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 July 8, 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 August 3, 2001 - 39,048,054.
1
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 8, October 1,
2001 2000
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 6,244 $ 6,836
Accounts receivable, net........................... 14,829 13,667
Inventories........................................ 28,867 25,722
Prepaid expenses................................... 16,634 19,329
Assets held for sale and leaseback................. 46,046 33,855
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Total current assets............................. 112,620 99,409
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Property and equipment, at cost....................... 1,066,453 967,832
Accumulated depreciation and amortization.......... (323,680) (288,474)
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Property and equipment, net...................... 742,773 679,358
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Trading area rights, net.............................. 69,833 71,565
Lease acquisition costs, net.......................... 13,291 13,746
Other assets, net..................................... 44,138 42,750
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TOTAL............................................ $ 982,655 $ 906,828
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............... $ 2,209 $ 2,034
Accounts payable................................... 39,728 53,082
Accrued expenses................................... 170,271 153,356
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Total current liabilities........................ 212,208 208,472
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Deferred income taxes................................. 14,468 12,468
Long-term debt, net of current maturities............. 283,106 282,568
Other long-term liabilities........................... 88,112 86,968
Stockholders' equity:
Common stock....................................... 422 415
Capital in excess of par value..................... 299,314 294,380
Retained earnings.................................. 126,044 61,817
Treasury stock..................................... (41,019) (40,260)
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Total stockholders' equity....................... 384,761 316,352
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TOTAL............................................ $ 982,655 $ 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 Forty Weeks Ended
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July 8, July 9, July 8, July 9,
2001 2000 2001 2000
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Revenues:
Restaurant sales............................ $ 407,129 $ 364,314 $ 1,302,960 $ 1,159,989
Distribution and other sales................ 16,418 14,599 50,561 43,508
Franchise rents and royalties............... 10,219 9,740 33,537 31,684
Other....................................... 2,307 1,658 5,329 2,431
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436,073 390,311 1,392,387 1,237,612
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Costs and expenses:
Costs of revenues:
Restaurant costs of sales................ 124,456 111,638 400,813 359,702
Restaurant operating costs............... 204,980 177,630 653,586 569,323
Costs of distribution and other sales.... 15,879 14,263 49,044 42,578
Franchised restaurant costs.............. 4,568 4,610 15,490 15,426
Selling, general and administrative......... 48,081 43,029 154,387 139,174
Interest expense............................ 5,655 6,133 19,540 20,424
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403,619 357,303 1,292,860 1,146,627
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Earnings before income taxes................... 32,454 33,008 99,527 90,985
Income taxes................................... 10,500 12,200 35,300 33,700
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Net earnings................................... $ 21,954 $ 20,808 $ 64,227 $ 57,285
========= ========= =========== ===========
Net earnings per share:
Basic....................................... $ .56 $ .54 $ 1.66 $ 1.50
Diluted..................................... $ .55 $ .53 $ 1.62 $ 1.46
Weighted-average shares outstanding:
Basic....................................... 38,954 38,269 38,685 38,249
Diluted..................................... 39,755 39,371 39,680 39,336
See accompanying notes to consolidated financial statements.
3
JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Forty Weeks Ended
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July 8, July 9,
2001 2000
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Cash flows from operations:
Net earnings........................................ $ 64,227 $ 57,285
Non-cash items included above:
Depreciation and amortization.................... 48,915 43,147
Deferred finance cost amortization............... 1,284 1,280
Deferred income taxes............................ 2,000 900
Increase in receivables............................. (1,162) (1,509)
Increase in inventories............................. (3,145) (5,144)
Decrease in prepaid expenses........................ 2,695 266
Decrease in accounts payable........................ (13,354) (10,650)
Increase in other liabilities....................... 18,972 9,807
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Cash flows provided by operations................ 120,432 95,382
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Cash flows from investing activities:
Additions to property and equipment................. (113,389) (77,156)
Dispositions of property and equipment.............. 5,290 3,286
Increase in trading area rights..................... (1,515) (2,541)
Increase in other assets............................ (3,802) (3,665)
Increase in assets held for sale and leaseback...... (12,191) (10,719)
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Cash flows used in investing activities.......... (125,607) (90,795)
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Cash flows from financing activities:
Borrowings under revolving bank loans............... 377,500 338,000
Principal repayments under revolving bank loans..... (375,500) (341,000)
Proceeds from issuance of long-term debt............ - 825
Principal payments on long-term debt, including
current maturities............................... (1,599) (1,385)
Repurchase of common stock.......................... (759) (5,797)
Proceeds from issuance of common stock.............. 4,941 1,116
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Cash flows provided by (used in)
financing activities.......................... 4,583 (8,241)
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Net decrease in cash and cash equivalents............... $ (592) $ (3,654)
========= =========
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. In the third quarter, we reduced our estimated 2001 annual income tax rate
to 35.5% of earnings before income taxes from our previous estimate of 37%.
This revision to the tax provision resulted in a three-cent per share
benefit to net earnings in the third quarter. The income tax provisions
for the fiscal 2000 periods ended July 9, 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 income 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
On April 18, 2001, an action was filed by Robert Bellmore and Jeffrey
Fairbairn, individually and on behalf of all others similarly situated, in
the Superior Court of the State of California, San Diego County, seeking
class action status and alleging violations of California wage and hour
laws. The complaint alleges that salaried restaurant management personnel
in California were improperly classified as exempt from California overtime
laws, thereby depriving them of overtime pay. The complaint seeks damages
in an unspecified amount, penalties, injuctive relief, prejudgment
interest, costs and attorneys' fees. We believe our classifications are
appropriate and plan to vigorously defend this action.
We are also 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 fiscal years 2001 and 2000 refer
to the 12-week ("quarter") and 40-week ("year-to-date") periods ended July 8,
2001 and July 9, 2000, respectively, unless otherwise indicated.
Company-operated restaurant sales increased $42.8 million and $143.0
million, respectively, to $407.1 million and $1,303.0 million in 2001 from
$364.3 million and $1,160.0 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 at the end of the quarter increased
8.8% to 1,395 in 2001 from 1,282 restaurants in 2000. PSA sales for comparable
Company-operated restaurants, those open more than one year, grew 4.3% 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 3.8% 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.
Distribution and other sales increased $1.8 million and $7.1 million,
respectively, to $16.4 million and $50.6 million in 2001 from $14.6 million and
$43.5 million in 2000. Distribution sales grew to $8.8 million and $29.0
million in 2001 from $7.6 million and $22.7 million in 2000. Other sales from
fuel and convenience store operations increased $.6 million in the quarter
and $.8 million year-to-date.
Franchise rents and royalties increased $.5 million and $1.8 million,
respectively, to $10.2 million and $33.5 million in 2001 from $9.7 million and
$31.7 million in 2000, which represent approximately 10.8% of franchise
restaurant sales in both periods in 2001 and 10.7% and 10.5%, respectively, in
2000. Franchise restaurant sales grew to $94.5 million and $311.6 million,
respectively, in 2001 from $91.1 million and $301.1 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
locations.
Other revenues, representing franchise gains and fees and interest income
from investments and notes receivable, increased to $2.3 million and $5.3
million, respectively, in 2001 from $1.7 million and $2.4 million in 2000
primarily due to higher franchising gains from the sale of Company-operated
restaurants to franchisees in 2001.
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 $124.5 million and $400.8
million, respectively, in 2001 from $111.6 million and $359.7 million in 2000.
As a percent of restaurant sales, costs of sales were 30.6% in both the 2001 and
2000 quarters and declined to 30.8% year-to-date in 2001 from 31.0% in 2000.
We have experienced lower ingredient costs, especially cheese, poultry,
shortening and potatoes, partially offset by higher produce and beef costs.
6
Restaurant operating costs grew to $205.0 million and $653.6 million,
respectively, in 2001 from $177.6 million and $569.3 million in 2000. As a
percent of restaurant sales, operating costs increased to 50.3% and 50.2%,
respectively, in 2001 from 48.8% and 49.1% in 2000, reflecting an increase in
occupancy costs, principally utilities and to a lesser extent, higher
percentages of labor-related expenses.
Costs of distribution and other sales increased to $15.9 million and $49.0
million, respectively, in 2001 from $14.3 million and $42.6 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 97.0%, respectively, in 2001 from
97.7% and 97.9% a year ago primarily due to improved margins from our fuel and
convenience store operations resulting from our revised fuel pricing strategy.
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 $4.6 million in the quarter
and $15.5 million year-to-date.
Selling, general and administrative costs increased to $48.1 million and
$154.4 million, respectively, in 2001 from $43.0 million and $139.2 million in
2000. Advertising and promotion costs increased to $20.9 million and $66.9
million, respectively, in 2001 from $18.6 million and $59.1 million in 2000,
slightly over 5% of restaurant sales in all periods. General, administrative and
other costs improved to 6.2% and 6.3% of revenues, respectively, in 2001
compared to 6.3% and 6.5% of revenues in 2000, primarily due to improved
percentages of employee benefit-related expenses and lower pre-opening costs.
Interest expense declined $.4 million and $.9 million, respectively, to
$5.7 million and $19.5 million in 2001 from $6.1 million and $20.4 million in
2000, reflecting a reduction in average interest rates and total average debt
compared to a year ago.
In the third quarter, we reduced our estimated 2001 annual income tax rate
to 35.5% of earnings before income taxes from our previous estimate of 37%. This
revision to the income tax provision resulted in a three-cent per share benefit
to net earnings in the third quarter. The income tax provisions for the fiscal
2000 periods ended July 9, 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
income 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 5.5% to $22.0 million, or $.55 per
diluted share, in 2001 from $20.8 million, or $.53 per diluted share, in 2000.
Year-to-date net earnings grew 12.1% to $64.2 million, or $1.62 per diluted
share, in 2001 from $57.3 million, or $1.46 per diluted share, in 2000.
7
LIQUIDITY AND CAPITAL RESOURCES
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Cash and cash equivalents decreased slightly to $6.2 million at July 8,
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 $9.5 million to $99.6 million at July
8, 2001 from $109.1 million at October 1, 2000, primarily due to an increase in
assets held for sale and leaseback, offset in part by an increase in total
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 July 8, 2001, we had borrowings of $68.0 million and approximately $93.8
million of availability under the agreement. Total debt outstanding increased
slightly to $285.3 million at July 8, 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 cannot be used to secure other
indebtedness of the Company. In addition, certain of our real estate and
equipment 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 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 July 8, 2001, we had acquired 341,600 shares in
connection with this authorization for an aggregate cost of $6.5 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. 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 July 8, 2001, our applicable
margin was set at .625%. During the third quarter of fiscal year 2001, the
average interest rate on the credit facility was approximately 5.9%, including
the impact of our expired interest rate swap. At July 8, 2001, a hypothetical
one percentage point increase in short-term interest rates would result in a
reduction of $.7 million in annual pre-tax earnings. The estimated reduction is
based on holding the unhedged portion of bank debt at its July 8, 2001 level.
We are also exposed to the impact of commodity price fluctuations related
to unpredictable factors such as weather and various other market conditions
outside our control. From time-to-time we enter into commodity futures and
option contracts to manage these fluctuations. A sensitivity analysis has been
prepared to estimate our exposure to market risk of our commodity contract
positions. The fair value of such positions is a summation of the fair values
calculated for each commodity by valuing each net position at quoted futures
prices. Market risk is estimated as the potential loss in fair value resulting
from a hypothetical 10% adverse change in such prices. A 10% adverse change in
the commodity prices upon which these contracts are based would result in a loss
in fair value of approximately $.4 million. The results of this analysis may
differ from actual results.
At July 8, 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 continuing investment in new restaurants and
refurbishment of existing facilities, our expectations regarding our effective
tax rate, our expectations regarding any liability that may result from claims
and actions filed against us and our 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 income
tax provision is sensitive to expected earnings and, as expectations change, our
income tax provision may vary from quarter to quarter and year to year. In
addition, from time-to-time, we may take positions for filing our tax returns
which differ from the treatment of the same item for financial reporting
purposes. If we prevail in our tax return filing positions, our effective tax
rate will be affected. 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
businesses 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 rents
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.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 141, Business Combinations, and 142,
Goodwill and Other Intangible Assets, which supersede Accounting Principles
Board Opinion 17, Intangible Assets. SFAS 141 requires that all business
combinations be accounted for under the purchase method. The statement further
requires separate recognition of intangible assets that meet one of the two
criteria, as defined in the statement. This statement applies to all business
combinations initiated after June 30, 2001. Under SFAS 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are tested
at least annually for impairment. Separable intangible assets with defined lives
will continue to be amortized over their useful lives. The provisions of SFAS
142 will apply to goodwill and intangible assets acquired before and after the
statement's effective date. As permitted by SFAS 142, we plan to adopt the new
standard in the first quarter of the fiscal year 2002. We are currently
evaluating the effect that adoption of the provisions of SFAS 142 will have on
our results of operations and financial position.
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 - See Note 3 to the Unaudited Consolidated Financial
Statements.
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: August 10, 2001
10