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 January 23,April 17, 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 February 28,May 31, 1994 - 38,543,50538,573,400
1
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 23,April 17, October 3,
1994 1993
--------- ---------------- -------
ASSETS
Current assets:
CashCash. . . . . . . . . . . . . . . . . . . . . . $ 12,16379,626 $ 4,481
Receivables . . . . . . . . . . . . . . . . . . 28,18925,533 30,277
Inventories . . . . . . . . . . . . . . . . . . 42,68526,681 40,977
Prepaid expenses. . . . . . . . . . . . . . . . 9,0758,946 17,799
--------- ---------------- -------
Total current assets . . . . . . . . . . . . 92,112140,786 93,534
--------- ---------------- -------
Investment in FRI . . . . . . . . . . . . . . . . 57,455 -
------- -------
Trading area rights . . . . . . . . . . . . . . . 55,04461,114 55,678
--------- ---------------- -------
Lease acquisition costs . . . . . . . . . . . . . 43,14827,089 46,013
--------- ---------------- -------
Other assets. . . . . . . . . . . . . . . . . . . 85,77978,153 54,133
--------- ---------------- -------
Property at cost. . . . . . . . . . . . . . . . . 721,138526,407 711,284
Accumulated depreciation and amortization . . . (176,647)(125,351) (164,813)
--------- ---------
544,491------- -------
401,056 546,471
--------- ---------------- -------
Cost of business in excess of net assets
at acquisition. . . . . . . . . . . . . . . . . 93,7112,632 94,591
--------- ---------------- -------
TOTAL. . . . . . . . . . . . . . . . . . . . $914,285$768,285 $890,420
========= ================ =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt. . . . . . $ 33,20612,816 $ 33,163
Accounts payable. . . . . . . . . . . . . . . . 45,04435,707 36,662
Accrued expenses. . . . . . . . . . . . . . . . 108,22985,017 122,741
Income taxes payable. . . . . . . . . . . . . . 2,8496,976 10,783
--------- ---------------- -------
Total current liabilities. . . . . . . . . . 189,328140,516 203,349
--------- ---------------- -------
Deferred income taxes . . . . . . . . . . . . . . - 17,189
17,189
--------- ---------------- -------
Long-term debt, net of current maturities . . . . 540,889463,689 500,460
--------- ---------------- -------
Other long-term liabilities . . . . . . . . . . . 31,86240,939 30,290
--------- ---------------- -------
Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . . . 399400 396
Capital in excess of par value. . . . . . . . . 280,622280,677 280,353
Accumulated deficit . . . . . . . . . . . . . . (131,541)(143,473) (127,154)
Treasury stock. . . . . . . . . . . . . . . . . (14,463) (14,463)
--------- ---------------- -------
Total stockholders' equity. . . . . . . . . . . 135,017123,141 139,132
--------- ---------------- -------
TOTAL. . . . . . . . . . . . . . . . . . . . $914,285$768,285 $890,420
========= ================ =======
See accompanying notes to financial statements.
2
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
SixteenTwelve Weeks Ended -------------------
January 23, JanuaryTwenty-eight Weeks Ended
---------------------- ------------------------
April 17, April 11, April 17, April 11,
1994 1993 --------- ---------1994 1993
-------- -------- -------- --------
Revenues:
Restaurant sales. . . . . . . . . . . . . . . . $334,363 $351,685$165,003 $217,319 $499,366 $569,004
Distribution sales. . . . . . . . . . . . . . . 34,876 34,81445,117 20,273 79,993 55,087
Franchise rents and royalties . . . . . . . . . 10,998 12,6007,540 5,944 18,538 18,544
Other . . . . . . . . . . . . . . . . . . . . . 1,337 4,232
--------- ---------
381,574 403,331
--------- ---------1,046 1,373 2,383 5,605
-------- -------- -------- --------
218,706 244,909 600,280 648,240
-------- -------- -------- --------
Costs and expenses:
Costs of revenues:
Restaurant costscost of sales.sales . . . . . . . . . 95,919 97,57948,731 61,288 144,650 158,867
Restaurant operating costs . . . . . . . . . 201,506 194,678
Costs96,475 140,440 297,981 335,118
Cost of distribution sales. . . . . . . . . 33,283 33,364sales 43,798 19,629 77,081 52,993
Franchised restaurant costs. . . . . . . . . 7,264 6,950costs 5,128 10,132 12,392 17,082
Selling, general and
administrative . . . . . . 23,048 33,773 56,097 70,112
Equity in loss of FRI . 33,049 36,339. . . 1,261 - 1,261 -
Interest expense. . . . . . . 12,375 12,915 30,783 30,085
-------- -------- -------- --------
230,816 278,177 620,245 664,257
-------- -------- -------- --------
Loss before income taxes,
extraordinary item and
cumulative effect of changes
in accounting principles. . . (12,110) (33,268) (19,965) (16,017)
Income taxes (benefit). . . . . . . . . . 18,408 17,170
--------- ---------
389,429 386,080
--------- ---------
Earnings (loss)(2,928) (11,093) (6,384) (5,341)
-------- -------- -------- --------
Loss before income taxesextraordinary item
and cumulative effect of
changes in accounting
principles. . . . . . . . . . (9,182) (22,175) (13,581) (10,676)
Extraordinary item - loss on
early extinguishment of debt,
net of taxes. . . (7,855) 17,251
Income taxes (benefit). . . . . . (2,738) - (2,738) -
Cumulative effect on prior
years (to September 27, 1992)
ofadopting SFAS 106 and
SFAS 109. . . . . . . . . . . - - - (53,980)
-------- -------- -------- --------
Net loss. . . . . . . . . . . . . . . (3,456) 5,752
--------- ---------
Earnings (loss)$(11,920) $(22,175) $(16,319) $(64,656)
======== ======== ======== ========
Loss per share - primary
and fully diluted:
Loss before extraordinary
item and cumulative effect
of changes in accounting
principles . . . . . . (4,399) 11,499. . $ (.24) $ (.58) $ (.35) $ (.28)
Extraordinary item. . . . . . (.07) - (.07) -
Cumulative effect on prior
years (to September 27,
1992) of adopting SFAS 106
and SFAS 109 . . . . . . . . . . . . . - (53,980)
--------- ---------
Net loss. . . . . . . . . . . . . . . . . . . . . $ (4,399) $(42,481)
========= =========
Earnings (loss) per share - primary
and fully diluted:
Earnings (loss) before cumulative effect
of changes in accounting principles. . . . . $ (.11) $ .29
Cumulative effect on prior years (to
September 27, 1992) of adopting
SFAS 106 and SFAS 109 . . . . . . . . . . . . - (1.38)
--------- ---------(1.39)
-------- -------- -------- --------
Net loss per share. . . . . . . . . . . . . . . $ (.11)(.31) $ (1.09)
========= =========(.58) $ (.42) $ (1.67)
======== ======== ======== ========
Weighted average shares
outstanding . . . . . . . 38,398 39,18538,559 38,111 38,467 38,725
See accompanying notes to financial statements.
3
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
SixteenTwenty-eight Weeks Ended
-------------------
January 23, January-------------------------
April 17, April 11,
1994 1993
--------- ---------------- -------
Cash flows from operations:
Net loss.loss, excluding extraordinary item. . . . . $(13,581) $(64,656)
Non-cash items included above:
Depreciation and amortization. . . . . . . . 25,959 30,356
Deferred income taxes. . . . . . . . . . . . . . . . . . . . $ (4,399) $ (42,481)
Non-cash items included above:
Depreciation and amortization . . . . . . . . 17,971 17,161
Deferred income taxes(9,358) (2,388)
Equity in loss of FRI. . . . . . . . . . . . .1,261 - (1,388)
Cumulative effect of accounting changes .changes. . . - 53,980
Decrease in receivables . . . . . . . . . . . . 2,088 11,2131,771 4,532
Increase in inventories . . . . . . . . . . . . (1,708) (4,800)(1,168) (2,776)
Decrease in prepaid expenses. . . . . . . . . . 8,724 7255,893 150
Increase (decrease) in accounts payable . . . . 8,382 (113)15,167 (6,200)
Decrease in accrued expenses. . . . . . . . . . (20,402) (4,656)
--------- ---------(3,823) (6,881)
------- -------
Cash flows provided by operationsoperations. . . . . . . 10,656 29,641
--------- ---------22,121 6,117
------- -------
Cash flows from investing activities:
Additions to property and equipment . . . . . . (19,902) (12,518)(37,979) (21,215)
Dispositions of property and equipment. . . . . 649 1,854411 3,794
Decrease (increase) in trading area rights. . . (96) 195(6,766) 245
Acquisition of Consul . . . . . . . . . . . . . - (8,700)
Decrease (increase)Investment in other assetsFRI, net. . . . . . . (31,022) 468
--------- ---------. . . . . . (58,716) -
Disposition of Chi-Chi's. . . . . . . . . . . . 225,606 -
Increase in other assets. . . . . . . . . . . . (33,852) (1,318)
------- -------
Cash flows usedprovided (used) in investing
activities . . . (50,371) (18,701)
--------- ---------. . . . . . . . . . . . . 88,704 (27,194)
------- -------
Cash flows from financing activities:
Borrowings under revolving bank loans . . . . . 5,000 -17,000
Principal repayments under revolving bank loans (35,000) -
Proceeds from issuance of long-term debt. . . . 81,211 1,737
Principal payments on long-term debt,
including current maturities . . . . . . . . (84,388) (5,222)
Extraordinary loss on retirement of debt,
net of tax . . . . . . . . . . . . . . . . . (28,000)(2,738) -
Proceeds from issuance of long-term debt. . . . 74,685 1,172
Principal payments on long-term debt,
including current maturitiesIncrease (decrease) in accrued interest . . . . . . . . (11,213) (1,553)
Decrease in accrued interest. . . . . . . . . . (471) (384)2,313 (1,066)
Repurchase of common stock. . . . . . . . . . . - (10,783)(10,929)
Proceeds from issuance of common stock. . . . . 278 872328 1,106
Other changes in equity . . . . . . . . . . . . - 1346
Net proceeds from sale and leaseback transactions . . . . . . . . . . . . . . . . 7,118 -6,989
Decrease in accrued transaction costs . . . . . - (41)
--------- ---------(259)
------- -------
Cash flows provided (used) by financing
activities . . . . . . . . . . 47,397 (10,704)
--------- ---------. . . . . . (26,156) 9,402
------- -------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . . $ 7,682 $ 236
========= =========84,669 $(11,675)
======= =======
See accompanying notes to financial statements.
4
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
January 23,April 17, 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 for 1994 was 44%32% of the pretax loss. Income taxes in
1993 were 33% of pretax earnings before the cumulative effect of changes in
accounting principles, and 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.
Contemporaneously, 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 two months from the date of the
acquisition through March 27, 1994, the end of its first quarter, follows
(in thousands):
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $189,580
--------
Costs of sales. . . . . . . . . . . . . . . . . . . . . . . 52,986
Operating costs . . . . . . . . . . . . . . . . . . . . . . 120,314
General and administrative expense. . . . . . . . . . . . . 9,045
Interest expense. . . . . . . . . . . . . . . . . . . . . . 9,878
--------
Loss before income tax provision. . . . . . . . . . . . . . (2,643)
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 594
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,237)
========
5
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. 5
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As a result of the foregoing transaction, at January 23,April 17, 1994,
the Company had approximately $28 million in construction funds available
for new restaurants, which was classified in the financial statements in
other assets, and long-termassets.
5. Long-term debt has changed as a result of the aforementioned transactions as
indicated in the following table:
January 23,April 17, October 3,
1994 1993
--------- ---------
Bank credit agreement . .agreement. . . . . . . . . . . . . . . $ 79,000-- $107,000
13 1/2% Senior notes. .notes . . . . . . . . . . . . . . . 23,283 23,283
9 1/4% Senior notes, due March 1, 1999. .1999 . . . . . . 175,000 175,000
9 3/4% Senior subordinated notes, due June 1, 2002. .2002 125,000 125,000
12 3/4% Senior notes, due July 1, 1996. .1996 . . . . . . 7,043 7,043
14 1/4% Senior subordinated notes, due May 15, 1998 . 42,843 42,843
Subordinated debenturesdebentures. . . . . . . . . . . . . . -- 19,268
Other notes, principally secured . . . . . . . . . 25,707 23,610
Financing lease obligations. . . . . . . . . . . . 68,940 --
Capitalized lease obligations. . . . . . . . . . . 8,689 10,576
-------- --------
476,505 533,623
Less current portion . . . . . . . . . . . . . . . 19,297 19,268
Other notes, principally secured. . . . . . . . . . . 23,357 23,610
Financing lease obligations . . . . . . . . . . . . . 68,914 --
Capitalized lease obligations . . . . . . . . . . . . 10,358 10,576
--------- ---------
574,095 533,623
Less current portion. . . . . . . . . . . . . . . . . (33,206)(12,816) (33,163)
--------- ---------
$540,889-------- --------
$463,689 $500,460
========= =========
4. On January 27, 1994, just following the close of the quarter,
Foodmaker, Apollo Advisors, L.P. ("Apollo") and Green Equity
Investors, L.P. ("GEI"), (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
restaurant chain 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
contributed $91 million in cash and hold a 57% equity position in
FRI. Management of FRI invested $7 million in cash and notes and
holds a 4% equity position. A portion of the net cash received
has been 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.
5.======== ========
6. Contingent Liabilities
Various claims and legal proceedings are pending against the Company in
various state courtsand 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 against
the Company seeking monetary damages and other relief including
numerous lawsuits and claims
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
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, a settlement wassettlements
were reached with mostall but one of the franchisees and the Company hopes to
reach settlements with the two remaining franchisees. During 1993, the Company
provided approximately $44.5 million to cover the settlements and associated
costs, including a then anticipated settlementssettlement with the remaining
franchisees.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 intends tois vigorously defenddefending the action.
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.
7
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. Selected Pro Forma Financial Data
The following selected pro forma statement of operations for the 28 weeks
ended April 17, 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. . . . . . . . . . . $499,366 $(123,247) $376,119
Distribution sales. . . . . . . . . . 79,993 28,163 108,156
Franchise rents and royalties . . . . 18,538 (132) 18,406
Other . . . . . . . . . . . . . . . . 2,383 (554) 1,829
-------- -------- --------
600,280 (95,770) 504,510
-------- -------- --------
Costs of revenues:
Company restaurant costs. . . . . . . 442,631 (113,299) 329,332
Costs of distribution sales . . . . . 77,081 28,048 105,129
Franchised restaurant costs . . . . . 12,392 (159) 12,233
Selling, general and administrative . . 56,097 (3,425) 52,672
Equity in loss of FRI . . . . . . . . . 1,261 6,779 8,040
Interest expense. . . . . . . . . . . . 30,783 (4,373) 26,410
-------- -------- --------
620,245 (86,429) 533,816
-------- -------- --------
Loss before income taxes and cumulative
effect of changes in accounting
principles. . . . . . . . . . . . . . (19,965) (9,341) (29,306)
Income taxes (benefit). . . . . . . . . (6,384) (3,036) (9,420)
-------- -------- --------
Loss before cumulative effect of
changes in accounting principles. . . $(13,581) $(6,305) $(19,886)
======== ======== ========
Loss per share before cumulative effect
of changes in accounting principles . $ (.35) $ (.52)
Weighted average shares outstanding . . 38,467 38,467
-------------
(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 assumed by FRI and utilization of proceeds
from the sale of Chi-Chi's 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
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 16-week12-week and 28-week periods ended January 23,April 17, 1994 and
January 17,April 11, 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 a 39%an approximate 40% interest in FRI and other
consideration including cash and debt assumption as described in Note 43 to the
consolidated financial statements. The consolidated statements of operations,
therefore, include Chi-Chi's revenues and expensesresults of operations only for the full 16-
week16 weeks (first
fiscal quarter) ended in January 1994, and for both the 12-week and 28-week
periods ended in both 1994 and 1993.
Sales by Jack In The Box Company-operated restaurants decreased
$22.2increased $38.2
million and $16.0 million, respectively, to $211.1$165.0 million and $376.1 million
in 1994 from $233.3$126.8 million and $360.1 million in 19931993. The sales
improvement is primarily due to a 9.2% declinean increase in the average number of
Company-operated restaurants to 740 in 1994 from 715 in 1993 and due in part
to increases in per store average sales for comparable restaurants ("PSA") offset in part by an increase in the average
number of
Company-operated restaurants to 727approximately 23% and 2%, respectively, in 1994 from 717 inas compared to 1993. The PSA
decline is due to (1)increase results primarily from a comparison to a period of
record performance in 1993, (2) the ongoing recovery of sales afterin 1994 in comparison to
the depressed levels subsequent to January 1993 when Jack In The Box was
linked in January 1993 to an outbreak of food-
bornefood-borne illness in the Pacific Northwest ("the
Outbreak"), and (3) a
continuing weak economic climate in California where approximately
50% of the Jack In The Box restaurants are located.. Chi-Chi's restaurant sales were $123.3 million in the first
quarter of 1994 and $118.4$90.5 million and $208.9 million, respectively, in the
12-week and 28-week periods of 1993.
Distribution sales of food and supplies to franchisees and others
remained relatively unchanged at $34.9increased approximately $25 million
in both periods to $45.1 million and $80.0 million, respectively, in 1994 from
$20.3 million and $55.1 million in 1993. The increases are primarily due to
sales of $21.3 million to Chi-Chi's (FRI) restaurants, which were previously
eliminated as declinesintercompany sales, and in part due to a $3.5 million increase in
sales to Jack In The Box franchisees were offset by sales to a new
customer added in the second quarter of 1993.and others.
Jack In The Box franchise rents and royalties decreased $1.2increased to $7.5 million to $10.9and
$18.4 million, respectively, in 1994 from $12.1$5.7 million and $17.8 million in 1993
principally due to a PSA decline forincreases at franchisee-operated operated Jack In The Box
restaurants, which were also affected negatively by the same factors and
similarly to Company-operated restaurants.Outbreak in 1993.
Franchise rents and royalties for Chi-Chi's were $.1 million in the first
quarter of 1994 and $.5$.2 million and $.7 million, respectively, in 1994the 12-week
and 28-week periods of 1993.
Other revenues for Jack In The Box which includeincreased $.4 million to $1.0 million
from $.6 million for the 12-week period primarily due to interest income franchise feesearned
on cash proceeds from the sale of Chi-Chi's, and gains realized ondeclined $1.6 million to $1.8
million from $3.4 million for the 28-week period due to the decline in the
number of conversions of Company-operated restaurants to franchised restaurants
decreased $2.0 million to $.8
million in 1994 from $2.8 million in 1993, primarily due to a decline
in the number of conversions to 4 in 1994 from 79 in 1993.1993, resulting in reduced gains and fees. Chi-Chi's
other revenues were $.5$.6 million in the first quarter of 1994 and $.8 million and
$1.4$2.2 million, respectively, in 1994the 12-week and 28-week periods of 1993.
Jack In The Box costs of sales decreased $3.6increased to $48.7 million to $63.2and $112.0
million, respectively, in 1994 from $66.8$37.5 million and $104.3 million in 1993
principally due to lowerthe variable costs associated with higher sales. These costsCosts of
sales also 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 the current product sales mix,certain discount promotions which is producinghave
increased average customer checks to a level higher average
checks than any other quartersquarter
since the Outbreak. Chi-Chi's costs of sales were $32.7 million in 1994 and
$30.8$23.8 million and $54.6 million, respectively, in the 12-week and 28-week
periods of 1993.
9
RESULTS OF OPERATIONS (Continued)
Restaurant operating costs for Jack In The Box decreased $1.4increased $13.7 million and
$12.4 million, respectively, to $120.8$96.5 million and $217.3 million in 1994 from
$122.2$82.8 million and $204.9 million in 1993 primarily due to a reduction in performance-based compensation awards
and certainthe variable costs
offsetassociated with increased sales, and in part by increaseddue to higher occupancy and other
operating costs. The higher occupancy costs are the result of increases in the
number of new leased properties and the sale and leaseback of existing
properties. As a result of the declineincrease in average sales in 1994, restaurant
operating costs represent a higherlower percent of sales. Chi-
Chi'ssales for the 12-week period 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 $72.5$57.6
million and $130.2 million, respectively, in the 12-week and 28-week periods of
1993.
Costs of distribution sales remained relatively unchanged at $33.3increased approximately $24 million in 1994.
8
RESULTS OF OPERATIONS (Continued)both
periods to $43.8 million and $77.1 million in 1994 from $19.6 million and $53.0
million in 1993, consistent with the increase in distribution sales.
Jack In The Box franchise restaurant costs, increased $.4which consist primarily of rents
and depreciation on properties leased to franchisees, decreased to $5.1 million
to $7.1and $12.2 million, respectively, in 1994 from $6.7$10.0 million and $16.8 million
in 1993 primarily due to increased rental expense.the elimination of assistance provided to franchisees
in 1993. Chi-Chi's franchise restaurant costs were $.2 million in both years.the first
quarter of 1994 and $.1 million and $.3 million, respectively, in the 12-week
and 28-week periods of 1993.
Selling, general and administrative expenses for Jack In The Box decreased
$2.6to $23.0 million to $23.9and $47.0 million, respectively, in 1994 from $26.5$25.4 million and
$51.9 million in 1993, principally due primarily to (1) a $5.7 million gain recognized
from the sale of Chi-Chi's, (2) a decrease in write-offs associated with normal
asset disposals, and due to a decrease in advertising and promotion
costs to $16.6offset by (3) $2.0 million in 1994severance expenses and associated
costs resulting from $17.4the elimination of approximately 80 administrative
positions, and (4) a charge of $3.5 million in 1993.
Advertisingprincipally for the write-down of
assets to net realizable values and promotionproviding for costs increased as a percent of sales in
1994 due to the continued use of aggressive advertising and marketing
tactics.closing seven older,
under-performing restaurants with short remaining lease terms. Chi-Chi's
incurred selling, general and administrative expenses of $9.1 million in the
first quarter of 1994 and $9.8$8.4 million and $18.2 million, respectively, in 1994the
12-week and 28-week periods of 1993.
Interest expense increasedfor the 12-week period decreased $.5 million to $18.4$12.4
million in 1994 from $17.2$12.9 million in 1993 due to an increasethe repayment of indebtedness resulting from$79 million of bank debt
offset partially by the addition of an approximate $70 million finance lease
obligation, and increased $.7 million for the 28-week period to $30.8 million
in 1994 from $30.1 million in 1993 due to interest related to prior year tax
audits.
Income tax benefit was 44%24% and 32%, respectively, of pretax loss in 1994,
versus income
taxesand 33% of 33%pretax loss for both periods in 1993. 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
FINANCIAL CONDITION
The Company's primary sources of liquidity are cash flows from operations,
borrowings underfunds available from the Company's credit facilityfinance 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 January 23,April 17, 1994, the Company's working capital deficit had decreased $12.6increased $110.1
million to $97.2$.3 million from a working capital deficit of $109.8 million at
October 3, 1993, resultingdue primarily to net cash proceeds received from estimated tax payments,the sale of
Chi-Chi's, after the repayment of bank debt. The Company's working capital
position was also improved by the recognition of tax benefits and partial
payment of franchisee settlements and associated costs. 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.
9
RESULTS OF OPERATIONS (Continued)
At January 23,April 17, 1994, the Company's total debt outstanding was $574.1$476.5 million.
In early January 1994, the Company completed financing arrangements (see Note
3 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. With the sale of Chi-Chi's on January 27, 1994, the Company
reduced its outstanding debt, to approximately $471 million,
including full repayment of all bank borrowings
and termination of the bank credit facility, and had approximately $90$80 million
in cash on hand.hand at April 17, 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.
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
utilization of cash on hand, cash 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. In addition, the Company is
seeking a new bank credit facility to provide an additional source of funds for
the future.
On August 7, 1992, the Board of Directors of the Company
authorized the purchase of up to 2 million shares of the Company's
outstanding Common Stock in the open market, for an aggregate amount
not to exceed $20 million. At January 23, 1994, the Company had
acquired 1,412,654 shares for an aggregate cost of $14.5 million.
RECENT DEVELOPMENTS
On January 27, 1994, Foodmaker, Apollo Advisors, L.P. ("Apollo")
and Green Equity Investors, L.P. ("GEI"), (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
restaurant chain 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 contributed $91 million
in cash and hold a 57% equity position in FRI. Management of FRI
invested $7 million in cash and notes and holds a 4% equity position.
A portion of the net cash received has been 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.
1011
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 courtsand 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 against the Company
seeking monetary damages and other relief including numerous
lawsuits and claims relating to
the outbreak of food-borne illness
(the "Outbreak")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, a settlement wassettlements were
reached with mostall but one of the franchisees and the Company hopes to reach
settlements with the two remaining franchisees. During 1993, the Company provided
approximately $44.5 million to cover the settlements and associated costs,
including a then anticipated settlementssettlement with the remaining franchisees.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 intends tois vigorously defenddefending
the action.
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.
1112
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting was held February 11, 1994 at which
the following matters were voted as indicated:
For Withheld
---------- --------
1. Election of the following directors to
serve until the next annual meeting of
stockholders and until their successors
are elected and qualified.
Michael E. Alpert . . . . . . . . . 36,346,243 343,858
Paul T. Carter. . . . . . . . . . . 36,347,348 342,753
Charles W. Duddles. . . . . . . . . 36,348,448 341,653
Edward Gibbons. . . . . . . . . . . 36,347,838 342,263
Jack W. Goodall . . . . . . . . . . 36,338,668 351,433
Leonard I. Green. . . . . . . . . . 36,347,688 342,413
Robert J. Nugent. . . . . . . . . . 36,348,448 341,653
L. Robert Payne . . . . . . . . . . 36,348,348 341,753
Christopher V. Walker . . . . . . . 36,347,948 342,153
For Against Abstain Not Voted
--------- ------- ------- ---------
2. Ratification of the appointment
of KPMG Peat Marwick as
independent accountants 36,541,823 128,234 20,044 -0-
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
------ -----------
10.1 Master LeasesNinth Amendment dated as of January 27, 1994 to Amended and
Restated Securities Purchase Agreement dated as of
February 28, 1991 by and between CRC Limited Partnerships and Foodmaker, Inc. asand The
Prudential Insurance Company of December 15, 1993America.
(b) Reports on Form 8-K
A Form 8-K was filed on February 11, 1994, reporting under
Item 2 thereof, the disposition of Chi-Chi's and acquisition of an
approximate 39%40% interest in FRI on January 27, 1994, shortly after the end of the quarter1994. (See Note 43 to
the financial statements).
The required financial statements
and pro forma financial information will be provided in an
amendedA Form 8-K as soon as practicable after they become
available but not later than 60 days after8-K/A was filed on April 12, 1994, with respect to
the date the Form
8-K was filed.
12same matter.
13
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: /S/ ROBERT L. SUTTIE
----------------------------------------------
Robert L. Suttie
Vice President, Controller
and Chief Accounting Officer
(Duly Authorized Signatory)
Date: March 9,June 1, 1994
1314