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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 9, 1995 Commission File No. 1-9390
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FOODMAKER, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 95-2698708
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(State of Incorporation) (I.R.S. Employer
Identification No.)
9330 BALBOA AVENUE, SAN DIEGO, CA 92123
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 571-2121
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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
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Number of shares of common stock, $.01 par value, outstanding
as of the close of business August 14, 1995 - 38,726,445
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FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
July 9, October 2,
1995 1994
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ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 14,294 $ 35,965
Receivables. . . . . . . . . . . . . . . . . . . . 26,697 31,167
Inventories. . . . . . . . . . . . . . . . . . . . 26,642 25,319
Prepaid expenses . . . . . . . . . . . . . . . . . 10,130 15,035
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Total current assets. . . . . . . . . . . . . . 77,763 107,486
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Investment in FRI. . . . . . . . . . . . . . . . . . - 57,188
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Trading area rights. . . . . . . . . . . . . . . . . 67,805 62,932
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Lease acquisition costs. . . . . . . . . . . . . . . 24,180 27,660
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Other assets . . . . . . . . . . . . . . . . . . . . 38,736 46,041
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Property at cost . . . . . . . . . . . . . . . . . . 589,630 574,585
Accumulated depreciation and amortization . . . . (152,280) (135,607)
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437,350 438,978
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TOTAL . . . . . . . . . . . . . . . . . . . . . $645,834 $740,285
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt . . . . . . . $ 1,332 $ 1,346
Accounts payable . . . . . . . . . . . . . . . . . 30,124 36,915
Accrued expenses . . . . . . . . . . . . . . . . . 93,651 101,121
Income taxes payable . . . . . . . . . . . . . . . 8,233 8,148
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Total current liabilities . . . . . . . . . . . 133,340 147,530
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Deferred income taxes. . . . . . . . . . . . . . . . 5,062 5,062
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Long-term debt, net of current maturities. . . . . . 439,966 447,822
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Other long-term liabilities. . . . . . . . . . . . . 40,175 39,820
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Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . 401 401
Capital in excess of par value . . . . . . . . . . 280,892 280,837
Accumulated deficit. . . . . . . . . . . . . . . . (239,539) (166,724)
Treasury stock . . . . . . . . . . . . . . . . . . (14,463) (14,463)
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Total stockholders' equity. . . . . . . . . . . 27,291 100,051
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TOTAL . . . . . . . . . . . . . . . . . . . . . $645,834 $740,285
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See accompanying notes to financial statements.
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FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Twelve Weeks Ended Forty Weeks Ended
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July 9, July 10, July 9, July 10,
1995 1994 1995 1994
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Revenues:
Restaurant sales . . . . . . . . . . $193,921 $170,982 $602,506 $670,348
Distribution sales . . . . . . . . . 42,077 46,429 138,307 126,422
Franchise rents and royalties. . . . 7,585 7,344 24,808 25,882
Other. . . . . . . . . . . . . . . . 492 1,067 1,795 3,450
------- ------- ------- -------
244,075 225,822 767,416 826,102
------- ------- ------- -------
Costs and expenses:
Costs of revenues:
Restaurant costs of sales . . . . 55,219 50,680 169,920 195,330
Restaurant operating costs. . . . 104,669 96,796 337,284 394,777
Costs of distribution sales . . . 41,289 45,119 135,611 122,200
Franchised restaurant costs . . . 5,001 5,239 16,809 17,631
Selling, general and administrative. 24,205 21,221 85,472 77,318
Equity in (earnings) loss of FRI . . - (384) 57,188 877
Interest expense . . . . . . . . . . 11,070 12,238 37,447 43,021
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241,453 230,909 839,731 851,154
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Earnings (loss) before income taxes
and extraordinary item . . . . . . . 2,622 (5,087) (72,315) (25,052)
Income taxes (benefit) . . . . . . . . - (1,653) 500 5,694
------- ------- ------- -------
Earnings (loss) before
extraordinary item . . . . . . . . . 2,622 (3,434) (72,815) (30,746)
Extraordinary item-loss on early
extinguishment of debt, net of taxes - - - (2,738)
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Net earnings (loss). . . . . . . . . . $ 2,622 $ (3,434) $(72,815) $(33,484)
======= ======= =======
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Earnings (loss) per share - primary
and fully diluted:
Earnings (loss) before
extraordinary item. . . . . . . . $ .07 $ (.09) $ (1.88) $ (.80)
Extraordinary item . . . . . . . . . - - - (.07)
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Net earnings (loss) per share. . . . . $ .07 $ (.09) $ (1.88) $ (.87)
======= ======= =======
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Weighted average shares outstanding. . 39,157 38,578 38,827 38,500
See accompanying notes to financial statements.
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FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Forty Weeks Ended
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July 9, July 10,
1995 1994
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Cash flows from operations:
Net loss before extraordinary item . . . . . . . . $(72,815) $(30,746)
Non-cash items included above:
Depreciation and amortization . . . . . . . . . 29,194 34,162
Deferred income taxes . . . . . . . . . . . . . - 7,407
Equity in loss of FRI . . . . . . . . . . . . . 57,188 877
Decrease (increase) in receivables . . . . . . . . 4,470 (5,437)
Increase in inventories. . . . . . . . . . . . . . (1,323) (2,315)
Decrease in prepaid expenses . . . . . . . . . . . 4,905 3,743
Increase (decrease) in accounts payable. . . . . . (6,791) 13,640
Increase (decrease) in accrued expenses. . . . . . (5,191) 5,483
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Cash flows provided by operations . . . . . . . 9,637 26,814
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Cash flows from investing activities:
Additions to property and equipment. . . . . . . . (22,783) (61,071)
Dispositions of property and equipment . . . . . . 3,233 2,563
Increase in trading area rights. . . . . . . . . . (7,067) (9,243)
Investment in FRI, net . . . . . . . . . . . . . . - (59,296)
Disposition of Chi-Chi's . . . . . . . . . . . . . - 214,551
Decrease (increase) in other assets. . . . . . . . 4,963 (21,258)
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Cash flows provided (used) in
investing activities. . . . . . . . . . . . . . (21,654) 66,246
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Cash flows from financing activities:
Borrowings under revolving bank loans. . . . . . . 29,000 5,000
Principal repayments under revolving bank loans. . (29,000) (35,000)
Proceeds from issuance of long-term debt . . . . . 1,131 80,997
Principal payments on long-term debt,
including current maturities. . . . . . . . . . (9,001) (83,030)
Extraordinary loss on retirement of debt,
net of tax. . . . . . . . . . . . . . . . . . . - (2,738)
Increase (decrease) in accrued interest. . . . . . (1,839) 378
Proceeds from issuance of common stock . . . . . . 55 354
Net proceeds from sale and leaseback transactions. - 7,118
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Cash flows used by financing activities . . . . (9,654) (26,921)
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Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . $(21,671) $ 66,139
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See accompanying notes to financial statements.
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FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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. These financial statements should be read
in conjunction with the 1994 financial statements.
2. Although the Company incurred a loss in 1995, income taxes were $.5
million due to required minimum taxes and the Company's inability under
SFAS 109 to recognize the benefit from the carryover of losses to future
years. Considering the sale of Chi-Chi's combined with the Company's
losses, the Company was required to provide in the second quarter of 1994
a non-cash valuation allowance for previously recognized tax benefits,
resulting in income tax expense for the 40 weeks of $5.7 million rather
than a tax benefit.
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.
Contemporaneously, REGI changed its name to Family Restaurants, Inc.
("FRI"). Concurrently, Foodmaker contributed its entire Chi-Chi's Mexican
Restaurantes chain ("Chi-Chi's") to FRI in exchange for a 39% 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 45%, 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 39% and 18% equity
positions in FRI. Management of FRI invested $2.5 million in cash and
notes and holds an approximate 4% equity position. The net cash received
was used by Foodmaker to repay all of the debt outstanding under its then
existing bank credit facility, which was terminated, to reduce other
existing debt, to the extent permitted by the Company's financing
agreements and to provide funds for capital expenditures. 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.
As a result of negative publicity regarding the nutritional value of
Mexican food, and resulting sales declines, FRI wrote-off the goodwill
attributable to Chi-Chi's in their fourth quarter ended December 25, 1994.
The Company recorded in its first quarter of 1995 the complete write-down
of its 39% investment in FRI as a result of the goodwill write-off.
Subsequently, although the Company continues to hold a 39% interest in
FRI, it will not reflect its share of FRI results of operations until FRI
is able to generate a positive net equity.
Summarized financial information through FRI's second quarter ended
June 25, 1995, follows (in thousands):
Sales . . . . . . . . . . . . . . . . . . . . . .$570,703
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Costs of sales. . . . . . . . . . . . . . . . . . 163,022
Operating costs . . . . . . . . . . . . . . . . . 380,667
General and administrative expense. . . . . . . . 31,794
Interest expense. . . . . . . . . . . . . . . . . 30,150
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Loss before income tax provision. . . . . . . . . (34,930)
Income taxes. . . . . . . . . . . . . . . . . . . 974
-------
Net loss. . . . . . . . . . . . . . . . . . . . .$(35,904)
=======
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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 76 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, interest payable semi-
annually and due in two equal annual installments of principal on
January 1, 2003 and November 1, 2003. The Company is required semi-
annually through 2002 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. Immediately prior to the principal payment dates, 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.
5. 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 California, Washington, Nevada, Idaho and Oregon, seeking
monetary damages for personal injuries 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.
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 the plaintiff franchisees, and
all but one of the domestic franchisees who did not join in suing the
Company in this lawsuit. During 1993, the Company provided approximately
$44.5 million to cover the settlements and associated costs, including the
settlement with the remaining franchisee. On January 14, 1994, the non-
settling Franchisee filed suit 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. After extensive negotiations,
the Company reached an agreement under the terms of which on February 3,
1995, the Company settled all claims of the franchisee against the Company
and acquired 27 operating restaurants and the development rights to the
Las Vegas and Denver markets.
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. Substantially the same claims are being made by the parties in a
separate lawsuit in Superior Court of California, County of Los Angeles.
On May 17, 1995 it was determined the litigation between the Company,
Vons, and other defendants would be heard in Los Angeles. The case is set
for trial in November, 1996.
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5. Contingent Liabilities (continued)
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. After
extensive negotiations through a mediation process, a settlement was
reached and subsequently approved by the Court. Under the terms of the
settlement the Company paid $8 million into an escrow account,
disbursements from which are subject to Court approval. The $8 million
payment was reflected in the results of operations for the first quarter
of fiscal 1995.
The Federal Trade Commission ("FTC") 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. A subpoena covering the
preliminary material supplied and additional information and documents was
issued on January 19, 1995. Sworn statements have been given to the FTC
by various people, including certain officers and former officers of the
Company and Chi-Chi's. 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 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.
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FOODMAKER, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION
RESULTS OF OPERATIONS
---------------------
All comparisons under this heading between 1995 and 1994, unless otherwise
indicated, refer to the 12-week and 40-week periods ended July 9, 1995 and
July 10, 1994, respectively. On January 27, 1994, the Company contributed
its entire Chi-Chi's Mexican Restaurantes chain to Family Restaurants, Inc.
in exchange for an approximate 39% 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 for only the 16 weeks ended in
January 1994.
Sales by Jack In The Box company-operated restaurants increased $22.9
million and $55.4 million, respectively, to $193.9 million and $602.5 million
in 1995 from $171.0 million and $547.1 million in 1994. The sales
improvement is primarily due to an increase in the average number of company-
operated restaurants to 832 in 1995 from 752 in 1994. Per store average
sales for comparable restaurants ("PSA") increased 6.1% and 1.7%,
respectively, in 1995 as compared to the similar periods in 1994. Chi-Chi's
restaurant sales were $123.2 million in the first quarter of 1994.
Distribution sales of food and supplies for the 12-week period decreased
$4.3 million to $42.1 million in 1995 from $46.4 million in 1994 primarily
due to a decline in sales to Chi-Chi's restaurants. Distribution sales for
the 40-week period increased $11.9 million to $138.3 million in 1995 from
$126.4 million in 1994 primarily due to the sales to Chi-Chi's in the first
quarter of 1995. Distribution sales to Chi-Chi's in the first quarter of
1994, while it was a subsidiary of the Company, were eliminated in
consolidation.
Jack In The Box franchise rents and royalties for the 12-week period
increased $.3 million to $7.6 million in 1995 from $7.3 million in 1994 due
to PSA sales increases of domestic franchisee-operated restaurants, offset in
part by a decline in the number of franchisee-operated restaurants.
Franchise rents and royalties for the 40-week period decreased $1.0 million
to $24.8 million in 1995 from $25.8 million in 1994, reflecting a decline in
the average number of domestic franchisee-operated restaurants to 382 in 1995
from 416 in 1994, principally due to the purchase of franchised restaurants
by the Company. Franchise rents and royalties for Chi-Chi's were $.1 million
in the first quarter of 1994.
Other revenues for Jack In The Box declined $.6 million and $1.1 million,
respectively, to $.5 million and $1.8 million in 1995 from $1.1 million and
$2.9 million in 1994 primarily due to interest income earned in 1994 on cash
proceeds from the sale of Chi-Chi's. Chi-Chi's other revenues were $.6
million in the first quarter of 1994.
Jack In The Box costs of sales increased $4.5 million and $7.3 million,
respectively, to $55.2 million and $169.9 million in 1995 from $50.7 million
and $162.6 million in 1994 due to increased Company-operated restaurant
sales. Costs of sales decreased as a percent of sales in 1995 as compared to
1994 due to the impact of lower ingredient costs and the lower food cost of
certain promotions. Chi-Chi's costs of sales were $32.7 million in the first
quarter of 1994.
Restaurant operating costs for Jack In The Box increased $7.9 million and
$23.2 million, respectively, to $104.7 million and $337.3 million in 1995
from $96.8 million and $314.1 million in 1994 primarily due to the increase
in average number of Company-operated restaurants and variable costs
associated with increased sales. Restaurant operating costs declined as a
percent of sales in 1995 as compared to the similar period of 1994
principally due to reduced restaurant and operations labor and related costs.
Chi-Chi's restaurant operating costs were $80.7 million in the first quarter
of 1994.
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Costs of distribution sales for the 12-week period decreased $3.8 million
to $41.3 million in 1995 from $45.1 million in 1994 and increased $13.4
million for the 40-week period to $135.6 million in 1995 from $122.2 million
in 1994 consistent with the changes in distribution sales in each of those
periods. Costs of distribution sales increased as a percent of distribution
sales in 1995 as compared to 1994 due to slightly higher product costs.
Jack In The Box franchise restaurant costs, which consist of rents and
depreciation on properties leased to franchisees and other miscellaneous
costs, decreased $.2 million and $.7 million, respectively, to $5.0 million
and $16.8 million in 1995 from $5.2 million and $17.5 million in 1994,
primarily due to the decline in the average number of domestic franchisee-
operated restaurants. Chi-Chi's franchise restaurant costs were $.1 million
in the first quarter of 1994.
Selling, general and administrative expenses for Jack In The Box increased
$3.0 million and $17.3 million, respectively to $24.2 million and $85.5
million in 1995 from $21.2 million and $68.2 million in 1994, principally due
to increased advertising and promotions costs and to an $8.0 million
settlement with stockholders in the first quarter of 1995 as described in
Note 5 to the consolidated financial statements. Advertising and promotion
costs increased $3.6 million and $9.4 million, respectively, to $18.9 million
and $57.5 million in 1995 from $15.3 million and $48.1 million in 1994 due to
increased advertising and aggressive promotional discounting of products in
1995. Chi-Chi's incurred selling, general and administrative expenses of
$9.1 million in the first quarter of 1994.
In the first quarter of 1995, the Company recorded a $57.2 million loss
relating to its equity in the operations of FRI, most of which was the result
of the complete write-down of the Company's investment in FRI due to the
write-off by FRI of the goodwill attributable to Chi-Chi's. Subsequently,
although the Company continues to hold a 39% equity interest in FRI, it will
not reflect its share of FRI results of operations until FRI is able to
generate a positive net equity. In 1994 the Company recognized a loss of $.9
million relating to its 39% equity in the operations of FRI. See Note 3 to
the consolidated financial statements.
Interest expense decreased $1.1 million and $5.6 million, respectively, to
$11.1 million and $37.4 million in 1995 from $12.2 million and $43.0 million
in 1994 due to a reduction of total debt outstanding. Since the beginning of
fiscal year 1994, the Company with the sale of Chi-Chi's, eliminated the Chi-
Chi's debt and used the proceeds of the sale to repay both the bank credit
line and the 13-1/2% Senior Notes.
Although the Company incurred a loss in 1995, income taxes were $.5
million due to required minimum taxes and the Company's inability under SFAS
109 to recognize the benefit from the carryover of losses to future years.
Considering the sale of Chi-Chi's combined with the Company's losses, the
Company was required to provide in the second quarter of 1994 a non-cash
valuation allowance for previously recognized tax benefits, resulting in
income tax expense for the 40 weeks of $5.7 million rather than a tax
benefit.
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FINANCIAL CONDITION
-------------------
The Company's primary sources of liquidity are expected to be cash flows
from operations, the revolving bank credit facility 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 9, 1995, the Company's working capital deficit increased $15.6
million to $55.6 million from $40.0 million at October 2, 1994, and reflects
the payout of $8.0 million for settlement of the stockholders' lawsuit. 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 in 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 9, 1995, the Company's total debt outstanding was $441.3 million.
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 $52.5 million,
including letters of credit for the account of the Company in an aggregate
amount of up to $25 million. At July 9, 1995, the Company had a total of
approximately $43.3 million of unused credit under the agreement. 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
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 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.
-10-
<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 California, Washington, Nevada, Idaho and Oregon, seeking monetary
damages for personal injuries 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.
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 the plaintiff franchisees, and all but one of the domestic
franchisees who did not join in suing the Company in this lawsuit. During
1993, the Company provided approximately $44.5 million to cover the
settlements and associated costs, including the settlement with the remaining
franchisee. On January 14, 1994, the non-settling Franchisee filed suit
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. After extensive negotiations, the Company reached an agreement
under the terms of which on February 3, 1995, the Company settled all claims
of the franchisee against the Company and acquired 27 operating restaurants
and the development rights to the Las Vegas and Denver markets.
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.
Substantially the same claims are being made by the parties in a separate
lawsuit in Superior Court of California, County of Los Angeles. On May 17,
1995 it was determined the litigation between the Company, Vons, and other
defendants would be heard in Los Angeles. The case is set for trial in
November, 1996.
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. After extensive negotiations
through a mediation process, a settlement was reached and subsequently
approved by the Court. Under the terms of the settlement the Company paid $8
million into an escrow account, disbursements from which are subject to Court
approval. The $8 million payment was reflected in the results of operations
for the first quarter of fiscal 1995.
-11-
<PAGE>
<PAGE>
Item 1. Legal Proceedings (Continued).
The Federal Trade Commission ("FTC") 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 and a subpoena covering the preliminary material
supplied and additional information and documents was issued January 19,
1995. Sworn statements have been given to the FTC by various people,
including certain officers and former officers of the Company and Chi-Chi's.
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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
------ -----------
27 Financial Data Schedule (included only with electronic
filing)
(b) Reports on Form 8-K - None
-12-
<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: CHARLES W. DUDDLES
-------------------------------
Charles W. Duddles
Executive Vice President, Chief
Administrative Officer and
Chief Financial Officer
(Duly Authorized Signatory)
Date: August 22, 1995
-13-
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FISCAL YEAR THRU THIRD QUARTER CONTAINS 40 WEEKS
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