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 April 15, 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 May 22, 2001 - 38,932,091.
1
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
April 15, October 1,
2001 2000
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................ $ 6,321 $ 6,836
Accounts receivable, net......................... 18,309 13,667
Inventories...................................... 29,496 25,722
Prepaid expenses................................. 15,078 19,329
Assets held for sale and leaseback............... 38,667 33,855
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Total current assets........................... 107,871 99,409
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Property and equipment, at cost..................... 1,030,179 967,832
Accumulated depreciation and amortization........ (313,237) (288,474)
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Property and equipment, net.................... 716,942 679,358
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Trading area rights, net............................ 70,847 71,565
Lease acquisition costs, net........................ 13,087 13,746
Other assets, net................................... 43,346 42,750
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TOTAL.......................................... $ 952,093 $ 906,828
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............. $ 2,152 $ 2,034
Accounts payable................................. 37,401 53,082
Accrued expenses................................. 162,282 153,356
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Total current liabilities...................... 201,835 208,472
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Deferred income taxes............................... 13,125 12,468
Long-term debt, net of current maturities........... 286,585 282,568
Other long-term liabilities......................... 88,303 86,968
Stockholders' equity:
Common stock..................................... 420 415
Capital in excess of par value................... 298,494 294,380
Retained earnings................................ 104,090 61,817
Treasury stock................................... (40,759) (40,260)
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Total stockholders' equity..................... 362,245 316,352
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TOTAL.......................................... $ 952,093 $ 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)
Twelve Weeks Ended Twenty-Eight Weeks Ended
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April 15, April 16, April 15, April 16,
2001 2000 2001 2000
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Revenues:
Restaurant sales............................... $ 389,290 $ 347,449 $ 895,827 $ 795,675
Distribution and other sales................... 14,852 13,381 34,144 28,909
Franchise rents and royalties.................. 9,956 9,304 23,318 21,944
Other.......................................... 1,471 361 3,022 773
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415,569 370,495 956,311 847,301
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Costs and expenses:
Costs of revenues:
Restaurant costs of sales.................... 120,190 108,076 276,357 248,064
Restaurant operating costs................... 196,542 170,425 448,595 391,694
Costs of distribution and other sales........ 14,365 13,034 33,165 28,315
Franchised restaurant costs.................. 4,719 4,680 10,924 10,817
Selling, general and administrative............ 45,542 42,589 106,312 96,143
Interest expense............................... 5,877 6,006 13,885 14,291
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387,235 344,810 889,238 789,324
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Earnings before income taxes...................... 28,334 25,685 67,073 57,977
Income taxes...................................... 10,100 9,600 24,800 21,500
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Net earnings...................................... $ 18,234 $ 16,085 $ 42,273 $ 36,477
========= ========= ========= =========
Net earnings per share:
Basic.......................................... $ .47 $ .42 $ 1.10 $ .95
Diluted........................................ $ .46 $ .41 $ 1.07 $ .93
Weighted-average shares outstanding:
Basic.......................................... 38,756 38,218 38,569 38,240
Diluted........................................ 39,837 39,223 39,648 39,321
See accompanying notes to consolidated financial statements.
3
JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Twenty-Eight Weeks Ended
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April 15, April 16,
2001 2000
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Cash flows from operations:
Net earnings....................................... $ 42,273 $ 36,477
Non-cash items included above:
Depreciation and amortization................... 33,956 29,812
Deferred finance cost amortization.............. 899 898
Deferred income taxes........................... 657 600
Decrease (increase) in receivables................. (4,642) 511
Increase in inventories............................ (3,774) (1,571)
Decrease in prepaid expenses....................... 4,251 1,134
Decrease in accounts payable....................... (15,681) (5,950)
Increase in other liabilities...................... 11,661 3,155
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Cash flows provided by operations............... 69,600 65,066
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Cash flows from investing activities:
Additions to property and equipment................ (72,535) (48,144)
Dispositions of property and equipment............. 3,196 1,965
Increase in trading area rights.................... (1,549) (1,060)
Increase in other assets........................... (1,951) (2,071)
Increase in assets held for sale and leaseback..... (4,812) (11,642)
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Cash flows used in investing activities......... (77,651) (60,952)
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Cash flows from financing activities:
Borrowings under revolving bank loans.............. 282,000 206,000
Principal repayments under revolving bank loans.... (277,000) (205,500)
Proceeds from issuance of long-term debt........... - 825
Principal payments on long-term debt, including
current maturities.............................. (1,084) (916)
Repurchase of common stock......................... (499) (5,797)
Proceeds from issuance of common stock............. 4,119 539
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Cash flows provided by (used in)financing
activities.................................... 7,536 (4,849)
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Net decrease in cash and cash equivalents............ $ (515) $ (735)
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See accompanying notes to consolidated financial statements.
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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. The 2001 income tax provision reflects the projected annual tax rate of 37%
of earnings before income taxes. In the second quarter, we reduced our
estimated annual tax rate to 37% of earnings before income taxes from our
previous estimate of 38%. The income tax provisions for the 16- and 28-week
periods ended April 16, 2000 were 37% of earnings before income taxes. In
the fourth quarter of last fiscal year, the effective annual rate was
adjusted to 18% of pre-tax 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 2001 annual tax rate cannot be determined until the end
of the fiscal year; thus the actual rate could differ from our current
estimations.
3. Contingent Liabilities
We are subject to normal and routine litigation. We cannot determine with
certainty the amount of liability from the claims and actions against us.
In the opinion of management, however, the ultimate liability from all
pending legal proceedings, asserted legal claims and known potential and
probable legal claims should not materially affect our operating results or
liquidity.
5
JACK IN THE BOX INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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All comparisons under this heading between 2001 and 2000 refer to the
12-week ("quarter") and 28-week ("year-to-date") periods ended April 15, 2001
and April 16, 2000, respectively, unless otherwise indicated.
Company-operated restaurant sales increased $41.9 million and $100.1
million, respectively, to $389.3 million and $895.8 million in 2001 from $347.4
million and $795.7 million in 2000, reflecting increases in both the number of
Company-operated restaurants and in per store average ("PSA") sales. The number
of Company-operated restaurants increased 9.2% to 1,371 at the end of the
quarter from 1,255 a year ago. PSA sales for comparable Company-operated
restaurants, those open more than one year, grew 4.1% in the quarter and 4.2%
year-to-date compared with the same periods in 2000. PSA sales growth resulted
from higher average check amounts of 3.7% and 3.5% in the respective 2001
periods and the balance of the increases from a higher average number of
transactions. We believe that the sales growth is due to price increases,
effective advertising, promotions and strategic initiatives, including our
ongoing focus on food quality and guest service, especially speed of service.
Distribution and other sales increased $1.5 million and $5.2 million,
respectively, to $14.9 million and $34.1 million in 2001 from $13.4 million and
$28.9 million in 2000, primarily due to an increase in distribution sales to
franchises to $8.7 million and $20.2 million in 2001 from $6.6 million and $15.1
million in 2000. Other sales from fuel and convenience store operations declined
$.5 million in the quarter due to our revised fuel pricing strategy and
increased $.1 million year-to-date.
Franchise rents and royalties increased $.7 million and $1.4 million,
respectively, to $10.0 million and $23.3 million in 2001 from $9.3 million and
$21.9 million in 2000, which represent approximately 10.7% of franchise
restaurant sales in 2001 and 10.4% in 2000. Franchise restaurant sales grew to
$92.8 million and $217.2 million, respectively, in 2001 from $89.5 million and
$210.1 million in 2000, benefiting from our strategic initiatives described
above. 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 $1.5 million and $3.0 million, respectively, in 2001
from $.4 million and $.8 million in 2000. In 2001, other revenues also included
franchising gains of $.9 million and $1.9 million, respectively, which result
from the sale of Company-operated restaurants to franchises.
Restaurant costs of sales and operating costs increased with sales and the
addition of Company-operated restaurants. Restaurant costs of sales, which
include food and packaging costs, increased to $120.2 million and $276.4
million, respectively, in 2001 from $108.1 million and $248.1 million in 2000.
As a percent of restaurant sales, costs of sales declined to 30.9% and 30.8%,
respectively, in 2001 from 31.1% and 31.2% in 2000, primarily due to lower
ingredient costs, especially beef, cheese, shortening and poultry.
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Restaurant operating costs grew to $196.5 million and $448.6 million,
respectively, in 2001 from $170.4 million and $391.7 million in 2000. As a
percent of restaurant sales, operating costs increased to 50.5% and 50.1%,
respectively, in 2001 from 49.1% and 49.2% in 2000, reflecting significantly
higher utility costs and to a lesser extent, higher percentages of labor-related
expenses and other operating cost increases.
Costs of distribution and other sales increased to $14.4 million and $33.2
million, respectively, in 2001 from $13.0 million and $28.3 million in 2000,
reflecting an increase in the related sales. As a percent of distribution and
other sales, these costs improved to 96.7% and 97.1%, respectively, in 2001 from
97.4% and 97.9% a year ago primarily due to improved margins from our fuel and
convenience store operations.
Franchised restaurant costs, which consist principally of rents and
depreciation on properties leased to franchisees and other miscellaneous costs,
were essentially unchanged from the prior year at $4.7 million in the quarter
and $10.9 million year-to-date.
Selling, general and administrative costs increased to $45.5 million and
$106.3 million, respectively, in 2001 from $42.6 million and $96.1 million in
2000. Advertising and promotion costs increased to $20.2 million and $46.0
million, respectively, in 2001 from $17.8 million and $40.6 million in 2000,
slightly over 5% of restaurant sales in all periods. General, administrative and
other costs improved to 6.1% and 6.3% of revenues, respectively, in 2001
compared with 6.7% and 6.6% of revenues in 2000 primarily due to improved
percentages of employee benefit-related expenses and lower pre-opening costs.
Interest expense declined $.1 million and $.4 million, respectively, to
$5.9 million and $13.9 million in 2001 from $6.0 million and $14.3 million in
2000, primarily reflecting a reduction in total average debt compared to a year
ago.
The 2001 income tax provision reflects the projected annual tax rate of 37%
of earnings before income taxes. In the second quarter, we reduced our estimated
annual tax rate to 37% of earnings before income taxes from our previous
estimate of 38%. The income tax provisions for the 16- and 28-week periods ended
April 16, 2000 were 37% of earnings before income taxes. In the fourth quarter
of last fiscal year, the effective annual rate was adjusted to 18% of pre-tax
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 2001 annual tax rate cannot be
determined until the end of the fiscal year; thus the actual rate could differ
from our current estimations.
Net earnings in the quarter improved 13% to $18.2 million, or $.46 per
diluted share, in 2001 from $16.1 million, or $.41 per diluted share, in 2000.
Year-to-date net earnings grew nearly 16% to $42.3 million, or $1.07 per diluted
share, in 2001 from $36.5 million or $.93 per diluted share, in 2000. The
improvement in earnings primarily reflects restaurant sales growth.
7
LIQUIDITY AND CAPITAL RESOURCES
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Cash and cash equivalents decreased slightly to $6.3 million at April 15,
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 $15.1 million to $94.0 million at
April 15, 2001 from $109.1 million at October 1, 2000, primarily due to an
increase in accounts receivable and assets held for sale and leaseback and a
decline in accounts payable. 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 April 15, 2001, we had borrowings of $71.0 million and approximately $91.8
million of availability under the agreement. Total debt outstanding increased
slightly to $288.7 million at April 15, 2001 from $284.6 million at the
beginning of the fiscal year.
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 we cannot determine with certainty the amount of liability from
claims and actions against us, we believe the ultimate liability of such claims
and actions should not materially affect our operating results 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 April 15, 2001, we had acquired 330,800 shares in
connection with this authorization for an aggregate cost of $6.3 million.
8
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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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. We have in place a $25 million notional amount
interest rate swap agreement which expires 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 approximately 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 April 15, 2001, our applicable margin
was set at .625%. During the second quarter of fiscal year 2001, the average
interest rate on the credit facility was approximately 6.7%, including the
impact of the interest rate swap.
At April 15, 2001, a hypothetical one percentage point increase in
short-term interest rates would result in a reduction of $.5 million in annual
pre-tax earnings. The estimated reduction is based on holding the unhedged
portion of bank debt at its April 15, 2001 level.
We are also exposed to the impact of commodity price fluctuations. From
time-to-time we enter into commodity futures and option contracts to manage
these fluctuations. Open commodity futures and option contracts were not
significant as of April 15, 2001.
At April 15, 2001, we had no other material financial instruments subject
to significant market exposure.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
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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. Our results of operations can also be
affected by ingredient cost increases or shortages. We have experienced an
increase in utility costs due to deregulation. 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.
9
NEW ACCOUNTING STANDARDS
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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 the fiscal year 2001 at which time we will
restate the earlier quarters within the year.
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.
The results of our annual meeting, held February 23, 2001, were reported in
the Quarterly report on Form 10-Q for the quarter ended January 21, 2001.
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: May 30, 2001
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