28.4 million, from $25.0 million in the comparable 1992 quarter,
the operating loss for the quarter before the goodwill write-off
and restructuring charges was $898,000, versus an operating profit
of $72,000 for the same quarter last year. The loss resulted from
heavy discounting during the quarter, which was necessary to
sustain sales in the midst of the fiercely competitive and
recessionary environment in California.
Contract Food and Recreation Services
Canteen reported a 10.3 percent increase in fourth quarter
revenues to $350.5 million, from $317.7 million in the prior year
period. Revenues in the food and vending division continue to be
negatively impacted by reductions in client employee levels, but
were offset by acquisitions and new business. Excluding the
goodwill write-off and restructuring charges, operating income
declined 17.8 percent to $11.8 million, from $14.3 million in the
comparable period last year.
Capital Expenditures
Capital expenditures were $68.0 million in the fourth quarter,
compared with $55.1 million in the same 1992 quarter. For full-
year 1993, capital expenditures were $225.5 million, compared with
$178.2 million in 1992.
Flagstar, one of the nation's largest food service companies,
owns and operates Denny's, Quincy's and El Pollo Loco restaurants
and is the largest franchisee of Hardee's restaurants. Flagstar
also provides contract food, vending and recreation services
through its Canteen company.
# # #
1/24/94
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FLAGSTAR COMPANIES, INC.
Statements of Consolidated Operations
for the Quarters and Years Ended December 31, 1993 and 1992
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Quarters Ended Years Ended
December 31, December 31,
1993 1992 1993 1992
Revenues:
Restaurants $ 664,671 $ 608,164 $ 2,598,893 $2,442,991
Contract Food Services 350,467 317,714 1,371,312 1,277,290
Total Revenues $ 1,015,138 $ 925,878 $ 3,970,205 $3,720,281
Operating Income (Loss):
Restaurants $ 56,021 $ 51,984 $ 179,699 $ 214,062
Contract Food Services 11,775 14,319 46,510 50,947
Corporate and Other (2,942) (6,164) (20,128) (18,585)
Operating Income Before Write-off
of Goodwill and Intangible
Assets and Provision for
Restructuring Charges 64,854 60,139 206,081 246,424
Write-off of Goodwill and
Intangible Assets (1,474,831) - (1,474,831) -
Provision for
Restructuring Charges (225,310) - (225,310) -
Operating Income (Loss) (1,635,287) 60,139 (1,494,060) 246,424
Interest and Debt Expense 68,465 73,588 266,167 303,908
Other Non-Operating Expenses, net 1,584 322 2,464 874
Loss Before Income Taxes, Extraordinary
Items and Cumulative Effect of
Changes in Accounting Principle (1,705,336) (13,771) (1,762,691) (58,358)
Benefit from Income Taxes (72,422) (307) (81,149) (6,583)
Loss Before Extraordinary Items
and Cumulative Effect of
Changes in Accounting Principle (1,632,914) (13,464) (1,681,542) (51,775)
Extraordinary Items - (228,345) (26,601) (240,454)
Provision (Benefit) from Income
Taxes on Extraordinary Items 10,165 (83,593) (196) (85,053)
Extraordinary Items, net (10,165) (144,752) (26,405) (155,401)
Loss Before Cumulative Effect of
Changes in Accounting Principle (1,643,079) (158,216) (1,707,947) (207,176)
Cumulative Effect of Changes
in Accounting Principle - - (12,100) (26,619)
Provision (Benefit) from Income
Taxes on Cumulative Effect 4,569 - (90) (8,785)
Cumulative Effect of Changes
in Accounting Principle, net (4,569) - (12,010) (17,834)
Net Loss (1,647,648) (158,216) (1,719,957) (225,010)
Dividends on Preferred Stock (3,544) (3,544) (14,175) (6,064)
Net Loss Applicable
to Common Shareholders $(1,651,192)$(161,760)$(1,734,132)$ (231,074)
Per Share Amounts Applicable to Common Shareholders:
Income (Loss) Before Extraordinary
Items and Cumulative Effect of
Changes in Accounting Principle $ (38.62)$ (0.53)$ (40.02)$ (2.32)
Extraordinary Items, Net (0.24) (4.47) (0.62) (6.25)
Income (Loss) Before
Cumulative Effect of Changes
in Accounting Principle (38.86) (5.00) (40.64) (8.57)
Cumulative Effect of Changes
in Accounting Principle, net (0.11) (0.29) (0.72)
Net Loss $ (38.97)$ (5.00)$ (40.93)$ (9.29)
Average Outstanding and
Equivalent Common Shares 42,369 32,370 42,370 24,883
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FLAGSTAR COMPANIES, INC.
Consolidated Revenues and Operating Income (Loss) Before Write-off of Goodwill
and Intangible Assets and Provision for Restructuring Charges by Operating
Entity for the Quarters and Years Ended December 31, 1993 and 1992
(Dollars in Thousands)
(Unaudited)
Quarters Ended Years Ended
December 31, December 31,
1993 1992 1993 1992
Revenues:
Restaurants
Denny's (1) $ 395,661 $ 356,729 $ 1,529,732 $1,448,945
Hardee's 172,091 158,707 681,742 606,740
Quincy's 68,504 67,727 278,868 289,931
El Pollo Loco 28,415 25,001 108,551 97,375
Contract Food Services 350,467 317,714 1,371,312 1,277,290
Total Revenues $ 1,015,138 $ 925,878 $ 3,970,205 $3,720,281
Operating Income (Loss) Before Write-off
of Goodwill and Intangible Assets and
Provision for Restructuring Charges:
Restaurants
Denny's (1) 29,344 28,971 91,732 129,631
Hardee's 23,245 19,388 81,130 72,504
Quincy's 4,330 3,553 9,460 11,593
El Pollo Loco (898) 72 (2,623) 334
Contract Food Services 11,775 14,319 46,510 50,947
Corporate and Other (2,942) (6,164) (20,128) (18,585)
Operating Income Before Write-off
of Goodwill and Intangible
Assets and Provision for
Restructuring Charges $ 64,854 $ 60,139 $ 206,081 $ 246,424
Supplemental Data:
Total company amortization
and depreciation expense $ 66,132 $ 60,927 $ 247,003 $ 227,191
(1) Includes processing and distribution operations.
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FLAGSTAR COMPANIES, INC.
Supplemental Data
for the Quarters Ended December 31, 1993 and 1992
(Unaudited)
Quarter Quarter
EBITDA Ended Ended
($ in millions) 12/31/93 12/31/92
Denny's (1) $54.0 $51.7
Hardee's 35.4 31.2
Quincy's 9.5 9.1
El Pollo Loco 2.4 2.2
Canteen 31.5 32.1
Corporate and Other (1.8) (5.2)
TOTAL (2) $131.0 $121.1
Quarter Quarter
CAPITAL EXPENDITURES Ended Ended
($ in millions) 12/31/93 12/31/92
Denny's (1) $26.5 $26.1
Hardee's 13.7 11.7
Quincy's 2.8 0.3
El Pollo Loco 7.8 4.9
Canteen 16.6 11.9
Corporate and Other 0.7 0.2
TOTAL $68.0 $55.1
CASH CAPITAL Quarter Quarter
EXPENDITURES Ended Ended
($ in millions ) 12/31/93 12/31/92
Denny's (1) $16.5 $16.8
Hardee's 6.6 10.6
Quincy's 2.0 (0.4)
El Pollo Loco 7.4 2.2
Canteen 13.4 9.7
Corporate and Other 0.6 0.2
TOTAL $46.6 $39.1
(1) Includes processing and distribution operations
(2) EBITDA figures exclude goodwill and restructuring costs
AVERAGE UNIT SALES Quarter Quarter
Company-Owned Units Ended Ended
($ in thousands) 12/31/93 12/31/92 % Change
Denny's $295.6 $299.6 -1.3%
Hardee's $308.6 $302.8 1.9%
Quincy's $321.7 $311.9 3.1%
El Pollo Loco $205.3 $204.7 0.3%
Quarter Quarter
AVERAGE CHECK Ended Ended
Company-Owned Units 12/31/93 12/31/92 % Change
Denny's $4.89 $4.61 6.1%
Hardee's $3.12 $2.98 4.6%
Quincy's $5.73 $5.46 5.0%
El Pollo Loco $6.44 $6.46 -0.3%
TRAFFIC Change vs.
Company-Owned Units Prior Year
Denny's -7.0%
Hardee's -2.6%
Quincy's -1.8%
El Pollo Loco 0.7%
Change vs.
UNIT COUNTS 12/31/93 12/31/92 Prior Year
Denny's:
Company 1,025 1,013 12
Franchise 427 378 49
International 63 69 (6)
Subtotal 1,515 1,460 55
Hardee's 564 528 36
Quincy's 213 217 (4)
El Pollo Loco
Company 139 120 19
Franchise 67 77 (10)
International 6 13 (7)
Subtotal 212 210 2
TOTAL RESTAURANT UNITS 2,504 2,415 89
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FLAGSTAR COMPANIES, INC.
Supplemental Data
for the Years Ended December 31, 1993 and 1992
(Unaudited)
Year Year
EBITDA Ended Ended
($ in millions) 12/31/93 12/31/92
Denny's (1) $180.1 $211.7
Hardee's 129.0 115.7
Quincy's 30.4 33.4
El Pollo Loco 7.2 8.3
Canteen 122.1 119.1
Corporate and Other (15.7) (14.7)
TOTAL (2) $453.1 $473.6
Year Year
CAPITAL EXPENDITURES Ended Ended
($ in millions) 12/31/93 12/31/92
Denny's (1) $72.8 $73.1
Hardee's 68.7 52.6
Quincy's 10.8 10.5
El Pollo Loco 9.6 5.4
Canteen 61.2 35.4
Corporate and Other 2.4 1.3
TOTAL $225.5 $178.2
CASH CAPITAL Year Year
EXPENDITURES Ended Ended
($ in millions ) 12/31/93 12/31/92
Denny's (1) $50.9 $56.9
Hardee's 30.7 46.2
Quincy's 7.4 6.0
El Pollo Loco 8.7 2.7
Canteen 49.4 28.2
Corporate and Other 1.4 0.8
TOTAL $148.4 $141.0
(1) Includes processing and distribution operations
(2) EBITDA figures exclude goodwill and restructuring costs
AVERAGE UNIT SALES Year Year
Company-Owned Units Ended Ended
($ in thousands) 12/31/93 12/31/92 % Change
Denny's $1,232.5 $1,231.0 0.1%
Hardee's $1,255.4 $1,184.5 6.0%
Quincy's $1,301.7 $1,335.4 -2.5%
El Pollo Loco $829.2 $814.4 1.8%
Year Year
AVERAGE CHECK Ended Ended
Company-Owned Units 12/31/93 12/31/92 % Change
Denny's $4.76 $4.56 4.4%
Hardee's $3.09 $2.88 7.2%
Quincy's $5.61 $5.32 5.3%
El Pollo Loco $6.54 $6.34 3.2%
TRAFFIC Change vs.
Company-Owned Units Prior Year
Denny's -4.1%
Hardee's -1.1%
Quincy's -7.5%
El Pollo Loco -1.4%
Change vs.
UNIT COUNTS 12/31/93 12/31/92 Prior Year
Denny's:
Company 1,025 1,013 12
Franchise 427 378 49
International 63 69 (6)
Subtotal 1,515 1,460 55
Hardee's 564 528 36
Quincy's 213 217 (4)
El Pollo Loco:
Company 139 120 19
Franchise 67 77 (10)
International 6 13 (7)
Subtotal 212 210 2
TOTAL RESTAURANT UNITS 2,504 2,415 89
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