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 22, 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 February 28, 1995 - 38,690,250
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 22, October 2,
1995 1994
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ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . $ 21,101 $ 35,965
Receivables . . . . . . . . . . . . . . . . . . 27,667 31,167
Inventories . . . . . . . . . . . . . . . . . . 28,051 25,319
Prepaid expenses. . . . . . . . . . . . . . . . 10,966 15,035
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Total current assets . . . . . . . . . . . . 87,785 107,486
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Investment in FRI . . . . . . . . . . . . . . . . 51,835 57,188
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Trading area rights . . . . . . . . . . . . . . . 62,085 62,932
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Lease acquisition costs . . . . . . . . . . . . . 25,295 27,660
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Other assets. . . . . . . . . . . . . . . . . . . 44,723 46,041
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Property at cost. . . . . . . . . . . . . . . . . 580,517 574,585
Accumulated depreciation and amortization . . . (142,481) (135,607)
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438,036 438,978
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TOTAL. . . . . . . . . . . . . . . . . . . . $709,759 $740,285
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt. . . . . . $ 1,326 $ 1,346
Accounts payable. . . . . . . . . . . . . . . . 32,160 36,915
Accrued expenses. . . . . . . . . . . . . . . . 102,683 101,121
Income taxes payable. . . . . . . . . . . . . . 8,420 8,148
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Total current liabilities. . . . . . . . . . 144,589 147,530
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Deferred income taxes . . . . . . . . . . . . . . 5,062 5,062
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Long-term debt, net of current maturities . . . . 440,487 447,822
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Other long-term liabilities . . . . . . . . . . . 40,004 39,820
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Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . . . 403 401
Capital in excess of par value. . . . . . . . . 280,857 280,837
Accumulated deficit . . . . . . . . . . . . . . (187,180) (166,724)
Treasury stock. . . . . . . . . . . . . . . . . (14,463) (14,463)
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Total stockholders' equity. . . . . . . . . . . 79,617 100,051
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TOTAL. . . . . . . . . . . . . . . . . . . . $709,759 $740,285
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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 22, January 23,
1995 1994
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Revenues:
Restaurant sales. . . . . . . . . . . . . . . . $227,613 $334,363
Distribution sales. . . . . . . . . . . . . . . 55,259 34,876
Franchise rents and royalties . . . . . . . . . 9,940 10,998
Other . . . . . . . . . . . . . . . . . . . . . 868 1,337
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293,680 381,574
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Costs and expenses:
Costs of revenues:
Restaurant costs of sales. . . . . . . . . . 64,023 95,919
Restaurant operating costs . . . . . . . . . 131,040 201,506
Costs of distribution sales. . . . . . . . . 54,133 33,283
Franchised restaurant costs. . . . . . . . . 6,822 7,264
Selling, general and administrative . . . . . . 36,998 33,049
Equity in loss of FRI . . . . . . . . . . . . . 5,353 -
Interest expense. . . . . . . . . . . . . . . . 15,267 18,408
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313,636 389,429
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Loss before income taxes. . . . . . . . . . . . . (19,956) (7,855)
Income taxes (benefit). . . . . . . . . . . . . . 500 (3,456)
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Net loss. . . . . . . . . . . . . . . . . . . . . $(20,456) $ (4,399)
======= =======
Net loss per share - primary
and fully diluted. . . . . . . . . . . . . . $ (.53) $ (.11)
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Weighted average shares outstanding . . . . . . . 38,675 38,398
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 22, January 23,
1995 1994
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Cash flows from operations:
Net loss. . . . . . . . . . . . . . . . . . . . $(20,456) $ (4,399)
Non-cash items included above:
Depreciation and amortization. . . . . . . . 11,477 17,971
Equity in loss of FRI. . . . . . . . . . . . 5,353 -
Decrease in receivables . . . . . . . . . . . . 3,500 2,088
Increase in inventories . . . . . . . . . . . . (2,732) (1,708)
Decrease in prepaid expenses. . . . . . . . . . 4,069 8,724
Increase (decrease) in accounts payable . . . . (4,755) 8,382
Increase (decrease) in accrued expenses . . . . 1,851 (20,402)
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Cash flows provided (used) by operations . . (1,693) 10,656
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Cash flows from investing activities:
Additions to property and equipment . . . . . . (8,226) (19,902)
Dispositions of property and equipment. . . . . 867 649
Increase in trading area rights . . . . . . . . - (96)
Decrease (increase) in other assets . . . . . . 1,354 (31,022)
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Cash flows used in investing activities. . . (6,005) (50,371)
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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
Principal payments on long-term debt,
including current maturities . . . . . . . . (7,355) (11,213)
Increase (decrease) in accrued interest . . . . 167 (471)
Proceeds from issuance of common stock. . . . . 22 278
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Net proceeds from sale and leaseback
transactions . . . . . . . . . . . . . . . . - 7,118
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Cash flows provided (used) by
financing activities. . . . . . . . . . . (7,166) 47,397
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Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . $(14,864) $ 7,682
======= =======
See accompanying notes to financial statements.
-4-
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
January 22, 1995
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. The income tax benefit for 1994 was 44% of the pretax loss.
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 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.
Summarized preliminary financial information for FRI's quarter ended
December 25, 1994, follows (in thousands):
Sales . . . . . . . . . . . . . . . . . . . . . .$270,082
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Costs of sales. . . . . . . . . . . . . . . . . . 75,749
Operating costs . . . . . . . . . . . . . . . . . 179,418
General and administrative expense. . . . . . . . 15,356
Interest expense. . . . . . . . . . . . . . . . . 13,797
Loss before income tax provision. . . . . . . . . (14,238)
Income taxes (benefit). . . . . . . . . . . . . . (537)
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Net Loss. . . . . . . . . . . . . . . . . . . . .$(13,701)
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As a result of negative publicity regarding the nutritional value of
Mexican food, and resulting sales declines, FRI's management is
evaluating the future prospects for its Mexican Restaurant Division
and the recoverability of certain long-lived intangible assets based on
consumer reaction to new marketing programs.
-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, 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. As a result of the foregoing transaction, at
January 22, 1995, the Company had approximately $1.6 million in
construction funds available for new restaurants, which was classified in
the financial statements in other assets.
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.
-6-
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. Contingent Liabilities (continued)
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 the Superior Court of California, County of Los
Angeles.
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 tentative
settlement was reached, subject to execution of a final agreement and
approval by the court. Under the terms of the settlement the Company
paid $8 million into an escrow account pending final settlement, which
was reflected in the results of operations for the first quarter of fiscal
1995.
The Federal Trade Commission is investigating whether the Company
violated the Hart-Scott- Rodino Antitrust Improvements Act of 1976 (the
"HSR Act") when the Company's former subsidiary, Chi-Chi's, Inc.,
acquired Consul Restaurant Corporation in October 1992 without first
complying with the reporting and waiting requirements of the HSR Act.
The Company later made the filing as it was preparing for the sale of
Chi-Chi's. The Company has engaged counsel in connection with the
investigation and on August 17, 1994, counsel for the Company received a
request, preliminary in nature, for information and documents and a
subpoena covering the preliminary material supplied and additional
information and documents was issued January 19, 1995. 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.
-7-
FOODMAKER, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION
RESULTS OF OPERATIONS
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All comparisons under this heading between 1995 and 1994, unless
otherwise indicated, refer to the 16-week periods ended January 22, 1995 and
January 23, 1994, respectively. On January 27, 1994, the Company contributed
its entire Chi-Chi's Mexican restaurant chain ("Chi-Chi's") to Family
Restaurants, Inc. ("FRI") in exchange for an approximate 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 $16.5
million to $227.6 million in 1995 from $211.1 million 1994. The sales
improvement is primarily due to an increase in the average number of
Company-operated restaurants to 811 in 1995 from 727 in 1994 and offset in
part by a decrease in per store average sales for comparable restaurants
("PSA") of approximately 1.5% in 1995 as compared to 1994. Chi-Chi's
restaurant sales were $123.3 million in the first quarter of 1994.
Distribution sales of food and supplies increased approximately $20.4
million to $55.3 million in 1995 from $34.9 million in 1994 primarily due to
the recognition of $25.1 million in sales to Chi-Chi's in 1995. Distribution
sales to Chi-Chi's in 1994, while it was a subsidiary of the Company, were
eliminated in consolidation. Distribution sales to franchisees and others
decreased approximately $4.7 million principally due to a decline in the
number of franchisee-operated restaurants.
Jack In The Box franchise rents and royalties decreased $1.0 million to
$9.9 million in 1995 from $10.9 million in 1994 reflecting a decline in the
average number of domestic franchisee- operated restaurants to 397 in 1995
from 435 in 1994, which was principally due to the purchase by the Company of
46 franchised restaurants since January 1994. Franchise rents and royalties
for Chi-Chi's were $.1 million in the first quarter of 1994.
Other revenues for Jack In The Box increased $.1 million to $.9 million
in 1995 from $.8 million in 1994 primarily due to interest income earned on
cash proceeds from the sale of Chi- Chi's. Chi-Chi's other revenues were $.5
million in the first quarter of 1994.
Jack In The Box costs of sales increased $.8 million to $64.0 million in
1995 from $63.2 million in 1994. 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 $10.2 million to
$131.0 million in 1995 from $120.8 million in 1994 primarily due to the
increase in average number of Company- operated restaurants and variable
costs associated with increased sales. As a result of the decrease in PSA
sales, restaurant operating costs represent a higher percent of sales in 1995
in comparison to the similar period of 1994. Chi-Chi's restaurant operating
costs were $80.7 million in the first quarter of 1994.
Costs of distribution sales increased $20.8 million to $54.1 million in
1995 from $33.3 million in 1994, principally due to the variable costs
associated with the increase in distribution sales and slightly higher
distribution and delivery costs as a percent of distribution sales.
-8-
RESULTS OF OPERATIONS (Continued)
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Jack In The Box franchise restaurant costs, which consist of rents and
depreciation on properties leased to franchisees and other miscellaneous
costs, decreased to $6.8 million in 1995 from $7.1 million in 1994, primarily
due to the decline in the average number of domestic franchisee-operated
restaurants. Chi-Chi's franchise restaurant costs were $.2 million in the
first quarter of 1994.
Selling, general and administrative expenses for Jack In The Box
increased $13.1 million to $37.0 million in 1995 from $23.9 million in 1994,
principally due to an $8.0 million settlement with stockholders as described
in note 5 to the consolidated financial statements. Additionally,
advertising and promotion costs increased $5.1 million to $21.7 million in
1995 from $16.6 million in 1994 due to increased advertising and use of
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.
The Company recognized a loss of $5.4 million in 1995 relating to its
39% equity in the operations of FRI for its quarter ended December 25, 1994.
The Company acquired its interest in FRI subsequent to the first quarter of
1994. See Note 3 to the financial statements. As a result of negative
publicity regarding the nutritional value of Mexican food, and resulting
sales declines, FRI's management is evaluating the future prospects for its
Mexican Restaurant Division and the recoverability of certain long-lived
intangible assets based on consumer reaction to new marketing programs. If
FRI's management determines to write off any such assets, the Company would
be required to record its share as a charge to operations and a reduction in
its investment in FRI.
Interest expense decreased $3.1 million to $15.3 million in 1995 from
$18.4 million in 1994 due to the reduction of debt to $441.8 million in 1995
from $574.1 million in 1994 as a result of elimination of Chi-Chi's debt and
application of proceeds from the sale of Chi-Chi's to repay the bank credit
line.
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.
The income tax benefit for 1994 was 44% of the pretax loss. 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.
-9-
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 January 22, 1995, the Company's working capital deficit increased
$16.8 million to $56.8 million from $40.0 million at October 2, 1994, due
primarily to the utilization of cash for capital expenditures and repayment
of long-term debt. The restaurant business does not require the maintenance
of significant receivables or inventories, and it is common to receive trade
credit from vendors for purchases such as supplies. In addition, the
Company, and generally the industry, continually invests it its business
through the addition of new units and refurbishment of existing units, which
are reflected as long-term assets and not as part of working capital.
At January 22, 1995, the Company's total debt outstanding was $441.8
million. In early January 1994, the Company completed financing arrangements
(see Note 4 to the consolidated financial statements), which added an
approximate $70 million finance lease obligation to the Company's debt,
enabling the Company to repay approximately $28 million in bank borrowings,
fund existing capital expenditures and establish a construction fund of
approximately $28 million for new restaurants (of which $1.6 million remained
at January 22, 1995). With the sale of Chi- Chi's on January 27, 1994, the
Company reduced its outstanding debt, including full repayment of all bank
borrowings and termination of the bank credit facility, and had approximately
$21 million in cash on hand at January 22, 1995. 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. 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-
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 the Superior Court of California, County of Los Angeles.
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 tentative
settlement was reached, subject to execution of a final agreement and
approval by the court. Under the terms of the settlement the Company
paid $8 million into an escrow account pending final settlement, which
was reflected in the results of operations for the first quarter of fiscal
1995.
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Item 1. Legal Proceedings (Continued).
The Federal Trade Commission is investigating whether the Company
violated the Hart-Scott- Rodino Antitrust Improvements Act of 1976 (the "HSR
Act") when the Company's former subsidiary, Chi-Chi's, Inc., acquired Consul
Restaurant Corporation in October 1992 without first complying with the
reporting and waiting requirements of the HSR Act. The Company later made
the filing as it was preparing for the sale of Chi-Chi's. The Company has
engaged counsel in connection with the investigation and on August 17, 1994,
counsel for the Company received a request, preliminary in nature, for
information and documents and a subpoena covering the preliminary material
supplied and additional information and documents was issued January 19,
1995. 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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Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting was held February 17, 1995 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 . . . . . . . . . . 34,769,352 170,963
Paul T. Carter. . . . . . . . . . . . 34,775,822 164,493
Charles W. Duddles. . . . . . . . . . 34,776,852 163,463
Edward Gibbons. . . . . . . . . . . . 34,776,002 164,313
Jack W. Goodall . . . . . . . . . . . 34,760,661 179,654
Leonard I. Green. . . . . . . . . . . 34,023,372 916,943
Robert J. Nugent. . . . . . . . . . . 34,770,163 170,152
L. Robert Payne . . . . . . . . . . . 34,773,422 166,893
Christopher V. Walker . . . . . . . . 34,776,202 164,113
For Against Abstain Not Voted
---------- ------- ------- ---------
2. Ratification of the
appointment of KPMG Peat
Marwick as independent
accountants . . . . . . . . 34,829,904 74,980 35,431 -0-
For Against Abstain Not Voted
---------- ------- ------- ---------
3. To approve the Foodmaker,
Inc. Deferred Compensation
Plan for Non-Management
Directors . . . . . . . . . 29,197,063 439,721 230,933 5,072,598
For Against Abstain Not Voted
---------- ------- ------- ---------
4. To approve the Foodmaker,
Inc. Non-Employee Director
Stock Option Plan . . . . . 33,478,322 379,759 256,106 826,128
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
------ -----------
10.1 Second Amendment dated as of January 24, 1995 to the
Revolving Credit Agreement dated as of July 26, 1994
among Foodmaker, Inc. and the Banks and Agents, as
defined therein
10.2 Third Amendment dated as of February 15, 1995 to the
Revolving Credit Agreement dated as of July 26, 1994
among Foodmaker, Inc. and the Banks and Agents, as
defined therein
27 Financial Data Schedule (included only with electronic
filing)
(b) Reports on Form 8-K - None
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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: ROBERT L. SUTTIE
---------------------------
Robert L. Suttie
Vice President, Controller
and Chief Accounting Officer
(Duly Authorized Signatory)
Date: March 7, 1995
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