<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 21, 1996 Commission File No. 1-9390
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FOODMAKER, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-2698708
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(State of Incorporation) (I.R.S. Employer
Identification No.)
9330 BALBOA AVENUE, SAN DIEGO, CA 92123
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 571-2121
---------------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Number of shares of common stock, $.01 par value, outstanding
as of the close of business March 1, 1996 - 38,819,895
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<PAGE> 2
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 21, October 1,
1996 1995
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ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 55,495 $ 35,865
Receivables . . . . . . . . . . . . . . . . . . . . 23,866 25,272
Inventories . . . . . . . . . . . . . . . . . . . . 23,750 22,385
Prepaid expenses. . . . . . . . . . . . . . . . . . 12,605 14,367
------- -------
Total current assets . . . . . . . . . . . . . . 115,716 97,889
------- -------
Trading area rights . . . . . . . . . . . . . . . . . 68,664 69,761
------- -------
Lease acquisition costs . . . . . . . . . . . . . . . 22,749 25,003
------- -------
Other assets. . . . . . . . . . . . . . . . . . . . . 36,531 36,310
------- -------
Property at cost. . . . . . . . . . . . . . . . . . . 593,694 589,642
Accumulated depreciation and amortization . . . . . (162,277) (155,931)
------- -------
431,417 433,711
------- -------
TOTAL. . . . . . . . . . . . . . . . . . . . . . $675,077 $662,674
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt. . . . . . . . $ 1,780 $ 1,836
Accounts payable. . . . . . . . . . . . . . . . . . 37,147 32,015
Accrued expenses. . . . . . . . . . . . . . . . . . 96,857 98,166
Income taxes payable. . . . . . . . . . . . . . . . 2,792 --
------- -------
Total current liabilities. . . . . . . . . . . . 138,576 132,017
------- -------
Deferred income taxes . . . . . . . . . . . . . . . . 9,751 9,586
------- -------
Long-term debt, net of current maturities . . . . . . 439,506 440,219
------- -------
Other long-term liabilities . . . . . . . . . . . . . 51,301 49,599
------- -------
Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . . . . . 402 402
Capital in excess of par value. . . . . . . . . . . 280,996 280,996
Accumulated deficit . . . . . . . . . . . . . . . . (230,992) (235,682)
Treasury stock. . . . . . . . . . . . . . . . . . . (14,463) (14,463)
------- -------
Total stockholders' equity . . . . . . . . . . . 35,943 31,253
------- -------
TOTAL. . . . . . . . . . . . . . . . . . . . . . $675,077 $662,674
======= =======
See accompanying notes to financial statements.
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<PAGE> 3
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Sixteen Weeks Ended
----------------------------
January 21, January 22,
1996 1995
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Revenues:
Restaurant sales. . . . . . . . . . . . . . . . . . $266,065 $227,613
Distribution sales. . . . . . . . . . . . . . . . . 52,600 55,259
Franchise rents and royalties . . . . . . . . . . . 10,389 9,940
Other . . . . . . . . . . . . . . . . . . . . . . . 1,576 868
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330,630 293,680
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Costs and expenses:
Costs of revenues:
Restaurant costs of sales. . . . . . . . . . . . 74,507 64,050
Restaurant operating costs . . . . . . . . . . . 143,018 130,919
Costs of distribution sales. . . . . . . . . . . 51,938 54,158
Franchised restaurant costs. . . . . . . . . . . 6,236 6,822
Selling, general and administrative . . . . . . . . 32,593 37,067
Equity in loss of FRI . . . . . . . . . . . . . . . -- 57,188
Interest expense. . . . . . . . . . . . . . . . . . 14,649 15,267
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322,941 365,471
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Earnings (loss) before income taxes . . . . . . . . . 7,689 (71,791)
Income taxes. . . . . . . . . . . . . . . . . . . . . 2,999 500
------- -------
Net earnings (loss) . . . . . . . . . . . . . . . . . $ 4,690 $(72,291)
======= =======
Net earnings (loss) per share - primary
and fully diluted. . . . . . . . . . . . . . . . $ 0.12 $ (1.87)
======= =======
Weighted average shares outstanding . . . . . . . . . 39,190 38,675
See accompanying notes to financial statements.
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<PAGE> 4
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Sixteen Weeks Ended
-------------------------
January 21, January 22,
1996 1995
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Cash flows from operations:
Net earnings (loss) . . . . . . . . . . . . . . . . $ 4,690 $(72,291)
Non-cash items included above:
Depreciation and amortization. . . . . . . . . . 12,020 11,477
Deferred income taxes. . . . . . . . . . . . . . 165 --
Equity in loss of FRI. . . . . . . . . . . . . . -- 57,188
Decrease in receivables . . . . . . . . . . . . . . 1,406 3,500
Increase in inventories . . . . . . . . . . . . . . (1,365) (2,732)
Decrease in prepaid expenses. . . . . . . . . . . . 1,762 4,069
Increase (decrease) in accounts payable . . . . . . 5,132 (4,755)
Increase in accrued expenses. . . . . . . . . . . . 2,926 1,851
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Cash flows provided (used) by operations . . . . 26,736 (1,693)
------- -------
Cash flows from investing activities:
Additions to property and equipment . . . . . . . . (7,858) (8,226)
Dispositions of property and equipment. . . . . . . 1,147 867
Increase in trading area rights . . . . . . . . . . 122 --
Decrease in other assets. . . . . . . . . . . . . . 108 1,354
------- -------
Cash flows used by investing activities. . . . . (6,481) (6,005)
------- -------
Cash flows from financing activities:
Principal payments on long-term debt,
including current maturities . . . . . . . . . . (884) (7,355)
Increase in accrued interest. . . . . . . . . . . . 259 167
Proceeds from issuance of common stock. . . . . . . -- 22
------- -------
Cash flows used by financing activities. . . . . (625) (7,166)
------- -------
Net increase (decrease) in cash and cash equivalents $ 19,630 $(14,864)
======= =======
See accompanying notes to financial statements.
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FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring
adjustments, considered necessary for a fair presentation have been
included. Operating results for any interim period are not necessarily
indicative of the results for any other interim period or for the full
year. The Company reports results quarterly with the first quarter having
16 weeks and each remaining quarter having 12 weeks. Certain financial
statement reclassifications have been made in the prior year to conform to
the current year presentation. These financial statements should be read
in conjunction with the 1995 financial statements.
2. Income taxes for the 16 weeks ended January 21, 1996 were 39% of earnings
before income taxes. Although the Company incurred a loss in 1995, income
taxes were $.5 million due to required minimum taxes and the Company's
inability under Statement of Financial Accounting Standards No. ("SFAS")
109, "Accounting for Income Taxes", to recognize the benefit from the
carryover of losses to future years.
3. On January 27, 1994, Foodmaker, Inc. (the "Company") contributed its former
wholly-owned subsidiary, Chi-Chi's, Inc. ("Chi-Chi's"), to Family
Restaurants, Inc. ("FRI") in exchange for an approximate 39% equity
interest in FRI valued at the date of exchange at approximately $62
million, a five-year warrant to acquire 111,111 additional shares at $240
per share (which if exercised would increase the Company's ownership to
45%), and approximately $173 million in cash. Because of substantial
continuing losses, FRI wrote off at the end of 1994 approximately $160
million of goodwill causing FMI to write off its entire investment in FRI
during the first quarter of its fiscal year ended October 1, 1995. As
disclosed in the Company's fiscal 1995 financial statements, FRI lost
almost $100 million through its third quarter ended September 24, 1995.
Because of such losses and resulting increased borrowing requirements, the
major FRI stockholders were required to become liable for additional
advances to FRI by its banks. Rather than doing so, FMI entered into an
agreement dated November 20, 1995 to transfer all of its stock and warrants
to another stockholder of FRI. Since the Company's investment in FRI was
previously written off, the consummation of this Agreement had no effect on
the financial condition or results of operations of the Company.
4. Contingent Liabilities
Various claims and legal proceedings are pending against the Company in
various state and federal courts. Many of those proceedings are in the
states of California, Washington, Nevada, Idaho and Oregon, seeking
monetary damages for personal injuries relating to the outbreak of food-
borne illness (the "Outbreak") attributed to hamburgers served at
Jack in the Box restaurants. The Company, in consultation with its
insurance carriers and attorneys, does not anticipate that the total
liability on all such lawsuits and claims will exceed the coverage
available under its applicable insurance policies.
Actions were filed on July 2, 1993, in the Superior Court of California,
County of San Diego, by certain of the Company's franchisees against the
Company, The Vons Companies, Inc., ("Vons") and other suppliers (Syed
Ahmad, et al, versus Foodmaker, Inc., et al), claiming damages from reduced
sales and profits due to the Outbreak. After extensive negotiations,
settlements were reached with all franchisees. 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. Substan-
tially 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
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<PAGE>6
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.
The Federal Trade Commission ("FTC") is investigating whether the Company
violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act") when the Company's former subsidiary, Chi-Chi's, Inc., acquired
Consul Restaurant Corporation in October 1992 without first complying with
the reporting and waiting requirements of the HSR Act. The Company later
made the filing as it was preparing for the sale of Chi-Chi's. The Company
has engaged counsel in connection with the investigation and on August 17,
1994, counsel for the Company received a request, preliminary in nature,
for information and documents. A subpoena covering the preliminary material
supplied and additional information and documents was issued on January 19,
1995. Sworn statements have been given to the FTC by various people,
including certain officers and former officers of the Company and
Chi-Chi's. The HSR Act provides for a penalty of up to $10,000 per day for
failure to comply with the above requirements. Management believes that any
potential penalty, if assessed, will not have a material impact on the
Company.
The U.S. Internal Revenue Service ("IRS") had proposed adjustments to tax
liabilities of $17 million (exclusive of interest) for the Company's
federal income tax returns for fiscal years 1986 through 1988. A final
report has been issued 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).
A final report has not been issued but agreement has been reached to
satisfy these proposed adjustments at $.1 million. Management believes
that adequate provision for income taxes has been made.
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<PAGE>7
FOODMAKER, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION
RESULTS OF OPERATIONS
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All comparisons under this heading between 1996 and 1995, unless otherwise
indicated, refer to the 16-week periods ended January 21, 1996 and January 22,
1995, respectively.
Revenues increased $36.9 million, or 12.6%, to $330.6 million in 1996 from
$293.7 million in 1995 due to an increase in restaurant sales, offset in part
by a decline in distribution sales.
Sales by Company-operated restaurants increased $38.5 million, or 16.9% to
$266.1 million in 1996 from $227.6 million in 1995, reflecting increases in
both per store average sales and in the average number of restaurants. Per
store average sales for comparable restaurants ("PSA"), which increased 10.9%
in 1996 as compared to 1995, continued to improve under the Company's marketing
program which features a new advertising campaign, new product introductions
and aggressive value-priced product alternatives. The average number of
Company-operated restaurants increased to 866 in 1996 from 811 in 1995,
reflecting the addition of 20 new restaurants and the acquisition of 36
restaurants from franchisees since January 1995.
Distribution sales of food and supplies declined approximately $2.7
million to $52.6 million in 1996 from $55.3 million in 1995 primarily due to a
$5.2 million decline in sales to FRI and others, offset by an increase in sales
to franchisees. 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 later
in fiscal year 1996.
Franchise rents and royalties increased $.5 million to $10.4 million in
1996 from $9.9 million in 1995, primarily due to increased franchisee sales in
1996 as compared to the same period of 1995.
Other revenues increased $.7 million to $1.6 million in 1996 from $.9
million in 1995, primarily due to interest income earned on higher levels of
invested cash in 1996.
Restaurant costs of sales increased $10.4 million to $74.5 million in 1996
from $64.1 million in 1995, principally due to the costs related to increased
restaurant sales. Costs of sales decreased slightly as a percent of sales in
1996 as compared to 1995 due to the impact of lower ingredient costs and the
lower food cost of certain promotions, partially offset by higher packaging
costs.
Restaurant operating costs increased $12.1 million to $143.0 million in
1996 from $130.9 million in 1995 primarily due to the increase in average
number of Company-operated restaurants and variable costs associated with
increased sales. Restaurant operating costs declined as a percent of sales in
1996 as compared to the same period in 1994 primarily due to lower percentages
of restaurant labor, operations administrative costs and fixed expenses.
Costs of distribution sales declined $2.3 million to $51.9 million in 1996
from $54.2 million in 1995 consistent with the decline in distribution sales.
Franchise restaurant costs, which consist of rents and depreciation on
properties leased to franchisees and other miscellaneous costs, decreased to
$6.2 million in 1996 from $6.8 million in 1995, primarily due to a decline in
the average number of domestic franchisee-operated restaurants.
Selling, general and administrative expenses decreased $4.5 million to
$32.6 million in 1996 from $37.1 million in 1995, principally due to the
inclusion of an $8.0 million settlement with stockholders in the first quarter
of 1995 as described in the Company's fiscal 1995 consolidated financial state-
ments. Advertising and promotion costs increased $4.4 million to $26.1 million
in
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<PAGE>8
1996 from $21.7 million in 1995 due to costs of aggressive promotions and
discounting of products and the increase in contributions to the advertising
fund related to higher sales in 1996. In 1996 the Company received from
suppliers cooperative advertising funds of approximately $1.3 million, which
effectively offset some of the aforementioned higher advertising and promotion
costs. Such funds were contributed to the advertising fund in the prior year.
In the first quarter of 1995, the Company recorded a loss of $57.2 million
relating to its 39% 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 Mexican restaurants. In the first
quarter of 1996, the Company transferred all of its stock and warrants to
another stockholder of FRI. Since the Company's investment in FRI was
previously written off, the transfer of the stock and warrants had no effect on
the financial condition or results of operations of the Company. See Note 3 to
the financial statements.
Interest expense decreased $.7 million to $14.6 million in 1996 from $15.3
million in 1995 due to a reduction of debt and lower other financing costs.
Income taxes were 39% of pretax earnings in 1996. 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.
FINANCIAL CONDITION
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The Company's primary sources of liquidity are expected to be cash flows
from operations, the revolving bank credit facility described below, and the
sale and leaseback of restaurant properties. An additional potential source of
liquidity is the conversion of company-operated Jack In The Box restaurants to
franchised restaurants. The Company requires capital principally to construct
new restaurants, to maintain, improve and refurbish existing restaurants, and
for general corporate purposes.
At January 21, 1996, the Company's working capital deficit decreased $11.2
million to $22.9 million from $34.1 million at October 1, 1995, and reflects an
increase of $19.6 million in cash. At January 21, 1996, the Company had $55.5
million in cash on hand. 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 January 21, 1996, the Company's total debt outstanding was $441.3
million. Substantially all of the Company's real estate and machinery and
equipment is, and is expected to continue to be, pledged to its lenders.
On July 26, 1994, the Company entered into a revolving bank credit
agreement which provides for a credit facility of up to $52.5 million,
including letters of credit for the account of the Company in an aggregate
amount of up to $25 million. At January 21, 1996, the Company had a total of
approximately $45.3 million of unused credit under the agreement. Covenants
contained in the agreement include limitations on additional borrowing, capital
expenditures, lease commitments and dividend payments, and requirements to
maintain certain financial ratios, cash flows and net worth.
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 lease-
back of restaurants, the Company will be able to meet all of its debt service
requirements, as well as its capital expenditures and working capital require-
ments, for the foreseeable future.
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<PAGE>9
PART II - OTHER INFORMATION
There is no information required to be reported for any items under Part II,
except as follows:
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting was held February 16, 1996 at which the
following matters were voted as indicated:
For Withheld
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1. Election of the following directors to serve
serve until the next annual meeting of
stockholders and until their successors are
elected and qualified.
Michael E. Alpert . . . . . . . . . . . . 29,141,711 227,719
Paul T. Carter. . . . . . . . . . . . . . 29,127,710 241,720
Charles W. Duddles. . . . . . . . . . . . 29,142,211 227,219
Edward Gibbons. . . . . . . . . . . . . . 28,979,896 389,534
Jack W. Goodall . . . . . . . . . . . . . 29,108,868 260,562
Leonard I. Green. . . . . . . . . . . . . 29,129,260 240,170
Robert J. Nugent. . . . . . . . . . . . . 29,129,028 240,402
L. Robert Payne . . . . . . . . . . . . . 29,121,271 248,159
Christopher V. Walker . . . . . . . . . . 29,141,810 227,620
For Against Abstain Not Voted
--------- ------- ------- ---------
2. Ratification of the appoint-
ment of KPMG Peat Marwick LLP
as independent accountants 29,251,620 47,461 70,349 -0-
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
------ -----------
27 Financial Data Schedule (included only with electronic
filing)
(b) Reports on Form 8-K - None
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<PAGE>10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in the capacities indicated.
FOODMAKER, INC.
By: CHARLES W. DUDDLES
------------------------------
Charles W. Duddles
Executive Vice President, Chief
Administrative Officer and
Chief Financial Officer
(Duly Authorized Signatory)
Date: March 5, 1996
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FIRST QUARTER HAS 16 WEEKS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> JAN-21-1996
<CASH> 55,495
<SECURITIES> 0
<RECEIVABLES> 22,019
<ALLOWANCES> 4,524
<INVENTORY> 23,750
<CURRENT-ASSETS> 115,716
<PP&E> 593,694
<DEPRECIATION> 162,277
<TOTAL-ASSETS> 675,077
<CURRENT-LIABILITIES> 138,576
<BONDS> 439,506
<COMMON> 402
0
0
<OTHER-SE> 35,541
<TOTAL-LIABILITY-AND-EQUITY> 675,077
<SALES> 318,665
<TOTAL-REVENUES> 330,630
<CGS> 126,445
<TOTAL-COSTS> 275,699
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,649
<INCOME-PRETAX> 7,689
<INCOME-TAX> 2,999
<INCOME-CONTINUING> 4,690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,690
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
