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 7, 2002
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Commission file no. 1-9390
JACK IN THE BOX 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
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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
---- ----
Number of shares of common stock, $.01 par value, outstanding as of the close of
business August 7, 2002 - 39,107,494.
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1
JACK IN THE BOX INC. AND SUBSIDIARIES
INDEX
Page
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Part I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets....................... 3
Unaudited Consolidated Statements of Earnings..... 4
Unaudited Consolidated Statements of Cash Flows... 5
Notes to Unaudited Consolidated Financial
Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.............................. 12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................. 13
2
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 7, Sept. 30,
2002 2001
- ------------------------------------------------- ----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents..................... $ 6,695 $ 6,328
Accounts receivable, net...................... 22,540 21,816
Inventories................................... 30,055 28,993
Prepaid expenses and other current assets..... 35,614 19,268
Assets held for sale and leaseback............ 37,507 48,329
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Total current assets........................ 132,411 124,734
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Property and equipment, at cost.................. 1,180,896 1,111,837
Accumulated depreciation and amortization..... (365,768) (332,369)
----------- -----------
Property and equipment, net................. 815,128 779,468
----------- -----------
Trading area rights, net......................... 65,957 68,825
Other assets, net................................ 40,916 56,795
----------- -----------
TOTAL....................................... $ 1,054,412 $ 1,029,822
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.......... $ 72,456 $ 2,255
Accounts payable.............................. 46,177 55,036
Accrued expenses.............................. 163,226 169,628
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Total current liabilities.................. 281,859 226,919
----------- -----------
Deferred income taxes............................ 25,782 18,215
Long-term debt, net of current maturities........ 178,525 279,719
Other long-term liabilities...................... 95,192 91,439
Stockholders' equity:
Common stock.................................. 429 424
Capital in excess of par value................ 319,644 310,107
Retained earnings............................. 213,080 144,018
Treasury stock................................ (60,099) (41,019)
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Total stockholders' equity.................. 473,054 413,530
----------- -----------
TOTAL....................................... $ 1,054,412 $ 1,029,822
=========== ===========
See accompanying notes to consolidated financial statements.
3
JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Twelve Weeks Ended Forty Weeks Ended
---------------------------------- ----------------------------------
July 7, July 8, July 7, July 8,
2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
Revenues:
Restaurant sales................................. $ 428,150 $ 407,129 $ 1,398,816 $ 1,302,960
Distribution and other sales..................... 19,051 16,418 57,153 50,561
Franchise rents and royalties.................... 9,271 8,779 34,157 32,225
Other............................................ 4,747 2,307 12,903 5,329
------------ ------------ ------------ ------------
461,219 434,633 1,503,029 1,391,075
------------ ------------ ------------ ------------
Costs of revenues:
Restaurant costs of sales........................ 128,395 124,457 426,093 400,814
Restaurant operating costs....................... 216,756 205,008 713,144 653,682
Costs of distribution and other sales............ 18,491 15,876 55,630 49,039
Franchised restaurant costs...................... 5,215 4,569 16,979 15,490
------------ ------------ ------------ ------------
368,857 349,910 1,211,846 1,119,025
------------ ------------ ------------ ------------
Gross profit........................................ 92,362 84,723 291,183 272,050
Selling, general and administrative................. 51,341 48,050 167,020 154,291
------------ ------------ ------------ ------------
Earnings from operations............................ 41,021 36,673 124,163 117,759
Interest expense.................................... 5,086 5,654 17,582 19,539
------------ ------------ ------------ ------------
Earnings before income taxes and
cumulative effect of accounting change........... 35,935 31,019 106,581 98,220
Income taxes........................................ 11,733 9,980 37,519 34,830
------------ ------------ ------------ ------------
Earnings before cumulative effect of
accounting change................................ 24,202 21,039 69,062 63,390
Cumulative effect of adopting SAB 101............... - - - (1,859)
------------ ------------ ------------ ------------
Net earnings........................................ $ 24,202 $ 21,039 $ 69,062 $ 61,531
============ ============ ============ ============
Net earnings per share - basic:
Earnings before cumulative effect of
accounting change............................. $ .61 $ .54 $ 1.75 $ 1.64
Cumulative effect of adopting SAB 101............ - - - (.05)
------------ ------------ ------------ ------------
Net earnings per share........................... $ .61 $ .54 $ 1.75 $ 1.59
============ ============ ============ ============
Net earnings per share - diluted
Earnings before cumulative effect of
accounting change............................. $ .60 $ .53 $ 1.72 $ 1.60
Cumulative effect of adopting SAB 101............ - - - (.05)
------------ ------------ ------------ ------------
Net earnings per share........................... $ .60 $ .53 $ 1.72 $ 1.55
============ ============ ============ ============
Weighted-average shares outstanding:
Basic............................................ 39,513 38,954 39,393 38,685
Diluted.......................................... 40,482 39,755 40,232 39,680
See accompanying notes to consolidated financial statements.
4
JACK IN THE BOX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Forty Weeks Ended
---------------------
July 7, July 8,
2002 2001
- -------------------------------------------------------- --------- ---------
Cash flows from operations:
Net earnings........................................ $ 69,062 $ 61,531
Non-cash items included in operations:
Depreciation and amortization....................... 53,564 48,917
Deferred finance cost amortization.................. 1,286 1,284
Deferred income taxes............................... 7,567 1,530
Cumulative effect of accounting change.............. - 1,859
Tax benefit associated with exercise of
stock options..................................... 3,500 -
Increase in receivables............................. (724) (1,162)
Increase in inventories............................. (1,062) (3,145)
(Increase) decrease in prepaid expenses and
other current assets.............................. (2,064) 2,695
Decrease in accounts payable........................ (8,859) (13,354)
(Decrease) increase in other liabilities............ (2,077) 20,277
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Cash flows provided by operating activities...... 120,193 120,432
--------- ---------
Cash flows from investing activities:
Additions to property and equipment................. (90,741) (113,389)
Dispositions of property and equipment.............. 6,472 5,290
Increase in trading area rights..................... (394) (1,515)
Decrease (increase) in assets held for sale and
leaseback......................................... 10,822 (12,191)
Increase in other assets............................ (1,165) (3,802)
--------- ---------
Cash flows used in investing activities.......... (75,006) (125,607)
--------- ---------
Cash flows from financing activities:
Borrowings under revolving bank loans............... 314,640 377,500
Principal repayments under revolving bank loans..... (344,640) (375,500)
Principal payments on long-term debt, including
current maturities................................ (1,782) (1,599)
Repurchase of common stock.......................... (19,080) (759)
Proceeds from issuance of common stock.............. 6,042 4,941
--------- ---------
Cash flows provided by (used in) financing
activities.................................... (44,820) 4,583
--------- ---------
Net increase (decrease) in cash and cash equivalents... $ 367 $ (592)
========= =========
See accompanying notes to consolidated financial statements.
5
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 have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
omitted pursuant to such rules and regulations. In our opinion, all
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. Fiscal year 2001
financial statements have been restated to reflect the adoption of Staff
Accounting Bulletin ("SAB") 101 as of the beginning of the year. These
financial statements should be read in conjunction with the notes to the
fiscal year 2001 financial statements contained in our Annual Report on
Form 10-K filed with the SEC.
2. The income tax provisions for 2002 and 2001 reflect the projected annual
tax rates of 34.5% and 35.5%, respectively, of pretax earnings. The
favorable income tax rates result from the favorable resolution of a
long-standing tax matter in 2002 and the one-time receipt of enterprise
zone and franchise tax credits in 2001. The final 2002 annual tax rate
cannot be determined until the end of the fiscal year; thus, the actual
rate could differ from our current estimates.
3. 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 in 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, injunctive relief, prejudgment
interest, costs and attorneys' fees. We believe our employee
classifications are appropriate and are vigorously defending this action.
The parties began mediation in late July. A motion for class certification
is scheduled to be heard on September 13, 2002 and a trial date has been
set for January 17, 2003.
The Company is also subject to normal and routine litigation. In the
opinion of management, based in part on the advice of legal counsel, the
ultimate liability from all pending legal proceedings, asserted legal
claims and known potential legal claims should not materially affect our
operating results and liquidity.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 fiscal years 2002 and 2001
refer to the 12-week ("quarter") and 40-week ("year-to-date") periods ended July
7, 2002 and July 8, 2001, respectively, unless otherwise indicated.
Company-operated restaurant sales increased $21.1 million and $95.8
million, respectively, to $428.2 million and $1,398.8 million in 2002 from
$407.1 million and $1,303.0 million in 2001, primarily resulting from an
increase in the number of Company-operated restaurants. Company-operated
restaurants increased 7.0% to 1,493 at the end of the quarter from 1,395 a year
ago. Same store sales at Company-operated restaurants, those open more than one
fiscal year, decreased by 1.5% in the quarter and 0.3% year-to-date compared
with the same periods in 2001. Sales have remained soft due to increased
competitive activity and economic softness in certain key markets.
Distribution and other sales, representing distribution sales and sales
from our fuel and convenience stores, increased $2.7 million and $6.6 million,
respectively, to $19.1 million and $57.2 million in 2002 from $16.4 million and
$50.6 million in 2001. This increase is primarily due to an increase in the
number of fuel and convenience stores to 12 at the end of the quarter
compared with eight a year ago.
Franchise rents and royalties increased $.5 million and $1.9 million,
respectively, to $9.3 million and $34.2 million in 2002, primarily reflecting an
increase in the number of franchised restaurants to 347 at the end of the
quarter from 326 a year ago. As a percentage of franchise restaurant sales,
franchise rents and royalties grew to 9.5% in the quarter from 9.3% in 2001 and
to 10.7% year-to-date from 10.3% in 2001, primarily due to increases in
percentage rents at certain franchised restaurants. In accordance with SAB 101,
franchise percentage rents, which are contingent upon certain annual calendar
year sales levels, are not recognized until the period in which the contingency
is met. Accordingly, most of our franchise percentage rents are recognized in
our first and fourth fiscal quarters.
Other revenues, representing franchise gains and fees and interest
income from investments and notes receivable, increased to $4.7 million and
$12.9 million, respectively, in 2002 from $2.3 million and $5.3 million in 2001,
primarily due to a planned modest increase in franchising activities. In the
quarter, we converted five Company-operated restaurants to franchisees compared
with two a year ago. Year-to-date, we converted 14 Company-operated restaurants
compared with six a year ago. This represents approximately 1% of our restaurant
base.
Restaurant costs of sales and operating costs increased as a result of
sales growth due to the addition of Company-operated restaurants. Restaurant
costs of sales, which include food and packaging costs, increased to $128.4
million and $426.1 million, respectively, in 2002 from $124.5 million and $400.8
million in 2001. As a percentage of restaurant sales, costs of sales improved to
30.0% and 30.5%, respectively, in 2002 from 30.6% and 30.8% in 2001, as the
impact of higher ingredient costs in 2002 was offset by increased selling prices
and certain profit improvement projects.
Restaurant operating costs grew to $216.8 million and $713.1 million,
respectively, in 2002 from $205.0 million and $653.7 million in 2001. As a
percent of restaurant sales, operating costs increased to 50.6% and 51.0%,
respectively, in 2002 from 50.4% and 50.2% in 2001. In the quarter, this
increase reflects an increase in occupancy costs on newer stores whose sales
have not yet matured, and insurance costs, offset in part by a decline in
utility, supplies and maintenance costs. Year-to-date the increase is due to
higher occupancy, utility and insurance costs, offset in part by an improvement
in maintenance costs.
7
Costs of distribution and other sales increased to $18.5 million and
$55.6 million, respectively, in 2002 from $15.9 million and $49.0 million in
2001, primarily reflecting an increase in sales and the number of fuel and
convenience stores. As a percent of distribution and other sales, these costs
increased to 97.1% and 97.3%, respectively, in 2002 from 96.7% and 97.0% a year
ago primarily due to reduced margins in our distribution business reflecting
softer sales at Jack in the Box restaurants.
Franchised restaurant costs, which consist principally of rents and
depreciation on properties leased to franchisees, as well as other miscellaneous
costs, increased to $5.2 million and $17.0, respectively, in 2002 from $4.6
million and $15.5 million in 2001, primarily reflecting an increase in the
number of franchised restaurants.
Selling, general and administrative costs increased to $51.3 million
and $167.0 million, respectively, in 2002 from $48.1 million and $154.3 million
in 2001, primarily due to the increase in the number of restaurants. As a
percentage of revenues, these costs were 11.1% for the quarter and year-to-date
in both years. In 2002, the increased leverage resulting from higher revenues
helped to offset the increase in pension, insurance and legal costs.
Interest expense declined $.6 million and $1.9 million, respectively,
to $5.1 million and $17.6 million in 2002 from $5.7 million and $19.5 million in
2001, reflecting lower average levels of debt and a decline in our borrowing
rate compared to a year ago.
The income tax provisions for 2002 and 2001 reflect the estimated
annual tax rates of 34.5% and 35.5%, respectively, on pretax earnings. The
favorable income tax rates result from the favorable resolution of a
long-standing tax matter in 2002 and the one-time receipt of enterprise zone and
franchise tax credits in 2001. The 2002 annual income tax rate cannot be
determined until the end of the fiscal year; thus, the actual rate could differ
from our current estimates.
In the fourth quarter of fiscal 2001, we adopted SAB 101 which requires
that percentage rents, which are contingent upon certain annual sales levels, be
recognized in the period in which the contingency is met instead of being
accrued for ratably. As a result of adopting SAB 101, we recorded a one-time
after tax cumulative effect of this accounting change of $1.9 million related to
the deferral of franchise percentage rents not yet earned as of the beginning of
fiscal year 2001.
Net earnings in the quarter improved 15.0% to $24.2 million, or $.60
per diluted share, in 2002 from $21.0 million, or $.53 per diluted share, in
2001. Year-to-date net earnings grew 8.9% to $69.1 million, or $1.72 per diluted
share, in 2002 from $63.4 million, or $1.60 per diluted share, in 2001 before
the cumulative effect of the accounting change.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents increased slightly to $6.7 million at July 7,
2002 from $6.3 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, to reduce
borrowings under the revolving credit agreement, or to repurchase shares of the
Company's common stock in the open market.
Our working capital deficit increased $47.2 million to $149.4 million
at July 7, 2002 from $102.2 million at September 30, 2001. This increase is
primarily due to the reclassifications to current maturities of our revolving
bank loans which expire in March 2003 and $35 million of financing lease
obligations due in January 2003, offset in part by the reclassification of $16.0
million in sinking fund payments from other assets to other current assets. The
financing lease obligations will be funded from the sinking fund, operations and
our existing credit facility. 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 sites and
refurbishment of existing sites, which are reflected as long-term assets and not
as part of working capital. At the end of the quarter, our current ratio was .5
to 1 compared with .6 to 1 at September 30, 2001, decreasing slightly due to the
reclassifications discussed above.
8
Our revolving bank credit agreement provides for a credit facility of
up to $175 million, including letters of credit of up to $25 million. At July 7,
2002, we had borrowings of $35 million and approximately $123 million of
availability under the agreement. We fully expect to secure new financing before
the expiration date of the current credit facility in March 2003 and are
currently evaluating various financing options. Total debt outstanding decreased
to $251.0 million at July 7, 2002 from $282.0 million at the beginning of the
fiscal year, due primarily to paydowns on the revolving credit facility.
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, as well as requirements
to maintain certain financial ratios, cash flows and net worth. As of July 7,
2002, we believe we are in compliance with these covenants. 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 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 short-term and
long-term sources of liquidity are expected to be cash flows from operations,
the revolving bank credit facility and the sale and leaseback of restaurants.
Additional potential sources of liquidity include various financing alternatives
and the conversion of Company-operated restaurants to franchises. 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.
On May 10, 2002, our Board of Directors authorized the repurchase of
our outstanding common stock in the open market for an amount not to exceed $30
million and is in addition to our $10 million common stock repurchase authorized
December 3, 1999. Through July 7, 2002, we had acquired 940,600 shares in
connection with these authorizations at an aggregate cost of $25.7 million.
On January 22, 2002, the SEC issued an interpretive release on certain
disclosures concerning liquidity and capital resources, including off-balance
sheet arrangements, trading activities involving non-exchange traded contracts
and effects of transactions with related parties. We do not have material
off-balance sheet arrangements, other than our operating leases, or material
related party transactions. We do not enter into commodity contracts for which
market price quotations are not available. Furthermore, we are not aware of any
other factors, which are reasonably likely to affect our liquidity, other than
those disclosed as risk factors in our Form 10-K filed with the SEC. While we
note that certain operating expenses, including labor-related and occupancy
costs, are continuing to rise and economic conditions have remained soft, we
believe that there are sufficient funds available from operations, our existing
credit facility, the sale and leaseback of restaurant properties and the
conversion of restaurants to franchises to accommodate the Company's future
growth.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
- ----------------------------------------------------------
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the federal securities law. These foward-looking
statements are principally contained in the sections captioned, Notes to
Unaudited Consolidated Financial Statements and Liquidity and Capital Resources.
Statements regarding our continuing investment in new restaurants and
refurbishment of existing facilities, expectations regarding our effective tax
rate, expectations regarding any liability that may result from claims and
actions filed against us, our future financial performance, our sources of
liquidity, uses of cash and sufficiency of our cash flows are foward-looking
statements. Forward-looking statements are generally identifiable by the use of
the words "believe," "expect," "intend," "anticipate," "estimate," "assume,"
"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 for financial reporting
purposes. In fiscal 2003, our effective tax rate is expected to increase.
9
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. The deregulation of utilities and the
possibility of power shortages or interruptions may adversely affect the
profitability of our business in the areas in which they occur. Other factors
that can cause actual results to differ materially from expectations include:
the unpredictable nature of litigation, including strategies and settlement
costs; the effectiveness of the Company's new product development programs and
marketing programs compared with those of competitors; changes in accounting
standards, policies and practices; new or changed legislation and governmental
regulation; potential variances between estimated and actual liabilities; the
availability of financing for the Company and its franchisees; national or local
political or economic conditions; and the possibility of unforeseen events
affecting the industry in general.
Additional risk factors associated with our business are detailed in
our most recent Annual Report on Form 10-K filed with the SEC.
DISCUSSION OF CRITICAL ACCOUNTING POLICIES
- ------------------------------------------
In accordance with the Securities and Exchange Commission's release No.
33-8040, Cautionary Advice Regarding Disclosure About Critical Accounting
Policies, issued on December 12, 2001, we identified the following as the
Company's most critical accounting policies, which are those that are most
important to the portrayal of the Company's financial condition and results and
require management's most subjective and complex judgments. Information
regarding the Company's other accounting policies is included in the Company's
Annual Report on Form 10-K for the year ended September 30, 2001.
Pension Benefits - The Company sponsors pension and other retirement
plans in various forms covering substantially all employees who meet certain
eligibility requirements. Several statistical and other factors which attempt to
anticipate future events are used in calculating the expense and liability
related to the plans, including assumptions about the discount rate, expected
return on plan assets and the rate of increase in compensation levels, as
determined by the Company, within certain guidelines. In addition, our outside
actuarial consultants also use subjective factors such as turnover, retirement
and mortality rates to estimate the Company's benefit obligations. The actuarial
assumptions used my differ materially from actual results due to changing market
and economic conditions, higher or lower turnover and retirement rates or longer
or shorter life spans of participants. These differences may impact the amount
of pension expense recorded by the Company. Due to decreases in interest rates
and declines in the income of assets in the plans, it is expected that the
pension expense for fiscal 2002 and 2003 will be higher than in recent years.
Long-lived Assets - Long-lived assets, including fixed assets and
intangibles, are reviewed for impairment when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. The estimate of cash flows is
based upon, among other things, certain assumptions about expected future
operating performance. Our estimates of undiscounted cash flows may differ from
actual cash flows due to, among other things, economic conditions or changes in
operating performance. If the sum of the undiscounted cash flows is less than
the carrying value, we recognize an impairment loss, measured as the amount by
which the carrying value exceeds the fair value of the asset. During fiscal year
2002, no impairment indicators occurred that would, in our-opinion, indicate the
need for a material reduction in the carrying value of any of the Company's
assets.
Estimations - In preparing the consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America, management is required to make certain assumptions and estimates that
affect reported amounts of assets, liabilities, revenues, expenses and the
disclosure of contingencies, such as legal proceedings and claims. In making
these assumptions and estimates, management may from time to time seek advice
from and consider information provided by actuaries and other experts in a
particular area. Actual amounts could differ from these estimates.
10
NEW ACCOUNTING STANDARDS
- ------------------------
In July, 2001, the Financial Accounting Standards Board ("FASB")
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 to be 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.
In accordance with the provisions of SFAS 141 and 142, our trading area
rights, which represent the amounts allocated under purchase accounting to
reflect the value of operating existing restaurants within each specific trading
area, will be reclassified as goodwill and will no longer be amortized.
As of July 7, 2002, the carrying values of our goodwill and trading area rights
were $2.0 million and $66.0 million, respectively. We have recorded goodwill and
trading area rights amortization expense of $3.3 million year-to-date in 2002.
We intend to adopt the provisions of SFAS 142 in the first quarter of fiscal
year 2003.
In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. This new standard requires entities to recognize the fair value of
a liability for an asset retirement obligation in the period which it is
incurred if a reasonable estimate of fair value can be made. When the liability
is initially incurred, the cost is capitalized as part of the carrying amount of
the long-lived asset. Over time, the liability is accreted to its present value
each period through charges to operating expense, and the capitalized cost is
depreciated over the life of the asset. Upon settlement of the liability, an
entity either settles the obligation for its recorded amount or incurs a gain or
loss upon settlement. We intend to adopt the provisions of SFAS 143 in the first
quarter of fiscal year 2003 and do not expect that the effect of such adoption
will have a material impact on our results of operations or financial position.
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This new standard supersedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of and the accounting and reporting provisions of APB Opinion 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. The
primary objectives of this Statement were to develop one accounting model for
long-lived assets to be disposed of by sale and to address the significant
implementation issues related to SFAS 121. SFAS 144 requires that all long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell. We intend to adopt the provisions of SFAS 144 in the first quarter of
fiscal year 2003 and do not expect that the effect of such adoption will have a
material impact on our results of operations or financial position.
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements
4, 44, and 64, Amendment of FASB Statement 13, and Technical Corrections. SFAS
145 rescinds SFAS 4, Reporting Gains and Losses from Extinguishment of Debt, and
an amendment of that Statement, and SFAS 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. SFAS 145 also rescinds SFAS 44, Accounting
for Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. SFAS 145 also amends other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. We intend to adopt the provisions of
SFAS 145 in the first quarter of fiscal year 2003 and do not expect that the
effect of such adoption will have a material impact on our results of operations
or financial position.
In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement requires that costs associated
with exit or disposal activities be recognized when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Under previous
guidance, certain exit costs were accrued upon management's commitment to an
exit or disposal plan. This Statement is effective for all exit or disposal
activities initiated after December 31, 2002.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 7, 2002, our applicable
margin was set at .625%. At July 7, 2002, a hypothetical one percentage point
increase in short-term interest rates would result in a reduction of $.34
million in annual pretax earnings.
Changes in interest rates also impact our pension expense. An assumed
discount rate is used in determining the present value of future cash outflows
currently expected to be required to satisfy the pension benefit obligations
when due. A hypothetical 25 basis point reduction in the assumed discount
rate from 7.75% to 7.50% would result in an estimated increase of $.7 million in
our future pension expense.
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. As of July 7, 2002 we
did not have any open commodity futures or option contracts.
At July 7, 2002, we had no other material financial instruments or
long-term liabilities subject to significant market exposure.
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PART II. OTHER INFORMATION
There is no information required to be reported for any items under Part II,
except as follows:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
ITEM 6(a) Exhibits.
---------
Number Description
------ -----------
3.1 Restated Certificate of Incorporation, as amended(8)
3.2 Restated Bylaws(8)
4.1 Indenture for the 8 3/8% Senior Subordinated Notes due 2008(5)
(Instruments with respect to the registrant's long-term
debt not in excess of 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis
have been omitted. The registrant agrees to furnish
supplementally a copy of any such instrument to the
Commission upon request.)
10.1.1 Revolving Credit Agreement dated as of April 1, 1998 by and
between Foodmaker, Inc. and the Banks named therein(5)
10.1.2 First Amendment dated as of August 24, 1998 to the Revolving
Credit Agreement dated as of April 1, 1998 by and between
Foodmaker, Inc. and the Banks named therein(6)
10.1.3 Second Amendment dated as of February 27, 1999 to the
Revolving Credit Agreement dated as of April 1, 1998 by and
between Foodmaker, Inc. and the Banks named therein(7)
10.1.4 Third Amendment dated as of September 17, 1999 to the
Revolving Credit Agreement dated as of April 1, 1998 by and
between Foodmaker, Inc. and the Banks named therein(8)
10.1.5 Fourth Amendment dated as of December 6, 1999 to the Revolving
Credit Agreement dated as of April 1, 1998 by and between
Foodmaker, Inc. and the Banks named therein(9)
10.1.6 Fifth Amendment dated as of May 3, 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(10)
10.1.7 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(11)
10.2 Purchase Agreements dated as of January 22, 1987 between
Foodmaker, Inc. and FFCA/IIP 1985 Property Company and FFCA/IIP
1986 Property Company(1)
10.3 Land Purchase Agreements dated as of February 18, 1987 by and
between Foodmaker, Inc. and FFCA/IPI 1984 Property Company and
FFCA/IPI 1985 Property Company and Letter Agreement relating
thereto(1)
10.4.1 Amended and Restated 1992 Employee Stock Incentive Plan(3)
10.4.2 Jack in the Box Inc. 2002 Stock Incentive Plan(14)
10.5 Capital Accumulation Plan for Executives(13)
10.6 Supplemental Executive Retirement Plan(13)
10.7 Performance Bonus Plan(12)
10.8 Deferred Compensation Plan for Non-Management Directors(2)
10.9 Amended and Restated Non-Employee Director Stock Option Plan(8)
10.10 Form of Compensation and Benefits Assurance Agreement for
Executives(4)
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
- --------------------------
(1) Previously filed and incorporated herein by reference from registrant's
Registration Statement on Form S-1 (No.33-10763) filed February 24, 1987.
(2) Previously filed and incorporated herein by reference from registrant's
Definitive Proxy Statement dated January 17, 1995 for the Annual Meeting of
Stockholders on February 17, 1995.
(3) Previously filed and incorporated herein by reference from registrant's
Registration Statement on Form S-8(No. 333-26781) filed May 9, 1997.
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(4) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 28, 1997.
(5) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended April 12, 1998.
(6) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 27, 1998.
(7) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended April 11, 1999.
(8) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended October 3, 1999.
(9) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended January 23, 2000.
(10) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended July 9, 2000.
(11) Previously filed and incorporated herein by reference from registrant's
Quarterly Report on Form 10-Q for the quarter ended January 21, 2001.
(12) Previously filed and incorporated herein by reference from registrant's
Definitive Proxy Statement dated January 19, 2001 for the Annual Meeting of
Stockholders on February 23, 2001.
(13) Previously filed and incorporated herein by reference from registrant's
Annual Report on Form 10-K for the fiscal year ended September 30, 2001.
(14) Previously filed and incorporated herein by reference from the registrant's
Definitive Proxy Statement dated January 18, 2002 for the Annual Meeting of
Stockholders' on February 22, 2002.
ITEM 6(b) We did not file any reports on Form 8-K with the Securities
and Exchange Commission during the third quarter ended July 7,
2002.
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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: JOHN F. HOFFNER
----------------------------
John F. Hoffner
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
(Duly Authorized Signatory)
Date: August 12, 2002
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