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, 1994 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 February 28, 1994 - 38,543,505
1
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 23, October 3,
1994 1993
--------- ---------
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . $ 12,163 $ 4,481
Receivables . . . . . . . . . . . . . . . . . . 28,189 30,277
Inventories . . . . . . . . . . . . . . . . . . 42,685 40,977
Prepaid expenses. . . . . . . . . . . . . . . . 9,075 17,799
--------- ---------
Total current assets . . . . . . . . . . . . 92,112 93,534
--------- ---------
Trading area rights . . . . . . . . . . . . . . . 55,044 55,678
--------- ---------
Lease acquisition costs . . . . . . . . . . . . . 43,148 46,013
--------- ---------
Other assets. . . . . . . . . . . . . . . . . . . 85,779 54,133
--------- ---------
Property at cost. . . . . . . . . . . . . . . . . 721,138 711,284
Accumulated depreciation and amortization . . . (176,647) (164,813)
--------- ---------
544,491 546,471
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Cost of business in excess of net assets
at acquisition. . . . . . . . . . . . . . . . . 93,711 94,591
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TOTAL. . . . . . . . . . . . . . . . . . . . $914,285 $890,420
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt. . . . . . $ 33,206 $ 33,163
Accounts payable. . . . . . . . . . . . . . . . 45,044 36,662
Accrued expenses. . . . . . . . . . . . . . . . 108,229 122,741
Income taxes payable. . . . . . . . . . . . . . 2,849 10,783
--------- ---------
Total current liabilities. . . . . . . . . . 189,328 203,349
--------- ---------
Deferred income taxes . . . . . . . . . . . . . . 17,189 17,189
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Long-term debt, net of current maturities . . . . 540,889 500,460
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Other long-term liabilities . . . . . . . . . . . 31,862 30,290
--------- ---------
Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . . . 399 396
Capital in excess of par value. . . . . . . . . 280,622 280,353
Accumulated deficit . . . . . . . . . . . . . . (131,541) (127,154)
Treasury stock. . . . . . . . . . . . . . . . . (14,463) (14,463)
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Total stockholders' equity. . . . . . . . . . . 135,017 139,132
--------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . $914,285 $890,420
========= =========
See accompanying notes to financial statements.
2
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Sixteen Weeks Ended
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January 23, January 17,
1994 1993
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Revenues:
Restaurant sales. . . . . . . . . . . . . . . . $334,363 $351,685
Distribution sales. . . . . . . . . . . . . . . 34,876 34,814
Franchise rents and royalties . . . . . . . . . 10,998 12,600
Other . . . . . . . . . . . . . . . . . . . . . 1,337 4,232
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381,574 403,331
--------- ---------
Costs and expenses:
Costs of revenues:
Restaurant costs of sales. . . . . . . . . . 95,919 97,579
Restaurant operating costs . . . . . . . . . 201,506 194,678
Costs of distribution sales. . . . . . . . . 33,283 33,364
Franchised restaurant costs. . . . . . . . . 7,264 6,950
Selling, general and administrative . . . . . . . 33,049 36,339
Interest expense. . . . . . . . . . . . . . . . . 18,408 17,170
--------- ---------
389,429 386,080
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Earnings (loss) before income taxes
and cumulative effect of changes
in accounting principles. . . . . . . . . . . . (7,855) 17,251
Income taxes (benefit). . . . . . . . . . . . . . (3,456) 5,752
--------- ---------
Earnings (loss) before cumulative effect
of changes in accounting principles . . . . . . (4,399) 11,499
Cumulative effect on prior years (to
September 27, 1992) of adopting
SFAS 106 and SFAS 109 . . . . . . . . . . . . . - (53,980)
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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)
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Net loss per share. . . . . . . . . . . . . . . $ (.11) $ (1.09)
========= =========
Weighted average shares outstanding . . . . . . . 38,398 39,185
See accompanying notes to financial statements.
3
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Sixteen Weeks Ended
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January 23, January 17,
1994 1993
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Cash flows from operations:
Net loss. . . . . . . . . . . . . . . . . . . . $ (4,399) $ (42,481)
Non-cash items included above:
Depreciation and amortization . . . . . . . . 17,971 17,161
Deferred income taxes . . . . . . . . . . . . - (1,388)
Cumulative effect of accounting changes . . . - 53,980
Decrease in receivables . . . . . . . . . . . . 2,088 11,213
Increase in inventories . . . . . . . . . . . . (1,708) (4,800)
Decrease in prepaid expenses. . . . . . . . . . 8,724 725
Increase (decrease) in accounts payable . . . . 8,382 (113)
Decrease in accrued expenses. . . . . . . . . . (20,402) (4,656)
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Cash flows provided by operations . . . . . . 10,656 29,641
--------- ---------
Cash flows from investing activities:
Additions to property and equipment . . . . . . (19,902) (12,518)
Dispositions of property and equipment. . . . . 649 1,854
Decrease (increase) in trading area rights. . . (96) 195
Acquisition of Consul . . . . . . . . . . . . . - (8,700)
Decrease (increase) in other assets . . . . . . (31,022) 468
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Cash flows used in investing activities . . . (50,371) (18,701)
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Cash flows from financing activities:
Borrowings under revolving bank loans . . . . . 5,000 -
Principal repayments under revolving
bank loans . . . . . . . . . . . . . . . . . (28,000) -
Proceeds from issuance of long-term debt. . . . 74,685 1,172
Principal payments on long-term debt,
including current maturities . . . . . . . . (11,213) (1,553)
Decrease in accrued interest. . . . . . . . . . (471) (384)
Repurchase of common stock. . . . . . . . . . . - (10,783)
Proceeds from issuance of common stock. . . . . 278 872
Other changes in equity . . . . . . . . . . . . - 13
Net proceeds from sale and leaseback
transactions . . . . . . . . . . . . . . . . 7,118 -
Decrease in accrued transaction costs . . . . . - (41)
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Cash flows provided (used) by
financing activities . . . . . . . . . . 47,397 (10,704)
--------- ---------
Net increase in cash and cash
equivalents . . . . . . . . . . . . . . . . . . $ 7,682 $ 236
========= =========
See accompanying notes to financial statements.
4
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
January 23, 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% 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. 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, 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-term debt changed
as indicated in the following table:
January 23, October 3,
1994 1993
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Bank credit agreement . . . . . . . . . . . . . . . . $ 79,000 $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 . . . . . . . . . . . . . . . 19,297 19,268
Other notes, principally secured. . . . . . . . . . . 23,357 23,610
Financing lease obligations . . . . . . . . . . . . . 68,914 --
Capitalized lease obligations . . . . . . . . . . . . 10,358 10,576
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574,095 533,623
Less current portion. . . . . . . . . . . . . . . . . (33,206) (33,163)
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$540,889 $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. Contingent Liabilities
Various claims and legal proceedings are pending in various state
courts 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 was
reached with most 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 anticipated
settlements with the remaining franchisees.
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 to vigorously defend 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION
RESULTS OF OPERATIONS
All comparisons under this heading between 1994 and 1993 refer to
the 16-week periods ended January 23, 1994 and January 17, 1993,
respectively. On January 27, 1994, the Company contributed its
entire Chi-Chi's Mexican restaurant chain to Family Restaurants, Inc.
("FRI") in exchange for a 39% interest in FRI and other consideration
including cash and debt assumption as described in Note 4 to the
consolidated financial statements. The consolidated statements of
operations include Chi-Chi's revenues and expenses for the full 16-
week periods in both 1994 and 1993.
Sales by Jack In The Box Company-operated restaurants decreased
$22.2 million to $211.1 million in 1994 from $233.3 million in 1993
due to a 9.2% decline in per store average sales for comparable
restaurants ("PSA") offset in part by an increase in the average
number of Company-operated restaurants to 727 in 1994 from 717 in
1993. The PSA decline is due to (1) a comparison to a period of
record performance in 1993, (2) the ongoing recovery of sales after
Jack In The Box was linked in January 1993 to an outbreak of food-
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 1994 and $118.4 million in
1993.
Distribution sales of food and supplies to franchisees and others
remained relatively unchanged at $34.9 million in 1994, as declines
in sales to Jack In The Box franchisees were offset by sales to a new
customer added in the second quarter of 1993.
Jack In The Box franchise rents and royalties decreased $1.2
million to $10.9 million in 1994 from $12.1 million in 1993
principally due to a PSA decline for franchisee-operated Jack In The
Box restaurants, which were also affected by the same factors and
similarly to Company-operated restaurants. Franchise rents and
royalties for Chi-Chi's were $.1 million and $.5 million,
respectively, in 1994 and 1993.
Other revenues for Jack In The Box, which include interest income,
franchise fees and gains realized on 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 7 in 1993. Chi-Chi's
other revenues were $.5 million and $1.4 million, respectively, in
1994 and 1993.
Jack In The Box costs of sales decreased $3.6 million to $63.2
million in 1994 from $66.8 million in 1993 principally due to lower
sales. These costs 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, which is producing higher average
checks than other quarters since the Outbreak. Chi-Chi's costs of
sales were $32.7 million in 1994 and $30.8 million in 1993.
Restaurant operating costs for Jack In The Box decreased $1.4
million to $120.8 million in 1994 from $122.2 million in 1993
primarily due to a reduction in performance-based compensation awards
and certain variable costs, offset in part by increased occupancy and
other operating costs. As a result of the decline in sales in 1994,
restaurant operating costs represent a higher percent of sales. Chi-
Chi's restaurant operating costs were $80.7 million in 1994 and $72.5
million in 1993.
Costs of distribution sales remained relatively unchanged at $33.3
million in 1994.
8
RESULTS OF OPERATIONS (Continued)
Jack In The Box franchise restaurant costs increased $.4 million
to $7.1 million in 1994 from $6.7 million in 1993 primarily due to
increased rental expense. Chi-Chi's franchise restaurant costs were
$.2 million in both years.
Selling, general and administrative expenses for Jack In The Box
decreased $2.6 million to $23.9 million in 1994 from $26.5 million in
1993 due primarily to a decrease in write-offs associated with normal
asset disposals, and due to a decrease in advertising and promotion
costs to $16.6 million in 1994 from $17.4 million in 1993.
Advertising and promotion costs increased as a percent of sales in
1994 due to the continued use of aggressive advertising and marketing
tactics. Chi-Chi's incurred selling, general and administrative
expenses of $9.1 million and $9.8 million, respectively, in 1994 and
1993.
Interest expense increased to $18.4 million in 1994 from $17.2
million in 1993 due to an increase of indebtedness resulting from the
addition of an approximate $70 million finance lease obligation and
interest related to prior year tax audits.
Income tax benefit was 44% of pretax loss in 1994, versus income
taxes of 33% 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.
FINANCIAL CONDITION
The Company's primary sources of liquidity are cash flows from
operations, borrowings under the Company's credit facility 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, 1994, the Company's working capital deficit had
decreased $12.6 million to $97.2 million from $109.8 million at
October 3, 1993, resulting from estimated tax payments, 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, 1994, the Company's total debt outstanding was
$574.1 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 million in cash
on hand. 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 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.
10
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 in various state
courts 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.
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 was reached
with most 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 anticipated settlements with the
remaining franchisees.
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 to vigorously defend 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.
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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 Leases between CRC Limited Partnerships and
Foodmaker, Inc. as of December 15, 1993
(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% interest in FRI on January
27, 1994, shortly after the end of the quarter (See Note 4 to
the financial statements). The required financial statements
and pro forma financial information will be provided in an
amended Form 8-K as soon as practicable after they become
available but not later than 60 days after the date the Form
8-K was filed.
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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, 1994
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