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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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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 SEPTEMBER 28, 1997
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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 November 14, 1997, computed by reference to the closing
price reported in the New York Stock Exchange - Composite Transactions, was
approximately $624 million.
Number of shares of common stock, $.10 par value, outstanding as of the
close of business November 14, 1997 - 39,143,767
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the 1998 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.
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ITEM 1. BUSINESS
The Company
Overview. Foodmaker, Inc. (the "Company") owns, operates and
franchises Jack in the Box restaurants, a fast-food chain located principally
in the western and southwestern United States. Jack in the Box is a leading
regional competitor in the fast-food segment of the restaurant industry with
systemwide sales of $1.34 billion in fiscal 1997. At September 28, 1997,
there were 1,323 Jack in the Box restaurants, of which 963 were operated by the
Company and 360 were franchised.
Menu and marketing strategies for Jack in the Box restaurants are
principally directed toward adult fast-food customers. Jack in the Box is
known for its core signature products, the Jumbo Jack and Sourdough Jack
hamburgers. The Company also offers a wider menu selection than most of its
major competitors featuring foods that are not commonly offered in the
fast-food hamburger segment, such as the Chicken Teriyaki Bowl and Chicken
Fajita Pita.
Jack in the Box was the first restaurant chain to develop and expand the
concept of drive-thru only restaurants, and drive-thru sales currently
account for approximately 64% of the sales at Company-operated 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, opened in 1950, and the Jack in the Box chain expanded its
operations 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, the
Company's management decided to concentrate its efforts and resources in the
western and southwestern markets, which it believed offered the greatest
growth and profit potential. Accordingly, the Company 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. The Jack in the Box operating strategy is to: (i)
increase per store average sales through product quality improvements and
marketing initiatives; (ii) enhance guest service through improved selection,
training, and retention of guest service and management personnel; and (iii)
increase the number of Jack in the Box restaurants through the addition of
Company-operated and franchise-developed restaurants in it's existing and
contiguous markets.
Menu Strategy. The menu strategy for Jack in the Box restaurants is to
provide high quality products that represent good value and appeal to the
preferences of its customers. The menu features traditional hamburgers and
side items in addition to specialty sandwiches, salads, Mexican foods, finger
foods, breakfast foods, unique side items and desserts.
Jack in the Box recognizes the advantages of improving existing products
through ingredient specifications and changes in preparation and cooking
procedures. Such major improvements are communicated to the public through
point of purchase and television media, with messages such as "Juicier Burgers,
Crispier Fries, and Real Ice Cream Shakes".
Hamburgers represent the largest segment of the fast-food industry;
accordingly, Jack in the Box continues to offer hamburgers as principal menu
items. Hamburgers, including the Jumbo Jack, Sourdough Jack and the
Ultimate Cheeseburger, accounted for approximately one quarter of the
Company's restaurant sales in fiscal 1997. 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 the Jack in the Box menu appeals to guests with a broad
range of food preferences.
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Growth Strategy. The Company's goal is to achieve targeted levels of
media coverage in it's existing major markets through the construction of new
Jack in the Box restaurants primarily by the Company and, to a lesser extent,
by franchisees. The Company currently intends to open approximately 400-500
new restaurants over the next five years. Approximately 15% of the new
development is expected to be on non-traditional sites, such as the two
recently opened restaurants which share sites with a gas station, convenience
store and car wash in one location. 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 1993:
Fiscal year
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1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Company-operated restaurants:
Opened. . . . . . . . . . . 75 26 21 54 10
Sold to franchisees . . . . (8) -- (6) (4) (11)
Closed. . . . . . . . . . . (6) (15) (4) (9) (4)
Acquired from franchisees . 23 5 42 44 10
Ending number . . . . . . . 963 879 863 810 725
Franchised restaurants:
Opened. . . . . . . . . . . 5 10 12 8 13
Acquired from Company . . . 8 -- 6 4 11
Closed. . . . . . . . . . . (21) (3) (1) (1) (2)
Sold to Company . . . . . . (23) (5) (42) (44) (10)
Ending number . . . . . . . 360 391 389 414 447
System total. . . . . . . . . 1,323 1,270 1,252 1,224 1,172
The following table summarizes the geographical locations of
Jack in the Box restaurants at September 28, 1997:
Company- Company-
operated Franchised operated Franchised
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Arizona. . . . . . 64 46 Nevada . . . . 18 10
California . . . . 398 250 New Mexico . . -- 2
Hawaii . . . . . . 26 1 Oregon . . . . 2 2
Idaho. . . . . . . 14 -- Texas. . . . . 317 35
Illinois . . . . . 12 -- Washington . . 74 --
Louisiana. . . . . -- 5 Hong Kong. . . -- 6
Missouri . . . . . 38 3 --- ---
Total. . . . . 963 360
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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 developed by franchisees are built to Company
specifications on sites which have been approved by the Company.
The Company currently uses several configurations in building new
Jack in the Box restaurants. The largest restaurants seat 90 customers and
require a larger customer base to justify the required investment of
approximately $1.3 million, including land. The smallest restaurants seat 44
customers, require less land, and cost slightly less to build and equip than do
the largest restaurants. Management believes that the flexibility provided by
the alternative configurations enables the Company to match the restaurant
configuration with specific demographic, economic and geographic
characteristics of the site.
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Restaurant Operations. Significant resources are devoted to ensure that
all Jack in the Box restaurants offer the highest quality 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
conduct and appearance of its employees, and the maintenance and repair of
its premises. Operating specifications and procedures are documented in a
series of manuals and video presentations. Most restaurants, including
franchised units, receive approximately 4 full inspections and 26 mystery guest
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
conduct and appearance of employees.
Restaurant managers are supervised by approximately 50 area managers,
each of whom is responsible for an average of 20 restaurants. The area
managers are under the supervision of seven 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.
The Company'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
has developed a comprehensive, restaurant-based Hazard Analysis & Critical
Control Points ("HACCP") system for managing food safety and quality. HACCP
combines employee training, testing by suppliers, and detailed attention to
product quality at every stage of the food preparation cycle.
Foodmaker provides purchasing, warehouse and distribution services for
both Company-operated and some franchised restaurants. Prior to 1996,
most Jack in the Box franchisees used these services to the full extent
available even though they were permitted to purchase products directly from
any approved source. In 1996, Jack in the Box franchisees formed a
purchasing cooperative and contracted with another supplier for distribution
services. This transition by most franchisees resulted in a substantial
decline in distribution sales. Some products, primarily dairy and bakery
items, are delivered directly by approved suppliers to both Company-operated
and franchised restaurants.
The primary commodities purchased by Jack in the Box restaurants are beef,
poultry 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. 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 uses a specially designed
computerized reporting and cash register system. The system provides
point-of-sale transaction data and accumulates marketing information. Sales
data is collected and analyzed on a weekly basis by management.
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Franchising Program. The Jack in the Box 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. 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.
The current Jack in the Box franchise agreement provides for an initial
franchise fee of $50,000 (formerly $25,000) per restaurant. This agreement
generally provides for royalties of 5% of gross sales (4% for agreements
executed prior to February 23, 1996), a marketing fee of 5% of gross sales
(although some existing agreements provide for a 4% rate) and approximately a
20-year term. In connection with the conversion of a Company-operated
restaurant, the restaurant equipment and the 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. The
Company's franchise agreement also provides the Company a right of first
refusal on each proposed sale of a franchised restaurant, which it exercises
from time to time, when the proposed sale price and terms are acceptable to
the Company.
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 revenues while still maintaining future
cash flows and earnings through franchise rents and royalties. Although
franchised units totaled 360 of the 1,323 Jack in the Box restaurants at
September 28, 1997, the ratio of franchised to Company-operated restaurants
is low relative to the Company's major competitors.
Advertising and Promotion. Jack in the Box engages in substantial
marketing programs and activities. Advertising costs are paid from a fund
comprised of (i) an amount contributed each year by the Company equal to at
least 5% of the gross sales of its Company-operated Jack in the Box restaurants
and (ii) the marketing fees paid by domestic franchisees. The Company's use
of advertising media is limited to regional and local campaigns both on
television and radio spots and in print media. Jack in the Box does not
advertise nationally. Jack in the Box spent approximately $66 million on
advertising and promotions in fiscal 1997, including franchisee contributions
of $15.5 million. The current advertising campaign relies on a series of
television and radio spot advertisements to promote individual products and
develop the Jack in the Box brand. The Company also spent $1.1 million in
fiscal 1997 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 September 28, 1997, the Company had approximately 29,000
employees, of whom approximately 27,000 were restaurant employees, 450 were
corporate personnel, 250 were distribution employees and 1,300 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 the Company'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 and various product names and designs.
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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, local and national economic conditions affecting
consumer spending habits, population trends, and traffic patterns. Key
elements of competition 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 restaurant chains 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.
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 to the relationship
between franchisor and franchisee, including limitations on the ability of
franchisors to terminate franchisees and alter franchise arrangements. 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 subject to certain guidelines under the Americans with
Disabilities Act of 1990 and various state codes and regulations which
require restaurants to provide full and equal access to persons with physical
disabilities. To comply with such laws and regulations, the cost of
remodeling and developing restaurants has increased, principally due to the
need to provide certain older restaurants with ramps, wider doors, enlarged
restrooms and other conveniences. See "Item 3 Legal Proceedings".
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.
Forward-Looking Statements
The Company wishes to caution readers that forward-looking statements
made by or on behalf of the Company, are subject to known and unknown risks
and uncertainties which may cause the Company's actual results to be
materially different from future results expressed or implied by any
forward-looking statements. In connection with the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995, the Company provides
the following cautionary statements which identify important factors that
could cause the Company's actual results to differ materially from those
expressed in any forward-looking statements. No inference should be drawn
that the factors referred to below are the only factors which could give rise
to such differences.
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In addition to factors discussed in this Form 10-K, among the other
factors that could cause the Company's results to differ materially are: the
effectiveness and cost of advertising and promotional efforts; the degree of
success of the Company's product offerings; weather conditions; difficulties
in obtaining ingredients and variations in ingredient costs; the Company's
ability to control operating, general and administrative costs and to raise
prices sufficiently to offset cost increases; the Company's ability to
recognize value from any current or future co-branding efforts; competitive
products and pricing and promotions; the impact of any wide-spread negative
publicity; the impact on consumer eating habits of new scientific information
regarding diet, nutrition and health; competition for labor; general economic
conditions; changes in consumer tastes and in travel and dining-out habits;
the impact on operations and the costs to comply with laws and regulations
and other activities of governing entities; the costs and other effects of
legal claims by franchisees, customers, vendors and others, including
settlement of those claims; and the effectiveness of management strategies
and decisions.
There can be no assurance that the Company or its franchisees will
achieve growth objectives or that new restaurants will be profitable. The
opening and profitability of restaurants are subject to various risk factors
including the identification, availability and lease or purchase terms of
suitable sites, both traditional and non-traditional; the ability of the
Company and its franchisees to finance new restaurant development and to hire
and adequately train sufficient staff; the ability to meet construction
schedules, permitting and regulatory compliance; and the sales and cost
performance of the individual new restaurants.
The growth of Jack in the Box restaurants outside the United States is
subject to a number of additional factors. The Company has limited
experience with international franchise development. The growth and
profitability of international restaurants are subject to the financial,
development and operational capabilities of franchisees, the franchisees'
ability to develop a support structure and adequately support subfranchisees,
the franchisees' adherence to the Company's operational standards, as well as
currency regulations and fluctuations. See "Item 3 Legal Proceedings".
Because the Company's business is regional, with approximately 75% of its
Company-operated and franchised restaurants located in the states of
California and Texas, the economic conditions and weather conditions
affecting those states may have a material impact upon the Company's results.
The Company has a substantial number of employees who are paid wage rates
at/or slightly above the minimum wage. As federal and/or state minimum wage
rates increase, the Company may need to increase not only the wages of its
minimum wage employees but also the wages paid to the employees at wage rates
which are above minimum wage. If competitive pressures or other factors
prevent the Company from offsetting the increased costs by increases in
prices, the Company's profitability may decline.
The Company has been required under SFAS 109, because of operating losses
incurred in past years, to establish valuation allowances against deferred tax
assets recorded for loss and tax credit carryforwards and various other items.
Until there is sufficient available evidence that the Company will be able to
realize such deferred tax assets through future taxable earnings, the Company's
tax provision will be highly sensitive to the expected level of annual
earnings, the impact of the alternative minimum tax under the Internal Revenue
Code and the limited current recognition of the deferred tax assets. As a
result of changing expectations, the relationship of the Company's income tax
provision to pre-tax earnings will vary more significantly from quarter to
quarter and year to year than companies that have been continuously profitable.
However, the Company's effective tax rates are likely to increase in the
future.
The Company is highly leveraged. Its substantial indebtedness may limit
the Company's ability to respond to changing business and economic
conditions. The contracts under which the Company acquired its debt impose
significant operating and financial restrictions which limit the Company's
ability to borrow money, sell assets or make capital expenditures or
investments without the approval of certain lenders. In addition to cash
flows generated by operations, other financing alternatives may be required
in order to repay the Company's substantial debt as it comes due. There can
be no assurance that the Company will be able to refinance its debt or obtain
additional financing or that any such financing will be on terms favorable to
the Company.
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In early 1993 the Company's business was severely disrupted as a result of
an outbreak of food-borne illness attributed to hamburgers served in
Jack in the Box restaurants, principally in the state of Washington.
See "Item 3 Legal Proceedings". To minimize the risk of any such occurrence
in the future, the Company has implemented a HACCP based food safety program.
The risk of food-borne illness cannot be completely eliminated. Any outbreak
of such illness attributed to Jack in the Box restaurants or within the food
service industry could have a material adverse effect on the financial
condition and results of operations of the Company.
The Company has made substantial progress to ensure that all hardware
and software serving critical internal functions in Company-operated
restaurants and in the Company's corporate offices will accurately handle
data involving the transition of dates from 1999 to 2000. The Company has
advised its franchisees that they are required to ensure that all computer
hardware and software used in connection with franchised Jack in the Box
restaurants be "Year 2000 compliant" by December 31, 1999. The Company has
urged vendors who supply significant amounts of vital supplies and services
to the Company, to develop and implement year 2000 compliance plans. However,
any failure on the part of the Company, its franchisees, or the Company's
vendors to ensure compliance with year 2000 requirements could have a material,
adverse effect on the financial condition and results of operations of the
Company after January 1, 2000.
ITEM 2. PROPERTIES
At September 28, 1997, Foodmaker owned 562 Jack in the Box restaurant
buildings, including 329 located on land covered by ground leases. In
addition, it leased 666 restaurants where both the land and building are
leased, including 153 restaurants operated by franchisees. The
remaining lease terms of ground leases range from approximately one year to
49 years, including renewal option periods. The remaining lease terms of
Foodmaker's other leases range from approximately one year to 40 years,
including renewal option periods. In addition, at September 28, 1997,
franchisees directly owned or leased 95 restaurants.
Company- Franchise-
operated operated Total
----------- ----------- -----------
Company-owned restaurant buildings:
On Company-owned land . . . . . . . . . . 172 61 233
On ground-leased land . . . . . . . . . . 278 51 329
--- --- ---
Subtotal . . . . . . . . . . . . . . . . 450 112 562
Company-leased restaurant buildings
on leased land . . . . . . . . . . . . . 513 153 666
Franchise directly-owned or
directly-leased restaurant buildings . . -- 95 95
--- --- ---
Total restaurant buildings. . . . . . . . 963 360 1,323
=== === =====
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The Company's leases generally provide for fixed rental payments
(with cost-of-living index adjustments) plus real estate taxes, insurance and
other expenses; in addition, many of the leases provide for contingent rental
payments 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 September 28, 1997, the leases had initial terms
expiring as follows:
Number of restaurants
---------------------
Years initial Land and
lease term Ground building
expires leases leases
--------- ------ --------
1998-2002. . . . . . . . . . . . . . . . . . . . 114 121
2003-2007. . . . . . . . . . . . . . . . . . . . 125 206
2008-2012. . . . . . . . . . . . . . . . . . . . 68 245
2013 and later . . . . . . . . . . . . . . . . . 22 94
--- ---
329 666
=== ===
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 five with
remaining terms ranging from one year to 20 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
The legal proceedings that were pending against the Company in federal
and state courts in the state of Washington, relating to food-borne illness
(the "Outbreak") attributed to hamburgers served at Jack in the Box restaurants
in 1993, have been concluded, with the exception of one case of immaterial
financial impact, which is currently on appeal. The total liability on all
such lawsuits and claims did not exceed the coverage available under the
Company's applicable insurance policies.
The Company is engaged in litigation with the Vons Companies, Inc.
("Vons") and various suppliers seeking reimbursement for all damages, costs
and expenses incurred in connection with the Outbreak. The initial
litigation was filed by the Company on February 4, 1993. Vons has filed
cross-complaints against the Company and others alleging certain contractual,
indemnification and tort liabilities; seeking damages in unspecified amounts
and a declaration of the rights and obligations of the parties. The claims
of the parties arise out of two separate lawsuits which have been
consolidated and are now set for trial in the Los Angeles Superior Court, Los
Angeles, California in January 1998.
On April 6, 1996 an action was filed by one of the Company's
international franchisees, Wolsey, Ltd., in the United States District Court
in San Diego, California against the Company and its directors, its
international franchising subsidiary, and certain officers of the Company and
others. The complaint alleges certain contractual, tort and law violations
related to the franchisees' development rights in the Far East and seeks
damages in excess of $38.5 million, injunctive relief, attorneys fees and
costs. The Company has successfully dismissed portions of the complaint,
including the single claim alleging wrongdoing by the Company's outside
directors. Management believes the remaining allegations are without
foundation and intends to vigorously defend the action.
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On November 5, 1996 an action was filed by the "National JIB Franchisee
Association, Inc." and several of the Company's franchisees in the Superior
Court of California, County of San Diego in San Diego, California, against the
Company and others. The lawsuit alleges that certain Company policies are
unfair business practices and violate sections of the California Corporations
Code regarding material modifications of franchise agreements and interfere
with franchisees' right of association. It seeks injunctive relief, a
declaration of the rights and duties of the parties, unspecified damages and
recision of alleged material modifications of plaintiffs' franchise agreements.
The complaint also alleges fraud, breach of a fiduciary duty and breach of a
third party beneficiary contract in connection with certain payments that the
Company received from suppliers and seeks unspecified damages, interest,
punitive damages and an accounting. Management believes that its policies
are lawful and that it has satisfied any obligation to its franchisees in
regard to such supplier payments.
On December 10, 1996, a suit was filed by the Company's Mexican licensee,
Foodmex, Inc., in the United States District Court in San Diego, California
against the Company and its international franchising subsidiary. Foodmex
formerly operated several Jack in the Box franchise restaurants in Mexico, but
its licenses were terminated by the Company for, among other reasons, chronic
insolvency and failure to meet operational standards. The Foodmex suit alleges
wrongful termination of its master license, breach of contract and unfair
competition and seeks an injunction to prohibit termination of its license as
well as unspecified monetary damages. In January 1997 Foodmex amended its
complaint to name several individual defendants and to allege additional
causes of action. The Company and its subsidiary counterclaimed and sought a
preliminary injunction against Foodmex. On March 28, 1997 the court granted
the Company's request for an injunction, held that the Company was likely to
prevail in its suit, and ordered Foodmex to immediately cease using the
Jack in the Box marks and proprietary operating systems. On June 30, 1997, the
court held Foodmex and its president in contempt of court for failing to
comply with the March 28, 1997 order.
On February 2, 1995, an action by Concetta Jorgensen was filed against
the Company in the U.S. District Court in San Francisco, California alleging
that restrooms at a Jack in the Box restaurant failed to comply with laws
regarding disabled persons and seeking damages in unspecified amounts,
punitive damages, injunctive relief, attorneys fees and prejudgment interest.
In an amended complaint, damages were also sought on behalf of all physically
disabled persons who were allegedly denied access to restrooms at the
restaurant. In February 1997, the court ordered that the action for
injunctive relief proceed as a nationwide class action on behalf of all
persons in the United States with mobility disabilities. The Company has
reached tentative agreement on settlement terms both as to the individual
plaintiff Concetta Jorgensen and the claims for injunctive relief, but a
settlement agreement has not yet been signed or presented to the U.S.
District Court for approval. During the course of settlement discussions,
Foodmaker was notified by attorneys for plaintiffs that claims may be made
against Jack in the Box franchisees and Foodmaker relating to locations that
franchisees lease from Foodmaker which may not be in compliance with the
Americans With Disabilities Act.
On May 23, 1997, an action by Ralston Purina Company was filed against the
Company in the U.S. District court for the Eastern District of Missouri in
St. Louis, Missouri alleging the Company's breach of a tax sharing agreement
and unjust enrichment and seeking an accounting and damages in an amount not
less than $11 million and attorneys' fees and costs. The Company believes it
has meritorious defenses and intends to vigorously resist the lawsuit.
The Company is also subject to normal and routine litigation. The amount
of liability from the claims and actions described above cannot be determined
with certainty, but in the opinion of management, 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 results
of operations and liquidity of the Company.
-9-
<PAGE>
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 September 28, 1997.
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:
16 weeks ended 12 weeks ended
---------------------------------------------
Jan. 21, 1996 Apr. 14, 1996 July 7, 1996 Sept. 29, 1996
------------- ------------- ------------ --------------
High . . . . . 6 1/8 7 3/4 8 7/8 10 1/8
Low. . . . . . 5 5 7/8 6 7/8 6 3/4
16 weeks ended 12 weeks ended
---------------------------------------------
Jan. 19, 1997 Apr. 13, 1997 July 6, 1997 Sept. 28, 1997
------------- ------------- ------------ --------------
High . . . . . 10 7/8 12 1/4 16 7/16 20 11/16
Low. . . . . . 8 9 1/8 10 3/8 15 7/16
Foodmaker has not paid any cash or other dividends (other than the
issuance of the Rights, as described in Note 9 to the consolidated financial
statements) 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 September 28, 1997, there were approximately 600 stockholders of
record.
-10-
<PAGE>
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. Results of operations for Chi-
Chi's, Inc. ("Chi-Chi's") are included through January 27, 1994, when
Chi-Chi's was sold. The Company's fiscal year is 52 or 53 weeks, ending the
Sunday closest to September 30.
<TABLE>
<CAPTION>
52 weeks ended 53 weeks
------------------------------------------------------- ended
Statement of Operations Data: 9/28/97 9/26/95 10/1/95 10/2/94 10/3/93
- ----------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales. . . . . . . . . . $ 986,583 $ 892,029 $ 804,084 $ 843,038 $1,088,269
Distribution sales. . . . . . . . . 45,233 132,421 179,689 171,711 108,546
Franchise rents and royalties . . . 35,426 34,048 32,530 33,740 35,232
Other revenues. . . . . . . . . . . 4,500 4,324 2,413 4,837 8,680
---------- ---------- ---------- ---------- ----------
Total revenues . . . . . . . . . . 1,071,742 1,062,822 1,018,716 1,053,326 1,240,727
---------- ---------- ---------- ---------- ----------
Costs of revenues (1) . . . . . . . . 905,742 919,211 903,479 950,952 1,147,157
Equity in loss of FRI (2) . . . . . . -- -- 57,188 2,108 --
Selling, general and administrative
expenses (3) . . . . . . . . . . . 80,438 72,134 78,044 78,323 102,183
Interest expense. . . . . . . . . . . 40,359 46,126 48,463 55,201 57,586
---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes
(benefit), extraordinary item, and
cumulative effect of changes in
accounting principles. . . . . . . 45,203 25,351 (68,458) (33,258) (66,199)
Income taxes (benefit). . . . . . . . 9,900 5,300 500 3,010 (22,071)
---------- ---------- ---------- ---------- ----------
Earnings (loss) before extraordinary
item and cumulative effect of
changes in accounting principles . 35,303 20,051 (68,958) (36,268) (44,128)
Extraordinary item - loss on early
extinguishment of debt, net of
income taxes . . . . . . . . . . . (1,252) -- -- (3,302) --
Cumulative effect on prior years of
adopting SFAS 106 and SFAS 109 . . -- -- -- -- (53,980)
---------- ---------- ---------- ---------- ----------
Net earnings (loss) . . . . . . . . . $ 34,051 $ 20,051 $ (68,958) $ (39,570) $ (98,108)
========== ========== ========== ========== ==========
Earnings (loss) per share before
extraordinary item and cumulative
effect of changes in accounting
principles . . . . . . . . . . . . $ .89 $ .51 $ (1.77) $ (.94) $ (1.15)
Net earnings (loss) per share . . . . $ .86 $ .51 $ (1.77) $ (1.03) $ (2.55)
Balance Sheet Data (at end of period):
- ---------------------------------------
Current assets. . . . . . . . . . . . $ 100,162 $ 96,476 $ 97,889 $ 107,486 $ 93,534
Current liabilities . . . . . . . . . 193,213 147,063 132,017 140,238 202,194
Total assets. . . . . . . . . . . . . 681,758 653,638 662,674 740,285 897,280
Long-term debt. . . . . . . . . . . . 346,191 396,340 440,219 447,822 500,460
Stockholders' equity. . . . . . . . . 87,879 51,384 31,253 100,051 139,132
- ---------------------------------------
<FN>
<F1> 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.
<F2> Reflects the complete write-off of the Company's $57.2 million investment
in Family Restaurants, Inc. ("FRI") for the year ended October 1, 1995.
See Note 2 to the consolidated financial statements for information concerning
the Company's prior ownership of Chi-Chi's and investment in FRI.
<F3> Includes the recognition of an $8 million stockholders' lawsuit
settlement for the year ended October 1, 1995.
</FN>
</TABLE>
-11-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
All comparisons under this heading between 1997, 1996 and 1995 refer to
the 52-week periods ended September 28, 1997, September 29, 1996 and October 1,
1995, respectively, unless otherwise indicated.
Revenues
Company-operated restaurant sales were $986.6 million, $892.0 million
and $804.1 million in 1997, 1996 and 1995, respectively. The sales
improvements from the prior year of $94.6 million, or 10.6%, in 1997 and
$87.9 million, or 10.9%, in 1996 reflect increases in both per store average
("PSA") sales and in the average number of Company-operated restaurants. PSA
sales for comparable restaurants increased 6.5% in 1997 and 7.2% in 1996
compared to the respective prior year. Sales also improved as a result of
the increase in the average number of Company-operated restaurants which grew
to 900 in 1997 from 868 in 1996 and 839 in 1995. Sales continued to improve
under the Company's two-tier marketing strategy featuring premium sandwiches,
such as the Sourdough Jack and Spicy Crispy Chicken sandwiches, and
value-priced product alternatives from "Jack's Value Menu." The strategy
recognizes that value pricing is an ongoing part of the quick-serve
industry's competitive environment. At the same time, the Company continues
to build its brand through a popular advertising campaign that features its
fictional founder, "Jack". The Company believes this brand-building effort
will continue to attract customers to Jack in the Box restaurants for its
distinctive food.
Distribution sales of food and supplies were $45.2 million, $132.4
million and $179.7 million in 1997, 1996 and 1995, respectively. The decline
in distribution sales is a result of two factors. In 1996 Jack in the Box
franchisees formed a purchasing cooperative and contracted with another
supplier for distribution services. Most franchisees elected to participate
in the cooperative, resulting in sales to franchisees declining to $9.8
million in 1997 from $67.3 million in 1996 and $98.6 million in 1995. In
addition, the distribution contract with Chi-Chi's was not renewed when it
expired in May 1997. Distribution sales to Chi-Chi's and others declined to
$35.4 million in 1997 from $65.1 million in 1996 and $81.1 million in 1995.
Ongoing distribution sales, which relate principally to franchisees who
continue to use Foodmaker distribution services, are expected to be
approximately $4 million per quarter. Because distribution is a low-margin
business, the loss of distribution revenues did not have a material impact on
the results of operations or financial condition of the Company.
Franchise rents and royalties were $35.4 million, $34.0 million and
$32.5 million in 1997, 1996 and 1995, respectively, slightly more than 10% of
sales at franchise-operated restaurants in each of those years. Franchise
restaurant sales increased to $352.2 million in 1997 from $337.0 million in
1996 and $319.6 million in 1995. Franchise restaurant sales growth was
primarily attributed to PSA sales increases at domestic franchise-operated
restaurants, which were impacted by marketing initiatives that favorably
influenced sales systemwide.
Other revenues, which include interest income on investments and notes,
as well as franchise development fees, were $4.5 million, $4.3 million and
$2.4 million in 1997, 1996 and 1995, respectively. Other revenues were
greater in 1997 and 1996 principally due to increased interest income from
investments.
Costs and Expenses
Restaurant costs of sales, which include food and packaging costs, were
$327.2 million, $291.0 million and $258.6 million in 1997, 1996 and 1995,
respectively. As a percent of restaurant sales, cost of sales were 33.2% in
1997, 32.6% in 1996 and 32.2% in 1995. The restaurant costs of sales
percentage increased in 1997 compared to 1996, principally due to the cost of
improved french fries, higher food costs of certain discount promotions and
commodity cost increases, primarily pork and dairy. The restaurant costs of
sales percentage increased in 1996 compared to 1995 principally due to higher
packaging costs.
-12-
<PAGE>
Restaurant operating costs were $510.2 million, $478.0 million and $447.2
million in 1997, 1996 and 1995, respectively. As a percent of restaurant
sales, operating costs were 51.7% in 1997, 53.6% in 1996 and 55.6% in 1995,
declining each year primarily due to labor efficiencies and lower
percentages of occupancy and other operating expenses. While occupancy and
other operating expenses increase with the addition of each new restaurant,
such expenses for existing restaurants have increased at a slower rate than
the increase in PSA restaurant sales.
Costs of distribution sales were $44.8 million in 1997, $130.2 million in
1996 and $175.7 million in 1995, reflecting the changes in distribution
sales. Costs of distribution sales have increased as a percent of
distribution sales to 99.0% in 1997 from 98.4% in 1996 and 97.8% in 1995.
The decline in distribution margins are due primarily to the effect of the
loss of franchise and Chi-Chi's distribution sales. In 1997 such costs include
expenses of $.4 million, or .9% of distribution sales, related to the closure
of a distribution center which had been used principally to distribute to
Chi-Chi's restaurants.
Franchised restaurant costs, which consist principally of rents and
depreciation on properties leased to franchisees and other miscellaneous
costs, were $23.6 million, $20.0 million and $21.9 million in 1997, 1996 and
1995, respectively. The increase in such costs reflect higher international
franchise-related legal expense.
Selling, general and administrative expenses were $80.4 million, $72.1
million and $78.0 million in 1997, 1996 and 1995, respectively. Advertising
and promotion costs represented $51.9 million, $47.2 million and $44.9
million in 1997, 1996 and 1995, respectively. As a percent of restaurant
sales, advertising and promotion costs were 5.3% in 1997 and 1996, declining
from 5.6% in 1995, as the Company reduced its extra contributions to the
marketing fund and its use of local promotions. The Company received from
suppliers cooperative advertising funds of $5.2 million and $4.8 million,
respectively, in 1997 and 1996, or 0.5% of restaurant sales, which formerly
had been contributed directly to the marketing fund. In 1995 general,
administrative and other costs include an $8.0 million litigation settlement
with stockholders and a $1.9 million gain on the curtailment of
postretirement benefits, a net increase to such expenses of $6.1 million, or
0.6% of revenues. Excluding the above items, general, administrative and
other costs as a percent of revenues were approximately 3.1% of revenues in
1997 and 2.8% of revenues in 1996 and 1995. General and administrative
expenses in 1997 reflect higher legal costs, expenses and write-offs related
to tests of dual brand concepts (two brands operating in the same restaurant
facility) and other general increases, offset in part by a reduction in bad
debt expense related to decreased accounts and notes receivable.
Interest expense was $40.4 million, $46.1 million and $48.5 million in
1997, 1996 and 1995, respectively. Interest expense declined from the prior
year by $5.7 million in 1997 and $2.4 million in 1996, principally due to a
reduction in total debt outstanding and lower other financing costs. Total
debt at September 28, 1997 was $347.7 million compared to $449.2 million at
the beginning of fiscal year 1995. Interest expense in 1997 and 1996
reflects interest savings associated with the early retirement in May 1996 of
$42.8 million of the Company's 14 1/4% senior subordinated notes.
The tax provision reflects the effective annual tax rate of 22% and 21%
of pretax earnings in 1997 and 1996, respectively. The low effective annual
income tax rates result from the Company's ability to realize previously
unrecognized tax benefits as the Company's profitability has improved.
Although the Company incurred a loss in 1995, income taxes of $.5 million were
provided due to required minimum taxes and the Company's inability to recognize
the benefit from the carryover of losses to future years under Statement of
Financial Accounting Standards ("SFAS") 109, Accounting for Income Taxes.
In 1997 the Company incurred an extraordinary loss of $1.6 million, less
income tax benefits of $.3 million, on the early retirement of the 9 1/4%
senior notes.
-13-
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents decreased $13.5 million to $28.5 million at
September 28, 1997 from $42.0 million at the beginning of the fiscal year.
The cash decrease reflects, among other things, cash flow from operations of
$99.5 million in 1997, net principal payments on debt of $50.9 million and
capital expenditures of $59.7 million.
The Company's working capital deficit increased $42.5 million to $93.1
million at September 28, 1997 from $50.6 million at the end of 1996,
principally due to increases in accounts payables and accrued liabilities.
The Company, and the restaurant industry in general, maintain relatively low
levels of accounts receivable and inventories and vendors grant trade credit
for purchases such as food and supplies. The Company also 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.
Total debt outstanding declined $50.5 million to $347.7 million at
September 28, 1997 from $398.2 million at September 29, 1996. In September
1997, the Company prepaid $50 million of its 9 1/4% senior notes due March 1,
1999. On May 15, 1996, the Company used $43.5 million of available cash to
prepay the remaining 14 1/4% senior subordinated notes due in May 1998.
The Company's revolving bank credit agreement, which was amended and
restated March 15, 1996, expires December 31, 1998 and provides for a credit
facility of up to $60 million, including letters of credit of up to $25
million. At September 28, 1997, the Company had no borrowings and
approximately $52.8 million of unused credit under the agreement. The
Company is subject to a number of covenants under its various credit
agreements including limits on additional borrowings, capital
expenditures, lease commitments and dividend payments, and requirements to
maintain certain financial ratios, cash flows and net worth. Most
of the Company's real estate and machinery and equipment is pledged to
its lenders under the credit agreement and other secured notes.
The Company's primary sources of liquidity are expected to be cash flows
from operations, the revolving bank credit facility, and the sale and leaseback
of restaurant properties. An additional potential source of liquidity is the
conversion of Company-operated restaurants to franchised restaurants. The
Company requires capital principally to expand the business through new
restaurant construction, as well as to maintain, improve and refurbish existing
restaurants, and for general operating purposes.
Based upon current levels of operations and anticipated growth, the
Company expects that sufficient cash flows will be generated from operations
so that, combined with other financing alternatives available, including
utilization of cash on hand, bank credit facilities, the sale and leaseback
of restaurants and refinancing opportunities, the Company will be able to
meet all of its debt service, capital expenditure and working capital
requirements.
Although the amount of liability from claims and actions described in
Note 11 of the consolidated financial statements cannot be determined with
certainty, management believes the ultimate liability of such claims and
actions should not materially affect the results of operations and liquidity
of the Company.
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
September 28, 1997, the Company had acquired 1,412,654 shares for an
aggregate cost of $14.5 million, none of which were acquired in the past
three years.
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.
-14-
<PAGE>
New Accounting Standards
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share".
This Statement specifies the computation, presentation, and disclosure
requirements for earnings per share for entities with publicly held common
stock or potential common stock. This Statement shall be effective for
fiscal years ending after December 15, 1997. Earlier application is not
permitted. At this time the Company does not believe that this Statement
will have a significant impact on the financial position or results of
operations for the year ending September 27, 1998.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure." This Statement shall be effective for
fiscal years ending after December 15, 1997. This statement, requiring only
additional informational disclosures, is effective for the Company's fiscal
year ending September 27, 1998.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purposes financial statements. This
Statement shall be effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. This statement, requiring only
additional informational disclosures, is effective for the Company's fiscal
year ending October 3, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This Statement established
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. This Statement shall be effective
for fiscal years beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years is to be restated.
This statement, requiring only additional informational disclosures, is
effective for the Company's fiscal year ending October 3, 1999.
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-
<PAGE>
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.
Name Age(8) Position with the Company(7)
- ----------------------- ------ ------------------------------------
Robert J. Nugent(1)(4) 56 President, Chief Executive Officer
and Director
Charles W. Duddles(1) 57 Executive Vice President, Chief
Financial Officer, Chief
Administrative Officer and Director
Kenneth R. Williams 55 Executive Vice President, Marketing
and Operations
Lawrence E. Schauf 52 Executive Vice President and Secretary
Donald C. Blough 49 Vice President, Management Information
Systems
Bruce N. Bowers 51 Vice President, Logistics
Carlo E. Cetti 53 Vice President, Human Resources and
Strategic Planning
Bradford R. Haley 39 Vice President, Marketing
Communications
William F. Motts 54 Vice President, Restaurant Development
Paul L. Schultz 43 Vice President, Operations and
Domestic Franchising
David M. Theno, Ph.D. 47 Vice President, Quality Assurance,
Research and Development and Product
Safety
Linda A. Vaughan 39 Vice President, New Products,
Promotions and Consumer Research
Charles E. Watson 42 Vice President, Real Estate and
Construction
Darwin J. Weeks 51 Vice President, Controller and Chief
Accounting Officer
Jack W. Goodall(1)(4)(5)(6) 59 Chairman of the Board
Michael E. Alpert(6) 55 Director
Jay W. Brown(2)(3) 52 Director
Paul T. Carter(2)(3)(5) 75 Director
Edward Gibbons(3)(4)(6) 61 Director
L. Robert Payne(2)(5) 64 Director
- -----------------------------
(1) Member of the Administrative Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Executive Committee.
(5) Member of the Finance Committee.
(6) Member of the Nominating Committee.
(7) 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.
(8) Age as of January 1, 1998.
-16-
<PAGE>
Mr. Nugent has been President and Chief Executive Officer of the Company
since April 1996. He was Executive Vice President of the Company from
February 1985 to April 1996 and President and Chief Operating Officer of the
Jack in the Box Division of the Company from May 1988 to April 1996. He has
been a director since February 1988. Mr. Nugent has 18 years of experience
with the Company in various executive and operations positions.
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 has been a director since February 1988. Mr. Duddles
has 18 years of experience with the Company in various finance positions.
Mr. Williams has been Executive Vice President of the Company since May
1996. He was Senior Vice President of the Company from January 1993 to May
1996 and Executive Vice President of Marketing and Operations, Jack in the Box
Division from November 1994 to May 1996. He was Executive Vice President of
Operations, Jack in the Box Division from May 1988 until November 1994.
Mr. Williams has 32 years of experience with the Company in various operations
positions.
Mr. Schauf has been Executive Vice President and Secretary of the Company
since August 1996. Prior to joining Foodmaker he was Senior Vice President,
General Counsel and Secretary of Wendy's International, Inc. from February 1991
to August 1996. He was previously Vice President, General Counsel and
Secretary of Wendy's International, Inc. from September 1987 to February 1991.
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 Mr. Blough has 19 years of
experience with the Company in various management information systems
positions.
Mr. Bowers has been Vice President, Logistics (formerly Purchasing and
Distribution) of the Company, since April 1982. Mr. Bowers has 28 years of
experience with the Company in various manufacturing, purchasing and
distribution positions.
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. Mr. Cetti has 17
years of experience with the Company in various human resources and training
positions.
Mr. Haley has been Vice President of the Company and Vice President of
Marketing Communications of Jack in the Box Division since February 1995. He
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.
Mr. Motts has been Vice President of the Company and Vice President of
Restaurant Development of Jack in the Box Division since September 1988. Mr.
Motts has 15 years of experience with the Company in various restaurant
development positions.
Mr. Schultz has been Vice President of the Company since May 1988 and
Vice President of Operations and Domestic Franchising, 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. Mr. Schultz has 26 years of experience with the
Company in various operations positions.
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.
-17-
<PAGE>
Ms. Vaughan has been Vice President, New Products, Promotions and Consumer
Research of the Company since February 1996. She was Division Vice President,
New Products and Promotions from November 1994 until February 1996. Previously,
she was Manager, Product Marketing from October 1993 until November 1994 and
Manager Franchise Analysis from November 1992 to October 1993. She was Senior
Financial Analyst, Franchise Analysis, from October 1991 until November 1992.
Mr. Watson has been Vice President, Real Estate and Construction of the
Company since April 1997. From July 1995 to March 1997, he was Vice
President, Real Estate and Construction of Boston Chicken, Inc. He was
Division Vice President, Real Estate and Construction of the Company from
November 1991 through June 1995. Mr. Watson has 12 years of experience with
the Company in various real estate and construction positions.
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. Weeks has been employed by the Company in various finance
positions for 21 years.
Mr. Goodall has been Chairman of the Board since October 1985. For more
than five years prior to his retirement in April 1996, he was President and
Chief Executive Officer of the Company. Mr. Goodall is a director of Ralcorp
Holdings, Inc.
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 LLP for more than 5 years prior to his retirement on August 1,
1992. He is currently Advisory Counsel to Gibson, Dunn & Crutcher LLP. Gibson,
Dunn & Crutcher LLP provides legal services to the Company from time to time.
Mr. Brown has been a director of the Company since February 1996. Since
1995, Mr. Brown has been President and CEO of Protein Technologies
International, Inc., the world's leading supplier of soy-based proteins to
the food and paper processing industries. He was Chairman and CEO of
Continental Baking Company from October 1984 to July 1995 and President of
Van Camp Seafood Company from August 1983 to October 1984. From July 1981
through July 1983, he served as Vice President of Marketing for Jack in the Box.
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. Carter is a director of Borrego Springs National Bank.
Mr. Gibbons has been a director of the Company since October 1985 and has
been a general partner of Gibbons, Goodwin, van Amerongen ("GGvA"), an
investment banking firm for more than five years preceding the date hereof.
Mr. Gibbons is also a director of Robert Half International, Inc.
Mr. Payne has been a director of the Company since August 1986. He has
been President and Chief Executive Officer of Multi-Ventures, Inc. since
February 1976 and was Chairman of the Board of Grossmont Bank, a wholly-owned
subsidiary of Bancomer, S.A., from February 1974 until October 1995.
Multi-Ventures, Inc. is a real estate development and investment company that
is also the managing partner of the San Diego Mission Valley Hilton and the
Hanalei Hotel. He was a principal in the Company prior to its acquisition by
its former parent, Ralston Purina Company, in 1968.
That portion of Foodmaker's definitive Proxy Statement appearing under
the captions "Information About the Board of Directors and Committees of the
Board" and "Section 16(a) Beneficial Ownership Reporting Compliance" to be
filed with the Commission pursuant to Regulation 14A within 120 days after
September 28, 1997 and to be used in connection with its 1998 Annual Meeting
of Stockholders is hereby incorporated by reference.
-18-
<PAGE>
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 September 28, 1997 and to be used in
connection with its 1998 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 September 28, 1997 and to be used in connection with its 1998 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 September 28, 1997 and to be used in
connection with its 1998 Annual Meeting of Stockholders is hereby
incorporated by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ITEM 14(a)(1) Financial Statements. See the index to consolidated financial
statements on page F-1 of this report.
ITEM 14(a)(2) Financial Statement Schedules. Not applicable.
-19-
<PAGE>
ITEM 14(a)(3) Exhibits.
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation(8)
3.2 Restated Bylaws(7)
4.2 Indenture for the 9 1/4% Senior Notes due 1999(3)
4.3 Indenture for the 9 3/4% Senior Subordinated Notes due
2002(3)
(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 Amended and Restated Revolving Credit Agreement dated as of
March 15, 1996, as amended as of April 5, 1996 by the
Agreement to Add Banks, among Foodmaker, Inc. and the Banks
named therein(6)
10.1.1 First Amendment dated as of November 26, 1996 to the
Amended and Restated Revolving Credit Agreement dated as of
March 15, 1996, as amended as of April 5, 1996 by the
Agreement to Add Banks, among Foodmaker, Inc. and the Banks
named therein(8)
10.1.2 Second Amendment dated as of July 11, 1997 to the Amended
and Restated Revolving Credit Agreement dated as of
March 15, 1996, as amended as of April 5, 1996 by the
Agreement to Add Banks, among Foodmaker, Inc. and the Banks
named therein(10)
10.2 Purchase Agreements dated as of January 22, 1987 between
Foodmaker, Inc. and FFCA/IIP 1985 Property Company and
FFCA/IIP1986 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 Amended and Restated 1992 Employee Stock Incentive Plan(9)
10.5 Capital Accumulation Plan for Executives(2)
10.6 Supplemental Executive Retirement Plan(2)
10.7 Performance Bonus Plan(4)
10.8 Deferred Compensation Plan for Non-Management Directors(5)
10.9 Non-Employee Director Stock Option Plan(5)
10.10 Form of Compensation and Benefits Assurance Agreement for
Executives(8)
23.1 Consents of KPMG Peat Marwick LLP
27 Financial Data Schedule (included only with
electronic filing)
- ---------------------------
(1) Previously filed and incorporated herein by reference from registrant's
Registration Statement on Form S-1 (No. 33-10763) filed February 24,
1987.
(2) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 30, 1990.
(3) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended April 12, 1992.
(4) Previously filed and incorporated herein by reference from registrant's
Annual Report on form 10-K for the fiscal year ended September 27, 1992.
(5) 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.
(6) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended April 14, 1996.
(7) Previously filed and incorporated herein by reference from registrant's
Current Report on Form 8-K as of July 26, 1996.
(8) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 29, 1996.
(9) Previously filed and incorporated herein by reference from registrant's
Definitive Proxy Statement dated January 12, 1996 for the Annual Meeting
of Stockholders on February 14, 1997.
(10) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended July 6, 1997.
-20-
<PAGE>
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
September 28, 1997.
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-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FOODMAKER, INC.
By: CHARLES W. DUDDLES
------------------------
Charles W. Duddles
Executive Vice President,
Chief Financial Officer, Chief
Administrative Officer and Director
Date: November 19, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
JACK W. GOODALL Chairman of the Board November 19, 1997
- --------------------
Jack W. Goodall
ROBERT J. NUGENT President, Chief Executive Officer November 19, 1997
- -------------------- and Director
Robert J. Nugent (Principal Executive Officer)
CHARLES W. DUDDLES Executive Vice President, November 19, 1997
- ------------------- Chief Financial Officer, Chief
Charles W. Duddles Administrative Officer and Director
(Principal Financial Officer)
DARWIN J. WEEKS Vice President, Controller and November 19, 1997
- ------------------- Chief Accounting Officer
Darwin J. Weeks (Principal Accounting Officer)
MICHAEL E. ALPERT Director November 19, 1997
- -------------------
Michael E. Alpert
JAY W. BROWN Director November 19, 1997
- -------------------
Jay W. Brown
-22-
<PAGE>
PAUL T. CARTER Director November 19, 1997
- -------------------
Paul T. Carter
EDWARD GIBBONS Director November 19, 1997
- -------------------
Edward Gibbons
L. ROBERT PAYNE Director November 19, 1997
- -------------------
L. Robert Payne
-23-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Foodmaker, Inc. and Subsidiaries Consolidated Financial Statements for the
52-week periods ended September 28, 1997, September 29, 1996 and October 1,
1995.
Page
----
Independent Auditors' Report . . . . . . . . . . . F-2
Consolidated Balance Sheets. . . . . . . . . . . . F-3
Consolidated Statements of Operations. . . . . . . F-4
Consolidated Statements of Cash Flows. . . . . . . F-5
Consolidated Statements of Stockholders' Equity. . F-6
Notes to Consolidated Financial Statements . . . . F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Foodmaker, Inc.:
We have audited the accompanying consolidated balance sheets of Foodmaker,
Inc. and subsidiaries as of September 28, 1997 and September 29, 1996, and
the related consolidated statements of operations, cash flows and
stockholders' equity for the fifty-two weeks ended September 28, 1997,
September 29, 1996 and October 1, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Foodmaker, Inc. and subsidiaries as of September 28, 1997 and September 29,
1996, and the results of their operations and their cash flows for the fifty-
two weeks ended September 28, 1997, September 29, 1996 and October 1, 1995 in
conformity with generally accepted accounting principles.
San Diego, California KPMG PEAT MARWICK LLP
November 3, 1997
F-2
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
ASSETS
September 28, September 29,
1997 1996
-------- --------
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 28,527 $ 41,983
Accounts receivable, net. . . . . . . . . . . . . . 10,482 12,482
Inventories . . . . . . . . . . . . . . . . . . . . 18,300 20,850
Prepaid expenses. . . . . . . . . . . . . . . . . . 42,853 21,161
-------- --------
Total current assets . . . . . . . . . . . . . . 100,162 96,476
-------- --------
Property and equipment:
Land. . . . . . . . . . . . . . . . . . . . . . . . 91,317 90,890
Buildings . . . . . . . . . . . . . . . . . . . . . 302,125 293,690
Restaurant and other equipment. . . . . . . . . . . 231,736 213,159
Construction in progress. . . . . . . . . . . . . . 34,898 13,017
-------- --------
660,076 610,756
Less accumulated depreciation and amortization. . . 201,289 177,817
-------- --------
458,787 432,939
-------- --------
Other assets, net . . . . . . . . . . . . . . . . . . 122,809 124,223
-------- --------
$681,758 $653,638
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt. . . . . . . . $ 1,470 $ 1,812
Accounts payable . . . . . . . . . . . . . . . . . 39,575 29,293
Accrued liabilities . . . . . . . . . . . . . . . . 152,168 115,958
-------- --------
Total current liabilities. . . . . . . . . . . . 193,213 147,063
-------- --------
Long-term debt, net of current maturities . . . . . . 346,191 396,340
Other long-term liabilities . . . . . . . . . . . . . 54,093 51,561
Deferred income taxes . . . . . . . . . . . . . . . . 382 7,290
Stockholders' equity:
Preferred stock . . . . . . . . . . . . . . . . . . -- --
Common stock, $.01 par value, 75,000,000 authorized,
40,509,469 and 40,253,179 issued, respectively . 405 403
Capital in excess of par value. . . . . . . . . . . 283,517 281,075
Accumulated deficit . . . . . . . . . . . . . . . . (181,580) (215,631)
Treasury stock, at cost, 1,412,654 shares . . . . . (14,463) (14,463)
-------- --------
Total stockholders' equity . . . . . . . . . . . 87,879 51,384
-------- --------
$681,758 $653,638
======== ========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
September 28, September 29, October 1,
1997 1996 1995
--------- --------- ---------
Revenues:
Restaurant sales . . . . . . . . . . . . $ 986,583 $ 892,029 $ 804,084
Distribution sales . . . . . . . . . . . 45,233 132,421 179,689
Franchise rents and royalties. . . . . . 35,426 34,048 32,530
Other. . . . . . . . . . . . . . . . . . 4,500 4,324 2,413
--------- --------- ---------
1,071,742 1,062,822 1,018,716
--------- --------- ---------
Costs and expenses:
Costs of revenues:
Restaurant costs of sales . . . . . . 327,188 290,955 258,627
Restaurant operating costs. . . . . . 510,176 477,976 447,235
Distribution costs of sales . . . . . 44,759 130,241 175,688
Franchised restaurants costs. . . . . 23,619 20,039 21,929
Selling, general and administrative. . . 80,438 72,134 78,044
Equity in loss of FRI. . . . . . . . . . -- -- 57,188
Interest expense . . . . . . . . . . . . 40,359 46,126 48,463
--------- --------- ---------
1,026,539 1,037,471 1,087,174
--------- --------- ---------
Earnings (loss) before income taxes and
extraordinary item . . . . . . . . . . . 45,203 25,351 (68,458)
Income taxes . . . . . . . . . . . . . . . 9,900 5,300 500
--------- --------- ---------
Earnings (loss) before extraordinary item. 35,303 20,051 (68,958)
Extraordinary item - loss on early
extinguishment of debt, net of taxes . . (1,252) -- --
--------- --------- ---------
Net earnings (loss). . . . . . . . . . . . $ 34,051 $ 20,051 $ (68,958)
========= ========= =========
Earnings (loss) per share -
primary and fully diluted:
Earnings (loss) before
extraordinary item. . . . . . . . . . . $ .89 $ .51 $ (1.77)
Extraordinary item . . . . . . . . . . . (.03) -- --
--------- --------- ---------
Net earnings (loss) per share. . . . . . $ .86 $ .51 $ (1.77)
========= ========= =========
Weighted average shares outstanding. . . . 39,776 39,301 38,915
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
September 28, September 29, October 1,
1997 1996 1995
------- ------- -------
Cash flows from operating activities:
Net earnings (loss) before
extraordinary item. . . . . . . . . . . $ 35,303 $ 20,051 $ (68,958)
Non-cash items included in operations:
Depreciation and amortization . . . . 37,922 36,491 35,837
Deferred finance cost amortization. . 2,036 2,499 2,467
Deferred income taxes . . . . . . . . (7,017) (2,296) 4,524
Equity in loss of FRI . . . . . . . . -- -- 57,188
Decrease in receivables. . . . . . . . . 2,000 12,790 5,895
Decrease in inventories. . . . . . . . . 2,550 1,535 2,934
Increase in prepaid expenses . . . . . . (22,818) (7,421) (985)
Increase (decrease) in accounts payable. 10,282 (2,722) (4,900)
Increase (decrease) in other
accrued liabilities . . . . . . . . . . 39,218 20,121 (953)
------- ------- -------
Cash flows provided by
operating activities . . . . . . . . 99,476 81,048 33,049
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment. . . (59,660) (33,232) (27,033)
Disposition of property and equipment. . 3,357 4,597 4,416
Increase in trading area rights. . . . . (5,553) (1,086) (9,745)
Other. . . . . . . . . . . . . . . . . . (1,401) (1,012) 6,538
------- ------- -------
Cash flows used in
investing activities . . . . . . . . (63,257) (30,733) (25,824)
------- ------- -------
Cash flows from financing activities:
Principal payments on long-term debt,
including current maturities . . . . . (51,817) (44,677) (8,385)
Proceeds from issuance of long-term debt 950 400 900
Borrowings under revolving bank loans. . -- -- 29,000
Principal repayments under revolving
bank loans. . . . . . . . . . . . . . . -- -- (29,000)
Extraordinary loss on retirement of
debt, net of taxes. . . . . . . . . . . (1,252) -- --
Proceeds from issuance of common stock . 2,444 80 160
------- ------- -------
Cash flows used in
financing activities . . . . . . . . (49,675) (44,197) (7,325)
------- ------- -------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . $ (13,456) $ 6,118 $ (100)
======= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest, net of amounts capitalized. $ 38,759 $ 46,712 $ 46,491
Income tax payments . . . . . . . . . 7,179 9,013 493
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Capital
Common stock in excess
Number of of par Accumulated Treasury
Shares Amount value deficit stock Total
---------- ------ -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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
Exercise of stock options
and warrants . . . . . . . . . . 38,330 1 79 -- -- 80
Net earnings of the Company. . . . -- -- -- 20,051 -- 20,051
---------- ----- -------- --------- -------- --------
Balance at September 29, 1996. . . 40,253,179 403 281,075 (215,631) (14,463) 51,384
Exercise of stock options
and warrants . . . . . . . . . . 256,290 2 1,711 -- -- 1,713
Tax benefit associated with
exercise of stock options. . . . -- -- 731 -- -- 731
Net earnings of the Company. . . . -- -- -- 34,051 -- 34,051
---------- ----- -------- --------- -------- --------
Balance at September 28, 1997. . . 40,509,469 $ 405 $283,517 $(181,580) $(14,463) $ 87,879
========== ===== ======== ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations - Foodmaker, Inc. (the "Company" or "Foodmaker")
operates and franchises Jack in the Box quick-serve restaurants with
operations principally in the western and southwestern United States.
Basis of presentation and fiscal year - The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions are eliminated.
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform with the 1997 presentation. The Company's
fiscal year is 52 or 53 weeks ending the Sunday closest to September 30.
Fair value of financial instruments - The Company invests cash in excess
of operating requirements in short term, highly liquid investments with
original maturities of three months or less, which are considered as cash
equivalents. The fair value of these financial instruments approximate
the carrying amounts due to their short duration. 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 values
and the estimated fair values of the Company's long-term debt at
September 28, 1997 and September 29, 1996 approximate carrying values.
Inventories are valued at the lower of cost (first-in, first-out method)
or market.
Preopening costs are those typically associated with the opening of a new
restaurant and consist primarily of labor and food costs relating to
preopening training activities. Preopening costs, included in prepaid
expenses, are amortized over a one-year period commencing on the date a
restaurant opens.
Property and equipment at cost - Expenditures for new facilities and those
that substantially increase the useful lives of the property are
capitalized. 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. 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.
Buildings, equipment and leasehold improvements are depreciated using the
straight-line method based on the estimated useful lives of the assets or
over the lease term for certain capital leases (buildings 15 to 33 years
and equipment 3 to 30 years).
Trading area rights represent the amount allocated under purchase
accounting to reflect the value of operating existing restaurants within
their specific trading area. These rights are amortized on a straight-
line basis over the period of control of the property, not exceeding 40
years, and are retired when a restaurant is franchised or sold.
Lease acquisition costs represent the acquired values of existing lease
contracts having lower contractual rents than fair market rents and are
amortized over the remaining lease term.
F-7
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other assets primarily include deferred franchise contract costs, deferred
finance costs and goodwill. Deferred franchise contract costs represent
the acquired value of franchise contracts which were in existence at the
time the Company was acquired in 1988 and are amortized over the term of
the franchise agreement, usually 20 years. Deferred finance costs are
amortized on the interest method over the terms of the respective loan
agreements, from 4 to 10 years. Goodwill represents excess of purchase
price over the fair value of net assets acquired and is amortized on a
straight-line basis over 40 years. The Company assesses the
recoverability of intangible assets 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 these intangible assets were
not impaired and no reduction in the related estimated useful lives are
warranted.
Impairment of Long-Lived Assets - The Company adopted Statement of
Financial Accounting Standards ("SFAS") 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in 1997.
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. The statement also addresses the
accounting for long-lived assets that are held for disposal. The adoption
of SFAS 121 did not result in a material impact on the financial position
or results of operations of the Company.
Franchise operations - Franchise arrangements generally provide for
initial license fees of approximately $50 (formerly $25) per restaurant
and continuing payments to the Company based on a percentage of sales.
Among other things, the franchisee may be 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. Franchise
fees are recorded as revenue when the Company has substantially performed
all of its contractual obligations. Expenses associated with the issuance
of the franchise are expensed as incurred. Franchise rents and royalties
are recorded as income on an accrual basis. Gains on sales of restaurant
businesses to franchisees, which have not been material, are recorded as
other revenues when the sales are consummated and certain other criteria
are met.
Income taxes - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and tax loss and 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.
Net earnings (loss) per share for each year is computed based on the
weighted average number of common and common equivalent shares
outstanding. When dilutive, stock options and warrants are included as
share equivalents using the treasury stock method. For all years
presented, primary and fully diluted earnings (loss) per share are not
materially different.
Stock options - The Company accounts for stock options under the intrinsic
value based method, as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, whereby compensation expense is recognized for the excess,
if any, of the quoted market price of the Company stock at the date of
grant over the option price. The Company's policy is to grant stock
options at fair value at the date of grant. The Company has included pro
forma information in Note 8 to the consolidated financial statements,
as permitted by SFAS 123, Accounting for Stock-Based Compensation.
F-8
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising costs - The Company maintains a marketing fund consisting of
funds contributed by the Company equal to at least 5% of gross sales of
all Company-operated Jack in the Box restaurants and contractual marketing
fees paid monthly by franchisees for restaurants operated in the United
States. Production costs of commercials, programming and other marketing
activities are expensed to the marketing fund when the advertising is
first used and the costs of advertising are charged to operations as
incurred. The Company's contributions to the marketing fund and other
marketing expenses, which are included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations, were $51,870, $47,183 and $44,871 in 1997, 1996 and 1995,
respectively.
Estimations - Management is required to make certain assumptions and
estimates in conformity with generally accepted accounting principles that
affect reported amounts of assets, liabilities, disclosure of
contingencies, revenues and expenses. Actual amounts could differ from
these estimates.
2. FAMILY RESTAURANTS, INC.
On January 27, 1994, Foodmaker, Apollo FRI Partners, L.P. ("Apollo") and
Green Equity Investors, L.P. acquired Restaurant Enterprises Group, Inc.
("REGI"), a company that owned, operated and franchised 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, cash and other
considerations. Subsequently, as a result of substantial sales declines,
FRI wrote off the goodwill attributable to Chi-Chi's in its quarter ended
December 25, 1994. The Company then wrote off its remaining investment in
FRI in its fiscal year 1995.
Because of FRI's continuing substantial losses and resulting increased
borrowing requirements, the major FRI stockholders were required to
purchase a participation in any additional advances by the banks to FRI.
Rather than become liable for these advances, the Company, by an agreement
dated November 20, 1995, transferred all of its stock and warrants to
Apollo. Since the Company's investment in FRI was previously written off
in fiscal 1995, the consummation of this agreement had no further effect
on the consolidated financial condition or results of operations of the
Company.
The Company provided distribution services to a portion of FRI's Mexican
restaurants, principally those operated under the Chi-Chi's name, through
May 1997. Distribution sales to those restaurants during the period the
Company held an investment in FRI was $10,453 and $78,195 in 1996 and
1995, respectively.
F-9
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
September 28, September 29,
1997 1996
------------ ---------
The detail of long-term debt follows:
<S> <C> <C>
Senior notes, 9 1/4% interest, due March 1, 1999,
redeemable beginning March 1, 1997. . . . . . . . . . . . . . . . $125,000 $175,000
Senior subordinated notes, 9 3/4% interest, due June 1, 2002,
redeemable beginning June 1, 1997 . . . . . . . . . . . . . . . . 125,000 125,000
Financing lease obligations, net of discounts of
$2,172 and $2,548 reflecting a 10.3% effective interest rate,
semi-annual payments of $3,413 and $747 to cover
interest and sinking fund requirements and
due in equal installments January 1, 2003 and
November 1, 2003, respectively. . . . . . . . . . . . . . . . . . 67,828 67,452
Secured notes, 11 1/2% interest, due in monthly
installments through May 1, 2005. . . . . . . . . . . . . . . . . 8,684 9,356
Secured notes, 9 1/2% interest, due in monthly
installments through August 1, 2017 . . . . . . . . . . . . . . . 8,320 8,456
Capitalized lease obligations, 11% average interest rate . . . . . 11,519 11,043
Other notes, principally unsecured, 10% average interest rate. . . 1,310 1,845
-------- --------
347,661 398,152
Less current portion. . . . . . . . . . . . . . . . . . . . . . 1,470 1,812
-------- --------
$346,191 $396,340
======== ========
</TABLE>
In September 1997, the Company repaid $50 million of its 9 1/4% senior
notes. The retirement of these notes resulted in an extraordinary loss of
$1,602, net of income tax benefits of $350 on the early extinguishment of
the debt.
The Company's revolving bank credit agreement which was amended and
restated March 15, 1996, expires December 31, 1998, and provides for a
credit facility of up to $60 million, including letters of credit of up
to $25 million. The credit agreement requires the payment of an annual
commitment fee of either 1/2% or 3/8% of the unused credit line depending
on the Company's leverage ratio. The Company had no borrowings under the
agreement at the end of fiscal years 1997 or 1996.
The Company is subject to a number of covenants under its various credit
agreements including limitations on additional borrowings, capital
expenditures, lease commitments and dividend payments, and requirements to
maintain certain financial ratios, cash flows and net worth. The secured
notes and bank loans are secured by substantially all the Company's real
and personal property.
F-10
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
3. LONG-TERM DEBT (continued)
In early January 1994, the Company entered into financing lease
arrangements with two limited partnerships (the "Partnerships"), in which
an interest in 76 restaurants for a specified period of time 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. On
January 1, 2003 and November 1, 2003, the Company must make offers to
reacquire 50% of the properties at each date at a price which is
sufficient, in conjunction with previous sinking fund deposits, to retire
the notes. If the Partnerships reject the offers, the Company may
purchase the properties at less than fair market value or cause the
Partnerships to fund the remaining principal payments on the notes and, at
the Company's option, cause the Partnerships to acquire the Company's
residual interest in the properties. If the Partnerships are allowed to
retain their interests, the Company has available options to extend the
leases for total terms of up to 35 years, at which time the ownership of
the property will revert to the Company. The transactions are reflected
as financings with the properties remaining in the Company's consolidated
financial statements.
Aggregate maturities and sinking fund requirements on all long-term debt
are $128,087, $3,249, $3,433 and $128,656 for the years 1999 through 2002,
respectively.
Interest capitalized during the construction period of restaurants was
$683, $200 and $161 in 1997, 1996 and 1995, respectively.
4. LEASES
As Lessee - The Company leases restaurant and other facilities under
leases having terms expiring at various dates through 2046. The leases
generally have renewal clauses of 5 to 20 years exercisable at the option
of the Company and in some instances have provisions for contingent
rentals based upon a percentage of defined revenues. Total rent expense
for all operating leases was $84,964, $81,006 and $75,680, including
contingent rentals of $4,513, $3,903 and $2,843 in 1997, 1996 and 1995,
respectively.
Future minimum lease payments under capital and operating leases are as
follows:
Fiscal Capital Operating
year leases leases
------ ------- --------
1998. . . . . . . . . . . . . . . . . . . . . . . $ 1,753 $ 74,456
1999. . . . . . . . . . . . . . . . . . . . . . . 1,728 71,916
2000. . . . . . . . . . . . . . . . . . . . . . . 1,706 66,249
2001. . . . . . . . . . . . . . . . . . . . . . . 1,690 62,215
2002. . . . . . . . . . . . . . . . . . . . . . . 1,688 59,373
Thereafter. . . . . . . . . . . . . . . . . . . . 15,650 388,064
------- --------
Total minimum lease payments . . . . . . . . . . . 24,215 $722,273
Less amount representing interest. . . . . . . . . 12,696 ========
-------
Present value of obligations under capital leases. 11,519
Less current portion . . . . . . . . . . . . . . . 456
-------
Long-term capital lease obligations. . . . . . . . $11,063
=======
F-11
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
4. LEASES (continued)
Building assets recorded under capital leases were $10,403 and $9,642, net
of accumulated depreciation of $4,228 and $3,639, as of September 28, 1997
and September 29, 1996, respectively.
As Lessor - The Company leases or subleases restaurants to certain
franchisees and others under agreements which generally provide for the
payment of percentage rentals in excess of stipulated minimum rentals,
usually for a period of 20 years. Total rental revenue was $22,624,
$21,497 and $21,309, including contingent rentals of $6,744, $5,469 and
$4,763 in 1997, 1996 and 1995, respectively.
The minimum rents receivable under these non-cancelable leases are as
follows:
Fiscal Sales-type Operating
year leases leases
------ ------- --------
1998. . . . . . . . . . . . . . . . . . . . . . . $ 44 $ 16,911
1999. . . . . . . . . . . . . . . . . . . . . . . 44 16,325
2000. . . . . . . . . . . . . . . . . . . . . . . 44 15,842
2001. . . . . . . . . . . . . . . . . . . . . . . 44 15,487
2002. . . . . . . . . . . . . . . . . . . . . . . 45 14,789
Thereafter. . . . . . . . . . . . . . . . . . . . 174 78,526
----- --------
Total minimum future rentals. . . . . . . . . . . 395 $157,880
========
Less amount representing interest . . . . . . . . 144
-----
Net investment (included in other assets) . . . . $ 251
=====
Land and building assets held for lease were $58,288 and $65,156, net of
accumulated depreciation of $18,508 and $17,038, as of September 28,1997
and September 29, 1996, respectively.
5. INCOME TAXES
The fiscal year income taxes consist of the following:
1997 1996 1995
--------- --------- ---------
Federal - current . . . . . . . . . . . . $ 12,222 $ 7,179 $ (388)
- deferred. . . . . . . . . . . . (6,248) (2,680) 345
State - current . . . . . . . . . . . . 4,345 737 256
- deferred. . . . . . . . . . . . (769) 64 287
-------- ------- -------
Subtotal. . . . . . . . . . . . . . . . . 9,550 5,300 500
Income tax benefit of extraordinary item. 350 -- --
-------- ------- -------
Income taxes. . . . . . . . . . . . . . . $ 9,900 $ 5,300 $ 500
======== ======= =======
F-12
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
5. INCOME TAXES (continued)
A reconciliation of fiscal year income taxes with the amounts computed at
the statutory federal rate of 35% follows:
1997 1996 1995
--------- --------- ---------
Computed at federal statutory rate. . . . $ 15,821 $ 8,874 $(23,960)
State income taxes, net of federal effect 2,324 521 353
Jobs tax credit wages . . . . . . . . . . (180) -- (733)
Addition (reduction) to
valuation allowance. . . . . . . . . . . (10,816) (4,295) 26,280
Adjustment of tax loss, contribution and
tax credit carryforwards . . . . . . . . 1,986 -- --
Benefit of reattributed net operating
loss carryback . . . . . . . . . . . . . -- -- (1,420)
Other, net. . . . . . . . . . . . . . . . 765 200 (20)
-------- ------- -------
$ 9,900 $ 5,300 $ 500
======== ======= =======
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are presented
below:
September 28, September 29,
1997 1996
-------- --------
Deferred tax assets:
Tax loss, contribution and tax credit
carryforwards . . . . . . . . . . . . . . . . $ 50,261 $ 57,698
Insurance reserves . . . . . . . . . . . . . . 18,938 16,569
Accrued pension and postretirement benefits. . 9,759 8,775
Accrued vacation pay expense . . . . . . . . . 6,446 6,257
Other reserves and allowances. . . . . . . . . 5,671 5,049
Deferred income. . . . . . . . . . . . . . . . 3,763 3,840
Other, net . . . . . . . . . . . . . . . . . . 4,335 3,352
------- -------
Total gross deferred tax assets. . . . . . . . 99,173 101,540
Less valuation allowance . . . . . . . . . . . 34,396 45,212
------- -------
Net deferred tax assets. . . . . . . . . . . . 64,777 56,328
------- -------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation . . . . . . . . . 50,405 47,707
Intangible assets . . . . . . . . . . . . . . 14,435 15,592
Other, net . . . . . . . . . . . . . . . . . . 319 319
------- -------
Total gross deferred tax liabilities . . . . . 65,159 63,618
------- -------
Net deferred tax liability . . . . . . . . . . $ 382 $ 7,290
======= =======
The valuation allowance of $34,396 as of September 28, 1997 and $45,212
as of September 29, 1996 represents deferred tax assets that may not be
realized by the reversal of future taxable differences. The net change in
the valuation allowance was a decrease of $10,816 for fiscal year 1997 and
a decrease of $4,295 for fiscal year 1996. These decreases related to the
expected future use of tax loss, tax credit and charitable contribution
carryforwards. Management believes it is more likely than not that the
net deferred tax assets will be realized through future taxable income or
alternative tax strategies.
F-13
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
5. INCOME TAXES (continued)
At September 28, 1997, the Company had tax loss carryforwards and general
business credit carryforwards which expire in 2000 through 2012. The
Company has alternative minimum tax credit carryforwards which have no
expiration date; however, they may only be utilized to reduce any regular
tax liability the Company may have in the future.
From time to time the Company may take positions for filing its tax
returns which may differ from the treatment of the same item for
financial reporting purposes. The ultimate outcome of these items will
not be known until such time as the Internal Revenue Service has completed
its examination or until the statute of limitation has passed. The
Internal Revenue Service has completed its examinations of the Company's
federal income tax returns through fiscal year 1993.
6. 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 are
as follows:
1997 1996 1995
--------- --------- ---------
Present value of benefits earned
during the year. . . . . . . . . . . . . $ 3,069 $ 2,634 $ 2,303
Interest cost on projected benefit
obligations. . . . . . . . . . . . . . . 4,337 3,659 3,355
Actual return on plan assets. . . . . . . (7,993) (3,630) (3,300)
Net amortization. . . . . . . . . . . . . 4,913 978 1,431
-------- ------- --------
Net pension expense for the period. . . . $ 4,326 $ 3,641 $ 3,789
======== ======= ========
The funded status of the plans is as follows:
<TABLE>
<CAPTION>
September 28, 1997 September 29, 1996
------------------------- -------------------------
Qualified Non-qualified Qualified Non-qualified
plans plan plans plan
-------- ------- -------- -------
Actuarial present value of benefit obligations:
<S> <C> <C> <C> <C>
Vested benefits. . . . . . . . . . . . . . . . $(38,264) $(7,448) $(29,021) $(5,204)
Nonvested benefits . . . . . . . . . . . . . . (3,668) (1,398) (6,859) (715)
------- ------- -------- -------
Accumulated benefit obligation . . . . . . . . (41,932) (8,846) (35,880) (5,919)
Effect of future salary increases. . . . . . . (10,796) (3,984) (8,374) (2,780)
------- ------- -------- -------
Projected benefit obligation. . . . . . . . . . (52,728) (12,830) (44,254) (8,699)
Plan assets at fair value . . . . . . . . . . . 50,916 -- 39,677 --
------- ------- -------- -------
Projected benefit obligations in
excess of plan assets. . . . . . . . . . . . . (1,812) (12,830) (4,577) (8,699)
Unrecognized prior service cost . . . . . . . . (208) 5,366 (243) 2,774
Unrecognized net transition obligation. . . . . 37 112 47 139
Unrecognized net (gain) loss. . . . . . . . . . 2,180 254 4,046 (534)
------- ------- -------- -------
Pension liability . . . . . . . . . . . . . . . $ 197 $(7,098) $ (727) $(6,320)
======= ======= ======== =======
</TABLE>
F-14
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
6. RETIREMENT, SAVINGS AND BONUS PLANS (continued)
In determining the present values of benefit obligations at each year end,
a 7.75% discount rate and a 5% rate of increase in compensation levels
were assumed. The long-term rate of return on assets was 8.5% in both
years. Assets of the qualified plans consist primarily of listed stocks
and bonds.
The Company maintains a savings plan pursuant to Section 401(k) of the
Internal Revenue Code, which allows administrative and clerical employees
who have satisfied the service requirements and reached age 21 to defer
from 2% 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's contributions under this plan were $1,138,
$1,067 and $498 in 1997, 1996 and 1995, respectively. The Company also
maintains an unfunded, non-qualified deferred compensation plan, which was
created in 1990 for key executives and other members of management who
were then excluded from participation in the qualified savings plan. 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. The Company's contributions under the non-
qualified deferred compensation plan were $324, $233 and $212 in 1997,
1996 and 1995, respectively. In each plan, a participant's right to
Company contributions vests at a rate of 25% per year of service.
The Company maintains a bonus plan that 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, $3,493, $3,172 and $710 was expensed in 1997, 1996 and 1995,
respectively.
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. The amounts deferred are
converted into stock equivalents at the then current market price of the
Company's common stock. The Company provides a credit equal to 25% of the
compensation initially deferred. Under this plan, a total of $835, $186
and $116 was expensed in 1997, 1996 and 1995, respectively, for both the
deferment credit and the stock appreciation on the deferred compensation.
7. POSTRETIREMENT BENEFIT PLAN
The Company sponsors a health care plan that provides postretirement
medical benefits for employees who meet minimum age and service
requirements. The plan is contributory, with retiree contributions
adjusted annually, and contains other cost-sharing features such as
deductibles and coinsurance. The Company's policy is to fund the cost of
medical benefits in amounts determined at the discretion of management.
The normal net periodic postretirement benefit cost was $1,323, $1,201 and
$1,440 in 1997, 1996 and 1995, respectively. The plan was amended to
eliminate retiree medical benefits coverage for those under age 45 at
September 30, 1995, resulting in a curtailment gain of $1,900.
F-15
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
7. POSTRETIREMENT BENEFIT PLAN (continued)
The components of the fiscal year net periodic postretirement benefit cost
are as follows:
1997 1996 1995
--------- --------- ---------
Service cost. . . . . . . . . . . . . . . $ 530 $ 505 $ 675
Interest cost . . . . . . . . . . . . . . 913 816 854
Net amortization and deferral . . . . . . (120) (120) (89)
Curtailment gain. . . . . . . . . . . . . -- -- (1,900)
------- ------- --------
Net periodic postretirement benefit
cost (gain). . . . . . . . . . . . . . . $ 1,323 $ 1,201 $ (460)
======= ======= ========
The plan's funded status reconciled with amounts recognized in the
Company's consolidated balance sheets is as follows:
September 28, September 29,
1997 1996
-------- --------
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . $ (1,577) $ (1,343)
Fully eligible active plan participants. . . . (3,183) (2,777)
Other active plan participants . . . . . . . . (8,441) (7,684)
-------- --------
(13,201) (11,804)
Plan assets at fair value . . . . . . . . . . . -- --
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets . . . . . . . . . . . (13,201) (11,804)
Unrecognized prior service cost . . . . . . . . -- --
Unrecognized net gain . . . . . . . . . . . . . (1,939) (2,062)
-------- --------
Accrued postretirement benefit cost
included in other long-term liabilities. . . . $(15,140) $(13,866)
======== ========
In determining the above information, the Company's actuaries assumed a
discount rate of 7.75% as of September 28, 1997 and September 29, 1996.
For measurement purposes, a 9.0% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed
for 1997 for plan participants under age 65; the rate was assumed to
decrease 1/2% per year to 4.5% by the year 2006 and remain at that level
thereafter. For plan participants age 65 years or older, a 7.0% annual
health care cost trend rate was assumed for 1997; the rate was assumed to
decrease 1/2% per year to 3.5% by the year 2004. 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 September 28, 1997 by $2,758, or
21%, and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year ended September 28, 1997
by $336 or 25%.
F-16
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
8. STOCK OPTIONS
The Company offers stock option plans to attract, retain and motivate key
officers, non-employee directors and employees by providing for or
increasing the proprietary interests of such persons to work toward the
future financial success of the Company.
In January 1992, the Company adopted the 1992 Employee Stock Incentive
Plan (the "1992 Plan") and, as part of a merger, assumed outstanding
options to employees under its predecessor's 1990 Stock Option Plan and
assumed contractually the options to purchase 42,750 shares of common
stock granted to two non-employee directors of the Company. Under the
1992 Plan, employees are eligible to receive stock options, restricted
stock and other various stock-based awards. Subject to certain
adjustments, up to a maximum of 3,775,000 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% 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.
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 at the date of grant.
F-17
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
8. STOCK OPTIONS (continued)
The following is a summary of stock option activity for the three fiscal
years ended September 28, 1997:
Option exercise price
per share
--------------------
Weighted
Shares Range average
--------- -------------- --------
Balance at October 2, 1994 . . . 1,810,591 $ .96-12.25 $ 6.72
Granted . . . . . . . . . . . . 812,098 4.18-6.50 6.04
Exercised . . . . . . . . . . . (42,900) .96-1.13 1.09
Cancelled . . . . . . . . . . . (267,818) 1.13-12.25 8.37
---------
Balance at October 1, 1995 . . . 2,311,971 .96-12.25 6.37
Granted . . . . . . . . . . . . 540,891 6.75-9.13 7.22
Exercised . . . . . . . . . . . (10,880) 1.13-6.50 4.73
Cancelled . . . . . . . . . . . (129,395) 1.13-11.00 8.07
---------
Balance at September 29, 1996. . 2,712,587 .96-12.25 6.52
Granted . . . . . . . . . . . . 807,165 10.13-12.63 12.35
Exercised . . . . . . . . . . . (251,640) .96-12.25 6.76
Cancelled . . . . . . . . . . . (111,078) 5.75-12.63 8.77
---------
Balance at September 28, 1997. . 3,157,034 .96-12.63 7.90
=========
The following is a summary of stock options outstanding at September 28,
1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------------- -------------------------------
Weighted average Weighted Weighted
Range of Number remaining average Number average
exercise prices outstanding contractual life exercise price exercisable exercise price
----------------- ------------ ---------------- -------------- ----------- --------------
<C> <C> <C> <C> <C> <C>
$ .96-4.19 548,170 3.88 $1.28 548,170 $1.28
5.00-7.13 885,229 8.03 6.26 540,795 6.20
7.50-11.00 930,393 6.79 9.57 671,876 10.09
12.13-12.63 793,242 10.00 12.35 74,500 12.25
--------- ---------
.96-12.63 3,157,034 7.44 7.90 1,835,341 6.40
</TABLE>
At September 28, 1997, September 29, 1996 and October 1, 1995, the number
of options exercisable were 1,835,341, 1,732,899 and 1,513,330,
respectively and the weighted average exercise price of those options were
$6.40, $6.12 and $6.05, respectively.
Effective fiscal year 1997, the Company adopted the disclosure
requirements of SFAS 123. As permitted under this Statement, the Company
will continue to measure stock-based compensation cost using its current
"intrinsic value" accounting method.
F-18
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
8. STOCK OPTIONS (continued)
For purposes of the following pro forma disclosures required by SFAS 123,
the fair value of each option granted after fiscal 1995 has been estimated
on the date of grant using the Black-Scholes option-pricing model. Such
models require the input of highly subjective assumptions, including the
expected volatility of the stock price. Therefore, in management's
opinion, the existing models do not provide a reliable single measure of
the value of employee stock options. The following weighted average
assumptions were used for grants: risk free interest rates of 6.38% in
1997 and 6.17% in 1996; expected volatility of 35% in 1997 and 37% in
1996; and in both 1997 and 1996 an expected life of 6 years. The company
has not paid any cash or other dividends and does not anticipate paying
dividends in the foreseeable future, therefore the expected dividend yield
is zero. The weighted average fair value of options granted was $5.80 in
1997 and $3.45 in 1996. Had compensation expense been recognized for
stock-based compensation plans in accordance with provisions of SFAS 123,
the Company would have recorded net earnings of $33,211, or $0.83 per
share, in 1997 and $19,854, or $0.51 per share, in 1996.
For the pro forma disclosures, the options' estimated fair values were
amortized over their vesting periods. The pro forma disclosures do not
include a full five years of grants since SFAS 123 does not apply to
grants before 1995. Therefore, these pro forma amounts are not indicative
of anticipated future disclosures.
9. STOCKHOLDERS' EQUITY
The Company has 15,000,000 shares of preferred stock authorized for
issuance at a par value of $.01 per share. No shares have been issued.
On July 26, 1996, the Board of Directors declared a dividend of one
preferred stock purchase right (a "Right") for each outstanding share of
the Company's common stock, which Rights expire on July 26, 2006. Each
Right entitles a stockholder to purchase for an exercise price of $40,
subject to adjustment, one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock of the Company, or, under certain
circumstances, shares of common stock of the Company or a successor
company with a market value equal to two times the exercise price. The
Rights would only become exercisable for all other persons when any person
has acquired or commences to acquire a beneficial interest of at least 20%
of the Company's outstanding common stock. The Rights have no voting
privileges and may be redeemed by the Board of Directors at a price of
$.001 per Right at any time prior to the acquisition of a beneficial
ownership of 20% of the outstanding common shares. There are 390,968
shares of Series A Junior Participating Cumulative Preferred Stock
reserved for issuance upon exercise of the Rights.
In conjunction with the December 1988 acquisition of the Company, warrants
for the purchase of 1,584,573 shares of common stock were issued and are
exercisable at $.93 per share, as adjusted. As of September 29, 1997,
warrants for 1,482,726 shares had been exercised.
At September 28, 1997, the Company had 6,542,007 shares of common stock
reserved for issuance upon the exercise of stock options and 101,847
shares reserved for issuance upon exercise of warrants.
F-19
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
10. AVERAGE SHARES OUTSTANDING
Fiscal year net earnings (loss) per share is based on the weighted average
number of shares outstanding during the year, determined as follows:
1997 1996 1995
---------- ---------- ----------
Shares outstanding,
beginning of fiscal year. . . . . . . 38,840,525 38,802,195 38,668,200
Effect of common stock issued. . . . . 92,081 16,071 29,566
Assumed additional shares issued upon
exercise of stock options and
warrants, net of shares reacquired at
the average market price. . . . . . . 843,638 482,510 216,874
---------- ---------- ----------
Weighted average shares outstanding. . 39,776,244 39,300,776 38,914,640
========== ========== ==========
11. CONTINGENT LIABILITIES
The legal proceedings that were pending against the Company in federal
and state courts in the state of Washington, relating to food-borne
illness (the "Outbreak") attributed to hamburgers served at
Jack in the Box restaurants in 1993, have been concluded, with the
exception of one case of immaterial financial impact, which is currently
on appeal. The total liability on all such lawsuits and claims did not
exceed the coverage available under the Company's applicable insurance
policies.
The Company is engaged in litigation with the Vons Companies, Inc.
("Vons") and various suppliers seeking reimbursement for all damages,
costs and expenses incurred in connection with the Outbreak. The
initial litigation was filed by the Company on February 4, 1993. Vons
has filed cross-complaints against the Company and others alleging
certain contractual, indemnification and tort liabilities; seeking
damages in unspecified amounts and a declaration of the rights and
obligations of the parties. The claims of the parties arise out of two
separate lawsuits which have been consolidated and are now set for trial
in the Los Angeles Superior Court, Los Angeles, California in January
1998.
On April 6, 1996 an action was filed by one of the Company's
international franchisees, Wolsey, Ltd., in the United States District
Court in San Diego, California against the Company and its directors,
its international franchising subsidiary, and certain officers of the
Company and others. The complaint alleges certain contractual, tort and
law violations related to the franchisees' development rights in the Far
East and seeks damages in excess of $38.5 million, injunctive relief,
attorneys fees and costs. The Company has successfully dismissed
portions of the complaint, including the single claim alleging
wrongdoing by the Company's outside directors. Management believes the
remaining allegations are without foundation and intends to vigorously
defend the action.
On November 5, 1996, an action was filed by the "National JIB Franchisee
Association, Inc." and several of the Company's franchisees in the
Superior Court of California, County of San Diego in San Diego,
California, against the Company and others. The lawsuit alleges that
certain Company policies are unfair business practices and violate
sections of the California Corporations Code regarding material
modifications of franchise agreements and interfere with franchisees'
right of association. It seeks injunctive relief, a declaration of the
rights and duties of the parties, unspecified damages and recision of
alleged material modifications of plaintiffs' franchise agreements. The
complaint also alleges fraud, breach of a fiduciary duty and breach of a
third party beneficiary contract in connection with certain payments
that the Company received from suppliers and seeks unspecified damages,
interest, punitive damages and an accounting. Management believes that
its policies are lawful and that it has satisfied any obligation to its
franchisees in regard to such supplier payments.
F-20
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
11. CONTINGENT LIABILITIES (Continued)
On December 10, 1996, a suit was filed by the Company's Mexican
licensee, Foodmex, Inc., in the United States District Court in San
Diego, California against the Company and its international franchising
subsidiary. Foodmex formerly operated several Jack in the Box franchise
restaurants in Mexico, but its licenses were terminated by the Company
for, among other reasons, chronic insolvency and failure to meet
operational standards. The Foodmex suit alleges wrongful termination of
its master license, breach of contract and unfair competition and seeks
an injunction to prohibit termination of its license as well as
unspecified monetary damages. In January 1997 Foodmex amended its
complaint to name several individual defendants and to allege additional
causes of action. The Company and its subsidiary counterclaimed and
sought a preliminary injunction against Foodmex. On March 28, 1997 the
court granted the Company's request for an injunction, held that the
Company was likely to prevail in its suit, and ordered Foodmex to
immediately cease using the Jack in the Box marks and proprietary
operating systems. On June 30, 1997, the court held Foodmex and its
president in contempt of court for failing to comply with the March 28,
1997 order.
On February 2, 1995, an action by Concetta Jorgensen was filed against
the Company in the U.S. District Court in San Francisco, California
alleging that restrooms at a Jack in the Box restaurant failed to comply
with laws regarding disabled persons and seeking damages in unspecified
amounts, punitive damages, injunctive relief, attorneys fees and
prejudgment interest. In an amended complaint, damages were also sought
on behalf of all physically disabled persons who were allegedly denied
access to restrooms at the restaurant. In February 1997, the court
ordered that the action for injunctive relief proceed as a nationwide
class action on behalf of all persons in the United States with mobility
disabilities. The Company has reached tentative agreement on settlement
terms both as to the individual plaintiff Concetta Jorgensen and the
claims for injunctive relief, but a settlement agreement has not yet
been signed or presented to the U.S. District Court for approval.
During the course of settlement discussions, Foodmaker was notified by
attorneys for plaintiffs that claims may be made against Jack in the Box
franchisees and Foodmaker relating to locations that franchisees lease
from Foodmaker which may not be in compliance with the Americans With
Disabilities Act.
On May 23, 1997, an action by Ralston Purina Company was filed against
the Company in the U.S. District court for the Eastern District of
Missouri in St. Louis, Missouri alleging the Company's breach of a tax
sharing agreement and unjust enrichment and seeking an accounting and
damages in an amount not less than $11 million and attorneys' fees and
costs. The Company believes it has meritorious defenses and intends to
vigorously resist the lawsuit.
The Company is also subject to normal and routine litigation. The
amount of liability from the claims and actions described above cannot
be determined with certainty, but in the opinion of management, 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 results of operations and liquidity of
the Company.
F-21
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
12. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
September 28, September 29,
1997 1996
-------- --------
Accounts receivable:
Trade. . . . . . . . . . . . . . . . . . . . . $ 4,349 $ 7,489
Notes. . . . . . . . . . . . . . . . . . . . . 1,444 2,010
Other. . . . . . . . . . . . . . . . . . . . . 7,714 6,476
Allowance for doubtful accounts. . . . . . . . (3,025) (3,493)
-------- --------
$ 10,482 $ 12,482
======== ========
Other Assets:
Trading area rights, net of amortization of
$21,880 and $18,669, respectively. . . . . . . $ 69,921 $ 67,663
Lease acquisition costs, net of amortization of
$21,469 and $20,896, respectively. . . . . . . 18,788 22,299
Other assets, net of amortization of $18,503
and $18,259, respectively. . . . . . . . . . . 34,100 34,261
-------- --------
$122,809 $124,223
======== ========
Accrued liabilities:
Payroll and related taxes . . . . . . . . . . . $32,948 $ 29,889
Sales and property taxes. . . . . . . . . . . . 11,413 10,125
Advertising . . . . . . . . . . . . . . . . . . 11,801 12,294
Insurance . . . . . . . . . . . . . . . . . . . 45,343 41,494
Interest. . . . . . . . . . . . . . . . . . . . 6,916 7,352
Income tax liabilities. . . . . . . . . . . . . 17,208 347
Other . . . . . . . . . . . . . . . . . . . . . 26,539 14,457
-------- --------
$152,168 $115,958
======== ========
F-22
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(continued)
13. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
16 weeks ended 12 weeks ended
----------------------------------------------------
Jan. 21, 1996 Apr. 14, 1996 July 7, 1996 Sept. 29, 1996
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . $330,630 $249,975 $243,147 $239,070
Gross profit . . . . . . . . . . 43,047 29,870 36,134 34,560
Net earnings . . . . . . . . . . 4,690 4,013 5,515 5,833
Net earnings per share . . . . . .12 .10 .14 .15
16 weeks ended 12 weeks ended
----------------------------------------------------
Jan. 19, 1997 Apr. 13, 1997 July 6, 1997 Sept. 28, 1997
------------- ------------- ------------ --------------
Revenues . . . . . . . . . . . . $323,483 $246,993 $251,681 $249,585
Gross profit . . . . . . . . . . 48,219 37,051 41,771 38,959
Earnings before
extraordinary item. . . . . . . 9,027 6,695 9,995 9,586
Net earnings . . . . . . . . . . 9,027 6,695 9,995 8,334
Earnings per share before
extraordinary item. . . . . . . .23 .17 .25 .24
Net earnings per share . . . . . .23 .17 .25 .21
F-23
</TABLE>
<PAGE>
Independent Auditors' Consents
The Board of Directors
Foodmaker, Inc.;
We consent to incorporation by reference in the registration statement no.
33-50934 on Form S-3 of Foodmaker, Inc. and in registration statement
Nos. 33-67450, 33-54602 and 33-51490 on Form S-8 of Foodmaker, Inc. of our
report dated November 3, 1997 relating to the consolidated balance sheets
of Foodmaker, Inc. and subsidiaries as of September 28, 1997 and September 29,
1996, and the related consolidated statements of operations, cash flows and
stockholders' equity for the fifty-two weeks ended September 28, 1997,
September 29, 1996 and October 1, 1995, which report appears in the
September 28, 1997 annual report on Form 10-K of Foodmaker, Inc. and
subsidiaries, and to the reference to our Firm under the heading
"Selected Financial Data" in Item 6 of the referenced Form 10-K.
San Diego, California KPMG PEAT MARWICK LLP
November 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> FISCAL YEAR 1997 IS 52 WEEKS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 28,527
<SECURITIES> 0
<RECEIVABLES> 12,063
<ALLOWANCES> 3,025
<INVENTORY> 18,300
<CURRENT-ASSETS> 100,162
<PP&E> 660,076
<DEPRECIATION> 201,289
<TOTAL-ASSETS> 681,758
<CURRENT-LIABILITIES> 193,213
<BONDS> 346,191
<COMMON> 405
0
0
<OTHER-SE> 87,474
<TOTAL-LIABILITY-AND-EQUITY> 681,758
<SALES> 1,031,816
<TOTAL-REVENUES> 1,071,742
<CGS> 371,947
<TOTAL-COSTS> 905,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,359
<INCOME-PRETAX> 45,203
<INCOME-TAX> 9,900
<INCOME-CONTINUING> 35,303
<DISCONTINUED> 0
<EXTRAORDINARY> (1,252)
<CHANGES> 0
<NET-INCOME> 34,051
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
</TABLE>
