UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
---------10-K/A
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/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
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COMMISSION FILE NUMBER 1-9390
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FOODMAKER, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-2698708
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(State of incorporation) (IRS Employer Identification No.)
9330 Balboa Avenue, San Diego, CA 92123
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 571-2121
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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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
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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
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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
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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
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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.
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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.
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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
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Company-owned restaurant buildings:
On Company-owned land 144 73 217
On ground-leased land 278 49 327
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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
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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.
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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.
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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
THE FINANCIAL STATEMENTS OF FOODMAKER FOR THE FISCAL YEAR ENDED OCTOBER 1,
1995 WERE PREVIOUSLY FILED AS PART OF FOODMAKER'S ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 1, 1995 (THE "1995 FORM 10-K").
THE SOLE PURPOSE OF THIS AMENDMENT TO FOODMAKER'S ANNUAL REPORT ON FORM 10-K
IS THE INCLUSION OF FAMILY RESTAURANTS, INC. FINANCIAL STATEMENTS FOR ITS
FISCAL YEAR ENDED DECEMBER 31, 1995.
ITEM 14(a)(1) Financial Statements
(i) Foodmaker Financial Statements. See the index to
consolidated financial statements on page F-1 of the
1995 Form 10-K.
(ii) Family Restaurants, Inc. Financial Statements. See the
index to consolidated financial statements on page F-1 of
this report.amended 1995 Form 10-K/A.
ITEM 14(a)(2) Financial Statement Schedules. Not applicable.
-19--2-
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 thereintherein(11)
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.(11)
21 Subsidiaries(3)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Deloitte & Touche LLP
27 Financial Data Schedule (included only with electronic filing)(11)
- ------------
(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--3-
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.
(11) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended October 1, 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--4-
SIGNATURES
----------SIGNATURE
---------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this amended 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
registrantauthorized 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)FOODMAKER, INC.
By: DARWIN J. WEEKS
-------------------------
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-(Duly Authorized Signatory)
Date: April 5, 1996
-5-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Foodmaker,AND SCHEDULE
Family Restaurants, Inc. and Subsidiaries Consolidated Financial Statements
and Schedule for the 52-week periodsyear ended October 1,December 31, 1995, and October 2,the eleven months ended
December 25, 1994, the one month ended January 26, 1994 and the 53-week
periodyear ended
October 3,December 26, 1993.
Page
----
Independent Auditors' Report .Reports. . . . . . . . . . . F-2
Consolidated Balance Sheets.Sheets as of December 31,
1995 and December 25, 1994. . . . . . . . . . . . F-3F-4
Consolidated Statements of Operations. . . . . . . F-5
Consolidated Statements of Cash Flows.Common Stockholders'
Deficit . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Stockholders' Equity.Cash Flows. . . . . . . F-7
Notes to Consolidated Financial Statements . . . . F-8F-9
Schedule VIII - Valuation and Qualifying Accounts. F-30
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Foodmaker,Family Restaurants, Inc.:
We have audited the accompanying consolidated balance sheets of Foodmaker,Family
Restaurants, Inc. and its subsidiaries as of October 1,December 31, 1995 and October 2,December 25,
1994, and the related consolidated statements of operations, common
stockholders' deficit and cash flows and stockholders'
equity for the fifty-two weeksyear ended October 1,December 31, 1995, and October 2,the
eleven months ended December 25, 1994 (Successor Company) and the fifty-three weeksone month
ended October 3, 1993.January 26, 1994 (Predecessor Company). In connection with our audits of
the consolidated financial statements, we also audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on thesethe
consolidated financial statements and financial statement schedule 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,Family
Restaurants, Inc. and its subsidiaries as of October 1,at December 31, 1995 and October 2,December 25,
1994, and the results of their operations and their cash flows for the fifty-two
weeksyear
ended October 1,December 31, 1995, and October 2,the eleven months ended December 25, 1994 (Successor
Company) and the fifty-three weeksone month ended October 3,January 26, 1994 (Predecessor Company) in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information shown therein.
As discussed in Notes 1 and 2 to the consolidated financial statements,
the Company commenced a Chapter 11 bankruptcy case on November 23, 1993, which
was confirmed by the United States Bankruptcy Court for the District of Delaware
on January 7, 1994. Accordingly, the accompanying consolidated financial
statements have been prepared in conformity with AICPA Statement of Position
90-7, "Financial Reporting for Entities in Reorganization Under the Bankruptcy
Code."
KPMG PEAT MARWICK LLP
Orange County, California
March 15, 1996, except as
to the second paragraph
of note 9, which is as
of March 29, 1996
F-2
INDEPENDENT AUDITORS' REPORT
Family Restaurants, Inc.:
We have audited the accompanying consolidated statements of operations,
common stockholders' deficit and cash flows of Family Restaurants, Inc. and its
subsidiaries for the year ended December 26, 1993. Our audit also included the
financial statement schedule listed in the Index at Item 14. The consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and the financial statement schedule based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the results of operations and cash flows of Family
Restaurants, Inc. and its subsidiaries for the year ended December 26, 1993 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information shown therein.
As discussed in Notes 1 and 2, the Company commenced a Chapter 11
bankruptcy case on November 23, 1993, which was confirmed by the United States
Bankruptcy Court for the District of Delaware on January 7, and 10 to1994. Accordingly,
the accompanying consolidated financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, "Financial Reporting for
Entities in Reorganization Under 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 MARWICKBankruptcy Code."
DELOITTE & TOUCHE LLP
San Diego,Costa Mesa, California
November 7, 1995, except for the last paragraph of Note 3,
which is as of November 20, 1995
F-2March 22, 1994
F-3
FOODMAKER,FAMILY RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in(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
======= =======amounts)
Successor Company
---------------------------
December 31, December 25,
1995 1994
------------ ------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 8,370 $ 8,239
Restricted cash 0 1,850
Receivables 8,172 11,831
Inventories 5,645 12,916
Other current assets 4,813 8,179
Property held for sale 240,077 0
--------- ---------
Total current assets 267,077 43,015
Property and equipment, net 207,223 445,354
Reorganization value in excess of amounts
allocable to identifiable assets, net 39,332 197,581
Other assets 37,638 48,648
--------- ---------
$ 551,270 $ 734,598
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Loan payable to banks $ 79,815 $ 0
Current portion of long-term debt, including
capitalized lease obligations 3,046 6,754
Accounts payable 22,400 41,999
Self-insurance reserves 35,488 50,692
Other accrued liabilities 78,319 96,426
Income taxes payable 2,895 2,625
--------- ---------
Total current liabilities 221,963 198,496
Other long-term liabilities 5,680 6,866
Long-term debt, including capitalized lease
obligations, less current portion 455,203 536,495
Stockholders' deficit:
Common stock - authorized 1,500,000 shares,
par value $.01, 997,277 shares issued 10 10
Additional paid-in capital 158,251 159,554
Notes receivable from stockholders (869) (2,947)
Accumulated deficit (287,585) (163,876)
Less treasury stock, at cost (8,950 shares) (1,383) 0
--------- ---------
Total stockholders' deficit (131,576) (7,259)
--------- ---------
$ 551,270 $ 734,598
========= =========
See accompanying notes to consolidated financial statements.
F-4
FOODMAKER,FAMILY RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In(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)
--------- --------- ---------shares outstanding)
Successor Company Predecessor Company
-------------------------- -------------------------
For the Year Eleven Months One Month For the Year
Ended Ended Ended Ended
December 31, December 25, January 26, December 26,
1995 1994 1994 1993
------------ ------------ ----------- ------------
Sales $1,134,359 $1,048,674 $ 64,741 $884,910
---------- ---------- -------- --------
Product cost 322,194 293,413 19,184 259,512
Payroll and related costs 419,185 377,569 24,780 331,747
Occupancy and other operating expenses 275,164 243,147 13,712 197,797
Depreciation and amortization 57,836 48,646 2,800 32,224
General and administrative expenses 56,245 49,059 4,071 44,164
Interest expense, net 65,277 51,419 4,097 50,276
Loss (gain) on disposition of
properties, net 12,067 5,685 (12) 4,916
Provision for divestitures and write-down
of long-lived assets 44,500 144,780 0 10,400
Restructuring costs 4,392 0 0 0
Debt restructuring costs 0 0 0 4,239
---------- ---------- -------- --------
Total costs and expenses 1,256,860 1,213,718 68,632 935,275
---------- ---------- -------- --------
Loss before reorganization items,
income tax provision and
extraordinary item (122,501) (165,044) (3,891) (50,365)
---------- ---------- -------- --------
Reorganization items:
Professional fees 0 0 (4,250) 0
Payment to Grace 0 0 (15,000) 0
Other 0 0 (3,029) (1,091)
Fresh start adjustment 0 0 501,706 0
---------- ---------- -------- --------
Total reorganization items 0 0 479,427 (1,091)
---------- ---------- -------- --------
Income (loss) before income tax provision
and extraordinary item (122,501) (165,044) 475,536 (51,456)
Income tax provision 1,208 1,773 55 658
---------- ---------- -------- --------
Income (loss) before extraordinary item (123,709) (166,817) 475,481 (52,114)
Extraordinary gain on extinguishment
of debt 0 2,941 72,561 0
---------- ---------- -------- --------
Net income (loss) (123,709) (163,876) 548,042 (52,114)
Preferred dividends 0 0 (1,698) (20,232)
---------- ---------- -------- --------
Net income (loss) attributable to
common shares $ (123,709) $ (163,876) $546,344 $(72,346)
========== ========== ======== ========
Net loss per common share:
Loss before extraordinary item $ (124.75) $ (168.55)
Extraordinary item 0.00 2.97
---------- ----------
Net loss attributable to common shares $ (124.75) $ (165.58)
========== ==========
Weighted average common shares outstanding 991,650 989,683
========== ==========
Net loss per common share . . . . . . . . . . . $ (1.77) $ (1.03) $ (2.55)
========= ========= =========
Weighted average shares outstanding. . . . 38,915 38,531 38,486for the Predecessor Company is not meaningful due to
debt discharge, the issuance of new common stock and fresh start reporting.
See accompanying notes to consolidated financial statements.
F-5
FOODMAKER,FAMILY RESTAURANTS, 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,COMMON STOCKHOLDERS' DEFICIT
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 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)(in thousands)
Notes
Class A Class D Additional Receivable Treasury
Common Common Common Paid-in from Stock- Accumulated Stock,
Stock Stock Stock Capital holders Deficit at Cost Total
----- ----- ----- ------- ------- ------- ------- -----
Balance at December 28, 1992 $ 2 $ 2 $ 0 $ 23,303 $ 0 $(342,720) $ (57) $(319,470)
Net loss 0 0 0 0 0 (52,114) 0 (52,114)
Stock dividends on preferred
stock 0 0 0 0 0 (20,232) 0 (20,232)
Conversion of Class A Common
Stock to Class D Common Stock (2) 2 0 0 0 0 0 0
Exercise of warrants 0 0 0 102 0 0 0 102
Exercise of stock options 0 0 0 76 0 0 0 76
--- --- --- -------- ------- --------- ------- ---------
Balance at December 26, 1993 0 4 0 23,481 0 (415,066) (57) (391,638)
Net income - one month ended
January 26, 1994 0 0 0 0 0 548,042 0 548,042
Fresh start adjustments:
Cancellation of former
equity 0 (4) 0 (23,481) 0 (132,976) 57 (156,404)
Issuance of new equity 0 0 10 159,554 (2,947) 0 0 156,617
Net loss - eleven months ended
December 25, 1994 0 0 0 0 0 (163,876) 0 (163,876)
--- --- --- -------- ------- --------- ------- ---------
Balance at December 25, 1994 0 0 10 159,554 (2,947) (163,876) 0 (7,259)
Net loss 0 0 0 0 0 (123,709) 0 (123,709)
Payments and cancellation
of notes receivable from
stockholders 0 0 0 (1,303) 2,078 0 0 775
Purchase of treasury stock 0 0 0 0 0 0 (1,383) (1,383)
--- --- --- -------- ------- --------- ------- ---------
Balance at December 31, 1995 $ 0 $ 0 $10 $158,251 $ (869) $(287,585) $(1,383) $(131,576)
=== === === ======== ======= ========= ======= =========
========= =========
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,FAMILY RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)CASH FLOWS
(in thousands)
CapitalSuccessor Company Predecessor Company
--------------------------- -------------------------
For the Eleven Months One Month For the
Year Ended Ended Ended Year Ended
December 31, December 25, January 26, December 26,
1995 1994 1994 1993
------------ ------------- ----------- ------------
Increase (Decrease) in excess Notes
Common stock of par Accumulated Treasury receivable-
Shares Amount value deficit stock stockholders Total
---------- ------ -------- -------- ------- ------------ ------Cash and Cash Equivalents
Cash flows from operating activities:
Cash received from customers $ 1,133,206 $ 1,049,483 $ 65,257 $ 885,248
Cash received from franchisees and licensees 7,897 7,308 84 847
Cash paid to suppliers and employees (1,084,758) (1,000,332) (59,729) (846,290)
Interest received 266 400 136 1,437
Interest paid (45,198) (28,153) (877) (10,088)
Restructuring costs (4,392) 0 0 0
Debt restructuring costs 0 0 0 (2,900)
Income taxes received (paid) (938) (926) 157 (925)
Charges to reserve for divestitures 0 (9,434) (1,001) (886)
----------- ----------- --------- ---------
Net cash provided by operating activities
before reorganization items 6,083 18,346 4,027 26,443
Reorganization items:
Professional fees 0 0 (4,250) 0
Payment to Grace 0 0 (15,000) 0
Other 0 0 (3,029) (1,091)
----------- ----------- --------- ---------
Total reorganization items 0 0 (22,279) (1,091)
----------- ----------- --------- ---------
Net cash provided by (used in) operating
activities 6,083 18,346 (18,252) 25,352
----------- ----------- --------- ---------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 20,425 6,524 1,588 18,135
Acquisition of Chi-Chi's 0 2,478 (194,889) 0
Capital expenditures (38,022) (65,618) (779) (20,064)
Capitalized opening and conversion costs (2,155) (2,166) (21) (5,052)
Other 137 (5,385) 1,491 (3,736)
----------- ----------- --------- ---------
Net cash used in investing activities (19,615) (64,167) (192,610) (10,717)
----------- ----------- --------- ---------
Cash flows from financing activities:
Proceeds from sale of treasury bonds 0 0 0 3,412
Proceeds from issuance of Notes 0 0 409,046 0
Proceeds from working capital borrowings, net 20,215 59,600 0 0
Payment of notes payable to Marriott, net 0 (21,828) (10,969) 0
Proceeds (payment) of loan payable to Grace 0 0 (2,900) 2,900
Payment of debt issuance costs 0 0 (22,973) 0
Reductions of long-term debt, including
capitalized lease obligations (7,794) (7,842) (447) (9,843)
Cash settlement of liabilities subject to
settlement under reorganization proceedings 0 0 (279,055) 0
Decrease (increase) in restricted cash and
collateral deposit 1,850 17 38,688 (16,486)
Proceeds from issuance of common stock, net 0 1,911 92,364 0
Proceeds from exercise of warrants 0 0 0 102
Proceeds from exercise of stock options 0 0 0 76
Purchase of treasury stock (1,383) 0 0 0
Payments of notes receivable from stockholders 775 0 0 0
----------- ----------- --------- ---------
Net cash provided by (used in) financing
activities 13,663 31,858 223,754 (19,839)
----------- ----------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 131 (13,963) 12,892 (5,204)
Cash and cash equivalents at beginning of period 8,239 22,202 9,310 14,514
----------- ----------- --------- ---------
Cash and cash equivalents at end of period $ 8,370 $ 8,239 $ 22,202 $ 9,310
=========== =========== ========= =========
F-7
FAMILY RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
Successor Company Predecessor Company
---------------------------- --------------------------
For the Eleven Months One Month For the
Year Ended Ended Ended Year Ended
December 31, December 25, January 26, December 26,
1995 1994 1994 1993
------------ ------------- ----------- ------------
Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities
Balance at September 27, 1992 38,505,500
Net income (loss) $(123,709) $(163,876) $ 385 $279,193548,042 $(52,114)
--------- --------- --------- --------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities net
of effects of Chi-Chi's acquisition in 1994:
Depreciation and amortization 57,836 48,646 2,800 32,224
Amortization of debt issuance costs 6,726 3,006 215 2,531
Loss (gain) on disposition of properties 12,067 5,685 (12) 4,916
Charges to reserve for divestitures 0 (9,434) (1,001) (886)
Provision for divestitures and write-down
of long-lived assets 44,500 144,780 0 10,400
Fresh start adjustment 0 0 (501,706) 0
Extraordinary gain on extinguishment of debt 0 (2,941) (72,561) 0
Accretion of interest on Discount Notes 13,454 11,362 0 0
Accrued interest on liabilities settled under
bankruptcy proceedings 0 0 3,113 0
(Increase) decrease in receivables 708 697 54 (3,757)
(Increase) decrease in inventories 1,976 (552) 394 5,209
(Increase) decrease in other current assets (3,382) (566) 358 (2,331)
Increase (decrease) in accounts payable 1,403 (14,611) 1,096 (3,925)
Increase (decrease) in self-insurance reserves 1,664 1,526 (386) (5,235)
Increase (decrease) in other accrued liabilities (7,430) (6,223) 1,130 38,587
Increase (decrease) in income taxes payable 270 847 212 (267)
--------- --------- --------- --------
Total adjustments 129,792 182,222 (566,294) 77,466
--------- --------- --------- --------
Net cash provided by (used in) operating
activities $ (29,046)6,083 $ (3,534)18,346 $ (65) $246,933
Exercise(18,252) $ 25,352
========= ========= ========= ========
Supplemental schedule of investing activities:
The components of acquisition of Chi-Chi's in 1994 are as follows:
Current assets $ (7,730)
Property and equipment (153,731)
Goodwill (149,376)
Other assets (13,908)
Current liabilities 59,324
Other long-term liabilities 5,975
Long-term debt assumed 4,694
Issuance of common 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
========== ==== ======= ======== ======= ===== =======62,341
---------
$(192,411)
=========
Supplemental schedule of noncash investing and financing activities:
Common stockholders' deficit was increased by $20,232,000 in 1993 for stock
dividends on preferred stock.
Disclosure of accounting policy:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
See accompanying notes to consolidated financial statements.
F-7F-8
FOODMAKER,FAMILY RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DollarsFOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Family Restaurants, Inc. (formerly known as The Restaurant Enterprises
Group, Inc.), incorporated in thousands, exceptDelaware in 1986, is primarily engaged in the
operation of full-service restaurants throughout the United States through its
subsidiaries. At December 31, 1995, the Company operated 670 restaurants located
in 33 states, with 53% of its restaurants located in California. Additionally,
as of December 31, 1995, the Company was the licensor of 255 full-service
restaurants in Japan and South Korea, the franchisor of six family restaurants
and three Mexican restaurants in the United States and the franchisor of 18
Mexican restaurants outside the United States. As used in these consolidated
financial statements, the term "Company" refers to Family Restaurants, Inc.
together with its subsidiaries.
Reference to the "Predecessor Company" refers to The Restaurant
Enterprises Group, Inc. and its consolidated subsidiaries (not including
Chi-Chi's) with respect to information relating to periods prior to January 27,
1994 included herein, and reference to the "Successor Company" refers to Family
Restaurants, Inc. and its consolidated subsidiaries, giving effect to the
Acquisition (as defined below), with respect to information about events
occurring upon completion of or after the Acquisition.
The consolidated financial statements of the Predecessor Company were
prepared on a going concern basis, which contemplated continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. While the Chapter 11 cases described below were in process, the
Company continued in possession of its properties and operated and managed its
business as a debtor-in-possession pursuant to the United States Bankruptcy
Code. The Company applied the provisions of the American Institute of Certified
Public Accountants Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), in the December 26,
1993 consolidated financial statements. On January 7, 1994, the Plan (as defined
below) was confirmed by the bankruptcy court (see Note 2).
The accumulated deficit of the Predecessor Company was eliminated as
required by fresh start reporting; additionally, the statement of operations for
the one month ended January 26, 1994 reflects the effects of the forgiveness of
debt resulting from confirmation of the Plan and the effects of adjustments to
restate assets and liabilities to reflect the reorganization value of the
Successor Company. As such, the consolidated balance sheets of the Company as of
December 31, 1995 and December 25, 1994 and the
F-9
accompanying consolidated statements of operations for the year ended December
31, 1995 and the eleven months ended December 25, 1994 represent that of the
Successor Company which, in effect, is a new entity with assets, liabilities and
a capital structure having carrying values not comparable with prior periods.
The accompanying consolidated statements of operations for the one month ended
January 26, 1994 and the year ended December 26, 1993 represent that of the
Predecessor Company.
NOTE 2 - THE ACQUISITION:
On January 27, 1994 (the "Closing Date"), Apollo FRI Partners, L.P.
("Apollo"), Green Equity Investors, L.P. ("GEI") and Foodmaker, Inc.
("Foodmaker") acquired approximately 98% of the outstanding common stock, par
value $.01 per share data)
1. ORGANIZATION(the "Common Stock") of the Company (the "Acquisition").
The Acquisition involved the following components and related transactions, all
of which (unless otherwise noted) were consummated on the Closing Date:
New Equity Investment. Apollo, GEI, Foodmaker Inc.and certain officers of
the Company made a $154.7 million new equity investment (the "Company""New Equity
Investment") operates and franchises Jack in the Box
restaurantsCompany pursuant to the acquisition agreement, dated as of
October 15, 1993, among the Company, Apollo, GEI, Foodmaker and formerly operated Chi-Chi's (as
amended, the "Acquisition Agreement") and the Employee Stock Purchase (as
defined below). Apollo purchased 40.0% of the Common Stock outstanding
immediately following the Closing Date for $62.3 million in cash, and GEI
purchased 18.4% of the Common Stock outstanding immediately following the
Closing Date for $28.8 million in cash. Foodmaker acquired 40.0% of the Common
Stock immediately following the Closing Date, with a value of $62.3 million in
the Chi-Chi's Merger (as defined below).
Chi-Chi's Merger. The Company acquired Chi-Chi's, a wholly-owned
subsidiary of Foodmaker and the operator, directly or indirectly through its
subsidiaries, or franchisor of 235 full-service Mexican restaurants, ("Chi-
Chi's") (see Note 3). Thethe largest
chain of such restaurants in the United States based upon both number of
restaurants and annual revenues. This acquisition was accounted for under the
purchase method. The Chi-Chi's acquisition occurred through a merger of a
newly-formed subsidiary of the Company with Chi-Chi's (the "Chi-Chi's Merger").
Pursuant to the Acquisition Agreement, Foodmaker received (i) $205.0 million in
operationcash, less the principal amount of capital leases and the face amount of certain
indebtedness of Chi-Chi's existing or assumed by the Company in connection with
the Chi-Chi's Merger, (ii) 389,634 shares of Common Stock and (iii) a warrant to
purchase, at an aggregate exercise price of $26.7 million, 10% of the Common
Stock outstanding assuming the full exercise thereof (the "Warrant"). The
Foodmaker Warrant expires on February 1, 1999. Pro forma financial statements
for the Chi-Chi's Merger have not been presented as such merger was a component
of the Acquisition, and pro forma financial
F-10
statements reflecting only this component of the Acquisition would not be
meaningful.
Credit Facility. The Company, FRI-M Corporation (formerly known as
REG-M Corp.), a wholly-owned subsidiary of the Company ("FRI-M"), and certain
subsidiaries of FRI-M (the "Subsidiary Guarantors") entered into a $150.0
million five-year fully revolving credit facility (the "Credit Facility") with a
$100.0 million sub-limit for standby letters of credit to be used for general
corporate purposes, including working capital and capital expenditures.
Borrowings under the Credit Facility are made by FRI-M. Such borrowings are
guaranteed by the Company and the Subsidiary Guarantors and are secured by
substantially all of the assets of such subsidiaries and by a pledge of the
stock of FRI-M and the Subsidiary Guarantors (see Note 9 for a discussion of
certain limitations to the total commitment available under the Credit
Facility).
Prepackaged Plan. The Company and REG-M Corp. commenced Chapter 11
cases on November 23, 1993, and a prepackaged joint plan of reorganization (the
"Plan") was confirmed by the United States Bankruptcy Court for the District of
Delaware on January 7, 1994. On the Closing Date, substantially all of the
Company's old debt and equity securities were cancelled and extinguished through
consummation of the Plan and holders thereof received cash distributions as
follows. For each $1,000 principal amount of 12 1/4% Senior Subordinated Notes
due 1996 (the "Old Senior Subordinated Notes"), holders received $939.26 in cash
plus an additional cash amount equal to interest accrued on $939.26 from May 19,
1993 to the Closing Date at a rate equal to 10.05% per annum (the weighted
average of the yields to maturity of the Notes at the endtime they were issued)
(the "Accrual Rate"). For each $1,000 principal amount of 12 3/4% Subordinated
Notes due 1998 (the "Old Subordinated Notes" and, together with the Old Senior
Subordinated Notes, the "Old Notes"), holders received $646.18 in cash plus an
additional cash amount equal to interest accrued on $646.18 from May 19, 1993 to
the Closing Date at the Accrual Rate. For each fiscal year follows:
Jackshare of 12% Cumulative
Exchangeable Preferred Stock (the "Preferred Stock"), holders received $17.88 in
cash and for each share of Class D Common Stock (the "Old Common Stock"),
holders received $.50 in cash.
Employee Stock Purchase and Management Incentive Plan. In connection
with the Acquisition, the Company adopted a new management incentive plan
pursuant to which certain officers and employees of the Company were granted the
right to purchase up to 40,900 shares of Common Stock (constituting up to 4.1%
of the Common Stock outstanding immediately following such purchases) at $160
per share (the "Employee Stock Purchase"), the same per share price paid by
Apollo and GEI in the Box Chi-Chi's
--------------------- ---------
1995New Equity Investment. The Employee Stock Purchase was
consummated on the Closing Date with respect to certain officers (15,625 shares
of Common Stock) and on May 19, 1994 1993 1993
---- ---- ---- ----
Operated byand July 31, 1994 with respect to the other
participants (22,552 shares of Common Stock). No more than fifty percent of the
purchase price was authorized to be financed through
F-11
interest-bearing recourse notes payable to the Company. These notes are due on
May 31, 1999, if not paid earlier by deductions from incentive compensation, and
bear interest at 7%. . . 863 810 725 207
OperatedInterest is payable every six months, in cash or additional
notes. The Company has repurchased 8,992 shares of Common Stock due to employee
terminations, leaving 29,185 shares currently owned by franchisees. . . . 389 414 447 28
----- ----- ----- ---
System restaurants . . . . . . 1,252 1,224 1,172 235
===== ===== ===== ===
2.management stockholders
and terminated employees. The individuals who purchased Common Stock were also
granted options to purchase 20,822 shares of Common Stock in the future at an
exercise price initially set at $160 per share. The Company also granted options
to purchase approximately 30,000 shares of Common Stock to approximately 800
other employees.
Investment Agreement. W. R. Grace & Co.-Conn. ("Grace"), Western Family
Restaurants, Inc., an affiliate of Grace which owned 74.6% of the Old Common
Stock, and the Company entered into an agreement as amended (the "Investment
Agreement"), with Apollo REG, Co., GEI REG, Co. and FMI REG, Co. and Foodmaker.
Under the Investment Agreement, among other things, the Company paid Grace $15.0
million on the Closing Date in consideration of Grace's undertaking to obtain
written confirmation that although Grace would no longer hold an equity interest
in the Company, the Company would continue to receive royalties under a license
agreement through February 4, 2010. Grace also agreed to indemnify the Company
against certain tax liabilities and with respect to certain previously divested
leases.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BasisPOLICIES:
Fiscal year
The Company reports results of presentation andoperations based on 52 or 53 week
periods ending on the last Sunday in December. The fiscal year -ended December
31, 1995 included 53 weeks, the fiscal year ended December 25, 1994 included 52
weeks, and the fiscal year ended December 26, 1993 included 52 weeks, less one
day.
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and all its wholly-owned subsidiaries. All significant intercompany balances and
transactions are eliminated.
Certain financial statement reclassifications have been madeeliminated.
Estimations
The preparation of financial statements in prior
yearsconformity with generally
accepted accounting principles requires management to conform tomake estimates and
assumptions that affect the 1995 presentation. The Company's fiscal year is
52-53 weeks endingreported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the Sunday closest to September 30.
Cash equivalents, for purposesdate of the financial
statements and the reported amounts of cash flows,revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-12
Inventories
Inventories consist primarily of food and liquor and are considered to be all highly liquid investments with a maturity of three
months or less when purchased.
Inventories are valuedstated at the
lower of cost which approximates FIFO, or market. Investments - The Company accounts for its 39% investment in Family
Restaurants, Inc. ("FRI")Costs are determined using the equity method of accounting. In 1995
the Company completely wrote off its investment in FRI (see Note 3)first-in, first-out
(FIFO) method.
Property and equipment
Property and equipment are stated at cost and are depreciated on a
straight-line basis over their estimated useful lives (buildings principally
over 25 to 35 years and furniture, fixtures and equipment over 3 to 10 years).
Trading area rights represent the amount allocated under purchase
accounting to reflect the value of operating existing restaurants within
their specific trading area andLeasehold improvements are amortized on a straight-line basis over the periodshorter
of controltheir estimated useful lives or the terms of the property, not exceeding 40 years, and
are retired when a restaurantrelated leases. Property
under capitalized leases 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 7leases using the
straight-line method.
Losses on disposition of properties are recognized when a commitment to
14 years; and pre-opening costs, consisting
primarily of employee training costs incurred beforedivest 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 acquisitionproperty 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 acquisitionmade 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 impairedand include estimated
carrying costs through the expected date of disposal.
Property held for sale
Property held for sale is carried at October 1, 1995, October 2, 1994its estimated fair value, less
estimated selling costs.
Advertising
Production costs of commercials and October 3, 1993.
F-8
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollarsprogramming are charged to
operations when aired. The costs of other advertising, promotion and marketing
programs are charged to operations 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 buildingsyear incurred.
Franchise and equipment or over the lease term for
certain capital leases (buildings 3% to 6 2/3% per yearlicense fees
Initial franchise 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 revenueslicense fees are recognized when all material
services have been performed and conditions have been satisfied. Initial fees
for the periods presented are insignificant. Monthly fees are accrued as earned
based on the respective monthly sales. Such fees totalled $6,036,000 for 1995,
$6,006,000 for the eleven months ended December 25, 1994 (including Chi-Chi's
fees subsequent to the Acquisition), $546,000 for the one month ended January
26, 1994 and $4,907,000 for 1993 and are included as an offset to general and
administrative expenses.
The Company hedged its foreign currency royalties through forward
exchange contracts. These contracts reduced the exposure to currency movements
affecting the royalty receivable. Each contract's duration typically ended when
the receivable was expected to be paid. The future value of each contract and
the related currency position were subject to off-setting market risk. On
December 4, 1995, these contracts were terminated, resulting in a realized gain
of $2,405,000, which is included as a reduction to
F-13
general and administrative expenses in the consolidated financial statements.
Reorganization value and goodwill
Reorganization value in excess of amounts allocable to identifiable
assets is amortized using the straight-line method over 30 years. Goodwill
related to the Chi-Chi's Merger was amortized using the straight-line method
over 30 years through the fourth quarter of 1994 when the Company wrote off its
remaining goodwill balance (see Note 7). Accumulated amortization of
reorganization value amounted to $13,018,000 at December 31, 1995 and $6,273,000
at December 25, 1994. During 1995, the Company determined that an impairment of
the portion of this asset related to its traditional dinnerhouse restaurants had
occurred and wrote off $2,049,000.
Impairment of long-lived assets
The Company evaluates property and equipment for impairment by
comparison of the carrying value of the assets to estimated undiscounted cash
flows expected to be generated by the Company. Expensesasset over its estimated useful life.
Other long-lived assets (i.e., reorganization value and franchise operating
rights) are evaluated by comparison of their carrying value to the discounted
cash flows expected to be generated. In addition, the Company's evaluation
considers non-fictional data such as continuity of personnel, changes in the
operating environment, name identification, competitive information and market
trends. Finally, the evaluation considers changes in management's strategic
direction or market emphasis. When the foregoing considerations suggest that a
deterioration of the financial condition of the Company or any of its
restaurants has occurred, the Company measures the amount of an impairment, if
any, based on the estimated fair value of each of its restaurants over the
remaining amortization period.
During the third quarter of 1995, the Company closed seven Chi-Chi's
restaurants and identified additional restaurants to be sold or having impaired
asset value. Approximately 32 marginally profitable or unprofitable restaurants
are currently being offered for sale. In conjunction with this divestment
program, the Company analyzed the carrying value of the Chi-Chi's long-lived
assets to determine if any impairment had occurred. In connection with this
analysis, the Company recorded a charge for divestitures and writedowns of
long-lived assets of $41.9 million.
The Company believes that there has been no other impairment of its
long-lived assets, other than reorganization value associated with the issuanceits
traditional dinnerhouse restaurants, as 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.December 31, 1995.
F-14
Income taxes
- In February 1992,The Company accounts for income taxes using the Financial Accounting Standards Board
issuedstandards specified in
Statement of Financial Accounting Standards No. ("SFAS") 109, "Accounting for Income
Taxes" (see Note 12).
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 recognizedLoss per common share
Loss per common share 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,
theSuccessor 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 weighted average number of commonshares actually outstanding. The impact of the
Warrant and common equivalent shares outstanding. When
dilutive, stockoutstanding options have not been included since the impact would be
antidilutive.
Reclassifications
Certain amounts as previously reported have been reclassified to
conform to the 1995 presentation.
NOTE 4 - RECEIVABLES:
A summary of receivables follows:
1995 1994
------ -------
(in thousands)
Trade, principally credit
cards $2,760 $ 3,184
License and franchise fees
and related receivables 3,184 5,113
Receivable from Marriott
Distribution Services 0 661
Insurance recovery receivables 0 323
Notes receivable 1,016 428
Other 1,212 2,122
------ -------
$8,172 $11,831
====== =======
NOTE 5 - PROPERTY HELD FOR SALE:
On March 1, 1996, the Company entered into a definitive agreement (the
"Sale Agreement") to sell the Family Restaurant Division to an indirect
wholly-owned subsidiary of Flagstar Companies, Inc. ("Flagstar") in a
transaction with an enterprise value of approximately $306.5 million.
Consummation of the sale is subject to customary terms and warrants are included as share equivalents
usingconditions. At
December 31, 1995, the treasury stock method. PrimaryFamily Restaurant Division operated 349 restaurants in
ten states and fully diluted earnings
(loss) per share are not materially different.
Stock Options -was the licensor of 251 full-service restaurants in Japan and
South Korea and the franchisor of six restaurants in the United States. Under
the terms of the Sale Agreement, the Company will receive, subject to certain
post-closing adjustments based on a closing balance sheet, cash of $125 million
and $150 million principal amount of 12-1/2% Senior Notes due in 2004 (the
"Flagstar Notes"), and Flagstar will assume $31.5 million of long-term debt,
primarily capitalized lease obligations. The Company accounts for stock optionsexpects the
F-15
sale to be finalized in the second quarter of 1996 and to record a pretax gain
in 1996 as a result of this transaction. Cash proceeds from the sale will be
used to repay indebtedness outstanding under the intrinsic
value based method whereby compensation expense is recognizedCredit Facility and for
general corporate purposes, which may include future interest payments on the
difference betweenSenior Notes (as defined below). In addition, Flagstar is required to (i) file
a registration statement with the quoted market priceSecurities and Exchange Commission with
respect to the resale of the Company stock atFlagstar Notes within 45 days after the date of
grantoriginal issuance of the Flagstar Notes and (ii) use its best efforts to cause
such registration statement to become effective within 105 days after such
issue date (see Note 9).
During 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
companyfourth quarter of 1995, the Company determined 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
exchangetraditional dinnerhouse restaurants would be held 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.sale. The net cashassets of
these restaurants were written down to their estimated fair value (based in
part on a previously received was used by Foodmaker to repay alloffer in late 1995), less estimated selling
costs, of $12,908,000, resulting in a loss of $3,565,000 (including the
debt outstanding under its then existing bank credit facility,write-off of reorganization value of $2,049,000 associated with these
restaurants, which has
beenis included in loss (gain) on disposition of properties in
the accompanying consolidated statement of operations). Management is marketing
these restaurants as both a combined group and individually; however, it
believes the most likely disposition will be on an individual basis or through
lease terminations. Further, as a result of this divestment, approximately
1,350 employees will be terminated and estimated severance benefits (as well as
lease termination costs) of $1,354,000 have been accrued. Management has
identified the specific employees involved in the termination plan and has
communicated the benefit arrangements. The disposition of these restaurants is
expected to reduce other debt, to the extent permittedbe completed by the
Company's financing agreements, and to provide funds for capital
expenditures and general corporate purposes.December 1996.
As a result of negative publicity regardingthese transactions, the nutritionalassets and liabilities of the
Family Restaurant Division and the traditional dinnerhouse restaurants have been
classified as property held for sale in the accompanying consolidated balance
sheet. The components of property held for sale are as follows (in thousands):
Current assets $ 9,716
Property and equipment, net 166,187
Reorganization value, net 149,315
Other assets 9,405
Current liabilities (67,842)
Long-term debt (26,704)
--------
$240,077
========
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1995 presents pro forma operating
results for the Company as if the sale of the Family Restaurant Division and
related transactions had occurred as of the beginning of fiscal year 1995. The
following unaudited pro forma condensed consolidated balance sheet presents the
pro forma financial condition of the Company as if the sale of the Family
Restaurant Division had occurred on December 31, 1995. The unaudited pro forma
condensed consolidated balance sheet and statement of operations were prepared
assuming the following events had occurred in connection with the sale of the
Family Restaurant Division:
(i) the consummation of the sale of the Family Restaurant Division
and related transactions and
(ii) the repayment of existing loans payable under the Credit
Facility and related transactions.
The pro forma unaudited adjustments represent the Company's preliminary
determination of the necessary adjustments and are based upon certain
assumptions the Company considers reasonable under the circumstances. Final
amounts will differ from those set forth below. The unaudited pro forma
financial information presented herein does not purport to represent what the
Company's results of operations or financial position would have been had such
events occurred at the beginning of fiscal year 1995, or at
F-16
the date indicated or to project the Company's results of operations in any
future period.
If the sale of the Family Restaurant Division had occurred as of the
beginning of 1995, the results of operations would have been as follows for the
year ended December 31, 1995 (in thousands except per share):
Family Unaudited
Restaurants, -----------------------
Inc. for the Pro forma
year ended -----------------------
Dec. 31, 1995 Adjustments Combined
------------- ----------- ---------
Sales $1,134,359 $(502,485) $ 631,874
---------- --------- ---------
Product cost 322,194 (143,534) 178,660
Payroll and related costs 419,185 (181,403) 237,782
Occupancy and other operating
expenses 275,164 (95,882) 179,282
Depreciation and amortization 57,836 (27,906) 29,930
General and administrative
expenses 56,245 (20,201) 36,044
Interest expense, net 65,277 (29,949) 35,328
Loss (gain) on disposition on
properties, net 12,067 (44,706) (32,639)
Provision for divestitures and
write-down of long-lived assets 44,500 0 44,500
Restructuring costs 4,392 0 4,392
---------- --------- ---------
Total costs and expenses 1,256,860 (543,581) 713,279
---------- --------- ---------
Loss before income tax
provision (122,501) 41,096 (81,405)
Income tax provision 1,208 (493) 715
---------- --------- ---------
Net loss $ (123,709) $ 41,589 $ (82,120)
========== ========= =========
Net loss per common share $ (124.75) $ (82.81)
========== =========
Weighted average common shares
outstanding 991,650 991,650
======= =======
These unaudited pro forma adjustments include the effect of (i) the
elimination of the operating results of the Family Restaurant Division for the
year ended December 31, 1995, including certain allocated corporate general and
administrative expenses which are allocated to each of the Company's divisions
based on sales ($11,418,000 for the Family Restaurant Division); (ii) the
elimination of interest expense related to the Credit Facility of $7,887,000
and the inclusion of interest income related to the Flagstar Notes of
$18,750,000; (iii) the gain on the sale of the Family Restaurant Division of
$42,831,000; and (iv) the decrease in state, local and foreign income tax
expense of $493,000 resulting from the sale of the Family Restaurant Division
(the Company incurs no Federal income taxes due to its operating losses).
F-17
If the sale of the Family Restaurant Division had occurred as of
December 31, 1995, the Company's Unaudited Pro Forma Condensed Consolidated
Balance Sheet would appear as follows (in thousands):
Unaudited
Family -----------------------
Restaurants, Pro forma
Inc. at -----------------------
Dec. 31, 1995 Adjustments Combined
------------- ----------- --------
Assets:
Current assets:
Cash and cash equivalents $ 8,370 $ 39,899 $ 48,269
Property held for sale 240,077 (227,169) 12,908
Other current assets 18,630 0 18,630
--------- --------- --------
Total current assets 267,077 (187,270) 79,807
Flagstar notes 0 150,000 150,000
Other long-term assets 246,555 0 246,555
Other assets 37,638 (739) 36,899
--------- --------- --------
$ 551,270 $ (38,009) $513,261
========= ========= ========
Liabiities and stockholders' deficit:
Current liabilities:
Loan payable to banks $ 79,815 $ (79,815) $ 0
Other accrued liabilities 78,319 (286) 78,033
Other current liabilities 63,829 0 63,829
--------- --------- --------
Total current liabilities 221,963 (80,101) 141,862
Long-term liabilities 460,883 0 460,883
Stockholders' deficit (131,576) 42,092 (89,484)
--------- --------- --------
$ 551,270 $ (38,009) $513,261
========= ========= ========
These unaudited pro forma adjustments include the effect of (i) the
elimination of the Family Restaurant Division property held for sale balance of
$227,169,000; (ii) receipt of cash of $125,000,000 (net of estimated transaction
costs of $5,000,000) and the Flagstar Notes of $150,000,000, with no assumption
for the impact of any post-closing adjustments based on a closing balance sheet;
and (iii) the payment of existing loans ($79,815,000) and accrued interest
($286,000) payable under the Credit Facility and the elimination of the
remaining balance of capitalized debt issuance costs of $739,000.
F-18
NOTE 6 - PROPERTY AND EQUIPMENT:
A summary of property and equipment follows:
1995 1994
--------- ---------
(in thousands)
Land $ 24,030 $ 55,872
Buildings and improvements 151,245 293,847
Furniture, fixtures and
equipment 64,253 105,340
Projects under construction 2,666 23,296
--------- ---------
242,194 478,355
Accumulated depreciation
and amortization (34,971) (33,001)
--------- ---------
$ 207,223 $ 445,354
========= =========
Property under capitalized leases in the amount of $23,800,000 at
December 31, 1995 and $64,201,000 at December 25, 1994 is included in buildings
and improvements. Accumulated amortization of property under capitalized leases
amounted to $5,227,000 at December 31, 1995 and $7,215,000 at December 25,
1994. Capitalized leases primarily relate to the buildings on certain
restaurant properties; the land portions of these leases are accounted for as
operating leases.
Depreciation and amortization relating to property and equipment was
$45,766,000 for 1995, $33,860,000 for the eleven months ended December 25,
1994, $2,359,000 for the one month ended January 26, 1994 and $28,394,000 for
1993, of which $7,578,000, $7,451,000, $412,000 and $6,213,000, respectively,
was related to amortization of property under capitalized leases.
A majority of the capitalized and operating leases have original terms
of 25 years, and substantially all of these leases expire in the year 2006 or
later. Most leases have renewal options. The leases generally provide for
payment of minimum annual rent, real estate taxes, insurance and maintenance
and, in most cases, contingent rent, calculated as a percentage of sales, in
excess of minimum rent. The total amount of contingent rent under capitalized
leases for the year ended December 31, 1995, the eleven months ended December
25, 1994, the one month ended January 26, 1994 and the year ended December 26,
1993 was $5,491,000, $4,895,000, $305,000 and $5,315,000, respectively. Total
rental expense for all operating leases comprised the following:
F-19
Eleven
Months One Month
Ended Ended
Dec. 25, Jan. 26,
1995 1994 1994 1993
-------- -------- ---------- ---------
(in thousands)
Minimum rent $ 56,577 $ 50,373 $ 2,153 $ 26,315
Contingent rent 3,775 3,636 208 3,339
Less: Sublease rent (5,815) (5,685) (369) (5,035)
-------- -------- -------- --------
$ 54,537 $ 48,324 $ 1,992 $ 24,619
======== ======== ======== ========
At December 31, 1995, the present value of Mexican food,capitalized lease payments
and resultingthe future minimum lease payments on noncancellable operating leases were:
Capitalized Operating
Due in Leases Leases
------ ----------- ---------
(in thousands)
1996 $ 10,791 $ 50,984
1997 10,467 49,297
1998 10,067 48,450
1999 9,259 46,989
2000 8,207 45,010
Later years 27,609 259,769
-------- --------
Total minimum lease payments 76,400 $500,499
Interest (24,770) ========
--------
Present value of minimum
lease payments $ 51,630
========
The future lease payments summarized above include commitments for
leased properties included in property held for sale and in the Company's
divestiture program.
NOTE 7 - GOODWILL WRITE-OFF:
Chi-Chi's reported significant sales declines FRIin the second half of
1994 which continued into 1995. These sales declines resulted in operating
performance for Chi-Chi's which was significantly lower than anticipated at the
time of the Acquisition. These operating results caused the Company to
reevaluate its business strategy for the Mexican Restaurant Division,
particularly Chi-Chi's. Consistent with this strategic reevaluation, the
Company revised its forecasts for the future operations of Chi-Chi's which
resulted in a significant reduction in projected future cash flows and a lower
valuation of the business. The Company determined that its projected results
for Chi-Chi's would not support the future amortization of the remaining
Chi-Chi's goodwill balance of $144,780,000 at December 25, 1994.
F-20
The methodology employed to assess the recoverability of the Chi-Chi's
goodwill first involved the projection of operating cash flows forward through
the year 2001 and the determination of a residual factor. These projections
were then discounted using an internal rate of return developed by a review of
certain publicly traded restaurant companies. The Company then evaluated the
recoverability of Chi-Chi's goodwill on the basis of this forecast of future
operations. Based on such forecast, the cumulative discounted future cash flow
was insufficient to recover the Chi-Chi's goodwill balance. Accordingly, the
Company wrote off the remaining unamortized Chi-Chi's goodwill attributable to Chi-Chi'sbalance of
$144,780,000 in theirthe fourth quarter endedof 1994.
NOTE 8 - OTHER ASSETS:
A summary of other assets follows:
1995 1994
------- -------
(in thousands)
Liquor licenses $ 6,059 $ 7,079
Debt issuance costs 13,352 20,078
Franchise operating rights 0 8,733
Notes receivable 8,569 9,882
Property held for sale 8,753 339
Other 905 2,537
------- -------
$37,638 $48,648
======= =======
Debt issuance costs are amortized over the terms of the respective
loan agreements.
Franchise operating rights at December 25, 1994.1994 are stated at their
fair market value as of the date of the Acquisition based on royalty income
streams and are amortized over the terms of the franchise agreements. The
franchise operating rights at December 31, 1995 have been reclassified as
property held for sale.
Property held for sale represents Chi-Chi's restaurants identified for
divestment during the third quarter of 1995 which management believes will be
sold over the next two years (see Note 3).
NOTE 9 - LONG-TERM DEBT, INCLUDING CAPITALIZED LEASE OBLIGATIONS:
Long-term debt, including capitalized lease obligations, is comprised
of the following (excluding amounts in 1995 related to the Family Restaurant
Division and traditional dinnerhouse restaurants):
F-21
1995 1994
-------- --------
(in thousands)
9-3/4% Senior Notes $300,000 $300,000
10-7/8% Senior Subordinated
Discount Notes 133,860 120,406
Revolving credit loans 0 59,600
Capitalized lease obligations 21,159 58,798
Mortgage notes, 12-1/4% - 12-1/2%,
due 1996-1998 529 1,719
Other 2,701 2,726
-------- --------
458,249 543,249
Amounts due within one year 3,046 6,754
-------- --------
$455,203 $536,495
======== ========
In connection with the Acquisition, the Company sold $300.0 million
principal amount of 9-3/4% Senior Notes due in full in 2002 (the "Senior
Notes") and $150.0 million principal amount ($109.0 million in proceeds) of
10-7/8% Senior Subordinated Discount Notes due in full in 2004 (the "Discount
Notes" and, together with the Senior Notes, the "Notes"), and the Company and
certain of its subsidiaries entered into the $150.0 million senior secured
revolving Credit Facility with a $100.0 million sub-limit for standby letters
of credit, which was to be used for general corporate purposes including
working capital, debt service and capital expenditure requirements. The Credit
Facility will terminate and the obligations thereunder will be immediately due
and payable on January 27, 1999. The outstanding total commitment available
under the Credit Facility, as amended, as of March 29, 1996, was $137.9
million, leaving $6.2 million of additional borrowings available thereunder.
Borrowings in the amount of $79,815,000 were outstanding under the
Credit Facility as of December 31, 1995, and interest on the revolving credit
loans was being charged at 10.0%. On August 1, 1995, the Company borrowed
$14,625,000 under the Credit Facility to fund an interest payment made on the
Senior Notes. This amount was paid off in December 1995. On February 1, 1996,
the Company borrowed $14,625,000 to fund an additional interest payment on the
Senior Notes. Standby letters of credit are issued under the Credit Facility
primarily to provide security for future amounts payable by the Company under
its workers' compensation insurance program ($37,600,000 of such letters of
credit were outstanding as of December 31, 1995).
The Credit Facility contains various covenants including the
maintenance of certain financial ratios. The Company recorded in its firstis suffering from deficit
cash flows from operations and has made required debt service payments on other
obligations through borrowings on the Credit Facility. Accordingly, the Company
has failed to comply with certain of such financial covenants and anticipates
that it may not comply with such covenants for the fiscal quarters ending March
1996 and June 1996. However, the banks under the Credit Facility (the "Banks")
have agreed to waive such noncompliance
F-22
through July 31, 1996. In accordance with generally accepted accounting
principles, and because the waivers only extend through July 31, 1996, at this
time the Company has classified the outstanding balance of $79,815,000 at
December 31, 1995 as a current liability. There can be no assurances that
further waivers or amendments will be obtained after July 31, 1996. Given this
uncertainty, the amortization of the related debt issuance costs was
accelerated assuming the debt will be retired or replaced earlier.
The Senior Notes require semiannual interest payments on February 1
and August 1 of each year and will mature on February 1, 2002. The Senior Notes
will not be redeemable at the option of the Company prior to February 1, 1999.
Thereafter, such notes may be redeemed at prices starting at 102.786% and
declining ratably to 100% at February 1, 2001. The Discount Notes will not
require cash interest payments until August 1, 1997. Thereafter, interest on
the Discount Notes will be paid on February 1 and August 1 of each year, and
such notes will mature on February 1, 2004. The Discount Notes will not be
redeemable at the option of the Company prior to February 1, 1999. Thereafter,
such notes may be redeemed at prices starting at 104.078% and declining ratably
to 100% at February 1, 2002.
In the third quarter of 1995, the complete write-downCompany retained Donaldson, Lufkin &
Jenrette Securities Corporation as a financial advisor to assist the Company in
the process of its 39% investmentdivesting certain divisions and operations. This process
culminated in FRIthe execution of the Sale Agreement on March 1, 1996 to sell the
Family Restaurant Division to Flagstar in a transaction with an enterprise
value of $306.5 million, subject to certain adjustments based on a closing
balance sheet. Cash proceeds from the sale will be used to repay
indebtedness outstanding under the Credit Facility and for general corporate
purposes, which may include future interest payments on the Senior Notes (see
Note 5). Consummation of the sale is subject to customary terms and conditions
and there can be no assurances that this transaction will be consummated.
Upon consummation of the sale, the Company will continue to be highly
leveraged and have significant debt service requirements. Although management
believes that the proceeds available to the Company as a result of the goodwill write-off.
Summarized financial information through FRI's third quarter ended
September 24, 1995, follows:
Statementsale
(including funds available from potential sale 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)
Becausethe Flagstar Notes), its cost
restructuring and revised marketing plans for Chi-Chi's, and other available
options (including sale of FRI's continuing substantial lossesother divisions and resulting increased
borrowingsale/leaseback of owned
properties) should be sufficient to meet its operating and debt service
requirements for 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,foreseeable future, there can be no assurance that the
Company by an agreement dated November 20, 1995, transferred all of its stock and
warrantswill be able to Apollo. Sincerepay or refinance 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.Notes at their respective
maturities. The Company is subjectcurrently exploring various alternatives to a number of covenantsfurther
reduce its debt (including indebtedness outstanding 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,Notes). Among
other things, the Company may purchaseuse the propertiesFlagstar Notes to reduce such debt.
F-23
The mortgage notes were issued to a group of institutional lenders and
are collateralized by mortgages covering five restaurants having a book value
of approximately $5.1 million 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 termsDecember 31, 1995.
Maturities 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.
Interestincluding capitalized lease obligations,
during the construction period of restaurants was
$161, $727four years subsequent to December 29, 1996 are as follows:
$3,958,000 in 1997; $2,847,000 in 1998; $2,424,000 in 1999 and $255$2,327,000 in
1995, 1994 and 1993, respectively.
5.2000.
NOTE 10 - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTSINSTRUMENTS:
The carrying amountrecorded amounts of the Company's cash and cash equivalents,
trade receivables, trade
accounts payable,restricted cash, self-insurance reserves, other accrued expensesliabilities and
notes payable to banksrevolving credit borrowings at December 31, 1995 and December 25, 1994
approximate fair values.value. 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,excluding capitalized lease obligations, is estimated as follows:
1995 1994
------------------------- -------------------------
Recorded Fair Recorded Fair
Amount Value Amount Value
-------- -------- --------- ---------
(in thousands)
Senior Notes $300,000 $165,000 $300,000 $233,250
Discount Notes 133,860 15,000 120,406 81,000
Mortgage notes 529 549 1,719 1,718
Other 2,701 2,368 2,726 2,460
The fair values of the Notes are $430,928 and $412,028,
respectively.
Fair value estimates are made at a specific point in time, based on relevantan average market informationprice of
these instruments as of the end of fiscal 1995 and information about1994. The fair value of the
financial
instrument. These estimates are subjective in naturemortgage notes and involve
uncertaintiesother debt was estimated using a discount rate which the
Company believes would be currently available to it for debt with similar terms
and matters of significant judgement and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.average maturities.
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-12NOTE 11 - OTHER ACCRUED LIABILITIES:
A summary of other accrued liabilities follows (excluding amounts in
1995 related to the Family Restaurant Division and traditional dinnerhouse
restaurants):
F-24
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
6. LEASES
As Lessee
1995 1994
------- -------
(in thousands)
Wages, salaries and bonuses $16,136 $27,292
Carrying costs of closed properties 12,925 17,912
Interest 13,306 13,212
Reserve for divestitures 11,858 0
Sales tax 3,771 10,011
Property taxes 3,460 4,626
Accrued rent 868 3,474
Utilities 1,381 4,028
Other 14,614 15,871
------- -------
$78,319 $96,426
======= =======
Carrying costs of closed properties represent the estimated future
costs associated with the Company's closed and subleased restaurants which
consists primarily of the net present value of lease subsidies which are mainly
comprised of the excess of future lease payments for which the Company is
liable, over amounts estimated to be received from related subleases.
NOTE 12 - INCOME TAXES:
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 uponreported 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 $3,875loss before income tax provision in 1995, 1994
and 1993,1993. Accordingly, the income tax provisions for each year primarily
reflect certain state, local and foreign taxes. On a tax return basis, the
Federal regular operating loss carryforwards amounted to approximately $208.5
million ($143.5 million of alternative minimum tax operating loss
carryforwards) and expire in 2003 through 2011. The Company had approximately
$1.7 million of tax credit carryforwards which expire in 2003 and 2004.
Upon consummation of the Acquisition, the Company's net operating loss
carryovers and other tax attributes were reduced significantly for Federal
income tax purposes. In addition, because the consummation of the Acquisition
triggered an ownership change of the Company for Federal income tax purposes,
the Company's post-Acquisition use of its remaining net operating loss
carryovers for regular and alternative minimum Federal income tax purposes is
subject to an annual limitation in an amount equal to the product of (i) the
long-term tax-exempt rate prevailing on the Closing Date and (ii) the value of
the Company's stock, increased to reflect the cancellation of indebtedness
pursuant to the Plan (but without taking into account contributions to capital
pursuant to the Acquisition). The Company's annual limit is approximately $5.3
million.
At December 31, 1995, the Company and its subsidiaries had tax credit
carryforwards of approximately $4.1 million not utilized by Grace. In
accordance with the 1986 acquisition from Grace, the Company must reimburse
Grace for 75% of the benefit of these tax credits if they are utilized in
future Company tax returns. Further, El Torito Restaurants, Inc. (a wholly
owned subsidiary of
F-25
the Company) has approximately $12.3 million of tax depreciation deductions not
claimed in Grace tax returns as a result of a tax sharing agreement. The
Company will also reimburse Grace for 75% of any tax savings generated by these
deductions. In addition, operating loss and tax credit carryforwards ($5.3
million and $0.7 million, respectively) generated prior to the acquisition of
certain restaurant companies by Grace were available at December 31, 1995 to
offset future taxable income or income taxes, respectively, of those companies
for various years through 1999.
Further, as a result of the Chi-Chi's Merger, the Company has net
operating loss and credit carryforwards not used by Chi-Chi's of $50.7 million
and $6.9 million, respectively. Future minimum lease payments under capitalThe net operating losses expire beginning in
2004 through 2009 and operating leasesthe credit carryovers expire in various years from 1996
through 2009. The Acquisition, as well as the 1992 acquisition of a previous
franchisee by Chi-Chi's, triggered ownership changes for Federal income tax
purposes which result in separate annual limitations on the availability of
these losses and credits.
A reconciliation of income tax expense to the amount of income tax
benefit that would result from applying the Federal statutory rate (35% for
1995, 1994 and 1993) to loss before income taxes is as follows:
Fiscal Eleven One Fiscal
Year Months Month Year
Ended Ended Ended Ended
Dec. 31, Dec. 25, Jan. 26, Dec. 26,
1995 1994 1994 1993
-------- -------- --------- --------
(in thousands)
Provision for income
taxes at statutory
rate $(42,875) $(56,736) $ 191,834 $(18,010)
State taxes, net of
Federal income tax
benefit 332 (2,948) (16,300) (3,113)
State minimum tax 0 1,183 55 187
Foreign taxes 270 541 49 471
Goodwill 3,312 54,679 0 1,923
Nondeductible reorgani-
zation costs 0 0 (175,597) 0
Addition to valuation
allowance 0 4,896 0 17,545
Surtax exemption 0 0 0 514
Change in deferred tax
asset which is subject
to a full valuation
reserve and other 40,169 158 14 1,141
-------- -------- --------- --------
$ 1,208 $ 1,773 $ 55 $ 658
======== ======== ========= ========
F-26
At December 31, 1995 and December 25, 1994, the Company's deferred tax
asset was $186,874,000 and $136,383,000, respectively, and deferred tax
liability was $29,514,000 and $27,570,000, respectively. The major components
of the Company's net deferred taxes of $157,360,000 at December 31, 1995 and
$108,813,000 at December 25, 1994 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
1995 1994
--------- ---------
(in thousands)
Depreciation $ (24,062) $ (26,004)
Net operating loss and
credit carryforwards 115,279 86,243
Capitalized leases 1,921 900
Divestment, carrying cost
and rent subsidy reserves 23,183 8,306
Self-insurance reserves 22,779 22,552
Kasumi payment to Grace 5,808 6,000
Property held for sale (5,451) 0
Straight-line rent 1,923 1,939
Reorganization costs 6,714 4,834
Other 9,266 4,043
--------- ---------
157,360 108,813
Valuation allowance (157,360) (108,813)
--------- ---------
$ 0 $ 0
========= =========
The increase in the valuation allowance for 1995 resulted from an
increase in the cumulative temporary differences offset by expirations 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 Lessorcertain credits.
NOTE 13 - BENEFIT PLANS:
The Company leases or subleases restaurants tomaintains certain franchiseesincentive compensation and others under agreements which generally providerelated plans
for executives and key operating personnel, including restaurant and field
management. Total expenses for these plans were $7,071,000, $8,217,000,
$666,000 and $9,479,000 for 1995, 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,eleven months ended December 25, 1994,
the one month ended January 26, 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
====
LandPredecessor Company had two Retirement Savings Plans, 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 consistsubstantially all of the following:
1995Predecessor Company's salaried employees were eligible
to participate in them. Effective December 31, 1991, the Predecessor Company
suspended its match under one of the plans and terminated the other plan.
During 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 atCompany acquired two retirement plans related to 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 ofChi-Chi's
Merger and established a new 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.compensation plan for highly compensated
employees. In fiscal 1995, the Company recognized an
increase inreinstituted its match under the valuation allowance of $26,280 related to the write-off of
the investment in Family Restaurants, Inc., the SFAS 106 accrualRetirement
Savings Plan. The Company's contributions and an
adjustment to contributions carryforwards.
At October 1,expenses under these plans were
$355,000, $528,000, $2,000 and $53,000 for 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-15eleven months ended
December 25, 1994, one month ended
F-27
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 1995,26, 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 postretirementhas no defined 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. . . . . . . . . . . . .plans.
NOTE 14 - -
------- -------
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 CompanyTRANSACTIONS:
Foodmaker provides distribution services to a portion of FRI'sthe Company's
Mexican restaurants, principally those operated under the Chi-Chi's name.
Distribution sales to those restaurants aggregated $78,195 and $63,702 infor the year ended December 31, 1995
and the eleven months ended December 25, 1994 respectively, subsequent to January 27, 1994, the date the
Company sold Chi-Chi'saggregated $76,423,000 and
acquired its 39% interest in FRI.$81,537,000, respectively. In relation to the distribution sales, the Company
had accounts receivablepayable of $3,839$1,481,000 and $3,166$2,964,000 due from Chi-Chi'sto Foodmaker at October 1,December
31, 1995 and October 2,December 25, 1994, respectively.
Gibbons, Goodwin, van Amerongen ("GGvA"), successor to Gibbons, Green, van
Amerongen, general partnersOn the Closing Date, Apollo and GEI received an aggregate of $7.0
million as a financial advisory fee for services provided in connection with
the limited partnerships which owned
approximately 45%Acquisition and related transactions. In addition, Apollo and GEI each
charge a monthly fee 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$50,000 for providing certain management services to
the Company. 13. STOCKHOLDERS' EQUITYFor the year ended December 31, 1995 and the eleven months ended
December 25, 1994, the Company was charged $1.2 million and $1.1 million,
respectively, in connection with this arrangement.
NOTE 15 - COMMON STOCK:
In conjunctionconnection with the December 1988 acquisitionAcquisition, the Company adopted a new
management incentive plan, pursuant to which certain officers and employees of
the Company warrants
forwere granted the right to purchase up to 40,900 shares of Common
Stock (constituting up to 4.1% of the Common Stock outstanding immediately
following such purchases) at $160 per share (the "Employee Stock Purchase"),
the same per share price paid by Apollo and GEI in the New Equity Investment.
The Employee Stock Purchase was consummated on the Closing Date with respect to
certain officers (15,625 shares of Common Stock) and on May 19, 1994 and July
31, 1994 with respect to the other participants (22,552 shares of Common
Stock). No more than fifty percent of the purchase of 1,584,573price was authorized to be
financed through interest-bearing recourse notes payable to the Company. The
Company has repurchased 8,992 shares of common stockCommon Stock due to employee
terminations, leaving 29,185 shares currently owned by management stockholders
and terminated employees. The individuals who purchased Common Stock were issuedalso
granted options to purchase 20,822 shares of Common Stock in the future at an
exercise price initially set at $160 per share. The Company also granted
options to purchase approximately 30,000 shares of Common Stock to
approximately 800 other employees. All these options expire in 2004 and are2005
and become exercisable at $.93 per share, as adjusted. Asa rate of October 1, 1995,
warrants for 1,450,626 shares had been exercised.
At October 1, 1995,25% on the grant date and 25% on each of
the next three anniversaries of the grant date. Approximately 22,000 options
have expired due to terminations.
F-28
NOTE 16 - CONTINGENCIES:
The Company had 4,904,527 sharesis involved in various litigation matters incidental to
its business. The Company does not believe that any of common stock
reserved for issuancethe claims or actions
filed against it will have a material adverse effect upon the exerciseconsolidated
financial position and results 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 successoperations 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-20F-29
FOODMAKER,SCHEDULE VIII
FAMILY RESTAURANTS, INC.
VALUATION 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:QUALIFYING ACCOUNTS
(in thousands)
1995 1994 1993Additions
Balance at Charged to Charged to Balance
beginning costs and other at end
Description of period expenses accounts Deductions of period
----------- ---------- ---------- ----------
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,
Allowance for uncollectible
receivables:
For the year 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$813 $0 $0 $(131)(2) $682
For the year 1994 955 21 360 (1) (523)(2) 813
For the year 1993 548 429 0 (22)(2) 955
F-22(1) Represents allowance established at the date of the Chi-Chi's Merger.
(2) Represents write-off of uncollectible receivables against allowance and
includes transfers to other accounts.
F-30