0000807882-95-000010.txt : 19950824 0000807882-95-000010.hdr.sgml : 19950824 ACCESSION NUMBER: 0000807882-95-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950709 FILED AS OF DATE: 19950823 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOODMAKER INC /DE/ CENTRAL INDEX KEY: 0000807882 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 952698708 STATE OF INCORPORATION: DE FISCAL YEAR END: 1002 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09390 FILM NUMBER: 95566041 BUSINESS ADDRESS: STREET 1: 9330 BALBOA AVE CITY: SAN DIEGO STATE: CA ZIP: 92123-1516 BUSINESS PHONE: 6195712121 MAIL ADDRESS: STREET 1: PO BOX 783 CITY: SAN DIEGO STATE: CA ZIP: 92112-4126 10-Q 1 FORM 10Q FOR THIRD QUARTER ENDED JULY 9, 1995 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended July 9, 1995 Commission File No. 1-9390 ------------ ------ FOODMAKER, INC. ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 95-2698708 ------------------------------------------------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 9330 BALBOA AVENUE, SAN DIEGO, CA 92123 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (619) 571-2121 --------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Number of shares of common stock, $.01 par value, outstanding as of the close of business August 14, 1995 - 38,726,445 -1- FOODMAKER, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (In thousands) July 9, October 2, 1995 1994 ------- ------- ASSETS Current assets: Cash . . . . . . . . . . . . . . . . . . . . . . . $ 14,294 $ 35,965 Receivables. . . . . . . . . . . . . . . . . . . . 26,697 31,167 Inventories. . . . . . . . . . . . . . . . . . . . 26,642 25,319 Prepaid expenses . . . . . . . . . . . . . . . . . 10,130 15,035 ------- ------- Total current assets. . . . . . . . . . . . . . 77,763 107,486 ------- ------- Investment in FRI. . . . . . . . . . . . . . . . . . - 57,188 ------- ------- Trading area rights. . . . . . . . . . . . . . . . . 67,805 62,932 ------- ------- Lease acquisition costs. . . . . . . . . . . . . . . 24,180 27,660 ------- ------- Other assets . . . . . . . . . . . . . . . . . . . . 38,736 46,041 ------- ------- Property at cost . . . . . . . . . . . . . . . . . . 589,630 574,585 Accumulated depreciation and amortization . . . . (152,280) (135,607) ------- ------- 437,350 438,978 ------- ------- TOTAL . . . . . . . . . . . . . . . . . . . . . $645,834 $740,285 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt . . . . . . . $ 1,332 $ 1,346 Accounts payable . . . . . . . . . . . . . . . . . 30,124 36,915 Accrued expenses . . . . . . . . . . . . . . . . . 93,651 101,121 Income taxes payable . . . . . . . . . . . . . . . 8,233 8,148 ------- ------- Total current liabilities . . . . . . . . . . . 133,340 147,530 ------- ------- Deferred income taxes. . . . . . . . . . . . . . . . 5,062 5,062 ------- ------- Long-term debt, net of current maturities. . . . . . 439,966 447,822 ------- ------- Other long-term liabilities. . . . . . . . . . . . . 40,175 39,820 ------- ------- Stockholders' equity: Common stock . . . . . . . . . . . . . . . . . . . 401 401 Capital in excess of par value . . . . . . . . . . 280,892 280,837 Accumulated deficit. . . . . . . . . . . . . . . . (239,539) (166,724) Treasury stock . . . . . . . . . . . . . . . . . . (14,463) (14,463) ------- ------- Total stockholders' equity. . . . . . . . . . . 27,291 100,051 ------- ------- TOTAL . . . . . . . . . . . . . . . . . . . . . $645,834 $740,285 ======= ======= See accompanying notes to financial statements. -2- FOODMAKER, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Twelve Weeks Ended Forty Weeks Ended ------------------ ----------------- July 9, July 10, July 9, July 10, 1995 1994 1995 1994 ------- ------- ------- ------- Revenues: Restaurant sales . . . . . . . . . . $193,921 $170,982 $602,506 $670,348 Distribution sales . . . . . . . . . 42,077 46,429 138,307 126,422 Franchise rents and royalties. . . . 7,585 7,344 24,808 25,882 Other. . . . . . . . . . . . . . . . 492 1,067 1,795 3,450 ------- ------- ------- ------- 244,075 225,822 767,416 826,102 ------- ------- ------- ------- Costs and expenses: Costs of revenues: Restaurant costs of sales . . . . 55,219 50,680 169,920 195,330 Restaurant operating costs. . . . 104,669 96,796 337,284 394,777 Costs of distribution sales . . . 41,289 45,119 135,611 122,200 Franchised restaurant costs . . . 5,001 5,239 16,809 17,631 Selling, general and administrative. 24,205 21,221 85,472 77,318 Equity in (earnings) loss of FRI . . - (384) 57,188 877 Interest expense . . . . . . . . . . 11,070 12,238 37,447 43,021 ------- ------- ------- ------- 241,453 230,909 839,731 851,154 ------- ------- ------- ------- Earnings (loss) before income taxes and extraordinary item . . . . . . . 2,622 (5,087) (72,315) (25,052) Income taxes (benefit) . . . . . . . . - (1,653) 500 5,694 ------- ------- ------- ------- Earnings (loss) before extraordinary item . . . . . . . . . 2,622 (3,434) (72,815) (30,746) Extraordinary item-loss on early extinguishment of debt, net of taxes - - - (2,738) ------- ------- ------- ------- Net earnings (loss). . . . . . . . . . $ 2,622 $ (3,434) $(72,815) $(33,484) ======= ======= ======= ======= Earnings (loss) per share - primary and fully diluted: Earnings (loss) before extraordinary item. . . . . . . . $ .07 $ (.09) $ (1.88) $ (.80) Extraordinary item . . . . . . . . . - - - (.07) ------- ------- ------- ------- Net earnings (loss) per share. . . . . $ .07 $ (.09) $ (1.88) $ (.87) ======= ======= ======= ======= Weighted average shares outstanding. . 39,157 38,578 38,827 38,500 See accompanying notes to financial statements. -3- FOODMAKER, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Forty Weeks Ended ---------------------- July 9, July 10, 1995 1994 ------ ------ Cash flows from operations: Net loss before extraordinary item . . . . . . . . $(72,815) $(30,746) Non-cash items included above: Depreciation and amortization . . . . . . . . . 29,194 34,162 Deferred income taxes . . . . . . . . . . . . . - 7,407 Equity in loss of FRI . . . . . . . . . . . . . 57,188 877 Decrease (increase) in receivables . . . . . . . . 4,470 (5,437) Increase in inventories. . . . . . . . . . . . . . (1,323) (2,315) Decrease in prepaid expenses . . . . . . . . . . . 4,905 3,743 Increase (decrease) in accounts payable. . . . . . (6,791) 13,640 Increase (decrease) in accrued expenses. . . . . . (5,191) 5,483 ------ ------ Cash flows provided by operations . . . . . . . 9,637 26,814 ------ ------ Cash flows from investing activities: Additions to property and equipment. . . . . . . . (22,783) (61,071) Dispositions of property and equipment . . . . . . 3,233 2,563 Increase in trading area rights. . . . . . . . . . (7,067) (9,243) Investment in FRI, net . . . . . . . . . . . . . . - (59,296) Disposition of Chi-Chi's . . . . . . . . . . . . . - 214,551 Decrease (increase) in other assets. . . . . . . . 4,963 (21,258) ------ ------ Cash flows provided (used) in investing activities. . . . . . . . . . . . . . (21,654) 66,246 ------ ------ Cash flows from financing activities: Borrowings under revolving bank loans. . . . . . . 29,000 5,000 Principal repayments under revolving bank loans. . (29,000) (35,000) Proceeds from issuance of long-term debt . . . . . 1,131 80,997 Principal payments on long-term debt, including current maturities. . . . . . . . . . (9,001) (83,030) Extraordinary loss on retirement of debt, net of tax. . . . . . . . . . . . . . . . . . . - (2,738) Increase (decrease) in accrued interest. . . . . . (1,839) 378 Proceeds from issuance of common stock . . . . . . 55 354 Net proceeds from sale and leaseback transactions. - 7,118 ------ ------ Cash flows used by financing activities . . . . (9,654) (26,921) ------ ------ Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . $(21,671) $ 66,139 ====== ====== See accompanying notes to financial statements. -4- FOODMAKER, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying unaudited financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for any interim period are not necessarily indicative of the results for any other interim period or for the full year. The Company reports results quarterly with the first quarter having 16 weeks and each remaining quarter having 12 weeks. Certain financial statement reclassifications have been made in the prior year to conform to the current year presentation. These financial statements should be read in conjunction with the 1994 financial statements. 2. Although the Company incurred a loss in 1995, income taxes were $.5 million due to required minimum taxes and the Company's inability under SFAS 109 to recognize the benefit from the carryover of losses to future years. Considering the sale of Chi-Chi's combined with the Company's losses, the Company was required to provide in the second quarter of 1994 a non-cash valuation allowance for previously recognized tax benefits, resulting in income tax expense for the 40 weeks of $5.7 million rather than a tax benefit. 3. On January 27, 1994, Foodmaker, Apollo Advisors, L.P. ("Apollo") and Green Equity Investors, L.P. ("GEI"), whose general partner is Leonard Green & Partners, (collectively, the "Investors"), acquired Restaurant Enterprises Group, Inc. ("REGI"), a company that owns, operates and franchises various restaurant chains including El Torito, Carrows and Coco's. Contemporaneously, REGI changed its name to Family Restaurants, Inc. ("FRI"). Concurrently, Foodmaker contributed its entire Chi-Chi's Mexican Restaurantes chain ("Chi-Chi's") to FRI in exchange for a 39% equity interest in FRI, valued at $62 million, a five-year warrant to acquire 111,111 additional shares at $240 per share, which would increase its equity interest to 45%, and approximately $173 million in cash ($208 million less the face amount of Chi-Chi's debt assumed, aggregating approximately $35 million). Apollo and GEI, respectively, contributed $62 million and $29 million in cash and hold approximate 39% and 18% equity positions in FRI. Management of FRI invested $2.5 million in cash and notes and holds an approximate 4% equity position. The net cash received was used by Foodmaker to repay all of the debt outstanding under its then existing bank credit facility, which was terminated, to reduce other existing debt, to the extent permitted by the Company's financing agreements and to provide funds for capital expenditures. The Company does not anticipate receiving dividends on its FRI common stock in the foreseeable future. The payment of dividends is restricted by FRI's public debt instruments. As a result of negative publicity regarding the nutritional value of Mexican food, and resulting sales declines, FRI wrote-off the goodwill attributable to Chi-Chi's in their fourth quarter ended December 25, 1994. The Company recorded in its first quarter of 1995 the complete write-down of its 39% investment in FRI as a result of the goodwill write-off. Subsequently, although the Company continues to hold a 39% interest in FRI, it will not reflect its share of FRI results of operations until FRI is able to generate a positive net equity. Summarized financial information through FRI's second quarter ended June 25, 1995, follows (in thousands): Sales . . . . . . . . . . . . . . . . . . . . . .$570,703 ------- Costs of sales. . . . . . . . . . . . . . . . . . 163,022 Operating costs . . . . . . . . . . . . . . . . . 380,667 General and administrative expense. . . . . . . . 31,794 Interest expense. . . . . . . . . . . . . . . . . 30,150 ------- Loss before income tax provision. . . . . . . . . (34,930) Income taxes. . . . . . . . . . . . . . . . . . . 974 ------- Net loss. . . . . . . . . . . . . . . . . . . . .$(35,904) ======= -5- 4. In early January 1994, the Company entered into financing lease arrangements with two limited partnerships, (the "Partnerships"), in which estates for years relating to 76 restaurants were sold. The acquisition of the properties, including costs and expenses, was funded through the issuance by a special purpose corporation acting as agent for the Partnerships of $70 million senior secured notes, interest payable semi- annually and due in two equal annual installments of principal on January 1, 2003 and November 1, 2003. The Company is required semi- annually through 2002 to make payments to a trustee of approximately $3.4 million and special payments of approximately $.7 million, which effectively cover interest and sinking fund requirements, respectively, on the notes. Immediately prior to the principal payment dates, the Company must make rejectable offers to reacquire 50% of the properties at each date at a price which is sufficient, in conjunction with previous sinking fund deposits, to retire the notes. If the Partnerships reject the offers, the Company may purchase the properties at less than fair market value or cause the Partnerships to fund the remaining principal payments on the notes and, at the Company's option, cause the Partnerships to acquire the Company's residual interest in the properties. If the Partnerships are allowed to retain the estates for years, the Company has available options to extend the leases for total terms of up to 35 years, at which time the ownership of the property will revert to the Company. The transactions are reflected as financings with the properties remaining in the Company's financial statements. 5. Contingent Liabilities Various claims and legal proceedings are pending against the Company in various state and federal courts. Many of those proceedings are in the states of California, Washington, Nevada, Idaho and Oregon, seeking monetary damages for personal injuries relating to the outbreak of food- borne illness ("the Outbreak") attributed to hamburgers served at Jack In The Box restaurants. The Company, in consultation with its insurance carriers and attorneys, does not anticipate that the total liability on all such lawsuits and claims will exceed the coverage available under its applicable insurance policies. Actions were filed on July 2, 1993, in the Superior Court of California, County of San Diego, by certain of the Company's franchisees against the Company, The Vons Companies, Inc., ("Vons") and other suppliers (Syed Ahmad, et al, versus Foodmaker, Inc., et al), claiming damages from reduced sales and profits due to the Outbreak. After extensive negotiations, settlements were reached with the plaintiff franchisees, and all but one of the domestic franchisees who did not join in suing the Company in this lawsuit. During 1993, the Company provided approximately $44.5 million to cover the settlements and associated costs, including the settlement with the remaining franchisee. On January 14, 1994, the non- settling Franchisee filed suit against the Company and The Vons Companies in Superior Court of California, County of San Diego and in Federal Court, Southern District of California (Ira Fischbein, et al versus Foodmaker, Inc., et al) claiming damages from reduced sales, lost profits and reduced value of the franchise due to the Outbreak. After extensive negotiations, the Company reached an agreement under the terms of which on February 3, 1995, the Company settled all claims of the franchisee against the Company and acquired 27 operating restaurants and the development rights to the Las Vegas and Denver markets. The Company on July 19, 1993, filed a cross-complaint against Vons and other suppliers seeking reimbursement for all damages, costs and expenses incurred in connection with the Outbreak. On or about January 18, 1994, Vons filed a cross complaint against Foodmaker and others in this action alleging certain contractual and tort liabilities and seeking damages in unspecified amounts and a declaration of the rights and obligations of the parties. Substantially the same claims are being made by the parties in a separate lawsuit in Superior Court of California, County of Los Angeles. On May 17, 1995 it was determined the litigation between the Company, Vons, and other defendants would be heard in Los Angeles. The case is set for trial in November, 1996. -6- 5. Contingent Liabilities (continued) In April 1993, a class action, In re Foodmaker, Inc./Jack In The Box Securities Litigation, was filed in Federal Court, Western District of Washington at Seattle against the Company, its Chairman, and the President of the Jack In The Box Division on behalf of all persons who acquired the Company's common stock between March 4, 1992 and January 22, 1993 seeking damages in an unspecified amount as well as punitive damages. In general terms, the complaint alleges that there were false and misleading statements in the Company's March 4, 1992 prospectus and in certain public statements and filings in 1992 and 1993, including claims that the defendants disseminated false information regarding the Company's food quality standards and internal quality control procedures. After extensive negotiations through a mediation process, a settlement was reached and subsequently approved by the Court. Under the terms of the settlement the Company paid $8 million into an escrow account, disbursements from which are subject to Court approval. The $8 million payment was reflected in the results of operations for the first quarter of fiscal 1995. The Federal Trade Commission ("FTC") is investigating whether the Company violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") when the Company's former subsidiary, Chi-Chi's, Inc., acquired Consul Restaurant Corporation in October 1992 without first complying with the reporting and waiting requirements of the HSR Act. The Company later made the filing as it was preparing for the sale of Chi-Chi's. The Company has engaged counsel in connection with the investigation and on August 17, 1994, counsel for the Company received a request, preliminary in nature, for information and documents. A subpoena covering the preliminary material supplied and additional information and documents was issued on January 19, 1995. Sworn statements have been given to the FTC by various people, including certain officers and former officers of the Company and Chi-Chi's. The HSR Act provides for a penalty of up to $10,000 per day for failure to comply with the above requirements. Management believes that any potential penalty, if assessed, will not have a material impact on the Company. The U.S. Internal Revenue Service ("IRS") had proposed adjustments to tax liabilities of $17 million (exclusive of interest) for the Company's federal income tax returns for fiscal years 1986 through 1988. A final report has not been issued but agreement has been reached to satisfy these proposed adjustments at approximately $1.3 million (exclusive of $.8 million interest). The IRS examinations of the Company's federal income tax returns for fiscal years 1989 and 1990 resulted in the issuance of proposed adjustments to tax liabilities aggregating $2.2 million (exclusive of $.7 million interest). The Company has filed a protest with the Regional Office of Appeals of the IRS contesting the proposed assessments. Management believes that adequate provision for income taxes has been made. -7- FOODMAKER, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION RESULTS OF OPERATIONS --------------------- All comparisons under this heading between 1995 and 1994, unless otherwise indicated, refer to the 12-week and 40-week periods ended July 9, 1995 and July 10, 1994, respectively. On January 27, 1994, the Company contributed its entire Chi-Chi's Mexican Restaurantes chain to Family Restaurants, Inc. in exchange for an approximate 39% interest in FRI and other consideration including cash and debt assumption as described in Note 3 to the consolidated financial statements. The consolidated statements of operations, therefore, include Chi-Chi's results of operations for only the 16 weeks ended in January 1994. Sales by Jack In The Box company-operated restaurants increased $22.9 million and $55.4 million, respectively, to $193.9 million and $602.5 million in 1995 from $171.0 million and $547.1 million in 1994. The sales improvement is primarily due to an increase in the average number of company- operated restaurants to 832 in 1995 from 752 in 1994. Per store average sales for comparable restaurants ("PSA") increased 6.1% and 1.7%, respectively, in 1995 as compared to the similar periods in 1994. Chi-Chi's restaurant sales were $123.2 million in the first quarter of 1994. Distribution sales of food and supplies for the 12-week period decreased $4.3 million to $42.1 million in 1995 from $46.4 million in 1994 primarily due to a decline in sales to Chi-Chi's restaurants. Distribution sales for the 40-week period increased $11.9 million to $138.3 million in 1995 from $126.4 million in 1994 primarily due to the sales to Chi-Chi's in the first quarter of 1995. Distribution sales to Chi-Chi's in the first quarter of 1994, while it was a subsidiary of the Company, were eliminated in consolidation. Jack In The Box franchise rents and royalties for the 12-week period increased $.3 million to $7.6 million in 1995 from $7.3 million in 1994 due to PSA sales increases of domestic franchisee-operated restaurants, offset in part by a decline in the number of franchisee-operated restaurants. Franchise rents and royalties for the 40-week period decreased $1.0 million to $24.8 million in 1995 from $25.8 million in 1994, reflecting a decline in the average number of domestic franchisee-operated restaurants to 382 in 1995 from 416 in 1994, principally due to the purchase of franchised restaurants by the Company. Franchise rents and royalties for Chi-Chi's were $.1 million in the first quarter of 1994. Other revenues for Jack In The Box declined $.6 million and $1.1 million, respectively, to $.5 million and $1.8 million in 1995 from $1.1 million and $2.9 million in 1994 primarily due to interest income earned in 1994 on cash proceeds from the sale of Chi-Chi's. Chi-Chi's other revenues were $.6 million in the first quarter of 1994. Jack In The Box costs of sales increased $4.5 million and $7.3 million, respectively, to $55.2 million and $169.9 million in 1995 from $50.7 million and $162.6 million in 1994 due to increased Company-operated restaurant sales. Costs of sales decreased as a percent of sales in 1995 as compared to 1994 due to the impact of lower ingredient costs and the lower food cost of certain promotions. Chi-Chi's costs of sales were $32.7 million in the first quarter of 1994. Restaurant operating costs for Jack In The Box increased $7.9 million and $23.2 million, respectively, to $104.7 million and $337.3 million in 1995 from $96.8 million and $314.1 million in 1994 primarily due to the increase in average number of Company-operated restaurants and variable costs associated with increased sales. Restaurant operating costs declined as a percent of sales in 1995 as compared to the similar period of 1994 principally due to reduced restaurant and operations labor and related costs. Chi-Chi's restaurant operating costs were $80.7 million in the first quarter of 1994. -8- Costs of distribution sales for the 12-week period decreased $3.8 million to $41.3 million in 1995 from $45.1 million in 1994 and increased $13.4 million for the 40-week period to $135.6 million in 1995 from $122.2 million in 1994 consistent with the changes in distribution sales in each of those periods. Costs of distribution sales increased as a percent of distribution sales in 1995 as compared to 1994 due to slightly higher product costs. Jack In The Box franchise restaurant costs, which consist of rents and depreciation on properties leased to franchisees and other miscellaneous costs, decreased $.2 million and $.7 million, respectively, to $5.0 million and $16.8 million in 1995 from $5.2 million and $17.5 million in 1994, primarily due to the decline in the average number of domestic franchisee- operated restaurants. Chi-Chi's franchise restaurant costs were $.1 million in the first quarter of 1994. Selling, general and administrative expenses for Jack In The Box increased $3.0 million and $17.3 million, respectively to $24.2 million and $85.5 million in 1995 from $21.2 million and $68.2 million in 1994, principally due to increased advertising and promotions costs and to an $8.0 million settlement with stockholders in the first quarter of 1995 as described in Note 5 to the consolidated financial statements. Advertising and promotion costs increased $3.6 million and $9.4 million, respectively, to $18.9 million and $57.5 million in 1995 from $15.3 million and $48.1 million in 1994 due to increased advertising and aggressive promotional discounting of products in 1995. Chi-Chi's incurred selling, general and administrative expenses of $9.1 million in the first quarter of 1994. In the first quarter of 1995, the Company recorded a $57.2 million loss relating to its equity in the operations of FRI, most of which was the result of the complete write-down of the Company's investment in FRI due to the write-off by FRI of the goodwill attributable to Chi-Chi's. Subsequently, although the Company continues to hold a 39% equity interest in FRI, it will not reflect its share of FRI results of operations until FRI is able to generate a positive net equity. In 1994 the Company recognized a loss of $.9 million relating to its 39% equity in the operations of FRI. See Note 3 to the consolidated financial statements. Interest expense decreased $1.1 million and $5.6 million, respectively, to $11.1 million and $37.4 million in 1995 from $12.2 million and $43.0 million in 1994 due to a reduction of total debt outstanding. Since the beginning of fiscal year 1994, the Company with the sale of Chi-Chi's, eliminated the Chi- Chi's debt and used the proceeds of the sale to repay both the bank credit line and the 13-1/2% Senior Notes. Although the Company incurred a loss in 1995, income taxes were $.5 million due to required minimum taxes and the Company's inability under SFAS 109 to recognize the benefit from the carryover of losses to future years. Considering the sale of Chi-Chi's combined with the Company's losses, the Company was required to provide in the second quarter of 1994 a non-cash valuation allowance for previously recognized tax benefits, resulting in income tax expense for the 40 weeks of $5.7 million rather than a tax benefit. -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 July 9, 1995, the Company's working capital deficit increased $15.6 million to $55.6 million from $40.0 million at October 2, 1994, and reflects the payout of $8.0 million for settlement of the stockholders' lawsuit. The restaurant business does not require the maintenance of significant receivables or inventories, and it is common to receive trade credit from vendors for purchases such as supplies. In addition, the Company, and generally the industry, continually invests in its business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets and not as part of working capital. At July 9, 1995, the Company's total debt outstanding was $441.3 million. Substantially all of the Company's real estate and machinery and equipment is, and is expected to continue to be, pledged to its lenders. On July 26, 1994, the Company entered into a revolving bank credit agreement which provides for a credit facility of up to $52.5 million, including letters of credit for the account of the Company in an aggregate amount of up to $25 million. At July 9, 1995, the Company had a total of approximately $43.3 million of unused credit under the agreement. Covenants contained in the agreement limit capital spending and require the Company to maintain specified financial ratios, and to meet certain requirements regarding maximum leverage and minimum fixed charges, cash flows, interest coverage, and net worth. The Company intends to use the revolving line to fund expansion efforts and for general operating purposes. Based upon current levels of operations and anticipated growth, the Company expects that sufficient cash flow will be generated from operations so that, combined with other financing alternatives available to it, including the bank credit facility, the utilization of cash on hand and the sale and leaseback of restaurants, the Company will be able to meet all of its debt service requirements, as well as its capital expenditures and working capital requirements, for the foreseeable future. -10- PART II - OTHER INFORMATION There is no information required to be reported for any items under Part II, except as follows: Item 1. Legal Proceedings. Various claims and legal proceedings are pending against the Company in various state and federal courts. Many of those proceedings are in the states of California, Washington, Nevada, Idaho and Oregon, seeking monetary damages for personal injuries relating to the outbreak of food-borne illness ("the Outbreak") attributed to hamburgers served at Jack In The Box restaurants. The Company, in consultation with its insurance carriers and attorneys, does not anticipate that the total liability on all such lawsuits and claims will exceed the coverage available under its applicable insurance policies. Actions were filed on July 2, 1993, in the Superior Court of California, County of San Diego, by certain of the Company's franchisees against the Company, The Vons Companies, Inc., ("Vons") and other suppliers (Syed Ahmad, et al, versus Foodmaker, Inc., et al), claiming damages from reduced sales and profits due to the Outbreak. After extensive negotiations, settlements were reached with the plaintiff franchisees, and all but one of the domestic franchisees who did not join in suing the Company in this lawsuit. During 1993, the Company provided approximately $44.5 million to cover the settlements and associated costs, including the settlement with the remaining franchisee. On January 14, 1994, the non-settling Franchisee filed suit against the Company and The Vons Companies in Superior Court of California, County of San Diego and in Federal Court, Southern District of California (Ira Fischbein, et al versus Foodmaker, Inc., et al) claiming damages from reduced sales, lost profits and reduced value of the franchise due to the Outbreak. After extensive negotiations, the Company reached an agreement under the terms of which on February 3, 1995, the Company settled all claims of the franchisee against the Company and acquired 27 operating restaurants and the development rights to the Las Vegas and Denver markets. The Company on July 19, 1993, filed a cross-complaint against Vons and other suppliers seeking reimbursement for all damages, costs and expenses incurred in connection with the Outbreak. On or about January 18, 1994, Vons filed a cross complaint against Foodmaker and others in this action alleging certain contractual and tort liabilities and seeking damages in unspecified amounts and a declaration of the rights and obligations of the parties. Substantially the same claims are being made by the parties in a separate lawsuit in Superior Court of California, County of Los Angeles. On May 17, 1995 it was determined the litigation between the Company, Vons, and other defendants would be heard in Los Angeles. The case is set for trial in November, 1996. In April 1993, a class action, In re Foodmaker, Inc./Jack In The Box Securities Litigation, was filed in Federal Court, Western District of Washington at Seattle against the Company, its Chairman, and the President of the Jack In The Box Division on behalf of all persons who acquired the Company's common stock between March 4, 1992 and January 22, 1993 seeking damages in an unspecified amount as well as punitive damages. In general terms, the complaint alleges that there were false and misleading statements in the Company's March 4, 1992 prospectus and in certain public statements and filings in 1992 and 1993, including claims that the defendants disseminated false information regarding the Company's food quality standards and internal quality control procedures. After extensive negotiations through a mediation process, a settlement was reached and subsequently approved by the Court. Under the terms of the settlement the Company paid $8 million into an escrow account, disbursements from which are subject to Court approval. The $8 million payment was reflected in the results of operations for the first quarter of fiscal 1995. -11- Item 1. Legal Proceedings (Continued). The Federal Trade Commission ("FTC") is investigating whether the Company violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") when the Company's former subsidiary, Chi-Chi's, Inc., acquired Consul Restaurant Corporation in October 1992 without first complying with the reporting and waiting requirements of the HSR Act. The Company later made the filing as it was preparing for the sale of Chi-Chi's. The Company has engaged counsel in connection with the investigation and on August 17, 1994, counsel for the Company received a request, preliminary in nature, for information and documents and a subpoena covering the preliminary material supplied and additional information and documents was issued January 19, 1995. Sworn statements have been given to the FTC by various people, including certain officers and former officers of the Company and Chi-Chi's. The HSR Act provides for a penalty of up to $10,000 per day for failure to comply with the above requirements. Management believes that any potential penalty, if assessed, will not have a material impact on the Company. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Number Description ------ ----------- 27 Financial Data Schedule (included only with electronic filing) (b) Reports on Form 8-K - None -12- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized and in the capacities indicated. FOODMAKER, INC. By: CHARLES W. DUDDLES ------------------------------- Charles W. Duddles Executive Vice President, Chief Administrative Officer and Chief Financial Officer (Duly Authorized Signatory) Date: August 22, 1995 -13- EX-27 2 ARTICLE 5 FDS FOR FISCAL YEAR 1995 THIRD QUARTER 10-Q
5 FISCAL YEAR THRU THIRD QUARTER CONTAINS 40 WEEKS 1000 9-MOS OCT-01-1995 OCT-03-1994 JUL-09-1995 14,294 0 24,485 4,184 26,642 77,763 589,630 152,280 645,834 133,340 439,966 401 0 0 26,890 645,834 740,813 767,416 305,531 659,624 0 0 37,447 (72,315) 500 (72,815) 0 0 0 (72,815) (1.88) (1.88)