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 21, 2001
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Commission file no. 1-9390
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JACK IN THE BOX 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 (858) 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 26, 2001 - 38,652,684.
1
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
January 21, October 1,
2001 2000
- --------------------------------------------------- ------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents....................... $ 5,277 $ 6,836
Accounts receivable, net........................ 13,373 13,667
Inventories..................................... 28,012 25,722
Prepaid expenses................................ 14,782 19,329
Assets held for sale and leaseback.............. 32,948 33,855
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Total current assets.......................... 94,392 99,409
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Property and equipment, at cost.................... 1,000,576 967,832
Accumulated depreciation and amortization....... (302,274) (288,474)
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Property and equipment, net................... 698,302 679,358
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Trading area rights, net........................... 70,731 71,565
Lease acquisition costs, net....................... 13,273 13,746
Other assets, net.................................. 43,448 42,750
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TOTAL......................................... $ 920,146 $ 906,828
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............ $ 2,097 $ 2,034
Accounts payable................................ 43,952 53,082
Accrued expenses................................ 150,330 153,356
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Total current liabilities..................... 196,379 208,472
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Deferred income taxes.............................. 12,922 12,468
Long-term debt, net of current maturities.......... 279,048 282,568
Other long-term liabilities........................ 89,700 86,968
Stockholders' equity:
Common stock.................................... 417 415
Capital in excess of par value.................. 296,583 294,380
Retained earnings............................... 85,856 61,817
Treasury stock.................................. (40,759) (40,260)
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Total stockholders' equity.................... 342,097 316,352
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TOTAL......................................... $ 920,146 $ 906,828
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See accompanying notes to consolidated financial statements.
2
JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Sixteen Weeks Ended
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January 21, January 23,
2001 2000
- -------------------------------------------------- ------------ -----------
Revenues:
Restaurant sales................................ $ 506,537 $ 448,226
Distribution and other sales.................... 19,292 15,528
Franchise rents and royalties................... 13,362 12,640
Other........................................... 1,551 412
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540,742 476,806
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Costs and expenses:
Costs of revenues:
Restaurant costs of sales.................... 156,167 139,988
Restaurant operating costs................... 252,053 221,234
Costs of distribution and other sales........ 18,800 15,332
Franchised restaurant costs.................. 6,205 6,142
Selling, general and administrative............. 60,770 53,533
Interest expense................................ 8,008 8,285
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502,003 444,514
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Earnings before income taxes....................... 38,739 32,292
Income taxes....................................... 14,700 11,900
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Net earnings....................................... $ 24,039 $ 20,392
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Net earnings per share:
Basic........................................... $ .63 $ .53
Diluted......................................... $ .61 $ .52
Weighted-average shares outstanding:
Basic........................................... 38,429 38,256
Diluted......................................... 39,506 39,395
See accompanying notes to consolidated financial statements.
3
JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Sixteen Weeks Ended
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January 21, January 23,
2001 2000
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Cash flows from operations:
Net earnings................................... $ 24,039 $ 20,392
Non-cash items included above:
Depreciation and amortization............... 19,098 16,615
Deferred finance cost amortization.......... 639 637
Deferred income taxes....................... 454 300
Decrease in receivables........................ 294 3,334
Increase in inventories........................ (2,290) (2,621)
Decrease in prepaid expenses................... 4,547 4,033
Decrease in accounts payable................... (9,130) (16,441)
Increase (decrease) in other liabilities....... 828 (20,347)
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Cash flows provided by operations........... 38,479 5,902
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Cash flows from investing activities:
Additions to property and equipment............ (38,882) (24,492)
Dispositions of property and equipment......... 1,773 1,096
Increase in trading area rights................ (453) (1,060)
Increase in other assets....................... (1,507) (1,738)
Decrease (increase) in assets held
for sale and leaseback........................ 907 (5,231)
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Cash flows used in investing activities..... (38,162) (31,425)
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Cash flows from financing activities:
Borrowings under revolving bank loans.......... 106,500 158,000
Principal repayments under revolving
bank loans................................... (109,500) (134,000)
Proceeds from issuance of long-term debt....... - 825
Principal payments on long-term debt,
including current maturities................ (582) (508)
Repurchase of common stock..................... (499) (2,436)
Proceeds from issuance of common stock......... 2,205 197
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Cash flows provided by (used in)
financing activities...................... (1,876) 22,078
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Net decrease in cash and cash equivalents.......... $ (1,559) $ (3,445)
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See accompanying notes to consolidated financial statements.
4
JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements of
Jack in the Box Inc. (the "Company") and its subsidiaries do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In our opinion, 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. We report 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 fiscal year 2000 financial statements.
2. We use interest rate derivative instruments to manage our exposure to
variability in interest rates related to our bank credit facility, foreign
currency exchange derivatives to manage our exposure to rising beef prices
and commodity derivatives to manage our exposure to commodity price
fluctuations. We do not speculate using derivative instruments and purchase
derivative instruments only for the purpose of risk management.
Effective October 2, 2000, we adopted Statement of Financial Accounting
Standards ("SFAS") 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS 137 and 138, which establishes accounting
and reporting standards for derivative instruments and hedging activities.
SFAS 133 requires that entities recognize all derivatives as either assets
or liabilities in the balance sheet and measure those instruments at fair
value. Accounting for changes in the fair value of a derivative depends on
the intended use and resulting designation of the derivative. For
derivatives designated as hedges, changes in the fair value are either
offset against the change in fair value of the assets or liabilities
through earnings or recognized in other comprehensive income in the balance
sheet until the hedged item is recognized in earnings.
Upon the adoption of SFAS 133, we did not designate our interest rate swap,
foreign currency exchange and commodity derivatives as hedge transactions.
The transition adjustment recorded upon the adoption of SFAS 133 was not
material to our consolidated statement of earnings. The changes in the fair
value of our foreign currency exchange and commodity derivatives are
included in costs of goods sold and the fair value of our interest rate
swap is included in interest expense in the accompanying unaudited
consolidated statement of earnings for the quarter ended January 21, 2001.
5
3. The 2001 income tax provision reflects the projected annual tax rate of 38%
of earnings before income taxes. The income tax provision for the 16 weeks
ended January 23, 2000 was 37% of earnings before income taxes and was
subsequently adjusted in the fourth quarter of last year to the effective
annual rate of 18% of pretax earnings, primarily due to a $22.9 million
income tax benefit recognized as a result of the favorable settlement with
the U.S. Internal Revenue Service of a tax case related to the disposition
in November 1995 of our interest in Family Restaurants, Inc. The favorable
income tax rates result from our ability to realize previously unrecognized
tax benefits. The actual 2001 annual tax rate cannot be determined until
the end of the fiscal year; thus the rate could differ from our current
expectations.
4. We are subject to normal and routine litigation. The amount of liability
from the claims and actions against us 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 our results of
operations and liquidity.
6
JACK IN THE BOX INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
All comparisons under this heading between 2001 and 2000 refer to the
16-week periods ended January 21, 2001 and January 23, 2000, respectively,
unless otherwise indicated.
Company-operated restaurant sales increased $58.3 million, or 13.0%, to
$506.5 million in 2001 from $448.2 million in 2000, reflecting increases in both
the number of Company-operated restaurants and in per store average ("PSA")
sales. The average number of Company-operated restaurants increased 10.1% to
1,325 in 2001 from 1,203 restaurants in 2000. PSA sales for comparable
Company-operated restaurants, those open more than one year, grew 4.3% in 2001
compared with the same period in 2000. PSA sales growth, compared to a year ago,
resulted from increases in average transaction amounts of 3.4% and average
number of transactions of .9%. We believe that the sales growth is due to
effective advertising and strategic initiatives, including our ongoing guest
focus on food quality, service and promotions.
Distribution and other sales increased $3.8 million to $19.3 million in
2001 from $15.5 million in 2000. Distribution sales of food and supplies to
franchisees increased $3.0 million to $11.5 million in 2001 from $8.5 million in
2000, primarily due to increases in the number of restaurants serviced by our
distribution division and PSA sales growth at franchise restaurants. Other sales
from fuel and convenience store operations increased $.8 million to $7.8 million
in 2001 from $7.0 million in 2000 as the number of locations we operate grew to
eight at the end of the quarter compared with seven a year ago.
Franchise rents and royalties increased $.8 million to $13.4 million in
2001 from $12.6 million in 2000, or 10.8% of franchise restaurant sales in 2001
and 10.5% in 2000. Franchise restaurant sales grew to $124.3 million in 2001
from $120.6 million in 2000, benefiting from our strategic initiatives.
Franchise rents and royalties grew as a percentage of sales in 2001 primarily
due to increases in rents at certain franchised restaurants.
Other revenues, typically interest income from investments and notes
receivable, increased to $1.6 million in 2001 from $.4 million in 2000. In 2001,
other revenues also included franchising gains of $1.0 million which result from
the conversion of Company-operated restaurants to franchises.
Restaurant costs of sales, which include food and packaging costs,
increased with sales growth and the addition of Company-operated restaurants to
$156.2 million in 2001 from $140.0 million in 2000. As a percent of restaurant
sales, costs of sales declined to 30.8% in 2001 from 31.2% in 2000, primarily
due to lower ingredient costs, especially beef, cheese and poultry.
Restaurant operating costs also increased with sales growth and additional
restaurants to $252.1 million, or 49.8% of sales, in 2001 from $221.2 million,
or 49.4% of sales, in 2000. The higher percentage of costs in 2001 reflects
higher percentages of utilities, occupancy and labor-related expenses.
7
Costs of distribution and other sales increased to $18.8 million in 2001
from $15.3 million in 2000, reflecting an increase in the related sales. As a
percent of distribution and other sales, these costs declined to 97.4% in 2001
compared to 98.7% a year ago, reflecting a slightly improved margin from our
fuel and convenience store operations.
Franchise restaurant costs, which consist principally of rents and
depreciation on properties leased to franchisees and other miscellaneous costs,
increased slightly to $6.2 million in 2001 from $6.1 million in 2000.
Selling, general and administrative costs increased to $60.8 million in
2001 from $53.5 million in 2000. Advertising and promotion costs increased $3.0
million to $25.8 million in 2001 from $22.8 million in 2000, approximately 5.1%
of restaurant sales in both quarters. General, administrative and other costs
were approximately 6.5% of revenues in both quarters.
Interest expense declined to $8.0 million in 2001 from $8.3 million in 2000
reflecting a reduction in total average debt outstanding.
The 2001 income tax provision reflects the projected annual tax rate of 38%
of earnings before income taxes. The income tax provision for the 16 weeks ended
January 23, 2000 was 37% of earnings before income taxes and was subsequently
adjusted in the fourth quarter of last year to the effective annual rate of 18%
of pretax earnings, primarily due to a $22.9 million income tax benefit
recognized as a result of the favorable settlement with the U.S. Internal
Revenue Service of a tax case related to the disposition in November 1995 of our
interest in Family Restaurants, Inc. The favorable income tax rates result from
our ability to realize previously unrecognized tax benefits. The actual 2001
annual tax rate cannot be determined until the end of the fiscal year; thus the
rate could differ from our current expectations.
Net earnings increased $3.6 million, or $.09 per diluted share, to $24.0
million, or $.61 per diluted share, in 2001 from $20.4 million, or $.52 per
diluted share, in 2000. Earnings improved nearly 18%, principally due to the
impact of sales growth.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $1.5 million to $5.3 million at
January 21, 2001 from $6.8 million at the beginning of the fiscal year. We
expect to maintain low levels of cash and cash equivalents, reinvesting
available cash flows from operations to develop new or enhance existing
restaurants, and to reduce borrowings under the revolving credit agreement.
Our working capital deficit decreased $7.1 million to $102.0 million at
January 21, 2001 from $109.1 million at October 1, 2000, primarily due to a
decline in current 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. We also
continually invest in our 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.
Our revolving bank credit agreement provides for a credit facility expiring
in 2003 of up to $175 million, including letters of credit of up to $25 million.
At January 21, 2001, we had borrowings of $63 million and approximately $100.7
million of availability under the agreement. Total debt outstanding decreased
slightly to $281.1 million at January 1, 2001 from $284.6 million at the
beginning of the fiscal year.
8
We are subject to a number of covenants under our 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. In September 1999, the collateral
securing the bank credit facility was released. However, the real and personal
property previously held as collateral for the bank credit facility cannot be
used to secure other indebtedness of the Company. In addition, certain of our
real and personal property secure other indebtedness.
We require 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. Our 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, we expect 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 us cannot
be determined with certainty, we believe the ultimate liability of such claims
and actions should not materially affect our results of operations and
liquidity.
On December 3, 1999, our Board of Directors authorized the purchase of our
outstanding common stock in the open market for an aggregate amount not to
exceed $10 million. Through January 21, 2001, we had acquired 330,800 shares in
connection with this authorization for an aggregate cost of $6.3 million.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary exposure relating to financial instruments is to changes in
interest rates. We use interest rate swap agreements to reduce exposure to
interest rate fluctuations. At January 21, 2001, we had a $25 million notional
amount interest rate swap agreement expiring in June 2001. This agreement
effectively converts a portion of our variable rate bank debt to fixed rate debt
and has a pay rate of 6.4%.
Our credit facility bears interest at an annual rate equal to the prime
rate or the London Interbank Offered Rate ("LIBOR") plus an applicable margin
based on a financial leverage ratio. As of January 21, 2001, our applicable
margin was set at .625%. During the first quarter of fiscal year 2001, the
average interest rate on the credit facility was 7.2%, including the impact of
the interest rate swap.
At January 21, 2001, a hypothetical one percentage point increase in
short-term interest rates would result in a reduction of $.4 million in annual
pre-tax earnings. The estimated reduction is based on holding the unhedged
portion of bank debt at its January 21, 2001 level.
At January 21, 2001, we had no other material financial instruments subject
to significant market exposure. However, from time to time we enter into
commodity and foreign currency contracts which could expose us to market risk.
9
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
including, but not limited to, our expectations regarding our effective tax
rate, our continuing investment in new restaurants and refurbishment of existing
facilities and sources of liquidity. Forward-looking statements are generally
identifiable by the use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" and similar expressions. 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. Our tax provision is highly sensitive to
expected earnings and as expectations change our income tax provision may vary
more significantly from quarter to quarter and year to year than companies which
have been continuously profitable. However, our 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 we operate will be met or that capital
will be available for refurbishment of existing facilities. Multi-unit food
service business such as JACK IN THE BOX restaurants can be materially and
adversely affected by publicity about allegations of poor food quality, foreign
objects in food, illness, injury or other health concerns with respect to the
nutritional value of certain foods. We have experienced an increase in utility
costs due to deregulations. We have also experienced power outages in certain
areas and are uncertain if they will continue or spread to other areas. The
deregulation of utilities and the continuation of power shortages or
interruptions may adversely affect the profitability of our business in the
areas in which they occur. Additional risk factors associated with our business
are detailed in our most recent Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
NEW ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 ("SAB101"), Revenue Recognition in Financial Statements,
summarizing their views for applying generally accepted accounting principles to
revenue recognition in financial statements. Although we have determined that
the adoption of SAB101 should not have a material effect on our annual results
of operations, it will impact the reporting of our franchise percentage rent
between quarters within the year. As permitted by SAB101, we plan to adopt the
new standard in the fourth quarter of fiscal year 2001 at which time we will
restate the earlier quarters within the year.
10
PART II - OTHER INFORMATION
There is no information required to be reported for any items under Part II,
except as follows:
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 21, 2001. Our annual meeting was held February 23, 2001 at which
the following matters were voted as indicated:
For Withheld
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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.......................... 33,787,304 433,433
Jay W. Brown............................... 33,857,944 362,793
Paul T. Carter............................. 33,989,907 230,830
Charles W. Duddles......................... 34,005,621 215,116
Edward W. Gibbons.......................... 34,004,925 215,812
Alice B. Hayes, Ph.D....................... 34,002,728 218,009
Murray H. Hutchison........................ 34,004,150 216,587
Robert J. Nugent........................... 33,858,662 362,075
L. Robert Payne............................ 33,994,067 226,670
Kenneth R. Williams........................ 34,003,978 216,759
For Against Abstain Not Voted
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2. Approval of the Performance
Bonus Plan...................... 32,751,539 657,379 704,583 107,236
3. Ratification of the appointment
of KPMG LLP as independent
accountants..................... 34,063,365 33,982 123,390 -
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
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10.1 Sixth Amendment dated as of November 17, 2000 to the
Revolving Credit Agreement dated as of April 1, 1998
by and between Jack in the Box Inc. and the Banks
named therein.
(b) Reports on Form 8-K - None.
11
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.
JACK IN THE BOX INC.
By: DARWIN J. WEEKS
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Darwin J. Weeks
Vice President, Controller
and Chief Accounting Officer
(Duly Authorized Signatory)
Date: March 7, 2001