Securities and exchange commission


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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 12, 1998 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 May 15, 1998 - 39,310,195
-1-

FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands)
April 12, September 28,

1998 1997

----------- -------------

ASSETS
Current assets:

Cash and cash equivalents . . . . . . . . . . . $ 81,590 $ 28,527

Receivables . . . . . . . . . . . . . . . . . . 13,801 10,482

Inventories . . . . . . . . . . . . . . . . . . 18,974 18,300

Prepaid expenses. . . . . . . . . . . . . . . . 42,830 42,853

--------- ---------

Total current assets . . . . . . . . . . . . $ 157,195 $ 100,162

--------- ---------
Property at cost. . . . . . . . . . . . . . . . . 683,293 660,076

Accumulated depreciation and amortization . . . (216,286) (201,289)

--------- ---------

467,007 458,787

--------- ---------
Trading area rights . . . . . . . . . . . . . . . 73,092 69,921

--------- ---------
Lease acquisition costs . . . . . . . . . . . . . 17,621 18,788

--------- ---------
Other assets. . . . . . . . . . . . . . . . . . . 35,556 34,100

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TOTAL. . . . . . . . . . . . . . . . . . . . $ 750,471 $ 681,758

========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

Current maturities of long-term debt. . . . . . $ 1,547 $ 1,470

Accounts payable. . . . . . . . . . . . . . . . 33,261 39,575

Accrued expenses. . . . . . . . . . . . . . . . 147,504 134,960

Income tax liabilities. . . . . . . . . . . . . 26,298 17,208

--------- ---------

Total current liabilities. . . . . . . . . . 208,610 193,213

--------- ---------
Long-term debt, net of current maturities . . . . 346,524 346,191

--------- ---------
Other long-term liabilities . . . . . . . . . . . 56,488 54,093

--------- ---------
Deferred income taxes . . . . . . . . . . . . . . 3,782 382

--------- ---------
Stockholders' equity:

Common stock. . . . . . . . . . . . . . . . . . 407 405

Capital in excess of par value. . . . . . . . . 284,682 283,517

Accumulated deficit . . . . . . . . . . . . . . (135,559) (181,580)

Treasury stock. . . . . . . . . . . . . . . . . (14,463) (14,463)

--------- ---------

Total stockholders' equity . . . . . . . . . 135,067 87,879

--------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . $ 750,471 $ 681,758

========= =========
See accompanying notes to financial statements.
-2-

FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Twelve Weeks Ended Twenty-eight Weeks Ended

---------------------- ------------------------

April 12, April 13, April 12, April 13,

1998 1997 1998 1997

--------- --------- --------- ---------

Revenues:

Restaurant sales. . . . . . $ 249,505 $ 223,820 $ 574,838 $ 515,032

Distribution sales. . . . . 5,546 14,285 12,319 34,860

Franchise rents and royalties 8,029 8,035 18,963 18,705

Other . . . . . . . . . . . 46,829 853 47,563 1,879

--------- --------- --------- ---------

309,909 246,993 653,683 570,476

--------- --------- --------- ---------

Costs and expenses:

Costs of revenues:

Restaurant costs of sales 80,592 74,596 187,265 172,793

Restaurant operating costs 132,431 115,415 302,393 265,744

Costs of distribution sales 5,368 14,299 11,940 34,650

Franchised restaurant costs 5,480 5,540 12,455 12,019

Selling, general and

administrative . . . . . . 27,431 19,136 52,803 43,030

Interest expense. . . . . . 8,160 9,412 19,206 22,018

--------- --------- --------- ---------

259,462 238,398 586,062 550,254

--------- --------- --------- ---------
Earnings before income taxes 50,447 8,595 67,621 20,222
Income taxes. . . . . . . . . 16,100 1,900 21,600 4,500

--------- --------- --------- ---------
Net earnings. . . . . . . . . $ 34,347 $ 6,695 $ 46,021 $ 15,722

========= ========= ========= =========

Net earnings per share:

Basic . . . . . . . . . . . $ .88 $ .17 $ 1.17 $ .40

Diluted . . . . . . . . . . $ .85 $ .17 $ 1.14 $ .40
Weighted average shares

outstanding:

Basic . . . . . . . . . . . 39,226 38,877 39,178 38,859

Diluted . . . . . . . . . . 40,327 39,580 40,252 39,531
See accompanying notes to financial statements.
-3-

FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


Twenty-eight Weeks Ended

------------------------

April 12, April 13,

1998 1997

--------- ---------
Cash flows from operations:

Net earnings. . . . . . . . . . . . . . . . . . . $46,021 $15,722

Non-cash items included above:

Depreciation and amortization. . . . . . . . . 22,686 21,274

Deferred income taxes. . . . . . . . . . . . . 3,400 (2,000)

Increase in receivables . . . . . . . . . . . . . (3,319) (427)

Decrease (increase) in inventories. . . . . . . . (674) 99

Increase in prepaid expenses. . . . . . . . . . . (850) (6,556)

Increase (decrease) in accounts payable . . . . . (6,314) 5,772

Increase in other accrued liabilities . . . . . . 24,222 10,990

------- -------

Cash flows provided by operations. . . . . . . 85,172 44,874

------- -------

Cash flows from investing activities:

Additions to property and equipment . . . . . . . (28,953) (15,629)

Dispositions of property and equipment. . . . . . 3,397 1,442

Increase in trading area rights . . . . . . . . . (5,114) (1,510)

Increase in other assets. . . . . . . . . . . . . (2,813) (868)

------- -------

Cash flows used in investing activities. . . . (33,483) (16,565)

------- -------

Cash flows from financing activities:

Proceeds from issuance of long-term debt. . . . . 1,000 -

Principal payments on long-term debt,

including current maturities . . . . . . . . . (793) (1,174)

Proceeds from issuance of common stock. . . . . . 1,167 372

------- -------

Cash flows provided by (used in)

financing activities . . . . . . . . . . . . 1,374 (802)

------- -------
Net increase in cash and cash equivalents . . . . . $53,063 $27,507

======= =======
See accompanying notes to financial statements.
-4-

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 income tax provisions reflect the expected annual tax rate of 32% of

pretax earnings in 1998 and the actual tax rate of 22% in 1997. 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. Legal Proceedings
During the quarter, the Company 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 in its second quarter approximately $58.5 million in the

settlement, of which a net of approximately $45.8 million was realized after

litigation costs and before income taxes (the "Litigation Settlement").
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
-5-

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

Disabilities Act Access Guidelines. The settlement requires compliance at

85% of the 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 an estimated $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.
On April 6, 1996 an action was filed by one of the Company's international

franchisees, Wolsey, Ltd., in the United States District Court in San Diego,

California against the Company and its directors, its international

franchising subsidiary, and certain officers of the Company and others. The

complaint alleges certain contractual, tort and law violations related to

the franchisees' development rights in the Far East and seeks damages in

excess of $38.5 million, injunctive relief, attorneys fees and costs. The

Company has successfully dismissed portions of the complaint, including the

single claim alleging wrongdoing by the Company's outside directors, and the

claims against its current officers. Management believes the remaining

allegations are without foundation and intends to vigorously defend the

action.
On November 5, 1996 an action was filed by the National JIB Franchisee

Association, Inc. and several of the Company's franchisees in the Superior

Court of California, County of San Diego in San Diego, California, against

the Company and others. The lawsuit alleges that certain Company policies

are unfair business practices and violate sections of the California

Corporations Code regarding material modifications of franchise agreements

and interfere with franchisees' right of association. It seeks injunctive

relief, a declaration of the rights and duties of the parties, unspecified

damages and recision of alleged material modifications of plaintiffs'

franchise agreements. The complaint also alleges fraud, breach of a

fiduciary duty and breach of a third party beneficiary contract in

connection with certain payments that the Company received from suppliers

and seeks unspecified damages, interest, punitive damages and an accounting.

Management believes that its policies are lawful and that it has satisfied

any obligation to its franchisees in regard to such supplier payments.
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