<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 19, 1997 Commission File No. 1-9390
------------------ -------
FOODMAKER, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-2698708
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
9330 BALBOA AVENUE, SAN DIEGO, CA 92123
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 571-2121
---------------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Number of shares of common stock, $.01 par value, outstanding
as of the close of business February 21, 1997 - 38,851,541
- 1 -
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 19, September 29,
1997 1996
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 53,739 $ 41,983
Receivables . . . . . . . . . . . . . . . . . . . . 10,989 12,482
Inventories . . . . . . . . . . . . . . . . . . . . 22,394 20,850
Prepaid expenses. . . . . . . . . . . . . . . . . . 24,121 21,161
--------- ---------
Total current assets . . . . . . . . . . . . . . 111,243 96,476
--------- ---------
Trading area rights . . . . . . . . . . . . . . . . . 66,668 67,663
--------- ---------
Lease acquisition costs . . . . . . . . . . . . . . . 20,334 22,299
--------- ---------
Other assets. . . . . . . . . . . . . . . . . . . . . 35,496 34,261
--------- ---------
Property at cost. . . . . . . . . . . . . . . . . . . 615,335 610,756
Accumulated depreciation and amortization . . . . . (185,713) (177,817)
--------- ---------
429,622 432,939
--------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . . . $ 663,363 $ 653,638
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt. . . . . . . . $ 1,400 $ 1,812
Accounts payable. . . . . . . . . . . . . . . . . . 32,890 29,293
Accrued expenses. . . . . . . . . . . . . . . . . . 114,943 115,958
--------- ---------
Total current liabilities. . . . . . . . . . . . 149,233 147,063
--------- ---------
Deferred income taxes . . . . . . . . . . . . . . . . 6,140 7,290
--------- ---------
Long-term debt, net of current maturities . . . . . . 396,034 396,340
--------- ---------
Other long-term liabilities . . . . . . . . . . . . . 51,528 51,561
--------- ---------
Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . . . . . 403 403
Capital in excess of par value. . . . . . . . . . . 281,092 281,075
Accumulated deficit . . . . . . . . . . . . . . . . (206,604) (215,631)
Treasury stock. . . . . . . . . . . . . . . . . . . (14,463) (14,463)
--------- ---------
Total stockholders' equity . . . . . . . . . . . 60,428 51,384
--------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . . . $ 663,363 $ 653,638
========= =========
See accompanying notes to financial statements.
-2-
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Sixteen Weeks Ended
----------------------------
January 19, January 21,
1997 1996
---------- ----------
Revenues:
Restaurant sales. . . . . . . . . . . . . . . . . . $291,212 $266,065
Distribution sales. . . . . . . . . . . . . . . . . 20,575 52,600
Franchise rents and royalties . . . . . . . . . . . 10,670 10,389
Other . . . . . . . . . . . . . . . . . . . . . . . 1,026 1,576
-------- --------
323,483 330,630
-------- --------
Costs and expenses:
Costs of revenues:
Restaurant costs of sales. . . . . . . . . . . . 98,197 86,382
Restaurant operating costs . . . . . . . . . . . 150,329 143,106
Costs of distribution sales. . . . . . . . . . . 20,351 51,938
Franchised restaurant costs. . . . . . . . . . . 6,479 6,236
Selling, general and administrative . . . . . . . . 23,894 20,630
Interest expense. . . . . . . . . . . . . . . . . . 12,606 14,649
-------- --------
311,856 322,941
-------- --------
Earnings before income taxes. . . . . . . . . . . . . 11,627 7,689
Income taxes. . . . . . . . . . . . . . . . . . . . . 2,600 2,999
-------- --------
Net earnings. . . . . . . . . . . . . . . . . . . . . $ 9,027 $ 4,690
======== ========
Net earnings per share - primary and fully diluted. . $ 0.23 $ 0.12
======== ========
Weighted average shares outstanding . . . . . . . . . 39,494 39,190
See accompanying notes to financial statements.
-3-
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Sixteen Weeks Ended
----------------------------
January 19, January 21,
1997 1996
---------- ----------
Cash flows from operations:
Net earnings. . . . . . . . . . . . . . . . . . . . $ 9,027 $ 4,690
Non-cash items included above:
Depreciation and amortization. . . . . . . . . . 12,168 12,020
Deferred income taxes. . . . . . . . . . . . . . (1,150) 165
Decrease in receivables . . . . . . . . . . . . . . 1,493 1,406
Increase in inventories . . . . . . . . . . . . . . (1,544) (1,365)
Decrease (increase) in prepaid expenses . . . . . . (2,960) 1,762
Increase in accounts payable. . . . . . . . . . . . 3,597 5,132
Increase (decrease) in accrued expenses . . . . . . (1,048) 3,185
------- -------
Cash flows provided by operations. . . . . . . . 19,583 26,995
------- -------
Cash flows from investing activities:
Additions to property and equipment . . . . . . . . (6,549) (7,858)
Dispositions of property and equipment. . . . . . . 542 1,147
Decrease in trading area rights . . . . . . . . . . -- 122
Decrease (increase) in other assets . . . . . . . . (1,004) 108
------- -------
Cash flows used in investing activities. . . . . (7,011) (6,481)
------- -------
Cash flows from financing activities:
Principal payments on long-term debt,
including current maturities . . . . . . . . . . (833) (884)
Proceeds from issuance of common stock. . . . . . . 17 --
------- -------
Cash flows used in financing activities. . . . . (816) (884)
------- -------
Net increase in cash and cash equivalents . . . . . . $11,756 $19,630
======= =======
See accompanying notes to financial statements.
-4-
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements of Foodmaker, Inc. (the
"Company") do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation of
financial condition and results of operations for the interim periods have
been included. Operating results for any interim period are not
necessarily indicative of the results for any other interim period or for
the full year. The Company reports results quarterly with the first
quarter having 16 weeks and each remaining quarter having 12 weeks.
Certain financial statement reclassifications have been made in the
prior year to conform to the current year presentation. These financial
statements should be read in conjunction with the 1996 financial
statements.
2. 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.
3. The 1997 tax provision reflects the expected annual tax rate of 22% of
earnings before income taxes. The income tax provision for the 16 weeks
ended January 21, 1996 was 39% of earnings before income taxes and was
subsequently adjusted to the effective annual rate in 1996 of 21% of
pretax earnings. The low effective income tax rates in each year result
from the Company's ability to realize previously unrecognized tax benefits.
The Company cannot determine the actual annual effective tax rate until the
end of the fiscal year, thus the rate could differ from expectations.
4. Contingent Liabilities
Various claims and legal proceedings are pending against the Company in a
federal court and in state courts in the state of Washington, seeking
monetary damages for personal injuries relating to the outbreak of
food-borne illness (the "Outbreak") attributed to hamburgers served at
Jack in the Box restaurants. The Company, in consultation with its
insurance carriers and attorneys, does not anticipate that the total
liability on all such lawsuits and claims will exceed the coverage
available under its applicable insurance policies.
The Company is engaged in litigation with the Vons Companies, Inc.
("Vons") and other 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 July 1997.
-5-
<PAGE>
On February 2, 1995, an action by Christina 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, attorney fees and
prejudgment interest. In an amended complaint damages are also sought on
behalf of all physically disabled persons who have been denied access to
restrooms at the restaurant. A motion has been filed, but has not been
heard, to permit the lawsuit to proceed as a class action and to include
all Company-operated restaurants.
The Company is subject to normal and routine litigation, none of which is
expected to have a material adverse effect on results of operations or
financial condition of the Company.
-6-
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION
RESULTS OF OPERATIONS
- ---------------------
All comparisons under this heading between 1997 and 1996 refer to the
16-week periods ended January 19, 1997 and January 21, 1996, respectively,
unless otherwise indicated.
Restaurant sales increased $25.1 million, or 9.4%, to $291.2 million in
1997 from $266.1 million in 1996, as both per store average sales and the
number of Company-operated restaurants increased from a year ago. Per store
average ("PSA") sales for comparable restaurants, which are calculated for
only those restaurants open for all periods being compared, increased 6.5%
in 1997 compared to 1996. The PSA sales improvement reflects a 7.5% increase
in transactions, offset by a 1% decrease in the average transaction amount.
Sales continued to improve under the Company's two-tier marketing strategy,
featuring both premium sandwiches and value-priced alternatives, and were
further strengthened under the "New and Improved" campaign which began in
August 1996. Since January 1996, the Company has increased prices on certain
products to offset commodity cost and minimum wage increases. Sales
increased on the bottom tier since introducing the "Value Menu" and offering
two tacos for 99 cents. The average number of Company-operated restaurants
increased to 883 in 1997 from 866 in 1996 through the addition of new units and
the acquisition of restaurants from franchisees.
Distribution sales of food and supplies declined $32.0 million to $20.6
million in 1997 from $52.6 million in 1996. Distribution sales to franchisees
declined $29.2 million in 1997 compared to 1996 as the franchisees have
transitioned to their own purchasing cooperative, which contracts with another
supplier for distribution services. Most franchisees have elected to
participate in the cooperative, which has resulted in a substantial decline in
distribution sales. Distribution sales to its other customer, Chi-Chi's, Inc.,
have also declined $2.8 million to $17.6 million in 1997 from $20.4 million in
1996. The Company's distribution agreement with Chi-Chi's, Inc. will not be
renewed when the contract expires in April 1997. Because distribution
is a low-margin business, the loss of these revenues is not expected to have a
material impact on the financial condition of the Company.
Franchise rents and royalties increased slightly to $10.7 million in 1997
from $10.4 million in 1996, reflecting an increase in sales at
franchisee-operated restaurants to $109.7 million in 1997 from $102.9 million
in 1996. The Company receives rents and royalties averaging approximately 10%
of sales at franchise-operated restaurants.
Other revenues, principally interest income from investments and notes
receivable, declined to $1.0 million in 1997 from $1.6 million in 1996 due
to lower levels of investments and notes receivable.
Total revenues declined $7.1 million to $323.5 million in 1997 from $330.6
million in 1996 reflecting principally the $25.1 million increase in restaurant
sales offset by the $32.0 million decline in distribution sales.
Restaurant costs of sales, which include food and packaging costs,
increased with restaurant sales growth to $98.2 million, or 33.7% of sales,
in 1997 from $86.4 million, or 32.5% of sales, in 1996. Costs of sales
increased as a percent of sales principally due to higher food costs of
certain promotions and commodity cost increases, primarily dairy, pork and
improved french fries.
-7-
<PAGE>
Restaurant operating costs increased with restaurant sales growth and the
addition of Company-operated restaurants to $150.3 million in 1997 from
$143.1 million in 1996. Restaurant operating costs declined to 51.6% of
sales in 1997 from 53.8% of sales in 1996 principally due to labor
efficiencies and lower percentages of other operating costs as
sales have increased at a greater rate than these costs.
Costs of distribution sales decreased to $20.4 million in 1997 from $51.9
million in 1996 reflecting the decline in distribution sales. Costs of
distribution sales have increased slightly as a percent of sales to 99.0% in
1997 from 98.9% in 1996.
Franchised restaurant costs, which include rents and depreciation on
properties leased to franchisees and other miscellaneous costs, increased to
$6.5 million in 1997 from $6.2 million in 1996. The higher costs reflect
contingent rent expense that has increased with franchisee sales and increased
franchise-related legal expense.
Selling, general and administrative expenses increased $3.3 million to
$23.9 million in 1997 from $20.6 million in 1996. Advertising and promotion
costs, which were approximately 5.3% of sales in both years, increased with
the higher restaurant sales. General, administrative and other expenses were
2.6% of revenues, an increase of approximately $2.3 million in 1997 compared
to 1996 principally due to increased general legal expenses and
approximately $1.0 million in expenses and write-offs related to the test of
a dual brand concept.
Interest expense declined $2.0 million to $12.6 million in 1997 from $14.6
million in 1996 principally due to a reduction in total debt outstanding.
Total debt at January 19, 1997 was $397.4 million compared to $441.3 million
a year ago. The decrease in 1997 interest expense 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 1997 tax provision reflects the expected annual tax rate of 22% of
earnings before income taxes. The income tax provision in the 16 weeks ended
January 21, 1996 was 39% of pretax earnings and was subsequently adjusted to
the effective annual rate in 1996 of 21% of pretax earnings. The low effective
income tax rates in each year result from the Company's ability to realize
previously unrecognized tax benefits. The Company cannot determine the actual
annual effective tax rate until the end of the fiscal year, thus the rate could
differ from expectations.
Net earnings improved $4.3 million, or 92%, to $9.0 million, or $.23 per
share, in 1997 from $4.7 million, or $.12 per share, in 1996 reflecting sales
growth, cost management and a lower effective tax rate.
FINANCIAL CONDITION
- -------------------
Cash and cash equivalents increased $11.7 million to $53.7 million at
January 19, 1997 from $42.0 million at the beginning of the fiscal year. The
cash increase reflects cash flows from operations of $18.2 million in 1997,
and capital expenditures of $6.5 million.
The Company's working capital deficit decreased $12.6 million to $38.0
million at January 19, 1997 from $50.6 million at September 29, 1996,
principally due to the increase in cash. The Company, and the restaurant
industry in general, maintain relatively low levels of receivables 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 $.8 million to $397.4 million at
January 19, 1997 from $398.2 million at the beginning of the fiscal year
and $441.3 million on January 21, 1996. On May 15, 1996, the Company used
$43.5 million of available cash to prepay the 14 1/4% senior subordinated
notes due in May 1998.
-8-
<PAGE>
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 January 19, 1997, the Company had no borrowings and
approximately $54.3 million of unused credit under the agreement. 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. Substantially
all 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 grow 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.
CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS
- ----------------------------------------------------------
This Quarterly Report on Form 10-Q contains forward looking statements
including, but not limited to, the Company's expectations regarding its
effective tax rate, its continuing investment in new restaurants and
refurbishment of existing facilities and sources of liquidity. Forward looking
statements are subject to known and unknown risks and uncertainties which may
cause actual results to differ materially from expectations. The following
is a discussion of some of those factors. The Company's tax provision is
highly sensitive to expected earnings and as expectations change the Company's
income tax provision may vary more significantly from quarter to quarter and
year to year than companies which have been continuously profitable. However,
the Company's effective tax rates are expected to increase in the future.
There can be no assurances that growth objectives in the regional domestic
markets in which the Company operates will be met or that capital will be
available for refurbishment of existing facilities. There are no plans for
significant growth internationally. Additional risk factors associated with
the Company's business are detailed in the Company's most recent Annual Report
on Form 10-K filed with the Securities and Exchange Commission.
-9-
<PAGE>
PART II - OTHER INFORMATION
There is no information required to be reported for any items under Part II,
except as follows:
Item 1. Legal Proceedings
For information regarding legal proceedings required by this item, see
Note 4 to the unaudited consolidated financial statements which is
incorporated herein by this reference.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting was held February 14, 1997 at which the
following matters were voted as indicated:
For Withheld
---------- ---------
1. Election of the following directors to serve
until the next annual meeting of stockholders
and until their successors are elected and
qualified.
Michael E. Alpert . . . . . . . . . . . . . . 34,063,920 1,073,928
Jay W. Brown. . . . . . . . . . . . . . . . . 34,064,222 1,073,626
Paul T. Carter. . . . . . . . . . . . . . . . 34,267,041 870,807
Charles W. Duddles. . . . . . . . . . . . . . 34,261,591 876,257
Edward Gibbons. . . . . . . . . . . . . . . . 34,257,741 880,107
Jack W. Goodall . . . . . . . . . . . . . . . 34,234,110 903,738
Robert J. Nugent. . . . . . . . . . . . . . . 34,062,048 1,075,800
L. Robert Payne . . . . . . . . . . . . . . . 34,240,615 897,233
For Against Abstain Not Voted
--------- --------- -------- ---------
2. Approval of the proposed
amendments to the 1992
Employee Stock Incentive
Plan . . . . . . . . . . . . 32,526,569 2,475,398 135,881 -0-
3. Ratification of the
appointment of KPMG Peat
Marwick LLP as independent
accountants. . . . . . . . . 35,042,004 45,256 50,588 -0-
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
------ -----------
27 Financial Data Schedule (included only with electronic
filing)
(b) Reports on Form 8-K - None
-10-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in the capacities indicated.
FOODMAKER, INC.
By: DARWIN J. WEEKS
----------------------------
Darwin J. Weeks
Vice President, Controller
and Chief Accounting Officer
(Duly Authorized Signatory)
Date: March 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FIRST QUARTER HAS 16 WEEKS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> JAN-19-1997
<CASH> 53,739
<SECURITIES> 0
<RECEIVABLES> 13,959
<ALLOWANCES> 4,093
<INVENTORY> 22,394
<CURRENT-ASSETS> 111,243
<PP&E> 615,335
<DEPRECIATION> 185,713
<TOTAL-ASSETS> 663,363
<CURRENT-LIABILITIES> 149,233
<BONDS> 396,034
<COMMON> 403
0
0
<OTHER-SE> 60,025
<TOTAL-LIABILITY-AND-EQUITY> 663,363
<SALES> 311,787
<TOTAL-REVENUES> 323,483
<CGS> 118,548
<TOTAL-COSTS> 275,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,606
<INCOME-PRETAX> 11,627
<INCOME-TAX> 2,600
<INCOME-CONTINUING> 9,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,027
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
