<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 April 13, 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 571-2121
---------------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Number of shares of common stock, $.01 par value, outstanding
business May 16, 1997 - 38,982,537
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
April 13, September 29,
1997 1996
--------- -------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 69,490 $ 41,983
Receivables . . . . . . . . . . . . . . . . . . . 12,909 12,482
Inventories . . . . . . . . . . . . . . . . . . . 20,751 20,850
Prepaid expenses. . . . . . . . . . . . . . . . . 27,717 21,161
--------- ---------
Total current assets . . . . . . . . . . . . . 130,867 96,476
--------- ---------
Property at cost. . . . . . . . . . . . . . . . . . 621,646 610,756
Accumulated depreciation and amortization . . . . (190,817) (177,817)
--------- ---------
430,829 432,939
--------- ---------
Trading area rights . . . . . . . . . . . . . . . . 67,421 67,663
--------- ---------
Lease acquisition costs . . . . . . . . . . . . . . 19,818 22,299
--------- ---------
Other assets. . . . . . . . . . . . . . . . . . . . 34,587 34,261
--------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . . $ 683,522 $ 653,638
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt. . . . . . . $ 1,419 $ 1,812
Accounts payable. . . . . . . . . . . . . . . . . 35,065 29,293
Accrued expenses. . . . . . . . . . . . . . . . . 125,601 115,958
--------- ---------
Total current liabilities. . . . . . . . . . . 162,085 147,063
--------- ---------
Long-term debt, net of current maturities . . . . . 395,761 396,340
--------- ---------
Other long-term liabilities . . . . . . . . . . . . 52,908 51,561
--------- ---------
Deferred income taxes . . . . . . . . . . . . . . . 5,290 7,290
--------- ---------
Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . . . . 403 403
Capital in excess of par value. . . . . . . . . . 281,447 281,075
Accumulated deficit . . . . . . . . . . . . . . . (199,909) (215,631)
Treasury stock. . . . . . . . . . . . . . . . . . (14,463) (14,463)
--------- ---------
Total stockholders' equity . . . . . . . . . . 67,478 51,384
--------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . . $ 683,522 $ 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)
Twelve Twenty-eight
Weeks Ended Weeks Ended
------------------- -------------------
April 13, April 14, April 13, April 14,
1997 1996 1997 1996
------- ------- ------- -------
Revenues:
Restaurant sales. . . . . . . . . $223,820 $202,283 $515,032 $468,348
Distribution sales. . . . . . . . 14,285 39,322 34,860 91,922
Franchise rents and royalties . . 8,035 7,610 18,705 17,999
Other . . . . . . . . . . . . . . 853 760 1,879 2,336
-------- -------- -------- --------
246,993 249,975 570,476 580,605
-------- -------- -------- --------
Costs and expenses:
Costs of revenues:
Restaurant costs of sales. . . 74,596 67,442 172,793 153,824
Restaurant operating costs . . 115,507 109,460 265,744 252,478
Costs of distribution sales. . 14,299 38,392 34,650 90,330
Franchised restaurant costs. . 5,540 4,806 12,019 11,042
Selling, general and
administrative. . . . . . . . 19,044 15,544 43,030 36,262
Interest expense. . . . . . . . . 9,412 11,017 22,018 25,666
-------- -------- -------- --------
238,398 246,661 550,254 569,602
-------- -------- -------- --------
Earnings before income taxes. . . . 8,595 3,314 20,222 11,003
Income taxes (benefit). . . . . . . 1,900 (699) 4,500 2,300
-------- -------- -------- --------
Net earnings. . . . . . . . . . . . $ 6,695 $ 4,013 $ 15,722 $ 8,703
======== ======== ======== ========
Net earnings per share - primary
and fully diluted. . . . . . . $ .17 $ .10 $ .40 $ .22
======== ======== ======== ========
Weighted average shares outstanding 39,580 39,257 39,531 39,219
See accompanying notes to financial statements.
-3-
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Twenty-eight Weeks Ended
------------------------
April 13, April 14,
1997 1996
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Cash flows from operations:
Net earnings. . . . . . . . . . . . . . . . . . . $ 15,722 $ 8,703
Non-cash items included above:
Depreciation and amortization. . . . . . . . . 21,274 20,951
Deferred income taxes. . . . . . . . . . . . . (2,000) 165
Decrease (increase) in receivables. . . . . . . . (427) 1,478
Decrease (increase) in inventories. . . . . . . . 99 (733)
Increase in prepaid expenses. . . . . . . . . . . (6,556) (2,169)
Increase (decrease) in accounts payable . . . . . 5,772 (7,518)
Increase in accrued expenses. . . . . . . . . . . 10,990 12,514
--------- ---------
Cash flows provided by operations. . . . . . . 44,874 33,391
--------- ---------
Cash flows from investing activities:
Additions to property and equipment . . . . . . . (15,629) (14,805)
Dispositions of property and equipment. . . . . . 1,442 1,362
Decrease (increase) in trading area rights. . . . (1,510) 122
Increase in other assets. . . . . . . . . . . . . (868) (1,022)
--------- ---------
Cash flows used in investing activities. . . . (16,565) (14,343)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term debt,
including current maturities . . . . . . . . . (1,174) (1,218)
Proceeds from issuance of common stock. . . . . . 372 32
--------- ---------
Cash flows used in financing activities. . . . (802) (1,186)
--------- ---------
Net increase in cash and cash equivalents . . . . . $ 27,507 $ 17,862
========= =========
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. In March 1997, the Financial Accounting Standards Board issued SFAS 128,
Earnings per Share, effective for fiscal years ending after December 15,
1997. SFAS 128 requires the presentation of "basic" earnings per share
which excludes the dilutive effect of all common stock equivalents.
Presentation of "diluted" earnings per share, which reflects the dilutive
effects of all common stock equivalents, will also be required. The
diluted presentation is similar to the current presentation of fully
diluted earnings per share, but uses the average market price of the
stock during the period. The Company is currently evaluating the impact
of implementation of SFAS 128.
4. The 1997 tax provision reflects the expected annual tax rate of 22% of
earnings before income taxes. The 1996 tax provision for the quarter
reflects a $.7 million credit, adjusting the provision for the first two
quarters of the fiscal year to the effective annual tax rate 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
until the end of the fiscal year, thus the rate could differ from
expectations.
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<PAGE>
5. 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.
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. 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 disabilities.
The Company is also 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.
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<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
12-week and 28-week periods ended April 13, 1997 and April 14, 1996,
respectively, unless otherwise indicated.
Restaurant sales increased $21.5 million and $46.7 million, respectively,
to $223.8 million and $515.0 million in 1997 from $202.3 million and $468.3
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 the full fiscal years being compared, increased 7.8% and
7.0%, respectively, in 1997 compared to the same periods in 1996. The PSA
sales improvement reflects increases of 5.2% and 6.5% in the average number
of transactions, and increases of 2.6% and .5% in average transaction
amounts. Sales continued to improve under the Company's two-tier marketing
strategy featuring premium sandwiches, such as the Sourdough Jack sandwich,
and value-priced alternatives from "Jack's Under A Buck Menu". Sales were
further strengthened by 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.
The average number of Company-operated restaurants increased to 886 in 1997
from 868 in 1996 through the addition of new units and the acquisition of
restaurants from franchisees.
Distribution sales of food and supplies declined $25.0 million and $57.0
million, respectively, to $14.3 million and $34.9 million in 1997 from $39.3
million and $91.9 million in 1996. Distribution sales to franchisees
declined $21.4 million and $50.5 million, respectively, in 1997 compared to
the same periods of 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 Chi-Chi's, Inc. have also declined $3.6 million
and $6.5 million, respectively, in 1997 compared to the same periods of 1996.
The Company's distribution agreement with Chi-Chi's was not renewed when the
contract expired in April 1997. Ongoing distribution sales, which relate
only to franchisees who continue to use Foodmaker distribution services, are
expected to be approximately $2 million per quarter. Because distribution is
a low-margin business, the loss of distribution revenues is not expected to
have a material impact on the financial condition of the Company.
Franchise rents and royalties increased slightly to $8.0 million and
$18.7 million, respectively, in 1997 from $7.6 million and $18.0 million in
1996, reflecting an increase in sales at franchise-operated restaurants to
$80.2 million and $189.5 million in 1997 from $75.4 million and $178.2
million, respectively, in 1996. The Company receives rents and royalties
averaging approximately 10% of sales at franchise-operated restaurants.
-7-
<PAGE>
Other revenues, principally interest income from investments and notes
receivable, increased slightly in the 12-week period to $.9 million in 1997
from $.8 million in 1996. In the 28-week period other revenues declined to
$1.9 million in 1997 from $2.3 million in 1996 primarily due to lower levels
of notes receivable.
Total revenues declined $3.0 million and $10.1 million, respectively, to
$247.0 million and $570.5 million in 1997 from $250.0 million and $580.6
million in 1996, reflecting principally declines in distribution sales offset
by increases in restaurant sales.
Restaurant costs of sales, which include food and packaging costs,
increased with restaurant sales growth to $74.6 million and $172.8 million,
respectively, in 1997 from $67.4 million and $153.8 million in 1996. In the
12-week periods of 1997 and 1996, restaurant costs of sales were flat year to
year at 33.3% of sales. Costs of sales increased in the 28-week period to
33.5% of sales in 1997 from 32.8% of sales in 1996, principally due to higher
food costs of certain discount promotions, the cost of improved french fries
and commodity cost increases, primarily pork and dairy.
Restaurant operating costs increased, with sales growth and the addition
of Company-operated restaurants, to $115.5 million and $265.7 million,
respectively, in 1997 from $109.5 million and $252.5 million in 1996.
Restaurant operating costs declined to 51.6% of sales in both periods of 1997
from 54.1% and 53.9% of sales, respectively, in 1996 principally due to labor
efficiencies and lower percentages of occupancy and other operating costs as
sales have increased at a greater rate than these costs.
Costs of distribution sales decreased to $14.3 million and $34.7 million,
respectively, in 1997 from $38.4 million and $90.3 million in 1996 reflecting
the decline in distribution sales. Costs of distribution sales have
increased slightly as a percent of sales to 99.4% in 1997 from 98.3% in 1996.
Costs of distribution sales include $.4 million in expenses related to the
closure of a distribution center in Danville, Illinois, which has been
utilized primarily to distribute to Chi-Chi's restaurants.
Franchised restaurant costs, which include rents and depreciation on
properties leased to franchisees and other miscellaneous costs, increased to
$5.5 million and $12.0 million, respectively, in 1997 from $4.8 million and
$11.0 million in 1996. The higher costs reflect increases in
franchise-related legal expense.
Selling, general and administrative expenses increased $3.5 million and
$6.7 million to $19.0 million and $43.0 million, respectively, in 1997 from
$15.5 million and $36.3 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
increased $2.3 million and $4.0 million, respectively, in 1997 compared to 1996
reflecting higher legal expenses and approximately $1.0 million in expenses
and write-offs related to the test of a dual brand concept, as well as other
general increases.
Interest expense declined $1.6 million and $3.7 million, respectively, to
$9.4 million and $22.0 million in 1997 from $11.0 million and $25.7 million
in 1996 principally due to a reduction in total debt outstanding. Total debt
at April 13, 1997 was $397.2 million compared to $441.0 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.
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<PAGE>
The 1997 tax provision reflects the expected annual tax rate of 22% of
earnings before income taxes. The 1996 tax provision for the quarter
reflects a $.7 million credit, adjusting the provision for the first two
quarters of the fiscal year to the effective annual tax rate 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 until the end of the
fiscal year, thus the rate could differ from expectations.
Net earnings for the 12-week period improved $2.7 million to $6.7
million, or $.17 per share, in 1997 from $4.0 million, or $.10 per share, in
1996. Net earnings for the 28-week period improved $7.0 million to $15.7
million, or $.40 per share, in 1997 from $8.7 million, or $.22 per share, in
1996 reflecting sales growth and cost management.
FINANCIAL CONDITION
- -------------------
Cash and cash equivalents increased $27.5 million to $69.5 million at
April 13, 1997 from $42.0 million at the beginning of the fiscal year. The
cash increase in 1997 reflects, among other things, cash flows from
operations of $44.9 million and capital expenditures of $15.6 million.
The Company's working capital deficit decreased $19.4 million to $31.2
million at April 13, 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 to $397.2 million at April 13, 1997 from
$398.2 million at the beginning of the fiscal year and $441.0 million on
April 14, 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.
The Company's revolving bank credit agreement, which expires December 31,
1998, provides for a credit facility of up to $60 million, including letters
of credit of up to $25 million. At April 13, 1997, the Company had no
borrowings and approximately $53.8 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.
-9-
<PAGE>
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. As earnings 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. 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.
-10-
<PAGE>
PART II - OTHER INFORMATION
There is no information required to be reported for any items under Part II,
except as follows:
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
-11-
<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: May 28, 1997
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FISCAL YEAR THRU SECOND QUARTER CONTAINS 28 WEEKS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> APR-13-1997
<CASH> 69,490
<SECURITIES> 0
<RECEIVABLES> 15,753
<ALLOWANCES> 4,109
<INVENTORY> 20,751
<CURRENT-ASSETS> 130,867
<PP&E> 621,646
<DEPRECIATION> 190,817
<TOTAL-ASSETS> 683,522
<CURRENT-LIABILITIES> 162,085
<BONDS> 395,761
<COMMON> 403
0
0
<OTHER-SE> 67,075
<TOTAL-LIABILITY-AND-EQUITY> 683,522
<SALES> 549,892
<TOTAL-REVENUES> 570,476
<CGS> 207,443
<TOTAL-COSTS> 485,206
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,018
<INCOME-PRETAX> 20,222
<INCOME-TAX> 4,500
<INCOME-CONTINUING> 15,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,722
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
