<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 10, 1994 Commission File No. 1-9390
------------- ------
FOODMAKER, INC.
- - -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-2698708
- - -----------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
9330 BALBOA AVENUE, SAN DIEGO, CA 92123
- - -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 571-2121
--------------
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
---- ----
Number of shares of common stock, $.01 par value, outstanding
as of the close of business August 15, 1994 - 38,614,200
1
<PAGE>
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
July 10, October 3,
1994 1993
------- -------
ASSETS
Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . $ 70,620 $ 4,481
Receivables . . . . . . . . . . . . . . . . . . 27,119 30,277
Inventories . . . . . . . . . . . . . . . . . . 27,828 40,977
Prepaid expenses. . . . . . . . . . . . . . . . 11,096 17,799
------- -------
Total current assets . . . . . . . . . . . . 136,663 93,534
------- -------
Investment in FRI . . . . . . . . . . . . . . . . 57,839 -
------- -------
Trading area rights . . . . . . . . . . . . . . . 62,938 55,678
------- -------
Lease acquisition costs . . . . . . . . . . . . . 26,494 46,013
------- -------
Other assets. . . . . . . . . . . . . . . . . . . 66,373 54,133
------- -------
Property at cost. . . . . . . . . . . . . . . . . 548,256 711,284
Accumulated depreciation and amortization . . . (130,834) (164,813)
------- -------
417,422 546,471
------- -------
Cost of business in excess of net assets
at acquisition. . . . . . . . . . . . . . . . . 2,615 94,591
------- -------
TOTAL. . . . . . . . . . . . . . . . . . . . $770,344 $890,420
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt. . . . . . $ 12,837 $ 33,163
Accounts payable. . . . . . . . . . . . . . . . 34,180 36,662
Accrued expenses. . . . . . . . . . . . . . . . 90,250 122,741
Income taxes payable. . . . . . . . . . . . . . 6,156 10,783
------- -------
Total current liabilities. . . . . . . . . . 143,423 203,349
------- -------
Deferred income taxes . . . . . . . . . . . . . . - 17,189
------- -------
Long-term debt, net of current maturities . . . . 464,812 500,460
------- -------
Other long-term liabilities . . . . . . . . . . . 42,376 30,290
------- -------
Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . . . 400 396
Capital in excess of par value. . . . . . . . . 280,703 280,353
Accumulated deficit . . . . . . . . . . . . . . (146,907) (127,154)
Treasury stock. . . . . . . . . . . . . . . . . (14,463) (14,463)
------- -------
Total stockholders' equity. . . . . . . . . . . 119,733 139,132
------- -------
TOTAL. . . . . . . . . . . . . . . . . . . . $770,344 $890,420
======= =======
See accompanying notes to financial statements.
2
<PAGE>
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Twelve Weeks Ended Forty Weeks Ended
---------------------- ------------------------
July 10, July 4, July 10, July 4,
1994 1993 1994 1993
-------- -------- -------- --------
Revenues:
Restaurant sales. . . . . . . $170,982 $245,862 $670,348 $814,866
Distribution sales. . . . . . 46,429 25,046 126,422 80,133
Franchise rents and royalties 7,344 8,214 25,882 26,758
Other . . . . . . . . . . . . 1,067 1,118 3,450 6,723
-------- -------- -------- --------
225,822 280,240 826,102 928,480
-------- -------- -------- --------
Costs and expenses:
Costs of revenues:
Restaurant cost of sales . 50,680 70,254 195,330 229,121
Restaurant operating costs 96,796 147,443 394,777 482,561
Cost of distribution sales 45,119 23,966 122,200 76,959
Franchised restaurant costs 5,239 44,915 17,631 61,997
Selling, general and
administrative . . . . . . 21,221 26,723 77,318 96,835
Equity in (earnings) loss
of FRI . . . . . . . . . . (384) - 877 -
Interest expense. . . . . . . 12,238 13,111 43,021 43,196
-------- -------- -------- --------
230,909 326,412 851,154 990,669
-------- -------- -------- --------
Loss before income taxes,
extraordinary item and
cumulative effect of changes
in accounting principles. . . (5,087) (46,172) (25,052) (62,189)
Income taxes (benefit). . . . . (1,653) (15,393) (8,037) (20,734)
-------- -------- -------- --------
Loss before extraordinary item
and cumulative effect of
changes in accounting
principles. . . . . . . . . . (3,434) (30,779) (17,015) (41,455)
Extraordinary item - loss on
early extinguishment of debt,
net of taxes. . . . . . . . . - - (2,738) -
Cumulative effect on prior
years (to September 27, 1992)
of adopting SFAS 106 and
SFAS 109. . . . . . . . . . . - - - (53,980)
-------- -------- -------- --------
Net loss. . . . . . . . . . . . $ (3,434) $(30,779) $(19,753) $(95,435)
======== ======== ========
========
Loss per share - primary
and fully diluted:
Loss before extraordinary
item and cumulative effect
of changes in accounting
principles . . . . . . . . $ (.09) $ (.81) $ (.44) $ (1.07)
Extraordinary item. . . . . . - - (.07) -
Cumulative effect on prior
years (to September 27,
1992) of adopting SFAS 106
and SFAS 109 . . . . . . . - - - (1.40)
-------- -------- -------- --------
Net loss per share. . . . . . $ (.09) $ (.81) $ (.51) $ (2.47)
======== ======== ========
========
Weighted average shares
outstanding 38,578 38,215 38,500 38,572
See accompanying notes to financial statements.
3
<PAGE>
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Forty Weeks Ended
-------------------------
July 10, July 4,
1994 1993
------- -------
Cash flows from operations:
Net loss, excluding extraordinary item. . . . . $(17,015) $(95,435)
Non-cash items included above:
Depreciation and amortization. . . . . . . . 34,162 43,545
Deferred income taxes. . . . . . . . . . . . (11,011) (2,388)
Equity in loss of FRI. . . . . . . . . . . . 877 -
Cumulative effect of accounting changes. . . - 53,980
Decrease in receivables . . . . . . . . . . . . 185 7,540
Increase in inventories . . . . . . . . . . . . (2,315) (8,268)
Decrease (increase) in prepaid expenses . . . . 3,743 (1,577)
Increase (decrease) in accounts payable . . . . 13,640 (2,189)
Increase in accrued expenses. . . . . . . . . . 3,972 15,796
------- -------
Cash flows provided by operations. . . . . . 26,238 11,004
------- -------
Cash flows from investing activities:
Additions to property and equipment . . . . . . (61,071) (26,706)
Dispositions of property and equipment. . . . . 1,044 4,110
Decrease (increase) in trading area rights. . . (9,243) 245
Acquisition of Consul . . . . . . . . . . . . . - (8,700)
Investment in FRI, net. . . . . . . . . . . . . (58,716) -
Disposition of Chi-Chi's. . . . . . . . . . . . 216,082 -
Increase in other assets. . . . . . . . . . . . (21,258) (7,494)
------- -------
Cash flows provided (used) in investing
activities . . . . . . . . . . . . . . . . 66,838 (38,545)
------- -------
Cash flows from financing activities:
Borrowings under revolving bank loans . . . . . 5,000 19,000
Principal repayments under revolving bank loans (35,000) -
Proceeds from issuance of long-term debt. . . . 85,886 2,315
Principal payments on long-term debt,
including current maturities . . . . . . . . (87,919) (6,345)
Extraordinary loss on retirement of debt,
net of tax . . . . . . . . . . . . . . . . . (2,738) -
Increase (decrease) in accrued interest . . . . 362 (2,121)
Repurchase of common stock. . . . . . . . . . . - (10,929)
Proceeds from issuance of common stock. . . . . 354 1,148
Other changes in equity . . . . . . . . . . . . - 61
Net proceeds from sale and leaseback transactions 7,118 7,804
Decrease in accrued transaction costs . . . . . - (259)
------- -------
Cash flows provided (used) by financing
activities . . . . . . . . . . . . . . . . (26,937) 10,674
------- -------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . $ 66,139 $(16,867)
======= =======
See accompanying notes to financial statements.
4
<PAGE>
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
July 10, 1994
1. The accompanying unaudited financial statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation have been included. Operating results for
any interim period are not necessarily indicative of the results for any
other interim period or for the full year. The Company reports results
quarterly with the first quarter having 16 weeks and each remaining quarter
having 12 weeks. Certain financial statement reclassifications have been
made in the prior year to conform to the current year presentation.
Additionally, the prior year financial statements have been restated to
reflect the Company's adoption as of September 28, 1992 of Statement of
Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and SFAS No. 109, "Accounting
for Income Taxes". These financial statements should be read in conjunction
with the 1993 financial statements.
2. The income tax benefit was approximately 32% and 33% of the pretax loss in
1994 and 1993, respectively. Income taxes in 1993 reflect the restatement
for the annualized effect of adopting SFAS No. 109.
3. On January 27, 1994, Foodmaker, Apollo Advisors, L.P. ("Apollo") and Green
Equity Investors, L.P. ("GEI"), whose general partner is Leonard Green &
Partners, (collectively, the "Investors"), acquired Restaurant Enterprises
Group, Inc. ("REGI"), a company that owns, operates and franchises various
restaurant chains including El Torito, Carrows and Coco's. Contempora-
neously, REGI changed its name to Family Restaurants, Inc. ("FRI").
Concurrently, Foodmaker contributed its entire Chi-Chi's Mexican restaurant
chain to FRI in exchange for an approximate 40% equity interest in FRI,
valued at $62 million, a five-year warrant to acquire 111,111 additional
shares at $240 per share, which would increase its equity interest to 46%,
and approximately $173 million in cash ($208 million less the face amount of
Chi-Chi's debt assumed, aggregating approximately $35 million). Apollo and
GEI, respectively, contributed $62 million and $29 million in cash and hold
approximate 40% and 18.4% equity positions in FRI. Management of FRI
invested $2.5 million in cash and notes and holds an approximate 1.6% equity
position. A portion of the net cash received was used by Foodmaker to repay
all of the debt outstanding under its then existing bank credit facility,
which has been terminated. It is expected that the balance of proceeds will
be used to reduce other existing debt, to the extent permitted by the
Company's financing agreements, and to provide funds for capital
expenditures and general corporate purposes. The Company does not
anticipate receiving dividends on its FRI common stock in the foreseeable
future. The payment of dividends is restricted by FRI's public debt
instruments. Summarized FRI financial information for the three months
ended June 26, 1994, and for the five months from the date of the
acquisition through June 26, 1994, the end of its second quarter, follows
(in thousands):
Three Months Five Months
------------ -----------
Sales . . . . . . . . . . . . . . . . . . $299,054 $488,634
------- --------
Costs of sales. . . . . . . . . . . . . . 83,682 136,668
Operating costs . . . . . . . . . . . . . 185,640 305,954
General and administrative expense. . . . 14,206 23,251
Interest expense. . . . . . . . . . . . . 13,681 23,559
------- --------
Income (loss) before income tax provision 1,845 (798)
Income taxes. . . . . . . . . . . . . . . 858 1,452
------- --------
Net income (loss) . . . . . . . . . . . . $ 987 $ (2,250)
======= ========
5
<PAGE>
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. In early January 1994, the Company entered into financing lease arrangements
with two limited partnerships, (the "Partnerships"), in which estates for
years relating to 42 existing and approximately 34 to-be-constructed
restaurants were sold. The acquisition of the properties, including costs
and expenses, was funded through the issuance by a special purpose
corporation acting as agent for the Partnerships of $70 million senior
secured notes, having interest payable semi-annually and due in two equal
annual installments of principal beginning November 1, 2002. The Company is
required semi-annually through year nine to make payments to a trustee of
approximately $3.4 million and special payments of approximately $.7
million, which effectively cover interest and sinking fund requirements,
respectively, on the notes. At the end of years nine and ten, the Company
must make rejectable offers to reacquire 50% of the properties at each date
at a price which is sufficient, in conjunction with previous sinking fund
deposits, to retire the notes. If the Partnerships reject the offers, the
Company may purchase the properties at less than fair market value or cause
the Partnerships to fund the remaining principal payments on the notes and,
at the Company's option, cause the Partnerships to acquire the Company's
residual interest in the properties. If the Partnerships are allowed to
retain the estates for years, the Company has available options to extend
the leases for total terms of up to 35 years, at which time the ownership of
the property will revert to the Company. The transactions are reflected as
financings with the properties remaining in the Company's financial
statements. As a result of the foregoing transaction, at July 10, 1994, the
Company had approximately $16 million in construction funds available for
new restaurants, which was classified in the financial statements in other
assets.
5. Long-term debt has changed as a result of the aforementioned transactions as
indicated in the following table:
July 10, October 3,
1994 1993
--------- ---------
Bank credit agreement. . . . . . . . . . . . . . . $ -- $107,000
13 1/2% Senior notes . . . . . . . . . . . . . . . 23,283 23,283
9 1/4% Senior notes, due March 1, 1999 . . . . . . 175,000 175,000
9 3/4% Senior subordinated notes, due June 1, 2002 125,000 125,000
12 3/4% Senior notes, due July 1, 1996 . . . . . . 7,043 7,043
14 1/4% Senior subordinated notes, due May 15, 1998 42,843 42,843
Subordinated debentures. . . . . . . . . . . . . . -- 19,268
Other notes, principally secured . . . . . . . . . 28,022 23,610
Financing lease obligations. . . . . . . . . . . . 66,622 --
Capitalized lease obligations. . . . . . . . . . . 9,836 10,576
-------- --------
477,649 533,623
Less current portion . . . . . . . . . . . . . . . (12,837) (33,163)
-------- --------
$464,812 $500,460
======== ========
6. Contingent Liabilities
Various claims and legal proceedings are pending against the Company in
various state and Federal courts; many of those proceedings are in the
states of Washington, Nevada and Idaho and in Federal Court, Western
District of Washington at Seattle seeking monetary damages and other relief
relating to the outbreak of food-borne illness (the "Outbreak") attributed
to hamburgers served at Jack In The Box restaurants. The Company, in
consultation with its insurance carriers and attorneys, does not anticipate
that the total liability on all such lawsuits and claims will exceed the
coverage available under its applicable insurance policies.
6
<PAGE>
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Actions were filed on July 2, 1993, in the Superior Court of California,
County of San Diego, by certain of the Company's franchisees against the
Company, The Vons Companies, Inc., ("Vons") and other suppliers (Syed Ahmad,
et al, versus Foodmaker, Inc., et al), claiming damages from reduced sales
and profits due to the Outbreak. After extensive negotiations, settlements
were reached with all but one of the franchisees. During 1993, the Company
provided approximately $44.5 million to cover the settlements and associated
costs, including a then anticipated settlement with the remaining
franchisee. On January 14, 1994, the non-settling Franchisee filed two
substantially identical suits against the Company and The Vons Companies in
Superior Court of California, County of San Diego and in Federal Court,
Southern District of California (Ira Fischbein, et al versus Foodmaker,
Inc., et al) claiming damages from reduced sales, lost profits and reduced
value of the franchise due to the Outbreak. The Company has engaged legal
counsel and is vigorously defending the actions.
The Company on July 19, 1993, filed a cross-complaint against Vons and other
suppliers seeking reimbursement for all damages, costs and expenses incurred
in connection with the Outbreak. On or about January 18, 1994, Vons filed
a cross complaint against Foodmaker and others in this action alleging
certain contractual and tort liabilities and seeking damages in unspecified
amounts and a declaration of the rights and obligations of the parties.
In April 1993, a class action, In re Foodmaker, Inc./Jack In The Box
Securities Litigation, was filed in Federal Court, Western District of
Washington at Seattle against the Company, its Chairman, and the President
of the Jack In The Box Division on behalf of all persons who acquired the
Company's common stock between March 4, 1992 and January 22, 1993 seeking
damages in an unspecified amount as well as punitive damages. In general
terms, the complaint alleges that there were false and misleading statements
in the Company's March 4, 1992 prospectus and in certain public statements
and filings in 1992 and 1993, including claims that the defendants
disseminated false information regarding the Company's food quality
standards and internal quality control procedures. The Company has engaged
legal counsel and is vigorously defending the action.
The Federal Trade Commission is investigating whether the Company violated
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")
when the Company's former subsidiary, Chi-Chi's, Inc., acquired Consul
Restaurant Corporation in October 1992 without first complying with the
reporting and waiting requirements of the HSR Act. The Company later made
the filing as it was preparing for the sale of Chi-Chi's. The Company has
engaged counsel in connection with the investigation and on August 17, 1994,
counsel for the Company received a request, preliminary in nature, for
information and documents. The HSR Act provides for a penalty of up to
$10,000 per day for failure to comply with the above requirements.
Management believes that any potential penalty, if assessed, will not have
a material impact on the Company.
The amount of liability from the claims and actions described above cannot
be determined with certainty, but in the opinion of management, based in
part upon advice from legal counsel, the ultimate liability from all pending
legal proceedings, asserted legal claims and known potential legal claims
which are probable of assertion will not materially affect the consolidated
financial position or operations of the Company.
The U.S. Internal Revenue Service ("IRS") had proposed adjustments to tax
liabilities of $17 million (exclusive of interest) for the Company's federal
income tax returns for fiscal years 1986 through 1988. A final report has
not been issued but agreement has been reached to satisfy these proposed
adjustments at approximately $1.3 million (exclusive of $.8 million
interest). The IRS examinations of the Company's federal income tax returns
for fiscal years
7
<PAGE>
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1989 and 1990 resulted in the issuance of proposed adjustments to tax
liabilities aggregating $2.2 million (exclusive of $.7 million interest).
The Company has filed a protest with the Regional Office of Appeals of the
IRS contesting the proposed assessments. Management believes that adequate
provision for income taxes has been made.
7. Selected Pro Forma Financial Data
The following selected pro forma statement of operations for the 40 weeks
ended July 10, 1994 give effect to the following transactions and events as
if they had occured as of the beginning of the period presented: (i) the
acquisition by the Company of a 40% equity interest in FRI, valued at $62
million; (ii) the concurrent contribution by the Company of its entire Chi-
Chi's Mexican restaurant chain to FRI for the above equity interest and
approximately $173 million in cash ($208 million less the face amount of
Chi-Chi's debt assumed); and (iii) the utilization of cash to repay all of
the debt outstanding under the Company's then existing bank credit facility,
which has since been terminated, with the balance of cash available for
capital expenditures and general corporate purposes.
The pro forma financial data presented herein do not purport to represent
what the Company's results of operations would have been had such
transactions in fact occured at the beginning of the period or to project
the Company's results of operations in any future period.
Pro Forma As
Actual Adjustments Adjusted
-------- ----------- --------
(In thousands, except per share data)
Revenues:
Restaurant sales. . . . . . . . . . . $670,348 $(123,247) $547,101
Distribution sales. . . . . . . . . . 126,422 28,163 154,585
Franchise rents and royalties . . . . 25,882 (132) 25,750
Other . . . . . . . . . . . . . . . . 3,450 (554) 2,896
-------- -------- --------
826,102 (95,770) 730,332
-------- -------- --------
Costs of revenues:
Company restaurant costs. . . . . . . 590,107 (113,299) 476,808
Costs of distribution sales . . . . . 122,200 28,048 150,248
Franchised restaurant costs . . . . . 17,631 (159) 17,472
Selling, general and administrative . . 77,318 (3,425) 73,893
Equity in loss of FRI . . . . . . . . . 877 6,779 7,656
Interest expense. . . . . . . . . . . . 43,021 (4,373) 38,648
-------- -------- --------
851,154 (86,429) 764,725
-------- -------- --------
Loss before income taxes and
extraordinary item . . . . . . . . . (25,052) (9,341) (34,393)
Income taxes (benefit). . . . . . . . . (8,037) (3,036) (11,073)
-------- -------- --------
Loss before extraordinary item. . . . . $(17,015) $(6,305) $(23,320)
======== ======== ========
Loss per share before
extraordinary item. . . . . . . . . . $ (.44) $ (.61)
Weighted average shares outstanding . . 38,500 38,500
-------------
(1) The pro forma adjustments (i) eliminate revenues, costs of revenues
and general and administrative expenses of Chi-Chi's; (ii) record
sales and cost of sales for the Company's distribution activity with
Chi-Chi's, previously eliminated in consolidation; (iii) record the
Company's approximate 40% equity in the pro forma net loss of FRI;
(iv) reflect the reduction of net interest expense through elimination
of approximately $35 million in debt assumed by FRI and utilization of
cash proceeds from the sale of Chi-Chi's for investments and for
retirement of the bank credit facility; and (v) increase the income
tax benefit as a result of the increased pro forma pre-tax loss.
8
<PAGE>
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION
RESULTS OF OPERATIONS
All comparisons under this heading between 1994 and 1993, unless
otherwise indicated, refer to the 12-week and 40-week periods ended July 10,
1994 and July 3, 1993, respectively. On January 27, 1994, the Company
contributed its entire Chi-Chi's Mexican restaurant chain ("Chi-Chi's") to
Family Restaurants, Inc. ("FRI") in exchange for an approximate 40% interest
in FRI and other consideration including cash and debt assumption as
described in Note 3 to the consolidated financial statements. The
consolidated statements of operations, therefore, include Chi-Chi's results
of operations only for the 16 weeks (first fiscal quarter) ended in January
1994, and for both the 12-week and 40-week periods ended in 1993.
Sales by Jack In The Box Company-operated restaurants increased $18.1
million and $34.1 million, respectively, to $171.0 million and $547.0 million
in 1994 from $152.9 million and $513.0 million in 1993. The sales
improvement is primarily due to an increase in the average number of
Company-operated restaurants to 752 in 1994 from 715 in 1993 and due in part
to increases in per store average sales for comparable restaurants ("PSA") of
approximately 4% and 3%, respectively, in the 12-week and 40-week periods of
1994 as compared to 1993. The PSA increase results primarily from a recovery
of sales in 1994 in comparison to the depressed levels subsequent to January
1993 when Jack In The Box was linked to an outbreak of food-borne illness in
the Pacific Northwest ("the Outbreak"). Chi-Chi's restaurant sales were
$123.3 million in the first quarter of 1994 and $93.0 million and $301.9
million, respectively, in the 12- week and 40-week periods of 1993.
Distribution sales of food and supplies increased approximately $21.4
million and $46.3 million to $46.4 million and $126.4 million, respectively,
in 1994 from $25.0 million and $80.1 million in 1993. The increases are
primarily due to sales of $22.8 million and $44.2 million, respectively, to
Chi-Chi's (FRI) restaurants, which were previously eliminated as intercompany
sales.
Jack In The Box franchise rents and royalties decreased to $7.3 million in
the 12-week period of 1994 from $7.9 million in 1993 and remained unchanged at
$25.8 million for the 40-week periods. PSA increases at franchisee-operated
restaurants, which were also affected negatively by the Outbreak in 1993, were
more than offset in the 12-week period by the impact of acquiring restaurants
from franchisees during the current year. Franchise rents and royalties for
Chi-Chi's were $.1 million in the first quarter of 1994 and $.3 million and $1.0
million, respectively, in the 12-week and 40-week periods of 1993.
Other revenues for Jack In The Box increased $.8 million to $1.1 million
from $.3 million for the 12-week period primarily due to interest income earned
on cash proceeds from the sale of Chi-Chi's, and declined $0.8 million to $2.9
million from $3.7 million for the 40-week period due to the decline in the
number of conversions of Company-operated restaurants to franchised restaurants
to 4 in 1994 from 9 in 1993, resulting in reduced gains and fees. Chi-Chi's
other revenues were $.6 million in the first quarter of 1994 and $.8 million and
$3.0 million, respectively, in the 12-week and 40-week periods of 1993.
Jack In The Box costs of sales increased to $50.7 million and $162.6
million, respectively, in 1994 from $45.1 million and $149.4 million in 1993
principally due to the increase in the average number of Company-operated
restaurants. For the 12-week period, costs of sales as a percent of sales were
basically unchanged. For the 40-week period, costs of sales increased as a
percent of sales in 1994 as compared to 1993 due to the impact of higher
ingredient costs not offset by price increases and the higher proportional food
cost of certain promotions which have increased average customer checks to a
level higher than any other quarter since the Outbreak. Chi-Chi's costs of
sales were $32.7 million in 1994 and $25.2 million and $79.7 million,
respectively, in the 12-week and 40-week periods of 1993.
9
<PAGE>
<PAGE>
RESULTS OF OPERATIONS (Continued)
Restaurant operating costs for Jack In The Box increased $9.9 million and
$22.3 million, respectively, to $96.8 million and $314.1 million in 1994 from
$86.9 million and $291.8 million in 1993 primarily due to the increase in
average number of Company-operated restaurants, variable costs associated
with increased sales, and in part due to increased occupancy costs. As a
result of the increase in average sales in 1994, restaurant operating costs
represent a lower percent of sales for the 12-week in 1994 in comparison to
the similar period of 1993. Chi-Chi's restaurant operating costs were $80.7
million in the first quarter of 1994 and $60.5 million and $190.8 million,
respectively, in the 12-week and 40-week periods of 1993.
Costs of distribution sales increased $21.1 million and $45.2 million to
$45.1 million and $122.2 million in 1994 from $24.0 million and $77.0 million
in 1993, consistent with the increase in distribution sales.
Jack In The Box franchise restaurant costs, which normally consist of rents
and depreciation on properties leased to franchisees and other miscellaneous
costs, decreased to $5.2 million and $17.4 million, respectively, in 1994 from
$44.8 million and $61.5 million in 1993, primarily due to the inclusion in 1993
of assistance and settlements provided to franchisees (see Note 6 to financial
statements). Chi-Chi's franchise restaurant costs were $.2 million in the first
quarter of 1994 and $.1 million and $.5 million, respectively, in the 12-week
and 40-week periods of 1993.
Selling, general and administrative expenses for Jack In The Box
decreased to $21.2 million and $68.2 million, respectively, in 1994 from
$21.5 million and $73.3 million in 1993, principally due to the $5.7 million
gain recognized from the sale of Chi-Chi's. The 40-week period of 1994 also
reflects the recognition in the second quarter of (1) $2.0 million in
severance expenses and associated costs resulting from the elimination of
approximately 80 administrative positions (2) a charge of $3.5 million
principally for the write-down of assets to net realizable values and
providing for costs of closing seven older, under-performing restaurants with
short remaining lease terms, and (3) $1.1 million for write-offs
principally associated with replacement of signs at substantially all of the
Company-operated restaurants inconjunction with the exterior enhancement
project. Chi-Chi's incurred selling, general and administrative expenses of
$9.1 million in the first quarter of 1994 and $5.2 million and $23.5 million,
respectively, in the 12-week and 40-week periods of 1993.
Interest expense decreased $.9 million and $.2 million, respectively, to
$12.2 million and $43.0 million in 1994 from $13.1 million and $43.2 million in
1993 due to the repayment of $79 million of bank debt offset partially by the
addition of an approximate $70 million finance lease obligation.
Income tax benefit was approximately 32% and 33% of pretax loss in 1994 and
1993, respectively. The U.S. Internal Revenue Service ("IRS") had proposed
adjustments to tax liabilities of $17 million (exclusive of interest) for the
Company's federal income tax returns for fiscal years 1986 through 1988. A
final report has not been issued but agreement has been reached to satisfy these
proposed adjustments at approximately $1.3 million (exclusive of $.8 million
interest). The IRS examinations of the Company's federal income tax returns for
fiscal years 1989 and 1990 resulted in the issuance of proposed adjustments to
tax liabilities aggregating $2.2 million (exclusive of $.7 million interest).
The Company has filed a protest with the Regional Office of Appeals of the IRS
contesting the proposed assessments. Management believes that adequate
provision for income taxes has been made.
Effective September 28, 1992, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pension Benefits",
and No. 109, "Accounting for Income Taxes". As a result, the Company reported
in 1993 a $54.0 million cumulative effect to September 27, 1992 of these changes
in accounting principles, $10.2 million relating to SFAS 106 and $43.8 million
relating to SFAS 109.
10
<PAGE>
<PAGE>
FINANCIAL CONDITION
The Company's primary sources of liquidity are expected to be cash flows
from operations, the revolving bank credit facility described below, funds
available from the finance lease transaction described below and the sale and
leaseback of restaurant properties. An additional potential source of
liquidity is the conversion of Company-operated Jack In The Box restaurants to
franchised restaurants. The Company requires capital principally to construct
new restaurants, to maintain, improve and refurbish existing restaurants, and
for general corporate purposes.
At July 10, 1994, the Company's working capital deficit had improved $103.0
million to $6.8 million from $109.8 million at October 3, 1993, due primarily
to net cash proceeds received from the sale of Chi-Chi's, after the repayment
of bank debt. The Company's working capital position was also improved by the
partial payment of franchisee settlements and associated costs and the
recognition of tax benefits. The restaurant business does not require the
maintenance of significant receivables or inventories, and it is common to
receive trade credit from vendors for purchases such as supplies. In addition,
the Company, and generally the industry, continually invests it its business
through the addition of new units and refurbishment of existing units, which are
reflected as long-term assets and not as part of working capital.
At July 10, 1994, the Company's total debt outstanding was $477.6 million.
In early January 1994, the Company completed financing arrangements (see Note
4 to the consolidated financial statements), which added an approximate $70
million finance lease obligation to the Company's debt, enabling the Company to
repay approximately $28 million in bank borrowings, fund existing capital
expenditures and establish a construction fund of approximately $28 million for
new restaurants (of which $16 million remained at July 10, 1994). With the sale
of Chi-Chi's on January 27, 1994, the Company reduced its outstanding debt,
including full repayment of all bank borrowings and termination of the bank
credit facility, and had approximately $71 million in cash on hand at July 10,
1994. Substantially all of the Company's real estate and machinery and
equipment is, and is expected to continue to be, pledged to its lenders.
On July 26, 1994, the Company entered into a revolving bank credit agreement
which provides for a credit facility of up to $52 million, including letters of
credit for the account of the Company in an aggregate amount of up to $25
million. Covenants contained in the agreement limit capital spending and
require the Company to maintain specified financial ratios, and to meet certain
requirements regarding maximum leverage and minimum fixed charges, cash flows,
interest coverage, and net worth. The Company intends to use the revolving line
to retire a portion of its debt, to fund expansion efforts and for general
operating purposes.
Based upon current levels of operations and anticipated growth, the Company
expects that sufficient cash flow will be generated from operations so that,
combined with other financing alternatives available to it, including the bank
credit facility, the utilization of cash on hand and in the construction fund
referred to above, and the sale and leaseback of restaurants, the Company will
be able to meet all of its debt service requirements, as well as its capital
expenditures and working capital requirements, for the foreseeable future.
11
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
There is no information required to be reported for any items under Part II,
except as follows:
Item 1. Legal Proceedings.
Various claims and legal proceedings are pending against the Company in
various state and Federal courts; many of those proceedings are in the states
of Washington, Nevada and Idaho and in Federal Court, Western District of
Washington at Seattle seeking monetary damages and other relief relating to the
Outbreak attributed to hamburgers served at Jack In The Box restaurants. The
Company, in consultation with its insurance carriers and attorneys, does not
anticipate that the total liability on all such lawsuits and claims will exceed
the coverage available under its applicable insurance policies.
Actions were filed on July 2, 1993, in the Superior Court of California,
County of San Diego, by certain of the Company's franchisees against the
Company, The Vons Companies, Inc., ("Vons") and other suppliers (Syed Ahmad, et
al, versus Foodmaker, Inc., et al), claiming damages from reduced sales and
profits due to the Outbreak. After extensive negotiations, settlements were
reached with all but one of the franchisees. During 1993, the Company provided
approximately $44.5 million to cover the settlements and associated costs,
including a then anticipated settlement with the remaining franchisee. On
January 14, 1994, the non-settling Franchisee filed two substantially identical
suits against the Company and The Vons Companies in Superior Court of
California, County of San Diego and in Federal Court, Southern District of
California (Ira Fischbein, et al versus Foodmaker, Inc., et al) claiming damages
from reduced sales, lost profits and reduced value of the franchise due to the
Outbreak. The Company has engaged legal counsel and is vigorously defending the
actions.
The Company on July 19, 1993, filed a cross-complaint against Vons and other
suppliers seeking reimbursement for all damages, costs and expenses incurred in
connection with the Outbreak. On or about January 18, 1994, Vons filed a cross
complaint against Foodmaker and others in this action alleging certain
contractual and tort liabilities and seeking damages in unspecified amounts and
a declaration of the rights and obligations of the parties.
In April 1993, a class action, In re Foodmaker, Inc./Jack In The Box
Securities Litigation, was filed in Federal Court, Western District of
Washington at Seattle against the Company, its Chairman, and the President of
the Jack In The Box Division on behalf of all persons who acquired the Company's
common stock between March 4, 1992 and January 22, 1993 seeking damages in an
unspecified amount as well as punitive damages. In general terms, the complaint
alleges that there were false and misleading statements in the Company's
March 4, 1992 prospectus and in certain public statements and filings in 1992
and 1993, including claims that the defendants disseminated false information
regarding the Company's food quality standards and internal quality control
procedures. The Company has engaged legal counsel and is vigorously defending
the action.
The Federal Trade Commission is investigating whether the Company violated
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")
when the Company's former subsidiary, Chi-Chi's, Inc., acquired Consul
Restaurant Corporation in October 1992 without first complying with the
reporting and waiting requirements of the HSR Act. The Company later made
the filing as it was preparing for the sale of Chi-Chi's. The Company has
engaged counsel in connection with the investigation and on August 17, 1994,
counsel for the Company received a request, preliminary in nature, for
information and documents. The HSR Act provides for a penalty of up to
$10,000 per day for failure to comply with the above requirements.
Management believes that any potential penalty, if assessed, will not have
a material impact on the Company.
12
<PAGE>
<PAGE>
Item 1. Legal Proceedings (Continued).
The amount of liability from the claims and actions described above cannot
be determined with certainty, but in the opinion of management, based in part
upon advice from legal counsel, the ultimate liability from all pending legal
proceedings, asserted legal claims and known potential legal claims which are
probable of assertion will not materially affect the consolidated financial
position or operations of the Company.
The U.S. Internal Revenue Service ("IRS") had proposed adjustments to tax
liabilities of $17 million (exclusive of interest) for the Company's federal
income tax returns for fiscal years 1986 through 1988. A final report has not
been issued but agreement has been reached to satisfy these proposed adjustments
at approximately $1.3 million (exclusive of $.8 million interest). The IRS
examinations of the Company's federal income tax returns for fiscal years 1989
and 1990 resulted in the issuance of proposed adjustments to tax liabilities
aggregating $2.2 million (exclusive of $.7 million interest). The Company has
filed a protest with the Regional Office of Appeals of the IRS contesting the
proposed assessments. Management believes that adequate provision for income
taxes has been made.
13
<PAGE>
<PAGE>
SIGNATURE
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 and in the capacities indicated.
FOODMAKER, INC.
By: ROBERT L. SUTTIE
------------------
Robert L. Suttie
Vice President, Controller
and Chief Accounting Officer
(Duly Authorized Signatory)
Date: August 24, 1994
14
<PAGE>
