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 the quarterly period ended January 17, 1999
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Commission file no. 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) (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
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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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Number of shares of common stock, $.01 par value, outstanding as of the close of
business February 19, 1999 - 38,116,292.
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FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 17, September 27,
1999 1998
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ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . $ 3,430 $ 9,952
Receivables. . . . . . . . . . . . . . . . 13,254 13,705
Inventories. . . . . . . . . . . . . . . . 21,416 17,939
Prepaid expenses . . . . . . . . . . . . . 40,089 40,826
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Total current assets . . . . . . . . . . 78,189 82,422
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Trading area rights. . . . . . . . . . . . . 71,857 72,993
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Lease acquisition costs. . . . . . . . . . . 16,562 17,157
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Other assets . . . . . . . . . . . . . . . . 39,468 39,309
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Property at cost . . . . . . . . . . . . . . 785,346 759,680
Accumulated depreciation and amortization. (237,085) (227,973)
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548,261 531,707
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TOTAL. . . . . . . . . . . . . . . . . . $ 754,337 $ 743,588
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt . . . $ 1,699 $ 1,685
Accounts payable . . . . . . . . . . . . . 53,684 52,086
Accrued expenses . . . . . . . . . . . . . 152,625 171,974
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Total current liabilities. . . . . . . . 208,008 225,745
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Deferred income taxes. . . . . . . . . . . . 2,847 2,347
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Long-term debt, net of current maturities. . 324,663 320,050
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Other long-term liabilities. . . . . . . . . 65,208 58,466
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Stockholders' equity:
Common stock . . . . . . . . . . . . . . . 409 408
Capital in excess of par value . . . . . . 286,819 285,940
Accumulated deficit. . . . . . . . . . . . (99,154) (114,905)
Treasury stock . . . . . . . . . . . . . . (34,463) (34,463)
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Total stockholders' equity . . . . . . . 153,611 136,980
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TOTAL. . . . . . . . . . . . . . . . . . $ 754,337 $ 743,588
========= =========
See accompanying notes to financial statements.
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FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Sixteen Weeks Ended
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January 17, January 18,
1999 1998
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Revenues:
Restaurant sales. . . . . . . . . . . . . . $ 384,440 $ 325,333
Distribution and other sales. . . . . . . . 10,297 6,773
Franchise rents and royalties . . . . . . . 11,701 10,934
Other . . . . . . . . . . . . . . . . . . . 696 734
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407,134 343,774
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Costs and expenses:
Costs of revenues:
Restaurant costs of sales . . . . . . . . 123,596 105,072
Restaurant operating costs. . . . . . . . 187,341 159,147
Costs of distribution and other sales . . 10,170 6,625
Franchised restaurant costs . . . . . . . 7,154 6,975
Selling, general and administrative . . . . 44,905 37,735
Interest expense. . . . . . . . . . . . . . 9,017 11,046
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382,183 326,600
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Earnings before income taxes. . . . . . . . . 24,951 17,174
Income taxes. . . . . . . . . . . . . . . . . 9,200 5,500
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Net earnings. . . . . . . . . . . . . . . . . $ 15,751 $ 11,674
========= =========
Net earnings per share:
Basic . . . . . . . . . . . . . . . . . . . $ 0.41 $ 0.30
Diluted . . . . . . . . . . . . . . . . . . $ 0.40 $ 0.29
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . 38,000 39,142
Diluted . . . . . . . . . . . . . . . . . . 38,991 40,197
See accompanying notes to financial statements.
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FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Sixteen Weeks Ended
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January 17, January 18,
1999 1998
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Cash flows from operations:
Net earnings. . . . . . . . . . . . . . . . $ 15,751 $ 11,674
Non-cash items included above:
Depreciation and amortization . . . . . . 13,697 13,085
Deferred income taxes . . . . . . . . . . 500 860
(Increase) decrease in receivables. . . . . 451 (482)
Increase in inventories . . . . . . . . . . (3,477) (480)
(Increase) decrease in prepaid expenses . . 737 (1,211)
Increase (decrease) in accounts payable . . 1,598 (11,256)
Decrease in other accrued liabilities . . . (12,492) (724)
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Cash flows provided by operations . . . . 16,765 11,466
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Cash flows from investing activities:
Additions to property and equipment . . . . (28,183) (11,392)
Dispositions of property and equipment. . . 565 735
Increase in trading area rights . . . . . . (30) (2,193)
Increase in other assets. . . . . . . . . . (1,023) (1,160)
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Cash flows used in investing activities . (28,671) (14,010)
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Cash flows from financing activities:
Borrowings under revolving bank loans . . . 100,500 -
Principal repayments under revolving
bank loans. . . . . . . . . . . . . . . . (96,000) -
Proceeds from issuance of long-term debt. . 500 -
Principal payments on long-term debt,
including current maturities. . . . . . . (496) (444)
Proceeds from issuance of common stock. . . 880 497
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Cash flows provided by financing
activities. . . . . . . . . . . . . . . 5,384 53
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Net decrease in cash and cash equivalents . . $ (6,522) $ (2,491)
========= =========
See accompanying notes to financial statements.
4
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FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements of Foodmaker,
Inc. (the "Company") and its subsidiaries 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 1998 financial
statements.
2. The income tax provisions reflect the expected annual tax rate of 37% of
earnings before income taxes in 1999 and the actual tax rate of 32% of pretax
earnings in 1998. The favorable income tax rates result from the Company's
ability to realize previously unrecognized tax benefits. The Company cannot
determine with certainty the 1999 annual tax rate until the end of the fiscal
year; thus the rate could differ from expectations.
3. Contingent Liabilities
On April 6, 1996, an action was filed by one of the Company's international
franchisees, Wolsey, Ltd., a Hong Kong corporation, in the U.S. District
Court in San Diego, California against the Company and its directors, its
international franchising subsidiary, and certain current and former officers
of the Company. The complaint alleged certain contractual, tort, and law
violations, and sought $38.5 million in damages, injunctive relief,
attorneys' fees and costs. The Company filed a counterclaim seeking, among
other things, declaratory relief, and attorneys' fees and costs. Prior to the
trial, the Court dismissed portions of the plaintiff's claim, including the
single claim alleging wrongdoing by the Company's non-management directors,
and the claims against its current officers. The case proceeded to trial on
January 5, 1999. Prior to the conclusion of the trial, on January 29, 1999,
the parties reached agreement on a settlement which provided for a mutual
exchange of non-cash consideration, including execution of a new agreement
between the Company and the plaintiff for development of Jack in the Box
restaurants in Asia. The settlement was formally approved, and judgment was
entered on February 2, 1999.
The Company is also subject to normal and routine litigation. The amount of
liability from the claims and actions against the Company 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. Other than as
described in this quarterly report, there have been no material changes to
the litigation matters set forth in the Company's Annual Report on Form 10-K
for the fiscal year ended September 27, 1998.
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FOODMAKER, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
All comparisons under this heading between 1999 and 1998 refer to the 16-
week periods ended January 17, 1999 and January 18, 1998, respectively, unless
otherwise indicated.
Restaurant sales increased $59.1 million, or 18.2%, to $384.4 million in
1999 from $325.3 million in 1998, reflecting increases in the number of Company-
operated restaurants and in per store average ("PSA") sales. The average number
of Company-operated restaurants increased 11.4% to 1,081 in 1999 from 970
restaurants in 1998. PSA sales for comparable Company-operated restaurants,
those open more than one year, grew 6.8% in 1999 compared with the same period
in 1998. Sales growth was distributed fairly evenly between average number of
transactions and average transaction amounts, increasing 3.7% and 3.1%,
respectively, compared with a year ago. Management believes that the sales
growth is attributable to effective advertising and strategic initiatives,
especially the Assemble-To-Order ("ATO") program in which sandwiches are made
when customers order them, are attracting customers to Jack in the Box
restaurants. New menu boards that showcase the combo meals are helping to
increase average check amounts. In addition, a new drive-thru order confirmation
system is helping to improve order accuracy while alerting customers to the
amount of their purchase.
Distribution and other sales increased $3.5 million to $10.3 million in
1999 from $6.8 million in 1998, primarily due to an increase in the number of
franchise restaurants serviced by the Company's distribution division and sales
growth at franchise restaurants.
Franchise rents and royalties increased $.8 million to $11.7 million in
1999 from $10.9 million in 1998, and were slightly more than 10% of sales at
franchise restaurants in both years. Franchise restaurant sales increased to
$112.6 million in 1999 from $106.1 million in 1998. Sales at domestic franchise
restaurants were also strengthened by the strategic initiatives implemented at
Company-operated restaurants.
Other revenues include interest income from investments and notes
receivable and were approximately $.7 million in each year.
Restaurant costs of sales and operating costs increased with sales growth
and the addition of Company-operated restaurants. Restaurant costs of sales,
which include food and packaging costs, increased to $123.6 million in 1999 from
$105.1 million in 1998. As a percent of restaurant sales, costs of sales
decreased to 32.1% of sales in 1999 from 32.3% of sales in 1998, primarily due
to lower costs of beef and pork, partially offset by higher dairy costs.
Restaurant operating costs increased to $187.3 million in 1999 from $159.1
million in 1998. As a percent of restaurant sales, operating costs decreased to
48.7% in 1999 from 48.9% in 1998, in spite of higher labor costs. Labor costs
increased due to minimum wage increases and implementation costs associated with
strategic initiatives that strengthened PSA sales. Occupancy and other
restaurant operating expenses improved as a percent of sales as such costs,
which tend to be less variable, increased at a lesser rate than PSA sales
growth.
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Costs of distribution and other sales increased to $10.2 million in 1999
from $6.6 million in 1998, reflecting an increase in the related sales. As a
percent of distribution and other sales, these costs increased to 98.8% in 1999
from 97.8% in 1998, primarily due to the lower margin realized from other sales.
Franchised restaurant costs, which consist principally of rents and
depreciation on properties leased to franchisees and other miscellaneous costs,
increased slightly to $7.2 million in 1999 from $7.0 million in 1998,
principally due to higher franchise-related legal expenses.
Selling, general and administrative costs increased to $44.9 million in
1999 from $37.7 million in 1998. Advertising and promotion costs increased $2.5
million to $19.8 million in 1999 from $17.3 million in 1998, slightly over 5% of
restaurant sales in both years. Regional administrative and training expenses
have been reclassified to general and administrative costs in 1999. The 1998
amounts, which had previously been included with restaurant operating costs,
have been restated to conform with the 1999 presentation. General,
administrative and other costs increased to 6.2% of revenues in 1999 from 6.0%
of revenues in 1998, primarily due to an increase in regional costs to support
the growing number of Company-operated restaurants and higher pension costs.
Actuarial valuations of the Company's pension investment at the beginning of the
fiscal year, during a downturn in the stock market, resulted in higher pension
expense in 1999 compared to a year ago.
Interest expense declined $2.0 million to $9.0 million in 1999 from $11.0
million in 1998, principally due to a reduction in debt and lower interest
rates. In 1998 the Company completed a refinancing plan, thereby reducing debt
by approximately $22 million from a year ago and improving effective interest
rates. See "Liquidity and Capital Resources."
The income tax provisions reflect the expected annual tax rate of 37% of
earnings before income taxes in 1999 and the actual tax rate of 32% of pretax
earnings in 1998. The favorable income tax rates result from the Company's
ability to realize previously unrecognized tax benefits. The Company cannot
determine with certainty the 1999 annual tax rate until the end of the fiscal
year; thus the rate could differ from expectations.
Net earnings increased $4.1 million, or $.11 per diluted share, to $15.8
million, or $.40 per diluted share, in 1999 from $11.7 million, or $.29 per
diluted share, in 1998. The earnings improvement reflects the impact of sales
growth and lower interest expense, offset in part by the higher effective income
tax rate in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $6.6 million to $3.4 million at
January 17, 1999 from $10.0 million at the beginning of the fiscal year. The
Company expects to maintain low levels of cash and cash equivalents and plans to
reinvest available cash flows from operations to develop new and existing
restaurants and to reduce borrowings under the revolving credit agreement.
The Company's working capital deficit decreased $13.5 million to $129.8
million at January 17, 1999 from $143.3 million at September 27, 1998,
principally due to a decline in 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.
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On April 1, 1998, the Company entered into a new revolving bank credit
agreement, which provides for a credit facility expiring in 2003 of up to $175
million, including letters of credit of up to $25 million. At January 17, 1999,
the Company had borrowings of $102 million and approximately $67.4 million of
availability under the agreement.
Beginning in September 1997, the Company initiated a refinancing plan to
reduce and restructure its debt. At that time, the Company prepaid $50 million
of its 9 1/4% senior notes due 1999 using available cash. In 1998 the Company
repaid the remaining $125 million of its 9 1/4% senior notes and all $125
million of its 9 3/4% senior subordinated notes due 2002.
In order to fund these repayments, the Company completed on April 14, 1998,
a private offering of $125 million of 8 3/8% senior subordinated notes due 2008,
redeemable beginning 2003. Additional funding sources included available cash,
as well as bank borrowings under the new bank credit facility. The Company
expects that annual interest expense will be reduced by over $10 million from
1997 levels due to the reduction in debt and lower interest rates on the new
debt. Total debt outstanding decreased to $326.4 million at January 17, 1999
from $347.3 million at January 18, 1998.
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. The bank credit
facility is secured by a first priority security interest in certain assets and
properties of the Company. In addition, certain of the Company's real estate and
equipment secure other indebtedness.
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. 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. Additional
potential sources of liquidity include financing opportunities and the
conversion of Company-operated restaurants to franchised restaurants. Based upon
current levels of operations and anticipated growth, the Company expects that
cash flows from operations, combined with other financing alternatives
available, will be sufficient to meet debt service, capital expenditure and
working capital requirements.
Although the amount of liability from claims and actions against the
Company 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary exposure relating to financial instruments is to
changes in interest rates. The Company uses interest rate swap agreements to
reduce exposure to interest rate fluctuations. At January 17, 1999, the Company
had a $25 million notional amount interest rate swap agreement expiring in June
2001. This agreement effectively converts a portion of the Company's variable
rate bank debt to fixed rate debt and has a pay rate of 6.88%.
At January 17, 1999, a hypothetical one percentage point increase in short-
term interest rates would result in a reduction of $.8 million in annual pre-tax
earnings. The estimated reduction is based on holding the unhedged portion of
bank debt at its January 17, 1999 level.
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At January 17, 1999, the Company had no other material financial
instruments subject to significant market exposure.
YEAR 2000 COMPLIANCE
Historically, most computer databases, as well as embedded microprocessors
in computer systems and industrial equipment, were designed with date data using
only two digits of the year. Most computer programs, computers, and embedded
microprocessors controlling equipment were programmed to assume that all two
digit dates were preceded by "19," causing "00" to be interpreted as the year
1900. This formerly common practice now could result in a computer system or
embedded microprocessor which fails to recognize properly a year that begins
with "20," rather than "19." This in turn could result in computer system
miscalculations or failures, as well as failures of equipment controlled by
date-sensitive microprocessors, and is generally referred to as the "Year 2000"
issue.
The Company's State of Year 2000 Readiness. In 1995 the Company began to
formulate a plan to address its Year 2000 issues. The Company's Year 2000 plan
now involves five phases: 1) Awareness, 2) Assessment, 3) Remediation, 4)
Testing and 5) Implementation.
Awareness involves helping employees who deal with the Company's computer
assets, and managers, executives and directors to understand the nature of the
Year 2000 problem. Assessment involves the identification and inventory of the
Company's information technology ("IT") systems and embedded microprocessor
technology ("ET") and the determination as to whether such technology will
properly recognize a year that begins with "20," rather than "19." IT/ET
systems that, among other things, properly recognize a year beginning with "20"
are said to be "Year 2000 ready." Remediation involves the repair or
replacement of IT/ET systems that are not Year 2000 ready. Testing involves the
testing of repaired or replaced IT/ET systems. Implementation is the
installation and integration of remediated and tested IT/ET systems.
The phases overlap substantially. The Company has made substantial progress
in the Awareness, Assessment, Remediation and Testing phases and has completed
implementation of a number of systems.
Awareness and Assessment. The Company has established an ad hoc Committee
of the Board of Directors and multiple management teams which are responsible
for the Company's activities in addressing the Year 2000 issue. The Company has
also sent letters to approximately 2,700 of its vendors of goods and services to
bring the Year 2000 issue to their attention and to assess their readiness. The
Company has advised its franchisees (who operate approximately 25% of system
restaurants) that they are required to be Year 2000 ready by December 31, 1999
and has provided video information and regional presentations regarding Year
2000 issues. The Company's franchisees are represented on a Year 2000 team.
While the Awareness and Assessment phases will continue into the Year 2000, they
are substantially complete at this time.
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Remediation, Testing and Implementation. Although Remediation, Testing and
Implementation will be substantially completed during 1999, some systems
identified as non-critical may not be addressed until after January 2000. The
following table describes by category and status, major identified IT
applications.
Remediation Status
In
Category Ready Process Remaining
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Mainframe
Third party developed software 67% 33% 0%
Internally developed software 74% 23% 3%
Hardware (Peripherals) 0% 100% 0%
Desktop
Third party developed software 77% 21% 2%
Internally developed software 33% 65% 2%
Corporate hardware 21% 79% 0%
Restaurant hardware 57% 43% 0%
Client-Server
Third party developed software 38% 62% 0%
Internally developed software 20% 80% 0%
Hardware 58% 42% 0%
Embedded Technology. The Company has identified categories of critical
restaurant equipment in which ET may be found, has sent letters to the majority
of the vendors of such equipment and is in the process of identifying the
remaining vendors. About 90% of restaurant equipment vendors who have received
letters have responded. The Company is reviewing the responses. To date the
Company has identified only one type of equipment with date sensitive ET that
the Company believes should be replaced. Replacement components are currently
being tested and are expected to be implemented in Company restaurants during
1999. Franchisees have been informed and offered the opportunity to participate
in the Company's replacement program. The Company continues to evaluate
information in letter responses and other materials received from vendors, on
web sites, and from other sources, in identifying date sensitive ET.
Vendors of Important Goods and Services. The Company has identified and
sent letters to approximately 2,700 key vendors in an attempt to gain assurance
of vendors' Year 2000 readiness. As of February 1999, the Company had received
responses concerning Year 2000 readiness from approximately 40% of those
vendors. The Company is in the process of identifying which of those vendors it
considers to be critical to its business. The Company expects to continue
discussions with the critical vendors of goods and services throughout 1999 to
attempt to ensure the uninterrupted supply of goods and services and to develop
contingency plans in the event of the failure of any of such vendors to become
and remain Year 2000 ready.
The Company's Franchisees. At January 17, 1999, 336 restaurants were
operated by franchisees in the United States. Seven restaurants were operated by
franchisees outside the United States. The Company has completed an assessment
of the Year 2000 readiness of the personal computers it has leased to
approximately 80% of franchised restaurants in the United States, together with
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software it has licensed them to use. Such computers and software were
determined not to be Year 2000 ready and are being replaced with compliant
computers and remediated software at franchisees' expense during 1999. The
Company has advised its franchisees, both domestic and international, that they
are required to be Year 2000 ready by December 31, 1999.
The Costs to Address the Company's Year 2000 Issues. The Company estimates
that it has incurred costs of approximately $9 million to date for the
Awareness, Assessment, Remediation, Testing and Implementation phases of its
Year 2000 plan. These amounts have come principally from the general operating
and capital budgets of the Company's Management Information Systems department.
The Company currently estimates the total costs of completing its Year 2000
plan, including costs incurred to date, to be approximately $13 million, with
approximately 25% relating to new systems which have been or will be
capitalized. Some planned system replacements, which are anticipated to provide
significant future benefits, were accelerated due to the Year 2000 and have
resulted in increased IT spending. This estimate is based on currently available
information and will be updated as the Company continues its assessment of third
party relationships, proceeds with its testing and implementation, and designs
contingency plans.
The Risks of the Company's Year 2000 Issues. If any IT or ET systems
critical to the Company's operations have been overlooked in the Assessment,
Remediation, Testing or Implementation phases, if any of the Company's
remediated internal computer systems are not successfully remediated, or if a
significant number of the Company's franchisees do not become Year 2000 ready in
a timely manner, there could be a material adverse effect on the Company's
results of operations, liquidity and financial condition of a magnitude which
the Company has not yet fully analyzed.
In addition, the Company has not yet been assured that (1) the computer
systems of all of its key vendors will be Year 2000 ready in a timely manner or
that (2) the computer systems of third parties with which the Company's computer
systems exchange data will be Year 2000 ready both in a timely manner and in a
manner compatible with continued data exchange with the Company's computer
systems.
If the vendors of the Company's most important goods and services, or the
suppliers of the Company's necessary energy, telecommunications and
transportation needs, fail to provide the Company with (1) the materials and
services which are necessary to produce, distribute and sell its products, (2)
the electrical power and other utilities necessary to sustain its operations, or
(3) reliable means of transporting supplies to its restaurants and franchisees,
such failure could have a material adverse effect on the results of operations,
liquidity and financial condition of the Company.
The Company's Contingency Plan. The Company is developing a business
contingency plan to address both unavoided and unavoidable Year 2000 risks.
Although the Company expects to have the plan substantially complete by late
summer 1999, enhancements and revisions will be continuously considered and
implemented, as appropriate, throughout the remainder of the year and into the
year 2000.
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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.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS 130, Reporting Comprehensive Income.
This Statement establishes 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 and is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. SFAS 130,
requiring only additional informational disclosures, is effective for the
Company's fiscal year ending October 3, 1999.
In June 1997, the FASB issued SFAS 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS 131 establishes 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 is effective for fiscal years beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is required to be restated. SFAS 131, requiring only
additional informational disclosures, is effective for the Company's fiscal year
ending October 3, 1999.
In June 1998, the FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This Statement is effective for all fiscal years beginning after June 15, 1999.
SFAS 133 is effective for the Company's fiscal year ending October 1, 2000 and
is not expected to have a material effect on the Company's financial position or
results of operations.
12
<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 3 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 17, 1999. The Company's annual meeting was held February 12, 1999
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 31,908,694 1,061,694
Jay W. Brown 32,413,765 556,623
Paul T. Carter 32,566,199 404,189
Charles W. Duddles 32,567,199 403,189
Edward Gibbons 32,552,372 418,016
Jack W. Goodall 31,763,199 1,207,189
Murray H. Hutchison 32,408,002 562,386
Robert J. Nugent 32,376,371 594,017
L. Robert Payne 32,042,668 927,720
For Against Abstain Not Voted
---------- ---------- ------- ---------
2. Adoption of the Amended
and Restated Non-Employee 21,237,247 11,667,766 65,375 0
Director Stock Option
Plan
3. Ratification of the
appointment of KPMG LLP
as independent 32,922,013 21,672 26,703 0
accountants
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
13
<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, 1999
14
<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> OCT-03-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> JAN-17-1999
<CASH> 3,430
<SECURITIES> 0
<RECEIVABLES> 14,289
<ALLOWANCES> 2,589
<INVENTORY> 21,416
<CURRENT-ASSETS> 78,189
<PP&E> 785,346
<DEPRECIATION> 237,085
<TOTAL-ASSETS> 754,337
<CURRENT-LIABILITIES> 208,008
<BONDS> 324,663
<COMMON> 409
0
0
<OTHER-SE> 153,202
<TOTAL-LIABILITY-AND-EQUITY> 754,337
<SALES> 394,737
<TOTAL-REVENUES> 407,134
<CGS> 133,766
<TOTAL-COSTS> 328,261
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,017
<INCOME-PRETAX> 24,951
<INCOME-TAX> 9,200
<INCOME-CONTINUING> 15,751
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,751
<EPS-PRIMARY> .41
<EPS-DILUTED> .40
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