<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 18, 1998 Commission File No. 1-9390
---------------- -------
FOODMAKER, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-2698708
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(State of Incorporation) (I.R.S. Employer
Identification No.)
9330 BALBOA AVENUE, SAN DIEGO, CA 92123
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 571-2121
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Number of shares of common stock, $.01 par value, outstanding as of
the close of business February 20, 1998 - 39,198,888
-1-
<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 18, September 28,
1998 1997
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 26,036 $ 28,527
Receivables 10,964 10,482
Inventories 18,780 18,300
Prepaid expenses 43,377 42,853
-------- --------
Total current assets 99,157 100,162
-------- --------
Trading area rights 71,012 69,921
-------- --------
Lease acquisition costs 18,115 18,788
-------- --------
Other assets 34,483 34,100
-------- --------
Property at cost 669,371 660,076
Accumulated depreciation and amortization (209,770) (201,289)
-------- --------
459,601 458,787
-------- --------
TOTAL $682,368 $681,758
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,503 $ 1,470
Accounts payable 28,319 39,575
Accrued expenses 133,935 134,960
Income tax liabilities 16,738 17,208
-------- --------
Total current liabilities 180,495 193,213
-------- --------
Deferred income taxes 1,242 382
-------- --------
Long-term debt, net of current maturities 345,830 346,191
-------- --------
Other long-term liabilities 54,751 54,093
-------- --------
Stockholders' equity:
Common stock 406 405
Capital in excess of par value 284,013 283,517
Accumulated deficit (169,906) (181,580)
Treasury stock (14,463) (14,463)
-------- --------
Total stockholders' equity 100,050 87,879
-------- --------
TOTAL $682,368 $681,758
======== ========
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 18, September 28,
1998 1997
----------- -------------
Revenues:
Restaurant sales $325,333 $291,212
Distribution sales 6,773 20,575
Franchise rents and royalties 10,934 10,670
Other 734 1,026
-------- --------
343,774 323,483
-------- --------
Costs and expenses:
Costs of revenues:
Restaurant costs of sales 106,673 98,197
Restaurant operating costs 169,962 150,329
Costs of distribution sales 6,572 20,351
Franchised restaurant costs 6,975 6,479
Selling, general and administrative 25,372 23,894
Interest expense 11,046 12,606
-------- --------
326,600 311,856
-------- --------
Earnings before income taxes 17,174 11,627
Income taxes 5,500 2,600
-------- --------
Net earnings $ 11,674 $ 9,027
======== ========
Net earnings per share:
Basic $ 0.30 $ 0.23
Diluted $ 0.29 $ 0.23
Weighted average shares outstanding:
Basic 39,142 38,846
Diluted 40,197 39,494
See accompanying notes to financial statements.
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<PAGE>
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Sixteen Weeks Ended
------------------------------
January 18, September 28,
1998 1997
----------- -------------
Cash flows from operations:
Net earnings $ 11,674 $ 9,027
Non-cash items included above:
Depreciation and amortization 13,085 12,168
Deferred income taxes 860 (1,150)
(Increase) decrease in receivables (482) 1,493
Increase in inventories (480) (1,544)
Increase in prepaid expenses (1,211) (2,960)
Increase (decrease) in accounts payable (11,256) 3,597
Decrease in other accrued liabilities (724) (1,048)
-------- --------
Cash flows provided by operations 11,466 19,583
-------- --------
Cash flows from investing activities:
Additions to property and equipment (11,392) (6,549)
Dispositions of property and equipment 735 542
Increase in trading area rights (2,193) --
Increase in other assets (1,160) (1,004)
-------- --------
Cash flows used in investing activities (14,010) (7,011)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt,
including current maturities (444) (833)
Proceeds from issuance of common stock 497 17
-------- --------
Cash flows provided by (used in)
financing activities 53 (816)
-------- --------
Net increase (decrease) in cash
and cash equivalents $ (2,491) $ 11,756
======== ========
See accompanying notes to financial statements.
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<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 1997 financial statements.
2. In 1998 the Company adopted Statement of Financial Accounting Standards No.
128 ("SFAS 128"), Earnings per Share. SFAS 128 requires the presentation
of basic earnings per share, computed using the weighted average number of
shares outstanding during the period, and diluted earnings per share,
computed using the additional dilutive effect of all common stock
equivalents. The dilutive impact of stock options and warrants account for
the additional weighted average shares of common stock outstanding for the
Company's diluted earnings per share computation. All prior periods have
been restated to conform with the provisions of SFAS 128.
3. The 1998 tax provision reflects the expected annual tax rate of 32% of
earnings before income taxes. The income tax provision for 1997 was 22% of
earnings before income taxes. 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 1998 annual
effective tax rate until the end of the fiscal year, thus the rate could
differ from expectations.
4. Contingent Liabilities
The Company has settled the litigation it filed against the Vons Companies,
Inc. ("Vons") and various suppliers seeking reimbursement for all damages,
costs and expenses incurred in connection with food-borne illness attributed
to hamburgers served at Jack in the Box restaurants in 1993. The initial
litigation was filed by the Company on February 4, 1993. Vons 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 were settled on February 24, 1998.
Foodmaker received $58.5 million in the settlement. Of the total settlement
amount, the Company is expected to realize a net of slightly over $30
million after taxes and litigation costs. The impact of such settlement
will be reflected in the Company's financial statements for the quarter
ended April 12, 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 $43 million, injunctive relief, attorneys fees and costs. The
Company has successfully dismissed portions of the complaint, including the
claims alleging wrongdoing by the Company's officers and outside directors.
Management believes the remaining allegations are without foundation and
intends to vigorously defend the action.
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<PAGE>
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. 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 24, 1998, the Court issued an order granting
Foodmaker's motion to dismiss Foodmex's complaint.
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 agreement on settlement terms both as to the individual
plaintiff Concetta Jorgensen and the claims for injunctive relief, and the
settlement agreement has been approved by the U.S. District Court. The
settlement requires the Company to make access improvements at Company-
operated restaurants to comply with the standards set forth in the Americans
with Disability Act Access Guidelines. The settlement requires compliance
at 85% of Company-operated restaurants by April 2001 and for the balance of
Company-operated restaurants by October 2005. The Company has agreed to
make modifications to its restaurants to improve accessibility and
anticipates investing approximately $11 million in capital improvements over
the next seven years. Foodmaker has been 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.
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. For
additional information on contingent liabilities, see the Company's most
recent Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
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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 1998 and 1997 refer to the
16-week periods ended January 18, 1998 and January 19, 1997, respectively,
unless otherwise indicated.
Restaurant sales increased $34.1 million, or 11.7%, to $325.3 million in
1998 from $291.2 million in 1997, as both the number of Company-operated
restaurants and per store average sales increased from a year ago. The average
number of Company-operated restaurants increased to 970 in 1998 from 883 in
1997, through the addition of new units and the acquisition of restaurants from
franchisees. Per store average ("PSA") sales for comparable restaurants, which
are calculated for only those restaurants open for all periods being compared,
increased 2.7% in 1998 compared to 1997. PSA sales improved principally due to
an increase in the number of transactions, as average transaction amounts were
essentially flat. Restaurant sales improvements are attributed to the Company's
two-tier marketing strategy featuring both premium sandwiches and value-priced
alternatives, as well as to a popular brand-building advertising campaign that
features the Company's fictional founder, "Jack".
Distribution sales of food and supplies declined $13.8 million to $6.8
million in 1998 from $20.6 million in 1997. The distribution contract with
Chi-Chi's, Inc. ("Chi-Chi's") was not renewed when it expired in May 1997; sales
to Chi-Chi's restaurants were $17.6 million in 1997. Because distribution is a
low-margin business, the loss of Chi-Chi's distribution revenues did not have a
material impact on the results of operations or financial condition of the
Company. Distribution sales to franchisees and others increased $3.8 million
to $6.8 million in 1998 from $3.0 million in 1997.
Franchise rents and royalties increased slightly to $10.9 million in 1998
from $10.7 million in 1997. The Company receives rents and royalties averaging
approximately 10% of sales at franchise-operated restaurants.
Other revenues declined to $0.7 million in 1998 from $1.0 million in 1997
primarily due to decreased interest income from lower levels of investments.
Restaurant costs of sales, which include food and packaging costs,
increased with restaurant sales growth and the addition of Company-operated
restaurants to $106.7 million in 1998 from $98.2 million in 1997. As a percent
of restaurant sales, restaurant costs of sales declined to 32.8% in 1998 from
33.7% in 1997 primarily due to favorable ingredient costs, principally beef,
pork and cheese, offset partially by increased produce costs.
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<PAGE>
Restaurant operating costs increased principally with restaurant sales
growth and the addition of Company-operated restaurants to $170.0 million in
1998 from $150.3 million in 1997. As a percent of sales, such costs increased
to 52.2% in 1998 from 51.6% in 1997 primarily reflecting higher labor costs due
to increases in the minimum wage rates in 1997.
Costs of distribution sales decreased to $6.6 million in 1998 from $20.4
million in 1997 reflecting the decline in distribution sales. Costs of
distribution sales decreased slightly as a percent of sales to 97.0% in 1998
from 98.9% in 1997, primarily due to the loss of the lower margin Chi-Chi's
distribution business.
Franchised restaurant costs, which include rents and depreciation on
properties leased to franchisees and other miscellaneous costs, increased to
$7.0 million in 1998 from $6.5 million in 1997. The increase in such costs
reflect higher international franchise-related legal expense.
Selling, general and administrative expenses increased $1.5 million to
$25.4 million in 1998 from $23.9 million in 1997. Advertising and promotion
costs, which were maintained at slightly over 5% of sales in both years,
increased with the higher restaurant sales. General, administrative and other
expenses declined slightly to 2.4% of revenues principally due to an increase in
cooperative advertising funds from suppliers.
Interest expense declined $1.6 million to $11.0 million in 1998 from $12.6
million in 1997, principally due to a reduction in total debt outstanding. In
September 1997, the Company repaid $50 million of its 9-1/4% senior notes due
March 1999.
The 1998 tax provision reflects the expected annual tax rate of 32% of
earnings before income taxes. The income tax provision for 1997 was 22% 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 $2.7 million, or 29%, to $11.7 million, or $.29 per
share on a diluted basis, in 1998 from $9.0 million, or $.23 per share, in 1997
reflecting sales growth and improved operating margins, offset by the higher
effective tax rate in 1998.
FINANCIAL CONDITION
- -------------------
Cash and cash equivalents decreased $2.5 million to $26.0 million at
January 18, 1998 from $28.5 million at the beginning of the fiscal year. The
cash decrease reflects, among other things, cash flows from operations of $11.5
million in 1998 and capital expenditures and other investing activities of $14.0
million.
The Company's working capital deficit decreased $11.8 million to $81.3
million at January 18, 1998 from $93.1 million at September 28, 1997, primarily
due to a decline in accounts payable. 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.
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<PAGE>
Total debt outstanding declined slightly to $347.3 million at January 18,
1998 from $347.7 million at the beginning of the fiscal year and declined from
$397.4 million on January 19, 1997 reflecting the repayment in September 1997 of
$50 million of the 9-1/4% senior notes.
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 18, 1998, the Company had no borrowings and approximately $54.3
million of unused credit under the agreement. The Company has negotiated a
commitment for a new revolving bank credit agreement, which will provide for a
credit facility expiring in 2003 of up to $175 million, including letters of
credit of up to $25 million. On March 2, 1998, the Company notified the trustee
under the indenture governing its 9-1/4% senior notes due 1999 of the
Company's intention to redeem $75 million of such notes on April 15, 1998.
Payment is expected to be made principally with cash on hand, as well as
through minimal bank borrowings. The Company is subject to a number of
covenants under its various debt instruments 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.
YEAR 2000 COMPLIANCE
- --------------------
The Company has performed an assessment of its major information technology
systems and expects that all necessary modifications and/or replacements will be
completed prior to December 1999. Based on current expenditures and estimates,
the costs of addressing this issue are not expected to have a material adverse
effect on the Company's financial position, results of operations or liquidity.
The potential impact of the Year 2000 issue on significant vendors and suppliers
cannot be reasonably estimated at this time.
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, Year 2000 compliance 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. The Company has urged certain vendors to develop and implement Year
2000 compliance plans. However, any failure by 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. 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.
No matters were submitted to a vote of stockholders in the first quarter
ended January 18, 1998. The Company's annual meeting was held February 13, 1998
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 33,345,026 626,369
Jay W. Brown 33,361,427 609,968
Paul T. Carter 33,550,961 420,434
Charles W. Duddles 33,519,316 452,079
Edward Gibbons 33,546,207 425,188
Jack W. Goodall 33,513,192 458,203
Robert J. Nugent 33,243,301 728,094
L. Robert Payne 33,150,510 820,885
For Against Abstain Not Voted
---------- ------- ------- ---------
2. Ratification of the appointment
of KPMG Peat Marwick LLP as
independent accountants 33,927,481 20,193 23,721 -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 3, 1998
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FISCAL YEAR THRU FIRST QUARTER CONTAINS 16 WEEKS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> JAN-18-1998
<CASH> 26,036
<SECURITIES> 0
<RECEIVABLES> 12,719
<ALLOWANCES> 3,041
<INVENTORY> 18,780
<CURRENT-ASSETS> 99,157
<PP&E> 669,371
<DEPRECIATION> 209,770
<TOTAL-ASSETS> 682,368
<CURRENT-LIABILITIES> 180,495
<BONDS> 345,830
<COMMON> 406
0
0
<OTHER-SE> 99,644
<TOTAL-LIABILITY-AND-EQUITY> 682,368
<SALES> 332,106
<TOTAL-REVENUES> 343,774
<CGS> 113,245
<TOTAL-COSTS> 290,182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,046
<INCOME-PRETAX> 17,174
<INCOME-TAX> 5,500
<INCOME-CONTINUING> 11,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,674
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
