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 April 16, 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 May 22, 1995 - 38,690,250
-1-
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
April 16, October 2,
1995 1994
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ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . $ 5,566 $ 35,965
Receivables . . . . . . . . . . . . . . . . . 28,586 31,167
Inventories . . . . . . . . . . . . . . . . . 25,205 25,319
Prepaid expenses. . . . . . . . . . . . . . . 13,493 15,035
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Total current assets . . . . . . . . . . . 72,850 107,486
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Investment in FRI . . . . . . . . . . . . . . . - 57,188
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Trading area rights . . . . . . . . . . . . . . 67,232 62,932
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Lease acquisition costs . . . . . . . . . . . . 24,738 27,660
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Other assets. . . . . . . . . . . . . . . . . . 39,341 46,041
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Property at cost. . . . . . . . . . . . . . . . 588,954 574,585
Accumulated depreciation and amortization . . (147,433) (135,607)
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441,521 438,978
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TOTAL. . . . . . . . . . . . . . . . . . . $645,682 $740,285
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt. . . . . $ 1,328 $ 1,346
Accounts payable. . . . . . . . . . . . . . . 27,531 36,915
Accrued expenses. . . . . . . . . . . . . . . 84,652 101,121
Income taxes payable. . . . . . . . . . . . . 8,389 8,148
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Total current liabilities. . . . . . . . . 121,900 147,530
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Deferred income taxes . . . . . . . . . . . . . 5,062 5,062
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Long-term debt, net of current maturities . . . 455,238 447,822
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Other long-term liabilities . . . . . . . . . . 38,844 39,820
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Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . . 401 401
Capital in excess of par value. . . . . . . . 280,861 280,837
Accumulated deficit . . . . . . . . . . . . . (242,161) (166,724)
Treasury stock. . . . . . . . . . . . . . . . (14,463) (14,463)
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Total stockholders' equity. . . . . . . . . . 24,638 100,051
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TOTAL. . . . . . . . . . . . . . . . . . . $645,682 $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)
Twenty-eight
Twelve Weeks Ended Weeks Ended
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April 16, April 17, April 16 April 17,
1995 1994 1995 1994
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Revenues:
Restaurant sales. . . . . . . . . $180,972 $165,003 $408,585 $499,366
Distribution sales. . . . . . . . 40,971 45,117 96,230 79,993
Franchise rents and royalties . . 7,283 7,540 17,223 18,538
Other . . . . . . . . . . . . . . 435 1,046 1,303 2,383
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229,661 218,706 523,341 600,280
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Costs and expenses:
Costs of revenues:
Restaurant costs of sales. . . 50,678 48,731 114,701 144,650
Restaurant operating costs . . 101,575 96,475 232,615 297,981
Costs of distribution sales. . 40,189 43,798 94,322 77,081
Franchised restaurant costs. . 4,986 5,128 11,808 12,392
Selling, general and
administrative . . . . . . . . . 24,269 23,048 61,267 56,097
Equity in loss of FRI . . . . . . - 1,261 57,188 1,261
Interest expense. . . . . . . . . 11,110 12,375 26,377 30,783
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232,807 230,816 598,278 620,245
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Loss before income taxes
and extraordinary item. . . . . . (3,146) (12,110) (74,937) (19,965)
Income taxes. . . . . . . . . . . . - 10,803 500 7,347
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Loss before extraordinary item. . . (3,146) (22,913) (75,437) (27,312)
Extraordinary item-loss on early
extinguishment of debt,
net of taxes. . . . . . . . . . . - (2,738) - (2,738)
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Net loss. . . . . . . . . . . . . . $ (3,146) $(25,651) $(75,437) $(30,050)
======= ======= ======= =======
Loss per share - primary
and fully diluted:
Loss before extraordinary item. . $ (.08) $ (.60) $ (1.95) $ (.71)
Extraordinary item. . . . . . . . - (.07) - (.07)
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Net loss per share. . . . . . . . . $ (.08) $ (.67) $ (1.95) $ (.78)
======= ======= ======= =======
Weighted average shares outstanding 38,690 38,559 38,681 38,467
See accompanying notes to financial statements.
-3-
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Twenty-eight Weeks Ended
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April 16, April 17,
1995 1994
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Cash flows from operations:
Net loss before extraordinary item. . . . . . $(75,437) $(27,312)
Non-cash items included above:
Depreciation and amortization. . . . . . . 20,222 25,959
Deferred income taxes. . . . . . . . . . . - 9,060
Equity in loss of FRI. . . . . . . . . . . 57,188 1,261
Decrease (increase) in receivables. . . . . . 2,581 (3,851)
Decrease (increase) in inventories. . . . . . 114 (1,168)
Decrease in prepaid expenses. . . . . . . . . 1,542 5,893
Increase (decrease) in accounts payable . . . (9,384) 15,167
Decrease in accrued expenses. . . . . . . . . (18,624) (9,931)
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Cash flows provided (used) by operations . (21,798) 15,078
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Cash flows from investing activities:
Additions to property and equipment . . . . . (19,141) (37,979)
Dispositions of property and equipment. . . . 1,967 1,981
Increase in trading area rights . . . . . . . (5,783) (6,766)
Investment in FRI, net. . . . . . . . . . . . - (59,296)
Disposition of Chi-Chi's. . . . . . . . . . . - 214,551
Decrease (increase) in other assets . . . . . 5,514 (26,302)
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Cash flows provided (used) in
investing activities. . . . . . . . . . . (17,443) 86,189
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Cash flows from financing activities:
Borrowings under revolving bank loans . . . . 25,000 5,000
Principal repayments under revolving
bank loans . . . . . . . . . . . . . . . . . (10,000) (35,000)
Proceeds from issuance of long-term debt. . . - 81,211
Principal payments on long-term debt,
including current maturities . . . . . . . (7,602) (84,388)
Extraordinary loss on retirement of debt,
net of tax . . . . . . . . . . . . . . . . . - (2,738)
Increase in accrued interest. . . . . . . . . 1,420 2,347
Proceeds from issuance of common stock. . . . 24 328
Net proceeds from sale and leaseback
transactions . . . . . . . . . . . . . . . . - 7,118
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Cash flows provided (used) by financing
activities. . . . . . . . . . . . . . . . 8,842 (26,122)
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Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . $(30,399) $ 75,145
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See accompanying notes to financial statements.
-4-
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
April 16, 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. Considering the sale of Chi-
Chi's combined with the Company's losses, the Company was required
to provide in the second quarter of 1994 a non-cash valuation
allowance for previously recognized tax benefits, resulting in
income tax expense for the 28 weeks of $7.3 million rather than a
tax benefit.
3. On January 27, 1994, Foodmaker, Apollo Advisors, L.P. ("Apollo")
and Green Equity Investors, L.P. ("GEI"), whose general partner is
Leonard Green & Partners, (collectively, the "Investors"),
acquired Restaurant Enterprises Group, Inc. ("REGI"), a company
that owns, operates and franchises various restaurant chains
including El Torito, Carrows and Coco's. Contemporaneously, REGI
changed its name to Family Restaurants, Inc. ("FRI").
Concurrently, Foodmaker contributed its entire Chi-Chi's Mexican
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.
As a result of negative publicity regarding the nutritional value
of Mexican food, and resulting sales declines, FRI wrote-off the
goodwill attributable to Chi-Chi's Mexican Restaurantes in their
fourth quarter ended December 25, 1994. The Company recorded in
its first quarter of 1995 the complete write-down of its 39%
investment in FRI as a result of the goodwill write-off.
Subsequently, although the Company continues to hold a 39%
interest in FRI, it will not reflect its share of FRI results of
operations until FRI is able to generate a positive net equity.
-5-
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Summarized financial information for FRI's first quarter ended
March 26, 1995, follows (in thousands):
Sales . . . . . . . . . . . . . . . . . . . . . .$281,133
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Costs of sales. . . . . . . . . . . . . . . . . . 79,410
Operating costs . . . . . . . . . . . . . . . . . 188,123
General and administrative expense. . . . . . . . 15,639
Interest expense. . . . . . . . . . . . . . . . . 14,913
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Loss before income tax provision. . . . . . . . . (16,952)
Income taxes. . . . . . . . . . . . . . . . . . . 487
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Net loss. . . . . . . . . . . . . . . . . . . . .$(17,439)
=======
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.
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.
-6-
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. Contingent Liabilities (continued)
Actions were filed on July 2, 1993, in the Superior Court of
California, County of San Diego, by certain of the Company's
franchisees against the Company, The Vons Companies, Inc.,
("Vons") and other suppliers (Syed Ahmad, et al, versus Foodmaker,
Inc., et al), claiming damages from reduced sales and profits due
to the Outbreak. After extensive negotiations, settlements were
reached with the plaintiff franchisees, and all but one of the
domestic franchisees who did not join in suing the Company in this
lawsuit. During 1993, the Company provided approximately $44.5
million to cover the settlements and associated costs, including
the settlement with the remaining franchisee. On January 14,
1994, the non-settling Franchisee filed suit against the Company
and The Vons Companies in Superior Court of California, County of
San Diego and in Federal Court, Southern District of California
(Ira Fischbein, et al versus Foodmaker, Inc., et al) claiming
damages from reduced sales, lost profits and reduced value of the
franchise due to the Outbreak. After extensive negotiations, the
Company reached an agreement under the terms of which on
February 3, 1995, the Company settled all claims of the franchisee
against the Company and acquired 27 operating restaurants and the
development rights to the Las Vegas and Denver markets.
The Company on July 19, 1993, filed a cross-complaint against Vons
and other suppliers seeking reimbursement for all damages, costs
and expenses incurred in connection with the Outbreak. On or
about January 18, 1994, Vons filed a cross complaint against
Foodmaker and others in this action alleging certain contractual
and tort liabilities and seeking damages in unspecified amounts
and a declaration of the rights and obligations of the parties.
Substantially the same claims are being made by the parties in a
separate lawsuit in Superior Court of California, County of Los
Angeles. On May 17, 1995 it was determined the litigation between
the Company, Vons, and other defendants would be heard in Los
Angeles. No date has been set for the trial.
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.
-7-
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. Contingent Liabilities (continued)
The Federal Trade Commission ("FTC") is investigating whether the
Company violated the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act") when the Company's former subsidiary, Chi-
Chi's, Inc., acquired Consul Restaurant Corporation in October
1992 without first complying with the reporting and waiting
requirements of the HSR Act. The Company later made the filing as
it was preparing for the sale of Chi-Chi's. The Company has
engaged counsel in connection with the investigation and on August
17, 1994, counsel for the Company received a request, preliminary
in nature, for information and documents. A subpoena covering the
preliminary material supplied and additional information and
documents was issued on January 19, 1995. Sworn statements have
been given to the FTC by various people, including certain
officers and former officers of the Company and Chi-Chi's. The
HSR Act provides for a penalty of up to $10,000 per day for
failure to comply with the above requirements. Management
believes that any potential penalty, if assessed, will not have a
material impact on the Company.
The U.S. Internal Revenue Service ("IRS") had proposed adjustments
to tax liabilities of $17 million (exclusive of interest) for the
Company's federal income tax returns for fiscal years 1986 through
1988. A final report has not been issued but agreement has been
reached to satisfy these proposed adjustments at approximately
$1.3 million (exclusive of $.8 million interest). The IRS
examinations of the Company's federal income tax returns for
fiscal years 1989 and 1990 resulted in the issuance of proposed
adjustments to tax liabilities aggregating $2.2 million (exclusive
of $.7 million interest). The Company has filed a protest with
the Regional Office of Appeals of the IRS contesting the proposed
assessments. Management believes that adequate provision for
income taxes has been made.
-8-
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 12-week and 28-week periods ended
April 16, 1995 and April 17, 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
$16.0 million and $32.5 million, respectively, to $181.0 million and
$408.6 million in 1995 from $165.0 million and $376.1 million in
1994. The sales improvement is primarily due to an increase in the
average number of company-operated restaurants to 823 in 1995 from
740 in 1994. Per store average sales for comparable restaurants
("PSA") increased 1.4% in the 12-week period of 1995 as compared to
the similar period in 1994. Chi-Chi's restaurant sales were $123.3
million in the first quarter of 1994.
Distribution sales of food and supplies for the 12-week period
decreased $4.1 million to $41.0 million in 1995 from $45.1 million in
1994 due to declines in both the number of franchisee-operated
restaurants and in sales to Chi-Chi's restaurants. Distribution
sales for the 28-week period increased $16.2 million to $96.2 million
in 1995 from $80.0 million in 1994 primarily due to the sales to Chi-
Chi's in the first quarter of 1995. Distribution sales to Chi-Chi's
in the first quarter of 1994, while it was a subsidiary of the
Company, were eliminated in consolidation.
Jack In The Box franchise rents and royalties decreased $.2
million and $1.2 million, respectively, to $7.3 million and $17.2
million in 1995 from $7.5 million and $18.4 million in 1994. The
decrease in rents and royalties reflects a decline in the average
number of domestic franchisee-operated restaurants to 387 in 1995
from 424 in 1994, principally due to the purchase of franchised
restaurants by the Company. Franchise rents and royalties for Chi-
Chi's were $.1 million in the first quarter of 1994.
Other revenues for Jack In The Box declined $.6 million and $.5
million, respectively, to $.4 million and $1.3 million in 1995 from
$1.0 million and $1.8 million in 1994 primarily due to interest
income earned in 1994 on cash proceeds from the sale of Chi-Chi's.
Chi-Chi's other revenues were $.6 million in the first quarter of
1994.
Jack In The Box costs of sales increased $2.0 million and $2.7
million, respectively, to $50.7 million and $114.7 million in 1995
from $48.7 million and $112.0 million in 1994 due to increased
Company-operated restaurant sales. Costs of sales decreased as a
percent of sales in 1995 as compared to 1994 due to the impact of
lower ingredient costs and the lower food cost of certain promotions.
Chi-Chi's costs of sales were $32.7 million in the first quarter of
1994.
Restaurant operating costs for Jack In The Box increased $5.1
million and $15.3 million, respectively, to $101.6 million and $232.6
million in 1995 from $96.5 million and $217.3 million in 1994
primarily due to the increase in average number of Company-operated
restaurants and variable costs associated with increased sales.
Restaurant operating costs, including labor and regional
administrative, declined as a percent of sales in 1995 as compared to
the similar period of 1994. Chi-Chi's restaurant operating costs
were $80.7 million in the first quarter of 1994.
-9-
RESULTS OF OPERATIONS (Continued)
- ---------------------
Costs of distribution sales for the 12-week period decreased $3.6
million to $40.2 million in 1995 from $43.8 million in 1994 and
increased $17.2 million for the 28-week period to $94.3 million in
1995 from $77.1 million in 1994 consistent with the changes in
distribution sales in each of those periods. Costs of distribution
sales increased as a percent of distribution sales in 1995 as
compared to 1994 due to slightly higher distribution and delivery
costs.
Jack In The Box franchise restaurant costs, which consist of rents
and depreciation on properties leased to franchisees and other
miscellaneous costs, decreased $.1 million and $1.4 million,
respectively, to $5.0 million and $11.8 million in 1995 from $5.1
million and $12.2 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 $1.3 million and $14.3 million, respectively to $24.3
million and $61.3 million in 1995 from $23.0 million and $47.0
million in 1994, principally due to an $8.0 million settlement with
stockholders in the first quarter of 1995 and associated legal costs
as described in Note 5 to the consolidated financial statements.
Additionally, advertising and promotion costs increased $.7 million
and $5.8 million, respectively, to $16.9 million and $38.6 million in
1995 from $16.2 million and $32.8 million in 1994 due to increased
advertising and aggressive promotional discounting of products in
1995. Chi-Chi's incurred selling, general and administrative
expenses of $9.1 million in the first quarter of 1994.
In the first quarter of 1995, the Company recorded a $57.2 million
loss relating to its equity in the operations of FRI, most of which
was the result of the complete write-down of the Company's investment
in FRI due to the write-off by FRI of the goodwill attributable to
Chi-Chi's Mexican Restaurantes. Subsequently, although the Company
continues to hold a 39% equity interest in FRI, it will not reflect
its share of FRI results of operations until FRI is able to generate
a positive net equity. In 1994 the Company recognized a loss of $1.3
million relating to its 39% equity in the operations of FRI. See
Note 3 to the consolidated financial statements.
Interest expense decreased $1.3 million and $4.4 million,
respectively, to $11.1 million and $26.4 million in 1995 from $12.4
million and $30.8 million in 1994 due to a reduction of total debt
outstanding. Since the beginning of fiscal year 1994, the Company
with the sale of Chi-Chi's, eliminated the Chi-Chi's debt and used
the proceeds of the sale to repay both the bank credit line and the
13-1/2% Senior Notes.
Although the Company incurred a loss in 1995, income taxes were
$.5 million due to required minimum taxes and the Company's inability
under SFAS 109 to recognize the benefit from the carryover of losses
to future years. Considering the sale of Chi-Chi's combined with the
Company's losses, the Company was required to provide in the second
quarter of 1994 a non-cash valuation allowance for previously
recognized tax benefits, resulting in income tax expense for the 28
weeks of $7.3 million rather than a tax benefit.
-10-
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 April 16, 1995, the Company's working capital deficit increased
$9.1 million to $49.1 million from $40.0 million at October 2, 1994,
due primarily to the payout of $8.0 million for settlement of the
stockholders' lawsuit. The restaurant business does not require the
maintenance of significant receivables or inventories, and it is
common to receive trade credit from vendors for purchases such as
supplies. In addition, the Company, and generally the industry,
continually invests 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 April 16, 1995, the Company's total debt outstanding was $456.6
million. Substantially all of the Company's real estate and
machinery and equipment is, and is expected to continue to be,
pledged to its lenders.
On July 26, 1994, the Company entered into a revolving bank credit
agreement which provides for a credit facility of up to $52.5
million, including letters of credit for the account of the Company
in an aggregate amount of up to $25 million. At April 16, 1995, the
Company had a total of approximately $29.6 million of unused credit
under the agreement. Covenants contained in the agreement limit
capital spending and require the Company to maintain specified
financial ratios, and to meet certain requirements regarding maximum
leverage and minimum fixed charges, cash flows, interest coverage,
and net worth. The Company intends to use the revolving line to fund
expansion efforts and for general operating purposes.
Based upon current levels of operations and anticipated growth,
the Company expects that sufficient cash flow will be generated from
operations so that, combined with other financing alternatives
available to it, including the bank credit facility, the utilization
of cash on hand and the sale and leaseback of restaurants, the
Company will be able to meet all of its debt service requirements, as
well as its capital expenditures and working capital requirements,
for the foreseeable future.
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PART II - OTHER INFORMATION
There is no information required to be reported for any items under
Part II, except as follows:
Item 1. Legal Proceedings.
Various claims and legal proceedings are pending against the
Company in various state and federal courts. Many of those
proceedings are in the states of California, Washington, Nevada,
Idaho and Oregon, seeking monetary damages for personal injuries
relating to the outbreak of food-borne illness ("the Outbreak")
attributed to hamburgers served at Jack In The Box restaurants. The
Company, in consultation with its insurance carriers and attorneys,
does not anticipate that the total liability on all such lawsuits and
claims will exceed the coverage available under its applicable
insurance policies.
Actions were filed on July 2, 1993, in the Superior Court of
California, County of San Diego, by certain of the Company's
franchisees against the Company, The Vons Companies, Inc., ("Vons")
and other suppliers (Syed Ahmad, et al, versus Foodmaker, Inc., et
al), claiming damages from reduced sales and profits due to the
Outbreak. After extensive negotiations, settlements were reached
with the plaintiff franchisees, and all but one of the domestic
franchisees who did not join in suing the Company in this lawsuit.
During 1993, the Company provided approximately $44.5 million to
cover the settlements and associated costs, including the settlement
with the remaining franchisee. On January 14, 1994, the non-settling
Franchisee filed suit against the Company and The Vons Companies in
Superior Court of California, County of San Diego and in Federal
Court, Southern District of California (Ira Fischbein, et al versus
Foodmaker, Inc., et al) claiming damages from reduced sales, lost
profits and reduced value of the franchise due to the Outbreak.
After extensive negotiations, the Company reached an agreement under
the terms of which on February 3, 1995, the Company settled all
claims of the franchisee against the Company and acquired 27
operating restaurants and the development rights to the Las Vegas and
Denver markets.
The Company on July 19, 1993, filed a cross-complaint against Vons
and other suppliers seeking reimbursement for all damages, costs and
expenses incurred in connection with the Outbreak. On or about
January 18, 1994, Vons filed a cross complaint against Foodmaker and
others in this action alleging certain contractual and tort
liabilities and seeking damages in unspecified amounts and a
declaration of the rights and obligations of the parties.
Substantially the same claims are being made by the parties in a
separate lawsuit in Superior Court of California, County of Los
Angeles. On May 17, 1995 it was determined the litigation between
the Company, Vons, and other defendants would be heard in Los
Angeles. No date has been set for the trial.
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. Although the Company adamantly
denies any wrong doing and there was no adverse determination by any
court of wrong doing, it was determined to be in the best interests
of the Company to resolve the matter through settlement. After
extensive negotiations through a mediation process, a settlement was
reached, subject to final approval by the court. Under the terms of
the settlement the Company paid $8 million into an escrow account
pending final approval, 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 ("FTC") is investigating whether the
Company violated the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act") when the Company's former subsidiary, Chi-Chi's,
Inc., acquired Consul Restaurant Corporation in October 1992 without
first complying with the reporting and waiting requirements of the
HSR Act. The Company later made the filing as it was preparing for
the sale of Chi-Chi's. The Company has engaged counsel in connection
with the investigation and on August 17, 1994, counsel for the
Company received a request, preliminary in nature, for information
and documents and a subpoena covering the preliminary material
supplied and additional information and documents was issued
January 19, 1995. Sworn statements have been given to the FTC by
various people, including certain officers and former officers of the
Company and Chi-Chi's. The HSR Act provides for a penalty of up to
$10,000 per day for failure to comply with the above requirements.
Management believes that any potential penalty, if assessed, will not
have a material impact on the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
------ -----------
27 Financial Data Schedule (included only with
electronic filing)
(b) Reports on Form 8-K - None
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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: CHARLES W. DUDDLES
-------------------------------
Charles W. Duddles
Executive Vice President, Chief
Administrative Officer and
Chief Financial Officer
(Duly Authorized Signatory)
Date: May 31, 1995
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