-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E+A8PpkB1s7PTPj77mWxVsEVQLWFyibVqrPxwe31lDsuxl9u32hQR7lkrNe0qnG2 Y2R4LPHCS5dgyTlyTBQnIA== 0000807882-95-000011.txt : 19951229 0000807882-95-000011.hdr.sgml : 19951229 ACCESSION NUMBER: 0000807882-95-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951001 FILED AS OF DATE: 19951228 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09390 FILM NUMBER: 95605296 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-K 1 FOODMAKER, INC. ANNUAL 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K --------- /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 1, 1995 --------------- COMMISSION FILE NUMBER 1-9390 ------------- FOODMAKER, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2698708 - ------------------------- --------------------------------- (State of incorporation) (IRS 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 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ---------------------------- ----------------------------------------- Common Stock, $.01 par value New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: None 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 ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of December 15, 1995, computed by reference to the closing price reported in the New York Stock Exchange-Composite Transactions, was approximately $188.5 million. Number of shares of common stock, $.01 par value, outstanding as of the close of business December 15, 1995 - 38,802,195. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the 1996 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. ITEM 1. BUSINESS The Company Foodmaker owns, operates and franchises Jack In The Box, a chain of fast-food restaurants located principally in the western and southwestern United States. Until January 27, 1994, Foodmaker also owned Chi-Chi's, Inc. ("Chi-Chi's"), a chain of full-service, casual Mexican restaurants located primarily in the midwestern and midatlantic United States. On January 27, 1994, Foodmaker, Apollo FRI Partners, L.P. ("Apollo") and Green Equity Investors, L.P., whose general partner is Leonard Green & Partners, 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 and other consideration. Pursuant to an agreement dated November 20, 1995, Foodmaker transferred its entire equity interest in FRI to Apollo and entered into a mutual release with the other principal shareholders of FRI. See Note 3 to the consolidated financial statements. Jack In The Box Overview. Jack In The Box is a leading regional competitor in the fast-food segment of the restaurant industry with system-wide sales of $1,123.7 million in 1995. At October 1, 1995, there were 1,252 Jack In The Box restaurants, of which 863 were operated by the Company and 389 were franchised. Jack In The Box's menu and marketing strategies are principally directed toward adult fast-food customers. Jack In The Box offers a wider menu selection than most of its major fast-food competitors. The Jack In The Box menu features foods (such as the Teriyaki Bowl, Philly Cheesesteak and Stuffed Jalapenos) that are not commonly offered in the fast-food hamburger segment, as well as more traditional fast-food products (such as hamburgers and french fries). The Company believes that a key competitive strength of Jack In The Box is its ability to introduce new and distinctive, high quality menu items that appeal to the changing preferences of its adult guests. Jack In The Box was the first restaurant chain to develop and expand the concept of drive-thru only restaurants, and drive-thru sales presently account for approximately 63% of the sales by Company-operated restaurants. Over the years the Jack In The Box concept has evolved to include more inside seating in its restaurants. Most restaurants are located in freestanding buildings with seating capacities ranging from 24 to 85 persons and are open approximately 18 hours a day. History. The first Jack In The Box restaurant, which offered only drive-thru service, commenced operation in 1950, and Jack in the Box expanded its operations through the late 1960's to approximately 300 restaurants in 1968. After Ralston Purina Company purchased the Company in 1968, Jack In The Box underwent a major expansion program in an effort to penetrate the eastern and midwestern markets, and the business grew to over 1,000 units by 1979. In 1979, Foodmaker decided to concentrate its efforts and resources in the western and southwestern markets, which it believed offered the greatest growth and profit potential. Accordingly, Foodmaker sold 232 restaurants in the eastern and midwestern markets and redeployed the sale proceeds in its western and southwestern markets where the Company had a well-established market position and better growth prospects. Operating Strategy. Jack In The Box's operating strategy is to: (i) increase per store average sales through the continued introduction and promotion of distinctive, high quality menu items; (ii) focus on improving sales and margins through increased emphasis on guest service, food quality and cost management; and (iii) increase the number of Jack In The Box restaurants through the addition of Company-operated and franchise-developed restaurants in Jack In The Box's existing and contiguous markets. -1- Menu Strategy. Jack In The Box's menu strategy is to provide new and distinctive, high quality products that represent good value and appeal to the changing preferences of its targeted customers. The Jack In The Box menu features a wide variety of approximately 45-50 fast-food menu items, including hamburgers, specialty sandwiches, salads, Mexican foods, finger foods, breakfast foods, side items and desserts. Management believes that Jack In The Box's ability to develop new and unique menu items has been a traditional strength of the Company. Jack In The Box continuously develops and tests new items for its menu and seeks to improve existing products. New products are developed in a corporate test kitchen and then introduced in one or more of Foodmaker's research and development restaurants to ensure that product consistency, high quality standards and profitability can be maintained and to determine preliminary guest response. Operating and training systems have been developed that enable Jack In The Box to respond quickly to implement menu changes while achieving quality and profit objectives. If a new item proves successful at the research and development level, it is generally tested in selected markets, both with and without marketing support, and if it proves successful, the item is incorporated into the standard Jack In The Box menu. Jack In The Box has introduced over 50 new products in the last ten years. In addition, Jack In The Box pursues menu strategies involving product reintroductions, limited-time only product promotions and products which target the value segment of the business. Hamburgers represent the largest segment of the fast-food industry; accordingly, Jack In The Box continues to maintain hamburgers as principal menu items. Hamburgers, including the Grilled Sourdough Burger and the Ultimate Cheeseburger, accounted for approximately 27% of Jack In The Box's fiscal 1995 sales. However, management believes that, as a result of its diverse menu, Jack In The Box restaurants are less dependent on the commercial success of one or a few products than other fast-food chains, and that Jack In The Box's menu appeals to a broad range of food preferences. Expansion Strategy. The Company's goal is to achieve targeted levels of media pressure in Jack In The Box's existing major markets through the construction of new restaurants primarily by the Company and, to a lesser extent, by franchisees. The Company's current plan calls for opening approximately 250-300 new Company-operated restaurants, as well as approximately 30 new domestic and 100 new international franchise-operated restaurants over the next five years. The Company has historically acquired and will continue to consider the acquisition of existing restaurants for conversion to Jack In The Box restaurants. The following table sets forth the growth in Company-operated and franchised Jack In The Box restaurants since the beginning of fiscal year 1991: Fiscal year ------------------------------------ 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Company-operated restaurants: Opened 21 54 10 51 46 Sold to franchisees (6) (4) (11) (18) (7) Closed (4) (9) (4) (4) (7) Acquired from franchisees 42 44 10 7 2 Ending number 863 810 725 720 684 Franchised restaurants: Opened 12 8 13 21 16 Acquired from Company 6 4 11 18 7 Closed (1) (1) (2) (2) (1) Sold to Company (42) (44) (10) (7) (2) Ending number 389 414 447 435 405 System total 1,252 1,224 1,172 1,155 1,089 -2- The following table summarizes the locations of the Jack In The Box restaurants at October 1, 1995: Number of restaurants Number of restaurants ---------------------- ---------------------- Company- Company- operated Franchised operated Franchised -------- ---------- -------- ---------- Arizona. . . . . 61 45 Oregon. . . . . 1 2 California . . . 364 241 Texas . . . . . 260 58 Colorado . . . . 10 -- Washington. . . 67 -- Hawaii . . . . . 30 4 Egypt . . . . . -- 1 Idaho. . . . . . 6 -- Hong Kong . . . -- 7 Illinois . . . . 12 -- Indonesia . . . -- 1 Louisiana. . . . -- 5 Mexico. . . . . -- 10 Missouri . . . . 38 3 Philippines . . -- 2 Nevada . . . . . 14 8 --- --- New Mexico . . . -- 2 Total . . . . 863 389 === === Site selections for all new Jack In The Box restaurants are made after an extensive review of demographic data and other information relating to population density, restaurant visibility and access, available parking, surrounding businesses and opportunities for market concentration. Jack In The Box restaurants to be developed by franchisees are built to Company specifications on sites which have been approved by the Company. The Company currently uses two configurations in building new Jack In The Box restaurants. The larger restaurants seat an average of 82 customers and require a larger customer base to justify the required investment of approximately $1.3 million, including land. The smaller restaurants seat an average of 48 customers, require significantly less land on which to build, and cost approximately $150,000 less to build and equip than do the larger restaurants. Management believes that the flexibility afforded by the alternative configurations enables the Company to match the restaurant configuration with specific demographic, economic and geographic characteristics of the site. Restaurant Operations. Significant resources are devoted to ensuring that all Jack In The Box restaurants offer the highest quality of food and service. Emphasis is placed on ensuring that quality ingredients are delivered to the restaurants, restaurant food production systems are continuously developed and improved, and all employees are dedicated to delivering consistently high quality food and service. Through its network of corporate quality assurance, facilities services and restaurant management personnel, including regional vice presidents, area managers and restaurant managers, the Company standardizes specifications for the preparation and service of its food, the maintenance and repair of its premises and the appearance and conduct of its employees. Operating specifications and procedures are documented in a series of manuals and video presentations. Most restaurants, including franchised units, receive approximately 6 full inspections and 26 limited reviews each year. Each Jack In The Box restaurant is operated by a Company-employed manager or franchisee who normally receives a minimum of eight weeks of management training. Foodmaker's management training program involves a combination of classroom instruction and on-the-job training in specially designated training restaurants. Restaurant managers and supervisory personnel train other restaurant employees in accordance with detailed procedures and guidelines prescribed by Foodmaker, utilizing training aids including video equipment available at each location. The restaurant managers are directly responsible for the operation of the restaurants, including product quality, food handling safety, cleanliness, service, inventory, cash control and the appearance and conduct of employees. Restaurant managers are supervised by approximately 45 area managers, each of whom is responsible for an average of 20 restaurants. The area managers are under the supervision of 7 regional vice presidents who are supervised in turn by a vice president of operations. Under the Company's performance system, area and restaurant managers are eligible for quarterly bonuses based on a percentage of location operating profit and regional vice presidents are eligible for bonuses based on profit improvement and achievement of established goals and objectives. -3- Jack In The Box's quality assurance program is designed to maintain high standards for the food and materials and food preparation procedures used by Company-operated and franchised restaurants. Foodmaker maintains product specifications and approves sources for obtaining such products. The Company developed a comprehensive, restaurant-based Hazard Analysis & Critical Control Points ("HACCP") system for managing food safety and quality. HACCP combines employee training, meat testing by suppliers, and detailed attention to product quality at every stage of the food preparation cycle. Products are randomly inspected by the Company's quality assurance personnel as they arrive at Foodmaker's distribution centers to ensure that they conform to Foodmaker standards. These items then are distributed to individual restaurants through a network of Company-operated delivery trucks. Foodmaker provides purchasing, warehouse and distribution services for both Company-operated and franchised restaurants. While substantially all Jack In The Box franchisees have utilized these services to the full extent available, they are permitted to purchase products directly from any approved source. The Company believes that the service, prices and terms offered to its Jack In The Box franchisees through its distribution centers are competitive with that which franchisees could obtain from third parties. Some products, primarily dairy and bakery items, are delivered to both Company-operated and franchised restaurants directly by approved suppliers. Recently, Jack In The Box franchisees informed the Company that they have formed a purchasing cooperative and contracted with another supplier for distribution services. This transition is expected to occur during fiscal 1996. The primary commodities purchased by Jack In The Box restaurants are beef, poultry, seafood and produce. The Company monitors the current and future prices and availability of the primary commodities purchased by the Company in order to minimize the impact of fluctuations in price and availability, and makes advance purchases of commodities when considered to be advantageous. However, the Company remains subject to price fluctuations in certain commodities, particularly produce. All essential food and beverage products are available, or upon short notice can be made available, from alternative qualified suppliers. Foodmaker maintains centralized financial and accounting controls for Company-operated Jack In The Box restaurants which it believes are important in analyzing profit margins. Jack In The Box utilizes a specially designed computerized reporting and cash register system on a Company-wide basis which provides point-of-sale transaction data and accumulation of pertinent marketing information. Sales data are collected and analyzed on a weekly basis by management. Franchising Program. Jack In The Box's franchising strategy is directed toward franchisee development of restaurants in existing non-primary markets and selected primary markets. The Company offers development agreements for construction of one or more new restaurants over a defined period of time and in a defined geographic area. Multi-unit developers are required to prepay one-half of the franchise fees for restaurants to be opened in the future and may forfeit such fees and lose their rights to future developments if they do not maintain the required schedule of openings. At present, most franchisees operate no more than three restaurants. The Company's strategy is to grant franchises in a smaller metropolitan area to a single franchisee in order to achieve operating efficiencies and to grant franchises for a larger metropolitan area to several franchisees in order to maximize development of the area. Another important aspect of the franchising program has been the conversion of existing Company-operated restaurants to franchised restaurants. Although franchised units totaled 389 of Jack In The Box's 1,252 restaurants at October 1, 1995, the ratio of franchised to Company-operated restaurants is still low relative to Jack In The Box's major competitors. The Company views its non-franchised Jack In The Box units as a potential resource which, on a selected basis, can be sold to a franchisee to generate additional immediate cash flow and earnings while still maintaining future cash flows and earnings through franchise rents and royalties. Jack In The Box's current franchise agreement provides for an initial franchise fee of $25,000 per restaurant. This agreement generally provides for royalties of 4% of gross sales (royalties are 2% of gross sales for the first two years of the agreement and 4% of gross sales thereafter under agreements with respect to certain franchisee-built restaurants), a marketing fee of 5% of gross sales (although some existing agreements provide for a 4% rate) and a 20-year term. In connection with the conversion of a Company-operated restaurant, the restaurant equipment and the -4- right to do business at that location, known as "Trading Area Rights," are sold to the franchisee, in most cases for cash. The aggregate price is equal to the negotiated fair market value of the restaurant as a going concern, which depends on various factors including the history of the facility, its location and its cash flow potential. In addition, the land and building are leased or subleased to the franchisee at a negotiated rent, generally equal to the greater of a minimum base rent or a percentage of gross sales (typically 8 1/2%). The franchisee is required to pay property taxes, insurance and maintenance costs. Advertising and Promotion. Jack In The Box engages in substantial marketing programs and activities. Advertising costs are paid from a fund created by the marketing fees paid by franchisees together with an amount contributed each year by the Company equal to at least 5% of the gross sales of its Company-operated restaurants. Jack In The Box's use of advertising media is limited to regional and local campaigns both on spot television and radio and in print media. Jack In The Box does not advertise nationally. Jack In The Box spent approximately $96 million on advertising and promotions in fiscal 1995, including franchisee contributions and contributions from certain of its suppliers under co-operative advertising programs. Jack In The Box's current advertising campaign promotes new and established Jack In The Box products on an individual basis in a series of creative 30 second television and radio spot advertisements. The Company also allocates funds for local marketing purposes. Franchisees are encouraged to, and generally do, spend funds in addition to those expended by the Company for local marketing programs. Employees. At October 1, 1995, Jack In The Box had approximately 25,785 employees, of whom 24,085 were restaurant employees, 410 were corporate personnel, 355 were distribution employees and 935 were field management and administrative personnel. Employees are paid on an hourly basis, except restaurant managers, corporate and field management, and administrative personnel. A majority of Jack In The Box's restaurant employees are employed on a part-time, hourly basis to provide services necessary during peak periods of restaurant operations. Jack In The Box has not experienced any significant work stoppages and believes its labor relations are good. Jack In The Box competes in the job market for qualified employees and believes its wage rates are comparable to those of its competitors. Trademarks and Service Marks The Jack In The Box name is of material importance to the Company and is a registered trademark and service mark in the United States and in certain foreign countries. In addition, the Company has registered numerous service marks and trademarks for use in its business, including the Jack In The Box logo, Breakfast Jack and Jumbo Jack names and Crescent Breakfast name and design. Competition and Markets In general, the restaurant business is highly competitive and is affected by competitive changes in a geographic area, changes in the public's eating habits and preferences and local and national economic conditions affecting consumer spending habits, population trends and traffic patterns. Key competitive factors in the industry are the quality and value of the food products offered, quality and speed of service, advertising, name identification, restaurant location and attractiveness of facilities. Each Jack In The Box restaurant competes directly and indirectly with a large number of national and regional chain operators as well as with locally-owned fast-food restaurants and coffee shops. In selling franchises, Jack In The Box competes with many other restaurant franchisors, and some of its competitors have substantially greater financial resources and higher total sales volume. -5- Regulation Each Company-operated and franchised restaurant is subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, safety, fire and other departments. Difficulties or failures in obtaining any required licensing or approval could result in delays or cancellations in the opening of new restaurants. The Company is also subject to federal and a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises and may also apply substantive standards, including limitations on the ability of franchisors to terminate franchisees and alter franchise arrangements, to the relationship between franchisor and franchisee. The Company believes it is operating in substantial compliance with applicable laws and regulations governing its operations. The Company is subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime and other working conditions. A significant number of the Company's food service personnel are paid at rates related to the federal and state minimum wage, and accordingly, increases in the minimum wage increase the Company's labor costs. In addition, various proposals which would require employers to provide health insurance for all of their employees are being considered from time-to-time in Congress and various states. The imposition of any requirement that the Company provide health insurance to all employees would have a material adverse impact on the consolidated operations and financial condition of the Company and the restaurant industry. The Company is also subject to various federal, state and local laws regulating the discharge of materials into the environment. The cost of developing restaurants has increased as a result of the Company's compliance with such laws. Such costs relate primarily to the necessity of obtaining more land, landscaping and below surface storm drainage and the cost of more expensive equipment necessary to decrease the amount of effluent emitted into the air and ground. ITEM 2. PROPERTIES At October 1, 1995, Foodmaker owned 544 Jack In The Box restaurant buildings, including 327 located on land covered by ground leases. In addition, it leased 602 restaurants where both the land and building are leased. Some of these restaurants are operated by franchisees. The remaining lease terms of ground leases range from approximately one year to 50 years, including renewal option periods. The remaining lease terms of Foodmaker's other leases range from approximately one year to 41 years, including renewal option periods. In addition, at October 1, 1995, franchisees directly owned or leased 106 restaurants. Company- Franchise- operated operated Total restaurants restaurants restaurants ----------- ----------- ----------- Company-owned restaurant buildings: On Company-owned land 144 73 217 On ground-leased land 278 49 327 --- --- ----- Subtotal 422 122 544 Company-leased restaurant buildings on leased land 441 161 602 Franchise directly-owned or directly-leased restaurant buildings -- 106 106 --- --- ----- Total restaurant buildings 863 389 1,252 === === ===== -6- The Company's leases generally provide for the payment of fixed rentals (with cost-of-living index adjustments) plus real estate taxes, insurance and other expenses; in addition, many of the leases provide for contingent rentals of between 2% and 10% of the restaurant's gross sales. The Company has generally been able to renew its restaurant leases as they expire at then current market rates. At October 1, 1995, the leases had initial terms expiring as follows: Number of restaurants -------------------------- Years initial Land and lease term Ground building expires leases leases --------- ------ -------- 1996-2000. . . . . . . . . . . 110 137 2001-2005. . . . . . . . . . . 106 162 2006-2010. . . . . . . . . . . 63 210 2011 and later . . . . . . . . 48 93 --- --- 327 602 === === In addition, the Company owns its principal executive offices in San Diego, California, consisting of approximately 150,000 square feet. The Company owns one warehouse and leases an additional seven with remaining terms ranging from two years to 22 years, including renewal option periods. Substantially all the Company's real and personal property are pledged as collateral for various components of the Company's long-term debt. ITEM 3. 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. -7- 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 were 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 cases have been consolidated and are 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. 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 amount of liability from the claims and actions described above cannot be determined with certainty, but in the opinion of management, based in part upon advice from legal counsel, the ultimate liability from all pending legal proceedings, asserted legal claims and known potential legal claims which are probable of assertion should not materially affect the consolidated financial position of the Company. The U.S. Internal Revenue Service ("IRS") had proposed adjustments to tax liabilities of $17 million (exclusive of interest) for the Company's federal income tax returns for fiscal years 1986 through 1988. A final report has not been issued but agreement has been reached to satisfy these proposed adjustments at approximately $.6 million (exclusive of $.4 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter ended October 1, 1995. -8- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following table sets forth the high and low closing sales prices for the common stock during the quarters indicated, as reported on the New York Stock Exchange-Composite Transactions: 12 weeks ended 16 weeks ended -------------------------------------------- Jan. 23, 1994 Apr. 17, 1994 Jul. 10, 1994 Oct. 2, 1994 ------------- ------------- ------------- ------------ High . . . . . 10 1/4 10 1/2 8 6 Low. . . . . . 8 7/8 7 5/8 5 1/4 5 1/8 12 weeks ended 16 weeks ended -------------------------------------------- Jan. 22, 1995 Apr. 16, 1995 Jul. 9, 1995 Oct. 1, 1995 ------------- ------------- ------------- ------------ High . . . . . 5 5/8 4 3/8 5 5/8 6 7/8 Low. . . . . . 3 7/8 3 3/8 3 7/8 5 1/8 Foodmaker has not paid any cash or other dividends during its last two fiscal years and does not anticipate paying dividends in the foreseeable future. The Company's credit agreements prohibit and its public debt instruments restrict the Company's right to declare or pay dividends or make other distributions with respect to shares of its capital stock. As of October 1, 1995, there were approximately 725 holders of record. -9- ITEM 6. SELECTED FINANCIAL DATA The selected data presented in the following table summarizes certain consolidated financial information concerning the Company and is derived from financial statements which have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Chi-Chi's results of operations are included through January 27, 1994, the date of Chi-Chi's sale. The capital structure changed as the result of the 1992 recapitalization of the Company. The Company's fiscal year is 52 or 53 weeks, ending the Sunday closest to September 30.
52 weeks 52 weeks 53 weeks 52 weeks 52 weeks ended ended ended ended ended Statement of Operations Data: 10/1/95 10/2/94 10/3/93 9/27/92 9/29/91 - ----------------------------- ------- ------- ------- ------- ------- Revenues: Restaurant sales. . . . . . . . . . $ 804,084 $ 843,038 $1,088,269 $1,061,904 $1,019,927 Distribution sales. . . . . . . . . 179,689 171,711 108,546 104,041 94,815 Franchise rents and royalties . . . 32,530 33,740 35,232 38,803 35,277 Other revenues. . . . . . . . . . . 2,413 4,837 8,680 14,585 7,140 --------- --------- --------- --------- --------- Total revenues. . . . . . . . . . . 1,018,716 1,053,326 1,240,727 1,219,333 1,157,159 --------- --------- --------- --------- --------- Costs of revenues . . . . . . . . 871,335 928,511 1,124,918 1,004,467 962,212 Equity in loss of FRI . . . . . . 57,188 2,108 -- -- -- Selling, general and administrative expenses. . . . . . . . . . . . . 110,188 100,764 124,422 103,697 95,095 Interest expense. . . . . . . . . . . 48,463 55,201 57,586 72,455 93,573 --------- --------- --------- --------- --------- Earnings (loss) before income taxes (benefit), extraordinary item, and cumulative effect of changes in accounting principles. . . . . . . . (68,458) (33,258) (66,199) 38,714 6,279 Income taxes (benefit). . . . . . . . 500 3,010 (22,071) 16,818 5,930 --------- --------- --------- --------- --------- Earnings (loss) before extraordinary item and cumulative effect of changes in accounting principles . . . . . . (68,958) (36,268) (44,128) 21,896 349 Extraordinary item - loss on early extinguishment of debt, net of income taxes. . . . . . . . . . . . . . . . -- (3,302) -- (63,651) -- Cumulative effect on prior years of adopting SFAS 106 and SFAS 109 . . . -- -- (53,980) -- -- --------- --------- --------- --------- --------- Net earnings (loss) . . . . . . . . . $ (68,958) $ (39,570) $ (98,108) $ (41,755) $ 349 ========= ========= ========= ========= ========= Balance Sheet Data (at end of period): Current assets. . . . . . . . . . . . $ 97,889 $ 107,486 $ 93,534 $ 106,311 $ 71,534 Current liabilities . . . . . . . . . 132,017 140,238 202,194 153,851 185,022 Total assets. . . . . . . . . . . . . 662,674 740,285 897,280 915,487 864,848 Long-term debt. . . . . . . . . . . . 440,219 447,822 500,460 501,083 629,291 Stockholders' equity. . . . . . . . . 31,253 100,051 139,132 246,933 50,535 - ------------------------------------- Reflects a provision of $44.5 million for the year ended October 3, 1993 to cover franchisee settlements and associated costs related to the Outbreak of food-borne illness. Reflects the complete write-down of the Company's $57.2 million investment in Family Restaurants, Inc. for the year ended October 1, 1995. Includes the recognition of an $8 million stockholders' lawsuit settlement for the year ended October 1, 1995.
-10- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Fiscal 1995 Compared to Fiscal 1994. On January 27, 1994, the Company contributed its entire Chi-Chi's Mexican restaurant chain to FRI in exchange for an approximate 39% equity interest in FRI and other consideration including cash, debt assumption and a warrant to acquire additional shares as described in Note 3 to the consolidated financial statements. The 1995 consolidated statements of operations, therefore, do not include Chi-Chi's results of operations and 1994 only includes Chi-Chi's for the first fiscal quarter, while it was a subsidiary of the Company. Revenues increased $89.3 million, or 9.6%, to $1,018.7 million in 1995 from $929.4 million in 1994, excluding Chi-Chi's revenues of $123.9 million in the first quarter of 1994. Jack In The Box Company-operated restaurants sales increased $84.3 million, or 11.7%, to $804.1 million in 1995 from $719.8 million in 1994 due to increases in both the average number of restaurants and in per store average sales. The average number of Company-operated restaurants increased to 839 in 1995 from 761 in 1994, reflecting the addition of 21 new restaurants and the acquisition of 42 restaurants from franchisees during the fiscal year. Per store average sales for comparable restaurants ("PSA"), which increased 3.5% in 1995 as compared to 1994, were strengthened by the execution of the Company's marketing strategies, including a new advertising campaign, successful new product introductions and aggressive value-priced product alternatives. Chi-Chi's restaurant sales were $123.2 million in the first quarter of 1994. Distribution sales of food and supplies increased $8.0 million to $179.7 million in 1995 from $171.7 million in 1994 primarily due to the inclusion of sales to Chi-Chi's restaurants in the first quarter of 1995 and not in the same quarter of 1994. Distribution sales to Chi-Chi's in the first quarter of 1994, while it was a subsidiary of the Company, were eliminated in consolidation. Distribution sales to franchisees and others declined $4.6 million in 1995 as compared to 1994, principally due to a decrease in the average number of franchise-operated restaurants. Jack In The Box franchise rents and royalties decreased $1.1 million to $32.5 million in 1995 from $33.6 million in 1994, reflecting a decrease in the average number of domestic franchise-operated restaurants to 378 in 1995 from 412 in 1994, principally due to the acquisition of franchised restaurants by the Company. Chi-Chi's franchise rents and royalties were $.1 million in the first quarter of 1994. Other revenues for Jack In The Box declined $1.9 million to $2.4 million in 1995 from $4.3 million in 1994 due to higher investment interest income earned in 1994, primarily on the cash proceeds from the sale of Chi-Chi's. Chi-Chi's other revenues were $.5 million in 1994. Jack In The Box restaurant costs of sales increased $14.2 million to $226.1 million in 1995 from $211.9 million in 1994 due to increased Company-operated restaurant sales. Costs of sales decreased 1.3% as a percent of sales to 28.1% in 1995 from 29.4% in 1994 due to the lower food costs of certain promotions and the impact of lower ingredient costs. Chi-Chi's costs of sales were $32.7 million in the first quarter of 1994. Jack In The Box restaurant operating costs increased $33.1 million to $447.7 million in 1995 from $414.6 million in 1994 due to increases in both the average number of Company-operated restaurants and variable costs associated with improved sales volume. Restaurant operating costs declined as a percent of sales in 1995 as compared to 1994 primarily due to lower percentages of restaurant and operations labor and related administrative costs. Chi-Chi's restaurant operating costs were $80.7 million in the first quarter of 1994. Costs of distribution sales increased $9.8 million to $175.6 million in 1995 from $165.8 million in 1994 consistent with the increase in distribution sales. Costs of distribution sales increased as a percent of distribution sales in 1995 as compared to 1994 due to changes in product mix which generated slightly higher product costs. -11- Jack In The Box franchised restaurants costs, which consist of rents and depreciation on properties leased to franchisees and other miscellaneous costs, decreased $.8 million to $21.9 million in 1995 from $22.7 million in 1994, primarily due to the decline in the average number of domestic franchise-operated restaurants in 1995 as compared to 1994. Chi-Chi's franchised restaurants costs were $.1 million in the first quarter of 1994. Jack In The Box selling, general and administrative expenses increased $18.5 million to $110.2 million in 1995 from $91.7 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 8 to the consolidated financial statements. Advertising and promotion costs increased $11.6 million to $77.3 million in 1995 from $65.7 million in 1994 due to aggressive promotional discounting of products and increased advertising in 1995. Chi-Chi's selling, general and administrative expenses were $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, resulting from 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. In 1994 the Company recognized a loss of $2.1 million relating to its 39% equity in the operations of FRI. Subsequent to fiscal year end, the Company transferred its entire equity interest in FRI to Apollo. See Note 3 to the consolidated financial statements. Interest expense decreased $6.7 million to $48.5 million in 1995 from $55.2 million in 1994 due to a reduction in total debt outstanding. With the sale of Chi-Chi's in 1994, the Company eliminated Chi-Chi's debt and used proceeds from the sale to repay the bank credit line, the 13p% Senior Notes and the 12x% 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 in 1994 of $3.0 million rather than a tax benefit. 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 $.6 million (exclusive of $.4 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. Fiscal 1994 Compared to Fiscal 1993. Fiscal 1994 includes 52 weeks; fiscal 1993 includes 53 weeks. As previously indicated, the consolidated statements of operations include Chi-Chi's results of operations only while it was a subsidiary of the Company, which includes the first fiscal quarter of 1994 and all of fiscal 1993 . Sales by Jack In The Box Company-operated restaurants increased $36.0 million, or 5.3%, to $719.8 million in 1994 from $683.8 million in 1993, principally due to an increase in the average number of Company-operated restaurants to 761 in 1994 from 717 in 1993, partially offset by the inclusion of an additional week of sales in 1993. The increase in average number of Company-operated restaurants was principally due to opening 54 new Company restaurants and acquiring 44 restaurants from franchisees. PSA sales for comparable restaurants increased approximately 2.7% in 1994 as compared to 1993, as sales recovered from the depressed levels subsequent to January 1993 when Jack In The Box was linked to an outbreak of food-borne illness. Chi-Chi's sales included in the consolidated financial statements were $123.2 million in 1994 and $404.5 million in 1993. Distribution sales of food and supplies to franchisees and others increased $63.2 million to $171.7 million in 1994 from $108.5 million in 1993 primarily due to the recognition of $63.6 million in sales to Chi-Chi's subsequent to its sale to FRI in January 1994. Distribution sales to Chi-Chi's while it was a subsidiary of the Company were previously eliminated in consolidation. -12- Jack In The Box franchise rents and royalties decreased to $33.6 million in 1994 from $34.0 million in 1993. PSA increases at franchise-operated restaurants were more than offset by a decline in the average number of domestic franchise-operated restaurants to 412 in 1994 from 439 in 1993, which was principally due to the purchase by the Company of 44 franchised restaurants. Chi-Chi's franchise rents and royalties included in the consolidated financial statements were $.1 million in 1994 and $1.2 million in 1993. Other revenues for Jack In The Box increased to $4.3 million in 1994 from $4.1 million in 1993. The increase is principally due to a $2.2 million increase in interest earned on cash proceeds from the sale of Chi-Chi's, offset by a $2.1 million decline in gains and fees realized from the conversion of Company-operated Jack In The Box restaurants to franchises, which decreased to 4 in 1994 from 11 in 1993. Chi-Chi's other revenues included in the consolidated financial statements were $.5 million in 1994 and $4.6 million in 1993. Jack In The Box restaurant costs of sales increased $10.9 million, or 5.4%, to $211.9 million in 1994 from $201.0 million in 1993, principally due to the increase in restaurant sales. Restaurant costs of sales were 29.4% of restaurant sales in both 1994 and 1993. Chi-Chi's restaurant costs of sales included in the consolidated financial statements were $32.7 million in 1994 and $106.9 million in 1993. Jack In The Box restaurant operating costs increased $23.9 million, or 6.1%, to $414.6 million in 1994 from $390.7 million in 1993, primarily due to the increase in the average number of Company-operated restaurants, variable costs associated with increased sales in 1994, and in part due to increased occupancy costs. Chi-Chi's restaurant operating costs included in the consolidated financial statements were $80.7 million in 1994 and $253.7 million in 1993. Costs of distribution sales increased $61.0 million to $165.8 million in 1994 from $104.8 million in 1993, consistent with the increase in distribution sales. Jack In The Box franchised restaurant costs, which normally consist of rents and depreciation on properties leased to franchisees and other miscellaneous costs, decreased $44.4 million to $22.7 million in 1994 from $67.1 million in 1993, principally due to the inclusion in 1993 of $44.5 million of settlements and assistance provided to franchisees as described in Note 8 to the consolidated financial statements. Chi-Chi's franchised restaurant costs included in the consolidated financial statements were $.1 million in 1994 and $.6 million in 1993. Selling, general and administrative expenses for Jack In The Box decreased to $91.7 million in 1994 from $93.2 million in 1993, principally due to a $5.7 million gain recognized from the sale of Chi-Chi's. Expenses in 1994 also reflect the recognition of (1) a charge of $3.5 million principally for the write-down of assets to net realizable values and providing for costs of closing seven older, under-performing restaurants with short remaining lease terms, (2) $2.0 million in severance expenses and associated costs resulting from the elimination of approximately 80 administrative positions, and (3) $1.1 million for write-offs principally associated with replacement of signs at substantially all of the Company-operated restaurants in conjunction with the exterior enhancement project. Chi-Chi's selling, general and administrative expenses included in the consolidated financial statements were $9.1 million in 1994 and $31.2 million in 1993. The Company recognized a loss of $2.1 million relating to its 39% equity in the operations of FRI for the eight months from January 27, 1994, the date of FRI's acquisition, through September 25, 1994, the end of FRI's third quarter. See Note 3 to the consolidated financial statements. Interest expense decreased $2.4 million to $55.2 million in 1994 from $57.6 million in 1993 due to the repayment of $79 million of bank debt offset partially by the addition of an approximate $70 million finance lease obligation. Considering the sale of Chi-Chi's combined with the Company's losses, the rules under SFAS 109 required the Company to provide in 1994 a non-cash valuation allowance of approximately $14 million for previously recognized -13- tax benefits, resulting in an income tax expense rather than a tax benefit, associated with the Company's loss for 1994. The Company incurred an extraordinary loss of $5.1 million, less currently recognizable income tax benefits of $1.8 million, on the early extinguishment of debt. The Company utilized cash proceeds from the sale of Chi-Chi's to repay all of the debt outstanding under its then existing bank credit facility, which was terminated, and all of the remaining 13p% Senior Notes. Liquidity and Capital Resources 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 October 1, 1995, the Company's working capital deficit had increased slightly to $34.1 million from $32.8 million at October 2, 1994. 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 food and 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 October 1, 1995, the Company had $35.9 million in cash on hand. At October 1, 1995, the Company's total debt outstanding was $442.1 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 and fund certain capital expenditures. 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 then existing bank credit facility. On July 26, 1994, the Company entered into a revolving bank credit agreement, expiring July 26, 1997, 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 October 1, 1995, the Company had a total of approximately $46.9 million of unused credit available 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. Substantially all of the Company's real estate and machinery and equipment is, and is expected to continue to be, pledged to its lenders. Based upon current levels of operations and anticipated growth, the Company expects that sufficient cash flow will be generated from operations so that, combined with other financing alternatives available to it, including the 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. On August 7, 1992, the Board of Directors of the Company authorized the purchase of up to 2 million shares of the Company's outstanding common stock in the open market, for an aggregate amount not to exceed $20 million. At October 1, 1995, the Company had acquired 1,412,654 shares for an aggregate cost of $14.5 million, none of which were acquired in 1995. -14- Seasonality The Company's restaurant sales and profitability are subject to seasonal fluctuations and are traditionally higher during the spring and summer months because of factors such as increased travel and improved weather conditions which affect the public's dining habits. New Accounting Standards In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. ("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", effective for fiscal years beginning after December 15, 1995. SFAS 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company does not believe, based on current circumstances, the effect of adoption of SFAS 121 will be material. In October 1995, the Financial Accounting Standards Board issued SFAS 123, "Accounting for Stock-Based Compensation", effective for fiscal years beginning after December 15, 1995. SFAS 123 establishes the fair value based method of accounting for stock-based compensation arrangements, under which compensation cost is determined using the fair value of the stock option at the grant date and the number of options vested, and is recognized over the periods in which the related services are rendered. If the Company were to retain its current intrinsic value based method, as allowed by SFAS 123, it will be required to disclose the pro forma effect of adopting the fair value based method. To date, the Company has not made a decision to adopt the fair value based method. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and related financial information required to be filed are indexed on page F-1 and are incorporated herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. -15- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table provides certain information about each of the Company's current directors and executive officers as of January 1996: Name Age Position with the Company(6) ---- --- ---------------------------- Jack W. Goodall(1) 57 Chairman of the Board, Chief Executive Officer and President Robert J. Nugent 54 Executive Vice President; President and Chief Operating Officer of Jack In The Box Division and Director Charles W. Duddles 55 Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Director Kenneth R. Williams 53 Senior Vice President; Executive Vice President-Marketing and Operations of Jack In The Box Division William E. Rulon 63 Senior Vice President and Secretary Don Blough 48 Vice President, Management Information Systems Bruce N. Bowers 49 Vice President, Purchasing and Distribution Carlo Cetti 51 Vice President, Human Resources and Strategic Planning Bradley R. Haley 37 Vice President; Vice President-Marketing Communications of Jack In The Box Division William F. Motts 52 Vice President; Vice President- Restaurant Development of Jack In The Box Division Paul L. Schultz 41 Vice President; Vice President- Operations of Jack In The Box Division David Theno 45 Vice President, Quality Assurance, Research and Development, and Product Safety Darwin J. Weeks 49 Vice President, Controller and Chief Accounting Officer Michael E. Alpert(5) 53 Director Paul T. Carter(2)(5) 73 Director Edward Gibbons(1)(2)(3)(4)(5) 59 Director Leonard I. Green(1)(2)(3)(4) 62 Director L. Robert Payne(1)(2)(4)(5) 62 Director Christopher V. Walker 49 Director - ------------------------------------ (1) Member of the Executive Committee. (2) Member of the Audit Committee. (3) Member of the Stock Option and Compensation Committee. (4) Member of the Investment Committee. (5) Member of the Corporate Oversight Committee. (6) Directors and officers are elected annually. Each director and officer holds his office until his successor has been elected and qualified or until he resigns or is removed. -16- Mr. Goodall has been President of the Company since April 1970, Chief Executive Officer of the Company since February 1979 and Chairman since October 1985. He was a director of Grossmont Bank, a wholly-owned subsidiary of Bancomer, S.A., from 1980 until October 1995, and has been a director of Van Camp Seafood Company, Inc. since April 1992 and a director of TCH Corp. since October 1992. He has been a director of Ralcorp Holdings, Inc. since March 1994 and was a Vice President of Ralston Purina Company from July 1981 to October 1985. Mr. Nugent has been Executive Vice President of the Company since February 1985 and President and Chief Operating Officer of the Jack In The Box Division of the Company since May 1988. He was Executive Vice President-Operations and Marketing from February 1985 to May 1988. He was previously Division Vice President of the Company from August 1979 to April 1982 and Corporate Vice President-Restaurant Operations from April 1982 through January 1985. He has been a director since February 1988. Mr. Duddles has been Executive Vice President and Chief Administrative Officer of the Company since May 1988. He has been Chief Financial Officer of the Company since October 1985 and was Senior Vice President from October 1985 to May 1988. He was previously Vice President and Controller of the Company from August 1979 to July 1981 and Senior Vice President, Finance and Administration from August 1981 to October 1985. He has been a director since February 1988. Mr. Williams has been Senior Vice President of the Company since January 1993 and Executive Vice President of Marketing and Operations, Jack In The Box Division since November 1994. He was Executive Vice President of Operations, Jack In The Box Division from May 1988 until November 1994. He was temporarily President and Chief Executive Officer of Chi-Chi's from June 1992 to January 1993. He was previously Vice President of the Company and Vice President, Operations-Division I from January 1985 to May 1988. He was a Zone Manager from August 1979 to May 1981 and Division Vice President and Zone General Manager from May 1981 through January 1985. Mr. Rulon has been Senior Vice President and Secretary of the Company since October 1985 and was previously Secretary and Treasurer of the Company from March 1976 to July 1981 and Senior Vice President, Secretary and Treasurer from July 1981 to October 1985. Mr. Rulon is also a trustee of Income Managers Trust, Neuberger & Berman Income Funds and Neuberger & Berman Income Trust. Mr. Blough has been Vice President, Management Information Systems of the Company since August 1993 and was previously Division Vice President, Systems Development from June 1990 to August 1993 and Director of Systems Development and POS Support from December 1984 to June 1990. Mr. Bowers has been Vice President, Purchasing and Distribution of the Company, since April 1982 and previously held various other positions with the Company relating to manufacturing, purchasing and distribution from September 1975 to April 1982. Mr. Cetti has been Vice President, Human Resources and Strategic Planning of the Company since March 1994. He was previously Vice President, Training and Risk Management, from December 1992 to March 1994, Division Vice President, Training and Risk Control from October 1991 to December 1992 and Director of Management and Franchise Training from April 1981 to October 1991. Mr. Haley has been a Vice President of the Company and Vice President of Marketing Communications of Jack In The Box Division since February 1995 and was previously Division Vice President, Marketing Communications from October 1992 until February 1995. Prior to joining Foodmaker, he was a marketing consultant, principally on the development of new retail food products, from November 1991 to October 1992. Previously, he was a marketing manager for the California State Lottery from April 1989 to November 1991. Mr. Motts has been Vice President of the Company and Vice President of Restaurant Development of Jack In The Box Division since September 1988 and was previously Director, Restaurant Construction from April 1983 to August 1984 and Division Vice President, Restaurant Construction from August 1984 through August 1988. -17- Mr. Schultz has been Vice President of the Company since May 1988 and Vice President of Operations, Jack In The Box Division since November 1994. He was Vice President of Domestic Franchising, Jack In The Box Division from October 1993 until November 1994. He was previously Vice President of Jack In The Box Operations-Division I from May 1988 to October 1993, temporarily Vice President of Jack In The Box Operations and Domestic Franchising from June 1992 to January 1993, Regional Manager of Los Angeles from August 1985 to May 1988, and Regional Manager of San Diego from January 1985 to August 1985. Dr. Theno has been Vice President, Quality Assurance, Research and Development, and Product Safety of the Company since April 1994. He was Vice President, Quality Assurance and Product Safety from March 1993 to April 1994. Prior to joining Foodmaker, he was previously Managing Director and Chief Executive Officer of Theno & Associates, Inc., an agribusiness consulting firm, from January 1990 to March 1993 and Director of Technical Services for Foster Farms from March 1982 to December 1989. Mr. Weeks has been Vice President, Controller and Chief Accounting Officer of the Company since August 1995 and was previously Division Vice President and Assistant Controller for the Company from April 1982 through July 1995. Mr. Alpert has been a director of the Company since August 1992. Mr. Alpert was a partner in the San Diego Office of the law firm of Gibson, Dunn & Crutcher for more than 5 years prior to his retirement on August 1, 1992. He is currently Advisory Counsel to Gibson, Dunn & Crutcher. Gibson, Dunn & Crutcher provides legal services from time to time to the Company. Mr. Carter has been a director of the Company since June 1991. Mr. Carter has been an insurance consultant for the Government Division of Corroon & Black Corporation since February 1987. From February 1987 until December 1990, he was also a consultant to the San Diego Unified School District on insurance matters. He retired in February 1987 as Chairman and Chief Executive Officer of Corroon & Black Corporation, Southwestern Region and as Director and Senior Vice President of Corroon & Black Corporation, New York. Mr. Gibbons has been a director of the Company since October 1985 and has been a general partner of Gibbons, Goodwin, van Amerongen ("GGvA"), successor to Gibbons, Green, van Amerongen ("Gibbons Green"), an investment banking firm specializing in management buyouts, for more than five years preceding the date hereof. Mr. Gibbons is also a director of Robert Half International, Inc. Mr. Green has been a director of the Company since October 1985 and has been a general partner of Leonard Green & Partners, an investment firm, since June 1989. Until June 28, 1989 and for more than five years preceding that date, he was a partner of Gibbons Green. Mr. Green is also a director of Horace Mann Companies, Kash n' Karry Food Stores, Inc., Australian Resources N.L., Carr-Gottstein Foods Co., Thrifty Payless, Inc. and United Merchandising Corp. Mr. Payne has been a director of the Company since August 1986, having served as a consultant to the Board of Directors since November 1985. He was Chairman of the Board of Grossmont Bank, a wholly-owned subsidiary of Bancomer, S.A., from February 1974 until October 1995, and President and Chief Executive Officer of Multi-Ventures, Inc. since February 1976. Multi-Ventures, Inc. is a real estate development and investment company that is also the managing partner of the San Diego Mission Valley Hilton. He was a principal in the Company prior to its acquisition by its former parent Ralston Purina Company in 1968. Mr. Walker has been a director of the Company since February 1988. Mr. Walker has been a Managing Director of Trust Company of the West since April 1995. He was a general partner of Leonard Green & Partners, an investment firm from September 1989 until March 1995. He was associated with Gibbons Green from November 1985 and was a partner thereof from January 1989 until September 1989. Prior to joining Gibbons Green, Mr. Walker worked from March 1984 to October 1985 for Zimmerman Holdings, Inc., a California based private holding company engaged in the acquisition and operation of manufacturing companies. -18- That portion of Foodmaker's definitive Proxy Statement appearing under the captions "Information About the Board of Directors and Committees of the Board" and "Nonconforming Securities and Exchange Commission Filings" to be filed with the Commission pursuant to Regulation 14A within 120 days after October 1, 1995 and to be used in connection with its 1996 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION That portion of Foodmaker's definitive Proxy Statement appearing under the caption "Executive Compensation" to be filed with the Commission pursuant to Regulation 14A within 120 days after October 1, 1995 and to be used in connection with its 1996 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT That portion of Foodmaker's definitive Proxy Statement appearing under the caption "Security Ownership of Certain Beneficial Owners and Management" to be filed with the Commission pursuant to Regulation 14A within 120 days after October 1, 1995 and to be used in connection with its 1996 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS That portion of Foodmaker's definitive Proxy Statement appearing under the caption "Certain Transactions" to be filed with the Commission pursuant to Regulation 14A within 120 days after October 1, 1995 and to be used in connection with its 1996 Annual Meeting of Stockholders is hereby incorporated by reference. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ITEM 14(a)(1) Financial Statements. See the index to consolidated financial statements on page F-1 of this report. ITEM 14(a)(2) Financial Statement Schedules. Not applicable. -19- ITEM 14(a)(3) Exhibits. Number Description - ------ ----------- 3.1 Restated Certificate of Incorporation(4) 3.2 Restated Bylaws(4) 4.1 Warrant Agreement dated as of December 8, 1988, by and among PDV Holding, Inc., Foodmaker, Inc., Fulcrum III Limited Partnership and State Street Bank and Trust Company(2) 4.2 Indenture for the 9 1/4% Senior Notes due 1999(6) 4.3 Indenture for the 9 3/4% Senior Subordinated Notes due 2002(6) (Instruments with respect to the registrant's long-term debt not in excess of 10% of the total assets of the registrant and its subsidiaries on a consolidated basis have been omitted. The registrant agrees to furnish supplementally a copy of any such instrument to the Commission upon request.) 10.1 Revolving Credit Agreement dated as of July 26, 1994, among Foodmaker, Inc. and the Banks and Agents, as defined therein(8) 10.1.1 First Amendment dated as of December 14, 1994 to the Revolving Credit Agreement dated as of July 26, 1994 among Foodmaker, Inc. and the Banks and Agents, as defined therein(8) 10.1.2 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(9) 10.1.3 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(9) 10.1.4 Waiver and Amendment dated as of November 20, 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 Purchase Agreements dated as of January 22, 1987 between Foodmaker, Inc. and FFCA/IIP 1985 Property Company and FFCA/IIP 1986 Property Company(1) 10.3 Land Purchase Agreements dated as of February 18, 1987, by and between Foodmaker, Inc. and FFCA/IPI 1984 Property Company and FFCA/IPI 1985 Property Company and Letter Agreement relating thereto(1) 10.4 1992 Employee Stock Incentive Plan(5) 10.5 Capital Accumulation Plan for Executives(3) 10.6 Supplemental Executive Retirement Plan(3) 10.7 Performance Bonus Plan(7) 10.8 Deferred Compensation Plan for Non-Management Directors(10) 10.9 Non-Employee Director Stock Option Plan(10) 10.10 Exchange Agreement dated as of November 20, 1995, by and between Foodmaker, Inc. and Apollo FRI Partners, L.P. 21 Subsidiaries(3) 23.1 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule (included only with electronic filing) - ------------ (1) Previously filed and incorporated herein by reference from registrant's Registration Statement on Form S-1 (No. 33-10763) filed February 24, 1987. (2) Previously filed and incorporated herein by reference from Amendment No. 2 to registrant's Registration Statement on Form S-1 (No. 33-27670) filed June 30, 1989. (3) Previously filed and incorporated herein by reference from registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1990. (4) Previously filed and incorporated herein by reference from Amendment No. 1 to registrant's Registration Statement on Form S-1 (No. 33-44198) filed February 3, 1992. (5) Previously filed and incorporated herein by reference from registrant's Quarterly Report on Form 10-Q for the quarter ended January 19, 1992. -20- Number Description - ------ ----------- (6) Previously filed and incorporated herein by reference from registrant's Quarterly Report on Form 10-Q for the quarter ended April 12, 1992. (7) Previously filed and incorporated herein by reference from registrant's Annual Report on form 10-K for the fiscal year ended September 27, 1992. (8) Previously filed and incorporated herein by reference from registrant's Annual Report on Form 10-K for the fiscal year ended October 2, 1994. (9) Previously filed and incorporated herein by reference from registrant's Quarterly Report on Form 10-Q for the quarter ended January 22, 1995. (10) Previously filed and incorporated herein by reference from registrant's Definitive Proxy Statement dated January 17, 1995 for the Annual Meeting of Stockholders on February 17, 1995. ITEM 14(b) The Company did not file any reports on Form 8-K with the Securities and Exchange Commission during the fourth quarter ended October 1, 1995. ITEM 14(c) All required exhibits are filed herein or incorporated by reference as described in Item 14(a)(3). ITEM 14(d) All supplemental schedules are omitted as inapplicable or because the required information is included in the consolidated financial statements or notes thereto. -21- SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) 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. FOODMAKER, INC. By: JACK W. GOODALL ------------------------- Jack W. Goodall Chairman of the Board, Chief Executive Officer and President Date: December 28, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date JACK W. GOODALL Chairman of the Board, Chief December 28, 1995 - ---------------------- Executive Officer and President Jack W. Goodall (Principal Executive Officer) CHARLES W. DUDDLES Executive Vice President, Chief December 28, 1995 - --------------------- Administrative Officer, Chief Charles W. Duddles Financial Officer and Director (Principal Financial Officer) DARWIN J. WEEKS Vice President, Controller and December 28, 1995 - --------------------- Chief Accounting Officer Darwin J. Weeks (Principal Accounting Officer) ROBERT J. NUGENT Executive Vice President, December 28, 1995 - --------------------- President and Chief Operating Robert J. Nugent Officer of Jack In The Box Division and Director MICHAEL E. ALPERT Director December 28, 1995 - --------------------- Michael E. Alpert PAUL T. CARTER Director December 28, 1995 - --------------------- Paul T. Carter -22- EDWARD GIBBONS - --------------------- Director December 28, 1995 Edward Gibbons - --------------------- Director December , 1995 Leonard I. Green L. ROBERT PAYNE Director December 28, 1995 - --------------------- L. Robert Payne CHRISTOPHER V. WALKER Director December 28, 1995 - --------------------- Christopher V. Walker -23- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Foodmaker, Inc. and Subsidiaries Consolidated Financial Statements for the 52-week periods ended October 1, 1995 and October 2, 1994, and the 53-week period ended October 3, 1993. Page ---- Independent Auditors' Report . . . . . . . . . . . F-2 Consolidated Balance Sheets. . . . . . . . . . . . F-3 Consolidated Statements of Operations. . . . . . . F-5 Consolidated Statements of Cash Flows. . . . . . . F-6 Consolidated Statements of Stockholders' Equity. . F-7 Notes to Consolidated Financial Statements . . . . F-8 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors Foodmaker, Inc.: We have audited the accompanying consolidated balance sheets of Foodmaker, Inc. and subsidiaries as of October 1, 1995 and October 2, 1994, and the related consolidated statements of operations, cash flows and stockholders' equity for the fifty-two weeks ended October 1, 1995 and October 2, 1994, and the fifty-three weeks ended October 3, 1993. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Foodmaker, Inc. and subsidiaries as of October 1, 1995 and October 2, 1994, and the results of their operations and their cash flows for the fifty-two weeks ended October 1, 1995 and October 2, 1994, and the fifty-three weeks ended October 3, 1993, in conformity with generally accepted accounting principles. As discussed in Notes 2, 7 and 10 to the consolidated financial statements, the Company changed its methods of accounting for postretirement benefits and income taxes to adopt the provisions of the Financial Accounting Standards Board's Statements of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and No. 109, "Accounting for Income Taxes" in 1993. KPMG PEAT MARWICK LLP San Diego, California November 7, 1995, except for the last paragraph of Note 3, which is as of November 20, 1995 F-2 FOODMAKER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) ASSETS October 1, October 2, 1995 1994 ---------- ---------- Current assets: Cash and cash equivalents. . . . . . . . . . . . . . $ 35,865 $ 35,965 Receivables, including notes receivable of $5,698 and $6,772, less allowance for doubtful accounts of $4,531 and $4,173, respectively. . . . 25,272 31,167 Inventories. . . . . . . . . . . . . . . . . . . . . 22,385 25,319 Prepaid expenses . . . . . . . . . . . . . . . . . . 14,367 15,035 ------- ------- Total current assets. . . . . . . . . . . . . . 97,889 107,486 ------- ------- Investment in FRI. . . . . . . . . . . . . . . . . . . - 57,188 ------- ------- Trading area rights, net of accumulated amortization of $15,618 and $12,775, respectively. . 69,761 62,932 ------- ------- Lease acquisition costs, net of accumulated amortization of $18,580 and $16,096, respectively. . 25,003 27,660 ------- ------- Other assets, net of accumulated amortization of $16,316 and $17,774, respectively. . 36,310 46,041 ------- ------- Property at cost: Land . . . . . . . . . . . . . . . . . . . . . . . . 90,594 90,036 Buildings. . . . . . . . . . . . . . . . . . . . . . 287,265 264,560 Restaurant and other equipment . . . . . . . . . . . 201,240 180,115 Construction in progress . . . . . . . . . . . . . . 10,543 39,874 ------- ------- 589,642 574,585 Accumulated depreciation and amortization. . . . . . (155,931) (135,607) ------- ------- 433,711 438,978 ------- ------- $662,674 $740,285 ======= ======= See accompanying notes to consolidated financial statements. F-3 FOODMAKER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) LIABILITIES AND STOCKHOLDERS' EQUITY October 1, October 2, 1995 1994 ---------- ---------- Current liabilities: Current maturities of long-term debt . . . . . . . . $ 1,836 $ 1,346 Accounts payable . . . . . . . . . . . . . . . . . . 32,015 36,915 Accrued payroll and related taxes. . . . . . . . . . 26,372 22,101 Other accrued taxes. . . . . . . . . . . . . . . . . 9,922 9,713 Accrued advertising. . . . . . . . . . . . . . . . . 7,487 9,050 Accrued insurance. . . . . . . . . . . . . . . . . . 32,406 25,533 Accrued interest . . . . . . . . . . . . . . . . . . 10,437 10,932 Other accrued expenses . . . . . . . . . . . . . . . 11,542 24,648 ------- ------- Total current liabilities . . . . . . . . . . . . 132,017 140,238 ------- ------- Deferred income taxes. . . . . . . . . . . . . . . . . 9,586 5,062 Long-term debt, net of current maturities. . . . . . . 440,219 447,822 Other long-term liabilities. . . . . . . . . . . . . . 49,599 47,112 Stockholders' equity: Preferred stock, $.01 par value, 15,000,000 shares authorized, none issued . . . . . . . . . . . . . - - Common stock, $.01 par value, voting shares, 75,000,000 authorized, 40,214,849 and 40,080,854 issued, respectively . . . . . . . 402 401 Capital in excess of par value . . . . . . . . . . . 280,996 280,837 Accumulated deficit. . . . . . . . . . . . . . . . . (235,682) (166,724) Treasury stock, at cost, 1,412,654 shares. . . . . . (14,463) (14,463) ------- ------- Total stockholders' equity. . . . . . . . . . . . 31,253 100,051 ------- ------- $662,674 $740,285 ======= ======= See accompanying notes to consolidated financial statements. F-4 FOODMAKER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Fifty-two Fifty-two Fifty-three weeks ended weeks ended weeks ended October 1, October 2, October 3, 1995 1994 1993 --------- --------- --------- Revenues: Restaurant sales . . . . . . . . . . . . $ 804,084 $ 843,038 $1,088,269 Distribution sales . . . . . . . . . . . 179,689 171,711 108,546 Franchise rents and royalties. . . . . . 32,530 33,740 35,232 Other. . . . . . . . . . . . . . . . . . 2,413 4,837 8,680 --------- --------- --------- 1,018,716 1,053,326 1,240,727 --------- --------- --------- Costs and expenses: Costs of revenues: Restaurant costs of sales . . . . . . 226,139 244,560 307,940 Restaurant operating costs. . . . . . 447,656 495,340 644,434 Costs of distribution sales . . . . . 175,611 165,789 104,817 Franchised restaurants costs. . . . . 21,929 22,822 67,727 Selling, general and administrative. . . 110,188 100,764 124,422 Equity in loss of FRI. . . . . . . . . . 57,188 2,108 - Interest expense . . . . . . . . . . . . 48,463 55,201 57,586 --------- --------- --------- 1,087,174 1,086,584 1,306,926 --------- --------- --------- Loss before income taxes, extraordinary item and cumulative effect of changes in accounting principles . . . . . . . . (68,458) (33,258) (66,199) Income taxes (benefit) . . . . . . . . . . 500 3,010 (22,071) --------- --------- --------- Loss before extraordinary item and cumulative effect of changes in accounting principles . . . . . . . . (68,958) (36,268) (44,128) Extraordinary item - loss on early extinguishment of debt, net of taxes . . - (3,302) - Cumulative effect on prior years of adopting SFAS 106 and SFAS 109 . . . . . - - (53,980) --------- --------- --------- Net loss . . . . . . . . . . . . . . . . . $ (68,958) $ (39,570) $ (98,108) ========= ========= ========= Loss per share - primary and fully diluted: Loss before extraordinary item and cumulative effect of changes in accounting principles . . . . . . . $ (1.77) $ (.94) $ (1.15) Extraordinary item . . . . . . . . . . . - (.09) - Cumulative effect on prior years of adopting SFAS 106 and SFAS 109 . . . . - - (1.40) --------- --------- --------- Net loss per share . . . . . . . . . . . $ (1.77) $ (1.03) $ (2.55) ========= ========= ========= Weighted average shares outstanding. . . . 38,915 38,531 38,486 See accompanying notes to consolidated financial statements. F-5 FOODMAKER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands, except per share data) Fifty-two Fifty-two Fifty-three weeks ended weeks ended weeks ended October 1, October 2, October 3, 1995 1994 1993 --------- --------- --------- Cash flows from operations: Net loss excluding extraordinary item. . $ (68,958) $ (36,268) $ (98,108) Non-cash items included in operations: Depreciation and amortization . . . . 35,837 39,925 53,499 Deferred finance cost amortization. . 2,467 2,685 3,200 Deferred income taxes . . . . . . . . 4,524 4,535 (23,905) Equity in loss of FRI . . . . . . . . 57,188 2,108 - Cumulative effect of accounting changes. . . . . . . . . . . . . . . - - 53,980 Decrease (increase) in receivables . . . 5,895 (3,373) 6,442 Decrease (increase) in inventories . . . 2,934 194 (5,646) Increase in prepaid expenses . . . . . . (985) (196) (2,200) Increase (decrease) in accounts payable. (4,900) 16,375 (1,659) Increase (decrease) in other accrued liabilities . . . . . . . . . . . . . . (458) 3,417 40,067 --------- --------- --------- Cash flows from operations. . . . . 33,544 29,402 25,670 --------- --------- --------- Cash flows from investing activities: Additions to property and equipment. . . (27,033) (92,037) (46,269) Disposition of property and equipment. . 4,416 3,374 6,162 Increase in trading area rights. . . . . (9,745) (9,915 (1,289) Investment in FRI, net . . . . . . . . . - (59,296) - Disposition of Chi-Chi's . . . . . . . . - 214,551 - Acquisition of Consul. . . . . . . . . . - - (8,700) Other. . . . . . . . . . . . . . . . . . 6,538 (2,641) (8,830) --------- --------- --------- Cash flows provided (used) by investing activities . . . . . . . (25,824) 54,036 (58,926) --------- --------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt 900 82,519 2,283 Principal payments on long-term debt, including current maturities. . . . . . (8,385) (113,033) (25,015) Borrowings under revolving bank loans. . 29,000 5,000 30,000 Principal repayments under revolving bank loans. . . . . . . . . . . . . . . (29,000) (35,000) - Extraordinary loss on retirement of debt, net of taxes. . . . . . . . . . . - (3,302) - Increase (decrease) in accrued interest. (495) 1,678 (1,875) Proceeds from issuance of common stock . 160 489 1,171 Repurchase of common stock . . . . . . . - - (10,929) Payments on stockholder notes. . . . . . - - 65 Proceeds from sale and leaseback transactions. . . . . . . . . . . . . . - 9,695 22,035 Cash flows provided (used) by financing activities . . . . . . . (7,820) (51,954) 17,735 --------- --------- --------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . $ (100) $ 31,484 $ (15,521) ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized. $ 46,491 $ 51,242 $ 56,070 Income tax payments (refunds), net. . (6,403) (275) 4,837 Noncash investing and financing activities: Increase in property and intangible assets due to change in accounting for income taxes. . . . . . . . . . . . $ - $ - $ 16,401 See accompanying notes to consolidated financial statements. F-6 FOODMAKER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands, except per share data)
Capital in excess Notes Common stock of par Accumulated Treasury receivable- Shares Amount value deficit stock stockholders Total ---------- ------ -------- -------- ------- ------------ ------ Balance at September 27, 1992 38,505,500 $ 385 $279,193 $ (29,046) $ (3,534) $ (65) $246,933 Exercise of stock options and warrants 1,141,404 11 1,160 - - - 1,171 Payments on stockholder notes - - - - - 65 65 Purchases of treasury stock - - - - (10,929) - (10,929) Net loss of the Company - - - (98,108) - - (98,108) ---------- ---- ------- -------- ------- ----- ------- Balance at October 3, 1993 39,646,904 396 280,353 (127,154) (14,463) - 139,132 Exercise of stock options and warrants 433,950 5 484 - - - 489 Net loss of the Company - - - (39,570) - - (39,570) ---------- ---- ------- -------- ------- ----- ------- Balance at October 2, 1994 40,080,854 401 280,837 (166,724) (14,463) - 100,051 Exercise of stock options and warrants 133,995 1 159 - - - 160 Net loss of the Company - - - (68,958) - - (68,958) ---------- ---- ------- -------- ------- ----- ------- Balance at October 1, 1995 40,214,849 $ 402 $280,996 $(235,682) $(14,463) $ - $ 31,253 ========== ==== ======= ======== ======= ===== =======
See accompanying notes to consolidated financial statements. F-7 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 1. ORGANIZATION Foodmaker, Inc. (the "Company") operates and franchises Jack in the Box restaurants and formerly operated Chi-Chi's Mexican restaurants ("Chi- Chi's") (see Note 3). The number of restaurants in operation at the end of each fiscal year follows: Jack in the Box Chi-Chi's --------------------- --------- 1995 1994 1993 1993 ---- ---- ---- ---- Operated by the Company. . . . 863 810 725 207 Operated by franchisees. . . . 389 414 447 28 ----- ----- ----- --- System restaurants . . . . . . 1,252 1,224 1,172 235 ===== ===== ===== === 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation and fiscal year - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions are eliminated. Certain financial statement reclassifications have been made in prior years to conform to the 1995 presentation. The Company's fiscal year is 52-53 weeks ending the Sunday closest to September 30. Cash equivalents, for purposes of the statements of cash flows, are considered to be all highly liquid investments with a maturity of three months or less when purchased. Inventories are valued at the lower of cost, which approximates FIFO, or market. Investments - The Company accounts for its 39% investment in Family Restaurants, Inc. ("FRI") using the equity method of accounting. In 1995 the Company completely wrote off its investment in FRI (see Note 3). Trading area rights represent the amount allocated under purchase accounting to reflect the value of operating existing restaurants within their specific trading area and are amortized on a straight-line basis over the period of control of the property, not exceeding 40 years, and are retired when a restaurant is franchised or sold. Lease acquisition costs represent the acquired values of existing lease contracts having lower contractual rents than fair market rents and are amortized over the remaining lease term. Other assets are inclusive of deferred franchise contract costs representing the acquired value of franchise contracts, amortized over the term of the franchise agreement, usually 20 years; deferred finance costs amortized on the interest method over the terms of the respective loan agreements, from 7 to 14 years; and pre-opening costs, consisting primarily of employee training costs incurred before a restaurant opens, which are capitalized and amortized over a one-year period commencing the date a restaurant opens. Cost of business in excess of net assets at acquisition is amortized on a straight-line basis over 40 years. The Company assesses the recoverability of cost of business in excess of net assets at acquisition by determining whether the amortization of the balance over its remaining life can be recovered through projected undiscounted future cash flows. Based on these calculations, the Company has determined that this intangible asset was not impaired at October 1, 1995, October 2, 1994 and October 3, 1993. F-8 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property at cost - Facilities leased under capital leases are stated at the present value of minimum lease payments at the beginning of the lease term, not to exceed fair value. Depreciation is provided on a straight-line basis over the estimated useful lives of the buildings and equipment or over the lease term for certain capital leases (buildings 3% to 6 2/3% per year and restaurant and other equipment 3% to 33 1/3% per year). Expenditures for new facilities and those which substantially increase the useful lives of the property are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and gains or losses on the dispositions are reflected in results of operations. Franchise operations - Franchise fee revenues are recognized when all material services have been performed by the Company. Expenses associated with the issuance of the franchise are charged to expense as incurred. Continuing fees from franchised restaurants, for which the Company is obligated to maintain its restaurant concepts, are recorded as income on an accrual basis. Gains on sales of restaurant businesses to franchisees, including trading area rights and equipment, are recorded as other revenues when the sales are consummated and certain other criteria are met. Income taxes - In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. ("SFAS") 109, "Accounting for Income Taxes". SFAS 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Effective September 28, 1992, the Company adopted SFAS 109 and has reported the cumulative effect of this change in the 1993 consolidated statement of operations. Net earnings (loss) per share for each year is computed based on the average number of common and common equivalent shares outstanding. When dilutive, stock options and warrants are included as share equivalents using the treasury stock method. Primary and fully diluted earnings (loss) per share are not materially different. Stock Options - The Company accounts for stock options under the intrinsic value based method whereby compensation expense is recognized on the difference between the quoted market price of the Company stock at the date of grant and the option price. F-9 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 3. FAMILY RESTAURANTS, INC. On January 27, 1994, Foodmaker, Apollo FRI Partners, L.P. ("Apollo") and Green Equity Investors, L.P. ("GEI"), whose general partner is Leonard Green & Partners, 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 has been terminated, and to reduce other debt, to the extent permitted by the Company's financing agreements, and to provide funds for capital expenditures and general corporate purposes. 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. Summarized financial information through FRI's third quarter ended September 24, 1995, follows: Statement of operations data: Balance sheet data: Sales . . . . . $852,040 Current assets. . . . . $ 38,499 Gross profit. . 42,205 Current liabilities . . 295,106 Net loss. . . . (98,545) Total assets. . . . . . 674,096 Stockholders' deficit . (106,421) Because of FRI's continuing substantial losses and resulting increased borrowing requirements, the major FRI stockholders were required to purchase a participation with respect to any additional advances by the banks to FRI. Rather than become liable for these advances, the Company, by an agreement dated November 20, 1995, transferred all of its stock and warrants to Apollo. Since the Company's investment in FRI was previously written off in fiscal 1995, the consummation of this agreement subsequent to the date of the financial statements will have no effect on the financial condition or results of operations of the Company. F-10 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 4. LONG-TERM DEBT
October 1, October 2, 1995 1994 ------- ------- The detail of long-term debt follows: Senior notes, 9 1/4% interest, due March 1, 1999, redeemable beginning March 1, 1997. . . . . . . . . . . . . . . . $175,000 $175,000 Senior subordinated notes, 9 3/4% interest, due June 1, 2002, redeemable beginning June 1, 1997 . . . . . . . . . . . . . . . . 125,000 125,000 Senior notes, 12 3/4% interest, repaid in full November 3, 1994. . - 7,043 Senior subordinated notes, 14 1/4% interest, due May 15, 1998, redeemable beginning May 15, 1993 . . . . . . . 42,843 42,843 Financing lease obligations, net of discounts of $2,923 reflecting a 10.3% effective interest rate, semi-annual payments of $3,413 and $747 to cover interest and sinking fund requirements, respectively, due in equal installments January 1, 2003 and November 1, 2003. . . . . . . . . . . . . . . . . . . . . . . . . 67,077 66,705 Secured notes, 11 1/2% interest, due in monthly installments through May 1, 2005. . . . . . . . . . . . . . . . . 9,954 10,489 Secured notes, 9 1/2% interest, due in monthly installments through August 1, 2017 . . . . . . . . . . . . . . . 8,580 8,692 Capitalized lease obligations, 11% average interest rate . . . . . 11,127 11,213 Other notes, principally unsecured, 10% average interest rate . . . . . . . . . . . . . . . . . . . . 2,474 2,183 ------- ------- 442,055 449,168 Less current portion . . . . . . . . . . . . . . . . . . . . . . . (1,836) (1,346) ------- ------- $440,219 $447,822 ======= =======
The secured notes and bank loans are secured by substantially all the Company's real and personal property. The Company is subject to a number of covenants under its various credit agreements including limitations on additional borrowing, capital expenditures, lease commitments and dividend payments, and requirements to maintain certain financial ratios, cash flows and net worth. On July 26, 1994, the Company entered into a revolving bank credit agreement, expiring July 26, 1997, 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. The revolving bank loans require the payment of a commitment fee of 1/2% per year of the unused credit line. F-11 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 4. LONG-TERM DEBT (continued) 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. Aggregate maturities and sinking fund requirements on all long-term debt are $1,805, $44,289, $176,566 and $1,725 for the years 1997 through 2000, respectively. Interest capitalized during the construction period of restaurants was $161, $727 and $255 in 1995, 1994 and 1993, respectively. 5. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, trade receivables, trade accounts payable, accrued expenses and notes payable to banks approximate fair values. The fair values of each of the Company's long-term debt instruments are based on quoted market values, where available, or on the amount of future cash flows associated with each instrument discounted using the Company's current borrowing rate for similar debt instruments of comparable maturity. The carrying value and the estimated fair value of the Company's long-term debt at October 1, 1995 are $430,928 and $412,028, respectively. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The Company does not maintain investments or commitments for which the application of SFAS 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," would cause a material effect. F-12 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 6. LEASES As Lessee - The Company leases restaurant and other facilities under leases having terms expiring at various dates through 2046. The leases generally have renewal clauses of 5 to 20 years exercisable at the option of the Company and in some instances have provisions for contingent rentals based upon a percentage of defined revenues. Total rent expense for all operating leases was $75,680, $77,296 and $87,845, including contingent rentals of $2,843, $3,486 and $3,875 in 1995, 1994 and 1993, respectively. Future minimum lease payments under capital and operating leases are as follows: Capital Operating leases leases ------- -------- 1996. . . . . . . . . . . . . . . . . . . . . . . $ 1,729 $ 64,340 1997. . . . . . . . . . . . . . . . . . . . . . . 1,658 61,656 1998. . . . . . . . . . . . . . . . . . . . . . . 1,580 58,047 1999. . . . . . . . . . . . . . . . . . . . . . . 1,538 54,956 2000. . . . . . . . . . . . . . . . . . . . . . . 1,518 49,553 Thereafter. . . . . . . . . . . . . . . . . . . . 16,203 352,726 ------ ------- Total minimum lease payments . . . . . . . . . . . 24,226 $641,278 Less amount representing interest. . . . . . . . . 13,099 ======= ------ Present value of obligations under capital leases. 11,127 Less current portion . . . . . . . . . . . . . . . 484 ------ Long-term capital lease obligation . . . . . . . . $10,643 ====== Building assets recorded under capital leases were $10,248 and $10,464, net of accumulated depreciation of $3,033 and $2,420, as of October 1, 1995 and October 2, 1994, respectively. As Lessor - The Company leases or subleases restaurants to certain franchisees and others under agreements which generally provide for the payment of percentage rentals in excess of stipulated minimum rentals, usually for a period of 20 years. Total rental revenue was $21,309, $21,911 and $26,318, including contingent rentals of $4,763, $4,979 and $8,880 in 1995, 1994 and 1993, respectively. The minimum rents receivable under these non-cancelable leases are as follows: Sales-type Operating leases leases ------- -------- 1996. . . . . . . . . . . . . . . . . . . . . . . $ 44 $ 16,815 1997. . . . . . . . . . . . . . . . . . . . . . . 44 16,128 1998. . . . . . . . . . . . . . . . . . . . . . . 44 15,963 1999. . . . . . . . . . . . . . . . . . . . . . . 44 15,799 2000. . . . . . . . . . . . . . . . . . . . . . . 45 15,434 Thereafter. . . . . . . . . . . . . . . . . . . . 255 104,694 ---- ------- Total minimum future rentals . . . . . . . . . . . 476 $184,833 Less amount representing interest. . . . . . . . . 198 ======= ---- Net investment (included in other assets). . . . . $ 278 ==== Land and building assets held for lease were $67,972 and $76,051, net of accumulated depreciation of $14,862 and $14,664, as of October 1, 1995 and October 2, 1994, respectively. F-13 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 7. INCOME TAXES The Company adopted SFAS 109 as of September 28, 1992. The $43,804 cumulative effect at that date of this change in accounting for income taxes is reported separately in the 1993 consolidated statement of operations. The fiscal year income taxes consist of the following: 1995 1994 1993 --------- --------- --------- Federal - current . . . . . . . . . . . . $ (388) $ (624) $ - - deferred. . . . . . . . . . . . 345 3,236 (21,252) State - current . . . . . . . . . . . . 256 478 1,834 - deferred. . . . . . . . . . . . 287 (1,858) (2,653) ------ ------ ------- Subtotal. . . . . . . . . . . . . . . . . 500 1,232 (22,071) Income tax benefit of extraordinary item. - (1,778) - ------ ------ ------- Income taxes (benefit). . . . . . . . . . $ 500 $ 3,010 $(22,071) ====== ====== ======= A reconciliation of fiscal year income taxes with the amounts computed at the statutory federal rate of 35% follows: 1995 1994 1993 --------- --------- --------- Computed at federal statutory rate. . . . $(23,960) $(11,640) $(23,170) State income taxes (benefits), net of federal effect . . . . . . . . . . . . . 353 (897) (410) Amortization of intangibles . . . . . . . 27 327 1,088 Targeted jobs credit wages. . . . . . . . (733) (742) (585) Addition to valuation allowance . . . . . 26,280 18,520 537 Gain on sale of subsidiary. . . . . . . . - (1,988) - Benefit of reattributed net operating loss carryback . . . . . . . . . . . . . (1,420) - - Other, net. . . . . . . . . . . . . . . . (47) (570) 469 ------ ------ ------- $ 500 $ 3,010 $(22,071) ====== ====== ======= F-14 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 7. INCOME TAXES (continued) The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are presented below: October 1, October 2, 1995 1994 -------- --------- Deferred tax assets: Tax loss and contribution carryforwards and tax credits. . . . . . . . . . . . . . . . . $ 33,387 $ 29,455 Investment in subsidiary. . . . . . . . . . . . . 26,130 3,140 Insurance reserves. . . . . . . . . . . . . . . . 14,393 14,242 Accrued pension and postretirement benefits . . . 9,552 9,649 Accrued vacation pay expense. . . . . . . . . . . 6,029 5,767 Other reserves and allowances . . . . . . . . . . 5,871 7,308 Deferred income . . . . . . . . . . . . . . . . . 3,598 4,190 Other, net. . . . . . . . . . . . . . . . . . . . 2,383 1,511 ------- ------- Total gross deferred tax assets . . . . . . . . 101,343 75,262 Less valuation allowance. . . . . . . . . . . . . (49,507) (23,227) ------- ------- Net deferred tax assets . . . . . . . . . . . . 51,836 52,035 ------- ------- Deferred tax liabilities: Property and equipment, principally due to differences in depreciation. . . . . . . . . . . 43,889 40,960 Intangible assets . . . . . . . . . . . . . . . . 17,059 15,539 Other, net. . . . . . . . . . . . . . . . . . . . 474 598 ------- ------- Total gross deferred liabilities . . . . . . . . 61,422 57,097 ------- ------- Net deferred tax liability . . . . . . . . . . . $ 9,586 $ 5,062 ======= ======= The valuation allowance of $49,507 as of October 1, 1995 represents deferred tax assets that may not be realized by the reversal of future taxable temporary differences. In fiscal 1995, the Company recognized an increase in the valuation allowance of $26,280 related to the write-off of the investment in Family Restaurants, Inc., the SFAS 106 accrual and an adjustment to contributions carryforwards. At October 1, 1995, the Company had federal tax net operating loss carryforwards of approximately $41,294 which expire in 2008 and 2010, and general business credit carryforwards of approximately $10,249, which expire in 2000 through 2010. The Company has alternative minimum tax credit carryforwards of approximately $6,692. The alternative minimum tax credit carryforwards have no expiration date; however, they may only be utilized to reduce any regular tax liability the Company may have in the future. 8. 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. F-15 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 8. 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 were 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 cases have been consolidated and are 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. 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 amount of liability from the claims and actions described above cannot be determined with certainty, but in the opinion of management, based in part upon advice from legal counsel, the ultimate liability from all pending legal proceedings, asserted legal claims and known potential legal claims which are probable of assertion should not materially affect the consolidated financial position of the Company. F-16 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 8. CONTINGENT LIABILITIES (continued) 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 $.6 million (exclusive of $.4 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. RETIREMENT, SAVINGS AND BONUS PLANS The Company has non-contributory defined benefit pension plans covering substantially all salaried and hourly employees meeting certain eligibility requirements. These plans are subject to modification at any time. The plans provide retirement benefits based on years of service and compensation. It is the Company's practice to fund retirement costs as necessary. The components of the fiscal year net defined benefit pension expense is as follows: 1995 1994 1993 --------- --------- --------- Present value of benefits earned during the year. . . . . . . . . . . . . $ 2,303 $ 2,456 $ 2,075 Interest cost on projected benefit obligations. . . . . . . . . . . . . . . 3,355 2,961 2,530 Actual return on plan assets. . . . . . . (3,300) (538) (300) Net amortization. . . . . . . . . . . . . 1,431 (908) (1,203) ------ ------ ------ Net pension expense for the period. . . . $ 3,789 $ 3,971 $ 3,102 ====== ====== ====== The funded status of the plans is as follows:
October 1, 1995 October 2, 1994 Qualified Non-qualified Qualified Non-qualified plans plan plans plan ------ ------ ------ ------ Actuarial present value of benefit obligations: Vested benefits. . . . . . . . . . . . . . . . $(27,598) $(4,154) $(22,871) $(4,178) Nonvested benefits . . . . . . . . . . . . . . (3,723) (1,033) (3,166) (1,169) ------- ------ ------- ------ Accumulated benefit obligation . . . . . . . . (31,321) (5,187) (26,037) (5,347) Effect of future salary increases. . . . . . . (7,527) (2,836) (6,147) (3,773) Projected benefit obligation. . . . . . . . . . (38,848) (8,023) (32,184) (9,120) Plan assets at fair value . . . . . . . . . . . 32,843 - 26,583 - ------- ------ ------- ------ Projected benefit obligations in excess of plan assets. . . . . . . . . . . . . (6,005) (8,023) (5,601) (9,120) Unrecognized prior service cost . . . . . . . . (278) 2,973 267 3,203 Unrecognized net transition obligation. . . . . 56 166 63 193 Unrecognized net (gain) loss. . . . . . . . . . 3,981 (532) 2,158 1,534 ------- ------ ------- ------ Pension liability . . . . . . . . . . . . . . . $ (2,246) $(5,416) $ (3,113) $(4,190) ======= ====== ======= ======
F-17 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 9. RETIREMENT, SAVINGS AND BONUS PLANS (continued) In determining the above information for each period, the Company's actuaries assumed the following:
October 1, 1995 October 2, 1994 Qualified Non-qualified Qualified Non-qualified plans plan plans plan ------ ------ ------ ------ Discount rate . . . . . . . . . . . . . . . . . 7.75% 7.75% 8.25% 7.25% Rate of increase in compensation levels . . . . 5.00% 5.00% 5.50% 5.00% Long-term rate of return on assets. . . . . . . 8.50% N/A 8.00% N/A
Assets of the qualified plans consist primarily of listed stocks and bonds. The Company maintains savings plans which are organized under Section 401(k) of the Internal Revenue Code, which allow non-executive administrative and clerical employees who have completed at least one year of service or reached age 21, whichever is later, to defer up to 12% of their pay on a pre-tax basis. The Company contributes an amount equal to 50% of the first 4% of compensation that is deferred by the participant. The Company also maintains an unfunded, non-qualified deferred compensation plan, which was created in 1990 for key executives and other members of management. This plan allows participants to defer up to 15% of their salary on a pre-tax basis. The Company contributes an amount equal to 100% of the first 3% contributed by the employee. In each plan, a participant's right to Company contributions vests at a rate of 25% per year of service. The Company's savings plans contributions were $498, $1,081 and $1,162 in 1995, 1994 and 1993, respectively. The Company's non-qualified deferred compensation plan contributions were $212, $285 and $376 in 1995, 1994 and 1993, respectively. The Company maintains a bonus plan which allows certain officers and employees of the Company to earn annual cash bonuses based upon achievement of certain financial and performance goals approved by the compensation committee of the Company's board of directors. Under this plan, $710 was expensed in 1995. The Company adopted a deferred compensation plan for non-management directors in the second quarter of 1995. Under the plan's equity option, those who are eligible to receive directors' fees or retainers may choose to defer receipt of their compensation. Once deferred, the Company provides a credit equal to 25% of the compensation deferred. In 1995, a total of $116 was expensed for both the deferment credit and the stock appreciation on the deferred compensation. 10. POSTRETIREMENT BENEFIT PLAN The Company sponsors a health care plan that provides postretirement medical benefits for employees who meet minimum age and service requirements. The plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. The Company's policy is to fund the cost of medical benefits in amounts determined at the discretion of management. The normal net periodic postretirement benefit cost for 1995, 1994 and 1993 was $1,440, $1,533 and $1,532, respectively. The plan was amended in 1995 to eliminate retiree medical benefits coverage for those under age 45 at September 30, 1995, resulting in a curtailment gain of $1,900. The Company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," as of September 28, 1992. The cumulative effect on prior years of adopting SFAS 106 was $10,176 in 1993. F-18 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 10. POSTRETIREMENT BENEFIT PLAN (continued) The plan's funded status reconciled with amounts recognized in the Company's consolidated balance sheet is as follows: October 1, October 2, 1995 1994 -------- --------- Accumulated postretirement benefit obligation: Retirees. . . . . . . . . . . . . . . . . . . . . $ (1,198) $ (1,036) Fully eligible active plan participants . . . . . (2,478) (2,171) Other active plan participants. . . . . . . . . . (6,855) (7,209) ------- ------- (10,531) (10,416) Plan assets at fair value. . . . . . . . . . . . . - - ------- ------- Accumulated postretirement benefit obligation in excess of plan assets . . . . . . . (10,531) (10,416) Unrecognized prior service cost. . . . . . . . . . - - Unrecognized net gain. . . . . . . . . . . . . . . (2,180) (2,825) ------- ------- Accrued postretirement benefit cost included in other liabilities . . . . . . . . . . $(12,711) $(13,241) ======= ======= The components of the fiscal year net periodic postretirement benefit cost is as follows: 1995 1994 1993 ------ ----- ------ Service cost. . . . . . . . . . . . . . . $ 675 $ 770 $ 743 Interest cost . . . . . . . . . . . . . . 854 763 789 Actual return on plan assets. . . . . . . - - - Net amortization and deferral . . . . . . (89) - - Recognition of transition obligation. . . - - 10,176 Curtailment gain. . . . . . . . . . . . . (1,900) - - ------ ----- ------ Net periodic postretirement benefit cost (gain). . . . . . . . . . . . . . . $ (460) $ 1,533 $ 11,708 ====== ===== ====== In determining the above information, the Company's actuaries assumed discount rates of 7.75% and 8.25% as of October 1, 1995 and October 2, 1994, respectively. For measurement purposes, a 10% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 1995 for plan participants under age 65; the rate was assumed to decrease 1/2% per year to 5% by the year 2005 and remain at that level thereafter. For plan participants age 65 years or older, an 8% annual health care cost trend rate was assumed for 1995; the rate was assumed to decrease 1/2% per year to 4% by the year 2003. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of October 1, 1995 by $2,200, or 21%, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended October 1, 1995 by $300 or 20%. 11. FRANCHISE ARRANGEMENTS Franchise arrangements generally provide for initial license fees of approximately $25 per restaurant and continuing payments to the Company based on a percentage of sales. Among other things, the franchisee is provided the use of land and building, generally for a period of 20 years, and is required to pay negotiated rent, property taxes, insurance and maintenance. Gains on sales of restaurant businesses to franchisees, included in other revenues, were $358 and $2,231 in 1994 and 1993, respectively. F-19 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 12. RELATED PARTY TRANSACTIONS The Company provides distribution services to a portion of FRI's Mexican restaurants, principally those operated under the Chi-Chi's name. Distribution sales to those restaurants aggregated $78,195 and $63,702 in 1995 and 1994, respectively, subsequent to January 27, 1994, the date the Company sold Chi-Chi's and acquired its 39% interest in FRI. In relation to the distribution sales, the Company had accounts receivable of $3,839 and $3,166 due from Chi-Chi's at October 1, 1995 and October 2, 1994, respectively. Gibbons, Goodwin, van Amerongen ("GGvA"), successor to Gibbons, Green, van Amerongen, general partners in the limited partnerships which owned approximately 45% of the Company's outstanding common stock at October 1, 1995, were paid fees of $150, $900 and $827 in 1995, 1994 and 1993, respectively, under an agreement which expired December 1994, whereby GGvA provided certain management services to the Company. 13. STOCKHOLDERS' EQUITY In conjunction with the December 1988 acquisition of the Company, warrants for the purchase of 1,584,573 shares of common stock were issued and are exercisable at $.93 per share, as adjusted. As of October 1, 1995, warrants for 1,450,626 shares had been exercised. At October 1, 1995, the Company had 4,904,527 shares of common stock reserved for issuance upon the exercise of stock options and 133,947 shares reserved for issuance upon exercise of warrants. 14. STOCK OPTIONS The Company offers stock option plans to attract, retain and motivate key officers, non-employee directors and employees by providing for or increasing the proprietary interests of such persons to work toward the future financial success of the Company. In January 1992, the Company adopted the 1992 Employee Stock Incentive Plan (the "1992 Plan") and, as part of a merger, assumed outstanding options to employees under its predecessor's 1990 Stock Option Plan and assumed contractually the options to purchase 42,750 shares of common stock granted to two non-employee directors of the Company. Under the 1992 Plan, employees are eligible to receive stock options, restricted stock and other various stock-based awards. Subject to certain adjustments, up to a maximum of 1,875,000 shares of common stock may be sold or issued under the 1992 Plan. No awards shall be granted after January 16, 2002, although stock may be issued thereafter, pursuant to awards granted prior to such date. In August 1993, the Company adopted the 1993 Stock Option Plan (the "1993 Plan"). Under the 1993 Plan, employees who do not participate in the 1992 Plan are eligible to receive annually stock options with an aggregate exercise price equivalent to a maximum of 10 percent of their eligible earnings. Subject to certain adjustments, up to a maximum of 3,000,000 shares of common stock may be sold or issued under the 1993 Plan. No awards shall be granted after December 11, 2003, although common stock may be issued thereafter, pursuant to awards granted prior to such date. In February 1995, the Company adopted the Non-Employee Director Stock Option Plan (the "Director Plan"). Under the Director Plan, any eligible director of the Company who is not an employee of the Company or a subsidiary of the Company is granted annually an option to purchase 10,000 shares of common stock at fair market value. Subject to certain adjustments, up to a maximum of 250,000 shares of common stock may be sold or issued under the Director Plan. Unless sooner terminated, no awards shall be granted after February 17, 2005, although common stock may be issued thereafter, pursuant to awards granted prior to such date. F-20 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 14. STOCK OPTIONS (continued) The terms and conditions of the stock-based awards under the plans are determined by a committee of the board of directors on each award date and may include provisions for the exercise price, expirations, vesting, restriction on sales and forfeiture, as applicable. Options granted under the plans have terms not exceeding 11 years and provide for an option exercise price no less than 100% of the fair market value of the common stock on the day the option was granted. The following is a summary of stock option activity for the three fiscal years ended October 1, 1995: Option price Shares per share -------- ------------ Balance at September 27, 1992 . . . . . . . 1,419,890 $ .96-10.00 Granted . . . . . . . . . . . . . . . . . 547,334 10.13-13.38 Exercised . . . . . . . . . . . . . . . . (100,923) .96-10.00 Cancelled . . . . . . . . . . . . . . . . (10,690) 1.13-11.00 --------- Balance at October 3, 1993. . . . . . . . . 1,855,611 .96-13.38 Granted . . . . . . . . . . . . . . . . . 323,000 5.88-10.13 Exercised . . . . . . . . . . . . . . . . (115,050) .96-1.13 Cancelled . . . . . . . . . . . . . . . . (252,970) 5.88-13.38 --------- Balance at October 2, 1994. . . . . . . . . 1,810,591 .96-12.25 Granted . . . . . . . . . . . . . . . . . 812,098 4.18-6.50 Exercised . . . . . . . . . . . . . . . . (42,900) .96-1.13 Cancelled . . . . . . . . . . . . . . . . (267,818) 1.13-12.25 --------- Balance at October 1, 1995. . . . . . . . . 2,311,971 .96-12.25 ========= Stock options for the purchase of 1,513,575 shares are exercisable at October 1, 1995. 15. AVERAGE SHARES OUTSTANDING Fiscal year earnings per share is based on the weighted average number of shares outstanding during the year, determined as follows:
1995 1994 1993 ---------- ---------- ---------- Shares outstanding, beginning of fiscal year. . . . . . 38,668,200 38,234,250 38,148,946 Effect of common stock issued . . . . . . . . . . . . . 29,566 296,797 913,570 Effect of common stock reacquired . . . . . . . . . . . - - (1,027,008) Assumed additional shares issued upon exercise of stock options and warrants, net of shares reacquired at the average market price . . . . . . . . . . . . . . . . . . . . . 216,874 - 450,819 ---------- ---------- ---------- Weighted average shares outstanding . . . . . . . . . . 38,914,640 38,531,047 38,486,327 ========== ========== ==========
F-21 FOODMAKER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 16. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
16 weeks ended 12 weeks ended ---------------------------------------------------- Jan. 23, 1994 Apr. 17, 1994 Jul. 10, 1994 Oct. 2, 1994 ------------- ------------- ------------- ------------ Revenues . . . . . . . . . . . . $381,574 $218,706 $225,822 $227,224 Gross profit . . . . . . . . . . 43,602 24,574 27,988 28,651 Loss before extraordinary item . (4,399) (22,913) (3,434) (5,522) Net loss . . . . . . . . . . . . (4,399) (25,651) (3,434) (6,086) Loss per share before extraordinary item. . . . . . . (.11) (.60) (.09) (.14) Net loss per share . . . . . . . (.11) (.67) (.09) (.16) 16 weeks ended 12 weeks ended ---------------------------------------------------- Jan. 22, 1995 Apr. 16, 1995 Jul. 9, 1995 Oct. 1, 1995 ------------- ------------- ------------- ------------ Revenues . . . . . . . . . . . . $293,680 $229,661 $244,075 $251,300 Gross profit . . . . . . . . . . 37,662 32,233 37,897 39,589 Net earnings (loss). . . . . . . (72,291) (3,146) 2,622 3,857 Net earnings (loss) per share. . (1.87) (.08) .07 .10
F-22 EX-10.1.4 2 WAIVER AND AMENDMENT Exhibit 10.1.4 WAIVER AND AMENDMENT THIS WAIVER AND AMENDMENT is made as of November 20, 1995 pursuant to Section 11.04 of the Revolving Credit Agreement, dated as of July 26, 1994, among Foodmaker Inc. ("Foodmaker"), the Banks signatory thereto, Credit Lyonnais New York Branch ("Credit Lyonnais"), as Agent, Collateral Agent and Swing Line Bank and Union Bank, as Issuing Bank, as amended through the date hereof (the "Foodmaker Credit Agreement"), and pursuant to Section 6.08(b) of the Pledge and Security Agreement, dated as of September 26, 1994, between Foodmaker and Credit Lyonnais as Collateral Agent (the "Pledge and Security Agreement"). WHEREAS, Foodmaker is the registered holder of 389,634.375 shares of common stock, par value $.01 per share, of Family Restaurants, Inc. ("FRI") and of a warrant to purchase 111,111 shares of the common stock of FRI; WHEREAS, Foodmaker desires to enter into the Exchange Agreement, dated as of November 20, 1995 (the "Exchange Agreement"), by and between Foodmaker and Apollo FRI Partners, L.P. ("Apollo FRI Partners"), whereby Foodmaker will transfer and assign to Apollo FRI Partners all of the common stock and warrants of FRI held by Foodmaker; WHEREAS, in consideration for such transfer, Apollo Advisors, L.P. ("Apollo Advisors"), Apollo FRI Partners and Green Equity Investors, L.P. ("GEI") have agreed with Foodmaker to enter into a mutual release of claims arising out of (i) the Acquisition Agreement, dated as of October 15, 1993, among FRI, Apollo Advisors, on behalf of one or more managed entities or designees, GEI, Foodmaker and Chi-Chi's, Inc. and (ii) the ownership, management or operations of FRI (the "Mutual Release"); WHEREAS, in the event that the transactions contemplated by the Exchange Agreement are not consummated by January 26, 1995, pursuant to the Exchange Agreement Foodmaker will be required to enter into a participation purchase agreement among Apollo, Credit Lyonnais as Overline Agent and certain other parties (the "Participation Purchase Agreement") and assume 40% of the obligations of Apollo FRI Partners under the Participation Purchase Agreement; WHEREAS, in the event that Foodmaker enters into the Participation Purchase Agreement, Foodmaker may be obligated under certain circumstances to purchase a participation in the Credit Agreement, dated as of January 27, 1994, among FRI-M Corp., the Guarantors named therein, the Banks named therein and Credit Lyonnais as Agent, Collateral Agent, Swing Line Bank and Issuing Bank (as amended from time to time, the "FRI Credit Agreement"); WHEREAS, Foodmaker believes that it is in the best interest of Foodmaker to enter into the Exchange Agreement; WHEREAS, Section 8.02(a) of the Foodmaker Credit Agreement restricts the ability of Foodmaker to enter into transactions with Affiliates; WHEREAS, Section 8.02(b) of the Foodmaker Credit Agreement restricts the ability of Foodmaker to create, incur, assume or suffer to exist any Indebtedness; WHEREAS, Section 8.02(d) of the Foodmaker Credit Agreement restricts the ability of Foodmaker to sell, lease, or otherwise dispose of any of its assets; WHEREAS, Section 8.02(f) of the Foodmaker Credit Agreement restricts the ability of Foodmaker to assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any other Person; WHEREAS, Section 8.02(g) of the Foodmaker Credit Agreement restricts the ability of Foodmaker to purchase or acquire the obligations or stock of, or any other interest in, or make loans, advances or capital contributions to, or form any joint ventures or partnerships with, any Person; WHEREAS, the undersigned Banks have agreed to waive certain provisions of the Foodmaker Credit Agreement in order to permit Foodmaker to enter into the Exchange Agreement; WHEREAS, under the Pledge and Security Agreement, Foodmaker has pledged the shares of FRI common stock held by Foodmaker as security for its obligations under the Foodmaker Credit Agreement; WHEREAS, the undersigned Banks have agreed to release the shares of FRI common stock pursuant to Section 6.12 of the Pledge and Security Agreement upon the closing of the transactions contemplated by the Exchange Agreement; NOW, THEREFORE, the parties hereto hereby agree as follows: -2- 1. The agreement by Foodmaker to transfer and assign to Apollo FRI Partners the 389,634.375 shares of common stock, par value $.01 per share, of FRI and the warrant to purchase 111,111 shares of the common stock of FRI and the subsequent transfer and assignment of such shares and warrant prior to January 31, 1995 shall not constitute a Default or an Event of Default under Section 8.02(d) of the Foodmaker Credit Agreement. 2. The agreement by Foodmaker to purchase pursuant to the Participation Purchase Agreement, an undivided participating interest (a "Participation") in certain specified loans and syndicated letters of credit (and drawings thereunder) under the FRI Credit Agreement in the event that the Closing (as defined in the Exchange Agreement) does not occur in an aggregate amount not to exceed $3.2 million, the incurrence of a letter of credit in the amount of $3.2 million for the benefit of the banks selling such Participations, and the purchase of such Participations in the event that the Closing does not occur shall not constitute a Default or an Event of Default under Sections 8.02(a), (b), (f) or (g) of the Foodmaker Credit Agreement. 3. At the Closing, the Agent, the Collateral Agent, the Issuing Bank, the Swing Line Bank and each Bank will duly assign, transfer and deliver to Foodmaker the shares of common stock of FRI in the possession of the Collateral Agent, and shall execute and deliver to Foodmaker such instruments as may be required to terminate the Credit Documents with respect to such shares and to release the security interests granted pursuant to the Pledge and Security Agreement. 4. Effective as of the Closing, the definition of "Pledged Stock" in Section 1.01(c) of the Pledge and Security Agreement is hereby amended to read in its entirety as follows: "Pledged Stock" shall mean all the outstanding capital stock of the Company's Subsidiaries including all dividends and other distributions on, and all subscription rights, warrants or options in respect of, and securities convertible into, such shares of capital stock. 5. The Pledge and Security Agreement, as amended hereby, shall be binding upon the Company and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Collateral Agent, -3- the Issuing Bank, the Swing Line Bank and the Banks and their respective successors and assigns. 6. Except as expressly provided in this Waiver and Amendment, all of the terms, covenants, conditions, restrictions and other provisions contained in the Foodmaker Credit Agreement and in the Pledge and Security Agreement shall remain in full force and effect. 7. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Foodmaker Credit Agreement. 8. This Waiver and Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all the counterparts shall together constitute one and the same instrument. 9. THIS WAIVER AND AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA. IN WITNESS WHEREOF, the parties hereto have caused this Waiver and Amendment to be duly executed as of the date first above written. FOODMAKER, INC. By: CHARLES W. DUDDLES ------------------------------- Name: Charles W. Duddles Title: Executive Vice President CREDIT LYONNAIS NEW YORK BRANCH as Agent for the Banks By: JULIE BOTHAMLEY ------------------------------- Name: Julie Bothamley Title: VP -4- CREDIT LYONNAIS NEW YORK BRANCH as Collateral Agent for the Banks By: JULIE BOTHAMLEY ------------------------------- Name: Julie Bothamley Title: VP CREDIT LYONNAIS NEW YORK BRANCH as a Bank and as the Swing Line Bank By: JULIE BOTHAMLEY ------------------------------- Name: Julie Bothamley Title: VP UNITED STATES NATIONAL BANK OF OREGON By: JANET JORDAN -------------------------------- Name: Janet Jordan Title: Vice President UNION BANK as a Bank and as the Issuing Bank By: PATRICK M. CASSIDY ------------------------------- Name: Patrick M. Cassidy Title: Vice President -5- EX-10.10 3 EXCHANGE AGREEMENT Exhibit 10.10 EXCHANGE AGREEMENT ------------------ This EXCHANGE AGREEMENT, dated as of November 20, 1995 (the "Agreement"), is entered into by and between Foodmaker, Inc., a Delaware corporation ("Foodmaker") and Apollo FRI Partners, L.P. ("Apollo"). WHEREAS, concurrently herewith Apollo (or one of its Affiliates) is entering into a Participation Purchase Agreement, dated the date hereof, by and among Apollo, Credit Lyonnais New York Branch, as Overline Agent, Credit Lyonnais New York Branch and certain other Banks (the "Participation Agreement") and has obtained the Letter of Credit referred to in Section 2 of the Participation Agreement. WHEREAS, Foodmaker is the registered holder of 389,634,375 shares (the "Exchanged Shares") of common stock, par value $.01 per share (the "Common Stock") of Family Restaurants, Inc. (the "Company"), and a warrant (the "Warrant" and, together with the Exchanged Shares, the "Exchanged Securities") to purchase 111,111 share of Common Stock; and WHEREAS, Apollo desires to acquire from Foodmaker, and Foodmaker desires to transfer to Apollo, the Exchanges Securities in exchange (the "Exchange") for the Mutual Release of Claims, a copy of which is attached hereto as Exhibit A (the "Mutual Release"), on the terms and conditions set forth herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Exchange; Closing. Subject to the terms and conditions hereof, Apollo and Foodmaker agree to the Exchange and Foodmaker shall deliver the Exchange Securities and an executed copy of the Mutual Release to Apollo, and Apollo shall deliver an executed copy of the Mutual Release to Foodmaker, in each case at the Closing (the "Closing"). At the Closing, Foodmaker shall deliver to Apollo the certificates representing the Exchange Securities, duly endorsed for transfer to Apollo. The Closing shall take place at the office of Morgan, Lewis & Bockius LLP, 801 South Grand Avenue, Los Angeles, California 90017, at 9:00 a.m., Los Angeles time on the date (the "Closing Date") on which the last of the conditions contained in Section 6 hereof are fulfilled or waived, or such other business day and time as may be agreed upon by the parties hereto. 2. Covenants of Apollo. Apollo covenants and agrees that: (a) Standstill. Prior to the earlier of (i) the Closing and (ii) the termination of this Agreement pursuant to Section 7(i) hereof, Apollo will not bring any Claim (as such term is defined in the Mutual Release) to be released and discharged pursuant to Section 1 of the Mutual Release. (b) Shareholders Agreement. Upon execution of this Agreement, the Shareholders Agreement, dated as of January 27, 1994, by and among the Company, Apollo, GEI and Foodmaker (the "Shareholders Agreement") shall hereby be terminated and all of Foodmaker's rights and obligations thereunder shall be of no force or effect; provided, however, that Section 3.5 thereof shall remain in effect as to Shareholders (as defined therein) other than Foodmaker. (c) Board of Directors and Shareholders' Agreement. If for any reason this agreement is terminated, Apollo agrees (i) to use is best efforts to re-appoint Jack W. Goodall, Jr., Charles W. Duddles and Edward Gibbons to the Board of Directors of the Company and each other position they held with the Company and each of its subsidiaries as of the date hereof and (ii) that the Shareholders' Agreement shall be reinstated in full force and effect as though the termination thereof referred to in Section 3(b) above had not occurred. 3. Covenants of Foodmaker. Foodmaker covenants and agrees that: (a) Standstill. Prior to the earlier of (i) the Closing and (ii) the termination of this Agreement pursuant to Section 7(i) hereof, Foodmaker will not bring any Claim (as such term is defined in the Mutual Release) to be released and discharged pursuant to Section 2 of the Mutual Release. (b) Shareholders Agreement. Upon execution of this Agreement, the Shareholders Agreement shall hereby be terminated and all of Foodmaker's rights and obligations thereunder shall be of no force or effect; provided, however, that Section 3.5 thereof shall remain in effect as to Shareholders (as defined therein) other than Foodmaker. (c) Board of Resignations and Distribution Agreement. Upon execution of this Agreement (i) Foodmaker shall cause each of Jack W. Goodall, Jr., Charles W. Duddles and Edward Gibbons to resign from the Board of Directors of the Company and from each other position they hold with the Company and each of its subsidiaries, and (ii) Foodmaker shall enter into Amendment No. 2 to the Distribution Agreement by and between Foodmaker and Chi-Chi's, Inc., a copy of which is attached hereto as Exhibit C. (d) Participation Agreement and Letter of Credit. If for any reason the Closing does not occur or this Agreement is terminated, Foodmaker agrees to (A) enter into the Participation Agreement and assume 40% of Apollo's Participation (as defined in the Participation Agreement) thereunder and (B) obtain a Letter of Credit pursuant to Section 2(c) of the Participation Agreement. Foodmaker agrees that, in such case, its Percentage Interest (as defined in the Participation Agreement) of the Purchase Price (as defined in the Participation Agreement) under the Participation Agreement shall be 40%. 4. Representations and Warranties of Foodmaker. Foodmaker hereby represents and warrants to Apollo that on each of the date hereof and on the Closing Date: -2- (a) Authorization. Foodmaker has full power and authority to execute and deliver this Agreement, perform its obligations hereunder and consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Foodmaker and, assuming this Agreement constitutes a valid and binding agreement of Apollo, this Agreement constitutes a valid and binding agreement of Foodmaker, enforceable against it in accordance with its terms. (b) No Violation. Neither the execution or delivery of this Agreement by Foodmaker, the performance by Foodmaker of its obligations hereunder nor the consummation by Foodmaker of the transactions contemplated hereby will (i) contravene any material law, statute, rule, regulation, order, writ, injunction, judgment or decree of any governmental authority ("Applicable Law"), (ii) violate, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, any loan agreement, mortgage, security agreement, trust indenture or other material agreement or instrument to which Foodmaker or any of its subsidiaries is a party or by which any of them is bound or to which any of their respective properties or assets is subject, (iii) result in the creation of imposition of any lien upon any of their respective properties or assets, except for any such defaults or liens that could not, individually or in the aggregate, materially impair Foodmaker's ability to consummate the transactions contemplated hereby, or (iv) violate any provision of the charter or by-laws of Foodmaker or any of its subsidiaries. (c) Consents. No consent, authorization or order of, or filing or registration with, any governmental authority or other person is required to be obtained or made by Foodmaker for the execution or delivery of this Agreement, the performance by Foodmaker of its obligations hereunder or the consummation of any of the transactions contemplated hereby, except (i) for those consents or authorizations that will have been obtained or made on or prior to the completion of the Exchange or (ii) where the failure to obtain such consents, authorizations or orders, or make such filings or registrations, could not, individually or in the aggregate, materially impair Foodmaker's ability to consummate the transactions contemplated hereby. (d) Title. Foodmaker is the beneficial and record owner of the Exchange Securities, and owns the Exchange Securities free and clear of (i) all claims, liens, title defects and objections or equities of any kind and nature whatsoever and (ii) all restrictions on voting and transfer other than restrictions on transfer imposed by Federal and state securities laws. (e) Investment Representations. Foodmaker exercises full investment discretion with respect to the Exchanged Securities and has neither purchased nor sold for its account any Common Stock or Warrants since the original issuance thereof. 5. Representations and Warranties of Apollo. Apollo hereby represents and warrants to Foodmaker that on each of the date hereof and on the Closing Date; (a) Authorization. Apollo has full power and authority to execute and deliver this Agreement, perform its obligations hereunder and consummate the -3- transactions contemplated hereby. This Agreement has been duly executed and delivered by Apollo and, assuming this Agreement constitutes the valid and binding agreement of Foodmaker, this Agreement constitutes a valid and binding agreement of Apollo, enforceable against it in accordance with its terms. (b) No Violation. Neither the execution or delivery of this Agreement by Apollo, the performance by Apollo of its obligations hereunder nor the consummation by Apollo of the transactions contemplated hereby will (i) contravene any Applicable Law, (ii) violate, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, any loan agreement, mortgage, security agreement, trust indenture or other material agreement or instrument to which Apollo or any of its subsidiaries is a party or by which any of them is bound or to which any of their respective properties or assets is subject, (iii) result in the creation or imposition of any lien upon any of their respective properties or assets, except for any such defaults or liens that could not, individually or in the aggregate, materially impair Apollo's ability to consummate the transactions contemplated hereby, or (iv) violate any provision of the charter or by-laws of Apollo or any of its subsidiaries. (c) Consents. No consent, authorization or order of, or filing or registration with, any governmental authority or other person is required to be obtained or made by Apollo for the execution or delivery of this Agreement, the performance by Apollo to its obligations hereunder or the consummation of any of the transactions contemplated hereby, except (i) for those consents or authorizations that will have been obtained or made on or prior to the completion of the Exchange (ii) where the failure to obtain such consents, authorizations or orders, or make such filings or registrations, could not, individually or in the aggregate, materially impair Apollo's ability to consummate the transactions contemplated hereby (iii) consents, authorizations, filings, and registrations, and expiration or termination of the waiting periods, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the Rules and Regulations thereunder (the "HSR Act"). 6. Conditions of Obligations. The obligation of (i) each of Apollo and Foodmaker to execute and deliver the Mutual Release and (ii) Foodmaker to deliver the Exchange Securities is subject to the fulfillment prior to or concurrently with the Closing of the following condition: HSR Act. With respect to the transaction contemplated hereby all applicable waiting periods under the HSR Act shall have expired or been terminated. 7. Miscellaneous. (a) Amendment. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally or by course of dealing, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. -4- (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, next- day air courier, or telecopier as follows: If to Foodmaker: Foodmaker, Inc. 9330 Balboa Avenue San Diego, California 92123 Attention: Jack W. Goodall, Jr. Telecopier: 619-571-2110 with a copy to: Gibson, Dunn & Crutcher 750 "B" Street, Suite 3300 San Diego, CA 92101 Attention: Rhonda Wagner, Esq. Telecopier: 619-544-8190 If to Apollo: Apollo Advisors, L.P. 1999 Avenue of the Stars Suite 1900 Los Angeles, California 90067 Attention: Mr. David Kaplan Telecopier: 310-201-4198 with a copy to: Morgan, Lewis & Bockius LLP 801 South Grand Avenue Los Angeles, California 90017-4615 Attention: John F. Hartigan, Esq. Telecopier: 213-612-2554 All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one (1) business day after being timely dispatched postage prepaid, if by same-day or next-day courier; and when receipt acknowledged, if sent by facsimile transmission. Any of the above addresses may be changed by notice made in accordance with this Section 7(c). (c) Assignment; No Third-Party Beneficiaries. Neither this Agreement nor the rights and obligations of either party hereunder may be assigned by operation of law or otherwise without the express consent of the other party hereto (which -5- consent may be granted or withheld in their sole discretion). This Agreement will be binding upon and inure solely for the benefit of the parties hereto and their respective permitted successors and assigns, and no other person shall acquire or have any right hereunder or by virtue hereof. (d) Headings. The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. (e) Choice of Law. It is the intention of the parties that the internal laws, and not the laws of conflicts, of the State of New York should govern the enforceability and validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties hereto. (f) Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. (g) Specific Performance. Each party hereto agrees that irreparable harm, for which there may be no adequate remedy at law and for which the ascertainment of damages would be difficult, would occur in the event any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. Each party hereto accordingly agrees that the other party hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement, or any agreement contemplated hereunder and to enforce specifically the terms and provisions hereof in any court of the United States or any state thereof having jurisdiction, in each instance without being required to post bond or other security and in addition to, and without having to prove the adequacy of, other remedies at law. (h) Further Assurances. Each party hereto agrees to use its best efforts to obtain all consents and approvals, and to do all other things, necessary for the transactions contemplated by this Agreement. (i) Termination. This Agreement shall terminate and be of no force or effect in the event that the Closing does not occur prior to January 26, 1996; provided, however, that, notwithstanding the foregoing, the covenant of Apollo set forth in Section 2(c) and the covenant of Foodmaker set forth in Section 3(d) shall remain in full force and effect. Signatures follow -6- IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or have caused this Agreement to be duly executed on their respective behalf by their respective officers thereunto duly authorized, as of the day and year first above written. APOLLO FRI PARTNERS, L.P. By: AIF II, L.P., its general partner By: Apollo Advisors, L.P., its managing partner By: Apollo Capital Management, Inc., its general partner By: DAVID B. KAPLAN ---------------------------------- Name: Title: FOODMAKER, INC. a Delaware corporation By: CHARLES DUDDLES ---------------------------------- Name: Charles Duddles Title: Executive Vice President -7- Schedules (and similar attachments) omitted: Exhibit A - Mutual Release Exhibit C - Amendment No. 2 to the Distribution Agreement by and between Foodmaker and Chi-Chi's, Inc. Foodmaker agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. EX-23.1 4 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 23.1 INDEPENDENT AUDITORS' CONSENTS The Board of Directors Foodmaker, Inc.: We consent to incorporation by reference in the registration statement No. 33-50934 on Form S-3 of Foodmaker, Inc. and in registration statement Nos. 33-67450, 33-54602 and 33-51490 on Form S-8 of Foodmaker, Inc. of our report dated November 7, 1995, except for the last paragraph of Note 3, which is as of November 20, 1995, relating to the consolidated balance sheets of Foodmaker, Inc. and subsidiaries as of October 1, 1995 and October 2, 1994, and the related consolidated statements of operations, cash flows and stockholders' equity for the fifty-two weeks ended October 1, 1995 and October 2, 1994, and the fifty-three weeks ended October 3, 1993, and which report appears in the October 1, 1995 annual report on Form 10-K of Foodmaker, Inc. and subsidiaries. KPMG PEAT MARWICK LLP San Diego, California December 27, 1995 EX-27 5 ARTICLE 5 FDS FOR FISCAL YEAR 1995 10-K
5 FISCAL YEAR 1995 IS 52 WEEKS 1000 YEAR OCT-01-1995 OCT-03-1994 OCT-01-1995 35,865 0 24,105 4,531 22,385 97,889 589,642 155,931 662,674 132,017 440,219 402 0 0 30,851 662,674 983,773 1,018,716 401,750 871,335 0 0 48,463 (68,458) 500 (68,958) 0 0 0 (68,958) (1.77) (1.77)
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